FRANKLIN TAX FREE TRUST, 497, 1996-01-30

FRANKLIN TAX FREE TRUST
497, 1996-01-30

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Franklin
Tax-Free Trust

PROSPECTUS May 1, 1995
as amended January 25, 1996

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. This Prospectus relates only to the seven series listed below, five of
which, as noted, currently offer two classes of shares:

Class I

Franklin Arizona Insured Tax-Free Income Fund, Class I*

Franklin Florida Insured Tax-Free Income Fund, Class I*

Franklin Insured Tax-Free Income Fund, Class I

Franklin Massachusetts Insured Tax-Free Income Fund, Class I

Franklin Michigan Insured Tax-Free Income Fund, Class I

Franklin Minnesota Insured Tax-Free Income Fund, Class I

Franklin Ohio Insured Tax-Free Income Fund, Class I

Class II

Franklin Insured Tax-Free Income Fund, Class II

Franklin Massachusetts Insured Tax-Free Income Fund, Class II

Franklin Michigan Insured Tax-Free Income Fund, Class II

Franklin Minnesota Insured Tax-Free Income Fund, Class II

Franklin Ohio Insured Tax-Free Income Fund, Class II

*Class II not available

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."

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 State Fund also seeks to provide a
maximum level of income which is exempt from the personal income taxes, if any,
for resident shareholders of the named state. The state of Florida currently
imposes no state personal income tax.

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.

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.

A Statement of Additional Information ("SAI") concerning the Funds discussed 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............................................ 3

Financial Highlights..................................... 5

About the Trust.......................................... 7

Investment Objective
and Policies of Each Fund............................... 8

Insurance................................................ 13

Management of the Funds.................................. 16

Distributions to Shareholders............................ 19

Taxation of the Funds
and Their Shareholders.................................. 20

How to Buy Shares of a Fund.............................. 22

Other Programs and Privileges
Available to Fund Shareholders.......................... 29

Exchange Privilege....................................... 31

How to Sell Shares of a Fund............................. 34

Telephone Transactions................................... 38

Valuation of a Fund's Shares............................. 39

How to Get Information Regarding
an Investment in a Fund................................. 39

Performance.............................................. 40

General Information...................................... 42

Account Registrations.................................... 43

Important Notice Regarding
Taxpayer IRS Certifications............................. 44

Portfolio Operations..................................... 45

Appendix A
Description of State Tax Treatment...................... 46

Appendix B
Special Factors Affecting Each State Fund............... 49

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.
<TABLE>
<CAPTION>

Arizona Florida Insured Massachusetts Michigan Minnesota Ohio
Insured Fund Insured Fund Fund Insured Fund Insured Fund Insured Fund Insured Fund
Class I Class I Class I Class I Class I Class I Class I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <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%
Deferred Sales Charge*....................... NONE NONE NONE NONE NONE NONE NONE
Exchange Fee
(per transaction)**......................... NONE NONE $5.00 NONE NONE NONE NONE
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees.............................. 0.63%++++ 0.63%++++ 0.46% 0.53% 0.47% 0.50% 0.49%
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 Expenses................ 0.96%++++ 0.88%++++ 0.59% 0.67% 0.61% 0.66% 0.63%

Insured Massachusetts Michigan Minnesota Ohio
Fund Insured Fund Insured Fund Insured Fund nsured Fund
Class II Class II Class II Class II Class II
Shareholder Transaction Expenses
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)++................................. 1.00% 1.00% 1.00% 1.00% 1.00%
Deferred Sales Charge+++............................................... 1.00% 1.00% 1.00% 1.00% 1.00%
Exchange Fee (per transaction)**....................................... $5.00 NONE NONE NONE NONE
Annual Fund Operating Expenses
(as a percentage 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% 0.07% 0.09% 0.07%
Total Fund Operating Expenses.......................................... 1.17% 1.25% 1.19% 1.24% 1.21%
</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 of 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 Arizona and
Florida Insured Funds absent a fee reduction by the investment manager. The
investment manager 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.

Name of Fund One Year Three Years Five Years Ten Years

- ------------------------------------ ------ -------- ------ ------
Arizona Insured Fund Class I........ $52 $72 $93 $155
Florida Insured Fund Class I........ 51 69 89 146
Insured Fund Class I................ 48 61 75 114
Insured Fund Class II............... 32 47 73 151
Massachusetts Insured Fund Class I.. 49 63 79 124
Massachusetts Insured Fund Class II. 33 50 79 161
Michigan Insured Fund Class I....... 49 62 76 117
Michigan Insured Fund Class II...... 32 48 75 154
Minnesota Insured Fund Class I...... 49 63 78 122
Minnesota Insured Fund Class II..... 33 49 78 160
Ohio Insured Fund Class I........... 49 62 77 119
Ohio Insured Fund Class II.......... 32 48 76 156

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.

PER SHARE OPERATING PERFORMANCE RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------- ---------------------------

Distri- Distri- Ratio of Net
Net Asset Net Net Realized butions butions Net Asset Net Assets Ratio of Investment
Year Value at Invest-& Unrealized Total From From Net from Total Value at End Expenses Income Portfolio
Ended Beginning ment Gain (Loss) Investment InvestmentCapital Distri- at End Total of Year to Averageto Average Turnover
Feb.28 of Year Income on SecuritiesOperations Income Gains butions of Year Return+ (in 000's) Net AssetsNet Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------------

Franklin Arizona Insured Tax-free Income Fund:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994+++$10.00 $0.34 $0.265 $0.605 $(0.325) $ - $(0.325)$10.28 6.04% $ 12,895 0.03%++* 4.85%++ 62.88%
1995 10.28 0.55 (0.485) 0.065 (0.545) - (0.545) 9.80 .94 20,794 0.10 5.80 44.61
Franklin Florida Insured Tax-free Income Fund:
1994+++ 10.00 0.34 0.060 0.400 (0.330) - (0.330)10.07 3.97 32,150 -++* 4.97++ 28.72
1995 10.07 0.52 (0.531) (0.011) (0.529) - (0.529) 9.53 .21 46,847 .35 5.61 43.71

PER SHARE OPERATING PERFORMANCE RATIOS/SUPPLEMENTAL DATA

---------------------------------------------------------- ---------------------------

Franklin Insured Tax-free Income Fund:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ $10.00 $0.69 $1.343 $2.033 $(0.423) $ - $(0.423) $11.61 22.46%++$ 28,696 0.24% 6.29% 97.58%
1987 11.61 0.80 0.541 1.341 (0.852) (0.079) (0.931) 12.02 11.84 182,994 0.72 6.14 18.93
1988 12.02 0.79 (0.837) (0.047) (0.852) (0.001) (0.853) 11.12 (0.17) 316,606 0.62 7.03 5.65
1989 11.12 0.78 0.032 0.812 (0.852) - (0.852) 11.08 7.38 551,436 0.58 7.01 12.79
1990 11.08 0.78 0.204 0.984 (0.804) - (0.804) 11.26 8.81 711,300 0.54 6.92 11.96
1991 11.26 0.78 0.156 0.936 (0.786) - (0.786) 11.41 8.38 850,089 0.53 6.95 9.76
1992 11.41 0.74 0.298 1.038 (0.768) - (0.768) 11.68 9.29 1,130,592 0.53 6.55 6.35
1993 11.68 0.74 0.751 1.491 (0.741) - (0.741) 12.43 12.93 1,539,186 0.53 6.22 7.95
1994 12.43 0.73 0.020 0.750 (0.730) - (0.730) 12.45 5.93 1,802,548 0.52 5.79 6.85
1995 12.45 0.71 (0.481) 0.229 (0.709) - (0.709) 11.97 2.03 1,683,234 0.59 6.00 14.42
Franklin Massachusetts Insured Tax-free Income Fund:
1986+ 10.00 0.61 1.045 1.655 (0.405) - (0.405) 11.25 18.27++ 17,655 0.23 6.32 51.07
1987 11.25 0.74 0.226 0.966 (0.816) - (0.816) 11.40 8.71 73,285 0.75 5.90 3.34
1988 11.40 0.71 (0.725) (0.015) (0.775) - (0.775) 10.61 0.07 102,764 0.80 6.71 12.50
1989 10.61 0.71 (0.017) 0.693 (0.713) - (0.713) 10.59 6.56 109,851 0.75* 6.81 22.97
1990 10.59 0.72 0.118 0.838 (0.708) - (0.708) 10.72 7.82 123,906 0.72 6.65 14.14
1991 10.72 0.72 0.040 0.760 (0.720) - (0.720) 10.76 7.10 152,622 0.70 6.72 11.47
1992 10.76 0.68 0.307 0.987 (0.717) - (0.717) 11.03 9.34 218,336 0.67 6.40 7.49
1993 11.03 0.69 0.685 1.375 (0.675) - (0.675) 11.73 12.61 278,510 0.64 6.09 9.65
1994 11.73 0.67 0.092 0.762 (0.682) - (0.682) 11.81 6.39 307,013 0.60 5.69 13.82
1995 11.81 0.66 (0.468) 0.192 (0.662) - (0.662) 11.34 1.83 288,331 0.67 5.89 16.90
Franklin Michigan Insured Tax-free Income Fund:
1986+ 10.00 0.62 1.041 1.661 (0.411) - (0.411) 11.25 18.36++ 67,507 0.36 6.29 34.18
1987 11.25 0.76 0.488 1.248 (0.828) - (0.828) 11.67 11.28 234,890 0.78 6.13 4.80
1988 11.67 0.75 (0.735) 0.015 (0.795) - (0.795) 10.89 0.33 291,806 0.72 6.85 10.16
1989 10.89 0.74 0.032 0.772 (0.772) - (0.772) 10.89 7.15 370,238 0.67 6.86 9.83
1990 10.89 0.75 0.152 0.902 (0.732) - (0.732) 11.06 8.21 427,818 0.63 6.72 7.93
1991 11.06 0.75 0.124 0.874 (0.744) - (0.744) 11.19 7.93 515,313 0.61 6.72 4.17
1992 11.19 0.71 0.254 0.964 (0.744) - (0.744) 11.41 8.78 665,914 0.59 6.45 10.80
1993 11.41 0.71 0.766 1.476 (0.706) - (0.706) 12.18 13.23 882,361 0.58 6.09 2.04
1994 12.18 0.70 0.066 0.766 (0.706) - (0.706) 12.24 6.18 1,055,452 0.54 5.66 3.21
1995 12.24 0.69 (0.484) 0.206 (0.686) - (0.686) 11.76 1.87 1,037,717 0.61 5.87 9.12
Franklin Minnesota Insured Tax-free Income Fund:
1986+ 10.00 0.67 1.393 2.063 (0.423) - (0.423) 11.64 22.77++ 30,603 0.24 6.57 37.37
1987 11.64 0.79 0.437 1.227 (0.847) - (0.847) 12.02 10.72 119,877 0.78 5.87 12.38
1988 12.02 0.75 (0.718) 0.032 (0.792) - (0.792) 11.26 0.48 155,509 0.76 6.68 19.11
1989 11.26 0.76 0.012 0.772 (0.792) - (0.792) 11.24 6.90 183,867 0.75* 6.80 15.19
1990 11.24 0.77 0.182 0.952 (0.792) - (0.792) 11.40 8.39 235,058 0.70 6.68 4.55
1991 11.40 0.76 0.072 0.832 (0.792) - (0.792) 11.44 7.29 284,779 0.67 6.62 9.12
1992 11.44 0.73 0.275 1.005 (0.765) - (0.765) 11.68 8.95 357,279 0.65 6.43 3.14
1993 11.68 0.73 0.667 1.397 (0.727) - (0.727) 12.35 12.23 445,767 0.63 6.12 5.58
1994 12.35 0.70 (0.014) 0.686 (0.706) - (0.706) 12.33 5.42 499,619 0.60 5.67 13.42
1995 12.33 0.69 (0.451) 0.239 (0.685) (0.004) (0.689) 11.88 2.12 479,934 0.66 5.81 17.59

PER SHARE OPERATING PERFORMANCE RATIOS/SUPPLEMENTAL DATA

---------------------------------------------------------- ---------------------------

Franklin Ohio Insured Tax-free Income Fund:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ $10.00 $0.64 $1.083 $1.723 $(0.413)$ - $(0.413) $11.31 $19.04++ $ 27,004 0.23% 6.61% 54.11%
1987 11.31 0.77 0.452 1.222 (0.842) - (0.842) 11.69 11.01 192,647 0.80 5.61 4.96
1988 11.69 0.74 (0.765) (0.025) (0.732) (0.003) (0.735) 10.93 (0.01) 193,702 0.75 6.80 15.54
1989 10.93 0.74 0.082 0.822 (0.732) - (0.732) 11.02 7.58 203,230 0.71 6.80 32.48
1990 11.02 0.75 0.141 0.891 (0.741) - (0.741) 11.17 8.00 224,722 0.65 6.71 10.80
1991 11.17 0.75 0.172 0.922 (0.762) - (0.762) 11.33 8.28 273,119 0.65 6.67 4.44
1992 11.33 0.71 0.275 0.985 (0.765) - (0.765) 11.55 8.86 409,044 0.62 6.36 1.16
1993 11.55 0.72 0.776 1.496 (0.706) - (0.706) 12.34 13.26 564,758 0.59 6.05 2.87
1994 12.34 0.70 0.066 0.766 (0.706) - (0.706) 12.40 6.08 686,398 0.56 5.59 7.29
1995 12.40 0.69 (0.499) .191 (0.691) - (0.691) 11.90 1.74 652,545 0.63 5.83 11.76

</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%
for each Fund in 1994, and .96% for the Arizona Insured Fund and .88% for the
Florida Insured Fund in 1995.

**Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum initial sales
charge and assumes reinvestment of dividends and capital gains, if any, at net
asset value for the Franklin Arizona Tax-Free Income Fund and the Franklin
Florida Insured Tax-Free Income Fund, and assumes reinvestment of dividends at
the maximum offering price and of capital gains, if any at net asset value for
all other funds. Effective May 1, 1994, with the implementation of the Rule
12b-1 distribution plan the Fund's existing sales charge on reinvested dividends
were eliminated.

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% 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 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 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 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 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 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 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 of Trustees of the Trust (the "Board") 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.

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 34 U.S. registered investment companies
(117 separate series) with aggregate assets of over $78 billion, approximately
$41 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 Manager performs similar services for other funds and there may be times
when the actions taken with respect to the Funds' portfolios will differ from
those taken by the Manager on behalf of other funds. Neither the Manager
(including its affiliates) nor its officers, directors or employees nor the
officers and trustees of the Trust are prohibited from investing in securities
held by the Funds or other funds which are managed or administered by the
Manager to the extent such transactions comply with the Trust's Code of Ethics.
Please see "Investment Advisory and Other Services" and "General Information" in
the SAI for further information on securities transactions and a summary of the
Trust's Code of Ethics.

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:

Management
Class I Fund Name Fees Paid
- ----------------------------------- --------
Arizona Insured Fund.............................. 0.63%*
Florida Insured Fund.............................. 0.63%*
Insured Fund...................................... 0.46%
Massachusetts Insured Fund........................ 0.53%
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 in
principal transactions that involve the receipt by the broker of a spread
between the bid and ask prices for the securities and not the receipt of
commissions. 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:

Total
Operating
Class I Fund Name Expenses
- ----------------------------------- --------
Arizona Insured Fund.............................. 0.96%*
Florida Insured Fund.............................. 0.88%*
Insured Fund...................................... 0.59%
Massachusetts Insured Fund........................ 0.67%
Michigan Insured Fund............................. 0.61%
Minnesota Insured Fund............................ 0.66%
Ohio Insured Fund................................. 0.63%

*The investment manager agreed in advance to waive all or a portion
of its management fee and for making payments of certain operating expenses of
the Funds. 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 "Plan(s)") pursuant to
Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees charged to each class are
based solely on the distribution and, with respect to the Class II Plan,
servicing fees attributable to that particular class. Under either Plan, the
portion of fees remaining after payment to securities dealers or others for
distribution or servicing may be paid to 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 Fund shares.

The maximum amount which each Fund may reimburse to Distributors or others under
the Class I Plan for such distribution expenses is 0.15% per annum of the
Arizona and Florida Insured Funds Class I's average daily net assets 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 in excess of the maximum per annum for each Fund will be borne by
Distributors, or others who have incurred them, without reimbursement from the
Fund.

Under the Class II Plan, each Fund pays to Distributors distribution and related
expenses up to 0.50% per annum of Class II's daily net assets, payable
quarterly. Such fees may be used in order to compensate Distributors or others
for providing distribution and related services and bearing certain expenses of
the class. 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 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 the Fund on behalf of customers, or similar
activities related to furnishing personal services and/or maintaining
shareholder accounts.

Either Distributors or one of its affiliates may pay, from its own resources, a
commission of up to 1% of the purchase price of Class II shares to securities
dealers who initiate and are responsible for such purchases. During the first
year following such purchases, Distributors will retain a portion of Class II's
Rule 12b-1 fees attributable to such shares equal to 0.50% per annum of Class
II's average daily net assets to partially recoup fees Distributors pays to
securities dealers in connection with initial purchases of Class II shares.

Both Plans 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 the Class I Plan's fees, please see "The Funds' Underwriter" in 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. Daily allocation of net investment income will begin on the day after a
Fund receives the investor's money or settlement of a wire order trade and will
continue to accrue through the day of receipt of the redemption request or the
settlement of a wire order trade.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.

Distribution Options

Distributions from the Funds may be taken in any of these ways:

1. Purchase additional shares of a Fund - The shareholder may purchase
additional shares of the same class of the Funds (without a sales charge or
imposition of a contingent deferred sales charge) by reinvesting capital gain
distributions, or both dividend and capital gain distributions. Class II
shareholders, may also reinvest distributions in Class I shares of the Fund.
This is a convenient way to accumulate additional shares and maintain or
increase the shareholder's earnings base.

2. Purchase shares of other Franklin Templeton Funds - Distributions may be
directed to purchase the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a contingent deferred sales charge).
Class II shareholders, may also direct distributions to purchase Class I shares
of another Franklin Templeton Fund. Many shareholders find this a convenient way
to diversify their investments.

3. Receive distributions in cash - Shareholders may choose to receive dividends,
or both dividend and capital gain distributions in cash. Shareholders may have
the money sent directly to them at the address of record, to another person, or
to a checking account. If the money is to be sent to a checking account, please
see "Electronic Fund Transfers" under "Other Programs and Privileges Available
to a Fund's Shareholders."

To select one of these options, shareholders should complete sections 6 and 7 of
the Shareholder Application included with this Prospectus or tell their
investment representative which options they prefer. If no option is selected,
dividend and capital gain distributions will be automatically reinvested in the
same class of the Fund. The distribution option selected may be changed at any
time by notifying the Funds by mail or by telephone. Please allow at least seven
days prior to the reinvestment date for a Fund to process the new option.

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, either directly or through affiliates, have an agreement
with Distributors to 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 buy or sell shares based upon
certain predetermined market indicators.

Differences Between Class I and Class II

Class I and Class II shares differ in the amount of their front-end sales
charges and Rule 12b-1 fees, as well as the circumstances under which the
contingent deferred sales charge applies. Generally, Class I shares have higher
front-end sales charges than Class II shares and comparatively lower Rule 12b-1
fees. Voting rights of each class will be the same on matters affecting each
Fund as a whole, but each class will vote separately on matters affecting only
shareholders of that class. See "General Information - Organization and Voting
Rights."

Class I. All Fund shares 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 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. Class I shares are subject to Rule 12b-1 fees as
described under "Management of the Funds - Plans of Distribution." See
"Management of the Fund" and "How To Sell Shares of a Fund" for more
information.

Class II. Class II shares are subject to a front-end sales charge of 1% of the
amount invested and a contingent deferred sales charge of 1% if shares are
redeemed within 18 months of the calendar month of 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 Class II shares, 0.50% of which will be
retained by Distributors during the first year of investment.

Deciding Which Class to Purchase

Shareholders should carefully evaluate the anticipated investment amount and
time horizon prior to determining which class of shares to purchase. Generally,
if a shareholder expects to invest less than $100,000 in the Franklin Templeton
Funds and to make substantial redemptions within approximately six years or less
of investment, the shareholder should consider purchasing Class II shares.
However, the higher annual Rule 12b-1 fees on Class II shares will result in
higher operating expenses (which will accumulate over time to outweigh the
difference in front-end sales charges) and lower income dividends for Class II
shares. For this reason, Class I shares may be more attractive to a shareholder
who plans to invest in the Fund over the long-term, even if no sales charge
reductions are available.

If an investor qualifies to purchase Class I shares at reduced sales charges,
serious consideration should be given to purchasing Class I shares, especially
if the shares will be held approximately six years or more. If the investor
qualifies to purchase Class I shares at reduced sales charges but intends to
hold the shares less than approximately six years, the investor 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. Investments of $1 million or more in a single payment or
investors who qualify to purchase Class I shares at net asset value may not
purchase Class II shares. See "Purchases at Net Asset Value" below for a
discussion of when to purchase shares at net asset value.

Each class represents the same interest in the investment portfolio of a Fund
and has the same rights, except that each class has a different front-end 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.

Purchases of Class II shares are limited to purchases below $1 million. Any
purchase of $1 million or more will automatically be invested in Class I shares,
since that is considered more beneficial to the investor. Such purchases,
however, may be subject to a contingent deferred sales charge. An investor may
exceed $1 million in Class II shares by cumulative purchases over a period of
time. If the investor intends to make investments exceeding $1 million, however,
consideration should be given to purchasing Class I shares through a Letter of
Intent instead of purchasing Class II shares.

Each class has a separate schedule for compensating securities dealers for
selling shares of the Funds. Investors should take all of the factors regarding
an investment in each class into account before deciding which class of shares
to purchase. There are no conversion features attached to either class of
shares.

Purchase Price of Shares of a Fund

When placing purchase orders, the investor should clearly indicate which class
of shares to purchase. A purchase order that fails to specify a class will
automatically be invested in Class I 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 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 showing front-end sales charges and dealer
concessions for Class I shares.

Total Sales Charge
Class I Shares As a Percentage Dealer Concession
Size of Transaction As a Percentage of Net Amount As a Percentage of
at Offering Price of Offering Price Invested Offering Price*,***
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.25% 4.44% 4.00%
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 or more none none (see below)**
- ------------------------------------------------------------------------------------------------
</TABLE>

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. At the discretion of Distributors,
all sales charges may at times be allowed to the securities dealer. A securities
dealer who receives 90% or more of the sales commission may be deemed to be an
underwriter under the Securities Act of 1933, as amended.

**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.

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 or more 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(R) 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"), and (b) 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 Fund(s).") Sales charge reductions based
upon aggregate holdings of Franklin Templeton Funds 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% 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
as indicated in the table below:
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------------------
Total Sales Charge
- --------------------------------------------------------------------------------------------
Class II Shares As a Percentage Dealer Concession
Size of Transaction As a Percentage of Net Amount As a Percentage
at Offering Price of Offering Price Invested of Offering Price*
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
any amount (less than $1 million) 1.00% 1.01% 1.00%
- --------------------------------------------------------------------------------------------

</TABLE>

*Either Distributors or one of its affiliates may make additional payments to
securities dealers, out of 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."

Either 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 and payments made 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 the Funds or their
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 Funds may be combined with those of the investor's spouse,
children under the age of 21 and grandchildren under the age of 21.

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 Funds 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 (i) 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, (ii) grants to Distributors a security interest in
the reserved shares discussed and (iii) 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. 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
liquidation 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) current employees
of securities dealers and affiliates and by family members, in accordance with
the internal policies and procedures of the employing securities dealer and
affiliate.

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
365 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 that were no longer subject to a
contingent deferred sales charge will be reinvested at net asset value and will
not be subject to a new contingent deferred sales charge. 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
365 days after the redemption. The 365 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 or from a real estate investment
trust sponsored or advised by Franklin Properties Inc., may be purchased at net
asset value and without a contingent deferred sales charge by persons who have
received dividends and capital gain distributions from investments in that class
of shares of a Fund within 365 days of the payment date of such distribution.
Class II shareholders may also direct such distributions for investment at net
asset value in a Class I Franklin Templeton Fund. 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 "Distribution Options" 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 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 Funds
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.

General

Securities laws of states in which a Fund's shares are offered for sale may
differ from 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

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

The Automatic Investment Plan offers a convenient way to invest in the Funds.
Under the plan, shareholders can arrange to have money transferred automatically
from their checking account to a Fund each month to purchase additional shares.
Shareholders interested in this program, should refer to the Automatic
Investment Plan Application at the back of this Prospectus for the requirements
of the program or contact their investment representative. Of course, the market
value of the Fund's shares may fluctuate and a systematic investment plan such
as this will not assure a profit or protect against a loss. Shareholders may
terminate the program at any time by notifying Investor Services by mail or by
phone.

Systematic Withdrawal Plan

The Systematic Withdrawal Plan allows a shareholder to receive regular payments
from the account on a monthly, quarterly, semiannual or annual basis. To
establish a Systematic Withdrawal Plan, the value of the account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at least
$50. Please keep in mind that $50 is merely the minimum amount and is not a
recommended amount.

To establish a Systematic Withdrawal Plan, please complete the Systematic
Withdrawal Plan section of the Shareholder Application included with this
Prospectus and indicate how payments are to be received. Shareholders may choose
to receive payments in any of the following ways:

1. Purchase shares of other Franklin Templeton Funds - Payments may be directed
to purchase the same class of shares of another Franklin Templeton Fund.

2. Receive payments in cash - Shareholders may choose to receive payments in
cash and the money sent directly to them, to another person, or to a checking
account. For money to be sent to a checking account, please see "Electronic Fund
Transfers" below.

There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once the plan is established, any distributions paid by a Fund
will be automatically reinvested in the shareholder's account. Payments under
the plan will be made from the redemption of an equivalent amount of shares in
the shareholder's account, generally on the first business day of the month in
which a payment is scheduled. Payments will generally be received by the
shareholder within three to five days after the shares are redeemed.

Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in an account if payments exceed distributions received from a Fund. This
is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of a shareholder's account, the account will be closed
and the remaining balance in the account will be sent to the shareholder.
Redemptions under a Systematic Withdrawal Plan are considered a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than the actual yield or income, part of the payment may be a return of the
shareholder's investment.

While a Systematic Withdrawal Plan is in effect, no share certificates will be
issued. Shareholders should ordinarily not make additional investments in the
Funds of less than $5,000 or three times the amount of annual withdrawals under
the plan because of the sales charge on additional purchases. Shares redeemed
under the plan may also be subject to a contingent deferred sales charge. Please
see "Contingent Deferred Sales Charge" under "How To Sell Shares of a Fund."

A Systematic Withdrawal Plan may be terminated, the amount and schedule of
withdrawal payments changed, or a payment suspended by notifying Investor
Services in writing at least seven business days prior to the end of the month
preceding a scheduled payment. A Fund may also terminate a Systematic Withdrawal
Plan by notifying the shareholder in writing and will automatically terminate a
Systematic Withdrawal Plan if all shares in the account are withdrawn or if the
Fund receives notification of the shareholder's death or incapacity.

Electronic Fund Transfers

Distributions from the Fund or payments under a Systematic Withdrawal Plan may
be sent directly to a checking account. If the checking account is maintained at
a bank that is a member of the Automated Clearing House, the payments may be
made automatically by electronic funds transfer. If the shareholder chooses this
option, at least fifteen days should be allowed for initial processing. Any
payments made during that time will be sent to the address of record on the
shareholder's account.

Institutional Accounts

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

Exchange Privilege
- --------------------------------------------------------------------------------

The Franklin Templeton Funds consist of a number of 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 the contingency period, 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, limitation on a fund's sale of its shares, minimum holding periods
for exchanges at net asset value or applicable sales charges.

Exchanges may be made in any of the following ways:

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.

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(R), 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.

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 "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 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 in the Franklin
Templeton Funds was made pursuant to the privilege permitting purchases at net
asset value. 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,
accrued but unpaid income dividends and capital gain distributions will be
reinvested in the Fund at net asset value 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 .

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 during which a contingent deferred sales charge may be
assessed for 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 for
purposes of calculating the contingent deferred sales charge, because they
continue to be subject to Rule 12b-1 fees. The 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 contingent deferred sales charge. 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. Shares of each class will be transferred on
the same basis as described above for exchanges.

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 exchange 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
the Fund the value of the shares. Shares may be redeemed in any of the following
ways:

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 will receive the price calculated on the following business day. The
net asset value per share of each class is determined as of the scheduled close
of the New York Stock Exchange (the "Exchange") (generally 1:00 p.m. Pacific
time) each day that the Exchange is open for trading. 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 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.

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 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 - 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 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 the
Franklin Templeton Institutional Services Department by telephoning
1-800/321-8563.

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. The documents
described under "By Mail" above are required regardless of whether the
shareholder has redeemed shares directly or submits them to a securities dealer
for repurchase. 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. 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

In order to recover commissions paid to securities dealers, all or a portion of
Class I investments of $1 million or more and any Class II investments redeemed
within the contingency period (12 months for Class I and 18 months for Class II)
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.

In determining whether 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) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed 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 initiated by the Fund
due to an account falling below the minimum specified account size; redemptions
following the death of the shareholder or beneficial owner; and 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). 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% 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.

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.

Unless otherwise specified, 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, (iv) request the issuance of
certificates (to be sent to the address of record only), and (v) 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 Funds 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

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
Funds as detailed elsewhere in this Prospectus.

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 a Fund).

The net asset value per share for each class of a Fund is determined by
deducting the aggregate gross value of all liabilities of each class from the
aggregate gross value of all assets of each class and then dividing the
difference 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, a shareholder may access an automated system (day or
night) which offers the following features. By calling the Franklin TeleFACTS(R)
system at 1-800/247-1753, a shareholder may obtain Class I and Class II account
information, current price and, if available, yield or other performance
information specific to the Funds or any Franklin Templeton Fund. In addition,
Class I shareholders may process an exchange, within the same class, into an
identically registered Franklin account and request duplicate confirmation or
year-end statements and deposit slips.

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

FUND
CODE * FUND NAME
- ----- --------------------------------------
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

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

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 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. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional 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 and Voting Rights

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.

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
- --------------------------------------------------------------------------------

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 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. Account transfers may
be effected 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 Investor
Services, 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
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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%.