File No. 333-74895
AS FILED AUGUST 30, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
X Post-Effective Amendment No. 2
(Check appropriate box or boxes)
FRANKLIN FEDERAL TAX-FREE INCOME FUND
(Exact Name of Registrant as Specified in Charter)
(650) 312-2000
(Area Code and Telephone Number)
777 MARINERS ISLAND BLVD.
SAN MATEO, CA 94404
(Address of Principal Executive Offices
Number, Street, City, State, Zip Code)
DEBORAH R. GATZEK
777 MARINERS ISLAND BLVD.
SAN MATEO, CA 94404
(Name and Address of Agent for Service,
Number, Street, City, State, Zip Code)
Copies to:
BRUCE G. LETO, ESQUIRE
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 ONE COMMERCE SQUARE
PHILADELPHIA, PA 19103
TITLE OF THE SECURITIES BEING REGISTERED: SHARES OF CAPITAL STOCK - NO PAR
VALUE. NO FILING FEE IS DUE BECAUSE REGISTRANT IS RELYING ON SECTION 24(F)
OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE IMMEDIATELY PURSUANT TO
RULE 485(B) UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
PART C. OTHER INFORMATION
Item 15. INDEMNIFICATION
Please see the By-Laws, Management, and Distribution Agreements,
previously filed as exhibits and incorporated herein by reference.
Notwithstanding the provisions contained in the Registrant's By-Laws, in the
absence of authorization by the appropriate court on the merits pursuant to
said By-Laws, any indemnification under said Article shall be made by
Registrant only if authorized in the manner provided by such By-Laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the U.S.
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 16. EXHIBITS (Incorporated by reference to the filings as noted)
The following exhibits are incorporated herein by reference, except
exhibits 12(ii) and 12(iv) which are attached.
(1) Copies of the charter as now in effect:
(i) Articles of Incorporation dated January 5, 1981
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(ii) Certificate of Amendment to Articles of Incorporation
dated November 1,
1982
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(iii) Certificate of Amendment to Articles of Incorporation
dated June 20, 1983
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(iv) Certificate of Amendment to Articles of Incorporation
dated September 20, 1983
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(v) Certificate of Amendment to Articles of Incorporation
dated April 11, 1995
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(2) Copies of the existing By-laws or instruments corresponding
thereto:
(i) By-laws of Franklin Federal Tax-Free Income Fund
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(ii) Amendment to By-Laws of Franklin Federal Tax-Free Income
Fund
dated November 17, 1987
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(iii) Amendment to By-Laws of Franklin Federal Tax-Free
Income Fund
dated February 28, 1994
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(3) Copies of any voting trust agreement with respect to more than 5
percent of any class of equity securities of the Registrant:
Not Applicable
(4) Copies of the agreement of acquisition, reorganization, merger,
liquidation and any amendments to it:
(i) Agreement and Plan of Reorganization between Franklin Tax-Free
Trust, on behalf of Franklin Indiana Tax-Free Income Fund, and
the Registrant dated April 28, 1999
Filing: Post-Effective Amendment No. 1 to Registration
Statement on Form N-14
File No. 333-74895
Filing Date: June 24, 1999
(ii) Agreement and Plan of Reorganization between Franklin Municipal
Securities Trust, on behalf of Franklin Hawaii Municipal Bond
Fund, and the Registrant dated April 28, 1999
Filing: Post-Effective Amendment No. 1 to Registration
Statement on Form N-14
File No. 333-74895
Filing Date: June 24, 1999
(iii)Agreement and Plan of Reorganization between Franklin Municipal
Securities Trust, on behalf of Franklin Arkansas Municipal Bond
Fund, and the Registrant dated April 28, 1999
Filing: Post-Effective Amendment No. 1 to Registration
Statement on Form N-14
File No. 333-74895
Filing Date: June 24, 1999
(iv) Agreement and Plan of Reorganization between Franklin Municipal
Securities Trust, on behalf of Franklin Washington Municipal
Bond Fund, and the Registrant dated April 28, 1999
Filing: Post-Effective Amendment No. 1 to Registration
Statement on Form N-14
File No. 333-74895
Filing Date: June 24, 1999
(5) Copies of all instruments defining the rights of the holders of
the securities being registered including, where applicable, the
relevant portion of the articles of incorporation or by-laws of
the Registrant:
Not Applicable
(6) Copies of all investment advisory contracts relating to the
management of the assets of the Registrant:
(i) Management Agreement between Registrant and Franklin
Advisers, Inc.
dated May 1, 1994
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(7) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies
of all agreements between principal underwriters and dealers:
(i) Amended and Restated Distribution Agreement between
Registrant and
Franklin/Templeton Distributors, Inc. dated March 29, 1995
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(ii) Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and Securities Dealers dated March 1,
1998
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: December 22, 1998
(iii) Amendment of Amended and Restated Distribution Agreement
between Registrant and Franklin/Templeton Distributors, Inc.
dated January 12, 1999
Filing: Post-Effective Amendment No. 23 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: June 22, 1999
(8) Copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
directors or officers of the Registrant in their capacity as
such; any such plan that is not set forth in a formal document,
furnish a reasonably detailed description thereof:
Not Applicable
(9) Copies of all custodian agreements and depository contracts under
Section 17(f) of the 1940 Act, with respect to securities and
similar investments of the Registrant, including the schedule of
remuneration:
(i) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 20 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: August 21, 1997
(ii) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 20 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: August 21, 1997
(iii) Amendment to Master Custody Agreement between Registrant
and Bank of New York dated May 7, 1997
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: June 23, 1998
(iv) Amendment dated February 27, 1998 to Exhibit A of
the Master Custody Agreement between Registrant and Bank of
New York dated February 16, 1996
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: December 22, 1998
(10) Copies of any plan entered into by Registrant pursuant to Rule
12b-1 under the 1940 Act, which describes all material aspects of
the financing of distribution of Registrant's shares, and any
agreements with any person relating to implementation of such
plan and copies of any plan entered into pursuant to Rule 18f-3
under the 1940 Act, any agreements with any person relating to
the implementation of such plan, any amendment and a copy of the
portion of the minutes discussing any action taken to resolve the
plan.
(i) Distribution Plan pursuant to Rule 12b-1 between Registrant
and
Franklin/Templeton Distributors, Inc. dated May 1, 1994
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(ii) Class II Distribution Plan pursuant to Rule 12b-1 dated
March 30, 1995
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No. 2-75925
Filing Date: July 3, 1995
(iii) Class B Distribution Plan pursuant to Rule 12b-1 between
Registrant and Franklin/Templeton Distributors, Inc. dated
October 16, 1998
Filing: Post-Effective Amendment No. 23 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: June 22, 1999
(iv) Multiple Class Plan on behalf of Franklin Federal
Tax-Free Income Fund dated March 19, 1998
Filing: Post-Effective Amendment No. 23 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: June 22, 1999
(11) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid and nonassessable:
(i) Opinion and Consent of Counsel dated June 19, 1998
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: June 23, 1998
(12) An opinion and consent to its use, of counsel,
supporting the tax matters and consequences to shareholders
discussed in the prospectus.
(i) Tax Opinion relating to Franklin Indiana Tax-Free Income Fund
Filing: Post-Effective Amendment No. 1 to Registration
Statement on Form N-14
File No. 333-74895
Filing Date: June 24, 1999
(ii) Tax Opinion relating to Franklin Arkansas Municipal Bond Fund
(iii) Tax Opinion relating to Franklin Hawaii Municipal Bond Fund
Filing: Post-Effective Amendment No. 1 to Registration
Statement on Form N-14
File No. 333-74895
Filing Date: June 24, 1999
(iv) Tax Opinion relating to Franklin Washington Municipal
Bond Fund
(13) Copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part
at or after the date of filing the Registration Statement:
(i) Subcontract for Fund Administrative Services dated
October 1, 1996 and Amendment thereto dated December 1, 1998
between Franklin Advisers, Inc. and Franklin Templeton
Services Inc.
Filing: Post-Effective Amendment No. 23 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: June 22, 1999
(14) Copies of any other opinions, appraisals or rulings and consents
to the use thereof relied on in the preparation of this
registration statement and required by Section 7 of the 1933 Act:
Not Applicable
(15) All financial statements omitted from Item 14(a)(1):
Not Applicable
(16) Manually signed copies of any power of attorney pursuant to which
the name of any person has been signed to the Registration
Statement.
(i) Power of Attorney dated January 12, 1999
Filing: Registration Statement on Form N-14
File No. 333-74895
Filing Date: March 23, 1999
(ii) Certificate of Secretary dated February 12, 1999
Filing: Registration Statement on Form N-14
File No. 333-74895
Filing Date: March 23, 1999
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering
prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may
be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a part
of an amendment to the registration statement and will not be
used until the amendment is effective, and that, in determining
any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new Registration Statement for the
securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of
them.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of San Mateo, and
the State of California, on the 30th day of August, 1999.
FRANKLIN FEDERAL TAX-FREE INCOME FUND
(Registrant)
By: RUPERT H. JOHNSON, JR.*
Rupert H. Johnson, Jr., President
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated:
RUPERT H. JOHNSON, JR.* Director and Principal Dated: August 30, 1999
Rupert H. Johnson, Jr. Executive Officer
MARTIN L. FLANAGAN* Principal Financial Dated: August 30, 1999
Martin L. Flanagan Officer
DIOMEDES LOO-TAM* Principal Accounting Dated: August 30, 1999
Diomedes Loo-Tam Officer
FRANK H. ABBOTT, III* Director Dated: August 30, 1999
Frank H. Abbott, III
HARRIS J. ASHTON* Director Dated: August 30, 1999
Harris J. Ashton
HARMON E. BURNS* Director Dated: August 30, 1999
Harmon E. Burns
ROBERT F. CARLSON* Director Dated: August 30, 1999
Robert F. Carlson
S. JOSEPH FORTUNATO* Director Dated: August 30, 1999
S. Joseph Fortunato
CHARLES B. JOHNSON* Director Dated: August 30, 1999
Charles B. Johnson
FRANK WT. LAHAYE* Director Dated: August 30, 1999
Frank W.T.LaHaye
GORDON S. MACKLIN* Director Dated: August 30, 1999
Gordon S. Macklin
By: /s/ Karen L. Skidmore
Attorney-in-Fact
(Pursuant to Power of Attorney previously filed.)
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT LOCATION
1(i) Articles of Incorporation dated January 5, 1981 *
1(ii) Certificate of Amendment to Articles of Incorporation *
dated November 1, 1982
1(iii) Certificate of Amendment to Articles of Incorporation *
dated June 20 1983
1(iv) Certificate of Amendment to Articles of Incorporation *
dated September 20, 1983
1(v) Certificate of Amendment to Articles of Incorporation *
dated April 11, 1995
2(i) By-Laws *
2(ii) Amendment to By-Laws dated November 17, 1987 *
2(iii) Amendment to By-Laws dated February 28, 1994 *
(4)(i) Agreement and Plan of Reorganization between *
Franklin Tax-Free Trust, on behalf of Franklin
Indiana Tax-Free Income Fund, and the Registrant
dated April 28, 1999
(4)(ii) Agreement and Plan of Reorganization between Franklin *
Municipal Securities Trust, on behalf of Franklin
Hawaii Municipal Bond Fund, and the Registrant dated
April 28, 1999
(4)(iii) Agreement and Plan of Reorganization between Franklin *
Municipal Securities Trust, on behalf of Franklin
Arkansas Municipal Bond Fund, and the Registrant dated
April 28, 1999
(4)(iv) Agreement and Plan of Reorganization between Franklin *
Municipal Securities Trust, on behalf of Franklin
Washington Municipal Bond Fund, and the Registrant
dated April 28, 1999
6(i) Management Agreement between Registrant and Franklin *
Advisers, Inc. dated May 1, 1994
7(i) Amended and Restated Distribution Agreement between *
Registrant and Franklin/Templeton Distributors, Inc.
dated March 29, 1995
7(ii) Forms of Dealer Agreements between Franklin/ *
Templeton Distributors, Inc. and Securities Dealers
dated March 1, 1998
7(iii) Amendment of Amended and Restated Distribution *
Agreement between Registrant and Franklin/Templeton
Distributors, Inc. dated June 12, 1999
9(i) Master Custody Agreement between Registrant and Bank *
of New York dated February 16, 1996
9(ii) Terminal Link Agreement between Registrant and Bank *
of New York dated February 16, 1996
9(iii) Amendment to Master Custody Agreement between *
Registrant and Bank of New York dated May 7, 1997
9(iv) Amendment dated February 27, 1998 to Exhibit A of the *
Master Custody Agreement between Registrant and Bank
of New York dated February 16, 1996
10(i) Distribution Plan between Registrant and *
Franklin/Templeton Distributors, Inc. dated May 1,
1994
10(ii) Class II Distribution Plan pursuant to Rule 12b-1 *
dated March 30, 1995
10(iii) Class B Distribution Plan pursuant to Rule 12b-1 *
between Registrant and Franklin/Templeton Distributions,
Inc. dated October 16, 1998
10(iv) Multiple Class Plan on behalf of Franklin Federal *
Tax-Free Income Fund dated March 19, 1998
11(i) Opinion and Consent of Counsel dated June 19, 1998 *
12(i) Tax Opinion relating to Franklin Indiana *
Tax-Free Income Fund
12(ii) Tax Opinion relating to Franklin Arkansas Attached
Municipal Bond Fund
12(iii) Tax Opinion relating to Franklin Hawaii *
Municipal Bond Fund
12(iv) Tax Opinion relating to Franklin Washington Attached
Municipal Bond Fund
13(i) Subcontract for Fund Administrative Services dated *
October 1, 1996 and Amendment thereto dated April 30,
1998 between Franklin Advisers, Inc. and Franklin
Templeton Services, Inc.
16(i) Power of Attorney dated January 12, 1999 *
16(ii) Certificate of Secretary dated February 12, 1999 *
*Incorporated by reference.
Stradley Ronon
Stevens & Young LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Telephone (215) 564-8000
Fax (215) 564-8120
August 26, 1999
Board of Trustees
Franklin Municipal Securities Trust,
Franklin Arkansas Municipal Bond Fund
777 Mariners Island Blvd.
San Mateo, CA 94404
Board of Directors
Franklin Federal Tax-Free Income Fund
777 Mariners Island Blvd.
San Mateo, CA 94404
Re: AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF THE 28TH DAY
OF APRIL, 1999 (THE "AGREEMENT"), BY AND BETWEEN FRANKLIN MUNICIPAL
SECURITIES TRUST, A DELAWARE BUSINESS TRUST, ON BEHALF OF IT
SERIES, FRANKLIN ARKANSAS MUNICIPAL BOND FUND ("ACQUIRED FUND"),
AND FRANKLIN FEDERAL TAX-FREE INCOME FUND, A CALIFORNIA CORPORATION
("ACQUIRING FUND")
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of Acquired Fund that 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 shares of
common stock, no par value, of the Acquiring Fund - Class A ("Acquiring Fund
Shares"), (ii) the distribution of Acquiring Fund Shares to the shareholders
of the Acquired Fund according to their respective interests, and (iii) the
subsequent dissolution of the Acquired Fund as soon as practicable after the
closing (the "Reorganization"), all upon and subject to the terms and
conditions of the Agreement.
In rendering our opinion, we have reviewed and relied upon (a) the
Agreement and Plan of Reorganization, dated as of the 28th day of April,
1999, by and between the Acquiring Fund and Franklin Municipal Securities
Trust, on behalf of the Acquired Fund ("Agreement"), (b) the proxy materials
provided to stockholders of the Acquired Fund in connection with the Special
Meeting of Stockholders of the Acquired Fund held on the 23rd day of June,
1999, (c) certain representations concerning the Reorganization made to us by
the Acquiring Fund and Franklin Municipal Securities Trust, on behalf of the
Acquired Fund in a letter dated August 26, 1999 (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 Agreement.
For purposes of this opinion, we have assumed that the Acquired
Fund on the effective 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 Treasury
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 the Reorganization is carried
out in accordance with the applicable laws of the State of California and the
State of Delaware, the Agreement and the Representation Letter, it is our
opinion that:
1. The Reorganization will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(C) of the Code, and Acquired Fund and
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 Acquired Fund upon the
transfer of all of its assets to Acquiring Fund in exchange solely for
Acquiring Fund Shares pursuant to Section 361(a) and Section 357(a) of the
Code. We express no opinion as to whether any accrued market discount will
be required to be recognized as ordinary income pursuant to Section 1276 of
the Code.
3. No gain or loss will be recognized by Acquiring Fund upon the
receipt by it of all of the assets of Acquired Fund in exchange solely for
Acquiring Fund Shares pursuant to Section 1032(a) of the Code.
4. The basis of the assets of Acquired Fund received by Acquiring
Fund will be the same as the basis of such assets to Acquired Fund
immediately prior to the exchange pursuant to Section 362(b) of the Code.
5. The holding period of the assets of Acquired Fund received by
Acquiring Fund will include the period during which such assets were held by
Acquired Fund pursuant to Section 1223(2) of the Code.
6. No gain or loss will be recognized by the stockholders of
Acquired Fund upon the exchange of their Acquired Fund Shares for Acquiring
Fund Shares (including fractional shares to which they may be entitled),
pursuant to Section 354(a) of the Code.
7. The basis of the Acquiring Fund Shares received by the
stockholders of 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.
8. The holding period of the Acquiring Fund Shares received by
the stockholders of 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 effective date of the Reorganization, pursuant
to Section 1223(1) of the Code.
9. Acquiring Fund will succeed to and take into account as of the
date of the proposed transfer (as defined in Section 1.381(b)-1(b) of the
Income Tax Regulations) the items of Acquired Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381(b) and (c), 382, 383 and 384 of the Code.
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 this letter.
Our opinion is conditioned upon the performance by Acquiring Fund
and Acquired Fund of their undertakings in the Agreement and the
Representation Letter.
This opinion is being rendered to Acquiring Fund and Franklin
Municipal Securities Trust, on behalf of Acquired Fund, and may be relied
upon only by such funds and the stockholders of each.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By: /s/ William P. Zimmerman
-------------------------------
William P. Zimmerman, a Partner
Stradley Ronon
Stevens & Young LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Telephone (215) 564-8000
Fax (215) 564-8120
August 26, 1999
Board of Trustees
Franklin Municipal Securities Trust,
Franklin Washington Municipal Bond Fund
777 Mariners Island Blvd.
San Mateo, CA 94404
Board of Directors
Franklin Federal Tax-Free Income Fund
777 Mariners Island Blvd.
San Mateo, CA 94404
Re: AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF THE 28TH DAY
OF APRIL, 1999 (THE "AGREEMENT"), BY AND BETWEEN FRANKLIN MUNICIPAL
SECURITIES TRUST, A DELAWARE BUSINESS TRUST, ON BEHALF OF IT
SERIES, FRANKLIN WASHINGTON MUNICIPAL BOND FUND ("ACQUIRED FUND"),
AND FRANKLIN FEDERAL TAX-FREE INCOME FUND, A CALIFORNIA CORPORATION
("ACQUIRING FUND")
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of Acquired Fund that 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 shares of
common stock, no par value, of the Acquiring Fund - Class A ("Acquiring Fund
Shares"), (ii) the distribution of Acquiring Fund Shares to the shareholders
of the Acquired Fund according to their respective interests, and (iii) the
subsequent dissolution of the Acquired Fund as soon as practicable after the
closing (the "Reorganization"), all upon and subject to the terms and
conditions of the Agreement.
In rendering our opinion, we have reviewed and relied upon (a) the
Agreement and Plan of Reorganization, dated as of the 28th day of April,
1999, by and between the Acquiring Fund and Franklin Municipal Securities
Trust, on behalf of the Acquired Fund ("Agreement"), (b) the proxy materials
provided to stockholders of the Acquired Fund in connection with the Special
Meeting of Stockholders of the Acquired Fund held on the 23rd day of June,
1999, (c) certain representations concerning the Reorganization made to us by
the Acquiring Fund and Franklin Municipal Securities Trust, on behalf of the
Acquired Fund in a letter dated August 26, 1999 (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 Agreement.
For purposes of this opinion, we have assumed that the Acquired
Fund on the effective 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 Treasury
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 the Reorganization is carried
out in accordance with the applicable laws of the State of California and the
State of Delaware, the Agreement and the Representation Letter, it is our
opinion that:
1. The Reorganization will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(C) of the Code, and Acquired Fund and
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 Acquired Fund upon the
transfer of all of its assets to Acquiring Fund in exchange solely for
Acquiring Fund Shares pursuant to Section 361(a) and Section 357(a) of the
Code. We express no opinion as to whether any accrued market discount will
be required to be recognized as ordinary income pursuant to Section 1276 of
the Code.
3. No gain or loss will be recognized by Acquiring Fund upon the
receipt by it of all of the assets of Acquired Fund in exchange solely for
Acquiring Fund Shares pursuant to Section 1032(a) of the Code.
4. The basis of the assets of Acquired Fund received by Acquiring
Fund will be the same as the basis of such assets to Acquired Fund
immediately prior to the exchange pursuant to Section 362(b) of the Code.
5. The holding period of the assets of Acquired Fund received by
Acquiring Fund will include the period during which such assets were held by
Acquired Fund pursuant to Section 1223(2) of the Code.
6. No gain or loss will be recognized by the stockholders of
Acquired Fund upon the exchange of their Acquired Fund Shares for Acquiring
Fund Shares (including fractional shares to which they may be entitled),
pursuant to Section 354(a) of the Code.
7. The basis of the Acquiring Fund Shares received by the
stockholders of 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.
8. The holding period of the Acquiring Fund Shares received by
the stockholders of 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 effective date of the Reorganization, pursuant
to Section 1223(1) of the Code.
9. Acquiring Fund will succeed to and take into account as of the
date of the proposed transfer (as defined in Section 1.381(b)-1(b) of the
Income Tax Regulations) the items of Acquired Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381(b) and (c), 382, 383 and 384 of the Code.
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 this letter.
Our opinion is conditioned upon the performance by Acquiring Fund
and Acquired Fund of their undertakings in the Agreement and the
Representation Letter.
This opinion is being rendered to Acquiring Fund and Franklin
Municipal Securities Trust, on behalf of Acquired Fund, and may be relied
upon only by such funds and the stockholders of each.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By: /s/ William P. Zimmerman
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William P. Zimmerman, a Partner
