STRADLEY
RONON
ATTORNEYS AT LAW
Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP
0000 Xxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Telephone (000)000-0000
Fax (000) 000-0000
March 8, 2001
Board of Trustees
Franklin Tax-Free Trust
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, XX 00000-0000
RE: AGREEMENT AND PLAN OF REORGANIZATION DATED JANUARY 16, 2001 (THE "PLAN"),
MADE BY XXXXXXXX TAX-FREE TRUST (THE "TRUST"), ON BEHALF OF ITS SERIES,
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND (THE "ACQUIRED FUND") AND
FRANKLIN ARIZONA TAX-FREE INCOME FUND (THE "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 and the Acquiring 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 Class A shares of beneficial interest, without par value, of
the Acquiring Fund (the "Acquiring Fund Shares"); (ii) the distribution by the
Acquired Fund of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund; and (iii) the subsequent
dissolution of the Acquired Fund, as soon as is practicable after the closing
date (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,
dated January 16, 2001, made by the Trust on behalf of the Acquired Fund and the
Acquiring Fund; (b) the proxy materials provided to shareholders of the Acquired
Fund in connection with the Special Meeting of Shareholders of the Acquired Fund
held on February 21, 2001; (c) certain representations concerning the
Reorganization made to us by the Trust in a letter dated March 5, 2000 (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 date of the Reorganization, satisfies, and immediately following the
closing date, the Acquiring Fund will 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, the
Plan and 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 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 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 Acquired Fund upon the
transfer of substantially all of its assets to the Acquiring Fund in exchange
solely for the Acquiring Fund Shares under 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 under 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 liquidation of
the Acquired Fund under 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 such assets to the Acquired Fund
immediately prior to the closing date of the Reorganization under 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 under 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 shares of the Acquired Fund (the "Acquired Fund
Shares") for the Acquiring Fund Shares (including fractional shares to which
they may be entitled), under 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
under 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 on the closing date of the Reorganization, under Section
1223(1) of the Code.
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 regulations
issued by the United States 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
promulgated thereunder, 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 this opinion.
Our opinion is conditioned upon the performance by the Acquiring Fund and
the Acquired Fund of their undertakings in the Plan and the Representation
Letter.
This opinion is being rendered to the Acquiring Fund and the Acquired Fund,
and may be relied upon only by such funds and the shareholders of each.
Very truly yours,
XXXXXXXX, XXXXX, XXXXXXX & XXXXX, LLP
By: /s/ Xxxxx X. Xxxxxx, Partner
