STRADLEY XXXXXXXX RONON XXXXXXX & XXXXX, LLP
RONON 2600 One Commerce Square
ATTORNEYS AT LAW Xxxxxxxxxxxx, XX 00000-0000
Telephone (000) 000-0000
Fax (000) 000-0000
June 5, 2003
Board of Trustees
Franklin Strategic Series
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000-0000
Board of Trustees
Franklin Capital Growth Fund
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000-0000
RE: AGREEMENT AND PLAN OF REORGANIZATION (THE "PLAN") DATED AS
OF MARCH 26, 2003, BY AND BETWEEN FRANKLIN STRATEGIC SERIES
("TRUST"), A STATUTORY TRUST FORMED UNDER THE LAWS OF THE
STATE OF DELAWARE, ON BEHALF OF ITS SERIES, FRANKLIN LARGE CAP
GROWTH FUND ("ACQUIRED FUND"), AND FRANKLIN CAPITAL GROWTH
Fund, A STATUTORY TRUST FORMED UNDER THE LAWS OF THE STATE OF
DELAWARE ("ACQUIRING FUND")
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Ladies and Gentlemen:
You have requested our opinion concerning certain federal income
tax consequences of the reorganization of the Acquired Fund (the
"Reorganization"), which will consist of: (i) the acquisition by Acquiring
Fund, of substantially all of the property, assets and goodwill of Acquired
Fund in exchange solely for full and fractional shares of beneficial
interest, par value $0.01 per share, of Acquiring Fund - Class A ("Acquiring
Fund Class A Shares"), full and fractional shares of beneficial interest, par
value $0.01 per share, of Acquiring Fund - Class B ("Acquiring Fund Class B
Shares"), full and fractional shares of beneficial interest, par value $0.01
per share, of Acquiring Fund - Class C ("Acquiring Fund Class C Shares"),
full and fractional shares of beneficial interest, par value $0.01 per share,
of Acquiring Fund - Class R ("Acquiring Fund Class R Shares") and full and
fractional shares of beneficial interest, par value $0.01 per share, of
Acquiring Fund - Advisor Class ("Acquiring Fund Advisor Shares")
(collectively, "Acquiring Fund Shares"); (ii) the distribution of Acquiring
Fund Class A Shares to the shareholders of Acquired Fund - Class A ("Acquired
Fund Class A Shares"), Acquiring Fund Class B Shares to the shareholders of
Acquired Fund - Class B ("Acquired Fund Class B Shares"), Acquiring Fund
Class C Shares to the shareholders of Acquired Fund - Class C ("Acquired Fund
Class C Shares"), Acquiring Fund Class R Shares to the shareholders of
Acquired Fund - Class R ("Acquired Fund Class R Shares") and Acquiring Fund
Advisor Class Shares to the shareholders of Acquired Fund - Advisor Class
("Acquired Fund Advisor Class Shares") (collectively, "Acquired Fund
Shares"), 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 (the "Closing Date") of the
Reorganization, all upon and subject to the terms and conditions of the Plan.
In rendering our opinion, we have reviewed and relied upon: (a)
the Plan, made as of the 26th day of March, 2003, by and between the Acquired
Fund and the Acquiring Fund; (b) the proxy materials provided to shareholders
of the Acquired Fund in connection with the Annual Meeting of Shareholders of
the Acquired Fund held on May 22, 2003; (c) certain representations
concerning the Reorganization made to us by the Acquired Fund and the
Acquiring Fund in a letter dated June 5, 2003 (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 Plan.
For purposes of this opinion, we have assumed that the Acquired
Fund, on the Closing of the Reorganization, satisfies, and immediately
following the Closing, 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.
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 Plan and the statements in the Representation Letter, it is our
opinion that:
1. The acquisition by the Acquiring Fund of substantially all of the assets
of the Acquired Fund as provided for in the Plan in exchange for the
Acquiring Fund Shares, followed by the distribution by the Acquired Fund to
its shareholders of the Acquiring Fund Shares in complete liquidation of the
Acquired Fund, will qualify as a reorganization within the meaning of
Section 368(a)(1) of the Code, and the Acquired Fund and the 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 the Acquired Fund upon the
transfer of substantially all of its assets to the Acquiring Fund in exchange
solely for the Acquiring Fund Shares pursuant to Section 361(a) and
Section 357(a) of the Code.
3. No gain or loss will be recognized by the Acquiring Fund upon the
receipt by it of substantially all of the assets of the Acquired Fund in
exchange solely for the Acquiring Fund Shares pursuant to Section 1032(a) of
the Code.
4. No gain or loss will be recognized by the Acquired Fund upon the
distribution of the Acquiring Fund Shares to its shareholders in complete
liquidation of the Acquired Fund (in pursuance of the Plan) pursuant to
Section 361(c)(1) of the Code.
5. The basis of the assets of the Acquired Fund received by the Acquiring
Fund will be the same as the basis of these assets to the Acquired Fund
immediately prior to the exchange pursuant to Section 362(b) of the Code.
6. The holding period of the assets of the Acquired Fund received by the
Acquiring Fund will include the period during which such assets were held by
the Acquired Fund pursuant to Section 1223(2) of the Code.
7. No gain or loss will be recognized by the shareholders of the 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 the Acquiring Fund Shares received by the shareholders of
the 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.
9. The holding period of the Acquiring 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 pursuant to Section 1223(1) of the Code on the
Closing Date.
10. The 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 the 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 date of the Reorganization.
Our opinion is conditioned upon the performance by the Acquiring
Fund and the Trust on behalf of the Acquired Fund of their undertakings in
the Plan 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 the Acquiring Fund and the Trust
on behalf of the 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 the Acquiring Fund on Form N-14, and
any amendments thereto, covering the registration of the shares of the
Acquiring Fund under the Securities Act of 1933, as amended, to be issued in
the Reorganization.
Very truly yours,
STRADLEY, RONON, XXXXXXX & XXXXX, LLP
By:/S/ XXXXXXX X. XXXXXXX, III
Xxxxxxx X. Xxxxxxx, III, a Partner
