o TF1 P-4
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 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 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 S. 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.
CHRISTOPHER SPERRY, PORTFOLIO MANAGER OF Advisers
Mr. Sperry has been an analyst or portfolio manager of the Arizona and Florida
Funds since February 2000. He joined the Franklin Templeton Group in 1996.
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 $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 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 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 (Arizona 0.15 2 0.65 3
and Florida
Funds)
0.10 (all other
funds)
A dealer commission of up to 1% may be paid 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-4
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 RETURNS 1
[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 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.
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 S. 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.
CHRISTOPHER SPERRY, PORTFOLIO MANAGER OF Advisers
Mr. Sperry has been an analyst or portfolio manager of the Arizona and
Florida Funds since February 2000. He joined the Franklin Templeton Group in
1996.
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
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 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.
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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
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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
A dealer commission of up to 1% may be paid 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.
