FRANKLIN
FEDERAL TAX-FREE
INCOME FUND
PROSPECTUS
MAY 1, 1995
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Franklin Federal Tax-Free Income Fund (the "Fund") is a
diversified, open-end management investment company which invests
in municipal securities with the objective of providing as high a
level of interest income exempt from federal income taxes as is
consistent with prudent investing, while seeking preservation of
shareholders' capital. Investments in municipal securities will
be within the four highest municipal ratings of either Moody's
Investors Service ("Moody's"), Standard & Poor's Corporation
("S&P") or Fitch Investors Service, Inc. ("Fitch") or in unrated
securities which, in the opinion of the Fund's investment
manager, are of comparable quality to such four highest ratings.
(See "Investment Objective and Policies of the Fund.") Normally,
except for temporary defensive purposes, at least 80% of the
Fund's assets will be invested in tax-exempt municipal
securities. There, of course, can be no guarantee that the Fund's
objective will be achieved.
This Prospectus is intended to set forth in a clear and concise
manner information about the Fund that a prospective investor
should know before investing. After reading the Prospectus, it
should be retained for future reference; it contains information
about the purchase and sale of shares and other items which a
prospective investor will find useful to have.
As of May 1, 1995, the Fund offers two classes to its investors:
Franklin Federal Tax-Free Income Fund - Class I ("Class I") and
Franklin Federal Tax-Free Income Fund - Class II ("Class II").
Investors can choose between Class I shares, which generally bear
a higher front-end sales charge and lower ongoing Rule 12b-1
distribution fees ("Rule 12b-1 fees"), and Class II shares, which
generally have a lower front-end sales charge and higher ongoing
Rule 12b-1 fees. Investors should consider the differences
between the two classes, including the impact of sales charges
and distribution fees, in choosing the more suitable class given
their anticipated investment amount and time horizon. See "How to
Buy Shares of the Fund - Alternative Purchase Arrangements."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
A Statement of Additional Information (the "SAI") concerning the
Fund, dated May 1, 1995, as may be amended from time to time,
provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN
DESCRIBED IN ANY STATE IN WHICH THE OFFERING IS NOT AUTHORIZED.
NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED
FROM THE UNDERWRITER.
CONTENTS PAGE
Expense Table
Financial Highlights
About the Fund
Investment Objective
and Policies of the Fund
Management of the Fund
Distributions to Shareholders
Taxation of the Fund and Its Shareholders
How to Buy Shares of the Fund
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information
Regarding an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. The figures for both classes of shares are based on
restated aggregate operating expenses of the Class I shares for
the fiscal year ended April 30, 1994.
SHAREHOLDER TRANSACTION EXPENSES
CLASS I CLASS II
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.25%
1.00%^
Deferred Sales Charge NONE+
1.00%++
Exchange Fee (per transaction) $5.00* $5.00*
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.46% 0.46%
Rule 12b-1 Fees 0.10%** 0.65%**
Other Expenses:
Shareholder Servicing Costs 0.01% 0.01%
Reports to Shareholders 0.02% 0.02%
Other Expenses 0.03% 0.03%
Total Other Expenses 0.06% 0.06%
Total Fund Operating Expenses 0.62%** 1.17%**
^Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fees for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take less than six years for shareholders who maintain total
shares valued at less than $100,000 in the Franklin Templeton
Funds. Shareholders with larger investments in the Franklin
Templeton Funds will reach the crossover point more quickly.
+Class I investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1%, which has not been reflected in the Example below,
is generally imposed on certain redemptions within a "contingency
period" of 12 months of the calendar month following such
investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
++Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
*$5.00 fee imposed only on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
**Total Fund operating expenses for the fiscal year ended April
30, 1994 have been restated to reflect the maximum Rule 12b-1
fees allowed pursuant to each class' plan of distribution as
though such plan had been in effect for the entire fiscal year.
Class I's plan was effective May 1, 1994, and Class II's plan is
effective May 1, 1995. The Fund's actual total operating expenses
equaled 0.52% for the fiscal year ended April 30, 1994. "Other
Expenses" for Class II shares are estimates based on the actual
expenses incurred by Class I shares for the fiscal year ended
April 30, 1994. Consistent with National Association of
Securities Dealers, Inc.'s rules, it is possible that the
combination of front-end sales charges and Rule 12b-1 fees could
cause long-term shareholders to pay more than the economic
equivalent of the maximum front-end sales charges permitted under
those same rules.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates
the expenses, including the maximum front-end sales charge and
applicable contingent deferred sales charges, that apply to a
$1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS I $49 $62 $76 $117
CLASS II $32 $47 $74 $151
THIS EXAMPLE IS BASED ON THE RESTATED AGGREGATE ANNUAL OPERATING
EXPENSES SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR
LESS THAN THOSE SHOWN. The operating expenses are borne by the
Fund and only indirectly by shareholders as a result of their
investment in the Fund. In addition, federal securities
regulations require the example to assume an annual return of 5%,
but the Fund's actual return may be more or less than 5%.
FINANCIAL HIGHLIGHTS
Set forth below is a table containing financial highlights for a
share of Class I of the Fund. The information for each of the
five fiscal years in the period ended April 30, 1994 has been
audited by Coopers & Lybrand L.L.P., independent auditors, whose
audit report appears in the financial statements in the Fund's
SAI. The figures for the six months ended October 31, 1994 are
unaudited. The remaining figures, which are audited, are not
covered by the auditors' current report. Information regarding
Class II shares will be included in this table after they have
been offered to the public for a reasonable period of time. See
the discussion "Reports to Shareholders" under "General
Information."
<TABLE>
<CAPTION>
Net Asset Net Realized Distributions
Value at Net & Unrealized Total From From Net Distributions
Year Beginning Investment Gains (Losses) Investment Investment From Realized
Ended of Year Income on Securities Operations Income Capital Gains
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994++ $11.81 $0.38 $(0.410) $(0.030) $(0.390) $ --
1994 12.24 0.77 (0.415) 0.355 (0.785) --
1993 11.68 0.80 0.576 1.376 (0.816) --
1992 11.40 0.82 0.302 1.122 (0.842) --
1991 11.08 0.83 0.342 1.172 (0.852) --
1990 11.33 0.84 (0.238) 0.602 (0.852) --
1989 10.97 0.85 0.422 1.272 (0.912) --
1988 11.16 0.86 (0.118) 0.742 (0.924) (0.008)
1987 11.64 0.92 (0.398) 0.522 (0.980) (0.022)
1986 10.44 1.08 1.126 2.206 (1.006) --
1985 10.02 1.09 0.330 1.420 (1.000) --
1984 10.00 0.58 (0.130) 0.450 (0.430) --
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Net Asset Net Assets Ratio of Investment
Value at End Expenses Income Portfolio
Year at End Total of Year to Average to Average Turnover
Ended of Year Return* (in 000's) Net Assets Net Assets Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994++ $11.39 (.30)% $6,650,658 0.59%+ 6.42%+ 11.18%
1994 11.81 2.58 6,804,262 0.52 6.27 24.59
1993 12.24 11.89 6,414,739 0.51 6.68 13.30
1992 11.68 9.90 5,184,214 0.51 7.07 14.94
1991 11.40 10.67 4,353,043 0.50 7.34 28.79
1990 11.08 5.10 3,865,264 0.50 7.39 17.83
1989 11.33 11.71 3,648,652 0.51 7.59 16.43
1988 10.97 6.72 2,839,701 0.52 7.83 19.31
1987 11.16 4.01 2,407,298 0.54 7.14 19.70
1986 11.64 21.76 644,134 0.64 7.72 75.51
1985 10.44 14.81 69,445 0.85 8.60 98.64
1984 10.02 2.35 3,960 0.70 5.70 24.00
</TABLE>
*Selected data for a share of capital stock outstanding
throughout the year.
**Total return measures the change in value of an investment over
the periods indicated. It does not include the maximum front-end
sales charge and assumes reinvestment of dividends at the maximum
offering price and capital gains, if any, at net asset value.
Effective May 1, 1994, with the implementation of the Rule 12b-1
distribution plan, as discussed in this Prospectus, the sales
charge on reinvested dividends was eliminated.
+Annualized
++Six months Ended October 31, 1994 (unaudited).
ABOUT THE FUND
The Fund, which was incorporated in the State of California in
1982 under the name of Franklin Cash Management Fund, is a
diversified, open-end management investment company, or mutual
fund, and has registered as such under the Investment Company Act
of 1940, as amended (the "1940 Act"). Its present investment
objective and policies were adopted in June 1983, and its present
name was adopted in September 1983. The Fund has two classes of
shares of capital stock with no par value: Franklin Federal Tax-
Free Income Fund - Class I and Franklin Federal Tax-Free Income
Fund - Class II. All Fund shares outstanding before May 1, 1995,
have been redesignated as Class I shares, and will retain their
previous rights and privileges, except for legally required
modifications to shareholder voting procedures, as discussed in
"General Information - Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100
initially and $25 thereafter) at the current public offering
price. The current public offering price of the Class I shares is
equal to the net asset value (see "Valuation of Fund Shares"),
plus a variable sales charge not exceeding 4.25% of the offering
price depending upon the amount invested. The current public
offering price of the Class II shares is equal to the net asset
value, plus a sales charge of 1.0% of the amount invested. (See
"How to Buy Shares of the Fund.")
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The investment objective of the Fund is to provide as high a
level of interest income exempt from federal income taxes as is
consistent with prudent investing, while seeking preservation of
shareholders' capital through investing the Fund's assets
primarily in securities exempt from such taxes under the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund seeks to
achieve its objective by investing in a diversified portfolio of
municipal securities that are obligations issued by or on behalf
of states, territories and possessions of the United States and
the District of Columbia, and their political subdivisions,
agencies, authorities and instrumentalities, the interest on
which is exempt from regular federal income tax. The investment
objective of the Fund is a fundamental policy which may not be
changed without shareholder approval.
The Fund has no restrictions on the maturity of municipal
securities in which it may invest. Accordingly, the Fund seeks to
invest in municipal securities of such maturities which, in the
judgment of the Fund and its investment manager, will provide a
high level of current income consistent with prudent investment,
with consideration given to market conditions. Under current
market conditions, the average maturity in the Fund's portfolio
is 20-25 years. Generally long term bonds are more sensitive to
interest rate fluctuations than short term bonds.
TYPES OF SECURITIES THE FUND MAY PURCHASE
The Fund may invest, without percentage limitations, in
securities having, at the time of purchase, one of the four
highest municipal ratings of Moody's (Aaa, Aa, A, Baa), S&P (AAA,
AA, A, BBB) or Fitch (AAA, AA, A, BBB), or in securities which
are not rated, provided that, in the opinion of the Fund's
investment manager, such securities are comparable in quality to
those within the four highest ratings. The rating agencies
consider that bonds rated in the fourth highest category may have
some speculative characteristics and that changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in
the cases with higher grade bonds. In the event the rating on an
issue held in the Fund's portfolio is changed by the rating
service, such change will be considered by the Fund in its
evaluation of the overall investment merits of that security but
such change will not necessarily result in an automatic sale of
the security. A description of the ratings is contained in the
Appendix to the SAI.
Prior to acquiring unrated securities, the investment manager
considers the terms of the offering and various other factors,
initially to determine whether the securities are consistent with
the Fund's investment objective and policies, and thereafter to
determine the issuer's comparative credit rating. In making such
determinations, the investment manager may typically (i)
interview representatives of the issuer at its offices,
conducting a tour and inspection of the physical facilities of
the issuer in an effort to evaluate the issuer and its
operations, (ii) perform analysis of the issuer's financial and
credit position, including comparisons of all appropriate ratios,
and/or (iii) compare other similar securities offerings to the
issuer's proposed offering.
As a fundamental investment policy, with respect to 75% of the
Fund's gross assets, the Fund may not purchase securities of any
issuer which would result in more than 5% of the value of its
gross assets being invested in securities of any one issuer, but
this limitation does not apply to investments issued or
guaranteed by the U.S. government or its instrumentalities. With
respect to the remaining 25% of the value of the Fund's gross
assets, the Fund may invest in the securities of as few as one
issuer. In determining the issuer of a tax-exempt security, each
state and each political subdivision, agency and instrumentality
of each state and each multi-state agency of which such state is
a member is a separate issuer. Where securities are backed only
by assets and revenues of a particular instrumentality, facility
or subdivision, such entity is considered the issuer. However, in
any case, if the creating government or other entity guarantees a
security, such a guarantee would be considered a separate
security and would be treated as an issue of such government or
other entity. Up to 25% of the Fund's assets may be invested in
industrial revenue bonds or in securities of issuers located in
the same state. Percentage limitations referred to herein and
elsewhere in this Prospectus are determined as of the time an
investment or purchase is made.
As a fundamental policy, at least 80% of the Fund's total assets
will be invested in tax-exempt municipal securities. Under normal
circumstances, the securities included in this 80% policy will
also not be subject to the federal alternative minimum tax. There
may be certain occasions, however, during which a portion of the
Fund's assets may be invested in taxable instruments.
The Fund may also invest in municipal lease obligations primarily
through Certificates of Participation ("COPs"). COPs, which are
widely used by state and local governments to finance state and
local government needs, function much like installment purchase
agreements. For example, a COP may be created when long-term
lease revenue bonds are issued by a governmental corporation to
pay for the acquisition of property or facilities which are then
leased to a municipality. The payments made by the municipality
under the lease are used to repay interest and principal on the
bonds issued to purchase the property. Once these lease payments
are completed, the municipality gains ownership of the property
for a nominal sum. This lease format is generally not subject to
constitutional limitations on the issuance of state debt, and
COPs enable a governmental issuer to increase government
liabilities beyond constitutional debt limits.
A feature which distinguishes COPs from municipal debt is that
the lease which is the subject of the transaction contains a
"nonappropriation" or "abatement" clause. A nonappropriation
clause provides that while the municipality will use its best
efforts to make lease payments, the municipality may terminate
the lease without penalty if the municipality's appropriating
body does not allocate the necessary funds. Local
administrations, being faced with increasingly tight budgets,
therefore, have more discretion to curtail payments under COPs
than they do to curtail payments on traditionally funded debt
obligations. If the government lessee does not appropriate
sufficient monies to make lease payments, the lessor or its agent
is typically entitled to repossess the property. In most cases,
however, the private sector value of the property will be less
than the amount the government lessee was paying.
While the risk of nonappropriation is inherent to COP financing,
the Fund believes that this risk is mitigated by its policy of
investing only in COPs rated within the four highest rating
categories of Moody's, S&P, or Fitch, or in unrated COPs believed
by the Fund's investment manager to be of comparable quality.
Criteria considered by the rating agencies and the Fund's
investment manager in assessing such risk include the issuing
municipality's credit rating, the essentiality of the leased
property to the municipality and the term of the lease compared
to the useful life of the leased property. The Board of Directors
reviews the COPs held in the Fund's portfolio to assure that they
constitute liquid investments based on various factors reviewed
by the investment manager and monitored by the Board. Such
factors include (a) the credit quality of such securities and the
extent to which they are rated or, if unrated, comply with
existing criteria and procedures followed to ensure that they are
of quality comparable to the ratings required for the Fund's
investments, including an assessment of the likelihood that the
leases will not be canceled; (b) the size of the municipal
securities market, both in general and with respect to COPs; and
(c) the extent to which the type of COPs held by the Fund trade
on the same basis and with the same degree of dealer
participation as other municipal bonds of comparable credit
rating or quality. While there is no limit as to the amount of
assets which the Fund may invest in COPs, as of April 30, 1994,
the Fund held 1.9% of its assets in such instruments.
ILLIQUID INVESTMENTS. It is the policy of the Fund that illiquid
securities (securities that cannot be disposed of within seven
days in the normal course of business at approximately the amount
at which the Fund has valued the securities) may not constitute,
at the time of purchase, more than 10% of the value of the total
net assets of the Fund.
SOME CHARACTERISTICS OF MUNICIPAL SECURITIES
Municipal securities include debt obligations issued to obtain
funds for various public purposes, including the construction of
a wide range of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets and
water and sewer works. Other public purposes for which municipal
securities or bonds may be issued include the refunding of
outstanding obligations, obtaining funds for general operating
expenses and the obtaining of funds to loan to other public
institutions and facilities. In addition, certain types of
industrial development bonds are issued by or on behalf of public
authorities to obtain funds to provide privately-operated housing
facilities, sports facilities, convention or trade show
facilities, transportation bonds, mass transit, port or parking
facilities, air or water pollution control facilities and certain
local facilities for water supply, gas, electricity, or sewage or
solid waste disposal.
The two principal classifications of municipal securities are
"general obligation" and "revenue" bonds. General obligation
bonds are secured by the pledge of the municipality's faith,
credit and taxing power for the payment of principal and
interest, and are considered the safest type of municipal bond.
Revenue bonds are payable only from the revenues derived from a
particular project or facility and are generally dependent solely
on a specific revenue source. Industrial development bonds are a
specific type of revenue bond backed by the credit and security
of a private user. Assessment bonds, wherein a specially created
district or project area levies a tax (generally on its taxable
property) to pay for an improvement or project may be considered
a variant of either category. There are, of course, other
variations in the security of municipal bonds, both within a
particular classification and between classifications, depending
on numerous factors. The Fund is not limited with respect to
which category of municipal security it may acquire.
The Fund may purchase floating rate and variable rate
obligations. These obligations bear interest at rates that are
not fixed, but that vary with changes in specified market rates
or indices on predesignated dates. Certain of these obligations
may carry a demand feature that permits the Fund to tender them
back to the issuer at par value plus accrued interest, prior to
maturity, which amount may be more or less than the amount the
Fund paid for them.
The interest on bonds issued to finance public purpose state and
local government operations is generally tax-exempt for regular
federal income tax purposes. Interest on certain private activity
bonds (including those for housing and student loans) issued
after August 7, 1986, while still tax-exempt, constitutes a
preference item for taxpayers in determining the federal
alternative minimum tax under the Code and under the income tax
provisions of some states. This interest could subject a
shareholder to, or increase liability under, the federal and
state alternative minimum taxes, depending on the shareholder's
tax situation. In addition, all distributions derived from
interest exempt from regular federal income tax may subject a
corporate shareholder to, or increase liability under, the
federal alternative minimum tax, because such distributions are
included in the corporation's "adjusted current earnings." In
states with a corporate franchise tax, distributions of the Fund
may also be fully taxable to a corporate shareholder under the
state franchise tax system.
Consistent with the Fund's investment objectives, the Fund may
acquire such private activity bonds if, in the investment
manager's opinion, such bonds represent the most attractive
investment opportunity then available to the Fund. As of April
30, 1994, the Fund derived 12.50% of its income from bonds, the
interest on which constitutes a preference item subject to the
federal alternative minimum tax for certain investors.
A portion of original issue discount relating to any stripped
municipal bonds (including bonds issued to finance public purpose
governmental functions) and their interest coupons may be taxable
under certain circumstances.
INVESTMENT RISK CONSIDERATIONS
While an investment in any of the Funds is not without risk,
certain policies are followed in managing each Fund which may
help to reduce such risk. There are two categories of risks to
which a Fund is subject: credit risk and market risk. Credit risk
is a function of the ability of an issuer of a municipal security
to maintain timely interest payments and to pay the principal of
a security upon maturity. It is generally reflected in a
security's underlying credit rating and its stated interest rate
(normally the coupon rate). A change in the credit risk
associated with a municipal security may cause a corresponding
change in the security's price. Market risk is the risk of price
fluctuation of a municipal security caused by changes in general
economic and interest rate conditions generally affecting the
market as a whole. A municipal security's maturity length also
affects its price. As with other debt instruments, the price of
the debt securities in which a Fund invests are likely to
decrease in times of rising interest rates. Conversely, when
rates fall, the value of a Fund's debt investments may rise.
Price changes of debt securities held by each Fund have a direct
impact on the net asset value per share of the Fund.
CALLABLE BONDS
Callable municipal bonds are municipal bonds which contain a
provision in the indenture permitting the issuer to redeem the
bonds prior to their maturity dates at a specified price which
typically reflects a premium over the bonds' original issue
price. These bonds generally have call-protection (that is, a
period of time during which the bonds may not be called) which
usually lasts for 5 to 10 years, after which time such bonds may
be called away. An issuer may generally be expected to call its
bonds, or a portion of them, during periods of relatively
declining interest rates, when borrowings may be replaced at
lower rates than those obtained in prior years. If the proceeds
of a bond called under such circumstances are reinvested, the
result may be a lower overall yield due to lower current interest
rates. If the purchase price of such bonds included a premium
related to the appreciated value of the bonds, some or all of
that premium may not be recovered by bondholders, such as the
Fund, depending on the price at which such bonds were redeemed.
Normally, the Fund will not hold called bonds until they are
redeemed if that will result in a lost premium. In most cases,
the investment manager will attempt to time the sale to recover
what the investment manager considers to be the optimum amount of
premium obtainable considering market conditions and the time
remaining before redemption.
The Fund is subject to a number of additional investment
restrictions, some of which may be changed only with the approval
of shareholders, which limit its activities to some extent. A
list of these restrictions and additional information concerning
the characteristics of municipal securities is included in the
SAI.
HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S
ACTIVITIES
The assets of the Fund are invested in portfolio securities. If
the securities owned by the Fund increase in value, the value of
the shares of the Fund which the shareholder owns will increase.
If the securities owned by the Fund decrease in value, the value
of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the
securities owned by the Fund.
In addition to the factors which affect the value of individual
securities, as described in the preceding sections, a shareholder
may anticipate that the value of Fund shares will fluctuate with
movements in the broader bond markets, as well changes in
interest rates will affect the value of the Fund's portfolio and
thus its share price. In particular, changes in interest rates
will affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany
higher inflation and/or a growing economy are likely to have a
negative effect on the value of Fund shares. History reflects
both increases and decreases in the prevailing rate of interest
and these may reoccur unpredictably in the future.
MANAGEMENT OF THE FUND
The Board of Directors (the "Board") has the primary
responsibility for the overall management of the Fund and for
electing the officers of the Fund who are responsible for
administering its day-to-day operations.
The Board has carefully reviewed the multiclass structure to
ensure that no material conflict exists between the two classes
of shares. Although the Board does not expect to encounter
material conflicts in the future, the Board will continue to
monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
In developing the multiclass structure the Fund has retained the
authority to establish additional classes of shares. It is the
Fund's present intention to offer only two classes of shares, but
new classes may be offered in the future.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the
Fund's investment manager. Advisers is a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), a publicly owned
holding company, the principal shareholders of which are Charles
B. Johnson and Rupert H. Johnson, Jr., who own approximately 20%
and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services
industry through its various subsidiaries (the "Franklin
Templeton Group"). Advisers acts as investment manager or
administrator to 33 U.S. registered investment companies (111
separate series) with aggregate assets of over $74 billion, $40.2
billion of which are in the municipal securities market.
Pursuant to the management agreement, the Manager supervises and
implements the Fund's investment activities and provides certain
administrative services and facilities which are necessary to
conduct the Fund's business.
During the fiscal year ended April 30, 1994, management fees
totaling 0.46% of the average monthly net assets of the Fund were
paid to Advisers.
It is not anticipated that the Fund will incur a significant
amount of brokerage expenses because municipal securities are
generally traded on a "net" basis, that is, in principal
transactions without the addition or deduction of brokerage
commissions or transfer taxes. To the extent that the Fund does
participate in transactions involving brokerage commissions, it
is the Manager's responsibility to select brokers through whom
such transactions will be effected. The Manager tries to obtain
the best execution on all such transactions. If it is felt that
more than one broker is able to provide the best execution, the
Manager will consider the furnishing of quotations and of other
market services, research, statistical and other data for the
Manager and its affiliates, as well as the sale of shares of the
Fund, as factors in selecting a broker. Further information is
included under "The Fund's Policies Regarding Brokers Used on
Portfolio Transactions" in the SAI .
Shareholder accounting and many of the clerical functions for the
Fund are performed by Franklin/Templeton Investor Services, Inc.
("Investor Services" or "Shareholder Services Agent") in its
capacity as transfer agent and dividend-paying agent. Investor
Services is a wholly-owned subsidiary of Resources.
During the fiscal year ended April 30, 1994, expenses borne by
Class I shares of the Fund, including fees paid to Advisers and
to Investor Services, totaled 0.52% of the average monthly net
assets of such class.
PLANS OF DISTRIBUTION
A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-
1 fees charged to each class will be based solely on the
distribution and servicing fees attributable to that particular
class. Any portion of fees remaining from either Plan after
distribution to securities dealers of up to the maximum amount
permitted under each Plan may be used by the class to reimburse
Distributors for routine ongoing promotion and distribution
expenses incurred with respect to such class. Such expenses may
include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares, as well as any
distribution or service fees paid to securities dealers or their
firms or others who have executed a servicing agreement with the
Fund, Distributors or its affiliates.
The maximum amount which the Fund may pay to Distributors or
others under the Class I Plan for such distribution expenses is
0.10% per annum of Class I's average daily net assets, payable on
a quarterly basis. All expenses of distribution and marketing in
excess of 0.10% per annum will be borne by Distributors, or
others who have incurred them, without reimbursement from the
Fund.
Under the Class II Plan, the maximum amount which the Fund is
permitted to pay to Distributors or others for distribution and
related expenses is 0.50% per annum of Class II's daily net
assets, payable quarterly. All expenses of distribution,
marketing and related services over that amount will be borne by
Distributors, or others who have incurred them, without
reimbursement by the Fund. In addition, the Class II Plan
provides for an additional payment by the Fund of up to 0.15%
per annum of Class II's average daily net assets as a servicing
fee, payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the
Fund on behalf of the customers, or similar activities related to
furnishing personal services and/or maintaining shareholder
accounts.
During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Plan fees assessed on
Class II shares to partially recoup fees Distributors pays to
securities dealers. Distributors, or its affiliates, may pay,
from its own resources, a commission of up to 1% of the amount
invested to securities dealers who initiate and are responsible
for purchases of Class II shares.
Both Plans also cover any payments to or by the Fund, Advisers,
Distributors, or other parties on behalf of the Fund, Advisers or
Distributors, to the extent such payments are deemed to be for
the financing of any activity primarily intended to result in the
sale of shares issued by the Fund within the context of Rule 12b-
1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund.
For more information, including a discussion of the Board's
policies with regard to the amount of each Plan's fees, please
see the SAI.
DISTRIBUTIONS TO SHAREHOLDERS
There are two types of distributions which the Fund may make to
its shareholders:
1. INCOME DIVIDENDS. The Fund receives income in the form of
dividends, interest and other income derived from its
investments. This income, less the expenses incurred in the
Fund's operations, is its net investment income from which income
dividends may be distributed. Thus, the amount of dividends paid
per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains
or losses in connection with sales or other dispositions of its
portfolio securities. Distributions by the Fund derived from net
short-term and net long-term capital gains (after taking into
account any net capital loss carryovers) may generally be made
once a year in December to reflect any net short-term and net
long-term capital gains realized by the Fund as of October 31 of
the current fiscal year and any undistributed net capital gains
from the prior fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund
may make more than one distribution derived from net short-term
and net long-term capital gains in any year or adjust the timing
of these distributions for operational or other reasons.
DISTRIBUTIONS TO EACH CLASS OF SHARES
According to the requirements of the Code, dividends and capital
gains will be calculated and distributed in the same manner for
Class I and Class II shares. The per share amount of any income
dividends will generally differ only to the extent that each
class is subject to different Rule 12b-1 fees.
DISTRIBUTION DATE
Although subject to change by the Board of Directors, without
prior notice to or approval by shareholders, the Fund's current
policy is to declare income dividends monthly for shareholders of
record on the last business day of the month, payable on or about
the 15th day of the following month. The amount of income
dividend payments by the Fund is dependent upon the amount of net
income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board of
Directors. Fund shares are quoted ex-dividend on the first
business day following the record date. THE FUND DOES NOT PAY
"INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT
IN ITS SHARES.
In order to be entitled to a dividend, an investor must have
acquired Fund shares prior to the close of business on the record
date. An investor considering purchasing Fund shares shortly
before the record date of a distribution should be aware that
because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply
and demand, any distribution of income or capital gain will
result in a decrease in the value of the Fund's shares equal to
the amount of the distribution. While a dividend or capital gain
distribution received shortly after purchasing shares represents,
in effect, a return of a portion of the shareholder's investment,
it may be taxable as dividend income or capital gain.
DIVIDEND REINVESTMENT
Unless otherwise requested, income dividends and capital gain
distributions, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without a sales charge) on the
dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset
value in the same class of shares of the Fund or the same class
of another of the Franklin Templeton Funds. Shareholders have the
right to change their election with respect to the receipt of
distributions by notifying the Fund, but any such change will be
effective only as to distributions for which the record date is
seven or more business days after the Fund has been notified. See
the SAI for more information.
Many of the Fund's shareholders receive their distributions in
the form of additional shares. This is a convenient way to
accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so acquired
remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected distributions
to the same class of another fund in the Franklin Templeton
Funds, to another person, or directly to a checking account. If
the bank at which the account is maintained is a member of the
Automated Clearing House, the payments may be made automatically
by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial
processing. Dividends which may be paid in the interim will be
sent to the address of record. Additional information regarding
automated fund transfers may be obtained from Franklin's
Shareholder Services Department. See "Purchases at Net Asset
Value" under "How to Buy Shares of the Fund."
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations
that affect mutual funds and their shareholders. Additional
information on tax matters relating to the Fund and its
shareholders is included in the section entitled, "Additional
Information Regarding Taxation" in the SAI.
The Fund intends to continue to qualify for treatment as a
regulated investment company under the Code. By distributing all
of its net income and meeting certain other requirements relating
to the sources of its income and diversification of its assets,
the Fund will not be liable for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund continues
to qualify to pay exempt-interest dividends to its shareholders.
Such exempt-interest dividends are derived from interest income
exempt from regular federal income tax, and are not subject to
regular federal income tax for Fund shareholders.
To the extent dividends are derived from taxable income from
temporary investments (including the discount from certain
stripped obligations or their coupons or income from securities
loans or other taxable transactions), from the excess of net
short-term capital gain over net long-term capital loss, or from
ordinary income derived from the sale or disposition of bonds
purchased with market discount after April 30, 1993, they are
treated as ordinary income whether the shareholder has elected to
receive them in cash or in additional shares.
From time to time, the Fund may purchase a tax-exempt obligation
with market discount; that is, for a price that is less than the
principal amount of the bond. For such obligations purchased
after April 30, 1993, a portion of the gain on sale or
disposition (not to exceed the accrued portion of market discount
as of the time of sale or disposition) is treated as ordinary
income rather than capital gain. Any distribution by the Fund of
such ordinary income to its shareholders will be subject to
regular federal and state income taxes in the hands of Fund
shareholders. In any fiscal year, the Fund may elect not to
distribute to its shareholders its taxable ordinary income and to
instead, pay federal income or excise taxes on this income at the
Fund level. The amount of such distributions, if any, is expected
to be small.
Pursuant to the Code, certain distributions which are declared in
October, November or December but which, for operational reasons,
may not be paid to the shareholder until the following January,
will be treated, for tax purposes, as if paid by the Fund and
received by the shareholder on December 31 of the calendar year
in which they are declared.
Distributions derived from the excess of net long-term capital
gain over net short-term capital loss are treated as long-term
capital gain regardless of the length of time the shareholder has
owned Fund shares and regardless of whether such distributions
are received in cash or in additional shares.
Redemptions and exchanges of Fund shares are taxable events on
which a shareholder may realize a gain or loss. Any loss incurred
on sale or exchange of the Fund's shares, held for six months or
less, will be treated as a long-term capital loss to the extent
of capital gain dividends received with respect to such shares
and will be disallowed to the extent of exempt-interest dividends
paid with respect to such shares.
The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid, and will
promptly after the close of each calendar year advise them of the
tax status for federal income tax purposes of such dividends and
distributions, including the portion of the dividends on an
average basis which constitutes taxable income or a tax
preference item under the federal alternative minimum tax.
Shareholders who have not held shares of the Fund for a full
calendar year may have designated as tax-exempt or as tax
preference income a percentage of income which is not equal to
the actual amount of tax-exempt or tax preference income earned
during the period of their investment in the Fund.
Exempt-interest dividends of the Fund, although exempt from
regular federal income tax in the hands of a shareholder, are
includable in the tax base for determining the extent to which a
shareholder's social security or railroad retirement benefits
will be subject to regular federal income tax. Shareholders are
required to disclose the receipt of tax-exempt interest dividends
on their federal income tax returns.
Interest on indebtedness incurred (directly or indirectly) by
shareholders to purchase or carry Fund shares may not be fully
deductible for federal income tax purposes.
Shareholders should consult their tax advisors with respect to
the applicability of state and local intangible property or
income taxes to their shares in the Fund and to distributions and
redemption proceeds received from the Fund. For example,
distributions attributable to interest received from, or capital
gain derived from the disposition of, obligations of a given
state or its political subdivisions may be exempt from income
taxes in that state.
Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes on distributions received by them from the Fund and the
application of foreign tax laws to these distributions.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through securities
dealers which execute an agreement with Distributors, the
principal underwriter of the Fund's shares. The use of the term
"securities dealer" shall include other financial institutions
which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the
Fund. Such reference, however, is for convenience only and does
not indicate a legal conclusion of capacity. The minimum initial
investment is $100 and subsequent investments must be $25 or
more. These minimums may be waived when the shares are purchased
through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for
the purchase of shares.
ALTERNATIVE PURCHASE ARRANGEMENTS. The difference between Class I
and Class II shares lies primarily in their front-end and
contingent deferred sales charges and Rule 12b-1 fees as
described below.
Class I. All Fund shares outstanding before the implementation of
the multiclass structure have been redesignated as Class I
shares, and will retain their previous rights, and privileges.
Class I shares are generally subject to a variable sales charge
upon purchase and not subject to any sales charge upon
redemption. Class I shares are subject to Rule 12b-1 fees of up
to an annual maximum of .10% of average daily net assets of such
shares. With this multiclass structure, Class I shares have
higher front-end sales charges than Class II shares and
comparatively lower Rule 12b-1 fees. Class I shares may be
purchased at a reduced front-end sales charges or at net asset
value if certain conditions are met. In most circumstances,
contingent deferred sales charges will not be assessed against
redemptions of Class I shares. See "Management of the Fund," and
"How to Sell Shares of the Fund" for more information.
Class II. The current public offering price of Class II shares is
equal to the net asset value, plus a front-end sales charge of 1%
of the amount invested. Class II shares are also subject to a
contingent deferred sales charge of 1.0% if shares are redeemed
within 18 months of the calendar month following purchase. In
addition, Class II shares are subject to Rule 12b-1 fees of up to
a maximum of .65% of average daily net assets of such shares.
Class II shares have lower front-end sales charges than Class I
shares and comparatively higher Rule 12b-1 fees. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of the Fund."
Purchases of Class II shares are limited to purchases below $1
million. Any purchases of $1 million or more will automatically
be invested in Class I shares, since that is more beneficial to
investors. Such purchases, however, may be subject to a
contingent deferred sales charge. Investors may exceed $1 million
in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million,
however, should consider purchasing Class I shares through a
Letter of Intent instead of purchasing Class II shares.
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully
evaluate their anticipated investment amount and time horizon
prior to determining which class of shares to purchase.
Generally, an investor who expects to invest less than $100,000
in the Franklin Templeton Funds and who expects to make
substantial redemptions within approximately six years or less of
investment should consider purchasing Class II shares. However,
the higher annual Rule 12b-1 fees on the Class II shares will
result in slightly higher operating expenses and lower income
dividends for Class II shares, which will accumulate over time to
outweigh the difference in initial sales charges. For this
reason, Class I shares may be more attractive to long-term
investors even if no sales charge reductions are available to
them.
Investors who qualify to purchase Class I shares at reduced sales
charges definitely should consider purchasing Class I shares,
especially if they intend to hold their shares approximately six
years or more. Investors who qualify to purchase Class I shares
at reduced sales charges but who intend to hold their shares less
than approximately six years should evaluate whether it is more
economical to purchase Class I shares through a Letter of Intent
or under Rights of Accumulation or other means, rather than
purchasing Class II shares. INVESTORS INVESTING $1 MILLION OR
MORE IN A SINGLE PAYMENT AND OTHER INVESTORS WHO QUALIFY TO
PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED FROM
PURCHASING CLASS II SHARES.
Each class represents the same interest in the investment
portfolio of the Fund and has the same rights, except that each
class has a different sales charge, bears the separate expenses
of its Rule 12b-1 distribution plan, and has exclusive voting
rights with respect to such plan. The two classes also have
separate exchange privileges.
PURCHASE PRICE OF FUND SHARES
Shares of both classes of the Fund are offered at their
respective public offering prices, which are determined by adding
the net asset value per share plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check).
CLASS I. The sales charge for Class I shares is a variable
percentage of the offering price depending upon the amount of the
sale. The offering price will be calculated to two decimal places
using standard rounding criteria. A description of the method of
calculating net asset value per share is included under the
caption "Valuation of Fund Shares."
Set forth below is a table of total front-end sales charges or
underwriting commissions and dealer concessions for Class I
shares.
TOTAL SALES CHARGE
SIZE OF AS A PERCENTAGE AS A PERCENTAGE DEALER
TRANSACTION AT OF OFFERING OF NET AMOUNT CONCESSION AS A
OFFERING PRICE PRICE INVESTED PERCENTAGE OF
OFFERING PRICE*
LESS THAN 4.25% 4.44% 4.00%
$100,000
$100,000 BUT 3.50% 3.63% 3.25%
LESS THAN
$250,000
$250,000 BUT 2.75% 2.83% 2.50%
LESS THAN
$500,000
$500,000 BUT 2.15% 2.20% 2.00%
LESS THAN
$1,000,000
$1,000,000 NONE NONE (SEE BELOW)**
OR MORE
*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of
its own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 0.75% on sales
of $1 million but less than $2 million, plus 0.60% on sales of $2
million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100
million or more. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
to be an underwriter as that term is defined in the Securities
Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on
certain redemptions of all or a portion of investments of $1
million within the contingency period. See "How to Sell Shares of
the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales
charge on the purchase of Class I shares is determined by adding
the amount of the shareholder's current purchase plus the cost or
current value (whichever is higher) of a shareholder's existing
investment in one or more of the funds in the Franklin Group of
Funds(Registered Trademark) and the Templeton Group of Funds.
Included for these aggregation purposes are (a) the mutual funds
in the Franklin Group of Funds except Franklin Valuemark Funds
and Franklin Government Securities Trust (the "Franklin Funds"),
(b) other investment products underwritten by Distributors or its
affiliates (although certain investments may not have the same
schedule of sales charges and/or may not be subject to reduction)
and (c) the U.S. registered mutual funds in the Templeton Group
of Funds except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund (the "Templeton Funds"). (Franklin Funds and
Templeton Funds are collectively referred to as the "Franklin
Templeton Funds.") Sales charge reductions based upon aggregate
holdings of (a), (b) and (c) above ("Franklin Templeton
Investments") may be effective only after notification to
Distributors that the investment qualifies for a discount.
Other Payments to Securities Dealers. Distributors, or one of its
affiliates, may make payments, out of its own resources, of up to
1.00% of the amount purchased to securities dealers who initiate
and are responsible for purchases made at net asset value by
certain trust companies and trust departments of banks. See
definitions under "Description of Special Net Asset Value
Purchases" and as set forth in the SAI.
Class II. Unlike Class I shares, the front-end sales charges and
dealer concessions for Class II shares do not vary depending on
the amount of purchase. See table below:
CLASS II SHARES -- TOTAL SALES CHARGE
SIZE OF AS A AS A DEALER
TRANSACTION PERCENTAGE OF PERCENTAGE OF CONCESSION AS
AT OFFERING NET OFFERING NET AMOUNT A PERCENTAGE
PRICE PRICE INVESTED OF OFFERING
PRICE*
any amount 1.00% 1.01% 1.00%
(less than $1
million)
*Distributors, or one of its affiliates, may make additional
payments to securities dealers, from its own resources, of up to
1% of the amount invested. During the first year following a
purchase of Class II shares, Distributors will keep a portion of
the Rule 12b-1 fees assessed to those shares to partially recoup
fees Distributors pays to securities dealers.
Class II shares redeemed within 18 months of their purchase will
be assessed a contingent deferred sales charge of 1.0% on the
lesser of the then-current net asset value or the net asset value
of such shares at the time of purchase, unless such charge is
waived as described under "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
Distributors, or one of its affiliates, out of its own resources,
may also provide additional compensation to securities dealers in
connection with sales of shares of the Franklin Templeton Funds.
Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training
programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and
programs regarding one or more of the Franklin Templeton Funds
and other dealer-sponsored programs or events. In some instances,
this compensation may be made available only to certain
securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Franklin
Templeton Funds. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips
taken by invited registered representatives and members of their
families to locations within or outside of the United States for
meetings or seminars of a business nature. Securities dealers may
not use sales of the Fund's shares to qualify for this
compensation to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the
aforementioned additional compensation is paid for by the Fund or
its shareholders.
Additional terms concerning the offering of the Fund's shares are
included in the SAI.
Certain officers and directors of the Fund are also affiliated
with Distributors. A detailed description is included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES - CLASS I SHARES ONLY
Class I shares may be purchased under a variety of plans which
provide for a reduced sales charge. To be certain to obtain the
reduction of the sales charge, the investor or the securities
dealer should notify Distributors at the time of each purchase of
shares which qualifies for the reduction. In determining whether
a purchase qualifies for a discount, an investment in any of the
Franklin Templeton Investments may be combined with those of the
investor's spouse and children under the age of 21. In addition,
the aggregate investments of a trustee or other fiduciary account
(for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of
the account. The value of Class II shares owned by the investor
may also be included for this purpose.
In addition, an investment in Class I shares may qualify for a
reduction in the sales charge under the following programs:
1. RIGHTS OF ACCUMULATION. The cost or current value (whichever
is higher) of existing investments in the Franklin Templeton
Investments may be combined with the amount of the current
purchase in determining the sales charge to be paid.
2. LETTER OF INTENT. An investor may immediately qualify for a
reduced sales charge on a purchase of Class I shares by
completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or "Letter"). By completing
the Letter, the investor expresses an intention to invest during
the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge and grants to
Distributors a security interest in the reserved shares and
irrevocably appoints Distributors as attorney-in-fact with full
power of substitution to surrender for redemption any or all
shares for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the requirements of
Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors
that this Letter is in effect each time a purchase is made.
AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER
APPLICATION: Five percent (5%) of the amount of the total
intended purchase will be reserved in Class I shares registered
in the investor's name, to assure that the full applicable sales
charge will be paid if the intended purchase is not completed.
The reserved shares will be included in the total shares owned as
reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by
the investor. The reserved shares will not be available for
disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. For more information,
see "Additional Information Regarding Purchases" in the SAI.
Although the sales charges on Class II shares cannot be reduced
through these programs, the value of Class II shares owned by the
investor may be included in determining a reduced sales charge to
be paid on Class I shares pursuant to the Letter of Intent and
Rights of Accumulation programs.
GROUP PURCHASES OF CLASS I SHARES
An individual who is a member of a qualified group may also
purchase Class I shares of the Fund at the reduced sales charge
applicable to the group as a whole. The sales charge is based
upon the aggregate dollar value of shares previously purchased
and still owned by the members of the group, plus the amount of
the current purchase. For example, if members of the group had
previously invested and still held $80,000 of Fund shares and now
were investing $25,000, the sales charge would be 3.50%.
Information concerning the current sales charge applicable to a
group may be obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for
more than six months, (ii) has a purpose other than acquiring
Fund shares at a discount and (iii) satisfies uniform criteria
which enable Distributors to realize economies of scale in its
costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings
between representatives of the Fund or Distributors and the
members, agree to include sales and other materials related to
the Fund in its publications and mailings to members at reduced
or no cost to Distributors, and seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such time
as the investor notifies the Fund and the investor's employer to
discontinue further investments. Due to the varying procedures
used to prepare, process and to forward the payroll deduction
information to the Fund, there may be a delay between the time of
the payroll deduction and the time the money reaches the Fund.
The investment in the Fund will be made at the offering price per
share determined on the day that both the check and payroll
deduction data are received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Class I shares may be purchased without the imposition of a front-
end sales charge ("net asset value") or a contingent deferred
sales charge by (1) officers, trustees, directors, and full-time
employees of the Fund, any of the Franklin Templeton Funds, or of
the Franklin Templeton Group, and by their spouses and family
members, including any subsequent payments made to such parties
after cessation of employment; (2) companies exchanging shares
with or selling assets pursuant to a merger, acquisition or
exchange offer; (3) accounts managed by the Franklin Templeton
Group; (4) registered securities dealers and their affiliates,
for their investment account only, and (5) registered personnel
and employees of securities dealers and by their spouses and
family members, in accordance with the internal policies and
procedures of the employing securities dealer.
For either Class I or Class II, the same class of shares of the
Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund
or another of the Franklin Templeton Funds which were purchased
with a front-end sales charge or assessed a contingent deferred
sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the
time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingency
period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise
this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis of
the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of this Prospectus and the SAI.
For either Class I or Class II, the same class of shares of the
Fund or of another of the Franklin Templeton Funds may be
purchased at net asset value and without a contingent deferred
sales charge by persons who have received dividends and capital
gains distributions in cash from investments in that class of
shares of the Fund within 120 days of the payment date of such
distribution. To exercise this privilege, a written request to
reinvest the distribution must accompany the purchase order.
Additional information may be obtained from Shareholder Services
at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by investors
who have, within the past 60 days, redeemed an investment in a
mutual fund which is not part of the Franklin Templeton Funds
which charged the investor a contingent deferred sales charge
upon redemption and which has investment objectives similar to
those of the Fund.
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by broker
dealers who have entered into a supplemental agreement with
Distributors, or by registered investment advisors affiliated
with such broker-dealers, on behalf of their clients who are
participating in a comprehensive fee program (sometimes known as
a wrap fee program).
Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
any state, county, or city, or any instrumentality, department,
authority or agency thereof which has determined that the Fund is
a legally permissible investment and which is prohibited by
applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any
registered management investment company ("an eligible
governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN
LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES
OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal
investors considering investment of proceeds of bond offerings
into the Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or its
investment manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net asset
value is made through a securities dealer who has executed a
dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to
such securities dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales
Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by trust
companies and bank trust departments for funds over which they
exercise exclusive discretionary investment authority and which
are held in a fiduciary, agency, advisory, custodial or similar
capacity. Such purchases are subject to minimum requirements with
respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount
invested or to be invested during the subsequent 13-month period
in this Fund or any of the Franklin Templeton Investments must
total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or other
means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of
business on the next business day following such order.
Refer to the SAI for further information regarding net asset
value purchases of Class I shares.
PURCHASING CLASS I AND CLASS II SHARES
When placing purchase orders, investors should clearly indicate
which class of shares they intend to purchase. A purchase order
that fails to specify a class will automatically be invested in
Class I shares. Purchases of $1 million or more in a single
payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.
Investors who qualify to purchase Class I shares at net asset
value should purchase Class I rather than Class II shares. See
the section "Purchases at Net Asset Value" and "Description of
Special Net Asset Value Purchases" above for a discussion of when
shares may be purchased at net asset value.
GENERAL
Securities laws of states in which the Fund's shares are offered
for sale may differ from the interpretations of federal law, and
banks and financial institutions selling Fund shares may be
required to register as dealers pursuant to state law.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION
MAY NOT BE AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE
SHARES ARE HELD, OF RECORD, BY A FINANCIAL INSTITUTION OR IN A
"STREET NAME" ACCOUNT OR NETWORKED ACCOUNT THROUGH THE NATIONAL
SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE SECTION
CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and capital
gain distributions, are generally credited to an account in the
name of an investor on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the
risk of loss or theft of a share certificate. A lost, stolen or
destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is
generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate
will be issued if requested in writing by the shareholder or by
the securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder
quarterly to reflect the dividends reinvested during that period
and after each other transaction which affects the shareholder's
account. This statement will also show the total number of shares
owned by the shareholder, including the number of shares in "plan
balance" for the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of shares automatically on a
monthly basis by electronic funds transfer from a checking
account, if the bank which maintains the account is a member of
the Automated Clearing House, or by preauthorized checks drawn on
the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan
Application included with this Prospectus contains the
requirements applicable to this program. In addition,
shareholders may obtain more information concerning this program
from their securities dealers or from Distributors.
The market value of each class of the Fund's shares is subject to
fluctuation. Before undertaking any plan for systematic
investment, the investor should keep in mind that such a program
does not assure a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction, although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. The plan may be established on a monthly, quarterly,
semiannual or annual basis. If the shareholder establishes a
plan, any capital gain distributions and income dividends paid by
the Fund will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be made
from the liquidation of shares at net asset value on the day of
the transaction (which is generally the first business day of the
month in which the payment is scheduled) with payment generally
received by the shareholder three to five days after the date of
liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected
withdrawals to another of the Franklin Templeton Funds, to
another person, or directly to a checking account. If the bank at
which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the
shareholder should allow at least 15 days for initial processing.
Payments which may be paid in the interim will be sent to the
address of record. Liquidation of shares may reduce or possibly
exhaust the shares in the shareholder's account, to the extent
withdrawals exceed shares earned through dividends and
distributions, particularly in the event of a market decline. If
the withdrawal amount exceeds the total plan balance, the account
will be closed and the remaining balance will be sent to the
shareholder. As with other redemptions, a liquidation to make a
withdrawal payment is a sale for federal income tax purposes.
Because the amount withdrawn under the plan may be more than the
shareholder's actual yield or income, part of the payment may be
a return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I shares and Class II
shares may be subject to a contingent deferred sales charge if
the shares are redeemed within 12 months (Class I shares) or 18
months (Class II shares) of the calendar month of the original
purchase date. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the
annual withdrawals under the plan during the time such a plan is
in effect.
With respect to Class I shares, the contingent deferred sales
charge is waived for redemptions through a Systematic Withdrawal
Plan set up prior to February 1, 1995. With respect to
Systematic Withdrawal Plans set up on or after February 1, 1995,
however, the applicable contingent deferred sales charge is
waived for Class I and Class II share redemptions of up to 1%
monthly of an account's net asset value (12% annually, 6% semi-
annually, 3% quarterly). For example, if a Class I account
maintained an annual balance of $1,000,000, only $120,000 could
be withdrawn through a once-yearly Systematic Withdrawal Plan
free of charge; any amount over that $120,000 would be assessed a
1% (or applicable) contingent deferred sales charge. Likewise, if
a Class II account maintained an annual balance of $10,000, only
$1,200 could be withdrawn through a once-yearly Systematic
Withdrawal Plan free of charge.
A Systematic Withdrawal Plan may be terminated on written notice
by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds
with various investment objectives or policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, the Fund shares may be exchanged
for the same class of shares of other Franklin Templeton Funds
which are eligible for sale in the shareholder's state of
residence and in conformity with such fund's stated eligibility
requirements and investment minimums. Some funds, however, may
not offer Class II shares. Class I shares may be exchanged for
Class I shares of any Franklin Templeton Funds. Class II shares
may be exchanged for Class II shares of any Franklin Templeton
Funds. No exchanges between different classes of shares will be
allowed. A contingent deferred sales charge will not be imposed
on exchanges. If, however, the exchanged shares were subject to a
contingent deferred sales charge in the original fund purchased
and shares are subsequently redeemed within 12 months (Class I
shares) or 18 months (Class II shares) of the calendar month of
the original purchase date, a contingent deferred sales charge
will be imposed. Investors should review the prospectus of the
fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on
exercising the exchange privilege, for example, minimum holding
periods or applicable sales charges.
Exchanges may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and
accompanied by any outstanding share certificates properly
endorsed. The transaction will be effective upon receipt of the
written instructions together with any outstanding share
certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF
ANY, MAY EXCHANGE SHARES OF THE FUND BY TELEPHONE BY CALLING
INVESTOR SERVICES AT 1-800/632-2301 OR THE AUTOMATED FRANKLIN
TELEFACTS SYSTEM (DAY OR NIGHT) AT 1-800/247-1753. IF THE
SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect
exchanges from the Fund into an identically registered account of
the same class of shares in one of the other available Franklin
Templeton Funds. The Telephone Exchange Privilege is available
only for uncertificated shares or those which have previously
been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Please
refer to "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is
possible that the Telephone Exchange Privilege may be difficult
to implement and the TeleFACTS option may not be available. In
this event, shareholders should follow the other exchange
procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's
shares, Investor Services will accept exchange orders from
securities dealers who execute a dealer or similar agreement with
Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which
certificates have previously been deposited. A securities dealer
may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges of the same class of shares are made on the basis of
the net asset values of the class involved, except as set forth
below. Exchanges of shares of a class which were originally
purchased without a sales charge will be charged a sales charge
in accordance with the terms of the prospectus of the fund and
the class of shares being purchased, unless the original
investment on which no sales charge was paid was transferred in
from a fund on which the investor paid a sales charge. Exchanges
of Class I shares of the Fund which were purchased with a lower
sales charge into a fund which has a higher sales charge will be
charged the difference in sales charges, unless the shares were
held in the Fund for at least six months prior to executing the
exchange.
When an investor requests the exchange of the total value of the
Fund account, declared but unpaid income dividends and capital
gain distributions will be transferred to the account in the fund
being exchanged into and will be invested at net asset value.
Because the exchange is considered a redemption and purchase of
shares, the shareholder may realize a gain or loss for federal
income tax purposes. Backup withholding and information reporting
may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section
in this Prospectus and in the SAI.
There are differences among the many Franklin Templeton Funds.
Before making an exchange, a shareholder should obtain and review
a current prospectus of the fund into which the shareholder
wishes to transfer.
If a substantial portion of the Fund's shareholders should,
within a short period, elect to redeem their shares of the Fund
pursuant to the exchange privilege, the Fund might have to
liquidate portfolio securities it might otherwise hold and incur
the additional costs related to such transactions. On the other
hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the
general policy of the Fund to initially invest this money in
short-term, tax-exempt municipal securities unless it is felt
that attractive investment opportunities consistent with the
Fund's investment objectives exist immediately. Subsequently,
this money will be withdrawn from such short-term tax-exempt
municipal securities and invested in portfolio securities in as
orderly a manner as is possible when attractive investment
opportunities arise.
The Exchange Privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.
EXCHANGES OF CLASS I SHARES
The contingency period of Class I shares will be tolled (or
stopped) for the period such shares are exchanged into and held
in a Franklin or Templeton money market fund. If a Class I
account has shares subject to a contingent deferred sales charge,
Class I shares will be exchanged into the new account on a "first-
in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES
When an account is composed of Class II shares subject to the
contingent deferred sales charge, and Class II shares that are
not, the shares will be transferred proportionately into the new
fund. Shares received from reinvestment of dividends and capital
gains are referred to as "free shares," shares which were
originally subject to a contingent deferred sales charge but to
which the contingent deferred sales charge no longer applies are
called "matured shares," and shares still subject to the
contingent deferred sales charge are referred to as "CDSC liable
shares." CDSC liable shares held for different periods of time
are considered different types of CDSC liable shares. For
instance, if a shareholder has $1,000 in free shares, $2,000 in
matured shares, and $3,000 in CDSC liable shares, and the
shareholder exchanges $3,000 into a new fund, $500 will be
exchanged from free shares, $1,000 from matured shares, and
$1,500 from CDSC liable shares. Similarly, if CDSC liable shares
have been purchased at different periods, a proportionate amount
will be taken from shares held for each period. If, for example,
a shareholder holds $1,000 in shares bought 3 months ago, $1,000
bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into the new fund, $500 from each of
these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money Fund
II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may
shareholders purchase shares of Money Fund II directly. Class II
shares exchanged for shares of Money Fund II will continue to age
and a contingent deferred sales charge will be assessed if CDSC
liable shares are redeemed. No other money market funds are
available for Class II shareholders for exchange purposes. Class
I shares may be exchanged for shares of any of the money market
funds in the Franklin Templeton Funds except Money Fund II.
Draft writing privileges and direct purchases are allowed on
these other money market funds as described in their respective
prospectuses.
To the extent shares are exchanged proportionately, as opposed to
another method, such as first-in first-out, or free-shares
followed by CDSC liable shares, the exchanged shares may, in some
instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund for purposes of exchanging or redeeming shares.
TRANSFERS
Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable
events, and are not subject to a contingent deferred sales
charge. The transferred shares will continue to age from the date
of original purchase. Like exchanges, Class II shares will be
moved proportionately from each type of shares in the original
account.
CONVERSION RIGHTS
It is not presently anticipated that Class II shares will be
convertible to Class I shares. A shareholder may, however, sell
his Class II shares and use the proceeds to purchase Class I
shares, subject to all applicable sales charges.
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing
services to purchase or redeem shares based on predetermined
market indicators ("Timing Accounts") will be charged a $5.00
administrative service fee per each such exchange. All other
exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses,
certain funds do not accept or may place differing limitations
than those below on exchanges by Timing Accounts.
The Fund reserves the right to temporarily or permanently
terminate the exchange privilege or reject any specific purchase
order for any Timing Account or any person whose transactions
seem to follow a timing pattern who: (i) makes an exchange
request out of the Fund within two weeks of an earlier exchange
request out of the Fund, or (ii) makes more than two exchanges
out of the Fund per calendar quarter, or (iii) exchanges shares
equal in value to at least $5 million, or more than 1/4 of 1% of
the Fund's net assets. Accounts under common ownership or
control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market
indicators, will be aggregated for purposes of the exchange
limits.
The Fund also reserves the right to refuse the purchase side of
an exchange request by any Timing Account, person, or group if,
in the Manager's judgment, the Fund would be unable to invest
effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if
the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincide with a "market timing"
strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors also, as indicated in "How to Buy
Shares of the Fund," reserve the right to refuse any order for
the purchase of shares.
HOW TO SELL SHARES OF THE FUND
A shareholder may at any time liquidate shares owned and receive
from the Fund the value of the shares. Shares may be redeemed in
any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of this
Prospectus, and any share certificates which have been issued for
the shares being redeemed, properly endorsed and in order for
transfer. The shareholder will then receive from the Fund the
value of the class of shares redeemed based upon the net asset
value per share (less a contingent deferred sales charge, if
applicable) next computed after the written request in proper
form is received by Investor Services. Redemption requests
received after the time at which the net asset value is
calculated (at the close of the New York Stock Exchange
("Exchange"), which is generally 1:00 p.m. Pacific time) each day
that the Exchange is open for business will receive the price
calculated on the following business day. Shareholders are
requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly when
necessary will speed the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED
IF THE REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other
than the registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess
of $50,000; or
(5) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on
the transfer instructions, including, for example, when (a)
the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c)
the Fund has been notified of an adverse claim, (d) the
instructions received by the Fund are given by an agent, not
the actual registered owner, (e) the Fund determines that
joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the
authority of a representative of a corporation, partnership,
association, or other entity has not been established to the
satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Generally, eligible guarantor institutions
include (1) national or state banks, savings associations,
savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and
clearing agencies; (3) securities dealers which are members of a
national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion Program
("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the
request to be in proper form.
Share Certificates - Where shares to be redeemed are represented
by share certificates, the request for redemption must be
accompanied by the share certificate and a share assignment form
signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above.
Shareholders are advised, for their own protection, to send the
share certificate and assignment form in separate envelopes if
they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court jurisdiction
require the following documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from
the authorized officer(s) of the corporation and (2) a corporate
resolution.
Partnership - (1) Signature guaranteed letter of instruction from
a general partner and (2) pertinent pages from the partnership
agreement identifying the general partners or a certification for
a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the
trustee(s) and (2) a copy of the pertinent pages of the trust
document listing the trustee(s) or a Certification for Trust if
the trustee(s) are not listed on the account registration.
Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the
applicable state law since these accounts have varying
requirements, depending upon the state of residence.
Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper form.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"), included
with this Prospectus, may redeem shares of the Fund by telephone,
subject to the Restricted Account exception noted under
"Telephone Transactions - Restricted Accounts." INFORMATION MAY
ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE
FUND AND INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO
CONFIRM THAT INSTRUCTIONS GIVEN BY TELEPHONE ARE GENUINE.
SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN CERTAIN CASES AS
DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."
For shareholder accounts with the completed Agreement on file,
redemptions of uncertificated shares or shares which have
previously been deposited with the Fund or Investor Services may
be made for up to $50,000 per day per Fund account. Telephone
redemption requests received prior to the close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be
processed that same day. The redemption check will be sent within
seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within 30
days following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures set
forth in this Prospectus. Institutional accounts (certain
corporations, bank trust departments, government entities, and
qualified retirement plans which qualify to purchase shares at
net asset value pursuant to the terms of this Prospectus) which
wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available
from Franklin's Institutional Services Department by telephoning
1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers
who have entered into an agreement with Distributors. This is
known as a repurchase. The only difference between a normal
redemption and a repurchase is that if the shareholder redeems
shares through a dealer, the redemption price will be the net
asset value next calculated after the shareholder's dealer
receives the order which is promptly transmitted to the Fund,
rather than on the day the Fund receives the shareholder's
written request in proper form. The documents, as described in
the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt
of a repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other documents
set forth above. A shareholder's letter should reference the Fund
and the class, the account number, the fact that the repurchase
was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number,
and the amount of shares or dollars, will help speed processing
of the redemption. The seven-day period within which the proceeds
of the shareholder's redemption will be sent will begin when the
Fund receives all documents required to complete ("settle") the
repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the
dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle the
repurchase. Thus, it is in a shareholder's best interest to have
the required documentation completed and forwarded to the Fund as
soon as possible. The shareholder's dealer may charge a fee for
handling the order. The SAI contains more information on the
redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
CLASS I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the net asset value of the shares redeemed (exclusive
of reinvested dividends and capital gain distributions) or the
total cost of such shares at the time of purchase, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See "Purchases at Net Asset Value"
under "How to Buy Shares of the Fund."
CLASS II. Class II shares redeemed within the contingency period
of 18 months of the calendar month following their purchase will
be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the
lesser of the net asset value of the shares redeemed (exclusive
of reinvested dividends and capital gain distributions) or the
net asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below.
CLASS I AND CLASS II. In determining if a contingent deferred
sales charge applies, shares not subject to a contingent deferred
sales charge are deemed to be redeemed first, in the following
order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than the contingency
period (12 months in the case of Class I shares and 18 months in
the case of Class II shares); (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than the contingency period; and
followed by any shares held less than the contingency period, on
a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the
shares redeemed.
The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
redemptions through a Systematic Withdrawal Plan set up for
shares prior to February 1, 1995, and for Systematic Withdrawal
Plans set up thereafter, redemptions of up to 1% monthly of an
account's net asset value (3% quarterly, 6% semiannually or 12%
annually); redemptions initiated by the Fund due to a
shareholder's account falling below the minimum specified account
size; and redemptions following the death of the shareholder or
the beneficial owner.
All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on
the last day of that month and each subsequent month.
Requests for redemptions for a SPECIFIED DOLLAR amount will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for
redemption of a SPECIFIC NUMBER of shares will result in the
applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally
reduce this delay, shares purchased with these checks will also
be held pending clearance. Shares purchased by federal funds wire
are available for immediate redemption. In addition, the right of
redemption may be suspended or the date of payment postponed if
the Exchange is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by
order, for the protection of shareholders. Of course, the amount
received may be more or less than the amount invested by the
shareholder, depending on fluctuations in the market value of
securities owned by the Fund.
OTHER
For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of
record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option, (iii) transfer Fund shares in one
account to another identically registered account in the Fund,
and (iv) exchange Fund shares as described in this Prospectus by
telephone. In addition, shareholders who complete and file an
Agreement as described under "How to Sell Shares of the Fund -
Redemptions by Telephone" will be able to redeem shares of the
Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. These will include: recording all telephone calls
requesting account activity by telephone, requiring that the
caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call
for the purpose of establishing the caller's identification, and
by sending a confirmation statement on redemptions to the address
of record each time account activity is initiated by telephone.
So long as the Fund and Investor Services follow instructions
communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused
by an unauthorized transaction. The Fund and Investor Services
may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation to
apply for or accept telephone transaction privileges. In any
instance where the Fund or Investor Services is not reasonably
satisfied that instructions received by telephone are genuine,
the requested transaction will not be executed, and neither the
Fund nor Investor Services will be liable for any losses which
may occur because of a delay in implementing a transaction.
GENERAL
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their investment
representative for assistance, or to send written instructions to
the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any
losses resulting from the inability of a shareholder to execute a
telephone transaction.
The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice
to shareholders.
VALUATION OF FUND SHARES
The net asset value per share of each class of the Fund is
determined as of the close of the Exchange (generally 1:00 p.m.
Pacific time) each day that the Exchange is open for trading.
Many newspapers carry daily quotations of the prior trading day's
closing "bid" (net asset value) and "ask" (offering price, which
includes the maximum front-end sales charge of each class of
shares of the Fund).
The net asset value per share for each class of the Fund is
determined in the following manner: The aggregate of all
liabilities, is deducted from the aggregate gross value of all
assets, and the difference is divided by the number of shares of
the respective class of the Fund outstanding at the time. For the
purpose of determining the aggregate net assets of each class of
the Fund, cash and receivables are valued at their realizable
amounts. Interest is recorded as accrued and dividends are
recorded on the ex-dividend date. Portfolio securities which are
traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most
representative market as determined by the Manager. Municipal
securities generally trade in the over-the-counter market rather
than on a securities exchange. Other securities for which market
quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a
variety of factors, including recent trades, institutional size
trading in similar types of securities (considering yield, risk
and maturity) and/or developments related to specific issues.
Securities and other assets for which market prices are not
readily available are valued at fair value as determined
following procedures approved by the Board of Directors. With the
approval of directors, the Fund may utilize a pricing service,
bank or securities dealer to perform any of the above described
functions.
Each of the Fund's classes will bear, pro-rata, all of the common
expenses of the Fund. The net asset value of all outstanding
shares of each class of the Fund will be computed on a pro-rata
basis for each outstanding share based on the proportionate
participation in the Fund represented by the value of shares of
such classes, except that the Class I and Class II shares will
bear the Rule 12b-1 expenses payable under their respective
plans. Due to the specific distribution expenses and other costs
that will be allocable to each class, the dividends paid to each
class of the Fund may vary.
HOW TO GET INFORMATION
REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.
From a touch tone phone, Franklin and Templeton shareholders may
access an automated system (day or night) which offers the
following features.
By calling the Franklin TeleFACTS system, Class I shareholders
may obtain current price, yield or other performance information
specific to a Franklin fund; process an exchange into an
identically registered Franklin account; obtain account
information and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit slips.
By calling the Templeton Star Service, shareholders may obtain
current price and yield information specific to a Templeton fund,
regardless of class, or Franklin Class II shares; obtain account
information, request duplicate confirmation or year-end
statements and money fund checks, if applicable.
Share prices and account information specific to Templeton Class
I or II shares and Franklin Class II shares may also be accessed
on TeleFACTS by Franklin Class I and Class II shareholders.
The TeleFACTS system is accessible by calling 1-800/247-1753. The
Star Service is accessible by calling 1-800/654-0123. Franklin
Class I and Class II share codes for the Fund, which will be
needed to access system information are 116 and 216,
respectively. The system's automated operator will prompt the
caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:
HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH
FRIDAY)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing 1-800/851-0637 6:00 a.m. to 5:00 p.m.
impaired)
In order to ensure that the highest quality of service is being
provided, telephone calls placed to or by representatives in
Franklin's service departments may be accessed, recorded and
monitored. These calls can be determined by the presence of a
regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to
shareholders may contain various measures of a class'
performance, including current yield, tax equivalent yield,
various expressions of total return, current distribution rate
and taxable equivalent distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC
represent the average annual percentage change in value of $1,000
invested at the maximum public offering price (offering price
includes sales charge) for one-, five- and ten-year periods, or
portion thereof, to the extent applicable, through the end of the
most recent calendar quarter, assuming reinvestment of all
distributions. The Fund may also furnish total return quotations
for each class for other periods or based on investments at
various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital
gain paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price.
Current yield for each class reflects the income per share earned
by the Fund's portfolio investments; it is calculated for each
class by dividing that class' net investment income per share
during a recent 30-day period by the maximum public offering
price for that class of shares on the last day of that period and
annualizing the result. Tax equivalent yield demonstrates the
yield from a taxable investment necessary to produce an after-tax
yield equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of
each class' yield (calculated as indicated) by one minus a stated
income tax rate and adding the product to the taxable portion (if
any) of the class' yield.
Current yield and tax equivalent yield for each class which are
calculated according to a formula prescribed by the SEC (see the
SAI) are not indicative of the dividends or distributions which
were or will be paid to the Fund's shareholders. Dividends or
distributions paid to shareholders of a class are reflected in
the current distribution rate or taxable equivalent distribution
rate, which may be quoted to shareholders. The current
distribution rate is computed by dividing the total amount of
dividends per share paid by a class during the past 12 months by
a current maximum offering price for that class of shares. A
taxable equivalent distribution rate demonstrates the taxable
distribution rate necessary to produce an after tax distribution
rate equivalent to the class' distribution rate (calculated as
indicated above). Under certain circumstances, such as when there
has been a change in the amount of dividend payout, or a
fundamental change in investment policies, it might be
appropriate to annualize the dividends paid during the period
such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs
from the current yield computation because it may include
distributions to shareholders from sources other than dividends
and interest, such as short-term capital gain, and is calculated
over a different period of time.
In each case, performance figures are based upon past
performance, reflect all recurring charges against a class'
income and will assume the payment of the maximum sales charge on
the purchase of that class of shares. When there has been a
change in the sales charge structure, the historical performance
figures will be restated to reflect the new rate. The investment
results of each class, like all other investment companies, will
fluctuate over time; thus, performance figures should not be
considered to represent what an investment may earn in the future
or what a class' yield, tax equivalent yield, distribution rate,
taxable equivalent distribution rate or total return may be in
any future period.
Because Class II shares were not offered prior to May 1, 1995, no
performance data is available for these shares. After a
sufficient period of time has passed, Class II performance data
will be available.
GENERAL INFORMATION
As of May 1, 1995, the full name of each class is as follows:
Franklin Federal Tax-Free Income Fund, Franklin Federal Tax-Free
Income Fund Series, Franklin Federal Tax-Free Income Fund - Class
I, and Franklin Federal Tax-Free Income Fund, Franklin Federal
Tax-Free Income Fund Series, Franklin Federal Tax-Free Income
Fund - Class II.
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends April 30. Annual Reports containing
audited financial statements of the Fund, including the auditors'
report, and Semi-Annual Reports containing unaudited financial
statements are automatically sent to shareholders. Copies may be
obtained, without charge, upon request to the Fund at the
telephone number or address set forth on the cover page of this
Prospectus.
Additional information on Fund performance is included in the
Fund's Annual Report to Shareholders and the SAI.
ORGANIZATION
The Fund's authorized stock consists of 10,000,000,000 shares of
capital stock, no par value divided into two classes. Three
billion (3,000,000,000) shares of capital stock have been
allocated to Class I and three billion (3,000,000,000) shares of
capital stock have been allocated to Class II.
VOTING RIGHTS
Shares of the Fund have cumulative voting rights which means that
in all elections of directors each shareholder has the right to
cast a number of votes equal to his number of shares of common
stock multiplied by the number of directors to be elected at such
election, and each shareholder may cast the whole number of votes
for one candidate or distribute such votes among two or more
candidates.
The Fund does not intend to hold annual shareholders' meetings.
The Fund may, however, hold a special meeting for such purposes
as changing fundamental investment restrictions, approving a new
management agreement or any other matters which are required to
be acted on by shareholders under the 1940 Act. A meeting may
also be called by a majority of the Board of Directors in their
discretion or by shareholders holding at least ten percent of the
outstanding shares of the Fund. Shareholders will receive
assistance in communicating with other shareholders in connection
with the election or removal of directors such as that provided
in Section 16(c) of the 1940 Act.
Shares of each class represent proportionate interests in the
assets of the Fund and have the same voting and other rights and
preferences as the other class of the Fund for matters that
affect the Fund as a whole. For matters that only affect a
certain class of the Fund's shares, however, only shareholders of
that class will be entitled to vote. Therefore each class of
shares will vote separately on matters (1) affecting only that
class, (2) expressly required to be voted on separately by state
corporation law, or (3) required to be voted on separately by the
1940 Act, or the rules adopted thereunder. For instance, if a
change to the Rule 12b-1 plan relating to Class I shares requires
shareholder approval, only shareholders of Class I may vote on
the change to the Rule 12b-1 plan affecting that class.
Similarly, if a change to the Rule 12b-1 plan relating to Class
II shares requires approval, only shareholders of Class II may
vote on changes to such plan. On the other hand, if there is a
proposed change to the investment objective of the Fund, this
affects all shareholders, regardless of which class of shares
they hold and, therefore, each share has the same voting rights.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares
of any shareholder whose account has a value of less than $50,
but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a
period of at least six months, provided advance notice is given
to the shareholder. More information is included in the SAI.
OTHER INFORMATION
Distribution or redemption checks sent to shareholders do not
earn interest or any other income during the time such checks
remain uncashed and neither the Fund nor its affiliates will be
liable for any loss to the shareholder caused by the
shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft
or wire. The Fund has no facility to receive, or pay out, cash in
the form of currency.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions
as to ownership. Where there are two co-owners on the account,
the account will be registered as "Owner 1" and "Owner 2"; the
"or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or
convert on the signature of only one owner, a limited power of
attorney may be used.
Accounts should not be registered in the name of a minor, either
as sole or co-owner of the account. Transfer or redemption for
such an account may require court action to obtain release of the
funds until the minor reaches the legal age of majority. The
account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should
only be used if the account is being established pursuant to a
legal, valid trust document. Use of such a designation in the
absence of a legal trust document may cause difficulties and
require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint
tenants or "Jt Ten" shall mean "as joint tenants with rights of
survivorship" and not "as tenants in common."
Except as indicated, a shareholder may transfer an account in the
Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account
maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements
on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the
account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the
transfer. Under current procedures the account transfer may be
processed by the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.
The Fund may conclusively accept instructions from an owner or
the owner's nominee listed in publicly available nominee lists,
regardless of whether the account was initially registered in the
name of or by the owner, the nominee, or both. If a securities
dealer or other representative is of record on an investor's
account, the investor will be deemed to have authorized the use
of electronic instructions on the account, including, without
limitation, those initiated through the services of the NSCC, to
have adopted as instruction and signature any such electronic
instructions received by the Fund and the Shareholder Services
Agent, and to have authorized them to execute the instructions
without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in
the near future, include the NSCC's "Networking," "Fund/SERV,"
and "ACATS" systems.
Any questions regarding an intended registration should be
answered by the securities dealer handling the investment, or by
calling Franklin's Fund Information Department.
IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may
be required to report to the IRS any taxable dividend, capital
gain distribution, or other reportable payment (including share
redemption proceeds) and withhold 31% of any such payments made
to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and
made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to
backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for
previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for
any person failing to provide a TIN along with the required
certifications and (2) close an account by redeeming its shares
in full at the then-current net asset value upon receipt of
notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a
shareholder who has completed an "awaiting TIN" certification to
provide the Fund with a certified TIN within 60 days after
opening the account.
PORTFOLIO OPERATIONS
The following persons are persons primarily responsible for the
day-to-day management of the Fund's portfolio: Mr. Jennings since
1990 and Mr. Kenny and Ms. Amoroso since 1994. Their business
history for at least the last five years and positions with the
Manager are also provided:
Andrew Jennings, Sr.
Vice President and Portfolio Manager
Franklin Advisers, Inc.
Mr. Jennings attended Villanova University in Philadelphia, has
been in the securities industry for over 33 years and is a member
of several municipal securities industry related committees and
associations. Mr. Jennings was First Vice President and Manager
of the Municipal Institutional Bond Department at Dean Witter
Reynolds, Inc. from 1985 to 1990.
Thomas Kenny
Senior Vice President and Portfolio Manager
Franklin Advisers, Inc.
Mr. Kenny is Director of Franklin's Municipal Bond Department. He
joined Franklin in 1986 and has been responsible for making
portfolio recommendations and decisions for the Fund since August
1994. He received a Bachelor of Arts degree in Business and
Economics from the University of California at Santa Barbara and
Master of Science degree in Finance from Golden Gate University.
He is a member of several municipal securities industry related
committees and associations.
Sheila Amoroso
Portfolio Manager
Ms. Amoroso has been responsible for portfolio recommendations
and decisions for the Fund since August 1994. She joined Franklin
in 1986. She holds a bachelor of science degree from San
Francisco State University and is a member of municipal
securities industry related committees and associations.
May 1, 1995
Franklin Federal Tax-Free Income Fund
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
Investment Manager
Franklin Advisers, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
Principal Underwriter
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
Shareholder Services Agent
Franklin/Templeton Investor Services, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
Legal Counsel
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
Independent Auditors
Coopers & Lybrand L.L.P.
333 Market Street
San Francisco, California 94105
Custodian
Bank of America
555 California Street, 4th Floor
San Francisco, California 94104
For an enlarged version of this prospectus please call 1-800/DIAL
BEN.
Your Representative Is:
16 P 05/95
FRANKLIN
FEDERAL TAX-FREE
INCOME FUND
STATEMENT OF
ADDITIONAL INFORMATION
MAY 1, 1995
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
The Fund's Investment Objective
and Policies (See also the Prospectus
"Investment Objective and Policies of the Fund")
Officers and Directors
Investment Advisory and Other Services
(See also the Prospectus
"Management of the Fund")
The Fund's Policies Regarding Brokers
Used on Portfolio Transactions
Additional Information Regarding Fund Shares
(See also the Prospectus
"How to Buy Shares of the Fund,"
"How to Sell Shares of the Fund,"
"Valuation of Fund Shares")
The Fund's Underwriter
Additional Information Regarding Taxation
(See also the Prospectus "Taxation of
the Fund and Its Shareholders")
General Information
Appendix
Financial Statements
Franklin Federal Tax-Free Income Fund (the "Fund") is a
diversified, open-end management investment company which invests
in municipal securities with the objective of providing as high a
level of interest income exempt from federal income taxes as is
consistent with prudent investing, while seeking preservation of
shareholders' capital. Investments in municipal securities will
be within the four highest ratings of either Moody's Investors
Service ("Moody's"), Standard & Poor's Corporation ("S&P") or
Fitch Investors Service, Inc. ("Fitch") or in unrated securities
which, in the opinion of the Fund's investment manager, are of
comparable quality to such four highest ratings. Normally, except
for temporary defensive purposes, at least 80% of the Fund's
assets will be invested in municipal securities.
A Prospectus for the Fund dated May 1, 1995, as may be amended
from time to time, provides the basic information an investor
should know before investing in the Fund, and may be obtained
without charge from the Fund or from its principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors") at the
address listed above.
As explained in the Prospectus, this Fund offers two classes of
shares to its investors: Franklin Federal Tax-Free Income Fund -
Class I ("Class I") and Franklin Federal Tax-Free Income Fund -
Class II ("Class II"). This new multiclass structure allows
investors to consider, among other features, the impact of sales
charges and distribution fees ("Rule 12b-1 fees") on their
investments in this Fund.
This Statement of Additional Information (the "SAI") is not a
prospectus. It contains information in addition to and in more
detail than set forth in the Prospectus. This SAI is intended to
provide investors with additional information regarding the
activities and operations of the Fund and should be read in
conjunction with the Fund's Prospectus.
THE FUND'S INVESTMENT
OBJECTIVE AND POLICIES
As noted in the Prospectus, the investment objective of the Fund
is to provide as high a level of interest income to shareholders
which is exempt from federal income tax as is consistent with
prudent investing, while seeking preservation of shareholders'
capital. (See "Investment Objective and Policies of the Fund" in
the Prospectus).
MUNICIPAL SECURITIES
The Prospectus describes the general categories and nature of
municipal securities. Discussed below are the major attributes of
the various municipal and other securities in which the Fund may
invest.
Tax Anticipation Notes are used to finance working capital needs
of municipalities and are issued in anticipation of various
seasonal tax revenues, which will be used to pay the notes. They
are usually general obligations of the issuer, secured by the
taxing power for the payment of principal and interest.
Revenue Anticipation Notes are issued in expectation of receipt
of other kinds of revenue, such as federal revenues available
under the Federal Revenue Sharing Program. They are usually
general obligations of the issuer.
Bond Anticipation Notes are normally issued to provide interim
financing until long-term financing can be arranged. Long-term
bonds then provide the money for the repayment of the notes.
Construction Loan Notes are sold to provide construction
financing for specific projects. After successful completion and
acceptance, many projects receive permanent financing through the
Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage
Association.
Tax-Exempt Commercial Paper typically represents a short-term
obligation (270 days or less) issued by a municipality to meet
working capital needs.
Municipal Bonds, which meet longer-term capital needs and
generally have maturities of more than one year when issued, have
two principal classifications: general obligation bonds and
revenue bonds.
1. GENERAL OBLIGATION BONDS. Issuers of general obligation bonds
include states, counties, cities, towns and regional districts.
The proceeds of these obligations are used to fund a wide range
of public projects, including construction or improvement of
schools, highways and roads, and water and sewer systems. The
basic security behind general obligation bonds is the issuer's
pledge of its full faith, credit and taxing power for the payment
of principal and interest. The taxes that can be levied for the
payment of debt service may be limited or unlimited as to the
rate or amount of special assessments.
2. REVENUE BONDS. A revenue bond is not secured by the full
faith, credit and taxing power of an issuer. Rather, the
principal security for a revenue bond is generally the net
revenue derived from a particular facility, group of facilities
or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a
wide variety of capital projects including: electric, gas, water,
and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. The
principal security behind these bonds may vary. Housing finance
authorities have a wide range of security, including partially or
fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public
projects. Many bonds provide additional security in the form of a
debt service reserve fund, from which money may be used to make
principal and interest payments on the issuer's obligations. Some
authorities are provided with further security in the form of
state assurance (although without obligation) to make up
deficiencies in the debt service reserve fund.
Industrial Development Bonds are, in most cases, revenue bonds
and are issued by or on behalf of public authorities to raise
money for the financing of various privately operated facilities
for business manufacturing, housing, sports, and pollution
control. These bonds are also used to finance public facilities
such as airports, mass transit systems, ports, and parking. The
payment of the principal and interest on such bonds is solely
dependent on the ability of the facilities user to meet its
financial obligations and the pledge, if any, of the real and
personal property so financed as security for such payment. The
Fund will purchase Industrial Development Bonds only to the
extent that the interest paid by a particular bond is tax-exempt
pursuant to the Tax Reform Act of 1986, which limited the types
of facilities that may be financed with tax-exempt industrial
development and private activity bonds and the amounts of such
bonds each state may issue.
Variable or Floating Rate Demand Notes ("VRDNs") are tax-exempt
obligations which contain a floating or variable interest rate
and a right of demand, which may be unconditional, to receive
payment of the unpaid principal balance plus accrued interest
upon a short notice period (generally up to 30 days) prior to
specified dates, either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to
such instrument. The interest rates are adjustable at intervals
ranging from daily up to monthly, calculated to maintain the
market value of the VRDN at approximately the par value of the
VRDN upon the adjustment date. The adjustments are typically
based upon the prime rate of a bank or some other appropriate
interest rate adjustment index.
When-Issued Purchases. New issues of municipal securities are
offered on a when-issued basis; that is, payment for and delivery
of the securities (the "settlement date") normally takes place
after the date that the offer is accepted. The purchase price and
the yield that will be received on the securities are fixed at
the time the buyer enters into the commitment. While the Fund
will always make commitments to purchase such securities with the
intention of actually acquiring the securities, it may
nevertheless sell these securities before the settlement date if
it is deemed advisable as a matter of investment strategy. To the
extent that assets of the Fund are held in cash pending the
settlement of a purchase of securities, they would earn no
income; however, it is the Fund's intention to be fully invested
to the extent practicable and subject to the policies stated in
the Prospectus. At the time the Fund makes the commitment to
purchase a municipal bond on a when-issued basis, it will record
the transaction and reflect the value of the security in
determining its net asset value. The Fund does not believe that
its net asset value or income will be adversely affected by the
purchase of municipal bonds on a when-issued basis. The Fund will
establish a segregated account in which it will maintain cash and
marketable securities equal in value to commitments for when-
issued securities.
Municipal securities may also be sold in "stripped" form.
Stripped Municipal Securities represent separate ownership of
interest and principal payments on municipal obligations.
Callable Bonds. In the early 1980s large numbers of municipal
bonds were issued with provisions which prevented their being
called, typically for periods of 5 to 10 years. During the coming
years that protection will end on many issues. During times of
generally declining interest rates, if the call-protection on
callable bonds expires, there is an increased likelihood that a
number of such bonds may, in fact, be called away by the issuers.
Based on a number of factors, including certain portfolio
management strategies used by the Fund's investment manager, the
Fund believes it has reduced the risk of adverse impact on net
asset value based on calls of callable bonds. The investment
manager may dispose of such bonds in the years prior to their
call date, if the investment manager believes such bonds are at
their maximum premium potential. In pricing such bonds in the
Fund's portfolio, each callable bond is marked to the market
daily based on the bond's call date. Thus, the call of some or
all of the Fund's callable bonds may have an impact on its net
asset value. In light of the Fund's pricing policies and because
the Fund follows certain amortization procedures required by the
Internal Revenue Service ("IRS"), the Fund is not expected to
suffer any material adverse impact related to the value at which
the Fund has carried the bonds in connection with calls of bonds
purchased at a premium. Notwithstanding such policies, however,
the re-investment of the proceeds of any called bond may be in
bonds which pay a higher or lower rate of return than the called
bonds; and as with any investment strategy, there is no guarantee
that a call may not have a more substantial impact than
anticipated or that the Fund's objectives will be achieved.
Certificates of Participation. As stated in the Prospectus, the
Fund may also invest in municipal lease obligations primarily
through Certificates of Participation ("COPs"). COPs are
distinguishable from municipal debt in that the lease which is
the subject of the transaction typically contains a
"nonappropriation" or "abatement" clause. A nonappropriation
clause provides that, while the municipality will use its best
efforts to make lease payments, the municipality may terminate
the lease without penalty if the municipality's appropriating
body does not allocate the necessary funds.
While the risk of nonappropriation is inherent to COP financing,
the Fund believes that this risk is mitigated by its policy of
investing only in COPs rated within the four highest rating
categories of Moody's, S & P, or Fitch, or in unrated COPs
believed by the Fund's investment manager to be of comparable
quality. Criteria considered by the rating agencies and the
Fund's investment manager in assessing such risk include the
issuing municipality's credit rating, the essentiality of the
leased property to the municipality and the term of the lease
compared to the useful life of the leased property. The Board of
Directors has determined that COPs held in the Fund's portfolio
constitute liquid investments based on various factors reviewed
by the investment manager and monitored by the Board. Such
factors include (a) the credit quality of such securities and the
extent to which they are rated; (b) the size of the municipal
securities market for the Fund, both in general and with respect
to COPs; and (c) the extent to which the type of COPs held by the
Fund trade on the same basis and with the same degree of dealer
participation as other municipal bonds of comparable credit
rating or quality. There is no limit as to the amount of assets
which the Fund may invest in COPs.
Escrow-Secured Bonds or Defeased Bonds are created when an issuer
refunds in advance of maturity (or pre-refunds) an outstanding
bond issue which is not immediately callable, and it becomes
necessary or desirable to set aside funds for redemption of the
bonds at a future date. In an advance refunding, the issuer will
use the proceeds of a new bond issue to purchase high grade,
interest bearing debt securities which are then deposited in an
irrevocable escrow account held by a trustee bank to secure all
future payments of principal and interest of the advance refunded
bond. Escrow-secured bonds will often receive a triple-A rating
from S&P and Moody's Investors Service ("Moody's").
U.S. Government Obligations which may be owned by the Fund are
issued by the U.S. Treasury and include bills, certificates of
indebtedness, notes and bonds, or are issued by agencies and
instrumentalities of the U.S. government and backed by the full
faith and credit of the U.S. government.
Commercial Paper refers to promissory notes issued by
corporations in order to finance their short-term credit needs.
There may, of course, be other types of municipal securities that
become available which are similar to the foregoing described
municipal securities in which the Fund may also invest, to the
extent such investments would be consistent with the foregoing
objective and policies.
TIMING OF SECURITIES TRANSACTIONS
The Fund may purchase or sell securities without regard to the
length of time the security has been held to take advantage of
short-term differentials in bond yields consistent with its
objective of seeking interest income while conserving capital.
While short-term trading increases the portfolio turnover, the
execution costs for municipal bonds are substantially less than
those for equivalent dollar values of equity securities.
The Fund anticipates that its annual portfolio turnover rate
generally will not exceed 100% but this rate should not be
construed as a limiting factor. The Fund's portfolio turnover
rates for the fiscal years ended April 30, 1993 and 1994 were
approximately 13% and 25%, respectively.
INVESTMENT RESTRICTIONS AND POLICIES
Restrictions - The Fund has adopted the following additional
restrictions as fundamental policies, which means that they may
not be changed without the approval of a majority in interest of
the Fund's shares. The Fund MAY NOT:
1. Borrow money or mortgage or pledge any of its assets, except
that borrowings for temporary or emergency purposes may be made
in an amount up to 5% of the total asset value.
2. Buy any securities on "margin" or sell any securities
"short."
3. Lend any of its funds or other assets, except by the purchase
of a portion of an issue of publicly distributed bonds,
debentures, notes or other debt securities, or to the extent the
entry into a repurchase agreement may be deemed a loan. Although
such loans are not presently intended, this prohibition will not
preclude the Fund from loaning securities to broker-dealers or
other institutional investors if at least 102% cash collateral is
pledged and maintained by the borrower provided such security
loans may not be made if, as a result, the aggregate of such
loans exceeds 10% of the value of the Fund's total assets at the
time of the most recent loan.
4. Act as underwriter of securities issued by other persons
except insofar as the Fund may be technically deemed an
underwriter under the federal securities laws in connection with
the disposition of portfolio securities.
5. Purchase the securities of any issuer which would result in
owning more than 10% of the voting securities of such issuer.
6. Purchase from or sell to its officers and directors, or any
firm of which any officer or director is a member, as principal,
any securities, but may deal with such persons or firms as
brokers and pay a customary brokerage commission; retain
securities of any issuer if, to the knowledge of the Fund, one or
more of its officers, directors or investment adviser, own
beneficially more than 1/2 of 1% of the securities of such issuer
and all such officers and directors together own beneficially
more than 5% of such securities.
7. Acquire, lease or hold real estate, except such as may be
necessary or advisable for the maintenance of its offices.
8. Invest in commodities and commodity contracts, "puts,"
"calls," "straddles," "spreads" or any combination thereof, or
interests in oil, gas or other mineral exploration or development
programs. The Fund may, however, write covered call options
listed for trading on a national securities exchange and purchase
call options to the extent necessary to cancel call options
previously written. At present there are no options listed for
trading on a national securities exchange covering the types of
securities which are appropriate for investment by the Fund and,
therefore, there are no option transactions available for the
Fund. In addition, pursuant to the regulations under the
Corporate Securities Laws of the State of California, the Fund
would have to limit its writing of call options to 25% of its net
assets, unless it received an exemption from the Commissioner of
Corporations, should such option transactions become available.
9. Invest in companies for the purpose of exercising control or
management.
10. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization; except to the extent the Fund invests its
uninvested daily cash balances in shares of Franklin Tax-Exempt
Money Fund and other tax-exempt money market funds in the
Franklin Group of Funds provided i) its purchases and redemptions
of such money market fund shares may not be subject to any
purchase or redemption fees, ii) its investments may not be
subject to duplication of management fees, nor to any charge
related to the expense of distributing the Fund's shares (as
determined under Rule 12b-1, as amended under the federal
securities laws) and iii) provided aggregate investments by the
Fund in any such money market fund do not exceed (A) the greater
of (i) 5% of the Fund's total net assets or (ii) $2.5 million, or
(B) more than 3% of the outstanding shares of any such money
market fund.
11. Invest more than 25% of assets in securities of any industry.
For purposes of this limitation, tax-exempt securities issued by
governments or political subdivisions of governments are not
considered to be part of any industry.
In order to change any of the foregoing restrictions, or any
other fundamental policies listed in the Prospectus, approval
must be obtained from the Fund's shareholders. Such approval
requires the affirmative vote of the lesser of (i) 67% or more of
the Fund's voting securities present at a meeting if the holders
of more than 50% of the Fund's voting securities are represented
at that meeting or (ii) more than 50% of the Fund's outstanding
voting securities.
In response to state requirements:
(1) the Fund will not invest in real estate limited partnerships
or in interests (other than publicly traded equity securities) in
oil, gas, or other mineral leases, exploration or development;
(2) the Fund may not invest in warrants (valued at the lower of
cost or market) in excess of 5.0% of the value of the Fund's net
assets. No more than 2.0% of the value of the Fund's net assets
may be invested in warrants (valued at the lower of cost or
market) which are not listed on the New York or American Stock
Exchanges. Warrants acquired by the Fund in units or attached to
securities may be deemed to be without value.
OFFICERS AND DIRECTORS
The Board of Directors has the responsibility for the overall
management of the Fund, including general supervision and review
of its investment activities. The directors, in turn, elect the
officers of the Fund who are responsible for administering the
day-to-day operations of the Fund. The affiliations of the
officers and directors and their principal occupations for the
past five years are listed below. Directors who are deemed to be
"interested persons" of the Fund, as defined in the Investment
Company Act of 1940 (the "1940 Act"), are indicated by an
asterisk (*).
Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111
Director
President and Director, Abbott Corporation (an investment
company); and director, trustee or managing general partner, as
the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
Harris J. Ashton (62)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Director
President, Chief Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft centers); Director,
RBC Holdings, Inc. (a bank holding company) and Bar-S Foods; and
director, trustee or managing general partner, as the case may
be, of 54 of the investment companies in the Franklin Templeton
Group of Funds.
*Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Director
Executive Vice President, Secretary and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services,
Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee of 41 of the investment companies in the
Franklin Templeton Group of Funds.
S. Joseph Fortunato (62)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director
of General Host Corporation; director, trustee or managing
general partner, as the case may be, of 56 of the investment
companies in the Franklin Templeton Group of Funds.
David W. Garbellano (80)
111 New Montgomery St., #402
San Francisco, CA 94105
Director
Private Investor; Assistant Secretary/Treasurer and Director,
Berkeley Science Corporation (a venture capital company); and
director, trustee or managing general partner, as the case may
be, of 29 of the investment companies in the Franklin Group of
Funds.
*Charles B. Johnson (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Director
President and Director, Franklin Resources, Inc.; Chairman of the
Board and Director, Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton
Investor Services, Inc. and General Host Corporation; and officer
and/or director, trustee or managing general partner, as the case
may be, of most other subsidiaries of Franklin Resources, Inc.
and of 55 of the investment companies in the Franklin Templeton
Group of Funds.
*Rupert H. Johnson, Jr. (54)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Director
Executive Vice President and Director, Franklin Resources, Inc.
and Franklin Templeton Distributors, Inc.; President and
Director, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 42 of the
investment companies in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (66)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Director
General Partner, Peregrine Associates and Miller & LaHaye, which
are General Partners of Peregrine Ventures and Peregrine Ventures
II (venture capital firms); Chairman of the Board and Director,
Quarterdeck Office Systems, Inc.; Director, FischerImaging
Corporation; and director or trustee, as the case may be, of 25
of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (66)
8212 Burning Tree Road
Bethesda, MD 20817
Director
Chairman, White River Corporation (information services);
Director, Fund American Enterprises Corporation, Martin Marietta
Corporation, MCI Communications Corporation, MedImmune, Inc.
(biotechnology), Infovest Corporation (information services), and
Fusion Systems Corporation (industrial technology); and director,
trustee or managing general partner, as the case may be, of 51 of
the investment companies in the Franklin Templeton Group of
Funds; formerly, Chairman, Hambrecht and Quist Group; Director, H
& Q Healthcare Investors; and President, National Association of
Securities Dealers, Inc.
Kenneth V. Domingues (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., and Franklin Templeton Distributors, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.
Martin L. Flanagan (34)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer,
Franklin Resources, Inc.; Executive Vice President, Templeton
Worldwide, Inc.; Senior Vice President and Treasurer, Franklin
Advisers, Inc. and Franklin Templeton Distributors, Inc.; Senior
Vice President, Franklin/Templeton Investor Services, Inc.;
officer of most other subsidiaries of Franklin Resources, Inc.;
and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek (46)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 36 of the investment companies in
the Franklin Group of Funds.
Andrew Jennings, Sr. (55)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; employee of Franklin
Resources, Inc. and its subsidiaries in a portfolio management
capacity since 1990; from 1985 to 1990, first vice president and
manager of the municipal institutional bond department at Dean
Witter Reynolds, Inc.
Thomas J. Kenny (32)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Franklin Advisers, Inc. and officer of
eight of the investment companies in the Franklin Group of Funds.
Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 36 of the
investment companies in the Franklin Group of Funds.
Edward V. McVey (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 31 of the investment companies
in the Franklin Group of Funds.
R. Martin Wiskemann (68)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin
Advisers, Inc.; Senior Vice President, Franklin Management, Inc.;
Vice President, Treasurer and Director, ILA Financial Services,
Inc. and Arizona Life Insurance Company of America; and officer
and/or director, as the case may be, of 19 of the investment
companies in the Franklin Group of Funds.
Directors not affiliated with the investment manager ("non
affiliated directors") are currently paid fees of $950.00 per
month plus $950.00 per meeting attended and are reimbursed for
expenses incurred in connection with attending such meetings.
During the fiscal year ended April 30, 1994, fees totaling
$138,700 were paid to nonaffiliated directors of the Fund. As
indicated above, certain of the directors and officers hold
positions with other companies in the Franklin Group of Funds and
the Templeton Funds ("Franklin Templeton Funds"). The following
table indicates the fees paid by the Fund to its nonaffiliated
directors and the total fees received by such directors from the
Fund and from other Franklin Templeton Funds for which they serve
as directors, trustees or managing general partners.
TOTAL
COMPENSATION
FROM
NUMBER OF FRANKLIN
FRANKLIN TEMPLETON
AGGREGATE TEMPLETON FUNDS FUNDS,
COMPENSATION BOARDS ON WHICH INCLUDING
NAME FROM TRUST * EACH SERVES THE TRUST **
Frank H. Abbott, III $23,750 30 $176,870
Harris J. Ashton $22,800 54 319,925
S. Joseph Fortunato $22,800 56 336,065
David W. Garbellano $22,800 29 153,300
Frank W.T. LaHaye $23,750 25 150,817
Gordon S. Macklin $22,800 51 303,685
* For the fiscal year ended May 31, 1994.
** For the calendar year ended December 31, 1994.
Nonaffiliated directors are also reimbursed for expenses incurred
in connection with attending Board meetings, paid pro rata by
each Franklin Templeton fund on which they serve. No officer or
director received any other compensation directly from the Fund.
As of January 12, 1995, the directors and officers, as a group,
owned of record and beneficially approximately 303 shares or less
than 1% of the total outstanding shares of the Fund. In addition,
many of the Fund's directors own shares in various of the other
funds in the Franklin Templeton Funds. Certain officers or
directors who are shareholders of Franklin Resources, Inc.
("Resources") may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers.
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 best knowledge
of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Fund is Franklin Advisers, Inc.
("Advisers" or "Manager"). Advisers is a wholly-owned subsidiary
of Resources, a publicly owned holding company whose shares are
listed on the New York Stock Exchange (the "Exchange"). Resources
owns several other subsidiaries which are involved in investment
management and shareholder services. The Manager and other
subsidiary companies of Resources currently manage over $114
billion in assets for more than 3.7 million shareholders. The
preceding table indicates those officers and directors who are
also affiliated persons of Distributors and Advisers.
Pursuant to the management agreement, the Manager provides
investment research and portfolio management services, including
the selection of securities for the Fund to purchase, hold or
sell and the selection of brokers through whom the Fund's
portfolio transactions are executed. The Manager's extensive
research activities include, as appropriate, traveling to meet
with issuers and to review project sites. The Manager's
activities are subject to the review and supervision of the
Fund's Board of Directors to whom the Manager renders periodic
reports of the Fund's investment activities. The Manager, at its
own expense, furnishes the Fund with office space and office
furnishings, facilities and equipment required for managing the
business affairs of the Fund; maintains all internal bookkeeping,
clerical, secretarial and administrative personnel and services;
and provides certain telephone and other mechanical services. The
Manager is covered by fidelity insurance on its officers,
directors and employees for the protection of the Fund. The Fund
bears all of its expenses not assumed by the Manager. See the
Statement of Operations included in the Fund's Annual Report to
Shareholders dated April 30, 1994.
Pursuant to the management agreement, the Fund is obligated to pay
the Manager a fee computed at the close of business on the last
business day of each month equal to a monthly rate of 5/96 of 1%
(approximately 5/8 of 1% per year) for the first $100 million of net
assets of the Fund; 1/24 of 1% (approximately 1/2 of 1% per year) on
net assets of the Fund in excess of $100 million up to $250 million;
9/240 of 1% (approximately 45/100 of 1% per year) of net assets of
the Fund in excess of $250 million up to $10 billion; 11/300 of 1%
(approximately 44/100 of 1% per year) of net assets of the Fund in
excess of $10 billion up to $12.5 billion; 7/200 of 1%
(approximately 42/100 of 1% per year) of net assets of the Fund in
excess of $12.5 billion up to $15 billion; 1/30 of 1% (approximately
40/100 of 1% per year) of net assets of the Fund in excess of $15
billion up to $17.5 billion; 19/600 of 1% (approximately 38/100 of
1% per year) of net assets of the Fund in excess of $17.5 billion up
to $20 billion; and 3/100 of 1% (approximately 36/100 of 1% per
year) of net assets of the Fund in excess of $20 billion. Each
class will pay its share of the fee as determined by the proportion
of the Fund that it represents.
Management fees for the fiscal years ended April 30, 1992, 1993
and 1994 were $21,975,055, $26,619,057, and $31,132,949,
respectively.
The management agreement specifies that the management fee will
be reduced to the extent necessary to comply with the most
stringent limits on the expenses which may be borne by the Fund
as prescribed by any state in which the Fund's shares are offered
for sale. The most stringent current limit requires the Manager
to reduce or eliminate its fee to the extent that aggregate
operating expenses of the Fund (excluding interest, taxes,
brokerage commissions and extraordinary expenses such as
litigation costs) would otherwise exceed in any fiscal year 2.5%
of the first $30 million of average net assets of the Fund, 2% of
the next $70 million of average net assets of the Fund and 1.5%
of average net assets of the Fund in excess of $100 million.
Expense reductions have not been necessary based on state
requirements.
The management agreement is in effect until April 30, 1996.
Thereafter, it may continue in effect for successive annual
periods providing such continuance is specifically approved at
least annually by a vote of the Fund's Board of Directors or by a
vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority vote of the
Fund's directors who are not parties to the management agreement
or interested persons of any such party (other than as directors
of the Fund), cast in person at a meeting called for that
purpose. The management agreement may be terminated without
penalty at any time by the Fund or by the Manager on 30 days'
written notice and will automatically terminate in the event of
its assignment, as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services"
or "Shareholder Services Agent"), a wholly-owned subsidiary of
Resources, is the shareholder servicing agent for the Fund and
acts as the Fund's transfer agent and dividend-paying agent.
Investor Services is compensated on the basis of a fixed fee per
account.
Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian of the securities
and other assets of the Fund. Citibank Delaware, One Penn's Way,
New Castle, Delaware 19720, acts as custodian in connection with
transfer services through bank automated clearing houses. The
custodians do not participate in decisions relating to the
purchase and sale of portfolio securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the Fund's independent auditors. During the
fiscal year ended April 30, 1994, their auditing services
consisted of rendering an opinion on the financial statements of
the Fund included in the Fund's Annual Report and this SAI.
THE FUND'S POLICIES REGARDING
BROKERS USED ON PORTFOLIO TRANSACTIONS
Since most purchases made by the Fund are principal transactions
at net prices, the Fund incurs little or no brokerage costs. The
Fund deals directly with the selling or purchasing principal or
market maker without incurring charges for the services of a
broker on its behalf unless it is determined that a better price
or execution may be obtained by utilizing the services of a
broker. Purchases of portfolio securities from underwriters will
include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers will include a spread
between the bid and ask price. As a general rule, the Fund does
not purchase bonds in underwritings where it is not given any
choice, or only limited choice, in the designation of dealers to
receive the commission. The Fund seeks to obtain prompt execution
of orders at the most favorable net price. Transactions may be
directed to dealers in return for research and statistical
information, as well as for special services rendered by such
dealers in the execution of orders. It is not possible to place a
dollar value on the special executions or on the research
services received by Advisers from dealers effecting transactions
in portfolio securities. The allocations of transactions in order
to obtain additional research services permits Advisers to
supplement its own research and analysis activities and to
receive the views and information of individuals and research
staff of other securities firms. As long as it is lawful and
appropriate to do so, the Manager and its affiliates may use this
research data in their investment advisory capacities with other
clients. Provided that the Fund's officers are satisfied that the
best execution is obtained, the sale of Fund shares may also be
considered as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
If purchases or sales of securities of the Fund and one or more
other investment companies or clients supervised by the Manager
are considered at or about the same time, transactions in such
securities will be allocated among the several investment
companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds
and the amount of securities to be purchased or sold. It is
recognized that in some cases this procedure could possibly have
a detrimental effect on the price or volume of the security so
far as the Fund is concerned. In other cases it is possible that
the ability to participate in volume transactions and to
negotiate lower brokerage commissions will be beneficial to the
Fund.
During the past three fiscal years ended April 30, the Fund paid
no brokerage commissions. As of April 30, 1994, the Fund did not
own any securities of its regular broker-dealers.
ADDITIONAL INFORMATION REGARDING FUND SHARES
All checks, drafts, wires and other payment mediums used for
purchasing or redeeming shares of the Fund must be denominated in
U.S. dollars. The Fund reserves the right, in its sole
discretion, to either (a) reject any order for the purchase or
sale of shares denominated in any other currency, or (b) honor
the transaction or make adjustments to a shareholder's account
for the transaction as of a date and with a foreign currency
exchange factor determined by the drawee bank.
In connection with exchanges (see the Prospectus "Exchange
Privilege"), it should be noted that since the proceeds from the
sale of shares of an investment company generally are not
available until the fifth business day following the redemption,
the fund into which the Fund's shareholders are seeking to
exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares
of the Fund to complete an exchange for shares of any of the
investment companies will be effected at the close of business on
the day the request for exchange is received in proper form at
the net asset value then effective.
If a substantial portion of the Fund's shareholders should,
within a short period, elect to redeem their shares of the Fund
pursuant to the exchange privilege, the Fund might have to
liquidate portfolio securities it might otherwise hold and incur
the additional costs related to such transactions. On the other
hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the
general policy of the Fund to initially invest this money in
short-term, interest-bearing money market instruments, unless it
is felt that attractive investment opportunities consistent with
the Fund's investment objectives exist immediately. Subsequently,
this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a
manner as is possible when attractive investment opportunities
arise.
Dividend checks which are returned to the Fund marked "unable to
forward" by the postal service will be deemed to be a request by
the shareholder to change the dividend option and the proceeds
will be reinvested in additional shares at net asset value until
new instructions are received.
The Fund may impose a $10 charge for each returned item ,
against any shareholder account which, in connection with the
purchase of Fund shares, submits a check or a draft which is
returned unpaid to the Fund.
The Fund may deduct from a shareholder's account the costs of its
efforts to locate a shareholder if mail is returned as
undeliverable or the Fund is otherwise unable to locate the
shareholder or verify the current mailing address. These costs
may include a percentage of the account when a search company
charges a percentage fee in exchange for its location services.
Under agreements with certain banks in Taiwan, Republic of China,
the Fund's shares are available to such banks' discretionary
trust funds at net asset value. The banks may charge service fees
to their customers who participate in the discretionary trusts.
Pursuant to agreements, a portion of such service fees may be
paid to Distributors, or an affiliate of Distributors, to help
defray expenses of maintaining a service office in Taiwan,
including expenses related to local literature fulfillment and
communication facilities.
Class I shares of the Fund may be offered to investors in Taiwan
through securities firms known locally as Securities Investment
Consulting Enterprises. In conformity with local business
practices in Taiwan, Class I shares of the Fund will be offered
with the following schedule of sales charges:
SALES
SIZE OF PURCHASE IN U.S. DOLLARS CHARGE
Up to $100,000 3%
$100,000 to $1,000,000 2%
Over $1,000,000 1%
PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper
form prior to the close of the Exchange (generally to 1:00 p.m.
Pacific time) any business day that the Exchange is open for
trading and promptly transmitted to the Fund will be based upon
the public offering price determined that day. Purchase orders
received by securities dealers or other financial institutions
after the close of the exchange (generally 1:00 p.m. Pacific
time) will be effected at the Fund's public offering price on the
day it is next calculated. The use of the term "securities
dealer" herein shall include other financial institutions which,
pursuant to an agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with the Fund.
Such reference, however, is for convenience only and does not
indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset
value subject to the same conditions concerning time of receipt
in proper form. It is the securities dealer's responsibility to
transmit the order in a timely fashion and any loss to the
customer resulting from failure to do so must be settled between
the customer and the securities dealer.
SPECIAL NET ASSET VALUE PURCHASES - CLASS I SHARES
As discussed in the Prospectus under "How to Buy Shares of the
Fund - Description of Special Net Asset Value Purchases," certain
categories of investors may purchase Class I shares of the Fund
without a front-end sales charge ("net asset value") or a
contingent deferred sales charge. Distributors or one of its
affiliates may make payments, out of its own resources, to
securities dealers who initiate and are responsible for such
purchases, as indicated below. Distributors may make these
payments in the form of contingent advance payments, which may be
recovered from the securities dealer, or set off against other
payments due to the securities dealer, in the even of investor
redemptions made within 12 months of the calendar month following
purchase. Other conditions may apply. All terms and conditions
may be imposed by an agreement between Distributors, or its
affiliates, and the securities dealer.
With respect to purchases made at net asset value by certain
trust companies and trust departments of banks Distributors, or
one of its affiliates, out of its own resources, may pay up to 1%
of the amount invested.
LETTER OF INTENT. An investor may qualify for a reduced sales
charge on the purchase of Class I shares of the Fund, as
described in the Prospectus. At any time within 90 days after the
first investment which the investor wants to qualify for the
reduced sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the Fund.
After the Letter of Intent is filed, each additional investment
will be entitled to the sales charge applicable to the level of
investment indicated on the Letter of Intent. Sales charge
reductions based upon purchases in more than one of the Franklin
Templeton Funds will be effective only after notification to
Distributors that the investment qualifies for a discount. The
shareholder's holdings in the Franklin Templeton Funds, including
Class II shares, acquired more than 90 days before the Letter of
Intent is filed will be counted towards completion of the Letter
of Intent but will not be entitled to a retroactive downward
adjustment in the sales charge. Any redemptions made by the
shareholder during the 13-month period will be subtracted from
the amount of the purchases for purposes of determining whether
the terms of the Letter of Intent have been completed. If the
Letter of Intent is not completed within the 13-month period,
there will be an upward adjustment of the sales charge, depending
upon the amount actually purchased (less redemptions) during the
period. An investor who executes a Letter of Intent prior to a
change in the sales charge structure for the Fund will be
entitled to complete the Letter of Intent at the lower of (i) the
new sales charge structure; or (ii) the sales charge structure in
effect at the time the Letter of Intent was filed with the Fund.
As mentioned in the Prospectus, five percent (5%) of the amount
of the total intended purchase will be reserved in shares of the
Fund registered in the investor's name. If the total purchases,
less redemptions, equal the amount specified under the Letter od
Intent, the reserved shares will be deposited to an account in
the name of the investor or delivered to the investor or the
investor's order. If the total purchases, less redemptions,
exceed the amount specified under the Letter of Intent and is an
amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by Distributors and the
securities dealer through whom purchases were made pursuant to
the Letter of Intent (to reflect such further quantity discount)
on purchases made within 90 days before and on those made after
filing the Letter of Intent. The resulting difference in offering
price will be applied to the purchase of additional shares at the
offering price applicable to a single purchase or the dollar
amount of the total purchases. If the total purchases, less
redemptions, are less than the amount specified under the Letter,
the investor will remit to Distributors an amount equal to the
difference in the dollar amount of sales charge actually paid and
the amount of sales charge which would have applied to the
aggregate purchases if the total of such purchases had been made
at a single time. The shareholder will receive a written
notification from Distributors requesting the remittance. Upon
such remittance the reserved shares held for the investor's
account will be deposited to an account in the name of the
investor or delivered to the investor or to the investor's order.
If within 20 days after written request such difference in sales
charge is not paid, the redemption of an appropriate number of
reserved shares to realize such difference will be made. In the
event of a total redemption of the account prior to fulfillment
of the Letter of Intent, the additional sales charge due will be
deducted from the proceeds of the redemption, and the balance
will be forwarded to the investor.
REDEMPTIONS IN KIND
The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in
amount, however, during any 90-day period to the lesser of
$250,000 or 1% of the value of the Fund's net assets at the
beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission
("SEC"). In the case of requests for redemption in excess of such
amounts, the directors reserve the right to make payments in
whole or in part in securities or other assets of the Fund from
which the shareholder is redeeming, in case of an emergency, or
if the payment of such a redemption in cash would be detrimental
to the existing shareholders of the Fund. In such circumstances,
the securities distributed would be valued at the price used to
compute the Fund's net assets. Should the Fund do so, a
shareholder may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities
in kind; however, should it happen, shareholders may not be able
to timely recover their investment and may also incur brokerage
costs in selling such securities.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments,
the Fund reserves the right to redeem, involuntarily, at net
asset value, the shares of any shareholder whose account has a
value of less than one-half of the initial minimum investment
required for that shareholder, but only where the value of such
account has been reduced by the shareholder's prior voluntary
redemption of shares. Until further notice, it is the present
policy of the Fund not to exercise this right with respect to any
shareholder whose account has a value of $50 or more. In any
event, before the Fund redeems such shares and sends the proceeds
to the shareholder, it will notify the shareholder that the value
of the shares in the account is less than the minimum amount and
allow the shareholder 30 days to make an additional investment in
an amount which will increase the value of the account to at
least $100.
CALCULATION OF NET ASSET VALUE
As noted in the Prospectus, the Fund generally calculates net
asset value of each class as of the close of the Exchange
(generally 1:00 p.m. Pacific time) each day that the Exchange is
open for trading. As of the date of this SAI, the Fund is
informed that the Exchange observes the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund's portfolio securities are valued as stated in the
Prospectus. Generally, trading in U.S. government securities and
money market instruments is substantially completed each day at
various times prior to the close of the Exchange. The values of
such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Occasionally,
events affecting the values of such securities may occur between
the time at which they are determined and the close of the
Exchange (generally 1:00 p.m. Pacific time) which will not be
reflected in the computation of net asset value if the Fund's
shares. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by the
Board of Directors.
REINVESTMENT DATE
Shares acquired through the reinvestment of dividends will be
purchased at the net asset value determined on the business day
following the dividend record date (sometimes known as "ex-dividend
date"). The processing date for the reinvestment of dividends may
vary from month to month, and does not affect the amount or value of
the shares acquired.
REPORTS TO SHAREHOLDERS
The Fund sends annual and semi-annual reports to its shareholders
regarding the Fund's performance and its portfolio holdings.
Shareholders who would like to receive an interim quarterly
report may phone Fund Information at 1-800 DIAL BEN.
SPECIAL SERVICES
The Trust and Institutional Services Division of Distributors
provides specialized services, including recordkeeping for
institutional investors of the Fund. The cost of these services
is not borne by the Fund.
Investor Services may pay certain financial institutions, which
maintain omnibus accounts with the Fund on behalf of numerous
beneficial owners for recordkeeping, operations performed with
respect to such beneficial owners. For each beneficial owner in
the omnibus account, the Fund may reimburse Investor Services an
amount not to exceed the per account fee which the Fund normally
pays Investor Services. Such financial institutions may also
charge a fee for their services directly to their clients.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April 30,
1996, Distributors acts as principal underwriter in a continuous
public offering for both classes of the Fund's shares.
Distributors pays the expenses of distribution of Fund shares,
including advertising expenses and the costs of printing sales
material and prospectuses used to offer shares to the public. The
Fund pays the expenses of preparing and printing amendments to
its registration statements and prospectuses (other than those
necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The underwriting agreement will continue in effect for successive
annual periods provided that its continuance is specifically
approved at least annually by a vote of the Fund's Board of
Directors, or by a vote of the holders of a majority of the
Fund's outstanding voting securities, and in either event by a
majority vote of the Fund's directors who are not parties to the
underwriting agreement or interested persons of any such party
(other than as directors of the Fund), cast in person at a
meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may
be terminated by either party on 90 days' written notice.
Until April 30, 1994, income dividends for the Class I shares
were reinvested at the offering price (which includes the sales
charge) and Distributors allowed 50% of the entire commission to
the securities dealer of record, if any, on an account. Starting
with any income dividends paid after April 30, 1994, such
reinvestment is at net asset value.
In connection with the offering of the Class I shares, aggregate
underwriting commissions for the fiscal years ended April 30,
1992, 1993 and 1994 were $34,937,882, $41,936,626, and
$37,920,217, respectively. After allowances to dealers,
Distributors retained $1,928,345, $2,265,550, and $2,518,222, for
the respective periods. Distributors may be entitled to
reimbursement under the distribution plan relating to Class I
shares as discussed in "Plans of Distribution" below. Except as
noted, Distributors received no other compensation from the Fund
with respect to the Class I shares for acting as underwriter.
PLANS OF DISTRIBUTION
Each class of the Fund has adopted a Distribution Plan ("Class I
Plan" and "Class II Plan," respectively, or "Plans") pursuant to
Rule 12b-1 under the 1940 Act. Pursuant to the Class I Plan, the
Fund may pay up to a maximum of 0.10% per annum of its average
daily net assets for expenses incurred in the promotion and
distribution of its shares.
In implementing the Class I Plan, the Board of Directors
determined that the annual fees payable thereunder will be equal
to the sum of: (i) the amount obtained by multiplying 0.10% by
the average daily net assets represented by Class I shares of the
Fund that were acquired by investors on or after May 1, 1994
("New Assets"), and (ii) the amount obtained by multiplying 0.05%
by the average daily net assets represented by Class I shares of
the Fund that were acquired before May 1, 1994 ("Old Assets").
Such fees will be paid to the current securities dealer of record
on the shareholder's account. In addition, until such time as the
maximum payment of 0.10% is reached on a yearly basis, up to an
additional 0.02% will be paid to Distributors under the Class I
Plan. The payments to be made to Distributors will be used by
Distributors to defray other marketing expenses that have been
incurred in accordance with the Class I Plan, such as
advertising.
The fee relating to the Class I Plan is an expense of Class I as
a whole, so that all Class I shareholders, regardless of when
they purchased their shares will bear Rule 12b-1 expenses at the
same rate. That rate initially will be at least 0.07% (0.05% plus
0.02%) of Class I's average daily net assets and, as Class I
shares are sold on or after May 1, 1994 (the "Effective Date"),
will increase over time. Thus, as the proportion of Class I
shares purchased on or after May 1, 1994 increases in relation to
outstanding Class I shares, the expenses attributable to payments
under the Class I Plan will also increase (but will not exceed
0.10% of average daily net assets). While this is the currently
anticipated calculation for fees payable under the Class I Plan,
the Class I Plan permits the Fund's directors to allow the Fund
to pay a full 0.10% on all assets at any time. The approval of
the Fund's Board of Directors would be required to change the
calculation of the payments to be made under the Class I Plan.
Pursuant to the Class I Plan, Distributors or others will be
entitled to be reimbursed each quarter (up to the maximum as
stated above) for actual expenses incurred in the distribution
and promotion of Class I shares, including, but not limited to,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead
expenses attributable to the distribution of Class I shares, as
well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates.
THE CLASS II PLAN
Under the Class II Plan, the Fund is permitted to pay to
Distributors or others annual distribution fees, payable
quarterly, of .50% of Class II's average daily net assets, in
order to compensate Distributors or others for providing
distribution and related services and bearing certain expenses of
the Class. All expenses of distribution and marketing over that
amount will be borne by Distributors, or others who have incurred
them, without reimbursement by the Fund. In addition to this
amount, under the Class II Plan, the Fund shall pay .15% per
annum, payable quarterly of the Class' average daily net assets
as a servicing fee. This fee will be used to pay dealers or
others for, among other things, assisting in establishing and
maintaining customer accounts and records; assisting with
purchase and redemption requests; receiving and answering
correspondence; monitoring dividend payments from the Fund on
behalf of the customers, and similar activities related to
furnishing personal services and maintaining shareholder
accounts. Distributors may pay the securities dealer, from its
own resources, a commission of up to 1% of the amount invested.
at the time of investment.
IN GENERAL
In addition to the payments to which Distributors or others are
entitled under the Plans, the Plans also provide that to the
extent the Fund, the Manager or Distributors or other parties on
behalf of the Fund, the Manager or Distributors, make payments
that are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares of each class
of shares of the Fund within the context of Rule 12b-1 under the
1940 Act, then such payments shall be deemed to have been made
pursuant to the Plans.
In no event shall the aggregate asset-based sales charges which
include payments made under a Plan, plus any other payments
deemed to be made pursuant to the Plan, exceed the amount
permitted to be paid pursuant to the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., Article
III, Section 26(d)4.
The terms and provisions of the Plans relating to required
reports, term, and approval are consistent with Rule 12b-1. The
Plans do not permit unreimbursed expenses incurred in a
particular year to be carried over or reimbursed in subsequent
years.
To the extent fees are for distribution or marketing functions,
as distinguished from administrative servicing or agency
transactions, certain banks may not be entitled to participate in
the Plans to the extent that applicable federal law prohibits
certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to
receive fees under the Plans for administrative servicing or for
agency transactions. If a bank were prohibited from providing
such services, its customers who are shareholders would be
permitted to remain shareholders of the Fund, and alternate means
for continuing the servicing of such shareholders would be
sought. In such an event, changes in the services provided might
occur and such shareholders might no longer be able to avail
themselves of any automatic investment or other services then
being provided by the bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of
any of these changes. Securities laws of states in which the
Fund's shares are offered for sale may differ from the
interpretations of federal law expressed herein, and banks and
financial institutions selling shares of the Fund may be required
to register as dealers pursuant to state law.
The Class I Plan and the Class II Plan were approved by
shareholders on April 8, 1994, and March 24, 1995, respectively,
and by the directors of the Fund, including those directors who
are not interested persons, as defined in the 1940 Act. The Class
II Plan became effective on May 1, 1995. The Class I Plan and the
Class II Plan are effective through April 30, 1996, and are
renewable annually by a vote of the Fund's Board of Directors,
including a majority vote of the directors who are non-interested
persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plans, cast in person at a
meeting called for that purpose. It is also required that the
selection and nomination of such directors be done by the non-
interested directors. The Plans and any related agreement may be
terminated at any time, without any penalty, by vote of a
majority of the non-interested directors on not more than 60
days' written notice, by Distributors on not more than 60 days'
written notice, by any act that constitutes an assignment of the
management agreement with the Manager, or by vote of a majority
of the Fund's outstanding shares. Distributors or any dealer or
other firm may also terminate their respective distribution or
service agreement at any time upon written notice.
With respect to a Plan, the Plan and any related agreements may
not be amended to increase materially the amount to be spent for
distribution expenses without approval by a majority of such
class of the Fund's outstanding shares, and all material
amendments to the Plans or any related agreements shall be
approved by a vote of the non-interested directors, cast in
person at a meeting called for the purpose of voting on any such
amendment.
Distributors is required to report in writing to the Board of
Directors at least quarterly on the amounts and purpose of any
payment made under the Plans and any related agreements, as well
as to furnish the Board of Directors with such other information
as may reasonably be requested in order to enable the Board of
Directors to make an informed determination of whether the Plan
should be continued.
ADDITIONAL INFORMATION REGARDING TAXATION
As stated in the Prospectus, the Fund has elected to be treated
as a regulated investment company under Subchapter M of the Code.
The Directors reserve the right not to maintain the qualification
of the Fund as a regulated investment company if they determine
such course of action to be beneficial to the shareholders. In
such case, the Fund will be subject to federal and possibly state
corporate taxes on its taxable income and gains, to the
alternative minimum tax on a portion of its tax-exempt income,
and distributions (including tax-exempt interest dividends) to
shareholders will be taxable to the extent of the Fund's
available earnings and profits.
The Code requires all funds to distribute at least 98% of their
taxable ordinary income earned during the calendar year and at
least 98% of their capital gain net income earned during the
twelve month period ending October 31 of each year (in addition
to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in
order to avoid the imposition of a federal excise tax. Under
these rules, certain distributions which are declared in October,
November or December but which, for operational reasons, may not
be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received by
the shareholder on December 31 of the calendar year in which they
are declared. The Fund intends as a matter of policy to declare
and pay such dividends, if any, in December to avoid the
imposition of this tax, but does not guarantee that its
distributions will be sufficient to avoid any or all federal
excise taxes.
All or a portion of the sales charge incurred in purchasing
shares of the Fund will not be included in the federal tax basis
of such shares sold or exchanged within ninety (90) days of their
purchase (for purposes of determining gain or loss with respect
to such shares) if the sales proceeds are reinvested in the Fund
or in another fund in the Franklin Group of Funds and the
Templeton Group and a sales charge which would otherwise apply to
the reinvestment is reduced or eliminated. Any portion of such
sales charge excluded from the tax basis of the shares sold will
be added to the tax basis of the shares acquired in the
reinvestment. Shareholders should consult with their tax advisors
concerning the tax rules applicable to the redemption or exchange
of fund shares.
Since the Fund's income is derived from interest income and gain
on the sale of portfolio securities rather than dividend income,
no portion of the Fund's distributions will generally be eligible
for the corporate dividends-received deduction. None of the
distributions paid by the Fund for the fiscal year ended April
30, 1994 qualified for this deduction and it is not anticipated
that any of the current year's dividends will so qualify.
Redemptions and exchanges of Fund shares are taxable transactions
for federal and state income tax purposes. For most shareholders,
gain or loss will be recognized in an amount equal to the
difference between the shareholder's basis in the shares and the
amount received, subject to the rules described below. If such
shares are a capital asset in the hands of the shareholder, gain
or loss will be capital gain or loss and will be long-term for
federal income tax purposes if the shares have been held for more
than one year.
All or a portion of a loss realized upon a redemption of shares
will be disallowed to the extent other shares of the Fund are
purchased (through reinvestment of dividends or otherwise) within
30 days before or after such redemption. Any loss disallowed
under these rules will be added to the tax basis of the shares
purchased.
Many states grant tax-free status to dividends paid to
shareholders of mutual funds from interest income earned by the
Fund from direct obligations of the U.S. Government, subject in
some states to minimum investment requirements that must be met
by the Fund. Investments in GNMA/FNMA securities and repurchase
agreements collateralized by U.S. Government securities do not
generally qualify for tax-free treatment. While it is not the
primary investment objective of this Fund to invest in such
obligations, the Fund is authorized to so invest for temporary or
defensive purposes. To the extent that such investments are made,
the Fund will provide shareholders with the percentage of any
dividends paid which may qualify for such tax-free treatment at
the end of each calendar year. Shareholders should then consult
with their own tax advisors with respect to the application of
their state and local laws to these distributions and on the
application of other state and local laws on distributions and
redemption proceeds received from the Fund.
Persons who are defined in the Code as "substantial users" (or
related persons) of facilities financed by private activity bonds
should consult with their tax advisors before purchasing shares
of the Fund.
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, each class may from time to time
quote various performance figures to illustrate its past
performance. Each class also may occasionally cite statistics to
reflect its volatility or risk.
Performance quotations by investment companies are subject to
rules adopted by the SEC. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a class be
accompanied by certain standardized performance information
computed as required by the SEC. Current yield and average annual
compounded total return quotations used by a class are based on
the standardized methods of computing performance mandated by the
SEC. An explanation of those and other methods used by the
classes to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the
average annual compounded rates of return over one-, five- and
ten-year periods that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation
assumes the maximum front-end sales charge is deducted from the
initial $1,000 purchase order, and income dividends and capital
gains are reinvested at net asset value. The quotation assumes
the account was completely redeemed at the end of each one-, five-
and ten-year period, and the deduction of all applicable charges
and fees. If a change is made in the sales charge structure,
historical performance information will be restated to reflect
the maximum sales charge currently in effect.
In considering the quotations of total return by the Fund,
investors should remember that the maximum sales charge reflected
in each quotation is a one-time fee (charged on all direct
purchases) which will have its greatest impact during the early
stages of an investor's investment in the Fund. The actual
performance of an investment will be affected less by this charge
the longer an investor retains the investment in the Fund. The
average annual compounded rates of return for the Class I shares
of the Fund for the indicated periods ended on the date of the
financial statements included herein was as follows:
ONE-YEAR PERIOD FIVE-YEAR PERIOD TEN-YEAR PERIOD
- -1.50% 7.34% 9.66%
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one-, five-, or ten-year
periods at the end of the one-, five-, or ten-year periods.
As discussed in the Prospectus, each class may quote total rates
of return in addition to its average annual total return. Such
quotations are computed in the same manner as a class' average
annual compounded rate, except that such quotations will be based
on such class' actual return for a specified period rather than
on its average return over one-, five- and ten-year periods. The
total rates of return for the Class I shares of the Fund for the
one-, five- and ten-year periods ended on the date of the
financial statements included herein were 1.50%, 42.52% and
151.48%, respectively.
YIELD
Current yield reflects the income per share earned by the Fund's
portfolio investments.
Current yield for each class is determined by dividing the net
investment income per share earned by a class during a 30-day
base period by the maximum offering price per share on the last
day of the period and annualizing the result. Expenses accrued
for the period include any fees charged to all shareholders of a
class during the base period. The yield for the Class I shares
for the 30-day period ended on the date of the audited financial
statements included herein was 5.45%
This figure was obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
TAX EQUIVALENT YIELD
The Fund may also quote a tax equivalent yield which demonstrates
the taxable yield necessary to produce an after-tax yield
equivalent to that of a fund which invests in tax-exempt
obligations. Such yield is computed by dividing that portion of
the yield of the Fund (computed as indicated above) which is tax-
exempt by one minus the highest applicable federal income tax
rate (and adding the product to that portion of the yield of the
Fund that is not tax-exempt, if any). The tax equivalent yield
for Class I shares of the Fund for the 30-day period ended on the
date of the financial statements included herein was 9.02%.
As of the date of this SAI, the federal income tax rate upon
which the Fund's tax equivalent yield quotation is based was
39.6%. From time to time, as any changes to such rates become
effective, tax equivalent yield quotations advertised by the Fund
will be updated to reflect such changes. The Fund expects updates
may be necessary as tax rates are changed by federal, state and
local governments. The advantage of tax-free investments, such as
the Fund, will be enhanced by any tax rate increases. Therefore,
the details of specific tax increases may be used in sales
material for the Fund.
CURRENT DISTRIBUTION RATE
Current yield and tax equivalent yield which are calculated
according to a formula prescribed by the SEC are not indicative
of the amounts which were or will be paid to a class'
shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by
dividing the total amount of dividends per share paid by a class
during the past 12 months by a current maximum offering price. A
taxable equivalent distribution rate demonstrates the taxable
distribution rate equivalent to the class' current distribution
rate (calculated as indicated above). The advertised taxable
equivalent distribution rate will reflect the most current
federal tax rates available to the Fund. Under certain
circumstances, such as when there has been a change in the amount
of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid
over the period such policies were in effect, rather than using
the dividends during the past 12 months. The current distribution
rate differs from the current yield computation because it may
include distributions to shareholders from sources other than
dividends and interest, such as short-term capital gains, and is
calculated over a different period of time.
VOLATILITY
Occasionally statistics may be used to specify Fund volatility or
risk. Measures of volatility or risk are generally used to
compare Fund net asset value or performance relative to a market
index. One measure of volatility or risk is standard deviation.
Standard deviation is used to measure variability of net asset
value or total return around an average over a specified period
of time. The premise is that greater volatility connotes greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
With respect to those categories of investors who are permitted
to purchase Class I shares at net asset value, sales literature
pertaining to such class may quote a current distribution rate,
yield, total return, average annual total return and other
measures of performance as described elsewhere in this SAI with
the substitution of net asset value for the public offering
price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used.
The Fund may include in its advertising or sales material
information relating to investment objectives and performance
results of funds and classes belonging to the Templeton Group of
Funds. Resources is the parent company of the advisers and
underwriter of both the Franklin Group of Funds and Templeton
Group of Funds.
COMPARISONS
To help investors better evaluate how an investment in the Fund
might satisfy their investment objective, advertisements and
other materials regarding the Fund may discuss various measures
of Fund and class performance as reported by various financial
publications. Materials may also compare performance (as
calculated above) to performance as reported by other
investments, indices, and averages. Such comparisons may include,
but are not limited to, the following examples:
a) Salomon Brothers Broad Bond Index or its component indices -
The Broad Index measures yield, price, and total return for
Treasury, Agency, Corporate, and Mortgage bonds.
b) Lehman Brothers Aggregate Bond Index or its component indices
- - The Aggregate Bond Index measures yield, price and total return
for Treasury, Agency, Corporate, Mortgage, and Yankee bonds.
c) Smith Barney, Shearson Donoghue's Money Fund Report Industry
averages for 7-day annualized and compounded yields of taxable,
tax-free, and government money funds.
d) Lehman Brothers Municipal Bond Index (LBMBI) or its component
indices - LBMBI measures yield, price and total return for the
municipal bond market.
e) Bond Buyers's 20-Bond Index - an index of municipal bond
yields based upon yields of 20 general obligation bonds maturing
in 20 years.
f) Bond Buyer's 30-Bond Index - an index of municipal bond yields
based upon yields of 20 revenue bonds maturing in 30 years.
g) Financial publications: The Wall Street Journal and Business
Week, Financial World, Forbes, Fortune, and Money magazines -
provide performance statistics over specified time periods.
h) Salomon Brothers Composite High Yield Index or its component
indices - The High Yield Index measures yield, price and total
return for Long-Term High-Yield Index, Intermediate-Term High-
Yield Index, Long-Term Utility High-Yield Index.
i) Historical data supplied by the research departments of First
Boston Corporation, the J. P. Morgan companies, Salomon Brothers,
Merrill Lynch, Pierce, Fenner & Smith, Lehman Brothers and
Bloomberg, L.P.
j) Merrill Lynch California Municipal Bond Index - based upon
yields from revenue and general obligation bonds weighted in
accordance with their respective importance to the California
municipal market. The index is published weekly in the Los
Angeles Times and the San Francisco Chronicle.
k) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed
Income Fund Performance Analysis - measure total return and
average current yield for the mutual fund industry. Rank
individual mutual fund performance over specified time periods,
assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
From time to time, advertisements or information for the Fund may
include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or
information may include symbols, headlines, or other material
which highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare the Fund's or
class' performance to the return on certificates of deposit or
other investments. Investors should be aware, however, that an
investment in the Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in
a certificate of deposit issued by a bank. For example, as the
general level of interest rates rise, the value of the Fund's
fixed-income investments, as well as the value of its shares
which are based upon the value of such portfolio investments, can
be expected to decrease. Conversely, when interest rates
decrease, the value of the Fund's shares can be expected to
increase. Certificates of deposit are frequently insured by an
agency of the U.S. government. An investment in the Fund is not
insured by any federal, state or private entity.
In assessing such comparisons of performance, an investor should
keep in mind that the composition of the investments in the
reported indices and averages is not identical to the Fund's
portfolio, that the indices and averages are generally unmanaged,
and that the items included in the calculations of such averages
may not be identical to the formula used by the Fund to calculate
its figures. In addition there can be no assurance that the Fund
will continue this performance as compared to such other
averages.
OTHER FEATURES AND BENEFITS
The Fund may help investors achieve various investment goals such
as accumulating money for retirement, saving for a down payment
on a home, college costs and/or other long-term goals. The
Franklin College Costs Planner may assist an investor in
determining how much money must be invested on a monthly basis in
order to have a projected amount available in the future to fund
a child's college education. (Projected college cost estimates
are based upon current costs published by the College Board.) The
Franklin Retirement Planning Guide leads an investor through the
steps to start a retirement savings program. Of course, an
investment in the Fund cannot guarantee that such goals will be
met.
MISCELLANEOUS INFORMATION
The Fund is a member of the Franklin Templeton Group, one of the
largest mutual fund organizations in the United States, and may
be considered in a program for diversification of assets. Founded
in 1947, Franklin, one of the oldest mutual fund organizations,
has managed mutual funds for over 47 years and now services more
than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in
creating domestic equity funds, joined forces with Templeton
Worldwide, Inc., a pioneer in international investing. Together,
the Franklin Templeton Group has over $114 billion in assets
under management for more than 3.7 million shareholder accounts
and offers 111 U.S. based mutual funds. The Fund may identify
itself by its NASDAQ or CUSIP number.
Franklin is a leader in the tax-free mutual fund industry and
manages more than $40 billion in municipal bond assets for over
half a million investors.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin
number one in service quality for five of the past seven years.
According to Research and Ratings Review, Volume II, dated
February 28, 1994, Franklin's municipal research team ranked 2
out of 1,000 investment advisory firms surveyed by TMS Holdings,
Inc. As of November 14, 1994, this ranking was unchanged.
From time to time advertisements or sales material issued by the
Fund may discuss or be based upon information in a recent issue
of the Special Report on Tax Freedom Day published by the Tax
Foundation, a Washington, D.C. based nonprofit, research and
public education organization. The report illustrates, among
other things, the amount of time, on an annual basis, the average
taxpayer works to satisfy his or her tax obligations to the
federal, state and local taxing authorities.
Access persons of the Franklin Templeton Group, as defined in SEC
Rule 17(j) under the 1940 Act, who are employees of Resources or
its subsidiaries, are permitted to engage in personal securities
transactions subject to the following general restrictions and
procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be
sent to the Compliance Officer and within 10 days after the end
of each calendar quarter, a report of all securities transactions
must be provided to the Compliance Officer; (3) In addition to
items (1) and (2), access persons involved in preparing and
making investment decisions must file annual reports of their
securities holdings each January and also inform the Compliance
Officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction
or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other
client.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership
or authority to control a shareholder's account, the Fund has the
right (but has no obligation) to: (a) freeze the account and
require the written agreement of all persons deemed by the Fund
to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead
disputed funds or accounts with a court of competent
jurisdiction; or (c) surrender ownership of all or a portion of
the account to the IRS in response to a Notice of Levy.
FINANCIAL STATEMENTS
In addition to the Financial Statements that follow, see the
unaudited financial statements of the Fund for the six months
ended October 31, 1994 contained in the Semi-Annual Report to
Shareholders dated October 31, 1994, which are incorporated
herein by reference.
APPENDIX
DESCRIPTION OF MUNICIPAL BOND RATINGS:
MOODY'S
AAA: Municipal bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt-edged." Interest payments
are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
AA: Municipal bonds which are rated Aa are judged to be high
quality by all standards. Together with the Aaa group, they
comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A: Municipal bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium-
grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
BAA: Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and,
in fact, have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have predominantly
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and, thereby, not well safeguarded during
both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
CA: Bonds which are rated Ca represent obligations which are
speculative to a high degree. Such issues are often in default or
have other marked shortcomings.
C: Bonds which are rated C are the lowest-rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
CON. (-): Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are
rated conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned
in operation experience, (c) rentals which begin when facilities
are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis
condition.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B in its corporate
bond ratings. The modifier 1 indicates that the security ranks in
the higher end of its generic rating category; modifier 2
indicates a mid-range ranking; and modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
S&P
AAA: Municipal bonds rated AAA are highest-grade obligations.
They possess the ultimate degree of protection as to principal
and interest. In the market they move with interest rates and,
hence, provide the maximum safety on all counts.
AA: Municipal bonds rated AA also qualify as high-grade
obligations, and in the majority of instances differ from AAA
issues only in a small degree. Here, too, prices move with the
long-term money market.
A: Municipal bonds rated A are regarded as upper medium-grade.
They have considerable investment strength but are not entirely
free from adverse effects of changes in economic and trade
conditions. Interest and principal are regarded as safe. They
predominantly reflect money rates in their market behavior, but
also, to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C: This rating is reserved for income bonds on which no interest
is being paid.
D: Debt rated "D" is in default, and payment of interest and/or
repayment of principal is in arrears.
NOTE: The S&P ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major
rating categories.
FITCH
AAA BONDS: Considered to be of investment grade and of the
highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal which is unlikely to
be affected by reasonably foreseeable events.
AA BONDS: Considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong although not quite as strong as bonds
rated AAA and not significantly vulnerable to foreseeable future
developments.
A BONDS: Considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings."
BBB BONDS: Considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely
to have adverse impact on these bonds, and therefor impair timely
payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher
ratings.
BB BONDS: Considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives
can be identified which could assist the obligor in satisfying
its debt service requirements.
B BONDS: Considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability
of continued timely payment of principal and interest reflects
the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.
CCC BONDS: Have certain identifiable characteristics which, if
not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic
environment.
CC BONDS: Minimally protected. Default in payment of interest
and/or principal seems probable over time.
C BONDS: Imminent default in payment of interest or principal.
DDD, DD AND D BONDS: Are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. DDD represents the
highest potential for recovery while D represents the lowest
potential for recovery.
Plus (+) or minus (-) signs are used with a rating symbol to
indicate the relative position of a credit within the rating
category. Plus or minus are not used for the AAA and the DDD, DD
or D categories.
FRANKLIN FEDERAL TAX-FREE INCOME FUND
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
of Franklin Federal Tax-Free Income Fund:
We have audited the accompanying statement of assets and liabilities of
Franklin Federal Tax-Free Income Fund (the Fund), including the statement of
investments in securities and net assets, as of April 30, 1994, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the
financial highlights, included under the caption "Financial Highlights," for
each of the periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
April 30, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Franklin Federal Tax-Free Income Fund as of April 30, 1994, the results of its
operation for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the periods indicated thereon, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
San Francisco, California
June 3, 1994
20
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.0%
ALABAMA 1.0%
$ 5,400,000 Alabama Special Care Facilities Financing Authority, Montgomery Hospital Revenue,
Refunding, Baptist Hospital Gadsden, Inc. Project, Pre-Refunded, 10.25%, 11/01/15 ... $ 5,892,804
6,000,000 Alabama State Docks Department Coal Revenue, Refunding, Pre-Refunded, 10.00%,
10/01/05............................................................................. 6,598,380
7,000,000 Alabama Water Pollution Control Authority, Revolving Fund, Series B, 7.75%, 08/15/12 7,324,240
5,000,000 Birmingham GO, Street Improvement Warrants, Pre-Refunded, 8.00%, 07/01/13 ............. 5,641,200
1,000,000 Citronelle IDB, PCR, Stauffer Chemical Project, Guaranteed by Imperial Chemical, Plc.,
Series 1982, 8.00%, 12/01/12......................................................... 1,137,020
12,000,000 Courtland IDB, IDR, Refunding, Champion International Corp., Series A, 7.20%,
12/01/13............................................................................. 12,527,880
30,000,000 West Jefferson IDB, PCR, Refunding, Alabama Power Co., Miller Plant, Series C,
MBIA Insured, 6.05%, 05/01/23........................................................ 28,890,300
--------------
68,011,824
--------------
ALASKA .9%
1,775,000 Alaska Industrial Development and Export Authority, Revolving Fund, Series A, 7.95%,
04/01/10............................................................................. 1,930,969
Alaska State HFC,
1,225,000 CHM, Series A, 8.375%, 12/01/16 .................................................. 1,269,590
4,300,000 CHM, Series A-1, 6.75%, 12/01/32 ................................................. 4,312,126
3,975,000 CHM, Series A-3, 7.70%, 12/01/13 ................................................. 4,114,164
8,000,000 Housing, Series A, 6.60%, 12/01/23 ............................................... 8,133,280
2,155,000 Housing, Series B, 5.625%, 12/01/23 .............................................. 1,868,234
12,500,000 Insured Mortgage Program, 1st Series, 5.80%, 12/01/18 ............................ 11,375,875
8,825,000 Refunding, Mortage Insured, Program 1, Series 1990-B, 7.80%, 12/01/30 ............ 9,058,245
Anchorage Parking Authority Revenue, Refunding,
3,360,000 5th Avenue Garage Lease Project, 6.50%, 12/01/02 ................................. 3,443,967
3,500,000 5th Avenue Garage Lease Project, 6.75%, 12/01/08 ................................. 3,520,755
Valdez Marine Terminal Revenue, Refunding,
10,000,000 Pipeline, Inc. Project, 5.90%, 02/01/07 .......................................... 9,823,500
2,000,000 Pipeline, Inc. Project, 5.75%, 11/01/28 .......................................... 1,794,620
--------------
60,645,325
--------------
ARIZONA .7%
5,275,000 Coconino County PCR, Series A, 5.875%, 08/15/28 ....................................... 4,629,287
14,720,000 Glendale IDA, Hospital Revenue, Northwest Development, Inc. Project, 8.875%,
01/01/16............................................................................. 15,674,739
7,400,000 Navajo County PCR, Refunding, Arizona Public Service Co., Series A, 5.875%,
08/15/28............................................................................. 6,628,254
11,680,000 Pima County IDA, MFHR, Fountains La Cholla Project, FHA Mortgage Insured, 8.00%,
12/01/25............................................................................. 11,933,689
5,820,000 Tempe IDA, Residential Care Facilities Revenue, Volunteers of America Care Facilities,
9.00%, 06/01/18...................................................................... 6,140,682
--------------
45,006,651
--------------
ARKANSAS .2%
Arkansas State Development Finance Authority, SFMR, Mortgage Backed Securities
Program,
5,000,000 Series B, 5.65%, 06/01/16 ........................................................ 4,570,650
3,530,000 Series D, 5.65%, 06/01/16 ........................................................ 3,246,435
1,270,000 Arkansas State Development Finance Authority, Water Revenue, Refunding, Revolving
Loan Program, Series B, MBIA Insured, 5.25%, 12/01/10................................ 1,173,302
3,615,000 Desha County, Residential Housing Facilities Board, SFMR, Refunding, 7.50%,
04/01/11............................................................................. 3,845,600
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
ARKANSAS (CONT.)
$ 3,115,000 Independence County, Public Health & Education Facilities Board Capital Revenue,
Improvement & Refunding, White River Control Project, 8.00%, 06/01/09............. $ 3,279,036
--------------
16,115,023
--------------
CALIFORNIA 1.3%
Alhambra COP,
410,000 Clubhouse Facility Project, 11.25%, 01/01/08 .................................. 437,105
455,000 Clubhouse Facility Project, 11.25%, 01/01/09 .................................. 484,685
500,000 Clubhouse Facility Project, 11.25%, 01/01/10 .................................. 532,620
5,325,000 Burbank RDA, Refunding, Tax Allocation, Series A, 6.25%, 12/01/24 .................. 4,924,080
2,030,000 California State Education Facilities Authority Revenue,
3,580,000 National University, Connie Lee Insured, 6.00%, 05/01/09 ...................... 3,514,128
2,225,000 Pooled College & University Financing, Refunding, Series B, 5.50%, 06/01/00.... 2,187,798
1,000,000 Pooled College & University Financing, Refunding, Series B, 5.70%, 06/01/01.... 983,990
4,000,000 California State Public Works Board Lease Revenue, Various University of California
Projects, Series A, 6.375%, 10/01/14.............................................. 3,943,600
1,020,000 Coalinga Public Finance Authority Revenue, Series B, 6.25%, 09/15/07 ............... 970,295
1,000,000 Commerce, Refuse to Energy Authority Revenue, Series 1984-A, 11.50%, 11/01/10....... 1,063,180
1,360,000 Corona-Norco USD, CFD No. 3, Pre-Refunded, 12.00%, 11/01/04 ........................ 1,458,124
4,000,000 Eden Township Hospital District Health Facilities Revenue, Refunding, COP, Eden
Hospital Health Services Corp., 5.75%, 07/01/12................................... 3,635,080
Forty-Niner Shops, Inc., Auxiliary Organization,
1,090,000 California State Long Beach Project, 6.875%, 04/01/07 ......................... 1,108,268
1,565,000 California State Long Beach Project, 6.875%, 04/01/12 ......................... 1,579,946
1,300,000 Los Angeles CRDA, Community Redevelopment Finance Authority Revenue, Grand
Center Qualified Redevelopment, Series A, 5.90%, 12/01/26......................... 1,110,057
6,400,000 Los Angeles Regional Airport Improvements Corp., Lease Revenue, Refunding, United
Airlines, 6.875%, 11/15/12........................................................ 6,169,856
870,000 Redlands COP, Refunding, Loma Linda University Medical Center, Series D, MBIA
Insured, 5.00%, 12/01/04.......................................................... 826,744
6,000,000 San Francisco City and County Redevelopment, MFR, Refunding, South Beach Project,
GNMA Insured, 5.70%, 03/01/29..................................................... 5,385,780
San Joaquin Hills Transportation,
18,795,000 Corridor Agency Toll Road Revenue, 7.00%, 01/01/30 ............................ 18,646,143
23,125,000 Corridor Agency Toll Road Revenue, 6.75%, 01/01/32 ............................ 22,328,344
Santa Barbara County Revenue, COP, Refunding,
2,500,000 Montecito Retirement, 5.75%, 04/01/13 ......................................... 2,279,725
3,150,000 Montecito Retirement, 5.80%, 04/01/18 ......................................... 2,841,836
--------------
88,216,419
--------------
COLORADO 3.8%
5,000,000 Arvada, City of, MFR Rental Housing, Arvada Manor Project, GNMA Mortgage Backed
Securities, 8.25%, 12/20/25....................................................... 5,118,450
9,000,000 Colorado Health Facilities Revenue Authority, Porter Memorial Hospital Project,
Series A, Pre-Refunded, 7.40%, 02/01/16........................................... 10,017,270
Colorado HFA, GO,
1,595,000 Series A, 7.50%, 05/01/29 ..................................................... 1,671,305
2,745,000 Series A, 8.375%, 01/01/30 .................................................... 2,852,220
Denver City & County, Airport System Revenue,
1,000,000 Series 1985, 8.375%, 08/01/96 ................................................. 1,005,770
2,000,000 Series 1985, 8.375%, 08/01/11 ................................................. 2,030,640
7,200,000 Series A, 7.50%, 11/15/12 ..................................................... 7,330,680
15,645,000 Series A, 8.875%, 11/15/12 .................................................... 17,186,502
79,945,000 Series A, 8.50%, 11/15/23 ..................................................... 85,423,631
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
COLORADO (CONT.)
Denver City & County, Airport System Revenue, (cont.)
$ 10,000,000 Series A, 7.25%, 11/15/25 ........................................................ $ 9,938,300
22,325,000 Series A, 8.00%, 11/15/25 ........................................................ 23,202,819
11,460,000 Series D, 7.00%, 11/15/25 ........................................................ 10,640,953
44,800,000 dDenver City & County, Special Facilities Airport Revenue, United Airlines Project,
Series A, 6.875%, 10/01/32......................................................... 41,493,312
4,000,000 Jefferson County, School District No. R-001, AMBAC Insured, 6.25%, 12/15/12 ........... 4,042,920
6,925,000 Littleton IDR, Porter Memorial Hospital Medical Office Project, Series 1982,
Pre-Refunded, 8.00%, 02/01/12........................................................ 7,630,242
16,500,000 Littleton MFR, Rental Housing, Riverpointe I Project, Series 1985, Mandatory Put
10/01/96, 8.00%, 12/01/22............................................................ 16,759,545
6,500,000 University of Colorado Hospital Authority Revenue, Series A, AMBAC Insured, 6.40%,
11/15/22............................................................................. 6,534,385
6,000,000 Westminster Sales & Use Tax Revenue, Series A, FGIC Insured, 6.25%, 12/01/12 .......... 6,047,100
--------------
258,926,044
--------------
CONNECTICUT
3,000,000 Connecticut State Housing Mortgage Finance Revenue, Series A-1, 5.85%, 11/15/16........ 2,797,740
--------------
DELAWARE
1,160,000 Delaware State EDA Revenue, Refunding, Water Development, Wilmington, Series B,
6.45%, 12/01/07...................................................................... 1,197,039
2,000,000 Delaware State Housing Authority, Refunding, MFMR, Series D, 6.75%, 07/01/06 .......... 2,002,220
--------------
3,199,259
--------------
DISTRICT OF COLUMBIA .6%
6,500,000 District of Columbia GO, Series A, Pre-Refunded, 8.00%, 06/01/07 ...................... 7,174,960
District of Columbia HFA, MFHR,
1,870,000 Refunding, FHA Insured, Series A, 7.10%, 09/01/12 ................................ 1,944,164
6,755,000 Refunding, FHA Insured, Series A, 7.15%, 03/01/24 ................................ 6,999,464
6,110,000 District of Columbia HFA, MFHR, FHA Mortgage Insured, Mayfair Mansions Apartments,
8.85%, 02/01/31...................................................................... 6,288,839
195,000 District of Columbia HFA, RMR, Series 1983-1, 11.375%, 07/01/08 ....................... 199,875
4,835,000 District of Columbia Hospital Revenue, Washington Hospital Center Corp., Series A,
9.00%, 01/01/08...................................................................... 5,900,827
5,685,000 District of Columbia Revenue, Association of American Medical Colleges, 7.50%,
02/15/20............................................................................. 6,231,555
5,265,000 District of Columbia Revenue, Catholic University of America, 6.45%, 10/01/23 ......... 5,302,592
--------------
40,042,276
--------------
FLORIDA 3.7%
Bay County Resource Recovery Revenue,
2,100,000 Refunding, Series A, MBIA Insured, 6.50%, 07/01/07 ............................... 2,213,043
11,020,000 Refunding, Series B, MBIA Insured, 6.50%, 07/01/07 ............................... 11,613,207
2,620,000 Series 1984, Pre-Refunded, 8.00%, 07/01/12 ....................................... 2,887,554
45,875,000 Broward County Resource Recovery Revenue, Broward Waste Energy Co., Limited
Partnership, North Project, Series 1984, 7.95%, 12/01/08............................. 50,241,382
3,800,000 Dunes Community Development District Revenue, Water and Sewer Project,
Pre-Refunded, 8.25%, 10/01/18........................................................ 4,346,744
5,285,000 Duval County HFA, MFHR, Magnolia Arms Apartments Project, Series A, 9.50%,
08/15/17............................................................................. 2,114,000
4,000,000 Escambia County HFA, Baptist Hospital, Inc., Series B, 6.00%, 10/01/14 ................ 3,580,560
Florida State Board of Education Capital Outlay, Refunding, Public Education,
22,475,000 Series 1992, 6.40%, 06/01/19 ..................................................... 23,063,845
6,000,000 Series A, 6.00%, 06/01/25 ........................................................ 5,779,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG TERM INVESTMENTS (CONT.)
FLORIDA (CONT.)
Florida State Department of General Services, Division of Facilities Management
Revenue,
$16,000,000 Florida Facilities Pooled, Pre-Refunded, 7.75%, 09/01/16 ........................... $ 17,457,280
2,000,000 Florida Facilities Pooled, Pre-Refunded, 8.125%, 09/01/17 .......................... 2,282,280
7,125,000 Florida State Department of Transportation, Turnpike Revenue, Series A, Pre-Refunded,
7.75%, 07/01/09..................................................................... 8,115,161
20,500,000 Hillsborough County Capital Improvement Program, Water & Wastewater Facilities
Revenue, BMTF, Mode A, Sub-Series 2, Pre-Refunded, 8.30%, 08/01/16................ 22,243,525
4,245,000 Lakeland Retirement Community, 1st Mortgage Revenue, Carpenters Home Estate
Project, 9.50%, 09/01/06.......................................................... 4,159,803
6,500,000 Manatee County IDR, Manatee Hospital & Health Systems, Inc., 9.25%, 03/01/21 ....... 7,290,985
7,500,000 North Broward Hospital District, Hospital Revenue, Pre-Refunded, 8.00%, 01/01/14 ... 8,149,725
Orange County Health Facilities Authority Revenue,
4,835,000 Pooled Hospital Loan Program, Series B, BIG Insured, 7.875%, 12/01/25 ......... 5,219,720
6,005,000 Refunding, Pooled Hospital Loan Program, Series 1985-A, FGIC Insured, 7.875%,
12/01/25..................................................................... 6,482,818
16,000,000 St. Augustine Water & Sewer Utility Revenue, Refunding, 8.125%, 10/01/12 ........... 17,026,400
2,500,000 Santa Rosa County Health Facilities Authority Revenue, Refunding, Gulf Breeze
Hospital, Inc., Pre-Refunded, 8.70%, 10/01/14..................................... 2,892,925
Tampa Capital Improvement Program Revenue,
11,010,000 Series A, 8.25%, 10/01/18 ..................................................... 11,845,109
30,250,000 Series B, 8.375%, 10/01/18 .................................................... 32,507,860
------------
251,513,126
------------
GEORGIA 2.6%
Burke County Development Authority PCR, Georgia Power Co., Plant Vogle Project,
4,300,000 Series 1985-1, FGIC Insured, 10.125%, 06/01/15 ................................ 4,630,068
5,015,000 Series 1985-2, 10.60%, 10/01/15 ............................................... 5,517,954
1,345,000 Series 1985-3, 10.50%, 11/01/15 ............................................... 1,484,302
14,500,000 a,b,cDekalb County Residential Care Facilities for the Elderly Authority Revenue,
Refunding, Kings Bridge Retirement Center, Inc., 8.75%, 01/01/17.................. 4,350,000
Fulton County Development Authority Special Facilities Revenue,
3,400,000 Refunding, Delta Air Lines, Inc. Project, 6.85%, 11/01/07 ..................... 3,275,662
5,500,000 Refunding, Delta Air Lines, Inc. Project, 6.95%, 11/01/12 ..................... 5,258,055
Georgia Municipal Electric Authority Power Revenue,
19,200,000 Series A, Pre-Refunded, 7.875%, 01/01/18 ...................................... 20,640,000
14,000,000 Series B, 6.375%, 01/01/16 .................................................... 14,187,460
50,000,000 Series L, Pre-Refunded, 7.75%, 01/01/18 ....................................... 54,838,500
18,500,000 Georgia Municipal Electric Authority Special Obligation, Refunding, Second Crossover
Series, 8.125%, 01/01/17.......................................................... 20,616,585
5,505,000 Georgia State HFA, Revenue Homeownership Opportunity Program, Series C, 6.60%,
12/01/23.......................................................................... 5,521,240
Monroe County Development Authority, PCR, Georgia Power Co.,
16,000,000 Plant Scherer Project, 8.375%, 07/01/17 ....................................... 17,434,400
4,950,000 Plant Scherer Project, Series 1, 10.50%, 09/01/15 ............................. 5,405,598
10,000,000 Putnam County Development Authority, PCR, Refunding, Georgia Power Co., Plant
Branch Project, 8.375%, 07/01/17.................................................. 10,964,800
------------
174,124,624
------------
HAWAII 1.0%
Hawaii State Airports Systems Revenue,
12,000,000 2nd Series, 7.00%, 07/01/07 ................................................... 12,695,880
500,000 2nd Series, 6.90%, 07/01/12 ................................................... 527,660
2,830,000 2nd Series, 7.00%, 07/01/18 ................................................... 2,939,946
1,000,000 FGIC Insured, 7.00%, 07/01/20 ................................................. 1,056,550
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
HAWAII (CONT.)
Hawaii State Department of Budget & Finance, Special Purposes Mortgage Revenue,
$ 200,000 Hawaii Electric Light Co. Project, 7.20%, 12/01/14 ........................ $ 215,278
1,000,000 Hawaii Electric Light Co. Project, Series A, 7.35%, 01/01/20 .............. 1,055,430
900,000 Kaiser Hospital, 6.25%, 03/01/21 .......................................... 897,570
1,000,000 Wahiawa General Hospital Project, 7.50%, 07/01/12 ......................... 1,054,340
125,000 Hawaii State Department of Transportation Special Facilities Revenue, Refunding,
Matson Terminals, Inc., 5.75%, 03/01/13 ...................................... 115,400
4,900,000 Hawaii State GO, Series B-W, 6.375%, 03/01/11 .................................. 5,129,565
Hawaii State HFC, SFMR,
230,000 Series A, 7.00%, 07/01/11 ................................................. 232,240
3,350,000 Series A, 7.10%, 07/01/24 ................................................. 3,382,931
17,000,000 Series B, 5.700%, 07/01/13 ................................................ 15,908,600
360,000 Series B, 6.90%, 07/01/16 ................................................. 363,474
3,500,000 Series B, 5.85%, 07/01/17 ................................................. 3,276,805
11,880,000 Series B, 7.00%, 07/01/31 ................................................. 11,995,711
Honolulu City & County GO,
415,000 Series A, 6.30%, 03/01/08 ................................................. 430,011
1,000,000 Series A, 6.30%, 03/01/12 ................................................. 1,027,130
6,000,000 Series A, 5.75%, 04/01/12 ................................................. 5,849,160
300,000 Series A, Pre-Refunded, 6.70%, 08/01/11 ................................... 329,838
500,000 Series B, 5.50%, 10/01/11 ................................................. 474,225
Maui County Board Water Revenue,
500,000 Series A, FGIC Insured, Pre-Refunded, 6.65%, 12/01/09 ..................... 549,900
400,000 Series A, FGIC Insured, Pre-Refunded, 6.70%, 12/01/11 ..................... 441,160
-----------
69,948,804
-----------
IDAHO .1%
Idaho Housing Agency, SFMR,
1,800,000 Senior Bond, Series B-1, FGIC Insured, 7.850%, 07/01/09 ................... 1,852,110
2,850,000 Senior Bond, Series B-1, FGIC Insured, 7.90%, 01/01/21 .................... 2,940,345
-----------
4,792,455
-----------
ILLINOIS 5.2%
7,500,000 Aurora Hanover Park Naperville MFR, Series B, GNMA Insured, 6.75%, 05/15/24 .... 7,634,325
Bryant PCR, Refunding, Central Illinois Light Co. Project,
7,200,000 Series A, 6.50%, 02/01/18 ................................................. 7,328,880
5,000,000 Series C, 6.50%, 01/01/10 ................................................. 5,111,200
10,000,000 Chicago Central Public Library, Series B, AMBAC Insured, Pre-Refunded, 6.85%,
01/01/17 11,112,300
23,500,000 Chicago COP, AMBAC Insured, 7.75%, 07/15/11 .................................... 25,641,555
Chicago Metropolitan Housing Development Corp., Housing Development Mortgage
Revenue,
1,500,000 Refunding, Series B, MBIA Insured, 5.70%, 01/01/13 ........................ 1,408,170
2,240,000 Refunding, Series B, MBIA Insured, 5.80%, 01/01/25 ........................ 2,071,485
Chicago-O'Hare International Airport Revenue,
4,300,000 Special Facility United Airlines, Inc., 8.45%, 05/01/07 ................... 4,631,315
12,305,000 Special Facility United Airlines, Inc., 8.50%, 05/01/18 ................... 13,276,357
485,000 Special Facility United Airlines, Inc., Series A, 8.40%, 05/01/18 ......... 519,450
29,345,000 Special Facility United Airlines, Inc., Series C, 8.20%, 05/01/18 ......... 31,429,962
5,000,000 Chicago School Finance Authority GO, Refunding, Pre-Refunded, 7.75%, 06/01/09 .. 5,276,900
Illinois Development Finance Authority, PCR,
2,400,000 Commonwealth Edison Co. Project, Series 1985-A, 10.625%, 03/01/15 ......... 2,548,368
7,500,000 Commonwealth Edison Co. Project, Series 1991, 7.25%, 06/01/11 ............. 7,859,475
15,200,000 Refunding, Central Illinois Public Services Co., Series A, 6.375%, 01/01/28 15,236,328
25,960,000 Refunding, Illinois Power Co. Project, Series A, 7.375%, 07/01/21 ......... 27,833,533
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
ILLINOIS (CONT.)
$ 3,000,000 Illinois Development Financial Authority, PCR, Refunding, Illinois Power Co. Project,
Series A, 1st Mortgage, MBIA Insured, 5.70%, 02/01/24 ............................... $ 2,696,370
6,000,000 Illinois Development Financial Authority Revenue, Refunding, Marriott Retirement,
Series A, 7.75%, 08/01/10 ........................................................... 6,322,140
6,000,000 Illinois Educational Facilities Authority Revenue, Shedd Aquarium Society,
Series 1987-A, 8.625%, 07/01/17 ..................................................... 6,618,000
Illinois HDA,
12,150,000 Housing Developing, Series A, 6.00%, 07/01/18 .................................... 11,483,937
1,000,000 MFH, Series A, 6.05%, 07/01/15 ................................................... 956,290
7,525,000 RMR, Series B, 7.25%, 08/01/17 ................................................... 7,742,924
Illinois HDA, MF, Program,
12,000,000 Series 1, 6.625%, 09/01/12 ....................................................... 12,021,360
7,550,000 Series 1, 6.75%, 09/01/21 ........................................................ 7,577,709
13,000,000 Series A, Refunding, 7.10%, 07/01/26 ............................................. 13,328,770
5,290,000 Series C, Pre-Refunded, 7.35%, 07/01/11 .......................................... 5,445,209
2,000,000 Illinois Health Facilities Authority Revenue, Edwards Hospital Project, 7.00%,
02/15/22 ............................................................................ 2,055,220
Illinois Health Facilities Authority Revenue, Refunding,
3,650,000 Galesburg Cottage Hospital, Pre-Refunded, 9.625%, 05/01/11 ....................... 4,205,567
9,345,000 Grant Hospital of Chicago, Series 1986, Pre-Refunded, 7.50%, 06/01/13 ............ 10,160,538
1,000,000 Servantcor, Series A, 7.875%, 08/15/19 ........................................... 1,058,970
3,000,000 Servantcor, Series B, 7.875%, 08/15/19 ........................................... 3,176,910
6,200,000 Westlake Community Hospital, 7.875%, 01/01/13 .................................... 6,551,044
7,000,000 Illinois Health Facilities Authority Revenue, Refunding, South Surburban Hospital,
7.00%, 02/15/18 ..................................................................... 7,147,840
2,600,000 Illinois State COP, Capital Guaranty, 6.875%, 07/01/07 ................................ 2,803,060
3,825,000 Lombard, Village of, Revenue, Refunding, Beacon Hill Project, 9.00%, 02/15/08 ......... 3,906,855
Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue,
8,260,000 Expansion, Project A, 6.50%, 06/15/22 ............................................ 8,185,495
27,615,000 Expansion, Project A, 6.50%, 06/15/27 ............................................ 27,169,846
4,350,000 Onterie Center HFC, Mortgage Revenue, Refunding, Series 1989-A, MBIA Insured,
7.05%, 07/01/27 ..................................................................... 4,417,208
Southwestern Illinois Development Authority,
6,200,000 Anderson Hospital Project, Series A, 7.00%, 08/15/22 ............................. 6,006,560
3,030,000 Private Activity Revenue, Progressive Recovery Glenmark, 8.50%, 08/01/10 ......... 3,361,968
5,500,000 Solid Waste Disposal Revenue, LaCede Steel Co., 8.375%, 08/01/08 ................. 6,104,615
10,000,000 Solid Waste Disposal Revenue, LaCede Steel Co., 8.50%, 08/01/20 .................. 11,162,400
------------
350,586,408
INDIANA 1.9% ------------
Frankfort Middle School Building Corp.,
605,000 1st Mortgage Revenue, Pre-Refunded, 8.00%, 01/01/07 .............................. 658,530
660,000 1st Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/08 .............................. 719,737
720,000 1st Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/09 .............................. 785,167
785,000 1st Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/10 .............................. 856,050
860,000 1st Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/11 .............................. 937,839
935,000 1st Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/12 .............................. 1,019,627
2,355,000 Hammond PCR, Stauffer Chemical Project, Guaranteed by Imperial Chemical, Plc.,
Series 1982, 8.00%, 11/01/12 ........................................................ 2,675,775
Indiana Bond Bank, Special Program,
6,000,000 Series 1986-A, 7.75%, 08/01/09 ................................................... 6,348,540
1,155,000 Series 1988-A, Pre-Refunded, 8.375%, 02/01/18 .................................... 1,280,618
2,535,000 Series 1994-A-1, 5.60%, 08/01/15 ................................................. 2,284,694
3,500,000 Indiana Health Facility Financing Authority, Hospital Revenue, Hancock Memorial
Hospital Project, Series 1990, 8.30%, 08/15/20 ...................................... 3,745,070
5,000,000 Indiana Highland School Building Corp. Mortgage, Pre-Refunded, 6.75%, 01/15/20 ........ 5,519,450
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
INDIANA (CONT.)
Indiana Municipal Power Agency, Power Supply Systems Revenue,
$10,000,000 Refunding, Series A, 5.75%, 01/01/18 ............................................ $ 9,155,500
5,000,000 Series A, MBIA Insured, 6.125%, 01/01/19 ........................................ 4,794,250
3,240,000 Indiana State Educational Facilities Authority Revenue, Manchester College Project,
6.85%, 10/01/18 .................................................................... 3,186,929
Indiana State Housing Financing Authority, SFMR,
3,805,000 Refunding, Series A, 6.75%, 01/01/10 ............................................ 3,813,105
16,570,000 Refunding, Series A, 6.80%, 01/01/17 ............................................ 16,606,454
Indianapolis Local Public Improvement,
6,000,000 Series A, 6.00%, 01/10/18 ....................................................... 5,829,660
12,075,000 Series D, 6.75%, 02/01/20 ....................................................... 12,294,644
Indianapolis Resource Recovery Revenue, Ogden Martin System, Inc.,
5,550,000 Series A, 7.90%, 12/01/08 ....................................................... 6,012,371
1,505,000 Series B, 7.90%, 12/01/08 ....................................................... 1,630,382
23,650,000 Lawrenceburg PCR, Refunding, Michigan Power Co. Project, Series E, 5.90%,
11/01/19 ........................................................................... 20,907,310
4,000,000 Merrillville, Multi School Building Corp., 1st Mortgage, Pre-Refunded, 7.50%, 07/15/09 4,562,360
10,750,000 Petersburg PCR, Refunding, Indianapolis Power & Light Co., Series A, 6.10%,
01/01/16 ........................................................................... 10,313,013
------------
125,937,075
------------
IOWA
2,500,000 Carroll Retirement Facility Revenue, Orchard View, Inc. Project, Pre-Refunded, 8.250%,
02/01/13 ........................................................................... 2,805,925
------------
KANSAS .4%
Merriam Hospital Revenue Improvement,
5,815,000 Shawnee Medical Center, Inc. Project A, 7.25%, 09/01/11 ......................... 6,041,378
15,215,000 Shawnee Medical Center, Inc. Project A, 7.25%, 09/01/21 ......................... 15,679,818
1,560,000 Shawnee Medical Center, Inc. Project B, 7.25%, 09/01/11 ......................... 1,613,087
3,580,000 Shawnee Medical Center, Inc. Project B, 7.25%, 09/01/21 ......................... 3,689,369
3,000,000 Olathe Hospital Revenue, Olathe Hospital Foundation, Inc. Project, Pre-Refunded,
10.25%, 08/01/16 ................................................................... 3,290,340
------------
30,313,992
------------
KENTUCKY 1.6%
3,900,000 Ashland PCR, Refunding, Ashland Oil, Inc. Project, 6.65%, 08/01/09 ................... 3,931,122
8,405,000 Christian County Hospital Revenue, Refunding, Jennie Stuart Medical Center Project,
7.625%, 04/01/10 ................................................................... 8,724,558
Kenton County Airport Board, Airport Revenue, Special Facilities,
20,000,000 Delta Air Lines, Inc., 7.80%, 12/01/15 .......................................... 20,513,600
10,000,000 Delta Air Lines, Inc., Project A, 7.50%, 02/01/20 ............................... 10,073,700
9,330,000 Delta Air Lines, Inc., Project A, 7.125%, 02/01/21 .............................. 8,989,455
3,350,000 Delta Air Lines, Inc., Project B, 7.25%, 02/01/22 ............................... 3,267,490
Kentucky Housing Corp., Housing Revenue,
2,185,000 Series A, 6.70%, 07/01/17 ....................................................... 2,182,444
4,910,000 Series B, 6.625%, 07/01/14 ...................................................... 4,902,930
700,000 Kentucky State Development Financial Authority, Hospital Revenue, Claire Medical
Center Project, Pre-Refunded, 7.125%, 09/01/21 ..................................... 781,613
4,500,000 Kentucky State Property & Buildings Commission Revenue, Project No. 48,
Pre-Refunded, 8.00%, 08/01/08 ...................................................... 5,095,035
20,375,000 Mount Sterling Lease Revenue, Kentucky League Cities, Series A, 6.10%, 03/01/08 ...... 19,654,744
19,910,000 dPendleton County, Multi-County Lease Revenue, Kentucky Association Counties
Leasing Trust, Series A, 6.50%, 03/01/19 ........................................... 19,428,974
------------
107,545,665
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
LOUISIANA 1.1%
$ 2,000,000 Bastrop PCR, Refunding, International Paper Co. Project, 6.90%, 03/01/07 ............... $ 2,095,580
Calcasieu Parish, Memorial Hospital Service District Revenue,
4,310,000 Lake Charles Parish Memorial Hospital Project, Series A, CGIC Insured, 6.375%,
12/01/12......................................................................... 4,335,429
5,530,000 Lake Charles Parish Memorial Hospital Project, Series A, CGIC Insured, 6.50%,
12/01/18......................................................................... 5,570,314
3,145,000 Lake Charles Parish Memorial Hospital Project, Series A, CGIC Insured, 6.65%,
12/01/21......................................................................... 3,194,848
Calcasieu Parish, Public Transportation Authority Mortgage Revenue,
5,695,000 Refunding, Series 1991-A, 7.75%, 06/01/12 ......................................... 5,893,471
830,000 Refunding, Series 1992-B, 6.375%, 11/01/02 ........................................ 836,789
915,000 Refunding, Series 1992-B, 6.875%, 11/01/12 ........................................ 927,966
East Baton Rouge Mortgage Financing Authority SFM,
4,550,000 Series C, 7.00%, 04/01/32 ......................................................... 4,582,442
6,355,000 Series D, 7.10%, 04/01/32 ......................................................... 6,500,275
3,091,535 Lafayette Public Trust Finance Authority SFMR, Refunding, Series 1990-A, 8.50%,
11/15/12 ............................................................................. 3,336,138
3,400,000 Louisiana Office Facility Corp., Capital Facility Bonds Statewide Lease, 7.75%,
12/01/10 ............................................................................. 3,685,770
3,500,000 Louisiana Public Facilities Authority Revenue, Refunding, Series B, Alton Ochsner
Medical Foundation Project, MBIA Insured, 6.50%, 05/15/22 ............................ 3,535,805
8,500,000 Louisiana Stadium & Exposition, District Hotel Occupancy Tax & Stadium Revenue,
Refunding, Series A, 6.00%, 07/01/24 ................................................. 8,257,155
Louisiana State GO,
8,050,000 dSeries A, AMBAC Insured, 6.10%, 05/01/10 ......................................... 8,063,444
3,530,000 dSeries A, AMBAC Insured, 6.10%, 05/01/11 ......................................... 3,518,845
4,000,000 Quachita Parish, Hospital Service District No. 1 Revenue, Glenwood Regional Medical
Center, 7.50%, 07/01/21 .............................................................. 4,210,200
2,750,000 St. Charles Parish Environmental Improvement Revenue, Power & Light Co. Project,
Series B, 5.95%, 12/01/23 ............................................................ 2,394,315
1,900,000 St. James' Parish, COP, 7.50%, 07/01/10 ................................................ 1,963,878
-------------
72,902,664
-------------
MAINE 1.2%
26,800,000 Financial Authority Solid Waste Recycling Facilities Revenue, Great Northern Paper Co.,
Bowater Project, 7.75%, 10/01/22 ..................................................... 28,459,456
Maine State Health and Higher Education Facilities Authority Revenue,
10,925,000 Refunding, Series D, FSA Insured, 5.70%, 07/01/13 ................................. 10,120,592
1,000,000 Refunding, Series D, FSA Insured, 6.00%, 07/01/24 ................................. 948,020
Maine State Housing Authority, Mortgage Purchase,
13,650,000 Series A, 5.65%, 11/15/20 ......................................................... 12,097,859
3,850,000 Series A-5, 6.20%, 11/15/16 ....................................................... 3,696,693
3,700,000 Series C, 6.55%, 11/15/12 ......................................................... 3,658,856
3,500,000 Series C, 6.65%, 11/15/24 ......................................................... 3,461,115
3,540,000 Series D, 6.45%, 11/15/07 ......................................................... 3,500,954
1,755,000 Series D-1, 8.30%, 11/15/22 ....................................................... 1,800,033
4,500,000 Skowhegan, PCR, Refunding, Scott Paper Co. Project, Series B, 8.10%, 10/01/15 .......... 4,971,420
10,000,000 Skowhegan, Solid Waste Disposal Revenue, S.D. Warren Co. Project, Series A, 8.40%,
10/01/15 ............................................................................. 11,119,600
-------------
83,834,598
-------------
MARYLAND 2.0%
43,225,000 Gaithersburg Hospital, Facilities Revenue Improvement, Shady Grove Hospital,
Series A, 8.25%, 09/01/21 ............................................................ 46,351,464
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MARYLAND 2.0%
Maryland State Community Development Administration, Department of Housing &
Community Development,
$ 5,910,000 MFHR, Insured Mortgage, Series G, 6.55%, 05/15/19 .............................. $ 5,902,613
1,000,000 SF, 7.25%, 04/01/27 ............................................................ 1,037,010
10,000,000 Series D, 6.05%, 05/15/24 ...................................................... 9,535,300
4,900,000 Maryland State Health and Higher Educational Facilities Authority Revenue, Hartford
Memorial Hospital and Fallston General Hospital, 8.50%, 07/01/14 .................. 5,254,711
6,500,000 Montgomery County, Housing Opportunity Community, SFMR, Refunding, Series B,
6.625%, 07/01/28 .................................................................. 6,494,865
1,500,000 Northeast Waste Disposal Authority, Hardford County Resource Recovery, Series A,
8.60%, 01/01/08 ................................................................... 1,572,585
Tokoma Park Hospital Facilities Revenue, Refunding,
31,055,000 Washington Adventist, Series A, 8.25%, 09/01/21 ................................ 33,620,143
23,210,000 Washington Adventist, Series A, Sub-Series 2, 8.25%, 09/01/21 .................. 25,127,146
------------
134,895,837
MASSACHUSETTS 4.9% ------------
10,900,000 Agawam Resource Recovery Revenue, Springfield Resource Recovery Project,
Series 1986, 8.50%, 12/01/08 ...................................................... 11,746,821
5,750,000 Boston Revenue, Refunding, City Hospital, Series B, 5.75%, 02/15/23 ................. 5,116,350
3,915,000 Lowell GO, Pre-Refunded, 7.625%, 02/15/10 ........................................... 4,533,766
2,310,000 Massachusetts Health & Education Facilities Authority Revenue, Notre Dame Health
Care Center, Series A, 7.875%, 10/01/22 ........................................... 2,527,140
Massachusetts State Bay Transportation Authority,
6,750,000 General Transportation System, Series A, Pre-Refunded, 7.625%, 03/01/15 ........ 7,717,275
12,500,000 General Transportation System, Series B, Pre-Refunded, 7.80%, 03/01/10 ......... 14,560,000
37,585,000 General Transportation System, Series B, Pre-Refunded, 7.875%, 03/01/21 ........ 43,939,120
Massachusetts State Consolidated Loan,
7,500,000 Series A, 7.50%, 06/01/04 ...................................................... 8,566,350
5,000,000 Series D, 7.00%, 07/01/07 ...................................................... 5,450,000
32,830,000 Massachusetts State Dedicated Income Tax, Fiscal Recovery Loan, Series A, 7.875%,
06/01/97 .......................................................................... 34,860,864
5,900,000 Massachusetts State GO, Refunding, Series B, 6.50%, 08/01/08 ........................ 6,242,908
5,250,000 Massachusetts State HFA, Housing Development, Series D, FGIC Insured, 6.875%,
11/15/21 .......................................................................... 5,436,218
Massachusetts State HFA, Housing Projects, Refunding,
25,635,000 Series A, 6.30%, 10/01/13 ...................................................... 25,044,626
11,400,000 Series A, 6.375%, 04/01/21 ..................................................... 11,064,156
Massachusetts State Health and Educational Facilities Authority Revenue,
9,020,000 Framingham Union Hospital, Series B, Pre-Refunded, 8.50%, 07/01/20 ............. 10,737,679
1,100,000 Melrose-Wakefield Hospital, Series B, Refunding, 6.35%, 07/01/06 ............... 1,100,693
4,680,000 St. Elizabeth's Hospital of Boston, Series B, FHA Mortgage Insured, FGIC Insured,
Pre-Refunded, 7.75%, 08/01/27 ................................................ 5,183,896
1,000,000 Sisters Providence Health System, Series A, 6.50%, 11/15/08 .................... 981,580
12,050,000 Sisters Providence Health System, Series A, 6.625%, 11/15/22 ................... 11,509,076
2,410,000 Massachusetts State HFAR, SFMR, Series G, 8.10%, 12/01/14 ........................... 2,545,201
Massachusetts State Housing Facilities Authority,
250,000 Series C, FGIC Insured, 6.875%, 11/15/11 ....................................... 260,748
9,715,000 Series C, FGIC Insured, 6.90%, 11/15/21 ........................................ 10,077,370
250,000 Series D, FGIC Insured, 6.80%, 11/15/12 ........................................ 259,368
6,000,000 Massachusetts State Industrial Finance Agency, 1st Mortgage Revenue, Brookhaven
at Lexington Retirement Project, Pre-Refunded, 10.25%, 01/01/18 ................... 7,164,720
Massachusetts State Water Resource Authority,
5,950,000 Series A, 6.00%, 04/01/20 ...................................................... 5,593,298
5,000,000 Series A, Pre-Refunded, 7.50%, 04/01/09 ........................................ 5,692,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MASSACHUSETTS (CONT.)
Massachusetts State Water Resource Authority, (cont.)
$13,095,000 Series A, Pre-Refunded, 7.625%, 04/01/14 .................................... $ 14,991,811
4,750,000 Series A, Pre-Refunded, 7.50%, 04/01/16 ..................................... 5,408,065
36,710,000 Series A, Pre-Refunded, 7.00%, 04/01/18 ..................................... 40,869,243
8,380,000 Series A, Pre-Refunded, 6.50%, 07/15/21 ..................................... 9,178,949
Plymouth County COP,
10,000,000 Series A, 7.00%, 04/01/12 ................................................... 10,442,100
5,000,000 Series A, 7.00%, 04/01/22 ................................................... 5,201,800
------------
334,003,891
------------
MICHIGAN 2.1%
2,445,000 dClimax-Scotts, Community Schools, 6.35%, 05/01/23 ................................ 2,441,748
4,960,000 Detroit GO, Unlimited Tax, Series A, 7.875%, 04/01/08 ............................ 5,284,483
10,075,000 Dexter Community Schools, Refunding, 5.70%, 05/01/14 ............................. 9,601,777
Greater Detroit Resource Recovery Authority Revenue,
13,205,000 Series A, 9.25%, 12/13/08 ................................................... 14,115,749
5,000,000 Series B, 9.25%, 12/13/08 ................................................... 5,344,850
22,250,000 Series C, 9.25%, 12/13/08 ................................................... 23,784,583
4,590,000 Series E, 9.25%, 12/13/08 ................................................... 4,906,572
1,055,000 Series G, 8.25%, 12/13/96 ................................................... 1,104,859
7,200,000 Series G, 9.25%, 12/13/08 ................................................... 7,696,584
5,980,000 Series H, 9.25%, 12/13/08 ................................................... 6,392,441
Lincoln Consolidated School District,
3,370,000 Refunding, FGIC Insured, 5.80%, 05/01/14 .................................... 3,190,885
7,055,000 Refunding, FGIC Insured, 5.85%, 05/01/18 .................................... 6,825,571
2,500,000 Michigan State HDA, Limited Obligation Revenue, Fraser Woods Project, FSA Insured,
6.625%, 09/15/19 ............................................................... 2,510,600
Michigan State HDA, Rental Housing Revenue,
5,000,000 Series A, Refunding, 6.60%, 04/01/12 ........................................ 5,044,450
10,000,000 Series B, Refunding, 5.70%, 04/01/12 ........................................ 9,330,100
3,055,000 Michigan State HFA, SFMR, Series A, 6.875%, 06/01/23 ............................. 3,106,904
Michigan State Hospital Finance Authority Revenue,
10,000,000 Sisters of Mercy Hospital, Series 1991, Pre-Refunded, 7.375%, 02/15/11 ...... 11,368,700
8,450,000 McLaren Obligated Group, Series A, Pre-Refunded, 7.50%, 09/15/21 ............ 9,768,876
9,420,000 Monroe County PCR, Detroit Edison Co. Project, Series 1985-A, 10.50%, 12/01/16 ... 10,450,454
------------
142,270,186
------------
MINNESOTA 3.1%
Bloomington Port Authority, Tax Increment Revenue,
795,000 Stadium Site Redevelopment Project, ETM 02/01/96, 8.00%, 02/01/96 ........... 845,681
1,020,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/97 ........... 1,105,007
1,255,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/98 ........... 1,359,592
1,515,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/99 ........... 1,641,260
1,800,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/00 ........... 1,950,012
2,115,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/01 ........... 2,291,264
41,800,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.55%, 02/01/09 ........... 45,490,940
Dakota County Housing, RDA, Limited Annual Appropriation Tax & Revenue Supported,
485,000 Development Housing Facilities Project, 7.00%, 01/01/96 ..................... 490,417
515,000 Development Housing Facilities Project, 7.25%, 01/01/97 ..................... 524,584
555,000 Development Housing Facilities Project, 7.25%, 01/01/98 ..................... 566,111
600,000 Development Housing Facilities Project, 7.25%, 01/01/99 ..................... 611,250
645,000 Development Housing Facilities Project, 7.25%, 01/01/00 ..................... 656,236
695,000 Development Housing Facilities Project, 7.25%, 01/01/01 ..................... 705,126
3,930,000 Development Housing Facilities Project, 7.50%, 01/01/06 ..................... 3,986,710
2,705,000 Development Housing Facilities Project, 8.00%, 01/01/07 ..................... 2,807,303
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MINNESOTA (CONT.)
$ 7,715,000 Dakota County Housing, RDA, MFHR, Walnut Trails Project, 9.00%, 12/01/11 ........ $ 7,885,193
6,845,000 Duluth Commercial Development Revenue, Duluth Radisson Hotel Project, 10.75%,
12/01/14....................................................................... 7,241,873
5,970,000 Minneapolis CDA, Commercial Development Revenue, WNB & Co. Project, 8.50%,
12/01/15....................................................................... 5,974,119
Minneapolis CDA, Commercial Supported Development Revenue,
2,500,000 Limited Tax, Refunding, Series 1987-3, 8.625%, 12/01/27 .................... 2,656,300
1,000,000 Refunding, Series 1987-1, 8.625%, 12/01/12 ................................. 1,062,520
Minneapolis CDA & St. Paul Housing and RDA,
10,000 Homeownership Mortgage Revenue, Joint Housing Program, FGIC Insured,
9.875%, 12/01/15......................................................... 10,030
8,189,000 Homeownership Mortgage Revenue, Joint Housing Program, Phase II, FGIC
Insured, 7.875%, 07/01/17................................................ 8,480,856
Minnesota State HFA, SFM,
1,500,000 Series B, Refunding, 6.25%, 08/01/22 ...................................... 1,466,760
4,000,000 Series C, 5.60%, 01/01/17 ................................................. 3,664,200
3,865,000 Series D-1, 6.45%, 07/01/11 ............................................... 3,930,048
1,540,000 Series D-1, 6.50%, 01/01/17 ............................................... 1,567,058
2,300,000 Series F, 6.30%, 07/01/25 ................................................. 2,223,732
11,500,000 Minnetonka MFR, Rental Housing, Ridgepointe Housing Project, Phase II, Mandatory
Put 10/01/96, 8.00%, 05/15/22................................................ 11,347,855
1,500,000 Red Wing Housing, RDA, Jordan Tower II Project, 7.00%, 01/01/19 ............... 1,551,885
14,275,000 Roseville MFR, Rental Housing, Rosepointe No. 1 Project, Mandatory Put 10/01/96,
8.00%, 10/01/18.............................................................. 14,703,250
6,000,000 St. Louis Park EDA, Tax Increment Revenue, Refunding, FGIC Insured, Pre-Refunded,
8.40%, 09/01/09.............................................................. 7,225,920
St. Paul Port Authority,
4,315,000 Energy Park, Tax Increment Revenue, Refunding, Pre-Refunded, 8.00%,
12/01/07................................................................ 4,841,473
685,000 Housing & Redevelopment, MFR Rental Housing, Series B, 7.00%, 09/01/97 ... 665,258
980,000 Housing & Redevelopment, MFR Rental Housing, Series B, 7.25%, 09/01/01 ... 926,776
14,835,000 Housing & Redevelopment, MFR Rental Housing, Series B, 7.50%, 09/01/22 ... 13,252,254
385,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/96 ................. 378,286
415,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/97 ................. 402,903
445,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/98 ................. 428,878
480,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/99 ................. 459,485
515,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/00 ................. 489,904
550,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/01 ................. 520,163
595,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/02 ................. 559,705
640,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/03 ................. 599,046
685,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/04 ................. 638,221
740,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/05 ................. 686,542
795,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/06 ................. 734,675
855,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/07 ................. 787,267
915,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/08 ................. 839,696
670,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/09 ................. 612,963
2,445,000 IDR, Bandana Square, Series 1989-C, 7.70%, 12/01/07 ...................... 1,987,296
3,465,000 IDR, Bandana Square, Series 1989-C, 7.80%, 12/01/12 ...................... 2,690,746
2,010,000 IDR, Refunding, Common Bond Fund, 8.00%, 12/01/12 ........................ 1,593,528
2,000,000 IDR, Series 1990-C, 7.95%, 09/01/10 ...................................... 1,596,000
9,750,000 Southern Minnesota Municipal Power Agency, Power Supply System Revenue,
Series A, Pre-Refunded, 8.125%, 01/01/18..................................... 10,994,393
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MINNESOTA (CONT.)
Washington County Housing RDA,
$ 3,000,000 Housing Development Revenue, Orleans Apartments, Project A, 8.25%,
07/01/21 $ 2,997,180
5,210,000 Housing Development Revenue, Raymie Johnson Apartments, 7.70%, 12/01/19 ....... 5,258,557
10,000,000 Pooled Housing & Redevelopment, 7.20%, 01/01/22 ............................... 10,329,000
------------
211,293,287
------------
MISSISSIPPI .5%
13,500,000 Jackson County PCR, Refunding, Mississippi Power Co. Project, MBIA Insured, 5.65%
11/01/23 ......................................................................... 11,986,110
Medical Center Education Building Corp., University Revenue,
1,330,000 Medical Center Project, 5.65%, 12/01/09 ....................................... 1,227,590
1,000,000 Medical Center Project, 5.80%, 12/01/14 ....................................... 911,650
5,000,000 Medical Center Project, 5.90%, 12/01/23 ....................................... 4,493,600
4,865,000 Mississippi Business Financial Corp., Water PCR, Refunding, Mississippi Power Co.
Project, MBIA Insured, 5.65%, 11/01/23 ........................................... 4,284,946
6,500,000 Mississippi Higher Education, Student Loan Association, 6.05%, 09/01/07 ............ 6,218,875
3,235,000 Mississippi Home Corp., SFR, Refunding, Senior Series A, FGIC Insured, 9.250%,
03/01/12 ......................................................................... 3,398,917
------------
32,521,688
------------
MISSOURI 1.2%
10,000,000 Kansas City School District Building Corp., Leasehold Revenue, Capital Improvement
Project, Series A, FGIC Insured, Pre-Refunded, 7.90%, 02/01/08 ................... 11,233,400
1,810,000 Marion County Nursing Home District Revenue, Refunding, 9.00%, 08/01/03 ............ 1,904,554
Missouri State Health & Educational Facilities Authority Revenue,
5,000,000 Health Midwaste, Series B, MBIA Insured, 6.25%, 02/15/12 ...................... 5,035,700
3,750,000 Sisters of St. Mary's Health Care Project, BIG Insured, Pre-Refunded, 7.75%,
06/01/16 .................................................................... 4,208,775
Moberly IDA, Hospital Revenue,
5,090,000 Refunding, Moberly Regional Medical Center, Inc. Project, 8.625%, 03/01/02..... 5,485,798
10,460,000 Refunding, Moberly Regional Medical Center, Inc. Project, 8.75%, 03/01/16...... 11,205,589
5,310,000 Newton County IDA, Hospital Revenue, Refunding, Sale Hospital, Inc. Project,
Pre-Refunded, 9.00%, 01/01/05 .................................................... 5,938,279
10,200,000 St. Louis County Housing Authority Development Revenue, Northland Village
Apartments Project, 9.00%, 04/15/16 .............................................. 5,100,000
16,250,000 St. Louis County IDA, Health Facilities Revenue, Refunding & Improvement,
1st Mortgage, Normandy Osteopathic Hospitals Project, 9.125%, 08/01/13 ........... 17,224,513
5,425,000 St. Louis County, Regional Convention & Sports Complex Authority, Series B,
Pre-Refunded, 7.00%, 08/15/21 .................................................... 6,072,148
6,000,000 St. Louis Parking Facilities Revenue, 6.625%, 12/15/21 ............................. 6,010,740
3,600,000 West Plains, IDA Hospital Revenue, Ozarks Medical Center Project, Series A, 8.625%,
09/15/20 ......................................................................... 3,932,352
------------
83,351,848
------------
MONTANA .3%
4,000,000 Forsyth County, PCR, Puget Sound Power & Light Co. Project, MBIA Insured, 5.875%,
04/01/20 ......................................................................... 3,803,520
Forsyth PCR, Refunding, The Montana Power Co.,
5,000,000 Colstrip Project, Series A, 6.125%, 05/01/23 .................................. 4,762,850
8,300,000 Series B, 5.90%, 12/01/23 ..................................................... 7,659,074
2,835,000 Montana State Board Housing, Refunding, SF Program, Series A, 6.50%, 12/01/22 ...... 2,798,570
------------
19,024,014
------------
NEBRASKA .1%
6,850,000 Nebraska Investment Financial Authority, 7.00%, 11/01/09 ........................... 7,178,389
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
NEVADA 2.5%
$17,500,000 Clark County Airport System Improvement Revenue, 8.25%, 07/01/15 .............. $ 19,085,325
5,165,000 Clark County HFC, MFHR, FHA Insured, 7.75%, 07/01/23 .......................... 5,282,917
Clark County IDR,
12,500,000 Refunding, Nevada Power Co. Project, Series C, 7.20%, 10/01/22 ........... 12,811,125
17,080,000 Southwest Gas Corp., Series A, 7.30%, 09/01/27 ........................... 17,550,554
16,350,000 Southwest Gas Corp., Series A, 6.50%, 12/01/33 ........................... 15,257,656
30,000,000 Southwest Gas Corp., Series B, 7.50%, 09/01/32 ........................... 31,084,800
Nevada Housing Division, SF Program,
2,350,000 Refunding, Program A-1, 6.10%, 10/01/14 .................................. 2,249,514
3,900,000 Refunding, Program A-1, 6.25%, 10/01/26 .................................. 3,728,088
4,780,000 Issue 1988-A, FI/GML, 8.30%, 10/01/19 .................................... 4,950,120
4,340,000 Issue 1988 A-2, FI/GML, 8.375%, 10/01/19 ................................. 4,510,779
10,275,000 Nevada State Municipal Bond Bank, Project No. 40-41-A, ETM 02/01/10, 6.375%,
12/01/17..................................................................... 10,560,131
11,150,000 Reno Hospital Revenue, Refunding, St. Mary's Regional Medical Center, Series A,
MBIA Insured, 5.80%, 05/15/13................................................ 10,643,567
Reno RDA, Tax Allocation, Downtown Redevelopment Project,
785,000 Series A, Pre-Refunded, 10.65%, 09/01/01 ................................. 872,142
865,000 Series A, Pre-Refunded, 10.65%, 09/01/02 ................................. 961,023
950,000 Series A, Pre-Refunded, 10.65%, 09/01/03 ................................. 1,055,459
1,045,000 Series A, Pre-Refunded, 10.65%, 09/01/04 ................................. 1,161,006
1,150,000 Series A, Pre-Refunded, 10.65%, 09/01/05 ................................. 1,277,662
2,695,000 Series C, 7.75%, 09/01/05 ................................................ 2,867,534
8,290,000 Series D, 7.625%, 09/01/16 ............................................... 8,617,206
4,565,000 Washoe County Airport Authority, Airport System Improvement Revenue, Refunding,
Series B, MBIA Insured, 5.875%, 07/01/11..................................... 4,390,571
5,000,000 Washoe County Gas & Water Facilities Revenue, Refunding, Sierra Pacific, AMBAC
Insured, 6.30%, 12/01/14..................................................... 4,965,500
5,250,000 Washoe County Hospital Facility Revenue, Washoe Medical Center, Inc. Project,
Series A, 7.50%, 06/01/16.................................................... 5,483,205
------------
169,365,884
------------
NEW HAMPSHIRE 1.7%
New Hampshire Higher Education and Health Facilities Authority Revenue,
10,000,000 Kendal at Hanover Project, 8.00%, 10/01/19 ............................... 10,134,200
2,300,000 St. Joseph Hospital, 7.50%, 01/01/16 ..................................... 2,402,166
New Hampshire State HFA,
4,920,000 MFHR, Series 1, 7.10%, 01/01/14 .......................................... 5,076,161
4,890,000 SF Residential, Series A, 8.50%, 07/01/14 ................................ 5,178,265
5,000,000 SF Residential, Series B, 5.85%, 07/01/10 ................................ 4,758,900
New Hampshire State IDA,
12,480,000 PCR, New England Power Co., 7.80%, 04/01/16 .............................. 13,286,083
6,870,000 Pollution Control Public Service Co., Project A, 7.65%, 05/01/21 ......... 7,117,664
41,250,000 Pollution Control Public Service Co., Project B, 7.50%, 05/01/21 ......... 42,747,788
7,450,000 Pollution Control Public Service Co., Project C, 7.65%, 05/01/21 ......... 7,718,573
1,820,000 Resource Recovery Revenue, SES Concord Co. Project, 8.15%, 01/01/00 ...... 1,976,993
5,000,000 Resource Recovery Revenue, SES Concord Co. Project, 8.50%, 01/01/09 ...... 5,427,850
7,500,000 New Hampshire State Turnpike System Revenue, Refunding, 6.00%, 04/01/13 .. 7,293,150
------------
113,117,793
------------
NEW JERSEY .5%
9,655,000 Camden County Improvement Authority, Housing Development Revenue, Chestbury
Apartments Project, 8.75%, 12/15/16.......................................... 8,689,500
1,300,000 Middlesex County Industrial PCF Authority, PCR, Amerada-Hess Corp. Project,
Series 1984, 11.625%, 12/01/14............................................... 1,400,360
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
NEW JERSEY (CONT.)
$ 4,425,000 New Jersey EDA, 1st Mortgage Gross Revenue, Mega Care, Inc. Project, Pre-Refunded,
8.625%, 08/01/07................................................................. $ 5,012,065
3,700,000 New Jersey EDA, Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project,
8.50%, 06/01/18.................................................................. 3,894,435
New Jersey Health Care Facilities, Financing Authority Revenue,
4,000,000 Cathedral Health Service, 7.25%, 02/15/21 ....................................... 4,219,520
900,000 Community Memorial Hospital Association, Series C, 8.00%, 07/01/14 .............. 969,282
6,500,000 General Hospital Passaic, Series B, 10.375%, 07/01/14 ........................... 6,979,635
4,150,000 Zurbrugg Memorial Hospital Issue, Series C, 8.50%, 07/01/12 ..................... 4,357,127
------------
35,521,924
------------
NEW MEXICO 1.9%
5,000,000 Albuquerque Airport Revenue, Series A, Pre-Refunded, 9.25%, 07/01/19 .............. 5,718,900
Farmington PCR, Refunding,
4,000,000 Public Service Co. of New Mexico, Series A, AMBAC Insured, 6.375%, 12/15/22...... 4,025,680
20,000,000 Southern California Edison Co., Series A, MBIA Insured, 5.875%, 06/01/23 ........ 18,771,000
17,000,000 Lordsburg PCR, Refunding, Phelps Dodge Corp. Project, 6.50%, 04/01/13 ............. 17,170,340
38,705,000 Los Alamos County, Inc., Utility System Revenue, Refunding, Series 1986-A, 7.75%,
01/01/15......................................................................... 40,863,578
22,050,000 New Mexico State Mortgage Financial Authority, SFM, Refunding, Series A, 6.85%,
07/01/10......................................................................... 22,779,855
17,000,000 University of New Mexico, University Revenue, Series 1989, Pre-Refunded, 7.90%,
06/01/19......................................................................... 19,365,210
------------
128,694,563
------------
NEW YORK 12.5%
Battery Park City, Authority Revenue Bonds,
24,015,000 Refunding, Series A, 5.80%, 11/01/22 ......................................... 21,904,082
7,325,000 Series 1990, Pre-Refunded, 7.70%, 05/01/15 ................................... 8,285,381
Metropolitan Transportation Authority Revenue,
12,750,000 Service Contract Transportation Facilities, Series 4, Pre-Refunded, 7.875%,
07/01/17.................................................................... 14,774,063
3,000,000 Transit Facilities Obligation, Refunding, 7.00%, 07/01/09 .................... 3,089,400
18,210,000 Transportation Facilities, Refunding, Series M, 6.00%, 07/01/14 .............. 16,980,643
1,245,000 New Rochelle IDA, Civic Facilities Revenue, College of New Rochelle Project, 6.625%,
07/01/12......................................................................... 1,224,868
New York City GO,
6,900,000 Refunding, Series 1993-G, 5.50%, 08/01/05 .................................... 6,512,496
3,500,000 Refunding, Series 1993-G, 5.60%, 08/01/06 .................................... 3,307,010
2,300,000 Refunding, Series 1993-G, 5.70%, 08/01/08 .................................... 2,160,988
95,000 Series 1986-D, 8.50%, 08/01/16 ............................................... 103,114
1,180,000 Series 1986-D, Pre-Refunded, 8.50%, 11/01/12 ................................. 1,334,426
1,705,000 Series 1986-D, Pre-Refunded, 8.50%, 08/01/16 ................................. 1,879,984
3,355,000 Series 1987-A, Pre-Refunded, 8.50%, 11/01/13 ................................. 3,794,069
2,805,000 Series 1987-A, Pre-Refunded, 8.75%, 11/01/14 ................................. 3,194,362
1,355,000 Series 1987-D, Pre-Refunded, 8.50%, 08/01/09 ................................. 1,529,754
11,750,000 Series 1988-A, Pre-Refunded, 8.00%, 08/15/07 ................................. 12,793,165
7,870,000 Series 1988-A, Pre-Refunded, 8.00%, 08/15/08 ................................. 8,568,699
5,500,000 Series 1988-A, Pre-Refunded, 8.00%, 08/15/09 ................................. 5,988,290
6,500,000 Series 1988-A, Pre-Refunded, 8.00%, 08/15/10 ................................. 7,077,070
6,500,000 Series 1989-A, Pre-Refunded, 8.00%, 08/15/11 ................................. 7,077,070
2,610,000 Series 1989-E, 6.50%, 12/01/12 ............................................... 2,615,846
2,615,000 Series 1990-B, 8.00%, 06/01/01 ............................................... 2,904,611
7,000,000 Series 1990-B, 7.50%, 10/01/11 ............................................... 7,570,990
10,985,000 Series 1990-B, 7.50%, 10/01/12 ............................................... 11,881,047
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
NEW YORK (CONT.)
New York City GO, (cont.)
$ 385,000 Series 1990-B, ETM 06/01/01, 8.00%, 06/01/01 ............................. $ 448,564
1,000,000 Series 1991-A, 8.00%, 03/15/12 ........................................... 1,115,930
1,530,000 Series 1991-A, 8.00%, 03/15/13 ........................................... 1,707,373
10,000,000 Series 1991-A, 7.75%, 08/15/13 ........................................... 11,084,400
7,000,000 Series 1991-A, 7.75%, 08/15/14 ........................................... 7,759,080
3,285,000 Series 1991-A, 7.75%, 08/15/17 ........................................... 3,651,475
5,000 Series 1991-A, 8.00%, 08/15/20 ........................................... 5,647
15,000 Series 1991-A, 8.00%, 08/15/21 ........................................... 16,939
13,400,000 Series 1991-A, Pre-Refunded, 8.00%, 03/15/14 ............................. 15,509,696
1,115,000 Series 1991-A, Pre-Refunded, 8.00%, 03/15/15 ............................. 1,287,479
3,000,000 Series 1991-A, Pre-Refunded, 8.00%, 03/15/16 ............................. 3,464,070
11,660,000 Series 1991-A, Pre-Refunded, 8.00%, 03/15/17 ............................. 13,463,685
895,000 Series 1991-A, Pre-Refunded, 8.00%, 08/15/20 ............................. 1,055,509
3,165,000 Series 1991-A, Pre-Refunded, 8.00%, 08/15/21 ............................. 3,732,611
1,020,000 Series 1991-B, 8.00%, 06/01/95 ........................................... 1,057,893
1,435,000 Series 1991-B, 8.00%, 06/01/98 ........................................... 1,561,409
4,500,000 Series 1991-B, 8.25%, 06/01/02 ........................................... 5,134,500
10,000,000 Series 1991-B, 7.50%, 02/01/04 ........................................... 10,913,700
1,000,000 Series 1991-B, 8.25%, 06/01/05 ........................................... 1,162,360
15,000,000 Series 1991-B, 7.00%, 02/01/19 ........................................... 15,865,350
20,000,000 Series 1991-C, 7.00%, 08/01/18 ........................................... 21,534,200
1,800,000 Series 1991-D, 8.25%, 08/01/11 ........................................... 2,057,958
11,125,000 Series 1991-D, 8.25%, 08/01/12 ........................................... 12,719,323
7,750,000 Series 1991-D, 8.25%, 08/01/13 ........................................... 8,910,020
85,000 Series 1991-D, 8.25%, 08/01/14 ........................................... 97,722
4,255,000 Series 1991-D, 8.25%, 08/01/14 ........................................... 5,064,301
1,185,000 Series 1991-D, 8.00%, 08/01/16 ........................................... 1,345,105
100,000 Series 1991-D, 8.00%, 08/01/17 ........................................... 113,194
50,000 Series 1991-D, 8.00%, 08/01/18 ........................................... 56,597
30,000 Series 1991-D, 8.00%, 08/01/19 ........................................... 33,863
1,760,000 Series 1991-D, 8.00%, 08/01/99 ........................................... 1,936,616
240,000 Series 1991-D, ETM 08/01/99, 8.00%, 08/01/99 ............................. 271,836
1,315,000 Series 1991-D, Pre-Refunded, 8.00%, 08/01/16 ............................. 1,545,519
4,600,000 Series 1991-D, Pre-Refunded, 8.00%, 08/01/17 ............................. 5,406,380
3,185,000 Series 1991-D, Pre-Refunded, 8.00%, 08/01/18 ............................. 3,753,873
1,970,000 Series 1991-D, Pre-Refunded, 8.00%, 08/01/19 ............................. 2,321,862
5,335,000 Series 1991-F, 8.20%, 11/15/04 ........................................... 6,123,513
160,000 Series 1991-F, 8.25%, 11/15/15 ........................................... 184,658
200,000 Series 1991-F, 8.25%, 11/15/17 ........................................... 230,160
1,840,000 Series 1991-F, Pre-Refunded, 8.25%, 11/15/15 ............................. 2,207,080
2,300,000 Series 1991-F, Pre-Refunded, 8.25%, 11/15/17 ............................. 2,758,850
7,375,000 Series 1992-A, 6.25%, 08/01/21 ........................................... 7,094,603
1,930,000 Series 1992-C, Sub-Series C-1, 7.00%, 08/01/17 ........................... 2,078,050
5,000,000 Series 1992-D, 7.30%, 02/01/01 ........................................... 5,355,150
9,000,000 Series 1992-D, 7.625%, 02/01/15 .......................................... 10,038,060
5,000,000 Series 1992-D, 7.50%, 02/01/16 ........................................... 5,538,350
5,000,000 Series 1992-D, Pre-Refunded, 7.50%, 02/01/17 ............................. 5,538,350
320,000 Series 1993-A, Pre-Refunded, 8.00%, 03/15/13 ............................. 370,381
1,145,000 Series 1993-B, 8.50%, 08/01/09 ........................................... 1,275,450
3,815,000 Series 1993-B, 5.75%, 08/15/09 ........................................... 3,575,113
8,910,000 Series 1993-B, 5.750%, 08/15/15 .......................................... 8,144,542
5,900,000 Series 1993-D, 6.00%, 08/01/06 ........................................... 5,749,845
2,175,000 Series 1993-D, 5.75%, 08/01/15 ........................................... 1,988,298
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG TERM INVESTMENTS (CONT.)
NEW YORK (CONT.)
New York City GO, (cont.)
$ 1,500,000 Series 1993-D, 5.75%, 08/01/16 .................................................. $ 1,368,480
6,500,000 Series 1993-E, 5.60%, 08/01/06 .................................................. 6,141,590
6,950,000 Series 1993-E, 5.625%, 08/01/07 ................................................. 6,532,166
2,445,000 Series 1993-F, 5.50%, 08/01/05 .................................................. 2,307,689
1,750,000 Series 1993-G, 5.70%, 08/01/09 .................................................. 1,631,683
11,750,000 Series 1994-H, Sub-Series H-1, 6.125%, 08/01/09 ................................. 11,436,980
New York City Health & Hospital Authority Local Government Revenue,
5,010,000 Series A, 6.00%, 02/15/07 ....................................................... 4,870,271
17,735,000 Series A, 6.30%, 02/15/20 ....................................................... 17,335,253
New York City Municipal Water Finance Authority, Water & Sewer System Revenue,
11,140,000 Series 1986-B, Pre-Refunded, 7.875%, 06/15/16 ................................... 12,113,747
8,500,000 Series 1987-A, Pre-Refunded, 9.00%, 06/15/17 .................................... 9,697,310
9,685,000 Series 1988-A, Pre-Refunded, 7.00%, 06/15/18 .................................... 10,447,306
2,965,000 Series 1989-B, Pre-Refunded, 7.00%, 06/15/19 .................................... 3,230,397
10,000,000 Series 1991-A, 7.00%, 06/15/15 .................................................. 10,528,900
40,000,000 Series 1991-C, Pre-Refunded, 7.75%, 06/15/20 .................................... 46,540,000
5,100,000 Series 1992-A, 7.10%, 06/15/12 .................................................. 5,435,376
New York State Dormitory Authority Revenue,
26,930,000 City University System Consolidated, Series A, Pre-Refunded, 7.625%,
07/01/20....................................................................... 30,874,706
31,200,000 City University System Consolidated, Series F, Pre-Refunded, 7.875%,
07/01/17 ...................................................................... 36,177,648
3,085,000 Community Colleges, Series A, 5.625%, 07/01/14 .................................. 2,761,538
4,060,000 Court Facilities Lease, Series A, 5.70%, 05/15/22 ............................... 3,605,402
2,000,000 Crossover, Refunding, City University, Series D, 5.75%, 07/01/12 ................ 1,847,280
2,225,000 Crossover, Refunding, City University, Series E, 5.75%, 07/01/11 ................ 2,064,578
500,000 New York State Department of Health, 5.50%, 07/01/23 ............................ 431,465
42,300,000 State University Educational Facilities, Series A, 5.875%, 05/15/17 ............. 39,163,878
22,750,000 State University Educational Facilities, Series A, Pre-Refunded, 7.70%, 05/15/12 26,120,640
8,870,000 State University Educational Facilities, Series A, Pre-Refunded, 7.25%, 05/15/18 10,105,148
1,130,000 State University Educational Facilities, Series A, Pre-Refunded, 7.25%, 05/15/18 1,287,353
4,240,000 State University Educational Facilities, Series B, Refunding, 7.375%, 05/15/14... 4,583,694
2,000,000 State University Educational Facilities, Series B, Refunding, 7.00%, 05/15/16.... 2,099,900
3,540,000 State University Educational Facilities, Series B, Refunding, Pre-Refunded,
7.375%, 05/15/14 .............................................................. 4,005,439
21,310,000 State University Educational Facilities, Series B, Refunding, Pre-Refunded,
7.25%, 05/15/1................................................................. 23,975,242
2,375,000 State University Educational Facilities, Series B, Refunding, Pre-Refunded,
7.25%, 05/15/15................................................................ 2,672,041
New York State Energy Research & Development Authority, Electric Facilities Revenue,
5,000,000 Consolidated Edison Co., N.Y., Inc., Project B, 9.25%, 09/15/22 ................. 5,642,350
17,500,000 Long Island Light, Series A, 7.15%, 06/01/20 .................................... 17,888,850
1,500,000 Long Island Light, Series A, 7.15%, 02/01/22 .................................... 1,533,330
New York State Housing Finance Agency Service Contract Revenue,
12,735,000 Refunding, Pre-Refunded, 7.80%, 09/15/20 ........................................ 14,803,673
15,000,000 Refunding, Series C, 6.125%, 03/15/20 ........................................... 14,173,350
New York State Local Government Assistance Corp.,
6,000,000 dSeries A, 6.50%, 04/01/20 ....................................................... 6,080,340
10,000,000 Series A, Pre-Refunded, 7.125%, 04/01/21 ........................................ 11,332,200
15,740,000 Series C, 6.25%, 04/01/18 ....................................................... 15,738,741
7,215,000 dNew York State Medical Care Facilities Financial Hospital & Nursing Home, FSA
Mortgage Insured, 6.50%, 02/15/34................................................... 7,143,066
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
NEW YORK (CONT.)
New York State Medical Care Facilities Financial Mortgage Project,
$ 7,085,000 Series A, 5.65%, 08/15/13 ..................................................... $ 6,566,874
1,750,000 Series A, 5.90%, 08/15/33 ..................................................... 1,612,888
New York State Mortgage Agency Revenue, Homeowner Mortgage,
4,135,000 Series C-1, 5.65%, 04/01/15 ................................................... 3,806,764
5,000,000 Series C-2, 5.60%, 04/01/15 ................................................... 4,437,000
5,000,000 Warren & Washington Counties IDAR, Refunding, Adirondack Resource Recovery
Project, Series A, 7.90%, 12/15/07................................................ 4,625,000
------------
848,745,446
------------
NORTH CAROLINA 3.5%
North Carolina Eastern Municipal Power Agency, Power System Revenue,
60,480,000 Refunding, Series 1986-A, Pre-Refunded, 7.75%, 01/01/15 ....................... 65,511,331
5,705,000 Refunding, Series 1987-A, Pre-Refunded, 7.50%, 01/01/15 ....................... 6,221,873
18,645,000 Refunding, Series 1988-A, Pre-Refunded, 8.00%, 01/01/21 ....................... 20,947,471
1,355,000 Refunding, Series 1988-A, Pre-Refunded, 8.00%, 01/01/21 ....................... 1,522,329
21,500,000 Refunding, Series 1991-A, 6.50%, 01/01/17 ..................................... 21,271,455
6,875,000 Refunding, Series 1993-B, 6.25%, 01/01/12 ..................................... 6,639,394
39,030,000 Refunding, Series 1993-B, 6.25%, 01/01/23 ..................................... 37,813,825
4,000,000 Refunding, Series 1993-B, FGIC Insured, 6.25%, 01/01/23 ....................... 3,952,280
2,000,000 Series 1993-C, 5.50%, 01/01/07 ................................................ 1,906,920
15,960,000 Series 1993-G, 5.875%, 01/01/14 ............................................... 14,793,643
19,220,000 Series 1993-G, 5.75%, 12/01/16 ................................................ 17,440,420
7,000,000 North Carolina Medical Care Commission Health Care Facilities, 1st Mortgage
Revenue, Southminster Project, 10.375%, 10/01/15.................................. 7,399,980
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue,
14,790,000 Refunding, Series 1982, 6.25%, 01/01/17 ....................................... 14,524,963
10,000,000 Refunding, Series 1985-B, Pre-Refunded, 8.50%, 01/01/17 ....................... 10,852,000
5,000,000 Wake County IPC, Financing Authority Revenue, Carolina Power & Light, 6.90%,
04/01/09..................................................................... 5,293,600
------------
236,091,484
------------
NORTH DAKOTA .9%
7,750,000 Dickinson Health Care Facilities Revenue, BHS Long-Term Care, Inc., 7.625%,
02/15/20.......................................................................... 8,289,555
477,000 Ellendale MFHR, Ellendale Manor Apartments Project, 9.75%, 07/01/16 ................ 495,808
Mercer County PCR,
3,695,000 Basin Electric Power Corp., Series 1984-A, 7.70%, 01/01/19 .................... 3,896,710
15,065,000 Basin Electric Power Corp., Series 1984-B, 8.125%, 01/01/19 ................... 15,986,828
20,260,000 Basin Electric Power Corp., Series 1984-D, 8.125%, 01/01/19 ................... 21,479,854
12,010,000 Basin Electric Power Corp., Series 1984-E, 7.00%, 01/01/19 .................... 12,520,425
908,000 Wahpeton MFHR, Evergreen Apartments Project, 9.75%, 07/01/16 ....................... 943,802
------------
63,612,982
------------
OHIO 1.2%
6,740,000 Franklin County Hospital Facility Mortgage Revenue, Refunding, Presbyterian
Retirement Services, Series 1987-A, 9.00%, 07/01/10............................... 6,891,111
2,940,000 Franklin County Nursing Home, 1st Mortgage Revenue, Volunteers of America Care
Facilities Project, 8.75%, 11/01/18............................................... 2,975,986
Montgomery County Health Systems Revenue,
3,100,000 Franciscan, Series B-2, 8.10%, 07/01/01 ....................................... 3,290,650
12,000,000 Franciscan, Series B-2, 8.10%, 07/01/18 ....................................... 12,935,760
1,680,000 Muskingum County Hospital Facilities Revenue, Care One Health System, Bethesda
Hospital, 8.00%, 12/01/16......................................................... 1,686,182
1,500,000 Muskingum County Revenue, Refunding, Franciscan Health Advisory Service, Good
Samaritan & Holy Family Hospital Project, 7.50%, 03/01/12......................... 1,576,785
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
OHIO (CONT.)
Ohio State Air Quality Development Authority Revenue,
$ 6,325,000 Collateral Pollution Toledo Edison, Series B, 8.00%, 05/15/19 ....................... $ 6,811,962
10,000,000 Dayton Power & Light Co. Project, 9.50%, 12/01/15 ................................... 10,927,400
1,785,000 Ohio State EDR, Good Samaritan Medical Center, Series 1990-3, 7.875%, 12/01/10 ........... 1,884,246
3,250,000 Ohio State Water Development Authority Revenue, Refunding, Water Development
Dayton Power, Series A, 6.40%, 08/15/27................................................. 3,249,578
Ohio State Water Development Facilities Authority, PCR,
4,000,000 Cleveland Electric Illumination Co. Project, Series A-1, 9.75%, 11/01/22 ............ 4,398,360
10,000,000 Cleveland Electric Illumination Co. Project, Series A-2, 9.75%, 11/01/22 ............ 10,979,600
2,375,000 Duquesne Light Co., Perry Nuclear Station Project, Series 1985-A, 11.125%,
02/01/15........................................................................... 2,546,784
10,000,000 Toledo Edison, Series A, 8.00%, 05/15/19 ............................................ 10,811,300
-----------
80,965,704
-----------
OKLAHOMA 1.6%
970,000 Canadian County HFA, MFHR, Heritage Park Apartment Project, 9.00%, 02/01/02 .............. 891,643
Canadian County HFA, SFMR,
2,315,000 Series 1990-A, 7.70%, 09/01/05 ...................................................... 2,398,919
4,830,000 Series 1990-A, 7.80%, 09/01/12 ...................................................... 5,011,125
6,000,000 Jackson County Memorial Hospital Authority Revenue, Refunding, Jackson Memorial
Hospital Project, 9.00%, 08/01/15 ...................................................... 6,326,460
Oklahoma State Municipal Power Authority, Power Supply System Revenue,
7,000,000 Series A, Pre-Refunded, 8.25%, 01/01/23 ............................................. 7,562,940
20,000,000 Series B, Pre-Refunded, 8.25%, 01/01/23 ............................................. 21,608,400
Oklahoma State Turnpike System Authority,
610,000 1st Senior Revenue, 7.875%, 01/01/21 ................................................ 674,196
19,090,000 1st Senior Revenue, Pre-Refunded, 7.875%, 01/01/21 .................................. 21,644,815
2,755,000 Tulsa County Home Financial Authority, MFHR, Breckenridge Apartments Project,
Series A, FGIC Insured, 6.45%, 10/01/34................................................. 2,715,824
790,000 Tulsa County Home Financial Authority, Mortgage Revenue, Series D, GNMA Insured,
6.95%, 12/01/22......................................................................... 815,912
11,000,000 Tulsa County Municipal Airport Revenue, American Airlines, Inc., 7.375%, 12/01/20......... 11,099,660
Tulsa County Parking Authority,
3,000,000 Series B, 6.90%, 12/01/07 ........................................................... 3,181,590
5,500,000 Series B, 7.00%, 12/01/14 ........................................................... 5,835,060
Tulsa County Public Facilities Authority,
2,000,000 Recreation Facility Revenue, Pre-Refunded, 8.875%, 02/01/03 ......................... 2,306,740
2,000,000 Recreation Facility Revenue, Pre-Refunded, 9.00%, 02/01/08 .......................... 2,315,180
2,740,000 Tulsa Housing Assistance Corp., 1st Lien Revenue, Refunding, 6.80%, 07/01/11 ............. 2,784,141
2,000,000 Tulsa Industrial Authority Hospital Revenue, St. John Medical Center Project, Series A,
6.25%, 02/15/14......................................................................... 1,944,540
2,450,000 Tulsa Industrial Authority, MFHR, Country Club Woodland Hills, GNMA Mortgage
Backed Securities, 9.375%, 12/01/25..................................................... 2,626,155
4,000,000 Tulsa Municipal Airport Revenue, American Airlines-American Corp., 7.35%, 12/01/11........ 4,067,200
-----------
105,810,500
-----------
PENNSYLVANIA 5.3%
Beaver County IDA, PCR,
9,500,000 Collateralized, Cleveland Electric Co., Illuminating Co., 10.50%, 09/01/15 ............... 10,231,405
2,850,000 Ohio Edison Co., Beaver Valley Project, Series A, 10.50%, 10/01/15 ....................... 3,117,957
Cambria County HDA, Hospital Revenue, Conemaugh Valley Memorial Hospital,
5,000,000 Refunding, Series A, Pre-Refunded, 10.125%, 07/01/18 ................................ 5,451,650
9,600,000 Refunding, Series B, 6.30%, 07/01/08 ................................................ 9,728,256
10,740,000 Refunding, Series B, 6.375%, 07/01/18 ............................................... 10,627,874
3,000,000 Refunding, Series B, Pre-Refunded, 8.875%, 07/01/18 ................................. 3,482,070
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
PENNSYLVANIA (CONT.)
Delaware County IDAR, Refunding,
$ 6,500,000 Philadelphia Electric, Series 1991, 7.375%, 04/01/21 ....................... $ 6,816,615
41,300,000 Resource Recovery Project, Series A, 8.10%, 12/01/13 ....................... 44,395,022
3,030,000 Fayette County Hospital Authority Revenue, Uniontown Hospital Project, 9.75%,
07/01/15....................................................................... 3,231,980
22,500,000 Lancaster County Solid Waste Management Authority, Resource Recovery System
Revenue, Series A, 8.50%, 12/15/10............................................. 25,301,250
Montgomery County Higher Education and Health Authority, Hospital Revenue,
5,150,000 Frankford Hospital, 7.875%, 01/01/19 ....................................... 5,313,255
5,500,000 Jeanes Health System Project, Pre-Refunded, 8.75%, 07/01/20 ................ 6,602,915
5,000,000 Montgomery County IDA, PCR, Philadelphia Electric Co., Series 1986-A, 8.875%,
06/01/16....................................................................... 5,435,400
Pennsylvania Intergovernmental Cooperative Authority, Special Tax Revenue,
7,325,000 City of Philadelphia, Funding Program, Pre-Refunded, 6.80%, 06/15/12 ....... 8,015,748
14,575,000 City of Philadelphia, Funding Program, Pre-Refunded, 6.80%, 06/15/22 ....... 15,949,423
30,000,000 Pennsylvania State Financial Authority Revenue, Refunding, Municipal Capital
Improvements Program, 6.60%, 11/01/09.......................................... 30,336,300
Pennsylvania State HFA,
10,225,000 Refunding, Rental Housing, 5.75%, 07/01/14 ................................. 9,553,933
10,590,000 Refunding, Rental Housing, FGIC Insured, 6.40%, 07/01/12 ................... 10,698,971
4,200,000 SFM, Series 1991, 7.15%, 04/01/15 ............................................... 4,306,134
2,000,000 Pennsylvania State Higher Educational Facilities Authority, College and University
Revenues, Lycoming College, Pre-Refunded, 8.375%, 10/01/18 .................... 2,293,260
4,445,000 Pennsylvania State Pooled Finance Authority, Lease Revenue, Capital Improvement,
Series B, MBIA Insured, 8.00%, 11/01/09 ....................................... 4,671,784
Philadelphia City GO, Refunding,
26,000,000 Series 1986-A, Pre-Refunded, 7.625%, 08/01/16 .............................. 28,178,020
1,000,000 Series 1987-A, 11.50%, 08/01/97 ............................................ 1,160,990
1,545,000 Series 1987-A, 11.50%, 08/01/98 ............................................ 1,842,490
2,400,000 Series 1987-A, 11.50%, 08/01/99 ............................................ 2,933,232
1,000,000 Series 1987-A, 11.50%, 08/01/00 ............................................ 1,248,140
3,000,000 Series 1993-A, FGIC Insured, 5.10%, 05/15/02 ............................... 2,970,780
2,850,000 Philadelphia Gas Works Revenue, Series 13, Pre-Refunded, 7.70%, 06/15/21 ........ 3,308,252
3,950,000 Philadelphia Gas Works Revenue, Series A, 6.375%, 07/01/26 ...................... 3,836,714
Philadelphia Hospital & Higher Education Facilities Authority, Hospital Revenue,
14,240,000 Albert Einstein Medical Center, 7.50%, 04/01/99 ............................ 15,146,803
8,000,000 Nazareth Hospital, 9.375%, 07/01/15 ........................................ 8,246,480
Philadelphia Housing RDAR,
840,000 Sub-Series 2-A, 8.375%, 02/01/14 ........................................... 852,155
4,140,000 Sub-Series 2-B, 8.625%, 08/01/26 ........................................... 4,200,196
1,000,000 Philadelphia Municipal Authority, Gas Works Lease Revenue, 7.50%, 05/01/01 ...... 1,085,910
Philadelphia Water & Sewer Revenue,
10,960,000 Series 10, ETM 09/01/04, 7.35%, 09/01/04 ................................... 12,136,337
20,180,000 Series 16, 7.50%, 08/01/10 ................................................. 21,861,398
10,450,000 Series 16, CGIC Insured, Pre-Refunded, 7.00%, 08/01/21 ..................... 11,715,286
Philadelphia Water & Wastewater Revenue,
9,500,000 Refunding, 5.50%, 06/15/06 ................................................. 9,110,405
3,485,000 Refunding, 5.75%, 06/15/13 ................................................. 3,165,669
410,000 Warrington Township Municipal Authority, Water and Sewer Revenue, Bucks County,
Series A, 10.50%, 12/01/10..................................................... 438,499
3,000,000 Westmoreland County IDAR, Refunding, Citizens General Hospital Project, Series A,
8.25%, 07/01/13................................................................ 3,221,880
------------
362,220,838
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
PUERTO RICO .6%
$ 3,200,000 Puerto Rico Commonwealth Urban Renewal & Housing Corp., Refunding, 7.875%,
10/01/04........................................................................ $ 3,574,656
Puerto Rico Electric Power Authority, Power Revenue, Refunding,
4,000,000 Series 1987-K, Pre-Refunded, 9.375%, 07/01/17................................ 4,626,040
2,000,000 Series 1988-M, Pre-Refunded, 8.00%, 07/01/08 ................................ 2,268,600
5,000,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08 ............. 5,561,850
26,925,000 Puerto Rico PBA, Guaranteed, Public Education and Health Facilities, Refunding,
Series M, 5.75%, 07/01/15....................................................... 24,997,170
------------
41,028,316
------------
RHODE ISLAND 1.5%
Rhode Island Depositors Economic Protection Corp., Special Obligation,
15,000,000 Series A, 5.75%, 08/01/14 ................................................... 13,997,100
6,500,000 Series A, Pre-Refunded, 6.90%, 08/01/13 ..................................... 7,247,435
12,700,000 Series A, Pre-Refunded, 6.95%, 08/01/22 ..................................... 14,202,283
7,000,000 Series B, 6.00%, 08/01/17 ................................................... 6,671,000
Rhode Island Housing and Mortgage Finance Corp., Homeownership Opportunity,
1,925,000 Series 2, 7.75%, 04/01/22 ................................................... 2,044,850
9,500,000 Series 9-C, 5.75%, 04/01/17 ................................................. 8,751,685
20,200,000 Series 10-A, 6.50%, 10/01/22 ................................................ 20,304,434
13,085,000 Series 10-A, 6.50%, 04/01/27 ................................................ 13,152,649
Rhode Island State Health & Educational Building Corp. Revenue,
3,000,000 Health Facilities Tockwotton Home, 7.25%, 04/15/17 .......................... 3,108,390
9,000,000 Higher Educational Facilities, Project J, 5.875%, 04/01/20 .................. 8,341,290
970,000 Roger William Realty, FHA Insured, 7.50%, 08/01/29 .......................... 1,003,115
2,320,000 St. Antoine Residence, 6.70%, 11/15/12 ...................................... 2,290,884
2,750,000 St. Antoine Residence, 6.75%, 11/15/18 ...................................... 2,711,033
------------
103,826,148
------------
SOUTH CAROLINA 1.5%
24,000,000 Charleston County Resource Recovery Revenue, Foster Wheeler Charleston Resource
Recovery Inc. Project, Series A, 9.25%, 01/01/10............................... 27,000,000
North Charleston Redevelopment Commission, Housing Development Revenue,
505,000 Phoenix Park Project, Series A, 9.00%, 01/01/97 ............................ 151,500
8,175,000 Phoenix Park Project, Series A, 9.50%, 01/01/17 ............................ 2,452,500
Piedmont Municipal Power Agency, South Carolina Electric Revenue,
6,000,000 Refunding, 7.25%, 01/01/22 ................................................. 6,298,140
6,000,000 Refunding, 6.375%, 01/01/25 ................................................ 5,979,300
7,750,000 Refunding, Series A, 5.75%, 01/01/24 ....................................... 6,989,183
South Carolina State Public Service Authority Revenue, Refunding,
15,805,000 Electric System & Expansion, Series A, 7.875%, 07/01/21 .................... 16,801,663
4,175,000 Electric System & Expansion, Series A, Pre-Refunded, 7.875%, 07/01/21 ...... 4,491,632
10,600,000 Santee Cooper Electric System & Expansion, Series B, Pre-Refunded, 6.50%,
07/01/26.................................................................. 11,560,254
York County Public Facilities Corp., COP,
10,240,000 Justice Center, 7.50%, 06/01/11 ............................................ 11,793,203
4,500,000 Justice Center, Pre-Refunded, 7.375%, 06/01/04 ............................. 5,149,575
------------
98,666,950
------------
SOUTH DAKOTA .5%
5,000,000 Lawrence County PCR, Refunding, Black Hills Power & Light Co. Project, 6.70%,
06/01/10....................................................................... 5,169,700
South Dakota State HDA, Homeownership Mortgage,
1,250,000 Series A, 6.00%, 05/01/21 .................................................. 1,192,288
10,580,000 Series A, 7.15%, 05/01/27 .................................................. 10,976,750
4,650,000 Series B, 5.80%, 05/01/14 .................................................. 4,377,650
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
SOUTH DAKOTA (CONT.)
South Dakota State HDA, Homeownership Mortgage, (cont.)
$ 3,250,000 Series B, 7.10%, 05/01/17 ..................................................... $ 3,372,135
4,350,000 Series C, 5.70%, 05/01/13 ..................................................... 4,067,816
1,750,000 Series C, 5.75%, 05/01/17 ..................................................... 1,625,908
3,480,000 dSeries D, 6.65%, 05/01/14 .................................................... 3,468,516
------------
34,250,763
------------
TENNESSEE .8%
6,690,000 Gatlinburg COP, Gatlinburg Convention Center, Inc., Pre-Refunded, 9.25%, 12/01/12 7,829,842
4,870,000 Knox County Health, Educational & Housing Facilities Board, MFHR, GNMA
Collateralized, East Towne Village Project, 8.20%, 07/01/28....................... 5,014,396
Memphis-Shelby County Airport Authority, Special Facilities & Project Revenue,
14,690,000 Federal Express Corp., 7.875%, 09/01/09 ....................................... 16,071,300
6,520,000 Federal Express Corp., 6.75%, 09/01/12 ........................................ 6,465,036
1,990,000 Mount Pleasant IDR, PCR, Stauffer Chemical Co. Project, 8.00%, 12/01/12 ............ 2,256,501
5,000,000 Nashville & Davidson County Revenue, IDB, Refunding & Improvement, Osco
Treatment, Inc., 6.00%, 05/01/03.................................................. 4,868,150
7,405,000 Tennessee HDA, Homeownership Program, Series P, 7.70%, 07/01/16 .................... 7,816,496
2,000,000 Tennessee HDA, Mortgage Finance, Refunding, Series A, 5.90%, 07/01/18 .............. 1,834,120
2,650,000 Tennessee State Local Development Authority Revenue, Refunding, State Loan
Program, Series A, 5.65%, 03/01/07................................................ 2,479,844
------------
54,635,685
------------
TEXAS 8.0%
18,100,000 Austin Combined Utility System Revenue, Series A, Pre-Refunded, 8.00%, 11/15/16 21,015,548
85,000 Austin HFC, SFMR, Series 1984, 11.25%, 02/01/09 .................................... 88,153
1,750,000 Bexar County HFC, MFHR, Sunpark Apartments Project, 6.875%, 12/01/12 ............... 1,802,325
6,100,000 Brazos County Health Facilities Development Corp., Hospital Revenue, St. Joseph
Hospital Project, Pre-Refunded, 10.25%, 10/01/15.................................. 7,235,576
9,000,000 Brazos County Higher Education Authority, Student Loan Revenue, Refunding,
Series C-2, 5.875%, 06/01/04...................................................... 8,828,910
Brazos River Authority, Collateralized, PCR, Texas Utilities Electric Co. Project,
2,500,000 Series 1987-A, 9.875%, 10/01/17 ............................................... 2,844,750
17,550,000 Series 1988-A, 9.25%, 03/01/18 ................................................ 19,761,476
15,000,000 Series 1989-A, 8.25%, 01/01/19 ................................................ 16,412,100
Brazos River Authority, Johnson County,
410,000 Surface Water & Treatment Revenue, 8.40%, 09/01/95 ............................ 431,566
445,000 Surface Water & Treatment Revenue, 8.60%, 09/01/96 ............................ 479,621
480,000 Surface Water & Treatment Revenue, 8.75%, 09/01/97 ............................ 516,178
520,000 Surface Water & Treatment Revenue, 8.90%, 09/01/98 ............................ 557,939
560,000 Surface Water & Treatment Revenue, 9.00%, 09/01/99 ............................ 598,914
605,000 Surface Water & Treatment Revenue, 9.00%, 09/01/00 ............................ 645,015
655,000 Surface Water & Treatment Revenue, 9.00%, 09/01/01 ............................ 696,861
705,000 Surface Water & Treatment Revenue, 9.10%, 09/01/02 ............................ 749,993
765,000 Surface Water & Treatment Revenue, 9.10%, 09/01/03 ............................ 812,124
825,000 Surface Water & Treatment Revenue, 9.10%, 09/01/04 ............................ 875,820
890,000 Surface Water & Treatment Revenue, 9.20%, 09/01/05 ............................ 945,732
960,000 Surface Water & Treatment Revenue, 9.20%, 09/01/06 ............................ 1,020,115
1,040,000 Surface Water & Treatment Revenue, 9.20%, 09/01/07 ............................ 1,102,826
1,120,000 Surface Water & Treatment Revenue, 9.20%, 09/01/08 ............................ 1,187,659
1,210,000 Surface Water & Treatment Revenue, 9.25%, 09/01/09 ............................ 1,281,705
1,310,000 Surface Water & Treatment Revenue, 9.25%, 09/01/10 ............................ 1,387,631
1,415,000 Surface Water & Treatment Revenue, 9.25%, 09/01/11 ............................ 1,497,296
1,525,000 Surface Water & Treatment Revenue, 9.25%, 09/01/12 ............................ 1,613,694
1,650,000 Surface Water & Treatment Revenue, 9.25%, 09/01/13 ............................ 1,745,964
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
TEXAS (CONT.)
Brazos River Authority, Johnson County, (cont.)
$ 1,780,000 Surface Water & Treatment Revenue, 9.25%, 09/01/14 .............................. $ 1,883,524
1,670,000 Surface Water & Treatment Revenue, 9.25%, 09/01/15 .............................. 1,767,127
750,000 Brownsville Utilities System Revenue, Refunding, Series 1984, 11.625%, 09/01/14 ...... 792,345
15,745,000 Dallas County Flood Control District No. 1, Refunding, Mandatory Put 04/01/97, 9.25%,
04/01/10 ........................................................................... 16,470,529
3,470,000 Dallas County Flood Control District No. 1, Refunding, Pre-Refunded, 9.25%,
04/01/10 ........................................................................... 3,885,463
99,000,000 Dallas-Fort Worth, International Airport Facilities, Improvement Corp. Revenue,
American Airlines, Inc., 8.00%, 11/01/24 ........................................... 104,282,640
30,000 Denton County HFC, SFMR, 11.75%, 01/01/11 ............................................ 30,473
7,255,000 El Paso HFC, SFMR, Series 1991-A, 8.75%, 10/01/11 .................................... 7,439,567
2,050,000 Grand Prairie HFC, SFMR, 10.75%, 09/01/14 ............................................ 2,096,781
43,010,000 Harris County Hospital District Mortgage Revenue, Refunding, Pre-Refunded, 8.50%,
04/01/05 ........................................................................... 46,917,459
20,000,000 Harris County IDR, Marine Terminal Revenue, Refunding, 6.95%, 02/01/22 ............... 20,595,400
Harris County Toll Road, Multiple Mode, Senior Lien Revenue,
2,100,000 Refunding, Series 1987, Pre-Refunded, 8.70%, 08/15/17............................ 2,403,996
9,000,000 Series B, Pre-Refunded, 8.625%, 08/15/07 ........................................ 10,282,590
18,710,000 Series B, Pre-Refunded, 8.70%, 08/18/17 ......................................... 21,418,460
3,500,000 Series C, Pre-Refunded, 8.125%, 08/15/17 ........................................ 3,980,900
4,000,000 Series D, Pre-Refunded, 8.25%, 08/15/07 ......................................... 4,603,240
5,000,000 Series D, Pre-Refunded, 8.30%, 08/15/17 ......................................... 5,763,550
9,370,000 Houston HFC, SFMR, Refunding, Series A, FSA Insured, 5.95%, 12/01/10 ................. 9,072,503
21,000,000 dHouston Water & Sewer System Revenue, Refunding, Series B, 6.375%, 12/01/14 .......... 20,820,660
Matagorda County Navigation District No. 1, PCR, Collateralized, Refunding,
10,000,000 Houston Lighting & Power Co., 6.00%, 07/01/28 ................................... 9,264,900
40,975,000 Houston Lighting & Power Co., Series B, 7.70%, 02/01/19 ......................... 44,284,550
2,040,000 Mesquite HFC, SFMR, Series 1983, 10.75%, 09/01/14 .................................... 2,035,981
5,000,000 Nueces County Hospital District Revenue, Refunding, Pre-Refunded, 9.00%, 07/01/16 .... 5,566,500
11,000,000 Rio Grande Valley Health Facilities Development Corp., 1st Mortgage Revenue,
Refunding, Golden Palms Retirement and Health Center, Pre-Refunded, 9.25%,
08/01/5 ............................................................................ 12,348,930
2,610,000 Sabine River Authority PCR, Texas Utility Electric Co. Project, Refunding, 7.75%,
04/01/16 ........................................................................... 2,749,452
5,000,000 San Antonio Water Revenue, Refunding, MBIA Insured, 6.50%, 05/15/10 .................. 5,159,550
Southland Oaks MUD,
1,525,000 Contract Revenue, Pre-Refunded, 8.50%, 11/15/01 ................................. 1,686,391
1,700,000 Contract Revenue, Pre-Refunded, 8.50%, 11/15/02 ................................. 1,879,911
1,850,000 Contract Revenue, Pre-Refunded, 8.50%, 11/15/03 ................................. 2,045,786
2,050,000 Contract Revenue, Pre-Refunded, 8.55%, 11/15/04 ................................. 2,269,371
2,250,000 Contract Revenue, Pre-Refunded, 8.55%, 11/15/05 ................................. 2,490,773
2,475,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/06 ................................. 2,742,770
2,725,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/07 ................................. 3,019,818
3,000,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/08 ................................. 3,324,570
3,300,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/09 ................................. 3,657,027
Texas Housing Agency,
17,605,000 SFMR, Series 1986-B, 7.50%, 09/01/17 ........................................... 18,063,610
4,620,000 SFMR, Series 1987-B, 8.20%, 03/01/16 ........................................... 4,859,039
Texas Housing Agency, Residential Development Mortgage Revenue,
2,270,000 Series D, 8.35%, 01/01/08 ...................................................... 2,363,138
4,575,000 Series D, 8.35%, 07/01/08 ...................................................... 4,762,712
18,000,000 Texas National Research Lab Community, Financing Corp., Lease Revenue, 7.10%,
12/01/21 .......................................................................... 18,205,020
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
TEXAS (CONT.)
$ 4,160,000 Texas State Department Housing and Community Affairs, MFR, Mortgage National
Center Housing Management Project, FSA Insured, 5.80%, 01/01/24 $ 3,783,853
2,500,000 Texas Water Resources Finance Authority Revenue, 7.625%, 08/15/08 .............. 2,694,050
Western Oaks MUD,
1,675,000 Contract Revenue, 8.60%, 11/15/05 ......................................... 1,856,218
1,825,000 Contract Revenue, 8.60%, 11/15/06 ......................................... 2,022,447
615,000 Contract Revenue, Pre-Refunded, 8.40%, 11/15/01 ........................... 678,634
500,000 Contract Revenue, Pre-Refunded, 8.45%, 11/15/02 ........................... 552,325
2,025,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/07 ........................... 2,244,085
2,225,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/08 ........................... 2,465,723
2,450,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/09 ........................... 2,715,066
------------
552,434,898
------------
U.S. TERRITORIES
870,000 Virgin Islands HFA, HMR, Series B, GNMA Mortgage Backed Securities, 8.10%,
12/01/18 907,575
------------
UTAH 1.9%
Intermountain Power Agency, Power Supply Revenue, Refunding,
34,805,000 Series B, 7.75%, 07/01/20 ................................................. 38,160,898
2,000,000 Series G, 7.25%, 07/01/17 ................................................. 2,115,160
4,000,000 Series I, 6.00%, 07/01/21 ................................................. 3,905,400
Intermountain Power Agency, Special Obligation,
13,450,000 1st Crossover Series, 7.875%, 07/01/14 .................................... 14,459,019
9,500,000 Refunding, 5th Crossover Series, 7.20%, 07/01/19 .......................... 10,132,130
2,945,000 dUtah State HFA, Refunding, Series A, 6.50%, 05/01/19 .......................... 2,952,186
Utah State HFA, SFM,
5,115,000 Refunding, Series A-C, 6.80%, 01/01/12 .................................... 5,300,214
2,565,000 Series A, 8.50%, 07/01/19 ................................................. 2,652,620
6,575,000 Series A, 5.70%, 07/01/26 ................................................. 5,884,756
5,000,000 dSeries B, 6.55%, 07/01/26 ................................................ 5,000,000
510,000 Series C-1, 6.80%, 07/01/12 ............................................... 528,467
8,845,000 Series C-1, 8.375%, 07/01/19 .............................................. 9,064,444
2,945,000 Series D, 8.60%, 07/01/19 ................................................. 3,088,510
4,110,000 Series G-1, 8.10%, 07/01/16 ............................................... 4,237,903
2,150,000 Series F, 6.00%, 07/01/13 ................................................. 2,071,675
Utah State School District Finance Cooperative Revenue, Financing Pool,
2,450,000 Series 1988, 8.375%, 02/15/10 ............................................. 2,661,386
1,730,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,879,264
1,435,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,558,812
1,420,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,542,518
1,340,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,455,615
1,245,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,352,418
1,210,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,314,399
1,195,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,298,105
1,190,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,316,687
1,160,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,260,085
1,065,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,156,888
1,040,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,142,762
1,030,000 Series 1988, 8.375%, 02/15/10 ............................................. 1,118,868
635,000 Series 1988, 8.375%, 02/15/10 ............................................. 685,711
530,000 Series 1988, 8.375%, 02/15/10 ............................................. 560,046
490,000 Series 1988, 8.375%, 02/15/10 ............................................. 503,524
------------
130,360,470
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
VIRGINIA .3%
Virginia State HDA, Commonwealth Mortgage,
$13,200,000 Series 1989-B, Sub-Series B-1, 7.75%, 07/01/17 ............................. $13,827,000
5,120,000 dSeries 1994-C, Sub-Series C-6, 6.25%, 01/01/15 ............................ 4,924,518
-----------
18,751,518
-----------
WASHINGTON 5.8%
Chelan County PUD No. 1,
5,000,000 Chelan Hydro Consolidated System Revenue, 9.30%, 07/01/62 .................. 5,638,450
6,000,000 Chelan Hydro Consolidated System Revenue, Mandatory Put 06/01/18,
Pre-Refunded, 6.95%, 06/01/67............................................. 6,640,980
4,885,000 Chelan Hydro Consolidated System Revenue, Series E, 5.70%, 07/01/09 ........ 4,517,599
8,500,000 Clark County School District No. 37, 5.90%, 12/01/12 ............................ 8,395,705
Lewis County PUD No. 1,
10,000,000 Cowlitz Falls Hydroelectric Revenue, 5.50%, 10/01/22 ....................... 8,653,200
27,500,000 Cowlitz Falls Hydroelectric Revenue, Pre-Refunded, 7.00%, 10/01/22 ......... 30,883,600
10,215,000 dKing County School District No. 406 South Central, 6.125%, 12/01/13 ............ 10,071,377
King County School District No. 411,
5,000,000 Issaquah, Series A, 5.80%, 12/01/10 ........................................ 4,839,600
3,000,000 Issaquah, Series A, 5.85%, 12/01/11 ........................................ 2,900,850
4,020,000 Marysville Water & Sewer Revenue, Refunding, MBIA Insured, 6.10%, 12/01/12 ...... 3,928,183
32,480,000 Pierce County, EDC, Revenue, Refunding, Solid Waste-Steilacoom, 6.60%, 08/01/22 32,106,480
Port Moses Lake Public Corp., Washington PCR,
2,100,000 Union Carbide Corp., 7.50%, 08/01/04 ....................................... 2,181,354
1,000,000 Union Carbide Corp., 7.875%, 08/01/06 ...................................... 1,055,790
Seatac GO,
540,000 Series 1994, 5.40%, 12/01/00 ............................................... 539,973
635,000 Series 1994, 5.75%, 12/01/03 ............................................... 634,968
2,760,000 Series 1994, 6.50%, 12/01/13 ............................................... 2,759,807
Snohomish County PUD No. 1, Electric Revenue, Refunding, Generation System,
1,600,000 Series 1986-A, 5.70%, 01/01/14 ............................................. 1,462,080
9,365,000 Series 1986-A, Pre-Refunded, 8.00%, 01/01/15 ............................... 10,309,367
7,000,000 Snohomish County USD No. 6, 6.50%, 12/01/11 ..................................... 7,252,840
Washington State Health Care Facilities Authority Revenue,
3,615,000 Heart Institute Spokane, Series A, 5.80%, 08/15/18 ......................... 3,270,996
4,000,000 Refunding, Dominican Health Services, 5.75%, 06/01/13 ...................... 3,666,360
9,315,000 Refunding, Northwest Hospital, AMBAC Insured, 5.75%, 11/15/23 .............. 8,413,774
4,880,000 Washington State Housing Finance Commission, MFMR, Refunding, Series A, 7.90%,
07/01/30 ...................................................................... 4,948,808
820,000 Washington State Housing Finance Commission, SFMR, Refunding, Mortgage Backed
Securities, Series B-1, 5.95%, 07/01/16 ....................................... 782,132
Washington State Public Power Supply System Revenue, Nuclear Project No. 1,
Refunding,
1,000,000 Series A, 5.25%, 07/01/08 .................................................. 892,180
18,330,000 Series A, 6.00%, 07/01/09 .................................................. 17,589,101
1,500,000 Series A, 7.00%, 07/01/11 .................................................. 1,554,375
22,400,000 Series A, 6.00%, 07/01/12 .................................................. 21,168,448
35,355,000 Series A, 6.05%, 07/01/12 .................................................. 33,240,417
23,970,000 dSeries A, 6.50%, 07/01/15 ................................................. 23,776,802
19,250,000 Series A, 6.00%, 07/01/17 .................................................. 17,951,780
10,705,000 Series A, 6.25%, 07/01/17 .................................................. 10,639,057
32,000,000 Series A, Pre-Refunded, 7.625%, 07/01/08 ................................... 36,596,160
17,000,000 Series A, Pre-Refunded, 7.375%, 07/01/12 ................................... 19,220,030
4,000,000 Series C, Pre-Refunded, 7.625%, 07/01/10 ................................... 4,583,920
5,000,000 Series C, Pre-Refunded, 8.00%, 07/01/17 .................................... 5,821,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
WASHINGTON (CONT.)
$ 1,000,000 Washington State Public Power Supply System Revenue, Nuclear Project No. 2,
Refunding, Series A, MBIA Insured, 5.00%, 07/01/09........................... $ 896,700
Washington State Public Power Supply System Revenue, Nuclear Project No. 3,
Refunding,
13,460,000 Series 1989-B, Pre-Refunded, 7.25%, 07/01/15 ............................. 15,031,724
1,260,000 Series 1990-B, Pre-Refunded, 7.50%, 07/01/18 ............................. 1,432,759
12,945,000 Series B, 5.70%, 07/01/10 ................................................ 12,015,031
750,000 Series B, 5.625%, 07/01/12 ............................................... 679,095
9,500,000 Series B, 5.70%, 07/01/18 ................................................ 8,505,065
------------
397,448,617
------------
WEST VIRGINIA 1.0%
1,250,000 Clarksburg Water Revenue, Pre-Refunded, 10.875%, 02/01/20 ...................... 1,339,675
New Martinsville Building Commission Revenue, City of New Martinsville Project,
3,015,000 Series A, Pre-Refunded, 8.50%, 11/01/03 .................................. 3,377,493
4,250,000 Series A, Pre-Refunded, 8.75%, 11/01/09 .................................. 4,912,022
2,400,000 Taylor County PCR, Union Carbide Corp., 7.625%, 08/01/05 ...................... 2,634,696
5,400,000 West Virginia State Hospital Finance Authority, Hospital Revenue, Refunding,
St. Francis Hospital, Charleston, 7.75%, 08/15/13............................ 5,267,430
West Virginia State Housing Development Fund, Housing Finance,
6,000,000 Series D, 7.00%, 05/01/17 ................................................ 6,151,320
9,000,000 Series D, 7.05%, 11/01/24 ................................................ 9,252,900
11,750,000 West Virginia State School Building Authority Revenue, Capital Improvement, Series A,
MBIA Insured, 6.625%, 07/01/22............................................... 12,219,530
West Virginia State Water Development Authority Revenue,
5,000,000 Loan Program II, Series 1988-A, Pre-Refunded, 8.625%, 11/01/28 ........... 5,793,850
13,085,000 Loan Program II, Series 1990-A, Pre-Refunded, 7.70%, 11/01/29 ............ 15,093,155
5,180,000 dLoan Program II, Series 1991-A, 7.00%, 11/01/31 .......................... 5,302,300
------------
71,344,371
------------
WISCONSIN 1.1%
2,200,000 Janesville IDR, Simmons Manufacturing Co., 7.00%, 10/15/17 ..................... 2,289,078
Wisconsin Housing & EDA, Homeownership Revenue,
10,230,000 Series 1, 6.75%, 09/01/15 ................................................ 10,439,613
3,000,000 Series 1, 6.75%, 09/01/17 ................................................ 3,061,470
5,500,000 dSeries A, 6.45%, 03/01/17 ................................................ 5,500,000
11,330,000 Series A, 7.10%, 03/01/23 ................................................ 11,799,515
3,000,000 Series B, 7.05%, 11/01/22 ................................................ 3,096,720
13,145,000 Wisconsin Housing & EDA, Housing Revenue, Refunding, Series C, 5.80%, 11/01/13 . 12,190,804
15,360,000 Wisconsin State Health & Educational Facilities Authority Revenue, Lindengrove, Inc.
Project, 10.00%, 10/01/17.................................................... 16,782,336
7,400,000 Wisconsin State Health Facilities Authority Revenue, Refunding, Franciscan Health
Advisory, 7.80%, 03/01/14.................................................... 7,695,556
------------
72,855,092
------------
WYOMING .5%
Wyoming CDA, MF Mortgage,
1,715,000 Series A, 6.90%, 06/01/12 ................................................ 1,754,822
3,530,000 Series A, 6.95%, 06/01/24 ................................................ 3,611,790
Wyoming CDA, SFM,
4,000,000 Series A, 5.70%, 06/01/13 ................................................ 3,714,640
5,750,000 Series A, 5.85%, 06/01/13 ................................................ 5,434,325
2,500,000 Series A, 7.25%, 06/01/21 ................................................ 2,587,125
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
WYOMING (CONT.)
Wyoming CDA, SFM, (cont.)
$14,825,000 Series A, 6.00%, 06/01/23 .................................................... $ 13,953,141
1,730,000 Series G, 7.375%, 06/01/17 ................................................... 1,804,580
--------------
32,860,423
--------------
TOTAL BONDS (COST $6,295,849,964) 6,575,322,981
--------------
fZERO COUPON BONDS 1.4%
11,040,000 Calcasieu Parish, Memorial Hospital Service District Revenue, Lake Charles Parish
Memorial Hospital Project, Series A, (original accretion rate 5.59%), 12/01/22... 5,302,512
16,000,000 Chicago Residential Mortgage Revenue, Refunding, Series B, MBIA Insured, (original
accretion rate 7.30%), 10/01/09 ................................................. 5,382,080
Colorado Springs Airport Revenue,
1,660,000 Series C, (original accretion rate 6.86%), 01/01/03 .......................... 968,909
1,610,000 Series C, (original accretion rate 6.966%), 01/01/05 ......................... 812,809
1,675,000 Series C, (original accretion rate 7.07%), 01/01/07 .......................... 725,794
800,000 Series C, (original accretion rate 7.07%), 01/01/08 .......................... 320,216
1,450,000 Series C, (original accretion rate 7.176%), 01/01/11 ......................... 459,592
5,935,000 dColdwater Community Schools, MBIA Insured, (original accretion rate 6.794%),
05/01/18 ........................................................................ 1,193,529
Jefferson County, Capital Projects Corp., Lease Revenue, Refunding,
1,640,000 Series A, (original accretion rate 6.75%), 08/15/07 .......................... 686,389
4,505,000 Series A, (original accretion rate 6.80%), 08/15/08 .......................... 1,753,572
4,580,000 Series A, (original accretion rate 6.87%), 08/15/09 .......................... 1,673,669
4,620,000 Series A, (original accretion rate 6.85%), 08/15/10 .......................... 1,555,923
6,825,000 Series A, (original accretion rate 6.95%), 08/15/13 .......................... 1,846,026
6,860,000 Series A, (original accretion rate 6.95%), 08/15/14 .......................... 1,733,796
7,005,000 Series A, (original accretion rate 7.00%), 08/15/16 .......................... 1,529,262
7,115,000 Series A, (original accretion rate 7.00%), 08/15/17 .......................... 1,450,677
6,000,000 Harrison Community Schools, AMBAC Insured, (original accretion rate 6.90%),
05/01/20 ........................................................................ 1,115,580
Howell Public School, Refunding,
1,500,000 AMBAC Insured, (original accretion rate 5.75%), 05/01/12 ..................... 473,880
1,120,000 AMBAC Insured, (original accretion rate 5.75%), 05/01/13 ..................... 332,483
2,000,000 AMBAC Insured, (original accretion rate 5.75%), 05/01/14 ..................... 556,940
2,770,000 AMBAC Insured, (original accretion rate 5.75%), 05/01/15 ..................... 723,552
2,500,000 AMBAC Insured, (original accretion rate 5.75%), 05/01/16 ..................... 612,575
2,250,000 Louisiana Housing Financial Agency Mortgage Revenue, Refunding, (original accretion
rate 9.20%), 09/01/13 ........................................................... 2,160,180
Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue,
5,650,000 Expansion, Project A, FGIC Insured, (original accretion rate 6.500%), 06/15/07 4,738,768
8,500,000 Expansion, Project A, FGIC Insured, (original accretion rate 6.526%), 06/15/08 3,518,745
11,000,000 Expansion, Project A, FGIC Insured, (original accretion rate 6.677%), 06/15/09 4,240,280
8,000,000 Expansion, Project A, FGIC Insured, (original accretion rate 6.628%), 06/15/10 2,872,800
9,690,000 Expansion, Project A, FGIC Insured, (original accretion rate 6.629%), 06/15/11 3,238,398
11,800,000 Expansion, Project A, FGIC Insured, (original accretion rate 3.193%), 06/15/12 7,090,266
5,250,000 Owensboro Electric Light & Power Revenue, Series B, AMBAC Insured, (original
accretion rate 6.85%), 01/01/08 ................................................. 2,280,968
Shreveport Water & Sewer Revenue,
490,000 Series B, FGIC Insured, (original accretion rate 7.05%), 12/01/07 ............ 210,636
2,530,000 Series B, FGIC Insured, (original accretion rate 7.05%), 12/01/08 ............ 1,006,358
4,080,000 Series B, FGIC Insured, (original accretion rate 7.05%), 12/01/09 ............ 1,488,098
5,630,000 Series B, FGIC Insured, (original accretion rate 7.05%), 12/01/10 ............ 1,908,062
7,000,000 Spring ISD, Refunding, FGIC Insured, Pre-Refunded, (original accretion rate 7.80%),
08/15/08 ........................................................................ 2,801,330
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
fZERO COUPON BONDS (CONT.)
$14,250,000 University of Illinois, University Revenues, AMBAC Insured, (original
accretion rate 7.187%), 04/01/10 ................................................. $ 5,184,435
Virginia State HDA, Commonwealth Mortgage,
6,700,000 Series 1990-A, Sub-Series A-4, (original accretion rate 7.85%), 01/01/11 ..... 1,860,054
6,700,000 Series 1990-A, Sub-Series A-4, (original accretion rate 7.85%), 07/01/11 ..... 1,789,838
7,100,000 Series 1990-A, Sub-Series A-4, (original accretion rate 7.85%), 01/01/12 ..... 1,825,055
7,100,000 Series 1990-A, Sub-Series A-4, (original accretion rate 7.85%), 07/01/12 ..... 1,756,114
7,400,000 Series 1990-A, Sub-Series A-4, (original accretion rate 7.85%), 01/01/13 ..... 1,761,200
7,400,000 Series 1990-A, Sub-Series A-4, (original accretion rate 7.85%), 07/01/13 ..... 1,694,674
5,650,000 Series 1990-A, Sub-Series A-4, (original accretion rate 7.85%), 07/01/14 ..... 1,198,026
11,000,000 Washington State Public Power Supply System Revenue, Nuclear Project No. 2,
Refunding, Series A, (original accretion rate 7.33%), 07/01/13 ................... 3,011,140
Washington State Public Power Supply System Revenue, Nuclear Project No. 3,
Refunding,
6,400,000 Series 1990-B, (original accretion rate 6.751%), 07/01/12 .................... 1,891,071
15,000,000 Series 1990-B, (original accretion rate 7.25%), 07/01/14 ..................... 3,837,600
--------------
TOTAL ZERO COUPON BONDS (COST $91,864,416) ................................... 94,573,861
--------------
TOTAL LONG TERM INVESTMENTS (COST $6,387,714,380) ............................ 6,669,896,842
--------------
SHORT TERM INVESTMENTS .2%
580,000 Bloomington Port Authority, Minnesota, Tax Increment Revenue, Stadium Site
Redevelopment Project, ETM 02/01/95, 8.00%, 02/01/95 ............................. 598,321
380,000 Brazos River Authority, Texas, Johnson County, Surface Water & Treatment Revenue,
8.20%, 09/01/94 384,963 .........................................................
3,700,000 eCollier County, Florida, Health Facilities Authority, Health Facilities
Revenue, Moorings, Inc. Project, Weekly VRDN and Put, 3.20%, 12/01/19 ............ 3,700,000
200,000 eColorado Health Facilities Authority Revenue, Boulder Community Hospital Project,
Series B, MBIA Insured, Weekly VRDN and Put, 3.15%, 10/01/14 ..................... 200,000
450,000 Dakota County, Minnesota Housing & Redevelopment Authority, Limited Annual
Appropriation Tax & Revenue Supported, Development Housing Facilities Project,
7.00%, 01/01/95 .................................................................. 452,732
1,500,000 eIrving Ranch, California, Water District, Refunding, Series B, Daily VRDN and Put,
2.90%, 08/01/09 .................................................................. 1,500,000
1,700,000 eOrange County, California, COP, Series C, FGIC Insured, Daily VRDN and Put, 2.95%,
08/01/17.......................................................................... 1,700,000
6,300,000 eUtah State Board Regents Students Loan Revenue, Series B, AMBAC Insured, Weekly
VRDN and Put, 3.15%, 11/01/00 .................................................... 6,300,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $14,806,200) .............................. 14,836,016
--------------
TOTAL INVESTMENTS (COST $6,402,520,580) 98.2% ........................... 6,684,732,858
OTHER ASSETS AND LIABILITIES, NET 1.8% .................................. 119,528,982
--------------
NET ASSETS 100.0% ....................................................... $6,804,261,840
==============
At April 30, 1994, the net unrealized appreciation based on the cost of
investments for income tax purposes of $6,402,553,829 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost .................................................. $ 386,599,148
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value (104,420,119)
--------------
Net unrealized appreciation ..................................................... $ 282,179,029
==============
</TABLE>
The accompanying notes are an integral part of theses financial statements.
47
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1994 (CONT.)
- -----------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
BMTF - Bi-Modal Multi-Term Format
CDA - Community Development Authority/Agency
CFD - Community Facilities Development
CGIC - Capital Guaranty Insurance Co.
CHM - Collateralized Home Mortgage
COP - Certificate of Participation
CRDA - Community Redevelopment Authority/Agency
EDA - Economic Development Authority/Agency
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Corp.
FHA - Federal Housing Authority
FI/GML - Federally Insured or Guaranteed Mortgage Loan
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority
HFA - Housing Finance Agency
HFAR - Housing Finance Agency Revenue
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
IDB - Industrial Development Board
IDR - Industrial Development Revenue
IPC - Industrial Pollution Control
ISD - Independent School District
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MUD - Municipal Utility District
PBA - Public Building Authority
PCF - Pollution Control Financing
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Authority/Agency
RDAR - Redevelopment Agency Revenue
RMR - Residential Mortgage Revenue
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
USD - Unified School District
aNon-income producing.
bSee Note 7 regarding defaulted securities.
cSecurity value estimated by Board of Directors. See Note 1.
dSee Note 1 regarding securities purchased on a when-issued basis.
eVariable rate demand notes (VRDN's) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
fZero coupon bonds. The current effective yield may vary. The original
accretion rate by security, as reported, will remain constant.
The accompanying notes are an integral part of theses financial statements.
48
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
<S> <C>
Assets:
Investments in securities, at value
(at identified cost $6,402,520,580) $6,684,732,858
Cash 1,191,371
Receivables:
Interest 142,194,600
Investment securities sold 91,898,603
Capital shares sold 9,592,197
--------------
Total assets 6,929,609,629
--------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery 43,364,350
When-issued basis (Note 1) 73,854,006
Capital shares repurchased 5,101,374
Management fees 2,572,364
Shareholder servicing costs 83,720
Accrued expenses and other liabilities 371,975
--------------
Total liabilities 125,347,789
--------------
Net assets, at value $6,804,261,840
==============
Net assets consist of:
Undistributed net investment income $ 15,294,390
Unrealized appreciation on investments 282,212,278
Accumulated net realized loss (84,805,229)
Capital shares 6,591,560,401
--------------
Net assets, at value $6,804,261,840
==============
Representative computation of net asset
value and offering price per share:
Net asset value and redemption
price per share
($6,804,261,840 / 576,341,902
shares outstanding) $11.81
==============
Maximum offering price
(100/96 of $11.81)+ $12.30
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1994
<S> <C> <C>
Investment income:
Interest (Note 1) $ 463,095,773
Expenses:
Management fees (Note 5) $31,132,949
Shareholder servicing costs
(Note 5) 1,021,652
Reports to shareholders 1,382,199
Custodian fees 739,159
Professional fees 110,422
Directors' fees and expenses 156,474
Other 758,158
-----------
Total expenses 35,301,013
--------------
Net investment
income 427,794,760
--------------
Realized and unrealized loss on
investments:
Net realized loss (10,591,976)
Net unrealized depreciation
during the year (239,927,185)
--------------
Net realized and unrealized
loss on investments (250,519,161)
--------------
Net increase in net assets
resulting from operations $ 177,275,599
==============
</TABLE>
+Effective July 1, 1994, the sales charge has been increased to a maximum of
4.25% (100/95.75). On sales of $100,000 or more, the offering price is reduced
as stated in the section of the Prospectus entitled "How to Buy Shares of the
Fund."
The accompanying notes are an integral part of theses financial statements.
49
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
FINANCIAL STATEMENTS (CONT.)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED APRIL 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income......................................................... $ 427,794,760 $ 388,037,167
Net realized gain (loss) from security transactions........................... (10,591,976) 10,577,998
Net unrealized appreciation (depreciation) during the year.................... (239,927,185) 267,886,898
-------------- --------------
Net increase in net assets resulting from operations...................... 177,275,599 666,502,063
Distributions to shareholders:
From undistributed net investment income (Note 8).............................. (433,853,432) (392,237,433)
Increase in net assets from capital share transactions (Note 2)................. 646,100,606 956,260,052
-------------- --------------
Net increase in net assets................................................ 389,522,773 1,230,524,682
Net assets:
Beginning of year.............................................................. 6,414,739,067 5,184,214,385
-------------- --------------
End of year (including undistributed net investment income of $15,294,390 - 1994
and $21,343,617 - 1993)........................................................ $6,804,261,840 $6,414,739,067
============== ==============
</TABLE>
The accompanying notes are an integral part of theses financial statements.
50
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Federal Tax-Free Income Fund (the Fund) is an open-end, management
investment company (mutual fund) registered under the Investment Company Act of
1940 as amended.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATION:
Tax-free bonds generally trade in the over-the-counter market rather than on a
national securities exchange. Often there are no transactions in a particular
security on any given day. In the absence of a recorded sale or reported bid
and asked prices, information with respect to bond and note transactions,
quotations from bond dealers, market transactions in comparable securities, and
various relationships between securities are used to determine the value of the
security. The Fund may also utilize a pricing service, bank or broker/dealer
experienced in such matters to perform any of the pricing functions, under
procedures approved by the Board of Directors. Short-term securities and
similar investments with remaining maturities of 60 days or less are valued at
amortized cost, which approximates current value.
B. MUNICIPAL BONDS OR NOTES WITH "PUTS":
The Fund has purchased municipal bonds or notes with the right to resell the
bonds or notes to the seller at an agreed upon price or yield on a specified
date or within a specified period (which will be prior to the maturity date of
the bonds or notes). Such a right to resell is commonly known as a "put."
C. INCOME TAXES:
The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income taxes and excise tax. Therefore, no income tax provision is
required.
D. SECURITY TRANSACTIONS:
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Realized gains and losses on security
transactions are determined on the basis of specific identification for both
financial statement and income tax purposes.
E. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Bond discount and premium are
amortized as required by the Internal Revenue Code.
Distributions from undistributed net investment income, and net realized
capital gains from security transactions, to the extent they exceed available
capital loss carryovers, are generally made during each year, as required, to
avoid the 4% excise tax imposed on regulated investment companies by the
Internal Revenue Code.
Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of defaulted securities - see Note 7.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to losses deferred for wash sale transactions.
F. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: The Fund may trade securities
on a when-issued or delayed delivery basis, with payment and delivery scheduled
for a future date. These transactions are subject to market fluctuations and
are subject to the risk that the value at delivery may be more or less than the
trade date purchase price transactions. Although the Fund will generally
purchase these securities with the intention of acquiring such securities, it
may sell such securities before the settlement date. The Fund has set aside
sufficient investment securities as collateral for these purchase commitments.
These securities are identified on the accompanying Statement of Investments in
Securities and Net Assets.
G. CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS:
Effective April 30, 1994, the Fund adopted AICPA Statement of Position 93-2:
Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. As a
result, components of net assets have been reclassified to better reconcile
financial statement amounts with distributions determined in accordance with
Statement of Position 93-2.
51
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
2. CAPITAL STOCK
At April 30, 1994, there were 10,000,000,000 shares of no par value capital
stock authorized and capital paid-in aggregated $6,591,560,401. Transactions in
the Fund's shares for the years ended April 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------------------------------
1994 1993
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold....................................... (83,195,814 $1,025,620,699 (93,757,955 $1,123,886,446
Shares issued in reinvestment of distributions.... 11,697,850 143,535,367 10,644,281 126,931,857
Shares redeemed................................... (39,809,631) (488,804,178) (32,120,216) (385,304,975)
Changes from exercise of exchange privilege:
Shares sold...................................... 31,586,425 386,989,974 29,804,275 356,637,880
Shares redeemed.................................. (34,268,195) (421,241,256) (22,110,420) (265,891,156)
----------- ------------- ----------- -------------
Net increase...................................... 52,402,263 $ 646,100,606 79,975,875 $ 956,260,052
=========== ============= =========== =============
</TABLE>
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At April 30, 1994, for tax purposes, the Fund had capital loss carryovers as
follows:
<TABLE>
<S> <C>
Expiring in: 1996........................... $32,151,648
1997........................... 19,946,075
1998........................... 14,050,263
2000........................... 8,032,018
2002........................... 10,591,976
-----------
$84,771,980
===========
</TABLE>
For income tax purposes, the aggregate cost of securities is higher (and
unrealized appreciation is lower) than for financial reporting purposes at
April 30, 1994 by $33,249.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended April 30, 1994 aggregated $2,237,436,504 and
$1,665,594,278, respectively.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
investment advice, administrative services, office space and facilities to the
Fund, and receives fees computed monthly on the net assets of the Fund on the
last day of the month at an annualized rate of 5/8 of 1% of the first $100
million of net assets, 1/2 of 1% of net assets in excess of $100 million up to
and including $250 million, 45/100 of 1% of net assets in excess of $250
million up to and including $10 billion, 44/100 of 1% of net assets in excess
of $10 billion up to and including $12.5 billion, 42/100 of 1% of net assets in
excess of $12.5 billion up to and including $15 billion, 40/100 of 1% of net
assets in excess of $15 billion up to and including $17.5 billion, 38/100 of 1%
of net assets in excess of $17.5 billion up to and including $20 billion, and
36/100 of 1% of net assets in excess of $20 billion. Fees incurred by the Fund
aggregated $31,132,949 for the period ended April 30, 1994. The terms of the
management agreement provide that aggregate annual expenses of the Fund be
limited to the extent necessary to comply with the limitations set forth in the
laws, regulations and administrative interpretations of the states in which the
Fund's shares are registered. There was no reimbursement to the Fund under this
provision for the year ended April 30, 1994.
In its capacity as underwriter for the capital stock of the Fund,
Franklin/Templeton Distributors, Inc. received commissions on sales of the
Fund's capital stock for the year ended April 30, 1994 totaling $37,920,217 of
which $35,401,995 was subsequently paid to other dealers. Commissions are
deducted from the gross proceeds received from the sale of the capital stock of
the Fund, and as such are not expenses of the Fund.
Under the terms of a shareholder servicing agreement with Franklin/Templeton
Investors Services, Inc., the Fund pays costs on a per shareholder account
basis. Shareholder servicing costs incurred for the year ended April 30, 1994
aggregated $1,021,652 of which $923,341 was paid to Franklin/Templeton
Investors Services, Inc.
Certain officers and directors of the Fund are also officers and/or directors
of Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc. and
Franklin/Templeton Investors Services, Inc., all wholly owned subsidiaries of
Franklin Resources, Inc.
52
<PAGE>
FRANKLIN FEDERAL TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
6. SUBSEQUENT EVENT
On April 19, 1994 and May 17 1994 the Board of Directors declared distributions
of $.065 per share from undistributed net investment income to shareholders of
record at the end of business on April 29, 1994 and May 31, 1994 payable on May
13, 1994 and June 15, 1994, respectively.
7. CREDIT RISK AND DEFAULTED SECURITIES
Although the Fund has a diversified portfolio, it has investments in excess of
10% of its total net assets in the state of New York. Such concentration may
subject the Fund more significantly to economic changes occurring within that
state.
The Fund has 1.57% of its portfolio invested in lower rated and comparable
quality unrated high yield securities. Investments in higher yield securities
are accompanied by a greater degree of credit risk and such lower quality
securities tend to be more sensitive to economic conditions than higher rated
securities.
The risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities, because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. At April
30, 1994, the Fund held one defaulted security with a value aggregating
$4,350,000 representing 0.06% of the Fund's net assets. For more information as
to the specific security, see the accompanying Statement of Investments in
Securities and Net Assets.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due
to unpaid interest income on defaulted bonds for the current reporting period.
8. FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each
period are set forth in the Prospectus under the caption "Financial
Highlights."
- -------------------------------------------------------------------------------
During this fiscal year, the Fund paid distributions from undistributed net
investment income in the amounts shown in the Statement of Changes in Net
Assets. The Fund hereby designates the total amount of these distributions as
exempt-interest dividends under Section 852(b)(5) of the Internal Revenue Code.
- -------------------------------------------------------------------------------
The following Financial Statements are not included in this
Statement of Additional Information, but will be delivered with
this Statement of Additional Information:
FRANKLIN FEDERAL TAX-FREE INCOME FUND
Statement of Investments in Securities and Net Assets, October 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Face Value
Amount (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Long Term Investments 96.8%
Alabama 1.2%
$ 5,400,000 Alabama Special Care Facilities Financing Authority, Montgomery Hospital
Revenue, Refunding, Baptist Hospital Gadsden, Inc. Project, Pre-Refunded,
10.25%, 11/01/15 ........................................................... $ 5,726,808
5,785,000 Alabama State Docks Department Coal Revenue, Refunding, Pre-Refunded,
10.00%, 10/01/05 ........................................................... 6,209,388
6,805,000 Alabama Water Pollution Control Authority, Revolving Fund, Series B,
7.75%, 08/15/12 ............................................................ 6,974,921
5,000,000 Birmingham GO, Street Improvement Warrants, Pre-Refunded, 8.00%, 07/01/13 ... 5,528,300
1,000,000 Citronelle IDB, PCR, Stauffer Chemical Project, Guaranteed by Imperial Chemical,
Plc., Series 1982, 8.00%, 12/01/12 ......................................... 1,109,370
18,830,000 Columbia IDB, PCR, Refunding, Alabama Power Co. Project, AMBAC Insured,
6.50%, 09/01/23 ............................................................ 18,209,928
12,000,000 Courtland IDB, IDR, Refunding, Champion International Corp., Series A,
7.20%, 12/01/13 ............................................................ 11,962,080
30,000,000 West Jefferson IDB, PCR, Refunding, Alabama Power Co., Miller Plant,
Series C, MBIA Insured, 6.05%, 05/01/23 .................................... 27,393,000
-------------
83,113,795
-------------
Alaska 1.0%
1,775,000 Alaska Industrial Development and Export Authority, Revolving Fund, Series A,
7.95%, 04/01/10 ............................................................ 1,893,020
Alaska State HFC,
650,000 CHM, Series A, 8.375%, 12/01/16 ............................................. 667,244
4,300,000 CHM, Series A-1, 6.75%, 12/01/32............................................. 4,054,427
3,270,000 CHM, Series A-3, 7.70%, 12/01/13............................................. 3,349,919
12,500,000 Insured Mortgage Program, 1st Series, 5.80%, 12/01/18........................ 10,637,375
8,825,000 Refunding, Mortage Insured, Program 1, Series 1990-B, 7.80%, 12/01/30 ....... 8,951,992
8,000,000 Series A, 6.60%, 12/01/23 ................................................... 8,470,880
21,940,000 Veterans Mortgage Program, MBIA Insured, 6.75%, 12/01/25 .................... 20,875,471
Anchorage Parking Authority Revenue, Refunding,
3,360,000 5th Avenue Garage Lease Project, 6.50%, 12/01/02 ............................ 3,357,682
3,500,000 5th Avenue Garage Lease Project, 6.75%, 12/01/08 ............................ 3,388,840
2,000,000 Valdez Marine Terminal Revenue, Refunding, Pipeline, Inc. Project,
5.75%, 11/01/28 ............................................................ 1,697,580
-------------
67,344,430
-------------
Arizona .7%
5,275,000 Coconino County PCR, Series A, 5.875%, 08/15/28 ............................. 4,386,901
14,720,000 Glendale IDA, Hospital Revenue, Northwest Development, Inc. Project,
8.875%, 01/01/16 ........................................................... 15,501,779
$ 7,400,000 Navajo County PCR, Refunding, Arizona Public Service Co., Series A,
5.875%, 08/15/28 ........................................................... $ 6,154,136
11,680,000 Pima County IDA, MFHR, Fountains La Cholla Project, FHA Mortgage Insured,
8.00%, 12/01/25 ............................................................ 11,844,221
5,750,000 Tempe IDA, Residential Care Facilities Revenue, Volunteers of America Care
Facilities, 9.00%, 06/01/18 ................................................ 5,986,210
-------------
43,873,247
-------------
Arkansas .2%
3,530,000 Desha County, Residential Housing Facilities Board, SFMR, Refunding,
7.50%, 04/01/11 ............................................................ 3,700,040
3,115,000 Independence County, Public Health & Education Facilities Board Capital Revenue,
Improvement & Refunding, White River Control Project, 8.00%, 06/01/09 ...... 3,228,542
1,465,000 Jefferson County, PCR, Refunding, Arkansas Power & Light Co. Project,
6.30%, 06/01/18 ............................................................ 1,374,566
2,600,000 Pope County, PCR, Refunding, Power & Light Co. Project, 6.30%, 12/01/16 ..... 2,424,344
-------------
10,727,492
-------------
California 2.2%
Alhambra COP,
410,000 Clubhouse Facility Project, 11.25%, 01/01/08 ................................ 425,404
455,000 Clubhouse Facility Project, 11.25%, 01/01/09 ................................ 472,112
500,000 Clubhouse Facility Project, 11.25%, 01/01/10 ................................ 518,805
5,325,000 Burbank RDA, Refunding, Tax Allocation, Series A, 6.25%, 12/01/24 ........... 4,676,468
2,030,000 Butte County COP, Justice Facilities Project, 5.70%, 07/01/14 ............... 1,740,684
California State Educational Facilities Authority Revenue,
3,580,000 National University, Connie Lee Insured, 6.00%, 05/01/09 .................... 3,349,913
1,000,000 Pooled College & University Financing, Refunding, Series B, 5.70%, 06/01/01 . 961,340
California State GO,
3,070,000 Series 1994, 5.90%, 05/01/08 ................................................ 2,946,033
5,000,000 Series 1994, 6.00%, 05/01/18 ................................................ 4,485,650
12,500,000 Series 1994, 6.00%, 05/01/20 ................................................ 11,324,625
9,680,000 Series 1994, 6.00%, 05/01/24 ................................................ 8,544,052
California State Public Works Board Lease Revenue, Various University
of California Projects,
3,500,000 Series A, 6.625%, 10/01/10 .................................................. 3,407,600
4,000,000 Series A, 6.375%, 10/01/14 .................................................. 3,725,200
2,000,000 Series A, 6.375%, 10/01/19 .................................................. 1,842,440
1,020,000 Coalinga Public Finance Authority Revenue, Series B, 6.25%, 09/15/07 ........ 938,706
$ 1,000,000 Commerce, Refuse to Energy Authority Revenue, Series 1984-A,
Pre-Refunded, 11.50%, 11/01/10 ............................................. $ 1,030,000
1,360,000 Corona-Norco USD, CFD No. 3, Pre-Refunded, 12.00%, 11/01/04 ................. 1,401,099
4,000,000 Eden Township Hospital, District Health Facilities Revenue, Refunding, COP,
Eden Hospital Health Services Corp., 5.75%, 07/01/12 ....................... 3,450,200
Forty-Niner Shops, Inc., Auxiliary Organization,
1,090,000 California State Long Beach Project, 6.875%, 04/01/07 ....................... 1,088,550
1,565,000 California State Long Beach Project, 6.875%, 04/01/12 ....................... 1,546,893
3,180,000 Los Angeles Community RDA, Housing Revenue, Refunding, Series A,
AMBAC Insured, 6.55%, 01/01/27 ............................................. 3,052,355
3,000,000 Los Angeles County Transportation Commission Sales Tax Revenue,
Proposition C, Series A, MBIA Insured, 6.00%, 07/01/23 ..................... 2,730,150
Los Angeles Department of Water & Power Electric Plant Revenue,
14,925,000 Refunding, 6.40%, 11/01/31 .................................................. 14,063,380
3,000,000 Refunding, MBIA Insured, 6.00%, 02/01/28 .................................... 2,681,310
6,400,000 Los Angeles Regional Airport Improvements Corp., Lease Revenue, Refunding,
United Airlines, Inc. Project, 6.875%, 11/15/12 ............................ 5,843,456
3,820,000 M-S-R Public Power Agency, San Juan Project Revenue, Series E, MBIA Insured,
6.00%, 07/01/22 ............................................................ 3,462,830
870,000 Redlands COP, Refunding, Loma Linda University Medical Center, Series D,
MBIA Insured, 5.00%, 12/01/04 .............................................. 801,836
San Joaquin Hills Transportation,
18,795,000 Corridor Agency Toll Road Revenue, 7.00%, 01/01/30 .......................... 17,633,469
23,125,000 Corridor Agency Toll Road Revenue, 6.75%, 01/01/32 .......................... 20,959,344
12,680,000 San Francisco City & County RDAR, Tax Allocation Redevelopment Project,
6.50%, 08/01/22 ............................................................ 11,980,571
3,150,000 Santa Barbara County Revenue, COP, Refunding, Montecito Retirement,
5.80%, 04/01/18 ............................................................ 2,666,758
2,405,000 Windsor RDAR, Tax Allocation, Windsor Project, 7.00%, 09/01/24 .............. 2,264,861
-------------
146,016,094
-------------
Colorado 4.1%
5,000,000 Arvada, City of, MFR Rental Housing, Arvada Manor Project, GNMA Secured,
8.25%, 12/20/25 ............................................................ 5,081,000
9,000,000 Colorado Health Facilities Revenue Authority, Porter Memorial Hospital Project,
Series A, Pre-Refunded, 7.40%, 02/01/16 .................................... 9,767,340
Colorado HFA, GO,
1,595,000 Series A, 7.50%, 05/01/29 ................................................... 1,650,474
2,740,000 Series A, 8.375%, 01/01/30 .................................................. 2,827,406
Denver City & County, Airport System Revenue,
$ 1,000,000 Series 1985, 8.375%, 08/01/96 ............................................... $ 1,004,440
2,000,000 Series 1985, 8.375%, 08/01/11 ............................................... 2,005,440
9,700,000 Series A, 7.50%, 11/15/12 ................................................... 9,303,173
16,645,000 Series A, 8.875%, 11/15/12 .................................................. 17,426,316
2,000,000 Series A, 8.00%, 11/15/17 ................................................... 1,946,740
11,460,000 Series A, 7.75%, 11/15/21 ................................................... 10,926,193
2,650,000 Series A, 7.25%, 11/15/23 ................................................... 2,405,008
2,550,000 Series A, 7.50%, 11/15/23 ................................................... 2,387,922
79,945,000 Series A, 8.50%, 11/15/23 ................................................... 81,425,581
19,500,000 Series A, 7.25%, 11/15/25 ................................................... 17,872,920
2,000,000 Series A, 8.00%, 11/15/25 ................................................... 1,948,600
22,325,000 Series A, 8.00%, 11/15/25 ................................................... 21,751,247
47,800,000 Denver City & County, Special Facilities Airport Revenue, United Airlines Project,
Series A, 6.875%, 10/01/32 ................................................. 41,069,282
3,000,000 dGarfield Pitkin & Eagle County, School District No. 1, MBIA Insured,
6.60%, 12/15/14 ............................................................ 2,979,930
4,000,000 Jefferson County, School District No. R-001, AMBAC Insured, 6.25%, 12/15/12 . 3,869,360
6,925,000 Littleton IDR, Porter Memorial Hospital Medical Office Project, Series 1982,
Pre-Refunded, 8.00%, 02/01/12 .............................................. 7,477,477
16,500,000 Littleton MFR, Rental Housing, Riverpointe Project, I Series 1985, Mandatory Put
10/01/96, 8.00%, 12/01/22 .................................................. 16,611,540
6,500,000 University of Colorado, Hospital Authority Revenue, Series A, AMBAC Insured,
6.40%, 11/15/22 ............................................................ 6,207,370
6,000,000 Westminster Sales & Use Tax Revenue, Series A, FGIC Insured, 6.25%, 12/01/12 5,816,760
-------------
273,761,519
-------------
Connecticut
3,000,000 Connecticut State Housing Mortgage Finance Revenue, Series A-1,
5.85%, 11/15/16 ............................................................ 2,686,320
-------------
Delaware
1,160,000 Delaware State EDA Revenue, Refunding, Water Development, Wilmington,
Series B, 6.45%, 12/01/07 .................................................. 1,156,891
2,000,000 Delaware State Housing Authority, Refunding, MFMR, Series D, 6.75%, 07/01/06. 2,017,420
-------------
3,174,311
-------------
District of Columbia .6%
6,500,000 District of Columbia GO, Series A, Pre-Refunded, 8.00%, 06/01/07 ............ 7,020,390
6,110,000 District of Columbia HFA, MFHR, FHA Mortgage Insured, Mayfair Mansions
Apartments, 8.85%, 02/01/31 ................................................ 6,228,106
District of Columbia HFA, MFHR, Refunding,
$ 1,870,000 FHA Insured, Series A, 7.10%, 09/01/12 ...................................... $ 1,888,401
6,755,000 FHA Insured, Series A, 7.15%, 03/01/24 ...................................... 6,800,191
4,835,000 District of Columbia Hospital Revenue, Washington Hospital Center Corp.,
Series A, Pre-Refunded, 9.00%, 01/01/08 .................................... 5,698,676
5,685,000 District of Columbia Revenue, Association of American Medical Colleges,
7.50%, 02/15/20 ............................................................ 6,105,292
5,265,000 District of Columbia Revenue, Catholic University of America, 6.45%, 10/01/23 4,994,642
-------------
38,735,698
-------------
Florida 4.0%
Bay County Resource Recovery Revenue,
2,100,000 Refunding, Series A, MBIA Insured, 6.50%, 07/01/07 .......................... 2,161,908
11,020,000 Refunding, Series B, MBIA Insured, 6.50%, 07/01/07 .......................... 11,344,870
2,620,000 Series 1984, Pre-Refunded, 8.00%, 07/01/12 .................................. 2,839,635
45,875,000 Broward County Resource Recovery Revenue, Broward Waste Energy Co.,
Limited Partnership, North Project, Series 1984, 7.95%, 12/01/08 ........... 49,389,484
3,800,000 Dunes Community Development District Revenue, Water & Sewer Project,
Pre-Refunded, 8.25%, 10/01/18 .............................................. 4,254,822
Florida State Board of Education Capital Outlay, Refunding, Public Education,
22,475,000 Series 1992, 6.40%, 06/01/19 ................................................ 21,930,656
6,000,000 Series A, 6.00%, 06/01/25 ................................................... 5,420,580
Florida State Department of General Services, Division of Facilities
Management Revenue,
16,000,000 Florida Facilities Pooled, Pre-Refunded, 7.75%, 09/01/16 .................... 17,161,760
2,000,000 Florida Facilities Pooled, Pre-Refunded, 8.125%, 09/01/17 ................... 2,234,280
7,125,000 Florida State Department of Transportation, Turnpike Revenue, Series A,
Pre-Refunded, 7.75%, 07/01/09 .............................................. 7,931,479
20,500,000 Hillsborough County Capital Improvement Program, Water & Wastewater Facilities
Revenue, BMTF, Mode A, Sub-Series 2, Pre-Refunded, 8.30%, 08/01/16 ......... 21,802,570
4,245,000 Lakeland Retirement Community, 1st Mortgage Revenue, Carpenters Home
Estate Project, 9.50%, 09/01/06 ............................................ 4,261,471
6,500,000 Manatee County IDR, Manatee Hospital & Health Systems, Inc., 9.25%, 03/01/21 7,041,905
7,500,000 North Broward Hospital District Revenue, Pre-Refunded, 8.00%, 01/01/14 ...... 8,001,450
Orange County Health Facilities Authority Revenue,
4,810,000 Pooled Hospital Loan Program, Series B, BIG Insured, 7.875%, 12/01/25 ....... 4,883,785
5,970,000 Refunding, Pooled Hospital Loan Program, Series 1985-A, FGIC Insured,
7.875%, 12/01/25 ........................................................... 6,061,580
27,850,000 Orange County Tourist Development Tax Revenue, Series B, MBIA Insured,
6.00%, 10/01/24 ............................................................ 25,577,719
$16,000,000 St. Augustine Water & Sewer Utility Revenue, Refunding, 8.125%, 10/01/12 .... $ 16,932,640
2,500,000 Santa Rosa County Health Facilities Authority Revenue, Refunding, Gulf Breeze
Hospital, Inc., Pre-Refunded, 8.70%, 10/01/14 .............................. 2,828,925
Tampa Capital Improvement Program Revenue,
11,010,000 Series A, 8.25%, 10/01/18 ................................................... 11,620,725
30,250,000 Series B, 8.375%, 10/01/18 .................................................. 31,897,112
-------------
265,579,356
-------------
Georgia 4.9%
Burke County Development Authority, PCR, Georgia Power Co., Plant Vogle Project,
20,000,000 Series 1984, 6.35%, 05/01/19 ................................................ 18,397,400
105,000,000 Series 1984-1, MBIA Insured, 6.60%, 07/01/24 ................................ 102,194,400
8,025,000 dSeries 1984-7, MBIA Insured, 6.625%, 10/01/24 ............................. 7,785,935
4,300,000 Series 1985-1, FGIC Insured, 10.125%, 06/01/15 .............................. 4,506,400
5,015,000 Series 1985-2, 10.60%, 10/01/15 ............................................. 5,357,324
1,345,000 Series 1985-3, 10.50%, 11/01/15 ............................................. 1,441,531
14,500,000a,b,cDekalb County Residential Care Facilities for the Elderly Authority Revenue,
Refunding, King's Bridge Retirement Center, Inc., 8.75%, 01/01/17 .......... 4,350,000
Fulton County Development Authority, Special Facilities Revenue, Refunding,
3,400,000 Delta Air Lines, Inc. Project, 6.85%, 11/01/07 .............................. 3,175,872
5,500,000 Delta Air Lines, Inc. Project, 6.95%, 11/01/12 .............................. 5,071,770
Georgia Municipal Electric Authority Power Revenue,
19,200,000 Series A, Pre-Refunded, 7.875%, 01/01/18 .................................... 20,270,208
14,000,000 Series B, 6.375%, 01/01/16 .................................................. 13,142,500
6,325,000 Series EE, 6.40%, 01/01/23 .................................................. 5,933,799
26,000,000 Series EE, AMBAC Insured, 6.65%, 01/01/21 ................................... 25,123,280
50,000,000 Series L, Pre-Refunded, 7.75%, 01/01/18 ..................................... 53,770,500
18,500,000 Georgia Municipal Electric Authority, Special Obligation, Refunding, Second
Crossover Series, 8.125%, 01/01/17 ......................................... 20,253,060
5,505,000 Georgia State HFAR, Homeownership Opportunity Program, Series C,
6.60%, 12/01/23 ............................................................ 5,278,634
Monroe County Development Authority, PCR, Georgia Power Co.,
16,000,000 Plant Scherer Project, 8.375%, 07/01/17 ..................................... 17,102,400
4,950,000 Plant Scherer Project, Series 1, 10.50%, 09/01/15 ........................... 5,255,019
10,000,000 Putnam County Development Authority, PCR, Refunding, Georgia Power Co.,
Plant Branch Project, 8.375%, 07/01/17 ..................................... 10,746,200
-------------
329,156,232
-------------
Hawaii .7%
Hawaii State Airports System Revenue,
$12,000,000 2nd Series, 7.00%, 07/01/07 ................................................. $ 12,511,560
500,000 2nd Series, 6.90%, 07/01/12 ................................................. 498,420
2,830,000 2nd Series, 7.00%, 07/01/18 ................................................. 2,803,822
1,000,000 FGIC Insured, 7.00%, 07/01/20 ............................................... 1,019,990
Hawaii State Department of Budget & Finance, Special Purposes Mortgage Revenue,
200,000 Hawaii Electric Light Co. Project, 7.20%, 12/01/14 .......................... 203,604
1,000,000 Hawaii Electric Light Co. Project, Series A, 7.35%, 01/01/20 ................ 1,032,070
900,000 Kaiser Hospital, 6.25%, 03/01/21 ............................................ 835,479
1,000,000 Wahiawa General Hospital Project, 7.50%, 07/01/12 ........................... 1,022,560
4,900,000 Hawaii State GO, Series B-W, 6.375%, 03/01/11 ............................... 4,896,962
Hawaii State HFC, SFMR,
230,000 Series A, 7.00%, 07/01/11 ................................................... 229,232
3,350,000 Series A, 7.10%, 07/01/24 ................................................... 3,336,801
2,000,000 Series B, 5.70%, 07/01/13 ................................................... 1,778,880
360,000 Series B, 6.90%, 07/01/16 ................................................... 358,553
3,500,000 Series B, 5.85%, 07/01/17 ................................................... 3,118,185
11,880,000 Series B, 7.00%, 07/01/31 ................................................... 11,827,134
Honolulu City & County GO,
415,000 Series A, 6.30%, 03/01/08 ................................................... 413,473
1,000,000 Series A, 6.30%, 03/01/12 ................................................... 980,290
500,000 Series B, 5.50%, 10/01/11 ................................................... 451,985
-------------
47,319,000
-------------
Idaho .1%
2,260,000 Idaho Housing Agency, Refunding, Series D-1, 6.45%, 07/01/19 ................ 2,142,570
Idaho Housing Agency, SFMR,
1,395,000 Senior Bond, Series B-1, FGIC Insured, 7.85%, 07/01/09 ...................... 1,420,710
2,195,000 Senior Bond, Series B-1, FGIC Insured, 7.90%, 01/01/21 ...................... 2,241,117
-------------
5,804,397
-------------
Illinois 4.6%
Bryant PCR, Refunding, Central Illinois Light Co. Project,
7,200,000 Series A, 6.50%, 02/01/18 ................................................... 6,883,920
5,000,000 Series C, 6.50%, 01/01/10 ................................................... 4,891,200
23,100,000 Chicago COP, AMBAC Insured, 7.75%, 07/15/11 ................................. 23,926,749
2,240,000 Chicago Metropolitan HDC, Housing Development Mortgage Revenue, Refunding,
Series B, MBIA Insured, 5.80%, 01/01/25 .................................... 1,954,221
Chicago-O'Hare International Airport Revenue,
$ 4,300,000 Special Facility, United Airlines, Inc., 8.45%, 05/01/07 .................... $ 4,532,286
12,305,000 Special Facility, United Airlines, Inc., 8.50%, 05/01/18 .................... 12,991,250
485,000 Special Facility, United Airlines, Inc., Series A, 8.40%, 05/01/18 .......... 509,342
29,825,000 Special Facility, United Airlines, Inc., Series C, 8.20%, 05/01/18 .......... 31,035,895
5,000,000 Chicago School Finance Authority, GO, Refunding, Pre-Refunded, 7.75%, 06/01/09 5,186,000
Illinois Development Finance Authority, PCR,
2,400,000 Commonwealth Edison Co. Project, Series 1985-A, 10.625%, 03/01/15 ........... 2,489,784
7,500,000 Commonwealth Edison Co. Project, Series 1991, 7.25%, 06/01/11 ............... 7,642,875
15,200,000 Refunding, Central Illinois Public Services Co., Series A, 6.375%, 01/01/28 . 13,979,744
25,960,000 Refunding, Illinois Power Co. Project, Series A, 7.375%, 07/01/21 ........... 26,823,170
6,000,000 Illinois Development Financial Authority Revenue, Refunding, Marriott Retirement,
Series A, 7.75%, 08/01/10 .................................................. 6,143,880
6,000,000 Illinois Educational Facilities Authority Revenue, Shedd Aquarium Society,
Series 1987-A, 8.625%, 07/01/17 ............................................ 6,479,340
Illinois HDA,
7,650,000 Homeowner HMR, Series A, 6.45%, 08/01/17 .................................... 7,265,128
7,525,000 RMR, Series B, 7.25%, 08/01/17 .............................................. 7,533,353
Illinois HDA, MF Program,
12,915,000 Refunding, Series A, 7.10%, 07/01/26 ........................................ 12,768,802
12,000,000 Series 1, 6.625%, 09/01/12 .................................................. 11,783,400
7,550,000 Series 1, 6.75%, 09/01/21 ................................................... 7,321,914
2,265,000 Series C, 7.35%, 07/01/11 ................................................... 2,303,754
2,000,000 Illinois Health Facilities Authority Revenue, Edwards Hospital Project,
7.00%, 02/15/22 ............................................................ 1,992,460
Illinois Health Facilities Authority Revenue, Refunding,
3,650,000 Galesburg Cottage Hospital, Pre-Refunded, 9.625%, 05/01/11 .................. 4,101,432
9,345,000 Grant Hospital of Chicago, Series 1986, Pre-Refunded, 7.50%, 06/01/13 ....... 9,995,225
1,000,000 Servantcor, Series A, Pre-Refunded, 7.875%, 08/15/19 ........................ 1,116,040
3,000,000 Servantcor, Series B, Pre-Refunded, 7.875%, 08/15/19 ........................ 3,348,120
6,200,000 Westlake Community Hospital, 7.875%, 01/01/13 ............................... 6,397,904
7,000,000 Illinois Health Facilities Authority Revenue, Refunding, South Surburban Hospital,
7.00%, 02/15/18 ............................................................ 6,872,880
2,600,000 Illinois State COP, CGIC Insured, 6.875%, 07/01/07 .......................... 2,724,930
3,825,000 Lombard, Village of, Revenue, Refunding, Beacon Hill Project, 9.00%, 02/15/08 3,865,660
Metropolitan Pier & Exposition Authority, State Tax Revenue,
8,260,000 Expansion, Project A, 6.50%, 06/15/22 ....................................... 7,757,462
27,615,000 Expansion, Project A, 6.50%, 06/15/27 ....................................... 25,518,469
4,350,000 Onterie Center HFC, Mortgage Revenue, Refunding, Series 1989-A, MBIA Insured,
7.05%, 07/01/27 ............................................................ 4,353,176
Southwestern Illinois Development Authority,
$ 6,200,000 Anderson Hospital Project, Series A, 7.00%, 08/15/22 ........................ $ 5,724,336
3,030,000 Private Activity Revenue, Glenmark Recovery, 8.50%, 08/01/10 ................ 3,281,914
Southwestern Illinois Development Authority, (cont.)
5,500,000 Solid Waste Disposal Revenue, LaCede Steel Co., 8.375%, 08/01/08 ............ 5,875,870
5,390,000 Solid Waste Disposal Revenue, LaCede Steel Co., 8.50%, 08/01/20 ............. 5,794,789
-------------
303,166,674
-------------
Indiana 1.4%
Frankfort Middle School Building Corp.,
605,000 First Mortgage Revenue, Pre-Refunded, 8.00%, 01/01/07 ....................... 647,187
660,000 First Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/08 ....................... 707,058
720,000 First Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/09 ....................... 771,336
785,000 First Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/10 ....................... 840,971
860,000 First Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/11 ....................... 921,318
935,000 First Mortgage Revenue, Pre-Refunded, 8.10%, 01/01/12 ....................... 1,001,665
2,355,000 Hammond PCR, Stauffer Chemical Project, Guaranteed by Imperial Chemical,
Plc., Series 1982, 8.00%, 11/01/12 ......................................... 2,611,106
Indiana Bond Bank, Special Program,
6,000,000 Series 1986-A, 7.75%, 08/01/09 .............................................. 6,249,060
1,155,000 Series 1988-A, Pre-Refunded, 8.375%, 02/01/18 ............................... 1,253,441
3,500,000 Indiana Health Facility Financing Authority, Hospital Revenue, Hancock Memorial
Hospital Project, Series 1990, 8.30%, 08/15/20 ............................. 3,716,930
5,000,000 Indiana Municipal Power Agency, Supply System Revenue, Series A,
MBIA Insured, 6.125%, 01/01/19 ............................................. 4,596,300
3,240,000 Indiana State Educational Facilities Authority Revenue, Manchester College
Project, 6.85%, 10/01/18 ................................................... 3,048,160
Indiana State Housing Financing Authority, SFMR,
3,805,000 Refunding, Series A, 6.75%, 01/01/10 ........................................ 3,662,008
16,570,000 Refunding, Series A, 6.80%, 01/01/17 ........................................ 15,825,344
Indianapolis Local Public Improvement,
4,625,000 Refunding, Series D, 6.50%, 02/01/22 ........................................ 4,291,954
6,000,000 Series A, 6.00%, 01/10/18 ................................................... 5,449,740
13,075,000 Series D, 6.75%, 02/01/20 ................................................... 12,539,317
Indianapolis Resource Recovery Revenue, Ogden Martin System, Inc.,
5,550,000 Series A, 7.90%, 12/01/08 ................................................... 5,817,011
1,505,000 Series B, 7.90%, 12/01/08 ................................................... 1,577,406
3,650,000 Lawrenceburg PCR, Refunding, Michigan Power Co. Project, Series E,
5.90%, 11/01/19 ............................................................ 3,055,744
$ 4,000,000 Merrillville, Multi School Building Corp., First Mortgage, Pre-Refunded,
7.50%, 07/15/09 ............................................................ $ 4,444,560
2,000,000 Muncies Edit Building Corp., First Mortgage, Series A, AMBAC Insured,
6.60%, 12/01/17 ............................................................ 1,940,060
10,000,000 Petersburg PCR, Refunding, Indianapolis Power & Light Co., Series A,
6.10%, 01/01/16 ............................................................ 9,136,300
-------------
94,103,976
-------------
Iowa
2,500,000 Carroll Retirement Facility Revenue, Orchard View, Inc. Project, Pre-Refunded,
8.250%, 02/01/13 ........................................................... 2,758,400
-------------
Kansas .4%
Merriam Hospital Revenue,
5,815,000 Shawnee Medical Center, Inc. Project A, 7.25%, 09/01/11 ..................... 5,870,533
15,215,000 Shawnee Medical Center, Inc. Project A, 7.25%, 09/01/21 ..................... 15,242,083
1,560,000 Shawnee Medical Center, Inc. Project B, 7.25%, 09/01/11 ..................... 1,567,816
3,580,000 Shawnee Medical Center, Inc. Project B, 7.25%, 09/01/21 ..................... 3,586,372
3,000,000 Olathe Hospital Revenue, Olathe Hospital Foundation, Inc. Project, Pre-Refunded,
10.25%, 08/01/16 ........................................................... 3,187,530
-------------
29,454,334
-------------
Kentucky 1.6%
3,900,000 Ashland PCR, Refunding, Ashland Oil, Inc. Project, 6.65%, 08/01/09 .......... 3,792,594
8,405,000 Christian County Hospital Revenue, Refunding, Jennie Stuart Medical Center
Project, 7.625%, 04/01/10 .................................................. 8,562,005
Kenton County Airport Board, Airport Revenue, Special Facilities,
20,000,000 Delta Air Lines, Inc., 7.80%, 12/01/15 ...................................... 20,041,000
10,000,000 Delta Air Lines, Inc., Project A, 7.50%, 02/01/20 ........................... 9,377,500
9,330,000 Delta Air Lines, Inc., Project A, 7.125%, 02/01/21 .......................... 8,438,239
3,350,000 Delta Air Lines, Inc., Project B, 7.25%, 02/01/22 ........................... 3,089,705
Kentucky Housing Corp., Housing Revenue,
2,160,000 Series A, 6.70%, 07/01/17 ................................................... 2,093,774
4,910,000 Series B, 6.625%, 07/01/14 .................................................. 4,755,040
700,000 Kentucky State Development Financial Authority, Hospital Revenue, Claire Medical
Center Project, Pre-Refunded, 7.125%, 09/01/21 ............................. 761,012
4,500,000 Kentucky State Property & Buildings Commission Revenue, Project No. 48,
Pre-Refunded, 8.00%, 08/01/08 .............................................. 4,991,445
$20,375,000 Mount Sterling Lease Revenue, Kentucky League Cities, Series A, 6.10%, 03/01/08 19,323,650
21,160,000 Pendleton County, Multi-County Lease Revenue, Kentucky Association Counties
Leasing Trust, Series A, 6.50%, 03/01/19 ................................... 19,422,976
-------------
104,648,940
-------------
Louisiana 1.2%
2,000,000 Bastrop PCR, Refunding, International Paper Co. Project, 6.90%, 03/01/07 .... 2,034,040
Calcasieu Parish, Memorial Hospital Service District Revenue,
4,310,000 Lake Charles Parish Memorial Hospital Project, Series A, CGIC Insured,
6.375%, 12/01/12 ........................................................... 4,151,133
5,530,000 Lake Charles Parish Memorial Hospital Project, Series A, CGIC Insured,
6.50%, 12/01/18 ............................................................ 5,302,938
3,145,000 Lake Charles Parish Memorial Hospital Project, Series A, CGIC Insured,
6.65%, 12/01/21 ............................................................ 3,067,790
Calcasieu Parish, Public Transportation Authority Mortgage Revenue, Refunding,
5,245,000 Series 1991-A, 7.75%, 06/01/12 .............................................. 5,359,813
760,000 Series 1992-B, 6.375%, 11/01/02 ............................................. 745,408
885,000 Series 1992-B, 6.875%, 11/01/12 ............................................. 861,786
East Baton Rouge Mortgage Financing Authority, SFM,
10,800,000 MBS, Series A, 6.80%, 10/01/28 .............................................. 10,073,376
4,145,000 Series C, 7.00%, 04/01/32 ................................................... 4,102,306
6,210,000 Series D, 7.10%, 04/01/32 ................................................... 6,114,987
2,839,965 Lafayette Public Trust Finance Authority, SFMR, Refunding, Series 1990-A,
8.50%, 11/15/12 ............................................................ 3,026,352
3,400,000 Louisiana Office Facility Corp., Capital Facility Bonds Statewide Lease,
7.75%, 12/01/10 ............................................................ 3,586,796
3,500,000 Louisiana Public Facilities Authority Revenue, Refunding, Series B, Alton Ochsner
Medical Foundation Project, MBIA Insured, 6.50%, 05/15/22 .................. 3,378,445
8,500,000 Louisiana Stadium & Exposition, Hotel Occupancy Tax & Stadium Revenue,
Refunding, Series A, 6.00%, 07/01/24 ....................................... 7,757,100
Louisiana State GO,
8,050,000 Series A, AMBAC Insured, 6.10%, 05/01/10 .................................... 7,715,764
3,530,000 Series A, AMBAC Insured, 6.10%, 05/01/11 .................................... 3,360,984
4,000,000 Quachita Parish, Hospital Service District No. 1 Revenue, Glenwood Regional
Medical Center, 7.50%, 07/01/21 ............................................ 4,109,320
1,900,000 St. James' Parish, COP, Pre-Refunded, 7.50%, 07/01/10 ....................... 1,981,795
-------------
76,730,133
-------------
Maine 1.0%
$26,800,000 Financial Authority Solid Waste Recycling Facilities Revenue, Great Northern
Paper Co., Bowater Project, 7.75%, 10/01/22 ................................ $ 27,598,640
1,000,000 Maine State Health and Higher Education Facilities Authority Revenue, Refunding,
Series D, FSA Insured, 6.00%, 07/01/24 ..................................... 880,100
Maine State Housing Authority, Mortgage Purchase,
3,850,000 Series A-5, 6.20%, 11/15/16 ................................................. 3,514,627
3,700,000 Series C, 6.55%, 11/15/12 ................................................... 3,496,574
Maine State Housing Authority, Mortgage Purchase, (cont.)
3,500,000 Series C, 6.65%, 11/15/24 ................................................... 3,317,790
3,540,000 Series D, 6.45%, 11/15/07 ................................................... 3,371,248
5,800,000 Series D, 6.70%, 11/15/15 ................................................... 5,554,544
30,000 Series D-1, 8.30%, 11/15/22 ................................................. 30,000
4,500,000 Skowhegan, PCR, Refunding, Scott Paper Co. Project, Series B, 8.10%, 10/01/15 4,831,515
10,000,000 Skowhegan, Solid Waste Disposal Revenue, S.D. Warren Co. Project, Series A,
8.40%, 10/01/15 ............................................................ 10,754,100
-------------
63,349,138
-------------
Maryland 1.8%
43,225,000 Gaithersburg Hospital Facilities Improvement Revenue, Shady Grove Hospital,
Series A, 8.25%, 09/01/21 .................................................. 45,509,009
Maryland State Community Development Administration, Department of Housing
& Community Development,
5,910,000 MFHR, Insured Mortgage, Series G, 6.55%, 05/15/19 ........................... 5,600,198
1,000,000 SF, 7.25%, 04/01/27 ......................................................... 1,023,850
4,900,000 Maryland State Health & Higher Educational Facilities Authority Revenue, Hartford
Memorial Hospital & Fallston General Hospital, 8.50%, 07/01/14 ............. 5,165,629
6,500,000 Montgomery County, Housing Opportunity Community, SFMR, Refunding,
Series B, 6.625%, 07/01/28 ................................................. 6,082,375
1,500,000 Northeast Waste Disposal Authority, Hardford County Resource Recovery,
Series A, 8.60%, 01/01/08 .................................................. 1,544,460
Tokoma Park Hospital Facilities Revenue, Refunding,
31,055,000 Washington Adventist, Series A, 8.25%, 09/01/21 ............................. 33,172,019
23,210,000 Washington Adventist, Series A, Sub-Series 2, 8.25%, 09/01/21 ............... 24,792,226
-------------
122,889,766
-------------
Massachusetts 4.7%
10,900,000 Agawam Resource Recovery Revenue, Springfield Resource Recovery Project,
Series 1986, 8.50%, 12/01/08 ............................................... 11,561,630
5,750,000 Boston Revenue, Refunding, City Hospital, Series B, 5.75%, 02/15/23 ......... 4,931,717
Massachusetts (cont.)
$ 3,915,000 Lowell GO, Pre-Refunded, 7.625%, 02/15/10 ................................... $ 4,412,009
2,310,000 Massachusetts Health & Educational Facilities Authority Revenue, Notre Dame
Health Care Center, Series A, 7.875%, 10/01/22 ............................. 2,380,340
Massachusetts State Bay Transportation Authority,
6,750,000 General Transportation System, Series A, Pre-Refunded, 7.625%, 03/01/15 ..... 7,520,378
12,500,000 General Transportation System, Series B, Pre-Refunded, 7.80%, 03/01/10 ...... 14,156,750
37,585,000 General Transportation System, Series B, Pre-Refunded, 7.875%, 03/01/21 ..... 42,714,977
Massachusetts State Consolidated Loan,
7,500,000 Series A, 7.50%, 06/01/04 ................................................... 8,297,925
5,000,000 Series D, 7.00%, 07/01/07 ................................................... 5,308,800
21,720,000 Massachusetts State Dedicated Income Tax, Fiscal Recovery Loan, Series A,
7.875%, 06/01/97 ........................................................... 23,156,995
5,900,000 Massachusetts State GO, Refunding, Series B, 6.50%, 08/01/08 ................ 5,990,329
Massachusetts State Health and Educational Facilities Authority Revenue,
9,020,000 Framingham Union Hospital, Series B, Pre-Refunded, 8.50%, 07/01/20 .......... 10,436,320
1,100,000 Melrose-Wakefield Hospital, Series B, Refunding, 6.35%, 07/01/06 ............ 1,069,937
4,680,000 St. Elizabeth's Hospital of Boston, Series B, FHA Mortgage Insured,
FGIC Insured, Pre-Refunded, 7.75%, 08/01/27 ................................ 5,086,224
1,000,000 Sisters Providence Health System, Series A, 6.50%, 11/15/08 ................. 947,230
12,050,000 Sisters Providence Health System, Series A, 6.625%, 11/15/22 ................ 10,939,231
5,250,000 Massachusetts State HFA, Housing Development, Series D, FGIC Insured,
6.875%, 11/15/21 ........................................................... 5,251,680
Massachusetts State HFA, Housing Projects, Refunding,
25,635,000 Series A, 6.30%, 10/01/13 ................................................... 24,124,842
16,850,000 Series A, 6.375%, 04/01/21 .................................................. 15,664,771
2,410,000 Massachusetts State HFAR, SFMR, Series G, 8.10%, 12/01/14 ................... 2,508,955
Massachusetts State Housing Facilities Authority,
250,000 Series C, FGIC Insured, 6.875%, 11/15/11 .................................... 253,563
9,715,000 Series C, FGIC Insured, 6.90%, 11/15/21 ..................................... 9,734,819
250,000 Series D, FGIC Insured, 6.80%, 11/15/12 ..................................... 251,383
6,000,000 Massachusetts State Industrial Finance Agency, 1st Mortgage Revenue,
Brookhaven at Lexington Retirement Project, Pre-Refunded, 10.25%, 01/01/18 . 6,991,620
Massachusetts State Water Resource Authority,
5,950,000 Series A, 6.00%, 04/01/20 ................................................... 5,253,910
5,000,000 Series A, Pre-Refunded, 7.50%, 04/01/09 ..................................... 5,548,350
13,095,000 Series A, Pre-Refunded, 7.625%, 04/01/14 .................................... 14,606,687
4,750,000 Series A, Pre-Refunded, 7.50%, 04/01/16 ..................................... 5,270,933
36,710,000 Series A, Pre-Refunded, 7.00%, 04/01/18 ..................................... 39,887,251
Plymouth County COP,
$10,000,000 Series A, 7.00%, 04/01/12 ................................................... $ 10,163,000
5,000,000 Series A, 7.00%, 04/01/22 ................................................... 5,045,650
-------------
309,468,206
-------------
Michigan 1.7%
2,445,000 Climax-Scotts, Community Schools, 6.35%, 05/01/23 ........................... 2,286,906
4,960,000 Detroit GO, Unlimited Tax, Series A, 7.875%, 04/01/08 ....................... 5,204,082
Greater Detroit Resource Recovery Authority Revenue,
13,205,000 Series A, 9.25%, 12/13/08 ................................................... 13,917,410
5,000,000 Series B, 9.25%, 12/13/08 ................................................... 5,269,750
22,250,000 Series C, 9.25%, 12/13/08 ................................................... 23,450,387
4,590,000 Series E, 9.25%, 12/13/08 ................................................... 4,837,630
1,055,000 Series G, 8.25%, 12/13/96 ................................................... 1,084,350
7,200,000 Series G, 9.25%, 12/13/08 ................................................... 7,588,440
5,980,000 Series H, 9.25%, 12/13/08 ................................................... 6,302,621
Michigan State HDA,
2,500,000 Limited Obligation Revenue, Fraser Woods Project, FSA Insured,
6.625%, 09/15/19 ........................................................... 2,387,150
5,000,000 Rental Housing Revenue, Refunding, Series A, 6.60%, 04/01/12 ................ 4,893,450
Michigan State HFA, SFMR,
2,000,000 Series A, 6.45%, 12/01/14 ................................................... 1,911,220
3,055,000 Series A, 6.875%, 06/01/23 .................................................. 3,022,739
Michigan State Hospital Finance Authority Revenue,
8,450,000 McLaren Obligated Group, Series A, Pre-Refunded, 7.50%, 09/15/21 ............ 9,494,251
10,000,000 Sisters of Mercy Hospital, Series 1991, Pre-Refunded, 7.375%, 02/15/11 ...... 11,068,100
9,420,000 Monroe County PCR, Detroit Edison Co. Project, Series 1985-A, 10.50%, 12/01/16 10,174,636
-------------
112,893,122
-------------
Minnesota 3.2%
Bloomington Port Authority, Tax Increment Revenue,
795,000 Stadium Site Redevelopment Project, ETM 02/01/96, 8.00%, 02/01/96 ........... 827,444
1,020,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/97 ........... 1,083,566
1,255,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/98 ........... 1,333,212
1,515,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/99 ........... 1,609,415
1,800,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/00 ........... 1,912,176
2,115,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.25%, 02/01/01 ........... 2,246,807
41,800,000 Stadium Site Redevelopment Project, Pre-Refunded, 8.55%, 02/01/09 ........... 44,553,366
Dakota County Housing, RDA, Limited Annual Appropriation Tax & Revenue,
$ 485,000 Development Housing Facilities Project, 7.00%, 01/01/96 ..................... $ 487,905
515,000 Development Housing Facilities Project, 7.25%, 01/01/97 ..................... 521,134
555,000 Development Housing Facilities Project, 7.25%, 01/01/98 ..................... 562,060
600,000 Development Housing Facilities Project, 7.25%, 01/01/99 ..................... 606,528
645,000 Development Housing Facilities Project, 7.25%, 01/01/00 ..................... 650,676
695,000 Development Housing Facilities Project, 7.25%, 01/01/01 ..................... 698,656
3,930,000 Development Housing Facilities Project, 7.50%, 01/01/06 ..................... 3,943,637
2,705,000 Development Housing Facilities Project, 8.00%, 01/01/07 ..................... 2,778,251
7,715,000 Dakota County Housing, RDA, MFHR, Walnut Trails Project, 9.00%, 12/01/11 .... 7,828,796
6,845,000 Duluth Commercial Development Revenue, Duluth Radisson Hotel Project,
10.75%, 12/01/14 ........................................................... 7,143,921
5,970,000 Minneapolis CDA, Commercial Development Revenue, WNB & Co. Project,
8.50%, 12/01/15 ............................................................ 5,972,866
Minneapolis CDA, Commercial Supported Development Revenue, Refunding,
2,500,000 Limited Tax, Series 1987-3, 8.625%, 12/01/27 ................................ 2,618,250
1,000,000 Series 1987-1, 8.625%, 12/01/12 ............................................. 1,047,300
Minneapolis CDA & St. Paul Housing RDA,
5,000 Homeownership Mortgage Revenue, Joint Housing Program, FGIC Insured,
9.875%, 12/01/15 ........................................................... 4,971
8,189,000 Homeownership Mortgage Revenue, Joint Housing Program, Phase II,
FGIC Insured, 7.875%, 07/01/17 ............................................. 8,404,534
Minnesota State HFA, SFM,
1,500,000 Refunding, Series B, 6.25%, 08/01/22 ........................................ 1,386,960
3,865,000 Series D-1, 6.45%, 07/01/11 ................................................. 3,779,815
1,540,000 Series D-1, 6.50%, 01/01/17 ................................................. 1,502,794
6,500,000 dSeries D-1, 6.80%, 07/01/25 ............................................... 6,296,225
2,300,000 Series F, 6.30%, 07/01/25 ................................................... 2,141,254
11,500,000 Minnetonka MFR, Rental Housing, Ridgepointe Housing Project, Phase II,
Mandatory Put 10/01/96, 8.00%, 05/15/22 .................................... 11,140,280
1,500,000 Red Wing Housing, RDA, Jordan Tower II Project, 7.00%, 01/01/19 ............. 1,504,815
14,275,000 Roseville MFR, Rental Housing, Rosepointe No. 1 Project, Mandatory Put
10/01/96, 8.00%, 10/01/18 .................................................. 14,692,258
6,000,000 St. Louis Park EDA, Tax Increment Revenue, Refunding, FGIC Insured,
Pre-Refunded, 8.40%, 09/01/09 .............................................. 7,011,540
St. Paul Port Authority,
4,315,000 Energy Park, Tax Increment Revenue, Refunding, Pre-Refunded,
8.00%, 12/01/07 ............................................................ 4,809,067
535,000 Housing & Redevelopment, MFR Rental Housing, Series B, 7.00%, 09/01/97 ...... 529,564
980,000 Housing & Redevelopment, MFR Rental Housing, Series B, 7.25%, 09/01/01 ...... 946,749
$14,835,000 Housing & Redevelopment, MFR Rental Housing, Series B, 7.50%, 09/01/22 ...... $ 12,991,306
2,445,000 IDR, Bandana Square, Series 1989-C, 7.70%, 12/01/07 ......................... 2,041,575
3,465,000 IDR, Bandana Square, Series 1989-C, 7.80%, 12/01/12 ......................... 2,836,969
385,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/96 .................... 376,688
415,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/97 .................... 401,907
445,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/98 .................... 426,889
480,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/99 .................... 456,437
515,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/00 .................... 485,748
550,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/01 .................... 514,872
595,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/02 .................... 553,130
640,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/03 .................... 591,149
685,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/04 .................... 628,967
740,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/05 .................... 675,753
795,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/06 .................... 722,313
855,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/07 .................... 773,211
915,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/08 .................... 823,912
670,000 IDR, Brown & Bigelow Co., Series 1979-2, 7.50%, 10/01/09 .................... 600,916
2,010,000 IDR, Refunding, Common Bond Fund, 8.00%, 12/01/12 ........................... 1,688,400
2,000,000 IDR, Series 1990-C, 7.95%, 09/01/10 ......................................... 1,680,000
9,750,000 Southern Minnesota Municipal Power Agency, Supply System Revenue, Series A,
Pre-Refunded, 8.125%, 01/01/18 ............................................. 10,754,640
Washington County Housing RDA,
3,000,000 Housing Development Revenue, Orleans Apartments, Project A,
8.25%, 07/01/21 ............................................................ 2,943,420
5,210,000 Housing Development Revenue, Raymie Johnson Apartments, 7.70%, 12/01/19...... 5,192,338
10,000,000 Pooled Housing & Redevelopment, 7.20%, 01/01/22 ............................. 9,998,600
-------------
210,735,932
-------------
Mississippi .1%
Medical Center Education Building Corp., University Revenue,
1,330,000 Medical Center Project, 5.65%, 12/01/09 ..................................... 1,182,530
1,000,000 Medical Center Project, 5.80%, 12/01/14 ..................................... 846,910
5,000,000 Medical Center Project, 5.90%, 12/01/23 ..................................... 4,129,150
2,790,000 Mississippi Home Corp., SFR, Refunding, Senior Series A, FGIC Insured,
9.250%, 03/01/12 ........................................................... 2,923,892
-------------
9,082,482
-------------
Missouri 1.2%
$10,000,000 Kansas City School District Building Corp., Leasehold Revenue, Capital
Improvement Project, Series A, FGIC Insured, Pre-Refunded, 7.90%, 02/01/08 . $ 10,993,700
1,695,000 Marion County Nursing Home District Revenue, Refunding, Pre-Refunded,
9.00%, 08/01/03 ............................................................ 1,844,940
Missouri State Health & Educational Facilities Authority Revenue,
5,000,000 Series B, MBIA Insured, 6.25%, 02/15/12 ..................................... 4,835,550
3,750,000 Sisters of St. Mary's Health Care Project, BIG Insured, Pre-Refunded,
7.75%, 06/01/16 ............................................................ 4,126,350
Moberly IDA, Hospital Revenue, Refunding,
5,090,000 Moberly Regional Medical Center, Inc. Project, 8.625%, 03/01/02 ............. 5,565,559
10,460,000 Moberly Regional Medical Center, Inc. Project, 8.75%, 03/01/16 .............. 11,591,458
5,310,000 Newton County IDA, Hospital Revenue, Refunding, Sale Hospital, Inc. Project,
Pre-Refunded, 9.00%, 01/01/05 .............................................. 5,840,469
16,250,000 St. Louis County IDA, Health Facilities Revenue, Refunding & Improvement,
1st Mortgage, Normandy Osteopathic Hospitals Project, 9.125%, 08/01/13 ..... 17,076,312
5,425,000 St. Louis County, Regional Convention & Sports Complex Authority, Series B,
Pre-Refunded, 7.00%, 05/15/21 .............................................. 5,886,396
6,000,000 St. Louis Parking Facilities Revenue, 6.625%, 12/15/21 ...................... 5,651,700
3,600,000 West Plains, IDA Hospital Revenue, Ozarks Medical Center Project, Series A,
8.625%, 09/15/20 ........................................................... 3,872,520
-------------
77,284,954
-------------
Montana .3%
Forsyth County, PCR, Puget Sound Power & Light Co. Project,
10,000,000 AMBAC Insured, 6.80%, 03/01/22 .............................................. 9,925,000
3,750,000 MBIA Insured, 5.875%, 04/01/20 .............................................. 3,328,800
5,000,000 Forsyth PCR, Refunding, The Montana Power Co., Colstrip Project, Series A,
6.125%, 05/01/23 ........................................................... 4,374,550
2,835,000 Montana State Board Housing, Refunding, SF Program, Series A, 6.50%, 12/01/22 2,648,542
3,000,000 Montana State Health Facilities Authority Revenue, Montana Developmental Center
Project, 6.40%, 06/01/16 ................................................... 2,810,040
-------------
23,086,932
-------------
Nebraska .1%
6,850,000 Nebraska Investment Financial Authority, 7.00%, 11/01/09 .................... 7,086,599
-------------
Nevada 2.9%
Churchill County Health Care Facilities Revenue, Western Health Network,
2,000,000 Series A, MBIA Insured, 6.25%, 01/01/14 ..................................... 1,874,840
2,500,000 Series A, MBIA Insured, 6.00%, 01/01/24 ..................................... 2,207,450
17,500,000 Clark County Airport System Improvement Revenue, 8.25%, 07/01/15 ............ 18,679,150
$ 5,135,000 Clark County HFC, MFHR, FHA Insured, 7.75%, 07/01/23 ........................ $ 5,196,004
Clark County IDR,
12,500,000 Refunding, Nevada Power Co. Project, Series C, 7.20%, 10/01/22 .............. 12,321,250
18,080,000 Southwest Gas Corp., Series A, 7.30%, 09/01/27 .............................. 17,509,757
58,120,000 Southwest Gas Corp., Series B, 7.50%, 09/01/32 .............................. 56,617,598
8,210,000 Nevada Housing Division, Refunding, Issue C-2, 6.75%, 10/01/26 .............. 7,740,060
Nevada Housing Division, SF Program,
4,020,000 Issue 1988-A, FI/GML, 8.30%, 10/01/19 ....................................... 4,087,616
3,785,000 Issue 1988 A-2, FI/GML, 8.375%, 10/01/19 .................................... 3,814,145
2,350,000 Refunding, Program A-1, 6.10%, 10/01/14 ..................................... 2,143,247
3,900,000 Refunding, Program A-1, 6.25%, 10/01/26 ..................................... 3,519,204
10,275,000 Nevada State Municipal Bond Bank, Project No. 40-41-A, ETM 02/01/10,
6.375%, 12/01/17 ........................................................... 10,243,559
11,150,000 Reno Hospital Revenue, Refunding, St. Mary's Regional Medical Center, Series A,
MBIA Insured, 5.80%, 05/15/13 .............................................. 10,039,349
Reno RDA, Tax Allocation, Downtown Redevelopment Project,
785,000 Series A, Pre-Refunded, 10.65%, 09/01/01 .................................... 843,765
865,000 Series A, Pre-Refunded, 10.65%, 09/01/02 .................................... 929,754
950,000 Series A, Pre-Refunded, 10.65%, 09/01/03 .................................... 1,021,117
1,045,000 Series A, Pre-Refunded, 10.65%, 09/01/04 .................................... 1,123,229
1,150,000 Series A, Pre-Refunded, 10.65%, 09/01/05 .................................... 1,236,089
2,695,000 Series C, 7.75%, 09/01/05 ................................................... 2,795,011
8,290,000 Series D, 7.625%, 09/01/16 .................................................. 8,418,578
4,565,000 Washoe County Airport Authority, Airport System Improvement Revenue,
Refunding, Series B, MBIA Insured, 5.875%, 07/01/11 ........................ 4,202,904
5,000,000 Washoe County Gas & Water Facilities Revenue, Refunding, Sierra Pacific,
AMBAC Insured, 6.30%, 12/01/14 ............................................. 4,733,350
Washoe County Hospital Facility Revenue, Washoe Medical Center, Inc. Project,
9,295,000 Series A, AMBAC Insured, 6.25%, 06/01/13 .................................... 8,750,499
5,250,000 Series A, Pre-Refunded, 7.50%, 06/01/16 ..................................... 5,570,985
-------------
195,618,510
-------------
New Hampshire 1.8%
New Hampshire Higher Education and Health Facilities Authority Revenue,
9,865,000 Kendal at Hanover Project, 8.00%, 10/01/19 .................................. 10,207,809
2,300,000 St. Joseph Hospital, 7.50%, 01/01/16 ........................................ 2,337,421
New Hampshire State HFA,
4,920,000 MFHR, Series 1, 7.10%, 01/01/14 ............................................. 4,928,758
4,735,000 SF Residential, Series A, 8.50%, 07/01/14 ................................... 4,955,982
5,000,000 SF Residential, Series B, 5.85%, 07/01/10 ................................... 4,532,850
New Hampshire (cont.)
New Hampshire State HFA, (cont.)
$ 7,070,000 SFMR, Series E, 6.75%, 07/01/19 ............................................. $ 6,681,221
5,295,000 SFMR, Series E, 6.80%, 07/01/25 ............................................. 4,984,184
New Hampshire State IDA,
12,480,000 PCR, New England Power Co., 7.80%, 04/01/16 ................................. 13,072,925
6,870,000 Pollution Control Public Service Co., Project A, 7.65%, 05/01/21 ............ 6,904,144
41,250,000 Pollution Control Public Service Co., Project B, 7.50%, 05/01/21 ............ 41,647,650
7,450,000 Pollution Control Public Service Co., Project C, 7.65%, 05/01/21 ............ 7,487,027
1,820,000 Resource Recovery Revenue, SES Concord Co. Project, 8.15%, 01/01/00 ......... 1,924,741
5,000,000 Resource Recovery Revenue, SES Concord Co. Project, 8.50%, 01/01/09 ......... 5,324,950
7,500,000 New Hampshire State Turnpike System Revenue, Refunding, 6.00%, 04/01/13 ..... 6,933,975
-------------
121,923,637
-------------
New Jersey .4%
1,300,000 Middlesex County Industrial, PCFA, PCR, Amerada-Hess Corp. Project,
Series 1984, 11.625%, 12/01/14 ............................................. 1,347,658
4,425,000 New Jersey EDA, 1st Mortgage Gross Revenue, Mega Care, Inc. Project,
Pre-Refunded, 8.625%, 08/01/07 ............................................. 4,903,210
3,700,000 New Jersey EDA, Natural Gas Facilities Revenue, New Jersey Natural Gas Co.
Project, 8.50%, 06/01/18 ................................................... 3,829,870
New Jersey Health Care Facilities, Financing Authority Revenue,
4,000,000 Cathedral Health Service, 7.25%, 02/15/21 ................................... 4,101,680
900,000 Community Memorial Hospital Association, Series C, 8.00%, 07/01/14 .......... 951,057
6,500,000 General Hospital Passaic, Series B, 10.375%, 07/01/14 ....................... 6,848,140
4,150,000 Zurbrugg Memorial Hospital Issue, Series C, 8.50%, 07/01/12 ................. 4,314,631
-------------
26,296,246
-------------
New Mexico 1.7%
5,000,000 Albuquerque Airport Revenue, Series A, Pre-Refunded, 9.25%, 07/01/19 ........ 5,582,550
10,435,000 Farmington PCR, Refunding, Public Service Co. of New Mexico, Series A,
AMBAC Insured, 6.375%, 12/15/22 ............................................ 9,869,006
17,000,000 Lordsburg PCR, Refunding, Phelps Dodge Corp. Project, 6.50%, 04/01/13 ....... 16,227,690
38,705,000 Los Alamos County, Inc., Utility System Revenue, Refunding, Series 1986-A,
7.75%, 01/01/15 ............................................................ 41,541,302
20,460,000 New Mexico State Mortgage Financial Authority, SFM, Refunding, Series A,
Pre-Refunded, 6.85%, 07/01/10 .............................................. 20,672,989
17,000,000 University of New Mexico, University Revenue, Series 1989, 7.90%, 06/01/19 .. 18,928,820
-------------
112,822,357
-------------
New York 11.1%
Metropolitan Transportation Authority Revenue,
$ 3,000,000 Refunding, Transit Facilities Obligation, 7.00%, 07/01/09 ................... $ 3,067,860
18,210,000 Refunding, Transportation Facilities, Series M, 6.00%, 07/01/14 ............. 16,459,109
12,750,000 Transportation Facilities, Service Contract Series 4, Pre-Refunded,
7.875%, 07/01/17 ........................................................... 14,409,158
1,245,000 New Rochelle IDA, Civic Facilities Revenue, College of New Rochelle Project,
6.625%, 07/01/12 ........................................................... 1,177,496
New York City GO,
2,300,000 Refunding, Series 1993-G, 5.70%, 08/01/08 ................................... 2,025,656
1,180,000 Series 1986-D, Pre-Refunded, 8.50%, 11/01/12 ................................ 1,305,635
95,000 Series 1986-D, Pre-Refunded, 8.50%, 08/01/16 ................................ 100,506
1,705,000 Series 1986-D, Pre-Refunded, 8.50%, 08/01/16 ................................ 1,844,981
3,355,000 Series 1987-A, Pre-Refunded, 8.50%, 11/01/13 ................................ 3,712,207
2,805,000 Series 1987-A, Pre-Refunded, 8.75%, 11/01/14 ................................ 3,122,835
2,040,000 Series 1987-D, Pre-Refunded, 8.50%, 08/01/09 ................................ 2,256,791
11,750,000 Series 1988-A, Pre-Refunded, 8.00%, 08/15/07 ................................ 12,577,435
7,870,000 Series 1988-A, Pre-Refunded, 8.00%, 08/15/08 ................................ 8,424,205
5,500,000 Series 1988-A, Pre-Refunded, 8.00%, 08/15/09 ................................ 5,887,310
6,500,000 Series 1988-A, Pre-Refunded, 8.00%, 08/15/10 ................................ 6,957,730
6,500,000 Series 1989-A, Pre-Refunded, 8.00%, 08/15/11 ................................ 6,957,730
2,610,000 Series 1989-E, 6.50%, 12/01/12 .............................................. 2,449,276
2,615,000 Series 1990-B, 8.00%, 06/01/01 .............................................. 2,823,206
7,000,000 Series 1990-B, 7.50%, 10/01/11 .............................................. 7,161,350
10,985,000 Series 1990-B, 7.50%, 10/01/12 .............................................. 11,238,204
385,000 Series 1990-B, ETM 06/01/01, 8.00%, 06/01/01 ................................ 436,748
1,000,000 Series 1991-A, 8.00%, 03/15/12 .............................................. 1,060,230
1,530,000 Series 1991-A, 8.00%, 03/15/13 .............................................. 1,611,626
10,000,000 Series 1991-A, 7.75%, 08/15/13 .............................................. 10,404,100
7,000,000 Series 1991-A, 7.75%, 08/15/14 .............................................. 7,282,870
3,285,000 Series 1991-A, 7.75%, 08/15/17 .............................................. 3,428,620
5,000 Series 1991-A, 8.00%, 08/15/20 .............................................. 5,321
15,000 Series 1991-A, 8.00%, 08/15/21 .............................................. 15,962
13,400,000 Series 1991-A, Pre-Refunded, 8.00%, 03/15/14 ................................ 15,131,280
1,115,000 Series 1991-A, Pre-Refunded, 8.00%, 03/15/15 ................................ 1,256,293
3,000,000 Series 1991-A, Pre-Refunded, 8.00%, 03/15/16 ................................ 3,380,160
895,000 Series 1991-A, Pre-Refunded, 8.00%, 08/15/20 ................................ 1,027,621
3,165,000 Series 1991-A, Pre-Refunded, 8.00%, 08/15/21 ................................ 3,633,990
1,435,000 Series 1991-B, 8.00%, 06/01/98 .............................................. 1,549,671
4,500,000 Series 1991-B, 8.25%, 06/01/02 .............................................. 5,010,570
10,000,000 Series 1991-B, 7.50%, 02/01/04 .............................................. 10,710,600
$ 1,000,000 Series 1991-B, 8.25%, 06/01/05 .............................................. $ 1,110,350
15,000,000 Series 1991-B, 7.00%, 02/01/19 .............................................. 14,706,450
20,000,000 Series 1991-C, 7.00%, 08/01/18 .............................................. 19,611,800
1,800,000 Series 1991-D, 8.25%, 08/01/11 .............................................. 1,957,068
11,125,000 Series 1991-D, 8.25%, 08/01/12 .............................................. 12,095,768
7,750,000 Series 1991-D, 8.25%, 08/01/13 .............................................. 8,326,213
85,000 Series 1991-D, 8.25%, 08/01/14 .............................................. 91,795
100,000 Series 1991-D, 8.00%, 08/01/17 .............................................. 106,389
50,000 Series 1991-D, 8.00%, 08/01/18 .............................................. 53,194
30,000 Series 1991-D, 8.00%, 08/01/19 .............................................. 31,917
1,760,000 Series 1991-D, 8.00%, 08/01/99 .............................................. 1,914,229
240,000 Series 1991-D, ETM 08/01/99, 8.00%, 08/01/99 ................................ 265,937
4,255,000 Series 1991-D, Pre-Refunded, 8.25%, 08/01/14 ................................ 4,928,907
2,500,000 Series 1991-D, Pre-Refunded, 8.00%, 08/01/16 ................................ 2,857,245
4,600,000 Series 1991-D, Pre-Refunded, 8.00%, 08/01/17 ................................ 5,264,746
3,185,000 Series 1991-D, Pre-Refunded, 8.00%, 08/01/18 ................................ 3,654,947
1,970,000 Series 1991-D, Pre-Refunded, 8.00%, 08/01/19 ................................ 2,260,674
5,335,000 Series 1991-F, 8.20%, 11/15/04 .............................................. 5,951,513
160,000 Series 1991-F, 8.25%, 11/15/15 .............................................. 173,163
200,000 Series 1991-F, 8.25%, 11/15/17 .............................................. 215,874
1,840,000 Series 1991-F, Pre-Refunded, 8.25%, 11/15/15 ................................ 2,146,765
2,300,000 Series 1991-F, Pre-Refunded, 8.25%, 11/15/17 ................................ 2,683,456
9,300,000 Series 1992-B, 6.75%, 10/01/15 .............................................. 8,898,612
1,930,000 Series 1992-C, Sub-Series C-1, 7.00%, 08/01/17 .............................. 1,893,156
5,000,000 Series 1992-D, 7.30%, 02/01/01 .............................................. 5,217,200
9,000,000 Series 1992-D, 7.625%, 02/01/15 ............................................. 9,302,220
5,000,000 Series 1992-D, 7.50%, 02/01/16 .............................................. 5,143,150
5,000,000 Series 1992-D, 7.50%, 02/01/17 .............................................. 5,143,150
320,000 Series 1993-A, Pre-Refunded, 8.00%, 03/15/13 ................................ 361,344
460,000 Series 1993-B, 8.50%, 08/01/09 .............................................. 492,977
11,660,000 Series 1993-B, Pre-Refunded, 8.00%, 03/15/17 ................................ 13,166,472
5,900,000 Series 1993-D, 6.00%, 08/01/06 .............................................. 5,503,815
14,500,000 Series 1994-A, 6.125%, 08/01/06 ............................................. 13,726,715
21,810,000 Series 1994-A, 6.20%, 08/01/07 .............................................. 20,544,802
4,390,000 Series 1994-A, 6.125%, 08/01/08 ............................................. 4,105,528
11,750,000 Series 1994-H, Sub-Series H-1, 6.125%, 08/01/09 ............................. 10,702,135
5,000,000 Series 1994-H, Sub-Series H-1, 6.125%, 08/01/11 ............................. 4,494,750
New York City Health & Hospital Authority Local Government Revenue,
$ 5,010,000 Series A, 6.00%, 02/15/07 ................................................... $ 4,616,765
17,735,000 Series A, 6.30%, 02/15/20 ................................................... 15,962,209
New York City Municipal Water Finance Authority, Water & Sewer System Revenue,
11,140,000 Series 1986-B, Pre-Refunded, 7.875%, 06/15/16 ............................... 11,913,673
8,500,000 Series 1987-A, Pre-Refunded, 9.00%, 06/15/17 ................................ 9,485,235
2,965,000 Series 1989-B, Pre-Refunded, 7.00%, 06/15/19 ................................ 3,180,200
2,330,000 Series 1991-A, Pre-Refunded, 7.10%, 06/15/12 ................................ 2,550,255
3,525,000 Series 1991-A, Pre-Refunded, 7.00%, 06/15/15 ................................ 3,828,714
40,000,000 Series 1991-C, Pre-Refunded, 7.75%, 06/15/20 ................................ 45,344,400
2,770,000 Series 1994-A, Pre-Refunded, 7.10%, 06/15/12 ................................ 2,851,989
6,475,000 Series 1994-A, Pre-Refunded, 7.00%, 06/15/15 ................................ 6,670,541
New York State Dormitory Authority Revenue,
26,930,000 City University System Consolidated, Series A, Pre-Refunded, 7.625%, 07/01/20 30,140,056
31,200,000 City University System Consolidated, Series F, Pre-Refunded, 7.875%, 07/01/17 35,294,064
22,750,000 State University Educational Facilities, Series A, Pre-Refunded, 7.70%, 05/15/12 25,558,488
10,000,000 State University Educational Facilities, Series A, Pre-Refunded, 7.25%, 05/15/18 11,100,800
4,240,000 State University Educational Facilities, Series B, Refunding, 7.375%, 05/15/14 4,468,154
2,000,000 State University Educational Facilities, Series B, Refunding, 7.00%, 05/15/16 2,015,020
3,540,000 State University Educational Facilities, Series B, Refunding, Pre-Refunded,
7.375%, 05/15/14 ........................................................... 3,913,753
23,685,000 State University Educational Facilities, Series B, Refunding, Pre-Refunded,
7.25%, 05/15/15 ............................................................ 26,046,158
New York State Energy Research & Development Authority, Electric Facilities Revenue,
5,000,000 Consolidated Edison Co., Inc. Project B, 9.25%, 09/15/22 .................... 5,510,000
17,500,000 Long Island Light, Series A, 7.15%, 06/01/20 ................................ 16,462,950
1,500,000 Long Island Light, Series A, 7.15%, 02/01/22 ................................ 1,409,190
New York State Housing Finance Agency Service Contract Revenue,
12,735,000 Refunding, Pre-Refunded, 7.80%, 09/15/20 .................................... 14,437,033
15,000,000 Refunding, Series C, 6.125%, 03/15/20 ....................................... 13,305,600
3,155,000 Series A, 6.375%, 09/15/14 .................................................. 2,964,059
3,785,000 Series A, 6.375%, 09/15/16 .................................................. 3,525,728
New York State Local Government Assistance Corp.,
6,000,000 Series A, 6.50%, 04/01/20 ................................................... 5,769,180
15,740,000 Series C, 6.25%, 04/01/18 ................................................... 14,696,910
New York State Medical Care Facilities, Financial Agency Revenue,
7,215,000 Hospital & Nursing Home, FSA Mortgage Insured, 6.50%, 02/15/34 .............. 6,724,091
11,250,000 Hospital & Nursing Home, Refunding, FSA Mortgage Insured, 6.40%, 08/15/14.... 10,751,288
12,500,000 The Hospital for Special Surgery, Series A, 6.375%, 08/15/24 ................ 11,555,250
$ 5,000,000 dNew York State Tollway Authority Service Contract Revenue, Local Highway
& Bridge, 7.25%, 01/01/10 .................................................. $ 5,154,100
5,000,000 Warren & Washington Counties IDAR, Refunding, Adirondack Resource
Recovery Project, Series A, 7.90%, 12/15/07 ................................................. 4,936,500
-------------
741,151,121
-------------
North Carolina 3.5%
North Carolina Eastern Municipal Power Agency, Power System Revenue,
60,480,000 Refunding, Series 1986-A, Pre-Refunded, 7.75%, 01/01/15 ..................... 64,377,331
5,705,000 Refunding, Series 1987-A, Pre-Refunded, 7.50%, 01/01/15 ..................... 6,106,461
18,645,000 Refunding, Series 1988-A, Pre-Refunded, 8.00%, 01/01/21 ..................... 20,499,245
1,355,000 Refunding, Series 1988-A, Pre-Refunded, 8.00%, 01/01/21 ..................... 1,489,755
3,250,000 Refunding, Series 1989-A, 6.50%, 01/01/24 ................................... 3,003,423
21,500,000 Refunding, Series 1991-A, 6.50%, 01/01/17 ................................... 20,136,040
6,875,000 Refunding, Series 1993-B, 6.25%, 01/01/12 ................................... 6,287,188
39,030,000 Refunding, Series 1993-B, 6.25%, 01/01/23 ................................... 35,182,423
4,000,000 Refunding, Series 1993-B, FGIC Insured, 6.25%, 01/01/23 ..................... 3,715,840
2,000,000 Series 1993-C, 5.50%%, 01/01/07 ............................................. 1,841,440
15,960,000 Series 1993-G, 5.875%, 01/01/14 ............................................. 13,898,287
19,220,000 Series 1993-G, 5.75%%, 12/01/16 ............................................. 16,310,284
7,000,000 North Carolina Medical Care Commission Health Care Facilities, 1st Mortgage
Revenue, Southminster Project, Pre-Refunded, 10.375%, 10/01/15 ............. 7,502,320
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue, Refunding,
14,790,000 Series 1982, 6.25%, 01/01/17 ................................................ 13,502,383
10,000,000 Series 1985-B, Pre-Refunded, 8.50%, 01/01/17 ................................ 10,628,900
5,000,000 Wake County IPC, Financing Authority Revenue, Carolina Power & Light,
6.90%, 04/01/09 ............................................................ 5,174,100
-------------
229,655,420
-------------
North Dakota .9%
7,750,000 Dickinson Health Care Facilities Revenue, BHS Long-Term Care, Inc.,
7.625%, 02/15/20 ........................................................... 8,079,297
441,000 Ellendale MFHR, Ellendale Manor Apartments Project, 9.75%, 07/01/16 ......... 454,706
Mercer County PCR,
3,695,000 Basin Electric Power Corp., Series 1984-A, 7.70%, 01/01/19 .................. 3,845,017
15,065,000 Basin Electric Power Corp., Series 1984-B, 8.125%, 01/01/19 ................. 15,787,668
20,260,000 Basin Electric Power Corp., Series 1984-D, 8.125%, 01/01/19 ................. 21,204,116
12,010,000 Basin Electric Power Corp., Series 1984-E, 7.00%, 01/01/19 .................. 12,137,786
875,000 Wahpeton MFHR, Evergreen Apartments Project, 9.75%, 07/01/16 ................ 902,195
-------------
62,410,785
-------------
Ohio 1.2%
$ 6,740,000 Franklin County Hospital Facility Mortgage Revenue, Refunding, Presbyterian
Retirement Services, Series 1987-A, 9.00%, 07/01/10 ........................ $ 6,806,524
2,905,000 Franklin County Nursing Home, 1st Mortgage Revenue, Volunteers of America
Care Facilities Project, 8.75%, 11/01/18 ................................... 2,904,913
Montgomery County Health Systems Revenue,
2,800,000 Franciscan, Series B-2, 8.10%, 07/01/01 ..................................... 2,902,536
12,000,000 Franciscan, Series B-2, 8.10%, 07/01/18 ..................................... 12,638,160
1,680,000 Muskingum County Hospital Facilities Revenue, Care One Health System,
Bethesda Hospital, 8.00%, 12/01/16 ......................................... 1,759,968
1,500,000 Muskingum County Revenue, Refunding, Franciscan Health Advisory Service,
Good Samaritan & Holy Family Hospital Project, 7.50%, 03/01/12 ............. 1,551,480
Ohio State Air Quality Development Authority Revenue,
6,325,000 Collateral Pollution Toledo Edison, Series B, 8.00%, 05/15/19 ............... 6,271,111
10,000,000 Dayton Power & Light Co. Project, 9.50%, 12/01/15 ........................... 10,671,100
1,760,000 Ohio State EDR, Good Samaritan Medical Center, Series 1990-3,
7.875%, 12/01/10 ........................................................... 1,807,802
3,250,000 Ohio State Water Development Authority Revenue, Refunding, Water Development
Dayton Power, Series A, 6.40%, 08/15/27 .................................... 3,055,520
Ohio State Water Development Facilities Authority, PCR,
4,000,000 Cleveland Electric Illumination Co. Project, Series A-1, 9.75%, 11/01/22 .... 4,297,040
10,000,000 Cleveland Electric Illumination Co. Project, Series A-2, 9.75%, 11/01/22 .... 10,698,300
2,375,000 Duquesne Light Co., Perry Nuclear Station Project, Series 1985-A,
11.125%, 02/01/15 .......................................................... 2,475,629
10,000,000 Toledo Edison, Series A, 8.00%, 05/15/19 .................................... 9,914,800
-------------
77,754,883
-------------
Oklahoma 1.5%
Canadian County HFA, SFMR,
2,115,000 Series 1990-A, 7.70%, 09/01/05 .............................................. 2,166,521
4,410,000 Series 1990-A, 7.80%, 09/01/12 .............................................. 4,522,808
6,000,000 Jackson County Memorial Hospital Authority Revenue, Refunding, Jackson
Memorial Hospital Project, Pre-Refunded, 9.00%, 08/01/15 ................... 6,705,180
Oklahoma State Municipal Power Authority, Power Supply System Revenue,
7,000,000 Series A, Pre-Refunded, 8.25%, 01/01/23 ..................................... 7,416,780
20,000,000 Series B, Pre-Refunded, 8.25%, 01/01/23 ..................................... 21,190,800
Oklahoma State Turnpike System Authority,
610,000 1st Senior Revenue, 7.875%, 01/01/21 ........................................ 658,837
19,090,000 1st Senior Revenue, Pre-Refunded, 7.875%, 01/01/21 .......................... 21,167,374
1,225,000 Tulsa County Home Financial Authority, MFHR, Breckenridge Apartments Project,
Series A, FGIC Insured, 6.45%, 10/01/34 .................................... 1,145,632
$ 755,000 Tulsa County Home Financial Authority, Mortgage Revenue, Series D,
GNMA Insured, 6.95%, 12/01/22 .............................................. $ 769,723
11,000,000 Tulsa County Municipal Airport Revenue, American Airlines, Inc., 7.375%, 12/01/20 10,250,900
Tulsa County Parking Authority,
3,000,000 Series B, 6.90%, 12/01/07 ................................................... 3,119,460
5,500,000 Series B, 7.00%, 12/01/14 ................................................... 5,639,260
Tulsa County Public Facilities Authority,
2,000,000 Recreation Facility Revenue, Pre-Refunded, 8.875%, 02/01/03 ................. 2,251,040
2,000,000 Recreation Facility Revenue, Pre-Refunded, 9.00%, 02/01/08 .................. 2,258,400
2,740,000 Tulsa Housing Assistance Corp., 1st Lien Revenue, Refunding, 6.80%, 07/01/11 2,691,529
2,000,000 Tulsa Industrial Authority Hospital Revenue, St. John Medical Center Project,
Series A, 6.25%, 02/15/14 .................................................. 1,860,280
4,000,000 Tulsa Municipal Airport Revenue, American Airlines-American Corp.,
7.35%, 12/01/11 ............................................................ 3,820,560
-------------
97,635,084
-------------
Pennsylvania 5.1%
5,000,000 Allegheny County, IDAR, Environmental Improvement, 6.70%, 12/01/20 .......... 4,652,050
Beaver County IDA, PCR,
9,500,000 Collateralized, Cleveland Electric Co., Illuminating Co., 10.50%, 09/01/15 .. 9,903,085
2,850,000 Ohio Edison Co., Beaver Valley Project, Series A, 10.50%, 10/01/15 .......... 3,004,185
Cambria County HDA, Hospital Revenue, Conemaugh Valley Memorial Hospital,
Refunding,
5,000,000 Series A, Pre-Refunded, 10.125%, 07/01/18 ................................... 5,292,950
9,600,000 Series B, 6.30%, 07/01/08 ................................................... 9,418,464
10,740,000 Series B, 6.375%, 07/01/18 .................................................. 10,121,483
3,000,000 Series B, Pre-Refunded, 8.875%, 07/01/18 .................................... 3,408,420
Delaware County IDAR, Refunding,
6,500,000 Philadelphia Electric, Series 1991, 7.375%, 04/01/21 ........................ 6,702,020
41,300,000 Resource Recovery Project, Series A, 8.10%, 12/01/13 ........................ 43,758,176
3,030,000 Fayette County Hospital Authority Revenue, Uniontown Hospital Project,
9.75%, 07/01/15 ............................................................ 3,166,198
22,500,000 Lancaster County Solid Waste Management Authority, Resource Recovery
System Revenue, Series A, 8.50%, 12/15/10 .................................. 23,417,775
Montgomery County Higher Education and Health Authority, Hospital Revenue,
5,150,000 Frankford Hospital, 7.875%, 01/01/19 ........................................ 5,283,128
5,500,000 Jeanes Health System Project, Pre-Refunded, 8.75%, 07/01/20 ................. 6,429,500
5,000,000 Montgomery County IDA, PCR, Philadelphia Electric Co., Series 1986-A,
8.875%, 06/01/16 ........................................................... 5,325,150
$13,500,000 Pennsylvania EDA, Financing Resources, Recovery Revenue Colver Project,
Series D, 7.125%, 12/01/15 ................................................. $ 12,884,805
14,575,000 Pennsylvania Intergovernmental Cooperative Authority, Special Tax Revenue,
City of Philadelphia, Funding Program, Pre-Refunded, 6.80%, 06/15/22 ....... 15,552,108
33,280,000 Pennsylvania State Financial Authority Revenue, Refunding, Municipal Capital
Improvements Program, 6.00%, 11/01/09 ...................................... 32,751,846
Pennsylvania State HFA,
10,590,000 Refunding, Rental Housing, FGIC Insured, 6.40%, 07/01/12 .................... 10,294,751
4,200,000 SFM, Series 1991, 7.15%, 04/01/15 ........................................... 4,253,424
2,000,000 Pennsylvania State Higher Educational Facilities Authority, College and University
Revenues, Lycoming College, Pre-Refunded, 8.375%, 10/01/18 ................. 2,248,080
4,445,000 Pennsylvania State Pooled Finance Authority, Lease Revenue, Capital Improvement,
Series B, MBIA Insured, 8.00%, 11/01/09 .................................... 4,590,263
Philadelphia City GO, Refunding,
26,000,000 Series 1986-A, Pre-Refunded, 7.625%, 08/01/16 ............................... 27,751,100
1,000,000 Series 1987-A, 11.50%, 08/01/97 ............................................. 1,131,170
1,545,000 Series 1987-A, 11.50%, 08/01/98 ............................................. 1,797,113
2,400,000 Series 1987-A, 11.50%, 08/01/99 ............................................. 2,862,312
1,000,000 Series 1987-A, 11.50%, 08/01/00 ............................................. 1,218,270
3,000,000 Series 1993-A, FGIC Insured, 5.10%, 05/15/02 ................................ 2,840,130
2,850,000 Philadelphia Gas Works Revenue, Series 13, Pre-Refunded, 7.70%, 06/15/21 .... 3,224,462
3,950,000 Philadelphia Gas Works Revenue, Series A, 6.375%, 07/01/26 .................. 3,595,093
Philadelphia Hospital & Higher Education Facilities Authority, Hospital Revenue,
14,240,000 Albert Einstein Medical Center, 7.50%, 04/01/99 ............................. 14,842,210
8,000,000 Nazareth Hospital, 9.375%, 07/01/15 ......................................... 8,180,240
Philadelphia Housing RDAR,
685,000 Sub-Series 2-A, 8.375%, 02/01/14 ............................................ 689,583
4,140,000 Sub-Series 2-B, 8.625%, 08/01/26 ............................................ 4,168,111
1,000,000 Philadelphia Municipal Authority, Gas Works Lease Revenue, 7.50%, 05/01/01 .. 1,069,050
Philadelphia Water & Sewer Revenue,
10,915,000 Series 10, ETM 09/01/04, 7.35%, 09/01/04 .................................... 11,952,471
20,180,000 Series 16, 7.50%, 08/01/10 .................................................. 21,068,727
410,000 Warrington Township Municipal Authority, Water & Sewer Revenue, Bucks County,
Series A, Pre-Refunded, 10.50%, 12/01/10 ................................... 424,936
3,000,000 Westmoreland County IDAR, Refunding, Citizens General Hospital Project,
Series A, 8.25%, 07/01/13 .................................................. 3,166,380
-------------
332,439,219
-------------
Puerto Rico .8%
Puerto Rico Commonwealth,
$11,305,000 Series 1994, 6.45%, 07/01/17 ................................................ $ 10,951,154
30,750,000 Series 1994, 6.50%, 07/01/23 ................................................ 29,702,040
3,200,000 Puerto Rico Commonwealth Urban Renewal & Housing Corp., Refunding,
7.875%, 10/01/04 ........................................................... 3,493,376
Puerto Rico Electric Power Authority, Power Revenue, Refunding,
4,000,000 Series 1987-K, Pre-Refunded, 9.375%, 07/01/17 ............................... 4,517,160
2,000,000 Series 1988-M, Pre-Refunded, 8.00%, 07/01/08 ................................ 2,228,980
5,000,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08 ........ 5,440,400
-------------
56,333,110
-------------
Rhode Island 1.4%
7,000,000 Rhode Island Depositors Economic Protection Corp., Special Obligation,
Series B, 6.00%, 08/01/17 .................................................. 6,281,380
Rhode Island Housing and Mortgage Finance Corp., Homeownership Opportunity,
1,925,000 Series 2, 7.75%, 04/01/22 ................................................... 2,019,517
9,500,000 Series 9-C, 5.75%, 04/01/17 ................................................. 8,262,340
20,200,000 Series 10-A, 6.50%, 10/01/22 ................................................ 19,132,026
13,085,000 Series 10-A, 6.50%, 04/01/27 ................................................ 12,361,138
7,650,000 Series 13, 6.70%, 10/01/15 .................................................. 7,374,906
4,250,000 Series 13, 6.85%, 04/01/27 .................................................. 4,074,093
15,000,000 Series 15-A, 6.85%, 10/01/24 ................................................ 14,357,250
Rhode Island State Health & Educational Building Corp. Revenue,
3,000,000 Health Facilities Tockwotton Home, 7.25%, 04/15/17 .......................... 3,062,490
9,000,000 Higher Educational Facilities, Project J, 5.875%, 04/01/20 .................. 7,843,050
965,000 Roger William Realty, FHA Insured, 7.50%, 08/01/29 .......................... 978,018
2,320,000 St. Antoine Residence, 6.70%, 11/15/12 ...................................... 2,194,929
2,750,000 St. Antoine Residence, 6.75%, 11/15/18 ...................................... 2,582,690
-------------
90,523,827
-------------
South Carolina 1.4%
1,800,000 Berkeley County School District COP, Berkeley School Facilities Group, Inc.,
AMBAC Insured, 6.30%, 02/01/16 ............................................. 1,716,858
24,000,000 Charleston County Resource Recovery Revenue, Foster Wheeler, Inc. Project,
Series A, 9.25%, 01/01/10 .................................................. 26,296,320
North Charleston Redevelopment Commission, Housing Development Revenue,
505,000 Phoenix Park Project, Series A, 9.00%, 01/01/97 ............................. 151,500
8,175,000 Phoenix Park Project, Series A, 9.50%, 01/01/17 ............................. 2,452,500
Piedmont Municipal Power Agency, South Carolina Electric Revenue,
$ 6,000,000 Refunding, 7.25%, 01/01/22 .................................................. $ 6,161,160
6,000,000 Refunding, 6.375%, 01/01/25 ................................................. 5,559,060
South Carolina State Public Service Authority Revenue, Refunding,
15,805,000 Electric System & Expansion, Series A, 7.875%, 07/01/21 ..................... 16,514,803
4,175,000 Electric System & Expansion, Series A, Pre-Refunded, 7.875%, 07/01/21 ....... 4,410,136
12,765,000 Series A, AMBAC Insured, 6.375%, 07/01/21 ................................... 12,220,700
4,135,000 dSeries B, 6.00%, 07/01/31 ................................................. 3,586,451
York County Public Facilities Corp., COP,
4,500,000 Justice Center, Pre-Refunded, 7.375%, 06/01/04 .............................. 5,009,355
10,240,000 Justice Center, Pre-Refunded, 7.50%, 06/01/11 ............................... 11,468,698
-------------
95,547,541
-------------
South Dakota .4%
5,000,000 Lawrence County PCR, Refunding, Black Hills Power & Light Co. Project,
6.70%, 06/01/10 ............................................................ 5,017,150
South Dakota State HDA, Homeownership Mortgage,
1,250,000 Series A, 6.00%, 05/01/21 ................................................... 1,108,462
10,580,000 Series A, 7.15%, 05/01/27 ................................................... 10,586,348
4,650,000 Series B, 5.80%, 05/01/14 ................................................... 4,133,571
3,250,000 Series B, 7.10%, 05/01/17 ................................................... 3,262,220
1,750,000 Series C, 5.75%, 05/01/17 ................................................... 1,523,550
3,480,000 Series D, 6.65%, 05/01/14 ................................................... 3,409,321
-------------
29,040,622
-------------
Tennessee .8%
6,690,000 Gatlinburg COP, Gatlinburg Convention Center, Inc., Pre-Refunded, 9.25%, 12/01/12 7,634,360
4,860,000 Knox County Health, Educational & Housing Facilities Board, MFHR,
GNMA Secured, East Towne Village Project, 8.20%, 07/01/28 .................. 4,943,252
Memphis-Shelby County Airport Authority, Special Facilities & Project Revenue,
14,690,000 Federal Express Corp., 7.875%, 09/01/09 ..................................... 15,560,236
6,520,000 Federal Express Corp., 6.75%, 09/01/12 ...................................... 6,296,755
1,990,000 Mount Pleasant IDR, PCR, Stauffer Chemical Co. Project, 8.00%, 12/01/12 ..... 2,202,094
5,000,000 Nashville & Davidson County Revenue, IDB, Refunding & Improvement, Osco
Treatment, Inc., 6.00%, 05/01/03 ........................................... 4,745,250
Tennessee HDA, Homeownership Program,
2,650,000 Series 1992, 6.80%, 07/01/17 ................................................ 2,584,015
6,870,000 Series P, 7.70%, 07/01/16 ................................................... 7,159,090
2,275,000 Tennessee State Local Development Authority Revenue, Community Provider
Pooled Loan Program, 6.45%, 10/01/14 ....................................... 2,098,050
-------------
53,223,102
-------------
Texas 8.2%
$18,100,000 Austin Combined Utility System Revenue, Series A, Pre-Refunded,
8.00%, 11/15/16 ............................................................ $ 20,414,266
60,000 Austin HFC, SFMR, Series 1984, 11.25%, 02/01/09 ............................. 61,606
11,310,000 Austin Utility System Revenue, Refunding, FGIC Insured, 6.25%, 05/15/16 ..... 10,733,982
1,750,000 Bexar County HFC, MFHR, Sunpark Apartments Project, 6.875%, 12/01/12 ........ 1,752,012
6,100,000 Brazos County Health Facilities Development Corp., Hospital Revenue,
St. Joseph Hospital Project, Pre-Refunded, 10.25%, 10/01/15 ................ 7,032,812
Brazos River Authority, Collateralized, PCR, Texas Utilities Electric Co. Project,
2,500,000 Series 1987-A, 9.875%, 10/01/17 ............................................. 2,779,225
17,550,000 Series 1988-A, 9.25%, 03/01/18 .............................................. 19,189,696
15,000,000 Series 1989-A, 8.25%, 01/01/19 .............................................. 16,277,850
Brazos River Authority, Johnson County,
445,000 Surface Water & Treatment Revenue, 8.60%, 09/01/96 .......................... 470,454
480,000 Surface Water & Treatment Revenue, 8.75%, 09/01/97 .......................... 506,554
520,000 Surface Water & Treatment Revenue, 8.90%, 09/01/98 .......................... 547,799
560,000 Surface Water & Treatment Revenue, 9.00%, 09/01/99 .......................... 588,426
605,000 Surface Water & Treatment Revenue, 9.00%, 09/01/00 .......................... 634,119
655,000 Surface Water & Treatment Revenue, 9.00%, 09/01/01 .......................... 685,379
705,000 Surface Water & Treatment Revenue, 9.10%, 09/01/02 .......................... 737,656
765,000 Surface Water & Treatment Revenue, 9.10%, 09/01/03 .......................... 799,104
825,000 Surface Water & Treatment Revenue, 9.10%, 09/01/04 .......................... 861,778
890,000 Surface Water & Treatment Revenue, 9.20%, 09/01/05 .......................... 930,406
960,000 Surface Water & Treatment Revenue, 9.20%, 09/01/06 .......................... 1,003,584
1,040,000 Surface Water & Treatment Revenue, 9.20%, 09/01/07 .......................... 1,085,406
1,120,000 Surface Water & Treatment Revenue, 9.20%, 09/01/08 .......................... 1,168,899
1,210,000 Surface Water & Treatment Revenue, 9.25%, 09/01/09 .......................... 1,298,390
1,310,000 Surface Water & Treatment Revenue, 9.25%, 09/01/10 .......................... 1,366,016
1,415,000 Surface Water & Treatment Revenue, 9.25%, 09/01/11 .......................... 1,474,288
1,525,000 Surface Water & Treatment Revenue, 9.25%, 09/01/12 .......................... 1,588,898
1,650,000 Surface Water & Treatment Revenue, 9.25%, 09/01/13 .......................... 1,719,135
1,780,000 Surface Water & Treatment Revenue, 9.25%, 09/01/14 .......................... 1,854,582
1,670,000 Surface Water & Treatment Revenue, 9.25%, 09/01/15 .......................... 1,739,973
180,000 Brownsville Utilities System Revenue, Refunding, Series 1984, 11.625%, 09/01/14 185,400
15,745,000 Dallas County Flood Control District No. 1, Refunding, Mandatory Put 04/01/97,
9.25%, 04/01/10 ............................................................ 16,268,364
3,470,000 Dallas County Flood Control District No. 1, Refunding, Pre-Refunded,
9.25%, 04/01/10 ............................................................ 3,792,745
99,000,000 Dallas-Fort Worth, International Airport Facilities, Improvement Corp. Revenue,
American Airlines, Inc., 8.00%, 11/01/24 ................................... 101,573,010
20,000 Denton County HFC, SFMR, 11.75%, 01/01/11 ................................... 20,161
$ 6,695,000 El Paso HFC, SFMR, Series 1991-A, 8.75%, 10/01/11 ........................... $ 6,781,432
1,755,000 Grand Prairie HFC, SFMR, 10.75%, 09/01/14 ................................... 1,779,149
43,010,000 Harris County Hospital District, Mortgage Revenue, Refunding, Pre-Refunded,
8.50%, 04/01/05 ............................................................ 46,014,248
20,250,000 Harris County IDR, Marine Terminal Revenue, Refunding, 6.95%, 02/01/22 ...... 19,859,175
Harris County Toll Road, Multiple Mode, Senior Lien Revenue,
2,100,000 Refunding, Series 1987, Pre-Refunded, 8.70%, 08/15/17 ....................... 2,351,727
9,000,000 Series B, Pre-Refunded, 8.625%, 08/15/07 .................................... 10,061,550
18,710,000 Series B, Pre-Refunded, 8.70%, 08/18/17 ..................................... 20,952,768
3,500,000 Series C, Pre-Refunded, 8.125%, 08/15/17 .................................... 3,894,975
4,000,000 Series D, Pre-Refunded, 8.25%, 08/15/07 ..................................... 4,506,960
5,000,000 Series D, Pre-Refunded, 8.30%, 08/15/17 ..................................... 5,642,150
5,845,000 Houston HFC, SFMR, Refunding, Series A, FSA Insured, 5.95%, 12/01/10 ........ 5,466,302
21,000,000 Houston Water & Sewer System Revenue, Refunding, Series B, 6.375%, 12/01/14.. 20,088,810
Matagorda County Navigation District No. 1, PCR, Collateralized, Refunding,
10,000,000 Houston Lighting & Power Co., 6.00%, 07/01/28 ............................... 8,769,200
5,500,000 dHouston Lighting & Power Co., Series A, AMBAC Insured, 7.70%, 02/01/19 .... 5,357,605
40,975,000 Houston Lighting & Power Co., Series B, 7.70%, 02/01/19 ..................... 43,133,973
1,725,000 Mesquite HFC, SFMR, Series 1983, 10.75%, 09/01/14 ........................... 1,698,090
5,000,000 Nueces County Hospital District Revenue, Refunding, Pre-Refunded,
9.00%, 07/01/16 ............................................................ 5,450,250
10,820,000 Rio Grande Valley Health Facilities Development Corp., 1st Mortgage Revenue,
Refunding, Golden Palms Retirement and Health Center, Pre-Refunded,
9.25%, 08/01/15 ............................................................ 11,836,431
2,610,000 Sabine River Authority PCR, Texas Utility Electric Co. Project, Refunding,
7.75%, 04/01/16 ............................................................ 2,708,997
5,000,000 San Antonio Water Revenue, Refunding, MBIA Insured, 6.50%, 05/15/10 ......... 4,995,050
Southland Oaks MUD,
1,525,000 Contract Revenue, Pre-Refunded, 8.50%, 11/15/01 ............................. 1,652,337
1,700,000 Contract Revenue, Pre-Refunded, 8.50%, 11/15/02 ............................. 1,841,950
1,850,000 Contract Revenue, Pre-Refunded, 8.50%, 11/15/03 ............................. 2,004,475
2,050,000 Contract Revenue, Pre-Refunded, 8.55%, 11/15/04 ............................. 2,223,123
2,250,000 Contract Revenue, Pre-Refunded, 8.55%, 11/15/05 ............................. 2,440,013
2,475,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/06 ............................. 2,686,365
2,725,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/07 ............................. 2,957,715
3,000,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/08 ............................. 3,256,200
3,300,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/09 ............................. 3,581,820
Texas Housing Agency,
16,580,000 SFMR, Series 1986-B, 7.50%, 09/01/17 ........................................ 16,873,134
4,170,000 SFMR, Series 1988-B, 8.20%, 03/01/16 ........................................ 4,348,810
Texas Housing Agency, Residential Development Mortgage Revenue,
$ 1,940,000 Series D, 8.35%, 01/01/08 ................................................... $ 1,998,530
3,900,000 Series D, 8.35%, 07/01/08 ................................................... 4,017,663
18,000,000 Texas National Research Lab Community, Financing Corp., Lease Revenue,
7.10%, 12/01/21 ............................................................ 17,968,500
2,490,000 Texas Water Resources Finance Authority Revenue, 7.625%, 08/15/08 ........... 2,618,359
5,580,000 Travis County, HFC, SFMR, Refunding, Series A, 6.95%, 10/01/27 .............. 5,297,373
Western Oaks MUD,
1,675,000 Contract Revenue, 8.60%, 11/15/05 ........................................... 1,818,045
1,825,000 Contract Revenue, 8.60%, 11/15/06 ........................................... 1,980,855
615,000 Contract Revenue, Pre-Refunded, 8.40%, 11/15/01 ............................. 665,178
500,000 Contract Revenue, Pre-Refunded, 8.45%, 11/15/02 ............................. 541,275
2,025,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/07 ............................. 2,197,935
2,225,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/08 ............................. 2,415,015
2,450,000 Contract Revenue, Pre-Refunded, 8.60%, 11/15/09 ............................. 2,659,230
-------------
540,534,717
-------------
U.S. Territories
820,000 Virgin Islands HFA, HMR, Series B, GNMA Secured, 8.10%, 12/01/18 ............ 846,371
-------------
Utah 1.9%
Intermountain Power Agency, Special Obligation,
13,450,000 1st Crossover Series, 7.875%, 07/01/14 ...................................... 14,135,009
9,500,000 Refunding, 5th Crossover Series, 7.20%, 07/01/19 ............................ 9,873,730
Intermountain Power Agency, Supply Revenue, Refunding,
34,805,000 Series B, 7.75%, 07/01/20 ................................................... 36,849,794
2,000,000 Series G, 7.25%, 07/01/17 ................................................... 2,084,720
4,000,000 Series I, 6.00%, 07/01/21 ................................................... 3,576,720
2,945,000 Utah State HFA, Refunding, Series A, 6.50%, 05/01/19 ........................ 2,750,836
Utah State HFA, SFM,
3,880,000 Refunding, Series A-C, 6.80%, 01/01/12 ...................................... 3,848,533
1,510,000 Series A, 8.50%, 07/01/19 ................................................... 1,514,364
5,000,000 Series B, 6.55%, 07/01/26 ................................................... 4,732,550
485,000 Series C-1, 6.80%, 07/01/12 ................................................. 481,008
5,360,000 Series C-1, 8.375%, 07/01/19 ................................................ 5,426,303
1,525,000 Series D, 8.60%, 07/01/19 ................................................... 1,570,780
5,000,000 Series D-1, 6.55%, 07/01/19 ................................................. 4,787,700
3,590,000 Series E-1, 6.65%, 07/01/20 ................................................. 3,457,314
2,135,000 Series F, 6.00%, 07/01/13 ................................................... 1,930,723
2,445,000 Series G-1, 8.10%, 07/01/16 ................................................. 2,476,858
Utah State School District Finance Cooperative Revenue, Financing Pool,
$ 2,450,000 Series 1988, 8.375%, 02/15/10 ............................................... $ 2,628,972
1,730,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,856,376
1,435,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,542,309
1,420,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,523,731
1,340,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,437,887
1,245,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,335,947
1,190,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,285,628
1,195,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,282,295
1,210,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,261,740
1,160,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,244,738
1,065,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,142,798
1,040,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,116,700
1,030,000 Series 1988, 8.375%, 02/15/10 ............................................... 1,105,241
635,000 Series 1988, 8.375%, 02/15/10 ............................................... 671,182
530,000 Series 1988, 8.375%, 02/15/10 ............................................... 548,995
490,000 Series 1988, 8.375%, 02/15/10 ............................................... 494,165
-------------
119,975,646
-------------
Vermont .1%
9,400,000 Vermont HFA, SF, Series 5, 7.00%, 11/01/27 .................................. 8,993,544
-------------
Virginia .3%
dDanville IDAR, Regional Medical Center,
5,885,000 FGIC Insured, 6.50%, 10/01/19 ............................................... 5,735,874
5,840,000 FGIC Insured, 6.50%, 10/01/24 ............................................... 5,645,645
Virginia State HDA, Commonwealth Mortgage,
5,120,000 Series 1994-C, Sub-Series C-6, 6.25%, 01/01/15 .............................. 4,739,123
4,755,000 Series H, Sub-Series H-2, 6.55%, 01/01/17 ................................... 4,603,553
-------------
20,724,195
-------------
Washington 6.0%
Chelan County PUD No. 1,
5,000,000 Chelan Hydro Consolidated System Revenue, 9.30%, 07/01/62 ................... 5,581,500
6,000,000 Chelan Hydro Consolidated System Revenue, Mandatory Put 06/01/18,
Pre-Refunded, 6.95%, 01/01/67 .............................................. 6,432,540
4,885,000 Chelan Hydro Consolidated System Revenue, Series E, 5.70%, 07/01/09 ......... 4,399,333
8,500,000 Clark County School District No. 37, 5.90%, 12/01/12 ........................ 7,818,130
27,500,000 Lewis County PUD No. 1, Cowlitz Falls Hydroelectric Revenue, Pre-Refunded,
7.00%, 10/01/22 ............................................................ 30,052,000
10,215,000 King County School District No. 406, South Central, 6.125%, 12/01/13 ........ 9,650,111
$ 4,020,000 Marysville Water & Sewer Revenue, Refunding, MBIA Insured, 6.10%, 12/01/12 .. $ 3,757,253
32,480,000 Pierce County, EDC, Revenue, Refunding, Solid Waste-Steilacoom,
6.60%, 08/01/22 ............................................................ 30,480,856
Port Moses Lake Public Corp., Washington PCR,
2,100,000 Union Carbide Corp., 7.50%, 08/01/04 ........................................ 2,158,359
1,000,000 Union Carbide Corp., 7.875%, 08/01/06 ....................................... 1,046,940
Seatac GO,
540,000 Series 1994, 5.40%, 12/01/00 ................................................ 535,846
635,000 Series 1994, 5.75%, 12/01/03 ................................................ 630,549
2,760,000 Series 1994, 6.50%, 12/01/13 ................................................ 2,706,704
9,365,000 Snohomish County PUD No. 1, Electric Revenue, Refunding, Generation System,
Series 1986-A, Pre-Refunded, 8.00%, 01/01/15 ............................... 10,102,400
7,000,000 Snohomish County USD No. 6, 6.50%, 12/01/11 ................................. 6,914,390
4,000,000 University of Washington Alumni Association Lease Revenue, Medical Center
Rossevelt II, 6.30%, 08/15/14 .............................................. 3,812,920
Washington State Health Care Facilities Authority Revenue,
3,615,000 Heart Institute, Spokane, Series A, 5.80%, 08/15/18 ......................... 3,085,981
4,000,000 Refunding, Dominican Health Services, 5.75%, 06/01/13 ....................... 3,507,120
4,870,000 Washington State Housing Finance Commission, MFMR, Refunding, Series A,
7.90%, 07/01/30 ............................................................ 4,882,370
810,000 Washington State Housing Finance Commission, SFMR, Refunding, MBS,
Series B-1, 5.95%, 07/01/16 ................................................ 724,901
Washington State Public Power Supply System Revenue, Nuclear Project No. 1,
Refunding,
1,000,000 Series A, 5.25%, 07/01/08 ................................................... 857,880
18,330,000 Series A, 6.00%, 07/01/09 ................................................... 17,077,511
1,500,000 Series A, 7.00%, 07/01/11 ................................................... 1,505,070
22,400,000 Series A, 6.00%, 07/01/12 ................................................... 20,273,568
35,355,000 Series A, 6.05%, 07/01/12 ................................................... 32,344,522
25,920,000 Series A, 6.50%, 07/01/15 ................................................... 24,675,322
19,250,000 Series A, 6.00%, 07/01/17 ................................................... 16,997,363
10,705,000 Series A, 6.25%, 07/01/17 ................................................... 9,912,295
5,900,000 dSeries A, 6.875%, 07/01/17 ................................................ 5,855,750
32,000,000 Series A, Pre-Refunded, 7.625%, 07/01/08 .................................... 35,648,960
17,000,000 Series A, Pre-Refunded, 7.375%, 07/01/12 .................................... 18,734,850
4,000,000 Series C, Pre-Refunded, 7.625%, 07/01/10 .................................... 4,461,960
5,000,000 Series C, Pre-Refunded, 8.00%, 07/01/17 ..................................... 5,665,200
Washington State Public Power Supply System Revenue, Nuclear Project No. 2,
Refunding,
$ 1,000,000 Series A, 5.00%, 07/01/09 ................................................... $ 842,800
16,150,000 Series A, 6.25%, 07/01/12 ................................................... 15,101,865
5,000,000 Series A, 6.30%, 07/01/12 ................................................... 4,749,650
1,500,000 Series A, 7.00%, 07/01/12 ................................................... 1,505,070
Washington State Public Power Supply System Revenue, Nuclear Project No. 3,
Refunding,
13,460,000 Series 1989-B, Pre-Refunded, 7.25%, 07/01/15 ................................ 14,674,496
1,260,000 Series 1990-B, Pre-Refunded, 7.50%, 07/01/18 ................................ 1,396,130
13,350,000 Series A, 6.50%, 07/01/18 ................................................... 12,596,793
12,945,000 Series B, 5.70%, 07/01/10 ................................................... 11,596,390
4,000,000 Series B, 5.70%, 07/01/18 ................................................... 3,410,840
-------------
398,164,488
-------------
West Virginia 1.0%
1,250,000 Clarksburg Water Revenue, Pre-Refunded, 10.875%, 02/01/20 ................... 1,296,675
New Martinsville Building Commission Revenue, City of New Martinsville Project,
3,015,000 Series A, Pre-Refunded, 8.50%, 11/01/03 ..................................... 3,325,756
4,250,000 Series A, Pre-Refunded, 8.75%, 11/01/09 ..................................... 4,798,420
2,400,000 Taylor County PCR, Union Carbide Corp., 7.625%, 08/01/05 .................... 2,548,728
3,900,000 West Virginia State Hospital Finance Authority Revenue, Refunding, St. Francis
Hospital, Charleston, 7.75%, 08/15/13 ...................................... 3,990,987
West Virginia State Housing Development Fund, Housing Finance,
6,000,000 Series D, 7.00%, 05/01/17 ................................................... 5,939,580
9,000,000 Series D, 7.05%, 11/01/24 ................................................... 8,944,200
11,750,000 West Virginia State School Building Authority Revenue, Capital Improvement,
Series A, MBIA Insured, 6.25%, 07/01/22 .................................... 11,667,632
West Virginia State Water Development Authority Revenue,
5,000,000 Loan Program II, Series 1988-A, Pre-Refunded, 8.625%, 11/01/28 .............. 5,665,300
13,085,000 Loan Program II, Series 1990-A, Pre-Refunded, 7.70%, 11/01/29 ............... 14,689,090
5,180,000 Loan Program II, Series 1991-A, 7.00%, 11/01/31 ............................. 5,046,511
-------------
67,912,879
-------------
Wisconsin .9%
2,200,000 Janesville IDR, Simmons Manufacturing Co., 7.00%, 10/15/17................... 2,220,196
Wisconsin Housing & EDA, Homeownership Revenue,
10,230,000 Series 1, 6.75%, 09/01/15 ................................................... 10,172,098
3,000,000 Series 1, 6.75%, 09/01/17 ................................................... 2,982,330
5,500,000 Series A, 6.45%, 03/01/17 ................................................... 5,148,440
$11,330,000 Series A, 7.10%, 03/01/23 ................................................... $ 11,328,300
3,000,000 Series B, 7.05%, 11/01/22 ................................................... 3,001,740
15,185,000 Wisconsin State Health & Educational Facilities Authority Revenue,
Lindengrove, Inc. Project, 10.00%, 10/01/17................................. 16,324,331
7,400,000 Wisconsin State Health Facilities Authority Revenue, Refunding, Franciscan
Health Advisory, 7.80%, 03/01/14 ........................................... 7,552,810
-------------
58,730,245
-------------
Wyoming .5%
7,150,000 Converse County PCR, Power & Light Co. Project, 6.375%, 01/01/07 ............ 7,149,928
Wyoming CDA, MF Mortgage,
1,625,000 Series A, 6.90%, 06/01/12 ................................................... 1,605,370
3,530,000 Series A, 6.95%, 06/01/24 ................................................... 3,477,509
Wyoming CDA, SFM,
4,000,000 Series A, 5.70%, 06/01/13 ................................................... 3,543,520
2,500,000 Series A, 7.25%, 06/01/21 ................................................... 2,505,200
15,825,000 Series A, 6.00%, 06/01/23 ................................................... 14,075,071
1,730,000 Series G, 7.375%, 06/01/17 .................................................. 1,782,246
-------------
34,138,844
-------------
Total Bonds (Cost $6,336,523,068) ........................................... 6,436,427,872
-------------
fZero Coupon Bonds 1.2%
11,040,000 Calcasieu Parish, Memorial Hospital Service District Revenue, Lake Charles Parish
Memorial Hospital Project, Series A, (original accretion rate 5.59%), 12/01. 5,121,455
16,000,000 Chicago Residential Mortgage Revenue, Refunding, Series B, MBIA Insured,
(original accretion rate 7.30%), 10/01/09 .................................. 5,576,960
5,935,000 Coldwater Community Schools, MBIA Insured, (original accretion rate 6.794%),
05/01/18 1,124,682
Colorado Springs Airport Revenue,
1,660,000 Series C, (original accretion rate 6.86%), 01/01/03 ......................... 979,383
1,610,000 Series C, (original accretion rate 6.966%), 01/01/05 ........................ 818,282
1,675,000 Series C, (original accretion rate 7.07%), 01/01/07 ......................... 727,736
800,000 Series C, (original accretion rate 7.07%), 01/01/08 ......................... 320,432
1,450,000 Series C, (original accretion rate 7.176%), 01/01/11 ........................ 442,888
Jefferson County, Capital Projects Corp., Lease Revenue, Refunding,
1,640,000 Series A, (original accretion rate 6.75%), 08/15/07 ......................... 687,832
4,505,000 Series A, (original accretion rate 6.80%), 08/15/08 ......................... 1,748,796
4,580,000 Series A, (original accretion rate 6.87%), 08/15/09 ......................... 1,638,678
4,620,000 Series A, (original accretion rate 6.85%), 08/15/10 ......................... 1,530,190
Jefferson County, Capital Projects Corp., Lease Revenue, Refunding, (cont.)
$ 6,825,000 Series A, (original accretion rate 6.95%), 08/15/13 ......................... $ 1,815,517
6,860,000 Series A, (original accretion rate 6.95%), 08/15/14 ......................... 1,700,524
7,005,000 Series A, (original accretion rate 7.00%), 08/15/16 ......................... 1,492,205
7,115,000 Series A, (original accretion rate 7.00%), 08/15/17 ......................... 1,411,686
6,000,000 Harrison Community Schools, AMBAC Insured, (original accretion rate 6.90%),
05/01/20 1,006,440
2,250,000 Louisiana HFA, HMR, Refunding, (original accretion rate 9.20%), 09/01/13 .... 2,211,390
Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue,
5,650,000 Expansion, Project A, FGIC Insured, (original accretion rate 1.97%), 06/15/07 4,745,266
8,500,000 Expansion, Project A, FGIC Insured, (original accretion rate 6.526%), 06/15/08 3,522,655
11,000,000 Expansion, Project A, FGIC Insured, (original accretion rate 6.677%), 06/15/09 4,159,760
8,000,000 Expansion, Project A, FGIC Insured, (original accretion rate 6.628%), 06/15/10 2,809,120
9,690,000 Expansion, Project A, FGIC Insured, (original accretion rate 6.629%), 06/15/11 3,156,421
11,800,000 Expansion, Project A, FGIC Insured, (original accretion rate 3.193%), 06/15/12 6,938,282
5,250,000 Owensboro Electric Light & Power Revenue, Series B, AMBAC Insured,
(original accretion rate 6.85%), 01/01/08 .................................. 2,240,910
Shreveport Water & Sewer Revenue,
490,000 Series B, FGIC Insured, (original accretion rate 7.05%), 12/01/07 ........... 207,902
2,530,000 Series B, FGIC Insured, (original accretion rate 7.05%), 12/01/08 ........... 991,684
4,080,000 Series B, FGIC Insured, (original accretion rate 7.05%), 12/01/09 ........... 1,489,730
5,630,000 Series B, FGIC Insured, (original accretion rate 7.05%), 12/01/10 ........... 1,907,782
7,000,000 Spring ISD, Refunding, FGIC Insured, Pre-Refunded, (original accretion
rate 7.80%), 08/15/08 ...................................................... 2,836,190
14,250,000 University of Illinois, University Revenues, AMBAC Insured, (original accretion
rate 7.187%), 04/01/10 ..................................................... 5,050,627
Virginia State HDA, Commonwealth Mortgage,
6,700,000 Series 1990-A, Sub-Series A-4, (original accretion rate 7.85%), 01/01/11 .... 1,933,419
5,650,000 Series 1990-A, Sub-Series A-4, (original accretion rate 7.85%), 01/01/14 .... 1,245,260
11,000,000 Washington State Public Power Supply System Revenue, Nuclear Project No. 2,
Refunding, Series A, (original accretion rate 7.33%), 07/01/13 ............. 2,978,140
Washington State Public Power Supply System Revenue, Nuclear Project No. 3,
Refunding,
6,400,000 Series 1990-B, (original accretion rate 6.751%), 07/01/12 ................... 1,874,367
15,000,000 Series 1990-B, (original accretion rate 7.25%), 07/01/14 .................... 3,786,300
-------------
Total Zero Coupon Bonds (Cost $83,223,156)................................... 82,228,891
-------------
Total Long Term Investments (Cost $6,419,746,224) ........................... 6,518,656,763
-------------
Short Term Investments .3%
$ 100,000 eBaltimore County, Maryland, HMR, Refunding, Spring Hill Project, Weekly VRDN
and Put, 3.45%, 09/20/28 ................................................... $ 100,000
580,000 Bloomington Port Authority, Minnesota, Tax Increment Revenue, Stadium Site
Redevelopment Project, ETM 02/01/95, 8.00%, 02/01/95 ....................... 585,243
410,000 Brazos River Authority, Texas, PCR, Johnson County, Surface Water & Treatment
Revenue, 8.40%, 09/01/95 ................................................... 422,636
2,400,000 eClear Creek County, Colorado, RAWS, Financing Pool, Weekly VRDN and Put,
3.35%, 06/01/98 ............................................................ 2,400,000
eColorado State Health Facilities Authority Revenue, Boulder Community
Hospital Project,
800,000 Series B, MBIA Insured, Weekly VRDN and Put, 3.40%, 10/01/14 ................ 800,000
100,000 Series C, MBIA Insured, Weekly VRDN and Put, 3.40%, 10/01/14 ................ 100,000
eColorado State Student Obligation Bond, Authority Student Loan Revenue,
100,000 Series C, Weekly VRDN and Put, 3.40%, 09/01/99 .............................. 100,000
700,000 Series C-2, Weekly VRDN and Put, 3.25%, 09/01/02 ............................ 700,000
200,000 eConnecticut Special Tax Obligation Revenue, Second Lien Transportation,
Weekly VRDN and Put, 3.45%, 12/01/10 ....................................... 200,000
450,000 Dakota County, Minnesota, Housing & Redevelopment Authority, Limited Annual
Appropriation, Tax & Revenue Supported, Development Housing Facilities Project,
7.00%, 01/01/95 ............................................................ 450,436
300,000 eDenver, Colorado, City & County Revenue, Children's Hospital Association Project,
FGIC Insured, Weekly VRDN and Put 3.35%, 10/01/18 .......................... 300,000
200,000 eFlorida State HFAR, Ashley Lake II Project, Series J, Weekly VRDN and Put,
3.45%, 12/01/10 ............................................................ 200,000
100,000 eHarris County, Texas, IDC, PCR, Exxon Project, Series B, Daily VRDN and Put,
3.60%, 03/01/24 ............................................................ 100,000
300,000 eMissouri State Higher Education Loan Authority Student, Loan Revenue,
Series A, Weekly VRDN and Put, 3.45%, 06/01/17 ............................. 300,000
600,000 eMontgomery, Alabama, Special Care Facilities Financing Authority Revenue,
VHA Alabama Inc., Series G, AMBAC Insured, Weekly VRDN and Put,
3.35%, 12/01/30 ............................................................ 600,000
2,100,000 eNew Jersey State, Turnpike Authority Revenue, Refunding, Series D,
FGIC Insured, Weekly VRDN and Put, 3.15%, 01/01/18 ......................... 2,100,000
1,020,000 New York City, GO, Refunding, Series 1991-B, Pre-Refunded, 8.00%, 06/01/95 .. 1,040,452
200,000 ePuerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 3.15%, 01/01/18 ....................................... 200,000
400,000 eStudent Loan Funding Corp., Ohio, Cincinnati Student Loan Revenue,
Series 1983 A, Weekly VRDN and Put, 3.35%, 12/29/98 ........................ 400,000
400,000 eTexas State Department of Housing & Community Affairs MFR, Refunding,
Weekly VRDN and Put, 3.30%, 02/01/23 ....................................... 400,000
$ 5,800,000 eWashington State Public Power Supply System Revenue, Nuclear Project No. 1,
Refunding, Series 1A-2, Weekly VRDN and Put, 3.55%, 07/01/17 ............... $ 5,800,000
eWest Virginia State Hospital Finance Authority Revenue,
1,400,000 Series D, AMBAC Insured, Weekly VRDN and Put, 3.35%, 12/01/25 ............... 1,400,000
1,400,000 Series E, AMBAC Insured, Weekly VRDN and Put, 3.35%, 12/01/25 ............... 1,400,000
-------------
Total Short Term Investments (Cost $20,055,900).............................. 20,098,767
-------------
Total Investments (Cost $6,439,802,124) 98.3%..................... 6,538,755,530
Other Assets and Liabilities, Net 1.7% ............................ 111,902,419
-------------
Net Assets 100.0%................................................ $6,650,657,949
=============
At October 31, 1994, the net unrealized appreciation based on
the cost of investments for income tax purposes of $6,439,802,124 was as
follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost............................................ $ 262,031,727
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value............................................ (163,078,321)
-------------
Net unrealized appreciation.................................................. $ 98,953,406
=============
</TABLE>
aNon-income producing.
bSee Note 6 regarding defaulted securities.
cSecurity value estimated by Board of Directors. See note 1.
dSee Note 1 regarding securities purchased on a when-issued basis.
eVariable rate demand notes (VRDN's) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest upon
short notice prior to specified dates. The interest rate may change on specified
dates in relationship with changes in a designated rate (such as the prime
interest rate or U.S. Treasury bills rate).
fZero coupon bonds. The current effective yield may vary. The original accretion
rate by security, will remain constant.
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
BMTF - Bi-Modal Multi-Term Format
CDA - Community Development Authority/Agency
CFD - Community Facility District
CGIC - Capital Guaranty Insurance Co.
CHM - Collateralized Home Mortgage
COP - Certificate of Participation
EDA - Economic Development Authority/Agency
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Corp.
FHA - Federal Housing Authority
FI/GML - Federally Insured or Guaranteed Mortgage Loan
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority
HDC - Housing Development Corp.
HFA - Housing Finance Agency
HFAR - Housing Finance Agency Revenue
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
IDB - Industrial Development Board
IDC - Industrial Development Corp.
IDR - Industrial Development Revenue
IPC - Industrial Pollution Control
ISD - Independent School District
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Securities
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MUD - Municipal Utility District
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PUD - Public Utility District
RAWS - Revenue Anticipation Warrants
RDA - Redevelopment Authority/Agency
RDAR - Redevelopment Agency Revenue
RMR - Residential Mortgage Revenue
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
USD - Unified School District
The accompanying notes are an integral part of these financial statements.
FRANKLIN FEDERAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Financial Statements
Statement of Assets and Liabilities
October 31,1994 (unaudited)
<S> <C>
Assets:
Investments in securities, at value
(at identified cost $6,439,802,124) $6,538,755,530
Cash 134,745
Receivables:
Interest 142,847,608
Investment securities sold 22,659,265
Capital shares sold 8,984,363
Prepaid expenses 43,835
--------------
Total assets 6,713,425,346
--------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery 1,535,875
When-issued basis (Note 1) 43,764,990
Capital shares repurchased 12,963,218
Management fees 2,515,601
Distributions Fees 1,552,396
Shareholder servicing costs 82,325
Accrued expenses and other liabilities 352,992
--------------
Total liabilities 62,767,397
--------------
Net assets, at value $6,650,657,949
==============
Net assets consist of:
Undistributed net investment income $ 7,055,390
Unrealized appreciation on investments 98,953,406
Accumulated net realized loss (134,811,786)
Capital shares 6,679,460,939
--------------
Net assets, at value $6,650,657,949
==============
Shares outstanding 583,755,713
==============
Net asset value per share $11.39
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
for the six months ended October 31, 1994 (unaudited)
<S> <C> <C>
Investment income:
Interest (Note 1) $238,547,567
Expenses:
Management fees (Note 5) $15,458,352
Distribution fees (Note 5) 2,397,171
Shareholder servicing
costs (Note 5) 518,268
Reports to shareholders 692,433
Custodian fees 382,703
Registration fees 282,758
Directors' fees and
expenses 78,334
Professional fees 67,654
Other 128,462
-----------
Total expenses 20,006,135
------------
Net investment
income 218,541,432
Realized and unrealized loss
on investments:
Net realized loss (50,006,557)
Net unrealized depreciation
during the period (183,258,872)
------------
Net realized and unrealized
loss on investments (233,265,429)
Net decrease in net assets
resulting from operations $ (14,723,997)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN FEDERAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Financial Statements (cont.)
Statements of Changes in Net Assets
for the six months ended October 31, 1994 (unaudited)
and for the year ended April 30, 1994
Six months Year
ended ended
October 31, 1994 April 30, 1994
---------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................................... $ 218,541,432 $ 427,794,760
Net realized loss from security transactions.............................. (50,006,557) (10,591,976)
Net unrealized depreciation during the period............................. (183,258,872) (239,927,185)
-------------- --------------
Net increase (decrease) in net assets resulting from operations....... (14,723,997) 177,275,599
Distributions to shareholders:
From undistributed net investment income................................... (226,780,432) (433,853,432)
Increase in net assets from capital share transactions (Note 2)............. 87,900,538 646,100,606
-------------- --------------
Net increase (decrease) in net assets................................. (153,603,891) 389,522,773
Net assets:
Beginning of period........................................................ 6,804,261,840 6,414,739,067
-------------- --------------
End of period (including undistributed net investment income of
$7,055,390 - 10/31/94 and $15,294,390 - 4/30/94)............................ $6,650,657,949 $6,804,261,840
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN FEDERAL TAX-FREE INCOME FUND
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Federal Tax-Free Income Fund (the Fund) is an open-end, management
investment company (mutual fund) registered under the Investment Company Act of
1940 as amended.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Tax-free bonds generally trade in the over-the-counter market rather than on a
national securities exchange. Often there are no transactions in a particular
security on any given day. In the absence of a recorded sale or reported bid and
asked prices, information with respect to bond and note transactions, quotations
from bond dealers, market transactions in comparable securities, and various
relationships between securities are used to determine the value of the
security. The Fund may also utilize a pricing service, bank or broker/dealer
experienced in such matters to perform any of the pricing functions, under
procedures approved by the Board of Directors. Short-term securities and similar
investments with remaining maturities of 60 days or less are valued at amortized
cost, which approximates current value.
b. Municipal Bonds or Notes with "Puts":
The Fund has purchased municipal bonds or notes with the right to resell the
bonds or notes to the seller at an agreed upon price or yield on a specified
date or within a specified period (which will be prior to the maturity date of
the bonds or notes). Such a right to resell is commonly known as a "put."
c. Income Taxes:
The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is required.
d. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification for both financial statement
and income tax purposes.
e. Investment Income, Expenses and Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Bond discount and premium are
amortized as required by the Internal Revenue Code.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities - see Note 6.
f. Securities Purchased on a When-Issued Basis:
The Fund may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price transactions. Although
the Fund will generally purchase these securities with the intention of
acquiring such securities, it may sell such securities before the settlement
date. The Fund has set aside sufficient investment securities as collateral for
these purchase commitments. These securities are identified on the accompanying
Statement of Investments in Securities and Net Assets.
2. CAPITAL STOCK
At October 31, 1994, there were 10,000,000,000 shares of no par value capital
stock authorized and capital paid-in aggregated $6,679,460,939. Transactions in
the Fund's shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
October 31, 1994 April 30, 1994
---------------- --------------
Shares Amount Shares Amount
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold.................................... 28,080,332 $328,935,509 83,195,814 $1,025,620,699
Shares issued in reinvestment of distributions. 6,985,228 81,778,743 11,697,850 143,535,367
Shares redeemed................................ (25,623,698) (299,468,133) (39,809,631) (488,804,178)
Changes from exercise of exchange privilege:
Shares sold................................... 20,307,930 237,732,446 31,586,425 386,989,974
Shares redeemed............................... (22,335,981) (261,078,027) (34,268,195) (421,241,256)
----------- ------------ ----------- ------------
Net increase................................... 7,413,811 $ 87,900,538 52,402,263 $ 646,100,606
=========== ============ =========== ============
</TABLE>
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At April 30, 1994, for tax purposes, the Fund had capital loss carryovers as
follows:
Expiring in: 1996 $32,151,648
1997 19,946,075
1998 14,050,263
2000 8,032,018
2002 10,591,976
-----------
$84,771,980
===========
For income tax purposes, the aggregate cost of securities and unrealized
appreciation are the same as for financial reporting purposes at October 31,
1994.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the six months ended October 31, 1994 aggregated $831,837,163
and $751,433,016, respectively.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
investment advice, administrative services, office space and facilities to the
Fund, and receives fees computed monthly on the net assets of the Fund on the
last day of the month at an annualized rate of 5/8 of 1% of the first $100
million of net assets, 1/2 of 1% of net assets in excess of $100 million up to
and including $250 million, 45/100 of 1% of net assets in excess of $250 million
up to and including $10 billion, 44/100 of 1% of net assets in excess of $10
billion up to and including $12.5 billion, 42/100 of 1% of net assets in excess
of $12.5 billion up to and including $15 billion, 40/100 of 1% of net assets in
excess of $15 billion up to and including $17.5 billion, 38/100 of 1% of net
assets in excess of $17.5 billion up to and including $20 billion, and 36/100 of
1% of net assets in excess of $20 billion. Fees incurred by the Fund aggregated
$15,458,352 for the six months ended October 31, 1994. The terms of the
management agreement provide that aggregate annual expenses of the Fund be
limited to the extent necessary to comply with the limitations set forth in the
laws, regulations and administrative interpretations of the states in which the
Fund's shares are registered. For the six months ended October 31, 1994, the
Fund's expenses did not exceed these limitations.
In its capacity as underwriter for the capital stock of the Fund,
Franklin/Templeton Distributors, Inc. received commissions on sales of the
Fund's capital stock for the six months ended October 31, 1994 totaling
$10,238,433 of which $9,817,086 was subsequently paid to other dealers.
Commissions are deducted from the gross proceeds received from the sale of the
capital stock of the Fund, and as such are not expenses of the Fund.
Pursuant to a shareholder service agreement with Franklin/Templeton Investor
Services, Inc., the Fund pays costs on a per shareholder account basis. Such
costs incurred for the six months ended October 31, 1994 aggregated $518,268 of
which $490,870 was paid to Franklin/Templeton Investor Services, Inc.
Effective May 1, 1994, the Fund implemented a plan of distribution under Rule
12b-1 of the Investment Company Act of 1940, pursuant to which the Fund will
reimburse Franklin/Templeton Distributors, Inc. in an amount up to a maximum of
0.10% per annum of the average daily net assets of the Fund for costs incurred
in the promotion, offering and marketing of the Fund's shares. Costs incurred by
the Fund under the agreement aggregated $2,397,171 for the six months ended
October 31, 1994.
Certain officers and directors of the Fund are also officers and/or directors of
Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc. and
Franklin/Templeton Investors Services, Inc., all wholly owned subsidiaries of
Franklin Resources, Inc.
6. CREDIT RISK AND DEFAULTED SECURITIES
Although the Fund has a diversified portfolio, it has investments in excess of
10% of its total net assets in the state of New York. Such concentration may
subject the Fund more significantly to economic changes occurring within that
state.
The Fund has 2.60% of its portfolio invested in lower rated and comparable
quality unrated high yield securities. Investments in higher yield securities
are accompanied by a greater degree of credit risk and such lower quality
securities tend to be more sensitive to economic conditions than higher rated
securities.
The risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities, because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. At
October 31, 1994, the Fund held one defaulted security with a value aggregating
$4,350,000 representing 0.07% of the Fund's net assets. For more information as
to the specific security, see the accompanying Statement of Investments in
Securities and Net Assets.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
7. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended April 30
Six Months ----------------------------------------------------------
Ended
October 31, 1994 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value at beginning of period $11.81 $12.24 $11.68 $11.40 $11.08 $11.33
---------- ---------- ---------- ---------- ---------- ----------
Net investment income............... .38 .77 .80 .82 .83 .84
Net realized and unrealized gain
(loss) on securities............... (.410) (.415) .576 .302 .342 (.238)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations.... (.030) .355 1.376 1.122 1.172 .602
Distributions from net
investment income.................. (.390) (.785) (.816) (.842) (.852) (.852)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value at end of period.... $11.39 $11.81 $12.24 $11.68 $11.40 $11.08
========== ========== ========== ========== ========== ==========
Total Return*....................... (.30)% 2.58% 11.89% 9.90% 10.67% 5.10%
Ratios/Supplemental Data
Net assets at end of period (in 000's) $6,650,658 $6,804,262 $6,414,739 $5,184,214 $4,353,043 $3,865,264
Ratio of expenses to average
net assets......................... .59%+ .52% .51% .51% .50% .50%
Ratio of net investment income to
average net assets................. 6.42%+ 6.27% 6.68% 7.07% 7.34% 7.39%
Portfolio turnover rate............. 11.18% 24.59% 13.30% 14.94% 28.79% 17.83%
</TABLE>
*Total return measures the changes in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends at the offering price and capital gains, if any, at
net asset value. Effective May 1,1994, with the implementation of the Rule 12b-1
distribution plan, as disclosed in Note 5, the existing sales charge on
reinvested dividends has been eliminated. +Annualized.
