[DATE]
Board of Trustees
Franklin Asset Allocation Fund
777 Mariners Island Boulevard
San Mateo, CA 94404-7777
Board of Trustees
Franklin Growth and Income Fund
777 Mariners Island Boulevard
San Mateo, CA 94404-7777
Re: PLAN OF REORGANIZATION, DATED AS OF THE ___ DAY OF NOVEMBER,
2000 (THE "PLAN"), MADE BY FRANKLIN ASSET ALLOCATION FUND (THE
"ACQUIRED FUND") AND FRANKLIN GROWTH AND INCOME FUND (THE
"ACQUIRING FUND")
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Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of the Acquired Fund, which consists of:
(i) the acquisition, by the Acquiring Fund, of substantially all of the
property, assets and goodwill of the Acquired Fund, in exchange solely for
full and fractional shares of beneficial interest, par value $0.01 per share,
of the Acquiring Fund - Class A (the "Acquiring Fund Class A Shares") and
full and fractional shares of beneficial interest, par value $0.01 per share,
of the Acquiring Fund - Class C (the "Acquiring Fund Class C Shares"); (ii)
the distribution by the Acquired Fund of the Acquiring Fund Class A Shares to
the shareholders of Acquired Fund Class A shares and the distribution by the
Acquired Fund of the Acquiring Fund Class C Shares to the shareholders of
Acquired Fund Class C shares; and (iii) the dissolution of the Acquired Fund
as soon as is practicable after the closing (the "Reorganization"), all upon
and subject to the terms and conditions of the Plan. For purposes of this
opinion, Acquiring Fund Class A Shares and Acquiring Fund Class C Shares
shall sometimes hereinafter be referred to collectively as "Acquiring Fund
Shares."
In rendering our opinion, we have reviewed and relied upon: (a)
the Plan, dated November ___, 2000, by and between Franklin Asset Allocation
Fund and Franklin Growth and Income Fund; (b) the proxy materials provided to
shareholders of the Acquired Fund in connection with the Special Meeting of
Shareholders of the Acquired Fund held on January 29, 2001; (c) certain
representations concerning the Reorganization made to us as of [DATE], by the
Acquiring Fund and the Acquired Fund in a letter dated [DATE] (the
"Representation Letter"); (d) all other documents, financial and other
reports and corporate minutes which we deemed relevant or appropriate; and
(e) such statutes, regulations, rulings and decisions as we deemed material
to the rendition of this opinion. All terms used herein, unless otherwise
defined, are used as defined in the Plan.
For purposes of this opinion, we have assumed that the Acquired
Fund, on the date of the Reorganization, satisfies, and following the
Reorganization, the Acquiring Fund will continue to satisfy, the requirements
of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company.
Under regulations to be prescribed by the Secretary of the Treasury
("Treasury regulations") under Section 1276(d) of the Code, certain transfers
of market discount bonds will be excepted from the requirement that accrued
market discount be recognized on disposition of a market discount bond under
Section 1276(a) of the Code. Such regulations are to provide, in part, that
accrued market discount will not be included in income if no gain is
recognized under Section 361(a) of the Code where a bond is transferred in an
exchange qualifying as a tax-free reorganization. As of the date hereof, the
Secretary has not issued any regulations under Section 1276 of the Code.
Based on the foregoing, and provided that the Reorganization is
carried out in accordance with the applicable laws of the State of Delaware,
the terms of the Plan, and statements in the Representation Letter, it is our
opinion that:
1. The acquisition by the Acquiring Fund of substantially all of
the assets of the Acquired Fund as provided for in the Plan in exchange for
the Acquiring Fund Shares, followed by the distribution by the Acquired Fund
to its shareholders of the Acquiring Fund Shares in complete liquidation,
will qualify as a reorganization within the meaning of Section 368(a)(1) of
the Code, and the Acquired Fund and the Acquiring Fund will each be a "party
to the reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by the Acquired Fund upon
the transfer of substantially all of its assets to the Acquiring Fund in
exchange solely for the Acquiring Fund Shares pursuant to Section 361(a) and
Section 357(a) of the Code.
3. No gain or loss will be recognized by the Acquired Fund upon
the distribution of the Acquiring Fund Shares to its shareholders pursuant to
the plan of liquidation of the Acquired Fund (in pursuance of the Plan) under
Section 361(c)(1) of the Code.
4. No gain or loss will be recognized by the Acquiring Fund upon
the receipt by it of substantially all of the assets of the Acquired Fund in
exchange solely for the Acquiring Fund Shares pursuant to Section 1032(a) of
the Code.
5. The basis of the assets of the Acquired Fund received by the
Acquiring Fund will be the same as the basis of such assets to the Acquired
Fund immediately prior to the exchange pursuant to Section 362(b) of the
Code.
6. The holding period of the assets of the Acquired Fund received
by the Acquiring Fund will include the period during which such assets were
held by the Acquired Fund pursuant to Section 1223(2) of the Code.
7. No gain or loss will be recognized by the shareholders of the
Acquired Fund upon the exchange of their shares in the Acquired Fund
("Acquired Fund Shares") for the Acquiring Fund Shares (including fractional
shares to which they may be entitled), pursuant to Section 354(a) of the Code.
8. The basis of the Acquiring Fund Shares received by the
shareholders of the Acquired Fund (including fractional shares to which they
may be entitled) will be the same as the basis of the Acquired Fund Shares
exchanged therefor pursuant to Section 358(a)(1) of the Code.
9. The holding period of the Acquiring Fund Shares received by
the shareholders of the Acquired Fund (including fractional shares to which
they may be entitled) will include the holding period of the Acquired Fund
Shares surrendered in exchange therefor, provided that the Acquired Fund
Shares were held as a capital asset on the date of the Reorganization,
pursuant to Section 1223(1) of the Code.
10. The Acquiring Fund will succeed to and take into account as of
the date of the transfer (as defined in Section 1.381(b)-1(b) of the Treasury
Regulations) the items of the Acquired Fund described in Section 381(c) of
the Code, subject to the conditions and limitations specified in Sections
381, 382, 383 and 384 of the Code and the Treasury Regulations thereunder.
Our opinion is based upon the Code, the applicable Treasury
Regulations promulgated thereunder, the present position of the Internal
Revenue Service as set forth in published revenue rulings and revenue
procedures, present administrative positions of the Internal Revenue Service,
and existing judicial decisions, all of which are subject to change either
prospectively or retroactively. We do not undertake to make any continuing
analysis of the facts or relevant law following the date of the
Reorganization.
Our opinion is conditioned upon the performance by the Acquiring
Fund and the Acquired Fund of their undertakings in the Plan and the
Representation Letter.
This opinion is being rendered to the Acquiring Fund and the
Acquired Fund, and may be relied upon only by such funds and the shareholders
of each.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By:
