17
NAME OF REGISTRANT
Franklin Custodian Funds, Inc.
File No. 811-00537
EXHIBIT ITEM No. 77Q (g): Exhibit to accompany Exhibit No. 77M.
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of this 28th day of February, 2005, by and between
Franklin Multi-Income Trust ("Multi-Income Trust"), a
Massachusetts business trust and a closed-end management
investment company registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), with its principal place
of business at Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, Xxxxxxxxxx
00000, and Franklin Custodian Funds, Inc. ("Custodian Funds"), a
Maryland corporation and an open-end management investment
company registered under the 1940 Act, with its principal place
of business at Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, Xxxxxxxxxx
00000, on behalf of its series, Franklin Income Fund ("Income
Fund").
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the
"Reorganization") will consist of (i) the acquisition by Income
Fund of substantially all of the property, assets and goodwill
of Multi-Income Trust in exchange solely for full and fractional
shares, par value $0.01 per share, of Income Fund-Class A
("Income Fund Class A Shares"); (ii) the distribution of Income
Fund Class A Shares to the holders of shares of beneficial
interest, par value $0.01 per share, of Multi-Income Trust
("Multi-Income Trust Shares"), according to their respective
interests in Multi-Income Trust in complete liquidation of Multi-
Income Trust; and (iii) the dissolution of Multi-Income Trust as
soon as is practicable after the closing (as described in
Section 3, hereinafter called the "Closing"), all upon and
subject to the terms and conditions of this Agreement
hereinafter set forth.
AGREEMENT
In order to consummate the Reorganization and in
consideration of the premises and of the covenants and
agreements hereinafter set forth, and intending to be legally
bound, the parties hereto covenant and agree as follows:
1. Sale and Transfer of Assets, Liquidation and Dissolution
of Multi-Income Trust.
(a) Subject to the terms and conditions of this Agreement,
and in reliance on the representations and warranties of
Custodian Funds, on behalf of Income Fund, herein contained, and
in consideration of the delivery by Custodian Funds, on behalf
of Income Fund, of the number of Income Fund Class A Shares
hereinafter provided, Multi-Income Trust agrees that it will
convey, transfer and deliver to Custodian Funds, on behalf of
Income Fund, at the Closing, all of Multi-Income Trust's then
existing assets, free and clear of all liens, encumbrances, and
claims whatsoever, except for cash, bank deposits, or cash
equivalent securities in an estimated amount reasonably
necessary to: (i) pay its costs and expenses of carrying out
this Agreement (including, but not limited to, fees of counsel
and accountants, and expenses of its liquidation and dissolution
contemplated hereunder), which costs and expenses shall be
established on Multi-Income Trust's books as liability reserves;
(ii) discharge its unpaid liabilities on its books at the
closing date (as defined in Section 3, hereinafter called the
"Closing Date"), including, but not limited to, its income
dividends and capital gains distributions, if any, payable for
the period prior to, and through, the Closing Date and those
liabilities that would otherwise be discharged at a later date
in the ordinary course of business; and (iii) pay such
contingent liabilities as the Board of Trustees of Multi-Income
Trust shall reasonably deem to exist against Multi-Income Trust,
if any, at the Closing Date, for which contingent and other
appropriate liability reserves shall be established on Multi-
Income Trust's books (hereinafter "Net Assets"). Multi-Income
Trust shall also retain any and all rights that it may have over
and against any person that may have accrued up to and including
the close of business on the Closing Date. Neither Custodian
Funds nor Income Fund will assume any liabilities of Multi-
Income Trust, whether absolute or contingent.
(b) Subject to the terms and conditions of this Agreement,
and in reliance on the representations and warranties of Multi-
Income Trust herein contained, and in consideration of such
sale, conveyance, transfer, and delivery, Custodian Funds, on
behalf of Income Fund, agrees at the Closing to deliver to Multi-
Income Trust the number of Income Fund Class A Shares,
determined by: (i) dividing the net asset value per share of the
Multi-Income Trust Shares by the net asset value per share of
Income Fund Class A Shares; and (ii) multiplying the result
thereof by the number of outstanding Multi-Income Trust Shares,
all as of 1:00 p.m., Pacific time, on the Closing Date. All such
values shall be determined in the manner and as of the time set
forth in Section 2 hereof.
(c) Immediately following the Closing, Multi-Income Trust
shall distribute pro rata to its shareholders of record as of
the close of business on the Closing Date, Income Fund Class A
Shares received by Multi-Income Trust pursuant to this Section
1. Such distribution shall be accomplished by the establishment
of accounts on the share records of Income Fund of the type and
in the amounts due such shareholders, based on their respective
holdings as of the close of business on the Closing Date.
Fractional Income Fund Class A Shares shall be carried to the
fourth decimal place. As promptly as is practicable after the
Closing, each holder of any outstanding certificate or
certificates representing shares of beneficial interest of Multi-
Income Trust shall be entitled to surrender the same to the
transfer agent for Income Fund in exchange for the number of
Income Fund Class A Shares into which the Multi-Income Trust
Shares theretofor represented by the certificate or certificates
so surrendered shall have been converted. Until so surrendered,
each outstanding certificate which, prior to the Closing,
represented shares of beneficial interest of Multi-Income Trust
shall be deemed for all Custodian Funds' purposes to evidence
ownership of the number of Income Fund Class A Shares into which
the Multi-Income Trust Shares (which, prior to the Closing, were
represented thereby) have been converted. Certificates for
Income Fund Class A Shares shall not be issued, unless
specifically requested by the shareholders. Promptly following
the Closing and the liquidating distribution of the Income Fund
Class A Shares, Multi-Income Trust shall be dissolved.
2. Valuation.
(a) The value of Multi-Income Trust's Net Assets to be
acquired by Custodian Funds, on behalf of Income Fund hereunder,
shall in each case be computed as of 1:00 p.m., Pacific time, on
the Closing Date, in a manner consistent with the valuation
procedures described in Multi-Income Trust's registration
statement on Form N-2, as filed with the U.S. Securities and
Exchange Commission (the "SEC") on August 25, 1989, as such
disclosures have been amended to date by any: (i) amendments to
Multi-Income Trust's Registration Statement on Form N-2 as filed
with the SEC; (ii) press releases issued on behalf of Multi-
Income Trust; and (iii) Multi-Income Trust's annual or semi-
annual reports sent to shareholders pursuant to Section 30 of
the 1940 Act (collectively, the "Multi-Income Trust Disclosure
Documents").
(b) The per-share net asset value of Multi-Income Trust
Shares shall be determined as of 1:00 p.m., Pacific time, on the
Closing Date, in a manner consistent with the valuation
procedures described in the Multi-Income Trust Disclosure
Documents.
(c) The per-share net asset value of Income Fund Class A
Shares shall be determined as of 1:00 p.m., Pacific time, on the
Closing Date, in a manner consistent with the valuation
procedures described in Income Fund's currently effective
prospectus.
3. Closing and Closing Date.
The Closing Date shall be July 28, 2005, or such later date
as the parties may mutually agree. The Closing shall take place
at the principal office of Custodian Funds at 2:00 p.m., Pacific
time, on the Closing Date. Multi-Income Trust shall have
provided for delivery as of the Closing those Net Assets of
Multi-Income Trust to be transferred to the account of Income
Fund's custodian, Bank of New York, Mutual Funds Division, 000
Xxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. Also, Multi-Income
Trust shall deliver at the Closing a list of names and addresses
of the shareholders of record of its Multi-Income Trust Shares
and the number of full and fractional Multi-Income Trust Shares
owned by each such shareholder, indicating thereon which such
shares are represented by outstanding certificates and which by
book-entry accounts, all as of 1:00 p.m., Pacific time, on the
Closing Date, certified by its transfer agent or by its
President to the best of its or his knowledge and belief.
Custodian Funds, on behalf of Income Fund, shall provide
evidence satisfactory to Multi-Income Trust that the Income Fund
Class A Shares to be delivered to the account of Multi-Income
Trust hereunder have been registered in an account on the books
of Income Fund in such manner as the officers of Multi-Income
Trust may request.
4. Representations and Warranties by Custodian Funds, on
behalf of Income Fund.
Custodian Funds, on behalf of Income Fund, represents and
warrants to Multi-Income Trust that:
(a) Income Fund is a series of Custodian Funds, a corporation
created under the laws of Maryland pursuant to Articles of
Incorporation dated October 9, 1979, and filed, accepted and
recorded by the Maryland State Department of Assessment and
Taxation on October 16, 1979 ("Charter"), and validly exists
under the laws of the State of Maryland. Custodian Funds is duly
registered under 1940 Act as an open-end management investment
company, and all of the Income Fund Class A Shares sold to date
were sold pursuant to an effective registration statement filed
under the Securities Act of 1933, as amended (the "1933 Act"),
except for those shares sold pursuant to the private offering
exemption for the purpose of raising initial capital as required
by the 1940 Act or obtaining any necessary approvals of the
initial shareholder of a newly created series.
(b) Custodian Funds is authorized to issue 32 billion shares
of common stock, par value $0.01 per share, each outstanding
share of which is fully paid, non-assessable, freely
transferable and has full voting rights, and currently issues
shares of five series, including Income Fund. Income Fund is
further divided into six classes of shares and the number of
shares of stock, par value $0.01 per share, and, as of February
28, 2005, has been allocated and designated to each of these
classes of shares as follows: (i) Class A-7,600,000,000 shares;
(ii) Class B-2,000,000,000 shares; (iii) Class B1-1,000,000,000
shares; (iv) Class C-3,600,000,000 shares; (v) Class R-
1,000,000,000 shares; and (vi) Advisor Class-1,000,000,000
shares.
(c) The audited financial statements appearing in Custodian
Funds' Annual Report to Shareholders for the fiscal year ended
September 30, 2004, audited by PricewaterhouseCoopers LLP,
including the financial statements for Income Fund for the
fiscal year then ended, copies of which have been delivered to
Multi-Income Trust, fairly present the financial position of
Income Fund as of such date and the results of its operations
for the period indicated in conformity with generally accepted
accounting principles applied on a consistent basis.
(d) The books and records of Income Fund accurately summarize
the accounting data represented and contain no material
omissions with respect to the business and operations of Income
Fund.
(e) Custodian Funds has the necessary corporate power and
authority to conduct Income Fund's business as such business is
now being conducted.
(f) Custodian Funds, on behalf of Income Fund, is not a party
to or obligated under any provision of its Charter or By-laws,
each as amended to date, or any contract or any other commitment
or obligation, and is not subject to any order or decree, that
would be violated by its execution of or performance under this
Agreement.
(g) Income Fund has elected to be treated as a regulated
investment company ("RIC") for federal income tax purposes under
Part I of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), Income Fund has qualified as a RIC for
each taxable year since its inception and will qualify as a RIC
as of the Closing Date, and consummation of the transactions
contemplated by this Agreement will not cause it to fail to be
qualified as a RIC as of the Closing Date.
(h) Income Fund is not under jurisdiction of a court in a
Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
(i) Income Fund does not have any unamortized or unpaid
organizational fees or expenses.
5. Representations and Warranties by Multi-Income Trust.
Multi-Income Trust represents and warrants to Custodian
Funds, on behalf of Income Fund, that:
(a) Multi-Income Trust is a business trust created under the
laws of the Commonwealth of Massachusetts pursuant to an
Agreement and Declaration of Trust dated August 22, 1989, and
recorded by the Commonwealth of Massachusetts on September 3,
1989 ("Declaration of Trust"), and validly exists under the laws
of that Commonwealth. Multi-Income Trust is duly registered
under the 1940 Act as a closed-end management investment company
and all of the Multi-Income Trust Shares sold were sold pursuant
to an effective registration statement filed under the 1933 Act,
except for those shares sold pursuant to the private offering
exemption for the purpose of raising the required initial
capital.
(b) Multi-Income Trust is authorized to issue an unlimited
number of shares of beneficial interest, par value $0.01 per
share, without class designation, each outstanding share of
which is fully paid, nonassessable, and has full voting rights.
(c) The audited financial statements appearing in Multi-
Income Trust's Annual Report to Shareholders for the fiscal year
ended March 31, 2004, audited by PricewaterhouseCoopers, LLP,
copies of which have been delivered to Custodian Funds on behalf
of Income Fund, fairly present the financial position of Multi-
Income Trust as of such date and the results of its operations
for the period indicated in conformity with generally accepted
accounting principles applied on a consistent basis.
(d) The financial statements (unaudited) appearing in Multi-
Income Trust's Semi-Annual Report to Shareholders for the six-
month period ended September 30, 2004, copies of which have been
delivered to Custodian Funds on behalf of Income Fund, fairly
present the financial position of Multi-Income Trust as of such
date and the results of its operations for the period indicated
in conformity with generally accepted accounting principles
applied on a consistent basis.
(e) The books and records of Multi-Income Trust accurately
summarize the accounting data represented and contain no
material omissions with respect to the business and operations
of Multi-Income Trust.
(f) Multi-Income Trust has the necessary trust power and
authority to conduct its business as such business is now being
conducted.
(g) Multi-Income Trust is not a party to or obligated under
any provision of its Declaration of Trust or By-laws, each as
amended to date, or any contract or any other commitment or
obligation, and is not subject to any order or decree, that
would be violated by its execution of or performance under this
Agreement.
(h) Multi-Income Trust has elected to be treated as a RIC for
federal income tax purposes under Part I of Subchapter M of the
Code, Multi-Income Trust is a "fund" as defined in Section
851(g)(2) of the Code, Multi-Income Trust has qualified as a RIC
for each taxable year since its inception and will qualify as a
RIC as of the Closing Date, and consummation of the transactions
contemplated by this Agreement will not cause it to fail to be
qualified as a RIC as of the Closing Date.
(i) Multi-Income Trust is not under jurisdiction of a court
in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
(j) Multi-Income Trust does not have any unamortized or
unpaid organization fees or expenses.
6. Representations and Warranties by Multi-Income Trust and
Custodian Funds on behalf of Income Fund.
Multi-Income Trust and Custodian Funds, on behalf of Income
Fund, each represents and warrants to the other that:
(a) The statement of assets and liabilities to be furnished
by it as of 1:00 p.m., Pacific time, on the Closing Date for the
purpose of determining the number of Income Fund Class A Shares
to be issued pursuant to Section 1 of this Agreement, will
accurately reflect each such party's Net Assets and outstanding
shares of beneficial interest or common stock, respectively, as
of such date, in conformity with generally accepted accounting
principles applied on a consistent basis.
(b) At the Closing, it will have good and marketable title to
all of the securities and other assets shown on the statement of
assets and liabilities referred to in (a) above, free and clear
of all liens or encumbrances of any nature whatsoever, except
such imperfections of title or encumbrances as do not materially
detract from the value or use of the assets subject thereto, or
materially affect title thereto.
(c) Except as disclosed in the Multi-Income Trust Disclosure
Documents or in Income Fund's currently effective prospectus,
there is no material suit, judicial action, or legal or
administrative proceeding pending or threatened against Multi-
Income Trust or Income Fund, respectively. Neither Custodian
Funds, on behalf of Income Fund, nor Multi-Income Trust is a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body that materially and
adversely affects Income Fund's or Multi-Income Trust's business
or their ability to consummate the transactions herein
contemplated.
(d) There are no known actual or proposed deficiency
assessments with respect to any taxes payable by it.
(e) The execution, delivery, and performance of this
Agreement have been duly authorized by all necessary action of
its Board of Trustees or Board of Directors, as the case may be,
and this Agreement, subject to the approval of Multi-Income
Trust's shareholders, constitutes a valid and binding obligation
enforceable in accordance with its terms.
(f) It anticipates that consummation of this Agreement will
not cause Multi-Income Trust or Custodian Funds, with respect to
Income Fund, to fail to conform to the requirements of
Subchapter M of the Code for federal income taxation
qualification as a RIC at the end of its current fiscal year.
7. Covenants of Multi-Income Trust and Custodian Funds on
behalf of Income Fund.
(a) Custodian Funds, on behalf of Income Fund, and Multi-
Income Trust each covenant to operate their respective
businesses as presently conducted between the date hereof and
the Closing.
(b) Multi-Income Trust undertakes that it will not acquire
Income Fund Class A Shares for the purpose of making
distributions thereof to anyone other than Multi-Income Trust's
shareholders.
(c) Multi-Income Trust undertakes that, if this Agreement is
consummated, it will liquidate and dissolve, file an application
pursuant to Section 8(f) of the 1940 Act for an order declaring
that it has ceased to be an investment company and take the
necessary actions, including making the necessary filings, to
withdraw its shares from listing on those stock exchanges on
which Multi-Income Trust Shares are listed as of the Closing
Date.
(d) Multi-Income Trust and Custodian Funds, on behalf of
Income Fund, each agree that, by the Closing, all of their
federal and other tax returns and reports required by law to be
filed on or before such date shall have been filed, and all
federal and other taxes shown as due on said returns shall have
either been paid or adequate liability reserves shall have been
provided for the payment of such taxes.
(e) At the Closing, Multi-Income Trust will provide Income
Fund a copy of the shareholder ledger accounts, certified by
Multi-Income Trust's transfer agent or its President to the best
of its or his knowledge and belief, for all the shareholders of
record of Multi-Income Trust Shares as of 1:00 p.m., Pacific
time, on the Closing Date who are to become shareholders of
Income Fund as a result of the transfer of assets that is the
subject of this Agreement.
(f) The Board of Trustees of Multi-Income Trust shall call
and Multi-Income Trust shall hold, a meeting of Multi-Income
Trust's shareholders to consider and vote upon this Agreement
(the "Shareholders' Meeting") and Multi-Income Trust shall take
all other actions reasonably necessary to obtain approval of the
transactions contemplated herein. Multi-Income Trust agrees to
mail to each shareholder of record entitled to vote at the
Shareholders' Meeting at which action on this Agreement is to be
considered, in sufficient time to comply with requirements as to
notice thereof, a combined Prospectus/Proxy Statement that
complies in all material respects with the applicable provisions
of Section 14(a) of the Securities Exchange Act of 1934, as
amended, and Section 20(a) of the 1940 Act, and the rules and
regulations, respectively, thereunder.
(g) Custodian Funds, on behalf of Income Fund, will file with
the SEC a registration statement on Form N-14 under the 1933 Act
relating to Income Fund Class A Shares issuable hereunder
("Registration Statement"), and will use its best efforts to
provide that the Registration Statement becomes effective as
promptly as is practicable. At the time it becomes effective,
the Registration Statement will (i) comply in all material
respects with the applicable provisions of the 1933 Act, and the
rules and regulations promulgated thereunder; and (ii) not
contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading. At the time the
Registration Statement becomes effective, at the time of the
Shareholders' Meeting, and on the Closing Date, the
Prospectus/Proxy Statement and statement of additional
information included in the Registration Statement will not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
(h) Prior to the Closing, Multi-Income Trust will effect an
optional prepayment of the Franklin Multi-Income Trust 4.13%
Senior Notes due September 15, 2009 (the "Notes") in accordance
with the terms of that certain Note Agreement dated as of
September 15, 2004 (the "Note Agreement") in an amount equal to
100% of the principal amount of the Notes then outstanding,
together with interest accrued thereon to the date of prepayment
and the Make Whole Premium (as defined in the Note Agreement),
if any, applicable thereto (the "Prepayment").
8. Conditions Precedent to be Fulfilled by Multi-Income Trust
and Custodian Funds, on behalf of Income Fund.
The consummation of this Agreement and the Reorganization
contemplated hereunder shall be subject to the following
respective conditions:
(a) That: (i) all the representations and warranties of the
other party contained herein shall be true and correct as of the
Closing with the same effect as though made as of and at such
date; (ii) the other party shall have performed all obligations
required by this Agreement to be performed by it prior to the
Closing; and (iii) the other party shall have delivered to such
party a certificate signed by the President or any Vice
President and by the Secretary or any Assistant Secretary or
equivalent officer to the foregoing effect.
(b) That each party shall have delivered to the other party a
copy of the resolutions approving this Agreement, adopted and
approved by the appropriate action of its Board of Trustees or
Board of Directors, as the case may be, certified by its
Secretary, any Assistant Secretary or equivalent officer.
(c) That the SEC shall not have issued an unfavorable
advisory report under Section 25(b) of the 1940 Act or
instituted or threatened to institute any proceeding seeking to
enjoin consummation of the Reorganization under Section 25(c) of
the 1940 Act. And, further, no other legal, administrative or
other proceeding shall have been instituted or threatened that
would materially affect the financial condition of either party
or would prohibit the transactions contemplated hereby.
(d) That this Agreement and the Reorganization contemplated
hereby shall have been adopted and approved by the appropriate
action of the shareholders of Multi-Income Trust at the
Shareholders' Meeting or any adjournment thereof.
(e) That a distribution or distributions shall have been
declared for Multi-Income Trust prior to the Closing Date that,
together with all previous distributions, shall have the effect
of distributing to its shareholders: (i) all of its ordinary
income and all of its capital gain net income, if any, for the
period from the close of its last fiscal year to 1:00 p.m.,
Pacific time, on the Closing Date; and (ii) any undistributed
ordinary income and capital gain net income from any period to
the extent not otherwise declared for distribution. Capital gain
net income has the meaning given such term by Section 1222(9) of
the Code.
(f) That Multi-Income Trust shall, prior to the Closing,
effect a prepayment of the Notes in accordance with the terms of
the Note Agreement, in an amount equal to 100% of the principal
amount of the Notes then outstanding, together with interest
accrued thereon to the date of prepayment and the Make Whole
Premium (as defined in the Note Agreement), if any, applicable
thereto.
(g) That as of the Closing, there shall be no Persons (as
defined in the Note Agreement) that shall be deemed and treated
as the owner and holder of one or more Notes for any and all
purposes of the Note Agreement and that Multi-Income Trust shall
have delivered to Custodian Funds, on behalf of Income Fund, a
certificate signed by the Multi-Income Trust President or any
Vice President and by the Secretary or any Assistant Secretary
or equivalent officer to the foregoing effect.
(h) That there shall be delivered to Multi-Income Trust, and
Custodian Funds, on behalf of Income Fund, an opinion from
Xxxxxxxx, Xxxxx, Xxxxxxx & Xxxxx, LLP, counsel to Multi-Income
Trust, to the effect that, provided the Reorganization
contemplated hereby is carried out in accordance with this
Agreement, the laws of the State of Maryland and the laws of the
Commonwealth of Massachusetts and based upon certificates of the
officers of Multi-Income Trust and Custodian Funds, on behalf of
Income Fund, with regard to matters of fact:
(1) The acquisition by Income Fund of substantially all
the assets of Multi-Income Trust as provided for herein in
exchange for Income Fund Class A Shares followed by the
distribution by Multi-Income Trust to its shareholders of
such Income Fund Class A Shares in complete liquidation of
Multi-Income Trust will qualify as a reorganization within
the meaning of Section 368(a)(1) of the Code, and Multi-
Income Trust and Income 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 Multi-Income
Trust upon the transfer of substantially all of its assets to
Income Fund in exchange solely for voting shares of Income
Fund (Sections 361(a) and 357(a) of the Code);
(3) No gain or loss will be recognized by Income Fund
upon the receipt by it of substantially all of the assets of
Multi-Income Trust in exchange solely for voting shares of
Income Fund (Section 1032(a) of the Code);
(4) No gain or loss will be recognized by Multi-Income
Trust upon the distribution of Income Fund Class A Shares to
its shareholders in liquidation of Multi-Income Trust (in
pursuance of the Reorganization) (Section 361(c)(1) of the
Code);
(5) The basis of the assets of Multi-Income Trust
received by Income Fund will be the same as the basis of such
assets to Multi-Income Trust immediately prior to the
exchange (Section 362(b) of the Code);
(6) The holding period of the assets of Multi-Income
Trust received by Income Fund will include the period during
which such assets were held by Multi-Income Trust (Section
1223(2) of the Code);
(7) No gain or loss will be recognized by the
shareholders of Multi-Income Trust upon the exchange of their
shares in Multi-Income Trust for voting shares of Income
Fund, including fractional shares to which they may be
entitled (Section 354(a) of the Code);
(8) The basis of Income Fund Class A Shares received by
the shareholders of Multi-Income Trust shall be the same as
the basis of the Multi-Income Trust Shares exchanged therefor
(Section 358(a)(1) of the Code);
(9) The holding period of Income Fund Class A Shares
received by shareholders of Multi-Income Trust (including
fractional shares to which they may be entitled) will include
the holding period of the Multi-Income Trust Shares
surrendered in exchange therefor, provided that the Multi-
Income Trust Shares were held as a capital asset on the
effective date of the exchange (Section 1223(1) of the Code);
and
(10) Income 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
("Treasury Regulations")) the items of Multi-Income Trust
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.
(i) That there shall be delivered to Custodian Funds, on
behalf of Income Fund, an opinion in form and substance
satisfactory to it from Stradley, Xxxxx, Xxxxxxx & Xxxxx, LLP,
counsel to Multi-Income Trust, to the effect that, subject in
all respects to the effects of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other
laws now or hereafter affecting generally the enforcement of
creditors' rights:
(1) Multi-Income Trust is a business trust organized
under the laws of the Commonwealth of Massachusetts and is a
validly existing business trust and in good standing under
the laws of that Commonwealth;
(2) Multi-Income Trust is authorized to issue an
unlimited number of shares of beneficial interest, par value
$0.01 per share. Multi-Income Trust currently issues shares
of one class.
(3) Multi-Income Trust is a closed-end investment company
of the management type registered as such under the 1940 Act;
(4) Except as disclosed in Multi-Income Trust's
Disclosure Documents, such counsel does not know of any
material suit, action, or legal or administrative proceeding
pending or threatened against Multi-Income Trust, the
unfavorable outcome of which would materially and adversely
affect Multi-Income Trust;
(5) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly authorized by all necessary trust action on the
part of Multi-Income Trust; and
(6) Neither the execution, delivery, nor performance of
this Agreement by Multi-Income Trust violates any provision
of its Declaration of Trust or By-laws, each as amended to
date, or the provisions of any agreement or other instrument
known to such counsel, to which Multi-Income Trust is a
party, or by which Multi-Income Trust is otherwise bound; and
this Agreement is the legal, valid and binding obligation of
Multi-Income Trust and is enforceable against Multi-Income
Trust in accordance with its terms.
In giving the opinions set forth above, this counsel may
state that it is relying on certificates of the officers of
Multi-Income Trust with regard to matters of fact, and certain
certifications and written statements of governmental officials
with respect to the good standing of Multi-Income Trust.
(j) That there shall be delivered to Multi-Income Trust an
opinion in form and substance satisfactory to it from Bleakley
Xxxxx & Xxxxxxx, LLP, counsel to Custodian Funds, to the effect
that, subject in all respects to the effects of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance
and other laws now or hereafter affecting generally the
enforcement of creditors' rights:
(1) Custodian Funds is a corporation organized under the
laws of the State of Maryland, and is a validly existing
corporation and in good standing under the laws of that
State;
(2) Custodian Funds is authorized to issue 32 billion
shares of stock, par value $0.01 per share, each outstanding
share of which is fully paid, non-assessable, freely
transferable and has full voting rights, and currently issues
shares of five series, including Income Fund. Income Fund is
further divided into six classes of shares and the number of
shares of stock, par value $0.01 per share, and, as of
February 28, 2005 has been allocated and designated to each
of these classes of shares as follows (i) Class A-
7,600,000,000 shares; (ii) Class B-2,000,000,000 shares;
(iii) Class B1-1,000,000,000 shares; (iv) Class C-
3,600,000,000 shares; (v) Class R-1,000,000,000 shares; and
(vi) Advisor Class-1,000,000,000 shares.
(3) Custodian Funds is an open-end investment company of
the management type registered as such under the 1940 Act;
(4) Except as disclosed in Income Fund's currently
effective prospectus, such counsel does not know of any
material suit, action, or legal or administrative proceeding
pending or threatened against Income Fund, the unfavorable
outcome of which would materially and adversely affect Income
Fund;
(5) Income Fund Class A Shares to be issued pursuant to
the terms of this Agreement have been duly authorized and,
when issued and delivered as provided in this Agreement and
the Registration Statement, will have been validly issued and
fully paid and will be non-assessable by Custodian Funds, on
behalf of Income Fund;
(6) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the
part of Custodian Funds, on behalf of Income Fund;
(7) Neither the execution, delivery, nor performance of
this Agreement by Custodian Funds, on behalf of Income Fund,
violates any provision of its Charter or By-laws, each as
amended to date, or the provisions of any agreement or other
instrument known to such counsel, to which Custodian Funds,
on behalf of Income Fund, is a party, or by which Custodian
Funds, on behalf of Income Fund, is otherwise bound; and this
Agreement is the legal, valid and binding obligation of
Custodian Funds, on behalf of Income Fund, and is enforceable
against Custodian Funds, on behalf of Income Fund, in
accordance with its terms; and
(8) The registration statement of Custodian Funds, with
respect to Income Fund, of which the prospectus dated
February 1, 2005, as supplemented to date (the "Prospectus"),
is a part, is effective under the 1933 Act, and, to the best
knowledge of such counsel, no stop order suspending the
effectiveness of such registration statement has been issued,
and no proceedings for such purpose have been instituted or
are pending before or threatened by the SEC under the 1933
Act, and nothing has come to counsel's attention that causes
it to believe that, at the time the Prospectus became
effective or at the Closing, such Prospectus (except for the
financial statements and other financial and statistical data
included therein, as to which counsel need not express an
opinion), contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading; and such counsel knows of no legal or government
proceedings required to be described in the Prospectus, or of
any contract or document of a character required to be
described in the Prospectus that is not described as
required.
In giving the opinions set forth above, this counsel may
state that it is relying on certificates of the officers of
Custodian Funds with regard to matters of fact, and certain
certifications and written statements of governmental officials
with respect to the good standing of Custodian Funds.
(k) That Multi-Income Trust shall have received a certificate
from the President or any Vice President and Secretary or any
Assistant Secretary of Custodian Funds to the effect that the
statements contained in the Prospectus, at the time the
Prospectus became effective and at the Closing, did not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading.
(l) That Custodian Funds' Registration Statement with respect
to Income Fund Class A Shares to be delivered to Multi-Income
Trust's shareholders in accordance with this Agreement shall
have become effective, and no stop order suspending the
effectiveness of the Registration Statement or any amendment or
supplement thereto, shall have been issued prior to the Closing
Date or shall be in effect at Closing, and no proceedings for
the issuance of such an order shall be pending or threatened on
that date.
(m) That Income Fund Class A Shares to be delivered hereunder
shall be eligible for sale with each state commission or agency
with which such eligibility is required in order to permit
Income Fund Class A Shares lawfully to be delivered to each
holder of Multi-Income Trust Shares.
(n) That, at the Closing, there shall be transferred to
Custodian Funds, on behalf of Income Fund, aggregate Net Assets
of Multi-Income Trust comprising at least 90% in fair market
value of the total net assets and 70% of the fair market value
of the total gross assets recorded on the books of Multi-Income
Trust on the Closing Date.
(o) That there be delivered to Custodian Funds, on behalf of
Income Fund, information concerning the tax basis of Multi-
Income Trust in all securities transferred to Custodian Funds,
on behalf of Income Fund, together with shareholder information
including the names, addresses, and taxpayer identification
numbers of the shareholders of Multi-Income Trust as of the
Closing Date, the number of shares held by each shareholder, the
dividend reinvestment elections applicable to each shareholder,
and the backup withholding and nonresident alien withholding
certifications, notices or records on file with Multi-Income
Trust respect to each shareholder.
(p) That all consents of other parties, and all other
consents, orders and permits of federal, state and local
regulatory and self-regulatory authorities (including those of
the SEC, any stock exchanges upon which Multi-Income Trust
Shares or Income Fund Class A Shares may be listed, and of state
Blue Sky securities authorities, including any necessary "no-
action" positions or exemptive order from such authorities),
required to permit consummation of the Reorganization
contemplated hereby shall have been obtained, except where
failure to obtain such consent, order or permit would not
involve a risk of a material adverse effect on the assets or
properties of Multi-Income Trust or Income Fund.
9. Brokerage Fees and Expenses.
(a) Custodian Funds, on behalf of Income Fund, and Multi-
Income Trust each represents and warrants to the other that
there are no broker or finders' fees payable by it in connection
with the transactions provided for herein.
(b) Other than the amount necessary for the Prepayment, which
shall be paid by Multi-Income Trust, the expenses of entering
into and carrying out the provisions of this Agreement shall be
borne one-quarter by Income Fund, one-quarter by Multi-Income
Trust, and one-half by Xxxxxxxx Advisers, Inc.
10. Termination; Postponement; Waiver; Order.
(a) Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the
Reorganization abandoned at any time (whether before or after
approval thereof by the shareholders of Multi-Income Trust)
prior to the Closing, or the Closing may be postponed as
follows:
(1) by mutual consent of Custodian Funds, on behalf of
Income Fund, and of Multi-Income Trust;
(2) by Custodian Funds, on behalf of Income Fund, if any
conditions of its obligations set forth in Section 8 have not
been fulfilled or waived; or
(3) by Multi-Income Trust, if any conditions of its
obligations set forth in Section 8 have not been fulfilled or
waived.
An election by Custodian Funds or Multi-Income Trust to
terminate this Agreement and to abandon the Reorganization shall
be exercised, respectively, by the Board of Directors of
Custodian Funds or the Board of Trustees of Multi-Income Trust.
(b) If the transactions contemplated by this Agreement have
not been consummated by December 31, 2005, this Agreement shall
automatically terminate on that date, unless a later date is
agreed to by both Custodian Funds and Multi-Income Trust.
(c) In the event of termination of this Agreement pursuant to
the provisions hereof, the same shall become void and have no
further effect, and neither Multi-Income Trust, nor Custodian
Funds, nor their trustees, officers, or agents, nor the
shareholders of Multi-Income Trust or Income Fund shall have any
liability in respect of this Agreement, but all expenses
incidental to the preparation and carrying out of this Agreement
shall be paid as provided in Section 9(b) hereof.
(d) At any time prior to the Closing, any of the terms or
conditions of this Agreement may be waived by the party who is
entitled to the benefit thereof by action taken by that party's
Board of Trustees/Directors if, in the judgment of such Board,
such action or waiver will not have a material adverse effect on
the benefits intended under this Agreement to its shareholders,
on behalf of whom such action is taken.
(e) The respective representations and warranties contained
in Sections 4 to 6 hereof shall expire with and be terminated by
the Reorganization on the Closing Date, and neither Multi-Income
Trust nor Custodian Funds, nor any of their officers, trustees,
directors, agents or shareholders shall have any liability with
respect to such representations or warranties after the Closing
Date. This provision shall not protect any officer, trustee,
director, agent or shareholder of Multi-Income Trust or
Custodian Funds against any liability to the entity for which
that officer, trustee, agent or shareholder so acts or to its
shareholders to which that officer, trustee, director, agent or
shareholder would otherwise be subject, by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties in the conduct of such office.
(f) If any order or orders of the SEC with respect to this
Agreement shall be issued prior to the Closing and shall impose
any terms or conditions that are determined by action of the
Board of Directors of Custodian Funds, on behalf of Income Fund,
and the Board of Trustees of Multi-Income Trust to be
acceptable, such terms and conditions shall be binding as if a
part of this Agreement without further vote or approval of the
shareholders of Multi-Income Trust, unless such terms and
conditions shall result in a change in the method of computing
the number of Income Fund Class A Shares to be issued to Multi-
Income Trust. In which event, unless such terms and conditions
shall have been included in the proxy solicitation material
furnished to the shareholders of Multi-Income Trust prior to the
Shareholders' Meeting at which the transactions contemplated by
this Agreement shall have been approved, this Agreement shall
not be consummated and shall terminate, unless Multi-Income
Trust shall promptly call a meeting of the shareholders of Multi-
Income Trust at which such conditions so imposed shall be
submitted for approval.
(g) It is acknowledged that the Declaration of Trust of Multi-
Income Trust is on file with the Secretary of The Commonwealth
of the Commonwealth of Massachusetts and that this Agreement is
executed on behalf of Multi-Income Trust by the undersigned as
officers and not individually, and that the obligations of this
Agreement are not binding upon any of them, the Trustees or the
shareholders of Multi-Income Trust individually, but are binding
only upon the assets and property belonging to Multi-Income
Trust for the benefit of which the Trustees have caused this
Agreement to be made.
11. Entire Agreement and Amendments.
This Agreement embodies the entire agreement between the
parties and there are no agreements, understandings,
restrictions, or warranties relating to the transactions
contemplated by this Agreement other than those set forth herein
or herein provided for. This Agreement may be amended only by
mutual consent of the parties in writing. Neither this Agreement
nor any interest herein may be assigned without the prior
written consent of the other party.
12. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all such
counterparts together shall constitute but one instrument.
13. Notices.
Any notice, report, or demand required or permitted by any
provision of this Agreement shall be in writing and shall be
deemed to have been given if delivered or mailed, first class
postage prepaid, addressed to the appropriate Fund, at Xxx
Xxxxxxxx Xxxxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000, Attention:
Secretary.
14. Governing Law.
This Agreement shall be governed by and carried out in
accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, Custodian Funds, on behalf of Income
Fund, and Multi-Income Trust have each caused this Agreement to
be executed on its behalf by its duly authorized officers, all
as of the date and year first-above written.
XXXXXXXX CUSTODIAN FUNDS, INC.,
on behalf of FRANKLIN INCOME
FUND
Attest:
/S/Xxxxxx X. Xxxxxxx /s/ Xxxxx X. Xxxx
By:
Xxxxxx X. Xxxxxxx Xxxxx X. Xxxx
Secretary Vice President
FRANKLIN MULTI-INCOME TRUST
Attest:
/s/Xxxxxx X. Xxxxxxx /S/ Xxxxx X. Xxxx
By:
Xxxxxx X. Xxxxxxx Xxxxx X. Xxxx
Secretary Vice President
