STRADLEY XXXXXXXX XXXXX XXXXXXX & XXXXX, LLP
RONON 0000 Xxx Xxxxxxxx Xxxxxx
XXXXXXXXX XX XXX Xxxxxxxxxxxx, XX 00000-0000
Telephone (000) 000-0000
Fax (000) 000-0000
XXXXXXX X. XXXXXXX, III
XXxxxxxx@xxxxxxxx.xxx
000-000-0000
February 20, 2003
Board of Trustees
Franklin Tax-Free Trust
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000-1906
Board of Directors
Franklin Federal Tax-Free Income Fund
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000-1906
RE: AGREEMENT AND PLAN OF REORGANIZATION (THE "PLAN") DATED
AS OF NOVEMBER 25, 2002, BY AND BETWEEN FRANKLIN TAX-FREE
TRUST ("TRUST"), A BUSINESS TRUST FORMED UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS, ON BEHALF OF ITS SERIES,
FRANKLIN TEXAS TAX-FREE INCOME FUND ("ACQUIRED FUND"), AND
FRANKLIN FEDERAL TAX-FREE INCOME FUND, A CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
("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 common stock, no par value, of Acquiring Fund -
Class A ("Acquiring Fund Class A Shares") and full and fractional shares of
common stock, no par value, of Acquiring Fund - Class C ("Acquiring Fund Class C
Shares") (collectively, "Acquiring Fund Shares"); (ii) the distribution of
Acquiring Fund Class A Shares to the shareholders of Acquired Fund - Class A and
Acquiring Fund Class C Shares to the shareholders of Acquired Fund - Class C
(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 25th day of November, 2002, 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 February 6, 2003; (c) certain representations concerning
the Reorganization made to us by the Acquired Fund and the Acquiring Fund in a
letter dated February 20, 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 Commonwealth of Massachusetts
and the State of California, 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,
XXXXXXXX, XXXXX, XXXXXXX & XXXXX, LLP
By: /S/ XXXXXXX X. XXXXXXX, III
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Xxxxxxx X. Xxxxxxx XXX, a Partner
