[GRAPHIC OMITTED]
XXXXXXXX XXXXX XXXXXXX & XXXXX, LLP
0000 Xxx Xxxxxxxx Xxxxxx
Philadelphia, PA 19103-7098
Telephone 000.000.0000
Fax 000.000.0000
xxx.xxxxxxxx.xxx
August 31, 2006
Board of Directors
Franklin Federal Money Fund
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Board of Directors
Franklin Money Fund
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Board of Trustees
The Money Market Portfolios
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
RE: (I) AGREEMENT OF MERGER, SIGNED ON AUGUST 23,
2006 WITH AN EFFECTIVE TIME AND DATE OF 2 P.M.,
PACIFIC, AUGUST 31, 2006 (THE "AGREEMENT"), BETWEEN
FRANKLIN FEDERAL MONEY FUND ("ACQUIRED FUND"), A
CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF
CALIFORNIA, AND FRANKLIN MONEY FUND ("ACQUIRING
FUND"), A CORPORATION ORGANIZED UNDER THE LAWS OF
THE STATE OF CALIFORNIA; (II) THE PURCHASE BY
ACQUIRING FUND OF SHARES OF THE MONEY MARKET
PORTFOLIO ("ACQUIRING PORTFOLIO"), A SERIES OF THE
MONEY MARKET PORTFOLIOS, A STATUTORY TRUST CREATED
UNDER THE LAWS OF THE STATE OF DELAWARE ("THE MONEY
MARKET PORTFOLIOS"), USING SHARES OF THE U.S.
GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
("ACQUIRED PORTFOLIO"), A SERIES OF THE MONEY MARKET
PORTFOLIOS; AND (III) PLAN OF LIQUIDATION AND
DISSOLUTION, APPROVED ON MAY 10, 2006 WITH A
LIQUIDATION TIME AND DATE OF 4 P.M., PACIFIC, AUGUST
31, 2006 (THE "PLAN"), OF ACQUIRED PORTFOLIO.
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Ladies and Gentlemen:
You have requested our opinion concerning certain federal
income tax consequences of the reorganization of Acquired Fund and
the concurrent reorganization of Acquired Portfolio (collectively,
the "Reorganization"), which will consist of: (i) the merger (the
"Merger") under California law of Acquired Fund with and into
Acquiring Fund; (ii) the in-kind purchase ("In-Kind Purchase") by
Acquiring Fund of additional shares of Acquiring Portfolio
("Acquiring Portfolio Shares"), using shares of Acquired Portfolio
("Acquired Portfolio Shares"), received in connection with the
Merger; and (iii) the in-kind liquidation ("In-Kind Liquidation")
of Acquired Portfolio by Acquiring Portfolio so that Acquiring
Portfolio will hold Acquiring Portfolio's portfolio securities.
Shareholders of Acquired Fund will receive the same number of
shares of Acquiring Fund ("Acquiring Fund Shares") with an
aggregate net asset value equal to the number and aggregate net
asset value of such shareholders' shares in the Acquired Fund
("Acquired Fund Shares") immediately prior to the Merger.
In rendering our opinion, we have reviewed and relied
upon: (a) the Agreement; (b) the Plan, (c) the proxy materials
provided to shareholders of Acquired Fund in connection with the
Special Meeting of Shareholders of Acquired Fund held on August 15,
2006; (d) certain representations concerning the Reorganization
made to us by Acquiring Fund, Acquired Fund and The Money Market
Portfolios, on behalf of Acquiring Portfolio and Acquired
Portfolio, in a letter dated August 31, 2006 (the "Representation
Letter"); (e) all other documents, financial and other reports and
corporate minutes we deemed relevant or appropriate; and (f) 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 Registration Statement of
Acquiring Fund on Form N-14 (the " Form N-14").
For purposes of this opinion, we have assumed that Acquired Fund
and Acquiring Portfolio, on the closing date of the Reorganization,
satisfy, and immediately following the closing of the
Reorganization, Acquiring Fund and Acquiring Portfolio will each
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
California and the State of Delaware, the terms of the Agreement,
the terms of the Plan, the statements in the Form N-14 and the
statements in the Representation Letter, and further provided
Acquired Fund, through the effective date and time of the merger,
and Acquiring Fund, Acquired Portfolio and Acquiring Portfolio,
through the close of the Reorganization, each maintain a stable net
asset value of $1 per share, it is our opinion that:
MERGER:
1. The transfer of all of Acquired Fund's assets to
Acquiring Fund as provided for in the Merger, in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of all obligations and
liabilities of Acquired Fund, while a taxable exchange, will result
in no material adverse federal income tax consequences to Acquired
Fund, pursuant to Section 1001 of the Code.
2. No gain or loss will be recognized by Acquiring Fund upon
the receipt of all the assets of Acquired Fund, in exchange solely for
Acquiring Fund Shares and the assumption by Acquiring Fund of all
obligations and liabilities of Acquired Fund, pursuant to Section 1032(a)
of the Code.
3. The distribution of the Acquiring Fund Shares by Acquired
Fund to its shareholders in complete liquidation of Acquired Fund, while
a taxable exchange, will result in no material adverse federal income
tax consequences to Acquired Fund, pursuant to Sections 336(a) and 1001
of the Code.
4. The basis of the assets of Acquired Fund received by
Acquiring Fund will be the fair market value of these assets (i.e., the
net asset value of the Acquired Portfolio Shares) at the time received,
pursuant to Section 1.1032-1(d) of the income tax regulations issued by
the United States Department of the Treasury (the "Treasury Regulations")
and Section 1012 of the Code.
5. The holding period of the assets of Acquired Fund received
by Acquiring Fund will begin on receipt of these assets, pursuant to
Section 1223 of the Code; see also Rev. Rul. 66-7, 1966-1 CB 188 (the
holding period of a capital asset begins to run on the day (the following
the date of acquisition of the asset).
6. The exchange by the shareholders of Acquired Fund of their
Acquired Fund Shares for Acquiring Fund Shares (including fractional
shares to which they may be entitled), while a taxable exchange, will
result in no material adverse federal income tax consequences to Acquired
Fund shareholders, pursuant to Section 331(a) of the Code.
7. The basis of the Acquiring Fund Shares received by the
shareholders of Acquired Fund (including fractional shares to which they
may be entitled) will be the fair market value (i.e., the net asset value)
of the Acquiring Fund Shares at the time of distribution, pursuant to
Section 334(a) of the Code.
8. The holding period of Acquiring Fund Shares received by the
shareholders of Acquired Fund (including fractional shares to which
they may be entitled) will begin on receipt of these shares, pursuant to
Section 1223 of the Code; see also XXXXX-XXXXX NEWSPAPERS INC,
5 TCM 1014 (1946).
IN-KIND PURCHASE AND IN-KIND LIQUIDATION:
9. The acquisition by Acquiring Portfolio of substantially
all of the assets of Acquired Portfolio as provided for in the In-Kind
Purchase and In-Kind Liquidation in exchange solely for Acquiring
Portfolio Shares, and the assumption by Acquiring Portfolio of all
obligations and liabilities of Acquired Portfolio, followed by the
distribution by Acquired Portfolio to Acquiring Fund of Acquiring
Portfolio Shares in complete liquidation of Acquired Portfolio, will
qualify as a reorganization within the meaning of Section 368(a)(1)
of the Code, and Acquired Portfolio and Acquiring Portfolio each will be
a "party to the reorganization" within the meaning of Section 368(b) of
the Code; see also, Rev. Rul. 2001-46, 2001-2 CB (Situation #1 -- if,
pursuant to an integrated plan, (i) a newly formed wholly owned subsidiary
of an acquiring corporation merges into a target corporation, with the
target corporation shareholders receiving consideration consisting of 70%
acquiring corporation voting stock and 30% cash, which is more cash than
is permitted to be received in a reverse triangular merger under Section
368(a)(2)(E) of the Code, (ii) followed by the merger of the target
corporation into the acquiring corporation, the transaction will be
integrated under the step-transaction doctrine and treated as a single
statutory merger of the target corporation into the acquiring corporation
that qualifies as a reorganization under Section 368(a)(1)(A) of the Code;
the policy underlying Section 338 of the Code is not violated by treating
situation #1 as a single statutory merger of target into acquiring because
such treatment results in a transaction that qualifies as a
reorganization under section 368(a)(1)(A) in which the acquiring
corporation acquires the assets of the target corporation with a
carryover basis under Section 362 of the Code, and does not result
in a cost basis for those assets under Section 1012 of the Code).
10. No gain or loss will be recognized by Acquired Portfolio
upon the transfer of substantially all of its assets to Acquiring Portfolio
in exchange solely for Acquiring Portfolio Shares, and the assumption by
Acquiring Portfolio of all obligations and liabilities of Acquired Portfolio,
pursuant to Section 361(a) and Section 357(a) of the Code.
11. No gain or loss will be recognized by Acquiring Portfolio
upon the receipt by it of substantially all of the assets of Acquired
Portfolio in exchange solely for Acquiring Portfolio Shares, and the
assumption by Acquiring Portfolio of all obligations and liabilities
of Acquired Portfolio, pursuant to Section 1032(a) of the Code.
12. No gain or loss will be recognized by Acquired Portfolio
upon the distribution of Acquiring Portfolio Shares to Acquiring Fund in
complete liquidation of Acquired Portfolio (in pursuance of the In-Kind
Purchase and In-Kind Liquidation) pursuant to Section 361(c)(1) of the
Code.
13. The basis of the assets of Acquired Portfolio received by
Acquiring Portfolio will be the same as the basis of these assets to
Acquired Portfolio immediately prior to the exchange pursuant to
Section 362(b) of the Code.
14. The holding period of the assets of Acquired Portfolio
received by Acquiring Portfolio will include the period during which
such assets were held by Acquired Portfolio pursuant to Section 1223(2)
of the Code.
15. No gain or loss will be recognized by Acquiring Fund upon
the exchange of its Acquired Portfolio Shares for Acquiring Portfolio
Shares (including fractional shares to which it may be entitled),
pursuant to Section 354(a) of the Code.
16. The basis of the Acquiring Portfolio Shares received
Acquiring Fund (including fractional shares to which it may be entitled)
will be the same as the basis of the Acquired Portfolio Shares exchanged
therefor pursuant to Section 358(a)(1) of the Code.
17. The holding period of the Acquiring Portfolio Shares
received by Acquiring Fund (including fractional shares to which it may
be entitled) will include the holding period of the Acquired Portfolio
Shares surrendered in exchange therefor, provided that the Acquired
Portfolio Shares were held as a capital asset on the closing of the
Reorganization pursuant to Section 1223(1) of the Code.
18. Acquiring Portfolio 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 Treasury Regulations, the items of Acquired Portfolio 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.
19. IN THE ALTERNATIVE, if, when integrated as part of a single
plan under the step-transaction doctrine, the In-Kind Purchase and In-Kind
Liquidation do not qualify as reorganization under Section 368(a)(1)
of the Code because, for instance, the continuity of business enterprise
requirement is not satisfied, the exchange by Acquiring Fund of Acquired
Portfolio Shares for additional Acquiring Portfolio Shares (including
fractional shares to which it may be entitled) as provided for in the
In-Kind Purchase, while a taxable exchange, will result in no material
adverse federal income tax consequences to Acquiring Fund, pursuant to
Section 1001 of the Code; the exchange is also a "qualified stock purchase"
pursuant to Section 338(h)(3) of the Code and Section 1.338(h)(3)(iii)
of the Treasury Regulations and not acquired from a "related person"
within the meaning of Section 338(h)(3) of the Code and Section
1.338-3(b)(3) of the Treasury Regulations and Example 1 therein and
Rev. Rul. 90-95, 1990-2 C.B. 67 (Situation 2 -- holds that the
merger of a newly formed wholly owned domestic subsidiary into a
target corporation with the target corporation shareholders
receiving solely cash in exchange for their stock, immediately
followed by the merger of the target corporation into the domestic
parent of the merged subsidiary, will be treated as a qualified
stock purchase of the target corporation followed by a section 332
liquidation of the target corporation). The basis of the additional
Acquiring Portfolio Shares received by Acquiring Fund (including
fractional shares to which it may be entitled) will be the cost
(i.e., the net asset value) of these shares at the time of receipt,
pursuant to Section 1012 of the Code. The holding period of the
Acquiring Portfolio Shares received by Acquiring Fund (including
fractional shares to which it may be entitled) will begin on
receipt of these shares, pursuant to Section 1223 of the Code; see
also Rev. Rul. 66-7, 1966-1 CB 188 (the holding period of a capital
asset begins to run on the day following the date of acquisition of
the asset). No gain or loss will be recognized by Acquiring
Portfolio upon the receipt of the Acquired Portfolio Shares, in
exchange solely for Acquiring Portfolio Shares, pursuant to
Section 1032(a) of the Code. The basis of the Acquired Portfolio
Shares received by Acquiring Portfolio (including fractional shares
to which it may be entitled) will be the cost (i.e., the net asset
value) of these shares at the time of receipt, pursuant to Section
1.1032-1(d) of the Treasury Regulations and Section 1012 of the
Code. No gain or loss will be recognized by Acquired Portfolio upon
the transfer of all of its assets to Acquiring Portfolio as
provided for in the In-Kind Liquidation, in exchange solely for
Acquiring Portfolio Shares, and the assumption by Acquiring
Portfolio of all obligations and liabilities of Acquired Portfolio,
pursuant to Section 337(a) of the Code. No gain or loss will be
recognized by Acquiring Portfolio upon the receipt of all of
Acquired Portfolio's assets, in exchange for Acquired Portfolio
Shares, and the assumption by Acquiring Portfolio of all
obligations and liabilities of Acquired Portfolio, pursuant to
Section 332(a) of the Code. The basis of the assets of Acquired
Portfolio received by Acquiring Portfolio will be the same as the
basis of these assets to Acquired Portfolio immediately prior to
the exchange, pursuant to Section 334(b) of the Code. The holding
period of the assets of Acquired Portfolio received by Acquiring
Portfolio will include the period during which such assets were
held by Acquired Fund, pursuant to Section 1223(2) of the Code.
Acquiring Portfolio 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
Treasury Regulations, the items of Acquired Portfolio 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 Acquiring Fund,
Acquired Fund and The Money Market Portfolios, on behalf of
Acquiring Portfolio and Acquired Portfolio, of their undertakings
in the Agreement, the Plan, the Form N-14 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 Acquiring Fund, Acquired Fund
and The Money Market Portfolios, on behalf of Acquiring Portfolio
and Acquired Portfolio, 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 Acquiring Fund
Shares 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, III, a Partner
