FRANKLIN TAX FREE TRUST, 497, 1998-07-06

FRANKLIN TAX FREE TRUST
497, 1998-07-06

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PROSPECTUS & APPLICATION
FRANKLIN
TAX-FREE
TRUST
JULY 1, 1998
INVESTMENT STRATEGY
TAX-FREE INCOME
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
FRANKLIN INSURED 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 OHIO INSURED TAX-FREE INCOME FUND

Please read this prospectus before investing, and keep it for future reference.
It contains important information, including how each fund invests and the
services available to shareholders.

FOR A FREE COPY OF THE SAI OR A LARGER PRINT VERSION OF THIS PROSPECTUS, CONTACT
YOUR INVESTMENT REPRESENTATIVE OR CALL 1-800/DIAL BEN.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.

LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

FRANKLIN TAX-FREE TRUST

THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY 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 DISTRIBUTORS.

TABLE OF CONTENTS

ABOUT THE FUNDS
Expense Summary 2
Financial Highlights 4
How Do the Funds Invest Their Assets? 16
What Are the Risks of Investing in the Funds? 20
Who Manages the Funds? 22
How Taxation Affects the Funds and Their Shareholders 25
How Is the Trust Organized? 28

ABOUT YOUR ACCOUNT
How Do I Buy Shares? 29
May I Exchange Shares for Shares of Another Fund? 36
How Do I Sell Shares? 39
What Distributions Might I Receive From the Funds? 41
Transaction Procedures and Special Requirements 42
Services to Help You Manage Your Account 47
What If I Have Questions About My Account? 49

GLOSSARY
Useful Terms and Definitions 50

FRANKLIN
TAX-FREE
TRUST

July 1, 1998

When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.

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

ABOUT THE FUNDS

<TABLE>
<CAPTION>
EXPENSE SUMMARY

This table is designed to help you understand the costs of investing in a fund.
It is based on the historical expenses of each fund for the fiscal year ended
February 28, 1998. Each fund's actual expenses may vary.

Arizona Florida Insured Massachusetts Michigan Minnesota Ohio
FUND FUND FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------

A. SHAREHOLDER TRANSACTION EXPENSES+

CLASS I

Maximum Sales Charge
<S> <C> <C> <C> <C> <C> <C> <C>
(as a percentage of Offering Price) 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%

Paid at time of purchase++ 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%

Paid at redemption++++ NONE NONE NONE NONE NONE NONE NONE

Exchange Fee (per transaction) NONE NONE $5.00* NONE NONE NONE NONE

CLASS II

Maximum Sales Charge
(as a percentage of Offering Price) - - 1.99% 1.99% 1.99% 1.99% 1.99%

Paid at time of purchase+++ - - 1.00% 1.00% 1.00% 1.00% 1.00%

Paid at redemption++++ - - 0.99% 0.99% 0.99% 0.99% 0.99%

Exchange Fee (per transaction) - - $5.00* NONE NONE NONE NONE

B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

CLASS I

Management Fees 0.63%** 0.63%** 0.47% 0.52% 0.47% 0.50% 0.49%

Rule 12b-1 Fees*** 0.10% 0.10% 0.08% 0.08% 0.08% 0.08% 0.09%

Other Expenses 0.09% 0.07% 0.06% 0.08% 0.08% 0.07% 0.06%
-------------------------------------------------------------------------------------

Total Fund Operating Expenses 0.82%** 0.80%** 0.61% 0.68% 0.63% 0.65% 0.64%
=====================================================================================

CLASS II

Management Fees - - 0.47% 0.52% 0.47% 0.50% 0.49%

Rule 12b-1 Fees*** - - 0.65% 0.65% 0.65% 0.65% 0.65%

Other Expenses - - 0.06% 0.08% 0.08% 0.07% 0.06%
-------------------------------------------------------------------------------------

Total Fund Operating Expenses - - 1.18% 1.25% 1.20% 1.22% 1.20%
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
C. EXAMPLE

Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown.
These are the projected expenses for each $1,000 that you invest in a fund.

CLASS I

<S> <C> <C> <C> <C> <C> <C> <C>
1 Year****..................... $ 51 $ 50 $ 48 $ 49 $ 49 $ 49 $ 49

3 Years ....................... $ 68 $ 67 $ 61 $ 63 $ 62 $ 62 $ 62

5 Years ....................... $ 86 $ 85 $ 75 $ 79 $ 76 $ 77 $ 77

10 Years ...................... $140 $137 $115 $124 $118 $120 $119

CLASS II

1 Year ........................ - - $ 32 $ 32 $ 32 $ 32 $ 32

3 Years ....................... - - $ 47 $ 49 $ 48 $ 48 $ 48

5 Years ....................... - - $ 74 $ 78 $ 75 $ 76 $ 75

10 Years ...................... - - $152 $160 $154 $156 $154
</TABLE>

For the same Class II investment, you would pay projected expenses of $22 for
the Insured, Michigan, Minnesota and Ohio funds, and $23 for the
Massachusetts Fund, if you did not sell your shares at the end of the first
year. Your projected expenses for the remaining periods would be the same.

THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
Each fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++There is no front-end sales charge if you invest $1 million or more in Class I
shares.
+++Although Class II has a lower front-end sales charge than Class I, its Rule
12b-1 fees are higher. Over time you may pay more for Class II shares. Please
see "How Do I Buy Shares? - Choosing a Share Class."
++++A Contingent Deferred Sales Charge may apply to any Class II purchase if you
sell the shares within 18 months and to Class I purchases of $1 million or more
if you sell the shares within one year. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
The number in the table shows the charge as a percentage of Offering Price.
While the percentage is different depending on whether the charge is shown based
on the Net Asset Value or the Offering Price, the dollar amount you would pay is
the same. See "How Do I Sell Shares? - Contingent Deferred Sales Charge" for
details.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**For the period shown, Advisers had agreed in advance to limit its management
fees. With this reduction, management fees were 0.11% for the Arizona Fund and
0.18% for the Florida Fund and total operating expenses were 0.30% for the
Arizona Fund and 0.35% for the Florida Fund.
***For the Arizona and Florida funds, these fees may not exceed 0.15%. For the
remaining funds, these fees may not exceed 0.10% for Class I and 0.65% for Class
II. 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 charge permitted under the NASD's rules.
****Assumes a Contingent Deferred Sales Charge will not apply.

FINANCIAL HIGHLIGHTS

This table summarizes each fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the funds' independent auditors. Their
audit report covering each of the most recent five years appears in the Trust's
Annual Report to Shareholders for the fiscal year ended February 28, 1998. The
Annual Report to Shareholders also includes more information about each fund's
performance. For a free copy, please call Fund Information.

<TABLE>
<CAPTION>
ARIZONA FUND

YEAR ENDED FEB. 28
-----------------------------------------------------------------------
1998 1997 1996 1995 19941
-----------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.36 $10.36 $ 9.80 $10.28 $10.00
-----------------------------------------------------------------------

Income from investment operations:

Net investment income .54 .55 .55 .55 .34

Net realized and unrealized
gains (losses) .42 - .57 (.48) .27
-----------------------------------------------------------------------

Total from investment operations .96 .55 1.12 .07 .61
-----------------------------------------------------------------------

Less distributions from:

Net investment income (.55) (.55) (.56) (.55) (.33)
------------------------------------------------------------------------

Net asset value, end of year $10.77 $10.36 $10.36 $ 9.80 $10.28
=======================================================================

Total return* 9.53% 5.55% 11.64% .94% 6.04%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $58,059 $39,693 $38,199 $20,794 $12,895

Ratios to average net assets:

Expenses .30% .25% .16% .10% .03%**

Expenses excluding waiver and
payments by affiliate .82% .86% .86% .96% .83%**

Net investment income 5.11% 5.45% 5.51% 5.80% 4.85%**

Portfolio turnover rate 17.44% 18.27% 4.12% 44.61% 62.88%
</TABLE>

<TABLE>
<CAPTION>
FLORIDA FUND

YEAR ENDED FEB. 28
-----------------------------------------------------------------------
1998 1997 1996 1995 19941
-----------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.99 $10.02 $ 9.53 $10.07 $10.00
-----------------------------------------------------------------------

Income from investment operations:

Net investment income .53 .53 .53 .52 .34

Net realized and unrealized
gains (losses) .44 (.03) .49 (.53) .06
-----------------------------------------------------------------------

Total from investment operations .97 .50 1.02 (.01) .40
-----------------------------------------------------------------------

Less distributions from:

Net investment income (.53) (.53) (.53) (.53) (.33)
-----------------------------------------------------------------------

Net asset value, end of year $10.43 $ 9.99 $10.02 $ 9.53 $10.07
=======================================================================

Total return* 9.94% 5.17% 10.95% .21% 3.97%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $101,506 $77,177 $69,583 $46,847 $32,150

Ratios to average net assets:

Expenses .35% .35% .35% .35% -

Expenses excluding waiver and
payments by affiliate .80% .80% .82% .88% .83%**

Net investment income 5.16% 5.36% 5.37% 5.61% 4.97%**

Portfolio turnover rate 8.08% 32.23% 24.36% 43.71% 28.72%
</TABLE>

<TABLE>
<CAPTION>
INSURED FUND

CLASS I
---------------------------------------------------------------------------------------
YEAR ENDED FEB. 28
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $12.15 $12.27 $11.97 $12.45 $12.43 $11.68 $11.41 $11.26 $11.08 $11.12
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .66 .69 .71 .71 .73 .74 .74 .78 .78 .78

Net realized and unrealized
gains (losses) .29 (.11) .30 (.48) .02 .75 .30 .16 .20 .03
---------------------------------------------------------------------------------------

Total from investment
operations .95 .58 1.01 .23 .75 1.49 1.04 .94 .98 .81
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.66) (.70) (.71) (.71) (.73) (.74) (.77) (.79) (.80) (.85)

In excess of net
investment income (.01) - - - - - - - - -

Net realized gains (.12) - - - - - - - - -
---------------------------------------------------------------------------------------

Total distributions (.79) (.70) (.71) (.71) (.73) (.74) (.77) (.79) (.80) (.85)
---------------------------------------------------------------------------------------

Net asset value,
end of year $12.31 $12.15 $12.27 $11.97 $12.45 $12.43 $11.68 $11.41 $11.26 $11.08
=======================================================================================

Total return* 8.09% 4.88% 8.66% 2.03% 5.93% 12.93% 9.29% 8.38% 8.81% 7.38%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year
(millions) $1,685 $1,662 $1,705 $1,683 $1,803 $1,539 $1,131 $850 $711 $551

Ratios to average net assets:

Expenses .61% .60% .60% .59% .52% .53% .53% .53% .54% .58%

Net investment income 5.44% 5.68% 5.81% 6.00% 5.79% 6.22% 6.55% 6.95% 6.92% 7.01%

Portfolio turnover rate 27.77% 18.66% 13.52% 14.42% 6.85% 7.95% 6.35% 9.76% 11.96% 12.79%
</TABLE>

<TABLE>
<CAPTION>
INSURED FUND (CONT.)

CLASS II
---------------------------------------------
YEAR ENDED FEB. 28
---------------------------------------------
1998 1997 19962
---------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $12.21 $12.31 $11.98
---------------------------------------------

Income from investment operations:

Net investment income .60 .62 .54

Net realized and unrealized
gains (losses) .29 (.09) .32
---------------------------------------------

Total from investment operations .89 .53 .86
---------------------------------------------

Less distributions from:

Net investment income (.60) (.63) (.53)

Net realized gains (.12) - -
---------------------------------------------

Total distributions (.72) (.63) (.53)
---------------------------------------------

Net asset value, end of year $12.38 $12.21 $12.31
=============================================

Total return* 7.52% 4.42% 7.32%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $38,057 $21,521 $8,152

Ratios to average net assets:

Expenses 1.18% 1.17% 1.18%**

Net investment income 4.86% 5.10% 5.21%**

Portfolio turnover rate 27.77% 18.66% 13.52%
</TABLE>

<TABLE>
<CAPTION>
MASSACHUSETTS FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.54 $11.65 $11.34 $11.81 $11.73 $11.03 $10.76 $10.72 $10.59 $10.61
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .61 .63 .66 .66 .67 .69 .68 .72 .72 .71

Net realized and
unrealized gains (losses) .35 (.10) .31 (.47) .09 .69 .31 .04 .12 (.02)
---------------------------------------------------------------------------------------

Total from investment
operations .96 .53 .97 .19 .76 1.38 .99 .76 .84 .69
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.61) (.64)3 (.66) (.66) (.68) (.68) (.72) (.72) (.71) (.71)

In excess of net
investment income (.01) - - - - - - - - -

Net realized gains (.13) - - - - - - - - -
---------------------------------------------------------------------------------------

Total distributions (.75) (.64) (.66) (.66) (.68) (.68) (.72) (.72) (.71) (.71)
---------------------------------------------------------------------------------------

Net asset value,
end of year $11.75 $11.54 $11.65 $11.34 $11.81 $11.73 $11.03 $10.76 $10.72 $10.59
=======================================================================================

Total return* 8.50% 4.75% 8.80% 1.83% 6.39% 12.61% 9.34% 7.10% 7.82% 6.56%

RATIOS/SUPPLEMENTAL DATA

Net assets, end
of year (000's) $328,147 $325,065 $301,529 $288,331 $307,013 $278,510 $218,336 $152,622 $123,906 $109,851

Ratios to average net assets:

Expenses .68% .68% .69% .67% .60% .64% .67% .70% .72% .75%

Expenses excluding waiver
and payments by affiliate .68% .68% .69% .67% .60% .64% .67% .70% .72% .79%

Net investment income 5.21% 5.51% 5.67% 5.89% 5.69% 6.09% 6.40% 6.72% 6.65% 6.81%

Portfolio turnover rate 30.46% 29.22% 10.29% 16.90% 13.82% 9.65% 7.49% 11.47% 14.14% 22.97%
</TABLE>

<TABLE>
<CAPTION>
MASSACHUSETTS FUND (CONT.)

CLASS II
---------------------------------------------
YEAR ENDED FEB. 28
---------------------------------------------
1998 1997 19962
---------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.59 $11.69 $11.36
---------------------------------------------

Income from investment operations:

Net investment income .55 .57 .50

Net realized and unrealized
gains (losses) .34 (.09) .32
---------------------------------------------

Total from investment operations .89 .48 .82
---------------------------------------------

Less distributions from:

Net investment income (.55) (.58)3 (.49)

Net realized gains (.13) - -
---------------------------------------------

Total distributions (.68) (.58) (.49)
---------------------------------------------

Net asset value, end of year $11.80 $11.59 $11.69
=============================================

Total return* 7.86% 4.22% 7.36%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $13,937 $6,378 $2,759

Ratios to average net assets:

Expenses 1.25% 1.25% 1.26%**

Net investment income 4.59% 4.96% 5.06%**

Portfolio turnover rate 30.46% 29.22% 10.29%
</TABLE>

<TABLE>
<CAPTION>
MICHIGAN FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $12.00 $12.09 $11.76 $12.24 $12.18 $11.41 $11.19 $11.06 $10.89 $10.89
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .63 .66 .68 .69 .70 .71 .71 .75 .75 .74

Net realized and
unrealized gains (losses) .34 (.09) .34 (.48) .07 .77 .25 .12 .15 .03
---------------------------------------------------------------------------------------

Total from investment
operations .97 .57 1.02 .21 .77 1.48 .96 .87 .90 .77
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.63) (.66)4 (.69)3 (.69) (.71) (.71) (.74) (.74) (.73) (.77)

In excess of net
investment income (.01) - - - - - - - - -

Net realized gains (.13) - - - - - - - - -
---------------------------------------------------------------------------------------

Total distributions (.77) (.66) (.69) (.69) (.71) (.71) (.74) (.74) (.73) (.77)
---------------------------------------------------------------------------------------

Net asset value,
end of year $12.20 $12.00 $12.09 $11.76 $12.24 $12.18 $11.41 $11.19 $11.06 $10.89
========================================================================================

Total return* 8.37% 4.90% 8.86% 1.87% 6.18% 13.23% 8.78% 7.93% 8.21% 7.15%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year
(millions) $1,143 $1,112 $1,115 $1,038 $1,055 $882 $666 $515 $428 $370

Ratios to average net assets:

Expenses .63% .62% .62% .61% .54% .58% .59% .61% .63% .67%

Net investment income 5.24% 5.52% 5.65% 5.87% 5.66% 6.09% 6.45% 6.72% 6.72% 6.86%

Portfolio turnover rate 20.08% 30.03% 9.38% 9.12% 3.21% 2.04% 10.80% 4.17% 7.93% 9.83%
</TABLE>

<TABLE>
<CAPTION>
MICHIGAN FUND (CONT.)

CLASS II
---------------------------------------------
YEAR ENDED FEB. 28
---------------------------------------------
1998 1997 19962
---------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $12.07 $12.14 $11.77
---------------------------------------------

Income from investment operations:

Net investment income .57 .59 .51

Net realized and unrealized
gains (losses) .33 (.07) .37
---------------------------------------------

Total from investment operations .90 .52 .88
---------------------------------------------

Less distributions from:

Net investment income (.57) (.59) (.51)

Net realized gains (.13) - -
---------------------------------------------

Total distributions (.70) (.59) (.51)
---------------------------------------------

Net asset value, end of year $12.27 $12.07 $12.14
=============================================

Total return* 7.70% 4.44% 7.58%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $32,873 $20,162 $6,683

Ratios to average net assets:

Expenses 1.20% 1.19% 1.20%**

Net investment income 4.67% 4.94% 5.03%**

Portfolio turnover rate 20.08% 30.03% 9.38%
</TABLE>

<TABLE>
<CAPTION>
MINNESOTA FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $12.01 $12.14 $11.88 $12.33 $12.35 $11.68 $11.44 $11.40 $11.24 $11.26
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .64 .65 .67 .69 .70 .73 .73 .76 .77 .76

Net realized and
unrealized gains (losses) .25 (.12) .27 (.45) (.01) .67 .28 .07 .18 .01
---------------------------------------------------------------------------------------

Total from investment
operations .89 .53 .94 .24 .69 1.40 1.01 .83 .95 .77
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.64) (.66) (.68) (.69)7 (.71) (.73) (.77) (.79) (.79) (.79)

Net realized gains (.10) - - - - - - - - -
---------------------------------------------------------------------------------------
Total distributions (.74) (.66) (.68) (.69) (.71) (.73) (.77) (.79) (.79) (.79)
---------------------------------------------------------------------------------------

Net asset value,
end of year $12.16 $12.01 $12.14 $11.88 $12.33 $12.35 $11.68 $11.44 $11.40 $11.24
=======================================================================================

Total return* 7.60% 4.54% 8.06% 2.12% 5.42% 12.23% 8.95% 7.29% 8.39% 6.90%

RATIOS/SUPPLEMENTAL DATA

Net assets, end
of year (000's) $495,315 $482,128 $492,139 $479,934 $499,619 $445,767 $357,279 $284,779 $235,058 $183,867

Ratios to average net assets:

Expenses .65% .66% .66% .66% .60% .63% .65% .67% .70% .75%

Expenses excluding waiver
and payments by affiliate .65% .66% .66% .66% .60% .63% .65% .67% .70% .76%

Net investment income 5.29% 5.47% 5.58% 5.81% 5.67% 6.12% 6.43% 6.62% 6.68% 6.80%

Portfolio turnover rate 14.87% 14.40% 17.72% 17.59% 13.42% 5.58% 3.14% 9.12% 4.55% 15.19%
</TABLE>

<TABLE>
<CAPTION>
MINNESOTA FUND (CONT.)

CLASS II
---------------------------------------------
YEAR ENDED FEB. 28
---------------------------------------------
1998 1997 19962
---------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $12.05 $12.17 $11.89
---------------------------------------------

Income from investment operations:

Net investment income .57 .59 .50

Net realized and unrealized
gains (losses) .26 (.12) .28
---------------------------------------------

Total from investment operations .83 .47 .78
---------------------------------------------

Less distributions from:

Net investment income (.57) (.59) (.50)

Net realized gains (.10) - -
---------------------------------------------

Total distributions (.67) (.59) (.50)
---------------------------------------------

Net asset value, end of year $12.21 $12.05 $12.17
=============================================

Total return* 7.04% 3.98% 6.67%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $10,131 $4,844 $1,152

Ratios to average net assets:

Expenses 1.22% 1.23% 1.25%**

Net investment income 4.72% 4.87% 4.94%**

Portfolio turnover rate 14.87% 14.40% 17.72%
</TABLE>

<TABLE>
<CAPTION>
OHIO FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $12.19 $12.22 $11.90 $12.40 $12.34 $11.55 $11.33 $11.17 $11.02 $10.93
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .64 .66 .68 .69 .70 .72 .71 .75 .75 .74

Net realized and
unrealized gains (losses) .33 (.03) .33 (.50) .07 .78 .28 .17 .14 .08
---------------------------------------------------------------------------------------

Total from investment
operations .97 .63 1.01 .19 .77 1.50 .99 .92 .89 .82
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.64)6 (.66)5 (.69)3 (.69) (.71) (.71) (.77) (.76) (.74) (.73)

Net realized gains (.07) - - - - - - - - -
---------------------------------------------------------------------------------------

Total distributions (.71) (.66) (.69) (.69) (.71) (.71) (.77) (.76) (.74) (.73)
---------------------------------------------------------------------------------------

Net asset value,
end of year $12.45 $12.19 $12.22 $11.90 $12.40 $12.34 $11.55 $11.33 $11.17 $11.02
=======================================================================================

Total return* 8.22% 5.35% 8.66% 1.74% 6.08% 13.26% 8.86% 8.28% 8.00% 7.58%

RATIOS/SUPPLEMENTAL DATA

Net assets, end
of year (000's) $741,079 $698,360 $685,783 $652,545 $686,398 $564,758 $409,044 $273,119 $224,722 $203,230

Ratios to average net assets:

Expenses .64% .64% .64% .63% .56% .59% .62% .65% .65% .71%

Net investment income 5.24% 5.43% 5.58% 5.83% 5.59% 6.05% 6.36% 6.67% 6.71% 6.80%

Portfolio turnover rate 12.84% 14.95% 11.47% 11.76% 7.29% 2.87% 1.16% 4.44% 10.80% 32.48%
</TABLE>

<TABLE>
<CAPTION>
OHIO FUND (CONT.)

CLASS II
---------------------------------------------
YEAR ENDED FEB. 28
---------------------------------------------
1998 1997 19962
---------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $12.24 $12.26 $11.90
---------------------------------------------

Income from investment operations:

Net investment income .58 .59 .52

Net realized and unrealized
gains (losses) .34 (.02) .35
---------------------------------------------

Total from investment operations .92 (.57) .87
---------------------------------------------

Less distributions from:

Net investment income (.58) (.59) (.51)

Net realized gains (.07) - -
---------------------------------------------

Total distributions (.65) (.59) (.51)
---------------------------------------------

Net asset value, end of year $12.51 $12.24 $12.26
=============================================

Total return* 7.66% 4.79% 7.43%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $28,178 $15,786 $6,085

Ratios to average net assets:

Expenses 1.20% 1.20% 1.22%**

Net investment income 4.67% 4.80% 4.99%**

Portfolio turnover rate 12.84% 14.95% 11.47%
</TABLE>

*Total return does not reflect sales commissions or the Contingent Deferred
Sales Charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the Offering Price.

**Annualized
1For the period April 30, 1993 (effective date) to February 28, 1994.
2For the period May 1, 1995 (effective date) to February 29, 1996.
3Includes distributions in excess of net investment income in the amount of
$.001.
4Includes distributions in excess of net investment income in the amount of
$.002.
5Includes distributions in excess of net investment income in the amount of
$.003.
6Includes distributions in excess of net investment income in the amount of
$.007.
7Includes distributions from net realized gains of $.004.

HOW DO THE FUNDS INVEST THEIR ASSETS?

A QUICK LOOK AT THE FUNDS

FRANKLIN INSURED STATE SPECIFIC INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUNDS
- --------------------------------------------------------------------------------
GOAL: High current income free from GOAL: High current tax-free income for
federal income taxes. residents of the fund's state.

STRATEGY: Invests primarily in STRATEGY: Invest primarily in
municipal securities covered by municipal securities covered by
insurance guaranteeing the timely insurance guaranteeing the timely
payment of principal and interest and payment of principal and interest and
whose interest is free from federal whose interest is free from federal
income taxes. and state personal income taxes, if
any, for residents of the fund's state.

WHAT IS THE MANAGER'S APPROACH?

Advisers tries to select securities that it believes will provide the best
balance between risk and return within each fund's range of allowable
investments. Advisers considers a number of factors including general market and
economic conditions, the credit quality of the issuer, and the cost of insurance
when selecting securities for each fund.

To provide tax-free income to shareholders, Advisers typically uses a buy and
hold strategy. This means it holds securities in a fund's portfolio for income
purposes, rather than trading securities for capital gains. Advisers may sell a
security at any time, however, when Advisers believes doing so could help the
fund meet its goals.

While income is the most important part of return over time, the total return
from a municipal security includes both income and price gains or losses. Each
fund's focus on income does not mean it invests only in the highest-yielding
securities available, or that it can avoid losses of principal.

WHO MAY WANT TO INVEST?

The funds may be appropriate for investors in higher tax brackets who seek high
current income that is free from federal and, for the state funds, state
personal income taxes.

The value of each fund's investments and the income they generate will vary from
day to day, and generally reflect interest rates, market conditions, and other
federal and state political and economic news. When you sell your shares, they
may be worth more or less than what you paid for them. Please consider your
investment goals and tolerance for price fluctuations and risk when making your
investment decision.

THE FUNDS IN MORE DETAIL

WHAT ARE THE FUNDS' GOALS?

The investment goal of each fund is to provide investors with as high a level of
income exempt from federal income taxes as is consistent with prudent investing,
while seeking preservation of shareholders' capital. Each state fund also tries
to provide a maximum level of income that is exempt from personal income taxes,
if any, for resident shareholders of the fund's state. These goals are
fundamental, which means that they may not be changed without shareholder
approval.

WHAT KINDS OF SECURITIES DO THE FUNDS BUY?

Each fund tries to invest all of its assets in tax-free municipal securities,
including bonds, notes and commercial paper.

MUNICIPAL SECURITIES are issued by state and local governments, their agencies
and authorities, as well as by the District of Columbia and U.S. territories and
possessions, to borrow money for various public or private projects. The issuer
pays a fixed or variable rate of interest, and must repay the amount borrowed
(the "principal") at maturity.

Municipal securities help the funds meet their investment goals because they
generally pay interest free from federal income tax. Municipal securities issued
by a fund's state or that state's counties, municipalities, authorities,
agencies, or other subdivisions, as well as municipal securities issued by U.S.
territories such as Guam, Puerto Rico, or the Mariana Islands, also generally
pay interest free from state personal income taxes, if any, for residents of the
fund's state.

Each fund normally invests:

o at least 80% of its net assets in securities that pay interest free from
federal income taxes, including the federal alternative minimum tax (this
policy is fundamental);

o at least 80% of its net assets in securities that pay interest free from
the personal income taxes, if any, of its state, although each fund tries
to invest all of its assets in these securities (this policy is fundamental
and applies only to the state funds); and

o at least 65% of its total assets in municipal securities of its state.
Unlike the state funds, however, the Franklin Insured Tax-Free Income Fund
is diversified nationally and will not invest more than 25% of its total
assets in the municipal securities of any one state or territory.

While each fund tries to invest 100% of its assets in municipal securities whose
interest is free from federal and, for the state funds, state personal income
taxes, it is possible, although not anticipated, that a fund may have up to 20%
of its assets in securities that pay taxable interest. If you are subject to the
federal alternative minimum tax, please keep in mind that each fund may also
have a portion of its assets in municipal securities that pay interest subject
to the federal alternative minimum tax.

QUALITY. All things being equal, the lower a security's credit quality, the
higher the risk and the higher the yield the security generally must pay as
compensation to investors for the higher risk.

A security's credit quality depends on the issuer's ability to pay interest on
the security and, ultimately, to repay the principal. Independent rating
agencies, such as Fitch, Moody's and S&P, often rate municipal securities based
on their opinion of the issuer's credit quality. Most rating agencies use a
descending alphabet scale to rate long-term securities, and a descending
numerical scale to rate short-term securities. For example, Fitch and S&P use
AAA, AA, A and BBB for their top four long-term ratings, while Moody's uses Aaa,
Aa, A and Baa. Securities rated in the highest rating category are "top rated."
Securities in the top four ratings are "investment grade," although securities
in the fourth highest rating may have some speculative features. These ratings
are described in more detail in the SAI.

An insurance company, bank or other foreign or domestic entity may provide
credit support for a municipal security and enhance its credit quality. For
example, some municipal securities are insured, which means they are covered by
an insurance policy that insures the timely payment of principal and interest.
Other municipal securities may be backed by letters of credit, guarantees, or
escrow or trust accounts that contain securities backed by the full faith and
credit of the U.S. government to secure the payment of principal and interest.

o Each fund invests at least 65% of its total assets in insured municipal
securities. Each fund pays insurance premiums either directly or
indirectly, which increases the credit safety of its insured investments,
but decreases its yield. It is important to note that the insurance does
not guarantee the market value of a security, or a fund's shares or
distributions, and shares of a fund are not insured.

o Each fund may invest the balance of its assets in the following types of
uninsured securities: (i) municipal securities secured by an escrow or
trust account containing direct U.S. government obligations; (ii)
securities rated in one of the top three ratings or unrated securities that
Advisers believes are comparable in quality; or (iii) top rated short-term,
tax-free securities, pending investment in longer-term municipal
securities. Each fund may only invest up to 20% of its total assets in the
type of securities described in (ii) above.

MATURITY. Municipal securities are issued with a specific maturity date - the
date when the issuer must repay the amount borrowed. Maturities typically range
from less than one year (short term) to 30 years (long term). In general,
securities with longer maturities are more sensitive to price changes, although
they may provide higher yields.

o The funds have no restrictions on the maturity of the securities they may
buy or on their average portfolio maturity.

VARIABLE AND FLOATING RATE SECURITIES have interest rates that change either at
specific intervals or whenever a benchmark rate changes. While this feature
helps to protect against a decline in the security's market price, it also
lowers a fund's income when interest rates fall. Of course, a fund's income from
its variable rate investments may also increase if interest rates rise.

o Each fund may invest in top rated variable and floating rate securities.

MUNICIPAL LEASE OBLIGATIONS finance the purchase of public property. The
property is leased to the state or a local government, and the lease payments
are used to pay the interest on the obligations. Municipal lease obligations
differ from other municipal securities because the lessee's governing body must
set aside the money to make the lease payments each year. If the money is not
set aside, the issuer or the lessee can end the lease without penalty. If the
lease is cancelled, investors who own the municipal lease obligations may not be
paid.

o Each fund may invest in municipal lease obligations without limit, if the
obligations meet the fund's quality and maturity standards.

WHAT ARE SOME OF THE FUNDS' OTHER INVESTMENT STRATEGIES AND PRACTICES?

TEMPORARY INVESTMENTS. When Advisers believes unusual or adverse economic,
market or other conditions exist, it may invest a fund's portfolio in a
temporary defensive manner. Under these circumstances, each fund may invest all
of its assets in securities that pay taxable interest, including (i) high
quality commercial paper; (ii) securities issued by or guaranteed by the full
faith and credit of the U.S. government; or (iii) for the state funds, municipal
securities issued by a state or local government other than the fund's state, or
by a U.S. territory such as Guam, Puerto Rico or the Mariana Islands.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS are those where payment and
delivery for the security take place at a future date. Since the market price of
the security may fluctuate during the time before payment and delivery, the fund
assumes the risk that the value of the security at delivery may be more or less
than the purchase price.

DIVERSIFICATION. Diversification involves limiting the amount of money
invested in any one issuer or, on a broader scale, in any one state or type
of project to help spread and reduce the risks of investment. Non-diversified
funds may invest a greater portion of their assets in the securities of one
issuer than diversified funds. Economic, business, political or other changes
can affect all securities of a similar type. A non-diversified fund may be
more sensitive to these changes.

o The Arizona and Florida funds are non-diversified funds, although they
intend to meet certain diversification requirements for tax purposes. The
other funds are all diversified. Each fund may invest more than 25% of its
assets in municipal securities that finance similar types of projects, such
as hospitals, housing, industrial development, transportation or pollution
control.

OTHER POLICIES AND RESTRICTIONS. Each fund has a number of additional investment
policies and restrictions that govern its activities. Those that are identified
as "fundamental" may only be changed with shareholder approval. The others may
be changed by the Board alone. For a list of these restrictions and more
information about each fund's investment policies, including those described
above, please see "How Do the Funds Invest Their Assets?" and "Investment
Restrictions" in the SAI.

Generally, the policies and restrictions discussed in this prospectus and in the
SAI apply when a fund makes an investment. In most cases, a fund is not required
to sell a security because circumstances change and the security no longer meets
one or more of the fund's policies or restrictions.

WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?

Like all investments, an investment in a fund involves risks. The risks of each
fund are basically the same as those of other investments in municipal
securities of similar quality, although an investment in one of the state funds
may involve more risk than an investment in a fund that does not focus on
securities of a single state. Because each fund holds many securities, it is
likely to be less risky than any one, or few, directly held municipal
investments.

GENERAL RISK. There is no assurance that a fund will meet its investment goal. A
fund's share price, and the value of your investment, may change. Generally,
when the value of a fund's investments go down, so does the fund's share price.
Similarly, when the value of a fund's investments go up, so does the fund's
share price. Since the value of a fund's shares can go up or down, it is
possible to lose money by investing in a fund.

INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. When interest rates rise, municipal security prices fall.
The opposite is also true: municipal security prices go up when interest rates
fall. To explain why this is so, assume you hold a municipal security offering a
5% yield. A year later, interest rates are on the rise and comparable securities
are offered with a 6% yield. With higher-yielding securities available, you
would have trouble selling your 5% security for the price you paid - causing you
to lower your asking price. On the other hand, if interest rates were falling
and 4% municipal securities were being offered, you would be able to sell your
5% security for more than you paid.

INCOME RISK is the risk that a fund's income will decrease due to falling
interest rates. Since a fund can only distribute what it earns, a fund's
distributions to its shareholders may decline when interest rates fall.

CREDIT RISK is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value. Even securities supported by
credit enhancements have the credit risk of the entity providing the credit
support. Credit support provided by a foreign entity may be less certain because
of the possibility of adverse foreign economic, political or legal developments
that may affect the ability of that foreign entity to meet its obligations.
Changes in the credit quality of the credit provider could affect the value of
the security and the fund's share price.

MARKET RISK is the risk that a security's value will be reduced by market
activity or the results of supply and demand. This is a basic risk associated
with all securities. When there are more sellers than buyers, prices tend to
fall. Likewise, when there are more buyers than sellers, prices tend to
increase.

CALL RISK is the likelihood that a security will be prepaid (or "called") before
maturity. An issuer is more likely to call its bonds when interest rates are
falling, because the issuer can issue new bonds with lower interest payments. If
a bond is called, a fund may have to replace it with a lower-yielding security.

STATE RISKS. Since each state fund invests heavily in municipal securities of
its state, events in that state are likely to affect the fund's investments and
its performance. These events may include:

o economic or political policy changes;

o tax base erosion;

o state constitutional limits on tax increases;

o budget deficits and other financial difficulties; and

o changes in the ratings assigned to municipal issuers.

To the extent the Franklin Insured Tax-Free Income Fund is invested in a state,
events in that state may effect its investments and its performance.

For more specific information on the economy and financial strength of the
funds' various states, please see "What Are the Risks of Investing in the
Funds?" in the SAI.

U.S. TERRITORIES RISKS. Each fund may invest a portion of its assets in
municipal securities issued by U.S. territories such as Guam, Puerto Rico or the
Mariana Islands. As with state municipal securities, events in any of these
territories where a fund invests may affect the fund's investments and its
performance.

WHO MANAGES THE FUNDS?

THE BOARD. The Board oversees the management of each fund and elects its
officers. The officers are responsible for each fund's day-to-day operations.
The Board also monitors each fund to ensure no material conflicts exist among
the fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.

INVESTMENT MANAGER. Advisers manages each fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds. It is wholly
owned by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, Advisers and its
affiliates manage over $243 billion in assets, including $48 billion in the
municipal securities market. Please see "Investment Management and Other
Services" and "Miscellaneous Information" in the SAI for information on
securities transactions and a summary of the funds' Code of Ethics.

MANAGEMENT TEAM. The team responsible for the day-to-day management of each
fund's portfolio is:

Thomas Kenny
Senior Vice President of Advisers

Mr. Kenny has been an analyst or portfolio manager for the Arizona and Florida
funds since their inception and the Massachusetts, Michigan, Minnesota, Insured
and Ohio funds since 1987. Mr. Kenny is the Director of Franklin's Municipal
Bond Department. He holds a Master of Science degree in Finance from Golden Gate
University and a Bachelor of Arts degree in Business and Economics from the
University of California at Santa Barbara. Mr. Kenny joined the Franklin
Templeton Group in 1986. He is a member of several securities industry-related
committees and associations.

John Pomeroy
Portfolio Manager of Advisers

Mr. Pomeroy has been an analyst or portfolio manager for the Arizona and Florida
funds since their inception and the Massachusetts, Michigan, Minnesota, Insured
and Ohio funds since 1989. Mr. Pomeroy holds a Bachelor of Science degree in
Finance from San Francisco State University. He joined the Franklin Templeton
Group in 1986. He is a member of several securities industry-related committees
and associations.

Sheila Amoroso
Vice President of Advisers

Ms. Amoroso has been an analyst or portfolio manager for the Arizona Fund since
its inception and the Michigan, Minnesota, Insured and Massachusetts funds since
1987. Ms. Amoroso holds a Bachelor of Science degree from San Francisco State
University. She joined the Franklin Templeton Group in 1986. She is a member of
several securities industry-related committees and associations.

Stella Wong
Vice President of Advisers

Ms. Wong has been an analyst or portfolio manager for the Florida Fund since its
inception and the Ohio Fund since 1986. Ms. Wong holds a Master degree in
Financial Planning from Golden Gate University and a Bachelor of Science degree
in Business Administration from San Francisco State University. She joined the
Franklin Templeton Group in 1986. She is a member of several securities
industry-related committees and associations.

MANAGEMENT FEES. During the fiscal year ended February 28, 1998, management fees
paid to Advisers and total operating expenses, as a percentage of average
monthly net assets, were as follows:

TOTAL
MANAGEMENT OPERATING EXPENSES
----------------------
FEES CLASS I CLASS II
- --------------------------------------------------------------------------
Arizona Fund ....................... 0.11%* 0.30%* -

Florida Fund ....................... 0.18%* 0.35%* -

Insured Fund ....................... 0.47% 0.61% 1.18%

Massachusetts Fund ................. 0.52% 0.68% 1.25%

Michigan Fund ...................... 0.47% 0.63% 1.20%

Minnesota Fund ..................... 0.50% 0.65% 1.22%

Ohio Fund .......................... 0.49% 0.64% 1.20%

*Management fees, before any advance waiver, totaled 0.63% for the Arizona and
Florida funds. Total operating expenses were 0.82% for the Arizona Fund and
0.80% for the Florida Fund. Under an agreement by Advisers to limit its fees,
the Arizona and Florida funds paid the management fees and total operating
expenses shown. Advisers may end this arrangement at any time upon notice to the
Board.

PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How Do the Funds Buy
Securities for Their Portfolios?" in the SAI for more information.

ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for each fund. During the fiscal
year ended Febru- ary 28, 1998, administration fees paid to FT Services, as a
percentage of average daily net assets, were as follows:

ADMINISTRATION
FEES
- -------------------------------------------
Arizona Fund .............. 0.15%

Florida Fund .............. 0.15%

Insured Fund .............. 0.11%

Massachusetts Fund ........ 0.14%

Michigan Fund ............. 0.12%

Minnesota Fund ............ 0.14%

Ohio Fund ................. 0.14%

These fees are paid by Advisers. They are not a separate expense of the funds.
Please see "Investment Management and Other Services" in the SAI for more
information.

THE RULE 12B-1 PLANS

Each fund and class have separate distribution plans or "Rule 12b-1 Plans" under
which they may pay or reimburse Distributors or others for the expenses of
activities that are primarily intended to sell shares of the fund. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
fund, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.

Payments by the Arizona and Florida funds under their plans may not exceed 0.15%
per year of the fund's average daily net assets. Payments by the remaining funds
under their Class I plans may not exceed 0.10% per year of Class I's average
daily net assets. All distribution expenses over this amount will be borne by
those who have incurred them. During the first year after certain Class I
purchases made without a sales charge, Securities Dealers may not be eligible to
receive the Rule 12b-1 fees associated with the purchase.

Under the Class II plans, a fund may pay Distributors up to 0.50% per year of
Class II's average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain Class II expenses. All
distribution expenses over this amount will be borne by those who have incurred
them. During the first year after a purchase of Class II shares, Securities
Dealers may not be eligible to receive this portion of the Rule 12b-1 fees
associated with the purchase.

A fund may also pay a servicing fee of up to 0.15% per year of Class II's
average daily net assets under the Class II plans. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the fund on behalf of customers, and similar servicing and account
maintenance activities.

The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Funds' Underwriter" in the SAI.

<TABLE>
<CAPTION>
HOW TAXATION AFFECTS THE FUNDS AND THEIR SHAREHOLDERS

ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT OF 1997
(THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES TO THE CODE. BECAUSE MANY OF
THESE CHANGES ARE COMPLEX, THEY ARE DISCUSSED IN THE SAI.

<S> <C>
TAXATION OF THE FUNDS' INVESTMENTS.
-------------------------------------------
Each fund invests your money in the HOW DO THE FUNDS
municipal and other securities described EARN INCOME AND GAINS?
in the section "How Do the Funds Invest
Their Assets?" Special tax rules may apply Each fund earns interest and other income
when determining the income and gains that (the fund's "income") on its investments.
each fund earns on its investments. These When a fund sells a security for a price
rules may, in turn, affect the amount of that is higher than it paid, it has a
distributions that a fund pays to you. gain. When a fund sells a security for a
These special tax rules are discussed in price that is lower than it paid, it has
the SAI. a loss. If a fund has held the security
for more than one year, the gain or loss
Taxation of the Funds. As a regulated will be a long-term capital gain or loss.
investment company, each fund generally If a fund has held the security for one
pays no federal income tax on the income year or less, the gain or loss will be a
and gains that it distributes to you. short-term capital gain or loss. A fund's
gains and losses are netted together,
and, if the fund has a net gain (the
fund's "gains"), that gain will generally
be distributed to you.
-------------------------------------------

TAXATION OF SHAREHOLDERS.
-------------------------------------------
DISTRIBUTIONS. Distributions made to you WHAT IS A DISTRIBUTION?
from interest income on municipal
securities will be exempt from the regular As a shareholder, you will receive your
federal income tax. Distributions made to share of a fund's income and gains on its
you from other income on temporary investments. A fund's interest income on
investments, short-term capital gains, or municipal securities is paid to you as
ordinary income from the sale of market exempt-interest dividends. A fund's
discount bonds will be taxable to you as ordinary income and short-term capital
ordinary dividends, whether you receive gains are paid to you as ordinary
them in cash or in additional shares. dividends. A fund's long-term capital
Distributions made to you from interest on gains are paid to you as capital gain
certain private activity bonds, while distributions. If a fund pays you an
still exempt from the regular federal amount in excess of its income and gains,
income tax, are a preference item when this excess will generally be treated as
determining your alternative minimum tax. a non-taxable distribution. These
The fund will send you a statement in amounts, taken together, are what we call
January of the current year that reflects a fund's distributions to you.
the amount of exempt-interest dividends,
ordinary dividends, capital gain
distributions, interest income that is a
tax preference item under the alternative
minimum tax and non-taxable distributions
you received from the fund in the prior
year. This statement will include
distributions declared in December and
paid to you in January of the current
year, but which are taxable as if paid on
December 31 of the prior year. The IRS
requires you to report these amounts on
your income tax return for the prior year.
A fund's statement for the prior year will
tell you how much of your capital gain
distribution represents 28% rate gain. The
remainder of the capital gain distribution
represents 20% rate gain.
-------------------------------------------

DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the funds'
distributions will qualify for the
corporate dividends-received deduction.

-------------------------------------------
REDEMPTIONS AND EXCHANGES. If you redeem WHAT IS A REDEMPTION?
your shares or if you exchange your shares
in the funds for shares in another A redemption is a sale by you to the fund
Franklin Templeton Fund, you will of some or all of your shares in the
generally have a gain or loss that the IRS fund. The price per share you receive
requires you to report on your income tax when you redeem fund shares may be more
return. If you exchange fund shares held or less than the price at which you
for 90 days or less and pay no sales purchased those shares. An exchange of
charge, or a reduced sales charge, for the shares in the fund for shares of another
new shares, all or a portion of the sales Franklin Templeton Fund is treated as a
charge you paid on the purchase of the redemption of fund shares and then a
shares you exchanged is not included in purchase of shares of the other fund.
their cost for purposes of computing gain When you redeem or exchange your shares,
or loss on the exchange. If you hold your you will generally have a gain or loss,
shares for six months or less, any loss depending upon whether the amount you
you have will be disallowed to the extent receive for your shares is more or less
of any exempt-interest dividends paid on than your cost or other basis in the
your shares. Any such loss not disallowed shares. Please call Fund Information for
will be treated as a long-term capital a free shareholder Tax Information
loss to the extent of any long-term Handbook if you need more information on
capital gain distributions paid on your calculating the gain or loss on the
shares. All or a portion of any loss on redemption or exchange of your shares.
the redemption or exchange of your shares
will be disallowed by the IRS if you buy
other shares in the fund within 30 days
before or after your redemption or
exchange.
-------------------------------------------

STATE TAXES. Ordinary dividends and capital gain distributions that you receive from
the funds, and gains arising from redemptions or exchanges of your fund shares, will
generally be subject to state and local income tax. Distributions paid from the
interest earned on municipal securities of a state, or its political subdivisions,
will generally be exempt from that state's personal income taxes. Dividends paid from
interest earned on qualifying U.S. territorial obligations (including qualifying
obligations of Puerto Rico, the U.S. Virgin Islands and Guam) will also be exempt
from that state's personal income taxes. A state does not, however, grant tax-free
treatment to interest on investments in municipal securities of other states.
Corporate taxpayers subject to a state's corporate income or franchise tax may be
subject to special rules. The holding of fund shares may also be subject to state and
local intangibles taxes. Each fund in which you are a shareholder will provide you
with information at the end of each calendar year on the amounts of such dividends
that may qualify for exemption from reporting on your individual income tax returns.
You may wish to contact your tax advisor to determine the state and local tax
consequences of your investment in the fund.

SOCIAL SECURITY AND RAILROAD RETIREMENT BENEFITS. Exempt-interest dividends paid to
you, although exempt from the regular federal income tax, are includible in the tax
base for determining the taxable portion of your social security or railroad
retirement benefits. The IRS requires you to disclose these exempt-interest dividends
on your federal income tax return.

NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income tax
withholding. Your home country may also tax ordinary dividends, exempt-interest
dividends, capital gain distributions and gains arising from redemptions or exchanges
of your fund shares. Fund shares held by the estate of a non-U.S. investor may be
subject to U.S. estate tax. You may wish to contact your tax advisor to determine the
U.S. and non-U.S. tax consequences of your investment in a fund.

-------------------------------------------
BACKUP WITHHOLDING. When you open an WHAT IS A BACKUP WITHHOLDING?
account, IRS regulations require that you
provide your taxpayer identification Backup withholding occurs when a fund is
number ("TIN"), certify that it is required to withhold and pay over to the
correct, and certify that you are not IRS 31% of your distributions and
subject to backup withholding under IRS redemption proceeds. You can avoid backup
rules. If you fail to provide a correct withholding by providing the fund with
TIN or the proper tax certifications, the your TIN, and by completing the tax
IRS requires the fund to withhold 31% of certifications on your shareholder
all the distributions (including ordinary application that you were asked to sign
dividends and capital gain distributions), when you opened your account. However, if
and redemption proceeds paid to you. the IRS instructs the fund to begin
backup withholding, it is required to do
so even if you provided the fund with
your TIN and these tax certifications,
and backup withholding will remain in
place until the fund is instructed by the
IRS that it is no longer required.
-------------------------------------------
</TABLE>

The fund is also required to begin backup withholding on your account if the IRS
instructs the fund to do so. The fund reserves the right not to open your
account, or, alternatively, to redeem your shares at the current Net Asset
Value, less any taxes withheld, if you fail to provide a correct TIN, fail to
provide the proper tax certifications, or the IRS instructs the fund to begin
backup withholding on your account.

THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUNDS. FOR A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS, PLEASE SEE "ADDITIONAL
INFORMATION ON DISTRIBUTIONS AND TAXES" AND "APPENDICES - STATE TAX TREATMENT"
IN THE SAI. THE TAX TREATMENT TO YOU OF DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS,
FOREIGN TAXES PAID AND INCOME TAXES WITHHELD IS ALSO DISCUSSED IN A FREE
FRANKLIN TEMPLETON TAX INFORMATION HANDBOOK, WHICH YOU MAY REQUEST BY CONTACTING
FUND INFORMATION.

HOW IS THE TRUST ORGANIZED?

The funds are series of the Franklin Tax-Free Trust (the "Trust"), an open-end
management investment company, commonly called a mutual fund. It was organized
as a Massachusetts business trust in September 1984, and is registered with the
SEC. Except for the Arizona and Florida funds, each fund offers two classes of
shares: 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, and 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, and Franklin Ohio
Insured Tax-Free Income Fund - Class II. All shares outstanding before the
offering of Class II shares, and all shares of the Arizona and Florida funds,
are considered Class I shares. Additional series and classes of shares may be
offered in the future.

Shares of each class represent proportionate interests in the assets of the fund
and have the same voting and other rights and preferences as any other class of
the fund for matters that affect the fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters affecting only that class, or expressly required
to be voted on separately by state or federal law. Shares of each class of a
series 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.

The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.

The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares. In
certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

To open your account, please follow the steps below. This will help avoid any
delays in processing your request. PLEASE KEEP IN MIND THAT NONE OF THE FUNDS,
EXCEPT THE INSURED FUND, CURRENTLY ALLOW INVESTMENTS BY MARKET TIMERS.

1. Read this prospectus carefully.

2. Determine how much you would like to invest. The funds' minimum
investments are:
o To open your account: $100*
o To add to your account: $25*

*We reserve the right to refuse any order to buy shares.

3. Carefully complete and sign the enclosed shareholder application,
including the optional shareholder privileges section. By applying for
privileges now, you can avoid the delay and inconvenience of having to
send an additional application to add privileges later. PLEASE ALSO
INDICATE WHICH CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT SPECIFY A
CLASS, WE WILL AUTOMATICALLY INVEST YOUR PURCHASE IN CLASS I SHARES. It
is important that we receive a signed application since we will not be
able to process any redemptions from your account until we receive your
signed application.

4. Make your investment using the table below.

- -------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the fund with your
check made payable to the fund.

For additional investments:
Send a check made payable to the fund. Please
include your account number on the check.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number and wire instructions. You
need a new wire control number every time you
wire money into your account. If you do not
have a currently effective wire control number,
we will return the money to the bank, and we
will not credit the purchase to your account.

2. For an initial investment you must also return
your signed shareholder application to the fund.

IMPORTANT DEADLINES: If we receive your call before
1:00 p.m. Pacific time and the bank receives the
wired funds and reports the receipt of wired funds
to the fund by 3:00 p.m. Pacific time, we will
credit the purchase to your account that day. If we
receive your call after 1:00 p.m. or the bank
receives the wire after 3:00 p.m., we will credit
the purchase to your account the following business
day.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------

CHOOSING A SHARE CLASS

Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. The class that may be best for
you depends on a number of factors, including the amount and length of time you
expect to invest. Generally, Class I shares may be more attractive for long-term
investors or investors who qualify to buy Class I shares at a reduced sales
charge. Your financial representative can help you decide.

CLASS I CLASS II
- --------------------------------------------------------------------------------
Higher front-end sales charges Lower front-end sales charges than
than Class II shares. There are Class I shares
several ways to reduce these
charges, as described below. There
is no front-end sales charge for
purchases of $1 million or more.*

Contingent Deferred Sales Charge Contingent Deferred Sales Charge
on purchases of $1 million or more on purchases sold within 18 months
sold within one year

Lower annual expenses than Class Higher annual expenses than Class
II shares I shares

*If you are investing $1 million or more, it is generally more beneficial for
you to buy Class I shares because there is no front-end sales charge and the
annual expenses are lower. Therefore, any purchase of $1 million or more is
automatically invested in Class I shares. You may accumulate more than $1
million in Class II shares through purchases over time. If you plan to do this,
however, you should determine if it would be better for you to buy Class I
shares through a Letter of Intent.

PURCHASE PRICE OF FUND SHARES

For Class I shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares is 1%
and, unlike Class I, does not vary based on the size of your purchase.

<TABLE>
<CAPTION>
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
-----------------------------------
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- --------------------------------------------------------------------------------------------------------
CLASS I

<S> <C> <C> <C>
Under $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 None

CLASS II

Under $1,000,000* ........................ 1.00% 1.01% 1.00%
</TABLE>

*A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more and any Class II purchase. Please see "How Do I Sell Shares? -
Contingent Deferred Sales Charge." Please also see "Other Payments to Securities
Dealers" below for a discussion of payments Distributors may make out of its own
resources to Securities Dealers for certain purchases. Purchases of Class II
shares are limited to purchases below $1 million. Please see "Choosing a Share
Class."

SALES CHARGE REDUCTIONS AND WAIVERS

- - IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't
include this statement, we cannot guarantee that you will receive the sales
charge reduction or waiver.

CUMULATIVE QUANTITY DISCOUNTS - CLASS I ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class I purchase is added to
the cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds, as well as those of your spouse, children under the
age of 21 and grandchildren under the age of 21. If you are the sole owner of a
company, you may also add any company accounts, including retirement plan
accounts.

LETTER OF INTENT - Class I Only. You may buy Class I shares at a reduced sales
charge by completing the Letter of Intent section of the shareholder
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class I shares.

BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:

o You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.

o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.

o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.

Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct.

If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.

GROUP PURCHASES - Class I Only. If you are a member of a qualified group, you
may buy Class I shares at a reduced sales charge that applies to the group as a
whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and

o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.

SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of fund shares, you may buy shares of the fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the sales
charge waivers listed below apply to purchases of Class I shares only, except
for items 1 and 2 which also apply to Class II purchases.

Certain distributions, payments or redemption proceeds that you receive may be
used to buy shares of the fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:

1. Dividend and capital gain distributions from any Franklin Templeton
Fund. The distributions generally must be reinvested in the same class
of shares. Certain exceptions apply, however, to Class II shareholders
who chose to reinvest their distributions in Class I shares of the fund
before November 17, 1997, and to Advisor Class or Class Z shareholders
of a Franklin Templeton Fund who may reinvest their distributions in
Class I shares of the fund.

2. Redemption proceeds from the sale of shares of any Franklin Templeton
Fund if you originally paid a sales charge on the shares and you
reinvest the money in the same class of shares. This waiver does not
apply to exchanges.

If you paid a Contingent Deferred Sales Charge when you redeemed your
shares from a Franklin Templeton Fund, a Contingent Deferred Sales
Charge will apply to your purchase of fund shares and a new Contingency
Period will begin. We will, however, credit your fund account with
additional shares based on the Contingent Deferred Sales Charge you paid
and the amount of redemption proceeds that you reinvest.

If you immediately placed your redemption proceeds in a Franklin Bank
CD, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date the CD matures, including any
rollover.

3. Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.

4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any
tax consequences that may apply.

5. Redemption proceeds from a repurchase of shares of Franklin Floating
Rate Trust, if the shares were continuously held for at least 12 months.

If you immediately placed your redemption proceeds in a Franklin Bank CD
or a Franklin Templeton money fund, you may reinvest them as described
above. The proceeds must be reinvested within 365 days from the date the
CD matures, including any rollover, or the date you redeem your money
fund shares.

6. Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.

If you paid a contingent deferred sales charge when you redeemed your
Class A shares from a Templeton Global Strategy Fund, a Contingent
Deferred Sales Charge will apply to your purchase of fund shares and a
new Contingency Period will begin. We will, however, credit your fund
account with additional shares based on the contingent deferred sales
charge you paid and the amount of the redemption proceeds that you
reinvest.

If you immediately placed your redemption proceeds in a Franklin
Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date they are
redeemed from the money fund.

Various individuals and institutions also may buy Class I shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:

1. Trust companies and bank trust departments agreeing to invest in
Franklin Templeton Funds over a 13 month period at least $1 million of
assets held in a fiduciary, agency, advisory, custodial or similar
capacity and over which the trust companies and bank trust departments
or other plan fiduciaries or participants, in the case of certain
retirement plans, have full or shared investment discretion. We will
accept orders for these accounts 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 the order.

2. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in the fund is
permissible and suitable for you and the effect, if any, of payments by
the fund on arbitrage rebate calculations.

3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs

4. Registered Securities Dealers and their affiliates, for their investment
accounts only

5. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

6. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family
members, consistent with our then-current policies

7. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer

8. Accounts managed by the Franklin Templeton Group

9. Certain unit investment trusts and their holders reinvesting
distributions from the trusts

OTHER PAYMENTS TO SECURITIES DEALERS

The payments described below may be made to Securities Dealers who initiate and
are responsible for Class II purchases and certain Class I purchases made
without a sales charge. The payments are subject to the sole discretion of
Distributors, and are paid by Distributors or one of its affiliates and not by
the fund or its shareholders.

1. Class II purchases - up to 1% of the purchase price.

2. Class I purchases of $1 million or more - up to 0.75% of the amount
invested.

3. Class I purchases by trust companies and bank trust departments,
Eligible Governmental Authorities, and broker-dealers or others on
behalf of clients participating in comprehensive fee programs - up to
0.25% of the amount invested.

A Securities Dealer may receive only one of these payments for each qualifying
purchase. Securities Dealers who receive payments in connection with investments
described in paragraphs 1 or 2 above will be eligible to receive the Rule 12b-1
fee associated with the purchase starting in the thirteenth calendar month after
the purchase.

FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES, PLEASE
SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO SECURITIES
DEALERS" IN THE SAI.

FOR INVESTORS OUTSIDE THE U.S.

The distribution of this prospectus and the offering of fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of the fund
should determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

We offer a wide variety of funds. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.

If you own Class I shares, you may exchange into any of our money funds except
Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is the only
money fund exchange option available to Class II shareholders. Unlike our other
money funds, shares of Money Fund II may not be purchased directly and no drafts
(checks) may be written on Money Fund II accounts.

Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal and
policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums. Some Franklin Templeton Funds do not offer Class II shares.

2. Include any outstanding share certificates for
the shares you want to exchange
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)

- If you do not want the ability to exchange by
phone to apply to your account, please let us
know.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.

WILL SALES CHARGES APPLY TO MY EXCHANGE?

You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the fund's applicable sales charge no matter how long you have held your shares.
These charges may not apply if you qualify to buy shares without a sales charge.

CONTINGENT DEFERRED SALES CHARGE. We will not impose a Contingent Deferred Sales
Charge when you exchange shares. Any shares subject to a Contingent Deferred
Sales Charge at the time of exchange, however, will remain so in the new fund.

For accounts with shares subject to a Contingent Deferred Sales Charge, we will
first exchange any shares in your account that are not subject to the charge. If
there are not enough of these to meet your exchange request, we will exchange
shares subject to the charge in the order they were purchased.

If you exchange Class I shares into one of our money funds, the time your shares
are held in that fund will not count towards the completion of any Contingency
Period. If you exchange your Class II shares for shares of Money Fund II,
however, the time your shares are held in that fund will count towards the
completion of any Contingency Period.

For more information about the Contingent Deferred Sales Charge, please see "How
Do I Sell Shares?"

EXCHANGE RESTRICTIONS

Please be aware that the following restrictions apply to exchanges:

o You may only exchange shares within the same class, except as noted below.

o The accounts must be identically registered. You may, however, exchange
shares from a fund account requiring two or more signatures into an
identically registered money fund account requiring only one signature for
all transactions. Please notify us in writing if you do not want this
option to be available on your account. Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."

o The fund you are exchanging into must be eligible for sale in your state.

o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.

o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar
quarter, or (iii) exchanged shares equal to at least $5 million, or more
than 1% of the fund's net assets. Shares under common ownership or control
are combined for these limits. If you have exchanged shares as described in
this paragraph, you will be considered a Market Timer. Each exchange by a
Market Timer, if accepted, will be charged $5.00. Currently, none of the
funds, except the Insured Fund, allow investments by Market Timers. Some of
the other funds in the Franklin Templeton Funds also may not allow
investments by Market Timers.

Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.

LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES

Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the funds, such as "Advisor Class" or "Class Z" shares. Because the
funds do not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for Class I shares of a fund at Net Asset
Value. If you do so and you later decide you would like to exchange into a fund
that offers an Advisor Class, you may exchange your Class I shares for Advisor
Class shares of that fund. Certain shareholders of Class Z shares of Franklin
Mutual Series Fund Inc. may also exchange their Class Z shares for Class I
shares of a fund at Net Asset Value.

HOW DO I SELL SHARES?

You may sell (redeem) your shares at any time.

- --------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions. If you
would like your redemption proceeds wired to
a bank account, your instructions should
include:

o The name, address and telephone number of
the bank where you want the proceeds sent

o Your bank account number

o The Federal Reserve ABA routing number

o If you are using a savings and loan or
credit union, the name of the corresponding
bank and the account number

2. Include any outstanding share certificates for
the shares you are selling

3. Provide a signature guarantee if required

4. Corporate, partnership and trust accounts may
need to send additional documents. Accounts
under court jurisdiction may have other
requirements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.

Telephone requests will be accepted:

o If the request is $50,000 or less.
Institutional accounts may exceed $50,000
by completing a separate agreement. Call
Institutional Services to receive a copy.

o If there are no share certificates issued
for the shares you want to sell or you have
already returned them to the fund

o Unless the address on your account was
changed by phone within the last 15 days

- If you do not want the ability to redeem by
phone to apply to your account, please let
us know.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------

We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.

The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive your
request in proper form before 1:00 p.m. Pacific time, your wire payment will be
sent the next business day. For requests received in proper form after 1:00 p.m.
Pacific time, the payment will be sent the second business day. By offering this
service to you, the funds are not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the funds nor their agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire is not processed as described in this section.

If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds until your check or draft has cleared, which may take
seven business days or more. A certified or cashier's check may clear in less
time.

Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.

CONTINGENT DEFERRED SALES CHARGE

For Class I purchases, if you did not pay a front-end sales charge because you
invested $1 million or more or agreed to invest $1 million or more under a
Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell all
or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class I investments you make without
a sales charge may also be subject to a Contingent Deferred Sales Charge if they
are sold within the Contingency Period. For any Class II purchase, a Contingent
Deferred Sales Charge may apply if you sell the shares within the Contingency
Period. The charge is 1% of the value of the shares sold or the Net Asset Value
at the time of purchase, whichever is less.

We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.

Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.

WAIVERS. We waive the Contingent Deferred Sales Charge for:

o Account fees

o Redemptions by a fund when an account falls below the minimum required
account size

o Redemptions following the death of the shareholder or beneficial owner

o Redemptions through a systematic withdrawal plan set up before February 1,
1995

o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, at a rate of up to 1% a month of an account's Net Asset
Value. For example, if you maintain an annual balance of $1 million in
Class I shares, you can redeem up to $120,000 annually through a systematic
withdrawal plan free of charge. Likewise, if you maintain an annual balance
of $10,000 in Class II shares, $1,200 may be redeemed annually free of
charge.

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUNDS?

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

The funds declare dividends from their net investment income daily and pay them
monthly on or about the 20th day of the month. The daily allocation of net
investment income begins on the day after we receive your money or settlement of
a wire order trade and continues to accrue through the day we receive your
request to sell your shares or the settlement of a wire order trade.

Capital gains, if any, may be distributed twice a year, usually once in December
and once after the end of the fund's fiscal year.

Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the Rule 12b-1 fees of each class.

Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUNDS DO NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN THEIR SHARES.

If you buy shares shortly before a fund deducts a capital gain distribution from
its Net Asset Value, please keep in mind that you will receive a portion of the
price you paid back in the form of a taxable distribution.

DISTRIBUTION OPTIONS

You may receive your distributions from a fund in any of these ways:

1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of
the fund (without a sales charge or imposition of a Contingent Deferred Sales
Charge) by reinvesting capital gain distributions, or both dividend and
capital gain distributions. This is a convenient way to accumulate additional
shares and maintain or increase your earnings base.

2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy shares of another Franklin Templeton Fund (without a
sales charge or imposition of a Contingent Deferred Sales Charge). Many
shareholders find this a convenient way to diversify their investments.

3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both
dividend and capital gain distributions in cash. If you have the money sent
to another person or to a checking account, you may need a signature
guarantee. If you send the money to a checking account, please see
"Electronic Fund Transfers - Class I Only" under "Services to Help You Manage
Your Account."

Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class II shareholders who chose to reinvest their distributions in
Class I shares of the fund or another Franklin Templeton Fund before November
17, 1997, may continue to do so; and (ii) Class II shareholders may reinvest
their distributions in shares of any Franklin Templeton money fund.

TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS
OF THE FUND. You may change your distribution option at any time by notifying us
by mail or phone. Please allow at least seven days before the reinvestment date
for us to process the new option.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

SHARE PRICE

When you buy shares, you pay the Offering Price. This is the Net Asset Value per
share of the class you wish to purchase, plus any applicable sales charges. When
you sell shares, you receive the Net Asset Value per share minus any applicable
Contingent Deferred Sales Charges.

The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the fund.

HOW AND WHEN SHARES ARE PRICED

The funds are open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the close of the NYSE, normally 1:00
p.m. Pacific time. You can find the prior day's closing Net Asset Value and
Offering Price in many newspapers.

The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
fund, determined by the value of the shares of each class. Each class, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. Each fund's assets are
valued as described under "How Are Fund Shares Valued?" in the SAI.

WRITTEN INSTRUCTIONS

Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:

o Your name,

o The fund's name,

o The class of shares,

o A description of the request,

o For exchanges, the name of the fund you are exchanging into,

o Your account number,

o The dollar amount or number of shares, and

o A telephone number where we may reach you during the day, or in the evening
if preferred.

JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.

Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.

SIGNATURE GUARANTEES

For our mutual protection, we require a signature guarantee in the following
situations:

1) You wish to sell over $50,000 worth of shares,

2) You want the proceeds to be paid to someone other than the registered
owners,

3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,

4) We receive instructions from an agent, not the registered owners,

5) We believe a signature guarantee would protect us against potential
claims based on the instructions received.

A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.

SHARE CERTIFICATES

We will credit your shares to your fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.

Any outstanding share certificates must be returned to the fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.

TELEPHONE TRANSACTIONS

You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Shareholder Services.

When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to ask
your investment representative for assistance or send us written instructions,
as described elsewhere in this prospectus.

For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.

ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS

When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.

JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless all
owners agree in writing, even if the law in your state says otherwise. If you
would like another person or owner to sign for you, please send us a current
power of attorney.

GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.

TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.

REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.

- --------------------------------------------------------------------------------
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or

2. A certification for a partnership agreement
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or

2. A certification for trust
- --------------------------------------------------------------------------------

STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.

IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE

If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.

KEEPING YOUR ACCOUNT OPEN

Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.

SERVICES TO HELP YOU MANAGE YOUR ACCOUNT

AUTOMATIC INVESTMENT PLAN

Our automatic investment plan offers a convenient way to invest in a fund. Under
the plan, you can have money transferred automatically from your checking
account to a fund each month to buy additional shares. If you are interested in
this program, please refer to the automatic investment plan application included
with this prospectus or contact your investment representative. The market value
of a fund's shares may fluctuate and a systematic investment plan such as this
will not assure a profit or protect against a loss. You may discontinue the
program at any time by notifying Investor Services by mail or phone.

AUTOMATIC PAYROLL DEDUCTION - CLASS I ONLY

You may have money transferred from your paycheck to a fund to buy additional
Class I shares. Your investments will continue automatically until you instruct
the fund and your employer to discontinue the plan. To process your investment,
we must receive both the check and payroll deduction information in required
form. Due to different procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time we receive the money.

SYSTEMATIC WITHDRAWAL PLAN

Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50.

If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. If you choose to have the money sent to a
checking account, please see "Electronic Fund Transfers - Class I Only" below.
Once your plan is established, any distributions paid by the fund will be
automatically reinvested in your account.

You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.

To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan may also be
subject to a Contingent Deferred Sales Charge. Please see "Contingent Deferred
Sales Charge" under "How Do I Sell Shares?"

You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. Please see "How Do I Buy, Sell and Exchange Shares? -
Systematic Withdrawal Plan" in the SAI for more information.

ELECTRONIC FUND TRANSFERS - CLASS I ONLY

You may choose to have dividend and capital gain distributions from Class I
shares of a fund or payments under a systematic withdrawal plan sent directly to
a checking account. If the checking account is with a bank that is a member of
the Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If you choose this option, please allow at least
fifteen days for initial processing. We will send any payments made during that
time to the address of record on your account.

TELEFACTS(R)

From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:

o obtain information about your account;

o obtain price and performance information about any Franklin Templeton
Fund;

o exchange shares (within the same class) between identically registered
Franklin Templeton Class I and Class II accounts; and

o request duplicate statements and deposit slips for Franklin Templeton
accounts.

You will need the code number for each class to use TeleFACTS(R). The code
numbers are as follows:

CODE NUMBER
------------------------
CLASS I CLASS II
- -----------------------------------------------------------------
Arizona Fund ....................... 177 -

Florida Fund ....................... 178 -

Insured Fund ....................... 121 221

Massachusetts Fund ................. 118 218

Michigan Fund ...................... 119 219

Minnesota Fund ..................... 120 220

Ohio Fund .......................... 122 222

STATEMENTS AND REPORTS TO SHAREHOLDERS

We will send you the following statements and reports on a regular basis:

o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. PLEASE
VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.

o Financial reports of the funds will be sent every six months. To reduce
fund expenses, we attempt to identify related shareholders within a
household and send only one copy of a report. Call Fund Information if you
would like an additional free copy of the funds' financial reports.

INSTITUTIONAL ACCOUNTS

Additional methods of buying, selling or exchanging shares of the funds may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.

AVAILABILITY OF THESE SERVICES

The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the funds may not be able to offer these services directly to
you. Please contact your investment representative.

WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?

If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The funds, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.

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.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)

Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.

Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.

TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.

Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.

GLOSSARY

USEFUL TERMS AND DEFINITIONS

ADVISERS - Franklin Advisers, Inc., the funds' investment manager

BOARD - The Board of Trustees of the Trust

CD - Certificate of deposit

CLASS I AND CLASS II - Each fund, except the Arizona and Florida funds, offers
two classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the fund's portfolio. They differ, however, primarily
in their sales charge structures and Rule 12b-1 plans. Shares of the Arizona and
Florida funds are considered Class I shares for redemption, exchange and other
purposes.

CODE - Internal Revenue Code of 1986, as amended

CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. The holding period for Class I begins on the first day of
the month in which you buy shares. Regardless of when during the month you buy
Class I shares, they will age one month on the last day of that month and each
following month. The holding period for Class II begins on the day you buy your
shares. For example, if you buy Class II shares on the 18th of the month, they
will age one month on the 18th day of the next month and each following month.

CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.

DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the funds' principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."

ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined the
fund is a legally permissible investment and that can only buy shares of the
fund without paying sales charges.

FITCH - Fitch Investors Service, Inc.

FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products
Series Fund

FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries

FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds

FT SERVICES - Franklin Templeton Services, Inc., the funds' administrator

INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the funds'
shareholder servicing and transfer agent

IRS - Internal Revenue Service

LETTER - Letter of Intent

MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.

MOODY'S - Moody's Investors Service, Inc.

NASD - National Association of Securities Dealers, Inc.

NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.

NSCC - National Securities Clearing Corporation

NYSE - New York Stock Exchange

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.

TELEFACTS(R) - Franklin Templeton's automated customer servicing system

WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.

PROSPECTUS & APPLICATION
FRANKLIN
TAX-FREE
TRUST
JULY 1, 1998
INVESTMENT STRATEGY
TAX-FREE INCOME
FRANKLIN ALABAMA TAX-FREE INCOME FUND
FRANKLIN FLORIDA TAX-FREE INCOME FUND
FRANKLIN GEORGIA TAX-FREE INCOME FUND
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
FRANKLIN MARYLAND TAX-FREE INCOME FUND
FRANKLIN MISSOURI TAX-FREE INCOME FUND
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
FRANKLIN TEXAS TAX-FREE INCOME FUND
FRANKLIN VIRGINIA TAX-FREE INCOME FUND

Please read this prospectus before investing, and keep it for future reference.
It contains important information, including how each fund invests and the
services available to shareholders.

FOR A FREE COPY OF THE SAI OR A LARGER PRINT VERSION OF THIS PROSPECTUS, CONTACT
YOUR INVESTMENT REPRESENTATIVE OR CALL 1-800/DIAL BEN.

LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

FRANKLIN TAX-FREE TRUST

TABLE OF CONTENTS

ABOUT THE FUNDS
Expense Summary .................................................. 2
Financial Highlights ............................................. 4
How Do the Funds Invest Their Assets? ............................ 23
What Are the Risks of Investing in the Funds? .................... 26
Who Manages the Funds? ........................................... 28
How Taxation Affects the Funds and Their Shareholders ............ 32
How Is the Trust Organized? ...................................... 35

ABOUT YOUR ACCOUNT
How Do I Buy Shares? ............................................. 36
May I Exchange Shares for Shares of Another Fund? ................ 43
How Do I Sell Shares? ............................................ 45
What Distributions Might I Receive From the Funds? ............... 47
Transaction Procedures and Special Requirements .................. 48
Services to Help You Manage Your Account ......................... 52
What If I Have Questions About My Account? ....................... 55

GLOSSARY
Useful Terms and Definitions ..................................... 56

FRANKLIN
TAX-FREE
TRUST

July 1, 1998

When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777

1-800/DIAL BEN(R)

FRANKLIN TAX-FREE TRUST

ABOUT THE FUNDS

EXPENSE SUMMARY

<TABLE>
<CAPTION>
NORTH
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA MARYLAND MISSOURI CAROLINA TEXAS VIRGINIA
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
A. SHAREHOLDER TRANSACTION EXPENSES+

CLASS I

Maximum Sales Charge
(as a percentage of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Offering Price) 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%

Paid at time of purchase++ 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%

Paid at redemption++++ NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE

CLASS II

Maximum Sales Charge
(as a percentage of
Offering Price) 1.99% 1.99% 1.99% - 1.99% 1.99% 1.99% 1.99% 1.99% 1.99%

Paid at time of purchase+++ 1.00% 1.00% 1.00% - 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%

Paid at redemption++++ 0.99% 0.99% 0.99% - 0.99% 0.99% 0.99% 0.99% 0.99% 0.99%

B. ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)

CLASS I

Management Fees 0.56% 0.47% 0.59% 0.63%* 0.60% 0.56% 0.54% 0.54% 0.60% 0.53%

Rule 12b-1 Fees** 0.09% 0.09% 0.09% 0.10% 0.09% 0.09% 0.09% 0.09% 0.08% 0.09%

Other Expenses 0.07% 0.05% 0.08% 0.08% 0.07% 0.09% 0.08% 0.07% 0.08% 0.07%
-----------------------------------------------------------------------------------------------

Total Fund Operating
Expenses 0.72% 0.61% 0.76% 0.81%* 0.76% 0.74% 0.71% 0.70% 0.76% 0.69%
===============================================================================================

CLASS II

Management Fees 0.56% 0.47% 0.59% - 0.60% 0.56% 0.54% 0.54% 0.60% 0.53%

Rule 12b-1 Fees** 0.65% 0.65% 0.65% - 0.65% 0.65% 0.65% 0.65% 0.65% 0.65%

Other Expenses 0.07% 0.05% 0.08% - 0.07% 0.09% 0.08% 0.07% 0.08% 0.07%
-----------------------------------------------------------------------------------------------

Total Fund Operating
Expenses 1.28%*** 1.17% 1.32% - 1.32% 1.30% 1.27% 1.26% 1.33% 1.25%
===============================================================================================
</TABLE>

C. EXAMPLE

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year**** $ 50 $ 48 $ 50 $ 50 $ 50 $ 50 $ 49 $ 49 $ 50 $ 49

3 Years $ 65 $ 61 $ 66 $ 67 $ 66 $ 65 $ 64 $ 64 $ 66 $ 64

5 Years $ 81 $ 75 $ 83 $ 86 $ 83 $ 82 $ 80 $ 80 $ 83 $ 79

10 Years $128 $115 $133 $138 $133 $130 $127 $126 $133 $125

CLASS II

1 Year $ 33 $ 32 $ 33 - $ 33 $ 33 $ 33 $ 33 $ 33 $ 33

3 Years $ 50 $ 47 $ 51 - $ 51 $ 51 $ 50 $ 50 $ 52 $ 49

5 Years $ 80 $ 74 $ 82 - $ 82 $ 81 $ 79 $ 78 $ 82 $ 78

10 Years $164 $151 $167 - $167 $165 $162 $161 $169 $160
</TABLE>

For the same Class II investment, you would pay projected expenses of $22
for the Florida Fund, and $23 for each of the remaining funds, if you did
not sell your shares at the end of the first year. Your projected expenses
for the remaining periods would be the same.

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++There is no front-end sales charge if you invest $1 million or more in Class I
shares.
+++Although Class II has a lower front-end sales charge than Class I, its Rule
12b-1 fees are higher. Over time you may pay more for Class II shares. Please
see "How Do I Buy Shares? - Choosing a Share Class."
++++A Contingent Deferred Sales Charge may apply to any Class II purchase if you
sell the shares within 18 months and to Class I purchases of $1 million or more
if you sell the shares within one year. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
The number in the table shows the charge as a percentage of Offering Price.
While the percentage is different depending on whether the charge is shown based
on the Net Asset Value or the Offering Price, the dollar amount you would pay is
the same. See "How Do I Sell Shares? - Contingent Deferred Sales Charge" for
details.
*For the period shown, Advisers had agreed in advance to limit its management
fees. With this reduction, management fees were 0.17% and total operating
expenses were 0.35%.
**These fees may not exceed 0.10% for Class I and 0.65% for Class II. 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 charge permitted under the NASD's rules.
***Class II total fund operating expenses are different than the ratio of
expenses to average net assets shown under "Financial Highlights" due to a
timing difference between the end of the 12b-1 plan year and the fund's fiscal
year end.
****Assumes a Contingent Deferred Sales Charge will not apply.

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
ALABAMA FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.73 $11.73 $11.31 $11.80 $11.71 $11.00 $10.75 $10.74 $10.59 $10.54
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .64 .65 .66 .66 .66 .68 .66 .71 .75 .79

Net realized & unrealized
gains (losses) .36 .01 .42 (.50) .09 .71 .35 .07 .17 .01
---------------------------------------------------------------------------------------

Total from investment
operations 1.00 .66 1.08 .16 .75 1.39 1.01 .78 .92 .80
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.65) (.66) (.66) (.65) (.66) (.68) (.76) (.77) (.77) (.72)

Net realized gains (.10) - - - - - - - - (.02)
---------------------------------------------------------------------------------------

Total distributions (.75) (.66) (.66) (.65) (.66) (.68) (.76) (.77) (.77) (.74)
---------------------------------------------------------------------------------------

Net asset value,
end of year $11.98 $11.73 $11.73 $11.31 $11.80 $11.71 $11.00 $10.75 $10.74 $10.59
=======================================================================================

Total return* 8.79% 5.84% 9.74% 1.54% 6.35% 12.84% 9.51% 7.27% 8.61% 7.59%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of
year (000's) $216,982 $193,466 $185,981 $170,051 $178,414 $144,480 $96,254 $50,182 $21,685 $6,079

Ratios to average net assets:

Expenses .72% .71% .72% .72% .64% .68% .71% .70% .42% -

Expenses excluding waiver
and payments by affiliate .72% .71% .72% .72% .64% .68% .71% .72% .72% .74%

Net investment income 5.39% 5.62% 5.69% 5.88% 5.62% 6.04% 6.21% 6.45% 6.69% 7.33%

Portfolio turnover rate 10.44% 15.47% 12.39% 19.85% 14.87% 11.27% 1.21% 28.36% 4.97% 12.70%
</TABLE>

<TABLE>
<CAPTION>
ALABAMA FUND (CONT.)

CLASS II
----------------------------
YEAR ENDED FEB. 28
----------------------------
1998 1997 1996***
----------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.78 $11.77 $11.36
----------------------------

Income from investment operations:

Net investment income .58 .59 .49

Net realized & unrealized gains .36 .01 .41
----------------------------

Total from investment operations .94 .60 .90
----------------------------
Less distributions from:

Net investment income (.58) (.59) (.49)

Net realized gains (.10) - -
----------------------------
Total distributions (.68) (.59) (.49)
----------------------------
Net asset value, end of year $12.04 $11.78 $11.77
============================

Total return* 8.23% 5.28% 8.01%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $9,469 $5,683 $1,662

Ratios to average net assets:

Expenses 1.29% 1.28% 1.29%**

Net investment income 4.80% 5.05% 5.09%**

Portfolio turnover rate 10.44% 15.47% 12.39%
</TABLE>

<TABLE>
<CAPTION>
FLORIDA FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.59 $11.69 $11.35 $11.77 $11.68 $11.04 $10.75 $10.73 $10.59 $10.61
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .64 .67 .69 .69 .70 .71 .71 .73 .73 .81

Net realized & unrealized
gains (losses) .30 (.08) .34 (.44) .09 .65 .35 .09 .23 (.04)
---------------------------------------------------------------------------------------

Total from investment
operations .94 .59 1.03 .25 .79 1.36 1.06 .82 .96 .77
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.65) (.69) (.69) (.67) (.70) (.72) (.77) (.80) (.82) (.78)

In excess of net investment
income (.01) - - - - - - - - (.01)
---------------------------------------------------------------------------------------

Total distributions (.66) (.69) (.69) (.67) (.70) (.72) (.77) (.80) (.82) (.79)
---------------------------------------------------------------------------------------

Net asset value,
end of year $11.87 $11.59 $11.69 $11.35 $11.77 $11.68 $11.04 $10.75 $10.73 $10.59
=======================================================================================

Total return* 8.37% 5.20% 9.28% 2.36% 6.63% 12.45% 10.02% 7.69% 8.98% 7.28%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of
of year (millions) $1,650 $1,458 $1,354 $1,265 $1,362 $1,165 $886 $606 $302 $34

Ratios to average net assets:

Expenses .61% .60% .60% .59% .52% .54% .54% .57% .66% .24%

Expenses excluding waiver
and payments by affiliate .61% .60% .60% .59% .52% .54% .54% .57% .66% .74%

Net investment income 5.45% 5.78% 5.93% 6.15% 5.90% 6.30% 6.60% 6.76% 6.40% 6.42%

Portfolio turnover rate 5.60% 12.00% 11.78% 14.34% 11.77% 11.72% 16.69% 10.80% 8.50% 8.64%
</TABLE>

<TABLE>
<CAPTION>
FLORIDA FUND (CONT.)

CLASS II
----------------------------
YEAR ENDED FEB. 28
----------------------------
1998 1997 1996***
----------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.67 $11.76 $11.37
----------------------------

Income from investment operations:

Net investment income .60 .60 .52

Net realized & unrealized gains (losses) .29 (.07) .38
----------------------------

Total from investment operations .89 .53 .90
----------------------------

Less distributions from:

Net investment income (.59) (.62) (.51)

In excess of net investment income (.01) - -
----------------------------

Total distributions (.60) (.62) (.51)
----------------------------

Net asset value, end of year $11.96 $11.67 $11.76
============================

Total return* 7.80% 4.65% 8.05%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $56,027 $23,556 $7,644

Ratios to average net assets:

Expenses 1.17% 1.17% 1.18%**

Net investment income 4.88% 5.17% 5.33%**

Portfolio turnover rate 5.60% 12.00% 11.78%
</TABLE>

<TABLE>
<CAPTION>
GEORGIA FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.86 $11.88 $11.54 $12.00 $11.85 $11.18 $10.94 $10.90 $10.59 $10.55
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .63 .65 .66 .66 .66 .68 .65 .72 .79 .80

Net realized & unrealized
gains (losses) .27 (.02) .34 (.46) .15 .66 .35 .10 .26 (.03)
---------------------------------------------------------------------------------------

Total from investment
operations .90 .63 1.00 .20 .81 1.34 1.00 .82 1.05 .77
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.64)1 (.65) (.66) (.66) (.66) (.67) (.76) (.78) (.74) (.72)

Net realized gains - - - - - - - - - (.01)
---------------------------------------------------------------------------------------

Total distributions (.64)1 (.65) (.66) (.66) (.66) (.67) (.76) (.78) (.74) (.73)
---------------------------------------------------------------------------------------

Net asset value,
end of year $12.12 $11.86 $11.88 $11.54 $12.00 $11.85 $11.18 $10.94 $10.90 $10.59
=======================================================================================

Total return* 7.75% 5.47% 8.90% 1.87% 6.77% 12.09% 9.32% 7.53% 9.94% 7.32%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of
year (000's) $149,642 $139,903 $130,380 $116,771 $120,882 $91,017 $68,546 $32,011 $13,877 $5,640

Ratios to average net assets:

Expenses .76% .75% .77% .76% .69% .71% .72% .56% .09% -

Expenses excluding waiver
and payments by affiliate .76% .75% .77% .76% .69% .71% .72% .74% .74% .76%

Net investment income 5.28% 5.49% 5.58% 5.76% 5.48% 5.91% 6.11% 6.53% 7.07% 7.31%

Portfolio turnover rate 14.77% 17.47% 10.98% 36.17% 16.75% 17.10% 6.18% 1.20% 14.43% 12.23%
</TABLE>

<TABLE>
<CAPTION>
GEORGIA FUND (CONT.)

CLASS II
----------------------------
YEAR ENDED FEB. 28
----------------------------
1998 1997 1996***
----------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.92 $11.92 $11.57
----------------------------

Income from investment operations:

Net investment income .57 .58 .50

Net realized & unrealized gains (losses) .27 (.01) .34
----------------------------

Total from investment operations .84 .57 .84
----------------------------

Less distributions from net investment income (.57) (.57) (.49)
----------------------------

Net asset value, end of year $12.19 $11.92 $11.92
============================

Total return* 7.19% 4.97% 7.40%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $9,107 $4,484 $1,335

Ratios to average net assets:

Expenses 1.32% 1.32% 1.34%**

Net investment income 4.72% 4.87% 5.04%**

Portfolio turnover rate 14.77% 17.47% 10.98%
</TABLE>

<TABLE>
<CAPTION>
KENTUCKY FUND
YEAR ENDED FEB. 28
------------------------------------------------------------
1998 1997 1996 1995 1994 1993 19922
------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.05 $11.04 $10.54 $11.18 $11.05 $10.30 $10.00
------------------------------------------------------------

Income from investment operations:

Net investment income .61 .61 .62 .61 .63 .57 .15

Net realized & unrealized gains (losses) .40 .01 .50 (.62) .16 .83 .16
------------------------------------------------------------

Total from investment operations 1.01 .62 1.12 (.01) .79 1.40 .31
------------------------------------------------------------

Less distributions from net investment income (.61) (.61) (.62) (.63) (.66) (.65) (.01)
-------------------------------------------------------------

Net asset value, end of year $11.45 $11.05 $11.04 $10.54 $11.18 $11.05 $10.30
============================================================

Total return* 9.38% 5.86% 10.73% .11% 7.07% 13.81% 8.37%**

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $54,211 $44,289 $38,991 $32,831 $28,057 $11,678 $3,032

Ratios to average net assets:

Expenses .35% .34% .33% .29% - - -

Expenses excluding waiver and payments
by affiliate .81% .81% .82% .80% .71% .81% .82%**

Net investment income 5.40% 5.63% 5.65% 5.94% 5.73% 6.11% 3.52%**

Portfolio turnover rate 26.61% 24.81% 31.89% 32.92% 13.22% 18.41% 53.90%
</TABLE>

<TABLE>
<CAPTION>
LOUISIANA FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.32 $11.32 $11.03 $11.56 $11.57 $10.90 $10.68 $10.58 $10.39 $10.41
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .63 .65 .66 .66 .67 .69 .67 .71 .78 .78

Net realized & unrealized
gains (losses) .30 - .28 (.55) (.01) .67 .33 .18 .20 (.03)
---------------------------------------------------------------------------------------

Total from investment
operations .93 .65 .94 .11 .66 1.36 1.00 .89 .98 .75
---------------------------------------------------------------------------------------

Less distributions from net
investment income (.64) (.65) (.65) (.64) (.67) (.69) (.78) (.79) (.79) (.77)
---------------------------------------------------------------------------------------

Net asset value,
end of year $11.61 $11.32 $11.32 $11.03 $11.56 $11.57 $10.90 $10.68 $10.58 $10.39
=======================================================================================

Total return* 8.46% 5.94% 8.75% 1.14% 5.63% 12.61% 9.49% 8.50% 9.41% 7.27%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of
year (000's) $134,922 $112,981 $107,461 $104,980 $115,971 $95,368 $72,923 $35,862 $17,696 $4,257

Ratios to average net assets:

Expenses .76% .76% .78% .75% .68% .70% .70% .56% .04% -

Expenses excluding waiver
and payments by affiliate .76% .76% .78% .75% .68% .70% .70% .72% .70% .73%

Net investment income 5.50% 5.76% 5.89% 5.98% 5.70% 6.18% 6.33% 6.60% 7.10% 7.33%

Portfolio turnover rate 15.26% 13.68% 5.23% 32.28% 17.63% 23.37% 10.51% 0.76% 16.65% 5.91%
</TABLE>

<TABLE>
<CAPTION>
LOUISIANA FUND (CONT.)

CLASS II
----------------------------
YEAR ENDED FEB. 28
----------------------------
1998 1997 1996***
----------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.37 $11.37 $11.01
----------------------------

Income from investment operations:

Net investment income .57 .58 .49

Net realized & unrealized gains .32 - .35
----------------------------

Total from investment operations .89 .58 .84
----------------------------

Less distributions from net investment income (.58) (.58) (.48)
----------------------------

Net asset value, end of year $11.68 $11.37 $11.37
============================

Total return* 8.02% 5.27% 7.76%

Ratios/supplemental data

Net assets, end of year (000's) $4,469 $3,004 $1,438

Ratios to average net assets:

Expenses 1.32% 1.33% 1.35%**

Net investment income 4.95% 5.29% 5.27%**

Portfolio turnover rate 15.26% 13.68% 5.23%
</TABLE>

<TABLE>
<CAPTION>
MARYLAND FUND

CLASS I
----------------------------------------------------------------------------------------
YEAR ENDED FEB. 28
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 19893
----------------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.33 $11.38 $10.92 $11.36 $11.27 $10.60 $10.37 $10.31 $10.07 $10.00
----------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .59 .61 .62 .63 .64 .65 .64 .68 .72 .18

Net realized & unrealized
gains (losses) .32 (.03) .47 (.45) .09 .67 .30 .10 .19 (.05)
----------------------------------------------------------------------------------------

Total from investment
operations .91 .58 1.09 .18 .73 1.32 .94 .78 .91 .13
----------------------------------------------------------------------------------------

Less distributions from net
investment income (.60)4 (.63) (.63) (.62) (.64) (.65) (.71) (.72) (.67) (.06)
----------------------------------------------------------------------------------------

Net asset value,
end of year $11.64 $11.33 $11.38 $10.92 $11.36 $11.27 $10.60 $10.37 $10.31 $10.07
========================================================================================

Total return* 8.27% 5.24% 10.18% 1.78% 6.40% 12.64% 9.21% 7.57% 9.01% 2.98%**

RATIOS/SUPPLEMENTAL DATA

Net assets, end of
year (000's) $213,005 $185,234 $175,078 $153,145 $156,683 $115,873 $71,538 $33,421 $14,004 $3,313

Ratios to average net assets:

Expenses .74% .73% .74% .73% .66% .71% .71% .54% .07% -

Expenses excluding waiver
and payments by affiliate .74% .73% .74% .73% .66% .71% .71% .73% .73% .65%**

Net investment income 5.20% 5.42% 5.56% 5.86% 5.58% 6.00% 6.15% 6.50% 6.84% 4.26%**

Portfolio turnover rate 3.19% 12.71% 8.11% 20.30% 18.38% 14.73% 16.65% 12.14% 6.03% 11.78%
</TABLE>

<TABLE>
<CAPTION>
MARYLAND FUND (CONT.)

CLASS II
----------------------------
YEAR ENDED FEB. 28
----------------------------
1998 1997 1996***
----------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.40 $11.44 $10.93
----------------------------

Income from investment operations:

Net investment income .54 .55 .47

Net realized & unrealized gains (losses) .31 (.03) .51
----------------------------

Total from investment operations .85 .52 .98
----------------------------

Less distributions from net investment income (.53) (.56) (.47)
----------------------------

Net asset value, end of year $11.72 $11.40 $11.44
============================

Total return* 7.70% 4.68% 9.06%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $10,515 $5,084 $913

Ratios to average net assets:

Expenses 1.30% 1.27% 1.31%**

Net investment income 4.63% 4.78% 4.95%**

Portfolio turnover rate 3.19% 12.71% 8.11%
</TABLE>

<TABLE>
<CAPTION>
MISSOURI FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.83 $11.94 $11.44 $11.94 $11.75 $11.07 $10.74 $10.64 $10.44 $10.35
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .64 .65 .65 .65 .66 .68 .65 .69 .74 .78

Net realized & unrealized
gains (losses) .44 (.07) .49 (.50) .21 .68 .41 .15 .20 .02
---------------------------------------------------------------------------------------

Total from investment
operations 1.08 .58 1.14 .15 .87 1.36 1.06 .84 .94 .80
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.64) (.65) (.64) (.65) (.68) (.68) (.73) (.74) (.74) (.71)

Net realized gains (.04) (.04) - - - - - - - -
---------------------------------------------------------------------------------------

Total distributions (.68) (.69) (.64) (.65) (.68) (.68) (.73) (.74) (.74) (.71)
---------------------------------------------------------------------------------------

Net asset value,
end of year $12.23 $11.83 $11.94 $11.44 $11.94 $11.75 $11.07 $10.74 $10.64 $10.44
=======================================================================================

Total return* 9.43% 5.06% 10.23% 1.44% 7.29% 12.40% 10.04% 7.96% 8.94% 7.74%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of
year (000's) $308,045 $269,564 $247,522 $227,442 $228,149 $164,122 $110,940 $55,560 $28,479 $7,996

Ratios to average net assets:

Expenses .71% .70% .71% .70% .64% .67% .71% .72% .40% -

Expenses excluding waiver
and payments by affiliate .71% .70% .71% .70% .64% .67% .71% .72% .72% .77%

Net investment income 5.32% 5.56% 5.58% 5.75% 5.55% 6.03% 6.21% 6.42% 6.66% 7.30%

Portfolio turnover rate 14.30% 21.81% 18.27% 19.84% 11.02% 10.28% 16.40% 40.08% 8.69% 7.15%
</TABLE>

<TABLE>
<CAPTION>
MISSOURI FUND (CONT.)

CLASS II
--------------------------
YEAR ENDED FEB. 28
--------------------------
1998 1997 1996***
--------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.85 $11.97 $11.47
--------------------------

Income from investment operations:

Net investment income .58 .57 .48

Net realized & unrealized gains (losses) .45 (.07) .50
--------------------------

Total from investment operations 1.03 .50 .98
--------------------------

Less distributions from:

Net investment income (.57) (.58) (.48)

Net realized gains (.04) (.04) -
--------------------------

Total distributions (.61) (.62) (.48)
--------------------------

Net asset value, end of year $12.27 $11.85 $11.97
==========================

Total return* 8.96% 4.32% 8.66%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $10,045 $4,295 $1,325

Ratios to average net assets:

Expenses 1.27% 1.27% 1.27%**

Net investment income 4.75% 4.92% 4.94%**

Portfolio turnover rate 14.30% 21.81% 18.27%
</TABLE>

<TABLE>
<CAPTION>
NORTH CAROLINA FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.73 $11.75 $11.37 $11.92 $11.88 $11.12 $10.86 $10.79 $10.55 $10.46
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .62 .64 .64 .65 .65 .67 .64 .70 .74 .77

Net realized & unrealized
gains (losses) .38 (.03) .39 (.55) .05 .75 .35 .12 .22 .06
---------------------------------------------------------------------------------------

Total from investment
operations 1.00 .61 1.03 .10 .70 1.42 .99 .82 .96 .83
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.62) (.63) (.65)1 (.65) (.66) (.66) (.73) (.74) (.72) (.72)

Net realized gains - - - - - - - (.01) - (.02)
---------------------------------------------------------------------------------------

Total distributions (.62) (.63) (.65)1 (.65) (.66) (.66) (.73) (.75) (.72) (.74)
---------------------------------------------------------------------------------------

Net asset value,
end of year $12.11 $11.73 $11.75 $11.37 $11.92 $11.88 $11.12 $10.86 $10.79 $10.55
=======================================================================================

Total return* 8.78% 5.38% 9.28% 1.06% 5.81% 12.97% 9.28% 7.66% 9.06% 7.98%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of
year (000's) $297,406 $260,979 $247,031 $216,263 $215,540 $156,517 $106,960 $50,328 $24,746 $10,346

Ratios to average net assets:

Expenses .70% .70% .71% .70% .63% .67% .71% .74% .50% -

Expenses excluding waiver
and payments by affiliate .70% .70% .71% .70% .63% .67% .71% .74% .71% .74%

Net investment income 5.24% 5.47% 5.52% 5.75% 5.44% 5.86% 6.03% 6.37% 6.68% 7.09%

Portfolio turnover rate 9.95% 9.98% 25.19% 25.05% 3.86% 8.48% 3.16% 7.99% 11.80% 12.35%
</TABLE>

<TABLE>
<CAPTION>
NORTH CAROLINA FUND (CONT.)

CLASS II
--------------------------
YEAR ENDED FEB. 28
--------------------------
1998 1997 1996***
--------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.79 $11.80 $11.41
--------------------------

Income from investment operations:

Net investment income .56 .57 .49

Net realized & unrealized gains (losses) .39 (.02) .38
--------------------------

Total from investment operations .95 .55 .87
--------------------------

Less distributions from net investment income (.56) (.56) (.48)
--------------------------

Net asset value, end of year $12.18 $11.79 $11.80
==========================

Total return* 8.22% 4.83% 7.77%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $20,043 $9,607 $2,430

Ratios to average net assets:

Expenses 1.26% 1.26% 1.28%**

Net investment income 4.69% 4.85% 4.90%**

Portfolio turnover rate 9.95% 9.98% 25.19%
</TABLE>

<TABLE>
<CAPTION>
TEXAS FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.37 $11.58 $11.25 $11.72 $11.69 $11.03 $10.77 $10.74 $10.59 $10.56
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .62 .66 .67 .68 .69 .69 .67 .73 .84 .78

Net realized & unrealized
gains (losses) .36 - .34 (.49) .03 .66 .37 .10 .11 .04
---------------------------------------------------------------------------------------

Total from investment
operations .98 .66 1.01 .19 .72 1.35 1.04 .83 .95 .82
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.63) (.67) (.68) (.66) (.69) (.69) (.78) (.80) (.80) (.79)

In excess of net investment
income (.01) - - - - - - - - -

Net realized gains (.03) (.20) - - - - - - - -
---------------------------------------------------------------------------------------

Total distributions (.67) (.87) (.68) (.66) (.69) (.69) (.78) (.80) (.80) (.79)
---------------------------------------------------------------------------------------

Net asset value,
end of year $11.68 $11.37 $11.58 $11.25 $11.72 $11.69 $11.03 $10.77 $10.74 $10.59
=======================================================================================

Total Return* 8.91% 5.91% 9.15% 1.80% 6.09% 12.41% 9.84% 7.81% 8.95% 7.88%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of
year (000's) $130,578 $126,612 $129,702 $130,684 $148,684 $139,389 $123,722 $29,036 $6,094 $2,356

Ratios to average net assets:

Expenses .76% .75% .76% .73% .65% .66% .70% .40% - -

Expenses excluding waiver
and payments by affiliate .76% .75% .76% .73% .65% .66% .70% .75% .71% .76%

Net investment income 5.44% 5.70% 5.86% 6.05% 5.85% 6.15% 6.14% 6.46% 7.26% 7.65%

Portfolio turnover rate 34.52% 35.57% 18.38% 6.36% 20.18% 12.33% 6.44% 0.55% 3.53% 6.95%
</TABLE>

<TABLE>
<CAPTION>
TEXAS FUND (CONT.)

CLASS II
--------------------------
YEAR ENDED FEB. 28
--------------------------
1998 1997 1996***
--------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.49 $11.68 $11.27
--------------------------

Income from investment operations:

Net investment income .58 .60 .51

Net realized & unrealized gains .35 .02 .40
--------------------------

Total from investment operations .93 .62 .91
--------------------------

Less distributions from:

Net investment income (.58)1 (.61) (.50)

Net realized gains (.03) (.20) -
--------------------------

Total distributions (.61) (.81) (.50)
--------------------------

Net asset value, end of year $11.81 $11.49 $11.68
==========================

Total return* 8.31% 5.48% 8.23%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $2,076 $740 $79

Ratios to average net assets:

Expenses 1.33% 1.32% 1.33%**

Net investment income 4.79% 5.03% 5.23%**

Portfolio turnover rate 34.52% 35.57% 18.38%
</TABLE>

<TABLE>
<CAPTION>
VIRGINIA FUND

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.65 $11.72 $11.33 $11.82 $11.69 $10.98 $10.70 $10.63 $10.43 $10.45
---------------------------------------------------------------------------------------

Income from investment
operations:

Net investment income .62 .65 .66 .66 .67 .67 .66 .69 .73 .77

Net realized & unrealized
gains (losses) .35 (.07) .38 (.50) .14 .70 .36 .14 .23 (.03)
---------------------------------------------------------------------------------------

Total from investment
operations .97 .58 1.04 .16 .81 1.37 1.02 .83 .96 .74
---------------------------------------------------------------------------------------

Less distributions from:

Net investment income (.64) (.64) (.65) (.65) (.68) (.66) (.74) (.76) (.76) (.76)

Net realized gains (.10) (.01) - - - - - - - -
---------------------------------------------------------------------------------------

Total distributions (.74) (.65) (.65) (.65) (.68) (.66) (.74) (.76) (.76) (.76)
---------------------------------------------------------------------------------------

Net asset value,
end of year $11.88 $11.65 $11.72 $11.33 $11.82 $11.69 $10.98 $10.70 $10.63 $10.43
=======================================================================================

Total return* 8.53% 5.15% 9.41% 1.56% 6.80% 12.67% 9.71% 7.82% 9.12% 7.09%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of
year (000's) $332,199 $287,172 $271,396 $255,965 $260,913 $211,171 $152,615 $82,662 $38,572 $13,885

Ratios to average net assets:

Expenses .69% .69% .69% .69% .62% .65% .68% .72% .60% .16%

Expenses excluding waiver
and payments by affiliate .69% .69% .69% .69% .62% .65% .68% .72% .72% .75%

Net investment income 5.29% 5.56% 5.66% 5.86% 5.65% 5.98% 6.17% 6.38% 6.55% 6.89%

Portfolio turnover rate 12.90% 19.25% 12.72% 21.73% 6.86% 5.74% 4.33% 2.56% 1.06% 3.92%
</TABLE>

<TABLE>
<CAPTION>
VIRGINIA FUND (CONT.)

CLASS II
--------------------------
YEAR ENDED FEB. 28
--------------------------
1998 1997 1996***
--------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

<S> <C> <C> <C>
Net asset value, beginning of year $11.71 $11.77 $11.35
--------------------------

Income from investment operations:

Net investment income .57 .58 .49

Net realized & unrealized gains (losses) .34 (.05) .41
--------------------------

Total from investment operations .91 .53 .90

Less distributions from:

Net investment income (.57) (.58) (.48)

Net realized gains (.10) (.01) -
--------------------------

Total distributions (.67) (.59) (.48)
--------------------------

Net asset value, end of year $11.95 $11.71 $11.77
==========================

Total return* 7.97% 4.61% 8.07%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) $13,186 $6,674 $2,050

Ratios to average net assets:

Expenses 1.25% 1.25% 1.26%**

Net investment income 4.72% 4.94% 5.06%**

Portfolio turnover rate 12.90% 19.25% 12.72%
</TABLE>

1Includes distributions in excess of net investment income in the amount of
$.001.
2For the period September 10, 1991 (effective date) to February 29, 1992.
3For the period October 3, 1988 (effective date) to February 28, 1989.
4Includes distributions in excess of net investment income in the amount of
$.005.
*Total return does not reflect sales commissions or the Contingent Deferred
Sales Charge, and is not annualized except where indicated. Prior to May 1,
1994, dividends from net investment income were reinvested at the Offering
Price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996.

HOW DO THE FUNDS INVEST THEIR ASSETS?

A QUICK LOOK AT THE FUNDS

GOAL: High current tax-free income for residents of the fund's state.

STRATEGY: Invest in investment grade municipal securities whose interest is free
from federal and state personal income taxes, if any, for residents of the
fund's state.

WHAT IS THE MANAGER'S APPROACH?

Advisers tries to select securities that it believes will provide the best
balance between risk and return within each fund's range of allowable
investments. Advisers considers a number of factors, including general market
and economic conditions and the credit quality of the issuer, when selecting
securities for each fund.

WHO MAY WANT TO INVEST?

The funds may be appropriate for investors in higher tax brackets who seek high
current income that is free from federal and state personal income taxes.

THE FUNDS IN MORE DETAIL

WHAT ARE THE FUNDS' GOALS?

The investment goal of each fund is to provide investors with as high a level of
income exempt from federal income taxes as is consistent with prudent investing,
while seeking preservation of shareholders' capital. Each fund also tries to
provide a maximum level of income that is exempt from personal income taxes, if
any, for resident shareholders of the fund's state. These goals are fundamental,
which means that they may not be changed without shareholder approval.

WHAT KINDS OF SECURITIES DO THE FUNDS BUY?

Each fund tries to invest all of its assets in tax-free municipal securities,
including bonds, notes and commercial paper.

Each fund normally invests:

o at least 80% of its net assets in securities that pay interest free from
federal income taxes, including the federal alternative minimum tax (this
policy is fundamental);

o at least 65% of its total assets in municipal securities of its state.

While each fund tries to invest 100% of its assets in tax-free municipal
securities, it is possible, although not anticipated, that a fund may have up to
20% of its assets in securities that pay taxable interest. If you are subject to
the federal alternative minimum tax, please keep in mind that each fund may also
have a portion of its assets in municipal securities that pay interest subject
to the federal alternative minimum tax.

QUALITY. All things being equal, the lower a security's credit quality, the
higher the risk and the higher the yield the security generally must pay as
compensation to investors for the higher risk.

o Each fund only buys investment grade securities or unrated securities that
Advisers believes are comparable.

o The funds have no restrictions on the maturity of the securities they may
buy or on their average portfolio maturity.

o Each fund may invest in investment grade variable and floating rate
securities.

o Each fund may invest in municipal lease obligations without limit, if the
obligations meet the fund's quality and maturity standards.

WHAT ARE SOME OF THE FUNDS' OTHER INVESTMENT STRATEGIES AND PRACTICES?

TEMPORARY INVESTMENTS. When Advisers believes unusual or adverse economic,
market or other conditions exist, it may invest a fund's portfolio in a
temporary defensive manner. Under these circumstances, each fund may invest all
of its assets in securities that pay taxable interest, including (i) municipal
securities issued by a state or local government other than the fund's state, or
by a U.S. territory such as Guam, Puerto Rico or the Mariana Islands; (ii) high
quality commercial paper; or (iii) securities issued by or guaranteed by the
full faith and credit of the U.S. government.

DIVERSIFICATION. Diversification involves limiting the amount of money invested
in any one issuer or, on a broader scale, in any one state or type of project to
help spread and reduce the risks of investment. Non-diversified funds may invest
a greater portion of their assets in the securities of one issuer than
diversified funds. Economic, business, political or other changes can affect all
securities of a similar type. A non-diversified fund may be more sensitive to
these changes.

o The Maryland Fund is a non-diversified fund, although it intends to meet
certain diversification requirements for tax purposes. The other funds are
all diversified. Each fund may invest more than 25% of its assets in
municipal securities that finance similar types of projects, such as
hospitals, housing, industrial development, transportation or pollution
control.

WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?

Like all investments, an investment in a fund involves risks. The risks of each
fund are basically the same as those of other investments in municipal
securities of similar quality, although an investment in the funds may involve
more risk than an investment in a fund that does not focus on securities of a
single state. Because each fund holds many securities, it is likely to be less
risky than any one, or few, directly held municipal investments.

STATE RISKS. Since each fund invests heavily in municipal securities of its
state, events in that state are likely to affect the fund's investments and its
performance. These events may include:

o economic or political policy changes;

o tax base erosion;

o state constitutional limits on tax increases;

o budget deficits and other financial difficulties; and

o changes in the ratings assigned to municipal issuers.

A negative change in any one of these or other areas could affect the ability of
a state's municipal issuers to meet their obligations. It is important to
remember that economic, budget and other conditions within a state are
unpredictable and can change at any time. For more specific information on the
economy and financial strength of the funds' various states, please see "What
Are the Risks of Investing in the Funds?" in the SAI.

U.S. TERRITORIES RISKS. Each fund may invest up to 35% of its assets in
municipal securities issued by U.S. territories such as Guam, Puerto Rico or the
Mariana Islands. As with state municipal securities, events in any of these
territories where a fund invests may affect the fund's investments and its
performance.

WHO MANAGES THE FUNDS?

MANAGEMENT TEAM. The team responsible for the day-to-day management of each
fund's portfolio is:

Thomas Kenny
Senior Vice President of Advisers

Mr. Kenny has been an analyst or portfolio manager for each of the funds since
their inception. Mr. Kenny is the Director of Franklin's Municipal Bond
Department. He holds a Master of Science degree in Finance from Golden Gate
University and a Bachelor of Arts degree in Business and Economics from the
University of California at Santa Barbara. Mr. Kenny joined the Franklin
Templeton Group in 1986. He is a member of several securities industry-related
committees and associations.

John Pomeroy
Portfolio Manager of Advisers

Mr. Pomeroy has been an analyst or portfolio manager for the Alabama, Georgia
and Maryland funds since 1989. Mr. Pomeroy holds a Bachelor of Science degree in
Finance from San Francisco State University. He joined the Franklin Templeton
Group in 1986. He is a member of several securities industry-related committees
and associations.

Stella Wong
Vice President of Advisers

Ms. Wong has been an analyst or portfolio manager for the Florida, Louisiana,
Maryland, North Carolina, Texas and Virginia funds since their inception. Ms.
Wong holds a Master degree in Financial Planning from Golden Gate University and
a Bachelor of Science degree in Business Administration from San Francisco State
University. She joined the Franklin Templeton Group in 1986. She is a member of
several securities industry-related committees and associations.

John Wiley
Portfolio Manager of Advisers

Mr. Wiley has been an analyst or portfolio manager for the Louisiana and Texas
funds since 1991. Mr. Wiley holds a Master of Business Administration degree in
Finance from Saint Mary's College and a Bachelor of Science degree from the
University of California at Berkeley. He joined the Franklin Templeton Group in
1989. He is a member of several securities industry-related committees and
associations.

Sheila Amoroso
Vice President of Advisers

Ms. Amoroso has been an analyst or portfolio manager for the Florida, Kentucky
and Missouri funds since their inception. Ms. Amoroso holds a Bachelor of
Science degree from San Francisco State University. She joined the Franklin
Templeton Group in 1986. She is a member of several securities industry-related
committees and associations.

Ben Barber
Portfolio Manager of Advisers

Mr. Barber has been an analyst or portfolio manager for the Missouri and Alabama
funds since 1993. He has a Bachelor of Arts degree in International Relations
and Political Science from the University of California at Santa Barbara. Mr.
Barber joined the Franklin Templeton Group in 1991. He is a member of several
securities industry-related committees and associations.

Mark Orsi
Portfolio Manager of Advisers

Mr. Orsi has been an analyst or portfolio manager for the Kentucky, Georgia,
North Carolina and Virginia funds since 1991. He holds a Bachelor of Science
degree in Finance from Santa Clara University. Mr. Orsi joined the Franklin
Templeton Group in 1990. He is a member of several securities industry-related
committees and associations.

MANAGEMENT FEES. During the fiscal year ended February 28, 1998, management fees
paid to Advisers and total operating expenses, as a percentage of average
monthly net assets, were as follows:

TOTAL
MANAGEMENT OPERATING EXPENSES
------------------
FEES CLASS I CLASS II
- ----------------------------------------------------------------------------
Alabama Fund ............................. 0.56% 0.72% 1.28%

Florida Fund ............................. 0.47% 0.61% 1.17%

Georgia Fund ............................. 0.59% 0.76% 1.32%

Kentucky Fund ............................ 0.17%* 0.35%* -

Louisiana Fund ........................... 0.60% 0.76% 1.32%

Maryland Fund ............................ 0.56% 0.74% 1.30%

Missouri Fund ............................ 0.54% 0.71% 1.27%

North Carolina Fund ...................... 0.54% 0.70% 1.26%

Texas Fund ............................... 0.60% 0.76% 1.33%

Virginia Fund ............................ 0.53% 0.69% 1.25%

*Management fees, before any advance waiver, totaled 0.63%. Total operating
expenses were 0.81%. Under an agreement by Advisers to limit its fees, the
Kentucky Fund paid the management fees and total operating expenses shown.
Advisers may end this arrangement at any time upon notice to the Board.

ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for each fund. During the fiscal
year ended February 28, 1998, administration fees paid to FT Services, as a
percentage of average daily net assets, were as follows:

ADMINISTRATION
FEES
- --------------------------------------------------------
Alabama Fund ............................ 0.15%

Florida Fund ............................ 0.11%

Georgia Fund ............................ 0.15%

Kentucky Fund ........................... 0.15%

Louisiana Fund .......................... 0.15%

Maryland Fund ........................... 0.15%

Missouri Fund ........................... 0.15%

North Carolina Fund ..................... 0.15%

Texas Fund .............................. 0.15%

Virginia Fund ........................... 0.14%

These fees are paid by Advisers. They are not a separate expense of the funds.
Please see "Investment Management and Other Services" in the SAI for more
information.

THE RULE 12B-1 PLANS

Payments by the funds under their Class I plans may not exceed 0.10% per year of
Class I's average daily net assets. All distribution expenses over this amount
will be borne by those who have incurred them. During the first year after
certain Class I purchases made without a sales charge, Securities Dealers may
not be eligible to receive the Rule 12b-1 fees associated with the purchase.

The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Funds' Underwriter" in the SAI.

<TABLE>
<CAPTION>
HOW TAXATION AFFECTS THE FUNDS AND THEIR SHAREHOLDERS

<S> <C>
TAXATION OF THE FUNDS' INVESTMENTS.
-------------------------------------------
Each fund invests your money in the HOW DO THE FUNDS EARN INCOME AND GAINS?
municipal and other securities described
in the section "How Do the Funds Invest Each fund earns interest and other income
Their Assets?" Special tax rules may apply (the fund's "income") on its investments.
when determining the income and gains that When a fund sells a security for a price
each fund earns on its investments. These that is higher than it paid, it has a
rules may, in turn, affect the amount of gain. When a fund sells a security for a
distributions that a fund pays to you. price that is lower than it paid, it has
These special tax rules are discussed in a loss. If a fund has held the security
the SAI. for more than one year, the gain or loss
will be a long-term capital gain or loss.
TAXATION OF THE FUNDS. As a regulated If a fund has held the security for one
investment company, each fund generally year or less, the gain or loss will be a
pays no federal income tax on the income short-term capital gain or loss. A fund's
and gains that it distributes to you. gains and losses are netted together,
and, if the fund has a net gain (the
fund's "gains"), that gain will generally
be distributed to you.
-------------------------------------------

TAXATION OF SHAREHOLDERS

-------------------------------------------
DISTRIBUTIONS. Distributions made to you WHAT IS A DISTRIBUTION?
from interest income on municipal
securities will be exempt from the regular As a shareholder, you will receive your
federal income tax. Distributions made to share of a fund's income and gains on its
you from other income on temporary investments. A fund's interest income on
investments, short-term capital gains, or municipal securities is paid to you as
ordinary income from the sale of market exempt-interest dividends. A fund's
discount bonds will be taxable to you as ordinary income and short-term capital
ordinary dividends, whether you receive gains are paid to you as ordinary
them in cash or in additional shares. dividends. A fund's long-term capital
Distributions made to you from interest on gains are paid to you as capital gain
certain private activity bonds, while distributions. If a fund pays you an
still exempt from the regular federal amount in excess of its income and gains,
income tax, are a preference item when this excess will generally be treated as
determining your alternative minimum tax. a non-taxable distribution. These
The fund will send you a statement in amounts, taken together, are what we call
January of the current year that reflects a fund's distributions to you.
the amount of exempt-interest dividends,
ordinary dividends, capital gain
distributions, interest income that is a
tax preference item under the alternative
minimum tax and non-taxable distributions
you received from the fund in the prior
year. This statement will include
distributions declared in December and
paid to you in January of the current
year, but which are taxable as if paid on
December 31 of the prior year. The IRS
requires you to report these amounts on
your income tax return for the prior year.
A fund's statement for the prior year will
tell you how much of your capital gain
distribution represents 28% rate gain. The
remainder of the capital gain distribution
represents 20% rate gain.
-------------------------------------------

DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the funds'
distributions will qualify for the corporate dividends-received deduction.

-------------------------------------------
REDEMPTIONS AND EXCHANGES. If you redeem WHAT IS A REDEMPTION?
your shares or if you exchange your shares
in the funds for shares in another A redemption is a sale by you to the fund
Franklin Templeton Fund, you will of some or all of your shares in the
generally have a gain or loss that the IRS fund. The price per share you receive
requires you to report on your income tax when you redeem fund shares may be more
return. If you exchange fund shares held or less than the price at which you
for 90 days or less and pay no sales purchased those shares. An exchange of
charge, or a reduced sales charge, for the shares in the fund for shares of another
new shares, all or a portion of the sales Franklin Templeton Fund is treated as a
charge you paid on the purchase of the redemption of fund shares and then a
shares you exchanged is not included in purchase of shares of the other fund.
their cost for purposes of computing gain When you redeem or exchange your shares,
or loss on the exchange. If you hold your you will generally have a gain or loss,
shares for six months or less, any loss depending upon whether the amount you
you have will be disallowed to the extent receive for your shares is more or less
of any exempt-interest dividends paid on than your cost or other basis in the
your shares. Any such loss not disallowed shares. Please call Fund Information for
will be treated as a long-term capital a free shareholder Tax Information
loss to the extent of any long-term Handbook if you need more information on
capital gain distributions paid on your calculating the gain or loss on the
shares. All or a portion of any loss on redemption or exchange of your shares.
the redemption or exchange of your shares
will be disallowed by the IRS if you buy
other shares in the fund within 30 days
before or after your redemption
or exchange.
-------------------------------------------

-------------------------------------------
BACKUP WITHHOLDING. When you open an WHAT IS A BACKUP WITHHOLDING?
account, IRS regulations require that you
provide your taxpayer identification Backup withholding occurs when a fund is
number ("TIN"), certify that it is required to withhold and pay over to the
correct, and certify that you are not IRS 31% of your distributions and
subject to backup withholding under IRS redemption proceeds. You can avoid backup
rules. If you fail to provide a correct withholding by providing the fund with
TIN or the proper tax certifications, the your TIN, and by completing the tax
IRS requires the fund to withhold 31% of certifications on your shareholder
all the distributions (including ordinary application that you were asked to sign
dividends and capital gain distributions), when you opened your account. However, if
and redemption proceeds paid to you. The the IRS instructs the fund to begin
fund is also required to begin backup backup withholding, it is required to do
withholding on your account if the IRS so even if you provided the fund with
instructs the fund to do so. The fund your TIN and these tax certifications,
reserves the right not to open your and backup withholding will remain in
account, or, alternatively, to redeem your place until the fund is instructed by the
shares at the current Net Asset Value, IRS that it is no longer required.
less any taxes withheld, if you fail to
provide a correct TIN, fail to provide the
proper tax certifications, or the IRS
instructs the fund to begin backup
withholding on your account.
-------------------------------------------

THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUNDS. FOR A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS, PLEASE SEE "ADDITIONAL
INFORMATION ON DISTRIBUTIONS AND TAXES" AND "APPENDICES - STATE TAX
TREATMENT" IN THE SAI. THE TAX TREATMENT TO YOU OF DIVIDENDS, CAPITAL GAIN
DISTRIBUTIONS, FOREIGN TAXES PAID AND INCOME TAXES WITHHELD IS ALSO DISCUSSED
IN A FREE FRANKLIN TEMPLETON TAX INFORMATION HANDBOOK, WHICH YOU MAY REQUEST
BY CONTACTING FUND INFORMATION.
</TABLE>

HOW IS THE TRUST ORGANIZED?

The funds are series of the Franklin Tax-Free Trust (the "Trust"), an open-end
management investment company, commonly called a mutual fund. It was organized
as a Massachusetts business trust in September 1984, and is registered with the
SEC. Except for the Kentucky Fund, each fund offers two classes of shares:
Franklin Alabama Tax-Free Income Fund - Class I, Franklin Florida Tax-Free
Income Fund - Class I, Franklin Georgia Tax-Free Income Fund - Class I, Franklin
Louisiana Tax-Free Income Fund - Class I, Franklin Maryland Tax-Free Income Fund
- - Class I, Franklin Missouri Tax-Free Income Fund - Class I, Franklin North
Carolina Tax-Free Income Fund - Class I, Franklin Texas Tax-Free Income Fund -
Class I, Franklin Virginia Tax-Free Income Fund - Class I and Franklin Alabama
Tax-Free Income Fund - Class II, Franklin Florida Tax-Free Income Fund - Class
II, Franklin Georgia Tax-Free Income Fund - Class II, Franklin Louisiana
Tax-Free Income Fund - Class II, Franklin Maryland Tax-Free Income Fund - Class
II, Franklin Missouri Tax-Free Income Fund - Class II, Franklin North Carolina
Tax-Free Income Fund - Class II, Franklin Texas Tax-Free Income Fund - Class II,
and Franklin Virginia Tax-Free Income Fund - Class II. All shares outstanding
before the offering of Class II shares, and all shares of the Kentucky Fund, are
considered Class I shares. Additional series and classes of shares may be
offered in the future.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

To open your account, please follow the steps below. This will help avoid any
delays in processing your request. PLEASE KEEP IN MIND THAT THE FUNDS DO NOT
CURRENTLY ALLOW INVESTMENTS BY MARKET TIMERS.

1. Read this prospectus carefully.

2. Determine how much you would like to invest. The funds' minimum
investments are:
o To open your account: $100*
o To add to your account: $25*

*We reserve the right to refuse any order to buy shares.

4. Make your investment using the table below.

Return the application to the fund with your
check made payable to the fund.

For additional investments:

Send a check made payable to the fund. Please
include your account number on the check.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number and wire instructions. You
need a new wire control number every time you
wire money into your account. If you do not
have a currently effective wire control number,
we will return the money to the bank, and we
will not credit the purchase to your account.

2. For an initial investment you must also return
your signed shareholder application to the fund.

CHOOSING A SHARE CLASS

Contingent Deferred Sales Charge Contingent Deferred Sales Charge
on purchases of $1 million or more on purchases sold within 18 months
sold within one year

Lower annual expenses than Class Higher annual expenses than Class
II shares I shares

PURCHASE PRICE OF FUND SHARES

<TABLE>
<CAPTION>
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
---------------------------------
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- ---------------------------------------------------------------------------------------------------------------
CLASS I

<S> <C> <C> <C> <C>
Under $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 None

CLASS II

Under $1,000,000*................................ 1.00% 1.01% 1.00%
</TABLE>

SALES CHARGE REDUCTIONS AND WAIVERS

LETTER OF INTENT - CLASS I ONLY. You may buy Class I shares at a reduced sales
charge by completing the Letter of Intent section of the shareholder
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class I shares.

BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:

o You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.

o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.

o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.

Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct.

If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.

GROUP PURCHASES - CLASS I ONLY. If you are a member of a qualified group, you
may buy Class I shares at a reduced sales charge that applies to the group as a
whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.