NAME OF REGISTRANT
Franklin Investors Securities Trust
FILE NO. 811-04986
EXHIBIT ITEM No. 77q1(g): Exhibits
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is adopted as of
this 19th day of June, 2009 by and among (i) HSBC Investor Funds, a
Massachusetts business trust ("Trust"), with its principal place of business
at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, on behalf of its series, HSBC
Investor Core Plus Fixed Income Fund ("CPFI Fund"), HSBC Investor
Intermediate Duration Fixed Income Fund ("IDFI Fund") and HSBC Investor
New York Tax-Free Bond Fund ("NYTFB Fund"); (ii) HSBC Advisor Funds Trust,
a Massachusetts business trust ("Advisor Trust"), with its principal place
of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, on behalf of its series,
HSBC Investor Core Plus Fixed Income Fund ("CPFI Advisor Fund"); (iii) HSBC
Investor Portfolios, a New York trust ("Master Trust"), with its principal
place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, on behalf of its
series, HSBC Investor Core Plus Fixed Income Portfolio ("CPFI Portfolio")
and HSBC Investor Intermediate Duration Fixed Income Portfolio
("IDFI Portfolio"); (iv) HSBC Global Asset Management (USA) Inc., a
registered investment adviser ("HGAM"), with its principal place of business
at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇; (v) Franklin Investors Securities
Trust, a Delaware statutory trust ("Franklin Trust"), with its principal
place of business at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, on behalf of
its series, Franklin Total Return Fund ("▇▇▇▇▇▇▇▇ ▇▇ Fund"); (vi) Franklin
New York Tax Free Trust, a Delaware statutory trust ("Franklin NY Trust"),
with its principal place of business at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇
▇▇▇▇▇, on behalf of its series, Franklin New York Intermediate-Term Tax-Free
Income Fund ("Franklin NY Fund"); and (vii) Franklin Advisers, Inc,
("Franklin Advisers"), with its principal place of business at ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
WHEREAS, each of the Trust, Advisor Trust, Master Trust, Franklin Trust
and Franklin NY Trust is an open-end, registered investment company of the
management type;
WHEREAS, each of CPFI Fund, CPFI Advisor Fund, IDFI Fund and NYTFB Fund may
hereinafter be referred to herein as a "Target Fund," and each of ▇▇▇▇▇▇▇▇
▇▇ Fund and Franklin NY Fund may hereinafter be referred to herein as an
"Acquiring Fund";
WHEREAS, the parties hereto intend for each Acquiring Fund and its
corresponding Target Fund (as set forth in Exhibit A hereto) to enter into
a transaction pursuant to which: (i) the Acquiring Fund will acquire the
assets of the corresponding Target Fund (subject to the retention by the
Target Fund of certain assets to discharge liabilities) in exchange for A, C
and Advisor Class shares (as applicable) of the Acquiring Fund of equal value
to the net assets of the Target Fund, and (ii) the Target Fund will
distribute such shares of each class of the corresponding Acquiring Fund to
shareholders of the corresponding class of the Target Fund (as set forth in
Exhibit A), in connection with the liquidation of the Target Fund, all upon
the terms and conditions hereinafter set forth in this Agreement (each such
transaction, a "Reorganization").
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation with respect to each Reorganization within
the meaning of Section 368(a)(1) of the United States Internal Revenue Code
of 1986, as amended ("Code");
WHEREAS, the CPFI Fund, CPFI Advisor Fund and IDFI Fund each own securities,
directly or indirectly through investment in CPFI Portfolio and IDFI
Portfolio, respectively, and NYTFB Fund owns securities directly, that
generally are assets of the character in which its corresponding Acquiring
Fund is permitted to invest;
WHEREAS, each of CPFI Fund and CPFI Advisor Fund invests all of its
investable assets in CPFI Portfolio, and IDFI Fund invests all of its
investable assets in IDFI Portfolio, in master-feeder structures;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. DESCRIPTION OF THE REORGANIZATIONS
1.1. It is the intention of the parties hereto that each Reorganization
described herein shall be conducted separately of the others, and a party
hereto which is not a party to a Reorganization shall incur no obligations,
duties or liabilities with respect to such Reorganization by reason of being
a party to this Agreement. If any one or more Reorganizations should fail
to be consummated hereunder, such failure shall not affect the other
Reorganizations in any way. The parties shall cooperate in preparing, and
each of Franklin Trust and Franklin NY Trust each shall file, a Registration
Statement on Form N-14 under the Securities Act of 1933, as amended, which
collectively shall properly register the Acquiring Fund shares to be issued
in connection with the Reorganizations with the Securities and Exchange
Commission ("Commission") and include a proxy statement with respect to the
votes of the shareholders of each Target Fund to approve its Reorganization
(collectively, the "Registration Statement").
1.2. With respect to the Reorganizations of the CPFI Fund, CPFI Advisor
Fund and IDFI Fund, prior to or as of the close of each of the Target Funds'
business on the Closing Date (as defined in Paragraph 3.1 hereof) of the
Reorganization for that Target Fund, CPFI Portfolio or IDFI Portfolio, as
appropriate, shall conduct an in-kind liquidating distribution, and shall
deliver to CPFI Fund and CPFI Advisor Fund or IDFI Fund, as appropriate, all
of its assets or such pro rata share of its assets as is appropriate given
CPFI Fund's and CPFI Advisor Fund's or IDFI Fund's relative ownership of its
beneficial interests.
1.3. On or as soon as practicable prior to the Closing Date for a
Reorganization, the Target Fund (with the assistance of CPFI Portfolio or
IDFI Portfolio, to the extent appropriate), will declare and pay to its
shareholders of record one or more dividends and/or other distributions so
that it will have distributed substantially all (and in no event less than
98%) of its investment company taxable income (computed without regard to
any deduction for dividends paid) and realized net capital gain, if any, for
the current taxable year through the Closing Date.
1.4. Provided that all conditions precedent to a Reorganization have been
satisfied as of the Closing Date and based on the representations and
warranties each party herein provides to the others, the Trust or Advisor
Trust and Franklin Trust or Franklin NY Trust, as appropriate, agree to take
the following steps with respect to that Reorganization, the parties to which
and classes of shares to be issued in connection with which as set forth in
Exhibit A:
(a) The Target Fund shall transfer all of its Assets, as defined and set
forth in Paragraph 1.4(b), to the corresponding Acquiring Fund, and the
Acquiring Fund in exchange therefore shall deliver to the Target Fund the
number of full and fractional Acquiring Fund shares, determined in the manner
and as of the time on the Closing Date set forth in Paragraph 2.
(b) The assets of the Target Fund to be acquired by the Acquiring Fund
shall consist of all assets and property, including, without limitation, all
cash, securities, commodities and futures interests, claims (whether absolute
or contingent, known or unknown, accrued or unaccrued and including, without
limitation, any interest in pending or future legal claims in connection with
past or present portfolio holdings, whether in the form of class action
claims, opt-out or other direct litigation claims, or regulator or
government-established investor recovery fund claims, and any and all
resulting recoveries) and dividends or interest receivable that are owned by
the Target Fund and any deferred or prepaid expenses shown as an asset on
the books of the Target Fund on the Closing Date, except for cash, bank
deposits or cash equivalent securities in an estimated amount necessary to
(i) discharge the Target Fund's unpaid liabilities on the Target Fund's
books at the Closing Date and (ii) pay such contingent liabilities, if any,
as the Board of Trustees of the Trust or Advisor Trust, as applicable,
shall reasonably deem to exist against the Target Fund at the Closing Date,
for which contingent and other appropriate liability reserves shall be
established on the Target Fund's books (collectively, "Assets").
(c) The Target Fund will use commercially reasonable efforts to discharge
all of its known liabilities and obligations prior to the Closing Date.
Neither the Acquiring Fund nor the Franklin Trust or Franklin NY Trust, as
applicable, shall assume any of the liabilities of the Target Fund, whether
accrued or contingent, known or unknown, existing at the Closing Date
(collectively, "Liabilities") and the Acquiring Fund and the Franklin Trust
or the Franklin NY Trust, as appropriate, specifically disclaim the
assumption of any such Liabilities.
(d) Immediately after the transfer of Assets provided for in this
Paragraph,the Target Fund will distribute to its shareholders of record
("Target Fund Shareholders") with respect to each class of shares, as set
forth in Exhibit A, the shares of the Acquiring Fund of the corresponding
class received by the Target Fund pursuant to Paragraph 1.4(a), determined
as of immediately after the close of business on the Closing Date, on a pro
rata basis within that class, and will completely liquidate (except as to
the contingent liability reserve provided for in Paragraph 1.4(b) herein).
Such distribution and liquidation will be accomplished, with respect to
each class of the Target Fund's shares, by the transfer of the Acquiring
Fund shares of the corresponding class then credited to the account of
the Target Fund on the books of the Acquiring Fund to open accounts on the
share records of the Acquiring Fund in the names of the Target Fund
Shareholders of the class. The aggregate net asset value of each class
of shares of the Acquiring Fund to be so credited to the corresponding
class or classes of Target Fund Shareholders shall be equal to the
aggregate net asset value of the Target Fund's shares of the corresponding
class or classes owned by the Target Fund Shareholders on the Closing Date
(as set forth in Exhibit A). All issued and outstanding shares of the
Target Fund will simultaneously be canceled on the books of the Target Fund.
The Acquiring Fund shall not issue certificates representing shares in
connection with such exchange.
(e) Ownership of Acquiring Fund shares will be shown on its books, as
such are maintained by the Acquiring Fund's Transfer Agent, as defined in
Paragraph 3.2.
(f) Any reporting responsibility of the Target Fund, including, but not
limited to, the responsibility for filing regulatory reports, tax returns,
or other documents with the Commission, any state securities commission, and
any Federal, state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the Target Fund.
2. VALUATION
2.1. With respect to each Reorganization:
(a) The value of the Target Fund's Assets shall be the value of such
Assets computed as of immediately after the close of business of the New York
Stock Exchange and after the declaration of any dividends on the Closing Date,
using the valuation procedures set forth in then-current prospectus and
statement of additional information with respect to the Acquiring Fund, and
valuation procedures established by the Acquiring Fund's Board of Trustees
and provided to the Target Fund prior to the Closing Date.
(b) The net asset value of each class of Acquiring Fund shares issued in
connection with the Reorganization shall be the net asset value per share
computed with respect to that class as of the Closing Date, using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus and statement of additional information, and valuation
procedures established by the Acquiring Fund's Board of Trustees.
(c) The number of each class of Acquiring Fund shares issued (including
fractional shares, if any) in exchange for the Target Fund's Assets shall be
determined by dividing the value of the net assets with respect to each class
of shares of the Target Fund determined using the same valuation procedures
referred to in Paragraph 2.1(a), by the net asset value of an Acquiring Fund
share of the corresponding class, as set forth in Exhibit A, determined in
accordance with Paragraph 2.1(b).
(d) All computations of value shall be made by the Target Fund's
designated recordkeeping agent and shall be subject to review by the
Acquiring Fund's recordkeeping agent and by each of the Target Fund's and
Acquiring Fund's respective independent registered public accountants.
3. CLOSING AND CLOSING DATE
3.1. Each Reorganization shall close on August 28, 2009 or such other
date as the parties may agree with respect to any or all Reorganizations
(the "Closing Date"). All acts taking place at the closing of the
Reorganizations ("Closing") shall be deemed to take place simultaneously
as of immediately after the close of business on the Closing Date unless
otherwise agreed to by the parties. The close of business on the Closing
Date shall be as of 4:00 p.m., Eastern Time. The Closing shall be held by
facsimile, email or such other communication means as the parties may
reasonably agree.
3.2. With respect to each Reorganization:
(a) The Trust or Advisor Trust, as appropriate, shall direct the
custodian for the Target Fund ("Custodian"), to deliver, at the Closing,
a certificate of an authorized officer stating that (i) except as
permitted by Paragraphs 1.4(b) and 3.2(b) hereunder, the Assets shall
have been delivered in proper form to the corresponding Acquiring Fund
no later than as of the close of business on the Closing Date, and (ii)
all necessary taxes in connection with the delivery of the Assets,
including all applicable Federal and state stock transfer stamps, if any,
have been paid or provision for payment has been made.
(b) The Target Fund's portfolio securities represented by a
certificate or other written instrument shall be transferred and
delivered by the Target Fund as of the Closing Date for the account
of the corresponding Acquiring Fund duly endorsed in proper form for
transfer and in such condition as to constitute good delivery thereof.
The Target Fund shall direct the Custodian to deliver as of the Closing
Date by book entry, in accordance with the customary practices of the
Custodian and any securities depository, as defined in Rule 17f-4 under
the Investment Company Act of 1940, as amended (the "1940 Act"), in
which the Assets are deposited, the Target Fund's portfolio securities
and instruments so held. The cash to be transferred by a Target Fund
shall be delivered by wire transfer of federal funds on the Closing Date.
If, on the Closing Date, the Target Fund is unable to make delivery in the
manner contemplated by this Paragraph of securities held by the Target Fund
for the reason that any of such securities purchased prior to the Closing
Date have not yet been delivered to the Target Fund or its broker, then the
corresponding Acquiring Fund may, in its sole discretion, waive the delivery
requirements of this Paragraph with respect to said undelivered securities
if the Target Fund has delivered to the Acquiring Fund or its custodian by
or on the Closing Date, and with respect to said undelivered securities,
executed copies of an agreement of assignment and escrow and due bills
executed on behalf of said broker or brokers, together with such other
documents as may be required by the Acquiring Fund or its custodian,
including brokers' confirmation slips.
(c) At such time prior to the Closing Date as the parties mutually
agree, the Target Fund shall provide (i) instructions and related
information to the Acquiring Fund or its transfer agent with respect to
the shares of each class of the Acquiring Fund to be issued to the Target
Fund Shareholders, including names, addresses and tax withholding status
of the Target Fund Shareholders as of the date agreed upon (such information
to be updated as of the Closing Date, as necessary) and (ii) the information
and documentation maintained by the Target Fund or its agents relating to
the identification and verification of the Target Fund Shareholders under
the USA PATRIOT ACT and other applicable anti-money laundering laws, rules
and regulations (the "AML Documentation") and such other information as the
Acquiring Fund may reasonably request. The Acquiring Fund and its transfer
agent shall have no obligation to inquire as to the validity, propriety or
correctness of any such instruction, information or documentation, but shall,
in each case, assume that such instruction, information or documentation is
valid, proper, correct and complete.
(d) The Trust or Advisor Trust, as appropriate, shall direct Citi Fund
Services Ohio, Inc., in its capacity as transfer agent for the Target Fund
("Transfer Agent"), to deliver to Franklin Trust or Franklin NY Trust, as
appropriate, at the Closing a certificate of an authorized officer stating
that its records contain the names and addresses of the Target Fund
Shareholders and the number and percentage ownership of outstanding shares
of each class owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund shares to be credited on the Closing Date
to the Secretary of the Target Fund, or provide other evidence satisfactory
to the Trust that such Acquiring Fund shares have been credited to the
Target Fund Shareholders' accounts on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request.
(e) In the event that on the Closing Date (a) the New York Stock
Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Target Fund (each, an "Exchange") shall be closed to
trading or trading thereupon shall be restricted, or (b) trading or the
reporting of trading on such Exchange or elsewhere shall be disrupted so
that, in the judgment of the Board of Trustees of the Trust or Advisor
Trust or, as applicable, Franklin Trust or Franklin NY Trust, accurate
appraisal of the value of the net assets of the Acquiring Fund or the
Target Fund, respectively, is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall
have been fully resumed and reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. With respect to each Reorganization, the Trust or Advisor Trust,
as applicable, on behalf of the Target Fund, represents and warrants to
the corresponding Acquiring Fund, as follows:
(a) The Target Fund is duly organized as a series of the Trust or Advisor
Trust, as appropriate, which is a business trust validly existing and in good
standing under the laws of the Commonwealth of Massachusetts, with power under
the Trust's or Advisor Trust's Declaration of Trust, as amended from time to
time, to own all of its Assets, to carry on its business as it is now being
conducted and to enter into this Agreement and perform its obligations
hereunder;
(b) The Trust or Advisor Trust, as appropriate, is a registered
investment company classified as a management company of the open-end
type, and its registration with the Commission as an investment company
under the 1940 Act, and the registration of the shares of the Target Fund
under the Securities Act of 1933, as amended ("1933 Act"), is in full
force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority or the Financial Industry Regulatory Authority
("FINRA") is required for the consummation by the Target Fund of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the Securities Exchange Act of 1934, as amended ("1934 Act"),
the 1940 Act and state securities laws;
(d) The current prospectus and statement of additional information of
the Target Fund and each prospectus and statement of additional information
of the Target Fund used at all times prior to the date of this Agreement
conforms or conformed at the time of its use in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at
the time of its use include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not materially misleading;
(e) Except as otherwise disclosed in writing to and accepted by or
on behalf of the Acquiring Fund, on the Closing Date, the Target Fund will
have good and marketable title to the Assets and full right, power, and
authority to sell, assign, transfer and deliver such Assets hereunder free
of any liens or other encumbrances, and upon delivery and payment for such
Assets, the Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the 1933 Act;
(f) The Target Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a
material violation of the Trust's or Advisor Trust's, as appropriate, or
the Master Trust's, Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Target Fund is a party or by which it is bound, or (ii) the acceleration
of any obligation, or the imposition of any lien, encumbrance, penalty or
additional fee under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Target Fund, the Trust, the Advisor Trust
or the Master Trust, is a party or by which it is bound;
(g) All material contracts or other commitments of the Target Fund
(other than this Agreement and certain investment contracts, including
options, futures, and forward contracts) will terminate with respect to
the Target Fund without liability to the Target Fund on or prior to the
Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by or on
behalf of the Acquiring Fund, (i) no litigation or administrative
proceeding or investigation of or before any court, tribunal, arbitrator,
governmental body or FINRA is presently pending or, to the Target Fund's
knowledge, threatened against the Target Fund that, if adversely
determined, would materially and adversely affect the Target Fund's
financial condition or the conduct of its business, and (ii) without
any special investigation or inquiry, to the knowledge of the portfolio
managers of the Target Fund as identified in the Target Fund's prospectus
(the "Target Fund Portfolio Managers"), no litigation or administrative
proceeding or investigation of or before any court, tribunal, arbitrator,
governmental body or FINRA is presently pending or threatened against any
of the Target Fund's properties or assets, that, if adversely determined,
would materially and adversely affect the Target Fund's financial
condition or the conduct of its business. The Target Fund and, with
respect to the Target Fund's properties or assets, the Target Fund
Portfolio Managers, without any special investigation or inquiry, know
of no facts that might form the basis for the institution of such
proceedings and the Target Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(i) The financial statements of the Target Fund as of and for the
year ended October 31, 2008 have been audited by KPMG LLP, independent
registered public accounting firm. Such statements, as well as the
unaudited, semi-annual financial statements for the semi-annual period
ended April 30, 2009, are in accordance with accounting principles generally
accepted in the United States of America ("GAAP") consistently applied, and
such statements (copies of which have been furnished to the Acquiring Fund)
present fairly, in all material respects, the financial condition of the
Target Fund as of such date in accordance with GAAP, and there are no known
contingent liabilities of the Target Fund required to be reflected on a
balance sheet (including the notes thereto) in accordance with GAAP as of
such date not disclosed therein;
(j) Since October 31, 2008, there has not been any material adverse
change in the Target Fund's financial condition, assets, liabilities or
business, other than changes occurring in the ordinary course of business,
except as otherwise disclosed to and accepted by the Acquiring Fund in
writing. For the purposes of this subparagraph (j), a decline in net asset
value per share of Target Fund shares due to declines in market values of
securities held by the Target Fund, the discharge of the Target Fund's
ordinary course liabilities, or the redemption of the Target Fund's shares
by shareholders of the Target Fund shall not constitute a material adverse
change;
(k) On the Closing Date, Trust or Advisor Trust, as appropriate, has
duly and timely filed, on behalf of Target Fund, all Tax (as defined below)
returns and reports (including information returns), which are required to
be filed by such Target Fund, and all such returns and reports accurately
state the amount of Tax owed for the periods covered by the returns, or,
in the case of information returns, the amount and character of income
required to be reported by such Target Fund. On behalf of Target Fund,
Trust or Advisor Trust, as appropriate, has paid or made provision and
properly accounted for all Taxes (as defined below) due or properly shown
to be due on such returns and reports. The amounts set up as provisions
for Taxes in the books and records of Target Fund as of the close of
business on the Closing Date will, to the extent required by GAAP, be
sufficient for the payment of all Taxes of any kind, whether accrued, due,
absolute, contingent or otherwise, which were or which may be payable by
Target Fund for any periods or fiscal years prior to and including the
close of business on the Closing Date, including all Taxes imposed before
or after the close of business on the Closing Date that are attributable
to any such period or fiscal year. No return filed by Target Fund is
currently being audited by the Internal Revenue Service or by any state or
local taxing authority. As used in this Agreement, "Tax" or "Taxes" means
all federal, state, local and foreign (whether imposed by a country or
political subdivision or authority thereunder) income, gross receipts,
excise, sales, use, value added, employment, franchise, profits, property,
ad valorem or other taxes, stamp taxes and duties, fees, assessments or
charges, whether payable directly or by withholding, together with any
interest and any penalties, additions to tax or additional amounts imposed
by any taxing authority (foreign or domestic) with respect thereto. To its
knowledge, there are no levies, liens or encumbrances relating to Taxes
existing, threatened or pending with respect to the assets of Target Fund.
There are no known actual or proposed deficiency assessments with respect
to any Taxes payable by it;
(l) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Target Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company ("RIC"), has been (or will be) eligible to and has
computed (or will compute) its Federal income tax under Section 852 of the
Code, and will have distributed all of its investment company taxable
income and net capital gain (as defined in the Code) that has accrued
through the Closing Date, and before the Closing Date will have declared
dividends sufficient to distribute all of its investment company taxable
income and net capital gain for the period ending on the Closing Date.
Consummation of the transactions contemplated by this Agreement will not
cause the Target Fund to fail to be qualified as a RIC as of the Closing
Date;
(m) All issued and outstanding shares of the Target Fund are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Trust or the Advisor Trust, as appropriate,
and, in every state where offered or sold, such offers and sales have been
in compliance in all material respects with applicable registration
requirements of the 1933 Act and state and District of Columbia securities
laws. All of the issued and outstanding shares of the Target Fund will,
at the time of Closing, be held by the persons and in the amounts set
forth in the records of the Transfer Agent, on behalf of the Target Fund,
as provided in Paragraph 3.2(d). The Target Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any of
the shares of the Target Fund, nor is there outstanding any security
convertible into any of the Target Fund's shares, except for the automatic
conversion right of Class B shareholders of the Target Fund to convert to
Class A shares in accordance with the terms set forth in the Target Fund's
prospectus and statement of additional information;
(n) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action, if
any, on the part of the Trustees of the Trust or Advisor Trust, as
appropriate, and subject to the approval of the shareholders of the Target
Fund, this Agreement will constitute a valid and binding obligation of the
Target Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(o) The information to be furnished by the Target Fund for use in the
Registration Statement and other documents filed or to be filed with any
Federal, state or local regulatory authority (including the Financial
Industry Regulatory Authority), which may be necessary in connection with
the transactions contemplated hereby, shall be accurate and complete in
all material respects and shall comply in all material respects with
Federal securities and other laws and regulations thereunder applicable
thereto;
(p) The books and records of Target Fund, including, without
limitation, FIN 48 work papers and supporting statements, made available
to Acquiring Fund and/or its counsel and authorized agents are true and
correct in all material respects and contain no material omissions with
respect to the business and operations of Target Fund;
(q) The Trust or Advisor Trust, as appropriate, is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning
of Section 368(a)(3)(A) of the Code;
(r) The Target Fund has no unamortized or unpaid organizational fees
or expenses; and
(s) The Target Fund shall waive any contingent deferred sales charge
to which Target Fund Shareholders holding Class B shares may be subject
as a result of the Reorganization.
4.2. With respect to each Reorganization, the Franklin Trust or
Franklin NY Trust, as appropriate, on behalf of the Acquiring Fund,
represents and warrants to the corresponding Target Fund as follows:
(a) The Acquiring Fund is duly organized as a series of the Franklin
Trust or Franklin NY Trust, as appropriate, which is a statutory trust
duly organized, validly existing, and in good standing under the laws of
the State of Delaware, with power under its Agreement and Declaration of
Trust, as amended from time to time, to own all of its properties and
assets and to carry on its business as it is now being conducted;
(b) The Franklin Trust or the Franklin NY Trust, as appropriate, is a
registered investment company classified as a management company of the
open-end type, and its registration with the Commission as an investment
company under the 1940 Act and the registration of shares of the
Acquiring Fund under the 1933 Act, is in full force and effect;
(c) No consent, approval, authorization, or order of any court,
governmental authority or FINRA is required for the consummation by the
Acquiring Fund of the transactions contemplated herein, except such as
have been or will be (at or prior to the Closing Date) obtained under
the 1933 Act, the 1934 Act, the 1940 Act and state securities laws;
(d) The current prospectus and statement of additional information
of the Acquiring Fund and each prospectus and statement of additional
information of the Acquiring Fund used at all times prior to the date
of this Agreement conforms or conformed at the time of its use in all
material respects to the applicable requirements of the 1933 Act and
the 1940 Act and the rules and regulations of the Commission thereunder
and does not or did not at the time of its use include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not materially
misleading;
(e) On the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or
other encumbrances, except those liens or encumbrances that have been
incurred in the ordinary course of business of the Acquiring Fund,
including without limitation, those that have arisen under (i) the Term
Asset-Backed Securities Loan Facility operated by the Federal Reserve
Bank of New York or (ii) International Swaps and Derivatives Association,
Inc. (ISDA) agreements, or as to which the Target Fund has received notice
and necessary documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a
material violation of, as appropriate, the Franklin Trust's or Franklin
NY Trust's Agreement and Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquiring Fund is a party or by which it is bound, or (ii)
the acceleration of any obligation, or the imposition of any lien,
encumbrance, penalty, or additional fee under any agreement, indenture,
instrument, contract, lease, judgment or decree to which the Acquiring
Fund, the Franklin Trust or the Franklin NY Trust is a party or by which
it is bound;
(g) Except as otherwise disclosed in writing to and accepted by or on
behalf of the Target Fund, (i) no litigation or administrative proceeding
or investigation of or before any court, tribunal, arbitrator, governmental
body or FINRA is presently pending or, to the Acquiring Fund's knowledge,
threatened against the Acquiring Fund that, if adversely determined, would
materially and adversely affect the Acquiring Fund's financial condition
or the conduct of its business, and (ii) without any special investigation
or inquiry, to the knowledge of the portfolio managers of the Acquiring
Fund as identified in the Acquiring Fund's prospectus (the "Acquiring Fund
Portfolio Managers"), no litigation or administrative proceeding or
investigation of or before any court, tribunal, arbitrator, governmental
body or FINRA is presently pending or threatened against any of the
Acquiring Fund's properties or assets, that, if adversely determined,
would materially and adversely affect the Acquiring Fund's financial
condition or the conduct of its business. The Acquiring Fund and, with
respect to the Acquiring Fund's properties or assets, the Acquiring Fund
Portfolio Managers, without any special investigation or inquiry, know of
no facts that might form the basis for the institution of such proceedings
and the Acquiring Fund is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body that
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(h) The financial statements of the Acquiring Fund as of and for the year
ended October 31, 2008 (if a series of Franklin Trust) or September 30, 2008
(if a series of Franklin NY Trust) have been audited by PricewaterhouseCoopers
LLP, independent registered public accounting firm. Such statements, as well
as the unaudited, semi-annual financial statements of the Acquiring Fund for
the semi-annual period ended April 30, 2009 (if a series of Franklin Trust)
or March 31, 2009 (if a series of Franklin NY Trust), are in accordance with
GAAP consistently applied, and such statements (copies of which have been
furnished to the Target Fund) present fairly, in all material respects, the
financial condition of the Acquiring Fund as of such date in accordance
with GAAP, and there are no known contingent liabilities of the Acquiring
Fund required to be reflected on a balance sheet (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;
(i) Since October 31, 2008 (if the Acquiring Fund is a series of
Franklin Trust) or September 30, 2008 (if the Acquiring Fund is a series
of Franklin NY Trust), there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, except as
otherwise disclosed to and accepted by the Target Fund in writing. For
purposes of this subparagraph (i), a decline in net asset value per share
of the Acquiring Fund's shares due to declines in market values of
securities held by the Acquiring Fund, the discharge of the Acquiring
Fund's ordinary course liabilities, or the redemption of the Acquiring
Fund's shares by shareholders of the Acquiring Fund, shall not constitute
a material adverse change;
(j) On the Closing Date, it has duly and timely filed, on behalf of
the Acquiring Fund, all Tax (as defined below) returns and reports
(including information returns), which are required to be filed by such
Acquiring Fund, and all such returns and reports accurately state the
amount of Tax owed for the periods covered by the returns, or, in the case
of information returns, the amount and character of income required to be
reported by such Acquiring Fund. On behalf of Acquiring Fund, Franklin
Trust or Franklin NY Trust, as appropriate, has paid or made provision and
properly accounted for all Taxes due or properly shown to be due on such
returns and reports. The amounts set up as provisions for Taxes in the
books and records of Acquiring Fund as of the close of business on the
Closing Date will, to the extent required by generally accepted accounting
principles, be sufficient for the payment of all Taxes of any kind, whether
accrued, due, absolute, contingent or otherwise, which were or which may be
payable by Acquiring Fund for any periods or fiscal years prior to and
including the close of business on the Closing Date, including all Taxes
imposed before or after the close of business on the Closing Date that are
attributable to any such period or fiscal year. No return filed by
Acquiring Fund is currently being audited by the Internal Revenue Service
or by any state or local taxing authority. To its knowledge, there are no
levies, liens or encumbrances relating to Taxes existing, threatened or
pending with respect to the assets of Acquiring Fund. There are no known
actual or proposed deficiency assessments with respect to any Taxes payable
by it;
(k) For each taxable year of its operation (including the taxable year
that includes the Closing Date), the Acquiring Fund has met (or will meet)
the requirements of Subchapter M of the Code for qualification as a RIC,
has been eligible to (or will be eligible to) and has computed (or will
compute) its Federal income tax under Section 852 of the Code, and has
distributed all of its investment company taxable income and net capital
gain (as defined in the Code) for periods ending prior to the Closing Date.
Consummation of the transactions contemplated by this Agreement will not
cause the Acquiring Fund to fail to be qualified as a RIC as of the Closing;
(l) All issued and outstanding Acquiring Fund shares are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Franklin Trust and Franklin NY Trust, as
appropriate, and, in every state where offered or sold, all offers and
sales have been in compliance in all material respects with applicable
registration requirements of the 1933 Act and state and District of Columbia
securities laws. The Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any Acquiring Fund
shares, nor is there outstanding any security convertible into any Acquiring
Fund shares, except for the automatic conversion right of Class B
shareholders of the Acquiring Fund to convert to Class A shares in
accordance with the terms set forth in the Acquiring Fund's prospectus and
statement of additional information;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action, if
any, on the part of the Trustees of the Franklin Trust or Franklin NY Trust,
as appropriate, on behalf of the Acquiring Fund, and this Agreement will
constitute a valid and binding obligation of the Acquiring Fund, enforceable
in accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The shares of the Acquiring Fund to be issued and delivered to the
Target Fund, for the account of the Target Fund Shareholders, pursuant to
the terms of this Agreement, as set forth in Exhibit A, will on the Closing
Date have been duly authorized and, when so issued and delivered, will be
duly and validly issued Acquiring Fund shares, and will be fully paid and
non-assessable by the Acquiring Fund; and
(o) The information to be furnished by the Acquiring Fund for use in
the Registration Statement and other documents that may be necessary in
connection with the transactions contemplated hereby shall be accurate
and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations applicable
thereto, and, insofar as it relates to the Franklin Trust or Franklin NY
Trust (as applicable) and the Acquiring Fund, the Registration Statement,
and any amendment or supplement to the foregoing will, from the effective
date of the Registration Statement through the date of the meeting of
shareholders of the Target Fund contemplated therein and on the Closing
Date (i) not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not materially misleading, provided, however, that
the representations and warranties of this subparagraph (o) shall not
apply to statements in or omissions from the Registration Statement made
in reliance upon and in conformity with information that was furnished by
the Target Fund for use therein, and (ii) comply in all material respects
with the provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the rules and regulations thereunder.
(p) The Franklin Trust or Franklin NY Trust, as appropriate, is not
under the jurisdiction of a court in a Title 11 or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(q) The Acquiring Fund has no unamortized or unpaid organizational
fees or expenses.
5. COVENANTS OF THE ACQUIRING FUND AND THE TARGET FUND
5.1. With respect to each Reorganization:
(a) The Acquiring Fund and the Target Fund each: (i) will operate
its business in the ordinary course and substantially in accordance with
past practices between the date hereof and the Closing Date for the
Reorganization, it being understood that such ordinary course of business
will include changes to the composition of the portfolio of the Target
Fund in anticipation of the Reorganization and the declaration and
payment of customary dividends and distributions, and any other distribution
that may be advisable, and (ii) shall use its reasonable best efforts to
preserve intact its business organization and material assets and maintain
the rights, franchises and business and customer relations necessary to
conduct the business operations of the Acquiring Fund or the Target Fund,
as appropriate, in the ordinary course in all material respects.
(b) The Trust or Advisor Trust, as appropriate, will call a meeting
of the shareholders of the Target Fund to consider and act upon this
Agreement and to take all other action necessary to obtain approval of
the transactions contemplated herein. Trust and Advisor Trust, as
appropriate, shall, through its Board of Trustees, recommend to the
shareholders of Target Fund approval of this Agreement.
(c) The Target Fund covenants that the Class A, C and Advisor
Acquiring Fund shares to be issued hereunder (as set forth in Exhibit A)
are not being acquired for the purpose of making any distribution thereof,
other than in accordance with the terms of this Agreement.
(d) The Target Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Target Fund's shares.
(e) The Trust or Advisor Trust, as appropriate, will at the Closing
(or, with respect to delivery of the tax basis of a Target Fund's
investments to be transferred as provided in clause (1) below, will within
five business days after the Closing Date in the case of CPFI Fund and IDFI
Fund and within one business day after the Closing Date in the case of
NYTFB Fund) provide the Acquiring Fund with (1) a statement of the
respective tax basis of all investments to be transferred by the Target
Fund to the Acquiring Fund, (2) a copy (which may be in electronic form)
of the shareholder ledger accounts including, without limitation, the
name, address and taxpayer identification number of each shareholder of
record, the number of shares of beneficial interest held by each shareholder,
the dividend reinvestment elections applicable to each shareholder, and the
backup withholding and nonresident alien withholding certifications, notices
or records on file with the Target Fund with respect to each shareholder,
for all of the shareholders of record of the Target Fund as of the close of
business on the Closing Date, who are to become holders of the Acquiring
Fund as a result of the transfer of assets that is the subject of this
Agreement (the "Target Fund Shareholder Documentation"), certified by its
transfer agent or its President or its Vice-President to the best of their
knowledge and belief, and (3) all FIN 48 work papers and supporting
statements pertaining to the Target Fund (the "FIN 48 Workpapers").
(f) Subject to the provisions of this Agreement, the Acquiring Fund and
the Target Fund will each take, or cause to be taken, all action, and do or
cause to be done all things, reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this
Agreement.
(g) As soon as is reasonably practicable after the Closing, the Target
Fund will make a liquidating distribution to its shareholders consisting of
the Class A, C and Advisor Acquiring Fund shares received at the Closing, as
set forth in Paragraph 1.4(d) hereof.
(h) The Acquiring Fund and the Target Fund shall each use their
reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to effect the transactions contemplated by this
Agreement as promptly as practicable.
(i) The Target Fund shall, from time to time, as and when reasonably
requested by the Acquiring Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and
will take or cause to be taken such further action as the Acquiring Fund
may reasonably deem necessary or desirable in order to vest in and confirm
the Acquiring Fund's title to and possession of all the Assets and
otherwise to carry out the intent and purpose of this Agreement.
(j) The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state blue sky or securities laws as may be necessary in order
to continue its operations after the Closing Date.
(k) As promptly as practicable, but in any case within sixty days after
the Closing Date, each Target Fund shall furnish the corresponding Acquiring
Fund, in such form as is reasonably satisfactory to such Acquiring Fund, a
statement of the earnings and profits of such Target Fund for federal income
tax purposes that will be carried over by such Acquiring Fund as a result of
Section 381 of the Code, which will be reviewed by KPMG, LLP and certified by
such Target Fund's President and Treasurer or Chief Financial Officer.
(l) It is the intention of the parties that the transaction will
qualify as a reorganization with the meaning of Section 368(a) of the
Code. None of the parties to this Agreement shall take any action or cause
any action to be taken (including, without limitation the filing of any tax
return) that is inconsistent with such treatment or results in the failure
of the transaction to qualify as a reorganization with the meaning of
Section 368(a) of the Code.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET FUND
6.1. With respect to each Reorganization, the obligations of the Target
Fund to consummate the transactions provided for herein shall be subject,
at the Target Fund's election, to the performance by the Acquiring Fund of
all the obligations to be performed by it hereunder on or before the Closing
Date, and, in addition thereto, the following further conditions:
(a) All representations and warranties of the Acquiring Fund and the
Franklin Trust or Franklin NY Trust, as appropriate, contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date, with the same force and effect as
if made on and as of the Closing Date;
(b) The Franklin Trust or Franklin NY Trust, as appropriate, shall have
delivered to the Trust or Advisor Trust, as appropriate, on the Closing Date
a certificate executed in its name by its Chief Executive Officer and
Treasurer, in form and substance reasonably satisfactory to Target Fund
and dated as of the Closing Date, to the effect that the representations and
warranties of or with respect to the Acquiring Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Target Fund shall reasonably request;
(c) The Franklin Trust or Franklin NY Trust, as appropriate, and the
Acquiring Fund shall have performed all of the covenants and complied with
all of the provisions required by this Agreement to be performed or complied
with by the Franklin Trust or Franklin NY Trust and the Acquiring Fund, on
or before the Closing Date;
(d) The Target Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Class A, C and Advisor shares of the Acquiring
Fund to be issued in connection with the Reorganization after such number
has been calculated in accordance with Paragraph 1.4 hereto;
(e) The Trust or Advisor Trust, as appropriate, shall have received on
the Closing Date the opinion of ▇▇▇▇▇▇▇▇ Ronon ▇▇▇▇▇▇▇ & ▇▇▇▇▇, LLP, counsel
to the Franklin Trust or Franklin NY Trust, as appropriate, (which may rely
as to matters governed by the laws of the State of Delaware on an opinion of
Delaware counsel and/or certificates of officers or Trustees of the Franklin
Trust or Franklin NY Trust), dated as of the Closing Date, covering the
following points:
(i) The Franklin Trust or Franklin NY Trust, as appropriate, is a
statutory trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the trust power to own all of the
Acquiring Funds' properties and assets and to carry on its business,
including that of the Acquiring Fund, as a registered investment company;
(ii) The Agreement has been duly authorized by the Franklin Trust or
Franklin NY Trust, as appropriate, on behalf of the Acquiring Fund and,
assuming due authorization, execution and delivery of the Agreement by the
Trust, Advisor Trust, as appropriate, Master Trust and HGAM, is a valid and
binding obligation of the Franklin Trust or Franklin NY Trust, as
appropriate, on behalf of the Acquiring Fund enforceable against it in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles;
(iii) The Acquiring Fund shares to be issued to the Target Fund
Shareholders as provided by this Agreement are duly authorized, upon
such delivery will be validly issued and outstanding, and will be fully
paid and non-assessable by the Franklin Trust or Franklin NY Trust, as
appropriate, and no shareholder of an Acquiring Fund has any preemptive
rights to subscription or purchase in respect thereof;
(iv) The execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated hereby will not, result
in a material violation of, as appropriate, the Franklin Trust's or Franklin
NY Trust's Agreement and Declaration of Trust or By-Laws or any provision of
any agreement (known to such counsel) to which the Franklin Trust or Franklin
NY Trust is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of
any penalty under any agreement, judgment or decree to which the Franklin
Trust or Franklin NY Trust is a party or by which it is bound;
(v) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Delaware is required to be obtained by the Franklin
Trust or Franklin NY Trust in order to consummate the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act, and such as may be required under state
securities laws;
(vi) The Franklin Trust or Franklin NY Trust, as appropriate, is a
registered investment company classified as a management company of the
open-end type with respect to each series of shares it offers, including
those of the Acquiring Fund, under the 1940 Act, and its registration with
the Commission as an investment company under the 1940 Act is in full force
and effect; and
(vii) To the knowledge of such counsel, and except as otherwise disclosed
to the Trust or Advisor Trust pursuant to Paragraph 4.2(g) hereunder, no
litigation or administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened as to the
Franklin Trust or Franklin NY Trust or the Acquiring Fund and neither the
Franklin Trust or Franklin NY Trust, as appropriate, nor the Acquiring Fund
is a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely affects its
business.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
7.1. With respect to each Reorganization, the obligations of the Acquiring
Fund to complete the transactions provided for herein shall be subject, at
the Acquiring Fund's election, to the performance by the Target Fund of all
of the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
(a) All representations and warranties of the Trust or Advisor Trust, as
appropriate, and the Target Fund, contained in this Agreement shall be true
and correct in all material respects as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as
of the Closing Date, with the same force and effect as if made on and as of
the Closing Date;
(b) The Trust or Advisor Trust, as appropriate, on behalf of the Target
Fund, shall have delivered to the Franklin Trust or Franklin NY Trust, as
appropriate, on the Closing Date (i) a statement of the Target Fund's assets,
together with a list of portfolio securities of the Target Fund showing the
tax costs of such securities by lot and the holding periods of such
securities, as of the Closing Date, certified by the Treasurer of the Trust
or Advisor Trust, as appropriate, (ii) the Target Fund Shareholder
Documentation, (iii) the AML Documentation and (iv) the FIN 48 Workpapers;
(c) The Trust or Advisor Trust, as appropriate, shall have delivered to
the Franklin Trust or Franklin NY Trust, as appropriate, on the Closing
Date a certificate executed in its name by its President and Treasurer,
in form and substance satisfactory to the Acquiring Fund and dated as of
the Closing Date, to the effect that the representations and warranties of
or with respect to the Target Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters
as the Acquiring Fund shall reasonably request;
(d) The Trust or Advisor Trust, as appropriate, and the Target Fund
shall have performed all of the covenants and complied with all of the
provisions required by this Agreement to be performed or complied with by
the Trust or Advisor Trust, as appropriate, and the Target Fund, on or
before the Closing Date;
(e) The Target Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Class A, C and Advisor shares of the
Acquiring Fund to be issued in connection with the Reorganization after
such number has been calculated in accordance with Paragraph 1.4 hereto;
(f) The Target Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders
(i) all of its investment company taxable income and all of its net
realized capital gains, if any, for the period from the close of its last
fiscal year to 4:00 p.m. Eastern time on the Closing Date; and (ii) any
undistributed investment company taxable income and net realized capital
gains from any period to the extent not otherwise already distributed;
(g) The Franklin Trust or Franklin NY Trust, as appropriate, shall
have received on the Closing Date the opinion of Dechert LLP, counsel
to the Trust or Advisor Trust, as appropriate, (which may rely on
certificates of officers or Trustees of the Trust or Advisor Trust),
covering the following points:
(i) The Trust or Advisor Trust, as appropriate, is a business trust
duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts and has the trust power to own all of
Target Fund's properties and assets, and to carry on its business,
including that of the Target Fund, as presently conducted;
(ii) The Agreement has been duly authorized by the Trust or Advisor
Trust, as appropriate, on behalf of the Target Fund, and, assuming due
authorization, execution and delivery of the Agreement by the Franklin
Trust or Franklin NY Trust, as applicable, is a valid and binding
obligation of the Trust or Advisor Trust, on behalf of the Target Fund,
enforceable against the Trust or Advisor Trust in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights
generally and to general equity principles;
(iii) The execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in
a material violation of, as appropriate, the Trust's or Advisor Trust's
Declaration of Trust or By-Laws or any provision of any agreement (known
to such counsel) to which the Trust or Advisor Trust is a party or by which
it is bound or, to the knowledge of such counsel, result in the acceleration
of any obligation or the imposition of any penalty under any agreement,
judgment or decree to which the Trust or Advisor Trust is a party or by
which it is bound;
(iv) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the Commonwealth of Massachusetts is required to be obtained by
the Trust or Advisor Trust in order to consummate the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act, and such as may be required under state
securities laws;
(v) The Trust or Advisor Trust, as appropriate, is a registered
investment company classified as a management company of the open-end type
with respect to each series of shares it offers, including those of the
Target Fund, under the 1940 Act and its registration with the Commission as
an investment company under the 1940 Act is in full force and effect;
(vi) The outstanding shares of the Target Fund are registered under the
1933 Act, and such registration is in full force and effect; and
(vii) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Trust or Advisor Trust or Target
Fund and neither the Trust or Advisor Trust nor the Target Fund is a party
to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
AND THE TARGET FUND
With respect to each Reorganization, if any of the conditions set forth
below have not been satisfied on or before the Closing Date with respect
to the Target Fund or the Acquiring Fund, the other party to this Agreement
shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1. The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares
of the Target Fund in accordance with the provisions of the Trust's or
Advisor Trust's, as appropriate, Declaration of Trust and By-Laws,
applicable Massachusetts law and the 1940 Act, and certified copies of
the resolutions evidencing such approval shall have been delivered to the
Acquiring Fund. Notwithstanding anything herein to the contrary, neither
the Target Fund nor the Acquiring Fund may waive the conditions set forth
in this Paragraph 8.1;
8.2. The Agreement and transactions contemplated herein shall have been
approved by the Board of Trustees of the Trust and Advisor Trust, as
appropriate, and Franklin Trust or Franklin NY Trust, as appropriate, and
each party shall have delivered a copy to the other of the resolutions
approving this Agreement and the transactions contemplated in connection
herewith adopted by the other party's Board of Trustees, certified by the
Secretary or equivalent officer. Notwithstanding anything herein to the
contrary, neither the Target Fund nor the Acquiring Fund may waive the
conditions set forth in this Paragraph 8.2;
8.3. On the Closing Date no action, suit or other proceeding shall be
pending or, to, as applicable, the Trust's or Advisor Trust's and, as
applicable, Franklin Trust or Franklin NY Trust's knowledge, threatened
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.4. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary
by the Acquiring Fund or Target Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of
the Acquiring Fund or the Target Fund, provided that either party hereto may
for itself waive any of such conditions;
8.5. The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted
or be pending, threatened or contemplated under the 1933 Act; and
8.6. Dechert LLP shall deliver an opinion addressed to the Trust or
Advisor Trust, as applicable, and Franklin Trust or Franklin NY Trust, as
applicable, substantially to the effect that, based upon certain facts,
assumptions, and representations, the transaction contemplated by this
Agreement shall constitute a tax-free reorganization for Federal income
tax purposes, unless, based on circumstances existing at the time of
Closing, Dechert LLP determines that the transaction contemplated by this
Agreement does not qualify as such. The delivery of such opinion is
conditioned upon receipt by Dechert LLP of representations it shall request
of the parties. Notwithstanding anything herein to the contrary, no party
may waive the condition set forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1. The parties hereto represent and warrant to each other that there
are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
9.2. Each of ▇▇▇▇▇▇▇▇ Advisers and HSBC agrees to bear or arrange for
an entity under common ownership to bear the expenses relating to the
Reorganizations, allocated among Franklin Advisers and HSBC as set forth in
a Letter Agreement dated as of the date hereof. The costs of the
Reorganizations shall include, but not be limited to, costs associated with
obtaining any necessary order of exemption from the 1940 Act, if any,
preparation, printing and distribution of the Registration Statement, legal
fees, accounting fees, and expenses of holding shareholders' meetings.
Notwithstanding any of the foregoing, expenses will in any event be paid by
the party directly incurring such expenses if and to the extent that the
payment by another person of such expenses would result in the
disqualification of such party as a "regulated investment company" within
the meaning of Section 851 of the Code.
10. FINAL TAX RETURNS AND FORMS 1099 OF TARGET FUND
10.1. After the Closing of a Reorganization, Trust or Advisor
Trust, as appropriate, shall or shall cause its agents to prepare any
federal, state or local Tax returns, including any Forms 1099, required
to be filed by Trust or Advisor Trust, as appropriate, with respect to the
Target Fund's final taxable year ending with its complete liquidation and
for any prior periods or taxable years and shall further cause such Tax
returns and Forms 1099 to be duly filed with the appropriate taxing
authorities.
10.2. Notwithstanding the provisions of Paragraph 9 hereof, any
expenses incurred by Trust, Advisor Trust or Target Fund (other than for
payment of Taxes) in connection with the preparation and filing of said Tax
returns and Forms 1099 after the Closing, shall be borne by Target Fund.
11. COOPERATION AND EXCHANGE OF INFORMATION
Trust, Advisor Trust, Franklin Trust, and Franklin NY Trust will
provide each other and their respective representatives with such
cooperation, assistance and information as any of them reasonably may
request of the others in filing any Tax returns, amended returns or claims
for refunds, determining a liability for Taxes, or in determining the
financial reporting of any tax position, or a right to a refund of Taxes
or participating in or conducting any audit or other proceeding in respect
of Taxes. Each party or their respective agents will retain for a period
of six (6) years following the Closing all returns, schedules and work
papers and all material records or other documents relating to Tax matters
and financial reporting of tax positions of the Target Fund and the Acquiring
Fund for its taxable period first ending after the Closing of the applicable
Reorganization and for all prior taxable periods.
12. INDEMNIFICATION
12.1. With respect to each Reorganization, the Franklin Trust or Franklin
NY Trust, as appropriate, agrees to indemnify out of the assets of the
Acquiring Fund and hold harmless the Trust or Advisor Trust, as appropriate,
and, as appropriate, each of the Trust's or Advisor Trust's officers and
Trustees from and against any and all losses, claims, damages, liabilities
or expenses (including, without limitation, the payment of reasonable legal
fees and reasonable costs of investigation) to which jointly and severally,
the Trust or Advisor Trust, as appropriate, or any of its Trustees or
officers may become subject, insofar as such loss, claim, damage, liability
or expense (or actions with respect thereto) arises out of or is based on
any breach by the Franklin Trust or Franklin NY Trust, as appropriate, of
any of its representations, warranties, covenants or agreements set forth
in this Agreement. This indemnification obligation shall survive the
termination of this Agreement and the closing of the Reorganizations.
12.2. With respect to each Reorganization, the Trust or Adviser Trust,
as appropriate, agrees to indemnify and hold harmless the Franklin Trust
or Franklin NY Trust, as appropriate, and, as appropriate, each of the
Franklin Trust's or Franklin NY Trust's officers and Trustees from and
against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the
Franklin Trust or Franklin NY Trust, as appropriate, or any of its Trustees
or officers may become subject, insofar as such loss, claim, damage,
liability or expense (or actions with respect thereto) arises out of or is
based on any breach by the Trust or Advisor Trust, as appropriate, of any
of its representations, warranties, covenants or agreements set forth in
this Agreement and provided that the obligation to so indemnify is limited
as set forth in Paragraph 17.5 hereof. This indemnification obligation
shall survive the termination of this Agreement and the closing of the
Reorganizations.
12.3. With respect to each Reorganization, HGAM agrees to indemnify and
hold harmless the Franklin Trust or Franklin NY Trust, as appropriate,
and, as appropriate, each of the Franklin Trust's or Franklin NY Trust's
officers and Trustees from and against any and all losses, claims,
damages, liabilities or expenses (including, without limitation, the
payment of reasonable legal fees and reasonable costs of investigation)
to which jointly and severally, the Franklin Trust or Franklin NY Trust
or any of its Trustees or officers may become subject, insofar as (and
only to the extent that) such loss, claim, damage, liability or expense
(or actions with respect thereto) arises out of the negligence or
intentional misconduct by HGAM in performing its obligations as investment
adviser or administrator, or by Halbis Capital Management (USA) Inc. in
performing its obligations as sub-adviser, of the Target Funds. This
indemnification obligation shall survive the termination of this Agreement
and the closing of the Reorganizations.
13. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
13.1. Each party agrees that no party has made any representation,
warranty or covenant not set forth herein and that this Agreement
constitutes the entire agreement between the parties.
13.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder. The covenants to be performed after the Closing shall survive
the Closing.
14. TERMINATION
This Agreement may be terminated and the transactions
contemplated hereby may be abandoned with respect to one or more (or all)
Reorganizations by (i) mutual agreement of the parties; (ii) by either
party to a Reorganization, if the Board of Trustees of the terminating
party determines that it cannot permit the party to consummate the
Reorganization in light of the Board of Trustees' fiduciary obligations
to the party's shareholders; (iii) by either party with respect to a
Reorganization if the Closing of the Reorganization shall not have
occurred on or before December 31, 2009, unless such date is extended
by mutual agreement of the parties; or (iv) by either party with
respect to a Reorganization if the other party shall have materially
breached its obligations under this Agreement or made a material and
intentional misrepresentation herein or in connection herewith. In
the event of any such termination, this Agreement shall become void
with respect to the Reorganization or Reorganizations terminated and
there shall be no liability hereunder on the part of any party or
their respective Trustees or Trustees or officers, except for any
such material breach or intentional misrepresentation, as to each of
which all remedies at law or in equity of the party adversely
affected shall survive. This Agreement shall be terminated in its
entirety if it is terminated with respect to all of the Reorganizations.
15. AMENDMENTS
This Agreement may be amended, modified or supplemented in a writing
signed by the parties hereto to be bound by such Amendment; provided,
however, that with respect to each Reorganization, following the meeting
of the shareholders of the Target Fund called by the Trust, pursuant to
Paragraph 5.1(b) of this Agreement, no such amendment may have the effect
of changing the provisions for determining the number of Class A, C and
Advisor Acquiring Fund shares to be issued to the Target Fund under this
Agreement to the detriment of any or all Target Fund shareholders, without
their further approval.
16. NOTICES
Any notice, report, statement or demand required or permitted by
any provisions of this Agreement shall be in writing and shall be given
by facsimile, personal service or prepaid or certified mail addressed
to:
For the Trust, Advisor Trust, Master Trust and HGAM:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
HSBC Global Asset Management (USA) Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
For Franklin Trust, Franklin NY Trust and ▇▇▇▇▇▇▇▇ Advisers:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Investments
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
17. HEADINGS; GOVERNING LAW; COUNTERPARTS; ASSIGNMENT; LIMITATION OF
LIABILITY
17.1. The Article and Paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
17.2. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware and applicable Federal law, without
regard to its principles of conflicts of laws.
17.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other parties. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or
by reason of this Agreement.
17.4. This agreement may be executed in any number of counterparts, each
of which shall be considered an original.
17.5. It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of their respective Trustees, shareholders,
nominees, officers, agents, or employees personally, but, except as provided
in Sections 12.3 and 9.2 hereof, shall bind only the property of the Target
Funds or the Acquiring Funds as provided in the Declaration of Trust of the
Trust or Advisor Trust or the Agreement and Declaration of Trust of the
Franklin Trust or Franklin NY Trust, respectively. The execution and
delivery by such officers shall not be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but
shall bind only the property of such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
approved on behalf of each of the Acquiring Funds and Target Funds.
Franklin Investor Securities Trust
By: _________________________________
Name:
Title:
Franklin New York Tax-Free Trust
By: _________________________________
Name:
Title:
Franklin Advisers, Inc.
By: _________________________________
Name:
Title:
HSBC Investor Funds
By: _________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
HSBC Advisor Funds Trust
By: _________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
HSBC Investor Portfolios
By: _________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
HSBC Global Asset Management (USA) Inc.
By: _________________________________
Name:
Title:
EXHIBIT A
CHART OF REORGANIZATIONS
Acquiring Fund Corresponding Target Fund
Franklin Total Return Fund HSBC Investor Core Plus Fixed Income Fund
(HSBC Investor Funds)
Class A Class A
Class A Class B
Class C Class C
Franklin Total Return Fund HSBC Investor Core Plus Fixed Income Fund
(HSBC Advisor Funds Trust)
Advisor Class Class I
Franklin Total Return Fund HSBC Investor Intermediate Duration
Fixed Income Fund
Class A Class A
Class A Class B
Class C Class C
Advisor Class Class I
Franklin New York Intermediate-
Term Tax-Free Income Fund HSBC Investor New York Tax-Free Bond Fund
Class A Class A
Class A Class B
Class C Class C
Advisor Class Class I