File No. 333-74811
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. 1
(Check appropriate box or boxes)
FRANKLIN TAX-FREE TRUST
(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 BENEFICIAL INTEREST - 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) OF 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 trustees, 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 trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, 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 4(i) and 12(i), which are attached.
(1) Copies of the charter as now in effect:
(i) Restated Agreement and Declaration of Trust dated October
26, 1984
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(ii) Certificate of Amendment of Agreement and Declaration of
Trust dated July 16, 1991
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(iii) Certificate of Amendment of Agreement and Declaration of
Trust dated April 21, 1992
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(iv) Certificate of Amendment of Agreement and Declaration of
Trust dated December 14, 1993
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(v) Certificate of Amendment of Agreement and Declaration of
Trust dated March 21, 1995
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(2) Copies of the existing By-laws or instruments corresponding thereto:
(i) By-laws
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(ii) Amendment to By-laws dated December 8, 1987
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(iii) Certificate of Amendment to By-laws dated April 21, 1992
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(iv) Certificate of Amendment to By-laws dated December 14, 1993
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(v) Amendment to By-laws dated January 18, 1994
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(3) Copies of any voting trust agreement with respect to more than five
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) Plan of Reorganization made by Registrant on behalf of
Franklin Michigan Tax-Free Income Fund and Franklin Michigan
Insured Tax-Free Income Fund
(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
Investment Advisory Services, Inc. on behalf of Franklin
Connecticut Tax-Free Income Fund dated October 1, 1996
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: June 27, 1997
(ii) Management Agreement between Registrant and Franklin
Advisers, Inc. dated December 1, 1986
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(iii) Amendment to Management Agreement between Registrant and
Franklin Advisers, Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(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. 22 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(ii) Forms of Dealer Agreements effective as of March 1, 1998
between Franklin/Templeton Distributors, Inc. and
Securities Dealers
Filing: Post-Effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: December 23, 1998
(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. 22 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(ii) Terminal Link 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. 2-94222
Filing Date: March 14, 1996
(iii) Amendment dated May 7, 1997 to Master Custody Agreement
between Registrant and Bank of New York dated February 16,
1996
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(iv) Amendment dated February 27, 1998 to Master Custody
Agreement between Registrant and Bank of New York dated
February 16, 1996
Filing: Post-Effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: December 23, 1998
(v) Foreign Custody Manager Agreement made as of July 30, 1998,
effective as of February 27, 1998 on behalf of each Company
listed on Schedule 1
Filing: Post-Effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: December 23, 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 agreement
with any person relating to implementation of each 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
describing any action taken to resolve the plan.
(i) Class I shares Distribution Plans pursuant to Rule 12b-1 on
behalf of the following fund:
Dated June 1, 1996:
Franklin Michigan Tax-Free Income Fund
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: June 27, 1997
(ii) Class I shares Distribution Plans pursuant to Rule 12b-1 on
behalf of the following funds:
Dated July 1, 1993:
Franklin Arizona Insured Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Dated May 1, 1994:
Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund Franklin Colorado
Tax-Free Income Fund Franklin Connecticut Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund Franklin Georgia
Tax-Free Income Fund Franklin High Yield Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund Franklin Insured
Tax-Free Income Fund Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund Franklin Maryland
Tax-Free Income Fund Franklin Massachusetts Insured Tax-Free
Income Fund Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund Franklin
Missouri Tax-Free Income Fund Franklin New Jersey Tax-Free
Income Fund Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund Franklin Oregon
Tax-Free Income Fund Franklin Pennsylvania Tax-Free Income
Fund Franklin Puerto Rico Tax-Free Income Fund Franklin Texas
Tax-Free Income Fund Franklin Virginia Tax-Free Income Fund
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(iii) Class II shares Distribution Plan pursuant to Rule 12b-1 on
behalf of the following funds:
Dated March 30, 1995:
Franklin Alabama Tax-Free Income Fund - Class II
Franklin Arizona Tax-Free Income Fund - Class II
Franklin Colorado Tax-Free Income Fund - Class II
Franklin Connecticut Tax-Free Income Fund - Class II
Franklin Florida Tax-Free Income Fund - Class II
Franklin Georgia Tax-Free Income Fund - Class II
Franklin High Yield Tax-Free Income Fund - Class II
Franklin Insured Tax-Free Income Fund - Class II
Franklin Louisiana Tax-Free Income Fund - Class II
Franklin Maryland Tax-Free Income Fund - Class II
Franklin Massachusetts Insured Tax-Free Income Fund - Class II
Franklin Michigan Insured Tax-Free Income Fund - Class II
Franklin Minnesota Insured Tax-Free Income Fund - Class II
Franklin Missouri Tax-Free Income Fund - Class II
Franklin New Jersey Tax-Free Income Fund - Class II
Franklin North Carolina Tax-Free Income Fund - Class II
Franklin Ohio Insured Tax-Free Income Fund - Class II
Franklin Oregon Tax-Free Income Fund - Class II
Franklin Pennsylvania Tax-Free Income Fund - Class II
Franklin Puerto Rico Tax-Free Income Fund - Class II
Franklin Texas Tax-Free Income Fund - Class II
Franklin Virginia Tax-Free Income Fund - Class II
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(iv) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Franklin High Yield Tax-Free
Income Fund - Class B and Franklin/Templeton Distributors,
Inc.
Filing: Post-Effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: December 23, 1998
(v) Multiple Class Plan dated October 19, 1995
Filing: Post-Effective Amendment No. 25 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(vi) Multiple Class Plan dated March 18, 1998 on behalf of Franklin
High Yield Tax-Free Income Fund
Filing: Post-Effective Amendment No. 27
to Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 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 nonasessable:
(i) Opinion and Consent of Counsel dated April 17, 1998
Filing: Post-Effective Amendment No. 25 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(12) An opinion and consent to its use, of counsel, supporting
the tax matters and consequences to shareholders discussed in the
prospectus:
(i) Opinion and Consent of Counsel Supporting Tax Matters and
Consequences to Shareholders
(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) Agreement between Registrant and Financial Guaranty
Insurance Company dated March 8, 1985
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(ii) Amendment to Agreement between Registrant and Financial
Guaranty Insurance Company dated November 24, 1992
Registrant: Franklin New York Tax-Free Trust
Filing: Post-Effective Amendment No. 12 to
Registration Statement on Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(iii) Mutual Fund Agreement between Registrant and Financial
Guaranty Insurance Company dated April 30, 1993
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(iv) Subcontract for Fund Administrative Services dated October
1, 1996 and Amendment thereto dated March 11, 1998 between
Franklin Advisers, Inc. and Franklin Templeton Services,
Inc.
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(v) Subcontract for Fund Administrative Services dated October 1,
1996 and Amendment thereto dated July 1, 1997 between Franklin
Investment Advisory Services, Inc. and Franklin
Templeton Services, Inc.
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(14) Copies of any other opinions, appraisals or rulings, and consents to
their use relied on in preparing the 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. 333-74811
Filing Date: March 22, 1999
(ii) Certificate of Secretary dated February 12, 1999
Filing: Registration Statement on Form N-14
File No. 333-74811
Filing Date: March 22, 1999
(30) Any additional exhibits that the Registrant may wish to file:
None
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 by the Registrant, in the City of San Mateo, and the State
of California, on the 30th day of August, 1999.
FRANKLIN TAX-FREE TRUST
(Registrant)
By: RUPERT H. JOHNSON, JR.*
Rupert H. Johnson, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following Trustees and Officers of
Franklin Tax-Free Trust in the capacities and on the dates indicated.
SIGNATURE: TITLE: DATE:
RUPERT H. JOHNSON, JR.* Trustee and Principal August 30, 1999
Rupert H. Johnson, Jr. Executive Officer
MARTIN L. FLANAGAN* Vice President and August 30, 1999
Martin L. Flanagan Principal Financial Officer
DIOMEDES LOO-TAM* Vice President and August 30, 1999
Diomedes Loo-Tam Principal Accounting Officer
FRANK H. ABBOT, III* Trustee August 30, 1999
Frank H. Abbott, III
HARRIS J. ASHTON* Trustee August 30, 1999
Harris J. Ashton
S. JOSEPH FORTUNATO* Trustee August 30, 1999
S. Joseph Fortunato
EDITH G. HOLIDAY* Trustee August 30, 1999
Edith G. Holiday
CHARLES B. JOHNSON* Trustee August 30, 1999
Charles B. Johnson
FRANK W. T. LAHAYE Trustee August 30, 1999
Frank W. T. LaHaye*
GORDON S. MACKLIN* Trustee August 30, 1999
Gordon S. Macklin
*By /s/Karen L. Skidmore
Karen L. Skidmore, Attorney-in-Fact
(Pursuant to Powers of Attorney previously filed)
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT LOCATION
1(i) Restated Agreement and Declaration of Trust dated *
October 26, 1984
1(ii) Certificate of Amendment of Agreement and *
Declaration of Trust dated July 16, 1991
1(iii) Certificate of Amendment of Agreement and *
Declaration of Trust dated April 21, 1992
1(iv) Certificate of Amendment of Agreement and *
Declaration of Trust dated December 14, 1993
1(v) Certificate of Amendment of Agreement and *
Declaration of Trust dated March 21, 1995
2(i) By-laws *
2(ii) Amendment to By-laws dated December 8, 1987 *
2(iii) Certificate of Amendment to By-laws dated April 21, *
1992
2(iv) Certificate of Amendment to By-laws dated December *
14, 1993
2(v) Amendment to By-laws dated January 18, 1994 *
4(i) Plan of Reorganization made by Registrant on Attached
behalf of Franklin Michigan Tax-Free Income Fund
and Franklin Michigan Insured Tax-Free Income Fund
6(i) Management Agreement between Registrant and Franklin *
Investment Advisory Services, Inc. on behalf of
Franklin Connecticut Tax-Free Income Fund dated
October 1, 1996
6(ii) Management Agreement between Registrant and Franklin *
Advisers, Inc. dated December 1, 1986
6(iii) Amendment to Management Agreement between Registrant *
and Franklin Advisers, Inc. dated August 1, 1995
7(i) Amended and Restated Distribution Agreement between *
Registrant and Franklin/Templeton Distributors, Inc.
dated March 29, 1995
7(ii) Forms of Dealer Agreement Effective as of March 1, *
1998 between Franklin/ Templeton Distributors, Inc.
and securities dealers
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 dated May 7, 1997 to Master Custody *
Agreement between Registrant and Bank of New York
dated February 16, 1996
9(iv) Amendment dated February 27, 1998 to Master Custody *
Agreement between Registrant and Bank of New York
dated February 16, 1996
9(v) Foreign Custody Manager Agreement made as of July *
30, 1998, effective as of February 27, 1998 on
behalf of each Investment Company listed on Schedule 1
10(i) Class I Shares Distribution Plan pursuant to Rule *
12b-1 on behalf of Franklin Michigan Tax-Free Income
Fund dated June 1, 1996
10(ii) Class I Shares Distribution Plans pursuant to Rule *
12b-1 dated July 1, 1993 and May 1, 1994
10(iii) Class II Shares Distribution Plan pursuant to Rule *
12b-1 dated March 30, 1995
10(iv) Form of Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Franklin High
Yield Tax-Free Income Fund - Class B and
Franklin/Templeton Distributors, Inc.
10(v) Multiple Class Plan dated October 19, 1995 *
10(vi) Form of Multiple Class Plan on behalf of Franklin *
High Yield Tax-Free Income Fund
11(i) Opinion and Consent of Counsel dated April 17, 1998 *
12(i) Opinion and Consent of Counsel Supporting Attached
Tax Matters and Consequences to Shareholders
13(i) Agreement between Registrant and Financial Guaranty *
Insurance Company dated March 8, 1985
13(ii) Amendment to Agreement between Registrant and *
Financial Guaranty Insurance Company dated November
24 1992
13(iii) Mutual Fund Agreement between Registrant and *
Financial Guaranty Insurance Company dated April 30,
1993
13(iv) Subcontract for Fund Administrative Services dated *
October 1, 1996 and Amendment thereto dated March
11, 1998 between Franklin Advisers, Inc. and
Franklin Templeton Services, Inc.
13(v) Subcontract for Fund Administrative Services dated *
October 1, 1996 and Amendment thereto dated July 1,
1997 between Franklin Investment Advisory Services,
Inc. and Franklin Templeton Services, Inc.
16(i) Power of Attorney *
16(ii) Certificate of Secretary *
*Incorporated by reference.
PLAN OF REORGANIZATION
PLAN OF REORGANIZATION (the "Plan"), made by Franklin Tax-Free Trust (the
"Trust") as of this 28th day of April, 1999, on behalf of its series FRANKLIN
MICHIGAN TAX-FREE INCOME FUND ("Income Fund") and FRANKLIN MICHIGAN INSURED
TAX-FREE INCOME FUND ("Insured Fund") (collectively, the "Funds"), with a
principal place of business at 777 Mariners Island Boulevard, San Mateo,
California 94404.
The Plan will consist of (i) the acquisition by Insured Fund of
substantially all of the property, assets and goodwill of Income Fund in
exchange solely for shares of beneficial interest, no par value, of Insured
Fund -- Class A ("Insured Fund Shares"); (ii) the distribution of Insured Fund
Shares to the shareholders of Income Fund according to their respective
interests; and (iii) the subsequent dissolution of Income Fund as soon as
practicable after the closing (as defined in Section 3, hereinafter called the
"Closing"), all upon and subject to the terms and conditions of this Plan
hereinafter set forth.
PLAN
In order to consummate the Plan, the following actions shall be taken by
the Trust on behalf of the Funds:
1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND DISSOLUTION OF INCOME FUND.
(a) Subject to the terms and conditions of this Plan, the Trust on behalf
of the Income Fund shall convey, transfer and deliver to Insured Fund at the
Closing all of Income Fund's then existing assets, free and clear of all liens,
encumbrances, and claims whatsoever (other than shareholders' rights of
redemption), except for cash, bank deposits, or cash equivalent securities in an
estimated amount necessary to (i) pay the costs and expenses of carrying out
this Plan (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 Income Fund'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 (iii) pay
such contingent liabilities as the Board of Trustees shall reasonably deem to
exist against Income Fund, if any, at the Closing Date, for which contingent and
other appropriate liabilities reserves shall be established on Income Fund's
books (hereinafter "Net Assets"). Income Fund 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.
(b) Subject to the terms and conditions of this Plan, the Trust on behalf
of Insured Fund shall at the Closing deliver to Income Fund the number of
Insured Fund Shares, determined by dividing the aggregate Net Assets of Income
Fund on the Closing Date by the net asset value per share of Insured Fund
Shares, 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, the Trust shall dissolve the Income
Fund and distribute pro rata to the shareholders of record of Income Fund as of
the close of business on the Closing Date, the Insured Fund Shares to be
delivered to Income Fund pursuant to this Section 1. Such liquidation and
distribution shall be accomplished by the establishment of accounts on the share
records of the Trust relating to Income Fund and noting in such accounts the
type and amounts of such Insured Fund Shares that such former Income Fund
shareholders are due based on their respective holdings of Income Fund as of the
close of business on the Closing Date. Fractional Insured Fund Shares shall be
carried to the third decimal place. As promptly as practicable after the
Closing, each holder of any outstanding certificate or certificates representing
shares of beneficial interest of Income Fund shall be entitled to surrender the
same to the transfer agent for the Insured Fund in exchange for the number of
Insured Fund Shares into
A-1
which the shares of the Income Fund theretofore represented by the certificate
or certificates so surrendered shall have been converted. Certificates for
Insured Fund Shares shall not be issued, unless specifically requested by the
shareholders. Until so surrendered, each outstanding certificate which, prior to
the Closing, represented shares of beneficial interest of the Income Fund shall
be deemed for all the Insured Fund's purposes to evidence ownership of the
number of Insured Fund's Shares into which the shares of beneficial interest of
the Income Fund (which prior to the Closing were represented thereby) have been
converted.
2. VALUATION.
(a) The value of Income Fund's Net Assets to be transferred to Insured Fund
hereunder shall be computed as of 1:00 p.m. Pacific time on the Closing Date
using the valuation procedures set forth in Income Fund's currently effective
prospectus.
(b) The net asset value of a share of Insured Fund shall be determined to
the nearest full cent as of 1:00 p.m. Pacific time on the Closing Date using the
valuation procedures set forth in Insured Fund's currently effective prospectus.
(c) The net asset value of a share of Income Fund shall be determined to
the fourth decimal place as of 1:00 p.m. Pacific time on the Closing Date using
the valuation procedures set forth in Income Fund's currently effective
prospectus.
3. CLOSING AND CLOSING DATE.
The Closing Date shall be August 26, 1999, or such later date as determined
by the Trust's officers. The Closing shall take place at the principal office of
the Trust at 2:00 p.m. Pacific time on the Closing Date. The Trust on behalf of
the Income Fund shall have provided for delivery, as of the Closing, of Income
Fund's Net Assets to be transferred to the Trust's Custodian, Bank of New York,
Mutual Funds Division, 90 Washington Street, New York, NY 10286. Also, the Trust
on behalf of Income Fund shall produce at the Closing a list of names and
addresses of the shareholders of record of Income Fund's shares and the number
of 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. The
Trust on behalf of Insured Fund shall issue and deliver a certificate or
certificates evidencing the shares of the Insured Fund to be delivered to said
transfer agent registered in such manner as the Trust on behalf of Income Fund
may request, or provide evidence satisfactory to Income Fund that such Insured
Fund Shares have been registered in an account on the books of Insured Fund in
such manner as the Trust on behalf of Income Fund may request.
4. REPRESENTATIONS AND WARRANTIES BY THE TRUST ON BEHALF OF INCOME FUND.
The Trust makes the following representations and warranties about Income
Fund:
(a) Income Fund is a series of the Trust, a business trust organized under
the laws of the Commonwealth of Massachusetts on September 18, 1984 and validly
existing and in good standing under the laws of that commonwealth. The Trust is
duly registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, management investment company and all its shares sold
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 the
required initial capital.
(b) The Trust is authorized to issue an unlimited number of shares of
beneficial interest, no par value, each outstanding share of which is fully
paid, non-assessable, fully transferable and has full voting rights and
currently issues shares of twenty-eight (28) series. The Trust is authorized to
issue an unlimited number of shares of beneficial interest of each series.
A-2
(c) The financial statements appearing in the Trust's Annual Report to
Shareholders for the fiscal year ended February 28, 1998, audited by Coopers &
Lybrand L.L.P., fairly present the financial position of Income Fund as of such
date and the results of its operations for the periods indicated in conformity
with generally accepted accounting principles applied on a consistent basis.
(d) The Trust has the necessary power and authority to conduct Income
Fund's business as such business is now being conducted.
(e) The Trust on behalf of Income Fund is not a party to or obligated under
any provision of the Trust's Amended and Restated Agreement and Declaration of
Trust or By-laws, 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 Plan.
(f) The Trust has elected to treat Income Fund 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"), and 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.
5. REPRESENTATIONS AND WARRANTIES BY THE TRUST ON BEHALF OF INSURED FUND.
The Trust makes the following representations and warranties about Insured
Fund:
(a) Insured Fund is a series of the Trust, a business trust organized under
the laws of the Commonwealth of Massachusetts on September 18, 1984 and validly
existing and in good standing under the laws of that commonwealth. The Trust is
duly registered under the 1940 Act as an open-end, management investment company
and all its shares sold have been 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) The Trust is authorized to issue an unlimited number of shares of
Insured Fund, no par value, each outstanding share of which is fully paid,
non-assessable, fully transferable, and has full voting rights. Insured Fund
Shares to be issued pursuant to this Plan will be fully paid, non-assessable,
freely transferable and have full voting rights.
(c) At the Closing, Insured Fund Shares will be eligible for offering to
the public in those states of the United States and jurisdictions in which the
shares of Income Fund are presently eligible for offering to the public, and
there are a sufficient number of Insured Fund Shares registered under the 1933
Act to permit the transfers contemplated by this Plan to be consummated.
(d) The financial statements appearing in the Trust's Annual Report to
Shareholders for the fiscal year ended February 28, 1998, audited by Coopers &
Lybrand L.L.P, fairly present the financial position of Insured Fund as of such
date and the results of its operations for the periods indicated in conformity
with generally accepted accounting principles applied on a consistent basis.
(e) The Trust has the necessary power and authority to conduct Insured
Fund's business as such business is now being conducted.
(f) The Trust on behalf of Insured Fund is not a party to or obligated
under any provision of the Trust's Amended and Restated Agreement and
Declaration of Trust or By-laws, 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 Plan.
(g) The Trust has elected to treat Insured Fund as a RIC for federal income
tax purposes under Part I of Subchapter M of the Code, and Insured Fund has
qualified as a RIC for each taxable year since its inception and will qualify as
a RIC as of the Closing Date.
A-3
6. REPRESENTATIONS AND WARRANTIES BY THE TRUST ON BEHALF OF THE FUNDS.
The Trust makes the following representations and warranties about both
Income Fund and Insured Fund:
(a) The statement of assets and liabilities to be created by the Trust for
each of the Funds as of 1:00 p.m. Pacific time on the Closing Date for the
purpose of determining the number of Insured Fund Shares to be issued pursuant
to Section 1 of this Plan will accurately reflect the Net Assets in the case of
Income Fund and the net assets in the case of Insured Fund, and outstanding
shares, as of such date, in conformity with generally accepted accounting
principles applied on a consistent basis.
(b) At the Closing, the Funds 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 Trust's current effective prospectuses
relating to Income Fund and Insured Fund, there is no material suit, judicial
action, or legal or administrative proceeding pending or threatened against the
Funds.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by the Funds.
(e) It anticipates that consummation of this Plan will not cause either of
the Funds to fail to conform to the requirements of Subchapter M of the Code for
federal income taxation as a RIC at the end of each Fund's fiscal year.
7. INTENTIONS OF THE TRUST ON BEHALF OF THE FUNDS.
(a) The Trust intends to operate each Fund's respective business as
presently conducted between the date hereof and the Closing.
(b) The Trust intends that the Income Fund will not acquire the Insured
Fund Shares for the purpose of making distributions thereof to anyone other than
Income Fund's shareholders.
(c) The Trust intends that, by the Closing, all of the Funds' 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.
(d) The Trust intends to mail to each shareholder of record of Income Fund
entitled to vote at the meeting of its shareholders at which action on this Plan
is to be considered, in sufficient time to comply with requirements as to notice
thereof, a Combined Prospectus and 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.
(e) The Trust intends to file with the U.S. Securities and Exchange
Commission a registration statement on Form N-14 under the 1933 Act relating to
the Insured Fund Shares issuable hereunder ("Registration Statement"), and will
use its best efforts to provide that the Registration Statement becomes
effective as promptly as 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 Income Fund's shareholders' meeting, and at
the Closing Date, the prospectus and statement of additional information
included in the Registration Statement will not contain any untrue statement of
a material fact or omit to
A-4
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY THE TRUST ON BEHALF OF THE FUNDS.
The consummation of the Plan shall be subject to the following conditions:
(a) That: (i) all the representations and warranties 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) performance of all obligations required by this Plan to
be performed by the Trust and the Funds shall occur prior to the Closing; and
(iii) the Trust shall execute a certificate signed by the President and by the
Secretary or equivalent officer to the foregoing effect.
(b) That the U.S. Securities and Exchange Commission shall not have issued
an unfavorable management report under Section 25(b) of the 1940 Act or
instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Plan 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.
(c) That the Plan contemplated hereby shall have been adopted and approved
by the appropriate action of the shareholders of Income Fund at an annual or
special meeting or any adjournment thereof.
(d) That a distribution or distributions shall have been declared for both
parties, prior to the Closing Date that, together with all previous
distributions, shall have the effect of distributing to shareholders of each
party (i) all net investment income and all net realized capital gains, 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 net investment income and net
realized capital gains from any period to the extent not otherwise declared for
distribution.
(e) That there shall be delivered to the Trust on behalf of Income Fund and
Insured Fund an opinion from Messrs. Stradley, Ronon, Stevens & Young, LLP,
counsel to the Trust, to the effect that, provided the acquisition contemplated
hereby is carried out in accordance with this Plan and based upon certificates
of the officers of the Trust with regard to matters of fact:
(1) The acquisition by Insured Fund of substantially all the assets of
Income Fund as provided for herein in exchange for Insured Fund Shares will
qualify as a reorganization within the meaning of Section 368(a)(1)(C) of
the Code, and Income Fund and Insured Fund will each be a party to the
respective reorganization within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Income Fund upon the
transfer of substantially all of its assets to Insured Fund in exchange
solely for voting shares of Insured Fund (Sections 361(a) and 357(a)). No
opinion, however, will be expressed 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 Insured Fund upon the
receipt of substantially all of the assets of Income Fund in exchange
solely for voting shares of Insured Fund (Section 1032(a));
(4) The basis of the assets of Income Fund received by Insured Fund
will be the same as the basis of such assets to Income Fund immediately
prior to the exchange (Section 362(b));
(5) The holding period of the assets of Income Fund received by
Insured Fund will include the period during which such assets were held by
Income Fund (Section 1223(2));
A-5
(6) No gain or loss will be recognized to the shareholders of Income
Fund upon the exchange of their shares in Income Fund for voting shares of
Insured Fund (Section 354(a));
(7) The basis of the Insured Fund Shares received by Income Fund's
shareholders shall be the same as the basis of the shares of Income Fund
exchanged therefor (Section 358(a)(1));
(8) The holding period of Insured Fund Shares received by Income
Fund's shareholders (including fractional shares to which they may be
entitled) will include the holding period of Income Fund's shares
surrendered in exchange therefor, provided that Income Fund's shares were
held as a capital asset on the date of the exchange (Section 1223(1)); and
(9) Insured 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 Income Fund described in Section 381(c) of
the Code (as defined in Section 1.381(b)-1(b) of the Income Tax
Regulations), subject to the conditions and limitations specified in
Sections 381(b) and (c), 382, 383 and 384 of the Code and the Income Tax
Regulations thereunder.
(f) That there shall be delivered to the Trust on behalf of the Insured
Fund an opinion in form and substance satisfactory to it from Messrs. Stradley,
Ronon, Stevens & Young, LLP, counsel to the 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) Income Fund is a series of the Trust, which was organized as a
business trust under the laws of the Commonwealth of Massachusetts on
September 18, 1984 and is validly existing and in good standing under the
laws of that commonwealth;
(2) The Trust is authorized to issue an unlimited number of shares of
Income Fund, no par value. Assuming that the initial shares were issued in
accordance with the 1940 Act and the Amended and Restated Agreement and
Declaration of Trust and By-laws of the Trust, and that all other
outstanding shares of Income Fund were sold, issued and paid for in
accordance with the terms of Income Fund's prospectus in effect at the time
of such sales, each such outstanding share is fully paid, non-assessable,
fully transferable and has full voting rights;
(3) The Trust 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) All actions required to be taken by the Trust and/or Income Fund
to authorize and effect the Plan contemplated hereby have been duly
authorized by all necessary action on the part of the Trust and Income
Fund; and
(6) Neither the execution, delivery nor performance of this Plan by
the Trust and/or Income Fund violates any provision of the Trust's Amended
and Restated Agreement and Declaration of Trust or By-laws, or the
provisions of any agreement or other instrument known to such counsel to
which the Trust is a party or by which Income Fund is otherwise bound; this
Plan is the legal, valid and binding obligation of the Trust and Income
Fund and is enforceable against the Trust and/or Income Fund in accordance
with its terms.
In giving the opinions set forth above, counsel may state that it is
relying on certificates of the officers of the Trust with regard to matters
of fact, and certain certifications and written statements of governmental
officials with respect to the good standing of the Trust and Income Fund.
A-6
(g) That there shall be delivered to the Trust on behalf of the Income Fund
an opinion in form and substance satisfactory to it from Messrs. Stradley,
Ronon, Stevens & Young, LLP, counsel to the 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) Insured Fund is a series of the Trust, which was organized as a
business trust under the laws of the Commonwealth of Massachusetts on
September 18, 1984 and is validly existing and in good standing under the
laws of that commonwealth;
(2) The Trust is authorized to issue an unlimited number of shares of
Insured Fund, no par value. Assuming that the initial capital shares of
Insured Fund were issued in accordance with the 1940 Act, and the Amended
and Restated Agreement and Declaration of Trust and By-laws of the Trust,
and that all other outstanding shares of Insured Fund were sold, issued and
paid for in accordance with the terms of Insured Fund's prospectus in
effect at the time of such sales, each such outstanding share of Insured
Fund is fully paid, non-assessable, freely transferable and has full voting
rights;
(3) The Trust is an open-end investment company of the management type
registered as such under the 1940 Act;
(4) Except as disclosed in Insured Fund's currently effective
prospectus, such counsel does not know of any material suit, action, or
legal or administrative proceeding pending or threatened against Insured
Fund, the unfavorable outcome of which would materially and adversely
affect Insured Fund;
(5) Insured Fund Shares to be issued pursuant to the terms of this
Plan have been duly authorized and, when issued and delivered as provided
in this Plan, will have been validly issued and fully paid and will be
non-assessable by Insured Fund;
(6) All actions required to be taken by the Trust and/or Insured Fund
to authorize the Plan contemplated hereby have been duly authorized by all
necessary action on the part of Insured Fund;
(7) Neither the execution, delivery nor performance of the Plan by the
Trust and/or Insured Fund violates any provision of the Trust's Amended and
Restated Agreement and Declaration of Trust or its By-laws, or the
provisions of any agreement or other instrument known to such counsel to
which the Trust is a party or by which Insured Fund is otherwise bound;
this Plan is the legal, valid and binding obligation of the Trust and
Insured Fund and is enforceable against the Trust and/or Insured Fund in
accordance with its terms; and
(8) The Trust's registration statement of which the prospectus dated
July 1, 1998, as amended January 1, 1999 of Insured Fund is a part (the
"Prospectus") is, at the time of the signing of this Plan, 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 U.S. Securities and Exchange Commission
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
time of the signing of this Plan, 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, counsel may state that it is
relying on certificates of the officers of the Trust with regard to matters
of fact, and certain certifications and written statements of governmental
officials with respect to the good standing of the Trust and Insured Fund.
A-7
(h) That the Trust's Registration Statement with respect to the Insured
Fund Shares to be delivered to the Income Fund's shareholders in accordance with
this Plan 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.
(i) That the Insured Fund Shares to be delivered hereunder shall be
eligible for sale by Insured Fund with each state commission or agency with
which such eligibility is required in order to permit the Insured Fund Shares
lawfully to be delivered to each Income Fund shareholder.
(j) That, at the Closing, there shall be transferred to Insured Fund
aggregate Net Assets of Income Fund 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 Income Fund on the Closing Date.
9. EXPENSES.
The expenses of entering into and carrying out the provisions of this Plan
shall be borne one quarter by Income Fund, one quarter by Insured Fund, and one
half by Franklin Advisers, Inc.
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in this Plan to the contrary notwithstanding, this
Plan may be terminated and abandoned at any time (whether before or after
approval thereof by the shareholders of Income Fund) prior to the Closing or the
Closing may be postponed by the Trust on behalf of either party by resolution of
the Board of Trustees, if circumstances develop that, in the opinion of the
Board, make proceeding with the Plan inadvisable.
(b) If the transactions contemplated by this Plan have not been consummated
by December 31, 1999, the Plan shall automatically terminate on that date,
unless a later date is agreed to by the Trust on behalf of Insured Fund and
Income Fund.
(c) In the event of termination of this Plan pursuant to the provisions
hereof, the same shall become void and have no further effect, and neither the
Trust, Income Fund nor Insured Fund, nor their trustees, officers, agents or
shareholders shall have any liability in respect of this Plan.
(d) At any time prior to the Closing, any of the terms or conditions of
this Plan may be waived by the party who is entitled to the benefit thereof by
action taken by the Trust's Board of Trustees if, in the judgment of such Board
of Trustees, such action or waiver will not have a material adverse effect on
the benefits intended under this Plan to its shareholders, on behalf of whom
such action is taken.
(e) If any order or orders of the U.S. Securities and Exchange Commission
with respect to this Plan shall be issued prior to the Closing and shall impose
any terms or conditions that are determined by action of the Board of Trustees
of the Trust on behalf of the Income Fund or Insured Fund to be acceptable, such
terms and conditions shall be binding as if a part of this Plan without further
vote or approval of the shareholders of Income Fund, unless such terms and
conditions shall result in a change in the method of computing the number of
Insured Fund Shares to be issued to Income Fund in which event, unless such
terms and conditions shall have been included in the proxy solicitation material
furnished to the shareholders of Income Fund prior to the meeting at which the
transactions contemplated by this Plan shall have been approved, this Plan shall
not be consummated and shall terminate unless the Trust on behalf of Income Fund
shall promptly call a special meeting of shareholders at which such conditions
so imposed shall be submitted for approval.
11. ENTIRE PLAN AND AMENDMENTS.
This Plan embodies the entire plan of the Trust on behalf of the Funds and
there are no agreements, understandings, restrictions, or warranties between the
parties other than those set forth herein or herein
A-8
provided for. This Plan may be amended only in writing. Neither this Plan nor
any interest herein may be assigned without the prior written consent of the
other party.
12. NOTICES.
Any notice, report, or demand required or permitted by any provision of
this Plan shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to the Trust at 777
Mariners Island Boulevard, P. O. Box 7777, San Mateo, CA 94403-7777, Attention:
Secretary.
13. GOVERNING LAW.
This Plan shall be governed by and carried out in accordance with the laws
of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Franklin Tax-Free Trust, on behalf of Franklin Michigan
Insured Tax-Free Income Fund and Franklin Michigan Tax-Free Income Fund, has
executed this Plan by its duly authorized officer, all as of the date and year
first-above written.
<TABLE>
<CAPTION>
<S> <C>
FRANKLIN TAX-FREE TRUST,
ON BEHALF OF FRANKLIN MICHIGAN
INSURED TAX-FREE INCOME FUND
Attest:
/s/ LEIANN NUZUM By: /s/ DEBORAH R. GATZEK
- ----------------------------------------------------- -----------------------------------------------------
Assistant Secretary Deborah R. Gatzek
Vice President and Secretary
FRANKLIN TAX-FREE TRUST,
ON BEHALF OF FRANKLIN MICHIGAN
TAX-FREE INCOME FUND
Attest:
/s/ LEIANN NUZUM By: /s/ DEBORAH R. GATZEK
- ----------------------------------------------------- -----------------------------------------------------
Assistant Secretary Deborah R. Gatzek
Vice President and Secretary
</TABLE>
A-9
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 Tax-Free Trust,
Franklin Michigan Tax-Free Income Fund
777 Mariners Island Blvd.
San Mateo, CA 94404
Board of Trustees
Franklin Tax-Free Trust,
Franklin Michigan Insured 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 MICHIGAN
TAX-FREE INCOME FUND ("ACQUIRED FUND") AND FRANKLIN MICHIGAN
INSURED TAX-FREE INCOME FUND ("ACQUIRING FUND"), BOTH OF WHICH ARE
SERIES OF FRANKLIN TAX-FREE TRUST, A MASSACHUSETTS BUSINESS TRUST
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
beneficial interest, 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, made by Franklin Tax-Free Trust on behalf of the Acquiring Fund and
Franklin Tax-Free 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 June
23, 1999, (c) certain representations concerning the Reorganization made to
us by Franklin Tax-Free Trust on behalf of the Acquiring Fund and by Franklin
Tax-Free 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 Commonwealth of
Massachusetts, 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 Franklin Tax-Free Trust on behalf
of Acquiring Fund and 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
