Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP
0000 Xxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Telephone 000.000.0000
Fax 215.564-8120
xxx.xxxxxxxx.xxx
September 18, 2007
Board of Trustees, Franklin Strategic Series
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, XX 00000-0000
Board of Trustees, Franklin Xxxxxxxxx International Trust
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, XX 00000-0000
RE: AGREEMENT AND PLAN OF REORGANIZATION, MADE AS OF
THE 18TH DAY OF SEPTEMBER, 2007 (THE "AGREEMENT"),
BY AND BETWEEN FRANKLIN STRATEGIC SERIES
("STRATEGIC SERIES"), A STATUTORY TRUST CREATED
UNDER THE LAWS OF THE STATE OF DELAWARE, ON BEHALF
OF ITS SERIES, FRANKLIN U.S. LONG-SHORT FUND
("ACQUIRED FUND"), AND FRANKLIN XXXXXXXXX
INTERNATIONAL TRUST ("INTERNATIONAL TRUST"), A
STATUTORY TRUST CREATED UNDER THE LAWS OF THE
STATE OF DELAWARE, ON BEHALF OF ITS SERIES,
XXXXXXXXX GLOBAL LONG-SHORT FUND ("ACQUIRING FUND")
Gentlemen:
You have requested our opinion concerning certain
federal income tax consequences of the reorganization of
Acquired Fund (the "Reorganization"), which will consist
of: (i) the acquisition by International Trust, on behalf
of Acquiring Fund, of substantially all of the property,
assets and goodwill of Acquired Fund in exchange solely for
the assumption of any open short-sale positions (the
"Short-Sale Obligations") that Acquired Fund may have as of
the date of closing (the "Closing") and full and fractional
Class A shares of beneficial interest, without par value, of
Acquiring Fund ("Acquiring Fund Shares"), which are voting
securities; (ii) the distribution of Acquiring Fund Shares
to the shareholders of Class A shares of Acquired Fund (the
"Acquired Fund Shares"), respectively, according to their
respective interests in Acquired Fund in complete
liquidation of Acquired Fund; and (iii) the dissolution of
Acquired Fund as soon as is practicable after the Closing,
all upon and subject to the terms and conditions of the
Agreement.
In rendering our opinion, we have reviewed and
relied upon: (a) the Agreement, made as of the 18th day of
September, 2007, by and between International Trust, on
behalf of Acquiring Fund, and Strategic Series, on behalf of
Acquired Fund; (b) the proxy materials provided to
shareholders of Acquired Fund in connection with a Special
Meeting of shareholders of Acquired Fund held on August 14,
2007 and adjourned to September 4, 2007; (c) certain
representations concerning the Reorganization made to us by
International Trust, on behalf of Acquiring Fund, and
Strategic Series, on behalf of Acquired Fund, in a letter
dated September 18, 2007 (the "Representation Letter"); (d)
all other documents, financial and other reports and
corporate minutes we deemed relevant or appropriate; and (e)
such statutes, regulations, rulings and decisions as we
deemed material in rendering this opinion. All terms used
herein, unless otherwise defined, are used as defined in the
Agreement.
For purposes of this opinion, we have assumed that Acquired
Fund, on the Closing of the Reorganization, satisfies, and
immediately following the Closing, Acquiring Fund will
continue to satisfy, the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company.
Based on the foregoing, and provided the Reorganization is
carried out in accordance with the applicable laws of the
State of Delaware, the terms of the Agreement and the
statements in the Representation Letter with regard to
matters of fact, it is our opinion that:
1. The acquisition by Acquiring Fund of
substantially all of the assets of Acquired Fund as provided
for in the Agreement in exchange solely for Acquiring Fund
Shares and the assumption by Acquiring Fund of the
Short-Sale Obligations of Acquired Fund, followed by the
distribution by Acquired Fund to its shareholders of
Acquiring Fund Shares in complete liquidation of Acquired
Fund, will qualify as a reorganization within the meaning of
Section 368(a)(1) of the Code, and Acquired Fund and
Acquiring Fund each will be a "party to the reorganization"
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by
Acquired Fund upon the transfer of substantially all of its
assets to, and the assumption of its Short-Sale Obligations
by, Acquiring Fund in exchange solely for Acquiring Fund
Shares pursuant to Section 361(a) and Section 357(a) of the
Code.
3. No gain or loss will be recognized by
Acquiring Fund upon the receipt by it of substantially all
of the assets of Acquired Fund in exchange solely for
Acquiring Fund Shares and the assumption by Acquiring Fund
of the Short-Sale Obligations of Acquired Fund pursuant to
Section 1032(a) of the Code.
4. No gain or loss will be recognized by
Acquired Fund upon the distribution of Acquiring Fund Shares
to its shareholders in complete liquidation of Acquired Fund
(in pursuance of the Agreement) pursuant to Section
361(c)(1) of the Code.
5. The basis of the assets of Acquired Fund
received by Acquiring Fund will be the same as the basis of
these assets to Acquired Fund immediately prior to the
exchange pursuant to Section 362(b) of the Code.
6. The holding period of the assets of Acquired
Fund received by Acquiring Fund will include the period
during which such assets were held by Acquired Fund pursuant
to Section 1223(2) of the Code.
7. No gain or loss will be recognized by the
shareholders of Acquired Fund upon the exchange of their
Acquired Fund Shares for Acquiring Fund Shares (including
fractional shares to which they may be entitled), pursuant
to Section 354(a) of the Code.
8. The basis of Acquiring Fund Shares received
by the shareholders of Acquired Fund (including fractional
shares to which they may be entitled) will be the same as
the basis of Acquired Fund Shares exchanged therefor
pursuant to Section 358(a)(1) of the Code.
9. The holding period of Acquiring Fund Shares
received by the shareholders of Acquired Fund (including
fractional shares to which they may be entitled) will
include the holding period of Acquired Fund Shares
surrendered in exchange therefor, provided that Acquired
Fund Shares were held as a capital asset on the Closing of
the Reorganization pursuant to Section 1223(1) of the Code.
10. Acquiring 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 income tax regulations issued
by the United States Department of the Treasury (the
"Treasury Regulations"), the items of Acquired Fund described
in Section 381(c) of the Code, subject to the conditions and
limitations specified in Sections 381, 382, 383 and 384 of
the Code and the Treasury Regulations.
Our opinion is based upon the Code, the applicable
Treasury Regulations, the present positions of the Internal
Revenue Service (the "Service") as are set forth in
published revenue rulings and revenue procedures, present
administrative positions of the 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 Closing of the Reorganization.
Our opinion is conditioned upon the performance by
International Trust, on behalf of Acquiring Fund, and
Strategic Series, on behalf of Acquired Fund, of their
undertakings in the Agreement and the Representation Letter.
Our opinion is limited to the transactions incident to the
Reorganization described herein, and no opinion is rendered
with respect to (i) any other transaction or (ii) the
effect, if any, of the Reorganization (and/or the
transactions incident thereto) on any other transaction
and/or the effect, if any, of any such other transaction on
the Reorganization.
This opinion is being rendered to International
Trust, on behalf of Acquiring Fund, and Strategic Series, on
behalf of Acquired Fund, and may be relied upon only by such
Funds and the shareholders of each. We hereby consent to the
use of this opinion as an exhibit to the Registration
Statement of Acquiring Fund on Form N-14, and any amendments
thereto, covering the registration of the shares of
Acquiring Fund under the Securities Act of 1933, as amended,
to be issued in the Reorganization.
Very truly yours,
/s/ XXXXXXXX RONON XXXXXXX & YOUNG,
LLP
Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP
