As filed with the Securities and Exchange Commission on December 18, 2000.
File No. 2-94222
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ______
Post-Effective Amendment No. ______
FRANKLIN TAX-FREE TRUST
-----------------------
(Exact Name of Registrant as Specified in Charter)
(650) 312-2000
--------------
(Registrant's Area Code and Telephone Number)
777 MARINERS ISLAND BLVD.
SAN MATEO, CA 94404
(Address of Principal Executive Offices: Number, Street, City, State, Zip
Code)
MURRAY L. SIMPSON, ESQUIRE
777 MARINERS ISLAND BLVD.
SAN MATEO, CA 94404
-------------------
(Name and Address of Agent for Service)
Copies to:
Bruce G. Leto, Esquire
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective under the Securities Act of
1933, as amended.
It is proposed that this filing will become effective on January 17, 2001
pursuant to Rule 488.
Title of the securities being registered: Shares of beneficial interest,
with no par value per share, of Franklin Arizona Tax-Free Income Fund. No
filing fee is due because Registrant is relying on Section 24(f) of the
Investment Company Act of 1940, as amended.
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a special shareholders' meeting scheduled for
February 21, 2001 at 2:00 p.m. Pacific time. They discuss the proposals to be
voted on at the meeting, and contain your proxy statement and proxy card. A
proxy card is, in essence, a ballot. When you vote your proxy, it tells us
how you wish to vote on important issues relating to your Fund. If you
complete and sign the proxy, we'll vote it exactly as you tell us. If you
simply sign the proxy, we'll vote it in accordance with the Board of
Trustees' recommendations on page [ ] of the proxy statement.
WE URGE YOU TO SPEND A FEW MINUTES REVIEWING THE PROPOSALS IN THE PROXY
STATEMENT. THEN, FILL OUT THE PROXY CARD AND RETURN IT TO US SO THAT WE KNOW
HOW YOU WOULD LIKE TO VOTE. WHEN SHAREHOLDERS RETURN THEIR PROXIES PROMPTLY,
THE FUND MAY BE ABLE TO SAVE MONEY BY NOT HAVING TO CONDUCT ADDITIONAL
MAILINGS.
WE WELCOME YOUR COMMENTS. IF YOU HAVE ANY QUESTIONS, CALL FUND INFORMATION AT
1-800/DIAL BEN(R) (1-800/342-5236).
TELEPHONE AND INTERNET VOTING
For your convenience, you may be able to vote by telephone or through the
Internet, 24 hours a day. If your account is eligible, a control number and
separate instructions are enclosed.
This page intentionally left blank.
Dear Shareholders:
Enclosed is a Notice of Meeting for a Special Shareholders' Meeting of
Franklin Arizona Insured Tax-Free Income Fund ("Insured Fund"). The Meeting
is scheduled for February 21, 2001 at 2:00 p.m. Pacific time at the offices
of Insured Fund at 777 Mariners Island Boulevard, San Mateo, California
94404. The accompanying materials describe an important proposal that may
affect the future of Insured Fund. We ask you to give this your prompt
attention and vote via the enclosed proxy card.
PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND
RETURN THE ENCLOSED PROXY CARD
This meeting is very important. The Trustees of your Fund unanimously
recommend that you consider and approve a Plan of Reorganization that would
result in your shares of Insured Fund being exchanged for those of a fund
called Franklin Arizona Tax-Free Income Fund ("Income Fund"), another series
of the Franklin Tax-Free Trust. If the shareholders of Insured Fund approve
the proposal, you will receive shares of Income Fund equal in value to your
investment in Insured Fund. You will no longer be a shareholder of Insured
Fund, and you will instead be a shareholder of Income Fund. Insured Fund will
no longer exist after the reorganization is completed.
The proposed transaction is intended to be tax-free, which means that you
will not have a taxable gain or loss on the exchange of your shares.
The Trustees recommend this transaction because the projected growth in
assets of Insured Fund is not sufficient to provide competitive performance
and high quality service to shareholders over the long term. Insured Fund and
Income Fund are both managed by Franklin Advisers, Inc. ("Advisers"). Income
Fund has investment goals and investment policies that are similar to those
of Insured Fund, and is a larger fund that may be better able to obtain cost
savings for shareholders.
Please take the time to review this document and vote now. THE TRUSTEES OF
THE FUND UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
o To ensure that your vote is counted, indicate your position on the
enclosed proxy card.
o Sign and return your card promptly.
o You may also vote by telephone or over the Internet.
o If you determine at a later date that you wish to attend this
meeting, you may revoke your proxy and vote in person.
Thank you for your attention to this matter.
Sincerely,
Rupert H. Johnson, Jr.
President
This page intentionally left blank.
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
777 MARINERS ISLAND BOULEVARD
SAN MATEO, CALIFORNIA 94404-7777
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON FEBRUARY 21, 2001
To the Shareholders of Franklin Arizona Insured Tax-Free Income Fund:
NOTICE IS HEREBY GIVEN that a Special Shareholders' Meeting of Franklin
Arizona Insured Tax-Free Income Fund ("Insured Fund") will be held at the
offices of Insured Fund, 777 Mariners Island Boulevard, San Mateo, California
94404-7777 on February 21, 2001 at 2:00 p.m. Pacific time. The Meeting is
being called for the following purpose:
To approve or disapprove a Plan of Reorganization of Franklin Tax-Free
Trust ("Trust") on behalf of two of its series, Insured Fund and Franklin
Arizona Tax-Free Income Fund ("Income Fund") that provides for the
acquisition of substantially all of the assets of Insured Fund by Income Fund
in exchange for Class A shares of Income Fund and the distribution of such
shares to the shareholders of Insured Fund in complete liquidation of Insured
Fund and dissolution of Insured Fund.
In addition, shareholders will be asked to grant the proxyholders the
authority to vote upon any other business which may legally come before the
Meeting or any adjournment thereof.
The Plan of Reorganization in the attached Prospectus/Proxy Statement
describes this transaction more completely. A copy of the Plan of
Reorganization is attached as Exhibit A to the Prospectus/Proxy Statement.
Shareholders of record as of the close of business on December 27, 2000,
are entitled to notice of, and to vote at, the Meeting or any adjournment
thereof.
By Order of the Board of Trustees,
Murray L. Simpson
Secretary
San Mateo, California
January [ ], 2001
-------------------------------------------------------------------------------
THE BOARD OF TRUSTEES URGES YOU TO COMPLETE, DATE, SIGN, AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. IT IS
IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY CARD PROMPTLY SO THAT A QUORUM
MAY BE ENSURED, AND THE COSTS OF FURTHER SOLICITATIONS AVOIDED.
-------------------------------------------------------------------------------
PROSPECTUS AND PROXY STATEMENT
When reading this Prospectus/Proxy Statement, you will see certain terms
beginning with capital letters. This means the term is explained in our
glossary section.
TABLE OF CONTENTS
PAGE
COVER PAGE Cover
SUMMARY
What proposal am I voting on?
How will the shareholder voting be handled?
COMPARISONS OF SOME IMPORTANT FEATURES
How do the investment goals and policies of the Funds compare?
What are the risks of an investment in the Funds?
Who manages the Funds?
What are the fees and expenses of each Fund and what might they be after
the Transaction?
Where can I find more financial information about the Funds?
What are other key features of the Funds?
REASONS FOR THE TRANSACTION
INFORMATION ABOUT THE TRANSACTION
How will the Transaction be carried out?
Who will pay the expenses of the Transaction?
What are the tax consequences of the Transaction?
What should I know about the shares of Income Fund?
What are the capitalizations of the Funds and what might the
capitalization be after the Transaction?
COMPARISON OF INVESTMENT GOALS AND POLICIES
Are there any significant differences between the investment goals and
strategies of the Funds?
How do the fundamental investment restrictions of the Funds differ?
What are the risk factors associated with investments in the Funds?
TABLE OF CONTENTS (CONTINUED)
PAGE
VOTING INFORMATION
How many votes are necessary to approve the Plan?
How do I ensure my vote is accurately recorded?
Can I revoke my proxy?
What other matters will be voted upon at the Meeting?
Who is entitled to vote?
What other solicitations will be made?
Are there dissenters' rights?
INFORMATION ABOUT INCOME FUND
INFORMATION ABOUT INSURED FUND
PRINCIPAL HOLDERS OF SHARES
GLOSSARY - USEFUL TERMS AND DEFINITIONS
EXHIBITS TO PROSPECTUS AND PROXY STATEMENT
EXHIBIT A - PLAN OF REORGANIZATION A-1
EXHIBIT B - PROSPECTUS OF FRANKLIN ARIZONA TAX-FREE INCOME FUND - CLASS A,
B & C
DATED JULY 1, 2000 (ENCLOSED)
EXHIBIT C - ANNUAL REPORT TO SHAREHOLDERS OF FRANKLIN TAX-FREE TRUST
DATED FEBRUARY 29, 2000 (ENCLOSED)
This page intentionally left blank.
PROSPECTUS AND PROXY STATEMENT
DATED JANUARY [ ], 2001
ACQUISITION OF THE ASSETS OF
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
777 MARINERS ISLAND BOULEVARD
SAN MATEO, CALIFORNIA 94404-7777
(650) 312-2000
BY AND IN EXCHANGE FOR CLASS A SHARES OF
FRANKLIN ARIZONA TAX-FREE INCOME FUND
777 MARINERS ISLAND BOULEVARD
SAN MATEO, CALIFORNIA 94404-7777
(650) 312-2000
This Prospectus/Proxy Statement solicits proxies to be voted at a Special
Shareholders' Meeting (the "Meeting") of Franklin Arizona Insured Tax-Free
Income Fund ("Insured Fund"), a series of the Franklin Tax-Free Trust
("Trust"), to approve or disapprove a Plan of Reorganization (the "Plan").
If shareholders of Insured Fund vote to approve the Plan, substantially all
of the assets of Insured Fund will be acquired by, and in exchange for,
shares of Franklin Arizona Tax-Free Income Fund ("Income Fund"), also a
series of the Trust.
The Meeting will be held at the principal offices of Insured Fund, which
are located at 777 Mariners Island Boulevard, San Mateo, California
94404-7777 on February 21, 2001 at 2:00 p.m. Pacific time. The Board of
Trustees of the Trust on behalf of Insured Fund is soliciting these proxies.
This Prospectus/Proxy Statement will first be sent to shareholders on or
about January [ ], 2001.
If Insured Fund shareholders vote to approve the Plan, you will receive
Class A shares of Income Fund ("Income Fund Class A shares") equal in value
to your investment in Insured Fund ("Insured Fund shares"). Insured Fund will
then be liquidated and dissolved.
The investment goal of Income Fund and Insured Fund (individually, a
"Fund" and collectively, the "Funds") is identical. Each Fund seeks to provide
investors with as high a level of income exempt from federal income taxes and
Arizona State personal income taxes as is consistent with prudent investment
management and the preservation of shareholders' capital.
The principal differences between the Funds are that: (i) Insured Fund
invests at least 65% of its assets in insured municipal securities, while
Income Fund does not have a stated percentage requirement, but generally
invests a portion of its assets in insured municipal securities; and (ii)
Income Fund is a diversified fund while Insured Fund is a non-diversified
fund. As a non-diversified fund, Insured Fund may invest a greater portion
of its assets in the municipal securities of one issuer than a diversified
fund, which in turn could result in Insured Fund being more sensitive to
economic, business, political, or other changes affecting similar issuers or
securities.
This Prospectus/Proxy Statement gives the information about the proposed
reorganization, and Class A shares of Income Fund, that you should know
before investing. You should retain it for future reference. Additional
information about Income Fund and the proposed reorganization has been filed
with the SEC and can be found in the following documents:
|_| The Prospectus of Income Fund - Class A, B & C dated July 1, 2000 (the
"Income Fund Prospectus"), is attached to and considered a part of this
Prospectus/Proxy Statement.
|_| The Annual Report to Shareholders of the Trust dated February 29, 2000,
which contains financial and performance information for Income Fund, is
attached to and considered a part of this Prospectus/Proxy Statement.
|_| A Statement of Additional Information dated January [ ], 2001 relating
to this Prospectus/Proxy Statement has been filed with the SEC and is
incorporated by reference into this Prospectus/Proxy Statement.
You may request a free copy of the SAI relating to this Prospectus/Proxy
Statement or any of the documents referred to above without charge by calling
1-800/DIAL-BEN(R) or by writing to either Fund at P.O. Box 997151, Sacramento,
CA 95899-9983.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON
THE ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER U.S. GOVERNMENT AGENCY.
MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
SUMMARY
This is only a summary of certain information contained in this
Prospectus/Proxy Statement. You should read the more complete information in
the rest of this Prospectus/Proxy Statement, including the Plan (attached as
Exhibit A), the Income Fund Prospectus (enclosed as Exhibit B) and the Annual
Report to Shareholders of the Trust (enclosed as Exhibit C).
WHAT PROPOSAL AM I VOTING ON?
At a meeting held on November 14, 2000, the Board of Trustees of the Trust
on behalf of Insured Fund approved the Plan and determined to recommend that
shareholders of Insured Fund vote to approve the Plan. If shareholders of
Insured Fund vote to approve the Plan, it will result in the transfer of the
net assets of Insured Fund to Income Fund, in exchange for an equal value of
shares of Income Fund. The shares of Income Fund will then be distributed to
Insured Fund shareholders and Insured Fund will be liquidated and dissolved.
(The proposed transaction is referred to in this Prospectus/Proxy Statement
as the "Transaction.") As a result of the Transaction, you will cease to be a
shareholder of Insured Fund and will become a shareholder of Income Fund.
This exchange will occur on the closing date of the Transaction, which is the
specific date on which the Transaction takes place.
This means that your shares of Insured Fund will be exchanged for an equal
value of shares of Income Fund. You will receive Class A shares of Income
Fund equal in value to your investment in shares of Insured Fund.
Income Fund is managed by Advisers. It has an investment goal that is
identical to Insured Fund. But Income Fund has certain policies that are
similar, but not identical, to those of Insured Fund. For the reasons set
forth in the "Reasons for the Transaction" section, the Board of Trustees of
the Trust on behalf of Insured Fund has determined that the Transaction is in
the best interests of the shareholders of Insured Fund. The Board of Trustees
of the Trust also concluded that no dilution in value would result to the
shareholders of Insured Fund or Income Fund, as a result of the Transaction.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU
VOTE TO APPROVE THE PLAN.
HOW WILL THE SHAREHOLDER VOTING BE HANDLED?
Shareholders who own shares of Insured Fund at the close of business on
December 27, 2000 will be entitled to vote at the Meeting, and will be
entitled to one vote for each full share and a fractional vote for each
fractional share that they hold. To approve the Transaction, a majority of
the shares of Insured Fund outstanding and entitled to vote must be voted in
favor of the Plan.
Please vote by proxy as soon as you receive this Prospectus/Proxy
Statement. You may place your vote by completing and signing the enclosed
proxy card or voting by telephone or over the Internet. If you vote by any of
these three methods, your votes will be officially cast at the Meeting by the
persons appointed as proxies.
You can revoke your proxy or change your voting instructions at any time
until the vote is taken at the Meeting. You may also attend the Meeting and
cast your vote in person at the Meeting. For more details about shareholder
voting, see the "Voting Information" section of this Prospectus/Proxy
Statement.
COMPARISONS OF SOME IMPORTANT FEATURES
HOW DO THE INVESTMENT GOALS AND POLICIES OF THE FUNDS COMPARE?
The principal differences in investment strategies and the policies of the
Funds are the extent to which their investments focus on insured municipal
securities and the extent to which their investments are focused on
particular issuers.
Insured Fund and Income Fund have the same investment goal. Each Fund
seeks to provide investors with as high a level of income exempt from federal
income taxes and Arizona state personal income taxes as is consistent with
prudent investment management and the preservation of shareholders' capital.
Both Funds seek to achieve this investment goal by investing, under normal
market conditions, predominantly in municipal securities whose interest is
free from federal income taxes, including the federal alternative minimum
tax, and Arizona personal income taxes. The primary difference between the
investment policies of the funds is that at least 65% of the municipal
securities in which Insured Fund invests are covered by insurance
guaranteeing the timely payment of principal and interest. Income Fund
invests in investment grade municipal securities or unrated securities that
Advisers believes are comparable. In addition, unlike Insured Fund, which is
a non-diversified fund, Income Fund is a diversified fund. As a diversified
fund, Income Fund is required to spread its investments among more issuers.
For more information about the investment goals and policies of the Funds,
please see the section "Comparison of Investment Goals and Policies."
WHAT ARE THE RISKS OF AN INVESTMENT IN THE FUNDS?
Investments in Income Fund and Insured Fund involve risks common to most
mutual funds. There is no guarantee against losses resulting from an
investment in either Fund, nor that either Fund will achieve its investment
goals. Both Funds are subject to the risks posed by investing in municipal
securities.
The risks associated with an investment in each fund are substantially
similar and include interest rate, income, credit, market, events in the
state of Arizona and call risks. As a general principle, an investment in
Insured Fund may involve relatively less risk than a similar investment in
Income Fund. This is because Insured Fund invests at least 65% of its assets
in insured municipal securities, which increases the credit safety of its
insured investments. However, Insured Fund is a non-diversified fund which
may increase certain other relative risks associated with investments in the
Funds because Insured Fund's investments may be more focused than those of
Income Fund on single issuers.
For more information about the risks of the Funds, see the section "What
are the risk factors associated with investments in the Funds?" under the
heading "Comparison of Investment Goals and Policies."
WHO MANAGES THE FUNDS?
The management of the business and affairs of each Fund is the
responsibility of the Board of Trustees of the Trust, as Income Fund and
Insured Fund are both series of the Trust. Both Funds are open-end,
registered management investment companies, commonly referred to as "mutual
funds." The Trust was organized as a Massachusetts business trust on
September 18, 1984 and is registered with the SEC.
Advisers manages the assets and makes the investment decisions for both
Funds. Advisers is a wholly owned subsidiary of Resources. Resources is a
publicly owned company engaged in various aspects of the financial services
industry through its subsidiaries. Together, Advisers and its affiliates
serve as investment manager or administrator to 52 registered investment
companies, with approximately 156 U.S.-based funds or series. They have over
$229 billion in combined assets under management for more than 5 million
U.S.-based mutual fund shareholder and other accounts. The principal
shareholders of Resources are Charles B. Johnson and Rupert H. Johnson, Jr.
The team responsible for the day-to-day management of Income Fund's
portfolio is:
SHEILA AMOROSO, SENIOR VICE PRESIDENT OF ADVISERS. Ms. Amoroso has been an
analyst or portfolio manager of the Fund since its inception. She is the
co-Director of Franklin's Municipal Bond Department. She joined Franklin
Templeton Investments in 1986.
CARRIE HIGGINS, VICE PRESIDENT OF ADVISERS. Ms. Higgins has been an
analyst or portfolio manager of the Fund since its inception. She joined
Franklin Templeton Investments in 1990.
CHRISTOPHER SPERRY, PORTFOLIO MANAGER OF ADVISERS. Mr. Sperry has been an
analyst or portfolio manager of the Fund since February 2000. He joined
Franklin Templeton Investments in 1996.
Income Fund and Insured Fund each has a management agreement with Advisers
under which Advisers is to receive a management fee equal to an annual rate
of 0.625 of 1% of the value of its average daily net assets up to and
including $100 million; 0.50 of 1% of the value of its average daily net
assets over $100 million up to and including $250 million; and 0.45 of 1% of
the value of its average daily net assets over $250 million. Each class of
Income Fund pays its proportionate share of the management fee.
WHAT ARE THE FEES AND EXPENSES OF EACH FUND AND WHAT MIGHT THEY BE AFTER THE
TRANSACTION?
FEE TABLE FOR
INSURED FUND AND INCOME FUND
ACTUAL+ PROJECTED++
-------------------------------------------------------------------------------
INCOME
INSURED INCOME FUND -
FUND FUND - CLASS A
CLASS A AFTER TRANSACTION
-------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge
(as a percentage of Offering Price) 4.25% 4.25% 4.25%
Paid at time of purchase1 4.25% 4.25% 4.25%
Paid at time of redemption2 None None None
Exchange Fee (per transaction) None None None
ANNUAL FUND OPERATING EXPENSES
(as percentage of average net assets)
Management Fees 0.62% 0.48% 0.48%
Distribution and service (12b-1)
Fees 0.10% 0.10% 0.10%
Other Expenses 0.09% 0.05% 0.05%
Total Annual Fund Operating
Expenses 0.81% 0.63% 0.63%
-------------------------------------------------------------------------------
+Information for Insured Fund and Income Fund is provided for the fiscal year
ended February 29, 2000.
++Projected expenses based on current and anticipated Income Fund expenses.
*If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
1. There is no front-end sales charge if you invest $1 million or more in
Class A shares of the Income Fund or shares of Insured Fund.
2. A Contingent Deferred Sales Charge ("CDSC") of 1% may apply to Class A
purchases of $1 million or more with respect to each of the Funds if you sell
the shares within one year. See "Your Account" in the Income Fund Prospectus
and the Insured Fund Prospectus for details.
EXAMPLE
Assumes 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 $10,000 that you invest in a Fund.
CLASS A 1 YEAR* 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
Insured Fund $504 $673 $856 $1,384
Income Fund $486 $615 $756 $1,166
Projected Income Fund (after Transaction) $486 $615 $756 $1,166
*Assumes a CDSC will not apply.
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.
WHERE CAN I FIND MORE FINANCIAL INFORMATION ABOUT THE FUNDS?
The Income Fund Prospectus (enclosed as Exhibit B) as well as the current
Annual Report to Shareholders (enclosed as Exhibit C) contain additional
financial information about Income Fund. The Annual Report to Shareholders
also has discussions of Income Fund's performance during the fiscal year
ended February 29, 2000. Also, the current Semiannual Report to Shareholders
of the Trust contains more financial information about Income Fund as well as
discussions of Income Fund's performance during the six month period ended
August 31, 2000.
The Insured Fund Prospectus, as well as the Annual and Semiannual Reports
for Insured Fund, contain more financial information about Insured Fund.
These documents are available free of charge upon request (see the section
"Information About Insured Fund").
Financial Highlights
FRANKLIN ARIZONA TAX-FREE INCOME FUND
SIX
MONTHS
ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000
------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning $10.31 $.38 $11.44 $11.24 $11.34 $11.11
of period ----------------------------------------------
Income from investment
operations:
Net investment incomea .29 .57 .59 .61 .62 .64
Net realized and
unrealized .40 (1.02) (.01) .29 (.04) .36
gains (losses) -------------------------------------------
Total from investment .69 (.45) .58 .90 .58 1.00
operations -------------------------------------------
Less distributions from:
Net investment income (.29) (.58) (.59) (.61) (.63) (.65)
In excess of net investment /d /e /f (.01)
income - - - - -
Net realized gains - (.04) (.05) (.08) (.05) (.12)
-------------------------------------------
Total distributions (.29) (.62) (.64) (.70) (.68) (.77)
-------------------------------------------
Net asset value, end of
period $10.71 $10.31 $11.38 $11.44 $11.24 $11.34
-------------------------------------------
Total returnb 6.78% (4.15%) 5.17% 8.23% 5.33% 9.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's) $765,930 $756,274 $861,020 $810,250 $752,335 $750,797
Ratios to average net
assets:
Expenses .64%/c .62% .63% .63% .62% .62%
Net investment income 5.48%/c 5.30% 5.11% 5.40% 5.59% 5.67%
Portfolio turnover rate 12.19% 20.55% 14.11% 20.02% 16.57% 25.12%
a Based on average shares outstanding effective February 29, 2000.
b Total return does not reflect sales commissions or contingent deferred
sales charges, and is not annualized for periods less than one year.
c Annualized.
d Includes distributions in excess of net investment income in the amount of
$.003.
e Includes distributions in excess of net investment income in the amount of
$.001.
f Includes distributions in excess of net investment income in the amount of
$.002.
WHAT ARE OTHER KEY FEATURES OF THE FUNDS?
The Funds use the same service providers for the following services:
TRANSFER AGENCY AND CUSTODY SERVICES. Investor Services, a wholly owned
subsidiary of Resources, is the shareholder servicing agent and acts as the
transfer agent and dividend-paying agent for the Funds.
Bank of New York, Mutual Funds Division, 90 Washington Street, New York,
NY 10286, acts as the custodian of the securities and other assets of both
Funds.
ADMINISTRATIVE SERVICES. FT Services, a wholly-owned subsidiary of
Resources, provides certain administrative facilities and services to Income
Fund and Insured Fund under the same terms and conditions.
DISTRIBUTION SERVICES. Distributors acts as the principal underwriter in
the continuous public offering of the Funds' shares under the same terms and
conditions for both Funds.
DISTRIBUTION AND SERVICE (12B-1) FEES. Both Funds have distribution or
"Rule 12b-1" plans. Under each plan, the Fund may pay Distributors or others
for the expenses of activities that are primarily intended to sell shares of
the class. 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. The distribution and service (12b-1) fees
charged to each class are based only on the fees attributable to that
particular class.
Insured Fund under its Class A plan (the Insured Fund only offers one
class of shares) may pay up to 0.15% per year of Class A's average daily net
assets while payments by Income Fund under its plan are limited to 0.10% per
year of Class A's average daily net assets.
For more information regarding Income Fund's Rule 12b-1 plans, please see
"The Underwriter - Distribution and Service (12b-1) fees" in its current SAI
dated July 1, 2000.
PURCHASES AND REDEMPTIONS. The maximum front-end sales charge imposed on
purchases of Class A shares of Income Fund and Insured Fund is 4.25% with
reduced charges for purchases of $100,000 or more and no front-end sales
charges for purchases of $1 million or more. Each Fund generally requires a
minimum initial investment of $1,000 and subsequent investments of at
least $50.
You may sell (redeem) your shares at any time. Shares of each Fund also
may be exchanged for shares of other Franklin Templeton Funds, subject to
certain limitations, as provided in the prospectus of the respective Franklin
Templeton Fund. Because an exchange is technically a sale and a purchase of
shares, an exchange is a taxable transaction.
Shares of each Fund may be redeemed at their respective Net Asset Value
per share. However, redemptions of Class A shares of either Fund which were
purchased in amounts of $1,000,000 or more generally are subject to a 1% CDSC
on shares you sell within 12 months of purchase. Income Fund shares acquired
by Insured Fund shareholders as a result of this Transaction are subject to a
CDSC to the same extent that Insured Fund shares were subject to a CDSC.
Additional information and specific instructions explaining how to buy,
sell, and exchange shares of Income Fund and Insured Fund are outlined in the
Income Fund Prospectus and Insured Fund Prospectus, respectively, under the
heading "Your Account." The accompanying Income Fund Prospectus also lists
phone numbers for you to call if you have any questions about your account
under the heading "Questions." These instructions and phone numbers are the
same for both Funds.
DIVIDENDS AND DISTRIBUTIONS. Both Funds declare dividends from their net
investment income daily and pay them monthly on or about the 20th day of the
month. The amount of these dividends will vary depending on changes in the
Funds' net investment income. Neither Fund pays "interest" nor guarantees any
amount of dividends or return on an investment in its shares. Capital gains,
if any, for both Funds may be distributed twice each year.
The tax implications of an investment in either Fund are generally the
same. For more information about the tax implications of investments in the
Income Fund, see the attached Income Fund Prospectus under the heading
"Distributions and Taxes."
REASONS FOR THE TRANSACTION
The Board of Trustees of the Trust on behalf of Insured Fund has
recommended the acquisition of substantially all of the assets of Insured
Fund by Income Fund in exchange for Class A shares of Income Fund and the
distribution of such shares to the shareholders of Insured Fund in complete
liquidation of Insured Fund and dissolution of Insured Fund (the
"Transaction") in order to combine Insured Fund with a larger fund that has
similar goals and investment policies. A larger fund may be expected to have
a lower expense ratio because certain costs may be spread over a larger asset
base. However, variable expenses that are based on the value of assets or the
number of shareholder accounts, such as custody and transfer agency fees,
would be largely unaffected by the Transaction.
The Plan was presented to the Board of Trustees of the Trust on behalf of
Insured Fund at a meeting held on November 14, 2000. At the meeting, the
Board of Trustees reviewed the potential benefits and costs to shareholders
of Insured Fund; the expense ratios of Income Fund and Insured Fund; the
comparative investment performance of Income Fund and Insured Fund; the
compatibility of the investment goals, policies, restrictions and investments
of Insured Fund with those of Income Fund; and the tax consequences of the
Transaction. During the course of its deliberations, the Board of Trustees of
Insured Fund noted that the expenses of the Transaction will be shared
one-quarter by Insured Fund, one-quarter by Income Fund, and one-half by
Advisers.
The Board of Trustees, including a majority of the trustees who are not
interested persons of either Fund ("Independent Trustees"), concluded that
the Transaction is in the best interests of the shareholders of Insured Fund
and that no dilution of value would result to the shareholders of Insured
Fund from the Transaction, approved the Plan and recommended that
shareholders of Insured Fund vote to approve the Transaction.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF TRUSTEES UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE PLAN.
INFORMATION ABOUT THE TRANSACTION
This is only a summary of the Plan. You should read the actual Plan. It is
attached as Exhibit A.
HOW WILL THE TRANSACTION BE CARRIED OUT?
If the shareholders of Insured Fund approve the Plan, the Transaction will
take place after various conditions are satisfied by the Trust on behalf
Insured Fund and Income Fund, including the preparation of certain documents.
The Trust will determine a specific date for the actual Transaction to take
place. This is called the closing date. If the shareholders of Insured Fund
do not approve the Plan, the Transaction will not take place.
Until the close of business on the day of the Meeting, you may continue to
add to your existing account subject to your applicable minimum additional
investment amount or buy additional shares through the reinvestment of
dividend and capital gain distributions. If shareholders of Insured Fund
approve the Plan at the Meeting, shares of Insured Fund will no longer be
offered for sale to existing shareholders, except for the reinvestment of
dividend and capital gain distributions or through established automatic
investment plans.
If the shareholders of Insured Fund approve the Plan, Insured Fund will
deliver to Income Fund substantially all of its assets on the closing date,
which is scheduled for March 8, 2001 or such other later date as the Funds
may agree. In exchange, shareholders of Insured Fund will receive Class A
shares of Income Fund that have a value equal to the dollar value of the
assets delivered to Insured Fund. The stock transfer books of Insured Fund
will be permanently closed as of 1:00 p.m. Pacific time on the closing date.
Insured Fund will only accept requests for redemptions received in proper
form before 1:00 p.m. Pacific time on the closing date. Requests received
after that time will be considered requests to redeem shares of Income Fund.
To the extent permitted by law, the Funds may agree to amend the Plan
without shareholder approval. They may also agree to terminate and abandon
the Transaction at any time before or, to the extent permitted by law, after
the approval of shareholders of Insured Fund.
WHO WILL PAY THE EXPENSES OF THE TRANSACTION?
The expenses resulting from the Transaction, including the cost of the
proxy solicitation, will be paid one-quarter by Insured Fund, one-quarter by
Income Fund, and one-half by Advisers, the investment manager for both Funds.
WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTION?
The Transaction is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended. Based on certain assumptions and representations
received from the Trust on behalf of Insured Fund and Income Fund, it is the
opinion of Stradley, Ronon, Stevens & Young, LLP, counsel to the Funds, that
shareholders of Insured Fund will not recognize any gain or loss for federal
income tax purposes as a result of the exchange of their shares of Insured
Fund for shares of Income Fund and that neither Income Fund nor its
shareholders will recognize any gain or loss upon receipt of the assets of
Insured Fund.
You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding
the effect, if any, of the Transaction in light of your individual
circumstances. You should also consult your tax advisor regarding state and
local tax consequences, if any, of the Transaction, because this discussion
only relates to the federal income tax consequences.
WHAT SHOULD I KNOW ABOUT THE SHARES OF INCOME FUND?
Class A shares of Income Fund will be distributed to shareholders of the
Insured Fund's shares and will have the same legal characteristics as the
shares of Insured Fund with respect to such matters as voting rights,
assessibility, conversion rights, and transferability. Former shareholders of
Insured Fund whose shares are represented by outstanding share certificates
will not be allowed to redeem shares of Income Fund until Insured Fund
certificates have been returned.
WHAT ARE THE CAPITALIZATIONS OF THE FUNDS AND WHAT MIGHT THE CAPITALIZATION
BE AFTER THE TRANSACTION?
The following table sets forth, as of November 15, 2000, the
capitalization of Class A shares of Insured Fund (the only class of Insured
Fund outstanding) and the Class A shares of Income Fund. The table also shows
the projected capitalization of Income Fund Class A shares as adjusted to
give effect to the proposed Transaction. The capitalization of Income Fund
and its classes is likely to be different when the Transaction is consummated.
INCOME FUND -
INSURED INCOME PROJECTED AFTER
FUND FUND TRANSACTION
(UNAUDITED)(UNAUDITED) (UNAUDITED)
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Net assets (all classes) (millions) $73 $780 $853
Total shares outstanding
(all classes) 7,127,677 73,198,720/1 80,064,391/1
Class A net assets (millions) $73 $754 $827
Class A shares outstanding 7,127,677 70,836,129 77,701,800
Class A net asset value per share $10.26 $10.65 $10.65
1 Income Fund offers two additional classes of shares, Class B and Class C.
COMPARISON OF INVESTMENT GOALS AND POLICIES
This section describes the key differences between the investment policies
of Insured Fund and Income Fund, and certain noteworthy differences between
the investment goals and policies of the two Funds. For a complete
description of Income Fund's investment policies and risks, you should read
the Income Fund Prospectus, which is attached to this Prospectus/Proxy
Statement as Exhibit B.
ARE THERE ANY SIGNIFICANT DIFFERENCES BETWEEN THE INVESTMENT GOALS AND
STRATEGIES OF THE FUNDS?
There are several important differences between the Funds.
Income Fund and Insured Fund share the same investment goal: to provide
investors with as high a level of income exempt from federal income taxes and
from personal income taxes for resident shareholders of Arizona as is
consistent with prudent investment management and preservation of
shareholders' capital. Each Fund seeks to achieve its goal by trying to
invest all of its assets in tax-free municipal securities, including bonds,
notes, commercial paper and municipal lease obligations.
A significant difference between the funds is in the credit quality of
municipal securities in which they invest. Insured Fund invests at least 65%
of its total assets in insured municipal securities. Income Fund only invests
in investment grade securities or unrated securities that Advisers believes
are comparable. Also significant is that Income Fund is a diversified fund
and Insured Fund is a non-diversified fund.
MUNICIPAL SECURITIES. Each Fund seeks to achieve its investment goal by
investing, under normal market conditions, at least 80% of its total assets
in municipal securities whose interest is free from federal income taxes,
including the federal alternative minimum tax, and Arizona personal income
taxes. Although each Fund tries to invest all of its assets in tax-free
securities, it is possible, although not anticipated, that up to 20% of its
assets may be in securities that pay taxable interest, including interest
that may be subject to the federal alternative minimum tax.
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 and private
projects. Municipal securities pay a fixed, floating or variable rate of
interest, and require that the amount borrowed (the "principal") be repaid at
maturity. These types of securities generally pay interest free from federal
income tax and, if issued by Arizona or its counties, municipalities,
authorities, agencies, or other subdivisions, or by U.S. territories, Arizona
personal income taxes for Arizona residents. Although each Fund mainly
invests in municipal securities of Arizona, each may invest up to 35% of its
assets in municipal securities issued by U.S. territories, which includes
municipal issuers in Puerto Rico, Guam, Mariana Islands, and the U.S. Virgin
Islands.
QUALITY. Income Fund only buys municipal securities rated in the top
four ratings by U.S. nationally recognized rating services (or comparable
unrated securities). Insured Fund invests at least 65% of its total assets,
and normally more than that percentage, in insured municipal securities.
Insured municipal securities are covered by insurance policies that guarantee
the timely payment of principal and interest. Generally, the Insured Fund
buys insured municipal securities only if they are covered by policies issued
by AAA-rated municipal bond insurers. There are currently four municipal bond
insurers with a AAA rating. The Fund pays insurance premiums either directly
or indirectly, which increases the credit safety of its insured investments,
but decreases its yield (and does not guarantee the market value of a
security or Insured Fund's shares or distributions). Insured Fund may invest
the balance of its assets in the following types of securities: (i) uninsured
municipal securities secured by an escrow or trust account containing direct
U.S. government obligations; (ii) municipal securities rated in one of the
top three ratings by U.S. nationally recognized rating services (or
comparable unrated securities), which may include uninsured securities and
insured securities covered by policies issued by insurers with a rating below
AAA but not below A; or (iii) uninsured, short-term, tax-exempt securities
rated in the top rating, pending investment in longer-term municipal
securities. Insured Fund may only invest up to 20% of its total assets in the
type of securities described in (ii) above.
INSURANCE Although Income Fund may invest in insured municipal
securities, it does not have any requirement to invest a specified percentage
of its assets in these securities. Insured Fund invests primarily in insured
municipal securities. Normally, the underlying rating of an insured security
is one of the top three ratings of Fitch, Moody's or S&P. An insurer may
insure municipal securities that are rated below the top three ratings or
that are unrated if the securities otherwise meet the insurer's quality
standards.
DIVERSIFICATION. Unlike Insured Fund, Income Fund is a diversified
fund under the 1940 Act. As a diversified fund, the Income Fund will not buy
a security if, with respect to 75% of its net assets, more than 5% would be
in the securities of any single issuer (with the exception of obligations of
the U.S. government) or if it would result in the Fund owning more than 10%
of the voting securities of a single issuer. Income Fund, however, is not
prohibited from investing the remaining 25% of its net assets in the
securities of a single issuer. For this purpose, each political subdivision,
agency, or instrumentality, each multi-state agency of which a state is a
member, and each public authority that issues private activity bonds on
behalf of a private entity, is considered a separate issuer. Although Insured
Fund may invest a greater portion of its assets in the securities of a single
issuer than a diversified fund, it does intend to meet the diversification
requirements of the Internal Revenue Code ("Code"). Those diversification
requirements are similar to the diversification requirements of the 1940 Act,
except that the limitations only apply to 50% (not 75%) of total assets. As
to the remaining 50% of its assets, a fund complying with the Code's
diversification requirements may buy as few as two separate securities each
representing 25% of its Net Asset Value. 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. Economic, business, political or other changes can affect
all securities of a similar type. A non-diversified fund, such as Insured
Fund, may be more sensitive to these changes.
HOW DO THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS DIFFER?
Policies or restrictions that are deemed fundamental may not be changed
without the approval of the lesser of (i) a majority of the outstanding
shares of the Fund, or (ii) 67% or more of the shares represented at a
meeting of shareholders at which the holders of more than 50% of the
outstanding shares are represented ("Majority Vote").
In addition to the different restrictions that the Funds have adopted with
respect to diversification that were described in the previous section, the
Funds have adopted two different restrictions as fundamental policies, which
may not be changed without the approval of a Majority Vote.
Insured Fund may purchase shares of money market funds managed by Advisers
or its affiliates to the extent permitted by exemption granted under the 1940
Act, which allows the Fund to invest in shares of one or more investment
companies of the type generally referred to as money market funds, managed by
Advisers or its affiliates. Income Fund may also purchase securities of money
market funds managed by Advisers or its affiliates, but such purchases are
subject to several conditions. Income Fund's purchases and redemptions of
money market fund shares may not be subject to any purchase or redemption
fees, its investments may not be subject to duplication of management fees,
nor to any charge related to the expense of distributing the Fund's shares
and the aggregate investments by the Fund in any money market fund may not
exceed (A) the greater of (i) 5% of the Fund's total net assets or (ii) $2.5
million, or (B) more than 3% of the outstanding shares of any such money
market fund.
Insured Fund may not purchase securities, in private placements or in
other transactions, for which there are legal or contractual restrictions on
resale.
WHAT ARE THE RISK FACTORS ASSOCIATED WITH INVESTMENTS IN THE FUNDS?
Like all investments, an investment in both Funds involves risk. There is
no assurance that the Funds will meet their investment goals. The achievement
of the Funds' goals depends upon market conditions, generally, and on the
investment managers' analytical and portfolio management skills. The risks of
the Funds 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 the
securities of a single state.
The Funds share the following risks:
INCOME RISK. Since each Fund can only distribute what it earns, a Fund's
distributions to shareholders may decline when interest rates fall.
CREDIT RISK. An issuer of municipal securities may be unable to make
interest payments and repay principal. Changes in an issuer's financial
strength or in a security's credit rating may affect a security's value and,
thus, impact Fund performance.
Many of each Fund's portfolio securities are supported by credit
enhancements, which may be provided by either U.S. or foreign entities. These
securities 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 entity to meet its obligations. A change
in the credit rating of any one or more of the municipal bond insurers that
insure securities in either Fund's portfolio may affect the value of the
securities they insure, the Fund's share price and Fund performance. A Fund
might also be adversely affected by the inability of an insurer to meet its
insurance obligations.
INTEREST RATE RISK. When interest rates rise, municipal security prices
fall. The opposite is also true: municipal security prices rise when interest
rates fall. In general, securities with longer maturities are more sensitive
to these price changes.
CALL RISK. A municipal security may be prepaid (called) before maturity.
Securities are more likely to be called when interest rates are falling,
because the issuer can issue new securities with lower interest payments. If
a security is called, a Fund may have to replace it with a lower-yielding
security. At any time, each Fund may have a large amount of its assets
invested in municipal securities subject to call risk. A call of some or all
of these securities may lower that Fund's income and yield and its
distributions to shareholders.
MARKET RISK. Market activity or the results of supply and demand may
reduce a security's value. 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 rise.
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. A change that
affects one project, such as proposed legislation on the financing of the
project, a shortage of the materials needed for the project, or a declining
need for the project, would likely affect all similar projects, thereby
increasing market risk.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS RISK. Municipal securities
may be issued on a when-issued or delayed delivery basis, where payment and
delivery 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 RISK. Insured Fund is a non-diversified fund. It may
invest a greater portion of its assets in the municipal securities of one
issuer than a diversified fund. Insured Fund may be more sensitive to
economic, business, political or other changes affecting similar issuers or
securities, which may result in greater fluctuation in the value of their
shares. Insured Fund, however, intends to meet certain tax diversification
requirements. Income Fund is a diversified fund.
STATE RISK. Since both Funds invest predominately in municipal securities
of Arizona, events in that state are likely to affect each Fund's investments
and its performance. These events may include economic or political policy
changes, tax base erosion, state constitutional limits on tax increases,
budget deficits and other financial difficulties, and changes in the credit
ratings assigned to the state's municipal issuers. Therefore, both Funds
involve more risk than an investment in a fund that does not focus on
securities of a single state.
A negative change in any one of these or other areas could affect the
ability of Arizona'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
Arizona, please see the "Risks" section in each Fund's current SAI.
U.S. TERRITORIES RISK. Each Fund may invest up to 35% of its assets in
municipal securities issued by U.S. territories. As with state municipal
securities, events in any of these territories where a Fund is invested may
affect the Fund's investments and its performance.
VOTING INFORMATION
HOW MANY VOTES ARE NECESSARY TO APPROVE THE PLAN?
The affirmative vote of a majority of the total number of shares of
Insured Fund outstanding and entitled to vote is necessary to approve the
Plan. Each shareholder will be entitled to one vote for each full share, and
a fractional vote for each fractional share of Insured Fund held at the close
of business on December 27, 2000 (the "Record Date"). If sufficient votes to
approve the Plan are not received by the date of the Meeting, the Meeting may
be adjourned to permit further solicitations of proxies.
Under relevant state law and the Insured Fund's governing documents,
abstentions and broker non-votes will be included for purposes of determining
whether a quorum is present at the Meeting, but will be treated as votes not
cast and, therefore, will not be counted for purposes of determining whether
the matters to be voted upon at the Meeting have been approved, and will have
the same effect as a vote against the Plan.
HOW DO I ENSURE MY VOTE IS ACCURATELY RECORDED?
You can vote in any one of four ways:
o By mail, with the enclosed proxy card.
o In person at the Meeting.
o By telephone or through the Internet; a control number is provided
on your proxy card and separate instructions are enclosed.
A proxy card is, in essence, a ballot. If you simply sign and date the
proxy but give no voting instructions, your shares will be voted in favor of
the Plan and in accordance with the views of management upon any unexpected
matters that come before the Meeting or adjournment of the Meeting.
CAN I REVOKE MY PROXY?
You may revoke your proxy at any time before it is voted by sending a
written notice to Insured Fund expressly revoking your proxy, by signing and
forwarding to Insured Fund a later-dated proxy, or by attending the Meeting
and voting in person.
WHAT OTHER MATTERS WILL BE VOTED UPON AT THE MEETING?
The Board of Trustees of the Trust on behalf of Insured Fund does not
intend to bring any matters before the Meeting other than those described in
this proxy. It is not aware of any other matters to be brought before the
Meeting by others. If any other matter legally comes before the Meeting,
proxies for which discretion has been granted will be voted in accordance
with the views of management.
WHO IS ENTITLED TO VOTE?
Shareholders of record of Insured Fund on the Record Date will be entitled
to vote at the Meeting. On the Record Date, there were [ ]
outstanding shares of Insured Fund.
WHAT OTHER SOLICITATIONS WILL BE MADE?
Insured Fund will request broker-dealer firms, custodians, nominees, and
fiduciaries to forward proxy material to the beneficial owners of the shares
of record. Insured Fund may reimburse broker-dealer firms, custodians,
nominees, and fiduciaries for their reasonable expenses incurred in
connection with such proxy solicitation. In addition to solicitations by
mail, officers and employees of Insured Fund without extra pay, may conduct
additional solicitations by telephone, personal interviews, and other means.
Insured Fund has engaged Shareholder Communications Corporation to solicit
proxies from brokers, banks, other institutional holders, and individual
shareholders for a fee, including out-of-pocket expenses ranging between
$6,312 and $7,257. The costs of any such additional solicitation and of any
adjourned session will be shared one-quarter by Insured Fund, one-quarter by
Income Fund, and one-half by Advisers.
ARE THERE DISSENTERS' RIGHTS?
Shareholders of Insured Fund will not be entitled to any "dissenters'
rights" since the proposed Transaction involves two open-end investment
companies registered under the 1940 Act (commonly called mutual funds).
Although no dissenters' rights may be available, you have the right to redeem
your shares at Net Asset Value until the closing date. After the closing
date, you may redeem your Income Fund shares or exchange them for shares of
certain other funds in the Franklin Templeton Funds, subject to the terms in
the prospectus of the respective fund.
INFORMATION ABOUT INCOME FUND
Information about Income Fund is included in the Income Fund Prospectus,
which is attached to and considered a part of this Prospectus/Proxy
Statement. Additional information about Income Fund is included in its SAI
dated July 1, 2000, which is incorporated into the Prospectus and considered
a part of this Prospectus/Proxy Statement. The Income Fund's Annual Report to
Shareholders for the fiscal year ended February 29, 2000, is attached to and
considered a part of this Prospectus/Proxy Statement. You may request a free
copy of the Semiannual Report to Shareholders for the six month period ended
August 31, 2000, the SAI and other information by calling 1-800/DIAL-BEN(R) or
by writing to the Income Fund at P.O. Box 997151, Sacramento, CA 95899-9983.
Income Fund files proxy materials, reports and other information with the
SEC in accordance with the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act. These materials can be inspected and
copied at: the SEC's Public Reference Room at 450 Fifth Street NW,
Washington, DC 20549. Also, copies of such material can be obtained from the
SEC's Public Reference Section, Washington, DC 20549-6009, at prescribed
rates, or from the SEC's Internet address at http://www.sec.gov.
INFORMATION ABOUT INSURED FUND
Information about Insured Fund is included in the current Insured Fund
Prospectus, as well as Insured Fund's SAI dated July 1, 2000, and in the
Trust's Annual Report to Shareholders dated February 29, 2000 and Semiannual
Report dated August 31, 2000. These documents have been filed with the SEC.
You may request free copies of these documents and other information relating
to Insured Fund by calling 1-800/DIAL BEN(R) or by writing to Insured Fund at
P.O. Box 997151, Sacramento, CA 95899-9983. Reports and other information
filed by the Insured Fund can be inspected and copied at: the SEC's Public
Reference Room at 450 Fifth Street NW, Washington, DC 20549. Also, copies of
such material can be obtained from the SEC's Public Reference Section,
Washington, DC 20549-6009, at prescribed rates, or from the SEC's Internet
address at http://www.sec.gov.
PRINCIPAL HOLDERS OF SHARES
As of the Record Date, the officers and trustees of Insured Fund, as a
group, owned less than 1% of the outstanding voting shares of Insured Fund.
In addition, as of the Record Date, the officers and trustees of Income Fund,
as a group, owned less than 1% of the outstanding voting shares of Class A of
Income Fund. From time to time, the number of Fund shares held in the
"street name" accounts of various securities dealers for the benefit of their
clients or in centralized securities depositories may exceed 5% of the total
shares outstanding. Except as listed below, as of the Record Date, no other
person owned (beneficially or of record) 5% or more of the outstanding
shares of any class of Income Fund or Insured Fund.
Name and Address Percentage (%)
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GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., 777 Mariners Island Blvd., San Mateo, CA
94404, the investment manager for both Funds
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply
if you sell your Class A shares within 12 months of purchase
DISTRIBUTORS - Franklin Templeton Distributors, Inc., 777 Mariners Island
Blvd., San Mateo, CA 94404, the principal underwriter for the Funds
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in Franklin
Templeton Investments except Franklin Templeton Variable Insurance Products
Trust and Templeton Capital Accumulator Fund, Inc.
FRANKLIN TEMPLETON INVESTMENTS - All registered investment companies and
other accounts managed by various subsidiaries of Franklin Resources, Inc., a
publicly owned holding company
FT SERVICES - Franklin Templeton Services, Inc., the Funds' administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., 777 Mariners
Island Blvd., San Mateo, CA 94404, the shareholder servicing and transfer
agent to the Funds
MOODY'S - Moody's Investors Services, 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.
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge, if
applicable. For each Fund, the maximum front-end sales charge is 4.25% for
Class A shares of Income Fund and for Class A shares of Insured Fund. We
calculate the offering price to two decimal places using standard rounding
criteria.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
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 Funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
S&P - Standard & Poor's(R) Ratings Group
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms
refer to the Funds and/or Investor Services, Distributors, or other wholly
owned subsidiaries of Resources.
EXHIBITS TO PROSPECTUS
AND PROXY STATEMENT
Exhibit
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A Plan of Reorganization by Franklin Tax-Free Trust on behalf of Franklin
Arizona Tax-Free Income Fund and Franklin Arizona Insured Tax-Free
Income Fund
B Prospectus of Arizona Tax-Free Income Fund - Class A, B & C dated
July 1, 2000 (enclosed)
C Annual Report to Shareholders of Franklin Tax-Free Trust dated February
29, 2000 (enclosed)
EXHIBIT A
PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION (the "Plan"), is made by Franklin Tax-Free
Trust, a business trust created under the laws of Massachusetts in September
1984 (the "Trust") as of this ___ day of ________, 2000, on behalf of two of
its series, Franklin Arizona Insured Tax-Free Income Fund ("Insured Fund")
and Franklin Arizona Tax-Free Income Fund ("Income Fund") (collectively, the
"Funds"), with a principal place of business at 777 Mariners Island Boulevard,
San Mateo, California 94404.
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by Income Fund of
substantially all of the property, assets and goodwill of Insured Fund in
exchange solely for shares of beneficial interest, no par value, of Income
Fund - Class A ("Income Fund Shares"); (ii) the distribution of Income Fund
Shares to the shareholders of Insured Fund according to their respective
interests; and (iii) the subsequent dissolution of Insured Fund as soon as
practicable after the closing (as defined in Section 3, hereinafter called
the "Closing"), all upon and subject to the terms and conditions of this Plan
hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in consideration of
the premises and of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto covenant and agree as
follows:
1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND DISSOLUTION OF INSURED FUND.
(a) Subject to the terms and conditions of this Plan, the Trust on
behalf of Insured Fund agrees that it will convey, transfer and deliver to
Income Fund at the Closing all of Insured Fund's then existing assets, free
and clear of all liens, encumbrances, and claims whatsoever (other than
shareholders' rights of redemption), except for cash, bank deposits, or cash
equivalent securities in an estimated amount necessary to (i) pay the costs
and expenses of carrying out this Plan (including, but not limited to, fees
of counsel and accountants, and expenses of its liquidation and dissolution
contemplated hereunder), which costs and expenses shall be established on
Insured Fund's books as liability reserves; (ii) discharge its unpaid
liabilities on its books at the closing date (as defined in Section 3,
hereinafter called the "Closing Date"), including, but not limited to, its
income dividends and capital gains distributions, if any, payable for the
period prior to, and through, the Closing Date and excluding those
liabilities that would otherwise be discharged at a later date in the
ordinary course of business; and (iii) pay such contingent liabilities as the
Board of Trustees shall reasonably deem to exist against Insured Fund, if
any, at the Closing Date, for which contingent and other appropriate
liabilities reserves shall be established on Insured Fund's books
(hereinafter "Net Assets"). Insured Fund shall also retain any and all rights
that it may have over and against any person that may have accrued up to and
including the close of business on the Closing Date.
(b) Subject to the terms and conditions of this Plan, the Trust on behalf
of Insured Fund, shall at the Closing deliver to Income Fund the number of
Insured Fund shares ("Insured Fund Shares") herein contained, and in
consideration of such sale, conveyance, transfer, and delivery, Income Fund
agrees at the Closing to deliver to Insured Fund, the number of Income Fund
Shares determined by dividing the net asset value per share of Insured Fund
Shares by the net asset value per share of Income Fund Shares, and
multiplying the result thereof by the number of outstanding Insured Fund
Shares, as of 1:00 p.m. Pacific time on the Closing Date. All such values
shall be determined in the manner and as of the time set forth in Section 2
hereof.
(c) Immediately following the Closing, the Trust shall dissolve Insured
Fund and distribute pro rata to the shareholders of record of Insured Fund
Shares as of the close of business on the Closing Date, the Income Fund
Shares received by Insured Fund pursuant to this Section 1. Such liquidation
and distribution shall be accomplished by the establishment of accounts on
the share records of Insured Fund of the type and in the amounts due such
shareholders based on their respective holdings as of the close of business
on the Closing Date. Fractional Income Fund Shares shall be carried to the
third decimal place. As promptly as practicable after the Closing, each
holder of any outstanding certificate or certificates representing shares of
beneficial interest of Insured Fund shall be entitled to surrender the same
to the transfer agent for the Income Fund in exchange for the number of
Income Fund Shares into which Insured Fund Shares theretofore represented by
the certificate or certificates so surrendered shall have been converted.
Certificates for Income Fund Shares shall not be issued, unless specifically
requested by the shareholders. Until so surrendered, each outstanding
certificate which, prior to the Closing, represented shares of beneficial
interest of Insured Fund shall be deemed for all Income Fund's purposes to
evidence ownership of the number of Income Fund Shares into which the Insured
Fund Shares (which prior to the Closing were represented thereby) have been
converted.
2. VALUATION.
(a)The value of Insured Fund's Net Assets to be acquired by Income Fund
hereunder shall be computed as of 1:00 p.m. Pacific time on the Closing Date
using the valuation procedures set forth in Insured Fund's currently
effective prospectus.
(b)The net asset value of a share of beneficial interest of Insured Fund
Shares shall be determined as of 1:00 p.m. Pacific time on the Closing Date
using the valuation procedures set forth in Insured Fund's currently
effective prospectus.
(c)The net asset value of a share of beneficial interest of Income Fund
Shares shall be determined as of 1:00 p.m. Pacific time on the Closing Date
using the valuation procedures set forth in Income Fund's currently effective
prospectus.
3. CLOSING DATE.
The Closing Date shall be March 8, 2001, or such later date as determined
by the Trust's officers. The Closing shall take place at the principal office
of the Trust at 2:00 p.m. Pacific time, on the Closing Date. The Trust on
behalf of the Insured Fund shall have provided for delivery as of the Closing
those Net Assets of Insured Fund to be transferred to the account of Income
Fund at the Trust's Custodian, Bank of New York, Mutual Funds Division, 90
Washington Street, New York, New York 10286. Also, the Trust on behalf of
Insured Fund shall have prepared and have available at the Closing a list of
names and addresses of the shareholders of record of its Insured Fund Shares
and the number of shares of beneficial interest of Insured Fund Shares owned
by each such shareholder, indicating thereon which such shares are
represented by outstanding certificates and which by book-entry accounts, all
as of 1:00 p.m. Pacific time on the Closing Date, certified by its transfer
agent or by its President to the best of its or his knowledge and belief. The
Trust on behalf of Income Fund shall issue and deliver a certificate or
certificates evidencing the shares of beneficial interest of Income Fund to
be delivered to the account of Income Fund at said transfer agent registered
in such manner as the officers of the Trust on behalf of Insured Fund shall
deem appropriate, or shall have prepared satisfactory evidence that such
Income Fund Shares have been registered in an account on the books of Income
Fund in such manner as the officers of the Trust on behalf of Insured Fund
shall deem appropriate.
4. REPRESENTATIONS AND WARRANTIES BY THE TRUST ON BEHALF OF INCOME FUND.
--------------------------------------------------------------------
The Trust makes the following representations and warranties about Income
Fund:
(a) Income Fund is a series of the Trust, a business trust created under
the laws of the Commonwealth of Massachusetts on September 18, 1984 and
validly existing under the laws of that commonwealth. The Trust is duly
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, management investment company and all of the Trust's
Income Fund Shares sold were sold pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the "1933
Act"), except for those shares sold pursuant to the private offering exemption
for the purpose of raising the required initial capital.
(b) The Trust is authorized to issue an unlimited number of shares of
beneficial interest of Income Fund Shares, no par value, each outstanding
share of which is fully paid, non-assessable, freely transferable and has
full voting rights. Income Fund is further divided into three classes of
shares of which Income Fund Shares is one, and an unlimited number of shares
of beneficial interest have been allocated and designated to Income Fund
Shares.
(c) The financial statements appearing in the Trust's Annual Report to
Shareholders for the fiscal year ended February 29, 2000, audited by
PricewaterhouseCoopers LLP, and the Semiannual Report to Shareholders for the
six month period ended August 31, 2000, fairly present the financial position
of Income Fund as of such dates and the results of its operations for the
periods indicated in conformity with generally accepted accounting principles
applied on a consistent basis.
(d) The books and records of Income Fund accurately summarize the
accounting data represented and contain no material omissions with respect to
the business and operations of Income Fund.
(e) The Trust has the necessary power and authority to conduct its business
as such business is now being conducted.
(f) The Trust on behalf of Income Fund is not a party to or obligated under
any provision of its Amended and Restated Agreement and Declaration of Trust
("Agreement and Declaration of Trust"), By-laws, as amended ("By-laws"), or
any contract or any other commitment or obligation, and is not subject to any
order or decree that would be violated by its execution of or performance
under this Plan.
(g) The Trust has elected to treat Income Fund as a regulated investment
company ("RIC") for federal income tax purposes under Part I of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), Income Fund
has qualified as a RIC for each taxable year since its inception and will
qualify as a RIC as of the Closing Date, and consummation of the transactions
contemplated by the Plan will not cause it to fail to be qualified as a RIC
as of the Closing Date.
(h) Income Fund is not under jurisdiction of a Court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(i) Income Fund does not have any unamortized or unpaid organization
fees or expenses.
5. REPRESENTATIONS AND WARRANTIES BY THE TRUST ON BEHALF OF INSURED FUND.
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The Trust makes the following representations and warranties about Insured
Fund:
(a) Insured Fund is a series of the Trust, a business trust created under
the laws of the Commonwealth of Massachusetts on September 18, 1984 and
validly existing under the laws of that commonwealth. The Trust is duly
registered under the 1940 Act as an open-end, management investment company
and all of the Trust's Insured Fund Shares sold were sold pursuant to an
effective registration statement filed under the 1933 Act, except for those
shares sold pursuant to the private offering exemption for the purpose of
raising the required initial capital.
(b) The Trust is authorized to issue an unlimited number of shares of
beneficial interest of Insured Fund, no par value, each outstanding share of
which is fully paid, non-assessable, freely transferable, and has full voting
rights. One class of shares of Insured Fund has been designated as the
Insured Fund-Class A Shares, and an unlimited number of shares of beneficial
interest of the Trust have been allocated to Insured Fund Shares.
(c) The financial statements appearing in the Trust's Annual Report to
Shareholders for the fiscal year ended February 29, 2000, audited by
PricewaterhouseCoopers LLP, and the Semiannual Report to Shareholders for the
six month period ended October 31, 2000, fairly present the financial
position of Insured Fund as of such date and the results of its operations
for the periods indicated in conformity with generally accepted accounting
principles applied on a consistent basis.
(d) The Trust has the necessary power and authority to conduct Insured
Fund's business as such business is now being conducted.
(e) The Trust on behalf of Insured Fund is not a party to or obligated
under any provision of the Trust's Agreement and Declaration of Trust or
By-laws, or any contract or any other commitment or obligation, and is not
subject to any order or decree that would be violated by its execution of or
performance under this Plan.
(f) The Trust has elected to treat Insured Fund as a RIC for federal income
tax purposes under Part I of Subchapter M of the Code, Insured Fund has
qualified as a RIC for each taxable year since its inception and will qualify
as a RIC as of the Closing Date, and consummation of the transactions
contemplated by the Plan will not cause it to fail to be qualified as a RIC
as of the Closing Date.
(g) Insured Fund is not under jurisdiction of a Court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(h) Insured Fund does not have any unamortized or unpaid organization
fees or expenses.
6. REPRESENTATIONS AND WARRANTIES BY THE TRUST ON BEHALF OF THE FUNDS.
------------------------------------------------------------------
The Trust makes the following representations and warranties about both
Insured Fund and Income Fund:
(a) The Trust will create a statement of assets and liabilities for each of
the Funds which will be prepared as of 1:00 p.m. Pacific time on the Closing
Date for the purpose of determining the number of Income Fund Shares to be
issued pursuant to Section 1 of this Plan, will accurately reflect its Net
Assets in the case of Insured Fund and its Net Assets in the case of Income
Fund, and outstanding shares of beneficial interest, as of such date, in
conformity with generally accepted accounting principles applied on a
consistent basis.
(b) At the Closing, the Funds will have good and marketable title to all of
the securities and other assets shown on the statement of assets and
liabilities referred to in "(a)" above, free and clear of all liens or
encumbrances of any nature whatsoever, except such imperfections of title or
encumbrances as do not materially detract from the value or use of the assets
subject thereto, or materially affect title thereto.
(c) Except as disclosed in the Trust's currently effective prospectuses
relating to the Funds, there is no material suit, judicial action, or legal
or administrative proceeding pending or threatened against either of the
Funds.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by either of the Funds.
(e) The execution, delivery, and performance of this Plan have been
duly authorized by all necessary action of the Trust's Board of Trustees, and
this Plan constitutes a valid and binding obligation enforceable in
accordance with its terms.
(f) It is anticipated that consummation of this Plan will not cause either
of the Funds to fail to conform to the requirements of Subchapter M of the
Code for federal income taxation as a RIC at the end of its fiscal year.
(g) The Trust has the necessary power and authority to conduct the
business of the Funds, as such business is now being conducted.
7. INTENTIONS OF THE TRUST ON BEHALF OF THE FUNDS.
----------------------------------------------
(a) The Trust intends to operate each Fund's respective business, as
presently conducted between the date hereof and the Closing.
(b) The Trust intends that the Insured Fund will not acquire the Income
Fund Shares for the purpose of making distributions thereof to anyone other
than Insured Fund's shareholders.
(c) The Trust on behalf of Insured Fund intends, if this Plan is
consummated, to liquidate and dissolve Insured Fund.
(d) The Trust intends that, by the Closing, all of the Funds' Federal
and other tax returns and reports required by law to be filed on or before
such date shall have been filed, and all Federal and other taxes shown as due
on said returns shall have either been paid or adequate liability reserves
shall have been provided for the payment of such taxes.
(e) At the Closing, the Trust on behalf of Insured Fund intends to have
available a copy of the shareholder ledger accounts, certified by the Trust's
transfer agent or its President to the best of its or his knowledge and
belief, for all the shareholders of record of Insured Fund Shares as of
1:00 p.m. Pacific time on the Closing Date who are to become shareholders of
Income Fund as a result of the transfer of assets that is the subject of
this Plan.
(f) The Trust intends to mail to each shareholder of record of Insured Fund
entitled to vote at the meeting of its shareholders at which action on this
Plan is to be considered, in sufficient time to comply with requirements as
to notice thereof, a combined Prospectus and Proxy Statement that complies in
all material respects with the applicable provisions of Section 14(a) of the
Securities Exchange Act of 1934, as amended, and Section 20(a) of the 1940
Act, and the rules and regulations, respectively, thereunder.
(g) The Trust intends to file with the U.S. Securities and Exchange
Commission a registration statement on Form N-14 under the 1933 Act relating
to Income Fund Shares issuable hereunder ("Registration Statement"), and will
use its best efforts to provide that the Registration Statement becomes
effective as promptly as practicable. At the time it becomes effective, the
Registration Statement will: (i) comply in all material respects with the
applicable provisions of the 1933 Act, and the rules and regulations
promulgated thereunder; and (ii) not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. At the time the
Registration Statement becomes effective, at the time of Insured Fund's
shareholders' meeting, and at the Closing Date, the prospectus and statement
of additional information included in the Registration Statement will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY THE TRUST ON BEHALF OF THE FUNDS.
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The consummation of this Plan hereunder shall be subject to the following
respective conditions:
(a) That: (i) all the representations and warranties contained herein
shall be true and correct as of the Closing with the same effect as though
made as of and at such date; (ii) the performance of all obligations required
by this Plan to be performed by the Trust on behalf of the Funds shall occur
prior to the Closing; and (iii) the Trust shall execute a certificate signed
by the President and by the Secretary or equivalent officer to the foregoing
effect.
(b) That this Plan shall have been adopted and approved by the appropriate
action of the Board of Trustees of the Trust on behalf of each of the Funds.
(c) That the U.S. Securities and Exchange Commission shall not have issued
an unfavorable management report under Section 25(b) of the 1940 Act or
instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Plan under Section 25(c) of the 1940 Act. And, further,
no other legal, administrative or other proceeding shall have been instituted
or threatened that would materially affect the financial condition of Insured
Fund or Income Fund or would prohibit the transactions contemplated hereby.
(d) That the Plan of Reorganization contemplated hereby shall have been
adopted and approved by the appropriate action of the shareholders of Insured
Fund at an annual or special meeting or any adjournment thereof.
(e) That a distribution or distributions shall have been declared for
Insured Fund, prior to the Closing Date that, together with all previous
distributions, shall have the effect of distributing to its shareholders
(i) all of its ordinary income and all of its capital gain net income, if any,
for the period from the close of its last fiscal year to 1:00 p.m. Pacific
time on the Closing Date; and (ii) any undistributed ordinary income and
capital gain net income from any period to the extent not otherwise declared
for distribution. Capital gain net income has the meaning given such term by
Section 1222(a) of the Code.
(f) That there shall be delivered to the Trust on behalf of Insured
Fund and Income Fund an opinion from Messrs. Stradley, Ronon, Stevens &
Young, LLP, counsel to the Trust, to the effect that, provided the
acquisition contemplated hereby is carried out in accordance with this Plan
and based upon certificates of the officers of the Trust with regard to
matters of fact:
(1) The acquisition by Income Fund of substantially all the assets
of Insured Fund in exchange for Income Fund Shares followed by the
distribution by Insured Fund to its shareholders of Income Fund Shares
in complete liquidation of Insured Fund will qualify as a reorganization
within the meaning of Section 368(a)(1) of the Code, and Insured Fund
and Income Fund will each be a "party to the reorganization" within the
meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Insured Fund upon the
transfer of substantially all of its assets to Income Fund in exchange
solely for voting shares of Income Fund (Code Sections 361(a) and
357(a));
(3) No gain or loss will be recognized by Income Fund upon the
receipt of substantially all of the assets of Insured Fund in exchange
solely for voting shares of Income Fund (Section 1032(a) of the Code);
(4) No gain or loss will be recognized by Insured Fund upon the
distribution of Income Fund Shares to its shareholders in liquidation of
Insured Fund (Section 361(c)(1) of the Code);
(5) The basis of the assets of Insured Fund received by Income
Fund will be the same as the basis of such assets to Insured Fund
immediately prior to the reorganization (Section 362(b) of the Code);
(6) The holding period of the assets of Insured Fund received by
Income Fund will include the period during which such assets were held
by Insured Fund (Section 1223(2) of the Code);
(7) No gain or loss will be recognized to the shareholders of
Insured Fund Shares upon the exchange of their shares in Insured Fund
for voting shares of Income Fund including fractional shares to which
they may be entitled (Section 354(a) of the Code);
(8) The basis of the Income Fund Shares received by Insured Fund
Shares' shareholders shall be the same as the basis of Insured Fund
Shares exchanged therefor (Section 358(a)(1) of the Code);
(9) The holding period of Income Fund Shares received by
shareholders of Insured Fund Shares (including fractional shares to
which they may be entitled) will include the holding period of Insured
Fund Shares surrendered in exchange therefor, provided that Insured Fund
Shares were held as a capital asset on the date of the exchange (Section
1223(1) of the Code); and
(10) Income Fund will succeed to and take into account as of the
date of the transfer (as defined in Section 1.381(b)-1(b) of the Income
Tax Regulations) the items of Insured Fund described in Section 381(c)
of the Code, subject to the conditions and limitations specified in
Sections 381, 382, 383 and 384 of the Code and the Income Tax
Regulations thereunder.
(g) That there shall be delivered to the Trust on behalf of Income Fund
an opinion in form and substance satisfactory to it from Messrs. Stradley,
Ronon, Stevens & Young, LLP, counsel to the Trust with respect to Insured
Fund, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
and other laws now or hereafter affecting generally the enforcement of
creditors' rights:
(1) Insured Fund is a series of the Trust, a business trust
organized under the laws of the Commonwealth of Massachusetts on
September 18, 1984 and is validly existing business trust and in good
standing under the laws of that commonwealth;
(2) The Trust is authorized to issue an unlimited number of shares
of beneficial interest, no par value, of Insured Fund. One class of
shares of Insured Fund has been designated as the Insured Fund - Class A
Shares, and an unlimited number of shares of beneficial interest of the
Trust have been allocated to Insured Fund Shares. Assuming that the
initial shares of beneficial interest of Insured Fund were issued in
accordance with the 1940 Act and the Agreement and Declaration of Trust
and By-laws of the Trust, and that all other outstanding shares of
Insured Fund were sold, issued and paid for in accordance with the terms
of Insured Fund's prospectus in effect at the time of such sales, each
such outstanding share is fully paid, non-assessable, freely
transferable and has full voting rights;
(3) Insured Fund is a diversified series of the Trust, an open-end
investment company of the management type registered as such under the
1940 Act;
(4) Except as disclosed in Insured Fund's currently effective
prospectus, such counsel does not know of any material suit, action, or
legal or administrative proceeding pending or threatened against Insured
Fund, the unfavorable outcome of which would materially and adversely
affect Insured Fund;
(5) All actions required to be taken by the Trust on behalf of
Insured Fund to authorize this Plan and to effect the Plan of
Reorganization contemplated hereby have been duly authorized by all
necessary action on the part of the Trust on behalf of Insured Fund; and
(6) Neither the execution, delivery, nor performance of this Plan
by the Trust on behalf of Insured Fund violates any provision of its
Agreement and Declaration of Trust or By-laws, or the provisions of any
agreement or other instrument known to such counsel to which the Trust
is a party or by which the Trust is otherwise bound; this Plan is the
legal, valid and binding obligation of the Trust on behalf of Insured
Fund and is enforceable against the Trust on behalf of Insured Fund in
accordance with its terms.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of the Trust with regard to
matters of fact, and certain certifications and written statements of
governmental officials with respect to the good standing of the Trust.
(h)That there shall be delivered to the Trust on behalf of the Insured
Fund an opinion in form and substance satisfactory to it from Messrs.
Stradley, Ronon, Stevens & Young, LLP, counsel to the Trust with respect to
Income Fund, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws now or hereafter affecting generally the enforcement of creditors'
rights:
(1) Income Fund is a series of the Trust, a business trust
organized under the laws of the Commonwealth of Massachusetts on
September 18, 1984 and is a validly existing business trust and in good
standing under the laws of that commonwealth;
(2) The Trust is authorized to issue an unlimited number of shares
of beneficial interest, no par value, of Income Fund. Income Fund is
further divided into three classes of shares of which Income Fund Shares
is one, and an unlimited number of shares of beneficial interest, no par
value, have been allocated and designated to Income Fund Shares.
Assuming that the initial shares of beneficial interest of Income Fund
were issued in accordance with the 1940 Act, and the Agreement and
Declaration of Trust and By-laws of the Trust, and that all other
outstanding shares of Income Fund were sold, issued and paid for in
accordance with the terms of Income Fund's prospectus in effect at the
time of such sales, each such outstanding share of Income Fund is fully
paid, non-assessable, freely transferable and has full voting rights;
(3) Income Fund is a diversified series of the Trust, an open-end
investment company of the management type registered as such under the
1940 Act;
(4) Except as disclosed in Income Fund's currently effective
prospectus, such counsel does not know of any material suit, action, or
legal or administrative proceeding pending or threatened against Income
Fund, the unfavorable outcome of which would materially and adversely
affect Income Fund;
(5) Income Fund Shares to be issued pursuant to the terms of this
Plan have been duly authorized and, when issued and delivered as
provided in this Plan, will have been validly issued and fully paid and
will be non-assessable by the Trust on behalf of Income Fund;
(6) All actions required to be taken by the Trust on behalf of
Income Fund to authorize this Plan and to effect the Plan of
Reorganization contemplated hereby have been duly authorized by all
necessary action on the part of the Trust on behalf of Income Fund;
(7) Neither the execution, delivery, nor performance of this Plan
by the Trust on behalf of Income Fund violates any provision of its
Agreement and Declaration of Trust or By-laws, or the provisions of any
agreement or other instrument known to such counsel to which the Trust
is a party or by which the Trust is otherwise bound; this Plan is the
legal, valid and binding obligation of the Trust on behalf of Income
Fund and is enforceable against the Trust on behalf of Income Fund in
accordance with its terms; and
(8) The registration statement of the Trust, of which the
prospectus dated July 1, 2000 of Income Fund is a part (the
"Prospectus") is, at the time of the signing of this Plan, effective
under the 1933 Act, and, to the best knowledge of such counsel, no stop
order suspending the effectiveness of such registration statement has
been issued, and no proceedings for such purpose have been instituted or
are pending before or threatened by the U.S. Securities and Exchange
Commission under the 1933 Act, and nothing has come to counsel's
attention that causes it to believe that, at the time the Prospectus
became effective, or at the time of the signing of this Plan, or at the
Closing, such Prospectus (except for the financial statements and other
financial and statistical data included therein, as to which counsel
need not express an opinion), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
such counsel knows of no legal or government proceedings required to be
described in the Prospectus, or of any contract or document of a
character required to be described in the Prospectus that is not
described as required.
In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of the Trust with regard to matters
of fact, and certain certifications and written statements of governmental
officials with respect to the good standing of the Trust.
(i)That the Trust's Registration Statement with respect to the Income Fund
Shares to be delivered to Insured Fund Shares' shareholders in accordance
with this Plan shall have become effective, and no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto, shall have been issued prior to the Closing Date or shall be in
effect at Closing, and no proceedings for the issuance of such an order shall
be pending or threatened on that date.
(j)That Income Fund Shares to be delivered hereunder shall be eligible for
sale with each state commission or agency with which such eligibility is
required in order to permit Income Fund Shares lawfully to be delivered to
each holder of Insured Fund Shares.
(k)That, at the Closing, there shall be transferred to Income Fund,
aggregate Net Assets of Insured Fund comprising at least 90% in fair market
value of the total net assets and 70% of the fair market value of the total
gross assets recorded on the books of Insured Fund on the Closing Date.
(l) That there be delivered to the Trust on behalf of the Income Fund
information concerning the tax basis of the Insured Fund in all securities
transferred to the Income Fund, together with shareholder information
including the names, addresses, and taxpayer identification numbers of the
shareholders of the Insured Fund as of the date of the Closing, the number of
shares held by each shareholder, the dividend reinvestment elections
applicable to each shareholder, and the backup withholding and nonresident
alien withholding certifications, notices or records on file with Insured
Fund respect to each shareholder.
9. BROKERAGE FEES AND EXPENSES.
(a) The Trust represents and warrants that there are no broker or finders'
fees payable by it in connection with the transactions provided for herein.
(b) The expenses of entering into and carrying out the provisions of this
Plan shall be borne one-quarter by Income Fund, one-quarter by Insured Fund,
and one-half by Franklin Advisers, Inc.
10.TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in this Plan to the contrary notwithstanding, this
Plan may be terminated and the Plan of Reorganization abandoned at any time
(whether before or after approval thereof by the shareholders of Insured
Fund) prior to the Closing or the Closing may be postponed by the Trust on
behalf of either party by resolution of the Board of Trustees, if
circumstances develop that, in the opinion of the Board, make proceeding with
the Plan inadvisable.
(b) If the transactions contemplated by this Plan have not been consummated
by August 31, 2001, the Plan shall automatically terminate on that date,
unless a later date is established.
(c) In the event of termination of this Plan pursuant to the provisions
hereof, the same shall become void and have no further effect, and neither
the Trust, Insured Fund nor Income Fund, nor the Trust's trustees, officers,
or agents or the shareholders of either Insured Fund or Income Fund shall
have any liability in respect of this Plan.
(d) At any time prior to the Closing, any of the terms or conditions of
this Plan may be waived by the Board of Trustees on behalf of either of
Insured Fund or Income Fund if, in the judgment of such Board of Trustees,
such action or waiver will not have a material adverse effect on the benefits
intended under this Plan to the shareholders of either Insured Fund or Income
Fund, on behalf of whom such action is taken.
(e) The respective representations and warranties contained in Sections 4
to 6 hereof shall expire with and be terminated by the Plan of
Reorganization, and neither the Trust nor any of its officers, trustees,
agents or shareholders nor the Funds nor any of their shareholders shall have
any liability with respect to such representations or warranties after the
Closing. This provision shall not protect any officer, trustee, agent or
shareholder of either of the Funds or the Trust against any liability to the
entity for which that officer, trustee, agent or shareholder so acts or to
either of the Funds' shareholders to which that officer, trustee, agent or
shareholder would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties in the conduct
of such office.
(f) If any order or orders of the U.S. Securities and Exchange
Commission with respect to this Plan shall be issued prior to the Closing and
shall impose any terms or conditions that are determined by action of the
Board of Trustees of the Trust on behalf of Insured Fund or Income Fund to be
acceptable, such terms and conditions shall be binding as if a part of this
Plan without further vote or approval of the shareholders of Insured Fund,
unless such terms and conditions shall result in a change in the method of
computing the number of Income Fund Shares to be issued to Insured Fund in
which event, unless such terms and conditions shall have been included in the
proxy solicitation material furnished to the shareholders of Insured Fund
prior to the meeting at which the transactions contemplated by this Plan
shall have been approved, this Plan shall not be consummated and shall
terminate unless the Trust shall promptly call a special meeting of the
shareholders of Insured Fund at which such conditions so imposed shall be
submitted for approval.
11. ENTIRE AGREEMENT AND AMENDMENTS.
This Plan embodies the entire agreement between the parties and there are
no agreements, understandings, restrictions, or warranties relating to the
transactions contemplated by this Plan other than those set forth herein or
herein provided for. This Plan may be amended only by the Trust on behalf of
the Funds. Neither this Plan nor any interest herein may be assigned without
the prior written consent of the Trust on behalf of the Funds.
12. COUNTERPARTS.
This Plan may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts together shall
constitute but one instrument.
13. NOTICES.
Any notice, report, or demand required or permitted by any provision of
this Plan shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to the Trust at
777 Mariners Island Boulevard, San Mateo, California 94404, Attention:
Secretary.
14. GOVERNING LAW.
This Plan shall be governed by and carried out in accordance with the laws
of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Franklin Tax-Free Trust, on behalf of Franklin Arizona
Insured Tax-Free Income Fund and Franklin Arizona Tax-Free Income Fund , has
executed this Plan by its duly authorized officers, all as of the date and
year first-above written.
FRANKLIN TAX-FREE TRUST,
ON BEHALF OF
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
Attest:
_________________________ By:________________________________
Murray L. Simpson David P. Goss
Secretary Vice President
FRANKLIN TAX-FREE TRUST,
ON BEHALF OF
FRANKLIN ARIZONA TAX-FREE
INCOME FUND
Attest:
_________________________ By:________________________________
Murray L. Simpson David P. Goss
Secretary Vice President
EXHIBIT B
PROSPECTUS OF
FRANKLIN ARIZONA TAX-FREE INCOME FUND
DATED JULY 1, 2000
The prospectus of Franklin Arizona Tax-Free Income Fund dated July 1, 2000,
is part of this Prospectus/Proxy Statement and will be included in the proxy
mailing to all shareholders of record. For purposes of this EDGAR filing, the
prospectus of Franklin Arizona Tax-Free Income Fund dated July 1, 2000, is
incorporated by reference to the electronic filing made on June 28, 2000,
under File No. 2-94222.
EXHIBIT C
ANNUAL REPORT TO SHAREHOLDERS OF
FRANKLIN ARIZONA TAX-FREE INCOME FUND
DATED FEBRUARY 29, 2000
The Annual Report to shareholders of Franklin Arizona Tax-Free Income Fund
dated February 29, 2000, is part of this Prospectus/Proxy Statement and will
be included in the proxy mailing to all shareholders of record. For purposes
of this EDGAR filing, the Annual Report to shareholders of Franklin Arizona
Tax-Free Income Fund dated May 10, 2000, is incorporated by reference to the
electronic filing made on May 10, 2000, under File No. 2-94222.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PLEASE DETACH AT PERFORATION BEFORE MAILING.
-------------------------------------------------------------------------------
PROXY PROXY
SPECIAL SHAREHOLDERS' MEETING OF
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
FEBRUARY 21, 2001
The undersigned hereby revokes all previous proxies for his or her shares and
appoints Rupert H. Johnson, Jr., Harmon E. Burns, Murray L. Simpson, Barbara
J. Green, and David P. Goss, and each of them, proxies of the undersigned
with full power of substitution to vote all shares of Franklin Arizona
Insured Tax-Free Income Fund ("Insured Fund") that the undersigned is
entitled to vote at the Insured Fund's Meeting to be held at 777 Mariners
Island Boulevard, San Mateo, CA 94404 at 2:00 p.m. Pacific time on February
21, 2001, including any adjournments thereof, upon such business as may
properly be brought before the Meeting.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL
SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
VOTE VIA THE INTERNET:
WWW.FRANKLINTEMPLETON.COM
VOTE VIA THE TELEPHONE: 1-800-597-7836
CONTROL NUMBER:
Note: Please sign exactly as your name
appears on the proxy. If signing for
estates, trusts or corporations, your
title or capacity should be stated. If
shares are held jointly, each holder must
sign.
-----------------------------------
Signature
-----------------------------------
Signature
-----------------------------------
Date
(Please see reverse side)
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE DETACH AT PERFORATION BEFORE MAILING.
-------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE INSURED
FUND. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY
SHALL BE VOTED IN FAVOR OF PROPOSAL 1, REGARDING THE REORGANIZATION OF THE
INSURED FUND PURSUANT TO THE PLAN OF REORGANIZATION WITH FRANKLIN ARIZONA
TAX-FREE INCOME FUND. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING
ABOUT WHICH THE PROXYHOLDERS WERE NOT AWARE PRIOR TO THE TIME OF THE
SOLICITATION, AUTHORIZATION IS GIVEN TO THE PROXYHOLDERS TO VOTE IN
ACCORDANCE WITH THE VIEWS OF MANAGEMENT ON SUCH MATTERS. MANAGEMENT IS NOT
AWARE OF ANY SUCH MATTERS.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
PROPOSAL 1.
For Against Abstain
1. To approve a Plan of Reorganization between [ ] [ ] [ ]
Franklin Arizona Insured Tax-Free Income Fund
("Insured Fund") and Franklin Arizona Tax-Free
Income Fund ("Income Fund"), that provides for the
acquisition of substantially all of the assets of
Insured Fund by Income Fund in exchange for
Class A of Income Fund, the distribution of such
shares to the shareholders of Insured Fund,
and the dissolution of Insured Fund (the
"Reorganization").
GRANT WITHHOLD ABSTAIN
2. To grant the proxyholders the authority to vote upon [ ] [ ] [ ]
any other business which may legally come before the
Meeting or any adjournments thereof.
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
STATEMENT OF ADDITIONAL INFORMATION
FOR
FRANKLIN ARIZONA TAX-FREE INCOME FUND
DATED DECEMBER XX, 2000
Acquisition of
the Assets of
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND,
a series of Franklin Tax-Free Trust
By and in exchange for shares of the
FRANKLIN ARIZONA TAX-FREE INCOME FUND,
also a series of Franklin Tax-Free Trust
This Statement of Additional Information (SAI) relates specifically to
the proposed delivery of substantially all of the assets of Franklin Arizona
Insured Tax-Free Income Fund for Class A shares of Franklin Arizona Tax-Free
Income Fund.
This SAI consists of this Cover Page and the following documents. Each
of these documents is attached to and is legally considered to be a part of
this SAI:
1. Statement of Additional Information of Franklin Arizona Tax-Free
Income Fund dated July 1, 2000.
2. Annual Report of Franklin Arizona Tax-Free Income Fund for the
fiscal year ended February 29, 2000.
3. Semi-Annual Report of Franklin Arizona Tax-Free Income Fund for
the six months ended August 31, 2000.
4. Annual Report of Franklin Arizona Insured Tax-Free Income Fund
for the fiscal year ended February 29, 2000.
5. Semi-Annual Report of Franklin Arizona Insured Tax-Free Income
Fund for the six months ended August 31, 2000.
This SAI is not a Prospectus; you should read this SAI in conjunction
with the Prospectus/Proxy Statement dated December XX, 2000, relating to the
above-referenced transaction. You can request a copy of the Prospectus/Proxy
Statement by calling 1-800/DIAL BEN or by writing to Franklin Arizona
Tax-Free Income Fund, 777 Mariners Island Boulevard, P.O. Box 7777, San
Mateo, CA 94403-7777.
--------------------------------------------------------------
The Statement of Additional Information of Franklin Arizona Tax-Free Income
Fund dated July 1, 2000, is part of this SAI and will be provided to all
shareholders requesting this SAI. For purposes of this EDGAR filing, the
Statement of Additional Information of Franklin Arizona Tax-Free Income Fund
dated July 1, 2000, is incorporated by reference to the electronic filing
made on June 28, 2000, under File No. 2-94222.
The Annual Report to shareholders of Franklin Arizona Tax-Free Income Fund
dated February 29, 2000, is part of this SAI and will be provided to all
shareholders requesting this SAI. For purposes of this EDGAR filing, the
Annual Report to shareholders of Franklin Arizona Tax-Free Income Fund dated
February 29, 2000, is incorporated by reference to the electronic filing made
on May 10, 2000, under File No. 2-94222.
The Semi-Annual Report to shareholders of Franklin Arizona Tax-Free Income
Fund dated August 31, 2000, is part of this SAI and will be provided to all
shareholders requesting this SAI. For purposes of this EDGAR filing, the
Annual Report to shareholders of Franklin Arizona Tax-Free Income Fund dated
August 31, 2000, is incorporated by reference to the electronic filing made
on November 13, 2000, under File No. 2-94222.
The Annual Report to shareholders of Franklin Arizona Insured Tax-Free Income
Fund dated February 29, 2000, is part of this SAI and will be provided to all
shareholders requesting this SAI. For purposes of this EDGAR filing, the
Annual Report to shareholders of Franklin Arizona Insured Tax-Free Income
Fund dated February 29, 2000, is incorporated by reference to the electronic
filing made on May 10, 2000, under File No. 2-94222.
The Semi-Annual Report to shareholders of Franklin Arizona Insured Tax-Free
Income Fund dated August 31, 2000, is part of this SAI and will be provided
to all shareholders requesting this SAI. For purposes of this EDGAR filing,
the Semi-Annual Report to shareholders of Franklin Arizona Insured Tax-Free
Income Fund dated August 31, 2000, is incorporated by reference to the
electronic filing made on November 13, 2000, under File No. 2-94222.
FRANKLIN TAX-FREE TRUST
File No. 2-94222
FORM N-14
PART C
OTHER INFORMATION
Item 15. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 16. EXHIBITS The following exhibits are incorporated by reference to
the previously filed document indicated below, except Exhibits 9(f), 12(a)
and 14(a):
(1) Copies of the charter of the Registrant as now in effect;
(a) Restated Agreement and Declaration of Trust dated October 26,
1984
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(b) Certificate of Amendment of Agreement and Declaration of Trust
dated July 16, 1991
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(c) Certificate of Amendment of Agreement and Declaration of Trust
dated April 21, 1992
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(d) Certificate of Amendment of Agreement and Declaration of Trust
dated December 14, 1993
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(e) Certificate of Amendment of Agreement and Declaration of Trust
dated March 21, 1995
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(2) Copies of the existing by-laws or corresponding instruments of the
Registrant;
(a) By-Laws
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(b) Certificate of Amendment of By-Laws dated December 8, 1987
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(c) Amendment to By-Laws dated April 21, 1992
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(d) Certificate of Amendment of By-Laws dated December 14, 1993
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(e) Amendment to By-Laws dated January 18, 1994
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(3) Copies of any voting trust agreement affecting more than five
percent of any class of equity securities of the Registrant;
Not Applicable.
(4) Copies of the agreement of acquisition, reorganization, merger,
liquidation and any amendments to it;
(a) The Plan of Reorganization is included in this registration
statement as Exhibit A to the Prospectus/Proxy Statement
(5) Copies of all instruments defining the rights of holders of the
securities being registered including, where applicable, the
relevant portion of the articles of incorporation or by-laws of the
Registrant;
Not Applicable.
(6) Copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(a) Management Agreement between Registrant and Franklin Advisers,
Inc. dated December 1, 1986
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(b) Amendment to Management Agreement between Registrant and
Franklin Advisers, Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(c) Management Agreement between Registrant and Franklin Advisers
on behalf of Franklin Connecticut Tax-Free Income Fund dated
October 1, 1998
Filing: Post-Effective Amendment No. 28 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: January 28, 2000
(7) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of
all agreements between principal underwriters and dealers;
(a) Amended and Restated Distribution Agreement between Registrant and
Franklin/Templeton Distributors, Inc. dated March 29, 1995
Filing: Post-Effective Amendment No. 22 to Registration Statement
on Form N-1A
File No. 2-94222 Filing Date: March 14, 1996
(b) Form of Dealer Agreements effective as of March 1, 1998 between
Franklin/Templeton Distributors, Inc. and Securities Dealers
Filing: Post-Effective Amendment No. 26 to Registration Statement
on Form N-1A
File No. 2-94222 Filing Date: December 23, 1998
(8) Copies of all bonus, profit sharing, pension, or other similar
contracts or arrangements wholly or partly for the benefit of
trustees or officers of the Registrant in their capacity as such.
Furnish a reasonably detailed description of any plan that is not
set forth in a formal document;
Not Applicable.
(9) Copies of all custodian agreements and depository contracts under
Section 17(f) of the 1940 Act for securities and similar
investments of the Registrant, including the schedule of
remuneration;
(a) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(b) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(c) Amendment dated May 7, 1997 to Master Custody Agreement
between Registrant and Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 25 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(d) Amendment dated February 27, 1998 to Master Custody
Agreement between Registrant and Bank of New York dated February
16, 1996
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: December 23, 1998
(e) Foreign Custody Manager Agreement made as of July 30, 1998,
effective as of February 27, 1998 on behalf of each Investment
Company listed on Schedule 1
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: December 23, 1998
(f) Amendment dated August 30, 2000, to Exhibit A of the Master
Custody Agreement between Registrant and the Bank of New York
dated February 16, 1996
(10) Copies of any plan entered into by Registrant pursuant to Rule
12b-1 under the 1940 Act and any agreements with any person
relating to implementation of the plan, and copies of any plan
entered into by Registrant pursuant to Rule 18f-3 under the 1940
Act, any agreement with any person relating to implementation of
the plan, any amendment to the plan, and a copy of the portion of
the minutes of the meeting of the Registrant's trustees describing
any action taken to revoke the plan;
(a) Class A shares Distribution Plans pursuant to Rule 12b-1 on
behalf of the following funds:
Dated July 1, 1993:
Franklin Arizona Insured Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Dated May 1, 1994:
Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(b) Class C shares Distribution Plan pursuant to Rule 12b-1 on
behalf of the following funds:
Dated March 30, 1995:
Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(c) Distribution Plan dated October 16, 1998 pursuant to Rule
12b-1 between the Registrant on behalf of Franklin High Yield
Tax-Free Income Fund - Class B and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: December 23, 1998
(d) Class B Distribution Plan pursuant to Rule 12b-1 on
behalf of the following funds:
Franklin Arizona Tax-Free Income Fund - Class B
Franklin Florida Tax-Free Income Fund - Class B
Franklin Insured Tax-Free Income Fund - Class B
Franklin Michigan Insured Tax-Free Income Fund - Class B
Franklin New Jersey Tax-Free Income Fund - Class B
Franklin Ohio Insured Tax-Free Income Fund - Class B
Franklin Pennsylvania Tax-Free Income Fund - Class B
Filing: Post-Effective Amendment No. 29 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: June 28, 2000
(e) Multiple Class Plan dated October 19, 1995
Filing: Post-Effective Amendment No. 25 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(f) Multiple Class Plan dated March 19, 1998 on behalf of Franklin
High Yield Tax-Free Income Fund
Filing: Post-Effective Amendment No. 27 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1999
(g) Multiple Class Plan on behalf of Franklin Arizona Tax-Free
Income Fund
Filing: Post-Effective Amendment No. 29 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: June 28, 2000
(h) Multiple Class Plan on behalf of Franklin Florida Tax-Free
Income Fund
Filing: Post-Effective Amendment No. 29 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: June 28, 2000
(i) Multiple Class Plan on behalf of Franklin Insured Tax-Free
Income Fund
Filing: Post-Effective Amendment No. 29 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: June 28, 2000
(j) Multiple Class Plan on behalf of Franklin Michigan Insured
Tax-Free Income Fund
Filing: Post-Effective Amendment No. 29 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: June 28, 2000
(k) Multiple Class Plan on behalf of Franklin New Jersey Tax-Free
Income Fund
Filing: Post-Effective Amendment No. 29 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: June 28, 2000
(l) Multiple Class Plan on behalf of Franklin Ohio Insured
Tax-Free Income Fund
Filing: Post-Effective Amendment No. 29 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: June 28, 2000
(m) Multiple Class Plan on behalf of Franklin Pennsylvania
Tax-Free Income Fund
Filing: Post-Effective Amendment No. 29 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: June 28, 2000
(11) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will, when
sold, be legally issued, fully paid and nonassessable;
(a) Opinion and Consent of Counsel dated April 17, 1998
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(12) An opinion, and consent to their use, of counsel or, in lieu of an
opinion, a copy of the revenue ruling from the Internal Revenue
Service, supporting the tax matters and consequences to
shareholders discussed in the prospectus;
(a) Form of Opinion and Consent of Counsel Supporting Tax Matters
and Consequences to Shareholders
(13) Copies of all material contracts of the Registrant not made in the
ordinary course of business which are to be performed in whole or
in part on or after the date of filing the registration statement;
(a) Agreement between Registrant and Financial Guaranty
Insurance Company dated March 8, 1985
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 28, 1995
(b) Amendment to Agreement between Registrant and Financial
Guaranty Insurance Company dated November 24, 1992
Registrant: Franklin New York Tax-Free Trust
Filing: Post-Effective Amendment No. 12 to Registration
Statement on Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(c) Mutual Fund Agreement between Registrant and Financial
Guaranty Insurance Company dated April 30, 1993
Filing: Post-Effective Amendment No. 25 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(d) Subcontract for Fund Administrative Services dated October 1,
1996 and Amendment thereto dated March 11, 1998 between Franklin
Advisers, Inc. and Franklin Templeton Services Inc.
Filing: Post-Effective Amendment No. 25 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: April 29, 1998
(14) Copies of any other opinions, appraisals, or rulings, and consents
to their use, relied on in preparing the registration statement and
required by Section 7 of the 1933 Act;
(a) Consent of PricewaterhouseCoopers LLP, independent auditors to
the Registrant
(15) All financial statements omitted pursuant to Items 14(a)(1);
Not Applicable.
(16) Manually signed copies of any power of attorney pursuant to which
the name of any person has been signed to the registration
statement; and
(a) Power of Attorney dated January 20, 2000
Filing: Post-Effective Amendment No. 28 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: January 28, 2000
(b) Certificate of Secretary dated January 27, 2000
Filing: Post-Effective Amendment No. 28 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: January 28, 2000
(17) Any additional exhibits which the Registrant may wish to file.
Not Applicable.
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering
prospectus will contain the information called for by the
applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registrations statement for the
securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide
offering of them.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of San Mateo and the
State of California, on the 15th day of December, 2000.
FRANKLIN TAX-FREE TRUST
(Registrant)
By:/s/ David P. Goss
David P. Goss, Vice President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated:
RUPERT H. JOHNSON, JR.* Principal Executive Officer
----------------------- and Trustee
Rupert H. Johnson, Jr. Dated: December 15, 2000
MARTIN L. FLANAGAN* Principal Financial Officer
------------------
Martin L. Flanagan Dated: December 15, 2000
KIMBERLEY H. MONASTERIO* Principal Accounting Officer
-----------------------
Kimberley H. Monasterio Dated: December 15, 2000
FRANK H. ABBOTT, III* Trustee
--------------------
Frank H. Abbott, III Dated: December 15, 2000
HARRIS J. ASHTON* Trustee
----------------
Harris J. Ashton Dated: December 15, 2000
S. JOSEPH FORTUNATO* Trustee
-------------------
S. Joseph Fortunato Dated: December 15, 2000
EDITH E. HOLIDAY* Trustee
-----------------
Edith E. Holiday Dated: December 15, 2000
CHARLES B. JOHNSON* Trustee
------------------
Charles B. Johnson Dated: December 15, 2000
RUPERT H. JOHNSON, JR.* Trustee
---------------------
Rupert H. Johnson, Jr. Dated: December 15, 2000
FRANK W.T. LAHAYE* Trustee
-----------------
Frank W.T. LaHaye Dated: December 15, 2000
GORDON S. MACKLIN* Trustee
------------------
Gordon S. Macklin Dated: December 15, 2000
*By /s/ DAVID P. GOSS
David P. Goss, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
FRANKLIN TAX-FREE TRUST
N-14 REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.(9)(f) Amendment dated August 30, 2000, to Exhibit A of
the Master Custody Agreement between Registrant
and the Bank of New York dated February 16, 1996
EX-99.(12)(a) Form of Opinion and Consent of Counsel
Supporting Tax Matters and Consequences to
Shareholders
EX-99.(14)(a) Consent of Auditors, PricewaterhouseCoopers LLP
