FRANKLIN NEW YORK TAX FREE TRUST, 497, 1995-02-23

FRANKLIN NEW YORK TAX FREE TRUST
497, 1995-02-23

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SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND

FRANKLIN NEW YORK TAX-FREE TRUST DATED
MAY 1, 1994

The prospectus language is revised, as noted, to reflect current operational
policies of the Fund:

1. TIMING ACCOUNTS

As of March 1, 1995, "Timing Accounts" will no longer be permitted to purchase
shares of the Fund or to exchange into the Fund. This policy does not affect any
other types of investor. "Timing Accounts" generally include market timing or
allocation services; accounts administered as to redeem or purchase shares based
upon certain predetermined market indicators; or any person whose transactions
seem to follow a timing pattern. The sections of the Prospectus "How to Buy
Shares of the Fund" and "Exchange Privilege," specifically "Restrictions on
Exchanges," are hereby amended to reflect the Fund's new policy.

2. CONTINGENT DEFERRED SALES CHARGE

The Fund does not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired by
exchange from another of the Franklin Templeton Funds which would have assessed
a contingent deferred sales charge upon redemption, such charge will be made by
the Fund, as described below. The 12-month contingency period will be tolled (or
stopped) for the period such shares are exchanged into and held in the Fund.

In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on investments of $1 million or more, a contingent deferred
sales charge of 1% applies to certain redemptions made by those investors within
12 months of the calendar month following such investments. The charge is 1% of
the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares, and
is retained by Distributors. In determining if a charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) shares representing amounts attributable to capital
appreciation; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than 12 months; and followed
by any shares held less than 12 months, on a "first in, first out" basis.

Requests for redemptions for a specified dollar amount will result in additional
shares being redeemed to cover any applicable contingent deferred sales charge
while requests for redemption of a specific number of shares will result in the
applicable contingent deferred sales charge being deducted from the total dollar
amount redeemed.

<PAGE>
FRANKLIN
NEW YORK
TAX-EXEMPT
MONEY FUND

FRANKLIN NEW YORK TAX-FREE TRUST

PROSPECTUS MAY 1, 1994

[FRANKLIN LOGO]

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

The Franklin New York Tax-Exempt Money Fund (the "Fund") is one of three series
of the Franklin New York Tax-Free Trust (the "Trust"), a non-diversified,
open-end management investment company. The Fund is a no-load, non-diversified,
open-end series of the Trust offering individual investors, corporations and
other institutions a convenient way to invest in a professionally managed
portfolio of high-quality, short-term municipal securities, primarily of the
state of New York, its political subdivisions and New York City. The Fund's
investment objective is to provide investors with as high a level of income
exempt from federal income taxes and New York State and New York City personal
income taxes as is consistent with prudent investment management, while seeking
preservation of shareholders' capital and liquidity in its investments.

This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00.

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

A Statement of Additional Information concerning the Trust, dated May 1, 1994,
as may be amended from time to time, provides a further discussion of certain
areas in this Prospectus and other matters which may be of interest to some
investors. It has been filed with the Securities and Exchange Commission ("SEC")
and is incorporated herein by reference. A copy is available without charge from
the Fund or the Fund's principal underwriter, Franklin/Templeton Distributors,
Inc. ("Distributors"), at the address or telephone number shown above.

This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>
CONTENTS PAGE

Expense Table............................................................. 2

Financial Highlights...................................................... 3

About the Fund............................................................ 4

Investment Objective and Policies of the Fund............................. 4

Management of the Fund.................................................... 9

Distributions to Shareholders............................................. 10

Taxation of the Fund and Its Shareholders................................. 11

How to Buy Shares of the Fund............................................. 12

How to Redeem Shares of the Fund.......................................... 14

Other Programs and Privileges Available to Fund Shareholders.............. 18

Exchange Privilege........................................................ 19

Telephone Transactions.................................................... 21

Valuation of Fund Shares.................................................. 22

How to Get Information Regarding an Investment in the Fund................ 22

Performance............................................................... 23

General Information....................................................... 24

Account Registrations..................................................... 25

Important Notice Regarding Taxpayer IRS Certifications.................... 26

EXPENSE TABLE
- --------------------------------------------------------------------------------

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund (including fees set by contract) for the fiscal
year ended December 31, 1993.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases............................. NONE
Maximum Sales Charge Imposed on Reinvested Dividends.................. NONE
Deferred Sales Charge................................................. NONE
Redemption Fees....................................................... NONE
Exchange Fee (per transaction)........................................ $5.00*

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees....................................................... 0.62%**
12b-1 Fees............................................................ NONE
Other Expenses:
Shareholder Servicing Costs.................................. 0.15%
Professional Fees............................................ 0.10%
Other........................................................ 0.10%
-----
Total Other Expenses.................................................. 0.35%
-----
Total Fund Operating Expenses......................................... 0.97%**
=====
</TABLE>

*$5.00 fee is only imposed on Timing Accounts as described under "Exchange
Privilege." All other exchanges are without charge.

**Represents the amount that would have been payable to the investment manager
absent a fee reduction by the investment manager. The investment manager,
however, limited its management fees and assumed responsibility for making
payments to offset certain operating expenses otherwise payable by the Fund.
With this reduction, management fees and total operating expenses represented
0.28% and 0.63%, respectively, of the average net assets of the Fund. This
action by the investment manager to limit its fees and assume responsibility for
payments of expenses related to the operations of the Fund may be terminated by
the investment manager at any time.

Investors should be aware that the preceding table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided

<PAGE>

only to assist investors in gaining a more complete understanding of fees,
charges and expenses. For a more detailed discussion of these matters, investors
should refer to the appropriate sections of this Prospectus.

EXAMPLE

As required by regulations of the SEC, the following example illustrates the
expenses that apply to a $1,000 investment in the Fund over various time periods
assuming (1) a 5% annual rate of return and (2) redemption at the end of each
time period. As noted in the preceding table, the Fund charges no redemption
fees:

<TABLE>
<S> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$10 $31 $54 $119
</TABLE>

THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, INCLUDING FEES
SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The
operating expenses are borne by the Fund and only indirectly by shareholders as
a result of their investment in the Fund. In addition, federal regulations
require the example to assume an annual return of 5%, but the Fund's actual
return may be more or less than 5%.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

Set forth below is a table containing the financial highlights for a share of
the Fund outstanding throughout the eight fiscal years ended December 31, 1993.
The information for each of the five fiscal years in the period ended December
31, 1993, has been audited by Coopers & Lybrand, the Fund's independent
auditors, whose audit report appears in the financial statements in the Fund's
Statement of Additional Information. A copy of the Statement of Additional
Information, as well as a copy of the Annual Report, which contains further
information regarding performance, may be obtained without charge as noted on
the front cover of this Prospectus. The remaining figures, which are also
audited, are not covered by the auditors' current report.

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE+
- --------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE NET & UNREALIZED TOTAL FROM FROM NET VALUE
ENDED BEGINNING INVESTMENT GAINS ON INVESTMENT INVESTMENT AT END
DECEMBER 31 OF YEAR INCOME SECURITIES OPERATIONS INCOME OF YEAR
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1986* $1.00 $.014 $ - $.014 $(.014) $1.00
1987** 1.00 .041 - .041 (.041) 1.00
1988** 1.00 .044 - .044 (.044) 1.00
1989 1.00 .056 - .056 (.056) 1.00
1990 1.00 .050 - .050 (.050) 1.00
1991 1.00 .036 - .036 (.036) 1.00
1992 1.00 .021 - .021 (.021) 1.00
1993 1.00 .017 - .017 (.017) 1.00

</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------
NET ASSETS RATIO OF RATIO OF
YEAR AT END EXPENSES NET INCOME PORTFOLIO
ENDED TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
DECEMBER 31 RETURN++ (IN 000'S) NET ASSETS++ NET ASSETS RATE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1986* 1.07% $ 3,825 -% 4.27%*** -%
1987** 4.17 54,886 .44 4.04 -
1988** 4.51 53,877 .46 4.46 -
1989 5.75 75,556 .57 5.59 -
1990 5.13 92,277 .59 5.02 -
1991 3.63 70,503 .69 3.52 -
1992 2.10 54,122 .65 2.12 -
1993 1.67 50,317 .63 1.68 -

</TABLE>

*For the period October 10, 1986 (effective date of registration) to December
31, 1986.

**Restated for change in fiscal year from August 31 to December 31.

***Annualized

+Selected data for a share of beneficial interest outstanding throughout the
period.

++Total return measures the change in value of an investment over the periods
indicated. It assumes reinvestment of dividends and capital gains, if any, at
net asset value.

++During the period indicated, the Manager reduced its management fees and
reimbursed other expenses incurred by the Fund. Had such action not been taken,
the ratio of operating expenses to average net assets for the periods ended
December 31, 1987, 1988, 1989, 1990, 1991, 1992 and 1993 would have been: .78%,
.82%, .82%, .79%, .84%, .89% and .97%.

<PAGE>

ABOUT THE FUND
- --------------------------------------------------------------------------------

The Fund is a series of the Franklin New York Tax-Free Trust, an open-end
management investment company, or mutual fund, organized as a Massachusetts
business trust in July 1986 and registered with the SEC under the Investment
Company Act of 1940 (the "1940 Act"). The Trust's shares are issued in three
series: Franklin New York Tax-Exempt Money Fund, Franklin New York Insured
Tax-Free Income Fund and Franklin New York Intermediate-Term Tax-Free Income
Fund.

The Fund attempts to maintain a stable net asset value of $1.00 per share
although there is no assurance that this will be achieved. Although a
shareholder may write redemption drafts (similar to checks) against the account,
the purchase of shares of the Fund does not create a checking or other bank
account.

Shares of the Fund may be purchased at the net asset value (without a sales
charge) with an initial investment of at least $500 and subsequent investments
of $25 or more. (See "How to Buy Shares of the Fund.")

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
- --------------------------------------------------------------------------------

The Fund seeks to provide investors with as high a level of income exempt from
federal income taxes and from the personal income taxes of New York State and
New York City as is consistent with prudent investment management, while seeking
the preservation of shareholders' capital and liquidity. This objective is a
fundamental policy of the Fund and may not be changed without shareholder
approval. As with any investment, there is no assurance that the Fund's
objective will be achieved.

The Fund will invest primarily in high quality municipal securities and
obligations issued by or on behalf of the state of New York and its local
governments, municipalities, authorities, agencies and political subdivisions,
and those of certain other governmental issuers, such as the Commonwealth of
Puerto Rico, which pay income exempt from federal, New York State and New York
City income taxes ("New York Municipal Securities"). The Fund may also invest in
participation interests in such securities, purchased from banks, insurance
companies or other financial institutions.

Under normal market conditions, the Fund attempts to invest 100% and, as a
matter of fundamental policy, will invest at least 80% of its total assets in
debt obligations issued by or on behalf of the state of New York and other
states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub- divisions ("Municipal Securities"), and will invest at least 65%
of its total assets in New York Municipal Securities. Dividends paid by the Fund
which are derived from interest on tax-exempt obligations that are not New York
Municipal Securities will be exempt from federal income tax, but will be subject
to New York State and New York City personal income taxes. At least 80% of the
Fund's assets will, under normal market conditions, be invested in securities,
the interest on which is exempt from regular federal income taxes and is not
subject to the federal alternative minimum tax in the opinion of the issuers'
counsel.

For temporary defensive purposes only, the Fund may temporarily invest more than
20% of its total assets in money market instruments having maturity and quality
characteristics discussed below, but which produce income not exempt from
federal, New York State or New York City personal income taxation, or in private
activity bonds as discussed under the subheading "Municipal Securities," the
interest on which may be subject to the alternative minimum tax. It may also
temporarily invest more than 20% of its total assets in such money market
instruments which produce income exempt from federal, but not New York State and
New York City personal,

<PAGE>

income taxation. Periods when a defensive posture is warranted include those
periods when the Fund's monies available for investment exceed the New York
Municipal Securities then available for purchase and which meet the Fund's
objective or, in the investment manager's opinion, there exist uncertain
economic, market, political, or legal conditions which may jeopardize the value
of some or all types of municipal securities.

In accordance with procedures adopted pursuant to Rule 2a-7 under the 1940 Act,
the Fund limits its investments to those U.S. dollar denominated instruments
which the Board of Trustees of the Trust determines present minimal credit risks
and which are, as required by the federal securities laws, rated in one of the
two highest rating categories (within which there may be sub-categories or
gradations indicating relative standing) as determined by nationally recognized
statistical rating agencies, or which are unrated and of comparable quality,
with remaining maturities of 397 calendar days or less ("Eligible Securities").
The Fund maintains a dollar weighted average maturity of the securities in its
portfolio of 90 days or less.

If a Municipal Security ceases to be rated in the highest rating category, or
the investment manager becomes aware that a Municipal Security has been rated
below the second highest rating category, not including changes in a security's
relative standing within a category, subsequent to its purchase by the Fund, the
Board of Trustees will promptly reassess whether such security presents minimal
credit risks and shall take such action as it deems to be in the best interest
of the Fund and its shareholders, unless such security is sold or matures within
five business days of the investment manager becoming aware of the new rating
category and the trustees are notified of the investment manager's actions. In
addition to considering ratings assigned by the rating services in its selection
of portfolio securities for the Fund, the investment manager will consider,
among other things, information concerning the financial history and condition
of the issuer, the revenue and expense prospects and, in the case of revenue
bonds, the financial history and condition of the source of revenue to service
the bonds. The securities in which the Fund will invest may not earn as high a
level of tax-exempt current income as longer term or lower quality securities
which generally have less liquidity and greater price fluctuations.

The Fund may borrow from banks for temporary or emergency purposes and pledge up
to 5% of its total assets therefor. With approval of the Board of Trustees and
subject to the following conditions, the Fund may also lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 10% of the value of the Fund's total
assets at the time of the most recent loan, and further provided that the
borrower deposits and maintains 102% cash collateral for the benefit of the
Fund. The lending of securities is a common practice in the securities industry.
The Fund will engage in security loan arrangements with the primary objective of
increasing the Fund's income either through investing the cash collateral in
short-term, interest bearing obligations or by receiving loan premiums from the
borrower. The Fund will continue to be entitled to all dividends or interest on
any loaned securities. As with any extension of credit, there

<PAGE>

are risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.

The Fund may invest up to 25% of its net assets in the debt obligations of a
single municipal issuer or of issuers in a single industry. The Fund may invest
without limitation in Municipal Securities of different issuers, the income on
which may be derived from projects of a similar type. It is the policy of the
Fund that restricted securities and any other illiquid securities (including
repurchase agreements and participation interests of more than seven days
duration, and securities with contractual or other restrictions on resale,
including instruments which are not readily marketable or have no readily
ascertainable market value) may not constitute, at the time of the purchase or
at any time, more than 10% of the value of the total net assets of the Fund.

The Statement of Additional Information contains additional information
concerning the Fund's investment objective, policies and investment
restrictions.

MUNICIPAL SECURITIES

Municipal Securities are used to raise money for various public purposes, such
as constructing public facilities and making loans to public institutions.
Certain types of municipal bonds are issued to obtain funding for privately
operated facilities. There are two principal maturity classifications of
Municipal Securities: notes and bonds. Municipal notes generally are used to
provide for short-term capital needs and have maturities of up to one year. They
include tax anticipation notes, revenue anticipation notes, bond anticipation
notes, construction loan notes, and tax-exempt commercial paper (also known as
municipal paper). Municipal bonds, which meet longer term capital needs,
generally have maturities of more than one year and fall into one of two source
of payment categories. General obligation bonds are backed by the taxing power
of the issuing municipality and are considered the safest type of municipal
bond. Revenue bonds are payable only from the revenues of a particular project
or facility and are generally dependent solely on a specific revenue source.
Industrial development bonds are a specific type of revenue bond backed by the
credit and security of a private user. The Fund will purchase general obligation
and revenue bonds only to the extent the purchase of such bonds would be
consistent with the maturity and other requirements of Rule 2a-7 under the 1940
Act. The Statement of Additional Information describes in greater detail the
Municipal Securities in which the Fund may invest.

It is possible that the Fund, from time to time, will invest more than 25% of
its assets in a particular segment of the Municipal Securities market, such as
hospital revenue bonds, housing agency bonds, industrial development bonds or
airport bonds, or in securities the interest upon which is paid from revenues of
a similar type of project. In such circumstances, economic, business, political
or other changes affecting one bond (such as proposed legislation affecting the
financing of a project; shortages or price increases of needed materials; or
declining markets or needs for the projects) might also affect other bonds in
the same segment, thereby potentially increasing market risk.

<PAGE>

"Code"), and under the income tax provisions of several states. This interest
could subject a shareholder to, or increase the shareholder's liability under,
the federal and state alternative minimum tax, depending on the shareholder's
tax situation. In addition, all distributions derived from interest exempt from
regular federal income tax may subject corporate shareholders to, or increase
their liability under, the alternative minimum tax, because such distributions
are included in the corporation's "adjusted current earnings." In states with a
corporate franchise tax, distributions of the Fund may also be fully taxable to
corporate shareholders under their state franchise tax systems.

Consistent with the Fund's investment objective, the Fund may acquire such
non-essential or private activity bonds if, in the investment manager's opinion,
such bonds represent the most attractive investment opportunity then available
to the Fund. As of December 31, 1993, the Fund had derived 9.61% of its income
from such bonds, the interest on which may be a preference item subject to the
alternative minimum tax for certain investors.

The Fund may purchase floating rate and variable rate obligations. These
obligations bear interest at rates that are not fixed, but that vary with
changes in specified market rates or indices on predesignated dates. Certain of
these obligations may carry a demand feature that permits the Fund to tender
them back to the issuer or a third party, prior to maturity, at par value plus
accrued interest, which amount may be more or less than the amount the Fund paid
for them. The Fund may invest in floating rate and variable rate obligations
carrying stated maturities in excess of one year at the date of purchase by the
Fund if such obligations carry demand features that comply with the conditions
and rules adopted by the SEC. The Fund will limit its purchase of Municipal
Securities that are floating rate and variable rate obligations to those meeting
the quality standards set forth above. Frequently, such obligations are secured
by letters of credit or other credit enhancement arrangements provided by banks.
The quality, as determined by the Fund's investment manager under the
supervision of the Board of Trustees, of the underlying creditor or of the bank,
as the case may be, must also be equivalent to the previously stated quality
standards. In addition, the investment manager monitors the earning power, cash
flow and other liquidity ratios of the issuers of such obligations, as well as
the creditworthiness of the institution responsible for paying the principal
amount of the obligation under the demand feature.

The Fund may invest more than 25% of its assets in participation interests of
floating or variable rate New York Municipal Securities owned by banks.
Participation interests carry a demand feature permitting the Fund to tender
them back to the bank within a specified period of time, usually not exceeding
seven days. Each participation generally is backed by an irrevocable letter of
credit or guarantee of a bank which the investment manager, acting under the
supervision of the Board of Trustees, has determined meets the prescribed
quality standards for the Fund. The Fund will accept guarantees or letters of
credit only from Federal Deposit Insurance Corporation ("FDIC") insured banks or
thrifts having assets of at least $1 billion.

The Fund may purchase and sell Municipal Securities on a when-issued and delayed
delivery basis. These transactions are subject to market fluctuation and the
value at delivery may be more or less than the purchase price. Although the Fund
will generally purchase Municipal Securities on a when-issued basis with the
intention of acquiring such securities, it may sell such securities

<PAGE>

before the settlement date if it is deemed advisable. When the Fund is the buyer
in such a transaction, it will maintain cash or high-grade marketable securities
having an aggregate value equal to the amount of such purchase commitments in a
segregated account with its custodian until payment is made. To the extent the
Fund engages in when-issued and delayed delivery transactions, it will do so for
the purpose of acquiring securities for the Fund's portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage. Under normal circumstances, securities purchased on a when-issued or
delayed delivery basis do not earn interest until their scheduled delivery date.

For purposes of providing greater liquidity in its portfolio, the Fund may
purchase Municipal Securities (up to 100% of its net assets) from banks, brokers
or dealers, and other financial institutions (such as insurance or other
investment companies), which include "puts," that is, the right to sell the
Municipal Security within a specified period of time and at a specified price.
Because of the "put" feature on such municipal securities, the prices of the
securities may be higher and the yields lower than they otherwise would be. With
respect to 75% of the total value of the Fund's assets, no more than 5% of such
value may be in securities with put features from the same institution, except
that the Fund may invest up to 10% of its asset value in unconditional puts
(exercisable even in the event of a default in the payment of principal or
interest on the underlying security) and other securities issued by the same
institution.

Yields on Municipal Securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the Municipal
Securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Generally, municipal securities
of longer maturities produce higher current yields than municipal securities
with shorter maturities but are subject to greater price fluctuation due to
changes in interest rates, tax laws and other general market factors. Lower
rated Municipal Securities generally produce a higher yield. Thus, lower rated
Municipal Securities generally produce a higher yield than better rated
Municipal Securities due to the perception of a greater degree of risk as to the
ability of the issuer to pay principal and interest obligations.

INVESTMENT RISK CONSIDERATIONS

There are two categories of risks to which the Fund is subject: credit risk and
market risk. Credit risk is a function of the ability of an issuer of a security
to maintain timely interest payments and to pay the principal of a security upon
maturity. Market risk is the risk of price fluctuation of a Municipal Security
and is generally a function of the maturity length of a security and general
economic and interest rate conditions.

As a non-diversified series of the Trust, the Fund is not subject to any
statutory restriction under the 1940 Act with respect to concentrating the
investment of its assets in one or relatively few issuers. This concentration
may present greater risks than in the case of a diversified series of a
management investment company. (See the Statement of Additional Information for
the diversification requirements the Fund intends to meet in order to qualify as
a regulated investment company under the Code.)

RISK FACTORS IN NEW YORK

Since the Fund will generally invest primarily in New York Municipal Securities,
there are certain specific factors and considerations concerning the issuers of
these securities which may affect the

<PAGE>

credit and market risk of the Municipal Securities to be purchased by the Fund.
The following information is based primarily upon information derived from
public documents relating to securities offerings of issuers of New York
Municipal Securities, from independent municipal credit reports and historically
reliable sources, but has not been independently verified by the Fund.

The primary purpose of investing in a portfolio of New York Municipal Securities
is the special tax treatment accorded New York resident individual investors.
Payment of interest and preservation of principal, however, is dependent upon
the continuing ability of the New York issuers and/or obligors of state,
municipal and public authority debt obligations to meet their obligations
thereunder. Investors should be aware that certain substantial issuers of New
York Municipal Securities (including issuers whose obligations may be acquired
by the Fund) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest rates and lower market prices for their debt obligations. A
recurrence of the financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of their existing
obligations and, possibly, in the obligations of other issuers of New York
Municipal Securities.

Although no issuers of New York Municipal Securities were in default with
respect to the payment of their debt obligations, to the knowledge of the
investment manager as of the date of filing of this Prospectus with the SEC, the
occurrence of any such default could adversely affect the market values and
marketability of all New York Municipal Securities and, consequently, the net
asset value of the Fund's portfolio. Some of the significant financial
considerations relating to the Fund's investments in New York Municipal
Securities are summarized in the Statement of Additional Information.

Investors should consider the greater risk of the Fund's concentration in New
York Municipal Securities versus the safety that comes with a less concentrated
investment portfolio and should compare yields available on portfolios of New
York issues with those of more diversified portfolios, including out-of-state
issues, before making an investment decision. The Fund's management believes,
however, that by maintaining the Fund's investment portfolio in liquid,
short-term, high quality investments, including the participation interests and
other variable and floating rate demand instruments that have high quality
credit support from banks, insurance companies or other financial institutions,
the Fund is largely insulated from the credit risks that may exist on long-term
New York Municipal Securities. The Statement of Additional Information contains
a further description of risks under "Risk Factors Affecting New York Municipal
Securities."

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

The Board of Trustees has the primary responsibility for the overall management
of the Fund and for electing the officers who are responsible for administering
the day-to-day operations of the Fund.

<PAGE>

is engaged in various aspects of the financial services industry. Advisers acts
as investment manager to 34 U.S. registered investment companies (112 separate
series) with aggregate assets of over $75 billion, $40 billion of which are in
the municipal securities market.

Pursuant to the management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.

The Manager has limited its management fees and has assumed responsibility for
making payments to offset certain operating expenses otherwise payable by the
Fund. The "Expense Table" at the front of this Prospectus includes the
management fees and total operating expenses (expressed as a percentage of net
assets) which were paid, or which otherwise would have been payable, by the Fund
during the fiscal year ended December 31, 1993.

It is not anticipated that the Fund will incur a significant amount of brokerage
expenses because municipal securities are generally traded on a "net" basis,
that is, in principal transactions without the addition or deduction of
brokerage commissions or transfer taxes. To the extent that the Fund does
participate in transactions involving brokerage commissions, it is the Manager's
responsibility to select brokers through which such transactions will be
effected. The Manager tries to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to provide the
best execution, the Manager will consider the furnishing of quotations and of
other market services, research, statistical and other data for the Manager and
its affiliates, as well as the sale of shares of the Fund, as factors in
selecting a broker. Further information is included under "The Trust's Policies
Regarding Brokers Used on Portfolio Transactions" in the Statement of Additional
Information.

Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.

DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------

The Fund declares dividends for each day that its net asset value is calculated,
payable to shareholders of record as of the close of business the preceding day.
The amount of dividends may fluctuate from day to day and dividends may be
omitted on some days, depending on changes in the factors that comprise the
Fund's net investment income. The Fund does not pay "interest" to its
shareholders, nor is any amount of dividends or return guaranteed in any way.

Dividends are automatically reinvested daily in the form of additional shares of
the Fund at the net asset value per share at the close of business each day. The
daily dividend includes accrued interest and any original issue or acquisition
discount, plus or minus any gain or loss on the sale of portfolio securities and
changes in unrealized appreciation or depreciation in portfolio securities (to
the extent required to maintain a stable net asset value per share) less
amortization of any premium paid on the purchase of portfolio securities and the
estimated expenses of the Fund.

The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares.

The Statement of Additional Information includes a further discussion of
distributions.

<PAGE>

DIVIDENDS IN CASH

Shareholders may request to have their dividends paid out monthly in cash by
filing written instructions with Investor Services. For such shareholders, the
shares reinvested and credited to their account during the month will be
redeemed as of the close of business on the last business day of the month and
the proceeds will be paid to them in cash. By completing the "Special Payment
Instructions for Dividends" section of the Shareholder Application included with
this Prospectus, a shareholder may direct the selected distributions to another
fund in the Franklin Group of Funds or the Templeton Group, to another person,
or directly to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial processing. Dividends
which may be paid in the interim will be sent to the address of record.
Additional information regarding automated fund transfers may be obtained from
Franklin's Shareholder Services Department.

Effective June 1, 1994, shareholders may be able to change their dividend
options by telephone. See "Telephone Transactions".

TAXATION OF THE FUND AND ITS SHAREHOLDERS
- --------------------------------------------------------------------------------

The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled
"Additional Information Regarding Distributions and Taxation" in the Statement
of Additional Information.

Each series of the Trust is treated as a separate entity for federal income tax
purposes. The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, qualified as such and intends to continue to so
qualify. By distributing all of its income and meeting certain other
requirements relating to the sources of its income and diversification of its
assets, the Fund will not be liable for federal income or excise taxes.

By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders. Such
exempt-interest dividends are derived from interest income exempt from regular
federal income tax and are not subject to regular federal income tax for Fund
shareholders. In addition, to the extent that exempt-interest dividends are
derived from interest on obligations of New York and its political subdivisions,
from interest on direct obligations of the federal government, or from interest
on U.S. territorial obligations (including Puerto Rico, the U.S. Virgin Islands
and Guam), they will also be exempt from New York State and City personal income
taxes. However, for corporate taxpayers subject to the New York State franchise
tax, the foregoing categories of interest income will generally be taxable.

To the extent dividends are derived from taxable income from temporary
investments (including the discount from certain stripped obligations or their
coupons or income from securities loans or other taxable transactions), from the
excess of net short-term capital gain over net long-term capital loss, or from
ordinary income derived from the sale or disposition of bonds purchased with
market discount after April 30, 1993, they are treated as ordinary income
whether the shareholder has elected to receive them in cash or in additional
shares.

Pursuant to the Code, certain distributions which are declared in December but
which, for opera-

<PAGE>

tional reasons, may not be paid to the shareholder until the following January
will be treated for tax purposes as if received by the shareholder on December
31 of the calendar year in which they are declared.

Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on the sale or
exchange of Fund shares, held for six months or less, will be disallowed to the
extent of exempt interest dividends paid with respect to such shares.

Since the Fund's income is derived from interest and gain on the sale of
portfolio securities rather than dividend income, no portion of the Fund's
distributions will generally be eligible for the corporate dividends-received
deduction. None of the distributions paid by the Fund for the fiscal year ended
December 31, 1993, qualified for this deduction and it is not anticipated that
any of the current year's dividends will so qualify.

The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will promptly, after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions, including the portion of the
dividends on an average basis which constitutes interest income that is a tax
preference item under the alternative minimum tax. Shareholders who have not
held shares of the Fund for a full calendar year may have designated as
tax-exempt or as tax preference income a percentage of income which is not equal
to the actual amount of tax-exempt or tax preference income earned during the
period of their investment in the Fund.

Exempt-interest dividends of the Fund, although exempt from regular federal
income tax in the hands of a shareholder, are includible in the tax base for
determining the extent to which a shareholder's social security or railroad
retirement benefits will be subject to federal income tax. Shareholders are
required to disclose the receipt of tax-exempt interest on their federal income
tax returns.

Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry Fund shares will not be deductible for federal income tax
purposes.

The foregoing description relates solely to federal income tax law and to New
York State and New York City personal income tax treatment to the extent
indicated. Shareholders should consult their tax advisors with respect to the
applicability of other state and local income tax laws to distributions and
redemption proceeds received from the Fund. Corporate, individual and trust
shareholders should contact their tax advisors to determine the impact of Fund
dividend distributions under the alternative minimum tax that may be applicable
to a shareholder's particular tax situation.

Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes on distributions received by them from the
Fund and the application of foreign tax laws to these distributions.

HOW TO BUY SHARES OF THE FUND
- --------------------------------------------------------------------------------

Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares, and by the Fund directly. The use of the term "securities dealers" shall
include other financial institutions which, pursuant to an agreement with
Distributors (directly or through affiliates), handle customer orders and
accounts with the Fund. Such reference however is for con-

<PAGE>

venience only and does not indicate a legal conclusion of capacity. All shares
of the Fund are purchased at the net asset value, without a sales charge, next
determined after receipt of a purchase order in proper form. The minimum initial
investment is $500 and subsequent investments must be $25 or more. These
minimums may be waived when the shares are purchased through plans established
at Franklin providing for regular periodic investments. Purchases in proper form
received by the Fund prior to 3:00 p.m. Pacific time (6:00 p.m. Eastern time)
will be credited to the shareholder's account on that business day. If received
after 3:00 p.m., the purchase will be credited the following business day. Many
of the types of instruments in which the Fund invests must be paid for in
federal funds, which are monies held by its custodian bank on deposit at the
Federal Reserve Bank of San Francisco and elsewhere. Therefore, the monies paid
by an investor for shares of the Fund generally cannot be invested by the Fund
until they are converted into and are available to the Fund in federal funds,
which may take up to two days. In such cases, purchases by investors may not be
considered in proper form and effective until such conversion and availability.
In the event the Fund is able to make investments immediately (within one
business day), it may accept a purchase order with payment other than in federal
funds; in such event, shares of the Fund will be purchased at the net asset
value next determined after receipt of the order and payment.

Shares may be purchased in any of the following ways:

BY MAIL

(1) For an initial investment, include the completed Shareholder Application
contained in this Prospectus. For subsequent investments, the deposit slips
which are included with the shareholder's monthly statement or checkbook (if
one has been requested) may be used, or the shareholder should reference the
account number on the check.

(2) Make the check, Federal Reserve draft or negotiable bank draft payable to
Franklin New York Tax-Exempt Money Fund. Instruments drawn on other
investment companies may not be accepted.

(3) Send the check, Federal Reserve draft or negotiable bank draft to Franklin
New York Tax-Exempt Money Fund, 777 Mariners Island Blvd., P.O. Box 7777,
San Mateo, California 94403-7777.

BY WIRE

(1) Call Franklin's Shareholder Services Department at 1-800/632-2301. If that
line is busy, call 415/312-2000 collect, to advise that funds will be wired
for investment. The Fund will supply a wire control number for the
investment. It is necessary to obtain a new wire control number every time
money is wired into an account in the Fund. Wire control numbers are
effective for one transaction only and may not be used more than once.
Shareholders should contact Franklin's Shareholder Services Department at
the above telephone number to obtain a wire control number each time funds
are to be wired for investment to the Fund. Wired money which is not
properly identified with a currently effective wire control number will be
returned to the bank from which it was wired and will not be credited to the
shareholder's account.

(2) Wire funds to Bank of America, ABA routing number 121000358, for credit to
Franklin New York Tax-Exempt Money Fund, A/C 1493-3-04779. The wire control
number and

<PAGE>

shareholder's name must be included. Wired funds received by the
Bank and reported by the Bank to the Fund by 3:00 p.m. Pacific time are
normally credited on that day. Later wires are credited the following
business day.

(3) If the purchase is not to an existing account, a completed Shareholder
Application must be sent to Franklin New York Tax-Exempt Money Fund, at 777
Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777, to
assure proper credit for the wire.

THROUGH SECURITIES DEALERS

Investors may, if they wish, invest in the Fund by purchasing shares through a
securities dealer as noted above. Securities dealers which process orders on
behalf of their customers may charge a reasonable fee for their services.
Investments made directly, without the assistance of a securities dealer, are
without charge. In certain states, shares of the Fund may be purchased only
through registered securities dealers.

AUTOMATIC INVESTMENT PLAN

Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application included with
this Prospectus contains the requirements applicable to this program.

GENERAL

The Fund and Distributors reserve the right to reject any order for the purchase
of shares of the Fund or to waive the minimum investment requirements when the
shares are being purchased through plans established at Franklin providing for
regular periodic investments. In addition, the offering of shares of the Fund
may be suspended by the Fund at any time and resumed at any time thereafter.

Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.

HOW TO REDEEM SHARES OF THE FUND
- --------------------------------------------------------------------------------

All or any part of a shareholder's investment may be converted into cash,
without penalty or charge, by redeeming shares in any one or more of the methods
discussed below on any day the New York Stock Exchange (the "Exchange") is open
for trading. Regardless of the method of redemption, payment for the
shareholder's redeemed shares will be sent within seven days after receipt of
the redemption request in proper form, except that the Fund may delay the
mailing of the redemption check, or a portion thereof, until the clearance of
the check used to purchase fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally reduce this
delay, shares purchased with such instruments will also be held pending
clearance. Shares purchased by federal funds wire are available for immediate
redemption. Shareholders are requested to provide a telephone number(s) where
they may be reached during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly when necessary will
speed the processing of the redemption.

<PAGE>

Shares may be redeemed in any of the following ways:

1. BY CHECK

The Fund will supply redemption drafts (which are similar to checks and are
referred to as checks throughout this Prospectus) to shareholders who have
requested them on the Shareholder Application. The election of the check
redemption procedure does not create a checking account or other bank account
relationship between a shareholder and the Fund or any bank. These checks are
drawn through the Fund's custodian, Bank of America NT & SA (the "Custodian" or
"Bank"). Shareholders will generally not be able to convert a check drawn on the
Fund account into a certified or cashier's check by presentation at the Fund's
Custodian. The shareholder may make checks payable to the order of any person in
any amount not less than $100. There is no charge to the shareholder for this
check redemption procedure.

When such a check is presented for payment, the Fund will redeem a sufficient
number of full and fractional shares in the shareholder's account to cover the
amount of the check. This enables the shareholder to continue earning daily
income dividends until the check has cleared. Shares will be redeemed at their
net asset value next determined after receipt of a check which does not exceed
the collected balance of the account. Only shareholders having accounts in which
no share certificates have been issued will be permitted to redeem shares by
check.

Because the Fund is not a bank, no assurance can be given that stop payment
orders on checks written by shareholders will be effective. The Fund, however,
will use its best efforts to see that such orders are carried out.

Shareholders will be subject to the right of the Bank to return unpaid checks in
amounts exceeding the collected balance of their account at the time the check
is presented for payment. Checks should not be used to close a Fund account
because when the check is written, the shareholder will not know the exact total
value of the account on the day the check clears. The Bank reserves the right to
terminate this service at any time upon notice to shareholders.

2. BY TELEPHONE

A shareholder may redeem shares by telephoning the Fund at 1-800/632-2301.
Payment of redemption requests of $1,000 or less (once per business day) will be
sent by mail to the shareholder's address as reflected on the Fund's records.
For payments over $1,000, the shareholder must complete the "Wire Redemptions
Privilege" section of the Shareholder Application. Proceeds will then be wired
directly to the commercial bank or brokerage firm designated by the shareholder.
Wires will not be sent for redemption requests of $1,000 or less. Effective June
1, 1994, shareholders may have redemption proceeds of over $1,000, up to $50,000
per day per Fund account, sent directly to their address of record by filing a
completed Telephone Transaction Application (the "Application"). The Application
may be obtained by writing to the Fund or Investor Services at the address shown
on the cover or by calling 1-800/632-2301. The Fund and Investor Service will
employ reasonable procedures to confirm that instructions given by telephone are
genuine. Shareholders, however, bear the risk of loss in certain cases as
described under "Telephone Transactions - Verification Procedures."

Telephone redemption requests received before 3:00 p.m. Pacific time on any
business day will be processed that same day. The redemption check will be sent
within seven days, made payable to

<PAGE>

all the registered owners on the account, and will be sent only to the address
of record. Wire payments will be transmitted the next business day following
receipt prior to 3:00 p.m. Pacific time of a request for redemption in proper
form. Shareholders may wish to allow for longer processing time if they want to
assure that redemption proceeds will be available at a specific time for a
specific transaction. Shareholders may be able to have redemption proceeds wired
to an escrow account the same day, provided that the request is received prior
to 9:00 a.m. Pacific time.

Redemption instructions must include the shareholder's name and account number
and be called to the Fund. No shares for which share certificates have been
issued may be redeemed by telephone instructions. Redemption requests by
telephone will not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts which wish to
execute redemptions in excess of $50,000 must complete an Institutional
Telephone Privileges Agreement which is available from Franklin's Institutional
Services Department by telephoning 1-800/321-8563.

During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
section. The telephone redemption privilege may be modified or discontinued by
the Fund at any time upon 60 days' notice to shareholders.

3. BY MAIL

A shareholder may redeem all or a portion of the shareholder's shares by sending
a letter to Investor Services, at the address shown on the back cover of this
Prospectus, requesting redemption and surrendering share certificates if any
have been issued.

IMPORTANT THINGS TO REMEMBER WHEN REDEEMING SHARES

Written requests for redemption must be signed by all registered owners.

Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced below. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.

To be considered in proper form, signature(s) must be guaranteed if the
redemption request involves any of the following:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;

(4) share certificates, if the redemption proceeds are in excess of $50,000; or

<PAGE>

the Fund determines that joint owners who are married to each other are
separated or may be the subject of divorce proceedings, or (f) the authority
of a representative of a corporation, partnership, association, or other
entity has not been established to the satisfaction of the Fund.

Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or clearing agency or which
have minimum net capital of $100,000; or (4) institutions that participate in
the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.

Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:

Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation and (2) a corporate resolution.

Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.

Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) is not listed on the account
registration.

Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.

Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.

For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.

Written requests for redemption, all share certificates, and all certificate
assignment forms should be sent to the Fund or Investor Services at the address
shown on the back cover of this Prospectus.

Payment for written requests for redemption will be sent within seven days after
receipt of the request in proper form. Redemptions will be made in cash at the
net asset value per share next determined after receipt by the Fund of a
redemption request in proper form, including all share certificates,
assignments, signature guarantees and other documentation as may be required by
Investor Services. The amount received upon redemption may be more or less than
the shareholder's original investment. Redemptions may be suspended under
certain limited circumstances pursuant to rules adopted by the SEC.

Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Fund nor its agents shall be
liable to any shareholder or other person for a redemption payment by wire which
for any reason may not be processed as described in this section.

<PAGE>

OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
- --------------------------------------------------------------------------------

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT, OR NETWORKED
ACCOUNT THROUGH NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).

SHARE CERTIFICATES

Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and any capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested in writing by the shareholder or by the shareholder's securities
dealer.

CONFIRMATIONS

A confirmation statement will be sent to each shareholder monthly to reflect the
daily dividends reinvested, as well as after each transaction which affects the
shareholder's account, except a redemption effected by check. This statement
will also show the total number of Fund shares owned by the shareholder,
including the number of shares in "plan balance" for the account of the
shareholder.

SYSTEMATIC WITHDRAWAL PLAN

A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net asset value of the
shares held by the shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw under the plan is $50 per withdrawal
transaction, although this is merely the minimum amount allowed under the plan
and should not be mistaken for a recommended amount. The plan may be established
on a monthly, quarterly, semiannual or annual basis. Payments will be made from
the liquidation of shares at net asset value on the day of the transaction,
(which is generally the first business day of the month in which the
distribution is scheduled) to meet the specified withdrawals. Payments are
generally received three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions" section of the
Shareholder Application included with this Prospectus, a shareholder may direct
the selected withdrawals to another fund in the Franklin Group of Funds or the
Templeton Group, to another person, or directly to a checking account. If the
bank at which the account is maintained is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
this last option is requested, the shareholder should allow at least 15 days for
initial processing. Withdrawals which may be paid in the interim will be sent to
the address of record. Liquidation of shares may reduce or possibly exhaust the
shares in the shareholder's account, to the extent withdrawals exceed shares
earned through dividends, particularly in the event of a market decline. If the
withdrawal

<PAGE>

amount exceeds the total plan balance, the account will be closed and the
remaining balance will be sent to the shareholder. As with other redemptions, a
liquidation to make a withdrawal payment is a sale for federal income tax
purposes. Because the amount under the plan may be more than the shareholder's
actual yield or income, part of the payment may be a return of the shareholder's
investment.

A Systematic Withdrawal Plan may be terminated on written notice by the
shareholder or the Fund, and it will terminate automatically if all shares are
liquidated or withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and schedule of
withdrawal payments or suspend one such payment upon written notice to Investor
Services at least seven business days prior to the scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.

Payments under the Systematic Withdrawal Plan directed to funds which are sold
with a sales charge will be invested at the applicable offering price (which
includes the sales charge).

MULTIPLE ACCOUNTS FOR FIDUCIARIES

Special procedures have been designed for banks and other institutions wishing
to open multiple accounts in the Fund. Further information is included in the
Fund's Statement of Additional Information.

INSTITUTIONAL ACCOUNTS

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

RIGHTS OF ACCUMULATION

The cost or current value (whichever is higher) of the shares in the Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares of one of the many funds in the Franklin Group
of Funds and in the Templeton Group of Funds which are sold with a sales charge.
Included for these purposes are (a) the open-end investment companies in the
Franklin Group (except Franklin Valuemark II and Franklin Government Securities
Trust) (the "Franklin Group of Funds"), (b) other investment products in the
Franklin Group underwritten by Distributors or its affiliates (although certain
investments may not have the same schedule of sales charges and/or may not be
subject to reduction) (the products in subparagraphs (a) and (b) are referred to
as the "Franklin Group"), and (c) the open-end U.S. registered investment
companies in the Templeton Group of Funds except Templeton American Trust, Inc.,
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Group").

Purchases of Fund shares will also be included toward the completion of a Letter
of Intent with respect to any of the funds in the Franklin Group of Funds and
the Templeton Group which are sold with a sales charge.

For a list of telephone numbers a shareholder may call to obtain additional
information regarding these programs, refer to the section in this Prospectus
entitled "How to Get Information Regarding an Investment in the Fund."

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment compa-

<PAGE>

nies with various investment objectives and policies. The shares of most of
these investment companies are offered to the public with a sales charge. If a
shareholder's investment objective or outlook for the securities markets
changes, the Fund shares may be exchanged for shares of other mutual funds in
the Franklin Group of Funds or the Templeton Group (as defined under "How to Buy
Shares of the Fund") which are eligible for sale in the shareholder's state of
residence and in conformity with such fund's stated eligibility requirements and
investment minimums. Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.

EXCHANGES BY TELEPHONE

Effective June 1, 1994, shareholders, or their investment representative of
record, if any, may exchange shares of the Fund by telephone by calling
Investors Services at 1-800/632-2301 or the automated Franklin TeleFACTS(R)
system (day or night) at 1-800/247-1753. If the shareholder does not wish this
privilege extended to a particular account, the Fund or Investor Services should
be notified. Prior to June 1, 1994, this privilege is only available to persons
who have signed a "Telephone Exchange Authorization" included with the Fund's
Application. The TeleFACTS system will not be available for this privilege until
June 1, 1994.

The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account in one of the other available
funds in the Franklin Group of Funds or the Templeton Group. The Telephone
Exchange Privilege is available only for uncertificated shares or those which
have previously been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone Transactions -
Verification Procedures."

During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.

EXCHANGES THROUGH SECURITIES DEALERS

As is the case with all purchases of the Fund's shares, Investor Services will
accept exchange orders by telephone or by other means of electronic transmission
from securities dealers who execute a dealer or similar agreement with
Distributors. See also "Telephone Exchange Privilege" above. Such a
dealer-ordered exchange will be effective only for uncertificated shares on
deposit in the shareholder's account or for which certificates have previously
been deposited. A securities dealer may charge a fee for handling an exchange.

MISCELLANEOUS INFORMATION

Shares of the Fund acquired other than pursuant to the Exchange Privilege or the
reinvestment of dividends with respect to such shares, may be exchanged at the
offering price of one of the other funds in the Franklin Group of Funds or the
Templeton Group. Such offering price includes the applicable sales charge of the
fund into which the shares are being exchanged. Exchanges will be effected at
the respective net asset values or offering

<PAGE>

prices of the funds involved at the close of business on the day on which the
request is received in proper form.

There are differences among the many funds in the Franklin Group of Funds and
the Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the shareholder wishes to
transfer.

The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.

TIMING ACCOUNTS

Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.

RESTRICTIONS ON EXCHANGES

In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.

Effective September 1, 1994, the Fund will amend its policy in regard to Timing
Accounts, to reflect the following:

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.

The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.

The Fund and Distributors also, as indicated in "How to Buy Shares of the Fund,"
reserve the right to refuse any order for the purchase of shares.

TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------

Effective June 1, 1994, shareholders of the Fund and their investment
representative of record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.

All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Application as described under "How to Redeem Shares of the
Fund - Redemptions by Telephone" will be able to redeem shares of the Fund.

<PAGE>

VERIFICATION PROCEDURES

The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
Shareholders are, of course, under no obligation to apply for telephone
transaction privileges. In any instance where the Fund or Investor Services is
not reasonably satisfied that instructions received by telephone are genuine,
the requested transaction will not be executed, and neither the Fund nor
Investor Services will be liable for any losses which may occur because of a
delay in implementing a transaction.

GENERAL

During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
registered investment representative for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.

Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.

The telephone transaction privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.

VALUATION OF FUND SHARES
- --------------------------------------------------------------------------------

The net asset value of the shares of the Fund is determined by the Fund at 3:00
p.m. Pacific time each day that the Exchange is open for business. The net asset
value per share is calculated by adding the value of all portfolio holdings and
other assets, deducting the liabilities, and dividing the result by the number
of Fund shares outstanding.

The valuation of the Fund's portfolio securities is based upon their amortized
cost value, which does not take into account unrealized capital gain or loss.
This involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. The
Fund's use of amortized cost which facilitates the maintenance of the Fund's per
share net asset value of $1.00 is permitted by Rule 2a-7. Further information is
included under "Calculation of Net Asset Value" in the Statement of Additional
Information.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
- --------------------------------------------------------------------------------

Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.

<PAGE>

Yield information about the Fund may be accessed by entering Fund Code 31
followed by the # sign, when requested to do so by the automated operator.

To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:

HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
----------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.

</TABLE>

PERFORMANCE
- --------------------------------------------------------------------------------

Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance, including quotations of its current,
effective, taxable equivalent, and taxable equivalent effective yields.

Current yield, as prescribed by the SEC, is an annualized percentage rate which
reflects the change in value of a hypothetical account based on the income
received from the Fund during a seven-day period. It is computed by determining
the net change, excluding capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. Effective yield is
computed in the same manner except that the annualization of the return for the
seven-day period reflects the results of compounding (that is, the effect of
reinvesting dividends paid on both the original share and those acquired from
the reinvestment of such dividends). Tax equivalent yield demonstrates the yield
from a taxable investment necessary to produce an after-tax yield equivalent to
that of a fund which invests in tax-exempt obligations. It is computed by
dividing the tax-exempt portion of a fund's yield (calculated as indicated) by
one minus a stated income tax rate and adding the product to the taxable portion
(if any) of the fund's yield.

Tax equivalent effective yield demonstrates the effective yield from a taxable
investment necessary to produce an after-tax effective yield equivalent to that
of a fund which invests in tax-exempt obligations. It is computed in the same
manner as is a fund's tax equivalent yield, except that it is based on the tax
exempt portion of a fund's effective, rather than its current, yield. The figure
is calculated by dividing the tax-exempt portion of a fund's effective yield by
one minus a stated in-

<PAGE>

come tax rate and adding the product to the taxable portion (if any) of a fund's
effective yield.

In each case, performance figures are based upon past performance and will
reflect all recurring charges against Fund income. Such quotations will reflect
the value of any additional shares purchased with dividends from the original
share and any dividends declared on both the original share and such additional
shares. The investment results of the Fund, like all other investment companies,
will fluctuate over time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the Fund's
performance may be in any future period.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

The Trust was organized as a Massachusetts business trust on July 17, 1986. The
Agreement and Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest without par value,
which may be issued in any number of series. Shares issued will be fully paid
and non-assessable and will have no preemptive, conversion, or sinking rights.
Shares of each series have equal and exclusive rights as to dividends and
distributions declared by such series and the net assets of such series upon
liquidation or dissolution. The Board of Trustees may, from time to time, issue
other series or funds, the assets and liabilities of which will likewise be
separate and distinct from any other fund.

Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act. Voting rights are not cumulative, so that the holders of more than 50% of
the shares voting in any election of trustees can, if they choose to do so,
elect all of the trustees. The Trust does not intend to hold annual
shareholders' meetings. The Trust may, however, hold a special shareholders'
meeting for such purposes as changing fundamental investment restrictions,
approving a new management agreement or any other matters which are required to
be acted on by shareholders under the 1940 Act. Meetings of shareholders may
also be called by the trustees in their discretion or upon demand of the holders
of 10% or more of the outstanding shares of the Trust for the purpose of
electing or removing trustees. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of trustees, such as that provided in Section 16(c) of the 1940 Act.

The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $250 and has been inactive
(except for the reinvestment of distributions) for a period of at least six
months, provided advance notice is given to the shareholder. More information is
included in the Statement of Additional Information.

Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such check(s).

Shares of the Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation. SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors

<PAGE>

considering investment of proceeds of bond offerings into the Fund should
consult with expert counsel to determine the effect, if any, of various payments
made by the Fund or its investment manager on arbitrage rebate calculations.

"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.

ACCOUNT REGISTRATIONS
- --------------------------------------------------------------------------------

An account registration should reflect the investor's intentions as to
ownership.

Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.

A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.

Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."

Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's dealer to a comparably
registered Fund account maintained by another securities dealer. Both the
delivering and receiving dealers must have executed dealer or similar agreements
on file with Distributors. Unless such agreement has been executed and is on
file with Distributors, the Fund will not process the transfer and will so
inform the shareholder's delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the account to a
receiving dealer, and sign any documents required by the dealer(s) to evidence
consent to the transfer. Under current procedures, the account transfer may be
processed by the delivering securities dealer and the Fund after the Fund
receives authorization in proper form from the shareholder's delivering dealer.
In the future it may be possible to effect such transfers electronically through
the services of the NSCC.

The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in the near future,
include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.

Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.

<PAGE>

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
- --------------------------------------------------------------------------------

Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment and withhold 31% of any such payments made to individuals and
other non-exempt shareholders who have not provided a correct taxpayer
identification number ("TIN") and made certain required certifications that
appear in the Shareholder Application. A shareholder may also be subject to
backup withholding if the IRS or a securities dealer notifies the Fund that the
TIN furnished by the shareholder is incorrect or that the shareholder is subject
to backup withholding for previous under-reporting of interest or dividend
income.

The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.

<PAGE>

SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND

FRANKLIN NEW YORK TAX-FREE TRUST
DATED MAY 1, 1994

The prospectus language is revised, as noted, to reflect current operational
policies of the Fund:

1. EXPENSE TABLE

Revised to reflect that investments of $1,000,000 or more in the Fund are not
subject to a front-end sales charge but a contingent deferred sales charge of 1%
will be imposed on certain redemptions within 12 months of the calendar month
following such investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."

2. MANAGEMENT OF THE FUND

Revised to add the definition "Franklin Templeton Group" to describe the
subsidiaries of Resources.

3. HOW TO BUY SHARES OF THE FUND:

a) Add the following language as paragraph two:

The Fund may impose a $10 charge for each returned item, against any
shareholder account which, in connection with the purchase of Fund shares,
submits a check or a draft which is returned unpaid to the Fund.

b) Substitute the following for the sales charge table and the ensuing two
paragraphs:

<TABLE>
<CAPTION>
TOTAL SALES CHARGE
---------------------------------------------------------
AS A AS A DEALER CONCESSION
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF NET AS A PERCENTAGE
AT OFFERING PRICE OFFERING PRICE AMOUNT INVESTED OF OFFERING PRICE*,***
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000........................ 4.25% 4.44% 4.00%
$100,000 but less than $250,000........... 3.50% 3.63% 3.25%
$250,000 but less than $500,000........... 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000......... 2.15% 2.20% 2.00%
$1,000,000 or more ....................... none none (see below)**
</TABLE>

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

**The following commissions will be paid by Distributors, from its own
resources, to securities dealers who initiate and are responsible for
purchases of $1 million or more: 0.75% on sales of $1 million but less than
$2 million, plus 0.60% on sales of $2 million but less than $3 million, plus
0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales
of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. Dealer concession breakpoints are reset every 12 months for
purposes of additional purchases.

***At the discretion of Distributors, all sales charges may at times be
allowed to the securities dealer. If 90% or more of the sales commission is
allowed, such securities dealer may be deemed to be an underwriter as that
term is defined in the Securities Act of 1933, as amended.

No front-end sales charge applies on investments of $1 million or more, but
a contingent deferred sales charge of 1% is imposed on certain redemptions
of investments of $1 million or more within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares
of the Fund - Contingent Deferred Sales Charge."

<PAGE>
ment Securities Trust (the "Franklin Funds"), (b) other investment products
underwritten by Distributors or its affiliates (although certain investments
may not have the same schedule of sales charges and/or may not be subject to
reduction) and (c) the U.S. mutual funds in the Templeton Group of Funds
except Templeton American Trust, Inc., Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund (the "Templeton Funds"). (Franklin Funds and Templeton Funds are
collectively referred to as the "Franklin Templeton Funds.") Sales charge
reductions based upon aggregate holdings of (a), (b) and (c) above
("Franklin Templeton Investments") may be effective only after notification
to Distributors that the investment qualifies for a discount. References
throughout the Prospectus, for purposes of aggregating assets or describing
the exchange privilege, refer to the above descriptions.

Distributors, or one of its affiliates, may make payments, out of its own
resources, of up to 1% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset value by
certain trust companies and trust departments of banks. See definition under
"Description of Special Net Asset Value Purchases" and as set forth in the
SAI.

As of March 1, 1995, "Timing Accounts" will no longer be permitted to buy
shares of the Fund. See "Exchange Privilege" for a description.

b) Substitute the following for the current "Purchases at Net Asset Value"
subsection:

PURCHASES AT NET ASSET VALUE

Shares of the Fund may be purchased without the imposition of either a
front-end sales charge "net asset value" or a contingent deferred sales
charge by (1) officers, directors, trustees and full-time employees of the
Trust, any of the Franklin Templeton Funds, or of the Franklin Templeton
Group, and by their spouses and family members; (2) companies exchanging
shares with or selling assets pursuant to a merger, acquisition or exchange
offer; (3) registered securities dealers and their affiliates, for their
investment account only, and (4) registered personnel and employees of
securities dealers, and by their spouses and family members, in accordance
with the internal policies and procedures of the employing securities
dealer.

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund or another
of the Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. An
investor may reinvest an amount not exceeding the redemption proceeds. While
credit will be given for any contingent deferred sales charge paid on the
shares redeemed, a new contingency period will begin. Shares of the Fund
redeemed in connection with an exchange into another fund (see "Exchange
Privilege") are not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 120 days after the redemption. The 120 days, however, do not begin to
run on redemption proceeds placed immediately after redemption in a Franklin
Bank Certificate of Deposit ("CD") until the CD (including any rollover)
matures. Reinvestment at net asset value may also be handled by a securities
dealer or other financial institution, who may charge the shareholder a fee
for this service. The redemption is a taxable transaction but reinvestment
without a sales charge may affect the amount of gain or loss recognized and
the tax basis of the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the same fund is
made within a 30-day period. Information regarding the possible tax
consequences of such a reinvestment is included in the tax section of this
Prospectus and the SAI.

Dividends and capital gains received in cash by the shareholder may also be
used to purchase shares of the Fund or another of the Franklin Templeton
Funds at net asset value and without the imposition of a contingent deferred
sales charge within 120 days of the payment date of such distribution. To
exercise this privilege, a written request to reinvest the distribution must
accompany the purchase order. Addi-

<PAGE>
tional information may be obtained from Shareholder Services at
1-800/632-2301. See "Distributions in Cash" under "Distributions to
Shareholders."

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have,
within the past 60 days, redeemed an investment in an unaffiliated mutual
fund which charged the investor a contingent deferred sales charge upon
redemption and which has investment objectives similar to those of the
Fund.

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by registered investment
advisors and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with Distributors, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).

Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or
city, or any instrumentality, department, authority or agency thereof which
has determined that the Fund is a legally permissible investment and which
is prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND
TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings
into the Fund should consult with expert counsel to determine the effect, if
any, of various payments made by the Fund or its investment manager on
arbitrage rebate calculations. If an investment by an eligible governmental
authority at net asset value is made through a securities dealer who has
executed a dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to such
securities dealer in an amount not to exceed 0.25% of the amount invested.
Contact Franklin's Institutional Sales Department for additional
information.

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or
to be invested during the subsequent 13-month period in this Fund or any of
the Franklin Templeton Investments must total at least $1,000,000. Orders
for such accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly from the bank
or trust company, with payment by federal funds received by the close of
business on the next business day following such order.

Refer to the SAI for further information.

4. EXCHANGE PRIVILEGE

a) The following language is added at the end of the first paragraph:

Investors should review the prospectus of the fund they wish to exchange
from and the fund they wish to exchange into for all specific requirements
or limitations on exercising the exchange privilege, for example, minimum
holding periods or applicable sales charges.

b) Substitute the following for the subsection "Timing Accounts."

As of March 1, 1995, "Timing Accounts" will no longer be permitted to
exchange into the Fund. This policy does not affect any other types of
investor. "Timing Accounts" generally include market timing or allocation
services; accounts administered as to redeem or purchase shares based upon
certain predetermined market indicators; or any person whose transactions
seem to follow a timing pattern.

<PAGE>

c) Add the following paragraph under the subsection "Additional Information
Regarding Exchanges":

A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales
charge in the original fund purchased, and shares are subsequently redeemed
within the contingency period, a contingent deferred sales charge will be
imposed. The contingency period will be tolled (or stopped) for the period
such shares are exchanged into and held in a Franklin or Templeton money
market fund. See also "How to Sell Shares of the Fund - Contingent Deferred
Sales Charge."

5. HOW TO SELL SHARES OF THE FUND

Add the following subsection:

CONTINGENT DEFERRED SALES CHARGE

In order to recover commissions paid to securities dealers on investments of
$1 million or more, a contingent deferred sales charge of 1% applies to
redemptions of those investments within the contingency period of 12 months
of the calendar month following such purchase. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares,
and is retained by Distributors. In determining if a charge applies, shares
not subject to a contingent deferred sales charge are deemed to be redeemed
first, in the following order: (i) Shares representing amounts attributable
to capital appreciation of those shares held less than 12 months; (ii)
shares purchased with reinvested dividends and capital gain distributions;
and (iii) other shares held longer than 12 months; and followed by any
shares held less than 12 months, on a "first in, first out" basis.

The contingent deferred sales charge is waived for: exchanges; redemptions
through a Systematic Withdrawal Plan set up prior to February 1, 1995, and
for Systematic Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6% semiannually or
12% annually); and redemptions initiated by the Fund due to a shareholder's
account falling below the minimum specified account size.

Requests for redemptions for a specified dollar amount will result in
additional shares being redeemed to cover any applicable contingent deferred
sales charge while requests for redemption of a specific number of shares
will result in the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.

6. The section "Portfolio Operations" is changed to add Thomas Kenny as
Portfolio Manager in place of Gregory Harrington. Mr. Kenny is Senior Vice
President of the investment manager and director of Franklin's municipal bond
department. He joined Franklin in 1986. He received a Bachelor of Arts degree in
Business and Economics from the University of California at Santa Barbara and
Master of Science degree in Finance from Golden Gate University. He is a member
of several municipal securities industry related committees and associations.

<PAGE>

FRANKLIN NEW YORK
INSURED TAX-FREE
INCOME FUND

FRANKLIN NEW YORK TAX-FREE TRUST

PROSPECTUS MAY 1, 1994

[FRANKLIN LOGO]

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

The Franklin New York Insured Tax-Free Income Fund (the "Fund") is one of three
non-diversified series of the Franklin New York Tax-Free Trust (the "Trust"),
an open-end management investment company. The Fund offers individual
investors, corporations and other institutions a convenient way to invest in a
professionally managed portfolio of municipal securities, primarily issued by
the State of New York and its political subdivisions. The Fund's investment
goal is to provide investors with as high a level of income exempt from federal
income taxes and New York State and New York City personal income taxes as is
consistent with prudent investment management and the preservation of
shareholders' capital.

The Fund invests in New York municipal securities each of which is covered by
insurance policies providing for the scheduled payment of principal and interest
in the event of non-payment by the issuer, in securities backed by the full
faith and credit of the U.S. government, in municipal securities secured by such
U.S. government obligations, and in short-term obligations of issuers with the
highest rating from Standard & Poor's Corporation ("S&P"). All insured
securities not insured by the issuer will be insured by a qualified municipal
bond insurer. An investment in the Fund is not insured by the U.S. government or
the State of New York.

This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and the Fund that a prospective investor should know
before investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.

A Statement of Additional Information concerning the Fund dated May 1, 1994, as
may be amended from time to time, provides a further discussion of certain areas
in this Prospectus and other matters which may be of interest to some investors.
It has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated herein by reference. A copy is available without charge from the
Fund or the Fund's principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number listed above.

<PAGE>
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.

CONTENTS PAGE

Expense Table ............................................................ 2

Financial Highlights ..................................................... 4

About the Fund ........................................................... 5

Investment Objective and Policies of the Fund ............................ 5

Insurance ................................................................ 11

Management of the Fund ................................................... 14

Plan of Distribution ..................................................... 14

Distributions to Shareholders ............................................ 15

Taxation of the Fund and Its Shareholders ................................ 17

How to Buy Shares of the Fund ............................................ 19

Other Programs and Privileges Available to Fund Shareholders ............. 25

Exchange Privilege ....................................................... 27

How to Sell Shares of the Fund ........................................... 29

Telephone Transactions ................................................... 32

Valuation of Fund Shares ................................................. 32

How to Get Information Regarding an Investment in the Fund ............... 33

Performance .............................................................. 34

General Information ...................................................... 35

Account Registrations .................................................... 36

Important Notice Regarding Taxpayer IRS Certifications ................... 37

Portfolio Operations ..................................................... 37

EXPENSE TABLE
- --------------------------------------------------------------------------------

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on restated
aggregate operating expenses (including fees set by contract) of the Fund for
the fiscal year ended December 31, 1993. Shareholders of the Fund voted to adopt
a Plan of Distribution on April 22, 1994.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ................................. 4.25%*
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) ................................. 0.00%
Deferred Sales Charge ................................................ NONE
Redemption Fees ...................................................... NONE
Exchange Fee (per transaction) ....................................... $5.00**
</TABLE>

<PAGE>

<TABLE>
<S> <C>
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee .................................................... 0.57%***
12b-1 Fees 0.10%+
Other Expenses:
Reports to Shareholders ........................ 0.03%
Shareholder Servicing Costs .................... 0.02%
Other .......................................... 0.03%
-----
Total Other Expenses .............................................. 0.08%
-----
Total Fund Operating Expenses ..................................... 0.75%++
=====
</TABLE>

*Effective July 1, 1994, the maximum sales charge imposed on purchases will be
increased from 4.00% to 4.25%.

**$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.

***Represents the amount that would have been payable to the investment manager,
absent a fee reduction by the investment manager. However, the investment
manager limited its management fees; with this reduction, management fees and
total operating expenses represented 0.42% and 0.50%, respectively, of the
average net assets of the Fund.

+The 12b-1 Plan was approved by shareholders on April 22, 1994, and is effective
May 1, 1994. Consistent with National Association of Securities Dealers, Inc.'s
rules, it is possible that the combination of front-end sales charges and Rule
12b-1 fees could cause long-term shareholders to pay more than the economic
equivalent of the maximum front-end sales charges permitted under those same
rules.

++Total operating expenses for the fiscal year ended December 31, 1993 have been
restated to reflect maximum reimbursement allowed pursuant to the 12b-1 Plan,
as though the 12b-1 Plan had been in effect for the entire fiscal year.

Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.

EXAMPLE

As required by regulations of the SEC, the following example illustrates the
expenses, including the initial sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period. As noted in the table above,
the Fund charges no redemption fees:

<TABLE>
<S> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$50 $65 $82 $132
</TABLE>

THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES SHOWN ABOVE AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY
BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund
and only indirectly by shareholders as a result of their investment in the Fund.
In addition, federal regulations require the example to assume an annual return
of 5%, but the Fund's actual return may be more or less than 5%. No deduction
was made for sales charges on reinvested dividends; the expenses would be
increased if they were reflected.

<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

Set forth below is a table containing financial highlights for a share of the
Fund outstanding throughout the period May 1, 1991 (effective date of
registration) to December 31, 1991 and for the two fiscal years ended December
31, 1992 and 1993. The information for each of the three fiscal years in the
period ended December 31, 1993 has been audited by Coopers & Lybrand,
independent auditors, whose audit report appears in the financial statements in
the Fund's Statement of Additional Information. A copy of the Statement of
Additional Information as well as a copy of the Annual Report, which contains
further information regarding performance, may be obtained without charge as
noted on the front cover of this Prospectus.

<TABLE>
<CAPTION>
Per Share Operating Performance++
- --------------------------------------------------------------------------------------------------------------------
Net Asset Net Realized Distributions Net Asset
Year Value Net & Unrealized Total From From Net Value
Ended Beginning Investment Gains on Investment Investment at End Total
December 31 of Year Income Securities Operations Income of Year Return++
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991* $10.00 $.247 $.433 $0.680 $(.220) $10.46 6.75%
1992 10.46 .620 .369 .989 (.649) 10.80 9.49
1993 10.80 .600 .880 1.480 (.600) 11.68 13.79
</TABLE>

<TABLE>
<CAPTION>
Ratios/Supplemental Data
- --------------------------------------------------------------------
Net Assets Ratio of Ratio of
Year at End Expenses Net Income Portfolio
Ended of Year to Average to Average Turnover
December 31 (in 000's) Net Assets+ Net Assets Rate
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
1991* $ 37,904 .12%** 5.69%** 21.12%
1992 149,054 .33 5.80 3.39
1993 263,647 .50 5.28 5.38
</TABLE>

*For the period May 1, 1991 (effective date of registration) to December 31,
1991.

**Annualized

++Selected data for a share of beneficial interest outstanding throughout the
period.

++Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 4.0% initial sales charge, and
assumes reinvestment of dividends at the offering price and capital gains, if
any, at net asset value.

+During the period indicated, the Manager did not impose its management fees and
reimbursed other expenses incurred by the Fund. Had such action not been taken,
the ratio of operating expenses to average net assets for the periods ended
December 31, 1991, 1992 and 1993 would have been: .84%, .74% and .65%.

<PAGE>
ABOUT THE FUND
- -------------------------------------------------------------------------------

Franklin New York Tax-Free Trust is an open-end management investment company,
or mutual fund, organized as a Massachusetts business trust in July 1986 and
registered with the SEC under the Investment Company Act of 1940 (the "1940
Act"). The Trust currently consists of three series or funds: Franklin New York
Insured Tax-Free Income Fund, Franklin New York Intermediate-Term Tax-Free
Income Fund and Franklin New York Tax-Exempt Money Fund. Each fund is a separate
series of the Trust's shares of beneficial interest and maintains a totally
separate investment portfolio. The Trust may offer other funds in the future.

Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge
based upon a variable percentage (ranging from 4.00% to less than 1.0% of the
offering price), depending upon the amount invested. Effective July 1, 1994, the
sales charge will range from 4.25% to 1.0% (See "How to Buy Shares of the
Fund.")

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
- -------------------------------------------------------------------------------

The Fund seeks to provide investors with as high a level of income exempt from
federal income taxes and New York State and New York City personal income taxes
as is consistent with prudent investment management and the preservation of
shareholders' capital. The objective is a fundamental policy of the Fund and may
not be changed without shareholder approval. There is, of course, no assurance
that the Fund's objective will be achieved.

Under normal market conditions, the Fund attempts to invest 100%, and, as a
matter of fundamental policy, will invest at least 80% of its total assets in
debt obligations issued by or on behalf of the State of New York and other
states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which is exempt from federal income tax
("Municipal Securities"). In addition, under normal market conditions, the Fund
will invest at least 65% of its total assets in Municipal Securities and
obligations issued by or on behalf of the State of New York and its local
governments, municipalities, authorities, agencies and political subdivisions,
and those of certain other governmental issuers, such as the Commonwealth of
Puerto Rico, which pay income exempt from federal, New York State and New York
City personal income taxes ("New York Municipal Securities"). Dividends paid by
the Fund which are derived from interest on tax-exempt obligations that are not
New York Municipal Securities will be exempt from federal income tax, but will
be subject to New York State and New York City personal income taxes. At least
80% of the Fund's assets will, under normal market conditions, be invested in
securities, the interest on which is exempt from regular federal income taxes
and is not subject to the federal alternative minimum tax in the opinion of the
issuers' counsel. Thus, it is possible, although not anticipated, that up to 20%
of the Fund's net assets could be in Municipal Securities subject to the
alternative minimum tax and/or in taxable obligations and up to 35% of the
Fund's net assets could be in Municipal Securities from a state other than New
York.

For temporary defensive purposes only, the Fund may invest (1) more than 20% of
its assets (which could be up to 100%) in fixed- income obliga-

<PAGE>
tions, the interest on which is subject to federal income tax, and (2) more than
35% of the value of its net assets (which could be up to 100%) in instruments
the interest on which is exempt from federal income taxes but not New York State
and New York City personal income taxes. Any such temporary taxable investments
will be limited to obligations issued or guaranteed by the full faith and credit
of the U.S. government, commercial paper rated A-1 by S&P, or other high grade
liquid debt obligations.

With respect to its investments in Municipal Securities, the Fund may invest
only in Municipal Securities insured by qualified municipal bond insurers (which
are private companies, rather than government agencies), securities backed by
the full faith and credit of the U.S. government or Municipal Securities secured
by an escrow or trust account of U.S. government securities, except for
temporary short-term investments carrying the highest rating by S&P. (See
"Insurance.") Under normal circumstances, at least 65% of the Fund's total
assets will be invested in insured New York Municipal Securities as described
herein. Although an insurer's quality standards are independently determined and
may vary from time to time, generally such Municipal Securities that are rated
at the date of purchase are in the three highest ratings of S&P (AAA, AA, and A
for Bonds and SP-1 through SP-2 for Notes) or of Moody's Investors Service
("Moody's") (Aaa, Aa, and A for Bonds and MIG-1 through MIG-3 for Notes). An
insurer may also insure Municipal Securities which are unrated or have lower S&P
ratings or which meet its own insurance standards.

In determining whether to insure any Municipal Security, the insurer has applied
its own standards, which are not necessarily the same as the criteria used in
regard to the selection of securities by the investment manager. Pending
investment in longer-term Municipal Securities, the Fund also may invest up to
35% of its total net assets in short-term, tax-exempt instruments, without
obtaining insurance, provided such instruments carry an A-1 or SP-1 short-term
or AAA long-term rating by S&P. For a description of such ratings, see the
Appendix in the Statement of Additional Information.

The Fund may borrow from banks for temporary or emergency purposes and pledge up
to 5% of its total assets therefore.

With approval of the Board of Trustees and subject to the following conditions,
the Fund may lend its portfolio securities to qualified securities dealers or
other institutional investors, provided that such loans do not exceed 10% of the
value of the Fund's total assets at the time of the most recent loan, and
further provided that the borrower deposits and maintains 102% cash collateral
for the benefit of the Fund. The lending of securities is a common practice in
the securities industry. The Fund will engage in security loan arrangements with
the primary objective of increasing the Fund's income either through investing
the cash collateral in short-term interest bearing obligations or by receiving
loan premiums from the borrower. The Fund will continue to be entitled to all
dividends or interest on any loaned securities. As with any extension of credit,
there are risks of delay in recovery and loss of rights in the collateral should
the borrower of the security fail financially.

The Fund may purchase or sell securities without regard to the length of time
the security has been held, and the frequency of portfolio transactions (the
turnover rate) will vary from year to year, depending on market conditions. The
Fund anticipates that its portfolio turnover rate will generally not exceed 100%
per year.

<PAGE>
It is the policy of the Fund that restricted securities and any other illiquid
securities (including repurchase agreements and participation interests of more
than seven days duration, and securities with contractual or other restrictions
on resale, including instruments which are not readily marketable or have no
readily ascertainable market value) may not constitute, at the time of the
purchase or at any time, more than 10% of the value of the total net assets of
the Fund.

MUNICIPAL SECURITIES

The Fund's Municipal Securities investments include obligations issued by or on
behalf of states, territories and possessions of the U.S. and the District of
Columbia, and their political subdivisions, agencies, and instrumentalities, the
interest on which is exempt from federal income tax. An opinion as to the
tax-exempt status of a Municipal Security is generally rendered to the issuer by
the issuer's bond counsel at the time of issuance of the security.

Municipal Securities are used to raise money for various public purposes, such
as constructing public facilities and making loans to public institutions.
Certain types of municipal bonds are issued to provide funding for privately
operated facilities. There are two principal maturity classifications of
Municipal Securities: notes and bonds. Municipal notes are used generally to
provide for short-term capital needs and generally have maturities of up to one
year. These include tax anticipation notes, revenue anticipation notes, bond
anticipation notes, construction loan notes, and tax-exempt commercial paper
(also known as municipal paper). Municipal bonds, which meet longer-term capital
needs, generally have maturities of more than one year and fall into one of two
source of payment categories. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are payable only from the
revenues of a particular project or facility and are generally dependent solely
on a specific revenue source. Industrial development bonds are a specific type
of revenue bond backed by the credit and security of a private user. There are,
of course, variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors.

The Fund has no restrictions on the maturity of Municipal Securities in which it
may invest. Accordingly, the Fund will seek to invest in Municipal Securities of
such maturities which, in the judgment of the Fund and its investment manager,
will provide a high level of current income consistent with prudent investment.
The investment manager will also consider current market conditions and the cost
of obtaining insurance on such securities.

It is possible that the Fund, from time to time, will invest more than 25% of
its assets in a particular segment of the Municipal Securities market, such as
infrastructure, hospital revenue bonds, housing agency bonds, industrial
development bonds or airport bonds, or in securities the interest upon which is
paid from revenues of a similar type of project. In such circumstances,
economic, business, political or other changes affecting one bond (such as
proposed legislation affecting the financing of a project; shortages or price
increases of needed materials; or declining markets or need for the projects)
might also affect other bonds in the same segment, thereby potentially
increasing market risk.

<PAGE>
come taxes, constitutes a preference item for taxpayers in determining their
alternative minimum tax under the Internal Revenue Code of 1986, as amended (the
"Code"), and under the income tax provisions of several states. This interest
could subject a shareholder to or increase liability under the federal and state
alternative minimum tax, depending on the shareholder's tax situation. In
addition, all distributions derived from interest exempt from regular federal
income tax may subject corporate shareholders to, or increase their liability
under, the alternative minimum tax, because such distributions are included in
the corporation's "adjusted current earnings." In states with a corporate
franchise tax, distributions of the Fund may also be fully taxable to corporate
shareholders under their state franchise tax systems.

Consistent with the Fund's investment objective, the Fund may acquire such
non-essential or private activity bonds if, in the investment manager's
opinion, such bonds represent the most attractive investment opportunity then
available to the Fund. As of December 31, 1993, the Fund derived 10.04% of its
income from such bonds, the interest on which may be a preference item subject
to the alternative minimum tax for certain investors.

If the interest on private activity bonds is not exempt from regular federal
income taxes, they will not be purchased by the Fund.

The Fund may purchase floating rate and variable rate obligations. These
obligations bear interest at rates that are not fixed, but that vary with
changes in specified market rates or indices on predesignated dates. Certain of
these obligations may carry a demand feature that permits the Fund to tender the
obligation back to the issuer at par value plus accrued interest prior to
maturity. This amount may be more or less than the amount the Fund paid for
them. The Fund may invest in floating rate and variable rate obligations
carrying stated maturities in excess of one year at the date of purchase by the
Fund if such obligations carry demand features that comply with the conditions
of rules adopted by the SEC. The Fund will limit its purchase of Municipal
Securities that are floating rate and variable rate obligations to those meeting
the quality standards set forth above. Frequently such obligations are secured
by letters of credit or other credit support arrangements provided by banks. The
quality of the underlying creditor or of the bank, as the case may be, must, as
determined by the investment manager under the supervision of the Board of
Trustees, also be equivalent to the quality standards set forth above. In
addition, the investment manager monitors the earning power, cash flow and other
liquidity ratios of the issuers of such obligations, as well as the
creditworthiness of the institution responsible for paying the principal amount
of the obligations under the demand feature.

The Fund may purchase and sell Municipal Securities on a "when-issued" and
"delayed delivery" basis. These transactions are subject to market fluctuation
and the value at delivery may be more or less than the purchase price. Although
the Fund will generally purchase Municipal Securities on a when-issued basis
with the intention of acquiring such securities, it may sell such securities
before the settlement date if it is deemed advisable. When the Fund is the buyer
in such a transaction, it will maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments, until payment is made. To the
extent the Fund engages in "when-issued" and "delayed delivery" transactions, it
will do so for the purpose of acquiring securities for the Fund's portfolio
consistent with its

<PAGE>
investment objective and policies and not for the purpose of investment
leverage.

The Fund may purchase from banks, brokers or dealers, and other financial
institutions, Municipal Securities with put features. With respect to 75% of the
total value of the Fund's assets, no more than 5% of such value may be in
securities underlying puts from the same institution, except that the Fund may
invest up to 10% of its asset value in unconditional puts (exercisable even in
the event of a default in the payment of principal or interest on the underlying
security) and other securities issued by the same institution.

The Fund may also invest in municipal lease obligations primarily through
Certificates of Participation ("COPs"). COPs, which are widely used by state and
local governments to finance the purchase of property, function much like
installment purchase agreements. For example, a COP may be created when
long-term lease revenue bonds are issued by a governmental corporation to pay
for the acquisition of property or facilities which are then leased to a
municipality. The payments made by the municipality under the lease are used to
repay interest and principal on the bonds issued to purchase the property. Once
these lease payments are completed, the municipality gains ownership of the
property for a nominal sum. The lessor is, in effect, a lender secured by the
property being leased. This lease format is generally not subject to
constitutional limitations on the issuance of state debt, and COPs may enable a
governmental issuer to increase government liabilities beyond constitutional
debt limits.

A feature which distinguishes COPs from municipal debt is that the lease which
is the subject of the transaction must contain a "nonappropriation" or
"abatement" clause. A nonappropriation clause provides that, while the
municipality will use its best efforts to make lease payments, the municipality
may terminate the lease without penalty if the municipality's appropriating body
does not allocate the necessary funds. Local administrations, being faced with
increasingly tight budgets, therefore have more discretion to curtail payments
under COPs than they do to curtail payments on traditionally funded debt
obligations. If the government lessee does not appropriate sufficient monies to
make lease payments, the lessor or its agent is typically entitled to repossess
the property. In most cases, however, the private sector value of the property
will be less than the amount the government lessee was paying.

While the risk of nonappropriation is inherent to COP financing, the Fund
believes that this risk is mitigated by its policy of investing only in COPs
rated within the four highest rating categories of Moody's, S&P or Fitch
Investors Service, or in unrated COPs believed to be of comparable quality.
Criteria considered by the rating agencies and the investment manager in
assessing such risk include the issuing municipality's credit rating, evaluation
of how essential the leased property is to the municipality and the term of the
lease compared to the useful life of the leased property. The Board of Trustees
reviews the COPs held in the Fund's portfolio to assure that they constitute
liquid investments based on various factors reviewed by the investment manager
and monitored by the Board. Such factors include (1) the credit quality of such
securities and the extent to which they are rated; (2) the size of the municipal
securities market, both in general and with respect to COPs; and (3) the extent
to which the type of COPs held by the Fund trade on the same basis and with the
same degree of dealer participation as other municipal bonds of comparable
credit rating or quality.

<PAGE>
Yields on Municipal Securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the Municipal
Securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer or insurer. Generally, Municipal
Securities of longer maturities produce higher current yields than Municipal
Securities with shorter maturities, but are subject to greater price fluctuation
due to changes in interest rates, tax laws and other general market factors.
Lower-rated Municipal Securities generally produce a higher yield with shorter
maturities than better-rated Municipal Securities due to the perception of a
greater degree of risk as to the ability of the issuer to pay principal and
interest obligations. Although the cost of insurance on the securities in the
Fund's portfolio will reduce the Fund's yield, one of the objectives of such
insurance is to obtain a higher yield than would be available if all securities
in the Fund's portfolio were rated "AAA" by S&P without the benefit of any
insurance.

INVESTMENT RISK CONSIDERATIONS

While an investment in the Fund is not without risk, certain policies are
followed in managing the Fund which may help to reduce the investor's risk.
There are two categories of risks to which the Fund is subject: credit risk and
market risk. Credit risk is a function of the ability of an issuer of a
Municipal Security to maintain timely interest payments and to pay the principal
of a security upon maturity. The Trust attempts to minimize credit risk by
maintaining the insurance coverage discussed below.

As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the 1940 Act with respect to the concentration of
its investments in the assets of one or more issuers. This concentration may
present greater risks than in the case of a diversified company. (See the
Statement of Additional Information for the diversification requirements the
Fund intends to meet in order to qualify as a regulated investment company under
the Code.)

Market risk is the risk of price fluctuation of a Municipal Security and is
generally a function of the underlying credit rating of an issuer, the maturity
length of a security, a security's yield, and current general economic and
interest rate conditions. As with other debt instruments, the price of the debt
securities in which the Funds invest are likely to decrease in times of rising
interest rates. Conversely, when rates fall, the value of the Fund's debt
investments may rise. Price changes of debt securities held by the Fund have a
direct impact on the net asset value per share of the Fund. THE INSURANCE DOES
NOT GUARANTEE THE MARKET VALUE OF THE MUNICIPAL SECURITIES AND, EXCEPT AS
INDICATED IN THIS PROSPECTUS, HAS NO EFFECT ON THE NET ASSET VALUE, REDEMPTION
PRICE, OR DIVIDENDS PAID BY THE FUND.

RISK FACTORS IN NEW YORK

Since the Fund will generally invest primarily in New York Municipal Securities,
there are certain specific factors and considerations concerning New York State
and New York City which may affect the credit and market risk of the Municipal
Securities that the Fund may purchase. The following information is based
primarily upon information derived from public documents relating to securities
offerings of issuers of New York Municipal Securities, from independent
municipal credit reports and historically reliable sources, but has not been
independently verified by the Fund.

The primary purpose of investing in a portfolio of New York Municipal Securities
is the special tax treatment accorded New York resident individual investors.
However, payment of interest and

<PAGE>
preservation of principal is dependent upon the continuing ability of the New
York issuers and/or obligers of state, municipal and public authority debt
obligations to meet their obligations thereunder. Investors should be aware that
certain substantial issuers of New York Municipal Securities (including issuers
whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest rates and lower
market prices for their debt obligations. A recurrence of the financial
difficulties previously experienced by such issuers could result in defaults or
declines in the market values of their existing obligations and, possibly, in
the obligations of other issuers of New York Municipal Securities.

Although no issuers of New York Municipal Securities were, to the knowledge of
the investment manager, as of the date of this Prospectus, in default with
respect to the payment of their debt obligations, the occurrence of any such
default could adversely affect the market values and marketability of all New
York Municipal Securities and, consequently, the net asset value of the Fund's
portfolio. Some of the significant financial considerations relating to the
Fund's investments in New York Municipal Securities are summarized in the
Statement of Additional Information.

Investors should consider the greater risk of the Fund's concentration in New
York Municipal Securities versus the safety that comes with a less concentrated
investment portfolio and should compare yields available on portfolios of New
York issues with those of more diversified portfolios, including out-of-state
issues, before making an investment decision. The Fund's management believes,
however, that by maintaining the Fund's investment portfolio in New York
Municipal Securities which are covered by insurance policies providing for the
scheduled payment of principal and interest in the event of non-payment by the
issuer as discussed more fully below, in securities backed by the full faith
and credit of the U.S. government, in Municipal Securities secured by such U.S.
government obligations, and in short-term obligations of issuers with the
highest rating from S&P, the Fund is largely insulated from the credit risks
that may exist on long-term New York Municipal Securities. The Statement of
Additional Information contains a further description under "Risk Factors
Affecting New York Municipal Securities."

INSURANCE
- -------------------------------------------------------------------------------

Except as indicated, each insured Municipal Security in the Fund's portfolio
will be covered by either a "New Issue Insurance Policy," "Portfolio Insurance
Policy" issued by a qualified municipal bond insurer or a "Secondary Insurance
Policy."

Any of the policies discussed herein are intended to insure the scheduled
payment of all principal and interest on each of the Municipal Securities
(rather than the entire portfolio of the Fund as a whole) when due. The
insurance of principal refers to the face or par value of each security and is
not affected by the price paid therefor by the Fund or the market value thereof.
This allows the investment manager to diversify the Fund's portfolio by not
being limited to one insurer.

NEW ISSUE INSURANCE POLICY

The New Issue Insurance Policies, if any, have been obtained by the respective
issuers of the Municipal Securities at the time of the original issuance of the
securities and all premiums respecting such securities have been paid in advance
by such issuers.

<PAGE>
Such policies are non-cancellable and will continue in force so long as the
Municipal Securities are outstanding and the respective insurers remain in
business. Since New Issue Insurance Policies remain in effect as long as the
securities are outstanding, the insurance may have an effect on the resale value
of securities in the Fund's portfolio by enhancing its saleability. Therefore,
New Issue Insurance Policies may be considered to represent an element of market
value with regard to Municipal Securities thus insured, but the exact effect, if
any, of this insurance on such market value cannot be estimated. The Fund will
acquire portfolio securities subject to New Issue Insurance Policies only where
the claims paying ability of the insurer thereof is rated "AAA" by S&P.

No contract to purchase a Municipal Security is entered into without either
permanent insurance in place or an irrevocable commitment to insure the
Municipal Security by a qualified insurer.

PORTFOLIO INSURANCE POLICY

The "Portfolio Insurance Policy" which insures against nonpayment of scheduled
principal and interest, will be effective only so long as the Municipal
Securities described in the policy continue to be held by the Fund, the Fund is
in existence and the insurer is still in business and meeting its obligations.
In the event of a sale of any Municipal Security by the Fund or payment thereof
prior to maturity, the Portfolio Insurance Policy terminates as to such
Municipal Security.

The Portfolio Insurance Policy obtained by the Fund may also be cancelled for
failure to pay the premium. Nonpayment of premiums on such policy obtained by
the Fund will, under certain circumstances, result in the cancellation of the
Portfolio Insurance Policy and will also permit the insurer to take action
against the Fund to recover premium payments due it. Premium rates for each
issue of securities covered by the Portfolio Insurance Policy are fixed for the
life of the Fund. The insurance premiums are payable monthly by the Fund and are
adjusted for purchases and sales of covered securities during the month. The
insurer cannot cancel coverage already in force with respect to Municipal
Securities owned by the Fund and covered by the Portfolio Insurance Policy,
except for nonpayment of premiums. In the event that a portfolio holding which
has been covered by a Portfolio Insurance Policy is pre-refunded and irrevocably
secured by a U.S. government security, the insurance is no longer required. Any
security for which insurance is cancelled other than provided herein will be
sold by the Fund as promptly thereafter as possible.

The premium on the Fund's Portfolio Insurance Policy is an item of expense and
will be reflected in its average annual expenses. The average annual premium
rate for the Portfolio Insurance Policy is determined by dividing the amount of
the Fund's annual Portfolio Insurance Policy premium by the face amount of the
insured bonds in its investment portfolio covered by that policy. Premiums are
paid from the Fund's assets and reduce the current yield on its portfolio by the
amount thereof. When the Fund purchases a Secondary Insurance Policy (see
below), the single premium is added to the cost basis of the Municipal Security
and is not considered an item of expense of the Fund.

The Fund may also own, without insurance coverage, Municipal Securities for
which an escrow or trust account has been established pursuant to the documents
creating the Municipal Security and containing sufficient U.S. government
securities backed by its full faith and credit pledge in order to ensure the
payment of principal and interest on such bonds.

<PAGE>
SECONDARY INSURANCE POLICY

The Fund may at any time purchase from the provider of a "Portfolio Insurance
Policy" a permanent Secondary Insurance Policy on any Municipal Security held by
the Fund. The coverage and obligation of the Fund to pay monthly premiums under
a Portfolio Insurance Policy would cease with the purchase by the Fund of a
Secondary Insurance Policy on such security.

By purchasing a Secondary Insurance Policy, the Fund would, upon payment of a
single premium, obtain similar insurance against nonpayment of scheduled
principal and interest for the remaining term of the security. Such insurance
coverage will be noncancellable and will continue in force so long as the
securities so insured are outstanding. One of the purposes of acquiring such a
policy would be to enable the Fund to sell the portfolio security to a third
party as a "AAA" rated insured security at a market price higher than what
otherwise might be obtainable if the security was sold without the insurance
coverage. (Such rating is not automatic, however, and must specifically be
requested from S&P for each bond.) Such a policy would likely be purchased if,
in the opinion of the investment manager, the market value or net proceeds of a
sale by the Fund would exceed the current value of the security (without
insurance) plus the cost of the Secondary Insurance Policy. Any difference
between the excess of a security's market value as a "AAA" rated security over
its market value without such rating, including the single premium cost thereof,
would inure to the Fund in determining the net capital gain or loss realized by
the Fund upon the sale of the portfolio security. The Fund may purchase
insurance under a Secondary Insurance Policy in lieu of a Portfolio Insurance
Policy at any time, regardless of the effect of market value on the underlying
Municipal Security, if the investment manager believes such insurance would best
serve the Fund's interests in meeting its objective and policies.

Since the Fund has the right to purchase a Secondary Insurance Policy even if
the security is currently in default as to any payments by the issuer, the Fund
would have the opportunity to sell such security rather than be obligated to
hold the security in its portfolio in order to continue in force the applicable
Portfolio Insurance Policy, as discussed below.

The Fund may retain any Municipal Securities insured under a Portfolio Insurance
Policy which are in default or in significant risk of default, and place a value
on the insurance which will be equal to the difference between the market value
of the defaulted security and the market value of similar securities which are
not in default. (See "Valuation of Fund Shares.") While a defaulted Municipal
Security is held in the Fund's portfolio, the Fund continues to pay the
insurance premium thereon but also collects interest payments from the insurer
and retains the right to collect the full amount of principal from the insurer
when the security comes due.

MUNICIPAL BOND INSURER

A "qualified municipal bond insurer" refers to companies whose charter limits
their risk assumption to insurance of financial obligations only. This precludes
assumption of other types of risk, such as life, medical, fire and casualty,
auto and home insurance. The bond insurance industry is a regulated industry.
All of the bond insurers must be licensed in each state in order to write
financial guaranties in that jurisdiction. Regulations vary from state to state;
however, most regulators require minimum standards of solvency and limitations
on leverage and investment of assets. New York State, which is one of the most
active regulators, requires a minimum capital base of $72.5 million for a new
primary bond insurer. Regulators

<PAGE>
also place restrictions on the amount an insurer can guaranty in relation to its
capital base. Neither the Fund nor its investment manager make any
representations as to the ability of any insurance company to meet its
obligation to the Fund if called upon to do so. The Statement of Additional
Information contains more information on municipal bond insurers.

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

The Board of Trustees has the primary responsibility for the overall management
of the Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations.

Franklin Advisers, Inc. ("Advisers" or "Manager"), serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson, Rupert H. Johnson, Jr. and R. Martin Wiskemann,
who own approximately 20%, 16% and 10%, respectively, of Resources' outstanding
shares. Through its subsidiaries, Resources is engaged in various aspects of the
financial services industry. Advisers acts as investment manager to 34 U.S.
registered investment companies (110 separate series) with aggregate assets of
over $75 billion, approximately $43 billion of which are in the municipal
securities market.

Advisers has waived a portion of its management fees. This waiver may be
terminated by Advisers at any time. The Expense Table at the front of this
Prospectus includes the management fees and total operating expenses (expressed
as a percentage of net assets) which would have otherwise been payable by the
Fund for the fiscal year ended December 31, 1993.

It is not anticipated that the Fund will incur a significant amount of brokerage
expenses because municipal securities are generally traded on a "net" basis,
that is, in principal transactions without the addition or deduction of
brokerage commissions or transfer taxes. To the extent that the Fund does
participate in transactions involving brokerage commissions, it is the Manager's
responsibility to select brokers through whom such transactions will be
effected. The Manager tries to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to provide the
best execution, the Manager will consider the furnishing of quotations and of
other market services, research, statistical and other data for the Manager and
its affiliates, as well as the sale of shares of the Fund, as factors in
selecting a broker. Further information is included under "The Trust's Policies
Regarding Brokers Used on Portfolio Transactions" in the Statement of Additional
Information.

PLAN OF DISTRIBUTION
- --------------------------------------------------------------------------------

Effective May 1, 1994 (the "Effective Date") the Fund adopted a plan pursuant to
Rule 12b-1 under the 1940 Act (the "Plan"), as approved by shareholders at a
special meeting held on April 22, 1994.

<PAGE>
Under the Plan, the Fund may reimburse Distributors or others for all expenses
incurred by Distributors or others in the promotion and distribution of the
Fund's shares. Such expenses may include, but are not limited to, the printing
of prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund shares, as well as
any distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Fund, Distributors or
its affiliates. The maximum amount which the Fund may pay to Distributors or
others for such distribution expenses is 0.10% per annum of the average daily
net assets of the Fund, payable on a quarterly basis. All expenses of
distribution and marketing in excess of 0.10% per annum will be borne by
Distributors or others who have incurred them, without reimbursement from the
Fund. The Plan also covers any payments to or by the Fund, Distributors, or
other parties on behalf of the Fund or Distributors, to the extent such payments
are deemed to be for the financing of any activity primarily intended to result
in the sale of shares issued by the Fund within the context of Rule 12b-1. The
payments under the Plan are included in the estimated annual operating expenses
which may be borne by the Fund are included in the expense table of this
prospectus.

In implementing the Plan, the Board has determined that the annual fees payable
thereunder will be equal to the sum of: (i) the amount obtained by multiplying
0.10% by the average daily net assets represented by shares of the Fund that
were acquired by investors on or after the Effective Date of the Plan ("New
Assets"), and (ii) the amount obtained by multiplying 0.05% by the average daily
net assets represented by shares of the Fund that were acquired before the
Effective Date of the Plan ("Old Assets"). Such fees will be paid to the current
securities dealer of record on the shareholder's account. In addition, until
such time as the maximum payment of 0.10% is reached on a yearly basis, up to an
additional 0.02% will be paid to Distributors under the Plan. The payments to be
made to Distributors will be used by Distributors to defray other marketing
expenses that have been incurred in accordance with the Plan, such as
advertising.

The fee is a Fund expense so that all shareholders regardless of when they
purchased their shares will bear Rule 12b-1 expenses at the same rate. That rate
initially will be at least 0.07% (0.05% plus 0.02%) of such average daily net
assets and, as Fund shares are sold on or after the Effective Date, will
increase over time. Thus, as the proportion of Fund shares purchased on or after
the Effective Date increases in relation to outstanding Fund shares, the
expenses attributable to payments under the proposed Plan will also increase
(but will not exceed 0.10% of average daily net assets). While this is the
currently anticipated calculation for fees payable under the Plan, the Plan
permits the Trust's trustees to allow the Fund to pay a full 0.10% on all assets
at any time. The approval of the Trust's Board of Trustees would be required to
change the calculation of the payments to be made under the Plan.

DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------

There are two types of distributions which the Fund may make to its
shareholders:

1. Income dividends. The Fund receives income in the form of interest and other
income derived from its investments. This income, less the expenses incurred in
the Fund's operations, is its net

<PAGE>
investment income from which income dividends may be distributed. Thus, the
amount of dividends paid per share may vary with each distribution.

2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made twice each year. One distribution may be made in December to reflect the
net short-term and net long-term capital gains realized by the Fund as of
October 31 of such year. Any net short-term and net long-term capital gains
realized by the Fund during the remainder of the fiscal year may be distributed
following the end of the fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund may make only
one distribution derived from net short-term and net long-term capital gains in
any year or adjust the timing of its distributions for operational or other
reasons.

DISTRIBUTION DATE

Although subject to change by the Board of Trustees without prior notice to or
approval by shareholders, the Fund's current policy is to declare income
dividends daily and pay them monthly on or about the last business day of that
month. The amount of income dividend payments by the Fund is dependent upon the
amount of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Trust's Board of Trustees.
THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN
INVESTMENT IN ITS SHARES. PAYMENT OF DIVIDENDS BY THE FUND IS NOT INSURED.

DIVIDEND REINVESTMENT

Unless requested otherwise in writing or on the Shareholder Application, income
dividends and capital gain distributions, if any, will be automatically
reinvested in the shareholder's account in the form of additional shares, valued
at the closing net asset value (without sales charge) on the dividend
reinvestment date. Shareholders have the right to change their election with
respect to the receipt of distributions by notifying the Fund, but any such
change will be effective only as to distributions for which the reinvestment
date is seven or more business days after the Fund has been notified. See the
Statement of Additional Information for more information.

Many of the Fund's shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of course, any shares so
acquired remain at market risk.

DISTRIBUTIONS IN CASH

A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to
another fund in the Franklin Group of Funds(R) or the Templeton Group, to
another person, or directly to a checking account. If the bank at which the
account is maintained is a member of the Automated Clearing House, the payments
may be made automatically by electronic funds transfer. If this last option is
requested, the shareholder should allow at least 15 days for initial processing.
Dividends which may be paid in the interim will be sent to the address of
record. Additional information regarding automated fund

<PAGE>
transfers may be obtained from Franklin's Shareholder Services Department.
Dividend and capital gain distributions are eligible for investment in another
fund in the Franklin Group of Funds or the Templeton Group at net asset value.

HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES

The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund.

TAXATION OF THE FUND AND ITS SHAREHOLDERS
- -------------------------------------------------------------------------------

The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled,
"Additional Information Regarding Distributions and Taxation" in the Statement
of Additional Information.

By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders. Such
exempt-interest dividends are derived from interest income exempt from regular
federal income tax and are not subject to regular federal income tax for Fund
shareholders. In addition, to the extent that exempt-interest dividends are
derived from interest on obligations of New York and its political subdivisions,
from interest on direct obligations of the federal government, or from interest
on U.S. territorial obligations (including Puerto Rico, the U.S. Virgin Islands
or Guam), they will be exempt from New York State and City personal income
taxes. However, for corporate taxpayers subject to the New York State franchise
tax, the foregoing categories of interest income will generally be taxable.

To the extent dividends are derived from taxable income from temporary
investments (including the discount from certain stripped obligations or their
coupons or income from securities loans or other taxable transactions), from
ordinary income derived from the sale or disposition of bonds purchased with
market discount after April 30, 1993, or from the excess of net short-term
capital gain over net long-term capital loss, they are treated as ordinary
income whether the shareholder has elected to receive them in cash or in
additional shares.

From time to time, the Fund may purchase a tax-exempt obligation with market
discount; that is, for a price that is less than the principal amount of the
bond. For such obligations purchased after April 30, 1993, a portion of the gain
(not to exceed the accrued portion of market discount as of the time of sale or
disposition) is treated as ordinary income rather than capital gain. Any
distribution by the Fund of such ordinary income to its shareholders will be
subject to regular income tax in the hands of Fund shareholders. In any fiscal
year, the Fund may elect not to distribute to its shareholders its taxable
ordinary income and to, instead, pay federal income or excise taxes on this

<PAGE>
income at the Fund level. The amount of such distributions, if any, is expected
to be small.

Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time a shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.

Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January will be treated, for tax purposes, as if
received by the shareholder on December 31 of the calendar year in which they
are declared.

Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange of
the Fund's shares, held for six months or less, will be treated as a long-term
capital loss to the extent of capital gain dividends received with respect to
such shares. All or a portion of the sales charge incurred in purchasing shares
of the Fund will not be included in the federal tax basis of such shares sold or
exchanged within ninety (90) days of their purchase (for purposes of determining
gain or loss with respect to such shares) if the sales proceeds are reinvested
in the Fund or in another fund in the Franklin/Templeton Group and a sales
charge which would otherwise apply to the reinvestment is reduced or eliminated.
Any portion of such sales charge excluded from the tax basis of the shares sold
will be added to the tax basis of the shares acquired in the reinvestment.
Shareholders should consult with their tax advisors concerning the tax rules
applicable to the redemption or exchange of fund shares.

Since the Fund's income is derived from interest income and gain on the sale of
portfolio securities rather than dividend income, no portion of the Fund's
distributions will generally be eligible for the corporate dividends-received
deduction. None of the distributions paid by the Fund for the fiscal year ended
December 31, 1993, qualified for this deduction and it is not anticipated that
any of the current year's dividends will so qualify.

The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year advise them of the tax status for federal income tax purposes
of such dividends and distributions, including the portion of the dividends on
an average basis which constitutes taxable income or interest income that is a
tax preference item under the alternative minimum tax. Shareholders who have not
held shares of the Fund for a full calendar year may have designated as
tax-exempt or as tax preference income a percentage of income which is not equal
to the actual amount of tax-exempt or tax preference income earned during the
period of their investment in the Fund.

Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry Fund shares will not be deductible for federal income tax
purposes.

<PAGE>
butions and redemption proceeds received from the Fund. Corporate, individual
and trust shareholders should contact their tax advisors to determine the impact
of Fund dividends and capital gain distributions under the alternative minimum
tax that may be applicable to a shareholder's particular tax situation.

HOW TO BUY SHARES OF THE FUND
- -------------------------------------------------------------------------------

Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference however is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be waived when the shares
are purchased through plans established at Franklin providing for regular
periodic investments. The Fund and Distributors reserve the right to refuse any
order for the purchase of shares.

PURCHASE PRICE OF FUND SHARES

Shares of the Fund are offered at the public offering price, which is the net
asset value per share plus a sales charge, next computed (1) after the
shareholder's securities dealer receives the order which is promptly transmitted
to the Fund or (2) after receipt of an order by mail from the shareholder
directly in proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check). The sales charge is a variable
percentage of the offering price depending upon the amount of the sale. On
orders for 100,000 shares or more, the offering price will be calculated to four
decimal places. On orders for less than 100,000 shares, the offering price will
be calculated to two decimal places using standard rounding criteria. A
description of the method of calculating net asset value per share is included
under the caption "Valuation of Fund Shares."

Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions applicable for the period from May 1, 1994 through June
30, 1994:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
TOTAL SALES CHARGE
----------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.00% 4.2% 4.00%
$100,000 but less than $250,000 3.25% 3.4% 3.25%
$250,000 but less than $500,000 2.50% 2.6% 2.50%
$500,000 but less than $1,000,000 2.00% 2.0% 2.00%
$1,000,000 through $2,500,000 1.00% 1.0% 1.00%
- -----------------------------------------------------------------------------------------------------
</TABLE>

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

<PAGE>
On purchases in excess of $2,500,000, the sales charge is 1% of the offering
price on the first $2,500,000, plus 0.5% on the next $2,500,000, plus 0.25% on
the excess over $5,000,000. All sales charges are paid to the securities dealer,
if any, involved in the trade, who may therefore be deemed an "underwriter"
under the Securities Act of 1933, as amended.

Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions effective July 1, 1994:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
TOTAL SALES CHARGE
----------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICEINVESTED OF OFFERING PRICE*
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.25% 4.4% 4.00%
$100,000 but less than $250,000 3.50% 3.6% 3.25%
$250,000 but less than $500,000 2.75% 2.8% 2.50%
$500,000 but less than $1,000,000 2.15% 2.2% 2.00%
$1,000,000 through $2,500,000 1.00% 1.0% 1.00%
- -----------------------------------------------------------------------------------------------
</TABLE>

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

On purchases in excess of $2,500,000, the sales charge is 1% of the offering
price on the first $2,500,000, plus 0.5% on the next $2,500,000, plus 0.25% on
the excess over $5,000,000. Sales charges on purchases of $1,000,000 or more are
paid to the securities dealer, if any, involved in the trade, who may therefore
be deemed an "underwriter" under the Securities Act of 1933, as amended.

The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of many of the funds in the
Franklin Group of Funds(R) and in the Templeton Group of Funds. Included for
these purposes are (a) the open-end investment companies in the Franklin Group
(except Franklin Valuemark II and Franklin Government Securities Trust) (the
"Franklin Group of Funds"), (b) other investment products in the Franklin Group
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) (the products in subparagraphs (a) and (b) are referred to as the
"Franklin Group") and (c) the open-end U.S. registered investment companies in
the Templeton Group of Funds except Templeton American Trust, Inc., Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Group"). Purchases pursuant to a
Letter of Intent for more than $2,500,000 will be at a 1% sales charge until
cumulative purchases reach $2,500,000 and at the incremental sales charge on the
excess over $2,500,000. Purchases pursuant to the Rights of Accumulation will be
at the applicable sales charge of 1% or more until the additional purchase, plus
the value of the account or the amount previously invested, less redemptions,
exceeds $2,500,000, in which event the sales charge on the excess will be
calculated as stated above. Sales charge reductions based upon

<PAGE>
purchases in more than one of the funds in the Franklin Group or Templeton Group
(the "Franklin/Templeton Group") may be effective only after notification to
Distributors that the investment qualifies for a discount.

Distributors or its affiliates, at their expense, may also provide additional
compensation to dealers in connection with sales of shares of the Fund and other
funds in the Franklin Group of Funds or the Templeton Group. Compensation may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and/or shareholder services and programs regarding one or more
of the Franklin Group of Funds or the Templeton Group and other dealer-sponsored
programs or events. In some instances, this compensation may be made available
only to certain dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Dealers may not use sales of the Fund's shares to qualify for this compensation
to the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. None of the aforementioned additional compensation is paid for by the Fund
or its shareholders.

Certain officers and trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the Statement of Additional
Information.

QUANTITY DISCOUNTS IN SALES CHARGES

Shares may be purchased under a variety of plans which provide for a reduced
sales charge. To be certain to obtain the reduction of the sales charge, the
investor or the dealer should notify Distributors at the time of each purchase
of shares which qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, investments in any of the Franklin/Templeton
Group may be combined with those of the investor's spouse and children under the
age of 21. In addition, the aggregate investments of a trustee or other
fiduciary account (for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is available, even
though there may be a number of beneficiaries of the account.

In addition, an investment in the Fund may qualify for a reduction in the sales
charge under the following programs:

1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in the Franklin/Templeton Group may be combined with the
amount of the current purchase in determining the sales charge to be paid.

2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of the Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which if made at one time would qualify for a
reduced sales charge.

<PAGE>
the Letter of Intent as described above. Sales charge reductions based upon
purchases in more than one company in the Franklin/Templeton Group will be
effective only after notification to Distributors that the investment qualifies
for a discount. The shareholder's holdings in the Franklin/Templeton Group
acquired more than 90 days before the Letter of Intent is filed will be counted
towards completion of the Letter of Intent but will not be entitled to a
retroactive downward adjustment of sales charge. Any redemptions made by the
shareholder during the 13-month period will be subtracted from the amount of the
purchases for purposes of determining whether the terms of the Letter of Intent
have been completed. If the Letter of Intent is not completed within the
13-month period, there will be an upward adjustment of the sales charge as
specified below, depending upon the amount actually purchased (less redemptions)
during the period. An investor who executes a Letter of Intent prior to the
change in the sales charge structure for the Fund will be entitled to complete
the Letter at the lower of (i) the new sales charge structure; or (ii) the sales
charge structure in effect at the time the Letter was filed with the Fund.

AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five percent (5%)
of the amount of the total intended purchase will be reserved in shares of the
Fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the intended purchase is not completed. The
reserved shares will be included in the total shares owned as reflected on
periodic statements; income and capital gain distributions on the reserved
shares will be paid as directed by the investor. The reserved shares will not be
available for disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. If the total purchases, less
redemptions, equal the amount specified under the Letter, the reserved shares
will be deposited to an account in the name of the investor or delivered to the
investor or the investor's order. If the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made by Distributors and the dealer through whom purchases were made pursuant to
the Letter of Intent (to reflect such further quantity discount) on purchases
made within 90 days before, and on those made after filing the Letter. The
resulting difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single purchase or the
dollar amount of the total purchases. If the total purchases, less redemptions,
are less than the amount specified under the Letter, the investor will remit to
Distributors an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge which would have applied to
the aggregate purchases if the total of such purchases had been made at a single
time. Upon such remittance the reserved shares held for the investor's account
will be deposited to an account in the name of the investor or delivered to the
investor or to the investor's order. If within 20 days after written request
such difference in sales charge is not paid, the redemption of an appropriate
number of reserved shares to realize such difference will be made. In the event
of a total redemption of the account prior to fulfillment of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption, and the balance will be forwarded to the investor. By completing
the Let-

<PAGE>
ter of Intent section of the Shareholder Application, an investor grants to
Distributors a security interest in the reserved shares and irrevocably appoints
Distributors as attorney-in-fact with full power of substitution to surrender
for redemption any or all shares for the purpose of paying any additional sales
charge due. Purchases under the Letter of Intent will conform with the
requirements of Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors that this Letter
is in effect each time a purchase is made.

Additional terms concerning the offering of the Fund's shares are included in
the Statement of Additional Information.

GROUP PURCHASES

An individual who is a member of a qualified group may also purchase shares of
the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of shares previously
purchased and still owned by the group, plus the amount of the current purchase.
For example, if members of the group had previously invested and still held
$80,000 of Fund shares and now were investing $25,000, the sales charge would be
3.25% (effective July 1, 1994, 3.50%). Information concerning the current sales
charge applicable to a group may be obtained by contacting Distributors.

A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund shares at a discount, and
(iii) satisfies uniform criteria which enable Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or Distributors and the members, must agree to
include sales and other materials related to the Fund in its publications and
mailings to members at reduced or no cost to Distributors, and must seek to
arrange for payroll deduction or other bulk transmission of investments to the
Fund.

If an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies the Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the offering price per share determined on the day that both the
check and payroll deduction data are received in required form by the Fund.

PURCHASES AT NET ASSET VALUE

Shares of the Fund may be purchased at net asset value by trust companies and
bank trust departments for funds over which they exercise exclusive
discretionary investment authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to the amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in this Fund or any other
company in the Franklin/Templeton Group must total at least $1,000,000. Orders
for such accounts will be accepted by mail accompanied by a check, or by
telephone or other means of electronic data transfer directly from the bank or
trust company, with payment by federal funds received by the close of business
on the next business day following such order. If an investment by a trust
company or bank trust department at net asset

<PAGE>
value is made through a dealer who has executed a dealer agreement with
Distributors, Distributors or one of its affiliates may make payment, out of
their own resources, to such dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales Department for
additional information.

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund or another fund
in the Franklin Group of Funds or the Templeton Group which were purchased with
a sales charge. An investor may reinvest an amount not exceeding the redemption
proceeds. Shares of the Fund redeemed in connection with an exchange into
another fund (see "Exchange Privilege") are not considered "redeemed" for this
privilege. In order to exercise this privilege, a written order for the purchase
of shares of the Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120 days, however, do
not begin to run on redemption proceeds placed immediately after redemption in a
Franklin Bank Certificate of Deposit ("CD") until the CD (including any
rollover) matures. Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge the shareholder
a fee for this service. The redemption is a taxable transaction but reinvestment
without a sales charge may affect the amount of gain or loss recognized and the
tax basis of the shares reinvested. If there has been a loss on the redemption,
the loss may be disallowed if a reinvestment in the same fund is made within a
30-day period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the Statement
of Additional Information.

Shares of the Fund may also be purchased at net asset value by (1) officers,
directors, trustees, and full-time employees of the Fund or any fund in the
Franklin Group of Funds or the Templeton Group, the Manager and Distributors and
affiliates of such companies, if they have been such for at least 90 days, and
by their spouses and family members, (2) former participants in the
Franklin/Templeton Profit Sharing/401(k) plan, who elect to make a direct
rollover of all, or a portion of, their eligible distribution account balance
from such plan, (3) registered securities dealers and their affiliates, for
their investment account only, and (4) registered personnel and employees of
securities dealers and by their spouses and family members, in accordance with
the internal policies and procedures of the employing securities dealer. Such
sales are made upon the written assurance of the purchaser that the purchase is
made for investment purposes and that the securities will not be transferred or
resold except through redemption or repurchase by or on behalf of the Fund.
Employees of securities dealers must obtain a special application from their
employers or from Franklin's Sales Department in order to qualify.

<PAGE>
should consult with expert counsel to determine the effect, if any, of various
payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a dealer who has executed a dealer agreement with
Distributors, Distributors or one of its affiliates may make a payment, out of
their own resources, to such dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales Department for
additional information.

GENERAL

OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
- --------------------------------------------------------------------------------

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).

SHARE CERTIFICATES

Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested in writing by the shareholder or by the broker.

CONFIRMATIONS

A confirmation statement will be sent to each shareholder quarterly to reflect
the dividends reinvested during that period and after each other transaction
which affects the shareholder's account. This statement will also show the total
number of shares owned by the shareholder, including the number of shares in
"plan balance" for the account of the shareholder.

AUTOMATIC INVESTMENT PLAN

Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application included with
this Prospectus contains the requirements applicable to this program. In
addition, shareholders may obtain more information concerning this program from
their securities dealers or from Distributors.

The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit or protect against a loss.

SYSTEMATIC WITHDRAWAL PLAN

A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net

<PAGE>
asset value of the shares held by the shareholder is at least $5,000. There are
no service charges for establishing or maintaining a Systematic Withdrawal Plan.
The minimum amount which the shareholder may withdraw is $50 per withdrawal
transaction although this is merely the minimum amount allowed under the plan
and should not be mistaken for a recommended amount. The plan may be established
on a monthly, quarterly, semiannual or annual basis. If the shareholder
establishes a plan, any capital gain distributions and income dividends paid by
the Fund will be reinvested for the shareholder's account in additional shares
at net asset value. Payments will then be made from the liquidation of shares at
net asset value on the day of the transaction (which is generally the first
business day of the month in which the payment is scheduled) with payment
generally received by the shareholder three to five days after the date of
liquidation. By completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this Prospectus, a
shareholder may direct the selected withdrawals to another fund in the Franklin
Group of Funds or the Templeton Group, to another person, or directly to a
checking account. If the bank at which the account is maintained is a member of
the Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing. Withdrawals which may be
paid in the interim will be sent to the address of record. Liquidation of shares
may reduce or possibly exhaust the shares in the shareholder's account, to the
extent withdrawals exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. As with other redemptions, a liquidation to
make a withdrawal payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the shareholder's actual yield
or income, part of the payment may be a return of the shareholder's investment.

The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual withdrawals
under the plan during the time such a plan is in effect. A Systematic Withdrawal
Plan may be terminated on written notice by the shareholder or the Fund, and it
will terminate automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death or incapacity
of the shareholder. Shareholders may change the amount (but not below the
specified minimum) and schedule of withdrawal payments, or suspend one such
payment by giving written notice to Investor Services at least seven business
days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.

Payments under the Systematic Withdrawal Plan directed to funds which are sold
with a sales charge will be invested at the applicable offering price (which
includes the sales charge).

INSTITUTIONAL ACCOUNTS

<PAGE>
EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------

The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment companies with various investment objectives or policies. The shares
of most of these investment companies are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for the securities
markets changes, the Fund shares may be exchanged for shares of other mutual
funds in the Franklin Group of Funds or the Templeton Group (as defined under
"How to Buy Shares of the Fund") which are eligible for sale in the
shareholder's state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums. Exchanges may be made in any
of the following ways:

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

EFFECTIVE JUNE 1, 1994, SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF
RECORD, IF ANY, MAY EXCHANGE SHARES OF THE FUND BY TELEPHONE BY CALLING
INVESTORS SERVICES AT 1-800/632-2301 OR THE AUTOMATED FRANKLIN TELEFACTS(R)
SYSTEM (DAY OR NIGHT) AT 1-800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS
PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD
BE NOTIFIED. PRIOR TO JUNE 1, 1994, THIS PRIVILEGE IS ONLY AVAILABLE TO PERSONS
WHO HAVE SIGNED A "TELEPHONE EXCHANGE AUTHORIZATION" INCLUDED WITH THE FUND'S
APPLICATION.

EXCHANGES THROUGH SECURITIES DEALERS

As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders by telephone or by other means of
electronic transmission from securities dealers who execute a dealer or similar
agreement with Distributors. See also "Telephone Exchange Privilege" above. Such
a dealer-ordered exchange will be effective only for uncertificated shares on
deposit in the shareholder's account or for which certificates have previously
been deposited. A securities dealer may charge a fee for handling an exchange.

MISCELLANEOUS INFORMATION

<PAGE>
which the investor paid a sales charge. Exchanges of shares of the Fund which
were purchased with a lower sales charge to a fund which has a higher sales
charge will be charged the difference, unless the shares were held in the Fund
for at least six months prior to executing the exchange. When an investor
requests the exchange of the total value of the Fund account, accrued but unpaid
income dividends and capital gain distributions will be reinvested in the Fund
at the net asset value on the date of the exchange, and then the entire share
balance will be exchanged into the new fund in accordance with the procedures
set forth above. Because the exchange is considered a redemption and purchase of
shares, the shareholder may realize a gain or loss for federal income tax
purposes. Backup withholding and information reporting may also apply.
Information regarding the possible tax consequences of such an exchange is
included in the tax section in this Prospectus and in the Statement of
Additional Information.

If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing municipal
securities, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term municipal
securities and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.

The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.

TIMING ACCOUNTS

RESTRICTIONS ON EXCHANGES

In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.

Effective September 1, 1994, the Fund will amend its policy in regard to Timing
Accounts, to reflect the following:

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) make an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) make more than two exchanges out of the Fund per
calendar quarter, or (iii) exchange shares equal in value to at least $5
million, or more than 1/4 of 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.

<PAGE>
The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.

The Fund and Distributors also, as indicated in "How to Buy Shares of the Fund,"
reserve the right to refuse any order for the purchase of shares.

HOW TO SELL SHARES OF THE FUND
- --------------------------------------------------------------------------------

A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:

REDEMPTIONS BY MAIL

Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by Investor
Services. Redemption requests received after the time at which the net asset
value is calculated, as of the close of the New York Stock Exchange (the
"Exchange"), will receive the price calculated on the following business day.
Shareholders are requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred. Investor
Services's ability to contact a shareholder promptly when necessary will speed
the processing of the redemption.

TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;

(4) share certificates, if the redemption proceeds are in excess of $50,000; or

(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.

Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions in-

<PAGE>
clude (1) national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies and
credit unions; (2) national securities exchanges, registered securities
associations and clearing agencies; (3) securities dealers which are members of
a national securities exchange or a clearing agency or which have minimum net
capital of $100,000; or (4) institutions that participate in the Securities
Transfer Agent Medallion Program ("STAMP") or other recognized signature
guarantee medallion program. A notarized signature will not be sufficient for
the request to be in proper form.

Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.

Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:

Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.

Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.

Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.

Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.

REDEMPTIONS BY TELEPHONE

Effective June 1, 1994, shareholders who file a Telephone Transaction
Application (the "Application") may redeem shares of the Fund by telephone. THE
APPLICATION MAY BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT THE
ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND INVESTOR
SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS GIVEN BY
TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN CERTAIN
CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION PROCEDURES.

<PAGE>
should follow the other redemption procedures set forth in this Prospectus.
Institutional accounts (certain corporations, bank trust departments, government
entities, and qualified retirement plans which qualify to purchase shares at net
asset value pursuant to the terms of this Prospectus) which wish to execute
redemptions in excess of $50,000 must complete an Institutional Telephone
Privileges Agreement which is available from Franklin's Institutional Services
Department by telephoning 1-800/321-8563.

SELLING SHARES THROUGH SECURITIES DEALERS

The Fund will accept redemption orders by telephone or other means of electronic
transmission from securities dealers who have entered into a dealer or similar
agreement with Distributors. This is known as a repurchase. The only difference
between a normal redemption and a repurchase is that if the shareholder redeems
shares through a dealer, the redemption price will be the net asset value next
calculated after the shareholder's dealer receives the order which is promptly
transmitted to the Fund, rather than on the day the Fund receives the
shareholder's written request in proper form. These documents, as described in
the preceding section, are required even if the shareholder's securities dealer
has placed the repurchase order. After receipt of a repurchase order from the
dealer, the Fund will still require a signed letter of instruction and all other
documents set forth above. A shareholder's letter should reference the Fund, the
account number, the fact that the repurchase was ordered by a dealer and the
dealer's name. Details of the dealer-ordered trade, such as trade date,
confirmation number, and the amount of shares or dollars, will help speed
processing of the redemption. The seven-day period within which the proceeds of
the shareholder's redemption will be sent will begin when the Fund receives all
documents required to complete ("settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest during the time between
receipt of the dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle the repurchase.
Thus, it is in a shareholder's best interest to have the required documentation
completed and forwarded to the Fund as soon as possible. The shareholder's
dealer may charge a fee for handling the order. The Statement of Additional
Information contains more information on the redemption of shares.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.

OTHER

For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the broker may call
Franklin's Dealer Services Department.

<PAGE>

TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------

Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.

All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Application as described under "How to Sell Shares of the
Fund - Redemptions by Telephone" will be able to redeem shares of the Fund.

VERIFICATION PROCEDURES

The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and by sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or Investor
Services is not reasonably satisfied that instructions received by telephone are
genuine, the requested transaction will not be executed, and neither the Fund
nor Investor Services will be liable for any losses which may occur because of a
delay in implementing a transaction.

GENERAL

Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.

The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.

VALUATION OF FUND SHARES
- --------------------------------------------------------------------------------

The net asset value per share of the Fund is determined as of the close of the
Exchange. Many newspapers carry daily quotations of the prior trading day's
closing "bid" (net asset value) and "ask" (offering price, which includes the
maximum sales charge of the Fund).

The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, accrued expenses and taxes and any necessary
reserves is deducted from the aggregate gross value of all assets, and the
difference is divided by the number of shares of the Fund outstanding at the
time. For the purpose of determining the aggregate net assets of the Fund, cash
and receivables are valued at their realizable amounts. Interest is recorded as
accrued. Portfolio securities for which market

<PAGE>
quotations are readily available are valued within the range of the most recent
bid and ask prices as obtained from one or more dealers that make markets in the
securities. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market as determined by the Manager. Municipal securities
generally trade in the over-the-counter market rather than on a securities
exchange. Other securities for which market quotations are readily available are
valued at the current market price, which may be obtained from a pricing
service, based on a variety of factors, including recent trades, institutional
size trading in similar types of securities (considering yield, risk and
maturity) and/or developments related to specific issues. Securities and other
assets for which market prices are not readily available are valued at fair
value as determined following procedures approved by the Board of Trustees. All
money market instruments with a maturity of more than 60 days are valued at
current market, as discussed above. All money market instruments with a maturity
of 60 days or less are valued at their amortized cost, which the Board of
Trustees has determined in good faith constitutes fair value for purposes of
complying with the 1940 Act. This valuation method will continue to be used
until such time as the trustees determine that it does not constitute fair value
for such purposes. With the approval of trustees, the Fund may utilize a pricing
service, bank or securities dealer to perform any of the above described
functions.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
- --------------------------------------------------------------------------------

Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.

From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds(R) by
calling the automated Franklin TeleFACTS system (day or night) at
1-800/247-1753. Information about the Fund may be accessed by entering Fund Code
81 followed by the # sign, when requested to do so by the automated operator.
(The TeleFACTS system will be available for exchanges effective June 1, 1994.
See "Exchange Privilege.")

To assist shareholders and brokers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>

<PAGE>
PERFORMANCE
- -------------------------------------------------------------------------------

Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance, including current yield, tax
equivalent yield, various expressions of total return, current distribution rate
and taxable equivalent distribution rate. They may occasionally cite statistics
to reflect its volatility or risk.

Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for other periods or based on
investments at various sales charge levels or at net asset value. For such
purposes total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.

Current yield reflects the income per share earned by the Fund's portfolio
investments; it is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result. Tax equivalent yield
demonstrates the yield from a taxable investment necessary to produce an
after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of a fund's yield
(calculated as indicated) by one minus a stated income tax rate and adding the
product to the taxable portion (if any) of the fund's yield.

Current yield and tax equivalent yield which are calculated according to a
formula prescribed by the SEC (see the Statement of Additional Information) are
not indicative of the dividends or distributions which were or will be paid to
the Fund's shareholders. Dividends or distributions paid to shareholders are
reflected in the current distribution rate or taxable equivalent distribution
rate, which may be quoted to shareholders. The current distribution rate is
computed by dividing the total amount of dividends per share paid by the Fund
during the past 12 months by a current maximum offering price. A taxable
equivalent distribution rate demonstrates the taxable distribution rate
necessary to produce an after tax distribution rate equivalent to the Fund's
distribution rate (calculated as indicated above). The state and city, and the
combined state, city and federal income tax rates upon which the Trust's tax
equivalent quotations are based are 7.70%, 3.91% and 39.6%, respectively. From
time to time, as any changes to such rates become effective, tax equivalent
yield and distribution rate quotations published by the Trust will be updated to
reflect such changes. Under certain circumstances, such as when there has been a
change in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid during the
period such policies were in effect, rather than using the dividends during the
past twelve months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as short-term capital gain, and is
calculated over a different period of time.

In each case performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the
maximum sales charge on the pur-

<PAGE>
chase of shares. When there has been a change in the sales charge structure, the
historical performance figures will be restated to reflect the new rate. The
investment results of the Fund, like all other investment companies, will
fluctuate over time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the Fund's yield,
tax equivalent yield, distribution rate, taxable equivalent distribution rate or
total return may be in any future period.

Additional information on Fund performance will be included in the Trust's
Annual Report to Shareholders.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

Annual Reports containing audited financial statements of the Trust and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this Prospectus.

The Trust was organized as a Massachusetts business trust on July 17, 1986. The
Agreement and Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest without par value,
which may be issued in any number of series. Shares issued will be fully paid
and non-assessable and will have no preemptive, conversion, or sinking rights.
Shares of each series have equal and exclusive rights as to dividends and
distributions as declared by such series and the net assets of such series upon
liquidation or dissolution.

Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act. Voting rights are noncumulative, so that in any election of trustees the
holders of more than 50% of the shares voting can elect all of the trustees, if
they choose to do so and in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board of Trustees.
The Trust does not intend to hold annual shareholders' meetings. The Trust may,
however, hold a special shareholders' meeting for such purposes as changing
fundamental investment restrictions, approving a new management agreement or any
other matters which are required to be acted on by shareholders under the 1940
Act. A meeting may also be called by the trustees in their discretion or by
shareholders holding at least ten percent of the outstanding shares of any
series. Shareholders will receive assistance in communicating with other
shareholders in connection with the election or removal of trustees, such as
that provided in Section 16(c) of the 1940 Act.

The Board of Trustees may from time to time issue other series of the Trust, the
assets and liabilities of which will likewise be separate and distinct from any
other series.

The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the value
of such account has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of distributions)
for a period of at least six months, provided advance notice is given to the
shareholder. More information is included in the Statement of Additional
Information.

Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for

<PAGE>
any loss to the shareholder caused by the shareholder's failure to cash such
check(s).

"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.

ACCOUNT REGISTRATIONS
- -------------------------------------------------------------------------------

An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" and "Owner 2"; the "or" designation is not used except
for money market fund accounts. If co-owners wish to have the ability to redeem
or convert on the signature of only one owner, a limited power of attorney may
be used.

Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."

Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's broker to a comparably
registered Fund account maintained by another securities dealer. Both the
delivering and receiving brokers must have executed dealer agreements on file
with Distributors. Unless a dealer agreement has been executed and is on file
with Distributors, the Fund will not process the transfer and will so inform the
shareholder's delivering broker. To effect the transfer, a shareholder should
instruct the broker to transfer the account to a receiving securities dealer and
sign any documents required by the broker(s) to evidence consent to the
transfer. Under current procedures the account transfer may be processed by the
delivering broker and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.

The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in the near future,

<PAGE>
include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.

Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
- -------------------------------------------------------------------------------

Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend, capital
gain distribution, or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number ("TIN") and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to backup withholding
if the IRS or a broker notifies the Fund that the number furnished by the
shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.

The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
social security number or TIN within 60 days after opening the account.

PORTFOLIO OPERATIONS
- -------------------------------------------------------------------------------

The following persons are primarily responsible for the day-to-day management of
the Fund's portfolios and have been since inception:

Gregory Harrington, Senior Vice President of Advisers, is a graduate of Mount
Saint Mary's College in Maryland and has studied at the New York School of
Finance. His experience in the municipal securities industry dates back to 1946.
He joined Advisers in 1983.

Donald Duerson, Vice President of Advisers, has a Bachelor of Science degree in
Business and Public Administration from the University of Arizona, and has
experience in the portfolio management business dating back to 1956. He is a
member of industry-related committees and associations. He joined Advisers in
1986.

Andrew Jennings, Sr., Vice President of Advisers, attended Villanova University
in Philadelphia, and has been in the securities industry for over 33 years. From
1985 to 1990, Mr. Jennings was First Vice President and Manager of the Municipal
Institutional Bond Department at Dean Witter Reynolds, Inc. He is a member of
several municipal securities industry-related committees and associations.

<PAGE>

SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND

FRANKLIN NEW YORK TAX-FREE TRUST
DATED MAY 1, 1994

The following sections of the prospectus are revised to reflect changes to the
operational policies of the Fund effective February 1, 1995:

1. EXPENSE TABLE

Revised to reflect that investments of $1,000,000 or more in the Fund are not
subject to a front-end sales charge but a contingent deferred sales charge of 1%
will be imposed on certain redemptions within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares of
the Fund - Contingent Deferred Sales Charge."

2. MANAGEMENT OF THE FUND

Revised to add the definition "Franklin Templeton Group" to describe the
subsidiaries of Resources.

3. HOW TO BUY SHARES OF THE FUND:

a) The following is added at the end of the first paragraph:

b) Substitute the following for the sales charge table and the ensuing two
paragraphs:

<TABLE>
<CAPTION>
TOTAL SALES CHARGE
------------------------------------------------------------
AS A AS A DEALER CONCESSION
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF NET AS A PERCENTAGE
AT OFFERING PRICE OFFERING PRICE AMOUNT INVESTED OF OFFERING PRICE*,***
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 .................. 2.25% 2.30% 2.00%
$100,000 but less than $250,000 ..... 1.75% 1.78% 1.50%
$250,000 but less than $500,000 ..... 1.25% 1.26% 1.00%
$500,000 but less than $1,000,000 ... 1.00% 1.01% 0.85%
$1,000,000 or more .................. none none (see below)**
</TABLE>

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

**The following commissions will be paid by Distributors, out of its own
resources to securities dealers who initiate and are responsible for
purchases of $1 million or more: 0.75% on sales of $1 million but less than
$2 million, plus 0.60% on sales of $2 million but less than $3 million, plus
0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales
of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. Dealer concession breakpoints are reset every 12 months for
purposes of additional purchases.

No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
investments of $1 million or more within 12 months of the calendar month
following such investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."

<PAGE>
the mutual funds in the Franklin Group of Funds except Franklin Valuemark
Funds and Franklin Government Securities Trust (the "Franklin Funds"), (b)
other investment products underwritten by Distributors or its affiliates
(although certain investments may not have the same schedule of sales charges
and/or may not be subject to reduction) and (c) the U.S. mutual funds in the
Templeton Group of Funds except Templeton American Trust, Inc., Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin
Funds and Templeton Funds are collectively referred to as the "Franklin
Templeton Funds.") Sales charge reductions based upon aggregate holdings of
(a), (b) and (c) above ("Franklin Templeton Investments") may be effective
only after notification to Distributors that the investment qualifies for a
discount. References throughout the Prospectus, for purposes of aggregating
assets or describing the exchange privilege, refer to the above descriptions.

Distributors, or one of its affiliates, may make payments, out of its own
resources, of up to 1.00% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset value by certain
trust companies and trust departments of banks. See definition under
"Description of Special Net Asset Value Purchases and as set forth in the
SAI.

As of March 1, 1995, "Timing Accounts" will no longer be permitted to buy
shares of the Fund. See "Exchange Privilege" for a description.

c) Substitute the following for the current "Purchases at Net Asset Value"
subsection:

PURCHASES AT NET ASSET VALUE

Shares of the Fund may be purchased without the imposition of either a
front-end sales charge ("net asset value") or contingent deferred sales
charge by (1) officers, directors, trustees and full-time employees of the
Trust, any of the Franklin Templeton Funds, or of the Franklin Templeton
Group, and by their spouses and family members; (2) companies exchanging
shares with or selling assets pursuant to a merger, acquisition or exchange
offer; (3) registered securities dealers and their affiliates, for their
investment account only, and (4) registered personnel and employees of
securities dealers, and by their spouses and family members, in accordance
with the internal policies and procedures of the employing securities dealer.

Shares of the Fund may be purchased at net asset value or without the
imposition of a contingent deferred sales charge by persons who have
redeemed, within the previous 120 days, their shares of the Fund or another
of the Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. An
investor may reinvest an amount not exceeding the redemption proceeds. While
credit will be given for any contingent deferred sales charge paid on the
shares redeemed, a new contingency period will begin. Shares of the Fund
redeemed in connection with an exchange into another fund (see "Exchange
Privilege") are not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 120 days after the redemption. The 120 days, however, do not begin to
run on redemption proceeds placed immediately after redemption in a Franklin
Bank Certificate of Deposit ("CD") until the CD (including any rollover)
matures. Reinvestment at net asset value may also be handled by a securities
dealer or other financial institution, who may charge the shareholder a fee
for this service. The redemption is a taxable transaction but reinvestment
without a sales charge may affect the amount of gain or loss recognized and
the tax basis of the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the same fund is
made within a 30-day period. Information regarding the possible tax
consequences of such a reinvestment is included in the tax section of this
Prospectus and the SAI.

Dividends and capital gains received in cash by the shareholder may also be
used to purchase shares of the Fund or another of the Franklin Templeton
Funds at net asset value or without the imposition of

<PAGE>
a contingent deferred sales charge within 120 days of the payment date of
such distribution. To exercise this privilege, a written request to reinvest
the distribution must accompany the purchase order. Additional information
may be obtained from Shareholder Services at 1-800/632-2301. See
"Distributions in Cash" under "Distributions to Shareholders."

Shares of the Fund may be purchased at net asset value and without imposition
of a contingent deferred sales charge by investors who have, within the past
60 days, redeemed an investment in an unaffiliated mutual fund which charged
the investor a contingent deferred sales charge upon redemption and which has
investment objectives similar to those of the Fund.

Shares of the Fund may be purchased at net asset value or without the
imposition of a contingent deferred sales charge by registered investment
advisors and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with Distributors, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).

Shares of the Fund may also be purchased at net asset value or without the
imposition of a contingent deferred sales charge by any state, county, or
city, or any instrumentality, department, authority or agency thereof which
has determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any,
of various payments made by the Fund or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority
at net asset value is made through a securities dealer who has executed a
dealer agreement with Distributors, Distributors or one of its affiliates may
make a payment, out of their own resources, to such securities dealer in an
amount not to exceed 0.25% of the amount invested. Contact Franklin's
Institutional Sales Department for additional information.

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

Shares of the Fund may be purchased at net asset value or without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or
to be invested during the subsequent 13-month period in this Fund or any of
the Franklin Templeton Investments must total at least $1,000,000. Orders for
such accounts will be accepted by mail accompanied by a check or by telephone
or other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.

Refer to the SAI for further information.

4. EXCHANGE PRIVILEGE

a) Substitute the following for the subsection "Timing Accounts."

<PAGE>
b) Add the following paragraph under the subsection "Additional Information
Regarding Exchanges":

5. HOW TO SELL SHARES OF THE FUND

Add the following subsection:

CONTINGENT DEFERRED SALES CHARGE

In order to recover commissions paid to securities dealers on qualified
investments of $1 million or more, a contingent deferred sales charge of 1%
applies to redemptions of those investments within the contingency period of
12 months of the calendar month following such purchase. The charge is 1% of
the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares,
and is retained by Distributors. In determining if a charge applies, shares
not subject to a contingent deferred sales charge are deemed to be redeemed
first, in the following order: (i) Shares representing amounts attributable
to capital appreciation of those shares held less than 12 months; (ii) shares
purchased with reinvested dividends and capital gain distributions; and (iii)
other shares held longer than 12 months; and followed by any shares held less
than 12 months, on a "first in, first out" basis.

The contingent deferred sales charge is waived for: exchanges; redemptions
through a Systematic Withdrawal Plan set up prior to February 1, 1995, and
for Systematic Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6% semiannually or 12%
annually); and redemptions initiated by the Fund due to a shareholder's
account falling below the minimum specified account size.

Requests for redemptions for a specified dollar amount will result in
additional shares being redeemed to cover any applicable contingent deferred
sales charge while requests for redemption of a specific number of shares
will result in the applicable contingent deferred sales charge being deducted
from the total dollar amount redeemed.

<PAGE>
FRANKLIN NEW YORK
INTERMEDIATE-TERM
TAX-FREE INCOME FUND

Franklin New York Tax-Free Trust

PROSPECTUS MAY 1, 1994

[FRANKLIN LOGO]

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

The Franklin New York Intermediate-Term Tax-Free Income Fund (the "Fund") is one
of three non-diversified series of the Franklin New York Tax-Free Trust (the
"Trust"), an open-end management investment company. The Fund offers individual
investors, corporations and other institutions a convenient way to invest in a
professionally managed portfolio of municipal securities, primarily issued by
the State of New York and its political subdivisions. The Fund's investment goal
is to provide investors with as high a level of income exempt from federal
income taxes and New York State and New York City personal income taxes as is
consistent with prudent investment management and the preservation of
shareholders' capital. The Fund intends to invest primarily in a portfolio of
investment grade obligations with a dollar weighted average portfolio maturity
of more than three years but not more than ten years. There can be no assurance
that the investment objective of the Fund will be realized.

A Statement of Additional Information concerning the Trust dated May 1, 1994, as
may be amended from time to time, provides a further discussion of certain areas
in this Prospectus and other matters which may be of interest to some investors.
It has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated herein by reference. A copy is available without charge from the
Fund or the Fund's principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number listed above.

This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or

<PAGE>

other person is authorized to give any information or make any representations
other than those contained in this Prospectus. Further information may be
obtained from the underwriter.

CONTENTS PAGE

Expense Table ............................................................. 2

Financial Highlights ...................................................... 4

About the Fund ............................................................ 4

Investment Objective and Policies of the Fund ............................. 4

Management of the Fund .................................................... 11

Distributions to Shareholders ............................................. 12

Taxation of the Fund and Its Shareholders ................................. 13

How to Buy Shares of the Fund ............................................. 15

Other Programs and Privileges Available to Fund Shareholders .............. 20

Exchange Privilege......................................................... 22

How to Sell Shares of the Fund............................................. 24

Telephone Transactions..................................................... 27

Valuation of Fund Shares................................................... 28

How to Get Information Regarding an Investment in the Fund................. 29

Performance................................................................ 29

General Information........................................................ 30

Account Registrations...................................................... 31

Important Notice Regarding Taxpayer IRS Certifications..................... 32

Portfolio Operations....................................................... 32

EXPENSE TABLE
- --------------------------------------------------------------------------------

<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................... 2.25%
Maximum Sales Charge Imposed on Reinvested Dividends.............. NONE
Deferred Sales Charge............................................. NONE
Redemption Fees................................................... NONE
Exchange Fee (per transaction).................................... $5.00*

</TABLE>

<PAGE>

<TABLE>
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C> <C>
Management Fees.............................................................. 0.63%**
12b-1 Fees+.................................................................. 0.05%***
Other Expenses:
Reports to Shareholders......................................... 0.02%
Shareholder servicing costs..................................... 0.01%
Other........................................................... 0.02%
-----
Total Other Expenses......................................................... 0.05%
-----
Total Fund Operating Expenses................................................ 0.73%**
=====
</TABLE>

*$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.

**Represents the amount that would have been payable to the investment manager,
absent a fee reduction by the investment manager. However, the investment
manager limited its management fees and assumed responsibility for making
payments to offset certain operating expenses otherwise payable by the Fund.
With this reduction, the Fund paid no management fees or operating expenses.

+Although the maximum allowed under the Plan is 0.10%, Distributors has agreed
to charge a maximum of 0.05% for the fiscal year ending December 31, 1994.

***Consistent with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$30 $45 $62 $111
</TABLE>

THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, INCLUDING FEES
SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The
operating expenses are borne by the Fund and only indirectly by shareholders as
a result of their investment in the Fund. (See "Management of the Fund" for a
description of the Fund's expenses.) In addition, federal regulations require
the example to assume an annual return of 5%, but the Fund's actual return may
be more or less than 5%.

<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

Set forth below is a table containing financial highlights for a share of the
Fund outstanding throughout the period September 21, 1992 (effective date of
registration) to December 31, 1992 and for the fiscal year ended December 31,
1993. The information for each of the two fiscal years in the period ended
December 31, 1993 has been audited by Coopers & Lybrand, independent auditors,
whose audit report appears in the financial statements in the Trust's Statement
of Additional Information. A copy of the Statement of Additional Information as
well as a copy of the Annual Report, which contains further information
regarding performance, may be obtained without charge as noted on the front
cover of this Prospectus.

PER SHARE OPERATING PERFORMANCE++
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE NET & UNREALIZED TOTAL FROM FROM NET VALUE
ENDED BEGINNING INVESTMENT GAINS ON INVESTMENT INVESTMENT AT END TOTAL
DECEMBER 31 OF YEAR INCOME SECURITIES OPERATIONS INCOME OF YEAR RETURN++
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1992* $10.00 $.090 $.135 $ .225 $(.015) $10.21 2.25%
1993 10.21 .480 .536 1.016 (.546) 10.68 10.18
</TABLE>

RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
NET ASSETS RATIO OF RATIO OF
YEAR AT END EXPENSES NET INCOME PORTFOLIO
ENDED OF YEAR TO AVERAGE TO AVERAGE TURNOVER
DECEMBER 31 (IN 000'S) NET ASSETS+ NET ASSETS RATE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1992* $ 3,459 -% 4.41%** 20.80%
1993 31,162 - 4.96 30.95
</TABLE>

*For the period September 21, 1992 (effective date of registration) to December
31, 1992.

**Annualized

++Selected data for a share of beneficial interest outstanding throughout the
period.

++Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 2.25% initial sales charge, and
assumes reinvestment of dividends and capital gains, if any, at net asset value.

+During the period indicated, the Manager reduced its management fees and
reimbursed other expenses incurred by the Fund. Had such action not been taken,
the ratio of operating expenses to average net assets for the periods ended
December 31, 1992 and 1993 would have been: 1.76% and .73%.

ABOUT THE FUND
- --------------------------------------------------------------------------------

Franklin New York Tax-Free Trust is an open-end management investment company,
or mutual fund, organized as a Massachusetts business trust in July 1986 and
registered with the SEC under the Investment Company Act of 1940 (the "1940
Act"). The Trust currently consists of three series or funds: Franklin New York
Insured Tax-Free Income Fund; Franklin New York Tax-Exempt Money Fund; and
Franklin New York Intermediate-Term Tax-Free Income Fund. The Fund is a separate
series of the Trust's shares of beneficial interest and maintains a totally
separate investment portfolio. The Trust may offer other funds in the future.

Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge
based upon a variable percentage (ranging from 2.25% to 0% of the offering
price) depending upon the amount invested. (See "How to Buy Shares of the
Fund.")

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
- --------------------------------------------------------------------------------

<PAGE>

vest primarily in a portfolio of investment grade obligations with a dollar
weighted average portfolio maturity of more than three years but not more than
ten years. There can be no assurance that the investment objective of the Fund
will be realized.

Under normal market conditions, the Fund attempts to invest 100%, and, as a
matter of fundamental policy, will invest at least 80% of its total assets in
any of the following debt obligations issued by or on behalf of the State of New
York or any state, territory or possession of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political subdivisions, the interest on which is exempt from federal income tax:
(1) obligations which are backed by the full faith and credit of the United
States government; (2) short-term tax exempt notes which are rated MIG-1 or
MIG-2 by Moody's Investors Service ("Moody's") or SP1, SP-1 and SP-2 by Standard
& Poor's Corporation ("S&P"); (3) municipal bonds rated Aaa, Aa, A or Baa by
Moody's, or AAA, AA, A, or BBB by S&P, or AAA, AA, A, or BBB by Fitch Investors
Service, Inc. ("Fitch"); (4) tax-exempt commercial paper which is rated Prime-1
or Prime-2 by Moody's or A-1, A-1 or A-2 by S&P; (5) municipal securities which
are issued by an entity which has other municipal securities outstanding that
meet one of the foregoing rating requirements and are backed by a letter of
credit or guarantee of a bank or other financial institution which has
outstanding securities that meet one of the foregoing rating requirements; or
(6) municipal securities which, although unrated, are; determined by the
investment manager to be of comparable investment quality to rated securities
meeting the foregoing rating criteria ("Municipal Securities"). For a
description of such ratings, see Appendix A to the Statement of Additional
Information which is incorporated by reference into this Prospectus.

In addition, under normal market conditions, the Fund will invest at least 65%
of its total assets in Municipal Securities and obligations issued by or on
behalf of the State of New York and its local governments, municipalities,
authorities, agencies and political subdivisions, and those of certain other
governmental issuers, such as the Commonwealth of Puerto Rico, which pay income
exempt from federal, New York State and New York City personal income taxes
("New York Municipal Securities"). Dividends paid by the Fund which are derived
from interest on tax-exempt obligations that are not New York Municipal
Securities will be exempt from federal income tax, but will be subject to New
York State and New York City personal income taxes. At least 80% of the Fund's
assets will, under normal market conditions, be invested in securities, the
interest on which is exempt from regular federal income taxes and is not subject
to the federal alternative minimum tax in the opinion of the issuers' counsel.
Thus, it is possible, although not anticipated, that up to 20% of the Fund's net
assets could be in Municipal Securities subject to the alternative minimum tax
and/or in taxable obligations, and up to 35% of the Fund's net assets could be
in Municipal Securities from a state other than New York.

For temporary defensive purposes only, the Fund may invest (1) more than 20% of
its assets (which could be up to 100%) in fixed-income obligations, the interest
on which is subject to federal income tax, and (2) more than 35% of the value of
its net assets (which could be up to 100%) in instruments, the interest on which
is exempt from federal income taxes but not New York State and New York City
personal income taxes. Any such temporary taxable investments will be limited to
obligations issued or guaranteed by the full faith and credit of the U.S.
government or commercial paper rated A-1 by S&P.

<PAGE>
The Fund may borrow from banks for temporary or emergency purposes and pledge up
to 5% of its total assets therefore.

With approval of the Board of Trustees and subject to the following conditions,
the Fund may lend its portfolio securities to qualified securities dealers or
other institutional investors, provided that such loans do not exceed 10% of the
value of the Fund's total assets at the time of the most recent loan, and
further provided that the borrower deposits and maintains 102% cash collateral
for the benefit of the Fund. The lending of securities is a common practice in
the securities industry. The Fund engages in security loan arrangements with the
primary objective of increasing the Fund's income either through investing the
cash collateral in short-term interest bearing obligations or by receiving loan
premiums from the borrower. Under the securities loan agreement the Fund
continues to be entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in recovery and loss
of rights in the collateral should the borrower of the security fail
financially.

It is the policy of the Fund that restricted securities and any other illiquid
securities (including repurchase agreements and participation interests of more
than seven days duration, and securities with contractual or other restrictions
on resale, including instruments which are not readily marketable or have no
readily ascertainable market value) may not constitute, at the time of the
purchase or at any time, more than 10% of the value of the total net assets of
the Fund.

MUNICIPAL SECURITIES

Municipal Securities are used to raise money for various public purposes, such
as constructing public facilities and making loans to public institutions.
Certain types of municipal bonds are issued to obtain funding for privately
operated facilities. There are two principal maturity classifications of
Municipal Securities: notes and bonds. Municipal notes are used generally to
provide for short-term capital needs and generally have maturities of up to one
year. These include tax anticipation notes, revenue anticipation notes, bond
anticipation notes, construction loan notes, and tax-exempt commercial paper
(also known as municipal paper). Municipal bonds, which meet longer-term capital
needs, generally have maturities of more than one year and fall into one of two
source of payment categories. General obligation bonds are backed by the taxing
power of the issuing municipality and are considered the safest type of
municipal bond. Revenue bonds are payable only from the revenues of a particular
project or facility and are generally dependent solely on a specific revenue
source. Industrial development bonds are a specific type of revenue bond backed
by the credit and security of a private user. There are, of course, variations
in the security of municipal bonds, both within a particular classification and
between classifications, depending on numerous factors.

It is possible that the Fund, from time to time, will invest more than 25% of
its assets in a particular segment of the Municipal Securities market, such

<PAGE>

as hospital revenue bonds, housing agency bonds, industrial development bonds or
airport bonds, or in securities the interest upon which is paid from revenues of
a similar type of project. In such circumstances, economic, business, political
or other changes affecting one bond (such as proposed legislation affecting the
financing of a project; shortages or price increases of needed materials; or
declining markets or need for the projects) might also affect other bonds in the
same segment, thereby potentially increasing market risk.

The interest on bonds issued to finance essential state and local government
operations is generally tax-exempt. Interest on certain non-essential or
"private activity bonds" (including those for housing and student loans) issued
after August 7, 1986, while still tax-exempt from regular federal income taxes,
constitutes a preference item for taxpayers in determining their alternative
minimum tax under the Internal Revenue Code of 1986, as amended (the "Code"),
and under the income tax provisions of several states. This interest could
subject a shareholder to or increase liability under the federal and state
alternative minimum tax, depending on the shareholder's tax situation. In
addition, all distributions derived from interest exempt from regular federal
income tax may subject corporate shareholders to, or increase their liability
under, the alternative minimum tax, because such distributions are included in
the corporation's "adjusted current earnings." In states with a corporate
franchise tax, distributions of the Fund may also be fully taxable to corporate
shareholders under their state franchise tax systems.

Consistent with the Fund's investment objective, the Fund may acquire such
non-essential or private activity bonds if, in the investment manager's opinion,
such bonds represent the most attractive investment opportunity then available
to the Fund. As of December 31, 1993, the Fund did not derive any of its income
from bonds, the interest on which may be a preference item subject to the
alternative minimum tax for certain investors.

If the interest on private activity bonds is not exempt from regular federal
income taxes, they will not be purchased by the Fund.

The Fund may purchase floating rate and variable rate obligations. These
obligations bear interest at rates that are not fixed, but that vary with
changes in specified market rates or indices on predesignated dates. Certain of
these obligations may carry a demand feature that permits the Fund to tender the
obligation back to the issuer at par value plus accrued interest prior to
maturity. This amount may be more or less than the amount the Fund paid for
them. The Fund may invest in floating rate and variable rate obligations
carrying stated maturities in excess of one year at the date of purchase by the
Fund if such obligations carry demand features that comply with the conditions
of rules adopted by the SEC. The Fund will limit its purchase of Municipal
Securities that are floating rate and variable rate obligations to those meeting
the quality standards set forth above. Frequently such obligations are secured
by letters of credit or other credit support arrangements provided by banks. The
quality of the underlying creditor or of the bank, as the case may be, must, as
determined by the investment manager under the supervision of the Board of
Trustees, also be equivalent to the quality standards set forth above. In
addition, the investment manager monitors the earning power, cash flow and other
liquidity ratios of the issuers of such obligations, as well as the
creditworthiness of the institution responsible for paying the principal amount
of the obligations under the demand feature.

The Fund may purchase and sell Municipal Securities on a "when-issued" and
"delayed delivery"

<PAGE>

basis. These transactions are subject to market fluctuation and the value at
delivery may be more or less than the purchase price. Although the Fund will
generally purchase Municipal Securities on a when-issued basis with the
intention of acquiring such securities, it may sell such securities before the
settlement date if it is deemed advisable. When the Fund is the buyer in such a
transaction, it will maintain, in a segregated account with its custodian, cash
or high-grade marketable securities having an aggregate value equal to the
amount of such purchase commitments, until payment is made. To the extent the
Fund engages in when-issued and delayed delivery transactions, it will do so for
the purpose of acquiring securities for the Fund's portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage.

The Fund may purchase from banks, brokers or dealers and other financial
institutions securities with put features. With respect to 75% of the total
value of the Fund's assets, no more than 5% of such value may be in securities
underlying puts from the same institution, except that the Fund may invest up to
10% of its asset value in unconditional puts (exercisable even in the event of a
default in the payment of principal or interest on the underlying security) and
other securities issued by the same institution. The Fund may pay for a put
either separately, in cash, or in the form of a higher price for the securities
which are acquired subject to the put, thus increasing the cost of securities
and reducing the yield otherwise available from the same security.

The Fund may also invest in municipal lease obligations primarily through
Certificates of Participation ("COPs"). COPs, which are widely used by state and
local governments to finance the purchase of property, function much like
installment purchase agreements. For example, COPs may be created when long-term
lease revenue bonds are issued by a governmental corporation to pay for the
acquisition of property or facilities which are then leased to a municipality.
The payments made by the municipality under the lease are used to repay interest
and principal on the bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of the property for a
nominal sum. The lessor is, in effect, a lender secured by the property being
leased. This lease format is generally not subject to constitutional limitations
on the issuance of state debt, and COPs may enable a governmental issuer to
increase government liabilities beyond constitutional debt limits.

While the risk of nonappropriation is inherent to COPs financing, the Fund
believes that this risk is mitigated by its policy of investing only in COPs
rated within the four highest rating categories of Moody's, S&P or Fitch, or in
unrated COPs believed to be of comparable quality. Criteria considered by the
rating agencies and the investment manager in assessing such risk include the
issuing

<PAGE>

municipality's credit rating, evaluation of how essential the leased property is
to the municipality and the term of the lease compared to the useful life of the
leased property. The Board of Trustees reviews the COPs held in the Fund's
portfolio to assure that they constitute liquid investments based on various
factors reviewed by the investment manager and monitored by the Board of
Trustees. Such factors include (1) the credit quality of such securities and the
extent to which they are rated; (2) the size of the municipal securities market,
both in general and with respect to COPs; and (3) the extent to which the type
of COPs held by the Fund trade on the same basis and with the same degree of
dealer participation as other municipal bonds of comparable credit rating or
quality.

The Fund may purchase and hold callable municipal bonds which contain a
provision in the indenture permitting the issuer to redeem the bonds prior to
their maturity dates at a specified price which typically reflects a premium
over the bonds' original issue price. These bonds generally have call-protection
(that is, a period of time during which the bonds may not be called) which
usually lasts for seven to ten years, after which time such bonds may be called
away. Any such investment would be subject to the policy whereby the Fund is
required to maintain a dollar weighted average effective maturity between three
and ten years. An issuer may generally be expected to call its bonds, or a
portion of them, during periods of relatively declining interest rates, when
borrowings may be replaced at lower rates than those obtained in prior years. If
the proceeds of a bond called under such circumstances are reinvested, the
result may be a lower overall yield due to lower current interest rates. If the
purchase price of such bonds included a premium related to the appreciated value
of the bonds, some or all of that premium may not be recovered by bondholders,
such as the Fund, depending on the price at which such bonds were redeemed.

Yields on Municipal Securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the Municipal
Securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Generally, Municipal Securities
of longer maturities produce higher current yields than Municipal Securities
with shorter maturities, but are subject to greater price fluctuation due to
changes in interest rates, tax laws and other general market factors.
Lower-rated Municipal Securities generally produce a higher yield with shorter
maturities than better-rated Municipal Securities due to the perception of a
greater degree of risk as to the ability of the issuer to pay principal and
interest obligations.

INVESTMENT RISK CONSIDERATIONS

While an investment in the Fund is not without risk, certain policies are
followed in managing the Fund which may help to reduce the investor's risk.
There are two categories of risks to which a Fund is subject: credit risk and
market risk. Credit risk is a function of the ability of an issuer of a
Municipal Security to maintain timely interest payments and to pay the principal
of a security upon maturity.

Market risk is the risk of price fluctuation of a Municipal Security and is
generally a function of the

<PAGE>

underlying credit rating of an issuer, the maturity length of a security, a
security's yield, and general economic and interest rate conditions. As with
other debt instruments, the price of the debt securities in which the Fund
invests are likely to decrease in times of rising interest rates. Conversely,
when rates fall, the value of the Fund's debt investments may rise. Price
changes of debt securities held by the Fund have a direct impact on the net
asset value per share of the Fund.

RISK FACTORS IN NEW YORK

The primary purpose of investing in a portfolio of New York Municipal Securities
is the special tax treatment accorded New York resident individual investors.
However, payment of interest and preservation of principal is dependent upon the
continuing ability of the New York issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations thereunder.
Investors should be aware that certain substantial issuers of New York Municipal
Securities (including issuers whose obligations may be acquired by the Fund)
have experienced serious financial difficulties in recent years. These
difficulties have at times jeopardized the credit standing and impaired the
borrowing abilities of all New York issuers and have generally contributed to
higher interest rates and lower market prices for their debt obligations. A
recurrence of the financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of their existing
obligations and, possibly, in the obligations of other issuers of New York
Municipal Securities.

Although no issuers of New York Municipal Securities were, to the knowledge of
the investment manager, as of the date of filing of this Prospectus with the
SEC, in default with respect to the payment of their debt obligations, the
occurrence of any such default could adversely affect the market values and
marketability of all New York Municipal Securities and, consequently, the net
asset value of the Fund's portfolio. Some of the significant financial
considerations relating to the Fund's investments in New York Municipal
Securities are summarized in the Statement of Additional Information.

Investors should consider the greater risk of the Fund's concentration in New
York Municipal Securities versus the safety that comes with a less concentrated
investment portfolio and should compare yields available on portfolios of New
York issues with those of more diversified portfolios, including out-of-state
issues, before making an investment decision. The Fund's management believes,
however, that by maintaining the Fund's investment portfolio in New York
Municipal Securities which are backed by the full faith and credit of the U.S.
government, in Municipal Securities secured by such U.S. government obligations,
and in short-term obligations of issuers with the highest rating from S&P, the
Fund is largely insulated from the credit risks that may exist on long-term New
York Municipal Securities. The Statement of Additional Information contains a
further description under "Risk Factors Affecting New York Municipal
Securities."

<PAGE>

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

Franklin Advisers, Inc. ("Advisers" or "Manager"), serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson, Rupert H. Johnson, Jr. and R. Martin Wiskemann,
who own, approximately, 20%, 16% and 10%, respectively, of Resources'
outstanding shares. Through its subsidiaries, Resources is engaged in various
aspects of the financial services industry. Advisers acts as investment manager
to 34 U.S. registered investment companies (110 separate series) with aggregate
assets of over $75 billion, approximately $41 billion of which are in the
municipal securities market.

Advisers has waived its management fees. This waiver may be terminated by
Advisers at any time. The Expense Table at the front of this Prospectus includes
the management fees and total operating expenses (expressed as a percentage of
net assets) which would have otherwise been payable by the Fund for the fiscal
year ended December 31, 1993.

It is not anticipated that the Fund will incur a significant amount of brokerage
expenses because municipal securities are generally traded on a "net" basis,
that is, in principal transactions without the addition or deduction of
brokerage commissions or transfer taxes. To the extent that the Fund does
participate in transactions involving brokerage commissions, it is the Manager's
responsibility to select brokers through whom such transactions will be
effected. The Manager tries to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to provide the
best execution, the Manager will consider the furnishing of quotations and of
other market services, research, statistical and other data for the Manager and
its affiliates, as well as the sale of shares of the Fund, as factors in
selecting a broker. Further information is included under "The Trust's Policies
Regarding Brokers Used on Portfolio Transactions" in the Statement of Additional
Information.

PLAN OF DISTRIBUTION

The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan"), whereby it may reimburse Distributors or others for all expenses
incurred by Distributors or others in the promotion and distribution of the
Fund's shares. Such expenses may include, but are not limited to, the printing
of prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund shares, as well as
any distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Trust on behalf of the
Fund, Distributors or its affiliates. The maximum contractual amount which the
Fund may pay to Distributors or others

<PAGE>

for such distribution expenses is 0.10% per annum of the average daily net
assets of the Fund, payable on a quarterly basis. Distributors has agreed that
all expenses of distribution and marketing in excess of 0.05% per annum will be
borne by Distributors without reimbursement from the Fund for the fiscal year
ending December 31, 1994. The Plan also covers any payments to or by the Fund,
Distributors, or other parties on behalf of the Fund or Distributors, to the
extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The estimated payments under the Plan are included in the
estimated annual Fund operating expenses which may be borne by the Fund are
listed in the Expense Table of this Prospectus.

DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------

There are two types of distributions which the Fund may make to its
shareholders:

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

2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made twice each year. One distribution may be made in December to reflect the
net short-term and net long-term capital gains realized by the Fund as of
October 31 of such year. Any net short-term and net long-term capital gains
realized by the Fund during the remainder of the fiscal year may be distributed
following the end of the fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund may make only
one distribution derived from net short-term and net long-term capital gains in
any year or adjust the timing of its distributions for operational or other
reasons.

DISTRIBUTION DATE

Although subject to change by the Trust's Board of Trustees without prior notice
to or approval by shareholders, the Fund's current policy is to declare income
dividends daily and pay them monthly on or about the last business day of that
month.

The amount of income dividend payments by the Fund is dependent upon the amount
of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Trust's Board of Trustees.
THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN
INVESTMENT IN ITS SHARES.

DIVIDEND REINVESTMENT

<PAGE>

This is a convenient way to accumulate additional shares and maintain or
increase the shareholder's earnings base. Of course, any shares so acquired
remain at market risk.

DISTRIBUTIONS IN CASH

HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES

TAXATION OF THE FUND AND ITS SHAREHOLDERS
- --------------------------------------------------------------------------------

By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders. Such
exempt-interest dividends are derived from interest income exempt from regular
federal income tax, and are not subject to regular federal income tax for Fund
shareholders. In addition, to the extent that exempt-interest dividends are
derived from interest on obligations of New York and its political subdivisions,
from interest on direct obligations of the federal government, or from interest
on U.S. Territorial obligations (including Puerto Rico, the U.S. Virgin Islands
or Guam), they will be exempt from New York State and City personal income
taxes. However, for corporate taxpayers subject to the New York State franchise
tax, the foregoing categories of interest income will generally be taxable.

To the extent dividends are derived from taxable income from temporary
investments (including the

<PAGE>

discount from certain stripped obligations or their coupons or income from
securities loans or other taxable transactions), from the excess of net
short-term capital gain over net long-term capital loss, or from ordinary income
derived from the sale or disposition of bonds purchased with market discount
after April 30, 1993, they are treated as ordinary income whether the
shareholder has elected to receive them in cash or in additional shares.

All or a portion of the sales charge incurred in purchasing shares of the Fund
will not be included in the federal tax basis of such shares sold or exchanged
within ninety (90) days of their purchase (for purposes of determining gain or
loss with respect to such shares) if the sales proceeds are reinvested in the
Fund or in another fund in the Franklin/Templeton Group and a sales charge which
would otherwise apply to the reinvestment is reduced or eliminated. Any portion
of such sales charge excluded from the tax basis of the shares sold will be
added to the tax basis of the shares acquired in the reinvestment. Shareholders
should consult with their tax advisors concerning the tax rules applicable to
the redemption or exchange of fund shares.

<PAGE>

under the alternative minimum tax. Shareholders who have not held shares of the
Fund for a full calendar year may have designated as tax-exempt or as tax
preference income a percentage of income which is not equal to the actual amount
of tax-exempt or tax preference income earned during the period of their
investment in the Fund.

Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry Fund shares will not be deductible for federal income tax
purposes.

The foregoing description relates solely to federal income tax law and to New
York State and New York City personal income tax treatment to the extent
indicated. Shareholders should consult their tax advisors with respect to the
applicability of other state and local income tax laws to distributions and
redemption proceeds received from the Fund. Corporate, individual and trust
shareholders should contact their tax advisors to determine the impact of Fund
dividends and capital gain distributions under the alternative minimum tax that
may be applicable to a shareholder's particular tax situation.

HOW TO BUY SHARES OF THE FUND
- --------------------------------------------------------------------------------

PURCHASE PRICE OF FUND SHARES

<PAGE>

Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
TOTAL SALES CHARGE
-------------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 2.25% 2.30 2.00%
$100,000 but less than 250,000 1.75% 1.78 1.50%
$250,000 but less than 500,000 1.25% 1.26 1.00%
$500,000 but less than 1,000,000 1.00% 1.01 0.85%
$1,000,000 through $2,500,000 0.50% 0.50 0.50%
$2,500,000 but less than $5,000,000 0.25% 0.25 0.25%
$5,000,000 or more 0.00% 0.00 0.00%

- ----------------------------------------------------------------------------------------------------------
</TABLE>

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

Sales charges on purchases of $1,000,000 or more are paid to the securities
dealer, if any, involved in the trade, who may therefore be deemed an
"underwriter" under the Securities Act of 1933, as amended.

The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the many funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds. Included for these
purposes are (a) the open-end investment companies in the Franklin Group (except
Franklin Valuemark II and Franklin Government Securities Trust) (the "Franklin
Group of Funds"), (b) other investment products in the Franklin Group
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) (the products in subparagraphs (a) and (b) are referred to as the
"Franklin Group") and (c) the open-end U.S. registered investment companies in
the Templeton Group of Funds except Templeton American Trust, Inc., Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Group"). Purchases pursuant to a
Letter of Intent for $5,000,000 or more will be at a net asset value. Purchases
pursuant to the Rights of Accumulation will be at the applicable sales charge
until the additional purchase, plus the value of the account or the amount
previously invested, less redemptions, exceeds $5,000,000, in which event there
will be no sales charge on the excess. Sales charge reductions based upon
purchases in more than one of the funds in the Franklin Group or Templeton Group
(the "Franklin/Templeton Group") may be effective only after notification to
Distributors that the investment qualifies for a discount.

<PAGE>

sponsored programs or events. In some instances, this compensation may be made
available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of such shares. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their families
to locations within or outside of the United States for meetings or seminars of
a business nature. Dealers may not use sales of the Fund's shares to qualify for
this compensation to the extent such may be prohibited by the laws of any state
or any self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of the aforementioned additional compensation is paid for by
the Fund or its shareholders.

Certain officers and trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the Statement of Additional
Information.

QUANTITY DISCOUNTS IN SALES CHARGES

In addition, an investment in the Fund may qualify for a reduction in the sales
charge under the following programs:

At any time within 90 days after the first investment which the investor wants
to qualify for the reduced sales charge, a signed Shareholder Application, with
the Letter of Intent section completed, may be filed with the Fund. After the
Letter of Intent is filed, each additional investment made will be entitled to
the sales charge applicable to the level of investment indicated on the Letter
of Intent as described above. Sales charge reductions based upon purchases in
more than one company in the Franklin/Templeton Group will be effective only
after notification to Distributors that the investment qualifies for a discount.
The shareholder's holdings in the Franklin/Templeton Group acquired more than 90
days before the Letter of Intent is filed will be counted towards completion of
the Letter of Intent but will not be entitled to a retroactive downward
adjustment of sales charge. Any redemptions made by the shareholder during the
13-month period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the Letter of Intent have been completed. If
the Letter of Intent is not completed within the 13-month period, there will be
an upward adjustment of the sales charge as specified below, depending upon the

<PAGE>

amount actually purchased (less redemptions) during the period. An investor who
executes a Letter of Intent prior to the change in the sales charge structure
for the Fund will be entitled to complete the Letter at the lower of (i) the new
sales charge structure; or (ii) the sales charge structure in effect at the time
the Letter was filed with the Fund.

Additional terms concerning the offering of the Fund's shares are included in
the Statement of Additional Information.

GROUP PURCHASES

An individual who is a member of a qualified group may also purchase shares of
the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggre-

<PAGE>

gate dollar value of shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Fund shares and now were
investing $25,000, the sales charge would be 1.75%. Information concerning the
current sales charge applicable to a group may be obtained by contacting
Distributors.

PURCHASES AT NET ASSET VALUE

Shares of the Fund may be purchased at net asset value by trust companies and
bank trust departments for funds over which they exercise exclusive
discretionary investment authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in this Fund or any other
company in the Franklin/Templeton Group must total at least $1,000,000. Orders
for such accounts will be accepted by mail accompanied by a check, or by
telephone or other means of electronic data transfer directly from the bank or
trust company, with payment by federal funds received by the close of business
on the next business day following such order. If an investment by a trust
company or bank trust department at net asset value is made through a dealer who
has executed a dealer agreement with Distributors, Distributors or one of its
affiliates may make payment, out of their own resources, to such dealer in an
amount not to exceed 0.25% of the amount invested. Contact Franklin's
Institutional Sales Department for additional information.

<PAGE>

until the CD (including any rollover) matures. Reinvestment at net asset value
may also be handled by a securities dealer or other financial institution, who
may charge the shareholder a fee for this service. The redemption is a taxable
transaction but reinvestment without a sales charge may affect the amount of
gain or loss recognized and the tax basis of the shares reinvested. If there has
been a loss on the redemption, the loss may be disallowed if a reinvestment in
the same fund is made within a 30-day period. Information regarding the possible
tax consequences of such a reinvestment is included in the tax section of this
Prospectus and the Statement of Additional Information.

Shares of the Fund may also be purchased at net asset value by (1) officers,
trustees, directors and full-time employees of the Fund or any fund in the
Franklin Group of Funds or the Templeton Group, the Manager and Distributors and
affiliates of such companies, if they have been such for at least 90 days, and
by their spouses and family members, (2) former participants in the
Franklin/Templeton Profit Sharing/401(k) plan, who elect to make a direct
rollover of all, or a portion of, their eligible distribution account balance
from such plan, (3) registered securities dealers and their affiliates, for
their investment account only, and (4) registered personnel and employees of
securities dealers and by their spouses and family members, in accordance with
the internal policies and procedures of the employing securities dealer. Such
sales are made upon the written assurance of the purchaser that the purchase is
made for investment purposes and that the securities will not be transferred or
resold except through redemption or repurchase by or on behalf of the Fund.
Employees of securities dealers must obtain a special application from their
employers or from Franklin's Sales Department in order to qualify.

Shares of the Fund may also be purchased at net asset value by any state,
county, or city, or any instrumentality, department, authority or agency thereof
which has determined that the Fund is a legally permissible investment and which
is prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a dealer who has executed a dealer agreement with
Distributors, Distributors or one of its affiliates may make a payment, out of
their own resources, to such dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales Department for
additional information.

GENERAL

OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
- --------------------------------------------------------------------------------

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY

<PAGE>

FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF RECORD, BY A FINANCIAL
INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED ACCOUNT THROUGH THE
NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE SECTION CAPTIONED
"ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).

SHARE CERTIFICATES

CONFIRMATIONS

AUTOMATIC INVESTMENT PLAN

Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application included with
this Prospectus contains the requirements applicable to this program. In
addition, shareholders may obtain more information concerning this program from
their securities dealers or from Distributors.

SYSTEMATIC WITHDRAWAL PLAN

<PAGE>

may direct the selected withdrawals to another fund in the Franklin Group of
Funds or the Templeton Group, to another person, or directly to a checking
account. If the bank at which the account is maintained is a member of the
Automated Clearing House, the payments may be made automatically by electronic
funds transfer. If this last option is requested, the shareholder should allow
at least 15 days for initial processing. Withdrawals which may be paid in the
interim will be sent to the address of record. Liquidation of shares may reduce
or possibly exhaust the shares in the shareholder's account, to the extent
withdrawals exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. As with other redemptions, a liquidation to
make a withdrawal payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the shareholder's actual yield
or income, part of the payment may be a return of the shareholder's investment.

Payments under the Systematic Withdrawal Plan directed to funds which are sold
with a sales charge will be invested at the applicable offering price (which
includes the sales charge).

INSTITUTIONAL ACCOUNTS

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

EXCHANGES BY MAIL

<PAGE>

EXCHANGES BY TELEPHONE

EFFECTIVE JUNE 1, 1994, SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF
RECORD, IF ANY, MAY EXCHANGE SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR
SERVICES AT 1-800/632-2301 OR THE AUTOMATED FRANKLIN TELEFACTS(R) SYSTEM (DAY OR
NIGHT) AT 1-800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE
EXTENDED TO A PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE
NOTIFIED. PRIOR TO JUNE 1, 1994, THIS PRIVILEGE IS ONLY AVAILABLE TO PERSONS WHO
HAVE SIGNED A "TELEPHONE EXCHANGE AUTHORIZATION" INCLUDED WITH THE FUND'S
APPLICATION.

EXCHANGES THROUGH SECURITIES DEALERS

MISCELLANEOUS INFORMATION

Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account, accrued but unpaid income
dividends and capital gain distributions will be reinvested in the Fund at the
net asset value on the date of the exchange, and then the entire share balance
will be exchanged into the new fund in accordance with the procedures set forth
above. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the Statement of Additional Information.

There are differences among the many funds in the Franklin Group of Funds and
the Templeton Group. Before making an exchange, a shareholder should

<PAGE>

obtain and review a current prospectus of the fund into which the shareholder
wishes to transfer.

The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.

TIMING ACCOUNTS

RESTRICTIONS ON EXCHANGES

In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.

Effective September 1, 1994, the Fund will amend its policy in regard to Timing
Accounts, to reflect the following:

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) make an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) make more than two exchanges out of the Fund per
calendar quarter, or (iii) exchange shares equal in value to at least $5 million
dollars, or more than 1/4 of 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.

The Fund and Distributors may also, as indicated in "How to Buy Shares of the
Fund," reserve the right to refuse any order for the purchase of shares.

HOW TO SELL SHARES OF THE FUND
- --------------------------------------------------------------------------------

A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:

<PAGE>

REDEMPTIONS BY MAIL

Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by Investor
Services. Redemption requests received after the time at which the net asset
value is calculated, as of the close of the New York Stock Exchange (the
"Exchange"), will receive the price calculated on the following business day.
Shareholders are requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred. Investor
Services' ability to contact a shareholder promptly when necessary will speed
the processing of the redemption.

TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to any address other than
the shareholder's address of record, preauthorized bank account or
brokerage firm account;

(4) share certificates, if the redemption proceeds are in excess of $50,000; or

(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated
or may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.

Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.

Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.

<PAGE>

Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:

Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.

Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.

Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.

Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.

REDEMPTIONS BY TELEPHONE

For shareholder accounts with a completed Application on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before 1:00 p.m. Pacific time on
any business day will be processed that same day. The redemption check will be
sent within seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record. Redemption requests by
telephone will not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts (certain
corporations, bank trust departments, government entities, and qualified
retirement plans which qualify to purchase shares at net asset value pursuant to
the terms of this Prospectus) which wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from Franklin's Institutional Services Department by telephoning
1-800/321-8563.

SELLING SHARES THROUGH SECURITIES DEALERS

<PAGE>

These documents, as described in the preceding section, are required even if the
shareholder's securities dealer has placed the repurchase order. After receipt
of a repurchase order from the dealer, the Fund will still require a signed
letter of instruction and all other documents set forth above. A shareholder's
letter should reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of the shareholder's redemption will be sent
will begin when the Fund receives all documents required to complete ("settle")
the repurchase in proper form. The redemption proceeds will not earn dividends
or interest during the time between receipt of the dealer's repurchase order and
the date the redemption is processed upon receipt of all documents necessary to
settle the repurchase. Thus, it is in a shareholder's best interest to have the
required documentation completed and forwarded to the Fund as soon as possible.
The shareholder's dealer may charge a fee for handling the order. The Statement
of Additional Information contains more information on the redemption of shares.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

OTHER

For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.

TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------

Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.

All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Application as described under "How to Sell Shares of the
Fund - Redemptions by Telephone" will be able to redeem shares of the Fund.

VERIFICATION PROCEDURES

<PAGE>

mation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as the Fund and Investor Services
follow instructions communicated by telephone which were reasonably believed to
be genuine at the time of their receipt, neither they nor their affiliates will
be liable for any loss to the shareholder caused by an unauthorized transaction.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or Investor
Services is not reasonably satisfied that instructions received by telephone are
genuine, the requested transaction will not be executed, and neither the Fund
nor Investor Services will be liable for any losses which may occur because of a
delay in implementing a transaction.

GENERAL

Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.

The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.

VALUATION OF FUND SHARES
- --------------------------------------------------------------------------------

The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, accrued expenses and taxes and any necessary
reserves, is deducted from the aggregate gross value of all assets, and the
difference is divided by the number of shares of the Fund outstanding at the
time. For the purpose of determining the aggregate net assets of the Fund, cash
and receivables are valued at their realizable amounts. Interest is recorded as
accrued. Portfolio securities for which market quotations are readily available
are valued within the range of the most recent bid and ask prices as obtained
from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Municipal securities generally trade in the
over-the-counter market rather than on a securities exchange. Other securities
for which market quotations are readily available are valued at the current
market price, which may be obtained from a pricing service, based on a variety
of factors, including recent trades, institutional size trading in similar types
of securities (considering yield, risk and maturity) and/or developments related
to specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. All money market instruments with a maturity
of more than 60 days are valued at current market, as discussed above. All money
market instruments with a maturity of 60 days or less are valued at their
amortized cost, which the Board of Trustees has determined in good faith
constitutes fair value for purposes of complying with the 1940

<PAGE>

Act. This valuation method will continue to be used until such time as the
trustees determine that it does not constitute fair value for such purposes.
With the approval of trustees, the Fund may utilize a pricing service, bank or
securities dealer to perform any of the above described functions.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
- --------------------------------------------------------------------------------

Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.

From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds(R) by
calling the automated Franklin TeleFACTS system (day or night) at
1-800/247-1753. Information about the Fund may be accessed by entering Fund Code
53 followed by the # sign, when requested to do so by the automated operator.
(The TeleFACTS system will be available for exchanges effective June 1, 1994.
See "Exchange Privilege.")

<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
----------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.

</TABLE>

PERFORMANCE
- --------------------------------------------------------------------------------
Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance, including current yield, tax
equivalent yield, various expressions of total return, current distribution
rate, and taxable equivalent distribution rate. They may occasionally cite
statistics to reflect its volatility or risk.

Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for other periods, or based on
investments at various sales charge levels or at net asset value. For such
purposes total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.

Current yield reflects the income per share earned by the Fund's portfolio
investments; it is calculated by dividing the Fund's net investment income per

<PAGE>

share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result. Tax equivalent yield
demonstrates the yield from a taxable investment necessary to produce an
after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of a fund's yield
(calculated as indicated) by one minus a stated income tax rate and adding the
product to the taxable portion (if any) of the fund's yield.

Current yield and tax equivalent yield which are calculated according to a
formula prescribed by the SEC (see the Statement of Additional Information) are
not indicative of the dividends or distributions which were or will be paid to
the Fund's shareholders. Dividends or distributions paid to shareholders are
reflected in the current distribution rate or taxable equivalent distribution
rate, which may be quoted to shareholders. The current distribution rate is
computed by dividing the total amount of dividends per share paid by the Fund
during the past 12 months by a current maximum offering price. A taxable
equivalent distribution rate demonstrates the taxable distribution rate
necessary to produce an after tax distribution rate equivalent to the Fund's
distribution rate (calculated as indicated above). The state and city, and the
combined state, city and federal income tax rates upon which the Trust's tax
equivalent quotations are based are 7.70%, 3.91% and 39.6%, respectively. From
time to time, as any changes to such rates become effective, tax equivalent
yield and distribution rate quotations published by the Trust will be updated to
reflect such changes. Under certain circumstances, such as when there has been a
change in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid during the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as short-term capital gain, and is
calculated over a different period of time.

In each case performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. The investment results of the Fund, like
all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in the
future or what the Fund's yield, tax equivalent yield, distribution rate,
taxable equivalent distribution rate or total return may be in any future
period.

Additional information on Fund performance will be included in the Fund's Annual
Report to shareholders.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

<PAGE>

distributions as declared by such series and the net assets of the Fund upon
liquidation or dissolution.

Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act. Voting rights are noncumulative, so that in any election of trustees the
holders of more than 50% of the shares voting can elect all of the trustees, if
they choose to do so, and in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board of Trustees.
The Trust does not intend to hold annual shareholders' meetings. The Trust may,
however, hold a special shareholders' meeting for such purposes as changing
fundamental investment restrictions, approving a new management agreement or any
other matters which are required to be acted on by shareholders under the 1940
Act. A meeting may also be called by the trustees in their discretion or by
shareholders holding at least ten percent of the outstanding shares of the Fund.
Shareholders will receive assistance in communicating with other shareholders in
connection with the election or removal of trustees, such as that provided in
Section 16(c) of the 1940 Act.

The Board of Trustees may from time to time issue other funds of the Trust, the
assets and liabilities of which will likewise be separate and distinct from any
other Fund.

"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.

ACCOUNT REGISTRATIONS
- --------------------------------------------------------------------------------

Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."

<PAGE>

Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.

The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in the near future,
include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.

Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
- --------------------------------------------------------------------------------

Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend, capital
gain distribution, or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number ("TIN") and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to backup withholding
if the IRS or a securities dealer notifies the Fund that the TIN furnished by
the shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.

The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.

PORTFOLIO OPERATIONS
- --------------------------------------------------------------------------------

The following persons are primarily responsible for the day-to-day management of
the Fund's portfolios and have been since inception:

<PAGE>

John Pinkham has a Bachelor of Science degree in business from Columbia
University and has been in the municipal securities industry since 1956. He is a
member of the Financial Analysts Federation. He joined Advisers in 1985.

John Pomeroy received a Bachelor of Arts degree in Business Administration from
San Francisco State University in 1986 and is a member of industry related
committees and associations. He joined Advisers in 1986.

<PAGE>

AMENDMENT DATED FEBRUARY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN NEW YORK TAX-FREE TRUST
dated May 1, 1994

1. The following substitutes subsection "Purchases at Net Asset
Value" under "Additional Information Regarding Fund Shares":

Additional Information Regarding Purchases

Special Net Asset Value Purchases. As discussed in the
Prospectuses, certain categories of investors may purchase
shares of the Funds without a front-end sales charge ("net
asset value") or a contingent deferred sales charge.
Distributors or one of its affiliates may make payments, out
of its own resources, to securities dealers who initiate and
are responsible for such purchases, as indicated below. As a
condition for these payments, Distributors or its affiliates
may require reimbursement from the securities dealers with
respect to certain redemptions made within 12 months of the
calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement
between Distributors, or its affiliates, and the securities
dealer.

The following amounts may be paid by Distributors or one of
its affiliates, out of its own resources, to securities
dealers who initiate and are responsible for (i) purchases
of most equity and taxable-income Franklin Templeton Funds
made at net asset value by certain designated retirement
plans (excluding IRA and IRA rollovers): 1.00% on sales of
$1 million but less than $2 million, plus 0.80% on sales of
$2 million but less than $3 million, plus 0.50% on sales of
$3 million but less than $50 million, plus 0.25% on sales of
$50 million but less than $100 million, plus 0.15% on sales
of $100 million or more; and (ii) purchases of most taxable
income Franklin Templeton Funds made at net asset value by
non-designated retirement plans: 0.75% on sales of $1
million but less than $2 million, plus 0.60% on sales of $2
million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of
$50 million but less than $100 million, plus 0.15% on sales
of $100 million or more. These payment breakpoints are
reset every 12 months for purposes of additional purchases.
With respect to purchases made at net asset value by certain
trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement
plan assets of $10 million or more, Distributors, or one of
its affiliates, out of its own resources, may pay up to 1%
of the amount invested.

Letter of Intent. An investor may qualify for a reduced
sales charge on the purchase of shares of each Fund, as
described in the prospectuses. At any time within 90 days
after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder
Application, with the Letter of Intent section completed,
may be filed with the Fund. After the Letter of Intent is
filed, each additional investment will be entitled to the
sales charge applicable to the level of investment indicated
on the Letter. Sales charge reductions based upon purchases
in more than one of the Franklin Templeton Funds will be
effective only after notification to Distributors that the
investment qualifies for a discount. The shareholder's
holdings in the Franklin Templeton Funds acquired more than
90 days before the Letter of Intent is filed will be counted
towards completion of the Letter of Intent but will not be
entitled to a retroactive downward adjustment in the sales
charge. Any redemptions made by the shareholder, other than
by a designated benefit plan during the 13-month period will
be subtracted from the amount of the purchases for purposes
of determining whether the terms of the Letter of Intent
have been completed. If the Letter of Intent is not
completed within the 13-month period, there will be an
upward adjustment of the sales charge, depending upon the
amount actually purchased (less redemptions) during the
period. The upward adjustment does not apply to designated
benefit plans. An investor who executes a Letter of Intent
prior to a change in the sales charge structure for the Fund
will be entitled to complete the Letter of Intent at the
lower of (i) the new sales charge structure; or (ii) the
sales charge structure in effect at the time the Letter of
Intent was filed with the Fund. Five percent (5%) of the
amount of the total intended purchase will be reserved in
shares of the Fund registered in the investor's name. If the
total purchases, less redemptions, equal the amount
specified under the Letter, the reserved shares will be
deposited to an account in the name of the investor or
delivered to the investor or the investor's order. If the
total purchases, less redemptions, exceed the amount
specified under the Letter of Intent and is an amount which
would qualify for a further quantity discount, a retroactive
price adjustment will be made by Distributors and the
securities dealer through whom purchases were made pursuant
to the Letter of Intent (to reflect such further quantity
discount) on purchases made within 90 days before and on
those made after filing the Letter. The resulting difference
in offering price will be applied to the purchase of
additional shares at the offering price applicable to a
single purchase or the dollar amount of the total purchases.
If the total purchases, less redemptions, are less than the
amount specified under the Letter, the investor will remit
to Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount
of sales charge which would have applied to the aggregate
purchases if the total of such purchases had been made at a
single time. Upon such remittance the reserved shares held
for the investor's account will be deposited to an account
in the name of the investor or delivered to the investor or
to the investor's order. If within 20 days after written
request such difference in sales charge is not paid, the
redemption of an appropriate number of reserved shares to
realize such difference will be made. In the event of a
total redemption of the account prior to fulfillment of the
Letter of Intent, the additional sales charge due will be
deducted from the proceeds of the redemption, and the
balance will be forwarded to the investor.

2. The following substitutes subsection "Reinvestment Date" under
"Additional Information Regarding Fund Shares":

Reinvestment Date

Shares acquired through the reinvestment of dividends will be
purchased at the net asset value determined on the business day
following the dividend record date (sometimes known as "ex-
dividend date"). The processing date for the reinvestment of
dividends may vary from month to month, and does not affect the
amount or value of the shares acquired.

FRANKLIN
NEW YORK
TAX-FREE TRUST [FRANKLIN LOGO]

STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX 7777
MAY 1, 1994 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
- --------------------------------------------------------------------------------

<PAGE>
FRANKLIN
NEW YORK
TAX-FREE TRUST [FRANKLIN LOGO]

STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. Box 7777
MAY 1, 1994 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
- --------------------------------------------------------------------------------

Franklin New York Tax-Free Trust (the "Trust") is an open-end management
investment company consisting of three non-diversified series or funds: Franklin
New York Insured Tax-Free Income Fund (the "Insured Fund"), Franklin New York
Tax-Exempt Money Fund (the "Money Fund"), and Franklin New York
Intermediate-Term Tax-Free Income Fund (the "Intermediate-Term Fund"). (Each
fund may also collectively or individually be referred to as "Funds" or "Fund.")
Each Fund of the Trust intends to concentrate its investments in New York
municipal securities and seeks to provide investors with as high a level of
income exempt from federal and New York State and New York City personal income
taxes as is consistent with prudent investment management, while seeking
preservation of shareholders' capital. The Money Fund also seeks liquidity in
its investments.

The Insured Fund invests in New York municipal securities covered by portfolio
insurance policies providing for the scheduled payment of both principal and
interest in the event of non-payment by the issuer, in securities backed by the
full faith and credit of the U.S. government, in municipal securities secured by
such U.S. government obligations, and in short-term obligations of issuers with
the highest ratings from Standard & Poor's Corporation ("S&P"). All insured
securities not insured through the issuer will be insured by a qualified
municipal bond insurer.

The Money Fund is a no-load money market fund offering individual investors,
corporations and other institutions a convenient way to invest in a
professionally managed portfolio of high quality, short-term municipal
securities of the state of New York, its political subdivisions and New York
City. The Money Fund attempts to maintain a stable net asset value of $1.00 per
share and offers shareholders the convenience of redemption drafts (similar to
checks) as one of the means of redeeming their shares.

In seeking to provide investors with as high a level of income exempt from
federal income taxes as is consistent with prudent investment management and the
preservation of shareholders' capital, the Intermediate-Term Fund intends to
invest primarily in a portfolio of investment grade obligations with a dollar
weighted average portfolio maturity of more than three years but not more than
ten years.

Separate prospectuses for the Funds dated May 1, 1994, as may be amended from
time to time (the "Prospectuses"), which provide the basic information a
prospective investor should know before investing in any fund of the Trust, may
be obtained without charge from the Trust or from the Funds' principal
underwriter, Franklin/Templeton Distributors, Inc. ("Distributors"), at the
address listed above.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT CONTAINS
INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUSES. THIS STATEMENT OF ADDITIONAL INFORMATION IS INTENDED TO PROVIDE A
PROSPECTIVE INVESTOR WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND
OPERATIONS OF THE TRUST AND EACH FUND AND SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUSES.

CONTENTS PAGE

About the Trust .......................................................... 2

The Funds' Investment Objectives and Policies ............................ 2

Description of Municipal and Other Securities and Portfolio Techniques ... 3

Insurance (Insured Fund only) ............................................ 8

Investment Restrictions .................................................. 9

Officers and Trustees .................................................... 10

Investment Management and Other Services ................................. 13

The Trust's Policies Regarding Brokers Used on Portfolio Transactions .... 14

Additional Information Regarding the Funds' Shares ....................... 15

Additional Information Regarding Distributions and Taxation .............. 19

The Trust's Underwriter ................................................... 20

General Information ...................................................... 22

Miscellaneous Information ................................................. 27

Appendix .................................................................. 28

Financial Statements ...................................................... 30

<PAGE>
ABOUT THE TRUST
- --------------------------------------------------------------------------------

Franklin New York Tax-Free Trust is an open-end management investment company,
commonly called a "mutual fund," organized as a Massachusetts business trust in
July 1986. The Trust currently has three separate series, each known as a
"Fund," and each of which maintains a totally separate investment portfolio:
Franklin New York Insured Tax-Free Income Fund, Franklin New York Tax-Exempt
Money Fund and Franklin New York Intermediate-Term Tax-Free Income Fund.

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------

As noted in the Prospectuses, each Fund seeks to provide investors with as high
a level of income exempt from federal income taxes and from the personal income
taxes of New York State and New York City as is consistent with prudent
investment management, while seeking the preservation of shareholders' capital.
The Money Fund also seeks liquidity in its investments.

As described in each Fund's Prospectus, under normal market conditions, each
Fund will attempt to invest 100% and, as a matter of fundamental policy, will
invest at least 80% of the value of its net assets in municipal securities the
interest on which is exempt from federal income taxes, including the alternative
minimum tax, and, under normal circumstances, will invest at least 65% of its
total assets in New York municipal securities the interest on which is exempt
from the personal income taxes of New York State and New York City.

Although the Trust seeks to invest all the assets of each Fund in a manner
designed to accomplish each Fund's objective, there may be times when market
conditions limit the availability of appropriate municipal securities or, in the
investment manager's opinion, there exist uncertain economic, market, political,
or legal conditions which may jeopardize the value of some or all types of
municipal securities. Accordingly, for temporary defensive purposes, each Fund
may temporarily invest more than 20% of its total assets in securities which
produce income not exempt from federal income taxation (including private
activity bonds the interest on which may be subject to the alternative minimum
tax), or more than 35% of its total assets in securities which produce income
exempt from federal, but not New York State and New York City, income taxation.
For the Money Fund, temporary investments not in municipal securities will be
limited to U.S. government securities, commercial paper rated in the highest
grade by either Moody's Investors Service ("Moody's") or S&P (Prime-1 or A-1,
respectively), or in obligations of U.S. banks with assets of $1 billion or
more. Additional information concerning securities ratings may be found in the
appendix to this Statement of Additional Information.

All municipal securities purchased by the Money Fund will be of high quality and
rated within the two highest credit categories assigned by established rating
agencies (within which there may be sub-categories or gradations indicating
relative standing), or will be unrated but determined to be of comparable high
quality by the Fund's Board of Trustees. If a municipal security ceases to be
rated in the highest rating category, or the investment manager becomes aware
that a municipal security has been rated below the second highest rating
category, not including changes in a security's relative standing within a
category, subsequent to its purchase by the Fund, the Board of Trustees will
promptly reassess whether such security presents minimal credit risks and will
take such action as it deems to be in the best interest of the Fund and the
Fund's shareholders, unless such security is sold or matures within five
business days of the investment manager becoming aware of the new rating
category and the trustees are notified of the investment manager's actions. In
addition to considering ratings assigned by the rating agencies in its selection
of portfolio securities for the Money Fund, the investment manager will
consider, among other things, information concerning the financial history and
condition of the issuer, revenue and expense prospects and, in the case of
revenue bonds, the financial history and condition of the source of revenue to
service the debt securities.

Generally, all of the instruments held by the Money Fund are offered on the
basis of a quoted yield to maturity. The price of the security is adjusted so
that, relative to the stated rate of interest, the security will return the
quoted rate to its purchaser. The maturities of these instruments at the time of
issuance will generally range between three months and one year.

As required by Rule 2a-7 under the Investment Company Act of 1940 ("1940 Act"),
all investments by the Money Fund will mature, or will be deemed to mature,
within 397 days from the date of acquisition and the average maturity of the
Fund's portfolio (on a dollar-weighted basis) will be 90 days or less. The
maturities of variable or floating rate demand instruments held by the Money
Fund will be deemed to be the longer of the demand period or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of one year.

The Trust's Intermediate-Term and Insured Funds may purchase or sell securities
without regard to the length of time the security has been held, and the

<PAGE>
frequency of portfolio transactions (the turnover rate) will vary from year to
year, depending on market conditions. The Intermediate-Term and Insured Funds
anticipate that their portfolio turnover rate will generally not exceed 100% per
year. While short-term trading increases the portfolio turnover, the execution
costs for municipal bonds are substantially less than for equivalent dollar
values of equity securities. Because the Money Fund purchases securities with
maturities of less than 397 days, securities which are excluded in making such a
calculation, it does not have nor is it expected to have any reportable
turnover.

Each Fund is non-diversified and thus not subject to any statutory restriction
under the 1940 Act with respect to the concentration of its assets in one or
relatively few issuers. This concentration of assets may present greater risks
than those normally associated with a diversified company. Each Fund, however,
intends to qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and will be restricted
in that, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets must be represented by cash, government securities,
and other securities limited in respect of any one issuer to not more than 5% of
the value of the total assets of the Fund. In addition, at the close of each
quarter of its taxable year, not more than 25% of each Fund's total assets may
be invested in securities of one issuer, other than government securities. The
limitations described in this paragraph are not fundamental policies and may be
revised to the extent applicable federal income tax requirements are revised.

The Funds may invest 25% or more of their net assets in securities that are
related in such a way that an economic, business or political development or
change affecting one of the securities would also affect the other securities,
including, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same geographic area.

The investment objectives of the Funds and other fundamental policies may not be
changed unless approved by the holders of a majority of the outstanding shares
of each Fund.

DESCRIPTION OF MUNICIPAL AND OTHER SECURITIES AND PORTFOLIO TECHNIQUES
- --------------------------------------------------------------------------------

Each Fund's Prospectus describes the general categories and nature of municipal
securities. Discussed below are the major attributes of the various municipal
and other securities in which each Fund may invest and of the portfolio
techniques each Fund may utilize.

MUNICIPAL NOTES

Tax Anticipation Notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues
which will be used to pay the notes. They are usually general obligations of the
issuer, secured by the taxing power for the payment of principal and interest.

Revenue Anticipation Notes are issued in expectation of other kinds of revenue,
such as federal revenues available under the Federal Revenue Sharing Program.
They, also, are usually general obligations of the issuer.

Bond Anticipation Notes are normally issued to provide interim financing until
long-term financing can be arranged. Long-term bonds then provide the money for
the repayment of the notes.

Construction Loan Notes are sold to provide construction financing for specific
projects. After successful completion and acceptance, many projects receive
permanent financing through the Federal Housing Administration under the Federal
National Mortgage Association or the Government National Mortgage Association.

Tax-Exempt Commercial Paper typically represents a short-term obligation (270
days or less) issued by a municipality to meet working capital needs.

MUNICIPAL BONDS

Municipal Bonds, which meet longer term capital needs and generally have
maturities of more than one year when issued, have two principal
classifications: general obligation bonds and revenue bonds.

1. General Obligation Bonds. Issuers of general obligation bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways, roads, and water and sewer
systems. The basic security behind general obligation bonds is the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to the rate or amount of special assessments.

2. Revenue Bonds. A revenue bond is not secured by the full faith, credit and
taxing power of an issuer. Rather, the principal security for a revenue bond is
generally the net revenue derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide

<PAGE>

variety of capital projects, including: electric, gas, water and sewer
systems; highways, bridges and tunnels; port and airport facilities; colleges
and universities; and hospitals. The principal security behind these bonds may
vary. Housing finance authorities have a wide range of security, including
partially or fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. Many
bonds provide additional security in the form of a debt service reserve fund
which may be used to make principal and interest payments on the issuer's
obligations. Some authorities are provided further security in the form of a
state's assurance (although without obligation) to make up deficiencies in the
debt service reserve fund.

Industrial Development Bonds which pay tax-exempt interest are in most cases
revenue bonds and are issued by or on behalf of public authorities to raise
money to finance various privately operated facilities for business,
manufacturing, housing, sports, and pollution control. These bonds are also used
to finance public facilities such as airports, mass transit systems, ports, and
parking. The payment of the principal and interest on such bonds is solely
dependent on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of the real and personal property so
financed as security for such payments.

Municipal bonds are frequently offered on a "when-issued" basis. When so
offered, the price, which is generally expressed in yield terms, is fixed at the
time the commitment to purchase is made, but delivery and payment for the
when-issued securities take place at a later date. If completed, transactions
will generally settle within 60 days of the purchase of municipal bonds and
notes. During the period between purchase and settlement, no payment is made by
the Fund to the issuer and no interest accrues to the Fund. To the extent that
assets of a Fund are held in cash pending the settlement of a purchase of
securities, the Fund would earn no income; however, it is the Funds' intention
to be fully invested to the extent practicable and subject to the policies
stated above. While when-issued securities may be sold prior to the settlement
date, the Funds intend to purchase such securities with the purpose of actually
acquiring them, unless a sale appears desirable for investment reasons. At the
time a Fund makes the commitment to purchase a municipal bond on a when-issued
basis, it will record the transaction and reflect the value of the security in
determining its net asset value. Each Fund believes that its net asset value or
income will not be adversely affected by its purchase of municipal bonds on a
when-issued basis. Each Fund will establish a segregated account in which it
will maintain cash and marketable securities equal in value to commitments for
when-issued securities.

Municipal Securities may also be sold in "stripped" form. Stripped Municipal
Securities represent separate ownership of interest and principal payments on
municipal obligations.

VARIABLE RATE DEMAND NOTES AND OBLIGATIONS WITH PUT FEATURES

Variable Rate Demand Notes ("VRDNs") are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the unpaid principal balance plus accrued
interest upon a short notice period prior to specified dates, generally at 30,
60, 90, 180 or 365-day intervals. The interest rates are adjustable to the
prevailing market rate for similar investments, at intervals ranging from daily
up to six months, pursuant to an adjustment formula calculated to maintain the
market value of the VRDN at approximately its par value upon the adjustment
date. VRDNs are frequently secured by letters of credit or other credit support
arrangements provided by a bank.

The Money Fund will purchase variable or floating rate demand instruments in
accordance with procedures prescribed by its Board of Trustees to minimize
credit risks. Any VRDN purchased by the Money Fund must be of high quality, as
determined by the Board of Trustees, with respect to both its long-term and
short-term aspects, except that where credit support for the instrument is
provided even in the event of default on the underlying security, the Fund may
rely only on the high quality character of the short-term aspect of the demand
instrument, i.e., the demand feature. A VRDN which is unrated must have high
quality characteristics, similar to those rated, in accordance with policies and
guidelines determined by the Board of Trustees. If the quality of any VRDN falls
below the high quality level required by the Board of Trustees and the rules
adopted by the Securities and Exchange Commission ("SEC"), the Money Fund must
dispose of the instrument within a reasonable period of time by exercising the
demand feature or by selling the VRDN in the secondary market, whichever is
believed by the investment manager to be in the best interests of the Money Fund
and its shareholders.

Each Fund may also purchase municipal securities from banks, brokers or dealers,
and other financial institutions which include the right to resell the
securities to the seller at an agreed upon price or yield within a specified
period prior to the maturity date of the securities. Although it is not a put
option in

<PAGE>
the usual sense, such a right to resell is commonly known as a "put."
Because of the put feature, the prices of the securities may be higher and the
yields lower than they otherwise would be. Additionally, each Fund may purchase
municipal securities combined with third party puts and/or other types of
features such as interest rate swaps. Such investments may require a Fund to pay
"tender fees" or other fees for the various features provided.

The Internal Revenue Service (the "Service") has issued a revenue ruling to the
effect that, under specified circumstances, a registered investment company will
be the owner of tax-exempt municipal obligations acquired subject to a put
option. The Service has also issued private letter rulings to certain taxpayers
(which do not serve as precedent for other taxpayers) to the effect that
tax-exempt interest received by a regulated investment company with respect to
such obligations will be tax-exempt in the hands of the company and may be
distributed to its shareholders as exempt-interest dividends. The Service has
subsequently announced that it will not ordinarily issue advance ruling letters
as to the identity of the true owner of property in cases involving the sale of
securities or participation interests therein if the purchaser has the right to
cause the security, or the participation interest, to be purchased by either the
seller or a third party. Each Fund intends to take the position that it is the
owner of any municipal obligations acquired subject to a put and that tax-exempt
interest earned with respect to such municipal obligations will be tax-exempt in
its hands. There is no assurance that the Service will agree with this position
in any particular case. Additionally, the federal income tax treatment of
certain other aspects of these investments, including the treatment of tender
fees, in relation to various regulated investment company tax provisions is
unclear. The investment manager, however, intends to manage each Fund's
portfolio in a manner designed to minimize any adverse impact from the tax rules
applicable to these investments. There is no assurance that puts will be
available to a Fund, nor has any Fund assumed that such puts would continue to
be available under all market conditions.

There are diversification requirements with respect to puts which may be
acquired by the Funds to insure that the Funds' liquidity will not be impaired
by relying too heavily upon the same financial institution or a group of
financial institutions. For purposes of the diversification requirements, a put
will be considered to be from the institution to whom the Fund must look for
payment. The diversification limitations discussed in the Prospectuses are
applied to the securities subject to puts from the same institution and not to
the puts themselves.

Because the Funds may purchase obligations with put features from banks and
other financial institutions and VRDNs secured by bank letters of credit, an
investment in the Funds should be made with an understanding of the
characteristics of the banking industry and the risks which such an investment
may entail. Banks are subject to extensive governmental regulations which may
limit both the amounts and types of loans and other financial commitments which
may be made and interest rates and fees which may be charged. The profitability
of this industry is largely dependent upon the availability and cost of capital
funds for the purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an important part in
the operations of this industry and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations under a letter of credit.

OTHER SECURITIES

U.S. government obligations are issued by the U.S. Treasury and include bills,
certificates of indebtedness, notes and bonds. Agencies and instrumentalities of
the U.S. government are established under the authority of an act of Congress
and include, but are not limited to, the Government National Mortgage
Association, the Tennessee Valley Authority, the Bank for Cooperatives, the
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Land Banks and the Federal National Mortgage Association.

Certificates of Deposit are certificates issued against deposits in a commercial
bank. They are for a definite period of time, earn a specified rate of return,
and are normally negotiable.

Bankers' Acceptances are short-term credit instruments used to finance the
import, export, transfer, or storage of goods. They are termed "accepted" when a
bank guarantees their payment at maturity.

Commercial Paper refers to promissory notes issued by corporations in order to
finance their short-term credit needs.

The Money Fund may engage in repurchase transactions, in which the Fund
purchases a U.S. government security subject to resale to a bank or dealer at an
agreed-upon price and date. The resale price is normally in excess of the
purchase price, reflecting an agreed upon interest rate. The rate is effective
for the period of time the Fund is invested in the agreement and is not related
to the coupon rate on the underlying security. The period of these re-

<PAGE>
purchase agreements will usually be short, from overnight to one week, and at no
time will the Money Fund invest in repurchase agreements with a term of more
than one year. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of one year from the effective date
of the repurchase agreement. The transaction requires the collateralization of
the seller's obligation by the transfer of securities with an initial market
value, including accrued interest, equal to at least 102% of the dollar amount
invested by the Fund in each agreement, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. A default
by the seller might cause the Money Fund to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement. The Money Fund
might also incur disposition costs in liquidating the collateral. The Money Fund
intends to enter into repurchase agreements, however, only with government
securities dealers recognized by the Federal Reserve Board or with member banks
of the Federal Reserve System. Under the 1940 Act, a repurchase agreement is
deemed to be the loan of money by the Fund to the seller, collateralized by the
underlying security. The U.S. government security subject to resale (the
collateral) will be held pursuant to a written agreement and the Fund's
custodian will take title to, or actual delivery of, the security. The Money
Fund may not enter into a repurchase agreement with more than seven days to
maturity if, as a result, more than 10% of the market value of the Fund's total
assets would be invested in such repurchase agreements.

With approval of the Board of Trustees and subject to the following conditions,
each Fund may lend its portfolio securities to qualified securities dealers or
other institutional investors, provided that such loans do not exceed 10% of the
value of a Fund's total assets at the time of the most recent loan, and further
provided that the borrower deposits and maintains 102% cash collateral for the
benefit of the Fund. The lending of securities is a common practice in the
securities industry. Each Fund will engage in security loan arrangements with
the primary objective of increasing the Fund's income either through investing
the cash collateral in short-term, interest bearing obligations or by receiving
a loan premium from the borrower. A Fund will continue to be entitled to all
dividends or interest on any loaned securities. As with any extension of credit,
there are risks of delay in recovery and loss of rights in the collateral should
the borrower of the security fail financially.

Income derived by a Fund from securities lending transactions, repurchase
transactions, and investments in Commercial Paper, Bankers' Acceptances and
Certificates of Deposit will be taxable for federal and New York City and New
York State personal income tax purposes when distributed to shareholders. Income
derived by a Fund from interest on direct obligations of the U.S. government
will be taxable for federal income tax purposes when distributed to shareholders
but, provided that the Fund meets the requirements of New York State law and
properly designates distributions to shareholders, such distributions will be
excludable from income for New York State personal income tax purposes.

There may, of course, be other types of municipal securities that become
available which are similar to the foregoing described municipal securities, in
which each Fund may invest.

RISK FACTORS AFFECTING NEW YORK MUNICIPAL SECURITIES

The following information as to certain New York State ("State") and New York
City ("City") risk factors is given to investors in view of the policy of each
Fund of concentrating its investments in New York issuers. The information
provided constitutes only a brief discussion, does not purport to be a complete
description and is based on information from sources believed by the Trust to be
reliable, including official statements relating to securities offerings of the
state of New York and municipal issuers, and periodic publications by national
ratings organizations. Such information, however, has not been independently
verified by the Trust.

New York State. Constitutional challenges to State laws have limited the amount
of taxes which political subdivisions can impose on real property. In 1979, the
State's highest court declared unconstitutional a State law allowing localities
and school districts to impose a special increase in real estate property taxes
in order to raise funds for pensions and other uses. Additional court actions
have been brought against the State, certain agencies and municipalities
relating to financing, the amount of real estate tax, and the use of tax
revenues. Other matters, including the validity of treaties by which Indian
tribes transferred substantial property to the State, could affect the ability
of the State or its political subdivisions to pay their obligations. Final
adverse decisions in such cases could require extraordinary appropriations or
expenditure reductions, or both, and could have a material adverse effect upon
the financial condition of the State and various of its agencies and
subdivisions.

<PAGE>
A substantial principal amount of bonds issued by various State agencies and
authorities are either guaranteed by the State or supported by the State through
lease-purchase arrangements, or other contractual or moral obligation
provisions. Moral obligation commitments by the State impose no immediate
financial obligations on the State and require appropriations by the legislature
before any payments can be made. Failure of the State to appropriate necessary
amounts or to take other action to permit the authorities and agencies to meet
their obligations could result in defaults on such obligations. If a default
were to occur, it would likely have a significant adverse impact on the market
price of obligations of the State and its authorities and agencies. While debt
service is normally paid out of revenues generated by projects of the
authorities and agencies, the state of New York has had to appropriate large
amounts of funds in recent years to enable State agencies to meet their
financial obligations and, in some cases, prevent default. Additional assistance
is expected to be required in current and future fiscal years since certain
localities and authorities, particularly the Metropolitan Transit Authority,
continue to experience financial difficulties.

Certain other State agencies, such as the New York State Urban Development
Corporation ("UDC"), the Battery Park City Authority and the Housing Finance
Agency ("HFA"), are also dependent upon State legislative appropriations in
order to meet their bond obligations. In February 1975, UDC defaulted on $1
billion of its short-term notes and the State appropriated amounts to cure such
defaults. HFA has a $390 million mortgage on the Co-op City Project located in
New York City. Co-op City has had difficulties meeting its mortgage payments to
HFA owing to rent strikes by tenants, disputes with the city of New York and
other factors. Yonkers and Buffalo have also experienced financial difficulties
which have required State controls and appropriations to meet the financial
obligations of both cities. In the case of Yonkers, a State agency which has
been monitoring finances since 1984 recently took control of all the city's
spending in view of potential court fines and financial problems resulting from
Yonkers' initial refusal and delay in implementing a Court ordered desegregation
plan. In addition, counties and other localities on Long Island have financial
problems, including those relating to the Long Island Lighting Company's
construction of its Shoreham nuclear power facility, which could lead to
requests for additional State assistance.

To the extent State agencies and local governments require State assistance to
meet their financial obligations, the ability of the state of New York to meet
its own obligations as they become due or to obtain additional financing could
be adversely effected. This financial situation could result not only in
defaults of State and agency obligations but also impairment of the
marketability of securities issued by the State, its agencies and local
governments.

The current economic slowdown, beginning in 1989, has resulted in the largest
and longest contraction in the labor force that the State has experienced since
the 1930s, with a loss of more than 500,000 jobs between mid-1989 and mid-1993.
On an average annual basis, non-agricultural employment dropped 2.9%, while
total wages and personal income grew 2.9% (less than the rate of inflation) and
4.1%, respectively. Modest improvement is expected in 1994, with growth in
employment and wages projected at 1.4% and 6.0%, respectively.

The State's fiscal 1994 General Fund Financial Plan is balanced, reflecting the
impact of the modest economic recovery, continued efforts to restrain spending
growth, special transactions and proposed legislation. Debt service, however, is
expected to increase 9% in fiscal 1994. Servicing this debt will continue to
impose a burden on the General Fund. The burden of debt service on State
resources is expected to increase from 5.6% of revenues to 5.8%, a trend that is
predicted to continue over the next few years.

Total General Fund revenues for fiscal 1995 are projected to grow 1.7% above
expected fiscal 1994 levels to $33.4 billion, with personal income and user
taxes accounting for the largest gains. Also included in the revenue estimates
is the projected 1994 operating surplus of $299 million.

Projected General Fund disbursements for fiscal 1995 include increases in
general fund spending of $33.4 million, up 3.8% from expected fiscal 1994
levels. Approximately 70% of the increase in disbursements is for grants to
local governments. The 1995 budget also contains over $425 million in
cost-containment measures, primarily in the area of Medicaid initiatives,
designed to reduce annual growth in this area from 12% to 8%.

New York City. In 1975, New York City suffered several financial crises which
impaired and continue to impair the borrowing ability of both the City and the
State. In that year, the City lost access to public credit markets. The City was
not able to sell short-term notes to the public until 1979, nor long-term notes
to the public until 1981. To help New York City out of its financial
difficulties, the State Legislature created the Municipal Assistance Corporation
("MAC") in 1975. MAC has the authority to issue bonds and

<PAGE>

notes and pay or lend the proceeds to the City. MAC also has the authority to
exchange its obligations for City obligations. MAC bonds are payable out of
certain State sales and use taxes imposed by the City, State stock transfer
taxes and per capita State aid to the City. The State is not, however, obligated
to continue these taxes, to continue appropriating revenues from these taxes,
nor to continue the appropriation of per capita State aid to pay MAC
obligations. MAC does not have taxing powers, and its bonds are not obligations
enforceable against either the City or the State.

Since 1975, the City's financial condition has been subject to oversight and
review by the New York State Financial Control Board (the "Control Board"), and
since 1978 its financial statements have been audited by independent accounting
firms. To be eligible for guarantees and assistance, the City was annually
required to submit to the Control Board a financial plan for the next four
fiscal years, covering the City and certain agencies, showing balanced budgets
determined in accordance with generally accepted accounting principles. Although
the Control Board's powers of prior approval were suspended effective June 30,
1986, because the City had satisfied certain statutory conditions, the City
continues to submit four-year plans to the Control Board for its review. In the
event the City cannot obtain a balanced budget, there are concerns as to whether
any deficit in the City budget can be financed by MAC bonds, federal guarantees,
federal and State aid and increased revenues. The City is also a defendant in
numerous legal actions which relate to material matters.

Currently, New York City's financial plan projects significant budget gaps over
the next five years. Through a series of actions, the plan attempts to balance
the fiscal 1995 budget and narrow the budget gap in subsequent years. For fiscal
1995, the plan's projected revenues include $234 million of surplus from 1994.
The plan also assumes increased levels of State and federal aid, as well as
reductions in pension contributions, which must be approved by the City actuary,
and employee contributions towards health insurance costs, which are subject to
negotiation with various City labor groups.

Both the State and City face potential economic problems which could seriously
affect their ability to meet their financial obligations. The economic problems
of New York City adversely affect the State in numerous ways. In addition, for
decades the State economy has grown more slowly than that of the nation as a
whole, resulting in a decline in the position of New York as one of the
country's wealthiest states. The causes of this decline are varied and complex
and some causes reflect international and national trends beyond the State's and
City's control. Some analysts feel that this long-term decline is the result of
State and local taxation, which is among the highest in the nation, and which
may cause corporations to locate outside the State. The current high level of
taxes limits the ability of the State and City to impose higher taxes in the
event of future difficulties.

INSURANCE (INSURED FUND ONLY)
- --------------------------------------------------------------------------------

Except for certain temporary short-term investments or U.S. government
guaranteed securities, investment in insured municipal securities by the Insured
Fund is covered by insurance policies providing for the scheduled payment of
principal and interest thereon to the Insured Fund in the event of non-payment
by a security's issuer. Depending on market conditions, and under current
portfolio insurance restrictions, it is expected that New York municipal
securities will comprise a major portion of the portfolio of the Insured Fund.

As described in its Prospectus, the Insured Fund will receive payments under an
insurance policy for any installment of interest and principal due for payment
on an insured investment but which shall be unpaid by reason of nonpayment by
the issuer. The term "due for payment" means, when referring to the principal of
a security, its stated maturity date or the date on which it shall have been
called for mandatory sinking fund redemption and does not refer to any earlier
date on which payment is due by reason of a call for redemption (other than by
mandatory sinking fund redemption), acceleration, or other advancement of
maturity, and means, when referring to interest on a security, the stated date
for payment of interest. However, when the interest on the security shall have
been determined, as provided in the underlying documentation relating to such
security, to be subject to federal income taxation, "due for payment" also
means, when referring to the principal of such security, the date on which it
has been called for mandatory redemption as a result of such determination of
taxability, and, when referring to interest on such security, the accrued
interest at the rate provided in such documentation to the date on which it has
been called for such mandatory redemption, together with any applicable
redemption premium. The insurance feature insures the scheduled payment of
interest and principal to the Insured Fund and does not guarantee market

<PAGE>

value of the insured municipal securities nor the value of the shares of the
Insured Fund.

As stated in the Insured Fund's Prospectus, each insured municipal security in
the Insured Fund's portfolio will be covered by either a "New Issue Insurance
Policy" obtained by the issuer of the security at the time of its original
issuance or a "Secondary Insurance Policy" or a "Portfolio Insurance Policy"
issued by a qualified municipal bond insurer.

Under the provisions of the "Portfolio Insurance Policy," the insurer
unconditionally and irrevocably agrees to pay to the appointed trustee or its
successor, and its agent (the "Trustee"), that portion of the principal of and
interest on the securities which shall become due for payment but shall be
unpaid by reason of nonpayment by the issuer. The insurer will make such
payments to the Trustee on the date such principal or interest becomes due for
payment or on the business day next following the day on which the insurer shall
have received notice of nonpayment, whichever is later. The Trustee will
disburse to the Insured Fund the face amount of principal and interest which is
then due for payment but is unpaid by reason of nonpayment by the issuer but
only upon receipt by the Trustee of (i) evidence of the Insured Fund's right to
receive payment of the principal or interest due for payment and (ii) evidence,
including any appropriate instruments of assignment, that all of the rights to
payment of such principal or interest due for payment shall thereupon vest in
the insurer. Upon such disbursement, the insurer shall become the owner of the
security, appurtenant coupon or right to payment of principal or interest on
such security and shall be fully subrogated to all of the Insured Fund's rights
thereunder, including the right to payment thereof.

Bond insurers are often referred to as "monolines" in that they only write
financial guarantees, as opposed to "multiline" insurers who write several
different types of insurance policies, such as life insurance, auto and home
insurance, and are exposed to many types of risk. Additionally, bond insurers
are not exposed to "run risk" (which occurs when too many policyholders rush to
cash in their policies), because they only guarantee payment when due. Also, in
order to maintain AAA status by the recognized national securities rating
agencies (which is required by the Fund), the bond insurers invest their assets
mainly in high quality municipal and corporate bonds rated AA or better and U.S.
government obligations.

Neither the Fund nor its investment manager make any representations as to the
ability of any insurance company to meet its obligation to the Fund if called
upon to do so.

INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

The Trust has adopted the following restrictions as additional fundamental
policies of each Fund, which means that such restrictions may not be changed
without the approval of a majority of the outstanding voting securities of that
Fund. Under the 1940 Act, a "vote of a majority of the outstanding voting
securities" of the Trust or of a particular Fund means the affirmative vote of
the lesser of (1) more than 50% of the outstanding shares of the Trust or of
such Fund, or (2) 67% or more of the shares of the Trust or of such Fund present
at a shareholders meeting if more than 50% of the outstanding shares of the
Trust or of such Fund are represented at the meeting in person or by proxy. A
Fund MAY NOT:

1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets thereof) for temporary or emergency purposes may be made
from banks in any amount up to 5% of the total asset value. Secured temporary
borrowings may take the form of a reverse repurchase agreement, pursuant to
which each Fund would sell portfolio securities for cash and simultaneously
agree to repurchase them at a specified date for the same amount of cash plus an
interest component.

2. Buy any securities on margin or sell any securities short, except that it
may use such short-term credits as are necessary for the clearance of
transactions.

3. Make loans, except through the purchase of debt securities which are
customarily purchased by institutional investors, including the municipal
securities described above, or to the extent the entry into a repurchase
agreement may be deemed a loan. Although such loans are not presently intended,
this prohibition will not preclude a Fund from loaning portfolio securities to
broker-dealers or other institutional investors if at least 102% cash collateral
is pledged and maintained by the borrower; provided such portfolio security
loans may not be made if, as a result, the aggregate of such loans exceeds 10%
of the value of a Fund's total assets at the time of the most recent loan.

4. Act as underwriter of securities issued by other persons except insofar as a
Fund may be technically deemed an underwriter under the federal securities laws
in connection with the disposition of portfolio securities.

5. Purchase the securities of any issuer which would result in owning more
than 10% of the voting securities of such issuer.

<PAGE>
6. Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own beneficially more than
one-half of 1% of the securities of such issuer and all such officers and
trustees together own beneficially more than 5% of such securities.

7. Acquire, lease or hold real estate, except such as may be necessary or
advisable for the maintenance of its offices, and provided that this limitation
shall not prohibit the purchase of municipal and other debt securities secured
by real estate or interests therein.

8. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads, or any combination thereof, or interests in oil, gas, or other mineral
exploration or development programs, except that each Fund may purchase, hold,
and dispose of puts on municipal securities in accordance with its investment
policies.

9. Invest in companies for the purpose of exercising control or management.

10. Purchase securities of other investment companies, except in connection with
a merger, consolidation, acquisition, or reorganization, except that the
Intermediate-Term Fund may invest in shares of one or more money market funds
managed by Franklin Advisers, Inc., to the extent permitted by exemptions
granted under the 1940 Act, and except to the extent the Insured Fund invests
its uninvested daily cash balances in shares of Franklin New York Tax-Exempt
Money Fund and other tax-exempt money market funds in the Franklin Group of
Funds provided i) its purchases and redemptions of such money market fund shares
may not be subject to any purchase or redemption fees, ii) its investments may
not be subject to duplication of management fees, nor to any charge related to
the expense of distributing the Fund's shares (as determined under Rule 12b-1,
as amended under the federal securities laws) and iii) provided aggregate
investments by the Insured Fund in any such money market fund do not exceed (A)
the greater of (i) 5% of the Fund's total net assets or (ii) $2.5 million, or
(B) more than 3% of the outstanding shares of any such money market fund.

11. Invest more than 10% of its assets in securities, in the case of the Money
Fund and the Intermediate-Term Fund, with legal or contractual restrictions on
resale.

12. Invest more than 25% of its assets in securities of any industry. For
purposes of this limitation, tax-exempt securities issued by governments or
political subdivisions of governments are not considered to be part of any
industry.

In addition to these fundamental policies, it is the policy of the Money Fund
not to purchase securities of any issuer having a record, together with
predecessors, of less than three years' continuous operation if, immediately
after such purchase, more than 10% of the Money Fund's assets taken at market
value would be invested in such securities; except that the Money Fund may
invest up to 20% of its assets in the securities of municipal issuers which have
been in continuous operation for less than three years. It is not the policy of
the Intermediate-Term Fund to invest in real estate limited partnerships or in
interests (other than publicly traded securities) in oil, gas, or other mineral
leases, exploration or development.

OFFICERS AND TRUSTEES
- --------------------------------------------------------------------------------

The Board of Trustees has the responsibility for the overall management of the
Trust, including general supervision and review of its investment activities.
The trustees, in turn, elect the officers of the Trust who are responsible for
administering day-to-day operations of the Trust. The affiliations of the
officers and trustees and their principal occupations for the past five years
are listed below. Trustees who are deemed to be "interested persons" of the
Trust, as defined in the 1940 Act, are indicated by an asterisk (*).

<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank H. Abbott, III Trustee President and Director, Abbott Corporation
1045 Sansome St. (an investment company); Director, Vacu-Dry
San Francisco, CA 94111 Co. (a food processing company) and Mother
Lode Gold Mines Consolidated; and director,
trustee or managing general partner, as the
case may be, of most of the investment
companies in the Franklin Group of Funds.

- ----------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harris J. Ashton Trustee President, Chief Executive Officer and
General Host Corporation Chairman of the Board, General Host
Metro Center, 1 Station Place Corporation (nursery and craft centers);
Stamford, CT 06904-2045 Director, RBC Holdings, Inc. (a bank holding
company), Bar-S Foods and Sunbelt Nursery
Group, Inc.; director of certain of the
investment companies in the Templeton Group
of Funds; and director, trustee or managing
general partner, as the case may be, of most
of the investment companies in the Franklin
Group of Funds.
- ----------------------------------------------------------------------------------------------------------
S. Joseph Fortunato Trustee Member of the law firm of Pitney, Hardin,
Park Avenue at Morris County Kipp & Szuch; Director of General Host
P. O. Box 1945 Corporation; director of certain of the
Morristown, NJ 07962-1945 investment companies in the Templeton Group
of Funds; and director, trustee or managing
general partner, as the case may be, of most
of the investment companies in the Franklin
Group of Funds.
- ----------------------------------------------------------------------------------------------------------
David W. Garbellano Trustee Private Investor; Assistant
111 New Montgomery St., #402 Secretary/Treasurer and Director, Berkeley
San Francisco, CA 94105 Science Corporation (a venture capital
company); and director, trustee or managing
general partner, as the case may be, of most
of the investment companies in the Franklin
Group of Funds.
- ----------------------------------------------------------------------------------------------------------
*Charles B. Johnson Chairman President and Director, Franklin Resources,
777 Mariners Island Blvd. of the Board Inc. and Franklin/Templeton Distributors,
San Mateo, CA 94404 and Trustee Inc.; Chairman of the Board and Director,
Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.
and General Host Corporation; director of
certain of the investment companies in the
Templeton Group of Funds; and officer and/or
director, trustee or managing general
partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and
of most of the investment companies in the
Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------------
*Rupert H. Johnson, Jr. President Executive Vice President and Director,
777 Mariners Island Blvd. and Trustee Franklin Resources, Inc. and
San Mateo, CA 94404 Franklin/Templeton Distributors, Inc.;
President and Director, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor
Services, Inc.; director of certain of the
investment companies in the Templeton Group
of Funds; and officer and/or director,
trustee or managing general partner, as the
case may be, of most other subsidiaries of
Franklin Resources, Inc. and of most of the
investment companies in the Franklin Group
of Funds.
- ----------------------------------------------------------------------------------------------------------
Frank W. T. LaHaye Trustee General Partner, Peregrine Associates and
20833 Stevens Creek Blvd. Miller & LaHaye, which are General Partners
Suite 102 of Peregrine Ventures and Peregrine Ventures
Cupertino, CA 95014 II (venture capital firms); Chairman of the
Board and Director, Quarterdeck Office
Systems, Inc.; Director, FischerImaging
Corporation; and director or trustee, as the
case may be, of most of the investment
companies in the Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gordon S. Macklin Trustee Chairman, White River Corporation (financial
8212 Burning Tree Road services); Director, Fundamerican
Bethesda, MD 20817 Enterprises Holdings, Inc., Martin Marietta
Corporation, and MCI Communications
Corporation; director of certain of the
investment companies in the Templeton Group
of Funds; and director, trustee or managing
general partner, as the case may be, of most
of the investment companies in the Franklin
Group of Funds; formerly, Chairman,
Hambrecht and Quist Group; Director, H & Q
Healthcare Investors; and President,
National Association of Securities Dealers,
Inc.
- ----------------------------------------------------------------------------------------------------------
William J. Lippman Trustee Senior Vice President, Franklin Resources,
One Parker Plaza Inc., Franklin Advisers, Inc.,
Fort Lee, NJ 07024 Franklin/Templeton Distributors, Inc. and
Franklin Management, Inc.; officer and/or
director or trustee of many funds in the
Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------------
Andrew R. Johnson Vice President Senior Vice President, Franklin Advisers,
777 Mariners Island Blvd. Inc.; employee of Franklin Resources, Inc.
San Mateo, CA 94404 and its subsidiaries in administrative and
portfolio management capacities; and officer
of some of the investment companies in the
Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------------
Edward V. McVey Vice President Senior Vice President/National Sales
777 Mariners Island Blvd. Manager, Franklin/Templeton Distributors,
San Mateo, CA 94404 Inc.; and officer of many of the investment
companies in the Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------------
Harmon E. Burns Vice President Executive Vice President, Secretary and
777 Mariners Island Blvd. Director, Franklin Resources, Inc.;
San Mateo, CA 94404 Executive Vice President and Director,
Franklin/Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor
Services, Inc.; director of certain of the
investment companies in the Templeton Group
of Funds; officer and/or director, as the
case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or
director or trustee of all the investment
companies in the Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------------
Kenneth V. Domingues Vice President, Senior Vice President, Franklin Resources,
777 Mariners Island Blvd. Treasurer, and Inc. and Franklin Advisers, Inc.; Vice
San Mateo, CA 94404 Chief Financial President, Franklin/Templeton Distributors,
Officer Inc.; officer or director, as the case may
be, of other subsidiaries of Franklin
Resources, Inc.; and officer and/or managing
general partner, as the case may be, of all
the investment companies in the Franklin
Group of Funds.
- ----------------------------------------------------------------------------------------------------------
Richard C. Stoker Vice President Senior Vice President, Franklin/Templeton
11615 Spring Ridge Rd. Distributors, Inc.; Vice President, Franklin
Potomac, Maryland 20854 Management, Inc.
- ----------------------------------------------------------------------------------------------------------
</TABLE>

As indicated above, certain of the trustees and officers hold positions with
other companies in the Franklin Group of Funds(R). Trustees not affiliated with
the investment manager are currently paid fees of $50 per month plus $50 per
meeting attended and are reimbursed for expenses incurred in connection with
attending such meetings. During the fiscal year ended December 31, 1993, fees
totaling $1,765 (Money Fund) and $6,730 (Insured Fund) were paid to trustees of
the Trust who are not affiliated with the investment manager. No officer or
trustee received any other compensation directly from the Funds. As of February
8, 1994, the trustees and officers did not own of record or beneficially any
outstanding shares of the Trust. Certain officers or trustees who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries. Charles B. Johnson, Rupert H. Johnson, Jr. and Andrew R. Johnson
are brothers.

INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------

The investment manager of the Trust is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange ("Exchange"). Resources owns several other subsidiaries
which are involved in investment management and shareholder services. The
Manager and other subsidiary companies of Resources currently manage over $112
billion in assets for more than 3.4 million shareholders. The preceding table
indicates those officers and trustees who are also affiliated persons of
Distributors and Advisers.

Pursuant to separate management agreements with each Fund, the Manager provides
investment research and portfolio management services, including the selection
of securities for the Funds to purchase, hold or sell and the selection of
brokers through whom each Fund's portfolio transactions are executed. The
Manager's extensive research activities include, as appropriate, traveling to
meet with issuers and to review project sites. The Manager's activities are
subject to the review and supervision of the Trust's Board of Trustees to whom
the Manager renders periodic reports of each Fund's investment activities. The
Manager, at its own expense, furnishes the Trust with office space and office
furnishings, facilities and equipment required for managing the business affairs
of the Trust; maintains all internal bookkeeping, clerical, secretarial and
administrative personnel and services; and provides certain telephone and other
mechanical services. The Manager is covered by fidelity insurance on its
officers, trustees and employees for the protection of the Trust. Each Fund pays
its share of the Trust's expenses not assumed by the Manager. Such expenses are
allocated between the Funds based upon the ratio of the net assets of each Fund
to the combined net assets of the Trust.

See the Statement of Operations in the financial statements at the end of this
Statement of Additional Information for additional details of these expenses.

Pursuant to the management agreements with the Intermediate-Term and Insured
Funds, each Fund is obligated to pay the Manager a fee computed at the close of
business on the last business day of each month equal to a monthly rate of 5/96
of 1% (approximately 5/8 of 1% per year) for the first $100 million of average
monthly net assets of the Fund; 1/24 of 1% (approximately 1/2 of 1% per year) of
average monthly net assets of the Fund in excess of $100 million up to $250
million; and 9/240 of 1% (approximately 45/100 of 1% per year) of average
monthly net assets of the Fund in excess of $250 million. Pursuant to its
management agreement with the Manager, the Money Fund pays a daily fee (payable
at the request of the Manager) computed at the rate of 1/584 of 1%
(approximately 5/8 of 1% per year) of the average daily net assets of the Fund
for the first $100 million; plus 1/730 of 1% (approximately 1/2 of 1% per year)
of average daily net assets over $100 million up to $250 million; and 1/811 of
1% (approximately 45/100 of 1% per year) of average daily net assets in excess
of $250 million.

The Manager has limited its management fees and has assumed responsibility for
making payments, if necessary, to offset certain operating expenses otherwise
payable by the Funds. This action by the Manager to limit its management fees
and to assume responsibility for payment of the expenses related to the
operations of the Funds may be ter-

<PAGE>

minated by the Manager at any time. The management agreement specifies that the
management fee will be reduced to the extent necessary to comply with the most
stringent limits on the expenses which may be borne by a Fund as prescribed by
any state in which a Fund's shares are offered for sale. The most stringent
current limit requires the Manager to reduce or eliminate its fee to the extent
that aggregate operating expenses of a Fund (excluding interest, taxes,
brokerage commissions and extraordinary expenses such as litigation costs) would
otherwise exceed in any fiscal year, with respect to any Fund, 2.5% of the first
$30 million of average annual net assets of a Fund, 2% of the next $70 million
of average annual net assets and 1.5% of average annual net assets in excess of
$100 million. Expense reductions have not been necessary based on state
requirements.

The table below sets forth on a per Fund basis (for those Funds in operation
during the periods indicated) the management fees each Fund was contractually
obligated to pay the Manager and the management fees actually paid by each Fund,
for the fiscal years ended December 31, 1991, 1992, and 1993.

FISCAL YEAR ENDED DECEMBER 31, 1993:

<TABLE>
<CAPTION>
CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID
FEES BY THE FUND
----------- -----------
<S> <C> <C>
Money Fund ............................ $ 319,118 $142,460
Insured Fund .......................... $1,185,510 $868,888
Intermediate-Term Fund ................ $ 106,935 -0-
</TABLE>

FISCAL YEAR ENDED DECEMBER 31, 1992:
<TABLE>
<CAPTION>

CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID
FEES BY THE FUND
----------- -----------
<S> <C> <C>
Money Fund ............................ $392,002 $245,983
Insured Fund .......................... $605,593 $215,749
Intermediate-Term Fund* ............... $ 5,283 -0-
</TABLE>

*For the period from September 21, 1992 (commencement of operations) to
December 31, 1992.

FISCAL YEAR ENDED DECEMBER 31, 1991:
<TABLE>
<CAPTION>

CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID
FEES BY THE FUND
----------- -----------
<S> <C> <C>
Money Fund ............................ $488,252 $378,000
Insured Fund* ......................... $ 69,034 -0-
</TABLE>

*For the period from May 1, 1991 (commencement of operations) to December 31,
1991.

The management agreement for the Money Fund is in effect until February 28, 1995
and the management agreements for the Intermediate-Term and Insured Funds are in
effect until March 31, 1995. Thereafter, they may continue in effect for
successive annual periods, provided such continuance is specifically approved at
least annually by a vote of the Board of Trustees or by a vote of the holders of
a majority of a Fund's outstanding voting securities, and in either event by a
majority vote of the trustees who are not parties to the management agreements
or interested persons of any such party (other than as trustees of the Trust),
cast in person at a meeting called for that purpose. The management agreements
as to the Insured Fund and the Intermediate-Term Fund may be terminated without
penalty at any time by the Funds or by the Manager on 30 days' written notice
and, as to the Money Fund, on 60 days' written notice, and will automatically
terminate in the event of their assignment, as defined in the 1940 Act.

Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Trust and acts as the Trust's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account.

Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of the
Trust. Citibank Delaware, One Penn's Way, New Castle, Delaware 19720, acts as
custodian in connection with transfer services through bank automated clearing
houses. The custodians do not participate in decisions relating to the purchase
and sale of portfolio securities.

Coopers & Lybrand, 333 Market Street, San Francisco, California 94105, are the
Trust's independent auditors. During the fiscal year ended December 31, 1993,
their auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report and this Statement
of Additional Information.

THE TRUST'S POLICIES REGARDING BROKERS USED ON PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------

Since most purchases made by the Funds are principal transactions at net prices,
the Funds incur little or no brokerage costs. Each Fund deals directly with the
selling or purchasing principal or market maker without incurring charges for
the services of a broker on its behalf, unless it is determined that a better
price or execution may be obtained by utilizing the services of a broker.
Purchases of portfolio securities from underwriters include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
include a spread between

<PAGE>

the bid and ask price. As a general rule, the Funds do not purchase bonds in
underwritings where they are not given any choice, or only limited choice, in
the designation of dealers to receive the commission. Each Fund seeks to obtain
prompt execution of orders at the most favorable net price. Transactions may be
directed to dealers in return for research and statistical information, as well
as for special services rendered by such dealers in the execution of orders. It
is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocations of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms which the Manager or its affiliates may
lawfully and appropriately use in their investment advisory capacities with
other clients. Provided the best execution is obtained, the sale of a Fund's
shares may also be considered as a factor in the selection of broker-dealers to
execute a Fund's portfolio transactions.

If purchases or sales of securities of a Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of the
security so far as a Fund is concerned. In other cases, it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to a Fund.

During the past three fiscal years ended December 31, 1991, 1992 and 1993, the
Funds paid no brokerage commissions. The Funds have not acquired, since
inception, the securities of any broker-dealer.

ADDITIONAL INFORMATION REGARDING THE FUNDS' SHARES
- --------------------------------------------------------------------------------

GENERAL

All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Trust must be denominated in U.S. dollars. The Trust
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) to
honor the transaction or make adjustments to a shareholder's account for the
transaction as of a date and with a foreign currency exchange factor determined
by the drawee bank.

Shares are eligible to receive dividends beginning on the first business day
following settlement of the purchase transaction, through the date on which the
Fund writes a check or sends a wire on redemption transactions.

Dividend checks which are returned to the Trust marked "unable to forward" by
the postal service will be deemed to be a request by the shareholder to change
the dividend option and the proceeds will be reinvested in additional shares at
the respective Fund's net asset value until new instructions are received.

The Trust may deduct from a shareholder's account the costs of its efforts to
locate a shareholder if mail is returned as undeliverable or the Trust is
otherwise unable to locate the shareholder or verify the current mailing
address. These costs may include a percentage of the account when a search
company charges a percentage fee in exchange for its location services.

Under agreements with certain banks in Taiwan, Republic of China, the Insured
and Intermediate-Term Funds' shares are available to such banks' discretionary
trust funds at net asset value. The banks may charge service fees to their
customers who participate in the discretionary trusts. Pursuant to agreements, a
portion of such service fees may be paid to Distributors, or an affiliate of
Distributors, to help defray expenses of maintaining a service office in Taiwan,
including expenses related to local literature fulfillment and communication
facilities.

Shares of the Insured Fund and the Intermediate-Term Fund may be offered to
investors in Taiwan through securities firms known locally as Securities
Investment Consulting Enterprises. In conformity with local business practices
in Taiwan, shares of either Fund will be offered with the following schedule of
sales charges:
<TABLE>
<CAPTION>

SALES
SIZE OF PURCHASE CHARGE
- ------------------------------------------------ ------
<S> <C>
Up to U.S. $100,000 ............................ 3%
U.S. $100,000 to U.S. $1,000,000 ............... 2%
Over U.S. $1,000,000 ........................... 1%
</TABLE>

PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
- --------------------------------------------------------------------------------

Orders for the purchase of shares of the Insured Fund and the Intermediate-Term
Fund received in proper form prior to 1:00 p.m. Pacific time (4:00 p.m. Eastern
time) any business day that the Exchange

<PAGE>

is open for trading and promptly transmitted to the respective Fund will be
based upon the public offering price determined that day. Purchase orders
received by securities dealers or other financial institutions after 1:00 p.m.
Pacific time will be effected at the respective Fund's public offering price on
the day it is next calculated. The use of the term "securities dealer" herein
shall include other financial institutions which, pursuant to an agreement with
Distributors (directly or through affiliates), handle customer orders and
accounts with each Fund. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity.

Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to the customer resulting from failure to do so must be settled between
the customer and the securities dealer.

EFFECTIVENESS OF PURCHASE ORDERS (MONEY FUND)

The purchase price for shares of the Money Fund is the net asset value of such
shares next determined after receipt and acceptance of a purchase order in
proper form. Many of the types of instruments in which the Fund invests must be
paid for in federal funds, which are monies held by the custodian bank on
deposit at the Federal Reserve Bank of San Francisco and elsewhere. Therefore,
the monies paid by an investor for shares of the Money Fund generally cannot be
invested by the Fund until they are converted into and are available to the Fund
in federal funds, which may take up to two days. In such cases, purchases by
investors may not be considered in proper form and effective until such
conversion and availability. In the event, however, the Money Fund is able to
make investments immediately (within one business day), it may accept a purchase
order with payment other than in federal funds; in such event, shares of the
Money Fund will be purchased at the net asset value next determined after
receipt of the order and payment. Once shares of the Money Fund are purchased,
they begin earning income immediately, and income dividends will start being
credited to the investor's account on the day following the effective date of
purchase and will continue through and include the day all shares in the account
are redeemed.

Payments transmitted by wire and received by the custodian and reported by the
custodian to the Money Fund prior to 3:00 p.m. Pacific time on any business day
are normally effective on the same day as received. Wire payments received or
reported by the custodian to the Money Fund after that time will normally be
effective on the next business day. Payments transmitted by check or other
negotiable bank draft will normally be effective within two business days for
checks drawn on a member bank of the Federal Reserve System and longer for most
other checks. All checks are accepted subject to collection at full face value
in United States funds and must be drawn in United States dollars on a United
States bank. Checks drawn in United States funds on foreign banks will not be
credited to the shareholder's account and dividends will not begin accruing
until the proceeds are collected, which can take a long period of time. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) to
honor the transaction or make adjustments to the shareholder's account for the
transaction as of a date and with a foreign currency exchange factor determined
by the drawee bank.

PURCHASES AT NET ASSET VALUE (INSURED FUND AND INTERMEDIATE-TERM FUND)

As discussed in the Prospectuses for the Intermediate-Term and Insured Funds,
certain categories of investors may purchase shares of the Funds at net asset
value (without a sales charge) or at a reduced sales charge. The reason for this
is that there is minimal or no sales effort required with respect to these
investors. If certain investments at net asset value are made through a dealer
who has executed a dealer or similar agreement with Distributors, Distributors
or its affiliates may make a payment, out of their own resources, to such dealer
in an amount not to exceed 0.25% of the amount invested, paid pro rata on a
quarterly basis on average quarterly balances for a period of one year.

SHAREHOLDER ACCOUNTING

All purchases of a Fund's shares will be credited to the shareholder in full and
fractional shares of the relevant Fund (rounded to the nearest 1/1000 of a
share) in an account maintained for the shareholder by Investor Services. Share
certificates will not be issued unless requested in writing by the investor, and
no certificates will be issued for fractional shares at any time. With respect
to the Money Fund, no certificates will be issued to shareholders who have
elected redemption by check or by preauthorized bank or brokerage firm account
methods of withdrawing cash from their accounts. To open an account in the name
of a corporation, a resolution of the corporation's Board of Directors will be
required.

The Funds reserve the right to reject any order for the purchase of shares of a
Fund and to waive min-

<PAGE>

imum investment requirements. In addition, the offering of shares of a Fund may
be suspended at any time and resumed at any time thereafter.

SHAREHOLDER REDEMPTIONS

In connection with exchanges (see "Exchange Privilege" in each Fund's
prospectus), it should be noted that since the proceeds from the sale of shares
of an investment company generally are not available until the fifth business
day following the redemption, the Fund reserves the right to delay acquiring the
shares of another investment company pursuant to an exchange until said fifth
business day. The redemption of shares of a Fund to complete an exchange for
shares of any of the investment companies in the Franklin Group of Funds will be
effected at the close of business on the day the request for exchange is
received in proper form.

Use of the exchange privilege in conjunction with market timing services offered
through numerous securities dealers has become increasingly popular as a means
of capital management. In the event that a substantial portion of a Fund's
shareholders should, within a short period, elect to redeem their shares of a
Fund pursuant to the exchange privilege, a Fund might have to liquidate
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.

REDEMPTIONS IN KIND

Each Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of the applicable
Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. In the case of requests for
redemption in excess of such amounts, the Board of Trustees reserves the right
to make payments in whole or in part in securities or other assets of the Fund
from which the shareholder is redeeming, in case of an emergency, or if the
payment of such a redemption in cash would be detrimental to the existing
shareholders of the applicable Fund. In such circumstances, the securities
distributed would be valued at the price used to compute such Fund's net assets.
Should a Fund do so, a shareholder may incur brokerage fees in converting the
securities to cash. The Fund does not intend to redeem illiquid securities in
kind; however, should it happen, shareholders may not be able to timely recover
their investment and may also incur brokerage costs in selling such securities.

REDEMPTIONS BY THE FUNDS

Due to the relatively high cost of handling small investments, each Fund
reserves the right to redeem, involuntarily, at net asset value, the shares of
any shareholder whose account has a value of less than one-half of the initial
minimum investment required for that shareholder, but only where the value of
such account has been reduced by the shareholder's prior voluntary redemption of
shares. Until further notice, it is the present policy of each Fund not to
exercise this right with respect to any shareholder whose account has a value of
$50 or more in the Intermediate-Term and Insured Funds and $250 or more in the
Money Fund. In any event, before the Trust redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares in the account is less than the minimum amount and allow the
shareholder 30 days to make an additional investment in an amount which will
increase the value of the account to at least $100 in the Intermediate-Term and
Insured Funds and $500 in the Money Fund.

MULTIPLE ACCOUNTS FOR FIDUCIARIES (MONEY FUND)

As noted in the Money Fund's Prospectus, special procedures have been designed
for banks and other institutions wishing to open multiple accounts in the Money
Fund. The 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 at the time the master account is filed by
listing them or they may be added at a later date by written advice or by filing
forms supplied by the Trust. These sub-accounts may be established by the
institution with registration either by name or number. The investment minimums
applicable to the Fund are applicable to each sub-account. The Trust will
provide each institution with a written confirmation for each transaction in a
sub-account and arrangements may be made at no additional charge for the
transmittal of duplicate confirmations to the beneficial owner of the
sub-account.

Further, the Trust will provide to each institution, on a quarterly basis, or
more frequently as requested, a statement which will set forth each
sub-account's share balance, income earned for the period, income earned for the
year to date, and the total current market value of the account.

CALCULATION OF NET ASSET VALUE

As noted in the Prospectuses, each Fund generally calculates net asset value
each day that the Exchange

<PAGE>

is open for trading. Valuation for the Intermediate-Term and Insured Funds is
currently made as of 1:00 p.m. Pacific time and valuation for the Money Fund is
currently made as of 3:00 p.m. Pacific time. As of the date of this Statement of
Additional Information, the Trust is informed that the Exchange observes the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Net asset value per share of each portfolio is calculated by adding the value of
all securities and other assets in the portfolio, deducting its liabilities, and
dividing by the number of shares outstanding.

The valuation of the Money Fund's portfolio securities (including any securities
held in a separate account maintained for when-issued securities) is based upon
their amortized cost, which does not take into account unrealized capital gains
or losses. This involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in calculation, it may
result in periods during which value, as determined by amortized cost, is higher
or lower than the price the Money Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on shares of the
Money Fund computed as described above may tend to be higher than a like
computation made by a fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by the Money Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Fund would be able to obtain a somewhat higher yield than
would result from investment in a fund utilizing solely market values, and
existing investors in the Money Fund would receive less investment income. The
converse would apply in a period of rising interest rates.

The Money Fund's use of amortized cost, which facilitates the maintenance of the
Fund's per share net asset value of $1.00, is permitted by a rule adopted by the
SEC. Pursuant to this rule, the Money Fund must adhere to certain conditions.
The Fund must maintain a dollar-weighted average portfolio maturity of 90 days
or less, only purchase instruments having remaining maturities of 397 calendar
days or less, and invest only in those United States dollar-denominated
instruments that the Board of Trustees determines present minimal credit risks
and which are, as required by the federal securities laws, rated in one of the
two highest rating categories as determined by nationally recognized statistical
rating agencies, instruments deemed comparable in quality to such rated
instruments, or instruments, the issuers of which, with respect to an
outstanding issue of short-term debt that is comparable in priority and
protection, have received a rating within the two highest categories of a
nationally recognized statistical rating agency. As discussed in the Prospectus,
securities subject to floating or variable interest rates with demand features
in compliance with applicable rules of the SEC may have stated maturities in
excess of one year. The trustees have also agreed to establish procedures
designed to stabilize, to the extent reasonably possible, the Money Fund's price
per share, as computed for the purpose of sales and redemptions, at $1.00. Such
procedures will include review of the Money Fund's portfolio holdings by the
trustees, at such intervals as they may deem appropriate, to determine whether
the Fund's net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the trustees. If such deviation exceeds 1/2 of 1%,
the trustees will promptly consider what action, if any, will be initiated. In
the event the trustees determine that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
they will take such corrective action as they regard as necessary and
appropriate, which may include the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, redemptions of shares in kind, or establishing
a net asset value per share by using available market quotations.

For the purpose of determining the aggregate net assets of the Intermediate-Term
and Insured Funds, cash and receivables are valued at their realizable amounts.
Interest is recorded as accrued. Portfolio securities for which market
quotations are readily available are valued within the range of the most recent
bid and ask prices as obtained from one or more dealers that make markets in the
securities. Tax-free bonds generally trade in the over-the-counter market rather
than on a securities exchange. Other securities for which market quotations are
readily available are valued at the current market price, which may be obtained
from a pricing service, based on a variety of factors, including recent trades,
institutional size trading in similar types of securities (considering yield,
risk and maturity) and/or developments related to specific issues. Reliable
market quotations may not be readily available for the Intermediate-Term or
Insured Funds' portfolio securities, and in such

<PAGE>
cases these securities are valued at fair value as determined following
procedures approved by the Board of Trustees. All money market instruments with
a maturity of more than 60 days are valued at current market value, as discussed
above. All money market instruments with a maturity of 60 days or less are
valued at their amortized cost, which the Board of Trustees has determined in
good faith constitutes fair value for purposes of complying with the 1940 Act.
With the approval of the trustees, the Intermediate-Term and Insured Funds may
utilize a pricing service, bank or broker/dealer to perform any of the above
described functions.

REINVESTMENT DATE (INSURED FUND AND INTERMEDIATE-TERM FUND)

The dividend reinvestment date is the date on which additional shares are
purchased for the investor who has elected to have dividends reinvested. This
date will vary from month to month, based on operational considerations, and is
not necessarily the same date as the record date or the payable date for cash
dividends.

SPECIAL SERVICES

The Trust and Institutional Services Division of Distributors provides
specialized services, including recordkeeping, for institutional investors of
each Fund. The cost of these services is not borne by the Funds.

Investor Services may pay certain financial institutions which maintain omnibus
accounts with the Trust on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such beneficial owners. For
each beneficial owner in the omnibus account, the Funds may reimburse Investor
Services an amount not to exceed the per account fee which the Trust normally
pays Investor Services. Such financial institutions may also charge a fee for
their services directly to their clients.

ADDITIONAL INFORMATION REGARDING DISTRIBUTIONS AND TAXATION
- -------------------------------------------------------------------------------

DISTRIBUTIONS

In order to maintain a $1.00 net asset value per share, the Money Fund may make
distributions and distribution adjustments from realized gains and losses on the
sale of portfolio securities or from unrealized appreciation or depreciation in
the value of portfolio securities. This may result in under or over
distributions of investment company taxable income or net tax-exempt income.

As noted in the Money Fund's Prospectus, the Money Fund declares dividends for
each day that its net asset value is calculated equal to all of its daily net
interest income, payable to shareholders of record as of the close of business
the preceding day.

Shareholders who so request may have their dividends paid out monthly in cash.
The shares reinvested and credited to their account during the month will be
redeemed as of the close of business on the last bank business day of the month
and the proceeds will be paid to them in cash. If a shareholder withdrew the
entire amount in an account at any time during the month, all dividends accrued
with respect to the account during the month to the time of withdrawal would be
paid in the same manner and at the same time as the proceeds of withdrawal. Each
Money Fund shareholder will receive a monthly summary of the account, including
information as to dividends reinvested or paid.

The Board of Trustees reserves the right to revise the above dividend policy or
postpone the payment of dividends, if warranted in its judgment, due to unusual
circumstances such as a large expense, loss or unexpected fluctuation in net
assets.

ADDITIONAL INFORMATION REGARDING TAXATION

As stated in the Prospectuses, each Fund has elected to be treated as a
regulated investment company under Subchapter M of the Code. The trustees
reserve the right not to maintain the qualification of a Fund as a regulated
investment company if they determine such course of action to be beneficial to
shareholders. In such case, such Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, to the alternative
minimum tax on its tax-exempt income, and distributions (including tax-exempt
interest dividends) to shareholders will be taxable to the extent of the Fund's
available earnings and profits.

The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Funds and received by the shareholder
on December 31 of the calendar year in which they are declared. Each Fund
intends as a matter of policy to declare and pay such dividends, if any, in
December to avoid the imposition of this tax, but does not guarantee that

<PAGE>
its distributions will be sufficient to avoid any or all federal excise taxes.

The Money Fund may derive capital gains or losses in connection with sales or
other dispositions of its portfolio securities. However, because the Money
Fund's portfolio under normal circumstances is composed of short-term
securities, the Fund does not expect to realize any long-term capital gains or
losses. Distributions by each Fund derived from net short-term and net long-term
capital gains (after taking into account any net capital loss carryovers) may
generally be made twice each year. One distribution may be made in December to
reflect the net short-term and net long-term capital gains realized by the Fund
as of October 31 of such year. Any net short-term and net long-term capital
gains realized by the Fund during the remainder of the fiscal year may be
distributed following the end of the fiscal year. These distributions, when
made, will generally be fully taxable to the Fund's shareholders. Each Fund may
make only one distribution derived from net short-term and net long-term capital
gains in any year or adjust the timing of its distributions for operational or
other reasons.

Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders subject to taxation, gain
or loss will be recognized in an amount equal to the difference between the
shareholder's basis in the shares and the amount realized from the transaction,
subject to the rules described below. If such shares are a capital asset in the
hands of the shareholder, gain or loss will be capital gain or loss and will be
long-term for federal income tax purposes if the shares have been held for more
than one year.

All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Funds are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.

Any loss realized upon the redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
amounts treated as distributions of net long-term capital gain during such
six-month period and will be disallowed to the extent of exempt-interest
dividends paid with respect to such shares.

Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by a fund from direct obligations of the U.S.
government, subject in some states to minimum investment requirements that must
be met by the fund. Investments in GNMA/FNMA securities and repurchase
agreements collateralized by U.S. government securities do not generally qualify
for tax-free treatment. While it is not the primary investment objective of the
Funds to invest in such obligations, each Fund is authorized to so invest for
temporary or defensive purposes. To the extent that such investments are made,
the Funds will provide shareholders with the percentage of any dividends paid
which may qualify for such tax-free treatment at the end of each calendar year.
Shareholders should then consult with their own tax advisors with respect to the
application of their state and local laws to these distributions and on the
application of other state and local laws on distributions and redemption
proceeds received from the Funds.

Persons who are defined in the Code as "substantial users" (or related persons)
of facilities financed by private activity bonds should consult with their tax
advisors before purchasing shares of the Fund.

Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes on distributions received by them from the
Funds and the application of foreign tax laws to these distributions.

THE TRUST'S UNDERWRITER
- --------------------------------------------------------------------------------

Pursuant to separate underwriting agreements in effect until February 28, 1995
(Money Fund) and March 31, 1995 (Intermediate-Term and Insured Funds),
Distributors acts as principal underwriter in a continuous public offering for
shares of the Funds.

Distributors pays the expenses of distribution of the Funds' shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. Each Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.

The underwriting agreements will continue in effect for successive annual
periods, provided that their continuance is specifically approved at least
annually by a vote of the Trust's Board of Trustees, or by a vote of the holders
of a majority of the Trust's outstanding voting securities, and in either event
by a majority vote of the Trust's trustees who are not parties to the agreements
or interested persons of any such party (other than as trustees of the Trust),
cast in person at a meeting called for that purpose. The underwriting agreements
terminate automatically in the event of their assignment and may be terminated
by either party on 90 days' written notice.

<PAGE>

Distributors currently reallows the entire underwriting commission on the sale
of the Insured Fund shares, and a portion of the underwriting commission on the
sale of the Intermediate-Term Fund shares, to the securities dealer of record,
if any, on an account. After July 1, 1994, with respect to the sale of Insured
Fund shares, Distributors will reallow a portion of the underwriting commission
to such securities dealer. Prior to May 1, 1994, income dividends on the Insured
Fund were reinvested at the offering price (which includes the sales charge) and
Distributors reallowed 50% of the underwriting commission to the securities
dealer of record, if any, on the account. As of May 1, 1994, such reinvestments
will be at net asset value.

In connection with the offering of the Insured and Intermediate-Term Funds'
shares (regarding the Funds in operation during the periods indicated),
underwriting commissions received by Distributors and the amounts which were
subsequently paid by Distributors to other dealers for the fiscal years ended
December 31, 1992 and 1993, were as follows:

FISCAL YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>

TOTAL PAID TO
COMMISSIONS OTHER
FUND RECEIVED DEALERS
- ------------------------------------ ----------- ----------
<S> <C> <C>
Insured Fund ....................... $3,782,172 $3,700,226
Intermediate-Term Fund ............. $ 406,861 $ 365,581
</TABLE>

FISCAL YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>

TOTAL PAID TO
COMMISSIONS OTHER
FUND RECEIVED DEALERS
- ------------------------------------ ----------- ----------
<S> <C> <C>
Insured Fund ....................... $3,871,611 $3,834,482
Intermediate-Term Fund* ............ $ 14,791 $ 12,771
</TABLE>

*For the period from September 21, 1992 (commencement of operations) to December
31, 1992.

Except for the underwriting commissions discussed above and for any payments to
be made under the distribution plans adopted on behalf of the Intermediate-Term
and Insured Funds described below, Distributors receives no other compensation
from the Trust for acting as underwriter.

DISTRIBUTION PLAN (INTERMEDIATE-TERM AND INSURED FUNDS)

The Intermediate-Term and Insured Funds have each adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act (the "Plans") which provides for each
Fund to pay up to a maximum of 0.10% per annum of its average daily net assets
for expenses incurred in the promotion and distribution of its shares.

Pursuant to the Plans, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum as stated above) for actual expenses incurred in
the distribution and promotion of the Funds' shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparation and distribution of sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
the Funds' shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a servicing
agreement with Distributors.

In addition to the payments to which Distributors or others are entitled under
the Plans, the Plans also provide that to the extent the Funds, the Manager or
Distributors or other parties on behalf of the Funds, the Manager or
Distributors, make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of shares of the Funds
within the context of Rule 12b-1 under the 1940 Act, then such payments shall be
deemed to have been made pursuant to the Plans.

In no event shall the aggregate asset-based sales charges which include payments
made under the Plans, plus any other payments deemed to be made pursuant to the
Plans, exceed the amount permitted to be paid pursuant to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., Article III,
Section 26(d)4.

The terms and provisions of the Plans relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plans do not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
subsequent years.

To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plans for administrative servicing or for agency transactions. If a bank
were prohibited from providing such services, its customers who are shareholders
would be permitted to remain shareholders of the Funds and alternate means for
continuing the servicing of such shareholders would be sought. In such an event,
changes in the services provided might occur and such shareholders might no
longer be able to avail themselves of any automatic investment or other services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these changes.
Securities laws

<PAGE>

of states in which the Funds' shares are offered for sale may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions selling shares of the Funds may be required to register as dealers
pursuant to state law.

The Board of Trustees has determined that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and to
take advantage of buying opportunities of portfolio securities without having to
make unwarranted liquidations of other portfolio securities. The Board of
Trustees, therefore, felt that it would benefit the Funds to have monies
available for the direct distribution activities of Distributors or others in
promoting the sale of the Funds' shares. The Board of Trustees, including the
non-interested trustees, concluded that, in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plans will benefit the Intermediate-Term Fund, the Insured
Fund and their shareholders.

The Plans have been approved by the shareholders of each Fund, and by the
trustees, including those trustees who are not interested persons, as defined in
the 1940 Act. The Plans are effective through March 31, 1995, for the
Intermediate-Term Fund, and April 30, 1995, for the Insured Fund, and thereafter
renewable annually by a vote of the Trust's Board of Trustees, including a
majority vote of the trustees who are non-interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the Plans,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such trustees be done by the non-interested
trustees. The Plans and any related agreement may be terminated at any time,
without any penalty, by vote of a majority of the non-interested trustees on not
more than 60 days' written notice, by Distributors on not more than 60 days'
written notice, by any act that constitutes an assignment of the Management
Agreement with the Manager or, with respect to the Intermediate-Term Fund, the
Underwriting Agreement with Distributors, or by vote of a majority of a Fund's
outstanding shares. Distributors or any dealer or other firm may also terminate
their respective distribution or service agreement at any time upon written
notice.

The Plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the Funds' outstanding shares, and all material amendments to the Plans or
any related agreements shall be approved by a vote of the non-interested
trustees, cast in person at a meeting called for the purpose of voting on any
such amendment.

Distributors is required to report in writing to the Board of Trustees at least
quarterly on the amounts and purpose of any payment made under the Plans and any
related agreements, as well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether the Plans should be
continued. For the period ended December 31, 1993, fees totalling $7,672
(Intermediate-Term Fund) could have been reimbursed to Distributors by the Fund
but were paid by Advisers.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

PERFORMANCE

As noted in the Prospectuses, each Fund may from time to time quote various
performance figures to illustrate that Fund's past performance. The Funds may
also occasionally cite statistics to reflect their volatility or risk.

INTERMEDIATE-TERM AND INSURED FUNDS

Performance quotations by investment companies are subject to rules adopted by
the SEC. These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by
the Funds be accompanied by certain standardized performance information
computed as required by the SEC. Current yield and average annual compounded
total return quotations used by the Funds are based on the standardized methods
of computing performance mandated by the SEC. An explanation of those and other
methods used by the Intermediate-Term and Insured Funds to compute or express
performance follows.

TOTAL RETURN

The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods, or fractional
portion thereof, that would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes (for the Insured Fund) that
the maximum sales charge is deducted from the initial $1,000 purchase order,
capital gains are reinvested at net asset value and all income dividends are
reinvested at the maximum public offering price (offering price includes sales
charge) on the reinvestment dates during the period. The Intermediate-Term Fund
will assume the reinvestment of both capital

<PAGE>

gains and income dividends at net asset value. The quotation assumes the account
was completely redeemed at the end of each one-, five- and ten-year period and
the deduction of all applicable charges and fees.

In considering the quotations set forth below, investors should remember that
the maximum sales charge reflected in each quotation is a one-time fee (charged
on all direct purchases and reinvested dividends for the Insured Fund) which
will have its greatest impact during the early stages of an investor's
investment in a Fund. The actual performance of an investment will be affected
less by this charge the longer an investor retains the investment in a Fund. The
average annual compounded rates of return for the Insured Fund and the
Intermediate-Term Fund from inception to December 31, 1993, were as follows:

<TABLE>
<CAPTION>
INCEPTION TO
DECEMBER 31,
FUND NAME ONE YEAR 1993
- ---------------------------------- -------- -------------
<S> <C> <C>
Insured Fund ..................... 9.29% 9.51%
Intermediate-Term Fund ........... 7.66% NA
</TABLE>

This figure was calculated according to the SEC formula:

P(1 + T)n = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the end of the one-,
five-, or ten-year periods (or fractional portion thereof).

As discussed in their Prospectuses, the Intermediate-Term and Insured Funds may
quote total rates of return in addition to an average annual total return. Such
quotations are computed in the same manner as the Funds' average annual
compounded rate, except that such quotations will be based on each Fund's actual
return for a specified period rather than on its average return over one-, five-
and ten-year periods. Total return for the Insured Fund and for the
Intermediate-Term Fund from inception of each Fund to December 31, 1993 were as
follows:
<TABLE>
<CAPTION>
INCEPTION TO
DECEMBER 31,
FUND NAME ONE YEAR 1993
- ---------------------------------- -------- -------------
<S> <C> <C>
Insured Fund...................... 9.29% 27.51%
Intermediate-Term Fund ........... 7.66% 9.97%
</TABLE>

Since for the Insured Fund, the reinvestment of dividends at net asset value
(without a sales charge) will be effective May 1, 1994, and the maximum sales
charge of 4.25% will be effective July 1, 1994, historical performance
information will be restated to reflect such changes.

YIELD

Current yield reflects the income per share earned by a Fund's portfolio
investments.

Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
yield for the Insured Fund and the Intermediate-Term Fund for the 30-day period
ended on the date of the financial statements included herein was 4.51% and
4.84%, respectively.

These figures were obtained using the following SEC formula:

Yield = 2 [(a-b + 1)6 -1]
---
cd

where:

a = interest earned during the period

b = expenses accrued for the period (net of reimbursements)

c = the average daily number of shares outstanding during the period that
were entitled to receive income distributions

d = the maximum offering price per share on the last day of the period

TAX EQUIVALENT YIELD

The Funds may also quote a tax equivalent yield which demonstrates the taxable
yield necessary to produce an after-tax yield equivalent to that of a fund which
invests in tax-exempt obligations. Such yield is computed by dividing that
portion of the yield of a Fund (computed as indicated above) which is tax-exempt
by one minus the highest applicable combined federal, New York State and New
York City income tax rate (and adding the product to that portion of the yield
of a Fund that is not tax-exempt, if any). The tax equivalent yield for the
Insured Fund and for the Intermediate-Term Fund for the 30-day period ended on
the date of the financial statements included herein was 8.04% and 8.63%,
respectively.

As of the date of the financial statements included herein, the federal income
tax rate and the combined New York state and local income tax rate upon which
each Fund's tax equivalent yield quotations are based were 36.0% and 12.34%,
respectively. From time to time, as any changes to such rates become effective,
tax equivalent yield quotations advertised

<PAGE>

by a Fund will be updated to reflect such changes. The Funds expect updates may
be necessary as tax rates are changed by federal, state and local governments.
The advantage of tax-free investments, such as the Funds, will be enhanced by
any tax rate increases. Therefore, the details of specific tax increases may be
used in sales material for the Funds. As of the date of this Statement of
Additional Information, the maximum federal tax rate was 39.6%.

CURRENT DISTRIBUTION RATE

Current yield and tax equivalent yield, which are calculated according to a
formula prescribed by the SEC, are not indicative of the amounts which were or
will be paid to a Fund's shareholders. Amounts paid to shareholders are
reflected in the quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by dividing the
total amount of dividends per share paid by a Fund during the past twelve months
by a current maximum offering price. A taxable equivalent distribution rate
demonstrates the taxable distribution rate equivalent to a Fund's current
distribution rate (calculated as indicated above). The advertised taxable
equivalent distribution rate will reflect the most current federal and New York
State and City tax rates available to a Fund. Under certain circumstances, such
as when there has been a change in the amount of dividend payout, or a
fundamental change in investment policies, it might be appropriate to annualize
the dividends paid over the period such policies were in effect, rather than
using the dividends during the past twelve months. The current distribution rate
differs from the current yield computation because it may include distributions
to shareholders from sources other than dividends and interest, such as
short-term capital gains, and is calculated over a different period of time.

VOLATILITY

Occasionally, statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility or
risk is standard deviation. Standard deviation is used to measure variability of
net asset value or total return around an average, over a specified period of
time. The premise is that greater volatility connotes greater risk undertaken in
achieving performance.

OTHER PERFORMANCE QUOTATIONS

With respect to those categories of investors who are permitted to purchase
shares of a Fund at net asset value, sales literature pertaining to a Fund may
quote a "Current Distribution Rate for Net Asset Value Investments." This rate
is computed by adding the income dividends paid by a Fund during the last twelve
months and dividing that sum by a current net asset value. Figures for yield,
total return and other measures of performance for Net Asset Value Investments
may also be quoted. These will be derived as described elsewhere in this
Statement of Additional Information with the substitution of net asset value for
public offering price.

Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.

A Fund may include in its advertising or sales material information relating to
investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisers and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.

COMPARISONS

To help investors better evaluate how an investment in the Insured and
Intermediate-Term Funds might satisfy their investment objective, advertisements
and other materials regarding the Funds may discuss various measures of Fund
performance as reported by various financial publications. Materials may also
compare performance (as calculated above) to performance as reported by other
investments, indices, and averages. Such comparisons may include, but are not
limited to, the following examples:

a) Merrill Lynch New York Municipal Bond Index - based upon yields from revenue
and general obligation bonds weighted in accordance with their respective
importance to the New York municipal market.

b) Lehman Brothers Municipal Bond Index (LMBI) or its component indices - LMBI
measures yield, price and total return for the municipal bond market.

c) Bond Buyer's 20-Bond Index - an index of municipal bond yields based upon
yields of 20 general obligation bonds maturing in 20 years.

d) Bond Buyer's 40-Bond Index - an index of municipal bond yields based upon
yields of 40 revenue bonds maturing in 30 years.

e) Salomon Brothers Broad Bond Index or its component indices - The Broad Index
measures yield, price, and total return for Treasury, Agency, Corporate, and
Mortgage bonds.

f) Lehman Brothers Aggregate Bond Index or its component indices - The Aggregate
Bond Index measures yield, price and total return for Treasury, Agency,
Corporate, Mortgage, and Yankee bonds.

<PAGE>

g) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods assuming
reinvestment of all distributions, exclusive of sales charges.

h) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan Companies, Salomon Brothers and Merrill Lynch.

i) Financial publications: Business Week, Financial World, Forbes, Fortune,
Kiplinger's Personal Finance, and Money magazines - these publications
periodically rate yield and total return over specified time periods.

From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may also compare a Fund's
performance to the return on certificates of deposit or other investments.
Investors should be aware, however, that an investment in a Fund involves the
risk of fluctuation of principal value, a risk generally not present in an
investment in a certificate of deposit issued by a bank. For example, as the
general level of interest rates rise, the value of a Fund's fixed-income
investments, as well as the value of its shares which are based upon the value
of such portfolio investments, can be expected to decrease. Conversely, when
interest rates decrease, the value of a Fund's shares can be expected to
increase. Certificates of deposit are frequently insured by an agency of the
U.S. government. An investment in each Fund is not insured by any federal, state
or private entity.

In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to a Fund's portfolio, that the indices and averages are generally
unmanaged, and that the items included in the calculations of such averages may
not be identical to the formula used by a Fund to calculate its figures. In
addition, there can be no assurance that a Fund will continue this performance
as compared to such other averages.

MONEY FUND

CURRENT YIELD

Current yield reflects the interest income per share earned by the portfolio's
investments.

Current yield is computed by determining the net change, excluding capital
changes, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then annualizing the result by multiplying the base period
return by (365/7).

The yield for the Money Fund for the seven-day period ended on the date of the
financial statements included herein was 2.18%.

EFFECTIVE YIELD

Effective yield is computed in the same manner, except that the annualization of
the return for the seven-day period reflects the results of compounding by
adding one to the base period return, raising the sum to a power equal to 365
divided by seven, and subtracting one from the result.

Effective yield for the Fund for the seven-day period ended on the date of the
financial statements included herein was 2.21%.

This figure was obtained using the SEC formula:

Effective Yield = [(Base Period Return + 1)365/7]-1

TAX EQUIVALENT YIELD

The Money Fund may also quote tax equivalent yield and tax equivalent effective
yield, which demonstrate the taxable yield necessary to produce an after-tax
yield equivalent to that of a fund which invests in tax-exempt obligations. Such
yields are computed by dividing that portion of the yield of the Fund (computed
as indicated above) which is tax-exempt by one minus the highest combined
federal and state income tax rate and adding the product to that portion of the
yield of the Fund that is not tax-exempt. The tax equivalent yield based on the
current yield of the Fund for the seven-day period ended on the date of the
financial statements included herein was 3.89%. The tax equivalent effective
yield based on the effective yield of the Fund for the seven-day period ended on
the date of the financial statements included herein was 3.94%. The advertised
tax-equivalent yield will reflect the most current federal and New York City and
New York State tax rates available to the Fund.

The tax rate discussions under the discussion sub-captioned "Tax Equivalent
Yield" with respect to the Insured and Intermediate-Term Funds, applies as well
to advertisements of tax equivalent yield by the Money Fund.

COMPARISONS

To help investors better evaluate how an investment in the Money Fund might
satisfy their investment objective, advertisements and other materials regard-

<PAGE>

ing the Fund may discuss various measures of Fund performance as reported by
various financial publications. Materials may also compare performance (as
calculated above) to performance as reported by other investments, indices, and
averages. The following publications, indices, and averages may be used:

a) IBC/Donoghue's Money Fund Report(R) - Industry averages for seven-day
annualized and compounded yields of taxable, tax-free, and government money
funds.

b) Bank Rate Monitor - A weekly publication which reports various bank
investments such as CD rates, average savings account rates and average loan
rates.

c) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey For Industry
Averages - measure total return and average current yield for the mutual fund
industry and rank individual mutual fund performance over specified time periods
assuming reinvestment of all distributions, exclusive of any applicable sales
charges.

d) Salomon Brothers Bond Market Roundup - A weekly publication which reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets. It also summarizes changes in banking statistics and
reserve aggregates.

e) Inflation as measured by the Consumer Price Index, published by the U.S.
Bureau of Labor Statistics.

f) Standard & Poor's Bond Indices - measures yield and price of corporate,
municipal, and government bonds.

g) Financial Publications: Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, and Money magazine.

h) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.

i) Lehman Brothers Aggregate Bond Index or its component indices - The Aggregate
Bond Index measures yield, price, and total return for Treasury, Agency,
Corporate, and Mortgage bonds.

j) Lehman Brothers Municipal Bond Index or its component indices - measures
yield, price and total return for municipal bonds.

In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Fund's portfolio, that the averages are generally
unmanaged, and that the items included in the calculations of such averages may
not be identical to the formula used by the Fund to calculate its figures. In
addition, there can be no assurance that the Fund will continue this performance
as compared to such other averages.

OTHER FEATURES AND BENEFITS

ALL FUNDS

Founded in 1947, Franklin is a leader in the tax-free mutual fund industry,
currently offering 40 tax-free funds, including 31 funds free from both federal
and state personal income taxes, and managing more than $40 billion in municipal
bond assets for over half a million investors.

Under current tax laws, municipal securities remain one of the few investments
offering the potential for tax-free income. In 1994, taxes could cost as much as
$47 on every $100 earned from a fully taxable investment (based on the maximum
combined 39.6% federal tax rate and the highest state tax rate of 12% for 1994.)
Franklin tax-free funds, however, offer tax relief through a professionally
managed portfolio of tax-free securities selected based on their yield, quality
and maturity. An investment in a Franklin tax-free fund can provide an investor
with the potential to earn income free of federal taxes and, depending on the
fund, state and local taxes as well, while supporting state and local public
projects. Franklin tax-free funds may also provide tax-free compounding, when
dividends are reinvested. An investment in Franklin's tax-free funds can grow
more rapidly than similar taxable investments.

Each Fund may help investors achieve various investment goals such as
accumulating money for retirement, saving for a down payment on a home, college
costs and/or other long-term goals. The Franklin College Costs Planner may
assist an investor in determining how much money must be invested on a monthly
basis in order to have a projected amount available in the future to fund a
child's college education. (Projected college cost estimates are based upon
current costs published by the College Board.) The Franklin Retirement Income
Planning Guide leads an investor through the steps to start a retirement savings
program. Of course, an investment in the Trust cannot guarantee that such goals
will be met.

Each Fund is a member of the Franklin/Templeton Group, one of the largest mutual
fund organizations in the United States and may be considered in a program for
diversification of assets. Franklin, one of the oldest mutual fund
organizations, has managed mutual funds for over 45 years and now services more

<PAGE>

than 2.4 million shareholder accounts. In 1992, Franklin, a leader in managing
fixed-income mutual funds and an innovator in creating domestic equity funds,
joined forces with Templeton Worldwide, Inc., a pioneer in international
investing. Together, the Franklin/Templeton Group has over $112 billion in
assets under management for more than 3.4 million shareholder accounts and
offers 98 U.S.-based mutual funds. The Fund may identify itself by its Quotron
or CUSIP number.

The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one of
36 mutual fund groups in service quality for 1993. One other fund group was also
ranked number one. Franklin has been ranked number one in service quality by
Dalbar for five of the past six years.

From time to time, advertisements or sales material issued by a Fund may discuss
or be based upon information in a recent issue of the Special Report on Tax
Freedom Day published by the Tax Foundation, a Washington, D.C. based nonprofit,
research and public education organization. The report illustrates, among other
things, the amount of time, on an annual basis, the average taxpayer works to
satisfy his or her tax obligations to the federal, state and local taxing
authorities.

OWNERSHIP AND AUTHORITY DISPUTES

In the event of disputes involving multiple claims of ownership or authority to
control a shareholder's account, a Fund has the right (but has no obligation)
to: (a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account, prior
to executing instructions regarding the account; (b) interplead disputed funds
or accounts with a court of competent jurisdiction; or (c) surrender ownership
of all or a portion of the account to the Internal Revenue Service in response
to a Notice of Levy.

MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------

The portfolio insurance of the Insured Fund may affect the value of the Fund's
shares under certain circumstances. As discussed in the Insured Fund's
Prospectus, unless a Secondary Market Insurance Policy is purchased with respect
to the portfolio security, the Insured Fund intends to hold any defaulted
securities or securities for which there is a significant risk of default in its
portfolio until the default has been cured or the principal and interest are
paid by the issuer or the insurer. In such circumstances, the Board of Trustees
has instructed the Manager to consider in its evaluation of these securities the
value of the insurance for the interest and principal payments, as well as the
market value of the portfolio securities, the market value of securities of
similar issuers whose securities carry similar interest rates, and the
discounted present value of the interest and principal payments to be received
from the insurance company. Absent any unusual or unforeseen circumstances as a
result of the Portfolio Insurance Policy, the Manager would likely recommend
that the Insured Fund value the defaulted securities, or securities for which
there is a significant risk of default, at the same price as securities of a
similar nature which are not in default. A defaulted security covered by a
Secondary Market Policy would be valued at market.

The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust also provides for indemnification and reimbursement of expenses out of
Trust assets for any shareholder held personally liable for obligations of the
Trust. The Declaration of Trust provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Trust and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund(s) of which a shareholder holds shares. The
Declaration of Trust further provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, trustees, officers, employees and
agents to cover possible tort and other liabilities. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance exists and the Trust
itself is unable to meet its obligations.

As of February 8, 1994, the principal shareholders of each Fund, beneficial or
of record, their addresses and the amount of their share ownership were as
follows:

<TABLE>
<CAPTION>
NUMBER OF
SHARES HELD PERCENTAGE
----------- ----------
<S> <C> <C>
MONEY FUND
John J. Muraco 2,699,589 5.1%
800 S. Manlius Rd.
Fayetteville, NY 13066

INTERMEDIATE-TERM FUND
Franklin Resources Inc. 211,543 6.5%
777 Mariners Island Blvd.
San Mateo, CA 94404

</TABLE>

From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.

<PAGE>

APPENDIX
- --------------------------------------------------------------------------------

DESCRIPTION OF MUNICIPAL SECURITIES RATINGS

MUNICIPAL BONDS

Moody's

Aaa: Municipal bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa: Municipal bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A: Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa: Municipal bonds which are rated Baa are considered medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category. The modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.

S&P

AAA: Municipal bonds rated AAA are the highest grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market
they move with interest rates, and hence provide maximum safety on all counts.

AA: Municipal bonds rated AA also qualify as high-grade obligations, and in the
majority of instances differ from AAA issue only in small degree. Here, too,
prices move with the long-term money market.

A: Municipal bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.

MUNICIPAL NOTES

Moody's

Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in long-term
borrowing risk are of lesser importance in the short run. Symbols used will be
as follows:

MIG-1 - Notes are of the best quality and enjoy strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.

MIG-2 - Notes are of high quality, with margins of protection ample, although
not so large as in the preceding group.

MIG-3 - Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market access
for refinancing, in particular, is likely to be less well established.

MIG-4 - Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.

<PAGE>

S&P

Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below usually will be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.

SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.

SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.

COMMERCIAL PAPER

Moody's

Moody's Commercial Paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Trust, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A plus (+) designation indicates an even stronger likelihood of
timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

<PAGE>
FRANKLIN NEW YORK TAX-FREE TRUST
REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees
of Franklin New York Tax-Free Trust:

We have audited the accompanying statements of assets and liabilities of the
various funds comprising Franklin New York Tax-Free Trust, including each Fund's
statement of investments in securities and net assets, as of December 31, 1993,
and the related statements of operations and changes in net assets for the
periods indicated thereon, and the financial highlights included under the
caption "Financial Highlights" for the periods indicated thereon. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1993 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
various funds comprising Franklin New York Tax-Free Trust as of December 31,
1993, the results of their operations and the changes in their net assets for
the periods indicated thereon, and the financial highlights for the periods
indicated thereon in conformity with generally accepted accounting principles.

COOPERS & LYBRAND

San Francisco, California
January 28, 1994

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
INVESTMENTS 98.4%
$ 300,000 c Babylon, Town of, IDA, IDR, General Microwave Corp. Facility, Series 1984,
Weekly VRDN and Put, 2.70%, 10/01/99 ................................................. $ 300,000
2,300,000 Deer Park Union Free School District, Tax Anticipation Notes, 2.75%, 06/28/94 .......... 2,300,506
1,300,000 c Erie County Water Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 2.90%, 12/01/16 ................................................. 1,300,000
1,500,000 c Great Neck North, Water Authority System Revenue, Series A, FGIC Insured,
Weekly VRDN and Put, 2.75%, 01/01/20 ................................................. 1,500,000
2,100,000 c Metropolitan Transport Authority, Commuter Facilities Revenue,
Weekly VRDN and Put, 2.75%, 07/01/21 ................................................. 2,100,000
1,000,000 c Nassau County IDA, IDR, Refunding, CR/PL, Inc. Project, Series A,
Weekly VRDN and Put, 3.50%, 06/01/07 ................................................. 1,000,000
New York City GO,
700,000 b Series C-2, Daily VRDN and Put, 3.75%, 08/01/94 .................................... 700,000
200,000 b Series E-5, Daily VRDN and Put, 4.10%, 08/01/09 .................................... 200,000
300,000 b Series E-5, Daily VRDN and Put, 4.10%, 08/01/10 .................................... 300,000
2,185,000 c New York City HDC, Mortgage Revenue, Parkgate Tower No. 1, Weekly
VRDN and Put, 2.80%, 12/01/07 ........................................................ 2,185,000
100,000 c New York City IDA, IDR, Field Hotel Association Project, Weekly VRDN
and Put, 3.05%, 12/01/15 ............................................................. 100,000
1,200,000 New York City Municipal Assistance Corp., Series 52, 9.20%, 07/01/94 ................... 1,237,964
New York City Municipal Water Finance Authority, Water & Sewer System Revenue,
1,500,000 b Series C, FGIC Insured, Daily VRDN and Put, 3.80%, 06/15/22 ........................ 1,500,000
2,300,000 b Series C, FGIC Insured, Daily VRDN and Put, 3.80%, 06/15/23 ........................ 2,300,000
700,000 New York City Municipal Water Finance Authority, Water & Sewer System
Revenue, BAN, Series A, 2.75%, 04/15/94 .............................................. 700,000
New York City RAN,
1,475,000 Series A, 3.25%, 04/15/94 ............................................................ 1,477,356
600,000 Series B, 3.50%, 06/30/94 ............................................................ 603,100
New York City Trust Cultural Resources Revenue,
1,200,000 b American National Museum, Series B, MBIA Insured, Weekly VRDN and Put,
2.90%, 04/01/21 .................................................................... 1,200,000
1,900,000 b Soloman R. Guggenheim, Series B, Daily VRDN and Put, 4.50%, 12/01/15 ............... 1,900,000
2,100,000 c New York State Dormitory Authority Revenues, Cornell University, Series B,
Daily VRDN and Put, 4.50%, 07/01/25 .................................................... 2,100,000
2,700,000 New York State Dormitory Authority, TECP, 2.55%, 01/12/94 .............................. 2,700,000
New York State Energy Research & Development Authority, PCR,
1,465,000 b Electric & Gas Corp., Series A, Annual VRDN, Put Option 03/01/94, 2.75%, 03/01/15 .. 1,465,580
1,000,000 b Lilco Project, Series B, Annual VRDN, Put Option 03/01/94, 2.50%, 03/01/16 ......... 1,000,000
400,000 b Niagara Mohawk Power Corp., Series A, Daily VRDN and Put, 3.70%, 07/01/15 .......... 400,000
700,000 b Niagara Mohawk Power Corp., Series A, Daily VRDN and Put, 3.85%, 12/01/23 .......... 700,000
200,000 b Niagara Mohawk Power Corp., Series A, Daily VRDN and Put, 4.25%, 12/01/26 .......... 200,000
1,100,000 b Niagara Mohawk Power Corp., Series B, Daily VRDN and Put, 4.25%, 12/01/25 .......... 1,100,000
New York State Job Development Authority, State Guaranteed,
350,000 b Series C-1 to C-30, Monthly VRDN and Put, 2.85%, 03/01/99 .......................... 350,000
995,000 b Series E-1 to E-55, Monthly VRDN, Weekly Put, 2.85%, 03/01/99 ...................... 995,000
550,000 b Series F-1 to F-17, Monthly VRDN, Weekly Put, 2.85%, 03/01/99 ...................... 550,000
250,000 b Series G-1 to G-33, Monthly VRDN, Weekly Put, 2.85%, 03/01/99 ...................... 250,000
25,000 b Series H-1 to H-11, Monthly VRDN, Weekly Put, 2.85%, 03/01/99 ...................... 25,000
2,000,000 c New York State Local Government Assistance Corp., Series A, Weekly VRDN
and Put, 2.70%, 04/01/22 ............................................................. 2,000,000
1,235,000 c Niagara County IDA, IDR, Pyron Corp. Project, Weekly VRDN and Put,
3.30%, 10/01/05 ...................................................................... 1,235,000
2,000,000 c Niagara Falls Bridge Commission, Toll Revenue, Series A, FGIC Insured,
Weekly VRDN and Put, 2.90%, 10/01/19 ................................................. 2,000,000
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993 (CONT.)

<S> <C> <C>
INVESTMENTS(CONT.)
$1,800,000 c North Hempstead Solid Waste Management Authority Revenue, Weekly VRDN
and Put, 2.70%, 01/01/12 ............................................................... $1,800,000
1,750,000 Onondaga County BANS, 2.65%, 05/06/94 ................................................... 1,750,000
1,000,000 Rochester BANS, 2.74%, 11/04/94 ......................................................... 1,000,315
1,000,000 c Rotterdam IDA, IDR, Refunding, Rotterdan Industrial Park Project, Series A,
Weekly VRDN and Put, 2.95%, 11/01/09 ................................................... 1,000,000
800,000 c Schenectady County IDA, IDR, Refunding, Scotia Industrial Park Project,
Series A, Weekly VRDN and Put, 2.95%, 06/01/09 ......................................... 800,000
1,000,000 b Suffolk County Tax Anticipation Notes, Series I, 2.70%, 08/16/94 ........................ 1,003,950
1,400,000 c Syracuse IDA, Civic Facilities Revenue, Multi-Modal, Syracuse University Project,
Daily VRDN and Put, 4.50%, 03/01/23 .................................................... 1,400,000
800,000 c Yonkers IDA, Civic Facility Revenue, Consumers Union Facility, Weekly VRDN
and Put, 3.05%, 07/01/19 ............................................................... 800,000
-----------
TOTAL INVESTMENTS (COST $49,528,771) 98.4% .................................. 49,528,771
OTHER ASSETS AND LIABILITIES, NET 1.6% ...................................... 788,204
-----------
NET ASSETS 100.0% ........................................................... $50,316,975
===========
</TABLE>

At December 31, 1993, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.

PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BANS - Bond Anticipation Notes
FGIC - Financial Guaranty Insurance Co.
GO - General Obligation
HDC - Housing Development Corp.
IDA - Industrial Development Authority/Agency
IDR - Industrial Development Revenues
MBIA - Municipal Bond Investors Assurance Corp.
PCR - Pollution Control Revenues
RAN - Revenue Anticipation Notes
TECP - Tax-Exempt Commercial Paper

b See Note 1 regarding securities purchased on a when-issued basis.

c Variable rate demand notes (VRDN's) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993

<S> <C> <C>
BONDS 97.9%
Albany Capital Improvement GO,
$ 500,000 MBIA Insured, 5.25%, 11/01/11 ................................................ $ 503,675
780,000 MBIA Insured, 5.25%, 11/01/13 ................................................ 785,733
430,000 Albany County Civic Center, FGIC Insured, 6.80%, 06/01/11 ...................... 458,745
2,505,000 Albany Municipal Water Finance Authority, Water & Sewer System Revenue,
Refunding, Series A, FGIC Insured, 5.95%, 12/01/12 ............................ 2,670,004
Alden Central School District,
275,000 AMBAC Insured, 6.25%, 06/15/08 ............................................... 310,951
275,000 AMBAC Insured, 6.25%, 06/15/09 ............................................... 311,028
125,000 AMBAC Insured, 6.25%, 06/15/10 ............................................... 141,312
200,000 Brookhaven GO, Series B, MBIA Insured, 7.00%, 05/01/09 ......................... 240,752
495,000 Broome and Delaware Counties School District, AMBAC Insured, 6.35%, 06/15/10 ... 565,072
225,000 Buffalo GO, Series A & C, AMBAC Insured, 7.25%, 04/01/08 ....................... 259,301
1,200,000 Buffalo Sewer Authority System Revenue, Refunding, Series G, FGIC Insured,
5.25% 07/01/08 ................................................................ 1,220,604
100,000 Camden Central School District, AMBAC Insured, 7.10%, 06/15/07 ................. 121,246
Canandaigua City School District,
625,000 AMBAC Insured, 6.40%, 06/01/08 ............................................... 712,631
110,000 AMBAC Insured, 6.50%, 06/01/10 ............................................... 128,041
550,000 AMBAC Insured, 6.50%, 06/01/11 ............................................... 640,178
Central Square School District,
900,000 FGIC Insured, 6.50%, 06/15/08 ................................................ 1,040,643
900,000 FGIC Insured, 6.50%, 06/15/09 ................................................ 1,041,885
70,000 Chateaugay Central School District, AMBAC Insured, 6.70%, 06/15/09 ............. 82,527
Cliffton Park Water Authority, Water System Revenue,
2,625,000 Series A, FGIC Insured, 6.375%, 10/01/11 ..................................... 3,033,240
2,480,000 Series A, FGIC Insured, 6.375%, 10/01/26 ..................................... 2,865,690
Eastport USD,
225,000 MBIA Insured, 6.45%, 12/01/06 ................................................ 257,578
225,000 MBIA Insured, 6.45%, 12/01/07 ................................................ 258,460
225,000 MBIA Insured, 6.45%, 12/01/08 ................................................ 258,122
Erie County Water Authority Revenue, Refunding,
970,000 a Fourth Resolution, AMBAC Insured, 0.00%, 12/01/17 ............................ 174,804
200,000 Series B, AMBAC Insured, 6.75%, 12/01/14 ..................................... 233,594
Evans-Brant Central School District,
100,000 Series 1991, MBIA Insured, 6.85%, 06/15/08 ................................... 119,778
55,000 Series 1991, MBIA Insured, 6.85%, 06/15/09 ................................... 65,722
Fallsburg Public Improvement, GO,
330,000 Refunding, Series B, AMBAC Insured, 5.25%, 04/01/13 .......................... 332,198
145,000 Refunding, Series B, AMBAC Insured, 5.25%, 04/01/14 .......................... 145,966
330,000 Series B, AMBAC Insured, 5.50%, 04/01/08 ..................................... 344,890
345,000 Series B, AMBAC Insured, 5.50%, 04/01/10 ..................................... 357,555
Greece Central School District No. 1,
950,000 Series 1992, FGIC Insured, 6.00%, 06/15/16 ................................... 1,060,722
950,000 Series 1992, FGIC Insured, 6.00%, 06/15/17 ................................... 1,063,316
950,000 Series 1992, FGIC Insured, 6.00%, 06/15/18 ................................... 1,065,776
285,000 Hamburg Town Public Improvement, MBIA Insured, 6.30%, 11/15/10 ................. 324,384
Hempstead Town,
125,000 Series B, AMBAC Insured, 6.50%, 01/01/10 ..................................... 144,416
100,000 Series B, AMBAC Insured, 6.50%, 01/01/11 ..................................... 116,152
100,000 Series B, AMBAC Insured, 6.50%, 01/01/12 ..................................... 116,154
150,000 Series C, AMBAC Insured, 6.50%, 02/15/10 ..................................... 173,407
150,000 Series C, AMBAC Insured, 6.50%, 02/15/11 ..................................... 174,330
100,000 Series C, AMBAC Insured, 6.50%, 02/15/12 ..................................... 116,093
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993 (CONT.)

<S> <C> <C>
BONDS(CONT.)
Hermon de Kalb, Etc. Central School District,
$ 150,000 Series 1992, MBIA Insured, 6.45%, 06/15/09 ......................................... $ 172,848
150,000 Series 1992, MBIA Insured, 6.45%, 06/15/10 ......................................... 172,894
150,000 Series 1992, MBIA Insured, 6.45%, 06/15/11 ......................................... 173,769
375,000 Lake George Central School District, MBIA Insured, 6.50%, 06/15/09 ................... 434,119
430,000 Lockport Town, Public Improvement, MBIA Insured, 5.40%, 03/01/10 ..................... 441,941
155,000 Mahopac Central School District, AMBAC Insured, 6.80%, 06/15/08 ...................... 183,091
210,000 Middle Country Central School District, New York Centereach, AMBAC Insured,
6.90%, 12/15/06 .................................................................... 250,557
610,000 Monroe County Water Improvement, Refunding, MBIA Insured, 5.50%, 12/01/08 ............ 639,536
1,055,000 Mount Sinai Union Free School District, Refunding, AMBAC Insured, 6.20%, 02/15/13 .... 1,206,741
Nassau County GO, Refunding,
755,000 Series C, FGIC Insured, 5.875%, 08/01/13 ........................................... 804,936
455,000 Series C, FGIC Insured, 5.875%, 08/01/15 ........................................... 483,051
210,000 Series C, FGIC Insured, 5.875%, 08/01/16 ........................................... 222,946
300,000 Series D, FGIC Insured, 5.875%, 05/15/16 ........................................... 318,237
1,150,000 Nassau County IDA, Civic Facilities Revenue, Hofstra University Project,
AMBAC Insured, 6.75%, 08/01/11 .................................................... 1,306,101
Nassau County Sewer District,
80,000 Refunding, Series A, MBIA Insured, 6.80%, 07/01/10 ................................. 91,026
370,000 Refunding, Series E, MBIA Insured, 5.45%, 05/01/15 ................................. 383,742
1,025,000 Refunding, Series G, MBIA Insured, 5.45%, 01/15/14 ................................. 1,061,818
275,000 Series G, MBIA Insured, 5.40%, 01/15/11 ............................................ 283,990
770,000 Series P, CGIC Insured, 5.20%, 03/01/12 ............................................ 764,579
730,000 Series P, CGIC Insured, 5.20%, 03/01/13 ............................................ 724,700
100,000 New York City Educational Construction Fund Revenue, Series A, MBIA Insured,
7.125%, 04/01/13 ................................................................... 113,257
New York City GO,
300,000 FGIC Insured, 7.25%, 02/01/06 ...................................................... 369,831
800,000 Series C-1, MBIA Insured, 6.625%, 08/01/12 ......................................... 896,320
2,000,000 New York City Health & Hospital Authority, Local Government Revenue, Refunding,
Series A, AMBAC Insured, 5.75%, 02/15/22 .......................................... 2,091,780
New York City Municipal Water Finance Authority, Water & Sewer System Revenue,
4,850,000 Refunding, Series A, FGIC Insured, 5.75%, 06/15/18 ................................. 5,023,048
5,000,000 Series A, AMBAC Insured, 5.50%, 06/15/20 ........................................... 5,067,100
1,000,000 Series A, FGIC Insured, 6.75%, 06/15/16 ............................................ 1,107,910
465,000 Series A, FGIC Insured, 6.00%, 06/15/20 ............................................ 511,779
5,000,000 Series B, AMBAC Insured, 5.375%, 06/15/19 .......................................... 5,031,650
17,520,000 Series C, AMBAC Insured, 6.20%, 06/15/21 ........................................... 18,836,803
495,000 Series C, FGIC Insured, 7.00%, 06/15/16 ............................................ 584,709
New York City Trust, Cultural Resource Revenue, Refunding, Museum of Modern Art,
250,000 Series A, AMBAC Insured, 6.625%, 01/01/11 .......................................... 280,897
2,805,000 Series A, AMBAC Insured, 6.625%, 01/01/19 .......................................... 3,141,768
New York State Dormitory Authority Revenues,
140,000 Associated Children's, Inc., MBIA Insured, 7.60%, 07/01/18 ......................... 160,721
2,460,000 Brooklyn Law School, CGIC Insured, 6.40%, 07/01/11 ................................. 2,713,282
275,000 City University System, Series C, FGIC Insured, 7.00%, 07/01/14 .................... 313,233
500,000 Colgate University, FGIC Insured, 5.625%, 07/01/13 ................................. 523,040
600,000 Colgate University, Series A, MBIA Insured, 6.70%, 07/01/11 ........................ 683,442
750,000 Foundling Charitable Corp., MBIA Insured, 6.50%, 07/01/12 .......................... 803,160
1,000,000 Hamilton College, MBIA Insured, 6.50%, 07/01/21 .................................... 1,109,140
1,000,000 Hartwick College, MBIA Insured, 6.25%, 07/01/12 .................................... 1,078,980
2,780,000 Judicial Facilities Lease, Series B, MBIA Insured, 7.00%, 04/15/16 ................. 3,188,966
2,250,000 March of Dimes, AMBAC Insured, 5.60%, 07/01/12 ..................................... 2,338,898
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993 (CONT.)

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS(CONT.)
New York State Dormitory Authority Revenues, (cont.)
$2,580,000 Marist College, MBIA Insured, 6.00%, 07/01/12 .............................................. $ 2,745,146
2,750,000 New York University, FGIC Insured, 6.25%, 07/01/09 ......................................... 3,002,175
4,580,000 New York University, MBIA Insured, 6.70%, 07/01/11 ......................................... 5,009,696
625,000 Refunding, Culinary Institute of America, Connie Lee Insured, 6.00%, 07/01/22 .............. 662,412
1,960,000 Refunding, Manhattanville College, MBIA Insured, 5.30%, 07/01/08 ........................... 2,000,552
1,815,000 Refunding, Manhattanville College, MBIA Insured, 5.30%, 07/01/09 ........................... 1,819,610
2,500,000 Refunding, Mt. Sinai School of Medicine, MBIA Insured, 6.75%, 07/01/15 ..................... 2,823,275
2,950,000 Refunding, St. University Educational Facilities, Series B, FGIC Insured, 5.25%, 05/15/11 .. 2,943,127
1,220,000 St. John's University, AMBAC Insured, 6.875%, 07/01/11 ..................................... 1,393,838
2,500,000 St. University Educational Facilities, Series A, FGIC Insured, 6.00%, 05/15/22 ............. 2,656,450
1,220,000 University of Rochester, MBIA Insured, 6.50%, 07/01/09 ..................................... 1,326,579
1,865,000 Upstate Community Colleges, Series A, Connie Lee Insured, 5.75%, 07/01/22 .................. 1,947,060
New York State Energy Research and Development Authority, Electric Facilities
Revenue, Consolidated, Edison Co. of New York, Inc. Project,
3,000,000 Refunding, Series B, MBIA Insured, 5.25%, 08/15/20 ......................................... 2,995,530
3,300,000 Series 1993, MBIA Insured, 6.00%, 03/15/28 ................................................. 3,481,368
4,950,000 Series A, MBIA Insured, 6.75%, 01/15/27 .................................................... 5,504,994
210,000 Series C, MBIA Insured, 7.25%, 11/01/24 .................................................... 237,896
New York State Energy Research and Development Authority, Gas Facilities Revenue,
Brooklyn Union Gas,
1,525,000 Series II, MBIA Insured, 7.00%, 12/01/20 ................................................... 1,677,973
2,240,000 Series A, MBIA Insured, 6.75%, 02/01/24 .................................................... 2,505,328
2,215,000 Series C, MBIA Insured, 5.60%, 06/01/25 .................................................... 2,278,415
New York State Energy Research and Development Authority, PCR, Refunding,
1,500,000 Niagara Mohawk Power Corp., Series A, FGIC Insured, 6.625%, 10/01/13 ....................... 1,681,245
1,150,000 Rochester Gas and Electric Project, Series A, MBIA Insured, 6.35%, 05/15/32 ................ 1,250,315
1,000,000 Rochester Gas and Electric Project, Series B, MBIA Insured, 6.50%, 05/15/32 ................ 1,100,850
3,000,000 New York State Environmental Facilities Corp., Water Facilities Revenue,
Spring Valley Water Co. Inc., Project, Series A, AMBAC Insured, 5.65%, 11/01/23 ............ 3,048,870
New York State Medical Care Facilities Finance Agency Revenue,
5,735,000 Long-Term Health Care, Series A, CGIC Insured, 6.80%, 11/01/14 ............................. 6,493,282
5,750,000 Long-Term Health Care, Series B, CGIC Insured, 6.45%, 11/01/14 ............................. 6,333,510
4,550,000 Long-Term Health Care, Series C, CGIC Insured, 6.40%, 11/01/14 ............................. 4,996,491
1,000,000 Our Lady of Victory Hospital, Series A, AMBAC Insured, 6.625%, 11/01/16 .................... 1,128,360
700,000 Sisters of Charity Hospital, Series A, AMBAC Insured, 6.60%, 11/01/10 ...................... 781,179
1,500,000 Sisters of Charity Hospital, Series A, AMBAC Insured, 6.625%, 11/01/18 ..................... 1,676,370
1,000,000 New York State Medical Care Facilities Finance Agency Revenue, Refunding,
Hospital & Nursing Home Mortgage, Series C, MBIA Insured, 6.25%, 08/15/12 .................. 1,079,620
New York State Power Authority Revenue & General Purpose,
5,000,000 Refunding, Series C, FGIC Insured, 5.25%, 01/01/18 ......................................... 4,993,150
3,255,000 Series Y, AMBAC Insured, 6.50%, 01/01/11 ................................................... 3,594,008
10,000,000 New York State Tollway Authority General Revenue, Series A, FGIC Insured,
5.50%, 01/01/23 ............................................................................. 10,154,700
Niagara Falls Bridge Commission Toll Revenue,
7,500,000 Refunding, Series B, FGIC Insured, 5.25%, 10/01/21 ......................................... 7,455,975
1,000,000 Series 1992, FGIC Insured, 6.375%, 10/01/07 ................................................ 1,155,520
4,000,000 Series 1992, FGIC Insured, 6.30%, 10/01/11 ................................................. 4,600,520
3,500,000 Series 1992, FGIC Insured, 6.125%, 10/01/19 ................................................ 3,981,460
North Hempstead GO, Refunding,
210,000 Series A, FGIC Insured, 6.40%, 02/01/11 .................................................... 242,949
310,000 Series B, FGIC Insured, 6.80%, 06/01/13 .................................................... 359,557
1,065,000 Series B, FGIC Insured, 6.40%, 04/01/15 .................................................... 1,247,775
1,060,000 Series B, FGIC Insured, 6.40%, 04/01/16 .................................................... 1,238,769

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993 (CONT.)

</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS(CONT.)
North Hempstead Public Improvement, GO,
$ 195,000 Series A, MBIA Insured, 5.375%, 05/15/14 ........................................... $ 198,159
470,000 Series A, MBIA Insured, 5.375%, 05/15/15 ........................................... 477,614
500,000 North Hempstead Solid Waste Management Revenue, Refunding, Series B,
MBIA Insured, 5.00%, 02/01/12 ...................................................... 489,500
100,000 Onondaga Central School District, MBIA Insured, 6.80%, 06/15/10 ...................... 119,759
75,000 Ontario County GO, Series A, FGIC Insured, 6.50%, 05/15/11 ........................... 87,753
Oyster Bay Public Improvement, GO,
550,000 Series A, FGIC Insured, 5.60%, 04/15/11 ............................................ 574,745
500,000 Series A, FGIC Insured, 5.60%, 04/15/12 ............................................ 522,495
375,000 Series A, FGIC Insured, 5.60%, 04/15/13 ............................................ 391,871
300,000 Series A, FGIC Insured, 5.60%, 04/15/14 ............................................ 312,189
300,000 Series A, FGIC Insured, 5.60%, 04/15/15 ............................................ 312,189
175,000 Series A, FGIC Insured, 5.60%, 04/15/16 ............................................ 181,351
175,000 Series A, FGIC Insured, 5.60%, 04/15/17 ............................................ 182,110
175,000 Series A, FGIC Insured, 5.60%, 04/15/18 ............................................ 182,110
175,000 Series A, FGIC Insured, 5.60%, 04/15/19 ............................................ 181,351
Port Authority of New York and New Jersey,
1,000,000 Consolidated 71st Series, AMBAC Insured, 6.50%, 01/15/26 ........................... 1,098,080
1,600,000 Consolidated 71st Series, MBIA Insured, 6.50%, 01/15/26 ............................ 1,756,928
4,230,000 Consolidated 76th Series, AMBAC Insured, 6.50%, 11/01/26 ........................... 4,635,953
1,985,000 Consolidated 84th Series, MBIA Insured, 5.875%, 07/15/19 ........................... 2,078,355
2,000,000 Puerto Rico Commonwealth Electric Power Authority Revenue, Water Resources,
Series R, CGIC Insured, 6.25%, 07/01/17 ............................................ 2,151,960
Puerto Rico HFC, SFMR,
850,000 Portfolio 1-D, GNMA Mortgage Backed Securities, 6.75%, 10/15/14 .................... 906,874
525,000 Portfolio 1-D, GNMA Mortgage Backed Securities, 6.85%, 10/15/24 .................... 559,970
810,000 Rensselear County GO, AMBAC Insured, 6.70%, 02/15/11 ................................. 954,634
Riverhead GO,
140,000 Series B, AMBAC Insured, 5.00%, 06/15/10 ........................................... 136,623
130,000 Series B, AMBAC Insured, 5.00%, 06/15/11 ........................................... 126,746
130,000 Series B, AMBAC Insured, 5.00%, 06/15/12 ........................................... 126,634
40,000 Rome GO, AMBAC Insured , 6.375%, 03/01/05 ............................................ 45,314
125,000 Royalton Water Improvement, MBIA Insured, 6.40%, 02/15/12 ............................ 142,133
Schenevus Central School District,
330,000 Series 1991, AMBAC Insured, 6.45%, 06/15/08 ........................................ 379,883
330,000 Series 1991, AMBAC Insured, 6.45%, 06/15/09 ........................................ 380,266
330,000 Schodack Central School District, AMBAC Insured, 6.875%, 12/15/10 .................... 399,274
100,000 Schuylerville Central School District, MBIA Insured, 6.875%, 06/15/07 ................ 119,053
100,000 South Glens Falls Central School District, Series A, MBIA Insured, 6.85%, 06/15/10 ... 119,688
Suffolk County GO, Public Improvement,
590,000 Refunding, Series B, FGIC Insured, 6.20%, 05/01/11 ................................. 640,410
570,000 Refunding, Series B, FGIC Insured, 6.20%, 05/01/13 ................................. 618,701
365,000 Series 1989, FGIC Insured, 6.50%, 07/15/13 ......................................... 405,511
1,000,000 Suffolk County Water Authority Waterworks Revenue, Refunding, AMBAC Insured,
7.10%, 06/01/10 ..................................................................... 1,160,010
Triborough Bridge & Tunnel Authority Revenue,
3,500,000 Series Q, AMBAC Insured, 6.00%, 01/01/13 ........................................... 3,660,615
740,000 Series S, FGIC Insured, 7.00%, 01/01/21 ............................................ 867,665
175,000 Series T, AMBAC Insured, 7.00%, 01/01/20 ........................................... 205,840
2,900,000 Series T, AMBAC Insured, 6.00%, 01/01/22 ........................................... 3,194,640
2,540,000 Series T, FGIC Insured, 7.00%, 01/01/20 ............................................ 2,987,624
1,100,000 Series T, MBIA Insured, 7.00%, 01/01/20 ............................................ 1,293,853
4,475,000 Series X, AMBAC Insured, 6.50%, 01/01/19 ........................................... 4,942,011
2,750,000 Series X, MBIA Insured, 6.50%, 01/01/19 ............................................ 3,036,990
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993 (CONT.)

<S> <C> <C>
BONDS (CONT.)
Triborough Bridge & Tunnel Authority Special Obligation,
$5,450,000 Refunding, Series 1993, AMBAC Insured, 5.50%, 01/01/17 ...................................... $ 5,555,621
2,000,000 Series A, MBIA Insured, 6.00%, 01/01/19 ..................................................... 2,092,660
Warrensburg Central School District,
250,000 Series II, AMBAC Insured, 6.25%, 06/15/08 ................................................... 281,305
250,000 Series II, AMBAC Insured, 6.25%, 06/15/09 ................................................... 281,313
250,000 Series II, AMBAC Insured, 6.25%, 06/15/10 ................................................... 281,130
440,000 Washington County Public Improvement, FGIC Insured, 6.375%, 10/15/10 .......................... 501,613
65,000 Williamsville Central School District, MBIA Insured, 6.50%, 12/01/10 .......................... 75,059
-------------
TOTAL BONDS (COST $238,263,889) ......................................................... 258,147,045
-------------
SHORT TERM INVESTMENTS 1.4%
3,700,000 c New York City Municipal Water Finance Authority, Water & Sewer System Revenue, Series C,
FGIC Insured, Daily VRDN and Put, 3.80%, 06/15/22 (COST $3,700,000) .......................... 3,700,000
-------------
TOTAL INVESTMENTS (COST $241,963,889) 99.3% ............................................. 261,847,045
OTHER ASSETS AND LIABILITIES, NET .7% ................................................... 1,799,679
-------------
NET ASSETS 100.0% ....................................................................... $ 263,646,724
=============
At December 31, 1993, the net unrealized appreciation based
on the cost of investments for income tax purposes of
$241,965,918 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost .............................................................. $ 19,899,554
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value .............................................................. (18,427)
-------------
Net unrealized appreciation ................................................................. $ 19,881,127
=============
</TABLE>

PORTFOLIO ABBREVIATIONS:

AMBAC - American Municipal Bond Assurance Corp.
CGIC - Capital Guaranty Insurance Co.
FGIC - Financial Guaranty Insurance Corp.
GNMA - Government National Mortgage Association
GO - General Obligation
HFC - Housing Financial Corp.
IDA - Industrial Development Authority/Agency
MBIA - Municipal Bond Investors Assurance Corp.
PCR - Pollution Control Revenues
SFMR - Single Family Mortgage Revenues
USD - Unified School District

a Zero coupon bonds. Accretion rate may vary.

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
BONDS 97.9%
$ 400,000 Battery Park City Authority Housing Revenue, Series A, 5.00%, 12/01/03 ........................... $ 400,572
500,000 Battery Park City Authority Revenue, Refunding, Series B, 4.80%, 11/01/01 ........................ 499,965
100,000 Cortland County IDA, Civic Facility Revenue, Cortland Memorial Hospital, Inc. Project,
6.15%, 07/01/02 ................................................................................. 104,565
90,000 Franklin County IDA, Lease Revenue, Correctional Facility Project, 6.375%, 11/01/02 .............. 97,064
225,000 Glen Cove, Refunding, 5.35%, 01/15/02 ............................................................ 229,255
160,000 Greene Central School District, AMBAC Insured, 5.70%, 06/15/03 ................................... 172,373
260,000 Guam Airport Authority Revenue, Refunding, Series A, 6.00%, 10/01/03 ............................. 277,753
1,000,000 Guam Government, Series A, 4.80%, 11/15/03 ....................................................... 971,640
100,000 Huntington Public Improvement, Series C, FGIC Insured, 5.80%, 11/01/02 ........................... 109,215
Metropolitan Transportation Authority Service,
935,000 Contract Commuter Facilities, Series O, 5.375%, 07/01/02 ....................................... 955,093
400,000 Contract Transport Facilities, Refunding, Series 7, 5.20%, 07/01/04 ............................ 398,080
575,000 Contract Transport Facilities, Series O, 5.25%, 07/01/01 ....................................... 585,310
250,000 Metropolitan Transportation Authority, Transport Facilities Revenue, Refunding,
Series M, 5.10%, 07/01/98 ....................................................................... 254,805
285,000 Nassau County, Refunding, Series D, FGIC Insured, 5.50%, 05/15/06 ................................ 300,755
New York City GO,
275,000 Refunding, Series C, 6.00%, 08/01/00 ........................................................... 288,808
250,000 Refunding, Series C, 6.50%, 08/01/06 ........................................................... 267,645
1,700,000 Refunding, Series D, 5.70%, 08/01/02 ........................................................... 1,753,346
800,000 Refunding, Series D, 5.50%, 08/15/04 ........................................................... 803,776
500,000 Series B, 6.40%, 10/01/02 ...................................................................... 536,555
260,000 Series B, 5.50%, 08/15/04 ...................................................................... 262,270
375,000 Series B, 5.60%, 08/15/06 ...................................................................... 376,882
700,000 Series C, 5.25%, 10/01/04 ...................................................................... 692,027
250,000 Series E, 5.70%, 05/15/04 ...................................................................... 256,068
500,000 b Series E, 5.40%, 08/01/04 ...................................................................... 498,385
250,000 Subseries A-1, 5.20%, 08/01/01 ................................................................. 250,920
250,000 Subseries A-1, 5.30%, 08/01/02 ................................................................. 251,013
805,000 Subseries A-1, 5.50%, 08/01/04 ................................................................. 812,028
725,000 New York City HDC, MF Housing, Series B, FHA Insured, 5.15%, 11/01/04 ............................ 735,157
3,000,000 New York City Health & Hospital Authority, Local Government Revenue,
Refunding, Series A, Connie Lee Insured, 5.30%, 02/15/04 ....................................... 3,099,420
525,000 New York City IDA, Civic Facility Revenue, New York Blood Center, Inc. Project,
6.80%, 05/01/02 ................................................................................. 574,402
New York City Municipal Water Finance Authority, Water and Sewer Systems Revenue,
225,000 Refunding, Series A, 6.00%, 06/15/05 ........................................................... 242,712
85,000 Series A, 7.50%, 06/15/19 ...................................................................... 101,654
3,100,000 Series B, 5.00%, 06/15/03 ...................................................................... 3,158,280
165,000 New York North Hempstead, Refunding, Series B, FGIC Insured, 5.70%, 04/01/02 ..................... 180,025
140,000 New York State, Crossover, Refunding, 7.50%, 11/15/01 ............................................ 167,420
New York State Dormitory Authority Revenues, City University,
575,000 Crossover, Refunding, Series B, 5.70%, 07/01/05 ................................................ 597,597
100,000 Refunding, Series U, 6.25%, 07/01/02 ........................................................... 108,267
1,750,000 New York State Dormitory Authority Revenues, Court Facilities Lease, Series A,
5.10%, 05/15/04 ................................................................................. 1,727,740
New York State Dormitory Authority Revenues, Refunding, Department of Health,
595,000 Series 1993, 5.30%, 07/01/03 ................................................................... 601,176
625,000 Series 1993, 5.40%, 07/01/04 ................................................................... 631,975
New York State Dormitory Authority Revenues, Refunding, State University Educational Facilities,
575,000 Series A, 5.40%, 05/15/04 ...................................................................... 586,845
385,000 Series B, 5.25%, 05/15/04 ...................................................................... 388,338
100,000 New York State Environmental Facility Corp., PCR, Water Revolving Fund, Series B,
5.95%, 09/15/03 ................................................................................. 111,611
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993 (CONT.)

<S> <C> <C>
$290,000 New York State Environmental Facility Corp., Special Obligation, State Park Infrastructure,
Series A, 5.45%, 03/15/03 .................................................................... $ 293,950
100,000 New York State GO, 5.00%, 03/15/06 ............................................................ 101,622
New York State HFA Services, Contract Obligation Revenue,
200,000 Refunding, Series F, 5.10%, 09/15/04 ........................................................ 200,474
250,000 Series D, 5.10%, 09/15/04 ................................................................... 250,592
100,000 New York State HFAR, Refunding, MF, Series C, 5.70%, 02/15/02 ................................. 105,088
New York State HFAR Service, Contract Obligation, Refunding,
100,000 Series C, 5.55%, 03/15/03 ................................................................... 103,780
100,000 Series C, 5.65%, 03/15/04 ................................................................... 104,481
New York State Medical Care Facilities, Finance Agency Revenue, Hospital & Nursing Home,
100,000 Refunding, Series C, 5.70%, 02/15/02 ........................................................ 106,809
290,000 Series A, 5.10%, 02/15/03 ................................................................... 300,892
Oneida-Herkimer Solid Waste Management, Solid Waste Authority Systems Revenue, Refunding,
145,000 Series 1992, 6.10%, 04/01/99 ................................................................ 152,456
125,000 Series 1992, 6.65%, 04/01/05 ................................................................ 136,134
100,000 Puerto Rico Commonwealth Electric Power Authority Revenue, Refunding, Series Q,
5.90%, 07/01/01 .............................................................................. 107,561
740,000 Puerto Rico Commonwealth Improvement, Refunding, 5.30%, 07/01/04 .............................. 764,028
300,000 Puerto Rico Municipal Finance Agency, Series A, 5.875%, 07/01/06 .............................. 315,954
750,000 Puerto Rico Housing Bank & Finance Agency, SF, Refunding, 5.00%, 12/01/02 ..................... 751,027
Suffolk County Public Improvement,
130,000 Series A, 5.90%, 11/01/02 ................................................................... 137,205
165,000 Series B, 5.90%, 11/01/02 ................................................................... 174,144
150,000 Triborough Bridge & Tunnel Authority Revenue, Refunding, General Purpose,
Series Y, 5.50%, 01/01/03 .................................................................... 160,524
500,000 UFA Development Corp., Mortgage Revenue, Loretto Utica Project, FHA Insured,
5.15%, 07/01/03 .............................................................................. 506,355
290,000 United Nations Development Corp. Revenue, Refunding, Series B, 5.75%, 07/01/02 ................ 307,351
------------
TOTAL BONDS (COST $29,664,494) ......................................................... 30,499,214
------------
SHORT TERM INVESTMENTS .9%
300,000 c Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 3.00%, 02/01/15 (Cost $300,000) ....................................... 300,000
------------
TOTAL INVESTMENTS (COST $29,964,494) 98.8% ......................................... 30,799,214
OTHER ASSETS AND LIABILITIES, NET 1.2% ............................................. 362,483
------------
NET ASSETS 100.0% .................................................................. $ 31,161,697
============
At December 31, 1993, the net unrealized appreciation based
on the cost of investments for income tax purposes of
$29,964,494 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost .............................................................. $ 857,527
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value .............................................................. (22,807)
------------
Net unrealized appreciation ................................................................. $ 834,720
============
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1993 (CONT.)

FRANKLIN NEW YORK ITNERMEDIATE-TERM TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------

PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
FHA - Federal Housing Agency/Authority
FGIC - Financial Guaranty Insurance Co.
GO - General Obligation
HDC - Housing Development Corp.
HFA - Housing Finance Agency/Authority
HFAR - Housing Finance Agency Revenue
IDA - Industrial Development Authority/Agency
MF - Multi-Family
PCR - Pollution Control Revenue
SF - Single-Family

b See Note 1 regarding securities purchased on a when-issued basis.

The accompanying notes are an integral part of these financial statements.

<PAGE>
FRANKLIN NEW YORK TAX-FREE TRUST
FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1993

At identified cost........................................................... $49,528,771 $241,963,889 $29,964,494
=========== ============ ===========
At value..................................................................... 49,528,771 261,847,045 30,799,214
Cash........................................................................... 518,933 276,259 194,918
Receivables:
Interest..................................................................... 270,756 4,307,916 475,496
Investment securities sold................................................... 1,002,170 - -
Capital shares sold.......................................................... - 879,811 232,028
Unamortized organization costs (Note 2)........................................ - 4,832 -
Prepaid expenses............................................................... 16,928 - -
Receivable from affiliate...................................................... 7,582 - -
----------- ------------ -----------
Total assets........................................................... 51,345,140 267,315,863 31,701,656
----------- ------------ -----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery.......................................................... - 3,037,688 -
When-issued basis (Note 1)................................................ 1,003,950 - 496,375
Capital shares repurchased.................................................. - 167,557 -
Dividends to shareholders................................................... 7,057 340,940 43,584
Management fees............................................................. - 91,218 -
Shareholder servicing costs................................................. 6,150 3,150 -
Accrued expenses and other payables........................................... 11,008 28,586 -
----------- ------------ -----------
Total liabilities...................................................... 1,028,165 3,669,139 539,959
----------- ------------ -----------
Net assets, at value.......................................................... $50,316,975 $263,646,724 $31,161,697
=========== ============ ===========
Net assets consist of:
Undistributed net investment income......................................... $ - $ 45,219 $ 18,964
Unrealized appreciation on investments...................................... - 19,883,156 834,720
Accumulated net realized loss............................................... - (143,180) (108,108)
Capital shares.............................................................. 50,316,975 243,861,529 30,416,121
----------- ------------ -----------
Net assets, at value.......................................................... $50,316,975 $263,646,724 $31,161,697
=========== ============ ===========
Shares outstanding............................................................ 50,316,975 22,571,777 2,917,088
=========== ============ ===========
Net asset value and redemption price per share................................ $1.00 $11.68 $10.68
=========== ============ ===========
Maximum offering price per share
(100/100, 100/96 and 100/97.75 of net asset value per share,
respectively)*.............................................................. $1.00 $12.17 $10.93
=========== ============ ===========
</TABLE>

*On sales of $100,000 or more the offering price is reduced as stated in the
section of the Prospectus entitled "How to Buy Shares of the Fund."

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993

<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN NEW YORK
NEW YORK NEW YORK INTERMEDIATE
TAX-EXEMPT INSURED TAX-FREE TERM TAX-FREE
MONEY FUND INCOME FUND INCOME FUND
----------- ---------------- -------------
<S> <C> <C> <C>
Investment income:
Interest (Note 1)............................................................. $1,179,491 $11,990,097 $ 796,668
---------- ----------- ----------
Expenses:
Management fees (Note 6)...................................................... 142,460 868,888 -
Shareholder servicing costs (Note 6).......................................... 74,563 31,273 -
Reports to shareholders....................................................... 35,929 52,496 -
Custodian fees................................................................ 5,535 22,744 -
Trustees' fees and expenses................................................... 1,765 6,730 -
Professional fees............................................................. 49,132 28,856 -
Insurance..................................................................... - 2,319 -
Amortization of organization costs (Note 2)................................... - 2,071 -
Registration & filing fees.................................................... 6,322 4,323 -
Other......................................................................... 3,550 17,829 -
---------- ----------- ----------
Total expenses......................................................... 319,256 1,037,529 -
---------- ----------- ----------
Net investment income.................................................. 860,235 10,952,568 796,668
---------- ----------- ----------
Realized and unrealized gain (loss) on investments:

Net realized loss............................................................. - (70,510) (103,619)
Net unrealized appreciation during the year................................... - 15,811,373 796,984
---------- ----------- ----------
Net realized and unrealized gain on investments................................. - 15,740,863 693,365
---------- ----------- ----------
Net increase in net assets resulting from operations............................ $ 860,235 $26,693,431 $1,490,033
========== =========== ==========

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993 AND 1992

</TABLE>
<TABLE>
<CAPTION>
FRANKLIN NEW YORK FRANKLIN NEW YORK INSURED
TAX-EXEMPT MONEY FUND TAX-FREE INCOME FUND
----------------------------- ------------------------------
1993 1992 1993 1992
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.............................. $ 860,235 $ 1,323,881 $ 10,952,568 $ 5,488,258
Net realized loss from security
transactions..................................... - - (70,510) (64,646)
Net unrealized appreciation during the
year............................................. - - 15,811,373 3,424,736
----------- ------------ ------------ ------------
Net increase in net assets
resulting from operations.................... 860,235 1,323,881 26,693,431 8,848,348
Distributions to shareholders from
undistributed net investment income................. (860,235) (1,323,881) (10,908,110) (5,585,789)
Increase (decrease) in net assets from
capital share transactions (Note 4)................. (3,804,860) (16,381,045) 98,807,790 107,887,151
----------- ------------ ------------ ------------
Net increase (decrease) in net
assets.......................................... (3,804,860) (16,381,045) 114,593,111 111,149,710
Net assets:
Beginning of year.................................... 54,121,835 70,502,880 149,053,613 37,903,903
----------- ------------ ------------ ------------
End of year.......................................... $50,316,975 $ 54,121,835 $263,646,724 $149,053,613
=========== ============ ============ ============
Undistributed net investment income
included in net assets:
Beginning of year................................. $ - $ - $ 761 $ 98,292
=========== ============ ============ ============
End of year....................................... $ - $ - $ 45,219 $ 761
=========== ============ ============ ============
</TABLE>

<TABLE>
<CAPTION>
FRANKLIN NEW YORK
INTERMEDIATE-TERM
TAX-FREE INCOME FUND
-----------------------------
1993 1992*
----------- ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.............................. $ 796,668 $ 29,807
Net realized loss from security
transactions..................................... (103,619) (4,489)
Net unrealized appreciation during the
year............................................. 796,984 37,736
----------- ----------
Net increase in net assets
resulting from operations.................... 1,490,033 63,054
Distributions to shareholders from
undistributed net investment income................. (802,460) (5,051)
Increase (decrease) in net assets from
capital share transactions (Note 4)................. 27,014,821 3,401,300
----------- ----------
Net increase (decrease) in net
assets.......................................... 27,702,394 3,459,303
Net assets:
Beginning of year.................................... 3,459,303 -
----------- ----------
End of year.......................................... $31,161,697 $3,459,303
=========== ==========
Undistributed net investment income
included in net assets:
Beginning of year................................. $ 24,756 $ -
=========== ==========
End of year....................................... $ 18,964 $ 24,756
=========== ==========
</TABLE>

*For the period September 21, 1992 (effective date of registration) to December
31, 1992.

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Franklin New York Tax-Free Trust (the Trust) is a non-diversified, open-end
management investment company (mutual fund), registered under the Investment
Company Act of 1940 as amended. The Trust currently consists of three separate
funds (the Funds): Franklin New York Tax-Exempt Money Fund (the "Money Fund"),
Franklin New York Insured Tax-Free Income Fund (the "Insured Fund"), and
Franklin New York Intermediate-Term Tax-Free Income Fund (the "Intermediate-Term
Fund"). Each of the funds issues a separate series of the Trust's shares and
maintains a totally separate investment portfolio.

The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.

A. SECURITY VALUATIONS: Tax-free bonds generally trade in the over-the-counter
market rather than on a national securities exchange. Often there are no
transactions in a particular security on any given day. In the absence of a
recorded sale or reported bid and asked prices, information with respect to bond
and note transactions, quotations from bond dealers, market transactions in
comparable securities, and various relationships between securities are used to
determine the value of the security. The Trust may also utilize a pricing
service, bank, or broker/dealer experienced in such matters to perform any of
the pricing functions, under procedures approved by the Board of Trustees.

Short-term investments are included in investments at amortized cost, which
approximates value. The Money Fund must maintain a dollar weighted average
maturity of 90 days or less and only purchase instruments having remaining
maturities of 397 days or less. If the Fund's portfolio has a remaining weighted
average maturity of greater than 90 days, the portfolio will be stated at value
based on recorded closing sales on a national securities exchange or, in the
absence of a recorded sale, within the range of the bid and asked prices. The
Trustees have established procedures designed to stabilize, to the extent
reasonably possible, the Fund's price per share as computed for the purpose of
sales and redemptions at $1.00.

B. MUNICIPAL BONDS OR NOTES WITH "PUTS": The Trust has purchased municipal bonds
or notes with the right to resell the bonds or notes to the seller at an agreed
upon price or yield on a specified date or within a specified period (which will
be prior to the maturity date of the bonds or notes). Such a right to resell is
commonly known as a "put". In determining the weighted average maturity of the
Fund's portfolio, municipal bonds and notes as to which the Fund holds a put are
deemed to mature on the first day on which the put may be exercisable.

C. VARIABLE RATE DEMAND NOTES: The Trust has invested in certain variable
interest rate demand notes with maturities greater than 397 days but which are
redeemable at specified intervals upon demand. The maturity of these instruments
for the purposes of calculating the portfolio's weighted average maturity is
considered to be the lesser of the period until the interest rate is adjusted or
until the principal can be recovered by demand.

D. INCOME TAXES: It is the Trust's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its tax-exempt income to its shareholders. Therefore, no
income tax provision is required. Each Fund is treated as a separate entity in
the determination of compliance with the Internal Revenue Code.

E. SECURITY TRANSACTIONS: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses on
security transactions are determined on the basis of specific identification for
both financial statement and income tax purposes.

F. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: Distributions to shareholders
are recorded on the ex-dividend date. Interest income and estimated expenses are
accrued daily. Bond discount and premium, if any, is amortized as required by
the Internal Revenue Code. The Funds normally declare dividends from their net
investment income daily and distribute monthly. Daily allocations of net
investment income commence on the date of receipt of an investor's funds.
Dividends are normally declared each day the New York Stock Exchange is open for
business equal to an amount per day set from time to time by the Board of
Trustees and are payable to shareholders of record at the beginning of business
on the ex-date. Once each month, dividends are reinvested in additional shares
of the Funds, or paid in cash as requested by the shareholders.

For the Money Fund, the total available for dividends is computed daily and
includes the net investment income, as defined above, plus or minus any gains or
losses on security transactions and changes in unrealized portfolio appreciation
or depreciation, (if any).

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

F. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)

Distributions from undistributed net investment income, and net realized capital
gains from security transactions, to the extent they exceed available capital
loss carryovers, are generally made during each year to avoid the 4% excise tax
imposed on regulated investment companies by the Internal Revenue Code.

G. INSURANCE: Each long-term municipal security in the Insured Fund is insured
as to the scheduled payments of interest and principal. The insured security
will be covered by either a mutual fund Portfolio Insurance Policy, a Secondary
Market Insurance Policy or a New Issue Insurance Policy. Generally, the Money
Fund and the Intermediate-Term Fund do not hold portfolio securities covered by
insurance.

Premiums for a mutual fund Portfolio Insurance Policy or a Secondary Market
Insurance Policy are paid from the Insured Fund's assets. Premiums for a mutual
fund Portfolio Insurance Policy (effective only so long as the Insured Fund is
in existence, Financial Guaranty (the insurer) remains in business and the
municipal security insured under the policy continues to be held by the Insured
Fund) will reduce the current income on the portfolio by the amount thereof.
Premiums paid by the Insured Fund for a Secondary Market Insurance Policy
(effective so long as the security so insured is outstanding and the insurer
remains in business) are added to the cost basis of the municipal security
insured and are not considered an expense of the Insured Fund. Premiums for a
New Issue Insurance Policy (effective so long as the security so insured is
outstanding and the insurer remains in business) are paid in advance by the
insured security issuer or by another third party prior to acquisition of the
security by the Insured Fund and are not considered an expense of the Insured
Fund.

H. EXPENSE ALLOCATION: Common expenses incurred by the Trust are allocated among
the Funds based on the ratio of net assets of each Fund to their combined net
assets. In all other respects, expenses are charged to each Fund as incurred on
a specific identification basis.

I. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS OR DELAYED DELIVERY BASIS: The
Trust may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the purchase price when the transactions were entered
into. Although the Trust will generally purchase these securities with the
intention of acquiring such securities, they may sell such securities before the
settlement date. The Trust has set aside sufficient investment securities as
collateral for these purchase commitments.

2. UNAMORTIZED ORGANIZATION COSTS

The organization costs of the Insured Fund are amortized on a straight-line
basis over a period of five years from May 1, 1991 (the effective date of
registration under the Securities Act of 1933). In the event Franklin Resources,
Inc. (which was the sole shareholder prior to May 1, 1991) redeems its shares
within the five-year period, the pro-rata share of the then-unamortized deferred
organization cost will be deducted from the redemption price paid to Franklin
Resources, Inc. New investors purchasing shares of the Insured Fund subsequent
to that date bear such costs during the amortization period only as such charges
are accrued daily against investment income.

3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS

At December 31, 1993, for tax purposes, the Trust had capital loss carryovers as
follows:

<TABLE>
<CAPTION>
FRANKLIN NEW YORK FRANKLIN NEW YORK
INSURED TAX-FREE INTERMEDIATE-TERM
INCOME FUND TAX-FREE INCOME FUND
----------------- --------------------
<S> <C> <C>
Capital loss carryovers expiring in:
1999............................... $ 5,995 $ -
2000............................... 64,646 4,489
2001............................... 70,510 103,619
-------- --------
$141,151 $108,108
======== ========
</TABLE>

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)

3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (cont.)

For income tax purposes, the aggregate cost of securities is higher (and
unrealized appreciation is lower) than for financial reporting purposes at
December 31, 1993 by $2,029 in the Insured Fund.

4. TRUST SHARES

At December 31, 1993, there were an unlimited number of no par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the years ended December 31, 1993 and 1992 were as follows:

FRANKLIN NEW YORK FRANKLIN NEW YORK INSURED
TAX-EXEMPT MONEY FUND TAX-FREE INCOME FUND
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
1993

Shares sold........................................... 31,686,602 $ 31,686,602 9,310,382 $104,892,410
Shares issued in reinvestment of
distributions....................................... 851,209 851,209 411,491 4,657,586
Shares redeemed....................................... (40,671,919) (40,671,919) (1,191,829) (13,509,248)
Changes from exercise of
exchange privilege:
Shares sold....................................... 10,440,098 10,440,098 914,557 10,401,562
Shares redeemed................................... (6,110,850) (6,110,850) (675,619) (7,634,520)
----------- ------------ ---------- ------------
Net increase (decrease)......................... (3,804,860) $ (3,804,860) 8,768,982 $ 98,807,790
=========== ============ ========== ============
1992
Shares sold........................................... 36,427,358 $ 36,427,358 9,898,752 $104,982,505
Shares issued in reinvestment of
distributions....................................... 1,304,972 1,304,972 244,965 2,604,694
Shares redeemed....................................... (51,978,182) (51,978,182) (439,066) (4,681,049)
Changes from exercise of
exchange privilege:
Shares sold....................................... 10,622,053 10,622,053 709,119 7,487,083
Shares redeemed................................... (12,757,246) (12,757,246) (235,633) (2,506,082)
----------- ------------ ---------- ------------
Net increase (decrease)......................... (16,381,045) $(16,381,045) 10,178,137 $107,887,151
=========== ============ ========== ============
</TABLE>

<TABLE>
<CAPTION>
FRANKLIN NEW YORK
INTERMEDIATE-TERM
TAX-FREE INCOME FUND
-----------------------------
SHARES AMOUNT
----------- ------------
<S> <C> <C>
1993

Shares sold........................................... 2,435,065 $25,498,196
Shares issued in reinvestment of
distributions....................................... 46,169 485,841
Shares redeemed....................................... (180,531) (1,890,152)
Changes from exercise of
exchange privilege:
Shares sold....................................... 409,483 4,310,057
Shares redeemed................................... (131,804) (1,389,121)
--------- -----------
Net increase (decrease)......................... 2,578,382 $27,014,821
========= ===========
1992
Shares sold........................................... 305,301 $ 3,063,984
Shares issued in reinvestment of
distributions....................................... - -
Shares redeemed....................................... - -
Changes from exercise of
exchange privilege:
Shares sold....................................... 33,405 337,316
Shares redeemed................................... - -
--------- -----------
Net increase (decrease)......................... 338,706 $ 3,401,300
========= ===========
</TABLE>

+The Intermediate-Term Fund is for the period September 21, 1992 (effective date
of registration) to December 31, 1992.

5. PURCHASES AND SALES OF SECURITIES

Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended December 31, 1993 were as follows:

<TABLE>
<CAPTION>
FRANKLIN NEW YORK
FRANKLIN NEW YORK FRANKLIN NEW YORK INTERMEDIATE-TERM
TAX-EXEMPT INSURED TAX-FREE TAX-FREE
MONEY FUND INCOME FUND INCOME FUND
----------------- ----------------- -----------------
<S> <C> <C> <C>
Purchases............. - $106,317,324 $31,126,274
=========== ============ ===========
Sales................. - $ 10,982,409 $ 4,692,721
=========== ============ ===========

</TABLE>

<PAGE>

FRANKLIN NEW YORK TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)

6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Franklin Advisers, Inc., under the terms of an agreement, provides investment
advice, administrative services, office space and facilities to each Fund,
and receives fees computed monthly on the net assets of the Insured Fund and
the Intermediate-Term Fund at the last day of the month and computed daily on
the net assets of the Money Fund as follows:

<TABLE>
<CAPTION>
ANNUALIZED FEE RATE NET ASSETS
- ------------------- ---------------------------------------------------
<S> <C>
.625 of 1% First $100 million
.500 of 1% over $100 million, up to and including $250 million
.450 of 1% over $250 million
</TABLE>

Fees incurred by the Money Fund, Insured Fund, and Intermediate-Term Fund under
the management agreement aggregated $319,118, $1,185,510 and $106,935,
respectively, for the year ended December 31, 1993. The terms of the management
agreement provide that aggregate annual expenses of the Funds be limited to the
extent necessary to comply with the limitations set forth in the laws,
regulations and administrative interpretations of the states in which the Funds'
shares are registered. The Funds' expenses did not exceed these limitations;
however, for the year ended December 31, 1993, Franklin Advisers, Inc. reduced
its management fees by $176,658, $316,622 and $106,935 for the Money Fund,
Insured Fund and Intermediate-Term Fund, respectively. In addition, Franklin
Advisers, Inc. bore other expenses of $9,913 for the Intermediate-Term fund
which are not reflected on the Statement of Operations.

In its capacity as underwriter for the shares of the Funds, Franklin/Templeton
Distributors, Inc. received commissions on sales of the Funds' shares.
Commissions received by Franklin/Templeton Distributors, Inc. and the amounts
which were subsequently paid to other dealers for the year ended December 31,
1993 were as follows:

<TABLE>
<CAPTION>
FRANKLIN NEW YORK FRANKLIN NEW YORK
INSURED TAX-FREE INTERMEDIATE-TERM
INCOME FUND INCOME FUND
----------------- -----------------
<S> <C> <C>
Total commissions received.............. $3,782,172 $406,861
========== ========
Paid to other dealers................... $3,700,226 $365,581
========== ========
</TABLE>

Commissions are deducted from the gross proceeds received from the sale of the
Trust's shares, and as such are not expenses of the Funds.

Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc., the Trust pays costs on a per shareholder account
basis. Shareholder servicing costs incurred for the year ended December 31, 1993
aggregated $108,459, of which $104,873 was paid to Franklin/Templeton Investor
Services, Inc. and $2,470 was waived by Franklin/Templeton Investor Services,
Inc.

The Intermediate-Term Fund has adopted a distribution plan pursuant to Rule 12b1
of the Investment Act of 1940, whereby the Fund may pay or reimburse
Franklin/Templeton Distributors, Inc. up to a maximum of 0.10% per annum of its
average daily net assets for expenses incurred in the distribution of its
shares. Such fees which have been incurred by the Intermediate-Term Fund but
were waived by Franklin/Templeton Distributors, Inc. amounted to $7,672 for the
year ended December 31, 1993.

Certain officers and trustees of the Trust are also officers and/or directors of
Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., and
Franklin/Templeton Investor Services, Inc., all wholly-owned subsidiaries of
Franklin Resources, Inc.

7. CREDIT RISKS

Although each of the Funds has a diversified investment portfolio, all of their
investments are in the securities of issuers in the state of New York and Puerto
Rico, which may subject the Funds to economic and fiscal changes occurring
within those areas.

<PAGE>
FRANKLIN NEW YORK TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS

8. FINANCIAL HIGHLIGHTS

Selected data for each share of beneficial interest outstanding throughout each
period are set forth in the Prospectus under the caption "Financial Highlights."

During this fiscal year, each Fund paid distributions from undistributed net
investment income in the amounts shown in the Statement of Changes in Net
Assets. Each Fund hereby designates the total amount of these distributions as
exempt-interest dividends under Section 852(b)(5) of the Internal Revenue Code.

<PAGE>