As filed with the Securities and Exchange Commission August 5, 2008
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No._____
[ ] Post-Effective Amendment No._____
(Check appropriate box or boxes)
FRANKLIN TAX-FREE TRUST
-----------------------
(Exact Name of Registrant as Specified in Charter)
(650) 312-2000
--------------
(Registrant's Area Code and Telephone Number)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
-----------------------------------------------
(Address of Principal Executive Offices) (Number, Street, City,
State, Zip Code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
-------------------------------------------------------------
(Name and Address of Agent for Service of Process)
(Number, Street, City, State, Zip Code)
Approximate Date of Public Offering: As soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933, as
amended.
Title of securities being registered: Shares of beneficial interest, without par
value, of Franklin Federal Limited-Term Tax-Free Income Fund. No filing fee is
due because Registrant is relying on section 24(f) of the Investment Company Act
of 1940, as amended
It is proposed that this filing will become effective on September 4, 2008
pursuant to Rule 488.
FRANKLIN TEMPLETON LOGO
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
FRANKLIN NEW YORK LIMITED-TERM TAX-FREE INCOME FUND
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a Special Joint Meeting of Shareholders of Franklin
California Limited-Term Tax-Free Income Fund (the "California Fund"), a
series of Franklin California Tax-Free Trust, and Franklin New York
Limited-Term Tax-Free Income Fund (the "New York Fund"), a series of Franklin
New York Tax-Free Trust, scheduled for October 24, 2008 at 2:00 p.m., Pacific
Time. They discuss a proposal to be voted on at the meeting by shareholders
of each Fund and contain a Notice of Special Joint Meeting of Shareholders, a
Prospectus/Proxy Statement and proxy card. A proxy card is, in essence, a
ballot. When you complete the proxy card, it tells us how you wish the
individual(s) named on your proxy to vote on important issues relating to
your Fund. If you complete and sign the proxy card, we'll vote it exactly as
you tell us. If you simply sign and return the proxy card, we'll vote it in
accordance with the Boards of Trustees' recommendations on page [4] of the
Prospectus/Proxy Statement.
WE URGE YOU TO SPEND A FEW MINUTES REVIEWING THE PROPOSAL IN THE
PROSPECTUS/PROXY STATEMENT. THEN, FILL OUT THE PROXY CARD AND RETURN IT TO US
SO THAT WE KNOW HOW YOU WOULD LIKE TO VOTE.
WE WELCOME YOUR COMMENTS. IF YOU HAVE ANY QUESTIONS, CALL FUND
INFORMATION AT 1-800/DIAL BEN (800/342-5236).
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TELEPHONE AND INTERNET VOTING
For your convenience, you may be able to vote by telephone or through the
Internet, 24 hours a day. If your account is eligible, separate instructions
are enclosed.
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FRANKLIN TEMPLETON LOGO
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
(A SERIES OF FRANKLIN CALIFORNIA TAX-FREE TRUST)
FRANKLIN NEW YORK LIMITED-TERM TAX-FREE INCOME FUND
(A SERIES OF FRANKLIN NEW YORK TAX-FREE TRUST)
ONE FRANKLIN PARKWAY
SAN MATEO, CA 94403-1906
NOTICE OF SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 24, 2008
To the shareholders of Franklin California Limited-Term Tax-Free Income Fund
and Franklin New York Limited-Term Tax-Free Income Fund:
NOTICE IS HEREBY GIVEN that a Special Joint Meeting of Shareholders (the
"Meeting") of Franklin California Limited-Term Tax-Free Income Fund (the
"California Fund"), a series of Franklin California Tax-Free Trust (the
"California Trust"), and Franklin New York Limited-Term Tax-Free Income Fund
(the "New York Fund"), a series of Franklin New York Tax-Free Trust (the "New
York Trust") (the New York Fund and the California Fund together are the
"Target Funds," and individually, each a "Target Fund"), will be held at the
offices of the California Trust and the New York Trust (the "Target Funds
Trusts"), One Franklin Parkway, San Mateo, California, 94403-1906, October
24, 2008 at 2:00 p.m., Pacific Time. The Meeting is being called for the
following purposes:
1. With respect to each Target Fund, voting separately, to approve an
Agreement and Plan of Reorganization (the "Plan") between Franklin Tax-Free
Trust, on behalf of Franklin Federal Limited-Term Tax-Free Income Fund (the
"Federal Fund"), and the applicable Trust, on behalf of the Target Fund, that
provides for: (i) the acquisition of substantially all of the assets of the
Target Fund by the Federal Fund in exchange solely for shares of the Federal
Fund, (ii) the distribution of such shares to the shareholders of the Target
Fund, and (iii) the complete liquidation and dissolution of the Target Fund.
Shareholders of each Target Fund will receive shares of the Federal Fund with
an aggregate net asset value equal to the aggregate net asset value of such
shareholders' Class A shares of the applicable Target Fund.
2. To transact such other business as may properly come before the Meeting.
A copy of the form of the Plan, which more completely describes the
transaction proposed for each Target Fund, is attached as Exhibit A to the
Prospectus/Proxy Statement.
Shareholders of record as of the close of business on August 29, 2008, are
entitled to notice of, and to vote at, the Meeting or any adjournment of the
Meeting.
By Order of the Boards of Trustees,
Karen L. Skidmore
SECRETARY
September [__], 2008
YOU ARE INVITED TO ATTEND THE MEETING, BUT IF YOU CANNOT DO SO, THE BOARDS OF
TRUSTEES OF THE TRUSTS URGE YOU TO COMPLETE, DATE, SIGN, AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. IT IS
IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY CARD PROMPTLY SO THAT A QUORUM
MAY BE ENSURED. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED
BY THE SUBSEQUENT EXECUTION AND SUBMISSION OF A REVISED PROXY, BY GIVING
WRITTEN NOTICE OF REVOCATION TO THE APPROPRIATE TRUST AT ANY TIME BEFORE THE
PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE MEETING.
PROSPECTUS/PROXY STATEMENT
When reading this Prospectus/Proxy Statement, you will see certain terms
beginning with capital letters. This means the term is explained in our
glossary section.
TABLE OF CONTENTS
PAGE
COVER PAGE Cover
SUMMARY [#]
What proposal will be voted on? [#]
How will the Transactions affect me? [#]
How will the shareholder voting be handled? [#]
COMPARISONS OF SOME IMPORTANT FEATURES [#]
How do the investment goals, strategies and policies of [#]
the Funds compare?
What are the principal risks of an investment in the Funds? [#]
What are the distribution and purchase procedures of the [#]
Funds?
What are the redemption procedures and exchange privileges [#]
of the Funds?
Who manages the Funds? [#]
What are the fees and expenses of each of the Funds and [#]
what might they be after the Transactions?
How do the performance records of the Funds compare? [#]
Where can I find more financial and performance [#]
information about the Funds?
What are other key features of the Funds? [#]
REASONS FOR THE TRANSACTIONS [#]
INFORMATION ABOUT THE TRANSACTIONS [#]
How will the Transactions be carried out? [#]
Who will pay the expenses of the Transactions? [#]
What are the tax consequences of the Transactions? [#]
What should I know about the shares of the Federal Fund? [#]
What are the capitalizations of the Funds and what might [#]
the capitalization be after the Transactions?
COMPARISON OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS [#]
Are there any significant differences between the [#]
investment goals, strategies, policies and risks of the
Funds?
How do the investment restrictions of the Funds differ? [#]
What are the principal risk factors associated with [#]
investments in the Funds?
INFORMATION ABOUT THE FEDERAL FUND [#]
INFORMATION ABOUT THE CALIFORNIA FUND [#]
INFORMATION ABOUT THE NEW YORK FUND [#]
FURTHER INFORMATION ABOUT THE FUNDS [#]
VOTING INFORMATION [#]
How many votes are necessary to approve the Plans? [#]
How do I ensure my vote is accurately recorded? [#]
May I revoke my proxy? [#]
What other matters will be voted upon at the Meeting? [#]
Who is entitled to vote? [#]
How will proxies be solicited? [#]
Are there dissenters' rights? [#]
PRINCIPAL HOLDERS OF SHARES [#]
SHAREHOLDERS PROPOSALS [#]
ADJOURNMENT [#]
GLOSSARY--USEFUL TERMS AND DEFINITIONS [#]
EXHIBITS TO PROSPECTUS/PROXY STATEMENT [#]
EXHIBIT A--FORM OF AGREEMENT AND PLAN OF REORGANIZATION BY
AND BETWEEN FRANKLIN TAX-FREE TRUST, ON BEHALF OF
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND, AND
FRANKLIN [CALIFORNIA][NEW YORK] TAX-FREE TRUST, ON A-1
BEHALF OF FRANKLIN [CALIFORNIA][NEW YORK] LIMITED-TERM
TAX-FREE INCOME FUND
EXHIBIT B--PROSPECTUS OF FRANKLIN FEDERAL LIMITED-TERM
TAX-FREE INCOME FUND, DATED JULY 1, 2008 AS SUPPLEMENTED
TO DATE (ENCLOSED)
PROSPECTUS/PROXY STATEMENT
DATED SEPTEMBER [__], 2008
ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF
FRANKLIN CALIFORNIA LIMITED-TERM FRANKLIN NEW YORK LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
(A SERIES OF FRANKLIN CALIFORNIA (A SERIES OF FRANKLIN NEW YORK
TAX-FREE TRUST) TAX-FREE TRUST)
BY AND IN EXCHANGE FOR SHARES OF
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND
(A SERIES OF FRANKLIN TAX-FREE TRUST)
This Prospectus/Proxy Statement solicits proxies to be voted at a Special
Joint Meeting of Shareholders (the "Meeting") of Franklin California
Limited-Term Tax-Free Income Fund (the "California Fund"), a series of
Franklin California Tax-Free Trust (the "California Trust"), and Franklin New
York Limited-Term Tax-Free Income Fund (the "New York Fund"), a series of
Franklin New York Tax-Free Trust (the "New York Trust" and, together with the
California Trust, the "Target Funds Trusts"). At the Meeting, shareholders
of the California Fund and the New York Fund (each a "Target Fund" and,
collectively, the "Target Funds") will be asked to approve or disapprove an
Agreement and Plan of Reorganization with respect to such Target Fund
(individually a "Plan" and collectively the "Plans"). If shareholders of a
Target Fund vote to approve the Plan for such Target Fund, substantially all
of the assets of such Target Fund will be acquired by Franklin Federal
Limited-Term Tax-Free Income Fund (the "Federal Fund"), a series of Franklin
Tax-Free Trust ("Tax-Free Trust"), in exchange for shares of the Federal Fund
("Federal Fund shares"). The principal offices of the Target Funds Trust and
Tax-Free Trust (collectively, the "Trusts") are located at One Franklin
Parkway, San Mateo, CA 94403-1906. You can reach the offices of the Trusts
by telephone by calling 1-800-342-5236.
The Meeting will be held at the Trusts' offices, One Franklin Parkway, San
Mateo, California, on October 24, 2008 at 2:00 p.m., Pacific Time. The
Boards of Trustees of the Target Funds Trusts, on behalf of the California
Fund and the New York Fund, respectively, are soliciting these proxies. This
Prospectus/Proxy Statement will first be sent to shareholders on or about
September [__], 2008.
If you are a shareholder of a Target Fund whose shareholders vote to
approve the Plan on behalf of such Fund, you will receive Federal Fund shares
of equivalent aggregate net asset value ("NAV") to your investment in Class A
shares of the applicable Target Fund. The Target Fund will then be
liquidated and dissolved. While shareholders of the Target Funds are voting
on the same proposal, each Plan represents a separate transaction.
The investment goals of the California Fund, the New York Fund and the
Federal Fund are substantially similar. The California Fund's investment goal
is to provide investors with as high a level of income exempt from federal
income taxes and California personal income taxes as is consistent with
prudent investment management and the preservation of shareholders' capital.
The New York Fund's investment goal is to provide 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. Similarly, the Federal Fund's
investment goal is to provide investors with as high a level of income exempt
from federal income taxes, including the individual alternative minimum tax,
as is consistent with prudent investment management and the preservation of
shareholders' capital. Franklin Advisers, Inc. ("FAI") serves as investment
manager to each of the Target Funds and the Federal Fund.
This Prospectus/Proxy Statement gives the information about the proposed
transactions and the Federal Fund that you should know before voting on the
Plan applicable to your Target Fund. You should retain it for future
reference. Additional information about the Federal Fund and the proposed
transactions has been filed with the SEC and can be found in the following
documents:
o The Prospectus of the Federal Fund dated July 1, 2008, as supplemented
to date (the "Federal Fund Prospectus"), is enclosed with and considered a
part of this Prospectus/Proxy Statement.
o A Statement of Additional Information ("SAI") dated September [__], 2008
relating to this Prospectus/Proxy Statement has been filed with the SEC and
is considered a part of this Prospectus/Proxy Statement.
You may request a free copy of the SAI relating to this Prospectus/Proxy
Statement or the Federal Fund Prospectus without charge by calling
1-800/DIAL-BEN(R) or by writing to Franklin Templeton Investments at One
Franklin Parkway, San Mateo, CA 94403-1906.
[FOLLOWING TWO PARAGRAPHS TO GO AT BOTTOM OF FIRST PAGE:]
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED
UPON THE ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER U.S.
GOVERNMENT AGENCY. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
SUMMARY
This is only a summary of certain information contained in this
Prospectus/Proxy Statement. You should read the more complete information in
the rest of this Prospectus/Proxy Statement, including the form of Agreement
and Plan of Reorganization for the proposed transactions (individually, a
"Plan," and collectively, the "Plans") (attached as Exhibit A) and the
Federal Fund Prospectus (enclosed as Exhibit B).
WHAT PROPOSAL WILL BE VOTED ON?
At a meeting held on July 10, 2008, the Boards of Trustees of the Target
Funds Trusts, on behalf of their respective Target Fund, considered proposals
to reorganize each Target Fund with and into the Federal Fund, approved the
Plans and voted to recommend that shareholders of the Target Funds vote to
approve the applicable Plan. In addition, at a meeting also held on July 10,
2008, the Board of Trustees of Tax-Free Trust, on behalf of the Federal Fund,
concluded that each proposed transaction is in the best interests of the
Federal Fund and its shareholders and approved the Plans.
If shareholders of a Target Fund vote to approve the applicable Plan, it
will result in the transfer of substantially all of that Target Fund's assets
to the Federal Fund, in exchange for Federal Fund shares of equivalent
aggregate NAV. If you are a shareholder of a Target Fund that approves its
Plan, your Class A shares of such Target Fund will then be exchanged for
Federal Fund shares of equivalent aggregate NAV. Because the Target Funds
and the Federal Fund each have a different NAV per share, the number of
Federal Fund shares that you receive will likely be different than the number
of Target Fund shares that you own, even though the total value of your
investment will be the same immediately before and after the exchange. After
the shares of the Federal Fund are distributed to a Target Fund's
shareholders, that Target Fund will be completely liquidated and dissolved.
(The proposed transaction on behalf of each Target Fund is referred to in
this Prospectus/Proxy Statement as the "Transaction," and, together for both
Target Funds, are collectively referred to as the "Transactions.") As a
result of the Transaction, you will cease to be a shareholder of a Target
Fund and will become a shareholder of the Federal Fund. The exchange will
occur on the closing date of the Transaction, which is the specific date on
which the Transaction takes place. Subject to shareholder approval, the
closing date of the Transaction is expected to occur on or about November 12,
2008.
FAI serves as investment manager to the Target Funds and the Federal Fund
(each a "Fund," and collectively, the "Funds"). The investment goals of the
Funds are substantially similar, except for each Target Fund's additional
emphasis on income exempt from its respective State's personal income taxes
and, for the New York Fund, New York City personal income taxes. For the
reasons set forth in the "Reasons for the Transactions" section of this
Prospectus/Proxy Statement, the Board of Trustees of each Target Funds Trust,
including the Trustees who are not "interested persons" of the Trust, as such
term is defined in the 1940 Act (the "Independent Trustees"), on behalf of
its Target Fund, has determined that the Transaction is in the best interests
of the Target Fund and its shareholders. The Boards of Trustees of the
Target Funds Trusts and the Board of Trustees of Tax-Free Trust also
concluded that no dilution in value would result to the shareholders of the
Target Funds or the Federal Fund, respectively, as a result of the
Transactions.
It is expected that Target Funds shareholders will not recognize any gain
or loss for federal income tax purposes as a result of the exchange of their
shares for Federal Fund shares. You should, however, consult your tax
adviser regarding the effect, if any, of the Transactions, in light of your
individual circumstances. You should also consult your tax adviser about
state and local tax consequences. For more information about the tax
consequences of the Transactions, please see the section "Information About
the Transactions--WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTIONS?"
THE BOARDS OF TRUSTEES OF THE TARGET FUNDS TRUSTS
RECOMMEND THAT YOU VOTE TO APPROVE THE PLAN FOR YOUR FUND.
HOW WILL THE TRANSACTIONS AFFECT ME?
It is anticipated that the Transactions will benefit you as follows:
o Cost Savings: The total annual fund operating expenses for the Federal
Fund are less than the total annual fund operating expenses of each of
the Target Funds. For the fiscal year ended February 29, 2008, the
Federal Fund's total fund operating expense ratio for its shares, before
waivers, was 1.19% of average daily net assets. For the fiscal year
ended June 30, 2007, the California Fund's total fund operating expense
ratio for Class A shares, before waivers, was 1.26%. For the fiscal
year ended September 30, 2007, the New York Fund's total fund operating
expense ratio for Class A shares, before waivers, was 1.40%. The net
annual fund operating expenses, after waivers, for each Fund during the
periods stated above was 0.50% of average daily net assets.
o Increased Portfolio Diversification: Shareholders of the Target Funds
may benefit from the increased portfolio diversification offered by the
Federal Fund, which invests in municipal bonds of many states.
o Operating Efficiencies: Upon the reorganization of the Target Funds
with and into the Federal Fund, Target Fund shareholders would become
shareholders of a larger fund that may be able to achieve greater
operating efficiencies. As of February 29, 2008, the California Fund's
total assets were approximately $18.3 million, the New York Fund's total
assets were approximately $12.47 million and the Federal Fund's total
assets were approximately $46.04 million.
o Relative Performance: In terms of average annual total returns, the
Federal Fund has outperformed the Target Funds over the one- and
three-year periods ended March 31, 2008 and since inception of the Funds
as shown in the chart below:
Since
AVERAGE ANNUAL TOTAL RETURNS Inception
AT NAV AS OF MARCH 31, 2008 1-year 3-year (9/2/03)
------------------------------------------------------------
California Fund - Class A 1.40% 1.94% 1.51%
shares
New York Fund - Class A 1.39% 2.17% 1.66%
shares
Federal Fund shares 2.17% 2.38% 1.91%
From time to time, the Federal Fund's 30-day yield has been comparable
to or higher than the 30-day yield of one or both of the Target Funds.
However, with respect to tax equivalent yields, the 30-day tax
equivalent yields for the Target Funds have generally been higher than
for the Federal Fund. For example, as of May 31, 2008, the California
Fund's 30-day yield (with waivers) was 3.00% compared to 2.82% for the
Federal Fund, and 2.36% for the New York Fund. As of that date, the tax
equivalent 30-day yield (with waivers) for the California Fund was 5.09%
compared to 4.34% for the Federal Fund and 3.90% for the New York Fund
(4.06% for New York City residents).
It is also anticipated that the Transactions may disadvantage you as
follows:
o Loss of State Income Tax Benefits: Shareholders of each Target Fund
will lose the state income tax benefits of such Target Fund's investment
in its respective state-specific municipal securities. Shareholders of
the New York Fund will also lose tax benefits related to the New York
Fund's investments in securities that pay interest free from personal
income taxes of New York City.
o Costs of the Transactions: Each Target Fund will bear a portion of the
costs of the Transaction.
HOW WILL THE SHAREHOLDER VOTING BE HANDLED?
Shareholders who own shares of a Target Fund at the close of business on
August 29, 2008 will be entitled to vote at the Meeting, and will be
entitled to one vote for each full share and a proportionate fractional vote
for each fractional share that they hold. Approval of the Transaction by a
Target Fund requires the affirmative vote of the lesser of: (i) a majority
of the outstanding shares of the Target Fund, or (ii) 67% or more of the
outstanding shares of such Target Fund present at or represented by proxy at
the Meeting if the holders of more than 50% of the outstanding shares of
such Target Fund are present or represented by proxy ("Affirmative Majority
Vote"). Computershare Fund Services, Inc. ("Computershare") has been
retained by the Target Funds to collect and tabulate shareholder votes.
Please vote by proxy as soon as you receive this Prospectus/Proxy
Statement. You may place your vote by completing and signing the enclosed
proxy card, voting by telephone or through the Internet. If you vote by any
of these methods, the persons appointed as proxies will officially cast your
votes at the Meeting.
You can revoke your proxy or change your voting instructions at any time
until the vote is taken at the Meeting. You may also attend the Meeting and
cast your vote in person at the Meeting. For more details about shareholder
voting, see the "Voting Information" section of this Prospectus/Proxy
Statement.
COMPARISONS OF SOME IMPORTANT FEATURES
HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE FUNDS COMPARE?
INVESTMENT GOALS. The investment goals of the Funds are substantially
similar. Each Fund seeks to provide investors with as high a level of income
exempt from federal income taxes (including, for the Federal Fund, the
alternative minimum tax) as is consistent with prudent investment management
and the preservation of shareholders' capital. The California Fund and the
New York Fund also seek to provide such level of income exempt from
California State and New York State and City personal income taxes,
respectively.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS. Under normal market conditions,
each Fund invests at least 80% of its net assets (total assets for the
Federal Fund) in securities whose interest is free from federal income taxes,
including the federal alternative minimum tax ("AMT"). In addition, under
normal market conditions, the California Fund invests at least 80% of its net
assets in securities that pay interest free from California personal income
taxes, and the New York Fund invests at least 80% of its net assets in
securities that pay interest free from New York State personal income taxes.
As a non-fundamental policy, the New York Fund also normally invests at least
80% of its total assets in securities that pay interest free from personal
income taxes of New York City. Although each Fund tries to invest all of its
assets in tax-free securities, it is possible, although not anticipated, that
up to 20% of a Fund's total assets may be in securities that pay interest
that may be subject to the AMT and in securities that pay taxable interest.
In addition, each Fund may invest up to 35% of its total assets in municipal
securities issued by U.S. territories.
The investment policies and strategies of the Funds are very similar. The
Funds have the same principal investment strategies, with the exception of
each Target Fund's additional policy to invest at least 80% of its net assets
in securities that pay interest free from the personal income taxes, if any,
of its respective state (and New York City personal income taxes with respect
to the New York Fund). The portfolios of the Funds are also very similar in
terms of credit quality, maturity and investments in particular sectors. The
table below reflects the credit quality, maturity and sector breakdowns for
each Fund as of February 29, 2008:
----------------------------------------------------------------
CREDIT QUALITY CALIFORNIA NEW YORK FEDERAL
FUND FUND FUND
----------------------------------------------------------------
AAA 56.0% 41.2% 65.2%
----------------------------------------------------------------
AA 8.6% 15.2% 9.1%
----------------------------------------------------------------
A 20.6% 7.2% 5.3%
----------------------------------------------------------------
BBB 13.6% 20.3% 9.4%
----------------------------------------------------------------
Not Rated by S&P 1.2% 16.1% 11.0%
----------------------------------------------------------------
AVERAGE CREDIT QUALITY AA AA AA
----------------------------------------------------------------
MATURITY BREAKDOWN CALIFORNIA NEW YORK FEDERAL
FUND FUND FUND
----------------------------------------------------------------
Less than 1 year 48.85% 46.68% 35.51%
----------------------------------------------------------------
1-3 years 38.57% 36.44% 37.72%
----------------------------------------------------------------
3-5 years 3.53% 11.37% 9.37%
----------------------------------------------------------------
5-10 years 9.05% 5.51% 17.40%
----------------------------------------------------------------
WEIGHTED AVERAGE MATURITY 1.0 YRS 1.2 YRS 2.1 YRS
----------------------------------------------------------------
WEIGHTED AVERAGE EFFECTIVE 0.9 YRS 1.1 YRS 1.8 YRS
DURATION
----------------------------------------------------------------
SECTOR BREAKDOWN CALIFORNIA NEW YORK FEDERAL
FUND FUND FUND
----------------------------------------------------------------
Corporate Backed 5.57% 0.00% 3.38%
----------------------------------------------------------------
General Obligation Bonds 23.72% 13.31% 21.42%
----------------------------------------------------------------
Higher Education 1.15% 25.59% 14.21%
----------------------------------------------------------------
Hospital & Health Care 8.82% 19.88% 13.47%
----------------------------------------------------------------
Housing 0.00% 0.00% 1.20%
----------------------------------------------------------------
Other Revenue Bonds 10.58% 13.12% 8.49%
----------------------------------------------------------------
Prerefunded 0.00% 0.00% 5.31%
----------------------------------------------------------------
Subject to Government 6.90% 3.28% 13.68%
Appropriation
----------------------------------------------------------------
Tax Supported Debt 18.59% 4.88% 6.52%
----------------------------------------------------------------
Transportation 2.84% 5.74% 2.98%
----------------------------------------------------------------
Utilities 21.83% 14.20% 9.34%
----------------------------------------------------------------
After the Transactions, it is not expected that the weighted average
maturity or weighted average effective duration of the Federal Fund's
portfolio on a combined basis will be materially different from that
immediately prior to the Transactions.
For more information about the investment goals, strategies and policies
of the Target Funds and the Federal Fund, please see the section "Comparison
of Investment Goals, Strategies, Policies and Risks" in this Prospectus/Proxy
Statement.
WHAT ARE THE PRINCIPAL RISKS OF AN INVESTMENT IN THE FUNDS?
Each Fund invests predominantly in municipal securities. As a result,
the Funds are subject to similar risks, including interest rate risk,
credit risk, prepayment (call) risk, and other risks common to municipal
securities. However, because each Target Fund invests predominantly in its
respective state's municipal securities, events in its respective state are
likely to affect each Target Fund's investments and its performance to a
greater extent than a fund whose investments are more diversified. These
events may include economic or political policy changes, tax base erosion,
state constitutional limits on tax increases, budget deficits and other
financial difficulties, and changes in the credit ratings assigned to the
state's municipal issuers. A negative change in any one of these or other
areas could affect the ability of a state's municipal issuers to meet their
obligations. It is important to remember that economic, budget and other
conditions within a particular state can be unpredictable and can change at
any time. For these reasons, the Target Funds may involve more risk than an
investment in a fund, such as the Federal Fund, that does not focus on
municipal securities of a single state. To the extent the Federal Fund is
invested in a particular state, events in that state may affect the Fund's
investments and its performance.
For more information about the risks of the Funds, see the section "What
are the risk factors associated with investments in the Funds?" under the
heading "Comparison of Investment Goals, Strategies, Policies and Risks"
below.
WHAT ARE THE DISTRIBUTION AND PURCHASE PROCEDURES OF THE FUNDS?
Shares of each Fund are sold on a continuous basis by Franklin Templeton
Distributors, Inc. ("Distributors"). Shares of each Fund are sold at NAV per
share plus a sales charge.
WHAT ARE THE REDEMPTION PROCEDURES AND EXCHANGE PRIVILEGES OF THE FUNDS?
Each Fund offers the same redemption features pursuant to which proceeds
of a redemption are remitted by check after prompt receipt of proper
documents, including under certain circumstances signature guarantees. Each
Fund has the same exchange privileges. Shares of each Fund may be redeemed
at their respective NAV per share. However, redemptions of Class A shares of
the Target Funds or Federal Fund shares that were purchased without an
initial sales charge generally are subject to a 0.75% contingent deferred
sales charge ("CDSC") if you sell the shares within 18 months following their
purchase. Effective September 1, 2008, the previous redemption fee policy
for each Fund was discontinued.
WHO MANAGES THE FUNDS?
The management of the business and affairs of the Funds is the
responsibility of the Board of Trustees of each Target Funds Trust (with
respect to their Target Fund) and the Board of Trustees of Tax-Free Trust (in
the case of the Federal Fund). Each Fund is a series of an open-end,
registered management investment company, commonly referred to as a "mutual
fund." The California Trust, originally organized as a Massachusetts business
trust on July 18, 1985, was reorganized as a Delaware statutory trust on
November 1, 2007. The New York Trust was initially organized as a
Massachusetts business trust in July 1986 and reorganized as a Delaware
statutory trust effective February 1, 2008. Tax-Free Trust was initially
organized as a Massachusetts business trust in September 1984, and
reorganized as a Delaware statutory trust effective July 1, 2007.
FAI is a wholly owned subsidiary of Franklin Resources, Inc.
("Resources"). Resources is a publicly owned global investment organization
operating as Franklin Templeton Investments. Franklin Templeton Investments
provides global and domestic investment management services through its
Franklin, Templeton, Mutual Series and Fiduciary Trust subsidiaries.
Together, FAI and its affiliates manage over $[645] billion in assets and
serve as investment manager or administrator to [46] registered investment
companies, with approximately [156] U.S.-based funds or series as of [January
31], 2008. The principal shareholders of Resources are Charles B. Johnson
and Rupert H. Johnson, Jr., who are trustees and/or officers of each Trust.
The Federal Fund's portfolio managers are:
JAMES CONN CFA, VICE PRESIDENT OF FAI. Mr. Conn has been an analyst or
portfolio manager of the Federal Fund since its inception. He joined
Franklin Templeton Investments in 1996. Mr. Conn has primary responsibility
for the investments of the Federal Fund. He has final authority over all
aspects of the Federal Fund's investment portfolio, including but not limited
to, purchases and sales of individual securities, portfolio risk assessment,
and the management of daily cash balances in accordance with anticipated
management requirements. The degree to which he may perform these functions,
and the nature of these functions, may change from time to time.
JOHN POMEROY, VICE PRESIDENT OF FAI. Mr. Pomeroy has been an analyst or
portfolio manager of the Federal Fund since its inception. He joined
Franklin Templeton Investments in 1986. Mr. Pomeroy is a portfolio manager
of the Federal Fund, providing research and advice on the purchases and sales
of individual securities and portfolio risk assessment.
The SAI for the Federal Fund dated July 1, 2008, as supplemented to date
(the "Federal Fund SAI") provides additional information about the portfolio
managers' compensation, other accounts managed by the portfolio managers, and
the portfolio managers' ownership of securities in the Federal Fund. For
information on how to obtain a copy of the Federal Fund SAI, please see the
section entitled "Information About the Federal Fund."
The California Fund's portfolio managers are:
CHRISTOPHER S. SPERRY CFA, VICE PRESIDENT OF FAI. Mr. Sperry has been an
analyst or portfolio manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1996.
JOHN WILEY, VICE PRESIDENT OF ADVISERS. Mr. Wiley has been an analyst or
portfolio manager of the California Fund since its inception. He joined
Franklin Templeton Investments in 1989.
The managers of the California Fund have equal authority over all aspects
of the California Fund's investment portfolio, including but not limited to,
purchases and sales of individual securities, portfolio risk assessment, and
the management of daily cash balances in accordance with anticipated
management requirements. The degree to which each manager may perform these
functions, and the nature of these functions, may change from time to time.
The SAI for the California Fund dated November 1, 2007, as supplemented to
date (the "California Fund SAI"), provides additional information about the
portfolio managers' compensation, other accounts managed by the portfolio
managers, and the portfolio managers' ownership of securities in the
California Fund. For information on how to obtain a copy of the California
Fund SAI, please see the section entitled "Information About the California
Fund."
The New York Fund's portfolio managers are:
JAMES CONN CFA, VICE PRESIDENT OF FAI. Mr. Conn has been a manager of
the New York Fund since its inception. He has primary responsibility for the
investments of the New York Fund. He has final authority over all aspects of
the New York Fund's investment portfolio, including but not limited to,
purchases and sales of individual securities, portfolio risk assessment, and
the management of daily cash balances in accordance with anticipated
management requirements. The degree to which he may perform these functions,
and the nature of these functions, may change from time to time. He joined
Franklin Templeton Investments in 1996.
JOHN POMEROY, VICE PRESIDENT OF FAI. Mr. Pomeroy has been a manager of
the New York Fund since its inception, providing research and advice on the
purchases and sales of individual securities, and portfolio risk assessment.
He joined Franklin Templeton Investments in 1986.
The SAI for the New York Fund dated February 1, 2008, as supplemented to
date (the "New York Fund SAI"), provides additional information about the
portfolio managers' compensation, other accounts managed by the portfolio
managers, and the portfolio managers' ownership of securities in the New York
Fund. For information on how to obtain a copy of the New York Fund SAI,
please see the section entitled "Information About the New York Fund."
The Funds each have a management agreement with FAI under which FAI
receives a management fee from such Fund based on the schedule below:
--------------------------------------------------
ANNUAL RATE AVERAGE DAILY NET ASSETS
--------------------------------------------------
0.500 of 1% Up to and including
$100 million
0.450 of 1% Over $100 million, up
to and including $250
million
0.425 of 1% Over $250 million, up
to and including $500
million
0.400 of 1% Over $500 million
The chart below shows the total management fees for each Fund as of the
most recent fiscal year end and the actual amount paid by each Fund after
voluntary waivers by FAI:
----------------------------------------------------------------------
FUND FISCAL YEAR MANAGEMENT FEE MANAGEMENT FEE
ENDED DUE PAID AFTER WAIVERS
----------------------------------------------------------------------
Federal Fund February 29, $130,096 $1,352
2008
California Fund June 30, 2007 $54,932 $0
New York Fund September 30, $37,263 $0
2007
A discussion regarding the basis for the Boards of Trustees' approval of
the investment management contract of their respective Funds is available in
the most recent Annual Report to Shareholders for the fiscal year ended
February 29, 2008 for the Federal Fund, the Annual Report to Shareholders for
the fiscal year ended June 30, 2008 for the California Fund, and the
Semiannual Report to Shareholders for the six-month period ended March 31,
2008 for the New York Fund.
Franklin Templeton Services, LLC ("FT Services") has an agreement with
respect to each Fund to provide certain administrative services and
facilities for such Fund. FT Services is an indirect, wholly owned subsidiary
of Resources and is an affiliate of the Funds' investment manager and
principal underwriter. Each Fund pays FT Services a monthly fee equal to an
annual rate of 0.20% of the average daily net assets of such Fund.
WHAT ARE THE FEES AND EXPENSES OF EACH OF THE FUNDS AND WHAT MIGHT THEY BE
AFTER THE TRANSACTIONS?
The tables below describe the fees and expenses that you may pay if you
buy and hold shares of the Funds. The tables below show the estimated fees
and expenses for the Federal Fund assuming that both Target Funds approve
their respective Plan and both Transactions have been completed as of the
beginning of the Federal Fund's last completed fiscal year. The Funds'
management believes that this is the most likely result. The tables also
show the estimated fees and expenses for the Federal Fund assuming that only
shareholders of the California Fund approve the Transaction and that such
Transaction has been completed as of the beginning of the Federal Fund's last
completed fiscal year. This alternative demonstrates the least reduction in
overall expenses that a shareholder in a Target Fund would experience
becoming a shareholder of the Federal Fund assuming that both Transactions
are not approved by shareholders and completed. The purpose of the tables is
to assist you in understanding the various costs and expenses that you will
bear directly or indirectly as a shareholder of the Federal Fund. You will
not pay any initial or deferred sales charge in connection with the
Transactions.
FEE TABLES FOR THE FUNDS
ACTUAL+
--------------------------------------
CALIFORNIA NEW YORK FEDERAL FUND
FUND FUND
CLASS A CLASS A
------------------------------------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum sales charge (load) 2.25%(1) 2.25%(1) 2.25%(1)
as a percentage of offering
price
Load imposed on purchases 2.25%(1) 2.25%(1) 2.25%(1)
Maximum deferred sales None(2) None(2) None(2)
charge (load)
Redemption fee on shares sold None None None
within 7 calendar days
following their purchase
date(3)
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund
assets)
Management fees 0.50%(4) 0.50%(4) 0.50%(5)
Distribution and service 0.15% 0.15% 0.15%
(12b-1) Fees
Other expenses (including 0.61% 0.75% 0.54%
administration fees)
------------------------------------
TOTAL ANNUAL FUND OPERATING 1.26% 1.40% 1.19%
EXPENSES
------------------------------------
Management and/or -0.76%(4) -0.90%(4) -0.69%(5)
administration fee reduction
------------------------------------
NET ANNUAL FUND OPERATING 0.50%(4) 0.50%(4) 0.50%(5)
EXPENSES
PROJECTED++ PROJECTED+++
---------------------------------
FEDERAL FUND FEDERAL FUND
AFTER BOTH AFTER ONE
TRANSACTIONS TRANSACTION
---------------------------------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum sales charge (load) 2.25%(1) 2.25%(1)
as a percentage of offering
price
Load imposed on purchases 2.25%(1) 2.25%(1)
Maximum deferred sales None(2) None(2)
charge (load)
Redemption fee on shares sold None None
within 7 calendar days
following their purchase
date(3)
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund
assets)
Management fees 0.50%(5) 0.50%(5)
Distribution and service 0.15% 0.15%
(12b-1) Fees
Other expenses (including 0.29%(6) 0.33%(6)
administration fees)
---------------------------------
TOTAL ANNUAL FUND OPERATING 1.14% 1.18%
EXPENSES
---------------------------------
Management and/or -0.64%(5) -0.68%(5)
administration fee reduction
---------------------------------
NET ANNUAL FUND OPERATING 0.50%(5) 0.50%(5)
EXPENSES
+ Information for the California Fund is provided for the fiscal year ended
June 30, 2007. Information for the New York Fund is provided for the
fiscal year ended September 30, 2007. Information for the Federal Fund
is provided for the fiscal year ended February 29, 2008.
++ Projected expenses based on current and anticipated Federal Fund expenses
assuming both Transactions are completed.
+++ Projected expenses based on current and anticipated Federal Fund
expenses assuming only the Transaction with the California Fund is
completed.
(1) The dollar amount of the sales charge is the difference between the
offering price of the shares purchased (which factors in the applicable sales
charge in this table) and the net asset value of those shares. Because the
offering price is calculated to two decimal places using standard rounding
criteria, the number of shares purchased and the dollar amount of the sales
charge as a percentage of the offering price and of your net investment may
be higher or lower depending on whether there was a downward or upward
rounding.
(2) There is a 0.75% CDSC that applies to investments of $1 million or more.
(3) Prior to September 1, 2008, each Fund charged a 2.00% redemption fee for
shares redeemed within seven days of purchase. Effective September 1, 2008,
the redemption fee policy for the Funds was discontinued.
(4) FAI and FT Services have contractually agreed to waive or limit their
respective fees and to assume as their own expenses certain expenses
otherwise payable by each Target Fund so that the total Fund operating
expenses do not exceed 0.50% (other than certain non-routine expenses or
costs, including those relating to litigation and indemnification,
reorganizations and liquidation) until October 31, 2008 for the California
Fund, and January 31, 2009 for the New York Fund. With these reductions, the
Target Funds paid no management fees and the net annual operating expenses
for each Target Fund were 0.50%.
(5) FAI and FT Services have contractually agreed to waive or limit their
respective fees and to assume as their own expense certain expenses otherwise
payable by the Federal Fund so that common expenses (i.e., a combination of
investment management fees, fund administration fees, and other expenses, but
excluding Rule 12b-1 fees for the Fund) do not exceed 0.35% (other than
certain non-routine expenses or costs, including those relating to
litigation, indemnification, reorganizations, and liquidations) until June
30, 2009.
(6) Excluded from other expenses are the one-time estimated costs of the
Transactions to be borne by the Federal Fund - $44,750 if both Transactions
are completed and $22,344 if only the Transaction with the California Fund is
completed.
EXAMPLE
This example can help you compare the cost of investing in each Target
Fund Class A shares with the cost of investing in the Federal Fund shares,
both before and after the Transactions. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The Fund's operating expenses remain the same; and
o You sell your shares at the end of the period.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------
California Fund--Class A $275(1) $542 $830 $1,648
New York Fund--Class A $275(1) $571 $890 $1,791
Federal Fund $275(1) $527 $800 $1,576
Projected Federal Fund $275(1) $517 $778 $1,524
(after both Transactions)
Projected Federal Fund $275(1) $525 $795 $1,565
(after only the Transaction
with the California Fund)
(1) Assumes a CDSC will not apply.
HOW DO THE PERFORMANCE RECORDS OF THE FUNDS COMPARE?
The Federal Fund has outperformed the California Fund and the New York
Fund over the one- and three-year periods ended March 31, 2008, and since the
inception of each Fund on September 2, 2003 on an average total return
basis. From time to time, the Federal Fund's 30-day yield has been comparable
to or higher than the 30-day yield of one or both of the Target Funds.
However, with respect to tax equivalent yields, the 30-day tax equivalent
yields for the Target Funds have generally been higher than for the Federal
Fund. The average annual total return figures as of March 31, 2008 and the
30-day yields as of May 31, 2008, at net asset value, are shown below.
----------------------------------------------------------
AVERAGE ANNUAL TOTAL CALIFORNIA
RETURN FUND - NEW YORK FEDERAL
AT NAV AS OF 3/31/08 CLASS A FUND - FUND
CLASS A
----------------------------------------------------------
1 YEAR 1.40% 1.39% 2.17%
----------------------------------------------------------
3 YEAR 1.94% 2.17% 2.38%
----------------------------------------------------------
SINCE INCEPTION 1.51% 1.66% 1.91%
(September 2, 2003)
----------------------------------------------------------
----------------------------------------------------------------------
30-DAY SEC YIELD 30-DAY 30-DAY TAX TAXABLE TAXABLE
EQUIVALENT EQUIVALENT
SEC SEC 30-DAY SEC 30-DAY SEC
YIELD YIELD YIELD YIELD
(WITH (WITHOUT (WITH (WITHOUT
AT NAV AS OF 5/31/08 WAIVER) WAIVER) RATE WAIVER) WAIVER)
----------------------------------------------------------------------
California Fund(1) - 3.00% 2.65% 41.05% 5.09% 4.50%
Class A
----------------------------------------------------------------------
New York Fund -
Class A
(New York State
Residents)(2) 2.36% 1.79% 39.45% 3.90% 2.96%
----------------------------------------------------------------------
New York Fund -
Class A
(New York City
Residents)(3) 2.36% 1.79% 41.82% 4.06% 3.08%
----------------------------------------------------------------------
Federal Fund(4) 2.82% 2.29% 35.00% 4.34% 3.52%
----------------------------------------------------------------------
(1) Taxable equivalent yield is based on the maximum combined federal
regular and California state personal income tax rate of 41.05% in effect on
12/24/07. This combined rate does not consider the impact of California's
surcharge on taxable incomes in excess of $1 million.
(2) Taxable equivalent yield is based on the maximum combined federal
regular and New York state personal income tax rate of 39.45% in effect on
12/24/07.
(3) Taxable equivalent yield is based on the maximum combined federal
regular, New York State and New York City personal income tax rate of 41.82%
in effect on 12/24/07.
(4) Taxable equivalent yield is based on the maximum federal regular income
tax rate of 35.00% in effect on 12/24/07.
WHERE CAN I FIND MORE FINANCIAL AND PERFORMANCE INFORMATION ABOUT THE FUNDS?
The Federal Fund Prospectus (enclosed) contains additional financial
information about the Federal Fund, including the Federal Fund's financial
performance since its inception, under the heading "Financial Highlights."
Additional performance information as of the most recent calendar year ended
December 31, 2007, is contained in the Federal Fund Prospectus under the
heading "Performance."
The California Fund Prospectus, as well as the Annual Report to
Shareholders for the California Fund as of June 30, 2008 contain more
financial information about the California Fund, including the California
Fund's financial performance since its inception, under the heading "Financial
Highlights." Additional performance information as of the calendar year
ended December 31, 2006, is contained in the California Fund Prospectus under
the heading "Performance." These documents are available free of charge upon
request (see the section "Information About the California Fund").
The New York Fund Prospectus, as well as the Annual Report and
Semiannual Report to Shareholders for the New York Fund as of September 30,
2007 and March 31, 2008, respectively, contain more financial information
about the New York Fund, including the New York Fund's financial performance
since its inception, under the heading "Financial Highlights." Additional
performance information as of the calendar year ended December 31, 2007, is
contained in the New York Fund Prospectus under the heading "Performance."
These documents are available free of charge upon request (see the section
"Information About the New York Fund").
WHAT ARE OTHER KEY FEATURES OF THE FUNDS?
The Funds use the same service providers for the following services:
CUSTODY SERVICES. Bank of New York, Mutual Funds Division, 100 Church
Street, New York, NY 10286, acts as custodian of the securities and other
assets of the Target Funds and the Federal Fund.
TRANSFER AGENCY SERVICES. Investor Services, an indirect wholly owned
subsidiary of Resources, is the shareholder servicing and transfer agent and
dividend-paying agent for the Funds.
ADMINISTRATIVE SERVICES. FT Services, an indirect wholly owned subsidiary
of Resources, pursuant to an agreement with each Fund, provides certain
administrative facilities and services to the Funds under the same terms and
conditions.
DISTRIBUTION SERVICES. Distributors acts as the principal underwriter in
the continuous public offering of the Funds' shares under the same terms and
conditions.
DISTRIBUTION AND SERVICE (12B-1) FEES. Class A shares of the Target Funds
and Federal Fund shares each have separate distribution or "Rule 12b-1"
plans. Under each Rule 12b-1 plan, the Fund may pay Distributors or others
for the expenses of activities that are primarily intended to sell shares of
that class. These expenses may include, among others, distribution or service
fees paid to Securities Dealers or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates; and the expenses of
printing prospectuses and reports used for sales purposes, and preparing and
distributing sales literature and advertisements. Each Fund may pay up to
0.15% per year of the average daily net assets of its shares. For more
information regarding the Federal Fund's Rule 12b-1 plan, please see "The
Underwriter--Distribution and Service (12b-1) fees" in the Federal Fund SAI.
PURCHASES AND REDEMPTIONS. The maximum front-end sales charge imposed on
purchases of Class A shares of the Target Funds and Federal Fund shares is
2.25%, with reduced charges for purchases of $100,000 or more and no
front-end sales charges for purchases of $1 million or more. Prior to
September 1, 2008, shares of each Fund were subject to a 2% redemption fee if
the shares are sold within 7 days following their purchase date. Effective
September 1, 2008, each Fund discontinued its redemption fee policy.
Shares of each Fund may be redeemed at their respective NAV per share,
except that redemptions of Class A shares of the Target Funds and Federal
Fund shares that were purchased without an initial sales charge generally are
subject to a 0.75% CDSC if you sell the shares within 18 months following
their purchase. Additional information and specific instructions explaining
how to buy, sell, and exchange shares of the Federal Fund are outlined in the
Federal Fund Prospectus under the heading, "Your Account." The accompanying
Federal Fund Prospectus also lists phone numbers for you to call if you have
any questions about your account under the heading "Questions."
DIVIDENDS AND DISTRIBUTIONS. Each Fund typically declares an income
dividend each day that its NAV is calculated and pays them monthly. Capital
gains, if any, will be distributed at least annually. Income dividends and
capital gains distributions are automatically reinvested in additional shares
of a Fund at NAV unless an election is made to receive cash payments. The
amount of these distributions will vary and there is no guarantee the Funds
will pay dividends.
Each Fund has qualified, and intends to continue to qualify, to be treated
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify for taxation as a regulated investment
company, a mutual fund, among other things, must distribute 90% of its
investment company taxable income and net tax-exempt income, derive at least
90% of its gross income from permitted sources and diversify its holdings as
required by the Code. While so qualified, so long as each Fund distributes
all of its investment company taxable income and net tax-exempt income and
any net realized gains to its shareholders, it is expected that a Fund will
not be required to pay any federal income taxes on the amounts distributed to
its shareholders.
The tax implications of an investment in each Fund are generally the same.
For more information about the tax implications of investments in the Funds,
see each Fund's prospectus under the heading "Distributions and Taxes."
REASONS FOR THE TRANSACTIONS
The Boards of Trustees of the Target Funds Trusts, on behalf of the Target
Funds, have recommended that the Target Funds' shareholders approve the
Transactions in order to combine the Target Funds with a larger fund that has
similar goals and investment policies. Shareholders of each Target Fund may
potentially benefit from lower expenses. Shareholders of the Target Funds
may also benefit from becoming shareholders of the Federal Fund whose average
total returns have been stronger since the Funds' inception. In addition,
Target Funds shareholders would become investors in a fund that has a more
diversified portfolio of municipal bonds.
A meeting of the Target Funds Trusts' Boards was held on July 10, 2008 to
consider the proposed Transactions. The Independent Trustees and the Target
Funds Trusts' Boards have been advised on this matter by independent counsel
to the Independent Trustees. In addition, a meeting of Tax-Free Trust's
Board was held on July 10, 2008 to consider the proposed Transactions on
behalf of the Federal Fund.
The Target Funds Trusts' Boards requested and received from FAI written
materials containing relevant information about the Federal Fund and the
proposed Transactions, including fee and expense information on an actual
and future estimated basis, and comparative performance data.
The Target Funds Trusts' Boards considered the potential benefits and
costs of the Transactions to the Target Funds shareholders. The Boards
reviewed detailed information about: (1) the investment goal, strategies and
policies of the Federal Fund; (2) the portfolio management of the Federal
Fund; (3) the financial and organizational strength of FAI; (4) the
comparability of the investment goals, policies, restrictions and investments
of the Target Funds with those of the Federal Fund, including each Fund's
average weighted portfolio maturity and duration; (5) the comparative
short-term and longer-term investment performance of the Target Funds and the
Federal Fund; (6) the current expense ratios of the Target Funds and the
Federal Fund; (7) the relative asset size of each Fund, including the
benefits of the Target Funds joining with a larger entity; (8) the agreement
by FAI to pay a portion of the expenses related to each Transaction; (9) the
tax consequences of the Transactions to the Target Funds and their
shareholders, including the loss of state income tax benefits in their
respective states (and New York City income tax benefits for the New York
Fund and its shareholders); and (10) the general characteristics of investors
in the Target Funds.
The Target Funds Trusts' Boards also considered that: (a) the investment
management fee for the Target Funds was the same as such fee for the Federal
Fund; (b) the average annual total returns of the Federal Fund have been
somewhat stronger than the average annual total returns of the Target Funds,
although, from time to time, the Federal Fund's 30-day yield has been
comparable to or higher than the 30-day yield of one or both of the Target
Funds while the 30-day tax equivalent yields for the Target Funds have
generally been higher than for the Federal Fund; (c) the relatively small
asset size of each Target Fund had prevented it from realizing significant
economies of scale that would enable it to reduce its expense ratio; (d)
based on each Target Fund's historical asset growth and projected sales
activity, each Target Fund's assets were unlikely to grow sufficiently in the
foreseeable future to result in significant economies of scale; (e) benefits
to shareholders, including operating efficiencies, may be achieved from
combining the Funds; and (f) alternatives were available to shareholders of
the Target Funds, including the ability to redeem their shares.
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, each
Target Funds Trust's Board, including all of its Independent Trustees,
concluded that the Transaction for its Target Fund is in the best interests
of the shareholders of such Target Fund and that no dilution of value would
result to the shareholders of that Target Fund from the Transactions. Each
Target Funds Trust's Board approved the applicable Plan on July 10, 2008, and
recommended that the shareholders of the Target Fund vote to approve the
Transaction with respect to such Target Fund.
The Board of Trustees of Tax-Free Trust, on behalf of the Federal Fund,
also concluded that the Transactions are in the best interests of the Federal
Fund and its shareholders and that no dilution of value would result to the
shareholders of the Federal Fund from the Transactions. Consequently, the
Trustees of Tax-Free Trust approved the Plans on behalf of the Federal Fund.
FOR THE REASONS DISCUSSED ABOVE, THE TARGET FUNDS TRUSTS' BOARDS UNANIMOUSLY
RECOMMEND THAT YOU VOTE FOR THE PLAN APPLICABLE TO YOUR TARGET FUND.
INFORMATION ABOUT THE TRANSACTIONS
This is only a summary of the Plans. You should read the form of the
Plans, which is attached as Exhibit A, for complete information about the
Transactions.
HOW WILL THE TRANSACTIONS BE CARRIED OUT?
If the shareholders of a Target Fund approve the Plan for such Fund, the
Transaction for such Target Fund will take place after various conditions are
satisfied, including the preparation of certain documents. The Target Funds
Trust and Tax-Free Trust will determine a specific date, called the "closing
date," for the actual Transaction to take place. If the shareholders of a
Target Fund do not approve the Plan for such Fund, the Transaction for such
Target Fund will not take place, and that Target Fund will continue to
operate as it does currently even if the shareholders of the other Target
Fund approve the Plan for such Fund and the Transaction for such other Target
Fund proceeds. Each Target Fund no longer offers its shares for sale to the
public. Existing shareholders, however, are permitted to purchase additional
shares until the date of the Meeting. If shareholders of a Target Fund
approve the Plan for such Fund at the Meeting, such shareholders may continue
to add to their existing accounts until the close of business on November 11,
2008 through the reinvestment of dividend and capital gain distributions or
through established automatic investment plans.
If the shareholders of a Target Fund approve the Plan for such Target
Fund, such Target Fund will transfer substantially all of its assets, free
and clear of all liens, encumbrances, and claims whatsoever (other than
shareholders' rights of redemption), to the Federal Fund on the closing date,
which is scheduled to occur on or about November 12, 2008, but which may
occur on an earlier or later date as the Target Funds Trust and Tax-Free
Trust may agree. Neither Tax-Free Trust nor the Federal Fund shall assume
any liability of a Target Fund or Target Funds Trust. In exchange, Tax-Free
Trust will issue Federal Fund shares that have an aggregate NAV equal to the
dollar value of the assets delivered to the Federal Fund by the Target Fund.
Such Target Funds Trust will distribute the Federal Fund shares it receives
to the shareholders of the Target Fund. Each shareholder of the Target Fund
will receive a number of Federal Fund shares with an aggregate NAV equal to
the aggregate NAV of his or her shares of the Target Fund. The stock
transfer books of the Target Fund will be permanently closed as of 1:00 p.m.,
Pacific Time, on the closing date. The Target Fund will accept requests for
redemptions only if received in proper form before 1:00 p.m., Pacific Time,
on the closing date. Requests received after that time will be considered
requests to redeem shares of the Federal Fund. As soon as is reasonably
practicable after the transfer of its assets, the Target Fund will pay or
make provision for payment of all its remaining liabilities, if any. At the
closing, each shareholder of record of a Target Fund shall have the right to
receive any unpaid dividends or distributions declared prior to the closing,
including any declared dividend or distribution, with respect to shares of
the Target Fund that such shareholder had on the distribution record date.
The Target Fund will then terminate its existence as a separate series of its
respective Trust.
To the extent permitted by law, each Target Funds Trust and Tax-Free
Trust may agree to amend the applicable Plan without shareholder
approval. If any amendment is made to a Plan that would have a material
adverse effect on shareholders, such change will be submitted to the
affected shareholders for their approval.
Each of the Target Funds Trusts and Tax-Free Trust has made
representations and warranties in the Plans that are customary in matters
such as the Transactions. The obligations of each Target Funds Trust and
Tax-Free Trust under the Plan with respect to a Target Fund or the Federal
Fund, respectively, are subject to various conditions, including:
o Tax-Free Trust's Registration Statement on Form N-14 under the
Securities Act of 1933, of which this Prospectus/Proxy Statement is a
part, shall have been filed with the SEC and such Registration
Statement shall have become effective, and no stop-order suspending
the effectiveness of the Registration Statement shall have been
issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
o the shareholders of applicable Target Fund shall have approved the
Transaction for such Fund; and
o the Target Funds Trust and Tax-Free Trust shall have received the tax
opinion described below that the consummation of the Transaction with
respect to the Target Fund will not result in the recognition of gain
or loss for federal income tax purposes for such Target Fund, Federal
Fund or their shareholders.
If a Target Funds Trust and Tax-Free Trust agree, the Plan for a Target
Fund may be terminated or abandoned at any time before or after the approval
of the shareholders of the Target Fund.
WHO WILL PAY THE EXPENSES OF THE TRANSACTIONS?
Each Target Funds Trust, on behalf of its respective Target Fund, will
pay 25% of the expenses resulting from that Target Fund's participation in a
Transaction, including the costs of the proxy solicitation. Tax-Free Trust,
on behalf of the Federal Fund, will pay 25% of such expenses for each
Transaction. FAI will pay the remaining 50% of such expenses for each
Transaction.
WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTIONS?
Each Transaction is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Code. The tax
consequences of one Transaction are not dependent upon the other
Transaction. Based on certain assumptions and representations received from
the California Trust and the New York Trust, on behalf of the California Fund
and New York Fund, respectively, and Tax-Free Trust, on behalf of the Federal
Fund, it is the opinion of Stradley Ronon Stevens & Young, LLP, counsel to
the Funds, (i) that shareholders of a Target Fund will not recognize any gain
or loss for federal income tax purposes as a result of the exchange of their
shares of the Target Fund for shares of the Federal Fund, and (ii) that
neither the Federal Fund nor its shareholders will recognize any gain or loss
upon the Federal Fund's receipt of the assets of a Target Fund. In addition,
the holding period and aggregate tax basis for the Federal Fund shares that
are received by a Target Fund shareholder will be the same as the holding
period and aggregate tax basis of the shares of such Target Fund previously
held by the shareholder.
Opinions of counsel are not binding upon the Internal Revenue Service or
the courts. If the Transactions are consummated, but one or both of the
Transactions do not qualify as a tax free reorganization under the Code, and
thus is taxable, a Target Fund in the case of a taxable Transaction would
recognize gain or loss on the transfer of its assets to the Federal Fund and
each shareholder of that Target Fund would recognize a taxable gain or loss
equal to the difference between its tax basis in its Target Fund shares and
the fair market value of the shares of the Federal Fund it received.
Capital losses can generally be carried forward to each of the eight (8)
taxable years succeeding the loss year to offset future capital gains.
Following the Transaction for a Target Fund, any capital loss carryovers
(together with any current year loss and net unrealized depreciation in the
value of investments) of that Target Fund will be subject to an annual
limitation for federal income tax purposes. At their reporting periods ended
June 30, 2008 and March 31, 2008, the tax basis capital loss carryovers,
unrealized appreciation in value of investments and aggregate net asset
values of the California Fund and New York Fund, respectively, as compared to
the Federal Fund at February 29, 2008, and the approximate annual limitations
on use of the Target Funds' capital loss carryovers following the
Transactions, are as follows:
-----------------------------------------------------------
California New York Federal
Fund Fund Fund
-----------------------------------------------------------
Capital loss Carryovers
-----------------------------------------------------------
Expiring (2015) $204,589 $111,850
-----------------------------------------------------------
Expiring (2014-2016) $346,548
-----------------------------------------------------------
Unrealized Appreciation ($31,213) $64,834 ($26,189)
(Depreciation) in Value
of Investments
-----------------------------------------------------------
Net Asset Value $24,883,098 $14,816,999 $43,914,271
-----------------------------------------------------------
Tax-exempt rate (July
2008) 4.71% 4.71%
-----------------------------------------------------------
Annual Limitation
(approximate) (1) $1,171,994 $697,881
-----------------------------------------------------------
(1) The actual limitation will equal the aggregate net asset
value of a Target Fund on the closing date multiplied by the
long-term tax-exempt rate for ownership changes during the
month in which a Transaction closes; such limitation is
increased by the amount of any built-in gain, i.e.,
unrealized appreciation in value of investments, of a Target
Fund on the closing date that is recognized in a taxable year.
Given the approximate amount of these annual limitations relative to the
amount of each Target Fund's capital loss carryovers, this limitation on use
of a Target Fund's capital loss carryovers will not likely be material.
Moreover, the Transactions will not result in any limitation on the use by
the Federal Fund of its capital loss carryovers.
In addition, given that the Federal Fund has a small amount of unrealized
deprecation in value of its investments of ($26,189) at February 29, 2008,
Target Fund shareholders will not likely be "buying into" greater unrealized
appreciation in value of investments of Federal Fund relative to what Target
Fund shareholders are presently exposed. Thus, the tax risk to Target Fund
shareholders of being exposed to greater unrealized appreciation in value of
investments from prior years that could become their income tax burden when
the Federal Fund's portfolio securities are sold is not present. Similarly,
given that the California Fund and the New York Fund have small amounts of
unrealized appreciation (depreciation) in value of investments of ($31,213)
and $64,834, respectively, at the end of their last reporting periods, the
tax risk to the present Federal Fund shareholders of being exposed to
materially greater amounts of unrealized appreciation in value of
investments of Target Funds is not present.
After the Transaction(s), you will continue to be responsible for
tracking the adjusted tax basis and holding period of your shares for
federal income tax purposes. You should consult your tax adviser regarding
the effect, if any, of the Transaction(s) in light of your particular
circumstances, as well as the state and local tax consequences, if any, of
the Transaction(s) because this discussion only relates to the federal
income tax consequences.
WHAT SHOULD I KNOW ABOUT THE SHARES OF THE FEDERAL FUND?
Federal Fund shares will be distributed to Class A shareholders of the
Target Funds, and generally will have the same legal characteristics as the
shares of each Target Fund with respect to such matters as voting rights,
assessibility, conversion rights, and transferability. The Federal Fund is a
series of Tax-Free Trust, the California Fund is a series of the California
Trust, and the New York Fund is a series of the New York of the New York
Trust. All three Trusts are organized as Delaware statutory trusts.
WHAT ARE THE CAPITALIZATIONS OF THE FUNDS AND WHAT MIGHT THE CAPITALIZATION
BE AFTER THE TRANSACTIONS?
The following table sets forth, as of February 29, 2008, the capitalization
of each Target Fund and the Federal Fund. The table also shows the projected
capitalization of the Federal Fund as adjusted to give effect to (1) both
proposed Transactions, and (2) only the Transaction with the California Fund,
which demonstrates the least reduction in overall expenses that a shareholder
in a Target Fund would experience becoming a shareholder of the Federal Fund.
The capitalization of the Federal Fund is likely to be different when the
Transaction(s) are consummated.
FEDERAL FEDERAL
FUND-- FUND--
PROJECTED PROJECTED
CALIFORNIA NEW YORK AFTER AFTER
FUND - FUND - FEDERAL BOTH ONE
CLASS A CLASS A FUND TRANSACTIONS TRANSACTION
(UNAUDITED (UNAUDITED) (AUDITED) (UNAUDITED)* (UNAUDITED)**
------------------------------------------------------------
Net assets(1) $18,331,021 $12,469,195 $43,914,271 $74,669,737 $62,222,948
Shares outstanding 1,848,687 1,261,226 4,407,791 7,500,182 6,248,255
Net asset value $9.92 $9.89 $9.96 $9.96 $9.96
per share
* The projected capitalization of the Federal Fund after both Transactions
includes the estimated expenses of the Transactions borne by the Target
Funds and the Federal Fund.
** The projected capitalization of the Federal Fund after the Transaction
with only the California Fund includes the estimated expenses of the
Transaction borne by the California Fund and the Federal Fund.
(1) Each Fund has only one class of shares outstanding.
At the actual closing of the reorganizations, shareholders of the Target
Funds will receive Federal Fund Shares based on the relative net asset values
of the Funds as of 1:00 p.m., Pacific Time, of the closing date.
COMPARISON OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS
This section describes and compares the key differences between the
investment goals, strategies and principal policies of the Funds, as well as
the risks associated with such goals, strategies and policies. The
investment goal and most of the investment restrictions of each Fund are
fundamental, which means that they cannot be changed without the Affirmative
Majority Vote of that Fund. Unless otherwise noted, the investment policies
of each Fund are non-fundamental and may be changed without shareholder
approval. For a complete description of the Federal Fund's investment
policies and risks, you should read the Federal Fund Prospectus, which
accompanies this Prospectus/Proxy Statement, and the Federal Fund SAI, which
is incorporated by reference into the SAI relating to this Prospectus/Proxy
Statement and is available upon request.
ARE THERE ANY SIGNIFICANT DIFFERENCES BETWEEN THE INVESTMENT GOALS,
STRATEGIES, POLICIES AND RISKS OF THE FUNDS?
Although worded somewhat differently, the investment goal of each Fund is
substantially similar. The Funds seek to provide investors with as high a
level of income exempt from federal income taxes (including, for the Federal
Fund, the alternative minimum tax) as is consistent with prudent investment
management and the preservation of shareholders' capital. The California
Fund and the New York Fund also seek to provide such level of income exempt
from California State and New York State and City personal income taxes,
respectively. Therefore, the most significant difference among the Funds is
the additional focus of each of the Target Funds on providing income that is
exempt from such Fund's particular state (and in one instance city) personal
income taxes.
Under normal market conditions, each Fund invests at least 80% of its net
assets (total assets for the Federal Fund) in securities whose interest is
free from federal income taxes, including the federal alternative minimum tax
("AMT"). In addition, under normal market conditions, the California Fund
invests at least 80% of its net assets in securities that pay interest free
from California personal income taxes, and the New York Fund invests at least
80% of its net assets in securities that pay interests free from New York
State personal income taxes. The New York Fund also normally invests at
least 80% of its total assets in securities that pay interest free from the
personal income taxes of New York City. Although each Fund tries to invest
all of its assets in tax-free securities, it is possible, although not
anticipated, that up to 20% of a Fund's total assets may be in securities
that pay interest that may be subject to the AMT and in securities that pay
taxable interest. In addition, each Fund may invest up to 35% of its total
assets in municipal securities issued by U.S. territories.
Each Fund maintains a dollar-weighted average portfolio maturity of five
years or less, although the Target Funds may buy securities with any
maturity. The Funds only buy investment grade securities (those rated by
U.S. ratings services in the top four ratings categories) or comparable
unrated securities. The Funds hold securities in their portfolio for income
purposes, rather than trading securities for capital gains, although the
manager may sell a security at any time if it believes doing so could help a
Fund meet its goal. The Funds also may invest in municipal lease
obligations, which generally are issued to finance the purchase of public
property. The property is leased to a state or local government and the
lease payments are used to pay the interest on the obligations.
The New York Fund is a non-diversified fund and, as such, may invest a
greater portion of its assets in the municipal securities of one or more
issuers than the Federal Fund or the California Fund, which are diversified
funds.
HOW DO THE INVESTMENT RESTRICTIONS OF THE FUNDS DIFFER?
The Funds' fundamental investment restrictions are identical, other than
their investment goals and their policies on diversification (as discussed
above). Such fundamental investment restrictions include those with respect
to borrowing, underwriting, lending, real estate investments, commodities
investments, and issuing senior securities.
WHAT ARE THE PRINCIPAL RISK FACTORS ASSOCIATED WITH INVESTMENTS IN THE
FUNDS?
Like all investments, an investment in any Fund involves risk. There is
no assurance that any Fund will meet its investment goals. The achievement
of the Funds' goals depends upon market conditions, generally, and on the
investment managers' analytical and portfolio management skills.
INTEREST RATE. When interest rates rise, municipal security prices
fall. The opposite is also true: municipal security prices rise when
interest rates fall. In general, securities with longer maturities are more
sensitive to these price changes.
TAX-EXEMPT SECURITIES. While the Funds endeavor to purchase only bona
fide tax- exempt securities, there are risks that: (a) a security issued as
tax-exempt may be reclassified by the Internal Revenue Service, or a state
tax authority, as taxable and/ or (b) future legislative, administrative or
court actions could adversely impact the qualification of income from a tax-
exempt security as tax-free. Such reclassifications or actions could cause
interest from a security to become taxable, possibly retroactively,
subjecting you to increased tax liability. In addition, such
reclassifications or actions may affect the Funds' ability to maintain a
stable share price.
CREDIT. An issuer of municipal securities may be unable to make
interest payments and repay principal when due. Changes in an issuer's
financial strength or in a security's credit rating may affect a security's
value and, thus, impact Fund performance.
Many of the Funds' portfolio securities may be supported by credit
enhancements, which may be provided by either U.S. or foreign entities. These
securities have the credit risk of the entity providing the credit support.
Credit support provided by a foreign entity may be less certain because of
the possibility of adverse foreign economic, political or legal developments
that may affect the ability of that entity to meet its obligations. To the
extent a Fund holds insured securities, a change in the credit rating of any
one or more of the municipal bond insurers that insure securities in the
Fund's portfolio may affect the value of the securities they insure, the
Fund's share price and Fund performance. The Funds might also be adversely
impacted by the inability of an insurer to meet its insurance obligations.
INCOME. Because each Fund can only distribute what it earns, the Fund's
distributions to shareholders may decline when interest rates fall.
CALL. A municipal security may be prepaid (called) before maturity. An
issuer is more likely to call its securities when interest rates are falling,
because the issuer can issue new securities with lower interest payments. If
a security is called, a Fund may have to replace it with a lower- yielding
security. At any time, a Fund may have a large amount of its assets invested
in municipal securities subject to call risk. A call of some or all of these
securities may lower the Fund's income and yield and its distributions to
shareholders.
MARKET. A security's value may be reduced by market activity or the
results of supply and demand. This is a basic risk associated with all
securities. When there are more sellers than buyers, prices tend to fall.
Likewise, when there are more buyers than sellers, prices tend to rise.
Each Fund may invest more than 25% of its assets in municipal securities
that finance similar types of projects, such as hospitals, housing,
industrial development, and transportation or pollution control. A change
that affects one project, such as proposed legislation on the financing of
the project, a shortage of the materials needed for the project, or a
declining need for the project, would likely affect all similar projects,
thereby increasing market risk.
MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations differ from
other municipal securities because the relevant legislative body must
appropriate the money each year to make the lease payments. If the money is
not appropriated, the lease can be cancelled without penalty and investors
who own the lease obligations may not be paid.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Municipal securities may
be issued on a when-issued or delayed delivery basis, where payment and
delivery take place at a future date. Because the market price of the
security may fluctuate during the time before payment and delivery, the Fund
assumes the risk that the value of the security at delivery may be more or
less than the purchase price.
U.S. TERRITORIES. Each Fund may invest up to 35% of its assets in
municipal securities issued by U.S. territories. As with any state municipal
securities, events in any of these territories where the Fund is invested may
affect the Fund's investments and its performance.
CALIFORNIA AND NEW YORK. Because each Target Fund invests predominantly
in municipal securities of its particular state, events in that state are
likely to affect the Fund's investments and its performance. These events
may include economic or political policy changes, tax base erosion, state
constitutional limits on tax increases, budget deficits and other financial
difficulties, and changes in the credit ratings assigned to the state's
municipal issuers. A negative change in any one of these or other areas
could affect the ability of a state's municipal issuers to meet their
obligations. It is important to remember that economic, budget and other
conditions within a particular state can be unpredictable and can change at
any time. For these reasons, each Target Fund involves more state-specific
risk than an investment in a fund, like the Federal Fund, that does not focus
on securities of a single state.
NON-DIVERSIFICATION (New York Fund). The New York Fund is a
non-diversified fund. It may invest a greater portion of its assets in the
municipal securities of any one or more issuers than a diversified fund. The
New York Fund may be more sensitive to economic, business, political or other
changes affecting similar issuers or securities, which may result in greater
fluctuation in the value of the Fund's shares. The New York Fund, however,
intends to meet certain tax diversification requirements.
INFORMATION ABOUT THE FEDERAL FUND
Information about the Federal Fund is included in the Federal Fund
Prospectus, which is enclosed with and incorporated by reference into (is
considered a part of) this Prospectus/Proxy Statement. Additional information
about the Federal Fund is included in the Federal Fund SAI, which is
incorporated into the Federal Fund Prospectus and into an SAI dated September
[__], 2008 relating to this Prospectus/Proxy Statement, which has been filed
with the SEC and is considered part of this Prospectus/Proxy Statement. You
may request a free copy of the SAI relating to this Prospectus/Proxy
Statement, the Federal Fund SAI, the Federal Fund's Annual Report to
Shareholders for the fiscal year ended February 29, 2008, Semiannual Report
to Shareholders for the period ended August 31, 2008, and other information
by calling 1-800/DIAL-BEN(R) or by writing to the Federal Fund at P.O. Box
997151, Sacramento, CA 95899-7151.
Tax-Free Trust files proxy materials, reports and other information with
the SEC in accordance with the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act. These materials can be inspected and
copied at the public reference facilities maintained by the SEC, 100 F
Street, N.E., Room 1580, Washington, D.C. Also, you can obtain copies of
this information, after paying a duplicating fee at prescribed rates, by
writing to the SEC's Public Reference Branch, Office of Consumer Affairs and
Information Services, Washington, DC 20549 or from the SEC's Internet site at
HTTP://WWW.SEC.GOV or by electronic request at the following email address:
PUBLICINFO@SEC.GOV.
INFORMATION ABOUT THE CALIFORNIA FUND
Information about California Fund is included in the California Fund's
current Prospectus, which is incorporated into this Prospectus/Proxy
Statement by reference, as well as the California Fund SAI and the California
Trust's Annual Report to Shareholders dated June 30, 2008. These documents
have been filed with the SEC. You may request free copies of these documents
and other information relating to the California Fund by calling 1-800/DIAL
BEN or by writing to the California Fund, P.O. Box 997151, Sacramento, CA
95899-7151. Reports and other information filed by the California Trust can
be inspected and copied at the public reference facilities maintained by the
SEC, 100 F Street, N.E., Room 1580, Washington, D.C. Also, you can obtain
copies of this information, after paying a duplicating fee at prescribed
rates, by writing to the SEC's Public Reference Branch, Office of Consumer
Affairs and Information Services, Washington, DC 20549 or from the SEC's
Internet site at HTTP://WWW.SEC.GOV or by electronic request at the following
email address: PUBLICINFO@SEC.GOV.
INFORMATION ABOUT THE NEW YORK FUND
Information about the New York Fund is included in the New York Fund's
current Prospectus, which is incorporated into this Prospectus/Proxy
Statement by reference, as well as the New York Fund SAI, the New York
Trust's Annual Report to Shareholders dated September 30, 2007, and Semiannual
Report to Shareholders dated March 31, 2008. These documents have been filed
with the SEC. You may request free copies of these documents and other
information relating to the New York Fund by calling 1-800/DIAL BEN or by
writing to the New York Fund, P.O. Box 997151, Sacramento, CA 95899-7151.
Reports and other information filed by the New York Trust can be inspected
and copied at the public reference facilities maintained by the SEC, 100 F
Street, N.E., Room 1580, Washington, D.C. Also, you can obtain copies of
this information, after paying a duplicating fee at prescribed rates, by
writing to the SEC's Public Reference Branch, Office of Consumer Affairs and
Information Services, Washington, DC 20549 or from the SEC's Internet site at
HTTP://WWW.SEC.GOV or by electronic request at the following email address:
PUBLICINFO@SEC.GOV.
FURTHER INFORMATION ABOUT THE FUNDS
The following is a discussion of the organization of each Fund. More
detailed information about each Fund's current trust structure is contained
in each Fund's SAI.
COMPARISON OF CAPITAL STRUCTURE. The Target Funds and the Federal Fund
have substantially identical capital structures. The California Fund is a
series of the California Trust, originally organized as a Massachusetts
business trust on July 18, 1985, but reorganized effective November 1, 2007
as a Delaware statutory trust, pursuant to an Agreement and Declaration of
Trust ("Declaration of Trust"), dated October 18, 2006. The New York Fund is
a series the New York Trust, initially organized as a Massachusetts business
trust in July 1986, but reorganized as a Delaware statutory trust effective
February 1, 2008, pursuant to a Declaration of Trust dated October 18, 2006.
The Federal Fund is a series of Tax-Free Trust, initially organized as a
Massachusetts business trust in September 1984, but reorganized as a Delaware
statutory trust effective July 1, 2007, pursuant to a Declaration of Trust
dated October 18, 2006. The number of shares of the Funds is unlimited, each
without par value. Each Fund may issue fractional shares. Shares of the
Funds are fully paid and nonassessable and have no preference, preemptive or
subscription rights.
COMPARISON OF VOTING RIGHTS. For each Fund, each whole share is entitled
to one vote as to any matter on which it is entitled to vote and each
fractional share carries a proportionate fractional vote. Shareholders of the
Funds are not entitled to cumulative voting in the election of Trustees.
Quorum for a shareholders' meeting of a Trust is generally forty per cent of
the outstanding shares entitled to vote, which are present in person or
represented by proxy.
The 1940 Act provides that shareholders of the Funds have the power to vote
with respect to certain matters: specifically, for the election of Trustees,
the selection of auditors (under certain circumstances), approval of
investment management agreements and plans of distribution, and amendments to
policies, goals or restrictions deemed to be fundamental.
In addition, shareholders of each Fund are granted the power to vote on
certain matters by the laws governing Delaware statutory trusts and by their
Declaration of Trusts. For each Trust, its Declaration of Trust specifically
gives shareholders the power to vote: (1) for the election of Trustees at a
meeting called for the purpose of electing Trustees, (2) with respect to
certain amendments to the Declaration of Trust as required by the Declaration
of Trust, the 1940 Act or the requirements of any securities exchanges on
which shares are listed for trading, and (3) on such matters as required by
the Declaration of Trust, the by-laws and any registration statement of the
Trust filed with the SEC or any State, or as the Trustees may consider
necessary or desirable.
For each Trust, a majority of the votes cast at a meeting at which a
quorum is present shall decide any questions other than the election of
trustees, unless the Declaration of Trust, by-laws or applicable law provide
otherwise. Trustees of each Trust are elected by not less than a plurality
of the votes cast of the holders of shares entitled to vote present in
person or represented by proxy at a shareholders meeting at which a quorum
is present.
Pursuant to each Trust's Declaration of Trust, the maximum number of days
prior to a shareholders' meeting during which a record date may be set by
that Trust's Board is 120 days.
COMPARISON OF LEGAL STRUCTURES. The Target Funds and the Federal Fund
share the same legal structures as each Trust was formed under the Delaware
Statutory Trust Act ("DSTA"). The DSTA grants each Trust a significant
amount of operational flexibility to adopt features, rights and obligations
of the statutory trust and its trustees and shareholders in its charter
instruments. Investment companies organized as Delaware statutory trusts
have been able to benefit from this flexibility to streamline their
operations and minimize expenses. For example, Delaware statutory trusts are
not required to hold annual stockholders' meetings if meetings are not
otherwise required by the federal securities laws, the Declaration of Trust
or by-laws, and such funds may create new classes or series of stock without
having to obtain the approval of stockholders at a meeting. The DSTA also
allows a fund to provide in its governing documents that certain fund
transactions, such as certain mergers, reorganizations and liquidations, may
go forward with only trustee approval; all are subject, however, to any
special voting requirements of the 1940 Act.
LIMITED LIABILITY FOR SHAREHOLDERS. Under the DSTA and the Trusts'
Declarations of Trust, shareholders of the Trusts are entitled to the same
limitation of personal liability as is extended to shareholders of a
corporation organized for profit under Delaware General Corporation Law.
BOARD OF TRUSTEES. Pursuant to the DSTA and each Trust's Declaration of
Trust, the responsibility for the management of each Trust is vested in its
Board of Trustees, which, among other things, is empowered by the Trust's
Declaration of Trust to elect the officers of the Trust and contract with and
provide for the compensation of agents, consultants and other professionals
to assist and advise in such management. Pursuant to each Declaration of
Trust, no Trustee of a Trust shall be liable for any act or omission or any
conduct whatsoever in his capacity as Trustee, except for an act or omission
that constitutes a bad faith violation of the implied contractual covenant of
good faith and fair dealing, willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office.
INSPECTION RIGHTS. Each Fund provides certain inspection rights to
shareholders of its books and records, at least to the extent required by
applicable law.
LEGAL PROCEEDINGS. For information about material pending legal
proceedings and regulatory matters, please see the sections entitled
"Additional Management Information" in each Target Fund Prospectus and the
section entitled "Management" in the Federal Fund Prospectus.
VOTING INFORMATION
HOW MANY VOTES ARE NECESSARY TO APPROVE THE PLANS?
For each Plan, an Affirmative Majority Vote of the Target Fund is required
to approve the Plan for that Target Fund. Each shareholder will be entitled
to one vote for each full share, and a proportionate fractional vote for each
fractional share of a Target Fund held at the close of business on August 29,
2008 (the "Record Date"). If sufficient votes to approve the Plan for a
Target Fund are not received by the date of the Meeting, the Meeting may be
adjourned as to the Target Fund to permit further solicitations of proxies.
Forty percent (40%) of a Target Fund's outstanding shares entitled to vote
in person or by proxy as of the Record Date shall be a quorum for the
transaction of business by that Target Fund at the Meeting. Under relevant
state law and the Target Funds Trusts' governing documents, abstentions and
broker non-votes (that is, proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owner or
other persons entitled to vote shares on a particular matter with respect to
which the brokers or nominees do not have discretionary power) will be
treated as votes present at the Meeting, but will not be treated as votes
cast at such Meeting. Abstentions and broker non-votes, therefore, will be
included for purposes of determining whether a quorum is present but will
have the same effect as a vote against the Plan for a Target Fund.
HOW DO I ENSURE MY VOTE IS ACCURATELY RECORDED?
You can vote in any one of four ways:
o By mail, with the enclosed proxy card;
o In person at the Meeting;
o By telephone; or
o Through the Internet.
If your account is eligible for voting by telephone or through the
Internet, separate instructions are enclosed.
A proxy card is, in essence, a ballot. When you vote your proxy, it tells
us how you want to vote on important issues relating to your Fund. If you
simply sign, date, and return the proxy card but give no voting instructions,
your shares will be voted in favor of the Plan and in accordance with the
views of management upon any unexpected matters that come before the Meeting
or adjournment of the Meeting. If your shares are held of record by a
broker-dealer and you wish to vote in person at the Meeting, you should
obtain a Legal Proxy from your broker of record and present it at the Meeting.
MAY I REVOKE MY PROXY?
You may revoke your proxy at any time before it is voted by sending a
written notice to the appropriate Target Funds Trust expressly revoking your
proxy, by signing and forwarding to the appropriate Target Funds Trust a
later-dated proxy card that is received at or prior to the Meeting, or by
attending the Meeting and voting in person. If your shares are held in the
name of your broker, you will have to make arrangements with your broker to
revoke a previously executed proxy.
WHAT OTHER MATTERS WILL BE VOTED UPON AT THE MEETING?
The Boards of Trustees of the Target Funds Trusts do not intend to bring
any matters before the Meeting other than those described in this
Prospectus/Proxy Statement. They are not aware of any other matters to be
brought before the Meeting by others. If any other matter legally comes
before the Meeting, proxies for which discretion has been granted will be
voted in accordance with the views of management.
WHO IS ENTITLED TO VOTE?
Shareholders of record of each Target Fund on the Record Date will be
entitled to vote at the Meeting. On the Record Date, there were [
] outstanding Class A shares of the California Fund and [ ]
outstanding Class A shares of the New York Fund.
HOW WILL PROXIES BE SOLICITED?
Computershare, a professional proxy solicitation firm (the "Solicitor"),
has been engaged to assist in the solicitation of proxies, at an estimated
cost of approximately $1,500 with respect to each Target Fund. The Target
Funds expect that the solicitations will be primarily by mail. As the date
of the Meeting approaches, however, certain Fund shareholders may receive a
telephone call from a representative of the Solicitor if their votes have not
yet been received. Authorization to permit the Solicitor to execute proxies
may be obtained by telephonic instructions from shareholders of the Target
Funds. Proxies that are obtained telephonically will be recorded in
accordance with the procedures set forth below. The Boards of Trustees of
the Target Funds Trusts believe that these procedures are reasonably designed
to ensure that both the identity of the shareholder casting the vote and the
voting instructions of the shareholder are accurately determined.
In all cases where a telephonic proxy is solicited, the Solicitor
representative is required to ask for each shareholder's full name and
address and to confirm that the shareholder has received the proxy materials
in the mail. If the shareholder is a corporation or other entity, the
Solicitor representative is required to ask for the person's title and
confirmation that the person is authorized to direct the voting of the
shares. If the information solicited agrees with the information provided to
the Solicitor, then the Solicitor representative may ask for the
shareholder's instructions on the proposal described in this Prospectus/Proxy
Statement. Although the Solicitor representative is permitted to answer
questions about the process, he or she is not permitted to recommend to the
shareholder how to vote, other than reading any recommendation set forth in
this Prospectus/Proxy Statement. The Solicitor representative will record
the shareholder's instructions on the card. Within 72 hours, the shareholder
will be sent a letter or mailgram to confirm his or her vote and asking the
shareholder to call the Solicitor immediately if his or her instructions are
not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not wish
to give a proxy by telephone or over the Internet, the shareholder may still
submit the proxy card originally sent with this Prospectus/Proxy Statement or
attend in person.
The Target Funds will request broker-dealer firms, custodians, nominees,
and fiduciaries to forward proxy material to the beneficial owners of the
shares of record. The Target Funds Trusts may reimburse broker-dealer firms,
custodians, nominees, and fiduciaries for their reasonable expenses incurred
in connection with such proxy solicitation. In addition, certain officers
and representatives of the Target Funds Trusts or their affiliates, who will
receive no extra compensation for their services, may solicit proxies by
telephone, telegram or personally.
ARE THERE DISSENTERS' RIGHTS?
Shareholders of the Target Funds will not be entitled to any "dissenters'
rights" because the proposed Transactions involve open-end investment
companies registered under the 1940 Act (commonly called mutual funds). In
addition, the Trusts' Declarations of Trust expressly preclude shareholders,
as a matter of right, to relief as dissenting shareholders in respect to any
proposal or action involving the Trust or any Fund thereof. Although no
dissenters' rights may be available, you have the right to redeem your shares
at NAV until the closing date. After the closing date, you may redeem your
Federal Fund shares or exchange them for shares of other Franklin Templeton
Funds. Redemptions are subject to the terms in the prospectus of the
respective Fund.
PRINCIPAL HOLDERS OF SHARES
As of the Record Date, the officers and trustees of the California Trust,
as a group, owned of record and beneficially [less than 1%] of the
outstanding voting shares of the California Fund, and the officers of
trustees of the New York Trust, as a group, owned or record and beneficially
[less than 1%] of the outstanding voting shares of the New York Fund. In
addition, the officers and trustees of Tax-Free Trust, as a group, owned of
record and beneficially [less than 1%] of the outstanding voting shares of
the Federal Fund as of the Record Date.
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. To the knowledge of each Fund, except as listed below, no
other person owned (beneficially or of record) 5% or more of the outstanding
shares of the Federal Fund, and the Class A shares of the California Fund or
the New York Fund as of the Record Date.
NAME AND ADDRESS PERCENTAGE
(%)
------------------------------------------------------------
CALIFORNIA FUND:
NEW YORK FUND:
FEDERAL FUND:
[Upon completion of the Transactions, it is not expected that those persons
disclosed above as owning 5% or more of the Target Funds' outstanding Class A
shares will own in excess of 5% of the then outstanding Federal Fund shares.
It is expected that the percentage ownership of the Federal Fund by those
persons listed above will materially change as a result of the Transactions.]
SHAREHOLDERS PROPOSALS
The Target Funds Trusts are not required and do not intend to hold regular
annual meetings of shareholders. A shareholder who wishes to submit a
proposal for consideration for inclusion in a Target Funds Trust's proxy
statement for the next meeting of shareholders should send his or her written
proposal to that Target Funds Trust's offices at One Franklin Parkway, San
Mateo, California 94403-1906, Attention: Secretary, so that it is received
within a reasonable time before the Target Funds print and send their proxy
materials. The inclusion and/or presentation of any such proposal is subject
to the applicable requirements of the proxy rules under the Securities
Exchange Act of 1934. A shareholder proposal may be presented at a meeting
of shareholders only if such proposal concerns a matter that may be properly
brought before the meeting under applicable federal proxy rules, state law,
and other governing instruments.
Submission of a proposal by a shareholder does not guarantee that the
proposal will be included in a Target Funds Trust's proxy statement or
presented at the meeting.
ADJOURNMENT
The holders of a majority of the shares present (in person or by proxy)
and entitled to vote at the Meeting, whether or not a quorum is present, or
the chairperson of the Board, the president of the applicable Target Funds
Trust, in the absence of the chairperson of the Board, or any vice president
or other authorized officer of the applicable Target Funds Trust, in the
absence of the president, may adjourn the Meeting. Such authority to adjourn
the Meeting may be used for any reason whatsoever, including allowing for the
further solicitation of proxies. The persons designated as proxies may use
their discretionary authority to vote as instructed by management of the
Target Funds Trust on questions of adjournment.
By Order of the Boards of Trustees,
Karen L. Skidmore SECRETARY
September [__], 2008
GLOSSARY
USEFUL TERMS AND DEFINITIONS
AFFIRMATIVE MAJORITY VOTE-- the affirmative vote of the lesser of: (i) a
majority of the outstanding shares of a Target Fund, or (ii) 67% or more of
the outstanding shares of a Target Fund present at or represented by proxy
at the Meeting if the holders of more than 50% of the outstanding shares of
such Target Fund are present or represented by proxy.
1940 ACT--Investment Company Act of 1940, as amended
DISTRIBUTORS--Franklin Templeton Distributors, Inc., One Franklin Parkway,
San Mateo, CA 94403-1906, the principal underwriter for the Funds.
FAI--Franklin Advisers, Inc., One Franklin Parkway, San Mateo, CA
94403-1906, the investment manager for the Federal Fund and the Target Funds.
FRANKLIN TEMPLETON FUNDS--The U.S. registered mutual funds in Franklin
Templeton Investments except Franklin Templeton Variable Insurance Products
Trust and Franklin Mutual Recovery Fund.
FRANKLIN TEMPLETON INVESTMENTS-- Resources is a publicly owned global
investment management organization operating as Franklin Templeton
Investments. Franklin Templeton Investments provides global and domestic
investment management services through its Franklin, Templeton, Mutual Series
and Fiduciary Trust subsidiaries.
FT SERVICES--Franklin Templeton Services, LLC, One Franklin Parkway, San
Mateo, CA 94403-1906, the administrator for the Funds. FT Services is an
indirect, wholly owned subsidiary of Resources and is an affiliate to each
Fund's investment manager and principal underwriter.
INVESTOR SERVICES--Franklin Templeton Investor Services, LLC, 3344 Quality
Drive, Rancho Cordova, CA 95670-7313, the shareholder servicing, transfer
agent and dividend-paying agent for the Funds.
NET ASSET VALUE (NAV)--The value of a mutual fund is determined by deducting
a fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
RESOURCES--Franklin Resources, Inc., One Franklin Parkway, San Mateo, CA
94403-1906.
SAI--Statement of Additional Information
SEC--U.S. Securities and Exchange Commission
SECURITIES DEALER--A financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer
orders and accounts with the Funds. This reference is for convenience only
and does not indicate a legal conclusion of capacity.
U.S.--United States
EXHIBITS TO PROSPECTUS/PROXY STATEMENT
EXHIBIT
A. Form of Agreement and Plan of Reorganization by and between Franklin
Tax-Free Trust, on behalf of Franklin Federal Limited-Term Tax-Free
Income Fund, and Franklin [California][New York] Tax-Free Trust, on
behalf of Franklin [California][New York] Limited-Term Tax-Free Income
Fund (attached)
B. Prospectus of Franklin Federal Limited-Term Tax-Free Income Fund, dated
July 1, 2008, as amended to date (enclosed)
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan"), is made as of this
__ day of _______, 2008, by and between Franklin Tax-Free Trust, a statutory
trust created under the laws of the State of Delaware ("Tax-Free Trust"),
with its principal place of business at One Franklin Parkway, San Mateo, CA
94403-1906, on behalf of its series, Franklin Federal Limited-Term Tax-Free
Income Fund ("Acquiring Fund"), and Franklin [California] [New York] Tax-Free
Trust, a statutory trust created under the laws of the State of Delaware
("Target Trust"), with its principal place of business at One Franklin
Parkway, San Mateo, CA 94403-1906, on behalf of its series, Franklin
[California][New York] Limited-Term Tax-Free Income Fund ("Target Fund").
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by Tax-Free Trust, on
behalf of Acquiring Fund, of substantially all of the property, assets and
goodwill of Target Fund in exchange solely for full and fractional common
shares, with no par value, of Acquiring Fund ("Acquiring Fund Shares");
(ii) the distribution of Acquiring Fund Shares to the holders of Class A
shares of Target Fund (the "Target Fund Shares") according to their
respective interests in Target Fund in complete liquidation of Target Fund;
and (iii) the dissolution of Target Fund as soon as is practicable after the
closing (as defined in Section 3, hereinafter called the "Closing"), all upon
and subject to the terms and conditions of the Plan hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in consideration of
the premises and of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto covenant and agree as
follows:
1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND DISSOLUTION OF TARGET FUND.
(a) Subject to the terms and conditions of the Plan, and in reliance on
the representations and warranties of Tax-Free Trust, on behalf of Acquiring
Fund, herein contained, and in consideration of the delivery by Tax-Free
Trust of the number of Acquiring Fund Shares hereinafter provided, Target
Trust on behalf of Target Fund agrees that it will convey, transfer and
deliver to Tax-Free Trust, for the benefit of Acquiring Fund, at the Closing
all of Target Fund's then existing assets, free and clear of all liens,
encumbrances, and claims whatsoever (other than shareholders' rights of
redemption), except for cash, bank deposits, or cash equivalent securities in
an estimated amount necessary to: (i) pay 25% of the costs and expenses of
carrying out the Plan (including, but not limited to, fees of counsel and
accountants, and expenses of its liquidation and dissolution contemplated
hereunder), in accordance with Section 9 of the Plan, which costs and
expenses shall be established on Target Fund's books as liability reserves;
(ii) discharge its unpaid liabilities on its books at the closing date (as
defined in Section 3, hereinafter called the "Closing Date"), including, but
not limited to, its income dividends and capital gains distributions, if any,
payable for the period prior to, and through, the Closing Date; and (iii) pay
such contingent liabilities as the Board of Trustees of Target Trust shall
reasonably deem to exist against Target Fund, if any, at the Closing Date,
for which contingent and other appropriate liability reserves shall be
established on Target Fund's books (hereinafter "Net Assets"). Neither
Tax-Free Trust nor Acquiring Fund shall assume any liability of Target Fund
or Target Trust, and Target Fund shall use its reasonable best efforts to
discharge all of its known liabilities, so far as may be possible, from the
cash, bank deposits and cash equivalent securities described above.
(b) Subject to the terms and conditions of the Plan, and in reliance on
the representations and warranties of Target Trust, on behalf of Target Fund,
herein contained, and in consideration of such sale, conveyance, transfer,
and delivery, Tax-Free Trust agrees at the Closing to deliver to Target Trust
the number of Acquiring Fund Shares, determined by dividing the net asset
value per share of each Class A share of Target Fund by the net asset value
per share of each share of Acquiring Fund, and multiplying the result thereof
by the number of outstanding Class A shares of Target Fund, as of 1:00 p.m.,
Pacific Time, on the Closing Date. Acquiring Fund Shares delivered to Target
Trust at the Closing shall have an aggregate net asset value equal to the
value of Target Fund's Net Assets, all determined as provided in Section 2 of
the Plan and as of the date and time specified herein.
(c) Immediately following the Closing, Target Trust shall dissolve Target
Fund and distribute pro rata to Target Fund's shareholders of record as of
the close of business on the Closing Date, Acquiring Fund Shares received by
Target Fund pursuant to this Section 1. Such dissolution and distribution
shall be accomplished by the establishment of accounts on the share records
of Acquiring Fund in the amounts due such shareholders based on their
respective holdings as of the close of business on the Closing Date.
Fractional Acquiring Fund Shares shall be carried to the third decimal
place. Certificates for Acquiring Fund Shares shall not be issued, unless
specifically requested by the shareholders.
(d) At the Closing, each shareholder of record of Target Fund as of the
record date (the "Distribution Record Date") with respect to any unpaid
dividends and other distributions that were declared prior to the Closing,
including any dividend or distribution declared pursuant to Section 8(e)
hereof, shall have the right to receive such unpaid dividends and
distributions with respect to the shares of Target Fund that such person had
on the Distribution Record Date.
(e) All books and records relating to Target Fund, including all books and
records required to be maintained under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the rules and regulations thereunder, shall
be available to Tax-Free Trust from and after the date of the Plan, and shall
be turned over to Tax-Free Trust on or prior to the Closing.
2. VALUATION.
(a) The net asset value of Acquiring Fund Shares and Target Fund Shares
and the value of Target Fund's Net Assets to be acquired by Acquiring Fund
hereunder shall in each case be computed as of 1:00 p.m., Pacific Time, on
the Closing Date, unless on such date: (a) the New York Stock Exchange
("NYSE") is not open for unrestricted trading; or (b) the reporting of trading
on the NYSE is disrupted; or (c) any other extraordinary financial event or
market condition occurs (all such events described in (a), (b) or (c) are
each referred to as a "Market Disruption"). The net asset value per share of
Acquiring Fund Shares and Target Fund Shares and the value of Target Fund's
Net Assets shall be computed in accordance with the valuation procedures set
forth in the most recent respective prospectuses of Acquiring Fund and Target
Fund, or amendments thereto.
(b) In the event of a Market Disruption on the proposed Closing Date, so
that an accurate appraisal of the net asset value of Acquiring Fund Shares or
Target Fund Shares or the value of Target Fund's Net Assets is impracticable,
the Closing Date shall be postponed until the first business day when regular
trading on the NYSE shall have been fully resumed and reporting shall have
been restored and other trading markets are otherwise stabilized.
3. CLOSING AND CLOSING DATE.
The Closing Date shall be ______ __, 2008 or such later date as the
parties may mutually agree. The Closing shall take place at the principal
office of Tax-Free Trust at 2:00 p.m., Pacific Time, on the Closing Date.
Target Trust on behalf of Target Fund shall have provided for delivery as of
the Closing of those Net Assets of Target Fund to be transferred to the
account of Acquiring Fund's Custodian, Bank of New York, Mutual Funds
Division, 100 Church Street, New York, NY 10286. Also, Target Trust, on
behalf of Target Fund, shall deliver at the Closing a list of names and
addresses of the shareholders of record of Target Fund Shares as of the
Distribution Record Date and the number of full and fractional shares of
beneficial interest owned by each such shareholder as of 1:00 p.m., Pacific
Time, on the Closing Date, certified by its transfer agent or by its
President to the best of its or his knowledge and belief. Tax-Free Trust on
behalf of Acquiring Fund shall provide evidence satisfactory to Target Trust
that such Acquiring Fund Shares have been registered in an account on the
books of Acquiring Fund in such manner as the officers of Target Trust on
behalf of Target Fund may reasonably request.
4. REPRESENTATIONS AND WARRANTIES BY TAX-FREE TRUST ON BEHALF OF ACQUIRING
FUND.
Tax-Free Trust, on behalf of Acquiring Fund, represents and warrants to
Target Trust that:
(a) Acquiring Fund is a series of Tax-Free Trust, a statutory trust
organized originally as a Massachusetts business trust in September 1984 and
converted into a Delaware statutory trust effective July 1, 2007. Tax-Free
Trust is duly registered under the 1940 Act as an open-end, management
investment company and all of Acquiring Fund Shares sold were sold pursuant
to an effective registration statement filed under the Securities Act of
1933, as amended (the "1933 Act"), except for those shares sold pursuant to
the private offering exemption for the purpose of raising initial capital.
(b) Tax-Free Trust is authorized to issue an unlimited number shares of
beneficial interest, without par value, of Acquiring Fund, each outstanding
share of which is, and each share of which when issued pursuant to and in
accordance with the Plan will be, fully paid, non-assessable, and has or will
have full voting rights. Tax-Free Trust currently issues shares of
twenty-five (25) series, including Acquiring Fund. Acquiring Fund issues one
class of shares. No shareholder of Tax-Free Trust shall have any preemptive
or other right to subscribe for Acquiring Fund Shares.
(c) The financial statements appearing in Acquiring Fund's Annual Report
to Shareholders for the fiscal year ended February 29, 2008, audited by
PricewaterhouseCoopers LLP, copies of which have been delivered to Target
Trust, and any interim unaudited financial statements, copies of which may be
furnished to Target Trust, fairly present the financial position of Acquiring
Fund as of their respective dates and the results of Acquiring Fund's
operations for the period indicated in conformity with Generally Accepted
Accounting Principles applied on a consistent basis.
(d) The books and records of Acquiring Fund accurately summarize the
accounting data represented and contain no material omissions with respect to
the business and operations of Acquiring Fund.
(e) Tax-Free Trust, on behalf of Acquiring Fund, is not a party to or
obligated under any provision of its Agreement and Declaration of Trust or
By-laws, or any contract or any other commitment or obligation and is not
subject to any order or decree that would be violated by its execution of or
performance under the Plan, and no consent, approval, authorization or order
of any court or governmental authority is required for the consummation by
Acquiring Fund or Tax-Free Trust of the transactions contemplated by the
Plan, except for the registration of Acquiring Fund Shares under the 1933
Act, the 1940 Act, or as may otherwise be required under the federal and
state securities laws or the rules and regulations thereunder.
(f) Tax-Free Trust has elected to treat Acquiring Fund as a regulated
investment company ("RIC") for federal income tax purposes under Part I of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a "fund" as defined in Section 851(g)(2) of the Code, has
qualified as a RIC for each taxable year since its inception, and intends to
continue to qualify as a RIC as of the Closing Date, and consummation of the
transactions contemplated by the Plan will not cause it to fail to be
qualified as a RIC as of the Closing Date.
(g) Acquiring Fund is not under jurisdiction of a Court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(h) Acquiring Fund does not have any unamortized or unpaid organizational
fees or expenses.
(i) Acquiring Fund does not have any known liabilities, costs or expenses
of a material amount, contingent or otherwise, other than those incurred in
the ordinary course of business as an investment company.
(j) There is no intercorporate indebtedness existing between Target Fund
and Acquiring Fund that was issued, acquired, or will be settled at a
discount.
(k) Acquiring Fund does not own, directly or indirectly, nor has it owned
during the past five (5) years, directly or indirectly, any shares of Target
Fund.
(l) Tax-Free Trust has no plan or intention to issue additional shares of
Acquiring Fund following the Plan of Reorganization except for shares issued
in the ordinary course of Acquiring Fund's business as a series of an
open-end investment company; nor does Tax-Free Trust have any plan or
intention to redeem or otherwise reacquire any shares of Acquiring Fund
issued pursuant to the Plan of Reorganization, either directly or through any
transaction, agreement, or arrangement with any other person, other than in
the ordinary course of its business or to the extent necessary to comply with
its legal obligation under Section 22(e) of the 1940 Act.
(m) Acquiring Fund is in the same line of business as Target Fund before
the Plan of Reorganization and did not enter into such line of business as
part of the Plan of Reorganization. Acquiring Fund will actively continue
Target Fund's business in substantially the same manner that Target Fund
conducted that business immediately before the Plan of Reorganization and has
no plan or intention to change such business. On the Closing Date, Acquiring
Fund expects that at least 33 (1)/3% of Target Fund's portfolio assets will
meet the investment objectives, strategies, policies, risks and restrictions
of Acquiring Fund. Acquiring Fund has no plan or intention to change any of
its investment objectives, strategies, policies, risks and restrictions after
the Plan of Reorganization. Acquiring Fund has no plan or intention to sell
or otherwise dispose of any of the former assets of Target Fund, except for
dispositions made in the ordinary course of its business or dispositions
necessary to maintain its qualification as a RIC, although in the ordinary
course of its business, Acquiring Fund will continuously review its
investment portfolio (as Target Fund did before the Closing) to determine
whether to retain or dispose of particular stocks or securities, including
those included among the former assets of Target Fund.
(n) The registration statement on Form N-14 referred to in Section 7(g)
hereof (the "Registration Statement"), and any prospectus or statement of
additional information of Acquiring Fund contained or incorporated therein by
reference, and any supplement or amendment to the Registration Statement or
any such prospectus or statement of additional information, on the effective
and clearance dates of the Registration Statement, on the date of the Special
Meeting of Target Fund shareholders, and on the Closing Date: (i) shall
comply in all material respects with the provisions of the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act,
the rules and regulations thereunder, and all applicable state securities
laws and the rules and regulations thereunder; and (ii) shall not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which the statements were made, not
misleading.
5. REPRESENTATIONS AND WARRANTIES BY TARGET TRUST ON BEHALF OF TARGET FUND.
Target Trust, on behalf of Target Fund, represents and warrants to
Tax-Free Trust that:
(a) Target Fund is a series of Target Trust, a statutory trust organized
originally as a Massachusetts business trust in [CA: July 1985] [NY: July
1986], and reorganized into a Delaware statutory trust effective [CA:
November 1, 2007][NY: February 1, 2008]. Target Trust is duly registered
under the 1940 Act as an open-end, management investment company and all of
Target Trust's Target Fund Shares sold were sold pursuant to an effective
registration statement filed under the 1933 Act, except for those shares sold
pursuant to the private offering exemption for the purpose of raising the
required initial capital.
(b) Target Trust is authorized to issue an unlimited number of shares of
beneficial interest, without par value, of Target Fund, each outstanding
share of which is fully paid, non-assessable, and has full voting rights.
Target Trust issues shares of four (4) series, including Target Fund. Target
Fund has one class of shares (Class A) and an unlimited number of shares of
beneficial interest of Target Trust have been allocated and designated to
Class A of Target Fund. No shareholder of Target Trust has or will have any
option, warrant, or preemptive rights of subscription or purchase with
respect to Target Fund Shares.
(c) The financial statements appearing in Target Fund's Annual Report to
Shareholders for the fiscal year ended [CA: June 30, 2007] [NY: September 30,
2007], audited by PricewaterhouseCoopers LLP, and unaudited Semi-Annual Report
to Shareholders for the period ended [CA: December 31, 2007] [NY: March 31,
2008], copies of which have been delivered to Tax-Free Trust, and any interim
financial statements for Target Fund that may be furnished to Tax-Free Trust,
fairly present the financial position of Target Fund as of their respective
dates and the results of Target Fund's operations for the period indicated in
conformity with generally accepted accounting principles applied on a
consistent basis.
(d) Target Trust, on behalf of Target Fund, is not a party to or obligated
under any provision of its Agreement and Declaration of Trust or Bylaws, as
amended, or any contract or any other commitment or obligation, and is not
subject to any order or decree, that would be violated by its execution of or
performance under the Plan. Target Fund has no material contracts or other
commitments (other than the Plan or agreements for the purchase of securities
entered into in the ordinary course of business and consistent with its
obligations under the Plan) which will not be terminated by Target Fund in
accordance with their terms at or prior to the Closing Date, or which will
result in a penalty or additional fee to be due or payable by Target Fund.
(e) Target Trust has elected to treat Target Fund as a RIC for federal
income tax purposes under Part I of Subchapter M of the Code. Target Fund is
a "fund" as defined in Section 851(g)(2) of the Code, has qualified as a RIC
for each taxable year since its inception, and will qualify as a RIC as of
the Closing Date, and consummation of the transactions contemplated by the
Plan will not cause it to fail to be qualified as a RIC as of the Closing
Date.
(f) Target Fund is not under jurisdiction of a Court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(g) Target Fund does not have any unamortized or unpaid organization fees
or expenses.
(h) Target Fund does not have any known liabilities, costs or expenses of
a material amount, contingent or otherwise, other than those reflected in the
financial statements referred to in Section 5(c) hereof and those incurred in
the ordinary course of business as an investment company and of a nature and
amount similar to, and consistent with, those shown in such financial
statements since the dates of those financial statements.
(i) Since [CA: December 31, 2007] [NY: March 31, 2008], there has not been
any material adverse change in Target Fund's financial condition, assets,
liabilities, or business other than changes occurring in the ordinary course
of its business.
(j) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Target Fund or
Target Trust of the transactions contemplated by the Plan, except the
necessary Target Fund shareholder approval, or as may otherwise be required
under the federal or state securities laws or the rules and regulations
thereunder.
(k) There is no intercorporate indebtedness existing between Target Fund
and Acquiring Fund that was issued, acquired, or will be settled at a
discount.
(l) During the five-year period ending on the Closing Date, (i) Target
Fund has not acquired, and will not acquire, Target Fund Shares with
consideration other than Acquiring Fund Shares or Target Fund Shares, except
for redemptions in the ordinary course of Target Fund's business or to the
extent necessary to comply with its legal obligation under Section 22(e) of
the 1940 Act, and (ii) no distributions have been made with respect to Target
Fund Shares (other than regular, normal dividend distributions made pursuant
to Target Fund's historic dividend paying practice), either directly or
through any transaction, agreement, or arrangement with any other person,
except for distributions described in Sections 852 and 4982 of the Code.
(m) As of the Closing Date, Target Fund will not have outstanding any
warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire shares of Target Fund, except for
the right of investors to acquire its shares at the applicable stated
offering price in the normal course of its business as an open-end management
investment company operating under the 1940 Act.
(n) Throughout the five year period ending on the Closing Date, Target
Fund will have conducted its historic business within the meaning of
Section 1.368-1(d) of the Income Tax Regulations under the Code. Target Fund
did not enter into (or expand) a line of business as part of the Plan of
Reorganization. Target Fund will not alter its investment portfolio in
connection with the Plan of Reorganization.
6. REPRESENTATIONS AND WARRANTIES BY TARGET TRUST AND TAX-FREE TRUST.
Target Trust, on behalf of Target Fund, and Tax-Free Trust, on behalf of
Acquiring Fund, each represents and warrants to the other that:
(a) The statement of assets and liabilities to be furnished by it as of
1:00 p.m., Pacific Time, on the Closing Date for the purpose of determining
the number of Acquiring Fund Shares to be issued pursuant to Section 1 of the
Plan, will accurately reflect Target Fund's Net Assets and outstanding
shares, as of such date, in conformity with generally accepted accounting
principles applied on a consistent basis.
(b) At the Closing, it will have good and marketable title to all of the
securities and other assets shown on the statement of assets and liabilities
referred to in (a) above, free and clear of all liens or encumbrances of any
nature whatsoever, except such imperfections of title or encumbrances as do
not materially detract from the value or use of the assets subject thereto,
or materially affect title thereto.
(c) Except as disclosed in its currently effective prospectus relating to
Target Fund, in the case of Target Trust, and Acquiring Fund, in the case of
Tax-Free Trust, there is no material suit, judicial action, or legal or
administrative proceeding pending or threatened against it. Neither Tax-Free
Trust nor Target Trust is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially
and adversely affects Acquiring Fund's or Target Fund's business or their
ability to consummate the transactions herein contemplated.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.
(e) The execution, delivery, and performance of the Plan have been duly
authorized by all necessary action of its Board of Trustees and the Plan,
subject to the approval of Target Fund's shareholders in the case of Target
Trust, constitutes a valid and binding obligation enforceable in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization arrangement, moratorium, and other similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(f) It anticipates that consummation of the Plan will not cause either
Target Fund, in the case of Target Trust, or Acquiring Fund, in the case of
Tax-Free Trust, to fail to conform to the requirements of Subchapter M of the
Code for federal income taxation qualification as a RIC at the end their
respective fiscal years.
7. COVENANTS OF TARGET TRUST AND TAX-FREE TRUST.
(a) Target Trust, on behalf of Target Fund, and Tax-Free Trust, on behalf
of Acquiring Fund, each covenants to operate its respective business as
presently conducted between the date hereof and the Closing, it being
understood that such ordinary course of business will include the
distribution of customary dividends and distributions and any other
distribution necessary or desirable to minimize federal income or excise
taxes.
(b) Target Trust, on behalf of Target Fund, undertakes that it will not
acquire Acquiring Fund Shares for the purpose of making distributions thereof
to anyone other than Target Fund's shareholders.
(c) Target Trust, on behalf of Target Fund, undertakes that, if the Plan
is consummated, it will liquidate and dissolve Target Fund.
(d) Target Trust, on behalf of Target Fund, and Tax-Free Trust, on behalf
of Acquiring Fund, each agree that, by the Closing, all of their federal and
other tax returns and reports required by law to be filed on or before such
date shall have been filed, and all federal and other taxes shown as due on
said returns shall have either been paid or adequate liability reserves shall
have been provided for the payment of such taxes, and to the best of their
knowledge no such tax return is currently under audit and no tax deficiency
or liability has been asserted with respect to such tax returns or reports by
the Internal Revenue Service or any state or local tax authority.
(e) At the Closing, Target Trust, on behalf of Target Fund, will provide
Acquiring Fund with a copy of the shareholder ledger accounts, certified by
Target Fund's transfer agent or its President to the best of its or his
knowledge and belief, for all the shareholders of record of Target Fund
Shares as of 1:00 p.m., Pacific Time, on the Closing Date who are to become
shareholders of Acquiring Fund as a result of the transfer of assets that is
the subject of the Plan.
(f) The Board of Target Trust shall call and Target Trust shall hold, a
Special Meeting of Target Fund's shareholders to consider and vote upon the
Plan (the "Special Meeting") and Target Trust shall take all other actions
reasonably necessary to obtain approval of the transactions contemplated
herein. Target Trust agrees to mail to each shareholder of record of Target
Fund entitled to vote at the Special Meeting at which action on the Plan is
to be considered, in sufficient time to comply with requirements as to notice
thereof, a combined Prospectus/Proxy Statement that complies in all material
respects with the applicable provisions of the 1933 Act, Section 14(a) of the
1934 Act and Section 20(a) of the 1940 Act, and the rules and regulations
thereunder.
(g) Tax-Free Trust [has filed/will file] the Registration Statement with
the SEC and will use its best efforts to provide that the Registration
Statement becomes effective as promptly as is practicable. At the time it
becomes effective, the Registration Statement will: (i) comply in all
material respects with the applicable provisions of the 1933 Act and the
rules and regulations promulgated thereunder; and (ii) not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
At the time the Registration Statement becomes effective, at the time of the
Special Meeting, and at the Closing Date, the prospectus and statement of
additional information included in the Registration Statement will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(h) Subject to the provisions of the Plan, Tax-Free Trust and Target Trust
each shall take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate the
transactions contemplated by the Plan.
(i) Target Trust shall deliver to Tax-Free Trust at the Closing Date
confirmation or other adequate evidence as to the tax costs and holding
periods of the assets and property of Target Fund transferred to Tax-Free
Trust in accordance with the terms of the Plan.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY TARGET TRUST AND TAX-FREE TRUST.
The consummation of the Plan hereunder shall be subject to the following
respective conditions:
(a) That: (i) all the representations and warranties of the other party
contained herein shall be true and correct as of the Closing with the same
effect as though made as of and at such date; (ii) the other party shall have
performed all obligations required by the Plan to be performed by it prior to
the Closing; and (iii) the other party shall have delivered to such party a
certificate signed by the President and by the Secretary or equivalent
officer to the foregoing effect.
(b) That each party shall have delivered to the other party a copy of the
resolutions approving the Plan adopted and approved by the appropriate action
of the Board of Trustees certified by its Secretary or equivalent officer of
each of the Funds.
(c) That the SEC shall have declared effective the Registration Statement
and not have issued an unfavorable management report under Section 25(b) of
the 1940 Act or instituted or threatened to institute any proceeding seeking
to enjoin consummation of the Plan under Section 25(c) of the 1940 Act. And,
further, no other legal, administrative or other proceeding shall have been
instituted or threatened that would materially affect the financial condition
of either party or would prohibit the transactions contemplated hereby.
(d) That the Plan and the Plan of Reorganization contemplated hereby shall
have been adopted and approved by the appropriate action of the shareholders
of Target Fund at a meeting or any adjournment thereof.
(e) That a distribution or distributions shall have been declared for
Target Fund prior to the Closing Date that, together with all previous
distributions, shall have the effect of distributing to its shareholders:
(i) all of its ordinary income and all of its capital gain net income, if any,
for the period from the close of its last fiscal year to 1:00 p.m., Pacific
Time, on the Closing Date; and (ii) any undistributed ordinary income and
capital gain net income from any prior period to the extent not otherwise
declared for distribution. Capital gain net income has the meaning given such
term by Section 1222(9) of the Code.
(f) That all required consents of other parties and all other consents,
orders, and permits of federal, state and local authorities (including those
of the SEC and of state Blue Sky securities authorities, including any
necessary "no-action" positions or exemptive orders from such federal and
state authorities) to permit consummation of the transaction contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of material adverse effect
on the assets and properties of Target Fund or Acquiring Fund.
(g) That there shall be delivered to Target Trust, on behalf of Target
Fund, and Tax-Free Trust, on behalf of Acquiring Fund, an opinion in form and
substance satisfactory to them from the law firm of Stradley Ronon Stevens &
Young, LLP, counsel to Tax-Free Trust and Target Trust, to the effect that,
provided the transaction contemplated hereby is carried out in accordance
with the Plan, the laws of the State of Delaware, and based upon certificates
of the officers of Target Trust and Tax-Free Trust with regard to matters of
fact:
(1) The acquisition by Acquiring Fund of substantially all the assets
of Target Fund, as provided for herein, in exchange for Acquiring Fund
Shares followed by the distribution by Target Fund to its shareholders of
Acquiring Fund Shares in complete liquidation of Target Fund will qualify
as a reorganization within the meaning of Section 368(a)(1) of the Code,
and Target Fund and Acquiring Fund will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Target Fund upon the
transfer of substantially all of its assets to Acquiring Fund in exchange
solely for voting shares of Acquiring Fund (Sections 361(a) and 357(a) of
the Code);
(3) Acquiring Fund will recognize no gain or loss upon the receipt of
substantially all of the assets of Target Fund in exchange solely for
voting shares of Acquiring Fund (Section 1032(a) of the Code);
(4) No gain or loss will be recognized by Target Fund upon the
distribution of Acquiring Fund Shares to its shareholders in liquidation
of Target Fund, in pursuance of the Plan (Section 361(c)(1) of the Code);
(5) The basis of the assets of Target Fund received by Acquiring Fund
will be the same as the basis of such assets to Target Fund immediately
prior to the Plan of Reorganization (Section 362(b) of the Code);
(6) The holding period of the assets of Target Fund received by
Acquiring Fund will include the period during which such assets were held
by Target Fund (Section 1223(2) of the Code);
(7) No gain or loss will be recognized by the shareholders of Target
Fund upon the exchange of their shares in Target Fund for voting shares of
Acquiring Fund including fractional shares to which they may be entitled
(Section 354(a) of the Code);
(8) The basis of Acquiring Fund Shares received by the shareholders of
Target Fund shall be the same as the basis of Target Fund Shares exchanged
therefor (Section 358(a)(1) of the Code);
(9) The holding period of Acquiring Fund Shares received by
shareholders of Target Fund (including fractional shares to which they may
be entitled) will include the holding period of Target Fund Shares
surrendered in exchange therefor, provided that Target Fund Shares were
held as a capital asset on the effective date of the exchange (Section
1223(1) of the Code); and
(10) Acquiring Fund will succeed to and take into account as of the
date of the transfer (as defined in Section 1.381(b)-1(b) of the
regulations issued by the United States Treasury ("Treasury Regulations"))
the items of Target Fund described in Section 381(c) of the Code, subject
to the conditions and limitations specified in Sections 381, 382, 383 and
384 of the Code and the Treasury Regulations.
(h) That there shall be delivered to Tax-Free Trust, on behalf of
Acquiring Fund, an opinion in form and substance satisfactory to it from
Stradley Ronon Stevens & Young, LLP, counsel to Target Trust, on behalf of
Target Fund, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
and other laws now or hereafter affecting generally the enforcement of
creditors' rights:
(1) Target Fund is a series of Target Trust and that Target Trust is a
validly existing statutory trust in good standing under the laws of the
State of Delaware;
(2) Target Trust is an open-end investment company of the management
type registered as such under the 1940 Act;
(3) The execution and delivery of the Plan and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary trust action on the part of Target Trust on behalf of Target
Fund; and
(4) The Plan is the legal, valid and binding obligation of Target
Trust, on behalf of Target Fund, and is enforceable against Target Trust,
on behalf of Target Fund, in accordance with its terms.
In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of Target Trust with regard to
matters of fact, and certain certifications and written statements of
governmental officials with respect to the good standing of Target Trust.
(i) That there shall be delivered to Target Trust, on behalf of Target
Fund, an opinion in form and substance satisfactory to it from the law firm
of Stradley Ronon Stevens & Young, LLP, counsel to Tax-Free Trust, on behalf
of Acquiring Fund, to the effect that, subject in all respects to the effects
of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
and other laws now or hereafter affecting generally the enforcement of
creditors' rights:
(1) Acquiring Fund is a series of Tax-Free Trust and Tax-Free Trust is
a validly existing statutory trust in good standing under the laws of the
State of Delaware;
(2) Tax-Free Trust is authorized to issue an unlimited number of
shares of beneficial interest, without par value, of Acquiring Fund;
(3) Tax-Free Trust is an open-end investment company of the management
type registered as such under the 1940 Act;
(4) Acquiring Fund Shares to be issued pursuant to the terms of the
Plan have been duly authorized and, when issued and delivered as provided
in the Plan and the Registration Statement, will have been validly issued
and fully paid and will be non-assessable by Tax-Free Trust, on behalf of
Acquiring Fund;
(5) The execution and delivery of the Plan and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Tax-Free Trust, on behalf of
Acquiring Fund;
(6) The Plan is the legal, valid and binding obligation of Tax-Free
Trust, on behalf of Acquiring Fund, and is enforceable against Tax-Free
Trust, on behalf of Acquiring Fund, in accordance with its terms; and
(7) The registration statement of Tax-Free Trust, of which the
prospectus dated November 1, 2007 of Acquiring Fund is a part (the
"Prospectus"), is, at the time of the signing of the Plan, effective under
the 1933 Act, and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of such registration statement has been
issued, and no proceedings for such purpose have been instituted or are
pending before or threatened by the SEC under the 1933 Act.
In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of Tax-Free Trust with regard to
matters of fact, and certain certifications and written statements of
governmental officials with respect to the good standing of Tax-Free Trust,
and an opinion of local Delaware counsel as to matters of Delaware law.
(j) That Tax-Free Trust's prospectus contained in the Registration
Statement with respect to Acquiring Fund Shares to be delivered to Target
Fund's shareholders in accordance with the Plan shall have become effective,
and no stop order suspending the effectiveness of the Registration Statement
or any amendment or supplement thereto shall have been issued prior to the
Closing Date or shall be in effect at Closing, and no proceedings for the
issuance of such an order shall be pending or threatened on that date.
(k) That Acquiring Fund Shares to be delivered hereunder shall be eligible
for sale with each state commission or agency with which such eligibility is
required in order to permit Acquiring Fund Shares lawfully to be delivered to
each holder of Target Fund Shares.
(l) That, at the Closing, there shall be transferred to Tax-Free Trust, on
behalf of Acquiring Fund, aggregate Net Assets of Target Fund comprising at
least 90% in fair market value of the total net assets and 70% of the fair
market value of the total gross assets recorded on the books of Target Fund
on the Closing Date.
(m) That there be delivered to Tax-Free Trust, on behalf of Acquiring
Fund, information concerning the tax basis of Target Fund in all securities
transferred to Acquiring Fund, together with shareholder information
including: the names, addresses, and taxpayer identification numbers of the
shareholders of Target Fund as of the Closing Date; the number of shares held
by each shareholder; the dividend reinvestment elections applicable to each
shareholder; and the backup withholding and nonresident alien withholding
certifications, notices or records on file with Target Fund with respect to
each shareholder.
9. EXPENSES.
The expenses of entering into and carrying out the provisions of the Plan
shall be borne as follows: each of Target Trust, on behalf of Target Fund,
and Tax-Free Trust, on behalf of Acquiring Fund, will pay 25% of the costs of
the Plan of Reorganization, and Franklin Advisers, Inc., the investment
manager for both Acquiring Fund and Target Fund, will pay 50% of the costs of
the Plan of Reorganization.
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in the Plan to the contrary notwithstanding, the
Plan may be terminated and the Plan of Reorganization abandoned at any time
prior (whether before or after approval thereof by the shareholders of Target
Fund) to the Closing, or the Closing may be postponed as follows:
(1) by mutual consent of Target Trust, on behalf of Target Fund, and
Tax-Free Trust, on behalf of Acquiring Fund;
(2) by Tax-Free Trust, on behalf of Acquiring Fund, if any condition
of its obligations set forth in Section 8 has not been fulfilled or waived
and it reasonably appears that such condition or obligation will not or
cannot be met; or
(3) by Target Trust, on behalf of Target Fund, if any conditions of
its obligations set forth in Section 8 has not been fulfilled or waived
and it reasonably appears that such condition or obligation will not or
cannot be met.
(b) If the transactions contemplated by the Plan have not been consummated
by ______, 2009, the Plan shall automatically terminate on that date, unless
a later date is agreed to by both Tax-Free Trust and Target Trust.
(c) In the event of termination of the Plan prior to its consummation,
pursuant to the provisions hereof, the Plan shall become void and have no
further effect, and neither Target Trust, Tax-Free Trust, Target Fund nor
Acquiring Fund, nor their trustees, trustees, officers, or agents or the
shareholders of Target Fund or Acquiring Fund shall have any liability in
respect of the Plan, but all expenses incidental to the preparation and
carrying out of the Plan shall be paid as provided in Section 9 hereof.
(d) At any time prior to the Closing, any of the terms or conditions of
the Plan may be waived by the party who is entitled to the benefit thereof
if, in the judgment of such party, such action or waiver will not have a
material adverse effect on the benefits intended under the Plan to its
shareholders, on behalf of whom such action is taken.
(e) The respective representations and warranties contained in Sections 4
to 6 hereof shall expire with and be terminated by the Plan on the Closing
Date, and neither Target Trust nor Tax-Free Trust, nor any of their officers,
trustees, trustees, agents or shareholders shall have any liability with
respect to such representations or warranties after the Closing Date.
(f) If any order or orders of the SEC with respect to the Plan shall be
issued prior to the Closing and shall impose any terms or conditions that are
determined by action of the Board of Trustees of Target Trust, on behalf of
Target Fund, or the Board of Trustees of Tax-Free Trust, on behalf of
Acquiring Fund, to be acceptable, such terms and conditions shall be binding
as if a part of the Plan without a vote or approval of the shareholders of
Target Fund, unless such terms and conditions shall result in a change in the
method of computing the number of Acquiring Fund Shares to be issued to
Target Fund in which event, unless such terms and conditions shall have been
included in the proxy solicitation material furnished to the shareholders of
Target Fund prior to the meeting at which the transactions contemplated by
the Plan shall have been approved, the Plan shall not be consummated and
shall terminate unless Target Trust shall promptly call a special meeting of
the shareholders of Target Fund at which such conditions so imposed shall be
submitted for approval.
11. LIABILITY OF TAX-FREE TRUST AND TARGET TRUST.
(a) Each party acknowledges and agrees that all obligations of Tax-Free
Trust under the Plan are binding only with respect to Acquiring Fund; that
any liability of Tax-Free Trust under the Plan with respect to Tax-Free
Trust, or in connection with the transactions contemplated herein with respect
to Acquiring Fund, shall be discharged only out of the assets of Acquiring
Fund; that no other series of Tax-Free Trust shall be liable with respect to
the Plan or in connection with the transactions contemplated herein; and that
neither Target Trust nor Target Fund shall seek satisfaction of any such
obligation or liability from the shareholders of Tax-Free Trust, the
trustees, officers, employees or agents of Tax-Free Trust, or any of them.
(b) Each party acknowledges and agrees that all obligations of Target
Trust under the Plan are binding only with respect to Target Fund; that any
liability of Target Trust under the Plan with respect to Target Fund, or in
connection with the transactions contemplated herein with respect to Target
Fund, shall be discharged only out of the assets of Target Fund; that no
other series of Target Trust shall be liable with respect to the Plan or in
connection with the transactions contemplated herein; and that neither
Tax-Free Trust nor Acquiring Fund shall seek satisfaction of any such
obligation or liability from the shareholders of Target Trust, the trustees,
officers, employees or agents of Target Trust, or any of them.
12. ENTIRE AGREEMENT AND AMENDMENTS.
The Plan embodies the entire agreement between the parties and there are
no agreements, understandings, restrictions, or warranties relating to the
transactions contemplated by the Plan other than those set forth herein or
herein provided for. The Plan may be amended only by mutual consent of the
parties in writing. Neither the Plan nor any interest herein may be assigned
without the prior written consent of the other party.
13. COUNTERPARTS.
The Plan may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts together shall
constitute but one instrument.
14. NOTICES.
Any notice, report, or demand required or permitted by any provision of
the Plan shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to Franklin
Federal Limited-Term Tax-Free Income Fund, at Franklin Tax-Free Trust, One
Franklin Parkway, San Mateo, CA 94403-1906, Attention: Secretary, or Franklin
[California][New York] Limited-Term Tax-Free Income Fund, at Franklin
[California][New York] Tax-Free Trust, One Franklin Parkway, San Mateo, CA
94403-1906, Attention: Secretary, as the case may be.
15. GOVERNING LAW.
The Plan shall be governed by and carried out in accordance with the laws
of the State of Delaware.
IN WITNESS WHEREOF, Target Trust, on behalf of Target Fund, and Tax-Free
Trust, on behalf of Acquiring Fund, have each caused the Plan to be executed
on its behalf by its duly authorized officers, all as of the date and year
first-above written.
FRANKLIN TAX FREE TRUST, on behalf
of FRANKLIN FEDERAL LIMITED-TERM
TAX-FREE INCOME FUND
By:
-------------------------------
(Name) (Title)
FRANKLIN [CALIFORNIA][NEW YORK]
TAX-FREE TRUST on behalf of
FRANKLIN [CALIFORNIA][NEW YORK]
LIMITED-TERM TAX-FREE INCOME FUND
By:
-------------------------------
(Name) (Title)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
FRANKLIN NEW YORK LIMITED-TERM TAX-FREE INCOME FUND
OCTOBER 24, 2008
The undersigned hereby revokes all previous proxies for his/her shares and
appoints Craig S. Tyle, David P. Goss and Karen L. Skidmore, and each of
them, proxies of the undersigned with full power of substitution to vote all
shares of Franklin New York Limited-Term Tax-Free Income Fund (the "New York
Fund") that the undersigned is entitled to vote at the New York Fund's
Meeting of Shareholder to be held at One Franklin Parkway, San Mateo,
California 94403-1906, on October 24, 2008 at 2:00 p.m., Pacific Time,
including any adjournments thereof, upon such business as may properly be
brought before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FRANKLIN NEW
YORK TAX-FREE TRUST ("TRUST") ON BEHALF OF THE NEW YORK FUND. It will be
voted as specified. If no specification is made, this proxy shall be voted
FOR the Proposal regarding the reorganization of the New York Fund pursuant
to the Agreement and Plan of Reorganization between the Trust, on behalf of
New York Fund, and Franklin Tax-Free Trust, on behalf of Franklin Federal
Limited-Term Tax-Free Income Fund. If any other matters properly come before
the Meeting to be voted on, the proxy holders will vote, act and consent on
those matters in accordance with the views of management.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL
SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
VOTE VIA THE INTERNET:
WWW.FRANKLINTEMPLETON.COM
VOTE VIA THE TELEPHONE:
[ ]
CONTROL NUMBER:
Note: Please sign exactly as your name
appears on the proxy. If signing for
estates, trusts or corporations, your
title or capacity should be stated. If
shares are held jointly, each holder
must sign.
-----------------------------------
Signature
-----------------------------------
Signature (if held jointly)
-----------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PLEASE DETACH AT PERFORATION BEFORE MAILING.
------------------------------------------------------------------------------
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSAL.
Please mark votes as in this example: [X]
1. To approve an Agreement and Plan of Reorganization between FOR AGAINST ABSTAIN
Franklin New York Tax-Free Trust, on behalf of Franklin New
York Limited-Term Tax-Free Income Fund, and Franklin Tax- [ ] [ ] [ ]
Free Trust, on behalf of Franklin Federal Limited-Term Tax-Free
Income Fund ("Federal Fund"), that provides for (i) the
acquisition of substantially all of the assets of New York Fund by
Federal Fund in exchange solely for shares of Federal Fund, (ii) the
distribution of such shares to the shareholders of New York Fund,
and (iii) the complete liquidation and dissolution of New York Fund.
Shareholders of New York Fund will receive shares of Federal Fund
with an aggregate net asset value equal to the aggregate net asset
value of the shareholders' shares in New York Fund.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE U.S.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
OCTOBER 24, 2008
The undersigned hereby revokes all previous proxies for
his/her shares and appoints Craig S. Tyle, David P. Goss and
Karen L. Skidmore, and each of them, proxies of the
undersigned with full power of substitution to vote all
shares of Franklin California Limited-Term Tax-Free Income
Fund (the "California Fund") that the undersigned is
entitled to vote at the California Fund's Meeting of
Shareholders to be held at One Franklin Parkway, San Mateo,
California 94403-1906, on October 24, 2008 at 2:00 p.m.,
Pacific Time, including any adjournments thereof, upon such
business as may properly be brought before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
OF FRANKLIN CALIFORNIA TAX-FREE TRUST ("TRUST") ON BEHALF OF
THE CALIFORNIA FUND. It will be voted as specified. If no
specification is made, this proxy shall be voted FOR the
Proposal regarding the reorganization of the California Fund
pursuant to the Agreement and Plan of Reorganization between
the Trust, on behalf of California Fund, and Franklin
Tax-Free Trust, on behalf of Franklin Federal Limited-Term
Tax-Free Income Fund. If any other matters properly come
before the Meeting to be voted on, the proxy holders will
vote, act and consent on those matters in accordance with
the views of management.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT
PROMPTLY. THIS WILL SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO
SHAREHOLDERS WHO HAVE NOT RESPONDED.
VOTE VIA THE INTERNET:
WWW.FRANKLINTEMPLETON.COM
VOTE VIA THE TELEPHONE:
[ ]
CONTROL NUMBER:
Note: Please sign
exactly as your name
appears on the proxy. If
signing for estates,
trusts or corporations,
your title or capacity
should be stated. If
shares are held jointly,
each holder must sign.
-----------------------------------
Signature
-----------------------------------
Signature (if held
jointly)
-----------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PLEASE DETACH AT PERFORATION BEFORE MAILING.
-----------------------------------------------------------------------------
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSAL.
Please mark votes as in this example: [X]
FOR AGAINST ABSTAIN
1. To approve an Agreement and Plan of Reorganization [ ] [ ] [ ]
between Franklin California Tax-Free Trust, on behalf of
Franklin California Limited-Term Tax-Free Income Fund, and
Franklin Tax-Free Trust, on behalf of Franklin Federal Limited-Term
Tax-Free Income Fund ("Federal Fund"), that provides for
(i) the acquisition of substantially all of the assets of
California Fund by Federal Fund in exchange solely for shares
of Federal Fund, (ii) the distribution of such shares to the
shareholders of California Fund, and (iii) the complete liquidation
and dissolution of California Fund. Shareholders of California Fund
will receive shares of Federal Fund with an aggregate net asset
value equal to the aggregate net asset value of the shareholders'
shares in California Fund.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE U.S.
STATEMENT OF ADDITIONAL INFORMATION
FOR
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND
A SERIES OF
FRANKLIN TAX-FREE TRUST
DATED SEPTEMBER [__], 2008
Acquisition of Substantially All of the Assets of:
FRANKLIN CALIFORNIA LIMITED-TERM FRANKLIN NEW YORK LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
(a series of Franklin California (a series of Franklin New York
Tax-Free Trust) Tax-Free Trust)
By and in exchange for shares of
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND
(a series of Franklin Tax-Free Trust)
This Statement of Additional Information ("SAI") relates specifically to the
proposed acquisition of substantially all of the assets of Franklin
California Limited-Term Tax-Free Income Fund (the "California Fund") and
Franklin New York Limited-Term Tax-Free Income Fund (the "New York Fund", and
together with the California Fund, the "Target Funds") by and in exchange for
Class A shares of Franklin Federal Limited-Term Tax-Free Income Fund (the
"Federal Fund").
This SAI consists of this Cover Page, the accompanying pro forma financial
statements and related notes, and the following documents, each of which was
filed electronically with the Securities and Exchange Commission and is
incorporated by reference herein (is legally considered to be a part of this
SAI):
1. Statement of Additional Information of the Federal Fund, dated July
1, 2008 as previously filed via EDGAR is incorporated herein by
reference to Franklin Tax-Free Trust filing under Rule 485(b)
[Accession No. 0000757010-08-000030] filed July 1, 2008 and will be
mailed to any Shareholder who requests this SAI.
2. Annual Report of the Federal Fund for the fiscal year ended
February 29, 2008 as previously filed via EDGAR is incorporated
herein by reference to Franklin Tax-Free Trust's N-CSR [Accession
No. 0000757010-08-000011] filed April 30, 2008 and will be mailed
to any Shareholder who requests this SAI.
3. Annual Report of the California Fund for the fiscal year ended June
30, 2008, to be incorporated herein by reference upon filing via
EDGAR to Franklin California Tax-Free Trust's N-CSR, and will be
mailed to any Shareholder who requests this SAI.
4. Annual Report of the New York Fund for the fiscal year ended
September 30, 2007 as previously filed via EDGAR is incorporated
herein by reference to Franklin New York Tax-Free Trust's N-CSR
[Accession No. 0000798523-07-000015] filed November 30, 2007 and
will be mailed to any Shareholder who requests this SAI.
5. Semiannual Report of the New York Fund for the period ended March
31, 2008 as previously filed via EDGAR is incorporated herein by
reference to Franklin New York Tax-Free Trust's N-CSR [Accession
No. 0000798523-08-000010] filed May 28, 2008 and will be mailed to
any Shareholder who requests this SAI.
6. Pro Forma Financial Statements for the Reorganization of the Target
Funds into the Federal Fund.
This SAI is not a prospectus; you should read this SAI in conjunction with
the Prospectus/Proxy Statement dated September [__], 2008, relating to the
above-referenced transactions. You can request a copy of the Prospectus/Proxy
Statement by calling 1-800/DIAL BEN (800/342-5236) or by writing to Franklin
Federal Limited-Term Tax-Free Income Fund, at Franklin Tax-Free Trust, One
Franklin Parkway, San Mateo, CA 94403-1906, Attention: Secretary.
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
FRANKLIN NEW YORK LIMITED-TERM TAX-FREE INCOME FUND
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND
PRO FORMA COMBINING STATEMENTS, February 29, 2008 (UNAUDITED)
The following unaudited Pro Forma Combining Statements give effect to the
proposed reorganizations, accounted as if each reorganization had occurred as of
March 1, 2007. In addition, each Pro Forma Combining Statement has been
prepared based upon the proposed fee and expense structure after the
combination, as discussed in the combined Proxy Statement/Prospectus.
The unaudited Pro Forma Combining Statements should be read in conjunction with
the historical financial statements and notes thereto of the Franklin California
Limited-Term Tax-Free Income Fund, the Franklin New York Limited-Term Tax-Free
Income Fund, and the Franklin Federal Limited-Term Tax-Free Income Fund which
are incorporated by reference in this Statement of Additional Information. The
combinations will be accounted for as tax-free reorganizations.
Franklin California Tax-Free Trust - Franklin California Limited-Term Tax-Free
Income Fund
Franklin New York Tax-Free Trust - Franklin New York Limited-Term Tax-Free
Income Fund
Franklin Tax-Free Trust - Franklin Federal Limited-Term Tax-Free Income Fund Pro
forma combining Statements of Investments, February 29, 2008 (unaudited)
Federal Limited-Term Federal California
Tax-Free Income Fund Tax-Free Income Fund
---------------------- ---------------------
Principal Principal
Amount Value Amount Value
---------- ----------- --------- -----------
Long Term Investments 58.7%
Municipal Bonds 58.7%
Alabama 0.3%
Etowah County Board of Education Special Tax, School
wts., Refunding, FSA Insured, 2.60%, 9/01/08 $ 250,000$ 250,180 $ -- $ --
California 14.4%
Alameda-Contra Costa Transit District COP, FHR Computer
System Project, 4.00%, 8/01/12 580,000 583,712 600,000 603,840
Brea and Olinda USD, GO, Election of 1999, Series A,
FGIC Insured, 2.60%, 8/01/09 120,000 119,380
California Educational Facilities Authority Revenue,
Santa Clara University, Refunding, Series A, FSA
Insured, 2.625%, 9/01/09 100,000 100,167
California Health Facilities Financing Authority
Revenue, Catholic Healthcare West, Series G, 5.00%,
7/01/09 750,000 771,240
California State Economic Recovery GO, Series A,
5.00%, 1/01/09 415,000 422,694
5.25%, 7/01/13 200,000 216,548
California State GO, Refunding, FSA Insured, 5.25%,
2/01/10 445,000 465,759
California Statewide CDA Revenue, Viewpoint School,
Refunding, ACA Insured, 3.50%, 10/01/08 320,000 319,309
California Statewide Communities Development Authority
PCR, Southern California Edison Co., Mandatory Put
4/01/13, Refunding, Series A, XLCA Insured, 4.10%,
4/01/28 1,000,000 974,440 500,000 487,220
Foothill-De Anza Community College District GO, Election
of 1999, Series B, 2.60%, 8/01/08 100,000 100,094
Glendora PFAR Tax Allocation, Project No. 1, Refunding,
Series A, MBIA Insured, 2.125%, 9/01/08 105,000 104,756
Hercules RDA Tax Allocation Revenue, Series A, AMBAC
Insured, 5.00%, 8/01/14 930,000 988,544 500,000 531,475
Long Beach Bond Finance Authority Natural Gas Purchase
Revenue, Series A, 5.00%, 11/15/09 400,000 404,244
Los Angeles County Sanitation Districts Financing
Authority Revenue, Capital Project, Refunding, Series A,
FSA Insured, 4.00%, 10/01/08 500,000 504,655
Lynwood USD, GO, Election of 2002, Series A, FSA
Insured, 4.00%, 8/01/10 100,000 102,935
Manteca USD Special Tax, CFD No. 89-1, AMBAC Insured,
2.50%, 9/01/08 250,000 249,908
North Orange County Community College District GO,
Election of 2002, Series B, FGIC Insured, 2.125%, 8/01/08 500,000 498,610
Poway RDA Tax Allocation, Paguay Redevelopment Project,
Series A, MBIA Insured, 3.00%, 6/15/09 100,000 100,497
Rio Linda Unified Elementary School District, Election
of 2002, Series A, FSA Insured, 4.00%, 8/01/10 100,000 102,935
Sacramento Power Authority Cogeneration Project Revenue,
Refunding, AMBAC Insured, 4.00%, 7/01/08 1,000,000 1,000,390
Southern California Public Power Authority Natural Gas
Project Revenue, Project No. 1, Series A, 5.00%, 11/01/15 1,000,000 1,006,890
----------- ----------
3,553,586 7,206,656
----------- ----------
Colorado 2.3%
Regional Transportation District COP, Transit Vehicles,
Series A, AMBAC Insured, 5.00%, 12/01/15 1,500,000 1,569,405
Strasburg School District No. 31J GO, MBIA Insured, zero
cpn., 12/01/08 170,000 166,665
-----------
1,736,070
-----------
Illinois 2.1%
Chicago GO, Project, Series 1995 B, FGIC Insured, ETM,
5.00%, 1/01/09 1,500,000 1,530,900
Federal Limited-Term
Federal New York Tax-Free Income Fund
Tax-Free Income Fund Pro forma combined
-------------------- ----------------------
Principal Principal
Amount Value Amount Value
--------- ---------- ---------- -----------
Long Term Investments 58.7%
Municipal Bonds 58.7%
Alabama 0.3%
Etowah County Board of Education Special Tax, School
wts., Refunding, FSA Insured, 2.60%, 9/01/08 $ -- $ -- $ 250,000 $ 250,180
California 14.4%
Alameda-Contra Costa Transit District COP, FHR Computer
System Project, 4.00%, 8/01/12 1,180,000 1,187,552
Brea and Olinda USD, GO, Election of 1999, Series A,
FGIC Insured, 2.60%, 8/01/09 120,000 119,380
California Educational Facilities Authority Revenue,
Santa Clara University, Refunding, Series A, FSA
Insured, 2.625%, 9/01/09 100,000 100,167
California Health Facilities Financing Authority
Revenue, Catholic Healthcare West, Series G, 5.00%,
7/01/09 750,000 771,240
California State Economic Recovery GO, Series A,
5.00%, 1/01/09 415,000 422,694
5.25%, 7/01/13 200,000 216,548
California State GO, Refunding, FSA Insured, 5.25%,
2/01/10 445,000 465,759
California Statewide CDA Revenue, Viewpoint School,
Refunding, ACA Insured, 3.50%, 10/01/08 320,000 319,309
California Statewide Communities Development Authority
PCR, Southern California Education Co., Mandatory Put
4/01/13, Refunding, Series A, XLCA Insured, 4.10%,
4/01/28 1,500,000 1,461,660
Foothill-De Anza Community College District GO, Election
of 1999, Series B, 2.60%, 8/01/08 100,000 100,094
Glendora PFAR Tax Allocation, Project No. 1, Refunding,
Series A, MBIA Insured, 2.125%, 9/01/08 105,000 104,756
Hercules RDA Tax Allocation Revenue, Series A, AMBAC
Insured, 5.00%, 8/01/14 1,430,000 1,520,019
Long Beach Bond Finance Authority Natural Gas Purchase
Revenue, Series A, 5.00%, 11/15/09 400,000 404,244
Los Angeles County Sanitation Districts Financing
Authority Revenue, Capital Project, Refunding, Series A,
FSA Insured, 4.00%, 10/01/08 500,000 504,655
Lynwood USD, GO, Election of 2002, Series A, FSA
Insured, 4.00%, 8/01/10 100,000 102,935
Manteca USD Special Tax, CFD No. 89-1, AMBAC Insured,
2.50%, 9/01/08 250,000 249,908
North Orange County Community College District GO,
Election of 2002, Series B, FGIC Insured, 2.125%, 8/01/08 500,000 498,610
Poway RDA Tax Allocation, Paguay Redevelopment Project,
Series A, MBIA Insured, 3.00%, 6/15/09 100,000 100,497
Rio Linda Unified Elementary School District, Election
of 2002, Series A, FSA Insured, 4.00%, 8/01/10 100,000 102,935
Sacramento Power Authority Cogeneration Project Revenue,
Refunding, AMBAC Insured, 4.00%, 7/01/08 1,000,000 1,000,390
Southern California Public Power Authority Natural Gas
Project Revenue, Project No. 1, Series A, 5.00%, 11/01/15 1,000,000 1,006,890
-----------
10,760,242
-----------
Colorado 2.3%
Regional Transportation District COP, Transit Vehicles,
Series A, AMBAC Insured, 5.00%, 12/01/15 1,500,000 1,569,405
Strasburg School District No. 31J GO, MBIA Insured, zero
cpn., 12/01/08 170,000 166,665
-----------
1,736,070
-----------
Illinois 2.1%
Chicago GO, Project, Series 1995 B, FGIC Insured, ETM,
5.00%, 1/01/09 1,500,000 1,530,900
-----------
Indiana 0.7%
Avon Community School Building Corp. Revenue, First
Management, AMBAC Insured, 4.25%, 1/15/11 520,000 533,796
-----------
Kansas 0.7%
Junction City COP, Radian Insured, 4.00%,
9/1/09 215,000 216,825
9/1/10 310,000 313,147
-----------
529,972
-----------
Louisiana 2.1%
Louisiana State Citizens Property Insurance Corp.
Assessment Revenue, Series B, AMBAC Insured, 5.00%,
6/01/09 1,000,000 1,025,950
Louisiana State Local Government Environmental
Facilities Revenue, MBIA Insured, 4.00%, 12/01/14 500,000 499,975
-----------
1,525,925
-----------
Missouri 0.3%
Platte County COP, Public Improvements, 2.40%, 10/01/08 200,000 199,168
-----------
Nebraska 1.0%
University of Nebraska Facilities Corp. Revenue,
University of Nebraska Medical Center Research Center,
4.00%, 2/15/10 750,000 766,905
-----------
Nevada 0.6%
Henderson Local ID Special Assessment, No. T-6, Limited
Obligation, Refunding, Senior Series A, FSA Insured,
2.85%, 11/01/09 270,000 270,821
Washoe County Improvement Bonds, Refunding, FSA Insured,
2.50%, 11/01/08 195,000 195,060
-----------
465,881
-----------
New York 13.9%
Albany IDA Civic Facility Revenue, St. Peter's Hospital
Project, Series A,
4.50%, 11/15/08
4.75%, 11/15/09
Amherst IDA Civic Facility Revenue, Mandatory Put
10/01/11, Refunding, Series A, Radian Insured, 4.20%,
10/01/31 865,000 871,539
Hempstead Town IDA Civic Facility Revenue, Adelphi
University Civic Facility, 3.75%, 10/01/09
New York Local Government Assistance Corp. Revenue,
Senior Lien, Refunding, Series A, 5.00%, 4/01/11
New York State Dormitory Authority Revenues,
Kateri Residence, Refunding, 4.00%, 7/01/10
Non-State Supported Debt, Aids Long Term Health
Care Facility, Refunding, 5.00%, 11/01/11 750,000 772,687
Non-State Supported Debt, Manhattan College,
Series B, Radian Insured, 5.00%, 7/01/13 500,000 522,020
Non-State Supported Debt, Rochester General
Hospital, Refunding, Radian Insured, 5.00%, 12/01/15
The New York and Presbyterian Hospital, Mortgage,
Refunding, Series A, FHA Insured, 5.00%, 8/15/09 750,000 775,237
White Plains Hospital, Mortgage, FHA Insured,
3.55%, 2/15/10
New York State Environmental Facilities Corp. Special
Obligation Revenue, Riverbank State Park, Refunding,
CIFG Insured, 5.00%, 4/01/16
New York State Thruway Authority Service Contract
Revenue, Local Highway and Bridge, Series A, 2.75%,
3/15/08
New York State Urban Development Corp. Revenue, State
Personal Income Tax, Series C-1 Empire State, 2.80%,
12/15/09 245,000 246,053
Poughkeepsie Town GO, Public Improvement, Refunding, FSA
Insured, 5.00%, 4/15/15
Rockland County Solid Waste Management Authority
Revenue, Series A, AMBAC Insured, 4.50%, 12/15/08
Suffolk County IDA Civic Facility Revenue, Westhampton
Free Associates Library, AMBAC Insured, 3.25%,
6/15/09
6/15/12
Warren and Washington Counties IDAR, Hudson Falls
Recovery, Refunding, Series A, AMBAC Insured, 3.375%,
11/01/10
Western Nassau County Water Authority Water System
Revenue, AMBAC Insured, 3.00%, 5/01/09
-----------
Indiana 0.7%
Avon Community School Building Corp. Revenue, First
Management, AMBAC Insured, 4.25%, 1/15/11 520,000 533,796
-----------
Kansas 0.7%
Junction City COP, Radian Insured, 4.00%,
9/1/09 215,000 216,825
9/1/10 310,000 313,147
-----------
529,972
-----------
Louisiana 2.1%
Louisiana State Citizens Property Insurance Corp.
Assessment Revenue, Series B, AMBAC Insured, 5.00%,
6/01/09 1,000,000 1,025,950
Louisiana State Local Government Environmental
Facilities Revenue, MBIA Insured, 4.00%, 12/01/14 500,000 499,975
-----------
1,525,925
-----------
Missouri 0.3%
Platte County COP, Public Improvements, 2.40%, 10/01/08 200,000 199,168
-----------
Nebraska 1.0%
University of Nebraska Facilities Corp. Revenue,
University of Nebraska Medical Center Research Center,
4.00%, 2/15/10 750,000 766,905
-----------
Nevada 0.6%
Henderson Local ID Special Assessment, No. T-6, Limited
Obligation, Refunding, Senior Series A, FSA Insured,
2.85%, 11/01/09 270,000 270,821
Washoe County Improvement Bonds, Refunding, FSA Insured,
2.50%, 11/01/08 195,000 195,060
-----------
465,881
-----------
New York 13.9%
Albany IDA Civic Facility Revenue, St. Peter's Hospital
Project, Series A,
4.50%, 11/15/08 70,000 70,358 70,000 70,358
4.75%, 11/15/09 295,000 299,543 295,000 299,543
Amherst IDA Civic Facility Revenue, Mandatory Put
10/01/11, Refunding, Series A, Radian Insured, 4.20%,
10/01/31 510,000 513,856 1,375,000 1,385,395
Hempstead Town IDA Civic Facility Revenue, Adelphi
University Civic Facility, 3.75%, 10/01/09 315,000 319,325 315,000 319,325
New York Local Government Assistance Corp. Revenue,
Senior Lien, Refunding, Series A, 5.00%, 4/01/11 300,000 317,298 300,000 317,298
New York State Dormitory Authority Revenues,
Kateri Residence, Refunding, 4.00%, 7/01/10 230,000 233,613 230,000 233,613
Non-State Supported Debt, Aids Long Term Health
Care Facility, Refunding, 5.00%, 11/01/11 250,000 257,563 1,000,000 1,030,250
Non-State Supported Debt, Manhattan College,
Series B, Radian Insured, 5.00%, 7/01/13 340,000 354,974 840,000 876,994
Non-State Supported Debt, Rochester General
Hospital, Refunding, Radian Insured, 5.00%, 12/01/15 100,000 103,033 100,000 103,033
The New York and Presbyterian Hospital, Mortgage,
Refunding, Series A, FHA Insured, 5.00%, 8/15/09 250,000 258,413 1,000,000 1,033,650
White Plains Hospital, Mortgage, FHA Insured,
3.55%, 2/15/10 70,000 70,090 70,000 70,090
New York State Environmental Facilities Corp. Special
Obligation Revenue, Riverbank State Park, Refunding,
CIFG Insured, 5.00%, 4/01/16 200,000 213,534 200,000 213,534
New York State Thruway Authority Service Contract
Revenue, Local Highway and Bridge, Series A, 2.75%,
3/15/08 250,000 249,953 250,000 249,953
New York State Urban Development Corp. Revenue, State
Personal Income Tax, Series C-1 Empire State, 2.80%,
12/15/09 245,000 246,053
Poughkeepsie Town GO, Public Improvement, Refunding, FSA
Insured, 5.00%, 4/15/15 250 269 250 269
Rockland County Solid Waste Management Authority
Revenue, Series A, AMBAC Insured, 4.50%, 12/15/08 400,000 404,780 400,000 404,780
Suffolk County IDA Civic Facility Revenue, Westhampton
Free Associates Library, AMBAC Insured, 3.25%,
6/15/09 150,000 151,119 150,000 151,119
6/15/12 300,000 297,387 300,000 297,387
Warren and Washington Counties IDAR, Hudson Falls
Recovery, Refunding, Series A, AMBAC Insured, 3.375%,
11/01/10 300,000 303,456 300,000 303,456
Western Nassau County Water Authority Water System
Revenue, AMBAC Insured, 3.00%, 5/01/09 215,000 215,189 215,000 215,189
Yonkers GO, Series A, 4.00%, 11/01/09 2,000,000 2,012,660
-----------
5,200,196
-----------
Ohio 1.5%
Franklin County Hospital Revenue, Hospital Corp.,
Refunding, Series C, MBIA Insured, 2.50%, 5/15/08 500,000 499,855
Ohio State Higher Educational Facility Revenue,
Otterbein College 2007 Project, CIFG Insured, 4.50%,
12/01/11 210,000 219,314
Stark County GO, Sewage System, Refunding, AMBAC
Insured, 2.50%, 12/01/08 370,000 368,372
-----------
1,087,541
-----------
Pennsylvania 0.3%
Pittsburgh Water and Sewer Authority Revenue, Refunding,
FSA Insured, 2.65%, 9/01/08 250,000 250,290
-----------
South Dakota 0.5%
South Dakota HDA Revenue, Series D, 2.90%, 5/01/09 345,000 346,204
-----------
Texas 3.4%
Brock ISD, GO, Capital Appreciation, zero cpn., 8/15/16 460,000 317,474
Denton ISD, GO, Unlimited Tax School Building Bonds,
Premium Capital Appreciation Bonds, Series 2007, zero
cpn., 8/15/08 500,000 494,245
Harris County Hospital District Revenue, senior lien,
Refunding, Series A, MBIA Insured, 5.00%, 2/15/12 745,000 783,576
Lubbock Educational Facilities Authority Revenue,
Lubbock Christian, Refunding and Improvement, 4.50%,
11/01/10 395,000 401,806
San Antonio Water Revenue, System, Series A, FSA
Insured, 5.50%, 5/15/13 500,000 537,860
-----------
2,534,961
-----------
Utah 0.2%
Davis County Sales Tax Revenue, Series B, AMBAC Insured,
2.55%, 10/01/08 180,000 179,950
-----------
Virginia 0.6%
Virginia State Public School Authority Revenue, School
Financing 1997, Refunding, Series C, 5.00%, 8/01/08 455,000 459,768
-----------
Washington 4.6%
Energy Northwest Electric Revenue, Project 1, Refunding,
Series A, 5.00%, 7/01/11 375,000 396,341
Snohomish County School District No. 2 Everett GO,
Refunding, FGIC Insured, 5.00%, 12/01/14 250,000 266,298
Washington State GO, Motor Vehicle Tax, Series F, AMBAC
Insured, zero cpn., 12/01/09 1,000,000 949,050
Washington State Health Care Facilities Authority
Revenue, Kadlec Medical Center, Series A, Assured
Guaranty, 5.00%, 12/01/10 1,000,000 1,050,010
Washington State Higher Education Facilities Authority
Revenue, University of Puget Sound Project, Mandatory
Put 4/01/08, Refunding, 5.00%, 10/01/30 750,000 750,990
-----------
3,412,689
-----------
Wyoming 0.7%
Sweetwater County Improvement Project Powers Board Lease
Revenue, MBIA Insured, 5.00%, 12/15/10 500,000 525,350
-----------
U.S. Territories 8.5%
Guam 0.8%
Guam International Airport Authority Revenue, Series A,
MBIA Insured
2.375%, 10/01/08 240,000 238,742 250,000 248,690
2.75%, 10/01/09
----------- -----------
238,742 248,690
----------- -----------
Puerto Rico 7.7%
Puerto Rico Commonwealth GO, Public Improvement,
Mandatory Put 7/01/08, Refunding, Series C, MBIA
Insured, 5.00%, 7/01/28 660,000 662,772 370,000 371,554
Puerto Rico Commonwealth Government Development Bank
Revenue, senior notes, Series B, 5.00%, 12/01/08 950,000 960,250 600,000 606,474
Puerto Rico Commonwealth Highway and Transportation
Authority Highway Revenue, Refunding, Series X, MBIA
Insured, 5.50%, 7/01/13 580,000 619,579
Yonkers GO, Series A, 4.00%, 11/01/09 565,000 568,576 2,565,000 2,581,236
---------- -----------
5,202,329 10,402,525
---------- -----------
Ohio 1.5%
Franklin County Hospital Revenue, Hospital Corp.,
Refunding, Series C, MBIA Insured, 2.50%, 5/15/08 500,000 499,855
Ohio State Higher Educational Facility Revenue,
Otterbein College 2007 Project, CIFG Insured, 4.50%,
12/01/11 210,000 219,314
Stark County GO, Sewage System, Refunding, AMBAC
Insured, 2.50%, 12/01/08 370,000 368,372
-----------
1,087,541
-----------
Pennsylvania 0.3%
Pittsburgh Water and Sewer Authority Revenue, Refunding,
FSA Insured, 2.65%, 9/01/08 250,000 250,290
-----------
South Dakota 0.5%
South Dakota HDA Revenue, Series D, 2.90%, 5/01/09 345,000 346,204
-----------
Texas 3.4%
Brock ISD, GO, Capital Appreciation, zero cpn., 8/15/16 460,000 317,474
Denton ISD, GO, Unlimited Tax School Building Bonds,
Premium Capital Appreciation Bonds, Series 2007, zero
cpn., 8/15/08 500,000 494,245
Harris County Hospital District Revenue, senior lien,
Refunding, Series A, MBIA Insured, 5.00%, 2/15/12 745,000 783,576
Lubbock Educational Facilities Authority Revenue,
Lubbock Christian, Refunding and Improvement, 4.50%,
11/01/10 395,000 401,806
San Antonio Water Revenue, System, Series A, FSA
Insured, 5.50%, 5/15/13 500,000 537,860
-----------
2,534,961
-----------
Utah 0.2%
Davis County Sales Tax Revenue, Series B, AMBAC Insured,
2.55%, 10/01/08 180,000 179,950
-----------
Virginia 0.6%
Virginia State Public School Authority Revenue, School
Financing 1997, Refunding, Series C, 5.00%, 8/01/08 455,000 459,768
-----------
Washington 4.6%
Energy Northwest Electric Revenue, Project 1, Refunding,
Series A, 5.00%, 7/01/11 375,000 396,341
Snohomish County School District No. 2 Everett GO,
Refunding, FGIC Insured, 5.00%, 12/01/14 250,000 266,298
Washington State GO, Motor Vehicle Tax, Series F, AMBAC
Insured, zero cpn., 12/01/09 1,000,000 949,050
Washington State Health Care Facilities Authority
Revenue, Kadlec Medical Center, Series A, Assured
Guaranty, 5.00%, 12/01/10 1,000,000 1,050,010
Washington State Higher Education Facilities Authority
Revenue, University of Puget Sound Project, Mandatory
Put 4/01/08, Refunding, 5.00%, 10/01/30 750,000 750,990
-----------
3,412,689
-----------
Wyoming 0.7%
Sweetwater County Improvement Project Powers Board Lease
Revenue, MBIA Insured, 5.00%, 12/15/10 500,000 525,350
-----------
U.S. Territories 8.5%
Guam 0.8%
Guam International Airport Authority Revenue, Series A,
MBIA Insured
2.375%, 10/01/08 490,000 487,432
2.75%, 10/01/09 125,000 123,621 125,000 123,621
----------- -----------
123,621 611,053
----------- -----------
Puerto Rico 7.7%
Puerto Rico Commonwealth GO, Public Improvement,
Mandatory Put 7/01/08, Refunding, Series C, MBIA
Insured, 5.00%, 7/01/28 295,000 296,239 1,325,000 1,330,565
Puerto Rico Commonwealth Government Development Bank
Revenue, senior notes, Series B, 5.00%, 12/01/08 400,000 404,315 1,950,000 1,971,039
Puerto Rico Commonwealth Highway and Transportation
Authority Highway Revenue, Refunding, Series X, MBIA
Insured, 5.50%, 7/01/13 580,000 619,579
Puerto Rico Industrial Tourist Educational Medical and
Environmental Control Facilities Financing Authority
Revenue, Ana G. Mendez University System Project, 5.00%,
3/01/08
Puerto Rico Industrial Tourist Educational Medical and
Environmental Control Facilities Financing Authority
Revenue, Ana G. Mendez University System Project, 5.00%,
3/01/11 545,000 559,590
Puerto Rico PBA Revenue Guaranteed, Mandatory Put
7/01/17, Refunding, AMBAC Insured, 5.50%, 7/01/35 450,000 469,296 300,000 312,864
----------- -----------
3,271,487 1,290,892
----------- -----------
Total U.S. Territories 3,510,229 1,539,582
----------- -----------
Total Long Term Investments (Cost $43,908,160) 28,599,561 8,746,238
Short Term Investments 42.3%
Municipal Bonds 42.3%
California 12.2%
a Anaheim COP, Refunding, Weekly VRDN and Put, 3.35%,
8/01/19 300,000 300,000
a Bay Area Toll Authority Toll Bridge Revenue, San
Francisco Bay Area,
Series B-1, AMBAC Insured, Weekly VRDN and Put,
3.15%, 4/01/45 100,000 100,000
Series B-2, XLCA Insured, Weekly VRDN and Put,
7.00%, 4/01/45 600,000 600,000
Series C, AMBAC Insured, Weekly VRDN and Put, 6.00%,
4/01/45 200,000 200,000
a California HFAR, MFH, Series D, Daily VRDN and Put,
3.65%, 2/01/31 500,000 500,000
a California Infrastructure and Economic Development Bank
Revenue,
Jewish Community Center, Refunding, FGIC Insured,
Daily VRDN and Put, 6.80%, 12/01/31 500,000 500,000
a San Francisco Ballet Assn., FGIC Insured, Daily VRDN
and Put, 7.05%, 7/01/36 300,000 300,000
a California State Economic Recovery Revenue, Series C-16,
FSA Insured, Weekly VRDN and Put, 2.80%, 7/01/23 200,000 200,000
a East Bay MUD Wastewater System Revenue, Refunding,
Sub Series 1, XLCA Insured, Weekly VRDN and Put,
7.00%, 6/01/38 400,000 400,000
Sub Series B, XLCA Insured, Weekly VRDN and Put,
8.50%, 6/01/27 500,000 500,000
a Los Angeles Convention and Exhibition Center Authority
Lease Revenue, Refunding, Series D, AMBAC Insured,
Weekly VRDN and Put, 5.00%, 8/15/21 100,000 100,000
a Los Angeles Wastewater System Revenue, Refunding, Sub
Series D, XLCA Insured, Weekly VRDN and Put, 8.00%,
6/01/28 890,000 890,000
a Madera Irrigation Financing Authority Water Revenue,
Series A, XLCA Insured, Daily VRDN and Put, 7.00%,
1/01/36 900,000 900,000
a Pittsburg RDA Tax Allocation, Los Medanos Community, Sub
Series A, AMBAC Insured, Daily VRDN and Put, 6.50%,
9/01/35 900,000 900,000
a Richmond Wastewater Revenue, Refunding, Series B, AMBAC
Insured, Weekly VRDN and Put, 8.00%, 8/01/37 900,000 900,000
a Riverside County Asset Leasing Corp. Leasehold Revenue,
Southwest Justice Center, Series B, MBIA Insured, Weekly
VRDN and Put, 3.15%, 11/01/32 300,000 300,000
a San Pablo RDA Revenue, Tax Allocation, Subordinated, Tax
Allocation, 10th Township Project, Refunding, AMBAC
Insured, Daily VRDN and Put, 6.50%, 12/01/32 900,000 900,000
a Southern California Public Power Authority Power Project
Revenue, Palo Verde Project, Refunding, Series C, AMBAC
Insured, Weekly VRDN and Put, 3.35%, 7/01/17 450,000 450,000
a Westminster COP, Civic Center Refunding Project, Series
B, AMBAC Insured, Weekly VRDN and Put, 8.00%, 6/01/24 125,000 125,000
----------- -----------
500,000 8,565,000
----------- -----------
Colorado 1.2%
a Colorado Educational and Cultural Facilities Authority
Revenue, National Jewish Federation Bond Program, Series
A-4, Daily VRDN and Put, 3.50%, 2/01/34 425,000 425,000
a Moffat County PCR, Pacific Corp. Projects, Refunding,
AMBAC Insured, Daily VRDN and Put, 9.00%, 5/01/13 500,000 500,000
-----------
925,000
-----------
Florida 1.2%
a Jacksonville Health Facilities Authority Hospital
Revenue, Series C, Daily VRDN and Put, 3.50%, 8/15/33 200,000 200,000
a Orange County School Board COP, Series B, FGIC Insured,
Daily VRDN and Put, 8.85%, 8/01/32 300,000 300,000
a Pinellas County Health Facilities Authority Revenue,
Pooled Hospital Loan Program, Refunding, AMBAC Insured,
Daily VRDN and Put, 6.40%, 12/01/15 400,000 400,000
-----------
Illinois 0.3% 900,000
-----------
Puerto Rico Industrial Tourist Educational Medical and
Environmental Control Facilities Financing Authority
Revenue, Ana G. Mendez University System Project, 5.00%,
3/01/08 475,000 475,000 475,000 475,000
Puerto Rico Industrial Tourist Educational Medical and
Environmental Control Facilities Financing Authority
Revenue, Ana G. Mendez University System Project, 5.00%,
3/01/11 545,000 559,590
Puerto Rico PBA Revenue Guaranteed, Mandatory Put
7/01/17, Refunding, AMBAC Insured, 5.50%, 7/01/35 750,000 782,160
----------- -----------
1,175,554 5,737,933
----------- -----------
Total U.S. Territories 1,299,175 6,348,986
----------- -----------
Total Long Term Investments (Cost $43,908,160) 6,501,504 43,847,303
Short Term Investments 42.3%
Municipal Bonds 42.3%
California 12.2%
a Anaheim COP, Refunding, Weekly VRDN and Put, 3.35%,
8/01/19 300,000 300,000
a Bay Area Toll Authority Toll Bridge Revenue, San
Francisco Bay Area,
Series B-1, AMBAC Insured, Weekly VRDN and Put,
3.15%, 4/01/45 100,000 100,000
Series B-2, XLCA Insured, Weekly VRDN and Put,
7.00%, 4/01/45 600,000 600,000
Series C, AMBAC Insured, Weekly VRDN and Put, 6.00%,
4/01/45 200,000 200,000
a California HFAR, MFH, Series D, Daily VRDN and Put,
3.65%, 2/01/31 500,000 500,000
a California Infrastructure and Economic Development Bank
Revenue,
Jewish Community Center, Refunding, FGIC Insured,
Daily VRDN and Put, 6.80%, 12/01/31 500,000 500,000
a San Francisco Ballet Assn., FGIC Insured, Daily VRDN
and Put, 7.05%, 7/01/36 300,000 300,000
a California State Economic Recovery Revenue, Series C-16,
FSA Insured, Weekly VRDN and Put, 2.80%, 7/01/23 200,000 200,000
a East Bay MUD Wastewater System Revenue, Refunding,
Sub Series 1, XLCA Insured, Weekly VRDN and Put,
7.00%, 6/01/38 400,000 400,000
Sub Series B, XLCA Insured, Weekly VRDN and Put,
8.50%, 6/01/27 500,000 500,000
a Los Angeles Convention and Exhibition Center Authority
Lease Revenue, Refunding, Series D, AMBAC Insured,
Weekly VRDN and Put, 5.00%, 8/15/21 100,000 100,000
a Los Angeles Wastewater System Revenue, Refunding, Sub
Series D, XLCA Insured, Weekly VRDN and Put, 8.00%,
6/01/28 890,000 890,000
a Madera Irrigation Financing Authority Water Revenue,
Series A, XLCA Insured, Daily VRDN and Put, 7.00%,
1/01/36 900,000 900,000
a Pittsburg RDA Tax Allocation, Los Medanos Community, Sub
Series A, AMBAC Insured, Daily VRDN and Put, 6.50%,
9/01/35 900,000 900,000
a Richmond Wastewater Revenue, Refunding, Series B, AMBAC
Insured, Weekly VRDN and Put, 8.00%, 8/01/37 900,000 900,000
a Riverside County Asset Leasing Corp. Leasehold Revenue,
Southwest Justice Center, Series B, MBIA Insured, Weekly
VRDN and Put, 3.15%, 11/01/32 300,000 300,000
a San Pablo RDA Revenue, Tax Allocation, Subordinated, Tax
Allocation, 10th Township Project, Refunding, AMBAC
Insured, Daily VRDN and Put, 6.50%, 12/01/32 900,000 900,000
a Southern California Public Power Authority Power Project
Revenue, Palo Verde Project, Refunding, Series C, AMBAC
Insured, Weekly VRDN and Put, 3.35%, 7/01/17 450,000 450,000
a Westminster COP, Civic Center Refunding Project, Series
B, AMBAC Insured, Weekly VRDN and Put, 8.00%, 6/01/24 125,000 125,000
-----------
9,065,000
-----------
Colorado 1.2%
a Colorado Educational and Cultural Facilities Authority
Revenue, National Jewish Federation Bond Program, Series
A-4, Daily VRDN and Put, 3.50%, 2/01/34 425,000 425,000
a Moffat County PCR, Pacific Corp. Projects, Refunding,
AMBAC Insured, Daily VRDN and Put, 9.00%, 5/01/13 500,000 500,000
-----------
925,000
-----------
Florida 1.2%
a Jacksonville Health Facilities Authority Hospital
Revenue, Series C, Daily VRDN and Put, 3.50%, 8/15/33 200,000 200,000
a Orange County School Board COP, Series B, FGIC Insured,
Daily VRDN and Put, 8.85%, 8/01/32 300,000 300,000
a Pinellas County Health Facilities Authority Revenue,
Pooled Hospital Loan Program, Refunding, AMBAC Insured,
Daily VRDN and Put, 6.40%, 12/01/15 400,000 400,000
-----------
Illinois 0.3% 900,000
-----------
Cook County School District No. 150 South Holland GO, 205,000 206,078
FSA Insured, 3.125%, 12/01/08
Kentucky 0.9%
-----------
a Christian County Assn. of County Leasing Trust Lease 700,000 700,000
Program Revenue, Refunding, Series A, Daily VRDN and
Put, 3.50%, 4/01/37
-----------
Maryland 2.2%
a Maryland State EDC Revenue, U.S. Pharmacopeial Project,
Refunding,
Series A, AMBAC Insured, Daily VRDN and Put, 5.00%,
7/01/34 200,000 200,000
Series B, AMBAC Insured, Daily VRDN and Put, 10.00%,
7/01/34 1,000,000 1,000,000
a Montgomery County GO, BAN, Public Improvement,
Refunding, Series B, Daily VRDN and Put, 3.15%, 6/01/26 400,000 400,000
-----------
1,600,000
-----------
Massachusetts 0.9%
a Massachusetts State Health and Educational Facilities
Authority Revenue, Children's Hospital, Refunding,
Series L-2, AMBAC Insured, Daily VRDN and Put, 8.00%,
10/01/42 700,000 700,000
-----------
Michigan 5.3%
a Eastern Michigan University Revenue, Refunding, FGIC
Insured, Daily VRDN and Put, 8.50%, 6/01/27 400,000 400,000
a Eastern Michigan University Revenues, Refunding, XLCA
Insured, Daily VRDN and Put, 8.50%, 6/01/36 2,000,000 2,000,000
a Grand Valley State University Revenue, General, Series
B, AMBAC Insured, Weekly VRDN and Put, 8.00%, 12/01/33 1,565,000 1,565,000
-----------
3,965,000
-----------
Missouri 0.3%
a Missouri State Health and Educational Facilities
Authority Educational Facilities Revenue, St. Louis
University, Series A, MBIA Insured, Daily VRDN and Put,
6.35%, 10/01/35 200,000 200,000
-----------
New York 8.2%
a Broome County IDA Civic Facility Revenue, Elizabeth
Church Manor, Refunding, Weekly VRDN and Put, 3.00%,
2/01/29
a Broome County IDA Civic Facility Revenue, James G.
Johnston Memorial, Refunding, Weekly VRDN and Put,
3.00%, 2/01/29
a Jay Street Development Corp. Courts Facility Lease
Revenue, New York City Jay Street Project, Series A-4,
Daily VRDN and Put, 3.10%, 5/01/22
a Long Island Power Authority Electric System Revenue, Sub
Series 3B, Daily VRDN and Put, 3.00%, 5/01/33
a Monroe County IDA Civic Facility Revenue, St. John
Fisher College Project, Radian Insured, Weekly VRDN and
Put, 5.25%, 6/01/34 600,000 600,000
a MTA Dedicated Tax Fund Revenue, Series D-1, AMBAC
Insured, Weekly VRDN and Put, 9.97%, 11/01/34
a MTA Revenue, Sub Series A-3, XLCA Insured, Weekly VRDN
and Put, 8.50%, 11/01/34 300,000 300,000
a Nasasu County IDA Civic Facility Revenue, Cold Spring
Harbor, Refunding and Improvement, Daily VRDN and Put,
3.42%, 1/01/34
a New York City GO, Sub Series A-4, Daily VRDN and Put,
3.05%, 8/01/22
a New York City IDAR, Liberty, 1 Bryant Park LLC, Series
B, Daily VRDN and Put, 3.65%, 11/01/39
a New York City Transitional Finance Authority Revenue,
Future Tax Secured, Series B, Daily VRDN and Put, 3.05%,
2/01/31
a New York City Transitional Finance Authority Revenue,
New York City Recovery, Series 1, Sub Series 1C, Daily
VRDN and Put, 4.00%, 11/01/22
a New York City Trust for Cultural Resources Revenue,
Manhattan School of Music, Radian Insured, Weekly VRDN
and Put, 8.00%, 10/01/29
a New York State Dormitory Authority Revenue, Cornell
University, Series B, Daily VRDN and Put, 3.42%, 7/01/25
a New York State Dormitory Authority Revenues, Non-State
Supported Debt, Barnard College, Series B, FGIC Insured,
Weekly VRDN and Put, 10.00%, 7/01/37
a Triborough Bridge and Tunnel Authority Revenues,
General, Refunding, Sub Series B-4, Weekly VRDN and Put,
2.85%, 1/01/32
-----------
900,000
-----------
North Carolina 0.4%
Cook County School District No. 150 South Holland GO, 205,000 206,078
FSA Insured, 3.125%, 12/01/08
Kentucky 0.9%
-----------
a Christian County Assn. of County Leasing Trust Lease 700,000 700,000
Program Revenue, Refunding, Series A, Daily VRDN and
Put, 3.50%, 4/01/37
-----------
Maryland 2.2%
a Maryland State EDC Revenue, U.S. Pharmacopeial Project,
Refunding,
Series A, AMBAC Insured, Daily VRDN and Put, 5.00%,
7/01/34 200,000 200,000
Series B, AMBAC Insured, Daily VRDN and Put, 10.00%,
7/01/34 1,000,000 1,000,000
a Montgomery County GO, BAN, Public Improvement,
Refunding, Series B, Daily VRDN and Put, 3.15%, 6/01/26 400,000 400,000
-----------
1,600,000
-----------
Massachusetts 0.9%
a Massachusetts State Health and Educational Facilities
Authority Revenue, Children's Hospital, Refunding,
Series L-2, AMBAC Insured, Daily VRDN and Put, 8.00%,
10/01/42 700,000 700,000
-----------
Michigan 5.3%
a Eastern Michigan University Revenue, Refunding, FGIC
Insured, Daily VRDN and Put, 8.50%, 6/01/27 400,000 400,000
a Eastern Michigan University Revenues, Refunding, XLCA
Insured, Daily VRDN and Put, 8.50%, 6/01/36 2,000,000 2,000,000
a Grand Valley State University Revenue, General, Series
B, AMBAC Insured, Weekly VRDN and Put, 8.00%, 12/01/33 1,565,000 1,565,000
-----------
3,965,000
-----------
Missouri 0.3%
a Missouri State Health and Educational Facilities
Authority Educational Facilities Revenue, St. Louis
University, Series A, MBIA Insured, Daily VRDN and Put,
6.35%, 10/01/35 200,000 200,000
-----------
New York 8.2%
a Broome County IDA Civic Facility Revenue, Elizabeth
Church Manor, Refunding, Weekly VRDN and Put, 3.00%,
2/01/29 125,000 125,000 125,000 125,000
a Broome County IDA Civic Facility Revenue, James G.
Johnston Memorial, Refunding, Weekly VRDN and Put,
3.00%, 2/01/29 100,000 100,000 100,000 100,000
a Jay Street Development Corp. Courts Facility Lease
Revenue, New York City Jay Street Project, Series A-4,
Daily VRDN and Put, 3.10%, 5/01/22 400,000 400,000 400,000 400,000
a Long Island Power Authority Electric System Revenue, Sub
Series 3B, Daily VRDN and Put, 3.00%, 5/01/33 200,000 200,000 200,000 200,000
a Monroe County IDA Civic Facility Revenue, St. John
Fisher College Project, Radian Insured, Weekly VRDN and
Put, 5.25%, 6/01/34 100,000 100,000 700,000 700,000
a MTA Dedicated Tax Fund Revenue, Series D-1, AMBAC
Insured, Weekly VRDN and Put, 9.97%, 11/01/34 295,000 295,000 295,000 295,000
a MTA Revenue, Sub Series A-3, XLCA Insured, Weekly VRDN
and Put, 8.50%, 11/01/34 700,000 700,000 1,000,000 1,000,000
a Nasasu County IDA Civic Facility Revenue, Cold Spring
Harbor, Refunding and Improvement, Daily VRDN and Put,
3.42%, 1/01/34 400,000 400,000 400,000 400,000
a New York City GO, Sub Series A-4, Daily VRDN and Put,
3.05%, 8/01/22 200,000 200,000 200,000 200,000
a New York City IDAR, Liberty, 1 Bryant Park LLC, Series
B, Daily VRDN and Put, 3.65%, 11/01/39 100,000 100,000 100,000 100,000
a New York City Transitional Finance Authority Revenue,
Future Tax Secured, Series B, Daily VRDN and Put, 3.05%,
2/01/31 200,000 200,000 200,000 200,000
a New York City Transitional Finance Authority Revenue,
New York City Recovery, Series 1, Sub Series 1C, Daily
VRDN and Put, 4.00%, 11/01/22 500,000 500,000 500,000 500,000
a New York City Trust for Cultural Resources Revenue,
Manhattan School of Music, Radian Insured, Weekly VRDN
and Put, 8.00%, 10/01/29 500,000 500,000 500,000 500,000
a New York State Dormitory Authority Revenue, Cornell
University, Series B, Daily VRDN and Put, 3.42%, 7/01/25 600,000 600,000 600,000 600,000
a New York State Dormitory Authority Revenues, Non-State
Supported Debt, Barnard College, Series B, FGIC Insured,
Weekly VRDN and Put, 10.00%, 7/01/37 500,000 500,000 500,000 500,000
a Triborough Bridge and Tunnel Authority Revenues,
General, Refunding, Sub Series B-4, Weekly VRDN and Put,
2.85%, 1/01/32 300,000 300,000 300,000 300,000
----------- -----------
5,220,000 6,120,000
----------- -----------
North Carolina 0.4%
a North Carolina Medical Care Commission Hospital Revenue,
Lexington Memorial Hospital Project, Refunding, Daily
VRDN and Put, 3.50%, 4/01/10 300,000 300,000
-----------
Ohio 0.8%
a Franklin County Revenue, Trinity Health Credit, Series
C-1, FGIC Insured, Weekly VRDN and Put, 8.75%, 12/01/38 600,000 600,000
-----------
Pennsylvania 2.6%
a York General Authority Pooled Financing Revenue,
Sub Series 1996-B, AMBAC Insured, Weekly VRDN and
Put, 7.35%, 9/01/26 100,000 100,000
Sub Series A, AMBAC Insured, Weekly VRDN and Put,
7.35%, 9/01/26 1,870,000 1,870,000
-----------
1,970,000
-----------
Tennessee 3.9%
a Blount County PBA Revenue,
Local Government Public Improvement, Series D-1-A,
AMBAC Insured, Daily VRDN and Put, 6.00%, 6/01/30 900,000 900,000
Local Public Improvement, Series D-1-E, AMBAC
Insured, Daily VRDN and Put, 6.00%, 6/01/25 2,000,000 2,000,000
-----------
2,900,000
-----------
U.S. Territories 1.9%
Puerto Rico 1.9%
a Puerto Rico Commonwealth GO, Public Improvement,
Refunding,
Series A-4, FSA Insured, Daily VRDN and Put, 2.90%,
7/01/31
Series A-5, FGIC Insured, Weekly VRDN and Put,
9.00%, 7/01/32 100,000 100,000 700,000 700,000
----------- -----------
100,000 700,000
----------- -----------
Total Short Term Investments (Cost $31,550,000) 16,466,078 9,265,000
----------- -----------
Total Investments (Cost $75,458,160) 101.0% 45,065,639 18,011,238
Other Assets, Less Liabilities (1.0)% (1,151,368) 319,783
----------- -----------
Net Assets 100.0% 43,914,271 18,331,021
----------- -----------
a North Carolina Medical Care Commission Hospital Revenue,
Lexington Memorial Hospital Project, Refunding, Daily
VRDN and Put, 3.50%, 4/01/10 300,000 300,000
-----------
Ohio 0.8%
a Franklin County Revenue, Trinity Health Credit, Series
C-1, FGIC Insured, Weekly VRDN and Put, 8.75%, 12/01/38 600,000 600,000
-----------
Pennsylvania 2.6%
a York General Authority Pooled Financing Revenue,
Sub Series 1996-B, AMBAC Insured, Weekly VRDN and
Put, 7.35%, 9/01/26 100,000 100,000
Sub Series A, AMBAC Insured, Weekly VRDN and Put,
7.35%, 9/01/26 1,870,000 1,870,000
-----------
1,970,000
-----------
Tennessee 3.9%
a Blount County PBA Revenue,
Local Government Public Improvement, Series D-1-A,
AMBAC Insured, Daily VRDN and Put, 6.00%, 6/01/30 900,000 900,000
Local Public Improvement, Series D-1-E, AMBAC
Insured, Daily VRDN and Put, 6.00%, 6/01/25 2,000,000 2,000,000
-----------
2,900,000
-----------
U.S. Territories 1.9%
Puerto Rico 1.9%
a Puerto Rico Commonwealth GO, Public Improvement,
Refunding,
Series A-4, FSA Insured, Daily VRDN and Put, 2.90%,
7/01/31 600,000 600,000 600,000 600,000
Series A-5, FGIC Insured, Weekly VRDN and Put,
9.00%, 7/01/32 800,000 800,000
----------- -----------
600,000 1,400,000
----------- -----------
Total Short Term Investments (Cost $31,550,000) 5,820,000 31,551,078
----------- -----------
Total Investments (Cost $75,458,160) 101.0% 12,321,504 75,398,381
Other Assets, Less Liabilities (1.0)% 147,691 (728,644) (b)
----------- -----------
Net Assets 100.0% 12,469,195 74,669,737 (b)
----------- -----------
FOOTNOTE LEGEND
(a) 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 principal balance
plus accrued interest at specified dates.
ABBREVIATION LEGEND
ACA - American Capital Access Holdings Inc.
ACES - Adjustable Convertible Exempt Security
AMBAC - American Municipal Bond Assurance Corp.
BAN - Bond Anticipation Note
CDA - Community Development Authority/Agency
CFD - Community Facilities District
CIFG - CDC IXIS Financial Guaranty
COP - Certificate of Participation
EDC - Economic Development Corp.
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FSA - Financial Security Assurance Inc.
GO - General Obligation
HAD - Housing Development Authority/Agency
HFAR - Housing Finance Authority Revenue
ID - Improvement District
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
ISD - Independent School District
MBIA - Municipal Bond Investors Assurance Corp.
MFH - Multi-Family Housing
MTA - Metropolitan Transit Authority
MUD - Municipal Utility District
PDA - Public Building Authority
PCR -Pollution Control Revenue
PFAR - Public Financing Authority Revenue
RDA - Redevelopment Agency/Authority
USD - Unified/Union School District
XLCA - XL Capital Assurance
See notes to Pro Forma combining statements
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
FRANKLIN NEW YORK LIMITED-TERM TAX-FREE INCOME FUND
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
AS OF FEBRUARY 29, 2008
(UNAUDITED)
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FUND
FEDERAL CALIFORNIA NEW YORK PRO FORMA PRO FORMA
FUND FUND FUND ADJUSTMENTS COMBINED
(AUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ------------
Assets:
Investments in securities:
Cost 45,108,946 18,046,165 12,303,049 75,458,160
----------- ----------- ----------- ------------
Value 45,065,639 18,011,238 12,321,504 75,398,381
Cash 87,421 88,241 9,513 185,175
Receivables: --
Capital shares sold 619,434 130,910 93,410 843,754
Interest 353,140 117,908 88,662 559,710
Affiliates -- 20,421 -- 20,421
----------- ----------- ----------- ------------
Total assets 46,125,634 18,368,718 12,513,089 77,007,441
----------- ----------- ----------- ------------
Liabilities:
Payables:
Capital shares redeemed 2,159,983 300 24,000 2,184,283
Affiliates 5,758 10,338 8,023 24,119
Distributions to shareholders 31,465 12,360 7,628 51,453
Accrued expenses and other liabilities 14,157 14,699 4,243 44,750(a) 77,849
----------- ----------- ----------- ----------- ------------
Total liabilities 2,211,363 37,697 43,894 44,750 2,337,704
----------- ----------- ----------- ----------- ------------
Net assets, at value $43,914,271 $18,331,021 $12,469,195 $ 74,669,737
----------- ----------- ----------- ------------
Net assets consist of:
Paid-in capital $44,289,761 $18,562,562 $12,570,998 $ 75,423,321
Undistributed net investment income
(distributions in excess of net
investment income) 14,365 7,974 (7,128) (44,750) (29,539)
Net unrealized appreciation
(depreciation) (43,307) (34,927) 18,455 (59,779)
Accumulated net realized gain (loss) (346,548) (204,588) (113,130) (664,266)
----------- ----------- ----------- ----------- ------------
Net assets, at value $43,914,271 $18,331,021 $12,469,195 $ (44,750) $ 74,669,737
----------- ----------- ----------- ----------- ------------
CLASS A:
Net assets, at value $43,914,271 $18,331,021 $12,469,195 $ (44,750) $ 74,669,737
----------- ------------------------- ----------- ------------
Shares outstanding (b) 4,407,791 1,848,687 1,261,226 (17,522) 7,500,182
----------- ------------------------- ----------- ------------
Net asset value per share (c) $ 9.96 $ 9.92 $ 9.89 $ 9.96
----------- ----------- ----------- ------------
Maximum offering price per share
(net asset value per share / 97.75%) $ 10.19 $ 10.15 $ 10.12 $ 10.19
----------- ----------- ----------- ------------
(a) Reorganization costs
(b) See note 2 in the accompanying notes to pro forma combining financial
statements.
(c) Redemption price is equal to the net asset value less contingent sales
charges, if applicable, and redemption fees retained by the Fund.
See notes to Pro Forma combining statements
FRANKLIN FEDERAL LIMITED-TERM TAX FREE INCOME FUND
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
FRANKLIN NEW YORK LIMITED-TERM TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED FEBRUARY 29, 2008
(UNAUDITED)
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FUND
FEDERAL CALIFORNIA NEW YORK PRO FORMA PRO FORMA
FUND FUND FUND ADJUSTMENTS COMBINED
(AUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ------------
Investment Income:
Interest $ 943,287 $ 413,854 $ 300,938 1,658,079
----------- ----------- ----------- ------------
Expenses:
Management fees 130,096 61,972 42,511 234,579
Administrative fees 52,038 24,790 17,005 93,833
Distribution fees:
Class A 39,097 18,127 12,762 69,986
Transfer agent fees 31,835 23,164 6,045 61,044
Custodian fees 331 186 94 611
Reports to shareholders 2,019 1,211 434 3,664
Registration and filing fees 20,695 5,207 7,939 (8,841)(a) 25,000
Professional fees 19,121 27,739 20,939 (46,799)(b) 21,000
Trustees' fees and expenses 178 261 420 859
Other 15,806 14,978 6,672 (8,280)(c) 29,176
----------- ----------- ----------- ----------- ------------
Total expenses 311,216 177,635 114,821 (63,920) 539,752
Expense waived/paid by affiliates (180,782) (115,650) (72,310) 63,920 (304,822)
----------- ----------- ----------- ----------- ------------
Net expenses 130,434 61,985 42,511 -- 234,930
----------- ----------- ----------- ----------- ------------
Net investment income 812,853 351,869 258,427 1,423,149
----------- ----------- ----------- ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from
investments 6,997 -- 411 7,408
Net change in unrealized appreciation
(depreciation) on investments 15,741 30,889 20,141 66,771
----------- ----------- ----------- ------------
Net realized and unrealized gain (loss) 22,738 30,889 20,552 74,179
----------- ----------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations $ 835,591 $ 382,758 $ 278,979 $ 1,497,328
----------- ----------- ----------- ------------
* Projected Expenses are based on current and anticipated expenses and do not
include the estimated costs of the transaction of approximately $44,750 to
be borne by the Funds.
(a) Pro Forma adjustment for removal of duplicative registration fees.
(b) Pro Forma adjustment for removal of duplicative professional fees.
(c) Pro Forma adjustment for removal of duplicative pricing fees.
See notes to Pro Forma combining statements
NOTES TO PRO FORMA COMBINING STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
Subject to approval of the proposed Agreements and Plans of Reorganization (the
"Agreement and Plan") by the shareholders of the Franklin California
Limited-Term Tax-Free Income Fund and the Franklin New York Limited-Term
Tax-Free Income Fund, the Franklin Federal Limited-Term Tax-Free Income Fund
will acquire substantially all the net assets of the Franklin California
Limited-Term Tax-Free Income Fund and the Franklin New York Limited-Term
Tax-Free Income Fund in exchange for the shares of the Franklin Federal
Limited-Term Tax-Free Income Fund. The reorganizations will be accounted for by
the method of accounting for tax-free business combinations of investment
companies. The accompanying Pro Forma Combining Statements are presented to show
the effect of the proposed reorganizations as if such reorganization had
occurred on March 1, 2007. The Pro Forma Combining Statement of Assets and
Liabilities and Statement of Investments for the Franklin Federal Limited-Term
Tax-Free Income Fund, the Franklin California Limited-Term Tax-Free Income Fund,
and the Franklin New York Limited-Term Tax-Free Income Fund have been combined
to reflect balances as of February 29, 2008. The Pro Forma Combining Statement
of Operations for the Franklin Federal Limited-Term Tax-Free Income Fund, the
Franklin California Limited-Term Tax-Free Income Fund, and the Franklin New York
Limited-Term Tax-Free Income Fund have been combined to reflect twelve months
ended February 29, 2008. The Pro Forma Combining Statements are presented for
the information of the reader, and should be read in conjunction with the
historical financial statements of the funds.
2. SHARES OF BENEFICIAL INTEREST
The number of shares issued was calculated by dividing the net assets of
the Franklin California Limited-Term Tax-Free Income Fund and the Franklin New
York Limited-Term Tax-Free Income Fund at February 29, 2008 by the net asset
value per share of the Franklin Federal Limited-Term Tax-Free Income Fund at
February 29, 2008.
At the actual closing of the reorganizations, shareholders of the Franklin
California Limited-Term Tax-Free Income Fund and the Franklin New York
Limited-Term Tax-Free Income Fund will receive shares of the Franklin Federal
Limited-Term Tax-Free Income Fund based on the relative net asset values of the
Funds as of 1:00 p.m., Pacific Time, of the closing date. The actual exchange
ratios may be higher or lower than those used in these pro forma statements.
3. INVESTMENT RESTRICTIONS
None of the securities held by the Franklin California Limited-Term Tax-Free
Income Fund and the Franklin New York Limited-Term Tax-Free Income Fund as of
the closing date will violate the investment restrictions of the Franklin
Federal Limited-Term Tax-Free Income Fund.
4. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
5. SECURITY VALUATION
Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. Each Trust may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
Each Trust's pricing services use valuation models or matrix pricing, which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, to determine current value.
Each fund has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by each fund's Board
of Trustees.
FRANKLIN TAX-FREE TRUST
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification. The Agreement and Declaration of Trust (the
"Declaration") provides that any person who is or was a Trustee,
officer, employee or other agent, including the underwriter, of such
Trust shall be liable to such Trust and its shareholders only for (1)
any act or omission that constitutes a bad faith violation of the
implied contractual covenant of good faith and fair dealing, or (2)
the person's own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such
person (such conduct referred to herein as Disqualifying Conduct) and
for nothing else. Except in these instances, these persons shall not
be responsible or liable for any act or omission of any other agent of
such Trust or its investment adviser or principal underwriter to the
fullest extent that limitations of liability are permitted by the
Delaware statutory trust Act (the "Delaware Act"). Moreover, except in
these instances, none of these persons, when acting in their
respective capacity as such, shall be personally liable to any other
person, other than such Trust or its shareholders, for any act,
omission or obligation of such Trust or any trustee thereof.
The Trust shall indemnify, out of its assets, to the fullest extent
permitted under applicable law, any of these persons who was or is a
party, or is threatened to be made a party, to any Proceeding (as
defined in the Declaration) because the person is or was an agent of
such Trust. These persons shall be indemnified against any expenses,
judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with the Proceeding if the person
acted in good faith or, in the case of a criminal proceeding, had no
reasonable cause to believe that the conduct was unlawful. The
termination of any proceeding by judgment, settlement or its
equivalent shall not in itself create a presumption that the person
did not act in good faith or that the person had reasonable cause to
believe that the person's conduct was unlawful. There shall
nonetheless be no indemnification for a person's own Disqualifying
Conduct.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act" or "Securities
Act"), may be permitted to Trustees, officers and controlling persons
of the Trust pursuant to the foregoing provisions, or otherwise, the
Trust has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Trust of expenses incurred or paid by a Trustee,
officer or controlling person of the Trust in the successful defense
of any action, suit or proceeding) is asserted by such Trustee,
officer or controlling person in connection with securities being
registered, the Trust may be required, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court or appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 16. Exhibits. The following exhibits are incorporated by
reference to the Registrant's previously filed
registration statements on Form N-1A indicated below,
except as noted:
(1) Copies of the charter of the Registrant as now in effect;
(a) Agreement and Declaration of Trust of Franklin Tax-Free
Trust, a Delaware statutory trust, dated October 18, 2006
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2007
(b) Certificate of Trust of Franklin Tax-Free Trust, a Delaware
statutory trust, dated October 18, 2006
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2007
(2) Copies of the existing bylaws or corresponding instrument of the
Registrant;
(a) By-Laws of Franklin Tax-Free Trust, a Delaware statutory
trust, effective as of October 18, 2006
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2007
(3) Copies of any voting trust agreement affecting more than 5
percent of any class of equity securities of the Registrant;
Not applicable.
(4) Copies of the agreement of acquisition, reorganization, merger,
liquidation and any amendments to it;
(a) Form of Agreement and Plan of Reorganization between the
Registrant, on behalf of Franklin Federal Limited-Term
Tax-Free Income Fund, and Franklin [California] [New York]
Tax-Free Trust, on behalf of Franklin [California] [New
York] Limited-Term Tax-Free Income Fund, is filed herewith
as Exhibit A to the Prospectus/Proxy Statement.
(5) Copies of all instruments defining the rights of holders of the
securities being registered including, where applicable, the
relevant portion of the articles of incorporation or by-laws of
the Registrant;
(a) Articles III, V, VI, VII, VIII and IX of the Agreement and
Declaration of Trust of Franklin Tax-Free Trust, a Delaware
statutory trust, dated October 18, 2006
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2007
(b) Articles II, VI, and VII of the By-Laws of Franklin
Tax-Free Trust, a Delaware statutory trust, effective as of
October 18, 2006
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2007
(6) Copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(a) Investment Management Agreement dated July 2, 2007, between
Registrant, on behalf of the following funds and Franklin
Advisers, Inc.: Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Double Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Incom Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(b) Investment Management Agreement dated July 2, 2007, between
Registrant, on behalf of Franklin Federal Limited-Term
Tax-Free Income Fund, and Franklin Advisers, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(c) Addendum dated January 1, 2008, to Investment Management
Agreement dated July 2, 2007
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(7) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies
of all agreements between principal underwriters and dealers;
(a) Distribution Agreement dated July 2, 2007, between
Registrant and Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(b) Form of Selling Agreements between Franklin/Templeton
Distributors, Inc., and Securities Dealers dated
November 1, 2003
Filing: Post-Effective Amendment No. 34 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 28, 2004
(c) Amendment to form of Selling Agreements between
Franklin/Templeton Distributors, Inc. and Securities
Dealers dated November 1, 2003
Filing: Post-Effective
Amendment No. 38 to Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2007
(8) Copies of all bonus, profit sharing, pension, or other similar
contracts or arrangements wholly or partly for the benefit of
trustees or officers of the Registrant in their capacity as
such. Furnish a reasonably detailed description of any plan that
is not set forth in a formal document;
Not applicable.
(9) Copies of all custodian agreements and depository contracts
under Section 17(f) of the Investment Company Act of 1940, as
amended (the "1940 Act") for securities and similar investments
of the Registrant, including the schedule of remuneration;
(a) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: March 14, 1996
(b) Amendment dated May 7, 1997 to Master Custody Agreement
between Registrant and Bank of New York dated
February 16, 1996
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: April 30, 1998
(c) Amendment dated February 27, 1998 to Master Custody
Agreement between Registrant and Bank of New York dated
February 16, 1996
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: December 23, 1998
(d) Amendment dated June 3, 2008 to Exhibit A of the Master
Custody Agreement between Registrant and the Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(e) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: March 14, 1996
(10) Copies of any plan entered into by Registrant pursuant to Rule
12b-1 under the 1940 Act and any agreements with any person
relating to implementation of the plan, and copies of any plan
entered into by Registrant pursuant to Rule 18f-3 under the 1940
Act, any agreement with any person relating to implementation of
the plan, any amendment to the plan, and a copy of the portion
of the minutes of the meeting of the Registrant's trustees
describing any action taken to revoke the plan;
(a) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Alabama Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(b) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Arizona Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(c) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Colorado Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(d) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Connecticut Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(e) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Double Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(f) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Federal Limited-Term Tax-Free Income Fund, and
Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(g) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Federal Intermediate-Term Tax-Free Income Fund, and
Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(h) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Florida Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(i) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Georgia Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(j) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
High Yield Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(k) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Insured Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(l) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Kentucky Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(m) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Louisiana Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(n) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Maryland Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(o) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant on behalf of Franklin
Massachusetts Insured Tax-Free Income Fund
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(p) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Michigan Insured Tax-Free Income Fund, and
Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(q) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Minnesota Insured Tax-Free Income Fund, and
Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(r) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Missouri Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(s) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
New Jersey Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(t) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
North Carolina Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39
to Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(u) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Ohio Insured Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(v) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Oregon Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(w) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Pennsylvania Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(x) Class A Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant, on behalf of Franklin
Virginia Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
Filing: Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(y) Class C Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 between the Registrant on behalf of the
following funds and Franklin/Templeton Distributors, Inc.:
Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Double Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income
Fund Franklin Virginia Tax-Free Income Fund
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(z) Class B Distribution Plan dated July 2, 2007, pursuant to
Rule 12b-1 and the Registrant on behalf of the following
funds and Franklin/Templeton Distributors, Inc.:
Franklin Arizona Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(aa) Multiple Class Plan dated October 17, 2006, on behalf of
the following funds: Franklin Alabama Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Double Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Fund
Franklin Georgia Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(bb) Multiple Class Plan dated October 17, 2006, on behalf of
the following funds:
Franklin Florida Tax-Free Income Fund
Franklin Double Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(cc) Multiple Class Plan dated October 17, 2006, on behalf of
Franklin High Yield Tax-Free Income Fund
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(dd) Form of Multiple Class Plan dated April 15, 2008, on behalf
of the following funds:
Franklin Arizona Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(11) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will, when
sold, be legally issued, fully paid and nonassessable;
(a) Legal Opinion dated July 31, 2008
(12) An opinion, and consent to their use, of counsel or, in lieu of
an opinion, a copy of the revenue ruling from the Internal
Revenue Service, supporting the tax matters and consequences to
shareholders discussed in the prospectus;
(a) To be filed by amendment.
(13) Copies of all material contracts of the Registrant not made in
the ordinary course of business which are to be performed in
whole or in part on or after the date of filing the registration
statement;
(a) Subcontract dated July 2, 2007, for Fund Administrative
Services between Franklin Advisers, Inc., on behalf of all
funds except Franklin Federal Limited-Term Tax-Free Income
Fund, and Franklin Templeton Services, LLC
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(b) Fund Administration Agreement dated July 2, 2007, between
the Registrant, on behalf of Franklin Federal Limited-Term
Tax-Free Income Fund, and Franklin Templeton Services, LLC
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 002-94222
Filing Date: June 27, 2008
(14) Copies of any other opinions, appraisals, or rulings, and
consents to their use, relied on in preparing the registration
statement and required by Section 7 of the 1933 Act;
(a) Consent of Independent Registered Public
Accounting Firm
(15) All financial statements omitted pursuant to Item 14(a)(1);
Not applicable.
(16) Manually signed copies of any power of attorney pursuant to
which the name of any person has been signed to the registration
statement; and
(a) Powers of Attorney dated July 10, 2008
(17) Any additional exhibits which the Registrant may wish to file.
(a) Code of Ethics dated May, 2008
Item 17. UNDERTAKINGS.
------------
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering
prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may
be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide
offering of them.
(3) The undersigned Registrant agrees to file by Post-Effective
Amendment the opinions and consents of counsel regarding the tax
consequences of the proposed reorganizations required by Item
16(12) of Form N-14 within a reasonable time after receipt of
such opinions.
SIGNATURES
As required by the Securities Act of 1933, as amended, (the "1933 Act"),
this Registration Statement has been signed on behalf of the Registrant in the
City of San Mateo and the State of California on the [ ] day of August, 2008.
FRANKLIN TAX-FREE TRUST
a Delaware statutory trust
(Registrant)
By: /S/DAVID P. GOSS
----------------
David P. Goss
Vice President
As required by the 1933 Act, this Registration Statement has been signed
by the following persons in the capacities and on the dates indicated:
CHARLES B. JOHNSON* Chief Executive Officer-
------------------- Investment Management and
Charles B. Johnson Dated: August [ ], 2008
Trustee
GALEN G. VETTER* Chief Executive Officer-
---------------- Finance and Administration
Galen G. Vetter Dated: August [ ], 2008
LAURA F. FERGERSON* Chief Financial Officer and
------------------- Chief Accounting Officer
Laura F. Fergerson Dated: August [ ], 2008
HARRIS J. ASHTON* Trustee
----------------- Dated: August [ ], 2008
Harris J. Ashton
ROBERT F. CARLSON* Trustee
------------------ Dated: August [ ], 2008
Robert F. Carlson
SAM GINN* Trustee
--------- Dated: August [ ], 2008
Sam Ginn
EDITH E. HOLIDAY* Trustee
----------------- Dated: August [ ], 2008
Edith E. Holiday
RUPERT H. JOHNSON, JR.* Trustee
----------------------- Dated: August [ ], 2008
Rupert H. Johnson, Jr.
FRANK W.T. LAHAYE* Trustee
------------------ Dated: August [ ], 2008
Frank W.T. LaHaye
FRANK A. OLSON* Trustee
--------------- Dated: August [ ], 2008
Frank A. Olson
LARRY D. THOMPSON* Trustee
------------------ Dated: August [ ], 2008
Larry D. Thompson
JOHN B WILSON* Trustee
-------------- Dated: August [ ], 2008
John B. Wilson
*By /S/DAVID P. GOSS
-----------------
David P. Goss, Attorney-in-Fact
(Pursuant to Powers of Attorney filed herewith)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
EXHIBITS
TO
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FRANKLIN TAX-FREE TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.(1)(a) Agreement and Declaration of Trust of *
Franklin Tax-Free Trust, a Delaware statutory
trust, dated October 18, 2006
EX-99.(1)(b) Certificate of Trust of Franklin Tax-Free *
Trust, a Delaware statutory trust, dated
October 18, 2006
EX-99.(2)(a) By-Laws of Franklin Tax-Free Trust, a *
Delaware statutory trust, effective as of
October 18, 2006
EX-99.(5)(a) Articles III, V, VI, VII, VIII and IX of *
the Agreement and Declaration of Trust of
Franklin Tax-Free Trust, a Delaware
statutory trust, dated October 18, 2006
EX-99.(5)(b) Articles II, VI, and VII of the By-Laws *
of Franklin Tax-Free Trust, a Delaware statutory
trust, effective as of October 18, 2006
EX-99.(6)(a) Investment Management Agreement dated *
July 2, 2007, between Registrant, on
behalf of the following funds and
Franklin Advisers, Inc.: Franklin
Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Double Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free
Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
EX-99.(6)(b) Investment Management Agreement between *
Registrant, on behalf of Franklin Federal
Limited-Term Tax-Free Income Fund,
and Franklin Advisers, Inc.
EX-99.(6)(c) Addendum dated January 1, 2008 to *
Investment Management Agreement dated
July 2, 2007
EX-99.(7)(a) Distribution Agreement dated July 2, 2007 *
between Registrant and Franklin/Templeton
Distributors, Inc.
EX-99.(7)(b) Forms of Selling Agreements between *
Franklin/Templeton Distributors, Inc., and
Securities Dealers dated
November 1, 2003
EX-99.(7)(c) Amendment to form of Selling Agreements *
between Franklin/Templeton Distributors, Inc.
and Securities Dealers dated November 1, 2003
EX-99.(9)(a) Master Custody Agreement between *
Registrant and Bank of New York dated
February 16, 1996
EX-99.(9)(b) Amendment dated May 7, 1997 to Master *
Custody Agreement between Registrant and
Bank of New York dated
February 16, 1996
EX-99.(9)(c) Amendment dated February 27, 1998 to *
Master Custody Agreement between Registrant and
Bank of New York dated February 16, 1996
EX-99.(9)(d) Amendment dated June 3, 2008, to Exhibit *
A of the Master Custody Agreement between
Registrant and the Bank of New York
dated February 16, 1996
EX-99.(9)(e) Terminal Link Agreement between *
Registrant and Bank of New York dated
February 16, 1996
EX-99.(10)(a) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant on
behalf of Franklin Alabama Tax-Free Income Fund
EX-99.(10)(b) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant on
behalf of Franklin Arizona Tax-Free Income Fund
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(c) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Colorado
Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(d) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Connecticut
Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(e) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin Double Tax-Free Income Fund,
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(f) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin
Federal Limited-Term Tax-Free Income Fund,
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(g) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Federal
Intermediate-Term Tax-Free Income Fund, and
Franklin/Templeton Distributors, Inc.
EX-99.(10)(h) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the
Registrant on behalf of Franklin Florida
Tax-Free Income Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(i) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant, on
behalf of Franklin Georgia Tax-Free Income Fund,
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(j) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant
on behalf of Franklin High Yield Tax-Free
Income Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(k) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant on
behalf of Franklin Insured Tax-Free Income Fund
EX-99.(10)(l) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant, on
behalf of Franklin Kentucky Tax-Free Income Fund,
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(m) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant, on
behalf of Franklin Louisiana Tax-Free Income Fund,
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(n) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant, on
behalf of Franklin Maryland Tax-Free Income Fund,
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(o) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin Massachusetts Insured
Tax-Free Income Fund, and
Franklin/Templeton Distributors, Inc.
EX-99.(10)(p) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin Michigan Insured Tax-Free
Income Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(q) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin Minnesota Insured Tax-Free
Income Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(r) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant, on
behalf of Franklin Missouri Tax-Free Income Fund,
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(s) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin New Jersey Tax-Free Income
Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(t) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin North Carolina Tax-Free
Income Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(u) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant, on
behalf of Franklin Ohio Insured Tax-Free Income
Fund, and Franklin/Templeton Distributors, Inc.
EX-99.(10)(v) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin Oregon Tax-Free Income Fund,
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(w) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin Pennsylvania Tax-Free
Income Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(x) Class A Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin Virginia Tax-Free Income
Fund, and Franklin/Templeton
Distributors, Inc.
EX-99.(10)(y) Class C Distribution Plan dated July 2, 2007, *
pursuant to Rule 12b-1 between the Registrant
and Franklin/Templeton Distributors, Inc.
EX-99.(10)(z) Class B Distribution Plan pursuant to Rule 12b-1 *
dated July 2, 2007, pursuant to Rule 12b-1
between the Registrant and
Franklin/Templeton Distributors, Inc.
EX-99.(10)(aa) Multiple Class Plan dated October 17, 2006 *
EX-99.(10)(bb) Multiple Class Plan dated October 17, 2006 *
EX-99.(10)(cc) Multiple Class Plan on behalf of Franklin *
High Yield Tax-Free Income Fund dated
October 17, 2006
EX-99.(10)(dd) Form of Multiple Class Plan dated April 15, 2008 *
EX-99.(11)(a) Legal Opinion dated July 31, 2008 Attached
EX-99(13)(a) Subcontract dated July 2, 2007, for Fund *
Administrative Services between Franklin
Advisers, Inc., on behalf of all
funds except Franklin Federal Limited-Term
Tax-Free Income Fund, and Franklin
Templeton Services, LLC
EX-99(13)(b) Fund Administration Agreement dated July 2, 2007, *
between the Registrant, on behalf of Franklin
Federal Limited-Term Tax-Free Income Fund, and
Franklin Templeton Services, LLC
EX-99.(14)(a) Consent of Independent Registered Public Attached
Accounting Firm
EX-99.(16)(a) Power of Attorney dated July 10, 2008 Attached
EX-99.(17(a) Code of Ethics dated May 2008 Attached
*Incorporated by Reference