STRADLEY
RONON
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ATTORNEYS AT LAW
Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP
0000 Xxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxxxx, XX 00000-0000
Telephone (000) 000-0000
Fax (000) 000-0000
August 23, 2001
Board of Trustees
Franklin Investors Securities Trust
Xxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, XX 00000
Board of Trustees
Xxxxxxxxx Income Trust
000 Xxxx Xxxxxxx Xxxxxxxxx
Xxxx Xxxxxxxxxx, XX 00000
RE: AGREEMENT AND PLAN OF REORGANIZATION DATED JUNE 15, 2001 (THE
"PLAN"), MADE BY FRANKLIN INVESTORS SECURITIES TRUST ("SECURITIES
TRUST"), ON BEHALF OF ITS SERIES, FRANKLIN GLOBAL GOVERNMENT INCOME
FUND (THE "ACQUIRED FUND"), AND XXXXXXXXX INCOME TRUST ("INCOME
TRUST"), ON BEHALF OF ITS SERIES, XXXXXXXXX GLOBAL BOND FUND (THE
"ACQUIRING FUND")
Ladies and Gentlemen:
You have requested our opinion concerning certain federal income tax
consequences of the reorganization of the Acquired 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 (a)
full and fractional shares of beneficial interest, par value $0.01, of Class A
of the Acquiring Fund ("Acquiring Fund Class A Shares"), (b) full and fractional
shares of beneficial interest, par value $0.01 share, of Class C of the
Acquiring Fund ("Acquiring Fund Class C Shares"), and (c) full and fractional
shares of beneficial interest, par value $0.01, of Advisor Class of the
Acquiring Fund ("Acquiring Fund Advisor Class Shares") (collectively, "Acquiring
Fund Shares"); (ii) the distribution of (a) Acquiring Fund Class A Shares to
holders of Class A shares of the Acquired Fund ("Acquired Fund Class A Shares"),
(b) Acquiring Fund Class C Shares to holders of Class C shares of the Acquired
Fund ("Acquired Fund Class C Shares"), and (c) Acquiring Fund Advisor Class
Shares to holders of Advisor Class shares of the Acquired Fund ( "Acquired Fund
Advisor Class Shares") (collectively, "Acquired Fund Shares"), according to
their respective interests 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 June 15, 2001, made by Securities Trust on behalf of the Acquired
Fund and by Income Trust on behalf of 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 July 19, 2001 and
adjourned to August 9, 2001; (c) certain representations concerning the
Reorganization made to us by Securities Trust and Income Trust in a letter dated
August 20, 2001 (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 Acquiring Fund Shares of the
respective class, 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 complete
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 in the hands of 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 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.
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, including, without limitation, (a) the acquisition of
substantially all of the assets of Templeton Americas Government Securities Fund
by Xxxxxxxxx Global Bond Fund on October 21, 1999 ("the Americas Transaction")
and (b) the acquisition of substantially all of the assets of Franklin Xxxxxxxxx
Global Currency Fund by Xxxxxxxxx Global Bond Fund on July 26, 2001 ("the
Currency Fund Transaction"), or (ii) the effect, if any, of the Reorganization
(and/or the transactions incident thereto) on any other transaction, including,
without limitation, the Americas Fund Transaction or the Currency Fund
Transaction, and/or the effect, if any, of any such other transaction on the
Reorganization. The federal income tax consequences of the Americas Transaction
are the subject of a separate opinion of this firm dated October 21, 1999. The
federal income tax consequences of the Currency Fund Transaction are the subject
of a separate opinion of this firm dated July 26, 2001.
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,
STRADLEY, XXXXX, XXXXXXX & XXXXX, LLP
By: /S/ XXXXX X. XXXXXX, PARTNER
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