[FORM OF OPINION]
______ __, 2009
Board of Trustees
Rydex Series Funds
9601 Blackwell Road, Suite 500
Rockville, MD 20850
RE: AGREEMENT AND PLAN OF REORGANIZATION, DATED MAY __, 2009 (THE "PLAN"),
ADOPTED BY THE BOARD OF TRUSTEES OF THE RYDEX SERIES FUNDS (THE
"TRUST") FOR THE REORGANIZATION OF THE TRUST'S HEDGED EQUITY FUND (THE
"ACQUIRED FUND") INTO THE TRUST'S MULTI-HEDGE STRATEGIES FUND, FORMERLY
THE ABSOLUTE RETURN STRATEGIES FUND (THE "SURVIVING FUND")
Ladies and Gentlemen:
You have requested our opinions as to certain U.S. federal
income tax consequences of the reorganization of the Acquired Fund and the
Surviving Fund that will consist of: (i) the transfer of all of the assets of
the Acquired Fund to the Surviving Fund in exchange solely for H-Class, A-Class
and C Class shares of the Surviving Fund ("Surviving Fund Shares"), (ii) the
assumption by the Surviving Fund of all of the liabilities of the Acquired Fund,
and (iii) the distribution of the Surviving Fund Shares to the shareholders of
the Acquired Fund(1) in complete liquidation of the Acquired Fund, all upon the
terms and conditions set forth in the Plan (the "Reorganization").
In rendering our opinions, we have reviewed and relied upon
(a) the Plan, (b) certain representations concerning the Reorganization made to
us by the Trust, on behalf of the funds, in a letter dated _____ __, 2009 (the
"Representation Letter"), (c) all other documents, financial and other reports
and corporate minutes that we deemed relevant or appropriate, and (d) such
statutes, regulations, rulings and decisions as we deemed material with respect
to this opinion. All terms used herein, unless otherwise defined, are used as
defined in the Plan.
For purposes of our opinions, we have assumed that the
Acquired Fund and the Surviving Fund, as of the Effective Time of the
Reorganization, each satisfy and, following the Reorganization, the Surviving
Fund will continue to satisfy, the requirements of subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company ("RIC").
Based on the foregoing, and provided the Reorganization is
carried out in accordance with the laws of the State of Delaware, the Plan and
the Representation Letter, it is our opinion that:
1. The Reorganization will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code, and
the Acquired Fund and the Surviving Fund will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by the Surviving Fund
upon the receipt of the assets of the Acquired Fund solely in exchange
for Surviving Fund Shares and the assumption by
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(1) In the distribution, Acquired Fund shareholders who hold Acquired Fund
H-Class, A-Class and C-Class shares will receive Surviving Fund
H-Class, A-Class and C-Class shares, respectively.
Board of Trustees
Rydex Series Funds
______ __, 2009
Page 2
the Surviving Fund of all of the liabilities of the Acquired Fund,
pursuant to Section 1032(a) of the Code.
3. No gain or loss will be recognized by the Acquired Fund
upon the transfer of all of its assets to the Surviving Fund solely in
exchange for Surviving Fund Shares and the assumption by the Surviving
Fund of all of the liabilities of the Acquired Fund or upon the
distribution of Surviving Fund Shares to shareholders of the Acquired
Fund, pursuant to Sections 361(a) and (c) and 357(a) of the Code.
4. No gain or loss will be recognized by the shareholders of
the Acquired Fund upon the exchange of their shares of the Acquired
Fund for Surviving Fund Shares (including fractional shares to which
they may be entitled), pursuant to Section 354(a) of the Code.
5. The aggregate tax basis of Surviving Fund Shares received
by each shareholder of the Acquired Fund (including fractional shares
to which they may be entitled) will be the same as the aggregate tax
basis of the Acquired Fund shares exchanged therefor, pursuant to
Section 358(a)(1) of the Code.
6. The holding period of the Surviving Fund Shares received by
the shareholders of the Acquired Fund (including fractional shares to
which they may be entitled) will include the holding period of the
Acquired Fund shares surrendered in exchange therefor, provided that
the Acquired Fund shares were held as a capital asset as of the
Effective Time of the Reorganization, pursuant to Section 1223(1) of
the Code.
7. The tax basis of the assets of the Acquired Fund received
by the Surviving Fund will be the same as the tax basis of such assets
to the Acquired Fund immediately prior to the exchange, pursuant to
Section 362(b) of the Code.
8. The holding period of the assets of the Acquired Fund
received by the Surviving Fund will include the period during which
such assets were held by the Acquired Fund, pursuant to Section 1223(2)
of the Code.
9. The Surviving Fund will succeed to and take into account,
as of the date of the transfer (as defined in Section 1.381(b)-1(b) of
the Treasury Regulations), the items of the Acquired Fund described in
Section 381(c) of the Code, subject to the conditions and limitations
specified in Sections 381(b) and (c), 382, 383 and 384 of the Code.
Notwithstanding the foregoing opinions, no opinion is
expressed as to the effect of the Reorganization on (i) the Acquired
Fund or the Surviving Fund with respect to any asset as to which any
unrealized gain or loss is required to be recognized for U.S. federal
income tax purposes at the end of a taxable year (or on the termination
or transfer thereof) under a mark-to-market system of accounting and
(ii) any shareholder of the Acquired Fund that is required to recognize
unrealized gains and losses for U.S. federal income tax purposes under
a mark-to-market system of accounting.
Board of Trustees
Rydex Series Funds
______ __, 2009
Page 3
Our opinions are limited solely to the Reorganization. This
opinion letter expresses our views only as to U.S. federal income tax laws in
effect as of the date hereof. It represents our best legal judgment as to the
matters addressed herein, but is not binding on the Internal Revenue Service or
the courts. Accordingly, no assurance can be given that the opinions and
analysis expressed herein, if contested, would be sustained by a court. Our
opinion is based upon the Code, the applicable Treasury Regulations promulgated
thereunder, the present position of the Internal Revenue Service as set forth in
published revenue rulings and revenue procedures, present administrative
positions of the Internal Revenue Service, and existing judicial decisions, all
of which are subject to change either prospectively or retroactively. We do not
undertake to make any continuing analysis of the facts or relevant law following
the date of this letter.
Our opinions are conditioned upon the performance by the
Trust, on behalf of the Surviving Fund and the Acquired Fund, of its
undertakings in the Plan and the Representation Letter.
Our opinions are being rendered to the Trust on behalf of the
Surviving Fund and the Acquired Fund, and may be relied upon only by the Trust,
its Board of Trustees, the Acquired Fund, the Surviving Fund and the
shareholders of the Acquired Fund and the Surviving Fund.
Very truly yours,