o TF1 P-3
SUPPLEMENT DATED JUNE 1, 2000
TO THE PROSPECTUS OF
FRANKLIN TAX-FREE TRUST
(TF1 - FRANKLIN ARIZONA INSURED, FLORIDA INSURED, INSURED, MASSACHUSETTS
INSURED,
MICHIGAN INSURED, MINNESOTA INSURED AND OHIO INSURED TAX-FREE INCOME FUNDS)
DATED JULY 1, 1999
The prospectus is amended as follows:
I. As of February 1, 2000, the Insured, Michigan and Ohio Funds offer three
classes of shares: Class A, Class B and Class C.
II. The section "Performance", which begins on page 7, is replaced with the
following:
[Insert graphic of bull and bear] PERFORMANCE
The bar charts and tables below show the volatility of each fund's returns,
which is one indicator of the risks of investing in a fund. The bar charts
show changes in each fund's returns from year to year over the calendar years
shown. The tables show how each fund's average annual total returns compare
to those of a broad-based securities market index. Of course, past
performance cannot predict or guarantee future results.
ARIZONA FUND ANNUAL TOTAL RETURNS 1
[Begin callout]
BEST QUARTER:
Q1 '95
9.53%
WORST QUARTER:
Q1 '94
- -7.89%
[End callout]
[Insert bar graph]
-8.26% 21.20% 8.69% 4.59% 6.31% -5.33%
- -------------------------------------------------------------------
94 95 96 97 98 99
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (4/30/93)
- --------------------------------------------------------------------------------
Arizona Fund 2 -9.34% 5.83% 4.21%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 5.40%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last five
years as part of a deal of over $50 million and with a maturity of at least two
years. It includes reinvested interest. One cannot invest directly in an index,
nor is an index representative of the fund's portfolio.
FLORIDA FUND ANNUAL TOTAL RETURNS 1
[Begin callout]
BEST QUARTER:
Q1 '95
9.30%
WORST QUARTER:
Q1 '94
- -8.79%
[End callout]
[Insert bar graph]
-9.85% 21.24% 8.00% 5.02% 6.67% -4.59%
- -------------------------------------------------------------------
94 95 96 97 98 99
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (4/30/93)
- --------------------------------------------------------------------------------
Florida Fund 2 -8.65% 6.04% 3.89%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 5.40%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last five
years as part of a deal of over $50 million and with a maturity of at least two
years. It includes reinvested interest. One cannot invest directly in an index,
nor is an index representative of the fund's portfolio.
INSURED FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Begin callout]
BEST QUARTER:
Q1 '95
5.63%
WORST QUARTER:
Q1 '94
- -4.22%
[End callout]
[Insert bar graph]
6.57% 11.35% 9.38% 11.83% -3.59% 13.60% 4.18% 8.11% 6.04% -3.40%
- --------------------------------------------------------------------------------
90 91 92 93 94 95 96 97 98 99
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Insured Fund - Class A 2 -7.53% 4.65% 5.80%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- --------------------------------------------------------------------------------
Insured Fund - Class C 2 -5.75% 3.98%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last five
years as part of a deal of over $50 million and with a maturity of at least two
years. It includes reinvested interest. One cannot invest directly in an index,
nor is an index representative of the fund's portfolio.
MASSACHUSETTS FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Begin callout]
BEST QUARTER:
Q1 '95
5.87%
WORST QUARTER:
Q1 '97
- -4.53%
[End callout]
[Insert bar graph]
5.10% 11.46% 8.98% 11.79% -3.63% 14.06% 8.53% 4.21% 5.39% -3.72
- --------------------------------------------------------------------------------
90 91 92 93 94 95 96 97 98 99
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Massachusetts Fund - Class A 2 -7.81% 4.62% 5.60%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- --------------------------------------------------------------------------------
Massachusetts Fund - Class C 2 -6.11% 3.85%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last five
years as part of a deal of over $50 million and with a maturity of at least two
years. It includes reinvested interest. One cannot invest directly in an index,
nor is an index representative of the fund's portfolio.
MICHIGAN FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Begin callout]
BEST QUARTER:
Q1 '95
5.70%
WORST QUARTER:
Q1 '97
- -4.60%
[End callout]
[Insert bar graph]
6.10% 10.96% 9.45% 12.09% -3.93% 13.83% 8.87% 3.58% 6.47% -2.27%
- --------------------------------------------------------------------------------
90 91 92 93 94 95 96 97 98 99
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Michigan Fund - Class A 2 -6.46% 5.05% 5.90%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- --------------------------------------------------------------------------------
Michigan Fund - Class C2 -4.75% 4.37%
Lehman Brothers Municipal Bond Index3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last five
years as part of a deal of over $50 million and with a maturity of at least two
years. It includes reinvested interest. One cannot invest directly in an index,
nor is an index representative of the fund's portfolio.
MINNESOTA FUND - CLASS A ANNUAL TOTAL RETURNS 1
[End callout]
BEST QUARTER:
Q1 '95
5.70%
WORST QUARTER:
Q1 '94
- -3.83%
[End callout]
[Insert bar graph]
5.82% 10.86% 8.62% 10.98% -3.55% 13.31% 3.49% 7.69% 5.68% -3.74%
- --------------------------------------------------------------------------------
90 91 92 93 94 95 96 97 98 99
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Minnesota Fund - Class A 2 -7.82% 4.22% 5.31%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- --------------------------------------------------------------------------------
Minnesota Fund - Class C 2 -6.18% 3.48%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last five
years as part of a deal of over $50 million and with a maturity of at least two
years. It includes reinvested interest. One cannot invest directly in an index,
nor is an index representative of the fund's portfolio.
OHIO FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Begin callout]
BEST QUARTER:
Q1 '95
6.09%
WORST QUARTER:
Q1 '94
- -4.75%
[End callout]
[Insert bar graph]
6.64% 10.95% 8.98% 12.47% -4.48% 14.34% 4.47% 8.16% 5.94% -3.00%
- --------------------------------------------------------------------------------
90 91 92 93 94 95 96 97 98 99
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Ohio Fund - Class A 2 -7.15% 4.91% 5.82%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- --------------------------------------------------------------------------------
Ohio Fund - Class C 2 -5.35% 4.18%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last five
years as part of a deal of over $50 million and with a maturity of at least two
years. It includes reinvested interest. One cannot invest directly in an index,
nor is an index representative of the fund's portfolio.
III. The section "Fees and Expenses", which begins on page 14, is replaced with
the following:
This table describes the fees and expenses that you may pay if you buy and hold
shares of a fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MASSA-
ARIZONA FLORIDA INSURED CHUSETTS MICHIGAN MINNESOTA OHIO
CLASS A FUND FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load)
as a percentage of offering price 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
Load imposed on purchases 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
Maximum deferred sales charge (load) 1 NONE NONE NONE NONE NONE NONE NONE
Exchange fee NONE NONE $5.00 2 NONE NONE NONE NONE
CLASS B 3
- -----------------------------------------------------------------------------------------------------
Maximum sales charge (load)
as a percentage of offering price - - 4.00% - 4.00% - 4.00%
Load imposed on purchases - - NONE - NONE - NONE
Maximum deferred sales charge (load) 4 - - 4.00% - 4.00% - 4.00%
Exchange fee - - $5.00 2 - NONE - NONE
CLASS C
- -----------------------------------------------------------------------------------------------------
Maximum sales charge (load)
as a percentage of offering price - - 1.99% 1.99% 1.99% 1.99% 1.99%
Load imposed on purchases - - 1.00% 1.00% 1.00% 1.00% 1.00%
Maximum deferred sales charge (load) 5 - - 0.99% 0.99% 0.99% 0.99% 0.99%
Exchange fee - - $5.00 2 NONE NONE NONE NONE
Please see "Choosing a Share Class" on page 27 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
MASSA-
ARIZONA FLORIDA INSURED CHUSETTS MICHIGAN MINNESOTA OHIO
CLASS A FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.66% 6 0.62% 6 0.47% 0.52% 0.47% 0.50% 0.48%
Distribution and service (12b-1) fees 0.10% 0.10% 0.09% 0.09% 0.09% 0.09% 0.09%
Other expenses 0.08% 0.07% 0.06% 0.07% 0.07% 0.08% 0.08%
- -------------------------------------------------------------------------------------------------------
Total annual fund operating expenses 0.84%6 0.79% 6 0.62% 0.68% 0.63% 0.67% 0.65%
- -------------------------------------------------------------------------------------------------------
CLASS B 3
- -------------------------------------------------------------------------------------------------------
Management fees - - 0.47% - 0.47% - 0.48%
Distribution and service (12b-1) fees - - 0.65% - 0.65% - 0.65%
Other expenses - - 0.06% - 0.07% - 0.08%
- -------------------------------------------------------------------------------------------------------
Total annual fund operating expenses - - 1.18% - 1.19% - 1.21%
- -------------------------------------------------------------------------------------------------------
MASSA-
ARIZONA FLORIDA INSURED CHUSETTS MICHIGAN MINNESOTA OHIO
CLASS C FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees - - 0.47% 0.52% 0.47% 0.50% 0.48%
Distribution and service (12b-1 fees) - - 0.65% 0.65% 0.65% 0.65% 0.65%
Other expenses - - 0.06% 0.07% 0.07% 0.08% 0.08%
- -------------------------------------------------------------------------------------------------------
Total annual fund operating expenses - - 1.18% 1.24% 1.19% 1.23% 1.21%
- -------------------------------------------------------------------------------------------------------
</TABLE>
1. Except for investments of $1 million or more (see page 27).
2. This fee is only for market timers (see page 38).
3. The funds began offering Class B shares on February 1, 2000. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended February 28, 1999. The distribution and service (12b-1) fees are
based on the maximum fees allowed under Class B's Rule 12b-1 plan.
4. Declines to zero after six years.
5. This is equivalent to a charge of 1% based on net asset value.
6. For the fiscal year ended February 28, 1999, the manager had agreed in
advance to limit its management fees. With this reduction, management fees were
0.19% for the Arizona Fund and 0.25% for the Florida Fund, and total annual fund
operating expenses were 0.37% for the Arizona Fund and 0.42% for the Florida
Fund. The manager may end this arrangement at any time upon notice to the fund's
Board of Trustees.
EXAMPLE
This example can help you compare the cost of investing in a fund with the cost
of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
MASSA-
ARIZONA FLORIDA INSURED CHUSETTS MICHIGAN MINNESOTA OHIO
FUND FUND FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------
If you sell your shares at the
end of the period:
CLASS A
1 Year 1 $507 $502 $486 $492 $487 $491 $489
3 Years $682 $667 $615 $633 $618 $630 $624
5 Years $871 $845 $756 $788 $761 $782 $772
10 Years $1,418 $1,361 $1,166 $1,236 $1,178 $1,224 $1,201
CLASS B
1 Year - - $520 - $521 - $523
3 Years - - $675 - $678 - $684
5 Years - - $849 - $854 - $865
10 Years 2 - - $1,276 - $1,287 - $1,310
CLASS C
1 Year - - $317 $323 $318 $322 $320
3 Years - - $471 $489 $474 $486 $480
5 Years - - $743 $774 $748 $769 $758
10 Years - - $1,517 $1,585 $1,529 $1,574 $1,551
MASSA-
ARIZONA FLORIDA INSURED CHUSETTS MICHIGAN MINNESOTA OHIO
FUND FUND FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------
If you do not sell your shares:
CLASS B
1 Year - - $120 - $121 - $123
3 Years - - $375 - $378 - $384
5 Years - - $649 - $654 - $665
10 Years 2 - - $1,276 - $1,287 - $1,310
CLASS C
1 Year - - $219 $225 $220 $224 $222
3 Years - - $471 $489 $474 $486 $480
5 Years - - $743 $774 $748 $769 $758
10 Years - - $1,517 $1,585 $1,529 $1,574 $1,551
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
IV. The management team on page 17 is replaced with the following:
The team responsible for the funds' management is:
SHEILA AMOROSO, SENIOR VICE PRESIDENT OF ADVISERS
Ms. Amoroso has been an analyst or portfolio manager of the Arizona and
Florida Funds since their inception and the Insured, Massachusetts, Michigan,
Minnesota and Ohio Funds since 1987. She is the co-Director of Franklin's
Municipal Bond Department. She joined the Franklin Templeton Group in 1986.
JAMES PATRICK CONN, VICE PRESIDENT OF ADVISERS
Mr. Conn has been an analyst or portfolio manager of the Insured,
Massachusetts, Michigan, Minnesota and Ohio Funds since December 1999. He
joined the Franklin Templeton Group in 1996. Previously, he was a portfolio
manager with California Investment Trust.
CARRIE HIGGINS, VICE PRESIDENT OF ADVISERS
Ms. Higgins has been an analyst or portfolio manager of the Arizona Fund
since its inception. She joined the Franklin Templeton Group in 1990.
JOHN POMEROY, VICE PRESIDENT OF ADVISERS
Mr. Pomeroy has been an analyst or portfolio manager of the Arizona and
Florida Funds since their inception and the Insured, Massachusetts, Michigan,
Minnesota and Ohio Funds since 1989. He joined the Franklin Templeton Group
in 1986.
FRANCISCO RIVERA, PORTFOLIO MANAGER OF ADVISERS
Mr. Rivera has been an analyst or portfolio manager of the Massachusetts Fund
since 1996. He joined the Franklin Templeton Group in 1994.
STELLA WONG, VICE PRESIDENT OF ADVISERS
Ms. Wong has been an analyst or portfolio manager of the Florida Fund since
its inception and the Ohio Fund since 1986. She joined the Franklin Templeton
Group in 1986.
V. The following information is added to the section "Financial Highlights",
which begins on page 21:
ARIZONA FUND SIX MONTHS ENDED
AUGUST 31, 1999
(UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.84
Net investment income .24
Net realized and unrealized
gains (losses) (.61)
Total from investment operations (.37)
Distributions from net investment
income (.25) 2
Net asset value, end of period 10.22
Total return (%) 3 (3.45)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 84,095
Ratios to average net assets: (%)
Expenses .80 4
Expenses excluding waiver and
payments by affiliate .80 4
Net investment income 4.48 4
Portfolio turnover rate (%) 12.96
FLORIDA FUND SIX MONTHS ENDED
AUGUST 31, 1999
(UNAUDITED)1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.53
Net investment income .24
Net realized and unrealized
gains (losses) (.54)
Total from investment operations (.30)
Distributions from net investment
income (.25) 2
Net asset value, end of period 9.98
Total return (%) 3 (2.92)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 120,590
Ratios to average net assets: (%)
Expenses .75 4
Expenses excluding waiver and
payments by affiliate .77 4
Net investment income 4.60 4
Portfolio turnover rate (%) 9.32
INSURED FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.26
Net investment income .30
Net realized and unrealized
gains (losses) (.58)
Total from investment operations (.28)
Distributions from net investment
income (.30)
In excess of net investment income (.01)
Distributions from net realized gains (.02)
Total distributions (.33)
Net asset value, end of period 11.65
Total return (%) 3 (2.39)
Ratios/supplemental data
Net assets, end of period ($ x 1 million) 1,614
Ratios to average net assets: (%)
Expenses .62 4
Net investment income 5.08 4
Portfolio turnover rate (%) 11.56
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.33
Net investment income .27
Net realized and unrealized
gains (losses) (.58)
Total from investment operations (.31)
Distributions from net investment
income (.27)
In excess of net investment income (.01)
Distributions from net realized gains (.02)
Total distributions (.30)
Net asset value, end of period 11.72
Total return (%) 3 (2.58)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 65,137
Ratios to average net assets: (%)
Expenses 1.18 4
Net investment income 4.52 4
Portfolio turnover rate (%) 11.56
MASSACHUSETTS FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.71
Net investment income .29
Net realized and unrealized
gains (losses) (.59)
Total from investment operations (.30)
Distributions from net investment
income (.29) 2
Net asset value, end of period 11.12
Total return (%) 3 (2.59)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 331,351
Ratios to average net assets: (%)
Expenses .69 4
Net investment income 5.01 4
Portfolio turnover rate (%) 13.05
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.76
Net investment income .26
Net realized and unrealized
gains (losses) (.58)
Total from investment operations (.32)
Distributions from net investment
income (.26) 5
Net asset value, end of period 11.18
Total return (%) 3 (2.77)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 27,969
Ratios to average net assets: (%)
Expenses 1.25 4
Net investment income 4.44 4
Portfolio turnover rate (%) 13.05
MICHIGAN FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.28
Net investment income .30
Net realized and unrealized
gains (losses) (.56)
Total from investment operations (.26)
Distributions from net investment
income (.30) 2
Net asset value, end of period 11.72
Total return (%) 3 (2.11)
Ratios/supplemental data
Net assets, end of period ($ x 1 million) 1,152
Ratios to average net assets: (%)
Expenses .64 4
Net investment income 4.98 4
Portfolio turnover rate (%) 3.87
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.36
Net investment income .27
Net realized and unrealized
gains (losses) (.56)
Total from investment operations (.29)
Distributions from net investment
income (.27) 2
Net asset value, end of period 11.80
Total return (%) 3 (2.40)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 53,635
Ratios to average net assets: (%)
Expenses 1.20 4
Net investment income 4.42 4
Portfolio turnover rate (%) 3.87
MINNESOTA FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.14
Net investment income .29
Net realized and unrealized
gains (losses) (.58)
Total from investment operations (.29)
Distributions from net investment
income (.29)
In excess of net investment income (.01)
Distributions from net realized gains (.02)
Total distributions (.32)
Net asset value, end of period 11.53
Total return (%) 3 (2.37)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 490,291
Ratios to average net assets: (%)
Expenses .67 4
Net investment income 4.88 4
Portfolio turnover rate (%) 6.29
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.19
Net investment income .26
Net realized and unrealized
gains (losses) (.58)
Total from investment operations (.32)
Distributions from net investment
income (.26)
In excess of net investment income (.01)
Distributions from net realized gains (.02)
Total distributions (.29)
Net asset value, end of period 11.58
Total return (%) 3 (2.64)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 23,217
Ratios to average net assets: (%)
Expenses 1.23 4
Net investment income 4.32 4
Portfolio turnover rate (%) 6.29
OHIO FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.49
Net investment income .30
Net realized and unrealized
gains (losses) (.58)
Total from investment operations (.28)
Distributions from net investment
income (.30)
In excess of net investment income (.01)
Distributions from net realized gains (.02)
Total distributions (.33)
Net asset value, end of period 11.88
Total return (%) 3 (2.31)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 754,531
Ratios to average net assets: (%)
Expenses .65 4
Net investment income 4.93 4
Portfolio turnover rate (%) 5.79
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.56
Net investment income .27
Net realized and unrealized
gains (losses) (.58)
Total from investment operations (.31)
Distributions from net investment
income (.27)
In excess of net investment income (.01)
Distributions from net realized gains (.02)
Total distributions (.30)
Net asset value, end of period 11.95
Total return (%) 3 (2.57)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 43,655
Ratios to average net assets: (%)
Expenses 1.21 4
Net investment income 4.37 4
Portfolio turnover rate (%) 5.79
1. Based on average shares outstanding.
2. Includes distributions in excess of net investment income in the amount of
$.004.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.
5. Includes distributions in excess of net investment income in the amount of
$.003.
VI. In the section "Choosing a Share Class", which begins on page 27, the
following changes are made:
(a) The first chart on page 27 is replaced with the following:
CLASS B (INSURED, CLASS C (ALL FUNDS
MICHIGAN AND OHIO FUNDS EXCEPT ARIZONA AND
CLASS A ONLY) FLORIDA)
- --------------------------------------------------------------------------------
o Initial sales charge of o No initial sales charge o Initial sales charge
4.25% or less of 1%
o Deferred sales charge of o Deferred sales charge o Deferred sales charge
1% on purchases of $1 of 4% on shares you of 1% on shares you
million or more sold sell within the first sell within 18 months
within 12 months year, declining to 1%
within six years and
eliminated after that
o Lower annual expenses o Higher annual expenses o Higher annual expenses
than Class B or C due than Class A (same as than Class A (same as
to lower distribution Class C) due to higher Class B) due to
fees distribution fees. higher distribution
Automatic conversion to fees. No conversion
Class A shares after to Class A shares, so
eight years, reducing annual expenses do
future annual expenses. not decrease.
THE INSURED, MICHIGAN AND OHIO FUNDS BEGAN OFFERING CLASS B SHARES ON FEBRUARY
1, 2000.
(b) The following is added before the discussion of Class C sales charges on
page 28:
SALES CHARGES - CLASS B
IF YOU SELL YOUR SHARES THIS % IS DEDUCTED FROM YOUR
WITHIN THIS MANY YEARS AFTER BUYING THEM PROCEEDS AS A CDSC
- --------------------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a CDSC
if you sell your shares within six years, as described in the table above. The
way we calculate the CDSC is the same for each class (please see page 28). After
8 years, your Class B shares automatically convert to Class A shares, lowering
your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares at
one time is $249,999. We invest any investment of $250,000 or more in Class A
shares, since a reduced initial sales charge is available and Class A's annual
expenses are lower.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the fund to pay distribution and other
fees of up to 0.65% per year for the sale of Class B shares and for services
provided to shareholders. Because these fees are paid out of Class B's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
(c) The section "Contingent Deferred Sales Charge (CDSC) - Class A & C" on page
28 is renamed "Contingent Deferred Sales Charge (CDSC) - Class A, B & C."
VII. The section "Sales Charge Waivers" on page 30 is replaced with the
following:
SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals and institutions or by investors who
reinvest certain distributions and proceeds within 365 days. Certain investors
also may buy Class C shares without an initial sales charge. The CDSC for each
class may be waived for certain redemptions and distributions. If you would like
information about available sales charge waivers, call your investment
representative or call Shareholder Services at 1-800/632-2301. A list of
available sales charge waivers also may be found in the Statement of Additional
Information (SAI).
III. The section "Minimum investments" on page 31 is replaced with the
following:
MINIMUM INVESTMENTS
- ------------------------------------------------------------------------------
INITIAL ADDITIONAL
- ------------------------------------------------------------------------------
Regular accounts $1,000 $50
- ------------------------------------------------------------------------------
Automatic investment plans $50 ($25 for an $50 ($25 for an
Education IRA) Education IRA)
- ------------------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- ------------------------------------------------------------------------------
Retirement accounts
(other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs) no minimum no minimum
- ------------------------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs
or Roth IRAs $250 $50
Broker-dealer sponsored wrap
account programs $250 $50
- ------------------------------------------------------------------------------
Full-time employees, officers, trustees
and directors of Franklin Templeton
entities, and their immediate
family members $100 $50
- ------------------------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.
IX. The section "Account Application" on page 32 is replaced with the
following:
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 33). For example, if you would
like to link one of your bank accounts to your Fund account so that you may
use electronic fund transfers to and from your bank account to buy and sell
shares, please complete the bank information section of the application. We
will keep your bank information on file for future purchases and redemptions.
X. Effective July 3, 2000, the following is added to the section "Buying
shares" on page 32:
- -------------------------------------------------------------------------------
[Insert graphic of phone] If you have another Before requesting a
BY PHONE Franklin Templeton telephone purchase,
account with your please make sure we
(Up to $100,000 per day) bank account have your bank
1-800/632-2301 information on account information
file, you may open on file. If we do
a new account by phone. not have this
The accounts must information, you will
be identically registered. need to send written
instructions with
To make a same day investment, your bank's name and
please call us by 1:00 p.m. address, a voided
Pacific time or the close check or savings
of the New York Stock Exchange, account deposit slip,
whichever is earlier. and a signature
guarantee if the
ownership of the
bank and Fund
accounts is different.
To make a same day
investment, please
call us by 1:00 p.m.
Pacific time or the
close of the New York
Stock Exchange,
whichever is earlier.
- ------------------------------------------------------------------------------
XI. The section "Automatic Investment Plan" on page 33 is replaced with the
following:
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest
in the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate
section of your account application and mail it to Investor Services. If you
are opening a new account, please include the minimum initial investment of
$50 ($25 for an Education IRA) with your application.
XII. The footnote in the section "Distribution Options" on page 33 is
replaced with the following:
*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.
XIII. The section "Telephone Privileges" on page 33 is replaced with the
following:
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to
buy, sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the Fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one
signature for all transactions. This type of telephone exchange is available
as long as you have telephone exchange privileges on your account.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone purchase, exchange or redemption privileges
on your account application.
XIV. The following is added after the second paragraph in the section
"Exchange Privilege" on page 34:
If you exchange your Class B shares for the same class of shares of another
Franklin Templeton Fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.
XV. The second paragraph of the "By Mail" section in the Selling Shares chart
on page 36 is replaced with the following:
Specify the fund, the account number and the dollar value or number of shares
you wish to sell. If you own both Class A and B shares, also specify the
class of shares, otherwise we will sell your Class A shares first. Be sure to
include all necessary signatures and any additional documents, as well as
signature guarantees if required.
XVI. In the Selling Shares table on page 36 the section "By Wire" is replaced
with the following:
- -------------------------------------------------------------------------------
[Insert graphic of three You can call or write to have
lightning bolts] redemption proceeds sent to a
bank account. See the policies
BY ELECTRONIC FUNDS above for selling shares by
TRANSFER (ACH) mail or phone.
Before requesting to have
redemption proceeds sent to a
bank account, please make sure
we have your bank account
information on file. If we do
not have this information, you
will need to send written
instructions with your bank's
name and address, a voided
check or savings account
deposit slip, and a signature
guarantee if the ownership of
the bank and fund accounts is
different.
If we receive your request in
proper form by 1:00 p.m.
Pacific time, proceeds sent by
ACH generally will be
available within two to three
business days.
- -------------------------------------------------------------------------------
XVII. The section "Statements and reports" on page 37 is replaced with the
following:
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the Fund's financial reports every six months. To reduce
Fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the Fund.
XVIII. The section "Dealer compensation" on page 39 is replaced with the
following:
DEALER COMPENSATION Qualifying dealers who sell Fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
CLASS A CLASS B CLASS C
- -----------------------------------------------------------------------
COMMISSION (%) - 3.00 2.00
Investment under $100,000 4.00 - -
$100,000 but under $250,000 3.25 - -
$250,000 but under $500,000 2.25 - -
$500,000 but under $1 million 1.85 - -
$1 million or more up to 0.75 1 - -
12B-1 FEE TO DEALER 0.15 0.15 2 0.65 3
A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans/1 and on Class C NAV purchases. A dealer commission
of up to 0.25% may be paid on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.
Market timers. Please note that for Class A NAV purchases by market timers,
including purchases of $1 million or more, dealers are not eligible to
receive the dealer commission. Dealers, however, may be eligible to receive
the 12b-1 fee from the date of purchase. If a dealer commission is paid on a
Class A NAV purchase that we later determine was made by a market timer, all
commissions paid in connection with that purchase during the last twelve
months must be returned.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.15% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
3. Dealers may be eligible to receive up to 0.15% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
Please keep this supplement for future reference.
o TF2 P-3
SUPPLEMENT DATED JUNE 1, 2000
TO THE PROSPECTUS OF
FRANKLIN TAX-FREE TRUST
(TF2 - FRANKLIN ALABAMA, FLORIDA, GEORGIA, KENTUCKY, LOUISIANA, MARYLAND,
MISSOURI, NORTH CAROLINA, TEXAS AND VIRGINIA TAX-FREE INCOME FUNDS)
DATED JULY 1, 1999
The prospectus is amended as follows:
I. As of February 1, 2000, the Florida Fund offers three classes of shares:
Class A, Class B and Class C.
II. The section "Performance", which begins on page 7, is replaced with the
following:
[Insert graphic of bull and bear] PERFORMANCE
The bar charts and tables below show the volatility of each fund's returns,
which is one indicator of the risks of investing in a fund. The bar charts
show changes in each fund's returns from year to year over the calendar years
shown. The tables show how each fund's average annual total returns compare
to those of a broad-based securities market index. Of course, past
performance cannot predict or guarantee future results.
ALABAMA FUND - CLASS A ANNUAL TOTAL RETURNS1
[Insert bar graph]
5.29% 12.40% 8.79% 12.24% -4.44% 15.28% 4.95% 9.03% 3.42% -3.60%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
6.25%
WORST
QUARTER:
Q1 '94
- -4.36%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Alabama Fund - Class A 2 -7.70% 4.72% 5.69%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89%
Index 3
SINCE
INCEPTION
1 YEAR (5/1/95)
- -------------------------------------------------------------------
Alabama Fund - Class C 2 -6.01% 3.85%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
FLORIDA FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
6.08% 12.56% 8.81% 12.01% -3.34% 14.67% 4.39% 8.11% 6.34% -3.31%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
5.93%
WORST
QUARTER:
Q1 '94
- -3.84%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------
Florida Fund - Class A 2 -7.42% 4.97% 6.01%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- --------------------------------------------------------------------
Florida Fund - Class C 2 -5.60% 4.27%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
GEORGIA FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
5.65% 12.23% 8.82% 11.89% -3.74% 14.06% 4.66% 7.84% 5.63% -3.82%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
5.84%
WORST
QUARTER:
Q1 '94
- -4.26%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Georgia Fund - Class A 2 -7.92% 4.61% 5.69%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- -------------------------------------------------------------------
Georgia Fund - Class C 2 -6.19% 3.85%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
KENTUCKY FUND ANNUAL TOTAL RETURNS 1
[Insert bar graph]
5.65% 12.23% 8.82% 11.89% -3.74% 14.06% 4.66% 7.84% 5.63% -3.82%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
8.79%
WORST
QUARTER:
Q1 '94
- -7.34%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (10/12/91)
- --------------------------------------------------------------------
Kentucky Fund 2 -8.29% 5.86% 5.60%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.42%
Index 3
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, the fund implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
LOUISIANA FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
6.50% 12.23% 8.98% 11.13% -4.80% 14.59% 4.83% 8.79% 5.39% -3.87%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
5.84%
WORST
QUARTER:
Q1 '94
- -4.47%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------
Louisiana Fund - Class A 2 -7.98% 4.86% 5.74%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- --------------------------------------------------------------------
Louisiana Fund - Class C 2 -6.18% 4.14%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
MARYLAND FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
5.41% 12.06% 8.87% 12.15% -5.09% 17.27% 3.96% 8.54% 5.88% -3.81%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
7.25%
WORST
QUARTER:
Q1 '94
- -4.78%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Maryland Fund - Class A 2 -7.91% 5.23% 5.86%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- -------------------------------------------------------------------
Maryland Fund - Class C 2 -6.19% 4.33%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
MISSOURI FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
6.66% 11.97% 9.02% 13.28% -5.09% 15.68% 4.70% 9.14% 5.76% -4.31%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
6.44%
WORST
QUARTER:
Q1 '94
- -4.84%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Missouri Fund - Class A 2 -8.36% 5.07% 6.02%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- -------------------------------------------------------------------
Missouri Fund - Class C 2 -6.66% 4.16%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
NORTH CAROLINA FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
6.33% 11.50% 9.12% 11.67% -5.73% 16.12% 4.08% 8.91% 5.94% -4.23%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
7.28%
WORST
QUARTER:
Q1 '94
- -4.97%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------
North Carolina Fund - Class A 2 -8.29% 5.04% 5.70%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- --------------------------------------------------------------------
North Carolina Fund - Class C 2 -6.65% 4.07%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
TEXAS FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
6.04% 12.14% 8.56% 11.59% -2.79% 13.32% 5.17% 9.10% 5.10% -4.50%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
4.96%
WORST
QUARTER:
Q1 '94
- -3.48%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Texas Fund - Class A 2 -8.57% 4.56% 5.75%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89%
Index 3
SINCE
INCEPTION
1 YEAR (5/1/95)
- -------------------------------------------------------------------
Texas Fund - Class C 2 -6.85% 4.14%
Lehman Brothers Municipal Bond -2.06% 5.84%
Index 3
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
VIRGINIA FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
5.91% 12.53% 8.95% 12.40% -4.64% 15.45% 4.17% 8.50% 5.83% -4.09%
90 91 92 93 94 95 96 97 98 99
[Begin callout]
BEST
QUARTER:
Q1 '95
6.53%
WORST
QUARTER:
Q1 '94
- -4.30%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- ---------------------------------------------------------------
Virginia Fund - Class A 2 -8.18% 4.87% 5.85%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89%
Index 3
SINCE
INCEPTION
1 YEAR (5/1/95)
- ---------------------------------------------------------------
Virginia Fund - Class C 2 -6.53% 4.03%
Lehman Brothers Municipal Bond -2.06% 5.84%
Index 3
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
III. In the section "Fees and Expenses", which begins on page 17, the
following changes are made:
(a) The information for the Florida Fund in the Shareholder Fees table and in
the Annual Fund Operating Expenses Table is revised to read as follows:
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
FLORIDA
CLASS A FUND
- -------------------------------------------------------------------
Maximum sales charge (load) as a percentage of offering 4.25%
price
Load imposed on purchases 4.25%
Maximum deferred sales charge (load) 1 NONE
Exchange fee NONE
CLASS B 2
- -------------------------------------------------------------------
Maximum sales charge (load) as a percentage of offering 4.00%
price
Load imposed on purchases NONE
Maximum deferred sales charge (load) 4.00%
Exchange fee NONE
CLASS C
- -------------------------------------------------------------------
Maximum sales charge (load) as a percentage of offering 1.99%
price
Load imposed on purchases 1.00%
Maximum deferred sales charge (load) 0.99%
Exchange fee NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM
FUND ASSETS)
FLORIDA
CLASS A FUND
- -------------------------------------------------------------------
Management fees 0.47%
Distribution and service (12b-1) fees 0.09%
Other expenses 0.05%
==========
Total annual fund operating expenses 0.61%
==========
CLASS B 2
- -------------------------------------------------------------------
Management fees 0.47%
Distribution and service (12b-1) fees 0.65%
Other expenses 0.05%
----------
Total annual fund operating expenses 1.17%
==========
CLASS C
- -------------------------------------------------------------------
Management fees 0.47%
Distribution and service (12b-1 fees) 0.65%
Other expenses 0.05%
----------
Total annual fund operating expenses 1.17%
==========
1. Except for investments of $1 million or more (see page 35).
2. The fund began offering Class B shares on February 1, 2000. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended February 28, 1999. The distribution and service (12b-1) fees are
based on the maximum fees allowed under Class B's Rule 12b-1 plan.
3. Declines to zero after six years.
4. This is equivalent to a charge of 1% based on net asset value.
(b) The information for the Florida Fund in the Example table on page 19 is
revised to read as follows:
FLORIDA
FUND
If you sell your shares at the end of the period:
CLASS A
1 Year1 $485
3 Years $612
5 Years $751
10 Years $1,155
CLASS B
1 Year $519
3 Years $672
5 Years $844
10 Years 2 $1,264
CLASS C
1 Year $316
3 Years $468
5 Years $737
10 Years $1,506
If you do not sell your shares:
CLASS B
1 Year $119
3 Years $372
5 Years $644
10 Years 2 $1,264
CLASS C
1 Year $218
3 Years $468
5 Years $737
10 Years $1,506
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
IV. The management team on pages 20 and 21 is replaced with the following:
The team responsible for the funds' management is:
SHEILA AMOROSO, SENIOR VICE PRESIDENT OF ADVISERS
Ms. Amoroso has been an analyst or portfolio manager of each fund since its
inception. She is the co-Director of Franklin's Municipal Bond Department.
She joined the Franklin Templeton Group in 1986.
JAMES PATRICK CONN, VICE PRESIDENT OF ADVISERS
Mr. Conn has been an analyst or portfolio manager of the Alabama and Maryland
Funds since December 1999. He joined the Franklin Templeton Group in 1996.
Previously, he was a portfolio manager with California Investment Trust.
CARRIE HIGGINS, VICE PRESIDENT OF ADVISERS
Ms. Higgins has been an analyst or portfolio manager of the Missouri Fund
since 1992. She joined the Franklin Templeton Group in 1990.
MARK ORSI, VICE PRESIDENT OF ADVISERS
Mr. Orsi has been an analyst or portfolio manager of the Kentucky Fund since
its inception and the North Carolina and Virginia Funds since 1991. He joined
the Franklin Templeton Group in 1990.
JOHN POMEROY, VICE PRESIDENT OF ADVISERS
Mr. Pomeroy has been an analyst or portfolio manager of the Alabama, Florida,
Georgia and Maryland Funds since 1989. He joined the Franklin Templeton Group
in 1986.
FRANCISCO RIVERA, PORTFOLIO MANAGER OF ADVISERS
Mr. Rivera has been an analyst or portfolio manager of the Georgia, Kentucky,
Louisiana and Texas Funds since 1996. He joined the Franklin Templeton Group
in 1994.
JOHN WILEY, VICE PRESIDENT OF ADVISERS
Mr. Wiley has been an analyst or portfolio manager of the Louisiana and Texas
Funds since 1991. He joined the Franklin Templeton Group in 1989.
STELLA WONG, VICE PRESIDENT OF ADVISERS
Ms. Wong has been an analyst or portfolio manager of the Florida, Maryland,
Missouri, North Carolina and Virginia Funds since their inception. She joined
the Franklin Templeton Group in 1986.
V. The following information is added to the section "Financial Highlights",
which begins on page 25:
ALABAMA FUND SIX MONTHS
ENDED AUGUST
31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.68
----------------
Net investment income .30
Net realized and unrealized
gains (losses) (.56)
----------------
Total from investment operations (.26)
----------------
Distributions from net investment
income (.30) 2
Distributions from net realized gains (.01)
----------------
Total distributions (.31)
================
Net asset value, end of period 11.11
================
Total return (%) 3 (2.24)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 225,818
Ratios to average net assets: (%)
Expenses .72 4
Net investment income 5.30 4
Portfolio turnover rate (%) 12.37
SIX MONTHS
ENDED AUGUST
31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.74
----------------
Net investment income .27
Net realized and unrealized
gains (losses) (.56)
----------------
Total from investment operations (.29)
----------------
Distributions from net investment
income (.27) 2
Distributions from net realized gains (.01)
----------------
Total distributions (.28)
----------------
Net asset value, end of period 11.17
================
Total return (%) 3 (2.52)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 16,250
Ratios to average net assets: (%)
Expenses 1.26 4
Net investment income 4.74 4
Portfolio turnover rate (%) 12.37
FLORIDA FUND SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.91
----------------
Net investment income .31
Net realized and unrealized
gains (losses) (.56)
----------------
Total from investment operations (.25)
----------------
Distributions from net investment
income (.31) 5
Distributions from net realized gains ---6
----------------
Total distributions (.31)
Net asset value, end of period 11.35
================
Total return (%) 3 (2.16)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1 million) 1,663
Ratios to average net assets: (%)
Expenses .62 4
Net investment income 5.22 4
Portfolio turnover rate (%) 12.12
SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.01
----------------
Net investment income .27
Net realized and unrealized
gains (losses) (.57)
----------------
Total from investment operations (.30)
----------------
Distributions from net investment
income (.27)
Distributions from net realized gains --6
----------------
Total distributions (.27)
Net asset value, end of period 11.44
================
Total return (%) 3 (2.51)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 82,528
Ratios to average net assets: (%)
Expenses 1.18 4
Net investment income 4.70 4
Portfolio turnover rate (%) 12.12
GEORGIA FUND SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.07
----------------
Net investment income .30
Net realized and unrealized
gains (losses) (.58)
----------------
Total from investment operations (.28)
----------------
Distributions from net investment
income (.30)
In excess of net investment income (.01)
Distributions from net realized gains -7
----------------
Total distributions (.31)
================
Net asset value, end of period 11.48
================
Total return (%) 3 (2.39)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 158,065
Ratios to average net assets: (%)
Expenses .764
Net investment income 4.984
Portfolio turnover rate (%) 22.14
SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.15
----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.59)
----------------
Total from investment operations (.33)
----------------
Distributions from net investment
income (.26)
In excess of net investment income (.01)
Distributions from net realized gains -7
Total distributions (.27)
================
Net asset value, end of period 11.55
================
Total return (%) 3 (2.73)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 18,235
Ratios to average net assets: (%)
Expenses 1.32 4
Net investment income 4.44
Portfolio turnover rate (%) 22.14
KENTUCKY FUND SIX MONTHS
ENDED
AUGUST 31, 1999
(UNAUDITED) 1
PER SHARE DATA ($)
Net asset value, beginning of period 11.47
----------------
Net investment income .29
Net realized and unrealized
gains (losses) (.59)
----------------
Total from investment operations (.30)
----------------
Distributions from net investment
income (.30) 8
================
Net asset value, end of period 10.87
================
Total return (%) 3 (2.69)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 66,957
Ratios to average net assets: (%)
Expenses .46 4
Expenses excluding waiver and
payments by affiliates .80 4
Net investment income 5.14
Portfolio turnover rate (%) 4.83
LOUSIANA FUND SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.59
----------------
Net investment income .29
Net realized and unrealized
gains (losses) (.59)
----------------
Total from investment operations (.30)
----------------
Distributions from net investment
income (.30) 9
================
Net asset value, end of period 10.99
================
Total return (%) 3 (2.64)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 155,071
Ratios to average net assets: (%)
Expenses .74 4
Net investment income 5.14 4
Portfolio turnover rate (%) 13.54
SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------
Per share data ($)
Net asset value, beginning of period 11.66
----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.60)
----------------
Total from investment operations (.34)
----------------
Distributions from net investment
income (.26) 9
================
Net asset value, end of period 11.06
================
Total return (%) 3 (2.91)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 12,377
Ratios to average net assets: (%)
Expenses 1.30 4
Net investment income 4.58 4
Portfolio turnover rate (%) 13.54
MARYLAND FUND SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------
Per share data ($)
Net asset value, beginning of period 11.66
----------------
Net investment income .28
Net realized and unrealized
gains (losses) (.58)
----------------
Total from investment operations (.30)
Distributions from net investment
income (.28) 10
Distributions from net realized gains (.03)
----------------
Total distributions (.31)
================
Net asset value, end of period 11.05
================
Total return (%) 3 (2.61)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 248,211
Ratios to average net assets: (%)
Expenses .72 4
Net investment income 4.88 4
Portfolio turnover rate (%) 1.01
SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.75
----------------
Net investment income .25
Net realized and unrealized
gains (losses) (.58)
----------------
Total from investment operations (.33)
Distributions from net investment
income (.25) 10
Distributions from net realized gains (.03)
----------------
Total distributions (.28)
================
Net asset value, end of period 11.14
================
Total return (%) 3 (2.86)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 18,474
Ratios to average net assets: (%)
Expenses 1.28 4
Net investment income 4.34 4
Portfolio turnover rate (%) 1.01
MISSOURI FUND SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.19
----------------
Net investment income .30
Net realized and unrealized
gains (losses) (.66)
----------------
Total from investment operations (.35)
----------------
Distributions from net investment
income (.30) 11
Distributions from net realized gains (.01)
----------------
Total distributions (.31)
================
Net asset value, end of period 11.52
================
Total return (%) 3 (2.92)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 383,809
Ratios to average net assets: (%)
Expenses .68 4
Net investment income 4.98 4
Portfolio turnover rate (%) 10.22
SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.24
----------------
Net investment income .27
Net realized and unrealized
gains (losses) (.66)
----------------
Total from investment operations (.39)
----------------
Distributions from net investment
income (.27) 11
Distributions from net realized gains (.01)
----------------
Total distributions (.28)
================
Net asset value, end of period 11.57
================
Total return (%) 3 (3.18)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 25,343
Ratios to average net assets: (%)
Expenses 1.24 4
Net investment income 4.42 4
Portfolio turnover rate (%) 10.22
NORTH CAROLINA FUND SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.16
----------------
Net investment income .30
Net realized and unrealized
gains (losses) (.63)
----------------
Total from investment operations (.33)
----------------
Distributions from net investment
income (.30) 2
================
Net asset value, end of period 11.53
================
Total return (%) 3 (2.73)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 346,559
Ratios to average net assets: (%)
Expenses .68 4
Net investment income 5.00 4
Portfolio turnover rate (%) 4.56
SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.24
----------------
Net investment income .27
Net realized and unrealized
gains (losses) (.64)
----------------
Total from investment operations (.37)
----------------
Distributions from net investment
income (.27) 2
================
Net asset value, end of period 11.60
================
Total return (%) 3 (3.08)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 42,286
Ratios to average net assets: (%)
Expenses 1.24 4
Net investment income 4.44 4
Portfolio turnover rate (%) 4.56
TEXAS FUND SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.42
Net investment income .29
Net realized and unrealized
gains (losses) (.54)
Total from investment operations (.25)
Distributions from net investment
income (.30) 12
Distributions from net realized gains (.04)
Total distributions (.34)
Net asset value, end of period 10.83
Total return (%) 3 (2.28)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 117,632
Ratios to average net assets: (%)
Expenses .79 4
Net investment income 5.17 4
Portfolio turnover rate (%) 13.64
SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.57
----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.56)
----------------
Total from investment operations (.30)
----------------
Distributions from net investment
income (.26) 12
Distributions from net realized gains (.04)
----------------
Total distributions (.30)
================
Net asset value, end of period 10.97
================
Total return (%) 3 (2.63)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 4,911
Ratios to average net assets: (%)
Expenses 1.35 4
Net investment income 4.61 4
Portfolio turnover rate (%) 13.64
VIRGINIA FUND SIX MONTHS
ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.88
----------------
Net investment income .29
Net realized and unrealized
gains (losses) (.62)
----------------
Total from investment operations (.33)
----------------
Distributions from net investment
income (.30) 13
================
Net asset value, end of period 11.25
================
Total return (%) 3 (2.85)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 363,263
Ratios to average net assets: (%)
Expenses .68 4
Net investment income 5.02 4
Portfolio turnover rate (%) 8.55
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.95
-----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.62)
-----------------
Total from investment operations (.36)
-----------------
Distributions from net investment
income (.26) 13
=================
Net asset value, end of period 11.33
=================
Total return (%) 3 (3.02)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 23,673
Ratios to average net assets: (%)
Expenses 1.24 4
Net investment income 4.46 4
Portfolio turnover rate (%) 8.55
1. Based on average shares outstanding.
2. Includes distributions in excess of net investment income in the amount of
$.002.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.
5. Includes distributions in excess of net investment income in the amount of
$.001.
6. Includes distributions of net realized gains in the amount of $.001.
7. Includes distributions of net realized gains in the amount of $.002.
8. Includes distributions in excess of net investment income in the amount of
$.008.
9. Includes distributions in excess of net investment income in the amount of
$.008 and $.007 for Class A and C, respectively.
10. Includes distributions in excess of net investment income in the amount
of $.002 and $.001 for Class A and C, respectively.
11. Includes distributions in excess of net investment income in the amount
of $.0001.
12. Includes distributions in excess of net investment income in the amount
of $.006 and $.005 for Class A and Class C, respectively.
13. Includes distributions in excess of net investment income in the amount
of $.005 and $.004 for Class A and C, respectively.
VI. In the section "Choosing a Share Class", which begins on page 35, the
following changes are made:
(a) The first chart on page 35 is replaced with the following:
CLASS A CLASS B (FLORIDA FUND CLASS C (ALL FUNDS
ONLY) EXCEPT KENTUCKY)
- ----------------------------------------------------------------------
o Initial sales o No initial sales o Initial sales
charge of 4.25% or charge charge of 1%
less
o Deferred sales o Deferred sales o Deferred
charge of 1% on charge of 4% on sales charge of
purchases of $1 shares you sell 1% on shares you
million or more within the first sell within 18
sold within 12 year, declining to months
months 1% within six years
and eliminated after
that
o Lower annual o Higher annual o Higher annual
expenses than Class expenses than Class expenses than
B or C due to lower A (same as Class C) Class A (same as
distribution fees due to higher Class B) due to
distribution fees. higher
Automatic conversion distribution
to Class A shares fees. No
after eight years, conversion to
reducing future Class A shares,
annual expenses. so annual
expenses do not
decrease.
THE FLORIDA FUND BEGAN OFFERING CLASS B SHARES ON FEBRUARY 1, 2000.
(b) The following is added before the discussion of Class C sales charges on
page 36:
SALES CHARGES - CLASS B
IF YOU SELL YOUR SHARES THIS % IS DEDUCTED FROM
WITHIN THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
- -------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 36). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We invest any investment of $250,000 or more in
Class A shares, since a reduced initial sales charge is available and Class
A's annual expenses are lower.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 0.65% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
(c) The section "Contingent Deferred Sales Charge (CDSC) - Class A & C" on
page 36 is renamed "Contingent Deferred Sales Charge (CDSC) - Class A, B & C."
VII. The section "Sales charge waivers" on page 38 is replaced with the
following:
SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or
by investors who reinvest certain distributions and proceeds within 365 days.
Certain investors also may buy Class C shares without an initial sales
charge. The CDSC for each class may be waived for certain redemptions and
distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. A list of available sales charge waivers also may be found in
the Statement of Additional Information (SAI).
VIII. The section "Minimum investments" on page 38 is replaced with the
following:
MINIMUM INVESTMENTS
- -------------------------------------------------------------------
INITIAL ADDITIONAL
- -------------------------------------------------------------------
Regular accounts $1,000 $50
- -------------------------------------------------------------------
Automatic investment plans $50 $50
- -------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- -------------------------------------------------------------------
Broker-dealer sponsored wrap account programs $250 $50
- -------------------------------------------------------------------
Full-time employees, officers, trustees and $100 $50
directors of Franklin Templeton entities, and
their immediate family members
- -------------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.
IX. The section "Account Application" on page 39 is replaced with the
following:
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 40). For example, if you would
like to link one of your bank accounts to your Fund account so that you may
use electronic fund transfers to and from your bank account to buy and sell
shares, please complete the bank information section of the application. We
will keep your bank information on file for future purchases and redemptions.
X. Effective July 3, 2000, the following is added to the section "Buying
shares" on page 39:
- ----------------------------------------------------------------------
[Insert graphic of If you have another Before requesting a
phone] Franklin Templeton telephone purchase,
BY PHONE account with your bank please make sure we
account information on have your bank
(Up to $100,000 per file, you may open a account information
day) 1-800/632-2301 new account by phone. on file. If we do
The accounts must be not have this
identically registered. information, you
will need to send
To make a same day written
investment, please instructions with
call us by 1:00 p.m. your bank's name
Pacific time or the and address, a
close of the New York voided check or
Stock Exchange, savings account
whichever is earlier. deposit slip, and a
signature guarantee
if the ownership of
the bank and Fund
accounts is
different.
To make a same day
investment, please
call us by 1:00
p.m. Pacific time
or the close of the
New York Stock
Exchange, whichever
is earlier.
- ----------------------------------------------------------------------
XI. The section "Automatic Investment Plan" on page 40 is replaced with the
following:
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest
in the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate
section of your account application and mail it to Investor Services. If you
are opening a new account, please include the minimum initial investment of
$50 with your application.
XII. The footnote in the section "Distribution Options" on page 40 is
replaced with the following:
*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.
XIII. The section "Telephone Privileges" on page 40 is replaced with the
following:
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to
buy, sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the Fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one
signature for all transactions. This type of telephone exchange is available
as long as you have telephone exchange privileges on your account.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone purchase, exchange or redemption privileges
on your account application.
XIV. The following is added after the second paragraph in the section
"Exchange Privilege" on page 41:
If you exchange your Class B shares for the same class of shares of another
Franklin Templeton Fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.
XV. The second paragraph of the "By Mail" section in the Selling Shares chart
on page 43 is replaced with the following:
Specify the fund, the account number and the dollar value or number of shares
you wish to sell. If you own both Class A and B shares, also specify the
class of shares, otherwise we will sell your Class A shares first. Be sure to
include all necessary signatures and any additional documents, as well as
signature guarantees if required.
XVI. In the Selling Shares table on page 43 the section "By Wire" is replaced
with the following:
- ----------------------------------------------------------------------
[Insert graphic of three You can call or write to have redemption
lightning bolts] proceeds sent to a bank account. See the
policies above for selling shares by
BY ELECTRONIC FUNDS mail or phone.
TRANSFER (ACH)
Before requesting to have redemption
proceeds sent to a bank account, please
make sure we have your bank account
information on file. If we do not have
this information, you will need to send
written instructions with your bank's
name and address, a voided check or
savings account deposit slip, and a
signature guarantee if the ownership of
the bank and fund accounts is different.
If we receive your request in proper
form by 1:00 p.m. Pacific time, proceeds
sent by ACH generally will be available
within two to three business days.
- ----------------------------------------------------------------------
XVII. The section "Statements and reports" on page 44 is replaced with the
following:
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the Fund's financial reports every six months. To reduce
Fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the Fund.
XVIII. The section "Dealer compensation" on page 46 is replaced with the
following:
DEALER COMPENSATION Qualifying dealers who sell Fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
CLASS A CLASS B CLASS C
- -----------------------------------------------------------------
COMMISSION (%) - 3.00 2.00
Investment under $100,000 4.00 - -
$100,000 but under $250,000 3.25 - -
$250,000 but under $500,000 2.25 - -
$500,000 but under $1 million 1.85 - -
$1 million or more up to 0.75 1 - -
12b-1 fee to dealer 0.15 0.15 2 0.65 3
A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans/1 and on Class C NAV purchases. A dealer commission
of up to 0.25% may be paid on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.15% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
3. Dealers may be eligible to receive up to 0.15% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
Please keep this supplement for future reference.
o TF3 P-3
SUPPLEMENT DATED JUNE 1, 2000
TO THE PROSPECTUS OF
FRANKLIN TAX-FREE TRUST
(TF3 - FRANKLIN ARIZONA, COLORADO, CONNECTICUT, FEDERAL INTERMEDIATE-TERM,
HIGH YIELD, INDIANA,
MICHIGAN, NEW JERSEY, OREGON, PENNSYLVANIA, AND PUERTO RICO TAX-FREE INCOME
FUNDS)
DATED JULY 1, 1999
The prospectus is amended as follows:
I. As of February 1, 2000, the Arizona, New Jersey and Pennsylvania Funds
offer three classes of shares: Class A, Class B and Class C.
II. On June 23, 1999, shareholders of the Franklin Indiana Tax-Free Income
Fund approved a proposal to merge the Indiana Fund into the Franklin Federal
Tax-Free Income Fund, and shareholders of the Franklin Michigan Tax-Free
Income Fund approved a proposal to merge the Michigan Fund into the Franklin
Michigan Insured Tax-Free Income Fund. The merger of the Franklin Indiana
Tax-Free Income Fund was completed on June 24, 1999. The merger of the
Franklin Michigan Tax-Free Income Fund was completed on August 26, 1999.
Please see below for additional details.
FRANKLIN INDIANA TAX-FREE INCOME FUND
On June 24, 1999, Franklin Federal Tax-Free Income Fund acquired the assets
of Franklin Indiana Tax-Free Income Fund. In exchange, Franklin Indiana
Tax-Free Income Fund received shares of Franklin Federal Tax-Free Income
Fund, which it distributed to its shareholders. All references to the
Franklin Indiana Tax-Free Income Fund in the prospectus are deleted.
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
On August 26, 1999, Franklin Michigan Insured Tax-Free Income Fund acquired
the assets of Franklin Michigan Tax-Free Income Fund. In exchange, Franklin
Michigan Tax-Free Income Fund received shares of Franklin Michigan Insured
Tax-Free Income Fund, which it distributed to its shareholders. All
references to the Franklin Michigan Tax-Free Income Fund in the prospectus
are deleted.
III. The section "Performance", which begins on page 9, is replaced with the
following:
[Insert graphic of bull and bear] PERFORMANCE
The bar charts and tables below show the volatility of each fund's returns,
which is one indicator of the risks of investing in a fund. The bar charts
show changes in each fund's returns from year to year over the calendar years
shown. The tables show how each fund's average annual total returns compare
to those of a broad-based securities market index. Of course, past
performance cannot predict or guarantee future results.
ARIZONA FUND - CLASS A ANNUAL TOTAL RETURNS1
[Insert bar graph]
5.80% 12.24% 10.02% 11.18% -4.03% 14.59% 4.21% 8.23% 5.44% -3.83%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
5.83%
WORST
QUARTER:
Q1 '94
- -4.32%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- ------------------------------------------------------------------
Arizona Fund - Class A 2 -7.95% 4.63% 5.75%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89%
Index 3
SINCE
INCEPTION
1 YEAR (5/1/95)
- ------------------------------------------------------------------
Arizona Fund - Class C 2 -6.23% 3.92%
Lehman Brothers Municipal Bond -2.06% 5.84%
Index 3
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
COLORADO FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
5.78% 12.35% 10.00% 12.74% -5.43% 16.07% 4.76% 8.82% 5.73% -4.43%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
6.62%
WORST
QUARTER:
Q1 '94
- -5.02%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Colorado Fund - Class A 2 -8.52% 5.07% 5.96%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89%
Index 3
SINCE
INCEPTION
1 YEAR (5/1/95)
- -------------------------------------------------------------------
Colorado Fund - Class C 2 -6.77% 4.18%
Lehman Brothers Municipal Bond -2.06% 5.84%
Index 3
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
CONNECTICUT FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
4.93% 10.77% 8.33% 12.32% -5.40% 14.32% 4.48% 8.50% 5.96% -4.82%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
5.54%
WORST
QUARTER:
Q1 '94
- -4.73%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- ------------------------------------------------------------------
Connecticut Fund - Class A 2 -8.86% 4.60% 5.29%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89%
Index 3
SINCE
INCEPTION
1 YEAR (5/1/95)
- ------------------------------------------------------------------
Connecticut Fund - Class C 2 -7.15% 3.84%
Lehman Brothers Municipal Bond -2.06% 5.84%
Index 3
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
FEDERAL INTERMEDIATE FUND ANNUAL TOTAL RETURNS 1
[Insert bar graph]
12.68% -2.71% 14.42% 6.68% 5.27% 5.80% -1.84%
93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
5.19%
WORST
QUARTER:
Q1 '94
- -3.76%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (9/21/92)
- ---------------------------------------------------------------------
Federal Intermediate Fund 2 -4.05% 5.47% 5.40%
Lehman Brothers 10-Year Municipal Bond -1.25% 7.12% 6.19%
Index 3
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers 10-Year
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least 10 years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
HIGH YIELD FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
5.11% 12.40% 9.25% 13.27% -2.59% 16.29% 6.16% 10.60% 4.81% -3.13%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
6.38%
WORST
QUARTER:
Q1 '94
- -3.02%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------
High Yield Fund - Class A 2 -7.24% 5.83% 6.57%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (01/01/99)
- -----------------------------------------------------------------
High Yield Fund - Class B 2 -6.99% -6.99%
Lehman Brothers Municipal Bond Inde x3 -2.06% -2.06%
SINCE
INCEPTION
1 YEAR (5/1/95)
- -----------------------------------------------------------------
High Yield Fund - Class C 2 -5.55% 5.01%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
NEW JERSEY FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
6.56% 12.46% 9.19% 10.97% -5.21% 15.58% 4.04% 8.34% 6.11% -3.36%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
6.44%
WORST
QUARTER:
Q1 '94
- -4.79%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
New Jersey Fund - Class A 2 -7.44% 5.05% 5.82%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89%
Index 3
SINCE
INCEPTION
- -------------------------------------------------------------------
1 Year (5/1/95)
New Jersey Fund - Class C 2 -5.74% 4.23%
Lehman Brothers Municipal Bond -2.06% 5.84%
Index 3
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
OREGON FUND - CLASS A ANNUAL TOTAL RETURNS
[Insert bar graph]
5.55% 12.63% 8.66% 10.91% -4.93% 15.08% 4.32% 8.24% 5.44% -3.87%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
6.54%
WORST
QUARTER:
Q1 '94
- -4.55%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------
Oregon Fund - Class A -7.98% 4.74% 5.56%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89%
Index
SINCE
INCEPTION
1 YEAR (5/1/95)
- --------------------------------------------------------------------
Oregon Fund - Class C 2 -6.16% 3.93%
Lehman Brothers Municipal Bond -2.06% 5.84%
Index 3
1.Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
PENNSYLVANIA FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
3.87% 13.48% 9.83% 11.66% -3.29% 14.34% 4.50% 8.94% 5.48% -4.08%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
5.81%
WORST
QUARTER:
Q1 '94
- -3.64%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Pennsylvania Fund - Class A 2 -8.18% 4.76% 5.84%
Lehman Brothers Municipal Bond -2.06% 6.91% 6.89%
Index 3
SINCE
INCEPTION
1 YEAR (5/1/95)
- -------------------------------------------------------------------
Pennsylvania Fund - Class C 2 -6.48% 4.03%
Lehman Brothers Municipal Bond -2.06% 5.84%
Index 3
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
PUERTO RICO FUND - CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
5.38% 12.27% 9.12% 10.99% -4.28% 14.49% 5.08% 8.75% 5.74% -2.34%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
5.95%
WORST
QUARTER:
Q1 '94
- -4.27%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Puerto Rico Fund - Class A 2 -6.51% 5.29% 5.90%
Lehman Brothers Municipal Bond Index 3 -2.06% 6.91% 6.89%
SINCE
INCEPTION
1 YEAR (5/1/95)
- -------------------------------------------------------------------
Puerto Rico Fund - Class C 2 -4.77% 4.45%
Lehman Brothers Municipal Bond Index 3 -2.06% 5.84%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
May 1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
IV. In the section "Fees and Expenses", which begins on page 20, the
following changes are made:
(a) The information for the Arizona, New Jersey and Pennsylvania Funds in the
Shareholder Fees table and in the Annual Fund Operating Expenses table is
revised to read as follows:
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ARIZONA NEW JERSEY PENNSYLVANIA
CLASS A FUND FUND FUND
- -------------------------------------------------------------------
Maximum sales charge (load) as 4.25% 4.25% 4.25%
a percentage of offering price
Load imposed on purchases 4.25% 4.25% 4.25%
Maximum deferred sales charge NONE NONE NONE
(load)1
Exchange fee NONE NONE NONE
CLASS B 2
- -------------------------------------------------------------------
Maximum sales charge (load) as 4.00% 4.00% 4.00%
a percentage of offering price
Load imposed on purchases NONE NONE NONE
Maximum deferred sales charge 4.00% 4.00% 4.00%
(load)3
Exchange fee NONE NONE NONE
CLASS C
- -------------------------------------------------------------------
Maximum sales charge (load) as 1.99% 1.99% 1.99%
a percentage of offering price
Load imposed on purchases 1.00% 1.00% 1.00%
Maximum deferred sales charge 0.99% 0.99% 0.99%
(load)4
Exchange fee NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
ARIZONA NEW JERSEY PENNSYLVANIA
CLASS A FUND FUND FUND
- -------------------------------------------------------------------
Management fees 0.48% 0.49% 0.48%
Distribution and service 0.09% 0.09% 0.09%
(12b-1) fees
Other expenses 0.06% 0.07% 0.08%
----------------------------------
Total annual fund operating 0.63% 0.65% 0.65%
expenses
==================================
CLASS B2
- -------------------------------------------------------------------
Management fees 0.48% 0.49% 0.48%
Distribution and service 0.65% 0.65% 0.65%
(12b-1) fees
Other expenses 0.06% 0.07% 0.08%
----------------------------------
Total annual fund operating 1.19% 1.21% 1.21%
expenses
==================================
CLASS C
- -------------------------------------------------------------------
Management fees 0.48% 0.49% 0.48%
Distribution and service (12b-1 0.65% 0.65% 0.65%
fees)
Other expenses 0.06% 0.07% 0.08%
----------------------------------
Total annual fund operating 1.19% 1.21% 1.21%
expenses
==================================
1. Except for investments of $1 million or more (see page 44).
2. The funds began offering Class B shares on February 1, 2000. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended February 28, 1999. The distribution and service (12b-1) fees are
based on the maximum fees allowed under Class B's Rule 12b-1 plan.
3. Declines to zero after six years.
4. This is equivalent to a charge of 1% based on net asset value.
(b) The information for the Arizona, New Jersey and Pennsylvania Funds in the
Example table on pages 24 and 25 is revised to read as follows:
ARIZONA NEW JERSEY PENNSYLVANIA
FUND FUND FUND
- -------------------------------------------------------------------
If you sell your shares at the
end of the period:
CLASS A
1 Year 1 $487 $489 $489
3 Years $618 $624 $624
5 Years $761 $772 $772
10 Years $1,178 $1,201 $1,201
CLASS B
1 Year $521 $523 $523
3 Years $678 $684 $684
5 Years $854 $865 $865
10 Years 2 $1,287 $1,310 $1,310
CLASS C
1 Year $318 $320 $320
3 Years $474 $480 $480
5 Years $748 $758 $758
10 Years $1,529 $1,551 $1,551
If you do not sell your shares:
CLASS B
1 Year $121 $ 123 $123
3 Years $378 $384 $384
5 Years $654 $665 $665
10 Years 2 $1,287 $1,310 $1,310
CLASS C
1 Year $220 $222 $222
3 Years $474 $480 $480
5 Years $748 $758 $758
10 Years $1,529 $1,551 $1,551
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
V. The management team on pages 26 and 27 is replaced with the following:
The team responsible for the funds' management is:
SHEILA AMOROSO, SENIOR VICE PRESIDENT OF ADVISERS
Ms. Amoroso has been an analyst or portfolio manager of the Arizona,
Colorado, Connecticut, Federal Intermediate, New Jersey and Oregon Funds
since their inception and the High Yield, Pennsylvania and Puerto Rico Funds
since 1987. She is the co-Director of Franklin's Municipal Bond Department.
She joined the Franklin Templeton Group in 1986.
JAMES PATRICK COnn, VICE PRESIDENT OF ADVISERS
Mr. Conn has been an analyst or portfolio manager of the Federal Intermediate
Fund since December 1999. He joined the Franklin Templeton Group in 1996.
Previously, he was a portfolio manager with California Investment Trust.
CARRIE HIGGINS, VICE PRESIDENT OF ADVISERS
Ms. Higgins has been an analyst or portfolio manager of the Arizona,
Colorado, New Jersey, Oregon and Puerto Rico Funds since 1992. She joined the
Franklin Templeton Group in 1990.
JOHN HOPP, VICE PRESIDENT OF ADVISERS
Mr. Hopp has been an analyst or portfolio manager of the High Yield Fund
since 1993. He joined the Franklin Templeton Group in 1991.
MARK ORSI, VICE PRESIDENT OF ADVISERS
Mr. Orsi has been an analyst or portfolio manager of the Federal Intermediate
Fund since its inception and the High Yield Fund since 1991. He joined the
Franklin Templeton Group in 1990.
JOHN POMEROY, VICE PRESIDENT OF ADVISERS
Mr. Pomeroy has been an analyst or portfolio manager of the Federal
Intermediate Fund since its inception and the Connecticut Fund since 1989. He
joined the Franklin Templeton Group in 1986.
JOHN WILEY, VICE PRESIDENT OF ADVISERS
Mr. Wiley has been an analyst or portfolio manager of the Arizona, Oregon and
Pennsylvania Funds since 1991. He joined the Franklin Templeton Group in 1989.
STELLA WONG, VICE PRESIDENT OF ADVISERS
Ms. Wong has been an analyst or portfolio manager of the Colorado,
Connecticut, New Jersey and Pennsylvania Funds since their inception and the
Puerto Rico Fund since 1986. She joined the Franklin Templeton Group in 1986.
VI. The following information is added to the section "Financial Highlights",
which begins on page 31:
ARIZONA FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.38
-----------------
Net investment income .29
Net realized and unrealized
gains (losses) (.55)
-----------------
Total from investment operations (.26)
-----------------
Distributions from net investment
income (.29) 2
Distributions from net realized gains (.04)
-----------------
Total distributions (.33)
-----------------
Net asset value, end of period 10.79
=================
Total return (%) 3 (2.36)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 832,231
Ratios to average net assets: (%)
Expenses .64 4
Net investment income 5.12 4
Portfolio turnover rate (%) 13.62
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.45
-----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.55)
-----------------
Total from investment operations (.29)
-----------------
Distributions from net investment
income (.26)5
Distributions from net realized gains (.04)
-----------------
Total distributions (.30)
-----------------
Net asset value, end of period 10.86
=================
Total return (%) 3 (2.61)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 24,808
Ratios to average net assets: (%)
Expenses 1.20 4
Net investment income 4.56 4
Portfolio turnover rate (%) 13.62
COLORADO FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.05
-----------------
Net investment income .29
Net realized and unrealized
gains (losses) (.63)
-----------------
Total from investment operations (.34)
-----------------
Distributions from net investment
income (.30) 6
Distributions from net realized gains (.01)
-----------------
Total distributions (.31)
-----------------
Net asset value, end of period 11.40
=================
Total return (%) 3 (2.82)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 288,952
Ratios to average net assets: (%)
Expenses .69 4
Net investment income 4.96 4
Portfolio turnover rate (%) 14.07
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.11
-----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.63)
-----------------
Total from investment operations (.37)
-----------------
Distributions from net investment
income (.27) 7
Distributions from net realized gains (.01)
-----------------
Total distributions (.28)
-----------------
Net asset value, end of period 11.46
=================
Total return (%) 3 (3.08)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 22,497
Ratios to average net assets: (%)
Expenses 1.24 4
Net investment income 4.41 4
Portfolio turnover rate (%) 14.07
CONNECTICUT FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.27
-----------------
Net investment income .28
Net realized and unrealized
gains (losses) (.63)
-----------------
Total from investment operations (.35)
-----------------
Distributions from net investment
income (.28)
=================
Net asset value, end of period 10.64
=================
Total return (%) 3 (3.02)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 239,180
Ratios to average net assets: (%)
Expenses .70 4
Net investment income 5.03 4
Portfolio turnover rate (%) 15.38
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.30
-----------------
Net investment income .25
Net realized and unrealized
gains (losses) (.62)
-----------------
Total from investment operations (.37)
-----------------
Distributions from net investment
income (.25)
-----------------
Net asset value, end of period 10.68
=================
Total return (%) 3 (3.26)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 26,841
Ratios to average net assets: (%)
Expenses 1.25 4
Net investment income 4.48 4
Portfolio turnover rate (%) 15.38
FEDERAL INTERMEDIATE FUND SIX MONTHS ENDED
AUGUST 31, 1999
(UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.30
-----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.43)
-----------------
Total from investment operations (.17)
-----------------
Distributions from net investment
income (.26)
-----------------
Net asset value, end of period 10.87
=================
Total return (%) 3 (1.57)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 182,057
Ratios to average net assets: (%)
Expenses .75 4
Expenses excluding waiver and
payments by affiliate .76 4
Net investment income 4.56 4
Portfolio turnover rate (%) 12.08
HIGH YIELD FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.49
-----------------
Net investment income .32
Net realized and unrealized
gains (losses) (.48)
-----------------
Total from investment operations (.16)
-----------------
Distributions from net investment
income (.33) 5
-----------------
Distributions from net realized gains -8
-----------------
Total distributions (.33)
-----------------
Net asset value, end of period 11.00
=================
Total return (%) 3 (1.40)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1 million) 5,719
Ratios to average net assets: (%)
Expenses .61 4
Net investment income 5.70 4
Portfolio turnover rate (%) 11.92
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS B (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.52
-----------------
Net investment income .29
Net realized and unrealized losses (.47)
-----------------
Total from investment operations (.18)
-----------------
Distributions from net investment
income (.30) 5
Distributions from net realized gains -8
=================
Net asset value, end of period 11.04
=================
Total return (%) 3 (1.60)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 72,071
Ratios to average net assets: (%)
Expenses 1.17 4
Net investment income 5.18 4
Portfolio turnover rate (%) 11.92
HIGH YIELD FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.56
-----------------
Net investment income .29
Net realized and unrealized
gains (losses) (.48)
-----------------
Total from investment operations (.19)
-----------------
Distributions from net investment
income (.30) 5
Distributions from net realized gains - 8
-----------------
Total distributions (.30)
-----------------
Net asset value, end of period 11.07
=================
Total return (%) 3 (1.76)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 631,669
Ratios to average net assets: (%)
Expenses 1.17 4
Net investment income 5.14 4
Portfolio turnover rate (%) 11.92
NEW JERSEY FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.96
-----------------
Net investment income .30
Net realized and unrealized
gains (losses) (.54)
-----------------
Total from investment operations (.24)
-----------------
Distributions from net investment
income (.31) 9
Distributions from net realized gains - 8
-----------------
Net asset value, end of period 11.41
=================
Total return (%) 3 (2.05)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 677,939
Ratios to average net assets: (%)
Expenses .66 4
Net investment income 5.06 4
Portfolio turnover rate (%) 5.59
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 12.03
-----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.55)
-----------------
Total from investment operations (.29)
-----------------
Distributions from net investment
income (.27) 2
Distributions from net realized gains - 8
-----------------
Net asset value, end of period 11.47
=================
Total return (%) 3 (2.40)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 51,770
Ratios to average net assets: (%)
Expenses 1.22 4
Net investment income 4.50 4
Portfolio turnover rate (%) 5.59
OREGON FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.83
-----------------
Net investment income .29
Net realized and unrealized
gains (losses) (.59)
-----------------
Total from investment operations (.30)
-----------------
Distributions from net investment
income (.30)
-----------------
Net asset value, end of period 11.23
=================
Total return (%) 3 (2.62)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 471,951
Ratios to average net assets: (%)
Expenses .66 4
Net investment income 4.98 4
Portfolio turnover rate (%) 15.60
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.90
-----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.59)
-----------------
Total from investment operations (.33)
-----------------
Distributions from net investment
income (.26)
----------------=
Net asset value, end of period 11.31
=================
Total return (%) 3 (2.88)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 36,911
Ratios to average net assets: (%)
Expenses 1.22 4
Net investment income 4.44 4
Portfolio turnover rate (%) 15.60
PENNSYLVANIA FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.52
-----------------
Net investment income .27
Net realized and unrealized
gains (losses) (.53)
-----------------
Total from investment operations (.26)
-----------------
Distributions from net investment
income (.28) 5
-----------------
Net asset value, end of period 9.98
=================
Total return (%) 3 (2.61)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 707,102
Ratios to average net assets: (%)
Expenses .66 4
Net investment income 5.16 4
Portfolio turnover rate (%) 12.92
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.57
-----------------
Net investment income .24
Net realized and unrealized
gains (losses) (.54)
-----------------
Total from investment operations (.30)
-----------------
Distributions from net investment
income (.24) 10
-----------------
Net asset value, end of period 10.03
=================
Total return (%) 3 (2.87)
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 44,774
Ratios to average net assets: (%)
Expenses 1.22 4
Net investment income 4.60 4
Portfolio turnover rate (%) 12.92
PUERTO RICO FUND SIX MONTHS ENDED
AUGUST 31, 1999
CLASS A (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.88
-----------------
Net investment income .29
Net realized and unrealized
gains (losses) (.49)
-----------------
Total from investment operations (.20)
-----------------
Distributions from net investment
income (.29) 11
Distributions from net realized gains (.02)
-----------------
Total distributions (.31)
-----------------
Net asset value, end of period 11.37
=================
Total return (%) 3 (1.74)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 211,036
Ratios to average net assets: (%)
Expenses .76 4
Net investment income 4.98 4
Portfolio turnover rate (%) 6.14
SIX MONTHS ENDED
AUGUST 31, 1999
CLASS C (UNAUDITED) 1
- ----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 11.89
-----------------
Net investment income .26
Net realized and unrealized
gains (losses) (.48)
-----------------
Total from investment operations (.22)
-----------------
Distributions from net investment
income (.26) 11
Distributions from net realized gains (.02)
-----------------
Total distributions (.28)
-----------------
Net asset value, end of period 11.39
=================
Total return (%) 3 (1.94)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 8,002
Ratios to average net assets: (%)
Expenses 1.32 4
Net investment income 4.42 4
Portfolio turnover rate (%) 6.14
1. Based on average shares outstanding.
2. Includes distributions in excess of net investment income in the amount of
$.006.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.
5. Includes distributions in excess of net investment income in the amount of
$.005.
6. Includes distributions in excess of net investment income in the amount of
$.009.
7. Includes distributions in excess of net investment income in the amount of
$.008.
8. Includes distributions of net realized capital gains in the amount of
$.003.
9. Includes distributions of net realized capital gains in the amount of
$.007.
10. Includes distributions in excess of net investment income in the amount
of $.004.
11. Includes distributions in excess of net investment income in the amount
of $.001.
VII. In the section "Choosing a Share Class", which begins on page 43, the
following changes are made:
(a) The first chart on page 43 is replaced with the following:
CLASS B (ARIZONA,
HIGH YIELD, NEW CLASS C (ALL FUNDS
CLASS A JERSEY AND EXCEPT FEDERAL
PENNSYLVANIA FUNDS INTERMEDIATE)
ONLY)
- ------------------------------------------------------------------
o Initial sales o No initial o Initial sales
charge of 2.25% sales charge charge of 1%
or less (Federal
Intermediate
Fund) or 4.25% or
less (all other
funds)
o Deferred sales o Deferred sales o Deferred sales
charge of 1% on charge of 4% on charge of 1% on
purchases of $1 shares you sell shares you sell
million or more within the first within 18 months
sold within 12 year, declining to
months 1% within six
years and
eliminated after
that
CLASS B (ARIZONA,
HIGH YIELD, NEW
JERSEY AND CLASS C (ALL FUNDS
PENNSYLVANIA FUNDS EXCEPT FEDERAL
CLASS A ONLY) INTERMEDIATE)
- ------------------------------------------------------------------
o Lower annual o Higher annual o Higher annual
expenses than expenses than expenses than
Class B or C due Class A (same as Class A (same as
to lower Class C) due to Class B) due to
distribution fees higher higher
distribution fees. distribution
Automatic fees. No
conversion to conversion to
Class A shares Class A shares,
after eight years, so annual
reducing future expenses do not
annual expenses. decrease.
- ------------------------------------------------------------------
THE ARIZONA, NEW JERSEY AND PENNSYLVANIA FUNDS BEGAN OFFERING CLASS B SHARES
ON FEBRUARY 1, 2000.
(b) The section "Sales Charges - Class B (High Yield Fund Only)" is renamed
"Sales Charges - Class B".
VIII. The section "Sales charge waivers" on page 48 is replaced with the
following:
SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or
by investors who reinvest certain distributions and proceeds within 365 days.
Certain investors also may buy Class C shares without an initial sales
charge. The CDSC for each class may be waived for certain redemptions and
distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. A list of available sales charge waivers also may be found in
the Statement of Additional Information (SAI).
IX. The section "Minimum investments" on page 48 is replaced with the
following:
MINIMUM INVESTMENTS
- --------------------------------------------------------------------
INITIAL ADDITIONAL
- --------------------------------------------------------------------
Regular accounts $1,000 $50
- --------------------------------------------------------------------
Automatic investment plans $50 $50
- --------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- --------------------------------------------------------------------
Broker-dealer sponsored wrap account programs $250 $50
- --------------------------------------------------------------------
Full-time employees, officers, trustees and
directors of
Franklin Templeton entities, and their $100 $50
immediate family members
- --------------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.
X. The section "Account Application" on page 49 is replaced with the
following:
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 50). For example, if you would
like to link one of your bank accounts to your Fund account so that you may
use electronic fund transfers to and from your bank account to buy and sell
shares, please complete the bank information section of the application. We
will keep your bank information on file for future purchases and redemptions.
XI. Effective July 3, 2000, the following is added to the section "Buying
shares" on page 49:
- ----------------------------------------------------------------------
[Insert graphic of If you have another Before requesting a
phone] Franklin Templeton telephone purchase,
BY PHONE account with your please make sure we
bank account have your bank
(Up to $100,000 per information on file, account information
day) you may open a new on file. If we do not
1-800/632-2301 account by phone. The have this
accounts must be information, you will
identically need to send written
registered. instructions with
your bank's name and
To make a same day address, a voided
investment, please check or savings
call us by 1:00 p.m. account deposit slip,
Pacific time or the and a signature
close of the New York guarantee if the
Stock Exchange, ownership of the bank
whichever is earlier. and Fund accounts is
different.
To make a same day
investment, please
call us by 1:00 p.m.
Pacific time or the
close of the New York
Stock Exchange,
whichever is earlier.
- ----------------------------------------------------------------------
XII. The section "Automatic Investment Plan" on page 50 is replaced with the
following:
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest
in the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate
section of your account application and mail it to Investor Services. If you
are opening a new account, please include the minimum initial investment of
$50 with your application.
XIII. The section "Telephone Privileges" on page 50 is replaced with the
following:
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to
buy, sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the Fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one
signature for all transactions. This type of telephone exchange is available
as long as you have telephone exchange privileges on your account.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone purchase, exchange or redemption privileges
on your account application.
XIV. In the Selling Shares table on page 54 the section "By Wire" is replaced
with the following:
- ----------------------------------------------------------------------
[Insert graphic of You can call or write to have redemption
three lightning proceeds sent to a bank account. See the
bolts] policies above for selling shares by mail or
phone.
BY ELECTRONIC FUNDS
TRANSFER (ACH) Before requesting to have redemption proceeds
sent to a bank account, please make sure we
have your bank account information on file. If
we do not have this information, you will need
to send written instructions with your bank's
name and address, a voided check or savings
account deposit slip, and a signature
guarantee if the ownership of the bank and
fund accounts is different.
If we receive your request in proper form by
1:00 p.m. Pacific time, proceeds sent by ACH
generally will be available within two to
three business days.
- ----------------------------------------------------------------------
XV. The section "Statements and reports" on page 55 is replaced with the
following:
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the Fund's financial reports every six months. To reduce
Fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the Fund.
XVI. The section "Dealer compensation" on page 57 is replaced with the
following:
DEALER COMPENSATION Qualifying dealers who sell Fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
ALL FUNDS (EXCEPT FEDERAL CLASS A CLASS B CLASS C
INTERMEDIATE)
- ------------------------------------------------------------------
COMMISSION (%) - 3.00 2.00
Investment under $100,000 4.00 - -
$100,000 but under $250,000 3.25 - -
$250,000 but under $500,000 2.25 - -
$500,000 but under $1 million 1.85 - -
$1 million or more up to 0.75 1 - -
12B-1 FEE TO DEALER 0.10 0.15 2 0.65 3
FEDERAL INTERMEDIATE FUND
- -------------------------------------------------------------------
COMMISSION (%) -
Investment under $100,000 2.00
$100,000 but under $250,000 1.50
$250,000 but under $500,000 1.00
$500,000 but under $1 million 0.85
$1 million or more up to 0.75 1
12B-1 FEE TO DEALER 0.10
A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans/1 and on Class C NAV purchases. A dealer commission
of up to 0.25% may be paid on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.15% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
3. Dealers may be eligible to receive up to 0.15% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
Please keep this supplement for future reference.
o TF1 SA-3
SUPPLEMENT DATED JUNE 1, 2000
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN TAX-FREE TRUST
(TF1 - FRANKLIN ARIZONA INSURED, FLORIDA INSURED, INSURED, MASSACHUSETTS
INSURED,
MICHIGAN INSURED, MINNESOTA INSURED AND OHIO INSURED TAX-FREE INCOME FUNDS)
DATED JULY 1, 1999, AS AMENDED JANUARY 1, 2000
The Statement of Additional Information (SAI) is amended as follows:
I. As of February 1, 2000, the Insured, Michigan and Ohio funds offer three
classes of shares: Class A, Class B and Class C.
II. The following is added at the end of the second paragraph on page 1:
The unaudited financial statements in the funds' Annual Report to
Shareholders, for the twelve-month period ended February 29, 2000, also are
incorporated by reference.
III. The third paragraph in the section "Organization, Voting Rights and
Principal Holders" is replaced with the following:
The Insured, Michigan and Ohio funds currently offer three classes of shares,
Class A, Class B and Class C. The funds began offering Class B shares on
February 1, 2000. The Massachusetts and Minnesota funds currently offer two
classes of shares, Class A and Class C. The full title of each class is:
o Franklin Insured Tax-Free Income fund - Class A
o Franklin Insured Tax-Free Income fund - Class B
o Franklin Insured Tax-Free Income fund - Class C
o Franklin Massachusetts Insured Tax-Free Income fund - Class A
o Franklin Massachusetts Insured Tax-Free Income fund - Class C
o Franklin Michigan Insured Tax-Free Income fund - Class A
o Franklin Michigan Insured Tax-Free Income fund - Class B
o Franklin Michigan Insured Tax-Free Income fund - Class C
o Franklin Minnesota Insured Tax-Free Income fund - Class A
o Franklin Minnesota Insured Tax-Free Income fund - Class C
o Franklin Ohio Insured Tax-Free Income fund - Class A
o Franklin Ohio Insured Tax-Free Income fund - Class B
o Franklin Ohio Insured Tax-Free Income fund - Class C
IV. The following is added to the section "Organization, Voting Rights and
Principal Holders":
As of January 3, 2000, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each fund
and class.
V. The first sentence of the section "Initial sales charges" on page 17 is
revised to read:
The maximum initial sales charge is 4.25% for Class A and 1% for Class C.
There is no initial sales charge for Class B.
VI. The last sentence of the first waiver category in the section "Waivers
for investments from certain payments" on page 18 is revised to read:
This waiver category also applies to Class B and C shares.
VII. The first waiver category in the section "Waivers for certain investors"
on page 19 is revised to read:
o Trust companies and bank trust departments investing assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We may accept orders for these accounts by telephone
or other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following the order.
VIII. The following is added after the first paragraph in the section
"Contingent deferred sales charge (CDSC)" on page 20:
For Class B shares, there is a CDSC if you sell your shares within six years,
as described in the table below. The charge is based on the value of the
shares sold or the net asset value at the time of purchase, whichever is less.
IF YOU SELL YOUR CLASS B SHARES THIS % IS DEDUCTED
FROM
WITHIN THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A
CDSC
- ------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
IX. The section "Systematic withdrawal plan" on page 21 is replaced with the
following:
Systematic withdrawal plan Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. There are no service charges for establishing or maintaining a
systematic withdrawal plan.
Each month in which a payment is scheduled, we will redeem an equivalent
amount of shares in your account on the day of the month you have indicated
on your account application or, if no day is indicated, on the 20th day of
the month. If that day falls on a weekend or holiday, we will process the
redemption on the next business day. For plans set up before June 1, 2000, we
will continue to process redemptions on the 25th day of the month (or the
next business day) unless you instruct us to change the processing date.
Available processing dates currently are the 1st, 5th, 10th, 15th, 20th and
25th days of the month. When you sell your shares under a systematic
withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan also
may be subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
To discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment, we must receive instructions
from you at least three business days before a scheduled payment. The fund
may discontinue a systematic withdrawal plan by notifying you in writing and
will discontinue a systematic withdrawal plan automatically if all shares in
your account are withdrawn or if the fund receives notification of the
shareholder's death or incapacity.
X. The following paragraph is added to the section "General information" on
page 21:
There are special procedures for banks and other institutions that wish to
open multiple accounts. An institution may open a single master account by
filing one application form with the fund, signed by personnel authorized to
act for the institution. Individual sub-accounts may be opened when the
master account is opened by listing them on the application, or by providing
instructions to the fund at a later date. These sub-accounts may be
registered either by name or number. The fund's investment minimums apply to
each sub-account. The fund will send confirmation and account statements for
the sub-accounts to the institution.
XI. The section "The Class C Plan", found on page 24 under "Distribution and
service (12b-1) fees", is replaced with the following:
The Class B and C plans. Under the Class B and C plans, each fund pays
Distributors up to 0.50% per year of the class's average daily net assets,
payable monthly for Class B and quarterly for Class C, to pay Distributors or
others for providing distribution and related services and bearing certain
expenses. All distribution expenses over this amount will be borne by those
who have incurred them. The fund also may pay a servicing fee of up to 0.15%
per year of the class's average daily net assets, payable monthly for Class B
and quarterly for Class C. This fee may be used to pay securities dealers or
others for, among other things, helping to establish and maintain customer
accounts and records, helping with requests to buy and sell shares, receiving
and answering correspondence, monitoring dividend payments from the fund on
behalf of customers, and similar servicing and account maintenance activities.
The expenses relating to each of the Class B and C plans also are used to pay
Distributors for advancing the commission costs to securities dealers with
respect to the initial sale of Class B and C shares. Further, the expenses
relating to the Class B plan may be used by Distributors to pay third party
financing entities that have provided financing to Distributors in connection
with advancing commission costs to securities dealers.
XII. The section "The Class A and C Plans," found on page 24 under
"Distribution and service (12b-1) fees", is renamed "The Class A, B and C
Plans."
XIII. The following information is added to the applicable sections under
"Performance", which begins on page 25:
AVERAGE ANNUAL TOTAL RETURN
The average annual total returns for the indicated periods ended February 29,
2000, were:
SINCE
INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION
DATE (%) (%) (%) (%)
- --------------------------------------------------------------------
CLASS A
Arizona fund 4/30/93 -5.56 5.52 - 4.85
Florida fund 4/30/93 -4.89 5.65 - 4.45
Insured fund 4/03/85 -4.54 4.58 6.23 7.50
Massachusetts fund 4/03/85 -4.88 4.60 6.05 6.84
Michigan fund 4/03/85 -3.84 4.82 6.27 7.25
Minnesota fund 4/03/85 -4.58 4.15 5.76 7.11
Ohio fund 4/03/85 -4.06 4.69 6.21 7.22
SINCE
1 YEAR INCEPTION
(%) (%)
- --------------------------------------------------------------------
CLASS B
Insured fund
Michigan fund
Ohio fund
SINCE
1 YEAR INCEPTION
(%) (%)
- --------------------------------------------------------------------
CLASS C
Arizona fund - -
Florida fund - -
Insured fund -2.72 4.73
Massachusetts fund -3.08 4.64
Michigan fund -1.99 5.01
Minnesota fund -2.83 4.23
Ohio fund -2.37 4.86
CUMULATIVE TOTAL RETURN
The cumulative total returns for the indicated periods ended February
29,2000, were:
SINCE
INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION
DATE (%) (%) (%) (%)
- --------------------------------------------------------------------
CLASS A
Arizona fund 4/30/93 -5.56 30.85 - 34.97
Florida fund 4/30/93 -4.89 31.64 - 31.78
Insured fund 4/03/85 -4.54 25.08 83.01 183.67
Massachusetts fund 4/03/85 -4.88 25.19 79.90 159.35
Michigan fund 4/03/85 -3.84 26.53 83.70 174.05
Minnesota fund 4/03/85 -4.58 22.56 75.08 168.94
Ohio fund 4/03/85 -4.06 25.73 82.67 173.14
SINCE
1 YEAR INCEPTION
(%) (%)
- --------------------------------------------------------------------
CLASS B
Insured fund
Michigan fund
Ohio fund
SINCE
1 YEAR INCEPTION
(%) (%)
- --------------------------------------------------------------------
CLASS C
Arizona fund - -
Florida fund - -
Insured fund -2.72 22.19
Massachusetts fund -3.08 21.73
Michigan fund -1.99 23.59
Minnesota fund -2.83 19.66
Ohio fund -2.37 22.88
CURRENT YIELD
The yields for the 30-day period ended February 29, 2000 were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- --------------------------------------------------------------------
Arizona fund 4.36 - -
Florida fund 4.42 - -
Insured fund 4.49 - 4.08
Massachusetts fund 4.37 - 3.94
Michigan fund 4.33 - 3.90
Minnesota fund 4.44 - 4.03
Ohio fund 4.45 - 4.02
TAXABLE-EQUIVALENT YIELD
The taxable-equivalent yields for the 30-day period ended February 29, 2000,
were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- --------------------------------------------------------------------
Arizona fund 7.60 - -
Florida fund 7.32 - -
Insured fund 7.43 - 6.75
Massachusetts fund 7.69 - 6.94
Michigan fund 7.50 - 6.75
Minnesota fund 8.03 - 7.29
Ohio fund 7.91 - 7.14
CURRENT DISTRIBUTION RATE
The current distribution rates for the 30-day period ended February 29, 2000,
were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- --------------------------------------------------------------------
Arizona fund 4.50 - -
Florida fund 4.55 - -
Insured fund 4.98 - 4.59
Massachusetts fund 4.91 - 4.50
Michigan fund 4.85 - 4.44
Minnesota fund 4.83 - 4.41
Ohio fund 4.83 - 4.41
The taxable-equivalent distribution rates for the 30-day period ended
February 29, 2000, were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- --------------------------------------------------------------------
Arizona fund 7.85 - -
Florida fund 7.53 - -
Insured fund 8.25 - 7.60
Massachusetts fund 8.64 - 7.92
Michigan fund 8.40 - 7.69
Minnesota fund 8.74 - 7.98
Ohio fund 8.58 - 7.83
Please keep this supplement for future reference.
o TF2 SA-3
SUPPLEMENT DATED JUNE 1, 2000
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN TAX-FREE TRUST
(TF2 - FRANKLIN ALABAMA, FLORIDA, GEORGIA, KENTUCKY, LOUISIANA, MARYLAND,
MISSOURI, NORTH CAROLINA, TEXAS AND VIRGINIA TAX-FREE INCOME FUNDS)
DATED JULY 1, 1999, AS AMENDED JANUARY 1, 2000
The Statement of Additional Information (SAI) is amended as follows:
I. As of February 1, 2000, the Florida fund offers three classes of shares:
Class A, Class B and Class C.
II. The following is added at the end of the second paragraph on page 1:
The unaudited financial statements in the funds' Annual Report to
Shareholders, for the twelve-month period ended February 29, 2000, also are
incorporated by reference.
III. The third paragraph in the section "Organization, Voting Rights and
Principal Holders" is replaced with the following:
Each fund, except the Florida and Kentucky funds, currently offers two
classes of shares, Class A and Class C. The Florida fund currently offers
three classes of shares, Class A, Class B and Class C. The Florida fund began
offering Class B shares on February 1, 2000. The full title of each class is:
o Franklin Alabama Tax-Free Income fund - Class A
o Franklin Alabama Tax-Free Income fund - Class C
o Franklin Florida Tax-Free Income fund - Class A
o Franklin Florida Tax-Free Income fund - Class B
o Franklin Florida Tax-Free Income fund - Class C
o Franklin Georgia Tax-Free Income fund - Class A
o Franklin Georgia Tax-Free Income fund - Class C
o Franklin Louisiana Tax-Free Income fund - Class A
o Franklin Louisiana Tax-Free Income fund - Class C
o Franklin Maryland Tax-Free Income fund - Class A
o Franklin Maryland Tax-Free Income fund - Class C
o Franklin Missouri Tax-Free Income fund - Class A
o Franklin Missouri Tax-Free Income fund - Class C
o Franklin North Carolina Tax-Free Income fund - Class A
o Franklin North Carolina Tax-Free Income fund - Class C
o Franklin Texas Tax-Free Income fund - Class A
o Franklin Texas Tax-Free Income fund - Class C
o Franklin Virginia Tax-Free Income fund - Class A
o Franklin Virginia Tax-Free Income fund - Class C
IV. The following is added to the section "Organization, Voting Rights and
Principal Holders":
As of January 3, 2000, the principal shareholders of the funds, beneficial or
of record, were:
PERCENTAGE
NAME AND ADDRESS SHARE CLASS (%)
TEXAS FUND
Family Ltd. Partnership Class C 6.64
Alo Family Limited
4512 Teas St.
Bellaire, TX 77401-4223
PaineWebber For the Benefit of
Timothy A. Costello Class C 6.45
9501 Bell Mountain Dr.
Austin, TX 78730-2712
As of January 3, 2000, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each fund
and class.
V. The first sentence of the section "Initial sales charges" on page 17 is
revised to read:
The maximum initial sales charge is 4.25% for Class A and 1% for Class C.
There is no initial sales charge for Class B.
VI. The last sentence of the first waiver category in the section "Waivers
for investments from certain payments" on page 18 is revised to read:
This waiver category also applies to Class B and C shares.
VII. The first waiver category in the section "Waivers for certain investors"
on page 19 is revised to read:
o Trust companies and bank trust departments investing assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We may accept orders for these accounts by telephone
or other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following the order.
VIII. The following is added after the first paragraph in the section
"Contingent deferred sales charge (CDSC)" on page 20:
For Class B shares, there is a CDSC if you sell your shares within six years,
as described in the table below. The charge is based on the value of the
shares sold or the net asset value at the time of purchase, whichever is less.
IF YOU SELL YOUR CLASS B SHARES WITHIN THIS % IS DEDUCTED
THIS MANY YEARS AFTER BUYING THEM FROM YOUR PROCEEDS AS
A CDSC
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
IX. The section "Systematic withdrawal plan" on page 21 is replaced with the
following:
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. There are no service charges for establishing or maintaining a
systematic withdrawal plan.
Each month in which a payment is scheduled, we will redeem an equivalent
amount of shares in your account on the day of the month you have indicated
on your account application or, if no day is indicated, on the 20th day of
the month. If that day falls on a weekend or holiday, we will process the
redemption on the next business day. For plans set up before June 1, 2000, we
will continue to process redemptions on the 25th day of the month (or the
next business day) unless you instruct us to change the processing date.
Available processing dates currently are the 1st, 5th, 10th, 15th, 20th and
25th days of the month. When you sell your shares under a systematic
withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan also
may be subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
To discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment, we must receive instructions
from you at least three business days before a scheduled payment. The fund
may discontinue a systematic withdrawal plan by notifying you in writing and
will discontinue a systematic withdrawal plan automatically if all shares in
your account are withdrawn or if the fund receives notification of the
shareholder's death or incapacity.
X. The following paragraph is added to the section "General information" on
page 21:
There are special procedures for banks and other institutions that wish to
open multiple accounts. An institution may open a single master account by
filing one application form with the fund, signed by personnel authorized to
act for the institution. Individual sub-accounts may be opened when the
master account is opened by listing them on the application, or by providing
instructions to the fund at a later date. These sub-accounts may be
registered either by name or number. The fund's investment minimums apply to
each sub-account. The fund will send confirmation and account statements for
the sub-accounts to the institution.
XI. The section "The Class C Plan", found on page 24 under "Distribution and
service (12b-1) fees", is replaced with the following:
THE CLASS B AND C PLANS. Under the Class B and C plans, each fund pays
Distributors up to 0.50% per year of the class's average daily net assets,
payable monthly for Class B and quarterly for Class C, to pay Distributors or
others for providing distribution and related services and bearing certain
expenses. All distribution expenses over this amount will be borne by those
who have incurred them. The fund also may pay a servicing fee of up to 0.15%
per year of the class's average daily net assets, payable monthly for Class B
and quarterly for Class C. This fee may be used to pay securities dealers or
others for, among other things, helping to establish and maintain customer
accounts and records, helping with requests to buy and sell shares, receiving
and answering correspondence, monitoring dividend payments from the fund on
behalf of customers, and similar servicing and account maintenance activities.
The expenses relating to each of the Class B and C plans also are used to pay
Distributors for advancing the commission costs to securities dealers with
respect to the initial sale of Class B and C shares. Further, the expenses
relating to the Class B plan may be used by Distributors to pay third party
financing entities that have provided financing to Distributors in connection
with advancing commission costs to securities dealers.
XII. The section "The Class A and C Plans," found on page 24 under
"Distribution and service (12b-1) fees", is renamed "The Class A, B and C
Plans."
XIII. The following information is added to the applicable sections under
"Performance", which begins on page 25:
AVERAGE ANNUAL TOTAL RETURN
The average annual total returns for the indicated periods ended February 29,
2000, were:
SINCE
INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION
DATE (%) (%) (%) (%)
- -------------------------------------------------------------------
CLASS A
Alabama fund 09/01/87 -8.02 3.71 5.66 6.34
Florida fund 09/01/87 -7.65 4.01 5.98 6.73
Georgia fund 09/01/87 -7.83 3.73 5.69 6.44
Kentucky fund 10/12/91 -8.21 4.42 - 5.55
Louisiana fund 09/01/87 -7.98 3.88 5.74 6.39
Maryland fund 10/03/88 -7.97 4.08 5.86 6.06
Missouri fund 09/01/87 -8.66 4.00 5.98 6.50
North Carolina fund 09/01/87 -8.43 3.91 5.68 6.45
Texas fund 09/01/87 -9.26 3.68 5.70 6.48
Virginia fund 09/01/87 -8.40 3.82 5.83 6.49
SINCE
1 YEAR 3 YEARS INCEPTION
(%) (%) (%)
- -------------------------------------------------------------------
CLASS B
Alabama fund - - -
Florida fund - - 1.07
Georgia fund - - -
Kentucky fund - - -
Louisiana fund - - -
Maryland fund - - -
Missouri fund - - -
North Carolina fund - - -
Texas fund - - -
Virginia fund - - -
SINCE
1 YEAR 3 YEARS INCEPTION
(%) (%) (%)
- -------------------------------------------------------------------
CLASS C
Alabama fund -4.46 6.11 20.67
Florida fund -4.14 8.72 22.95
Georgia fund -6.16 2.06 3.81
Kentucky fund - - -
Louisiana fund -6.32 2.26 4.07
Maryland fund -6.24 2.32 4.26
Missouri fund -7.02 2.26 4.06
North Carolina fund -6.70 2.29 4.00
Texas fund -7.62 1.78 3.93
Virginia fund -6.67 2.15 3.94
CUMULATIVE TOTAL RETURN
The cumulative total returns for the indicated periods February 29, 2000,
were:
SINCE
INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION
DATE (%) (%) (%) (%)
- -------------------------------------------------------------------
CLASS A
Alabama fund 09/01/87 -3.92 25.29 81.25 125.09
Florida fund 09/01/87 -3.54 27.08 86.82 135.69
Georgia fund 09/01/87 -3.71 25.39 81.58 127.82
Kentucky fund 10/12/91 -4.13 29.70 - 64.17
Louisiana fund 09/01/87 -3.93 26.32 82.50 126.65
Maryland fund 10/03/88 -3.86 27.51 84.63 104.34
Missouri fund 09/01/87 -4.62 27.07 86.59 129.44
North Carolina fund 09/01/87 -4.37 26.44 81.04 127.89
Texas fund 09/01/87 -5.21 25.13 81.85 128.85
Virginia fund 09/01/87 -4.31 25.92 83.96 129.23
SINCE
1 YEAR INCEPTION
(%) (%)
- -------------------------------------------------------------------
CLASS B
Alabama fund - -
Florida fund - -2.93
Georgia fund - -
Kentucky fund - -
Louisiana fund - -
Maryland fund - -
Missouri fund - -
North Carolina fund - -
Texas fund - -
Virginia fund - -
SINCE
1 YEAR 3 YEARS INCEPTION
(%) (%) (%)
- -------------------------------------------------------------------
CLASS C
Alabama fund -4.46 1.65 3.76
Florida fund -4.14 8.72 22.95
Georgia fund -6.16 2.06 3.81
Kentucky fund - - -
Louisiana fund -4.45 7.97 22.48
Maryland fund -4.37 8.25 23.59
Missouri fund -5.21 8.02 22.45
North Carolina fund -4.88 8.11 22.14
Texas fund -5.77 6.55 21.63
Virginia fund -4.82 7.67 21.72
CURRENT YIELD
The yields for the 30-day period ended February 29, 2000, were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- -------------------------------------------------------------------
Alabama fund 5.29 - 5.07
Florida fund 4.95 4.65 4.58
Georgia fund 5.03 - 4.66
Kentucky fund 5.34 - -
Louisiana fund 5.24 - 4.91
Maryland fund 5.08 - 4.72
Missouri fund 5.09 - 4.70
North Carolina fund 5.00 - 4.63
Texas fund 5.34 - 4.96
Virginia fund 5.02 - 4.65
TAXABLE-EQUIVALENT YIELD
The taxable-equivalent yields for the 30-day period ended February 29, 2000,
were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- -------------------------------------------------------------------
Alabama fund 9.22 - 8.63
Florida fund 8.20 7.70 7.58
Georgia fund 8.86 - 8.21
Kentucky fund 9.40 - -
Louisiana fund 9.23 - 8.65
Maryland fund 9.13 - 8.48
Missouri fund 8.96 - 8.28
North Carolina fund 8.97 - 8.31
Texas fund 8.84 - 8.21
Virginia fund 8.82 - 8.17
CURRENT DISTRIBUTION RATE
The current distribution rates for the 30-day period ended February 29,2000,
were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- -------------------------------------------------------------------
Alabama fund 5.46 - 5.07
Florida fund 5.31 4.98 4.92
Georgia fund 5.16 - 4.80
Kentucky fund 5.32 - -
Louisiana fund 5.34 - 4.94
Maryland fund 5.06 - 4.65
Missouri fund 5.21 - 4.83
North Carolina fund 5.17 - 4.77
Texas fund 5.40 - 4.94
Virginia fund 5.16 - 4.79
The taxable-equivalent distribution rates for the 30-day period ended
February 29, 2000, were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- -------------------------------------------------------------------
Alabama fund 9.52 - 8.84
Florida fund 8.79 8.25 8.15
Georgia fund 9.09 - 8.45
Kentucky fund 9.37 - -
Louisiana fund 9.41 - 8.70
Maryland fund 9.09 - 8.36
Missouri fund 9.18 - 8.51
North Carolina fund 9.28 - 8.56
Texas fund 8.94 - 8.18
Virginia fund 9.06 - 8.41
Please keep this supplement for future reference.
o TF3 SA-3
SUPPLEMENT DATED JUNE 1, 2000
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN TAX-FREE TRUST
(TF3 - FRANKLIN ARIZONA, COLORADO, CONNECTICUT, FEDERAL INTERMEDIATE-TERM,
HIGH YIELD, INDIANA,
MICHIGAN, NEW JERSEY, OREGON, PENNSYLVANIA, AND PUERTO RICO TAX-FREE INCOME
FUNDS)
DATED JULY 1, 1999, AS AMENDED JANUARY 1, 2000
The Statement of Additional Information (SAI) is amended as follows:
I. As of February 1, 2000, the Arizona, New Jersey and Pennsylvania funds
offer three classes of shares: Class A, Class B and Class C.
II. The following is added at the end of the second paragraph on page 1:
The unaudited financial statements in the funds' Annual Report to
Shareholders, for the twelve-month period ended February 29, 2000, also are
incorporated by reference.
III. The third paragraph in the section "Organization, Voting Rights and
Principal Holders" is replaced with the following:
The Arizona, High Yield, New Jersey and Pennsylvania funds currently offer
three classes of shares, Class A, Class B and Class C. The Arizona, New
Jersey and Pennsylvania funds began offering Class B shares on February 1,
2000. The Colorado, Connecticut, Oregon and Puerto Rico funds currently offer
two classes of shares, Class A and Class C. The full title of each class is:
o Franklin Arizona Tax-Free Income fund - Class A
o Franklin Arizona Tax-Free Income fund - Class B
o Franklin Arizona Tax-Free Income fund - Class C
o Franklin Colorado Tax-Free Income fund - Class A
o Franklin Colorado Tax-Free Income fund - Class C
o Franklin Connecticut Tax-Free Income fund - Class A
o Franklin Connecticut Tax-Free Income fund - Class C
o Franklin High Yield Tax-Free Income fund - Class A
o Franklin High Yield Tax-Free Income fund - Class B
o Franklin High Yield Tax-Free Income fund - Class C
o Franklin New Jersey Tax-Free Income fund - Class A
o Franklin New Jersey Tax-Free Income fund - Class B
o Franklin New Jersey Tax-Free Income fund - Class C
o Franklin Oregon Tax-Free Income fund - Class A
o Franklin Oregon Tax-Free Income fund - Class C
o Franklin Pennsylvania Tax-Free Income fund - Class A
o Franklin Pennsylvania Tax-Free Income fund - Class B
o Franklin Pennsylvania Tax-Free Income fund - Class C
o Franklin Puerto Rico Tax-Free Income fund - Class A
o Franklin Puerto Rico Tax-Free Income fund - Class C
IV. The following is added to the section "Organization, Voting Rights and
Principal Holders":
As of January 3, 2000, the principal shareholder of the funds, beneficial or
of record, was:
PERCENTAGE
NAME AND ADDRESS SHARE CLASS (%)
- -------------------------------------------------------------------------------
ARIZONA FUND
NFSC FEBO Apr-574678 Class A 6.62
Valley Concrete Materials
P. O. Box 634
Cottonwood, AZ 86326
As of January 3, 2000, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each fund
and class.
V. The first paragraph of the section "Initial sales charges" on page 18 is
revised to read:
The maximum initial sales charge is 2.25% for the Federal Intermediate fund.
For each of the other funds, the maximum initial sales charge is 4.25% for
Class A and 1% for Class C. There is no initial sales charge for Class B.
VI. The first waiver category in the section "Waivers for certain investors"
on page 19 is revised to read:
o Trust companies and bank trust departments investing assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We may accept orders for these accounts by telephone
or other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following the order.
VII. The second paragraph in the section "Contingent deferred sales charge
(CDSC)" on page 20 is revised to read as follows:
For Class B shares, there is a CDSC if you sell your shares within six years,
as described in the table below. The charge is based on the value of the
shares sold or the net asset value at the time of purchase, whichever is less.
VIII. The section "The Class B (High Yield fund only) and C Plans", found on
page 24 under "Distribution and service (12b-1) fees", is renamed "The Class
B and C Plans."
IX. The section "Systematic withdrawal plan" on page 21 is replaced with the
following:
SYSTEMATIC WITHDRAWAL plan Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. There are no service charges for establishing or maintaining a
systematic withdrawal plan.
Each month in which a payment is scheduled, we will redeem an equivalent
amount of shares in your account on the day of the month you have indicated
on your account application or, if no day is indicated, on the 20th day of
the month. If that day falls on a weekend or holiday, we will process the
redemption on the next business day. For plans set up before June 1, 2000, we
will continue to process redemptions on the 25th day of the month (or the
next business day) unless you instruct us to change the processing date.
Available processing dates currently are the 1st, 5th, 10th, 15th, 20th and
25th days of the month. When you sell your shares under a systematic
withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan also
may be subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
To discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment, we must receive instructions
from you at least three business days before a scheduled payment. The fund
may discontinue a systematic withdrawal plan by notifying you in writing and
will discontinue a systematic withdrawal plan automatically if all shares in
your account are withdrawn or if the fund receives notification of the
shareholder's death or incapacity.
X. The following information is added to the applicable sections under
"Performance", which begins on page 25:
XI. The following paragraph is added to the section "General information" on
page 22:
There are special procedures for banks and other institutions that wish to
open multiple accounts. An institution may open a single master account by
filing one application form with the fund, signed by personnel authorized to
act for the institution. Individual sub-accounts may be opened when the
master account is opened by listing them on the application, or by providing
instructions to the fund at a later date. These sub-accounts may be
registered either by name or number. The fund's investment minimums apply to
each sub-account. The fund will send confirmation and account statements for
the sub-accounts to the institution.
AVERAGE ANNUAL TOTAL RETURN
The average annual total returns for the indicated periods ended February 29,
2000, were:
SINCE
INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION
DATE (%) (%) (%) (%)
- --------------------------------------------------------------------
CLASS A
Arizona fund 9/01/87 -8.26 3.76 5.73 6.29
Colorado fund 9/01/87 -8.59 3.97 5.93 6.53
Connecticut fund 10/03/88 -9.89 3.54 5.19 5.52
Federal Intermediate 9/21/92 -4.63 4.60 - 5.29
fund
High Yield fund 3/18/86 -7.89 4.81 6.50 7.16
New Jersey fund 5/12/88 -7.19 4.09 5.86 6.50
Oregon fund 9/01/87 -7.89 3.77 5.59 6.03
Pennsylvania fund 12/01/86 -8.34 3.87 5.87 5.89
Puerto Rico fund 4/03/85 -7.06 4.26 5.87 6.80
SINCE
INCEPTION
1 YEAR (2/1/00)
(%) (%)
- --------------------------------------------------------------------
CLASS B
Arizona fund - -2.79
High Yield fund -7.90 -6.05
New Jersey fund - -2.56
Pennsylvania fund -2.73
SINCE
INCEPTION
1 YEAR 3 YEARS (5/1/95)
(%) (%) (%)
- --------------------------------------------------------------------
CLASS C
Arizona fund -6.54 2.05 3.83
Colorado fund -6.90 2.14 4.09
Connecticut fund -8.10 1.73 3.63
High Yield fund -6.29 2.64 4.83
New Jersey fund -5.55 2.61 4.22
Oregon fund -6.22 2.15 3.91
Pennsylvania fund -6.64 2.19 3.98
Puerto Rico fund -5.25 2.79 4.33
CUMULATIVE TOTAL RETURN
The cumulative total returns for the indicated periods ended February 29,
2000, were:
SINCE
INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION
DATE (%) (%) (%) (%)
- --------------------------------------------------------------------
CLASS A
Arizona fund 9/01/87 -4.15 25.54 82.39 123.76
Colorado fund 9/01/87 -4.57 26.94 85.66 130.17
Connecticut fund 10/03/88 -5.90 24.23 73.26 92.84
Federal 9/21/92 -2.43 28.11 - 50.08
Intermediate fund
High Yield fund 3/18/86 -3.81 32.16 96.02 173.92
New Jersey fund 5/12/88 -3.08 27.62 84.49 119.61
Oregon fund 9/01/87 -3.76 25.66 79.98 117.16
Pennsylvania fund 12/01/86 -4.24 26.26 84.80 122.95
Puerto Rico fund 4/03/85 -2.91 28.62 84.82 178.33
SINCE
INCEPTION
1 YEAR (2/1/00)
(%) (%)
- --------------------------------------------------------------------
CLASS B
Arizona fund - 1.21
High Yield fund -4.27 -3.36
New Jersey fund 1.44
Pennsylvania fund 1.27
SINCE
INCEPTION
1 YEAR 3 YEARS
(5/1/95)
(%) (%) (%)
- --------------------------------------------------------------------
CLASS C
Arizona fund -4.65 7.32 21.12
Colorado fund -5.08 7.65 22.64
Connecticut fund -6.32 6.34 20.04
High Yield fund -4.41 9.18 26.88
New Jersey fund -3.69 9.14 23.29
Oregon fund -4.36 7.69 21.53
Pennsylvania fund -4.76 7.84 21.94
Puerto Rico fund -3.37 9.74 23.93
CURRENT YIELD
The yields for the 30-day period ended February 29, 2000, were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- --------------------------------------------------------------------
Arizona fund 5.13 4.86 4.76
Colorado fund 5.06 - 4.68
Connecticut fund 4.95 - 4.58
Federal Intermediate fund 4.80 - -
High Yield fund 5.86 5.56 5.52
New Jersey fund 5.08 4.88 4.71
Oregon fund 4.99 - 4.61
Pennsylvania fund 5.15 4.85 4.78
Puerto Rico fund 4.86 - 4.48
TAXABLE-EQUIVALENT YIELD
The taxable-equivalent yields for the 30-day period ended February 29, 2000,
were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- --------------------------------------------------------------------
Arizona fund 8.94 8.47 8.30
Colorado fund 8.80 - 8.13
Connecticut fund 8.58 - 7.94
Federal Intermediate fund 7.95 - -
High Yield fund 9.70 9.21 9.14
New Jersey fund 8.98 8.63 8.33
Oregon fund 9.08 - 8.39
Pennsylvania fund 8.77 8.26 8.14
Puerto Rico fund 8.05 - 7.42
CURRENT DISTRIBUTION RATE
The current distribution rates for the 30-day period ended February 29, 2000,
were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- --------------------------------------------------------------------
Arizona fund 5.31 4.99 4.92
Colorado fund 5.22 - 4.85
Connecticut fund 5.29 - 4.92
Federal Intermediate fund 4.80 - -
High Yield fund 5.96 5.67 5.58
New Jersey fund 5.23 4.90 4.85
Oregon fund 5.14 - 4.76
Pennsylvania fund 5.30 4.98 4.91
Puerto Rico fund 5.09 - 4.74
The taxable-equivalent distribution rates for the 30-day period ended
February 29, 2000, were:
CLASS A CLASS B CLASS C
(%) (%) (%)
- --------------------------------------------------------------------
Arizona fund 9.26 8.70 8.58
Colorado fund 9.07 - 8.43
Connecticut fund 9.17 - 8.53
Federal Intermediate fund 7.95 - -
High Yield fund 9.87 9.39 9.24
New Jersey fund 9.25 8.66 8.58
Oregon fund 9.35 - 8.66
Pennsylvania fund 9.03 8.48 8.36
Puerto Rico fund 8.43 - 7.85
Please keep this supplement for future reference.
