August 12, 1999
Board of Trustees
Franklin Managed Trust
000 Xxxxxxxx Xxxxxx Xxxx.
Xxx Xxxxx, XX 00000
Board of Trustees
Franklin Strategic Series
000 Xxxxxxxx Xxxxxx Xxxx.
Xxx Xxxxx, XX 00000
Re: AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF THE 1ST
DAY OF JUNE, 1999 (THE "AGREEMENT"), BY AND BETWEEN FRANKLIN
MANAGED TRUST, A MASSACHUSETTS BUSINESS TRUST, ON BEHALF OF ITS
SERIES FRANKLIN INVESTMENT GRADE FUND ("ACQUIRED FUND") AND
FRANKLIN STRATEGIC SERIES, A DELAWARE BUSINESS TRUST ON BEHALF OF
ITS SERIES FRANKLIN STRATEGIC INCOME FUND ("ACQUIRING FUND")
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of Acquired Fund which will consist of (i)
the acquisition by the Acquiring Fund of substantially all of the property,
assets and goodwill of the Acquired Fund in exchange solely for shares of
beneficial interest, $0.01 par value, of the Acquiring Fund - Class A
("Acquiring Fund Class A Shares") and shares of beneficial interest, $0.01
par value, of the Acquiring Fund - Advisor Class ("Acquiring Advisor Class
Shares") (collectively "Acquiring Fund Shares"), (ii) the distribution of (a)
Acquiring Fund Class A Shares to the shareholders of Class A shares of
beneficial interest of the Acquired Fund; and (b) Acquiring Fund Advisor
Class Shares to the shareholders of Advisor Class shares of beneficial
interest of the Acquired Fund, according to their respective interests, and
(iii) the subsequent dissolution of the Acquired Fund as soon as practicable
after the closing (the "Reorganization"), 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 and Plan of Reorganization, dated as of the 1st day of June,
1999, by and between the Acquiring Fund and the Acquired Fund ("Agreement"),
(b) the proxy materials provided to stockholders of the Acquired Fund in
connection with the Special Meeting of Stockholders of the Acquired Fund held
on July 26, 1999, (c) certain representations concerning the Reorganization
made to us by the Acquiring Fund and the Acquired Fund in a letter dated
August 12, 1999 (the "Representation Letter"), (d) all other documents,
financial and other reports and corporate minutes which we deemed relevant or
appropriate, and (e) such statutes, regulations, rulings and decisions as we
deemed material to the rendition of 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 the Acquired
Fund on the effective date of the Reorganization satisfies, and following the
Reorganization, the 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.
Under regulations to be prescribed by the Secretary of Treasury
under Section 1276(d) of the Code, certain transfers of market discount bonds
will be excepted from the requirement that accrued market discount be
recognized on disposition of a market discount bond under Section 1276(a) of
the Code. Such regulations are to provide, in part, that accrued market
discount will not be included in income if no gain is recognized under
Section 361(a) of the Code where a bond is transferred in an exchange
qualifying as a tax-free reorganization. As of the date hereof, the
Secretary has not issued any regulations under Section 1276 of the Code.
Based on the foregoing and provided the Reorganization is carried
out in accordance with the applicable laws of the Commonwealth of
Massachusetts and the State of Delaware, the Agreement 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)(1)(C) of the Code, and
Acquired Fund and Acquiring 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 Acquired Fund upon
the transfer of all of its assets to Acquiring Fund in exchange solely for
Acquiring Fund Shares pursuant to Section 361(a) and Section 357(a) of the
Code. We express no opinion as to whether any accrued market discount will
be required to be recognized as ordinary income pursuant to Section 1276 of
the Code.
3. No gain or loss will be recognized by Acquiring Fund upon
the receipt by it of all of the assets of Acquired Fund in exchange solely
for Acquiring Fund Shares pursuant to Section 1032(a) of the Code.
4. The basis of the assets of Acquired Fund received by
Acquiring Fund will be the same as the basis of such assets to Acquired Fund
immediately prior to the exchange pursuant to Section 362(b) of the Code.
5. 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.
6. No gain or loss will be recognized by the stockholders 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.
7. The basis of the Acquiring Fund Shares received by the
stockholders of Acquired Fund (including fractional shares to which they may
be entitled) will be the same as the basis of the Acquired Fund Shares
exchanged therefor pursuant to Section 358(a)(1) of the Code.
8. The holding period of the Acquiring Fund Shares received by
the stockholders of 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 on the effective date of the Reorganization, pursuant
to Section 1223(1) of the Code.
9. Acquiring Fund will succeed to and take into account as of
the date of the proposed transfer (as defined in Section 1.381(b)-1(b) of the
Income Tax Regulations) the items of 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.
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 opinion is conditioned upon the performance by Acquiring Fund
and Acquired Fund of their undertakings in the Agreement and the
Representation Letter.
This opinion is being rendered to Acquiring Fund and Acquired
Fund and may be relied upon only by such funds and the stockholders of each.
Very truly yours,
STRADLEY, RONON, XXXXXXX & XXXXX, LLP
By: /s/Xxxxxxx X. Xxxxxxxxx
Xxxxxxx X. Xxxxxxxxx, a Partner
