February 8, 2001
Board of Trustees
Franklin Asset Allocation Fund
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Board of Trustees
Franklin Growth and Income Fund
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Re: AGREEMENT AND PLAN OF REORGANIZATION MADE AS OF THE 1ST DAY OF
DECEMBER, 2000 (THE "PLAN") BY AND BETWEEN FRANKLIN ASSET
ALLOCATION FUND (THE "ACQUIRED FUND") AND FRANKLIN GROWTH AND
INCOME FUND (THE "ACQUIRING FUND")
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of the Acquired Fund, which consists 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 full and
fractional shares of beneficial interest, par value $0.01 per share, of the
Acquiring Fund - Class A (the "Acquiring Fund Class A Shares") and full and
fractional shares of beneficial interest, par value $0.01 per share, of the
Acquiring Fund - Class C (the "Acquiring Fund Class C Shares"); (ii) the
distribution by the Acquired Fund of the Acquiring Fund Class A Shares to the
shareholders of Acquired Fund Class A shares and the distribution by the
Acquired Fund of the Acquiring Fund Class C Shares to the shareholders of
Acquired Fund Class C shares; and (iii) the dissolution of the Acquired Fund as
soon as is practicable after the closing (the "Reorganization"), all upon and
subject to the terms and conditions of the Plan. For purposes of this opinion,
Acquiring Fund Class A Shares and Acquiring Fund Class C Shares shall sometimes
hereinafter be referred to collectively as "Acquiring Fund Shares."
In rendering our opinion, we have reviewed and relied upon: (a) the
Plan, dated December 1, 2000, by and between Franklin Asset Allocation Fund and
Franklin Growth and Income 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 January 29, 2001; (c) certain
representations concerning the Reorganization made to us as of February 8, 2001,
by the Acquiring Fund and the Acquired Fund in a letter made as of February 8,
2001 (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 Plan.
For purposes of this opinion, we have assumed that the Acquired
Fund, on the 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 the Treasury
("Treasury regulations") 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 that the Reorganization is
carried out in accordance with the applicable laws of the State of Delaware, the
terms of the Plan, and 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, 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 pursuant to Section 361(a) and Section
357(a) of the Code.
3. No gain or loss will be recognized by the Acquired Fund upon the
distribution of the Acquiring Fund Shares to its shareholders pursuant to the
plan of liquidation of the Acquired Fund (in pursuance of the Plan) under
Section 361(c)(1) of the Code.
4. 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.
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 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 shares in the Acquired Fund ("Acquired
Fund Shares") for the 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 on the date of the Reorganization, pursuant to 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 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 thereunder.
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 the Reorganization.
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,
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