August __, 2007
Vanguard Market Neutral Fund
a series of Vanguard Montgomery Funds
P.O. Box 2600 Valley Forge, PA 19482
Laudus Rosenberg U.S. Large/Mid
Capitalization Long/Short Equity Fund
a series of Laudus Trust
P. O. Box 8032
Boston, MA 02266
Ladies and Gentlemen:
You have asked us for our opinion concerning certain U.S. federal income
tax consequences to (i) Vanguard Market Neutral Fund (the "ACQUIRING FUND"), a
series of Vanguard Montgomery Funds (the "VANGUARD TRUST"), a statutory trust
formed under the laws of the State of Delaware, (ii) Laudus Rosenberg U.S.
Large/Mid Capitalization Long/Short Equity Fund (the "SELLING FUND"), a series
of the Laudus Trust (the "LAUDUS TRUST"), a business trust formed under the laws
of the Commonwealth of Massachusetts, and (iii) the holders ("SHAREHOLDERS") of
voting shares of beneficial interest of the Selling Fund ("SELLING FUND
SHARES"), when the Shareholders receive solely units of beneficial interest of
the Acquiring Fund ("ACQUIRING FUND SHARES") in exchange for their Selling Fund
Shares pursuant to the transfer by the Selling Fund of all of the assets of the
Selling Fund to the Acquiring Fund in exchange for Acquiring Fund Shares and the
assumption by the Acquiring Fund of all Liabilities (as defined in that certain
Agreement and Plan of Reorganization adopted by the Board of Trustees of the
Laudus Trust on behalf of the Selling Fund and the Board of Trustees of the
Vanguard Trust on behalf of the Acquiring Fund (the "PLAN")) of the Selling Fund
(the "Reorganization"), all pursuant to the Plan. This opinion is being
delivered pursuant to Section 8.5 of the Plan.
We have reviewed such documents and materials as we have considered
necessary for the purpose of rendering this opinion. In rendering this opinion,
we have assumed that such documents as yet unexecuted will, when executed,
conform in all material respects to the proposed forms of such documents that we
have examined. In addition, we have assumed the genuineness of all signatures,
the capacity of each party executing a document to so execute that document, the
authenticity of all
Vanguard Montgomery Funds
Laudus Trust
August __, 2007
Page 2
documents submitted to us as originals and the conformity to original documents
of all documents submitted to us as certified or photostatic copies.
We have made inquiry as to the underlying facts that we considered to be
relevant to the conclusions set forth in this letter. The opinions expressed in
this letter are based upon certain factual statements relating to the Acquiring
Fund and the Selling Fund set forth in the Plan and representations made in
letters from the Acquiring Fund and the Selling Fund addressed to us for our use
in rendering this opinion ("TAX REPRESENTATION LETTERS"). We have no reason to
believe that these representations and facts are not valid, but we have not
attempted to verify independently any of these representations and facts, and
this opinion is based upon the assumption that each of them is accurate.
The conclusions expressed herein are based upon the Internal Revenue Code
of 1986, as amended ("CODE"), Treasury regulations issued thereunder, published
rulings and procedures of the Internal Revenue Service and judicial decisions,
all as in effect on the date of this letter.
Based upon the foregoing, we are of the opinion that for U.S. federal
income tax purposes:
o the acquisition by the Acquiring Fund of all of the Selling Fund's assets
solely in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Liabilities, followed by the distribution by the
Selling Fund to its Shareholders of those Acquiring Fund Shares in exchange
for their Selling Fund Shares in complete liquidation of the Selling Fund,
all pursuant to the Plan, constitutes a "reorganization" within the meaning
of Section 368(a) of the Code, and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code;
o under Sections 361 and 357(a) of the Code, the Selling Fund will not
recognize gain or loss upon the transfer of its assets to the Acquiring
Fund solely in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Liabilities, and the Selling Fund will not recognize
gain or loss upon the distribution to its Shareholders of the Acquiring
Fund Shares in the subsequent liquidation of the Selling Fund;
o under Section 354 of the Code, Shareholders will not recognize gain or loss
on the receipt of Acquiring Fund Shares solely in exchange for their
Selling Fund Shares;
o under Section 358 of the Code, the aggregate tax basis of the Acquiring
Fund Shares received by each Shareholder pursuant to the Reorganization
will be the same as the aggregate tax basis of the Selling Fund Shares held
by the Shareholder immediately prior to the Reorganization;
Vanguard Montgomery Funds
Laudus Trust
August __, 2007
Page 3
o under Section 1223(1) of the Code, the holding period of the Acquiring Fund
Shares received by each Shareholder pursuant to the Reorganization will
include the period during which the Selling Fund Shares exchanged therefor
were held by such Shareholder, provided that the Shareholder held the
Selling Fund Shares as capital assets on the Closing Date (as defined in
the Plan);
o under Section 1032 of the Code, the Acquiring Fund will not recognize gain
or loss upon the receipt of assets of the Selling Fund solely in exchange
for Acquiring Fund Shares and the assumption by the Acquiring Fund of the
Liabilities;
o under Section 362(b) of the Code, the tax basis of the assets of the
Selling Fund transferred to the Acquiring Fund pursuant to the
Reorganization will be the same in the hands of the Acquiring Fund as the
tax basis of such assets in the hands of the Selling Fund immediately prior
to the Reorganization;
o the Acquiring Fund will succeed to and take into account the items of the
Selling Fund described in Section 381(c) of the Code; and
o under Section 1223(2) of the Code, the holding periods of the assets of the
Selling Fund transferred to the Acquiring Fund in the Reorganization in the
hands of the Acquiring Fund will include the periods during which such
assets were held by the Selling Fund.
No opinion is expressed herein as to the effect of the Reorganization on
the Funds or any Shareholder with respect to the recognition of any unrealized
gain or loss for any asset that is required to be marked to market for U.S.
federal income tax purposes upon termination of the Selling Fund's taxable year.
Our opinion is based upon the accuracy of the certifications,
representations and warranties and satisfaction of the covenants and obligations
contained in the Plan, the Tax Representation Letters and in the various other
documents related thereto. Our opinion may not be relied upon if any of such
certifications, representations or warranties are not accurate or if any of such
covenants or obligations are not satisfied in all material respects. We hereby
consent to the reference to us in the Proxy Statement.
Sincerely yours,