IMG MUTUAL FUNDS, INC.
EXHIBIT # 12 (a)
TO
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM N-14 REGISTRATION STATEMENT
CLINE, WILLIAMS, WRIGHT, JOHNSON & OLDFATHER
1900 First Bank Building
233 South 13th Street
Lincoln, NE 68508
(402) 474-6900
Fax: (402) 474-5393
January 12, 1998
IMG Mutual Funds, Inc.
2203 Grand Ave.
Des Moines, IA 50312-5338
RE: Plan of Reorganization for Combining the IMG Mutual Funds, Inc.
and the Core Stock Fund (the "Stock Fund"), (the Acquired
Portfolio") into the IMG Mutual Funds, Inc., and its Vintage
Equity Fund (the "Surviving Fund")
Dear Sirs:
We have been asked to give our opinion relating to the above-described
transaction (the "Reorganization"), as to certain Federal income tax
consequences of consummating the transactions contemplated in the Plan of
Reorganization (the "Plan").
BACKGROUND
IMG Mutual Funds, Inc. ("IMG") is a Maryland corporation consisting of
multiple investment portfolios, including, the Acquired Portfolio identified
above (the "Transferor Fund") and the Surviving Fund identified above. The
Transferor Fund and the Surviving Fund are sometimes referred to herein
collectively as "Funds." IMG, as well as each of the "Funds", is registered
under the Investment Company Act of 1940, as amended, as an open-end investment
company of the management type.
It is proposed that all the assets and liabilities of the Transferor
Fund be transferred to the Surviving Fund. As consideration for such transfer,
the Surviving Fund is issuing to the Transferor Fund a number of full and
fractional shares of common stock in the Surviving Fund equal to the net asset
value of the shares outstanding of the respective Transferor Fund at the
Effective Time of the Reorganization.
Immediately after the transfer, the Surviving Fund shares issued to the
Transferor Fund are to be distributed to the shareholders of the Transferor Fund
in liquidation of the Transferor Fund, and the Transferor Fund is to cease
operations. Each Transferor Fund shareholder is receiving shares of the
Surviving Fund in proportion to the shareholding in the Transferor Fund
immediately before the Reorganization. The outstanding shares of the Transferor
Fund are to be canceled, and the Transferor Fund is to be terminated.
ASSUMPTIONS
For purposes of this opinion, we have made several assumptions:
First, that each of the Funds is qualified as a "regulated investment
company" under Part I of Subchapter M of Subtitle A, Chapter 1, of the Internal
Revenue Code of 1986, as amended (the "Code") and also meet the diversification
requirements of Code ss.368(a)(2)(E)(ii), for its most recently ended fiscal
year and will continue to so qualify for its current fiscal year;
Second, that the Surviving Fund is acquiring at least 90% of the fair
market value of the net assets and at least 70% of the fair market value of the
gross assets held by the Transferor Fund immediately prior to the transaction,
treating any assets used to make other than regular and normal distributions or
redemptions as unacquired assets;
Third, that the shareholders of the Transferor Fund have no plan or
intention to dispose of a number of shares of the Surviving Fund received by
them as a result of the transaction which would result in their owning in the
aggregate shares of the Surviving Fund having a fair market value that is less
than 50% of the fair market value of the Transferor Fund's shares outstanding
immediately before the transaction (including any Transferor Fund's shares
redeemed in anticipation of the transaction);
Fourth, that the Surviving Fund has no plan or intention to reacquire
any of its shares issued in the transaction, except for redemptions in the
ordinary course of business as a regulated investment company;
Fifth, that the Surviving Fund has no plan or intention to sell or
otherwise to dispose of any of the assets of the Transferor Fund acquired in the
transaction, except for dispositions made in the ordinary course of business;
Sixth, that the liabilities of the Transferor Fund assumed by the
Surviving Fund and the liabilities to which the transferred assets of the
Transferor Fund are subject were incurred by the Transferor Fund in the ordinary
course of business;
Seventh, that the transaction serves a business purpose or purposes of
the Funds and that following the transaction the Surviving Fund will continue
the historic business of the Transferor Fund or use a significant portion of the
Transferor Fund's historic business assets in a business;
Eighth, that there is no intercorporate indebtedness existing between
the Surviving Fund and the Transferor Fund that was issued, acquired or will be
settled at a discount;
Ninth, that the Surviving Fund does not own, directly or indirectly,
nor have they owned during the past five years, directly or indirectly, any
stock of the Transferor Fund;
Tenth, that the Transferor Fund is not under the jurisdiction of a
court in a case under Title 11 of the United States Code or a receivership,
foreclosure or similar proceeding in any Federal or State court; and
Eleventh, that the Plan substantially in the form included as an
exhibit to the registration statement of the Surviving Fund, on Form N-14 under
the Securities Act of 1933 (the "Registration Statement") has been or will be
duly authorized by the Surviving Fund.
The opinions set forth below are subject to the approval of the Plan by
the shareholders of the Transferor Fund, to the proper submission and filing of
appropriate documents with the appropriate government agencies and to the
satisfaction of the terms and conditions set forth in the Plan.
CONCLUSIONS
Based upon the Code, applicable Treasury Department regulations in
effect as of the date hereof, current published administrative positions of the
Internal Revenue Service contained in revenue rulings and procedures, and
judicial decisions, and upon the information, representations and assumptions
contained herein and in the documents provided to us by you, it is our opinion
for Federal income tax purposes that:
(i) the transfer of all of the assets and liabilities of the
Transferor Fund to the Surviving Fund in exchange for shares of the
Surviving Fund and distribution to shareholders of the Transferor Fund
of the shares the shares of the Surviving Fund so received, as
described in the Plan, will constitute a reorganization within the
meaning of Code section 368(a)(1)(C) or 368(a)(1)(D);
(ii) in accordance with sections 361(a), 361(c)(1) and 357(a)
of the Code, no gain or loss will be recognized by any Transferor Fund
as a result of such transactions;
(iii) in accordance with section 1032(a) of the Code, no gain
or loss will be recognized by the Surviving Fund as a result of such
transactions;
(iv) in accordance with section 354(a)(1) of the Code, no
gain or loss will be recognized by the shareholders of any of the Funds
on the distribution to them by the Transferor Fund of shares of the
Surviving Fund in exchange for their shares of such Transferor Fund
(but shareholders of an Acquired Fund subject to taxation will
recognize income upon receipt of any net investment income or net
capital gains of such Acquired Funds which are distributed to them by
such Acquired Fund prior to the closing date of its Reorganization);
(v) in accordance with section 358(a)(1) of the Code, the
basis of the Surviving Fund shares received by a shareholder of the
Transferor Fund will be the same as the basis of the shareholder's
Transferor Fund shares immediately before the transactions;
(vi) in accordance with section 362(b) of the Code, the basis
to the Surviving Fund of the assets of the Transferor Fund received
pursuant to the transactions will be the same as the basis of those
assets in the hands of such Transferor Fund immediately before the
transactions;
(vii) in accordance with section 1223(1) of the Code, a
shareholder's holding period for Surviving Fund shares will be
determined by including the period for which the shareholder held
Transferor Fund shares exchanged therefor, provided that the
shareholder held such Transferor Fund shares as a capital asset; and
(viii) in accordance with section 1223(2) of the Code, the
Surviving Fund's holding period with respect to any asset acquired from
the Transferor Fund will include the period for which such asset was
held by such Transferor Fund; and
(ix) the Surviving Fund will succeed and take into account
the earnings and profits or deficits in earnings and profits of the
corresponding Acquired Fund as of the closing of the Reorganization.
We express no opinion relating to any Federal income tax matter except
on the basis of the documents and assumptions described above. In issuing our
opinion, we have relied solely upon existing provisions of the Code, existing
and proposed regulations thereunder, and current administrative rulings and
court decisions. Such laws, regulations, administrative rulings and court
decisions are subject to change at any time. Any such change could affect the
validity of the opinion set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm under the caption
"Federal Income Tax Consequences" in the Combined Proxy Statement/Prospectus
constituting a part of the Registration Statement.
Very truly yours,
/s/ Cline, Williams, Wright,
Johnson & Oldfather
CLINE, WILLIAMS, WRIGHT,
JOHNSON & OLDFATHER