FRANKLIN TAX FREE TRUST, 497, 1995-05-08

FRANKLIN TAX FREE TRUST
497, 1995-05-08

Previous: WINDSOR PARK PROPERTIES 2, 10QSB, 1995-05-08

Next: GOLDEN POULTRY CO INC, 10-Q, 1995-05-08

Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Tax-Free Trust
PROSPECTUS May 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN

The Franklin Federal Intermediate-Term Tax-Free Income Fund
(the "Fund"), is a non-diversified series of the Franklin
Tax-Free Trust (the "Trust"), an open-end management
investment company consisting of twenty-seven separate
series. The Fund seeks to provide investors with as high a
level of income exempt from federal income taxes, including
the individual alternative minimum tax, as is consistent
with prudent investing and the preservation of shareholders'
capital. The Fund seeks to accomplish its objective by
investing primarily in a portfolio of investment grade
obligations with a dollar weighted average portfolio
maturity of more than three years but not more than ten
years. There can be no assurance that the Fund's objective
will be achieved.

This Prospectus is intended to set forth in a clear and
concise manner information about the Trust and the Fund that
a prospective investor should know before investing. After
reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and
sale of shares and other items which a prospective investor
will find useful to have.

Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank; further, such shares
are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency.
Shares of the Fund involve investment risks, including the
possible loss of principal.

A Statement of Additional Information ("SAI") concerning the
Fund, dated May 1, 1995, as may be amended from time to
time, provides a further discussion of certain areas in this
Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated herein by
reference. A copy is available without charge from the Fund
or from the Fund's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.

This Prospectus is not an offering of the securities herein
described in any state in which the offering is not
authorized. No sales representative, dealer, or other person
is authorized to give any information or make any
representations other than those contained in this
Prospectus. Further information may be obtained from the
underwriter.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Contents Page

Expense Table

Financial Highlights

About the Trust

Investment Objective
and Policies of the Fund

Management of the Fund

Distributions to Shareholders

Taxation of the Fund
and Its Shareholders

How to Buy Shares of the Fund

Other Programs and Privileges
Available to Fund Shareholders

Exchange Privilege

How to Sell Shares of the Fund

Telephone Transactions

Valuation of Fund Shares

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

Expense Table

The purpose of this table is to assist an investor in
understanding the various costs and expenses that a
shareholder will bear directly or indirectly in connection
with an investment in the Fund. These figures are based on
aggregate operating expenses of the Fund, before fee waivers
and expense reductions, for the fiscal year ended February
28, 1995.

Shareholder Transaction Expenses

Maximum Sales Charge Imposed on Purchases 2.25%
(as a percentage of offering price)
Deferred Sales Charge NONE*

Annual Fund Operating Expenses
(as a percentage of average net assets)

Management Fees 0.63%**
12b-1 Fees 0.05%***
Other Expenses:
Registration and Filing Fees 0.06%
Reports to Shareholders 0.03%
Other 0.07%
Total Other Expenses 0.16%
Total Fund Operating Expenses 0.84%**

*Investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1% is imposed on certain redemptions within 12
months of the calendar month following such investments. See
"How to Sell Shares of the Fund - Contingent Deferred Sales
Charge."
**Represents the amount that would have been payable to the
investment manager, absent a fee reduction by the investment
manager. The investment manager, however, agreed in advance
to waive its management fees and to assume responsibility
for making payments to offset certain operating expenses
otherwise payable by the Fund. With this reduction,
management fees and total operating expenses represented
0.35% and 0.56%, respectively, of the average net assets of
the Fund. This arrangement may be terminated by the
investment manager at any time.
***Consistent with National Association of Securities
Dealers, Inc.'s rules, it is possible that the combination
of front-end sales charges and Rule 12b-1 fees could cause
long-term shareholders to pay more than the economic
equivalent of the maximum front-end sales charges permitted
under those same rules.

Investors should be aware that the above table is not
intended to reflect in precise detail the fees and expenses
associated with an individual's own investment in the Fund.
Rather, the table has been provided only to assist investors
in gaining a more complete understanding of fees, charges
and expenses. For a more detailed discussion of these
matters, investors should refer to the appropriate sections
of this Prospectus.

Example

As required by SEC regulations, the following example
illustrates the expenses, including the front-end sales
charge, that apply to a $1,000 investment in the Fund over
various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.

One year Three years Five years Ten years
$31 $49 $68 $124

This example is based on the aggregate annual operating
expenses, before fee waivers and expense reductions, shown
above and should not be considered a representation of past
or future expenses, which may be more or less than those
shown. The operating expenses are borne by the Fund and only
indirectly by shareholders as a result of their investment
in the Fund. (See "Management of the Fund" for a description
of the Fund's expenses.) In addition, federal regulations
require the example to assume an annual return of 5%, but
the Fund's actual return may be more or less than 5%.

Financial Highlights

Set forth below is a table containing the financial
highlights for a share of the Fund outstanding throughout
the period September 21, 1992 (effective date of
registration) to February 28, 1993 and for the two fiscal
years ended February 28, 1995. The information for the
period ended February 28, 1993 and for the two fiscal years
in the period ended February 28, 1995 has been audited by
Coopers & Lybrand L.L.P., independent auditors, whose audit
report appears in the Trust's Annual Report to Shareholders
dated February 28, 1995. See the discussion "Reports to
Shareholders" under "General Information."

PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------------------------
NET ASSETS NET REALIZED DISTRIBUTIONS NET ASSETS
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993(1) $10.00 $0.14 $0.499 $0.639 $(0.099) $ - $(0.099) $10.54
1994 10.54 0.52 0.289 0.809 (0.549) - (0.549) 10.80
1995 10.80 0.54 (0.331) 0.209 (0.529) - (0.529) 10.48
</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
YEAR AT END EXPENSES INCOME PORTFOLIO
ENDED TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
FEBRUARY 28 RETURN+ (IN 000'S) NET ASSETS** NET ASSETS RATE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993(1) 14.77%* $ 9,192 - % 5.49% 22.54%
1994 7.82 67,603 0.30 4.93 28.76
1995 (0.20) 73,977 0.56 5.25 38.46
</TABLE>

*For the period September 21, 1992 (effective date of
registration) to February 28, 1993.
**Annualized.
+Total return measures the change in value of an investment
over the periods indicated. It is not annualized. It does
not include the maximum front-end sales charge, and assumes
reinvestment of dividends and capital gains, if any, at net
asset value.
++During the periods indicated, the investment manager
agreed in advance to waive its management fees and to assume
responsibility for making payments to offset certain
operating expenses otherwise payable by the Fund. Had such
action not been taken, the ratio of operating expenses to
average net assets for the periods ended February 28, 1993,
1994 and 1995 would have been: 1.60%, .89% and .84%.

About the Trust

The Trust is an open-end management investment company, or
mutual fund, organized as a Massachusetts business trust in
September 1984 and registered with the SEC under the
Investment Company Act of 1940 (the "1940 Act"). The Trust
currently consists of twenty-seven series, each of which
issues a separate series of the Trust's shares and maintains
a totally separate investment portfolio. This Prospectus
relates only to the Franklin Federal Intermediate-Term Tax-
Free Income Fund.

Shares of the Fund may be purchased (minimum investment of
$100 initially and $25 thereafter) at the current public
offering price, which is equal to the Fund's net asset value
(see "Valuation of Fund Shares") plus a sales charge not
exceeding 2.25% of the offering price. See "How to Buy
Shares of the Fund."

Investment Objective
and Policies of the Fund

The Fund seeks to provide investors with as high a level of
income exempt from federal income taxes, including the
individual alternative minimum tax, as is consistent with
prudent investing and the preservation of shareholders'
capital. The objective is a fundamental policy of the Fund
and may not be changed without shareholder approval. The
Fund intends to invest primarily in a portfolio of
investment grade obligations with a dollar weighted average
portfolio maturity of more than three years but not more
than ten years. As with any investment, there is no
assurance that the Fund's objective will be achieved.

Under normal market conditions, the Fund attempts to invest
100% and, as a matter of fundamental policy, will invest at
least 80% of its total assets in debt obligations issued by
or on behalf of any state, territory or possession of the
United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political
subdivisions, the interest on which is exempt from federal
income tax. It is possible, although not anticipated, that
up to 20% of the Fund's net assets could be in municipal
securities subject to the alternative minimum tax and/or in
taxable obligations.

The Fund may invest, without percentage limitations, in
securities having, at the time of purchase, one of the four
highest ratings of Moody's Investors Service ("Moody's")
(Aaa, Aa, A, Baa), Standard & Poor's Corporation ("S&P")
(AAA, AA, A, BBB), or Fitch Investors Service, Inc.
("Fitch") (AAA, AA, A, BBB), or in securities which are not
rated, provided that, in the opinion of the Fund's
investment manager, such securities are comparable in
quality to those within the four highest ratings. These are
considered to be "investment grade" securities, although
bonds rated in the fourth highest ratings level (Baa by
Moody's) are regarded as having an adequate capacity to pay
principal and interest but with greater vulnerability to
adverse economic conditions and as having some speculative
characteristics. In the event the rating of an issue held in
the Fund's portfolio is lowered by the rating services, such
change will be considered by the Fund in its evaluation of
the overall investment merits of that security, but such
change will not necessarily result in an automatic sale of
the security. For a description of municipal securities
ratings, see "Appendix - Description of Municipal Securities
Ratings" in the SAI.

The investment manager considers the terms of the offering
and various other factors in order to determine whether the
securities are consistent with the Fund's investment
objective and policies and therafter to determine the
issuer's comparative credit rating. In making such
determinations, the investment manager typically (i)
interviews representatives of the issuer at its offices,
tours and inspects the physical facilities of the issuer in
an effort to evaluate the issuer and its operations, (ii)
performs analysis of the issuer's financial and credit
position, including comparisons of all appropriate ratios,
and (iii) compares other similar securities offerings to the
issuer's proposed offering.

The Fund may borrow from banks for temporary or emergency
purposes and pledge up to 5% of its total assets therefore.
Consistent with procedures approved by the Board of
Trustees, the Fund may lend its portfolio securities to
qualified securities dealers or other institutional
investors, provided that such loans do not exceed 10% of the
value of the Fund's total assets at the time of the most
recent loan, although the Fund currently intends to limit
its lending of securities to no more than 5% of its total
assets.

It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in
the normal course of business at approximately the amount at
which the Fund has valued the securities) may not
constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund.

Municipal Securities

The term "municipal securities," as used in this Prospectus,
means obligations issued by or on behalf of states,
territories and possessions of the U.S. and the District of
Columbia, and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from
federal income tax. An opinion as to the tax-exempt status
of a municipal security is generally rendered to the issuer
by the issuer's bond counsel at the time of issuance of the
security.

Municipal securities are used to raise money for various
public purposes, such as constructing public facilities and
making loans to public institutions. Certain types of
municipal bonds are issued to obtain funding for privately
operated facilities. Further information on the maturity and
funding classifications of municipal securities is included
in the SAI.

It is possible, from time to time, that the Fund will invest
more than 25% of its assets in a particular segment of the
municipal securities market, including, but not limited to,
hospital revenue bonds, housing agency bonds, tax-exempt
industrial development revenue bonds, transportation bonds,
or pollution control revenue bonds. In such circumstances,
economic, business, political or other changes affecting one
bond (such as proposed legislation affecting the financing
of a project; shortages or price increases of needed
materials; or declining markets or need for the projects)
might also affect other bonds in the same segment, thereby
potentially increasing market risk.

Yields on municipal securities vary, depending on a variety
of factors, including the general condition of the financial
markets and of the municipal securities market, the size of
a particular offering, the maturity of the obligation and
the credit rating of the issuer. Generally, municipal
securities of longer maturities produce higher current
yields than municipal securities with shorter maturities,
but are subject to greater price fluctuation due to changes
in interest rates, tax laws and other general market
factors. Lower-rated municipal securities generally produce
a higher yield than higher-rated municipal securities due to
the perception of a greater degree of risk as to the ability
of the issuer to pay principal and interest obligations.

The interest on bonds issued to finance public purpose state
and local government operations is generally tax-exempt for
regular federal income tax purposes. Interest on certain
private activity bonds (including those for housing and
student loans) issued after August 7, 1986, while still tax-
exempt, constitutes a preference item for taxpayers in
determining the federal alternative minimum tax under the
Internal Revenue Code of 1986, as amended (the "Code"), and
under the income tax provisions of some states. This
interest could subject a shareholder to, or increase
liability under, the federal and state alternative minimum
tax, depending on the shareholder's tax situation. In
addition, all distributions derived from interest exempt
from regular federal income tax may subject corporate
shareholders to, or increase liability under, the federal
alternative minimum tax, because such distributions are
included in the corporation's adjusted current earnings. In
states with a corporate franchise tax, distributions of the
Fund may also be fully taxable to corporate shareholders
under their state franchise tax systems.

Consistent with the Fund's investment objective, the Fund
may acquire private activity bonds if, in the investment
manager's opinion, such bonds represent the most attractive
investment opportunity then available to the Fund. As of
February 28, 1995, the Fund derived 13.68% of its income
from bonds, the interest on which constitutes a preference
item subject to the federal alternative minimum tax for
certain investors.

The Fund may purchase floating rate and variable rate
obligations. These obligations bear interest at rates that
are not fixed, but that vary with changes in prevailing
market rates on predesignated dates. The Fund may also
invest in variable or floating rate demand notes ("VRDNs"),
which carry a demand feature that permits the Fund to tender
the obligation back to the issuer or a third party at par
value plus accrued interest prior to maturity, according to
the terms of the obligations, which amount may be more or
less than the amount the Fund paid for such obligation.
Frequently, VRDNs are secured by letters of credit or other
credit support arrangements. Because of the demand feature,
the prices of VRDNs may be higher and the yields lower than
they otherwise would be for obligations without a demand
feature. The Fund will limit its purchase of municipal
securities that are floating rate and variable rate
obligations to those meeting the quality standards set forth
in this Prospectus.

The Fund may purchase and sell municipal securities on a
"when-issued" and "delayed delivery" basis. These
transactions are subject to market fluctuation, and the
value at delivery may be more or less than the purchase
price. Although the Fund will generally purchase municipal
securities on a when-issued basis with the intention of
acquiring such securities, it may sell such securities
before the settlement date if it is deemed advisable. When
the Fund is the buyer in such a transaction, it will
maintain, in a segregated account with its custodian, cash
or high-grade marketable securities having an aggregate
value equal to the amount of such purchase commitments,
until payment is made. To the extent the Fund engages in
when-issued and delayed delivery transactions, it will do so
for the purpose of acquiring securities for the Fund's
portfolio consistent with its investment objective and
policies and not for the purpose of investment leverage.

The Fund may also invest in municipal lease obligations,
primarily through Certificates of Participation ("COPs").
COPs, which are widely used by state and local governments
to finance the purchase of property, function much like
installment purchase agreements. For example, COPs may be
created when long-term lease revenue bonds are issued by a
governmental corporation to pay for the acquisition of
property or facilities which are then leased to a
municipality. The payments made by the municipality under
the lease are used to repay interest and principal on the
bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of
the property for a nominal sum. This lease format is
generally not subject to constitutional limitations on the
issuance of state debt, and COPs may enable a governmental
issuer to increase government liabilities beyond
constitutional debt limits.

While the risk of nonappropriation is inherent to COPs
financing, the Fund believes that this risk is mitigated by
its policy of investing only in COPs rated within the four
highest rating categories of Moody's, S&P or Fitch, or in
unrated COPs believed to be of comparable quality. Criteria
considered by the rating agencies and the investment manager
in assessing such risk include the issuing municipality's
credit rating, evaluation of how essential the leased
property is to the municipality and the term of the lease
compared to the useful life of the leased property. The
Board of Trustees reviews the COPs held in the Fund's
portfolio to assure that they constitute liquid investments
based on various factors reviewed by the investment manager
and monitored by the Board of Trustees. Such factors include
(a) the credit quality of such securities and the extent to
which they are rated or, if unrated, comply with existing
criteria and procedures followed to ensure that they are of
comparable quality to the rating required for Fund
investment, including an assessment of the likelihood that
the leases will not be canceled; (b) the size of the
municipal securities market, both in general and with
respect to COPs; and (c) the extent to which the type of
COPs held by the Fund trade on the same basis and with the
same degree of dealer participation as other municipal bonds
of comparable credit rating or quality. While there is no
limit as to the amount of assets which the Fund may invest
in COPs, as of February 28, 1995, the Fund held 14.02% of
the total face amount of the securities in its portfolio in
COPs and other municipal leases.

The Fund may purchase and hold callable municipal bonds
which contain a provision in the indenture permitting the
issuer to redeem the bonds prior to their maturity dates at
a specified price which typically reflects a premium over
the bonds' original issue price. These bonds generally have
call protection (that is, a period of time during which the
bonds may not be called) which usually lasts for five to ten
years, after which time such bonds may be called away. An
issuer may generally be expected to call its bonds, or a
portion of them, during periods of relatively declining
interest rates, when borrowings may be replaced at lower
rates than those obtained in prior years. If the proceeds of
a bond called under such circumstances are reinvested, the
result may be a lower overall yield due to lower current
interest rates. If the purchase price of such bonds included
a premium related to the appreciated value of the bonds,
some or all of that premium may not be recovered by
bondholders, such as the Fund, depending on the price at
which such bonds were redeemed. Notwithstanding the call
feature, any such investment would still be subject to the
policy whereby the Fund is required to maintain a dollar
weighted average portfolio maturity between three and ten
years.

Investment Risk Considerations

While an investment in the Fund is not without risk, certain
policies are followed in managing the Fund which may help to
reduce the investor's risk. There are two categories of
risks to which a Fund is subject: credit risk and market
risk. Credit risk is a function of the ability of an issuer
of a municipal security to maintain timely interest payments
and to pay the principal of a security upon maturity. It is
generally reflected in a security's underlying credit rating
and its stated interest rate (normally the coupon rate). A
change in the credit risk associated with a municipal
security may cause a corresponding change in the security's
price. Market risk is the risk of price fluctuation of a
municipal security caused by changes in economic and
interest rate conditions generally affecting the market as a
whole. A municipal security's maturity length also affects
its price. As with other debt instruments, the price of the
securities in which the Fund invests are likely to decrease
in times of rising interest rates. Conversely, when rates
fall, the value of the Fund's debt instruments may rise.
Price changes of securities held by the Fund have a direct
impact on the net asset value per share of the Fund.

As a non-diversified investment company, the Fund is not
subject to any statutory restriction under the 1940 Act with
respect to the concentration of its investments in the
assets of one or more issuers. This concentration may
present greater risks than in the case of a diversified
company. (See the SAI for the diversification requirements
the Fund intends to meet in order to qualify as a regulated
investment company under the Code.)

The Fund is subject to a number of additional investment
restrictions, some of which may be changed only with the
approval of shareholders, which limit its activities to some
extent. For a list of these restrictions and more
information concerning the policies discussed herein, please
see the SAI.

How Shareholders Participate in the Results of the Fund's
Activities

The assets of the Fund are invested in portfolio securities.
If the securities owned by the Fund increase in value, the
value of the shares of the Fund which the shareholder owns
will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also
decline. In this way, shareholders participate in any change
in the value of the securities owned by the Fund.

In addition to the factors which affect the value of
individual securities, as described in the preceding
sections, a shareholder may anticipate that the value of
Fund shares will fluctuate with movements in the broader
bond markets as well. In particular, changes in interest
rates will affect the value of the Fund's portfolio and thus
its share price. Increased interest rates, which frequently
accompany higher inflation and/or a growing economy, are
likely to have a negative effect on the value of Fund
shares. History reflects both increases and decreases in the
prevailing rate of interest and these may reoccur
unpredictably in the future.

Management of the Fund

The Board of Trustees has the primary responsibility for the
overall management of the Trust and for electing the
officers of the Trust who are responsible for administering
its day-to-day operations.

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as
the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a
publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr.,
who own approximately 20% and 16%, respectively, of
Resources' outstanding shares. Resources is engaged in
various aspects of the financial services industry through
its various subsidiaries (the "Franklin Templeton Group").
Advisers acts as investment manager or administrator to 34
U.S. registered investment companies (112 separate series)
with aggregate assets of over $75 billion, approximately $40
billion of which are in the municipal securities market.

Pursuant to a management agreement, the Manager supervises
and implements the Fund's investment activities and provides
certain administrative services and facilities which are
necessary to conduct the Fund's business.

During the fiscal year ended February 28, 1995, fees
totaling 0.63% of the average net assets of the Fund would
have accrued to Advisers. Total operating expenses,
including management fees, would have represented 0.84% of
the average net assets of the Fund. Pursuant to an agreement
by Advisers to limit its fees, the Fund paid management fees
totaling 0.35% of the average net assets of the Fund and
operating expenses totaling 0.56%.

It is not anticipated that the Fund will incur a significant
amount of brokerage expenses because municipal securities
are generally traded on a "net" basis, that is, in principal
transactions without the addition or deduction of brokerage
commissions or transfer taxes. In the event that the Fund
does participate in transactions involving brokerage
commissions, it is the Manager's responsibility to select
brokers through whom such transactions will be effected. The
Manager will try to obtain the best execution on all such
transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will
consider the furnishing of quotations and of other market
services, research, statistical and other data for the
Manager and its affiliates, as well as the sale of shares of
the Fund, as factors in selecting a broker. Further
information is included under "The Fund's Policies Regarding
Brokers Used on Portfolio Transactions" in the SAI.

Shareholder accounting and many of the clerical functions
for the Fund are performed by Franklin/Templeton Investor
Services, Inc. ("Investor Services" or "Shareholder Services
Agent"), in its capacity as transfer agent and dividend-
paying agent. Investor Services is a wholly-owned subsidiary
of Resources.

Plan of Distribution

The Fund has adopted a distribution plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan"). Under the Plan, the
Fund may reimburse Distributors or others for all expenses
incurred by Distributors or others in the promotion and
distribution of the Fund's shares. Such expenses may
include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses
of preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have
executed a servicing agreement with the Fund, Distributors
or its affiliates. The maximum amount which the Fund may pay
to Distributors or others for such distribution expenses is
0.10% per annum of the average daily net assets of the Fund,
payable on a quarterly basis. All expenses of distribution
and marketing in excess of 0.10% per annum will be borne by
Distributors or others who have incurred them, without
reimbursement from the Fund. The Plan also covers any
payments to or by the Fund, Advisers, Distributors, or other
parties on behalf of the Fund, Advisers or Distributors, to
the extent such payments are deemed to be for the financing
of any activity primarily intended to result in the sale of
shares issued by the Fund within the context of Rule 12b-1.
The payments under the Plan are included in the maximum
operating expenses which may be borne by the Fund. For more
information, please see the SAI.

Distributions to Shareholders

There are two types of distributions which the Fund may make
to its shareholders:

1. Income dividends. The Fund receives income in the form of
interest and other income derived from its investments. This
income, less the expenses incurred in the Fund's operations,
is its net investment income from which income dividends may
be distributed. Thus, the amount of dividends paid per share
may vary with each distribution.

2. Capital gain distributions. The Fund may derive capital
gains or losses in connection with sales or other
dispositions of its portfolio securities. Distributions by
the Fund derived from net short-term and net long-term
capital gains (after taking into account any net capital
loss carryovers) may generally be made twice each year. One
distribution may be made in December to reflect any net
short-term and net long-term capital gains realized by the
Fund as of October 31 of such year. Any net short-term and
net long-term capital gains realized by the Fund during the
remainder of the fiscal year may be distributed following
the end of the fiscal year. These distributions, when made,
will generally be fully taxable to the Fund's shareholders.
The Fund may make more than one distribution derived from
net short-term and net long-term capital gains in any year
or adjust the timing of its distributions for operational or
other reasons.

Distribution Date

Although subject to change by the Board of Trustees without
prior notice to or approval by shareholders, the Fund's
current policy is to declare income dividends daily and pay
them monthly on or about the last business day of that
month. The amount of income dividend payments by the Fund is
dependent upon the amount of net income received by the Fund
from its portfolio holdings, is not guaranteed and is
subject to the discretion of the Board of Trustees. The Fund
does not pay "interest" or guarantee any fixed rate of
return on an investment in its shares.

Dividend Reinvestment

Unless otherwise requested, income dividends and capital
gain distributions, if any, will be automatically reinvested
in the shareholder's account in the form of additional
shares, valued at the closing net asset value (without sales
charge) on the dividend reinvestment date. Shareholders have
the right to change their election with respect to the
receipt of distributions by notifying the Fund, but any such
change will be effective only as to distributions for which
the reinvestment date is seven or more business days after
the Fund has been notified. See the SAI for more
information.

Many of the Fund's shareholders receive their distributions
in the form of additional shares. This is a convenient way
to accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so
acquired remain at market risk.

Distributions in Cash

A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application
included with this Prospectus, a shareholder may direct the
selected distributions to another fund in the Franklin Group
of Funds(Registered Trademark) or the Templeton Group, to
another person, or directly to a checking account. If the
bank at which the account is maintained is a member of the
Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last
option is requested, the shareholder should allow at least
15 days for initial processing. Dividends which may be paid
in the interim will be sent to the address of record.
Additional information regarding automated fund transfers
may be obtained from Franklin's Shareholder Services
Department. Dividend and capital gain distributions are
eligible for investment in another fund in the Franklin
Group of Funds or the Templeton Group at net asset value.
See "Purchases at Net Asset Value" under "How to Buy Shares
of the Fund."

Taxation of the Fund and Its Shareholders

The following discussion reflects some of the tax
considerations that affect mutual funds and their
shareholders. Additional information on tax matters relating
to the Fund and its shareholders is included in the section
entitled "Additional Information Regarding Taxation" in the
SAI.

Each series of the Trust is treated as a separate entity for
federal income tax purposes. The Fund intends to continue to
qualify for treatment as a regulated investment company
under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to
the sources of its income and diversification of its assets,
the Fund will not be liable for federal income or excise
taxes.

By meeting certain requirements of the Code, the Fund will
continue to qualify to pay exempt-interest dividends to its
shareholders. Such exempt-interest dividends are derived
from interest income exempt from regular federal income tax,
and are not subject to regular federal income tax for Fund
shareholders. In addition, to the extent that exempt-
interest dividends are derived from interest on obligations
of the state of residence of the shareholder or such state's
political subdivisions, from interest on direct obligations
of the federal government, or from interest on U.S.
territorial obligations (including Puerto Rico, the U.S.
Virgin Islands or Guam), they may be exempt from personal
income tax in such state.

To the extent dividends are derived from taxable income from
temporary investments (including the discount from certain
stripped obligations or their coupons or income from
securities loans or other taxable transactions), from the
excess of net short-term capital gain over net long-term
capital loss, or from ordinary income derived from the sale
or disposition of bonds purchased with market discount after
April 30, 1993, they are treated as ordinary income whether
the shareholder has elected to receive them in cash or in
additional shares.

From time to time, the Fund may purchase a tax-exempt
obligation with market discount; that is, for a price that
is less than the principal amount of the bond, or for a
price that is less than the principal amount of the bond
where the bond was issued with original issue discount, and
such market discount exceeds a de minimis amount. For such
obligations purchased after April 30, 1993, a portion of the
gain (not to exceed the accrued portion of market discount
as of the time of sale or disposition) is treated as
ordinary income rather than capital gain. Any distribution
by the Fund of such ordinary income to its shareholders will
be subject to regular income tax in the hands of Fund
shareholders. In any fiscal year, the Fund may elect not to
distribute to its shareholders its taxable ordinary income
and, instead, to pay federal income or excise taxes on this
income at the Fund level. The amount of such distributions,
if any, is expected to be small.

Pursuant to the Code, certain distributions which are
declared in October, November or December but which, for
operational reasons, may not be paid to the shareholder
until the following January will be treated, for tax
purposes, as if paid by the Fund and received by the
shareholder on December 31 of the calendar year in which
they are declared.

Distributions derived from the excess of net long-term
capital gain over net short-term capital loss are treated as
long-term capital gain regardless of the length of time a
shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional
shares.

Redemptions and exchanges of Fund shares are taxable events
on which a shareholder may realize a gain or loss. Any loss
incurred on the sale or exchange of Fund shares, held for
six months or less, will be treated as a long-term capital
loss to the extent of capital gain dividends received with
respect to such shares.

Since the Fund's income is derived from interest income and
gain on the sale of portfolio securities rather than
dividend income, no portion of the Fund's distributions will
generally be eligible for the corporate dividends-received
deduction. None of the distributions paid by the Fund for
the fiscal year ended February 28, 1995 qualified for this
deduction and it is not anticipated that any of the current
year's dividends will so qualify.

The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid and
will, promptly after the close of each calendar year, advise
them of the tax status for federal income tax purposes of
such dividends and distributions, including the portion of
the dividends on an average basis which constitutes taxable
income or interest income that is a tax preference item
under the alternative minimum tax. Shareholders who have not
held shares of the Fund for a full calendar year may have
designated as tax-exempt or as tax preference income a
percentage of income which is not equal to the actual amount
of tax-exempt or tax preference income earned during the
period of their investment in the Fund.

Exempt-interest dividends of the Fund, although exempt from
regular federal income tax in the hands of a shareholder,
are includible in the tax base for determining the extent to
which a shareholder's social security or railroad retirement
benefits will be subject to federal income tax. Shareholders
are required to disclose the receipt of tax-exempt interest
on their federal income tax returns.

Interest on indebtedness incurred (directly or indirectly)
by shareholders to purchase or carry Fund shares will not be
deductible for federal income tax purposes.

Shareholders should consult their tax advisors with respect
to the applicability of state and local intangible property
or income taxes to their shares in the Fund and to
distributions and redemption proceeds received from the
Fund. For example, distributions attributable to interest
received from, or capital gain derived from the disposition
of, obligations of a given state or its political
subdivisions may be exempt from income taxes in that state.

Shareholders who are not U.S. persons for purposes of
federal income taxation should consult with their financial
or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions received by them
from the Fund and the application of foreign tax laws to
these distributions.

How to Buy Shares of the Fund

Shares of the Fund are continuously offered through
securities dealers which execute an agreement with
Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall
include other financial institutions which, pursuant to an
agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with the
Fund. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity. The
minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be
waived when the shares are purchased through plans
established by the Franklin Templeton Group. The Fund and
Distributors reserve the right to refuse any order for the
purchase of shares. The Fund currently does not permit
investment by market timing or allocation services ("Timing
Accounts"), which generally include accounts administered so
as to redeem or purchase shares based upon certain
predetermined market indicators.

Purchase Price of Fund Shares

Shares of the Fund are offered at the public offering price,
which is the net asset value per share plus a sales charge,
next computed (1) after the shareholder's securities dealer
receives the order which is promptly transmitted to the Fund
or (2) after receipt of an order by mail from the
shareholder directly in proper form (which generally means a
completed Shareholder Application accompanied by a
negotiable check). The sales charge is a variable percentage
of the offering price depending upon the amount of the sale.
The offering price will be calculated to two decimal places
using standard rounding criteria. A description of the
method of calculating net asset value per share is included
under "Valuation of Fund Shares."

Set forth below is a table of total sales charges or
underwriting commissions and dealer concessions.

Total Sales Charge

Size of Dealer Concession
Transaction As a Percentage As a Percentage As a Percentage of
at Offering of Offering of Net Amount Offering
Price Price Invested Price*,***

Less than 2.25% 2.30% 2.00%
$100,000
$100,000 but 1.75% 1.78% 1.50%
less than
250,000
$250,000 but 1.25% 1.26% 1.00%
less than
500,000
$500,000 but 1.00% 1.01% 0.85%
less than
1,000,000
$1,000,000 none none (see below)**
or more

*Financial institutions or their affiliated brokers may
receive an agency transaction fee in the percentages set
forth above.

**The following commissions will be paid by Distributors,
out of its own resources, to securities dealers who initiate
and are responsible for purchases of $1 million or more:
0.75% on sales of $1 million but less than $2 million, plus
0.60% on sales of $2 million but less than $3 million, plus
0.50% on sales of $3 million but less than $50 million, plus
0.25% on sales of $50 million but less than $100 million,
plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for
purposes of additional purchases.

***At the discretion of Distributors, all sales charges may
at times be allowed to the securities dealer. If 90% or more
of the sales commission is allowed, such securities dealer
may be deemed an underwriter as that term is defined in the
Securities Act of 1933, as amended.

No front-end sales charge applies on investments of $1
million or more, but a contingent deferred sales charge of
1% is imposed on certain redemptions of all or a portion of
an investment of $1 million or more within 12 months of the
calendar month following such investment. See "How to Sell
Shares of the Fund - Contingent Deferred Sales Charge."

The size of a transaction which determines the applicable
sales charge on the purchase of Fund shares is determined by
adding the amount of the shareholder's current purchase plus
the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the
funds in the Franklin Group of Funds(Registered Trademark)
and the Templeton Group of Funds. Included for these
aggregation purposes are (a) the mutual funds in the
Franklin Group of Funds except Franklin Valuemark Funds and
Franklin Government Securities Trust (the "Franklin Funds"),
(b) other investment products underwritten by Distributors
or its affiliates (although certain investments may not have
the same schedule of sales charges and/or may not be subject
to reduction), and (c) the U.S. mutual funds in the
Templeton Group of Funds except Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton
Funds"). (Franklin Funds and Templeton Funds are
collectively referred to as the "Franklin Templeton Funds.")
Sales charge reductions based upon aggregate holdings of
(a), (b) and (c) above ("Franklin Templeton Investments")
may be effective only after notification to Distributors
that the investment qualifies for a discount.

Distributors, or one of its affiliates, may make payments,
out of its own resources, of up to 1% of the amount
purchased to securities dealers who initiate and are
responsible for purchases made at net asset value by certain
trust companies and trust departments of banks. See
"Description of Special Net Asset Value Purchases" and the
SAI.

Distributors or one of its affiliates, out of its own
resources, may also provide additional compensation to
dealers in connection with sales of shares of the Fund and
other funds in the Franklin Templeton Funds. Compensation
may include financial assistance to securities dealers in
connection with conferences, sales or training programs for
their employees, seminars for the public, advertising, sales
campaigns and/or shareholder services and programs regarding
the Franklin Templeton Funds and other dealer-sponsored
programs or events. In some instances, this compensation may
be made available only to certain securities dealers whose
representatives have sold or are expected to sell
significant amounts of shares of the Franklin Templeton
Funds. Compensation may include payment for travel expenses,
including lodging, incurred in connection with trips taken
by invited registered representatives and members of their
families to locations within or outside of the United States
for meetings or seminars of a business nature. Dealers may
not use sales of the Fund's shares to qualify for this
compensation to the extent such may be prohibited by the
laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the
aforementioned additional compensation is paid for by the
Fund or its shareholders.

Certain officers and trustees of the Trust are also
affiliated with Distributors. A detailed description is
included in the SAI.

Quantity Discounts in Sales Charges

Shares may be purchased under a variety of plans which
provide for a reduced sales charge. To be certain to obtain
the reduction of the sales charge, the investor or the
securities dealer should notify Distributors at the time of
each purchase of shares which qualifies for the reduction.
In determining whether a purchase qualifies for any of the
discounts, investments in any Franklin Templeton Investments
may be combined with those of the investor's spouse and
children under the age of 21. In addition, the aggregate
investments of a trustee or other fiduciary account (for an
account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is
available, even though there may be a number of
beneficiaries of the account.

In addition, an investment in the Fund may qualify for a
reduction in the sales charge under the following programs:

1. Rights of Accumulation. The cost or current value
(whichever is higher) of existing investments in the
Franklin Templeton Investments may be combined with the
amount of the current purchase in determining the sales
charge to be paid.

2. Letter of Intent. An investor may immediately qualify for
a reduced sales charge on a purchase of shares of the Fund
by completing the Letter of Intent section of the
Shareholder Application (the "Letter of Intent" or
"Letter"). By completing the Letter, the investor expresses
an intention to invest, during the next 13 months, a
specified amount which, if made at one time, would qualify
for a reduced sales charge, grants to Distributors a
security interest in the reserved shares and irrevocably
appoints Distributors as attorney-in-fact with full power of
substitution to surrender for redemption any or all shares
for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the
requirements of Rule 22d-1 under the 1940 Act. The investor
or the investor's securities dealer must inform Investor
Services or Distributors that this Letter is in effect each
time a purchase is made.

An investor acknowledges and agrees to the following
provisions by completing the Letter of Intent section of the
Shareholder Application: Five percent (5%) of the amount of
the total intended purchase will be reserved in shares of
the Fund, registered in the investor's name, to assure that
the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will
be included in the total shares owned as reflected on
periodic statements, and income and capital gain
distributions on the reserved shares will be paid as
directed by the investor. The reserved shares will not be
available for disposal by the investor until the Letter of
Intent has been completed or the higher sales charge paid.
For more information, see "Additional Information Regarding
Fund Shares" in the SAI.

Group Purchases

An individual who is a member of a qualified group may also
purchase shares of the Fund at the reduced sales charge
applicable to the group as a whole. The sales charge is
based upon the aggregate dollar value of shares previously
purchased and still owned by the group, plus the amount of
the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Fund
shares and now were investing $25,000, the sales charge
would be 1.75%. Information concerning the current sales
charge applicable to a group may be obtained by contacting
Distributors.

A "qualified group" is one which (i) has been in existence
for more than six months, (ii) has a purpose other than
acquiring Fund shares at a discount, and (iii) satisfies
uniform criteria which enable Distributors to realize
economies of scale in its costs of distributing shares. A
qualified group must have more than 10 members, be available
to arrange for group meetings between representatives of the
Fund or Distributors and the members, agree to include sales
and other materials related to the Fund in its publications
and mailings to members at reduced or no cost to
Distributors, and seek to arrange for payroll deduction or
other bulk transmission of investments to the Fund.

If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such
time as the investor notifies the Fund and the investor's
employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the
payroll deduction information to the Fund, there may be a
delay between the time of the payroll deduction and the time
the money reaches the Fund. The investment in the Fund will
be made at the offering price per share determined on the
day that both the check and payroll deduction data are
received in required form by the Fund.

Purchases at Net Asset Value

Shares of the Fund may be purchased without the imposition
of either a front-end sales charge ("net asset value") or
contingent deferred sales charge by (1) officers, directors,
trustees and full-time employees of the Trust, any of the
Franklin Templeton Funds, or of the Franklin Templeton
Group, and by their spouses and family members, including
subsequent payments made by such parties after cessation of
employment; (2) companies exchanging shares or selling
assets pursuant to a merger, acquisition or exchange offer;
(3) accounts managed by the Franklin Templeton Group: (4)
registered securities dealers and their affiliates, for
their investment account only; and (5) registered personnel
and employees of securities dealers and by their spouses and
family members, in accordance with the internal policies and
procedures of the employing securities dealer.

Shares of the Fund may be purchased at net asset value by
persons who have redeemed, within the previous 120 days,
their shares of the Fund or another of the Franklin
Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on
redemption. An investor may reinvest an amount not exceeding
the redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed
and subsequently repurchased, a new contingency period will
begin. Shares of the Fund redeemed in connection with an
exchange into another fund (see "Exchange Privilege") are
not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of
shares of the Fund must be received by the Fund or the
Fund's Shareholder Services Agent within 120 days after the
redemption. The 120 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a
Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset
value may also be handled by a securities dealer or other
financial institution, who may charge the shareholder a fee
for this service. The redemption is a taxable transaction
but reinvestment without a sales charge may affect the
amount of gain or loss recognized and the tax basis of the
shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in
the same fund is made within a 30-day period. Information
regarding the possible tax consequences of such a
reinvestment is included in the tax section of this
Prospectus and the SAI.

Shares of the Fund or another of the Franklin Templeton
Funds may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by persons
who have received dividends and capital gain distributions
in cash from investments in the Fund within 120 days of the
payment date of such distribution. To exercise this
privilege, a written request to reinvest the distribution
must accompany the purchase order. Additional information
may be obtained from Shareholder Services at 1-800/632-2301.
See "Distributions in Cash" under "Distributions to
Shareholders."

Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by investors who have, within the past 60 days, redeemed an
investment in a mutual fund which is not part of the
Franklin Templeton Funds, which charged the investor a
contingent deferred sales charge upon redemption and which
has an investment objective similar to that of the Fund.

Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by broker-dealers who have entered into a supplemental
agreement with Distributors, or by registered investment
advisers affiliated with such broker-dealers, on behalf of
their clients who are participating in a comprehensive fee
program (sometimes known as a wrap fee program).

Shares of the Fund may also be purchased at net asset value
and without the imposition of a contingent deferred sales
charge by any state, county, or city, or any
instrumentality, department, authority or agency thereof
which has determined that the Fund is a legally permissible
investment and which is prohibited by applicable investment
laws from paying a sales charge or commission in connection
with the purchase of shares of any registered management
investment company (an "eligible governmental authority").
SUCH INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND
CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal investors
considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or its
investment manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net
asset value is made through a securities dealer who has
executed a dealer agreement with Distributors, Distributors
or one of its affiliates may make a payment, out of its own
resources, to such securities dealer in an amount not to
exceed 0.25% of the amount invested. Contact Franklin's
Institutional Sales Department for additional information.

Description of Special Net Asset Value Purchases

Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by trust companies and bank trust departments for funds over
which they exercise exclusive discretionary investment
authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are
subject to minimum requirements with respect to amount of
purchase, which may be established by Distributors.
Currently, those criteria require that the amount invested
or to be invested during the subsequent 13-month period in
the Fund or any of the Franklin Templeton Investments must
total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the
bank or trust company, with payment by federal funds
received by the close of business on the next business day
following such order.

Refer to the SAI for further information.

General

Securities laws of states in which the Fund's shares are
offered for sale may differ from the interpretations of
federal law, and banks and financial institutions selling
Fund shares may be required to register as securities
dealers pursuant to state law.

Other Programs and Privileges Available to Fund Shareholders

Certain of the programs and privileges described in this
section may not be available directly from the Fund to
shareholders whose shares are held, of record, by a
financial institution or in a "street name" account or
networked account through the National Securities Clearing
Corporation ("NSCC") (see the section captioned "Account
Registrations" in this Prospectus).

Share Certificates

Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and
capital gain distributions, are generally credited to an
account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining
shares in uncertificated form (also known as "plan balance")
minimizes the risk of loss or theft of a share certificate.
A lost, stolen or destroyed certificate cannot be replaced
without obtaining a sufficient indemnity bond. The cost of
such a bond, which is generally borne by the shareholder,
can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if
requested in writing by the shareholder or by the securities
dealer.

Confirmations

A confirmation statement will be sent to each shareholder
quarterly to reflect the dividends reinvested during that
period and after each other transaction which affects the
shareholder's account. This statement will also show the
total number of shares owned by the shareholder, including
the number of shares in plan balance for the account of the
shareholder.

Automatic Investment Plan

Under the Automatic Investment Plan, a shareholder may be
able to arrange to make additional purchases of shares
automatically on a monthly basis by electronic funds
transfer from a checking account, if the bank which
maintains the account is a member of the Automated Clearing
House, or by preauthorized checks drawn on the shareholder's
bank account. A shareholder may, of course, terminate the
program at any time. The Automatic Investment Plan
Application included with this Prospectus contains the
requirements applicable to this program. In addition,
shareholders may obtain more information concerning this
program from their securities dealer or from Distributors.

The market value of the Fund's shares is subject to
fluctuation. Before undertaking any plan for systematic
investment, the investor should keep in mind that such a
program does not assure a profit or protect against a loss.

Systematic Withdrawal Plan

A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided
that the net asset value of the shares held by the
shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal
Plan. The minimum amount which the shareholder may withdraw
is $50 per withdrawal transaction, although this is merely
the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. The plan may be
established on a monthly, quarterly, semiannual or annual
basis. If the shareholder establishes a plan, any capital
gain distributions and income dividends paid by the Fund
will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be
made from the liquidation of shares at net asset value on
the day of the transaction (which is generally the first
business day of the month in which the payment is scheduled)
with payment generally received by the shareholder three to
five days after the date of liquidation. By completing the
"Special Payment Instructions for Distributions" section of
the Shareholder Application included with this Prospectus, a
shareholder may direct the selected withdrawals to another
of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the
account is maintained is a member of the Automated Clearing
House, the payments may be made automatically by electronic
funds transfer. If this last option is requested, the
shareholder should allow at least 15 days for initial
processing. Withdrawals which may be paid in the interim
will be sent to the address of record. Liquidation of shares
may reduce or possibly exhaust the shares in the
shareholder's account, to the extent withdrawals exceed
shares earned through dividends and distributions,
particularly in the event of a market decline. If the
withdrawal amount exceeds the total plan balance, the
account will be closed and the remaining balance will be
sent to the shareholder. As with other redemptions, a
liquidation to make a withdrawal payment is a sale for
federal income tax purposes. Because the amount withdrawn
under the plan may be more than the shareholder's actual
yield or income, part of the payment may be a return of the
shareholder's investment.

The maintenance of a Systematic Withdrawal Plan concurrently
with purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the
additional purchases. The shareholder should ordinarily not
make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time
such a plan is in effect. A Systematic Withdrawal Plan may
be terminated on written notice by the shareholder or the
Fund, and it will terminate automatically if all shares are
liquidated or withdrawn from the account, or upon the Fund's
receipt of notification of the death or incapacity of the
shareholder. Shareholders may change the amount (but not
below the specified minimum) and schedule of withdrawal
payments, or suspend one such payment, by giving written
notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.

Institutional Accounts

There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.

Exchange Privilege

The Franklin Templeton Funds consist of a number of mutual
funds with various investment objectives and policies. The
shares of most of these mutual funds are offered to the
public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes,
Fund shares may be exchanged for shares of other Franklin
Templeton Funds which are eligible for sale in the
shareholder's state of residence and in conformity with such
fund's stated eligibility requirements and investment
minimums. Investors should review the prospectus of the fund
they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations
on exercising the exchange privilege, for example, minimum
holding periods or applicable sales charges. Exchanges may
be made in any of the following ways:

Exchanges By Mail

Send written instructions signed by all account owners and
accompanied by any outstanding share certificates properly
endorsed. The transaction will be effective upon receipt of
the written instructions together with any outstanding share
certificates.

Exchanges By Telephone

Shareholders, or their investment representative of record,
if any, may exchange shares of the Fund by telephone by
calling Investor Services at 1-800/632-2301 or the automated
Franklin TeleFACTS(Registered Trademark) system (day or
night) at 1-800/247-1753. If the shareholder does not wish
this privilege extended to a particular account, the Fund or
Investor Services should be notified.

The telephone exchange privilege allows a shareholder to
effect exchanges from the Fund into an identically
registered account in one of the other available Franklin
Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The
Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. Please refer to "Telephone Transactions -
Verification Procedures."

During periods of drastic economic or market changes, it is
possible that the telephone exchange privilege may be
difficult to implement and the TeleFACTS option may not be
available. In this event, shareholders should follow the
other exchange procedures discussed in this section,
including the procedures for processing exchanges through
securities dealers.

Exchanges Through Securities Dealers

As is the case with all purchases and redemptions of the
Fund's shares, Investor Services will accept exchange orders
by telephone or by other means of electronic transmission
from securities dealers who execute a dealer or similar
agreement with Distributors. See also "Exchanges By
Telephone" above. Such a dealer-ordered exchange will be
effective only for uncertificated shares on deposit in the
shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a
fee for handling an exchange.

Additional Information Regarding Exchanges

A contingent deferred sales charge will not be imposed on
exchanges. If, however, the exchanged shares were subject to
a contingent deferred sales charge in the original fund
purchased, and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will
be imposed. The contingency period will be tolled (or
stopped) for the period such shares are exchanged into and
held in a Franklin or Templeton money market fund. See also
"How to Sell Shares of the Fund - Contingent Deferred Sales
Charge."

Exchanges are made on the basis of the net asset values of
the funds involved, except as set forth below. Exchanges of
shares of the Fund which were purchased without a sales
charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless
the investment on which no sales charge was paid was
transferred in from a fund on which the investor paid a
sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a
higher sales charge will be charged the difference, unless
the shares were held in the Fund for at least six months
prior to executing the exchange. When an investor requests
the exchange of the total value of the Fund account, accrued
but unpaid income dividends and capital gain distributions
will be reinvested in the Fund at the net asset value on the
date of the exchange, and then the entire share balance will
be exchanged into the new fund in accordance with the
procedures set forth above. Because the exchange is
considered a redemption and purchase of shares, the
shareholder may realize a gain or loss for federal income
tax purposes. Backup withholding and information reporting
may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax
section in this Prospectus and in the SAI.

There are differences among the Franklin Templeton Funds.
Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the
shareholder wishes to transfer.

If a substantial portion of the Fund's shareholders should,
within a short period, elect to redeem their shares of the
Fund pursuant to the exchange privilege, the Fund might have
to liquidate portfolio securities it might otherwise hold
and incur the additional costs related to such transactions.
On the other hand, increased use of the exchange privilege
may result in periodic large inflows of money. If this
should occur, it is the general policy of the Fund to
initially invest this money in short-term, tax-exempt
municipal securities, unless it is felt that attractive
investment opportunities consistent with the Fund's
investment objective exist immediately. Subsequently, this
money will be withdrawn from such short-term, tax-exempt
municipal securities and invested in portfolio securities in
as orderly a manner as is possible when attractive
investment opportunities arise.

The exchange privilege may be modified or discontinued by
the Fund at any time upon 60 days' written notice to
shareholders.

The Fund currently will not accept investments from Timing
Accounts.

How to Sell Shares of the Fund

A shareholder may at any time liquidate shares owned and
receive from the Fund the value of the shares. Shares may be
redeemed in any of the following ways:

Redemptions By Mail

Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of
this Prospectus, and any share certificates which have been
issued for the shares being redeemed, properly endorsed and
in order for transfer. The shareholder will then receive
from the Fund the value of the shares based upon the net
asset value per share next computed after the written
request in proper form is received by Investor Services.
Redemption requests received after the time at which the net
asset value is calculated, after the scheduled close of the
New York Stock Exchange (the "Exchange"), (generally 1:00
p.m. Pacific time) on each day that the Exchange is open for
business will receive the price calculated on the following
business day. Shareholders are requested to provide a
telephone number(s) where they may be reached during
business hours, or in the evening if preferred. Investor
Services' ability to contact a shareholder promptly when
necessary will speed the processing of the redemption.

To be considered in proper form, signatures must be
guaranteed if the redemption request involves any of the
following:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone
other than the registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to any
address other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;

(4) share certificates, if the redemption proceeds are in
excess of $50,000; or

(5) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on
the transfer instructions, including, for example, when (a)
the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c)
the Fund has been notified of an adverse claim, (d) the
instructions received by the Fund are given by an agent, not
the actual registered owner, (e) the Fund determines that
joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the
authority of a representative of a corporation, partnership,
association, or other entity has not been established to the
satisfaction of the Fund.

Signatures must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the
Securities Exchange Act of 1934. Generally, eligible
guarantor institutions include (1) national or state banks,
savings associations, savings and loan associations, trust
companies, savings banks, industrial loan companies and
credit unions; (2) national securities exchanges, registered
securities associations and clearing agencies; (3)
securities dealers which are members of a national
securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature guarantee
medallion program. A notarized signature will not be
sufficient for the request to be in proper form.

Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied
by the share certificate and a share assignment form signed
by the registered shareholders exactly as the account is
registered, with the signatures guaranteed as referenced
above. Shareholders are advised, for their own protection,
to send the share certificate and assignment form in
separate envelopes if they are being mailed in for
redemption.

Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court
jurisdiction require the following documentation to be in
proper form:

Corporation - (1) Signature guaranteed letter of instruction
from the authorized officers of the corporation and (2) a
corporate resolution.

Partnership - (1) Signature guaranteed letter of instruction
from a general partner and (2) pertinent pages from the
partnership agreement identifying the general partners or a
certification for a partnership agreement.

Trust - (1) Signature guaranteed letter of instruction from
the trustees and (2) a copy of the pertinent pages of the
trust document listing the trustees or a Certification for
Trust if the trustees are not listed on the account
registration.

Custodial - Signature guaranteed letter of instruction from
the custodian.

Accounts under court jurisdiction - Check court documents
and the applicable state law since these accounts have
varying requirements, depending upon the state of residence.

Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper
form.

Redemptions By Telephone

Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"),
included with this Prospectus, may redeem shares of the Fund
by telephone. Information may be obtained by writing to the
Fund or Investor Services at the address shown on the cover
or by calling 1-800/632-2301. The Fund and Investor Services
will employ reasonable procedures to confirm that
instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described
under "Telephone Transactions - Verification Procedures."

For shareholder accounts with a completed Agreement on file,
redemptions of uncertificated shares or shares which have
previously been deposited with the Fund or Investor Services
may be made for up to $50,000 per day per Fund account.
Telephone redemption requests received before the scheduled
close of the Exchange on any business day will be processed
that same day. The redemption check will be sent within
seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within
30 days following an address change by telephone. In that
case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional
accounts (certain corporations, bank trust departments and
government entities which qualify to purchase shares at net
asset value pursuant to the terms of this Prospectus) which
wish to execute redemptions in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement
which is available from Franklin's Institutional Services
Department by telephoning 1-800/321-8563.

Redeeming Shares Through Securities Dealers

The Fund will accept redemption orders by telephone or other
means of electronic transmission from securities dealers who
have entered into a dealer or similar agreement with
Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is
that if the shareholder redeems shares through a securities
dealer, the redemption price will be the net asset value
next calculated after the shareholder's securities dealer
receives the order which is promptly transmitted to the
Fund, rather than on the day the Fund receives the
shareholder's written request in proper form. These
documents, as described in the preceding section, are
required even if the shareholder's securities dealer has
placed the repurchase order. After receipt of a repurchase
order from the securities dealer, the Fund will still
require a signed letter of instruction and all other
documents set forth above. A shareholder's letter should
reference the Fund, the account number, the fact that the
repurchase was ordered by a securities dealer and the
securities dealer's name. Details of the dealer-ordered
trade, such as trade date, confirmation number, and the
amount of shares or dollars, will help speed processing of
the redemption. The seven-day period within which the
proceeds of the shareholder's redemption will be sent will
begin when the Fund receives all documents required to
complete ("settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest
during the time between receipt of the securities dealer's
repurchase order and the date the redemption is processed
upon receipt of all documents necessary to settle the
repurchase. Thus, it is in a shareholder's best interest to
have the required documentation completed and forwarded to
the Fund as soon as possible. The shareholder's securities
dealer may charge a fee for handling the order. The SAI
contains more information on the redemption of shares.

Contingent Deferred Sales Charge

In order to recover commissions paid to securities dealers
on investments of $1 million or more, a contingent deferred
sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of
the calendar month following their purchase. The charge is
1% of the lesser of the value of the shares redeemed
(exclusive of reinvested dividends and capital gain
distributions) or the total cost of such shares, and is
retained by Distributors. In determining if a charge
applies, shares not subject to a contingent deferred sales
charge are deemed to be redeemed first, in the following
order: (i) shares representing amounts attributable to
capital appreciation of those shares held less than 12
months; (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held
longer than 12 months; and followed by any shares held less
than 12 months, on a "first in, first out" basis.

The contingent deferred sales charge is waived for:
exchanges; any account fees; redemptions through a
Systematic Withdrawal Plan set up prior to February 1, 1995
and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset
value (3% quarterly, 6% semiannually or 12% annually);
redemptions initiated by the Fund due to a shareholder's
account falling below the minimum specified account size;
and redemptions following the death of the shareholder or
the beneficial owner.

Requests for redemptions for a specified dollar amount will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests
for redemption of a specific number of shares will result in
the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.

Additional Information Regarding Redemptions

The Fund may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these
checks will also be held pending clearance. Shares purchased
by federal funds wire are available for immediate
redemption. In addition, the right of redemption may be
suspended or the date of payment postponed if the Exchange
is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it,
by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount invested
by the shareholder, depending on fluctuations in the market
value of securities owned by the Fund.

Other

For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services
Department or the securities dealer may call Franklin's
Dealer Services Department.

Telephone Transactions

Shareholders of the Fund and their investment representative
of record, if any, may be able to execute various
transactions by calling Investor Services at 1-800/632-2301.

All shareholders will be able to: (i) effect a change in
address, (ii) change a dividend option, (iii) transfer Fund
shares in one account to another identically registered
account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition,
shareholders who complete and file the Agreement as
described under "How to Sell Shares of the Fund -Redemptions
By Telephone" will be able to redeem shares of the Fund.

Verification Procedures

The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine. These will include: recording all
telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or
account information requested by the telephone service agent
at the time of the call for the purpose of establishing the
caller's identification, and sending a confirmation
statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as the
Fund and Investor Services follow instructions communicated
by telephone which were reasonably believed to be genuine at
the time of their receipt, neither they nor their affiliates
will be liable for any loss to the shareholder caused by an
unauthorized transaction. The Fund and Investor Services may
be liable for any losses due to unauthorized or fraudulent
instructions only if such reasonable procedures are not
followed. Shareholders are, of course, under no obligation
to apply for or accept telephone transaction privileges. In
any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone
are genuine, the requested transaction will not be executed,
and neither the Fund nor Investor Services will be liable
for any losses which may occur because of a delay in
implementing a transaction.

General

During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In
such situations, shareholders may wish to contact their
investment representative for assistance, or to send written
instructions to the Fund as detailed elsewhere in this
Prospectus.

Neither the Fund nor Investor Services will be liable for
any losses resulting from the inability of a shareholder to
execute a telephone transaction.

The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written
notice to shareholders.

Valuation of Fund Shares

The net asset value per share of the Fund is determined as
of the scheduled close of the Exchange (generally 1:00 p.m.
Pacific time) each day that the Exchange is open for
trading. Many newspapers carry daily quotations of the prior
trading day's closing "bid" (net asset value) and "ask"
(offering price, which includes the maximum front-end sales
charge of the Fund).

The net asset value per share of the Fund is determined in
the following manner: The aggregate of all liabilities,
accrued expenses and taxes and any necessary reserves, is
deducted from the aggregate gross value of all assets, and
the difference is divided by the number of shares of the
Fund outstanding at the time. For the purpose of determining
the aggregate net assets of the Fund, cash and receivables
are valued at their realizable amounts. Interest is recorded
as accrued. Portfolio securities for which market quotations
are readily available are valued within the range of the
most recent bid and ask prices as obtained from one or more
dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the
broadest and most representative market as determined by the
Manager. Municipal securities generally trade in the over-
the-counter market rather than on a securities exchange.
Other securities for which market quotations are readily
available are valued at the current market price, which may
be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading
in similar types of securities (considering yield, risk and
maturity) and/or developments related to specific issues.
Securities and other assets for which market prices are not
readily available are valued at fair value as determined
following procedures approved by the Board of Trustees. With
the approval of trustees, the Fund may utilize a pricing
service, bank or securities dealer to perform any of the
above described functions.

How to Get Information Regarding an Investment in the Fund

Any questions or communications regarding a shareholder's
account should be directed to Investor Services at the
address shown on the back cover of this Prospectus.

From a touch-tone phone, shareholders may access an
automated system (day or night) which offers the following
features. By calling the Franklin TeleFACTS(Registered
Trademark) system at 1-800/247-1753, shareholders may obtain
current price, yield or other performance information
specific to a Franklin fund; process an exchange into an
identically registered Franklin account; obtain account
information and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit
slips. Share prices and account information specific to a
Templeton fund may also be accessed on TeleFACTS by Franklin
shareholders. Information about the Fund may be accessed by
entering Fund Code 74 followed by the # sign, when requested
to do so by the automated operator. The system's automated
operator will prompt the caller with easy to follow step-by-
step instructions from the main menu. Other features may be
added in the future.

To assist shareholders and securities dealers wishing to
speak directly with a representative, the following is a
list of the various Franklin departments, telephone numbers
and hours of operation to call. The same numbers may be used
when calling from a rotary phone:

Hours of
Department Name Telephone No. Operation(Pacific Time)
(Monday through Friday)
Shareholder 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Services
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.,
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing 1-800/851-0637 6:00 a.m. to 5:00 p.m.
impaired)

In order to ensure that the highest quality of service is
being provided, telephone calls placed to or by
representatives in Franklin's service departments may be
accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.

Performance

Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance, including current yield, tax equivalent yield,
various expressions of total return, current distribution
rate and taxable equivalent distribution rate. They may
occasionally cite statistics to reflect the Fund's
volatility or risk.

Average annual total return figures, as prescribed by the
SEC, represent the average annual percentage change in value
of $1,000 invested at the maximum public offering price
(offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent
applicable, through the end of the most recent calendar
quarter, assuming reinvestment of all distributions. The
Fund may also furnish total return quotations for other
periods or based on investments at various sales charge
levels or at net asset value. For such purposes, total
return equals the total of all income and capital gain paid
to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.

Current yield reflects the income per share earned by the
Fund's portfolio investments. It is calculated by dividing
the Fund's net investment income per share during a recent
30-day period by the maximum public offering price on the
last day of that period and annualizing the result. Tax
equivalent yield demonstrates the yield from a taxable
investment necessary to produce an after-tax yield
equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt
portion of a fund's yield (calculated as indicated) by one
minus a stated income tax rate and adding the product to the
taxable portion (if any) of the fund's yield.

Current yield and tax equivalent yield which are calculated
according to a formula prescribed by the SEC (see the SAI)
are not indicative of the dividends or distributions which
were or will be paid to the Fund's shareholders. Dividends
or distributions paid to shareholders are reflected in the
current distribution rate or taxable equivalent distribution
rate, which may be quoted to shareholders. The current
distribution rate is computed by dividing the total amount
of dividends per share paid by the Fund during the past 12
months by a current maximum offering price. A taxable
equivalent distribution rate demonstrates the taxable
distribution rate necessary to produce an after tax
distribution rate equivalent to the Fund's distribution rate
(calculated as indicated above). Under certain
circumstances, such as when there has been a change in the
amount of dividend payout or a fundamental change in
investment policies, it might be appropriate to annualize
the dividends paid during the period such policies were in
effect, rather than using the dividends during the past 12
months. The current distribution rate differs from the
current yield computation because it may include
distributions to shareholders from sources other than
dividends and interest, such as short-term capital gain, and
is calculated over a different period of time.

In each case, performance figures are based upon past
performance, reflect all recurring charges against Fund
income and will assume the payment of the maximum sales
charge on the purchase of shares. When there has been a
change in the sales charge structure, the historical
performance figures will be restated to reflect the new
rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent
what an investment may earn in the future or what the Fund's
yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any
future period.

General Information

Reports to Shareholders

The Fund's fiscal year ends February 28. Annual reports
containing audited financial statements of the Trust,
including the auditor's report, and semiannual reports
containing unaudited financial statements are automatically
sent to shareholders. Copies may be obtained by investors or
shareholders, without charge, upon request to the Trust at
the telephone number or address set forth on the cover page
of this Prospectus.

Additional information on Fund performance is included in
the Trust's Annual Report to Shareholders and the SAI.

Organization

The Trust was organized as a Massachusetts business trust on
September 18, 1984. The Agreement and Declaration of Trust
permits the trustees to issue an unlimited number of full
and fractional shares of beneficial interest without par
value, which may be issued in any number of series or
classes thereof. Shares issued will be fully paid and non-
assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and
exclusive rights as to dividends and distributions as
declared by such series and the net assets of such series
upon liquidation or dissolution. The Board of Trustees may
from time to time issue other series of the Trust, the
assets and liabilities of which will be separate and
distinct from any other series.

Voting Rights

Shares of each series have equal rights as to voting and
vote separately as to issues affecting that series or the
Trust unless otherwise permitted by the 1940 Act. Voting
rights are noncumulative, so that in any election of
trustees the holders of more than 50% of the shares voting
can elect 100% of the trustees, if they choose to do so and,
in such event, the holders of the remaining shares voting
will not be able to elect any person or persons to the Board
of Trustees. The Trust does not intend to hold annual
shareholders' meetings. The Trust may, however, hold a
special shareholders' meeting for such purposes as changing
fundamental investment restrictions, approving a new
management agreement or any other matters which are required
to be acted on by shareholders under the 1940 Act. A meeting
may also be called by the trustees in their discretion or by
shareholders holding at least ten percent of the outstanding
shares entitled to vote at the meeting. Shareholders may
receive assistance in communicating with other shareholders
in connection with the election or removal of trustees, such
as that provided in Section 16(c) of the 1940 Act.

Redemptions by the Fund

The Fund reserves the right to redeem, at net asset value,
shares of any shareholder whose account has a value of less
than $50, but only where the value of such account has been
reduced by the shareholder's prior voluntary redemption of
shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided
advance notice is given to the shareholder. More information
is included in the SAI.

Other Information

Distribution or redemption checks sent to shareholders do
not earn interest or any other income during the time such
checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss to the shareholder
caused by the shareholder's failure to cash such checks.

"Cash" payments to or from the Fund may be made by check,
draft or wire. The Fund has no facility to receive, or pay
out, cash in the form of currency.

Account Registrations

An account registration should reflect the investor's
intentions as to ownership. Where there are two co-owners on
the account, the account will be registered as "Owner 1" and
"Owner 2"; the "or" designation is not used except for money
market fund accounts. If co-owners wish to have the ability
to redeem or convert on the signature of only one owner, a
limited power of attorney may be used.

Accounts should not be registered in the name of a minor,
either as sole or co-owner of the account. Transfer or
redemption for such an account may require court action to
obtain release of the funds until the minor reaches the
legal age of majority. The account should be registered in
the name of one "Adult" as custodian for the benefit of the
"Minor" under the Uniform Transfer or Gifts to Minors Act.

A trust designation such as "trustee" or "in trust for"
should only be used if the account is being established
pursuant to a legal, valid trust document. Use of such a
designation in the absence of a legal trust document may
cause difficulties and require court action for transfer or
redemption of the funds.

Shares, whether in certificate form or not, registered as
joint tenants or "Jt Ten" shall mean "as joint tenants with
rights of survivorship" and not "as tenants in common."

Except as indicated, a shareholder may transfer an account
in the Fund carried in "street" or "nominee" name by the
shareholder's securities dealer to a comparably registered
Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have
executed dealer agreements on file with Distributors. Unless
a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and
will so inform the shareholder's delivering securities
dealer. To effect the transfer, a shareholder should
instruct the securities dealer to transfer the account to a
receiving securities dealer and sign any documents required
by the securities dealers to evidence consent to the
transfer. Under current procedures, the account transfer may
be processed by the delivering securities dealer and the
Fund after the Fund receives authorization in proper form
from the shareholder's delivering securities dealer. In the
future it may be possible to effect such transfers
electronically through the services of the NSCC.

The Fund may conclusively accept instructions from an owner
or the owner's nominee listed in publicly available nominee
lists, regardless of whether the account was initially
registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of
record on an investor's account, the investor will be deemed
to have authorized the use of electronic instructions on the
account, including, without limitation, those initiated
through the services of the NSCC, to have adopted as
instruction and signature any such electronic instructions
received by the Fund and the Shareholder Services Agent, and
to have authorized them to execute the instructions without
further inquiry. At the present time, such services which
are available include the NSCC's "Networking," "Fund/SERV,"
and "ACATS" systems.

Any questions regarding an intended registration should be
answered by the securities dealer handling the investment,
or by calling Franklin's Fund Information Department.

Important Notice Regarding Taxpayer IRS Certifications

Pursuant to the Code and U.S. Treasury regulations, the Fund
may be required to report to the Internal Revenue Service
("IRS") any taxable dividend, capital gain distribution, or
other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to
individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN")
and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject
to backup withholding if the IRS or a securities dealer
notifies the Fund that the number furnished by the
shareholder is incorrect or that the shareholder is subject
to backup withholding for previous under-reporting of
interest or dividend income.

The Fund reserves the right to (1) refuse to open an account
for any person failing to provide a TIN along with the
required certifications and (2) close an account by
redeeming its shares in full at the then-current net asset
value upon receipt of notice from the IRS that the TIN
certified as correct by the shareholder is in fact incorrect
or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a
certified TIN within 60 days after opening the account.

Portfolio Operations

The following persons are primarily responsible for the day-
to-day management of the Fund's portfolio: Mr. Kenny since
1994 and Mr. Jennings and Ms. Wong since 1992.

Thomas Kenny
Senior Vice President and Portfolio Manager
Franklin Advisers, Inc.

Mr. Kenny joined Franklin in 1986 and is the director of
Franklin's Municipal Bond Department. He received a Bachelor
of Arts degree in Business and Economics from the University
of California at Santa Barbara and a Master of Science
degree in Finance from Golden Gate University. He is a
member of several municipal securities industry-related
committees and associations.

Stella Wong
Portfolio Manager
Franklin Advisers, Inc.

Ms. Wong holds a Bachelor of Science degree in Business
Administration from San Francisco State University and a
Master's degree in Financial Planning from Golden Gate
University. She is a member of several industry-related
committees and associations. She joined Advisers in 1986.

Andrew Jennings
Senior Vice President and Portfolio Manager
Franklin Advisers, Inc.

Mr. Jennings has been responsible for portfolio
recommendations and decisions of the Fund since its
inception. He attended Villanova University in Philadelphia,
has been in the securities industry for over 33 years and is
a member of several municipal securities industry-related
committees and associations. From 1985 to 1990, Mr. Jennings
was First Vice President and Manager of the Municipal
Institutional Bond Department at Dean Witter Reynolds, Inc.

Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Tax-Free Trust
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN

Franklin Federal Intermediate-Term Tax-Free Income Fund (the
"Fund") is a non-diversified series of Franklin Tax-Free
Trust (the "Trust"), an open-end management investment
company. The principal investment objective of the Fund is
to provide investors with as high a level of income exempt
from federal income taxes, including the individual
alternative minimum tax, as is consistent with prudent
investing and the preservation of shareholders' capital.

A Prospectus for the Fund dated May 1, 1995, as may be
amended from time to time, provides the basic information an
investor should know before investing in the Fund and may be
obtained without charge from the Fund or from the Fund's
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address shown above.

This Statement of Additional Information ("SAI") is not a
prospectus. It contains information in addition to and in
more detail than set forth in the Prospectus. This SAI is
intended to provide investors with additional information
regarding the activities and operations of the Trust and the
Fund and should be read in conjunction with the Prospectus.

Contents Page

About the Trust

The Fund's Investment Objective
and Policies

Description of Municipal and
Other Securities

Investment Restrictions

Officers and Trustees

Investment Advisory and Other Services

The Fund's Policies Regarding Brokers
Used on Portfolio Transactions

Additional Information
Regarding Fund Shares

Additional Information
Regarding Taxation

The Fund's Underwriter

General Information

Miscellaneous Information

Appendix - Description of Municipal Securities Ratings

Financial Statements

About the Trust

The Trust is an open-end management investment company,
commonly called a "mutual fund," and registered with the
Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940 (the "1940 Act"). The Trust
was organized as a Massachusetts business trust in September
1984. The Trust issues its shares of beneficial interest
with no par value in 27 series, each of which maintains a
totally separate investment portfolio.

The Fund's Investment Objective and Policies

As noted in the Prospectus, the Fund's investment objective
is to provide investors with as high a level of income
exempt from federal income taxes, including the individual
alternative minimum tax, as is consistent with prudent
investing and the preservation of shareholders' capital. The
Fund intends to invest primarily in a portfolio of
investment grade obligations with a dollar-weighted average
portfolio maturity of more than three years but not more
than ten years.

As described in its Prospectus, under normal market
conditions, the Fund will attempt to invest 100% and, as a
matter of fundamental policy, will invest at least 80% of
the value of its net assets in securities the interest on
which is exempt from federal income taxes, including the
alternative minimum tax. Thus, it is possible, although not
anticipated, that up to 20% of the Fund's net assets could
be invested in municipal securities subject to the
alternative minimum tax and/or in taxable obligations.

Although the Fund seeks to invest all of its assets in a
manner designed to accomplish its objective, there may be
times when market conditions limit the availability of
appropriate municipal securities or, in the investment
manager's opinion, there exist uncertain economic, market,
political or legal conditions which may jeopardize the value
of municipal securities. For temporary defensive purposes
only, when the investment manager believes that market
conditions, such as rising interest rates or other adverse
factors, would cause serious erosion of portfolio value, the
Fund may invest more than 20%, and up to 100%, of the value
of its net assets in fixed-income obligations, the interest
on which is subject to federal income tax.

The Fund is non-diversified and thus not subject to any
statutory restriction under the 1940 Act with respect to the
concentration of its assets in one or relatively few
issuers. This concentration may present greater risks than
in the case of a diversified fund. The Fund, however,
intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and, therefore, will be restricted in
that, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets must be
represented by cash, government securities, and other
securities limited in respect of any one issuer to not more
than 5% of the value of the total assets of the Fund. In
addition, at the close of each quarter of its taxable year,
not more than 25% of the Fund's total assets may be invested
in securities of one issuer, other than government
securities. These limitations are not fundamental policies
and may be revised to the extent applicable federal income
tax requirements are revised.

The Fund may invest 25% or more of its net assets in
securities that are related in such a way that an economic,
business or political development or change affecting one
security would also affect the other securities, including,
for example, securities the interest upon which is paid from
revenues of similar type projects, or securities the issuers
of which are located in the same geographic area.

The investment objective of the Fund, as set forth above, is
a fundamental policy and may not be changed without the
approval of a majority of the Fund's outstanding shares.

Description of Municipal and Other Securities

The Prospectus describes the general categories and nature
of municipal securities. Discussed below are the major
attributes of the various municipal and other securities in
which the Fund may invest.

Tax Anticipation Notes are used to finance working capital
needs of municipalities and are issued in anticipation of
various seasonal tax revenues which will be used to pay the
notes. They are usually general obligations of the issuer,
secured by the taxing power for the payment of principal and
interest.

Revenue Anticipation Notes are issued in expectation of
other kinds of revenue, such as federal revenues available
under the Federal Revenue Sharing Program. They, also, are
usually general obligations of the issuer.

Bond Anticipation Notes are normally issued to provide
interim financing until long-term financing can be arranged.
Long-term bonds then provide the money for the repayment of
the notes.

Construction Loan Notes are sold to provide construction
financing for specific projects. After successful completion
and acceptance, many projects receive permanent financing
through the Federal Housing Administration under the Federal
National Mortgage Association or the Government National
Mortgage Association.

Tax-Exempt Commercial Paper typically represents a short-
term obligation (270 days or less) issued by a municipality
to meet working capital needs.

Municipal Bonds, which meet longer term capital needs and
generally have maturities of more than one year when issued,
have two principal classifications: general obligation bonds
and revenue bonds.

1. General Obligation Bonds. Issuers of general obligation
bonds include states, counties, cities, towns and regional
districts. The proceeds of these obligations are used to
fund a wide range of public projects, including construction
or improvement of schools, highways, roads, and water and
sewer systems. The basic security behind general obligation
bonds is the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may
be limited or unlimited as to the rate or amount of special
assessments.

2. Revenue Bonds. A revenue bond is not secured by the full
faith, credit and taxing power of an issuer. Rather, the
principal security for a revenue bond is generally the net
revenue derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special
excise or other specific revenue source. Revenue bonds are
issued to finance a wide variety of capital projects,
including: electric, gas, water and sewer systems; highways,
bridges and tunnels; port and airport facilities; colleges
and universities; and hospitals. The principal security
behind these bonds may vary. Housing finance authorities
have a wide range of security, including partially or fully
insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other
public projects. Many bonds provide additional security in
the form of a debt service reserve fund which may be used to
make principal and interest payments on the issuer's
obligations. Some authorities are provided further security
in the form of a state's assurance (although without
obligation) to make up deficiencies in the debt service
reserve fund.

Industrial Development Bonds which pay tax-exempt interest
are in most cases revenue bonds and are issued by or on
behalf of public authorities to raise money to finance
various privately operated facilities for business,
manufacturing, housing, sports, and pollution control. These
bonds are also used to finance public facilities such as
airports, mass transit systems, ports and parking. The
payment of the principal and interest on such bonds is
solely dependent on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of
the real and personal property so financed as security for
such payments.

When-Issued Purchases. Municipal bonds are frequently
offered on a "when-issued" basis. When so offered, the
price, which is generally expressed in yield terms, is fixed
at the time the commitment to purchase is made, but delivery
and payment for the when-issued securities take place at a
later date. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and
no interest accrues to the Fund. To the extent that assets
of the Fund are held in cash pending the settlement of a
purchase of securities, the Fund would earn no income;
however, it is the Fund's intention to be fully invested to
the extent practicable and subject to the policies stated
above. While when-issued securities may be sold prior to the
settlement date, the Fund intends to purchase such
securities with the purpose of actually acquiring them,
unless a sale appears desirable for investment reasons. At
the time the Fund makes the commitment to purchase a
municipal bond on a when-issued basis, it will record the
transaction and reflect the value of the security in
determining its net asset value. The Fund believes that its
net asset value or income will not be adversely affected by
its purchase of municipal bonds on a when-issued basis. The
Fund will establish a segregated account in which it will
maintain cash and marketable securities equal in value to
commitments for when-issued securities.

Callable Bonds. There are municipal bonds which are issued
with provisions which prevent them from being called,
typically for periods of 5 to 10 years. During times of
generally declining interest rates, if the call-protection
on callable bonds expires, there is an increased likelihood
that a number of such bonds may, in fact, be called away by
the issuers. Based on a number of factors, including certain
portfolio management strategies used by the Fund's
investment manager, the Fund believes it has reduced the
risk of adverse impact on net asset value based on calls of
callable bonds. The investment manager may dispose of such
bonds in the years prior to their call dates, if the
investment manager believes such bonds are at their maximum
premium potential. In pricing such bonds in the Fund's
portfolio, each callable bond is marked-to-market daily
based on the bond's call date. Thus, the call of some or all
of the Fund's callable bonds may have an impact on the
Fund's net asset value. In light of the Fund's pricing
policies and because the Fund follows certain amortization
procedures required by the Internal Revenue Service ("IRS"),
the Fund is not expected to suffer any material adverse
impact related to the value at which the Fund has carried
the bonds in connection with calls of bonds purchased at a
premium. Notwithstanding such policies, however, the
reinvestment of the proceeds of any called bond may be in
bonds which pay a higher or lower rate of return than the
called bonds; and, as with any investment strategy, there is
no guarantee that a call may not have a more substantial
impact than anticipated or that the Fund's objective will be
achieved.

Escrow-Secured Bonds or Defeased Bonds are created when an
issuer refunds in advance of maturity (or pre-refunds) an
outstanding bond issue which is not immediately callable,
and it becomes necessary or desirable to set aside funds for
redemption of the bonds at a future date. In an advance
refunding, the issuer will use the proceeds of a new bond
issue to purchase high grade, interest bearing debt
securities which are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments
of principal and interest of the advance refunded bond.
Escrow-secured bonds will often receive a triple-A rating
from Standard & Poor's Corporation ("S&P"), Moody's
Investors Service ("Moody's") and Fitch Investors Service,
Inc. ("Fitch").

Stripped Municipal Securities. Municipal securities may also
be sold in "stripped" form. Stripped municipal securities
represent separate ownership of interest and principal
payments on municipal obligations.

Zero Coupon Securities. The Fund's investment in zero coupon
and delayed interest bonds may cause the Fund to recognize
income and make distributions to shareholders prior to the
receipt of cash payments. Zero coupon securities make no
periodic interest payments but instead are sold at a deep
discount from their face value. The buyer recognizes a rate
of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified
maturity date.

Because zero coupon securities bear no interest, and
compound semiannually at the rate fixed at the time of
issuance, the value of such securities is generally more
volatile than other fixed-income securities. Since zero
coupon bondholders do not receive interest payments, zeros
fall more dramatically than bonds paying interest on a
current basis when interest rates rise. When interest rates
fall, zero coupon securities rise more rapidly in value,
because the bonds reflect a fixed rate of return.

In order to generate cash to satisfy distribution
requirements, the Fund may be required to dispose of
portfolio securities that it otherwise would have continued
to hold or to use cash flows from other sources such as the
sale of Fund shares.

Convertible and Step Coupon Bonds. The Fund may invest a
portion of its assets in convertible and step coupon bonds.
The convertible bonds which the Fund may purchase are zero
coupon securities until a predetermined date, at which time
they convert to a specified coupon security. The coupon on
step coupon bonds changes periodically during the life of
the security based upon predetermined dates chosen at the
time of issuance and/or the occurrence in the future of a
specified event, such as a change in rating by a nationally
recognized statistical rating organization.

Variable or Floating Rate Demand Notes ("VRDNs") are tax-
exempt obligations which contain a floating or variable
interest rate and a right of demand, which may be
unconditional, to receive payment of the unpaid principal
balance plus accrued interest upon a short notice period
(generally up to 30 days) prior to specified dates, either
from the issuer or by drawing on a bank letter of credit, a
guarantee or insurance issued with respect to such
instrument. The interest rates are adjustable at intervals
ranging from daily up to monthly, and are calculated to
maintain the market value of the VRDN at approximately its
par value upon the adjustment date.

Certificates of Participation. The Fund may also invest in
municipal lease obligations primarily through Certificates
of Participation ("COPs"). COPs are distinguishable from
municipal debt in that the lease which is the subject of the
transaction typically contains a "nonappropriation" or
"abatement" clause. A nonappropriation clause provides that,
while the municipality will use its best efforts to make
lease payments, the municipality may terminate the lease
without penalty if the municipality's appropriating body
does not allocate the necessary funds.

While the risk of nonappropriation is inherent to COP
financing, the Fund believes that this risk is mitigated by
its policy of investing only in COPs rated within the four
highest rating categories of Moody's, S&P or Fitch, or in
unrated COPs believed to be of comparable quality. Criteria
considered by the rating agencies and the investment manager
in assessing such risk include the issuing municipality's
credit rating, the essentiality of the leased property to
the municipality and the term of the lease compared to the
useful life of the leased property. The Board of Trustees
has determined that COPs held in the Fund's portfolio
constitute liquid investments based on various factors
reviewed by the investment manager and monitored by the
Board of Trustees. Such factors include (a) the credit
quality of such securities and the extent to which they are
rated; (b) the size of the municipal securities market for
the Fund, both in general and with respect to COPs; and (c)
the extent to which the type of COPs held by the Fund trade
on the same basis and with the same degree of dealer
participation as other municipal bonds of comparable credit
rating or quality. There is no limit as to the amount of
assets which the Fund may invest in COPs.

U.S. Government Obligations which may be owned by the Fund
are issued by the U.S. Treasury and include bills,
certificates of indebtedness, notes and bonds, or are issued
by agencies and instrumentalities of the U.S. government and
backed by the full faith and credit of the U.S. government.

Commercial Paper refers to promissory notes issued by
corporations in order to finance their short-term credit
needs.

Certificates of Deposit are certificates issued against
funds deposited in a commercial bank, are for a definite
period of time, earn a specified rate of return, and are
normally negotiable.

Bankers' Acceptances are short-term credit instruments used
to finance the import, export, transfer, or storage of
goods. They are termed "accepted" when a bank guarantees
their payment at maturity.

Lending Portfolio Securities. Consistent with procedures
approved by the Board of Trustees and subject to the
following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other
institutional investors, provided that such loans do not
exceed 10% of the value of the Fund's total assets at the
time of the most recent loan. The borrower must deposit with
the Fund's custodian collateral with an initial market value
of at least 102% of the initial market value of the
securities loaned, including any accrued interest, with the
value of the collateral and loaned securities marked-to-
market daily to maintain collateral coverage of at least
102%. Such collateral shall consist of cash. The lending of
securities is a common practice in the securities industry.
The Fund may engage in security loan arrangements with the
primary objective of increasing the Fund's income either
through investing the cash collateral in short-term interest
bearing obligations or by receiving a loan premium from the
borrower. Under the securities loan agreement, the Fund
continues to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there
are risks of delay in recovery and loss of rights in the
collateral should the borrower of the security fail
financially. While such securities are on loan, the borrower
will pay the Fund any income accruing thereon, and the Fund
may invest the cash collateral in portfolio securities,
thereby earning additional income. The Fund will not lend
its portfolio securities if such loans are not permitted by
the laws or regulations of any state in which its shares are
qualified for sale. Loans are typically subject to
termination by the Fund in the normal settlement time or by
the borrower on one day's notice. Borrowed securities must
be returned when the loan is terminated. Any gain or loss in
the market price of the borrowed securities which occurs
during the term of the loan inures to the Fund and its
shareholders. The Fund may pay reasonable finders',
borrowers', administrative and custodial fees in connection
with a loan of its securities.

Income derived by the Fund from securities lending
transactions and investments in commercial paper, bankers'
acceptances and certificates of deposit will be taxable for
federal income tax purposes when distributed to
shareholders. Income derived by the Fund from interest on
direct obligations of the U.S. government will be taxable
for federal income tax purposes when distributed to
shareholders.

There may, of course, be other types of municipal securities
that become available which are similar to the foregoing
described municipal securities, in which the Fund may also
invest, to the extent such investments would be consistent
with the foregoing objective and policies.

Timing of Securities Transactions

The Fund may purchase or sell securities without regard to
the length of time the security has been held, and the
frequency of portfolio transactions (the turnover rate) will
vary from year to year, depending on market conditions.
While short-term trading increases portfolio turnover, the
execution costs for municipal bonds are substantially less
than for equivalent dollar values of equity securities.
Portfolio turnover rates for the Fund are in the Financial
Highlights table in the Fund's Prospectus.

Investment Restrictions

The Trust has adopted the following restrictions as
additional fundamental policies of the Fund, which means
that such restrictions may not be changed without the
approval of a majority of the outstanding voting securities
of the Fund. Under the 1940 Act, a "vote of a majority of
the outstanding voting securities" of the Trust or of the
Fund means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of the Trust or of the
Fund, or (2) 67% or more of the shares of the Trust or of
the Fund present at a shareholders meeting if more than 50%
of the outstanding shares of the Trust or of the Fund are
represented at the meeting in person or by proxy. The Fund
may not:

1. Borrow money or mortgage or pledge any of its assets,
except that borrowings (and a pledge of assets therefore)
for temporary or emergency purposes may be made from banks
in any amount up to 5% of the total asset value.

2. Buy any securities on "margin" or sell any securities
"short," except that it may use such short-term credits as
are necessary for the clearance of transactions.

3. Make loans, except through the purchase of readily
marketable debt securities which are either publicly
distributed or customarily purchased by institutional
investors. Although such loans are not presently intended,
this prohibition will not preclude the Fund from loaning
portfolio securities to broker/dealers or other
institutional investors if at least 102% cash collateral is
pledged and maintained by the borrower; provided such
portfolio security loans may not be made if, as a result,
the aggregate of such loans exceeds 10% of the value of the
Fund's total assets at the time of the most recent loan.

4. Act as underwriter of securities issued by other persons,
except insofar as the Fund may be technically deemed an
underwriter under the federal securities laws in connection
with the disposition of portfolio securities.

5. Purchase the securities of any issuer which would result
in owning more than 10% of the voting securities of such
issuer, except the Fund will not purchase a security, if as
a result: i) more than 25% of its total assets would be
invested in the securities of a single issuer or ii) with
respect to 50% of its total assets, more than 5% of its
assets would be invested in the securities of a single
issuer.

6. Purchase securities from or sell to the Trust's officers
and trustees, or any firm of which any officer or trustee is
a member, as principal, or retain securities of any issuer
if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own
beneficially more than 1/2 of 1% of the securities of such
issuer and all such officers and trustees together own
beneficially more than 5% of such securities.

7. Acquire, lease or hold real estate, except such as may be
necessary or advisable for the maintenance of its offices
and provided that this limitation shall not prohibit the
purchase of municipal and other debt securities secured by
real estate or interests therein.

8. Invest in commodities and commodity contracts, puts,
calls, straddles, spreads or any combination thereof, or
interests in oil, gas, or other mineral exploration or
development programs, except that it may purchase, hold and
dispose of "obligations with puts attached" in accordance
with its investment policies.

9. Invest in companies for the purpose of exercising control
or management.

10. Purchase securities of other investment companies,
except in connection with a merger, consolidation,
acquisition or reorganization. To the extent permitted by
exemptions which may be granted under the 1940 Act, the Fund
may invest in shares of one or more investment companies, of
the type generally referred to as money market funds,
managed by Franklin Advisers, Inc. or its affiliates.

11. Purchase securities, in private placements or in other
transactions, for which there are legal or contractual
restrictions on resale.

12. Invest more than 25% of its assets in securities of any
industry. For purposes of this limitation, tax-exempt
securities issued by governments or political subdivisions
of governments are not considered to be part of any
industry.

In addition to these fundamental policies, it is a non-
fundamental policy of the Fund not to invest in real estate
limited partnerships or in oil, gas, or other mineral
leases.

Officers and Trustees

The Board of Trustees has the responsibility for the overall
management of the Trust, including general supervision and
review of its investment activities. The trustees, in turn,
elect the officers of the Trust who are responsible for
administering day-to-day operations of the Trust. The
affiliations of the officers and trustees and their
principal occupations for the past five years are listed
below. Trustees who are deemed to be "interested persons" of
the Trust, as defined in the 1940 Act, are indicated by an
asterisk (*).

Name, Address Positions and Offices Principal
Occupations
and Age with the Trust During Past Five
Years

Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111

Trustee

President and Director, Abbott Corporation (an investment
company); and director, trustee or managing general partner,
as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.

Harris J. Ashton (62)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045

Trustee

President, Chief Executive Officer and Chairman of the
Board, General Host Corporation (nursery and craft centers);
Director, RBC Holdings, Inc. (a bank holding company) and
Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 54 of the investment
companies in the Franklin Templeton Group of Funds.

S. Joseph Fortunato (62)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945

Trustee

Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Director of General Host Corporation; and director, trustee
or managing general partner, as the case may be, of 56 of
the investment companies in the Franklin Templeton Group of
Funds.

David W. Garbellano (80)
111 New Montgomery St., #402
San Francisco, CA 94105

Trustee

Private Investor; Assistant Secretary/Treasurer and
Director, Berkeley Science Corporation (a venture capital
company); and director, trustee or managing general partner,
as the case may be, of 29 of the investment companies in the
Franklin Group of Funds.

*Charles B. Johnson (62)
777 Mariners Island Blvd.
San Mateo, CA 94404

Chairman of the Board and Trustee

President and Director, Franklin Resources, Inc.; Chairman
of the Board and Director, Franklin Advisers, Inc. and
Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 55 of the
investment companies in the Franklin Templeton Group of
Funds.

*Rupert H. Johnson, Jr. (54)
777 Mariners Island Blvd.
San Mateo, CA 94404

President and Trustee

Executive Vice President and Director, Franklin Resources,
Inc. and Franklin Templeton Distributors, Inc.; President
and Director, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; and officer
and/or director, trustee or managing general partner, as the
case may be, of most other subsidiaries of Franklin
Resources, Inc. and of 42 of the investment companies in the
Franklin Templeton Group of Funds.

Frank W. T. LaHaye (66)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014

Trustee

General Partner, Peregrine Associates and Miller & LaHaye,
which are General Partners of Peregrine Ventures and
Peregrine Ventures II (venture capital firms); Chairman of
the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or
trustee, as the case may be, of 25 of the investment
companies in the Franklin Group of Funds.

Gordon S. Macklin (66)
8212 Burning Tree Road
Bethesda, MD 20817

Trustee

Chairman, White River Corporation (information services);
Director, Fund American Enterprises Holdings, Inc., Lockheed
Martin Corporation, MCI Communications Corporation,
MedImmune, Inc. (biotechnology), InfoVest Corporation
(information services), and Fusion Systems Corporation
(industrial technology); and director, trustee or managing
general partner, as the case may be, of 51 of the investment
companies in the Franklin Templeton Group of Funds; formerly
Chairman, Hambrecht and Quist Group; formerly Director, H &
Q Healthcare Investors; and formerly President, National
Association of Securities Dealers, Inc.

Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Executive Vice President, Secretary and Director, Franklin
Resources, Inc.; Executive Vice President and Director,
Franklin Templeton Distributors, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; officer and/or
director, as the case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or director or
trustee of 41 of the investment companies in the Franklin
Templeton Group of Funds.

Kenneth V. Domingues (62)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President - Financial Reporting and Accounting
Standards

Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., and Franklin Templeton Distributors, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.

Don Duerson (62)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Employee of Franklin Resources, Inc. and its subsidiaries in
senior portfolio management capacities.

Martin L. Flanagan (34)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Chief Financial Officer

Senior Vice President, Chief Financial Officer and
Treasurer, Franklin Resources, Inc.; Executive Vice
President, Templeton Worldwide, Inc.; Senior Vice President
and Treasurer, Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Senior Vice President,
Franklin/Templeton Investor Services, Inc.; officer of most
other subsidiaries of Franklin Resources, Inc.; and officer
of 60 of the investment companies in the Franklin Templeton
Group of Funds.

Deborah R. Gatzek (46)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Secretary

Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President,
Franklin Advisers, Inc.; and officer of 36 of the investment
companies in the Franklin Group of Funds.

Thomas J. Kenny (32)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President, Franklin Advisers, Inc. and officer
of eight of the investment companies in the Franklin Group
of Funds.

Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404

Treasurer and Principal Accounting Officer

Employee of Franklin Advisers, Inc.; and officer of 36 of
the investment companies in the Franklin Group of Funds.

Edward V. McVey (57)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President/National Sales Manager, Franklin
Templeton Distributors, Inc.; and officer of 31 of the
investment companies in the Franklin Group of Funds.

Trustees not affiliated with the investment manager
("nonaffiliated trustees") are currently paid fees of $1,300
per month plus $1,300 per meeting attended. During the
fiscal year ended February 28, 1995, fees totaling $188,500
were paid to nonaffiliated trustees of the Trust, all of
which were paid by the Trust's other series and not by the
Fund. As indicated above, certain of the trustees and
officers hold positions with other companies in the Franklin
Group of Funds(Registered Trademark) and the Templeton Group
of Funds ("Franklin Templeton Funds"). The following table
shows the fees paid by the Trust to its nonaffiliated
trustees and the total fees paid to such trustees by the
Trust and other Franklin Templeton Funds for which they
serve as directors, trustees or managing general partners.

Total
Number of Compensation from
Franklin Franklin
Aggregate Templeton Funds Templeton Funds,
Compensation Boards on Which including the
Name from Trust* Each Serves Trust**
Mr. Abbott $32,500 30 $176,870
Mr. Ashton $31,200 54 $319,925
Mr. Fortunato $31,200 56 $336,065
Mr. Garbellano $31,200 29 $153,300
Mr. LaHaye $31,200 25 $150,817
Mr. Macklin $31,200 51 $303,685

*For the fiscal year ended February 28, 1995.
**For the calendar year ended December 31, 1994.

Nonaffiliated trustees are also reimbursed for expenses
incurred in connection with attending Board meetings, paid
pro rata by each Franklin Templeton Fund for which they
serve as directors, trustees or managing general partners.
No officer or trustee received any other compensation
directly from the Trust. As of March 31, 1995, the officers
and trustees, as a group, did not own of record or
beneficially any outstanding shares of the Fund. Many of the
Trust's trustees own shares in various of the other funds in
the Franklin Group of Funds and the Templeton Group of
Funds. Certain officers or trustees who are shareholders of
Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in
the fees paid to its subsidiaries. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers.

From time to time, the number of Fund shares held in the
"street name" accounts of various securities dealers for the
benefit of their clients or in centralized securities
depositories may exceed 5% of the total shares outstanding.
To the best knowledge of the Fund, no other person holds
beneficially or of record more than 5% of the Fund's
outstanding shares.

Investment Advisory and Other Services

The investment manager of the Fund is Franklin Advisers,
Inc. ("Advisers" or "Manager"). Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a
publicly owned holding company whose shares are listed on
the New York Stock Exchange (the "Exchange"). Resources owns
several other subsidiaries which are involved in investment
management and shareholder services. The Manager and other
subsidiary companies of Resources currently manage over $118
billion in assets for more than 3.8 million shareholders.
The preceding table indicates those officers and trustees
who are also affiliated persons of Distributors and
Advisers.

Pursuant to a management agreement, the Manager provides
investment research and portfolio management services,
including the selection of securities for the Fund to
purchase, hold or sell and the selection of brokers through
whom the Fund's portfolio transactions are executed. The
Manager's extensive research activities include, as
appropriate, traveling to meet with issuers and to review
project sites. The Manager's activities are subject to the
review and supervision of the Trust's Board of Trustees to
whom the Manager renders periodic reports of the Fund's
investment activities. The Manager, at its own expense,
furnishes the Trust with office space and office
furnishings, facilities and equipment required for managing
the business affairs of the Trust; maintains all internal
bookkeeping, clerical, secretarial and administrative
personnel and services; and provides certain telephone and
other mechanical services. The Manager is covered by
fidelity insurance on its officers, directors and employees
for the protection of the Fund. The Fund bears all of its
expenses not assumed by the Manager.

See the Statement of Operations for the Fund in the
financial statements included in the Trust's Annual Report
to Shareholders dated February 28, 1995, for additional
details of these expenses.

Pursuant to the management agreement, the Fund is obligated
to pay the Manager a fee computed at the close of business
on the last business day of each month equal to a monthly
rate of 5/96 of 1% (approximately 5/8 of 1% per year) for
the first $100 million of average monthly net assets of the
Fund; 1/24 of 1% (approximately 1/2 of 1% per year) of
average monthly net assets of the Fund in excess of $100
million up to $250 million; and 9/240 of 1% (approximately
45/100 of 1% per year) of average monthly net assets of the
Fund in excess of $250 million.

The Manager has limited its management fees and has assumed
responsibility for making payments, if necessary, to offset
certain operating expenses otherwise payable by the Fund.
This action by the Manager to limit its management fees and
to assume responsibility for payment of the expenses related
to the operations of the Fund may be terminated by the
Manager at any time. The management agreement specifies that
the management fee will be reduced to the extent necessary
to comply with the most stringent limits on the expenses
which may be borne by the Fund as prescribed by any state in
which the Fund's shares are offered for sale. The most
stringent current limit requires the Manager to reduce or
eliminate its fee to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes, brokerage
commissions and extraordinary expenses such as litigation
costs) would otherwise exceed in any fiscal year 2.5% of the
first $30 million of average net assets of the Fund, 2% of
the next $70 million of average net assets of the Fund and
1.5% of average net assets of the Fund in excess of $100
million. Expense reductions have not been necessary based on
state requirements.

For the period from September 21, 1992 (effective date of
registration) through February 28, 1993 and for the fiscal
years ended February 28, 1994 and 1995, the management fees
the Fund was contractually obligated to pay the Manager were
$13,573, $246,332 and $455,865, respectively, and the
management fees actually paid by the Fund for the same
periods were $0, $45,151 and $250,402, respectively.

The management agreement is in effect until March 31, 1996.
Thereafter, it may continue in effect for successive annual
periods, provided such continuance is specifically approved
at least annually by a vote of the Trust's Board of Trustees
or by a vote of the holders of a majority of the Fund's
outstanding voting securities, and in either event by a
majority vote of the Trust's trustees who are not parties to
the management agreement or interested persons of any such
party (other than as trustees of the Trust), cast in person
at a meeting called for that purpose. The management
agreement may be terminated without penalty at any time by
the Trust or the Fund or by the Manager on 30 days' written
notice and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.

Franklin/Templeton Investor Services, Inc. ("Investor
Services" or "Shareholder Services Agent"), a wholly-owned
subsidiary of Resources, is the shareholder servicing agent
for the Fund and acts as the Fund's transfer agent and
dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.

Bank of America NT & SA, 555 California Street, 4th Floor,
San Francisco, California 94104, acts as custodian of the
securities and other assets of the Fund. Citibank Delaware,
One Penn's Way, New Castle, Delaware 19720, acts as
custodian in connection with transfer services through bank
automated clearing houses. The custodians do not participate
in decisions relating to the purchase and sale of portfolio
securities.

Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the Trust's independent auditors.
During the fiscal year ended February 28, 1995, their
auditing services consisted of rendering an opinion on the
financial statements of the Trust included in the Trust's
Annual Report to Shareholders dated February 28, 1995.

The Fund's Policies Regarding
Brokers Used on Portfolio Transactions

Since most purchases made by the Fund are principal
transactions at net prices, the Fund incurs little or no
brokerage costs. The Fund deals directly with the selling or
purchasing principal or market maker without incurring
charges for the services of a broker on its behalf, unless
it is determined that a better price or execution may be
obtained by utilizing the services of a broker. Purchases of
portfolio securities from underwriters include a commission
or concession paid by the issuer to the underwriter, and
purchases from dealers include a spread between the bid and
ask price. As a general rule, the Fund does not purchase
bonds in underwritings where it is not given any choice, or
only limited choice, in the designation of dealers to
receive the commission. The Fund seeks to obtain prompt
execution of orders at the most favorable net price.
Transactions may be directed to dealers in return for
research and statistical information, as well as for special
services rendered by such dealers in the execution of
orders. It is not possible to place a dollar value on the
special executions or on the research services received by
Advisers from dealers effecting transactions in portfolio
securities. The allocations of transactions in order to
obtain additional research services permits Advisers to
supplement its own research and analysis activities and to
receive the views and information of individuals and
research staff of other securities firms. As long as it is
lawful and appropriate to do so, the Manager and its
affiliates may use this research and data in their
investment advisory capacities with other clients. Provided
the Trust's officers are satisfied that the best execution
is obtained, the sale of Fund shares may also be considered
as a factor in the selection of broker-dealers to execute
the Fund's portfolio transactions.

If purchases or sales of securities of the Fund and one or
more other investment companies or clients supervised by the
Manager are considered at or about the same time,
transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed
equitable to all by the Manager, taking into account the
respective sizes of the funds and the amount of securities
to be purchased or sold. It is recognized that in some cases
this procedure could possibly have a detrimental effect on
the price or volume of the security so far as the Fund is
concerned. In other cases, it is possible that the ability
to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Fund.

During the fiscal years ended February 28, 1993, 1994 and
1995, the Fund paid no brokerage commissions. As of February
28, 1995, the Fund did not own securities of its regular
broker-dealers.

Additional Information Regarding Fund Shares

All checks, drafts, wires and other payment mediums used for
purchasing or redeeming shares of the Fund must be
denominated in U.S. dollars. The Fund reserves the right, in
its sole discretion, to either (a) reject any order for the
purchase or sale of shares denominated in any other
currency, or (b) honor the transaction or make adjustments
to a shareholder's account for the transaction as of a date
and with a foreign currency exchange factor determined by
the drawee bank.

In connection with exchanges, (see the Prospectus "Exchange
Privilege"), it should be noted that since the proceeds from
the sale of shares of an investment company generally are
not available until the fifth business day following the
redemption, the fund into which the Fund's shareholders are
seeking to exchange reserve the right to delay issuing
shares pursuant to an exchange until said fifth business
day. The redemption of shares of the Fund to complete an
exchange for shares of any of the investment companies will
be effected at the close of business on the day the request
for exchange is received in proper form at the net asset
value then effective.

The Fund may impose a $10 charge for each returned item,
against any shareholder account which, in connection with
the purchase of the Fund's shares, submits a check or a
draft which is returned unpaid to the Fund.

Shares are eligible to receive dividends beginning on the
first business day following settlement of the purchase
transaction, through the date on which the Fund writes a
check or sends a wire on redemption transactions.

Dividend checks which are returned to the Fund marked
"unable to forward" by the postal service will be deemed to
be a request by the shareholder to change the dividend
option and the proceeds will be reinvested in additional
shares at net asset value until new instructions are
received.

The Fund may deduct from a shareholder's account the costs
of its efforts to locate a shareholder if mail is returned
as undeliverable or the Fund is otherwise unable to locate
the shareholder or verify the current mailing address. These
costs may include a percentage of the account when a search
company charges a percentage fee in exchange for its
location services.

Under agreements with certain banks in Taiwan, Republic of
China, the Fund's shares are available to such banks'
discretionary trust funds at net asset value. The banks may
charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion
of such service fees may be paid to Distributors, or an
affiliate of Distributors, to help defray expenses of
maintaining a service office in Taiwan, including expenses
related to local literature fulfillment and communication
facilities.

Shares of the Fund may be offered to investors in Taiwan
through securities firms known locally as Securities
Investment Consulting Enterprises. In conformity with local
business practices in Taiwan, shares of the Fund will be
offered with the following schedule of sales charges:

Size of Purchase - in U.S. dollars Sales Charge
Up to $100,000 3%
$100,000 to $1,000,000 2%
Over $1,000,000 1%

Purchases and Redemptions Through Securities Dealers

Orders for the purchase of shares of the Fund received in
proper form prior to the scheduled closing time of the
Exchange (generally 1:00 p.m. Pacific time) any business day
that the Exchange is open for trading and promptly
transmitted to the Fund will be based upon the public
offering price determined that day. Purchase orders received
by securities dealers or other financial institutions after
the closing of the Exchange will be effected at the Fund's
public offering price on the day it is next calculated. The
use of the term "securities dealer" herein shall include
other financial institutions which, pursuant to an agreement
with Distributors (directly or through affiliates), handle
customer orders and accounts with the Fund. Such reference,
however, is for convenience only and does not indicate a
legal conclusion of capacity.

Orders for the redemption of shares are effected at net
asset value subject to the same conditions concerning time
of receipt in proper form. It is the securities dealer's
responsibility to transmit the order in a timely fashion and
any loss to the customer resulting from failure to do so
must be settled between the customer and the securities
dealer.

Special Net Asset Value Purchases

As discussed in the Prospectus under "How to Buy Shares of
the Fund - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase
shares of the Fund without a front-end sales charge ("net
asset value") or a contingent deferred sales charge.
Distributors or one of its affiliates may make payments, out
of its own resources, to securities dealers who initiate and
are responsible for such purchases. Distributors may make
these payments in the form of contingent advance payments,
which may be recovered from the securities dealer, or set
off against other payments due the securities dealer, in the
event of investor redemptions made within 12 months of the
calendar month following purchase. Other conditions may
apply. All terms and conditions may be imposed by an
agreement between Distributors, or its affiliates, and the
securities dealer. For purchases made at net asset value by
certain trust companies and trust departments of banks,
Distributors or one of its affiliates, out of its own
resources, may pay up to 1% of the amount invested.

Letter of Intent

An investor may qualify for a reduced sales charge on the
purchase of shares of the Fund, as described in its
Prospectus. At any time within 90 days after the first
investment which the investor wants to qualify for a reduced
sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the
Fund. After the Letter of Intent is filed, each additional
investment will be entitled to the sales charge applicable
to the level of investment indicated on the Letter of
Intent. Sales charge reductions based upon purchases in more
than one of the Franklin Templeton Funds will be effective
only after notification to Distributors that the investment
qualifies for a discount. The shareholder's holdings in the
Franklin Templeton Funds acquired more than 90 days before
the Letter of Intent is filed will be counted towards
completion of the Letter of Intent but will not be entitled
to a retroactive downward adjustment in the sales charge.
Any redemptions made by the shareholder during the 13-month
period will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the Letter
of Intent have been completed. If the Letter of Intent is
not completed within the 13-month period, there will be an
upward adjustment of the sales charge, depending upon the
amount actually purchased (less redemptions) during the
period. An investor who executes a Letter of Intent prior to
a change in the sales charge structure for the Fund will be
entitled to complete the Letter of Intent at the lower of
the new sales charge structure or the sales charge structure
in effect at the time the Letter of Intent was filed with
the Fund.

As mentioned in the Prospectus of the Fund, five percent
(5%) of the amount of the total intended purchase will be
reserved in shares of the Fund registered in the investor's
name. If the total purchases, less redemptions, equal the
amount specified under the Letter of Intent, the reserved
shares will be deposited to an account in the name of the
investor or delivered to the investor or the investor's
order. If the total purchases, less redemptions, exceed the
amount specified under the Letter of Intent and is an amount
which would qualify for a further quantity discount, a
retroactive price adjustment will be made by Distributors
and the securities dealer through whom purchases were made
pursuant to the Letter of Intent (to reflect such further
quantity discount) on purchases made within 90 days before
and on those made after filing the Letter of Intent. The
resulting difference in offering price will be applied to
the purchase of additional shares at the offering price
applicable to a single purchase or the dollar amount of the
total purchases. If the total purchases, less redemptions,
are less than the amount specified under the Letter of
Intent, the investor will remit to Distributors an amount
equal to the difference in the dollar amount of sales charge
actually paid and the amount of sales charge which would
have applied to the aggregate purchases if the total of such
purchases had been made at a single time. The shareholder
will receive written notification from Distributors
requesting the remittance. Upon such remittance, the
reserved shares held for the investor's account will be
deposited to an account in the name of the investor or
delivered to the investor or to the investor's order. If
within 20 days after written request such difference in
sales charge is not paid, the redemption of an appropriate
number of reserved shares to realize such difference will be
made. In the event of a total redemption of the account
prior to fulfillment of the Letter of Intent, the additional
sales charge due will be deducted from the proceeds of the
redemption, and the balance will be forwarded to the
investor.

Redemptions in Kind

The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record,
limited in amount, however, during any 90-day period to the
lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. In the
case of requests for redemption in excess of such amounts,
the Board of Trustees reserves the right to make payments in
whole or in part in securities or other assets of the Fund
from which the shareholder is redeeming, in case of an
emergency, or if the payment of such a redemption in cash
would be detrimental to the existing shareholders of the
Fund. In such circumstances, the securities distributed
would be valued at the price used to compute the Fund's net
assets. Should the Fund do so, a shareholder may incur
brokerage fees in converting the securities to cash. The
Fund does not intend to redeem illiquid securities in kind;
however, should it happen, shareholders may not be able to
timely recover their investment and may also incur brokerage
costs in selling such securities.

Redemptions by the Fund

Due to the relatively high cost of handling small
investments, the Fund reserves the right to redeem,
involuntarily, at net asset value, the shares of any
shareholder whose account has a value of less than one-half
of the initial minimum investment required for that
shareholder, but only where the value of such account has
been reduced by the shareholder's prior voluntary redemption
of shares. Until further notice, it is the present policy of
the Fund not to exercise this right with respect to any
shareholder whose account has a value of $50 or more. In any
event, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder
that the value of the shares in the account is less than the
minimum amount and allow the shareholder 30 days to make an
additional investment in an amount which will increase the
value of the account to at least $100.

Calculation of Net Asset Value

As noted in the Prospectus, the Fund generally calculates
net asset value as of the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time). As of the date of this
SAI, the Fund is informed that the Exchange observes the
following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

The Fund's portfolio securities are valued as stated in the
Prospectus. Generally, trading in U.S. government securities
and money market instruments is substantially completed each
day at various times prior to the close of the Exchange. The
values of such securities used in computing the net asset
value of the Fund's shares are determined as of such times.
Occasionally, events affecting the values of such securities
may occur between the times at which they are determined and
1:00 p.m. Pacific time which will not be reflected in the
computation of the Fund's net asset value. If events
materially affecting the value of such securities occur
during such period, then these securities will be valued at
their fair value as determined in good faith by the Board of
Trustees.

Reports to Shareholders

The Trust sends annual and semiannual reports to its
shareholders regarding the Fund's performance and portfolio
holdings. Shareholders who would like to receive an interim
quarterly report may phone Fund Information at 1-800/DIAL
BEN.

Special Services

Franklin Institutional Services Corporation provides
specialized services, including recordkeeping, for
institutional investors of the Fund. The cost of these
services is not borne by the Fund.

Investor Services may pay certain financial institutions
which maintain omnibus accounts with the Fund on behalf of
numerous beneficial owners for recordkeeping operations
performed with respect to such beneficial owners. For each
beneficial owner in the omnibus account, the Fund may
reimburse Investor Services an amount not to exceed the per
account fee which the Fund normally pays Investor Services.
Such financial institutions may also charge a fee for their
services directly to their clients.

Additional Information Regarding Taxation

As stated in the Prospectus, the Fund has elected to be
treated as a regulated investment company under Subchapter M
of the Code. The trustees reserve the right not to maintain
the qualification of the Fund as a regulated investment
company if they determine such course of action to be
beneficial to the shareholders. In such case, the Fund will
be subject to federal and possibly state corporate taxes on
its taxable income and gains, to the alternative minimum tax
on a portion of its tax-exempt income, and distributions
(including tax-exempt interest dividends) to shareholders
will be taxable to the extent of the Fund's available
earnings and profits.

The Code requires the Fund to distribute at least 98% of its
taxable ordinary income earned during the calendar year and
at least 98% of its capital gain net income earned during
the twelve-month period ending October 31 of each year (in
addition to amounts from the prior year that were neither
distributed nor taxed to the Fund) to shareholders by
December 31 of each year in order to avoid the imposition of
a federal excise tax. Under these rules, certain
distributions which are declared in October, November or
December but which, for operational reasons, may not be paid
to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received
by the shareholder on December 31 of the calendar year in
which they are declared. The Fund intends as a matter of
policy to declare and pay such dividends, if any, in
December to avoid the imposition of this tax, but does not
guarantee that the distributions will be sufficient to avoid
any or all federal excise taxes.

Redemptions and exchanges of the Fund's shares are taxable
transactions for federal and state income tax purposes. For
most shareholders, gain or loss will be recognized in an
amount equal to the difference between the shareholder's
basis in the shares and the amount received, subject to the
rules described below. If such shares are a capital asset in
the hands of the shareholder, gain or loss will be capital
gain or loss and will be long-term for federal income tax
purposes if the shares have been held for more than one
year.

All or a portion of a loss realized upon a redemption of
shares will be disallowed to the extent other shares of the
Fund are purchased (through reinvestment of dividends or
otherwise) within 30 days before or after such redemption.
Any loss disallowed under these rules will be added to the
tax basis of the shares purchased.

All or a portion of the sales charge incurred in purchasing
shares of the Fund will not be included in the federal tax
basis of such shares sold or exchanged within 90 days of
their purchase (for purposes of determining gain or loss
upon the sale of such shares) if the sales proceeds are
reinvested in the Fund or in another fund in the Franklin
Templeton Group and a sales charge that would otherwise
apply to the reinvestment is reduced or eliminated. Any
portion of such sales charge excluded from the tax basis of
the shares sold will be added to the tax basis of the shares
acquired in the reinvestment. Shareholders should consult
with their tax advisors concerning the tax rules applicable
to the redemption or exchange of fund shares.

Many states grant tax-free status to dividends paid to
shareholders of mutual funds from interest income earned by
the fund from direct obligations of the U.S. government,
subject in some states to minimum investment requirements
that must be met by the fund. Investments in GNMA/FNMA
securities and repurchase agreements collateralized by U.S.
government securities do not generally qualify for tax-free
treatment. While it is not the primary investment objective
of the Fund to invest in such obligations, the Fund is
authorized to so invest for temporary or defensive purposes.
To the extent that such investments are made, the Fund will
provide shareholders with the percentage of any dividends
paid which may qualify for such tax-free treatment at the
end of each calendar year. Shareholders should then consult
with their own tax advisors with respect to the application
of their state and local laws to these distributions and the
application of other state and local laws on distributions
and redemption proceeds received from the Fund.

Persons who are defined in the Code as "substantial users"
(or related persons) of facilities financed by private
activity bonds should consult with their tax advisors before
purchasing shares of the Fund.

The Fund's Underwriter

Distributors acts as principal underwriter in a continuous
public offering for shares of the Fund, pursuant to an
agreement with the Fund. The underwriting agreement is in
effect until March 31, 1996 and will continue in effect for
successive annual periods, provided that its continuance is
specifically approved at least annually by a vote of the
Trust's Board of Trustees, or by a vote of the holders of a
majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Trust's trustees who
are not parties to the underwriting agreement or interested
persons of any such party (other than as trustees of the
Trust), cast in person at a meeting called for that purpose.
The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either
party on 90 days' written notice.

Distributors pays the expenses of distribution of the Fund's
shares, including advertising expenses and the costs of
printing sales material and prospectuses used to offer
shares to the public. The Fund pays the expenses of
preparing and printing amendments to its registration
statements and prospectuses (other than those necessitated
by the activities of Distributors) and of sending
prospectuses to existing shareholders.

In connection with the offering of the Fund's shares,
aggregate underwriting commissions for the period September
21, 1992 (effective date of registration) to February 28,
1993 and the fiscal years ended February 28, 1994 and 1995,
were $77,920, $729,010 and $316,890, respectively. After
allowances to dealers, Distributors retained $2,935, $85,315
and $41,373, during the periods ended February 28, 1993,
1994 and 1995, respectively.

Distributors may be entitled to reimbursement under the
distribution plan of the Fund, as discussed below. Except as
noted, Distributors received no other compensation from the
Fund for acting as underwriter.

Distribution Plan

The Fund has adopted a distribution plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan") whereby the Fund may
pay up to a maximum of 0.10% per annum of its average daily
net assets for expenses incurred in the promotion and
distribution of its shares.

Pursuant to the Plan, Distributors or others will be
entitled to be reimbursed each quarter (up to the maximum as
stated above) for actual expenses incurred in the
distribution and promotion of the Fund's shares, including,
but not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and
distributing sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead
expenses attributable to the distribution of Fund shares, as
well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its
affiliates.

For the fiscal year ended February 28, 1995, the total
amount paid by the Fund pursuant to the Plan was $38,867,
all of which was used for payments to brokers or dealers.

In addition to the payments to which Distributors or others
are entitled under the Plan, the Plan also provides that to
the extent the Fund, the Manager or Distributors or other
parties on behalf of the Fund, the Manager or Distributors,
make payments that are deemed to be payments for the
financing of any activity primarily intended to result in
the sale of shares of the Fund within the context of Rule
12b-1 under the 1940 Act, then such payments shall be deemed
to have been made pursuant to the Plan.

In no event shall the aggregate asset-based sales charges
which include payments made under the Plan, plus any other
payments deemed to be made pursuant to the Plan, exceed the
amount permitted to be paid pursuant to the Rules of Fair
Practice of the National Association of Securities Dealers,
Inc., Article III, Section 26(d)4.

The terms and provisions of the Plan relating to required
reports, term, and approval are consistent with Rule 12b-1.
The Plan does not permit unreimbursed expenses incurred in a
particular year to be carried over to or reimbursed in
subsequent years.

To the extent fees are for distribution or marketing
functions, as distinguished from administrative servicing or
agency transactions, certain banks will not be entitled to
participate in the Plan to the extent that applicable
federal law prohibits certain banks from engaging in the
distribution of mutual fund shares. Such banking
institutions, however, are permitted to receive fees under
the Plan for administrative servicing or for agency
transactions. If a bank were prohibited from providing such
services, its customers who are shareholders would be
permitted to remain shareholders of the Fund, and alternate
means for continuing the servicing of such shareholders
would be sought. In such an event, changes in the services
provided might occur and such shareholders might no longer
be able to avail themselves of any automatic investment or
other services then being provided by the bank. It is not
expected that shareholders would suffer any adverse
financial consequences as a result of any of these changes.
Securities laws of states in which the Fund's shares are
offered for sale may differ from the interpretations of
federal law expressed herein, and banks and financial
institutions selling shares of the Fund may be required to
register as dealers pursuant to state law.

The Plan has been approved by Resources, the initial
shareholder of the Fund, and by the trustees of the Trust,
including those trustees who are not interested persons, as
defined in the 1940 Act. The Plan is effective through March
31, 1996 and renewable annually by a vote of the Trust's
Board of Trustees, including a majority vote of the trustees
who are non-interested persons of the Trust and who have no
direct or indirect financial interest in the operation of
the Plan, cast in person at a meeting called for that
purpose. It is also required that the selection and
nomination of such trustees be done by the non-interested
trustees. The Plan and any related agreement may be
terminated at any time, without any penalty, by vote of a
majority of the non-interested trustees on not more than 60
days' written notice, by Distributors on not more than 60
days' written notice, by any act that constitutes an
assignment of the management agreement with the Manager or
the underwriting agreement with Distributors, or by vote of
a majority of the Fund's outstanding shares. Distributors or
any dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written
notice.

The Plan and any related agreements may not be amended to
increase materially the amount to be spent for distribution
expenses without approval by a majority of the Fund's
outstanding shares, and all material amendments to the Plan
or any related agreements shall be approved by a vote of the
non-interested trustees, cast in person at a meeting called
for the purpose of voting on any such amendment.

Distributors is required to report in writing to the Board
of Trustees at least quarterly on the amounts and purpose of
any payment made under the Plan and any related agreements,
as well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to
enable the Board of Trustees to make an informed
determination of whether the Plan should be continued.

General Information

Performance

As noted in the Prospectus, the Fund may from time to time
quote various performance figures to illustrate its past
performance. The Fund may occasionally cite statistics to
reflect its volatility or risk.

Performance quotations by investment companies are subject
to rules adopted by the SEC. These rules require the use of
standardized performance quotations or, alternatively, that
every non-standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance
information computed as required by the SEC. Current yield
and average annual compounded total return quotations used
by the Fund are based on the standardized methods of
computing performance mandated by the SEC. An explanation of
those and other methods used by the Fund to compute or
express performance follows.

Total Return

The average annual total return is determined by finding the
average annual compounded rates of return over one-, five-
and ten-year periods, or fractional portion thereof, that
would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the
maximum front-end sales charge is deducted from the initial
$1,000 purchase order and income dividends and capital gains
are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each one-,
five- and ten-year period and the deduction of all
applicable charges and fees. If a change is made in the
sales charge structure, historical performance information
will be restated to reflect the maximum front-end sales
charge currently in effect.

In considering the quotations of total return by the Fund,
investors should remember that the maximum front-end sales
charge reflected in each quotation is a one-time fee
(charged on all direct purchases) which will have its
greatest impact during the early stages of an investor's
investment in the Fund. The actual performance of an
investment will be affected less by this charge the longer
an investor retains the investment in the Fund. The average
annual compounded rates of return for the Fund for the one-
year period ending February 28, 1995 was -0.20%, and for the
period from commencement of operations (September 23, 1992)
to February 28, 1995, was 5.68%.

These figures were calculated according to the SEC formula:
n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one-, five-, or ten-
year periods at the end of the one-, five- or ten-year
periods (or fractional portion thereof).

As discussed in the Prospectus, the Fund may quote total
rates of return in addition to its average annual total
return. Such quotations are computed in the same manner as
the Fund's average annual compounded rate, except that such
quotations will be based on the Fund's actual return for a
specified period rather than on its average return over one-
, five- and ten-year periods, or fractional portion thereof.
The total rate of return for the one-year period ended
February 28, 1995, was -0.20% and for the period from
commencement of operations (September 23, 1992) to February
28, 1995, was 14.40%.

Yield

Current yield reflects the income per share earned by the
Fund's portfolio investments.

Current yield is determined by dividing the net investment
income per share earned during a 30-day base period by the
maximum offering price per share on the last day of the
period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during
the base period. The yield for the Fund for the 30-day
period ended on February 28, 1995 was 5.34%.

These figures were obtained using the following SEC formula:
6
Yield = 2[(a-b + 1) - 1]
---
cd

where:

a = interest earned during the period

b = expenses accrued for the period (net of reimbursements)

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends

d = the maximum offering price per share on the last day of
the period

Tax Equivalent Yield

The Fund may also quote a tax equivalent yield which
demonstrates the taxable yield necessary to produce an after-
tax yield equivalent to that of a fund which invests in tax-
exempt obligations. Such yield is computed by dividing that
portion of the yield of a fund (computed as indicated above)
which is tax-exempt by one minus the highest applicable
federal income tax rate (and adding the product to that
portion of the yield of a fund that is not tax-exempt, if
any). The tax equivalent yield for the Fund for the 30-day
period ended on February 28, 1995 was 8.84%.

As of the date of this SAI, the federal income tax rate upon
which the Fund's tax equivalent yield quotations are based
was 39.6%. From time to time, as any changes to such rate
become effective, tax equivalent yield quotations advertised
by the Fund will be updated to reflect such changes. The
Fund expects updates may be necessary as tax rates are
changed by the federal government. The advantage of tax-free
investments, such as the Fund, will be enhanced by any tax
rate increases. Therefore, the details of specific tax
increases may be used in sales material for the Fund.

Current Distribution Rate

Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not
indicative of the amounts which were or will be paid to the
Fund's shareholders. Amounts paid to shareholders are
reflected in the quoted current distribution rate or taxable
equivalent distribution rate. The current distribution rate
is computed by dividing the total amount of dividends per
share paid by the Fund during the past 12 months by a
current maximum offering price. A taxable equivalent
distribution rate demonstrates the taxable distribution rate
equivalent to the Fund's current distribution rate
(calculated as indicated above). The advertised taxable
equivalent distribution rate will reflect the most current
federal tax rate available to the Fund.

Under certain circumstances, such as when there has been a
change in the amount of dividend payout or a fundamental
change in investment policies, it might be appropriate to
annualize the dividends paid over the period such policies
were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from
the current yield computation because it may include
distributions to shareholders from sources other than
dividends and interest, such as short-term capital gains,
and is calculated over a different period of time.

Volatility

Occasionally, statistics may be used to specify Fund
volatility or risk. Measures of volatility or risk are
generally used to compare the Fund's net asset value or
performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund
relative to the total market as represented by an index
considered representative of the municipal bond market. A
beta of more than 1.00 indicates volatility greater than the
market, and a beta of less than 1.00 indicates volatility
less than the market. Another measure of volatility or risk
is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an
average, over a specified period of time. The premise is
that greater volatility connotes greater risk undertaken in
achieving performance.

Other Performance Quotations

With respect to those categories of investors who are
permitted to purchase shares of the Fund at net asset value,
sales literature pertaining to the Fund may quote a current
distribution rate, yield, total return, average annual total
return and other measures of performance as described
elsewhere in this SAI with the substitution of net asset
value for the public offering price.

Regardless of the method used, past performance is not
necessarily indicative of future results, but is an
indication of the return to shareholders only for the
limited historical period used.

The Fund may include in its advertising or sales material
information relating to investment objectives and
performance results of funds belonging to the Templeton
Group of Funds. Resources is the parent company of the
advisers and underwriter of both the Franklin Group of
Funds(Registered Trademark) and Templeton Group of Funds.

Comparisons

To help investors better evaluate how an investment in the
Fund might satisfy their investment objective,
advertisements and other materials regarding the Fund may
discuss various measures of Fund performance as reported by
various financial publications. Materials may also compare
performance (as calculated above) to performance as reported
by other investments, indices, and averages. Such
comparisons may include, but are not limited to, the
following examples:

a) Salomon Brothers Broad Bond Index or its component
indices - The Broad Index measures yield, price, and total
return for Treasury, Agency, Corporate, and Mortgage bonds.

b) Lehman Brothers Aggregate Bond Index or its component
indices - The Aggregate Bond Index measures yield, price and
total return for Treasury, Agency, Corporate, Mortgage, and
Yankee bonds.

c) Lehman Brothers Municipal Bond Index (LBMBI) or its
component indices - LBMBI measures yield, price and total
return for the municipal bond market.

d) Financial publications: The Wall Street Journal and
Business Week, Financial World, Forbes, Fortune, and Money
magazines - provide performance statistics over specified
time periods.

e) Historical data supplied by the research departments of
First Boston Corporation, the J. P. Morgan companies,
Salomon Brothers, Merrill Lynch, Lehman Brothers and
Bloomberg, L.P.

f) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed
Income Fund Performance Analysis and Lipper - Mutual Fund
Yield Survey - measure total return and average current
yield for the mutual fund industry and rank individual
mutual fund performance over specified time periods,
assuming reinvestment of all distributions, exclusive of
sales charges.

g) Savings & Loan Historical Interest Rates as published by
the U.S. Savings & Loan League Fact Book.

h) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk,
total return, and average rate of return (average annual
compounded growth rate) over specified time periods for the
mutual fund industry.

i) Bond Buyer's 20-Bond Index - an index of municipal bond
yields based upon yields of 20 general obligation bonds
maturing in 20 years.

j) Bond Buyer's 40-Bond Index - an index of municipal bond
yields based upon yields of 40 revenue bonds maturing in 29
to 30 years.

From time to time, advertisements or information for the
Fund may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund. Such
advertisements or information may include symbols,
headlines, or other material which highlight or summarize
the information discussed in more detail in the
communication.

Advertisements or information may also compare the Fund's
performance to the return on certificates of deposit or
other investments. Investors should be aware, however, that
an investment in the Fund involves the risk of fluctuation
of principal value, a risk generally not present in an
investment in a certificate of deposit issued by a bank. For
example, as the general level of interest rates rise, the
value of the Fund's fixed-income investments, as well as the
value of its shares which are based upon the value of such
portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the
Fund's shares can be expected to increase. Certificates of
deposit are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any
federal, state or private entity.

In assessing such comparisons of performance, an investor
should keep in mind that the composition of the investments
in the reported indices and averages is not identical to the
Fund's portfolio, that the indices and averages are
generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the
formula used by the Fund to calculate its figures. In
addition, there can be no assurance that the Fund will
continue this performance as compared to such other
averages.

Other Features and Benefits

Franklin is a leader in the tax-free mutual fund industry,
currently offering 42 tax-free funds, including 33 funds
free from both federal and state personal income taxes, and
managing more than $40 billion in municipal bond assets for
over half a million investors.

Under current tax laws, municipal securities remain one of
the few investments offering the potential for tax-free
income. In 1995, taxes could cost as much as $47 on every
$100 earned from a fully taxable investment (based on the
maximum combined 39.6% federal tax rate and the highest
state tax rate of 12% for 1995.) Franklin tax-free funds,
however, offer tax relief through a professionally managed
portfolio of tax-free securities selected based on their
yield, quality and maturity. An investment in a Franklin tax-
free fund can provide an investor with the potential to earn
income free of federal taxes and, depending on the fund,
state and local taxes as well, while supporting state and
local public projects. Franklin tax-free funds may also
provide tax-free compounding, when dividends are reinvested.
An investment in Franklin's tax-free funds can grow more
rapidly than a similar taxable investment.

Municipal securities are generally considered to be
creditworthy, second in quality only to securities issued or
guaranteed by the United States government and its agencies.
The market price of such securities, however, may fluctuate.
This fluctuation will have a direct impact on the net asset
value of an investment in the Fund.

Currently, there are more mutual funds than there are stocks
listed on the Exchange. While many of them have similar
investment objectives, no two are exactly alike. As noted in
the Prospectus, shares of the Fund are generally sold
through securities dealers or other financial institutions.
Investment representatives of such securities dealers or
financial institutions are experienced professionals who can
offer advice on the type of investment suitable to an
investor's unique goals and needs, as well as the types of
risks associated with such investment.

The Fund may help investors achieve various investment
goals, such as accumulating money for retirement, saving for
a down payment on a home, college cost and/or other long-
term goals. The Franklin College Costs Planner may assist an
investor in determining how much money must be invested on a
monthly basis in order to have a projected amount available
in the future to fund a child's college education.
(Projected college cost estimates are based upon current
costs published by the College Board.) The Franklin
Retirement Planning Guide leads an investor through the
steps to start a retirement savings program. Of course, an
investment in the Fund cannot guarantee that such goals will
be met.

Miscellaneous Information

The Fund is a member of the Franklin Templeton Group, one of
the largest mutual fund organizations in the United States
and may be considered in a program for diversification of
assets. Founded in 1947, Franklin, one of the oldest mutual
fund organizations, has managed mutual funds for over 45
years and now services more than 2.4 million shareholder
accounts. In 1992, Franklin, a leader in managing fixed-
income mutual funds and an innovator in creating domestic
equity funds, joined forces with Templeton Worldwide, Inc.,
a pioneer in international investing. Together, the Franklin
Templeton Group has over $118 billion in assets under
management for more than 3.8 million shareholder accounts
and offers 112 U.S.-based mutual funds. The Fund may
identify itself by its NASDAQ or CUSIP number.

The Dalbar Surveys, Inc. broker/dealer survey has ranked
Franklin number one in service quality for five of the past
seven years.

According to Research and Ratings Review, Volume II, dated
February 28, 1994, Franklin's municipal research team ranked
number 2 out of 1,000 investment advisory firms surveyed by
TMS Holdings, Inc. As of November 14, 1994, this ranking was
unchanged.

From time to time, advertisements or sales material issued
by the Fund may discuss or be based upon information in a
recent issue of the Special Report on Tax Freedom Day
published by the Tax Foundation, a Washington, D.C.-based
nonprofit, research and public education organization. The
report illustrates, among other things, the amount of time,
on an annual basis, the average taxpayer works to satisfy
his or her tax obligations to the federal, state and local
taxing authorities.

Access persons of the Franklin Templeton Group, as defined
in SEC Rule 17(j) under the 1940 Act, who are employees of
Resources or its subsidiaries, are permitted to engage in
personal securities transactions subject to the following
general restrictions and procedures: (1) the trade must
receive advance clearance from a compliance officer and must
be completed within 24 hours after this clearance; (2)
copies of all brokerage confirmations must be sent to the
compliance officer, and within 10 days after the end of each
calendar quarter, a report of all securities transactions
must be provided to the compliance officer; (3) in addition
to items (1) and (2), access persons involved in preparing
and making investment decisions must file annual reports of
their securities holdings each January and also inform the
compliance officer (or other designated personnel) if they
own a security that is being considered for a fund or other
client transaction or if they are recommending a security in
which they have an ownership interest for purchase or sale
by a fund or other client.

The Trust amortizes the organizational expenses attributable
to the Fund over a period of five years from the effective
date of the registration statement covering the Fund.
Investors in the Fund will bear such expenses during the
amortization period.

The shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable as
partners for its obligations. The Trust's Declaration of
Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust.
The Declaration of Trust also provides for indemnification
and reimbursement of expenses out of Trust assets for any
shareholder held personally liable for obligations of the
Trust. The Declaration of Trust provides that the Trust
shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the
Trust and satisfy any judgment thereon. All such rights are
limited to the assets of the fund of which a shareholder
holds shares. The Declaration of Trust further provides that
the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the
protection of the Trust, its shareholders, trustees,
officers, employees and agents to cover possible tort and
other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance
exists and the Trust itself is unable to meet its
obligations.

Ownership and Authority Disputes

In the event of disputes involving multiple claims of
ownership or authority to control a shareholder's account,
the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all
persons deemed by the Fund to have a potential property
interest in the account, prior to executing instructions
regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c)
surrender ownership of all or a portion of the account to
the IRS in response to a Notice of Levy.

Appendix - Description of Municipal Securities Ratings

Municipal Bonds

Moody's

Aaa: Municipal bonds which are rated Aaa are judged to be of
the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt-
edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa: Municipal bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa group,
they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater
amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities.

A: Municipal bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment
sometime in the future.

Baa: Municipal bonds which are rated Baa are considered
medium-grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and,
in fact, have speculative characteristics as well.

Ba: Municipal bonds which are rated Ba are judged to have
predominantly speculative elements and their future cannot
be considered as well assured. Often the protection of
interest and principal payments may be very moderate and,
thereby, not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds
in this class.

B: Municipal bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be
small.

Caa: Municipal bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be
present elements of danger with respect to principal or
interest.

Ca: Municipal bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.

C: Municipal bonds which are rated C are the lowest-rated
class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real
investment standing.

Con. (-): Municipal bonds for which the security depends
upon the completion of some act or the fulfillment of some
condition are rated conditionally. These are bonds secured
by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments
to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of condition.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B in its
municipal bond ratings. The modifier 1 indicates that the
security ranks in the higher end of its generic rating
category. The modifier 2 indicates a mid-range ranking and
modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.

S&P

AAA: This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay
interest.

AA: Municipal bonds rated AA also qualify as high grade
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from
AAA issues only in small degree.

A: Municipal bonds rated A have a strong capacity to pay
principal and interest, although they are somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB: Municipal bonds rated BBB are regarded as having an
adequate capacity to pay principal and interest. Whereas
they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and
interest for bonds in this category than for bonds in the A
category.

BB, B, CCC, CC: Municipal bonds rated BB, B, CCC and CC are
regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will likely
have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.

C: This rating is reserved for income bonds on which no
interest is being paid.

D: Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears.

Note: The S&P ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within
the major rating categories.

Fitch

AAA bonds: Municipal bonds which are rated AAA are
considered to be of investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal which is
unlikely to be affected by reasonably foreseeable events.

AA bonds: Municipal bonds which are rated AA are considered
to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated
AAA, and is not significantly vulnerable to foreseeable
future developments.

A bonds: Municipal bonds which are rated A are considered to
be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances
than bonds with higher ratings.

BBB bonds: Municipal bonds which are rated BBB are
considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more
likely to have an adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.

Municipal Notes

Moody's

Moody's ratings for state, municipal and other short-term
obligations are designated Moody's Investment Grade ("MIG").
This distinction is in recognition of the differences
between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of
the first importance in long-term borrowing risk are of
lesser importance in the short run. Symbols used will be as
follows:

MIG-1: Notes are of the best quality and enjoy strong
protection from established cash flows of funds for their
servicing or from established and broad-based access to the
market for refinancing, or both.

MIG-2: Notes are of high quality, with margins of protection
ample, although not so large as in the preceding group.

MIG-3: Notes are of favorable quality, with all security
elements accounted for, but lacking the undeniable strength
of the preceding grades. Market access for refinancing, in
particular, is likely to be less well established.

MIG-4: Notes are of adequate quality, carrying specific risk
but having protection, and are not distinctly or
predominantly speculative.

S&P

Until June 29, 1984, S&P used the same rating symbols for
notes and bonds. After June 29, 1984, for new municipal note
issues due in three years or less, the ratings below usually
will be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.

SP-1: Issues carrying this designation have a very strong or
strong capacity to pay principal and interest. Issues
determined to possess overwhelming safety characteristics
will be given a "plus" (+) designation.

SP-2: Issues carrying this designation have a satisfactory
capacity to pay principal and interest.

Commercial Paper

Moody's

Moody's Commercial Paper ratings, which are also applicable
to municipal paper investments permitted to be made by the
Fund, are opinions of the ability of issuers to repay
punctually their promissory obligations not having an
original maturity in excess of nine months. Moody's employs
the following designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated
issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of
timely payment of debt having an original maturity of no
more than 365 days. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D"
for the lowest. Issues within the "A" category are
delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety, as follows:

A-1: This designation indicates the degree of safety
regarding timely payment is very strong. A plus (+)
designation indicates an even stronger likelihood of timely
payment.

A-2: Capacity for timely payment on issues with this
designation is strong. The relative degree of safety,
however, is not as overwhelming as for issues designated A-
1.

A-3: Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat
more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.

Fitch's Short-term and Commercial Paper Ratings

Fitch's short-term ratings apply to debt obligations that
are payable on demand or have original maturities of
generally up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal
and investment notes. The short-term rating places greater
emphasis than a long-term rating on the existence of
liquidity necessary to meet the issuer's obligations in a
timely manner.

F-1+: Exceptionally strong credit quality. Regarded as
having the strongest degree of assurance for timely payment.

F-1: Very strong credit quality. Reflects an assurance of
timely payment only slightly less in degree than issues
rated F-1+.

F-2: Good credit quality. A satisfactory degree of assurance
for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.

F-3: Fair credit quality. Have characteristics suggesting
that the degree of assurance for timely payment is adequate;
however, near-term adverse changes could cause these
securities to be rated below investment grade.

F-5: Weak credit quality. Have characteristics suggesting a
minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and
economic conditions.

D: Default. Actual or imminent payment default.

LOC: The symbol LOC indicates that the rating is based on a
letter of credit issued by a commercial bank.

Financial Statements

The financial statements contained in the Trust's Annual
Report to Shareholders dated February 28, 1995, are
incorporated herein by reference.

FRANKLIN
TAX-FREE TRUST
PROSPECTUS MAY 1, 1995

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN

Franklin Tax-Free Trust (the "Trust") is an open-end
management investment company consisting of 27 separate
series. As of May 1, 1995, most of the series offer two
classes of shares to their investors. This Prospectus
relates only to the seven series listed below, five of
which, as noted, currently offer two classes of shares:

Class I Class II
Franklin Arizona Insured Tax- not available
Free Income Fund, Class I
Franklin Florida Insured Tax- not available
Free Income Fund, Class I
Franklin Insured Tax-Free Franklin Insured Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Massachusetts Insured Franklin Massachusetts Insured
Tax-Free Income Fund, Class I Tax-Free Income Fund, Class II
Franklin Michigan Insured Tax- Franklin Michigan Insured Tax-
Free Income Fund, Class I Free Income Fund, Class II
Franklin Minnesota Insured Tax- Franklin Minnesota Insured Tax-
Free Income Fund, Class I Free Income Fund, Class II
Franklin Ohio Insured Tax-Free Franklin Ohio Insured Tax-Free
Income Fund, Class I Income Fund, Class II

Each Fund may, separately or collectively, be referred to as
the "Fund" or "Funds," the "State Funds" (for the six
insured state funds), or by the state and/or investment
policy included in its name. Each Fund may also be referred
to as Class I or Class II shares, as required within the
context of the discussion. The Arizona and Florida Insured
Funds will be included in all discussions pertaining to
Class I in this Prospectus. Investors can choose between
Class I shares, which generally bear a higher front-end
sales charge and lower ongoing Rule 12b-1 distribution fees
("Rule 12b-1 fees"), and Class II shares, if available for
the series, which generally have a lower front-end sales
charge and higher ongoing Rule 12b-1 fees. Investors should
consider the differences between the two classes
("multiclass"), including the impact of sales charges and
distribution fees, in choosing the more suitable class given
their anticipated investment amount and time horizon. See
"How to Buy Shares of the Funds - Alternative Purchase
Arrangements."

The Insured Fund invests in a diversified portfolio of
municipal securities from different states. Each of the
State Funds invests primarily in municipal securities issued
by its respective state and its political subdivisions,
agencies and instrumentalities. The Funds invest in
municipal securities which are covered by insurance
guaranteeing the scheduled payment of principal and
interest, in securities backed by or subject to an escrow
account secured by securities backed by the full faith and
credit of the United States ("U.S.") government, in
municipal securities secured by such U.S. government
obligations, and in short-term obligations of issuers with
the highest rating from Moody's Investors Service
("Moody's"), Standard & Poor's Corporation ("S&P") or Fitch
Investors Service, Inc. ("Fitch"). All insured securities
not insured by the issuer will be insured by a qualified
municipal bond insurer. An investment in any of the Funds is
not insured by the U.S. government or any state government.
(See "Insurance.")

This Prospectus is intended to set forth in a clear and
concise manner information about the Trust and each of the
seven Funds that a prospective investor should know before
investing. After reading the Prospectus, it should be
retained for future reference; it contains information about
the purchase and sale of shares and other items which a
prospective investor will find useful to have.

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.

A Statement of Additional Information ("SAI") concerning the
Funds described in this Prospectus, dated May 1, 1995, as
may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other
matters which may be of interest to some investors. It has
been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Trust or the Trust's
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors") at the address or telephone number shown
above.

THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN
DESCRIBED IN ANY STATE IN WHICH THE OFFERING IS NOT
AUTHORIZED. NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED FROM THE
UNDERWRITER.

CONTENTS PAGE

Expense Table

Financial Highlights

About the Funds

Investment Objective
and Policies of the Funds

Insurance

Management of the Funds

Distributions to Shareholders

Taxation of the Funds
and Their Shareholders

How to Buy Shares of the Funds

Other Programs and Privileges
Available to Shareholders of the Funds

Exchange Privilege

How to Sell Shares of the Funds

Telephone Transactions

Valuation of a Fund's Shares

How to Get Information Regarding
an Investment in a Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

Appendix A
Description of State Tax Treatment

Appendix B
Special Factors Affecting Each State Fund

Expense Table

The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in each Fund. These figures are based on the aggregate operating
expenses of each Fund(before fee waivers and expense reductions)
for the fiscal year ended February 28, 1995.

Massa-
chusetts Minne-
Arizona Florida Insured Michigan sota Ohio
Insured Insured Insured Fund Insured Insured Insured
Fund Fund Fund Class I Fund Fund Fund
Class I Class I Class I Class I Class I ClassI
Shareholder
Transaction
Expenses
Maximum Sales
Charge Imposed
on Purchases 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
(as a percentage
of offering
price)
Deferred Sales NONE NONE NONE NONE NONE NONE NONE
Charge*
Exchange Fee NONE NONE $5.00 NONE NONE NONE NONE
(per
transaction)**

Annual Fund
Operating
Expenses
(as a percentage
of average net 0.63%^^ 0.63%^^ 0.46% 0.53% 0.47% 0.50% 0.49%
assets)
Management Fees
Rule 12b-1 Fees^ 0.08% 0.09% 0.07%+ 0.07%+ 0.07%+ 0.07%+ 0.07%+
Other Expenses 0.25% 0.16% 0.06% 0.07 0.07% 0.09% 0.07%
Total Fund
Operating 0.96%^^ 0.88%^^ 0.59% 0.67% 0.61% 0.66 0.63%
Expenses

Massa
chuse Minneso
Insured tts Michigan ta Ohio
Fund Insured Insured Insured Insured
Class Fund Fund Fund Fund
II Class Class Class Class
II II II II

Shareholder
Transaction Expenses
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price)++ 1.00% 1.00% 1.00% 1.00% 1.00%
Deferred Sales 1.00% 1.00% 1.00% 1.00% 1.00%
Charge+++
Exchange Fee (per $5.00 NONE NONE NONE NONE
transaction)**

Annual Fund
Operating Expenses
(as apercentage of
average net assets)
Management Fees 0.46% 0.53% 0.47% 0.50% 0.49%
Rule 12b-1 Fees^ 0.65% 0.65% 0.65% 0.65% 0.65%
Other Expenses 0.06% 0.07% 0.08% 0.10% 0.08%
Total Fund Operating
Expenses 1.17% 1.25% 1.19% 1.24 1.21%

*Class I investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1%, which has not been reflected in the Example below,
is generally imposed on certain redemptions within a "contingency
period" of 12 months of the calendar month following such
investments. See "How to Sell Shares of a Fund - Contingent
Deferred Sales Charge."
**$5.00 fee imposed only on Timing Accounts in the Insured Fund;
the other Funds described in this Prospectus currently do not
permit investment by Timing Accounts. See "Exchange Privilege"
below for more information. All other exchanges are processed
without a fee.
^Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the
maximum front-end sales charges permitted under those same rules.
Rule 12b-1 fees for Class II are based on the maximum amount
allowed under Class II's plan of distribution. The Arizona and
Florida Insured Funds' plan of distribution have been in effect
since the inception of these Funds. Class I's plan for the other
Funds was effective May 1, 1994, and Class II's plan is effective
May 1, 1995.
^^Represents the amount that would have been payable by the each
Fund absent a fee reduction by the investment manager. The
investment manager, however, has agreed in advance to waive a
portion of its management fee and assume responsibility for
making payments to offset certain operating expenses otherwise
payable by the Fund. With this reduction, the Arizona Insured
Fund paid no management fees, and total operating expenses
represented .10% of its average net assets. The Florida Insured
Fund paid management fees and total operating expenses of .11%
and .35%, respectively, of its average net assets. These
arrangements may be terminated by the investment manager at any
time.
+Annualized. Actual Rule 12b-1 fees incurred by the Insured,
Massachusetts, Michigan, Minnesota and Ohio Funds for the ten
month period ended February 28, 1995 were 0.06% for each Fund.
++Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fee for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take less than six years for shareholders who maintain total
shares valued at less than $100,000 in the Franklin Templeton
Funds. Shareholders with larger investments in the Franklin
Templeton Funds will reach the crossover point more quickly.
+++Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
++++"Other Expenses" for Class II shares are estimates based on
actual expenses incurred by Class I shares for the fiscal year
ended February 28, 1995.

Investors should be aware that the preceding table is not
intended to reflect in precise detail the fees and expenses
associated with an individual shareholder's own investment in
each Fund listed. Rather, the table has been provided only to
assist investors in gaining a more complete understanding of
fees, charges and expenses. For a more detailed discussion of
these matters, investors should refer to the appropriate sections
of this Prospectus.

Example

As required by regulations of the SEC, the following example
illustrates the expenses, including the maximum front-end sales
charge and applicable contingent deferred sales charge, that
apply to a $1,000 investment in each Fund over various time
periods assuming (1) a 5% annual rate of return for each Fund and
(2) redemption at the end of each time period.

Class I

Massach Minne-
Arizona Florida usetts Michigan sota Ohio
Insured Insured Insured Insured Insured Insured Insured
Fund Fund Fund Fund Fund Fund Fund
One Year $ 52 $ 51 $ 48 $ 49 $ 49 $ 49 $ 49
Three Years 72 69 61 63 62 63 62
Five Years 93 89 75 79 76 78 77
Ten Years 155 146 114 124 117 122 119

Class II

Massach Minne-
usetts Michigan sota Ohio
Insured Insured Insured Insured Insured
Fund Fund Fund Fund Fund
One Year $ 32 $ 33 $ 32 $ 33 $ 32
Three Years 47 50 48 49 48
Five Years 73 79 75 78 76
Ten Years 151 161 154 160 156

This example is based on the aggregate annual operating expenses
of each Fund shown above and should not be considered a
representation of future expenses which may be more or less than
those shown. The operating expenses are borne by each Fund, and
only indirectly by shareholders as a result of their investment
in such Fund. In addition, federal regulations require the
example to assume an annual return of 5%, but each Fund's actual
return may be more or less than 5%.

FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

Set forth below is a table containing the financial highlights
for a share of Class I of each Fund from the effective date of the registration
statement for each Fund, as indicated below, through the fiscal year ended
February 28, 1995. The information for each of the five fiscal years in the
period ended February 28, 1995, has been audited by Coopers & Lybrand,
independent auditors, whose audit report appears in the financial statements in
the Fund's SAI . The remaining figures, which are also audited, are not covered
by the auditor's current report. Information regarding
Class II shares will be included in this table after
they have been offered to the public for a reasonable
period of time. See also, "General Information - Reports
to Shareholders."

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
NET
NET REALIZED & DISTRI- DISTRI-
ASSET UNREALIZED TOTAL BUTIONS BUTIONS NET ASSET
YEAR VALUE NET GAIN FROM FROM NET FROM VALUE
ENDED BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END
FEB. 28 OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR
- ------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ $10.00 $0.69 $ 1.343 $ 2.033 $(0.423) $ -- $(0.423) $11.61
1987 11.61 0.80 0.541 1.341 (0.852) (0.079) (0.931) 12.02
1988 12.02 0.79 (0.837) (0.047) (0.852) (0.001) (0.853) 11.12
1989 11.12 0.78 0.032 0.812 (0.852) -- (0.852) 11.08
1990 11.08 0.78 0.204 0.984 (0.804) -- (0.804) 11.26
1991 11.26 0.78 0.156 0.936 (0.786) -- (0.786) 11.41
1992 11.41 0.74 0.298 1.038 (0.768) -- (0.768) 11.68
1993 11.68 0.74 0.751 1.491 (0.741) -- (0.741) 12.43
1994 12.43 0.73 0.020 0.750 (0.730) -- (0.730) 12.45
1995 12.45 0.71 (0.481) 0.229 (0.709) -- (0.709) 11.97
<CAPTION>
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ 10.00 0.61 1.045 1.655 (0.405) -- (0.405) 11.25
1987 11.25 0.74 0.226 0.966 (0.816) -- (0.816) 11.40
1988 11.40 0.71 (0.725) (0.015) (0.775) -- (0.775) 10.61
1989 10.61 0.71 (0.017) 0.693 (0.713) -- (0.713) 10.59
1990 10.59 0.72 0.118 0.838 (0.708) -- (0.708) 10.72
1991 10.72 0.72 0.040 0.760 (0.720) -- (0.720) 10.76
1992 10.76 0.68 0.307 0.987 (0.717) -- (0.717) 11.03
1993 11.03 0.69 0.685 1.375 (0.675) -- (0.675) 11.73
1994 11.73 0.67 0.092 0.762 (0.682) -- (0.682) 11.81
1995 11.81 0.66 (0.468) 0.192 (0.662) -- (0.662) 11.34
<CAPTION>

RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------
NET
RATIO OF INVESTMENT
YEAR NET ASSETS EXPENSES INCOME PORTFOLIO
ENDED TOTAL AT END TO AVERAGE TO AVERAGE TURNOVER
FEB. 28 RETURN** OF YEAR NET ASSETS NET ASSETS RATE
(IN 000'S)
- ----------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 22.46%++ $ 28,696 0.24% 6.29% 97.58%
1987 11.84 182,994 0.72 6.14 18.93
1988 (0.17) 316,606 0.62 7.03 5.65
1989 7.38 551,436 0.58 7.01 12.79
1990 8.81 711,300 0.54 6.92 11.96
1991 8.38 850,089 0.53 6.95 9.76
1992 9.29 1,130,592 0.53 6.55 6.35
1993 12.93 1,539,186 0.53 6.22 7.95
1994 5.93 1,802,548 0.52 5.79 6.85
1995 2.03 1,683,234 0.59 6.00 14.42
<CAPTION>
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 18.27++ 17,655 0.23 6.32 51.07
1987 8.71 73,285 0.75 5.90 3.34
1988 0.07 102,764 0.80 6.71 12.50
1989 6.56 109,851 0.75* 6.81 22.97
1990 7.82 123,906 0.72 6.65 14.14
1991 7.10 152,622 0.70 6.72 11.47
1992 9.34 218,336 0.67 6.40 7.49
1993 12.61 278,510 0.64 6.09 9.65
1994 6.39 307,013 0.60 5.69 13.82
1995 1.83 288,331 0.67 5.89 16.90
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------------------
NET
NET REALIZED & DISTRI- DISTRI-
ASSET UNREALIZED TOTAL BUTIONS BUTIONS NET ASSET
YEAR VALUE NET GAIN FROM FROM NET fROM VALUE
ENDED BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END
FEB. 28 OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR
- ------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ $10.00 $0.62 $1.041 $1.661 $(0.411) $ -- $(0.411) $11.25
1987 11.25 0.76 0.488 1.248 (0.828) -- (0.828) 11.67
1988 11.67 0.75 (0.735) 0.015 (0.795) -- (0.795) 10.89
1989 10.89 0.74 0.032 0.772 (0.772) -- (0.772) 10.89
1990 10.89 0.75 0.152 0.902 (0.732) -- (0.732) 11.06
1991 11.06 0.75 0.124 0.874 (0.744) -- (0.744) 11.19
1992 11.19 0.71 0.254 0.964 (0.744) -- (0.744) 11.41
1993 11.41 0.71 0.766 1.476 (0.706) -- (0.706) 12.18
1994 12.18 0.70 0.066 0.766 (0.706) -- (0.706) 12.24
1995 12.24 0.69 (0.484) 0.206 (0.686) -- (0.686) 11.76
<CAPTION>
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ 10.00 0.67 1.393 2.063 (0.423) -- (0.423) 11.64
1987 11.64 0.79 0.437 1.227 (0.847) -- (0.847) 12.02
1988 12.02 0.75 (0.718) 0.032 (0.792) -- (0.792) 11.26
1989 11.26 0.76 0.012 0.772 (0.792) -- (0.792) 11.24
1990 11.24 0.77 0.182 0.952 (0.792) -- (0.792) 11.40
1991 11.40 0.76 0.072 0.832 (0.792) -- (0.792) 11.44
1992 11.44 0.73 0.275 1.005 (0.765) -- (0.765) 11.68
1993 11.68 0.73 0.667 1.397 (0.727) -- (0.727) 12.35
1994 12.35 0.70 (0.014) 0.686 (0.706) -- (0.706) 12.33
1995 12.33 0.69 (0.451) 0.239 (0.685 (0.004) (0.889) 11.88
<CAPTION>
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ 10.00 0.64 1.083 1.723 (0.413) -- (0.413) 11.31
1987 11.31 0.77 0.452 1.222 (0.842) -- (0.842) 11.69
1988 11.69 0.74 (0.765) (0.025) (0.732) (0.003) (0.735) 10.93
1989 10.93 0.74 0.082 0.822 (0.732) -- (0.732) 11.02
1990 11.02 0.75 0.141 0.891 (0.741) -- (0.741) 11.17
1991 11.17 0.75 0.172 0.922 (0.762) -- (0.762) 11.33
1992 11.33 0.71 0.275 0.985 (0.765) -- (0.765) 11.55
1993 11.55 0.72 0.776 1.496 (0.706) -- (0.706) 12.34
1994 12.34 0.70 0.066 0.766 (0.706) -- (0.706) 12.40
1995 12.40 0.69 (0.499) 0.191 (0.691) -- (0.691) 11.90
<CAPTION>
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994+++ 10.00 0.34 0.265 0.605 (0.325) -- (0.325) 10.28
1995 10.28 0.55 (0.485) 0.065 (0.545) -- (0.545) 9.80
<CAPTION>
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994+++ 10.00 0.34 0.060 0.400 (0.330) -- (0.330) 10.07
1995 10.07 0.52 (0.531) (0.11) (0.529) -- (0.529) 9.53
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------
NET
RATIO OF INVESTMENT
YEAR NET ASSETS EXPENSES INCOME PORTFOLIO
ENDED TOTAL AT END TO AVERAGE TO AVERAGE TURNOVER
FEB. 28 RETURN** OF YEAR NET ASSETS NET ASSETS RATE
- -----------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 18.36%++ $ 67,507 0.36% 6.29% 34.18%
1987 11.28 234,890 0.78 6.13 4.80
1988 0.33 291,806 0.72 6.85 10.16
1989 7.15 370,238 0.67 6.86 9.83
1990 8.21 427,818 0.63 6.72 7.93
1991 7.93 515,313 0.61 6.72 4.17
1992 8.78 665,914 0.59 6.45 10.80
1993 13.23 882,361 0.58 6.09 2.04
1994 6.18 1,055,452 0.54 5.66 3.21
1995 1.87 1,037,717 0.61 5.87 9.12
<CAPTION>
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 22.77++ 30,603 0.24 6.57 37.37
1987 10.72 119,877 0.78 5.87 12.38
1988 0.48 155,509 0.76 6.68 19.11
1989 6.90 183,867 0.75* 6.80 15.19
1990 8.39 235,058 0.70 6.68 4.55
1991 7.29 284,779 0.67 6.62 9.12
1992 8.95 357,279 0.65 6.43 3.14
1993 12.23 445,767 0.63 6.12 5.58
1994 5.42 499,619 0.60 5.67 13.42
1995 2.12 479,934 0.66 5.81 17.59
<CAPTION>
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 19.04++ 27,004 0.23 6.61 54.11
1987 11.01 192,647 0.80 5.61 4.96
1988 (0.01) 193,702 0.75 6.80 15.54
1989 7.58 203,230 0.71 6.80 32.48
1990 8.00 224,722 0.65 6.71 10.80
1991 8.28 273,119 0.65 6.67 4.44
1992 8.86 409,044 0.62 6.36 1.16
1993 13.26 564,758 0.59 6.05 2.87
1994 6.08 686,398 0.56 5.59 7.29
1995 1.74 652,545 0.63 5.83 11.76
<CAPTION>
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1994+++ 6.04 12,895 0.03++* 4.85++ 62.88
1995 0.94 20,794 0.10 5.80 44.61
<CAPTION>
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1994+++ 3.97 32,150 --++* 4.97++ 28.72
1995 0.21 46,847 0.35 5.61 43.71
</TABLE>

+For the period April 3, 1985 (effective date of registration) to
February 28, 1986

++Annualized

+++For the period April 30, 1993 (effective date of registration) to February
28, 1994.

*During the fiscal year ended February 28, 1989, the investment manager limited
its management fees. Had such action not been taken, the ratio of expenses to
average net assets for Franklin Massachusetts Insured Tax-Free Income Fund and
Franklin Minnesota Insured Tax-Free Income Fund would have been .79% and .76%,
respectively. During the fiscal year ended February 28, 1994, the investment
manager limited its management fees and reimbursed other expenses incurred by
the Franklin Arizona Insured Tax-Free Income Fund and the Franklin Florida
Insured Tax-Free Income Fund. Had such action not been taken, the ratio of
expenses to average net assets for the Franklin Arizona Insured Tax-Free Income
Fund and the Franklin Florida Insured Tax-Free Income Fund would have been .83%
and .83%, respectively.
**Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 4.5% initial sales charge for the
Franklin Arizona Insured Tax-Free Income Fund and the Franklin Florida Insured
Tax-Free Income Fund and the maximum 4% initial sales charge for the other
Funds. (Effective July 1, 1994, the maximum initial sales charge has been
changed to 4.25% for all such Funds.) It assumes reinvestment of dividends at
net asset value for the Franklin Arizona Insured Tax-Free Income Fund and the
Franklin Florida Insured Tax-Free Income Fund, and at offering price for the
other Funds, and of capital gains, if any, at net asset value.

ABOUT THE TRUST

The Trust is an open-end management investment company, or
mutual fund, organized as a Massachusetts business trust in
September 1984 and registered with the SEC under the
Investment Company Act of 1940 (the "1940 Act"). The Trust
currently consists of 27 separate series, most of which
offer two classes of shares, as listed under the section
"General Information." Each Fund is a separate series of the
Trust's shares and maintains a totally separate investment
portfolio. This Prospectus relates only to the seven series
shown on the cover, of which only the Arizona and Florida
Insured Funds are non-diversified.

Shares of each Fund may be purchased (minimum investment of
$100 initially and $25 thereafter) at the current public
offering price. The current public offering price of the
Class I shares is equal to the net asset value (see
"Valuation of a Fund's Shares"), plus a variable sales
charge not exceeding 4.25% of the offering price, depending
upon the amount invested. The current public offering price
of the Class II shares is equal to the net asset value, plus
a sales charge of 1.0% of the amount invested. (See "How to
Buy Shares of a Fund.")

INVESTMENT OBJECTIVE
AND POLICIES OF EACH FUND

The Insured Fund's investment objective is to provide
investors with as high a level of income exempt from federal
income taxes as is consistent with prudent investment, while
seeking preservation of shareholders' capital. Each State
Fund's investment objective is to maximize income exempt
from federal income taxes and from the personal income
taxes, if any, for resident shareholders of the named state
to the extent consistent with prudent investing and the
preservation of shareholders' capital. The state of Florida
currently imposes no state personal income tax. Each Fund's
objective is a fundamental policy and may not be changed
without shareholder approval. There is, of course, no
assurance that each Fund's objective will be achieved.

In order to achieve its objective, the Insured Fund will
invest primarily in securities of states, territories and
possessions of the U.S. and the District of Columbia and
their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from
regular federal income taxes. Each State Fund will invest
primarily in municipal securities of its respective state
and its municipalities, other political subdivisions and
public authorities, the interest on which is exempt from
regular federal income taxes and the personal income taxes,
if any, of its respective state.

Under normal market conditions, the Insured Fund will
attempt to invest 100% and, as a matter of fundamental
policy, will invest at least 80% of the value of its net
assets in securities, the interest on which is exempt from
federal income taxes, including the individual alternative
minimum tax. Each State Fund will attempt to invest 100%
and, as a matter of fundamental policy, will invest at least
80% of the value of its net assets in securities, the
interest on which is exempt from federal income taxes and
from the personal income taxes, if any, of its respective
state. Thus it is possible, although not anticipated, that
up to 20% of a State Fund's net assets could be in municipal
securities from another state and/or taxable obligations,
including municipal obligations such as "private activity
bonds," the interest on which may be subject to the
alternative minimum tax. To the extent that a state requires
that a Fund consist of a specified amount of obligations of
such state or of the United States government, its agencies,
instrumentalities, commissions, possessions or territories
which are exempt from taxation under the laws of such state
in order for any portion of the distributions from such Fund
to be exempt from income taxation, a Fund will attempt to
invest at least the minimum of such amount in such
securities. See "Taxation of the Funds and Their
Shareholders" for additional information.

For temporary defensive purposes only, when the investment
manager believes that market conditions, such as rising
interest rates or other adverse factors, would cause serious
erosion of portfolio value, (i) each of the Funds may invest
more than 20% of its assets (which could be up to 100%) in
fixed-income obligations, the interest on which is subject
to regular federal income tax and (ii) a State Fund may
invest more than 20% of the value of its net assets (which
could be up to 100%) in instruments the interest on which is
exempt from regular federal income taxes but not to a
resident shareholder's named state's personal income taxes.
Such temporary investments will be limited to obligations
issued or guaranteed by the full faith and credit of the
U.S. government, or securities of other states, their
agencies or instrumentalities, or in the highest quality
commercial paper rated P-1 or A-1 by Moody's or S&P,
respectively.

Under normal circumstances, at least 65% of each Fund's
assets will be invested in insured municipal securities.
Although an insurer's quality standards are independently
determined and may vary from time to time, generally such
municipal securities are rated at the date of purchase in
one of the four highest ratings of S&P (AAA, AA, A and BBB
for bonds and SP-1 through SP-2 for notes) or of Moody's
(Aaa, Aa, A and Baa for bonds and MIG 1 through MIG 3 for
notes). Short-term tax-exempt commercial paper (which will
not be insured) will have a P-1, A-1 or F-1 short-term
rating by Moody's, S&P or Fitch, respectively, or will have
a long-term rating of Aaa, or equivalent, by Moody's, S&P or
Fitch. For a description of such ratings, see the Appendix
in the SAI. An insurer may also insure municipal securities
which are unrated or have lower S&P or Moody's ratings that,
in the judgment of such insurer, meet its insurance
standards.

A Fund may (i) borrow from banks for temporary or emergency
purposes up to 5% of its total assets and pledge up to 5% of
its total assets in connection therewith and (ii) lend up to
10% of its portfolio securities to qualified securities
dealers or other institutional investors, although each Fund
currently intends to limit its lending of securities to no
more than 5% of its total assets. A complete description of
each Fund's investment restrictions is included under
"Investment Restrictions" in the SAI.

It is the policy of each Fund that illiquid securities
(securities that cannot be disposed of within seven days in
the normal course of business at approximately the amount at
which the Fund valued the securities) may not constitute, at
the time of purchase more than 10% of the value of the total
net assets of the Fund.

MUNICIPAL SECURITIES

The term "municipal securities," as used in this Prospectus,
means obligations issued by or on behalf of states,
territories and possessions of the U.S. and the District of
Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from
federal income tax. An opinion as to the tax-exempt status
of a municipal security generally is rendered to the issuer
by the issuer's counsel at the time of issuance of the
security.

Municipal securities are used to raise money for various
public purposes such as constructing public facilities and
making loans to public institutions. Certain types of
municipal bonds are issued to provide funding for privately
operated facilities. Further information on the maturity and
funding classifications of municipal securities is included
in the SAI.

The Trust has no restrictions on the maturities of municipal
securities in which the Funds may invest. Each Fund will
seek to invest in municipal securities of such maturities
that, in the judgment of the Fund and its investment
manager, will provide a high level of current income
consistent with prudent investment. The investment manager
will also consider current market conditions and the
relative value of such insurance on such securities.

It is possible that any Fund from time to time will invest
more than 25% of its assets in a particular segment of the
municipal securities market, including, but not limited to,
hospital revenue bonds, housing agency bonds, tax-exempt
industrial development revenue bonds, transportation bonds
or pollution control revenue bonds. In such circumstances,
economic, business, political or other changes affecting one
bond (such as proposed legislation affecting the financing
of a project; shortages or price increases of needed
materials; or declining markets or needs for the projects)
might also affect other bonds in the same segment, thereby
potentially increasing market risk.

Yields on municipal securities vary, depending on a variety
of factors, including the general condition of the financial
markets and of the municipal securities market, the size of
a particular offering, the maturity of the obligation and
the credit rating of the issuer. Generally, municipal
securities of longer maturities produce higher current
yields than municipal securities with shorter maturities but
are subject to greater price fluctuation due to changes in
interest rates, tax laws and other general market factors.
Lower-rated municipal securities generally produce a higher
yield than higher-rated municipal securities due to the
perception of a greater degree of risk as to the ability of
the issuer to make timely payment of principal and interest
on its obligations.

The interest on bonds issued to finance public purpose state
and local government operations is generally tax-exempt for
regular federal income tax purposes. Interest on certain
private activity bonds (including those for housing and
student loans) issued after August 7, 1986, while still tax-
exempt, constitutes a preference item for taxpayers in
determining the federal alternative minimum tax under the
Internal Revenue Code of 1986, as amended (the "Code"), and
under the income tax provisions of some states. This
interest could subject a shareholder to, or increase
liability under, the federal and state alternative minimum
taxes, depending on the shareholder's tax situation. In
addition, all distributions derived from interest exempt
from regular federal income tax may subject a corporate
shareholder to, or increase liability under, the federal
alternative minimum tax, because such distributions are
included in the corporation's "adjusted current earnings."
In states with a corporate franchise tax, distributions of a
Fund may also be fully taxable to a corporate shareholder
under the state franchise tax system.

Consistent with each Fund's investment objectives, a Fund
may acquire such private activity bonds if, in the
investment manager's opinion, such bonds represent the most
attractive investment opportunity then available to a Fund.
For the fiscal year ended February 28, 1995, the portfolios
of the Funds the following percentages of their income from
bonds, the interest on which constitutes a preference item
subject to the federal alternative minimum tax for certain
investors:

FUND PERCENTAGE

Arizona Insured Fund 4.84%
Florida Insured Fund 0.21%
Insured Fund 7.78%
Massachusetts Insured Fund 3.77%
Michigan Insured Fund 5.00%
Minnesota Insured Fund 4.71%
Ohio Insured Fund 7.71%

Each Fund may purchase floating rate and variable rate
obligations. These obligations bear interest at rates that
are not fixed, but that vary with changes in prevailing
market rates on predesignated dates. Each Fund may also
invest in variable or floating rate demand notes ("VRDNs"),
which carry a demand feature that permits a Fund to tender
the obligation back to the issuer or a third party at par
value plus accrued interest prior to maturity, according to
the terms of the obligations, which amount may be more or
less than the amount the Fund paid for such obligation.
Frequently, VRDNs are secured by letters of credit or other
credit support arrangements. Although it is not a put option
in the usual sense, such a demand feature is sometimes known
as a "put." Except for the Franklin Arizona Insured Tax-Free
Income Fund and the Franklin Florida Insured Tax-Free Income
Fund, with respect to 75% of the total value of each Fund's
assets, no more than 5% of such value may be in securities
underlying "puts" from the same institution, except that the
Fund may invest up to 10% of its asset value in
unconditional "puts" (exercisable even in the event of a
default in the payment of principal or interest on the
underlying security) and other securities issued by the same
institution. Because of the "put" feature, the prices of
VRDNs may be higher and the yields lower than they otherwise
would be for obligations without this feature. Each Fund
will limit its purchases of securities and variable rate
obligations to those meeting the quality standards set forth
in the Prospectus.

Each Fund may purchase and sell municipal securities on a
"when-issued" and "delayed-delivery" basis. These
transactions are subject to market fluctuation and the value
at delivery may be more or less than the purchase price.
Although the Funds will generally purchase municipal
securities on a when-issued basis with the intention of
acquiring such securities, they may sell such securities
before the settlement date if it is deemed advisable. When a
Fund is the buyer in such a transaction, it will maintain,
in a segregated account with its custodian, cash or high-
grade marketable securities having an aggregate value equal
to the amount of such purchase commitments until payment is
made. To the extent a Fund engages in "when-issued" and
"delayed-delivery" transactions, it will do so for the
purpose of acquiring securities for that Fund's portfolio
consistent with its investment objectives and policies and
not for the purpose of investment leverage.

CALLABLE BONDS

Each Fund may purchase and hold callable municipal bonds
which contain a provision in the indenture permitting the
issuer to redeem the bonds prior to their maturity dates at
a specified price which typically reflects a premium over
the bonds' original issue price. These bonds generally have
call-protection (that is, a period of time during which the
bonds may not be called) which usually lasts for 5 to 10
years, after which time such bonds may be called away. An
issuer may generally be expected to call its bonds, or a
portion of them, during periods of declining interest rates,
when borrowings may be replaced at lower rates than those
obtained in prior years. If the proceeds of a bond called
under such circumstances are reinvested, the result may be a
lower overall yield due to lower current interest rates. If
the purchase price of such bonds included a premium related
to the appreciated value of the bonds, some or all of that
premium may not be recovered by bondholders, such as the
Funds, depending on the price at which such bonds were
redeemed.

CERTIFICATES OF PARTICIPATION

Each Fund may also invest in municipal lease obligations
primarily through Certificates of Participation ("COPs").
COPs, which are widely used by state and local governments
to finance the purchase of property, function much like
installment purchase agreements. For example, COPs may be
created when long-term lease revenue bonds are issued by a
governmental corporation to pay for the acquisition of
property or facilities which are then leased to a
municipality. The payments made by the municipality under
the lease are used to repay interest and principal on the
bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of
the property for a nominal sum. This lease format is
generally not subject to constitutional limitations on the
issuance of state debt, and COPs may enable a governmental
issuer to increase government liabilities beyond
constitutional debt limits.

A feature which distinguishes COPs from municipal debt is
that the lease which is the subject of the transaction must
contain a "nonappropriation" or "abatement" clause. A
nonappropriation clause provides that while the municipality
will use its best efforts to make lease payments, the
municipality may terminate the lease without penalty if the
municipality's appropriating body does not allocate the
necessary funds. Local administrations, faced with
increasingly tight budgets, therefore, have more discretion
to curtail payments under COPs than they do to curtail
payments on traditionally funded debt obligations. If the
government lessee does not appropriate sufficient monies to
make lease payments, the lessor or its agent is typically
entitled to repossess the property. In most cases, however,
the private sector value of the property may be less than
the amount the government lessee was paying. While the risk
of nonappropriation is inherent to COP financing, the Funds
believe that this risk is mitigated by their policy of
investing only in insured COPs. While the risk of
nonappropriation is inherent to COP financing, the Funds
believe that this risk is mitigated by their policy of
investing only in insured COPs. While there is no limit as
to the amount of assets which each Fund may invest in COPs,
as of February 28, 1995, none of the Funds held as much as
5% of their total assets in COPs and other municipal leases,
except for the Florida Insured Fund, which held 12.94% of
the total face amount of the securities in its portfolio in
COPs and other municipal leases.

INVESTMENT RISK CONSIDERATIONS

While an investment in any of the Funds is not without risk,
certain policies are followed in managing the Funds which
may help to reduce such risk. There are two categories of
risks to which a Fund is subject: credit risk and market
risk. Credit risk is a function of the ability of an issuer
of a municipal security to maintain timely interest payments
and to pay the principal of a security upon maturity. It is
generally reflected in a security's underlying credit rating
and its stated interest rate (normally the coupon rate). A
change in the credit risk associated with a municipal
security may cause a corresponding change in the security's
price. Market risk is the risk of price fluctuation of a
municipal security caused by changes in general economic and
interest rate conditions generally affecting the market as a
whole. A municipal security's maturity length also affects
its price. As with other debt instruments, the price of the
debt securities in which a Fund invests are likely to
decrease in times of rising interest rates. Conversely, when
rates fall, the value of a Fund's debt investments may rise.
Price changes of debt securities held by a Fund have a
direct impact on the net asset value per share of that Fund.
Since each State Fund generally will invest primarily in the
securities of its respective state, there are certain
specific factors and considerations concerning the states
which may affect the credit and market risk of the municipal
securities which such Fund purchases. These factors are
described in Appendix B to this Prospectus and in greater
detail in the SAI. THE INSURANCE DOES NOT GUARANTEE THE
MARKET VALUE OF THE MUNICIPAL SECURITIES AND, EXCEPT AS
INDICATED IN THIS PROSPECTUS, HAS NO EFFECT ON THE NET ASSET
VALUE, REDEMPTION PRICE, OR DIVIDENDS PAID BY THE FUND.

The Insured Fund is diversified nationally and, as a matter
of policy, this Fund will not invest more than 25% of its
net assets in the municipal securities of any one state or
territory. In addition, with respect to 75% of each Fund's
net assets, except the Trust's Arizona and Florida Insured
Funds, none of the Funds will, as a fundamental policy,
purchase a security if, as a result of the investment, more
than 5% of its assets would be in the securities of any
single issuer (with the exception of obligations of the U.S.
government). For this purpose, each political subdivision,
agency, or instrumentality and each multi-state agency of
which a state is a member, and each public authority which
issues private activity bonds on behalf of a private entity,
will be regarded as a separate issuer for determining the
diversification of each Fund's portfolio. A bond for which
the payments of principal and interest are secured by an
escrow account of securities backed by the full faith and
credit of the U.S. government ("defeased"), as described in
the SAI, in general, will not be treated as an obligation of
the original municipality for purposes of determining
diversification.

The Arizona and Florida Insured Funds are non-diversified
under the federal securities laws. As non-diversified Funds,
there are no restrictions under the 1940 Act on the
percentage of assets that may be invested at any time in the
securities of any one issuer. To the extent a Fund is not
fully diversified under the 1940 Act, it may be more
susceptible to adverse economic, political or regulatory
developments affecting a single issuer than would be the
case if the Fund were more broadly diversified. The Funds
intend, however, to comply with the diversification and
other requirements of the Code, applicable to "regulated
investment companies" so that they will not be subject to
federal income tax on their incomes and distributions to
shareholders will be free from regular federal income tax to
the extent they are derived from interest on municipal
securities. For this reason the Arizona and Florida Insured
Funds have each adopted an investment restriction, which may
not be changed without the approval of shareholders,
prohibiting them from purchasing a security, if as a result,
more than 25% of any such Fund's total assets would be
invested in the securities of a single issuer, or with
respect to 50% of such Fund's total assets, more than 5% of
such assets would be invested in the securities of a single
issuer.

INSURANCE

Except as indicated, each insured municipal security in the
portfolio of each Fund will be covered by either a "New
Issue Insurance Policy," a "Portfolio Insurance Policy"
issued by a qualified municipal bond insurer, or a
"Secondary Insurance Policy."

Any of the policies discussed herein are intended to insure
the scheduled payment of all principal and interest on each
individual municipal security (rather than the portfolio of
each Fund) when due. The insurance of principal refers to
the face or par value of each security and is not affected
by the price paid therefor by each Fund or the market value
thereof. Each municipal security is secured by an insurance
policy from one of several qualified insurance companies
which allows the investment manager to diversify among
credit enhancements. The Funds will acquire municipal
securities secured by insurance policies only where the
claims paying ability of the insurer thereof is rated "Aaa,"
or equivalent, by Moody's, S&P or Fitch.

NEW ISSUE INSURANCE POLICY

New Issue Insurance Policies, if any, have been obtained by
the respective issuers of the municipal securities and all
premiums for such securities have been paid in advance by
such issuers. Such policies are noncancelable and will
continue in force so long as the municipal securities are
outstanding and the respective insurers remain in business.
Since New Issue Insurance Policies remain in effect as long
as the securities are outstanding, the insurance may have an
effect on the resale value of securities in a Fund's
portfolio. Therefore, New Issue Insurance Policies may be
considered to represent an element of market value with
regard to municipal securities thus insured, but the exact
effect, if any, of this insurance on such market value
cannot be estimated. As stated earlier, the Fund will
acquire portfolio securities subject to New Issue Insurance
Policies only where the claims paying ability of the insurer
thereof is rated "Aaa," or equivalent, by Moody's, S&P or
Fitch.

In determining whether to insure any municipal security, the
insurer has applied its own standards, which are not
necessarily the same as the criteria used in regard to the
selection of securities by the investment manager. No
contract to purchase an insured municipal security is
entered into without either permanent insurance in place or
an irrevocable commitment to insure the municipal security
by a qualified insurer.

PORTFOLIO INSURANCE POLICY

The Portfolio Insurance Policy to be obtained by the Funds
from a qualified municipal bond insurer will be effective
only so long as the Funds are in existence, the insurer is
still in business and meeting its obligations, and the
municipal securities described in the policy continue to be
held by the Funds. In the event of a sale of any municipal
security by a Fund or payment thereof prior to maturity, the
Portfolio Insurance Policy terminates as to such municipal
security.

The Portfolio Insurance Policy to be obtained by the Funds
may also be canceled for failure to pay the premium.
Nonpayment of premiums on such policy obtained by the Funds
will, under certain circumstances, result in the
cancellation of a Portfolio Insurance Policy and will also
permit the insurer to take action against such Fund to
recover premium payments due. Premium rates for each issue
of securities covered by the Portfolio Insurance Policy may
not be changed regardless of the issuer's ability or
willingness to pay. The insurance premiums are payable
monthly by each Fund and are adjusted for purchases and
sales of covered securities during the month. The insurer
cannot cancel coverage already in force with respect to
municipal securities owned by a Fund and covered by the
Portfolio Insurance Policy, except for nonpayment of
premiums. In the event that a portfolio holding which has
been covered by a Portfolio Insurance Policy is pre-refunded
and irrevocably secured by a U.S. government security, the
insurance is no longer required. Any security for which
insurance is canceled other than as provided herein will be
sold by the Fund as promptly thereafter as possible.

The premium on each Fund's Portfolio Insurance Policy is an
item of expense and will be reflected in each Fund's average
annual expenses. The average annual premium rate for the
Portfolio Insurance Policy is determined by dividing the
amount of a Fund's annual Portfolio Insurance Policy premium
by the face amount of the insured bonds in its investment
portfolio covered by that policy. Premiums are paid from a
Fund's assets and reduce the current yield on its portfolio
by the amount thereof. When a Fund purchases a Secondary
Insurance Policy (see below), the single premium is added to
the cost basis of the municipal security and is not
considered an item of expense of that Fund.

Each Fund may also own, without insurance coverage,
municipal securities for which an escrow or trust account
has been established pursuant to the documents creating the
municipal security and containing sufficient U.S. government
securities backed by the government's full faith and credit
pledge in order to ensure the payment of principal and
interest on such bonds.

SECONDARY INSURANCE POLICY

Each Fund may at any time purchase from the provider of a
Portfolio Insurance Policy a permanent Secondary Insurance
Policy on any municipal security so insured and held by a
Fund. The coverage and obligation of a Fund to pay monthly
premiums under a Portfolio Insurance Policy would cease with
the purchase by that Fund of a Secondary Insurance Policy on
such security.

By purchasing a Secondary Insurance Policy, the Fund would,
upon payment of a single premium, obtain similar insurance
against nonpayment of scheduled principal and interest for
the remaining term of the security. Such insurance coverage
will be noncancelable and will continue in force so long as
the securities so insured are outstanding. One of the
purposes of acquiring such a policy would be to enable the
Fund to sell the portfolio security to a third party as a
AAA-rated insured security at a market price higher than
what otherwise might be obtainable if the security was sold
without the insurance coverage. (Such rating is not
automatic, however, and must specifically be requested from
Moody's, S&P or Fitch for each bond.) Such a policy would
likely be purchased if, in the opinion of the investment
manager, the market value or net proceeds of a sale by a
Fund would exceed the current value of the security (without
insurance) plus the cost of the policy. Any difference
between the excess of a security's market value as a AAA-
rated security over its market value without such rating,
including the single premium cost thereof, would inure to a
Fund in determining the net capital gain or loss realized by
that Fund upon the sale of the portfolio security. Each Fund
may purchase insurance under a Secondary Insurance Policy in
lieu of a Portfolio Insurance Policy at any time, regardless
of the effect of market value on the underlying municipal
security, if the investment manager believes such insurance
would best serve that Fund's interests in meeting its
objective and policies.

Since under the original agreement to provide a temporary
insurance policy a Fund has the right to purchase a
permanent Secondary Insurance Policy even if the security is
currently in default as to any payments by the issuer, such
Fund would have the opportunity to sell such security rather
than be obligated to hold the security in its portfolio in
order to continue in force the applicable Portfolio
Insurance Policy, as discussed below.

Because coverage under the Portfolio Insurance Policy
terminates upon sale of a security from a Fund's portfolio,
such insurance does not have an effect on the resale value
of the securities. Therefore, a Fund may retain any
municipal securities insured under a Portfolio Insurance
Policy which are in default or in significant risk of
default, and place a value on the insurance which will be
equal to the difference between the market value of the
defaulted security and the market value of similar
securities which are not in default. (See "Valuation of a
Fund's Shares.") Because of this policy, the Funds'
investment manager may be unable to manage a Fund's
portfolio to the extent that it holds defaulted securities,
which may limit its ability in certain circumstances to
purchase other municipal securities. While a defaulted
municipal security is held in a Fund's portfolio, that Fund
continues to pay the insurance premium thereon but also
collects interest payments from the insurer and retains the
right to collect the full amount of principal from the
insurer when the security comes due. This would not be
applicable if the Fund elected to purchase the Secondary
Insurance Policy discussed above in lieu of the Portfolio
Insurance Policy.

MUNICIPAL BOND INSURER

A "qualified municipal bond insurer" refers to companies
whose charter limits their risk assumption to insurance of
financial obligations only. This precludes assumption of
other types of risk, such as life, medical, fire and
casualty, auto and home insurance. The bond insurance
industry is a regulated industry. All bond insurers must be
licensed in each state in order to write financial
guaranties in that jurisdiction. Regulations vary from state
to state; however, most regulators require minimum standards
of solvency and limitations on leverage and investment of
assets. New York State, which is one of the most active
regulators, requires a minimum capital base of $72.5 million
for a new primary bond insurer. Regulators also place
restrictions on the amount an insurer can guarantee in
relation to the insurer's capital base. Neither the Funds
nor their investment manager make any representations as to
the ability of any insurance company to meet its obligation
to a Fund if called upon to do so. The SAI contains more
information on municipal bond insurers. Currently, there are
no bonds in a Fund's portfolio on which an insurer is paying
the principal or interest otherwise payable by the issuer of
the Fund's portfolio obligations.

HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF A FUND'S
ACTIVITIES

The assets of each Fund are invested in portfolio
securities. If the securities owned by a Fund increase in
value, the value of the shares of the Fund which the
shareholder owns will increase. If the securities owned by a
Fund decrease in value, the value of the shareholder's
shares will also decline. In this way, shareholders
participate in any change in the value of the securities
owned by a Fund.

In addition to the factors which affect the value of
individual securities, as described in the preceding
sections, a shareholder may anticipate that the value of a
Fund's shares will fluctuate with movements in the broader
bond markets. In particular, changes in interest rates will
affect the value of a Fund's portfolio and thus its share
price. Increased rates of interest which frequently
accompany higher inflation and/or a growing economy are
likely to have a negative effect on the value of a Fund's
shares. History reflects both increases and decreases in the
prevailing rate of interest and these may reoccur
unpredictably in the future.

MANAGEMENT OF THE FUNDS

The Board has carefully reviewed the multiclass structure to
ensure that no material conflict exists between the two
classes of shares. Although the Board does not expect to
encounter material conflicts in the future, the Board will
continue to monitor the Funds and will take appropriate
action to resolve such conflicts if any should later arise.

In developing the multiclass structure the Funds have
retained the authority to establish additional classes of
shares. It is the Funds' present intention to offer only two
classes of shares, but new classes may be offered in the
future, including the addition of a second class to those
Funds not currently offering them.

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as
the Funds' investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a
publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr.
who own approximately 20%, and 16%, respectively, of
Resources' outstanding shares. Resources is engaged in
various aspects of the financial services industry through
its various subsidiaries (the "Franklin Templeton Group").
Advisers acts as investment manager or administrator to 33
U.S. registered investment companies (112 separate series)
with aggregate assets of over $74 billion, approximately
$40.2 billion of which are in the municipal securities
market.

Pursuant to the management agreement, the Manager supervises
and implements each Fund's investment activities and
provides certain administrative services and facilities
which are necessary to conduct each Fund's business.

The management fees which Class I of each Fund paid to the
Manager during the fiscal year ended February 28, 1995 (as a
percentage of average net assets) were as follows:

CLASS I FUND NAME MA MANAGEMENT FEES PAID

Arizona Insured Fund 0.63%*
Florida Insured Fund 0.63%*
Insured Fund 0.46%
Massachusetts Insured 0.53%
Fund
Michigan Insured Fund 0.47%
Minnesota Insured Fund 0.50%
Ohio Insured Fund 0.49%

It is not anticipated that any of the Funds will incur a
significant amount of brokerage expenses because municipal
securities are generally traded on a "net" basis, that is,
in principal transactions without the addition or deduction
of brokerage commissions or transfer taxes. In the event
that a Fund does participate in transactions involving
brokerage commissions, it will be the Manager's
responsibility to select brokers through whom such
transactions will be effected. The Manager will try to
obtain the best execution on all such transactions. If it is
felt that more than one broker is able to provide the best
execution, the Manager would consider the furnishing of
quotations and of other market services, research,
statistical and other data for the Manager and its
affiliates, as well as the sale of shares of the Trust as
factors in selecting a broker. Further information is
included under "The Trust's Policies Regarding Brokers Used
on Portfolio Transactions" in the SAI.

Shareholder accounting and many of the clerical functions
for each Fund are performed by Franklin/Templeton Investor
Services, Inc. ("Investor Services" or "Shareholder Services
Agent") in its capacity as transfer agent and dividend-
paying agent. Investor Services is a wholly-owned subsidiary
of Resources.

During the fiscal year ended February 28, 1995, total
operating expenses paid by Class I of each Fund (as a
percentage of average net assets), including fees paid to
the Manager and Investor Services, were as follows:

CLASS I FUND NAME MA TOTAL OPERATING
EXPENSES

Arizona Insured Fund 0.96%
Florida Insured Fund 0.88%
Insured Fund 0.59%
Massachusetts Insured 0.67%
Fund
Michigan Insured Fund 0.61%
Minnesota Insured Fund 0.66%
Ohio Insured Fund 0.63%

*Represents the amount that would have been payable by each
Fund absent a fee reduction by the investment manager. The
investment manager, however, has agreed in advance to waive
a portion of its management fee and assume responsibility
for making payments to offset certain operating expenses
otherwise payable by the Fund. With this reduction, the
Arizona Insured Fund paid no management fees, and total
operating expenses represented .10% of its average net
assets. The Florida Insured Fund paid management fees and
total operating expenses of .11% and .35%, respectively, of
its average net assets. These arrangements may be terminated
by the investment manager at any time.

PLANS OF DISTRIBUTION

A separate Plan of Distribution has been approved and
adopted for each class ("Class I Plan" and "Class II Plan,"
respectively, or "Plans") pursuant to Rule 12b-1 under the
1940 Act. The Rule 12b-1 fees charged to each class will be
based solely on the distribution and servicing fees
attributable to that particular class. Any portion of fees
remaining from either Plan after distribution to securities
dealers of up to the maximum amount permitted under each
Plan may be used by that class to reimburse Distributors for
routine ongoing promotion and distribution expenses incurred
with respect to such class. Such expenses may include, but
are not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and
distributing sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead
expenses attributable to the distribution of shares of each
Fund, as well as any distribution or service fees paid to
securities dealers or their firms or others who have
executed a servicing agreement with the Funds, Distributors
or its affiliates.

The maximum amount which each Fund may pay to Distributors
or others under the Class I Plan for such distribution
expenses is 0.15% per annum of Class I's average daily net
assets of the Arizona and Florida Insured Funds and 0.10%
per annum of each Class I's average daily net assets for the
other Funds described in this Prospectus, payable on a
quarterly basis. All expenses of distribution and marketing
in excess of the maximum for each Fund stated above will be
borne by Distributors, or others who have incurred them,
without reimbursement from such Fund.

Under the Class II Plan, the maximum amount which each Fund
is permitted to pay to Distributors or others for
distribution expenses and related expenses is 0.50% per
annum of each Fund's Class II's shares daily net assets,
payable quarterly. All expenses of distribution, marketing
and related services over that amount will be borne by
Distributors, or others who have incurred them, without
reimbursement by the Funds. In addition, the Class II Plan
provides for an additional payment by each Fund of up to
0.15% per annum of each Fund's Class II shares' average
daily net assets as a servicing fee, payable quarterly. This
fee will be used to pay securities dealers or others for,
among other things, assisting in establishing and
maintaining customer accounts and records; assisting with
purchase and redemption requests; receiving and answering
correspondence; monitoring dividend payments from each Fund
on behalf of customers; or similar activities related to
furnishing personal services and/or maintaining shareholder
accounts.

Distributors, or its affiliates, may pay, from its own
resources, a commission of up to 1% of the amount invested
to securities dealers who initiate and are responsible for
purchases of Class II shares of each Fund. During the first
year after the purchase of Class II shares, Distributors
will keep a portion of the Plan fees assessed on the Class
II shares to partially recoup fees Distributors pays to
securities dealers.

Both Plans also cover any payments to or by the Funds,
Advisers, Distributors, or other parties on behalf of the
Funds, Advisers or Distributors, to the extent such payments
are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Funds
within the context of Rule 12b-1. The payments under the
Plans are included in the maximum operating expenses which
may be borne by each class of the Funds. For more
information, including a discussion of the Board's policies
with regard to the amount of each Plan's fees, please see
the SAI.

DISTRIBUTIONS TO SHAREHOLDERS

There are two types of distributions which a Fund may make
to its shareholders:

1. INCOME DIVIDENDS. Each Fund receives income in the form
of interest and other income derived from its investments.
This income, less the expenses incurred in the operation of
such Fund, is its net investment income from which income
dividends may be distributed. Thus, the amount of dividends
paid per share may vary with each distribution.

2. CAPITAL GAIN DISTRIBUTIONS. Each Fund may derive capital
gains or losses in connection with sales or other
dispositions of its portfolio securities. Distributions by
each Fund derived from net short-term and net long-term
capital gains (after taking into account any net capital
loss carryovers) may generally be made twice each year. One
distribution may be made in December to reflect any net
short-term and net long-term capital gains realized by such
Fund as of October 31 of such year. Any net short-term and
net long-term capital gains realized by a Fund during the
remainder of the fiscal year may be distributed following
the end of the fiscal year. These distributions, when made,
will generally be fully taxable to such Fund's shareholders.
Each Fund may make only one distribution derived from net
short-term and net long-term capital gains in any year or
adjust the timing of its distributions for operational or
other reasons.

DISTRIBUTIONS TO EACH CLASS OF SHARES

According to the requirements of the Code, dividends and
capital gains will be calculated and distributed in the same
manner for Class I and Class II shares. The per share amount
of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1
fees.

DISTRIBUTION DATE

Although subject to change by the Trust's Board of Trustees
without prior notice to or approval by shareholders, each
Fund's current policy is to declare income dividends daily
and pay them monthly on or about the last business day of
that month. The amount of income dividend payments by each
Fund is dependent upon the amount of net income received
from such Fund's portfolio holdings, is not guaranteed and
is subject to the discretion of the Trust's Board of
Trustees. THE FUNDS DO NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN THEIR SHARES.

DIVIDEND REINVESTMENT

Unless otherwise requested, income dividends and any capital
gain distributions, if any, will be automatically reinvested
in the shareholder's account in the form of additional
shares, valued at the closing net asset value (without sales
charge) on the dividend reinvestment date. Dividend and
capital gain distributions are only eligible for
reinvestment at net asset value in the same class of shares
of the Funds or the same class of another of the Franklin
Templeton Funds. Shareholders have the right to change their
election with respect to the receipt of distributions by
notifying the Funds, but any such change will be effective
only as to distributions for which the reinvestment date is
seven or more business days after such Fund has been
notified. See the SAI for more information.

Many of the Funds' shareholders receive their distributions
in the form of additional shares. This is a convenient way
to accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so
acquired remain at market risk.

DISTRIBUTIONS IN CASH

A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application
included with this Prospectus, a shareholder may direct the
selected distributions to the same class of another fund in
the Franklin Templeton Funds, to another person, or directly
to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing.
Dividends which may be paid in the interim will be sent to
the address of record. Additional information regarding
automated fund transfers may be obtained from Franklin's
Shareholder Services Department. See "Purchases at Net Asset
Value" under "How to Buy Shares of the Fund."

TAXATION OF THE FUNDS AND THEIR SHAREHOLDERS

The following discussion reflects some of the tax
considerations that affect mutual funds and their
shareholders. Additional information on tax matters relating
to the Funds and their shareholders is included in the
section entitled, "Additional Information Regarding
Taxation" in the SAI.

Each Fund is treated as a separate entity for federal income
tax purposes. Each Fund intends to continue to qualify for
treatment as a regulated investment company under Subchapter
M of the Code. By distributing all of its net income and
meeting certain other requirements relating to the sources
of its income and diversification of its assets, a Fund will
not be liable for federal income or excise taxes.

By meeting certain requirements of the Code, each Fund
continues to qualify to pay exempt-interest dividends to its
shareholders. Such exempt-interest dividends are derived
from interest income exempt from regular federal income tax
and are not subject to regular federal income tax for each
Fund's shareholders. In addition, to the extent that exempt-
interest dividends are derived from interest on obligations
of the state or its political subdivisions of the state of
residence of the shareholder, from interest on direct
obligations of the federal government, or from interest on
obligations of Puerto Rico, the U.S. Virgin Islands or Guam,
they may be exempt from personal income tax, if any, in such
state. More information on the state taxation of interest
from federal and municipal obligations is included in the
section "State Income Taxes" below and in "Appendix A -
Description of State Tax Treatment."

To the extent dividends are derived from taxable income from
temporary investments (including the discount from certain
stripped obligations or their coupons or income from
securities loans or other taxable transactions), from the
excess of net short-term capital gain over net long-term
capital loss, or from ordinary income derived from the sale
or disposition of bonds purchased with market discount after
April 30, 1993, they are treated as ordinary income whether
or not the shareholder has elected to receive them in cash
in additional shares.

From time to time, a Fund may purchase a tax-exempt
obligation with market discount; that is, for a price that
is less than the principal amount of the bond, or for a
price that is less than the principal amount of the bond
where the bond was issued with original issue discount and
such market discount exceeds a de minimis amount. For such
obligations purchased after April 30, 1993, a portion of the
gain on sale or disposition (not to exceed the accrued
portion of market discount as of the time of sale or
disposition) is treated as ordinary income rather than
capital gain. Any distribution by a Fund of such ordinary
income to its shareholders will be subject to regular
federal and state income taxes in the hands of that Fund's
shareholders. In any fiscal year, a Fund may elect not to
distribute to its shareholders its taxable ordinary income
and to, instead, pay federal income or excise taxes on this
income at the Fund level. The amount of such distributions,
if any, is expected to be small.

Pursuant to the Code, certain distributions which are
declared in October, November or December but which, for
operational reasons, may not be paid to the shareholder
until the following January, will be treated, for tax
purposes, as if paid by the Fund and received by the
shareholder on December 31 of the calendar year in which
they are declared.

Distributions derived from the excess of net long-term
capital gain over net short-term capital loss are treated as
long-term capital gain regardless of the length of time the
shareholder has owned shares of a Fund and regardless of
whether such distributions are received in cash or in
additional shares.

Redemptions and exchanges of a Fund's shares are taxable
events on which a shareholder may realize a gain or loss.
Any loss incurred on sale or exchange of a Fund's shares
held for six months or less will be treated as a long-term
capital loss to the extent of capital gain dividends
received with respect to such shares and will be disallowed
to the extent of exempt-interest dividends paid with respect
to such shares.

Each Fund will inform its shareholders of the source of
their dividends and distributions at the time they are paid,
and will promptly after the close of each calendar year
advise them of the tax status for federal income tax
purposes of such dividends and distributions, including the
portion of the dividends on an average basis which
constitutes taxable income or a tax preference item under
the federal alternative minimum tax. Shareholders who have
not held shares of a Fund for a full calendar year may have
designated as tax-exempt or as tax preference income a
percentage of income which is not equal to the actual amount
of tax-exempt or tax preference income earned during the
period of their investment in a Fund.

Exempt-interest dividends of a Fund, although exempt from
regular federal income tax in the hands of a shareholder,
are includable in the tax base for determining the extent to
which a shareholder's social security or railroad retirement
benefits will be subject to regular federal income tax.
Shareholders are required to disclose the receipt of tax-
exempt interest dividends on their federal income tax
returns.

Interest on indebtedness incurred (directly or indirectly)
by shareholders to purchase or carry a Fund's shares may not
be fully deductible for federal income tax purposes.

Shareholders who are not U.S. persons for purposes of
federal income taxation should consult with their financial
or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions received by them
from a Fund and the application of foreign tax laws to these
distributions.

STATE INCOME TAXES

The exemption of interest on tax-exempt municipal securities
for federal income tax purposes does not necessarily result
in exemption from the income, corporate or personal property
taxes of any state or city when such income is distributed
to shareholders of a mutual fund. Appendix A to this
Prospectus discusses the tax treatment of the State Funds
with respect to distributions from each respective Fund to
investors in such states. Generally, individual shareholders
of the Funds are afforded tax-exempt treatment at the state
level for distributions derived from municipal securities of
their state of residency. The state of Florida currently
imposes no state personal income tax.

Pursuant to federal law, interest received directly from
U.S. government obligations and from obligations of the U.S.
territories is generally exempt from taxation by all states
and their municipal subdivisions. Each state's treatment of
dividends paid from the interest earned on direct federal
and U.S. territorial obligations is discussed in "Appendix A
- - Description of State Tax Treatment."

Shareholders should consult their tax advisors with respect
to the applicability of other state and local intangible
property or income taxes to their shares in a Fund and to
distributions and redemption proceeds received from such
Fund.

Additional information on tax matters relating to a Fund and
its shareholders is included under the caption "Additional
Information Regarding Taxation" in the SAI.

HOW TO BUY SHARES OF A FUND

Shares of the Funds are continuously offered through
securities dealers which execute an agreement with
Distributors, the principal underwriter of each Fund's
shares. The use of the term "securities dealer" shall
include other financial institutions which, pursuant to an
agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with the
Funds. Such reference, however is for convenience only and
does not indicate a legal conclusion of capacity. Sales of
the shares of the Funds may be restricted to residents of
their respective states. The minimum initial investment in
each Fund is $100 and subsequent investments must be $25 or
more. These minimums may be waived when the shares are
purchased through plans established by the Franklin
Templeton Group. The Funds and Distributors reserve the
right to refuse any order for the purchase of shares. None
of the State Funds currently permit investment by market
timing or allocation services ("Timing Accounts"), which
generally include accounts administered so as to redeem or
purchase shares based upon certain predetermined market
indicators.

ALTERNATIVE PURCHASE ARRANGEMENTS. The difference between
Class I and Class II shares lies primarily in their front-
end and contingent deferred sales charges and Rule 12b-1
fees as described below. Currently the Arizona and Florida
Insured offer only Class I shares.

Class I. All shares of each Fund outstanding before the
implementation of the multiclass structure have been
redesignated as Class I shares, and will retain their
previous rights and privileges. Class I shares are generally
subject to a variable sales charge upon purchase and not
subject to any sales charge upon redemption. Class I shares
are subject to Rule 12b-1 fees of up to an annual maximum of
.10% of average daily net assets of such shares (.15% for
the Arizona and Florida Insured Funds).. With this
multiclass structure, Class I shares have higher front-end
sales charges than Class II shares and comparatively lower
Rule 12b-1 fees. Class I shares may be purchased at reduced
front-end sales charge or at net asset value if certain
conditions are met. In most circumstances, contingent
deferred sales charges will not be assessed against
redemptions of Class I shares. See "Management of the
Funds," and "How to Sell Shares of a Fund" for more
information.

Class II. The current public offering price of Class II
shares is equal to the net asset value, plus a front-end
sales charge of 1% of the amount invested. Class II shares
are also subject to a contingent deferred sales charge of
1.0% if shares are redeemed within 18 months of the calendar
month following purchase. In addition, Class II shares are
subject to Rule 12b-1 fees of up to a maximum of 0.65% of
average daily net assets of such shares. Class II shares
have lower front-end sales charges than Class I shares and
comparatively higher Rule 12b-1 fees. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of a Fund."

Purchases of Class II shares are limited to purchases below
$1 million. Any purchases of $1 million or more will
automatically be invested in Class I shares, since that is
more beneficial to investors. Such purchases, however, may
be subject to a contingent deferred sales charge. Investors
may exceed $1 million in Class II shares by cumulative
purchases over a period of time. Investors who intend to
make investments exceeding $1 million, however, should
consider purchasing Class I shares through a Letter of
Intent instead of purchasing Class II shares.

DECIDING WHICH CLASS TO PURCHASE. Investors should carefully
evaluate their anticipated investment amount and time
horizon prior to determining which class of shares to
purchase. Generally, an investor who expects to invest less
than $100,000 in the Franklin Templeton Funds and who
expects to make substantial redemptions within approximately
six years or less of investment should consider purchasing
Class II shares. However, the higher annual Rule 12b-1 fees
on the Class II shares will result in slightly higher
operating expenses and lower income dividends for Class II
shares, which will accumulate over time to outweigh the
difference in initial sales charges. For this reason, Class
I shares may be more attractive to long-term investors even
if no sales charge reductions are available to them.

Investors who qualify to purchase Class I shares at reduced
sales charges definitely should consider purchasing Class I
shares, especially if they intend to hold their shares for
approximately six years or more. Investors who qualify to
purchase Class I shares at reduced sales charges but who
intend to hold their shares less than approximately six
years should evaluate whether it is more economical to
purchase Class I shares through a Letter of Intent or under
Rights of Accumulation or other means, rather than
purchasing Class II shares. INVESTORS INVESTING $1 MILLION
OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS WHO QUALIFY
TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE
PRECLUDED FROM PURCHASING CLASS II SHARES.

Each class represents the same interest in the investment
portfolio of the specific Fund and has the same rights,
except that each class has a different sales charge, bears
the separate expenses of its Rule 12b-1 distribution plan,
and has exclusive voting rights with respect to such plan.
The two classes also have separate exchange privileges.

PURCHASE PRICE OF SHARES OF A FUND

Shares of both classes of the Funds are offered at their
respective public offering prices, which are determined by
adding the net asset value per share plus a front-end sales
charge, next computed (1) after the shareholder's securities
dealer receives the order which is promptly transmitted to
such Fund, or (2) after receipt of an order by mail from the
shareholder directly in proper form (which generally means a
completed Shareholder Application accompanied by a
negotiable check).

CLASS I. The sales charge for Class I shares is a variable
percentage of the offering price depending upon the amount
of the sale. The offering price will be calculated to two
decimal places using standard rounding criteria. A
description of the method of calculating net asset value per
share is included under the caption "Valuation of a Fund's
Shares."

Set forth below is a table of total front-end sales charges
or underwriting commissions and dealer concessions for Class
I shares.

CLASS I SHARES TOTAL SALES CHARGE

SIZE OF AS A PERCENTAGE AS A PERCENTAGE DEALER
TRANSACTION AT OF OFFERING OF NET AMOUNT CONCESSION AS A
OFFERING PRICE PRICE INVESTED PERCENTAGE OF
OFFERING
PRICE*,***

Less than 4.25% 4.44% 4.00%
$100,000

$100,000 but 3.50% 3.63% 3.25%
less than
$250,000

$250,000 but 2.75% 2.83% 2.50%
less than
$500,000

$500,000 but 2.15% 2.20% 2.00%
less than
$1,000,000

$1,000,000 none none (see below)**
or more

*Financial institutions or their affiliated brokers may
receive an agency transaction fee in the percentages set
forth above.

***At the discretion of Distributors, all sales charges may
at times be allowed to the securities dealer. If 90% or more
of the sales commission is allowed, such securities dealer
may be deemed to be an underwriter as that term is defined
in the Securities Act of 1933, as amended.

No front-end sales charge applies on investments of $1
million or more, but a contingent deferred sales charge of
1% is imposed on certain redemptions of all or a portion of
investments of $1 million within the contingency period. See
"How to Sell Shares of a Fund - Contingent Deferred Sales
Charge."

The size of a transaction which determines the applicable
sales charge on the purchase of Class I shares is determined
by adding the amount of the shareholder's current purchase
plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the
funds in the Franklin Group of Funds(Registered Trademark)
and the Templeton Group of Funds. Included for these
aggregation purposes are (a) the mutual funds in the
Franklin Group of Funds except Franklin Valuemark Funds and
Franklin Government Securities Trust (the "Franklin Funds"),
(b) other investment products underwritten by Distributors
or its affiliates (although certain investments may not have
the same schedule of sales charges and/or may not be subject
to reduction) and (c) the U.S. registered mutual funds in
the Templeton Group of Funds except Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton
Funds"). (Franklin Funds and Templeton Funds are
collectively referred to as the "Franklin Templeton Funds.")
Sales charge reductions based upon aggregate holdings of
(a), (b) and (c) above ("Franklin Templeton Investments")
may be effective only after notification to Distributors
that the investment qualifies for a discount.

OTHER PAYMENTS TO SECURITIES DEALERS. Distributors, or one
of its affiliates, may make payments, out of its own
resources, of up to 1.00% of the amount purchased to
securities dealers who initiate and are responsible for
purchases made at net asset value by certain trust companies
and trust departments of banks. See definitions under
"Description of Special Net Asset Value Purchases" and as
set forth in the SAI.

Class II. Unlike Class I shares, the front-end sales charges
and dealer concessions for Class II shares do not vary
depending on the amount of purchase. See table below:

CLASS II SHARES TOTAL SALES CHARGE

SIZE OF AS A AS A DEALER
TRANSACTION PERCENTAGE OF PERCENTAGE OF CONCESSION AS
AT OFFERING NET OFFERING NET AMOUNT A PERCENTAGE
PRICE PRICE INVESTED OF OFFERING
PRICE*

any amount 1.00% 1.01% 1.00%
(less than $1
million)

*Distributors or one of its affiliates may make additional
payments to securities dealers, from its own resources, of
up to 1% of the amount invested. During the first year
following a purchase of Class II shares, Distributors will
keep a portion of the Rule 12b-1 fees assessed to those
shares to partially recoup fees Distributors pays to
securities dealers

Class II shares redeemed within 18 months of their purchase
will be assessed a contingent deferred sales charge of 1.0%
on the lesser of the then-current net asset value or the net
asset value of such shares at the time of purchase, unless
such charge is waived as described under "How to Sell Shares
of a Fund - Contingent Deferred Sales Charge."

Distributors, or one of its affiliates, out of its own
resources, may also provide additional compensation to
securities dealers in connection with sales of shares of the
Franklin Templeton Funds. Compensation may include financial
assistance to securities dealers in connection with
conferences, sales or training programs for their employees,
seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more of
the Franklin Templeton Funds and other dealer-sponsored
programs or events. In some instances, this compensation may
be made available only to certain securities dealers whose
representatives have sold or are expected to sell
significant amounts of shares of the Franklin Templeton
Funds. Compensation may include payment for travel expenses,
including lodging, incurred in connection with trips taken
by invited registered representatives and members of their
families to locations within or outside of the United States
for meetings or seminars of a business nature. Securities
dealers may not use sales of the Fund's shares to qualify
for this compensation to the extent such may be prohibited
by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. None
of the aforementioned additional compensation is paid for by
a Fund or its shareholders.

Additional terms concerning the offering of shares of the
Funds are included in the SAI.

Certain officers and trustees of the Trust are also
affiliated with Distributors. A detailed description is
included in the SAI.

QUANTITY DISCOUNTS IN SALES CHARGES - CLASS I SHARES ONLY

Class I shares may be purchased under a variety of plans
which provide for a reduced sales charge. To be certain to
obtain the reduction of the sales charge, the investor or
the securities dealer should notify Distributors at the time
of each purchase of shares which qualifies for the
reduction. In determining whether a purchase qualifies for a
discount, an investment in any of the Franklin Templeton
Investments may be combined with those of the investor's
spouse and children under the age of 21. In addition, the
aggregate investments of a trustee or other fiduciary
account (for an account under exclusive investment
authority) may be considered in determining whether a
reduced sales charge is available, even though there may be
a number of beneficiaries of the account. The value of Class
II shares owned by the investor may also be included for
this purpose.

In addition, an investment in Class I shares may qualify for
a reduction in the sales charge under the following
programs:

1. RIGHTS OF ACCUMULATION. The cost or current value
(whichever is higher) of existing investments in the
Franklin Templeton Investments may be combined with the
amount of the current purchase in determining the sales
charge to be paid.

2. LETTER OF INTENT. An investor may immediately qualify for
a reduced sales charge on a purchase of Class I shares by
completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention
to invest during the next 13 months a specified amount
which, if made at one time, would qualify for a reduced
sales charge and grants to Distributors a security interest
in the reserved shares and irrevocably appoints Distributors
as attorney-in-fact with full power of substitution to
surrender for redemption any or all shares for the purpose
of paying any additional sales charge due. Purchases under
the Letter will conform with the requirements of Rule 22d-1
under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a
purchase is made.

AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING
PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount
of the total intended purchase will be reserved in Class I
shares registered in the investor's name, to assure that the
full applicable sales charge will be paid if the intended
purchase is not completed. The reserved shares will be
included in the total shares owned as reflected on periodic
statements; income and capital gain distributions on the
reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by
the investor until the Letter of Intent has been completed
or the higher sales charge paid. For more information, see
"Additional Information Regarding Purchases" in the SAI.

Although the sales charges on Class II shares cannot be
reduced through these programs, the value of Class II shares
owned by the investor may be included in determining a
reduced sales charge to be paid on Class I shares pursuant
to the Letter of Intent and Rights of Accumulation programs.

GROUP PURCHASES OF CLASS I SHARES

An individual who is a member of a qualified group may also
purchase Class I shares of a Fund at the reduced sales
charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of shares
previously purchased and still owned by the members of the
group, plus the amount of the current purchase. For example,
if members of the group had previously invested and still
held $80,000 of Fund shares and now were investing $25,000,
the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained
by contacting Distributors.

A "qualified group" is one which (i) has been in existence
for more than six months, (ii) has a purpose other than
acquiring Fund shares at a discount and (iii) satisfies
uniform criteria which enable Distributors to realize
economies of scale in its costs of distributing shares. A
qualified group must have more than 10 members, be available
to arrange for group meetings between representatives of the
Funds or Distributors and the members, agree to include
sales and other materials related to the Funds in its
publications and mailings to members at reduced or no cost
to Distributors, and seek to arrange for payroll deduction
or other bulk transmission of investments to the Funds.

If an investor selects a payroll deduction plan, subsequent
investments to a Fund will be automatic and will continue
until such time as the investor notifies such Fund and the
investor's employer to discontinue further investments. Due
to the varying procedures used to prepare, process and to
forward the payroll deduction information to the Funds,
there may be a delay between the time of the payroll
deduction and the time the money reaches the Funds. The
investment in a Fund will be made at the offering price per
share determined on the day that both the check and payroll
deduction data are received in required form by such Fund.

PURCHASES AT NET ASSET VALUE

Class I shares may be purchased without the imposition of a
front-end sales charge ("net asset value") or a contingent
deferred sales charge by (1) officers, trustees, directors,
and full-time employees of the Trust, any of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and by
their spouses and family members, including any subsequent
payments made by such parties after cessation of employment;
(2) companies exchanging shares with or selling assets
pursuant to a merger, acquisition or exchange offer; (3)
accounts managed by the Franklin Templeton Group; (4)
registered securities dealers and their affiliates, for
their investment account only, and (5) registered personnel
and employees of securities dealers and by their spouses and
family members, in accordance with the internal policies and
procedures of the employing securities dealer.

For either Class I or Class II, the same class of shares of
the Fund may be purchased at net asset value by persons who
have redeemed, within the previous 120 days, their shares of
a Fund or another of the Franklin Templeton Funds which were
purchased with a front-end sales charge or assessed a
contingent deferred sales charge on redemption. If a
different class of shares is purchased, the full front-end
sales charge must be paid at the time of purchase of the new
shares. An investor may reinvest an amount not exceeding the
redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed
and subsequently repurchased, a new contingency period will
begin. Shares of a Fund redeemed in connection with an
exchange into another fund (see "Exchange Privilege") are
not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of
shares of a Fund must be received by such Fund or the Funds'
Shareholder Services Agent within 120 days after the
redemption. The 120 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a
Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset
value may also be handled by a securities dealer or other
financial institution, who may charge the shareholder a fee
for this service. The redemption is a taxable transaction
but reinvestment without a sales charge may affect the
amount of gain or loss recognized and the tax basis of the
shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in
the same fund is made within a 30-day period. Information
regarding the possible tax consequences of such a
reinvestment is included in the tax section of this
Prospectus and the SAI.

For either Class I or Class II, the same class of shares of
one of the Funds or of another of the Franklin Templeton
Funds may be purchased at net asset value and without a
contingent deferred sales charge by persons who have
received dividends and capital gains distributions in cash
from investments in that class of shares of a Fund within
120 days of the payment date of such distribution. To
exercise this privilege, a written request to reinvest the
distribution must accompany the purchase order. Additional
information may be obtained from Shareholder Services at 1-
800/632-2301. See "Distributions to Shareholders."

Class I shares may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by investors who have, within the past 60 days, redeemed an
investment in a mutual fund which is not part of the
Franklin Templeton Funds which charged the investor a
contingent deferred sales charge upon redemption and which
has investment objectives similar to those of the Funds.

Class I shares may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by securities dealers who have entered into a supplemental
agreement with Distributors, or by registered investment
advisors affiliated with such broker-dealers, on behalf of
their clients who are participating in a comprehensive fee
program (sometimes known as a wrap fee program).

Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by any state, county, or city, or any instrumentality,
department, authority or agency thereof which has determined
that the Funds are a legally permissible investment and
which is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the
purchase of shares of any registered management investment
company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUNDS
CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal investors
considering investment of proceeds of bond offerings into a
Fund should consult with expert counsel to determine the
effect, if any, of various payments made by such Fund or its
investment manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net
asset value is made through a securities dealer who has
executed a dealer agreement with Distributors, Distributors
or one of its affiliates may make a payment, out of their
own resources, to such securities dealer in an amount not to
exceed 0.25% of the amount invested. Contact Franklin's
Institutional Sales Department for additional information.

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

Class I shares may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by trust companies and bank trust departments for funds over
which they exercise exclusive discretionary investment
authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are
subject to minimum requirements with respect to amount of
purchase, which may be established by Distributors.
Currently, those criteria require that the amount invested
or to be invested during the subsequent 13-month period in
this Fund or any of the Franklin Templeton Investments must
total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the
bank or trust company, with payment by federal funds
received by the close of business on the next business day
following such order.

Refer to the SAI for further information regarding net asset
value purchases of Class I shares.

PURCHASING CLASS I AND CLASS II SHARES

When placing purchase orders, investors should clearly
indicate which class of shares they intend to purchase. A
purchase order that fails to specify a class will
automatically be invested in Class I shares. Purchases of $1
million or more in a single payment will be invested in
Class I shares. There are no conversion features attached to
either class of shares.

Investors who qualify to purchase Class I shares at net
asset value should purchase Class I rather than Class II
shares. See the section "Purchases at Net Asset Value" and
"Description of Special Net Asset Value Purchases" above for
a discussion of when shares may be purchased at net asset
value.

GENERAL

Securities laws of states in which a Fund's shares are
offered for sale may differ from the interpretations of
federal law, and banks and financial institutions selling
Fund shares may be required to register as dealers pursuant
to state law.

OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS
SECTION MAY NOT BE AVAILABLE DIRECTLY FROM THE FUNDS TO
SHAREHOLDERS WHOSE SHARES ARE HELD, OF RECORD, BY A
FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR
NETWORKED ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING
CORPORATION ("NSCC") (SEE THE SECTION CAPTIONED "ACCOUNT
REGISTRATIONS" IN THIS PROSPECTUS).

SHARE CERTIFICATES

Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and
capital gain distributions, are generally credited to an
account in the name of an investor on the books of the
Funds, without the issuance of a share certificate.
Maintaining shares in uncertificated form (also known as
"plan balance") minimizes the risk of loss or theft of a
share certificate. A lost, stolen or destroyed certificate
cannot be replaced without obtaining a sufficient indemnity
bond. The cost of such a bond, which is generally borne by
the shareholder, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be
issued if requested in writing by the shareholder or by the
securities dealer.

CONFIRMATIONS

AUTOMATIC INVESTMENT PLAN

The market value of each class of shares of the Funds is
subject to fluctuation. Before undertaking any plan for
systematic investment, the investor should keep in mind that
such a program does not assure a profit or protect against a
loss.

SYSTEMATIC WITHDRAWAL PLAN

A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided
that the net asset value of the shares held by the
shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal
Plan. The minimum amount which the shareholder may withdraw
is $50 per withdrawal transaction, although this is merely
the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. The plan may be
established on a monthly, quarterly, semiannual or annual
basis. If the shareholder establishes a plan, any capital
gain distributions and income dividends paid by a Fund will
be reinvested for the shareholder's account in additional
shares at net asset value. Payments will then be made from
the liquidation of shares at net asset value on the day of
the transaction (which is generally the first business day
of the month in which the payment is scheduled) with payment
generally received by the shareholder three to five days
after the date of liquidation. By completing the "Special
Payment Instructions for Distributions" section of the
Shareholder Application included with this Prospectus, a
shareholder may direct the selected withdrawals to another
of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the
account is maintained is a member of the Automated Clearing
House, the payments may be made automatically by electronic
funds transfer. If this last option is requested, the
shareholder should allow at least 15 days for initial
processing. Payments which may be paid in the interim will
be sent to the address of record. Liquidation of shares may
reduce or possibly exhaust the shares in the shareholder's
account, to the extent withdrawals exceed shares earned
through dividends and distributions, particularly in the
event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the
remaining balance will be sent to the shareholder. As with
other redemptions, a liquidation to make a withdrawal
payment is a sale for federal income tax purposes. Because
the amount withdrawn under the plan may be more than the
shareholder's actual yield or income, part of the payment
may be a return of the shareholder's investment.

The maintenance of a Systematic Withdrawal Plan concurrently
with purchases of additional shares of a Fund would be
disadvantageous because of the sales charge on the
additional purchases. Also, redemptions of Class I shares
and Class II shares may be subject to a contingent deferred
sales charge if the shares are redeemed within 12 months
(Class I shares) or 18 months (Class II shares) of the
calendar month of the original purchase date. The
shareholder should ordinarily not make additional
investments of less than $5,000 or three times the annual
withdrawals under the plan during the time such a plan is in
effect.

With respect to Class I shares, the contingent deferred
sales charge is waived for redemptions through a Systematic
Withdrawal Plan set up prior to February 1, 1995. With
respect to Systematic Withdrawal Plans set up on or after
February 1, 1995, however, the applicable contingent
deferred sales charge is waived for Class I and Class II
share redemptions of up to 1% monthly of an account's net
asset value (12% annually, 6% semi-annually, 3% quarterly).
For example, if a Class I account maintained an annual
balance of $1,000,000, only $120,000 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of
charge; any amount over that $120,000 would be assessed a 1%
(or applicable) contingent deferred sales charge. Likewise,
if a Class II account maintained an annual balance of
$10,000 only $1,200 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge.

A Systematic Withdrawal Plan may be terminated on written
notice by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from
the account, or upon the Fund's receipt of notification of
the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and
schedule of withdrawal payments, or suspend one such payment
by giving written notice to Investor Services at least seven
business days prior to the end of the month preceding a
scheduled payment. Share certificates may not be issued
while a Systematic Withdrawal Plan is in effect.

INSTITUTIONAL ACCOUNTS

EXCHANGE PRIVILEGE

The Franklin Templeton Funds consist of a number of mutual
funds with various investment objectives or policies. The
shares of most of these mutual funds are offered to the
public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, a
Fund's shares may be exchanged for the same class of shares
of other Franklin Templeton Funds which are eligible for
sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements
and investment minimums. Some funds, however, may not offer
Class II shares. Class I shares may be exchanged for Class I
shares of any Franklin Templeton Funds. Class II shares may
be exchanged for Class II shares of any Franklin Templeton
Funds. No exchanges between different classes of shares will
be allowed. A contingent deferred sales charge will not be
imposed on exchanges. If, however, the exchanged shares were
subject to a contingent deferred sales charge in the
original fund purchased and shares are subsequently redeemed
within 12 months (Class I shares) or 18 months (Class II
shares) of the calendar month of the original purchase date,
a contingent deferred sales charge will be imposed.
Investors should review the prospectus of the fund they wish
to exchange from and the fund they wish to exchange into for
all specific requirements or limitations on exercising the
exchange privilege, for example, minimum holding periods or
applicable sales charges.

Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD,
IF ANY, MAY EXCHANGE SHARES OF A FUND BY TELEPHONE BY
CALLING INVESTOR SERVICES AT 1-800/632-2301 OR THE AUTOMATED
FRANKLIN TELEFACTS SYSTEM (DAY OR NIGHT) AT 1-800/247-1753.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO
A PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD
BE NOTIFIED.

The Telephone Exchange Privilege allows a shareholder to
effect exchanges from a Fund into an identically registered
account of the same class of shares in one of the other
available Franklin Templeton Funds. The Telephone Exchange
Privilege is available only for uncertificated shares or
those which have previously been deposited in the
shareholder's account. The Funds and Investor Services will
employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to
"Telephone Transactions - Verification Procedures."

During periods of drastic economic or market changes, it is
possible that the Telephone Exchange Privilege may be
difficult to implement and the TeleFACTS option may not be
available. In this event, shareholders should follow the
other exchange procedures discussed in this section,
including the procedures for processing exchanges through
securities dealers.

EXCHANGES THROUGH SECURITIES DEALERS

As is the case with all purchases and redemptions of a
Fund's shares, Investor Services will accept exchange orders
from securities dealers who execute a dealer or similar
agreement with Distributors. See also "Exchanges By
Telephone" above. Such a dealer-ordered exchange will be
effective only for uncertificated shares on deposit in the
shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a
fee for handling an exchange.

ADDITIONAL INFORMATION REGARDING EXCHANGES

Exchanges of the same class of shares are made on the basis
of the net asset values of the class involved, except as set
forth below. Exchanges of shares of a class which were
originally purchased without a sales charge will be charged
a sales charge in accordance with the terms of the
prospectus of the fund and the class of shares being
purchased, unless the original investment on which no sales
charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of Class I shares of
a Fund which were purchased with a lower sales charge into a
fund which has a higher sales charge will be charged the
difference in sales charges, unless the shares were held in
such Fund for at least six months prior to executing the
exchange.

When an investor requests the exchange of the total value of
a Fund account, declared but unpaid income dividends and
capital gain distributions will be transferred to the
account in the fund being exchanged into and will be
invested at net asset value. Because the exchange is
considered a redemption and purchase of shares, the
shareholder may realize a gain or loss for federal income
tax purposes. Backup withholding and information reporting
may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax
section in this Prospectus and in the SAI .

There are differences among the many Franklin Templeton
Funds. Before making an exchange, a shareholder should
obtain and review a current prospectus of the fund into
which the shareholder wishes to transfer.

If a substantial portion of a Fund's shareholders should,
within a short period, elect to redeem their shares of such
Fund pursuant to the exchange privilege, the Fund might have
to liquidate portfolio securities it might otherwise hold
and incur the additional costs related to such transactions.
On the other hand, increased use of the exchange privilege
may result in periodic large inflows of money. If this
should occur, it is the general policy of the Funds to
initially invest this money in short-term, tax-exempt
municipal securities unless it is felt that attractive
investment opportunities consistent with the Funds'
investment objectives exist immediately. Subsequently, this
money will be withdrawn from such short-term tax-exempt
municipal securities and invested in portfolio securities in
as orderly a manner as is possible when attractive
investment opportunities arise.

The Exchange Privilege may be modified or discontinued by
the Funds at any time upon 60 days' written notice to
shareholders.

EXCHANGES OF CLASS I SHARES

The contingency period of Class I shares will be tolled (or
stopped) for the period such shares are exchanged into and
held in a Franklin or Templeton money market fund. If a
Class I account has shares subject to a contingent deferred
sales charge, Class I shares will be exchanged into the new
account on a "first-in, first-out" basis. See also "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."

EXCHANGES OF CLASS II SHARES

When an account is composed of Class II shares subject to
the contingent deferred sales charge, and Class II shares
that are not, the shares will be transferred proportionately
into the new fund. Shares received from reinvestment of
dividends and capital gains are referred to as "free
shares," shares which were originally subject to a
contingent deferred sales charge but to which the contingent
deferred sales charge no longer applies are called "matured
shares," and shares still subject to the contingent deferred
sales charge are referred to as "CDSC liable shares." CDSC
liable shares held for different periods of time are
considered different types of CDSC liable shares. For
instance, if a shareholder has $1,000 in free shares, $2,000
in matured shares, and $3,000 in CDSC liable shares, and the
shareholder exchanges $3,000 into a new fund, $500 will be
exchanged from free shares, $1,000 from matured shares, and
$1,500 from CDSC liable shares. Similarly, if CDSC liable
shares have been purchased at different periods, a
proportionate amount will be taken from shares held for each
period. If, for example, a shareholder holds $1,000 in
shares bought 3 months ago, $1,000 bought 6 months ago, and
$1,000 bought 9 months ago, and the shareholder exchanges
$1,500 into the new fund, $500 from each of these shares
will be deemed exchanged into the new fund.

The only money market fund exchange option available to
Class II shareholders is the Franklin Templeton Money Fund
II ("Money Fund II"), a series of the Franklin Templeton
Money Fund Trust. No drafts (checks) may be written on Money
Fund II accounts, nor may shareholders purchase shares of
Money Fund II directly. Class II shares exchanged for shares
of Money Fund II will continue to age and a contingent
deferred sales charge will be assessed if CDSC liable shares
are redeemed. No other money market funds are available for
Class II shareholders for exchange purposes. Class I shares
may be exchanged for shares of any of the money market funds
in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these
other money market funds as described in their respective
prospectuses.

To the extent shares are exchanged proportionately, as
opposed to another method, such as first-in first-out, or
free-shares followed by CDSC liable shares, the exchanged
shares may, in some instances, be CDSC liable even though a
redemption of such shares, as discussed elsewhere herein,
may no longer be subject to a CDSC. The proportional method
is believed by management to more closely meet and reflect
the expectations of Class II shareholders in the event
shares are redeemed during the contingency period. For
federal income tax purposes, the cost basis of shares
redeemed or exchanged is determined under the Code without
regard to the method of transferring shares chosen by the
Fund.

TRANSFERS

Transfers between identically registered accounts in the
same fund and class are treated as non-monetary and non-
taxable events, and are not subject to a contingent deferred
sales charge. The transferred shares will continue to age
from the date of original purchase. Like exchanges, Class
II shares will be moved proportionately from each type of
shares in the original account.

CONVERSION RIGHTS

It is not presently anticipated that Class II shares will be
convertible to Class I shares. A shareholder may, however,
sell his Class II shares and use the proceeds to purchase
Class I shares, subject to all applicable sales charges.

TIMING ACCOUNTS

In the Insured Fund, accounts which are administered by
allocation or market timing services to purchase or redeem
shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service
fee per each such exchange. All other exchanges are without
charge. The State Funds currently will not accept
investments from Timing Accounts.

RESTRICTIONS ON EXCHANGES

In accordance with the terms of their respective
prospectuses, certain funds do not accept or may place
differing limitations than those below on exchanges by
Timing Accounts.

The Insured Fund reserves the right to temporarily or
permanently terminate the exchange privilege or reject any
specific purchase order for any Timing Account or any person
whose transactions seem to follow a timing pattern who: (i)
makes an exchange request out of the Insured Fund within two
weeks of an earlier exchange request out of that Fund, or
(ii) makes more than two exchanges out of the Insured Fund
per calendar quarter, or (iii) exchanges shares equal in
value to at least $5 million, or more than 1% of the Insured
Fund's net assets. Accounts under common ownership or
control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market
indicators, will be aggregated for purposes of the exchange
limits.

The Insured Fund also reserves the right to refuse the
purchase side of an exchange request by any Timing Account,
person, or group if, in the Manager's judgment, the Insured
Fund would be unable to invest effectively in accordance
with its investment objectives and policies, or would
otherwise potentially be adversely affected. A shareholder's
purchase exchanges may be restricted or refused if the
Insured Fund receives or anticipates simultaneous orders
affecting significant portions of its assets. In particular,
a pattern of exchanges that coincide with a "market timing"
strategy may be disruptive to the Insured Fund and therefore
may be refused.

The Funds and Distributors also, as indicated in "How to Buy
Shares of the Fund," reserve the right to refuse any order
for the purchase of shares.

HOW TO SELL SHARES OF A FUND

A shareholder may at any time liquidate shares of a Fund
owned and receive from such Fund the value of the shares.
Shares may be redeemed in any of the following ways:

REDEMPTIONS BY MAIL

Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of
this Prospectus, and any share certificates which have been
issued for the shares of the Fund being redeemed, properly
endorsed and in order for transfer. The shareholder will
then receive from the Fund the value of the shares redeemed
based upon the net asset value per share (less a contingent
deferred sales charge, if applicable) next computed after
the written request in proper form is received by Investor
Services. Redemption requests received after the time at
which the net asset value is calculated, that is, at the
scheduled close of the New York Stock Exchange ("Exchange"),
which is generally 1:00 p.m. Pacific time, each day that the
Exchange is open for business will receive the price
calculated on the following business day. Shareholders are
requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if
preferred. Investor Services' ability to contact a
shareholder promptly when necessary will speed the
processing of the redemption.

TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE
GUARANTEED IF THE REDEMPTION REQUEST INVOLVES ANY OF THE
FOLLOWING:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone
other than the registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to any
address other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;

(4) share certificates, if the redemption proceeds are in
excess of $50,000; or

(5) the Funds or Investor Services believe that a signature
guarantee would protect against potential claims based on
the transfer instructions, including, for example, when (a)
the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Funds, (c)
the Funds have been notified of an adverse claim, (d) the
instructions received by the Funds are given by an agent,
not the actual registered owner, (e) the Funds determine
that joint owners who are married to each other are
separated or may be the subject of divorce proceedings, or
(f) the authority of a representative of a corporation,
partnership, association, or other entity has not been
established to the satisfaction of the Funds.

Signature(s) must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the
Securities Exchange Act of 1934. Generally, eligible
guarantor institutions include (1) national or state banks,
savings associations, savings and loan associations, trust
companies, savings banks, industrial loan companies and
credit unions; (2) national securities exchanges, registered
securities associations and clearing agencies; (3)
securities dealers which are members of a national
securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature guarantee
medallion program. A notarized signature will not be
sufficient for the request to be in proper form.

Share Certificates - Where shares to be redeemed are
represented by share certificates, the request for
redemption must be accompanied by the share certificate and
a share assignment form signed by the registered
shareholders exactly as the account is registered, with the
signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share
certificate and assignment form in separate envelopes if
they are being mailed in for redemption.

Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court
jurisdiction require the following documentation to be in
proper form:

Corporation - (1) Signature guaranteed letter of instruction
from the authorized officer(s) of the corporation and (2) a
corporate resolution.

Trust - (1) Signature guaranteed letter of instruction from
the trustee(s) and (2) a copy of the pertinent pages of the
trust document listing the trustee(s) or a Certification for
Trust if the trustee(s) are not listed on the account
registration.

Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.

Accounts under court jurisdiction - Check court documents
and the applicable state law since these accounts have
varying requirements, depending upon the state of residence.

Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper
form.

REDEMPTIONS BY TELEPHONE

Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"),
included with this Prospectus, may redeem shares of a Fund
by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts.
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR
INVESTOR SERVICES AT THE ADDRESS SHOWN ON THE COVER OR BY
CALLING 1-800/632-2301. THE FUNDS AND INVESTOR SERVICES
WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT
INSTRUCTIONS GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS,
HOWEVER, BEAR THE RISK OF LOSS IN CERTAIN CASES AS DESCRIBED
UNDER "TELEPHONE TRANSACTIONS - VERIFICATION PROCEDURES."

For shareholder accounts with the completed Agreement on
file, redemptions of uncertificated shares or shares which
have previously been deposited with a Fund or Investor
Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the
scheduled close of the Exchange (generally 1:00 p.m. Pacific
time) on any business day will be processed that same day.
The redemption check will be sent within seven days, made
payable to all the registered owners on the account, and
will be sent only to the address of record. Redemption
requests by telephone will not be accepted within 30 days
following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures
set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, government
entities, and qualified retirement plans which qualify to
purchase shares at net asset value pursuant to the terms of
this Prospectus) which wish to execute redemptions in excess
of $50,000 must complete an Institutional Telephone
Privileges Agreement which is available from Franklin's
Institutional Services Department by telephoning 1-800/321-
8563.

REDEEMING SHARES THROUGH SECURITIES DEALERS

The Funds will accept redemption orders from securities
dealers who have entered into an agreement with
Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is
that if the shareholder redeems shares through a dealer, the
redemption price will be the net asset value next calculated
after the shareholder's dealer receives the order which is
promptly transmitted to a Fund, rather than on the day the
Fund receives the shareholder's written request in proper
form. These documents, as described in the preceding
section, are required even if the shareholder's securities
dealer has placed the repurchase order. After receipt of a
repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other
documents set forth above. A shareholder's letter should
reference the Fund, the class, the account number, the fact
that the repurchase was ordered by a dealer and the dealer's
name. Details of the dealer-ordered trade, such as trade
date, confirmation number, and the amount of shares or
dollars, will help speed processing of the redemption. The
seven-day period within which the proceeds of the
shareholder's redemption will be sent will begin when the
Fund receives all documents required to complete ("settle")
the repurchase in proper form. The redemption proceeds will
not earn dividends or interest during the time between
receipt of the dealer's repurchase order and the date the
redemption is processed upon receipt of all documents
necessary to settle the repurchase. Thus, it is in a
shareholder's best interest to have the required
documentation completed and forwarded to the Fund as soon as
possible. The shareholder's dealer may charge a fee for
handling the order. The SAI contains more information on the
redemption of shares.

CONTINGENT DEFERRED SALES CHARGE

CLASS I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of
the calendar month following their purchase. The charge is
1% of the lesser of the net asset value of the shares
redeemed (exclusive of reinvested dividends and capital gain
distributions) or the total cost of such shares at the time
of purchase, and is retained by Distributors. The contingent
deferred sales charge is waived in certain instances. See
"Purchases at Net Asset Value" under "How to Buy Shares of
the Fund."

CLASS II. Class II shares redeemed within the contingency
period of 18 months of the calendar month following their
purchase will be assessed a contingent deferred sales
charge, unless one of the exceptions described below
applies. The charge is 1% of the lesser of the value of the
shares redeemed (exclusive of reinvested dividends and
capital gain distributions) or the net asset value at the
time of purchase of such shares, and is retained by
Distributors. The contingent deferred sales charge is waived
in certain instances. See below.

CLASS I AND CLASS II. In determining if a contingent
deferred sales charge applies, shares not subject to a
contingent deferred sales charge are deemed to be redeemed
first, in the following order: (i) Shares representing
amounts attributable to capital appreciation of those shares
held less than the contingency period (12 months in the case
of Class I shares and 18 months in the case of Class II
shares); (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held
longer than the contingency period; and followed by any
shares held less than the contingency period, on a "first
in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of
the shares redeemed.

The contingent deferred sales charge on each class of shares
is waived, as applicable, for: exchanges; any account fees;
redemptions through a Systematic Withdrawal Plan set up for
shares prior to February 1, 1995, and for Systematic
Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6%
semiannually or 12% annually); redemptions initiated by a
Fund due to a shareholder's account falling below the
minimum specified account size; and redemptions following
the death of the shareholder or the beneficial owner.

All investments made during a calendar month, regardless of
when during the month the investment occurred, will age one
month on the last day of that month and each subsequent
month.

Requests for redemptions for a SPECIFIED DOLLAR amount will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests
for redemption of a SPECIFIC NUMBER of shares will result in
the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

The Funds may delay the mailing of the redemption check, or
a portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these
checks will also be held pending clearance. Shares purchased
by federal funds wire are available for immediate
redemption. In addition, the right of redemption may be
suspended or the date of payment postponed if the Exchange
is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it,
by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount invested
by the shareholder, depending on fluctuations in the market
value of securities owned by the Fund.

OTHER

For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services
Department or the securities dealer may call Franklin's
Dealer Services Department.

TELEPHONE TRANSACTIONS

Shareholders of the Funds and their investment
representative of record, if any, may be able to execute
various transactions by calling Investor Services at 1-
800/632-2301.

All shareholders will be able to: (i) effect a change in
address, (ii) change a dividend option, (iii) transfer
shares of a Fund in one account to another identically
registered account in that Fund, and (iv) exchange shares of
a Fund as described in this Prospectus by telephone. In
addition, shareholders who complete and file an Agreement as
described under "How to Sell Shares of the Fund -
Redemptions by Telephone" will be able to redeem shares of a
Fund.

VERIFICATION PROCEDURES

The Funds and Investor Services will employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine. These will include: recording all
telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or
account information requested by the telephone service agent
at the time of the call for the purpose of establishing the
caller's identification, and by sending a confirmation
statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as the
Funds and Investor Services follow instructions communicated
by telephone which were reasonably believed to be genuine at
the time of their receipt, neither they nor their affiliates
will be liable for any loss to the shareholder caused by an
unauthorized transaction. The Fund and Investor Services may
be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation
to apply for or accept telephone transaction privileges. In
any instance where a Fund or Investor Services is not
reasonably satisfied that instructions received by telephone
are genuine, the requested transaction will not be executed,
and neither the Fund nor Investor Services will be liable
for any losses which may occur because of a delay in
implementing a transaction.

GENERAL

Neither the Funds nor Investor Services will be liable for
any losses resulting from the inability of a shareholder to
execute a telephone transaction.

The telephone transaction privilege may be modified or
discontinued by the Funds at any time upon 60 days' written
notice to shareholders.

VALUATION OF A FUND'S SHARES

The net asset value per share of each class of a Fund is
determined separately as of the scheduled close of the
Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. Many newspapers carry
daily quotations of the prior trading day's closing "bid"
(net asset value) and "ask" (offering price, which includes
the maximum front-end sales charge of each class of shares
of each Fund).

The net asset value per share for each class of a Fund is
determined in the following manner: The aggregate of all
liabilities is deducted from the aggregate gross value of
all assets, and the difference is divided by the number of
shares of the respective class of a Fund outstanding at the
time. For the purpose of determining the aggregate net
assets of each class of the Fund, cash and receivables are
valued at their realizable amounts. Interest is recorded as
accrued. Portfolio securities for which market quotations
are readily available are valued within the range of the
most recent bid and ask prices as obtained from one or more
dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the
broadest and most representative market as determined by the
Manager. Municipal securities generally trade in the over-
the-counter market rather than on a securities exchange.
Other securities for which market quotations are readily
available are valued at the current market price, which may
be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading
in similar types of securities (considering yield, risk and
maturity) and/or developments related to specific issues.
Securities and other assets for which market prices are not
readily available are valued at fair value as determined
following procedures approved by the Board of Trustees. With
the approval of trustees, a Fund may utilize a pricing
service, bank or securities dealer to perform any of the
above described functions.

Each of the classes will bear, pro rata, all of the common
expenses of that Fund. The net asset value of all
outstanding shares of each class of a Fund will be computed
on a pro rata basis for each outstanding share based on the
proportionate participation in the Funds represented by the
value of shares of such classes, except that the Class I and
Class II shares will bear the Rule 12b-1 expenses payable
under their respective plans. Due to the specific
distribution expenses and other costs that will be allocable
to each class, the dividends paid to each class of the Fund
may vary.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN A FUND

Any questions or communications regarding a shareholder's
account should be directed to Investor Services at the
address shown on the back cover of this Prospectus.

From a touch tone phone, Franklin and Templeton shareholders
may access an automated system (day or night)which offers
the following features.

By calling the Franklin TeleFACTS system, Class I
shareholders may obtain current price, yield or other
performance information specific to a Franklin fund, process
an exchange into an identically registered Franklin account;
obtain account information and request duplicate
confirmation or year-end statements, money fund checks, if
applicable, and deposit slips.

By calling the Templeton Star Service, shareholders may
obtain current price and yield information specific to a
Templeton fund, regardless of class, or Franklin Class II
shares; obtain account information, request duplicate
confirmation or year-end statements and money fund checks,
if applicable.

Share prices and account information specific to Templeton
Class I or II shares and Franklin Class II shares may also
be accessed on TeleFACTS by Franklin Class I and Class II
shareholders.

The TeleFACTS system is accessible by calling 1-800/247-
1753. The Star Service is accessible by calling 1-800/654-
0123. The system's automated operator will prompt the caller
with easy to follow step-by-step instructions from the main
menu. Other features may be added in the future.

The code numbers for each class, which will be needed to
access system information, are:

FUND CODE * FUND NAME
177 ARIZONA INSURED FUND, CLASS I

178 FLORIDA INSURED FUND, CLASS I

121 INSURED FUND, CLASS I
221 INSURED FUND, CLASS II
118 MASSACHUSETTS INSURED FUND, CLASS I
218 MASSACHUSETTS INSURED FUND, CLASS II
119 MICHIGAN INSURED FUND, CLASS I
219 MICHIGAN INSURED FUND, CLASS II
120 MINNESOTA INSURED FUND, CLASS I
220 MINNESOTA INSURED FUND, CLASS II
122 OHIO INSURED FUND, CLASS I
222 OHIO INSURED FUND, CLASS II

HOURS OF
DEPARTMENT NAME TELEPHONE NO. OPERATION(PACIFIC TIME)

(Monday through Friday)
Shareholder 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Services
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing 1-800/851-0637 6:00 a.m. to 5:00 p.m.
impaired)

PERFORMANCE

Advertisements, sales literature and communications to
shareholders may contain various measures of a class'
performance including current yield, tax equivalent yield,
various expressions of total return, current distribution
rate and taxable equivalent distribution rate. Each Fund may
occasionally cite statistics to reflect its volatility or
risk.

Average annual total return figures as prescribed by the SEC
represent the average annual percentage change in value of
$1,000 invested at the maximum public offering price
(offering price includes sales charge) for one-, five-, and
ten-year periods, or portion thereof, to the extent
applicable, through the end of the most recent calendar
quarter, assuming reinvestment of all distributions. Each
class may also furnish total return quotations for other
periods or based on investments at various sales charge
levels or at net asset value. For such purposes total return
equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.

Current yield for each class reflects the income per share
earned by each Fund's portfolio investments; it is
calculated for each class by dividing that class' net
investment income per share during a recent 30-day period by
the maximum public offering price for that class of shares
on the last day of that period and annualizing the result.
Tax equivalent yield demonstrates the yield from a taxable
investment necessary to produce an after-tax yield
equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt
portion of each class' yield (calculated as indicated) by
one minus a stated income tax rate and adding the product to
the taxable portion (if any) of the class' yield.

Current yield and tax equivalent yield which are calculated
according to a formula prescribed by the SEC (see the SAI)
are not indicative of the dividends or distributions which
were or will be paid to shareholders of a class of the
Funds. Dividends or distributions paid to shareholders are
reflected in the current distribution rate or taxable
equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by a
class during the past 12 months by the current maximum
offering price for that class of shares. A taxable
equivalent distribution rate demonstrates the taxable
distribution rate necessary to produce an after tax
distribution rate equivalent to a class' distribution rate
(calculated as indicated above). Under certain
circumstances, such as when there has been a change in the
amount of dividend payout or a fundamental change in
investment policies, it might be appropriate to annualize
the dividends paid during the period such policies were in
effect, rather than using the dividends during the past 12
months. The current distribution rate differs from the
current yield computation because it may include
distributions to shareholders from sources other than
dividends and interest, such as short-term capital gain, and
is calculated over a different period of time.

In each case, performance figures are based upon past
performance, reflect all recurring charges against a class'
income and will assume the payment of the maximum sales
charge on the purchase of that class of shares. When there
has been a change in the sales charge structure, the
historical performance figures will be restated to reflect
the new rate. The investment results of a Fund, like all
other investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent
what an investment may earn in the future or what a class'
yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any
future period.

Because Class II shares were not offered prior to May 1,
1995, no performance data is available for these shares.
After a sufficient period of time has passed, Class II
performance data will be available.

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS

The Trust's fiscal year ends February 28. Annual Reports
containing audited financial statements of the Trust,
including the auditors' report, and Semi-Annual Reports
containing unaudited financial statements are automatically
sent to shareholders. Copies may be obtained by investors or
shareholders, without charge, upon request to the Trust at
the telephone number or address set forth on the cover page
of this Prospectus.

Additional information on Fund performance is included in
the Trust's Annual Report to Shareholders and the SAI.

ORGANIZATION

The Trust was organized as a Massachusetts business trust on
September 18, 1984. The Agreement and Declaration of Trust
permits the trustees to issue an unlimited number of full
and fractional shares of beneficial interest without par
value, which may be issued in any number of series and
classes. Shares issued will be fully paid and non-assessable
and will have no preemptive, conversion, or sinking rights.
Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and
the net assets of such series upon liquidation or
dissolution. Additional series may be added in the future by
the Board of Trustees.

Following is a list of the 27 series currently authorized by
the Board of Trustees:

Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Federal Intermediate-Term
Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Florida Insured 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

All series, except Indiana, Arizona Insured, Florida
Insured, Kentucky and Intermediate Term Funds currently
offer Classes I and II. The remaining five series may in
the future offer Class II and all series may offer other
classes.

VOTING RIGHTS

Shares of each series have equal rights as to voting and
vote separately as to issues affecting that series, or the
Trust, unless otherwise permitted by the 1940 Act. Voting
rights are noncumulative, so that in any election of
trustees, the holders of more than 50% of the shares voting
can elect all of the trustees, if they choose to do so, and
in such event the holders of the remaining shares voting
will not be able to elect any person or persons to the Board
of Trustees. The Trust does not intend to hold annual
shareholders meetings. The Trust may however, hold a special
shareholders meeting of a series for such purposes as
changing fundamental investment restrictions for the series,
approving a new management agreement or any other matters
which are required to be acted on by shareholders under the
1940 Act. A meeting may also be called by the trustees in
their discretion or by shareholders holding at least ten
percent of the outstanding shares of the Trust. Shareholders
will receive assistance in communicating with other
shareholders in connection with the election or removal of
trustees such as that provided in Section 16(c) of the 1940
Act.

Shares of each class of a series represent proportionate
interests in the assets of the Fund and have the same voting
and other rights and preferences as the other classes and
series of the Trust for matters that affect the Trust as a
whole. For matters that only affect a certain class of a
series' shares, however, only shareholders of that class
will be entitled to vote. Therefore each class of shares of
a series will vote separately on matters (1) affecting only
that class of such series, (2) expressly required to be
voted on separately by state business trust law, or (3)
required to be voted on separately by the 1940 Act, or the
rules adopted thereunder. For instance, if a change to the
Rule 12b-1 plan relating to Class I shares of a series
requires shareholder approval, only shareholders of Class I
of that series may vote on the change to the Rule 12b-1 plan
affecting that class. Similarly, if a change to the Rule
12b-1 plan relating to Class II shares requires approval,
only shareholders of Class II of such series may vote on
changes to such plan. On the other hand, if there is a
proposed change to the investment objective of a series,
this affects all shareholders of that series, regardless of
which class of shares they hold and, therefore, each share
has the same voting rights.

REDEMPTIONS BY A FUND

Each Fund reserves the right to redeem, at net asset value,
shares of any shareholder whose account has a value of less
than $50, but only where the value of such account has been
reduced by the shareholder's prior voluntary redemption of
shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided
advance notice is given to the shareholder. More information
is included in the SAI.

OTHER INFORMATION

Distribution or redemption checks sent to shareholders do
not earn interest or any other income during the time such
checks remain uncashed and neither the Funds nor their
affiliates will be liable for any loss to the shareholder
caused by the shareholder's failure to cash such check(s).

"Cash" payments to or from a Fund may be made by check,
draft or wire. The Funds have no facility to receive, or pay
out, cash in the form of currency.

ACCOUNT REGISTRATIONS

Accounts should not be registered in the name of a minor
either as sole or co-owner of the account. Transfer or
redemption for such an account may require court action to
obtain release of the funds until the minor reaches the
legal age of majority. The account should be registered in
the name of one "Adult" as custodian for the benefit of the
"Minor" under the Uniform Transfer or Gifts to Minors Act.

Shares, whether in certificate form or not, registered as
joint tenants or "Jt Ten" shall mean as joint tenants with
"rights of survivorship" and not as "tenants in common."

Except as indicated, a shareholder may transfer an account
in a Fund carried in "street" or "nominee" name by the
shareholder's securities dealer to a comparably registered
Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have
executed dealer agreements on file with Distributors. Unless
a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and
will so inform the shareholder's delivering securities
dealer. To effect the transfer, a shareholder should
instruct the securities dealer to transfer the account to a
receiving securities dealer and sign any documents required
by the securities dealers to evidence consent to the
transfer. Under current procedures the account transfer may
be processed by the delivering securities dealer and a Fund
after such Fund receives authorization in proper form from
the shareholder's delivering securities dealer. In the
future it may be possible to effect such transfers
electronically through the services of the NSCC.

Each Fund may conclusively accept instructions from an owner
or the owner's nominee listed in publicly available nominee
lists, regardless of whether the account was initially
registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of
record on an investor's account, the investor will be deemed
to have authorized the use of electronic instructions on the
account, including, without limitation, those initiated
through the services of the NSCC, to have adopted as
instruction and signature any such electronic instructions
received by the Fund and the Shareholder Services Agent, and
to have authorized them to execute the instructions without
further inquiry. At the present time, such services include
the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.

Any questions regarding an intended registration should be
answered by the securities dealer handling the investment,
or by calling Franklin's Fund Information Department.

IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS

Pursuant to the Code and U.S. Treasury regulations, a Fund
may be required to report to the Internal Revenue Service
("IRS") any taxable dividend, capital gain distribution or
other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to
individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN")
and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject
to backup withholding if the IRS or a securities dealer
notifies a Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or
dividend income.

Each Fund reserves the right to (1) refuse to open an
account for any person failing to provide a TIN along with
the required certifications and (2) close an account by
redeeming its shares in full at the then current net asset
value upon receipt of notice from the IRS that the TIN
certified as correct by the shareholder is in fact incorrect
or upon the failure of a shareholder who has completed an
awaiting "TIN" certification to provide the Fund with a
certified TIN within 60 days after opening the account.

PORTFOLIO OPERATIONS

The following persons are primarily responsible for the day-
to-day management of the Funds' portfolios.

Sheila Amoroso
Portfolio Manager

Ms. Amoroso has been responsible for portfolio
recommendations and decisions for the Arizona Insured and
Florida Insured Funds since their inception, and for the
Massachusetts Insured Fund, Michigan Insured Fund and
Minnesota Insured Fund since 1987. She joined Franklin in
1986. She holds a Bachelor of Science degree from San
Francisco State University and is a member of municipal
securities industry-related committees and associations.

Don Duerson
Vice President and Senior Portfolio Manager

Mr. Duerson has been responsible for portfolio
recommendations and decisions for the Arizona Insured and
Florida Insured Funds since their inception, and for the
Insured Fund, Massachusetts Insured Fund, Michigan Insured
Fund, Minnesota Insured Fund and Ohio Insured Fund since he
joined Advisers in 1986. He has a Bachelor of Science degree
in Business and Public Administration from the University of
Arizona, has experience in the securities industry dating
back to 1956 and is a member of industry-related committees
and associations.

Andrew Jennings
Senior Vice President and Senior Portfolio Manager

Mr. Jennings has been responsible for portfolio
recommendations and decisions for the Insured Fund since
joining Advisers in 1990. He attended Villanova University
in Philadelphia, has been in the securities industry for
over 33 years and is a member of several municipal
securities industry related committees and associations.
From 1985 to 1990 Mr. Jennings was First Vice President and
Manager of the Municipal Institutional Bond Department at
Dean Witter Reynolds, Inc.

Thomas Kenny
Senior Vice President

Mr. Kenny is responsible for portfolio recommendations and
decisions of all 27 Funds of the Tax-Free Trust since
August, 1994. He is Senior Vice President of the investment
manager and director of Franklin's municipal bond
department. He joined Franklin in 1986. He received a
Bachelor of Arts degree in Business and Economics from the
University of California at Santa Barbara and Master of
Science degree in Finance from Golden Gate University. He
is a member of several municipal securities industry related
committees and associations.

Stella Wong Portfolio Manager of Advisers

Ms. Wong has been responsible for portfolio recommendations
and decisions for the Ohio Insured Fund since 1986. She
holds a Bachelor of Science degree in Business
Administration from San Francisco State University and a
Master's degree in Financial Planning from Golden Gate
University, and is a member of several industry related
committees and associations. She joined Advisers in 1986.

APPENDIX A
DESCRIPTION OF STATE TAX TREATMENT

The following information on the state income tax treatment
of dividends from the Funds is based upon correspondence and
sources believed to be reliable. Except where otherwise
noted, the information pertains to individual state income
taxation only. Investors may be subject to local taxes on
dividends or the value of their shares. Corporations,
trusts, estates and other entities may be subject to other
taxes and should consult with their personal tax advisors or
their state department of revenue. For some investors, a
portion of the dividend income may be subject to the federal
and/or state alternative minimum tax.

ARIZONA

Section 43-1021(4) of the Arizona Income Tax Code states
that interest on obligations of the state of Arizona or its
political subdivisions is exempt from personal and corporate
income tax. Sections 43-1022(6) and 43-1122(6) provide
similar tax-exempt treatment for interest on obligations of
the U.S. or its territories (including Puerto Rico, Guam and
the Virgin Islands). Pursuant to State Income Tax Ruling
Number 84-10-5, Arizona does not tax dividend income from
regulated investment companies, such as the Arizona Fund, to
the extent that such income is derived from such exempt
obligations. Dividends paid from interest earned on indirect
U.S. government obligations (GNMAs, FNMAs, etc.), repurchase
agreements collateralized by U.S. government obligations or
obligations from other states and their political
subdivisions are fully taxable. To the extent that such
taxable investments are made by the Fund for temporary or
defensive purposes, the distributions will be taxable on a
pro rata basis.

Any distributions of net short-term and net long-term
capital gain earned by the Fund are included in each
shareholder's Arizona taxable income as dividend income and
long-term capital gain respectively, and are taxed at
ordinary income tax rates.

FLORIDA

Florida does not have a personal income tax but does have an
intangible personal property tax for residents. According to
Florida Statute Section 199.185 and Technical Assistance
Advisement No. 90 (C)2-003, issued by the Florida Department
of Revenue on August 8, 1990 (as subsequently revised),
shares in regulated investment companies organized as
business trusts, such as the Florida Fund, will not be
subject to Florida's intangible property tax to the extent
that the Fund is invested in obligations of the U.S.
government, its agencies, instrumentalities and territories
(including Puerto Rico, Guam and the Virgin Islands) at the
close of business on the last business day of the calendar
year. If the Fund invests all of the remaining portion of
its net asset value in exempt obligations of the state of
Florida or its municipalities or political subdivisions on
such date, then that remaining portion of the net asset
value of the Fund (and corresponding value of Fund shares)
will also be exempt from Florida's intangibles tax. If the
Fund invests, such as for temporary or defensive purposes,
any of the remaining portion of its portfolio in any asset
which is taxable under Florida's intangible tax law,
including investments in indirect federal obligations
(GNMAs, FNMAs, etc.), in repurchase agreements
collateralized by U.S. government securities or in any
obligations of other states, then that remaining portion of
the net asset value of the Fund (and the corresponding
value of Fund shares) will be taxable under Florida's
intangible property tax.

MASSACHUSETTS

Chapter 62 of the Massachusetts General Laws states that
dividends received from a regulated investment company, such
as the Massachusetts Insured Fund, are exempt from state
personal income tax to the extent that such dividends are
attributable to interest on obligations of the U.S. or its
territories (including Puerto Rico, Guam and the Virgin
Islands). Dividends received from the Fund, which are either
exempt-interest dividends or capital gain dividends, to the
extent that the interest or gains are attributable to
obligations of the Commonwealth, or any political
subdivision, agency or instrumentality within the
Commonwealth, are also exempt from state personal income
tax. Dividends paid from interest earned on indirect U.S.
government obligations (GNMAs, FNMAs, etc.), repurchase
agreements collateralized by U.S. government obligations, or
other obligations from other states and their political
subdivisions are fully taxable. To the extent that such
taxable investments are made by the Fund for temporary or
defensive purposes, the distributions will be taxable on a
pro rata basis.

Any distributions of net short-term and net long-term
capital gains earned by the Fund which are derived from
taxable obligations are taken into account by a
Massachusetts resident in determining the amount of capital
gain net income subject to tax, and are taxed at ordinary
income rates.

In determining the Massachusetts excise tax on corporations
subject to state taxation, distributions from the Fund will
generally be included in a corporate shareholder's net
income, and in the case of intangible property corporations,
shares of the Fund will be included in the computation of
net worth.

MICHIGAN

Section 206.30(1) of the Michigan Compiled Laws generally
provides that interest income from obligations of the state
of Michigan, its political or governmental subdivisions, or
obligations of the U.S., its agencies, instrumentalities, or
possessions (including Puerto Rico, Guam and the Virgin
Islands) is exempt from state personal income tax. Revenue
Administrative Bulletin 1986-3, states that a regulated
investment company, such as the Michigan Insured Fund, which
invests in tax-free municipal obligations of the state of
Michigan and its political and governmental subdivisions is
permitted to pass-through the exemption of such interest to
its shareholders to the extent that such interest qualifies
as an exempt-interest dividend of a regulated investment
company. The exempt nature of interest from obligations of
the U.S. and its territories and possessions may also be
passed-through to shareholders. Dividends paid from interest
earned on indirect U.S. government obligations (GNMAs,
FNMAs, etc.), repurchase agreements collateralized by U.S.
government obligations, or other obligations from other
states and their political subdivisions are fully taxable.
To the extent that such taxable investments are made by the
Fund for temporary or defensive purposes, the distributions
will be taxable on a pro rata basis.

Any distributions of net short-term and net long-term
capital gains earned by the Fund are included in each
shareholder's Michigan taxable income as dividend income and
long-term capital gain respectively, and are taxed at
ordinary income tax rates.

Section 205.133(b) of the Michigan Compiled Laws exempts
from the intangible personal property tax obligations of the
state of Michigan and its political and governmental
subdivisions and obligations of the U.S. and its
possessions, agencies and instrumentalities. Pursuant to
Revenue Administrative Bulletin 1986-3, yield (for
intangibles tax purposes) is determined with respect to
shares of the Michigan Insured Fund by excluding from gross
dividends or interest the pro rata share of the interest or
dividends received from such exempt obligations held by such
fund. Capital gains from a regulated investment company that
are reinvested in additional shares of the Fund are exempt
from intangibles taxes, where as capital gains distributed
in cash are taxable.

MINNESOTA

Section 290.01 of the Code of Minnesota states that
individual shareholders will generally not be subject to
state income taxation on the exempt-interest dividends
distributed by a regulated investment company, such as the
Minnesota Insured Fund, provided that at least 95% of the
exempt-interest dividends are derived from obligations of
the state of Minnesota, or its political or governmental
subdivisions. However, such dividends are taken into account
in computing the state's alternative minimum tax to the
extent they are derived from Minnesota private activity
bonds. Minnesota Rule 8002.0300 generally states that
dividends paid by the Fund, to the extent attributable to
interest derived from obligations of the U.S. government,
its authorities, commissions, instrumentalities or
territories (including Puerto Rico, Guam and the Virgin
Islands), will also be exempt from Minnesota's personal
income tax. As a matter of policy, the Fund will continue to
earn at least 95% of its income from interest on Minnesota
obligations and invest less than 5% of its assets in direct
U.S. government, Puerto Rico or other obligations to ensure
that the Fund continues to qualify to pay exempt-interest
dividends on income from Minnesota obligations. Dividends
paid from interest earned on indirect U.S. government
obligations (GNMAs, FNMAs, etc.), repurchase agreements
collateralized by U.S. government obligations, or other
obligations from other states and their political
subdivisions are fully taxable. To the extent that such
taxable investments are made by the Fund for temporary or
defensive purposes, the distributions will be taxable on a
pro rata basis.

Any distributions of net short-term and net long-term
capital gains earned by the Fund are included in each
shareholder's Minnesota taxable income as dividend income
and long-term capital gain respectively, and are taxed at
ordinary income tax rates.

OHIO

Section 5747.01(a) of the Ohio Revised Code states generally
that interest on obligations of the state of Ohio and its
subdivisions and authorities and of the U.S. and its
territories and possessions (to the extent included in
federal adjusted gross income but exempt from state income
taxes under U.S. laws) is exempt from Ohio state personal
income tax. Distributions of such income by regulated
investment companies, such as the Ohio Insured Fund, will
also be exempt from the Ohio personal income tax and the
Ohio corporation franchise tax computed on the net income
basis. Shares of the Ohio Insured Fund will, however, be
included in a shareholder's tax base for purposes of
computing the Ohio corporation franchise tax on the net
worth basis. Dividends paid from interest earned on indirect
U.S. government obligations (GNMAs, FNMAs, etc.), repurchase
agreements collateralized by U.S. government obligations, or
other obligations from other states and their political
subdivisions are fully taxable. To the extent that such
taxable investments are made by the Fund for temporary or
defensive purposes, the distributions will be taxable on a
pro rata basis.

Shareholders will not be required to include in income for
Ohio personal income tax purposes their allocable share of
insurance proceeds received by the Fund on any default of
interest of Ohio obligations which the Fund distributes to
such shareholders and clearly identifies as directly
attributable to insurance on defaulted interest earned on
Ohio obligations, if and to the extent that such proceeds
would not be subject to such taxes if paid in the normal
course by the issuer of such defaulted obligations and
further provided that such proceeds are not taxable under
federal law.

Any distributions of net short-term and net long-term
capital gains earned by the Fund are included in each
shareholder's Ohio taxable income as dividend income and
long-term capital gain respectively, and are taxed at
ordinary income tax rates.

APPENDIX B
SPECIAL FACTORS AFFECTING EACH STATE FUND

The following information is a brief summary of factors
affecting each of the individual State Funds and does not
purport to be a complete description of such factors. The
information is based primarily upon information derived from
public documents relating to securities offerings of issuers
of such states, from independent municipal credit reports
and historically reliable sources, but has not been
independently verified by the Trust. The market value of the
shares of any Fund may fluctuate due to factors such as
changes in interest rates, matters affecting a particular
state, or for other reasons. Additional information
regarding each state is included in the SAI

ARIZONA

Arizona continues to be one of the fastest growing states in
the nation. While the state's economy is growing more slowly
than it did in the mid-1980s, its growth in employment and
population still exceeds the national average. Contributing
to the economy's growth have been the state's affordable
housing, competitive wage rates, and pro-business regulatory
climate which have successfully allowed the state to attract
new businesses.

Arizona's economy has been undergoing a restructuring,
shifting employment away from agriculture and mining towards
manufacturing (10%), trade(21%), and services (25%) and
government (16%). At present, the state's agricultural
industry consumes approximately 80% of the water used in the
state. The continued shift away from farming will provide a
greater amount of water for municipal use and growth, as
will the completion of the Central Arizona Project, a 335
mile aqueduct which enables the state to fully utilize its
allotted share of water from the Colorado River. As the
state continues to urbanize, incomes and jobs should
increase, due to the generally higher demand for services in
urban areas. Although Arizona experienced an overall job
loss of 2% and a rise in unemployment during the recent
recession, the downturn was short-lived, and long-term
employment growth is projected.

FLORIDA

Florida's economy is experiencing slow but steady economic
growth driven by one the nation's fastest growing
populations. Florida has an estimated population of nearly
14 million, an increase of over 38% from 1980 levels, and
ranks as the fourth most populous state in the nation. While
high population growth has strengthened the state's economy,
such growth, along with the state's large and growing
elderly population, has put pressure on government funding
for health and human services, corrections, education and
transportation.

The state's economy centers on a growing trade and services
sector, although agriculture and tourism remain important
influences. Tourism has stabilized from the effects of the
early 1990s recession. Since that recession, Florida has
outperformed the nation and the east south central region in
employment and personal income growth. By 1994 personal
income had climbed to match the national average.

In November 1994 Florida voters adopted a proposal to cap
the amount of taxes and other revenues that can be raised by
the state in any fiscal year without a two-thirds vote of
each house of the legislature to raise the cap. However,
the measure exempts revenues that are pledged to pay bonds
and Medicaid and proceeds from the state lottery.
Consequently, the measure does not appear to represent any
major impediment for state financing needs.

MASSACHUSETTS

Massachusetts has a well developed economy with a large
service sector, particularly in health and education, and
one of the highest personal income levels in the nation.
During the 1980s, Massachusetts' economy experienced steady
growth, due in large part to its high technology
manufacturing industry. The recent recession, however, hit
the state hard, causing extensive job losses and a reduction
in personal income growth. While the state's economy has
stabilized, the state's recovery is expected to lag behind
that of the nation over the next few years. Despite
continued losses in the manufacturing industry caused by the
restructuring of computer, defense and health care
industries, the state expected overall employment growth
between 1% and 2% for 1994 and 1995. Gains are most likely
in the service sector, especially in construction and health
services.

While modest growth is projected for Massachusetts' economy,
recently legislation has dampened such growth. In August
1993, the federal Omnibus Budget Reconciliation Act was
passed, increasing taxes on wealthier households, limiting
Medicare and Medicaid spending, and decreasing defense
spending. The adverse economic impact of this legislation is
greater in Massachusetts than in other states due to
Massachusetts' relatively higher concentration of upper
income households and its large share of the health services
and defense industries. Health care reform may also
significantly impact the state's economy. While the health
services sector has been one of the primary sources of new
jobs, new cost-containment measures are expected to curtail
such growth, despite continuing increases in the demand for
such services. Accordingly, economic recovery began to slow
in late 1994.

MICHIGAN

For over a decade, Michigan's economy has been evolving from
a heavy manufacturing base to a more diversified base
increasingly reliant on services and trade. This evolution
has resulted in declines per capita relative to the national
average, from 108% in 1977 to 98% in 1992. While
manufacturing remains important, 23% of total jobs in 1991
versus 17% nationally, it still is a significantly share
than in the 1970s, when it was 35%. Manufacturing is
concentrated in the cyclical automotive industry, which has
reduced its employment from 10.8% in 1979 to 6.9% in 1989.
Michigan is experiencing strong economic growth, since, the
early 1990s recession, when unemployment reached 10%, total
employment has reached an all time, and unemployment has
been below national average for the first time in 20 years.
The state's future economic growth will likely come from
growth in its service sector.

MINNESOTA

Minnesota's economic structure is well diversified among
trade (23%) services (27%) and durable and nondurable
manufacturing (17%). As a result, the recent recession was
less severe in Minnesota than the nation as a whole. During
the 1980s, in contrast to many other states, Minnesota's
manufacturing sector grew, largely due to gains in durable
manufacturing, especially in the food, paper, and related
products industries. Nondurable manufacturing also
experienced growth, although such growth was offset to a
certain degree by contractions in the mainframe computer
industry. Notwithstanding the growth in its manufacturing
sector, Minnesota's overall employment growth lagged
slightly behind that of the nation since the last recession,
while unemployment remained well below the national average.

Despite continued declines in the state's computer industry
and a struggling agricultural industry, growth is expected
in the state's manufacturing, businesses, services and
finance sectors. Low labor and land costs and population
gains are attracting new investment to the state,
particularly in the areas of business, health and financial
services. Minnesota's near-term growth is expected to exceed
that of the nation as a whole, with continued growth in
personal income and exceptionally low unemployment levels.

OHIO

Ohio's economy has traditionally been highly industrialized.
In the early 1980s, however, the state's economy underwent a
period of restructuring. While still concentrated in
manufacturing, growth in nonmanufacturing sectors,
especially trade, services, has led to a more diversified
economy with employment more in line with that of the
motion, greater stability and steady overall growth.

The recent recession's effect on the state was relatively
mild, compared to other economic downturns, with losses in
the manufacturing sector offset from strong employment gains
in the service, trade, financial and real estate sectors.
The rate of personal income growth, however, has declined as
lower-paying service jobs have replaced those lost in
manufacturing, with income levels currently slightly below
the national average. Ohio, like much of the Midwest
continues to show strong economic growth through 1994 and
into 1995. By the end of 1994, unemployment was a low 4.2%.

FRANKLIN
TAX-FREE
TRUST

STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX
7777 MAY 1, 1995 SAN MATEO, CA 94403-7777 1-800/DIAL BEN

Franklin Tax-Free Trust (the "Trust") is an open-end
investment company consisting of 27 separate series. This
Statement of Additional Information ("SAI") relates to the
seven series listed below, five of which, as noted, are
currently offering two classes of shares:

Class I Class II
Franklin Arizona Insured Tax- not available
Free Income Fund, Class I
Franklin Florida Insured Tax- not available
Free Income Fund, Class I
Franklin Insured Tax-Free Franklin Insured Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Massachusetts Insured Franklin Massachusetts Insured
Tax-Free Income Fund, Class I Tax-Free Income Fund, Class II
Franklin Michigan Insured Tax- Franklin Michigan Insured Tax-
Free Income Fund, Class I Free Income Fund, Class II
Franklin Minnesota Insured Tax- Franklin Minnesota Insured Tax-
Free Income Fund, Class I Free Income Fund, Class II
Franklin Ohio Insured Tax-Free Franklin Ohio Tax-Free Income
Income Fund, Class I Fund, Class II

The new dual class structure ("multiclass") allows investors
to consider, among other features, the differing front-end
sales charges and ongoing distribution fees ("Rule 12b-1
fees") on their investments in the Funds.

Each Fund may, separately or collectively, be referred to as
a "Fund," the "Funds," or the "State Funds" (except for the
Insured Tax-Free Income Fund, the "Insured Fund")or
individually by the state or policy included as part of its
name. The Arizona and Florida Insured Funds will be included
in all discussions pertaining to Class I in this SAI.

The principal investment objective of each Fund is to
provide investors with as high a level of income exempt from
federal income taxes as is consistent with prudent
investing, while seeking preservation of shareholders'
capital. The investment objective of each Fund is a
fundamental policy. Each Fund, other than the Insured Fund,
also seeks to provide a maximum level of income exempt from
state personal income taxes, if any, to shareholders
resident in the named state. The Arizona and Florida Insured
Funds are non-diversified; the other series of the Trust
discussed in this SAI are diversified.

Generally, the Insured Fund invests in a diversified
portfolio of municipal securities from different states.
Each State Fund invests primarily in municipal securities
issued by its respective state and its political
subdivisions, agencies, and instrumentalities. Each Insured
Fund invests in municipal securities which are covered by
insurance guaranteeing the scheduled payment of principal
and interest or backed by or subject to an escrow account
invested in securities backed by the full faith and credit
of the U.S. government, or in short-term obligations of
issuers with the highest rating from Moody's Investors
Service ("Moody's"), Standard & Poor's Corporation ("S&P")
or Fitch Investors Service, Inc. ("Fitch"). All insured
securities not insured through the issuer will be insured by
a qualified municipal bond insurer.

Separate prospectuses for the Funds dated May 1, 1995, as
may be amended from time to time, provide the basic
information a prospective investor should know before
investing in the Funds and may be obtained without charge
from the Trust or its principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at
the address shown above.

THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN
ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUSES. THIS SAI IS INTENDED TO PROVIDE INVESTORS WITH
ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND
OPERATIONS OF THE TRUST AND EACH FUND AND SHOULD BE READ IN
CONJUNCTION WITH THE FUNDS' PROSPECTUSES.

CONTENTS PAGE

About the Trust

The Trust's Investment Objectives
and Policies

Description of Municipal and
Other Securities

Insurance

Investment Restrictions

Trustees and Officers

Investment Advisory and Other Services

The Trust's Policies Regarding Brokers
Used on Portfolio Transactions

Additional Information Regarding Purchases
and Redemptions of Trust Shares

The Trust's Underwriter

Plans of Distribution

Additional Information Regarding
Taxation

Performance

Miscellaneous Information

Appendices

Financial Statements

ABOUT THE TRUST

The Trust is an open-end management investment company,
commonly called a "mutual fund," and has registered as such
under the Investment Company Act of 1940 (the "1940 Act").
The Trust was organized as a Massachusetts business trust in
September 1984. The Trust issues its shares of beneficial
interest with no par value in several series. The Trust
currently has 27 separate series, each of which maintains a
totally separate investment portfolio. This SAI discusses
only the seven series listed on the cover.

THE TRUST'S INVESTMENT
OBJECTIVES AND POLICIES

As noted in the Prospectus, the Insured Fund seeks to
provide investors with as high a level of income exempt from
federal income taxes as is consistent with prudent
investment management, while seeking preservation of
shareholders' capital. Each Insured State Fund seeks to
maximize income exempt from federal income taxes and from
the personal income taxes for shareholders resident in the
named state, consistent with prudent investing, and the
preservation of shareholders' capital. The state of Florida
currently imposes no state personal income tax.

Although each Fund seeks to invest all its assets in a
manner designed to accomplish its objective, there may be
times when market conditions limit the availability of
appropriate municipal securities or, in the investment
manager's opinion, there exist uncertain economic, market,
political, or legal conditions which may jeopardize the
value of municipal securities. For temporary defensive
purposes only, when the investment manager believes that
market conditions, such as rising interest rates or other
adverse factors, would cause serious erosion of portfolio
value, (i) each of the Funds may invest more than 20% of its
assets (which could be up to 100%) in fixed-income
obligations, the interest on which is subject to federal
income tax and (ii) a State Fund may invest more than 20% of
the value of its net assets (which could be up to 100%) in
instruments the interest on which is exempt from regular
federal income taxes but not that state's personal income
taxes. To the extent that the state of Minnesota requires
dividends to be derived exclusively from interest on
obligations of the state of Minnesota or of the United
States ("U.S.") and its territories in order to be tax-
exempt, the Trust will endeavor to meet such requirements.
The policy followed by this Fund of attempting to meet this
state requirement in order to distribute tax-exempt income
is not a fundamental policy with respect to the Fund and may
be changed without notification to shareholders. If, due to
unusual market or political conditions, investments in
securities as described above would be advisable, in the
investment manager's opinion, in order to protect the value
of the Funds' shares or their net yield, such investments
may be made, notwithstanding the potential state income tax
effects.

It is the policy of each Fund that illiquid securities
(including illiquid securities with contractual or other
restrictions on resale or instruments which are not readily
marketable or have no readily ascertainable market value)
may not constitute, at the time of the purchase or at any
time, more than 10% of the value of the total net assets of
the Fund.

DESCRIPTION OF MUNICIPAL
AND OTHER SECURITIES

MUNICIPAL NOTES

TAX ANTICIPATION NOTES are used to finance working capital
needs of municipalities and are issued in anticipation of
various seasonal tax revenues, which will be used to pay the
notes. They are usually general obligations of the issuer,
secured by the taxing power for the payment of principal and
interest.

REVENUE ANTICIPATION NOTES are issued in expectation of
receipt of other kinds of revenue, such as federal revenues
available under the Federal Revenue Sharing Program. They
are usually general obligations of the issuer.

BOND ANTICIPATION NOTES are normally issued to provide
interim financing until long-term financing can be arranged.
Long-term bonds then provide the money for the repayment of
the notes.

CONSTRUCTION LOAN NOTES are sold to provide construction
financing for specific projects. After successful completion
and acceptance, many projects receive permanent financing
through the Federal Housing Administration under the Federal
National Mortgage Association or the Government National
Mortgage Association.

TAX-EXEMPT COMMERCIAL PAPER typically represents a short-
term obligation (270 days or less) issued by a municipality
to meet working capital needs.

MUNICIPAL BONDS, which meet longer-term capital needs and
generally have maturities of more than one year when issued,
have two principal classifications: general obligation bonds
and revenue bonds.

1. GENERAL OBLIGATION BONDS. Issuers of general obligation
bonds include states, counties, cities, towns and regional
districts. The proceeds of these obligations are used to
fund a wide range of public projects, including construction
or improvement of schools, highways and roads, and water and
sewer systems. The basic security behind general obligation
bonds is the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may
be limited or unlimited as to the rate or amount of special
assessments.

2. REVENUE BONDS. A revenue bond is not secured by the full
faith, credit and taxing power of an issuer. Rather, the
principal security for a revenue bond is generally the net
revenue derived from a particular facility, group of
facilities or, in some cases, the proceeds of a special
excise tax or other specific revenue source. Revenue bonds
are issued to finance a wide variety of capital projects
including: electric, gas, water, and sewer systems;
highways, bridges and tunnels; port and airport facilities;
colleges and universities; and hospitals. The principal
security behind these bonds may vary. Housing finance
authorities have a wide range of security, including
partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from
housing or other public projects. Many bonds provide
additional security in the form of a debt service reserve
fund, from which money may be used to make principal and
interest payments on the issuer's obligations. Some
authorities are provided with further security in the form
of state assurance (although without obligation) to make up
deficiencies in the debt service reserve fund.

Industrial Development Bonds which pay tax-exempt interest
are in most cases revenue bonds and are issued by or on
behalf of public authorities to raise money for the
financing of various privately operated facilities for
business manufacturing, housing, sports, and pollution
control. These bonds are also used to finance public
facilities such as airports, mass transit systems, ports,
and parking. The payment of the principal and interest on
such bonds is solely dependent on the ability of the
facilities user to meet its financial obligations and the
pledge, if any, of the real and personal property so
financed as security for such payments.

VARIABLE OR FLOATING RATE DEMAND NOTES ("VRDNS"). As stated
in the Prospectus, VRDNs are tax-exempt obligations which
contain a floating or variable interest rate and a right of
demand, which may be unconditional, to receive payment of
the unpaid principal balance plus accrued interest upon a
short notice period (generally up to 30 days) prior to
specified dates, either from the issuer or by drawing on a
bank letter of credit, a guarantee or insurance issued with
respect to such instrument. The interest rates are
adjustable at intervals ranging from daily up to monthly,
and are calculated to maintain the market value of the VRDN
at approximately its par value on the adjustment date.

WHEN-ISSUED PURCHASES. New issues of municipal securities
are frequently offered on a when-issued basis; that is,
payment for and delivery of the securities (the "settlement
date") normally take place after the date that the offer is
accepted. The purchase price and the yield that will be
received on the securities are fixed at the time the buyer
enters into the commitment. While the Trust will always make
commitments to purchase such securities with the intention
of actually acquiring the securities, it may nevertheless
sell these securities before the settlement date if it is
deemed advisable as a matter of investment strategy. To the
extent that assets of a Fund are held in cash pending the
settlement of a purchase of securities, that Fund would earn
no income; however, it is the Trust's intention to have each
Fund fully invested to the extent practicable and subject to
the policies stated in the Prospectus. At the time a Fund
makes the commitment to purchase a municipal bond on a when-
issued basis, it will record the transaction and reflect the
value of the security in determining its net asset value.
The Trust does not believe that any Fund's net asset value
or income will be adversely affected by the purchase of
municipal bonds on a when-issued basis. Each Fund will
establish a segregated account in which it will maintain
cash and marketable securities equal in value to commitments
for when-issued securities.

MUNICIPAL SECURITIES may also be sold in "stripped" form.
Stripped Municipal Securities represent separate ownership
of interest and principal payments on municipal obligations.

CALLABLE BONDS. These are municipal bonds which are issued
with provisions which prevent them from being called,
typically for periods of 5 to 10 years. During times of
generally declining interest rates, if the call-protection
on callable bonds expires, there is an increased likelihood
that a number of such bonds may, in fact, be called away by
the issuers. Based on a number of factors, including certain
portfolio management strategies used by the Funds'
investment manager, the Funds believe they have reduced the
risk of adverse impact on net asset value based on calls of
callable bonds. The investment manager may dispose of such
bonds in the years prior to their call date if the
investment manager believes such bonds are at their maximum
premium potential. In pricing such bonds in each Fund's
portfolio, each callable bond is marked to the market daily
based on the bond's call date. Thus, the call of some or all
of each Fund's callable bonds may have an impact on such
Fund's net asset value. In light of each Fund's pricing
policies and because the Funds follow certain amortization
procedures required by the Internal Revenue Service, the
Funds are not expected to suffer any material adverse impact
related to the value at which the Fund has carried the bonds
in connection with calls of bonds purchased at a premium.
Notwithstanding such policies, however, the re-investment of
the proceeds of any called bond may be in bonds which pay a
higher or lower rate of return than the called bonds; and as
with any investment strategy, there is no guarantee that a
call may not have a more substantial impact than anticipated
or that the Funds' objectives will be achieved.

CERTIFICATES OF PARTICIPATION. As stated in the Prospectus,
each Fund may also invest in municipal lease obligations,
primarily through Certificates of Participation ("COPs").
COPs are distinguishable from municipal debt in that the
lease which is the subject of the transaction typically
contains a "nonappropriation" or "abatement" clause. A
nonappropriation clause provides that, while the
municipality will use its best efforts to make lease
payments, the municipality may terminate the lease without
penalty if the municipality's appropriating body does not
allocate the necessary funds.

While the risk of nonappropriation is inherent to COP
financing, the Funds believe that this risk is mitigated by
their policy of investing only in insured COPs. The Board of
Trustees has determined that COPs held in each Fund's
portfolio constitute liquid investments based on various
factors reviewed by the investment manager and monitored by
the Board. Such factors include (a) the credit quality of
such securities and the extent to which they are rated; (b)
the size of the municipal securities market for each Fund,
both in general and with respect to COPs; and (c) the extent
to which the type of COPs held by each Fund trade on the
same basis and with the same degree of dealer participation
as other municipal bonds of comparable credit rating or
quality. There is no limit as to the amount of assets which
each Fund may invest in COPs.

ZERO COUPON SECURITIES. A Fund's investment in zero coupon
and delayed interest bonds may cause a Fund to recognize
income and make distributions to shareholders prior to the
receipt of cash payments. Zero-coupon securities make no
periodic interest payments but instead are sold at a deep
discount from their face value. The buyer receives a rate of
return determined by the gradual appreciation of the
security, which is redeemed at face value on a specific
maturity date.

Because zero-coupon securities bear no interest and compound
semi-annually at the rate fixed at the time of issuance, the
value of such securities is generally more volatile than
other fixed-income securities. Since zero-coupon bondholders
do not receive interest payments, zeros fall more
dramatically than bonds paying interest on a current basis
when interest rates rise. When interest rates fall, zero-
coupon securities rise more rapidly in value, because the
bonds reflect a fixed rate of return.

In order to generate cash to satisfy distribution
requirements, a Fund may be required to dispose of portfolio
securities that it otherwise would have continued to hold or
to use cash flows from other sources such as the sale of
Fund shares.

CONVERTIBLE AND STEP COUPON BONDS. The Fund may invest a
portion of its assets in convertible and step coupon bonds.
The convertible bonds which a Fund may purchase are zero-
coupon securities until a predetermined date, at which time
they convert to a specified coupon security. The coupon on
step coupon bonds changes periodically during the life of
the security based on predetermined dates chosen at the time
of issuance.

ESCROW-SECURED BONDS OR DEFEASED BONDS are created when an
issuer refunds in advance of maturity (or pre-refunds) an
outstanding bond issue which is not immediately callable,
and it becomes necessary or desirable to set aside funds for
redemption of the bonds at a future date. In an advance
refunding, the issuer will use the proceeds of a new bond
issue to purchase high grade, interest bearing debt
securities which are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments
of principal and interest of the advance refunded bond.
Escrow-secured bonds will often receive a triple-A rating
from S&P and Moody's. The Insured Funds will purchase escrow
secured bonds without additional insurance only where the
escrow is invested in U.S. government securities backed by
the full faith and credit of the U.S. government.

U.S. GOVERNMENT OBLIGATIONS which may be owned by a Fund are
issued by the U.S. Treasury and include bills, certificates
of indebtedness, notes and bonds, or are issued by agencies
and instrumentalities of the U.S. government and backed by
the full faith and credit of the U.S. government.

COMMERCIAL PAPER refers to promissory notes issued by
corporations in order to finance their short-term credit
needs.

There may, of course, be other types of municipal securities
that become available which are similar to the foregoing
described municipal securities in which the Funds may also
invest, to the extent such investments would be consistent
with the foregoing objective and policies.

LENDING PORTFOLIO SECURITIES. Consistent with procedures
approved by the Board of Trustees and subject to the
following conditions, a Fund may lend its portfolio
securities to qualified securities dealers or other
institutional investors, provided that such loans do not
exceed 10% of the value of a Fund's total assets at the time
of the most recent loan. The borrower must deposit with a
Fund's custodian collateral with an initial market value of
at least 102% of the initial market value of the securities
loaned, including any accrued interest, with the value of
the collateral and loaned securities marked-to-market daily
to maintain collateral coverage of at least 102%. Such
collateral shall consist of cash. The lending of securities
is a common practice in the securities industry. A Fund may
engage in security loan arrangements with the primary
objective of increasing such Fund's income either through
investing the cash collateral in short-term interest bearing
obligations or by receiving a loan premium from the
borrower. Under the securities loan agreement, a Fund
continues to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there
are risks of delay in recovery and loss of rights in the
collateral should the borrower of the security fail
financially. While such securities are on loan, the borrower
will pay such Fund any income accruing thereto, and such
Fund may invest the cash collateral in portfolio securities,
thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the
laws or regulations of any state in which its shares are
qualified for sale. Loans are typically subject to
termination by a Fund in the normal settlement time or
returned when the loan is terminated. Any gain or loss in
the market price of the borrowed securities which occurs
during the term of the loan inures to such Fund and its
shareholders. A Fund may pay reasonable finders' borrowers',
administrative and custodial fees in connection with a loan
of its securities.

Income derived by a Fund from securities lending
transactions and investments in commercial paper, bankers'
acceptances and certificates of deposit will be taxable for
federal income tax purposes when distributed to
shareholders. Income derived by a Fund from interest on
direct obligations of the U.S. government will be taxable
for federal income tax purposes when distributed to
shareholders.

INSURANCE

Except for certain temporary short-term investments, U.S.
government guaranteed securities or escrow-secured bonds,
the investment in municipal securities by each of the
Insured Funds is covered by insurance guaranteeing the
scheduled payment of principal and interest thereon.

As described in the Prospectus, an Insured Fund will receive
payments of insurance for any installment of interest and
principal due for payment but which shall be unpaid by
reason of nonpayment by the issuer. The term "due for
payment," in reference to the principal of a security, means
its stated maturity date or the date on which it shall have
been called for mandatory sinking fund redemption and does
not refer to any earlier date on which payment is due by
reason of call for redemption (other than by mandatory
sinking fund redemption), acceleration or other advancement
of maturity; when referring to interest on a security, the
term means the stated date for payment of interest. However,
when the interest on the security shall have been
determined, as provided in the underlying documentation
relating to such security, to be subject to federal income
taxation, due for payment, when referring to the principal
of such security, also means the date on which it has been
called for mandatory redemption as a result of such
determination of taxability; when referring to interest on
such security, the term means the accrued interest at the
rate provided in such documentation to the date on which it
has been called for such mandatory redemption, together with
any applicable redemption premium. The insurance feature
insures the scheduled payment of interest and principal and
does not guarantee the market value of the insured municipal
securities nor the value of the shares of the Insured Funds.

As stated in the Prospectus, each insured municipal security
in an Insured Fund's portfolio will be covered by either a
"New Issue Insurance Policy" obtained by the issuer of the
security at the time of its original issuance or a
"Secondary Insurance Policy" or a "Portfolio Insurance
Policy" issued by a qualified municipal bond insurer.

Under the provisions of the Portfolio Insurance Policy, the
insurer unconditionally and irrevocably agrees to pay to the
appointed trustee or its successor and its agent (the
"Trustee") that portion of the principal of and interest on
the securities which shall become due for payment but shall
be unpaid by reason of nonpayment by the issuer. The insurer
will make such payments to the Trustee on the date such
principal or interest becomes due for payment or on the
business day next following the day on which the insurer
shall have received notice of nonpayment, whichever is
later. The Trustee will disburse to an Insured Fund the face
amount of principal and interest which is then due for
payment but is unpaid by reason of nonpayment by the issuer
but only upon receipt by the Trustee of (i) evidence of an
Insured Fund's right to receive payment of the principal or
interest due for payment and (ii) evidence, including any
appropriate instruments of assignment, that all of the
rights to payment of such principal or interest due for
payment shall thereupon vest in the insurer. Upon such
disbursement, the insurer shall become the owner of the
security, appurtenant coupon or right to payment of
principal or interest on such security and shall be fully
subrogated to all of the Insured Fund's rights thereunder,
including the right to payment thereof.

Bond insurers are often referred to as "monolines" in that
they only write financial guarantees as opposed to
"multiline" insurers who write several different types of
insurance policies, such as life insurance, auto and home
insurance, and are exposed to many types of risk.
Additionally, bond insurers are not exposed to "run risk"
(which occurs when too many policyholders rush to cash in
their policies), because they only guarantee payment when
due. Also, in order to maintain AAA status by the recognized
national securities ratings agencies (which is required by
the Fund), the bond insurers invest their assets mainly in
high quality municipal and corporate bonds rated AA or
better and U.S. government obligations.

Neither the Insured Funds nor their investment manager make
any representations as to the ability of any insurance
company to meet its obligation to the Insured Funds if
called upon to do so.

INVESTMENT RESTRICTIONS

The Trust has adopted the following restrictions as
additional fundamental policies of each Fund. These policies
may not be changed with respect to any Fund without the
approval of a majority of the outstanding voting securities
of such Fund. Under the 1940 Act, a "vote of a majority of
the outstanding voting securities" of the Trust or of a
particular Fund means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Trust or
of such Fund or (2) 67% or more of the shares of the Trust
or of such Fund present at a shareholders meeting if more
than 50% of the outstanding shares of the Trust or of such
Fund are represented at the meeting in person or by proxy. A
Fund MAY NOT:

2. Buy any securities on "margin" or sell any securities
"short," except that it may use such short-term credits as
are necessary for the clearance of transactions.

3. Make loans, except through the purchase of readily
marketable debt securities which are either publicly
distributed or customarily purchased by institutional
investors. Although such loans are not presently intended,
this prohibition will not preclude a Fund from loaning
portfolio securities to broker/dealers or other
institutional investors if at least 102% cash collateral is
pledged and maintained by the borrower; provided such
portfolio security loans may not be made if, as a result,
the aggregate of such loans exceeds 10% of the value of the
Fund's total assets at the time of the most recent loan.

4. Act as underwriter of securities issued by other
persons, except insofar as the Fund may be technically
deemed an underwriter under the federal securities laws in
connection with the disposition of portfolio securities.

5. Purchase the securities of any issuer which would
result in owning more than 10% of the voting securities of
such issuer, except with respect to the Trust's non-
diversified Funds, which Funds will not purchase a security,
if as a result: i) more than 25% of its total assets would
be invested in the securities of a single issuer or ii) with
respect to 50% of its total assets, more than 5% of its
assets would be invested in the securities of a single
issuer.

6. Purchase securities from or sell to the Trust's
officers and trustees, or any firm of which any officer or
trustee is a member, as principal, or retain securities of
any issuer if, to the knowledge of the Trust, one or more of
the Trust's officers, trustees, or investment adviser own
beneficially more than 1/2 of 1% of the securities of such
issuer and all such officers and trustees together own
beneficially more than 5% of such securities.

7. Acquire, lease or hold real estate, except such as may
be necessary or advisable for the maintenance of its offices
and provided that this limitation shall not prohibit the
purchase of municipal and other debt securities secured by
real estate or interests therein.

9. Invest in companies for the purpose of exercising
control or management.

10. Purchase securities of other investment companies,
except in connection with a merger, consolidation,
acquisition or reorganization, except to the extent
permitted by exemptions which may be granted under the 1940
Act, which allows the Funds to invest in shares of one or
more investment companies, of the type generally referred to
as money market funds, managed by Franklin Advisers, Inc. or
its affiliates.

11. In the case of the Franklin Arizona Insured Tax-Free
Income Fund and Franklin Florida Insured Tax-Free Income
Fund purchase securities, in private placements or in other
transactions, for which there are legal or contractual
restrictions on resale.

12. Invest more than 25% of its assets in securities of any
industry; although for purposes of this limitation, tax-
exempt securities and U.S. government obligations are not
considered to be part of any industry.

TRUSTEES AND OFFICERS

The trustees have the responsibility for the overall
management of the Trust, including general supervision and
review of its investment activities. The trustees elect the
officers of the Trust who are responsible for administering
the day-to-day operations of the Trust. The affiliations of
the officers and trustees and their principal occupations
for the past five years are listed below. Trustees who are
deemed to be "interested persons" of the Trust, as defined
in the 1940 Act, are indicated by an asterisk (*).

POSITIONS
AND OFFICES
NAME, AGE AND WITH THE PRINCIPAL OCCUPATION
ADDRESS TRUST DURING PAST FIVE YEARS

Frank H. Abbott, III Trustee President and Director, Abbott
Age 74 Corporation (an investment
1045 Sansome St. company); and director, trustee
San Francisco, CA or managing general partner, as
94111 the case may be, of 30 of the
investment companies in the
Franklin Group of Funds.

Harris J. Ashton Trustee President, Chief Executive
Age 62 Officer and Chairman of the
General Host Board, General Host Corporation
Corporation (nursery and craft centers);
Metro Center, 1 Director, RBC Holdings, Inc. (a
Station Place bank holding company) and Bar-S
Stamford, CT 06904- Foods; and director, trustee or
2045 managing general partner, as the
case may be, of 54 of the
investment companies in the
Franklin Templeton Group of
Funds.
S. Joseph Fortunato Trustee Member of the law firm of
Age 62 Pitney, Hardin, Kipp & Szuch;
Park Avenue at Director of General Host
Morris County Corporation; director, trustee
P. O. Box 1945 or managing general partner, as
Morristown, NJ 07962- the case may be, of 56 of the
1945 investment companies in the
Franklin Templeton Group of
Funds.
David W. Garbellano Trustee Private Investor; Assistant
Age 80 Secretary/Treasurer and
111 New Montgomery Director, Berkeley Science
St., #402 Corporation (a venture capital
San Francisco, CA company); and director, trustee
94105 or managing general partner, as
the case may be, of 29 of the
investment companies in the
Franklin Group of Funds.

*Charles B. Johnson Chairman President and Director,
Age 62 of the Franklin Resources, Inc.;
777 Mariners Island Board and Chairman of the Board and
Blvd. Trustee Director, Franklin Advisers,
San Mateo, CA 94404 Inc. and Franklin Templeton
Distributors, Inc.; Director,
Franklin/Templeton Investor
Services, Inc. and General
Host Corporation; and officer
and/or director, trustee or
managing general partner, as
the case may be, of most
other subsidiaries of
Franklin Resources, Inc. and
of 55 of the investment
companies in the Franklin
Templeton Group of Funds.
*Rupert H. Johnson, President Executive Vice President and
Jr. and Director, Franklin Resources,
Age 54 Trustee Inc. and Franklin Templeton
777 Mariners Island Distributors, Inc.; President
Blvd. and Director, Franklin
San Mateo, CA 94404 Advisers, Inc.; Director,
Franklin/Templeton Investor
Services, Inc.; and officer
and/or director, trustee or
managing general partner, as
the case may be, of most other
subsidiaries of Franklin
Resources, Inc. and of 42 of
the investment companies in the
Franklin Templeton Group of
Funds.
Frank W. T. LaHaye Trustee General Partner, Peregrine
Age 66 Associates and Miller & LaHaye,
20833 Stevens Creek which are General Partners of
Blvd. Peregrine Ventures and Peregrine
Suite 102 Ventures II (venture capital
Cupertino, CA 95014 firms); Chairman of the Board
and Director, Quarterdeck Office
Systems, Inc.; Director,
FischerImaging Corporation; and
director or trustee, as the case
may be, of 25 of the investment
companies in the Franklin Group
of Funds.
Gordon S. Macklin Trustee Chairman, White River
Age 66 Corporation (information
8212 Burning Tree services); Director, Fund
Road American Enterprises Holdings,
Bethesda, MD 20817 Inc., Martin Marietta
Corporation, MCI Communications
Corporation, MedImmune, Inc.
(biotechnology), Infovest
Corporation (information
services), and Fusion Systems
Corporation (industrial
technology); and director,
trustee or managing general
partner, as the case may be, of
51 of the investment companies
in the Franklin Templeton Group
of Funds; formerly, Chairman,
Hambrecht and Quist Group;
formerly, Director, H & Q
Healthcare Investors; and
formerly, President, National
Association of Securities
Dealers, Inc.
Harmon E. Burns Vice Executive Vice President,
Age 50 President Secretary and Director, Franklin
777 Mariners Island Resources, Inc.; Executive Vice
Blvd. President and Director, Franklin
San Mateo, CA 94404 Templeton Distributors, Inc.;
Executive Vice President,
Franklin Advisers, Inc.;
Director, Franklin/Templeton
Investor Services, Inc.; officer
and/or director, as the case may
be, of other subsidiaries of
Franklin Resources, Inc.; and
officer and/or director or
trustee of 41 of the investment
companies in the Franklin
Templeton Group of Funds.
Kenneth V. Domingues Vice Senior Vice President, Franklin
Age 62 President - Resources, Inc., Franklin
777 Mariners Island Financial Advisers, Inc., and Franklin
Blvd. Reporting Templeton Distributors, Inc.;
San Mateo, CA 94404 and officer and/or director, as the
Accounting case may be, of other
Standards subsidiaries of Franklin
Resources, Inc.; and Officer
and/or managing general partner,
as the case may be, of 36 of the
investment companies in the
Franklin Group of Funds.
Don Duerson Vice Employee of Franklin Resources,
Age 62 President Inc. and its subsidiaries in
777 Mariners Island senior portfolio management
Blvd. capacities.
San Mateo, CA 94404
Martin L. Flanagan Vice Senior Vice President, Chief
Age 34 President Financial Officer and Treasurer,
777 Mariners Island and Chief Franklin Resources, Inc.;
Blvd. Financial Executive Vice President,
San Mateo, CA 94404 Officer Templeton Worldwide, Inc.;
Senior Vice President and
Treasurer, Franklin Advisers,
Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice
President, Franklin/Templeton
Investor Services, Inc.; officer
of most other subsidiaries of
Franklin Resources, Inc.; and
officer of 60 of the investment
companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek Vice Senior Vice President - Legal,
Age 46 President Franklin Resources, Inc. and
777 Mariners Island and Franklin Templeton Distributors,
Blvd. Secretary Inc.; Vice President, Franklin
San Mateo, CA 94404 Advisers, Inc. and officer of 36
of the investment companies in
the Franklin Group of Funds.
Thomas J. Kenny Vice Senior Vice President, Franklin
Age 32 President Advisers, Inc. and officer of
777 Mariners Island eight of the investment
Blvd. companies in the Franklin Group
San Mateo, CA 94404 of Funds.
Diomedes Loo-Tam Treasurer Employee of Franklin Advisers,
Age 56 and Inc.; and officer of 36 of the
777 Mariners Island Principal investment companies in the
Blvd. Accounting Franklin Group of Funds.
San Mateo, CA 94404 Officer
Edward V. McVey Vice Senior Vice President/National
Age 57 President Sales Manager, Franklin
777 Mariners Island Templeton Distributors, Inc.;
Blvd. and officer of 31 of the
San Mateo, CA 94404 investment companies in the
Franklin Group of Funds.

Trustees not affiliated with the investment manager
("nonaffiliated trustees") are currently paid fees of $1,300
per month plus $1,300 per meeting attended and are
reimbursed for expenses incurred in connection with
attending such meetings. During the fiscal year ended
February 28, 1995, fees totaling $188,500 were paid to
nonaffiliated trustees of the Trust. As indicated above,
certain of the trustees and officers hold positions with
other companies in the Franklin Group of Funds(Registered
Trademark) and the Templeton Funds("Franklin Templeton
Funds"). The following table shows the fees paid by the
Trust to its nonaffiliated trustees and the total fees paid
to such trustees by the Trust and other Franklin Templeton
Funds for which they serve as directors, trustees or
managing general partners

TOTAL
COMPENSATION
FROM
NUMBER OF FRANKLIN
FRANKLIN TEMPLETON
AGGREGATE TEMPLETON FUNDS FUNDS,
COMPENSATION BOARDS ON WHICH INCLUDING
NAME FROM TRUST * EACH SERVES THE TRUST **
Frank H. Abbott, III $32,500 30 $176,870
Harris J. Ashton 31,200 54 319,925
S. Joseph Fortunato 31,200 56 336,065
David W. Garbellano 31,200 29 153,300
Frank W.T. LaHaye 31,200 25 150,817
Gordon S. Macklin 31,200 51 303,685

* For the fiscal year ended February 1, 1995
** For the calendar year ended December 31, 1994.

Nonaffiliated trustees are also reimbursed for expenses
incurred in connection with attending Board meetings, paid
pro rata by each Franklin Templeton fund in which they
serve. No officer or trustee received any other compensation
directly from the Trust.

As of April 7, 1995, the officers and trustees, as a group,
owned of record and beneficially 515 shares of the Insured
Fund, which shares are less than 1% of the total outstanding
shares of the Fund. In addition, some trustees own shares in
various other Franklin Templeton Funds. Certain officers or
trustees who are shareholders of Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are brothers.

INVESTMENT ADVISORY AND OTHER SERVICES

The investment manager for each Fund is Franklin Advisers,
Inc. ("Advisers" or "Manager"). Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a
publicly owned holding company whose shares are listed on
the New York Stock Exchange (the "Exchange"). Resources owns
several other subsidiaries which are involved in investment
management and shareholder services. The Manager and other
subsidiary companies of Resources currently manage over $118
billion in assets for more than 3.8 million shareholders.
The preceding table indicates those officers and trustees
who are also affiliated persons of Distributors and
Advisers.

Pursuant to the management agreement, the Manager provides
investment research and portfolio management services,
including the selection of securities for the Funds to
purchase, hold or sell and the selection of brokers through
whom the portfolio transactions of each Fund are executed.
The Manager's extensive research activities include, as
appropriate, traveling to meet with issuers and to review
project sites. The Manager's activities are subject to the
review and supervision of the trustees to whom the Manager
renders periodic reports of the Trust's investment
activities. The Manager, at its own expense, furnishes the
Trust with office space and furnishings, facilities and
equipment required for managing the business affairs of the
Trust; maintains all internal bookkeeping, clerical,
secretarial and administrative personnel and services; and
provides certain telephone and other mechanical services.
The Manager is covered by fidelity insurance on its
officers, directors and employees for the protection of the
Fund. Each Fund bears all of its expenses not assumed by the
Manager. Details of these expenses are included in the
Trust's Annual Report to Shareholders dated February 28,
1995.

Pursuant to the management agreement, each Fund is obligated
to pay the Manager a fee computed at the close of business
on the last business day of each month equal to a monthly
rate of 5/96 of 1% (approximately 5/8 of 1% per year) for
the first $100 million of average monthly net assets of the
Fund; 1/24 of 1% (approximately 1/2 of 1% per year) of
average monthly net assets of the Fund in excess of $100
million up to $250 million; and 9/240 of 1% (approximately
45/100 of 1% per year) of average monthly net assets of the
Fund in excess of $250 million. Advisers may, however, limit
or may not impose its management fees and may also assume
responsibility for making payments, if necessary, to offset
certain operating expenses otherwise payable by such
Fund(s). This action by Advisers to limit its management
fees and assume responsibility for payment of the expenses
related to the operations of any Fund may be terminated by
Advisers at any time.

The management agreement specifies that the management fee
be reduced to the extent necessary to comply with the most
stringent limits on the expenses which may be borne by a
Fund prescribed by any state in which a Fund's shares are
offered for sale. The most stringent current limit requires
the Manager to reduce or eliminate its fee to the extent
that aggregate operating expenses of each Fund (excluding
interest, taxes, brokerage commissions, and extraordinary
expenses such as litigation costs) would otherwise exceed in
any fiscal year 2.5% of the first $30 million of average
annual net assets of each Fund, 2% of the next $70 million
of average annual net assets of each Fund, and 1.5% of
average annual net assets of each Fund in excess of $100
million. Expense reductions have not been necessary based on
state limitation requirements.

The table below sets forth on a per Fund basis (for those
Funds in operation during the periods indicated) the
management fees which Class I of each Fund was obligated to
pay to Advisers and the management fees actually paid by
Class I of each Fund.

FISCAL YEAR ENDED FEBRUARY 28, 1995:

CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID
FUND FEES BY THE FUND

Arizona Insured Fund $ 102,744 $ 0
Florida Insured Fund 239,908 43,007
Insured Fund 7,903,871 7,903,871
Massachusetts Insured
Fund 1,540,886 1,540,886
Michigan Insured Fund 4,846,714 4,846,714
Minnesota Insured Fund 2,401,351 2,401,351
Ohio Insured Fund 3,181,729 3,181,729

FISCAL YEAR ENDED FEBRUARY 28, 1994:

CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID
FUND FEES BY THE FUND

Arizona Insured Fund $ 43,672 $ 0
Florida Insured Fund 94,989 0
Insured Fund 7,938,004 7,938,004
Massachusetts Insured
Fund 1,592,310 1,592,310
Michigan Insured Fund 4,738,911 4,738,911
Minnesota Insured Fund 2,422,894 2,422,894
Ohio Insured Fund 3,143,227 3,143,227

FISCAL YEAR ENDED FEBRUARY 28, 1993:

CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID
FUND FEES BY THE FUND

Insured Fund $ 6,293,042 $ 6,293,042
Massachusetts Insured
Fund 1,347,680 1,347,680
Michigan Insured Fund 3,740,226 3,740,226
Minnesota Insured Fund 2,044,917 2,044,917
Ohio Insured Fund 2,448,983 2,448,983

The management agreement is in effect until March 31, 1996.
Thereafter, it may continue in effect for successive annual
periods provided such continuance is specifically approved
at least annually by a vote of the Trust's Board of Trustees
or as to each Fund by a vote of the holders of a majority of
the outstanding voting securities of such Fund, and in
either event by a majority vote of the trustees who are not
parties to the management agreement or interested persons of
any such party (other than as trustees), cast in person at a
meeting called for that purpose. The management agreement
may be terminated without penalty at any time by the Trust
or one or more of its Funds or by the Manager on 30 days'
written notice and will automatically terminate in the event
of its assignment, as defined in the 1940 Act.

OTHER SERVICES

Franklin/Templeton Investor Services, Inc. ("Investor
Services" or "Shareholder Services Agent"), a wholly-owned
subsidiary of Resources, is the shareholder servicing agent
for the Trust and acts as the Trust's transfer agent and
dividend-paying agent. Investor Services is compensated by
each Fund on the basis of a fixed fee per account.

Bank of America NT & SA, 555 California Street, 4th Floor,
San Francisco, California 94104, acts as custodian of the
securities and other assets of each Fund. Citibank Delaware,
One Penn's Way, New Castle, Delaware 19720, acts as
custodian in connection with transfer services through bank
automated clearing houses. The custodians do not participate
in decisions relating to the purchase and sale of portfolio
securities.

Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, is the Trust's independent auditors.
During the fiscal year ended February 28, 1995, its auditing
services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual
Report to Shareholders dated February 28, 1995.

THE TRUST'S POLICIES REGARDING
BROKERS USED ON PORTFOLIO TRANSACTIONS

Since most purchases made by the Trust are principal
transactions at net prices, the Trust incurs little or no
brokerage costs. The Trust deals directly with the selling
or purchasing principal or market maker without incurring
charges for the services of a broker on its behalf, unless
it is determined that a better price or execution may be
obtained by utilizing the services of a broker. Purchases of
portfolio securities from underwriters include a commission
or concession paid by the issuer to the underwriter, and
purchases from dealers include a spread between the bid and
ask price. As a general rule, the Funds do not purchase
bonds in underwritings where they are not given any choice,
or only limited choice, in the designation of dealers to
receive the commission. The Trust seeks to obtain prompt
execution of orders at the most favorable net price.
Transactions may be directed to dealers in return for
research and statistical information, as well as for special
services rendered by such dealers in the execution of
orders. It is not possible to place a dollar value on the
special executions or on the research services received by
Advisers from dealers effecting transactions in portfolio
securities. The allocations of transactions in order to
obtain additional research services permits Advisers to
supplement its own research and analysis activities and to
receive the views and information of individuals and
research staff of other securities firms. As long as it is
lawful and appropriate to do so, the Manager and its
affiliates may use this research data in their investment
advisory capacities with other clients. Provided that the
Trust's officers are satisfied that the best execution is
obtained, the sale of shares of a Fund may also be
considered as a factor in the selection of securities
dealers to execute the Trust's portfolio transactions.

If purchases or sales of securities of a Fund and one or
more other investment companies or clients supervised by the
Manager are considered at or about the same time,
transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed
equitable to all by the Manager, taking into account the
respective sizes of the funds and the amount of securities
to be purchased or sold. It is recognized that in some cases
this procedure could possibly have a detrimental effect on
the price or volume of the security so far as any Fund is
concerned. In other cases, however, it is possible that the
ability to participate in volume transactions and to
negotiate lower brokerage commissions will be beneficial to
a Fund.

During each of the three fiscal years ended February 28,
1993, 1994 and 1995, the Funds did not incur any brokerage
commissions. As of February 28, 1995, the Funds did not own
any securities of their regular broker-dealers.

ADDITIONAL INFORMATION
REGARDING PURCHASES AND
REDEMPTIONS OF TRUST SHARES

All checks, drafts, wires and other payment mediums used for
purchasing or redeeming shares of the Funds must be
denominated in U.S. dollars. Each Fund reserves the right,
in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other
currency or (b) honor the transaction or make adjustments to
a shareholder's account for the transaction as of a date and
with a foreign currency exchange factor determined by the
drawee bank.

In connection with exchanges (see Prospectus "Exchange
Privilege"), it should be noted that since the proceeds from
the sale of shares of an investment company generally are
not available until the fifth business day following the
redemption, the fund into which a Fund's shareholders are
seeking to exchange reserve the right to delay issuing
shares pursuant to an exchange until said fifth business
day. The redemption of shares of a Fund to complete an
exchange for shares of any of the investment companies will
be effected at the close of business on the day the request
for exchange is received in proper form at the net asset
value then effective.

Shares are eligible to receive dividends beginning on the
first business day following settlement of the purchase
transaction through the date on which a Fund writes a check
or sends a wire on redemption transactions.

Dividend checks which are returned to the Funds marked
"unable to forward" by the postal service will be deemed to
be a request by the shareholder to change the dividend
option and the proceeds will be reinvested in additional
shares at net asset value until new instructions are
received.

The Funds may impose a $10 charge for each returned item,
against any shareholder account which, in connection with
the purchase of a Fund's shares, submits a check or a draft
which is returned unpaid to the Fund.

Each Fund may deduct from a shareholder's account the costs
of its efforts to locate a shareholder if mail to that
shareholder is returned as undeliverable or the Fund is
otherwise unable to locate the shareholder or verify the
current mailing address. These costs may include a
percentage of the account when a search company charges a
percentage fee in exchange for its location services.

Under agreements with certain banks in Taiwan, Republic of
China, the Funds' shares are available to such banks'
discretionary trust funds at net asset value. The banks may
charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion
of such service fees may be paid to Distributors, or an
affiliate of Distributors, to help defray expenses of
maintaining a service office in Taiwan, including expenses
related to local literature fulfillment and communication
facilities.

Shares of the Funds may be offered to investors in Taiwan
through securities firms known locally as Securities
Investment Consulting Enterprises. In conformity with local
business practices in Taiwan, shares of the Funds will be
offered with the following schedule of sales charges:

SALES

SIZE OF PURCHASE CHARGE

Up to U. S. $100,000 3%
U.S. $100,000 to U.S. $1,000,000 2%
Over U.S. $1,000,000 1%

PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS

Orders for the purchase of shares of each Fund received in
proper form prior to the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) any business day that the
Exchange is open for trading and promptly transmitted to the
Fund will be based upon the public offering price determined
that day. Purchase orders received by securities dealers or
other financial institutions after the scheduled close of
the Exchange will be effected at each class' public offering
price on the day it is next calculated. The use of the term
"securities dealer" herein shall include other financial
institutions which, pursuant to an agreement with
Distributors (directly or through affiliates), handle
customer orders and accounts with each Fund. Such reference,
however, is for convenience only and does not indicate a
legal conclusion of capacity.

SPECIAL NET ASSET VALUE PURCHASES - CLASS I SHARES

As discussed in the Prospectus under "How to Buy Shares of
the Funds - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase
Class I shares without a front-end sales charge ("net asset
value") or a contingent deferred sales charge. Distributors
or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are
responsible for such purchases, as indicated below.
Distributors may make these payments in the form of
contingent advance payments, which may be recovered from the
securities dealer, or set off against other payments due to
the securities dealer, in the even of investor redemptions
made within 12 months of the calendar month following
purchase. Other conditions may apply. All terms and
conditions may be imposed by an agreement between
Distributors, or its affiliates, and the securities dealer.

With respect to purchases made at net asset value by certain
trust companies and trust departments of banks,
Distributors, or one of its affiliates, out of its own
resources, may pay up to 1% of the amount invested.

LETTER OF INTENT. An investor may qualify for a reduced
sales charge on the purchase of Class I shares of the Funds,
as described in the prospectus. At any time within 90 days
after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder
Application, with the Letter of Intent section completed,
may be filed with the Fund. After the Letter of Intent is
filed, each additional investment will be entitled to the
sales charge applicable to the level of investment indicated
on the Letter. Sales charge reductions based upon purchases
in more than one of the Franklin Templeton Funds will be
effective only after notification to Distributors that the
investment qualifies for a discount. The shareholder's
holdings in the Franklin Templeton Funds, including Class II
shares, acquired more than 90 days before the Letter of
Intent is filed will be counted towards completion of the
Letter of Intent but will not be entitled to a retroactive
downward adjustment in the sales charge. Any redemptions
made by the shareholder during the 13-month period will be
subtracted from the amount of the purchases for purposes of
determining whether the terms of the Letter of Intent have
been completed. If the Letter of Intent is not completed
within the 13-month period, there will be an upward
adjustment of the sales charge, depending upon the amount
actually purchased (less redemptions) during the period. An
investor who executes a Letter of Intent prior to a change
in the sales charge structure for a Fund will be entitled to
complete the Letter of Intent at the lower of (i) the new
sales charge structure; or (ii) the sales charge structure
in effect at the time the Letter of Intent was filed with
the Fund.

As mentioned in the Prospectus, five percent (5%) of the
amount of the total intended purchase will be reserved in
shares of the Fund registered in the investor's name. If the
total purchases, less redemptions, equal the amount
specified under the Letter, the reserved shares will be
deposited to an account in the name of the investor or
delivered to the investor or the investor's order. If the
total purchases, less redemptions, exceed the amount
specified under the Letter of Intent and is an amount which
would qualify for a further quantity discount, a retroactive
price adjustment will be made by Distributors and the
securities dealer through whom purchases were made pursuant
to the Letter of Intent (to reflect such further quantity
discount) on purchases made within 90 days before and on
those made after filing the Letter. The resulting difference
in offering price will be applied to the purchase of
additional shares at the offering price applicable to a
single purchase or the dollar amount of the total purchases.
If the total purchases, less redemptions, are less than the
amount specified under the Letter, the investor will remit
to Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount
of sales charge which would have applied to the aggregate
purchases if the total of such purchases had been made at a
single time. The shareholder will receive a written
notification from Distributors requesting the remittance.
Upon such remittance the reserved shares held for the
investor's account will be deposited to an account in the
name of the investor or delivered to the investor or to the
investor's order. If within 20 days after written request
such difference in sales charge is not paid, the redemption
of an appropriate number of reserved shares to realize such
difference will be made. In the event of a total redemption
of the account prior to fulfillment of the Letter of Intent,
the additional sales charge due will be deducted from the
proceeds of the redemption, and the balance will be
forwarded to the investor.

REDEMPTIONS IN KIND

Each Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record,
limited in amount, however, during any 90-day period to the
lesser of $250,000 or 1% of the value of a Fund's net assets
at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. In the
case of requests for redemption in excess of such amounts,
the trustees reserve the right to make payments in whole or
in part in securities or other assets of such Fund in case
of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of
the Fund. In such circumstances, the securities distributed
would be valued at the price used to compute such Fund's net
assets. Should a Fund do so, a shareholder may incur
brokerage fees in converting the securities to cash. The
Fund does not intend to redeem illiquid securities in kind;
however, should it happen, shareholders may not be able to
timely recover their investment and may also incur brokerage
costs in selling such securities.

REDEMPTIONS BY THE FUNDS

Due to the relatively high cost of handling small
investments, each Fund reserves the right to redeem,
involuntarily, at net asset value, the shares of any
shareholder of such Fund whose account has a value of less
than one- half of the initial minimum investment required
for that shareholder, but only where the value of such
account has been reduced by the shareholder's prior
voluntary redemption of shares. Until further notice, it is
the present policy of the Funds not to exercise this right
with respect to any shareholder whose account has a value of
$50 or more. In any event, before a Fund redeems such shares
and sends the proceeds to the shareholder, it will notify
the shareholder that the value of the shares in the account
is less than the minimum amount and allow the shareholder 30
days to make an additional investment in an amount which
will increase the value of the account to at least $100.

CALCULATION OF NET ASSET VALUE

As noted in the Prospectus, each Fund generally calculates
net asset value for each class, separately, as of the
scheduled close of the Exchange, (generally 1:00 p.m.
Pacific time) each day that the Exchange is open for
trading. As of the date of this SAI, the Trust is informed
that the Exchange observes the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.

Each Fund's portfolio securities are valued as stated in the
Prospectus. Generally, trading in U.S. government securities
and money market instruments is substantially completed each
day at various times prior to the scheduled close of the
Exchange. The values of such securities used in computing
the net asset value of a Fund's shares are determined as of
such times. Occasionally, events affecting the values of
such securities may occur between the times at which they
are determined and at the scheduled close of the Exchange
which will not be reflected in the computation of a Fund's
net asset value. If events materially affecting the value of
such securities occur during such period, then these
securities will be valued at their fair value as determined
in good faith by the Board of Trustees.

REPORTS TO SHAREHOLDERS

The Funds send annual and semiannual reports to shareholders
regarding the Funds' performance and their portfolio
holdings. Shareholders who would like to receive an interim
quarterly report may phone Fund Information at 1-800 DIAL
BEN.

SPECIAL SERVICES

The Trust and Institutional Services Division of
Distributors provides specialized services, including
recordkeeping, for institutional investors of the Funds. The
cost of these services is not borne by the Funds.

Investor Services or the Trust may pay certain financial
institutions which maintain omnibus accounts with the Funds
on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such beneficial owners.
For each beneficial owner in the omnibus account, the Funds
may reimburse Investor Services an amount not to exceed the
per account fee which the Funds normally pay Investor
Services. Such financial institutions may also charge a fee
for their services directly to their clients.

THE TRUST'S UNDERWRITER

Pursuant to an underwriting agreement in effect until March
31, 1996, Distributors acts as principal underwriter in a
continuous public offering for shares of each Fund.

Distributors pays the expenses of distribution of each
Fund's shares, including advertising expenses and the costs
of printing sales material and prospectuses used to offer
shares to the public. The Trust pays the expenses of
preparing and printing amendments to its registration
statements and prospectuses (other than those necessitated
by the activities of Distributors) and of sending
prospectuses to existing shareholders.

The underwriting agreement will continue in effect for
successive annual periods, provided that its continuance is
specifically approved at least annually by a vote of the
Trust's Board of Trustees or by a vote of the holders of a
majority of the outstanding voting securities of each Fund,
and in either event by a majority of the Trust's trustees
who are not parties to the underwriting agreement or
interested persons of any such party (other than as trustees
of the Trust), cast in person at a meeting called for that
purpose. The underwriting agreement terminates automatically
in the event of its assignment and may be terminated by
either party on 90 days' written notice.

Until April 30, 1994, income dividends for the Class I
shares were reinvested at the offering price (which includes
the sales charge) and Distributors allowed 50% of the entire
commission to the securities dealer of record, if any, on an
account. Starting with any income dividends paid after April
30, 1994, such reinvestment is at net asset value.

Underwriting commissions received by Distributors for the
Class I shares and the net underwriting commissions retained
by Distributors, after allowances to dealers, for each of
the three fiscal years ending on February 28, 1993, 1994,
and 1995 were as follows:

1995

TOTAL
COMMISSIONS PAID TO
RECEIVED OTHER DEALERS

Arizona Insured Fund $ 249,896 227,255
Florida Insured Fund 508,390 461,083
Insured Fund 4,263,865 4,022,355
Massachusetts
Insured Fund 876,196 825,321
Michigan Insured
Fund 3,669,978 3,469,185
Minnesota Insured
Fund 1,317,567 1,235,404
Ohio Insured Fund 2,206,639 2,082,379

1994

TOTAL
COMMISSIONS PAID TO
RECEIVED OTHER DEALERS

Arizona Insured Fund $ 399,345 $ 386,723
Florida Insured Fund 1,143,608 1,091,172
Insured Fund 12,230,430 11,605,428
Massachusetts
Insured Fund 2,068,206 1,950,867
Michigan Insured
Fund 8,310,641 7,870,421
Minnesota Insured
Fund 3,123,021 2,901,107
Ohio Insured Fund 5,867,852 5,590,312

1993

TOTAL
COMMISSIONS PAID TO
RECEIVED OTHER DEALERS

Insured Fund $ 13,477,163 $ 12,959,925
Massachusetts
Insured Fund 2,051,442 1,952,607
Michigan Insured Fund 7,736,890 7,388,482
Minnesota Insured 3,218,932 3,018,587
Ohio Insured Fund 5,636,686 5,409,668

Distributors may be entitled to reimbursement under the Rule
12b-1 distribution plan relating to both classes. See "Plans
of Distribution" below. Except as noted, Distributors
received no other compensation from the Funds for acting as
underwriter.

PLANS OF DISTRIBUTION

Each class of the Funds have adopted a distribution plan
("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act.

THE CLASS I PLAN

Pursuant to the Class I Plan for each Fund except the
Arizona Insured and Florida Insured Funds, each Fund may pay
up to a maximum of 0.10% per annum (1/10 of 1%) of its
average daily net assets for expenses incurred in the
promotion and distribution of its shares. The Arizona
Insured and Florida Insured Funds may pay up to a maximum of
0.15% per annum (1/15 of 1%) of each Fund's average daily
net assets for these expenses.

In implementing the Class I Plan, the Board of Trustees
determined that the annual fees payable thereunder will be
equal to the sum of: (i) the amount obtained by multiplying
0.10% by the average daily net assets represented by Class I
shares of a Fund that were acquired by investors on or after
May 1, 1994 ("New Assets"), and (ii) the amount obtained by
multiplying 0.05% by the average daily net assets
represented by Class I shares of a Fund that were acquired
before May 1, 1994 ("Old Assets"). Such fees will be paid to
the current securities dealer of record on the shareholder's
account. In addition, until such time as the maximum payment
of 0.10% is reached on a yearly basis, up to an additional
0.02% will be paid to Distributors under the Class I Plan.
The payments to be made to Distributors will be used by
Distributors to defray other marketing expenses that have
been incurred in accordance with the Class I Plan, such as
advertising. The Class I Plan does not permit unreimbursed
expenses incurred in a particular year to be carried over to
or reimbursed in subsequent years.

The fee relating to the Class I Plan is an expense of Class
I as a whole, so that all Class I shareholders, regardless
of when they purchased their shares will bear Rule 12b-1
expenses at the same rate. That rate initially will be at
least 0.07% (0.05% plus 0.02%) of Class I's average daily
net assets and, as Class I shares are sold on or after May
1, 1994 (the "Effective Date"), will increase over time.
Thus, as the proportion of Class I shares purchased on or
after May 1, 1994 increases in relation to outstanding Class
I shares, the expenses attributable to payments under the
Class I Plan will also increase (but will not exceed 0.10%
of average daily net assets). While this is the currently
anticipated calculation for fees payable under the Class I
Plan, the Class I Plan permits the Trust's trustees to allow
each Fund to pay a full 0.10% on all assets at any time. The
approval of the Board of Trustees would be required to
change the calculation of the payments to be made under the
Class I Plan.

Pursuant to each Class I Plan, Distributors or others will
be entitled to be reimbursed each quarter (up to the maximum
as stated above) for actual expenses incurred in the
distribution and promotion of Class I shares, including, but
not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and
distributing sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead
expenses attributable to the distribution of Class I shares,
as well as any distribution or service fees paid to
securities dealers or their firms or others who have
executed a servicing agreement with the Trust, Distributors
or its affiliates.

For the fiscal year ended February 28, 1995, aggregate
amounts paid by Class I shares pursuant to the Class I Plan
were as follows:

CLASS I RULE 12B-1 ADVERTISING PRINTING PAYMENTS TO PAYMENTS TO
FUND FEES PAID AND UNDERWRITERS BROKERS
BY FUND MAILING OF OR DEALERS
PROSPEC
TUSES*
Arizona
Insured
Fund $ 13,483 $0 $0 $0 $ 13,483

Florida
Insured
Fund 33,326 0 0 $0 33,326

Insured
Fund 989,559 158,329 79,165 49,478 702,587
Massachus
etts
Insured
Fund 168,597 21,917 16,860 8,430 121,390
Michigan
Insured
Fund 606,141 78,798 54,553 36,368 436,422
Minnesota
Insured
Fund 279,290 50,272 19,550 11,172 198,296
Ohio
Insured
Fund 386,625 54,127 30,930 23,198 278,370

THE CLASS II PLAN
Under the Class II Plan, each Fund is permitted to pay to
Distributors or others annual distribution fees, payable
quarterly, of .50% of Class II's average daily net assets,
in order to compensate Distributors or others for providing
distribution and related services and bearing certain
expenses of the Class. All expenses of distribution and
marketing over that amount will be borne by Distributors, or
others who have incurred them, without reimbursement by the
Funds. In addition to this amount, under the Class II Plan,
each Fund shall pay .15% per annum, payable quarterly of the
Class' average daily net assets as a servicing fee. This fee
will be used to pay dealers or others for, among other
things, assisting in establishing and maintaining customer
accounts and records; assisting with purchase and redemption
requests; receiving and answering correspondence; monitoring
dividend payments from a Fund on behalf of the customers,
and similar activities related to furnishing personal
services and maintaining shareholder accounts. Distributors
may pay the securities dealer, from its own resources, a
commission of up to 1% of the amount invested. at the time
of investment.

IN GENERAL

In addition to the payments to which Distributors or others
are entitled under the Plans, each Plan also provides that
to the extent a Fund, the Manager or Distributors or other
parties on behalf of the Fund, the Manager or Distributors,
make payments that are deemed to be payments for the
financing of any activity primarily intended to result in
the sale of shares of the Fund within the context of Rule
12b-1 under the 1940 Act, then such payments shall be deemed
to have been made pursuant to the Plan.

In no event shall the aggregate asset-based sales charges
which include payments made under a Plan, plus any other
payments deemed to be made pursuant to each Plan, exceed the
amount permitted to be paid pursuant to the Rules of Fair
Practice of the National Association of Securities Dealers,
Inc., Article III, Section 26(d)4.

The terms and provisions of the Plans relating to required
reports, term, and approval are consistent with Rule 12b-1.
No interested person or trustee of the Trust has a direct or
indirect financial interest in any such Plan.

To the extent fees are for distribution or marketing
functions, as distinguished from administrative servicing or
agency transactions, certain banks may not be entitled to
participate in each Plan to the extent that applicable
federal law prohibits certain banks from engaging in the
distribution of mutual fund shares. Such banking
institutions, however, are permitted to receive fees under
each Plan for administrative servicing or for agency
transactions. If a bank were prohibited from providing such
services, its customers who are shareholders would be
permitted to remain shareholders of the Funds, and alternate
means for continuing the servicing of such shareholders
would be sought. In such an event, changes in the services
provided might occur and such shareholders might no longer
be able to avail themselves of any automatic investment or
other services then being provided by the bank. It is not
expected that shareholders would suffer any adverse
financial consequences as a result of any of these changes.
Securities laws of states in which the Funds' shares are
offered for sale may differ from the interpretations of
federal law expressed herein, and banks and financial
institutions selling shares of the Funds may be required to
register as dealers pursuant to state law.

Each Plan has been approved by the trustees of the Trust,
including those trustees who are not interested persons, as
defined in the 1940 Act. The Class I Plans adopted by the
Arizona Insured and Florida Insured Funds were approved by
Resources, the initial shareholder of such Funds, and by the
public shareholders of the remaining Funds discussed herein,
at a meeting held on April 27 and 29, 1994. The Class II
Plans of the other Funds were approved by the sole initial
shareholder prior to May 1, 1995, the date as of which the
Class II Plans became effective. The Plans are effective
through March 31, 1996 and renewable annually thereafter by
a vote of the Trust's Board of Trustees, including a
majority vote of the trustees who are non-interested persons
of the Trust and who have no direct or indirect financial
interest in the operation of each Plan, cast in person at a
meeting called for that purpose. It is also required that
the selection and nomination of such trustees be done by the
non-interested trustees. Each Plan and any related agreement
may be terminated at any time, without any penalty, by vote
of a majority of the non-interested trustees on not more
than 60 days' written notice, by any act that constitutes an
assignment of the management agreement with the Manager, the
underwriting agreement with Distributors, or, as to each
Fund, by vote of a majority of that Fund's outstanding
shares. Distributors or any dealer or other firm may also
terminate their respective distribution or service agreement
at any time upon written notice.

With respect to a Plan, the Plan and any related agreements
may not be amended to increase materially the amount to be
spent for distribution expenses without approval by a
majority of the affected Fund's outstanding shares, and all
such material amendments to the Plan or any distribution or
service agreements also shall be approved by a vote of the
non-interested trustees, cast in person at a meeting called
for the purpose of voting on any such amendment.

Distributors is required to report in writing to the Board
of Trustees at least quarterly on the amounts and purpose of
any payment made under a Plan and any related agreements, as
well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to
enable the Board of Trustees to make an informed
determination of whether a Plan should be continued.

ADDITIONAL INFORMATION REGARDING TAXATION

As stated in the Prospectus, each Fund has elected to be
treated as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the
"Code"). The trustees reserve the right not to maintain the
qualification of any Fund as a regulated investment company
if they determine such course of action to be beneficial to
the shareholders. In such case, a Fund will be subject to
federal and possibly state corporate taxes on its taxable
income and gains, and to the alternative minimum tax on a
portion of its tax-exempt income, and distributions
(including tax-exempt interest dividends) to shareholders
will be taxable to the extent of a Fund's available earnings
and profits.

The Code requires all funds to distribute at least 98% of
their taxable ordinary income earned during the calendar
year and at least 98% of their capital gain net income
earned during the twelve-month period ending October 31 of
each year (in addition to amounts from the prior year that
were neither distributed nor taxed to the Fund) to
shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules,
certain distributions which are declared in October,
November or December but which, for operational reasons, may
not be paid to the shareholders until the following January,
will be treated for tax purposes as if paid by the Funds and
received by the shareholders on December 31 of the calendar
year in which they are declared. The Funds intend as a
matter of policy to declare and pay such dividends, if any,
in December to avoid the imposition of this tax, but do not
guarantee that the distributions will be sufficient to avoid
any or all federal excise taxes.

Redemptions and exchanges of a Fund's shares are taxable
transactions for federal and state income tax purposes. For
most shareholders, gain or loss will be recognized in an
amount equal to the difference between the shareholder's
basis in the shares and the amount received, subject to the
rules described below. If such shares are a capital asset in
the hands of the shareholder, gain or loss will be capital
gain or loss and will be long-term for federal income tax
purposes if the shares have been held for more than one
year.

All or a portion of the sales charge incurred in purchasing
shares of a Fund will not be included in the federal tax
basis of such shares sold or exchanged within ninety (90)
days of their purchase (for purposes of determining gain or
loss with respect to such shares) if the sales proceeds are
reinvested in the Fund or in another fund in the Franklin
Group of Funds and the Templeton Group and a sales charge
which would otherwise apply to the reinvestment is reduced
or eliminated. Any portion of such sales charge excluded
from the tax basis of the shares sold will be added to the
tax basis of the shares acquired in the reinvestment.
Shareholders should consult with their tax advisors
concerning the tax rules applicable to the redemption or
exchange of a Fund's shares.

Since each Fund's income is derived from interest income and
gain on the sale of portfolio securities rather than
dividend income, no portion of the Funds' distributions will
generally be eligible for the corporate dividends-received
deduction. None of the distributions paid by any Fund for
the fiscal year ended February 28, 1995, qualified for this
deduction and it is not anticipated that any of the current
year's dividends will so qualify.

All or a portion of a loss realized upon a redemption of
shares will be disallowed to the extent other shares of such
Fund are purchased (through reinvestment of dividends or
otherwise) within 30 days before or after such redemption.
Any loss disallowed under these rules will be added to the
tax basis of the shares purchased.

Many states grant tax-free status to dividends paid to
shareholders of mutual funds from interest income earned by
a fund from direct obligations of the U.S. government,
subject in some states to minimum investment requirements
that must be met by a fund. Investments in GNMA/FNMA
securities and repurchase agreements collateralized by U.S.
government securities do not generally qualify for tax-free
treatment. While it is not the primary investment objective
of any Fund of the Trust to invest in such obligations, the
Funds are authorized to so invest for temporary or defensive
purposes. To the extent that such investments are made, any
affected Fund will provide shareholders with the percentage
of any dividends paid which may qualify for such tax-free
treatment at the end of each calendar year. Shareholders
should then consult with their own tax advisors with respect
to the application of their state and local laws to these
distributions and on the application of other state and
local laws on distributions and redemption proceeds received
from the Fund.

PERFORMANCE

As noted in each Prospectus, a Fund may from time to time
quote various performance figures to illustrate its past
performance. Each Fund may occasionally cite statistics to
reflect its volatility or risk.

Performance quotations by investment companies are subject
to rules adopted by the SEC. These rules require the use of
standardized performance quotations or, alternatively, that
every non-standardized performance quotation furnished by a
Fund be accompanied by certain standardized performance
information computed as required by the SEC. Current yield
and average annual compounded total return quotations used
by the Funds are based on the standardized methods of
computing performance mandated by the SEC. An explanation of
those and other methods used by the Funds to compute or
express performance follows.

TOTAL RETURN

The average annual total return is determined by finding the
average annual compounded rates of return over one-, five-,
and ten-year periods, or fractional portion thereof, that
would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the
maximum sales charge is deducted from the initial $1,000
purchase order, and that income dividends and capital gains
are reinvested at net asset value on the reinvestment dates
during the period. The quotation assumes the account was
completely redeemed at the end of each one-, five-, and ten-
year period and the deduction of all applicable charges and
fees. If a change is made to the sales charge structure,
historical performance information will be restated to
reflect the maximum sales charge currently in effect.

In considering the quotations set forth below, investors
should remember that the maximum sales charge reflected in
each quotation is a one-time fee (charged on all direct
purchases) which will have its greatest impact during the
early stages of an investment in one of the Funds. The
actual performance of an investment will be affected less by
this charge the longer an investor retains the investment in
such Fund. The average annual compounded rates of return for
Class I of each Fund (except those Funds that had not
commenced operations during the periods indicated) for the
indicated periods ended on February 28, 1995 were as shown
below.

AVERAGE ANNUAL TOTAL RETURN
INCEPTION FROM
OF THE FUND ONE-YEAR FIVE-YEAR INCEPTION
Arizona Insured
Fund 04/30/93 -3.38% -- 1.30%
Florida Insured
Fund 04/30/93 -4.08 -- -0.17
Insured Fund 04/03/85 -2.25 6.92% 8.42
Massachusetts
Insured Fund 04/03/85 -2.44 6.65 7.46
Michigan
Insured Fund 04/03/85 -2.40 6.77 7.91
Minnesota
Insured Fund 04/03/85 -2.21 6.38 8.04
Ohio Insured Fund 04/03/85 -2.55 6.81 7.94

The above figures were calculated according to the following
SEC formula:

n
P(1+T) = ERV
where:

P = hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one-, five-, or ten-
year periods at the end of the one-, five-, or ten-year
periods (or fractional portion thereof)

As discussed in each Prospectus, a Fund may quote total
rates of return in addition to its average annual total
return. Such quotations are computed in the same manner as
the average annual compounded rate, except that such
quotations will be based on the actual return for a
specified period instead of the average return over one-,
five-, and ten-year periods. The rates of total return for
each Fund (except those Funds that had not commenced
operations during the periods indicated) for the indicated
periods ended on February 28, 1995 were as follows:

AGGREGATE TOTAL RETURN
INCEPTION FROM
OF THE FUND ONE-YEAR FIVE-YEAR INCEPTION
Arizona Insured
Fund 04/30/93 -3.38% -- 2.40%
Florida Insured
Fund 04/30/93 -4.08 -- -0.32
Insured Fund 04/03/85 -2.25 39.71 122.86
Massachusetts
Insured Fund 04/03/85 -2.44 37.99 104.12
Michigan
Insured Fund 04/03/85 -2.40 38.78 112.69
Minnesota
Insured Fund 04/03/85 -2.21 36.26 115.23
Ohio Insured Fund 04/03/85 -2.55 39.00 113.38

YIELD

Current yield reflects the income per share earned by a
Fund's portfolio investments.

Current yield is determined by dividing the net investment
income per share earned during a 30-day base period by the
maximum offering price per share on the last day of the
period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during
the base period. The yield for Class I shares of each Fund
for the 30-day period ended on February 28, 1995 were as
follows:

CURRENT
30-DAY
YIELD
Arizona Insured Fund* 5.70%
Florida Insured Fund* 5.47
Insured Fund 5.15
Massachusetts Insured Fund 5.11
Michigan Insured Fund 5.03
Minnesota Insured Fund 5.04
Ohio Insured Fund 5.03
*includes expense waiver

These figures were obtained using the SEC formula:

6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where:

a = interest earned during the period

b = net expenses accrued for the period

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends

d = the maximum offering price per share on the last day of
the period

30-DAY TAX EQUIVALENT YIELD

Each Fund may also quote a tax equivalent yield which
demonstrates the taxable yield necessary to produce an after-
tax yield equivalent to that of a fund which invests in tax-
exempt obligations. Such yield is computed by dividing that
portion of the yield of a Fund (computed as indicated above)
which is tax-exempt by one minus the highest applicable
combined federal and state income tax rate (and adding the
product to that portion of the yield of a Fund that is not
tax-exempt, if any). The tax equivalent yield for Class I
shares of each Fund for the 30-day period ended on February
28, 1995 was as follows:

30-DAY TAX

EQUIVALENT

YIELD

Arizona Insured Fund* 10.15%
Florida Insured Fund* 9.06
Insured Fund 8.53
Massachusetts Insured Fund 9.61
Michigan Insured Fund 8.73
Minnesota Insured Fund 9.12
Ohio Insured Fund 9.00
*includes expense waiver
The following table lists for each state, the state and the
combined state and federal income tax rates upon which the
Trust's tax equivalent yield quotations are based. From time
to time, as any changes to such rates become effective, tax
equivalent yield quotations advertised by the Trust will be
updated to reflect such changes. The Trust expects updates
will be necessary as tax rates are frequently changed by
federal, state and local governments. The advantage of tax-
free investments, such as the Funds of the Trust, will be
enhanced by any tax rate increases. Therefore, the details
of specific tax increases may be used in sales material for
any Fund.

STATE COMBINED

Arizona 6.90% 43.77
Florida 0.00 39.60
Massachusetts 12.00 46.85
Michigan 4.40 42.26
Minnesota 8.50 44.73
Ohio 7.50 44.13

*Based on the maximum combined state and federal tax rate in
effect as of the date of this SAI. The maximum federal tax
rate in effect as of the date of this SAI was 39.6%.

Quotations of taxable equivalent yield by the Funds in
advertisements may reflect assumed rates of return which are
not intended to represent historical or current distribution
rates or yields. Such quotations will be used in sales
literature, such as Franklin's Tax-Free Yield Calculator, to
illustrate the general principle of the impact taxes have on
rates of return or to show the taxable rate of return that
would be needed to match a tax-free rate of return.

CURRENT DISTRIBUTION RATE

Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not
indicative of the amounts which were or will be paid to a
Fund's shareholders. Amounts paid to shareholders are
reflected in the quoted current distribution rate or taxable
equivalent distribution rate. The current distribution rate
is computed by dividing the total amount of dividends per
share paid by the Fund during the past twelve months by a
current maximum offering price. A taxable equivalent
distribution rate demonstrates the taxable distribution rate
equivalent to a Fund's current distribution rate (calculated
as indicated above). The advertised taxable equivalent
distribution rate will reflect the most current federal and
state tax rates available to a Fund.

Under certain circumstances, such as when there has been a
change in the amount of dividend payout or a fundamental
change in investment policies, it might be appropriate to
annualize the dividends paid over the period such policies
were in effect, rather than using the dividends during the
past twelve months. The current distribution rate differs
from the current yield computation because it may include
distributions to shareholders from additional sources (i.e.,
sources other than dividends and interest), such as short-
term capital gains, and is calculated over a different
period of time.

The current distribution rate for each Fund for the 12-month
period ended on February 28, 1995 was as follows:

CURRENT
DISTRIBUTION
RATE

Arizona Insured Fund* 5.40%
Florida Insured Fund* 5.31
Insured Fund 5.66
Massachusetts Insured Fund 5.57
Michigan Insured Fund 5.57
Minnesota Insured Fund 5.41
Ohio Insured Fund 5.50

VOLATILITY

Occasionally statistics may be used to specify Fund
volatility or risk. Measures of volatility or risk are
generally used to compare a Fund's net asset value or
performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund
relative to the total market as represented by the Standard
& Poor's 500 Stock Index. A beta of more than 1.00 indicates
volatility greater than the market, and a beta of less than
1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation.
Standard deviation is used to measure variability of net
asset value or total return around an average over a
specified period of time. The premise is that greater
volatility connotes greater risk undertaken in achieving
performance.

OTHER PERFORMANCE QUOTATIONS

With respect to those categories of investors who are
permitted to purchase Class I shares at net asset value,
sales literature pertaining to Class I shares of a Fund may
quote a current distribution rate, yield, total return,
average annual total return and other measures of
performance for net asset value investments may also be
quoted. These will be derived as described elsewhere in this
SAI with the substitution of net asset value for public
offering price.

Regardless of the method used, past performance is not
necessarily indicative of future results, but is an
indication of the return to shareholders only for the
limited historical period used.

A Fund may include in its advertising or sales material
information relating to investment objectives and
performance results of funds and classes belonging to the
Templeton Group of Funds. Resources is the parent company of
the advisers and underwriter of both the Franklin Group of
Funds and Templeton Group of Funds.

COMPARISONS

To help investors better evaluate how an investment in a
Fund might satisfy their investment objective,
advertisements and other materials regarding the Funds may
discuss various measures of Fund and class performance as
reported by various financial publications. Materials may
also compare performance (as calculated above) to
performance as reported by other investments, indices, and
averages. When advertising current ratings or rankings, the
Fund may advertise together or separately the following
examples of past ratings and rankings, and such information
in those categories which may appear in the future:

Lipper Fixed-Income Fund Performance Analysis ranked the
Massachusetts Insured Fund number one in total return in the
Massachusetts Municipal Debt Funds Category for its one-year
total return for the year ended December 31, 1994, with a
total return of -3.61%. There were thirty-two funds in the
category.

The Lipper Fixed-Income Fund Performance Analysis and Lipper
Mutual Fund Yield Survey for Industry Averages - measure
total return and average current yield for the mutual fund
industry. They rank individual mutual fund performance over
specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.

In addition to such reports by Lipper, the following
publications and indices may be used to discuss or compare
Fund performance:

Lehman Brothers Municipal Bond Index (LMBI) or its component
indices - LMBI measures yield, price, and total return for
the municipal bond market.

Bond Buyer 20 Bond Index is an index of municipal bond
yields based on yields of 20 general obligation bonds
maturing in 20 years.

Bond Buyer 40 Bond Index is an index of municipal bond
yields based on yields of 40 general obligation bonds
maturing in 29-30 years.

Salomon Brothers Composite High Yield Index covers much of
the below-investment grade U.S. corporate bond market. It
combines previously published indices to create a broad
index for the high-yield market. To enter the index, an
issue must be rated speculative by S&P or Moody's.

Salomon Brothers Broad Investment Grade Index is
representative of the entire universe of taxable fixed-
income investments. It includes issues of U.S. government
securities, and any agency thereof; corporate issues of
investment grade, mortgage backed securities; and yankee
bonds.

Lehman Brothers Aggregate Bond Index or its component
indices - The Aggregate Bond Index measures yield, price and
total return for Treasury, Agency, Corporate, Mortgage, and
Yankee bonds.

Savings & Loan Historical Interest Rates as published by the
U.S. Savings & Loan League Fact Book.

Inflation as measured by the Consumer Price Index, published
by the U.S. Bureau of Labor Statistics.

CDA Mutual Fund Report, published by CDA Investment
Technologies Inc. - analyzes price, current yield, risk,
total return, and average rate of return (average annual
compounded growth rate) over specified time periods for the
mutual fund industry.

Financial Publications: The Wall Street Journal, Business
Week, Changing Times, Financial World, Forbes, and Money
magazines.

Standard & Poor's Bond Indices - measure yield and price of
corporate, municipal, and government bonds.

Advertisements or information may mention or discuss ratings
or rankings of the Insured Funds or their securities, issued
by securities rating agencies or other organizations.

From time to time, advertisements or information for a Fund
may include a discussion of certain attributes or benefits
to be derived by an investment in the Fund. Such
advertisements or information may include symbols,
headlines, or other material which highlight or summarize
the information discussed in more detail in the
communication.

Advertisements or information may also compare a Fund's
performance to the return on certificates of deposit or
other investments. Investors should be aware, however, that
an investment in a Fund involves the risk of fluctuation of
principal value, a risk generally not present in an
investment in a certificate of deposit issued by a bank. For
example, as the general level of interest rates rise, the
value of the Fund's fixed-income investments, as well as the
value of its shares which are based upon the value of such
portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of a
Fund's shares can be expected to increase. Certificates of
deposit are frequently insured by an agency of the U.S.
government. An investment in any of the Funds is not insured
by any federal, state or private entity.

In assessing such comparisons of performance, an investor
should keep in mind that the composition of the investments
in the reported indices and averages is not identical to a
Fund's portfolio, that the indices and averages are
generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the
formula used by a Fund to calculate its figures. In addition
there can be no assurance that the Funds will continue this
performance as compared to such other averages.

Franklin had the first single-state municipal bond funds in
California, Massachusetts, Michigan, Minnesota and Ohio.

OTHER FEATURES AND BENEFITS

Founded in 1947, Franklin is a leader in the tax-free mutual
fund industry, currently offering 42 tax-free funds,
including 33 funds free from both federal and state personal
income taxes, and managing more than $42 billion in
municipal bond assets for over half a million investors.

Municipal securities are generally considered to be
creditworthy, second in quality only to securities issued or
guaranteed by the United States government or its agencies.
The market price of such securities, however, may fluctuate.
This fluctuation will have a direct impact on the net asset
value of an investment in a Fund.

Currently, there are more mutual funds than there are stocks
listed on the Exchange. While many of them have similar
investment objectives, no two are exactly alike. As noted in
the Prospectuses, shares of a Fund are generally sold
through securities dealers or other financial institutions.
Investment representatives of such securities dealers or
financial institutions are experienced professionals who can
offer advice on the type of investment suitable to an
investor's unique goals and needs, as well as the types of
risks associated with such investment.

Each Fund may help investors achieve various investment
goals such as accumulating money for retirement, saving for
a down payment on a home, college costs and/or other long-
term goals. The Franklin College Costs Planner may assist an
investor in determining how much money must be invested on a
monthly basis in order to have a projected amount available
in the future to fund a child's college education.
(Projected college cost estimates are based upon current
costs published by the College Board.)

Each Fund is a member of the Franklin Templeton Group, one
of the largest mutual fund organizations in the United
States and may be considered in a program for
diversification of assets. Franklin, one of the oldest
mutual fund organizations, has managed mutual funds for over
45 years and now services more than 2.4 million shareholder
accounts. In 1992, Franklin, a leader in managing fixed-
income mutual funds and an innovator in creating domestic
equity funds, joined forces with Templeton Worldwide, Inc.,
a pioneer in international investing. Together, the Franklin
Templeton Group has over $118 billion in assets under
management for more than 3.8 million shareholder accounts
and offers 112 U.S.-based mutual funds. A Fund may identify
itself by its NASDAQ or CUSIP number.

The Dalbar Surveys, Inc. broker/dealer survey has ranked
Franklin number one in service quality by Dalbar for five of
the past seven years.

According to Research and Ratings Review, Volume II, dated
February 28, 1994, Franklin's municipal research team ranked
2 out of 1,000 investment advisory firms surveyed by TMS
Holdings, Inc. As of November 14, 1994, this ranking was
unchanged.

From time to time, advertisements or sales material issued
by a Fund may discuss or be based upon information in a
recent issue of the Special Report on Tax Freedom Day
published by the Tax Foundation, a Washington, D.C.-based
nonprofit, research and public education organization. The
report illustrates, among other things, the amount of time,
on an annual basis, the average taxpayer works to satisfy
his or her tax obligations to the federal, state and local
taxing authorities.

MISCELLANEOUS INFORMATION

The Trust amortizes the organizational expenses attributable
to a Fund over a period of five years from the effective
date of the registration statement covering that Fund. New
investors purchasing shares of a Fund after the effective
date of such Fund's registration statement under the
Securities Act of 1933 will bear such expenses during the
amortization period.

The portfolio insurance of the Insured Funds may affect the
value of a Fund's shares under certain circumstances. As
discussed in the Prospectus, unless a Secondary Market
Insurance Policy is purchased with respect to the portfolio
security, an Insured Fund intends to hold any defaulted
securities or securities for which there is a significant
risk of default in its portfolio until the default has been
cured or the principal and interest are paid by the issuer
or the insurer. In such circumstances, the Board of Trustees
has instructed the Manager to consider, in its evaluation of
these securities, the value of the insurance guaranteeing
the interest and principal payments, as well as the market
value of the portfolio securities and the market value of
securities of similar issuers whose securities carry similar
interest rates. Absent any unusual or unforeseen
circumstances, as a result of the Portfolio Insurance
Policy, the Manager would likely recommend that an Insured
Fund value the defaulted securities, or securities for which
there is a significant risk of default, at the same price as
securities of a similar nature which are not in default. A
defaulted security covered by a Secondary Market Insurance
Policy would likely be valued at market.

The shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable as
partners for its obligations. The Trust's Declaration of
Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust.
The Declaration of Trust also provides for indemnification
and reimbursement of expenses out of Trust assets for any
shareholder held personally liable for obligations of the
Trust. The Declaration of Trust provides that the Trust
shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the
Trust and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund(s) of which a shareholder
holds shares. The Declaration of Trust further provides that
the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the
protection of the Trust, its shareholders, Trustees,
officers, employees and agents to cover possible tort and
other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance
exists and the Trust itself is unable to meet its
obligations.

From time to time, the number of shares of the Funds held in
the "street name" accounts of various broker dealers for the
benefit of their clients or in centralized securities
depositories may exceed 5% of the total shares outstanding.
As of April 3, 1995, to the best knowledge of the Trust, the
only other principal shareholder of the Funds, beneficially
or of record, is Franklin Resources, Inc., 1147 Chess Dr.,
Foster City, CA (which holds 241,115.11 shares or 10.7% of
the Arizona Insured Fund).

Access persons of the Franklin Templeton Group, as defined
in SEC Rule 17(j) under the 1940 Act, who are employees of
Resources or its subsidiaries, are permitted to engage in
personal securities transactions subject to the following
general restrictions and procedures: (1) The trade must
receive advance clearance from a Compliance Officer and must
be completed within 24 hours after this clearance; (2)
Copies of all brokerage confirmations must be sent to the
Compliance Officer and within 10 days after the end of each
calendar quarter, a report of all securities transactions
must be provided to the Compliance Officer; (3) In addition
to items (1) and (2), access persons involved in preparing
and making investment decisions must file annual reports of
their securities holdings each January and also inform the
Compliance Officer (or other designated personnel) if they
own a security that is being considered for a fund or other
client transaction or if they are recommending a security in
which they have an ownership interest for purchase or sale
by a fund or other client.

OWNERSHIP AND AUTHORITY DISPUTES

In the event of disputes involving multiple claims of
ownership or authority to control a shareholder's account,
the Trust has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all
persons deemed by the Trust to have a potential property
interest in the account, prior to executing instructions
regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c)
surrender ownership of all or a portion of the account to
the Internal Revenue Service in response to a Notice of
Levy.

APPENDIX A
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS

MUNICIPAL BONDS

MOODY'S INVESTORS SERVICE ("MOODY'S")

AAA: Municipal bonds which are rated Aaa are judged to be of
the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt-
edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA: Municipal bonds which are rated Aa are judged to be high
quality by all standards. Together with the Aaa group, they
comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater
amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities.

BAA: Bonds which are rated Baa are considered as medium-
grade obligations, i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security
appear adequate for the present, but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have
speculative characteristics as well.

BA: Bonds which are rated Ba are judged to have
predominantly speculative elements; their future cannot be
considered as well assured. Often the protection of interest
and principal payments may be very moderate and, thereby,
not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this
class.

B: Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.

CAA: Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.

CA: Bonds which are rated Ca represent obligations which are
speculative to a high degree. Such issues are often in
default or have other marked shortcomings.

C: Bonds which are rated C are the lowest-rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.

CON. (-): Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition
are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments
to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis
condition.

NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B in its
municipal bond ratings. Modifier 1 indicates that the
security ranks in the higher end of its generic rating
category. Modifier 2 indicates a mid-range ranking; and
modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.

STANDARD & POOR'S CORPORATION ("S&P")

AAA: Municipal bonds rated AAA are highest-grade
obligations. They possess the ultimate degree of protection
as to principal and interest. In the market they move with
interest rates and, hence, provide the maximum safety on all
counts.

AA: Municipal bonds rated AA also qualify as high-grade
obligations, and in the majority of instances differ from
AAA issues only in a small degree. Here, too, prices move
with the long-term money market.

A: Municipal bonds rated A are regarded as upper medium-
grade. They have considerable investment strength but are
not entirely free from adverse effects of changes in
economic and trade conditions. Interest and principal are
regarded as safe. They predominantly reflect money rates in
their market behavior but also, to some extent, economic
conditions.

BBB: Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and
interest for bonds in this category than for bonds in the A
category.

BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded,
on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. BB indicates
the lowest degree of speculation and CC the highest degree
of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions.

C: This rating is reserved for income bonds on which no
interest is being paid.

D: Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears.

NOTE: The S&P ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within
the major rating categories.

FITCH INVESTORS SERVICE, INC. MUNICIPAL DIVISION

AAA BONDS: (highest quality) "the obligor has an
extraordinary ability to pay interest and repay principal
which is unlikely to be affected by reasonably foreseeable
events."

AA BONDS: (high quality) "the obligor's ability to pay
interest and repay principal, while very strong, is somewhat
less than for AAA-rated securities or more subject to
possible change over the term of the issue."

A BONDS: (good quality) "the obligor's ability to pay
interest and repay principal is strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings."

BBB BONDS: (satisfactory bonds) "the obligor's ability to
pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this
ability than bonds with higher ratings."

MUNICIPAL NOTES

MOODY'S

Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade
("MIG"). This distinction is in recognition of the
differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while
various factors of the first importance in long-term
borrowing risk are of lesser importance in the short run.
Symbols used will be as follows:

MIG-1: Notes are of the best quality enjoying strong
protection from established cash flows of funds for their
servicing or from established and broad-based access to the
market for refinancing, or both.

MIG-2: Notes are of high quality, with margins of protection
ample, although not so large as in the preceding group.

MIG-4: Notes are of adequate quality, carrying specific risk
but having protection and not distinctly or predominantly
speculative.

S&P

Until June 29, 1984, S&P used the same rating symbols for
notes and bonds. After June 29, 1984, for new municipal note
issues due in three years or less, the ratings below will
usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.

SP-2: Issues carrying this designation have a satisfactory
capacity to pay principal and interest.

COMMERCIAL PAPER

MOODY'S

Moody's Commercial Paper ratings, which are also applicable
to municipal paper investments permitted to be made by the
Trust, are opinions of the ability of issuers to repay
punctually their promissory obligations not having an
original maturity in excess of nine months. Moody's employs
the following designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated
issuers:

P-1 (PRIME-1): Superior capacity for repayment.

P-2 (PRIME-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of
timely payment of debt having an original maturity of no
more than 365 days. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D"
for the lowest. Issues within the A category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree
of safety, as follows:

A-1: This designation indicates the degree of safety
regarding timely payment is very strong. A "plus" (+)
designation indicates an even stronger likelihood of timely
payment.

A-2: Capacity for timely payment on issues with this
designation is strong. However, the relative degree of
safety is not as overwhelming as for issues designated A-1.

FITCH'S SHORT-TERM AND COMMERCIAL PAPER RATINGS

F-1+: Exceptionally strong credit quality. Regarded as
having the strongest degree of assurance for timely payment.

F-1: Very strong credit quality. Reflect on assurance of
timely payment only slightly less in degree than issues
rated F-1+.

F-2: Good credit quality. A satisfactory degree of assurance
for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.

F-5: Weak credit quality. Have characteristics suggesting a
minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and
economic conditions.

D: Default. Actual or imminent payment default.

LOC: The symbol LOC indicates that the rating is based on a
letter of credit issued by a commercial bank.

APPENDIX B
FURTHER INFORMATION ON SPECIAL
FACTORS AFFECTING EACH STATE FUND

The following information is a summary of special factors
affecting each of the individual State Funds. It does not
purport to be a complete description of such factors and is
based primarily upon information derived from public
documents relating to securities offerings of issuers of
such states and other historically reliable sources such as
S&P Creditweek Municipal. The Trust has not independently
verified any of this data. The market value of the shares of
any Fund may fluctuate due to factors such as changes in
interest rates, matters affecting a particular state, or for
other reasons. The risk of nonpayment of principal or
interest has been reduced due to the existence of insurance
on all municipal securities in the portfolios of the Insured
Funds.

ARIZONA

In 1970, Arizona retired its general obligation bonds and is
now constitutionally prohibited from issuing such debt. The
state currently relies on revenue bonds, lease obligations,
and pay-as-you-go financing to support its financing needs.
Arizona's debt level is moderate with debt service
representing 2.4% of the state's revenues. On a per capita
basis, debt was $279 or 1.6% of personal income for fiscal
1993.

Beginning in 1985, Arizona experienced 5 consecutive fiscal
years with budget shortfalls. These shortfalls were managed
with budget cuts, one-time adjustments, tax accelerations
and borrowing. In 1990, a $250 million tax increase,
combined with budget cuts, resulted in a general fund
balance equal to 2% of operating expenditures, down from 21%
in 1980. This balance was maintained in fiscal 1991 but fell
to 0.2%, a $5.2 million general fund balance, after certain
tax refunds. Fiscal 1993, buoyed by an accelerating state
economy, helped Arizona regain an earlier level of
liquidity, a comfortable 2.0% of expenditures. Fiscal 1994,
with strong revenues growth, was expected to close with a
general fund balance of approximately 2% also.

FLORIDA

Per capita personal income levels in Florida during 1991 and
1992 were lower than the national average. Personal income
growth slowed from rates exceeding 9% per year to 1.9% in
1991. While the growth rate will likely accelerate as the
recession ends, population growth will keep Florida's per
capita personal income near the national average. The
unemployment rate in 1992 increased to 8.2% from 7.3% in
1991, a higher figure than the national rate of 7.4% in
1992. The per capita personal income of $18,992 in 1991 was
just below the national figure of $19,092.

Florida's financial performance and position remain
satisfactory. In the last three fiscal years, lower-than-
expected economic activity resulted in significant state
revenue shortfalls. However, because of timely action, the
state has maintained budgetary balance. In the coming years,
difficult choices will continue to be posed among spending
priorities and tax policies. An adequate balance must be
found to cope with funding demands driven by rapid
population growth, while still promoting economic
development.

Florida's consumption tax-based revenues received a boost
from the economic activity associated with the rebuilding
and cleanup of southern Florida as a result of damage caused
by Hurricane Andrew in August 1992. The state estimates that
increased economic activity resulting from the rebuilding
effort will add to its sales receipts by nearly $500 million
in fiscal 1993-1994. Net costs to the state attributable to
the cleanup and repair will be in the vicinity of $100
million, with federal and private insurance picking up the
rest of the estimated $20-30 billion tab.

The proposed budget for fiscal 1994 provides for an increase
in spending in the General Revenue Fund of 14.2% from fiscal
1993. Projected revenue growth of $949.1 million is based on
underlying economic growth, with an additional $630.7
million to be derived from new taxes and fees. The governor
has proposed funding the Working Capital Fund at $203.5
million, more than meeting the goal of funding the first
increment of a Budget Stabilization Fund for fiscal 1995.

MASSACHUSETTS

Despite continuing efforts to restore fiscal control,
Massachusetts' debt service remains among the highest in the
nation. Annual debt service is forecast between $1.4 and
$1.6 billion through fiscal 1997, including $280 million for
fiscal recovery bonds. The per capita debt at fiscal year-
end 1993 was $2,104 or 9.3% of personal income, a relatively
high level of debt when compared to the national median of
$399 or 2.1%.

In 1993, as in 1992, Massachusetts' revenue goals were met
and its short-term borrowing and accumulated fund deficit
were reduced. At fiscal year-end 1993, the budgeted
operating funds had a balance of $452 million, on a
budgetary basis, and up from $313 million at fiscal year-end
1992 on a budgetary basis and a $184 million deficit on GAAP
basis. For fiscal 1994, balances in the budgeted operating
funds improved, $510 million on a budgetary basis and a
deficit of $72 million on a GAAP basis. Estimates to fiscal
1995 tax revenues are for a 5.4% increase of fiscal 1994.

The governor's fiscal 1996 budget estimates spending at
$16.7 billion, up 8% from fiscal 1995. Education reform
legislation enacted in June 1993 will require a 13% increase
in spending for elementary and secondary education, an
increase of approximately $175 million, with additional
increases required in 1995 and 1996. Tax revenues are
projected to grow 4.8% for fiscal 1995. The budget also
provides $35 million in tax cuts, 0.3% of tax revenues.

MICHIGAN

In fiscal 1991, Michigan faced an estimated $1.8 billion
budgetary gap caused, in part, by a decrease in tax revenues
during the most recent recession. This deficit was reduced
to $90 million through measures enacted in 1991 and 1992
which cut public assistance by more than $500 million,
imposed a state hiring freeze, and resulted in the
utilization of the general and budget stabilization funds'
reserves. At the beginning of fiscal 1993, Michigan's
operating deficit had been eliminated.

Michigan's financial position improved in fiscal 1993, and
$282 million was deposited in the state's budget
stabilization fund at year end. Fiscal 1994 ended with a
surplus of $463 million, which was due to strong revenue
growth resulting from a strong state economy, spending
restraint, and the imposition of a two cent sales tax
increase to fund statewide school finance reform. Under that
reform, the dedicated sales tax replaced local property
taxes as the primary funding source.

The state expects that the budget stabilization fund balance
will increase to $1.2 billion at the close of fiscal 1995
from $779 million at 1994 fiscal year end. In early 1995,
Michigan enacted tax cuts totaling $186 million. If the year-
end surplus is larger than expected, the tax cuts would
grow. Tax cuts in fiscal 1996 will cost $246 million.

Michigan's debt burden is moderate, with all ratios below
the national median.

MINNESOTA

Minnesota's debt burden is relatively moderate. The state
has recently established a financial management reform
program which includes a debt management policy under which
targeted levels for total outstanding general obligation
debt are established, based upon general fund revenues and
personal income levels. The state has consistently been able
to meet its targeted levels. During fiscal 1993, Minnesota
had close to $1.8 billion in outstanding general obligation
bonds. On a per capita basis, this represented approximately
$378 or 1.8% of personal income.

Original forecasts for fiscal 1993 estimated that
Minnesota's budget reserve fund would be reduced to its
lowest level since 1987 to meet the state's budget
requirements, due largely to revenue losses caused by the
recession. Strong economic growth and spending cuts,
however, enabled the state to improve the balance of its
reserve account from $260 million in February 1993 to $360
million in July 1993. To protect against future economic
uncertainty, Minnesota's legislature now requires across-the-
board spending cuts, up to 1%, before the state's reserve
account may be used. In addition, as part of the state's
financial management reform program, mandatory spending
growth limits have been enacted for some of the state's
fastest growing programs, although expenditures for health
and education remain high.

Fiscal 1994 showed a budgetary surplus of $913 million. The
reserve fund balance increased to $500 million at 1994
fiscal year end. The revised 1994-95 biennium general fund
budget projects 1995 fiscal year end reserves of $769
million.

OHIO

Despite the recent economic recession, timely fiscal action
has allowed Ohio to balance its budget, notwithstanding mid-
year budget imbalances in fiscal years 1991-1993. Lower than
expected tax revenues and pressure to spend on human service
programs, due to the recession, resulted in an estimated
deficit of $590 million in fiscal 1993. At fiscal year-end
1993, however, Ohio's budgetary balance was a positive $111
million, as a result of expenditure reductions, revenue
enhancements and the use of reserve funds, although $21
million was transferred to the state's budget stabilization
reserve fund.

Financial operations continued to show improvement in fiscal
1994. The state achieved a operating surplus of $468
million, $260 million of which it deposited in the budget
stabilization fund, whose balance was increased to $280
million. Current estimates now indicate another year of
positive operations in fiscal 1995, further strengthening
financial reserves.

Currently, approximately 80% of Ohio's debt consists of
lease obligations or lease revenue bonds. The state's
current direct debt levels are relatively moderate,
representing, on a per capita basis, $446 or 1.6% of
personal income. Total debt service payments constitute
approximately 7% of the state's budget.

FINANCIAL STATEMENTS

The financial statement contained in the Annual Report to
Shareholders of the Trust dated February 28, 1995 are
incorporated herein by reference.

FRANKLIN TAX-FREE TRUST
PROSPECTUS
May 1, 1995

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
1-800/DIAL BEN

Franklin Tax-Free Trust (the "Trust") is an open-end
management investment company consisting of 27 separate
series. As of May 1, 1995, most of the series offer two
classes of shares to their investors. This Prospectus
relates to the ten series listed below, nine of which, as
noted, are currently offering two classes of shares:

Class I Class II
Franklin Alabama Tax-Free Franklin Alabama Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Florida Tax-Free Franklin Florida Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Georgia Tax-Free Franklin Georgia Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Kentucky Tax-Free Not Available
Income Fund, Class I
Franklin Louisiana Tax-Free Franklin Louisiana Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Maryland Tax-Free Franklin Maryland Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Missouri Tax-Free Franklin Missouri Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin North Carolina Franklin North Carolina
Tax-Free Income Fund, Class I Tax-Free Income Fund, Class II
Franklin Texas Tax-Free Franklin Texas Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Virginia Tax-Free Franklin Virginia Tax-Free
Income Fund, Class I Income Fund, Class II

Each Fund may, separately or collectively, be referred to as
a "Fund," the "Funds," or individually by the state included
in its name. Each Fund may also be referred to as Class I or
Class II shares, as required within the context of the
discussion. The Kentucky Fund will be included in all
discussions pertaining to Class I in this Prospectus.
Investors can choose between Class I shares, if available
for the series, which generally bear a higher front end
sales charge and lower ongoing Rule 12b-1 distribution fees
("Rule 12b-1 fees"), and Class II shares, which generally
have a lower front-end sales charge and higher ongoing Rule
12b-1 fees. Investors should consider the differences
between the two classes, including the impact of sales
charges and distribution fees, in choosing the more suitable
class given their anticipated investment amount and time
horizon. See "How to Buy Shares of a Fund - Alternative
Purchase Arrangements."

Each Fund invests primarily in municipal securities issued
by its respective state and its political subdivisions,
agencies and instrumentalities.

This Prospectus is intended to set forth in a clear and
concise manner information about the Trust and each of the
ten Funds that a prospective investor should know before
investing. After reading the Prospectus, it should be
retained for future reference; it contains information about
the purchase and sale of shares and other items which a
prospective investor will find useful to have.

Shares of the Funds are not deposits or obligations of, or
guaranteed or endorsed by, any bank; further, such shares
are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency.
Shares of the Funds involve investment risks, including the
possible loss of principal.

A Statement of Additional Information ("SAI"), concerning
the Trust and the Funds described in this Prospectus, dated
May 1, 1995, as may be amended from time to time, provides a
further discussion of certain areas in this Prospectus and
other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Trust or the Trust's
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors") at the address or telephone number shown
above.

Contents Page

Expense Table

Financial Highlights

About the Trust

Investment Objective and
Policies of Each Fund

Management of the Funds

Distributions to Shareholders

Taxation of the Funds
and Their Shareholders

How to Buy Shares of a Fund

Other Programs and Privileges
Available to Shareholders of the Funds

Exchange Privilege

How to Sell Shares of a Fund

Telephone Transactions

Valuation of a Fund's Shares

How to Get Information
Regarding an Investment in a Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

Appendix A
Description of State Tax Treatment

Appendix B
Special Factors Affecting Each Fund

EXPENSE TABLE

Investors should be aware that the above table is not
intended to reflect in precise detail the fees and expenses
associated with an individual's own investment in a Fund.
Rather the table has been provided only to assist investors
in gaining a more complete understanding of fees, charges
and expenses. For a more detailed discussion of these
matters, investors should refer to the appropriate sections
of this Prospectus.

EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a
shareholder will bear directly or indirectly in
connection with an investment in a Fund. The figures
for both classes of shares are based on the aggregate
operating expenses of the Class I shares (before fee
waivers and expense reductions) for the fiscal year
ended February 28, 1995.
<TABLE>
<CAPTION>
NORTH
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA MARYLAND MISSOURI CAROLINA TEXAS VIRGINIA
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
Class I Class I Class I Class I Class I Class I Class I Class I Class I Class I
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Shareholder Transaction Expenses
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) . . . . . 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
*Deferred Sales Charge . . . . . NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE

Annual Fund Operating Expenses
(as a percentage of average
net assets)
Management Fees . . . . . . . . 0.57% 0.47% 0.61% 0.63%^ 0.61% 0.58% 0.56% 0.56% 0.59% 0.55%
**12b-1 Fees . . . . . . . . . 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07%
Other Expenses:
Shareholder Servicing Costs . 0.02% 0.02% 0.02% 0.02% 0.02% 0.03% 0.02% 0.02% 0.02% 0.02%
Reports to Shareholders . . . 0.03% 0.02% 0.03% 0.03% 0.02% 0.03% 0.03% 0.02% 0.02% 0.03%
Other . . . . . . . . . . . . 0.04% 0.02% 0.04% 0.06 0.04% 0.03% 0.03% 0.04 0.04% 0.03%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total other expenses . . . . . 0.09% 0.06% 0.09% 0.11% 0.08% 0.09% 0.08% 0.08% 0.08% 0.08%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
**Total Fund Operating Expenses 0.73% 0.60% 0.77% 0.81%^ 0.76% 0.74% 0.71 0.71% 0.74% 0.70%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====

NORTH
ALABAMA FLORIDA GEORGIA LOUISIANA MARYLAND MISSOURI CAROLINA TEXAS VIRGINIA
FUND FUND FUND FUND FUND FUND FUND FUND FUND
Class II Class II Class II Class II Class II Class II Class II Class II Class II
--------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
+Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) . . . . . 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
++Deferred Sales Charge . . . 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%

Annual Fund Operating Expenses
(as a percentage of average
net assets)
Management Fees . . . . . . . . 0.57% 0.47% 0.61% 0.61% 0.58% 0.56 0.56% 0.59% 0.55%
**Maximum 12b-1 Fees . . . . . 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65%
Other Expenses:
Shareholder Servicing Costs . 0.02% 0.02% 0.02% 0.02% 0.03% 0.02% 0.02% 0.02% 0.02%
Reports to Shareholders . . . 0.03% 0.02% 0.03% 0.02% 0.03% 0.03% 0.02% 0.02% 0.02%
Other . . . . . . . . . . . . 0.04% 0.02% 0.04% 0.04% 0.03% 0.03% 0.04% 0.04% 0.03%
----- ----- ----- ----- ----- ----- ----- ----- -----
+++Total Other Expenses . . . . 0.09 0.06% 0.09 0.08% 0.09% 0.08% 0.08% 0.08% 0.08%
----- ----- ----- ----- ----- ----- ----- ----- -----
**Total Fund Operating Expenses 0.31% 1.18% 1.35% 1.34% 1.32% 1.29% 1.29% 1.32% 1.28%
===== ===== ===== ===== ===== ===== ===== ===== =====

</TABLE>

*Class I investments of $1 million or more are not subject
to a front-end sales charge; however, a contingent deferred
sales charge of 1%, which has not been reflected in the
Example below, is generally imposed on certain redemptions
within a "contingency period" of 12 months of the calendar
month following such investments. See "How to Sell Shares
of a Fund - Contingent Deferred Sales Charge."
**Rule 12b-1 fees for Class I shares reflect an annualized
rate. Actual Rule 12b-1 fees incurred by Class I shares of
each Fund for the ten-month period ended February 28, 1995,
were 0.06%. Rule 12b-1 fees for Class II shares reflect the
maximum amount allowed pursuant to such class' plan of
distribution. Class I's plan was effective May 1, 1994,
and Class II's plan is effective May 1, 1995. Consistent
with National Association of Securities Dealers, Inc.'s
rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those
same rules.
^Represents the amounts that would have been payable to the
investment manager, absent a fee reduction by the investment
manager. The investment manager, however, has voluntarily
agreed to limit its management fees and assume responsibility
for making payments to offset certain operating expenses
otherwise payable by the Franklin Kentucky Tax-Free Income
Fund. With this reduction, management fees and total
operating expenses represented 0.12% and 0.29%, respectively. This
arrangement may be terminated at any time.
+Although Class II shares have a lower front-end sales charge
than Class I shares, over time the higher Rule 12b-1 fees for
Class II shares may cause shareholders to pay more for Class
II shares than for Class I shares. Given the maximum front-end sales
charge and the rate of Rule 12b-1 fees of each class, it is
estimated that this will take less than six years for
shareholders who maintain total shares valued at less than
$100,000 in the Franklin Templeton Funds. Shareholders with
larger investments in the Franklin Templeton Funds will reach
the crossover point more quickly.
++Class II shares redeemed within a "contingency period"
of 18 months of the calendar month following such investments
are subject to a 1% contingent deferred sales charge. See
"How to Sell Shares of a Fund - Contingent Deferred Sales
Charge."
+++These figures are estimates based on actual expenses
incurred by Class I shares for the fiscal year ended
February 28, 1995.

Example

As required by SEC regulations, the following example
illustrates the expenses, including the maximum front-end
sales charge and applicable contingent deferred sales
charges, that apply to a $1,000 investment in a Fund over
various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.

One Three Five Ten
Name of Fund Year Years Years Years
Alabama Fund, Class I $50 $65 $81 $129
Alabama Fund, Class II $33 $51 $81 $166
Florida Fund, Class I $48 $61 $75 $114
Florida Fund, Class II $32 $47 $74 $152
Georgia Fund, Class I $50 $66 $83 $134
Georgia Fund, Class II $33 $52 $83 $171
Kentucky Fund, Class I $50 $67 $86 $138
Louisiana Fund, Class I $50 $66 $83 $133
Louisiana Fund, Class II $33 $52 $83 $170
Maryland Fund, Class I $50 $65 $82 $130
Maryland Fund, Class II $33 $52 $82 $168
Missouri Fund, Class I $49 $64 $80 $127
Missouri Fund, Class II $33 $51 $80 $164
North Carolina Fund, Class I $49 $64 $80 $127
North Carolina Fund, Class II $33 $50 $80 $164
Texas Fund, Class I $50 $65 $82 $130
Texas Fund, Class II $33 $52 $82 $168
Virgina Fund, Class I $49 $64 $80 $126
Virginia Fund, Class II $33 $50 $79 $163

The examples are based on the restated aggregate annual
operating expenses (before fee waivers or expense
reductions) shown above and should not be considered a
representation of past or future expenses, which may be more
or less than those shown. The operating expenses are borne
by each Fund and only indirectly by shareholders as a result
of their investment in a Fund. In addition, federal
securities regulations require the example to assume an
annual return of 5%, but a Fund's actual return may be more
or less than 5%.

Financial Highlights

Set forth below is a table containing the financial highlights for a Class I
share of each Fund from its effective date of registration, as indicated
below, through the fiscal year ended February 28, 1995. The information
for each of the five fiscal years in the period ended February 28, 1995
has been audited by Coopers & Lybrand, L.L.P., independent auditors,
whose audit report appears in the financial statements in the Trust's
Annual Report to Shareholders dated February 28, 1995. The remaining
figures, which are also audited, are not covered by the auditor's report.
Information regarding Class II shares of each Fund will be included in this
table after such shares have been offered to the public for a reasonable
period of time. See also "General Information - Reports to Shareholders."

<TABLE>
<CAPTION>
PERIOD NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
ENDED VALUE NET &UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
FEBRUARY BEGINNING INVESTMENT GAINS(LOSSES) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
28 OF PERIOD INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD RETURN+
- ----- --------- ------ ------------- ---------- ------ ----- ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN ALABAMA TAX-FREE INCOME FUND:
1988(1) $10.00 $0.44 $(0.210 $0.650 $(0.110) $ -- $(0.110) $10.54 11.26%*
1989 10.54 0.79 0.005 0.795 (0.723) (0.022) (0.745) 10.59 7.59
1990 10.59 0.75 0.168 0.918 (0.768) -- (0.768) 10.74 8.61
1991 10.74 0.71 0.068 0.778 (0.768) -- (0.768) 10.75 7.27
1992 10.75 0.66 0.346 1.006 (0.756) -- (0.756) 11.00 9.51
1993 11.00 0.68 0.714 1.394 (0.684) -- (0.684) 11.71 12.84
1994 11.71 0.66 0.094 0.754 (0.664) -- (0.664) 11.80 6.35
1995 11.80 .66 (.500) 0.160 (0.650) -- (0.650) 11.31 1.54
FRANKLIN FLORIDA TAX-FREE INCOME FUND:
1988(1) 10.00 0.46 0.333 0.793 (0.183) -- (0.183) 10.61 14.36*
1989 10.61 0.81 (0.041) 0.769 (0.781) (0.008) (0.789) 10.59 7.28
1990 10.59 0.73 0.226 0.956 (0.816) -- (0.816) 10.73 8.98
1991 10.73 0.73 0.091 0.821 (0.801) -- (0.801) 10.75 7.69
1992 10.75 0.71 0.348 1.058 (0.768) -- (0.768) 11.04 10.02
1993 11.04 0.71 0.647 1.357 (0.717) -- (0.717) 11.68 12.45
1994 11.68 0.70 0.086 0.786 (0.696) -- (0.696) 11.77 6.65
1995 11.77 0.69 (.436) 0.254 (.674) -- (.674) 11.35 2.36
FRANKLIN GEORGIA TAX-FREE INCOME FUND:
1988(1) 10.00 0.44 0.230 0.670 (0.120) -- (0.120) 10.55 11.46*
1989 10.55 0.80 (0.034) 0.766 (0.720) (0.006) (0.726) 10.59 7.32
1990 10.59 0.79 0.264 1.054 (0.744) -- (0.744) 10.90 9.94
1991 10.90 0.72 0.098 0.818 (0.778) -- (0.778) 10.94 7.53
1992 10.94 0.65 0.349 0.999 (0.759) -- (0.759) 11.18 9.32
1993 11.18 0.68 0.658 1.338 (0.668) -- (0.668) 11.85 12.09
1994 11.85 0.66 0.154 0.814 (0.664) -- (0.664) 12.00 6.77
1995 12.00 0.66 (.458) .202 (.662) -- (.662) 11.54 1.87
FRANKLIN KENTUCKY TAX-FREE INCOME FUND:
1992(3) 10.00 0.15 0.164 0.314 (0.014) -- (0.014) 10.30 8.37*
1993 10.30 0.57 0.832 1.402 (0.652) -- (0.652) 11.05 13.81
1994 11.05 0.63 0.164 0.794 (0.664) -- (0.664) 11.18 7.07
1995 11.18 .61 (.625) (.015) (.625) -- (.625) 10.54 .11
FRANKLIN LOUISIANA TAX-FREE INCOME FUND:
1988(1) 10.00 0.46 0.136 0.596 (0.186) -- (0.186) 10.41 10.22*
1989 10.41 0.78 (0.028) 0.752 (0.772) -- (0.772) 10.39 7.27
1990 10.39 0.78 0.202 0.982 (0.792) -- (0.792) 10.58 9.41
1991 10.58 0.71 0.182 0.892 (0.792) -- (0.792) 10.68 8.50
1992 10.68 0.67 0.326 0.996 (0.776) -- (0.776) 10.90 9.49
1993 10.90 0.69 0.668 1.358 (0.688) -- (0.688) 11.57 12.61
1994 11.57 0.67 (0.005) 0.665 (0.675) -- (0.675) 11.56 5.63
1995 11.56 .66 (.549) .111 (.641) -- (.641) 11.03 1.14
</TABLE>

<TABLE>
<CAPTION>
RATIO OF RATIO OF
NET ASSETS EXPENSES NET INCOME PORTFOLIO
AT END AVERAGE TO AVERAGE TURNOVER
OF PERIOD NET ASSETS** NET ASSETS RATE
--------- ------------ ---------- ----
<S> <C> <C> <C> <C>
FRANKLIN ALABAMA TAX-FREE INCOME FUND:
1988(1) $2,472,150 -- % 5.64%* 54.25%
1989 6,079,209 -- 7.33 12.70
1990 21,685,469 0.42% 6.69 4.97
1991 50,181,717 0.70 6.45 28.36
1992 96,254,463 0.71 6.21 1.21
1993 144,479,529 0.68 6.04 11.27
1994 178,414,459 0.64 5.62 14.87
1995 170,051 0.72 5.88 19.85
FRANKLIN FLORIDA TAX-FREE INCOME FUND:
1988(1) 2,410,874 -- 6.22* 40.02
1989 33,752,190 0.24 6.42 8.64
1990 302,487,803 0.66 6.40 8.50
1991 605,720,260 0.57 6.76 10.80
1992 886,109,987 0.54 6.60 16.69
1993 1,164,827,366 0.54 6.30 11.72
1994 1,361,582,695 0.52 5.90 11.99
1995 1,265,018 0.59 6.16 14.34
FRANKLIN GEORGIA TAX-FREE INCOME FUND:
1988(1) 1,780,084 -- 5.98* 22.93
1989 5,640,334 -- 7.31 12.23
1990 13,876,530 0.09 7.07 14.43
1991 32,010,902 0.56 6.53 1.20
1992 68,546,388 0.72 6.11 6.18
1993 91,017,484 0.71 5.91 17.10
1994 120,882,389 0.69 5.48 16.75
1995 116.771 0.76 5.76 36.17
FRANKLIN KENTUCKY TAX-FREE INCOME FUND:
1992(3) 3,032,496 -- 3.52* 53.90
1993 11,678,098 -- 6.11 18.41
1994 28,057,237 -- 5.73 13.22
1995 32,831 .29 5.94 32.92
FRANKLIN LOUISIANA TAX-FREE INCOME FUND:
1988(1) 1,247,045 -- 6.21* 18.12
1989 4,257,203 -- 7.33 5.91
1990 17,695,533 0.04 7.10 16.65
1991 35,861,506 0.56 6.60 .76
1992 72,922,717 0.70 6.33 10.51
1993 95,367,808 0.70 6.18 23.37
1994 115,971,134 0.68 5.70 17.63
1995 104,980 0.75 5.98 32.28
</TABLE>

<TABLE>
<CAPTION>
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
VALUE NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
PERIOD BEGINNING INVESTMENT GAINS(LOSSES) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
ENDED OF PERIOD INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD RETURN
- ----- --------- ------ ------------- ---------- ------ ----- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN MARYLAND TAX-FREE INCOME FUND:
1989(2) $10.00 $0.18 $(0.054) $0.126 $(0.056) $ -- $(0.056) $10.07 2.98%*
1990 10.07 0.72 0.192 0.912 (0.672) -- (0.672) 10.31 9.01
1991 10.31 0.68 0.096 0.776 (0.716) -- (0.716) 10.37 7.57
1992 10.37 0.64 0.300 0.940 (0.710) -- (0.710) 10.60 9.21
1993 10.60 0.65 0.672 1.322 (0.652) -- (0.652) 11.27 12.64
1994 11.27 0.64 0.092 0.732 (0.642) -- (0.642) 11.36 6.40
1995 11.36 .63 (.453) 0.177 (.617) -- (0.617) 10.92 1.78
FRANKLIN MISSOURI TAX-FREE INCOME FUND:
1988(1) 10.00 0.46 0.058 0.518 (0.168) -- (0.168) 10.35 8.26*
1989 10.35 0.78 0.017 0.797 (0.707) -- (0.707) 10.44 7.74
1990 10.44 0.74 0.198 0.938 (0.738) -- (0.738) 10.64 8.94
1991 10.64 0.69 0.154 0.844 (0.744) -- (0.744) 10.74 7.96
1992 10.74 0.65 0.409 1.059 (0.729) -- (0.729) 11.07 10.04
1993 11.07 0.68 0.676 1.356 (0.676) -- (0.676) 11.75 12.40
1994 11.75 0.66 0.206 0.866 (0.676) -- (0.676) 11.94 7.29
1995 11.94 0.65 (.501) 0.149 (.649) -- (.649) 11.44 1.44
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND:
1988(1) 10.00 0.43 0.206 0.636 (0.176) -- (0.176) 10.46 2.28*
1989 10.46 0.77 0.056 0.826 (0.715) (0.021) (0.736) 10.55 7.98
1990 10.55 0.74 0.221 0.961 (0.720) (0.001) (0.721) 10.79 9.06
1991 10.79 0.70 0.124 0.824 (0.742) (0.012) (0.754) 10.86 7.66
1992 10.86 0.64 0.352 0.992 (0.732) -- (0.732) 11.12 9.28
1993 11.12 0.67 0.754 1.424 (0.664) -- (0.664) 11.88 12.97
1994 11.88 0.65 0.054 0.704 (0.664) -- (0.664) 11.92 5.81
1995 11.92 0.65 (.550) .10 (.650) -- (0.650) 11.37 1.06
FRANKLIN TEXAS TAX-FREE INCOME FUND:
1988(1) 10.00 0.50 0.255 0.755 (0.195) -- (0.195) 10.56 12.72*
1989 10.56 0.78 0.044 0.824 (0.794) -- (0.794) 10.59 7.88
1990 10.59 0.84 0.114 0.954 (0.804) -- (0.804) 10.74 8.95
1991 10.74 0.73 0.104 0.834 (0.804) -- (0.804) 10.77 7.81
1992 10.77 0.67 0.370 1.040 (0.780) -- (0.780) 11.03 9.84
1993 11.03 0.69 0.661 1.351 (0.691) -- (0.691) 11.69 12.41
1994 11.69 0.69 0.032 0.722 (0.692) -- (0.692) 11.72 6.09
1995 11.72 .68 (.487) 0.193 (.663) -- (.663) 11.25 1.80
FRANKLIN VIRGINIA TAX-FREE INCOME FUND:
1988(1) 10.00 0.44 0.199 0.639 (0.189) -- (0.189) 10.45 11.90*
1989 10.45 0.77 (0.034) 0.736 (0.756) -- (0.756) 10.43 7.09
1990 10.43 0.73 0.226 0.956 (0.756) -- (0.756) 10.63 9.12
1991 10.63 0.69 0.136 0.826 (0.756) -- (0.756) 10.70 7.82
1992 10.70 0.66 0.362 1.022 (0.742) -- (0.742) 10.98 9.71
1993 10.98 0.67 0.704 1.374 (0.664) -- (0.664) 11.69 12.67
1994 11.69 0.67 0.136 0.806 (0.676) -- (0.676) 11.82 6.80
1995 11.82 0.66 (.499) 0.161 (.651) -- (0.651) 11.33 1.56
</TABLE>

RATIO OF RATIO OF
NET ASSETS EXPENSES NET INCOME PORTFOLIO
AT END AVERAGE TO AVERAGE TURNOVER
OF PERIOD NET ASSETS** NET ASSETS RATE
--------- ------------ ---------- ----
<S> <C> <C> <C> <C>
FRANKLIN MARYLAND TAX-FREE INCOME FUND:
1989(2) $ 3,313,120 -- % 4.26%* 11.78%
1990 14,003,958 0.07 6.84 6.03
1991 33,420,583 0.54 6.50 12.14
1992 71,538,272 0.71 6.15 16.65
1993 115,872,984 0.71 6.00 14.73
1994 156,682,944 0.66 5.58 18.38
1995 153,145 0.73 5.86 20.30
FRANKLIN MISSOURI TAX-FREE INCOME FUND:
1988(1) 2,059,706 -- 6.27* 28.32
1989 7,995,789 -- 7.30 7.15
1990 28,479,088 0.40 6.66 8.69
1991 55,559,697 0.72 6.4 240.08
1992 110,940,345 0.71 6.21 16.40
1993 164,122,332 0.67 6.03 10.28
1994 228,148,50 80.64 5.55 11.02
1995 227,442 0.70 5.75 19.84
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND:
1988(1) 1,650,297 -- 5.89* 10.34
1989 10,345,833 -- 7.09 12.35
1990 24,745,552 0.50 6.68 11.80
1991 50,328,348 0.74 6.37 7.99
1992 106,959,646 0.71 6.03 3.16
1993 156,517,172 0.67 5.86 8.48
1994 215,539,507 0.63 5.44 3.86
1995 216,263 0.70 5.75 25.05
FRANKLIN TEXAS TAX-FREE INCOME FUND:
1988(1) 1,140,685 -- 6.61* 41.50
1989 2,355,949 -- 7.65 6.95
1990 6,093,673 -- 7.26 3.53
1991 29,035,793 0.40 6.4 6.55
1992 123,721,525 0.70 6.14 6.44
1993 139,389,088 0.66 6.15 12.33
1994 148,683,984 0.65 5.85 20.18
1995 130,684 .73 6.05 6.36
FRANKLIN VIRGINIA TAX-FREE INCOME FUND:
1988(1) 2,621,061 -- 5.48* 65.51
1989 13,885,354 0.16 6.89 3.92
1990 38,572,122 0.60 6.55 1.06
1991 82,661,536 0.72 6.38 2.56
1992 152,615,121 0.68 6.17 4.33
1993 211,170,641 0.65 5.98 5.74
1994 260,913,071 0.62 5.65 6.86
1995 255,965 0.69 5.86 21.73

* Annualized

(1) For the period September 1, 1987 (effective date of registration) to
February 29, 1988.

(2) For the period October 3, 1988 (effective date of registration) to
February 28, 1989.

(3) For the period September 10, 1991 (effective date of registration) to
February 29, 1992.

+ Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.

**During the periods indicated below, Franklin Advisers, Inc., the investment
manager, reduced its management fees and reimbursed other expenses incurred
by the Funds. Had such action not been taken, the ratio of operating expenses
to average net assets would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
---------- ----------
<S> <C> <C> <C>
Franklin Alabama Tax-Free Income Fund: Franklin Maryland Tax-Free Income Fund:
1988(1) . . . . . . . . . . . . . . . . . . 0.86%* 1989(2) . . . . . . . . . . . . . . . . . . . . . 0.65%*
1989 . . . . . . . . . . . . . . . . . . . 0.74 1990 . . . . . . . . . . . . . . . . . . . . . . 0.73
1990 . . . . . . . . . . . . . . . . . . . 0.72 1991 . . . . . . . . . . . . . . . . . . . . . . 0.73
1991 . . . . . . . . . . . . . . . . . . . 0.72 Franklin Missouri Tax-Free Income Fund:
Franklin Florida Tax-Free Income Fund: 1988(1) . . . . . . . . . . . . . . . . . . . . . 0.87*
1988(1) . . . . . . . . . . . . . . . . . . 0.88* 1989 . . . . . . . . . . . . . . . . . . . . . . 0.77
1989 . . . . . . . . . . . . . . . . . . . 0.74 1990 . . . . . . . . . . . . . . . . . . . . . . 0.72
1990 . . . . . . . . . . . . . . . . . . . 0.66 Franklin North Carolina Tax-Free Income Fund:
Franklin Georgia Tax-Free Income Fund: 1988(1) . . . . . . . . . . . . . . . . . . . . . 0.87*
1988(1) . . . . . . . . . . . . . . . . . . 0.87* 1989 . . . . . . . . . . . . . . . . . . . . . . 0.74
1989 . . . . . . . . . . . . . . . . . . . 0.76 1990 . . . . . . . . . . . . . . . . . . . . . . 0.71
1990 . . . . . . . . . . . . . . . . . . . 0.74 Franklin Texas Tax-Free Income Fund:
1991 . . . . . . . . . . . . . . . . . . . 0.74 1988(1) . . . . . . . . . . . . . . . . . . . . . 0.89*
Franklin Kentucky Tax-Free Income Fund: 1989 . . . . . . . . . . . . . . . . . . . . . . 0.76
1992(3) . . . . . . . . . . . . . . . . . . 0.82* 1990 . . . . . . . . . . . . . . . . . . . . . . 0.71
1993 . . . . . . . . . . . . . . . . . . . 0.81 1991 . . . . . . . . . . . . . . . . . . . . . . 0.75
1994 . . . . . . . . . . . . . . . . . . . 0.71 Franklin Virginia Tax-Free Income Fund:
1995 . . . . . . . . . . . . . . . . . . . 0.80
Franklin Louisiana Tax-Free Income Fund: 1988(1) . . . . . . . . . . . . . . . . . . . . . 0.87*
1988(1) . . . . . . . . . . . . . . . . . . 0.88* 1989 . . . . . . . . . . . . . . . . . . . . . . 0.75
1989 . . . . . . . . . . . . . . . . . . . 0.73 1990 . . . . . . . . . . . . . . . . . . . . . . 0.72
1990 . . . . . . . . . . . . . . . . . . . 0.70
1991 . . . . . . . . . . . . . . . . . . . 0.72
</TABLE>

About the Trust

The Trust is an open-end management investment company, or
mutual fund, organized as a Massachusetts business trust in
September 1984 and registered with the SEC under the
Investment Company Act of 1940 (the "1940 Act"). The Trust
currently consists of 27 separate series, most of which
offer two classes of shares, as listed under the section
"General Information." Each Fund is a separate series of the
Trust's shares and maintains a totally separate investment
portfolio. This Prospectus relates only to the ten series
shown on the cover, of which only the Maryland Fund is non-
diversified.

Shares of each Fund may be purchased (minimum investment of
$100 initially and $25 thereafter) at the current public
offering price. The current public offering price of the
Class I shares is equal to the net asset value (see
"Valuation of a Fund's Shares"), plus a variable sales
charge not exceeding 4.25% of the offering price depending
upon the amount invested. The current public offering price
of the Class II shares is equal to the net asset value, plus
a flat sales charge of 1.0% of the amount invested. (See
"How to Buy Shares of a Fund.")

Investment Objective
and Policies of Each Fund

Each Fund seeks to maximize income exempt from federal
income taxes and from the personal income taxes, if any, for
resident shareholders of the named state to the extent
consistent with prudent investing and the preservation of
shareholders' capital. Each Fund's objective is a
fundamental policy and may not be changed without
shareholder approval. There is, of course, no assurance that
each Fund's objective will be achieved.

Each Fund will invest primarily in municipal securities of
its respective state and its municipalities, other political
subdivisions and public authorities, the interest on which
is exempt from federal income taxes and the personal income
taxes, if any, of its respective state.

Each Fund will attempt to invest 100% and, as a matter of
fundamental policy, will invest at least 80% of the value of
its net assets in securities the interest on which is exempt
from federal income taxes, including the individual
alternative minimum tax, and from the personal income taxes,
if any, of its respective state. Thus it is possible,
although not anticipated, that up to 20% of a Fund's net
assets could be in municipal securities from another state
and/or in taxable obligations, including municipal
obligations such as "private activity bonds" the interest on
which may be subject to the alternative minimum tax. To the
extent that a state requires that a Fund consist of a
specified amount of obligations of such state or of the
United States government, or its agencies,
instrumentalities, commissions, possessions or territories
which are exempt from taxation under the laws of such state
in order for any portion of the distributions from such Fund
to be exempt from income taxation, a Fund will attempt to
invest at least the minimum of such amount in such
securities. See "Taxation of the Funds and Their
Shareholders" for additional information.

Each Fund may invest, without percentage limitations, in
securities having, at the time of purchase, one of the four
highest ratings of Moody's Investors Service ("Moody's")
(Aaa, Aa, A, Baa), Standard & Poor's Corporation ("S&P")
(AAA, AA, A, BBB), or Fitch Investors Service, Inc.
("Fitch") (AAA, AA, A, BBB), or in securities which are not
rated, provided that, in the opinion of the Funds'
investment manager, such securities are comparable in
quality to those within the four highest ratings. These are
considered to be "investment grade" securities, although
bonds rated in the fourth highest ratings level (Baa by
Moody's) are regarded as having an adequate capacity to pay
principal and interest but with greater vulnerability to
adverse economic conditions and to have some speculative
characteristics. A description of the ratings is contained
in Appendix A to the SAI.

The investment manager considers the terms of the offering
and various other factors in order to determine whether the
securities are consistent with a Fund's investment objective
and policies and thereafter to determine the issuer's
comparative credit rating. In making such determinations,
the investment manager typically (i) interviews
representatives of the issuer at its offices, tours and
inspects the physical facilities of the issuer in an effort
to evaluate the issuer and its operations, (ii) performs
analysis of the issuer's financial and credit position,
including comparisons of all appropriate ratios, and (iii)
compares other similar securities offerings to the issuer's
proposed offering.

For temporary defensive purposes only, when the investment
manager believes that market conditions, such as rising
interest rates or other adverse factors, would cause serious
erosion of portfolio value, (i) each Fund may invest more
than 20% of its assets (which could be up to 100%) in fixed-
income obligations, the interest on which is subject to
regular federal income tax, and (ii) a Fund may invest more
than 20% of the value of its net assets (which could be up
to 100%) in instruments the interest on which is exempt from
federal income taxes but not that state's personal income
taxes. Such temporary investments will be limited to
obligations issued or guaranteed by the full faith and
credit of the U.S. government or in the highest quality
commercial paper rated A-1 by S&P or P-1 by Moody's. To the
extent that a Fund is restricted in its ability to take
advantage of defensive steps when necessary, such Fund's
portfolio and the value of its shares may be subject to
greater risk than those of the other Funds which retain this
flexibility.

A Fund may (i) borrow from banks for temporary or emergency
purposes up to 5% of its total assets and pledge up to 5% of
its total assets in connection therewith and (ii) lend up to
10% of its portfolio securities to qualified securities
dealers, although each Fund currently intends to limit its
lending of securities to no more than 5% of its total
assets. A complete description of each Fund's investment
restrictions is included under "Investment Restrictions" in
the SAI.

As a condition of doing business in the State of Texas, the
Texas Fund will limit its investments in securities that are
not readily marketable to 15% of average net assets at the
time of purchase and lend portfolio securities only if the
securities loaned are "marked to market" daily.

It is the policy of each Fund that illiquid securities
(including securities with legal or contractual restrictions
on resale, or other instruments which are not readily
marketable or have no readily ascertainable market value)
may not constitute, at the time of the purchase more than
10% of the value of the total net assets of a Fund.

Municipal Securities

The term "municipal securities," as used in this Prospectus,
means obligations issued by or on behalf of states,
territories and possessions of the U.S. and the District of
Columbia and their political subdivisions, agencies, and
instrumentalities, the interest on which is exempt from
federal income tax. An opinion as to the tax-exempt status
of a municipal security generally is rendered to the issuer
by the issuer's counsel at the time of issuance of the
security.

The Trust has no restrictions on the maturities of municipal
securities in which the Funds may invest. Each Fund will
seek to invest in municipal securities of such maturities
that, in the judgment of a Fund and its investment manager,
will provide a high level of current income consistent with
prudent investment. The investment manager will also
consider current market conditions.

It is possible that any Fund from time to time will invest
more than 25% of its assets in a particular segment of the
municipal securities market including, but not limited to,
hospital revenue bonds, housing agency bonds, tax-exempt
industrial development revenue bonds, transportation bonds,
or pollution control revenue bonds. In such circumstances,
economic, business, political, or other changes affecting
one bond (such as proposed legislation affecting the
financing of a project; shortages or price increases of
needed materials; or declining markets or needs for the
projects) might also affect other bonds in the same segment,
thereby potentially increasing market risk.

Yields on municipal securities vary, depending on a variety
of factors, including the general condition of the financial
markets and of the municipal securities market, the size of
a particular offering, the maturity of the obligation, and
the credit rating of the issuer. Generally, municipal
securities of longer maturities produce higher current
yields than municipal securities with shorter maturities but
are subject to greater price fluctuation due to changes in
interest rates, tax laws and other general market factors.
Lower-rated municipal securities generally produce a higher
yield than higher-rated municipal securities due to the
perception of a greater degree of risk as to the ability of
the issuer to make timely payment of principal and interest
on its obligations.

The interest on bonds issued to finance public purpose state
and local government operations is generally tax-exempt for
regular federal income tax purposes. Interest on certain
private activity bonds (including those for housing and
student loans) issued after August 7, 1986, while still tax-
exempt, constitutes a preference item for taxpayers in
determining the federal alternative minimum tax under the
Internal Revenue Code of 1986, as amended (the "Code"), and
under the income tax provisions of some states. This
interest could subject a shareholder to, or increase
liability under, the federal and state alternative minimum
taxes, depending on the shareholder's tax situation. In
addition, all distributions derived from interest exempt
from regular federal income tax may subject a corporate
shareholder to, or increase liability under, the federal
alternative minimum tax, because such distributions are
included in the corporation's "adjusted current earnings."
In states with a corporate franchise tax, distributions of a
Fund may also be fully taxable to a corporate shareholder
under the state franchise tax system.

Consistent with each Fund's investment objectives, a Fund
may acquire private activity bonds if, in the investment
manager's opinion, such bonds represent the most attractive
investment opportunity then available to a Fund. For the
fiscal year ended February 28, 1995, the portfolios of the
Funds derived the following percentages of their income from
bonds, the interest on which constitutes a preference item
subject to the federal alternative minimum tax for certain
investors:

Fund Percentage
Alabama Fund 5.03%
Florida Fund 12.78%
Georgia Fund 9.95%
Kentucky Fund 12.42%
Louisiana Fund 12.24%
Maryland Fund 10.55%
Missouri Fund 6.38%
North Carolina Fund 7.54%
Texas Fund 15.92%
Virginia Fund 6.68%

Each Fund may purchase floating rate and variable rate
obligations. These obligations bear interest at rates that
are not fixed, but that vary with changes in prevailing
market rates on predesignated dates. The Funds may also
invest in variable or floating rate demand notes ("VRDNs"),
which carry a demand feature that permits a Fund to tender
the obligation back to the issuer or a third party at par
value plus accrued interest prior to maturity, according to
the terms of the obligations, which amount may be more or
less than the amount a Fund paid for such obligation.
Frequently, VRDNs are secured by letters of credit or other
credit support arrangements. Because of the demand feature,
the prices of VRDNs may be higher and the yields lower than
they otherwise would be for obligations without a demand
feature. A Fund will limit its purchase of municipal
securities that are floating rate and variable rate
obligations to those meeting the quality standards set forth
in this Prospectus. Although it is not a put option in the
usual sense, such a demand feature is sometimes known as a
"put." Except for the Maryland Fund, with respect to 75% of
the total value of a Fund's assets, no more than 5% of such
value may be in securities underlying "puts" from the same
institution, except that each such Fund may invest up to 10%
of its asset value in unconditional "puts" (exercisable even
in the event of a default in the payment of principal or
interest on the underlying security) and other securities
issued by the same institution. Because of the "put"
feature, the prices of the securities may be higher and the
yields lower than they otherwise would be for the same
security.

Each Fund may purchase and sell municipal securities on a
"when-issued" and "delayed-delivery" basis. These
transactions are subject to market fluctuation and the value
at delivery may be more or less than the purchase price.
Although the Funds will generally purchase municipal
securities on a when-issued basis with the intention of
acquiring such securities, they may sell such securities
before the settlement date if it is deemed advisable. When a
Fund is the buyer in such a transaction, it will maintain,
in a segregated account with its custodian, cash or high-
grade marketable securities having an aggregate value equal
to the amount of such purchase commitments until payment is
made. To the extent a Fund engages in "when- issued" and
"delayed delivery" transactions, it will do so for the
purpose of acquiring securities for that Fund's portfolio
consistent with its investment objectives and policies and
not for the purpose of investment leverage.

Callable Bonds

Each Fund may purchase and hold callable municipal bonds
which contain a provision in the indenture permitting the
issuer to redeem the bonds prior to their maturity dates at
a specified price which typically reflects a premium over
the bonds' original issue price. These bonds generally have
call-protection (that is, a period of time during which the
bonds may not be called) which usually lasts for 5 to 10
years, after which time such bonds may be called away. An
issuer may generally be expected to call its bonds, or a
portion of them, during periods of declining interest
rates, when borrowings may be replaced at lower rates than
those obtained in prior years. If the proceeds of a bond
called under such circumstances are reinvested, the result
may be a lower overall yield due to lower current interest
rates. If the purchase price of such bonds included a
premium related to the appreciated value of the bonds, some
or all of that premium may not be recovered by bondholders,
such as the Funds, depending on the price at which such
bonds were redeemed.

Certificates of Participation

Each Fund may also invest in municipal lease obligations
primarily through Certificates of Participation ("COPs").
COPs, which are widely used by state and local governments
to finance state and local government needs, function much
like installment purchase agreements. For example, a COP may
be created when long-term lease revenue bonds are issued by
a governmental corporation to pay for the acquisition of
property or facilities which are then leased to a
municipality. The payments made by the municipality under
the lease are used to repay interest and principal on the
bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of
the property for a nominal sum. This lease format is
generally not subject to constitutional limitations on the
issuance of state debt, and COPs enable a governmental
issuer to increase government liabilities beyond
constitutional debt limits.

A feature which distinguishes COPs from municipal debt is
that the lease which is the subject of the transaction
contains a "nonappropriation" or "abatement" clause. A
nonappropriation clause provides that, while the
municipality will use its best efforts to make lease
payments, the municipality may terminate the lease without
penalty if the municipality's appropriating body does not
allocate the necessary funds. Local administrations, being
faced with increasingly tight budgets, therefore, have more
discretion to curtail payments under COPs than they do to
curtail payments on traditionally funded debt obligations.
If the government lessee does not appropriate sufficient
monies to make lease payments, the lessor or its agent is
typically entitled to repossess the property. In most cases,
however, the private sector value of the property may be
less than the amount the government lessee was paying.

While the risk of nonappropriation is inherent to COP
financing, the Funds believe that this risk is mitigated by
their policy of investing only in COPs rated within the four
highest rating categories of Moody's, S&P, or Fitch, or in
unrated COPs believed by the investment manager to be of
comparable quality. Criteria considered by the rating
agencies and the investment manager in assessing such risk
include the issuing municipality's credit rating, the
essentiality of the leased property to the municipality and
the term of the lease compared to the useful life of the
leased property. The Board of Trustees reviews the COPs held
in each Fund's portfolio to assure that they constitute
liquid investments based on various factors reviewed by the
investment manager and monitored by the Board. Such factors
include (a) the credit quality of such securities and the
extent to which they are rated or, if unrated, comply with
existing criteria and procedures followed to ensure that
they are of quality comparable to the ratings required for
each Fund's investment, including an assessment of the
likelihood that the leases will not be cancelled; (b) the
size of the municipal securities market, both in general and
with respect to COPs; and (c) the extent to which the type
of COPs held by each Fund trade on the same basis and with
the same degree of dealer participation as other municipal
bonds of comparable credit rating or quality. While there is
no limit as to the amount of assets which each Fund may
invest in COPs, as of February 28, 1995, the following Funds
held more than five percent of the total face amount of the
securities in their portfolios in COPs and other municipal
leases: (a) Kentucky, 19.0%; (b) Maryland, 5.1%; (c)
Missouri, 28.0%; and (c) North Carolina, 12.8%.

Market risk is the risk of price fluctuation of a municipal
security caused by changes in general economic and interest
rate conditions generally affecting the market as a whole. A
municipal security's maturity length also affects its price.
As with other debt instruments, the price of the debt
securities in which a Fund invests are likely to decrease in
times of rising interest rates. Conversely, when rates fall,
the value of a Fund's debt investments may rise. Price
changes of debt securities held by a Fund have a direct
impact on the net asset value per share of that Fund. Since
each Fund generally will invest primarily in the securities
of its respective state, there are certain specific factors
and considerations concerning each state which may affect
the credit and market risk of the municipal securities which
each Fund purchases. These factors are described in Appendix
B to this Prospectus and in greater detail in the SAI.

As a fundamental policy, with respect to 75% of its net
assets, each Fund, except as stated below, will not purchase
a security if, as a result of the investment, more than 5%
of its assets would be in the securities of any single
issuer (with the exception of obligations of the U.S.
government). For this purpose, each political subdivision,
agency, or instrumentality and each multi-state agency of
which a state is a member, and each public authority which
issues private activity bonds on behalf of a private entity,
will be regarded as a separate issuer for determining the
diversification of each Fund's portfolio. A bond for which
the payments of principal and interest are secured by an
escrow account of securities backed by the full faith and
credit of the U.S. government ("defeased") as described in
the SAI, in general, will not be treated as an obligation of
the original municipality for purposes of determining issuer
diversification.

The Maryland Fund is non-diversified under the federal
securities laws. As a non-diversified Fund, there is no
restriction under the 1940 Act on the percentage of assets
that may be invested at any time in the securities of any
one issuer. To the extent the Maryland Fund is not fully
diversified under the 1940 Act, it may be more susceptible
to adverse economic, political or regulatory developments
affecting a single issuer than would be the case if the
Maryland Fund were more broadly diversified. The Maryland
Fund, however, intends to comply with the diversification
and other requirements of the Code, applicable to "regulated
investment companies" so that it will not be subject to
federal income tax on its income and distributions to
shareholders will be free from regular federal income tax to
the extent they are derived from interest on municipal
securities. For this reason the Maryland Fund has adopted an
investment restriction, which may not be changed without the
approval of shareholders, prohibiting it from purchasing a
security if, as a result, more than 25% of the Maryland
Fund's total assets would be invested in the securities of a
single issuer or, with respect to 50% of its total assets,
more than 5% of such assets would be invested in the
securities of a single issuer.

A Fund's investment in zero coupon and delayed interest
bonds may cause such Fund to recognize income and make
distributions to shareholders prior to the receipt of cash
payments. Zero-coupon securities make no periodic interest
payments but instead are sold at a deep discount from their
face value. The buyer receives a rate of return determined
by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date.

Because zero-coupon securities bear no interest, the value
of such securities is generally more volatile than other
fixed-income securities. Since zero-coupon bondholders do
not receive interest payments, zeros fall more dramatically
than bonds paying interest on a current basis when interest
rates rise. When interest rates fall, zero-coupon
securities rise more rapidly in value, because the bonds
reflect a fixed rate of return.

How Shareholders Participate
in the Results of a Fund's Activities

The assets of each Fund are invested in portfolio
securities. If the securities owned by a Fund increase in
value, the value of the shares of such Fund which the
shareholder owns will increase. If the securities owned by a
Fund decrease in value, the value of the shareholder's
shares in such Fund will also decline. In this way,
shareholders participate in any change in the value of the
securities owned by a Fund.

In addition to the factors which affect the value of
individual securities, as described in the preceding
sections, a shareholder may anticipate that the value of
Fund shares will fluctuate with movements in the broader
bond markets, as well as changes in interest rates will
affect the value of a Fund's portfolio and thus its share
price. In particular, changes in interest rates will affect
the value of a Fund's portfolio and thus its share price.
Increased rates of interest which frequently accompany
higher inflation and/or a growing economy are likely to have
a negative effect on the value of Fund shares. History
reflects both increases and decreases in the prevailing rate
of interest and these may reoccur unpredictably in the
future.

Management of the Funds

In developing the multiclass structure the Funds have
retained the authority to establish additional classes of
shares. It is the Funds' present intention to offer only two
classes of shares, but new classes may be offered in the
future, including the addition of Class II shares to those
Funds not currently offering them.

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as
each Fund's investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a
publicly-owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr.,
who own approximately 20% and 16%, respectively, of
Resources' outstanding shares. Resources is engaged in
various aspects of the financial services industry through
its various subsidiaries (the "Franklin Templeton Group").
Advisers acts as investment manager or administrator to 33
U.S. registered investment companies (111 separate series)
with aggregate assets of over $74 billion, approximately
$40.2 billion of which are in the municipal securities
market.

The management fees which Class I of each Fund was obligated
to pay to the Manager, as well as the fees actually paid,
during the fiscal year ended February 28, 1995 (as a
percentage of average net assets) were as follows:

Contractual Management
Management Fees Paid by
Fund Fees the Fund

Alabama Fund 0.57% 0.57%
Florida Fund 0.47% 0.47%
Georgia Fund 0.61% 0.61%
Kentucky Fund 0.63%* 0.12%*
Louisiana Fund 0.61% 0.61%
Maryland Fund 0.58% 0.58%
Missouri Fund 0.56% 0.56%
North Carolina Fund 0.56% 0.56%
Texas Fund 0.59% 0.59%
Virginia Fund 0.55% 0.55%

During the fiscal year ended February 28, 1995, total
operating expenses borne by Class I shares of a Fund,
including fees paid to the Manager and Investor Services,
were as follows:

Total
Operating
Fund Expenses
Alabama Fund 0.72%
Florida Fund 0.59%
Georgia Fund 0.76%
Kentucky Fund 0.29%*
Louisiana Fund 0.75%
Maryland Fund 0.73%
Missouri Fund 0.70%
North Carolina Fund 0.70%
Texas Fund 0.73%
Virginia Fund 0.69%

*During the fiscal year ended February 28, 1995, management
fees totaling 0.63% of the average net assets of the Class I
shares of the Kentucky Fund would have accrued to Advisers.
Total operating expenses, including management fees, would
have represented 0.80% of the average net assets of such
Fund. Pursuant to an agreement by Advisers to limit its
fees, Class I shares of the Kentucky Fund paid management
fees totaling 0.12% of the average net assets of such Fund
and operating expenses totaling 0.29%.

It is not anticipated that any of the Funds will incur a
significant amount of brokerage expenses because municipal
securities are generally traded on a "net" basis, that is,
in principal transactions without the addition or deduction
of brokerage commissions or transfer taxes. In the event
that a Fund does participate in transactions involving
brokerage commissions, it is the Manager's responsibility to
select brokers through whom such transactions will be
effected. The Manager would try to obtain the best execution
on all such transactions. If it is felt that more than one
broker is able to provide the best execution, the Manager
will consider the furnishing of quotations and of other
market services, research, statistical and other data for
the Manager and its affiliates, as well as the sale of
shares of the Trust, as factors in selecting a broker.
Further information is included under "The Trust's Policies
Regarding Brokers Used on Portfolio Transactions" in the
SAI.

Shareholder accounting and many of the clerical functions
for each Fund are performed by Franklin/Templeton Investor
Services, Inc. ("Investor Services" or "Shareholder Services
Agent"), in its capacity as transfer agent and dividend-
paying agent. Investor Services is a wholly-owned subsidiary
of Resources.

Plans of Distribution

A separate Plan of Distribution has been approved and
adopted for each class ("Class I Plan" and "Class II Plan,"
respectively, or "Plans") pursuant to Rule 12b-1 under the
1940 Act. The Rule 12b-1 fees charged to each class will be
based solely on the distribution and servicing fees
attributable to that particular class. Any portion of fees
remaining from either Plan after distribution to securities
dealers of up to the maximum amount permitted under each
Plan may be used by the class to reimburse Distributors for
routine ongoing promotion and distribution expenses incurred
with respect to such class. Such expenses may include, but
are not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and
distributing sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead
expenses attributable to the distribution of a Fund's
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have
executed a servicing agreement with the Funds, Distributors
or its affiliates.

The maximum amount which each Fund may pay to Distributors
or others under the Class I Plan for such distribution
expenses is 0.10% per annum of each Class I's average daily
net assets, payable on a quarterly basis. All expenses of
distribution and marketing in excess of 0.10% per annum will
be borne by Distributors, or others who have incurred them,
without reimbursement from such Fund.

Under the Class II Plan, the maximum amount which each Fund
is permitted to pay to Distributors or others for
distribution expenses and related expenses is 0.50% per
annum of each Fund's Class II shares' daily net assets,
payable quarterly. All expenses of distribution, marketing
and related services over that amount will be borne by
Distributors, or others who have incurred them, without
reimbursement by the Funds. In addition, the Class II Plan
provides for an additional payment by each Fund of up to
0.15% per annum of each Fund's Class II shares' average
daily net assets as a servicing fee, payable quarterly. This
fee will be used to pay securities dealers or others for,
among other things, assisting in establishing and
maintaining customer accounts and records; assisting with
purchase and redemption requests; receiving and answering
correspondence; monitoring dividend payments from each Fund
on behalf of customers, or similar activities related to
furnishing personal services and/or maintaining shareholder
accounts.

During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Plan fees assessed
on each Fund's Class II shares to partially recoup fees
Distributors pays to securities dealers. Distributors, or
its affiliates, may pay, from its own resources, a
commission of up to 1% of the amount invested to securities
dealers who initiate and are responsible for purchases of
Class II shares of each Fund.

Distributions to Shareholders

There are two types of distributions which a Fund may make
to its shareholders:

1. Income dividends. Each Fund receives income in the form
of dividends and other income derived from its investments.
This income, less the expenses incurred in the operation of
such Fund, is its net investment income from which income
dividends may be distributed. Thus, the amount of dividends
paid per share may vary with each distribution.

2. Capital gain distributions. Each Fund may derive capital
gains or losses in connection with sales or other
dispositions of its portfolio securities. Distributions by a
Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss
carryovers) may generally be made twice each year. One
distribution may be made in December to reflect any net
short-term and net long-term capital gains realized by such
Fund as of October 31 of such year. Any net short-term and
net long-term capital gains realized by a Fund during the
remainder of the fiscal year may be distributed following
the end of the fiscal year. These distributions, when made,
will generally be fully taxable to such Fund's shareholders.
Each Fund may make only one distribution derived from net
short-term and net long-term capital gains in any year or
adjust the timing of its distributions for operational or
other reasons.

Distributions To Each Class of Shares

Distribution Date

Although subject to change by the Board of Trustees without
prior notice to or approval by shareholders, each Fund's
current policy is to declare income dividends daily and pay
them monthly on or about the last business day of that
month. The amount of income dividend payments by each Fund
is dependent upon the amount of net income received from
such Fund's portfolio holdings, is not guaranteed and is
subject to the discretion of the Trust's Board of Trustees.
The Funds do not pay "interest" or guarantee any fixed rate
of return on an investment in their shares.

Dividend Reinvestment

Unless otherwise requested, income dividends and capital
gain distributions, if any, will be automatically reinvested
in the shareholder's account in the form of additional
shares, valued at the closing net asset value (without a
sales charge) on the dividend reinvestment date. Dividend
and capital gain distributions are only eligible for
reinvestment at net asset value in the same class of shares
of a Fund or the same class of another of the Franklin
Templeton Funds. Shareholders have the right to change their
election with respect to the receipt of distributions by
notifying the Funds, but any such change will be effective
only as to distributions for which the reinvestment date is
seven or more business days after such Fund has been
notified. See the SAI for more information.

Distributions in Cash

A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application
included with this Prospectus, a shareholder may direct the
selected distributions to the same class of another fund in
the Franklin Templeton Funds, to another person, or directly
to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing.
Dividends which may be paid in the interim will be sent to
the address of record. Additional information regarding
automated fund transfers may be obtained from Franklin's
Shareholder Services Department.

Taxation of the Funds
and Their Shareholders

By meeting certain requirements of the Code, each Fund
continues to qualify to pay exempt-interest dividends to its
shareholders. Such exempt-interest dividends are derived
from interest income exempt from regular federal income tax
and are not subject to regular federal income tax for each
Fund's shareholders. In addition, to the extent that exempt-
interest dividends are derived from interest on obligations
of the state or its political subdivisions of the state of
residence of the shareholder, from interest on direct
obligations of the federal government, or from interest on
obligations of Puerto Rico, the U.S. Virgin Islands or Guam,
they may be exempt from personal income tax in such state.
More information on the state taxation of interest from
federal and municipal obligations is included in the section
on "State Income Taxes" below and in "Appendix A -
Description of State Tax Treatment."

To the extent dividends are derived from taxable income from
temporary investments (including the discount from certain
stripped obligations or their coupons or income from
securities loans or other taxable transactions) from the
excess of net short-term capital gain over net long-term
capital loss, or from ordinary income derived from the sale
or disposition of bonds purchased with market discount after
April 30, 1993, they are treated as ordinary income whether
the shareholder has elected to receive them in cash or in
additional shares.

From time to time, a Fund may purchase a tax-exempt
obligation with market discount; that is, for a price that
is less than the principal amount of the bond, or for a
price that is less than the principal amount of the bond
where the bond was issued with original issue discount and
such market discount exceeds a de minimis amount. For such
obligations purchased after April 30, 1993, a portion of the
gain on sale or disposition (not to exceed the accrued
portion of market discount as of the time of sale or
disposition) is treated as ordinary income rather than
capital gain. Any distribution by a Fund of such ordinary
income to its shareholders will be subject to regular
federal and state income taxes in the hands of Fund
shareholders. In any fiscal year, a Fund may elect not to
distribute to its shareholders its taxable ordinary income
and to, instead, pay federal income or excise taxes on this
income at the Fund level. The amount of such distributions,
if any, is expected to be small.

Pursuant to the Code, certain distributions which are
declared in October, November or December but which, for
operational reasons, may not be paid to the shareholder
until the following January, will be treated, for tax
purposes, as if paid by a Fund and received by the
shareholder on December 31 of the calendar year in which
they are declared.

Redemptions and exchanges of a Fund's shares are taxable
events on which a shareholder may realize a gain or loss.
Any loss incurred on sale or exchange of such Fund's shares,
held for six months or less, will be treated as a long-term
capital loss to the extent of capital gain dividends
received with respect to such shares and will be disallowed
to the extent of exempt-interest dividends paid with respect
to such shares.

Each Fund will inform its shareholders of the source of
their dividends and distributions at the time they are paid,
and will promptly after the close of each calendar year,
advise them of the tax status for federal income tax
purposes of such dividends and distributions, including the
portion of the dividends on an average basis which
constitutes taxable income or a tax preference item under
the federal alternative minimum tax. Shareholders who have
not held shares of a Fund for a full calendar year may have
designated as tax-exempt or as tax preference income a
percentage of income which is not equal to the actual amount
of tax-exempt or tax preference income earned during the
period of their investment in a Fund.

Exempt-interest dividends of any Fund, although exempt from
regular federal income tax in the hands of a shareholder,
are includable in the tax base for determining the extent to
which a shareholder's social security or railroad retirement
benefits will be subject to regular federal income tax.
Shareholders are required to disclose the receipt of tax-
exempt interest dividends on their federal income tax
returns.

Interest on indebtedness incurred (directly or indirectly)
by shareholders to purchase or carry a Fund's shares may not
be fully deductible for federal income tax purposes.

Shareholders who are not U.S. persons for purposes of
federal income taxation should consult with their financial
or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions received by them
from a Fund and the application of foreign tax laws to these
distributions.

State Income Taxes

Additional information on tax matters relating to a Fund and
its shareholders is included under the caption "Additional
Information Regarding Taxation" in the SAI.

How to Buy Shares of a Fund

Shares of the Funds are continuously offered through
securities dealers which execute an agreement with
Distributors, the principal underwriter of each Fund's
shares. The use of the term "securities dealer" shall
include other financial institutions which, pursuant to an
agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with the
Funds. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity. Sales of
the shares of the Funds may be restricted to residents of
their respective states. The minimum initial investment is
$100 and subsequent investments must be $25 or more. These
minimums may be waived when the shares are purchased through
plans established by the Franklin Templeton Group. The Funds
and Distributors reserve the right to refuse any order for
the purchase of shares.

Alternative Purchase Arrangements. The difference between
Class I and Class II shares lies primarily in their front-
end and contingent deferred sales charges and Rule 12b-1
fees as described below. Currently the Kentucky Fund offers
only Class I shares.

Class I. All shares of each Fund outstanding before the
implementation of the multiclass structure have been
redesignated as Class I shares, and will retain their
previous rights and privileges. Class I shares are generally
subject to a variable sales charge upon purchase and not
subject to any sales charge upon redemption. Class I shares
are subject to Rule 12b-1 fees of up to an annual maximum of
0.10% of average daily net assets of such shares. With this
multiclass structure, Class I shares have higher front-end
sales charges than Class II shares and comparatively lower
Rule 12b-1 fees. Class I shares may be purchased at a
reduced front-end sales charge or at net asset value if
certain conditions are met. In most circumstances,
contingent deferred sales charges will not be assessed
against redemptions of Class I shares. See "Management of
the Funds," and "How to Sell Shares of a Fund" for more
information.

Class II. The current public offering price of Class II
shares is equal to the net asset value, plus a front-end
sales charge of 1% of the amount invested. Class II shares
are also subject to a contingent deferred sales charge of 1%
if shares are redeemed within 18 months of the calendar
month following purchase. In addition, Class II shares are
subject to Rule 12b-1 fees of up to a maximum of 0.65% per
annum of the average daily net assets of such shares. Class
II shares have lower front-end sales charges than Class I
shares and comparatively higher Rule 12b-1 fees. See
"Contingent Deferred Sales Charge" under "How to Sell Shares
of a Fund."

Deciding Which Class To Purchase. Investors should carefully
evaluate their anticipated investment amount and time
horizon prior to determining which class of shares to
purchase. Generally, an investor who expects to invest less
than $100,000 in the Franklin Templeton Funds and who
expects to make substantial redemptions within approximately
six years or less of investment should consider purchasing
Class II shares. However, the higher annual Rule 12b-1 fees
on the Class II shares will result in slightly higher
operating expenses and lower income dividends for Class II
shares, which will accumulate over time to outweigh the
difference in initial sales charges. For this reason, Class
I shares may be more attractive to long-term investors even
if no sales charge reductions are available to them.

Investors who qualify to purchase Class I shares at reduced
sales charges definitely should consider purchasing Class I
shares, especially if they intend to hold their shares
approximately six years or more. Investors who qualify to
purchase Class I shares at reduced sales charges but who
intend to hold their shares less than approximately six
years should evaluate whether it is more economical to
purchase Class I shares through a Letter of Intent or under
Rights of Accumulation or other means, rather than
purchasing Class II shares. Investors investing $1 million
or more in a single payment and other investors who qualify
to purchase Class I shares at net asset value will be
precluded from purchasing Class II shares.

Purchase Price of a Fund's Shares

Shares of both classes of the Funds are offered at their
respective public offering prices, which are determined by
adding the net asset value per share plus a front-end sales
charge, next computed (1) after the shareholder's securities
dealer receives the order which is promptly transmitted to a
Fund to be purchased or (2) after receipt of an order by
mail from the shareholder directly in proper form (which
generally means a completed Shareholder Application
accompanied by a negotiable check).

Class I. The sales charge for Class I shares is a variable
percentage of the offering price depending upon the amount
of the sale. The offering price will be calculated to two
decimal places using standard rounding criteria. A
description of the method of calculating net asset value per
share is included under the caption "Valuation of a Fund's
Shares."

Set forth below is a table of total front-end sales charges
or underwriting commissions and dealer concessions for Class
I shares.

Class I Shares -- Total Sales Charge

Size of As a Percentage As a Percentage Dealer
Transaction at of Offering of Net Amount Concession as a
Offering Price Price Invested Percentage of
Offering
Price*,***
Less than 4.25% 4.44% 4.00%
$100,000
$100,000 but 3.50% 3.63% 3.25%
less than
$250,000
$250,000 but 2.75% 2.83% 2.50%
less than
$500,000
$500,000 but 2.15% 2.20% 2.00%
less than
$1,000,000
$1,000,000 none none (see below)**
or more

*Financial institutions or their affiliated brokers may
receive an agency transaction fee in the percentages set
forth above.

***At the discretion of Distributors, all sales charges may
at times be allowed to the securities dealer. If 90% or more
of the sales commission is allowed, such securities dealer
may be deemed to be an underwriter as that term is defined
in the Securities Act of 1933, as amended.

Other Payments to Securities Dealers. Distributors, or one
of its affiliates, may make payments, out of its own
resources, of up to 1.00% of the amount purchased to
securities dealers who initiate and are responsible for
purchases made at net asset value by certain trust companies
and trust departments of banks. See definitions under
"Description of Special Net Asset Value Purchases" and as
set forth in the SAI.

Class II. Unlike Class I shares, the front-end sales charges
and dealer concessions for Class II shares do not vary
depending on the amount of purchase. See table below:

Class II Shares -- Total Sales Charge

Size of As a As a Dealer
Transaction Percentage of Percentage of Concession As
at Offering Offering Net Amount a Percentage
Price Price Invested of Offering
Price*
any amount 1.00% 1.01% 1.00%
(less than $1
million)

*Distributors, or one of its affiliates, may make additional
payments to securities dealers, from its own resources, of
up to 1% of the amount invested. During the first year
following a purchase of Class II shares, Distributors will
keep a portion of the Rule 12b-1 fees assessed to those
shares to partially recoup fees Distributors pays to
securities dealers.

Class II shares redeemed within 18 months of their purchase
will be assessed a contingent deferred sales charge of 1% on
the lesser of the then-current net asset value or the net
asset value of such shares at the time of purchase, unless
such charge is waived as described under "How to Sell Shares
of a Fund - Contingent Deferred Sales Charge."

Additional terms concerning the offering of a Fund's shares
are included in the SAI.

Certain officers and trustees of the Trust are also
affiliated with Distributors. A detailed description is
included in the SAI.

Quantity Discounts in Sales Charges - Class I Shares Only

In addition, an investment in Class I shares may qualify for
a reduction in the sales charge under the following
programs:

2. Letter of Intent. An investor may immediately qualify for
a reduced sales charge on a purchase of Class I shares by
completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention
to invest during the next 13 months a specified amount
which, if made at one time, would qualify for a reduced
sales charge and grants to Distributors a security interest
in the reserved shares and irrevocably appoints Distributors
as attorney-in-fact with full power of substitution to
surrender for redemption any or all shares for the purpose
of paying any additional sales charge due. Purchases under
the Letter will conform with the requirements of Rule 22d-1
under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a
purchase is made.

An investor acknowledges and agrees to the following
provisions by completing the Letter of Intent section of the
Shareholder Application: Five percent (5%) of the amount
of the total intended purchase will be reserved in Class I
shares registered in the investor's name, to assure that the
full applicable sales charge will be paid if the intended
purchase is not completed. The reserved shares will be
included in the total shares owned as reflected on periodic
statements; income and capital gain distributions on the
reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by
the investor until the Letter of Intent has been completed
or the higher sales charge paid. For more information, see
"Additional Information Regarding Purchases" in the SAI.

Group Purchases of Class I Shares

Purchases at Net Asset Value

For either Class I or Class II, the same class of shares of
a Fund may be purchased at net asset value by persons who
have redeemed, within the previous 120 days, their shares of
a Fund or another of the Franklin Templeton Funds which were
purchased with a front-end sales charge or assessed a
contingent deferred sales charge on redemption. If a
different class of shares is purchased, the full front-end
sales charge must be paid at the time of purchase of the new
shares. An investor may reinvest an amount not exceeding the
redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed
and subsequently repurchased, a new contingency period will
begin. Shares of a Fund redeemed in connection with an
exchange into another fund (see "Exchange Privilege") are
not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of
shares of a Fund must be received by such Fund or the Funds'
Shareholder Services Agent within 120 days after the
redemption. The 120 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a
Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset
value may also be handled by a securities dealer or other
financial institution, who may charge the shareholder a fee
for this service. The redemption is a taxable transaction
but reinvestment without a sales charge may affect the
amount of gain or loss recognized and the tax basis of the
shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in
the same fund is made within a 30-day period. Information
regarding the possible tax consequences of such a
reinvestment is included in the tax section of this
Prospectus and the SAI.

For either Class I or Class II, the same class of shares of
a Fund or of another of the Franklin Templeton Funds may be
purchased at net asset value and without a contingent
deferred sales charge by persons who have received dividends
and capital gains distributions in cash from investments in
that class of shares of a Fund within 120 days of the
payment date of such distribution. To exercise this
privilege, a written request to reinvest the distribution
must accompany the purchase order. Additional information
may be obtained from Shareholder Services at 1-800/632-2301.
See "Distributions in Cash" under "Distributions to
Shareholders."

Class I shares may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by investors who have, within the past 60 days, redeemed an
investment in a mutual fund which is not part of the
Franklin Templeton Funds and which charged the investor a
contingent deferred sales charge upon redemption and which
has investment objectives similar to those of the Funds.

Class I shares may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by broker dealers who have entered into a supplemental
agreement with Distributors, or by registered investment
advisors affiliated with such broker-dealers, on behalf of
their clients who are participating in a comprehensive fee
program (sometimes known as a wrap fee program).

Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by any state, county, or city, or any instrumentality,
department, authority or agency thereof which has determined
that a Fund is a legally permissible investment and which
is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase
of shares of any registered management investment company
("an eligible governmental authority"). SUCH INVESTORS
SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER
AND TO WHAT EXTENT THE SHARES OF A FUND CONSTITUTE A LEGAL
INVESTMENT FOR THEM. Municipal investors considering
investment of proceeds of bond offerings into a Fund should
consult with expert counsel to determine the effect, if any,
of various payments made by such Fund or its investment
manager on arbitrage rebate calculations. If an investment
by an eligible governmental authority at net asset value is
made through a securities dealer who has executed a dealer
agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources,
to such securities dealer in an amount not to exceed 0.25%
of the amount invested. Contact Franklin's Institutional
Sales Department for additional information.

Description of Special Net Asset Value Purchases

Refer to the SAI for further information regarding net asset
value purchases of Class I shares.

Purchasing Class I and Class II Shares

General

Securities laws of states in which each Fund's shares are
offered for sale may differ from the interpretations of
federal law, and banks and financial institutions selling a
Fund's shares may be required to register as dealers
pursuant to state law.

Other Programs and Privileges
Available to a Fund's Shareholders

Certain of the programs and privileges described in this
section may not be available directly from a Fund to
shareholders whose shares are held, of record, by a
financial institution or in a "street name" account or
networked account through the National Securities Clearing
Corporation ("NSCC") (see the section captioned "Account
Registrations" in this Prospectus).

Share Certificates

Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and
capital gain distributions, are generally credited to an
account in the name of an investor on the books of the
Funds, without the issuance of a share certificate.
Maintaining shares in uncertificated form (also known as
"plan balance") minimizes the risk of loss or theft of a
share certificate. A lost, stolen or destroyed certificate
cannot be replaced without obtaining a sufficient indemnity
bond. The cost of such a bond, which is generally borne by
the shareholder, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be
issued if requested in writing by the shareholder or by the
securities dealer.

Confirmations

A confirmation statement will be sent to each shareholder
quarterly to reflect the dividends rein- vested during that
period and after each other transaction which affects the
shareholder's account. This statement will also show the
total number of shares owned by the shareholder, including
the number of shares in "plan balance" for the account of
the shareholder.

Automatic Investment Plan

The market value of each class of a Fund's shares is subject
to fluctuation. Before undertaking any plan for systematic
investment, the investor should keep in mind that such a
program does not assure a profit or protect against a loss.

Systematic Withdrawal Plan

A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided
that the net asset value of the shares held by the
shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal
Plan. The minimum amount which the shareholder may withdraw
is $50 per withdrawal transaction although this is merely
the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. The plan may be
established on a monthly, quarterly, semiannual or annual
basis. If the shareholder establishes a plan, any capital
gain distributions and income dividends paid by a Fund will
be reinvested for the shareholder's account in additional
shares at net asset value. Payments will then be made from
the liquidation of shares at net asset value on the day of
the transaction (which is generally the first business day
of the month in which the payment is scheduled) with payment
generally received by the shareholder three to five days
after the date of liquidation. By completing the "Special
Payment Instructions for Distributions" section of the
Shareholder Application included with this Prospectus, a
shareholder may direct the selected withdrawals to another
of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the
account is maintained is a member of the Automated Clearing
House, the payments may be made automatically by electronic
funds transfer. If this last option is requested, the
shareholder should allow at least 15 days for initial
processing. Payments which may be paid in the interim will
be sent to the address of record. Liquidation of shares may
reduce or possibly exhaust the shares in the shareholder's
account, to the extent withdrawals exceed shares earned
through dividends and distributions, particularly in the
event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the
remaining balance will be sent to the shareholder. As with
other redemptions, a liquidation to make a withdrawal
payment is a sale for federal income tax purposes. Because
the amount withdrawn under the plan may be more than the
shareholder's actual yield or income, part of the payment
may be a return of the shareholder's investment.

With respect to Class I shares, the contingent deferred
sales charge is waived for redemptions through a Systematic
Withdrawal Plan set up prior to February 1, 1995. With
respect to Systematic Withdrawal Plans set up on or after
February 1, 1995, however, the applicable contingent
deferred sales charge is waived for Class I and Class II
share redemptions of up to 1% monthly of an account's net
asset value (12% annually, 6% semi-annually, 3% quarterly).
For example, if a Class I account maintained an annual
balance of $1,000,000, only $120,000 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of
charge; any amount over that $120,000 would be assessed a 1%
(or applicable) contingent deferred sales charge. Likewise,
if a Class II account maintained an annual balance of
$10,000, only $1,200 could be withdrawn through a once-
yearly Systematic Withdrawal Plan free of charge.

A Systematic Withdrawal Plan may be terminated on written
notice by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from
the account, or upon such Fund's receipt of notification of
the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and
schedule of withdrawal payments, or suspend one such payment
by giving written notice to Investor Services at least seven
business days prior to the end of the month preceding a
scheduled payment. Share certificates may not be issued
while a Systematic Withdrawal Plan is in effect.

Institutional Accounts

There may be additional methods of purchasing, redeeming or
exchanging shares of a Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.

Exchange Privilege

Exchanges may be made in any of the following ways:

Exchanges By Mail

Exchanges By Telephone

Shareholders, or their investment representative of record,
if any, may exchange shares of a Fund by telephone by
calling Investor Services at 1-800/632-2301 or the automated
Franklin TeleFACTS system (day or night) at 1-800/247-1753.
If the shareholder does not wish this privilege extended to
a particular account, such Fund or Investor Services should
be notified.

Exchanges Through Securities Dealers

Additional Information Regarding Exchanges

If a substantial portion of a Fund's shareholders should,
within a short period, elect to redeem their shares of a
Fund pursuant to the exchange privilege, such Fund might
have to liquidate portfolio securities it might otherwise
hold and incur the additional costs related to such
transactions. On the other hand, increased use of the
exchange privilege may result in periodic large inflows of
money. If this should occur, it is the general policy of the
Funds to initially invest this money in short-term, tax-
exempt municipal securities unless it is felt that
attractive investment opportunities consistent with the
Funds' investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-
term, tax-exempt municipal securities and invested in
portfolio securities in as orderly a manner as is possible
when attractive investment opportunities arise.

The Exchange Privilege may be modified or discontinued by a
Fund at any time upon 60 days' written notice to
shareholders.

Exchanges of Class I Shares

Exchanges of Class II Shares

Transfers

Conversion Rights

Timing Accounts

"Timing Accounts" are not permitted to purchase shares of
the Funds or to exchange into the Funds. This policy does
not affect any other types of investor. "Timing Accounts"
generally include market timing or allocation services;
accounts administered so as to redeem or purchase shares
based upon certain predetermined market indicators; or any
person whose transactions seem to follow a timing pattern.

How to Sell Shares of a Fund

A shareholder may at any time liquidate shares owned and
receive from such Fund the value of the shares. Shares may
be redeemed in any of the following ways:

Redemptions by Mail

Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of
this Prospectus, and any share certificates which have been
issued for the shares being redeemed, properly endorsed and
in order for transfer. The shareholder will then receive
from such Fund the value of the class of shares redeemed
based upon the net asset value per share (less a contingent
deferred sales charge, if applicable) next computed after
the written request in proper form is received by Investor
Services. Redemption requests received after the time at
which the net asset value is calculated (at the close of the
New York Stock Exchange ["Exchange"], which is generally
1:00 p.m. Pacific time) each day that the Exchange is open
for business will receive the price calculated on the
following business day. Shareholders are requested to
provide a telephone number(s) where they may be reached
during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly
when necessary will speed the processing of the redemption.

To be considered in proper form, signature(s) must be
guaranteed if the redemption request involves any of the
following:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone
other than the registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to any
address other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;

(4) share certificates, if the redemption proceeds are in
excess of $50,000; or

(5) a Fund or Investor Services believe that a signature
guarantee would protect against potential claims based on
the transfer instructions, including, for example, when (a)
the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to a Fund, (c) a
Fund has been notified of an adverse claim, (d) the
instructions received by a Fund are given by an agent, not
the actual registered owner, (e) a Fund determines that
joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the
authority of a representative of a corporation, partnership,
association, or other entity has not been established to the
satisfaction of a Fund.

Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court
jurisdiction require the following documentation to be in
proper form:

Corporation - (1) Signature guaranteed letter of instruction
from the authorized officer(s) of the corporation and (2) a
corporate resolution.

Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.

Accounts under court jurisdiction - Check court documents
and the applicable state law since these accounts have
varying requirements, depending upon the state of residence.

Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper
form.

Redemptions by Telephone

Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"),
included with this Prospectus, may redeem shares of a Fund
by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts."
Information may also be obtained by writing to the Funds or
Investor Services at the address shown on the cover or by
calling 1-800/632-2301. The Funds and Investor Services will
employ reasonable procedures to confirm that instructions
given by telephone are genuine. Shareholders, however, bear
the risk of loss in certain cases as described under
"Telephone Transactions - Verification Procedures."

For shareholder accounts with the completed Agreement on
file, redemptions of uncertificated shares or shares which
have previously been deposited with a Fund or Investor
Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the
close of the Exchange (generally 1:00 p.m. Pacific time) on
any business day will be processed that same day. The
redemption check will be sent within seven days, made
payable to all the registered owners on the account, and
will be sent only to the address of record. Redemption
requests by telephone will not be accepted within 30 days
following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures
set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, government
entities, and qualified retirement plans which qualify to
purchase shares at net asset value pursuant to the terms of
this Prospectus) which wish to execute redemptions in excess
of $50,000 must complete an Institutional Telephone
Privileges Agreement which is available from Franklin's
Institutional Services Department by telephoning 1-800/321-
8563.

Redeeming Shares Through Securities Dealers

The Funds will accept redemption orders from securities
dealers who have entered into an agreement with
Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is
that if the shareholder redeems shares through a dealer, the
redemption price will be the net asset value next calculated
after the shareholder's dealer receives the order which is
promptly transmitted to a Fund, rather than on the day a
Fund receives the shareholder's written request in proper
form. These documents, as described in the preceding
section, are required even if the shareholder's securities
dealer has placed the repurchase order. After receipt of a
repurchase order from the dealer, a Fund will still require
a signed letter of instruction and all other documents set
forth above. A shareholder's letter should reference a Fund
and the class, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name.
Details of the dealer-ordered trade, such as trade date,
confirmation number, and the amount of shares or dollars,
will help speed processing of the redemption. The seven-day
period within which the proceeds of the shareholder's
redemption will be sent will begin when a Fund receives all
documents required to complete ("settle") the repurchase in
proper form. The redemption proceeds will not earn dividends
or interest during the time between receipt of the dealer's
repurchase order and the date the redemption is processed
upon receipt of all documents necessary to settle the
repurchase. Thus, it is in a shareholder's best interest to
have the required documentation completed and forwarded to a
Fund as soon as possible. The shareholder's dealer may
charge a fee for handling the order. The SAI contains more
information on the redemption of shares.

Contingent Deferred Sales Charge

Class I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of
the calendar month following their purchase. The charge is
1% of the lesser of the net asset value of the shares
redeemed (exclusive of reinvested dividends and capital gain
distributions) or the total cost of such shares at the time
of purchase, and is retained by Distributors. The contingent
deferred sales charge is waived in certain instances. See
"Purchases at Net Asset Value" under "How to Buy Shares of a
Fund."

Class II. Class II shares redeemed within the contingency
period of 18 months of the calendar month following their
purchase will be assessed a contingent deferred sales
charge, unless one of the exceptions described below
applies. The charge is 1% of the lesser of the value of the
shares redeemed (exclusive of reinvested dividends and
capital gain distributions) or the net asset value at the
time of purchase of such shares, and is retained by
Distributors. The contingent deferred sales charge is waived
in certain instances. See below.

Class I and Class II. In determining if a contingent
deferred sales charge applies, shares not subject to a
contingent deferred sales charge are deemed to be redeemed
first, in the following order: (i) Shares representing
amounts attributable to capital appreciation of those shares
held less than the contingency period (12 months in the case
of Class I shares and 18 months in the case of Class II
shares); (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held
longer than the contingency period; and followed by any
shares held less than the contingency period, on a "first
in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of
the shares redeemed.

The contingent deferred sales charge on each class of shares
is waived, as applicable, for: exchanges; any account fees;
redemptions through a Systematic Withdrawal Plan set up for
shares prior to February 1, 1995, and for Systematic
Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6%
semiannually or 12% annually); and redemptions initiated by
a Fund due to a shareholder's account falling below the
minimum specified account size; and redemptions following
the death of the shareholder or the beneficial owner.

All investments made during a calendar month, regardless of
when during the month the investment occurred, will age one
month on the last day of that month and each subsequent
month.

Requests for redemptions for a specified dollar amount, will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests
for redemption of a specific number of shares will result in
the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.

Additional Information Regarding Redemptions

A Fund may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these
checks will also be held pending clearance. Shares purchased
by federal funds wire are available for immediate
redemption. In addition, the right of redemption may be
suspended or the date of payment postponed if the Exchange
is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it,
by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount invested
by the shareholder, depending on fluctuations in the market
value of securities owned by a Fund.

Other

For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services
Department or the securities dealer may call Franklin's
Dealer Services Department.

Telephone Transactions

Shareholders of a Fund and their investment representative
of record, if any, may be able to execute various
transactions by calling Investor Services at 1-800/632-2301.

All shareholders will be able to: (i) effect a change in
address, (ii) change a dividend option, (iii) transfer
shares of a Fund in one account to another identically
registered account in that Fund, and (iv) exchange shares of
a Fund as described in this Prospectus by telephone. In
addition, shareholders who complete and file an Agreement as
described under "How to Sell Shares of a Fund - Redemptions
by Telephone" will be able to redeem shares of a Fund.

Verification Procedures

The Funds and Investor Services will employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine. These will include: recording all
telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or
account information requested by the telephone service agent
at the time of the call for the purpose of establishing the
caller's identification, and by sending a confirmation
statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as a
Fund and Investor Services follow instructions communicated
by telephone which were reasonably believed to be genuine at
the time of their receipt, neither they nor their affiliates
will be liable for any loss to the shareholder caused by an
unauthorized transaction. A Fund and Investor Services may
be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation
to apply for or accept telephone transaction privileges. In
any instance where a Fund or Investor Services is not
reasonably satisfied that instructions received by telephone
are genuine, the requested transaction will not be executed,
and neither the Fund nor Investor Services will be liable
for any losses which may occur because of a delay in
implementing a transaction.

General

Neither the Funds nor Investor Services will be liable for
any losses resulting from the inability of a shareholder to
execute a telephone transaction.

The telephone transaction privilege may be modified or
discontinued by a Fund at any time upon 60 days' written
notice to shareholders.

Valuation of a Fund's Shares

The net asset value per share of each class of a Fund is
determined separately as of the close of the Exchange
(generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily
quotations of the prior trading day's closing "bid" (net
asset value) and "ask" (offering price, which includes the
maximum sales charge of each class of shares of a Fund).

The net asset value per share for each class of a Fund is
determined in the following manner: The aggregate of all
liabilities is deducted from the aggregate gross value of
all assets, and the difference is divided by the number of
shares of the respective class of a Fund outstanding at the
time. For the purpose of determining the aggregate net
assets of each class of a Fund, cash and receivables are
valued at their realizable amounts. Interest is recorded as
accrued. Portfolio securities for which market quotations
are readily available are valued within the range of the
most recent bid and ask prices as obtained from one or more
dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the
broadest and most representative market as determined by the
Manager. Municipal securities generally trade in the over-
the-counter market rather than on a securities exchange.
Other securities for which market quotations are readily
available are valued at the current market price, which may
be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading
in similar types of securities (considering yield, risk and
maturity) and/or developments related to specific issues.
Securities and other assets for which market prices are not
readily available are valued at fair value as determined
following procedures approved by the Board of Trustees. With
the approval of trustees, a Fund may utilize a pricing
service, bank or securities dealer to perform any of the
above described functions.

Each of the Fund's classes will bear, pro-rata, all of the
common expenses of that Fund. The net asset value of all
outstanding shares of each class of such Fund will be
computed on a pro-rata basis for each outstanding share
based on the proportionate participation in the Fund
represented by the value of shares of such classes, except
that the Class I and Class II shares will bear the Rule 12b-
1 expenses payable under their respective plans. Due to the
specific distribution expenses and other costs that will be
allocable to each class, the dividends paid to each class of
a Fund may vary.

How to Get Information
Regarding an Investment in a Fund

Any questions or communications regarding a shareholder's
account should be directed to Investor Services at the
address shown on the back cover of this Prospectus.

From a touch-tone phone, Franklin and Templeton shareholders
may access an automated system (day or night) which offers
the following features.

By calling the Franklin TeleFACTS system, Class I
shareholders may obtain current price, yield or other
performance information specific to a Franklin fund; process
an exchange into an identically registered Franklin account;
obtain account information and request duplicate
confirmation or year-end statements, money fund checks, if
applicable, and deposit slips.

Share prices and account information specific to Templeton
Class I or II shares and Franklin Class II shares may also
be accessed on TeleFACTS by Franklin Class I and Class II
shareholders.

The TeleFACTS system is accessible by calling 1-800/247-
1753. The Star Service is accessible by calling 1-800/654-
0123. Franklin Class I and Class II share codes for the
Funds, which will be needed to access system information
are:

FUND CODE FUND NAME
164 ALABAMA FUND, CLASS I
264 ALABAMA FUND, CLASS II
165 FLORIDA FUND, CLASS I
265 FLORIDA FUND, CLASS II
128 GEORGIA FUND, CLASS I
228 GEORGIA FUND, CLASS II
172 KENTUCKY FUND, CLASS I
168 LOUISIANA FUND, CLASS I
268 LOUISIANA FUND, CLASS II
160 MISSOURI FUND, CLASS I
260 MISSOURI FUND, CLASS II
170 NORTH CAROLINA FUND, CLASS I
270 NORTH CAROLINA FUND, CLASS II
162 TEXAS FUND, CLASS I
262 TEXAS FUND, CLASS II
163 VIRGINIA FUND, CLASS I
263 VIRGINIA FUND, CLASS II

The systems' automated operator will prompt the caller with
easy to follow step-by-step instructions from the main menu.
Other features may be added in the future.

Hours of
Department Name Telephone No. Operation(Pacific Time)
(Monday through Friday)
Shareholder 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Services
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing 1-800/851-0637 6:00 a.m. to 5:00 p.m.
impaired)

In order to ensure that the highest quality of service is
being provided, telephone calls placed to or by
representatives in all of Franklin's service departments may
be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.

Performance

Advertisements, sales literature and communications to
shareholders may contain various measures of a class'
performance, including current yield, tax equivalent yield,
various expressions of total return, current distribution
rate and taxable equivalent distribution rate. They may
occasionally cite statistics to reflect its volatility or
risk.

Average annual total return figures as prescribed by the SEC
represent the average annual percentage change in value of
$1,000 invested at the maximum public offering price
(offering price includes sales charge) for one-, five-, and
ten-year periods, or portion thereof, to the extent
applicable, through the end of the most recent calendar
quarter, assuming reinvestment of all distributions. Each
Fund may also furnish total return quotations for each class
for other periods or based on investments at various sales
charge levels or at net asset value. For such purposes,
total return equals the total of all income and capital gain
paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the
purchase price.

Current yield for each class reflects the income per share
earned by a fund's portfolio investments; it is calculated
for each class by dividing that class' net investment income
per share during a recent 30-day period by the maximum
public offering price for that class of shares on the last
day of that period and annualizing the result. Tax
equivalent yield demonstrates the yield from a taxable
investment necessary to produce an after-tax yield
equivalent to that of a fund which invests in tax-exempt
obligations. It is computed for each class by dividing that
class' tax-exempt portion of a fund's yield (calculated as
indicated) by one minus a stated income tax rate and adding
the product to the taxable portion (if any) of a fund's
yield.

Yield and tax equivalent yield for each class, which are
calculated according to a formula prescribed by the SEC (see
the SAI) are not indicative of the dividends or
distributions which were or will be paid to a Fund's
shareholders. Dividends or distributions paid to
shareholders of a class are reflected in the current
distribution rate or taxable equivalent distribution rate,
which may be quoted to shareholders. The current
distribution rate is computed by dividing the total amount
of dividends per share paid by a class during the past 12
months by a current maximum offering price for that class of
shares. A taxable equivalent distribution rate demonstrates
the taxable distribution rate necessary to produce an after
tax distribution rate equivalent to a Fund's distribution
rate (calculated as indicated above). Under certain
circumstances, such as when there has been a change in the
amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize
the dividends paid during the period such policies were in
effect, rather than using the dividends during the past 12
months. The current distribution rate differs from the
current yield computation because it may include
distributions to shareholders from sources other than
dividends and interest, such as short-term capital gain, and
is calculated over a different period of time.

In each case, performance figures are based upon past
performance, reflect all recurring charges against a class'
income and will assume the payment of the maximum sales
charge on the purchase of that class of shares. When there
has been a change in the sales charge structure, the
historical performance figures will be restated to reflect
the new rate. The investment results of each class, like all
other investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent
what an investment may earn in the future or what a class'
yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any
future period.

General Information

Reports to Shareholders

The Trust's fiscal year ends February 28. Annual Reports
containing audited financial statements of the Trust,
including the auditors' report, and Semi-Annual Reports
containing unaudited financial statements are automatically
sent to shareholders. Copies may be obtained, without
charge, upon request to the Trust at the telephone number or
address set forth on the cover page of this Prospectus.

Additional information on Fund performance is included in
the Trust's Annual Report to Shareholders and the SAI.

Organization

The Trust was organized as a Massachusetts business trust on
September 18, 1984. The Agreement and Declaration of Trust
permits the trustees to issue an unlimited number of full
and fractional shares of beneficial interest without par
value, which may be issued in any number of series and
classes. Shares issued will be fully paid and non-assessable
and will have no preemptive, conversion, or sinking rights.
Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and
the net assets of such series upon liquidation or
dissolution. Additional series may be added in the future by
the Board of Trustees.

Following is a list of the 27 series currently authorized by
the Board of Trustees:

Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Florida Insured 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

Voting Rights

Shares of each series have equal rights as to voting and
vote separately as to issues affecting that series, or the
Trust, unless otherwise permitted by the 1940 Act. Voting
rights are noncumulative, so that in any election of
trustees, the holders of more than 50% of the shares voting
can elect all of the trustees, if they choose to do so, and
in such event the holders of the remaining shares voting
will not be able to elect any person or persons to the Board
of Trustees. The Trust does not intend to hold annual
shareholders meetings. The Trust may, however, hold a
special shareholders meeting of a series for such purposes
as changing fundamental investment restrictions for the
series, approving a new management agreement or any other
matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by the
trustees in their discretion or by shareholders holding at
least ten percent of the outstanding shares of the Trust.
Shareholders will receive assistance in communicating with
other shareholders in connection with the election or
removal of trustees such as that provided in Section 16(c)
of the 1940 Act.

Shares of each class of a Fund represent proportionate
interests in the assets of such Fund and have the same
voting and other rights and preferences as the other classes
and series of the Trust for matters that affect the Trust as
a whole. For matters that only affect a certain class of a
Fund's shares, however, only shareholders of that class will
be entitled to vote. Therefore each class of shares of a
Fund will vote separately on matters (1) affecting only that
class of such Fund, (2) expressly required to be voted on
separately by state corporation law, or (3) required to be
voted on separately by the 1940 Act, or the rules adopted
thereunder. For instance, if a change to the Rule 12b-1 plan
relating to Class I shares of a Fund requires shareholder
approval, only shareholders of Class I of that Fund may vote
on the change to the Rule 12b-1 plan affecting that class.
Similarly, if a change to the Rule 12b-1 plan relating to
Class II shares requires approval, only shareholders of
Class II of such Fund may vote on changes to such plan. On
the other hand, if there is a proposed change to the
investment objective of a Fund, this affects all
shareholders of that Fund, regardless of which class of
shares they hold and, therefore, each share has the same
voting rights.

Redemptions by a Fund

Other Information

"Cash" payments to or from a Fund may be made by check,
draft or wire. The Funds have no facility to receive, or pay
out, cash in the form of currency.

Account Registrations

Shares, whether in certificate form or not, registered as
joint tenants or "Jt Ten" shall mean as "joint tenants with
rights of survivorship" and not as "tenants in common."

Except as indicated, a shareholder may transfer an account
in a Fund carried in "street" or "nominee" name by the
shareholder's securities dealer to a comparably registered
Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have
executed dealer agreements on file with Distributors. Unless
a dealer agreement has been executed and is on file with
Distributors, a Fund will not process the transfer and will
so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the
securities dealer to transfer the account to a receiving
securities dealer and sign any documents required by the
securities dealer to evidence consent to the transfer. Under
current procedures the account transfer may be processed by
the delivering securities dealer and a Fund after such Fund
receives authorization in proper form from the shareholder's
delivering securities dealer. In the future it may be
possible to effect such transfers electronically through the
services of the NSCC.

Each Fund may conclusively accept instructions from an owner
or the owner's nominee listed in publicly available nominee
lists, regardless of whether the account was initially
registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of
record on an investor's account, the investor will be deemed
to have authorized the use of electronic instructions on the
account, including, without limitation, those initiated
through the services of the NSCC, to have adopted as
instruction and signature any such electronic instructions
received by a Fund and the Shareholder Services Agent, and
to have authorized them to execute the instructions without
further inquiry. At the present time, such services which
are available include the NSCC's "Networking," "Fund/SERV,"
and "ACATS" systems.

Any questions regarding an intended registration should be
answered by the securities dealer handling the investment or
by calling Franklin's Fund Information Department.

Important Notice Regarding
Taxpayer IRS Certifications

Pursuant to the Code and U.S. Treasury regulations, a Fund
may be required to report to the IRS any taxable dividend,
capital gain distribution or other reportable payment
(including share redemption proceeds) and withhold 31% of
any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer
identification number ("TIN") and made certain required
certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the
IRS or a securities dealer notifies a Fund that the number
furnished by the shareholder is incorrect or that the
shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.

Each Fund reserves the right to (1) refuse to open an
account for any person failing to provide a TIN along with
the required certifications and (2) close an account by
redeeming its shares in full at the then-current net asset
value upon receipt of notice from the IRS that the TIN
certified as correct by the shareholder is in fact incorrect
or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide a Fund with a
certified TIN within 60 days after opening the account.

Portfolio Operations

The following persons are primarily responsible for the day-
to-day management of the Funds' portfolios.

Thomas Kenny
Senior Vice President

Mr. Kenny is responsible for portfolio recommendations and
decisions of all 27 Funds of the Tax-Free Trust since
August, 1994. He is Senior Vice President of the investment
manager and is director of Franklin's municipal bond
department. He joined Franklin in 1986. He received a
Bachelor of Arts degree in Business and Economics from the
University of California at Santa Barbara and a Master of
Science degree in Finance from Golden Gate University. He
is a member of several municipal securities industry related
committees and associations.

John Pomeroy
Portfolio Manager

Mr. Pomeroy has been responsible for portfolio
recommendations and decisions for the Alabama Fund, Florida
Fund, Georgia Fund, Maryland Fund, and North Carolina Fund
since their inception. He joined Advisers in 1986. He
received a Bachelor of Arts degree in Business
Administration from San Francisco State University in 1986
and is a member of industry related committees and
associations.

Stella Wong
Portfolio Manager

Ms. Wong has been responsible for portfolio recommendations
and decisions for the Alabama Fund, Georgia Fund, Louisiana
Fund, Maryland Fund, North Carolina Fund, Texas Fund and
Virginia Fund since their inception. She holds a Bachelor of
Science degree in Business Administration from San Francisco
State University and a Master's degree in Financial Planning
from Golden Gate University, and is a member of several
industry related committees and associations. She joined
Advisers in 1986.

Andrew Jennings, Sr.
Vice President and Senior Portfolio Manager

Mr. Jennings has been responsible for portfolio
recommendations and decisions of the Louisiana Fund since
joining Advisers in 1990. He attended Villanova University
in Philadelphia, has been in the securities industry for
over 33 years and is a member of several municipal
securities industry related committees and associations.
From 1985 to 1990 Mr. Jennings was First Vice President and
Manager of the Municipal Institutional Bond Department at
Dean Witter Reynolds, Inc.

Don Duerson
Vice President and Senior Portfolio Manager

Mr. Duerson has been responsible for portfolio
recommendations and decisions of the Missouri Fund, Texas
Fund and Virginia Fund since their inception. He joined
Advisers in 1986. He has a Bachelor of Science degree in
Business and Public Administration from the University of
Arizona, has experience in the securities industry dating
back to 1977 and is a member of industry related committees
and associations.

Sheila Amoroso
Portfolio Manager

Ms. Amoroso has been responsible for portfolio
recommendations and decisions of the Florida Fund, Kentucky
Fund, and Missouri Fund since their inception. She joined
Franklin in 1986. She holds a bachelor of science degree
from San Francisco State University and is a member of
municipal securities industry related committees and
associations.

Bernie Schroer
Vice President and Senior Portfolio Manager

Mr. Schroer has been responsible for portfolio
recommendations and decisions of the Kentucky Fund since its
inception. He joined Advisers in 1987. From 1974 to 1984, he
was the manager of trading at Kidder Peabody. He has a
degree in Finance from Santa Clara University and is
currently a member of municipal securities industry related
committees and associations.

Appendix A
Description of State Tax Treatment

The following information on the state income tax treatment
of dividends from the Funds is based upon correspondence and
sources believed to be reliable. Except where otherwise
noted, the information pertains to individual state income
taxation only. Investors may be subject to local taxes on
dividends or the value of their shares. Corporations,
trusts, estates and other entities may be subject to other
taxes and should consult with their tax advisors or their
state department of revenue. For some investors, a portion
of the dividend income may be subject to the federal and/or
state alternative minimum tax.

Alabama

Section 40-18-14(2)f of the Alabama Code provides that
interest on obligations of the state of Alabama and any
county, municipality or other political subdivision thereof
is exempt from personal income tax. Section 40-18-14(2)d
provides similar tax-exempt treatment for interest on exempt
obligations of the U.S. government or its possessions
(including Puerto Rico, Guam and the Virgin Islands). In
addition, Regulation Section 810-3-14-.02(4)(b)2 and an
administrative ruling of the Alabama Department of Revenue,
dated March 1, 1990, extend the exemption for obligations of
the U.S. government or its possessions to distributions from
a regulated investment company, such as the Alabama Fund, to
the extent that they are paid out of interest earned on such
exempt obligations. The March 1, 1990 ruling also indicates
that the exemption would apply to Alabama municipal
obligations. Tax-exempt treatment is generally not available
for distributions attributable to income earned on indirect
U.S. government obligations (GNMAs, FNMAs, etc.), for
repurchase agreements collateralized by U.S. government
obligations, or for obligations of other states and their
political subdivisions. To the extent such investments are
made by a Fund, such as for temporary or defensive purposes,
such distributions will generally be taxable on a pro rata
basis.

Any distributions of net short-term and net long-term
capital gains earned by the Fund are fully includable in
each individual shareholder's Alabama taxable income and are
currently taxed at ordinary income tax rates.

Florida

Florida does not have a personal income tax but does have an
intangible personal property tax for residents. According to
Florida Statute Section 199.185 and Technical Assistance
Advisement No. 90(C)2-003, issued by the Florida Department
of Revenue on August 8, 1990 (as subsequently revised),
shares in regulated investment companies organized as
business trusts, such as the Florida Fund, will not be
subject to Florida's intangible property tax to the extent
that the Fund is invested in obligations of the U.S.
government, its agencies, instrumentalities and territories
(including Puerto Rico, Guam and the Virgin Islands) at the
close of business on the last business day of the calendar
year. If the Fund invests all of the remaining portion of
its net asset value in exempt obligations of the state of
Florida or its municipalities or political subdivisions on
such date, then that remaining portion of the net asset
value of the Fund (and corresponding value of Fund shares)
will also be exempt from Florida's intangibles tax. If the
Fund invests, such as for temporary or defensive purposes,
any of the remaining portion of its portfolio in any asset
which is taxable under Florida's intangible tax law,
including investments in indirect federal obligations
(GNMAs, FNMAs, etc.), in repurchase agreements
collateralized by U.S. government securities or in any
obligations of other states, then that remaining portion of
the net asset value of the Fund (and the corresponding
value of Fund shares) will be taxable under Florida's
intangible property tax.

Georgia

Under Section 48-7-27(b)(1)(A) of the Georgia Code, interest
on obligations of the state of Georgia and its political
subdivisions, which is not otherwise included in federal
adjusted gross income, is exempt from the state's individual
income tax. Likewise, under Section 48-7-27(b)(2) interest
on exempt obligations of the U.S. government, its
territories and possessions (including Puerto Rico, Guam and
the Virgin Islands), or of any authority, commission, or
instrumentality of the U.S. government is also exempt from
the state's individual income tax. Since distributions from
the Georgia Fund attributable to interest on obligations of
the state of Georgia and its political subdivisions is
excluded from federal adjusted gross income, they will
likewise be excluded from the Georgia individual income tax.

Under the administrative authority of the Georgia Department
of Revenue, the exempt treatment for interest derived from
such exempt obligations is also extended to distributions of
regulated investment companies, such as the Georgia Fund.
Tax-exempt treatment is generally not available for
distributions attributable to income earned on indirect U.S.
government obligations (GNMAs, FNMAs, etc.), for repurchase
agreements collateralized by U.S. government obligations, or
for obligations of other states and their political
subdivisions. To the extent such investments are made by a
Fund, such as for temporary or defensive purposes, such
distributions will generally be taxable on a pro rata basis.

The state of Georgia also imposes an intangible property tax
on the fair market value of intangible assets owned by
residents on January 1 of each year. The Georgia Department
of Revenue has recently announced that it will provide an
exemption from intangible property taxation to mutual fund
shareholders to the extent that the portfolio of the fund
consists of U.S. government obligations, where such fund is
formed as business trust. At this time, the Georgia
Department of Revenue has not issued any guidance on whether
it will provide an exemption for obligations issued by the
state of Georgia or any of its political subdivisions.
Therefore under current law, shares of a mutual fund
investing in obligations issued by the state of Georgia or
any of its political subdivisions, such as the Georgia Fund,
appear to be remain subject to intangibles taxation.

Any distributions of net short-term and net long-term
capital gains earned by the Fund are fully included in each
individual shareholder's Georgia taxable income as dividend
income and long-term capital gain, respectively, and are
currently taxed at ordinary income tax rates.

Kentucky

Pursuant to Kentucky Revised Statute 141.010(10)(a) and
(12)(a), interest earned on exempt obligations of the U.S.
government, its agencies and instrumentalities, or its
territories (including Puerto Rico, Guam and the Virgin
Islands) and obligations issued by the Commonwealth of
Kentucky or its political subdivisions will be exempt from
Kentucky's personal income tax. Under Kentucky Income Tax
Revenue Policy 42P161 (as revised December 1, 1990)
dividends from regulated investment companies, such as the
Kentucky Fund, which are derived from such exempt
obligations, will also be exempt from state income tax. Tax-
exempt treatment is generally not available for
distributions attributable to income earned on indirect U.S.
government obligations (GNMAs, FNMAs, etc.), for repurchase
agreements collateralized by U.S. government obligations, or
for obligations of other states and their political
subdivisions. To the extent such investments are made by a
Fund, such as for temporary or defensive purposes, such
distributions will generally be taxable on a pro rata basis.

Kentucky Revenue Circular 40C003 states that Section 170 of
the Kentucky Constitution exempts from intangible property
taxation obligations of Kentucky, and its counties,
municipalities, and taxing and school districts. The Revenue
Circular further states that though neither the Kentucky
Constitution nor the Kentucky Revised Statutes contain
specific language to exempt federal obligations from the
intangible property tax, the courts of Kentucky have
recognized the power of the U.S. Congress to declare that
obligations of federal instrumentalities are exempt from
state taxation. According to a Kentucky Revenue Cabinet Tax
Alert dated July 1988, shares of a regulated investment
company, such as the Kentucky Fund, will not be subject to
the intangibles tax to the extent that the value of the
shares is attributable to such exempt obligations.

Any distributions of net short-term and net long-term
capital gains earned by the Fund are includable in each
shareholder's Kentucky adjusted gross income and are taxed
at ordinary income tax rates. Kentucky Revenue Circular
40C003 also states that gain on the sale of some U.S.
government and Kentucky obligations may be exempt from state
income tax, but the availability of the exemption depends
upon the specific legislation authorizing the bonds.

Louisiana

Under Section 293 of Louisiana's individual income tax law,
interest earned on obligations of the state of Louisiana or
its political subdivisions is exempt from individual and
corporate income tax. Under Section 293, interest earned on
qualifying obligations of the U.S. government or its
agencies and possessions (including Puerto Rico, Guam and
the Virgin Islands) is also exempt from individual and
corporate income tax. Under Section 293, distributions from
a regulated investment company, such as the Louisiana Fund,
will also be exempt from individual and corporate income tax
to the extent that they are derived from interest earned on
such exempt obligations. Tax-exempt treatment is generally
not available for distributions attributable to income
earned on indirect U.S. government obligations (GNMAs,
FNMAs, etc.), for repurchase agreements collateralized by
U.S. government obligations, or for obligations of other
states and their political subdivisions. To the extent such
investments are made by a Fund, such as for temporary or
defensive purposes, such distributions will generally be
taxable on a pro rata basis.

Any distributions of net short-term and net long-term
capital gains earned by the Fund are included in each
shareholder's Louisiana taxable income and are currently
taxed at ordinary income tax rates.

Maryland

Since distributions from the Maryland Fund attributable to
interest on obligations of the state of Maryland and its
political subdivisions is excluded from federal taxable
income, they will likewise be exempt from Maryland's
personal income tax. Under Section 10-207 of the Tax General
Article, interest on exempt obligations of the U.S.
government and any authority, commission, instrumentality,
possession or territory of the U.S. (including Puerto Rico,
Guam and the Virgin Islands) is also exempt from Maryland's
personal income tax. Under Section 10-207(c-1) and
Administrative Release No. 11, this exemption is extended to
distributions from a regulated investment company, such as
the Maryland Fund, to the extent such distributions are paid
out of interest earned on exempt obligations of the U.S.
government or its agencies and possessions (including Puerto
Rico, Guam and the U.S. Virgin Islands). Tax-exempt
treatment is generally not available for distributions
attributable to income earned on indirect U.S. government
obligations (GNMAs, FNMAs, etc.), for repurchase agreements
collateralized by U.S. government obligations, or for
obligations of other states and their political
subdivisions. To the extent such investments are made by a
Fund, such as for temporary or defensive purposes, such
distributions will generally be taxable on a pro rata basis.

Any distributions of capital gains by the Fund derived from
gain realized from the sale or exchange of obligations
issued by the state of Maryland or its subdivisions may also
be tax-exempt to the Fund's shareholders. Distributions of
all net short-term capital gain and net long-term capital
gain earned by the Fund on non-Maryland obligations are
includable in each shareholder's Maryland adjusted gross
income and are taxed at ordinary income tax rates.

Missouri

Under Section 143.121 of the Revised Statutes of Missouri,
interest earned on exempt obligations of the U.S.
government, its authorities, commissions, instrumentalities,
possessions or territories (including Puerto Rico, Guam and
the Virgin Islands), or the State of Missouri, its political
subdivisions or authorities are exempt from Missouri
personal income tax. Under Missouri's income tax regulations
(Title 12, Section 10-2.155), a regulated investment
company, such as the Missouri Fund, may pass the tax-exempt
character of such interest through to its shareholders. Tax-
exempt treatment is generally not available for
distributions attributable to income earned on indirect U.S.
government obligations (GNMAs, FNMAs, etc.), for repurchase
agreements collateralized by U.S. government obligations, or
for obligations of other states and their political
subdivisions. To the extent such investments are made by a
Fund, such as for temporary or defensive purposes, such
distributions will generally be taxable on a pro rata basis.

Any distributions of net short-term and net long-term
capital gains earned by the Fund are included in each
shareholder's Missouri taxable income and are currently
taxed at ordinary income tax rates.

North Carolina

Section 105-134.6(b) of the North Carolina General Statutes
provides that interest on obligations of the U.S.
government, its possessions, or its territories (including
Puerto Rico, Guam and the Virgin Islands) and obligations of
the state of North Carolina or its political subdivisions
are exempt from state income tax. Pursuant to a North
Carolina Department of Revenue Information Release dated
October 4, 1990, dividends received from a regulated
investment company, such as the North Carolina Fund, are
exempt from personal income tax to the extent that the
distributions are derived from interest on such exempt
obligations. Tax-exempt treatment is generally not available
for distributions attributable to income earned on indirect
U.S. government obligations (GNMAs, FNMAs, etc.), for
repurchase agreements collateralized by U.S. government
obligations, or for obligations of other states and their
political subdivisions. To the extent such investments are
made by a Fund, such as for temporary or defensive purposes,
such distributions will generally be taxable on a pro rata
basis.

Pursuant to an administrative Revenue Memorandum,
distributions attributable to net realized long-term capital
gains earned by the Fund on the sale or exchange of certain
obligations of the state of North Carolina or its political
subdivisions may also be tax-exempt to the Fund's
shareholders. Distributions of all net short-term capital
gain and of net long-term capital gain earned by the Fund on
other North Carolina obligations and on non-North Carolina
obligations are includable in each shareholder's North
Carolina taxable income and are currently taxed at ordinary
income rates.

Under Section 105-203 of the North Carolina General
Statutes, units of ownership in the North Carolina Fund will
not be subject to the intangibles personal property tax as
long as the Fund, on December 31 of each year, is composed
entirely of obligations of the U.S. government and North
Carolina or its political subdivisions, or provided that at
least 80% of the fair market value of the assets of the Fund
were invested in obligations of North Carolina or its
political subdivisions. For all years in which this
requirement is met, the Fund will file with the state of
North Carolina a certification in order for shareholders to
qualify for this exemption.

Under Section 17.08.0605 of the North Carolina
Administrative Code, in any case in which a fund does not
meet the above requirement that its investments consist
entirely of U.S. government or North Carolina obligations,
for intangibles property tax purposes, the state will allow
shareholders to reduce the value of their investment in such
fund in direct proportion to the percentage of the fund's
investment in exempt U.S. government or North Carolina
obligations.

Texas

Texas does not presently impose any income tax on
individuals, trusts, or estates.

Virginia

Section 58.1-322 of the Code of Virginia provides that
interest on obligations of the state of Virginia, its
political subdivisions, and instrumentalities or direct
obligations of the U.S. government or its authority,
commission, instrumentality or territories (including Puerto
Rico, Guam and the Virgin Islands) is exempt from personal
income tax. Under Virginia Regulation Section 630-2-322,
distributions from a regulated investment company, such as
the Virginia Fund, will also be exempt from personal income
tax if the Fund invests in such exempt obligations. Tax-
exempt treatment is generally not available for
distributions attributable to income earned on indirect U.S.
government obligations (GNMAs, FNMAs, etc.), for repurchase
agreements collateralized by U.S. government obligations, or
for obligations of other states and their political
subdivisions. To the extent such investments are made by a
Fund, such as for temporary or defensive purposes, such
distributions will generally be taxable on a pro rata basis.

Any distributions of net short-term and net long-term
capital gains earned by the Fund are included in each
shareholder's Virginia taxable income and are currently
taxed at ordinary income tax rates.

Appendix B
Special Factors Affecting Each Fund

The following information is a brief summary of factors
affecting each of the individual Funds and does not purport
to be a complete description of such factors. The
information is based primarily upon information derived from
public documents relating to securities offerings of issuers
of such states, from independent municipal credit reports
and historically reliable sources, but has not been
independently verified by the Trust. The market value of the
shares of any Fund may fluctuate due to factors such as
changes in interest rates, matters affecting a particular
state, or for other reasons. Additional information
regarding each state is included in the SAI.

Alabama

Over the past decade, Alabama's economic base has
diversified somewhat from its concentration in the early
1980s in the manufacturing, construction and agricultural
sectors. This diversification has been fueled by the growth
in high tech firms located in the Huntsville area and health
care and business services firms located in the Birmingham
area. Government employment also has surged, primarily in
higher education. State unemployment has remained near 7%,
slightly higher than the national average.

Although Alabama's economy faltered somewhat during the
spring and summer of 1993, it generally has outperformed the
national and east south central region economies over the
past three years. Alabama has instituted various programs,
including infrastructure improvements, worker training and
tax incentives, to lure new and expanding industries to the
state, such as Mercedes-Benz's new sport utility vehicle
assembly plant near Birmingham, that have resulted in
Alabama investing over $1 billion annually.

The state's strengths include a diversifying economic base;
an expanding service sector; and a low cost structure that
is attractive for new business investment. The state,
together with other east south central states, is positioned
for economic expansion, with continued gains in services and
trade as well as gains in manufacturing, especially the wood
and paper products industry that benefits from Alabama's
abundant supply of lumber and timber. Weaknesses may show in
the state's apparel, textile and transportation equipment
industries, which are vulnerable to significant employment
reductions as a result of the North-American Free Trade
Agreement, as Mexico and Canada offer lower-cost business
environments. Cutbacks in the national defense budget will
continue to lead to job losses with the closure or
downsizing of some of the state's military installations.

Florida

In November 1994 Forida voters adopted a proposal to cap the
amount of taxes and other revenues that can be raised by the
state in any fiscal year without a two-thirds vote of each
house of the legislature to raise the cap. However, the
measure exempts revenues that are pledged to pay bonds and
Medicaid and proceeds from the state lottery. Consequently,
the measure does not appear to repesent any major impediment
for state financing needs.

Georgia

Once dependent upon agriculture, Georgia's economy now has
diversified into the manufacturing (textiles, food products,
paper products, electronic equipment and aircraft), trade
and services sectors. Atlanta has become the focus of
economic growth in the state and is the trade, service and
transportation center for the southeast region.
Manufacturing predominates throughout the rest of the state.

The state's economy has grown rapidly since the recession of
the early 1990s, with steady gains in employment and
personal income relative to the national figures. In 1994,
Georgia ranked 29th in personal income per capita, at 93% of
the national average, considerably above the 1969 level of
83%.

In 1992, the services sector accounted for approximately 23%
of employment, with trade (22%), government (17%), and the
manufacturing (16%) sectors accounting for most of the rest.
Job growth has centered mainly in the wholesale and retail
trade while manufacturing has grown only slightly. In mid-
1994, Georgia's unemployment rate was 4.9% versus the 5.9%
national average.

In March 1989, the U.S. Supreme Court ruled the imposition
of state income taxes on federal retirement benefits
unconstitutional when state and local retiree's benefits are
exempted from state income taxes. After this decision,
several lawsuits were filed in Georgia, with the plaintiffs
seeking state income tax refunds retroactive to 1980. The
maximum potential liability is estimated at $591 million.
However, under the state's three-year statute of
limitations, the maximum liability is estimated at $104
million.

Kentucky

Since the early 1990s recession, Kentucky's economy has
shown moderate growth. Kentucky's low costs of living and
low cost of doing business, combined with the commonwealth's
aggressive business recruitment and business incentive
programs, have enabled the commonwealth to add a number of
high profile corporate expansions and relocations over the
past several years.

Kentucky's economic makeup mirrors national averages in
terms of employment and income by source. Kentucky's
personal income level, however, still is only approximately
four-fifths of the national average. Despite the impact of
early 1990s recession on Kentucky's export-oriented
industries, the state's job and wealth base continues to
grow and, to a limited extent, diversify.

Over the longer term, however, dramatic improvements are
needed in Kentucky's educational system for it to remain
economically competitive. The state, through an education
reform statute passed in 1990, has made education its
primary economic development initiative. Success at this
task, however, will not be easy. Rural poverty and
illiteracy, which permeate the state's eastern and western
regions, mean that the initiative will likely take years, if
not decades, to noticeably take effect.

Most economic development in Kentucky has occurred in the
region of the state bounded by Cincinnati on the north,
Louisville on the west, and Lexington on the east. Because
of air access provided to the region by Delta Air Lines
Inc.'s hub airport operations in northern Kentucky, an
excellent highway network connecting the region with most
major U.S. markets, and good higher education systems in the
three metropolitan areas, Kentucky's "Golden Triangle" has
experienced strong economic growth. The remainder of the
commonwealth, however, has not prospered nearly as much.

Louisiana

With its energy-oriented economy, Louisiana's efforts at
diversification have been slow, and the state has
experienced the effects of reduced domestic oil production
in recent years. Louisiana is dependent on both production
of oil and natural gas, as well as petrochemicals. As the
state's energy sector has shrunk, services have replaced
energy as the leading employment sector.

Decreased population and labor force, combined with a modest
amount of job growth in recent years, has permitted
Louisiana to experience a modest recovery from the depths of
its energy-related downturn. Following losses in both
population and labor force from 1987-1990, modest labor
force growth occurred in 1991, with an increase of 3.1% over
the prior year. Since then employment has remained level.
Louisiana's population reached its peak of 4.5 million in
1986, after which it began to decline, reaching 4.2 million
only four years later.

Legalized gambling, both in New Orleans and on riverboats,
is seen by the state as a potential source of economic
rejuvenation in the tourism industry. The state also has
realized that sectors beyond tourism and energy need
development in the long run for the state to become
insulated from their cyclical nature.

Unemployment in 1994 was 7.8%, above the national average.
Recent years have seen the mining industry experience sharp
employment declines, although this sector still employs some
46,000 people. The service sector has shown the most growth
in recent years and by 1994 constituted approximately 25% of
the employment base. Some manufacturing growth continues to
take place, mostly in the defense and textile industires.

Louisiana's economic recovery is held back by an
undereducated work force, low income and limited wealth, and
an economy that largely exports raw materials and imports
finished goods. Per capita personal income reached its peak
at 98.3% of national levels in 1981 (during the oil boom
years) but by 1994 had slipped to only 79% of the national
average.

The state constitution is a major obstacle to achieving
financial stability. It limits revenue raising capacity and
has prevented the state from replacing the revenues once
generated by the energy sector. It also limits spending
flexibility and requires a large share of revenues to go to
constitutionally protected functions, primarily education
and transportation.

Maryland

Maryland's economic base is well diversified. Services,
trade, finance and government are the leading sectors of
employment and income. Compared to national averages,
manufacturing as a source of employment plays a less
significant role (8.5%), and it is the state's most volatile
sector. Government employment (19.9%) and income is much
larger for Maryland than the nation, primarily because of
the state's close proximity to Washington, D.C.

Maryland still is recovering slowly from the early 1990s
recession, which was particularly severe in the mid-atlantic
region and which significantly affected Maryland's
construction, real estate, retail trade, and some services.
The state unemployment rate remains below the national
average, but employment growth has been relatively slow,
averaging only 0.5% annually since the end of 1991. The
state expects only gradual jobs growth averaging about 2%
annually through 1996.

Maryland's 1993 $23,920 per capita income remains high at
approximately 115% of the national average. Maryland's total
personal income has grown annually over the past few years,
but at substantially slower rates than in prior years,
primarly due to declining federal defense spending and
corporate restructurings.

Missouri

Because Missouri is a manufacturing, financial and
agricultural state, its diverse economy mirrors and is
closely linked to the national economy. While both of the
state's two largest manufacturing industries, motor vehicles
and defense-related products, experienced significant
layoffs in the early 1990s, both have recovered and
stabilized. Motor vehicles are even poised for expansion,
for automakers have announce plans for the construction or
expansion of several Missouri auto plants.

The construction sector, buoyed by flood damage
reconstruction, and the tourism sector grew in 1994, helping
Missouri's unemployment rate drop below 4% for the first
time since 1979. Employment is expected to be stable through
1996. However, the defense industry remains vulnerable to
military cost cutting and base closures.

During the 1980s, Missouri's per capita personal income grew
at a compound annual growth rate of 6.5%, the same rate as
the U.S. Per capita income grew 5.5% from 1991 to 1992,
lagging the nation's rate of 6.2% and rose 4.0% in 1993.
The state expects personal income to grow 6.0% in fiscal
1995 and 5.5% in fiscal 1996.

North Carolina

North Carolina ranks among the top ten states in terms of
economic growth, as measured by job and personal income
growth. North Carolina's unemployment rate fell to near 4%
near the end of fiscal 1994, over 1.5% below the national
rate. Job gains were strongest in durable goods
manufacturing, services government and finance. The state
expects future job growth will be strongest in durable
manufacturing, services and retail trade. Aggregate personal
income rose 5.6% in fiscal 1994, and North Carolina is
predicting a 4.5% increase for fiscal 1995, although wealth
levels remain below the national rate.

Diversification into finance, services, trade, research and
high technology manufacturing is reducing the state's
historical dependence on agriculture, textiles, and
furniture manufacturing. Tobacco remains the primary
agricultural commodity, but the industry faces some
uncertainty following significant press and congressional
scruitiny and talks of additional cigarette taxes.

Population growth in the state has been strong, perhaps
partly reflecting its attraction to retirees. Continued
corporate relocation to the state, especially in the
Research Triangle Area near Raleigh/Durham, will be key to
employment growth through the 1990s.

Texas

Since the oil price crash in the mid-1980s, the Texas
economy has stabilized and diversified away from energy-
related industries and now more closely resembles the
national economy. As a result, Texas was impacted more by
the early 1990s national recession than by the early 1980s
recession, when the energy sector provided insulation from
national trends. Despite this adversity, the state's economy
still outperformed the national economy since the latest
recession.

By the end of calendar 1993, services accounted for nearly
26% of employment, trade accounted for 24% of jobs and total
manufacturing exceeded 13%. Much of the new growth in the
1990s has been in high-technology and related industries.
Construction experienced a near-banner year in 1994.

With a population of 18 million, Texas places second among
states, up 20% from the 1980 census. Good employment
prospects make the state a popular destination. The
population is projected to increase 1.4% annually from 1995
through 2000. The state anticipates that personal income
will increase 6.4% annually through 1996.

The devaluation of the Mexican peso in December 1994 could
have a negative short-term impact on the Texas economy.
State analysts indicate that a significant slowdown in
Mexican exports due to the devaluation could reduce state
economic growth by 0.5% in 1995. Retail sales along the
Texas/Mexico border also could be adversely affected.

Virginia

The Commonwealth's economy remains strong and diversified
despite the recent economic slowdown and some future
uncertainties due to expected defense-related cutbacks. Due
to Virginia's diverse economic base, however, the
unemployment rate has remained relatively low (5.1% for the
last quarter in 1993). During fiscal 1994, the
commonwealth's recovery gained momentum with employment
growth occurring in business services, retail trade and
construction.

The commonwealth is made up of a variety of local economies,
with the northern Virginia area comprising the largest. In
terms of population and building activity, northern Virginia
has been the fastest-growing area in the commonwealth.
Growth has been spurred by employment opportunities provided
for both civilian and military personnel in, and directly
related to, the federal government. The prospect of a lower
defense budget and fewer defense contracts could lead to
some structural changes in two of Virginia's major local
economies (northern Virginia and Norfolk/Newport News) where
defense and a substantial military presence have played an
important role. However, the commonwealth continues to enjoy
such advantages as its strategic mid-Atlantic location, port
facilities, proximity of its largest local economy to
Washington, D.C., and a major international airport in the
northern Virginia area.

The employment base, consisting primarily of trade,
government, and services sectors, showed substantial growth
during the 1980s, primarily in the services and trade
sectors. Direct defense jobs, including civilian, consituted
approximately 14% of employment in 1991. Because of the
impact of federal defense cutbacks, the commonwealth is
actively seeking economic diversification, especially in
high technology, trade and tourism. As the mix shifts away
from defense-related manufacturing, however, slower annual
personal income growth should be expected.

In March 1989, the U.S. Supreme Court ruled the imposition
of state income taxes on federal retirement benefits
unconstitutional when state and local retiree's benefits are
exempted from state income taxes. After this decision,
several lawsuits were filed in Virginia, with the plaintiffs
seeking state income tax refunds. The maximum potential
liability was estimated in February 1992 at $705 million.
Pending further litigation, Virginia passed a $340 million
settlement for retirees' claims, to paid out over five
years. The settlement will be void if total claims
rejecting the settlement offer exceed $20 million.

FRANKLIN TAX-FREE TRUST
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1995

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN

Franklin Tax-Free Trust (the "Trust") is an open-end
investment company consisting of 27 separate series. This
Statement of Additional Information (the "SAI") relates only
to the ten series shown below, nine of which, as noted, are
currently offering two classes of shares:

Class I Class II
Franklin Alabama Tax-Free Franklin Alabama Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Florida Tax-Free Franklin Florida Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Georgia Tax-Free Franklin Georgia Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Kentucky Tax-Free Not Available
Income Fund, Class I
Franklin Louisiana Tax-Free Franklin Louisiana Tax-
Free Income Fund, Class I Income Fund, Class II
Franklin Maryland Tax-Free Franklin Maryland Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Missouri Tax-Free Franklin Missouri Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin North Carolina Franklin North Carolina
Tax-Free Income Fund, Class I Tax-Free Income Fund,
Class II
Franklin Texas Tax-Free Franklin Texas Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Virginia Tax-Free Franklin Virginia Tax-Free
Income Fund, Class I Income Fund, Class II

The new multiclass structure allows investors to consider,
among other features, the impact of sales charges and
distribution fees ("Rule 12b-1 fees") on their investments
in a Fund.

The principal investment objective of each Fund is to
provide investors with as high a level of income exempt from
federal income taxes as is consistent with prudent
investing, while seeking preservation of shareholders'
capital. The investment objective of each Fund is a
fundamental policy. Each Fund also seeks to provide a
maximum level of income exempt from state personal income
taxes, if any, to shareholders resident in the named state.
The Maryland Fund is non-diversified; the other Funds are
diversified.

Each Fund invests primarily in municipal securities issued
by its respective state and its political subdivisions,
agencies, and instrumentalities.

Separate prospectuses for the Funds, dated May 1, 1995, as
may be amended from time to time, provide the basic
information a prospective investor should know before
investing in any Fund of the Trust and may be obtained
without charge from the Trust or its principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at
the address shown above.

This SAI is not a prospectus. It contains information in
addition to and in more detail than set forth in the
Prospectuses. This SAI is intended to provide investors with
additional information regarding the activities and
operations of the Trust and each Fund and should be read in
conjunction with the Trust's Prospectuses.

Contents Page

About the Trust

The Trust's Investment
Objectives and Policies

Description of Municipal
and Other Securities

Investment Restrictions

Trustees and Officers

Investment Advisory
and Other Services

The Trust's Policies
Regarding Brokers Used
on Portfolio Transactions

Additional Information
Regarding Purchases and
Redemptions of Trust Shares

The Trust's Underwriter

Plans of Distribution

Additional Information
Regarding Taxation

General Information

Miscellaneous Information

Financial Statements

Appendix A - Description of Municipal Securities Ratings

Appendix B - Further Information on Special Factors
Affecting Each Fund

About the Trust

The Trust is an open-end management investment company,
commonly called a "mutual fund," and has registered as such
under the Investment Company Act of 1940 (the "1940 Act").
The Trust was organized as a Massachusetts business trust in
September 1984. The Trust issues its shares of beneficial
interest with no par value in several series. Currently, the
Trust has 27 separate series, each of which maintains a
totally separate investment portfolio. This SAI discusses
only the ten series listed on the cover.

The Trust's Investment
Objectives and Policies

Each Fund seeks to maximize income exempt from federal
income taxes and from the personal income taxes for
shareholders resident in the named state, consistent with
prudent investing, and the preservation of shareholders'
capital.

Although the Trust seeks to invest all the assets of each
Fund in a manner designed to accomplish the objective of
each Fund, there may be times when market conditions limit
the availability of appropriate municipal securities or, in
the investment manager's opinion, there exist uncertain
economic, market, political, or legal conditions which may
jeopardize the value of municipal securities. For temporary
defensive purposes, a Fund may invest more than 20% and up
to 100% of the value of its net assets in instruments the
interest on which is exempt from federal income taxes only,
and each Fund may invest more than 20% and up to 100% of its
net assets in taxable, fixed-income obligations. The policy
followed by these Funds of attempting to meet these state
requirements in order to distribute tax-exempt income is not
a fundamental policy with respect to the Funds and may be
changed without notification to shareholders. If, due to
unusual market or political conditions, investments in
securities as described above would be advisable, in the
investment manager's opinion, in order to protect the value
of the Funds' shares or their net yield, such investments
may be made, notwithstanding the potential state income tax
effects.

Description of Municipal
and Other Securities

Municipal Notes

Tax Anticipation Notes are used to finance working capital
needs of municipalities and are issued in anticipation of
various seasonal tax revenues, which will be used to pay the
notes. They are usually general obligations of the issuer,
secured by the taxing power for the payment of principal and
interest.

Revenue Anticipation Notes are issued in expectation of
receipt of other kinds of revenue, such as federal revenues
available under the Federal Revenue Sharing Program. They
are usually general obligations of the issuer. Bond
Anticipation Notes are normally issued to provide interim
financing until long-term financing can be arranged. The
long-term bonds then provide the money for the repayment of
the notes.

Tax-Exempt Commercial Paper typically represents a short-
term obligation (270 days or less) issued by a municipality
to meet working capital needs.

Municipal Bonds, which meet longer-term capital needs and
generally have maturities of more than one year when issued,
have two principal classifications: general obligation bonds
and revenue bonds.

1. General Obligation Bonds. Issuers of general obligation
bonds include states, counties, cities, towns and regional
districts. The proceeds of these obligations are used to
fund a wide range of public projects, including construction
or improvement of schools, highways and roads, and water and
sewer systems. The basic security behind general obligation
bonds is the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may
be limited or unlimited as to the rate or amount of special
assessments.

2. Revenue Bonds. A revenue bond is not secured by the full
faith, credit and taxing power of an issuer. Rather, the
principal security for a revenue bond is generally the net
revenue derived from a particular facility, group of
facilities or, in some cases, the proceeds of a special
excise tax or other specific revenue source. Revenue bonds
are issued to finance a wide variety of capital projects
including: electric, gas, water, and sewer systems;
highways, bridges and tunnels; port and airport facilities;
colleges and universities; and hospitals. The principal
security behind these bonds may vary. Housing finance
authorities have a wide range of security, including
partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from
housing or other public projects. Many bonds provide
additional security in the form of a debt service reserve
fund, from which money may be used to make principal and
interest payments on the issuer's obligations. Some
authorities are provided with further security in the form
of state assurance (although without obligation) to make up
deficiencies in the debt service reserve fund.

Industrial Development Bonds. These pay tax-exempt interest
and are, in most cases, revenue bonds issued by or on behalf
of public authorities to raise money for the financing of
various privately operated facilities for business
manufacturing, housing, sports, and pollution control. These
bonds are also used to finance public facilities such as
airports, mass transit systems, ports, and parking. The
payment of the principal and interest on such bonds is
solely dependent on the ability of the facilities user to
meet its financial obligations and the pledge, if any, of
the real and personal property so financed as security for
such payment.

Variable or Floating Rate Demand Notes ("VRDNs"). As stated
in the Prospectus, VRDNs are tax-exempt obligations which
contain a floating or variable interest rate adjustment
formula and a right of demand, which may be unconditional,
to receive payment of the unpaid principal balance plus
accrued interest upon a short notice period (generally up to
30 days) prior to specified dates, either from the issuer or
by drawing on a bank letter of credit, a guarantee or
insurance issued with respect to such instrument. The
interest rates are adjustable to the prevailing market rate
for similar investments, at intervals ranging from daily up
to six months, pursuant to an adjustment formula calculated
to maintain the market value of the VRDN at approximately
its par value upon the adjustment date.

When-Issued Purchases. New issues of municipal securities
are freqently offered on a when-issued basis; that is,
payment for and delivery of the securities (the "settlement
date") normally takes place after the date that the offer is
accepted. The purchase price and the yield that will be
received on the securities are fixed at the time the buyer
enters into the commitment. While the Trust will always make
commitments to purchase such securities with the intention
of actually acquiring the securities, it may nevertheless
sell these securities before the settlement date if it is
deemed advisable as a matter of investment strategy. To the
extent that assets of a Fund are held in cash pending the
settlement of a purchase of securities, that Fund would earn
no income; however, it is the Trust's intention to have each
Fund fully invested to the extent practicable and subject to
the policies stated in the Prospectus. At the time a Fund
makes the commitment to purchase a municipal bond on a when-
issued basis, it will record the transaction and reflect the
value of the security in determining its net asset value.
The Trust does not believe that any Fund's net asset value
or income will be adversely affected by the purchase of
municipal bonds on a when-issued basis. Each Fund will
establish a segregated account in which it will maintain
cash and marketable securities equal in value to commitments
for when-issued securities.

Stripped Municipal Securities. Municipal securities may
also be sold in "stripped" form. Stripped municipal
securities represent separate ownership of interest and
principal payments on municipal obligations.

Callable Bonds. These are municipal bonds which are issued
with provisions which prevent them from being called,
typically for periods of 5 to 10 years. During times of
generally declining interest rates, if the call-protection
on callable bonds expires, there is an increased likelihood
that a number of such bonds may, in fact, be called away by
the issuers. Based on a number of factors, including certain
portfolio management strategies used by the Funds'
investment manager, the Funds believe they have reduced the
risk of adverse impact on net asset value based on calls of
callable bonds. The investment manager may dispose of such
bonds in the years prior to their call date, if the
investment manager believes such bonds are at their maximum
premium potential. In pricing such bonds in each Fund's
portfolio, each callable bond is marked-to-market daily
based on the bond's call date. Thus, the call of some or all
of each Fund's callable bonds may have an impact on such
Fund's net asset value. In light of each Fund's pricing
policies and because the Funds follow certain amortization
procedures required by the Internal Revenue Service, the
Funds are not expected to suffer any material adverse impact
related to the value at which a Fund has carried the bonds
in connection with calls of bonds purchased at a premium.
Notwithstanding such policies, however, the reinvestment of
the proceeds of any called bond may be in bonds which pay a
higher or lower rate of return than the called bonds; and as
with any investment strategy, there is no guarantee that a
call will not have a more substantial impact than
anticipated or that the Funds' objectives will be achieved.

Certificates of Participation. As stated in the Prospectus,
each Fund may also invest in municipal lease obligations
primarily through Certificates of Participation ("COPs").
COPs are distinguishable from municipal debt in that the
lease which is the subject of the transaction typically
contains a "nonappropriation" or "abatement" clause. A
nonappropriation clause provides that, while the
municipality will use its best efforts to make lease
payments, the municipality may terminate the lease without
penalty if the municipality's appropriating body does not
allocate the necessary funds.

While the risk of nonappropriation is inherent to COP
financing, the Funds believe that this risk is mitigated by
their policy of investing only in COPs rated within the four
highest rating categories of Moody's Investors Service
("Moody's"), Standard & Poor's ("S&P") or Fitch Investors
Service, Inc. ("Fitch"), or in unrated COPs believed to be
of comparable quality. Criteria considered by the rating
agencies and the investment manager in assessing such risk
include the issuing municipality's credit rating, the
essentiality of the leased property to the municipality and
the term of the lease compared to the useful life of the
leased property. The Board of Trustees has determined that
COPs held in each Fund's portfolio constitute liquid
investments based on various factors reviewed by the
investment manager and monitored by the Board. Such factors
include (a) the credit quality of such securities and the
extent to which they are rated; (b) the size of the
municipal securities market for each Fund, both in general
and with respect to COPs; and (c) the extent to which the
type of COPs held by each Fund trade on the same basis and
with the same degree of dealer participation as other
municipal bonds of comparable credit rating or quality.
There is no limit as to the amount of assets which each Fund
may invest in COPs.

Escrow-Secured Bonds or Defeased Bonds are created when an
issuer refunds in advance of maturity (or pre-refunds) an
outstanding bond issue which is not immediately callable,
and it becomes necessary or desirable to set aside funds for
redemption of the bonds at a future date. In an advance
refunding, the issuer will use the proceeds of a new bond
issue to purchase high grade, interest bearing debt
securities which are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments
of principal and interest of the advance refunded bond.
Escrow- secured bonds will often receive a triple-A rating
from S&P, Moody's and Fitch.

U.S. Government Obligations which may be owned by a Fund are
issued by the U.S. Treasury and include bills, certificates
of indebtedness, notes and bonds, or are issued by agencies
and instrumentalities of the U.S. government and backed by
the full faith and credit of the U.S. government.

Commercial Paper refers to promissory notes issued by
corporations in order to finance their short-term credit
needs.

Lending Portfolio Securities. Consistent with procedures
approved by the Board of Trustees and subject to the
following conditions, a Fund may lend its portfolio
securities to qualified securities dealers or other
institutional investors, provided that such loans do not
exceed 10% of the value of a Fund's total assets at the time
of the most recent loan. The borrower must deposit with a
Fund's custodian collateral with an initial market value of
at least 102% of the initial market value of the securities
loaned, including any accrued interest, with the value of
the collateral and loaned securities marked-to-market daily
to maintain collateral coverage of at least 102%. Such
collateral shall consist of cash. The lending of securities
is a common practice in the securities industry. A Fund may
engage in security loan arrangements with the primary
objective of increasing such Fund's income either through
investing the cash collateral in short-term interest bearing
obligations or by receiving a loan premium from the
borrower. Under the securities loan agreement, a Fund
continues to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there
are risks of delay in recovery and loss of rights in the
collateral should the borrower of the security fail
financially. While such securities are on loan, the borrower
will pay such Fund any income accruing thereon, and such
Fund may invest the cash collateral in portfolio securities,
thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the
laws or regulations of any state in which its shares are
qualified for sale. Loans are typically subject to
termination by a Fund in the normal settlement time or by
the borrower on one day's notice. Borrowed securities must
be returned when the loan is terminated. Any gain or loss in
the market price of the borrowed securities which occurs
during the term of the loan inures to such Fund and its
shareholders. A Fund may pay reasonable finders',
borrowers', administrative and custodial fees in connection
with a loan of its securities.

Investment Restrictions

2. Buy any securities on "margin" or sell any securities
"short," except that it may use such short-term credits as
are necessary for the clearance of transactions.

3. Make loans, except through the purchase of readily
marketable debt securities which are either publicly
distributed or customarily purchased by institutional
investors. Although such loans are not presently intended,
this prohibition will not preclude a Fund from loaning
portfolio securities to broker/dealers or other
institutional investors if at least 102% cash collateral is
pledged and maintained by the borrower; provided such
portfolio security loans may not be made if, as a result,
the aggregate of such loans exceeds 10% of the value of the
Fund's total assets at the time of the most recent loan.

4. Act as underwriter of securities issued by other
persons, except insofar as the Fund may be technically
deemed an underwriter under the federal securities laws in
connection with the disposition of portfolio securities.

5. Purchase the securities of any issuer which would result
in owning more than 10% of the voting securities of such
issuer, except with respect to the Trust's non-diversified
Funds, which Funds will not purchase a security, if as a
result: i) more than 25% of its total assets would be
invested in the securities of a single issuer or ii) with
respect to 50% of its total assets, more than 5% of its
assets would be invested in the securities of a single
issuer.

7. Acquire, lease or hold real estate, except such as may
be necessary or advisable for the maintenance of its offices
and provided that this limitation shall not prohibit the
purchase of municipal and other debt securities secured by
real estate or interests therein.

9. Invest in companies for the purpose of exercising
control or management.

10. Purchase securities of other investment companies,
except in connection with a merger, consolidation or
reorganization except to the extent the Fund invests its
uninvested daily cash balances in shares of the Franklin Tax-
Exempt Money Fund and other tax-exempt money market funds in
the Franklin Group of Funds provided i) its purchases and
redemptions of such money market fund shares may not be
subject to any purchase or redemption fees, ii) its
investments may not be subject to duplication of management
fees, nor to any charge related to the expense of
distributing the Fund's shares (as determined under Rule 12b-
1, as amended under the federal securities laws) and iii)
provided aggregate investments by the Fund in any such money
market fund do not exceed (A) the greater of (i) 5% of the
Fund's total net assets or (ii) $2.5 million, or (B) more
than 3% of the outstanding shares of any such money market
fund.

11. Invest more than 25% of its assets in securities of any
industry; although for purposes of this limitation, tax-
exempt securities and U.S. government obligations are not
considered to be part of any industry.

Portfolio Turnover: The portfolio turnover of the Funds for
each of the two fiscal years ended February 28, was as
follows:

Fiscal Year
1994 1995
Alabama Fund 14.87% 19.85%
Florida Fund 11.99 14.34
Georgia Fund 16.75 36.17
Kentucky Fund 13.22 32.92
Louisiana Fund 17.63 32.28
Maryland Fund 18.38 20.30
Missouri Fund 11.02 19.84
North Carolina Fund 3.86 25.05
Texas Fund 20.18 6.36
Virginia Fund 6.86 21.73

Trustees and Officers

The trustees have the responsibility for the overall
management of the Trust, including general supervision and
review of each Fund's investment activities. The trustees
elect the officers of the Trust who are responsible for
administering the day-to-day operations of the Trust. The
affiliations of the officers and trustees and their
principal occupations for the past five years are listed
below. Trustees who are deemed to be "interested persons" of
the Trust, as defined in the 1940 Act, are indicated by an
asterisk (*).

Name, Address Positions and Offices Principal Occupations
and Age With the Trust During Past Five
Years

Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111

Trustee

Harris J. Ashton (62)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045

Trustee

S. Joseph Fortunato (62)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945

Trustee

Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Director of General Host Corporation; director, trustee or
managing general partner, as the case may be, of 56 of the
investment companies in the Franklin Templeton Group of
Funds.

David W. Garbellano (80)
111 New Montgomery St., #402
San Francisco, CA 94105

Trustee

*Charles B. Johnson (62)
777 Mariners Island Blvd.
San Mateo, CA 94404

Chairman of the Board and Trustee

*Rupert H. Johnson, Jr. (54)
777 Mariners Island Blvd.
San Mateo, CA 94404

President and Trustee

Frank W. T. LaHaye (66)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014

Trustee

Gordon S. Macklin (66)
8212 Burning Tree Road
Bethesda, MD 20817

Trustee

Chairman, White River Corporation (information services);
Director, Fund American Enterprises Holdings, Inc., Martin
Marietta Corporation, MCI Communications Corporation,
MedImmune, Inc. (biotechnology), Infovest Corporation
(information services), and Fusion Systems Corporation
(industrial technology); and director, trustee or managing
general partner, as the case may be, of 51 of the investment
companies in the Franklin Templeton Group of Funds;
formerly, Chairman, Hambrecht and Quist Group; formerly,
Director, H & Q Healthcare Investors; and formerly,
President, National Association of Securities Dealers, Inc.

Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Kenneth V. Domingues (62)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President - Financial Reporting and Accounting
Standards

Don Duerson (62)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Employee of Franklin Resources, Inc. and its subsidiaries in
senior portfolio management capacities.

Martin L. Flanagan (34)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Chief Financial Officer

Deborah R. Gatzek (46)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Secretary

Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President,
Franklin Advisers, Inc. and officer of 36 of the investment
companies in the Franklin Group of Funds.

Thomas J. Kenny (32)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President, Franklin Advisers, Inc. and officer
of eight of the investment companies in the Franklin Group
of Funds.

Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404

Treasurer and Principal Accounting Officer

Employee of Franklin Advisers, Inc.; and officer of 36 of
the investment companies in the Franklin Group of Funds.

Edward V. McVey (57)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President/National Sales Manager, Franklin
Templeton Distributors, Inc.; and officer of 31 of the
investment companies in the Franklin Group of Funds.

Trustees not affiliated with the investment manager
("nonaffiliated trustees") are currently paid fees of $1,300
per month plus $1,300 per meeting attended. During the
fiscal year ended February 28, 1995, fees totaling $188,500
were paid to nonaffiliated trustees of the Trust. As
indicated above, certain of the trustees and officers hold
positions with other companies in the Franklin Group of
Funds(Registered Trademark) and the Templeton Funds
("Franklin Templeton Funds"). The following table shows the
fees paid by the Trust to its nonaffiliated trustees and the
total fees paid to such trustees by the Trust and other
Franklin Templeton Funds for which they serve as directors,
trustees or managing general partners.

Total
Compensation
from
Aggregate Number of Franklin
Compensation Franklin Templeton
Name from the Templeton Funds Funds,
Trust * Boards on Which including
Each Serves the Trust**
Frank H. Abbott, III $32,500 30 $176,870
Harris J. Ashton $31,200 54 $319,925
S. Joseph Fortunato $31,200 56 $336,065
David W. Garbellano $31,200 29 $153,300
Frank W.T. LaHaye $31,200 25 $150,817
Gordon S. Macklin $31,200 51 $303,685

*For the fiscal year ended February 28, 1995.
**For the calendar year ended December 31,1994.

As of April 3, 1995, the trustees and officers, as a group,
did not own of record or beneficially any outstanding shares
of the Funds. In addition, many of the Trust's trustees own
shares in various of the other funds in the Franklin Group
of Funds and the Templeton Group of Funds. Certain officers
or trustees who are shareholders of Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are brothers.

Investment Advisory and Other Services

Pursuant to the management agreement, the Manager provides
investment research and portfolio management services,
including the selection of securities for the Funds to
purchase, hold or sell and the selection of brokers through
whom the portfolio transactions of each Fund are executed.
The Manager's extensive research activities include, as
appropriate, traveling to meet with issuers and to review
project sites. The Manager's activities are subject to the
review and supervision of the Trust's Board of Trustees to
whom the Manager renders periodic reports of the Trust's
investment activities. The Manager, at its own expense,
furnishes the Trust with office space and office
furnishings, facilities and equipment required for managing
the business affairs of the Trust; maintains all internal
bookkeeping, clerical, secretarial and administrative
personnel and services; and provides certain telephone and
other mechanical services. The Manager is covered by
fidelity insurance on its officers, directors and employees
for the protection of the Funds. Each Fund bears all of its
expenses not assumed by the Manager. Details of these
expenses are included in the Trust's Annual Report to
Shareholders dated February 28, 1995.

Pursuant to the management agreement, each Fund is obligated
to pay the Manager a fee computed at the close of business
on the last business day of each month equal to a monthly
rate of 5/96 of 1% (approximately 5/8 of 1% per year) for
the first $100 million of average monthly net assets of the
Fund; 1/24 of 1% (approximately 1/2 of 1% per year) of
average monthly net assets of the Fund in excess of $100
million up to $250 million; and 9/240 of 1% (approximately
45/100 of 1% per year) of average monthly net assets of the
Fund in excess of $250 million. The Manager may, however,
limit or may not impose its management fees and may also
assume responsibility for making payments, if necessary, to
offset certain operating expenses otherwise payable by such
Fund(s). This action by the Manager to limit its management
fees and assume responsibility for payment of the expenses
related to the operations of any Fund may be terminated by
the Manager at any time.

The management agreement specifies that the management fee
will be reduced to the extent necessary to comply with the
most stringent limits on the expenses which may be borne by
a Fund as prescribed by any state in which a Fund's shares
are offered for sale. The most stringent current limit
requires the Manager to reduce or eliminate its fee to the
extent that aggregate operating expenses of a Fund
(excluding interest, taxes, brokerage commissions, and
extraordinary expenses such as litigation costs) would
otherwise exceed in any fiscal year 2.5% of the first $30
million of average annual net assets of a Fund, 2% of the
next $70 million of average annual net assets of a Fund, and
1.5% of average annual net assets of a Fund in excess of
$100 million. Expense reductions have not been necessary
based on state limitation requirements.

The table below sets forth the management fees which Class I
of each Fund was obligated to pay to Advisers, as well as
the management fees actually paid for each of the three
fiscal years ended February 28:

1995:

Contractual Management
Management Fees Paid by
Fund Fees the Fund
Alabama Fund $ 969,002 $ 969,002
Florida Fund 5,976,798 5,976,798
Georgia Fund 703,628 703,628
Kentucky Fund 190,072 34,216
Louisiana Fund 661,267 661,267
Maryland Fund 877,941 877,941
Missouri Fund 1,246,460 1,246,460
North Carolina Fund 1,181,708 1,181,708
Texas Fund 804,364 804,364
Virginia Fund 1,385,287 1,385,287

1994:

Contractual Management
Management Fees Paid by
Fund Fees the Fund
Alabama Fund $ 964,354 $ 964,354
Florida Fund 6,074,908 6,074,908
Georgia Fund 665,735 665,735
Kentucky Fund 128,196 -
Louisiana Fund 671,274 671,274
Maryland Fund 837,521 837,521
Missouri Fund 1,146,123 1,146,123
North Carolina Fund 1,093,721 1,093,721
Texas Fund 856,916 856,916
Virginia Fund 1,326,276 1,326,276

1993:

Contractual Management
Management Fees Paid by
Fund Fees the Fund
Alabama Fund $ 733,810 $ 733,810
Florida Fund 4,826,737 4,826,737
Georgia Fund 502,421 502,421
Kentucky Fund 43,136 -
Louisiana Fund 524,305 524,305
Maryland Fund 583,311 583,311
Missouri Fund 809,607 809,607
North Carolina Fund 777.766 777.766
Texas Fund 774,052 774,052
Virginia Fund 1,030,606 1,030,606

The management agreement is in effect until March 31, 1996
Thereafter, it may continue in effect for successive annual
periods provided such continuance is specifically approved
at least annually by a majority vote of the Trust's Board of
Trustees or as to each Fund by a vote of the holders of a
majority vote of the outstanding voting securities of such
Fund, and in either event by a majority vote of the trustees
who are not parties to the management agreement or
interested persons of any such party (other than as trustees
of the Trust), cast in person at a meeting called for that
purpose. The management agreement may be terminated without
penalty at any time by the Trust or one or more of its Funds
or by the Manager on 30 days' written notice and will
automatically terminate in the event of its assignment, as
defined in the 1940 Act.

Other Services

Franklin/Templeton Investor Services, Inc. ("Investor
Services" or "Shareholder Services Agent"), a wholly-owned
subsidiary of Resources, is the shareholder servicing agent
for the Trust and acts as the Trust's transfer agent and
dividend-paying agent. Investor Services is compensated by
each Fund on the basis of a fixed fee per account.

Coopers & Lybrand, L.L.P., 333 Market Street, San Francisco,
California 94105, are the Trust's independent auditors.
During the fiscal year ended February 28, 1995, their
auditing services consisted of rendering an opinion on the
financial statements of the Trust included in the Trust's
Annual Report to Shareholders dated February 28, 1995.

The Trust's Policies Regarding
Brokers Used on Portfolio Transactions

Since most purchases made by the Trust are principal
transactions at net prices, the Trust incurs little or no
brokerage costs. The Trust deals directly with the selling
or purchasing principal or market maker without incurring
charges for the services of a broker on its behalf unless it
is determined that a better price or execution may be
obtained by utilizing the services of a broker. Purchases of
portfolio securities from underwriters include a commission
or concession paid by the issuer to the underwriter, and
purchases from dealers include a spread between the bid and
ask price. As a general rule, the Funds do not purchase
bonds in underwritings where they are not given any choice,
or only limited choice, in the designation of dealers to
receive the commission. The Trust seeks to obtain prompt
execution of orders at the most favorable net price.
Transactions may be directed to dealers in return for
research and statistical information, as well as for special
services rendered by such dealers in the execution of
orders. It is not possible to place a dollar value on the
special executions or on the research services received by
Advisers from dealers effecting transactions in portfolio
securities. The allocations of transactions in order to
obtain additional research services permits Advisers to
supplement its own research and analysis activities and to
receive the views and information of individuals and
research staff of other securities firms. As long as it is
lawful and appropriate to do so, the Manager and its
affiliates may use this research data in their investment
advisory capacities with other clients. Provided that the
Trust's officers are satisfied that the best execution is
obtained, the sale of Fund shares may also be considered as
a factor in the selection of securities dealers to execute
the Trust's portfolio transactions.

During each of the three fiscal years ended February 28,
1993, 1994 and 1995, none of the Funds incurred any
brokerage commissions. As of February 28, 1995, the Funds
did not own any securities of their regular broker-dealers.

Additional Information
Regarding Purchases and
Redemptions of Trust Shares

In connection with exchanges, (see the Prospectus "Exchange
Privilege"), it should be noted that since the proceeds from
the sale of shares of an investment company generally are
not available until the fifth business day following the
redemption, the fund into which a Fund's shareholders are
seeking to exchange reserve the right to delay issuing
shares pursuant to an exchange until said fifth business
day. The redemption of shares of a Fund to complete an
exchange for shares of any of the investment companies will
be effected at the close of business on the day the request
for exchange is received in proper form at the net asset
value then effective.

A Fund may impose a $10 charge for each returned item
against any
shareholder account which, in connection with the purchase
of a Fund's shares, submits a check or a draft which is
returned unpaid to such Fund.

A Fund may deduct from a shareholder's account the costs of
its efforts to locate a shareholder if mail to that
shareholder is returned as undeliverable or such Fund is
otherwise unable to locate the shareholder or verify the
current mailing address. These costs may include a
percentage of the account when a search company charges a
percentage fee in exchange for its location services.

Under agreements with certain banks in Taiwan, Republic of
China, the Funds' shares are available to such banks'
discretionary trust funds at net asset value. The banks may
charge service fees to their customers who participate in
the discretionary trusts. Pursuant to the agreements, a
portion of such service fees may be paid to Distributors, or
an affiliate of Distributors, to help defray expenses of
maintaining a service office in Taiwan, including expenses
related to local literature fulfillment and communication
facilities.

Class I shares of the Funds may be offered to investors in
Taiwan through securities firms known locally as Securities
Investment Consulting Enterprises. In conformity with local
business practices in Taiwan, Class I shares of the Funds
will be offered with the following schedule of sales
charges:

Sales
Size of Purchase Charge
Up to U.S. $100,000 3%
U.S. $100,000 to U.S. $1,000,000 2%
Over U.S. $1,000,000 1%

Purchases and Redemptions Through Securities Dealers

Orders for the purchase of shares of a Fund received in
proper form prior to the close of the Exchange (generally
1:00 p.m. Pacific time) any business day that the Exchange
is open for trading and promptly transmitted to the Fund
will be based upon the public offering price determined that
day. Purchase orders received by securities dealers or other
financial institutions after the close of the Exchange
(generally 1:00 p.m. Pacific time) will be effected at each
class' public offering price on the day it is next
calculated. The use of the term "securities dealer" herein
shall include other financial institutions which, pursuant
to an agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with each
Fund. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity.

Special Net Asset Value Purchases - Class I Shares

As discussed in the Prospectus under "How to Buy Shares of a
Fund - Description of Special Net Asset Value Purchases,"
certain categories of investors may purchase Class I shares
of a Fund without a front-end sales charge ("net asset
value") or a contingent deferred sales charge. Distributors
or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are
responsible for such purchases, as indicated below.
Distributors may make these payments in the form of
contingent advance payments, which may be recovered from the
securities dealer, or set off against other payments due to
the securities dealer, in the event of investor redemptions
made within 12 months of the calendar month following
purchase. Other conditions may apply. All terms and
conditions may be imposed by an agreement between
Distributors, or its affiliates, and the securities dealer.

Letter of Intent. An investor may qualify for a reduced
sales charge on the purchase of Class I shares of a Fund, as
described in the Prospectus. At any time within 90 days
after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder
Application, with the Letter of Intent section completed,
may be filed with a Fund. After the Letter of Intent is
filed, each additional investment will be entitled to the
sales charge applicable to the level of investment indicated
on the Letter. Sales charge reductions based upon purchases
in more than one of the Franklin Templeton Funds will be
effective only after notification to Distributors that the
investment qualifies for a discount. The shareholder's
holdings in the Franklin Templeton Funds, including Class II
shares, acquired more than 90 days before the Letter of
Intent is filed will be counted towards completion of the
Letter of Intent but will not be entitled to a retroactive
downward adjustment in the sales charge. Any redemptions
made by the shareholder, other than by a designated benefit
plan during the 13-month period will be subtracted from the
amount of the purchases for purposes of determining whether
the terms of the Letter of Intent have been completed. If
the Letter of Intent is not completed within the 13-month
period, there will be an upward adjustment of the sales
charge, depending upon the amount actually purchased (less
redemptions) during the period. The upward adjustment does
not apply to designated benefit plans. An investor who
executes a Letter of Intent prior to a change in the sales
charge structure for a Fund will be entitled to complete the
Letter of Intent at the lower of (i) the new sales charge
structure; or (ii) the sales charge structure in effect at
the time the Letter of Intent was filed with such Fund.

Redemptions in Kind

Each Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record,
limited in amount, however, during any 90-day period to the
lesser of $250,000 or 1% of the value of a Fund's net assets
at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and
Exchange Commission (the "SEC"). In the case of requests for
redemption in excess of such amounts, the trustees reserve
the right to make payments in whole or in part in securities
or other assets of the Fund from which the shareholder is
redeeming, in case of an emergency, or if the payment of
such a redemption in cash would be detrimental to the
existing shareholders of the Fund. In such circumstances,
the securities distributed would be valued at the price used
to compute such Fund's net assets. Should a Fund do so, a
shareholder may incur brokerage fees in converting the
securities to cash. The Funds do not intend to redeem
illiquid securities in kind; however, should it happen,
shareholders may not be able to timely recover their
investment and may also incur brokerage costs in selling
such securities.

Redemptions by the Funds

Due to the relatively high cost of handling small
investments, each Fund reserves the right to redeem,
involuntarily, at net asset value, the shares of any
shareholder of such Fund whose account has a value of less
than one-half of the initial minimum investment required for
that shareholder, but only where the value of such account
has been reduced by the shareholder's prior voluntary
redemption of shares. Until further notice, it is the
present policy of the Funds not to exercise this right with
respect to any shareholder whose account has a value of $50
or more. In any event, before a Fund redeems such shares and
sends the proceeds to the shareholder, it will notify the
shareholder that the value of the shares in the account is
less than the minimum amount and allow the shareholder 30
days to make an additional investment in an amount which
will increase the value of the account to at least $100.

Calculation of Net Asset Value

As noted in the Prospectus, each Fund generally calculates
net asset value for each class, separately, as of the close
of the Exchange (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading. As of the date of
this SAI, the Trust is informed that the Exchange observes
the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

Each Fund's portfolio securities are valued as stated in the
Prospectus. Generally, trading in bonds, U.S. government
securities and money market instruments is substantially
completed each day at various times prior to the close of
the Exchange. The values of such securities used in
computing the net asset value of a Fund's shares are
determined as of such times. Occasionally, events affecting
the values of such securities may occur between the times at
which they are determined at the close of the Exchange
(generally 1:00 p.m. Pacific time) which will not be
reflected in the computation of a Fund's net asset value. If
events materially affecting the value of such securities
occur during such period, then these securities will be
valued at their fair value as determined in good faith by
the Board of Trustees.

Reports to Shareholders

The Funds send annual and semi-annual reports to their
shareholders regarding a Fund's performance and its
portfolio holdings. Shareholders who would like to receive
an interim quarterly report may phone Fund Information at 1-
800 DIAL BEN.

Special Services

The Trust and Institutional Services Division of
Distributors provides specialized services, including
recordkeeping for institutional investors of the Funds. The
cost of these services is not borne by the Funds.

The Trust's Underwriter

Pursuant to an underwriting agreement in effect until March
31, 1996, Distributors acts as principal underwriter in a
continuous public offering for shares of each Fund.

The underwriting agreement will continue in effect for
successive annual periods, provided that its continuance is
specifically approved at least annually by a vote of the
Trust's Board of Trustees or by a vote of the holders of a
majority of the outstanding voting securities of each Fund,
and in either event by a majority vote of the Trust's
trustees who are not parties to the underwriting agreement
or interested persons of any such party (other than as
trustees of the Trust), cast in person at a meeting called
for that purpose. The underwriting agreement terminates
automatically in the event of its assignment and may be
terminated by either party on 90 days' written notice.

In connection with the offering of the Class I shares,
underwriting commissions received by Distributors for each
Fund and the amounts which were subsequently paid by
Distributors to other dealers for each of the three fiscal
years ending February 28, were as follows:

1995

Total
Commissions Paid
Fund Received to Dealers
Alabama Fund $643,138 $611,161
Florida Fund 3,251,098 3,083,771
Georgia Fund 523,120 497,134
Kentucky Fund 241,431 231,761
Louisiana Fund 334,861 317,646
Maryland Fund 764,216 726,520
Missouri Fund 1,080,398 1,027,614
North Carolina Fund 1,089,308 1,037,779
Texas Fund 243,044 228,882
Virginia Fund 998,646 946,658

1994

Total
Commissions Paid
Fund Received to Dealers
Alabama Fund $ 1,482,367 $ 1,423,143
Florida Fund 8,654,468 8,360,636
Georgia Fund 1,155,912 1,109,385
Kentucky Fund 562,417 554,169
Louisiana Fund 992,774 953,997
Maryland Fund 1,718,141 1,656,444
Missouri Fund 2,311,745 2,227,973
North Carolina Fund 2,310,605 2,224,377
Texas Fund 805,955 758,973
Virginia Fund 2,134,332 2,029,496

1993

Total
Commissions Paid
Fund Received to Dealers
Alabama Fund $ 1,789,127 $ 1,741,260
Florida Fund 9,067,356 8,839,207
Georgia Fund 936,143 898,305
Kentucky Fund 254,110 251,794
Louisiana Fund 927,272 897,787
Maryland Fund 1,724,712 1,682,783
Missouri Fund 1,715,810 1,655,696
North Carolina Fund 1,717,074 1,655,260
Texas Fund 882,917 842,020
Virginia Fund 2,025,899 1,942,888

Distributors may be entitled to reimbursement or
compensation under the distribution plan relating to both
classes of shares as discussed in "Plans of Distribution"
below. Except as noted, Distributors received no other
compensation from the Funds with respect to the Class I
shares for acting as underwriter.

Plans of Distribution

Each class of the Funds has adopted a Distribution Plan
("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act.

The Class I Plan

Pursuant to the Class I Plan, a Fund may pay up to a maximum
of 0.10% per annum of its average daily net assets for
expenses incurred in the promotion and distribution of its
shares. In implementing the Class I Plan, the Board of
Trustees determined that the annual fees payable thereunder
will be equal to the sum of: (i) the amount obtained by
multiplying 0.10% by the average daily net assets
represented by Class I shares of a Fund that were acquired
by investors on or after May 1, 1994 ("New Assets"), and
(ii) the amount obtained by multiplying 0.05% by the average
daily net assets represented by Class I shares of a Fund
that were acquired before May 1, 1994 ("Old Assets"). Such
fees will be paid to the current securities dealer of record
on the shareholder's account. In addition, until such time
as the maximum payment of 0.10% is reached on a yearly
basis, up to an additional 0.02% will be paid to
Distributors under the Class I Plan. The payments to be
made to Distributors will be used by Distributors to defray
other marketing expenses that have been incurred in
accordance with the Class I Plan, such as advertising.

The fee relating to the Class I Plan is an expense of Class
I as a whole, so that all Class I shareholders, regardless
of when they purchased their shares, will bear Rule 12b-1
expenses at the same rate. That rate initially will be at
least 0.07% (0.05% plus 0.02%) of such average daily net
assets and, as Class I shares are sold on or after May 1,
1994 (the "Effective Date"), will increase over time. Thus,
as the proportion of Class I shares purchased on or after
May 1, 1994 increases in relation to outstanding Class I
shares, the expenses attributable to payments under the
Class I Plan will also increase (but will not exceed 0.10%
of average daily net assets). While this is the currently
anticipated calculation for fees payable under the Class I
Plan, the Class I Plan permits the Trust's trustees to allow
a Fund to pay a full 0.10% on all assets at any time. The
approval of the Board of Trustees would be required to
change the calculation of the payments to be made under the
Class I Plan.

For the fiscal year ended February 28, 1995, aggregate
amounts paid by Class I shares pursuant to each Class I Plan
were as follows:

Class I Rule 12b-1 Adver- Printing Payments Payments to
Fund Fees Paid tising and to
by the Mailing of Under- Brokers
Fund Prospectu writers or Dealers
ses
Alabama
Fund
$101,352 $14,189 $8,108 $6,082 $72,973
Florida
Fund
753,709 135,668 45,223 37,685 535,133
Georgia
Fund 68,470 9,717 5,685 3,991 49,077
Kentucky
Fund

17,764 1,776 1,776 1,599 12,613
Louisiana
Fund
62,959 8,814 5,666 3,148 45,331
Maryland
Fund
89,815 11,676 7,185 6,287 64,667
Missouri
Fund
132,880 24,147 7,044 6,462 95,227
North
Carolina
Fund 125,373 18,806 8,776 7,522 90,269
Texas
Fund 79,560 12,729 7,956 2,387 56,488
Virginia
Fund 146,307 21,068 12,039 9,106 104,076

The Class I Plan does not permit unreimbursed expenses
incurred in a particular year to be carried over to or
reimbursed in subsequent years.

The Class II Plan

Under the Class II Plan, a Fund is permitted to pay to
Distributors or others annual distribution fees, payable
quarterly, of .50% of Class II's average daily net assets,
in order to compensate Distributors or others for providing
distribution and related services and bearing certain
expenses of the Class. All expenses of distribution and
marketing over that amount will be borne by Distributors, or
others who have incurred them, without reimbursement by such
Class. In addition to this amount, under the Class II Plan,
a Fund shall pay 0.15% per annum, payable quarterly, of the
Class' average daily net assets as a servicing fee. This fee
will be used to pay dealers or others for, among other
things, assisting in establishing and maintaining customer
accounts and records; assisting with purchase and redemption
requests; receiving and answering correspondence; monitoring
dividend payments from a Fund on behalf of the customers,
and similar activities related to furnishing personal
services and maintaining shareholder accounts. Distributors
may pay the securities dealer, from its own resources, a
commission of up to 1% of the amount invested at the time of
investment.

In General

In addition to the payments to which Distributors or others
are entitled under the Plans, the Plans also provide that to
the extent a Fund, the Manager or Distributors or other
parties on behalf of such Fund, the Manager or Distributors,
make payments that are deemed to be payments for the
financing of any activity primarily intended to result in
the sale of each class of shares of such Fund within the
context of Rule 12b-1 under the 1940 Act, then such payments
shall be deemed to have been made pursuant to the Plans.

In no event shall the aggregate asset-based sales charges
which include payments made under a Plan, plus any other
payments deemed to be made pursuant to the Plan, exceed the
amount permitted to be paid pursuant to the Rules of Fair
Practice of the National Association of Securities Dealers,
Inc., Article III, Section 26(d)4.

The terms and provisions of the Plans relating to required
reports, term, and approval are consistent with Rule 12b-1.
The Plans do not permit unreimbursed expenses incurred in a
particular year to be carried over or reimbursed in
subsequent years.

To the extent fees are for distribution or marketing
functions, as distinguished from administrative servicing or
agency transactions, certain banks may not be entitled to
participate in the Plans to the extent that applicable
federal law prohibits certain banks from engaging in the
distribution of mutual fund shares. Such banking
institutions, however, are permitted to receive fees under
the Plans for administrative servicing or for agency
transactions. If a bank were prohibited from providing such
services, its customers who are shareholders would be
permitted to remain shareholders of a Fund, and alternate
means for continuing the servicing of such shareholders
would be sought. In such an event, changes in the services
provided might occur and such shareholders might no longer
be able to avail themselves of any automatic investment or
other services then being provided by the bank. It is not
expected that shareholders would suffer any adverse
financial consequences as a result of any of these changes.
Securities laws of states in which a Fund's shares are
offered for sale may differ from the interpretations of
federal law expressed herein, and banks and financial
institutions selling shares of a Fund may be required to
register as dealers pursuant to state law.

Each Plan has been approved by the trustees of the Trust,
including those trustees who are not interested persons, as
defined in the 1940 Act. The Class I Plans were approved by
the public shareholders of each Fund in April of 1994. The
Class II Plans were approved by the sole initial shareholder
of each Fund prior to May 1, 1995, the date as of which the
Class II Plans became effective. The Class I and Class II
Plans are effective through March 31, 1996 and are renewable
annually by a vote of the Trust's Board of Trustees,
including a majority vote of the trustees who are non-
interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plans,
cast in person at a meeting called for that purpose. It is
also required that the selection and nomination of such
trustees be done by the non-interested trustees. The Plans
and any related agreement may be terminated at any time,
without any penalty, by vote of a majority of the non-
interested trustees on not more than 60 days' written
notice, by Distributors on not more than 60 days' written
notice, by any act that constitutes an assignment of the
management agreement with the Manager, or the underwriting
agreement with Distributors, or by vote of a majority of a
Fund's outstanding shares. Distributors or any dealer or
other firm may also terminate their respective distribution
or service agreement at any time upon written notice.

With respect to a Plan, the Plan and any related agreements
may not be amended to increase materially the amount to be
spent for distribution expenses without approval by a
majority of such class of a Fund's outstanding shares, and
all material amendments to the Plan or any related
agreements shall be approved by a vote of the non-interested
trustees, cast in person at a meeting called for the purpose
of voting on any such amendment.

Distributors is required to report in writing to the Board
of Trustees at least quarterly on the amounts and purpose of
any payment made under the Plans and any related agreements,
as well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to
enable the Board of Trustees to make an informed
determination of whether the Plans should be continued.

Additional Information Regarding Taxation

As stated in the Prospectus, each Fund has elected to be
treated as a regulated investment company under Subchapter M
of the Internal Revenue Code (the "Code"). The trustees
reserve the right not to maintain the qualification of any
Fund as a regulated investment company if they determine
such course of action to be beneficial to the shareholders.
In such case, the Fund will be subject to federal and
possibly state corporate taxes on its taxable income and
gains, to the alternative minimum tax on a portion of its
tax-exempt income, and distributions (including tax-exempt
interest dividends) to shareholders will be taxable income
to the extent of the Fund's available earnings and profits.

The Code requires all funds to distribute at least 98% of
their taxable ordinary income earned during the calendar
year and at least 98% of their capital gain net income
earned during the twelve-month period ending October 31 of
each year (in addition to amounts from the prior year that
were neither distributed nor taxed to the Fund) to
shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules,
certain distributions, which are declared in October,
November or December but which, for operational reasons, may
not be paid to the shareholder until the following January,
will be treated for tax purposes as if paid by the Funds and
received by the shareholder on December 31 of the calendar
year in which they are declared. The Funds intend as a
matter of policy to declare and pay such dividends, if any,
in December to avoid the imposition of this tax, but do not
guarantee that the distributions will be sufficient to avoid
any or all federal excise taxes.

All or a portion of the sales charge incurred in purchasing
shares of a Fund will not be included in the federal tax
basis of such shares sold or exchanged within ninety (90)
days of their purchase (for purposes of determining gain or
loss with respect to such shares) if the sales proceeds are
reinvested in a Fund or in another fund in the Franklin
Templeton Funds and a sales charge which would otherwise
apply to the reinvestment is reduced or eliminated. Any
portion of such sales charge excluded from the tax basis of
the shares sold will be added to the tax basis of the shares
acquired in the reinvestment. Shareholders should consult
with their tax advisors concerning the tax rules applicable
to the redemption or exchange of a Fund's shares.

Since each Fund's income is derived from interest income and
gain on the sale of portfolio securities rather than
dividend income, no portion of any of the Funds'
distributions will generally be eligible for the corporate
dividends-received deduction. None of the distributions paid
by any Fund for the fiscal year ended February 28, 1995
qualified for this deduction and it is not anticipated that
any of the current year's dividends will so qualify.

Many states grant tax-free status to dividends paid to
shareholders of mutual funds from interest income earned by
a fund from direct obligations of the U.S. Government,
subject in some states to minimum investment requirements
that must be met by a fund. Investments in GNMA/FNMA
securities and repurchase agreements collateralized by U.S.
Government securities do not generally qualify for tax-free
treatment. While it is not the primary investment objective
of any Fund of the Trust to invest in such obligations, the
Funds are authorized to so invest for temporary or defensive
purposes. To the extent that such investments are made, any
affected Fund will provide shareholders with the percentage
of any dividends paid which may qualify for such tax-free
treatment at the end of each calendar year. Shareholders
should then consult with their own tax advisors with respect
to the application of their state and local laws to these
distributions and on the application of other state and
local laws on distributions and redemption proceeds received
from the Fund.

General Information

Performance

As noted in the Prospectus, each Class may from time to time
quote various performance figures to illustrate its past
performance. Each Class also may occasionally cite
statistics to reflect its volatility or risk.

Performance quotations by investment companies are subject
to rules adopted by the SEC. These rules require the use of
standardized performance quotations or, alternatively, that
every non-standardized performance quotation furnished by a
Class be accompanied by certain standardized performance
information computed as required by the SEC. Current yield
and average annual compounded total return quotations used
by a Class are based on the standardized methods of
computing performance mandated by the SEC. An explanation of
those and other methods used by the Classes to compute or
express performance follows.

Total Return

The average annual total return is determined by finding the
average annual compounded rates of return over one-, five-,
and ten-year periods, or fractional portion thereof, that
would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the
maximum front-end sales charge is deducted from the initial
$1,000 purchase order and that income dividends and capital
gains are reinvested at net asset value, on the reinvestment
dates during the period. The quotation assumes the account
was completely redeemed at the end of each one-, five-, and
ten-year period and the deduction of all applicable charges
and fees. If a change is made in the sales charge structure,
historical performance information will be restated to
reflect the maximum sales charge currently in effect.

In considering the quotations of total return set forth
below, investors should remember that the maximum initial
sales charge reflected in each quotation is a one-time fee
(charged on all direct purchases) which will have its
greatest impact during the early stages of an investor's
investment in one of the Funds. The average annual
compounded rates of return for Class I shares of each Fund
for the indicated periods ending February 28, 1995, were as
shown below:

Average Annual Total Return
Inception From
of the Fund One Year Five Year Inception
Alabama Fund 09/01/87 -2.73% 6.70% 7.48%
Florida Fund 09/01/87 -1.96 7.05 7.94
Georgia Fund 09/01/87 -2.43 6.74 7.64
Kentucky Fund 10/12/91 -4.06 n/a 5.82
Louisiana 09/01/87 -3.12 6.68 7.46
Maryland Fund 10/03/88 -2.50 6.73 6.90
Missouri Fund 09/01/87 -2.85 7.04 7.55
North Carolina Fund 09/01/87 -3.26 6.54 7.56
Texas Fund 09/01/87 -2.51 6.80 7.74
Virginia Fund 09/01/87 -2.70 6.92 7.67

These figures were calculated according to the following SEC
formula:

n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

As discussed in the Prospectus, each Class may quote total
rates of return in addition to its average annual total
return. Such quotations are computed in the same manner as a
Class' average annual compounded rate, except that such
quotations will be based on such Class' actual return for a
specified period instead of the average return over one-,
five- and ten-year periods. The rates of total return for
Class I shares of each Fund for the indicated periods ending
February 28, 1995, were as follows:

Aggregate Total Return
Inception From
of the Fund One Year Five Year Inception
Alabama Fund 09/01/87 -2.73% 38.33% 71.80%
Florida Fund 09/01/87 -1.96 40.57 77.35
Georgia Fund 09/01/87 -2.43 38.54 73.75
Kentucky Fund 10/12/91 -4.06 n/a 21.12
Louisiana 09/01/87 -3.12 38.19 71.59
Maryland Fund 10/03/88 -2.50 38.48 53.34
Missouri Fund 09/01/87 -2.85 40.49 72.69
North Carolina Fund 09/01/87 -3.26 37.29 72.75
Texas Fund 09/01/87 -2.51 38.97 74.93
Virginia Fund 09/01/87 -2.70 39.76 74.06

Yield

Current yield reflects the income per share earned by a
Fund's portfolio investments.

Current yield is determined by dividing the net investment
income per share earned during a 30-day base period by the
maximum offering price per share on the last day of the
period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during
the base period. The yield for Class I shares of each Fund
for the 30-day period ended February 28, 1995 was as
follows:

Current
30-Day
Yield
Alabama Fund 5.38%
Florida Fund 5.56
Georgia Fund 5.20
Kentucky Fund 5.73
Louisiana Fund 5.50
Maryland Fund 5.43
Missouri Fund 5.24
North Carolina Fund 5.30
Texas Fund 5.33
Virginia Fund 5.29

These figures were obtained using the following SEC formula:

6
Yield = 2 [( a-b + 1 ) - 1]
---
cd

where:

a = interest earned during the period

b = net expenses accrued for the period

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends

d = the maximum offering price per share on the last day of
the period

30-Day Tax Equivalent Yield

A Class may also quote a tax equivalent yield which
demonstrates the taxable yield necessary to produce an after-
tax yield equivalent to that of a Class which invests in tax-
exempt obligations. Such yield is computed by dividing that
portion of the yield of a Class (computed as indicated
above) which is tax-exempt by one minus the highest
applicable combined federal and state income tax rate (and
adding the product to that portion of the yield of a Class
that is not tax-exempt, if any). The tax equivalent yield
for Class I shares of each Fund for the 30-day period ended
February 28, 1995, was as follows:

30-Day Tax
Equivalent
Yield
Alabama Fund 9.38%
Florida Fund 9.21
Georgia Fund 9.16
Kentucky Fund 10.09
Louisiana Fund 9.69
Maryland Fund 9.95
Missouri Fund 9.23
North Carolina Fund 9.51
Texas Fund 8.82
Virginia Fund 9.29

The following table lists for each state, the state and the
combined state and federal income tax rates upon which the
Trust's tax equivalent yield quotations are based. From time
to time, as any changes to such rates become effective, tax
equivalent yield quotations advertised by the Trust will be
updated to reflect such changes. The Trust expects updates
will be necessary as tax rates are frequently changed by
federal, state and local governments. The advantage of tax-
free investments, such as the Funds of the Trust, will be
enhanced by any tax rate increases. Therefore, the details
of specific tax increases may be used in sales material for
any Fund.

State Combined*
Alabama 5.00% 42.62%
Florida 0.00 39.60
Georgia 6.00 43.22
Kentucky 6.00 43.22
Louisiana 6.00 43.22
Maryland** 6.00 45.40
Missouri 6.00 43.22
North Carolina 7.75 44.28
Texas 0.00 39.60
Virginia 5.75 43.07

*Based on the maximum combined state and 39.6% federal tax
rate in effect as of the date of this SAI.

**Based on the maximum combined federal, state and county
tax rate for all Maryland counties except Worcester County.

Quotations of taxable equivalent yield by a Class in
advertisements may reflect assumed rates of return which are
not intended to represent historical or current distribution
rates or yields. Such quotations will be used in sales
literature, such as Franklin's Tax-Free Yield Calculator, to
illustrate the general principle of the impact taxes have on
rates of return or to show the taxable rate of return that
would be needed to match a tax-free rate of return.

Current Distribution Rate

Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not
indicative of the amounts which were or will be paid to a
Class' shareholders. Amounts paid to shareholders are
reflected in the quoted current distribution rate or taxable
equivalent distribution rate. The current distribution rate
is computed by dividing the total amount of dividends per
share paid by a Class during the past 12 months by a current
maximum offering price. A taxable equivalent distribution
rate demonstrates the taxable distribution rate equivalent
to a Class' current distribution rate (calculated as
indicated above). The advertised taxable equivalent
distribution rate will reflect the most current federal and
state tax rates available to a Fund.

Under certain circumstances, such as when there has been a
change in the amount of dividend payout or a fundamental
change in investment policies, it might be appropriate to
annualize the dividends paid over the period such policies
were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from
the current yield computation because it may include
distributions to shareholders from additional sources (i.e.,
sources other than dividends and interest), such as short-
term capital gains and net equalization credits, and is
calculated over a different period of time.

The current distribution rate for Class I shares of each
Fund for the 12-month period ended February 28, 1995, was as
follows:

Current
Distribution
Rate
Alabama Fund 5.49
Florida Fund 5.77
Georgia Fund 5.48
Kentucky Fund 5.55*
Louisiana Fund 5.63
Maryland Fund 5.47
Missouri Fund 5.32
North Carolina Fund 5.46
Texas Fund 5.72
Virginia Fund 5.48

*includes expense waiver

Volatility

Occasionally statistics may be used to specify Fund
volatility or risk. Measures of volatility or risk are
generally used to compare a Fund's net asset value or
performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund
relative to the total market as represented by an index
considered representative of the municipal bond market. A
beta of more than 1.00 indicates volatility greater than the
market, and a beta of less than 1.00 indicates volatility
less than the market. Another measure of volatility or risk
is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an
average over a specified period of time. The premise is that
greater volatility connotes greater risk undertaken in
achieving performance.

Other Performance Quotations

With respect to those categories of investors who are
permitted to purchase Class I shares at net asset value,
sales literature pertaining to such Class' may quote a
current distribution rate, yield, total return, average
annual total return and other measures of performance as
described elsewhere in this SAI with the substitution of net
asset value for the public offering price.

Regardless of the method used, past performance is not
necessarily indicative of future results, but is an
indication of the return to shareholders only for the
limited historical period used.

Comparisons

To help investors better evaluate how an investment in a
Fund might satisfy their investment objective,
advertisements and other materials regarding the Funds may
discuss various measures of Fund and Class performance as
reported by various financial publications. Materials may
also compare performance (as calculated above) to
performance as reported by other investments, indices, and
averages. When advertising current ratings or rankings, a
Class may advertise together or separately the following
past ratings and rankings, and such information in those
categories which may appear in the future:

Lipper Fixed-Income Fund Performance Analysis ranked the
Florida Fund number one in total return in the Florida
Municipal Debt Funds Category for its one-year total return
for the year-ended December 31, 1994, with a total return of
- -3.33%. There were fifty funds in the category.

Lipper Fixed-Income Fund Performance Analysis ranked the
Georgia Fund number one in total return in the Georgia
Municipal Debt Funds Category for its one-year and five-year
total returns for the year-ended December 31, 1994, with
total returns of -3.72% and 38.58%, respectively. There
were seventeen funds in the one-year category, and five
funds in the five-year category.

Lipper Fixed-Income Fund Performance Analysis ranked the
Missouri Fund number one in total return in the Missouri
Municipal Debt Funds Category for its one-year and five-year
total returns for the year-ended December 31, 1994, with
total returns of -5.08% and 39.57%, respectively. There
were eleven funds in the one-year category, and five funds
in the five-year category.

Lipper Fixed-Income Fund Performance Analysis ranked the
Virginia Fund number one in total return in the Virginia
Municipal Debt Funds Category for its one-year and five-year
total returns for the year-ended December 31, 1994, with
total returns of -4.62% and 38.80%, respectively. There
were twenty-three funds in the one-year category, and five
funds in the five-year category.

Lipper Fixed-Income Fund Performance Analysis ranked the
North Carolina Fund number one in total return in the North
Carolina Municipal Debt Funds Category for its five-year
total return for the year-ended December 31, 1994, with a
total return of 35.84%. There were four funds in the
category.

The Lipper Fixed-Income Fund Performance Analysis and Lipper
Mutual Fund Yield Survey for Industry Averages - measure
total return and average current yield for the mutual fund
industry and rank individual mutual fund performance over
specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.

In addition to such reports by Lipper, the following
publications and indices may be used to discuss or compare
Fund performance:

Lehman Brothers Municipal Bond Index measures yield, price,
and total return for the municipal bond market.

Bond Buyer 20 Bond Index is an index of municipal bond
yields based on yields of 20 general obligation bonds
maturing in 20 years.

Bond Buyer 40 Bond Index is an index of municipal bond
yields based on yields of 40 general obligation bonds with
an average maturity of 29-30 years.

Salomon Brothers Broad Investment Grade Index is
representative of the entire universe of taxable - fixed
income investments. It includes issues of U.S. government
securities, and any agency thereof; corporate issues of
investment grade, mortgage backed securities; and yankee
bonds.

Lehman Brothers Aggregate Bond Index includes fixed-rate
debt issues rated investment grade or higher by Moody's, S&P
or Fitch, in that order. All issues have at least one year
to maturity and an outstanding par value of at least $100
million for U.S. government, $50 million for all others. It
is a composite of the Government Corporate Index and the
Mortgage-Backed Securities Index.

Merrill Lynch California Municipal Bond Index is based upon
yields from revenue and general obligation bonds weighted in
accordance with their respective importance to the
California municipal market. The index is published weekly
in the Los Angeles Times and the San Francisco Chronicle.

Savings & Loan Historical Interest Rates as published by the
U.S. Savings & Loan League Fact Book.

Inflation as measured by the Consumer Price Index, published
by the U.S. Bureau of Labor Statistics.

Financial Publications: The Wall Street Journal, Business
Week, Changing Times, Financial World, Forbes, and Money
magazine.

Standard & Poor's Bond Indices - measure yield and price of
corporate, municipal, and government bonds.

Advertisements or information may mention or discuss ratings
or rankings of the Insured Funds or their securities, issued
by securities ratings agencies or other organizations.

From time to time, advertisements or information for a Fund
or Class may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund. Such
advertisements or information may also compare a Fund's
performance to the return on certificates of deposit or
other investments. Investors should be aware, however, that
an investment in a Fund involves the risk of fluctuation of
principal value, a risk generally not present in an
investment in a certificate of deposit issued by a bank. For
example, as the general level of interest rates rise, the
value of the Fund's fixed-income investments, as well as the
value of its shares which are based upon the value of such
portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of a
Fund's shares can be expected to increase. Certificates of
deposit are frequently insured by an agency of the U.S.
government. An investment in any of the Funds is not insured
by any federal, state or private entity.

In assessing such comparisons of performance, an investor
should keep in mind that the composition of the investments
in the reported indices and averages is not identical to the
Funds' portfolios, that the indices and averages are
generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the
formula used by the Funds to calculate their figures. In
addition there can be no assurance that the Funds will
continue this performance as compared to such other
averages.

Franklin had the first single-state municipal bond funds in
California, Massachusetts, Michigan, Minnesota and Ohio.

Other Features and Benefits

Founded in 1947, Franklin is a leader in the tax-free mutual
fund industry, currently offering 42 tax-free funds,
including 33 funds free from both federal and state personal
income taxes, and managing more than $40 billion in
municipal bond assets for over half a million investors.

Currently, there are more mutual funds than there are stocks
listed on the Exchange. While many of them have similar
investment objectives, no two are exactly alike. As noted in
the Prospectuses, shares of a Fund are generally sold
through securities dealers or other financial institutions.
Investment representatives of such securities dealers or
financial institutions are experienced professionals who can
offer advice on the type of investment suitable to an
investor's unique goals and needs, as well as the types of
risks associated with such investment.

Miscellaneous Information

Each Fund is a member of the Franklin Templeton Group, one
of the largest mutual fund organizations in the United
States and may be considered in a program for
diversification of assets. Founded in 1947, Franklin, one of
the oldest mutual fund organizations, has managed mutual
funds for over 47 years and now services more than 2.5
million shareholder accounts. In 1992, Franklin, a leader in
managing fixed-income mutual funds and an innovator in
creating domestic equity funds, joined forces with Templeton
Worldwide, Inc., a pioneer in international investing.
Together, the Franklin Templeton Group has over $116 billion
in assets under management for more than 3.8 million
shareholder accounts and offers 111 U.S.-based mutual funds.
A Fund may identify itself by its NASDAQ or CUSIP number.

The Dalbar Surveys, Inc. broker/dealer survey has ranked
Franklin number one in service quality for five of the past
seven years.

According to Strategic Insight, dated November 30, 1994, the
Franklin Florida Tax-Free Income Fund is the largest
municipal bond fund.

From time to time, advertisements or sales material issued
by the Funds may discuss or be based upon information in a
recent issue of the Special Report on Tax Freedom Day
published by the Tax Foundation, a Washington, D.C.-based
nonprofit, research and public education organization. The
report illustrates, among other things, the amount of time,
on an annual basis, the average taxpayer works to satisfy
his or her tax obligations to the federal, state and local
taxing authorities.

The shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable as
partners for its obligations. The Trust's Declaration of
Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust.
The Declaration of Trust also provides for indemnification
and reimbursement of expenses out of Trust assets for any
shareholder held personally liable for obligations of the
Trust. The Declaration of Trust provides that the Trust
shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the
Trust and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund(s) of which a shareholder
holds shares. The Declaration of Trust further provides that
the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the
protection of the Trust, its shareholders, Trustees,
officers, employees and agents to cover possible tort and
other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance
exists and the Trust itself is unable to meet its
obligations.

From time to time, the number of shares of beneficial
interest of any Fund held in the "street name" accounts of
various securities dealers for the benefit of their clients
or in centralized securities depositories may exceed 5% of
the total shares outstanding. To the best knowledge of the
Trust, as of April 3, 1995, no other person holds
beneficially or of record more than 5% of a Fund's
outstanding shares.

Access persons of the Franklin Templeton Group, as defined
in SEC Rule 17(j) under the 1940 Act, who are employees of
Resources or its subsidiaries, are permitted to engage in
personal securities transactions subject to the following
general restrictions and procedures: (1) the trade must
receive advance clearance from a compliance officer and must
be completed within 24 hours after this clearance; (2)
copies of all brokerage confirmations must be sent to the
compliance officer and within 10 days after the end of each
calendar quarter, a report of all securities transactions
must be provided to the compliance officer; (3) in addition
to items (1) and (2), access persons involved in preparing
and making investment decisions must file annual reports of
their securities holdings each January and also inform the
compliance officer (or other designated personnel) if they
own a security that is being considered for a fund or other
client transaction or if they are recommending a security in
which they have an ownership interest for purchase or sale
by a fund or other client.

Ownership and Authority Disputes

In the event of disputes involving multiple claims of
ownership or authority to control a shareholder's account,
the Funds have the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all
persons deemed by the Funds to have a potential property
interest in the account, prior to executing instructions
regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c)
surrender ownership of all or a portion of the account to
the Internal Revenue Service in response to a Notice of
Levy.

Financial Statements

The financial statements contained in the Trust's Annual
Report to Shareholders dated February 28, 1995, are
incorporated herein by reference.

Appendix A
Description of Municipal
Securities Ratings

Municipal Bonds

Moody's

Aa: Municipal bonds which are rated Aa are judged to be high
quality by all standards. Together with the Aaa group, they
comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater
amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities.

Baa: Bonds which are rated Baa are considered as medium-
grade obligations, i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security
appear adequate for the present, but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have
speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have
predominantly speculative elements; their future cannot be
considered as well assured. Often the protection of interest
and principal payments may be very moderate and, thereby,
not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this
class.

Caa: Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.

Ca: Bonds which are rated Ca represent obligations which are
speculative to a high degree. Such issues are often in
default or have other marked shortcomings.

C: Bonds which are rated C are the lowest-rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.

Con. (-): Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition
are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments
to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis
condition.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B in its
municipal bond ratings. Modifier 1 indicates that the
security ranks in the higher end of its generic rating
category. Modifier 2 indicates a mid-range ranking; and
modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.

S&P

A: Municipal bonds rated A are regarded as upper medium-
grade. They have considerable investment strength but are
not entirely free from adverse effects of changes in
economic and trade conditions. Interest and principal are
regarded as safe. They predominantly reflect money rates in
their mar- ket behavior but also, to some extent, economic
conditions.

C: This rating is reserved for income bonds on which no
interest is being paid.

D: Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears.

Note: The S&P ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within
the major rating categories.

Fitch

AAA bonds: (highest quality) "the obligor has an
extraordinary ability to pay interest and repay principal
which is unlikely to be affected by reasonably foreseeable
events."

AA bonds: (high quality) "the obligor's ability to pay
interest and repay principal, while very strong, is somewhat
less than for AAA-rated securities or more subject to
possible change over the term of the issue."

A bonds: (good quality) "the obligor's ability to pay
interest and repay principal is strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings."

BBB bonds: (satisfactory bonds) "the obligor's ability to
pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this
ability than bonds with higher ratings."

Municipal Notes

Moody's

MIG-2: Notes are of high quality, with margins of protection
ample, although not so large as in the preceding group.

MIG-4: Notes are of adequate quality, carrying specific risk
but having protection and not distinctly or predominantly
speculative.

S&P

SP-2: Issues carrying this designation have a satisfactory
capacity to pay principal and interest.

Commercial Paper

Moody's

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of
timely payment of debt having an original maturity of no
more than 365 days. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D"
for the lowest. Issues within the A category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree
of safety, as follows:

A-1: This designation indicates the degree of safety
regarding timely payment is very strong. A "plus" (+)
designation indicates an even stronger likelihood of timely
payment.

A-2: Capacity for timely payment on issues with this
designation is strong. However, the relative degree of
safety is not as overwhelming as for issues designated A-1.

Fitch's Short-term and Commercial Paper Ratings

F-1+: Exceptionally strong credit quality. Regarded as
having the strongest degree of assurance for timely payment.

F-1: Very strong credit quality. Reflect on assurance of
timely payment only slightly less in degree than issues
rated F-1+.

F-2: Good credit quality. A satisfactory degree of assurance
for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.

F-S: Weak credit quality. Have characteristics suggesting a
minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and
economic conditions.

D: Default. Actual or imminent payment default.

LOC: The symbol LOC indicates that the rating is based on a
letter of credit issued by a commercial bank.

Appendix B
Further Information on Special
Factors Affecting Each Fund

The following information is a summary of special factors
affecting each of the individual Funds. It does not purport
to be a complete description of such factors and is based
primarily upon information derived from public documents
relating to securities offerings of issuers of such states
and other historically reliable sources such as S&P
Creditweek Municipal and Moody's Municipal Credit Reports.
The Trust has not independently verified any of this data.
The market value of the shares of any Fund may fluctuate due
to factors such as changes in interest rates, matters
affecting a particular state, or for other reasons.

ALABAMA

Alabama's finances are primarily handled through the Special
Education Trust and General Funds, on a cash basis. In
recent years, these funds have constituted about 43% and
11%, respectively, of all state revenues.

The state implements conservative financial policies as
evidenced by its strong balanced budget acts, which allow
spending only from monies on-hand in the state treasury.
During fiscal 1991, the governor prorated the state's
Special Education Trust Fund budget twice and the General
Fund once to ensure expenditures did not exceed revenues at
year-end. Although these funds ended the 1991 fiscal year
with positive balances of $416,000 and $402,000,
respectively, these levels represented substantial declines
from previous years and reflected the effects of weakened
revenue collections during the fiscal year.

During fiscal 1992, in response to projected revenues
shortfalls in the Special Education Trust Fund, the
administration prorated the fund by 6.5%. This proration
placed fiscal 1992 appropriations equal to 1991 levels.
However, as the fiscal year progressed, income and sales tax
receipts improved, enabling the Governor to reduce the
original proration to 5.5%. At fiscal year end, unencumbered
balances of the Special Education Trust Fund and the General
Fund equaled $2.5 million and $23.4 million, respectively.

Although the original 1993 budget projected a 6.1% or $47
million increase in general fund expenditures, shortfalls in
General Fund revenues led the state to reduce expenditures
by 3.2%. As a result, Alabama achieved a surplus of
approximately $29 million for fiscal 1993. At year end, the
unecumbered balances for the Special Education Trust Fund
and the General Fund, respectively, were approximatley $83
million and $48 million.

The state's overall outlook is stable, and the state has
sound financial management and low debt.

FLORIDA

Florida's financial performance and position remain
satisfactory. In recent fiscal years, lower-than-expected
economic activity resulted in significant state revenue
shortfalls. However, because of timely action, the state has
maintained budgetary balance. In the coming years, difficult
choices will arise among spending priorities and tax
policies. An adequate balance must be found to cope with
funding demands driven by rapid population growth while
still promoting economic development. Funding increased
Medicaid and corrections costs will be especially important.

In recent years, Florida's consumption tax-based revenues
received a boost from the economic activity associated with
the rebuilding and cleanup of southern Florida as a result
of damage caused by Hurricane Andrew in August 1992.

The budget adopted for fiscal 1995 provides for an increase
in spending in the General Revenue Fund of 7.6% from fiscal
1994. Florida projects revenue growth of approximately 6.6%,
no new taxes and and relatively minor fee increases. The
budget provides the first required minimum 5% deposit into
the Budget Stabilization Fund of $200 million and for a
drawn down of the Working Capital Fund from $300 million to
$159 million. The Governor's proposed 1996 budget calls for
increased general revenue spending of 4.8% based on existing
tax sources. It also calls for a $260 million budget
stabilization fund balance and a working capital fund
balance of $900 million. The proposed budget is within the
state's 1994 revenue limitation law limits.

GEORGIA

Through the 1980's, Georgia's financial operations were
favorable, with strong General Fund revenue gains and
increases in reserve levels. However, slower than budgeted
revenue growth resulted in Georgia budget deficits for the
fiscal years 1990 through 1992 and virtually depleted state
reserves. However, stonger economic trends and more
conservative budgeting resulted in surpluses for fiscal
years 1993 and 1994 as well as significant increases in
reserve fund levels. For fiscal 1993, Georgia deposited
approximately $123 million to the Revenue Shortfall Reserve
and $83 million to the Mid-Year Adjustment Reserve. For
fiscal 1994, revenues increased approximately 7.8%, and
Georgia deposited approximately $220 million and $83
million, respectively, in the the two reserves.

The state's fiscal 1995 budget projects overall revenue
growth at 7.8%. In addition, the budget provides for an
reduced capital borrowing program of $377 million, down from
1993's $792 million, to provide additional funding for
public and higher education, as well as for roads, bridges
and environmental preservation. Net proceeds of an
anticipated $240 million from the state lottery will be used
to fund education programs.

KENTUCKY

Kentucky's financial operations were strained during the
fiscal years 1987-1990 due to substantial increases in
educational expenditures absent concurrent revenue-
generating proposals.

Following a 1989 state supreme court decision, Kentucky
increased taxes by more than $1.2 billion to fund education
reform in the 1990-1992 biennium. By June 30, 1991, the
commonwealth's unreserved general fund balance on a
Generally Accepted Accounting Principle ("GAAP") basis
reached $124 million as a result of the new taxes. It was
expected that Kentucky would spend some of those reserves
during the ensuing fiscal years.

Despite surprisingly strong economic activity, Kentucky had
to resort to one-time budget balancing strategies in recent
years. By fiscal 1992 the commonwealth was already resorting
to withholding income tax refunds to balance its cash-based
budget. On a GAAP basis, the commonwealth's budget reached
negative $113 million on an unreserved basis. Of even
greater concern was the structural imbalance between what
the commonwealth was spending and what it was taking in as
revenue. For fiscal 1993, Kentucky again resorted to
delaying income tax refunds to balance the budget.

By fiscal 1994, however, Kentucky's financial operations had
stabilized as the commonwealth enacted measures promoting
structural balance and increased reserves. By depositing
$56 million at fiscal 1994 year end, Kentucky raised the
Budget Revenue Fund balance to approximately $90 million.
The enacted biennial budget for fiscal 1995 and 1996 was
designed to continue this trend. The budget calls for a $100
million Budget Reserve Fund balance by 1995 fiscal year end.

LOUISIANA

Louisiana's property tax code structure tends to favor
residences over commercial and industrial real estate, with
the latter two sectors carrying much of the local tax
burden. Attempts to reform the tax code have not met with
success in recent years, although new attempts to create a
more equitable tax code are likely.

Despite tight budgets in fiscal 1993 and 1994, both years
produced balanced budgets due to strong revenue performance
based on the economy and large federal funding infusions for
Medicaid. Prior cash flow concerns were mitigated in 1994
due to the legislature's expansion of borrowable funds to
other treasury-managed accounts.

Fiscal 1993's appropriation of $620 million was reduced mid-
year to $575 million. Higher education was cut further in to
$555 million. However, tuition increases allowed by the
legislature in fiscal 1994 may generate $25 million in
annualized revenues, bringing 1994 funding back to the final
amount available in 1993.

Louisiana faces large gaps in funding for fiscal years 1995
and 1996. The state is scheduled to lose $750 million in
federal Medicaid funding and has unfunded risk management
liabilities of approximately $750 million. Louisiana is
seeking a federal waiver to restructure its Medicaid program
to avoid a shortfall.

MARYLAND

Although Maryland is among the most heavily indebted of the
states, it has maintained a superior credit rating. The
state has restrained borrowing in recent years, resulting in
a more modest relative debt position. The state's formal
debt review process seeks to limit total debt to 3.2% of
personal income and debt service to 8% of state revenues.

Strong administrative control of state finances is
maintained by the State Board of Public Works, made up of
the governor, treasurer and controller. The revenue stream
is diversified, relying on sales and income taxes, and state
property tax continues to be levied to service part of the
debt. During the late 1980's, when the state's economy
flourished, sizeable reserves were gathered in the Revenue
Stabilization Fund.

The state's financial performance and position, though
historically very strong, came under stress during, and
after, the recent recession. A combination of revenue
shortfalls and expenditure overruns hindered state finances
in the years just prior to 1993. Budgetary solutions have
included administrative expenditure cuts, use of general and
other fund reserves, implementation of new revenues
measures, and local aid reductions.

Prompt and prudent actions by state officials restored
budgetary balance in 1993. The state ended 1993 with a
positive $302 million and $114 million general fund balance
on a budgetary and GAAP basis, respectively. In addition,
the state's reserve fund was restored to $57.5 million after
being reduced substantially in prior years to fund budget
shortfalls.

Preliminary year-end estimates for fiscal 1994 showed a $60
million general fund surplus and a reserve fund balance of
$162 million. The approved budget for fiscal 1995 calls for
a budgetary surplus of approximately $49 million and reserve
fund balance exceeding $220 million.

MISSOURI

Missouri ended fiscal 1993 with finances improved over the
previous year. The state's General Fund recorded an
unreserved, undesignated surplus of $77 million. A
continuing strength was the state's reserve for cash
operations and budget stabilization, which increased to $218
million in 1993 from $204.9 million in 1992.

General revenues for fiscal 1994 were up approximately 7.1%
and allowed Missouri to make additional deposits to
reserves. The state projects that general revenues for
fiscal year 1995 to increase approximately 9.8% over fiscal
1994. Missouri continues to maintain relatively low per
capita debt levels.

Continuing litigation and penalties imposed over
desegregation issues in Kansas City and St. Louis continue
to affect the state's financial strength. The state has
budgeted approximately $360 million in fiscal 1995 to be
used to for desegregation costs.

NORTH CAROLINA

Economic improvement and conservative budget practices
continued the improvements in the state's finances in fiscal
1993. The general fund deficit was eliminated and at June
30, the unreserved, undesignated general fund balance
equaled $209 million, not including $176 million reserved
for budget stabilization, and $57 million reserved for
repairs and replacement. When combined, these balances equal
$442 million, which compares very favorably with the
original budgetary estimate of only $3.6 million. The
positive difference from the original budget resulted
largely from better-than-expected tax revenues. Personal
income tax collections exceeded estimates by $195 million,
and sales taxes were greater than estimated by $18 million.
Expenditures for fiscal 1993 fell $320 million below
original budgetary projection. Spending reversions in excess
of $150 million combined with $158 million of federal aid
for disproportionate share payments caused the positive
expenditure difference.

As required by the state's 1992 budget reform package, 25%
of all future ending balances are to be reserved in a budget
stabilization fund until that fund equals 5% of the prior
year's operating budget. At the end of fiscal 1993, $176
million had been accumulated in this fund.

For fiscal 1994, restrained expenditure growth combined with
conservative revenue assumption again yielded positive
financial variances. Overall tax revenues grew 8.0% compared
to the budgeted growth of 6.0%. Expenditures again fell
below 1994 fiscal estimates because of spending reversions
and the effects of federal disproportionate share aid on
Medicaid spending. Available unreserved balances and budget
stabilization reserves totaled $440 million at the end of
fiscal 1994, which was equivalent to 4.1% of annual
expenditures.

TEXAS

Texas' financial performance has improved following the
substantial operating and fund balance deficits for the
fiscal 1986-1987 biennium, which were precipitated by an
economic downturn in the energy sector. The state's economy
slowly began to rebound during the fiscal 1988-1989
biennium, and the recovery, coupled with a $5.7 billion tax
bill approved by the 1987 legislature, strengthened the
state's financial position. The state ended fiscal year 1992
with $615 million in cash in the state treasury.

The state had a projected budget gap of $4.8 billion for the
biennium ending August 31, 1993. This was offset by $1.9
billion in budget cuts and $540 million of consolidation of
funds, as well as approval of a state lottery in order to
generate $500 million. Tax rates were increased and tax
bases expanded which raised an additional $1.6 billion. As a
result, the state ended fiscal year 1993 with $1.6 billion
in cash in the state treasury.

Due to an economy that outpaced the nation as a whole, Texas
finished fiscal 1994 with an approximately $600 million
budget surplus and approximately $2.2 billion in the state
treasury. The budget for the biennium ending August 31,
1995, totalling $70 billion, represents a 12.3% increase in
spending over the prior budget.

In response to a 1989 Texas Supreme Court decision that held
that the state's school finance system unconstitutional, the
Texas legislature enacted Senate Bill 7, which provides for
five alternative ways for wealthy districts to share their
tax base with poorer districts. In January 1995, the Texas
Supreme Court upheld Senate Bill 7 as constitutional, thus
resolving a major but not the only major uncertainty
surrounding Texas school financing.

VIRGINIA

The commonwealth enjoys a superior credit rating based in
part on a long history of well-managed financial operations.
Its guideline of limiting expected debt service to 5% of
revenues is a prudent management tool. Also, the
commonwealth has made significant mid-biennium budgetary
adjustments to maintain financial balance. During the 1990-
92 period, when revenue expectations for the biennium were
reduced $2.1 billion, the commonwealth preserved financial
balance through a series of transfers, appropriation
reductions and other budgetary revisions. As a result, the
General Fund ended fiscal 1992 with a surplus of $195
million.

The commonwealth's finances continued to improve through
fiscal years 1993 and 1994. Improved General Fund balances
resulted primarily from increased revenue collections
generated by better economic conditions, the collections
growing 8.9% in 1993 and 6.0% in 1994. At the end of fiscal
1993, the commonwealth deposited approximately $79 million
in a constitutionally mandated revenue stabilization fund.

The biennial budget for fiscal years 1995 and 1996 calls for
revenue growth of 5.6% and 5.1%, respectively, with no new
taxes. However, realization of these estimates may be
vulnerable to weakened personal income growth. The budget
also calls for an additonal $80 million deposit to the
revenue stabilization fund during the 1995-96 biennium.

The commonwealth's direct general obligation per capita is
low.

FRANKLIN TAX-FREE TRUST
PROSPECTUS
May 1, 1995

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN

Franklin Tax-Free Trust (the "Trust") is an open-end
management investment company consisting of 27 separate
series, most of which offer two classes of shares
("multiclass") to their investors. This Prospectus relates
to the nine series listed below, eight of which, as noted,
are currently offering two classes of shares:

Class I Class II
Franklin Arizona Tax-Free Franklin Arizona Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Colorado Tax-Free Franklin Colorado Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Connecticut Tax-Free Franklin Connecticut Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin High Yield Tax-Free Franklin High Yield Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Indiana Tax-Free not available
Income Fund, Class I
Franklin New Jersey Tax-Free Franklin New Jersey Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Oregon Tax-Free Income Franklin Oregon Tax-Free Income
Fund, Class I Fund, Class II
Franklin Pennsylvania Tax-Free Franklin Pennsylvania Tax-Free
Income Fund, Class I Income Fund, Class II
Franklin Puerto Rico Tax-Free Franklin Puerto Rico Tax-Free
Income Fund, Class I Income Fund, Class I

Each Fund may, separately or collectively, be referred to as
the "Fund" or "Funds, "State Funds" or individually by the
state, territory or investment policy included in its name.
Each Fund may also be referred to as Class I or Class II
shares, as required within the context of the discussion.
The Indiana Fund will be included in all discussions
pertaining to Class I in this Prospectus. Investors can
choose between Class I shares, if available for the series,
which generally bear a higher front-end sales charge and
lower ongoing Rule 12b-1 distribution fees ("Rule 12b-1
fees"), and Class II shares, which generally have a lower
front-end sales charge and higher ongoing Rule 12b-1 fees.
Investors should consider the differences between the two
classes, including the impact of sales charges and
distribution fees, in choosing the more suitable class given
their anticipated investment amount and time horizon. See
"How to Buy Shares of the Funds - Alternative Purchase
Arrangements."

Each Fund seeks to provide investors with as high a level of
income exempt from federal income taxes as is consistent
with prudent investing, while seeking preservation of
shareholders' capital. Each Fund, other than the High Yield
Fund, also seeks to provide a maximum level of income which
is exempt from the personal income taxes for resident
shareholders of the named state or territory. The High Yield
Fund seeks to provide investors with a high current yield
exempt from federal income taxes by investing in municipal
securities which have been rated in the lower-grade
categories by one of various "nationally recognized
statistical rating organizations" ("NRSROs") such as Moody's
Investors Service ("Moody's"), Standard and Poor's
Corporation ("S&P"), or Fitch Investors Service,
Inc.("Fitch"), or in unrated municipal securities deemed to
be of comparable credit quality by the Fund's investment
manager. As a secondary objective, the Fund will seek
capital appreciation to the extent this is possible and is
consistent with its principal investment objective. Franklin
Puerto Rico Tax-Free Income Fund seeks to provide a maximum
level of income which is exempt from the personal income
taxes of the majority of states. Residents of Puerto Rico
should consult their tax advisers prior to investing in any
of the Funds.

The High Yield Fund invests in a diversified portfolio of
municipal securities from different states. Each State Fund
invests primarily in municipal securities issued by its
respective state and its political subdivisions, agencies
and instrumentalities.

The High Yield Fund may invest up to 100% of its portfolio
in non-investment grade bonds, commonly known as "junk
bonds", which entail default and other risks greater than
those associated with higher rated securities. Investors
should carefully assess the risks associated with an
investment in the High Yield Fund. See "Investment Risk
Considerations - Risk Factors Relating to High Yielding,
Fixed-Income Securities."

This Prospectus is intended to set forth in a clear and
concise manner information about the Trust and each of the
nine Funds that a prospective investor should know before
investing. After reading the Prospectus, it should be
retained for future reference; it contains information about
the purchase and sale of shares and other items which a
prospective investor will find useful to have.

A Statement of Additional Information ("SAI"), concerning
the Funds, dated May 1, 1995, as may be amended from time to
time, provides a further discussion of certain areas in this
Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated herein by
reference. A copy is available without charge from the Trust
or the Trust's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors") at the address or
telephone number shown on the cover.

Contents Page

Expense Table

Financial Highlights

About the Trust

Investment Objective and
Policies of Each Fund

Investment Risk Considerations

Management of the Trust

Distributions to Shareholders

Taxation of the Funds
and Their Shareholders

How to Buy Shares of the Funds

Other Programs and Privileges
Available to Shareholders of the Funds

Exchange Privilege

How to Sell Shares of a Fund

Telephone Transactions

Valuation of Shares of the Funds

How to Get Information Regarding
an Investment in a Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

Appendix A -
Description of State Tax Treatment

Appendix B -
Special Factors Affecting Each State Fund

Appendix C -
Description of Municipal Securities Ratings

EXPENSE TABLE

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in a Fund. These figures are based on the
operating expenses of the Funds for the fiscal year ended February 28, 1994,
restated to reflect 12b-1 fees as though such had been in effect at the
beginning of the fiscal year.

<TABLE>
CONNEC- HIGH NEW PENN- PUERTO
ARIZONA COLORADO TICUT YIELD INDIANA JERSEY OREGON SYLVANIA RICO
FUND FUND FUND FUND FUND FUND FUND FUND FUND
------- -------- ------- ----- ------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)....... 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
Maximum Sales Charge Imposed on
Reinvested Dividends...................... NONE NONE NONE NONE NONE NONE NONE NONE NONE
Deferred Sales Charge........................ NONE NONE NONE NONE NONE NONE NONE NONE NONE
Redemption Fees.............................. NONE NONE NONE NONE NONE NONE NONE NONE NONE
*Exchange Fee (per transaction).............. $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00

Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees.............................. 0.49% 0.57% 0.59% 0.46% 0.63% 0.50% 0.53% 0.50% 0.58%
**12b-1 Fees................................. 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Other Expenses:
Shareholder Servicing Costs................ 0.01% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.03%
Reports to Shareholders.................... 0.02% 0.02% 0.03% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Other...................................... 0.02% 0.03% 0.01% 0.03% 0.03% 0.02% 0.01% 0.02% 0.03%
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses................ 0.64% 0.74% 0.75% 0.63% 0.67% 0.81% 0.68% 0.66% 0.76%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

*$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
**Shareholders of each Fund approved a plan of distribution (the "Plan")
pursuant to Rule 12b-1 of the Investment Company Act of 1940 which provides for
payments by each Fund for distribution of its shares, up to a maximum annual
rate of 0.10% of average net assets. See "Management of the Funds - Plans of
Distribution." Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end sales charges
and Rule 12b-1 fees could cause long-term shareholders to pay more than the
economic equivalent of the maximum front-end sales charges permitted under
those same rules.

Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in a Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.

EXAMPLE

As required by regulations of the SEC, the following examples illustrate the
expenses, including the initial sales charge, that apply to a $1,000 investment
in a Fund over various time periods assuming (1) a 5% annual rate of return and
(2) redemption at the end of each time period. As noted in the table above, the
Funds charge no redemption fees:

<TABLE>
<CAPTION>
CONNEC- HIGH NEW PENN- PUERTO
ARIZONA COLORADO TICUT YIELD INDIANA JERSEY OREGON SYLVANIA RICO
FUND FUND FUND FUND FUND FUND FUND FUND FUND
------- -------- ------- ----- ------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Year......................... $ 49 $ 50 $ 50 $ 49 $ 50 $ 49 $ 49 $ 49 $ 50
Three Years...................... 62 65 65 62 67 63 63 63 66
Five Years....................... 77 82 82 76 86 78 79 78 83
Ten Years........................ 119 130 132 118 138 122 124 121 133
</TABLE>

THE ABOVE EXAMPLES ARE BASED ON THE RESTATED AGGREGATE ANNUAL OPERATING
EXPENSES ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The operating expenses
are borne by each Fund and only indirectly by shareholders as a result of their
investment in a Fund. In addition, federal regulations require the example to
assume an annual return of 5%, but each Fund's actual return may be more or
less than 5%.

Financial Highlights

Set forth below is a table containing the financial highlights
for a share of Class I of each Fund from its effective date of
registration, as indicated below, through the fiscal year ended
February 28, 1995. The information for each of the five fiscal
years in the period ended February 28, 1995, has been audited by
Coopers & Lybrand L.L.P., independent auditors, whose audit
report appears in the financial statements in the Fund's Annual
Report to Shareholders dated February 28, 1995. The remaining
figures, which are also audited, are not covered by the auditors'
current report. Information regarding Class II shares of each
Fund will be included in this table after they have been offered
to the public for a reasonable period of time. See the discussion
"Reports to Shareholders" under "General Information."

<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1988(4) $ 7,885 -- 6.20%* 24.07%
1989 65,710 0.51% 6.58 26.64
1990 214,606 0.68 6.53 20.82
1991 412,912 0.59 6.58 4.13
1992 585,986 0.56 6.37 1.56
1993 707,702 0.55 6.11 5.67
1994 796,838 0.54 5.65 14.17
1995 720,801 0.60 5.86 18.65
</TABLE>

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-----------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN COLORADO TAX-FREE INCOME FUND:
1988(4) $10.00 $0.46 $0.117 $0.577 $(0.177) -- $(0.177) $10.40 9.00%*
1989 10.40 0.79 0.076 0.866 (0.736) -- (0.736) 10.53 8.41
1990 10.53 0.73 0.196 0.926 (0.756) -- (0.756) 10.70 8.76
1991 10.70 0.70 0.056 0.756 (0.756) -- (0.756) 10.70 7.07
1992 10.70 0.68 0.361 1.041 (0.741) -- (0.741) 11.00 9.93
1993 11.00 0.70 0.845 1.545 (0.695) -- (0.695) 11.85 14.26
1994 11.85 0.68 0.100 0.780 (0.690) -- (0.690) 11.94 6.49
1995 11.94 0.67 (0.568) 0.102 (0.662) -- (0.662) 11.38 1.05
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1988(4) $ 1,969 -- 6.91%* 22.46%
1989 11,026 -- 7.25 7.83
1990 38,315 0.56% 6.63 0.82
1991 69,715 0.74 6.54 17.72
1992 110,085 0.70 6.44 21.46
1993 159,280 0.67 6.20 5.66
1994 202,158 0.64 5.69 10.85
1995 194,564 0.70 5.94 28.83
</TABLE>

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-----------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND:
1989(6) $10.00 $0.20 $0.017 $0.217 $(0.057) -- $(0.057) $10.16 5.16%*
1990 10.16 0.70 0.184 0.884 (0.684) -- (0.684) 10.36 8.65
1991 10.36 0.64 0.024 0.664 (0.684) -- (0.684) 10.34 6.39
1992 10.34 0.62 0.211 0.831 (0.681) -- (0.681) 10.49 8.16
1993 10.49 0.64 0.664 1.304 (0.634) -- (0.634) 11.16 12.60
1994 11.16 0.62 0.080 0.700 (0.630) -- (0.630) 11.23 6.16
1995 11.23 0.62 (0.597) 0.023 (0.613) -- (0.613) 10.64 .37
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1989(6) $ 5,637 -- 4.68%* 5.21
1990 22,793 0.36% 6.37 3.69
1991 48,035 0.71 6.10 8.65
1992 88,184 0.71 6.11 28.28
1993 126,816 0.69 5.97 28.52
1994 163,050 0.65 5.54 5.54
1995 155,623 0.71 5.83 75.72
</TABLE>

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN INDIANA TAX-FREE INCOME FUND:
1988(4) $10.00 $0.45 $ 0.209 $0.659 $(0.189) -- $(0.189) $10.47 11.28%*
1989 10.47 0.79 (0.014) 0.776 (0.756) -- (0.756) 10.49 7.47
1990 10.49 0.80 0.236 1.036 (0.756) -- (0.756) 10.77 9.86
1991 10.77 0.74 0.096 0.836 (0.776) -- (0.776) 10.83 7.78
1992 10.83 0.69 0.325 1.015 (0.775) -- (0.775) 11.07 9.53
1993 11.07 0.71 0.828 1.538 (0.708) -- (0.708) 11.90 14.10
1994 11.90 0.68 0.108 0.788 (0.678) -- (0.678) 12.01 6.53
1995 12.01 0.66 (0.608) 0.052 (0.662) -- (0.662) 11.40 .58
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1988(4) $ 1,693 -- 6.70%* -- %
1989 5,875 -- 7.41 10.67
1990 11,310 0.06% 7.34 0.06
1991 14,946 0.51 6.91 24.60
1992 23,914 0.50 6.60 0.03
1993 37,367 0.59 6.16 7.98
1994 47,870 0.71 5.62 16.12
1995 46,583 0.81 5.84 26.49
</TABLE>

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND:
1989(5) $10.00 $0.58 $ 0.317 $0.897 $(0.375) $(0.002) $(0.377) $10.52 11.20%*
1990 10.52 0.71 0.230 0.940 (0.780) -- (0.780) 10.68 8.87
1991 10.68 0.69 0.238 0.928 (0.768) -- (0.768) 10.84 8.79
1992 10.84 0.68 0.348 1.028 (0.708) -- (0.708) 11.16 9.65
1993 11.16 0.69 0.694 1.384 (0.688) (0.006) (0.694) 11.85 12.55
1994 11.85 0.67 (0.016) 0.654 (0.684) -- (0.684) 11.82 5.39
1995 11.82 0.66 (.55) 0.11 (0.65) -- (0.65) 11.28 1.12
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1989(3) $ 19,973 0.25% 6.09%* 7.44%
1990 99,299 0.73 6.41 10.86
1991 258,514 0.65 6.40 1.84
1992 332,536 0.60 6.30 3.66
1993 433,702 0.59 6.06 14.12
1994 561,130 0.57 5.60 4.16
1995 533,937 0.63 5.86 31.05
</TABLE>

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN OREGON TAX-FREE INCOME FUND:
1988(4) $10.00 $0.44 $ 0.046 $0.486 $(0.116) -- $(0.116) $10.37 6.56%*
1989 10.37 0.72 0.046 0.766 (0.696) -- (0.696) 10.44 7.44
1990 10.44 0.69 0.165 0.855 (0.705) -- (0.705) 10.59 8.11
1991 10.59 0.68 0.148 0.828 (0.708) -- (0.708) 10.71 7.87
1992 10.71 0.63 0.384 1.014 (0.704) -- (0.704) 11.02 9.61
1993 11.02 0.66 0.702 1.362 (0.652) -- (0.652) 11.73 12.52
1994 11.73 0.64 (0.021) 0.619 (0.649) -- (0.649) 11.70 5.15
1995 11.70 0.63 (0.493) 0.137 (0.617) -- (0.617) 11.22 1.36
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1988(4) $ 5,436 -- 6.16%* 14.49%
1989 24,453 0.45% 6.72 15.08
1990 73,798 0.70 6.28 12.58
1991 123,486 0.70 6.40 10.74
1992 208,972 0.65 6.09 4.65
1993 303,719 0.62 5.87 7.78
1994 375,684 0.58 5.47 9.42
1995 349,458 0.65 5.71 26.44
</TABLE>

<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1987(3) $ 1,706 -- 3.95%* 3.80%
1988 20,663 0.24% 7.21 18.69
1989 73,851 0.59 6.97 1.56
1990 180,720 0.73 6.66 6.31
1991 305,592 0.62 6.82 5.23
1992 391,301 0.59 6.71 4.44
1993 505,845 0.58 6.34 5.87
1994 615,546 0.56 5.90 4.73
1995 587,366 0.63 6.15 12.91
</TABLE>

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND:
1986(1) $10.00 $0.62 $ 0.925 $1.545 $(0.355) -- $(0.355) $11.19 16.92%*
1987 11.19 0.85 0.139 0.989 (0.872) $(0.017) (0.889) 11.29 8.92
1988 11.29 0.72 (0.588) 0.132 (0.852) -- (0.852) 10.57 1.29
1989 10.57 0.70 0.042 0.742 (0.772) -- (0.772) 10.54 7.06
1990 10.54 0.71 0.235 0.945 (0.725) -- (0.725) 10.76 8.91
1991 10.76 0.76 0.040 0.800 (0.720) -- (0.720) 10.84 7.45
1992 10.84 0.69 0.301 0.991 (0.711) -- (0.711) 11.12 9.31
1993 11.12 0.70 0.673 1.373 (0.683) -- (0.683) 11.81 12.48
1994 11.81 0.68 0.034 0.714 (0.694) -- (0.694) 11.83 5.95
1995 11.83 0.67 (.504) 0.166 (0.686) -- (0.686) 11.31 1.60
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1986(1) $ 1,638 -- 6.55%* 26.52%
1987 22,913 0.28% 5.83 1.68
1988 66,598 0.75 6.67 41.98
1989 80,431 0.72 6.76 50.57
1990 82,819 0.70 6.65 14.12
1991 91,601 0.70 7.08 6.09
1992 112,714 0.70 6.45 15.01
1993 144,806 0.69 6.18 10.37
1994 175,036 0.66 5.77 5.10
1995 176,888 0.73 5.95 18.30
</TABLE>

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-----------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND:
1987(2) $10.00 $0.62 $ 0.222 $0.842 $(0.142) -- $(0.142) $10.70 8.73%*
1988 10.70 1.00 (0.409) 0.591 (0.951) -- (0.951) 10.34 5.70
1989 10.34 0.79 0.240 1.030 (0.870) -- (0.870) 10.50 10.87
1990 10.50 0.81 0.120 0.930 (0.890) -- (0.890) 10.54 8.80
1991 10.54 0.82 (0.210) 0.610 (0.840) -- (0.840) 10.31 5.71
1992 10.31 0.78 0.230 1.010 (0.840) -- (0.840) 10.48 9.97
1993 10.48 0.79 0.624 1.414 (0.784) $(0.100) (0.794) 11.10 13.72
1994 11.10 0.76 0.169 0.929 (0.779) -- (0.779) 11.25 8.33
1995 11.25 0.74 (0.509) 0.231 (0.741) -- (0.741) 10.74 2.28
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) NET ASSETS RATE
- ----------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1987(2) $ 2,604 -- 7.10%* 118.29%
1988 103,807 0.65% 7.79 26.65
1989 746,018 0.61 7.68 2.02
1990 1,575,016 0.54 7.52 23.41
1991 1,718,082 0.52 7.90 70.60
1992 2,110,055 0.53 7.73 102.57
1993 2,742,765 0.54 7.45 33.46
1994 3,372,533 0.53 6.79 16.09
1995 3,287,270 0.60 6.92 15.89
</TABLE>

(1) For the period April 3, 1985 (Effective date of registration) to February
28, 1986.
(2) For the period March 1, 1986 (Effective date of registration) to February
28, 1987.
(3) For the period December 1, 1986 (Effective date of registration) to February
28, 1987.
(4) For the period September 1, 1987 (Effective date of registration) to
February 29, 1988.
(5) For the period April 23, 1988 (Effective date of registration) to February
28, 1989.
(6) For the period October 3, 1988 (Effective date of registration) to February
28, 1989.
+ Total return measures the change in value of an investment over the periods
indicated. It does not include the Funds' maximum 4.0% initial sales
charge and assumes reinvestment of dividends at the offering price and of
capital gains, if any, at net asset value.
* Annualized
** During the periods indicated below, Franklin Advisers, Inc., the
investment manager, agreed in advance to waive a portion of its
management fees and made payments of other expenses
incurred by the Funds. Had such action not been taken, ratios of
operating expenses to average net assets would have been as follows:

<TABLE>
<CAPTION>
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS
----------
<S> <C>
Franklin Arizona Tax-Free Income Fund:
1989...................................... 0.73%
Franklin Colorado Tax-Free Income Fund:
1989...................................... 0.74%
1990...................................... 0.72%
Franklin Connecticut Tax-Free Income Fund
1989(6)................................... 0.65%*
1990...................................... 0.72%
1991...................................... 0.72%
Franklin Indiana Tax-Free Income Fund:
1989...................................... 0.77%
1990...................................... 0.70%
1991...................................... 0.74%
1992...................................... 0.74%
1993...................................... 0.73%
Franklin New Jersey Tax-Free Income Fund:
1989(5)................................... 0.66%*
Franklin Oregon Tax-Free Income Fund:
1989...................................... 0.73%
Franklin Pennsylvania Tax-Free Income Fund:
1989...................................... 0.75%
</TABLE>

ABOUT THE TRUST

The Trust is an open-end management investment company, or
mutual fund, organized as a Massachusetts business trust in
September 1984 and registered with the SEC under the
Investment Company Act of 1940 (the "1940 Act"). The Trust
currently consists of 27 separate series, most of which
offer two classes of shares, as listed under the section
"General Information." Each Fund is a separate series of the
Trust's shares and maintains a totally separate investment
portfolio. This Prospectus relates to the nine series shown
on the cover, of which only the Connecticut Fund is non-
diversified:

Shares of each Fund may be purchased (minimum investment of
$100 initially and $25 thereafter) at the current public
offering price. The current public offering price of the
Class I shares is equal to the net asset value (see
"Valuation of Shares of the Funds"), plus a variable sales
charge not exceeding 4.25% of the offering price depending
upon the amount invested. The current public offering price
of the Class II shares is equal to the net asset value, plus
a flat sales charge of 1.0% of the amount invested. (See
"How to Buy Shares of the Funds.")

Investment Objective
and Policies of Each Fund

Each State Fund will attempt to invest 100% and, as a matter
of fundamental policy, will invest at least 80% of the value
of its net assets in securities, the interest on which is
exempt from federal income taxes, including the individual
alternative minimum tax, and from the personal income taxes,
if any, for resident shareholders of the named state. Each
Fund's objective is a fundamental policy and may not be
changed without shareholder approval. There is, of course,
no assurance that a Fund's objective will be achieved.

Although not anticipated, it is possible that up to 20% of a
State Fund's net assets could be in municipal securities
from another state and each Fund could be invested in
taxable obligations and municipal obligations, including
"private activity bonds," the interest on which may be
subject to the alternative minimum tax. A Fund would only
make such investments on a temporary basis, when necessary,
pending the investment or reinvestment in municipal
obligations, in order to avoid the necessity of liquidating
portfolio securities to satisfy redemptions or pay expenses.
Any such investments in taxable obligations would be in U.S.
government securities, commercial paper rated in the highest
grade (Prime-1, A-1 or F-1+) by Moody's, S&P or Fitch, or in
obligations of banks with assets of $1 billion or more. It
is also possible that a Fund may generate short-term capital
gain (taxable as ordinary income when distributed to
shareholders) as a result of market transactions. See
"Taxation of the Funds and Their Shareholders." To the
extent that a state requires that a Fund consist of a
specified amount of obligations of that state or its
political subdivisions and obligations of the U.S. and its
possessions in order for any portion of its distributions to
be exempt from income taxation, the respective Fund will
endeavor to invest its net assets in such securities. This,
however, is not a fundamental policy and in the event the
investment manager believes that investments in other
permissible securities are necessary to protect the value of
such Fund's shares, or if a shareholder's net return would
be increased by investment in such respective state
obligations that pay taxable income, investments in other
permissible obligations may be made.

As a fundamental policy, the Pennsylvania Fund will invest
in securities for income earnings rather than trading for
profit. This Fund will not vary its investments, except to
1) eliminate unsafe investments and investments not
consistent with the preservation of the capital or the tax
status of such Fund; 2) honor redemption orders, meet
anticipated redemption requirements and negate gains from
discount purchases; 3) reinvest the earnings from securities
in like securities; or 4) defray normal administrative
expenses.

Each State Fund may invest, without percentage limitation,
in securities having, at the time of purchase, one of the
four highest ratings of Moody's (Aaa, Aa, A, Baa), S&P (AAA,
AA, A, BBB), Fitch (AAA, AA, A, BBB), or in securities which
are not rated, provided that, in the opinion of the Funds'
investment manager, such securities are comparable in
quality to those within the four highest ratings. These are
considered to be "investment grade" securities, although
bonds rated Baa are regarded as having an adequate capacity
to pay principal and interest but with greater vulnerability
to adverse economic conditions and to have some speculative
characteristics. A description of the ratings is contained
in Appendix C to this Prospectus.

The investment manager considers the terms of the offering
and various other factors in order to determine whether the
securities are consistent with the Fund's investment
objective and policies and thereafter to determine the
issuer's comparative credit rating. In making such
determinations, the investment manager typically (i)
interviews representatives of the issuer at its offices,
conducting a tour and inspection of the physical facilities
of the issuer in an effort to evaluate the issuer and its
operations, (ii) performs analysis of the issuer's financial
and credit position, including comparisons of all
appropriate ratios, and (iii) compares other similar
securities offerings to the issuer's proposed offering.

For temporary defensive purposes only, when the investment
manager believes that market conditions, such as rising
interest rates or other adverse factors, would cause serious
erosion of portfolio value, (i) each of the Funds may invest
more than 20% of its assets (which could be up to 100%) in
fixed-income obligations the interest on which is subject to
federal income tax and (ii) a State Fund may invest more
than 20% of the value of its net assets (which could be up
to 100%) in instruments the interest on which is exempt from
federal income taxes but not to a resident shareholder's
named state's personal income taxes. Such temporary
investments will be limited to obligations issued or
guaranteed by the full faith and credit of the U.S.
government or, except for the High Yield Fund, in securities
of other states, territories, their agencies or
instrumentalities, or in the highest quality commercial
paper rated A-1 by S&P, P-1 by Moody's or F-1+ by Fitch. The
High Yield Fund may invest in commercial paper rated in any
of the three categories of the NRSR0s.

As a fundamental policy, each Fund may (i) borrow from banks
for temporary or emergency purposes up to 5% of its total
assets and pledge up to 5% of its total assets in connection
therewith (ii) lend up to 10% of each Fund's portfolio
securities to qualified securities dealers, although each
Fund currently intends to limit lending securities to no
more than 5% of a Fund's total assets. More details in these
types of transactions as well as a complete description of
each Funds' investment restrictions are included under
"Investment Restrictions" in the SAI.

The High Yield Fund seeks to provide investors with a high
current yield exempt from federal income taxes by investing
primarily in non-investment grade rated or in unrated
municipal securities. As a secondary objective, the Fund
will seek capital appreciation to the extent this is
possible and is consistent with its principal investment
objective. The High Yield Fund may invest in municipal
securities regardless of the rating given by the NRSROs,
including, from time to time, defaulted debt securities if,
in the opinion of the investment manager, the issuer may
resume interest payments or other advantageous developments
appear likely, in the near term. The Fund may also invest in
municipal securities which are unrated by any NRSRO but
which are deemed to be of comparable credit quality by the
investment manager. Higher yields are ordinarily available
from municipal securities in the lower-rated categories of
the NRSROs (rated Baa or lower by Moody's or BBB or lower by
S&P or Fitch) or from unrated securities of comparable
quality. Securities in the categories which are rated below
investment grade by the NRSROs are regarded, on balance, as
predominantly speculative with respect to the capacity to
pay interest and repay principal in accordance with the
terms of the obligation. The Fund does not intend to invest
more than 10% of its total assets (at the time of purchase)
in defaulted debt securities. If the rating on an issue held
in any Fund's portfolio is changed by an NRSRO, such event
will be considered by the Fund in its evaluation of the
overall investment merits of that security.

While it is expected that the portfolio of the High Yield
Fund will normally consist of lower-rated, higher yielding
bonds, there may be instances when the portfolio will
contain medium grade (BBB or Baa rated), lower yielding
bonds because adequate quantities of lower-rated bonds are
not available at that time. In addition, there may be times
when, due to unusual market conditions, or when the
difference in yields on higher and lower-rated bonds is
narrowed to the extent that higher risk is not justified by
higher return, that the High Yield Fund may acquire higher-
rated bonds for its portfolio. It is expected that the
portfolio of the High Yield Fund will generally consist of
longer-term municipal securities as these normally return
higher yields than short-term issues.

In order to achieve its objectives, the High Yield Fund will
invest primarily in securities of states, territories, and
possessions of the United States ("U.S.") and the District
of Columbia and their political subdivisions, agencies, and
instrumentalities, the interest on which is exempt from
federal income taxes.

Under normal market conditions, the High Yield Fund will
attempt to invest 100% and, as a matter of fundamental
policy, will invest at least 80% of the value of its net
assets in securities the interest on which is exempt from
federal income tax, including the individual alternative
minimum tax.

Characteristic of Municipal Securities

The term "municipal securities," as used in this Prospectus,
means obligations issued by or on behalf of states,
territories and possessions of the U.S. and the District of
Columbia and their political subdivisions, agencies, and
instrumentalities, the interest on which is exempt from
regular federal income tax. An opinion as to the tax-exempt
status of a municipal security generally is rendered to the
issuer by the issuer's counsel at the time of issuance of
the security.

It is possible that any Fund from time to time will invest
more than 25% of its assets in a particular segment of the
municipal securities market, such as hospital revenue bonds,
housing agency bonds, tax-exempt industrial development
revenue bonds, transportation bonds, or pollution control
revenue bonds, or in securities the interest on which is
paid from revenues of a similar type of project. In such
circumstances, economic, business, political or other
changes affecting one bond (such as proposed legislation
affecting the financing of a project; shortages or price
increases of needed materials; or declining markets or needs
for the projects) might also affect other bonds in the same
segment, thereby potentially increasing market risk.

Yields on municipal securities vary, depending on a variety
of factors, including the general condition of the financial
markets and of the municipal securities market, the size of
a particular offering, the maturity of the obligation and
the credit rating of the issuer. Generally, municipal
securities of longer maturities produce higher current
yields than municipal securities with shorter maturities but
are subject to greater price fluctuation due to changes in
interest rates, tax laws and other general market factors.
Lower-rated municipal securities generally produce a higher
yield than higher rated municipal securities due to the
perception of a greater degree of risk as to the ability of
the issuer to make timely payment of principal and interest
on its obligations.

The interest on bonds issued to finance public purpose state
and local government operations is generally tax-exempt for
regular federal income tax purposes. Interest on certain
private activity bonds (including those for housing and
student loans) issued after August 7, 1986, while still tax-
exempt, constitutes a preference item for taxpayers in
determining the federal alternative minimum tax under the
Internal Revenue Code of 1986, as amended (the "Code"), and
under the income tax provisions of some states. This
interest could subject a shareholder to, or increase
liability under, the federal and state alternative minimum
taxes, depending on the shareholder's tax situation. In
addition, all distributions derived from interest exempt
from regular federal income tax may subject a corporate
shareholder to, or increase liability under, the federal
alternative minimum tax, because such distributions are
included in the corporation's "adjusted current earnings."
In states with a corporate franchise tax, distributions of a
Fund may also be fully taxable to a corporate shareholder
under the state franchise tax system.

Consistent with each Fund's investment objective, a Fund may
acquire such private activity bonds if, in the investment
manager's opinion, such bonds represent the most attractive
investment opportunity then available to a Fund. For fiscal
year ended February 28, 1995, the portfolios of the Funds
derived the following percentages of their income from bonds
the interest on which constitutes a preference item subject
to the federal alternative minimum tax for certain
investors:

Fund Percentage
Arizona Fund 12.79%
Colorado Fund 8.42%
Connecticut Fund 8.24%
High Yield Fund 15.79%
Indiana Fund 11.23%
New Jersey Fund 8.67%
Oregon Fund 7.59%
Pennsylvania Fund 10.41%
Puerto Rico Fund 8.87%

Each Fund may purchase floating rate and variable rate
obligations. These obligations bear interest at rates that
are not fixed, but that vary with changes in specified
market rates or indices on predesignated dates. The Funds
may also invest in variable or floating rate demand notes
("VRDNs") which carry a demand feature that permits the
Funds to tender the obligation back to the issuer or a third
party at par value plus accrued interest prior to maturity,
according to the terms of the obligation. Frequently VRDNs
are secured by letters of credit or other credit support
arrangements provided by banks. Because of the demand
feature, the prices of VRDNs may be higher and the yields
lower than they otherwise would be for obligations without a
demand feature. Except for the Connecticut Fund, with
respect to 75% of the total value of a Fund's assets, no
more than 5% of such value may be in securities underlying
"puts" from the same institution, except that each Fund may
invest up to 10% of its asset value in unconditional "puts"
(exercisable even in the event of a default in the payment
of principal or interest on the underlying security) and
other securities issued by the same institution.

Each Fund may purchase and sell municipal securities on a
"when-issued" and "delayed-delivery" basis. These
transactions are subject to market fluctuation, and the
value at delivery may be more or less than the purchase
price. Although the Funds will generally purchase municipal
securities on a when-issued basis with the intention of
acquiring such securities, it may sell such securities
before the settlement date if it is deemed advisable. When a
Fund is the buyer in such a transaction, it will maintain,
in a segregated account with its custodian, cash or high-
grade marketable securities having an aggregate value equal
to the amount of such purchase commitments until payment is
made. To the extent a Fund engages in "when-issued" and
"delayed delivery" transactions, it will do so for the
purpose of acquiring securities for that Fund's portfolio
consistent with its investment objectives and policies and
not for the purpose of investment leverage.

Investment Risk Considerations

General

While an investment in any of the Funds is not without risk,
certain policies are followed in managing the Funds which
may help to reduce such risk. There are two categories of
risks to which a Fund is subject: credit risk and market
risk. Credit risk is a function of the ability of an issuer
of a municipal security to maintain timely interest payments
and to pay the principal of a security upon maturity. It is
generally reflected in a security's underlying credit rating
and its stated interest rate (normally the coupon rate). A
change in the credit risk associated with a municipal
security may cause a corresponding change in the security's
price. Market risk is the risk of price fluctuation of a
municipal security caused by changes in general economic and
interest rate conditions generally affecting the market as a
whole. A municipal security's maturity length also affects
its price. As with other debt instruments, the price of the
debt securities in which a Fund invests are likely to
decrease in times of rising interest rates. Conversely, when
rates fall, the value of the Fund's debt investments may
rise. Price changes of debt securities held by a Fund have a
direct impact on the net asset value per share of that Fund.
Since each State Fund generally will invest primarily in the
securities of its respective state or territory, there are
certain specific factors and considerations concerning each
state or territory which may affect the credit and market
risk of the municipal securities which such Fund purchases.
These factors are described in Appendix B to this Prospectus
and in the SAI.

The High Yield Fund is diversified nationally and, as a
matter of policy the Fund, will not invest more than 25% of
its net assets in the municipal securities of any one state
or territory. In addition, with respect to 75% of its net
assets, each Fund except the Connecticut Fund, as a
fundamental policy, will not purchase a security if, as a
result of the investment, more than 5% of its assets would
be in the securities of any single issuer (with the
exception of obligations of the U.S. government). For this
purpose, each political subdivision, agency, or
instrumentality and each multi-state agency of which a state
is a member, and each public authority which issues private
activity bonds on behalf of a private entity, will be
regarded as a separate issuer for determining the
diversification of each Fund's portfolio. A bond for which
the payments of principal and interest are secured by an
escrow account of securities backed by the full faith and
credit of the U.S. government ("defeased") as described in
the SAI, in general, will not be treated as an obligation of
the original municipality for purposes of determining
diversification.

The Connecticut Fund is non-diversified under the federal
securities laws. As a non-diversified Fund, there is no
restriction under the 1940 Act on the percentage of assets
that may be invested at any time in the securities of any
one issuer. To the extent the Fund is not fully diversified
under the 1940 Act, it may be more susceptible to adverse
economic, political or regulatory developments affecting a
single issuer than would be the case if the Fund was more
broadly diversified. The Fund, however, intends to comply
with the diversification and other requirements of the Code,
applicable to "regulated investment companies" so that it
will not be subject to federal income tax, and distributions
to shareholders will be free from regular federal income tax
to the extent they are derived from interest on municipal
securities. For this reason the Connecticut Fund has adopted
an investment restriction, which may not be changed without
the approval of shareholders, prohibiting it from purchasing
a security if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of a single
issuer, or with respect to 50% of the Fund's total assets,
more than 5% of such assets would be invested in the
securities of a single issuer.

Risk Factors Relating to High
Yielding, Fixed-Income Securities

The portfolio of the High Yield Fund is subject to greater
risks due to its ability to invest in municipal securities
rated below investment grade by the NRSROs or which are
unrated by an NRSRO but deemed by the investment manager to
be of comparable quality. The market values of such
securities, commonly known as junk bonds, tend to reflect
individual developments affecting the issuer to a greater
extent than do higher-rated securities, which react
primarily to fluctuations in the general level of interest
rates. Such lower-rated securities also tend to be more
sensitive to economic conditions than higher-rated
securities. These lower-rated fixed-income securities are
considered by the NRSROs, on balance, to be predominantly
speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of
the obligation and will generally involve more credit risk
than securities in the higher rating categories. Even
securities rated BBB or Baa by S&P, Moody's or Fitch,
ratings which are considered investment grade, possess some
speculative characteristics.

Projects which are financed by the issuance of high
yielding, fixed-income securities are often highly leveraged
and may not have more traditional methods of financing
available to them. Therefore, the risk associated with
acquiring the securities of such issuers is generally
greater than is the case with higher-rated securities. For
example, during an economic downturn or a sustained period
of rising interest rates, projects financed by high yielding
securities may experience financial stress. During such
periods, such projects may not have sufficient funds to meet
their interest payment obligations. The issuer's ability to
service its debt obligations may also be adversely affected
by specific developments, or the issuer's inability to meet
specific projected revenue forecasts, or by the
unavailability of additional financing.

The High Yield Fund may have difficulty disposing of certain
high yielding securities because there may be a thin trading
market for a particular security at any given time. The
market for lower-rated fixed-income securities generally
tends to be concentrated among a smaller number of dealers
than is the case for securities which trade in a broader
secondary retail market. Generally, purchasers of these
securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent a secondary
trading market for high yielding, fixed-income securities
does exist, it is generally not as liquid as the secondary
market for higher-rated securities. Reduced liquidity in the
secondary market may have an adverse impact on market price
and the High Yield Fund's ability to dispose of particular
issues, when necessary, to meet the Fund's liquidity needs
or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. Reduced
liquidity in the secondary market for certain securities may
also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield
issues are obtained from pricing services and/or a limited
number of dealers and may be based upon factors other than
actual sales. (See "Valuation of Shares of the Funds.")

Factors adversely impacting the market value of high
yielding securities may adversely impact the High Yield
Fund's net asset value. In addition, the Fund may incur
additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or
interest on its portfolio holding. The Fund will rely on the
investment manager's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this
evaluation, the investment manager will take into
consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's
management and regulatory matters.

As of February 28, 1995, two out of 624 issues (excluding
short-term securities and cash equivalents) in the Fund's
portfolio were in default. In the fiscal year ended February
28, 1995, one issue defaulted, and a total of 15 issues
defaulted over the prior three years. Defaulted issues
represented 0.129% of the net assets of the Fund at February
28, 1995. Current prices for defaulted bonds, however, are
generally significantly lower than their purchase price, and
the Fund may have unrealized losses on such defaulted
securities which are reflected in the price of the Fund's
shares. In general, securities which default lose much of
their value in the time period prior to the actual default
so that the Fund's net assets are impacted prior to the
default. The Fund may retain an issue which has defaulted
because such issue may present an opportunity for subsequent
price recovery. The high yield securities market is
relatively new and much of its growth prior to 1990
paralleled a long economic expansion. The recent recession
disrupted the market for high yield securities and adversely
affected the value of outstanding securities and the ability
of issuers of such securities to meet their obligations.
Those adverse effects may continue even as the economy
recovers. The Fund may retain an issue which has defaulted
because such issue may present an opportunity for subsequent
price recovery. As previously noted, the Fund may also,
consistent with its investment objectives and policies,
purchase debt obligations of issuers not currently paying
interest as well as issuers that are in default. Issues that
are in default carry a high degree of risk and may have the
consequence that interest payments with respect to such
securities may be reduced, deferred, suspended, eliminated
or never begin, and may have the further consequences that
principal payments may likewise be reduced, suspended or
canceled, causing the loss of the entire amount of the
investment.

As of February 28, 1995, approximately 26% of the Fund's
assets were invested in municipal securities which were
rated lower than investment grade (rated below the four
highest grades assigned by the NRSROs) or in securities
unrated by any NRSRO but deemed by the investment manager to
be of comparable credit characteristics. (A breakdown of the
bonds' ratings in the Fund's portfolio, based on a dollar
weighted average for the fiscal year ended February 28,
1995, is included under "Asset Composition Table" below.)

Because of the High Yield Fund's policy of seeking high
current yield and its ability to invest in lower-grade debt
securities, including defaulted securities, a higher degree
of risk accompanies an investment in the Fund's shares than
is the case in a more conservative tax-free, income-type
investment company. As with any other investment, there is
no assurance that this Fund's objective will be obtained.

The High Yield Fund's investment in lower-rated, unrated,
and zero coupon municipal securities may cause this Fund to
recognize income and make distributions to shareholders
prior to the receipt of cash payments by the Fund. For
example, with respect to any non-performing obligations,
this Fund may be required to accrue as income the original
amount of interest due on its obligations even though such
interest is not received by the Fund. In order to generate
cash to satisfy this Fund's distribution requirements, it
may be required to dispose of portfolio securities that it
otherwise would have continued to hold or to use cash flows
from other sources such as the sale of Fund shares. The SAI
contains more information about zero coupon bonds.

Asset Composition Table

A credit rating by an NRSRO evaluates only the safety of
principal and interest of the bond, and does not consider
the market value risk associated with an investment in such
a bond. The table below shows the percentage invested in
each of the specific rating categories by an NRSRO and those
that are not rated by the NRSROs but deemed by the
investment manager to be of the same credit quality. The
information was prepared based on a dollar weighted average
of the Fund's portfolio composition based on month-end
assets for each of the 12 months in the fiscal year ended
February 28, 1995. Appendix C to the Prospectus includes a
description of each rating category.

Moody's and/or Average Weighted
S%P's Rating Percentage of Assets

Aaa/AAA 7.16%
AAA* 5.15%
Aa/AA 3.74%
A 11.27%
Baa/BBB 21.03%
BBB* 24.05%
Ba/BB 6.78%
BB* 17.43%
B 1.40%
B* 0.40%
Caa/CCC 1.43%
CCC* 0.13%
Ca/CC .00%
C .00%
D 0.04%

*Not Rated by the NRSROs. Indicates an internal rating
by Manager.

Callable Bonds

Each Fund may purchase and hold callable municipal bonds
which contain a provision in the indenture permitting the
issuer to redeem the bonds prior to their maturity dates at
a specified price which typically reflects a premium over
the bonds' original issue price. These bonds generally have
call protection (that is, a period of time during which the
bonds may not be called) which usually lasts for 5 to 10
years, after which time such bonds may be called away. An
issuer may generally be expected to call its bonds, or a
portion of them, during periods of declining interest rates,
when borrowings may be replaced at lower rates than those
obtained in prior years. If the proceeds of a bond called
under such circumstances are reinvested, the result may be a
lower overall yield due to lower current interest rates. If
the purchase price of such bonds included a premium related
to the appreciated value of the bonds, some or all of that
premium may not be recovered by bondholders, such as the
Funds, depending on the price at which such bonds were
redeemed.

Certificates of Participation

Each Fund may also invest in municipal lease obligations
primarily through Certificates of Participation ("COPs").
COPs, which are widely used by state and local governments
to finance state and local government needs, function much
like installment purchase agreements. For example, a COP may
be created when long-term lease revenue bonds are issued by
a governmental corporation to pay for the acquisition of
property or facilities which are then leased to a
municipality. The payments made by the municipality under
the lease are used to repay interest and principal on the
bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of
the property for a nominal sum. This lease format is
generally not subject to constitutional limitations on the
issuance of state debt, and COPs enable a governmental
issuer to increase government liabilities beyond
constitutional debt limits.

While the risk of nonappropriation is inherent to COP
financing, the Funds believe that this risk is mitigated by
their policy of investing only in COPs rated within the four
highest rating categories of the NRSROs (except for the High
Yield Fund which may invest in securities rated in any
category of the NRSROs), or in unrated COPs believed by the
investment manager to be of comparable quality. Criteria
considered by the rating agencies and the investment manager
in assessing such risk include the issuing municipality's
credit rating, the essentiality of the leased property to
the municipality and the term of the lease compared to the
useful life of the leased property. The Board of Trustees
reviews the COPs held in each Fund's portfolio to assure
that they constitute liquid investments based on various
factors reviewed by the investment manager and monitored by
the Board. Such factors include (a) the credit quality of
such securities and the extent to which they are rated or,
if unrated, comply with existing criteria and procedures
followed to ensure that they are of quality comparable to
the ratings required for each Fund's investment, including
an assessment of the likelihood that the leases will not be
canceled; (b) the size of the municipal securities market,
both in general and with respect to COPs; and (c) the extent
to which the type of COPs held by each Fund trade on the
same basis and with the same degree of dealer participation
as other municipal bonds of comparable credit rating or
quality. While there is no limit as to the amount of assets
which each Fund may invest in COPs, as of February 28, 1995,
none of the Funds held as much as 5% of their total assets
in COPs and other municipal leases, except for the New
Jersey Fund which held 5.83% of the total face amount of the
securities in its portfolio in COPs and other municipal
leases.

How Shareholders Participate in the Results of the Funds'
Activities

The assets of each Fund are invested in portfolio
securities. If the securities owned by a Fund increase in
value, the value of the shares of the Fund which the
shareholder owns will increase. If the securities owned by
the Fund decrease in value, the value of the shareholder's
shares will also decline. In this way, shareholders
participate in any change in the value of the securities
owned by the Funds.

In addition to the factors which affect the value of
individual securities, as described in the preceding
sections, a shareholder may anticipate that the value of
Fund shares will fluctuate with movements in the broader
bond markets, as well changes in interest rates will affect
the value of the Funds' portfolio and thus their share
price. In particular, changes in interest rates will affect
the value of the Funds' portfolios and thus their share
price. Increased rates of interest which frequently
accompany higher inflation and/or a growing economy are
likely to have a negative effect on the value of shares of
the Funds. History reflects both increases and decreases in
the prevailing rate of interest and these may reoccur
unpredictably in the future.

Management of the Trust

In developing the multiclass structure the Funds have
retained the authority to establish additional classes of
shares. It is the Funds' present intention to offer only two
classes of shares, but new classes may be offered in the
future, including the addition of a Class II to those Funds
not currently offering them.

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as
the Funds' investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a
publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr.,
who own approximately 20% and 16%, respectively, of
Resources' outstanding shares. Resources is engaged in
various aspects of the financial services industry through
its various subsidiaries (the "Franklin Templeton Group").
Advisers acts as investment manager or administrator to 34
U.S. registered investment companies (112 separate series)
with aggregate assets of over $75 billion, approximately
$40.3 billion of which are in the municipal securities
market.

The management fees which each Class I paid to the Manager
during the fiscal year ended February 28, 1995 (as a
percentage of average net assets) were as follows:

Class I Fund Name Ma Management Fees Paid

Arizona Fund 0.48%
Colorado Fund 0.56%
Connecticut Fund 0.58%
High Yield Fund 0.46%
Indiana Fund 0.62%
New Jersey Fund 0.49%
Oregon Fund 0.52%
Pennsylvania Fund 0.49%
Puerto Rico Fund 0.57%

It is not anticipated that any of the Funds will incur a
significant amount of brokerage expenses because municipal
securities are generally traded on a "net" basis, that is,
in principal transactions without the addition or deduction
of brokerage commissions or transfer taxes. In the event
that a Fund does participate in transactions involving
brokerage commissions, it will be the Manager's
responsibility to select brokers through whom such
transactions will be effected. The Manager will try to
obtain the best execution on all such transactions. If it
was felt that more than one broker was able to provide the
best execution, the Manager will consider the furnishing of
quotations and of other market services, research,
statistical and other data for the Manager and its
affiliates, as well as the sale of shares of the Trust as
factors in selecting a broker. Further information is
included under "The Trust's Policies Regarding Brokers Used
on Portfolio Transactions" in the SAI.

Shareholder accounting and many of the clerical functions
for each Fund are performed by Franklin/Templeton Investor
Services, Inc. ("Investor Services" or "Shareholder Services
Agent"), in its capacity as transfer agent and dividend-
paying agent. Investor Services is a wholly-owned subsidiary
of Resources.

During the fiscal year ended February 28, 1995, total
operating expenses paid by each Fund (as a percentage of
average net assets), including fees paid to the Manager and
Investor Services, were as follows:

Fund Name Total Operating Expenses

Arizona Fund 0.60%
Colorado Fund 0.70%
Connecticut Fund 0.71%
High Yield Fund 0.60%
Indiana Fund 0.81%
New Jersey Fund 0.63%
Oregon Fund 0.65%
Pennsylvania Fund 0.63%
Puerto Rico Fund 0.73%

Plans of Distribution

A separate Plan of Distribution has been approved and
adopted for each class ("Class I Plan" and "Class II Plan,"
respectively, or "Plans") pursuant to Rule 12b-1 under the
1940 Act. The Rule 12b-1 fees charged to each class will be
based solely on the distribution and servicing fees
attributable to that particular class. Any portion of fees
remaining from either Plan after distribution to securities
dealers up to the maximum amount permitted under each Plan
may be used by the class to reimburse Distributors for
routine ongoing promotion and distribution expenses incurred
with respect to such class. Such expenses may include, but
are not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and
distributing sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead
expenses attributable to the distribution of shares of each
Fund, as well as any distribution or service fees paid to
securities dealers or their firms or others who have
executed a servicing agreement with the Funds, Distributors
or its affiliates.

The maximum amount which each Fund may pay to Distributors
or others under the Class I Plan for such distribution
expenses is 0.10% per annum of each Class I's average daily
net assets, payable quarterly. All expenses of distribution
and marketing in excess of 0.10% per annum will be borne by
Distributors, or others who have incurred them, without
reimbursement from such Fund.

Under the Class II Plan, the maximum amount which each Fund
is permitted to pay to Distributors or others for
distribution expenses and related expenses is 0.50% per
annum of each Class II's daily net assets, payable
quarterly. All expenses of distribution, marketing and
related services over that amount will be borne by
Distributors, or others who have incurred them, without
reimbursement by the Funds. In addition, the Class II Plan
provides for an additional payment by each Fund of up to
0.15% per annum of each Class II's average daily net assets
as a servicing fee, payable quarterly. This fee will be used
to pay securities dealers or others for, among other things,
assisting in establishing and maintaining customer accounts
and records; assisting with purchase and redemption
requests; receiving and answering correspondence; monitoring
dividend payments from each Fund on behalf of the customers,
or similar activities related to furnishing personal
services and/or maintaining shareholder accounts.

Distributors, or its affiliates, may pay, from its own
resources, a commission of up to 1% of the amount invested
to securities dealers who initiate and are responsible for
purchases of Class II shares of each Fund. During the first
year after the purchase of Class II shares, Distributors
will keep a portion of the Plan fees assessed on each Class
II shares to partially recoup fees Distributors pays to
securities dealers.

Both Plans also cover any payments to or by the Funds,
Advisers, Distributors, or other parties on behalf of the
Funds, Advisers or Distributors, to the extent such payments
are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Funds
within the context of Rule 12b-1. The payments under the
Plans are included in the maximum operating expenses which
may be borne by each class. For more information, including
a discussion of the Board's policies with regard to the
amount of each Plan's fees, please see the SAI.

Distributions to Shareholders

There are two types of distributions which a Fund may make
to its shareholders:

1. Income dividends. Each Fund receives income in the form
of interest and other income derived from its investments.
This income, less the expenses incurred in the operation of
such Fund, is its net investment income from which income
dividends may be distributed. Thus, the amount of dividends
paid per share may vary with each distribution.

2. Capital gain distributions. Each Fund may derive capital
gains or losses in connection with sales or other
dispositions of its portfolio securities. Distributions by a
Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss
carryovers) may generally be made twice each year. One
distribution may be made in December to reflect any net
short-term and net long-term capital gains realized by a
Fund as of October 31 of such year. Any net short-term and
net long-term capital gains realized by a Fund during the
remainder of the fiscal year may be distributed following
the end of the fiscal year. These distributions, when made,
will generally be fully taxable to such Fund's shareholders.
Each Fund may make only one distribution derived from net
short-term and net long-term capital gains in any year or
adjust the timing of its distributions for operational or
other reasons.

Distributions To Each Class of Shares

Distribution Date

Although subject to change by the Trust's Board of Trustees
without prior notice to or approval by shareholders, each
Fund's current policy is to declare income dividends daily
and pay them monthly on or about the last business day of
that month. The amount of income dividend payments by each
Fund is dependent upon the amount of net income received
from such Fund's portfolio holdings, is not guaranteed, and
is subject to the discretion of the Trust's Board of
Trustees. The Funds do not pay "interest" or guarantee any
fixed rate of return on an investment in their shares.

Dividend Reinvestment

Unless otherwise requested, income dividends and capital
gain distributions, if any, will be automatically reinvested
in the shareholder's account in the form of additional
shares, valued at the closing net asset value (without a
sales charge) on the dividend reinvestment date. Dividend
and capital gain distributions are only eligible for
reinvestment at net asset value in the same class of shares
of the Fund or the same class of another of the Franklin
Templeton Funds. Shareholders have the right to change their
election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective
only as to distributions for which the reinvestment date is
seven or more business days after such Fund has been
notified. See the SAI for more information.

Distributions in Cash

A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application
included with this Prospectus, a shareholder may direct the
selected distributions to the same class of another fund in
the Franklin Templeton Funds, to another person, or directly
to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing.
Dividends which may be paid in the interim will be sent to
the address of record. Additional information regarding
automated fund transfers may be obtained from Franklin's
Shareholder Services Department. Shareholders may also be
able to change their dividend options by telephone. See
"Telephone Transactions."

Taxation of the Funds and Their Shareholders

Each Fund is treated as a separate entity for federal income
tax purposes. Each Fund intends to continue to qualify for
treatment as a regulated investment company under Subchapter
M of the Code. By distributing all of its net income, and
meeting certain other requirements relating to the sources
of its income and diversification of its assets, a Fund will
not be liable for federal income or excise taxes.

By meeting certain requirements of the Code, each Fund
continues to qualify to pay exempt-interest dividends to its
shareholders. Such exempt-interest dividends are derived
from interest income exempt from regular federal income tax,
and are not subject to regular federal income tax for each
Fund's shareholders. In addition, to the extent that exempt-
interest dividends are derived from interest on obligations
of the state or political subdivisions of the state of
residence of the shareholder, from interest on direct
obligations of the federal government, or from interest on
obligations of Puerto Rico, the U.S. Virgin Islands or Guam,
they may also be exempt from personal income tax in such
state. More information on the state taxation of interest
from federal and municipal obligations is included in the
section "State Income Taxes" below and in "Appendix A -
Description of State Tax Treatment."

From time to time, a Fund may purchase a tax-exempt
obligation with market discount; that is, for a price that
is less than the principal amount of the bond, or for a
price that is less than the principal amount of the bond
where the bond was issued with original issue discount and
such market discount exceeds a de minimis amount under the
Code. For such obligations purchased after April 30, 1993, a
portion of the gain on sale or disposition (not to exceed
the accrued portion of market discount as of the time of
sale or disposition) is treated as ordinary income rather
than capital gain. Any distribution by the Fund of such
ordinary income to its shareholders will be subject to
regular federal and state income taxes in the hands of Fund
shareholders. In any fiscal year, each Fund may elect not to
distribute to its shareholders its taxable ordinary income
and to, instead, pay federal income or excise taxes on this
income at the Fund level. The amount of such distributions,
if any, is expected to be small.

Pursuant to the Code, certain distributions which are
declared in October, November or December but which, for
operational reasons, may not be paid to the shareholder
until the following January, will be treated, for tax
purposes, as if received by the shareholder on December 31
of the calendar year in which they are declared.

Each Fund will inform its shareholders of the source of
their dividends and distributions at the time they are paid
and will, promptly after the close of each calendar year,
advise them of the tax status for federal income tax
purposes of such dividends and distributions, including the
portion of the dividends on an average basis which
constitutes taxable income or a tax preference item under
the federal alternative minimum tax. Shareholders who have
not held shares of a Fund for a full calendar year may have
designated as tax-exempt or as tax preference income a
percentage of income which is not equal to the actual amount
of tax-exempt or tax preference income earned during the
period of their investment in a Fund.

Interest on indebtedness incurred (directly or indirectly)
by shareholders to purchase or carry a Fund's shares may not
be fully deductible for federal income tax purposes.

Shareholders who are not U.S. persons for purposes of
federal income taxation should consult with their financial
or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions received by them
from a Fund and the application of foreign tax laws to these
distributions.

State Income Taxes

The exemption of interest on tax-exempt municipal securities
for federal income tax purposes does not necessarily result
in exemption from the income, corporate or personal property
taxes of any state or city when such income is distributed
to shareholders of a mutual fund. Appendix A to this
Prospectus discusses the tax treatment of the State Funds
with respect to distributions from each respective Fund to
investors in such states. Generally, individual shareholders
of the Funds are afforded tax-exempt treatment at the state
level for distributions derived from municipal securities of
their state of residency. In some states, shareholders of
the High Yield Fund also may be afforded tax-exempt
treatment at the state level on distributions from that Fund
to the extent they are derived from tax-exempt securities
issued by that state or its municipalities.

Additional information on tax matters relating to a Fund and
its shareholders is included under the caption "Additional
Information Regarding Taxation" in the SAI.

How to Buy Shares of the Funds

Class I. Shares of each Fund outstanding before the
implementation of the multiclass structure have been
redesignated as Class I shares, and will retain their
previous rights and privileges. Class I shares are generally
subject to a variable sales charge upon purchase and not
subject to any sales charge upon redemption. Class I shares
are subject to Rule 12b-1 fees of up to an annual maximum of
0.10% of average daily net assets of such shares. With this
multiclass structure, Class I shares have higher front-end
sales charges than Class II shares and comparatively lower
Rule 12b-1 fees. Class I shares may be purchased at reduced
front-end sales charge or at net asset value if certain
conditions are met. In most circumstances, contingent
deferred sales charges will not be assessed against
redemptions of Class I shares. See "Management of the
Funds," and "How to Sell Shares of the Funds" for more
information.

Class II. The current public offering price of Class II
shares is equal to the net asset value, plus a flat front-
end sales charge of 1% of the amount invested. Class II
shares are also subject to a contingent deferred sales
charge of 1% if shares are redeemed within 18 months of the
calendar month following purchase. In addition, Class II
shares are subject to Rule 12b-1 fees of up to a maximum of
0.65% of average daily net assets of such shares. Class II
shares have lower front-end sales charges than Class I
shares and comparatively higher Rule 12b-1 fees. See
"Contingent Deferred Sales Charge" under "How to Sell Shares
of the Funds."

Investors who qualify to purchase Class I shares at reduced
sales charges definitely should consider purchasing Class I
shares, especially if they intend to hold their shares for
approximately six years or more. Investors who qualify to
purchase Class I shares at reduced sales charges but who
intend to hold their shares less than approximately six
years should evaluate whether it is more economical to
purchase Class I shares through a Letter of Intent or under
Rights of Accumulation or other means, rather than
purchasing Class II shares. Investors investing $1 million
or more in a single payment and other investors who qualify
to purchase Class I shares at net asset value will be
precluded from purchasing Class II shares.

Purchase Price of Shares of the Funds

Shares of both classes are offered at their respective
public offering prices, which are determined by adding the
net asset value per share plus a front-end sales charge,
next computed (1) after the shareholder's securities dealer
receives the order which is promptly transmitted to the Fund
to be purchased or (2) after receipt of an order by mail
from the shareholder directly in proper form (which
generally means a completed Shareholder Application
accompanied by a negotiable check).

Class I. The sales charge for Class I shares is a variable
percentage of the offering price depending upon the amount
of the sale. A description of the method of calculating net
asset value per share is included under the caption
"Valuation of Shares of the Funds."

Set forth below is a table of total front-end sales charges
or underwriting commissions and dealer concessions for Class
I shares.

Class I Shares Total Sales Charge
Size of As a Percentage As a Percentage Dealer
Transaction at of Offering of Net Amount Concession as a
Offering Price Price Invested Percentage of
Offering Price*
, **
Less than 4.25% 4.44% 4.00%
$100,000
$100,000 but 3.50% 3.63% 3.25%
less than
$250,000
$250,000 but 2.75% 2.83% 2.50%
less than
$500,000
$500,000 but 2.15% 2.20% 2.00%
less than
$1,000,000
$1,000,000 none none (see below)**
or more

*Financial institutions or their affiliated brokers may
receive an agency transaction fee in the percentages set
forth above.

***At the discretion of Distributors, all sales charges may
at times be allowed to the securities dealer. If 90% or more
of the sales commission is allowed, such securities dealer
may be deemed to be an underwriter as that term is defined
in the Securities Act of 1933, as amended.

Class II. Unlike Class I shares, the front-end sales charges
and dealer concessions for Class II shares do not vary
depending on the amount of purchase. See table below:

Class II Shares Total Sales Charge
Size of As a As a Dealer
Transaction Percentage of Percentage of Concession As
at Offering Net Offering Net Amount a Percentage
Price Price Invested of Offering
Price*
any amount 1.00% 1.01% 1.00%
(less than $1
million)

*Distributors or one of its affiliates may make additional
payments to securities dealer, from its own resources, of up
to 1% of the amount invested. During the first year after
the purchase of Class II shares, Distributors will keep a
portion of Class II Plan fees assessed on Class II shares to
partially recoup fees Distributors pays to securities
dealers

Additional terms concerning the offering of shares of the
Funds are included in the SAI.

Certain officers and Trustees of the Trust are also
affiliated with Distributors. A detailed description is
included in the SAI.

Quantity Discounts in Sales Charges - Class I Shares Only

In addition, an investment in Class I shares may qualify for
a reduction in the sales charge under the following
programs:

An investor acknowledges and agrees to the following
provisions by completing the Letter of Intent section of the
Shareholder Application: Five percent (5%) of the amount
of the total intended purchase will be reserved in Class I
shares registered in the investor's name, to assure that the
full applicable sales charge will be paid if the intended
purchase is not completed. The reserved shares will be
included in the total shares owned as reflected on periodic
statements; income and capital gain distributions on the
reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by
the investor until the Letter of Intent has been completed
or the higher sales charge paid. For more information, see
"Additional Information Regarding Purchases" in the SAI.

Group Purchases of Class I Shares

An individual who is a member of a qualified group may also
purchase Class I shares of the Fund at the reduced sales
charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of shares
previously purchased and still owned by the members of the
group, plus the amount of the current purchase. For example,
if members of the group had previously invested and still
held $80,000 of Fund shares and now were investing $25,000,
the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained
by contacting Distributors.

Purchases at Net Asset Value

For either Class I or Class II, the same class of shares of
the Fund may be purchased at net asset value by persons who
have redeemed, within the previous 120 days, their shares of
a Fund or another of the Franklin Templeton Funds which were
purchased with a front-end sales charge or assessed a
contingent deferred sales charge on redemption. If a
different class of shares is purchased, the full front-end
sales charge must be paid at the time of purchase of the new
shares. An investor may reinvest an amount not exceeding the
redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed
and subsequently repurchased a new contingency period will
begin. Shares of a Fund redeemed in connection with an
exchange into another fund (see "Exchange Privilege") are
not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of
shares of a Fund must be received by such Fund or the Fund's
Shareholder Services Agent within 120 days after the
redemption. The 120 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a
Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset
value may also be handled by a securities dealer or other
financial institution, who may charge the shareholder a fee
for this service. The redemption is a taxable transaction
but reinvestment without a sales charge may affect the
amount of gain or loss recognized and the tax basis of the
shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in
the same fund is made within a 30-day period. Information
regarding the possible tax consequences of such a
reinvestment is included in the tax section of this
Prospectus and the SAI.

For either Class I or Class II, the same class of shares of
the Fund or of another of the Franklin Templeton Funds may
be purchased at net asset value and without a contingent
deferred sales charge by persons who have received dividends
and capital gains distributions in cash from investments in
that class of shares of a Fund within 120 days of the
payment date of such distribution. To exercise this
privilege, a written request to reinvest the distribution
must accompany the purchase order. Additional information
may be obtained from Shareholder Services at 1-800/632-2301.
See "Distributions in Cash" under "Distributions to
Shareholders."

Description of Special Net Asset Value Purchases

Refer to the SAI for further information regarding net asset
value purchases of Class I shares.

Purchasing Class I and Class II Shares

When placing purchase orders, investors should clearly
indicate which class of shares they intend to purchase. A
purchase order that fails to specify a class will
automatically be invested in Class I shares.Purchases of $1
million or more in a single payment will be invested in
Class I shares. There are no conversion features attached to
either class of shares.

General

Other Programs and Privileges Available to Fund Shareholders

Certain of the programs and privileges described in this
section may not be available directly from the Funds to
shareholders whose shares are held, of record, by a
financial institution or in a "street name" account or
networked account through the National Securities Clearing
Corporation ("NSCC") (see the section captioned "Account
Registrations" in this Prospectus).

Share Certificates

Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and
capital gain distributions, are generally credited to an
account in the name of an investor on the books of the
Funds, without the issuance of a share certificate.
Maintaining shares in uncertificated form (also known as
"plan balance") minimizes the risk of loss or theft of a
share certificate. A lost, stolen or destroyed certificate
cannot be replaced without obtaining a sufficient indemnity
bond. The cost of such a bond, which is generally borne by
the shareholder, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be
issued if requested in writing by the shareholder or by the
securities dealer.

Confirmations

Automatic Investment Plan

Systematic Withdrawal Plan

A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided
that the net asset value of the shares held by the
shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal
Plan. The minimum amount which the shareholder may withdraw
is $50 per withdrawal transaction, although this is merely
the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. The plan may be
established on a monthly, quarterly, semiannual or annual
basis. If the shareholder establishes a plan, any capital
gain distributions and income dividends paid by the Fund
will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be
made from the liquidation of shares at net asset value on
the day of the transaction (which is generally the first
business day of the month in which the payment is scheduled)
with payment generally received by the shareholder three to
five days after the date of liquidation. By completing the
"Special Payment Instructions for Distributions" section of
the Shareholder Application included with this Prospectus, a
shareholder may direct the selected withdrawals to another
of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the
account is maintained is a member of the Automated Clearing
House, the payments may be made automatically by electronic
funds transfer. If this last option is requested, the
shareholder should allow at least 15 days for initial
processing. Payments which may be made in the interim will
be sent to the address of record. Liquidation of shares may
reduce or possibly exhaust the shares in the shareholder's
account, to the extent withdrawals exceed shares earned
through dividends and distributions, particularly in the
event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the
remaining balance will be sent to the shareholder. As with
other redemptions, a liquidation to make a withdrawal
payment is a sale for federal income tax purposes. Because
the amount withdrawn under the plan may be more than the
shareholder's actual yield or income, part of the payment
may be a return of the shareholder's investment.

Institutional Accounts

Exchange Privilege

The Franklin Templeton Funds consist of a number of mutual
funds with various investment objectives or policies. The
shares of most of these mutual funds are offered to the
public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the
Fund shares may be exchanged for the same class of shares of
other Franklin Templeton Funds which are eligible for sale
in the shareholder's state of residence and in conformity
with such fund's stated eligibility requirements and
investment minimums. Some funds, however, may not offer
Class II shares. Class I shares may be exchanged for Class I
shares of any Franklin Templeton Funds. Class II shares may
be exchanged for Class II shares of any Franklin Templeton
Funds. No exchanges between different classes of shares will
be allowed. A contingent deferred sales charge will not be
imposed on exchanges. If, however, the exchanged shares were
subject to a contingent deferred sales charge in the
original fund purchased and shares are subsequently redeemed
within 12 months (Class I shares) or 18 months (Class II
shares) of the calendar month of the original purchase date,
a contingent deferred sales charge will be imposed. See also
"How to Sell Shares of the Fund - Contingent Deferred Sales
Charge." Investors should review the prospectus of the fund
they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations
on exercising the exchange privilege, for example, minimum
holding periods or applicable sales charges.

Exchanges may be made in any of the following ways:

Exchanges By Mail

Exchanges By Telephone

Shareholders, or their investment representative of record,
if any, may exchange shares of the Fund by telephone by
calling Investor Services at 1-800/632-2301 or the automated
Franklin TeleFACTS system (day or night) at 1-800/247-1753.
If the shareholder does not wish this privilege extended to
a particular account, the Fund or Investor Services should
be notified.

Exchanges Through Securities Dealers

Additional Information Regarding Exchanges

The Exchange Privilege may be modified or discontinued by
the Funds at any time upon 60 days' written notice to
shareholders.

Exchanges of Class I Shares

Exchanges of Class II Shares

The money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money
Fund II"), a series of the Franklin Templeton Money Fund
Trust. No drafts (checks) may be written on Money Fund II
accounts, nor may shareholders purchase shares of Money Fund
II directly. Class II shares exchanged for shares of Money
Fund II will continue to age and a contingent deferred sales
charge will be assessed if CDSC liable shares are redeemed.
No other money market funds are available for Class II
shareholders for exchange purposes. Class I shares may be
exchanged for shares of any of the money market funds in the
Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these
other money market funds as described in their respective
prospectuses.

Transfers. Transfers between identically registered accounts
in the same fund and class are treated as non-monetary and
non-taxable events, and are not subject to a contingent
deferred sales charge. The transferred shares will continue
to age from the date of original purchase. Like exchanges,
Class II shares will be moved proportionately from each type
of shares in the original account.

Conversion Rights.

Timing Accounts

"Timing Accounts" are not permitted to purchase shares of
either Class I or Class II or to exchange into either Class
or Class II. This policy does not affect any other types of
investor. "Timing Accounts" generally include market timing
or allocation services; accounts administered so as to
redeem or purchase shares based upon certain predetermined
market indicators; or any person whose transactions seem to
follow a timing pattern.

How to Sell Shares of the Fund

A shareholder may at any time liquidate shares of a Fund
owned and receive from such Fund the value of the shares.
Shares may be redeemed in any of the following ways:

Redemptions by Mail

Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of
this Prospectus, and any share certificates which have been
issued for the shares of the Fund being redeemed, properly
endorsed and in order for transfer. The shareholder will
then receive from the Fund the value of the shares redeemed
based upon the net asset value per share (less a contingent
deferred sales charge, if applicable) next computed after
the written request in proper form is received by Investor
Services. Redemption requests received after the time at
which the net asset value is calculated (at the close of the
New York Stock Exchange (the "Exchange"), which is generally
1:00 p.m. Pacific time) each day that the Exchange is open
for business will receive the price calculated on the
following business day. Shareholders are requested to
provide a telephone number(s) where they may be reached
during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly
when necessary will speed the processing of the redemption.