<PAGE> 1
As filed with the Securities and Exchange Commission on
May 28, 1998
Registration No. 333-41175
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
(Check appropriate box or boxes)
--------------------
Nationwide Investing Foundation III
(Exact Name of Registrant as Specified in Charter)
Three Nationwide Plaza, Columbus, Ohio 43215
(Address of Principal Executive Offices)
(800) 848-0920
(Area Code and Telephone Number)
--------------------
David E. Simaitis, Esq.
One Nationwide Plaza, Columbus, Ohio 43215
(Name and address of Agent for Service)
Copy to:
Charles H. Hire, Esq., Baker & Hostetler LLP
65 East State Street, Columbus, Ohio 43215
Approximate Date of Proposed Public Offering:
Immediately upon effectiveness
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Shares of beneficial interest, without par value.
An indefinite amount of the Registrant's securities has been registered
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. In reliance upon such Rule, no filing fee is being paid at
this time.
<PAGE> 2
The Cross Reference Sheets included as part of Pre-Effective Amendment No.
1 to Nationwide Investing Foundation III's Registration Statement on Form
N-14(No. 333-41175) filed on January 7, 1998 are hereby incorporated herein by
reference.
The combined Prospectus/Proxy Statements, related proxy cards and Statement
of Additional Information, each dated as of January 8, 1998, relating to
Nationwide Investing Foundation III's Registration Statement on Form N-14 (No.
333-41175), as filed with the Securities and Exchange Commission on January 20,
1998 pursuant to Rule 497(c) of the Securities Act of 1933, are hereby
incorporated herein by reference.
<PAGE> 3
Registration Statement
of
NATIONWIDE INVESTING FOUNDATION III
on
Form N-14
PART C. OTHER INFORMATION
Item 15. INDEMNIFICATION
The information required by this item is incorporated by
reference to the Item 27 of Registrant's Registration
Statement on Form N-1A (File No. 333-40455) filed on November
18, 1997, under the Securities Act of 1933 and the Investment
Company Act of 1940 (File No. 811-08495).
Item 16. Exhibits
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(1) Declaration of Trust is incorporated by reference
to Exhibit (1) to Registrant's Registration
Statement on Form N-1A (File No. 333-40455) filed
on November 18, 1997.
(2) By-Laws are incorporated by reference to Exhibit (2)
to Registrant's Registration Statement on Form N-1A
(File No. 333-40455) filed on November 18,
1997.
(3) Not Applicable.
(4) (a) Agreement and Plan of Reorganization dated as
of November 24, 1997, between Registrant and
Nationwide Investing Foundation is
incorporated by reference to Exhibit (4)(a) to
Registrant's Registration Statement on Form N-
14 (File No. 333-41175) filed on November 26,
1997.
(b) Agreement and Plan of Reorganization dated
as of November 24, 1997, between Registrant
and Nationwide Investing Foundation II is
incorporated by reference to Exhibit (4)(b)
to Registrant's Registration Statement on
Form N-14 (File No. 333-41175) filed on
November 26, 1997.
(c) Agreement and Plan of Reorganization dated
as of November 24, 1997, as amended as of
December 30, 1997, between Registrant and
Financial Horizons Investment Trust is
incorporated by reference to Exhibit(4)(c)
to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form
N-14 (File No. 333-41175) filed on January
7, 1998.
(5) Certificates for shares are not issued. Articles V,
VI, VII and VIII of the Declaration of Trust,
incorporated by reference to Exhibit (1) hereto,
define rights of holders of shares.
</TABLE>
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<TABLE>
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(6) Proposed Investment Advisory Agreement between
Registrant and Nationwide Advisory Services, Inc. is
incorporated by reference to Exhibit (5) to
Registrant's Registration Statement on Form N-1A
(File No. 333-40455) filed on November 18, 1997.
(7) Proposed Underwriting Agreement between Registrant
and Nationwide Advisory Services, Inc. is
incorporated by reference to Exhibit (6) to
Registrant's Registration Statement on Form N-1A
(File No. 333-40455) filed on November 18, 1997.
(8) Not Applicable.
(9) Proposed Custody Agreement between Registrant and The
Fifth Third Bank is incorporated by reference to
Exhibit (8) to Registrant's Registration Statement on
Form N-1A (File No. 333-40455) filed on November 18,
1997.
(10) Proposed Distribution Plan is incorporated by
reference to Exhibit (15) to Registrant's
Registration Statement on Form N-1A (File No. 333-
44505) filed on November 18, 1997.
(11) Opinion and Consent of Druen, Dietrich, Reynolds &
Koogler as to the shares offered hereby is
incorporated by reference to Exhibit (11) to
Registrant's Registration Statement on Form N-14
(File No. 333-41175) filed on November 26, 1997.
(12) Opinions and Consents of Baker & Hostetler LLP as to
Tax Matters.
(13) (a) Proposed Fund Administration Agreement
between Registrant and Nationwide Advisory
Services, Inc. is incorporated by reference
to Exhibit (9)(b) to Registrant's
Registration Statement on Form N-1A (File
No. 333-40455) filed on November 18, 1997.
(b) Proposed Transfer and Dividend Disbursing
Agent Agreement between Registrant and
Nationwide Investors Services, Inc. is
incorporated by reference to Exhibit (9)(b)
to Registrant's Registration Statement on
Form N- 1A (File No. 333-44505) filed on
November 18, 1997.
(14) (a) Consent of KPMG Peat Marwick LLP is
incorporated by reference to Exhibit (14)(a)
of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form
N-14 (File No. 333-41175) filed on January
7, 1998.
(b) Consent of Druen, Dietrich, Reynolds &
Koogler is incorporated by reference to
Exhibit (14)(b) of Pre-Effective Amendment
No. 1 to Registrant's Registration Statement
on Form N-14 (File No. 333-41175) filed on
January 7, 1998.
(c) Consent of Baker & Hostetler LLP is
incorporated by reference to Exhibit (14)(c)
of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form
N-14 (File No. 333-41175) filed on January
7, 1998.
</TABLE>
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<TABLE>
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(15) Not Applicable.
(16) Power of Attorney of Robert M. Duncan is incorporated
by reference to Exhibit (16) of Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-14 (File No. 333-41175) filed on
January 7, 1998. Powers of Attorney of Sue A.
Doody, Dimon R. McFerson, Nancy C. Thomas, Harold W.
Weihl, Douglas F. Kridler, John C. Bryant, C. Brent
DeVore, Charles L. Fuellgraf, Jr., David C. Wetmore
and Thomas J. Kerr, IV are incorporated by reference
to Exhibit (16) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175) filed on
November 26, 1997.
(17) (a) Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 for the
Registrant dated November 18, 1997 is
incorporated by reference to Exhibit (17)(a)
to Registrant's Registration Statement on Form
N-14 (File No. 333-41175) filed on November
26, 1997.
(b) Current form of Prospectus dated December __,
1997, and Statement of Additional Information
dated December __, 1997, for Nationwide
Investing Foundation III, with respect to
Nationwide Mid-Cap Growth Fund, Nationwide
Growth Fund, Nationwide Fund, Nationwide Bond
Fund, Nationwide Tax-Free Income Fund,
Nationwide Long-Term U.S. Government Bond
Fund, Nationwide Intermediate U.S. Government
Bond Fund and Nationwide Money Market Fund in
the form filed with the Securities and
Exchange Commission on November 18, 1997, as
part of Registrant's Registration Statement on
Form N-1A are incorporated by reference to
Exhibit (17)(b) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175)
filed on November 26, 1997.
(c) Prospectus dated February 28, 1997 and
Statement of Additional Information dated
February 28, 1997, for each of Nationwide
Investing Foundation and Nationwide Investing
Foundation II with respect to Nationwide
Growth Fund, Nationwide Fund, Nationwide Bond
Fund, Nationwide Tax-Free Income Fund,
Nationwide U.S. Government Income Fund and
Nationwide Money Market Fund are incorporated
by reference to Exhibit (17)(c) to
Registrant's Registration Statement on Form N-
14 (File No. 333-41175) filed on November 26,
1997.
(d) Prospectus dated February 28, 1997, as
supplemented March 17, 1997 and September 5,
1997, and Statement of Additional
Information
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
dated February 28, 1997, for Financial
Horizons Investment Trust with respect to
Growth Fund, Cash Reserve Fund, Government
Bond Fund and Municipal Bond Fund are
incorporated by reference to Exhibit (17)(c)
to Registrant's Registration Statement on
Form N-14 (File No. 333-41175) filed on
November 26, 1997.
(e) Financial Data Schedules for each of
Nationwide Investing Foundation with respect
to Nationwide Growth Fund, Nationwide Fund,
Nationwide Bond Fund and Nationwide Money
Market Fund, Nationwide Investing Foundation
II with respect to Nationwide Tax-Free Income
Fund and Nationwide U.S. Government Income
Fund and Financial Horizons Investment Trust
with respect to Growth Fund, Cash Reserve
Fund, Government Bond Fund and Municipal Bond
Fund.
(f) Supplements dated December 8, 1997, to the
Prospectuses of each of Nationwide Investing
Foundation, Nationwide Investing Foundation
II and Financial Horizons Investment Trust,
each dated as of February 28, 1997, are
incorporated by reference to Exhibit
(17)(f) of Pre-Effective Amendment
No. 1 to Registrant's Registration Statement
on Form N-14 (File No. 333-41175) filed on
January 7, 1998.
(g) Annual Reports to Shareholders as of October
31, 1997 of each of Nationwide Investing
Foundation, Nationwide Investing Foundation
II and Financial Horizons Investment Trust
are incorporated by reference to Exhibit
(17)(g) of Pre-Effective Amendment
No. 1 to Registrant's Registration Statement
on Form N-14 (File No. 333-41175) filed on
January 7, 1998.
(h) Supplements dated December 23, 1997, to be
Prospectuses of Nationwide Investing
Foundation and Nationwide Investing
Foundation II, each dated as of February 28,
1997 are incorporated by reference to Exhibit
(17)(h) of Pre-Effective Amendment
No. 1 to Registrant's Registration Statement
on Form N-14 (File No. 333-41175) filed on
January 7, 1998.
</TABLE>
Item 17. UNDERTAKINGS
(1) Registrant agrees that prior to any public
reoffering of the securities registered through the
use of a prospectus which is a part of this
registration statement by any person or party who
is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information
called for by the applicable registration form for
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a
part of an amendment to the registration statement
and will not be used until the amendment is
effective, and that, in determining any liability
under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement
for the securities offered therein, and the
offering of the securities at that time shall be
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<PAGE> 7
deemed to be the initial bona fide offering of
them.
(3) Registrant hereby undertakes to file by
post-effective amendment the opinions of Baker &
Hostetler LLP supporting the tax consequences of the
proposed reorganization described herein within a
reasonable time after receipt of such opinions.
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<PAGE> 8
SIGNATURES
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As required by the Securities Act of 1933, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of Columbus and State of Ohio on the 26th
day of May, 1998. Registrant hereby certifies that this Post-Effective Amendment
Registration Statement meets all of the requirements for effectiveness pursuant
to paragraph (b) of Rule 485 under the Securities Act of 1933.
NATIONWIDE INVESTING FOUNDATION III
By /s/ James F. Laird, Jr.
-------------------------------------
James F. Laird, Jr.
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 date indicated.
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Signature Title \Date
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<S> <C> <C>
/s/*Dimon R. McFerson Chairman (Principal May 26, 1998
- ----------------------------
Dimon R. McFerson Executive Officer)
and Trustee
/s/*John C. Bryant Trustee May 26, 1998
- ----------------------------
John C. Bryant
/s/*C. Brent Devore Trustee May 26, 1998
- ----------------------------
C. Brent Devore
/s/*Sue A. Doody Trustee May 26, 1998
- ----------------------------
Sue A. Doody
/s/*Robert M. Duncan Trustee May 26, 1998
- ----------------------------
Robert M. Duncan
/s/*Charles L. Fuellgraf, Jr. Trustee May 26, 1998
- ----------------------------
Charles L. Fuellgraf, Jr.
/s/*Thomas J. Kerr, IV Trustee May 26, 1998
- ----------------------------
Thomas J. Kerr, IV
/s/*Douglas F. Kridler Trustee May 26, 1998
- ----------------------------
Douglas F. Kridler
/s/*Nancy C. Thomas Trustee May 26, 1998
- ----------------------------
Nancy C. Thomas
/s/*Harold W. Weihl Trustee May 26, 1998
- ----------------------------
Harold W. Weihl
/s/*David C. Wetmore Trustee May 26, 1998
- ----------------------------
David C. Wetmore
/s/ James F. Laird, Jr. Treasurer (Principal May 26, 1998
- ---------------------------
James F. Laird, Jr. Financial and Accounting
Officer)
*By/s/James F. Laird, Jr. May 26, 1998
------------------------
James F. Laird, Jr.
Attorney-In-Fact
</TABLE>
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<PAGE> 9
EXHIBIT INDEX
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<CAPTION>
Exhibit No. Description Page
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<S> <C> <C> <C>
(1) Declaration of Trust was filed as Exhibit (1)
to Registrant's Registration Statement on Form
N-1A (File No. 333-40455) on November 18,
1997.
(2) By-Laws were filed as Exhibit (2) to
Registrant's Registration Statement on Form N-
1A (File No. 333-40455) on November 18, 1997.
(4)(a) Agreement and Plan of Reorganization dated as
of November 24, 1997, between Registrant and
Nationwide Investing Foundation was filed as
Exhibit (4)(a) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175).
(b) Agreement and Plan of Reorganization dated as of
November 24, 1997, between Registrant and
Nationwide Investing Foundation II was filed as
Exhibit (4)(a) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175).
(c) Agreement and Plan of Reorganization dated as of
November 24, 1997, as amended as of December 30,
1997, between Registrant and Financial Horizons
Investment Trust was filed as Exhibit (4)(c) to
Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-14 (File No.
333-41175) filed on January 7, 1998.
(6) Proposed Investment Advisory Agreement between
Registrant and Nationwide Advisory Services,
Inc. was filed as Exhibit (5) to Registrant's
Registration Statement on Form N-1A (File No.
333-40455) filed on November 18, 1997.
(7) Proposed Underwriting Agreement between
Registrant and Nationwide Advisory Services,
Inc. was filed as Exhibit (6) to Registrant's
Registration Statement on Form N-1A (File No.
333-40455) filed on November 18, 1997.
(9) Proposed Custody Agreement between Registrant
and The Fifth Third Bank was filed as Exhibit
(8) to Registrant's Registration Statement on
Form N-1A (File No. 333-40455) filed on
November 18, 1997.
(10) Proposed Distribution Plan was filed as
Exhibit (15) to Registrant's Registration
Statement on Form N-1A (File No. 333-44505)
filed on November 18, 1997.
</TABLE>
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<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- -------------------------------------------------- -----
<S> <C> <C> <C>
(11) Opinion and Consent of Druen, Dietrich,
Reynolds & Koogler as to the shares offered
hereby was filed as Exhibit (11) to
Registrant's Registration Statement on Form N-
14 (File No. 333-41175).
(12) Opinions and Consents of Baker & Hostetler LLP as
to Tax Matters.
(13)(a) Proposed Fund Administration Agreement between
Registrant and Nationwide Advisory Services,
Inc. was filed as Exhibit (9)(b) to
Registrant's Registration Statement on Form N-
1A (File No. 333-40455) filed on November 18,
1997.
(b) Proposed Transfer and Dividend Disbursing Agent
Agreement between Registrant and Nationwide
Investors Services, Inc. was filed as Exhibit
(9)(b) to Registrant's Registration Statement
on Form N-1A (File No. 333-44505) filed on
November 18, 1997.
(14)(a) Consent of KPMG Peat Marwick LLP was filed as
Exhibit (14)(a) of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-14
(File No. 333-41175) filed on January 7, 1998.
(b) Consent of Druen, Dietrich, Reynolds & Koogler was
filed as Exhibit (14)(b) of Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-14 (File No. 333-41175) filed
on January 7, 1998.
(c) Consent of Baker & Hostetler LLP was filed as
Exhibit (14)(c) of Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form
N-14 (File No. 333-41175) filed on January 7,
1998.
(16) Power of Attorney of Robert M. Duncan was filed as
Exhibit (16) of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-14
(File No. 333-41175) filed on January 7, 1998.
Powers of Attorney of Sue A. Doody, Dimon R.
McFerson, Nancy C. Thomas, Harold W. Weihl,
Douglas F. Kridler, John C. Bryant, C. Brent
DeVore, Charles L. Fuellgraf, Jr., David C.
Wetmore and Thomas J. Kerr, IV were filed as
Exhibit (16) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175).
(17)(a) Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 for the
Registrant dated November 18, 1997 was filed
as Exhibit (17)(a) to Registrant's
Registration Statement on Form N-14 (File No.
333-41175).
(b) Current form of Prospectus dated December __,
1997, and Statement of Additional Information
dated December __, 1997, for Nationwide
Investing Foundation III, with respect to
Nationwide Mid-Cap Growth Fund, Nationwide
Growth Fund, Nationwide Fund, Nationwide Bond
Fund, Nationwide Tax-Free Income Fund,
</TABLE>
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<TABLE>
<CAPTION>
Exhibit No. Description Page
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<S> <C> <C> <C>
Nationwide Long-Term U.S. Government Bond Fund,
Nationwide Intermediate U.S. Government Bond Fund
and Nationwide Money Market Fund in the form filed
with the Securities and Exchange Commission on
November 18, 1997, as part of Registrant's
Registration Statement on Form N-1A were filed as
Exhibit (17)(b) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175).
(c) Prospectus dated February 28, 1997, and
Statement of Additional Information dated
February 28, 1997, for each of Nationwide
Investing Foundation and Nationwide Investing
Foundation II with respect to Nationwide Growth
Fund, Nationwide Fund, Nationwide Bond Fund,
Nationwide Tax-Free Income Fund, Nationwide
U.S. Government Income Fund and Nationwide
Money Market Fund were filed as Exhibit (17)(c)
to Registrant's Registration Statement on Form
N-14 (File No. 333-41175).
(d) Prospectus dated February 28, 1997, as
supplemented March 17, 1997 and September 5,
1997, and Statement of Additional Information
dated February 28, 1997, for Financial Horizons
Investment Trust with respect to Growth Fund,
Cash Reserve Fund, Government Bond Fund and
Municipal Bond Fund were filed as Exhibit
(17)(c) to Registrant's Registration Statement
on Form N-14 (File No. 333-41175).
(e) Financial Data Schedules for each of Nationwide
Investing Foundation with respect to Nationwide
Growth Fund, Nationwide Fund, Nationwide Bond
Fund and Nationwide Money Market Fund,
Nationwide Investing Foundation II with respect
to Nationwide Tax-Free Income Fund and
Nationwide U.S. Government Income Fund and
Financial Horizons Investment Trust with
respect to Growth Fund, Cash Reserve Fund,
Government Bond Fund and Municipal Bond Fund.
(f) Supplements dated December 8, 1997, to the
Prospectuses of each of Nationwide Investing
Foundation, Nationwide Investing Foundation II and
Financial Horizons Investment Trust, each dated as
of February 28, 1997 were filed as Exhibit (15)(f)
of Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-14 (File No.
333-41175) filed on January 7, 1998.
(g) Annual Reports to Shareholders as of October 31,
1997 of each of Nationwide Investing Foundation,
Nationwide Investing Foundation II and Financial
Horizons Investment Trust were filed as Exhibit
(15)(g) of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-14
(File No. 333-41175) filed on January 7, 1998.
(h) Supplements dated December 23, 1997, to the
Prospectuses of Nationwide Investing Foundation
and Nationwide Investing Foundation II, each dated
as of February 28, 1997 were filed as Exhibit
(15)(h) of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-14
(File No. 333-41175) filed on January 7, 1998.
</TABLE>
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<PAGE> 12
As filed with the Securities and Exchange Commission May 28, 1998
1933 Act Registration No. 333-41175
EXHIBITS TO
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
Nationwide Investing Foundation III
(Exact Name of Registrant as Specified in Charter)
Three Nationwide Plaza
Columbus, Ohio 43215
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(800) 848-0920
<PAGE> 1
Exhibit 12
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
One Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Nationwide Investing Foundation
One Nationwide Plaza
Columbus, OH 43215
RE: Nationwide Investing Foundation--Nationwide Money Market
Fund/Nationwide Investing Foundation III--Nationwide
Money Market Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization, dated as of November
24, 1997 (the "Agreement"), by and between Nationwide Investing Foundation, a
Michigan business trust ("NIF"), on behalf of Nationwide Money Market Fund
("Target"), a series of NIF, and Nationwide Investing Foundation III, an Ohio
business trust ("NIF III"), on behalf of the Nationwide Money Market Fund
("Acquiring"), a series of NIF III. Each of Target and Acquiring is a "series"
of a "series company" as described in Rule 18f-2 of the Investment Company Act
of 1940, as amended (the "1940 Act"). The conclusions presented herein are based
on the facts and representations in the Agreement and the Combined
Prospectus/Proxy Statement contained in the Registration Statement No. 333-41175
on Form N-14 (the "Registration Statement") as filed with the Securities and
Exchange Commission ("SEC") (collectively, the "Documents") and the
representations set forth in letters dated May 9, 1998, from Target and
Acquiring (the "Representation Letters") and the applicable tax law as it exists
today. We have assumed with your consent that the facts and representations set
forth in the Documents and the Representation Letters are true and correct.
FACTS
- -----
NIF III is a an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be treated as a separate corporation under Section 851(h) of the Code.
NIF is a Michigan business trust registered under the 1940 Act
as an open-end investment company of the management type and currently has
issued and outstanding shares of beneficial interest, par value $1.00 per share,
of four (4) series, one of which is Target. The shares of Target are redeemable
at net asset value at the option of the shareholders of Target. Target has
elected to qualify as a regulated
<PAGE> 2
investment company under Part I of Subchapter M of the Code and is treated as a
separate corporation under Section 851(h) of the Code.
Acquiring seeks to achieve a high level of current income
consistent with the preservation of capital. Target seeks to achieve a high
level of current income consistent with the preservation of capital. Each of
Acquiring and Target seeks to achieve its objective through investment in a
diversified portfolio of money market instruments with remaining maturities of
397 days or less and a dollar weighted average maturity of 90 days or less.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for voting
shares of beneficial interest, without any class designation, of Acquiring (the
"Acquiring Shares"). Target will immediately thereafter terminate its existence
and distribute the Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m. Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target. There are no dissenters or
appraisal rights.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce the ownership by the shareholders of
Target of Acquiring Shares to a number of Acquiring Shares having a
value, as of the Exchange Date, of less than 50 percent of the value of
all of the formerly outstanding shares of Target as of the same date.
For purposes of this representation, shares of
<PAGE> 3
Target and Acquiring held by shareholders of Target and sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends, including distributions of investment
company taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction and after the
transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction, other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(11) Acquiring will meet, and Target meets, the requirements of a
"regulated investment company" as defined in Section 851 of the Code.
(12) Target 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.
<PAGE> 4
(13) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and after the exchange, Acquiring will elect to be taxed as a regulated
investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation, in exchange solely for all or part of its voting stock, of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part of
the plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
<PAGE> 5
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or more
of its shareholders (including persons who were shareholders immediately before
the transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred, but only if, in pursuance of the plan, stock
or securities of the corporation to which the assets are transferred are
distributed in a transaction which qualifies under Sections 354, 355 or 356. For
this purpose, "control" is defined in Sections 368(a)(2)(H) and 304(c). It is
represented that Target will immediately after the Exchange Date terminate its
existence and will distribute in complete liquidation the Acquiring Shares it
receives in the exchange to the shareholders of Target and shareholders of
Target will be in control of Acquiring within the meaning of Sections
368(a)(2)(H) and 304(c) immediately after the transaction. Target will transfer
substantially all its assets to Acquiring and will in complete liquidation
transfer the Acquiring Shares to its shareholders; therefore, the Acquiring
Shares will be distributed in a transaction which qualifies under Section 354.
Therefore, the transaction will satisfy the definitional requirements of a "D"
reorganization as well as a "C" reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction shall
be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction in certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business. It
is represented that after the transaction Acquiring will continue the historic
business of Target or use a significant portion of such historic business assets
in its business. Accordingly, the transaction should meet the continuity of
business enterprise requirement.
<PAGE> 6
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section 361(a)
would apply to an exchange but for the fact that the property received in the
exchange consists not only of stock and securities but also other property or
money, then if the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
<PAGE> 7
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code. Further, since it is represented that the amount of the liabilities
assumed by Acquiring, plus the amount of the liabilities to which the property
of Target is subject, does not exceed the total of the adjusted basis of Target
in the property transferred to Acquiring, there is no excess which would be
considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
<PAGE> 8
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of Acquiring Shares held by the shareholders of Target will have
the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation.
Sections 361 and 357 of the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
<PAGE> 9
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Consequences" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 10
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation, on behalf of Nationwide Money
Market Fund ("Target"), a series of Nationwide Investing Foundation, and
Nationwide Investing Foundation III, on behalf of Nationwide Money Market Fund
("Acquiring"), a series of Nationwide Investing Foundation III, have entered
into an Agreement and Plan of Reorganization dated as of November 24, 1997 (the
"Agreement"). Pursuant to the Agreement, Target will transfer all of its assets
to Acquiring and Acquiring will assume all of the liabilities of Target. In
accordance with the Agreement, we are requesting your opinion (the "Opinion") on
certain federal income tax consequences as described in Section 8(f) of the
Agreement with respect to the transaction contemplated by such Agreement (the
"Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act") pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the
<PAGE> 11
meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at least 50
percent of the total combined voting power of all classes of stock
entitled to vote, or at least 50 percent of the total value of shares
of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business and are
associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring, and (b) the amount of
liabilities, if any, to which the transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Money Market Fund, a series fund
of Nationwide Investing Foundation
By:
----------------------------------------
<PAGE> 12
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation, on behalf of Nationwide Money
Market Fund ("Target"), a series of Nationwide Investing Foundation, and
Nationwide Investing Foundation III, on behalf of Nationwide Money Market Fund
("Acquiring"), a series of Nationwide Investing Foundation III, have entered
into an Agreement and Plan of Reorganization dated as of November 24, 1997 (the
"Agreement"). Pursuant to the Agreement, Target will transfer all of its assets
to Acquiring and Acquiring will assume all of the liabilities of Target. In
accordance with the Agreement, we are requesting your opinion (the "Opinion") on
certain federal income tax consequences as described in Section 9(e) of the
Agreement with respect to the transaction contemplated by such Agreement (the
"Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(h) and 304(c) of the Code. For
the purpose, "control" means the
<PAGE> 13
ownership of stock possessing at least 50 percent of the total combined
voting power of all classes of stock entitled to vote, or at least 50
percent of the total value of shares of all classes of stock.
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(12) After the Transaction, Acquiring will meet the requirements of,
and elect to be taxed as a regulated investment company as defined in
Section 851 of the Code and will continue to be taxed as a regulated
investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
<PAGE> 14
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Money Market Fund, a series fund
of Nationwide Investing Foundation III
By:
----------------------------------------
<PAGE> 15
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
One Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Nationwide Investing Foundation
One Nationwide Plaza
Columbus, OH 43215
RE: Nationwide Investing Foundation--Nationwide Growth Fund/Nationwide
Investing Foundation III--Nationwide Growth Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization, dated as of November
24, 1997 (the "Agreement"), by and between Nationwide Investing Foundation, a
Michigan business trust ("NIF"), on behalf of Nationwide Growth Fund ("Target"),
a series of NIF, and Nationwide Investing Foundation III, an Ohio business trust
("NIF III"), on behalf of the Nationwide Growth Fund ("Acquiring"), a series of
NIF III. Each of Target and Acquiring is a "series" of a "series company" as
described in Rule 18f-2 of the Investment Company Act of 1940, as amended (the
"1940 Act"). The conclusions presented herein are based on the facts and
representations in the Agreement and the Combined Prospectus/Proxy Statement
contained in the Registration Statement No. 333-41175 on Form N-14 (the
"Registration Statement") as filed with the Securities and Exchange Commission
("SEC") (collectively, the "Documents") and the representations set forth in
letters dated May 9, 1998, from Target and Acquiring (the "Representation
Letters") and the applicable tax law as it exists today. We have assumed with
your consent that the facts and representations set forth in the Documents and
the Representation Letters are true and correct.
FACTS
- -----
NIF III is a an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be treated as a separate corporation under Section 851(h) of the Code.
<PAGE> 16
NIF is a Michigan business trust registered under the 1940 Act
as an open-end investment company of the management type and currently has
issued and outstanding shares of beneficial interest, par value $1.00 per share,
of four (4) series, one of which is Target. The shares of Target are redeemable
at net asset value at the option of the shareholders of Target. Target has
elected to qualify as a regulated investment company under Part I of Subchapter
M of the Code and is treated as a separate corporation under Section 851(h) of
the Code.
Acquiring seeks to achieve long-term capital appreciation.
Target seeks to achieve long-term capital appreciation without emphasis on
current return. Each of Acquiring and Target seeks to achieve its objective
through investment in common stocks and issues convertible into common stocks.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for Class D
voting shares of beneficial interest of Acquiring (the "Acquiring Shares").
Target will immediately thereafter terminate its existence and distribute the
Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m. Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target. There are no dissenters or
appraisal rights.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce the ownership by the shareholders of
Target of Acquiring Shares to a number of Acquiring Shares
<PAGE> 17
having a value, as of the Exchange Date, of less than 50 percent of the
value of all of the formerly outstanding shares of Target as of the
same date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and sold, redeemed, or
disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends, including distributions of investment
company taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction and after the
transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction, other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(11) Acquiring will meet, and Target meets, the requirements of a
"regulated investment company" as defined in Section 851 of the Code.
(12) Target 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.
<PAGE> 18
(13) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and after the exchange, Acquiring will elect to be taxed as a regulated
investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation, in exchange solely for all or part of its voting stock, of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part of
the plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
<PAGE> 19
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or more
of its shareholders (including persons who were shareholders immediately before
the transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred, but only if, in pursuance of the plan, stock
or securities of the corporation to which the assets are transferred are
distributed in a transaction which qualifies under Sections 354, 355 or 356. For
this purpose, "control" is defined in Sections 368(a)(2)(H) and 304(c). It is
represented that Target will immediately after the Exchange Date terminate its
existence and will distribute in complete liquidation the Acquiring Shares it
receives in the exchange to the shareholders of Target and shareholders of
Target will be in control of Acquiring within the meaning of Sections
368(a)(2)(H) and 304(c) immediately after the transaction. Target will transfer
substantially all its assets to Acquiring and will in complete liquidation
transfer the Acquiring Shares to its shareholders; therefore, the Acquiring
Shares will be distributed in a transaction which qualifies under Section 354.
Therefore, the transaction will satisfy the definitional requirements of a "D"
reorganization as well as a "C" reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction shall
be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction in certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business. It
is represented that after the transaction Acquiring will continue the historic
business of Target or use a significant portion of such historic business assets
in its business. Accordingly, the transaction should meet the continuity of
business enterprise requirement.
<PAGE> 20
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section 361(a)
would apply to an exchange but for the fact that the property received in the
exchange consists not only of stock and securities but also other property or
money, then if the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
<PAGE> 21
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code. Further, since it is represented that the amount of the liabilities
assumed by Acquiring, plus the amount of the liabilities to which the property
of Target is subject, does not exceed the total of the adjusted basis of Target
in the property transferred to Acquiring, there is no excess which would be
considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
<PAGE> 22
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of Acquiring Shares held by the shareholders of Target will have
the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation.
Sections 361 and 357 of the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
<PAGE> 23
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Consequences" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 24
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation, on behalf of Nationwide
Growth Fund ("Target"), a series of Nationwide Investing Foundation, and
Nationwide Investing Foundation III, on behalf of Nationwide Growth Fund
("Acquiring"), a series of Nationwide Investing Foundation III, have entered
into an Agreement and Plan of Reorganization dated as of November 24, 1997 (the
"Agreement"). Pursuant to the Agreement, Target will transfer all of its assets
to Acquiring and Acquiring will assume all of the liabilities of Target. In
accordance with the Agreement, we are requesting your opinion (the "Opinion") on
certain federal income tax consequences as described in Section 8(f) of the
Agreement with respect to the transaction contemplated by such Agreement (the
"Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act") pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business and are
associated with the assets transferred.
<PAGE> 25
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring, and (b) the amount of
liabilities, if any, to which the transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Growth Fund, a series fund of
Nationwide Investing Foundation
By:
---------------------------------------
<PAGE> 26
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation, on behalf of Nationwide
Growth Fund ("Target"), a series of Nationwide Investing Foundation, and
Nationwide Investing Foundation III, on behalf of Nationwide Growth Fund
("Acquiring"), a series of Nationwide Investing Foundation III, have entered
into an Agreement and Plan of Reorganization dated as of November 24, 1997 (the
"Agreement"). Pursuant to the Agreement, Target will transfer all of its assets
to Acquiring and Acquiring will assume all of the liabilities of Target. In
accordance with the Agreement, we are requesting your opinion (the "Opinion") on
certain federal income tax consequences as described in Section 9(e) of the
Agreement with respect to the transaction contemplated by such Agreement (the
"Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(h) and 304(c) of the Code. For
the purpose, "control" means the ownership of stock possessing at least
50 percent of the total combined voting power of all classes of stock
entitled to vote, or at least 50 percent of the total value of shares
of all classes of stock.
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc.,
<PAGE> 27
which is the investment adviser for Acquiring and Target, will pay 50%
of the costs associated with the Transaction, other than the
organizational costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(12) After the Transaction, Acquiring will meet the requirements of,
and elect to be taxed as a regulated investment company as defined in
Section 851 of the Code and will continue to be taxed as a regulated
investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
<PAGE> 28
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the
Opinion.
Nationwide Growth Fund, a series fund of
Nationwide Investing Foundation III
By:
----------------------------------------
<PAGE> 29
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
One Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Nationwide Investing Foundation
One Nationwide Plaza
Columbus, OH 43215
RE: Nationwide Investing Foundation--Nationwide
Fund/Nationwide Investing Foundation III--Nationwide Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization, dated as of November
24, 1997 (the "Agreement"), by and between Nationwide Investing Foundation, a
Michigan business trust ("NIF"), on behalf of Nationwide Fund ("Target"), a
series of NIF, and Nationwide Investing Foundation III, an Ohio business trust
("NIF III"), on behalf of the Nationwide Fund ("Acquiring"), a series of NIF
III. Each of Target and Acquiring is a "series" of a "series company" as
described in Rule 18f-2 of the Investment Company Act of 1940, as amended (the
"1940 Act"). The conclusions presented herein are based on the facts and
representations in the Agreement and the Combined Prospectus/Proxy Statement
contained in the Registration Statement No. 333-41175 on Form N-14 (the
"Registration Statement") as filed with the Securities and Exchange Commission
("SEC") (collectively, the "Documents") and the representations set forth in
letters dated May 9, 1998, from Target and Acquiring (the "Representation
Letters") and the applicable tax law as it exists today. We have assumed with
your consent that the facts and representations set forth in the Documents and
the Representation Letters are true and correct.
FACTS
- -----
NIF III is a an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be treated as a separate corporation under Section 851(h) of the Code.
NIF is a Michigan business trust registered under the 1940 Act
as an open-end investment company of the management type and currently has
issued and outstanding shares of beneficial interest, par value $1.00 per share,
of four (4) series, one of which is Target. The shares of Target are redeemable
at net asset value at the option of the shareholders of Target. Target has
elected to qualify as a regulated
<PAGE> 30
investment company under Part I of Subchapter M of the Code and is treated as a
separate corporation under Section 851(h) of the Code.
Acquiring seeks to achieve total return from a flexible
combination of current income and capital appreciation. Target seeks to achieve
total return from a flexible combination of current income and capital
appreciation. Each of Acquiring and Target seeks to achieve its objective
through investment in common stocks and convertible securities, other equity
securities, bonds and money market instruments.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for Class D
voting shares of beneficial interest of Acquiring (the "Acquiring Shares").
Target will immediately thereafter terminate its existence and distribute the
Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m. Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target. There are no dissenters or
appraisal rights.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce the ownership by the shareholders of
Target of Acquiring Shares to a number of Acquiring Shares having a
value, as of the Exchange Date, of less than 50 percent of the value of
all of the formerly outstanding shares of Target as of the same date.
For purposes of this representation, shares of
<PAGE> 31
Target and Acquiring held by shareholders of Target and sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends, including distributions of investment
company taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction and after the
transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction, other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(11) Acquiring will meet, and Target meets, the requirements of a
"regulated investment company" as defined in Section 851 of the Code.
(12) Target 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.
<PAGE> 32
(13) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and after the exchange, Acquiring will elect to be taxed as a regulated
investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation, in exchange solely for all or part of its voting stock, of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part of
the plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
<PAGE> 33
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or more
of its shareholders (including persons who were shareholders immediately before
the transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred, but only if, in pursuance of the plan, stock
or securities of the corporation to which the assets are transferred are
distributed in a transaction which qualifies under Sections 354, 355 or 356. For
this purpose, "control" is defined in Sections 368(a)(2)(H) and 304(c). It is
represented that Target will immediately after the Exchange Date terminate its
existence and will distribute in complete liquidation the Acquiring Shares it
receives in the exchange to the shareholders of Target and shareholders of
Target will be in control of Acquiring within the meaning of Sections
368(a)(2)(H) and 304(c) immediately after the transaction. Target will transfer
substantially all its assets to Acquiring and will in complete liquidation
transfer the Acquiring Shares to its shareholders; therefore, the Acquiring
Shares will be distributed in a transaction which qualifies under Section 354.
Therefore, the transaction will satisfy the definitional requirements of a "D"
reorganization as well as a "C" reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction shall
be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction in certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business. It
is represented that after the transaction Acquiring will continue the historic
business of Target or use a significant portion of such historic business assets
in its business. Accordingly, the transaction should meet the continuity of
business enterprise requirement.
<PAGE> 34
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section 361(a)
would apply to an exchange but for the fact that the property received in the
exchange consists not only of stock and securities but also other property or
money, then if the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
<PAGE> 35
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code. Further, since it is represented that the amount of the liabilities
assumed by Acquiring, plus the amount of the liabilities to which the property
of Target is subject, does not exceed the total of the adjusted basis of Target
in the property transferred to Acquiring, there is no excess which would be
considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
<PAGE> 36
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of Acquiring Shares held by the shareholders of Target will have
the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation.
Sections 361 and 357 of the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
<PAGE> 37
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Consequences" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 38
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation, on behalf of Nationwide Fund
("Target"), a series of Nationwide Investing Foundation, and Nationwide
Investing Foundation III, on behalf of Nationwide Fund ("Acquiring"), a series
of Nationwide Investing Foundation III, have entered into an Agreement and Plan
of Reorganization dated as of November 24, 1997 (the "Agreement"). Pursuant to
the Agreement, Target will transfer all of its assets to Acquiring and Acquiring
will assume all of the liabilities of Target. In accordance with the Agreement,
we are requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 8(f) of the Agreement with respect to the
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act") pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the
<PAGE> 39
meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at least 50
percent of the total combined voting power of all classes of stock
entitled to vote, or at least 50 percent of the total value of shares
of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business and are
associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring, and (b) the amount of
liabilities, if any, to which the transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Fund, a series fund of
Nationwide Investing Foundation
By:
----------------------------------
<PAGE> 40
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation, on behalf of Nationwide Fund
("Target"), a series of Nationwide Investing Foundation, and Nationwide
Investing Foundation III, on behalf of Nationwide Fund ("Acquiring"), a series
of Nationwide Investing Foundation III, have entered into an Agreement and Plan
of Reorganization dated as of November 24, 1997 (the "Agreement"). Pursuant to
the Agreement, Target will transfer all of its assets to Acquiring and Acquiring
will assume all of the liabilities of Target. In accordance with the Agreement,
we are requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 9(e) of the Agreement with respect to the
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(h) and 304(c) of the Code. For
the purpose, "control" means the ownership of stock possessing at least
50 percent of the total combined voting power of all classes of stock
entitled to vote, or at least 50 percent of the total value of shares
of all classes of stock.
<PAGE> 41
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(12) After the Transaction, Acquiring will meet the requirements of,
and elect to be taxed as a regulated investment company as defined in
Section 851 of the Code and will continue to be taxed as a regulated
investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Fund, a series fund of
Nationwide Investing Foundation III
By:
----------------------------------
<PAGE> 42
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
One Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Nationwide Investing Foundation
One Nationwide Plaza
Columbus, OH 43215
RE: Nationwide Investing Foundation--Nationwide Bond
Fund/Nationwide Investing Foundation III--Nationwide
Bond Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization, dated as of November
24, 1997 (the "Agreement"), by and between Nationwide Investing Foundation, a
Michigan business trust ("NIF"), on behalf of Nationwide Bond Fund ("Target"), a
series of NIF, and Nationwide Investing Foundation III, an Ohio business trust
("NIF III"), on behalf of the Nationwide Bond Fund ("Acquiring"), a series of
NIF III. Each of Target and Acquiring is a "series" of a "series company" as
described in Rule 18f-2 of the Investment Company Act of 1940, as amended (the
"1940 Act"). The conclusions presented herein are based on the facts and
representations in the Agreement and the Combined Prospectus/Proxy Statement
contained in the Registration Statement No. 333-41775 on Form N-14 (the
"Registration Statement") as filed with the Securities and Exchange Commission
("SEC") (collectively, the "Documents") and the representations set forth in
letters dated May 9, 1998, from Target and Acquiring (the "Representation
Letters") and the applicable tax law as it exists today. We have assumed with
your consent that the facts and representations set forth in the Documents and
the Representation Letters are true and correct.
FACTS
- -----
NIF III is a an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be treated as a separate corporation under Section 851(h) of the Code.
NIF is a Michigan business trust registered under the 1940 Act
as an open-end investment company of the management type and currently has
issued and outstanding shares of beneficial interest, par value $1.00 per share,
of four (4) series, one of which is Target. The shares of Target are redeemable
<PAGE> 43
at net asset value at the option of the shareholders of Target. Target has
elected to qualify as a regulated investment company under Part I of Subchapter
M of the Code and is treated as a separate corporation under Section 851(h) of
the Code.
Acquiring seeks a high level of income consistent with
preservation of capital. Target seeks to generate a high level of income,
consistent with capital preservation, through investment in high-quality bonds
and other fixed-income securities. Each of Acquiring and Target seeks to achieve
its objective through investment in fixed income securities, primarily corporate
debt securities.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for Class D
voting shares of beneficial interest of Acquiring (the "Acquiring Shares").
Target will immediately thereafter terminate its existence and distribute the
Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m. Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target. There are no dissenters or
appraisal rights.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce the ownership by the shareholders of
Target of Acquiring Shares to a number of Acquiring Shares having a
value, as of the Exchange Date, of less than 50 percent of the value of
all of the formerly outstanding shares of Target as of the same date.
For purposes of this representation, shares of
<PAGE> 44
Target and Acquiring held by shareholders of Target and sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends, including distributions of investment
company taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction and after the
transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction, other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(11) Acquiring will meet, and Target meets, the requirements of a
"regulated investment company" as defined in Section 851 of the Code.
(12) Target 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.
<PAGE> 45
(13) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and after the exchange, Acquiring will elect to be taxed as a regulated
investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation, in exchange solely for all or part of its voting stock, of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part of
the plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
<PAGE> 46
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or more
of its shareholders (including persons who were shareholders immediately before
the transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred, but only if, in pursuance of the plan, stock
or securities of the corporation to which the assets are transferred are
distributed in a transaction which qualifies under Sections 354, 355 or 356. For
this purpose, "control" is defined in Sections 368(a)(2)(H) and 304(c). It is
represented that Target will immediately after the Exchange Date terminate its
existence and will distribute in complete liquidation the Acquiring Shares it
receives in the exchange to the shareholders of Target and shareholders of
Target will be in control of Acquiring within the meaning of Sections
368(a)(2)(H) and 304(c) immediately after the transaction. Target will transfer
substantially all its assets to Acquiring and will in complete liquidation
transfer the Acquiring Shares to its shareholders; therefore, the Acquiring
Shares will be distributed in a transaction which qualifies under Section 354.
Therefore, the transaction will satisfy the definitional requirements of a "D"
reorganization as well as a "C" reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction shall
be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction in certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business. It
is represented that after the transaction Acquiring will continue the historic
business of Target or use a significant portion of such historic business assets
in its business. Accordingly, the transaction should meet the continuity of
business enterprise requirement.
<PAGE> 47
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section 361(a)
would apply to an exchange but for the fact that the property received in the
exchange consists not only of stock and securities but also other property or
money, then if the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
<PAGE> 48
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code. Further, since it is represented that the amount of the liabilities
assumed by Acquiring, plus the amount of the liabilities to which the property
of Target is subject, does not exceed the total of the adjusted basis of Target
in the property transferred to Acquiring, there is no excess which would be
considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
<PAGE> 49
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of Acquiring Shares held by the shareholders of Target will have
the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation.
Sections 361 and 357 of the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
<PAGE> 50
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Consequences" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 51
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation, on behalf of Nationwide Bond
Fund ("Target"), a series of Nationwide Investing Foundation, and Nationwide
Investing Foundation III, on behalf of Nationwide Bond Fund ("Acquiring"), a
series of Nationwide Investing Foundation III, have entered into an Agreement
and Plan of Reorganization dated as of November 24, 1997 (the "Agreement").
Pursuant to the Agreement, Target will transfer all of its assets to Acquiring
and Acquiring will assume all of the liabilities of Target. In accordance with
the Agreement, we are requesting your opinion (the "Opinion") on certain federal
income tax consequences as described in Section 8(f) of the Agreement with
respect to the transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act") pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all
<PAGE> 52
classes of stock entitled to vote, or at least 50 percent of the total
value of shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business and are
associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring, and (b) the amount of
liabilities, if any, to which the transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Bond Fund, a series fund of
Nationwide Investing Foundation
By:
------------------------------------
<PAGE> 53
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation, on behalf of Nationwide Bond
Fund ("Target"), a series of Nationwide Investing Foundation, and Nationwide
Investing Foundation III, on behalf of Nationwide Bond Fund ("Acquiring"), a
series of Nationwide Investing Foundation III, have entered into an Agreement
and Plan of Reorganization dated as of November 24, 1997 (the "Agreement").
Pursuant to the Agreement, Target will transfer all of its assets to Acquiring
and Acquiring will assume all of the liabilities of Target. In accordance with
the Agreement, we are requesting your opinion (the "Opinion") on certain federal
income tax consequences as described in Section 9(e) of the Agreement with
respect to the transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(h) and 304(c) of the Code. For
the purpose, "control" means the ownership of stock possessing at least
50 percent of the total combined voting power of all classes of stock
entitled to vote, or at least 50 percent of the total value of shares
of all classes of stock.
<PAGE> 54
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that,
if exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(12) After the Transaction, Acquiring will meet the requirements of,
and elect to be taxed as a regulated investment company as defined in
Section 851 of the Code and will continue to be taxed as a regulated
investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Bond Fund, a series of
Nationwide Investing Foundation III
By:
--------------------------------------
<PAGE> 55
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
One Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Nationwide Investing Foundation II
One Nationwide Plaza
Columbus, OH 43215
RE: Nationwide Investing Foundation II -- Nationwide U.S.
Government Income Fund/Nationwide Investing Foundation III
--Nationwide Intermediate U.S. Government Bond Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization, dated as of November
24, 1997 (the "Agreement"), by and between Nationwide Investing Foundation II, a
Massachusetts business trust ("NIF II"), on behalf of Nationwide U.S. Government
Income Fund ("Target"), a series of NIF II, and Nationwide Investing Foundation
III, an Ohio business trust ("NIF III"), on behalf of the Nationwide
Intermediate U.S. Government Bond Fund ("Acquiring"), a series of NIF III. Each
of Target and Acquiring is a "series" of a "series company" as described in Rule
18f-2 of the Investment Company Act of 1940, as amended (the "1940 Act"). The
conclusions presented herein are based on the facts and representations in the
Agreement and the Combined Prospectus/Proxy Statement contained in the
Registration Statement No. 333-41175 on Form N-14 (the "Registration Statement")
as filed with the Securities and Exchange Commission ("SEC") (collectively, the
"Documents") and the representations set forth in letters dated May 9, 1998,
from Target and Acquiring (the "Representation Letters") and the applicable tax
law as it exists today. We have assumed with your consent that the facts and
representations set forth in the Documents and the Representation Letters are
true and correct.
FACTS
- -----
NIF III is a an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter
<PAGE> 56
M of the Internal Revenue Code of 1986, as amended (the "Code"), and to be
treated as a separate corporation under Section 851(h) of the Code.
NIF II is a Massachusetts business trust registered under the
1940 Act as an open-end investment company of the management type and currently
has issued and outstanding shares of beneficial interest, par value $1.00 per
share, of two (2) series, one of which is Target. The shares of Target are
redeemable at net asset value at the option of the shareholders of Target.
Target has elected to qualify as a regulated investment company under Part I of
Subchapter M of the Code and is treated as a separate corporation under Section
851(h) of the Code.
Acquiring seeks to achieve a high level of current income
consistent with the preservation of capital. Target seeks to achieve a high
level of current income consistent with the preservation of capital. Each of
Acquiring and Target seeks to achieve its objective through investment in
securities of the U. S. Government and its agencies and instrumentalities.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for Class D
voting shares of beneficial interest of Acquiring (the "Acquiring Shares").
Target will immediately thereafter terminate its existence and distribute the
Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m. Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target. There are no dissenters or
appraisal rights.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
<PAGE> 57
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce the ownership by the shareholders of
Target of Acquiring Shares to a number of Acquiring Shares having a
value, as of the Exchange Date, of less than 50 percent of the value of
all of the formerly outstanding shares of Target as of the same date.
For purposes of this representation, shares of Target and Acquiring
held by shareholders of Target and sold, redeemed, or disposed of prior
or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends, including distributions of investment
company taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction and after the
transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction, other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
<PAGE> 58
(11) Acquiring will meet, and Target meets, the requirements of a
"regulated investment company" as defined in Section 851 of the Code.
(12) Target 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.
(13) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and after the exchange, Acquiring will elect to be taxed as a regulated
investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation, in exchange solely for all or part of its voting stock, of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation
<PAGE> 59
immediately prior to the transfer. All payments to dissenters and all
redemptions and distributions (except for regular and normal distributions) made
by the corporation immediately preceding the transfer and which are part of the
plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or more
of its shareholders (including persons who were shareholders immediately before
the transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred, but only if, in pursuance of the plan, stock
or securities of the corporation to which the assets are transferred are
distributed in a transaction which qualifies under Sections 354, 355 or 356. For
this purpose, "control" is defined in Sections 368(a)(2)(H) and 304(c). It is
represented that Target will immediately after the Exchange Date terminate its
existence and will distribute in complete liquidation the Acquiring Shares it
receives in the exchange to the shareholders of Target and shareholders of
Target will be in control of Acquiring within the meaning of Sections
368(a)(2)(H) and 304(c) immediately after the transaction. Target will transfer
substantially all its assets to Acquiring and will in complete liquidation
transfer the Acquiring Shares to its shareholders; therefore, the Acquiring
Shares will be distributed in a transaction which qualifies under Section 354.
Therefore, the transaction will satisfy the definitional requirements of a "D"
reorganization as well as a "C" reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction shall
be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction in certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or
<PAGE> 60
(ii) use a significant portion of the acquired corporation's historic business
assets in a business. It is represented that after the transaction Acquiring
will continue the historic business of Target or use a significant portion of
such historic business assets in its business. Accordingly, the transaction
should meet the continuity of business enterprise requirement.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of
<PAGE> 61
the plan of reorganization, solely for stock or securities in another
corporation, which is "a party to the reorganization." Section 361(b) provides
that if Section 361(a) would apply to an exchange but for the fact that the
property received in the exchange consists not only of stock and securities but
also other property or money, then if the corporation receiving such other
property or money distributes it in pursuance of the plan of reorganization, no
gain to the corporation will be recognized.
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code. Further, since it is represented that the amount of the liabilities
assumed by Acquiring, plus the amount of the liabilities to which the property
of Target is subject, does not exceed the total of the adjusted basis of Target
in the property transferred to Acquiring, there is no excess which would be
considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by
<PAGE> 62
the taxpayer, and (iii) the amount of loss to the taxpayer which was recognized
on such exchange, and increased by (i) the amount which was treated as a
dividend, and (ii) the amount of gain to the taxpayer which was recognized on
such exchange (not including any portion of such gain which was treated as a
dividend).
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of Acquiring Shares held by the shareholders of Target will have
the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation.
Sections 361 and 357 of the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
<PAGE> 63
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Consequences" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 64
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation II, on behalf of Nationwide
U.S. Government Income Fund ("Target"), a series of Nationwide Investing
Foundation II, and Nationwide Investing Foundation III, on behalf of Nationwide
Intermediate U.S. Government Bond Fund ("Acquiring"), a series of Nationwide
Investing Foundation III, have entered into an Agreement and Plan of
Reorganization dated as of November 24, 1997 (the "Agreement"). Pursuant to the
Agreement, Target will transfer all of its assets to Acquiring and Acquiring
will assume all of the liabilities of Target. In accordance with the Agreement,
we are requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 8(f) of the Agreement with respect to the
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act") pursuant to a demand of a shareholder and regular, normal
dividends including distributions of
<PAGE> 65
investment company taxable income and net capital gain) made by Target
immediately preceding the Exchange Date will be included as assets of
Target held immediately prior to the Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business and are
associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring, and (b) the amount of
liabilities, if any, to which the transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
<PAGE> 66
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide U.S. Government Income Fund, a series
fund of Nationwide Investing Foundation II
By:
--------------------------------------------
<PAGE> 67
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation II, on behalf of Nationwide
U.S. Government Income Fund ("Target"), a series of Nationwide Investing
Foundation II, and Nationwide Investing Foundation III, on behalf of Nationwide
Intermediate U.S. Government Bond Fund ("Acquiring"), a series of Nationwide
Investing Foundation III, have entered into an Agreement and Plan of
Reorganization dated as of November 24, 1997 (the "Agreement"). Pursuant to the
Agreement, Target will transfer all of its assets to Acquiring and Acquiring
will assume all of the liabilities of Target. In accordance with the Agreement,
we are requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 9(e) of the Agreement with respect to the
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and
<PAGE> 68
after the Transaction the shareholders of Target will be in control of
Acquiring within the meaning of Sections 368(a)(2)(h) and 304(c) of the
Code. For the purpose, "control" means the ownership of stock
possessing at least 50 percent of the total combined voting power of
all classes of stock entitled to vote, or at least 50 percent of the
total value of shares of all classes of stock.
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(12) After the Transaction, Acquiring will meet the requirements of,
and elect to be taxed as a regulated investment company as defined in
Section 851 of the Code and will continue to be taxed as a regulated
investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
<PAGE> 69
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Intermediate U.S. Government Bond
Fund, a series fund of Nationwide Investing
Foundation III
By:
------------------------------------------
<PAGE> 70
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
One Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Nationwide Investing Foundation II
One Nationwide Plaza
Columbus, OH 43215
RE: Nationwide Investing Foundation II -- Nationwide Tax-Free
Income Fund/Nationwide Investing Foundation III--
Nationwide Tax-Free Income Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization, dated as of November
24, 1997 (the "Agreement"), by and between Nationwide Investing Foundation II, a
Massachusetts business trust ("NIF II"), on behalf of Nationwide Tax-Free Income
Fund ("Target"), a series of NIF II, and Nationwide Investing Foundation III, an
Ohio business trust ("NIF III"), on behalf of the Nationwide Tax-Free Income
Fund ("Acquiring"), a series of NIF III. Each of Target and Acquiring is a
"series" of a "series company" as described in Rule 18f-2 of the Investment
Company Act of 1940, as amended (the "1940 Act"). The conclusions presented
herein are based on the facts and representations in the Agreement and the
Combined Prospectus/Proxy Statement contained in the Registration Statement No.
333-41175 on Form N-14 (the "Registration Statement") as filed with the
Securities and Exchange Commission ("SEC") (collectively, the "Documents") and
the representations set forth in letters dated May 9, 1998, from Target and
Acquiring (the "Representation Letters") and the applicable tax law as it exists
today. We have assumed with your consent that the facts and representations set
forth in the Documents and the Representation Letters are true and correct.
FACTS
- -----
NIF III is a an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be treated as a separate corporation under Section 851(h) of the Code.
<PAGE> 71
NIF II is a Massachusetts business trust registered under the
1940 Act as an open-end investment company of the management type and currently
has issued and outstanding shares of beneficial interest, par value $1.00 per
share, of two (2) series, one of which is Target. The shares of Target are
redeemable at net asset value at the option of the shareholders of Target.
Target has elected to qualify as a regulated investment company under Part I of
Subchapter M of the Code and is treated as a separate corporation under Section
851(h) of the Code.
Acquiring seeks to achieve a high level of current income
exempt from Federal income tax consistent with the preservation of capital.
Target seeks to achieve a high level of current income exempt from Federal
income tax consistent with the preservation of capital. Each of Acquiring and
Target seeks to achieve its objective through investment in investment grade
municipal obligations.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for Class D
voting shares of beneficial interest of Acquiring (the "Acquiring Shares").
Target will immediately thereafter terminate its existence and distribute the
Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m. Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target. There are no dissenters or
appraisal rights.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce
<PAGE> 72
the ownership by the shareholders of Target of Acquiring Shares to a
number of Acquiring Shares having a value, as of the Exchange Date, of
less than 50 percent of the value of all of the formerly outstanding
shares of Target as of the same date. For purposes of this
representation, shares of Target and Acquiring held by shareholders of
Target and sold, redeemed, or disposed of prior or subsequent to the
Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends, including distributions of investment
company taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction and after the
transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction, other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(11) Acquiring will meet, and Target meets, the requirements of a
"regulated investment company" as defined in Section 851 of the Code.
(12) Target 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.
<PAGE> 73
(13) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and after the exchange, Acquiring will elect to be taxed as a regulated
investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation, in exchange solely for all or part of its voting stock, of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part of
the plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
<PAGE> 74
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or more
of its shareholders (including persons who were shareholders immediately before
the transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred, but only if, in pursuance of the plan, stock
or securities of the corporation to which the assets are transferred are
distributed in a transaction which qualifies under Sections 354, 355 or 356. For
this purpose, "control" is defined in Sections 368(a)(2)(H) and 304(c). It is
represented that Target will immediately after the Exchange Date terminate its
existence and will distribute in complete liquidation the Acquiring Shares it
receives in the exchange to the shareholders of Target and shareholders of
Target will be in control of Acquiring within the meaning of Sections
368(a)(2)(H) and 304(c) immediately after the transaction. Target will transfer
substantially all its assets to Acquiring and will in complete liquidation
transfer the Acquiring Shares to its shareholders; therefore, the Acquiring
Shares will be distributed in a transaction which qualifies under Section 354.
Therefore, the transaction will satisfy the definitional requirements of a "D"
reorganization as well as a "C" reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction shall
be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction in certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business. It
is represented that after the transaction Acquiring will continue the historic
business of Target or use a significant portion of such historic business assets
in its business. Accordingly, the transaction should meet the continuity of
business enterprise requirement.
<PAGE> 75
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section 361(a)
would apply to an exchange but for the fact that the property received in the
exchange consists not only of stock and securities but also other property or
money, then if the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
<PAGE> 76
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code. Further, since it is represented that the amount of the liabilities
assumed by Acquiring, plus the amount of the liabilities to which the property
of Target is subject, does not exceed the total of the adjusted basis of Target
in the property transferred to Acquiring, there is no excess which would be
considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
<PAGE> 77
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of Acquiring Shares held by the shareholders of Target will have
the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation.
Sections 361 and 357 of the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
<PAGE> 78
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Consequences" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 79
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation II, on behalf of Nationwide
Tax-Free Income Fund ("Target"), a series of Nationwide Investing Foundation II,
and Nationwide Investing Foundation III, on behalf of Nationwide Tax-Free Income
Fund ("Acquiring"), a series of Nationwide Investing Foundation III, have
entered into an Agreement and Plan of Reorganization dated as of November 24,
1997 (the "Agreement"). Pursuant to the Agreement, Target will transfer all of
its assets to Acquiring and Acquiring will assume all of the liabilities of
Target. In accordance with the Agreement, we are requesting your opinion (the
"Opinion") on certain federal income tax consequences as described in Section
8(f) of the Agreement with respect to the transaction contemplated by such
Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act")
<PAGE> 80
pursuant to a demand of a shareholder and regular, normal dividends
including distributions of investment company taxable income and net
capital gain) made by Target immediately preceding the Exchange Date
will be included as assets of Target held immediately prior to the
Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business and are
associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring, and (b) the amount of
liabilities, if any, to which the transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
<PAGE> 81
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the
Opinion.
Nationwide Tax-Free Income Fund, a series
fund of Nationwide Investing Foundation II
By:
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<PAGE> 82
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Nationwide Investing Foundation II, on behalf of Nationwide
Tax-Free Income Fund ("Target"), a series of Nationwide Investing Foundation II,
and Nationwide Investing Foundation III, on behalf of Nationwide Tax-Free Income
Fund ("Acquiring"), a series of Nationwide Investing Foundation III, have
entered into an Agreement and Plan of Reorganization dated as of November 24,
1997 (the "Agreement"). Pursuant to the Agreement, Target will transfer all of
its assets to Acquiring and Acquiring will assume all of the liabilities of
Target. In accordance with the Agreement, we are requesting your opinion (the
"Opinion") on certain federal income tax consequences as described in Section
9(e) of the Agreement with respect to the transaction contemplated by such
Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(h) and 304(c) of the Code. For
the purpose, "control" means the
<PAGE> 83
ownership of stock possessing at least 50 percent of the total combined
voting power of all classes of stock entitled to vote, or at least 50
percent of the total value of shares of all classes of stock.
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(12) After the Transaction, Acquiring will meet the requirements of,
and elect to be taxed as a regulated investment company as defined in
Section 851 of the Code and will continue to be taxed as a regulated
investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
<PAGE> 84
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Tax-Free Income Fund, a series
fund of Nationwide Investing Foundation III
By:
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<PAGE> 85
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
Three Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Financial Horizons Investment Trust
Three Nationwide Plaza
Columbus, OH 43215
RE: Financial Horizon Investment Trust--Cash Reserve
Fund/Nationwide Investing Foundation III--Nationwide Money
Market Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization dated as of November
24, 1997, as amended as of December 30, 1997 (the "Agreement"), by and between
Financial Horizons Investment Trust ("FHIT") a Massachusetts business trust, on
behalf of Cash Reserve Fund ("Target"), a series of FHIT and Nationwide
Investing Foundation III ("NIF III"), an Ohio business trust, on behalf of
Nationwide Money Market Fund ("Acquiring"), a series of NIF III. Each of Target
and Acquiring is a "series" of a "series company" as described in Rule 18f-2 of
the Investment Company Act of 1940, as amended (the "1940 Act"). The conclusions
presented herein are based on the facts and representations in the Agreement and
the Combined Prospectus/Proxy Statement contained in the Registration Statement
No. 333-41175 on Form N-14 (the "Registration Statement") as filed with the
Securities and Exchange Commission ("SEC") (collectively, the "Documents") and
the representations set forth in letters dated May 9, 1998, from Target and
Acquiring (the "Representation Letters") and the applicable tax law as it exists
today. We have assumed with your consent that the facts and representations set
forth in the Documents and the Representations Letters are true and correct.
FACTS
- -----
NIF III is an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be treated as a separate corporation under Section 851(h) of the Code.
FHIT is a Massachusetts business trust registered under the
1940 Act as an open-end investment company of the management type and currently
has issued and outstanding shares of beneficial interest, par value $1.00 per
share, of four "series," one of which is Target. The shares of
<PAGE> 86
Target are redeemable at net asset value at the option of shareholders of
Target. Target has elected to qualify as a regulated investment company under
Part I of Subchapter M of the Code and is treated as a separate corporation
under Section 851(h) of the Code.
Target seeks to achieve a high level of current income
consistent with preservation of capital and maintenance of liquidity through
investment in a diversified portfolio of high quality money market instruments
maturing in 397 days or less. Acquiring seeks to achieve a high level of current
income consistent with the preservation of capital. Acquiring and Target invest
in a diversified portfolio of money market instruments with remaining maturities
of 397 days or less and a dollar weighted average maturity of 90 days or less.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for voting
shares of beneficial interest, without any class designation, of Acquiring (the
"Acquiring Shares"). Target will immediately thereafter terminate its existence
and distribute the Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m., Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce
<PAGE> 87
the ownership by the shareholders of Target of Acquiring Shares to a
number of Acquiring Shares having a value, as of the Exchange Date, of
less than 50 percent of the value of all of the formerly outstanding
shares of Target as of the same date. For purposes of this
representation, shares of Target and Acquiring held by shareholders of
Target and sold, redeemed, or disposed of prior or subsequent to the
Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends including distributions of investment company
taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(11) Target meets and Acquiring will meet the requirements of a
regulated investment company as defined in Section 851 of the Code.
(12) Target 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.
(13) The fair market value of the assets of Target transferred to
Acquiring will equal or exceed the sum of (a) the liabilities assumed
by Acquiring and (b) the amount of liabilities, if any, to which the
transferred assets are subject.
<PAGE> 88
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and, after the exchange, Acquiring will elect to be taxed as a
regulated investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides the acquisition by
one corporation in exchange solely for all or part of its voting stock of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part of
the plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Target will transfer substantially all its assets to Acquiring
and will in complete liquidation transfer the Acquiring Shares to its
shareholders; therefore, the Acquiring Shares will be
<PAGE> 89
distributed in a transaction which qualifies under Section 354. Therefore, the
transaction will satisfy the definitional requirements of "C" reorganization.
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction of certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business. It
is represented that after the transaction Acquiring will continue the historic
business of Target or use a significant portion of such historic business assets
in its business. Accordingly, the transaction should meet the continuity of
business enterprise requirement.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
<PAGE> 90
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(C) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section 361(a)
would apply to an exchange but for the fact that the property received in the
exchange consists not only of stock and securities but also other property or
money, then if the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
<PAGE> 91
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of the Acquiring Shares held by the shareholders of Target will
have the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or
<PAGE> 92
on the distribution of the Acquiring Shares by Target to the
shareholders of Target in complete liquidation. Sections 361 and 357 of
the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Considerations" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 93
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Financial Horizons Investment Trust, on behalf of Cash Reserve
Fund ("Target"), a series of Financial Horizons Investment Trust, and Nationwide
Investing Foundation III, on behalf of Nationwide Money Market Fund
("Acquiring"), a series of Nationwide Investing Foundation III, have entered
into an Agreement and Plan of Reorganization dated as of November 24, 1997, as
amended as of December 30, 1998 (the "Agreement"). Pursuant to the Agreement,
Target will transfer all of its assets to Acquiring and Acquiring will assume
all of the liabilities of Target. In accordance with the Agreement, we are
requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 8(f) of the Agreement with respect to the
overall transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act") pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding
<PAGE> 94
the Exchange Date will be included as assets of Target held immediately
prior to the Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value of the assets of Target transferred to
Acquiring will equal or exceed the sum of (a) the liabilities assumed
by Acquiring, (b) the amount of liabilities, if any, to which the
transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Cash Reserve Fund, a series of Financial
Horizons Investment Trust
By:
-------------------------------------
<PAGE> 95
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Financial Horizons Investment Trust, on behalf of Cash Reserve
Fund ("Target"), a series of Financial Horizons Investment Trust, and Nationwide
Investing Foundation III, on behalf of Nationwide Money Market Fund
("Acquiring"), a series of Nationwide Investing Foundation III, have entered
into an Agreement and Plan of Reorganization dated as of November 24, 1997, as
amended as of December 30, 1997 (the "Agreement"). Pursuant to the Agreement,
Target will transfer all of its assets to Acquiring and Acquiring will assume
all of the liabilities of Target. In accordance with the Agreement, we are
requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 9(e) of the Agreement with respect to the
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
<PAGE> 96
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction.
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target.
(12) Acquiring will elect to be taxed as a regulated investment company
as defined in Section 851 of the Code.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Money Market Fund, a series of
Nationwide Investing Foundation III
By:
----------------------------------------
<PAGE> 97
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
One Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Financial Horizons Investment Trust
One Nationwide Plaza
Columbus, OH 43215
RE: Financial Horizons Investment Trust--Growth
Fund/Nationwide Investing Foundation III--Nationwide Mid
Cap Growth Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization, dated as of November
24, 1997, as amended as of December 30, 1997 (the "Agreement"), by and between
Financial Horizons Investment Trust, a Massachusetts business trust ("FHIT"), on
behalf of Growth Fund ("Target"), a series of FHIT, and Nationwide Investing
Foundation III, an Ohio business trust ("NIF III"), on behalf of the Nationwide
Mid Cap Growth Fund ("Acquiring"), a series of NIF III. Each of Target and
Acquiring is a "series" of a "series company" as described in Rule 18f-2 of the
Investment Company Act of 1940, as amended (the "1940 Act"). The conclusions
presented herein are based on the facts and representations in the Agreement and
the Combined Prospectus/Proxy Statement contained in the Registration Statement
No. 333-41175 on Form N-14 (the "Registration Statement") as filed with the
Securities and Exchange Commission ("SEC") (collectively, the "Documents") and
the representations set forth in letters dated May 9, 1998, from Target and
Acquiring (the "Representation Letters") and the applicable tax law as it exists
today. We have assumed with your consent that the facts and representations set
forth in the Documents and the Representation Letters are true and correct.
FACTS
- -----
NIF III is a an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be treated as a separate corporation under Section 851(h) of the Code.
FHIT is a Massachusetts business trust registered under the
1940 Act as an open-end investment company of the management type and currently
has issued and outstanding shares of
<PAGE> 98
beneficial interest, par value $1.00 per share, of four (4) series, one of which
is Target. The shares of Target are redeemable at net asset value at the option
of the shareholders of Target. Target has elected to qualify as a regulated
investment company under Part I of Subchapter M of the Code and is treated as a
separate corporation under Section 851(h) of the Code.
Acquiring seeks to achieve long-term capital appreciation.
Target seeks to achieve long-term capital appreciation through investing in
equity securities with above average, long-term growth potential. Each of
Acquiring and Target seeks to achieve its objective through investment in common
stocks and issues convertible into common stocks. Acquiring will concentrate its
investments in mid-cap companies with market capitalization or sales between
$300 million and $5 billion.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for Class D
voting shares of beneficial interest of Acquiring (the "Acquiring Shares").
Target will immediately thereafter terminate its existence and distribute the
Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m. Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target. There are no dissenters or
appraisal rights.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce the ownership by the shareholders of
Target of Acquiring Shares to a number of Acquiring Shares
<PAGE> 99
having a value, as of the Exchange Date, of less than 50 percent of the
value of all of the formerly outstanding shares of Target as of the
same date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and sold, redeemed, or
disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends, including distributions of investment
company taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction and after the
transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction, other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(11) Acquiring will meet, and Target meets, the requirements of a
"regulated investment company" as defined in Section 851 of the Code.
(12) Target 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.
<PAGE> 100
(13) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and after the exchange, Acquiring will elect to be taxed as a regulated
investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation, in exchange solely for all or part of its voting stock, of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part of
the plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
<PAGE> 101
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or more
of its shareholders (including persons who were shareholders immediately before
the transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred, but only if, in pursuance of the plan, stock
or securities of the corporation to which the assets are transferred are
distributed in a transaction which qualifies under Sections 354, 355 or 356. For
this purpose, "control" is defined in Sections 368(a)(2)(H) and 304(c). It is
represented that Target will immediately after the Exchange Date terminate its
existence and will distribute in complete liquidation the Acquiring Shares it
receives in the exchange to the shareholders of Target and shareholders of
Target will be in control of Acquiring within the meaning of Sections
368(a)(2)(H) and 304(c) immediately after the transaction. Target will transfer
substantially all its assets to Acquiring and will in complete liquidation
transfer the Acquiring Shares to its shareholders; therefore, the Acquiring
Shares will be distributed in a transaction which qualifies under Section 354.
Therefore, the transaction will satisfy the definitional requirements of a "D"
reorganization as well as a "C" reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction shall
be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction in certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business. It
is represented that after the transaction Acquiring will continue the historic
business of Target or use a significant portion of such historic business assets
in its business. Accordingly, the transaction should meet the continuity of
business enterprise requirement.
<PAGE> 102
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section 361(a)
would apply to an exchange but for the fact that the property received in the
exchange consists not only of stock and securities but also other property or
money, then if the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
<PAGE> 103
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code. Further, since it is represented that the amount of the liabilities
assumed by Acquiring, plus the amount of the liabilities to which the property
of Target is subject, does not exceed the total of the adjusted basis of Target
in the property transferred to Acquiring, there is no excess which would be
considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
<PAGE> 104
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of Acquiring Shares held by the shareholders of Target will have
the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation.
Sections 361 and 357 of the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
<PAGE> 105
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Consequences" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 106
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Financial Horizons Investment Trust on behalf of Growth Fund
("Target"), a series of Financial Horizons Investment Trust and Nationwide
Investing Foundation III, on behalf of Nationwide Mid Cap Growth Fund
("Acquiring"), a series of Nationwide Investing Foundation III, have entered
into an Agreement and Plan of Reorganization dated as of November 24, 1997, as
amended as of December 30, 1997 (the "Agreement"). Pursuant to the Agreement,
Target will transfer all of its assets to Acquiring and Acquiring will assume
all of the liabilities of Target. In accordance with the Agreement, we are
requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 8(f) of the Agreement with respect to the
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as
<PAGE> 107
required by Section 22(e) of the Investment Company Act of 1940, as
amended (the "1940 Act") pursuant to a demand of a shareholder and
regular, normal dividends including distributions of investment company
taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business and are
associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring, and (b) the amount of
liabilities, if any, to which the transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
<PAGE> 108
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Growth Fund, a series fund of
Financial Horizons Investment Trust
By:
-------------------------------
<PAGE> 109
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Financial Horizons Investment Trust, on behalf of Growth Fund
("Target"), a series of Financial Horizons Investment Trust, and Nationwide
Investing Foundation III, on behalf of Nationwide Mid Cap Growth Fund
("Acquiring"), a series of Nationwide Investing Foundation III, have entered
into an Agreement and Plan of Reorganization dated as of November 24, 1997, as
amended as of December 30, 1997 (the "Agreement"). Pursuant to the Agreement,
Target will transfer all of its assets to Acquiring and Acquiring will assume
all of the liabilities of Target. In accordance with the Agreement, we are
requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 9(e) of the Agreement with respect to the
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and
<PAGE> 110
after the Transaction the shareholders of Target will be in control of
Acquiring within the meaning of Sections 368(a)(2)(h) and 304(c) of the
Code. For the purpose, "control" means the ownership of stock
possessing at least 50 percent of the total combined voting power of
all classes of stock entitled to vote, or at least 50 percent of the
total value of shares of all classes of stock.
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(12) After the Transaction, Acquiring will meet the requirements of,
and elect to be taxed as a regulated investment company as defined in
Section 851 of the Code and will continue to be taxed as a regulated
investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
<PAGE> 111
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Mid Cap Growth Fund, a series fund
of Nationwide Investing Foundation III
By:
-----------------------------------------
<PAGE> 112
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
One Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Financial Horizons Investment Trust
One Nationwide Plaza
Columbus, OH 43215
RE: Financial Horizons Investment Trust -- Government Bond
Fund/Nationwide Investing Foundation III--Nationwide
Long-Term U.S. Government Bond Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization, dated as of November
24, 1997, as amended as of December 30, 1997 (the "Agreement"), by and between
Financial Horizons Investment Trust, a Massachusetts business trust ("FHIT"), on
behalf of Government Bond Fund ("Target"), a series of FHIT, and Nationwide
Investing Foundation III, an Ohio business trust ("NIF III"), on behalf of the
Nationwide Long-Term U.S. Government Bond Fund ("Acquiring"), a series of NIF
III. Each of Target and Acquiring is a "series" of a "series company" as
described in Rule 18f-2 of the Investment Company Act of 1940, as amended (the
"1940 Act"). The conclusions presented herein are based on the facts and
representations in the Agreement and the Combined Prospectus/Proxy Statement
contained in the Registration Statement No. 333-41175 on Form N-14 (the
"Registration Statement") as filed with the Securities and Exchange Commission
("SEC") (collectively, the "Documents") and the representations set forth in
letters dated May 9, 1998, from Target and Acquiring (the "Representation
Letters") and the applicable tax law as it exists today. We have assumed with
your consent that the facts and representations set forth in the Documents and
the Representation Letters are true and correct.
FACTS
- -----
NIF III is a an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be treated as a separate corporation under Section 851(h) of the Code.
<PAGE> 113
FHIT is a Massachusetts business trust registered under the
1940 Act as an open-end investment company of the management type and currently
has issued and outstanding shares of beneficial interest, par value $1.00 per
share, of four (4) series, one of which is Target. The shares of Target are
redeemable at net asset value at the option of the shareholders of Target.
Target has elected to qualify as a regulated investment company under Part I of
Subchapter M of the Code and is treated as a separate corporation under Section
851(h) of the Code.
Acquiring seeks a high level of current income consistent with
a preservation of capital. Target seeks a high level of current income
consistent with a preservation of capital. Each of Acquiring and Target seeks to
achieve its objective through investment in securities issued or guaranteed by
the U.S. Government.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for Class D
voting shares of beneficial interest of Acquiring (the "Acquiring Shares").
Target will immediately thereafter terminate its existence and distribute the
Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m. Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target. There are no dissenters or
appraisal rights.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce
<PAGE> 114
the ownership by the shareholders of Target of Acquiring Shares to a
number of Acquiring Shares having a value, as of the Exchange Date, of
less than 50 percent of the value of all of the formerly outstanding
shares of Target as of the same date. For purposes of this
representation, shares of Target and Acquiring held by shareholders of
Target and sold, redeemed, or disposed of prior or subsequent to the
Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends, including distributions of investment
company taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction and after the
transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction, other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(11) Acquiring will meet, and Target meets, the requirements of a
"regulated investment company" as defined in Section 851 of the Code.
(12) Target 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.
<PAGE> 115
(13) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and after the exchange, Acquiring will elect to be taxed as a regulated
investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation, in exchange solely for all or part of its voting stock, of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part of
the plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
<PAGE> 116
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or more
of its shareholders (including persons who were shareholders immediately before
the transfer), or any combination thereof, is in control of the corporation to
which the assets are transferred, but only if, in pursuance of the plan, stock
or securities of the corporation to which the assets are transferred are
distributed in a transaction which qualifies under Sections 354, 355 or 356. For
this purpose, "control" is defined in Sections 368(a)(2)(H) and 304(c). It is
represented that Target will immediately after the Exchange Date terminate its
existence and will distribute in complete liquidation the Acquiring Shares it
receives in the exchange to the shareholders of Target and shareholders of
Target will be in control of Acquiring within the meaning of Sections
368(a)(2)(H) and 304(c) immediately after the transaction. Target will transfer
substantially all its assets to Acquiring and will in complete liquidation
transfer the Acquiring Shares to its shareholders; therefore, the Acquiring
Shares will be distributed in a transaction which qualifies under Section 354.
Therefore, the transaction will satisfy the definitional requirements of a "D"
reorganization as well as a "C" reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction shall
be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction in certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business. It
is represented that after the transaction Acquiring will continue the historic
business of Target or use a significant portion of such historic business assets
in its business. Accordingly, the transaction should meet the continuity of
business enterprise requirement.
<PAGE> 117
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section 361(a)
would apply to an exchange but for the fact that the property received in the
exchange consists not only of stock and securities but also other property or
money, then if the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
<PAGE> 118
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code. Further, since it is represented that the amount of the liabilities
assumed by Acquiring, plus the amount of the liabilities to which the property
of Target is subject, does not exceed the total of the adjusted basis of Target
in the property transferred to Acquiring, there is no excess which would be
considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
<PAGE> 119
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of Acquiring Shares held by the shareholders of Target will have
the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation.
Sections 361 and 357 of the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
<PAGE> 120
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Consequences" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 121
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Financial Horizons Investment Trust, on behalf of Government
Bond Fund ("Target"), a series of Financial Horizons Investment Trust, and
Nationwide Investing Foundation III, on behalf of Nationwide Long-Term U.S.
Government Bond Fund ("Acquiring"), a series of Nationwide Investing Foundation
III, have entered into an Agreement and Plan of Reorganization dated as of
November 24, 1997, as amended as of December 30, 1997 (the "Agreement").
Pursuant to the Agreement, Target will transfer all of its assets to Acquiring
and Acquiring will assume all of the liabilities of Target. In accordance with
the Agreement, we are requesting your opinion (the "Opinion") on certain federal
income tax consequences as described in Section 8(f) of the Agreement with
respect to the transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act") pursuant to a demand of a shareholder and regular, normal
dividends including distributions of
<PAGE> 122
investment company taxable income and net capital gain) made by Target
immediately preceding the Exchange Date will be included as assets of
Target held immediately prior to the Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and after the
Transaction the shareholders of Target will be in control of Acquiring
within the meaning of Sections 368(a)(2)(H) and 304(c) of the Code. For
this purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business and are
associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring, and (b) the amount of
liabilities, if any, to which the transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
<PAGE> 123
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Government Bond Fund, a series fund of
Financial Horizons Investment Trust
By:
------------------------------------
<PAGE> 124
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Financial Horizons Investment Fund, on behalf of Government
Bond Fund ("Target"), a series of Financial Horizons Investment Trust, and
Nationwide Investing Foundation III, on behalf of Nationwide Long-Term U. S.
Government Bond Fund ("Acquiring"), a series of Nationwide Investing Foundation
III, have entered into an Agreement and Plan of Reorganization dated as of
November 24, 1997, as amended as of December 30, 1997 (the "Agreement").
Pursuant to the Agreement, Target will transfer all of its assets to Acquiring
and Acquiring will assume all of the liabilities of Target. In accordance with
the Agreement, we are requesting your opinion (the "Opinion") on certain federal
income tax consequences as described in Section 9(e) of the Agreement with
respect to the transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction and
<PAGE> 125
after the Transaction the shareholders of Target will be in control of
Acquiring within the meaning of Sections 368(a)(2)(h) and 304(c) of the
Code. For the purpose, "control" means the ownership of stock
possessing at least 50 percent of the total combined voting power of
all classes of stock entitled to vote, or at least 50 percent of the
total value of shares of all classes of stock.
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target. On the Exchange Date, Acquiring will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire shares in Acquiring that, if
exercised or converted, would affect the Target shareholders'
acquisition or retention of control of Acquiring. For this purpose
"control" means the ownership of stock possessing at least 50 percent
of the total combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of all
classes of stock.
(12) After the Transaction, Acquiring will meet the requirements of,
and elect to be taxed as a regulated investment company as defined in
Section 851 of the Code and will continue to be taxed as a regulated
investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
<PAGE> 126
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Long-Term U. S. Government Bond Fund,
a series fund of Nationwide Investing Foundation
III
By:
--------------------------------------------
<PAGE> 127
BAKER & HOSTETLER LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
May 9, 1998
Board of Trustees
Nationwide Investing Foundation III
Three Nationwide Plaza
Columbus, OH 43215
Board of Trustees
Financial Horizons Investment Trust
Three Nationwide Plaza
Columbus, OH 43215
RE: Financial Horizon Investment Trust--Municipal Bond
Fund/Nationwide Investing Foundation III--Nationwide
Tax-Free Income Fund
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization dated as of November
24, 1997, as amended as of December 30, 1997 (the "Agreement"), by and between
Financial Horizons Investment Trust ("FHIT"), a Massachusetts business trust, on
behalf of Municipal Bond Fund ("Target"), a series of FHIT and Nationwide
Investing Foundation III ("NIF III"), an Ohio business trust, on behalf of
Nationwide Tax-Free Income Fund ("Acquiring"), a series of NIF III. Each of
Target and Acquiring is a "series" of a "series company" as described in Rule
18f-2 of the Investment Company Act of 1940, as amended (the "1940 Act"). The
conclusions presented herein are based on the facts and representations in the
Agreement and the Combined Prospectus/Proxy Statement contained in the
Registration Statement No. 333-41175 on Form N-14 (the "Registration Statement")
as filed with the Securities and Exchange Commission ("SEC") (collectively, the
"Documents") and the representations set forth in letters dated May 9, 1998,
from Target and Acquiring (the "Representation Letters") and the applicable tax
law as it exists today. We have assumed with your consent that the facts and
representations set forth in the Documents and the Representations Letters are
true and correct.
FACTS
- -----
NIF III is an Ohio business trust registered under the 1940
Act as an open-end investment company of the management type and has authorized
and proposes to issue one or more classes of voting shares of beneficial
interest, without par value, of nine (9) "series", one of which is Acquiring.
Acquiring will elect to qualify as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and to be treated as a separate corporation under Section 851(h) of the Code.
FHIT is a Massachusetts business trust registered under the
1940 Act as an open-end investment company of the management type and currently
has issued and outstanding shares of
<PAGE> 128
beneficial interest, par value $1.00 per share, of four "series," one of which
is Target. The shares of Target are redeemable at net asset value at the option
of shareholders of Target. Target has elected to qualify as a regulated
investment company under Part I of Subchapter M of the Code and is treated as a
separate corporation under Section 851(h) of the Code.
Target seeks to achieve a high level of municipal income
consistent with preservation of capital. Target invests in investment grade
municipal obligations. Acquiring seeks to achieve a high level of municipal
income consistent with the preservation of capital. Acquiring invests in
investment grade municipal obligations.
By effecting the transaction, Acquiring and Target seek to
achieve a more efficient operation and reduction of certain expenses.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for Class D
voting shares of beneficial interest of Acquiring (the "Acquiring Shares").
Target will immediately thereafter terminate its existence and distribute the
Acquiring Shares to its shareholders in complete liquidation.
As of 9:00 a.m., Eastern Time, on May 9, 1998 ("Exchange
Date"), the assets Target will transfer to Acquiring will consist of all of the
property, including, without limitation, all investments, cash, and dividend or
interest receivables owned by Target and any deferred or prepaid expenses shown
as assets on its books as of 4:00 p.m., Eastern Time, on May 8, 1998 (the
"Valuation Time"). The liabilities assumed will consist of all liabilities,
expenses, costs, charges and reserves, contingent or otherwise, including
liabilities reflected in the unaudited statement of assets and liabilities of
Target as of the Valuation Time.
On the Exchange Date, Acquiring will deliver to Target a
number of full and fractional Acquiring Shares having an aggregate net asset
value equal to the value of all the assets transferred (less the assumed
liabilities) of Target as of the Valuation Time. Target will then as part of the
reorganization distribute the Acquiring Shares pro rata to its shareholders in
complete liquidation. The shareholders of Target will receive only Acquiring
Shares in exchange for their shares of Target.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of Acquiring Shares received in the
transaction that would reduce the ownership by the shareholders of
Target of Acquiring Shares to a number of Acquiring Shares
<PAGE> 129
having a value, as of the Exchange Date, of less than 50 percent of the
value of all of the formerly outstanding shares of Target as of the
same date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and sold, redeemed, or
disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends including distributions of investment company
taxable income and net capital gain) made by Target immediately
preceding the Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in connection with
its legal obligation under Section 22(e) of the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the transaction, except for
dispositions made in the ordinary course of business.
(6) Pursuant to the transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
Acquiring Shares it receives in the transaction.
(7) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(8) Following the transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the transaction other than the organizational
costs of Acquiring.
(10) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(11) Target meets and Acquiring will meet the requirements of a
regulated investment company as defined in Section 851 of the Code.
(12) Target 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.
(13) The fair market value of the assets of Target transferred to
Acquiring will equal or exceed the sum of (a) the liabilities assumed
by Acquiring and (b) the amount of liabilities, if any, to which the
transferred assets are subject.
<PAGE> 130
(14) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target.
(15) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code,
and, after the exchange, Acquiring will elect to be taxed as a
regulated investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(17) Target is a series of a business trust and is taxable as a
corporation. Acquiring is a series of a business trust and will be
taxable as a corporation.
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides the acquisition by
one corporation in exchange solely for all or part of its voting stock of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing 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
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part of
the plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
It is represented that Acquiring 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 Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets of
Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the
Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target. The shareholders of Target have no dissenters or appraisal
rights.
Target will transfer substantially all its assets to Acquiring
and will in complete liquidation transfer the Acquiring Shares to its
shareholders; therefore, the Acquiring Shares will be
<PAGE> 131
distributed in a transaction which qualifies under Section 354. Therefore, the
transaction will satisfy the definitional requirements of "C" reorganization.
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
(the "Regulations") must be satisfied. The Regulations provide that the purpose
of the reorganization provisions of the Code is to except from the general rule
of taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will permit a more efficient operation and a
reduction of certain expenses. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business. It
is represented that after the transaction Acquiring will continue the historic
business of Target or use a significant portion of such historic business assets
in its business. Accordingly, the transaction should meet the continuity of
business enterprise requirement.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or transferor
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of the
exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and, to
the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
<PAGE> 132
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly, the
exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(C) of the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. Accordingly, Acquiring and Target will each be "a party to
a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section 361(a)
would apply to an exchange but for the fact that the property received in the
exchange consists not only of stock and securities but also other property or
money, then if the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a part
of the consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a) of
the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis of
such property shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on such transfer.
Since Acquiring will receive property (i.e., the assets) from Target in
connection with a reorganization within the meaning of Section 368(a) of the
Code and no gain will be recognized by Target, the basis of the assets to be
received by Acquiring will be the same as the basis of those assets in the hands
of Target immediately prior to the transfer.
<PAGE> 133
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders of
Target, a party to the reorganization, will receive solely shares of Acquiring,
another party to the reorganization, no gain or loss will be recognized by the
shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of the Acquiring Shares held by the shareholders of Target will
have the same basis as the stock exchanged, the holding period of the Acquiring
Shares will include the period for which the shares of Target were held,
provided that such shares were held as a capital asset on the date of the
exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
- - The transfer of all of Target's assets in exchange for Acquiring Shares
and Acquiring's assumption of all of Target's liabilities, followed by
Target's distribution of the Acquiring Shares in complete liquidation
to its shareholders will qualify as a reorganization under Section
368(a) of the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
- - No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or
<PAGE> 134
on the distribution of the Acquiring Shares by Target to the
shareholders of Target in complete liquidation. Sections 361 and 357 of
the Code.
- - No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
- - The basis of the assets of Target in the hands of Acquiring will be the
same as the basis of such assets in the hands of Target immediately
prior to the exchange. Section 362(b) of the Code.
- - The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of Target
immediately prior to the exchange. Section 1223(2) of the Code.
- - No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
- - The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as the
basis of the shares of Target surrendered in the exchange therefor.
Section 358(a)(1) of the Code.
- - The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of the
Code.
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are as set forth in this letter. It is also based on the Code,
Regulations, case law and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. Were there to be such changes after the Exchange Date, or
should the relevant facts prove to be other than as we have reviewed, our
opinion could be affected.
We hereby consent to the reference to us under the heading
"Federal Income Tax Considerations" in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 135
Exhibit A
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Financial Horizons Investment Trust, on behalf of Municipal
Bond Fund ("Target"), a series of Financial Horizons Investment Trust, and
Nationwide Investing Foundation III, on behalf of Nationwide Tax-Free Income
Fund ("Acquiring"), a series of Nationwide Investing Foundation III, have
entered into an Agreement and Plan of Reorganization dated as of November 24,
1997, as amended as of December 30, 1997 (the "Agreement"). Pursuant to the
Agreement, Target will transfer all of its assets to Acquiring and Acquiring
will assume all of the liabilities of Target. In accordance with the Agreement,
we are requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 8(f) of the Agreement with respect to the
overall transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) There is no plan or intention by the shareholders of Target who own
1 percent or more of the shares of Target, and to the best of the
knowledge of the management of Target, there is no plan or intention on
the part of the remaining shareholders of Target to sell, exchange or
otherwise dispose of a number of shares of Acquiring received in the
Transaction that would reduce the ownership by the shareholders of
Target of shares of Acquiring to a number of shares of Acquiring having
a value, as of the Exchange Date, of less than 50 percent of the value
of all of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target and
Acquiring held by shareholders of Target and otherwise sold, redeemed,
or disposed of prior or subsequent to the Exchange Date are considered.
(3) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act") pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding
<PAGE> 136
the Exchange Date will be included as assets of Target held immediately
prior to the Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction.
(5) The liabilities of Target assumed by Acquiring and the liabilities,
if any, to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(6) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(7) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(8) Target meets the requirements of a "regulated investment company"
as defined in Section 851 of the Code.
(9) Target 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.
(10) The fair market value of the assets of Target transferred to
Acquiring will equal or exceed the sum of (a) the liabilities assumed
by Acquiring, (b) the amount of liabilities, if any, to which the
transferred assets are subject.
(11) Target has, for all of its taxable periods, elected to be taxed as
a regulated investment company as defined in Section 851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(13) Target is a series of a business trust and is taxable as a
corporation.
(14) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Municipal Bond Fund, a series of
Financial Horizons Investment Trust
By:
-----------------------------------
<PAGE> 137
Exhibit B
May 9, 1998
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Financial Horizons Investment Trust, on behalf of Municipal
Bond Fund ("Target"), a series of Financial Horizons Investment Trust, and
Nationwide Investing Foundation III, on behalf of Nationwide Tax-Free Income
Fund ("Acquiring"), a series of Nationwide Investing Foundation III, have
entered into an Agreement and Plan of Reorganization dated as of November 24,
1997, as amended as of December 30, 1997 (the "Agreement"). Pursuant to the
Agreement, Target will transfer all of its assets to Acquiring and Acquiring
will assume all of the liabilities of Target. In accordance with the Agreement,
we are requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 9(e) of the Agreement with respect to the
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by Target
and each shareholder of Target will be approximately equal to the fair
market value of the shares of Target surrendered by each of the
shareholders of Target in the Transaction.
(2) Acquiring 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 Target immediately prior to the Exchange Date.
For purposes of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay its
reorganization expenses and all redemptions and distributions (except
for redemptions in the ordinary course of its business as required by
Section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"), pursuant to a demand of a shareholder and regular, normal
dividends including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the Exchange
Date will be included as assets of Target held immediately prior to the
Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the shares
of Acquiring issued in the Transaction, except in connection with its
legal obligation under Section 22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Transaction, except for
dispositions made in the ordinary course of business.
<PAGE> 138
(5) Pursuant to the Transaction, Target will terminate its existence
and will in complete liquidation distribute to its shareholders the
shares of Acquiring it receives in the Transaction.
(6) Following the Transaction, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic
business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the
Transaction, except that Nationwide Advisory Services, Inc., which is
the investment adviser for Acquiring and Target, will pay 50% of the
costs associated with the Transaction, other than the organizational
costs of Acquiring.
(8) There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired, or will be settled at a discount.
(9) Acquiring will meet the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the assets
of Target transferred to Acquiring will equal or exceed the sum of (a)
the liabilities assumed by Acquiring and (b) the amount of liabilities,
if any, to which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of
Target.
(12) Acquiring will elect to be taxed as a regulated investment company
as defined in Section 851 of the Code.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any of their shares of Target; none of the shares of
Acquiring received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable as a
corporation.
(15) The facts set forth in the Opinion are correct and true.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
Nationwide Tax-Free Income Fund, a series of
Nationwide Investing Foundation III
By:
-----------------------------------------
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> NATIONWIDE INVESTING FOUNDATION
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> NATIONWIDE INVESTING FOUNDATION II
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> FINANCIAL HORIZONS INVESTMENT TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> FINANCIAL HORIZONS INVESTMENT TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> FINANCIAL HORIZONS INVESTMENT TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<CIK> 0000832800
<NAME> FINANCIAL HORIZONS INVESTMENT TRUST
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</TABLE>
