TF 2 P 07
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN TAX-FREE TRUST
FRANKLIN ALABAMA TAX-FREE INCOME FUND
FRANKLIN FLORIDA TAX-FREE INCOME FUND
FRANKLIN GEORGIA TAX-FREE INCOME FUND
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
FRANKLIN MARYLAND TAX-FREE INCOME FUND
FRANKLIN MISSOURI TAX-FREE INCOME FUND
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
FRANKLIN TEXAS TAX-FREE INCOME FUND
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
dated July 1, 1994
as amended October 4, 1994
The following sections of the prospectus are revised to reflect changes to the
operational policies of the Funds effective February 1, 1995:
1. EXPENSE TABLE
Revised to reflect that investments of $1,000,000 or more are not subject to a
front-end sales charge. A contingent deferred sales charge of 1%, however, will
be imposed on certain redemptions within 12 months of the calendar month
following such investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
2. MANAGEMENT OF THE TRUST
Revised to add the definition "Franklin Templeton Group" to describe the
subsidiaries of Resources.
3. HOW TO BUY SHARES OF THE FUNDS:
a) Add the following language under "General":
The Fund may impose a $10 charge for each returned item against any
shareholder account which, in connection with the purchase of the
Funds' shares, submits a check or a draft which is returned unpaid to a
Fund.
b) Substitute the following for the sales charge table and the ensuing two
paragraphs:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
------------------------------------------------------------
AS A AS A DEALER CONCESSION
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF NET AS A PERCENTAGE
AT OFFERING PRICE OFFERING PRICE AMOUNT INVESTED OF OFFERING PRICE****
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 . . . . . . . . . . 4.25% 4.44% 4.00%
$100,000 but less than $250,000 . . . . 3.50% 3.63% 3.25%
$250,000 but less than $500,000 . . . . 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 . . . 2.15% 2.20% 2.00%
$1,000,000 or more . . . . . . . . . . none none (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, from its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 0.75% on sales of $1 million but less than $2 million,
plus 0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million but
less than $100 million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases.
***At the discretion of Distributors, all sales charges may at times be allowed
to the securities dealer. If 90% or more of the sales commission is allowed,
such securities dealer may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, as amended.
1
<PAGE>
No front-end sales charge applies on investments of $1 million or more, but
a contingent deferred sales charge of 1% is imposed on certain redemptions
of investments of $1 million or more within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares
of the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on
the purchase of Fund shares is determined by adding the amount of the
shareholder's current purchase plus the cost or current value (whichever is
higher) of a shareholder's existing investment in one or more of the funds
in the Franklin Group of Funds(R) 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. mutual funds in the Templeton Group of Funds
except Templeton American Trust, Inc., Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund (the "Templeton Funds"). (Franklin Funds and Templeton Funds are
collectively referred to as the "Franklin Templeton Funds.") Sales charge
reductions based upon aggregate holdings of (a), (b) and (c) above
("Franklin Templeton Investments") may be effective only after notification
to Distributors that the investment qualifies for a discount. References
throughout the Prospectus, for purposes of aggregating assets or describing
the exchange privilege, refer to the above descriptions.
Distributors, or one of its affiliates, may make payments, from its own
resources, of up to 1% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset value by
certain trust companies and trust departments of banks. See definitions
under "Descriptions of Special Net Asset Value Purchases" and as set forth
in the SAI.
c) Substitute the following for the current "Purchases at Net Asset Value"
subsection:
PURCHASES AT NET ASSET VALUE
Shares of the Funds may be purchased without the imposition of either a
front-end sales charge ("net asset value") or a contingent deferred sales
charge by (1) officers, directors, trustees and full-time employees of the
Trust, any of the Franklin Templeton Funds, or of the Franklin Templeton
Group, and by their spouses and family members; (2) companies exchanging
shares with or selling assets pursuant to a merger, acquisition or exchange
offer; (3) registered securities dealers and their affiliates, for their
investment account only, and (4) registered personnel and employees of
securities dealers, which have directly or through affiliates, signed an
agreement with Distributors, and by their spouses and family members, in
accordance with the internal policies and procedures of the employing
securities dealer.
Shares of the Funds may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares one of the Funds or
another of the Franklin Templeton Funds which were purchased with a
front-end sales charge or assessed a contingent deferred sales charge on
redemption. An investor may reinvest an amount not exceeding the redemption
proceeds. While credit will be given for any contingent deferred sales
charge paid on the shares redeemed, a new contingency period will begin.
Shares of a 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 a 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-
2
<PAGE>
day period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.
Dividends and capital gains received in cash by the shareholder may also be
used to purchase shares of the Funds or another of the Franklin Templeton
Funds at net asset value and without the imposition of a contingent deferred
sales charge within 120 days of the payment date of such distribution. To
exercise this privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be obtained from
Shareholder Services at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Shares of the Funds may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have,
within the past 60 days, redeemed an investment in an unaffiliated mutual
fund which charged the investor a contingent deferred sales charge upon
redemption and which has investment objectives similar to those of the
Fund.
Shares of the Funds may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by registered investment
advisors and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with Distributors, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or
city, or any instrumentality, department, authority or agency thereof which
has determined that the Funds are 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 Funds or its investment manager on
arbitrage rebate calculations. If an investment by an eligible governmental
authority at net asset value is made through a securities dealer who has
executed a dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to such
securities dealer in an amount not to exceed 0.25% of the amount invested.
Contact Franklin's Institutional Sales Department for additional
information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or
to be invested during the subsequent 13-month period in these Funds or any
of the Franklin Templeton Investments must total at least $1,000,000. Orders
for such accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly from the bank
or trust company, with payment by federal funds received by the close of
business on the next business day following such order.
Refer to the SAI for further information.
4. EXCHANGE PRIVILEGE
a) The following has been added to the end of the first paragraph:
Investors should review the prospectus of the fund they wish to exchange
from and the fund they wish to exchange into for all specific requirements
or limitations on exercising the exchange privilege, for example, minimum
holding periods or applicable sales charges.
b) The following option is added to "Exchanges By Telephone":
3
<PAGE>
The automatic TeleFACTS(R) system at 1-800/247-1753 is available for
processing exchanges (day or night). During periods of drastic economic or
market changes, however, this option may not be available, in which event
the shareholder should follow other exchange procedures discussed in
the Prospectus.
c) Add the following paragraph under the subsection "Additional Information
Regarding Exchanges":
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales
charge in the original fund purchased, and shares are subsequently redeemed
within the contingency period, a contingent deferred sales charge will be
imposed. The contingency period will be tolled (or stopped) for the period
such shares are exchanged into and held in a Franklin or Templeton money
market fund. See also "How to Sell Shares of the Fund - Contingent Deferred
Sales Charge."
d) Substitute the following for the subsection "Timing Accounts":
As of March 1, 1995, "Timing Accounts" will no longer be permitted to
purchase shares of the Funds or to exchange into the Funds. This policy does
not affect any other types of investor. "Timing Accounts" generally include
market timing or allocation services; accounts administered so as to redeem
or purchase shares based upon certain predetermined market indicators; or
any person whose transactions seem to follow a timing pattern. The sections
of the Prospectus "How to Buy Shares of Each Fund" and "Exchange Privilege",
specifically "Restrictions on Exchanges" are amended to reflect the
Funds' new policy.
5. HOW TO SELL SHARES OF THE FUND
Add the following subsection:
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers on investments of
$1 million or more, a contingent deferred sales charge of 1% applies to
redemptions of those investments the contingency period the contingency
period of 12 months of the calendar month following such purchase. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total cost of
such shares, and is retained by Distributors. In determining if a charge
applies, shares not subject to a contingent deferred sales charge are deemed
to be redeemed first, in the following order: (i) Shares representing
amounts attributable to capital appreciation of those shares held less than
12 months; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than 12 months; and
followed by any shares held less than 12 months, on a "first in, first
out" basis.
The contingent deferred sales charge is waived for: exchanges; redemptions
through a Systematic Withdrawal Plan set up prior to February 1, 1995 and
for Systematic Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6% semiannually or
12% annually); and redemptions initiated by a Fund due to a shareholder's
account falling below the minimum specified account size.
Requests for redemptions for a specified dollar amount will result in
additional shares being redeemed to cover any applicable contingent deferred
sales charge, while requests for redemption of a specific number of shares
will result in the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.
6. PORTFOLIO OPERATIONS
The section "Portfolio Operations" is changed to add Thomas Kenny as
Portfolio Manager in place of Gregory Harrington. Mr. Kenny is Senior Vice
President of the investment manager and director of Franklin's municipal
bond department. He joined Franklin in 1986. He received a Bachelor of Arts
degree in Business and Economics from the University of California at Santa
Barbara and Master of Science degree in Finance from Golden Gate University.
He is a member of several municipal securities industry related committees
and associations.
4
<PAGE>
<PAGE>
FRANKLIN
TAX-FREE TRUST
PROSPECTUS JULY 1, 1994
AS AMENDED OCTOBER 4, 1994
[LOGO]
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Tax-Free Trust (the "Trust") is an open-end management investment
company consisting of 27 separate series. This Prospectus relates only to the
ten series listed on the cover (separately or collectively the "Fund," "Funds,"
or individually by the state included as part of its name). Each Fund seeks to
provide investors with as high a level of income exempt from federal income
taxes as is consistent with prudent investing, while seeking preservation of
shareholders' capital. Each Fund also seeks to provide a maximum level of
income which is exempt from the personal income taxes, if any, for resident
shareholders of the named state. The states of Florida and Texas currently
impose no state personal income taxes.
Each Fund invests primarily in municipal securities issued by its respective
state and its political subdivisions, agencies and instrumentalities.
This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and each of ten Funds 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.
SHARES OF THE FUNDS 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 FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
A Statement of Additional Information ("SAI"), concerning the Trust and the
Funds described in this Prospectus, dated July 1, 1994, as may be amended from
time to time, provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors. It has been filed
with the Securities and Exchange Commission ("SEC") and is incorporated herein
by reference. A copy is available without charge from the Trust or the Trust's
principal underwriter, Franklin/Templeton Distributors, Inc. ("Distributors")
at the address or telephone number listed 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.
1
<PAGE>
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Expense Table................................ 2
Financial Highlights......................... 4
About the Trust.............................. 6
Investment Objective and
Policies of Each Fund....................... 7
Management of the Trust...................... 13
Distributions to Shareholders................ 15
Taxation of the Funds
and Their Shareholders...................... 16
How to Buy Shares of a Fund.................. 18
Other Programs and Privileges
Available to Shareholders of the Funds...... 24
Exchange Privilege........................... 26
How to Sell Shares of a Fund................. 28
Telephone Transactions....................... 31
Valuation of Shares of the Funds............. 32
How to Get Information
Regarding an Investment in a Fund........... 32
Performance.................................. 33
General Information.......................... 34
Account Registrations........................ 35
Important Notice Regarding
Taxpayer IRS Certifications................. 36
Portfolio Operations......................... 37
Appendix A
Description of State Tax Treatment.......... 38
Appendix B
Special Factors Affecting Each Fund......... 43
</TABLE>
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 Funds. These figures are based on the
operating expenses of the Funds for the fiscal year ended February 28, 1994,
restated to reflect 12b-1 fees as though such had been in effect at the
beginning of the fiscal year.
<TABLE>
<CAPTION>
North
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA MARYLAND MISSOURI CAROLINA TEXAS VIRGINIA
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) . . . . . 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
Maximum Sales Charge Imposed
on Reinvested Dividends . . . NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE
Deferred Sales Charge . . . . . NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE
Redemption Fees . . . . . . . . NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE
*Exchange Fee (per transaction) $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
</TABLE>
*$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege". All other exchanges are processed without a fee.
2
<PAGE>
<TABLE>
<CAPTION>
NORTH
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA MARYLAND MISSOURI CAROLINA TEXAS VIRGINIA
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees . . . . . . . . 0.58% 0.47% 0.62% 0.63%** 0.62% 0.60% 0.57% 0.57% 0.59% 0.56%
***Maximum 12b-1 Fees . . . . . 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Other Expenses:
Shareholder Servicing Costs . 0.02% 0.01% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Reports to Shareholders . . . 0.02% 0.02% 0.02% 0.01% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Other . . . . . . . . . . . . 0.02% 0.02% 0.03% 0.05% 0.02% 0.02% 0.03% 0.02% 0.02% 0.02%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total other expenses . . . . . 0.06% 0.05% 0.07% 0.08% 0.06% 0.06% 0.07% 0.06% 0.06% 0.06%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
+Total Fund Operating Expenses 0.74% 0.62% 0.79% 0.81% 0.78% 0.76% 0.74% 0.73% 0.75% 0.72%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
**Represents the amounts that would have been payable to the investment
manager, absent a fee reduction by the investment manager. The investment
manager, however, has voluntarily agreed to limit its management fees and
assume responsibility for making payments to offset certain operating expenses
otherwise payable by the Franklin Kentucky Tax- Free Income Fund. With this
reduction, the Fund paid no management fees or other expenses. This arrangement
may be terminated at any time.
***Shareholders of each Fund approved a plan of distribution (the "Plan")
pursuant to Rule 12b-1 of the Investment Company Act of 1940 which provides for
payments by each Fund for distribution of its shares, up to a maximum rate of
0.10% of average net assets. See "Management of the Funds - Plans of
Distribution." Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end sales charges
and Rule 12b-1 fees could cause long-term shareholders to pay more than the
economic equivalent of the maximum front-end sales charges permitted under
those same rules.
+Total operating expenses for the fiscal year ended February 28, 1994 have been
restated to reflect the maximum reimbursement allowed pursuant to the Plan, as
though the Plan had been in effect for the entire fiscal year.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by regulations of the SEC, the following example illustrates the
expenses, including the initial sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period. As noted in the table above,
the Fund charges no redemption fees:
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, INCLUDING
FEES SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The
operating expenses are borne by each Fund and only indirectly by shareholders
as a result of their investment in a Fund. In addition, federal regulations
require the example to assume an annual return of 5%, but a Fund's actual
return may be more or less than 5%.
<TABLE>
<CAPTION>
NORTH
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA MARYLAND MISSOURI CAROLINA TEXAS VIRGINIA
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 50 $ 49 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50
3 years $ 65 $ 62 $ 67 $ 67 $ 66 $ 66 $ 65 $ 65 $ 65 $ 65
5 years $ 82 $ 76 $ 85 $ 86 $ 84 $ 83 $ 82 $ 81 $ 82 $ 81
10 years $130 $117 $136 $138 $135 $133 $130 $129 $130 $128
</TABLE>
3
<PAGE>
FINANCIAL HIGHLIGHTS
Set forth below is a table containing the financial highlights for a share of
each Fund from its effective date of registration, as indicated below, through
the fiscal year ended February 28, 1994. The information for each of the five
fiscal years in the period ended February 28, 1994 has been audited by Coopers
& Lybrand, independent auditors, whose audit report appears in the financial
statements in the Fund's SAI. The remaining figures, which are also audited,
are not covered by the auditor's current report. See the discussion "Reports to
Shareholders" under "General Information
<TABLE>
<CAPTION>
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
VALUE NET &UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
PERIOD BEGINNING INVESTMENT GAINS(LOSSES) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
ENDED OF PERIOD INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD RETURN
- ----- --------- ------ ------------- ---------- ------ ----- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN ALABAMA TAX-FREE INCOME FUND:
1988(1) $10.00 $0.44 $(0.210 $0.650 $(0.110) $ -- $(0.110) $10.54 11.26%*
1989 10.54 0.79 0.005 0.795 (0.723) (0.022) (0.745) 10.59 7.59
1990 10.59 0.75 0.168 0.918 (0.768) -- (0.768) 10.74 8.61
1991 10.74 0.71 0.068 0.778 (0.768) -- (0.768) 10.75 7.27
1992 10.75 0.66 0.346 1.006 (0.756) -- (0.756) 11.00 9.51
1993 11.00 0.68 0.714 1.394 (0.684) -- (0.684) 11.71 12.84
1994 11.71 0.66 0.094 0.754 (0.664) -- (0.664) 11.80 6.35
FRANKLIN FLORIDA TAX-FREE INCOME FUND:
1988(1) 10.00 0.46 0.333 0.793 (0.183) -- (0.183) 10.61 14.36*
1989 10.61 0.81 (0.041) 0.769 (0.781) (0.008) (0.789) 10.59 7.28
1990 10.59 0.73 0.226 0.956 (0.816) -- (0.816) 10.73 8.98
1991 10.73 0.73 0.091 0.821 (0.801) -- (0.801) 10.75 7.69
1992 10.75 0.71 0.348 1.058 (0.768) -- (0.768) 11.04 10.02
1993 11.04 0.71 0.647 1.357 (0.717) -- (0.717) 11.68 12.45
1994 11.68 0.70 0.086 0.786 (0.696) -- (0.696) 11.77 6.65
FRANKLIN GEORGIA TAX-FREE INCOME FUND:
1988(1) 10.00 0.44 0.230 0.670 (0.120) -- (0.120) 10.55 11.46*
1989 10.55 0.80 (0.034) 0.766 (0.720) (0.006) (0.726) 10.59 7.32
1990 10.59 0.79 0.264 1.054 (0.744) -- (0.744) 10.90 9.94
1991 10.90 0.72 0.098 0.818 (0.778) -- (0.778) 10.94 7.53
1992 10.94 0.65 0.349 0.999 (0.759) -- (0.759) 11.18 9.32
1993 11.18 0.68 0.658 1.338 (0.668) -- (0.668) 11.85 12.09
1994 11.85 0.66 0.154 0.814 (0.664) -- (0.664) 12.00 6.77
FRANKLIN KENTUCKY TAX-FREE INCOME FUND:
1992(3) 10.00 0.15 0.164 0.314 (0.014) -- (0.014) 10.30 8.37*
1993 10.30 0.57 0.832 1.402 (0.652) -- (0.652) 11.05 13.81
1994 11.05 0.63 0.164 0.794 (0.664) -- (0.664) 11.18 7.07
FRANKLIN LOUISIANA TAX-FREE INCOME FUND:
1988(1) 10.00 0.46 0.136 0.596 (0.186) -- (0.186) 10.41 10.22*
1989 10.41 0.78 (0.028) 0.752 (0.772) -- (0.772) 10.39 7.27
1990 10.39 0.78 0.202 0.982 (0.792) -- (0.792) 10.58 9.41
1991 10.58 0.71 0.182 0.892 (0.792) -- (0.792) 10.68 8.50
1992 10.68 0.67 0.326 0.996 (0.776) -- (0.776) 10.90 9.49
1993 10.90 0.69 0.668 1.358 (0.688) -- (0.688) 11.57 12.61
1994 11.57 0.67 (0.005) 0.665 (0.675) -- (0.675) 11.56 5.63
</TABLE>
<TABLE>
<CAPTION>
RATIO OF RATIO OF
NET ASSETS EXPENSES NET INCOME PORTFOLIO
AT END AVERAGE TO AVERAGE TURNOVER
OF PERIOD NET ASSETS** NET ASSETS RATE
--------- ------------ ---------- ----
<S> <C> <C> <C> <C>
FRANKLIN ALABAMA TAX-FREE INCOME FUND:
1988(1) $2,472,150 -- % 5.64%* 54.25%
1989 6,079,209 -- 7.33 12.70
1990 21,685,469 0.42% 6.69 4.97
1991 50,181,717 0.70 6.45 28.36
1992 96,254,463 0.71 6.21 1.21
1993 144,479,529 0.68 6.04 11.27
1994 178,414,459 0.64 5.62 14.87
FRANKLIN FLORIDA TAX-FREE INCOME FUND:
1988(1) 2,410,874 -- 6.22* 40.02
1989 33,752,190 0.24 6.42 8.64
1990 302,487,803 0.66 6.40 8.50
1991 605,720,260 0.57 6.76 10.80
1992 886,109,987 0.54 6.60 16.69
1993 1,164,827,366 0.54 6.30 11.72
1994 1,361,582,695 0.52 5.90 11.99
FRANKLIN GEORGIA TAX-FREE INCOME FUND:
1988(1) 1,780,084 -- 5.98* 22.93
1989 5,640,334 -- 7.31 12.23
1990 13,876,530 0.09 7.07 14.43
1991 32,010,902 0.56 6.53 1.20
1992 68,546,388 0.72 6.11 6.18
1993 91,017,484 0.71 5.91 17.10
1994 120,882,389 0.69 5.48 16.75
FRANKLIN KENTUCKY TAX-FREE INCOME FUND:
1992(3) 3,032,496 -- 3.52* 53.90
1993 11,678,098 -- 6.11 18.41
1994 28,057,237 -- 5.73 13.22
FRANKLIN LOUISIANA TAX-FREE INCOME FUND:
1988(1) 1,247,045 -- 6.21* 18.12
1989 4,257,203 -- 7.33 5.91
1990 17,695,533 0.04 7.10 16.65
1991 35,861,506 0.56 6.60 .76
1992 72,922,717 0.70 6.33 10.51
1993 95,367,808 0.70 6.18 23.37
1994 115,971,134 0.68 5.70 17.63
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
VALUE NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
PERIOD BEGINNING INVESTMENT GAINS(LOSSES) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
ENDED OF PERIOD INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD RETURN
- ----- --------- ------ ------------- ---------- ------ ----- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN MARYLAND TAX-FREE INCOME FUND:
1989(2) $10.00 $0.18 $(0.054) $0.126 $(0.056) $ -- $(0.056) $10.07 2.98%*
1990 10.07 0.72 0.192 0.912 (0.672) -- (0.672) 10.31 9.01
1991 10.31 0.68 0.096 0.776 (0.716) -- (0.716) 10.37 7.57
1992 10.37 0.64 0.300 0.940 (0.710) -- (0.710) 10.60 9.21
1993 10.60 0.65 0.672 1.322 (0.652) -- (0.652) 11.27 12.64
1994 11.27 0.64 0.092 0.732 (0.642) -- (0.642) 11.36 6.40
FRANKLIN MISSOURI TAX-FREE INCOME FUND:
1988(1) 10.00 0.46 0.058 0.518 (0.168) -- (0.168) 10.35 8.26*
1989 10.35 0.78 0.017 0.797 (0.707) -- (0.707) 10.44 7.74
1990 10.44 0.74 0.198 0.938 (0.738) -- (0.738) 10.64 8.94
1991 10.64 0.69 0.154 0.844 (0.744) -- (0.744) 10.74 7.96
1992 10.74 0.65 0.409 1.059 (0.729) -- (0.729) 11.07 10.04
1993 11.07 0.68 0.676 1.356 (0.676) -- (0.676) 11.75 12.40
1994 11.75 0.66 0.206 0.866 (0.676) -- (0.676) 11.94 7.29
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND:
1988(1) 10.00 0.43 0.206 0.636 (0.176) -- (0.176) 10.46 12.28*
1989 10.46 0.77 0.056 0.826 (0.715) (0.021) (0.736) 10.55 7.98
1990 10.55 0.74 0.221 0.961 (0.720) (0.001) (0.721) 10.79 9.06
1991 10.79 0.70 0.124 0.824 (0.742) (0.012) (0.754) 10.86 7.66
1992 10.86 0.64 0.352 0.992 (0.732) -- (0.732) 11.12 9.28
1993 11.12 0.67 0.754 1.424 (0.664) -- (0.664) 11.88 12.97
1994 11.88 0.65 0.054 0.704 (0.664) -- (0.664) 11.92 5.81
FRANKLIN TEXAS TAX-FREE INCOME FUND:
1988(1) 10.00 0.50 0.255 0.755 (0.195) -- (0.195) 10.56 12.72*
1989 10.56 0.78 0.044 0.824 (0.794) -- (0.794) 10.59 7.88
1990 10.59 0.84 0.114 0.954 (0.804) -- (0.804) 10.74 8.95
1991 10.74 0.73 0.104 0.834 (0.804) -- (0.804) 10.77 7.81
1992 10.77 0.67 0.370 1.040 (0.780) -- (0.780) 11.03 9.84
1993 11.03 0.69 0.661 1.351 (0.691) -- (0.691) 11.69 12.41
1994 11.69 0.69 0.032 0.722 (0.692) -- (0.692) 11.72 6.09
FRANKLIN VIRGINIA TAX-FREE INCOME FUND:
1988(1) 10.00 0.44 0.199 0.639 (0.189) -- (0.189) 10.45 11.90*
1989 10.45 0.77 (0.034) 0.736 (0.756) -- (0.756) 10.43 7.09
1990 10.43 0.73 0.226 0.956 (0.756) -- (0.756) 10.63 9.12
1991 10.63 0.69 0.136 0.826 (0.756) -- (0.756) 10.70 7.82
1992 10.70 0.66 0.362 1.022 (0.742) -- (0.742) 10.98 9.71
1993 10.98 0.67 0.704 1.374 (0.664) -- (0.664) 11.69 12.67
1994 11.69 0.67 0.136 0.806 (0.676) -- (0.676) 11.82 6.80
</TABLE>
<TABLE>
<CAPTION>
RATIO OF RATIO OF
NET ASSETS EXPENSES NET INCOME PORTFOLIO
AT END AVERAGE TO AVERAGE TURNOVER
OF PERIOD NET ASSETS** NET ASSETS RATE
--------- ------------ ---------- ----
<S> <C> <C> <C> <C>
FRANKLIN MARYLAND TAX-FREE INCOME FUND:
1989(2) $ 3,313,120 -- % 4.26%* 11.78%
1990 14,003,958 0.07 6.84 6.03
1991 33,420,583 0.54 6.50 12.14
1992 71,538,272 0.71 6.15 16.65
1993 115,872,984 0.71 6.00 14.73
1994 156,682,944 0.66 5.58 18.38
FRANKLIN MISSOURI TAX-FREE INCOME FUND:
1988(1) 2,059,706 -- 6.27* 28.32
1989 7,995,789 -- 7.30 7.15
1990 28,479,088 0.40 6.66 8.69
1991 55,559,697 0.72 6.4 240.08
1992 110,940,345 0.71 6.21 16.40
1993 164,122,332 0.67 6.03 10.28
1994 228,148,50 80.64 5.55 11.02
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND:
1988(1) 1,650,297 -- 5.89* 10.34
1989 10,345,833 -- 7.09 12.35
1990 24,745,552 0.50 6.68 11.80
1991 50,328,348 0.74 6.37 7.99
1992 106,959,646 0.71 6.03 3.16
1993 156,517,172 0.67 5.86 8.48
1994 215,539,507 0.63 5.44 3.86
FRANKLIN TEXAS TAX-FREE INCOME FUND:
1988(1) 1,140,685 -- 6.61* 41.50
1989 2,355,949 -- 7.65 6.95
1990 6,093,673 -- 7.26 3.53
1991 29,035,793 0.40 6.4 6.55
1992 123,721,525 0.70 6.14 6.44
1993 139,389,088 0.66 6.15 12.33
1994 148,683,984 0.65 5.85 20.18
FRANKLIN VIRGINIA TAX-FREE INCOME FUND:
1988(1) 2,621,061 -- 5.48* 65.51
1989 13,885,354 0.16 6.89 3.92
1990 38,572,122 0.60 6.55 1.06
1991 82,661,536 0.72 6.38 2.56
1992 152,615,121 0.68 6.17 4.33
1993 211,170,641 0.65 5.98 5.74
1994 260,913,071 0.62 5.65 6.86
</TABLE>
* Annualized
(1) For the period September 1, 1987 (effective date of registration) to
February 29, 1988.
(2) For the period October 3, 1988 (effective date of registration) to February
28, 1989.
(3) For the period September 10, 1991 (effective date of registration) to
February 29, 1992.
+ The figures do not reflect the maximum sales charge of 4% on an initial
investment.
5
<PAGE>
**During the periods indicated below, Franklin Advisers, Inc., the investment
manager, reduced its management fees and reimbursed other expenses incurred by
the Funds. Had such action not been taken, the ratio of operating expenses to
average net assets would have been as follows:
<TABLE>
<CAPTION>
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
---------- ----------
<S> <C> <C> <C>
Franklin Alabama Tax-Free Income Fund: Franklin Maryland Tax-Free Income Fund:
1988(1) . . . . . . . . . . . . . . . . . . 0.86%* 1989(2) . . . . . . . . . . . . . . . . . . . . . 0.65%*
1989 . . . . . . . . . . . . . . . . . . . 0.74 1990 . . . . . . . . . . . . . . . . . . . . . . 0.73
1990 . . . . . . . . . . . . . . . . . . . 0.72 1991 . . . . . . . . . . . . . . . . . . . . . . 0.73
1991 . . . . . . . . . . . . . . . . . . . 0.72 Franklin Missouri Tax-Free Income Fund:
Franklin Florida Tax-Free Income Fund: 1988(1) . . . . . . . . . . . . . . . . . . . . . 0.87*
1988(1) . . . . . . . . . . . . . . . . . . 0.88* 1989 . . . . . . . . . . . . . . . . . . . . . . 0.77
1989 . . . . . . . . . . . . . . . . . . . 0.74 1990 . . . . . . . . . . . . . . . . . . . . . . 0.72
1990 . . . . . . . . . . . . . . . . . . . 0.66 Franklin North Carolina Tax-Free Income Fund:
Franklin Georgia Tax-Free Income Fund: 1988(1) . . . . . . . . . . . . . . . . . . . . . 0.87*
1988(1) . . . . . . . . . . . . . . . . . . 0.87* 1989 . . . . . . . . . . . . . . . . . . . . . . 0.74
1989 . . . . . . . . . . . . . . . . . . . 0.76 1990 . . . . . . . . . . . . . . . . . . . . . . 0.71
1990 . . . . . . . . . . . . . . . . . . . 0.74 Franklin Texas Tax-Free Income Fund:
1991 . . . . . . . . . . . . . . . . . . . 0.74 1988(1) . . . . . . . . . . . . . . . . . . . . . 0.89*
Franklin Kentucky Tax-Free Income Fund: 1989 . . . . . . . . . . . . . . . . . . . . . . 0.76
1992(3) . . . . . . . . . . . . . . . . . . 0.82* 1990 . . . . . . . . . . . . . . . . . . . . . . 0.71
1993 . . . . . . . . . . . . . . . . . . . 0.81 1991 . . . . . . . . . . . . . . . . . . . . . . 0.75
1994 . . . . . . . . . . . . . . . . . . . 0.71 Franklin Virginia Tax-Free Income Fund:
Franklin Louisiana Tax-Free Income Fund: 1988(1) . . . . . . . . . . . . . . . . . . . . . 0.87*
1988(1) . . . . . . . . . . . . . . . . . . 0.88* 1989 . . . . . . . . . . . . . . . . . . . . . . 0.75
1989 . . . . . . . . . . . . . . . . . . . 0.73 1990 . . . . . . . . . . . . . . . . . . . . . . 0.72
1990 . . . . . . . . . . . . . . . . . . . 0.70
1991 . . . . . . . . . . . . . . . . . . . 0.72
</TABLE>
ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust is an open-end management investment company, or mutual fund,
organized as a Massachusetts business trust in September 1984 and registered
with the SEC under the Investment Company Act of 1940 (the "1940 Act"). The
Trust currently consists of 27 separate series, as listed under the section
"General Information." Each Fund is a separate series of the Trust's shares and
maintains a totally separate investment portfolio. This Prospectus relates only
to the ten series shown below, of which only the Maryland Fund is
non-diversified:
Franklin Alabama Tax-Free Income Fund
("Alabama Fund")
Franklin Florida Tax-Free Income Fund
("Florida Fund")
Franklin Georgia Tax-Free Income Fund
("Georgia Fund")
Franklin Kentucky Tax-Free Income Fund
("Kentucky Fund")
Franklin Louisiana Tax-Free Income Fund
("Louisiana Fund")
Franklin Maryland Tax-Free Income Fund
("Maryland Fund")
Franklin Missouri Tax-Free Income Fund
("Missouri Fund")
Franklin North Carolina Tax-Free Income Fund
("North Carolina Fund")
Franklin Texas Tax-Free Income Fund
("Texas Fund")
Franklin Virginia Tax-Free Income Fund
("Virginia Fund")
Shares of each Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of the
6
<PAGE>
Shares of the Funds") plus a sales charge based upon a variable percentage
(ranging from 4.25% to less than 1.0% of the offering price) depending upon the
amount invested. (See "How to Buy Shares of a Fund.")
INVESTMENT OBJECTIVE
AND POLICIES OF EACH FUND
- --------------------------------------------------------------------------------
Each Fund seeks to maximize income exempt from federal income taxes and from
the personal income taxes, if any, for resident shareholders of the named state
to the extent consistent with prudent investing and the preservation of
shareholders' capital. Each Fund's objective is a fundamental policy and may
not be changed without shareholder approval. There is, of course, no assurance
that each Fund's objective will be achieved.
Each Fund will invest primarily in municipal securities of its respective state
and its municipalities, other political subdivisions and public authorities,
the interest on which is exempt from federal income taxes and the personal
income taxes, if any, of its respective state.
Each Fund will attempt to invest 100% and, as a matter of fundamental policy,
will invest at least 80% of the value of its net assets in securities the
interest on which is exempt from federal income taxes, including the individual
alternative minimum tax, and from the personal income taxes, if any, of its
respective state. Thus it is possible, although not anticipated, that up to 20%
of a Fund's net assets could be in municipal securities from another state
and/or in taxable obligations, including municipal obligations such as "private
activity bonds" the interest on which may be subject to the alternative minimum
tax. To the extent that a state requires that a Fund consist of a specified
amount of obligations of such state or of the United States government, or its
agencies, instrumentalities, commissions, possessions or territories which are
exempt from taxation under the laws of such state in order for any portion of
the distributions from such Fund to be exempt from income taxation, the Fund
will attempt to invest at least the minimum of such amount in such securities.
See "Taxation of the Funds and Their Shareholders" for additional information.
Each Fund may invest, without percentage limitation, in securities having at
the time of purchase, one of the four highest ratings of Moody's Investors
Service ("Moody's") (Aaa, Aa, A, Baa), Standard & Poor's Corporation ("S&P")
(AAA, AA, A, BBB), Fitch Investors Service, Inc. ("Fitch") (AAA, AA, A, BBB),
or in securities which are not rated, provided that, in the opinion of each
Fund's investment manager, such securities are comparable in quality to those
within the four highest ratings. These are considered to be "investment grade"
securities, although bonds rated Baa are regarded as having an adequate
capacity to pay principal and interest but with greater vulnerability to
adverse economic conditions and to have some speculative characteristics. A
description of the ratings is contained in Appendix A to the SAI.
The investment manager considers the terms of the offering and various other
factors in order to determine whether the securities are consistent with a
Fund's investment objective and policies and thereafter to determine the
issuer's comparative credit rating. In making such determinations, the
investment manager typically (i) interviews representatives of the issuer at
its offices, tours and inspects the physical facilities of the issuer in an
effort to evaluate the issuer and its operations, (ii) performs analysis of the
issuer's financial and credit position, including comparisons of all
appropriate ratios, and (iii) compares other similar securities offerings to
the issuer's proposed offering.
7
<PAGE>
For temporary defensive purposes only, when the investment manager believes
that market conditions, such as rising interest rates or other adverse factors,
would cause serious erosion of portfolio value, (i) each Fund may invest more
than 20% of its assets (which could be up to 100%) in fixed- income
obligations, the interest on which is subject to federal income tax, and (ii) a
Fund may invest more than 20% of the value of its net assets (which could be up
to 100%) in instruments the interest on which is exempt from federal income
taxes but not that state's personal income taxes. Such temporary investments
will be limited to obligations issued or guaranteed by the full faith and
credit of the U.S. government or in the highest quality commercial paper rated
A-1 by S&P. To the extent that a Fund is restricted in its ability to take
advantage of defensive steps when necessary, such Fund's portfolio and the
value of its shares may be subject to greater risk than those of the other
Funds which retain this flexibility.
Each Fund may borrow from banks for temporary or emergency purposes up to 5% of
its total assets and pledge up to 5% of its total assets in connection
therewith. As approved by the Board of Trustees and subject to the following
conditions, each Fund may lend its portfolio securities to qualified securities
dealers or other institutional investors, provided that such loans do not
exceed 10% of the value of the Fund's total assets at the time of the most
recent loan, and further provided that the borrower deposits and maintains 102%
collateral for the benefit of the Fund. The lending of securities is a common
practice in the securities industry. Each Fund engages in security loan
arrangements with the primary objective of increasing the Fund's income either
through investing the cash collateral in short-term interest bearing
obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends
or interest on any loaned securities. As with any extension of credit, there
are risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially. These restrictions have been adopted
as fundamental policies of each of the Funds and may not be changed without the
approval of a majority of the outstanding voting securities of that Fund. A
complete description of each Fund's investment restrictions is included under
"Investment Restrictions" in the SAI.
As a condition of doing business in the State of Texas, the Texas Fund will
limit its investments in securities that are not readily marketable to 15% of
average net assets at the time of purchase and lend portfolio securities only
if the securities loaned are "marked to market" daily.
It is the policy of each Fund that illiquid securities (including securities
with legal or contractual restrictions on resale, or other instruments which
are not readily marketable or have no readily ascertainable market value) may
not constitute, at the time of the purchase more than 10% of the value of the
total net assets of the Fund.
MUNICIPAL SECURITIES
The term "municipal securities," as used in this Prospectus, means obligations
issued by or on behalf of states, territories and possessions of the U.S. and
the District of Columbia and their political subdivisions, agencies, and
instrumentalities, the interest on which is exempt from federal income tax. An
opinion as to the tax-exempt status of a municipal security generally is
rendered to the issuer by the issuer's counsel at the time of issuance of the
security.
8
<PAGE>
Municipal securities are used to raise money for various public purposes such
as constructing public facilities and making loans to public institutions.
Certain types of municipal bonds are issued to provide funding for privately
operated facilities. Further information on the maturity and funding
classifications of municipal securities is included in the SAI.
The Trust has no restrictions on the maturities of municipal securities in
which the Funds may invest. Each Fund will seek to invest in municipal
securities of such maturities that, in the judgment of the Fund and its
investment manager, will provide a high level of current income consistent with
prudent investment. The investment manager will also consider current market
conditions in determining which securities to buy or hold.
It is possible that any Fund from time to time will invest more than 25% of its
assets in a particular segment of the municipal securities market, such as
hospital revenue bonds, housing agency bonds, industrial development bonds,
transportation bonds, or pollution control revenue bonds, or in securities the
interest on which is paid from revenues of a similar type of project. In such
circumstances, economic, business, political, or other changes affecting one
bond (such as proposed legislation affecting the financing of a project;
shortages or price increases of needed materials; or declining markets or needs
for the projects) might also affect other bonds in the same segment, thereby
potentially increasing market risk.
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the municipal
securities market, the size of a particular offering, the maturity of the
obligation, and the credit rating of the issuer. Generally, municipal
securities of longer maturities produce higher current yields than municipal
securities with shorter maturities but are subject to greater price fluctuation
due to changes in interest rates, tax laws and other general market factors.
Lower-rated municipal securities generally produce a higher yield than
higher-rated municipal securities due to the perception of a greater degree of
risk as to the ability of the issuer to make timely payment of principal and
interest on its obligations.
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 Internal Revenue Code of 1986, as amended
(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 a Fund may also be
fully taxable to a corporate shareholder under the state franchise tax system.
Consistent with each Fund's investment objectives, a 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 a Fund.
As of February 28, 1994, each Fund derived the following percentages of its
income from bonds, interest on which
9
<PAGE>
constitutes a preference item subject to the federal alternative minimum tax
for certain investors:
<TABLE>
<CAPTION>
FUND PERCENTAGE
- ---- ----------
<S> <C>
Alabama Fund . . . . . . . . . . . . . 4.19%
Florida Fund . . . . . . . . . . . . . 11.86
Georgia Fund . . . . . . . . . . . . . 4.66
Kentucky Fund . . . . . . . . . . . . 11.20
Louisiana Fund . . . . . . . . . . . . 12.29
Maryland Fund . . . . . . . . . . . . 10.75
Missouri Fund . . . . . . . . . . . . 5.57
North Carolina Fund . . . . . . . . . 6.10
Texas Fund . . . . . . . . . . . . . . 13.79
Virginia Fund . . . . . . . . . . . . 7.42
</TABLE>
Each Fund may purchase floating rate and variable rate obligations. These
obligations bear interest at prevailing market rates. The Funds may also invest
in variable or floating rate demand notes ("VRDNs"). 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 according to its terms 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. Although it is not a put option in the usual sense,
such a demand feature is sometimes known as a "put". Except for the Maryland
Fund, with respect to 75% of the total value of a Fund's assets, no more than
5% of such value may be in securities underlying "puts" from the same
institution, except that each such Fund may invest up to 10% of its asset value
in unconditional "puts" (exercisable even in the event of a default in the
payment of principal or interest on the underlying security) and other
securities issued by the same institution.
Each Fund may purchase and sell municipal securities on a "when-issued" and
"delayed-delivery" basis. These transactions are subject to market fluctuation
and the value at delivery may be more or less than the purchase price. Although
the Funds will generally purchase municipal securities on a when-issued basis
with the intention of acquiring such securities, it may sell such securities
before the settlement date if it is deemed advisable. When a Fund is the buyer
in such a transaction, it will maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. To the
extent a Fund engages in "when- issued" and "delayed delivery" transactions, it
will do so for the purpose of acquiring securities for that Fund's portfolio
consistent with its investment objectives and policies and not for the purpose
of investment leverage.
While an investment in any of the Funds is not without risk, certain policies
are followed in managing the Funds 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. Except for the Trust's Maryland
Fund, which is a non-diversified fund under the 1940 Act, the Trust attempts
to minimize the impact of individual credit risks by diversifying each Fund's
portfolio investments.
10
<PAGE>
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 the Fund's debt investments may rise.
Price changes of debt securities held by a Fund have a direct impact on the net
asset value per share of that Fund. Since each Fund generally will invest
primarily in the securities of its respective state, there are certain specific
factors and considerations concerning each state which may affect the credit
and market risk of the municipal securities which each Fund purchases. These
factors are described in Appendix B to this Prospectus and in greater detail in
the SAI.
As a fundamental policy, with respect to 75% of its net assets, each Fund,
except as stated below, will not purchase a security if, as a result of the
investment, more than 5% of its assets would be in the securities of any single
issuer (with the exception of obligations of the U.S. government). For this
purpose, each political subdivision, agency, or instrumentality and each
multi-state agency of which a state is a member, and each public authority
which issues private activity bonds on behalf of a private entity, will be
regarded as a separate issuer for determining the diversification of each
Fund's portfolio. A bond for which the payments of principal and interest are
secured by an escrow account of securities backed by the full faith and credit
of the U.S. government ("defeased") as described in the SAI, in general, will
not be treated as an obligation of the original municipality for purposes of
determining issuer diversification.
The Maryland Fund is non-diversified under the federal securities laws. As a
non-diversified Fund, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. The Maryland Fund, however, intends to comply with the
diversification and other requirements of the Code, applicable to "regulated
investment companies" so that it will not be subject to federal income tax on
its income and distributions to shareholders will be free from regular federal
income tax to the extent they are derived from interest on municipal
securities. For this reason the Maryland Fund has adopted an investment
restriction, which may not be changed without the approval of shareholders,
prohibiting it from purchasing a security, if as a result, more than 25% of the
Maryland Fund's total assets would be invested in the securities of a single
issuer or, with respect to 50% of its total assets, more than 5% of such assets
would be invested in the securities of a single issuer. To the extent the
Maryland Fund is not fully diversified under the 1940 Act, it may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if the Maryland Fund were more broadly
diversified.
CALLABLE BONDS
Each Fund may purchase and hold callable municipal bonds which contain a
provision in the indenture permitting the issuer to redeem the bonds prior to
their maturity dates at a specified price which typically reflects a premium
over the bonds' original issue price. These bonds generally have
call-protection (that is, a period of time during which the bonds may not be
called) which usually lasts for 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
11
<PAGE>
of 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 Funds, depending on
the price at which such bonds were redeemed.
CERTIFICATES OF PARTICIPATION
Each 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 Funds
believe that this risk is mitigated by their 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 investment manager to be of comparable quality.
Criteria considered by the rating agencies and the investment manager in
assessing such risk include the issuing municipality's credit rating, 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
Trustees reviews the COPs held in each 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 each Fund's
investment, including an assessment of the likelihood that the leases will not
be cancelled; (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
each Fund trade on the same basis and with the same degree
12
<PAGE>
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 each Fund may
invest in COPs, as of February 28, 1994, the following Funds held more than
five percent of their total assets in COPs and other municipal leases: (a)
Kentucky, 8.56 (b) Missouri, 27.92%; and (c) North Carolina, 11.46%.
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
The Board of Trustees has the primary responsibility for the overall management
of the Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations. Franklin Advisers, Inc. ("Advisers"
or "Manager") serves as each Fund's investment manager. Advisers is a
wholly-owned subsidiary of Franklin Resources, Inc. ("Resources"), a
publicly-owned holding company, the principal shareholders of which are Charles
B. Johnson, Rupert H. Johnson, Jr. and R. Martin Wiskemann, who own
approximately 20%, 16% and 10%, respectively, of Resources' outstanding shares.
Through its subsidiaries, Resources is engaged in various aspects of the
financial services industry. Advisers acts as investment manager or
administrator to 34 U.S. registered investment companies (112 separate series)
with aggregate assets of over $75 billion, approximately $40 billion of which
are in the municipal securities market. Pursuant to the management agreement,
the Manager supervises and implements each Fund's investment activities and
provides certain administrative services and facilities which are necessary to
conduct each Fund's business. The management fees which each Fund was obligated
to pay to the Manager, as well as the fees actually paid, during the fiscal year
ended February 28, 1994 (as a percentage of average net assets) were as follows:
<TABLE>
<CAPTION>
CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID BY
FUND FEES THE FUND
- ---- ---- --------
<S> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . 0.58% 0.58%
Florida Fund . . . . . . . . . . . . . . . 0.47% 0.47%
Georgia Fund . . . . . . . . . . . . . . . 0.62% 0.62%
Kentucky Fund . . . . . . . . . . . . . . . 0.63% --
Louisiana Fund . . . . . . . . . . . . . . 0.62% 0.62%
Maryland Fund . . . . . . . . . . . . . . . 0.60% 0.60%
Missouri Fund . . . . . . . . . . . . . . . 0.57% 0.57%
North Carolina Fund . . . . . . . . . . . . 0.57% 0.57%
Texas Fund . . . . . . . . . . . . . . . . 0.59% 0.59%
Virginia Fund . . . . . . . . . . . . . . . 0.56% 0.56%
</TABLE>
It is not anticipated that any of the Funds 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 a 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 Trust, as factors in
selecting a broker. Further information is included under "The Trust's Policies
Regarding Brokers Used on Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for each Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and dividend-
paying
13
<PAGE>
agent. Investor Services is a wholly-owned subsidiary of Resources.
During the fiscal year ended February 28, 1994, total operating expenses paid
by each Fund (as a percentage of average net assets), including fees paid to t
he Manager and Investor Services, were as follows:
<TABLE>
<CAPTION>
TOTAL
OPERATING
FUND NAME EXPENSES
- --------- --------
<S> <C>
Alabama Fund . . . . . . . . . . . . . 0.64%
Florida Fund . . . . . . . . . . . . . 0.52%
Georgia Fund . . . . . . . . . . . . . 0.69%
Kentucky Fund . . . . . . . . . . . . . 0.71%
Louisiana Fund . . . . . . . . . . . . 0.68%
Maryland Fund . . . . . . . . . . . . . 0.66%
Missouri Fund . . . . . . . . . . . . . 0.64%
North Carolina Fund . . . . . . . . . . 0.63%
Texas Fund . . . . . . . . . . . . . . 0.65%
Virginia Fund . . . . . . . . . . . . . 0.62%
</TABLE>
PLANS OF DISTRIBUTION
Effective May 1, 1994 (the "Effective Date") each Fund adopted a plan pursuant
to Rule 12b-1 under the 1940 Act (the "Plan[s]"), as approved by shareholders
of the respective funds in April of 1994. Under each Plan, the respective Fund
may reimburse Distributors or others for all expenses incurred by Distributors
or others in the promotion and distribution of the Fund's shares. Such expenses
may include, but are not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares, as well as any distribution or
service fees paid to securities dealers or their firms or others who have
executed a servicing agreement with the Trust on behalf of a Fund, Distributors
or its affiliates. The maximum amount which the Fund may pay to Distributors or
others for such distribution expenses is 0.10% per annum of the average daily
net assets of each Fund, payable on a quarterly basis. All expenses of
distribution and marketing in excess of 0.10% for each Fund per annum will be
borne by Distributors, or others who have incurred them, without reimbursement
from the Funds. The Plans also cover any payments to or by the Funds, Advisers,
Distributors, or other parties on behalf of the Funds, Advisers, or
Distributors, to the extent such payments ar e 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 each Plan are
included in the maximum operating expenses which may be borne by each Fund.
In implementing the Plans, the Board has determined that the annual fees
payable thereunder will be equal to the sum of: (i) the amount obtained by
multiplying 0.10% by the average daily net assets represented by shares of the
Fund that were acquired by investors on or after the Effective Date of the Plan
("New Assets"), and (ii) the amount obtained by multiplying 0.05% by the
average daily net assets represented by shares of a Fund that were acquired
before the Effective Date of the Plan ("Old Assets"). Such fees will be paid to
the current securities dealer of record on the shareholder's account. In
addition, until such time as the maximum payment of 0.10% is reached on a
yearly basis, up to an additional 0.02% will be paid to Distributors under each
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
Plans, such as advertising.
The fees are Fund expenses so that the shareholders of each Fund regardless of
when they purchased their shares will bear 12b-1 expenses at the same rate. That
rate initially will be at least 0.07%
14
<PAGE>
(0.05% plus 0.02%) of such average daily net assets and, as a Fund's shares are
sold on or after the Effective Date, will increase over time. Thus, as the
proportion of a Fund's shares purchased on or after the Effective Date
increases in relation to outstanding shares of a Fund, the expenses
attributable to payments under a 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 Plans, the Plans permit the trustees of
the Trust to allow a Fund to pay a full 0.10% on all assets at any time. The
approval of the Trust's Board of Trustees would be required to change the
calculation of the payments to be made under a Plan.
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
There are two types of distributions which a Fund may make to its shareholders:
1. Income dividends. Each Fund receives income in the form of interest and
other income derived from its investments. This income, less the expenses
incurred in the operation of such Fund, 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. Each Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by a Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made twice each year. One distribution may be made in December to reflect
any net short-term and net long-term capital gains realized by such Fund as of
October 31 of such year. Any net short-term and net long-term capital gains
realized by a Fund during the remainder of the fiscal year may be distributed
following the end of the fiscal year. These distributions, when made, will
generally be fully taxable to the Funds' shareholders. Each 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 its distributions for operational or
other reasons.
DISTRIBUTION DATE
Although subject to change by the Trust's Board of Trustees without prior
notice to or approval by shareholders, each Fund's current policy is to declare
income dividends daily and pay them monthly on or about the last business day
of that month. The amount of income dividend payments by each Fund is dependent
upon the amount of net income received from such Fund's portfolio holdings, is
not guaranteed and is subject to the discretion of the Trust's Board of
Trustees. The Funds do not pay "interest" or guarantee any fixed rate of return
on an investment in their shares.
DIVIDEND REINVESTMENT
Unless requested otherwise in writing or on the Shareholder Application, income
dividends and capital gain distributions, if any, will be automatically
reinvested in the shareholder's account in the form of additional shares,
valued at the closing net asset value (that is, without sales charge) on the
dividend reinvestment date. Shareholders have the right to change their
election with respect to the receipt of distributions by notifying the Fund,
but any such change will be effective only as to distributions for which the
reinvestment date is seven or more business days after the Fund has been
notified. See the SAI for more information.
Many of the Funds' shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares
15
<PAGE>
and maintain or increase the shareholder's earnings base. Of course, any shares
so acquired remain at market risk.
HOW SHAREHOLDERS PARTICIPATE
IN THE RESULTS OF A FUND'S ACTIVITIES
The assets of each Fund are invested in portfolio securities. If the securities
owned by a Fund increase in value, the value of the shares of such Fund which
the shareholder owns will increase. If the securities owned by a Fund decrease
in value, the value of the shareholder's shares in such Fund will also decline.
In this way, shareholders participate in any change in the value of the
securities owned by a Fund.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application
included with this Prospectus, a shareholder may direct the selected
distributions to another fund in the Franklin Group of Funds Registration Mark
or the Templeton Group, to another person, or directly to a checking account.
If the bank at which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Dividends which may be paid in the
interim will be sent to the address of record. Additional information regarding
automated fund transfers may be obtained from Franklin's Shareholder Services
Department. Dividend and capital gain distributions are eligible for investment
in another fund in the Franklin Group of Funds or the Templeton Group at net
asset value. Shareholders may also be able to change their dividend options by
telephone. See "Telephone Transactions."
TAXATION OF THE FUNDS
AND THEIR 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 Funds and their shareholders is included in the section
entitled, "Additional Information Regarding Taxation" in the SAI.
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund has elected to be treated as a regulated investment company under
Subchapter M of the Code, qualified as such, and intends to continue to so
qualify. By distributing all of its income and meeting certain other
requirements relating to the sources of its income and diversification of its
assets, a Fund will not be liable for federal income or excise taxes.
By meeting certain requirements of the Code, each Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders. Such
exempt-interest dividends are derived from interest income exempt from regular
federal income tax and are not subject to regular federal income tax for each
Fund's shareholders. In addition, to the extent that exempt-interest dividends
are derived from interest on obligations of the state or its political
subdivisions of the state of residence of the shareholder, from interest on
direct obligations of the federal government, or from interest on obligations
of Puerto Rico, the U.S. Virgin Islands or Guam, they may also be exempt from
personal income tax in such state. More information on the state taxation of
interest from federal and municipal obligations is included in
16
<PAGE>
the section on "State Income Taxes" below and in "Appendix A - Description of
State Tax Treatment."
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 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 shares of a Fund and regardless of
whether such distributions are received in cash or in additional shares.
Redemptions and exchanges of a Fund's shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange
of such 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.
All or a portion of the sales charge incurred in purchasing shares of a 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 Registration Mark and
the Templeton Group (defined under "How to Buy Shares of a Fund") 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 a Fund's shares.
Since each Fund's income is derived from interest income and gain on the sale
of portfolio securities rather than dividend income, no portion of any of the
Funds' distributions will generally be eligible for the corporate dividends-
received deduction. None of the distributions paid by any Fund for the fiscal
year ended February 28, 1994 qualified for this deduction and it is not
anticipated that any of the current year's dividends will so qualify.
17
<PAGE>
Each Fund will inform its 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 a 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 a Fund.
Exempt-interest dividends of any 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 a Fund's shares may not be fully deductible for federal
income tax purposes.
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 a
Fund and the application of foreign tax laws to these distributions.
STATE INCOME TAXES
The exemption of interest on tax-exempt municipal securities for federal income
tax purposes does not necessarily result in exemption from the income,
corporate or personal property taxes of any state or city when such income is
distributed to shareholders of a mutual fund. Appendix A to this Prospectus
discusses the tax treatment of the State Funds with respect to distributions
from each respective Fund to investors in such states. Generally, individual
shareholders of the Funds are afforded tax-exempt treatment at the state level
for distributions derived from municipal securities of their state of
residency.
Pursuant to federal law, interest received directly from U.S. government
obligations and from obligations of the U.S. territories is exempt from
taxation by all states and their municipal subdivisions. However, certain
states may nevertheless treat the dividends paid by a mutual fund from such
interest as taxable income to the shareholder. Each state's treatment of
dividends paid from the interest earned on direct federal and U.S. territorial
obligations is discussed in "Appendix A - Description of State Tax Treatment."
Shareholders should consult their tax advisors with respect to the
applicability of other state and local intangible property or income taxes to
their shares in a Fund and to distributions and redemption proceeds received
from such Fund.
Additional information on tax matters relating to a Fund and its shareholders
is included under the caption "Additional Information Regarding Taxation" in
the SAI.
HOW TO BUY SHARES OF A FUND
- --------------------------------------------------------------------------------
Shares of the Funds are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of each
Fund's shares. The use of the term "securities dealer" shall include other
financial institutions which, pursuant to an agreement with Distributors
18
<PAGE>
(directly or through affiliates), handle customer orders and accounts with a
Fund. Such reference however is for convenience only and does not indicate a
legal conclusion of capacity. Sales of the shares of the Funds may be
restricted to residents of their respective states. The minimum initial
investment in each Fund is $100 and subsequent investments must be $25 or more.
These minimums may be waived when the shares are purchased through plans
established at Franklin. The Trust and Distributors reserve the right to refuse
any order for the purchase of shares.
PURCHASE PRICE OF SHARES OF A FUND
Shares of each Fund are offered at the public offering price, which is the net
asset value per share plus a sales charge, next computed (1) after the
shareholder's securities dealer receives the order which is promptly
transmitted to such Fund or (2) after receipt of an order by mail from the
shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The sales charge is
a variable percentage of the offering price depending upon the amount of the
sale. On orders for 100,000 shares or more, the offering price will be
calculated to four decimal places. On orders for less than 100,000 shares, the
offering price will be calculated to two decimal places using standard rounding
criteria. A description of the method of calculating net asset value per share
is included under the caption "Valuation of Shares of the Funds."
Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions:
<TABLE>
<CAPTION>
=================================================================================================================
TOTAL SALES CHARGE
----------------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 through $2,500,000 1.00% 1.01% 1.00%
=================================================================================================================
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
On purchases in excess of $2,500,000, the sales charge is 1% of the offering
price on the first $2,500,000, plus 0.5% on the next $2,500,000, plus 0.25% on
the excess over $5,000,000. Sales charges on purchases of $1,000,000 or more
are paid to the securities dealer, if any, involved in the trade, who may
therefore be deemed an "underwriter" under the Securities Act of 1933, as
amended.
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the many funds in the
Franklin Group of Funds Registration Mark and the Templeton Group of Funds.
Included for these purposes are (a) the open-end investment companies in the
Franklin Group (except Franklin Valuemark Funds and Franklin Government
Securities Trust) (the "Franklin Group of Funds"), (b) other investment
products in the Franklin Group under-
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written by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) (the products in subparagraphs (a) and (b) are referred to as the
"Franklin Group") and (c) the open-end U.S. registered investment companies in
the Templeton Group of Funds except Templeton American Trust, Inc., Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Group"). Purchases pursuant to a
Letter of Intent for more than $2,500,000 will be at a 1% sales charge until
cumulative purchases reach $2,500,000 and at the incremental sales charge on
the excess over $2,500,000. Purchases pursuant to the Rights of Accumulation
will be at the applicable sales charge of 1% or more until the additional
purchase, plus the value of the account or the amount previously invested, less
redemptions, exceeds $2,500,000, in which event the sales charge on the excess
will be calculated as stated above. Sales charge reductions based upon
purchases in more than one of the funds in the Franklin Group or Templeton
Group (the "Franklin/Templeton Group") may be effective only after notification
to Distributors that the investment qualifies for a discount.
Distributors or its affiliates, at their expense, may also provide additional
compensation to dealers in connection with sales of shares of the Funds and
other funds in the Franklin Group of Funds or the Templeton Group. Compensation
may include financial assistance to dealers in connection with conferences,
sales or training programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and programs regarding
one or more of the Franklin Group of Funds or the Templeton Group and other
dealer-sponsored programs or events. In some instances, this compensation may
be made available only to certain dealers whose representatives have sold or
are expected to sell significant amounts of such shares. Compensation may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the U.S. for meetings or seminars of
a business nature. Dealers may not use sales of the Funds' 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 Funds or their shareholders.
Certain officers and trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide for a reduced
sales charge. To be certain to obtain the reduction of the sales charge, the
investor or the dealer should notify Distributors at the time of each purchase
of shares which qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, investments in any of the Franklin/Templeton
Group may be combined with those of the investor's spouse and children under the
age of 21. In addition, the aggregate investments of a trustee or other
fiduciary account (for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is available, even
though there may be a number of beneficiaries of the account.
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In addition, an investment in each Fund may qualify for a reduction in the
sales charge under the following programs:
1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in the Franklin/Templeton Group may be combined with the
amount of the current purchase in determining the sales charge to be paid.
2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of a Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which if made at one time would qualify for a
reduced sales charge.
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 such Fund. After the
Letter of Intent is filed, each additional investment made will be entitled to
the sales charge applicable to the level of investment indicated on the Letter
of Intent as described above. Sales charge reductions based upon purchases in
more than one company in the Franklin/Templeton Group will be effective only
after notification to Distributors that the investment qualifies for a discount.
The shareholder's holdings in the Franklin/Templeton Group acquired more than 90
days before the Letter of Intent is filed will be counted towards completion of
the Letter of Intent but will not be entitled to a retroactive downward
adjustment of sales charge. Any redemptions made by the shareholder during the
13-month period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the Letter of Intent have been completed. If
the Letter of Intent is not completed within the 13-month period, there will be
an upward adjustment of the sales charge as specified below, depending upon the
amount actually purchased (less redemptions) during the period. An investor who
executes a Letter of Intent prior to the change in the sales charge structure
for the Fund will be entitled to complete the Letter at the lower of (i) the new
sales charge structure; or (ii) the sales charge structure in effect at the time
the Letter was filed with such Fund.
AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five percent (5%)
of the amount of the total intended purchase will be reserved in shares of the
Fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the intended purchase is not completed. The
reserved shares will be included in the total shares owned as reflected on
periodic statements; income and capital gain distributions on the reserved
shares will be paid as directed by the investor. The reserved shares will not
be available for disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. If the total purchases, less
redemptions, equal the amount specified under the Letter, the reserved shares
will be deposited to an account in the name of the investor or delivered to the
investor or the investor's order. If the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made by Distributors and the dealer through whom purchases were made pursuant
to the Letter of Intent (to reflect such further quantity discount) on
purchases made within 90 days before and on those made after filing the Let-
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ter. The resulting difference in offering price will be applied to the
purchase of additional shares at the offering price applicable to a single
purchase or the dollar amount of the total purchases. If the total purchases,
less redemptions, are less than the amount specified under the Letter, the
investor will remit to Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount of sales charge
which would have applied to the aggregate purchases if the total of such
purchases had been made at a single time. Upon such remittance the reserved
shares held for the investor's account will be deposited to an account in the
name of the investor or delivered to the investor or to the investor's order.
If within 20 days after written request such difference in sales charge is not
paid, the redemption of an appropriate number of reserved shares to realize
such difference will be made. In the event of a total redemption of the account
prior to fulfillment of the Letter of Intent, the additional sales charge due
will be deducted from the proceeds of the redemption and the balance will be
forwarded to the investor. By completing the Letter of Intent section of the
Shareholder Application, an investor grants to Distributors a security interest
in the reserved shares and irrevocably appoints Distributors as
attorney-in-fact with full power of substitution to surrender for redemption
any or all shares for the purpose of paying any additional sales charge due.
Purchases under the Letter of Intent will conform with the requirements of Rule
22d-1 under the 1940 Act. The investor or the investor's securities dealer
must inform Investor Services or Distributors that this Letter is in effect
each time a purchase is made.
Additional terms concerning the offering of the Funds' shares are included in
the SAI.
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares of
a Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of shares previously
purchased and still owned by the group, plus the amount of the current
purchase. For example, if members of the group had previously invested and
still held $80,000 of a Fund's 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 Funds or Distributors and the members, agree to include
sales and other materials related to the Funds 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 Funds.
If an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies such Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the payroll deduction
information to a Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches such Fund. The investment in such Fund
will be made
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at the offering price per share determined on the day that both the check and
payroll deduction data are received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Shares of each Fund may be purchased at net asset value by trust companies and
bank trust departments for funds over which they exercise exclusive
discretionary investment authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in a Fund or any other
company in the Franklin/Templeton Group must total at least $1,000,000. Orders
for such accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly from the bank or
trust company, with payment by federal funds received by the close of business
on the next business day following such order. If an investment by a trust
company or bank trust department at net asset value is made through a dealer
who has executed a dealer agreement with Distributors, Distributors or one of
its affiliates may make payment, out of their own resources, to such dealer in
an amount not to exceed 0.25% of the amount invested. Contact Franklin's
Institutional Sales Department for additional information.
Shares of the Funds may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of a Fund or another fund
in the Franklin Group of Funds or the Templeton Group which were purchased with
a sales charge. An investor may reinvest an amount not exceeding the redemption
proceeds. Shares of a 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 such 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.
Dealers may place trades to purchase shares of the Fund at net asset value on
behalf of investors who have, within the past 60 days, redeemed an investment
in a registered management investment company which charges a contingent
deferred sales charge and which has investment objectives similar to those of
the Fund.
Shares of the Funds may also be purchased at net asset value by (1) officers,
trustees or directors and full-time employees of the Fund or any fund in the
Franklin Group of Funds or the Templeton Group, the Manager and Distributors
and affiliates of such companies, if they have been such for at least 90 days,
and by their spouses and family members, (2) registered securities dealers and
their affiliates, for their investment account only, and (3) registered
personnel and employees of securities deal-
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<PAGE>
ers and by their spouses and family members, in accordance with the internal
policies and procedures of the employing securities dealer. Such sales are made
upon the written assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be transferred or resold
except through redemption or repurchase by or on behalf of a Fund. Employees of
securities dealers must obtain a special application from their employers or
from Franklin's Sales Department in order to qualify.
Shares of the Fund may also be purchased at net asset value (without 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 dealer who has executed a dealer agreement with Distributors,
Distributors or one of its affiliates may make a payment, out of their own
resources, to such dealer in an amount not to exceed 0.25% of the amount
invested. Contact Franklin's Institutional Sales Department for additional
information.
GENERAL
Securities laws of states in which each Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling shares of such Fund may be required to register as dealers
pursuant to state law.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO SHAREHOLDERS OF THE FUNDS
- --------------------------------------------------------------------------------
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM A 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 Funds,
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 rein-
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<PAGE>
vested during that period and after each other transaction which affects the
shareholder's account. This statement will also show the total number of shares
owned by the shareholder, including the number of shares in "plan balance" for
the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application included with
this Prospectus contains the requirements applicable to this program. In
addition, shareholders may obtain more information concerning this program from
their securities dealers or from Distributors.
The market value of each 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 fund in the Franklin
Group of Funds or the Templeton Group, to another person, or directly to a
checking account. If the bank at which the account is maintained is a member of
the Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing. Withdrawals which may be
paid in the interim will be sent to the address of record. Liquidation of
shares may reduce or possibly exhaust the shares in the shareholder's account,
to the extent withdrawals exceed shares earned through dividends and
distributions, particularly in the event of a market decline. If the
withdrawal amount exceeds the total plan balance, the account will be closed
and the remaining balance will be sent to the shareholder. As with other
redemptions, a liquidation to make a withdrawal payment is a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than the shareholder's actual yield or income, part of the payment may be a
return of the shareholder's investment.
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The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of a Fund would be disadvantageous because of the sales
charge on the additional purchases. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual
withdrawals under the plan during the time such a plan is in effect. A
Systematic Withdrawal Plan may be terminated on written notice by the
shareholder or the Fund, and it will terminate automatically if all shares are
liquidated or withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving written notice to
Investor Services at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Systematic Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares
of the Funds available to institutional accounts. For further information,
contact Franklin's Institutional Services Department at 1-800\321-8563.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The Franklin Group of Funds Registration Mark and the Templeton Group consist
of a number of investment companies with various investment objectives or
policies. The shares of most of these investment companies are offered to the
public with a sales charge. If a shareholder's investment objective or outlook
for the securities markets changes, the Fund shares may be exchanged for shares
of other mutual funds in the Franklin Group of Funds or the Templeton Group (as
defined under "How to Buy Shares of the 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. 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. 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 in one of the other available
funds in the Franklin Group of Funds or the Templeton Group. The Telephone
Exchange Privilege is available only for uncertificated shares or those which
have previously been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Please refer to "Telephone
Transactions - Verification Procedures."
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During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement. 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 by telephone or by other means of
electronic transmission 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 are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of a Fund account, accrued but unpaid income
dividends and capital gain distributions will be reinvested in the Fund at the
net asset value on the date of the exchange, and then the entire share balance
will be exchanged into the new fund in accordance with the procedures set forth
above. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the SAI.
There are differences among the many funds in the Franklin Group of Funds and
the Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the shareholder wishes to
transfer.
If a substantial portion of a Fund's shareholders should, within a short
period, elect to redeem their shares of that 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
Funds to initially invest this money in short-term, interest-bearing municipal
securities, unless it is felt that attractive investment opportunities
consistent with a Fund's investment objectives exist immediately. Subsequently,
this money will be withdrawn from such short-term municipal securities and
invested in portfolio securities in as orderly a manner as is possible when
attractive investment opportunities arise. The Exchange Privilege may be
modified or discontinued by the Fund at any time upon 60 days' written notice
to shareholders.
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing services to
purchase or redeem
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<PAGE>
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.
Each 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 a Fund within two weeks of an earlier exchange
request out of a Fund, or (ii) makes more than two exchanges out of a Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of a 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.
Each Fund reserves the right to refuse the purchase side of exchange requests
by any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected.
A shareholder's purchase exchanges may be restricted or refused if a Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincides with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.
The Funds 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 A FUND
- --------------------------------------------------------------------------------
A shareholder may at any time liquidate shares owned and receive from a Fund
the value of the shares. Shares may be redeemed in any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by Investor
Services. Redemption requests received after the time at which the net asset
value is calculated (at 1:00 p.m. Pacific time) each day that the New York
Stock Exchange (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;
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<PAGE>
(3) the proceeds (in any amount) are to be sent to any address other
than the shareholder's address of record, preauthorized bank account
or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of
$50,000; or
(5) the Fund or Investor Services believes that a signature guarantee
would protect against potential claims based on the transfer
instructions, including, for example, when (a) the current address
of one or more joint owners of an account cannot be confirmed, (b)
multiple owners have a dispute or give inconsistent instructions to
the Fund, (c) the Fund has been notified of an adverse claim, (d)
the instructions received by the Fund are given by an agent, not the
actual registered owner, (e) the Fund determines that joint owners
who are married to each other are separated or may be the subject of
divorce proceedings, or (f) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934.
Generally, eligible guarantor institutions include (1) national or state banks,
savings associations, savings and loan associations, trust companies, savings
banks, industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; (3)
securities dealers which are members of a national securities exchange or a
clearing agency or which have minimum net capital of $100,000; or (4)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature guarantee medallion program. A
notarized signature will not be sufficient for the request to be in proper
form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.
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.
29
<PAGE>
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin/Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus may
redeem shares of a Fund by telephone. INFORMATION MAY ALSO BE OBTAINED BY
WRITING TO THE FUNDS OR INVESTOR SERVICES AT THE ADDRESS SHOWN ON THE COVER OR
BY CALLING 1-800/632-2301. THE FUNDS 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 a 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 before 1:00 p.m. Pacific time
on any business day will be processed that same day. The redemption check will
be sent within seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record. Redemption requests by
telephone will not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts (certain
corporations, bank trust departments, government entities, and qualified
retirement plans which qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) which wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from Franklin's Institutional Services Department by telephoning
1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Funds will accept redemption orders by telephone or other means of
electronic transmission from securities dealers who have entered into a dealer
or similar agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer receives the
order which is promptly transmitted to a Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. These documents, as
described in the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt of a
repurchase order from the dealer, the Fund will still require a signed letter
of instruction and all other documents set forth above. A shareholder's letter
should reference the Fund, the account number, the fact that the repurchase was
ordered by a dealer and the dealer's name. Details of the dealer-ordered
trade, such as trade date, confirmation number, and the amount of shares or
dollars, will help speed processing of the redemption. The seven-day period
within which the proceeds of the shareholder's redemption will be sent will
begin when the Fund receives all documents required to complete ("settle") the
repurchase in proper form. The redemption proceeds will not earn dividends or
interest during the time between receipt of the dealer's repurchase order and
the date the redemption is processed upon receipt of all documents necessary to
settle the repurchase. Thus, it is in a shareholder's best interest to have
the required documentation completed and forwarded to the Fund as soon as
possible. The shareholder's dealer may charge a fee for
30
<PAGE>
handling the order. The SAI contains more information on the redemption of
shares.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take
up to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available
for immediate redemption. In addition, the right of redemption may be suspended
or the date of payment postponed if the Exchange is closed (other than
customary closing) or upon the determination of the SEC that trading on the
Exchange is restricted or an emergency exists, or if the SEC permits it, by
order, for the protection of shareholders. Of course, the amount received may
be more or less than the amount invested by the shareholder, depending on
fluctuations in the market value of securities owned by the Fund.
OTHER
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, (iv) ex-change Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Application as described under "How to Sell Shares of the
Fund - Redemptions by Telephone" will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Funds and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the
purpose of establishing the caller's identification, and by sending a
confirmation statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as the Fund and Investor
Services follow instructions communicated by telephone which were reasonably
believed to be genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused by an
unauthorized transaction. Shareholders are, of course, under no obligation to
apply for or accept telephone transaction privileges. In any instance where the
Fund or Investor Services is not reasonably satisfied that instructions
received by telephone are genuine, the requested transaction will not be
executed, and neither the Fund nor Investor Services will be liable for any
losses which may occur because of a delay in implementing a transaction.
GENERAL
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
31
<PAGE>
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 Funds 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 SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
The net asset value per share of each Fund is determined separately as of 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 sales charge
of each Fund).
The net asset value per share of each Fund is determined in the following
manner: The aggregate of all liabilities, accrued expenses and taxes and any
necessary reserves is deducted from the aggregate gross value of all assets,
and the difference is divided by the number of shares of the Fund outstanding
at the time. For the purpose of determining the aggregate net assets of each
Fund, cash and receivables are valued at their realizable amounts. Interest is
recorded as accrued. Portfolio securities for which market quotations are
readily available are valued within the range of the most recent bid and ask
prices as obtained from one or more dealers that make markets in the
securities. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market as determined by the Manager. Municipal securities
generally trade in the over-the-counter market rather than on a securities
exchange. Other securities for which market quotations are readily available
are valued at the current market price, which may be obtained from a pricing
service, based on a variety of factors, including recent trades, institutional
size trading in similar types of securities (considering yield, risk and
maturity) and/or developments related to specific issues. Securities and other
assets for which market prices are not readily available are valued at fair
value as determined following procedures approved by the Board of Trustees.
All money market instruments with a maturity of more than 60 days are valued at
current market, as discussed above. All money market instruments with a
maturity of 60 days or less are valued at their amortized cost which the Board
of Trustees has determined in good faith constitutes fair value for purposes of
complying with the 1940 Act. This valuation method will continue to be used
until such time as the trustees determine that it does not constitute fair
value for such purposes. With the approval of trustees, the Trust may utilize a
pricing service, bank or securities dealer to perform any of the above
described functions.
HOW TO GET INFORMATION
REGARDING AN INVESTMENT IN A FUND
- --------------------------------------------------------------------------------
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds
Registration Mark by calling the automated Franklin TeleFACTS system (day or
night) at 1-800/247-1753. Information about each Fund may be accessed by
entering the Fund's Code followed by the sign when requested to do so by the
automated operator. These Funds'
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Codes are: 64 for the Alabama Fund, 65 for the Florida Fund, 28 for the Georgia
Fund, 72 for the Kentucky Fund, 68 for the Louisiana Fund, 69 for the Maryland
Fund, 60 for the Missouri Fund, 70 for the North Carolina Fund, 62 for the
Texas Fund and 63 for the Virginia Fund.
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. In order to ensure that the
highest quality of service is being provided, telephone calls placed to or by
representatives in all of our service departments may be accessed, recorded
and monitored. These calls can be determined by the presence of a regular
beeping tone.The same numbers may be used when calling from a rotary phone:
<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- --------------- ------------- ------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 05:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 05:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>
PERFORMANCE
- --------------------------------------------------------------------------------
Advertisements, sales literature and communications to shareholders may contain
various measures of a Fund's performance,including current yield, tax
equivalent yield, various expressions of total return, current distribution
rate and taxable equivalent distribution rate. Each Fund 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. Each Fund may also furnish total return quotations for other
periods or based on investments at various sales charge levels or at net asset
value. For such purposes total return equals the total of all income and
capital gain paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed
as a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments; it is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result. Tax equivalent yield
demonstrates the yield from a taxable investment necessary to produce an
after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of a fund's
yield (calculated as indicated) by one minus a stated income tax rate and
adding the product to the taxable portion (if any) of the fund's yield.
Current yield and tax equivalent yield which are calculated according to a
formula prescribed by
33
<PAGE>
the SEC (see the SAI) are not indicative of the dividends or distributions
which were or will be paid to a Fund's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution rate or taxable
equivalent distribution rate, which may be quoted to shareholders. The current
distribution rate is computed by dividing the total amount of dividends per
share paid by a Fund during the past 12 months by the current maximum offering
price. A taxable equivalent distribution rate demonstrates the taxable
distribution rate necessary to produce an after tax distribution rate
equivalent to a Fund's 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 we
re 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 Fund's income and will assume the payment of the
maximum sales charge on the purchase 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 a Fund, like all other
investment companies, will fluctuate over time; thus, performance figures
should not be considered to represent what an investment may earn in the future
or what a Fund's yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any future period.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
REPORTS TO SHAREHOLDERS
The Trust's fiscal year ends February 28. Annual Reports containing audited
financial statements of the Trust, including the auditor's report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this Prospectus. Additional information on the performance of each Fund
will be included in the respective Fund's Annual Report to Shareholders.
ORGANIZATION
The Trust was organized as a Massachusetts business trust on September 18,
1984. The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution. Additional series may be added in
the future by the Board of Trustees.
Following is a list of the 27 series currently authorized by the Board of
Trustees:
Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Federal Intermediate-Term
Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
34
<PAGE>
Franklin Florida Insured Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free
Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free
Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
VOTING RIGHTS
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series, or the Trust, unless otherwise permitted by the
1940 Act. Voting rights are noncumulative, so that in any election of trustees,
the holders of more than 50% of the shares voting can elect all of the
trustees, if they choose to do so, and in such event the holders of the
remaining shares voting will not be able to elect any person or persons to the
Board of Trustees. The Trust does not intend to hold annual shareholders
meetings. The Trust may, however, hold a special shareholders meeting of a
series for such purposes as changing fundamental investment restrictions for
the series, approving a new management agreement or any other matters which are
required to be acted on by shareholders under the 1940 Act. A meeting may also
be called by the trustees in their discretion or by shareholders holding at
least ten percent of the outstanding shares of the Trust. Shareholders will
receive assistance in communicating with other shareholders in connection with
the election or removal of trustees such as that provided in Section 16(c) of
the 1940 Act.
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 a 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 a Fund may be made by check, draft or wire. The
Funds have 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.
35
<PAGE>
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 a 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 a Fund after such 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.
Each 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 his 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, a Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend, capital
gain distribution or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number ("TIN") and made certain required certifications
36
<PAGE>
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.
Each Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close
an account by redeeming its shares in full at the then-current net asset value
upon receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
PORTFOLIO OPERATIONS
- --------------------------------------------------------------------------------
The following persons are primarily responsible for the day-to-day management
of the Funds' portfolios. Their business history for at least the last five
years and positions with the Manager are also provided:
John Pomeroy
Portfolio Manager
Mr. Pomeroy has been responsible for portfolio recommendations and decisions
for the Alabama Fund, Georgia Fund, Maryland Fund, and North Carolina Fund
since their inception. He joined Advisers in 1986. He received a Bachelor of
Arts degree in Business Administration from San Francisco State University in
1986 and is a member of industry related committees and associations.
Stella Wong
Portfolio Manager
Ms. Wong has been responsible for portfolio recommendations and decisions for
the Alabama Fund, Georgia Fund, Louisiana Fund, Maryland Fund, North Carolina
Fund, Texas Fund and Virginia Fund since their inception. She holds a Bachelor
of Science degree in Business Administration from San Francisco State
University and a Master's degree in Financial Planning from Golden Gate
University, and is a member of several industry related committees and
associations. She joined Advisers in 1986.
Greg Harrington
Senior Vice President and Managing Director
Mr. Harrington has been responsible for portfolio recommendations and decisions
since inception of the Louisiana Fund, Maryland Fund, and North Carolina Fund.
He has been responsible for portfolio recommendations and decisions for the
Alabama Fund, Florida Fund, Georgia Fund, Missouri Fund, Texas Fund and
Virginia Fund since June of 1994. He is a graduate of Mount Saint Mary's
College in Maryland and has studied at the New York School of Finance. His
experience in the municipal securities industry dates back to 1946. He joined
Advisers in 1983.
Andrew Jennings, Sr.
Vice President and Senior Portfolio Manager
Mr. Jennings has been responsible for portfolio recommendations and decisions
of the Florida Fund and Louisiana Fund since joining Advisers in 1990. He
attended Villanova University in Philadelphia, has been in the securities
industry for over 33 years and is a member of several mu-
37
<PAGE>
nicipal securities industry related committees and associations. From 1985 to
1990 Mr. Jennings was First Vice President and Manager of the Municipal
Institutional Bond Department at Dean Witter Reynolds, Inc.
Don Duerson
Vice President and Senior Portfolio Manager
Mr. Duerson has been responsible for portfolio recommendations and decisions of
the Texas Fund and Virginia Fund since their inception. He joined Advisers in
1986. He has a Bachelor of Science degree in Business and Public Administration
from the University of Arizona, has experience in the portfolio management
business dating back to 1956 and is a member of industry related committees and
associations.
Sheila Amoroso
Portfolio Manager
Ms. Amoroso has been responsible for portfolio recommendations and decisions of
the Florida Fund, Kentucky Fund, and Missouri Fund since their inception. 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.
Bernie Schroer
Vice President and Senior Portfolio Manager
Mr. Schroer has been responsible for portfolio recommendations and decisions of
the Kentucky Fund since its inception. He joined Advisers in 1987. From 1974
to 1984, he was the manager of trading at Kidder Peabody. He has a degree in
Finance from Santa Clara University and is currently a member of municipal
securities industry related committees and associations.
APPENDIX A
DESCRIPTION OF STATE TAX TREATMENT
- --------------------------------------------------------------------------------
The following information on the state income tax treatment of dividends from
the Funds is based upon correspondence and sources believed to be reliable.
Except where otherwise noted, the information pertains to individual state
income taxation only. Investors may be subject to local taxes on dividends or
the value of their shares. Corporations, trusts, estates and other entities may
be subject to other taxes and should consult with their tax advisors or their
state department of revenue. For some investors, a portion of the dividend
income may be subject to the federal and/or state alternative minimum tax.
ALABAMA
Section 40-18-14(2)f of the Alabama Code specifies that interest on obligations
of the state of Alabama and any county, municipality or other political
subdivision thereof is exempt from personal income tax. Section 40-1 8-14(2)d
provides similar tax-exempt treatment for interest on obligations of the U.S.
or its possessions (including Puerto Rico, Guam and the Virgin Islands). In
addition, Regulation Section 810-3-14-.02(4)(b)2 and an administrative ruling
of the Alabama Department of Revenue, dated March 1, 1990, extend these
exemptions to distributions from a regulated investment company, such as the
Alabama Fund, to the extent that they are paid out of interest earned on such
exempt obligations. Tax-exempt treatment is not available on distributions
from income earned on indirect U.S. government obligations (GNMAs, FNMAs,
etc.), for repurchase agreements collateralized by U.S. government obligations,
or for obligations of other states and their political subdivisions. To the
extent such investments are made by a Fund
38
<PAGE>
for temporary or defensive purposes, such distributions will be taxable on a
pro rata basis.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are fully includable in each shareholder's Alabama taxable income as
dividend income and long-term capital gain, respectively. Both types of income
are currently taxed at ordinary income tax rates.
FLORIDA
Florida does not have a personal income tax but does have an intangible
personal property tax for residents. According to Florida Statute Section
199.185 and Technical Assistance Advisement No. 90 (C)2-003, issued by the
Florida Department of Revenue on August 8, 1990 (as subsequently revised),
shares in regulated investment companies organized as business trusts, such as
the Florida Fund, will not be subject to Florida's intangible property tax to
the extent that the Fund is invested in obligations of the U.S. government, its
agencies, instrumentalities and territories (including Puerto Rico, Guam and
the Virgin Islands) at the close of business on the last business day of the
calendar year. If the Fund invests all of the remaining portion of its net
asset value in exempt obligations of the state of Florida or its municipalities
or political subdivisions on such date, then that remaining portion of the net
asset value of the Fund (and corresponding value of Fund shares) will also be
exempt from Florida's intangibles tax. If the Fund invests any of the remaining
portion of its net asset value in any asset for temporary or defensive purposes
which is taxable under Florida's intangible tax law, including investments in
indirect federal obligations (GNMAs, FNMAs, etc.), in repurchase agreements
collateralized by U.S. government securities or in any obligations of other
states, then that remaining portion of the net asset value of the Fund (and
the corresponding value of Fund shares) will be taxable under Florida's
intangible property tax.
GEORGIA
Under Section 48-7-27(b)(1)(A) of the Georgia Code, interest on obligations of
the state of Georgia and its political subdivisions is exempt from the state's
income tax. Likewise, under Section 48-7-27(b)(2) interest on obligations of
the U.S., its territories and possessions (including Puerto Rico, Guam and the
Virgin Islands), or of any authority, commission, or instrumentality of the
U.S. government is also exempt from the state's income tax. Under the
administrative authority of the Georgia Department of Revenue, the exempt
treatment for interest derived from such exempt obligations also applies to
distributions of regulated investment companies, such as the Georgia Fund. To
the extent that the distributions are derived from indirect U.S. government
obligations (GNMAs, FNMAs, etc.), from repurchase agreements collateralized by
U.S. government obligations, or from any obligations of other states and their
political subdivisions, where an investment is made by the Fund for temporary
or defensive purposes, such distributions will be taxable on a pro rata basis.
The state of Georgia also imposes an intangible property tax on the fair
market value of assets owned by residents on January 1 of each year. According
to the Georgia Department of Revenue, the fair market value of a regulated
investment company's shares is fully subject to Georgia's intangibles tax
regardless of the tax-exempt character of the obligations in which the Fund
invests or the tax-exempt income generated by those investments.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are included in each shareholder's Georgia taxable
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income as dividend income and long-term capital gain, respectively. Both types
of income are currently taxed at ordinary income tax rates.
KENTUCKY
According to the Kentucky Revised Statute 141.010(10)(a) and (12)(a), interest
earned on exempt obligations of the U.S. government, its agencies and
instrumentalities, or its territories (including Puerto Rico, Guam and the
Virgin Islands) and obligations issued by the Commonwealth of Kentucky or its
political subdivisions will be exempt from Kentucky's personal and corporate
income tax. Under Kentucky Revenue Policy 42P161 (as revised December 1, 1990)
and a separate letter from the Revenue Cabinet to the Investment Company
Institute dated November 2, 1989, dividends from regulated investment
companies, such as the Kentucky Fund, which are derived from such exempt
obligations, will also be exempt from state income tax. Dividends paid from
interest earned on indirect U.S. government obligations (GNMAs, FNMAs, etc.),
repurchase agreements collateralized by U.S. government obligations, or from
interest earned on obligations of other states, to the extent such investments
are made by the Fund for temporary or defensive purposes, are taxable on a pro
rata basis.
Section 170 of the Kentucky Constitution exempts from intangible property
taxation obligations of Kentucky, and its counties, municipalities, and taxing
and school districts. Though neither the Kentucky Constitution nor the
Kentucky Revised Statutes contain specific language to exempt federal
obligations from the intangible property tax, the courts of Kentucky have
recognized the power of the U.S. Congress to declare that obligations of
federal instrumentalities are exempt from state taxation. For shareholders of
the Fund, the portion of their share value that represents such exempt assets
as of January 1 will also be exempt from Kentucky's intangible property tax.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are includable in each shareholder's Kentucky adjusted gross income as
dividend income and long-term capital gain, respectively, and are both taxed at
ordinary income tax rates. Gain on the sale of some U.S. government and
Kentucky obligations may be exempt from state income tax, but the availability
of the exemption depends upon the specific legislation authorizing the bonds.
LOUISIANA
Under Section 47:293 of Louisiana's Revised Statutes, interest earned on
obligations of the state of Louisiana or its political subdivisions is exempt
from individual and corporate income tax. Under Section 47:293, interest earned
on obligations of the U.S. government or its agencies and possessions
(including Puerto Rico, Guam and the Virgin Islands) is also exempt from
individual and corporate income tax. Under Section 47:290, distributions from a
regulated investment company, such as the Louisiana Fund, will also be exempt
from individual and corporate income tax to the extent that they are derived
from interest earned on such exempt obligations. Distributions paid from
taxable securities, including indirect U.S. government obligations (GNMAs,
FNMAs, etc.), repurchase agreements collateralized by U.S. government
securities, or obligations of other states, where the Fund may invest in such
securities for temporary or defensive purposes, will be taxable on a pro rata
basis.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are included in each shareholder's Louisiana taxable income as
dividend income and long-term capital gain, respectively. Both types of income
are currently taxed at ordinary income tax rates.
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MARYLAND
Under Section 10-204 of the Tax General Article, Annotated Code of Maryland,
dividends paid by the Fund out of interest earned on Maryland state and local
obligations is exempt from Maryland's personal income tax. Under Section 10-20
7, interest on obligations of the U.S. government and any authority,
commission, instrumentality, possession or territory of the U.S. (including
Puerto Rico, Guam and the Virgin Islands) is also exempt from Maryland's
personal income tax. Under Section 10-207(c-1) and Administrative Release Nos.
5 and 11 of the Maryland Comptroller of the Treasury, this exemption is
extended to any distribution from a regulated investment company, such as the
Maryland Fund, to the extent such distributions are paid out of interest earned
on exempt federal, state or local obligations. Distributions paid from taxable
securities, including indirect U.S. government obligations (GNMAs, FNMAs,
etc.), repurchase agreements collateralized by U.S. government securities, or
other state obligations or their political subdivisions, where the Fund may
invest in such securities for defensive or temporary purposes, will be taxable
on a pro rata basis.
Any distributions of capital gains by the Fund derived from gain realized from
the sale or exchange of obligations issued by the state of Maryland or its
subdivisions will also be tax-exempt to the Fund's shareholders. Distributions
of all net short-term capital gain and net long-term capital gain earned by the
Fund on non-Maryland obligations are includable in each shareholder's Maryland
adjusted gross income as dividend income and long-term capital gain,
respectively, and both are taxed at ordinary income tax rates.
MISSOURI
Under Section 143.121 of the Revised Statutes of Missouri, interest earned on
obligations of the U.S. government, its authorities, commissions,
instrumentalities, possessions or territories (including Puerto Rico, Guam and
the Virgin Islands), or the State of Missouri, its political subdivisions or
authorities are exempt from Missouri personal income tax. Under Missouri's
income tax regulations (Title 12, Section 10-2.155), a regulated investment
company, such as the Missouri Fund, may pass the tax-exempt character of such
interest through to its shareholders. To the extent that the Fund invests in
taxable obligations such as indirect U.S. government obligations (GNMAs and
FNMAs, etc.), repurchase agreements collateralized by U.S. government
securities, or in obligations of other states, where the Fund may invest for
temporary or defensive purposes, such distributions will be taxable on a pro
rata basis.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are included in each shareholder's Missouri taxable income as dividend
income and long-term capital gain, respectively. Both types of income are
currently taxed at ordinary income tax rates.
NORTH CAROLINA
Section 105-134.6(b) of the North Carolina General Statute states that interest
on obligations of the U.S. government, its possessions, or its territories
(including Puerto Rico, Guam and the Virgin Islands) and obligations of the
state of North Carolina or its political subdivisions are exempt from state
income tax. Under the North Carolina Department of Revenue Information Release
dated October 4, 1990, dividends received from a regulated investment company,
such as the North Carolina Fund, are exempt from personal income tax to the
extent that the distributions are derived from interest on such exempt
obligations. Distributions paid out of taxable interest earned on indirect U.S.
government obligations (GNMAs, FNMAs, etc.), repurchase
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agreements collateralized by U.S. government securities, or obligations of
other states and their political subdivisions, to the extent that investments
are made by the Fund for temporary or defensive purposes, will be taxable to
shareholders on a pro rata basis.
Any distributions of net realized long-term capital gains earned by the Fund on
the sale or exchange of certain obligations of the state of North Carolina or
its political subdivisions will also be tax-exempt to the Fund's shareholders.
Distributions of all net short-term capital gain and of net long-term capital
gain earned by the Fund on other North Carolina obligations and on non-North
Carolina obligations are includable in each shareholder's North Carolina
taxable income as dividend income and long-term capital gain, respectively, and
are taxed at ordinary income rates.
Under Section 105-203 of the North Carolina General Statute, units of ownership
in the Fund will not be subject to the intangibles personal property tax as
long as the Fund, on December 31 of each year, is composed entirely of
obligations of the U.S. government and North Carolina or its political
subdivisions, and provided that at least 80% of the fair market value of the
assets of the Fund were invested in obligations of North Carolina or its
political subdivisions. For all years in which this requirement is met, the
Fund will file with the state of North Carolina a certification in order for
shareholders to qualify for this exemption.
Under a North Carolina Department of Revenue Administrative Memorandum dated
November 9, 1990, in any case in which a fund does not meet the above
requirement that its investments consist entirely of U.S. government or North
Carolina obligations, for intangibles property tax purposes, the state will
allow shareholders to reduce the value of their investment in such fund in
direct proportion to the percentage of the fund's investment in exempt U.S.
government or North Carolina obligations. This ruling will allow shareholders
in any other Franklin fund which invests in U.S. government or North Carolina
obligations to claim an exemption on their North Carolina intangibles tax
return for the portion of their investment which is made in U.S. government or
North Carolina obligations.
TEXAS
Texas does not presently impose any income tax on individuals, trusts, estates
or corporations.
VIRGINIA
Section 58.1-322 of the Code of Virginia states that interest on obligations of
the state of Virginia, its political subdivisions, and instrumentalities or
direct obligations of the U.S. government or its authority, commission,
instrumentality or territories (including Puerto Rico, Guam and the Virgin
Islands) is exempt from personal income tax. Under Virginia Regulation Section
630-2-322, distributions from a regulated investment company, such as the
Virginia Fund, will also be exempt from personal income tax if the Fund invests
in such exempt obligations. Dividends paid from interest earned on indirect
U.S. government obligations (GNMAs, FNMAs, etc.), repurchase agreements
collateralized by U.S. government securities, or obligations of other states
and their political subdivision do not qualify for this exemption. To the
extent that such taxable investments are made by the Fund for temporary or
defensive purposes, the distributions will be taxed on a pro rata basis.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are included in each shareholder's Virginia taxable income as dividend
income and long-term capital gain respectively, and are taxed at ordinary
income tax rates.
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APPENDIX B
SPECIAL FACTORS AFFECTING EACH FUND
- --------------------------------------------------------------------------------
The following information is a brief summary of factors affecting each of the
individual Funds and does not purport to be a complete description of such
factors. The information is based primarily upon information derived from
public documents relating to securities offerings of issuers of such states,
from independent municipal credit reports and historically reliable sources,
but has not been independently verified by the Trust. The market value of the
shares of any Fund may fluctuate due to factors such as changes in interest
rates, matters affecting a particular state, or for other reasons. Additional
information regarding each state is included in the SAI.
ALABAMA
During the early 1980s, Alabama's economy was severely affected by sharp
declines in the manufacturing and construction sectors, as well as aggravated
by weakness in the agricultural sector. Over the past decade, however, the
state's economic base has diversified. Although the manufacturing sector still
dominates employment, there has been noticeable growth in the trade and
services sectors. This is evident by the growth in high tech firms located in
the Huntsville area and health care and business firms located in the
Birmingham area.
Unlike the recession of the early 1980s, when the state's unemployment rate
peaked at 14.4%, the latest economic slowdown has not been as severe, with
strong growth in the trade, service, and finance, insurance, and real estate
sectors, which generated about 75% of the state's new growth. For fiscal year
ended January 31, 1993, the state realized a 1.9% increase in total employment.
Although the economy faltered during the spring and summer of 1993, this bad
news was offset by an announcement by Mercedes-Benz that they will build a new
line of sport utility vehicles in the state.
The state's strengths include a more diverse economic base; an expanding
service sector; abundant supply of lumber and timber; and low cost structure
which is attractive for new business investment. The state, together with other
east south central states, is supported for economic expansion, with continued
gains in services and trade as well as gains in manufacturing. Weaknesses will
show in the state's textile and apparel industries which are expected to
experience significant employment reductions as a result of the North-American
Free Trade Agreement, as Mexico offers a lower-cost business environment.
Cutbacks in the national defense budget will lead to federal job losses with
the closure or downsizing of some of the state's military installations.
The state's overall outlook is stable, with sound financial management and low
debt.
FLORIDA
Florida has an estimated population of 13.4 million, an increase of 37% from
1980 levels, and ranks as the fourth most populous state in the nation. Florida
has been among the fastest growing states. The state has begun to recover from
the national economic recession, due in part to the post hurricane clean-up and
rebuilding. Strong growth in the service, construction and trade areas gave a
total employment increase of 2.6% in 1993 with a 3.6% projected for 1994. This
increase should offset the recessionary decline which had a peak of 8.2% in
1992.
The significant tourism sector has stabilized, with an overall increase of 2.5%
and 2.3% for 1992 and 1993, respectively, with increases showing in automobile
arrivals rather than airplane arrivals. The improved national economy should
contribute to the state's stabilization in this sector.
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Per capita personal income levels from 1990-1992 were below the national
levels, partially due to lower investment income returns. The current
population and employment growth should reverse this trend.
The state's has a manageable debt burden of $523 per capita.
GEORGIA
Once dependent upon agriculture, Georgia's economy has now diversified into the
manufacturing (textiles, food products, paper products, electronic equipment
and aircraft), trade and service sectors. Atlanta has become the focus of
economic growth in the state and is the trade, service and transportation
center for the southeast region. Manufacturing predominates throughout the rest
of the state. Only mildly affected by the recession of the early 1980s, the
state's economy has grown rapidly for most of the past decade. During that
time, population grew at nearly twice the national rate. However, the state's
economy began to slow in 1989, as a result of less vigorous job growth and a
decline in per capita income.
In 1992, state personal income was up 3.2% from the previous year. On a per
capita basis, state personal income was 91% of the nation's average,
considerably above the 1969 level of 83%, but below the 1988 level of 93%. In
1992, the services sector accounted for 23% of employment, with trade (22%),
government (17%), and the manufacturing (16%) sectors accounting for most of
the rest.
As a result of the current national recession, the state's employment declined
in 1991; however, the employment rate increased in 1992.
In March 1989, the U.S. Supreme Court ruled the imposition of state income
taxes on federal retirement benefits unconstitutional when state and local
retiree's benefits are exempted from state income taxes. After this decision,
several lawsuits were filed in Georgia, with the plaintiffs seeking state
income tax refunds retroactive to 1980. The maximum potential liability is
estimated at $591 million. However, under the state's three-year statute of
limitations, the maximum liability is estimated at $104 million.
Debt ratios continue to remain moderate.
FACTORS AFFECTING KENTUCKY
Despite the national recession, Kentucky's economy has exhibited moderate
growth over the last several years. Kentucky's low costs of living and low cost
of doing business, combined with the commonwealth's aggressive business
recruitment and business incentive programs, have enabled the commonwealth to
add a number of high profile corporate expansions and relocations over the past
six years.
Kentucky's economic makeup mirrors national averages in terms of employment and
income by source. Kentucky's employment opportunities, however, create a
typical income level in a state that is only approximately four-fifths of the
national average. Despite the impact of the national economic slowdown on
Kentucky's export-oriented industries, the state's job and wealth base
continues to grow and, to a limited extent, diversify.
Over the longer term, however, dramatic improvements are needed in Kentucky's
educational system for it to remain economically competitive. The state,
through an education reform statute passed in 1990, has made education its
primary economic development initiative. Success at this task, however, will
not be easy. Rural poverty and illiteracy, which permeates the state's eastern
and western regions, will likely take years, if not decades, to noticeably take
effect.
Most economic development in Kentucky has occurred in the region of the state
bounded by Cincinnati on the north, Louisville on the west, and
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Lexington on the east. Because of air access provided to the region by Delta
Air Lines Inc.'s hub airport operations in northern Kentucky, an excellent
highway network connecting the region with most major U.S. markets, and good
higher education systems in the three metropolitan areas, Kentucky's "Golden
Triangle" has experienced strong economic growth. The remainder of the
commonwealth, however, has not prospered nearly as much.
LOUISIANA
With its energy-oriented economy, Louisiana's efforts at diversification have
been slow. At the same time, the state has experienced the effects of reduced
domestic oil production in recent years. Louisiana is dependent on both
production of oil and natural gas, as well as petrochemicals. As the state's
energy sector has shrunk, the services sector has come to replace energy as the
leading employment sector since the mid-1980's. Decreased population and labor
force, combined with a modest amount of job growth in recent years, has
permitted Louisiana to experience a modest recovery from the depths of its
energy-related downturn. Following losses in both population and labor force
from 1987-1990, modest labor force growth occurred in 1991, with an increase of
3.1% over the prior year. Louisiana's population reached its peak of 4.5
million in 1986, after which it began to decline, reaching 4.2 million only
four years later. Modest increases in resident population are projected through
1995, which may add up to 200,000 by the end of the forecast period.
Legalized gambling, both in New Orleans and on riverboats, is seen by the state
as a potential source of economic rejuvenation in the tourism industry. The
state also realized that sectors beyond tourism and energy need development in
the long run for the state to become insulated from the cyclical nature of
those sectors. Recent years have seen mining experience sharp employment
declines, although this sector still employs some 64,000 people and is expected
to remain close to that level throughout the 1990s. The service sector has
shown the most growth in recent years, with employment having increased to an
estimated 396,000 in 1993 from 335,000 in 1988 and projected to continue to
increase to 426,000 by 1995. Some manufacturing growth continues to take place
with jobs totaling 186,000 in 1992, up 15,000 since 1988, although the rate of
growth remain even with 1995's expected level.
Louisiana's economic recovery is held back by an undereducated work force, low
income and limited wealth, and an economy that largely exports raw materials
and imports finished goods. Per capita personal income reached its peak at
98.3% of national levels in 1981 (during the oil boom years) and by the end of
the 1980s had slipped to 82.0% of the U.S. average. During the last half of
the 1980s, Louisiana's growth in personal income was only slightly above half
that of the U.S. growth rate, i.e., 14.4% versus 26.6%.
The state constitution is a major obstacle to achieving financial stability. It
limits revenue raising capacity and has prevented the state from replacing the
revenues once generated by the energy sector. It also limits spending
flexibility and requires a large share of revenues to go to constitutionally
protected functions, primarily education and transportation.
MARYLAND
Maryland's economic base is well diversified. Service, trade, and government
are the leading sectors of employment and income. Compared to national
averages, manufacturing as a source of employment plays a less significant role
(9%), however, it is the state's most volatile sector. Government employment
(16.8%) and income is much larger for
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Maryland than the nation, primarily because of the state's nearness to the
District of Columbia.
The state has lost approximately 106,000 jobs, or 4.9% of its total employment
since 1990. Although the recovery has begun and gradual jobs growth is expected
to occur throughout calendar 1994, it will take several years to replace the
jobs lost. Anticipated 1994 employment gains, averaging nearly 2% annually, or
30th in the nation, compared with 2.7% for the nation's south atlantic region.
It is expected that Maryland's economic complexion will change dramatically
between 1995-1998, as rapid growth in the professional services industries
propels job growth to the seventh-fastest in the nation.
Maryland's total personal income has grown annually over the past few years,
but at substantially slower rates. Maryland's $22,249 per capita income
remains high at approximately 116% of the national average.
MISSOURI
The state's economy has closely resembled the nation's in terms of employment
and income. In 1991, services accounted for 25.2% of state employment and trade
23.9%, as compared to 26.4% and 23.3% for the same sectors, respectively in the
nation for the same time period. Manufacturing in Missouri accounted for 18.1%
of the state's employment, compared to 16.9% for the nation. Unemployment
decreased from 6.6% in 1991 to 5.7% in 1992. As of April 1993, the unemployment
level was 6% compared to the nation's 6.8%. McDonell Douglas Corp. has
announced the signing of a $2 billion contract with Israel, and Trans World
Airlines has come out of bankruptcy and moved its main headquarters to St.
Louis, ending a period of lay-offs and down-sizing by the state's largest
employers. Reconstruction of homes and business in flood damaged areas is
anticipated to bring about strong construction sector gains.
The defense industry is an important component to Missouri's economy, leaving
the state vulnerable to military cost cutting and base closures.
During the 1980s, Missouri's per capita personal income grew at a compound
annual growth rate of 6.5%, the same rate as the U.S. Per capita income grew
5.5% from 1991 to 1992, lagging the nation's rate of 6.2%.
FACTORS AFFECTING NORTH CAROLINA
North Carolina ranks among the top ten states in terms of economic growth, as
measured by job and personal income growth. Diversification into financial
services, research and high technology manufacturing is reducing the state's
historical dependence on agriculture, textiles, and furniture manufacturing.
North Carolina has an economy dependent on manufacturing and agriculture;
however, diversification into trade and service areas is occurring.
Historically, textiles and furniture dominated industry lines, but increased
activity in financial services, research, and high technology manufacturing is
now clearly apparent. Tobacco remains the primary agricultural commodity.
Economic development continues, and long-term personal income trends indicate
gains, although wealth levels remain below the national rate. Employment growth
accelerated in recent years, and unemployment rates remain below the national
average.
State unemployment rate of 4.9% is up from its 1989 low of 3.5%, but remains
below the national rate. The state depends on manufacturing (predominantly
textiles and furniture), agriculture (mostly tobacco) and, to some extent,
tourism. While there has been growth in service industries, manufacturing
continues to provide approximately 27% of employment. Population growth in the
state has been strong, perhaps partly reflecting its
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attraction to retirees. Continued corporate relocation to the state, especially
in the Research Triangle Area, will be key to employment growth through the
1990s.
Aggregate personal income in 1991 amounted to $113,536 million. The principal
industry contributors to earnings were manufacturing, 27.8% (led by textiles,
non-electrical machinery, chemical products, electric equipment, and
furniture); services, 20.3%; trade, 16.7%; and government, 17.5%.
Diversification in the state's economy is reflected by the reduced importance
of traditional sectors, such as the manufacture of furniture and textiles.
Growth in personal income (4.07% in 1990, which was less than the average of
7.1% for the state in the five years 1986-91) exceeded the national rates of
3.54% (1990) and 6.10% (five-year national average) and the regional rates of
4.38% of the U.S. figure and 99% of the regional figure; in 1980, comparable
relationships were 82% and 95%, respectively.
TEXAS
The state's economy has continued to diversify. Since the oil price crash in
the mid-1980s, the economy has been less dependent on energy-related
industries. As this has occurred, the state's economy has diversified and now
more closely resembles the national economy. As a result, Texas has been
impacted more by the current national recession than by the recession of the
early 1980s, when the energy sector provided insulation from national trends.
Despite this, the state's economy still outperformed the national economy in
1992.
With a population of nearly 17 million, Texas places third among states, up 19%
from the 1980 census. Good employment prospects make the state a popular
destination. The population is projected to increase 1.4% through 1994.
During 1992, the state gained 91,000 jobs, a 1.3% increase over the previous.
The state jobless rate declined to about 6% at mid-1990, from about 10% at
mid-1986, before returning to 7.3% in October 1992. The services sector has
surpassed trade as the state's major employment sector, accounting for 26% of
statewide employment.
Job growth is projected to continue to pick up in 1994. Total nonfarm
employment growth is expected to accelerate over the next two years as the
state benefits from increasing trade with Mexico and growing medical and lumber
industries. Through the end of 1994, the state is expected to add 405,000 new
jobs at a rate of 2.4% annually. Personal income is anticipated to increase
6.6% through fiscal year 1995.
VIRGINIA
The Commonwealth's economy remains strong and diversified despite the recent
economic slowdown and some future uncertainties due to expected defense-related
cutbacks. The employment base, consisting primarily of trade, government, and
services sectors, showed substantial growth during the 1980s, adding some
883,000 jobs, primarily in the services and trade sectors. From 1990 to 1992
the Commonwealth lost about 55,000 jobs in construction and manufacturing. Due
to its diverse base, however, the unemployment rate remained relatively low
(5.1% for the last quarter in 1993).
During this decade, the Commonwealth expects to lose an additional 52,000 jobs
as a result of defense budget cuts and military base closings but an overall
increase in non agricultural employment of over 340,000 jobs. Services, as the
largest employment sector, should lead the economic recovery with an expected
3.1% annual growth, and trade second with an expected growth of 1.5%.
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The Commonwealth is made up of a variety of local economies, with the northern
Virginia area comprising the largest. In terms of population and building
activity, northern Virginia has been the fastest-growing area in the
commonwealth. Growth has been spurred by employment opportunities provided for
both civilian and military personnel in, and directly related to, the federal
government. The prospect of a lower defense budget and fewer defense contracts
could lead to some structural changes in two of Virginia's major local
economies (northern Virginia and Norfolk/Newport News) where defense and a
substantial military presence have played an important role. However, the
Commonwealth continues to enjoy such advantages as its strategic mid-Atlantic
location, port facilities, proximity of its largest local economy to
Washington, D.C., and a major international airport in the northern Virginia
area.
The Commonwealth's direct general obligation per capita is very low at $131.
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<TABLE>
<S> <C>
Franklin Tax-Free Trust
FRANKLIN
777 Mariners Island Blvd. TAX-FREE
P.O. Box 7777 TRUST
San Mateo, California 94403-7777
Investment Manager
Franklin Advisers, Inc. July 1, 1994
777 Mariners Island Blvd. as amended October 4, 1994
P.O. Box 7777
San Mateo, California 94403-7777
Franklin Alabama Tax-Free Income Fund
Principal Underwriter
Franklin Florida Tax-Free Income Fund
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd. Franklin Georgia Tax-Free Income Fund
P.O. Box 7777
San Mateo, California 94403-7777 Franklin Kentucky Tax-Free Income Fund
Custodian Franklin Louisiana Tax-Free Income Fund
Bank of America NT & SA Franklin Maryland Tax-Free Income Fund
555 California Street, 4th Floor
San Francisco, California 94104 Franklin Missouri Tax-Free Income Fund
Shareholder Services Agent Franklin North Carolina Tax-Free Income Fund
Franklin/Templeton Investor Services, Inc. Franklin Texas Tax-Free Income Fund
777 Mariners Island Blvd.
P.O. Box 7777 Franklin Virginia Tax-Free Income Fund
San Mateo, California 94403-7777
Independent Auditors
Coopers & Lybrand
333 Market Street
San Francisco, California 94105
Legal Counsel
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
For an enlarged version of this prospectus
Please call 1-800/DIAL BEN.
- -----------------------------
Your Representative Is;
[FRANKLIN LOGO]
- -----------------------------
<PAGE>
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN TAX FREE TRUST
FRANKLIN ALABAMA TAX-FREE INCOME FUND
FRANKLIN FLORIDA TAX-FREE INCOME FUND
FRANKLIN GEORGIA TAX-FREE INCOME FUND
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
FRANKLIN MARYLAND TAX-FREE INCOME FUND
FRANKLIN MISSOURI TAX-FREE INCOME FUND
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
FRANKLIN TEXAS TAX-FREE INCOME FUND
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
DATED JULY 1, 1994
The following substitutes subsection "Purchases at Net Asset Value" under
"Additional Information Regarding Fund Shares":
ADDITIONAL INFORMATION REGARDING PURCHASES
Special Net Asset Value Purchases. As discussed in the Prospectus under "How to
Buy Shares of the Fund - Description of Special Net Asset Value Purchases,"
certain categories of investors may purchase shares of the Fund without a
front-end sales load ("net asset value") or a contingent deferred sales charge.
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for such
purchases, as indicated below. As a condition for these payments, Distributors
or its affiliates may require reimbursement from the securities dealers with
respect to certain redemptions made within 12 months of the calendar month
following purchase, as well as other conditions, all of which may be imposed by
an agreement between Distributors, or its affiliates, and the securities
dealer.
The following amounts may be paid by Distributors or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible
for (i) purchases of most equity and taxable income Franklin Templeton Funds
made at net asset value by certain designated retirement plans (excluding IRA
and IRA rollovers): 1.00% on sales of $1 million but less than $2 million, plus
0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales of
$3 million but less than $50 million, plus 0.25% on sales of $50 million but
less than $100 million, plus 0.15% on sales of $100 million or more; and (ii)
purchases of most taxable income Franklin Templeton Funds made at net asset
value by non-designated retirement plans: 0.75% on sales of $1 million but less
than $2 million, plus 0.60% on sales of $2 million but less than $3 million,
plus 0.50% on sales of $3 million but less than $50 million, plus 0.25% on
sales of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. These payment breakpoints are reset every 12 months for
purposes of additional purchases. With respect to purchases made at net asset
value by certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of $10
million or more, Distributors, or one of its affiliates, out of its own
resources, may pay up to 1% of the amount invested.
Letter of Intent. An investor may qualify for a reduced sales charge on
the purchase of shares of 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. Sales
charge reductions based upon purchases in more than one of the Franklin
Templeton Funds will be effective only after notification to Distributors that
the investment qualifies for a discount. The shareholder's holdings in the
Franklin Templeton Funds acquired more than 90 days before the Letter of Intent
is filed will be counted towards completion of the Letter of Intent but will
not be entitled to a retroactive downward adjustment in the sales charge. Any
redemptions made by the shareholder, other than by a designated benefit plan,
during the 13-month period will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the Letter of Intent have been
completed. If the Letter of Intent is not completed within the 13-month period,
there will be an upward adjustment of the sales charge, depending upon the
amount actually purchased (less redemptions) during the period. The upward
adjustment does not apply to designated benefit plans. An investor who executes
a Letter of Intent prior to a change in the sales charge structure for the Fund
will be entitled to complete the Letter of Intent at the lower of (i) the new
sales charge structure; or (ii) the sales charge structure in effect at the
time the Letter of Intent was filed with the Fund.
<PAGE>
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, the reserved shares will be deposited to an account
in the name of the investor or delivered to the investor or the investor's
order. If the total purchases, less redemptions, exceed the amount specified
under the Letter of Intent and is an amount which would qualify for a further
quantity discount, a retroactive price adjustment will be made by Distributors
and the securities dealer through whom purchases were made pursuant to the
Letter of Intent (to reflect such further quantity discount) on purchases made
within 90 days before and on those made after filing the Letter. The resulting
difference in offering price will be applied to the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases. If the total purchases, less redemptions, are
less than the amount specified under the Letter, the investor will remit to
Distributors an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge which would have applied to
the aggregate purchases if the total of such purchases had been made at a
single time. Upon such remittance the reserved shares held for the investor's
account will be deposited to an account in the name of the investor or
delivered to the investor or to the investor's order. If within 20 days after
written request such difference in sales charge is not paid, the redemption of
an appropriate number of reserved shares to realize such difference will be
made. In the event of a total redemption of the account prior to fulfillment of
the Letter of Intent, the additional sales charge due will be deducted from the
proceeds of the redemption, and the balance will be forwarded to the investor.
<PAGE>
FRANKLIN (LOGO)
TAX-FREE
TRUST
STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX 7777
JULY 1, 1994 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
- --------------------------------------------------------------------------------
<PAGE>
FRANKLIN (LOGO)
TAX-FREE
TRUST
STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX 7777
JULY 1, 1994 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
- --------------------------------------------------------------------------------
Franklin Tax-Free Trust (the "Trust") is an open-end investment company
consisting of 27 separate series. This Statement of Additional Information (the
"SAI") relates only to the ten series shown below (which separately may be
referred to as the "Fund" or by the state included in its name, and
collectively as the "Funds":
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
The principal investment objective of each Fund is to provide investors with as
high a level of income exempt from federal income taxes as is consistent with
prudent investing, while seeking preservation of shareholders' capital. The
investment objective of each Fund is a fundamental policy. Each Fund also seeks
to provide a maximum level of income exempt from state personal income taxes,
if any, to shareholders resident in the named state. The Maryland Fund is non-
diversified; the other Funds are diversified.
Each Fund invests primarily in municipal securities issued by its respective
state and its political subdivisions, agencies, and instrumentalities.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN
MORE DETAIL THAN SET FORTH IN THE PROSPECTUS OF THE FUNDS. THIS SAI IS INTENDED
TO PROVIDE A PROSPECTIVE INVESTOR WITH ADDITIONAL INFORMATION REGARDING THE
ACTIVITIES AND OPERATIONS OF THE TRUST AND EACH FUND AND SHOULD BE READ IN
CONJUNCTION WITH THE PROSPECTUS.
A Prospectus for the Funds dated July 1, 1994, as may be amended from time to
time, provides the basic information a prospective investor should know before
investing in the Funds and may be obtained without charge from the Trust at the
address listed above or from the Trust's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), 777 Mariners Island
Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
</TABLE>
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
About the Trust . . . . . . . . . . . . . . . . . . . . . . . 2
The Trust's Investment Objectives and Policies . . . . . . . 2
Description of Municipal and Other Securities . . . . . . . . 2
Investment Restrictions . . . . . . . . . . . . . . . . . . . 4
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 6
Investment Advisory and Other Services . . . . . . . . . . . 8
The Trust's Policies Regarding Brokers Used
on Portfolio Transactions . . . . . . . . . . . . . . . . . 10
Additional Information Regarding Purchases and
Redemptions of Trust Shares . . . . . . . . . . . . . . . . 10
The Trust's Underwriter . . . . . . . . . . . . . . . . . . . 12
Plans of Distribution . . . . . . . . . . . . . . . . . . . . 13
Additional Information Regarding Taxation . . . . . . . . . . 14
General Information . . . . . . . . . . . . . . . . . . . . . 15
Miscellaneous Information . . . . . . . . . . . . . . . . . . 20
Appendices . . . . . . . . . . . . . . . . . . . . . . . . . 21
Financial Statements . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
1
<PAGE>
ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust is an open-end management investment company, commonly called a
"mutual fund," and has registered as such under the Investment Company Act of
1940 (the "1940 Act"). The Trust was organized as a Massachusetts business
trust in September 1984. The Trust issues its shares of beneficial interest
with no par value in several series. Currently, the Trust has 27 separate
series, each of which maintains a totally separate investment portfolio. This
SAI discusses only the ten series listed on the cover.
THE TRUST'S INVESTMENT
OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Each Fund seeks to maximize income exempt from federal income taxes and from
the personal income taxes for shareholders resident in the named state,
consistent with prudent investing, and the preservation of shareholders'
capital.
Although the Trust seeks to invest all the assets of each Fund in a manner
designed to accomplish the objective of each Fund, there may be times when
market conditions limit the availability of appropriate municipal securities
or, in the investment manager's opinion, there exist uncertain economic,
market, political, or legal conditions which may jeopardize the value of
municipal securities. For temporary defensive purposes, a Fund may invest more
than 20% and up to 100% of the value of its net assets in instruments the
interest on which is exempt from federal income taxes only, and each Fund may
invest more than 20% and up to 100% of its net assets in taxable, fixed-income
obligations. The policy followed by these Funds of attempting to meet these
state requirements in order to distribute tax-exempt income is not a
fundamental policy with respect to the Funds and may be changed without
notification to shareholders. If, due to unusual market or political
conditions, investments in securities as described above would be advisable, in
the investment manager's opinion, in order to protect the value of the Funds'
shares or their net yield, such investments may be made, notwithstanding the
potential state income tax effects.
It is the policy of each Fund that illiquid securities (including illiquid
securities with contractual or other restrictions on resale or instruments
which are not readily marketable or have no readily ascertainable market value)
may not constitute, at the time of the purchase or at any time, more than 10%
of the value of the total net assets of the Fund.
DESCRIPTION OF MUNICIPAL
AND OTHER 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 each of the Funds may invest.
MUNICIPAL NOTES
Tax Anticipation Notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
which will be used to pay the notes. They are usually general obligations of
the issuer, secured by the taxing power for the payment of principal and
interest.
Revenue Anticipation Notes are issued in expectation of 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. The 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
2
<PAGE>
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 unive rsities;
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. These 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.
Variable or Floating Rate Demand Notes ("VRDNs"). As stated in the prospectus,
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 within 15 to 60 days 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 Trust 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 a
Fund are held in cash pending the settlement of a purchase of securities, that
Fund would earn no income; however, it is the Trust's intention to have each
Fund fully invested to the extent practicable and subject to the policies
stated in the Prospectus. At the time a Fund makes the commitment to purchase a
municipal bond on a when-issued basis, it will record the transaction and
reflect the value of the security in determining its net asset value. The Trust
does not believe that any Fund's net asset value or income will be adversely
affected by the purchase of municipal bonds on a when-issued basis. Each Fund
will establish a segregated account in which it will maintain cash and
marketable securities equal in value to commitments for when-issued securities.
Municipal securities may also be sold in "stripped" form. Stripped Municipal
Securities represent separate ownership of interest and principal payments on
municipal obligations.
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 Funds'
investment manager, the Funds believe they have 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 each
3
<PAGE>
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 each Fund's callable bonds
may have an impact on such Fund's net asset value. In light of each Fund's
pricing policies and because the Funds follow certain amortization procedures
required by the Internal Revenue Service, the Funds are 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
Funds' objectives will be achieved.
Certificates of Participation. As stated in the prospectus, each 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 Funds
believe that this risk is mitigated by their policy of investing only in COPs
rated within the four highest rating categories of Moody's Investors Service
("Moody's"), Standard & Poor's (S&P) or Fitch Investors Service, Inc.
("Fitch"), or in unrated COPs believed to be of comparable quality. Criteria
considered by the rating agencies and the investment manager in assessing such
risk include the issuing 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 Trustees has determined that
COPs held in each 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
each Fund, both in general and with respect to COPs; and (c) the extent to
which the type of COPs held by each 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
each 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.
U.S. Government Obligations which may be owned by a 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 Funds may also invest, to the extent such investments would be
consistent with the foregoing objective and policies.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Trust has adopted the following restrictions as additional fundamental
policies of each Fund. These policies may not be changed with respect to any
Fund without the approval of a majority of the outstanding voting securities of
such Fund. Under the 1940 Act, a "vote of a majority of the outstanding voting
securities" of the Trust or of a particular Fund means the affirmative vote of
the lesser of (1) more than 50% of the outstanding shares of the Trust or of
such Fund or (2) 67% or more of the shares of the Trust or of such Fund present
at a shareholders meeting if more than 50% of the outstanding shares of the
Trust or of such Fund are represented at the meeting in person or by proxy. A
Fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that
borrowings (and a pledge of assets therefore) for temporary or emergency pur-
4
<PAGE>
poses may be made from banks in any amount up to 5% of the total asset value.
2. Buy any securities on "margin" or sell any securities "short," except that
it may use such short-term credits as are necessary for the clearance of
transactions.
3. Make loans, except through the purchase of readily marketable debt
securities which are either publicly distributed or customarily purchased by
institutional investors. Although such loans are not presently intended, this
prohibition will not preclude a Fund from loaning portfolio securities to
broker/dealers or other institutional investors if at least 102% cash
collateral is pledged and maintained by the borrower; provided such portfolio
security loans may not be made if, as a result, the aggregate of such loans
exceeds 10% of the value of 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, except with respect to the
Trust's non-diversified Funds, which Funds will not purchase a security, if as
a result: i) more than 25% of its total assets would be invested in the
securities of a single issuer or ii) with respect to 50% of its total assets,
more than 5% of its assets would be invested in the securities of a single
issuer.
6. Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own beneficially more than
1/2 of 1% of the securities of such issuer and all such officers and trustees
together own beneficially more than 5% of such securities.
7. Acquire, lease or hold real estate, except such as may be necessary or
advisable for the maintenance of its offices and provided that this limitation
shall not prohibit the purchase of municipal and other debt securities secured
by real estate or interests therein.
8. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads or any combination thereof, or interests in oil, gas, or other mineral
exploration or development programs, except that it may purchase, hold and
dispose of "obligations with puts attached" in accordance with its investment
policies.
9. Invest in companies for the purpose of exercising control or management.
10. Purchase securities of other investment companies, except in connection
with a merger, consolidation or reorganization except to the extent the Fund
invests its uninvested daily cash balances in shares of the 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 its assets in securities of any industry; although
for purposes of this limitation, tax-exempt securities and U.S. government
obligations are not considered to be part of any industry.
Portfolio Turnover: The portfolio turnover of the Funds for each of the two
fiscal years ended February 28, 1994, was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
------ -------
FUND 1993 1994
- --------------------------------------------------------------------------------- ------ -------
<S> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.27% 34.02%
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.72 11.99
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.10 16.75
Kentucky Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.41 13.22
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.37 17.63
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.73 18.38
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.28 11.02
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.48 3.86
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.33 20.18
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.74 6.86
</TABLE>
5
<PAGE>
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The trustees have the responsibility for the overall management of the Trust,
including general supervision and review of each Fund's investment activities.
The trustees elect the officers of the Trust who are responsible for
administering the day-to-day operations of the Trust. The affiliations of the
officers and trustees and their principal occupations for the past five years
are listed below. Trustees who are deemed to be "interested persons" of the
Trust, as defined in the 1940 Act, are indicated by an asterisk (*).
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank H. Abbott, III Trustee President and Director, Abbott Corporation
1045 Sansome St. (an investment company); Director, Vacu-Dry
San Francisco, CA 94111 Co. (a food processing company) and Mother
Lode Gold Mines Consolidated; and director, trustee or
managing general partner, as the case may be, of most of
the investment companies in the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Harris J. Ashton Trustee President, Chief Executive Officer and
General Host Corporation Chairman of the Board, General Host
Metro Center, 1 Station Place Corporation (nursery and craft centers);
Stamford, CT 06904-2045 Director, RBC Holdings, Inc. (a bank
holding company), Bar-S Foods and Sunbelt
Nursery Group, inc.; director of
certain of the investment companies in the
Templeton Group of Funds; and director,
trustee or managing general partner, as the
case may be, of most of the investment
companies in the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
S. Joseph Fortunato Trustee Member of the law firm of Pitney, Hardin,
Park Avenue at Morris County Kipp & Szuch; Director of General Host
P. O. Box 1945 Corporation; director of certain of the
Morristown, NJ 07962-1945 investment companies in the Templeton Group
of Funds; and director, trustee or managing
general partner, as the case may be, of most
of the investment companies in the Franklin
Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
David W. Garbellano Trustee Private Investor; Assistant
111 New Montgomery St.,#402 Secretary/Treasurer and Director, Berkeley
San Francisco, CA 94105 Science Corporation (a venture capital
company); and director, trustee or managing
general partner, as the case may be, of most
of the investment companies in the Franklin
Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
*Charles B. Johnson Chairman of the President and Director, Franklin Resources,
777 Mariners Island Blvd Board and Trustee Inc. and Franklin/Templeton Distributors,
San Mateo, CA 94404 Inc.; Chairman of the Board and Director,
Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.
and General Host Corporation; director of
certain of the investment companies in the
Templeton Group of Funds; and officer and/or
director, trustee or managing general
partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and
of most of the investment companies in the
Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Rupert H. Johnson, Jr. President and Executive Vice President and Director,
777 Mariners Island Blvd Trustee Franklin Resources, Inc. and
San Mateo, CA 94404 Franklin/Templeton Distributors, Inc.;
President and Director, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor
Services, Inc.; director of certain of the
investment companies in the Templeton Group
of Funds; and officer and/or director,
trustee or managing general partner, as the
case may be, ofmost other subsidiaries of
Franklin Resources, Inc. and of most of the
investment companies in the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Frank W. T. LaHaye Trustee General Partner, Peregrine Associates and
20833 Stevens Creek Blvd. Miller & LaHaye, which are General Partners
Suite 102 of Peregrine Ventures and Peregrine Ventures
Cupertino, CA 95014 II (venture capital firms); Chairman of the
Board and Director, Quarterdeck Office
Systems, Inc.; Director, FischerImaging
Corporation; and director or trustee, as the
case may be, of most of the investment
companies in the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Gordon S. Macklin Trustee Chairman, White River Corporation (financial
8212 Burning Tree Road services); Director, Fundamerican
Bethesda, MD 20817 Enterprises Holdings, Inc., Martin Marietta
Corporation, and MCI Communications
Corporation; director of certain of the
investment companies in the Templeton Group
of Funds; and director, trustee or managing
general partner, as the case may be, of most
of the investment companies in the Franklin
Group of Funds; formerly, Chairman,
Hambrecht and Quist Group; Director, H & Q
Healthcare Investors; and President,
National Association of Securities Dealers,
Inc.
- ------------------------------------------------------------------------------------------------------------------------
Don Duerson Vice President Employee of Franklin Resources, Inc.
777 Mariners Island Blvd. and its subsidiaries in senior portfolio
San Mateo, CA 94404 management capacities.
- ------------------------------------------------------------------------------------------------------------------------
Andrew R. Johnson Vice President Senior Vice President, Franklin Advisers,
777 Mariners Island Blvd. Inc.; employee of Franklin Resources, Inc.
San Mateo, CA 94404 and its subsidiaries in administrative
and portfolio management capacities; and
officer of some of the investment companies
in the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Edward V. McVey Vice President Senior Vice President/National Sales Manager,
777 Mariners Island Blvd. Franklin/Templeton Distributors, Inc.; and
San Mateo, CA 94404 officer of many of the investment companies in the
Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harmon E. Burns Vice President Executive Vice President, Secretary and
777 Mariners Island Blvd. Director, Franklin Resources, Inc.; Executive
San Mateo, CA 94404 Vice President and Director, Franklin/Templeton
Executive Vice President, Distributors, Inc.; Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; director
of certain of the investment companies in
the Templeton Group of Funds; officer and/or
director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee of all the
investment companies in the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Kenneth V. Domingues Vice President Senior Vice President, Franklin Resources, Inc.
777 Mariners Island Blvd. and Treasurer and Franklin Advisers, Inc.; Vice President,
San Mateo, CA 94404 Franklin/Templeton Distributors, Inc.; officer
or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and
officer and/or managing general partner, as
the case may be, of all the investment companies
in the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Deborah R. Gatzek Vice President Senior Vice President -Legal, Franklin Resources,
777 Mariners Island Blvd. and Secretary Inc. and Franklin/Templeton Distributors, Inc.;
San Mateo, CA 94404 Vice President, Franklin Advisers, Inc.; and
officer of all the investment companies in the
Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
As indicated above, certain of the trustees and officers hold positions with
other companies in the Franklin Group of Funds. Trustees not affiliated with
the investment manager are currently paid fees of $700 per month plus $700 per
meeting attended and are reimbursed for expenses incurred in connection with
attending such meetings, which amounts are apportioned between all series of
the Trust based on the respective net assets. During the fiscal year ended
February 28, 1994, the total amount paid by the Funds to cover such fees and
expenses was:
<TABLE>
<CAPTION>
TRUSTEES FEES
FUND AND EXPENSES
- --------------------------------------------------------------------------------------- -------------
<S> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,009
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,348
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,927
Kentucky Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,963
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,531
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,612
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,432
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,671
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,313
</TABLE>
No officer or trustee received any other compensation directly from the Trust.
As of April 5, 1994, the officers and trustees, as a group, owned none of the
outstanding shares of the Funds. Certain officers or trustees who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries. Charles B. Johnson, Rupert H. Johnson, Jr. and Andrew R. Johnson
are brothers.
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------------------------------------------------
The investment manager for each Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange ("Exchange"). Resources owns several other subsidiaries
which are involved in investment management and shareholder services. The
Manager and other subsidiary companies of Resources currently manage over $112
billion in assets for over 3.5 million shareholders. The preceding table
indicates those officers and trustees
8
<PAGE>
who are also affiliated persons of the Fund 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
Funds to purchase, hold or sell and the selection of brokers through whom the
portfolio transactions of each Fund are executed. The Manager's extensive
research activities include, as appropriate, traveling to meet with issuers and
to review project sites. The Manager's activities are subject to the review and
supervision of the Trust's Board of T rustees to whom the Manager renders
periodic reports of the Trust's investment activities. The Manager, at its own
expense, furnishes the Trust with office space and office furnishings,
facilities and equipment required for managing the business affairs of the
Trust; maintains all internal bookkeeping, clerical, secretarial and
administrative personnel and services; and provides certain telephone and other
mechanical services. The Manager is covered by fidelity insurance on its
officers, directors and employees for the protection of the Funds. Each Fund
bears all of its expenses not assumed by the Manager. See the Statement of
Operations for each Fund in the financial statements at the end of this SAI for
additional details of these expenses.
Pursuant to the management agreement, each Fund is obligated to pay the Manager
a fee computed at the close of business on the last business day of each month
equal to a monthly rate of 5/96 of 1% (approximately 5/8 of 1% per year) for
the first $100 million of average monthly net assets of the Fund; 1/24 of 1%
(approximately 1/2 of 1% per year) of average monthly net assets of the Fund in
excess of $100 million up to $250 million; and 9/240 of 1% (approximately
45/100 of 1% per year) of average monthly net assets of the Fund in excess of
$250 million. The Manager may, however, limit or may not impose its management
fees and may also assume responsibility for making payments, if necessary, to
offset certain operating expenses otherwise payable by such Fund(s). This
action by the Manager to limit its management fees and assume responsibility
for payment of the expenses related to the operations of any Fund may be
terminated by the Manager at any time.
The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by a Fund as prescribed by any state in which a Fund's
shares are offered for sale. The most stringent current limit requires the
Manager to reduce or eliminate its fee to the extent that aggregate operating
expenses of each 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 annual net assets of each
Fund, 2% of the next $70 million of average annual net assets of each Fund, and
1.5% of average annual net assets of each Fund in excess of $100 million.
Expense reductions have not been necessary based on state limitation
requirements.
The table below sets forth on a per Fund basis (for those Funds in operation
during the periods indicated) the management fees which each Fund was obligated
to pay to Advisers and the management fees actually paid by each Fund.
FISCAL YEAR ENDED FEBRUARY 28, 1994:
<TABLE>
<CAPTION>
CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID BY
FUND FEES THE FUND
- ----------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 964,354 $ 964,354
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,074,908 6,074,908
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,735 665,735
Kentucky Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,196 --
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671,274 671,274
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 837,521 837,521
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,146,123 1,146,123
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093,721 1,093,721
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 856,916 856,916
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,326,276 1,326,276
</TABLE>
FISCAL YEAR ENDED FEBRUARY 28, 1993:
<TABLE>
<CAPTION>
CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID BY
FUND FEES THE FUND
- ----------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 733,810 $ 733,810
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,826,737 4,826,737
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502,421 502,421
Kentucky Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,136 --
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524,305 524,305
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583,311 583,311
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 809,607 809,607
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 777,766 777,766
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 774,052 774,052
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,030,606 1,030,606
</TABLE>
9
<PAGE>
FISCAL YEAR ENDED FEBRUARY 29, 1992:
<TABLE>
<CAPTION>
CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID BY
FUND FEES THE FUND
- ----------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 467,533 $ 467,533
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,732,093 3,732,093
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,011 338,011
Kentucky Fund* . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,526 --
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,557 358,557
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332,611 332,611
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 542,853 542,853
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 504,176 504,176
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 566,362 566,362
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733,009 733,009
</TABLE>
*For the period from September 10, 1991 (commencement of operations) to
February 29, 1992.
The management agreement is in effect until March 31, 1995. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a majority vote of the Trust's Board
of Trustees or as to each Fund by a vote of the holders of a majority vote of
the outstanding voting securities of such Fund, and in either event by a
majority of the trustees who are not parties to the management agreement or
interested persons of any such party (other than as trustees of the Trust),
cast in person at a meeting called for that purpose. The management agreement
may be terminated without penalty at any time by the Trust or one or more of
its Funds 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.
OTHER SERVICES
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Trust and acts as the Trust's transfer agent and
dividend-paying agent. Investor Services is compensated by the Fund 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, 333 Market Street, San Francisco, California 94105, are the
Trust's independent auditors. During the fiscal year ended February 28, 1994,
their auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report and this SAI.
THE TRUST'S POLICIES REGARDING
BROKERS USED ON PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
Since most purchases made by the Trust are principal transactions at net
prices, the Trust incurs little or no brokerage costs. The Trust deals directly
with the selling or purchasing principal or market maker without incurring
charges for the services of a broker on its behalf unless it is determined that
a better price or execution may be obtained by utilizing the services of a
broker. Purchases of portfolio securities from underwriters include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include a spread between the bid and ask price. As a general rule,
the Funds do not purchase bonds in underwritings where they are not given any
choice, or only limited choice, in the designation of dealers to receive the
commission. The Trust seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers in return for
research and statistical information, as well as for special services rendered
by such dealers in the execution of orders. It is not possible to place a
dollar value on the special executions or on the research services received by
Advisers from dealers effecting transactions in portfolio securities. The
allocations of transactions in order to obtain additional research services
permits Advisers to supplement its own research and analysis activities and to
receive the views and information of individuals and research staff of other
securities firms which the Manager or its affiliates may lawfully and
appropriately use in their investment advisory capacities with other clients.
Provided 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 each
Fund's portfolio transactions.
If purchases or sales of securities of a Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of
10
<PAGE>
the security so far as any Fund is concerned. In other cases it is possible
that the ability to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to a Fund.
During each of the three fiscal years ended February 29, 1992, February 28,
1993 and February 28, 1994, none of the Funds incurred any brokerage
commissions. The Fund has not acquired the securities of any broker-dealer
during the last fiscal year.
ADDITIONAL INFORMATION
REGARDING PURCHASES AND
REDEMPTIONS OF TRUST SHARES
- --------------------------------------------------------------------------------
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Funds must be denominated in U.S. dollars. Each 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.
Shares are eligible to receive dividends beginning on the first business day
following settlement of the purchase transaction through the date on which the
Fund writes a check or sends a wire on redemption transactions.
Dividend checks which are returned to the Funds 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.
Each Fund may deduct from a shareholder's account the costs of its efforts to
locate a shareholder if mail to that shareholder 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 their location
services.
Under agreements with certain banks in Taiwan, Republic of China, the Funds'
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service
fees may be paid to Distributors, or an affiliate of Distributors, to help
defray expenses of maintaining a service office in Taiwan, including expenses
related to local literature fulfillment and communication facilities.
Shares of the Funds may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
conformity with local business practices in Taiwan, shares of the Funds will be
offered with the following schedule of sales charges:
<TABLE>
<CAPTION>
SALES
SIZE OF PURCHASE CHARGE
- ------------------------------------------------------------------------------------------------------
<S> <C>
Up to U.S. $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
U.S. $100,000 to U.S. $1,000,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
Over U.S. $1,000,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
</TABLE>
PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS
Orders for the purchase of shares of each Fund received in proper form prior 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 1:00 p.m. Pacific time will be effected at
each Fund's public offering price on the day it is next calculated. The use of
the term "securities dealer" herein shall include other financial institutions
which, pursuant to an agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with each Fund. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion
and any loss to the customer resulting from failure to do so must be settled
between the customer and the securities dealer.
PURCHASES AT NET ASSET VALUE
As discussed in the Prospectus, certain categories of investors may purchase
shares of the Funds at net asset value (without a sales charge) or at a reduced
sales charge. The reason for this is that there is minimal or no sales effort
required with respect to these investors. If certain investments at net asset
value are made through a dealer who has executed a dealer or similar agreement
with Distributors, Distributors or its affiliates may make a payment, out of
their own resources, to such dealer in an amount not to exceed 0.25% of the
amount invested, paid pro rata on a quarterly basis on average quarterly
balances for a period of one year.
11
<PAGE>
REDEMPTIONS IN KIND
Each Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of a Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. In the case of requests for redemption in excess
of such amounts, the trustees reserve the right to make payments in whole or in
part in securities or other assets of such Fund 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 such Fund's net assets. Should a
Fund do so, a shareholder may incur brokerage fees in converting the securities
to cash.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Funds
reserve 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 Funds not to
exercise this right with respect to any shareholder whose account has a value
of $50 or more. In any event, before a 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, each Fund generally calculates net asset value as
of 1:00 p.m. Pacific time each day that the Exchange is open for trading. As of
the date of this SAI, the Trust is informed that the Exchange observes the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each 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 a Fund's shares are determined as of such times. Occasionally, events
affecting the values of such securities may occur between the times at which
they are determined and 1:00 p.m. Pacific time which will not be reflected in
the computation of a Fund's net asset value. 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
Trustees.
SPECIAL SERVICES
The Trust and Institutional Services Division of Distributors provides
specialized services, including recordkeeping for institutional investors of
the Funds. The cost of these services is not borne by the Funds.
Investor Services may pay certain financial institutions which maintain omnibus
accounts with the Funds on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such beneficial owners. For
each beneficial owner in the omnibus account, the Funds may reimburse Investor
Services an amount not to exceed the per account fee which the Funds normally
pay Investor Services. Such financial institutions may also charge a fee for
their services directly to their clients.
THE TRUST'S UNDERWRITER
- --------------------------------------------------------------------------------
Pursuant to an underwriting agreement in effect until March 31, 1995,
Distributors acts as principal underwriter in a continuous public offering for
shares of each Fund.
Distributors pays the expenses of distribution of each Fund's shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Trust 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 Trust's Board of Trustees or by a vote of the holders
of a majority of the outstanding voting securities of each Fund, and in either
event by a majority vote of the Trust's trustees who are not parties to the
underwriting agreement or in-
12
<PAGE>
terested persons of any such party (other than as trustees of the Trust), 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.
Effective July 1, 1994, Distributors will allow a portion of the underwriting
commission (sales charge) on the sale of each Fund's shares to the securities
dealer of record, if any, on an account. Prior to May 1, 1994, ordinary
dividends were reinvested at the offering price (which includes the sales
charge) and 50% of such sales charge was paid to the securities dealer of
record. In addition, prior to July 1, 1994, the entire sales charge on the sale
of each Fund's shares was paid to the securities dealer, if any, of record on
the account. The tables below reflect the prior structure.
Underwriting commissions received by Distributors and the amounts which were
subsequently paid by Distributors to other dealers for each of the three fiscal
years ending February 28, 1994 were as follows:
<TABLE>
<CAPTION>
1994 TOTAL
COMMISSIONS PAID TO
FUND RECEIVED OTHER DEALERS
- ---------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . $1,482,367 $1,423,143
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . 8,654,468 8,360,636
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . 1,155,912 1,109,385
Kentucky Fund . . . . . . . . . . . . . . . . . . . . . . . . . 562,417 554,169
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . 992,774 953,997
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . 1,718,141 1,656,444
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . 2,311,745 2,227,973
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . 2,310,605 2,224,377
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 805,955 758,973
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . 2,134,332 2,029,496
</TABLE>
<TABLE>
<CAPTION>
1993 TOTAL
COMMISSIONS PAID TO
FUND RECEIVED OTHER DEALERS
- ---------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . $1,789,127 $1,741,260
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . 9,067,356 8,839,207
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . 936,143 898,305
Kentucky Fund . . . . . . . . . . . . . . . . . . . . . . . . . 254,110 251,794
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . 927,272 897,787
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . 1,724,712 1,682,783
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . 1,715,810 1,655,696
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . 1,717,074 1,655,260
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 882,917 842,020
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . 2,025,899 1,942,888
</TABLE>
<TABLE>
<CAPTION>
1992 TOTAL
COMMISSIONS PAID TO
FUND RECEIVED OTHER DEALERS
- ---------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,880,590 $ 1,845,598
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . 10,363,063 10,152,530
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . 1,425,600 1,396,560
Kentucky Fund . . . . . . . . . . . . . . . . . . . . . . . . . 32,691 32,587
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . 1,322,457 1,303,904
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . 1,403,816 1,377,159
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . 1,989,667 1,945,354
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . 2,089,844 2,050,444
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 3,615,119 3,579,683
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . 2,719,318 2,652,399
</TABLE>
Except for the commissions discussed above and for payments it will receive
under the Plans adopted on behalf of the Funds, Distributors receives no other
compensation from the Trust for acting as underwriter.
PLANS OF DISTRIBUTION
- --------------------------------------------------------------------------------
The Funds have each adopted a Distribution Plan (a "Plan" or "Plans") pursuant
to Rule 12b-1 under the 1940 Act whereby each Fund may pay up to a maximum for
expenses incurred in the distribution of its shares. Each Plan provides for a
maximum of 0.10% per annum (1/10 of 1%) of a Fund's average daily net assets.
Pursuant to each Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum as stated above) for all expenses incurred in
the distribution and promotion of the Funds' shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparation and distribution of sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributor's overhead expenses attributable to the distribution of
each Fund's shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a servicing
agreement with Distributors. In addition, to the extent that a Fund, Advisers
or Distributors or other parties on behalf of the Funds, Advisers 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 issued by the
Funds within the context of Rule 12b-1 under the Act, then such payments shall
be deemed to have been made pursuant to a Plan.
13
<PAGE>
In no event shall the aggregate asset-based sales charges which include
payments made under the Plans, plus any other payments deemed to be made
pursuant to each 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 each Plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plans do not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
subsequent years.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks will not be entitled to participate in each Plan as a result of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. Such banking institutions, however, are
permitted to receive fees under each Plan for administrative servicing or for
agency transactions. If a bank were prohibited from providing such services,
its customers who are shareholders would be permitted to remain shareholders of
the Funds, and alternate means for continuing the servicing of such
shareholders would be sought. In such an event, changes in the services
provided might occur and such shareholders might no longer be able to avail
themselves of any automatic investment or other services then being provided by
the bank. It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these changes. Securities laws of
states in which the Funds' shares are offered for sale may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions selling shares of the Funds may be required to register as dealers
pursuant to state law.
The Board of Trustees has determined that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and to
take advantage of buying opportunities of portfolio securities without having
to make unwarranted liquidations of other portfolio securities. The Board of
Trustees, therefore, felt that it would benefit the Funds to have monies
available for the direct distribution activities of Distributors or others in
promoting the sale of their shares. The Board of Trustees, including the
non-interested trustees, concluded that, in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plans will benefit the Funds and their shareholders.
Each Plan was approved by the trustees of the Trust, and by the shareholders of
each Fund, at special shareholder meetings held in April 1994. Each Plan is
effective for an initial one-year period ending April 30, 1995 and is renewable
annually thereafter by a vote of the Trust's Board of Trustees, including a
majority of the trustees who are non-interested persons of the Trust and who
have no direct or indirect financial interest in the operation of each Plan,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such trustees be done by the non-interested
trustees. Each Plan and any related agreement may be terminated at any time,
without any penalty, by the trustees or by Distributors on not more than 60
days' written notice, by any act that terminates the underwriting agreement
with Distributors, or, as to each Fund, by vote of a majority of that 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. Each 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 the affected Fund's outstanding shares, and all such material
amendments to the Plan or any distribution or service agreements also shall be
approved by a vote of the non-interested trustees, cast in person at a meeting
called for the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board of Trustees at least
quarterly on the amounts and purpose of any payment made under a Plan and any
related agreements, as well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether a Plan should be
continued.
ADDITIONAL INFORMATION REGARDING TAXATION
- --------------------------------------------------------------------------------
As stated in the Prospectus, each Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code (the
"Code"). The trustees reserve the right not to maintain the qualification of
any 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 in-
14
<PAGE>
come 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 income to the extent of the Fund's available
earnings and profits.
The Code requires all funds to distribute at least 98% of their taxable
ordinary income earned during the calendar year and at least 98% of their
capital gain net income earned during the twelve-month period ending October 31
of each year (in addition to amounts from the prior year that were neither
distributed nor taxed to the Fund) to shareholders by December 31 of each year
in order to avoid the imposition of a federal excise tax. Under these rules,
certain distributions, which are declared in October, November or December but
which, for operational reasons, may not be paid to the shareholder until the
following January, will be treated for tax purposes as if paid by the Funds and
received by the shareholder on December 31 of the calendar year in which they
are declared. The Funds intend as a matter of policy to declare and pay such
dividends, if any, in December to avoid the imposition of this tax, but do not
guarantee that the distributions will be sufficient to avoid any or all federal
excise taxes.
Redemptions and exchanges of a Fund's 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 such 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 a fund from direct obligations of the U.S.
Government, subject in some states to minimum investment requirements that must
be met by a 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 any
Fund of the Trust to invest in such obligations, the Funds are authorized to so
invest for temporary or defensive purposes. To the extent that such
investments are made, any affected 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, a Fund may from time to time quote various
performance figures to illustrate its past performance. Each Fund 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 Fund be accompanied by certain standardized performance information computed
as required by the SEC. Current yield and average annual compounded total
return quotations used by the Funds are based on the standardized methods of
computing performance mandated by the SEC. An explanation of those and other
methods used by the Funds to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five-, and ten-year periods, or
fractional portion thereof, that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes the maximum
sales charge is deducted from the initial $1,000 purchase order and on
reinvested dividends, and that capital gains are reinvested at net asset value,
on the reinvestment dates during the period. 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. Historical performance
15
<PAGE>
quotations will be restated to reflect the new sales charge structure.
In considering the quotations of total return set forth below, investors should
remember that the maximum sales charge reflected in each quotation is a
one-time fee (charged on all direct purchases and the reinvestment of income
dividends in effect at fiscal year end) which will have its greatest impact
during the early stages of an investor's investment in one of the Funds. The
actual performance of an investment will be affected less by this charge the
longer an investor retains the investment in such Fund. The average annual
compounded rates of return for each Fund for the indicated periods ended on the
date of the financial statements included herein were as shown below:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------
INCEPTION FROM
OF THE FUND NONE-YEAR FIVE-YEAR INCEPTION
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . . 09/01/87 2.08% 8.01% 8.22%
Florida Fund . . . . . . . . . . . . . . . . 09/01/87 2.33 8.25 8.60
Georgia Fund . . . . . . . . . . . . . . . . 09/01/87 2.53 8.23 8.36
Kentucky Fund . . . . . . . . . . . . . . . . 10/12/91 2.79 n/a 8.18
Louisiana Fund . . . . . . . . . . . . . . . 09/01/87 1.42 8.22 8.25
Maryland Fund . . . . . . . . . . . . . . . . 10/03/88 2.14 8.06 7.67
Missouri Fund . . . . . . . . . . . . . . . . 09/01/87 3.06 8.41 8.32
North Carolina Fund . . . . . . . . . . . . . 09/01/87 1.53 8.04 8.38
Texas Fund . . . . . . . . . . . . . . . . . 09/01/87 1.82 8.11 8.46
Virginia Fund . . . . . . . . . . . . . . . . 09/01/87 2.51 8.33 8.43
</TABLE>
These figures were calculated according to the following 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 (or fractional portion thereof)
As discussed in the Prospectus, a Fund may quote total rates of return in
addition to its average annual total return. Such quotations are computed in
the same manner as the Fund's average annual compounded rate, except that such
quotations will be based on the Fund's actual return for a specified period
rather than on its average return over one-, five-and ten-year periods. The
rates of total return for the Funds for the indicated periods ended on the date
of the financial statements included herein were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------
INCEPTION FROM
OF THE FUND NONE-YEAR FIVE-YEAR INCEPTION
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Alabama Fund . . . . . . . . . . . . . . . . 09/01/87 2.04% 46.99% 67.04%
Florida Fund . . . . . . . . . . . . . . . . 09/01/87 2.30 48.64 70.89
Georgia Fund . . . . . . . . . . . . . . . . 09/01/87 2.49 48.48 68.47
Kentucky Fund . . . . . . . . . . . . . . . . 10/12/91 2.75 n/a 20.61
Louisiana Fund . . . . . . . . . . . . . . . 09/01/87 1.39 48.45 67.33
Maryland Fund . . . . . . . . . . . . . . . . 10/03/88 2.11 47.32 49.10
Missouri Fund . . . . . . . . . . . . . . . . 09/01/87 2.95 49.74 68.07
North Carolina Fund . . . . . . . . . . . . . 09/01/87 1.50 47.22 68.70
Texas Fund . . . . . . . . . . . . . . . . . 09/01/87 1.78 47.69 69.46
Virginia Fund . . . . . . . . . . . . . . . . 09/01/87 2.74 49.16 69.14
</TABLE>
16
<PAGE>
YIELD
Current yield reflects the income per share earned by a Fund's portfolio
investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
yield for each Fund for the 30-day period ended on the date of the financial
statements included herein were as follows:
<TABLE>
<CAPTION>
CURRENT
30-DAY
YIELD
-------
<S> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.57%
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.71
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.19
Kentucky Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.21
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.72
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.66
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.41
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.35
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50
</TABLE>
These figures were obtained using the following SEC formula:
6
Yield = 2 [(a-b + 1) - 1]
cd
where:
a = interest earned during the period
b = net expenses accrued for the period
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
30-DAY TAX EQUIVALENT YIELD
A 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 a Fund (computed as indicated above) which is
tax-exempt by one minus the highest applicable combined federal and state
income tax rate (and adding the product to that portion of the yield of a Fund
that is not tax-exempt, if any). The tax equivalent yield for each Fund for the
30-day period ended on the date of the financial statements included herein was
as follows:
<TABLE>
<CAPTION>
30-DAY TAX
EQUIVALENT
YIELD*
----------
<S> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.96%
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.80
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.38
Kentucky Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.18
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.31
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.53
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.77
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.81
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.45
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.90
</TABLE>
The following table lists for each state, the state and the combined state and
federal income tax rates upon which the Trust's tax equivalent yield quotations
are based. From time to time, as any changes to such rates become effective,
tax equivalent yield quotations advertised by the Trust will be updated to
reflect such changes. The Trust expects updates will be necessary as tax rates
are frequently changed by federal, state and local governments. The advantage
of tax-free investments, such as the Funds of the Trust, will be enhanced by
any tax rate increases. Therefore, the details of specific tax increases may be
used in sales material for any Fund.
<TABLE>
<CAPTION>
STATE COMBINED*
----- ---------
<S> <C> <C>
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.00% 42.62%
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00 39.60
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 43.22
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 43.22
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 43.22
Maryland** . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 45.40
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 43.22
North Carolina . . . . . . . . . . . . . . . . . . . . . . . 7.75 44.28
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00 39.60
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . 5.75 43.07
</TABLE>
* based on the maximum (with the exception of Arizona) combined state and 39.6%
federal tax rate in effect as of the date of this SAI.
** based on the maximum combined federal, state and county tax rate for all
Maryland counties except Worcester County.
Quotations of taxable equivalent yield by the Funds in advertisements may
reflect assumed rates of return which are not intended to represent historical
or current distribution rates or yields. Such quotations will be used in sales
literature, such as Franklin's Tax-Free Yield Calculator, to illustrate the
general principle of the impact taxes have on rates
17
<PAGE>
of return or to show the taxable rate of return that would be needed to match a
tax-free rate of return.
CURRENT DISTRIBUTION RATE
Current yield and tax equivalent yield, which are calculated according to a
formula prescribed by the SEC, are not indicative of the amounts which were or
will be paid to a Fund's shareholders. Amounts paid to shareholders are
reflected in the quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by dividing the
total amount of dividends per share paid by the Fund during the past 12 months
by a current maximum offering price. A taxable equivalent distribution rate
demonstrates the taxable distribution rate equivalent to a Fund's current
distribution rate (calculated as indicated above). The advertised taxable
equivalent distribution rate will reflect the most current federal and state
tax rates available to a Fund.
Under certain circumstances, such as when there has been a change in the amount
of dividend payout or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid over the period such policies were
in effect, rather than using the dividends during the past 12 months. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from additional sources (i.e.,
sources other than dividends and interest), such as short-term capital gains
and net equalization credits, and is calculated over a different period of
time.
The current distribution rate for each Fund for the 12-month period ended on
the date of the financial statements included herein was as follows:
<TABLE>
<CAPTION>
CURRENT
DISTRIBUTION
RATE
------------
<S> <C>
Alabama Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.27
Florida Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.38
Georgia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.28
Kentucky Fund* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.67
Louisiana Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.28
Maryland Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.17
Missouri Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.31
North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.22
Texas Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.60
Virginia Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.46
</TABLE>
* includes expense waiver
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
shares of a Fund at net asset value, sales literature pertaining to a Fund may
quote a "Current Distribution Rate for Net Asset Value Investments." This rate
is computed by adding the income dividends paid by a Fund during the last 12
months and dividing that sum by a current net asset value. Figures for yield,
total return and other measures of performance for Net Asset Value Investments
may also be quoted. These will be derived as described elsewhere in this SAI
with the substitution of net asset value for public offering price.
Regardless of the method used, past performance is not necessarily indicative
of future results, but is an indication of the return to shareholders only for
the limited historical period used.
A Fund may include in its advertising or sales material information relating to
investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisers and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements and other materials regarding the
Funds may discuss various measures of Fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
When advertising current ratings or rankings, the Fund may advertise together
or separately the following past ratings and rankings, and such information in
those categories which may appear in the future:
Lipper Fixed-Income Fund Performance Analysis ranked the Georgia Fund number
one for its five-year total return (in the Georgia tax-free funds category) for
the year ended 12/31/93, with a total return of 59.58%. There were five funds
in the category.
18
<PAGE>
Lipper Fixed-Income Fund Performance Analysis ranked the Kentucky Fund number
one in total return (in the Kentucky tax-free funds category) for the year
ended 12/31/93, with a total return of 13.71%. There were five funds in the
category.
Lipper Fixed-Income Fund Performance Analysis ranked the Virginia Fund number
one for its five-year total return (in the Virginia tax-free funds category)
for the year ended 12/31/93, with a five year total return of 60.43%. There
were five funds in the category.
The Lipper Fixed-Income Fund Performance Analysis and Lipper Mutual Fund Yield
Survey for Industry Averages -measure total return and average current yield
for the mutual fund industry. It ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.
In addition to such reports by Lipper, the following publications and indices
may be used to discuss or compare Fund performance:
Lehman Brothers Municipal Bond Index measures yield, price, and total return
for the municipal bond market.
Bond Buyer 20 Bond Index is an index of municipal bond yields based on yields
of 20 general obligation bonds maturing in 20 years.
Bond Buyer 40 Bond Index is an index of municipal bond yields based on yields
of 40 general obligation bonds with an average maturity of 29-30 years.
Salomon Brothers Composite High Yield Index covers much of the below-investment
grade U.S. corporate bond market. It combines previously published indices to
create a broad index for the high-yield market. To enter the index, an issue
must be rated speculative by S&P or Moody's.
Salomon Brothers Broad Investment Grade Index is representative of the entire
universe of taxable - fixed income investments. It includes issues of U.S.
government securities, and any agency thereof; corporate issues of investment
grade, mortgage backed securities; and yankee bonds.
Lehman Brothers Aggregate Bond Index includes fixed-rate debt issues rated
investment grade or higher by Moody's, S&P or Fitch, in that order. All issues
have at least one year to maturity and an outstanding par value of at least
$100 million for U.S. government, $50 million for all others. It is a composite
of the Government Corporate Index and the Mortgage-Backed Securities Index.
Merrill Lynch California Municipal Bond Index is 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.
Savings & Loan Historical Interest Rates as published by the U.S. Savings &
Loan League Fact Book.
Inflation as measured by the Consumer Price Index, published by the U.S. Bureau
of Labor Statistics.
CDA Mutual Fund Report, published by CDA Investment Technologies Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
Financial Publications: The Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, and Money magazine.
Standard & Poor's Bond Indices - measure yield and price of corporate,
municipal, and government bonds.
Advertisements or information may mention or discuss ratings or rankings of the
Insured Funds or their securities, issued by securities ratings agencies or
other organizations.
From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may also compare a Fund's
performance to the return on certificates of deposit or other investments.
Investors should be aware, however, that an investment in a Fund involves the
risk of fluctuation of principal value, a risk generally not present in an
investment in a certificate of deposit issued by a bank. For example, as the
general level of interest rates rise, the value of 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 a Fund's shares can be expected to
increase. Certificates of deposit are frequently insured by an agency of the
U.S. government. An investment in any of the Funds 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 Funds' portfolios, 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 Funds to calculate
their figures. In addition there can be no assurance that
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the Funds will continue this performance as compared to such other averages.
Franklin had the first single-state municipal bond funds in California,
Massachusetts, Michigan, Minnesota and Ohio.
OTHER FEATURES AND BENEFITS
The Funds may help investors achieve various investment goals, such as
accumulating money for retirement, saving for a down payment on a home, college
cost 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 Funds are members of the Franklin/Templton 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 45 years and now services
more than 2.4 million shareholder accounts. In 1992, Franklin, a leader in
managing fixed-income mutual funds and an innovator in creating domestic equity
funds, joined forces with Templeton Worldwide, Inc., a pioneer in international
investing. Together, the Franklin/Templeton Group has over $112 billion in
assets under management for more than 3.5 million shareholder accounts and
offers 101 U.S.-based mutual funds. The Funds may identify themselves by their
Quotron or CUSIP number.
Under current tax laws, municipal securities remain one of the few investments
offering the potential for tax-free income. In 1994, taxes could cost an
investor as much as $47 on every $100 earned from a fully taxable investment
(based on the maximum combined 39.6% federal tax rate and the highest state tax
rate of 12% for 1994.) Franklin tax-free funds, however, offer tax relief
through a professionally managed portfolio of tax-free securities selected
based on their yield, quality and maturity. An investment in a Franklin
tax-free fund can provide an investor with the potential to earn income free of
federal taxes, and depending on the fund, state and local taxes as well, while
supporting state and local public projects. Franklin tax-free funds may also
provide tax-free compounding, when dividends are reinvested. An investment in
Franklin's tax-free funds can grow more rapidly than a similar taxable
investment.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one of
36 mutual fund groups in service quality for 1993. One other fund group was
also ranked number one. Franklin has been ranked number one in service quality
by Dalbar for five of the past six years.
From time to time, advertisements or sales material issued by the Funds 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.
MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
The Trust amortizes the organizational expenses attributable to a Fund over a
period of five years from the effective date of the registration statement
covering that Fund. New investors purchasing shares of a Fund after the
effective date of such Fund's registration statement under the Securities Act
of 1933 will bear such expenses during the amortization period.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust also provides for indemnification and reimbursement of expenses out of
Trust assets for any shareholder held personally liable for obligations of the
Trust. The Declaration of Trust provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Trust and satisfy any judgement thereon. All such rights are
limited to the assets of the Fund(s) of which a shareholder holds shares. The
Declaration of Trust further provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance)
for the protection of the Trust, its shareholders, Trustees, officers,
employees and agents to cover possible tort and other liabilities. Thus, the
risk of a shareholder incurring financial
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loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance exists and the Trust itself is unable to meet its
obligations.
From time to time, the number of Trust 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 Trust, as of April 5, 1994, the only
other shareholder who held, beneficially or of record, more than 5% of the
outstanding shares of any Fund of the Trust was Franklin Resources, Inc., 777
Mariners Island Blvd., San Mateo, CA 94404 which owned 226,846.306 shares or
8.54% of the Kentucky Fund's outstanding shares.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority to
control a shareholder's account, the Funds have the right (but has no
obligation) to: (a) freeze the account and require the written agreement of all
persons deemed by the Funds to have a potential property interest in the
account, prior to executing instructions regarding the account; (b) interplead
disputed funds or accounts with a court of competent jurisdiction; or (c)
surrender ownership of all or a portion of the account to the Internal Revenue
Service in response to a Notice of Levy.
APPENDIX A
DESCRIPTION OF MUNICIPAL
SECURITIES RATINGS
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MUNICIPAL BONDS
MOODY'S
Aaa: Municipal bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Municipal bonds which are rated Aa are judged to be 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
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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 municipal bond ratings. 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 mar-ket
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: (highest quality) "the obligor has an extraordinary ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events."
AA bonds: (high quality) "the obligor's ability to pay interest and repay
principal, while very strong, is somewhat less than for AAA-rated securities or
more subject to possible change over the term of the issue."
A bonds: (good quality) "the obligor's ability to pay interest and repay
principal is strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings."
BBB bonds: (satisfactory bonds) "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 weaken this ability
than bonds with higher ratings."
MUNICIPAL NOTES
MOODY'S
Moody's ratings for state and municipal and other short-term obligations will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the short
run. Symbols used will be as follows:
MIG-1: Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.
MIG-2: Notes are of high quality, with margins of protection ample, although
not so large as in the preceding group.
MIG-3: Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market access
for refinancing, in particular, is likely to be less well established.
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MIG-4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds.
After June 29, 1984, for new municipal note issues due in three years or less,
the ratings below will usually be assigned. Notes maturing beyond three years
will most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER
MOODY'S
Moody's Commercial Paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Trust, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the A category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger likelihood
of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH'S SHORT-TERM AND COMMERCIAL PAPER RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. The short-term rating places greater emphasis than a
long-term rating on the existence of liquidity necessary to meet the issuer's
obligations in a timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect on assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
APPENDIX B
FURTHER INFORMATION ON SPECIAL
FACTORS AFFECTING EACH FUND
- --------------------------------------------------------------------------------
The following information is a summary of special factors affecting each of the
individual Funds. It does not purport to be a complete description of such
factors and is based primarily upon information derived from public documents
relating to securities offerings of issuers of such states and other
historically reliable sources such as S&P Creditweek Municipal. The Trust has
not independently verified any of this data. The market value of the shares of
any Fund may fluctuate due to factors such as changes in interest rates,
matters affecting a particular state, or for other reasons.
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ALABAMA
Alabama's finances are primarily handled through the Special Education Trust
and General Funds, on a cash basis. These funds constitute 43% and 11%,
respectively, of all state revenues. The state implements conservative
financial policies, as evidenced by its strong balanced budget acts, which
allow spending only from monies on-hand in the state treasury.
During fiscal 1991, the governor prorated the state's Special Education Trust
Fund budget twice and the General Fund once to ensure expenditures did not
exceed revenues at year-end. Although these funds ended the 1991 fiscal year
with positive balances of $416,000 and $402,000, respectively, these levels
represent substantial declines from previous years and reflect the effects of
weakened revenue collections during the fiscal year.
During fiscal 1992, in response to projected revenues shortfalls in the Special
Education Trust Fund, the administration prorated the fund by 6.5%. This
proration placed fiscal 1992 appropriations equal to 1991 levels. However, as
the fiscal year progressed, income and sales tax receipts improved, enabling
the Governor to reduce the original proration to 5.5%. At fiscal year end,
unencumbered balances of the Special Education Trust Fund and the General Fund
equaled $2.5 million and $23.4 million, respectively.
Although the original 1993 budget projected a 6.1% or $47 million increase in
general fund expenditures, shortfalls in General Fund revenues have resulted in
the state reducing expenditures by 3.2%. Based upon recent estimates, fiscal
year 1993 expenditures will exceed revenues by $19.7 million. However, the
state projects an ending balance of $20.2 million.
FLORIDA
Per capita personal income levels in Florida during 1991 and 1992 were lower
than the national average. Personal income growth slowed from rates exceeding
9% per year to 1.9% in 1991. While the growth rate will likely accelerate as
the recession ends, population growth will keep Florida's per capita personal
income near the national average. The unemployment rate in 1992 increased to
8.2% from 7.3% in 1991, a higher figure than the national rate of 7.4% in 1992.
The per capita personal income of $18,992 in 1991 was just below the national
figure of $19,092.
Florida's financial performance and position remain satisfactory. In the last
three fiscal years, lower-than-expected economic activity resulted in
significant state revenue shortfalls. However, because of timely action, the
state has maintained budgetary balance. In the coming years, difficult choices
will continue to be posed among spending priorities and tax policies. An
adequate balance must be found to cope with funding demands driven by rapid
population growth, while still promoting economic development.
Florida's consumption tax-based revenues received a boost from the economic
activity associated with the rebuilding and cleanup of southern Florida as a
result of damage caused by Hurricane Andrew in August 1992. The state estimates
that increased economic activity resulting from the rebuilding effort will add
to its sales receipts by nearly $500 million in fiscal 1993-1994. Net costs to
the state attributable to the cleanup and repair will be in the vicinity of
$100 million, with federal and private insurance picking up the rest of the
estimated $20-30 billion tab.
The proposed budget for fiscal 1994 provides for an increase in spending in the
General Revenue Fund of 14.2% from fiscal 1993. Projected revenue growth of
$949.1 million is based on underlying economic growth, with an additional
$630.7 million to be derived from new taxes and fees. The governor has proposed
funding the Working Capital Fund at $203.5 million, more than meeting the goal
of funding the first increment of a Budget Stabilization Fund for fiscal 1995.
GEORGIA
Through the 1980's, Georgia's financial operations were favorable, with strong
General Fund revenue gains and increases in reserve levels. In fiscal 1989,
accumulated balances, including reserves, totaled $336 million. In fiscal 1990,
although revenues increased more than 11%, reflecting in part a sales tax
increase of one cent to four cents, collections fell short of projections by
$211 million. As a result, year-end reserves were drawn down to $55.4 million.
In fiscal 1991, another large revenue shortfall forced the governor to reduce
agency portions, use bond proceeds to replace cash appropriated for capital
programs, and take other steps to maintain balanced operations. Reserves were
drawn down even further to $47 million.
In fiscal 1992, revenue weakness continued to affect the state's operations.
The original budget had projected a 6.4% growth in revenue. Revenues, however,
fell short of anticipated levels and the state twice revised downward its
revenue growth
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projections. The state ended fiscal 1992 with a small $18 million General Fund
reserve.
In fiscal 1993, revenue was higher than anticipated and the state ended the
fiscal year with a budgetary surplus. The state was able to make deposits in
the amount of $122.6 million to the Revenue Shortfall Reserve and $83.5 million
to the Mid-Year Adjustment Reserve.
The state's fiscal 1994 budget projects overall revenue growth at 5.9%. During
this period, the state plans to open and staff six new prisons. In addition,
the budget provides for an increased capital borrowing program of $792 million
to provide increased funding for public and higher education, as well as for
roads, bridges and environmental preservation. Net proceeds of an anticipated
$280 million from a new lottery approved by voters in November 1992 will be
used to fund new education programs.
KENTUCKY
Kentucky's financial operations were strained during the fiscal years
1987-1990, due to substantial increases in educational expenditures absent
concurrent revenue-generating proposals.
Following a 1989 state supreme court decision, Kentucky increased taxes by more
than $1.2 billion to fund education reform in the 1990-1992 biennium. By June
30, 1991, the commonwealth's unreserved GAAP-based general fund balance reached
$124 million as a result of the new taxes. It was expected that Kentucky would
spend some of those reserves during the ensuing fiscal years.
By June 30, 1992 the commonwealth was already resorting to withholding income
tax refunds to balance its cash-based budget. On a GAAP basis, the
commonwealth's budget reached negative $113 million on an unreserved basis. Of
even greater concern was the structural imbalance between what the state is
spending and what it is taking in as revenue. Despite surprisingly strong
economic activity, Kentucky has had to resort to one-time budget balancing
strategies in recent years.
LOUISIANA
Louisiana's property tax code structure tends to favor residences over
commercial and industrial real estate, with the latter two sectors carrying
much of the local tax burden. Attempts to reform the tax code have not met with
success in recent years, although new attempts to create a more equitable tax
code are likely. Louisiana's economy faces a difficult challenge in competition
with other states not facing the same structural weaknesses. Items addressed
included personal and corporate income, gasoline, severance, vehicle license,
and property taxes.
Cash flow concerns are expected to mitigate in 1994 due to the legislature's
expansion of borrowable funds to other treasury-managed accounts. Additionally,
the year-end 1993 cash position was $200 million higher than anticipated, for
an, as yet, still unidentified reason.
Budgetary pressures resulting from public school funding also should abate over
the next several years. The state's minimum foundation program was fully funded
this year with an increase of $32 million, following a $32 million increase
last year. In an effort to further address court-imposed equalization, the
state has changed its formula to a formula based on adjusted unit value and
away from a per student based formula. The outcome will lessen the financial
impact of holding harmless higher funded districts and speed the equalization
of funding of all the state's school districts. The change was revenue neutral
for the state in 1994 and is expected to require only $7 million in 1995.
Higher education was cut further in 1994. Fiscal 1993's appropriation of $620
million was reduced mid-year to $575 million. The final 1994 appropriation is
$555 million. However, tuition increases allowed by the legislature may
generate $25 million in annualized revenues, bringing 1994 back to the final
amount available in 1993.
MARYLAND
While Maryland was little affected by the recession of the early 1980's, it has
been less fortunate during the most recent economic slowdown, which has
significantly affected commercial construction and real estate, retail trade,
and some services. The state unemployment rate, while it remains below the
national average, exceeds levels of a year ago.
Maryland is among the most heavily indebted of the states, although its
position is more moderate, given the borrowing associated with the state's
assumption of local school construction costs. The state has restrained
borrowing in recent years, resulting in a more modest relative debt position.
The formal debt review process seeks to limit total debt to 3.2% of personal
income and debt service to 8% of state revenues.
Strong administrative control of state finances is maintained by the State
Board of Public Works, made up of the governor, treasurer and controller. The
revenue stream is diversified, relying on sales and income taxes, and state
property tax continues to be levied to service part of the debt. During the
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late 1980's, when the state's economy flourished, sizeable reserves were
gathered in the Revenue Stabilization Fund.
The state's financial performance and position, though historically very
strong, came under stress during, and after, the recent recession. A
combination of revenue shortfalls and expenditure overruns hindered state
finances in the years just prior to 1993. Budgetary solutions have included
administrative expenditure cuts, use of general and other fund reserves,
implementation of new revenues measures, and local aid reductions. Prompt and
prudent actions by state officials restored budgetary balance in 1993. Early in
calendar 1993, the state identified its largest ever expected shortfall in
revenue. State actions to offset a total potential shortfall of $422 million
(6% of budgeted general fund revenues) included state agency expenditure cuts
($168 million), transfers from other funds ($41 million), fee increases ($4.4
million), and increased lottery revenues ($50 million). Cuts in local support
payments totaling $150 million, made up the remainder of the plan to offset
revenue shortfalls. The state ended 1993 with a positive $302 million and $114
million general fund balance on a budgetary and Generally Accepted Accounting
Principle ("GAAP") basis, respectively. In addition, the state's reserve fund
has been restored to $57.5 million after being reduced substantially in prior
years to fund budget shortfalls. In 1994, this fund is expected to grow to $159
million. Maryland's 1994 budget calls for an $86 million general fund surplus,
provides for expenditure growth of 3.4% over 1993's revised appropriation
target, assumes no new major taxes or fees, and assumes general fund revenue
growth of about 4%.
MISSOURI
Missouri ended fiscal 1992 with finances improved over the previous year. The
state's General Fund recorded an unreserved, undesignated surplus of $76.8
million, compared to a $94.6 million deficit in fiscal 1991. A continuing
strength has been the state's reserve for cash operations and budget
stabilization, which increased to $204.9 million in 1992 from $187.2 million in
1991. Nine months into the fiscal year revealed the General Fund's revenue
growth at 3%, somewhat below the budget's projected 4.4% growth. Cost-cutting
and expenditure withholdings totaling $33 million (7%), combined with improving
economic conditions in the fourth quarter, are expected to help Missouri record
a small surplus in the General Fund at year-end.
Missouri ended fiscal 1993 with finances improved over the previous year. The
state's General Fund recorded an unreserved, undesignated surplus of $77
million. A continuing strength has been the state's reserve for cash operations
and budget stabilization, which increased to $218 million in 1993 from $204.9
million in 1992.
Revenue estimates for fiscal year 1994 are 4.9% and 1995 are 5.1%,
respectively, which are anticipated to result in new general fund reserves of
$212 million. As a result of this revenue growth, as well as $50 million in
spending reductions, $70 million from riverboat gambling revenues, and $90
million in lottery proceeds, the state is expected to be able to pay $228
million in Medicaid, criminal justice, and state employee pay and benefit
increases.
Continuing litigation and penalties imposed over desegregation issues in Kansas
City and St. Louis continue to affect the state's financial strength. The state
has budgeted $378 million in fiscal year 1994 to be used to for desegregation
costs.
Missouri continues to maintain relatively low debt levels with debt per capita
at approximately $216.
NORTH CAROLINA
Economic improvement and conservative budget practices continued the
improvements in the state's finances in fiscal 1993. The general fund deficit
was eliminated and at June 30, the unreserved, undesignated general fund
balance equaled $209 million, not including $176 million reserved for budget
stabilization, and $57 million reserved for repairs and replacement. When
combined, these balances equal $442 million, which compares very favorably with
the original budgetary estimate of only $3.6 million. The positive difference
from the original budget resulted largely from better-than-expected tax
revenues. Personal income tax collections exceeded estimates by $195 million,
and sales taxes were greater than estimated by $18 million. Expenditures for
fiscal 1993 fell $320 million below original budgetary projection. Spending
reversions in excess of $150 million combined with $158 million of federal aid
for disproportionate share payments caused the positive expenditure difference.
As required by the 1992 budget reform package, 25% of all future ending
balances are to be reserved in a budget stabilization fund until that fund
equals 5% of the prior year's operating budget. At the end of fiscal 1993,
$134.3 million was deposited in this fund.
26
<PAGE>
For fiscal 1994, restrained expenditure growth combined with conservative
revenue assumption should again yield positive financial variances. Overall tax
growth of 4.5% is expected for fiscal 1994 compared to actual growth of 6.0%
experienced during fiscal 1993. Personal income tax growth of 3.3% is expected,
compared with a 1993 rate of 11.4%. Expenditures should again fall below
estimates because of spending reversions and the effects of federal
disproportionate share aid on Medicaid spending. The fiscal 1994 budget
provides for few new programs, but does restore pay cuts suffered by state
workers during fiscal years 1990 through 1993. A 1% bonus, as well as pay
increases, are also budgeted for 1994.
TEXAS
Texas finished fiscal 1993 with its sixth consecutive cash surplus and
anticipates an ending balance for fiscal 1994 of $429 million. The state's
financial performance was weak on a cash basis for the fiscal 1986-1987
biennium, which was precipitated by an economic downturn in the energy sector.
The economy slowly began to rebound during the fiscal 1988-1989 biennium, and
the recovery - coupled with a $5.7 billion tax bill approved by the 1978
legislature - strengthened its financial position. The state ended fiscal year
1992 with $615 million in cash in the state treasury.
The state had a projected budget gap of $4.8 billion for the biennium ending
August 31, 1993. This was offset by $1.9 billion in budget cuts and $540
million of consolidation of funds, as well as approval of a state lottery in
order to generate $500 million. Tax rates were increased and tax bases expanded
which raised an additional $1.6 billion. The state ended fiscal year 1993 with
$1.6 billion in cash in the state treasury.
The budget for the biennium ending August 31, 1995, totalling $70 billion,
represents a 12.3% increase over the prior budget.
The legislature enacted Senate Bill 7 which provides for five alternative ways
for wealthy districts to share their tax base with poorer districts in response
to an 1989 Texas Supreme Court decision that held that the state's school
finance system was unconstitutional.
VIRGINIA
The state's fiscal 1991 General Fund revenues exceeded estimates by $51
million. Its lottery profits also exceeded estimates, by $22 million, bringing
total excess revenues to about $73 million. The commonwealth made reductions to
revenue estimates during fiscal 1991 in response to the declining revenues that
were occurring in the early stages of the recession. On a budgetary basis, the
General Fund balance was $45 million at the close of fiscal 1991, as compared
with a $472 million ending fund balance at the close of fiscal 1988. By the
close of fiscal 1991, the commonwealth had made a reduction of revenues
totaling $2.1 billion (for the biennium). To offset the revenue reductions, the
commonwealth made a series of major reductions in its operating budgets of
state agencies and institutions. As a result, for fiscal 1992, General Fund
revenues increased by a modest 1.3%, and expenditures declined by 1.5%.
Budgetary-basis results for fiscal 1992 reflected a $195 million ending General
Fund balance. For the fiscal 1992-1994 biennium, the governor's budget reflects
a slower rate of growth in revenues, compared to growth rates in the 1980s.
Through October 1992, revenues had exceeded official estimates by 2.5%. Pending
litigation regarding the issue of state income taxes paid on retirement
benefits paid by the federal government based on a case in which the U.S.
Supreme Court ruled unconstitutional a Michigan statute exempting from state
income tax the retirement benefits paid by the state or local governments and
not exempting retirement benefits paid by the federal government could result
in the state being liable for up to $468 million in claims for refunds. The
outcome of the lawsuit cannot be predicted at this time.
Virginia has about $673 million in outstanding general obligations debt, of
which $541 million is self-supporting from revenue-producing capital projects,
mostly from institutions of higher education and transportation facilities.
Annual debt service expenditures of approximately $142 million (in fiscal 1992)
accounts for 2.7% of combined general and debt service fund expenditures.
Infrastructure costs are borne at the local level. As of June 30, 1991,
outstanding general obligation debt totaled $3.2 billion for counties in the
commonwealth, $3.1 billion for cities, and $152 million for towns. In addition,
the commonwealth also issues debt through a variety of state authorities.
27
<PAGE>
FRANKLIN TAX-FREE TRUST
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
of the Franklin Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities of the
various funds comprising Franklin Tax-Free Trust (the Funds), including each
Fund's statement of investments in securities and net assets, as of February
28, 1994, and the related statements of operations for the year then ended, the
changes in net assets for the two years then ended and the financial highlights
included under the caption "Financial Highlights," for the periods indicated in
Note 7. These financial statements and financial highlights are the
responsibility of the Funds' 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
February 28, 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 the
various funds comprising the Franklin Tax-Free Trust as of February 28, 1994,
the results of each Fund's operations and the changes in their net assets for
the periods indicated thereon, and the financial highlights for the periods
indicated in Note 7, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND
San Francisco, California
April 1, 1994
28
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ALABAMA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.0%
$ 1,500,000 Alabama Building Renovation Financing Authority Revenue, 7.45%, 09/01/11 . . . . . . . . . . . $ 1,702,560
685,000 Alabama HFA, MF Residential Development, Bragg, Series B, 7.75%, 07/15/31 . . . . . . . . . . . 728,367
Alabama HFA, SFMR, GNMA Collateralized,
490,000 Series A, 7.50%, 10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513,932
150,000 Series A, 8.00%, 10/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,938
3,510,000 Series A-1, 6.50%, 04/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,644,152
240,000 Series A-2, 8.00%, 10/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,718
300,000 Series C, 7.45%, 10/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314,250
1,200,000 Series C-2, 7.75%, 04/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,274,616
1,395,000 Alabama Judicial Building Authority Revenue, Judicial Facilities Project, AMBAC Insured,
7.25%, 01/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,553,737
700,000 Alabama Mental Health Finance Authority, Special Tax, FGIC Insured, 7.375%, 05/01/03 . . . . . 789,544
500,000 Alabama State Board of Education Revenue, John C. Calhoun Community College, MBIA Insured,
5.60%, 05/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495,675
250,000 Alabama State University Dormitory Revenues, Pre-Refunded, 8.00%, 01/01/14 . . . . . . . . . . 294,140
2,000,000 Alabama State University Revenue, General Tuition & Fee, MBIA Insured, 5.70%, 05/01/15 . . . . 1,994,940
Alabama Water Pollution Control Authority, Revolving Fund Loan,
2,940,000 Series A, AMBAC Insured, 5.60%, 08/15/16 . . . . . . . . . . . . . . . . . . . . . . . . . 2,895,577
3,500,000 Series B, 7.75%, 08/15/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,826,690
750,000 Albertville Warrants, MBIA Insured, 7.00%, 04/01/11 . . . . . . . . . . . . . . . . . . . . . . 834,150
115,000 Alexander City GO Warrants, Refunding, Series 1988, Pre-Refunded, 7.90%, 05/01/08 . . . . . . . 129,988
250,000 Anniston Regional Medical Center Board, Hospital Revenue, Refunding, Northeast Alabama
Regional Medical Center Project, Series A, 7.70%, 07/01/08 . . . . . . . . . . . . . . . . . . 257,858
1,500,000 Athens Water & Sewer Revenue Warrants, AMBAC Insured, 6.10%, 08/01/18 . . . . . . . . . . . . . 1,552,725
1,600,000 Auburn Governmental Utility Services Corp., Waste Water Revenue, Merscot-Auburn L.P., FGIC
Insured, 7.30%, 01/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,765,136
2,000,000 Auburn University General Fee Revenue, Refunding, 7.00%, 06/01/11 . . . . . . . . . . . . . . . 2,234,380
1,000,000 Bessemer Medical Clinic Board Revenue, Refunding, Bessemer Carraway Center, Series A, MBIA
Insured, 7.25%, 04/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,116,210
Birmingham Airport Authority Revenue,
500,000 Series 1990-A, AMBAC Insured, 7.375%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . 557,605
1,000,000 Series 1990-B, AMBAC Insured, Pre-Refunded, 7.125%, 07/01/20 . . . . . . . . . . . . . . . 1,142,840
1,870,000 Birmingham BMC, Special Care Facilities Financing Authority Revenue, Series A, MBIA Insured,
7.00%, 01/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,056,662
Birmingham GO,
900,000 Improvement Bonds, Series 1990, Pre-Refunded, 7.40%, 04/01/18 . . . . . . . . . . . . . . 1,031,400
2,500,000 Improvement Warrants, Pre-Refunded, 6.60%, 07/01/17 . . . . . . . . . . . . . . . . . . . 2,833,475
145,000 Refunding, 8.00%, 10/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,533
1,000,000 Refunding, Series B, 6.25%, 04/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,052,590
1,000,000 Refunding, Series B, 6.25%, 04/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,052,590
500,000 Birmingham Historical Preservation Authority Revenue, Kelly Ingram/Civil Rights Project, 581,835
Pre-Refunded, 7.20%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Birmingham-Jefferson Civic Center Authority, Special Tax,
285,000 Capital Outlay, 7.40%, 01/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,908
640,000 Capital Outlay, 7.25%, 01/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 694,918
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ALABAMA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 2,000,000 Birmingham Medical Center East, Special Care Facilities Financing Authority Revenue,
Refunding, MBIA Insured, 7.25%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,139,120
Birmingham Special Care Facilities Financing Authority, Health Care Revenue,
100,000 Children's Hospital, BIG Insured, Pre-Refunded, 7.00%, 06/01/09 . . . . . . . . . . . . . 112,617
1,200,000 Medical Center East, MBIA Insured, 7.00%, 07/01/12 . . . . . . . . . . . . . . . . . . . . 1,336,308
Birmingham Waterworks & Sewer Board, Water & Sewer Revenue,
1,500,000 Series 1990, Pre-Refunded, 7.10%, 01/01/16 . . . . . . . . . . . . . . . . . . . . . . . . 1,708,230
1,200,000 Series 1990, Pre-Refunded, 7.20%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . . . . 1,375,956
2,000,000 (e)Series 1994, 5.50%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,920,000
100,000 Butler County Water Authority Revenue, AMBAC Insured, 7.90%, 01/01/13 . . . . . . . . . . . . . 112,689
3,250,000 Camden IDB, PCR, Facilities Revenue, Refunding, MacMillian Bloedel Project, Series A, 7.75%,
05/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,626,285
500,000 Citronelle IDB, PCR, Stauffer Chemical Project, Guaranteed by Imperial Chemical, Plc., Series
1982, 8.00%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588,795
1,750,000 Colbert County Health Care Authority, Helen Keller Hospital, 8.75%, 06/01/09 . . . . . . . . . 1,999,673
105,000 Columbia IDB, PCR, Refunding, Alabama Power Co., Farley Plant Project, Series G, 7.40%,
11/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,104
4,000,000 Courtland IDB Revenue, Refunding, Champion International Corp. Project, Series A, 7.20%,
12/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,376,800
505,000 Courtland IDB, Solid Waste Disposal Revenue, Champion International Corp. Project, 7.75%,
01/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556,520
2,600,000 Cullman Water Revenue Warrants, Series A, AMBAC Insured, 6.20%, 10/01/12 . . . . . . . . . . . 2,715,648
Daphne Utilities Board, Water, Gas & Sewer Revenue, Refunding,
2,945,000 AMBAC Insured, 5.80%, 06/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,990,854
2,000,000 Series 1990-A, FGIC Insured, Pre-Refunded, 7.35%, 06/01/2 . . . . . . . . . . . . . . . . 2,325,060
200,000 Decatur GO Warrants, Series A, Pre-Refunded, 7.60%, 05/01/09 . . . . . . . . . . . . . . . . . 224,626
1,400,000 Demopolis Housing Development Corp., MFHR, Refunding, Series 1990-A, CGIC Insured, 7.625%,
08/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,464,512
75,000 Dothan GO Warrants, Refunding, 8.00%, 09/01/13 . . . . . . . . . . . . . . . . . . . . . . . . 81,659
50,000 Druit Community Hospital Health Care Authority, Facilities Revenue, MBIA Insured, Pre-
Refunded, 7.875%, 06/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,615
East Alabama Health Care Authority Facilities Revenue,
2,600,000 East Alabama Medical Center, MBIA Insured, Pre-Refunded, 7.00%, 09/01/21 . . . . . . . . . 2,862,366
1,000,000 TAN, Refunding, MBIA Insured, 6.00%, 09/01/21 . . . . . . . . . . . . . . . . . . . . . . 1,021,830
3,000,000 Fairfield Warrants, AMBAC Insured, 6.30%, 06/01/22 . . . . . . . . . . . . . . . . . . . . . . 3,202,530
1,565,000 Gadsden Housing Development Corp., MFR, Refunding, Series A, 7.00%, 01/01/22 . . . . . . . . . 1,649,526
1,000,000 Guam Airport Authority Revenue, Refunding, Series A, 6.50%, 10/01/23 . . . . . . . . . . . . . 1,046,310
1,000,000 Guam Power Authority Revenue, Series A, 6.375%, 10/01/08 . . . . . . . . . . . . . . . . . . . 1,057,860
1,200,000 Guntersville Waterworks & Sewer Board Utilities Revenue, Refunding, AMBAC Insured, 5.70%,
08/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208,928
570,000 Homewood Special Care Facilities Financing Authority Revenue, Refunding, Lakeshore Hospital
Project, Series B, 8.25%, 02/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632,489
1,000,000 Hoover GO Warrants, Series A, AMBAC Insured, Pre-Refunded, 7.30%, 03/01/14 . . . . . . . . . . 1,155,050
Houston County Health Care Authority Revenue, Southeast Alabama Medical Center,
1,250,000 BIG Insured, Pre-Refunded, 7.25%, 10/01/19 . . . . . . . . . . . . . . . . . . . . . . . . 1,437,063
2,070,000 MBIA Insured, 6.125%, 10/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,110,613
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ALABAMA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 100,000 Huntsville Health Care Authority Facilities Revenue, Refunding, Series A, MBIA Insured,
Pre-Refunded, 7.70%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 114,210
230,000 Huntsville Solid Waste Disposal Authority & Resource Recovery Revenue, FGIC Insured, 7.00%,
10/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,054
1,025,000 Huntsville Warrants, Refunding, Series C, 5.875%, 11/01/15 . . . . . . . . . . . . . . . . . . 1,053,085
4,250,000 Jasper Medical Clinic Board, Hospital Revenue, Refunding, Walker Regional Medical Center, Inc.
Project, 6.40%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,329,773
200,000 Jefferson County GO Warrants, Pre-Refunded, 7.50%, 04/01/07 . . . . . . . . . . . . . . . . . . 227,404
200,000 Jefferson County Sewer Revenue Warrants, ETM 09/01/11, 7.50%, 09/01/13 . . . . . . . . . . . . 227,828
1,255,000 LCM Housing Assistance Corp. Project, MFR, Refunding, Series A, 7.875%, 01/01/22 . . . . . . . 1,319,131
440,000 Lauderdale County & City of Florence Public Hospital Board Revenue, Eliza Coffee Memorial
Hospital, 7.00%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469,744
1,050,000 Limestone County Water Authority Revenue, FGIC Insured, 7.70%, 12/01/19 . . . . . . . . . . . . 1,199,027
500,000 Madison County PBA Revenue Warrants, 6.90%, 11/01/11 . . . . . . . . . . . . . . . . . . . . . 543,135
975,000 Madison GO Warrants, Series 1990, 7.25%, 01/01/15 . . . . . . . . . . . . . . . . . . . . . . . 1,082,864
65,000 Marengo County, Limited Obligation, Capital Outlay Warrants, Pre-Refunded, 8.50%, 11/01/18 . . 77,456
Marshall County Health Care Authority Hospital Revenue,
2,530,000 Crossover Refunding, Guntersville-Arab Medical Center, 7.60%, 10/01/07 . . . . . . . . . . 2,888,855
10,810,000 Refunding, Boaz-Albertville Medical Center, 6.50%, 01/01/18 . . . . . . . . . . . . . . . 10,607,313
600,000 Marshall County Hospital Board Revenue, Refunding, Boaz-Albertville Medical Center,
Pre-Refunded, 8.875%, 01/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686,124
2,500,000 Marshall County Warrants, AMBAC Insured, 7.00%, 02/01/12 . . . . . . . . . . . . . . . . . . . 2,768,425
1,000,000 Mobile Airport Authority Revenue, Mae Project, 7.375%, 11/01/12 . . . . . . . . . . . . . . . . 1,097,760
1,500,000 Mobile Commissioner Water & Sewer Revenue, Refunding, 6.50%, 01/01/09 . . . . . . . . . . . . . 1,601,895
Mobile GO,
45,000 Capital Improvement Warrants, Pre-Refunded, 7.90%, 08/15/11 . . . . . . . . . . . . . . . 51,292
900,000 Convention Center Project Warrants, AMBAC Insured, Pre-Refunded, 7.125%, 08/15/10 . . . . 1,038,797
1,000,000 Convention Center Project Warrants, AMBAC Insured, Pre-Refunded, 7.125%, 08/15/20 . . . . 1,154,220
1,340,000 Mobile Housing Assistance Corp., MFHR, Refunding, Series 1990-A, CGIC Insured, 7.625%,
02/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,416,929
575,000 Mobile IDB, PCR, Refunding, Alabama Power Co., Series E, 7.20%, 06/01/16 . . . . . . . . . . . 591,083
155,000 Montgomery Downtown RDA, Mortgage Revenue, State of Alabama Project, BIG Insured,
Pre- Refunded, 7.75%, 10/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,504
1,500,000 Moulton Waterworks Board Water Revenue, Series A, 6.30%, 01/01/18 . . . . . . . . . . . . . . . 1,506,705
1,500,000 Muscle Shoals Utilities Board, Water & Sewer Revenue, AMBAC Insured, 7.25%, 04/01/17 . . . . . 1,668,420
Northeast Alabama Water, Sewer & Fire Protection District, Water Revenue,
2,000,000 AMBAC Insured, 6.375%, 05/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,110,660
30,000 AMBAC Insured, Pre-Refunded, 7.90%, 05/01/15 . . . . . . . . . . . . . . . . . . . . . . . 34,627
200,000 Northport GO Warrants, FGIC Insured, 7.70%, 12/01/13 . . . . . . . . . . . . . . . . . . . . . 228,754
3,640,000 Orange Beach Water, Sewer & Fire Protection Authority Revenue, 7.50%, 05/01/22 . . . . . . . . 3,986,346
Pelham Alabama Warrants,
1,000,000 AMBAC Insured, 6.25%, 11/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071,420
2,000,000 AMBAC Insured, 6.25%, 11/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,142,840
780,000 Piedmont IDB, IDR, Springs Industrial Project, 8.25%, 09/01/10 . . . . . . . . . . . . . . . . 873,904
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ALABAMA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue,
$ 500,000 Series A, 7.90%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 570,195
175,000 Series A, 7.875%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,621
3,200,000 Series A, 7.00%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,528,672
Puerto Rico Commonwealth Electric Power Authority Revenue, Water Resource,
350,000 Refunding, Series L, 8.00%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . 403,315
15,000 Refunding, Series L, 8.40%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,096
1,000,000 Refunding, Series N, 7.00%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,118,720
1,870,000 Series P, 7.00%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,078,804
Puerto Rico Commonwealth Highway Authority Revenue,
155,000 Series P, Pre-Refunded, 8.125%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 181,703
600,000 Series R, 7.15%, 07/01/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666,330
3,000,000 Puerto Rico Commonwealth Highway & Transportation Authority Revenue, Series T, Pre-Refunded,
6.625%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,261,660
90,000 Puerto Rico Commonwealth Housing, Bank & Finance Agency, SF Appropriation, Subsidy Prepayment,
Pre-Refunded, 7.25%, 12/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,458
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
175,000 Series A, 7.90%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,931
50,000 Series A, 7.50%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,644
85,000 Puerto Rico Commonwealth Public Improvement GO, 7.90%, 07/01/11 . . . . . . . . . . . . . . . . 95,192
300,000 Puerto Rico Commonwealth Urban Renewal & Housing Corp., Refunding, 7.875%, 10/01/04 . . . . . . 345,051
200,000 Puerto Rico Industrial, Medical & Environmental PCR, Facilities Financing Authority, Upjohn
Co. Project, 7.50%, 12/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,312
Puerto Rico PBA, Guaranteed, Public Education & Health Facilities,
5,000,000 Refunding, Series L, 5.75%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,968,450
75,000 Series F, Pre-Refunded, 8.00%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . 84,158
40,000 Series H, Pre-Refunded, 7.875%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . 45,602
Russell County PBA Revenue,
1,900,000 Phenix City Jail Project Warrants, 7.125%, 01/01/14 . . . . . . . . . . . . . . . . . . . 1,969,977
200,000 Russell County Jail Project, Pre-Refunded, 8.50%, 01/01/14 . . . . . . . . . . . . . . . . 237,984
1,055,000 (e)Russell County Water Authority Revenue, MBIA Insured, 5.375%, 02/01/14 . . . . . . . . . . . . 1,010,805
50,000 Scottsboro Electric Power Board Utility Revenue, Series B, 8.25%, 01/01/08 . . . . . . . . . . 55,923
240,000 Shelby County Board of Education, Capital Outlay School Warrants, 7.20%, 02/01/16 . . . . . . . 265,579
1,000,000 Tuscaloosa County Limited Obligation, Capital Outlay Warrants, AMBAC Insured, 7.00%, 02/01/10 . 1,099,250
4,925,000 Tuscaloosa Warrants, AMBAC Insured, 6.75%, 07/01/2 . . . . . . . . . . . . . . . . . . . . . . 5,343,921
90,000 Tuscaloosa Water & Sewer Revenue, Capital Improvement Warrants, Series Refunded, 8.50%,
07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,880
1,500,000 University of Alabama, Student Housing Revenue, Series A, MBIA Insured, 7.10%, 06/01/15 . . . . 1,658,880
100,000 University of Puerto Rico Revenue, Refunding, Series J, 7.75%, 06/01/07 . . . . . . . . . . . . 109,418
2,000,000 University Revenues, Birmingham Hospital, MBIA Insured, 5.50%, 10/01/10 . . . . . . . . . . . . 1,978,500
5,000,000 West Jefferson IDB, PCR, Refunding, Alabama Power Co., Miller Plant, Series C, MBIA Insured,
6.05%, 05/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,099,650
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ALABAMA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 100,000 West Morgan Water & Fire Protection Authority, Water Revenue, Refunding, FGIC Insured,
Pre-Refunded, 7.90%, 05/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 114,293
3,500,000 Wilsonville IDB, PCR, Refunding, Southern Electric Generating, Series C, MBIA Insured, 6.75%,
02/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,792,075
-----------------
TOTAL LONG TERM INVESTMENTS (COST $164,446,906) 176,606,908
-----------------
(g)SHORT TERM INVESTMENTS .9%
200,000 Alabama HFA, Heatherbrooke, Series O, Weekly VRDN and Put, 2.60%, 10/01/13 . . . . . . . . . . 200,000
Montgomery BMC Special Care Facilities Financing Authority Revenue,
400,000 Series A, AMBAC Insured, Weekly VRDN and Put, 2.35%, 12/01/30 . . . . . . . . . . . . . . . . 400,000
600,000 Series C, AMBAC Insured, Weekly VRDN and Put, 2.35%, 12/01/30 . . . . . . . . . . . . . . . . 600,000
300,000 Series G, AMBAC Insured, Weekly VRDN and Put, 2.35%, 12/01/30 . . . . . . . . . . . . . . . . 300,000
100,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and Put, 2.25%,
12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $1,600,000) . . . . . . . . . . . . . . . . . . . . 1,600,000
-----------------
TOTAL INVESTMENTS (COST $166,046,906) 99.9% . . . . . . . . . . . . . . . . . . . 178,206,908
OTHER ASSETS AND LIABILITIES, NET .1% . . . . . . . . . . . . . . . . . . . . . . 207,551
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 178,414,459
=================
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $166,047,656 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an excess
of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,531,064
Aggregate gross unrealized depreciation for all investments in which there was an excess
of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (371,812)
-----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,159,252
=================
</TABLE>
<TABLE>
<S> <C>
PORTFOLIO ABBREVIATIONS: IDR - Industrial Development Revenue
AMBAC - American Municipal Bond Assurance Corp. MBIA - Municipal Bond Investors Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co. MF - Multi-Family
BMC - BaptistMedical Center MFHR - Multi-Family Housing Revenue
CGIC - Capital Guaranty Insurance Co. MFR - Multi-Family Revenue
ETM - Escrow to Maturity PBA - Public Building Authority
FGIC - Financial Guaranty Insurance Co. PCR - Pollution Control Revenue
GNMA - Government National Mortgage Association RDA - Redevelopment Authority/Agency
GO - General Obligation SF - Single Family
HFA - Housing Finance Authority/Agency SFMR - Single Family Mortgage Revenue
IDB - Industrial Development Board TAN - Tax Anticipation Notes
</TABLE>
(e) See Note 1 regarding securities purchased on a when-issued basis.
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.5%
BONDS 93.1%
Alachua County Health Facilities Authority Revenue,
$ 6,705,000 Refunding, Santa Fe Health Care Facilities Project, 7.60%, 11/15/13 . . . . . . . . . . . $ 7,397,895
500,000 Shands Hospital, University of Florida Project, Pre-Refunded, 7.875%, 12/01/06 . . . . . 528,245
Bay County Resource Recovery Revenue,
3,710,000 Refunding, Series A, MBIA Insured, 6.60%, 07/01/11 . . . . . . . . . . . . . . . . . . . . 4,068,125
18,150,000 Refunding, Series B, MBIA Insured, 6.60%, 07/01/12 . . . . . . . . . . . . . . . . . . . . 19,902,020
2,265,000 Series 1984, Pre-Refunded, 8.00%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . 2,542,213
Bay County Water System Revenue, Refunding,
525,000 AMBAC Insured, 6.50%, 09/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576,602
675,000 AMBAC Insured, 6.60%, 09/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741,035
4,000,000 Boynton Beach Public Service Tax Revenue, MBIA Insured, Pre-Refunded, 7.50%, 11/01/10 . . . . . 4,663,640
4,000,000 Boynton Beach Utilities System Revenue, Refunding, FGIC Insured, 6.25%, 11/01/20 . . . . . . . 4,215,920
2,740,000 Brevard County HFA, SFMR, Refunding, Series B, FSA Insured, 7.00%, 03/01/13 . . . . . . . . . . 2,889,522
5,000,000 Brevard County Health Facilities Authority Revenue, Refunding, Wuesthoff Memorial Hospital,
Series B, 7.20%, 04/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,404,250
17,750,000 Brevard County School Board, COP, Refunding, Series A, AMBAC Insured, 6.50%, 07/01/12 . . . . . 19,059,063
Brevard County Solid Waste Disposal System Revenue,
1,000,000 Series 1993, 5.625%, 04/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 994,670
2,235,000 Series 1993, 5.70%, 04/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,240,342
Broward County HFAR,
4,550,000 Series B, GNMA Collateralized Mortgage Revenue, 7.55%, 03/01/15 . . . . . . . . . . . . . 4,846,433
1,365,000 Series C, GNMA Collateralized Mortgage Revenue, 8.00%, 03/01/21 . . . . . . . . . . . . . 1,455,131
465,000 Series D, GNMA Collateralized Mortgage Revenue, 6.90%, 06/01/09 . . . . . . . . . . . . . 477,485
1,115,000 Series D, GNMA Collateralized Mortgage Revenue, 7.375%, 06/01/21 . . . . . . . . . . . . . 1,138,538
Broward County Health Facility Authority Revenue, Refunding,
2,080,000 Nursing Home, 7.40%, 08/15/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,311,192
1,475,000 Nursing Home, 7.50%, 08/15/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,639,227
2,000,000 Broward County, Refunding, Series C, 5.50%, 01/01/12 . . . . . . . . . . . . . . . . . . . . . 1,975,240
Broward County Resource Recovery Revenue,
6,570,000 Broward Waste Energy Co., Limited Partnership, North Project, 7.95%, 12/01/08 . . . . . . 7,405,507
12,315,000 SES Waste Energy Co., Limited Partnership, South Project, 7.95%, 12/01/08 . . . . . . . . 13,881,099
1,925,000 Broward County School District, GO, Series 1989, Pre-Refunded, 7.125%, 02/15/08 . . . . . . . . 2,186,568
200,000 Broward County Tourist Development, Special Tax Revenue, Convention Center Project, FGIC
Insured, 7.75%, 10/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,972
585,000 Broward County Water & Sewer Utility Revenue, Series B, AMBAC Insured, Pre-Refunded, 7.50%,
10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661,518
1,500,000 Cape Canaveral Hospital District Revenue Certificates, AMBAC Insured, 6.875%, 01/01/21 . . . . 1,659,990
Cape Coral Health Facilities Authority, Hospital Revenue,
19,000,000 Cape Coral Medical Center, Inc. Project, 7.80%, 11/15/18 . . . . . . . . . . . . . . . . . 20,704,490
3,000,000 Cape Coral Medical Center, Inc. Project, 7.50%, 11/15/21 . . . . . . . . . . . . . . . . . 3,290,610
6,400,000 Citrus County Hospital Board Revenue, Refunding, Memorial Hospital, Series A, FSA Insured,
6.50%, 08/15/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,924,032
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Citrus County PCR, Refunding, Florida Power Corp.,
$ 11,600,000 Crystal River, Series A, 6.625%, 01/01/27 . . . . . . . . . . . . . . . . . . . . . . . . $ 12,562,915
13,000,000 Crystal River, Series B, 6.35%, 02/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . 13,854,750
Clay County HFAR, SFM,
2,180,000 Series A, GNMA Mortgage Backed Securities, 8.20%, 06/01/21 . . . . . . . . . . . . . . . . 2,317,144
4,675,000 Series A, GNMA Mortgage Backed Securities, 7.80%, 06/01/22 . . . . . . . . . . . . . . . . 4,944,981
1,310,000 Series A, GNMA Mortgage Backed Securities, 7.45%, 09/01/23 . . . . . . . . . . . . . . . . 1,386,347
2,975,000 Clearwater MFR, Refunding, Rent Housing, Drew Gardens Projects, Series A, FHA Insured, 6.50%,
10/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,022,065
1,000,000 Clewiston Water & Sewer Revenue, Refunding, AMBAC Insured, 7.65%, 10/01/10 . . . . . . . . . . 1,129,460
1,550,000 Cocoa Beach Utilities Revenue, Refunding, MBIA Insured, 5.50%, 11/01/13 . . . . . . . . . . . . 1,535,182
1,325,000 Collier County Special Assessment, Pine/Naples Municipal Service, 5.60%, 11/01/13 . . . . . . . 1,262,725
470,000 Collier County Water & Sewer District Revenue, Sewer Assessment, East & South Naples Project,
MBIA Insured, 7.15%, 10/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494,816
4,250,000 Coral Springs Improvement District, Water & Sewer Revenue, 6.75%, 11/01/02 . . . . . . . . . . 4,329,645
1,250,000 Dade County Aviation Revenue, Series B, MBIA Insured, 6.55%, 10/01/13 . . . . . . . . . . . . . 1,357,925
1,930,000 Dade County HFA, MFMR, GNMA Collateralized, Hialeah Center, Series 5, 7.875%, 12/01/32 . . . . 2,110,745
Dade County HFA, SFMR,
45,000 Refunding, Series A, 8.125%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . 46,290
1,500,000 Refunding, Series D, FSA Insured, 6.95%, 12/15/12 . . . . . . . . . . . . . . . . . . . . 1,588,740
300,000 Refunding, Series E, FNMA Insured, 7.00%, 03/01/24 . . . . . . . . . . . . . . . . . . . . 317,862
3,355,000 Series A, GNMA Mortgage Backed Securities, 7.50%, 09/01/13 . . . . . . . . . . . . . . . . 3,463,031
1,555,000 Series A, GNMA Mortgage Backed Securities, 7.10%, 03/01/17 . . . . . . . . . . . . . . . . 1,647,554
260,000 Series B, GNMA Mortgage Backed Securities, 7.25%, 09/01/23 . . . . . . . . . . . . . . . . 274,245
Dade County Health Facilities Authority, Hospital Revenue,
400,000 Baptist Hospital of Miami Project, Pre-Refunded, 7.375%, 05/01/13 . . . . . . . . . . . . 445,980
75,000 Mt. Sinai Medical Center Project, CGIC Insured, Pre-Refunded, 8.40%, 12/01/17 . . . . . . 87,340
7,475,000 Dade County Health Facilities Authority Revenue, Refunding, Catholic Health & Rehabilitation,
Inc. Project, 7.625%, 08/15/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,448,918
125,000 Dade County IDA, IDR, Epworth Village West, FHA Insured, 8.25%, 02/01/28 . . . . . . . . . . . 134,186
5,695,000 Dade County IDA, Solid Waste Disposal Revenue, Florida Power & Light County Project, 7.15%,
02/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,306,415
Dade County Public Facilities Revenue, Jackson Memorial Hospital,
7,450,000 MBIA Insured, 5.625%, 06/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,376,320
140,000 Series A, MBIA Insured, 7.30%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . 151,105
1,110,000 Series A, MBIA Insured, 7.30%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . 1,212,742
4,615,000 Dade County School Board, COP, Holmes Braddock, MBIA Insured, 5.50%, 08/01/08 . . . . . . . . . 4,641,905
5,960,000 Dade County School District, GO, Pre-Refunded, 7.375%, 07/01/08 . . . . . . . . . . . . . . . . 6,871,105
Dade County, Unlimited Tax, GO,
1,000,000 Series DD, MBIA Insured, 7.70%, 10/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 1,105,870
380,000 Series DD, MBIA Insured, 7.75%, 10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 419,706
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Dovera Community Development District,
$ 1,690,000 Special Assessment Revenue, 7.625%, 05/01/03 . . . . . . . . . . . . . . . . . . . . . . . $ 1,783,609
3,000,000 Special Assessment Revenue, 7.875%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . . 3,188,040
2,375,000 Dunedin Hospital Revenue, Mease Health Care, MBIA Insured, Pre-Refunded, 6.75%,
11/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,719,161
670,000 Dunes Community Development District Revenue, Water & Sewer Project, Pre-Refunded, 8.25%,
10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 791,210
175,000 Duval County HFA, MFHR, Magnolia Arms Apartments Project, Series A, 9.50%, 08/15/17 . . . . . . 164,618
Duval County HFA, SFMR,
90,000 Series 1988, GNMA Mortgage Backed Securities, 8.625%, 12/01/19 . . . . . . . . . . . . . . 92,786
100,000 Series A, GNMA Mortgage Backed Securities, 8.50%, 09/01/19 . . . . . . . . . . . . . . . . 105,552
2,625,000 Series A, GNMA Mortgage Backed Securities, 7.85%, 12/01/22 . . . . . . . . . . . . . . . . 2,759,059
940,000 Series B, GNMA Mortgage Backed Securities, 7.70%, 11/01/11 . . . . . . . . . . . . . . . . 985,524
1,495,000 Series C, GNMA Mortgage Backed Securities, FGIC Insured, 7.70%, 09/01/24 . . . . . . . . . 1,578,257
Escambia County HFA, SFMR,
15,000 Refunding, 8.75%, 10/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,747
4,235,000 Series A, GNMA Mortgage Backed Securities, 7.40%, 10/01/2 . . . . . . . . . . . . . . . . 4,423,458
4,350,000 Escambia County HFAR, Refunding, Baptist Hospital & Manor, 6.75%, 10/01/14 . . . . . . . . . . 4,581,899
1,190,000 Escambia County PCR, Refunding, Gulf Power Co. Project, 8.25%, 06/01/17 . . . . . . . . . . . . 1,329,218
4,000,000 Escambia County Revenue, Series B, Sub-Series 1, MBIA Insured, 7.20%, 01/01/15 . . . . . . . . 4,431,600
Escambia County Sales Tax Revenue, Refunding,
4,800,000 FGIC Insured, 5.80%, 01/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,864,944
700,000 Series A, Pre-Refunded, 7.70%, 01/01/02 . . . . . . . . . . . . . . . . . . . . . . . . . 760,501
3,255,000 Escambia County School Board, COP, FSA Insured, 6.375%, 02/01/12 . . . . . . . . . . . . . . . 3,411,924
90,000 Escambia County Tourist Development Revenue, Pre-Refunded, 8.40%, 12/01/12 . . . . . . . . . . 104,808
2,500,000 Escambia County Utilities Authority, Sanitary System Revenue, FSA Insured, 6.00%,
01/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,567,925
2,000,000 Escambia County Utilities Authority System Revenue, Refunding, FGIC Insured, 7.75%, 01/01/15 . 2,278,940
Florida HFA,
1,000,000 General Mortgage, Refunding, Series A, 6.35%, 06/01/14 . . . . . . . . . . . . . . . . . . 1,042,300
3,700,000 General Mortgage, Refunding, Series A, 6.40%, 06/01/24 . . . . . . . . . . . . . . . . . . 3,831,535
1,045,000 Homeownership Revenue, Series G-1, GNMA Collateralized, 7.80%, 09/01/10 . . . . . . . . . 1,100,709
470,000 Homeownership Revenue, Series G-1, GNMA Collateralized, 8.30%, 06/01/20 . . . . . . . . . 492,231
9,740,000 Homeownership Revenue, Series G-1, GNMA Collateralized, 7.90%, 03/01/22 . . . . . . . . . 10,201,189
4,000,000 MF Housing, Citrus Meadows Apartments Project, Series Q, GNMA Mortgage Backed Securities,
7.65%, 06/20/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,256,800
3,445,000 MF Housing, Driftwood Terrace Project, Series I, 7.65%, 12/20/31 . . . . . . . . . . . . . 3,691,421
4,000,000 MF Mortgage, Lake Carlton Arms, Guaranteed, Refunding, Series F, Mandatory Put 12/01/99,
7.375%, 12/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,178,680
2,900,000 MFHR, Refunding, Series A, 6.95%, 10/01/21 . . . . . . . . . . . . . . . . . . . . . . . . 3,070,839
3,700,000 Refunding, SFMR, Series C, 5.75%, 07/01/27 . . . . . . . . . . . . . . . . . . . . . . . . 3,608,573
5,500,000 SFM, Series B, 5.875%, 01/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,347,540
480,000 SFMR, Series A, 8.60%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497,798
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
$ 15,000,000 Florida Local Government Finance Authority Revenue, Series C, Mandatory Put 03/01/00, 7.75%,
09/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,308,400
Florida State Board of Education, Capital Outlay, Refunding, Public Education,
8,825,000 Series A, 7.25%, 06/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,929,978
9,175,000 Series A, 7.25%, 06/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,644,101
650,000 Florida State Board of Education, Capital Outlay, Series B-1, Pre-Refunded, 7.875%,
06/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749,853
2,550,000 Florida State Community Services Corp., Walton County Water & Sewer Revenue, South Walton
County Regional Utilities, 7.00%, 03/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 2,744,208
145,000 Florida State Department of General Services Division, Facilities Management Revenue, Florida
Facilities Pool, Pre-Refunded, 8.125%, 09/01/17 . . . . . . . . . . . . . . . . . . . . . . . 169,791
Florida State Department of Transportation, Turnpike Revenue,
8,780,000 Series A, AMBAC Insured, Pre-Refunded, 7.125%, 07/01/18 . . . . . . . . . . . . . . . . . 10,239,324
2,375,000 Series A, Pre-Refunded, 7.75%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . 2,773,644
14,950,000 Series A, Pre-Refunded, 7.50%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . 17,284,443
Florida State Division Board of Finance, Department of General Services,
3,000,000 Department of Natural Resources Revenues, AMBAC Insured, 6.75%, 07/01/13 . . . . . . . . . 3,301,590
100,000 Seminole County Road, Pre-Refunded, 7.75%, 11/01/18 . . . . . . . . . . . . . . . . . . . 111,400
3,715,000 Florida State GO, Pre-Refunded, 7.375%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . 4,282,912
Florida State Mid Bay Bridge Authority Revenue,
13,505,000 Crossover Refunding, Series A, 6.00%, 10/01/13 . . . . . . . . . . . . . . . . . . . . . . 13,245,434
7,000,000 Crossover Refunding, Series A, 6.10%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . 6,842,290
11,100,000 Refunding, Series D, 6.125%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . 10,886,658
2,600,000 Series A, 8.00%, 10/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,936,674
14,250,000 Series A, 7.50%, 10/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,669,443
6,000,000 Series A, ETM 10/01/18, 6.875%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . 6,894,540
15,720,000 Florida State Municipal Power Agency Revenue, Refunding, St. Lucie Project, Series 1986,
Pre-Refunded, 7.375%, 10/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,305,676
9,000,000 Florida State Turnpike Authority Revenue, Refunding, Series A, FGIC Insured, 5.25%,
07/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,445,330
Fort Myers Improvement Revenue,
9,410,000 District 15, Series A, 8.125%, 05/01/01 . . . . . . . . . . . . . . . . . . . . . . . . . 9,625,301
3,640,000 District 17, Series B, 8.125%, 05/01/01 . . . . . . . . . . . . . . . . . . . . . . . . . 3,723,283
60,000 Fort Pierce Utilities Authority Revenue, Refunding, Series A, Pre-Refunded, 9.30%,
10/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,394
Gainesville Utility System Revenue,
1,520,000 Series A, Pre-Refunded, 6.50%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . 1,636,721
1,600,000 Sub-Series A, AMBAC Insured, Pre-Refunded, 7.25%, 10/01/13 . . . . . . . . . . . . . . . . 1,823,680
4,050,000 Greater Orlando Aviation Authority, Orlando Airport Facilities Revenue, Refunding, Series D,
AMBAC Insured, 6.20%, 10/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,335,039
3,500,000 Guam Airport Authority Revenue, Series B, 6.40%, 10/01/05 . . . . . . . . . . . . . . . . . . . 3,659,950
2,000,000 Gulf Breeze Local Government Loan Program Revenue, FGIC Insured, 7.75%, 12/01/15 . . . . . . . 2,283,920
3,685,000 Halifax Hospital Medical Center Revenue, Refunding, Series A, MBIA Insured, 6.75%,
10/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,103,063
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Hillsborough County Aviation Authority Revenue, Refunding,
$ 14,945,000 Special Purpose, Delta Airlines, 7.75%, 01/01/24 . . . . . . . . . . . . . . . . . . . . . $ 15,977,998
8,500,000 Tampa International Airport, Series A, FGIC Insured, 6.90%, 10/01/11 . . . . . . . . . . . 9,383,150
3,955,000 Tampa International Airport, Series B, FGIC Insured, 5.60%, 10/01/19 . . . . . . . . . . . 3,901,884
16,880,000 Hillsborough County Capital Improvement Program, Water & Waste Water Facilities Revenue, BMTF,
Mode A, Sub-Series 2, Pre-Refunded, 8.30%, 08/01/16 . . . . . . . . . . . . . . . . . . . . . 18,572,895
Hillsborough County Capital Improvement Revenue, Center Project,
8,300,000 Second Series, 6.625%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,898,430
1,250,000 Second Series, 6.75%, 07/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,352,188
5,300,000 Hillsborough County IDA, IDR, Colonial Penn Insured Project, 7.35%, 08/01/13 . . . . . . . . . 5,940,187
3,000,000 Hillsborough County Port District Revenue, Tampa Port Authority, 8.25%, 06/01/09 . . . . . . . 3,386,070
Hillsborough County Utilities Revenue,
1,950,000 Refunding, MBIA Insured, 5.50%, 08/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . 1,915,388
10,400,000 Refunding, Series A, 6.625%, 08/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . 11,185,824
5,515,000 Refunding, Series A, 7.00%, 08/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,075,103
3,000,000 Refunding, Series A, 6.50%, 08/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,188,280
1,135,000 Refunding, Series A, Pre-Refunded, 7.00%, 08/01/14 . . . . . . . . . . . . . . . . . . . . 1,312,593
1,000,000 Refunding, Series B, 6.50%, 08/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,062,760
5,000,000 Holly Hill Water & Sewer Revenue, Improvement & Refunding, MBIA Insured, Pre-Refunded, 7.25%,
10/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,699,000
1,535,000 Indian River County Recycling Revenue, AMBAC Insured, Pre-Refunded, 6.875%, 09/01/11 . . . . . 1,734,443
Jacksonville Electric Authority Revenue,
990,000 Bulk Power Supply, Scherer, Series 4-1-A, Pre-Refunded, 6.75%, 10/01/16 . . . . . . . . . 1,123,442
2,755,000 Refunding, St. John's River Power Park System, Series 1, Pre-Refunded, 7.50%, 10/01/14 . . 2,960,606
6,000,000 Refunding, St. John's River Power Park System, Series 3, Pre-Refunded, 7.375%, 10/01/13 . 6,436,440
3,000,000 Refunding, St. John's River Power Park System, Series 10, Issue 2, 5.50%, 10/01/13 . . . . 2,933,100
1,870,000 Series 3-A, Pre-Refunded, 6.90%, 10/01/19 . . . . . . . . . . . . . . . . . . . . . . . . 2,044,134
1,750,000 Series 3-A, Pre-Refunded, 7.70%, 10/01/28 . . . . . . . . . . . . . . . . . . . . . . . . 1,932,350
2,290,000 St. John's River Power Park System, Series 2, 7.25%, 10/01/19 . . . . . . . . . . . . . . 2,452,247
6,125,000 St. John's River Power Park System, Series 2, 7.25%, 10/01/19 . . . . . . . . . . . . . . 6,478,719
45,000 Jacksonville Excise Tax & Revenue, Series A, Pre-Refunded, 8.375%, 10/01/11 . . . . . . . . . . 50,568
Jacksonville Health Facilities Authority, Hospital Revenue,
4,000,000 Memorial Medical Center Project, Series A, MBIA Insured, 6.75%, 05/01/11 . . . . . . . . . 4,391,080
2,500,000 Refunding, Baptist Medical Center Project, Series A, MBIA Insured, 7.30%, 06/01/19 . . . . 2,797,775
8,480,000 Refunding, Riverside Hospital Project, 7.625%, 10/01/13 . . . . . . . . . . . . . . . . . 9,021,448
930,000 Jacksonville PCR, Anheuser Busch Cos., Inc. Project, 7.375%, 12/01/15 . . . . . . . . . . . . . 999,062
550,000 Jacksonville Port Authority Facilities Revenue, BIG Insured, 7.875%, 11/01/18 . . . . . . . . . 608,971
Jupiter Sales Tax Revenue,
100,000 Series 1988, Pre-Refunded, 7.875%, 09/01/13 . . . . . . . . . . . . . . . . . . . . . . . 111,264
2,000,000 Series 1990, Pre-Refunded, 7.40%, 09/01/20 . . . . . . . . . . . . . . . . . . . . . . . . 2,334,480
5,000,000 Kissimmee Water & Sewer Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/15 . . . . . . . . . . 5,210,600
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Lake County Resources Recovery IDR, Refunding, Recovery Group,
$ 3,825,000 Series A, 5.85%, 10/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,763,456
3,000,000 Series A, 5.95%, 10/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,962,980
1,000,000 Lee County Capital Bonds, Refunding, Series A, MBIA Insured, 7.30%, 10/01/07 . . . . . . . . . 1,139,330
Lee County IDA, Sewer IDR, Bonita Springs Project,
5,000,000 Insured by Asset Guaranty, 7.20%, 11/01/11 . . . . . . . . . . . . . . . . . . . . . . . . 5,462,350
2,000,000 Insured by Asset Guaranty, 7.25%, 11/01/20 . . . . . . . . . . . . . . . . . . . . . . . . 2,178,080
Lee County Solid Waste System Revenue,
1,945,000 Series A, MBIA Insured, 7.00%, 10/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . 2,194,505
1,175,000 Series A, MBIA Insured, 7.00%, 10/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . 1,325,729
1,305,000 Series A, MBIA Insured, 7.00%, 10/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . 1,472,405
6,500,000 Series A, MBIA Insured, 7.00%, 10/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . 7,294,625
2,330,000 Lee County Water & Sewer Revenue, Refunding, AMBAC Insured, 5.375%, 10/01/09 . . . . . . . . . 2,323,802
Leesburg Hospital Revenue, Capital Improvement, Regional Medical Center Project,
1,250,000 Series 1991-A, Pre-Refunded, 7.375%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . 1,485,313
2,115,000 Series 1991-A, Pre-Refunded, 7.50%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . 2,531,084
Leesburg Hospital Revenue, Refunding, Leesburg Regional Medical Center Project,
7,000,000 Series A, 6.125%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,994,820
750,000 Series B, 5.625%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707,385
1,210,000 Series B, 5.70%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,137,279
500,000 Leesburg Utilities Revenue, Refunding, FGIC Insured, 7.60%, 10/01/09 . . . . . . . . . . . . . 564,390
1,210,000 Leon HFA, SFMR, Series A, GNMA Mortgage Backed Securities, 7.30%, 04/01/21 . . . . . . . . . . 1,263,833
Manatee County Community Redevelopment Revenue, Administration Center Project, BMTF,
50,000 Mode A, Sub-Series 2, Pre-Refunded, 8.10%, 04/01/17 . . . . . . . . . . . . . . . . . . . 53,404
80,000 Mode A, Sub-Series 5, Pre-Refunded, 8.30%, 04/01/17 . . . . . . . . . . . . . . . . . . . 85,611
1,545,000 Manatee County GO, Refunding, Series A, Pre-Refunded, 7.375%, 10/01/15 . . . . . . . . . . . . 1,702,837
Manatee County HFA, SFMR,
2,090,000 Series A, GNMA Mortgage Backed Securities, 8.10%, 11/01/20 . . . . . . . . . . . . . . . . 2,211,283
4,320,000 Series A, GNMA Mortgage Backed Securities, 6.85%, 11/01/23 . . . . . . . . . . . . . . . . 4,515,739
Manatee County IDR,
2,100,000 Manatee Hospital & Health System, Inc., 8.25%, 03/01/01 . . . . . . . . . . . . . . . . . 2,290,743
6,700,000 Manatee Hospital & Health System, Inc., 9.25%, 03/01/21 . . . . . . . . . . . . . . . . . 7,798,532
14,500,000 Martin County PCR, Refunding, Florida Power & Light Co. Project, MBIA Insured,
7.30%, 07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,472,725
1,175,000 Martin County Water & Waste Water System Revenue, Martin Downs System, FGIC Insured, 5.625%,
10/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,177,092
3,335,000 Mary Esther Water & Sewer Revenue, 6.875%, 01/01/18 . . . . . . . . . . . . . . . . . . . . . . 3,540,168
Miami Beach RDA, Tax Increment Revenue, City Center Historic Convention Village,
965,000 Series 1994, 5.625%, 12/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 936,976
2,650,000 Series 1994, 5.875%, 12/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,548,532
2,000,000 Miami Beach Special Obligation, Subordinated, FGIC Insured, 7.375%, 12/01/08 . . . . . . . . . 2,290,060
4,565,000 Miami Florida Community Redevelopment Revenue, Southeast Overtown/Park West, 8.50%, 10/01/15 . 4,864,144
90,000 Miami Florida Parking Facilities Revenue, Pre-Refunded, 7.50%, 10/01/09 . . . . . . . . . . . . 94,157
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Miami Health Facilities Authority, Hospital Revenue, Refunding,
$ 250,000 Mercy Hospital Project, 8.125%, 08/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . $ 282,715
7,500,000 Mercy Hospital Project, Series A, Pre-Refunded, 7.35%, 08/01/15 . . . . . . . . . . . . . 8,651,625
1,240,000 Miami Health Facilities Authority Revenue, Refunding, Mercy Hospital Project, AMBAC Insured,
5.375%, 08/15/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,190,784
350,000 North Broward Hospital District Revenue, Pre-Refunded, 8.00%, 01/01/14 . . . . . . . . . . . . 385,018
1,500,000 North Port Utilities Revenue, FGIC Insured, 6.25%, 10/01/22 . . . . . . . . . . . . . . . . . . 1,580,565
7,970,000 North Springs Improvement District, Special Assessment Revenue, 6.75%, 05/01/03 . . . . . . . . 8,068,509
Northern Palm Beach County Water Control District, Unit Development No. 31,
725,000 Project 2, 6.75%, 11/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 732,779
1,470,000 Project 2, 6.625%, 11/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,461,842
1,000,000 Ocala Gas Tax Revenue, MBIA Insured, Pre-Refunded, 7.40%, 12/01/09 . . . . . . . . . . . . . . 1,130,250
Orange County Capital Improvement Revenue,
170,000 Series A, MBIA Insured, 7.70%, 10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 192,581
30,000 Series A, MBIA Insured, Pre-Refunded, 7.70%, 10/01/18 . . . . . . . . . . . . . . . . . . 34,681
180,000 Series B, MBIA Insured, Pre-Refunded, 7.70%, 10/01/18 . . . . . . . . . . . . . . . . . . 208,087
Orange County HFA, Mortgage Revenue,
4,980,000 Refunding, Series A, FGIC Insured, GNMA Collateralized, 7.60%, 01/01/24 . . . . . . . . . 5,256,888
2,355,000 Series A, GNMA Collateralized, 7.75%, 11/01/12 . . . . . . . . . . . . . . . . . . . . . . 2,507,133
410,000 Series A, GNMA Collateralized, 7.375%, 09/01/24 . . . . . . . . . . . . . . . . . . . . . 430,500
925,000 Series D, GNMA Collateralized, 7.80%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . 973,220
Orange County Health Facilities Authority Revenue,
1,000,000 Adventist/Sunbelt, Series A, AMBAC Insured, 6.875%, 11/15/15 . . . . . . . . . . . . . . . 1,110,330
3,000,000 Adventist/Sunbelt, Series A, CGIC Insured, 7.00%, 11/15/14 . . . . . . . . . . . . . . . . 3,364,290
1,000,000 Crossover Refunding, Orlando Regional Health Care, Series A, MBIA Insured,
6.00%, 11/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,026,830
9,870,000 Refunding, Pooled Hospital Loan, Series A, FGIC Insured, 7.875%, 12/01/25 . . . . . . . . 10,877,727
10,820,000 Refunding, Pooled Hospital Loan, Series B, BIG Insured, 7.875%, 12/01/25 . . . . . . . . . 11,924,722
4,250,000 Orange County Research & Development Authority, Capital Improvement Revenue,
7.375%, 10/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,386,893
2,000,000 Orange County Sales Tax Revenue, Series B, FGIC Insured, 5.375%, 01/01/24 . . . . . . . . . . . 1,901,640
Orange County Tourist Development Tax Revenue,
3,000,000 AMBAC Insured, 7.25%, 10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,391,860
1,900,000 AMBAC Insured, 6.00%, 10/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,948,526
Orlando Community RDA, Tax Increment Revenue,
2,155,000 Series A, 6.50%, 10/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,282,296
2,585,000 Series A, 6.75%, 10/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,774,998
Orlando & Orange County Expressway Authority Revenue,
2,000,000 Junior Lien, Pre-Refunded, 7.375%, 07/01/06 . . . . . . . . . . . . . . . . . . . . . . . 2,191,280
2,000,000 Refunding, Senior Lien, AMBAC Insured, 5.25%, 07/01/14 . . . . . . . . . . . . . . . . . . 1,915,520
5,000,000 Refunding, Senior Lien, FGIC Insured, 5.50%, 07/01/1 . . . . . . . . . . . . . . . . . . 4,862,400
265,000 Senior Lien, AMBAC Insured, ETM 07/01/11, 7.625%, 07/01/18 . . . . . . . . . . . . . . . . 303,764
23,870,000 Senior Lien, Pre-Refunded, 7.25%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . 26,087,284
5,200,000 Senior Lien, Pre-Refunded, 7.00%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . 5,559,320
5,000,000 Senior Lien, Pre-Refunded, 7.50%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . 5,491,900
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
$ 5,000,000 Orlando Utilities Commission Water & Electric Revenue, Refunding, Sub-Series D, MBIA Insured,
5.50%, 10/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,863,750
3,500,000 Osceola County Gas Tax Revenue, Refunding & Improvement, FGIC Insured, 6.00%, 04/01/13 . . . . 3,652,320
Osceola County IDAR, Community Provider Pooled Loan Program,
4,634,000 Series A, CGIC Insured, 7.75%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . 5,031,597
795,000 Series C, CGIC Insured, 7.60%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . 871,463
200,000 Osceola County Transportation Revenue, Series A, FGIC Insured, Pre-Refunded, 7.70%, 04/01/13 . 228,076
Pace Property Finance Authority, Utilities System Revenue, Inc.,
1,000,000 Refunding & Improvement, 6.125%, 09/01/07 . . . . . . . . . . . . . . . . . . . . . . . . 1,037,790
2,545,000 Refunding & Improvement, 6.25%, 09/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 2,627,713
2,000,000 Refunding & Improvement, 6.125%, 09/01/17 . . . . . . . . . . . . . . . . . . . . . . . . 2,041,700
6,950,000 Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured, Pre-Refunded, 7.25%,
06/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,042,262
Palm Beach County HFA, SFM Purchase Revenue,
7,485,000 Series A, GNMA Collateralized, 7.70%, 03/01/22 . . . . . . . . . . . . . . . . . . . . . . 7,880,807
5,270,000 Series B, GNMA Collateralized, 7.60%, 03/01/23 . . . . . . . . . . . . . . . . . . . . . . 5,610,284
1,795,000 Palm Beach County IDR, Refunding, Regents Park, Boca Raton, 5.70%, 02/01/24 . . . . . . . . . . 1,725,264
Palm Beach County Solid Waste Authority Revenue,
65,000 GO, 8.75%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,011
535,000 Refunding, BIG Insured, 7.40%, 12/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . 604,197
1,965,000 Refunding, BIG Insured, Pre-Refunded, 7.40%, 12/01/05 . . . . . . . . . . . . . . . . . . 2,259,888
Palm Beach County Solid Waste, IDR, Okeelanta Power Light Project,
3,600,000 Series A, 6.50%, 02/15/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,614,616
11,700,000 Series A, 6.70%, 02/15/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,814,075
14,500,000 Series A, 6.85%, 02/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,640,215
1,050,000 Pensacola-Westwood Homes Development Corp., Revenue, Refunding, Morgage Loan, FHA Insured,
6.40%, 07/15/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,099,760
Pinellas County HFA, SFMR,
1,555,000 Multi County Program, Series B, GNMA Mortgage Backed Securities, 6.875%, 08/01/10 . . . . 1,635,394
6,115,000 Multi County Program, Series B, GNMA Mortgage Backed Securities, 7.375%, 02/01/24 . . . . 5,996,736
2,150,000 Series A, GNMA Mortgage Backed Securities, 7.30%, 08/01/22 . . . . . . . . . . . . . . . . 2,266,573
1,600,000 Series A, GNMA Mortgage Backed Securities, 7.75%, 08/01/23 . . . . . . . . . . . . . . . . 1,688,944
Pinellas County Health Facilities Authority Revenue,
2,480,000 Bayfront Obligation Group, Series A, MBIA Insured, 5.50%, 07/01/13 . . . . . . . . . . . . 2,439,229
2,425,000 Morton Plant Health System Project, MBIA Insured, 5.70%, 11/15/10 . . . . . . . . . . . . 2,447,431
12,200,000 Pinellas County PCR, Refunding Florida Power Corp., 7.20%, 12/01/14 . . . . . . . . . . . . . . 13,688,522
Plantation Health Facilities Authority Revenue,
1,500,000 Covenant Retirement Community, Inc., 7.625%, 12/01/12 . . . . . . . . . . . . . . . . . . 1,553,190
3,000,000 Covenant Retirement Community, Inc., 7.75%, 12/01/22 . . . . . . . . . . . . . . . . . . . 3,120,690
2,035,000 Polk County HFA, Refunding, Series A, GNMA Mortgage Backed Securities, 7.15%, 09/01/23 . . . . 2,156,245
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Port Everglades Authority, Port Improvement Revenue,
$ 18,050,000 Refunding, Series A, 7.50%, 09/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,024,851
575,000 Series 1986, ETM 11/01/02, 7.50%, 11/01/06 . . . . . . . . . . . . . . . . . . . . . . . . 701,218
65,000 Royal Palm Beach, Utility System Revenue, Series A, AMBAC Insured, Pre-Refunded, 8.875%,
10/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,543
100,000 St. Augustine Water & Sewer Utility Revenue, Refunding, 8.125%, 10/01/12 . . . . . . . . . . . 107,888
2,995,000 St. Johns County Water & Sewer Revenue, Series B-1, FGIC Insured, 7.00%, 06/01/11 . . . . . . . 3,279,495
St. Lucie County School Board, COP, Refunding,
9,675,000 FSA Insured, 5.50%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,626,722
9,900,000 FSA Insured, 5.375%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,536,472
7,500,000 St. Lucie County Solid Waste Disposal Revenue, Florida Power & Light Company Project, 7.15%,
02/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,286,900
St. Petersburg Health Facilities Authority Revenue,
8,630,000 Allegany Health System, St. Mary, Series B, Pre-Refunded, 7.75%, 12/01/15 . . . . . . . . 9,622,277
10,500,000 Allegany Health System, Series A, MBIA Insured, 7.00%, 12/01/15 . . . . . . . . . . . . . 11,795,070
2,500,000 Bon Secours-Maria Manor Project, Series B, Pre-Refunded, 7.875%, 08/15/18 . . . . . . . . 2,898,950
3,280,000 Refunding, Allegany Health System, St. Anthony, Series C, 7.75%, 01/01/14 . . . . . . . . 3,689,016
550,000 St. Petersburg Residential Facilities Revenue, Princess Martha Project, GNMA Mortgage Backed
Securities, 7.625%, 08/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585,349
Santa Rosa County Health Facilities Authority Revenue, Refunding,
40,000 Gulf Breeze Hospital, Inc., 8.60%, 10/01/02 . . . . . . . . . . . . . . . . . . . . . . . 44,692
520,000 Gulf Breeze Hospital, Inc., Pre-Refunded, 8.70%, 10/01/14 . . . . . . . . . . . . . . . . 617,708
12,000,000 Gulf Breeze Hospital, Inc., Series A, 6.20%, 10/01/14 . . . . . . . . . . . . . . . . . . 12,087,960
100,000 Sarasota County Solid Waste Systems Revenue, Pre-Refunded, 8.40%, 12/01/13 . . . . . . . . . . 107,046
2,000,000 Sarasota County Utility System Revenue, Capital Appreciation, AMBAC Insured, Pre-Refunded,
7.50%, 06/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,245,340
150,000 Sarasota Water & Sewer Utility Revenue, Refunding, MBIA Insured, Pre-Refunded, 7.625%, 166,037
10/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,155,000 Sebastian Utilities System Revenue, MBIA Insured, 5.45%, 10/01/23 . . . . . . . . . . . . . . . 1,112,300
7,500,000 Seminole County Solid Waste Disposal System Revenue, MBIA Insured, Pre-Refunded, 7.25%,
10/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,749,650
3,000,000 Seminole County Water & Sewer Revenue, Refunding & Improvement, MBIA Insured, 7.50%, 10/01/06 . 3,267,000
1,000,000 South Broward Hospital District Revenue, Refunding, AMBAC Insured, 5.50%, 05/01/22 . . . . . . 966,600
Sunrise Special Tax District No. 1,
3,485,000 Refunding, 6.375%, 11/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,724,106
8,390,000 Refunding, 6.375%, 11/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,836,935
7,190,000 Tallahassee Consolidated Utility System Revenue, Series B, 6.90%, 10/01/14 . . . . . . . . . . 7,907,634
1,000,000 Tallahassee Municipal Electric Revenue, Series B, 6.20%, 10/01/12 . . . . . . . . . . . . . . . 1,053,020
Tampa Capital Improvement Program Revenue,
6,300,000 Series A, 8.25%, 10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,940,206
31,670,000 Series B, 8.375%, 10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,845,551
2,000,000 Tampa Guaranteed Entitlement Revenue, Refunding, AMBAC Insured, 7.15%, 10/01/18 . . . . . . . . 2,265,720
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Tampa Revenue, Allegany Health System,
$ 8,000,000 St. Joseph, FGIC Insured, Pre-Refunded, 7.375%, 12/01/23 . . . . . . . . . . . . . . . . . $ 9,125,520
1,180,000 St. Joseph, MBIA Insured, 6.75%, 12/01/17 . . . . . . . . . . . . . . . . . . . . . . . . 1,301,434
1,780,000 St. Joseph, Pre-Refunded, 7.125%, 12/01/05 . . . . . . . . . . . . . . . . . . . . . . . . 2,046,110
Tampa Water & Sewer Revenue,
5,830,000 Refunding, Series A, FGIC Insured, 5.00%, 10/01/14 . . . . . . . . . . . . . . . . . . . . 5,487,079
340,000 Sub-Lien, Series A, AMBAC Insured, 7.75%, 10/01/14 . . . . . . . . . . . . . . . . . . . . 385,101
3,000,000 Sub-Lien, Series A, AMBAC Insured, 7.25%, 10/01/16 . . . . . . . . . . . . . . . . . . . . 3,367,410
1,655,000 Temple Terrace Water & Sewer Revenue, FGIC Insured, 6.30%, 10/01/17 . . . . . . . . . . . . . . 1,737,485
University Community Hospital, Inc., Florida Hospital Revenue, Refunding,
5,000,000 FSA Insured, 7.375%, 09/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,741,250
5,000,000 FSA Insured, 7.50%, 09/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,721,500
1,425,000 Venice Capital Improvement Revenue, MBIA Insured, Pre-Refunded, 7.80%, 11/01/13 . . . . . . . . 1,587,336
Viera East Community Development District,
11,295,000 Refunding, Special Assessment, Series A, 6.00%, 05/01/1 . . . . . . . . . . . . . . . . . 11,431,218
2,505,000 Special Assessment, 7.50%, 05/01/03 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,641,847
4,360,000 Special Assessment, 8.50%, 05/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,905,654
5,225,000 Special Assessment, 7.50%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,415,660
10,640,000 Special Assessment, 8.625%, 05/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,061,610
7,490,000 Special Assessment, Series B, 6.75%, 05/01/14 . . . . . . . . . . . . . . . . . . . . . . 7,572,090
4,665,000 Viera East Community Development District, Water & Sewer Revenue, 7.875%, 05/01/03 . . . . . . 4,875,858
500,000 Volusia County Educational Facility Authority Revenue, Embry-Riddle Aeronautical University,
Connie Lee Insured, 6.625%, 10/15/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533,110
1,305,000 West Palm Beach Community Redevelopment, RDAR, Series A, Pre-Refunded, 6.50%, 03/01/08 . . . . 1,464,223
Westgate/Belvedere Homes Community, RDAR,
410,000 Series 1992, 6.50%, 11/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432,115
1,410,000 Series 1992, 6.60%, 11/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,490,638
-----------------
TOTAL BONDS (COST $1,171,968,321) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,266,687,874
-----------------
(c)ZERO COUPON BONDS 4.4%
3,810,000 Boynton Beach Water & Sewer Revenue, Capital Appreciation, AMBAC Insured, Pre-Refunded,
(original accretion rate 7.85%), 0.00%, 11/01/17 . . . . . . . . . . . . . . . . . . . . . . 883,120
3,670,000 Broward County Water & Sewer Utility Revenue, Refunding, Series A, AMBAC Insured,
(original accretion rate 7.50%), 0.00%, 10/01/08 . . . . . . . . . . . . . . . . . . . . . . 1,641,591
17,020,000 Dade County Guaranteed Entitlement Revenue, Capital Appreciation, AMBAC Insured,
(original accretion rate 7.70%), 0.00%, 08/01/08 . . . . . . . . . . . . . . . . . . . . . . 3,579,987
Florida State Board of Education, Capital Outlay, Refunding,
2,750,000 Series A, Pre-Refunded, (original accretion rate 7.60%), 0.00%, 06/01/12 . . . . . . . . 894,465
13,000,000 Series A, Pre-Refunded, (original accretion rate 7.60%), 0.00%, 06/01/13 . . . . . . . . 3,924,440
17,400,000 Series A, Pre-Refunded, (original accretion rate 7.60%), 0.00%, 06/01/14 . . . . . . . . 4,875,131
9,000,000 Series A, Pre-Refunded, (original accretion rate 7.60%), 0.00%, 06/01/16 . . . . . . . . 2,172,150
1,625,000 Hillsborough County Utilities Revenue, Refunding, Series A, (original accretion rate 6.97%),
0.00%, 08/01/98 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,312,123
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
(c)ZERO COUPON BONDS (CONT.)
$ 5,770,000 Lakeland Electric & Water Revenue, Capital Appreciation, (original accretion rate 7.00%),
0.00%, 10/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,780,276
Port Everglades Authority, Port Improvement Revenue,
10,575,000 Refunding, Series A, (original accretion rate 7.40%), 0.00%, 09/01/02 . . . . . . . . . . 6,624,497
9,075,000 Refunding, Series A, (original accretion rate 7.40%), 0.00%, 09/01/03 . . . . . . . . . . 5,330,474
3,550,000 Refunding, Series A, (original accretion rate 7.40%), 0.00%, 09/01/04 . . . . . . . . . . 1,951,434
50,000,000 Refunding, Series A, (original accretion rate 7.45%), 0.00%, 09/01/10 . . . . . . . . . 18,334,000
Sarasota County Utility System Revenue, Capital Appreciation,
1,520,000 Series A, AMBAC Insured, Pre-Refunded, (original accretion rate 7.35%), 0.00%, 06/01/11 . 536,773
3,075,000 Series A, AMBAC Insured, Pre-Refunded, (original accretion rate 7.35%), 0.00%, 06/01/13 . 939,905
3,125,000 Series A, AMBAC Insured, Pre-Refunded, (original accretion rate 7.40%), 0.00%, 06/01/14 . 882,718
3,050,000 Series A, AMBAC Insured, Pre-Refunded, (original accretion rate 7.40%), 0.00%, 06/01/15 . 801,144
2,725,000 Series A, AMBAC Insured, Pre-Refunded, (original accretion rate 7.45%), 0.00%, 06/01/16 . 660,486
3,125,000 Series A, AMBAC Insured, Pre-Refunded, (original accretion rate 7.45%), 0.00%, 06/01/17 . 704,000
2,945,000 Series A, AMBAC Insured, Pre-Refunded, (original accretion rate 7.45%), 0.00%, 06/01/19 . 573,185
Sarasota Special Obligation Revenue, Refunding,
1,365,000 AMBAC Insured, (original accretion rate 6.69%), 0.00%, 11/01/09 . . . . . . . . . . . . . 572,481
1,780,000 AMBAC Insured, (original accretion rate 6.74%), 0.00%, 11/01/12 . . . . . . . . . . . . . 620,633
2,180,000 AMBAC Insured, (original accretion rate 6.74%), 0.00%, 11/01/15 . . . . . . . . . . . . . 634,881
-----------------
TOTAL ZERO COUPON BONDS (COST $52,427,847) . . . . . . . . . . . . . . . . . . . . . . . 60,229,894
-----------------
TOTAL LONG TERM INVESTMENTS (COST $1,224,396,168) . . . . . . . . . . . . . . . . . . . . 1,326,917,768
-----------------
(g)SHORT TERM INVESTMENTS .8%
200,000 Dade County Health Facilities Authority, Hospital Revenue, Miami Children's Hospital Project,
Daily VRDN and Put, 2.50%, 09/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
300,000 Florida HFA, MF, Sun Point Cove Apartments, Weekly VRDN and Put, 2.40%, 12/01/07 . . . . . . . 300,000
8,100,000 Gateway Services District Revenue, Transportation Road Way Service Charges, 5.50%, 11/30/94 . 8,112,150
1,600,000 Palm Beach County Water & Sewer Revenue, Weekly VRDN and Put, 2.30%, 10/01/11 . . . . . . . . 1,600,000
1,000,000 Pinellas County Health Facilities Authority Revenue, Refunding, Pooled Hospital Loan Program,
Daily VRDN and Put, 2.30%, 12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $11,200,000) . . . . . . . . . . . . . . . . . . . . . 11,212,150
-----------------
TOTAL INVESTMENTS (COST $1,235,596,168) 98.3% . . . . . . . . . . . . . . . . . . . . 1,338,129,918
OTHER ASSETS AND LIABILITIES, NET 1.7% . . . . . . . . . . . . . . . . . . . . . . . . 23,452,777
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,361,582,695
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
VALUE
FRANKLIN FLORIDA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
At February 28, 1994, the net unrealized appreciation based on the cost of investments for
income tax purposes of $1,235,596,168 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an excess of
value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 104,651,850
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,118,100)
----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102,533,750
================
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
BMTF - Bi-Modal Multi-Term Format
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority/Agency Revenue
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
PCR - Pollution Control Revenues
RDA - Redevelopment Agency
RDAR - Redevelopment Agency Revenue
SFM - Single-Family Mortgage
SFMR - Single-Family Mortgage Revenue
(c) Zero coupon bonds. The current effective yield may vary. The original
accretion rate by security, as reported, will remain constant.
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN GEORGIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 96.4%
$ 500,000 Albany-Dougherty County Hospital Authority Revenue, Anticipation Certificates, Series B, AMBAC
Insured, Pre-Refunded, 7.50%, 09/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 587,930
50,000 Albany-Dougherty Inner City Authority, Improvement Revenue, Municipal Auditorium Project,
Series 1988-B, 7.875%, 01/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,688
50,000 Athens Housing Authority, MFHR, Oakwood Forest Apartments Project, 8.125%, 12/01/05 . . . . . . 51,588
1,400,000 Atlanta Board of Education COP, FGIC Insured, Pre-Refunded, 7.125%, 06/01/12 . . . . . . . . . 1,610,630
Atlanta COP, Pretrial Detention Center,
1,000,000 MBIA Insured, 6.25%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,051,800
1,750,000 MBIA Insured, 6.25%, 12/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,826,283
420,000 Atlanta Downtown Development Authority, IDR, Underground Atlanta Project, Pre-Refunded, 7.75%,
10/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466,171
2,000,000 Atlanta Downtown Development Authority Revenue, Refunding, Underground Atlanta Project, 6.25%,
10/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,115,600
4,120,000 Atlanta School Improvement, 5.60%, 12/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . 4,114,108
3,500,000 Atlanta Special Purpose Facilities Revenue, Delta Air Lines, Inc. Project, Series 1989-B,
7.90%, 12/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,760,224
105,000 Atlanta Urban Residential Finance Authority, SFMR, GNMA Mortgage Backed Securities, 8.25%,
10/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,725
1,000,000 Barnesville Water & Sewer Revenue, Refunding, 6.85%, 09/01/17 . . . . . . . . . . . . . . . . . 1,060,220
1,300,000 Bartow County School District, Series 1993, 5.70%, 05/01/14 . . . . . . . . . . . . . . . . . . 1,298,336
100,000 Bartow County Water & Sewage Revenue, Refunding, AMBAC Insured, Pre-Refunded, 8.00%, 09/01/15 . 116,593
Burke County Development Authority, PCR,
160,000 Georgia Power Co., Plant Vogtle Project, 8.00%, 10/01/16 . . . . . . . . . . . . . . . . . 176,566
50,000 Oglethorpe Power Corp., Plant Vogtle Project, 7.50%, 01/01/17 . . . . . . . . . . . . . . 51,474
1,700,000 Chatham County Hospital Authority Revenue, Memorial Medical Center, Inc., Series A, MBIA
Insured, 7.00%, 01/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,874,811
90,000 Cherokee County Hospital Authority Revenue Certificates, MBIA Insured, 8.00%, 12/01/13 . . . . 102,377
2,200,000 Cherokee County School System, AMBAC Insured, 5.375%, 02/01/14 . . . . . . . . . . . . . . . . 2,151,226
1,595,000 Cherokee County Water & Sewage Authority Revenue, Refunding, MBIA Insured, 6.90%,
08/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,824,919
200,000 Clark County Hospital Authority Revenue Certificates, Series A, MBIA Insured, 7.10%, 01/01/08 . 217,734
1,400,000 Clayton County Development Authority, Special Facility Revenue, Refunding, Delta Air Lines,
Inc. Project, 7.625%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,491,574
3,030,000 Clayton County Hospital Authority MFMR, Refunding, Garrison Plantation Development, Series A,
5.90%, 07/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,952,917
2,400,000 Clayton County Hospital Authority Revenue, Anticipation Certificates, Southern Regional
Medical Center, MBIA Insured, 7.00%, 08/01/13 . . . . . . . . . . . . . . . . . . . . . . . . 2,659,224
100,000 Cobb County Kennestone Hospital Authority Revenue, Series A, MBIA Insured, ETM 02/01/01,
7.75%, 02/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,149
1,000,000 Cobb County Residential Care Facilities Authority Revenue, Refunding, 7.50%, 08/01/15 . . . . . 1,124,240
580,000 Cobb-Marietta Coliseum & Exhibit Hall Authority Revenue, MBIA Insured, Pre-Refunded, 6.75%,
10/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661,113
1,000,000 Colquitt County Hospital Authority Revenue Certificates, Colquitt Regional Medical Center,
MBIA Insured, 6.70%, 03/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,091,690
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN GEORGIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 1,300,000 Columbia County Water & Sewer Revenue, Series A, AMBAC Insured, 6.90%, 06/01/11 . . . . . . . . $ 1,431,378
100,000 Columbus Airport Commission, Airport Improvement Revenue, 8.25%, 01/01/13 . . . . . . . . . . . 105,216
45,000 Columbus Hospital Authority Revenue, Anticipation Certificates, St. Francis Hospital Project,
Series 1987, BIG Insured, Pre-Refunded, 8.25%, 01/01/07 . . . . . . . . . . . . . . . . . . . 50,719
Columbus Water & Sewer Revenue,
2,000,000 Refunding, Series 1993, 5.70%, 05/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . 1,997,120
100,000 Series 1986, Pre-Refunded, 7.00%, 05/01/06 . . . . . . . . . . . . . . . . . . . . . . . . 107,530
2,500,000 Series 1991, Pre-Refunded, 6.75%, 05/01/14 . . . . . . . . . . . . . . . . . . . . . . . . 2,860,975
3,230,000 Series 1991, Pre-Refunded, 6.875%, 05/01/20 . . . . . . . . . . . . . . . . . . . . . . . 3,733,363
100,000 Commerce, City of, Combined Public Utility Revenue, Refunding & Improvement, AMBAC Insured,
Pre-Refunded, 7.50%, 12/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,829
750,000 Coweta Association, County Commissioners of Georgia Leasing Program, MBIA Insured,
Pre-Refunded, 7.00%, 12/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 848,685
Dade County Water & Sewer Authority Revenue, Refunding,
600,000 FGIC Insured, 5.60%, 07/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590,058
300,000 FGIC Insured, Pre-Refunded, 7.60%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . 348,249
2,000,000 Dalton Building Authority Revenue, Northwest Trade & Conventional, Pre-Refunded, 7.10%, 2,329,340
07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
400,000 Dalton-Whitfield County Hospital Authority Revenue, Anticipation Certificates, MBIA Insured,
Pre-Refunded, 7.00%, 07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459,264
100,000 Dekalb County Hospital Authority Revenue, Anticipation Certificates, Dekalb Medical Center,
Pre-Refunded, 7.00%, 08/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,433
440,000 Dekalb County Housing Authority, SFMR, GNMA Collateralized, 7.70%, 02/01/24 . . . . . . . . . . 460,381
600,000 Dekalb County Water & Sewerage Revenue, Series 1990, Pre-Refunded, 7.00%, 10/01/10 . . . . . . 693,396
1,315,000 Dekalb Private Hospital Authority Revenue, Anticipation Certificates, Emory University
Project, 7.00%, 04/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,445,435
500,000 Douglas County School System GO, Pre-Refunded, 7.15%, 01/01/10 . . . . . . . . . . . . . . . . 560,005
1,000,000 Douglasville, Douglas County Water & Sewer Authority Revenue, AMBAC Insured, 5.625%,
06/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,009,190
Downtown Savannah Authority Revenue,
500,000 Board of Public Education Project, MBIA Insured, Pre-Refunded, 7.20%, 08/01/10 . . . . . . 565,825
1,000,000 Chatham County Detention, Series A, Pre-Refunded, 6.80%, 01/01/11 . . . . . . . . . . . . 1,114,660
400,000 Downtown Smyrna Development Authority Revenue, Pre-Refunded, 7.125%, 02/01/16 . . . . . . . . . 452,120
1,215,000 East Point Building Authority Revenue, Public Facilities & Equipment Project, AMBAC Insured,
6.70%, 02/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,320,984
95,000 Ellijay-Gilmer County Water & Sewer Authority Revenue, 7.875%, 01/01/14 . . . . . . . . . . . . 104,689
990,000 Fitzgerald Housing Authority Mortgage Revenue, Refunding, Bridge Creek, Series A, MBIA
Insured, 6.50%, 07/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,026,967
Fulco Hospital Authority Revenue, Anticipation Certificates,
100,000 Georgia Baptist Medical Center Project, Pre-Refunded, 7.75%, 10/01/08 . . . . . . . . . . 112,160
100,000 Shepherd Spinal Center Project, Series 1988-A, 7.75%, 09/01/08 . . . . . . . . . . . . . . 109,016
Fulton County Building Authority Revenue,
400,000 County Government & Health Facilities Project, Pre-Refunded, 7.50%, 01/01/08 . . . . . . . 433,552
750,000 Human Resources & Government Facilities Program, 7.10%, 01/01/15 . . . . . . . . . . . . . 830,123
65,000 Judicial Center Facilities Project, Pre-Refunded, 8.20%, 01/01/15 . . . . . . . . . . . . 73,267
1,000,000 Refunding, Judicial Center Facilities Project, 6.50%, 01/01/15 . . . . . . . . . . . . . . 1,065,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN GEORGIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 60,000 Fulton County School District, Unlimited Tax, GO, Pre-Refunded, 7.625%, 05/01/17 . . . . . . . $ 67,961
115,000 Fulton County Water & Sewerage Revenue, Pre-Refunded, 8.25%, 01/01/14 . . . . . . . . . . . . . 133,218
Fulton Dekalb Hospital Authority Revenue,
1,000,000 Certificates, Grady Memorial Hospital Project, AMBAC Insured, Pre-Refunded, 6.90%,
01/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,141,530
1,000,000 Certificates, Refunding, MBIA Insured, 5.50%, 01/01/20 . . . . . . . . . . . . . . . . . . 966,490
1,000,000 Grady Memorial Hospital Project, AMBAC Insured, Pre-Refunded, 6.90%, 01/01/20 . . . . . . 1,141,530
1,480,000 Grady Memorial Hospital Project, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 01/01/20 . 1,704,856
925,000 Gainesville Hospital Authority Revenue, Anticipation Certificates, Refunding, Northeast
Georgia Health Care Project, Series B, MBIA Insured, 7.20%, 10/01/20 . . . . . . . . . . . . . 1,015,909
Georgia Municipal Electric Authority Power Revenue,
800,000 Refunding, Series R, Pre-Refunded, 7.40%, 01/01/25 . . . . . . . . . . . . . . . . . . . . 914,176
635,000 Series A, Pre-Refunded, 7.875%, 01/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 692,404
400,000 Series A, Pre-Refunded, 7.40%, 01/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . 457,088
100,000 Series S, Pre-Refunded, 7.25%, 01/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . 113,862
Georgia Municipal Electric Authority, Special Obligation, Refunding,
140,000 Second Crossover Series, 8.125%, 01/01/17 . . . . . . . . . . . . . . . . . . . . . . . . 159,433
1,000,000 Third Crossover Series, 6.60%, 01/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 1,113,580
Georgia State Housing & Finance Authority Revenue, Homeownership Opportunity Program,
2,895,000 Series A-1, 6.75%, 06/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,030,689
950,000 Series C, 6.60%, 12/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984,618
1,280,000 Georgia State Housing & Finance Authority Revenue, SFMR, Refunding, Series B, 5.65%,
12/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,259,763
Georgia State Residential Finance Authority, Home Ownership Mortgage,
1,415,000 Series B, FHA/VA, 7.00%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,483,019
295,000 Series B, Sub-Series B-1, Convertible Loans, 7.50%, 06/01/17 . . . . . . . . . . . . . . . 309,974
395,000 Series E, Sub-Series E-1, FHA, 7.50%, 06/01/17 . . . . . . . . . . . . . . . . . . . . . . 415,050
Georgia State Residential Finance Authority, SF Mortgage,
100,000 Series A, FHA Insured or VA Guaranteed Mortgage Loan, 8.375%, 12/01/19 . . . . . . . . . . 104,759
75,000 Series A-2, FHA Insured or VA Guaranteed Mortgage Loan, 8.40%, 12/01/18 . . . . . . . . . 79,920
1,000,000 Georgia State Tollway Authority Revenue, Guaranteed, Georgia 400 Project, 6.80%, 07/01/10 . . . 1,102,890
900,000 Gwinette County Hospital Authority Revenue, Anticipation Certificates, AMBAC Insured,
Pre-Refunded, 7.125%, 09/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,025,406
1,000,000 La Grange Water & Sewerage Revenue, Pre-Refunded, 7.375%, 01/01/12 . . . . . . . . . . . . . . 1,155,470
850,000 Liberty County IDR, Refunding, Leconte Property, Inc. Project, 7.875%, 12/01/14 . . . . . . . . 962,702
1,000,000 Macon-Bibb County Urban Development Authority Revenue, MFHR, Collateralized, Series A, FGIC
Insured, 7.50%, 01/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,045,530
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue,
295,000 Series I, Pre-Refunded, 7.00%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . 314,382
630,000 Series K, 7.25%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697,133
250,000 Series L, Pre-Refunded, 7.20%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . 285,525
1,000,000 Series O, 6.55%, 07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093,010
Monroe County Development Authority, PCR,
250,000 Georgia Power Co., Plant Scherer Project, 8.375%, 07/01/17 . . . . . . . . . . . . . . . . 279,098
1,500,000 Refunding, Oglethorpe Power Co., Scherer Project, Series A, 6.80%, 01/01/12 . . . . . . . 1,708,440
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN GEORGIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG TERM INVESTMENTS (CONT.)
$ 475,000 Oconee County School District, AMBAC Insured, Pre-Refunded, 6.80%, 01/01/09 . . . . . . . . . . $ 531,658
100,000 Polk County Water Authority, Water & Sewerage Revenue, Refunding, MBIA Insured, 7.00%,
12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,573
2,965,000 Private Colleges & Universities Authority Revenue, Agnes Scott College Project, 5.625%,
06/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,924,913
Private Colleges & Universities Facilities Authority Revenue,
1,000,000 Emory University Project, 6.875%, 05/01/15 . . . . . . . . . . . . . . . . . . . . . . . . 1,052,790
50,000 Spelman College Project, MBIA Insured, 7.75%, 06/01/13 . . . . . . . . . . . . . . . . . . 56,690
250,000 Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue, Series 1988-A, 7.875%,
07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,173
Puerto Rico Commonwealth Highway Authority Revenue,
230,000 Refunding, Series R, 7.15%, 07/01/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,427
100,000 Series P, Pre-Refunded, 8.125%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 117,228
Puerto Rico Commonwealth Housing Bank & Finance Agency, SF,
50,000 Appropriation, Subsidy Prepayment, Pre-Refunded, 7.125%, 12/01/01 . . . . . . . . . . . . 52,987
45,000 Appropriation, Subsidy Prepayment, Pre-Refunded, 7.25%, 12/01/06 . . . . . . . . . . . . . 47,729
Puerto Rico Commonwealth Infrastructure Financing Authority,
175,000 Special Tax Revenue, Series 1988-A, 7.90%, 07/01/07 . . . . . . . . . . . . . . . . . . . 196,931
50,000 Special Tax Revenue, Series 1988-A, 7.50%, 07/01/09 . . . . . . . . . . . . . . . . . . . 55,644
80,000 Puerto Rico Commonwealth Public Improvement GO, Series A, Pre-Refunded, 7.75%, 07/01/13 . . . . 92,608
Puerto Rico Electric Power Authority Revenue, Refunding,
150,000 Series 1988-M, 8.00%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,850
180,000 Series 1989-N, 7.125%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,510
400,000 Series 1989-O, 7.125%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438,912
200,000 Puerto Rico Industrial, Medical & Environmental Pollution Control Facilities, Financing
Authority Revenue, Baxter Travenol Labs., Series A, 8.00%, 09/01/12 . . . . . . . . . . . . . 231,448
110,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08 . . . . . . . . . . . . . 126,296
Puerto Rico PBA, Guaranteed, Public Education & Health Facilities,
80,000 Series H, Pre-Refunded, 7.875%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . 91,204
285,000 Series J, Pre-Refunded, 7.25%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . 323,144
100,000 Series J, Pre-Refunded, 7.00%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . 112,406
1,500,000 Putnam County Development Authority PCR, Georgia Power Co. Plant, FGIC Insured, 7.25%, 1,613,610
07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roswell Housing Authority, MFHR, Refunding,
1,455,000 Wood Creek Apartments Project, 5.60%, 03/01/14 . . . . . . . . . . . . . . . . . . . . . . 1,419,134
1,750,000 (e)Wood Creek Apartments Project, 5.70%, 03/01/24 . . . . . . . . . . . . . . . . . . . . . . 1,698,638
200,000 Royston Downtown Development Authority Revenue, Cobb Memorial Hospital Project, 230,751
Pre-Refunded, 8.20%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,000,000 Savannah EDA, IDR, Refunding, Hershey Foods Corp. Project, 6.60%, 06/01/12 . . . . . . . . . . 1,084,730
3,000,000 Savannah Hospital Authority Revenue, Refunding, St. Joseph's Hospital Project, 6.20%, 07/01/23 3,080,700
4,600,000 Savannah Port Authority PCR, Refunding, Union Carbide Plastic Co., Inc., 7.55%, 08/01/04 . . . 4,869,238
470,000 South Georgia Hospital Authority Revenue, FGIC Insured, 7.80%, 05/01/16 . . . . . . . . . . . . 482,314
St. Mary's Housing Authority MFMR,
700,000 Pine Apartments, Series C, FGIC Insured, 7.375%, 04/01/22 . . . . . . . . . . . . . . . . 731,577
500,000 Refunding, Cumberland Oaks Apartments, Series A, FGIC Insured, 7.375%, 09/01/22 . . . . . 521,915
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN GEORGIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 200,000 Sugar Hill Combined Public Utility Revenue, MBIA Insured, Pre-Refunded, 7.35%, 01/01/14 . . . . $ 220,958
1,000,000 Sugar Hill Public Utility Revenue, Refunding, FSA Insured, 5.90%, 01/01/14 . . . . . . . . . . 1,026,440
250,000 University of Puerto Rico Revenues, Refunding, Series J, 7.75%, 06/01/07 . . . . . . . . . . . 273,544
1,500,000 Walker Dade & Catoosa County's Hospital Authority Revenue, Anticipation Certificates, Series A,
FGIC Insured, 7.00%, 10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,667,430
1,780,000 White County IDAR, Refunding, Clark Schwebel Fiber Galss, 6.85%, 06/01/10 . . . . . . . . . . . 1,901,254
-----------------
TOTAL LONG TERM INVESTMENTS (COST $108,187,953) . . . . . . . . . . . . . . . . . . . 116,449,108
-----------------
(g)SHORT TERM INVESTMENTS .3%
100,000 Fulton County Housing Authority, MFHR, Spring Creek Phase II-85, Series G, Weekly VRDN and Put,
2.55%, 12/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
300,000 Hapeville Development Authority, IDR, Hapeville Hotel, Ltd., Daily VRDN and Put, 2.25%,
11/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $400,000) . . . . . . . . . . . . . . . . . . . . . . . 400,000
-----------------
TOTAL INVESTMENTS (COST $108,587,953) 96.7% . . . . . . . . . . . . . . . . . . . . . . 116,849,108
OTHER ASSETS AND LIABILITIES, NET 3.3% . . . . . . . . . . . . . . . . . . . . . . . . 4,033,281
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,882,389
=================
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $108,590,334 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,529,447
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (270,673)
-----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,258,774
=================
</TABLE>
<TABLE>
<S> <C>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp. IDAR - Industrial Development Authority Revenue
BIG - Bond Investors Guaranty Insurance Co. IDR - Industrial Development Revenue
COP - Certificate of Participation MBIA - Municipal Bond Investors Assurance Corp.
EDA - Economic Development Authority MFHR - Multi-Family Housing Revenue
ETM - Escrow to Maturity MFMR - Multi-Family Mortgage Revenue
FGIC - Financial Guaranty Insurance Co. PBA - Public Building Authority
FHA - Federal Housing Agency/Authority PCR - Pollution Control Revenue
FSA - Financial Security Assistance SF - Single-Family
GNMA - Government National Mortgage Association SFMR - Single-Family Mortgage Revenue
GO - General Obligation VA - Veterans Administration
</TABLE>
(e) See Note 1 regarding securities purchased on a when-issued basis.
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN KENTUCKY TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.0%
$ 700,000 Ashland PCR, Refunding, Ashland Oil, Inc. Project, 6.65%, 08/01/09 . . . . . . . . . . . . . . $ 744,800
Boone County PCR, Refunding, Collateralized,
1,500,000 Cincinnati Gas & Electric Co., Series A, MBIA Insured, 5.50%, 01/01/24 . . . . . . . . . . 1,438,425
710,000 Dayton Power & Light Co., Series A, 6.50%, 11/15/22 . . . . . . . . . . . . . . . . . . . 757,854
200,000 Campbell County Water Revenue, District No. 1, 6.60%, 12/01/11 . . . . . . . . . . . . . . . . 215,446
325,000 Carroll County PCR, Utilities Co. Project, Collateralized, Series B, 6.25%, 02/01/18 . . . . . 343,141
750,000 Carroll County Solid Waste Disposal Facilities Revenue, Collateralized, Kentucky Utility Co.
Project, Series A, 5.75%, 12/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729,120
Danville Multi-City Lease Revenue,
125,000 Housing Authority, Jefferson County, 6.50%, 02/01/12 . . . . . . . . . . . . . . . . . . . 132,450
100,000 Sewer & Drain System, Series G, MBIA Insured, Pre-Refunded, 6.75%, 03/01/11 . . . . . . . 114,174
100,000 Shelbyville, Series H, MBIA Insured, 6.70%, 07/01/11 . . . . . . . . . . . . . . . . . . . 110,460
Daviess County Hospital Revenue,
100,000 Odch, Inc. Project, Series A, MBIA Insured, 6.25%, 08/01/12 . . . . . . . . . . . . . . . 105,226
210,000 Odch, Inc. Project, Series A, MBIA Insured, 6.25%, 08/01/22 . . . . . . . . . . . . . . . 220,128
100,000 Eastern University Revenues, Consolidated Educational Building, Series Q, AMBAC Insured,
6.40%, 05/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,638
200,000 Edgewood Public Properties Corp. Revenue, First Mortgage, Public Facilities Project, 6.70%,
12/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,528
400,000 Guam Airport Authority Revenue, Refunding, Series A, 6.50%, 10/01/23 . . . . . . . . . . . . . 418,524
Guam Government GO,
200,000 Series A, 5.375%, 11/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,292
200,000 Series A, 5.40%, 11/15/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,328
Guam Power Authority Revenue,
440,000 Series A, 6.30%, 10/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457,530
225,000 Series A, 6.30%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,169
125,000 Hopkins County Hospital Revenue, Trover Clinic Foundation, Inc., MBIA Insured, 6.625%, 135,436
11/15/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
220,000 Jefferson County Health Facilities Revenue, Jewish Hospital Health Care Services, Inc., AMBAC
Insured, 6.55%, 05/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,876
100,000 Jefferson County Hospital Revenue, Alliant Health System Project, Series C, MBIA Insured,
6.20%, 10/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,214
Jefferson County PCR,
450,000 DuPont, Series A, 6.30%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486,135
1,000,000 Louisville Gas & Electric Co. Project, Series B, 5.625%, 08/15/19 . . . . . . . . . . . . 996,600
100,000 Refunding, Louisville Gas & Electric Co. Project, Series A, 7.45%, 06/15/15 . . . . . . . 113,753
1,550,000 Refunding, Louisville Gas & Electric Co. Project, Series C, 5.45%, 10/15/20 . . . . . . . 1,489,566
250,000 Jefferson County School District Finance Corp., School Building Revenue, Refunding, Series B,
MBIA Insured, 6.20%, 01/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267,488
Kenton County Airport Board Revenue,
125,000 Cincinnati/Northern Kentucky International Airport, Series A, FSA Insured, 6.30%, 03/01/15 130,389
445,000 Delta Airlines Project, Special Facilities, Series A, 7.50%, 02/01/20 . . . . . . . . . . 472,732
150,000 Delta Airlines Project, Special Facilities, Series A, 7.125%, 02/01/21 . . . . . . . . . . 155,313
445,000 Delta Airlines Project, Special Facilities, Series B, 7.25%, 02/01/22 . . . . . . . . . . 468,051
650,000 Refunding, Cincinnati/Northern Kentucky International Airport, Series B, FSA Insured,
5.75%, 03/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651,560
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN KENTUCKY TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 155,000 Kenton County Water District No. 001, Waterworks Revenue, Refunding, FGIC Insured, 6.375%,
02/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 165,889
110,000 Kentucky Development Finance Authority Hospital Revenue, St. Claire Medical Center Project,
7.125%, 09/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,646
100,000 Kentucky Development Finance Authority Revenue, Refunding, Sisters of Charity of Nazareth
Health Corp., Series 1991, 6.75%, 11/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . 106,630
625,000 Kentucky Economic Development Finance Authority, Hospital Facilities Revenue, St. Elizabeth
Medical Center Project, Series A, FGIC Insured, 6.00%, 12/01/22 . . . . . . . . . . . . . . . 638,130
500,000 Kentucky Economic Development Finance Authority, Medical Center Revenue, Refunding &
Improvement, Ashland Hospital Corp., Series A, CGIC Insured, 6.125%, 02/01/12 . . . . . . . . 516,220
Kentucky Housing Corp., Housing Revenue, SFMR
300,000 Guaranteed, Series A, 5.80%, 01/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . 297,243
170,000 Guaranteed, Series D, FHA/VA, 7.45%, 01/01/23 . . . . . . . . . . . . . . . . . . . . . . 176,300
45,000 Series A, 6.60%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,320
150,000 Series B, 6.60%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,401
800,000 Series B, 5.40%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777,824
300,000 Kentucky Housing Corp., MFMR, Refunding, Series B, MBIA Insured, 5.35%, 07/01/22 . . . . . . . 284,496
Kentucky Infrastructure Authority Revenue,
500,000 Refunding, Government Agencies Program, Series E, 5.75%, 08/01/18 . . . . . . . . . . . . 504,965
200,000 Refunding, Government Agencies Program, Series F, 5.375%, 02/01/13 . . . . . . . . . . . . 195,236
100,000 Revolving Fund Program, Series E, 6.50%, 06/01/11 . . . . . . . . . . . . . . . . . . . . 107,378
100,000 Revolving Fund, Series G, 6.30%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . . . 106,025
1,400,000 (e)Kentucky Local Correctional Facilities Construction Authority Revenue, Refunding, FSA Insured,
5.50%, 11/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,374,478
45,000 Kentucky State Property & Buildings Commission Revenue, Project No. 50, Pre-Refunded, 6.00%,
02/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,274
Kentucky State Turnpike Authority, Economic Development Road Revenue,
200,000 Refunding, Revitalization Projects, AMBAC Insured, 5.50%, 07/01/07 . . . . . . . . . . . . 207,256
100,000 Revitalization Project, Pre-Refunded, 7.25%, 05/15/10 . . . . . . . . . . . . . . . . . . 114,962
Louisville & Jefferson County Metropolitan Sewer District Revenue, Refunding,
700,000 Series A, MBIA Insured, 5.50%, 05/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . 683,536
400,000 Series B, MBIA Insured, 5.50%, 05/15/23 . . . . . . . . . . . . . . . . . . . . . . . . . 390,315
Louisville & Jefferson County Regional Airport Authority System Revenue,
450,000 Series A, MBIA Insured, 5.60%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 450,707
750,000 Series C, MBIA Insured, 5.50%, 07/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . 716,363
625,000 Mount Sterling Lease Revenue, Kentucky League Cities Funding, Series A, 6.10%, 03/01/08 . . . . 640,063
75,000 Owensboro IDR, Refunding, Kmart Corp. Project, 6.80%, 12/01/07 . . . . . . . . . . . . . . . . 83,138
550,000 Pendleton Multi-County Association Trust, Lease Revenue, Series A, 6.50%, 03/01/19 . . . . . . 564,757
100,000 Powderly Industrial Development, First Mortgage Revenue, Refunding, Kmart Corp. Project,
6.90%, 03/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,982
Puerto Rico Commonwealth,
165,000 Public Improvement, Pre-Refunded, 6.80%, 07/01/21 . . . . . . . . . . . . . . . . . . . . 190,912
200,000 Public Improvement, Series A, Pre-Refunded, 6.50%, 07/01/18 . . . . . . . . . . . . . . . 220,698
350,000 Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue, Series 1988-A, 7.00%, 07/01/19 . . 385,949
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN KENTUCKY TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Electric Power Authority Revenue, Water Resources,
$ 325,000 Refunding, Series O, 6.00%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 333,122
100,000 Series P, 7.00%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,166
100,000 Series P, 7.00%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,166
250,000 Series R, 6.25%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261,980
140,000 Puerto Rico Commonwealth Highway Authority Revenue, Refunding, Series R, 6.75%,
07/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,726
Puerto Rico Commonwealth Highway & Transportation Authority Revenue,
100,000 Refunding, Series V, 6.625%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . 108,023
875,000 Series W, 5.50%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841,593
110,000 Puerto Rico Industrial Medical & Environmental Pollution Control Facilities, Financing
Authority Revenue, Series A, 6.75%, 01/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . 124,025
Puerto Rico PBA, Guaranteed, Public Education & Health Facilities,
500,000 Refunding, Series M, 5.75%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 496,915
550,000 Refunding, Series M, 5.50%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 526,015
50,000 Series L, Pre-Refunded, 6.875%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . 58,108
350,000 Russell Health System Revenue, Franciscan, Series B, 8.10%, 07/01/15 . . . . . . . . . . . . . 409,612
100,000 Somerset Water Project Revenue, MBIA Insured, 6.40%, 12/01/06 . . . . . . . . . . . . . . . . . 107,294
University of Kentucky Revenues, Community College Educational Buildings,
350,000 Refunding, Series J, 5.10%, 05/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,020
100,000 Series I, 6.40%, 05/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,717
145,000 University of Kentucky Revenues, Consolidated Educational Buildings, Series M, 6.40%,
05/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,120
750,000 University of Louisville Revenues, Refunding, Consolidated Educational Buildings, Series I,
5.40%, 05/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,008
-----------------
TOTAL LONG TERM INVESTMENTS (COST $27,159,265) . . . . . . . . . . . . . . . . . . . . 27,773,049
-----------------
(g)SHORT TERM INVESTMENTS 3.2%
600,000 Ashland PCR, Ashland Oil, Inc. Project, Weekly VRDN and Put, 2.20%, 04/01/09 . . . . . . . . . 600,000
100,000 Kentucky Development Finance Authority Revenue, Pooled Loan Program, Series A, FGIC Insured,
Weekly VRDN and Put, 2.70%, 12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
200,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and Put,
2.25%, 12/01/15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $900,000) . . . . . . . . . . . . . . . . . . . . . 900,000
-----------------
TOTAL INVESTMENTS (COST $28,059,265) 102.2% . . . . . . . . . . . . . . . . . . . 28,673,049
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (2.2)% . . . . . . . . . . . . . . . . (615,812)
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,057,237
=================
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $28,059,265 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 881,865
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (268,081)
-----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 613,784
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
CGIC - Capital Guaranty Insurance Co.
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency/Authority
FSA - Financial Security Assistance
GO - General Obligation
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MFMR - Multi-Family Mortgage Revenue
PBA - Public Building Authority
PCR - Pollution Control Revenue
VA - Veterans Administration
(e) See Note 1 regarding securities purchased on a when-issued basis.
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN LOUISIANA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.4%
BONDS 97.0%
$ 455,000 Alexandria Health Care Public Trust Authority, Hospital Revenue, Rapides Regional Medical
Center, MBIA Insured, Pre-Refunded, 7.125%, 02/01/09 . . . . . . . . . . . . . . . . . . . . . $ 515,360
Ascension Parish Sales & Use Tax,
300,000 Gravity Drainage District No. 1, 7.25%, 12/01/06 . . . . . . . . . . . . . . . . . . . . . 330,957
300,000 Gravity Drainage District No. 1, 7.25%, 12/01/07 . . . . . . . . . . . . . . . . . . . . . 330,957
200,000 Gravity Drainage District No. 1, 7.25%, 12/01/08 . . . . . . . . . . . . . . . . . . . . . 220,118
500,000 Bastrop, Inc., IDB, PCR, Refunding, International Paper Co. Project, 6.90%, 03/01/07 . . . . . 551,900
150,000 Baton Rouge Sales & Use Tax Revenue, Public Improvement, AMBAC Insured, 7.00%, 08/01/08 . . . 168,687
Caddo Parish GO,
60,000 Series A, MBIA Insured, 7.20%, 02/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . 65,615
200,000 Series B, MBIA Insured, 7.20%, 02/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . 218,718
200,000 Caddo Parish School District GO, Refunding, MBIA Insured, Pre-Refunded, 7.20%, 03/01/05 . . . . 217,534
Calcasieu Parish, Inc., IDB, PCR,
3,000,000 Gulf States Utilities Co. Project, 5.90%, 09/01/07 . . . . . . . . . . . . . . . . . . . . 2,996,910
2,000,000 Refunding, Gulf States Utilities Co. Project, 6.75%, 10/01/12 . . . . . . . . . . . . . . 2,138,600
400,000 Calcasieu Parish Memorial Hospital Service District Revenue, Lake Charles Memorial Hospital
Project, BIG Insured, Pre-Refunded, 7.50%, 12/01/18 . . . . . . . . . . . . . . . . . . . . . 453,472
50,000 Calcasieu Parish Public School Improvement District No. 30, Ward 4, GO, Unlimited Tax,
Pre-Refunded, 8.00%, 08/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,434
Calcasieu Parish Public Trust Mortgage Authority Revenue, Refunding,
1,575,000 Series A, 7.75%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,645,403
1,335,000 Series B, 6.875%, 11/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,403,619
1,380,000 Denham Springs-Livingston Housing & Mortgage Finance Authority, SFMR, ETM 08/01/00, 7.20%,
08/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,592,134
DeSoto Parish GO,
150,000 School District No. 1, Pre-Refunded, 8.00%, 01/01/09 . . . . . . . . . . . . . . . . . . . 172,844
50,000 School District No. 2, Pre-Refunded, 8.00%, 08/01/06 . . . . . . . . . . . . . . . . . . . 55,341
East Baton Rouge Mortgage Finance Authority,
840,000 Series A, Mortgage Backed Securities, 7.875%, 08/01/23 . . . . . . . . . . . . . . . . . . 916,297
1,320,000 SF Purchase, Series F, GNMA Mortgage Backed Securities, 7.875%, 12/01/21 . . . . . . . . . 1,452,396
2,500,000 SFM Purchase, Refunding, Series B, 5.30%, 10/01/14 . . . . . . . . . . . . . . . . . . . . 2,382,575
East Baton Rouge Parish Sales & Use Tax, Public Improvement,
145,000 MBIA Insured, 7.25%, 02/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,188
425,000 MBIA Insured, 7.25%, 02/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469,519
50,000 Franklin GO, Public Improvement Sales & Use Tax Revenue, Refunding, 8.40%, 12/01/03 . . . . . . 55,896
Iberville Parish Consolidated School District No. 005,
245,000 GO, Unlimited Tax, Pre-Refunded, 8.00%, 10/01/04 . . . . . . . . . . . . . . . . . . . . . 285,690
125,000 Pre-Refunded, 8.125%, 10/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,401
125,000 Jefferson Parish Home Mortgage Authority, SFMR, GNMA Collateralized, Series A, 8.30%,
04/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,820
1,000,000 Jefferson Parish Hospital Service Revenue, Refunding, District No. 2, MBIA Insured, 5.75%,
07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 991,220
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN LOUISIANA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Jefferson Parish Road District No. 1,
$ 100,000 FGIC Insured, Pre-Refunded, 7.40%, 03/01/06 . . . . . . . . . . . . . . . . . . . . . . . $ 111,430
50,000 Unlimited Tax, FGIC Insured, Pre-Refunded, 7.40%, 03/01/08 . . . . . . . . . . . . . . . . 55,714
500,000 Jefferson Parish School Board, Sales & Use Tax Revenue, Series A, 7.35%, 02/01/03 . . . . . . . 532,655
400,000 Lafayette Parish Consolidated School District No. 1, FGIC Insured, Pre-Refunded, 7.70%,
03/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461,707
415,000 Lafayette Public Electric Power Authority Revenue, Refunding, 7.25%, 11/01/12 . . . . . . . . . 457,550
Lafayette Public Improvement, Sales Tax,
25,000 Refunding, Series 1988, FGIC Insured, Pre-Refunded, 8.00%, 03/01/08 . . . . . . . . . . . 28,825
3,000,000 Refunding, Series 1994, FGIC Insured, 5.20%, 05/01/11 . . . . . . . . . . . . . . . . . . 2,890,980
500,000 Series 1989, FGIC Insured, Pre-Refunded, 7.20%, 05/01/12 . . . . . . . . . . . . . . . . . 554,930
3,000,000 Lafayette Public Power Authority, Electric Revenue, Refunding, AMBAC Insured, 5.25%, 11/01/02 . 2,892,630
Lafayette Public Trust Financing Authority, SFMR,
633,992 Refunding, Series A, 8.50%, 11/15/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 689,752
30,000 Series A, ETM 04/01/11, 7.20%, 04/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . 34,334
95,000 Lafourche Parish Home Mortgage Authority, SFMR, ETM 07/01/00, 7.40%, 07/01/10 . . . . . . . . . 106,595
3,000,000 Lake Charles Harbor & Terminal District Port Facilities Revenue, Refunding, Occidental
Petroleum Corp., 7.20%, 12/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,327,210
750,000 Lake Charles Nonprofit HDC, Section 8 Assisted Mortgage Revenue, Refunding, Chateau Project,
Series 1990-A, CGIC Insured, 7.875%, 02/15/25 . . . . . . . . . . . . . . . . . . . . . . . . 746,572
1,750,000 Leesville Inc., IDB, Revenue, Refunding, Wal-Mart Stores, Inc. Project, 7.10%, 03/01/11 . . . . 1,890,543
500,000 Louisiana Gas Fuel Tax Revenue, 7.25%, 11/15/04 . . . . . . . . . . . . . . . . . . . . . . . . 556,810
Louisiana Mortgage, HFAR,
750,000 MF, FHA Insured, Westview Project, 7.80%, 04/01/30 . . . . . . . . . . . . . . . . . . . . 792,863
2,795,000 MF, Refunding, Series A, 7.00%, 07/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . 2,984,473
35,000 SF, GNMA Collateralized, 9.125%, 11/01/18 . . . . . . . . . . . . . . . . . . . . . . . . 37,156
905,000 SF, GNMA Mortgage Backed Securities, 8.30%, 11/01/20 . . . . . . . . . . . . . . . . . . . 952,350
Louisiana Public Facilities Authority, Hospital Revenue, Refunding,
75,000 Touro Infirmary Project, Series A, BIG Insured, Pre-Refunded, 8.00%, 06/01/09 . . . . . . 86,723
3,000,000 Women's Hospital Foundation Project, 7.25%, 10/01/22 . . . . . . . . . . . . . . . . . . . 3,231,690
65,000 Women's Hospital Foundation Project, FGIC Insured, 8.125%, 10/01/14 . . . . . . . . . . . 75,393
Louisiana Public Facilities Authority Revenue,
64,100 MFHR, Pontchartrain Housing Corp. I, Carriage House Apartments Project, Series A, GNMA
Mortgage Backed Securities, 8.375%, 07/20/23 . . . . . . . . . . . . . . . . . . . . . . . 68,333
585,000 Refunding, Health Facilities, Sisters of Mercy, Series A, 5.50%, 06/01/13 . . . . . . . . 572,715
200,000 Refunding, Jefferson Parish Eastbank Office, FGIC Insured, 7.70%, 08/01/10 . . . . . . . . 228,584
3,202,247 SFM Purchase, Series C, 8.45%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . 3,552,476
3,000,000 Tulane University, Series A-1, FGIC Insured, 5.75%, 02/15/18 . . . . . . . . . . . . . . . 3,041,190
50,000 Tulane University, Series B, Pre-Refunded, 8.00%, 08/15/15 . . . . . . . . . . . . . . . . 57,063
Louisiana Public Facilities Authority Revenue, Alton Ochsner Medical Foundation Project,
2,000,000 Refunding, Series B, MBIA Insured, 6.00%, 05/15/17 . . . . . . . . . . . . . . . . . . . . 2,061,300
930,000 Series C, MBIA Insured, 6.50%, 05/15/22 . . . . . . . . . . . . . . . . . . . . . . . . . 982,386
1,500,000 Louisiana Public Facilities Authority Revenue, Student Loan, Series A, Sub-Series 3, 7.00%,
09/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,590,285
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN LOUISIANA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BOND (CONT.)
$ 45,000 Louisiana Public Facilities Authority, SFM Purchase, Series C, GNMA Mortgage Backed
Securities, 8.80%, 04/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,752
1,500,000 Louisiana State GO, Series A, CGIC Insured, Pre-Refunded, 7.375%, 05/01/05 . . . . . . . . . . 1,630,740
Louisiana State Off Shore Terminal Authority, Deepwater Port Revenue,
Refunding, Loop, Inc. Project, First Stage,
1,000,000 Series B, 7.20%, 09/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,129,630
1,000,000 Series E, 7.60%, 09/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,149,160
1,050,000 Mississipi River Bridge Authority Revenue, 6.75%, 11/01/12 . . . . . . . . . . . . . . . . . . 1,129,191
50,000 Morgan City GO, Sales & Use Tax Revenue, Refunding, 8.40%, 12/01/03 . . . . . . . . . . . . . . 56,095
Natchitoches Parish GO, Consolidated School,
125,000 District No. 7, Pre-Refunded, 8.30%, 03/01/10 . . . . . . . . . . . . . . . . . . . . . . 147,300
230,000 District No. 7, Series B, Pre-Refunded, 7.50%, 03/01/09 . . . . . . . . . . . . . . . . . 263,892
235,000 District No. 7, Series B, Pre-Refunded, 7.50%, 03/01/10 . . . . . . . . . . . . . . . . . 269,630
65,000 New Orleans Audubon Park Commission, Aquarium Project, MBIA Insured, Pre-Refunded, 7.90%,
10/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,123
300,000 New Orleans GO, Public Improvement, CGIC Insured, 7.125%, 10/01/03 . . . . . . . . . . . . . . 327,459
560,000 New Orleans Home Mortgage Authority, SFMR, Series A, ETM 04/01/00, 7.50%, 10/01/18 . . . . . . 619,002
50,000 New Orleans International Airport Revenue, Series A, FGIC Insured, Pre-Refunded, 8.875%,
08/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,199
1,000,000 New Roads Electric System Revenue, 7.00%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . 1,085,760
1,600,000 Office Facility Corp., Capital Facility Bonds, 7.75%, 12/01/10 . . . . . . . . . . . . . . . . 1,793,952
50,000 Orleans Levee District Public Improvement, Refunding, Series A, 8.25%, 11/01/15 . . . . . . . . 55,639
Orleans Parish Law Enforcement District, GO,
185,000 AMBAC Insured, 7.10%, 05/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,099
750,000 AMBAC Insured, 7.10%, 05/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825,773
75,000 Plaquemines Parish GO, Unlimited Tax, Pre-Refunded, 8.40%, 08/01/06 . . . . . . . . . . . . . . 87,040
1,700,000 Pointe Coupee Parish, PCR, Refunding, Gulf States Utilities Project, 6.70%, 03/01/13 . . . . . 1,805,943
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue,
500,000 Series A, 7.90%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570,195
1,000,000 Series A, 7.875%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,140,690
350,000 Series A, 7.00%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385,949
Puerto Rico Commonwealth GO,
2,000,000 Refunding, Series 1993, 5.50%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 1,953,340
500,000 Series 1990, Pre-Refunded, 7.70%, 07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . 596,150
Puerto Rico Commonwealth Highway Authority Revenue,
1,000,000 Series Q, Pre-Refunded, 6.625%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 1,145,080
220,000 Series R, 7.20%, 07/01/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,181
1,000,000 Puerto Rico Commonwealth Highway Transportation Authority Revenue, Series S, Pre-Refunded,
8.00%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208,660
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
525,000 Series 1988-A, 7.90%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590,792
100,000 Series 1988-A, 7.75%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,750
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN LOUISIANA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BOND (CONT.)
Puerto Rico Electric Power Authority Revenue,
$ 100,000 Refunding, Series M, 8.00%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 115,233
1,600,000 Refunding, Series N, 7.125%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,755,648
1,400,000 Series 1991-P, 7.00%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,556,324
Puerto Rico HFC, SFMR, Portfolio No. 1,
100,000 Series A, GNMA Collateralized, 7.80%, 10/15/21 . . . . . . . . . . . . . . . . . . . . . . 105,926
410,000 Series B, GNMA Collateralized, 7.65%, 10/15/22 . . . . . . . . . . . . . . . . . . . . . . 428,581
1,000,000 Series C, GNMA Collateralized, 6.85%, 10/15/23 . . . . . . . . . . . . . . . . . . . . . . 1,043,490
Puerto Rico Housing, Bank & Finance Agency, SF Commonwealth Appropriation,
50,000 Loan Insurance Claims, Pre-Refunded, 7.125%, 12/01/01 . . . . . . . . . . . . . . . . . . 52,987
100,000 Loan Insurance Claims, Pre-Refunded, 7.25%, 12/01/06 . . . . . . . . . . . . . . . . . . . 106,064
1,580,000 Subsidy Prepayment, Pre-Refunded, 7.25%, 12/01/06 . . . . . . . . . . . . . . . . . . . . 1,675,810
150,000 Puerto Rico Industrial, Medical & Environmental Facilities, PCFA Revenue, Baxter Travenol
Labs., Series A, 8.00%, 09/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,586
Puerto Rico PBA, Guaranteed, Public Education & Health Facilities,
100,000 Series H, Pre-Refunded, 7.875%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . 114,005
1,000,000 Series J, Pre-Refunded, 7.25%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . 1,133,840
3,500,000 Quachita Parish Hospital Service District No. 1 Revenue, Glenwood Regional Medical Center,
7.50%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,883,005
75,000 Rapides Parish GO, Consolidated School District No. 52, Pineville, 8.40%, 03/01/03 . . . . . . 84,611
1,370,000 Rapides Parish Housing & Mortgage Finance Authority, SFM, ETM 08/01/00, 7.25%, 08/01/10 . . . . 1,447,391
St. Bernard Parish Home Mortgage Authority Revenue, SFMR,
1,170,873 Refunding, Series A, 8.00%, 03/25/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,279,730
435,000 Series A, FGIC Insured, ETM, 09/01/00, 7.50%, 09/01/10 . . . . . . . . . . . . . . . . . . 515,892
2,295,000 St. Charles Parish, Enviromental Improvement Revenue, Power & Light Co. Project, Series A,
6.20%, 05/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,317,927
2,500,000 St. Charles Parish, PCR, Louisiana Power & Light Co. Project, 7.50%, 06/01/21 . . . . . . . . . 2,743,525
St. Charles Parish, Solid Waste Disposal Revenue,
1,500,000 Louisiana Power & Light Co. Project, 7.05%, 04/01/22 . . . . . . . . . . . . . . . . . . . 1,604,490
750,000 Louisiana Power & Light Co. Project, Series A, 7.00%, 12/01/22 . . . . . . . . . . . . . . 802,493
2,365,000 St. James Parish COP, Juvenile Detention Facility, 7.50%, 07/01/10 . . . . . . . . . . . . . . 2,495,737
St. John's Baptist Parish,
430,000 Sales Tax District, 7.30%, 12/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,772
275,000 Sales Tax District, 7.30%, 12/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . 303,919
50,000 St. Mary's Parish Public Improvement, Sales & Use Tax Revenue, Refunding, Pre-Refunded, 8.40%,
12/01/03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,227
902,294 St. Mary's Public Trust Financing Authority, SFMR, Refunding, Series A, 7.625%, 03/25/12 . . . 944,377
125,000 St. Tammany's Parish Hospital Service District No. 2 Revenue, 8.00%, 10/01/08 . . . . . . . . . 140,709
St. Tammany's Public Trust Financing Authority, SFMR,
50,000 Series A, 7.20%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,798
165,000 Series A, ETM 07/01/00, 7.20%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . 184,592
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN LOUISIANA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
$ 150,000 Shreveport GO, Series A, Pre-Refunded, 7.50%, 01/01/09 . . . . . . . . . . . . . . . . . . . . $ 169,624
4,500,000 Shreveport Water & Sewer Revenue, Refunding, Series A, FGIC Insured, 5.95%, 12/01/14 . . . . . 4,613,580
125,000 Terrebonne Parish Hospital Service District No. 1 Revenue, Refunding, Terrebonne General
Medical Center Project, BIG Insured, 7.50%, 04/01/15 . . . . . . . . . . . . . . . . . . . . . 138,850
205,000 Ville Platte Utilities Revenue, Refunding, 7.80%, 05/01/02 . . . . . . . . . . . . . . . . . . 231,156
3,000,000 West Feliciana Parish, PCR, Gulf States Utilities, Series C, 7.00%, 11/01/15 . . . . . . . . . 3,190,020
-----------------
TOTAL BONDS (COST $105,140,445) . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,435,907
-----------------
(c)ZERO COUPON BONDS 1.4%
5,000,000 Shreveport Water & Sewer Revenue, Refunding, Series B, FGIC Insured, (original accretion rate
7.05%), 0.00%, 12/01/11 (Cost $1,449,275) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,644,500
-----------------
TOTAL LONG TERM INVESTMENTS (COST $106,589,720) . . . . . . . . . . . . . . . . . . . 114,080,407
-----------------
(g)SHORT TERM INVESTMENTS .1%
100,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and Put, 2.25%,
12/01/15 (COST $100,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
-----------------
TOTAL INVESTMENTS (COST $106,689,720) 98.5% . . . . . . . . . . . . . . . . . . . . . . 114,180,407
OTHER ASSETS AND LIABILITIES, NET 1.5% . . . . . . . . . . . . . . . . . . . . . . 1,790,727
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 115,971,134
=================
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $106,689,720 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,797,133
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (306,446)
-----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,490,687
=================
</TABLE>
<TABLE>
<S> <C>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp. HFC - Housing Finance Corp.
BIG - Bond Investors Guaranty Insurance Co. IDB - Industrial Development Board
CGIC - Capital Guaranty Insurance Co. MBIA - Municipal Bond Investors Assurance Corp.
COP - Certificate of Participation MF - Multi-Family
ETM - Escrow to Maturity MFHR - Multi-Family Housing Revenue
FGIC - Financial Guaranty Insurance Co. PBA - Public Building Authority
FHA - Federal Housing Agency PCFA - Pollution Control Financing Authority
GNMA - Government National Mortgage Association PCR - Pollution Control Revenue
GO - General Obligation SF - Single-Family
HDC - Housing Development Corp. SFM - Single-Family Mortgage
HFAR - Housing Finance Agency Revenue SFMR - Single-Family Mortgage Revenue
</TABLE>
(c) Zero coupon bonds. The current effective yield may vary. The original
accretion rate by security, as reported, will remain constant.
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MARYLAND TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.2%
$ 200,000 Anne Arundel County GO, Second Issue, 7.75%, 03/15/08 . . . . . . . . . . . . . . . . . . . . . $ 228,334
1,000,000 Anne Arundel County Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.00%, 01/01/26 . . . 1,005,600
Baltimore COP, Refunding,
800,000 Series A, MBIA Insured, Pre-Refunded, 7.25%, 04/01/16 . . . . . . . . . . . . . . . . . . 920,920
155,000 Series C, MBIA Insured, Pre-Refunded, 7.25%, 04/01/16 . . . . . . . . . . . . . . . . . . 178,875
545,000 Series C, MBIA Insured, Pre-Refunded, 7.25%, 04/01/16 . . . . . . . . . . . . . . . . . . 612,874
Baltimore County Authority Revenue,
90,000 Series 1989, Pre-Refunded, 7.20%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . 99,806
710,000 Series 1989, Pre-Refunded, 7.20%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . 812,709
600,000 Baltimore County GO, Pension Fund, Pre-Refunded, 7.75%, 07/01/16 . . . . . . . . . . . . . . . 652,932
Baltimore Economic Development Lease Revenue, Refunding,
2,000,000 Armistead Partnership, Series A, 6.75%, 08/01/02 . . . . . . . . . . . . . . . . . . . . . 2,167,620
3,225,000 Armistead Partnership, Series A, 7.00%, 08/01/11 . . . . . . . . . . . . . . . . . . . . . 3,474,422
1,000,000 Baltimore GO, Series B, 7.15%, 10/15/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,161,900
1,160,000 (e)Baltimore Mortgage Revenue, Refunding, Seton Apartments Project, Series A, MBIA Insured,
5.60%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,137,252
1,850,000 Baltimore Port Facilities Revenue, Consolidated Coal Sales, Series A, 6.50%, 10/01/11 . . . . . 2,027,915
1,500,000 Baltimore Revenue, Refunding, Water Projects, Series A, FGIC Insured, 6.25%, 07/01/22 . . . . . 1,673,280
3,000,000 Baltimore Water Utility Revenue, Refunding, Water Projects, Series A, MBIA Insured, Pre-
Refunded, 6.50%, 07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,317,790
250,000 Bel Air COP, Parking Facilities, CGIC Insured, Pre-Refunded, 7.80%, 06/01/10 . . . . . . . . . 292,353
2,250,000 Calvert County PCR, Refunding, Baltimore Gas & Electric Co. Project, 5.55%, 07/15/14 . . . . . 2,209,455
350,000 Frederick County College Revenue, Hood College Project, 7.20%, 07/01/09 . . . . . . . . . . . . 391,698
500,000 Frederick County EDR, Refunding, Manekin Frederick Project, Series A, 7.50%, 12/01/14 . . . . . 573,985
200,000 Frederick County GO, Public Facilities, Pre-Refunded, 7.20%, 04/01/07 . . . . . . . . . . . . . 227,894
10,000,000 Gaithersburg Hospital Facilities Improvement Revenue, Shady Grove Hospital, Series A, 8.25%,
09/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,147,800
3,470,000 Gaithersburg Nursing Home Revenue, Refunding, Shady Grove Adventist, Series A, 9.00%,
09/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,599,813
1,250,000 Howard County EDR, Refunding, 7.75%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . 1,412,638
215,000 Howard County Metropolitan District, Series A, Pre-Refunded, 7.40%, 02/15/18 . . . . . . . . . 244,646
300,000 Kent County College Revenue, Refunding, Washington College Project, 7.70%, 07/01/18 . . . . . . 334,970
1,900,000 Maryland Environmental Services, COP, Water & Waste Facilities, Series A, 6.70%, 06/01/11 . . . 2,081,507
1,500,000 Maryland Environmental Services Revenue, Garrett County Landfill Project, AMBAC Insured,
5.50%, 09/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,478,820
650,000 Maryland Local Government Insurance Trust Capitalization Program, Series A, 7.125%, 08/01/09 . 725,940
350,000 Maryland State CDA, Department of Economic & Community Development, SF Program, First Series,
7.00%, 04/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369,012
Maryland State CDA, Department of Housing & Community Development,
130,000 Infrastructure Financing, Series A, AMBAC Insured, 7.25%, 06/01/09 . . . . . . . . . . . . 146,142
2,750,000 MFHR Mortgage, Series D, 6.70%, 05/15/27 . . . . . . . . . . . . . . . . . . . . . . . . . 2,858,708
2,000,000 MFHR Mortgage, Series E, 7.10%, 05/15/28 . . . . . . . . . . . . . . . . . . . . . . . . . 2,113,920
1,000,000 MFHR Mortgage, Series A, 7.80%, 05/15/32 . . . . . . . . . . . . . . . . . . . . . . . . . 1,068,130
1,800,000 MFHR Mortgage, Series A, 6.85%, 05/15/33 . . . . . . . . . . . . . . . . . . . . . . . . . 1,871,316
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MARYLAND TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Maryland State CDA, Department of Housing & Community Development, (Cont)
$ 1,000,000 MFHR Mortgage, Series D, 7.70%, 05/15/20 . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,055,850
1,000,000 SF Program, First Series, 7.375%, 04/01/10 . . . . . . . . . . . . . . . . . . . . . . . . 1,064,510
150,000 SF Program, First Series, 7.40%, 04/01/17 . . . . . . . . . . . . . . . . . . . . . . . . 158,934
750,000 SF Program, Second Series, 7.60%, 04/01/23 . . . . . . . . . . . . . . . . . . . . . . . . 784,688
385,000 SF Program, Second Series, 7.85%, 04/01/29 . . . . . . . . . . . . . . . . . . . . . . . . 411,908
300,000 SF Program, Third Series, 7.375%, 04/01/26 . . . . . . . . . . . . . . . . . . . . . . . . 316,572
1,500,000 SF Program, Third Series, 7.25%, 04/01/27 . . . . . . . . . . . . . . . . . . . . . . . . 1,585,530
1,000,000 SF Program, Fourth Series, 7.45%, 04/01/32 . . . . . . . . . . . . . . . . . . . . . . . . 1,044,960
2,000,000 SF Program, Fifth Series, 6.85%, 04/01/11 . . . . . . . . . . . . . . . . . . . . . . . . 2,082,400
50,000 SF Program, Sixth Series, 8.125%, 04/01/17 . . . . . . . . . . . . . . . . . . . . . . . . 50,829
1,000,000 Maryland State CDA, SFHR, Department of Economics & Community Development, Fourth Series,
7.30%, 04/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,063,950
Maryland State Community Development Administration, MFHR,
200,000 Department of Economics & Community Development, Series A, 7.375%, 05/15/26 . . . . . . . 213,323
30,000 Department of Housing & Community Development, Series A, 7.50%, 05/15/31 . . . . . . . . . 31,662
Maryland State Health & Higher Educational Facilities Authority Revenue,
750,000 Bon Secours Heartland, Issue A, Pre-Refunded, 7.375%, 09/01/17 . . . . . . . . . . . . . . 874,155
1,000,000 Doctors Community Hospital, Pre-Refunded, 8.75%, 07/01/12 . . . . . . . . . . . . . . . . 1,243,280
250,000 Doctors Community Hospital, Pre-Refunded, 8.75%, 07/01/22 . . . . . . . . . . . . . . . . 310,820
3,000,000 Francis Scott Key Medical Center, FGIC Insured, Pre-Refunded, 6.75%, 07/01/23 . . . . . . 3,394,860
150,000 Franklin Square Hospital, MBIA Insured, 7.50%, 07/01/19 . . . . . . . . . . . . . . . . . 170,213
700,000 Good Samaritan Hospital, Pre-Refunded, 7.50%, 07/01/21 . . . . . . . . . . . . . . . . . . 809,305
100,000 Hartford Memorial Hospital & Fallston General Hospital, 8.50%, 07/01/14 . . . . . . . . . 109,904
500,000 Holy Cross Hospital, Series A, AMBAC Insured, 7.125%, 07/01/10 . . . . . . . . . . . . . . 559,300
100,000 Howard County General Hospital, Pre-Refunded, 7.00%, 07/01/17 . . . . . . . . . . . . . . 110,977
1,500,000 Johns Hopkins Hospital, Pre-Refunded, 7.00%, 07/01/23 . . . . . . . . . . . . . . . . . . 1,717,770
1,095,000 Mercy Medical Center, Pre-Refunded, 8.00%, 07/01/20 . . . . . . . . . . . . . . . . . . . 1,291,607
2,370,000 Montgomery General Hospital, Connie Lee Insured, 5.625%, 07/01/18 . . . . . . . . . . . . 2,365,094
100,000 North Arundel Hospital, BIG Insured, Pre-Refunded, 7.875%, 07/01/21 . . . . . . . . . . . 115,603
3,000,000 Refunding, Doctors Community Hospital, 5.75%, 07/01/13 . . . . . . . . . . . . . . . . . . 2,884,770
2,000,000 Refunding, Good Samaritan Hospital, 5.75%, 07/01/19 . . . . . . . . . . . . . . . . . . . 2,004,760
150,000 Refunding, Johns Hopkins Hospital, 7.375%, 07/01/09 . . . . . . . . . . . . . . . . . . . 166,261
100,000 Refunding, Johns Hopkins University, 7.375%, 07/01/08 . . . . . . . . . . . . . . . . . . 111,760
1,000,000 Refunding, Sinai Hospital of Baltimore Project, AMBAC Insured, 5.50%, 07/01/13 . . . . . . 980,110
1,000,000 Sinai Hospital of Baltimore, AMBAC Insured, Pre-Refunded, 7.00%, 07/01/19 . . . . . . . . 1,145,180
1,350,000 Maryland State IDA Financing, EDR, FSA Insured, 7.10%, 07/01/18 . . . . . . . . . . . . . . . . 1,513,188
6,000,000 Maryland State IDAR Financing, American Center Physics Headquarters, 6.625%, 01/01/17 . . . . . 6,250,920
500,000 Maryland State Stadium Authority, Sports Facilities Lease Revenue, Series D, 7.60%, 12/15/19 . 564,680
Maryland State Transportation Authority, Facilities Project Revenue,
5,400,000 Refunding, Series 1992, 5.75%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 5,456,322
395,000 Refunding, Series 1992, 5.75%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . 399,120
500,000 Series 1985, 7.00%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523,280
</TABLE>
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MARYLAND TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Maryland Water Quality Financing Administration, Revolving Loan Fund Revenue,
$ 1,245,000 Series A, 7.25%, 09/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,406,190
1,000,000 Series A, 6.55%, 09/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080,950
1,565,000 Series B, 6.70%, 09/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,715,960
Montgomery County Housing Opportunities Commission, MFMR,
1,580,000 Series A, 7.25%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,671,466
2,410,000 Series A, 7.00%, 07/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,517,100
Montgomery County Housing Opportunities Commission, SFMR,
1,500,000 Refunding, Series B, 6.625%, 07/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,564,125
2,125,000 Series A, 6.80%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,206,345
545,000 Series A, 7.50%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570,822
200,000 Series A, 7.625%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,852
275,000 Montgomery County Parking Revenue, Silver Spring Parking Lot District, Series A, Pre-Refunded,
7.00%, 06/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303,431
500,000 Morgan State University Academic & Auxiliary Facilities Fees Revenue, Series A, MBIA Insured,
Pre-Refunded, 7.00%, 07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 572,590
250,000 Northeast Waste Disposal Authority, Hardford County Resource Recovery Revenue, Series A, 8.60%,
01/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,008
Northeast Waste Disposal Authority, Solid Waste Revenue, Montgomery County Resources
Recreation Project,
3,100,000 Series A, 6.20%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,152,607
6,000,000 Series A, 6.30%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,101,280
130,000 Prince George's County GO, Consolidated Public Improvement, Series A, Pre-Refunded, 7.20%,
02/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,930
Prince George's County, Hospital Revenue,
3,500,000 Dimensions Health Corp., 7.25%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . 4,129,160
1,000,000 Dimensions Health Corp., 7.00%, 07/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . 1,162,780
2,900,000 Prince George's County, Housing Authority Mortgage Revenue, Refunding, New Keystone Apartments
Project, Series A, MBIA Insured, 6.80%, 07/01/25 . . . . . . . . . . . . . . . . . . . . . . . 3,024,004
Prince George's County IDA Lease Revenue, Upper Marlboro Justice Center Project,
2,750,000 MBIA Insured, 5.80%, 06/30/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,809,235
1,000,000 MBIA Insured, Pre-Refunded, 7.00%, 06/30/19 . . . . . . . . . . . . . . . . . . . . . . . 1,132,690
500,000 Prince George's County, Maryland Parking Authority Revenue, Refunding, Justice Center
Facilities Project, 6.45%, 05/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547,825
Prince George's County, PCR, Refunding,
1,200,000 Potomac Electric Project, 6.00%, 09/01/22 . . . . . . . . . . . . . . . . . . . . . . . . 1,236,696
2,975,000 Potomac Electric Project, 6.375%, 01/15/23 . . . . . . . . . . . . . . . . . . . . . . . . 3,152,935
2,550,000 (e)Prince George's County Revenue, Refunding, Dimensions Health Corp. Project, 5.375%, 07/01/14 . 2,436,015
Prince George's County, Solid Waste Management System Revenue,
1,000,000 Refunding, Series 1993, 5.25%, 06/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . 952,170
1,570,000 Series 1990, Pre-Refunded, 7.00%, 06/30/08 . . . . . . . . . . . . . . . . . . . . . . . . 1,807,210
1,000,000 Puerto Rico Commonwealth Highway & Transportation Authority Revenue, Refunding, Series X,
5.50%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960,340
</TABLE>
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MARYLAND TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 3,370,000 Puerto Rico PBA, Guaranteed, Public Education & Health Facilities, Refunding, Series M, 5.50%,
07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,223,035
1,145,000 Rockville Mortgage Revenue, Refunding, Summit Apartments Project, Series A, MBIA Insured,
5.70%, 01/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,115,379
1,000,000 University of Maryland Auxiliary Facility & Tuition Revenue, Series B, Pre-Refunded, 7.00%,
10/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,142,790
Washington Suburban Sanitary District,
700,000 General Construction, First Series, Pre-Refunded, 6.90%, 06/01/13 . . . . . . . . . . . . 805,777
100,000 General Construction, Pre-Refunded, 7.25%, 12/01/09 . . . . . . . . . . . . . . . . . . . 114,138
1,000,000 General Construction, Refunding, 5.25%, 06/01/15 . . . . . . . . . . . . . . . . . . . . . 963,960
1,200,000 General Construction, Refunding, Pre-Refunded, 7.375%, 01/01/07 . . . . . . . . . . . . . 1,314,048
750,000 Worcester County District, Refunding, Series J, 6.50%, 08/15/12 . . . . . . . . . . . . . . . . 808,313
-----------------
TOTAL LONG TERM INVESTMENTS (COST $144,363,022) . . . . . . . . . . . . . . . . . . . . 153,886,487
-----------------
(g)SHORT TERM INVESTMENTS .4%
100,000 Baltimore County Housing Mortgage Revenue, Refunding, Spring Hill, Weekly VRDN and Put, 2.40%,
09/20/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
500,000 Baltimore County MFR, Refunding, Lincoln Woods Apartments, Weekly VRDN and Put, 2.60%,
11/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $600,000) . . . . . . . . . . . . . . . . . . . . . 600,000
-----------------
TOTAL INVESTMENTS (COST $144,963,022) 98.6% . . . . . . . . . . . . . . . . . . . 154,486,487
OTHER ASSETS AND LIABILITIES, NET 1.4% . . . . . . . . . . . . . . . . . . . . . . 2,196,457
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,682,944
=================
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $144,965,522 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,065,848
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (544,883)
-----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,520,965
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
FRANKLIN MARYLAND TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CDA - Community Development Authority/Agency
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
EDR - Economic Development Revenue
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assistance
GO - General Obligation
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MFH - Multi-Family Housing
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
PBA - Public Building Authority
PCR - Pollution Control Revenue
SF - Single-Family
SFHR - Single-Family Housing Revenue
SFMR - Single-Family Mortgage Revenue
(e) See Note 1 regarding securities purchased on a when-issued basis.
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MISSOURI TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 96.9%
$ 500,000 Audrain County Hospital Revenue, Refunding, Audrain Medical Center Project, AMBAC Insured,
7.35%, 11/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 578,315
3,000,000 Bi-State Development Agency, Illinois Metropolitan No. 5, Refunding, 7.75%, 06/01/10 . . . . . 3,354,900
600,000 Bi-State Development Agency of the Missouri-Illinois Metropolitan District Revenue, Refunding,
Arch Parking Facility, 7.25%, 01/02/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637,896
1,400,000 Bowling Green School District R1, Building Corp. Leasehold Revenue, MBIA Insured, 6.50%,
03/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,505,364
1,180,000 Christian County Reorganized School District No. R-6, AMBAC Insured, 7.05%, 03/01/11 . . . . . 1,302,095
Franklin County Consolidated School District No. 2, GO,
500,000 FGIC Insured, Pre-Refunded, 7.20%, 03/01/05 . . . . . . . . . . . . . . . . . . . . . . . 554,485
500,000 FGIC Insured, Pre-Refunded, 7.25%, 03/01/06 . . . . . . . . . . . . . . . . . . . . . . . 555,395
700,000 Franklin County Reorganized School District No. R-XI, Refunding, FGIC Insured, 5.70%, 718,788
03/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guam Airport Authority Revenue,
1,075,000 Refunding, Series A, 6.50%, 10/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,124,783
500,000 Series B, 6.60%, 10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523,035
1,000,000 Series B, 6.70%, 10/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,060
1,225,000 Guam Power Authority Revenue, Series A, 6.30%, 10/01/22 . . . . . . . . . . . . . . . . . . . . 1,264,029
880,000 Jackson County Lease COP, Longview Recreation Complex Project, 8.00%, 11/01/07 . . . . . . . . 983,884
370,000 Jefferson County Reorganized School District No. R-3, AMBAC Insured, 7.00%, 03/01/09 . . . . . 410,633
Joplin Catholic Health Corp., IDA, Health Facilities Revenue, St. John's Regional Medical
Center Project,
200,000 Refunding, Series 1987, 7.125%, 06/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . 219,524
150,000 Series 1987, MBIA Insured, 7.125%, 06/01/14 . . . . . . . . . . . . . . . . . . . . . . . 162,370
Joplin School District Building Corp., Leasehold Revenue, Capital Improvement Project,
200,000 FGIC Insured, Pre-Refunded, 7.40%, 09/01/03 . . . . . . . . . . . . . . . . . . . . . . . 218,300
100,000 FGIC Insured, Pre-Refunded, 7.45%, 03/01/04 . . . . . . . . . . . . . . . . . . . . . . . 109,267
2,145,000 Kansas City Metropolitan College District, COP, Northland Human Services Center, Series C,
FGIC Insured, 5.60%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,153,730
Kansas City Municipal Assistance Corp. Revenue, Leasehold Improvement,
1,750,000 Refunding, Roe Bartel, Series B-1, AMBAC Insured, 7.125%, 04/15/16 . . . . . . . . . . . . 1,966,405
2,905,000 Roe Bartel, Series B, AMBAC Insured, 6.625%, 04/15/15 . . . . . . . . . . . . . . . . . . 3,182,979
1,665,000 Truman Medical Center, Series A, 7.00%, 11/01/11 . . . . . . . . . . . . . . . . . . . . . 1,793,255
1,850,000 Kansas City School District Building Corp., Leasehold Revenue, Capital Improvement Project,
Series A, FGIC Insured, Pre-Refunded, 7.90%, 02/01/08 . . . . . . . . . . . . . . . . . . . . 2,125,225
3,525,000 Kansas City Tax Increment Financing Commission, Tax Increment Revenue, Briarcliff West
Project, Series B, 7.00%, 11/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,801,043
1,800,000 Kansas City Water Revenue, 7th Issue, Series A, 7.00%, 12/01/08 . . . . . . . . . . . . . . . . 1,947,204
75,000 Lee's Summit, COP, 8.50%, 08/01/02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,957
45,000 Marion County Nursing Home District Revenue, Refunding, 9.00%, 08/01/03 . . . . . . . . . . . . 48,262
1,500,000 Missouri Higher Education Loan Authority Student Revenue, Series A, 5.45%, 02/15/09 . . . . . . 1,456,680
1,000,000 Missouri School Board Association, COP, Lease Participation, North St. Francois County
Project, MBIA Insured, Pre-Refunded, 7.375%, 04/01/10 . . . . . . . . . . . . . . . . . . . . 1,128,430
</TABLE>
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MISSOURI TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Missouri School Board Association, COP, Pooled Finance Program,
$ 130,000 Series A-3, BIG Insured, 7.875%, 03/01/06 . . . . . . . . . . . . . . . . . . . . . . . . $ 145,597
225,000 Series A-5, BIG Insured, 7.375%, 03/01/06 . . . . . . . . . . . . . . . . . . . . . . . . 253,773
250,000 Missouri Southern State College Revenue, Refunding & Improvement, MBIA Insured, 5.25%,
12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,027
Missouri State Environmental Improvement & Energy Resources Authority, PCR, National Rural
Association Electric Project,
50,000 Series 1984 G-4, 8.25%, 11/15/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,461
20,000 Series 1984 G-5, 7.90%, 11/15/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,808
235,000 Series 1984 G-6, 7.90%, 11/15/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,244
2,390,000 Missouri State Environmental Improvement & Energy Resources Authority, Union Electric Project,
7.40%, 05/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,713,271
Missouri State Environmental Improvement & Energy Resources Authority, Water PCR,
950,000 Revolving Fund, Lee's Summit, Series B, 7.125%, 12/01/10 . . . . . . . . . . . . . . . . . 1,074,232
4,500,000 Revolving Fund, Multiple, Series A, 6.55%, 07/01/14 . . . . . . . . . . . . . . . . . . . 4,912,470
1,945,000 Revolving Fund, Springfield Project, Series A, 7.00%, 10/01/10 . . . . . . . . . . . . . . 2,181,512
Missouri State Health & Educational Facilities Authority, Health Facilities Revenue,
2,000,000 Barnes Hospital, Pre-Refunded, 7.125%, 12/15/20 . . . . . . . . . . . . . . . . . . . . . 2,326,560
2,000,000 Bethesda Eye Institute, Pre-Refunded, 6.80%, 11/01/16 . . . . . . . . . . . . . . . . . . 2,295,140
100,000 Bethesda Health Group, Inc. Project, 8.00%, 04/01/13 . . . . . . . . . . . . . . . . . . . 112,553
2,500,000 Children's Mercy Hospital Project, MBIA Insured, 5.65%, 05/15/23 . . . . . . . . . . . . . 2,496,200
3,500,000 Lake of The Ozarks General Hospital, 8.00%, 02/15/11 . . . . . . . . . . . . . . . . . . . 3,841,145
200,000 Memorial Community Hospital Association of Jefferson City, 8.25%, 04/15/99 . . . . . . . . 214,286
1,150,000 Refunding, Barnes-Jewish, Inc., Series A, 5.25%, 05/15/21 . . . . . . . . . . . . . . . . 1,077,297
125,000 Refunding, Charles E. Still Osteopathic Hospital Project, 7.625%, 02/01/08 . . . . . . . 128,641
865,000 Refunding, Heartland Health Systems Project, 8.125%, 10/01/10 . . . . . . . . . . . . . . 992,604
2,500,000 Refunding, Heartland Health Systems Project, AMBAC Insured, 5.625%, 08/15/10 . . . . . . . 2,513,500
580,000 Refunding, St. John's Regional Medical Center, MBIA Insured, Pre-Refunded, 7.70%,
09/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,850
2,500,000 Refunding & Improvement, Christian Health, Series A, FGIC Insured, Pre-Refunded, 6.875%,
02/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,854,900
950,000 Sisters of St. Mary's Health Care Project, BIG Insured, Pre-Refunded, 7.75%, 06/01/16 . . 1,089,394
175,000 Spelman-St. Luke's Hospital Corp. Project, Pre-Refunded, 7.875%, 10/01/18 . . . . . . . . 203,564
Missouri State Health & Educational Facilities Authority Revenue,
5,000,000 Health Midwest, Series A, MBIA Insured, 6.40%, 02/15/15 . . . . . . . . . . . . . . . . . 5,356,600
1,100,000 Health Midwest, Series B, MBIA Insured, 6.25%, 02/15/22 . . . . . . . . . . . . . . . . . 1,165,923
2,745,000 Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 . . . . . . . . . . . . . 2,940,581
50,000 Refunding, St. Louis University, Series A, AMBAC Insured, 7.875%, 06/01/12 . . . . . . . . 55,950
300,000 Refunding & Improvement, Freeman Hospital Project, 7.40%, 09/01/13 . . . . . . . . . . . . 326,409
1,200,000 Refunding & Improvement, St. Luke's Hospital of Kansas City Project, MBIA Insured,
Pre-Refunded, 7.00%, 11/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,393,056
250,000 Refunding & Improvement, St. Luke's Hospital of Kansas City Project, MBIA Insured,
Pre-Refunded, 6.50%, 11/15/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,233
</TABLE>
The accompanying notes are an integral part of these financial statements.
66
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MISSOURI TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Missouri State Housing Development Commission,
$ 225,000 SFMR, Series A, GNMA Mortgage Backed Securities, 7.90%, 02/01/21 . . . . . . . . . . . . . $ 241,011
565,000 SFMR, Series A, GNMA Mortgage Backed Securities, 7.625%, 02/01/22 . . . . . . . . . . . . 611,234
485,000 SFMR, Series B, GNMA Mortgage Backed Securities, 7.625%, 06/01/21 . . . . . . . . . . . . 521,787
2,260,000 SFMR, Series B, GNMA Mortgage Backed Securities, 7.75%, 06/01/22 . . . . . . . . . . . . . 2,432,890
575,000 SFMR, Series C, GNMA Mortgage Backed Securities, 6.90%, 07/01/18 . . . . . . . . . . . . . 605,060
2,250,000 Series B, GNMA Mortgage Backed Securities, 6.40%, 12/01/24 . . . . . . . . . . . . . . . . 2,298,758
135,000 Missouri State Housing Development Commission, MFHR, FHA Insured, 8.50%, 12/01/29 . . . . . . . 146,159
160,000 Missouri State IDB, Capital Improvement & Refunding, Leasehold Revenue, Board of Police
Commissioners, St. Louis, 8.00%, 08/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . 161,792
Missouri State Regional Convention Center & Sports Complex Authority, Convention & Sports
Project,
2,000,000 Refunding, Series A, 5.50%, 08/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,891,820
700,000 Series A, Pre-Refunded, 6.90%, 08/15/06 . . . . . . . . . . . . . . . . . . . . . . . . . 807,618
2,750,000 Series A, Pre-Refunded, 6.80%, 08/15/11 . . . . . . . . . . . . . . . . . . . . . . . . . 3,152,160
4,600,000 Series A, Pre-Refunded, 6.90%, 08/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . 5,345,108
Missouri State Western College Revenue, Refunding,
1,500,000 Housing System, MBIA Insured, 5.40%, 10/01/16 . . . . . . . . . . . . . . . . . . . . . . 1,459,890
5,000,000 Student Housing, Pre-Refunded, 8.00%, 10/01/16 . . . . . . . . . . . . . . . . . . . . . . 6,110,550
1,000,000 Moberly Combined Waterworks & Sewerage System, Refunding & Improvement Bonds, FGIC Insured,
7.50%, 08/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,149,400
50,000 Moberly IDA, Hospital Revenue, Refunding, Moberly Regional Medical Center, Inc. Project,
8.75%, 03/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,588
300,000 North Kansas City School District Facilities Authority, BIG Insured, 7.40%, 03/01/06 . . . . . 330,024
5,000,000 Phelps County Hospital Revenue, Refunding, Phelps County Regional Medical Center, Connie Lee
Insured, 6.00%, 05/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,087,750
250,000 Platte County Reorganized School District No. R-5, Pre-Refunded, 7.25%, 03/01/06 . . . . . . . 277,698
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue,
40,000 Refunding, Series 1985-A, FSA Insured, Pre-Refunded, 9.00%, 07/01/09 . . . . . . . . . . . 53,987
500,000 Series 1988-A, 7.90%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570,195
375,000 Series 1988-A, 7.875%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,759
75,000 Puerto Rico Commonwealth Highway Authority Revenue, Series P, Pre-Refunded, 8.125%, 07/01/13 . 87,920
Puerto Rico Commonwealth Highway & Transportation Authority Revenue,
2,000,000 Series T, 6.625%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,174,440
2,650,000 Series T, Pre-Refunded, 6.50%, 07/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . 3,011,831
1,000,000 Series X, 5.50%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960,340
Puerto Rico Commonwealth Housing Bank & Finance Agency, SF Appropriation,
50,000 Subsidy Prepayment, Pre-Refunded, 7.125%, 12/01/01 . . . . . . . . . . . . . . . . . . . . 52,987
45,000 Subsidy Prepayment, Pre-Refunded, 7.25%, 12/01/06 . . . . . . . . . . . . . . . . . . . . 47,729
30,000 Puerto Rico Commonwealth IDC, General Purpose Revenues, 8.00%, 01/01/03 . . . . . . . . . . . . 30,350
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
200,000 Series 1988-A, 7.90%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,064
975,000 Series 1988-A, 7.75%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,089,563
</TABLE>
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MISSOURI TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Public Improvement,
$ 2,555,000 Refunding, Series A, 6.00%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,613,918
25,000 Series 1986, Pre-Refunded, 7.90%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . 27,998
2,285,000 Series 1992, Pre-Refunded, 6.80%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . 2,643,836
120,000 Series A, Pre-Refunded, 7.75%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 138,912
1,400,000 Series A, Pre-Refunded, 6.50%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 1,544,886
Puerto Rico Electric Power Authority Revenue, Refunding,
15,000 Series 1987-L, 8.40%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,096
25,000 Series 1988-M, 8.00%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,808
3,075,000 Series 1989-N, 7.125%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,374,136
800,000 Series 1989-O, 7.125%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 877,824
495,000 Puerto Rico HFC, MFMR, Portfolio A, Series 1, 7.50%, 04/01/22 . . . . . . . . . . . . . . . . . 527,898
Puerto Rico HFC, SFMR,
165,000 Portfolio No. 1, Series A, GNMA Mortgage Backed Securities, 7.80%, 10/15/21 . . . . . . . 174,778
2,000,000 Portfolio No. 1, Series C, GNMA Mortgage Backed Securities, 6.85%, 10/15/23 . . . . . . . 2,086,980
500,000 Portfolio No. 1, Series D, GNMA Mortgage Backed Securities, 6.85%, 10/15/24 . . . . . . . 530,645
Puerto Rico Industrial, Medical & Environmental PCR, Facilities Financing Authority,
350,000 Baxter Travenol Labs., Series A, 8.00%, 09/01/12 . . . . . . . . . . . . . . . . . . . . . 405,034
300,000 Upjohn Co. Project, 7.50%, 12/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,468
130,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08 . . . . . . . . . . . . . 149,260
Puerto Rico PBA, Guaranteed, Public Education Health Facilities,
175,000 Series H, Pre-Refunded, 7.875%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . 199,509
1,750,000 Series H, Pre-Refunded, 7.25%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . 1,984,220
980,000 Series J, Pre-Refunded, 7.00%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . 1,101,579
1,200,000 Series L, Pre-Refunded, 6.875%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . 1,394,592
500,000 St. Charles County Community College, Pre-Refunded, 7.25%, 03/01/06 . . . . . . . . . . . . . . 573,995
St. Charles County, Francis Howell School District,
1,800,000 FGIC Insured, 6.90%, 03/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,990,890
1,000,000 FGIC Insured, 6.90%, 03/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,106,050
1,500,000 St. Charles Public Facility Authority, Leasehold Revenue Bond, Series 1990, AMBAC Insured,
7.20%, 03/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,666,365
St. Louis Airport Revenue,
50,000 Lambert-St. Louis International Airport, FGIC Insured, Pre-Refunded, 10.00%, 07/01/05 . . 52,600
2,000,000 Refunding & Improvement, Lambert-St. Louis International Airport, FGIC Insured, 6.125%,
07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,090,800
295,000 St. Louis County IDA, Health Facilities Revenue, Refunding & Improvement, First Mortgage,
Normandy Osteopathic Hospitals Project, 9.125%, 08/01/13 . . . . . . . . . . . . . . . . . . . 319,137
45,000 St. Louis County Mortgage Revenue, GNMA Collateralized, 8.125%, 09/01/19 . . . . . . . . . . . 48,691
St. Louis County Regional Convention & Sports Complex Authority, Convention & Sports Project,
4,765,000 Refunding, Series B, 5.50%, 08/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,488,296
1,000,000 Refunding, Series B, 5.50%, 08/15/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 928,280
5,565,000 Refunding, Series B, 5.75%, 08/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,299,716
600,000 Series B, Pre-Refunded, 6.80%, 08/15/04 . . . . . . . . . . . . . . . . . . . . . . . . . 687,744
5,050,000 Series B, Pre-Refunded, 7.00%, 08/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . 5,864,313
250,000 St. Louis Land Clearance RDA, Capital Improvement, Leasehold Revenue, Pre-Refunded, 7.60%,
08/15/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283,545
</TABLE>
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MISSOURI TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
St. Louis Municipal Finance Corp., Leasehold Revenue, Refunding,
$ 1,000,000 Series A, 5.85%, 07/15/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 987,950
10,000,000 Series A, 6.00%, 07/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,976,400
470,000 St. Louis Parking Facilities Revenue, 6.625%, 12/15/21 . . . . . . . . . . . . . . . . . . . . 497,979
375,000 St. Louis Public School District Building Corp., Leasehold Revenue, Capital Improvement, Series
1989-A, FGIC Insured, 7.40%, 04/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404,992
St. Louis Regional Convention & Sports Complex Authority,
4,655,000 Series C, 7.75%, 08/15/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,972,983
11,900,000 Series C, 7.90%, 08/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,079,409
7,000,000 Sikeston Electric Revenue, Refunding, MBIA Insured, 6.25%, 06/01/22 . . . . . . . . . . . . . . 7,417,200
250,000 Southwest University Revenue, Housing System Revenue, FGIC Insured, Pre-Refunded, 7.00%,
10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,587
7,500,000 Springfield School District No. 12, Series B, MBIA Insured, 5.375%, 03/01/13 . . . . . . . . . 7,425,075
5,000,000 Springfield Waterworks Revenue, Series A, 5.60%, 05/01/23 . . . . . . . . . . . . . . . . . . . 4,901,050
300,000 Sullivan County Public Water Supply District No. 1, Waterworks Revenue, Refunding, 7.70%,
12/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,229
500,000 Washington GO, Industrial Bonds, Pauwels Transformers Project, Series A, 7.60%, 12/01/09 . . . 559,120
2,000,000 West Plains IDA, Hospital Revenue, Ozarks Medical Center Project, Series A, 8.625%,
09/15/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,273,360
1,600,000 West Plains Improvement Authority Revenue, Leasehold Civic Center, Inc. Project, FGIC Insured,
6.85%, 04/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,773,200
-----------------
TOTAL LONG TERM INVESTMENTS (COST $204,861,695) . . . . . . . . . . . . . . . . . . . 220,992,869
-----------------
(g)SHORT TERM INVESTMENTS 1.0%
200,000 Independence IDA, MFHR, Independence Ridge Apartments Project, Weekly VRDN and Put, 2.45%,
12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Kansas City IDA, Hospital Revenue, Research Health Services System,
400,000 MBIA Insured, Daily VRDN and Put, 2.15%, 10/15/14 . . . . . . . . . . . . . . . . . . . . 400,000
100,000 MBIA Insured, Daily VRDN and Put, 2.15%, 04/15/15 . . . . . . . . . . . . . . . . . . . . 100,000
900,000 MBIA Insured, Daily VRDN and Put, 2.15%, 10/15/15 . . . . . . . . . . . . . . . . . . . . 900,000
700,000 Missouri State Health & Educational Facilities Authority, Health Facilities Revenue, Refunding,
Sisters of Mercy, Series B, Weekly VRDN and Put, 2.35%, 06/01/14 . . . . . . . . . . . . . . . 700,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $2,300,000) . . . . . . . . . . . . . . . . . . . . 2,300,000
-----------------
TOTAL INVESTMENTS (COST $207,161,695) 97.9% . . . . . . . . . . . . . . . . . . . 223,292,869
OTHER ASSETS AND LIABILITIES, NET 2.1% . . . . . . . . . . . . . . . . . . . . . . 4,855,639
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 228,148,508
=================
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $207,173,440 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,774,044
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (654,615)
-----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,119,429
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
FRANKLIN MISSOURI TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency/Authority
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HFC - Housing Finance Corp.
IDA - Industrial Development Authority/Agency
IDB - Industrial Development Board
IDC - Industrial Development Co.
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
PBA - Public Building Authority
PCR - Pollution Control Revenue
RDA - Redevelopment Agency
SF - Single-Family
SFMR - Single-Family Mortgage Revenue
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
70
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<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.6%
$ 500,000 Albemarle GO, Water and Sewer, Unlimited Tax, 7.10%, 05/01/07 . . . . . . . . . . . . . . . . . $ 549,115
1,000,000 Appalachian State University Revenue, Refunding, Appalachian State Teachers College, Housing &
Student Center System, MBIA Insured, 5.50%, 07/15/13 . . . . . . . . . . . . . . . . . . . . . 1,004,950
900,000 Buncombe County GO, Pre-Refunded, 7.00%, 03/01/10 . . . . . . . . . . . . . . . . . . . . . . . 1,016,010
2,000,000 Buncombe County Metropolitan Sewage District System Revenue, Series B, Pre-Refunded, 6.75%,
07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,291,620
310,000 Cabarrus County School GO, Unlimited Tax, Pre-Refunded, 6.80%, 02/01/10 . . . . . . . . . . . . 349,612
100,000 Charlotte Airport Revenue, 8.50%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . 113,248
Charlotte COP, Convention Facility Project,
2,250,000 AMBAC Insured, Pre-Refunded, 7.00%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . . . 2,613,488
1,500,000 AMBAC Insured, Pre-Refunded, 6.75%, 12/01/21 . . . . . . . . . . . . . . . . . . . . . . . 1,718,250
1,000,000 Refunding, Series C, AMBAC Insured, 5.25%, 12/01/13 . . . . . . . . . . . . . . . . . . . 964,200
4,000,000 Refunding, Series C, AMBAC Insured, 5.25%, 12/01/20 . . . . . . . . . . . . . . . . . . . 3,780,280
Charlotte-Mecklenburg Hospital Authority, Health Care System Revenue, Refunding,
2,100,000 Series 1992, 6.25%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,205,021
150,000 Series G, Pre-Refunded, 7.875%, 10/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . 171,200
50,000 Series H, Pre-Refunded, 8.00%, 10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 58,418
350,000 Series I, Pre-Refunded, 7.80%, 10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 406,049
Charlotte Special Facilities Revenue, Piedmont Aviation, Inc. Project,
425,000 Douglas International Airport, 8.375%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . 439,119
1,405,000 Douglas International Airport, 9.00%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . 1,519,283
200,000 Chowan County Hospital Revenue, Refunding, 7.625%, 10/01/10 . . . . . . . . . . . . . . . . . . 206,482
1,500,000 Coastal Regional Solid Waste Management Authority, Solid Waste Disposal System Revenue,
Refunding, 6.50%, 06/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,576,455
1,000,000 Concord Utilities System Revenue, MBIA Insured, 6.00%, 12/01/10 . . . . . . . . . . . . . . . . 1,046,230
1,000,000 County of Cleveland GO, AMBAC Insured, Pre-Refunded, 7.10%, 06/01/06 . . . . . . . . . . . . . 1,149,110
1,450,000 Craven County Finance Corp. Revenue, Municipal Lease Purchase, COP, School Building Project,
8.00%, 06/01/1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,605,687
1,400,000 Craven County, Regional Medical Facility, MBIA Insured, Pre-Refunded, 7.20%, 10/01/19 . . . . . 1,629,334
Cumberland County Hospital Facility System Revenue,
110,000 BIG Insured, Pre-Refunded, 7.875%, 10/01/14 . . . . . . . . . . . . . . . . . . . . . . . 127,953
2,000,000 MBIA Insured, 6.00%, 10/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,041,280
1,400,000 Refunding, MBIA Insured 5.50%, 10/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . 1,404,060
75,000 Dallas County Water & Sewer GO, Unlimited Tax, 7.80%, 03/01/10 . . . . . . . . . . . . . . . . 82,558
Davie County GO,
350,000 North Carolina Water, Unlimited Tax, 7.10%, 04/01/10 . . . . . . . . . . . . . . . . . . . 386,883
250,000 North Carolina Water, Unlimited Tax, 7.10%, 04/01/11 . . . . . . . . . . . . . . . . . . . 276,344
2,000,000 Duplin County COP, Social Service Administrative Building, Solid Waste Project, FGIC Insured,
6.75%, 09/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,187,340
Durham COP,
90,000 Morgan Street Garage Project, Pre-Refunded, 8.00%, 07/01/06 . . . . . . . . . . . . . . . 102,497
1,650,000 Series 1991, 6.875%, 04/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,809,869
3,000,000 Durham County COP, Jail Facilities & Computer Equipment Project, 6.625%, 05/01/14 . . . . . . . 3,260,040
</TABLE>
The accompanying notes are an integral part of these financial statements.
71
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<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Fayetteville Public Works Commission Revenue,
$ 1,650,000 FGIC Insured, Pre-Refunded, 7.00%, 03/01/11 . . . . . . . . . . . . . . . . . . . . . . . $ 1,884,861
3,500,000 Refunding, FGIC Insured, 5.125%, 03/01/10 . . . . . . . . . . . . . . . . . . . . . . . . 3,375,995
500,000 Fayetteville Sewer and Public Improvement, Pre-Refunded, 7.10%, 05/01/06 . . . . . . . . . . . 568,315
750,000 Gaston County Industrial Facilities and PCFA Revenue, 7.70%, 10/01/12 . . . . . . . . . . . . . 852,960
100,000 Gastonia Water and Sewer GO, Pre-Refunded, 7.10%, 04/01/07 . . . . . . . . . . . . . . . . . . 112,023
Greensboro COP,
1,610,000 Coliseum Arena Expansion Project, 6.75%, 12/01/09 . . . . . . . . . . . . . . . . . . . . 1,762,773
350,000 Greensboro Center City Corp., Pre-Refunded, 7.90%, 07/01/09 . . . . . . . . . . . . . . . 404,950
500,000 Greensboro GO, Pre-Refunded, 6.90%, 05/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . 568,515
2,000,000 Guam Government, GO, Series A, 5.375%, 11/15/13 . . . . . . . . . . . . . . . . . . . . . . . . 1,882,920
1,000,000 Guam Power Authority Revenue, Series A, 6.375%, 10/01/08 . . . . . . . . . . . . . . . . . . . 1,057,860
400,000 Halifax County Insured Facility, PCR, Solid Waste Disposal Champion International, 8.15%,
11/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,544
200,000 Haywood County Insured Facility, PCR, Solid Waste Disposal Champion International, 8.10%,
11/10/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,122
1,500,000 Highpoint Special Obligation Sales Tax Revenue, Solid Waste Management Project, 7.15%,
07/01/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,631,895
70,000 Kaanapolis GO, AMBAC Insured, 7.30%, 02/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . 77,262
500,000 Lincoln County GO, 6.90%, 06/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 557,925
3,000,000 Martin County Industrial Facilities & PCFA Revenue, Refunding, 6.375%, 01/01/10 . . . . . . . . 3,193,830
7,000,000 Martin County Industrial Facilities & PCFA Revenue, Solid Waste, Weyerhaueser Co., 5.65%,
12/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,765,710
1,000,000 Mecklenburg County Industrial Facilities & PCFA Revenue, Fluor Corp. Project, 5.25%, 12/01/09 . 969,720
500,000 Mecklenburg Public Improvement GO, Pre-Refunded, 6.75%, 04/01/03 . . . . . . . . . . . . . . . 560,605
1,000,000 Mooresville Graded School District, COP, AMBAC Insured, 6.35%, 10/01/14 . . . . . . . . . . . . 1,060,790
1,000,000 New Hanover County Industrial Facilities & PCFA Revenue, Refunding, 6.70%, 07/01/19 . . . . . . 1,065,830
North Carolina Eastern Municipal Power Agency, System Revenue,
1,000,000 Refunding, Series 1987-A, Pre-Refunded, 7.50%, 01/01/15 . . . . . . . . . . . . . . . . . 1,108,740
115,000 Refunding, Series 1987-A, Pre-Refunded, 7.25%, 01/01/21 . . . . . . . . . . . . . . . . . 126,911
775,000 Refunding, Series 1987-A, Pre-Refunded, 7.25%, 01/01/21 . . . . . . . . . . . . . . . . . 834,753
750,000 Refunding, Series 1989-A, Pre-Refunded, 7.75%, 01/01/12 . . . . . . . . . . . . . . . . . 870,075
2,000,000 Refunding, Series 1991-A, 6.50%, 01/01/17 . . . . . . . . . . . . . . . . . . . . . . . . 2,077,660
1,000,000 Series 1985-A, Pre-Refunded, 7.50%, 01/01/19 . . . . . . . . . . . . . . . . . . . . . . . 1,034,320
1,450,000 Series 1988-A, Pre-Refunded, 8.00%, 01/01/21 . . . . . . . . . . . . . . . . . . . . . . . 1,667,050
6,000,000 Series 1993-A, 6.40%, 01/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,236,700
14,250,000 Series 1993-D, 5.875%, 01/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,160,368
North Carolina Educational Facilities Finance Agency Revenue,
60,000 Davidson College Project, Pre-Refunded, 8.10%, 12/01/02 . . . . . . . . . . . . . . . . . 67,464
75,000 Duke University Project, Series A, 7.40%, 10/01/17 . . . . . . . . . . . . . . . . . . . . 82,087
60,000 Elon College Project, Pre-Refunded, 8.25%, 01/01/08 . . . . . . . . . . . . . . . . . . . 69,620
190,000 Highpoint College Project, 7.10%, 12/01/07 . . . . . . . . . . . . . . . . . . . . . . . . 212,013
205,000 Highpoint College Project, 7.10%, 12/01/08 . . . . . . . . . . . . . . . . . . . . . . . . 228,210
220,000 Highpoint College Project, 7.10%, 12/01/09 . . . . . . . . . . . . . . . . . . . . . . . . 244,675
</TABLE>
The accompanying notes are an integral part of these financial statements.
72
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
North Carolina HFA, MFR,
$ 3,000,000 Refunding, Series B, 6.90%, 07/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,136,980
2,045,000 Series 1993, 5.90%, 07/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,054,530
North Carolina HFA, SFMR,
45,000 Series C, 8.00%, 03/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,462
140,000 Series H, 8.05%, 03/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,612
220,000 Series J, 7.40%, 03/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,639
520,000 Series M, 7.85%, 09/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543,873
3,400,000 SFR, Refunding, Series S, 6.95%, 03/01/17 . . . . . . . . . . . . . . . . . . . . . . . . 3,539,638
North Carolina Medical Care Commission Health Care Facilities Revenue,
700,000 Gaston Health Care Support Project, 7.25%, 02/15/19 . . . . . . . . . . . . . . . . . . . 762,390
1,250,000 Stanley Memorial Hospital, 7.80%, 10/01/19 . . . . . . . . . . . . . . . . . . . . . . . . 1,405,313
North Carolina Medical Care Commission Hospital Revenue,
2,000,000 Alamance Health Services, Inc., Project, FSA Insured, 5.50%, 08/15/24 . . . . . . . . . . 1,959,400
3,500,000 Halifax Memorial Hospital Project, 6.75%, 08/15/24 . . . . . . . . . . . . . . . . . . . . 3,740,485
160,000 Memorial Mission Hospital Project, MBIA Insured, Pre-Refunded, 7.80%, 10/01/18 . . . . . . 185,622
1,850,000 Presbyterian Hospital Project, Pre-Refunded, 7.375%, 10/01/20 . . . . . . . . . . . . . . 2,165,481
2,000,000 Refunding, Annie Pen Memorial Hospital Project, 7.50%, 08/15/21 . . . . . . . . . . . . . 2,204,160
100,000 Refunding, Carolina Medicorp Project, Series A, Pre-Refunded, 7.875%, 05/01/15 . . . . . . 113,119
50,000 Refunding, Grace Hospital Project, Series A, 6.75%, 10/01/16 . . . . . . . . . . . . . . . 53,098
30,000 Refunding, High Point Regional Hospital, FGIC Insured, 6.50%, 10/01/13 . . . . . . . . . . 32,041
4,250,000 Refunding, Presbyterian Health Services Project, 5.50%, 10/01/20 . . . . . . . . . . . . . 4,139,840
250,000 Refunding, St. Joseph's Hospital Project, AMBAC Insured, Pre-Refunded, 7.25%, 10/01/14 . . 279,850
3,000,000 Roanoke-Chowan Hospital Project, Pre-Refunded, 7.75%, 10/01/19 . . . . . . . . . . . . . . 3,306,330
195,000 Scotland Memorial Hospital, MBIA Insured, Pre-Refunded, 8.625%, 10/01/11 . . . . . . . . . 232,383
1,000,000 Wayne Memorial Hospital Project, AMBAC Insured, 6.00%, 10/01/21 . . . . . . . . . . . . . 1,022,580
50,000 Wesley Long Community Hospital Project, Series B, AMBAC Insured, 7.75%, 10/01/17 . . . . . 54,157
3,240,000 Wilson Memorial Hospital Project, AMBAC Insured, 6.50%, 11/01/20 . . . . . . . . . . . . . 3,439,746
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue,
450,000 Refunding, Series 1988, Pre-Refunded, 7.875%, 01/01/19 . . . . . . . . . . . . . . . . . . 515,399
4,500,000 Refunding, Series 1992, 6.25%, 01/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . 4,656,870
6,000,000 Refunding, Series 1992, MBIA Insured, 5.75%, 01/01/20 . . . . . . . . . . . . . . . . . . 5,943,660
615,000 Series 1986, 7.00%, 01/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642,761
7,135,000 Series 1986, Pre-Refunded, 7.00%, 01/01/18 . . . . . . . . . . . . . . . . . . . . . . . . 7,611,190
400,000 Northampton County, Insured Facility, PCR, Solid Waste Disposal Champion International, 8.05%,
11/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445,300
Orange County GO,
350,000 Series 1989, Pre-Refunded, 7.20%, 05/01/08 . . . . . . . . . . . . . . . . . . . . . . . . 399,417
430,000 Series 1990, Pre-Refunded, 6.90%, 06/01/09 . . . . . . . . . . . . . . . . . . . . . . . . 493,544
1,000,000 Orange Water & Sewer Authority Revenue, Refunding, 5.20%, 07/01/16 . . . . . . . . . . . . . . 966,610
1,195,000 Pender County COP, Pre-Refunded, 7.70%, 06/01/11 . . . . . . . . . . . . . . . . . . . . . . . 1,441,935
2,165,000 Person County COP, Person County Law Enforcement Center Project, Series 1991, MBIA Insured,
7.125%, 06/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,429,238
</TABLE>
The accompanying notes are an integral part of these financial statements.
73
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Pitt County COP,
$ 2,750,000 FGIC Insured, 6.90%, 04/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,045,873
750,000 FGIC Insured, 6.00%, 04/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778,688
Polk County School GO,
700,000 FGIC Insured, 6.70%, 05/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777,441
700,000 FGIC Insured, 6.70%, 05/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775,663
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue,
1,000,000 Series 1988-A, 7.875%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,140,690
250,000 Series 1988-A, 7.00%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,678
Puerto Rico Commonwealth Electric Power Authority Revenue, Refunding,
250,000 Series 1988-M, 8.00%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288,083
500,000 Series 1989-N, 7.125%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548,640
2,555,000 Series 1989-O, 7.125%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,803,550
1,000,000 Puerto Rico Commonwealth Electric Power Authority Revenue, Water Resources, Series P, 7.00%,
07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,111,660
Puerto Rico Commonwealth GO,
500,000 Public Improvement, Series 1987, Pre-Refunded, 7.25%, 07/01/12 . . . . . . . . . . . . . . 560,395
200,000 Series 1986, Pre-Refunded, 7.90%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . 223,980
500,000 Series 1990, Pre-Refunded, 7.25%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . 583,885
Puerto Rico Commonwealth Highway Authority Revenue,
100,000 Refunding, Series N, Pre-Refunded, 8.00%, 07/01/03 . . . . . . . . . . . . . . . . . . . . 116,738
170,000 Series P, Pre-Refunded, 8.125%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 199,288
1,250,000 Series R, 7.15%, 07/01/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,388,188
Puerto Rico Commonwealth Highway & Transportation Authority Revenue,
3,000,000 Series S, Pre-Refunded, 6.625%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 3,435,240
4,000,000 Series W, 5.50%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,847,280
100,000 Puerto Rico Commonwealth Housing Bank & Finance Agency, SF Appropriation, Loan Insurance
Claims, Pre-Refunded, 7.25%, 12/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,064
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
250,000 Series 1988-A, 7.75%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,375
250,000 Series 1988-A, 7.50%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,218
500,000 Puerto Rico HFC, MFMR, Portfolio A, Series I, 7.50%, 04/01/22 . . . . . . . . . . . . . . . . . 533,230
Puerto Rico HFC, SFMR,
240,000 Portfolio No. 1, Series A, GNMA Mortgage Backed Securities, 7.80%, 10/15/21 . . . . . . . 254,222
3,500,000 Portfolio No. 1, Series C, GNMA Mortgage Backed Securities, 6.85%, 10/15/23 . . . . . . . 3,652,215
300,000 Puerto Rico Industrial, Medical & Environmental PCR, Facilities Financing Authority, Upjohn Co.
Project, 7.50%, 12/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,468
125,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08 . . . . . . . . . . . . . 143,519
Puerto Rico PBA, Guaranteed, Public Education & Health Facilities,
195,000 Series H, Pre-Refunded, 7.875%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . 222,310
1,000,000 Series J, Pre-Refunded, 7.25%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . 1,133,840
1,740,000 Series L, Pre-Refunded, 6.875%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . 2,022,158
2,075,000 Puerto Rico PBA Revenue, Refunding, Guaranteed, Series L, 5.75%, 07/01/16 . . . . . . . . . . . 2,061,907
1,500,000 Raeford HDC, First Lien Revenue, Refunding, Yadkin Trail, Series A, 6.00%, 07/15/22 . . . . . . 1,507,290
</TABLE>
The accompanying notes are an integral part of these financial statements.
74
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Robeson County GO,
$ 110,000 Refunding, 7.20%, 06/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 122,656
115,000 Refunding, 7.20%, 06/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,231
120,000 Refunding, 7.20%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,806
145,000 Refunding, Pre-Refunded, 7.80%, 06/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . 166,859
1,750,000 Robeson County Industrial Facilities & PCFA, PCR, Refunding, Campbell Soup Co. Project, 6.40%,
12/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,907,763
1,000,000 Scotland County COP, Jail/Courthouse Project, CGIC Insured, 6.75%, 03/01/11 . . . . . . . . . . 1,092,670
1,000,000 Shelby Producing Facilities System Revenue, Capital Improvement, 6.625%, 06/01/17 . . . . . . . 1,068,460
Southern Pines GO,
150,000 Refunding, Pre-Refunded, 7.40%, 06/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . 170,627
200,000 Series 1990, Pre-Refunded, 6.90%, 03/01/08 . . . . . . . . . . . . . . . . . . . . . . . . 226,866
400,000 Series 1990, Pre-Refunded, 6.90%, 03/01/09 . . . . . . . . . . . . . . . . . . . . . . . . 453,732
1,000,000 Stokes County COP, MBIA Insured, 7.00%, 03/01/06 . . . . . . . . . . . . . . . . . . . . . . . 1,120,120
50,000 University of North Carolina at Chapel Hill Revenue, Utility System, Pre-Refunded, 7.30%,
08/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,285
100,000 University of North Carolina at Charlotte Revenue, Refunding, Series K, Pre-Refunded, 7.375%,
01/01/03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,976
250,000 University of North Carolina at Wilmington Revenue, Student Union System, AMBAC Insured, 6.90%,
01/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,580
250,000 Wake County Hospital Revenue, MBIA Insured, 7.40%, 10/01/16 . . . . . . . . . . . . . . . . . . 279,658
10,000,000 Wake County Industrial Facilities & PCFA Revenue, Carolina Power & Light Co. Project, 6.90%,
04/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,987,800
50,000 Wilkes County Hospital, Pre-Refunded, 7.20%, 06/01/06 . . . . . . . . . . . . . . . . . . . . . 55,602
400,000 Wilmington City GO, Sanitary Sewer, 6.90%, 03/01/05 . . . . . . . . . . . . . . . . . . . . . . 441,111
500,000 Winston Salem SFMR, 8.00%, 09/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541,890
-----------------
TOTAL LONG TERM INVESTMENTS (COST $197,306,930) . . . . . . . . . . . . . . . . . . . 210,258,157
-----------------
(g)SHORT TERM INVESTMENTS .5%
200,000 Alamance County Industrial Facilities & PCFA Revenue, Sci Manufacturing, Inc. Project, Daily
VRDN and Put, 2.45%, 04/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
600,000 North Carolina Medical Care Commission Revenue, Carol Woods Project, Daily VRDN and Put, 2.30%,
04/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
300,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and Put, 2.25%,
12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $1,100,000) . . . . . . . . . . . . . . . . . . . . 1,100,000
-----------------
TOTAL INVESTMENTS (COST $198,406,930) 98.1% . . . . . . . . . . . . . . . . . . . 211,358,157
OTHER ASSETS AND LIABILITIES, NET 1.9% . . . . . . . . . . . . . . . . . . . . . . 4,181,350
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 215,539,507
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
75
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
VALUE
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $198,408,750 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,939,709
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (990,302)
-----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,949,407
=================
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDC - Housing Development Corp.
HFA - Housing Finance Agency/Authority
HFC - Housing Financial Corp.
MBIA - Municipal Bond Investors Assurance Corp.
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
SF - Single-Family
SFMR - Single-Family Mortgage Revenue
SFR - Single-Family Revenue
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
76
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TEXAS TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.2%
$ 2,250,000 Alliance Airport Authority, Inc., Texas Special Facilities Revenue, American Airlines, Inc.
Project, 7.00%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,416,455
Austin Combined Utility System Revenue,
2,000,000 Refunding, AMBAC Insured, 7.00%, 05/15/16 . . . . . . . . . . . . . . . . . . . . . . . . 2,229,580
800,000 Series A, AMBAC Insured, 6.75%, 11/15/07 . . . . . . . . . . . . . . . . . . . . . . . . . 889,544
50,000 Series A, Pre-Refunded, 8.00%, 11/15/16 . . . . . . . . . . . . . . . . . . . . . . . . . 59,962
2,000,000 Series C, Pre-Refunded, 7.30%, 05/15/17 . . . . . . . . . . . . . . . . . . . . . . . . . 2,332,100
120,000 Bexar County HFC Revenue, GNMA Collateralized Mortgage, 8.10%, 03/01/24 . . . . . . . . . . . . 126,762
Brazos Higher Education Authority, Student Loan, Inc. Revenue,
1,000,000 Refunding, Series A-2, 6.80%, 12/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,043,200
1,300,000 Series B-2, 8.25%, 06/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,280,266
Brazos River Authority, PCR,
70,000 Houston Light & Power Co. Project, Collateralized, Series A, 7.875%, 11/01/18 . . . . . . 76,763
150,000 Texas Utilities Electric Co. Project, Collateralized, Series A, 7.875%, 03/01/17 . . . . . 163,137
500,000 Texas Utilities Electric Co. Project, Collateralized, Series A, 7.875%, 03/01/21 . . . . . 562,815
100,000 Brazos River Authority Revenue, Refunding, Collateralized, Houston Lighting & Power Co.
Project, Series A, 7.625%, 05/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,709
Brazos River Authority, Special Facilities Revenue, Lake Alan Henry,
1,200,000 AMBAC Insured, 7.00%, 08/15/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,321,488
1,000,000 AMBAC Insured, 6.80%, 08/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,086,700
Brownsville Utilities System Priority Revenue,
5,000,000 AMBAC Insured, 6.875%, 09/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,472,500
50,000 Series A, Pre-Refunded, 8.00%, 09/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . 55,779
2,265,000 Caldwell County GO, Refunding, AMBAC Insured, Pre-Refunded, 7.00%, 08/15/15 . . . . . . . . . . 2,535,396
80,000 Cameron County HFC Collateralized Mortgage Obligation, Refunding, Series B, FGIC Insured,
7.85%, 03/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,597
4,000,000 Cimarron MUD, Refunding, Pre-Refunded, 7.50%, 03/01/15 . . . . . . . . . . . . . . . . . . . . 4,435,320
4,000,000 Clinton ISD, Refunding, 7.00%, 03/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,347,160
50,000 Coastal Water Authority, Water Conveyance System Revenue, Pre-Refunded, 8.20%, 12/15/07 . . . . 57,186
1,750,000 Comal County Health Facilities Development Corp. Revenue, Refunding, McKenna Memorial Hospital,
FHA Insured, 7.375%, 01/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,951,793
1,805,000 Corpus Christi HFC, SFMR, Refunding, Series A, MBIA Insured, 7.70%, 07/01/11 . . . . . . . . . 1,918,282
Dallas Civic Center Convention Complex Revenue,
1,000,000 Refunding, Senior Lien, AMBAC Insured, 6.75%, 01/01/12 . . . . . . . . . . . . . . . . . . 1,062,930
2,000,000 Senior Lien, AMBAC Insured, 7.00%, 01/01/10 . . . . . . . . . . . . . . . . . . . . . . . 2,195,780
Dallas-Ft. Worth International Airport Facilities Improvement Corp., Revenue,
1,000,000 American Airlines, Inc., 8.00%, 11/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,095,730
2,000,000 Delta Airlines, Inc., 7.625%, 11/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,136,980
1,015,000 Dallas-Ft. Worth Regional Airport Revenue, American Special Facilities, 7.25%, 11/01/12 . . . . 1,016,056
170,000 Dallas HFC, SFMR, GNMA Mortgage Backed Securities, 7.85%, 12/01/10 . . . . . . . . . . . . . . 178,359
500,000 Dallas Housing Corp. Capital Projects Revenue, Refunding, Section 8, Assisted Projects, 7.70%,
08/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,285
1,000,000 Denton Health Facilities Development Corp., Health Facilities Revenue, Refunding, Lutheran Good
Samaritan, AMBAC Insured, 6.00%, 06/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,018,710
</TABLE>
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TEXAS TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 2,000,000 Ector County Hospital District Revenue, Medical Center Hospital, 7.30%, 04/15/12 . . . . . . . $ 2,176,080
El Paso County HFC, SFMR, Refunding,
60,000 Series 1988, GNMA Mortgage Backed Securities, 8.20%, 09/01/20 . . . . . . . . . . . . . . 65,189
860,000 Series A, 8.75%, 10/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 898,794
1,750,000 Ft. Worth HFC, HMR, Refunding, Series A, 8.50%, 10/01/11 . . . . . . . . . . . . . . . . . . . 1,920,940
30,000 Ft. Worth HFC, SFMR, GNMA Mortgage Backed Securities, 8.25%, 12/01/11 . . . . . . . . . . . . . 30,872
100,000 Gonzales County Hospital District, GO, Refunding, MBIA Insured, 7.65%, 02/15/07 . . . . . . . . 111,605
1,200,000 Gulf Coast Waste Disposal Authority, PCR, Union Carbide Corp., 7.45%, 08/01/04 . . . . . . . . 1,265,100
1,000,000 Gulf Coast Waste Disposal Authority Revenue, Champion International, Series A, 6.875%,
12/01/2Z . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,054,700
5,000,000 Harris County Health Facilities Development Corp., Health Care System Revenue, Sisters of
Charity, 7.10%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,540,050
Harris County Health Facilities Development Corp., Hospital Revenue,
45,000 The Herman Trust, Pre-Refunded, 9.00%, 10/01/17 . . . . . . . . . . . . . . . . . . . . . 53,024
225,000 Memorial Hospital System, AMBAC Insured, 7.00%, 06/01/12 . . . . . . . . . . . . . . . . . 247,633
750,000 Harris County Health Facilities Development Corp. Revenue, Herman Hospital Project, FSA
Insured, 7.00%, 10/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 837,690
500,000 Harris County Health Facilities Development Corp., Special Facilities Revenue, Texas Medical
Center Project, MBIA Insured, 7.375%, 05/15/20 . . . . . . . . . . . . . . . . . . . . . . . . 562,160
50,000 Harris County Hospital District Mortgage Revenue, Refunding, Pre-Refunded, 8.50%, 04/01/15 . . 55,551
80,000 Harris County MUD No. 208, Waterworks & Sewer System, Unlimited Tax, Pre-Refunded, 8.00%,
11/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,166
70,000 Harris County Public Facilities Corp., Detention Facility Mortgage Revenue, Series 1988, MBIA
Insured, Pre-Refunded, 7.75%, 12/15/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,290
Harris County, Toll Road,
1,750,000 Multimode Senior Lien, Series A, Pre-Refunded, 7.30%, 08/15/07 . . . . . . . . . . . . . . 1,955,293
2,250,000 Multimode Senior Lien, Series A, Pre-Refunded, 7.40%, 08/15/17 . . . . . . . . . . . . . . 2,516,782
830,000 Multimode Senior Lien, Series C, Pre-Refunded, 8.125%, 08/15/17 . . . . . . . . . . . . . 966,585
250,000 Senior Lien Revenue, Refunding, Pre-Refunded, 8.70%, 08/15/17 . . . . . . . . . . . . . . 293,048
250,000 Hidalgo County Health Services Corp. Revenue, Refunding, Mission Hospital, Series B, BIG
Insured, 7.35%, 08/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,430
2,000,000 Houston Airport System Revenue, Sub Lien, Series B, FGIC Insured, 6.625%, 07/01/22 . . . . . . 2,158,200
Houston GO,
500,000 Public Improvement, Pre-Refunded, 6.75%, 03/01/11 . . . . . . . . . . . . . . . . . . . . 560,410
1,900,000 Public Improvement, Pre-Refunded, 6.80%, 03/01/12 . . . . . . . . . . . . . . . . . . . . 2,135,163
Houston Water & Sewer System Revenue,
50,000 Exchange, Prior Lien, Pre-Refunded, 8.125%, 12/01/17 . . . . . . . . . . . . . . . . . . . 57,850
100,000 Exchange, Prior Lien, Series A, MBIA Insured, Pre-Refunded, 7.125%, 12/01/16 . . . . . . . 109,938
2,930,000 Exchange, Prior Lien, Series A, Pre-Refunded, 7.125%, 12/01/16 . . . . . . . . . . . . . . 3,221,183
2,000,000 Refunding, Series B, 6.375%, 12/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,102,120
285,000 Irving Hospital Authority Revenue, Irving Health Care System, Series 1990, FGIC Insured, 7.25%,
07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,313
Kaufman HDC, MFR, Refunding,
570,000 Series A, 5.90%, 02/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564,693
925,000 Series A, 6.00%, 02/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915,047
</TABLE>
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TEXAS TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 125,000 Keller Waterworks & Sewer System Revenue, Refunding, AMBAC Insured, Pre-Refunded, 7.70%,
01/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 142,718
50,000 La Joya ISD, Unlimited Tax, Refunding, Hidalgo County, Pre-Refunded, 8.30%, 08/01/99 . . . . . 55,112
200,000 Laredo Certificates of Obligation, Laredo Airport, Limited Tax, AMBAC Insured, 7.00%,
08/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,108
400,000 Laredo International Toll Bridge System Revenue, 7.40%, 10/01/06 . . . . . . . . . . . . . . . 456,803
2,000,000 Leon County PCR, Refunding, Nucor Corp. Project, Series A, 7.375%, 08/01/09 . . . . . . . . . . 2,262,520
Lower Colorado River Authority Revenue, Refunding,
1,000,000 Junior Lien, AMBAC Insured, 6.00%, 01/01/17 . . . . . . . . . . . . . . . . . . . . . . . 1,023,670
75,000 Priority, MBIA Insured, Pre-Refunded, 7.625%, 01/01/16 . . . . . . . . . . . . . . . . . . 85,245
1,500,000 Priority, Series A, AMBAC Insured, Pre-Refunded, 7.00%, 01/01/11 . . . . . . . . . . . . . 1,720,950
205,000 Series B, AMBAC Insured, 7.00%, 01/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . 227,320
295,000 Series B, AMBAC Insured, Pre-Refunded, 7.00%, 01/01/11 . . . . . . . . . . . . . . . . . . 341,268
1,000,000 Lower Neches Valley Authority IDC, Marine Terminal Revenue, Refunding, Mobil Oil Refining Corp.
Project, 6.85%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,082,840
1,500,000 Lubbock Health Facilities Development Corp. Revenue, Refunding, Methodist Hospital, Series A,
AMBAC Insured, 5.875%, 12/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,523,355
20,000 Lubbock HFC, SFMR, Refunding, Mortgage Extension Program, Series B, BIG Insured, 8.875%,
12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,359
1,200,000 Matagorda County Navigation District No. 1, PCR, Central Power & Light Co. Project, 7.50%,
12/15/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,359,504
Matagorda County Navigation District No. 1 Revenue, Refunding, Collateralized, Houston Light &
Power Co.,
100,000 Series B, 7.70%, 02/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,839
1,500,000 Series C, FGIC Insured, 7.125%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . 1,653,090
Metropolitan Health Facilities Development Corp. Revenue,
50,000 Refunding & Improvement, Wilson N. Jones Memorial Hospital Project, Pre-Refunded, 7.75%,
01/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,696
2,000,000 Refunding, Wilson N. Jones Memorial Hospital Project, Connie Lee Insured, 5.60%,
01/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,917,840
1,000,000 Midland County Hospital District Revenue, Midland Memorial Hospital, 7.50%, 06/01/16 . . . . . 1,075,360
Montgomery County Library & Refunding,
775,000 FGIC Insured, 6.75%, 09/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 847,649
825,000 FGIC Insured, 6.75%, 09/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 902,336
285,000 North Harris Co., Jr. College District, FGIC Insured, 7.20%, 08/15/10 . . . . . . . . . . . . . 318,146
500,000 North Texas Municipal Water District, Regional Waste Water Revenue, Refunding & Improvement,
MBIA Insured, Pre-Refunded, 7.20%, 06/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . 569,705
500,000 Northeast Hospital Authority Revenue, Refunding, Medical Center, Series A, FGIC Insured,
6.125%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515,705
Panhandle-Plains Higher Education Authority, Inc., Student Loan Revenue,
1,500,000 Refunding, Series B, 9.00%, 06/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,550,055
2,600,000 Series B, 9.00%, 06/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,686,528
1,000,000 Series B, 8.75%, 06/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,013,250
100,000 Richardson GO, Limited Tax, Series 1989, Pre-Refunded, 7.00%, 03/01/08 . . . . . . . . . . . . 107,713
2,000,000 Round Rock ISD, Refunding, MBIA Insured, Pre-Refunded, 6.75%, 08/15/08 . . . . . . . . . . . . 2,254,800
Sabine River Authority, PCR, Refunding, Texas Utility Electric Co. Project, Refunding,
1,715,000 Collateralized, 7.75%, 04/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,845,117
500,000 Collateralized, Series B, 5.85%, 05/01/22 . . . . . . . . . . . . . . . . . . . . . . . . 485,195
</TABLE>
The accompanying notes are an integral part of these financial statements.
79
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TEXAS TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
San Antonio Electric & Gas Revenue,
$ 1,000,000 Refunding, 7.00%, 02/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,099,050
1,000,000 Refunding, 6.00%, 02/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,030,330
2,650,000 Refunding, Pre-Refunded, 7.00%, 02/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . 2,777,147
225,000 Series A, Pre-Refunded, 7.00%, 02/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . 235,795
San Antonio Sewer Revenue,
20,000 Prior Lien, Improvement, Pre-Refunded, 7.90%, 05/01/14 . . . . . . . . . . . . . . . . . . 22,518
405,000 Refunding, Prior Lien, Pre-Refunded, 7.25%, 05/01/12 . . . . . . . . . . . . . . . . . . . 440,583
San Antonio Water Revenue,
50,000 Prior Lien, Pre-Refunded, 7.90%, 05/01/11 . . . . . . . . . . . . . . . . . . . . . . . . 54,827
2,750,000 Prior Lien, Pre-Refunded, 7.125%, 05/01/16 . . . . . . . . . . . . . . . . . . . . . . . . 3,111,130
300,000 Prior Lien, Refunding, Series A, Pre-Refunded, 7.35%, 05/01/07 . . . . . . . . . . . . . . 338,187
350,000 South Padre Island, Certificate of Obligation, Pre-Refunded, 7.875%, 03/01/10 . . . . . . . . . 409,356
50,000 Texarkana Health Facilities Development Corp., Hospital Revenue, Refunding & Improvement,
Wadley Regional Medical Center Project, 8.50%, 10/01/12 . . . . . . . . . . . . . . . . . . . 55,106
500,000 Texas City, IDC, Marine Terminal Revenue, Refunding, Arco Pipe Line Co. Project, 7.375%,
10/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603,450
1,000,000 Texas Health Facilities Development Corp. Revenue, Refunding, All Saints Episcopal Hospital,
Series B, MBIA Insured, 6.375%, 08/15/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,054,390
Texas HFA, SFMR,
50,000 Series 1986-A, 8.25%, 03/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,636
50,000 Series 1987-B, 8.20%, 03/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,885
1,410,000 Texas Housing Agency Residential Development Revenue, Series A, 7.60%, 07/01/16 . . . . . . . . 1,497,378
55,000 Texas Municipal Power Agency Revenue, Pre-Refunded, 8.00%, 09/01/12 . . . . . . . . . . . . . . 61,287
4,610,000 Texas National Research Laboratory Commission Financing Corp. Lease Revenue, Superconducting
Super Collider Project, 7.10%, 12/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,702,984
500,000 Texas Public Finance Authority, Building Revenue, Series B, MBIA Insured, Pre-Refunded, 7.00%,
02/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,070
1,740,000 Texas State Department of Housing & Community Affairs, HMR, Refunding, Series A, GNMA Mortgage
Backed Securities, 6.95%, 07/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,870,570
1,995,000 Texas State Higher Education Coordinating Board, College Student Loan Revenue, Senior Lien,
7.70%, 10/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,193,482
Texas State National Research Laboratory Commission, GO,
1,000,000 Superconducting Super Collider Project, Pre-Refunded, 7.125%, 04/01/11 . . . . . . . . . . 1,147,480
400,000 Superconducting Super Collider Project, Pre-Refunded, 7.125%, 04/01/20 . . . . . . . . . . 458,992
Texas State Turnpike Authority Revenue, Dallas North Tollway,
225,000 Series 1989, 7.125%, 01/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,495
2,270,000 Series 1990, AMBAC Insured, Pre-Refunded, 7.125%, 01/01/15 . . . . . . . . . . . . . . . . 2,572,478
50,000 Texas State Turnpike Authority Revenue, Mountain Creek Lake Bridge, 7.00%, 01/01/07 . . . . . . 51,690
950,000 Texas Water Resources Finance Authority Revenue, 7.625%, 08/15/08 . . . . . . . . . . . . . . . 1,044,829
2,500,000 Titus County Hospital District Revenue, Refunding & Improvement, Titus County Memorial
Hospital, 6.125%, 08/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,432,125
Travis County HFC, SFMR,
90,000 GNMA Mortgage Backed Securities, 8.20%, 04/01/22 . . . . . . . . . . . . . . . . . . . . . 94,085
15,000 Ryan Mortgage Co. Administration, MBIA Insured, 9.00%, 11/15/06 . . . . . . . . . . . . . 15,849
</TABLE>
The accompanying notes are an integral part of these financial statements.
80
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TEXAS TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 550,000 Trinity River Authority, Regional Waste Water System Improvement Revenue, AMBAC Insured,
Pre-Refunded, 7.10%, 08/01/16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 625,449
250,000 Trinity River Authority, Tax Big Bear Creek Interceptor, System Control, MBIA Insured, 7.40%,
02/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,283
University of Texas, Financing System Revenue, Refunding,
1,000,000 Series A, 7.00%, 08/15/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,133,440
2,000,000 Series B, 6.75%, 08/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,215,120
500,000 Waco Health Facilities Development Corp. Hospital Revenue, Hillcrest Baptist Medical Center
Project, MBIA Insured, 7.125%, 09/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 557,510
1,300,000 Weatherford Utility System Revenue, MBIA Insured, 7.00%, 09/01/11 . . . . . . . . . . . . . . . 1,436,734
160,000 Webb County, Limited Tax, GO, CGIC Insured, Pre-Refunded, 7.25%, 02/15/09 . . . . . . . . . . . 179,660
West Side Calhoun County Navigation District, Solid Waste Disposal Revenue,
1,000,000 Union Carbide Chemical & Plastics Co., Inc. Project, 8.20%, 03/15/21 . . . . . . . . . . . 1,146,440
2,480,000 Union Carbide Chemical & Plastics Co., Inc. Project, 6.40%, 05/01/23 . . . . . . . . . . . 2,509,686
50,000 Wichita County, Wichita Falls Hospital Revenue, Refunding, Wichita General Hospital, 7.50%,
09/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,406
200,000 Ysleta GO, ISD, Unlimited Tax, AMBAC Insured, Pre-Refunded, 7.10%, 08/15/05 . . . . . . . . . . 224,832
-----------------
TOTAL LONG TERM INVESTMENTS (COST $134,221,051) . . . . . . . . . . . . . . . . . . . 146,010,763
-----------------
(g)SHORT TERM INVESTMENTS .8%
600,000 Harris County Health Facilities Development Corp., Special Facilities Revenue, Texas Medical
Center Project, MBIA Insured, Daily VRDN and Put, 2.15%, 02/15/22 . . . . . . . . . . . . . . 600,000
300,000 Harris County IDC, PCR, Exxon Project, Series 1984-A, Daily VRDN and Put, 2.30%, 03/01/24 . . . 300,000
100,000 Nueces River Authority, PCR, Refunding, Reynolds Metals Co. Project, Daily VRDN and Put, 2.35%,
12/01/99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
200,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and Put, 2.25%,
12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $1,200,000) . . . . . . . . . . . . . . . . . . . . 1,200,000
-----------------
TOTAL INVESTMENTS (COST $135,421,051) 99.0% . . . . . . . . . . . . . . . . . . . 147,210,763
OTHER ASSETS AND LIABILITIES, NET 1.0% . . . . . . . . . . . . . . . . . . . . . . 1,473,221
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 148,683,984
=================
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $135,449,022 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,938,573
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (176,832)
-----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,761,741
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
81
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
FRANKLIN TEXAS TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency/Authority
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDC - Housing Development Corp.
HFA - Housing Finance Agency/Authority
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
IDC - Industrial Development Corp.
ISD - Independent School District
MBIA - Municipal Bond Investors Assurance Corp.
MFR - Multi-Family Revenue
MUD - Municipal Utility District
PCR - Pollution Control Revenue
SFMR - Single-Family Mortgage Revenue
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
82
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN VIRGINIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.2%
$ 5,000,000 Albermarle County IDAR, Refunding, Martha Jefferson Hospital, 5.875%, 10/01/13 . . . . . . . . $ 5,018,450
1,125,000 Albermarle County IDAR, University Health Services Foundation, 6.50%, 10/01/22 . . . . . . . . 1,195,639
1,690,000 Alexandria IDAR, Resource Recovery, Alexandria/Arlington Waste, 7.40%, 01/01/08 . . . . . . . . 1,730,120
1,375,000 Appomattox River Water Authority Revenue, Refunding, Pre-Refunded, 7.50%, 10/01/13 . . . . . . 1,517,849
2,000,000 Arlington County IDA, Hospital Facility Revenue, Arlington Hospital, Series A, Pre-Refunded,
7.125%, 09/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,331,240
100,000 Ashland GO, Refunding, Pre-Refunded, 7.75%, 08/01/12 . . . . . . . . . . . . . . . . . . . . . 115,349
Augusta County IDA, Hospital Revenue,
1,000,000 Augusta Hospital Corp. Project, AMBAC Insured, 6.625%, 09/01/12 . . . . . . . . . . . . . 1,089,290
5,000,000 Augusta Hospital Corp. Project, Pre-Refunded, 7.00%, 09/01/21 . . . . . . . . . . . . . . 5,806,300
1,230,000 Blacksburg Polytechnic Institute Sanitation Authority Sewer System Revenue, 6.25%, 11/01/12 . . 1,278,351
950,000 Campbell County Utilities Services Authority, Water & Sewer Revenue, MBIA Insured,
Pre-Refunded, 7.25%, 10/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,094,714
2,000,000 Charlottesville IDA Hospital Revenue, Martha Jefferson Hospital, Pre-Refunded, 7.375%,
10/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,341,060
1,190,000 Chesapeake Bay Brigde & Tunnel Commission District Revenue, Refunding, General Resolution, MBIA
Insured, 6.375%, 07/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,261,436
Chesapeake Hospital Authority Facilities Revenue,
2,500,000 Chesapeake General Hospital, 8.20%, 07/01/05 . . . . . . . . . . . . . . . . . . . . . . . 2,930,100
450,000 Chesapeake General Hospital, BIG Insured, Pre-Refunded, 7.625%, 07/01/18 . . . . . . . . . 515,826
1,250,000 Refunding, First Mortgage, Chesapeake General Hospital, MBIA Insured, 5.50%, 07/01/12 . . 1,230,062
250,000 Chesapeake IDA, Nursing Home Revenue, Sentara Life Care Corp. Project, 8.00%, 11/01/17 . . . . 286,070
50,000 Chesapeake Water & Sewer System Revenue, Pre-Refunded, 7.75%, 07/01/17 . . . . . . . . . . . . 56,643
50,000 Chesterfield County COP, Pre-Refunded, 7.90%, 12/15/01 . . . . . . . . . . . . . . . . . . . . 55,402
2,000,000 Covington-Alleghany County, IDA, Hospital Facilities Revenue, 6.875%, 04/01/22 . . . . . . . . 2,147,880
2,000,000 Danville COP, Social Service, 7.625%, 04/01/13 . . . . . . . . . . . . . . . . . . . . . . . . 2,248,140
Danville GO,
655,000 Series 1991, 6.75%, 02/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 721,980
705,000 Series 1991, 6.75%, 02/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777,093
1,000,000 Fairfax County EDA, Parking Revenue, Huntington Metrorail, 7.00%, 09/01/10 . . . . . . . . . . 1,118,190
1,500,000 Fairfax County EDA, Resource Recovery Revenue, Ogden Martin System of Fairfax, Inc. Project,
Series 1988-A, 7.75%, 02/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,708,290
150,000 Fairfax County IDAR, Refunding, Fairfax Hospital Association, Series A, Pre-Refunded, 7.875%,
10/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,498
1,000,000 Fairfax County Sewer Revenue, Series A, AMBAC Insured, Pre-Refunded, 7.00%, 11/15/16 . . . . . 1,142,400
Fairfax County Water Authority Revenue,
1,000,000 Refunding, Series 1992, 5.75%, 04/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . 996,950
2,500,000 Series 1989, Pre-Refunded, 7.25%, 01/01/27 . . . . . . . . . . . . . . . . . . . . . . . . 2,879,825
250,000 Frederick Winchester Service Authority, Sewer Revenue, Refunding, AMBAC Insured, Pre-
Refunded, 7.20%, 10/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,473
165,000 Fredericksburg IDA, Crossover Revenue, Refunding, Mary Washington Hospital, AMBAC Insured,
Pre-Refunded, 7.80%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,261
50,000 Front Royal & Warren County IDA, Mortgage Revenue, Refunding, Heritage Hall No. 13, FHA
Insured, 8.25%, 07/15/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,918
</TABLE>
The accompanying notes are an integral part of these financial statements.
83
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN VIRGINIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Guam Airport Authority Revenue, Refunding,
$ 830,000 Series A, 6.375%, 10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 863,374
1,000,000 Series A, 6.50%, 10/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,046,310
3,000,000 Halifax County IDA, Exempt Facilities Revenue, Old Dominion Electric Cooperative Project,
6.50%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200,310
Hampton Museum Revenue,
1,200,000 Series 1989, Pre-Refunded, 7.50%, 01/01/14 . . . . . . . . . . . . . . . . . . . . . . . . 1,379,231
1,000,000 Series 1990, Pre-Refunded, 7.30%, 01/01/14 . . . . . . . . . . . . . . . . . . . . . . . . 1,154,460
975,000 Hampton Redevelopment & Housing Authority, MFHR 1985, Magruder Pines Apartment Project, 7.125%,
05/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,008,569
1,500,000 Hampton Roads Medical College General Revenue, Refunding, Series A, 6.875%, 11/15/16 . . . . . 1,646,520
3,500,000 Hampton Roads Sanitation District, Primary Pledge Sewer Revenue, Pre-Refunded, 7.20%,
07/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,006,310
Henrico County IDAR,
250,000 Bon Secours, Maryview Nursing Center, Series B, Pre-Refunded, 7.625%, 08/15/18 . . . . . . 287,943
905,000 Bon Secours, St. Mary's Hospital, Series C, 7.50%, 09/01/07 . . . . . . . . . . . . . . . 1,037,818
275,000 Henrico County IDAR, Hospital Facilities Revenue, Bon Secours Health System, St. Mary's
Hospital, Series A, Pre-Refunded, 7.875%, 08/15/18 . . . . . . . . . . . . . . . . . . . . . . 319,492
Henry County Public Service Authority, Water & Sewer Revenue,
300,000 FGIC Insured, Pre-Refunded, 7.75%, 11/15/18 . . . . . . . . . . . . . . . . . . . . . . . 331,890
1,500,000 FGIC Insured, Pre-Refunded, 7.20%, 11/15/19 . . . . . . . . . . . . . . . . . . . . . . . 1,733,294
1,250,000 Leesburg Utilities System Revenue, MBIA Insured, 6.30%, 07/01/17 . . . . . . . . . . . . . . . 1,323,763
650,000 Loudoun County Sanitation Authority, Water & Sewer Revenue System, Series 1989, AMBAC Insured,
Pre-Refunded, 7.50%, 01/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747,084
3,200,000 Louisa IDA, PCR, Electric & Power Co. Project, 5.45%, 01/01/24 . . . . . . . . . . . . . . . . 3,020,096
190,000 Lynchburg IDA, Hospital Facilities Revenue, Refunding, Central Health, Inc., First Mortgage,
8.125%, 01/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,478
1,155,000 Lynchburg IDAR, Refunding, Randolph Macon Women's College, Pre-Refunded, 7.125%, 09/01/17 . . . 1,308,372
1,180,000 Lynchburg Redevelopment & Housing Authority Revenue, Refunding, Waldon Pond II, GNMA, Series A,
5.70%, 07/20/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150,358
50,000 Manassas GO, Series 1988-A, 7.20%, 03/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . 54,620
500,000 Manassas IDA, Hospital Revenue, Prince William Hospital, Pre-Refunded, 8.125%, 04/01/19 . . . . 588,010
1,180,000 Martinsville IDA, Hospital Facility Revenue, Memorial Hospital of Martinsville & Henry, 7.00%,
01/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,281,456
4,500,000 Mecklenburg County IDAR, Exempt Facility, Series A, 7.35%, 05/01/08 . . . . . . . . . . . . . . 4,921,245
1,000,000 Metropolitan Washington D.C. Airports Authority, General Airport Revenue, Series A, 7.60%,
10/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,127,790
150,000 Nelson County Service Authority, Water & Sewer Revenue, FGIC Insured, Pre-Refunded, 7.875%,
07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,619
Norfolk IDAR,
50,000 Children's Hospital of the Kings' Daughters, Inc., Series A, 8.375%, 06/01/12 . . . . . . 56,404
75,000 Children's Hospital of the Kings' Daughters, Inc., Series B, Pre-Refunded, 7.75%, 79,617
06/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,500,000 Children's Hospital of the Kings' Group, Inc., AMBAC Insured, Pre-Refunded, 7.00%,
06/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,061,925
</TABLE>
The accompanying notes are an integral part of these financial statements.
84
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN VIRGINIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Norfold IDAR, (cont.)
$ 50,000 Medical Center Hospital Project, Series A, 7.00%, 11/01/07 . . . . . . . . . . . . . . . . $ 54,582
4,000,000 Refunding, Children's Hospital of the Kings' Group, Inc., AMBAC Insured, 5.50%,
06/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,934,360
5,000,000 (e)Refunding, Sentara Hospital, Series A, 5.50%, 11/01/17 . . . . . . . . . . . . . . . . . . 4,807,850
Northern Virginia Transportation District, Commission Commuter Rail Revenue,
360,000 Railway Express Project, CGIC Insured, 7.00%, 07/01/05 . . . . . . . . . . . . . . . . . . 406,752
640,000 Railway Express Project, CGIC Insured, Pre-Refunded, 7.00%, 07/01/05 . . . . . . . . . . . 732,915
1,000,000 Railway Express Project, CGIC Insured, Pre-Refunded, 7.00%, 07/01/10 . . . . . . . . . . . 1,145,180
1,000,000 Peninsula Airport Commission Revenue, Airport Improvement, 7.25%, 07/15/11 . . . . . . . . . . 1,130,370
5,000,000 Peninsula Ports Authority, Coal Terminal Revenue, Refunding, Dominion Terminal Association
Project, 7.375%, 06/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,361,200
Peninsula Ports Authority Hospital Revenue, Refunding,
175,000 Hampton General Hospital, 7.20%, 01/01/16 . . . . . . . . . . . . . . . . . . . . . . . . 182,438
50,000 Whittaker Memorial Hospital Project, FHA Insured Mortgage, 8.70%, 08/01/23 . . . . . . . . 57,510
6,000,000 Peninsula Ports Authority Revenue, Refunding, Riverside Health System Project, Series A,
6.625%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,447,120
50,000 Portsmouth Public Utility, GO, Refunding, Pre-Refunded, 7.50%, 11/01/12 . . . . . . . . . . . . 56,783
2,200,000 Prince William County IDA, Commuter Parking Facilities Project, 7.25%, 03/01/11 . . . . . . . . 2,434,124
1,250,000 Prince William County IDA, Hospital Revenue, Refunding, Prince William Hospital Project,
5.625%, 04/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,228,388
Prince William County Service Authority, Water & Sewer System Revenue,
4,000,000 FGIC Insured, Pre-Refunded, 6.70%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . 4,573,880
1,000,000 FGIC Insured, Pre-Refunded, 6.50%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . 1,131,160
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue,
1,000,000 Series A, 7.90%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,140,390
2,700,000 Series A, 7.875%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,079,863
1,500,000 Series A, 7.00%, 07/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,654,065
Puerto Rico Commonwealth Electric Power Authority Revenue, Water Resources,
55,000 Refunding, Series L, 8.40%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,685
600,000 Refunding, Series M, 8.00%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . 691,398
1,500,000 Series P, 7.00%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,667,490
Puerto Rico Commonwealth GO,
15,000 Public Improvement, Refunding, 7.125%, 07/01/02 . . . . . . . . . . . . . . . . . . . . . 16,754
75,000 Public Improvement, Series 1988, Pre-Refunded, 7.75%, 07/01/13 . . . . . . . . . . . . . . 86,820
500,000 Public Improvement, Series 1990, Pre-Refunded, 7.70%, 07/01/20 . . . . . . . . . . . . . . 596,150
25,000 Series 1986, Pre-Refunded, 7.90%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . 27,998
1,000,000 Series 1990, Pre-Refunded, 7.30%, 07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . 1,170,490
Puerto Rico Commonwealth Highway Authority Revenue,
2,000,000 Refunding, Series R, 7.20%, 07/01/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,247,100
225,000 Series P, Pre-Refunded, 8.125%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . 263,763
1,000,000 Series Q, Pre-Refunded, 8.00%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 1,208,660
Puerto Rico Commonwealth Highway & Transportation Authority Revenue,
2,000,000 Series S, Pre-Refunded, 6.625%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 2,290,160
2,000,000 Series W, 5.50%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,923,640
</TABLE>
The accompanying notes are an integral part of these financial statements.
85
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN VIRGINIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Housing Bank & Finance Agency, SF Appropriation,
$ 150,000 Loan Insurance Claims, Pre-Refunded, 7.25%, 12/01/06 . . . . . . . . . . . . . . . . . . . $ 159,096
190,000 Subsidy Prepayment, Pre-Refunded, 7.25%, 12/01/06 . . . . . . . . . . . . . . . . . . . . 201,522
40,000 Puerto Rico Commonwealth IDC, General Purposes Revenues, 8.00%, 01/01/03 . . . . . . . . . . . 40,466
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
350,000 Series 1988-A, 7.90%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,862
750,000 Series 1988-A, 7.75%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838,125
Puerto Rico HFC Revenue,
20,000 FHA Insured Mortgage, Section 8 Assisted, 6th Portfolio, Pre-Refunded, 7.75%, 12/01/26 . . 24,724
2,915,000 MFM, Series A-1, 7.50%, 04/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,108,731
420,000 Puerto Rico HFC, SFMR, GNMA Collateralized, Portfolio Series B-1, 7.65%, 10/15/22 . . . . . . . 439,034
Puerto Rico Industrial, Medical & Environmental PCR Facilities, Financial Authority,
300,000 Baxter Travenol Labs., Series A, 8.00%, 09/01/12 . . . . . . . . . . . . . . . . . . . . . 347,172
250,000 Upjohn Co. Project, 7.50%, 12/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,390
185,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08 . . . . . . . . . . . . . 212,408
Puerto Rico PBA, Guaranteed, Public Education & Health Facilities,
750,000 Series H, Pre-Refunded, 7.125%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . 846,713
175,000 Series H, Pre-Refunded, 7.875%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . 199,509
100,000 Series H, Pre-Refunded, 7.25%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . 113,384
1,000,000 Series J, Pre-Refunded, 7.125%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . 1,128,950
1,925,000 Series J, Pre-Refunded, 7.25%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . 2,182,642
2,000,000 Series L, Pre-Refunded, 6.875%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . 2,324,320
5,000,000 Puerto Rico Telephone Authority Revenue, Series L, 6.125%, 01/01/22 . . . . . . . . . . . . . . 5,222,100
Richmond IDA, Hospital Revenue,
1,000,000 Retreat Hospital, 7.25%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,085,380
4,820,000 Retreat Hospital, 7.35%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,259,729
2,000,000 Richmond Metropolitan Authority, Expressway Revenue, AMBAC Insured, 7.00%, 10/15/13 . . . . . . 2,307,680
Richmond Public Improvement, GO,
2,000,000 Refunding, Series A, 5.50%, 01/15/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955,240
1,000,000 Series A, 6.25%, 01/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,054,800
175,000 Richmond Public Utilities Revenue, Series A, Pre-Refunded, 8.00%, 01/15/18 . . . . . . . . . . 201,411
2,500,000 Richmond Redevelopment & Housing Authority Mortgage Revenue, Refunding, MF, Series A, FHA
Insured, 6.50%, 04/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,628,275
3,000,000 Roanoke IDA Hospital Revenue, Roanoke Memorial Hospital, Pre-Refunded, 7.50%, 07/01/20 . . . . 3,507,930
4,250,000 South Boston IDA, Hospital Revenue, Halifax-Community Hospital, Inc. Project, 7.375%,
09/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,740,025
Southeastern Public Service Authority Revenue, Senior Regional, Solid Waste System,
1,000,000 Refunding, BIG Insured, 6.00%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . 1,018,990
1,800,000 Refunding, Series B, BIG Insured, Pre-Refunded, 7.00%, 07/01/13 . . . . . . . . . . . . . 2,038,932
4,000,000 Series 1993, 6.00%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,006,080
40,000 Series B, Pre-Refunded, 9.00%, 07/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . 45,204
10,000 Series B, Pre-Refunded, 9.25%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . 11,356
945,000 Staunton IDA College Facilities Revenue, Refunding, Mary Baldwin College, Series B, 8.00%,
11/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,051,473
</TABLE>
The accompanying notes are an integral part of these financial statements.
86
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN VIRGINIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Suffolk GO,
$ 1,515,000 Refunding & Improvement, 6.00%, 08/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,564,162
200,000 Series 1988, Pre-Refunded, 7.40%, 08/01/05 . . . . . . . . . . . . . . . . . . . . . . . . 224,560
395,000 Suffolk IDA, Hospital Revenue, Louise Obici Memorial Hospital, 7.875%, 01/01/05 . . . . . . . . 427,520
1,000,000 University of Virginia Hospital Revenue, Refunding, Series D, Pre-Refunded, 7.15%, 06/01/17 . . 1,125,840
50,000 Virginia Beach Development Authority, General Hospital Facility Revenue, Series A,
Pre-Refunded, 8.75%, 12/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,658
Virginia Beach, GO,
1,500,000 Series A, Pre-Refunded, 6.875%, 03/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . 1,713,975
995,000 Series A, Pre-Refunded, 6.875%, 03/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . 1,136,300
Virginia College Building Authority, Educational Facilities Revenue,
750,000 Hampton University Project, Series A, Pre-Refunded, 7.75%, 04/01/14 . . . . . . . . . . . 871,275
1,750,000 Marymount University Project, 7.00%, 07/01/22 . . . . . . . . . . . . . . . . . . . . . . 1,859,428
4,200,000 Refunding, Hampton University Project, 5.75%, 04/01/14 . . . . . . . . . . . . . . . . . . 4,216,842
200,000 Virginia Education Loan Authority, Guaranteed, Student Loan Program Revenue, Series B, 8.00%,
03/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206,208
900,000 Virginia Polytechnic Institute Revenue, Dormitory & Dining Hall, BIG Insured, 7.00%, 06/01/09 . 994,032
400,000 Virginia Port Authority, Commonwealth Port Fund Revenue, 8.20%, 07/01/08 . . . . . . . . . . . 454,392
Virginia State HDA, Commonwealth Mortgage,
1,000,000 Series A, 7.10%, 01/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,310
5,500,000 Series A, 7.15%, 01/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,735,455
5,000 Series A-1, 8.10%, 01/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,283
2,000,000 Series B-1, 7.75%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,120,880
1,000,000 Series B-2, 7.75%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,046,370
1,250,000 Series B-2, 7.62%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,314,638
750,000 Series B-2, 7.90%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 791,370
300,000 Series B-3, 7.625%, 01/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,821
250,000 Series B-3, 7.375%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261,340
2,000,000 Series B-3, 6.80%, 01/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,064,740
5,000,000 Series B-4, 6.85%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,182,650
250,000 Series B-4, 7.80%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,550
2,000,000 Series B-4, 6.55%, 01/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,035,940
2,955,000 Series C-2, 5.60%, 01/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,883,814
800,000 Series D-1, 7.50%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 840,968
1,500,000 Series D-2, 7.35%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,576,785
1,000,000 Series D-3, 7.375%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,051,200
7,000,000 Virginia State HDA, MF, Series F, 7.10%, 05/01/13 . . . . . . . . . . . . . . . . . . . . . . . 7,313,390
2,000,000 Virginia State Resources Authority, Sewer System Revenue, Refunding, Harrisonburg Rockingham
Regional, Series A, 6.00%, 05/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,047,860
1,010,000 Virginia State Resources Authority, Solid Waste Disposal System Revenue, Series B, 5.80%,
05/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,024,817
Virginia State Resources Authority, Water & Sewer System Revenue,
1,000,000 Lot #7, Rapidan Service Authority, 7.125%, 10/01/16 . . . . . . . . . . . . . . . . . . . 1,121,520
190,000 Pooled Loan Program, Series A, 7.35%, 11/01/16 . . . . . . . . . . . . . . . . . . . . . . 214,556
400,000 Pooled Loan Program, Series A, 7.35%, 11/01/16 . . . . . . . . . . . . . . . . . . . . . . 445,624
100,000 Pooled Loan Program, Series A, 7.45%, 11/01/16 . . . . . . . . . . . . . . . . . . . . . . 111,779
100,000 Pooled Loan Program, Series A, 7.85%, 11/01/17 . . . . . . . . . . . . . . . . . . . . . . 114,713
</TABLE>
The accompanying notes are an integral part of these financial statements.
87
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN VIRGINIA TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Virginia State Resource Authority, Water System Revenue,
$ 1,000,000 Refunding, Series A, 6.125%, 04/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,033,650
85,000 Series 1988, Pre-Refunded, 7.875%, 10/01/18 . . . . . . . . . . . . . . . . . . . . . . . 99,067
Virginia State Transportation Board, Transportation Contract Revenue,
5,010,000 Northern Transportation District, Series C, 5.50%, 05/15/15 . . . . . . . . . . . . . . . 4,905,241
475,000 U.S. Route 28 Project, Pre-Refunded, 7.80%, 03/01/16 . . . . . . . . . . . . . . . . . . . 545,167
3,000,000 U.S. Route 58 Corridor Development Program, Pre-Refunded, 6.90%, 05/15/12 . . . . . . . . 3,346,020
3,295,000 Washington County IDA, College Facilities Revenue, Emory & Henry College Project, 6.375%,
04/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,393,685
3,000,000 Washington County IDA, Hospital Facilities Revenue, First Mortgage, Johnston Memorial
Hospital, 3,296,910
7.00%, 07/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
600,000 Winchester IDA, Hospital Facility, First Mortgage Revenue, Winchester Medical Center, Inc.,
Pre-Refunded, 8.125%, 01/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,292
-----------------
TOTAL LONG TERM INVESTMENTS (COST $236,327,617) . . . . . . . . . . . . . . . . . . . 256,265,445
-----------------
(g)SHORT TERM INVESTMENTS 1.1%
2,200,000 Peninsula Port Authority Facilities Revenue, Refunding, Shell Oil Co., Series A, Daily VRDN and
Put, 2.25%, 12/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,000
400,000 Peninsula Port Authority, IDR, Kinyo, Inc. Project, Daily VRDN and Put, 2.60%, 05/01/08 . . . . 400,000
300,000 Puerto Rico Commonwealth Government Bank, Refunding, Weekly VRDN and Put, 2.25%, 12/01/15 . . . 300,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $2,900,000) . . . . . . . . . . . . . . . . . . . . 2,900,000
-----------------
TOTAL INVESTMENTS (COST $239,227,617) 99.3% . . . . . . . . . . . . . . . . . . . 259,165,445
OTHER ASSETS AND LIABILITIES, NET .7% . . . . . . . . . . . . . . . . . . . . . . 1,747,626
-----------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 260,913,071
=================
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $239,227,617 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,671,169
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (733,341)
-----------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,937,828
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
88
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
EDA - Economic Development Authority
FGIC - Federal Guaranty Insurance Co.
FHA - Federal Housing Authority
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority
HFC - Housing Financial Corp.
IDA - Industrial Development Authority
IDAR - Industrial Development Authority Revenue
IDC - Industrial Development Corp.
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFM - Multi-Family Mortgage
PBA - Public Building Authority
PCR - Pollution Control Revenue
SF - Single-Family
SFMR - Single-Family Mortgage Revenue
(e) See Note 1 regarding securities purchased on a when-issued basis.
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
89
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost . . . . . . . . . . . . . . . $166,046,906 $1,235,596,168 $108,587,953 $28,059,265 $106,689,720
============ ============== ============ =========== ============
At value . . . . . . . . . . . . . . . . . . . . 178,206,908 1,338,129,918 116,849,108 28,673,049 114,180,407
Cash . . . . . . . . . . . . . . . . . . . . . . . 271,282 35,336 107,468 261,628 135,876
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . 2,851,075 24,543,770 1,642,589 375,826 1,861,425
Investment securities sold . . . . . . . . . . . . 100,000 2,221,212 3,890,348 -- 74,795
Capital shares sold . . . . . . . . . . . . . . . 307,745 2,463,589 399,369 154,342 166,348
------------ -------------- ------------ ----------- ------------
Total assets . . . . . . . . . . . . . . . . . . . 181,737,010 1,367,393,825 122,888,882 29,464,845 116,418,851
------------ -------------- ------------ ----------- ------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery . . . . . . . . . . . . . . . . -- 1,595,470 -- -- --
When-issued basis (Note 1) . . . . . . . . . . . 3,048,467 -- 1,752,494 1,382,392 --
Distributions payable to shareholders . . . . . . 151,049 1,180,105 122,706 25,216 98,532
Capital shares repurchased . . . . . . . . . . . 25,269 2,419,734 59,761 -- 280,677
Management fees . . . . . . . . . . . . . . . . . 84,705 531,813 60,753 -- 58,758
Shareholder servicing costs . . . . . . . . . . . 2,086 14,395 1,971 -- 1,420
Accrued expenses and other liabilities. . . . . . 10,975 69,613 8,808 -- 8,330
------------ -------------- ------------ ----------- ------------
Total liabilities . . . . . . . . . . . . . 3,322,551 5,811,130 2,006,493 1,407,608 447,717
------------ -------------- ------------ ----------- ------------
Net assets, at value . . . . . . . . . . . . . . . $178,414,459 $1,361,582,695 $120,882,389 $28,057,237 $115,971,134
============ ============== ============ =========== ============
Net assets consist of:
Undistributed net investment income . . . . . . . $ 167,122 $ 1,495,357 $ 120,917 $ 41,621 $ 66,104
Unrealized appreciation on investments . . . . . . 12,160,002 102,533,750 8,261,155 613,784 7,490,687
Accumulated net realized loss . . . . . . . . . . (2,628) (917,131) (199,778) (26,303) (153,424)
Capital shares . . . . . . . . . . . . . . . . . . 166,089,963 1,258,470,719 112,700,095 27,428,135 108,567,767
------------ -------------- ------------ ----------- ------------
Net assets, at value . . . . . . . . . . . . . . . $178,414,459 $1,361,582,695 $120,882,389 $28,057,237 $115,971,134
============ ============== ============ =========== ============
Shares outstanding . . . . . . . . . . . . . . . . 15,114,313 115,643,077 10,070,397 2,509,776 10,035,247
============ ============== ============ =========== ============
Net asset value per share . . . . . . . . . . . . . $11.80 $11.77 $12.00 $11.18 $11.56
============ ============== ============ =========== ============
Representative computation
(Alabama Tax-Free Income Fund) of net
asset value and offering price per share:
Net asset value and redemption price per share
($178,414,459/15,114,313) . . . . . . . . . . . $11.80
============
Maximum offering price (100/96 of $11.80) . . . . $12.29
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
90
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost. . . . . . . . . . . . . . . . $144,963,022 $207,161,695 $198,406,930 $135,421,051 $239,227,617
============ ============== ============ ============ ============
At value . . . . . . . . . . . . . . . . . . . . 154,486,487 223,292,869 211,358,157 147,210,763 259,165,445
Cash . . . . . . . . . . . . . . . . . . . . . . . 983,225 577,895 613,720 98,995 419,166
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . 2,321,244 3,088,203 3,467,347 2,459,436 4,224,075
Investment securities sold . . . . . . . . . . . 1,189,427 610,367 15,000 895,885 1,954,562
Capital shares sold . . . . . . . . . . . . . . . 579,444 899,870 692,724 154,203 739,428
------------ -------------- ------------ ------------ ------------
Total assets . . . . . . . . . . . . . . . . 159,559,827 228,469,204 216,146,948 150,819,282 266,502,676
------------ -------------- ------------ ------------ ------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery . . . . . . . . . . . . . . . . -- -- -- 1,502,428 --
When-issued basis (Note 1) . . . . . . . . . . . 2,448,523 -- -- -- 5,022,917
Distributions payable to shareholders . . . . . . 129,869 193,549 180,251 134,087 228,281
Capital shares repurchased . . . . . . . . . . . 210,939 5,289 311,016 414,096 199,759
Management fees . . . . . . . . . . . . . . . . . 75,640 105,387 100,086 72,381 118,662
Shareholder servicing costs . . . . . . . . . . . 2,641 3,913 3,234 1,713 3,992
Accrued expenses and other payables . . . . . . . 9,271 12,558 12,854 10,593 15,994
------------ -------------- ------------ ------------ ------------
Total liabilities . . . . . . . . . . . . . . 2,876,883 320,696 607,441 2,135,298 5,589,605
------------ -------------- ------------ ------------ ------------
Net assets, at value . . . . . . . . . . . . . . . $156,682,944 $228,148,508 $215,539,507 $148,683,984 $260,913,071
============ ============== ============ ============ ============
Net assets consist of:
Undistributed net investment income . . . . . . . $96,447 $140,100 $140,816 $90,232 $326,930
Unrealized appreciation on investments . . . . . 9,523,465 16,131,174 12,951,227 11,789,712 19,937,828
Accumulated net realized loss . . . . . . . . . . (637,637) (605,071) (239,199) (26,831) (277,024)
Capital shares . . . . . . . . . . . . . . . . . 147,700,669 212,482,305 202,686,663 136,830,871 240,925,337
------------ -------------- ------------ ------------ ------------
Net assets, at value . . . . . . . . . . . . . . . $156,682,944 $228,148,508 $215,539,507 $148,683,984 $260,913,071
============ ============== ============ ============ ============
Shares outstanding . . . . . . . . . . . . . . . . 13,796,559 19,108,922 18,080,701 12,684,797 22,080,806
============ ============== ============ ============ ============
Net asset value per share . . . . . . . . . . . . $11.36 $11.94 $11.92 $11.72 $11.82
============ ============== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
91
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest (Note 1) . . . . . . . . . . . . . . . . $10,389,548 $82,535,353 $6,603,036 $1,137,209 $6,906,699
----------- ----------- ---------- ---------- ----------
Expenses:
Management fees (Note 5) . . . . . . . . . . . . . 964,354 6,074,908 665,735 -- 671,274
Shareholder servicing costs (Note 5) . . . . . . . 26,368 179,606 23,124 -- 16,724
Reports to shareholders . . . . . . . . . . . . . 29,440 204,617 25,124 -- 20,883
Custodian fees . . . . . . . . . . . . . . . . . . 18,322 141,501 11,695 -- 11,847
Professional fees . . . . . . . . . . . . . . . . 5,243 33,716 3,746 -- 3,759
Trustees' fees and expenses . . . . . . . . . . . 3,009 23,348 1,927 -- 1,963
Other. . . . . . . . . . . . . . . . . . . . . . . 9,930 44,142 7,607 -- 8,121
----------- ----------- ---------- ---------- ----------
Total expenses . . . . . . . . . . . . . . . 1,056,666 6,701,838 738,958 -- 734,571
----------- ----------- ---------- ---------- ----------
Net investment income (Note 7) . . . . . . 9,332,882 75,833,515 5,864,078 1,137,209 6,172,128
----------- ----------- ---------- ---------- ----------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) . . . . . . . . . . . . . 321,801 (749,863) (168,244) (24,595) (59,400)
Net unrealized appreciation (depreciation)
during the year . . . . . . . . . . . . . . . . . 937,965 9,610,252 1,274,809 37,543 (107,011)
----------- ----------- ---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . . . 1,259,766 8,860,389 1,106,565 12,948 (166,411)
----------- ----------- ---------- ---------- ----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . $10,592,648 $84,693,904 $6,970,643 $1,150,157 $6,005,717
=========== =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
92
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest (Note 1) . . . . . . . . . . . . . . . . $8,769,459 $12,430,983 $11,593,874 $9,473,882 $14,930,480
---------- ----------- ----------- ---------- -----------
Expenses:
Management fees (Note 5) . . . . . . . . . . . . . 837,521 1,146,123 1,093,721 856,916 1,326,276
Shareholder servicing costs (Note 5) . . . . . . . 30,787 44,262 36,316 22,222 47,196
Reports to shareholders . . . . . . . . . . . . . 32,035 45,960 39,285 26,890 47,828
Custodian fees . . . . . . . . . . . . . . . . . . 15,235 22,085 20,864 16,014 26,042
Professional fees . . . . . . . . . . . . . . . . 4,613 6,178 5,910 4,687 7,073
Trustees' fees and expenses . . . . . . . . . . . 2,531 3,612 3,432 2,671 4,313
Other . . . . . . . . . . . . . . . . . . . . . . 6,242 8,990 10,303 18,547 12,086
---------- ----------- ----------- ---------- -----------
Total expenses . . . . . . . . . . . . . . . 928,964 1,277,210 1,209,831 947,947 1,470,814
---------- ----------- ----------- ---------- -----------
Net investment income (Note 7) . . . . . . 7,840,495 11,153,773 10,384,043 8,525,935 13,459,666
---------- ----------- ----------- ---------- -----------
Realized and unrealized gain (loss) on investments:
Net realized loss . . . . . . . . . . . . . . . . (359,934) (285,048) (14,532) (6,425) (105,751)
Net unrealized appreciation during the year . . . 1,306,640 3,196,567 459,121 486,584 2,454,550
---------- ----------- ----------- ---------- -----------
Net realized and unrealized gain on investments . . 946,706 2,911,519 444,589 480,159 2,348,799
---------- ----------- ----------- ---------- -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . $8,787,201 $14,065,292 $10,828,632 $9,006,094 $15,808,465
========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
93
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 28, 1994 AND 1993
<TABLE>
<CAPTION>
FRANKLIN ALABAMA FRANKLIN FLORIDA FRANKLIN GEORGIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------ ----------------------------- ------------------------------
1994 1993 1994 1993 1994 1993
------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase
(decrease) in
net assets:
Operations:
Net investment
income . . . . . $ 9,332,882 $ 7,235,926 $ 75,833,515 $ 63,412,409 $ 5,864,078 $ 4,699,637
Net realized gain
(loss) from
security
transactions . . 321,801 (221,630) (749,863) (62,379) (168,244) (29,153)
Net unrealized
appreciation
during the
year . . . . . . 937,965 8,075,638 9,610,252 59,276,055 1,274,809 4,759,260
------------ ----------- ------------ ------------- ------------- -------------
Net increase
in net assets
resulting from
operations . . 10,592,648 15,089,934 84,693,904 122,626,085 6,970,643 9,429,744
Distributions to
shareholders:
From undistributed
net investment in-
come (Note 7) . . (9,293,001) (7,218,076) (75,386,380) (63,631,486) (5,877,454) (4,623,704)
Increase in net
assets from capital
share transactions
(Note 2) . . . . . . 32,635,283 40,353,208 187,447,805 219,722,780 28,771,716 17,665,056
------------ ----------- ------------ ------------- ------------- -------------
Net increase in
net assets . . . 33,934,930 48,225,066 196,755,329 278,717,379 29,864,905 22,471,096
Net assets:
Beginning
of year . . . . . 144,479,529 96,254,463 1,164,827,366 886,109,987 91,017,484 68,546,388
------------ ------------ ------------- ------------- ------------- -------------
End of year . . . . $178,414,459 $144,479,529 $1,361,582,695 $1,164,827,366 $ 120,882,389 $ 91,017,484
============ ============ ============== ============== ============= =============
Undistributed net
investment income
included in net
assets:
Beginning
of year . . . . . $ 127,241 $ 109,391 $ 1,048,222 $ 1,267,299 $ 134,293 $ 58,360
============ ============ ============== ============== ============= =============
End of year . . . . $ 167,122 $ 127,241 $ 1,495,357 $ 1,048,222 $ 120,917 $ 134,293
============ ============ ============== ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN KENTUCKY
TAX-FREE INCOME FUND
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Increase
(decrease) in
net assets:
Operations:
Net investment
income . . . . . $ 1,137,209 $ 403,411
Net realized gain
(loss) from
security
transactions . . (24,595) (1,213)
Net unrealized
appreciation
during the
year . . . . . . 37,543 547,314
------------ -------------
Net increase
in net assets
resulting from
operations . . 1,150,157 949,512
Distributions to
shareholders:
From undistributed
net investment in-
come (Note 7) . . (1,147,824) (391,356)
Increase in net
assets from capital
share transactions
(Note 2) . . . . . . 16,376,806 8,087,446
------------- -------------
Net increase in
net assets . . . 16,379,139 8,645,602
Net assets:
Beginning
of year . . . . . 11,678,098 3,032,496
------------- -------------
End of year . . . . $ 28,057,237 $ 11,678,098
============= =============
Undistributed net
investment income
included in net
assets:
Beginning
of year . . . . . $ 52,236 $ 40,181
============= =============
End of year . . . . $ 41,621 $ 52,236
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
94
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1994 AND 1993
<TABLE>
<CAPTION>
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------ ------------------------------
1994 1993 1994 1993
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income . . . . . . . . $ 6,172,128 $ 5,135,433 $ 7,840,495 $ 5,524,977
Net realized loss . . . . . . . . . . (59,400) (76,144) (359,934) (249,775)
Net unrealized appreciation
(depreciation) . . . . . . . . . . . (107,011) 5,139,717 1,306,640 6,212,379
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations . . . 6,005,717 10,199,006 8,787,201 11,487,581
Distributions to shareholders:
From undistributed net investment
income (Note 7) . . . . . . . . . . . (6,234,171) (5,107,779) (7,858,844) (5,500,045)
Increase in net assets from capital share
transactions (Note 2) . . . . . . . . 20,831,780 17,353,864 39,881,603 38,347,176
------------ ------------ ------------ ------------
Net increase in net assets . . . 20,603,326 22,445,091 40,809,960 44,334,712
Net assets:
Beginning of year . . . . . . . . . 95,367,808 72,922,717 115,872,984 71,538,272
------------ ------------ ------------ ------------
End of year . . . . . . . . . . . . $115,971,134 $ 95,367,808 $156,682,944 $115,872,984
============ ============ ============ ============
Undistributed net investment income
included in net assets
Beginning of year . . . . . . . . . . $ 128,147 $ 100,493 $ 114,796 $ 89,864
============ ============ ============ ============
End of year . . . . . . . . . . . . . $ 66,104 $ 128,147 $ 96,447 $ 114,796
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN MISSOURI
TAX-FREE INCOME FUND
-------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income . . . . . . . . $ 11,153,773 $ 8,139,963
Net realized loss . . . . . . . . . . (285,048) (299,374)
Net unrealized appreciation
(depreciation) . . . . . . . . . . . 3,196,567 8,807,684
------------ --------------
Net increase in net assets
resulting from operations . . . 14,065,292 16,648,273
Distributions to shareholders:
From undistributed net investment
income (Note 7) . . . . . . . . . . . (11,309,399) (8,012,398)
Increase in net assets from capital share
transactions (Note 2) . . . . . . . . 61,270,283 44,546,112
------------ --------------
Net increase in net assets . . . 64,026,176 53,181,987
Net assets:
Beginning of year . . . . . . . . . 164,122,332 110,940,345
------------ --------------
End of year . . . . . . . . . . . . $228,148,508 $ 164,122,332
============ ==============
Undistributed net investment income
included in net assets
Beginning of year . . . . . . . . . . $ 295,726 $ 168,161
============ ==============
End of year . . . . . . . . . . . . . $ 140,100 $ 295,726
============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
95
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1994 AND 1993
<TABLE>
<CAPTION>
FRANKLIN NORTH CAROLINA FRANKLIN TEXAS
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------ ------------------------------
1994 1993 1994 1993
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income . . . . . . . . $ 10,384,043 $ 7,547,892 $ 8,525,935 $ 7,951,396
Net realized loss . . . . . . . . . . (14,532) (147,462) (6,425) (13,681)
Net unrealized appreciation . . . . . 459,121 9,082,722 486,584 7,705,640
------------- ------------- ------------ -------------
Net increase in net assets
resulting from operations . . . 10,828,632 16,483,152 9,006,094 15,643,355
Distributions to shareholders:
From undistributed net investment
income (Note 7) . . . . . . . . . . . (10,491,146) (7,449,174) (8,600,524) (7,935,611)
Increase in net assets from capital
share transactions (Note 2) . . . . . 58,684,849 40,523,548 8,889,326 7,959,819
------------- ------------- ------------ -------------
Net increase in net assets . . . 59,022,335 49,557,526 9,294,896 15,667,563
Net assets:
Beginning of year . . . . . . . . . . 156,517,172 106,959,646 139,389,088 123,721,525
------------- ------------- ------------ -------------
End of year . . . . . . . . . . . . . $ 215,539,507 $ 156,517,172 $148,683,984 $ 139,389,088
Undistributed net investment income
included in net assets:
Beginning of year . . . . . . . . . . $ 247,919 $ 149,201 $ 164,821 $ 149,036
============= ============= ============ =============
End of year . . . . . . . . . . . . . $ 140,816 $ 247,919 $ 90,232 $ 164,821
============= ============= ============ =============
<CAPTION>
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
-------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income . . . . . . . . $ 13,459,666 $ 10,707,333
Net realized loss . . . . . . . . . . (105,751) (164,306)
Net unrealized appreciation . . . . . 2,454,550 11,742,026
------------- ---------------
Net increase in net assets
resulting from operations . . . 15,808,465 22,285,053
Distributions to shareholders:
From undistributed net investment
income (Note 7) . . . . . . . . . . . (13,555,847) (10,510,922)
Increase in net assets from capital
share transactions (Note 2) . . . . . 47,489,812 46,781,389
------------- ---------------
Net increase in net assets . . . 49,742,430 58,555,520
Net assets:
Beginning of year . . . . . . . . . . 211,170,641 152,615,121
------------- ---------------
End of year . . . . . . . . . . . . . $ 260,913,071 $ 211,170,641
Undistributed net investment income
included in net assets:
Beginning of year . . . . . . . . . . $ 423,111 $ 226,700
============= ===============
End of year . . . . . . . . . . . . . $ 326,930 $ 423,111
============= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
96
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust, (the Trust) is an open-end, management investment
company (mutual fund), registered under the Investment Company Act of 1940 as
amended. The Trust currently consists of twenty-seven separate funds (the
Funds). This report pertains only to the ten Funds included in the accompanying
financial statements. Each of the Funds issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio. The Trust's
Maryland Fund is non-diversified although all other Funds included in this
report are diversified.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. SECURITY VALUATIONS:
Tax-free bonds generally trade in the over-the-counter market rather than on a
national securities exchange. Often there are no transactions in a particular
security on any given day. In the absence of a recorded sale or reported bid
and asked prices, information with respect to bond and note transactions,
quotations from bond dealers, market transactions in comparable securities, and
various relationships between securities are used to determine the value of the
security. The Trust may also utilize a pricing service, bank, or broker/dealer
experienced in such matters to perform any of the pricing functions, under
procedures approved by the Board of Trustees. Short term securities and similar
investments with remaining maturities of 60 days or less are valued at
amortized cost, which approximates value.
b. MUNICIPAL BONDS OR NOTES WITH "PUTS":
The Trust has purchased municipal bonds or notes with the right to resell the
bonds or notes to the seller at an agreed upon price or yield on a specified
date or within a specified period (which will be prior to the maturity date of
the bonds or notes). Such a right to resell is commonly known as a "put".
c. INCOME TAXES:
The Funds intend 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, EXPENSE AND DISTRIBUTIONS:
Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Bond discount and premium, if
any, are amortized as required by the Internal Revenue Code. The Funds normally
declare dividends from their net investment income daily and distribute
monthly. Daily allocations of net investment income will commence on the date
of receipt of an investor's funds. Dividends are normally declared each day the
New York Stock Exchange is open for business equal to an amount per day set
from time to time by the Board of Trustees and are payable to shareholders of
record at the beginning of business on the ex-date. Once each month, dividends
are reinvested in additional shares of the Funds or paid in cash as requested
by the shareholders.
Distributions from undistributed net investment income, and net realized
capital gains from security transactions, to the extent they exceed available
capital loss carryovers, are generally made during each year to avoid the 4%
excise tax imposed on regulated investment companies by the Internal Revenue
Code. Net realized capital gains and losses differ for financial statement and
tax purposes primarily due to losses deferred for wash sales.
f. SECURITIES TRADED ON A WHEN-ISSUED BASIS:
The Funds 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 Funds will generally purchase these securities with the intention
of acquiring such securities, they may sell such securities before the
settlement date. The Funds have 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.
97
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
g. EXPENSE ALLOCATION:
Common expenses incurred by the Trust are allocated among the Funds based on
the ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
h. CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS:
Effective December 31, 1993, the Funds 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 reconcile financial
statement amounts with distributions determined in accordance with Statement of
Position 93-2, as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
GEORGIA LOUISIANA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------- -----------
<S> <C> <C>
Accumulated Net Realized Loss . . . . . . . . . . . . . . $(1,156) $(4,555)
Capital Shares . . . . . . . . . . . . . . . . . . . . . 1,156 4,555
</TABLE>
2. TRUST SHARES
At February 28, 1994, there were an unlimited number of shares of no par value
authorized. Transactions in each of the Fund's shares for the years ended
February 28, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
FRANKLIN ALABAMA FRANKLIN FLORIDA FRANKLIN GEORGIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994
Shares sold . . . . . . . . 3,321,282 $39,132,187 20,791,782 245,249,836 2,737,098 $32,937,492
Shares issued in reinvestment
of distributions . . . . . 267,133 3,157,652 1,393,284 16,444,248 215,072 2,589,205
Shares redeemed . . . . . . (740,903) (8,776,901) (7,241,252) (85,600,886) (788,209) (9,480,655)
Changes from exercise of
exchange privilege:
Shares sold . . . . . . . 168,608 1,991,007 5,130,195 60,727,191 371,559 4,469,116
Shares redeemed . . . . . (242,472) (2,868,662) (4,166,648) (49,372,584) (144,415) (1,743,442)
--------- ----------- ---------- ----------- ----------- -----------
Net increase . . . . . . . . 2,773,648 $32,635,283 15,907,361 187,447,805 2,391,105 $28,771,716
========= =========== ========== =========== =========== ===========
1993
Shares sold . . . . . . . . 4,267,032 $47,956,458 21,830,150 246,082,082 2,307,375 $26,353,011
Shares issued in reinvestment
of distributions . . . . . 231,329 2,600,338 1,209,357 13,629,080 183,437 2,097,402
Shares redeemed . . . . . . (843,757) (9,503,542) (5,612,403) (63,190,827) (914,729) (10,483,183)
Changes from exercise of
exchange privilege:
Shares sold . . . . . . . 101,819 1,140,913 4,675,919 52,736,609 294,060 3,369,367
Shares redeemed . . . . . (163,745) (1,840,959) (2,618,332) (29,534,164) (320,329) (3,671,541)
--------- ----------- ---------- ----------- ----------- -----------
Net increase . . . . . . . . 3,592,678 $40,353,208 19,484,691 219,722,780 1,549,814 $17,665,056
========= =========== ========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN KENTUCKY
TAX-FREE INCOME FUND
SHARES AMOUNT
---------- -----------
<S> <C> <C>
1994
Shares sold . . . . . . . . 1,300,522 $14,674,973
Shares issued in reinvestment
of distributions . . . . . 49,881 562,175
Shares redeemed . . . . . . (62,559) (703,782)
Changes from exercise of
exchange privilege:
Shares sold . . . . . . . 200,247 2,242,725
Shares redeemed . . . . . (35,193) (399,285)
---------- -----------
Net increase . . . . . . . . 1,452,898 $16,376,806
========== ===========
1993
Shares sold . . . . . . . . 690,903 $ 7,332,153
Shares issued in reinvestment
of distributions . . . . . 24,768 262,615
Shares redeemed . . . . . . (15,886) (168,191)
Changes from exercise of
exchange privilege:
Shares sold . . . . . . . 81,200 857,191
Shares redeemed . . . . . (18,531) (196,322)
---------- -----------
Net increase . . . . . . . . 762,454 $ 8,087,446
========== ===========
</TABLE>
98
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
2. TRUST SHARES (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
1994
Shares sold . . . . . . . . . . . . . 2,393,847 $ 27,877,547 4,319,120 $ 49,064,979
----------- ------------ ----------- ------------
Shares issued in reinvestment of
distributions . . . . . . . . . . . 177,136 2,060,087 279,161 3,176,233
Shares redeemed . . . . . . . . . . . (669,137) (7,807,523) (1,243,167) (14,181,590)
Changes from exercise of exchange
privilege:
Shares sold . . . . . . . . . . . . 140,192 1,630,998 487,082 5,550,930
Shares redeemed . . . . . . . . . . (250,369) (2,929,329) (326,855) (3,728,949)
----------- ------------ ----------- ------------
Net increase . . . . . . . . . . . . 1,791,669 $ 20,831,780 3,515,341 $ 39,881,603
=========== ============ =========== ============
1993
Shares sold . . . . . . . . . . . . . 2,163,971 $ 24,105,831 4,210,101 $ 45,565,670
Shares issued in reinvestment of
distributions . . . . . . . . . . . . 152,758 1,701,174 218,873 2,370,730
Shares redeemed . . . . . . . . . . . (653,372) (7,266,275) (709,222) (7,673,390)
Changes from exercise of exchange
privilege:
Shares sold . . . . . . . . . . . . 183,706 2,033,558 381,589 4,127,875
Shares redeemed . . . . . . . . . . (293,686) (3,220,424) (566,457) (6,043,709)
----------- ------------ ----------- ------------
Net increase . . . . . . . . . . . . . 1,553,377 $ 17,353,864 3,534,884 $ 38,347,176
=========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN MISSOURI
TAX-FREE INCOME FUND
----------------------------
SHARES AMOUNT
----------- -----------
<S> <C> <C>
1994
Shares sold . . . . . . . . . . . . . 5,546,392 $66,129,899
Shares issued in reinvestment of
distributions . . . . . . . . . . . 367,726 4,393,202
Shares redeemed . . . . . . . . . . . (1,063,359) (12,724,928)
Changes from exercise of exchange
privilege:
Shares sold . . . . . . . . . . . . 475,900 5,658,703
Shares redeemed . . . . . . . . . . (182,558) (2,186,593)
----------- -----------
Net increase . . . . . . . . . . . . 5,144,101 $61,270,283
=========== ===========
1993
Shares sold . . . . . . . . . . . . . 4,226,175 $47,750,975
Shares issued in reinvestment of
distributions . . . . . . . . . . . . 285,566 3,227,866
Shares redeemed . . . . . . . . . . . (717,329) (8,104,087)
Changes from exercise of exchange
privilege:
Shares sold . . . . . . . . . . . . 398,482 4,504,445
Shares redeemed . . . . . . . . . . (252,140) (2,833,087)
----------- -----------
Net increase . . . . . . . . . . . . . 3,940,754 $44,546,112
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN NORTH CAROLINA FRANKLIN TEXAS
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
1994
Shares sold . . . . . . . . . . . . . 5,035,926 $ 60,327,594 1,747,338 $ 20,481,817
Shares issued in reinvestment of
distributions . . . . . . . . . . . . 370,585 4,445,622 220,766 2,591,223
Shares redeemed . . . . . . . . . . . (915,917) (10,997,113) (1,158,810) (13,614,644)
Changes from exercise of exchange
privilege:
Shares sold . . . . . . . . . . . . 705,248 8,434,070 302,934 3,555,574
Shares redeemed . . . . . . . . . . (293,067) (3,525,324) (351,413) (4,124,644)
----------- ------------ ----------- ------------
Net increase . . . . . . . . . . . . . 4,902,775 $ 58,684,849 760,815 $ 8,889,326
=========== ============ =========== ============
1993
Shares sold . . . . . . . . . . . . . 3,765,070 $ 42,849,710 1,991,996 $ 22,398,176
Shares issued in reinvestment of
distributions . . . . . . . . . . . . 289,276 3,293,665 212,212 2,384,534
Shares redeemed . . . . . . . . . . . (750,008) (8,504,162) (1,208,321) (13,585,549)
Changes from exercise of exchange
privilege:
Shares sold . . . . . . . . . . . . 676,703 7,687,545 269,740 3,031,923
Shares redeemed . . . . . . . . . . (424,354) (4,803,210) (559,464) (6,269,265)
----------- ------------ ----------- ------------
Net increase . . . . . . . . . . . . . 3,556,687 $ 40,523,548 706,163 $ 7,959,819
=========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
----------------------------
SHARES AMOUNT
----------- ---------------
<S> <C> <C>
1994
Shares sold . . . . . . . . . . . . . 4,917,262 $ 58,208,459
Shares issued in reinvestment of
distributions . . . . . . . . . . . . 461,382 $ 5,464,467
Shares redeemed . . . . . . . . . . . (1,492,565) (17,662,585)
Changes from exercise of exchange
privilege:
Shares sold . . . . . . . . . . . . 436,951 5,145,408
Shares redeemed . . . . . . . . . . (311,057) (3,665,937)
----------- ---------------
Net increase . . . . . . . . . . . . . 4,011,973 $ 47,489,812
=========== ===============
1993
Shares sold . . . . . . . . . . . . . 4,733,541 $ 53,136,692
Shares issued in reinvestment of
distributions . . . . . . . . . . . . 376,897 4,234,144
Shares redeemed . . . . . . . . . . . (1,097,479) (12,295,420)
Changes from exercise of exchange
privilege:
Shares sold . . . . . . . . . . . . 390,967 4,389,689
Shares redeemed . . . . . . . . . . (239,329) (2,683,716)
----------- ---------------
Net increase . . . . . . . . . . . . . 4,164,597 $ 46,781,389
=========== ===============
</TABLE>
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At February 28, 1994, for income tax purposes, the Funds had accumulated
undistributed net realized capital gains or capital loss carryovers as follows:
<TABLE>
<CAPTION>
FRANKLIN
TEXAS
TAX-FREE
INCOME FUND
-----------
<S> <C>
Undistributed net realized capital gains . . . . . . $1,140
===========
</TABLE>
99
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (CONT.)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Capital loss carryovers
Expiring in: 2000 . . . . . . . . . . . . . -- -- -- $ 495 --
2001 . . . . . . . . . . . . . $ 1,878 $167,268 $ 29,153 1,213 $ 94,024
2002 . . . . . . . . . . . . . -- 749,863 168,244 24,595 59,400
---------- ---------- --------- --------- ---------
$ 1,878 $917,131 $197,397 $ 26,303 $153,424
========== ========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Capital loss carryovers
Expiring in: 1998 . . . . . . . . . . . . . . . . . . . -- $ 4,785 -- --
1999 . . . . . . . . . . . . . . . . . . . $ 25,303 -- $ 33,686 $ 6,967
2000 . . . . . . . . . . . . . . . . . . . 125 13,989 41,699 --
2001 . . . . . . . . . . . . . . . . . . . 249,775 299,374 147,462 164,306
2002 . . . . . . . . . . . . . . . . . . . 359,934 275,178 14,532 105,751
--------- -------- -------- --------
$635,137 $593,326 $237,379 $277,024
========= ======== ======== ========
</TABLE>
The aggregate cost of securities is higher (and unrealized appreciation is
lower) for income tax purposes than for financial reporting purposes at
February 28, 1994 by $750 in the Franklin Alabama Tax-Free Income Fund, $2,381
in the Franklin Georgia Tax-Free Income Fund, $2,500 in the Franklin Maryland
Tax-Free Income Fund, $11,745 in the Franklin Missouri Tax-Free Income Fund,
$1,820 in the Franklin North Carolina Tax-Free Income Fund and $27,971 in the
Franklin Texas Tax-Free Income Fund.
4. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended February 28, 1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN NORTH
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA MARYLAND MISSOURI CAROLINA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases . . $58,616,215 $321,501,281 $44,480,499 18,586,242 $38,886,479 $63,420,979 $79,742,536 66,238,250
=========== ============ =========== ========== =========== =========== =========== ==========
Sales . . . . $24,352,466 $151,619,152 $17,492,613 $2,561,215 $18,638,362 $25,082,390 $21,919,457 $7,161,241
=========== ============ =========== ========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
TEXAS VIRGINIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------ ------------
<S> <C> <C>
Purchases . . $38,276,299 $60,893,812
=========== ===========
Sales . . . . $28,992,805 $16,184,795
=========== ===========
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
for investment advice, administrative services, office space and facilities to
each Fund, and receives fees computed monthly on the net assets of each 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, and 45/100 of 1% of net assets in excess of $250
million.
100
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
Fees incurred by the ten Funds aggregated $13,765,024 for the year ended
February 28, 1994. The terms of the management agreement provide that aggregate
annual expenses of the Funds be limited to the extent necessary to comply with
the limitations set forth in the laws, regulations and administrative
interpretations of the states in which the Fund's shares are registered. The
Funds' expenses did not exceed these limitations; however, for the year ended
February 28, 1994, Franklin Advisers, Inc. reduced its management fees by
$128,196, and bore other expenses of $13,036 for the Kentucky Tax-Free Income
Fund which are not reflected in the Statements of Operations.
In its capacity as underwriter for the shares of the Funds, Franklin/Templeton
Distributors, Inc. received commissions on sales of the Funds' shares.
Commissions received by Franklin/Templeton Distributors, Inc. and the amounts
which were subsequently paid to other dealers for the year ended February 28,
1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN NORTH
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA MARYLAND MISSOURI CAROLINA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total commis-
sions received . $1,482,367 $8,654,468 $1,155,912 $562,417 $992,774 $1,718,141 $2,311,745 $2,310,605
========== ========== ========== ======== ======== ========== ========== ==========
Paid to other
dealers . . . . $1,423,143 $8,360,636 $1,109,385 $554,169 $953,997 $1,656,444 $2,227,973 $2,224,377
========== ========== ========== ======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
TEXAS VIRGINIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------- -----------
<S> <C> <C>
Total commis-
sions received . $805,955 $2,134,332
=========== ===========
Paid to other
dealers . . . . $758,972 $2,029,496
=========== ===========
</TABLE>
Commissions are deducted from the gross proceeds received from the sale of the
Funds' shares, and as such are not expenses of the Funds.
Under the terms of a shareholder servicing agreement with Franklin/Templeton
Investor Services, Inc., the Trust pays costs on a per shareholder account
basis. Shareholder servicing costs incurred by the ten Funds for the year ended
February 28, 1994 aggregated $430,752, of which $403,420 was paid to
Franklin/Templeton Investor Services, Inc. and $4,147 was borne by Franklin
Advisers, Inc.
Certain officers and trustees of the Trust are also officers and/or directors
of Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc. and
Franklin/Templeton Investor Services, Inc., all wholly-owned subsidiaries of
Franklin Resources, Inc.
6. CREDIT RISK
Although each of the Funds has a diversified investment portfolio, other than
the Franklin Maryland Tax-Free Income Fund, all of its investments are in the
securities of issuers within its respective state and Puerto Rico. Such
concentration may subject the Funds more significantly to economic changes
occurring within those states and Puerto Rico.
7. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout each
period are set forth in the prospectus under the caption "Financial
Highlights."
***************************************************************************
* *
* During this fiscal year, each Fund paid distributions from *
* undistributed net investment income in the amounts shown in the *
* Statement of Changes in Net Assets. Each Fund hereby designates the *
* total amount of these distributions as exempt-interest dividends *
* under Section 852(b)(5) of the Internal Revenue Code. *
* *
***************************************************************************
101
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN TAX-FREE TRUST
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
FRANKLIN INSURED TAX-FREE INCOME FUND
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
DATED JULY 1, 1994
The following sections of the prospectus are revised to reflect changes to the
operational policies of the Funds effective February 1, 1995:
1. EXPENSE TABLE
The maximum sales charge imposed on purchases of shares of any Fund, as
reflected in the Expense Table, is restated to reflect the current maximum of
4.25%, as though such had been in effect at the beginning of the fiscal year.
Revised to reflect that investments of $1,000,000 or more are not subject to a
front-end sales charge. A contingent deferred sales charge of 1%, however, will
be imposed on certain redemptions within 12 months of the calendar month
following such investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
2. MANAGEMENT OF THE TRUST
Revised to add the definition "Franklin Templeton Group" to describe the
subsidiaries of Resources.
3. HOW TO BUY SHARES OF THE FUNDS:
a) Add the following language under "General":
The Funds may impose a $10 charge for each returned item against any
shareholder account which, in connection with the purchase of the Funds'
shares, submits a check or a draft which is returned unpaid to a Fund.
b) Substitute the following for the sales charge table and the ensuing two
paragraphs:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
----------------------------------------------------------
AS A AS A DEALER CONCESSION
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF NET AS A PERCENTAGE
AT OFFERING PRICE OFFERING PRICE AMOUNT INVESTED OF OFFERING PRICE*,***
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 ................ 4.25% 4.44% 4.00%
$100,000 but less than $250,000.... 3.50% 3.63% 3.25%
$250,000 but less than $500,000.... 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000.. 2.15% 2.20% 2.00%
$1,000,000 or more................. none none (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, from its own
resources, to securities dealers who initiate and are responsible for
purchases of $1 million or more: 0.75% on sales of $1 million but less than
$2 million, plus 0.60% on sales of $2 million but less than $3 million, plus
0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales
of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. Dealer concession breakpoints are reset every 12 months for
purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at times be
allowed to the securities dealer. If 90% or more of the sales commission is
allowed, such securities dealer may be deemed to be an underwriter as that
term is defined in the Securities Act of 1933, as amended.
<PAGE>
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
investments of $1 million or more within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares of
the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the funds in the Franklin
Group of Funds(R) 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. mutual
funds in the Templeton Group of Funds except Templeton American Trust, Inc.,
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.") Sales charge reductions based upon aggregate holdings of (a), (b) and
(c) above ("Franklin Templeton Investments") may be effective only after
notification to Distributors that the investment qualifies for a discount.
References throughout the Prospectus, for purposes of aggregating assets or
describing the exchange privilege, refer to the above descriptions.
Distributors, or one of its affiliates, may make payments, from its own
resources, of up to 1% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset value by certain
trust companies and trust departments of banks. See definitions under
"Descriptions of Special Net Asset Value Purchases" and as set forth in the SAI.
c) Substitute the following for the current "Purchases at Net Asset Value"
subsection:
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased without the imposition of either a front-end
sales charge ("net asset value") or contingent deferred sales charge by (1)
officers, directors, trustees and full-time employees of the Trust, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and by their
spouses and family members; (2) companies exchanging shares with or selling
assets pursuant to a merger, acquisition or exchange offer; (3) registered
securities dealers and their affiliates, for their investment account only, and
(4) registered personnel and employees of securities dealers, which have
directly or through affiliates, signed an agreement with Distributors, and by
their spouses and family members, in accordance with the internal policies and
procedures of the employing securities dealer.
Shares of the Funds may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the one of the Funds or
another of the Franklin Templeton Funds which were purchased with a front-end
sales charge or assessed a contingent deferred sales charge on redemption. An
investor may reinvest an amount not exceeding the redemption proceeds. While
credit will be given for any contingent deferred sales charge paid on the shares
redeemed, a new contingency period will begin. Shares of a 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 a 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-
2
<PAGE>
day period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.
Dividends and capital gains received in cash by the shareholder may also be
used to purchase shares of the Funds or another of the Franklin Templeton
Funds at net asset value within 120 days of the payment date of such
distribution. To exercise this privilege, a written request to reinvest the
distribution must accompany the purchase order. Additional information may
be obtained from Shareholder Services at 1-800/632-2301. See "Distributions
in Cash" under "Distributions to Shareholders."
Shares of the Funds may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have,
within the past 60 days, redeemed an investment in an unaffiliated mutual
fund which charged the investor a contingent deferred sales charge upon
redemption and which has investment objectives similar to those of the
Funds.
Shares of the Funds may be purchased at net and without the imposition of a
contingent deferred sales charge value by registered investment advisors
and/or their affiliated broker-dealers, who have entered into a supplemental
agreement with Distributors, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).
Shares of the Funds 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 Funds are legally permissible investments 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 Funds should consult with expert counsel to determine the effect,
if any, of various payments made by the Funds or its investment manager on
arbitrage rebate calculations. If an investment by an eligible governmental
authority at net asset value is made through a securities dealer who has
executed a dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to such
securities dealer in an amount not to exceed 0.25% of the amount invested.
Contact Franklin's Institutional Sales Department for additional
information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Funds 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 these Funds or any
of the Franklin Templeton Investments must total at least $1,000,000. Orders
for such accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly from the bank
or trust company, with payment by federal funds received by the close of
business on the next business day following such order.
Refer to the SAI for further information.
4. EXCHANGE PRIVILEGE
a) The following has been added to the end of the first paragraph:
Investors should review the prospectus of the fund they wish to exchange
from and the fund they wish to exchange into for all specific requirements
or limitations on exercising the exchange privilege, for example, minimum
holding periods or applicable sales charges.
3
<PAGE>
b) The subsection "General Information Regarding Exchanges" has been retitled
"Additional Information Regarding Exchanges." In addition, the following
paragraph has been added:
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 a contingency period, a contingent deferred sales charge will be
imposed. The contingency period will be tolled (or stopped) for the period
such shares are exchanged into and held in a Franklin or Templeton money
market fund. See also "How to Sell Shares of the Fund - Contingent Deferred
Sales Charge."
c) Substitute the following for the subsection "Timing Accounts":
As of March 1, 1995, the Funds, with the exception of the Franklin Insured
Tax-Free Income Fund, will no longer accept new investments, including the
purchase side of an exchange, from market timing or allocation services
("Timing Accounts"), which generally include accounts administered so as to
redeem or purchase shares based upon certain predetermined market
indicators, or from any person whose transactions seem to follow a timing
pattern. The sections of the Prospectuses "How to Buy Shares of Each Fund"
and "Exchange Privilege", specifically "Restrictions on Exchanges" are
amended to reflect the Funds' new policy.
5. HOW TO SELL SHARES OF THE FUND
Add the following subsection:
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers on qualified
investments of $1 million or more, a contingent deferred sales charge of 1%
applies to redemptions of those investments within the contingency period of
12 months of the calendar month following such purchase. The charge is 1% of
the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares,
and is retained by Distributors. In determining if a charge applies, shares
not subject to a contingent deferred sales charge are deemed to be redeemed
first, in the following order: (i) shares representing amounts attributable
to capital appreciation of those shares held less than 12 months; (ii)
shares purchased with reinvested dividends and capital gain distributions;
and (iii) other shares held longer than 12 months; and followed by any
shares held less than 12 months, on a "first in, first out" basis.
The contingent deferred sales charge is waived for: exchanges; redemptions
through a Systematic Withdrawal Plan set up prior to February 1, 1995 and
for Systematic Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6% semiannually or
12% annually); and redemptions initiated by a Fund due to a shareholder's
account falling below the minimum specified account size.
Requests for redemptions for a specified dollar amount will result in
additional shares being redeemed to cover any applicable contingent deferred
sales charge while requests for redemption of a specific number of shares
will result in the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.
6. PORTFOLIO OPERATIONS
The section "Portfolio Operations" is changed to add Thomas Kenny as
Portfolio Manager in place of Gregory Harrington. Mr. Kenny is Senior Vice
President of the investment manager and director of Franklin's municipal
bond department. He joined Franklin in 1986. He received a Bachelor of Arts
degree in Business and Economics from the University of California at Santa
Barbara and Master of Science degree in Finance from Golden Gate University.
He is a member of several municipal securities industry related committees
and associations.
4
<PAGE>
FRANKLIN
TAX-FREE TRUST
PROSPECTUS JULY 1, 1994
[FRANKLIN LOGO]
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Tax-Free Trust (the "Trust") is an open-end management investment
company consisting of 27 separate series. This Prospectus relates only to the
seven series listed on the cover (separately or collectively the "Fund,"
"Funds," the "State Funds" [for the six insured state funds] or by the state
and/or investment policy included as part of its name). The Insured Fund and
each of the State Funds seek to provide investors with as high a level of income
exempt from federal income taxes as is consistent with prudent investing while
seeking preservation of shareholders' capital. Each State Fund also seeks to
provide a maximum level of income which is exempt from the personal income taxes
for resident shareholders of the named state. The state of Florida currently
imposes no state personal income tax.
The Insured Fund invests in a diversified portfolio of municipal securities from
different states. Each of the State Funds invests primarily in municipal
securities issued by its respective state and its political subdivisions,
agencies and instrumentalities. The Funds invest in municipal securities which
are covered by insurance guaranteeing the scheduled payment of principal and
interest, in securities backed by or subject to an escrow account secured by
securities backed by the full faith and credit of the United States ("U.S.")
government, in municipal securities secured by such U.S. government obligations,
and in short-term obligations of issuers with the highest rating from Moody's
Investors Service ("Moody's"), Standard & Poor's Corporation ("S&P") or Fitch
Investors Service, Inc. ("Fitch"). All insured securities not insured by the
issuer will be insured by a qualified municipal bond insurer. An investment in
any of the Funds is not insured by the U.S. government or any state government.
(See "Insurance.")
SHARES OF THE FUNDS 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.
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 intended to set forth in a clear and concise manner
information about the Trust and each of the seven Funds that a prospective
investor should know before investing. After reading
1
<PAGE>
the Prospectus, it should be retained for future reference; it contains
information about the purchase and sale of shares and other items which a
prospective investor will find useful to have.
A Statement of Additional Information, concerning the Trust and the seven series
of the Trust discussed in this Prospectus, dated July 1, 1994, as may be amended
from time to time, provides a further discussion of certain areas in this
Prospectus and other matters which may be of interest to some investors. It has
been filed with the Securities and Exchange Commission ("SEC") and is
incorporated herein by reference. A copy is available without charge from the
Trust or the Trust's principal underwriter, Franklin/Templeton Distributors,
Inc. ("Distributors") at the address or telephone number listed above.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or 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.
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Expense Table ........................................................... 2
Financial Highlights .................................................... 4
About the Trust ......................................................... 6
Investment Objective
and Policies of Each Fund ............................................. 6
Insurance ............................................................... 12
Management of the Trust ................................................. 14
Distributions to Shareholders ........................................... 17
Taxation of the Funds
and Their Shareholders ................................................ 18
How to Buy Shares of a Fund ............................................. 20
Other Programs and Privileges
Available to Shareholders of the Funds ................................ 26
Exchange Privilege ...................................................... 27
How to Sell Shares of a Fund............................................. 30
Telephone Transactions................................................... 32
Valuation of Shares of the Funds......................................... 33
How to Get Information Regarding
an Investment in a Fund................................................ 34
Performance.............................................................. 34
General Information...................................................... 35
Account Registrations.................................................... 37
Important Notice Regarding
Taxpayer IRS Certifications............................................ 38
Portfolio Operations..................................................... 38
Appendix A
Description of State Tax Treatment..................................... 39
Appendix B
Special Factors Affecting Each State Fund.............................. 42
</TABLE>
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 each Fund. These figures are based on the
aggregate operating expenses of each Fund (including fees set by contract) for
the fiscal year ended February 28, 1994. For the Insured Fund, Massachusetts
Insured Fund, Michigan Insured Fund, Minnesota Insured Fund and Ohio Insured
Fund, the expenses are restated to reflect 12b-1 fees as though such had been in
effect at the beginning of the fiscal year.
2
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS MICHIGAN MINNESOTA OHIO ARIZONA FLORIDA
INSURED INSURED INSURED INSURED INSURED INSURED INSURED
FUND FUND FUND FUND FUND FUND FUND
------- ------------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)**............................... 4.25% 4.25% 4.25% 4.25% 4.25% 4.50% 4.50%
Maximum Sales Load Imposed
on Reinvested Dividends (as a
percentage of offering price)**................. None None None None None None None
Deferred Sales Load.............................. None None None None None None None
Redemption Fees.................................. None None None None None None None
Exchange Fee..................................... $5.00* $5.00* $5.00* $5.00* $5.00* $5.00* $5.00*
FUND OPERATING EXPENSES
Management Fees.................................. .47% .54% .48% .50% .49% .63%** .63%**
12b-1 Fees***.................................... .10% .10% .10% .10% .10% .10% .10%
Other Expenses................................... .05% .06% .06% .10% .07% .10% .10%
----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses.................... .62% .70% .64% .70% .66% .83%** .83%**
===== ===== ===== ===== ===== ===== =====
</TABLE>
*$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
**Represents the amount that would have been payable by the each Fund absent a
fee reduction by the investment manager. The investment manager, however,
voluntarily waived its entire management fee and assumed responsibility for
making payments to offset certain operating expenses otherwise payable by the
Fund. With this reduction, the Arizona Insured Fund paid no management fees, and
total operating expenses represented .03% of its average net assets. The Florida
Insured Fund paid no management fees or operating expenses. This arrangement may
be terminated by the investment manager at any time.
***Shareholders of the Insured, Massachusetts, Michigan, Minnesota and Ohio
Funds approved a plan of distribution (the "Plan") pursuant to Rule 12b-1 of the
Investment Company Act of 1940 which provides for payments by each Fund for
distribution of its shares, up to a maximum annual rate of 0.10% of average net
assets. See "Management of the Funds - Plans of Distribution." The maximum
amount which the Arizona and Florida Insured Funds may reimburse Distributors
under each Fund's Distribution Plan pursuant to Rule 12b-1 is 0.15%.
Distributors, however, has determined to limit each Fund's 12b-1 distribution
expenses to a maximum of .10% through February 28, 1995. 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 preceding table is not intended to reflect in
precise detail the fees and expenses associated with an individual shareholder's
own investment in each Fund listed. Rather the table has been provided only to
assist investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by regulations of the SEC, the following example illustrates the
expenses, including the initial sales charge, that apply to a $1,000 investment
in each Fund over various time periods assuming (1) a 5% annual rate of return
for each Fund and (2) redemption at the end of each time period. As noted in the
preceding table, none of the Funds charge a redemption fee.
3
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS MICHIGAN MINNESOTA OHIO ARIZONA FLORIDA
INSURED INSURED INSURED INSURED INSURED INSURED INSURED
FUND FUND FUND FUND FUND FUND FUND
------- ------------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year......................... $ 49 $ 49 $ 49 $ 49 $ 49 $ 53 $ 53
3 years........................ $ 62 $ 64 $ 62 $ 64 $ 63 $ 70 $ 70
5 years........................ $ 76 $ 80 $ 77 $ 80 $ 78 $ 89 $ 89
10 years....................... $117 $126 $119 $126 $121 $143 $143
</TABLE>
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES OF EACH FUND
SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne by
each Fund, and only indirectly by shareholders as a result of their investment
in such Fund. In addition, federal regulations require the example to assume an
annual return of 5%, but each Fund's actual return may be more or less than 5%.
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Set forth below is a table containing the financial highlights for a share of
each Fund from the effective date of the registration statement for each Fund,
as indicated below, through the fiscal year ended February 28, 1994. The
information for each of the five fiscal years in the period ended February 28,
1994, has been audited by Coopers & Lybrand, independent auditors, whose audit
report appears in the financial statements in the Fund's Statement of Additional
Information. The remaining figures, which are also audited, are not covered by
the auditor's current report. See also, "General Information - Reports to
Shareholders."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
NET
NET REALIZED & DISTRI- DISTRI-
ASSET UNREALIZED TOTAL BUTIONS BUTIONS NET ASSET
YEAR VALUE NET GAIN FROM FROM NET FROM VALUE
ENDED BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END
FEB. 28 OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR
- ------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ $10.00 $0.69 $ 1.343 $ 2.033 $(0.423) $ -- $(0.423) $11.61
1987 11.61 0.80 0.541 1.341 (0.852) (0.079) (0.931) 12.02
1988 12.02 0.79 (0.837) (0.047) (0.852) (0.001) (0.853) 11.12
1989 11.12 0.78 0.032 0.812 (0.852) -- (0.852) 11.08
1990 11.08 0.78 0.204 0.984 (0.804) -- (0.804) 11.26
1991 11.26 0.78 0.156 0.936 (0.786) -- (0.786) 11.41
1992 11.41 0.74 0.298 1.038 (0.768) -- (0.768) 11.68
1993 11.68 0.74 0.751 1.491 (0.741) -- (0.741) 12.43
1994 12.43 0.73 0.020 0.750 (0.730) -- (0.730) 12.45
<CAPTION>
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ 10.00 0.61 1.045 1.655 (0.405) -- (0.405) 11.25
1987 11.25 0.74 0.226 0.966 (0.816) -- (0.816) 11.40
1988 11.40 0.71 (0.725) (0.015) (0.775) -- (0.775) 10.61
1989 10.61 0.71 (0.017) 0.693 (0.713) -- (0.713) 10.59
1990 10.59 0.72 0.118 0.838 (0.708) -- (0.708) 10.72
1991 10.72 0.72 0.040 0.760 (0.720) -- (0.720) 10.76
1992 10.76 0.68 0.307 0.987 (0.717) -- (0.717) 11.03
1993 11.03 0.69 0.685 1.375 (0.675) -- (0.675) 11.73
1994 11.73 0.67 0.092 0.762 (0.682) -- (0.682) 11.81
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------
NET
RATIO OF INVESTMENT
YEAR NET ASSETS EXPENSES INCOME PORTFOLIO
ENDED TOTAL AT END TO AVERAGE TO AVERAGE TURNOVER
FEB. 28 RETURN** OF YEAR NET ASSETS NET ASSETS RATE
- ----------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 22.46%++ $ 28,696,155 0.24% 6.29% 97.58%
1987 11.84 182,993,768 0.72 6.14 18.93
1988 (0.17) 316,606,067 0.62 7.03 5.65
1989 7.38 551,435,540 0.58 7.01 12.79
1990 8.81 711,299,706 0.54 6.92 11.96
1991 8.38 850,088,772 0.53 6.95 9.76
1992 9.29 1,130,592,426 0.53 6.55 6.35
1993 12.93 1,539,185,796 0.53 6.22 7.95
1994 5.93 1,802,547,611 0.52 5.79 6.85
<CAPTION>
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 18.27++ 17,654,703 0.23 6.32 51.07
1987 8.71 73,284,838 0.75 5.90 3.34
1988 0.07 102,763,870 0.80 6.71 12.50
1989 6.56 109,850,557 0.75* 6.81 22.97
1990 7.82 123,905,599 0.72 6.65 14.14
1991 7.10 152,621,557 0.70 6.72 11.47
1992 9.34 218,335,788 0.67 6.40 7.49
1993 12.61 278,510,047 0.64 6.09 9.65
1994 6.39 307,013,058 0.60 5.69 13.82
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------------------
NET
NET REALIZED & DISTRI- DISTRI-
ASSET UNREALIZED TOTAL BUTIONS BUTIONS NET ASSET
YEAR VALUE NET GAIN FROM FROM NET fROM VALUE
ENDED BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END
FEB. 28 OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR
- ------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ $10.00 $0.62 $1.041 $1.661 $(0.411) $ -- $(0.411) $11.25
1987 11.25 0.76 0.488 1.248 (0.828) -- (0.828) 11.67
1988 11.67 0.75 (0.735) 0.015 (0.795) -- (0.795) 10.89
1989 10.89 0.74 0.032 0.772 (0.772) -- (0.772) 10.89
1990 10.89 0.75 0.152 0.902 (0.732) -- (0.732) 11.06
1991 11.06 0.75 0.124 0.874 (0.744) -- (0.744) 11.19
1992 11.19 0.71 0.254 0.964 (0.744) -- (0.744) 11.41
1993 11.41 0.71 0.766 1.476 (0.706) -- (0.706) 12.18
1994 12.18 0.70 0.066 0.766 (0.706) -- (0.706) 12.24
<CAPTION>
FRANKLIN MINNESOTA TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ 10.00 0.67 1.393 2.063 (0.423) -- (0.423) 11.64
1987 11.64 0.79 0.437 1.227 (0.847) -- (0.847) 12.02
1988 12.02 0.75 (0.718) 0.032 (0.792) -- (0.792) 11.26
1989 11.26 0.76 0.012 0.772 (0.792) -- (0.792) 11.24
1990 11.24 0.77 0.182 0.952 (0.792) -- (0.792) 11.40
1991 11.40 0.76 0.072 0.832 (0.792) -- (0.792) 11.44
1992 11.44 0.73 0.275 1.005 (0.765) -- (0.765) 11.68
1993 11.68 0.73 0.667 1.397 (0.727) -- (0.727) 12.35
1994 12.35 0.70 (0.014) 0.686 (0.706) -- (0.706) 12.33
<CAPTION>
FRANKLIN OHIO TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986+ 10.00 0.64 1.083 1.723 (0.413) -- (0.413) 11.31
1987 11.31 0.77 0.452 1.222 (0.842) -- (0.842) 11.69
1988 11.69 0.74 (0.765) (0.025) (0.732) (0.003) (0.735) 10.93
1989 10.93 0.74 0.082 0.822 (0.732) -- (0.732) 11.02
1990 11.02 0.75 0.141 0.891 (0.741) -- (0.741) 11.17
1991 11.17 0.75 0.172 0.922 (0.762) -- (0.762) 11.33
1992 11.33 0.71 0.275 0.985 (0.765) -- (0.765) 11.55
1993 11.55 0.72 0.776 1.496 (0.706) -- (0.706) 12.34
1994 12.34 0.70 0.066 0.766 (0.706) -- (0.706) 12.40
<CAPTION>
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994+++ 10.00 0.34 0.265 0.605 (0.325) -- -- 10.28
<CAPTION>
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994+++ 10.00 0.34 0.060 0.400 (0.330) -- -- 10.07
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------
NET
RATIO OF INVESTMENT
YEAR NET ASSETS EXPENSES INCOME PORTFOLIO
ENDED TOTAL AT END TO AVERAGE TO AVERAGE TURNOVER
FEB. 28 RETURN** OF YEAR NET ASSETS NET ASSETS RATE
- -----------------------------------------------------------------------------
FRANKLIN MICHIGAN TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 18.36%++ $ 67,507,036 0.36% 6.29% 34.18%
1987 11.28 234,889,715 0.78 6.13 4.80
1988 0.33 291,806,341 0.72 6.85 10.16
1989 7.15 370,238,171 0.67 6.86 9.83
1990 8.21 427,817,952 0.63 6.72 7.93
1991 7.93 515,313,103 0.61 6.72 4.17
1992 8.78 665,913,609 0.59 6.45 10.80
1993 13.23 882,361,178 0.58 6.09 2.04
1994 6.18 1,055,451,729 0.54 5.66 3.21
<CAPTION>
FRANKLIN MINNESOTA TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 22.77++ 30,603,109 0.24 6.57 37.37
1987 10.72 119,876,766 0.78 5.87 12.38
1988 0.48 155,508,618 0.76 6.68 19.11
1989 6.90 183,866,524 0.75* 6.80 15.19
1990 8.39 235,057,941 0.70 6.68 4.55
1991 7.29 284,778,523 0.67 6.62 9.12
1992 8.95 357,279,189 0.65 6.43 3.14
1993 12.23 445,766,635 0.63 6.12 5.58
1994 5.42 499,618,628 0.60 5.67 13.42
<CAPTION>
FRANKLIN OHIO TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1986+ 19.04++ 27,004,383 0.23 6.61 54.11
1987 11.01 192,647,177 0.80 5.61 4.96
1988 (0.01) 193,701,628 0.75 6.80 15.54
1989 7.58 203,230,277 0.71 6.80 32.48
1990 8.00 224,722,092 0.65 6.71 10.80
1991 8.28 273,119,396 0.65 6.67 4.44
1992 8.86 409,044,155 0.62 6.36 1.16
1993 13.26 564,757,619 0.59 6.05 2.87
1994 6.08 686,398,466 0.56 5.59 7.29
<CAPTION>
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1994+++ 6.04 12,895 0.03++* 4.85++ 62.88
<CAPTION>
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND:
<S> <C> <C> <C> <C> <C>
1994+++ 3.97 32,150 --++* 4.97++ 28.72
</TABLE>
+For the period April 3, 1985 (effective date of registration) to
February 28, 1986
++Annualized
+++For the period April 30, 1993 (effective date of registration) to February
28, 1994.
*During the fiscal year ended February 28, 1989, the investment manager limited
its management fees. Had such action not been taken, the ratio of expenses to
average net assets for Franklin Massachusetts Insured Tax-Free Income Fund and
Franklin Minnesota Insured Tax-Free Income Fund would have been .79% and .76%,
respectively. During the fiscal year ended February 28, 1994, the investment
manager limited its management fees and reimbursed other expenses incurred by
the Franklin Arizona Insured Tax-Free Income Fund and the Franklin Florida
Insured Tax-Free Income Fund. Had such action not been taken, the ratio of
expenses to average net assets for the Franklin Arizona Insured Tax-Free Income
Fund and the Franklin Florida Insured Tax-Free Income Fund would have been .83%
and .83%, respectively.
**Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 4.5% initial sales charge for the
Franklin Arizona Insured Tax-Free Income Fund and the Franklin Florida Insured
Tax-Free Income Fund and the maximum 4% initial sales charge for the other
Funds. (Effective July 1, 1994, the maximum initial sales charge has been
changed to 4.25% for all such Funds.) It assumes reinvestment of dividends at
net asset value for the Franklin Arizona Insured Tax-Free Income Fund and the
Franklin Florida Insured Tax-Free Income Fund, and at offering price for the
other Funds, and of capital gains, if any, at net asset value.
5
<PAGE>
ABOUT THE TRUST
- -------------------------------------------------------------------------------
The Trust, which was organized in Massachusetts as a business trust in September
1984, is an openend management investment company, or mutual fund, and has
registered as such under the Investment Company Act of 1940 (the "1940 Act").
The Trust currently consists of 27 separate series, as listed under the section
"General Information." Each of the Funds issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio. This Prospectus
relates only to the following seven Funds:
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
The Arizona and Florida Insured Funds are non-diversified, as that term is
defined under the 1940 Act; and the remaining five funds are diversified.
Shares of each Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "Valuation of Shares of the Funds") plus a sales
charge based upon a variable percentage (ranging from 4.25% to less than 1.0% of
the offering price) depending upon the amount invested. (See "How to Buy Shares
of a Fund.")
INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND
- -------------------------------------------------------------------------------
The Insured Fund's investment objective is to provide investors with as high a
level of income exempt from federal income taxes as is consistent with prudent
investment, while seeking preservation of shareholders' capital. Each State
Fund's investment objective is to maximize income exempt from federal income
taxes and from the personal income taxes for resident shareholders of the named
state to the extent consistent with prudent investing and the preservation of
shareholders' capital. The state of Florida currently imposes no state personal
income tax. The investment objective of each Fund is a fundamental policy and
may not be changed without shareholder approval.
In order to achieve its objective, the Insured Fund will invest primarily in
securities of states, territories and possessions of the U.S. and the District
of Columbia and their political subdivisions, agencies and instrumentalities,
the interest on which is exempt from federal income taxes. Each State Fund will
invest primarily in municipal securities of its respective state and its
municipalities, other political subdivisions and public authorities, the
interest on which is exempt from federal income taxes and the personal income
taxes, if any, of its respective state.
Under normal market conditions, the Insured Fund will attempt to invest 100%
and, as a matter of fundamental policy, will invest at least 80% of the value of
its net assets in securities the interest on which is exempt from federal income
taxes, including the individual alternative minimum tax. Each State Fund will
attempt to invest 100% and, as a matter of fundamental policy, will invest at
least 80% of the value of its net assets in securities, the interest on which is
exempt from federal income taxes and from the personal income taxes, if any, of
its respective state. Thus it is possible, although not anticipated, that up to
20% of a State Fund's net assets could be in municipal securities from another
state and each Fund could be invested in taxable obligations, including
municipal obligations such as "private activity bonds," the interest on which
may be
6
<PAGE>
subject to the alternative minimum tax. To the extent that a state requires that
a Fund consist of a specified amount of obligations of such state or of the U.S.
government, its agencies, instrumentalities, commissions, possessions or
territories which are exempt from taxation under the laws of said state in order
for any portion of the distributions from such Fund to be exempt from income
taxation, the Fund will attempt to invest at least the minimum in such amount of
such securities. See "Taxation of the Funds and Their Shareholders" for
additional information.
For temporary defensive purposes only, when the investment manager believes that
market conditions, such as rising interest rates or other adverse factors, would
cause serious erosion of portfolio value, (i) each of the Funds may invest more
than 20% of its assets (which could be up to 100%) in fixed-income obligations,
the interest on which is subject to federal income tax and (ii) a State Fund may
invest more than 20% of the value of its net assets (which could be up to 100%)
in instruments the interest on which is exempt from federal income taxes but not
that state's personal income taxes. Such temporary investments will be limited
to obligations issued or guaranteed by the full faith and credit of the U.S.
government, or securities of other states, their agencies or instrumentalities,
or in the highest quality commercial paper rated P-1 or A-1 by Moody's or S&P,
respectively.
Under normal circumstances, at least 65% of each Fund's assets will be invested
in insured municipal securities. Although an insurer's quality standards are
independently determined and may vary from time to time, generally such
municipal securities are rated at the date of purchase in one of the four
highest ratings of S&P (AAA, AA, A and BBB for bonds and SP-1 through SP-2 for
notes) or of Moody's (Aaa, Aa, A and Baa for bonds and MIG 1 through MIG 3 for
notes). Short-term tax-exempt commercial paper (which will not be insured) will
have a P-1, A-1 or F-1 short-term rating by Moody's, S&P or Fitch, respectively,
or will have a long-term rating of Aaa, or equivalent, by Moody's, S&P or Fitch.
For a description of such ratings, see the Appendix in the Statement of
Additional Information. An insurer may also insure municipal securities which
are unrated or have lower S&P or Moody's ratings that, in the judgment of such
insurer, meet its insurance standards.
Each of the Funds may borrow from banks for temporary or emergency purposes up
to 5% of its total assets and pledge up to 5% of its total assets in connection
therewith. With approval of the Board of Trustees and subject to the following
conditions, each Fund may lend its portfolio securities to qualified securities
dealers or other institutional investors, provided that such loans do not exceed
10% of the value of the Fund's total assets at the time of the most recent loan,
and further provided that the borrower deposits and maintains 102% collateral
for the benefit of the Fund. The lending of securities is a common practice in
the securities industry. Each Fund engages in security loan arrangements with
the primary objective of increasing the Fund's income, either through investing
the cash collateral in short-term interest bearing obligations or by receiving a
loan premium from the borrower. Under the securities loan agreement, the Fund
continues to be entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in recovery and loss
of rights in the collateral should the borrower of the security fail
financially. These restrictions have been adopted as fundamental policies of
each of the Funds and may not be changed without the approval of a majority of
the outstanding voting securities of that Fund. A complete description of the
Funds' investment
7
<PAGE>
restrictions is included under "Investment Restrictions" in the Statement of
Additional Information.
MUNICIPAL SECURITIES
The term "municipal securities," as used in this Prospectus, means obligations
issued by or on behalf of states, territories and possessions of the U.S. and
the District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from federal income tax. An
opinion as to the tax-exempt status of a municipal security generally is
rendered to the issuer by the issuer's counsel at the time of issuance of the
security.
Municipal securities are used to raise money for various public purposes such as
constructing public facilities and making loans to public institutions. Certain
types of municipal bonds are issued to provide funding for privately operated
facilities. Further information on the maturity and funding classifications of
municipal securities is included in the Statement of Additional Information.
The Trust has no restrictions on the maturities of municipal securities in which
the Funds may invest. Each of the Funds will seek to invest in municipal
securities of such maturities that, in the judgment of the Fund and its
investment manager, will provide a high level of current income consistent with
prudent investment. The investment manager will also consider current market
conditions and the relative value of such insurance on such securities.
It is possible that any Fund from time to time will invest more than 25% of its
assets in a particular segment of the municipal securities market, such as
infrastructure, hospital revenue bonds, housing agency bonds, industrial
development bonds or transportation bonds, pollution control revenue bonds, or
in securities the interest on which is paid from revenues of a similar type of
project. In such circumstances, economic, business, political or other changes
affecting one bond (such as proposed legislation affecting the financing of a
project; shortages or price increases of needed materials; or declining markets
or needs for the projects) might also affect other bonds in the same segment,
thereby potentially increasing market risk.
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the municipal
securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Generally, municipal securities
of longer maturities produce higher current yields than municipal securities
with shorter maturities but are subject to greater price fluctuation due to
changes in interest rates, tax laws and other general market factors.
Lower-rated municipal securities generally produce a higher yield than
higher-rated municipal securities due to the perception of a greater degree of
risk as to the ability of the issuer to make timely payment of principal and
interest on its obligations.
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 Internal Revenue Code of 1986, as amended (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, be-
8
<PAGE>
cause such distributions are included in the corporation's "adjusted current
earnings." In states with a corporate franchise tax, distributions of a Fund may
also be fully taxable to a corporate shareholder under the state franchise tax
system.
Consistent with each Fund's investment objectives, a 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 a Fund.
As of February 28, 1994, each Fund listed below derived the following
percentages of its income from bonds, the interest on which constitutes a
preference item subject to the federal alternative minimum tax for certain
investors:
<TABLE>
<CAPTION>
FUND PERCENTAGE
- ------------------------------------------------------------------ ----------
<S> <C>
Florida Insured Fund ............................................. 0.33%
Insured Fund ..................................................... 6.14%
Massachusetts Insured Fund ....................................... 4.67%
Michigan Insured Fund ............................................ 4.70%
Minnesota Insured Fund ........................................... 5.45%
Ohio Insured Fund ................................................ 7.23%
</TABLE>
Each Fund may purchase floating rate and variable rate obligations. These
obligations bear interest at prevaling market rates. The Fund may also invest in
Variable or Floating Rate Demand Notes ("VRDNs"). 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 according to its terms 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. Although it is not a put option in the usual sense, such a
demand feature is sometimes known as a "put." Except for the Franklin Arizona
Insured Tax-Free Income Fund and the Franklin Florida Insured Tax-Free Income
Fund, with respect to 75% of the total value of each Fund's assets, no more than
5% of such value may be in securities underlying "puts" from the same
institution, except that the Fund may invest up to 10% of its asset value in
unconditional "puts" (exercisable even in the event of a default in the payment
of principal or interest on the underlying security) and other securities issued
by the same institution.
Each Fund may purchase and sell municipal securities on a "when-issued" and
"delayed-delivery" basis. These transactions are subject to market fluctuation
and the value at delivery may be more or less than the purchase price. Although
the Funds will generally purchase municipal securities on a when-issued basis
with the intention of acquiring such securities, they may sell such securities
before the settlement date if it is deemed advisable. When a Fund is the buyer
in such a transaction, it will maintain, in a segregated account with its
custodian, cash or highgrade marketable securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. To the
extent a Fund engages in "when-issued" and "delayed-delivery" transactions, it
will do so for the purpose of acquiring securities for that Fund's portfolio
consistent with its investment objectives and policies and not for the purpose
of investment leverage.
Municipal Securities may also be sold in "stripped" form. Stripped Municipal
Securities represent separate ownership of interest and principal payments on
municipal obligations.
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
maturi-
9
<PAGE>
ty. 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. Since each State
Fund generally will invest only in the securities of its respective state, there
are certain specific factors and considerations concerning the states which may
affect the credit and market risk of the municipal securities which each Fund
purchases. These factors are described in Appendix B to this Prospectus and in
greater detail in the Statement of Additional Information. THE INSURANCE DOES
NOT GUARANTEE THE MARKET VALUE OF THE MUNICIPAL SECURITIES AND, EXCEPT AS
INDICATED IN THIS PROSPECTUS, HAS NO EFFECT ON THE NET ASSET VALUE, REDEMPTION
PRICE, OR DIVIDENDS PAID BY THE FUND.
The Insured Fund is diversified nationally and, as a matter of policy, this Fund
will not invest more than 25% of its net assets in the municipal securities of
any one state or territory. In addition, with respect to 75% of each Fund's net
assets, except the Trust's Arizona and Florida Insured Funds, none of the Funds
will, as a fundamental policy, purchase a security if, as a result of the
investment, more than 5% of its assets would be in the securities of any single
issuer (with the exception of obligations of the U.S. government). For this
purpose, each political subdivision, agency, or instrumentality and each
multi-state agency of which a state is a member, and each public authority which
issues private activity bonds on behalf of a private entity, will be regarded as
a separate issuer for determining the diversification of each Fund's portfolio.
A bond for which the payments of principal and interest are secured by an escrow
account of securities backed by the full faith and credit of the U.S. government
("defeased"), as described in the Statement of Additional Information, in
general, will not be treated as an obligation of the original municipality for
purposes of determining diversification.
The Arizona and Florida Insured Funds are non-diversified under the federal
securities laws. As non-diversified Funds, there is no restriction under the
1940 Act on the percentage of assets that may be invested at any time in the
securities of any one issuer. However, the Funds intend to comply with the
diversification and other requirements of the Internal Revenue Code, applicable
to "regulated investment companies" so that they will not be subject to federal
income tax on their incomes, and distributions to shareholders will be free from
regular federal income tax to the extent they are derived from interest on
municipal securities. For this reason the Arizona and Florida Insured Funds have
each adopted an investment restriction, which may not be changed without the
approval of shareholders, prohibiting each Fund from purchasing a security, if
as a result, more than 25% of any such Fund's total assets would be invested in
the securities of a single issuer, or with respect to 50% of such Fund's total
assets, more than 5% of such assets would be invested in the securities of a
single issuer. To the extent each Fund is not fully diversified under the 1940
Act, it may be more susceptible to adverse economic, political or regulatory
develop-
10
<PAGE>
ments affecting a single issuer than would be the case if these Funds were more
broadly diversified.
CALLABLE BONDS
Each Fund may purchase and hold callable municipal bonds which contain a
provision in the indenture permitting the issuer to redeem the bonds prior to
their maturity dates at a specified price which typically reflects a premium
over the bonds' original issue price. These bonds generally have call-protection
(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
declining interest rates, when borrowings may be replaced at rates lower 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 Funds, depending on the
price at which such bonds were redeemed.
CERTIFICATES OF PARTICIPATION
Each 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 Funds
believe that this risk is mitigated by their policy of investing only in insured
COPs. The Board of Trustees reviews the COPs held in each 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 each Fund's
investment, including an assessment of the likelihood that the leases will not
be cancelled; (b) the size of the municipal securities
11
<PAGE>
market, both in general and with respect to COPs; and (c) the extent to which
the type of COPs held by each 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 each
Fund may invest in COPs, as of February 28, 1994, none of the Funds held as much
as 5% of its total assets in such instruments.
INSURANCE
- -------------------------------------------------------------------------------
Except as indicated, each insured municipal security in the portfolio of each
Fund will be covered by either a "New Issue Insurance Policy" obtained by the
issuer of the security at the time of its original issuance, or a "Secondary
Insurance Policy" or a "Portfolio Insurance Policy" issued by a qualified
municipal bond insurer.
Any of the policies discussed herein are intended to insure the timely payment
of all scheduled principal and interest on each municipal security covered by
this Policy (rather than the entire portfolio of each Fund as a whole) when due.
The insurance of principal refers to the face or par value of each security and
is not affected by the price paid therefor by each Fund or the market value
thereof. The credit of each of the municipal securities being secured by an
insurance policy allowing the investment manager to diversify each Fund's
portfolio and not be limited to one insurer.
NEW ISSUE INSURANCE POLICY
The New Issue Insurance Policies, if any, have been obtained by the respective
issuers of the municipal securities and all premiums respecting such securities
have been paid in advance by such issuers. Such policies are non-cancellable and
will continue in force so long as the municipal securities are outstanding and
the respective insurers remain in business. Since New Issue Insurance Policies
remain in effect as long as the securities are outstanding, the insurance may
have an effect on the resale value of securities in a Fund's portfolio.
Therefore, New Issue Insurance Policies may be considered to represent an
element of market value with regard to the municipal security; but the exact
value, if any, of this insurance on such market value cannot be estimated. Each
Fund will acquire portfolio securities subject to New Issue Insurance Policies
only where the claims paying ability of the insurer thereof is rated Aaa, or
equivalent, by Moody's, S&P or Fitch.
In determining whether to insure any municipal security, the insurer has applied
its own standards, which are not necessarily the same as the criteria used in
regard to the selection of securities by the investment manager. No contract to
purchase a municipal security is entered into without either permanent insurance
in place or an irrevocable commitment to insure the municipal security by a
qualified insurer.
PORTFOLIO INSURANCE POLICY
The "Portfolio Insurance Policy," which insures against nonpayment of scheduled
principal and interest, will be effective only so long as the municipal
securities described in the policy continue to be held by a Fund, the Fund is in
existence and the insurer is still in business and meeting its obligations. In
the event of a sale of any municipal security by a Fund or payment thereof prior
to maturity, the Portfolio Insurance Policy terminates as to such municipal
security.
The Portfolio Insurance Policy obtained by each Fund may also be cancelled for
failure to pay the premium. Nonpayment of premiums on such policy obtained by a
Fund will, under certain circumstances, result in the cancellation of the
Portfolio Insurance Policy and will also permit the insurer to take action
against such Fund to recover premium payments due it. Premium rates for each
issue of securities covered by the Portfolio Insurance Policy are fixed for
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<PAGE>
the life of each Fund. The insurance premiums are payable monthly by each Fund
and are adjusted for purchases and sales of covered securities during the month.
The insurer cannot cancel coverage already in force with respect to municipal
securities owned by a Fund and covered by the Portfolio Insurance Policy, except
for nonpayment of premiums. In the event that a portfolio holding which has been
covered by a Portfolio Insurance Policy is prerefunded and irrevocably secured
by a U.S. government security, the insurance is no longer required. Any security
for which insurance is cancelled other than as provided herein will be sold by
the Fund as promptly thereafter as possible.
The premium on each Fund's Portfolio Insurance Policy is an item of expense and
will be reflected in each Fund's average annual expenses. The average annual
premium rate for the Portfolio Insurance Policy is determined by dividing the
amount of a Fund's annual Portfolio Insurance Policy premium by the face amount
of the insured bonds in its investment portfolio covered by that policy.
Premiums are paid from the Fund's assets and reduce the current yield on its
portfolio by the amount thereof. When a Fund purchases a Secondary Insurance
Policy (see below), the single premium is added to the cost basis of the
municipal security and is not considered an item of expense of that Fund.
Each Fund may also own, without insurance coverage, municipal securities for
which an escrow or trust account has been established, pursuant to the documents
creating the municipal security and containing sufficient U.S. government
securities backed by its full faith and credit pledge in order to ensure the
payment of principal and interest on such bonds.
SECONDARY INSURANCE POLICY
Each Fund may at any time purchase from the provider of a Portfolio Insurance
Policy a permanent Secondary Insurance Policy on any municipal security held by
a Fund. The coverage and obligation of each Fund to pay monthly premiums under a
Portfolio Insurance Policy would cease with the purchase by that Fund of a
Secondary Insurance Policy on such security.
By purchasing a Secondary Insurance Policy, the Funds would, upon payment of a
single premium, obtain similar insurance against nonpayment of scheduled
principal and interest for the remaining term of the security. Such insurance
coverage will be noncancellable and will continue in force so long as the
securities so insured are outstanding. One of the purposes of acquiring such a
policy would be to enable the Funds to sell the portfolio security to a third
party as a AAA-rated insured security at a market price higher than what
otherwise might be obtainable if the security was sold without the insurance
coverage. (Such rating is not automatic, however, and must specifically be
requested from S&P for each bond.) Such a policy would likely be purchased if,
in the opinion of the investment manager, the market value or net proceeds of a
sale by the Fund would exceed the current value of the security (without
insurance) plus the cost of the Secondary Insurance Policy. Any difference
between the excess of a security's market value as a AAA-rated security over its
market value without such rating, including the single premium cost thereof,
would inure to a Fund in determining the net capital gain or loss realized by
that Fund upon the sale of the portfolio security. Each Fund may purchase
insurance under a Secondary Insurance Policy in lieu of a Portfolio Insurance
Policy at any time, regardless of the effect of market value on the underlying
municipal security, if the investment manager believes such insurance would best
serve the Funds' interests in meeting their objectives and policies.
Since a Fund has the right to purchase a Secondary Insurance Policy even if the
security is currently
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<PAGE>
in default as to any payments by the issuer, such Fund would have the
opportunity to sell such security rather than be obligated to hold the security
in its portfolio in order to continue in force the applicable Portfolio
Insurance Policy, as discussed below.
Therefore, each Fund may retain any municipal securities insured under a
Portfolio Insurance Policy which are in default or in significant risk of
default, and to place a value on the insurance which will be equal to the
difference between the market value of the defaulted security and the market
value of similar securities which are not in default. (See "Valuation of Shares
of the Funds.") While a defaulted municipal security is held in each Fund's
portfolio, each Fund continues to pay the insurance premium thereon but also
collects interest payments from the insurer and retains the right to collect the
full amount of principal from the insurer when the security comes due.
MUNICIPAL BOND INSURER
A "qualified municipal bond insurer" refers to companies whose charter limits
their risk assumption to insurance of financial obligations only. This precludes
assumption of other types of risk, such as life, medical, fire and casualty,
auto and home insurance. The bond insurance industry is a regulated industry.
All of the bond insurers must be licensed in each state in order to write
financial guaranties in that jurisdiction. Regulations vary from state to state;
however, most regulators require minimum standards of solvency and limitations
on leverage and investment of assets. New York State, which is one of the most
active regulators, requires a minimum capital base of $72.5 million for a new
primary bond insurer. Regulators also place restrictions on the amount an
insurer can guaranty in relation to its capital base. Neither the Funds nor
their investment manager make any representations as to the ability of any
insurance company to meet its obligation to the Funds if called upon to do so.
The Statement of Additional Information contains more information on municipal
bond insurers.
MANAGEMENT OF THE TRUST
- -------------------------------------------------------------------------------
The Board of Trustees has the primary responsibility for the overall management
of the Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as each Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson, Rupert H. Johnson, Jr. and R.
Martin Wiskemann, who own approximately 20%, 16% and 10%, respectively, of
Resources' outstanding shares. Through its subsidiaries, Resources is engaged
in various aspects of the financial services industry. Advisers acts as
investment manager to 35 U.S. registered investment companies (111 separate
series) with aggregate assets of over $75 billion, approximately $40 billion of
which are in the municipal securities market.
Pursuant to the management agreement, the Manager supervises and implements each
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct each Fund's business.
Each Fund is responsible for its own operating expenses including, but not
limited to, the Manager's fee; taxes, if any; custodian, legal and auditing
fees; fees and expenses of trustees of the Trust who are not members of,
affiliated with or interested persons of the Manager; salaries of any personnel
not affiliated with the Manager; insurance premiums; trade association dues;
expenses of obtaining quotations for calculating the value of each Fund's net
assets;
14
<PAGE>
printing and other expenses which are not expressly assumed by the Manager.
Under the management agreement each Fund is obligated to pay the Manager a fee
computed at the close of business on the last business day of each month equal
to a monthly rate of 5/96 of 1% (approximately 5/8 of 1% per year) for the first
$100 million of net assets of each Fund; 1/24 of 1% (approximately 1/2 of 1% per
year) on net assets of each Fund in excess of $100 million up to $250 million;
and 9/240 of 1% (approximately 45/100 of 1% per year) of net assets of each Fund
in excess of $250 million.
During the start-up period of the Arizona and Florida Insured Funds, Advisers
may limit or may not impose its management fees and may, in addition, assume
responsibility for making payments to offset certain operating expenses
otherwise payable by a Fund. This action by Advisers to limit its management
fees and assume responsibility for payment of expenses related to the operations
of a Fund may be terminated by Advisers at any time. The management agreement
specifies that the management fee will be reduced to the extent necessary to
comply with the most stringent limits on the expenses which may be borne by each
Fund as prescribed by any state in which such Fund's shares are offered for
sale. Currently, the most restrictive of such provisions limits a Fund's
allowable expenses as a percentage of its average net assets for each fiscal
year to 2.5% of the first $30 million in assets, 2% of the next $70 million, and
1.5% of assets in excess of $100 million.
The management agreement is in effect until April 30, 1995. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Trust's Board of
Trustees or, as to each Fund, by a vote of the holders of a majority of such
Fund's outstanding voting securities, and, in either event, by a majority vote
of the Trust's trustees who are not parties to the management agreement or
interested persons of any such party (other than as trustees of the Trust), cast
in person at a meeting called for that purpose. The management agreement may be
terminated without penalty at any time by each Fund or by the Manager on 60
days' written notice and will automatically terminate in the event of its
assignment, as defined in the 1940 Act. At a meeting of the Board of Trustees
held on April 20, 1993, the terms and conditions of the management agreement
between the Trust and Advisers, dated December 1, 1986, were approved for the
Arizona and Florida Insured Funds.
The Expense Table at the front of this Prospectus includes the management fees
and total operating expenses (expressed as a percentage of net assets) paid by
each Fund during the fiscal period ended February 28, 1994.
It is not anticipated that any of the Funds 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 a 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 Trust as factors in
selecting a broker. Further information is included under "The Trust's Policies
Regarding Brokers Used on Portfolio Transactions" in the Statement of Additional
Information.
15
<PAGE>
Shareholder accounting and many of the clerical functions for each Fund are
performed by Franklin/Templeton Investors 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.
PLAN OF DISTRIBUTION
At inception, for the Arizona and Florida Insured Funds, and effective May 1,
1994 (the "Effective Date") for the remaining Funds discussed in this
Prospectus, as approved by shareholders at a special meeting of shareholders
held on April 27 and 29, 1994, each Fund has adopted a plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan"). Under the Plan, each Fund may reimburse
Distributors or others for all expenses incurred by Distributors or others in
the promotion and distribution of the Fund's shares. Such expenses may include,
but are not limited to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related expenses, including a
prorated portion of Distributors' overhead expenses attributable to the
distribution of Fund shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates. The maximum amount
which the Fund may pay to Distributors or others for such distribution expenses
is 0.10% per annum of the average daily net assets of the Fund, payable on a
quarterly basis. All expenses of distribution and marketing in excess of 0.10%
per annum will be borne by Distributors, or others who have incurred them,
without reimbursement from the Fund. The Plan also covers any payments to or by
the Fund, Distributors, or other parties on behalf of the Fund or Distributors,
to the extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The payments under the Plan are included in the maximum
operating expenses which may be borne by the Fund.
In implementing the Plans which will become effective May 1, 1994, the Board has
determined that the annual fees payable thereunder will be equal to the sum of:
(i) the amount obtained by multiplying 0.10% by the average daily net assets
represented by shares of each Fund that were acquired by investors on or after
the Effective Date of the Plan ("New Assets"), and (ii) the amount obtained by
multiplying 0.05% by the average daily net assets represented by shares of each
Fund that were acquired before the Effective Date of the Plan ("Old Assets").
Such fees will be paid to the current securities dealer of record on the
shareholder's account. In addition, until such time as the maximum payment of
0.10% is reached on a yearly basis, up to an additional 0.02% will be paid to
Distributors under the Plan. The payments to be made to Distributors will be
used by Distributors to defray other marketing expenses that have been incurred
in accordance with the Plan, such as advertising.
The fee is a Fund expense so that all shareholders regardless of when they
purchased their shares will bear Rule 12b-1 expenses at the same rate. That rate
initially will be at least 0.07% (0.05% plus 0.02%) of such average daily net
assets and, as Fund shares are sold on or after the Effective Date, will
increase over time. Thus, as the proportion of a Fund's shares purchased on or
after the Effective Date increases in relation to outstanding Fund shares, the
expenses attributable to payments under the proposed Plan will also increase
(but will not exceed 0.10% of average daily net assets). While this is the
currently anticipated calculation for fees payable under each Plan, the Plans
permit each Fund's trus-
16
<PAGE>
tees to allow the Fund to pay a full 0.10% on all assets at any time. The
approval of the Fund's Board of Trustees would be required to change the
calculation of the payments to be made under the Plan.
DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------
There are two types of distributions which a Fund may make to its shareholders:
1. Income dividends. Each Fund receives income in the form of interest and other
income derived from its investments. This income, less the expenses incurred in
the operation of such Fund, 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. Each Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by each Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made twice each year. One distribution may be made in December to reflect the
net shortterm and net long-term capital gains realized by such Fund as of
October 31 of such year. Any net short-term and net long-term capital gains
realized by each Fund during the remainder of the fiscal year may be distributed
following the end of the fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. Each Fund may make only
one distribution derived from net short-term and net long-term capital gains in
any year or adjust the timing of its distributions for operational or other
reasons.
DISTRIBUTION DATE
Although subject to change by the Trust's Board of Trustees without prior notice
to or approval by shareholders, each Fund's current policy is to declare income
dividends daily and pay them monthly on or about the last business day of that
month. The amount of income dividend payments by each Fund is dependent upon the
amount of net income received from such Fund's portfolio holdings, is not
guaranteed and is subject to the discretion of the Trust's Board of Trustees.
None of the Funds pay "interest" or guarantee any fixed rate of return on an
investment in their shares.
DIVIDEND REINVESTMENT
Unless requested otherwise in writing or on the Shareholder Application, income
dividends and any capital gain distributions, will be automatically reinvested
in the shareholder's account in the form of additional shares, valued at the
closing net asset value (without sales charge) on the dividend reinvestment
date. Shareholders have the right to change their election with respect to the
receipt of distributions by notifying the Fund, but any such change will be
effective only as to distributions for which the payment date is seven or more
business days after such Fund has been notified. See the Statement of Additional
Information for more information.
Many of the Funds' shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of course, any shares so
acquired remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to
another fund in the Franklin Group of Funds(R) or the Templeton Group, to
another per-
17
<PAGE>
son, 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. Dividend
and capital gain distributions are eligible for investment in another fund in
the Franklin Group of Funds or the Templeton Group at net asset value.
Additional information regarding automated fund transfers may be obtained from
Franklin's Shareholder Services Department.
HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF A FUND'S ACTIVITIES
The assets of each Fund are invested in portfolio securities. If the securities
owned by a Fund increase in value, the value of the shares of the Fund which the
shareholder owns will increase. If the securities owned by a 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 a
Fund.
TAXATION OF THE FUNDS AND THEIR 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 Funds and their shareholders is included in the section
entitled, "Additional Information Regarding Taxation" in the Statement of
Additional Information.
Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund has elected to be treated as a regulated investment company under
Subchapter M of the Code, qualified as such and intends to continue to so
qualify. By distributing all of its income and meeting certain other
requirements relating to the sources of its income and diversification of its
assets, a Fund will not be liable for federal income or excise taxes.
By meeting certain requirements of the Code, each Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders. Such
exempt-interest dividends are derived from interest income exempt from regular
federal income tax and are not subject to regular federal income tax for each
Fund's shareholders. In addition, to the extent that exempt-interest dividends
are derived from interest on obligations of the state or its political
subdivisions of the state of residence of the shareholder, from interest on
direct obligations of the federal government, or from interest on obligations of
Puerto Rico, the U.S. Virgin Islands or Guam, they may also be exempt from
personal income tax, if any, in such state. More information on the state
taxation of interest from federal and municipal obligations is included in the
section on State Income Taxes below and in Appendix A - Description of State Tax
Treatment.
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 or not the shareholder has elected to receive them in cash in additional
shares.
From time to time, a 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
18
<PAGE>
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 a 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, a
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 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 shares of a Fund and regardless of
whether such distributions are received in cash or in additional shares.
Redemptions and exchanges of a Fund's shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange of
a Fund's shares, held for six months or less, will be treated as 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.
All or a portion of the sales charge incurred in purchasing shares of a 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 a Fund's shares.
Since each Fund's income is derived from interest income and gain on the sale of
portfolio securities rather than dividend income, no portion of the Funds'
distributions will generally be eligible for the corporate dividends-received
deduction. None of the distributions paid by any Fund for the fiscal year ended
February 28, 1994, qualified for this deduction and it is not anticipated that
any of the current year's dividends will so qualify.
Each Fund will inform its 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 a
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 a Fund.
Exempt-interest dividends of a 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 so-
19
<PAGE>
cial 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 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 a fund
and the application of foreign tax laws to these distributions.
STATE INCOME TAXES
The exemption of interest on taxexempt municipal securities for federal income
tax purposes does not necessarily result in exemption from the income, corporate
or personal property taxes of any state or city when such income is distributed
to shareholders of a mutual fund. Appendix A to this Prospectus discusses the
tax treatment of the State Funds with respect to distributions from each
respective Fund to investors in such states. Generally, individual shareholders
of the Funds are afforded tax-exempt treatment at the state level for
distributions derived from municipal securities of their state of residency. The
state of Florida currently imposes no state personal income tax.
Pursuant to federal law, interest received directly from U.S. government
obligations and from obligations of the U.S. territories is exempt from taxation
by all states and their municipal subdivisions. However, certain states may
nevertheless treat the dividends paid by a mutual fund from such interest as
taxable income to the shareholder. Each state's treatment of dividends paid from
the interest earned on direct federal and U.S. territorial obligations is
discussed in Appendix A -- Description of State Tax Treatment.
Shareholders should consult their tax advisors with respect to the applicability
of other state and local intangible property or income taxes to their shares in
a Fund and to distributions and redemption proceeds received from such Fund.
Additional information on tax matters relating to a Fund and its shareholders is
included under the caption "Additional Information Regarding Taxation" in the
Statement of Additional Information.
HOW TO BUY SHARES OF A FUND
- -------------------------------------------------------------------------------
Shares of each 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 in each Fund is $100 and
subsequent investments must be $25 or more. These minimums may be waived when
the shares are purchased through plans established at Franklin providing for
regular periodic investments. The Fund and Distributors reserve the right to
refuse any order for the purchase of shares.
PURCHASE PRICE OF SHARES OF A FUND
Shares of each Fund are offered at the public offering price, which is the net
asset value per share plus a sales charge, next computed (1) after the
shareholder's securities dealer receives the order which is promptly transmitted
to such Fund, or (2) after receipt of an order by mail from the shareholder
directly in proper form (which generally
20
<PAGE>
means a completed Shareholder Application accompanied by a negotiable check).
The sales charge is a variable percentage of the offering price depending upon
the amount of the sale. On orders for 100,000 shares or more, the offering price
will be calculated to four decimal places. On orders for less than 100,000
shares, the offering price will be calculated to two decimal places using
standard rounding criteria. A description of the method of calculating net asset
value per share is included under the caption "Valuation of Shares of the
Funds."
Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
TOTAL SALES CHARGE
-----------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 through $2,500,000 1.00% 1.01% 1.00%
- ------------------------------------------------------------------------------------------------
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
On purchases in excess of $2,500,000, the sales charge is 1% of the offering
price on the first $2,500,000, plus 0.5% on the next $2,500,000, plus 0.25% on
the excess over $5,000,000. Sales charges on purchases of the Funds of
$1,000,000 or more are paid to the securities dealer, if any, involved in the
trade, who may therefore be deemed an "underwriter" under the Securities Act of
1933, as amended.
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of many of the funds in the
Franklin Group of Funds(R) and in the Templeton Group of Funds. Included for
these purposes are (a) the open-end investment companies in the Franklin Group
(except Franklin Valuemark Funds and Franklin Government Securities Trust) (the
"Franklin Group of Funds"), (b) other investment products in the Franklin Group
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) (the products in subparagraphs(a) and (b) are referred to as the
"Franklin Group") and (c) the open-end U.S. registered investment companies in
the Templeton Group of Funds except Templeton American Trust, Inc., Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Group"). Purchases pursuant to a
Letter of Intent for more than $2,500,000 will be at a 1% sales charge until
cumulative purchases reach $2,500,000 and at the incremental sales charge on the
excess over $2,500,000. Purchases pursuant to the Rights of Accumulation will be
at the applicable sales charge of 1% or more until the additional purchase, plus
the value of the account or the amount previously invested, less redemptions,
exceeds $2,500,000, in which event the sales charge on the excess will be
calculated as stated above. Sales charge reduc-
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tions based upon purchases in more than one of the funds in the Franklin Group
or Templeton Group (the "Franklin/Templeton Group") may be effective only after
notification to Distributors that the investment qualifies for a discount.
Distributors or its affiliates, at their expense, may also provide additional
compensation to dealers in connection with sales of shares of the Funds and
other funds in the Franklin Group of Funds or the Templeton Group. Compensation
may include financial assistance to dealers in connection with conferences,
sales or training programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and programs regarding
one or more of the Franklin Group of Funds or the Templeton Group and other
dealer-sponsored programs or events. In some instances, this compensation may be
made available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of such shares. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their families
to locations within or outside of the United States for meetings or seminars of
a business nature. Dealers may not use sales of the Funds' 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 Funds or their shareholders.
Certain officers and trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the Statement of Additional
Information.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide for a reduced
sales charge. To be certain to obtain the reduction of the sales charge, the
investor or the dealer should notify Distributors at the time of each purchase
of shares which qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, investments in any of the Franklin/Templeton
Group may be combined with those of the investor's spouse and children under the
age of 21. In addition, the aggregate investments of a trustee or other
fiduciary account (for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is available, even
though there may be a number of beneficiaries of the account.
In addition, an investment in each Fund may qualify for a reduction in the sales
charge under the following programs:
1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in the Franklin/Templeton Group may be combined with the
amount of the current purchase in determining the sales charge to be paid.
2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of a Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which if made at one time would qualify for a
reduced sales charge.
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 such Fund. After the
Letter of Intent is filed, each additional investment made, will be entitled to
the sales charge applicable to the level of investment indicated on the Letter
of Intent as described above. Sales charge reductions based
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<PAGE>
upon purchases in more than one company in the Franklin/Templeton Group will be
effective only after notification to Distributors that the investment qualifies
for a discount. The shareholder's holdings in the Franklin/Templeton Group
acquired more than 90 days before the Letter of Intent is filed will be counted
towards completion of the Letter of Intent but will not be entitled to a
retroactive downward adjustment of 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 as
specified below, depending upon the amount actually purchased (less redemptions)
during the period. An investor who executes a Letter of Intent prior to the
change in the sales charge structure for the Fund will be entitled to complete
the Letter at the lower of (i) the new sales charge structure; or (ii) the sales
charge structure in effect at the time the Letter was filed with the Fund.
AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five percent (5%)
of the amount of the total intended purchase will be reserved in shares of that
Fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the intended purchase is not completed. The
reserved shares will be included in the total shares owned as reflected on the
periodic statements; income and capital gain distributions on the reserved
shares will be paid as directed by the investor. The reserved shares will not be
available for disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. If the total purchases, less
redemptions, equal the amount specified under the Letter, the reserved shares
will be deposited to an account in the name of the investor or delivered to the
investor or the investor's order. If the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made by Distributors and the dealer through whom purchases were made pursuant to
the Letter of Intent (to reflect such further quantity discount) on purchases
made within 90 days before, and on those made after filing the Letter. The
resulting difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single purchase or the
dollar amount of the total purchases. If the total purchases, less redemptions,
are less than the amount specified under the Letter, the investor will remit to
Distributors an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge which would have applied to
the aggregate purchases if the total of such purchases had been made at a single
time. Upon such remittance the reserved shares held for the investor's account
will be deposited to an account in the name of the investor or delivered to the
investor or to the investor's order. If within 20 days after written request
such difference in sales charge is not paid, the redemption of an appropriate
number of reserved shares to realize such difference will be made. In the event
of a total redemption of the account prior to fulfillment of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the investor. By completing
the Letter of Intent section of the Shareholder Application, an investor grants
to Distributors a security interest in the reserved shares and irrevocably
appoints Distributors as attorney-in-fact with full power of substitution to
surrender for redemption any or all shares for the
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<PAGE>
purpose of paying any additional sales charge due. Purchases under the Letter of
Intent will conform with the requirements of Rule 22d-1 under the 1940 Act. The
investor or the investor's securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a purchase is made.
Additional terms concerning the offering of the Fund's shares are included in
the Statement of Additional Information.
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares of a
Fund at the reduced sales charge applicable to the group as a whole. The sales
charge is based upon the aggregate dollar value of shares previously purchased
and still owned by the group, plus the amount of the current purchase. For
example, if members of the group had previously invested and still held $80,000
of a Fund's shares and now were investing $25,000, the sales charge would be
3.25%. Information concerning the current sales charge applicable to a group may
be obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for more than six
months; (ii) has a purpose other than acquiring Fund shares at a discount; and
(iii) satisfies uniform criteria which enable Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Trust or Distributors and the members, must agree to
include sales and other materials related to the Funds in its publications and
mailings to members at reduced or no cost to Distributors, and must seek to
arrange for payroll deduction or other bulk transmission of investments to the
Funds.
If an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies such Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the payroll deduction
information to a Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches such Fund. The investment in such Fund
will be made at the offering price per share determined on the day that both the
check and payroll deduction data are received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Shares of each Fund may be purchased at net asset value (without 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 the amount of purchase, which may be
established by Distributors. Currently, those criteria require that the amount
invested or to be invested during the subsequent 13-month period in a Fund or
any other company in the Franklin/Templeton Group must total at least
$1,000,000. Orders for such accounts will be acce-pted by mail accompanied by a
check, or by telephone or other means of electronic data transfer directly from
the bank or trust company, with payment by federal funds received by the close
of business on the next business day following such order. If an investment by a
trust company or bank trust department at net asset value is made through a
dealer who has executed a dealer agreement with Distributors, Distributors or
one of its affiliates may make payment, out of their own resources, to such
dealer in an amount not to exceed 0.25% of the amount invested. Contact
Franklin's Institutional Sales Department for additional information.
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<PAGE>
Shares of the Funds may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Funds or another
fund in the Franklin Group of Funds or the Templeton Group which were purchased
with a sales charge. An investor may reinvest an amount not exceeding the
redemption proceeds. Shares of the Fund redeemed in connection with an exchange
into another fund (see "Exchange Privilege") are not considered "redeemed" for
this privilege. In order to exercise this privilege, a written order for the
purchase of shares of the Fund must be received by the Fund or the Fund's
Shareholder Services Agent within 120 days after the redemption. The 120 days,
however, do not begin to run on redemption proceeds placed immediately after
redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset value may also be
handled by a securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a taxable transaction
but reinvestment without a sales charge may affect the amount of gain or loss
recognized and the tax basis of the shares reinvested. If there has been a loss
on the redemption, the loss may be disallowed if a reinvestment in the same fund
is made within a 30-day period. Information regarding the possible tax
consequences of such a reinvestment is included in the tax section of this
Prospectus and the Statement of Additional Information.
Shares of the Funds may also be purchased at net asset value by (1) officers,
trustees or directors and full-time employees of the Fund or any fund in the
Franklin Group of Funds or the Templeton Group, the Manager and Distributors and
affiliates of such companies, if they have been such for at least 90 days, and
by their spouses and family members, (2) former participants in the
Franklin/Templeton Profit Sharing/401(k) plan, who elect to make a direct
rollover of all, or a portion of, their eligible distribution account balance
from such plan, (3) registered securities dealers and their affiliates, for
their investment account only, and (4) registered personnel and employees of
securities dealers and by their spouses and family members, in accordance with
the internal policies and procedures of the employing securities dealer. Such
sales are made upon the written assurance of the purchaser that the purchase is
made for investment purposes and that the securities will not be transferred or
resold except through redemption or repurchase by or on behalf of the Funds.
Employees of securities dealers must obtain a special application from their
employers or from Franklin's Sales Department in order to qualify.
Shares of the Funds may also be purchased at net asset value by any state,
county, or city, or any instrumentality, department, authority or agency thereof
which has determined that such 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 a
Fund should consult with expert counsel to determine the effect, if any, of
various payments made by such Fund or the Fund's investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a dealer who has executed a dealer agreement
with Distributors,
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Distributors or one of its affiliates may make a payment, out of their own
resources, to such dealer in an amount not to exceed 0.25% of the amount
invested. Contact Franklin's Institutional Sales Department for additional
information.
GENERAL
Securities laws of states in which each 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 SHAREHOLDERS OF THE FUNDS
- -------------------------------------------------------------------------------
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM A FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF RECORD,
BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR "NETWORKED" ACCOUNT
THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE SECTION
CAPTIONED ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested in writing by the shareholder or by the broker.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder quarterly to reflect
the dividends reinvested during that period and after each other transaction
which affects the shareholder's account. This statement will also show the total
number of shares owned by the shareholder, including the number of shares in
"plan balance" for the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application included with
this Prospectus contains the requirements applicable to this program. In
addition, shareholders may obtain more information concerning this program from
their securities dealers or from Distributors.
The market value of each 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 nor 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
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under the plan and should not be mistaken for a recommended amount. The plan may
be established on a monthly, quarterly, semiannual or annual basis. If the
shareholder establishes a plan, any capital gain distributions and income
dividends paid by the Fund will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be made from the
liquidation of shares at net asset value on the day of the transaction (which is
generally the first business day of the month in which the payment is scheduled)
with payment generally received by the shareholder three to five days after the
date of liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to another fund in
the Franklin Group of Funds or the Templeton Group, to another person, or
directly to a checking account. If the bank at which the account is maintained
is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial processing.
Withdrawals which may be paid in the interim will be sent to the address of
record. Liquidation of shares may reduce or possibly exhaust the shares in the
shareholder's account, to the extent withdrawals exceed shares earned through
dividends and distributions, particularly in the event of a market decline. If
the withdrawal amount exceeds the total plan balance, the account will be closed
and the remaining balance will be sent to the shareholder. As with other
redemptions, a liquidation to make a withdrawal payment is a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than the shareholder's actual yield or income, part of the payment may be a
return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of a Fund would be disadvantageous because of the sales charge
on the additional purchases. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual withdrawals
under the plan during the time such a plan is in effect. A Systematic Withdrawal
Plan may be terminated on written notice by the shareholder or a Fund, and it
will terminate automatically if all shares are liquidated or withdrawn from the
account, or upon a 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
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The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment companies with various investment objectives or policies. The shares
of most of these investment companies are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for the securities
markets changes, the Fund shares may be exchanged for shares of other mutual
funds in the Franklin Group of Funds or the Templeton Group (as defined under
"How to Buy Shares of a Fund")
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which are eligible for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and investment
minimums. Exchanges may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account in one of the other available
funds in the Franklin Group of Funds or the Templeton Group. The Telephone
Exchange Privilege is available only for uncertificated shares or those which
have previously been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone Transactions -
Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders by telephone or by other means of
electronic transmission from securities dealers who execute a dealer or similar
agreement with Distributors. See also "Telephone Exchange Privilege" above. Such
a dealer-ordered exchange will be effective only for uncertificated shares on
deposit in the shareholder's account or for which certificates have previously
been deposited. A securities dealer may charge a fee for handling an exchange.
GENERAL INFORMATION REGARDING EXCHANGES
Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account, accrued but unpaid income
dividends and capital gain distributions will be reinvested in the Fund at the
net asset value on the date of the exchange, and then the entire share balance
will be exchanged into the new fund in accordance with the procedures set forth
above. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information re-
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<PAGE>
porting may also apply. Information regarding the possible tax consequences of
such an exchange is included in the tax section in this Prospectus and in the
Statement of Additional Information.
There are differences among the many funds in the Franklin Group of Funds and
the Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the shareholder wishes to
transfer.
If a substantial portion of a 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 Funds to initially
invest this money in short-term, interest-bearing tax-exempt instruments, unless
it is felt that attractive investment opportunities consistent with that Fund's
investment objectives exist immediately. Subsequently, this money will be
withdrawn from such short-term tax-exempt instruments and invested in portfolio
securities in as orderly a manner as is possible when attractive investment
opportunities arise.
The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
Effective September 1, 1994, each Fund will amend its policy in regard to Timing
Accounts, to reflect the following:
Each Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing Account
or any person whose transactions seem to follow a timing pattern who: (i) make
an exchange request out of the Fund within two weeks of an earlier exchange
request out of the Fund, or (ii) make more than two exchanges out of the Fund
per calendar quarter, or (iii) exchange shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors also, as indicated in "How to Buy Shares of
the Fund," reserve the right to refuse any order for the purchase of shares.
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HOW TO SELL SHARES OF A FUND
- --------------------------------------------------------------------------------
A shareholder may at any time liquidate shares owned and receive from a 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 such
Fund the value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by Investor
Services. Redemption requests received after the time at which the net asset
value is calculated (at 1:00 p.m. Pacific time) each day that the New York Stock
Exchange (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.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a
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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 file a Telephone Transaction Application (the "Application")
may redeem shares of the Fund by telephone. THE APPLICATION MAY BE OBTAINED BY
WRITING TO THE fUND OR INVESTOR SERVICES AT THE ADDRESS SHOWN ON THE COVER OR BY
CALLING 1-800/632-2301. THE FUND AND INVESTOR SERVICES WILL EMPLOY REASONABLE
PROCEDURES TO CONFIRM THAT INSTRUCTIONS GIVEN BY TELEPHONE ARE GENUINE.
SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN CERTAIN CASES AS DESCRIBED UNDER
"TELEPHONE TRANSACTIONS -VERIFICATION PROCEDURES.
For shareholder accounts with a completed Application on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before 1:00 p.m. Pacific time on
any business day will be processed that same day. The redemption check will be
sent within seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record. Redemption requests by
telephone will not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts (certain
corporations, bank trust departments, government entities, and qualified
retirement plans which qualify to purchase shares at net asset value pursuant to
the terms of this Prospectus) which wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from Franklin's Institutional Services Department by telephoning
1-800/321-8563.
SELLING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders by telephone or other means of electronic
transmission from securities dealers who have entered into a dealer or similar
agreement with Distributors. This
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<PAGE>
is known as a repurchase. The only difference between a normal redemption and a
repurchase is that if the shareholder redeems shares through a dealer, the
redemption price will be the net asset value next calculated after the
shareholder's dealer receives the order which is promptly transmitted to the
Fund, rather than on the day the Fund receives the shareholder's written request
in proper form. These documents, as described in the preceding section, are
required even if the shareholder's securities dealer has placed the repurchase
order. After receipt of a repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other documents set forth above.
A shareholder's letter should reference the Fund, the account number, the fact
that the repurchase was ordered by a dealer and the dealer's name. Details of
the dealer-ordered trade, such as trade date, confirmation number, and the
amount of shares or dollars, will help speed processing of the redemption. The
seven-day period within which the proceeds of the shareholder's redemption will
be sent will begin when the Fund receives all documents required to complete
("settle") the repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the dealer's repurchase
order and the date the redemption is processed upon receipt of all documents
necessary to settle the repurchase. Thus, it is in a shareholder's best interest
to have the required documentation completed and forwarded to the Fund as soon
as possible. The shareholder's dealer may charge a fee for handling the order.
The Statement of Additional Information contains more information on the
redemption of shares.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.
OTHER
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the broker may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
- -------------------------------------------------------------------------------
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Application as described under "How to Sell Shares of the
Fund - Redemptions by Telephone" will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions com-
32
<PAGE>
municated by telephone are genuine. These will include: recording all telephone
calls requesting account activity by telephone, requiring that the caller
provide certain personal and/or account information requested by the telephone
service agent at the time of the call for the purpose of establishing the
caller's identification, and by sending a confirmation statement on redemptions
to the address of record each time account activity is initiated by telephone.
So long as the Fund and Investor Services follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
shareholder caused by an unauthorized transaction. Shareholders are, of course,
under no obligation to apply for or accept telephone transaction privileges. In
any instance where the Fund or Investor Services is not reasonably satisfied
that instructions received by telephone are genuine, the requested transaction
will not be executed, and neither the Fund nor Investor Services will be liable
for any losses which may occur because of a delay in implementing a transaction.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
registered investment representative for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
VALUATION OF SHARES OF THE FUNDS
- -------------------------------------------------------------------------------
The net asset value per share of each Fund is determined separately as of 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 sales charge
of each Fund).
The net asset value per share of each Fund is determined in the following
manner: The aggregate of all liabilities, accrued expenses and taxes and any
necessary reserves are deducted from the aggregate gross value of all assets,
and the difference is divided by the number of shares of the Fund outstanding at
the time. For the purpose of determining the aggregate net assets of each Fund,
cash and receivables are valued at their realizable amounts. Interest is
recorded as accrued. Portfolio securities for which market quotations are
readily available are valued within the range of the most recent bid and ask
prices as obtained from one or more dealers that make markets in the securities.
Portfolio securities which are traded both in the over-the-counter market and on
a stock exchange are valued according to the broadest and most representative
market as determined by the Manager. Municipal securities generally trade in the
over-the-counter market rather than on a securities exchange. Other securities
for which market quotations are readily available are valued at the current
market price which may be obtained from a pricing service based on a variety of
factors, including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. All money market instruments with a maturity
of more than
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<PAGE>
60 days are valued at current market, as discussed above. All money market
instruments with a maturity of 60 days or less are valued at their amortized
cost, which the Board of Trustees has determined in good faith constitutes fair
value for purposes of complying with the 1940 Act. This valuation method will
continue to be used until such time as the Board of Trustees determines that it
does not constitute fair value for such purposes. With the approval of trustees,
the Trust may utilize a pricing service, bank or securities dealer to perform
any of the above described functions.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN A FUND
- --------------------------------------------------------------------------------
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds by
calling the automated Franklin TeleFACTS system (day or night) at 1800/2471753.
Information about each Fund may be accessed by entering the Fund's Code followed
by the # sign when requested to do so by the automated operator. The Funds'
Codes are: 18 for the Massachusetts Insured Fund, 19 for the Michigan Insured
Fund, 20 for the Minnesota Insured Fund, 21 for the Insured Fund, 22 for the
Ohio Insured Fund, 77 for the Arizona Insured Fund and 78 for the Florida
Insured Fund. (The TeleFACTS system is also available for exchanges. See
"Exchange Privilege".)
To assist shareholders and brokers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- -------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>
PERFORMANCE
- --------------------------------------------------------------------------------
Advertisements, sales literature and communications to shareholders may contain
various measures of a Fund's performance including current yield, tax equivalent
yield, various expressions of total return, current distribution rate and
taxable equivalent distribution rate. Each Fund 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.
Each Fund may also
34
<PAGE>
furnish total return quotations for other periods or based on
investments at various sales charge levels or at net asset value. For such
purposes total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.
Current yield reflects the income per share earned by a Fund's portfolio
investments; it is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result. Tax equivalent yield
demonstrates the yield from a taxable investment necessary to produce an
after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of a fund's yield
(calculated as indicated) by one minus a stated income tax rate and adding the
product to the taxable portion (if any) of the fund's yield.
Current yield and tax equivalent yield which are calculated according to a
formula prescribed by the SEC (see the Statement of Additional Information) are
not indicative of the dividends or distributions which were or will be paid to a
Fund's shareholders. Dividends or distributions paid to shareholders are
reflected in the current distribution rate or taxable equivalent distribution
rate which may be quoted to shareholders. The current distribution rate is
computed by dividing the total amount of dividends per share paid by a Fund
during the past twelve months by a current maximum offering price. A taxable
equivalent distribution rate demonstrates the taxable distribution rate
necessary to produce an after-tax distribution rate equivalent to a Fund's
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 Fund income and will assume the payment of the maximum
sales charge on the purchase 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 a Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
a Fund's yield, tax equivalent yield, distribution rate, taxable equivalent
distribution rate or total return may be in any future period.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
REPORTS TO SHAREHOLDERS
The Trust's fiscal year ends on the last day of February each year. Annual
Reports containing audited financial statements, and the auditor's report
thereon of the Trust and Semi-Annual Reports containing unaudited financial
statements are automatically sent to shareholders. Additional copies may be
obtained, without charge, upon request to the Trust at the telephone number or
address set forth on the cover page of this prospectus.
Additional information on Fund performance will be included in the Funds' Annual
Report to Shareholders.
35
<PAGE>
FORM OF ORGANIZATION
The Trust was organized as a Massachusetts business trust on September 18, 1984.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution. Additional series may be added in
the future by the Board of Trustees.
Following is a list of the 27 series currently authorized by the Board of
Trustees:
Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
VOTING RIGHTS
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the
Investment Company Act of 1940 (the "1940 Act"). Voting rights are
noncumulative, so that in any election of trustees the holders of more than 50%
of the shares voting can elect all of the trustees, if they choose to do so, and
in such event, the holders of the remaining shares voting will not be able to
elect any person or persons to the Board of Trustees. The Trust does not intend
to hold annual shareholders' meetings. The Trust may, however, hold a special
shareholders' meeting for such purposes as changing fundamental investment
restrictions, approving a new management agreement or any other matters which
are required to be acted on by shareholders under the 1940 Act. A meeting may
also be called by the trustees in their discretion or by shareholders holding at
least ten percent of the outstanding shares of the Fund. Shareholders will
receive assistance in communicating with other shareholders in connection with
the election or removal of trustees such as that provided in Section 16(c) of
the 1940 Act.
REDEMPTIONS BY THE FUND
Each 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,
36
<PAGE>
provided advance notice is given to the shareholder. More information is
included in the Statement of Additional Information.
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
Funds nor their 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 a Fund may be made by check, draft or wire. The Funds
have 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 a Fund carried in
"street" or "nominee" name by the shareholder's broker to a comparably
registered Fund account maintained by another securities dealer. Both the
delivering and receiving 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
dealers to evidence consent to the transfer. Under current procedures the
account transfer may be processed by the delivering broker and a Fund after such
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.
Each 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.
37
<PAGE>
At the present time, such services which are available, or which are anticipated
to be made available in the near future, include the NSCC's "Networking,"
"Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
- -------------------------------------------------------------------------------
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend, capital
gain distribution or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number ("TIN") and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to backup withholding
if the IRS or a broker notifies the Fund that the number furnished by the
shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
Each Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an awaiting "TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
PORTFOLIO OPERATIONS
- -------------------------------------------------------------------------------
The following persons are primarily responsible for the day-to-day management of
the Funds' portfolios.
Sheila Amoroso
Portfolio Manager of Advisers
Ms. Amoroso has been responsible for portfolio recommendations and decisions for
the Arizona Insured and Florida Insured Funds since their inception, and for the
Massachusetts Insured Fund, Michigan Insured Fund and Minnesota Insured Fund
since 1987. 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.
Don Duerson
Vice President and Senior Portfolio Manager
Mr. Duerson has been responsible for portfolio recommendations and decisions for
the Arizona Insured and Florida Insured Funds since their inception, and for the
Insured Fund, Massachusetts Insured Fund, Michigan Insured Fund, Minnesota
Insured Fund and Ohio Insured Fund since he joined Advisers in 1986. He has a
Bachelor of Science degree in Business and Public Administration from the
University of Arizona, has experience in the portfolio management business
dating back to 1956 and is a member of industry-related committees and
associations.
Greg Harrington
Senior Vice President and Managing Director
Mr. Harrington has been responsible for portfolio recommendations and decisions
for the Florida Insured Fund and Minnesota Insured Funds since their inception.
He has been responsible for the portfolio recommendations and decisions of
Insured Fund, the Massachusetts Insured Fund, the Michigan Insured Fund and the
Ohio Insured
38
<PAGE>
Fund since June 1994. He is a graduate of Mount Saint Mary's College in Maryland
and has studied at the New York School of Finance. His experience in the
municipal securities industry dates back to 1946. He joined Advisers in 1983.
Andrew Jennings, Sr.
Vice President and Senior Portfolio Manager
Mr. Jennings has been responsible for portfolio recommendations and decisions
for the Insured Fund since joining Advisers in 1990. He 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. From 1985 to 1990 Mr. Jennings was First Vice
President and Manager of the Municipal Institutional Bond Department at Dean
Witter Reynolds, Inc.
Stella Wong
Portfolio Manager of Advisers
Ms. Wong has been responsible for portfolio recommendations and decisions for
the Ohio Insured Fund since 1986. She holds a Bachelor of Science degree in
Business Administration from San Francisco State University and a Master's
degree in Financial Planning from Golden Gate University, and is a member of
several industry related committees and associations. She joined Advisers in
1986.
APPENDIX A
DESCRIPTION OF STATE TAX TREATMENT
- -------------------------------------------------------------------------------
The following information on the state income tax treatment of dividends from
the Funds is based upon correspondence and sources believed to be reliable.
Except where otherwise noted, the information pertains to individual state
income taxation only. Investors may be subject to local taxes on dividends or
the value of their shares. Corporations, trusts, estates and other entities may
be subject to other taxes and should consult with their personal tax advisors or
their state department of revenue.
ARIZONA
Section 43-1021(4) of the Arizona Income Tax Code states that interest on
obligations of the state of Arizona or its political subdivisions is exempt from
personal and corporate income tax. Sections 43-1022(6) and 43-1122(6) provide
similar tax-exempt treatment for interest on obligations of the U.S. or its
territories (including Puerto Rico, Guam and the Virgin Islands). Pursuant to
State Income Tax Ruling Number 84-10-5, Arizona does not tax dividend income
from regulated investment companies, such as the Arizona Insured Fund, to the
extent that such income is derived from such exempt obligations.
Dividends paid from interest earned on indirect U.S. government obligations
(GNMAs, FNMAs, etc.), repurchase agreements collateralized by U.S. government
obligations, or other obligations from other states and their political
subdivisions are fully taxable. To the extent that such taxable investments are
made by the Fund for temporary or defensive purposes, the distributions will be
taxable on a pro rata basis.
Any distributions of net short-term and net long-term capital gain earned by the
Fund are included in each shareholder's Arizona taxable income as dividend
income and long-term capital gain, respectively, and are taxed at ordinary
income tax rates.
FLORIDA
Florida does not have a personal income tax, but does have an intangible
personal property tax for residents. According to Florida Statute Section
199.185 and Technical Assistance Advisement No. 90 (C)2-003, issued by the
Florida Department of Revenue on August 8, 1990 (as subsequently revised),
shares in regulated investment companies organized as busi-
39
<PAGE>
ness trusts, such as the Florida Insured Fund, will not be subject to Florida's
intangible property tax to the extent that the Fund is invested in obligations
of the U.S. government, its agencies, instrumentalities and territories
(including Puerto Rico, Guam and the Virgin Islands) at the close of business on
the last business day of the calendar year. If the Fund invests all of the
remaining portion of its net asset value in exempt obligations of the state of
Florida or its municipalities or political subdivisions on such date, then that
remaining portion of the net asset value of the Fund (and corresponding value of
Fund shares) will also be exempt from Florida's intangibles tax. If the Fund
invests any of the remaining portion of its net asset value in any asset for
temporary or defensive purposes which is taxable under Florida's intangible tax
law, including investments in indirect federal obligations of the U.S.
government or its agencies (GNMAs, FNMAs, etc.), in repurchase agreements
collateralized by U.S. government securities or in any obligations of other
states, then that remaining portion of the net asset value of the Fund (and the
corresponding value of Fund shares) will be taxable under Florida's intangible
property tax.
MASSACHUSETTS
Chapter 62 of the Massachusetts General Laws states that dividends received from
a regulated investment company, such as the Massachusetts Insured Fund, are
exempt from state personal income tax to the extent that such dividends are
attributable to interest on obligations of the U.S. or its territories
(including Puerto Rico, Guam and the Virgin Islands). Dividends received from
the Fund, which are either exempt-interest dividends or capital gain dividends,
to the extent that the interest or gains are attributable to obligations of the
Commonwealth, or any political subdivision, agency or instrumentality within the
Commonwealth, are also exempt from state personal income tax. Dividends paid
from interest earned on indirect U.S. government obligations (GNMAs, FNMAs,
etc.), repurchase agreements collateralized by U.S. government obligations, or
other obligations from other states and their political subdivisions are fully
taxable. To the extent that such taxable investments are made by the Fund for
temporary or defensive purposes, the distributions will be taxable on a pro rata
basis.
Any distributions of net short-term and net long-term capital gains earned by
the Fund which are derived from taxable obligations are taken into account by a
Massachusetts resident in determining the amount of capital gain net income
subject to tax, and are taxed at ordinary income rates.
In determining the Massachusetts excise tax on corporations subject to state
taxation, distributions from the Fund will generally be included in a corporate
shareholder's net income, and in the case of intangible property corporations,
shares of the Fund will be included in the computation of net worth.
MICHIGAN
Section 206.30(1) of the Michigan Compiled Laws generally provides that interest
income from obligations of the state of Michigan, its political or governmental
subdivisions, or obligations of the U.S., its agencies, instrumentalities, or
possessions (including Puerto Rico, Guam and the Virgin Islands) is exempt from
state personal income tax. Revenue Administrative Bulletin 1986-3, states that a
regulated investment company, such as the Michigan Insured Fund, which invests
in tax-free municipal obligations of the state of Michigan and its political and
governmental subdivisions is permitted to pass-through the exemption of such
interest to its shareholders to the extent that such interest qualifies as an
exempt-interest dividend of a regulated investment company. The exempt nature of
interest from obligations of the U.S. and its territories
40
<PAGE>
and possessions may also be passed-through to shareholders. Dividends paid from
interest earned on indirect U.S. government obligations (GNMAs, FNMAs, etc.),
repurchase agreements collateralized by U.S. government obligations, or other
obligations from other states and their political subdivisions are fully
taxable. To the extent that such taxable investments are made by the Fund for
temporary or defensive purposes, the distributions will be taxable on a pro rata
basis.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are included in each shareholder's Michigan taxable income as dividend
income and long-term capital gain respectively, and are taxed at ordinary income
tax rates.
Section 205.133(b) of the Michigan Compiled Laws exempts from the intangible
personal property tax obligations of the state of Michigan and its political and
governmental subdivisions and obligations of the U.S. and its possessions,
agencies and instrumentalities. Pursuant to Revenue Administrative Bulletin
1986-2, yield (for intangibles tax purposes) is determined with respect to
shares of the Michigan Insured Fund by excluding from gross dividends or
interest the pro rata share of the interest or dividends received from such
exempt obligations held by such fund. Capital gains from a regulated investment
company that are reinvested in additional shares of the Fund are exempt from
intangibles taxes, where as capital gains distributed in cash are taxable.
MINNESOTA
Section 290.01 of the Code of Minnesota states that individual shareholders will
generally not be subject to state income taxation on the exempt-interest
dividends distributed by a regulated investment company, such as the Minnesota
Insured Fund, provided that at least 95% of the exempt-interest dividends are
derived from obligations of the state of Minnesota, or its political or
governmental subdivisions. However, such dividends are taken into account in
computing the state's alternative minimum tax to the extent they are derived
from Minnesota private activity bonds. Minnesota Rule 8002.0300 generally states
that dividends paid by the Fund, to the extent attributable to interest derived
from obligations of the U.S. government, its authorities, commissions,
instrumentalities or territories (including Puerto Rico, Guam and the Virgin
Islands), will also be exempt from Minnesota's personal income tax. As a matter
of policy, the Fund will continue to earn at least 95% of its income from
interest on Minnesota obligations and invest less than 5% of its assets in
direct U.S. government, Puerto Rico or other obligations to ensure that the Fund
continues to qualify to pay exempt-interest dividends on income from Minnesota
obligations. Dividends paid from interest earned on indirect U.S. government
obligations (GNMAs, FNMAs, etc.), repurchase agreements collateralized by U.S.
government obligations, or other obligations from other states and their
political subdivisions are fully taxable. To the extent that such taxable
investments are made by the Fund for temporary or defensive purposes, the
distributions will be taxable on a pro rata basis.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are included in each shareholder's Minnesota taxable income as dividend
income and long-term capital gain respectively, and are taxed at ordinary income
tax rates.
OHIO
Section 5747.01(a) of the Ohio Revised Code states generally that interest on
obligations of the state of Ohio and its subdivisions and authorities and of the
U.S. and its territories and possessions (to the extent included in federal
adjusted gross income but exempt from state income taxes under U.S. laws) is
exempt from Ohio state personal income tax. Distributions of such income by
regulated in-
41
<PAGE>
vestment companies, such as the Ohio Insured Fund, will also be exempt from the
Ohio personal income tax and the Ohio corporation franchise tax computed on the
net income basis. Shares of the Ohio Insured Fund will, however, be included in
a shareholder's tax base for purposes of computing the Ohio corporation
franchise tax on the net worth basis. Dividends paid from interest earned on
indirect U.S. government obligations (GNMAs, FNMAs, etc.), repurchase agreements
collateralized by U.S. government obligations, or other obligations from other
states and their political subdivisions are fully taxable. To the extent that
such taxable investments are made by the Fund for temporary or defensive
purposes, the distributions will be taxable on a pro rata basis.
Shareholders will not be required to include in income for Ohio personal income
tax purposes their allocable share of insurance proceeds received by the Fund on
any default of interest of Ohio obligations which the Fund distributes to such
shareholders and clearly identifies as directly attributable to insurance on
defaulted interest earned on Ohio obligations, if and to the extent that such
proceeds would not be subject to such taxes if paid in the normal course by the
issuer of such defaulted obligations and further provided that such proceeds are
not taxable under federal law.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are included in each shareholder's Ohio taxable income as dividend
income and long-term capital gain respectively, and are taxed at ordinary income
tax rates.
APPENDIX B -
SPECIAL FACTORS AFFECTING EACH STATE FUND
- -------------------------------------------------------------------------------
The following information is a brief summary of factors affecting each of the
individual State Funds and does not purport to be a complete description of such
factors. The information is based primarily upon information derived from public
documents relating to securities offerings of issuers of such states, from
independent municipal credit reports and historically reliable sources, but has
not been independently verified by the Trust. The market value of the shares of
any Fund may fluctuate due to factors such as changes in interest rates, matters
affecting a particular state, or for other reasons. Additional information
regarding each state is included in the Statement of Additional Information.
FACTORS AFFECTING ARIZONA
Arizona continues to be one of the fastest growing states in the U.S. While the
state's economy is growing somewhat slower than it did in the mid-1980s, its
growth in employment and population still exceeds the national average.
Contributing to the economy's growth have been the state's affordable housing
and competitive wage rates which have successfully allowed the state to attract
new businesses.
Arizona's economy has been undergoing restructuring, shifting away from
agriculture and mining towards manufacturing and services industries. At
present, the state's agricultural industry consumes approximately 80% of the
water used in the state. The continued shift away from farming will provide a
greater amount of water for municipal use and growth, as will the completion of
the Central Arizona Project, a 335 mile aqueduct which will enable the state to
fully utilize its allotted share of water from the Colorado River. As the state
continues to urbanize, incomes and jobs should increase, due to the generally
higher demand for services in urban areas. Although Arizona experienced an
overall job loss of 2% and a rise in unemployment during the recession, recent
indicators suggest the state's economic downturn may be over, and long-term
employment growth is projected.
42
<PAGE>
FACTORS AFFECTING FLORIDA
Florida has an estimated population of 13.4 million, an increase of 37% from
1980 levels, and ranks as the fourth most populous state in the nation. Florida
has been among the fastest growing states. The state has begun to recover from
the national economic recession, due in part to the post hurricane clean-up and
rebuilding. Strong growth in the service, construction and trade areas gave a
total employment increase of 2.6% in 1993 with a 3.6% projected for 1994. This
increase should offset the recessionary decline which had a peak of 8.2% in
1992.
The significant tourism sector has stabilized, with an overall increase of 2.5%
and 2.3% for 1992 and 1993, respectively, with increases showing in automobile
arrivals rather than airplane arrivals. The improved national economy should
contribute to the state's stabilization in this sector.
Per capita personal income levels from 1990-1992 were below the national levels,
partially due to lower investment income returns. The current population and
employment growth should reverse this trend.
FACTORS AFFECTING MASSACHUSETTS
Massachusetts has a well developed economy with a large service sector,
particularly in health and education, and one of the highest personal income
levels in the nation. During the 1980s, Massachusetts' economy experienced
steady growth, due in large part to its high technology manufacturing industry.
The recent recession, however, hit the state hard, causing extensive job losses
and a reduction in personal income growth. The state's recovery is expected to
lag behind that of the nation over the next few years, with continued losses in
the manufacturing industry caused by the restructuring of computer and defense
industries. Despite this negative outlook, a modest recovery in 1994 is
expected, led by gains in the service sector, especially in construction and
health services. Overall, the 1993 unemployment figures are unclear but seem to
indicate, if not job growth, at least an end to continuing job losses.
While modest growth is projected for Massachusetts' economy, recently enacted
and proposed legislation may dampen such growth. In August 1993, the federal
Omnibus Budget Reconciliation Act was passed, increasing taxes on wealthier
households, limiting Medicare and Medicaid spending, and decreasing defense
spending. The adverse economic impact of this legislation is likely to be
greater in Massachusetts than in other states due to Massachusetts' relatively
higher concentration of upper income households and its large share of the
health services and defense industries. Health care reform may also
significantly impact the state's economy. While the health services sector has
been one of the primary sources of new jobs, new cost-containment measures are
expected to curtail such growth, despite continuing increases in the demand for
such services.
FACTORS AFFECTING MICHIGAN
Michigan's economic performance relies heavily on national economic trends. Its
economy is highly industrialized with an economic base concentrated in the
manufacturing sector. This concentration has generally caused the state's
economy to be more volatile than that of more diversified states, although its
long term growth has kept pace with the nation due to gains in other sectors.
During the recent recession, Michigan's employment losses were much more severe
than the nation's, although not as severe as in prior economic downturns. The
state's poor performance resulted in large part from a decline in private
investment and a weakened demand for capital and transportation goods.
43
<PAGE>
In 1992 and 1993, Michigan experienced modest employment growth. This growth is
projected to continue to 1994, although at a pace that is slower than the
nation's. While the manufacturing sector has recently experienced short term
employment gains due to increased demands for automobiles, these gains are
likely to be offset to a certain degree by plant closings which were announced
in 1991, but which have not yet taken effect, and various cost-containment
measures. The state's future economic growth will likely come from growth in
its service sector.
FACTORS AFFECTING MINNESOTA
Minnesota's economic structure is well diversified among trade, services, and
durable and nondurable manufacturing. As a result, the recent recession was
less severe in Minnesota than the nation as a whole. During the 1980s, in
contrast to many other states, Minnesota's manufacturing sector grew, largely
due to gains in durable manufacturing, especially in the food, paper, and
related products industries. Nondurable manufacturing also experienced growth,
although such growth was offset to a certain degree by contractions in the
mainframe computer industry. Notwithstanding the growth in its manufacturing
sector, Minnesota's overall employment growth lagged slightly behind that of
the nation, while unemployment remained below the national average.
Despite continued declines in the state's computer industry and a struggling
agricultural industry, resulting from last summer's floods, growth is expected
in the state's construction, services, trade and finance sectors. This growth is
projected to accelerate as rebuilding from the flood continues. Low labor and
land costs and population gains are attracting new investment to the state,
particularly in the areas of business, health and financial services.
Minnesota's near-term growth is expected to exceed that of the nation as a
whole, with continued growth in personal income and exceptionally low
unemployment levels.
FACTORS AFFECTING OHIO
Ohio's economy has traditionally been highly industrialized. In the early
1980s, however, the state's economy underwent a period of restructuring. While
still concentrated in manufacturing, growth in nonmanufacturing sectors,
especially trade and services, has led to a more diversified economy, greater
stability and steady overall growth. The recent recession's effect on the state
was relatively mild, compared to other economic downturns, with losses in the
manufacturing sector offset from strong employment gains in the service, trade,
financial and real estate sectors. The rate of personal income growth, however,
has declined as lower-paying service jobs have replaced those lost in
manufacturing, with income levels currently slightly below the national average.
While the state's recovery has been modest to date, steady employment and income
growth are projected in the future.
44
<PAGE>
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN TAX FREE TRUST
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
FRANKLIN INSURED TAX-FREE INCOME FUND
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
DATED JULY 1, 1994
The following substitutes subsection "Purchases at Net Asset Value" under
"Additional Information Regarding Fund Shares":
ADDITIONAL INFORMATION REGARDING PURCHASES
Special Net Asset Value Purchases. As discussed in the Prospectus under "How
to Buy Shares of the Fund - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase 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. As a condition for
these payments, Distributors or its affiliates may require reimbursement
from the securities dealers with respect to certain redemptions made within
12 months of the calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement between
Distributors, or its affiliates, and the securities dealer.
The following amounts may be paid by Distributors or one of its affiliates,
out of its own resources, to securities dealers who initiate and are
responsible for (i) purchases of most equity and taxable income Franklin
Templeton Funds made at net asset value by certain designated retirement
plans (excluding IRA and IRA rollovers): 1.00% on sales of $1 million but
less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus
0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more; and (ii) purchases of most taxable income
Franklin Templeton Funds made at net asset value by non-designated
retirement plans: 0.75% on sales of $1 million but less than $2 million,
plus 0.60% on sales of $2 million but less than $3 million, plus 0.50% on
sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or
more. These payment breakpoints are reset every 12 months for purposes of
additional purchases. With respect to purchases made at net asset value by
certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of
$10 million or more, Distributors, or one of its affiliates, out of its own
resources, may pay up to 1% of the amount invested.
Letter of Intent. An investor may qualify for a reduced sales charge on the
purchase of shares of 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. Sales charge reductions based upon purchases in more than one of the
Franklin Templeton Funds will be effective only after notification to
Distributors that the investment qualifies for a discount. The shareholder's
holdings in the Franklin Templeton Funds acquired more than 90 days before
the Letter of Intent is filed will be counted towards completion of the
Letter of Intent but will not be entitled to a retroactive downward
adjustment in the sales charge. Any redemptions made by the shareholder,
other than by a designated benefit plan, during the 13-month period will be
subtracted from the amount of the purchases for purposes of determining
whether the terms of the Letter of Intent have been completed. If the Letter
of Intent is not completed within the 13-month period, there will be an
upward adjustment of the sales charge, depending upon the amount actually
purchased (less redemptions) during the period. The upward adjustment does
not apply to designated benefit plans. An investor who executes a Letter of
Intent prior to a change in the sales charge structure for the Fund will be
entitled to complete the Letter of Intent at the lower of (i) the new sales
charge structure; or (ii) the sales charge structure in effect at the time
the Letter of Intent was filed with the Fund.
<PAGE>
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, the reserved shares will be deposited to an
account in the name of the investor or delivered to the investor or the
investor's order. If the total purchases, less redemptions, exceed the
amount specified under the Letter of Intent and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will
be made by Distributors and the securities dealer through whom purchases
were made pursuant to the Letter of Intent (to reflect such further quantity
discount) on purchases made within 90 days before and on those made after
filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the offering price
applicable to a single purchase or the dollar amount of the total purchases.
If the total purchases, less redemptions, are less than the amount specified
under the Letter, the investor will remit to Distributors an amount equal to
the difference in the dollar amount of sales charge actually paid and the
amount of sales charge which would have applied to the aggregate purchases
if the total of such purchases had been made at a single time. Upon such
remittance the reserved shares held for the investor's account will be
deposited to an account in the name of the investor or delivered to the
investor or to the investor's order. If within 20 days after written request
such difference in sales charge is not paid, the redemption of an
appropriate number of reserved shares to realize such difference will be
made. In the event of a total redemption of the account prior to fulfillment
of the Letter of Intent, the additional sales charge due will be deducted
from the proceeds of the redemption, and the balance will be forwarded to
the investor.
<PAGE>
FRANKLIN [FRANKLIN LOGO]
TAX-FREE
TRUST
STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. Box 7777
JULY 1, 1994 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
- -------------------------------------------------------------------------------
Franklin Tax-Free Trust (the "Trust") is an open-end investment company
consisting of the 27 separate series, including the seven funds discussed in
this Statement of Additional Information:
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
The series may separately or collectively be referred to hereafter as the
"Fund," "Funds," the "State Funds" or individually by the state or policy
included as part of its name.
The principal investment objective of each Fund is to provide investors with as
high a level of income exempt from federal income taxes as is consistent with
prudent investing, while seeking preservation of shareholders' capital. The
investment objective of each Fund is a fundamental policy. Each Fund, other than
the Insured Fund, also seeks to provide a maximum level of income exempt from
state personal income taxes, if any, to shareholders resident in the named
state. The Trust's Arizona and Florida Insured Funds are non-diversified; the
other series of the Trust discussed in this Statement of Additional Information
are diversified.
Generally, the Insured Fund invests in a diversified portfolio of municipal
securities from different states. Each State Fund invests primarily in municipal
securities issued by its respective state and its political subdivisions,
agencies, and instrumentalities. Each Insured Fund invests in municipal
securities which are covered by insurance guaranteeing the scheduled payment of
principal and interest or backed by or subject to an escrow account invested in
securities backed by the full faith and credit of the U.S. government, or in
short-term obligations of issuers with the highest rating from Moody's Investors
Service ("Moody's"), Standard & Poor's Corporation ("S&P") or Fitch Investors
Service, Inc. ("Fitch"). All insured securities not insured through the issuer
will be insured by a qualified municipal bond insurer.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT CONTAINS
INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE PROSPECTUS
OF THE RESPECTIVE FUNDS. THIS STATEMENT OF ADDITIONAL INFORMATION IS INTENDED TO
PROVIDE A PROSPECTIVE INVESTOR WITH ADDITIONAL INFORMATION REGARDING THE
ACTIVITIES AND OPERATIONS OF THE TRUST AND EACH FUND AND SHOULD BE READ IN
CONJUNCTION WITH THE PROSPECTUS COVERING THE SPECIFIC FUND.
A Prospectus dated July 1, 1994, as may be amended from time to time, covers the
following Funds discussed in this Statement of Additional Information: Arizona
Insured, Florida Insured, Insured, Massachusetts Insured, Michigan Insured,
Minnesota Insured and Ohio Insured Funds. The Prospectus, as may be amended from
time to time, provides the basic information a prospective investor should know
before investing in the Trust and may be obtained without charge from the Trust
or from the Trust's principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address listed above.
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
About the Trust ......................................................... 2
The Trust's Investment Objectives and Policies .......................... 2
Description of Municipal and Other Securities ........................... 2
Insurance ............................................................... 4
Investment Restrictions ................................................. 5
Trustees and Officers ................................................... 6
Investment Advisory and Other Services .................................. 9
The Trust's Policies Regarding Brokers
Used on Portfolio Transactions ........................................ 12
Additional Information Regarding Purchases
and Redemptions of Trust Shares ....................................... 12
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
The Trust's Underwriter ................................................. 14
Additional Information Regarding Taxation ............................... 15
Performance ............................................................. 16
Miscellaneous Information ............................................... 20
Appendices .............................................................. 22
Financial Statements .................................................... 27
</TABLE>
ABOUT THE TRUST
- -------------------------------------------------------------------------------
The Trust is an open-end management investment company, commonly called a
"mutual fund," and has registered as such under the Investment Company Act of
1940 (the "1940 Act"). The Trust was organized as a Massachusetts business trust
in September 1984. The Trust issues its shares of beneficial interest with no
par value in several series, each of which maintains a totally separate
investment portfolio.
THE TRUST'S INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
As noted in the Prospectus, the Insured Fund seeks to provide investors with as
high a level of income exempt from federal income taxes as is consistent with
prudent investment management, while seeking preservation of shareholders'
capital. Each Insured State Fund seeks to maximize income exempt from federal
income taxes and from the personal income taxes for shareholders resident in the
named state, consistent with prudent investing, and the preservation of
shareholders' capital. The state of Florida currently imposes no state personal
income tax.
Although each Fund seeks to invest all its assets in a manner designed to
accomplish its objective, there may be times when market conditions limit the
availability of appropriate municipal securities or, in the investment manager's
opinion, there exist uncertain economic, market, political, or legal conditions
which may jeopardize the value of municipal securities. For temporary defensive
purposes only, when the investment manager believes that market conditions, such
as rising interest rates or other adverse factors, would cause serious erosion
of portfolio value, (i) each of the Funds may invest more than 20% of its assets
(which could be up to 100%) in fixed-income obligations, the interest on which
is subject to federal income tax and (ii) a State Fund may invest more than 20%
of the value of its net assets (which could be up to 100%) in instruments the
interest on which is exempt from federal income taxes but not that state's
personal income taxes. To the extent that the state of Minnesota requires
dividends to be derived exclusively from interest on obligations of the state of
Minnesota or of the United States ("U.S.") and its territories in order to be
tax-exempt, the Trust will endeavor to meet such requirements. The policy
followed by this Fund of attempting to meet this state requirement in order to
distribute tax-exempt income is not a fundamental policy with respect to the
Fund and may be changed without notification to shareholders. If, due to unusual
market or political conditions, investments in securities as described above
would be advisable, in the investment manager's opinion, in order to protect the
value of the Funds' shares or their net yield, such investments may be made,
notwithstanding the potential state income tax effects.
It is the policy of each Fund that illiquid securities (including illiquid
securities with contractual or other restrictions on resale or instruments which
are not readily marketable or have no readily ascertainable market value) may
not constitute, at the time of the purchase or at any time, more than 10% of the
value of the total net assets of the Fund.
DESCRIPTION OF MUNICIPAL AND OTHER 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 each of the Funds may invest.
MUNICIPAL NOTES
Tax Anticipation Notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
which will be used to pay the notes. They are usually general obligations of the
issuer, secured by the taxing power for the payment of principal and interest.
Revenue Anticipation Notes are issued in expectation of 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.
2
<PAGE>
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. These 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.
Variable or Floating Rate Demand Notes ("VRDNs"). These 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 15 to 60 days 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
Trust 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 a Fund are held in cash
pending the settlement of a purchase of securities, that Fund would earn no
income; however, it is the Trust's intention to have each Fund fully invested to
the extent practicable and subject to the policies stated in the Prospectus. At
the time a Fund makes the commitment to purchase a municipal bond on a
when-issued basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The Trust does not believe that any
Fund's net asset value or income will be adversely affected by the purchase of
municipal bonds on a when-issued basis. Each Fund will establish a segregated
account in which it will maintain cash and marketable securities equal in value
to commitments for when-issued securities.
Municipal Securities may also be sold in "stripped" form. Stripped Municipal
Securities represent separate ownership of interest and principal payments on
municipal obligations.
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
3
<PAGE>
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 Funds'
investment manager, the Funds believe they have 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 each 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
each Fund's callable bonds may have an impact on such Fund's net asset value. In
light of each Fund's pricing policies and because the Funds follow certain
amortization procedures required by the Internal Revenue Service, the Funds are
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 Funds' objectives will be achieved.
Certificates of Participation. As stated in the prospectus, each 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 Funds
believe that this risk is mitigated by their policy of investing only in insured
COPs. The Board of Trustees has determined that COPs held in each 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 each Fund, both in general and
with respect to COPs; and (c) the extent to which the type of COPs held by each
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 each Fund may invest in COPs.
Escrow-Secured 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. The Insured Funds will purchase escrow
secured bonds without additional insurance only where the escrow is invested in
U.S. government securities backed by the full faith and credit of the U.S.
government.
U.S. Government Obligations which may be owned by a 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 Funds may also invest, to the extent such investments would be
consistent with the foregoing objective and policies.
INSURANCE
- -------------------------------------------------------------------------------
Except for certain temporary short-term investments, U.S. government guaranteed
securities or escrow-secured bonds, the investments in municipal securities by
each of the Insured Funds is covered by insurance guaranteeing the scheduled
payment of principal and interest thereon.
As described in the Prospectus, an Insured Fund will receive payments of
insurance for any installment of interest and principal due for payment but
which shall be unpaid by reason of nonpayment by the issuer. The term "due for
payment," in reference to the principal of a security, means its stated maturity
date or the date on which it shall have been called for mandatory sinking fund
redemption and
4
<PAGE>
does not refer to any earlier date on which payment is due by reason of call for
redemption (other than by mandatory sinking fund redemption), acceleration or
other advancement of maturity; when referring to interest on a security, the
term means the stated date for payment of interest. However, when the interest
on the security shall have been determined, as provided in the underlying
documentation relating to such security, to be subject to federal income
taxation, due for payment, when referring to the principal of such security,
also means the date on which it has been called for mandatory redemption as a
result of such determination of taxability; when referring to interest on such
security, the term means the accrued interest at the rate provided in such
documentation to the date on which it has been called for such mandatory
redemption, together with any applicable redemption premium. The insurance
feature insures the scheduled payment of interest and principal and does not
guarantee the market value of the insured municipal securities nor the value of
the shares of the Insured Funds.
As stated in the Prospectus, each insured municipal security in an Insured
Fund's portfolio will be covered by either a "New Issue Insurance Policy"
obtained by the issuer of the security at the time of its original issuance or a
"Secondary Insurance Policy" or a "Portfolio Insurance Policy" issued by a
qualified municipal bond insurer.
Under the provisions of the Portfolio Insurance Policy, the insurer
unconditionally and irrevocably agrees to pay to the appointed trustee or its
successor and its agent (the "Trustee") that portion of the principal of and
interest on the securities which shall become due for payment but shall be
unpaid by reason of nonpayment by the issuer. The insurer will make such
payments to the Trustee on the date such principal or interest becomes due for
payment or on the business day next following the day on which the insurer shall
have received notice of nonpayment, whichever is later. The Trustee will
disburse to an Insured Fund the face amount of principal and interest which is
then due for payment but is unpaid by reason of nonpayment by the issuer but
only upon receipt by the Trustee of (i) evidence of an Insured Fund's right to
receive payment of the principal or interest due for payment and (ii) evidence,
including any appropriate instruments of assignment, that all of the rights to
payment of such principal or interest due for payment shall thereupon vest in
the insurer. Upon such disbursement, the insurer shall become the owner of the
security, appurtenant coupon or right to payment of principal or interest on
such security and shall be fully subrogated to all of the Insured Fund's rights
thereunder, including the right to payment thereof.
Bond insurers are often referred to as "monolines" in that they only write
financial guarantees as opposed to "multiline" insurers who write several
different types of insurance policies, such as life insurance, auto and home
insurance, and are exposed to many types of risk. Additionally, bond insurers
are not exposed to "run risk" (which occurs when too many policyholders rush to
cash in their policies), because they only guarantee payment when due. Also, in
order to maintain AAA status by the recognized national securities ratings
agencies (which is required by the Fund), the bond insurers invest their assets
mainly in high quality municipal and corporate bonds rated AA or better and U.S.
government obligations.
Neither the Insured Funds nor their investment manager make any representations
as to the ability of any insurance company to meet its obligation to the Insured
Funds if called upon to do so.
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
The Trust has adopted the following restrictions as additional fundamental
policies of each Fund. These policies may not be changed with respect to any
Fund without the approval of a majority of the outstanding voting securities of
such Fund. Under the 1940 Act, a "vote of a majority of the outstanding voting
securities" of the Trust or of a particular Fund means the affirmative vote of
the lesser of (1) more than 50% of the outstanding shares of the Trust or of
such Fund or (2) 67% or more of the shares of the Trust or of such Fund present
at a shareholders meeting if more than 50% of the outstanding shares of the
Trust or of such Fund are represented at the meeting in person or by proxy. A
Fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefore) for temporary or emergency purposes may be
made from banks in any amount up to 5% of the total asset value.
2. Buy any securities on "margin" or sell any securities "short," except that
it may use such short-term credits as are necessary for the clearance of
transactions.
3. Make loans, except through the purchase of readily marketable debt
securities which are either publicly distributed or customarily purchased by
institutional investors. Although such loans are not presently intended, this
prohibition will not preclude a Fund from loaning portfolio securities to
broker/dealers or other institutional investors if at least 102% cash
collateral is pledged and maintained by the bor-
5
<PAGE>
rower; provided such portfolio 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, except with respect to the Trust's
non-diversified Funds, which Funds will not purchase a security, if as a result:
i) more than 25% of its total assets would be invested in the securities of a
single issuer or ii) with respect to 50% of its total assets, more than 5% of
its assets would be invested in the securities of a single issuer.
6. Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and trustees
together own beneficially more than 5% of such securities.
7. Acquire, lease or hold real estate, except such as may be necessary or
advisable for the maintenance of its offices and provided that this limitation
shall not prohibit the purchase of municipal and other debt securities secured
by real estate or interests therein.
8. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads or any combination thereof, or interests in oil, gas, or other mineral
exploration or development programs, except that it may purchase, hold and
dispose of "obligations with puts attached" in accordance with its investment
policies.
9. Invest in companies for the purpose of exercising control or management.
10. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, except to the
extent permitted by exemptions which may be granted under the 1940 Act, which
allows the Funds to invest in shares of one or more investment companies, of
the type generally referred to as money market funds, managed by Franklin
Advisers, Inc. or its affiliates.
11. In the case of the Franklin Arizona Insured Tax-Free Income Fund, Franklin
Florida Insured Tax-Free Income Fund, and the Franklin Federal Intermediate-Term
Tax-Free Income Fund, purchase securities, in private placements or in other
transactions, for which there are legal or contractual restrictions on resale.
12. Invest more than 25% of its assets in securities of any industry; although
for purposes of this limitation, tax-exempt securities and U.S. government
obligations are not considered to be part of any industry.
Portfolio Turnover: The portfolio turnover of each Fund for the two fiscal
years, if applicable, in the period ended February 28, 1994, was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------
FUND 1993 1994
- ----------------------------------------------------- ---- ------
<S> <C> <C>
Arizona Insured Fund ................................ 62.88%
Florida Insured Fund ................................ 28.72
Insured Fund ........................................ 7.95 6.85
Massachusetts Insured Fund .......................... 9.65 13.82
Michigan Insured Fund ............................... 2.04 3.21
Minnesota Insured Fund .............................. 5.58 13.42
Ohio Insured Fund ................................... 2.87 7.29
</TABLE>
TRUSTEES AND OFFICERS
- -------------------------------------------------------------------------------
The trustees have the responsibility for the overall management of the Trust,
including general supervision and review of its investment activities. The
trustees elect the officers of the Trust who are responsible for administering
the day-to-day operations of the Trust. The affiliations of the officers and
trustees and their principal occupations for the past five years are listed
below. Trustees who are deemed to be "interested persons" of the Trust, as
defined in the 1940 Act, are indicated by an asterisk (*).
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND ADDRESS WITH THE TRUST PRINICPAL OCCUPATIONS DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank H. Abbott, III Trustee President and Director, Abbott Corporation
1045 Sansome St. (an investment company); Director, Vacu-Dry
San Francisco, CA 94111 Co. (a food processing company) and Mother
- ----------------------------------------------------------------------------------------------------
Lode Gold Mines Consolidated; and director,
trustee or managing general partner, as the
case may be, of most of the investment
companies in the Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND ADDRESS WITH THE TRUST PRINICPAL OCCUPATIONS DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Harris J. Ashton Trustee President, Chief Executive Officer and
General Host Corporation Chairman of the Board, General Host
Metro Center, 1 Station Place Corporation (nursery and craft centers);
Stamford, CT 06904-2045 Director, RBC Holdings, Inc. (a bank holding
company), Bar-S Foods and Sunbelt Nursery
Group, Inc.; director of certain of the
investment companies in the Templeton Group
of Funds; and director, trustee or managing
general partner, as the case may be, of most
of the investment companies in the Franklin
Group of Funds.
- ----------------------------------------------------------------------------------------------------
S. Joseph Fortunato Trustee Member of the law firm of Pitney, Hardin,
Park Avenue at Morris County Kipp & Szuch; Director of General Host
P. O. Box 1945 Corporation; director of certain of the
Morristown, NJ 07962-1945 investment companies in the Templeton Group
of Funds; and director, trustee or managing
general partner, as the case may be, of
most of the investment companies in the
Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------
David W. Garbellano Trustee Private Investor; Assistant Secretary/
111 New Montgomery St., #402 Treasurer and Director, Berkeley Science
San Francisco, CA 94105 Corporation (a venture capital company);
and director, trustee or managing general
partner, as the case may be, of most of the
investment companies in the Franklin Group
of Funds.
- ----------------------------------------------------------------------------------------------------
* Charles B. Johnson Chairman of the President and Director, Franklin Resources,
777 Mariners Island Blvd. Board and Inc. and Franklin/Templeton Distributors,
San Mateo, CA 94404 Trustee Inc.; Chairman of the Board and Director,
Franklin Advisers, Inc.; Director, Franklin/
Templeton Investor Services, Inc. and
General Host Corporation; director of
certain of the investment companies in the
Templeton Group of Funds; and officer and/or
director, trustee or managing general
partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and
of most of the investment companies in the
Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------
* Rupert H. Johnson, Jr. President Executive Vice President and Director,
777 Mariners Island Blvd. and Trustee Franklin Resources, Inc. and Franklin/
San Mateo, CA 94404 Templeton Distributors, Inc.; President
and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor
Services, Inc.; director of certain of the
investment companies in the Templeton Group
of Funds; and officer and/or director,
trustee or managing general partner, as the
case may be, of most other subsidiaries of
Franklin Resources, Inc. and of most of the
investment companies in the Franklin Group
of Funds.
- ----------------------------------------------------------------------------------------------------
Frank W. T. LaHaye Trustee General Partner, Peregrine Associates and
20833 Stevens Creek Blvd. Miller & LaHaye, which are General Partners
Suite 102 of Peregrine Ventures and Peregrine Ventures
Cupertino, CA 95014 II (venture capital firms); Chairman of the
Board and Director, Quarterdeck Office
Systems, Inc.; Director, FischerImaging
Corporation; and director or trustee, as the
case may be, of most of the investment
companies in the Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND ADDRESS WITH THE TRUST PRINICPAL OCCUPATIONS DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Gordon S. Macklin Trustee Chairman, White River Corporation (financial
8212 Burning Tree Road services); Director, Fundamerican
Bethesda, MD 20817 Enterprises Holdings, Inc., Martin Marietta
Corporation, and MCI Communications
Corporation; director of certain of the
investment companies in the Templeton Group
of Funds; and director, trustee or managing
general partner, as the case may be, of most
of the investment companies in the Franklin
Group of Funds; formerly, Chairman,
Hambrecht and Quist Group; Director, H & Q
Healthcare Investors; and President,
National Association of Securities Dealers,
Inc.
- ----------------------------------------------------------------------------------------------------
Don Duerson Vice President Employee of Franklin Resources, Inc. and
777 Mariners Island Blvd. its subsidiaries in senior portfolio
San Mateo, CA 94404 management capacities.
- ----------------------------------------------------------------------------------------------------
Andrew R. Johnson Vice President Senior Vice President, Franklin Advisers,
777 Mariners Island Blvd. Inc.; employee of Franklin Resources, Inc.
San Mateo, CA 94404 and its subsidiaries in administrative and
portfolio management capacities; and officer
of some of the investment companies in the
Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------
Edward V. McVey Vice President Senior Vice President/National Sales
777 Mariners Island Blvd. Manager, Franklin/Templeton Distributors,
San Mateo, CA 94404 Inc.; and officer of many of the investment
companies in the Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------
Harmon E. Burns Vice President Executive Vice President, Secretary and
777 Mariners Island Blvd. Director, Franklin Resources, Inc.;
San Mateo, CA 94404 Executive Vice President and Director,
Franklin/Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor
Services, Inc.; director of certain of the
investment companies in the Templeton Group
of Funds; officer and/or director, as the
case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or
director or trustee of all the investment
companies in the Franklin Group of Funds.
- ----------------------------------------------------------------------------------------------------
Kenneth V. Domingues Vice President Senior Vice President, Franklin Resources,
777 Mariners Island Blvd. and Treasurer Inc. and Franklin Advisers, Inc.; Vice
San Mateo, CA 94404 President, 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 all
the investment companies in the Franklin
Group of Funds.
- ----------------------------------------------------------------------------------------------------
Deborah R. Gatzek Vice President Senior Vice President - Legal, Franklin
777 Mariners Island Blvd. and Secretary Resources, Inc. and Franklin/Templeton
San Mateo, CA 94404 Distributors, Inc.; Vice President, Franklin
Advisers, Inc.; and officer of all the
investment companies in the Franklin Group
of Funds.
---------------------------------------------------------------------------------------------------
</TABLE>
As indicated above, certain of the trustees and officers hold positions with
other companies in the Franklin Group of Funds. Trustees not affiliated with the
investment manager are currently paid fees of
8
<PAGE>
$700 per month plus $700 per meeting attended and are reimbursed for expenses
incurred in connection with attending such meetings, which amounts are
apportioned between all series of the Trust based on the respective net assets.
During the fiscal year ended February 28, 1994, the total amount paid by the
Funds to cover such fees and expenses was:
<TABLE>
<CAPTION>
TRUSTEES
FEES AND
FUND EXPENSES
- -------------------------------------------------------------------- --------
<S> <C>
Arizona Insured Fund ............................................... $ 0
Florida Insured Fund ............................................... 0
Insured Fund ....................................................... 30,806
Massachusetts Insured Fund ......................................... 5,421
Michigan Insured Fund .............................................. 17,958
Minnesota Insured Fund ............................................. 8,768
Ohio Insured Fund .................................................. 11,552
</TABLE>
No officer or trustee received any other compensation directly from the Trust.
As of April 20, 1994, the officers and trustees, as a group, owned of record and
beneficially 40,713 shares of the Insured Fund which shares are less than 1% of
the total outstanding shares of the respective Fund or the Trust. Certain
officers or trustees who are shareholders of Franklin Resources, Inc. may be
deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries. Charles B. Johnson, Rupert H.
Johnson, Jr. and Andrew R. Johnson are brothers.
INVESTMENT ADVISORY AND OTHER SERVICES
- -------------------------------------------------------------------------------
The investment manager for each Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange. 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 $113 billion in
assets for over 3.5 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
Funds to purchase, hold or sell and the selection of brokers through whom the
portfolio transactions of each Fund 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 trustees to whom the Manager renders periodic reports of the
Trust's investment activities. The Manager, at its own expense, furnishes the
Trust with office space and furnishings, facilities and equipment required for
managing the business affairs of the Trust; maintains all internal bookkeeping,
clerical, secretarial and administrative personnel and services; and provides
certain telephone and other mechanical services. The Manager is covered by
fidelity insurance on its officers, directors and employees for the protection
of the Fund. Each Fund bears all of its expenses not assumed by the Manager. See
the Statement of Operations for each Fund in the financial statements at the end
of this Statement of Additional Information for additional details of these
expenses.
Pursuant to the management agreement, each Fund is obligated to pay the Manager
a fee computed at the close of business on the last business day of each month
equal to a monthly rate of 5/96 of 1% (approximately 5/8 of 1% per year) for the
first $100 million of average monthly net assets of the Fund; 1/24 of 1%
(approximately 1/2 of 1% per year) of average monthly net assets of the Fund in
excess of $100 million up to $250 million; and 9/240 of 1% (approximately 45/100
of 1% per year) of average monthly net assets of the Fund in excess of $250
million. Advisers may, however, limit or may not impose its management fees and
may also assume responsibility for making payments, if necessary, to offset
certain operating expenses otherwise payable by such Fund(s). This action by
Advisers to limit its management fees and assume responsibility for payment of
the expenses related to the operations of any Fund may be terminated by Advisers
at any time.
The management agreement specifies that the management fee be reduced to the
extent necessary to comply with the most stringent limits on the expenses which
may be borne by a Fund prescribed by any state in which a Fund's shares are
offered for sale. The most stringent current limit requires the Manager to
reduce or eliminate its fee to the extent that aggregate operating expenses of
each 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 annual net assets of each Fund, 2% of
the next $70 million of average annual net assets of each Fund, and 1.5% of
average annual net assets of each Fund in excess of $100 million. Expense
reductions have not been necessary based on state limitation requirements.
9
<PAGE>
The table below sets forth on a per Fund basis (for those Funds in operation
during the periods indicated) the management fees which each Fund was obligated
to pay to Advisers and the management fees actually paid by each Fund.
FISCAL YEAR ENDED FEBRUARY 28, 1994:
<TABLE>
<CAPTION>
CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID
FUND FEES BY THE FUND
- -------------------------------------- ----------- -----------
<S> <C> <C>
Arizona Insured Fund.................. $ 43,672 $ 0
Florida Insured Fund.................. 94,989 0
Insured Fund.......................... 7,938,004 7,938,004
Massachusetts Insured Fund............ 1,592,310 1,592,310
Michigan Insured Fund................. 4,738,911 4,738,911
Minnesota Insured Fund................ 2,422,894 2,422,894
Ohio Insured Fund..................... 3,143,227 3,143,227
</TABLE>
FISCAL YEAR ENDED FEBRUARY 28, 1993:
<TABLE>
<CAPTION>
CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID
FUND FEES BY THE FUND
- -------------------------------------- ----------- -----------
<S> <C> <C>
Insured Fund.......................... $6,293,042 $6,293,042
Massachusetts Insured Fund............ 1,347,680 1,347,680
Michigan Insured Fund................. 3,740,226 3,740,226
Minnesota Insured Fund................ 2,044,917 2,044,917
Ohio Insured Fund..................... 2,448,983 2,448,983
</TABLE>
FISCAL YEAR ENDED FEBRUARY 29, 1992:
<TABLE>
<CAPTION>
CONTRACTUAL MANAGEMENT
MANAGEMENT FEES PAID
FUND FEES BY THE FUND
- -------------------------------------- ----------- -----------
<S> <C> <C>
Insured Fund.......................... $4,678,840 $4,678,840
Massachusetts Insured Fund............ 1,065,698 1,065,698
Michigan Insured Fund................. 2,938,414 2,938,414
Minnesota Insured Fund................ 1,702,186 1,702,186
Ohio Insured Fund..................... 1,803,515 1,803,315
</TABLE>
The management agreement is in effect until March 31, 1995. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Trust's Board of
Trustees or as to each Fund by a vote of the holders of a majority of the
outstanding voting securities of such Fund, and in either event by a majority of
the trustees who are not parties to the management agreement or interested
persons of any such party (other than as trustees), cast in person at a meeting
called for that purpose. The management agreement may be terminated without
penalty at any time by the Trust or one or more of its Funds 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.
OTHER SERVICES
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Trust and acts as the Trust's transfer agent and
dividend-paying agent. Investor Services is compensated by the Fund 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, 333 Market Street, San Francisco, California 94105, is the
Trust's independent auditors. During the fiscal year ended February 28, 1994,
its auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report and this Statement
of Additional Information.
PLANS OF DISTRIBUTION
The Funds have each adopted a distribution plan (a "Plan" or "Plans") pursuant
to Rule 12b-1 under the 1940 Act whereby each Fund may pay up to a certain
maximum for expenses incurred in the distribution of its shares. The Plan for
each Fund, except the Arizona Insured and Florida Insured Funds, provides for a
maximum of 0.10% per annum (1/10 of 1%) of its average daily net assets. The
Arizona Insured and Florida Insured Funds may pay up to a maximum of 0.15% per
annum (1/15 of 1%) of each Fund's average daily net assets.
Pursuant to each Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum as stated above) for all expenses incurred in
the distribution and promotion of each Fund's shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparation and distribution of sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
each Fund's 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.
In addition to the payments to which Distributors or others are entitled under
the Plans, each Plan also
10
<PAGE>
provides that to the extent a 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 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 Plan.
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 each
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 each Plan relating to required reports, term, and
approval are consistent with Rule 12b-1. No interested person or trustee of the
Trust has a direct or indirect financial interest in any such Plan. The Plans do
not permit unreimbursed expenses incurred in a particular year to be carried
over to or reimbursed in subsequent years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in each Plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
each Plan for administrative servicing or for agency transactions. If a bank
were prohibited from providing such services, its customers who are shareholders
would be permitted to remain shareholders of the Funds, and alternate means for
continuing the servicing of such shareholders would be sought. In such an event,
changes in the services provided might occur and such shareholders might no
longer be able to avail themselves of any automatic investment or other services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these changes.
Securities laws of states in which the Funds' shares are offered for sale may
differ from the interpretations of federal law expressed herein, and banks and
financial institutions selling shares of the Funds may be required to register
as dealers pursuant to state law.
The Board of Trustees has determined that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and to
take advantage of buying opportunities of portfolio securities without having to
make unwarranted liquidations of other portfolio securities. The Board of
Trustees, therefore, felt that it would benefit the Funds to have monies
available for the direct distribution activities of Distributors or others in
promoting the sale of their shares. The Board of Trustees, including the
non-interested trustees, concluded that, in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plans will benefit the Funds and their shareholders.
Each Plan has been approved by the trustees of the Trust, including those
trustees who are not interested persons, as defined in the 1940 Act. The Plans
adopted by the Arizona Insured and Florida Insured Funds were approved by
Resources, the initial shareholder of such Funds, and by the public shareholders
of the remaining Funds discussed herein, at a meeting held on April 27 and 29,
1994. The Plans are effective through April 29, 1995 and renewable annually
thereafter by a vote of the Trust's Board of Trustees, including a majority of
the trustees who are non-interested persons of the Trust and who have no direct
or indirect financial interest in the operation of each Plan, cast in person at
a meeting called for that purpose. It is also required that the selection and
nomination of such trustees be done by the non-interested trustees. Each Plan
and any related agreement may be terminated at any time, without any penalty, by
the trustees or by Distributors on not more than 60 days' written notice, by any
act that terminates the underwriting agreement with Distributors, or, as to each
Fund, by vote of a majority of that 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. Each 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 the affected Fund's
outstanding shares, and all such material amendments to the Plan or any
distribution or service agreements also shall be approved by a vote of the
non-interested trustees, cast in person at a meeting called for the purpose of
voting on any such amendment.
Distributors is required to report in writing to the Board of Trustees at least
quarterly on the amounts and purpose of any payment made under a Plan and any
related agreements, as well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether a Plan should be
continued.
11
<PAGE>
THE TRUST'S POLICIES REGARDING BROKERS USED ON PORTFOLIO TRANSACTIONS
- -------------------------------------------------------------------------------
Since most purchases made by the Trust are principal transactions at net prices,
the Trust incurs little or no brokerage costs. The Trust deals directly with the
selling or purchasing principal or market maker without incurring charges for
the services of a broker on its behalf unless it is determined that a better
price or execution may be obtained by utilizing the services of a broker.
Purchases of portfolio securities from underwriters include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
include a spread between the bid and ask price. As a general rule, the Funds do
not purchase bonds in underwritings where they are not given any choice, or only
limited choice, in the designation of dealers to receive the commission. The
Trust seeks to obtain prompt execution of orders at the most favorable net
price. Transactions may be directed to dealers in return for research and
statistical information, as well as for special services rendered by such
dealers in the execution of orders. It is not possible to place a dollar value
on the special executions or on the research services received by Advisers from
dealers effecting transactions in portfolio securities. The allocations of
transactions in order to obtain additional research services permits Advisers to
supplement its own research and analysis activities and to receive the views and
information of individuals and research staff of other securities firms which
the Manager or its affiliates may lawfully and appropriately use in their
investment advisory capacities with other clients. Provided that the best
execution is obtained, the sale of shares of a Fund may also be considered as a
factor in the selection of broker/dealers to execute the Trust's portfolio
transactions.
If purchases or sales of securities of a Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of the
security so far as any Fund is concerned. However, in other cases it is possible
that the ability to participate in volume transactions and to negotiate lower
broker commissions will be beneficial to a Fund.
During the fiscal years ended February 29, 1992, and February 28, 1993 and 1994,
none of the Funds incurred any brokerage commissions. As of February 28, 1994,
the Funds did not own securities of any broker/dealer.
ADDITIONAL INFORMATION REGARDING PURCHASES AND REDEMPTIONS OF TRUST SHARES
- -------------------------------------------------------------------------------
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Funds must be denominated in U.S. dollars. Each 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.
Shares are eligible to receive dividends beginning on the first business day
following settlement of the purchase transaction through the date on which the
Fund writes a check or sends a wire on redemption transactions.
Dividend checks which are returned to the Funds 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.
Each Fund may deduct from a shareholder's account the costs of its efforts to
locate a shareholder if mail to that shareholder is returned as undeliverable or
the Fund is otherwise unable to locate the shareholder or verify the current
mailing address. This cost may include a percentage of the account when a search
company charges a percentage fee in exchange for their location services.
Under agreements with certain banks in Taiwan, Republic of China, the Funds'
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors, or an affiliate of Distributors, to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.
Shares of the Funds may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
12
<PAGE>
conformity with local business practices in Taiwan, shares of the Funds will be
offered with the following schedule of sales charges:
<TABLE>
<CAPTION>
SALES
SIZE OF PURCHASE CHARGE
- ----------------------------------------------------------------------- ------
<S> <C>
Up to U.S. $100,000 ................................................... 3%
U.S. $100,000 to U.S. $1,000,000 ...................................... 2%
Over U.S. $1,000,000 .................................................. 1%
</TABLE>
PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
Orders for the purchase of shares of each Fund received in proper form prior to
1:00 p.m. Pacific time any business day that the New York Stock Exchange (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 1:00 p.m.
Pacific time will be effected at each Fund's public offering price on the day it
is next calculated. The use of the term "securities dealer" herein shall include
other financial institutions which, pursuant to an agreement with Distributors
(directly or through affiliates), handle customer orders and accounts with each
Fund. Such reference, however, is for convenience only and does not indicate a
legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to the customer resulting from failure to do so must be settled between
the customer and the securities dealer.
PURCHASES AT NET ASSET VALUE
As discussed in the Prospectus, certain categories of investors may purchase
shares of the Funds at net asset value (without a sales charge) or at a reduced
sales charge. The reason for this is that there is minimal or no sales effort
required with respect to these investors. If certain investments at net asset
value are made through a dealer who has executed a dealer or similar agreement
with Distributors, Distributors or its affiliates may make a payment, out of
their own resources, to such dealer in an amount not to exceed 0.25% of the
amount invested, paid pro rata on a quarterly basis on average quarterly
balances for a period of one year.
GENERAL
Redemptions will be made in cash at the net asset value per share next
determined after receipt by the Funds of a redemption request in proper form,
including all share certificates, share assignments, signature guarantees and
other documentation as may be required by the transfer agent. The amount
received upon redemption may be more or less than the shareholder's original
investment.
The Funds will make payment for all redemptions within seven days after receipt
of such redemption request in proper form. However, the Funds reserve the right
to suspend redemptions or postpone the date of payment of any Fund (1) for any
periods during which the Exchange is closed (other than for the customary
weekend and holiday closing), (2) when trading in the markets that the Fund
usually utilizes is restricted or an emergency exists, as determined by the
Securities and Exchange Commission ("SEC"), so that disposal of such Fund's
investments or the determination of such Fund's net asset value is not
reasonably practicable, or (3) for such other periods as the SEC may permit by
order for the protection of such Fund's shareholders. Also, the Trust will not
mail redemption proceeds until checks received for the shares purchased have
cleared.
Due to the relatively high cost of handling small investments, each Fund
reserves the right to redeem, involuntarily, at net asset value, the shares of
any shareholder whose account in any single Fund 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. Before a 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 will
allow the shareholder 30 days to make an additional investment in an amount
which will increase the value of the account in the applicable Fund to at least
$100.
REDEMPTIONS IN KIND
Each Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of a Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. In the case of requests for redemption in excess
of such amounts, the trustees reserve the right to make payments in whole or in
part in securities or other assets of such Fund 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 such Fund's net assets. Should a
Fund do so, a shareholder may incur brokerage fees in converting the securities
to cash.
13
<PAGE>
CALCULATION OF NET ASSET VALUE
As noted in the Prospectus, each Fund generally calculates net asset value as of
1:00 p.m. Pacific time each day that the Exchange is open for trading. As of the
date of this Statement of Additional Information, the Trust is informed that the
Exchange observes the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Each 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
a Fund's shares are determined as of such times. Occasionally, events affecting
the values of such securities and such exchange rates may occur between the
times at which they are determined and 1:00 p.m. Pacific time which will not be
reflected in the computation of a Fund's net asset value. 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 Trustees.
REINVESTMENT DATE
The dividend reinvestment date is the date on which the additional shares are
purchased for the investor who has elected to have dividends reinvested. This
date will vary from month to month, based on operational considerations, and is
not necessarily the same date as the payable date for cash dividends.
SPECIAL SERVICES
The Trust and Institutional Services Division of Distributors provides
specialized services, including recordkeeping, for institutional investors of
the Funds. The cost of these services is not borne by the Funds.
Investor Services or the Trust may pay certain financial institutions which
maintain omnibus accounts with the Funds on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such beneficial owners.
For each beneficial owner in the omnibus account, the Funds may reimburse
Investor Services an amount not to exceed the per account fee which the Funds
normally pay Investor Services. Such financial institutions may also charge a
fee for their services directly to their clients.
THE TRUST'S UNDERWRITER
- -------------------------------------------------------------------------------
Pursuant to an underwriting agreement in effect until March 31, 1995,
Distributors acts as principal underwriter in a continuous public offering for
shares of each Fund.
Distributors pays the expenses of distribution of each Fund's shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Trust 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 Trust's Board of Trustees or by a vote of the holders
of a majority of the outstanding voting securities of each Fund, and in either
event by a majority of the Trust's trustees who are not parties to the
underwriting agreement or interested persons of any such party (other than as
trustees of the Trust), cast in person at a meeting called for that purpose. The
underwriting agreement terminates automatically in the event of its assignment
and may be terminated by either party on 90 days' written notice.
Prior to May 1, 1994, ordinary dividends were reinvested at the offering price
(which includes the sales charge) and 50% of such sales charge was paid to the
securities dealer of record, if any, on the account. As of May 1, 1994, such
reinvestment will be at net asset value. In addition, prior to July 1, 1994, the
entire sales charge on the sale of each Fund's shares was paid to the securities
dealer of record, if any, on the account. As of July 1, 1994, Distributors will
allow a portion of such underwriting commission (sales charge) to the securities
dealer of record. The tables below reflect the prior structure.
In connection with the offering of the Trust's shares (regarding those Funds in
operation during the periods indicated), underwriting commissions received by
Distributors and the amounts which were subsequently paid by Distributors to
other dealers for the fiscal years ending on February 29, 1992, February 28,
1993 and 1994, were as follows:
14
<PAGE>
<TABLE>
<CAPTION>
1994
TOTAL
COMMISSIONS PAID TO
FUND RECEIVED OTHER DEALERS
- ------------------------------------------ ----------- -------------
<S> <C> <C>
Arizona Insured Fund...................... $ 399,345 $ 386,723
Florida Insured Fund...................... 1,143,608 1,091,172
Insured Fund.............................. 12,230,430 11,605,428
Massachusetts Insured Fund................ 2,068,206 1,950,867
Michigan Insured Fund..................... 8,310,641 7,870,421
Minnesota Insured Fund.................... 3,123,021 2,901,107
Ohio Insured Fund......................... 5,867,852 5,590,312
</TABLE>
<TABLE>
<CAPTION>
1993
TOTAL
COMMISSIONS PAID TO
FUND RECEIVED OTHER DEALERS
- ------------------------------------------ ----------- -------------
<S> <C> <C>
Insured Fund.............................. $13,477,163 $12,959,925
Massachusetts Insured Fund................ 2,051,442 1,952,607
Michigan Insured Fund..................... 7,736,890 7,388,482
Minnesota Insured Fund.................... 3,218,932 3,018,587
Ohio Insured Fund......................... 5,636,686 5,409,668
</TABLE>
<TABLE>
<CAPTION>
1992
TOTAL
COMMISSIONS PAID TO
FUND RECEIVED OTHER DEALERS
- ------------------------------------------- ----------- -------------
<S> <C> <C>
Insured Fund............................... $11,100,251 $10,704,812
Massachusetts Insured Fund................. 2,566,554 2,485,058
Michigan Insured Fund...................... 6,350,952 6,070,071
Minnesota Insured Fund..................... 3,058,356 2,888,663
Ohio Insured Fund.......................... 5,355,154 5,191,144
</TABLE>
Except for the commissions discussed above and for payments it will receive
under the Plan, Distributors receives no other compensation from the Trust for
acting as underwriter.
ADDITIONAL INFORMATION REGARDING TAXATION
- -------------------------------------------------------------------------------
As stated in the Prospectus, each Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The trustees reserve the right not to maintain the
qualification of any 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 shareholders until the following January, will
be treated for tax purposes as if paid by the Funds and received by the
shareholders on December 31 of the calendar year in which they are declared. The
Funds intend as a matter of policy to declare and pay such dividends, if any, in
December to avoid the imposition of this tax, but do not guarantee that the
distributions will be sufficient to avoid any or all federal excise taxes.
Redemptions and exchanges of a Fund's 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 such 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 a fund from direct obligations of the U.S.
government, subject in some states to minimum investment requirements that must
be met by a 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 any Fund
of the Trust to invest in such obligations, the Funds are authorized to so
invest for temporary or defensive purposes. To the extent that such investments
are made, any affected Fund will provide
15
<PAGE>
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 a Fund.
PERFORMANCE
- -------------------------------------------------------------------------------
As noted in each Prospectus, a Fund may from time to time quote various
performance figures to illustrate its past performance. Each Fund 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
Fund be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and average annual compounded total return
quotations used by the Funds are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the Funds to compute or express performance follows. In addition, the
following discussion sets forth performance quotations for certain periods for
each Fund of the Trust, except those Funds that had not commenced operations
during the periods indicated.
TOTAL RETURN
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five-, and ten-year periods, or fractional
portion thereof, that would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the maximum sales charge is
deducted from the initial $1,000 purchase order, and that capital gains and
income dividends are reinvested at net asset value on the reinvestment dates
during the period. 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 on the sales charge structure,
historical performance information will be restated to reflect the maximum sales
charge in effect currently.
In considering the quotations of total return by a 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 investment in one of the Funds. The actual performance of
an investment will be affected less by this charge the longer an investor
retains its investment in such Fund. The average annual compounded rates of
return for each Fund (except those Funds that had not commenced operations
during the periods indicated) for the indicated periods ended on the date of
financial statements included herein were as shown below.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
INCEPTION FROM
OF THE FUND ONE-YEAR FIVE-YEAR INCEPTION
----------- -------- --------- ---------
<S> <C> <C> <C> <C>
Arizona Insured Fund........... 02/26/92 1.41%
Florida Insured Fund........... 02/26/92 -0.96
Insured Fund................... 04/03/85 1.64% 8.14% 8.89
Massachusetts Insured Fund..... 04/03/85 2.08 7.73 7.86
Michigan Insured Fund.......... 04/03/85 1.87 7.91 8.35
Minnesota Insured Fund......... 04/03/85 1.20 7.50 8.46
Ohio Insured Fund.............. 04/03/85 1.83 7.93 8.41
The above figures were calculated according to the following SEC formula:
P(1+T)n = ERV
where:
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the end of the one-,
five-, or ten-year periods (or fractional portion thereof)
As discussed in each Prospectus, a Fund may quote total rates of return in
addition to its average annual total return. Such quotations are computed
16
<PAGE>
in the same manner as the average annual compounded rate, except that such
quotations will be based on the actual return for a specified period instead of
the average return over one-, five-, and ten-year periods. The rates of total
return from commencement of operations of each Fund to February 28, 1993 were as
follows:
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
----------------------------------------------
INCEPTION FROM
OF THE FUND ONE-YEAR FIVE-YEAR INCEPTION
----------- -------- --------- ---------
<S> <C> <C> <C> <C>
Arizona Insured Fund.......... 02/26/92 1.18%
Florida Insured Fund.......... 02/26/92 -0.80
Insured Fund.................. 04/03/85 1.64% 47.86% 113.65
Massachusetts Insured Fund.... 04/03/85 2.08 45.08 96.27
Michigan Insured Fund......... 04/03/85 1.87 46.33 104.38
Minnesota Insured Fund........ 04/03/85 1.20 43.55 106.30
Ohio Insured Fund............. 04/03/85 1.83 46.48 105.38
</TABLE>
YIELD
Current yield reflects the income per share earned by a Fund's portfolio
investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
yield for each Fund (except those that were not in effect at fiscal year-end)
for the 30-day period ended on the date of the financial statements included
herein were as follows:
<TABLE>
<CAPTION>
CURRENT
30-DAY
YIELD
-------
<S> <C>
Arizona Insured Fund................................................. 4.93%
Florida Insured Fund................................................. 5.19
Insured Fund......................................................... 4.34
Massachusetts Insured Fund........................................... 4.24
Michigan Insured Fund................................................ 4.13
Minnesota Insured Fund............................................... 4.20
Ohio Insured Fund.................................................... 4.15
</TABLE>
These figures were obtained using the SEC formula:
Yield = 2 [(a-b + 1)6 -1]
---
cd
where:
a = interest earned during the period
b = net expenses accrued for the period
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
30-DAY TAX EQUIVALENT YIELD
A 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 a Fund (computed as indicated above) which is tax-exempt
by one minus the highest applicable combined federal and state income tax rate
(and adding the product to that portion of the yield of a Fund that is not
tax-exempt, if any). The tax equivalent yield for each Fund for the 30-day
period ended on the date of the financial statements included herein was as
follows:
<TABLE>
<CAPTION>
30-Day Tax
Equivalent
Yield*
----------
<S> <C>
Arizona Insured Fund............................................. 8.77%
Florida Insured Fund............................................. 8.59
Insured Fund..................................................... 7.19
Massachusetts Insured Fund....................................... 7.97
Michigan Insured Fund............................................ 7.17
Minnesota Insured Fund........................................... 7.59
Ohio Insured Fund................................................ 7.43
</TABLE>
The following table lists for each state, the state and the combined state and
federal income tax rates upon which the Trust's tax equivalent yield quotations
are based. From time to time, as any changes to such rates become effective, tax
equivalent yield quotations advertised by the Trust will be updated to reflect
such changes. The Trust expects updates will be necessary as tax rates are
frequently changed by federal, state and local governments. The advantage of
tax-free investments, such as the Funds of the Trust, will be enhanced by any
tax rate increases. Therefore, the details of specific tax increases may be used
in sales material for any Fund.
17
<PAGE>
<TABLE>
<CAPTION>
STATE COMBINED*
----- ---------
<S> <C> <C>
Arizona......................................... 7.00% 43.83%
Florida......................................... 0.00 39.60
Massachusetts................................... 12.00 46.85
Michigan........................................ 4.60 42.38
Minnesota....................................... 8.50 44.73
Ohio............................................ 7.50 44.13
</TABLE>
*based on the maximum (with the exception of Arizona) combined state and 39.60%
federal tax rate in effect as of the date of this Statement of Additional
Information.
Quotations of taxable equivalent yield by the Funds in advertisements may
reflect assumed rates of return which are not intended to represent historical
or current distribution rates or yields. Such quotations will be used in sales
literature, such as Franklin's Tax-Free Yield Calculator, to illustrate the
general principle of the impact taxes have on rates of return or to show the
taxable rate of return that would be needed to match a tax-free rate of return.
CURRENT DISTRIBUTION RATE
Current yield and tax equivalent yield, which are calculated according to a
formula prescribed by the SEC, are not indicative of the amounts which were or
will be paid to a Fund's shareholders. Amounts paid to shareholders are
reflected in the quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by dividing the
total amount of dividends per share paid by the Fund during the past twelve
months by a current maximum offering price. A taxable equivalent distribution
rate demonstrates the taxable distribution rate equivalent to a Fund's current
distribution rate (calculated as indicated above). The advertised taxable
equivalent distribution rate will reflect the most current federal and state tax
rates available to a Fund.
Under certain circumstances, such as when there has been a change in the amount
of dividend payout or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid over the period such policies were
in effect, rather than using the dividends during the past twelve months. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from additional sources (i.e., sources
other than dividends and interest), such as short-term capital gains, and is
calculated over a different period of time.
The current distribution rate for each Fund for the 12-month period ended on the
date of the financial statements included herein was as follows:
<TABLE>
<CAPTION>
CURRENT
DISTRIBUTION
RATE
------------
<S> <C>
Arizona Insured Fund* ........................................... 5.02%
Florida Insured Fund* ........................................... 5.01
Insured Fund .................................................... 5.55
Massachusetts Insured Fund ...................................... 5.46
Michigan Insured Fund ........................................... 5.46
Minnesota Insured Fund .......................................... 5.42
Ohio Insured Fund ............................................... 5.39
</TABLE>
*includes expense waiver
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
shares of a Fund at net asset value, sales literature pertaining to a Fund may
quote a "Current Distribution Rate for Net Asset Value Investments." This rate
is computed by adding the income dividends paid by a Fund during the last 12
months and dividing that sum by a current net asset value. Figures for yield,
total return and other measures of performance for Net Asset Value Investments
may also be quoted. These will be derived as described elsewhere in this
Statement of Additional Information with the substitution of net asset value for
public offering price.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
A Fund may include in its advertising or sales material information relating to
investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisers and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements and other materials regarding the
Funds may discuss various measures of Fund
18
<PAGE>
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. When advertising current ratings or
rankings, the Fund may advertise together or separately the following past
ratings and rankings, and such information in those categories which may appear
in the future:
Lipper Fixed-Income Fund Performance Analysis ranked the Alabama Fund number one
in total return (in the other state tax-free funds category) for the year ended
12/31/91, with a total return of 12.41%. There were 24 funds in the category.
Lipper Fixed-Income Fund Performance Analysis ranked the Colorado Fund number
one in total return (in the state of Colorado tax-free funds category) for the
year ended 12/31/91, with a total return of 12.35%. There were seven funds in
the category.
Lipper Fixed-Income Fund Performance Analysis ranked the Oregon Fund number one
in total return (in the state of Oregon tax-free funds category) for the year
ended 12/31/91, with a total return of 12.65%. There were eight funds in the
category.
Lipper Fixed-Income Fund Performance Analysis ranked the Maryland Fund number
one in total return (in the state of Maryland tax-free funds category) for the
year ended 12/31/91, with a total return of 12.07%. There were 14 funds in the
category.
Lipper Fixed-Income Fund Performance Analysis ranked the Virginia Fund number
one in total return (in the state of Virginia tax-free funds category) for the
year ended 12/31/91, with a total return of 12.55%. There were 15 funds in the
category.
Lipper Fixed-Income Fund Performance Analysis ranked the High Yield Fund number
one for its five-year total return (in the high yield municipal bond funds
category) for the year ended 12/31/91, with a five-year total return of 54.28%.
There were 26 funds in the category.
The Lipper Fixed-Income Fund Performance Analysis and Lipper Mutual Fund Yield
Survey for Industry Averages - measure total return and average current yield
for the mutual fund industry. It ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
In addition to such reports by Lipper, the following publications and indices
may be used to discuss or compare Fund performance:
Lehman Brothers Municipal Bond Index (LMBI) or its component indices - LMBI
measures yield, price, and total return for the municipal bond market.
Bond Buyer 20 Bond Index is an index of municipal bond yields based on yields of
20 general obligation bonds maturing in 20 years.
Bond Buyer 40 Bond Index is an index of municipal bond yields based on yields of
40 general obligation bonds maturing in 40 years.
Salomon Brothers Composite High Yield Index covers much of the below-investment
grade U.S. corporate bond market. It combines previously published indices to
create a broad index for the high-yield market. To enter the index, an issue
must be rated speculative by S&P or Moody's.
Salomon Brothers Broad Investment Grade Index is representative of the entire
universe of taxable fixed-income investments. It includes issues of U.S.
government securities, and any agency thereof; corporate issues of investment
grade, mortgage backed securities; and yankee bonds.
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.
Merril Lynch California Municipal Bond Index is 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.
Savings & Loan Historical Interest Rates as published by the U.S. Savings & Loan
League Fact Book.
Inflation as measured by the Consumer Price Index, published by the U.S. Bureau
of Labor Statistics.
CDA Mutual Fund Report, published by CDA Investment Technologies Inc. - analyzes
price, current yield, risk, total return, and average rate of return (average
annual compounded growth rate) over specified time periods for the mutual fund
industry.
Financial Publications: The Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, and Money magazines.
Standard & Poor's Bond Indices - measure yield and price of corporate,
municipal, and government bonds.
Advertisements or information may mention or discuss ratings or rankings of the
Insured Funds or their securities, issued by securities rating agencies or other
organizations.
From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may
19
<PAGE>
also compare a Fund's performance to the return on certificates of deposit or
other investments. Investors should be aware, however, that an investment in a
Fund involves the risk of fluctuation of principal value, a risk generally not
present in an investment in a certificate of deposit issued by a bank. For
example, as the general level of interest rates rise, the value of 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 a Fund's shares can be
expected to increase. Certificates of deposit are frequently insured by an
agency of the U.S. government. An investment in any of the Funds 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 Funds' portfolios, that the averages are generally
unmanaged, and that the items included in the calculations of such averages may
not be identical to the formula used by the Funds to calculate their figures. In
addition there can be no assurance that the Funds will continue this performance
as compared to such other averages.
Franklin had the first single-state municipal bond funds in California,
Massachusetts, Michigan, Minnesota and Ohio.
OTHER FEATURES AND BENEFITS
Founded in 1947, Franklin is a leader in the tax-free mutual fund industry,
currently offering 40 tax-free funds, including 31 funds free from both federal
and state personal income taxes, and managing more than $40 billion in municipal
bond assets for over half a million investors.
Under current tax laws, municipal securities remain one of the few investments
offering the potential for tax-free income. In 1994, taxes could cost as much as
$47 on every $100 earned from a fully taxable investment (based on the maximum
combined 39.6% federal tax rate and the highest state tax rate of 12% for 1994.)
Franklin tax-free funds, however, offer tax relief through a professionally
managed portfolio of tax-free securities selected based on their yield, quality
and maturity. An investment in a Franklin tax-free fund can provide an investor
with the potential to earn income free of federal taxes and, depending on the
fund, state and local taxes as well, while supporting state and local public
projects. Franklin tax-free funds may also provide tax-free compounding, when
dividends are reinvested. An investment in Franklin's tax-free funds can grow
more rapidly than similar taxable investments.
Each Fund may help investors achieve various investment goals such as
accumulating money for retirement, saving for a down payment on a home, college
costs and/or other long-term goals. The Franklin College Costs Planner may
assist an investor in determining how much money must be invested on a monthly
basis in order to have a projected amount available in the future to fund a
child's college education. (Projected college cost estimates are based upon
current costs published by the College Board.)
Each Fund is a member of the Franklin/Templeton Group, one of the largest mutual
fund organizations in the United States and may be considered in a program for
diversification of assets. Franklin, one of the oldest mutual fund
organizations, has managed mutual funds for over 45 years and now services more
than 2.4 million shareholder accounts. In 1992, Franklin, a leader in managing
fixed-income mutual funds and an innovator in creating domestic equity funds,
joined forces with Templeton Worldwide, Inc., a pioneer in international
investing. Together, the Franklin/Templeton Group has over $113 billion in
assets under management for more than 3.5 million shareholder accounts and
offers 103 U.S.-based mutual funds. A Fund may identify itself by its Quotron or
CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one of
36 mutual fund groups in service quality for 1993. One other fund group was also
ranked number one. Franklin has been ranked number one in service quality by
Dalbar for five of the past six years.
From time to time, advertisements or sales material issued by a Fund may discuss
or be based upon information in a recent issue of the Special Report on Tax
Freedom Day published by the Tax Foundation, a Washington, D.C.-based nonprofit,
research and public education organization. The report illustrates, among other
things, the amount of time, on an annual basis, the average taxpayer works to
satisfy his or her tax obligations to the federal, state and local taxing
authorities.
MISCELLANEOUS INFORMATION
The Trust amortizes the organizational expenses attributable to a Fund over a
period of five years from the effective date of the registration statement
covering that Fund. New investors purchasing shares of a Fund after the
effective date of such Fund's registration statement under the Securities
20
<PAGE>
Act of 1933 will bear such expenses during the amortization period.
The portfolio insurance of the Insured Funds may affect the value of a Fund's
shares under certain circumstances. As discussed in the Prospectus, unless a
Secondary Market Insurance Policy is purchased with respect to the portfolio
security, an Insured Fund intends to hold any defaulted securities or securities
for which there is a significant risk of default in its portfolio until the
default has been cured or the principal and interest are paid by the issuer or
the insurer. In such circumstances, the Board of Trustees has instructed the
Manager to consider, in its evaluation of these securities, the value of the
insurance guaranteeing the interest and principal payments, as well as the
market value of the portfolio securities and the market value of securities of
similar issuers whose securities carry similar interest rates. Absent any
unusual or unforeseen circumstances, as a result of the Portfolio Insurance
Policy, the Manager would likely recommend that an Insured Fund value the
defaulted securities, or securities for which there is a significant risk of
default, at the same price as securities of a similar nature which are not in
default. A defaulted security covered by a Secondary Market Insurance Policy
would likely be valued at market.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust also provides for indemnification and reimbursement of expenses out of
Trust assets for any shareholder held personally liable for obligations of the
Trust. The Declaration of Trust provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Trust and satisfy any judgement thereon. All such rights are
limited to the assets of the Fund(s) of which a shareholder holds shares. The
Declaration of Trust further provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, trustees, officers, employees and
agents to cover possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance exists and the Trust
itself is unable to meet its obligations.
From time to time, the number of Trust shares of beneficial interest of any Fund
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 Trust, as of April 7,
1994, the only shareholders who hold, beneficially or of record, more than 5% of
the outstanding shares of any Fund of the Trust are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES HELD PERCENTAGE
----------- ----------
<S> <C> <C>
Arizona Insured Fund
Franklin Resources, Inc. 227,726 16.5%
777 Mariners Island Blvd.
San Mateo, CA 94404
Michael P. Goodman 88,033 6.4%
9001 S 27th Street
Phoenix, Arizona
85040-8202
Florida Insured Fund
Franklin Resources, Inc. 227,935 6.6%
Merrill Lynch Pierce
Fenner & Smith, Inc. 517,840 15%
Mutual Fund Operations
Attn Book Entry
P.O. Box 45286
Jacksonville, FL
32232-5286
Mass. Insured Fund
Merrill Lynch Pierce
Fenner & Smith, Inc. 2,508,231 9.6%
Mutual Fund Operations
Attn Book Entry 3rd Fl.
P.O. Box 45286
Jacksonville, FL
32232-5286
Mich. Insured Fund
Merrill Lynch Pierce
Fenner & Smith, Inc. 9,324,358 10.8%
Insured Fund
Merrill Lynch Pierce
Fenner & Smith, Inc. 9,394,819 6.5%
Ohio Insured Fund
Merrill Lynch Pierce
Fenner & Smith, Inc. 5,392,802 9.7%
</TABLE>
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority to
control a shareholder's account, the Trust has the right (but has no obligation)
to: (a) freeze the account and require the written agreement of all persons
deemed by the Trust to have a potential property interest in the account, prior
to executing instructions regarding the account;
21
<PAGE>
(b) interplead disputed funds or accounts with a court of competent
jurisdiction; or (c) surrender ownership of all or a portion of the account to
the Internal Revenue Service in response to a Notice of Levy.
APPENDIX A
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
- --------------------------------------------------------------------------------
Municipal Bonds
Moody's Investors Service ("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 municipal bond ratings. 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.
Standard & Poor's Corporation ("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.
22
<PAGE>
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 Investors Service, Inc. Municipal Division
AAA bonds: (highest quality) "the obligor has an extraordinary ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events."
AA bonds: (high quality) "the obligor's ability to pay interest and repay
principal, while very strong, is somewhat less than for AAA-rated securities or
more subject to possible change over the term of the issue."
A bonds: (good quality) "the obligor's ability to pay interest and repay
principal is strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings."
BBB bonds: (satisfactory bonds) "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 weaken this ability than bonds
with higher ratings."
MUNICIPAL NOTES
Moody's
Moody's ratings for state and municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in long-term
borrowing risk are of lesser importance in the short run. Symbols used will be
as follows:
MIG-1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG-2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG-3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG-4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER
Moody's
Moody's Commercial Paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Trust, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
23
<PAGE>
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the A category are delineated with the numbers
1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH'S SHORT-TERM AND COMMERCIAL PAPER RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect on assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
APPENDIX B
FURTHER INFORMATION ON SPECIAL FACTORS AFFECTING EACH STATE FUND
The following information is a summary of special factors affecting each of the
individual State Funds. It does not purport to be a complete description of such
factors and is based primarily upon information derived from public documents
relating to securities offerings of issuers of such states and other
historically reliable sources such as S&P Creditweek Municipal. The Trust has
not independently verified any of this data. The market value of the shares of
any Fund may fluctuate due to factors such as changes in interest rates, matters
affecting a particular state, or for other reasons. The risk of nonpayment of
principal or interest has been reduced due to the existence of insurance on all
municipal securities in the portfolios of the Insured Funds.
ARIZONA
In 1970, Arizona retired its general obligation bonds and is now
constitutionally prohibited from issuing such debt. The state currently relies
on revenue bonds, lease obligations, and pay-as-you-go financing to support its
financing needs. Arizona's debt level is moderate with debt service representing
2.4% of the state's revenues. On a per capita basis, debt was $279 or 1.6% of
personal income for fiscal 1993.
Beginning in 1985, Arizona experienced 5 consecutive fiscal years with budget
shortfalls. These shortfalls were managed with budget cuts, one-time
adjustments, tax accelerations and borrowing. In 1990, a $250 million tax
increase, combined with budget cuts, resulted in a general fund balance equal to
2% of operating expenditures, down from 21% in 1980. This balance was maintained
in fiscal 1991 and fell to 0.2% in 1992 with a $5.2 million general fund
balance. Fiscal 1993 also ended with a balance of less than 1% of operating
expenditures, although the general fund balance improved to $11.4 million. For
fiscal 1994, the general fund budget is estimated at $87.3 million, a 2.4%
increase from 1993, and includes approximately $25 million in tax reductions.
FLORIDA
Florida's financial performance and position remain satisfactory. In the last
three fiscal years, lower-than-expected economic activity resulted in
significant state revenue shortfalls. However, because of timely action, the
state has maintained budgetary balance. In the coming years, difficult choices
will continue to be posed among spending priorities and tax policies. An
adequate balance must be found to cope with fund-
24
<PAGE>
ing demands driven by rapid population growth, while still promoting economic
development.
Florida's consumption tax-based revenues received a boost from the economic
activity associated with the rebuilding and cleanup of southern Florida as a
result of damage caused by Hurricane Andrew in August 1992. The state estimates
that increased economic activity resulting from the rebuilding effort will add
to its sales receipts by nearly $500 million in fiscal 1993-1994. Net costs to
the state attributable to the cleanup and repair will be in the vicinity of
$100 million, with federal and private insurance picking up the rest of the
estimated $20-30 billion tab.
The proposed budget for fiscal 1994 provides for an increase in spending in the
general revenue fund of 14.2% from fiscal 1993. Projected revenue growth of
$949.1 million is based on underlying economic growth, with an additional
$630.7 million to be derived from new taxes and fees. The governor has proposed
funding the working capital fund at $203.5 million, more than meeting the goal
of funding the first increment of a budget stabilization fund for fiscal 1995.
MASSACHUSETTS
Despite continuing efforts to restore fiscal control, Massachusetts' debt
service remains among the highest in the nation. Annual debt service is
forecast between $1.4 and $1.6 billion through fiscal 1997, including $280
million for fiscal recovery bonds. The per capita debt at fiscal year-end 1993
was $2,005 or 9.7% of personal income, a relatively high level of debt when
compared to the national median of $399 or 2.1%.
In 1993, as in 1992, Massachusetts' revenue goals were met and its short-term
borrowing and accumulated fund deficit were reduced. At fiscal year-end 1993,
the budgeted operating funds had a balance of $562.5 million, more than double
the estimated 1993 amount, and up from $549.4 million at fiscal year-end 1992.
Revenues during 1993 grew 4.7% to $14.709 billion and expenditures reached
$14.696 billion, an increase of 9.7% from fiscal 1992. The fastest growing
expenditure categories were pension contributions, up 15.6%; Medicaid, up
11.8%; and support for various transit authorities, up 10.7%. Despite these
increases in spending, revenues exceeded expenditures in the budgeted operating
funds by $13 million and the state was able to limit its short-term borrowing
to $370 million, down from $635 million in 1992. Massachusetts' year-end cash
position was also reduced, from $732 million in 1992 to $622 million in 1993.
Massachusetts' 1994 budget estimates spending at $15.5 billion, up 5.4% from
1993, not including $109.4 million in additional appropriation requests not yet
acted on by the state's legislature. Education reform legislation enacted in
June 1993 will require a 13% increase in spending for elementary and secondary
education, an increase of approximately $175 million, with additional increases
required in 1995 and 1996. Sales tax revenues are projected to grow 9.4%,
income taxes 6.3% and nontax revenues 4.1%. A tax reduction program has been
proposed by the governor. If approved, the program would reduce income and
gasoline taxes and would result in a revenue loss of $124 million in 1994.
MICHIGAN
In fiscal 1991, Michigan faced an estimated $1.8 billion budgetary gap caused,
in part, by a decrease in tax revenues during the most recent recession. This
deficit was reduced to $90 million through measures enacted in 1991 and 1992
which cut public assistance by more than $500 million, imposed a state hiring
freeze, and resulted in the utilization of the general and budget stabilization
funds' reserves. At the beginning of fiscal 1993, Michigan's operating deficit
had been eliminated. The state also began the year, however, with a depleted
reserve position. Preliminary results for 1993 suggest a budget surplus of
close to $300 million, resulting from higher than anticipated tax revenues.
Most of this surplus will be transferred to the state's budget stabilization
fund. A smaller surplus is projected for fiscal 1994.
While Michigan's financial condition has recently improved, pending property
tax reform will require increased budget cuts, potentially affecting the
state's improved fiscal and reserve positions. In August 1993, Michigan's
senate eliminated all school operating property taxes in the state. As a
result, approximately $6.6 billion in local tax revenues will need to be
replaced.
Michigan's debt burden is relatively low. At fiscal year-end 1993, debt service
per capita was $291 or 1.5% of personal income, below the national median.
MINNESOTA
Minnesota's debt burden is relatively moderate. The state has recently
established a financial management reform program which includes a debt
management policy under which targeted levels for total outstanding general
obligation debt are established, based upon general fund revenues and personal
income levels. The state has consistently been able to meet its targeted
levels, limiting its debt issuance to approximately $200 million per year.
During fiscal 1993, Minnesota had close to $1.8 billion in outstand-
25
<PAGE>
ing general obligation bonds. On a per capita basis, this represented $428 or
2.1% of personal income.
Original forecasts for fiscal 1993 estimated that Minnesota's budget reserve
fund would be reduced to its lowest level since 1987 to meet the state's budget
requirements, due largely to revenue losses caused by the recession. Strong
economic growth and spending cuts, however, enabled the state to improve the
balance of its reserve account from $260 million in February 1993 to $360
million in July 1993. To protect against future economic uncertainty,
Minnesota's legislature now requires across-the-board spending cuts, up to 1%,
before the state's reserve account may be used. In addition, as part of the
state's financial management reform program, mandatory spending growth limits
have been enacted for some of the state's fastest growing programs, although
expenditures for health and education remain high. Nevertheless, the fiscal
1994 budget contains an expenditure plan which has one of the lowest spending
growth rates in the last ten years.
OHIO
Despite the recent economic recession, timely fiscal action has allowed Ohio to
balance its budget, notwithstanding mid-year budget imbalances in fiscals
1991-1993. Lower than expected tax revenues and pressure to spend on human
service programs, due to the recession, resulted in an estimated deficit of
$590 million in fiscal 1993. At fiscal year-end 1993, however, Ohio's budgetary
fund balance was a positive $111 million, as a result of expenditure
reductions, revenue enhancements and the use of reserve funds, although $21
million was transferred to the state's budget stabilization reserve fund. As of
February 1994, the state's efforts to balance its budget had resulted in
spending reductions totalling $711 million and a $364 million deduction from
the budget stabilization reserve fund. At the same time, revenue enhancement
programs enacted in January 1993 have broadened the sales tax base, increased
the cigarette tax and the income tax for higher incomes, and capped tax
distributions to local governments. These programs are expected to add $912
million of additional revenues in fiscals 1994 and 1995.
Ohio's fiscal 1994 budget forecasts moderate expenditure growth, due in large
part to increases in Medicaid spending which is expected to grow by 13.7%.
Other major expenditure growth areas are youth and correction services,
expected to increase 21.9%, and education, expected to grow by 4.2%. Revenues
are also expected to grow during fiscal 1994, with tax revenues increasing by
an estimated 8.3%.
Currently, approximately 80% of Ohio's debt consists of lease obligations or
lease revenue bonds. The state's existing administration, however, is currently
proposing debt restructuring legislation which will shift the state's debt to
general obligation bonds. If approved, this legislation is expected to lower
the state's borrowing costs and, in addition, will place limits on the state's
total general obligation debt issuance. The state's current debt levels are
relatively moderate, representing, on a per capita basis, $453 or 1.6% of
personal income. Total debt service payments constitute 5% of the state's
budget.
26
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 95.1%
$ 500,000 Arizona Health Facilities Authority, Hospital System Revenue, Refunding, Samaritan
Health System, MBIA Insured, 5.625%, 12/01/15 . . . . . . . . . . . . . . . . . . . . $ 500,585
Arizona State Power Authority, Power Resources Revenue,
1,000,000 Refunding, Hoover Uprating Project, MBIA Insured, 5.375%, 10/01/13 . . . . . . . . . . 978,060
100,000 Refunding, Hoover Uprating Project, MBIA Insured, 5.25%, 10/01/17 . . . . . . . . . . 95,824
1,750,000 Arizona State University, COP, Refunding, MBIA Insured, 5.375%, 07/15/09 . . . . . . . . 1,739,920
975,000 Avondale City, GO, Series 1993, FGIC Insured, 5.375%, 07/01/15 . . . . . . . . . . . . . 946,628
265,000 Cochise County School District No. 9, Benson Union, Refunding, AMBAC Insured, 5.375%,
07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,087
100,000 Flagstaff Street & Highway User Revenue, Junior Lien, FGIC Insured, 5.90%, 07/01/10 . . 106,039
Maricopa County, IDA, Health Facilities Revenue,
225,000 Catholic H.C. West, Series A, MBIA Insured, 5.50%, 07/01/10 . . . . . . . . . . . . . 221,648
500,000 Refunding, Evangelist Lutheran Samaritan Project, AMBAC Insured, 5.35%, 12/01/18 . . . 480,740
125,000 Maricopa County School District No. 3, Temple Elementary, Refunding & Improvement,
FGIC Insured, 5.40%, 07/01/12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,313
Maricopa County School District No. 28, Kyrene Elementary,
15,000 Series D, FGIC Insured, 6.00%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . 15,346
85,000 Series D, FGIC Insured, Pre-Refunded, 6.00%, 07/01/13 . . . . . . . . . . . . . . . . 91,768
500,000 Maricopa County School District No. 38, Madison Elementary, Refunding, Second Series,
FGIC Insured, 5.25%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489,155
175,000 Maricopa County School District No. 41, Series A, FGIC Insured, 5.40%, 07/01/13. . . . . 170,683
Maricopa County School District No. 68, Alhambra Elementary,
500,000 Refunding & Improvement, AMBAC Insured, 5.125%, 07/01/13 . . . . . . . . . . . . . . . 471,575
100,000 Refunding & Improvement, AMBAC Insured, 5.625%, 07/01/13 . . . . . . . . . . . . . . . 100,115
300,000 Maricopa County School District No. 98, Fountain Hills Unified School, Refunding,
FGIC Insured, 5.40%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,729
100,000 Maricopa County Stadium District Revenue, Series A, MBIA Insured, 5.50%, 07/01/13. . . . 99,169
500,000 Maricopa County UHSD No. 216, 1988 Project, FGIC Insured, 5.30%, 07/01/11 . . . . . . . 485,620
100,000 Maricopa County USD No. 69, Paradise Valley, Series D, School Improvement,
FGIC Insured, 5.875%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,034
Maricopa County USD No. 93,
125,000 Cave Creek, School Improvement, Series B, FGIC Insured, 5.30%, 07/01/09 . . . . . . . 122,298
150,000 Cave Creek, School Improvement, Series B, FGIC Insured, 5.375%, 07/01/10 . . . . . . . 146,250
100,000 Mesa GO, Refunding, MBIA Insured, 5.00%, 07/01/03 . . . . . . . . . . . . . . . . . . . 100,585
175,000 Mohave County, UHSD No. 1, Lake Havasu, Refunding, AMBAC Insured, 5.25%, 07/01/10. . . . 171,049
100,000 Mohave County, UHSD No. 30, Refunding, FGIC Insured, 5.50%, 07/01/09 . . . . . . . . . . 100,695
290,000 Navajo County PCR, Refunding, Arizona Public Services Co., Series A,
AMBAC Insured, 5.50%, 08/15/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,589
100,000 Northern Arizona University Revenues, Refunding, Series A, AMBAC Insured, 5.75%,
06/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,873
500,000 Peoria Municipal Development Authority Facilities Revenue, Refunding, MBIA Insured,
5.20%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484,460
110,000 Phoenix GO, Refunding, Series B, MBIA Insured, 5.50%, 07/01/16 . . . . . . . . . . . . . 109,849
Pima County USD No. 1,
300,000 Tucson Project, Series E, FGIC Insured, 5.40%, 07/01/13. . . . . . . . . . . . . . . . 294,333
100,000 Tucson School Improvement, Series D, FGIC Insured, 6.00%, 07/01/09 . . . . . . . . . . 104,207
100,000 Pima County USD No. 6, Marana School, Series A, FGIC Insured, 5.75%, 07/01/12 . . . . . 101,570
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Salt River Project, Agricultural Improvement & Power District Electric System Revenue,
$ 200,000 Series A, FGIC Insured, 6.00%, 01/01/31 . . . . . . . . . . . . . . . . . . . . . . . $ 203,104
120,000 Series C, MBIA Insured, 5.75%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . . . 120,131
350,000 Salt River Project, Arizona Agricultural Improvement & Power District Electric System
Revenue, Refunding, Series A, FGIC Insured, 5.50%, 01/01/19 . . . . . . . . . . . . . 340,732
Scottsdale IDA, Hospital Revenue,
150,000 Scottsdale Memorial Hospitals, AMBAC Insured, 5.50%, 09/01/12 . . . . . . . . . . . . 149,652
200,000 Scottsdale Memorial Hospitals, AMBAC Insured, 5.25%, 09/01/18 . . . . . . . . . . . . 188,950
375,000 Tucson Airport, Inc., Authority Revenue, Refunding, MBIA Insured, 5.70%, 06/01/13 . . . 378,994
150,000 Tucson Street & Highway User Revenue, Refunding, Junior Lien, MBIA Insured, 5.50%,
07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,643
100,000 Tucson Water Revenue, Refunding, Series A, FGIC Insured, 5.75%, 07/01/18 . . . . . . . 101,389
120,000 University of Arizona Medical Center Corp., Hospital Revenue, Refunding, MBIA Insured,
5.00%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,604
200,000 Yavapai County Community College District, Refunding, FGIC Insured, 5.40%, 07/01/10 . . 196,577
425,000 Yuma & La Paz Counties Community College District, Refunding, Arizona Western College,
AMBAC Insured, 5.40%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . 419,971
--------------
TOTAL LONG TERM INVESTMENTS (COST $12,350,011) . . . . . . . . . . . . . . . . 12,260,543
--------------
(9) SHORT TERM INVESTMENTS .8%
100,000 Maricopa County IDA, Hospital Facilities Revenue, Samaritan Health Services Hospital,
MBIA Insured, Daily VRDN and Put, 2.30%, 12/01/08 (COST $100,000) . . . . . . . . . . 100,000
--------------
TOTAL INVESTMENTS (COST $12,450,011) 95.9% . . . . . . . . . . . . . . . . . 12,360,543
OTHER ASSETS AND LIABILITIES, NET 4.1% . . . . . . . . . . . . . . 534,901
--------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . $ 12,895,444
==============
At February 28, 1994, the net unrealized depreciation based on the cost of investments
for income tax purposes of $12,450,262 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,646
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . (164,365)
--------------
Net unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (89,719)
==============
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Co.
IDA - Industrial Development Authority
GO - General Obligation
MBIA - Municipal Bond Investors Assurance Corp.
PCR - Pollution Control Revenue
USD - Unified School District
UHSD - Unified High School District
(9)Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal
balance plus accrued interest upon short notice prior to specified dates.
The interest rate may change on specified dates in relationship with changes
in a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.8%
$ 100,000 Alachua County Health Facilities Authority Revenue, Shands Hospital at the University
of Florida, MBIA Insured, 5.75%, 12/01/15 . . . . . . . . . . . . . . . . . . . . . . $ 100,330
875,000 Altamonte Springs Health Facilities, Hospital Revenue, Adventist Health/Sunbelt,
Series B, AMBAC Insured, 5.375%, 11/15/23 . . . . . . . . . . . . . . . . . . . . . . 829,649
100,000 Apopka Utility System Revenue, Refunding, FGIC Insured, 6.00%, 12/01/13 . . . . . . . . 103,350
250,000 Boca Raton Community, RDA, Tax Increment Revenue, Mizner Park Project, FGIC Insured,
5.50%, 03/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,420
100,000 Broward County Health Facilities Authority Revenue, Refunding, Holy Cross Hospital,
Inc., AMBAC Insured, 5.85%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . . . 103,232
100,000 Charlotte County Utility Revenue, Refunding, FGIC Insured, 5.25%, 10/01/12 . . . . . . 96,098
100,000 Citrus County Capital Improvement Revenue, Refunding, MBIA Insured, 5.375%, 07/01/11 . 98,497
1,000,000 Clay County Utilities System Revenue, Series B, FGIC Insured, 5.25%, 11/01/13 . . . . . 961,990
150,000 Cocoa Beach Utilities Revenue, Refunding, MBIA Insured, 5.50%, 11/01/13 . . . . . . . . 148,566
1,600,000 Escambia County, Sales Tax Revenue, Refunding, FGIC Insured, 5.80%, 01/01/15 . . . . . 1,621,648
Florida State Municipal Power Agency Revenue,
1,335,000 Refunding, St. Lucie Project, FGIC Insured, 5.50%, 10/01/12 . . . . . . . . . . . . . 1,322,678
100,000 Refunding, Tri City Project, AMBAC Insured, 5.50%, 10/01/19 . . . . . . . . . . . . . 86,928
Florida State Turnpike Authority Revenue,
800,000 (e)Refunding, Series A, FGIC Insured, 5.00%, 07/01/19 . . . . . . . . . . . . . . . . 726,360
250,000 Refunding, Series A, FGIC Insured, 5.25%, 07/01/22 . . . . . . . . . . . . . . . . . 234,593
850,000 Fort Pierce Utilities Authority Revenue, Refunding, AMBAC Insured, 5.25%, 10/01/12 . . 816,833
110,000 Hillsborough County Aviation Authority Revenue, Refunding, Tampa International Airport,
Series A, AMBAC Insured, 5.90%, 10/01/15 . . . . . . . . . . . . . . . . . . . . . . 112,087
425,000 Hillsborough County Utility Revenue, Refunding, MBIA Insured, 5.50%, 08/01/13 . . . . . 420,478
100,000 Indian River County, Water & Sewer Revenue, Series A, Refunding, FGIC Insured,
5.50%, 09/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,758
200,000 Jacksonville Beach Utilities Revenue, Refunding, MBIA Insured, 5.50%, 10/01/20 . . . . 195,084
100,000 Jacksonville Excise Tax Revenue, FGIC Insured, 5.75%, 10/01/20 . . . . . . . . . . . . 100,498
110,000 Juno Beach, Public Improvement Revenue, Refunding, AMBAC Insured, 5.50%, 04/01/14 . . . 109,203
135,000 Key West Sewer Revenue, Refunding, FGIC Insured, 5.60%, 10/01/14 . . . . . . . . . . . 135,450
Kissimmee Utility Authority Electric System Revenue,
350,000 Refunding & Improvement, FGIC Insured, 5.50%, 10/01/15 . . . . . . . . . . . . . . . 346,931
1,000,000 Refunding, Series A, FGIC Insured, 5.30%, 10/01/17 . . . . . . . . . . . . . . . . . 954,670
100,000 Lakeland Wastewater Improvement Revenue, Refunding, MBIA Insured, 5.50%, 10/01/16 . . . 98,095
1,770,000 Lee County Capital & Transportation Facilities Revenue, Refunding, Series A,
MBIA Insured, 5.55%, 10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,735,467
Martin County Water & Waste Water System Revenue,
500,000 Martin Downs System, FGIC Insured, 5.625%, 10/01/13 . . . . . . . . . . . . . . . . . 500,890
900,000 Refunding, Series A, FGIC Insured, 5.70%, 10/01/23 . . . . . . . . . . . . . . . . . 893,592
450,000 Naples Hospital Revenue, Refunding, Naples Community Hospital, Inc. Project,
MBIA Insured, 5.25%, 10/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435,573
1,500,000 Orange County Sales Tax Revenue, Series B, FGIC Insured, 5.25%, 01/01/13 . . . . . . . 1,429,215
500,000 Orange County Water & Waste Water Revenue, Refunding, AMBAC Insured, 5.50%, 10/01/12 . 491,420
1,875,000 Orlando & Orange County Expressway Authority Revenue, Refunding, Senior Lien,
FGIC Insured, 5.50%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,823,400
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 1,520,000 Orlando Utilities Commission, Water & Electric Revenue, Series A, MBIA Insured,
5.50%, 10/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,472,956
100,000 Palm Beach County, Administration Complex Revenue, Refunding, FGIC Insured,
5.25%, 06/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,102
1,000,000 Palm Beach County, Criminal Justice Facilities Revenue, Refunding, FGIC Insured,
5.375%, 06/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990,490
330,000 Panama City Beach Water & Sewer Revenue, Refunding & Improvement, AMBAC Insured,
5.625%, 06/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,987
3,020,000 Pinellas County Health Facilities Revenue, Hospital-Bayfront Obligation Group,
Series A, MBIA Insured, 5.50%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . 2,970,351
St. Lucie County Utilities System Revenue,
1,035,000 Refunding, FGIC Insured, 5.375%, 10/01/11 . . . . . . . . . . . . . . . . . . . . . . 1,015,925
1,000,000 Refunding, FGIC Insured, 5.50%, 10/01/15 . . . . . . . . . . . . . . . . . . . . . . 982,610
410,000 St. Petersburg Beach, GO, AMBAC Insured, 5.25%, 10/01/13 . . . . . . . . . . . . . . . 397,790
200,000 St. Petersburg Health Facilities Authority Revenue, Allegany Health System Loan
Program, MBIA Insured, 5.75%, 12/01/21 . . . . . . . . . . . . . . . . . . . . . . . 199,978
1,000,000 Sanford Water & Sewer Revenue, Refunding, AMBAC Insured, 5.25%, 10/01/14 . . . . . . . 962,250
100,000 Sarasota County Utility System Revenue, Refunding, FGIC Insured, 5.50%, 10/10/22 . . . 97,604
500,000 Sarasota-Manatee Airport Authority Revenue, Refunding, MBIA Insured, 5.625%, 08/01/14 . 498,465
100,000 Sebring Water & Waste Water Revenue, AMBAC Insured, 5.50%, 01/01/23 . . . . . . . . . . 96,902
500,000 Seminole County, Solid Waste Disposal System Revenue, Refunding, FGIC Insured,
5.375%, 10/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483,375
1,710,000 Sumter County Capital Improvement Revenue, Refunding, MBIA Insured, 5.375%, 06/01/19 . 1,640,352
200,000 University of Florida, University Housing Revenues, MBIA Insured, 5.50%, 07/01/23 . . . 194,314
100,000 Venice Utility Revenue, Refunding, MBIA Insured, 5.50%, 07/01/14 . . . . . . . . . . . 98,192
Vero Beach Electric Revenue,
200,000 Refunding, Series A, MBIA Insured, 5.50%, 12/01/13 . . . . . . . . . . . . . . . . . 198,553
1,000,000 Refunding, Series A, MBIA Insured, 5.375%, 12/01/21 . . . . . . . . . . . . . . . . . 957,560
380,000 West Palm Beach Parking Facilities Revenue, Refunding, AMBAC Insured, 5.40%, 09/01/17 . 365,810
--------------
TOTAL LONG TERM INVESTMENTS (Cost $32,074,689) . . . . . . . . . . . . . . . . 31,437,549
--------------
(g)SHORT TERM INVESTMENTS 1.2%
Florida HFA, MFHR,
100,000 Monterey Meadows Apartments, Weekly VRDN and Put, 2.40%, 12/01/07 . . . . . . . . . . 100,000
200,000 Sun Point Cove Apartments, Weekly VRDN and Put, 2.40%, 12/01/07 . . . . . . . . . . . 200,000
100,000 Hillsborough County, IDA, PCR, Refunding, Daily VRDN and Put, 2.20%, 05/15/18 . . . . . 100,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $400,000) . . . . . . . . . . . . . . . . . 400,000
--------------
TOTAL INVESTMENTS (COST $32,474,689) 99.0% . . . . . . . . . . . . . . . . . 31,837,549
OTHER ASSETS AND LIABILITIES, NET 1.0% . . . . . . . . . . . . . . . . . . . 312,779
--------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,150,328
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
VALUE
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
At February 28, 1994, the net unrealized depreciation based on the cost of investments
for income tax purposes of $32,474,689 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,038
Aggregate gross unrealized depreciation for all investments in which there was an
excess tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (659,178)
-------------
Net unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (637,140)
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guaranty Insurance Corp.
GO - General Obligation
HFA - Housing Finance Authority
IDA - Industrial Development Authority
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
PCR - Pollution Control Revenue
RDA - Redevelopment Agency
(e)See Note 1 regarding securities purchased on a when-issued basis.
(g)Variable rate demand notes (VRDN's) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.4%
BONDS 98.4%
ALABAMA 2.5%
Alabama HFA, SFMR,
$ 5,270,000 HMR Program, Series A-1, GNMA Collateralized, 7.80%, 10/01/20 . . . . . . . . . . . . $ 5,470,313
1,500,000 Series 1986-A, MBIA Insured, 7.125%, 10/01/14 . . . . . . . . . . . . . . . . . . . . 1,575,150
1,000,000 Alabama State Board Educational Revenue, Southern Union State Junior College, MBIA
Insured, 6.50%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,085,660
100,000 Alabama Water Authority, PCR, AMBAC Insured, 6.25%, 08/15/14 . . . . . . . . . . . . . 104,400
2,000,000 Alabama Water Pollution Control Authority, Series A, AMBAC Insured, 5.60%, 08/15/16 . . 1,969,780
1,820,000 Auburn Governmental Utility Services Corp., Waste Water Revenue, Merscot-Auburn L.P.,
FGIC Insured, 7.30%, 01/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,007,842
5,000,000 Birmingham Baptist Medical Center, Special Care Facilities, Series A, Refunding, MBIA
Insured, 5.50%, 08/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,888,900
Daphne Utilities Board, Water, Gas & Sewer Revenue,
4,030,000 Refunding, Series 1990-B, FGIC Insured, 7.30%, 06/01/10 . . . . . . . . . . . . . . . 4,554,464
2,000,000 Series B, Capital Improvement Bonds, FGIC Insured, 7.35%, 06/01/20 . . . . . . . . . 2,259,820
1,100,000 Druit Community Hospital Health Care Authority, Facilities Revenue, MBIA Insured, Pre-
Refunded, 7.875%, 06/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,245,530
2,285,000 Houston County, Health Care Authority, Hospital Revenue, Refunding, Alabama Medical
Center, MBIA Insured, 5.50%, 10/01/19 . . . . . . . . . . . . . . . . . . . . . . . . 2,197,028
300,000 Huntsville Health Care Facilities Authority Revenue, Series A, MBIA Insured, 6.375%,
06/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314,943
1,500,000 Marshall County, Limited Obligation, AMBAC Insured, 7.00%, 02/01/12 . . . . . . . . . . 1,661,055
500,000 Mobile, Board of Water and Sewer Commissioners, Water and Sewer Utilities Revenue,
Series A, FGIC Insured, Pre-Refunded, 9.375%, 01/01/12 . . . . . . . . . . . . . . . 590,315
1,960,000 Phenix City, GO, Refunding, AMBAC Insured, 5.75%, 03/01/13 . . . . . . . . . . . . . . 1,988,204
1,000,000 Saraland Water and Sewer Utilities Revenue, FGIC Insured, Pre-Refunded, 8.75%,
12/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,106,290
University of Alabama, University Hospital Revenues,
4,000,000 Birmingham, MBIA Insured, 5.50%, 10/01/10 . . . . . . . . . . . . . . . . . . . . . . 3,957,000
4,000,000 Refunding, Huntsville, Series A, MBIA Insured, 5.50%, 05/01/18 . . . . . . . . . . . 3,880,120
5,000,000 West Jefferson IDB, PCR, Refunding, Alabama Power Co., Miller Plant Co., Series C, MBIA
Insured, 6.05%, 05/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,099,650
--------------
45,956,464
--------------
ALASKA 3.8%
Alaska Energy Authority Power Revenue, Bradley Lake Hydro Project,
5,795,000 MBIA Insured, 7.25%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,510,856
5,000,000 Series 1, BIG Insured, 7.25%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . . . 5,583,500
4,765,000 Series 1, BIG Insured, 7.25%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . 5,321,076
3,205,000 Series 1, BIG Insured, 6.25%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . 3,296,375
18,500,000 Alaska Energy Utilities Revenue, City & Boro of Sitka, Refunding, CGIC Insured, 6.75%,
07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,130,775
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ALASKA (CONT.)
Anchorage Electric Utility Revenue
$ 5,000,000 Refunding, Senior Lien, Series A, MBIA Insured, 7.125%, 06/01/06 . . . . . . . . . . $ 5,563,050
830,000 Refunding, Senior Lien, Series A, MBIA Insured, Pre-Refunded, 7.625%, 12/01/06 . . . 911,606
1,000,000 Refunding, Senior Lien, Series A, MBIA Insured, Pre-Refunded, 7.625%, 12/01/15 . . . 1,099,460
Anchorage GO,
2,765,000 General Purpose, AMBAC Insured, Pre-Refunded, 7.30%, 08/01/10 . . . . . . . . . . . . 3,174,635
5,000,000 Refunding, AMBAC Insured, 7.20%, 06/01/17 . . . . . . . . . . . . . . . . . . . . . . 5,524,500
1,500,000 Series A, FGIC Insured, Pre-Refunded, 7.75%, 05/01/06 . . . . . . . . . . . . . . . . 1,647,120
2,000,000 Anchorage School District, Series A, MBIA Insured, 6.30%, 02/01/12 . . . . . . . . . . 2,080,480
5,100,000 Anchorage Water Revenue, Refunding, Senior Lien, MBIA Insured, 7.25%, 08/01/14 . . . . 5,595,924
1,035,000 (e)Ketchikan, GO, AMBAC Insured, 5.50%, 11/15/13 . . . . . . . . . . . . . . . . . . . 1,009,404
500,000 University of Alaska, COP, Series 1990, CGIC Insured, 7.375%, 10/01/07 . . . . . . . . 577,855
250,000 University of Alaska Revenues, Series B, AMBAC Insured, 6.50%, 10/01/17 . . . . . . . . 265,480
--------------
68,292,096
--------------
ARIZONA 2.5%
Arizona State Municipal Financing Program, COP,
2,250,000 Phoenix Water, Series 10, BIG Insured, Pre-Refunded, 7.90%, 08/01/17 . . . . . . . . 2,538,225
6,000,000 Series 1986-20, BIG Insured, ETM 08/01/07, 7.70%, 08/01/10 . . . . . . . . . . . . . 7,347,300
10,000,000 Series 1986-26, BIG Insured, 7.70%, 08/01/05 . . . . . . . . . . . . . . . . . . . . 11,184,700
500,000 Series 1993-3, MBIA Insured, 5.25%, 08/01/23 . . . . . . . . . . . . . . . . . . . . 472,135
450,000 Arizona State Power Authority, Power Resource Revenue, Refunding, Hoover Uprating
Project, MBIA Insured, 5.25%, 10/01/17 . . . . . . . . . . . . . . . . . . . . . . . 431,208
2,200,000 Chandler Water and Sewer Revenue, Refunding, FGIC Insured, 7.00%, 07/01/12 . . . . . . 2,443,408
Conchise County USD No. 68, Sierra Vista,
500,000 Refunding, FGIC Insured, 7.50%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . 603,100
3,000,000 Series B, FGIC Insured, Pre-Refunded, 7.625%, 07/01/10 . . . . . . . . . . . . . . . 3,523,800
25,000 Maricopa County Hospital District No. 1, Hospital Facilities Revenue, Refunding, FGIC
Insured, Pre-Refunded, 7.625%, 06/30/12 . . . . . . . . . . . . . . . . . . . . . . . 27,028
300,000 Maricopa County IDA, Hospital Facility Revenue, Samaritan Health Services, Series A,
Refunding, MBIA Insured, 7.00%, 12/01/16 . . . . . . . . . . . . . . . . . . . . . . 352,731
875,000 Maricopa County School District No. 3, Tempe Elementary, Refunding & Improvement, FGIC
Insured, 5.40%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 849,188
Maricopa County USD No. 80, Chandler,
775,000 FGIC Insured, Pre-Refunded, 7.20%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . 892,413
825,000 FGIC Insured, Pre-Refunded, 7.20%, 07/01/08 . . . . . . . . . . . . . . . . . . . . . 949,988
500,000 FGIC Insured, Pre-Refunded, 7.25%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . 577,110
1,000,000 Maricopa County USD No. 98, Fountain Hills, Series A, FGIC Insured, Pre-Refunded, 7.10%,
07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,129,530
1,000,000 Maricopa UHSD No. 216, Refunding & Improvement, FGIC Insured, Pre-Refunded, 6.70%,
07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,121,400
1,000,000 Mesa IDA, Health Care Facilities Revenue, Refunding, Western Health Network, Inc.,
Series B-2, BIG Insured, 7.50%, 01/01/08 . . . . . . . . . . . . . . . . . . . . . . 1,129,310
500,000 Mohave County USD No. 1, Lake Havasu Project, Series 1991-B, AMBAC Insured, 5.375%,
07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492,485
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ARIZONA (CONT.)
$ 890,000 Phoenix GO, Refunding, Series B, MBIA Insured, 5.50%, 07/01/16. . . . . . . . . . . . . $ 888,781
500,000 Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 07/01/15 . . . . . . . . . . 553,265
Salt River Project, Agricultural Improvement & Power District, Electric System Revenue,
1,150,000 Refunding, Series A, FGIC Insured, 5.50%, 01/01/19. . . . . . . . . . . . . . . . . . 1,119,548
300,000 Series A, MBIA Insured, 6.50%, 01/01/22 . . . . . . . . . . . . . . . . . . . . . . . 321,357
5,000,000 Tucson Local Development Corp., Leasehold Revenue, Series F, FGIC Insured, Pre-
Refunded, 7.30%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,626,250
--------------
44,574,260
--------------
ARKANSAS .4%
Arkansas State Development Finance Authority Water Revenue,
1,400,000 Series A, MBIA Insured, Pre-Refunded, 7.00%, 06/01/14 . . . . . . . . . . . . . . . . 1,610,028
2,000,000 Series A, Revolving Loan Fund, MBIA Insured, Pre-Refunded, 6.40%, 06/01/15. . . . . . 2,236,100
North Little Rock Electric System Revenue,
500,000 Murray Lock & Dam Hydro-Electric Project, MBIA Insured, Pre-Refunded, 9.50%,
07/01/15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553,250
2,000,000 Refunding, Series A, MBIA Insured, 6.50%, 07/01/10. . . . . . . . . . . . . . . . . . 2,257,400
25,000 Pulaski County Health Facilities Board Hospital Revenue, St. Vincent's Infirmary, MBIA
Insured, Pre-Refunded, 10.00%, 09/01/12 . . . . . . . . . . . . . . . . . . . . . . . 31,546
--------------
6,688,324
--------------
CALIFORNIA 3.3%
3,750,000 California State Public Works, Board Lease Revenue, University of California Projects,
Series A, AMBAC Insured, 6.40%, 12/01/16 . . . . . . . . . . . . . . . . . . . . . . 3,967,425
6,790,000 Central USD, AMBAC Insured, 5.625%, 03/01/18 . . . . . . . . . . . . . . . . . . . . . 6,697,520
15,000,000 Corona COP, Corona Community Hospital Project, Pre-Refunded, 7.00%, 09/01/20 . . . . . 19,529,400
5,000,000 Los Angeles County, Metropolitan Transit Authority, Refunding, Series A, MBIA Insured,
5.625%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,937,550
5,000,000 Los Angeles County Transport Commission, Sales Tax Revenue, Proposition C, Series A,
MBIA Insured, Pre-Refunded, 6.50%, 07/01/20. . . . . . . . . . . . . . . . . . . . . 5,662,650
250,000 Oakland RDA, Refunding, Central District Redevelopment, AMBAC Insured, 5.50%,
02/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,895
4,500,000 Ontario RDA Financing Revenue, Ontario Redevelopment Project No. 1, MBIA Insured,
5.50%, 08/01/18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,399,245
510,000 Oxnard School District, Series C, FGIC Insured, 5.50%, 08/01/13. . . . . . . . . . . . 498,086
1,250,000 Poway, RDA, Tax Allocation, Refunding, Parguay Redevelopment Project, FGIC Insured,
5.50%, 12/15/23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,212,500
3,100,000 Redding Joint Power Financing Authority, Waste Water Revenue, Refunding, Series A,
FGIC Insured, 5.50%, 12/01/18. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,022,004
3,250,000 Riverside RDA, Refunding, Casa Blanca Project, Series A, MBIA Insured, 5.625%,
08/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,201,543
1,000,000 San Diego, Regional Building Authority Lease Revenue, Refunding, San Miguel Fire
Protection, Series A, MBIA Insured, 5.65%, 01/01/20. . . . . . . . . . . . . . . . . 985,210
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
$ 70,000 San Jose RDA, Merged Area Redevelopment Project, Series A, AMBAC Insured, Pre-Refunded,
6.90%, 08/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,141
1,250,000 Santee, Public Financing Authority Revenue, Redevelopment, Refinancing, City Hall
Project, MBIA Insured, 5.45%, 02/01/14 . . . . . . . . . . . . . . . . . . . . . . . 1,213,013
4,630,000 Suisun-Solano Water Authority Revenue, Refunding, CGIC Insured, 5.55%, 05/01/17 . . . . 4,605,739
--------------
60,256,921
--------------
COLORADO 4.8%
3,500,000 Adams & Weld Counties GO, Brighton School District No. 27-J, Unlimited Tax, MBIA
Insured, 6.30%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,711,015
1,000,000 Arapahoe County Building Finance Corp., COP, CGIC Insured, 7.50%, 12/01/10 . . . . . . 1,123,710
8,695,000 Arapahoe County COP, Refunding, CGIC Insured, 6.625%, 12/01/16 . . . . . . . . . . . . 9,495,201
1,250,000 Aspen GO, Housing Bonds, Series 1990-A, FGIC Insured, Pre-Refunded, 7.25%, 04/15/20 . . 1,324,388
1,500,000 Castle Pines Metropolitan District, Refunding & Improvement, Series 1990, CGIC
Insured, 7.625%, 12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,743,165
2,400,000 Colorado Association of School Boards, COP, Pueblo School District No. 60, Project A,
MBIA Insured, 7.25%, 12/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,684,112
Colorado Health Facilities Authority Revenue,
1,175,000 Community Provider Project, Series 1991-A, CGIC Insured, 7.25%, 07/15/17 . . . . . . 1,332,039
1,750,000 Refunding, Sisters of Charity Health Care, Series A, AMBAC Insured, 6.00%, 05/15/22 . 1,790,740
3,000,000 Rose Medical Center, MBIA Insured, Pre-Refunded, 7.00%, 08/15/21 . . . . . . . . . . 3,471,300
Colorado Postsecondary Educational Facilities Authority Revenue,
1,000,000 Connie Lee Insured, 6.625%, 06/01/13 . . . . . . . . . . . . . . . . . . . . . . . . 1,089,460
1,000,000 Refunding, University of Denver Project, Connie Lee Insured, 6.00%, 03/01/10 . . . . 1,028,340
2,700,000 University of Denver Project, Connie Lee Insured, 6.25%, 03/01/18 . . . . . . . . . . 2,811,375
1,000,000 Colorado Springs, Utilities Revenue, Refunding & Improvement, Series A, MBIA Insured,
5.125%, 11/15/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 941,880
Colorado State Board of Agriculture Revenue,
800,000 Refunding & Improvement, University of Aux Facilities, MBIA Insured, 6.40%, 03/01/11. 859,232
1,000,000 Refunding & Improvement, University of Aux Facilities, MBIA Insured, 6.40%, 03/01/17. 1,073,690
2,000,000 Colorado Water Resources & Power Development Authority Revenue, Series A, FGIC Insured,
6.70%, 11/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,163,260
1,500,000 Denver City & County Board, Water Commissioner, COP, FGIC Insured, 6.625%, 11/15/11 . . 1,639,020
3,000,000 Denver City & County Hospital Revenue, Children's Hospital Association Project, FGIC
Insured, 6.00%, 10/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,080,430
2,000,000 Denver City & County Revenue, Mercy Medical Center Project, MBIA Insured, 7.75%,
05/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,256,320
1,985,000 Denver City & County SFMR, GNMA Mortgage Backed Securities, Series A, 8.125%, 12/01/20 2,087,744
2,000,000 Douglas County School District No. 1, Douglas & Elbert Counties COP, Series D, FGIC
Insured, 6.80%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,220,260
1,760,000 El Paso County SFMR, Series 1990-A, GNMA Collateralized, 8.00%, 09/01/22 . . . . . . . 1,867,782
2,000,000 Goldsmith Metropolitan District, Refunding, MBIA Insured, 6.125%, 12/01/12 . . . . . . 2,072,920
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
COLORADO (CONT.)
$ 1,000,000 Havana Water and Sanitary District Sewer Revenue, CGIC Insured, Pre-Refunded, 7.375%,
09/15/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,127,070
2,000,000 Inverness Water and Sanitation District, GO, Arapahoe & Douglas Counties, Refunding &
Improvement, BIG Insured, Pre-Refunded, 8.125%, 12/01/05 . . . . . . . . . . . . . . 2,229,360
Jefferson County COP,
2,000,000 MBIA Insured, 7.125%, 12/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,262,620
5,000,000 Refunding, MBIA Insured, 6.65%, 12/01/08 . . . . . . . . . . . . . . . . . . . . . . 5,537,250
5,000,000 Jefferson County, School District No. R-1, AMBAC Insured, 6.25%, 12/15/12 . . . . . . . 5,357,250
780,000 Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 . . . . . . 825,061
La Plata County, Sales Tax Revenue & Refunding Facilities,
195,000 Durango City, Series A, FGIC Insured, Pre-Refunded, 7.50%, 12/01/05 . . . . . . . . . 203,430
195,000 Durango City, Series A, FGIC Insured, Pre-Refunded, 7.50%, 12/01/06 . . . . . . . . . 203,430
360,000 Durango City, Series B, FGIC Insured, Pre-Refunded, 7.50%, 12/01/05 . . . . . . . . . 375,563
1,105,000 Durango City, Series B, FGIC Insured, Pre-Refunded, 7.50%, 12/01/06 . . . . . . . . . 1,152,769
3,000,000 La Plata County, School District No. R-9, Durango City, FGIC Insured, 6.55%, 11/01/12 . 3,296,040
1,000,000 Morgan County PCR, Refunding, 1st Mortgage, Public Service Co., Series A, MBIA Insured,
5.50%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,002,230
1,600,000 Parker Water and Sanitation District, Water & Sewer Revenue, Refunding, FGIC Insured,
6.20%, 10/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,670,016
6,000,000 Poudre Valley Hospital District, Hospital Revenue, AMBAC Insured, Pre-Refunded, 6.625%,
12/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,762,180
2,500,000 Regional Transportation District, Sales Tax Revenue, Refunding & Improvement, FGIC
Insured, 6.25%, 11/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,651,950
--------------
86,523,602
--------------
CONNECTICUT .4%
Connecticut Health & Educational Facilities Authority Revenue,
2,000,000 Danbury Hospital, Series E, MBIA Insured, 6.50%, 07/01/14 . . . . . . . . . . . . . . 2,168,540
2,900,000 Yale-New Haven Hospital, Issue I, MBIA Insured, 7.10%, 07/01/25 . . . . . . . . . . . 3,240,054
2,000,000 New Haven Air Rights Parking Facility Revenue, Refunding, MBIA Insured, 6.50%,
12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,158,360
--------------
7,566,954
--------------
DELAWARE .3%
1,000,000 Delaware State EDA, PCR, Refunding, Series B, AMBAC Insured, 6.75%, 05/01/19 . . . . . . 1,097,440
2,900,000 Delaware State Health Facilities Authority Revenue, Refunding, Medical Center, MBIA
Insured, 7.00%, 10/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,236,226
250,000 Delaware Transportation Authority System Revenue, MBIA Insured, Pre-Refunded, 7.75%,
07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286,748
--------------
4,620,414
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
DISTRICT OF COLUMBIA .3%
$ 1,000,000 District of Columbia GO, Refunding, Series B, FGIC Insured, Pre-Refunded, 7.75%,
06/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,100,970
1,030,000 District of Columbia HFA, RMR, Series 1986-1, FGIC Insured, 7.75%, 09/01/16 . . . . . . 1,094,478
2,000,000 District of Columbia Revenue, Howard University, Series A, MBIA Insured, 8.00%,
10/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,263,740
150,000 District of Columbia, Series A, AMBAC Insured, Pre-Refunded, 7.50%, 06/01/10 . . . . . 175,586
--------------
4,634,774
--------------
FLORIDA 3.0%
1,800,000 Cape Coral, Franchise Fees Revenue, AMBAC Insured, 5.40%, 12/01/13 . . . . . . . . . . 1,761,354
2,750,000 Dade County Health Facilities Authority, Hospital Revenue, Mt. Sinai Medical Center
Project, CGIC Insured, Pre-Refunded, 8.40%, 12/01/17 . . . . . . . . . . . . . . . . 3,202,458
200,000 Dade County Seaport Revenue, Refunding, Series E, MBIA Insured, 8.00%, 10/01/08 . . . . 254,318
15,000 Dade County, Series DD, MBIA Insured, 7.75%, 10/01/18 . . . . . . . . . . . . . . . . . 16,567
725,000 Florida HFA, SFMR, Series 1, FGIC Insured, 8.00%, 12/15/13 . . . . . . . . . . . . . . 768,696
2,000,000 Florida North Port Utility Revenue, FGIC Insured, 6.20%, 10/01/12 . . . . . . . . . . . 2,117,540
Florida State Municipal Power Agency Revenue,
1,200,000 Refunding, St. Lucie Project, FGIC Insured, 5.50%, 10/01/12 . . . . . . . . . . . . . 1,188,924
5,000,000 Refunding, St. Lucie Project, FGIC Insured, 5.70%, 10/01/16 . . . . . . . . . . . . . 5,007,600
200,000 Refunding, Stanton Project, MBIA Insured, 6.00%, 10/01/15 . . . . . . . . . . . . . . 205,426
Florida Turnpike Authority Revenue,
3,000,000 Series A, AMBAC Insured, Pre-Refunded, 7.20%, 07/01/11 . . . . . . . . . . . . . . . 3,512,430
1,290,000 Series A, FGIC Insured, Pre-Refunded, 6.35%, 07/01/22 . . . . . . . . . . . . . . . . 1,439,060
710,000 Series A, FGIC Insured, 6.35%, 07/01/22 . . . . . . . . . . . . . . . . . . . . . . . 748,702
25,000 Fort Myers Utility Revenue, Refunding, Series A, BIG Insured, 6.00%, 10/01/19 . . . . . 25,483
1,325,000 Hernando County Public Facilities Finance Authority, Inc. Revenue, Jail Project, FGIC
Insured, Pre-Refunded, 7.875%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . 1,372,422
100,000 Miami, Refunding, MBIA Insured, Pre-Refunded, 7.40%, 04/01/05 . . . . . . . . . . . . . 115,092
2,800,000 Naples Hospital Revenue, Refunding, Naples Community Hospital, Inc. Project, MBIA
Insured, 5.25%, 10/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,710,232
960,000 Orange City Utilities System Revenue, Refunding & Improvement, AMBAC Insured, 7.20%,
10/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,068,058
100,000 Orange County Capital Improvement Revenue, Series B, MBIA Insured, Pre-Refunded, 7.70%,
10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,604
1,000,000 Orange County Health Facilities Authority, Hospital Revenue, Orlando Regional Health
Care, Series A, Refunding, MBIA Insured, 6.00%, 11/01/24 . . . . . . . . . . . . . . 1,026,830
Orlando & Orange County Expressway Authority Revenue,
100,000 Junior Lien, FGIC Insured, 6.50%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . 110,100
225,000 Junior Lien, FGIC Insured, 6.50%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . 247,988
15,000 Orlando Waste Water System Revenue, Refunding, Series A, AMBAC Insured, Pre-Refunded,
7.375%, 10/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,513
1,000,000 Osceola County Transportation Revenue, Parkway Project, MBIA Insured, 6.10%, 04/01/17 . 1,044,290
2,500,000 Palm Bay Utility Revenue, Palm Bay Utility Corp. Project, Series B, MBIA Insured,
Pre-Refunded, 6.20%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,786,025
4,000,000 Palm Beach County Solid Waste Authority Revenue, BIG Insured, 8.375%, 07/01/10 . . . . 4,555,680
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
$ 1,000,000 Panama City Water & Sewer Revenue, Refunding & Improvement, AMBAC Insured, 5.625%,
06/01/19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 993,900
5,000 Pinellas County HFA, SFMR, MBIA Insured, 10.25%, 08/01/09 . . . . . . . . . . . . . . . 5,212
1,000,000 Polk County IDAR, Winter Haven Hospital, Series 2, MBIA Insured, 6.25%, 09/01/15 . . . 1,054,490
Port Orange Water & Sewer Revenue,
635,000 Refunding, Junior Lien, AMBAC Insured, 5.375%, 10/01/12 . . . . . . . . . . . . . . . 622,192
7,500,000 Refunding, Junior Lien, AMBAC Insured, 5.25%, 10/01/21 . . . . . . . . . . . . . . . 7,083,000
1,970,000 Royal Palm Beach Utilities System Revenue, Series B, AMBAC Insured, Pre-Refunded,
8.875%, 10/15/15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,319,852
2,010,000 Sarasota-Manatee Airport Authority Revenue, Refunding, MBIA Insured, 5.625%, 08/01/14 . 2,003,829
250,000 Sumter County School District Revenue, Multi-District Loan Program, CGIC Insured,
7.15%, 11/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,728
2,000,000 Tamarac Water & Sewer Utility Revenue, AMBAC Insured, Pre-Refunded, 8.25%, 10/01/11 . . 2,244,040
1,200,000 Temple Terrace Water & Sewer Revenue, FGIC Insured, 6.25%, 10/01/12 . . . . . . . . . . 1,264,116
--------------
53,308,751
--------------
GEORGIA 1.3%
2,860,000 Bartow County Water and Sewage Revenue, Refunding, AMBAC Insured, Pre-Refunded,
8.00%, 09/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,334,560
Brunswick Water & Sewer Revenue,
1,000,000 MBIA Insured, Pre-Refunded, 7.70%, 01/01/14 . . . . . . . . . . . . . . . . . . . . . 1,046,720
1,535,000 Refunding & Improvement, MBIA Insured, 6.10%, 10/01/14 . . . . . . . . . . . . . . . 1,618,304
325,000 Burke County Development Authority PCR, Georgia Power Co., Plant Vogtle Project,
First Series, FGIC Insured, 10.125%. 06/01/15 . . . . . . . . . . . . . . . . . . . . 353,834
1,000,000 Cherokee County Water and Sewage Revenue, Refunding, MBIA Insured, 6.90%, 08/01/18 . . 1,144,150
1,500,000 Columbia County Water and Sewage Revenue, Refunding, AMBAC Insured, 6.25%, 06/01/12 . . 1,565,370
2,390,000 Decatur Housing Authority Mortgage Revenue, Refunding, Park Trace Apartments,
Series A, MBIA Insured, 6.45%, 07/01/25 . . . . . . . . . . . . . . . . . . . . . . . 2,493,989
1,060,000 Fitzgerald Housing Authority Mortgage Revenue, Refunding, Bridge Creek, Series A,
MBIA Insured, 6.50%, 07/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,099,580
Fulton de Kalb Hospital Authority Revenue, COP,
200,000 Grady Memorial Hospital Project, AMBAC Insured, Pre-Refunded, 6.90%, 01/01/15 . . . . 228,306
300,000 Refunding, MBIA Insured, 5.50%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . . 289,947
250,000 Georgia Municipal Electric Authority, Power Revenue, Series K, AMBAC Insured, 9.00%,
01/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,495
3,250,000 Macon-Bibb County Hospital Authority Revenue, Medical Center, FGIC Insured,
Pre-Refunded, 7.00%, 08/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,703,408
1,000,000 Marietta, City Development Authority Revenue, Life College, Inc. Project, CGIC Insured,
7.20%, 12/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,108,640
10,000 Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue, Series J, FGIC
Insured, Pre-Refunded, 8.00%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . 11,609
4,640,000 South Georgia Hospital Authority Revenue, FGIC Insured, 7.80%, 05/01/16 . . . . . . . . 4,761,568
--------------
23,025,480
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
HAWAII 1.4%
Hawaii County GO,
$ 1,000,000 Refunding & Improvement, Series A, FGIC Insured, 5.60%, 05/01/12 . . . . . . . . . . $ 1,021,710
1,000,000 Refunding & Improvement, Series A, FGIC Insured, 5.60%, 05/01/13 . . . . . . . . . . 1,022,400
5,000,000 Hawaii State Airport Revenue, Second Series, FGIC Insured, 7.50%, 07/01/20 . . . . . . 5,678,400
Hawaii State Department of Budget & Finance, Special Purposes Mortgage Revenue,
5,000,000 Hawaii Electric Co., MBIA Insured, 5.45%, 11/01/23 . . . . . . . . . . . . . . . . . 4,753,200
3,000,000 Hawaii Electric Co., MBIA Insured, 6.55%, 12/01/22 . . . . . . . . . . . . . . . . . 3,232,290
335,000 Refunding, Queens Medical Center Project, FGIC Insured, 6.50%, 07/01/12 . . . . . . . 357,070
4,000,000 Refunding, St. Francis Medical Centers, CGIC Insured, 6.50%, 07/01/22 . . . . . . . . 4,285,280
Hawaii State Harbor Capital Improvement Revenue,
535,000 FGIC Insured, 6.40%, 07/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584,830
605,000 FGIC Insured, 6.40%, 07/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661,350
610,000 FGIC Insured, 6.40%, 07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664,650
825,000 Honolulu, City & County, MFHR, Hale Pauahi Project, Series A, FHA Mortgage Insured,
MBIA Insured, 8.70%, 12/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 853,133
Kauai County GO,
385,000 Refunding, MBIA Insured, Pre-Refunded, 7.40%, 08/01/06 . . . . . . . . . . . . . . . 432,359
415,000 Refunding, MBIA Insured, Pre-Refunded, 7.45%, 08/01/07 . . . . . . . . . . . . . . . 466,871
445,000 Refunding, MBIA Insured, Pre-Refunded, 7.45%, 08/01/08 . . . . . . . . . . . . . . . 500,621
--------------
24,514,164
--------------
ILLINOIS 6.5%
500,000 Aurora Hospital Facilities Revenue, Refunding, Mercy Center for Health Care Services,
Series 1985-A, AMBAC Insured, 9.625%, 10/01/09 . . . . . . . . . . . . . . . . . . . 553,455
40,000 Aurora, Series B, MBIA Insured, Pre-Refunded, 7.25%, 01/01/19 . . . . . . . . . . . . . 45,128
780,000 Aurora SFMR, GNMA Mortgage Backed Securities, AMBAC Insured, 7.80%, 12/01/15 . . . . . 823,906
270,000 Bloomingdale Waterworks & Sewer Revenue, MBIA Insured, Pre-Refunded, 7.80%,
05/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,074
1,350,000 Cary Waterworks & Sewarage Revenue, Series A, MBIA Insured, 6.40%, 05/01/17 . . . . . . 1,432,458
100,000 Central Lake County Joint Action Water Agency Interim Revenue, Series A AMBAC Insured,
Pre-Refunded, 7.0%, 05/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,944
320,000 Chicago Board Education Lease, Series A, Refunding, MBIA Insured, 6.25%, 01/01/09 . . . 342,058
Chicago Central Public Library,
2,000,000 Refunding, Series 1987, MBIA Insured, Pre-Refunded, 8.00%, 01/01/11 . . . . . . . . . 2,243,840
3,500,000 Series 1989, AMBAC Insured, Pre-Refunded, 7.60%, 01/01/08 . . . . . . . . . . . . . . 4,029,550
1,800,000 Series B, AMBAC Insured, 6.70%, 01/01/06 . . . . . . . . . . . . . . . . . . . . . . 1,997,226
1,800,000 Series B, AMBAC Insured, 6.75%, 01/01/07 . . . . . . . . . . . . . . . . . . . . . . 1,996,794
2,000,000 Chicago City Office Project, AMBAC Insured, Pre-Refunded, 6.75%, 01/01/11 . . . . . . . 2,286,180
100,000 Chicago Heights, MBIA Insured, 7.40%, 12/01/03 . . . . . . . . . . . . . . . . . . . . 114,674
Chicago Public Building Commission, Building Revenue,
1,600,000 Community College District No. 508, Series A, MBIA Insured, ETM 01/01/04, 7.70%,
01/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,816,656
4,000,000 Community College District No. 508, Series B, BIG Insured, ETM 01/01/03, 8.75%,
01/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,596,920
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ILLINOIS (CONT.)
Chicago Waste Water Transmission Revenue,
$ 100,000 AMBAC Insured, Pre-Refunded, 7.20%, 11/15/19 . . . . . . . . . . . . . . . . . . . . $ 114,962
7,640,000 Refunding & Improvement, FGIC Insured, Pre-Refunded, 7.375%, 01/01/12 . . . . . . . 8,264,188
Cicero GO,
1,500,000 CGIC Insured, 6.90%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,683,765
3,000,000 FGIC Insured, 5.375%, 12/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,898,870
Cook County Community College District No. 508, COP,
7,470,000 FGIC Insured, 8.50%, 01/01/02 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,105,781
5,000,000 FGIC Insured, 8.75%, 01/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,420,050
225,000 Cook County, Series B, FGIC Insured, 5.50%, 11/15/22 . . . . . . . . . . . . . . . . . 216,815
4,935,000 Decatur Hospital Revenue, Decatur Memorial Hospital, Series B, MBIA Insured,
6.85%, 10/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,463,094
750,000 Des Plains Hospital Facility Revenue, Refunding, Holy Family Hospital, AMBAC Insured,
9.25%, 01/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829,688
2,000,000 Evergreen Park, Village of, Hospital Facility Revenue, Refunding, Little Co. of
Mary Hospital, Inc., MBIA Insured, 7.75%, 02/15/09 . . . . . . . . . . . . . . . . . 2,245,620
500,000 Franklin Park Alternate Revenue, AMBAC Insured, Pre-Refunded, 6.85%, 07/01/22 . . . . 579,670
Illinois Health Facilities Authority Revenue,
4,750,000 Community Provider Pooled Loan, Series A, CGIC Insured, 7.35%, 08/15/10 . . . . . . 5,306,653
4,050,000 Franciscan Sisters Health Care Corp., MBIA Insured, Pre-Refunded, 7.875%, 09/01/18 . 4,611,857
2,700,000 Methodist Health Services Corp., Series G, BIG Insured, 8.00%, 08/01/15 . . . . . . 3,078,486
4,280,000 Michael Reese Hospital, Series A, CGIC Insured, ETM 02/15/00, 7.60%, 02/15/05 . . . 5,081,216
280,000 Refunding, Franciscan Sisters Health Care Corp., MBIA Insured, Pre-Refunded,
9.25%, 09/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308,389
384,000 Refunding, Series B, MBIA Insured, ETM 08/15/01, 7.90%, 08/15/03 . . . . . . . . . . 470,534
47,000 Series 1990, CGIC Insured, Pre-Refunded, 7.75%, 08/15/10 . . . . . . . . . . . . . . 59,230
2,481,000 Series B, MBIA Insured, 7.90%, 08/15/03 . . . . . . . . . . . . . . . . . . . . . . 2,659,582
1,000,000 Silver Cross Hospital, MBIA Insured, 7.00%, 08/15/21 . . . . . . . . . . . . . . . . 1,115,580
7,000,000 University of Chicago Hospital Project, BIG Insured, Pre-Refunded, 8.10%, 08/01/14 . 8,001,700
2,583,000 Unrefunded, Series 1990, CGIC Insured, ETM 08/15/10, 7.75%, 08/15/10 . . . . . . . . 2,961,177
100,000 Illinois Municipal Electric Agency Power Supply System Revenue, Series A,
AMBAC Insured, 5.75%, 02/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,316
5,750,000 Illinois State COP, CGIC Insured, 6.95%, 07/01/13 . . . . . . . . . . . . . . . . . . 6,377,153
Joliet GO,
560,000 Series 1987, BIG Insured, 8.00%, 01/01/09 . . . . . . . . . . . . . . . . . . . . . 629,182
605,000 Series 1987, BIG Insured, 8.00%, 01/01/10 . . . . . . . . . . . . . . . . . . . . . 679,742
650,000 Series 1987, BIG Insured, 8.00%, 01/01/11 . . . . . . . . . . . . . . . . . . . . . 730,301
200,000 Kane County Public Building Commission, Community College Facilities Revenue,
Elgin Community College District No. 509, FGIC Insured, Pre-Refunded,
7.00%, 12/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,464
300,000 Macon County & Decatur COP, Decatur Public Building Commission, FGIC Insured,
6.50%, 01/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334,362
4,350,000 Northern Illinois University, COP, Hoffman Estates Education Center Project, CGIC
Insured, Pre-Refunded, 7.00%, 09/01/16 . . . . . . . . . . . . . . . . . . . . . . . 4,938,251
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ILLINOIS (CONT.)
$ 1,735,000 Northwest Suburban Municipal Joint Action Water Agency, Illinois Water Supply System
Revenue, Refunding, MBIA Insured, Pre-Refunded, 7.375%, 05/01/15 . . . . . . . . . . $ 1,889,988
2,000,000 Onterie Center Project, HFC, Mortgage Revenue, Refunding, Series A, MBIA Insured,
7.05%, 07/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,078,400
300,000 Regional Transportation Authority, Series A, AMBAC Insured, 7.20%, 11/01/20 . . . . . . 360,321
1,500,000 St. Clair County Public Building Commission Revenue, MBIA Insured, ETM 12/01/01, 8.00%,
12/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,675,935
2,040,000 Southwestern Development Authority Capital Improvement Revenue, McKendre College
Project, CGIC Insured, 7.375%, 02/01/11 . . . . . . . . . . . . . . . . . . . . . . 2,283,923
--------------
116,453,108
--------------
INDIANA 2.3%
1,000,000 Carroll County Consolidated School Building Corp., Refunding, First Mortgage, AMBAC
Insured, 7.625%, 01/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,118,880
Fort Wayne Hospital Authority Revenue, Ancilla System, Inc.,
250,000 Parkview Memorial Hospital Project, Series A, FGIC Insured, 7.50%, 11/15/11 . . . . . 282,768
2,000,000 Refunding, Series C, BIG Insured, Pre-Refunded, 8.125%, 07/01/18 . . . . . . . . . . 2,363,840
100,000 Series A, BIG Insured, Pre-Refunded, 9.125%, 07/01/15 . . . . . . . . . . . . . . . . 109,146
Indiana Health Facility Financing Authority Hospital Revenue,
10,000,000 Bartholomew County Hospital Project, CGIC Insured, Pre-Refunded, 7.75%, 08/15/20 . . 11,856,200
3,500,000 Community Hospitals of Indiana, MBIA Insured, 7.00%, 07/01/21 . . . . . . . . . . . 3,936,205
250,000 Refunding & Improvement, Community Hospital Project, MBIA Insured, 6.40%,
05/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261,558
100,000 Indiana Municipal Power Agency, Power Supply System Revenue, Refunding, Series A,
AMBAC Insured, Pre-Refunded, 7.25%, 01/01/15 . . . . . . . . . . . . . . . . . . . . 107,861
10,000,000 Indianapolis Airport Authority, International Airport Revenue, BIG Insured, 8.30%,
07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,419,100
500,000 Indianapolis Gas Utility Revenue, Refunding, Series B, FGIC Insured, 4.00%, 06/01/15. . 400,260
500,000 Jasper County PCR, Refunding, Northern Indiana Public Service, MBIA Insured, 7.10%,
07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564,020
1,000,000 Marion County Convention & Recreational Facilities Authority, Excise Tax Revenue, Lease
Rental, Series B, AMBAC Insured, Pre-Refunded, 7.00%, 06/01/21 . . . . . . . . . . . 1,153,850
6,000,000 Monroe County Hospital Authority Revenue, Refunding, Bloomington Hospital Project, BIG
Insured, 7.125%, 05/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,482,460
Rockport PCR,
900,000 American Electric Power Generating Co. Project, Series A, FGIC Insured, 9.375%,
09/01/14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 988,578
185,000 Refunding, Michigan Power Co., Series B, FGIC Insured, 7.60%, 03/01/16. . . . . . . . 212,365
--------------
41,257,091
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
IOWA 1.3%
$ 4,040,000 Davenport Hospital Facility Revenue, Mercy Hospital Project, MBIA Insured, 6.625%,
07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,347,606
200,000 Davenport Hospital Revenue, St. Lukes Hospital, Series A, AMBAC Insured, 7.40%,
07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,998
5,025,000 Des Moines Urban Renewal & Tax Increment Revenue, Refunding, FGIC Insured, 7.90%,
06/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,500,566
2,165,000 Greater Iowa Housing Assistance Corp., Mortgage Revenue, Refunding, Logan Park
Project, Series A, MBIA Insured, 6.50%, 01/01/24 . . . . . . . . . . . . . . . . . . 2,245,841
10,000,000 Polk County Health Facilities Revenue, Mercy Health Center, MBIA Insured, 7.10%,
11/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,092,900
--------------
23,413,911
--------------
KANSAS .3%
250,000 Burlington PCR, Refunding, Kansas Gas & Electric Co. Project, MBIA Insured, 7.00%,
06/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,380
1,735,000 Cowley & Shawnee Counties, SFMR, GNMA Mortgage Backed Securities, AMBAC Insured,
7.35%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,934,369
2,000,000 Wichita Hospital Revenue, Refunding & Improvement, St. Francis, MBIA Insured, 6.25%,
10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,145,420
1,000,000 Wichita Water & Sewer Utility Revenue, Refunding & Improvement, Series B, FGIC
Insured, 6.00%, 10/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,022,100
--------------
5,379,269
--------------
KENTUCKY .8%
4,500,000 Boone County, PCR, Refunding, Cincinnati Gas & Electric, MBIA Insured, 5.50%,
01/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,315,275
2,000,000 Danville Multi-City Lease Revenue, Sewer & Drain System, MBIA Insured, Pre-Refunded,
6.75%, 03/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,283,480
1,000,000 Jefferson County Health Facilities Revenue, Jewish Hospital Services, Inc., AMBAC
Insured, 6.55%, 05/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,076,710
665,000 Kenton County Hospital Facility Revenue, St. Elizabeth's Medical Center Project,
AMBAC Insured, Pre-Refunded, 9.30%, 11/01/10 . . . . . . . . . . . . . . . . . . . . 738,250
2,375,000 Kentucky EDA Finance, Hospital Facilities Revenue, St. Elizabeth Medical Center
Project, Series A, FGIC Insured, 6.00%, 12/01/22 . . . . . . . . . . . . . . . . . . 2,424,899
1,000,000 Kentucky EDA Finance, Medical Center Revenue, Refunding & Improvement, Ashland
Hospital Corp., Series A, CGIC Insured, 6.125%, 02/01/12 . . . . . . . . . . . . . . 1,032,440
175,000 Kentucky HFC, MFMR, Series A, BIG Insured, 8.875%, 07/01/19 . . . . . . . . . . . . . . 182,222
100,000 Louisville & Jefferson County, Metropolitan Sewer District Revenue, FGIC Insured,
Pre-Refunded, 7.35%, 05/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,089
2,000,000 Northern Kentucky University, COP, Student Housing Facilities, CGIC Insured, 7.25%,
01/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,265,720
--------------
14,435,085
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
LOUISIANA .9%
$ 100,000 Alexandria Utilities Revenue, FGIC Insured, Pre-Refunded, 8.15%, 05/01/06 . . . . . . . $ 114,646
Calcasieu Parish Memorial Hospital Service District Revenue,
1,000,000 Lake Charles Memorial Hospital Project, BIG Insured, Pre-Refunded, 8.40%, 12/01/12. . 1,164,530
850,000 Lake Charles Memorial Hospital Project, BIG Insured, Pre-Refunded, 7.50%, 12/01/18. . 963,628
15,000 East Baton Rouge Parish, Sales & Use Tax Public Improvement, MBIA Insured, 7.25%,
02/01/12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,571
200,000 Greater New Orleans Expressway Commission Revenue, Refunding & Improvement, BIG
Insured, Pre-Refunded, 7.80%, 11/01/12. . . . . . . . . . . . . . . . . . . . . . . . 224,316
1,500,000 Jefferson Parish Hospital Service District No. 2, East Jefferson General Hospital
Revenue, Refunding, MBIA Insured, Pre-Refunded, 8.00%, 07/01/16 . . . . . . . . . . . 1,658,730
1,700,000 Jefferson Sales Tax District, Special Sales Tax Revenue, Refunding, Series A,
BIG Insured, Pre-Refunded, 8.00%, 07/01/05 . . . . . . . . . . . . . . . . . . . . . 1,969,688
300,000 Lafayette Public Improvement, Sales Tax Revenue, Refunding, FGIC Insured, Pre-Refunded,
8.00%, 03/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,897
300,000 Louisiana HFA, SFMR, Series 1985-A, FGIC Insured, 9.375%, 02/01/15. . . . . . . . . . . 313,029
3,000,000 Louisiana Public Facilities Authority Revenue, College & University of Loyola,
FGIC Insured, Pre-Refunded, 8.50%, 12/01/09 . . . . . . . . . . . . . . . . . . . . . 3,399,780
150,000 Louisiana Regional Transit Authority Revenue, Refunding, FGIC Insured, 8.00%, 12/01/13. 173,180
1,500,000 Louisiana State Energy & Power Authority, Power Project Revenue, Refunding, Rodemacher
Unit No. 2, FGIC Insured, Pre-Refunded, 8.625%, 01/01/13 . . . . . . . . . . . . . . 1,594,185
1,500,000 Louisiana State GO, Series A, CGIC Insured, Pre-Refunded, 7.375%, 05/01/05. . . . . . . 1,630,740
400,000 Louisiana State, Refunding, Series B, MBIA Insured, 5.625%, 08/01/13. . . . . . . . . . 403,036
500,000 New Orleans Public Improvement, FGIC Insured, 7.50%, 09/01/21 . . . . . . . . . . . . . 583,300
650,000 Terrebonne Parish Hospital Service District No. 1 Revenue, Refunding, Terrebonne
General Medical Center Project, BIG Insured, 9.40%, 04/01/15 . . . . . . . . . . . . 702,306
-----------
15,257,562
-----------
MAINE .3%
Ellsworth, GO,
635,000 MBIA Insured, 5.25%, 11/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608,717
655,000 MBIA Insured, 5.25%, 11/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627,084
2,000,000 Maine Health & Higher Educational Facilities Authority Hospital Revenue, Eastern Maine
Health Care, FGIC Insured, 6.625%, 10/01/11 . . . . . . . . . . . . . . . . . . . . . 2,194,200
Old Orchard Beach,
1,180,000 MBIA Insured, 6.65%, 09/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,313,859
535,000 MBIA Insured, 6.65%, 09/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595,690
-----------
5,339,550
-----------
MARYLAND .4%
Maryland State Health & Higher Educational Facilities Authority Revenue,
2,000,000 Montgomery General Hospital, Connie Lee Insured, 5.625%, 07/01/18 . . . . . . . . . . 1,995,860
200,000 University of Maryland Medical System, Series B, FGIC Insured, ETM 07/01/12, 7.00%,
07/01/22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239,512
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MARYLAND (CONT.)
Maryland State Housing & Community Development Administration Department,
Infrastructure Financing,
$ 2,000,000 Series A, AMBAC Insured, 6.625%, 06/01/12 . . . . . . . . . . . . . . . . . . . . . . $ 2,193,700
820,000 Series A, AMBAC Insured, 6.70%, 06/01/22 . . . . . . . . . . . . . . . . . . . . . . 868,462
1,600,000 Morgan State University Revenue, Series A, MBIA Insured, Pre-Refunded, 7.00%, 07/01/20 1,832,288
--------------
7,129,822
--------------
MASSACHUSETTS 5.2%
3,700,000 Boston Water & Sewer Commission Revenue, Series A, FGIC Insured, 6.00%, 11/01/21 . . . 3,760,828
250,000 Groton-Dunstable Regional School District, AMBAC Insured, 6.60%, 02/01/07 . . . . . . . 273,263
Massachusetts Bay Transportation Authority,
2,370,000 Series A, FGIC Insured, 5.75%, 03/01/22 . . . . . . . . . . . . . . . . . . . . . . . 2,375,972
100,000 Series A, MBIA Insured, Pre-Refunded, 7.625%, 03/01/15 . . . . . . . . . . . . . . . 117,188
7,400,000 Series B, MBIA Insured, 5.50%, 03/01/21 . . . . . . . . . . . . . . . . . . . . . . . 7,187,324
3,000,000 Massachusetts Municipal Wholesale Electric Co., Power Supply System Revenue, Refunding,
Series A, AMBAC Insured, 6.00%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . 3,054,660
4,000,000 Massachusetts Port Authority Revenue, Series A, FGIC Insured, 6.00%, 07/01/23 . . . . . 4,038,840
1,000,000 Massachusetts State College Building Authority Project Revenue, Refunding, Series A,
MBIA Insured, 7.25%, 05/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,079,430
60,000 Massachusetts State Consolidated Loan, Series C, AMBAC Insured, Pre-Refunded, 7.00%,
06/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,870
Massachusetts State Health & Educational Facilities Authority Revenue,
6,600,000 Baystate Medical Center, Series D, FGIC Insured, 5.50%, 07/01/16 . . . . . . . . . . 6,450,180
1,500,000 Berkshire Health Systems, Series A, MBIA Insured, 6.75%, 10/01/19 . . . . . . . . . . 1,599,000
4,000,000 Beth Israel Hospital, Series G, AMBAC Insured, 5.75%, 07/01/12 . . . . . . . . . . . 4,024,360
1,500,000 Beverly Hospital, Series E, MBIA Insured, Pre-Refunded, 7.70%, 07/01/20 . . . . . . . 1,737,960
5,000,000 Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19 . . . . . . . . . . . . 5,531,500
1,100,000 Capital Asset Program F-1, MBIA Insured, 7.30%, 10/01/18 . . . . . . . . . . . . . . 1,251,998
12,555,000 Fallon Health Care System, Series A, CGIC Insured, 6.75%, 06/01/20 . . . . . . . . . 13,665,113
2,000,000 Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 07/01/23 . . . . . . . . 1,896,840
8,220,000 Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 07/01/20 . . . . . . 8,606,340
100,000 Mt. Auburn Hospital, Series A, MBIA Insured, 7.875%, 07/01/18 . . . . . . . . . . . . 113,606
1,085,000 McLean Hospital, Series C, FGIC Insured, 6.625%, 07/01/15 . . . . . . . . . . . . . . 1,179,297
10,650,000 New England Medical Center Hospital, Series F, FGIC Insured, 6.625%, 07/01/25 . . . . 11,495,504
4,000,000 North Eastern University, Series E, MBIA Insured, 6.55%, 10/01/22 . . . . . . . . . . 4,368,440
2,000,000 Refunding, Stonehill College, Series E, MBIA Insured, 6.60%, 07/01/20 . . . . . . . . 2,184,580
3,000,000 Massachusetts State Industrial Finance Agency Revenue, Babson College, Series A, MBIA
Insured, 6.50%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200,670
2,000,000 Monson GO, School District, Series 1990, MBIA Insured, Pre-Refunded, 7.70%, 10/15/10 . 2,385,540
2,300,000 Palmer GO, Series B, AMBAC Insured, Pre-Refunded, 7.70%, 10/01/10 . . . . . . . . . . . 2,741,416
--------------
94,387,719
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MICHIGAN 1.3%
$ 100,000 Chippewa Valley School Building & Site, FGIC Insured, Pre-Refunded, 6.375%, 05/01/06 . $ 111,140
4,000,000 Detroit Sewerage Disposal Revenue, FGIC Insured, 6.625%, 07/01/21 . . . . . . . . . . . 4,321,440
2,000,000 Kalamazoo Hospital Finance Authority, Hospital Facilities Revenue, Refunding &
Improvement, Bronson Methodist Church, Series A, MBIA Insured, 6.375%, 05/15/17 . . . 2,108,640
500,000 Michigan State Comprehensive Transportation Revenue, Refunding, Series 1986-II, FGIC
Insured, Pre-Refunded, 7.75%, 08/01/11 . . . . . . . . . . . . . . . . . . . . . . . 545,635
1,000,000 Michigan State HDA, Rental Housing Revenue, Series A, Refunding, AMBAC Insured, 5.90%,
04/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,005,600
755,000 Michigan State HDA, SFHR, Series 1986-A, FGIC Insured, 8.00%, 10/01/06 . . . . . . . . 785,057
8,530,000 Michigan State Hospital Finance Authority Revenue, Refunding, Oakwood Hospital,
Series A, FGIC Insured, 5.625%, 11/01/18 . . . . . . . . . . . . . . . . . . . . . . 8,400,685
200,000 Refunding, Detroit Edison Co. Project, FGIC Insured, 6.875%, 12/01/21 . . . . . . . . 219,606
250,000 Refunding, Detroit Edison Co. Project, Series BB, AMBAC Insured, 7.00%, 05/01/21 . . 302,933
5,000,000 Refunding, Detroit Edison Co. Project, Series BB, FGIC Insured, 6.50%, 02/15/16 . . . 5,346,150
--------------
23,146,886
--------------
MINNESOTA .3%
800,000 Minneapolis Convention Center, Sales Tax Revenue, AMBAC Insured, Pre-Refunded, 7.75%,
04/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 877,008
4,000,000 Minneapolis-St. Paul Housing Finance Board, MFMR, GNMA Collateralized Mortgage Loan,
Riverside Plaza Project, 8.20%, 12/20/18 . . . . . . . . . . . . . . . . . . . . . . 4,245,720
200,000 Northern Municipal Power Agency, Minnesota Electric System Revenue, Refunding,
Series B, AMBAC Insured, 5.50%, 01/01/18 . . . . . . . . . . . . . . . . . . . . . . 197,628
--------------
5,320,356
--------------
MISSISSIPPI .1%
Harrison County Correctional Facilities Finance Authority, Special Obligation Revenue,
1,000,000 FGIC Insured, Pre-Refunded, 8.30%, 09/01/05 . . . . . . . . . . . . . . . . . . . . . 1,154,160
1,000,000 FGIC Insured, Pre-Refunded, 8.30%, 09/01/06 . . . . . . . . . . . . . . . . . . . . . 1,154,160
200,000 Harrison County Waste Water Management District Revenue, Refunding, Wastewater
Treatment Facilities, Series A, FGIC Insured, 8.50%, 02/01/13 . . . . . . . . . . . . 273,736
30,000 Mississippi Housing Finance Corp., SFMR, Refunding, Series A, FGIC Insured, 7.70%,
10/15/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,404
--------------
2,613,460
--------------
MISSOURI 2.6%
2,000,000 Branson Reorganization School District No. R-4, Refunding & Improvement, CGIC Insured,
6.20%, 03/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,089,460
1,000,000 Cape Girardeau County IDA, Health Care Facilities Revenue, Refunding, Southeast
Missouri Hospital Association, MBIA Insured, 5.25%, 06/01/16 . . . . . . . . . . . . 958,160
200,000 Jackson County Consolidated School District No. 2, Series A, AMBAC Insured,
Pre-Refunded, 6.65%, 03/15/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,492
4,000,000 Kansas City School District Building Corp., Leasehold Revenue, Capital Improvement
Project, Series A, FGIC Insured, Pre-Refunded, 7.90%, 02/01/08 . . . . . . . . . . . 4,595,080
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MISSOURI (CONT).
$ 2,000,000 Missouri Economic Development, Export & Infrastructure Board Lease Revenue, Mental
Health Office Building Division, CGIC Insured, 6.30%, 12/01/08 . . . . . . . . . . . $ 2,151,120
1,815,000 Missouri HDC, Series 1990-B, GNMA Collateralized, 7.75%, 06/01/22 . . . . . . . . . . . 1,953,848
1,000,000 Missouri Health & Educational Facilities Authority, Health Facilities Revenue,
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 . . . . . . . . . . . 1,071,250
Missouri Health & Educational Facilities Authority Health Revenue,
500,000 Alexian Brothers Health System, Inc., Series B & C, NUFIC Insured, Pre-Refunded,
9.50%, 01/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535,105
7,500,000 Sisters of St. Mary's Health Care Project, BIG Insured, Pre-Refunded, 7.75%,
06/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,600,475
1,000,000 Missouri School Board Lease Association, COP, Series R-III, School District Project,
MBIA Insured, 6.875%, 03/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093,360
5,000,000 Missouri State Health & Educational Facilities Authority, Health Facilities Revenue,
Refunding, Lester E. Cox Medical Center, Series I, MBIA Insured, 5.25%, 06/01/15 . . 4,789,750
2,000,000 Phelps County Hospital Revenue, Refunding, Phelps County Regional Medical Center,
Connie Lee Insured, 6.00%, 05/15/13 . . . . . . . . . . . . . . . . . . . . . . . . 2,035,100
2,850,000 St. Charles County Public Facilities Authority Leasehold Revenue, FGIC Insured, 6.375%,
03/15/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,180,828
1,800,000 St. Charles County Public Water Supply Revenue, District No. 2, Refunding, Series A,
MBIA Insured, 5.625%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,809,810
St. Louis Airport Revenue,
200,000 Lambert-St. Louis International Airport, AMBAC Insured, Pre-Refunded, 10.00%,
07/01/02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,400
25,000 Lambert-St. Louis International Airport, FGIC Insured, Pre-Refunded, 10.00%,
07/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,300
2,000,000 Refunding & Improvement, Lambert-St. Louis International Airport, FGIC Insured,
6.125%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,090,800
1,075,000 St. Louis County Mortgage Revenue, GNMA Collateralized, 8.125%, 09/01/19 . . . . . . . 1,163,182
2,025,000 St. Louis Municipal Finance Corp., Leasehold Revenue, Refunding & Improvement, FGIC
Insured, 6.25%, 02/15/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,160,513
2,000,000 St. Louis Public School District Building Corp., Leasehold Revenue, Series A,
FGIC Insured, 7.40%, 04/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,159,960
2,950,000 St. Louis School District GO, Refunding, FGIC Insured, 6.00%, 04/01/12 . . . . . . . . 3,062,572
1,250,000 Washington GO, Pauwels Transformers Project, Series A, FGIC Insured, 7.60%, 12/01/09. . 1,397,800
--------------
47,353,365
--------------
MONTANA 1.2%
Forsyth PCR,
2,475,000 Refunding, Puget Sound Power & Light Project, AMBAC Insured, 6.80%, 03/01/22 . . . . 2,699,260
5,000,000 Refunding, Washington Water Co., Series A, MBIA Insured, 7.125%, 12/01/13 . . . . . 5,537,950
750,000 Helena Water Revenue, Series C, FGIC Insured, 6.65%, 11/01/12 . . . . . . . . . . . . . 822,038
8,500,000 Montana State Board Investment Workers Compensation Program, MBIA Insured, 6.875%,
06/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,411,200
3,000,000 Montana Water System Revenue, Butte-Silver Bow Project, FGIC Insured, 6.50%, 11/01/14 . 3,258,870
--------------
21,729,318
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEBRASKA .7%
$ 2,500,000 Lancaster County Hospital, Authority No. 1 Revenue, Bryan Memorial Hospital Project,
MBIA Insured, 6.70%, 06/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,743,925
2,000,000 Lincoln Hospital Revenue, Refunding, Lincoln General Hospital, Series A, CGIC Insured,
6.20%, 12/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,067,880
Municipal Energy Agency of Nebraska, Power Supply System Revenue,
2,000,000 Refunding, Series A, AMBAC Insured, 6.00%, 04/01/15 . . . . . . . . . . . . . . . . . 2,045,340
1,350,000 Refunding, Series A, AMBAC Insured, 6.00%, 04/01/17 . . . . . . . . . . . . . . . . . 1,378,553
Nebraska Investment Finance Authority, SFMR,
800,000 Refunding, Series 1, GNMA Mortgage Backed Securities, MBIA Insured, 8.125%,
08/15/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846,376
3,470,000 Refunding, Series B, FGIC Insured, 8.00%, 07/15/17 . . . . . . . . . . . . . . . . . 3,749,925
530,000 Refunding, Series R1-A, FGIC Insured, 8.00%, 07/15/17 . . . . . . . . . . . . . . . . 562,351
--------------
13,394,350
--------------
NEVADA 1.0%
Clark County School District,
2,000,000 Series A, MBIA Insured, Pre-Refunded, 7.00%, 06/01/09 . . . . . . . . . . . . . . . . 2,293,400
4,000,000 Series A, MBIA Insured, 7.00%, 06/01/10 . . . . . . . . . . . . . . . . . . . . . . . 4,657,160
250,000 Clark County, Series A, AMBAC Insured, 6.50%, 06/01/17 . . . . . . . . . . . . . . . . 280,418
1,250,000 North Las Vegas, FGIC Insured, Pre-Refunded, 7.125%, 04/01/11 . . . . . . . . . . . . . 1,439,425
Reno Hospital Revenue,
25,000 Refunding, St. Mary's Regional Medical Center, Series A, MBIA Insured, 7.75%,
07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,460
4,000,000 Refunding, St. Mary's Regional Medical Center, Series A, MBIA Insured, 7.80%,
07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,524,280
2,000,000 Refunding, St. Mary's Regional Medical Center, Series A, MBIA Insured, 5.80%,
05/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,029,400
1,695,000 Sparks Public Safety, GO, AMBAC Insured, 7.50%, 10/01/09 . . . . . . . . . . . . . . . 1,941,300
--------------
17,193,843
--------------
NEW HAMPSHIRE 1.0%
New Hampshire Higher Educational & Health Facilities Authority Revenue,
2,000,000 Concord Hospital, FGIC Insured, 7.00%, 10/01/12 . . . . . . . . . . . . . . . . . . . 2,233,660
7,000,000 Lake Region Hospital Associates, FGIC Insured, 5.75%, 01/01/11 . . . . . . . . . . . 7,044,100
4,000,000 Refunding, University System, MBIA Insured, 6.25%, 07/01/20 . . . . . . . . . . . . . 4,275,640
4,000,000 University System, MBIA Insured, Pre-Refunded, 7.50%, 07/01/09 . . . . . . . . . . . 4,624,600
--------------
18,178,000
--------------
NEW JERSEY 2.0%
6,000,000 Camden County Municipal Utilities Authority, Sewer Revenue, FGIC Insured, 8.25%,
12/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,890,880
90,000 Hoboken Union City, Weehawken Sewer Authority Revenue, MBIA Insured, Pre-Refunded,
7.25%, 08/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,392
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW JERSEY (CONT.)
$ 5,000,000 Hudson County Correctional Facility, COP, BIG Insured, Pre-Refunded, 7.60%, 12/01/21. . $ 5,781,100
Lacey Municipal Utilities Authority Water Revenue,
2,500,000 MBIA Insured, 6.10%, 12/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,612,525
1,500,000 Refunding, Series A, MBIA Insured, 5.50%, 12/01/19 . . . . . . . . . . . . . . . . . 1,491,675
1,700,000 Mantua Township, New Jersey School District, COP, MBIA Insured, Pre-Refunded, 7.25%,
06/30/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,996,684
2,000,000 Mount Laurel Township Municipal Utilities Authority System Revenue, Refunding, Series A,
MBIA Insured, 6.00%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,071,360
New Jersey Health Care Facilities Financing Authority Revenue,
1,350,000 Burdette Tomlin Memorial Hospital, Series C, FGIC Insured, Pre-Refunded, 8.125%,
07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,542,645
2,860,000 Jersey Shore Memorial Hospital, Series B, AMBAC Insured, 8.00%, 07/01/18 . . . . . . 3,271,382
2,600,000 Jersey Shore Memorial Hospital, Series C, MBIA Insured, Pre-Refunded, 7.875%,
07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,942,342
3,000,000 Muhlenberg Regional Medical Center, Series B, AMBAC Insured, 8.00%, 07/01/18 . . . . 3,431,520
485,000 New Jersey HFA, Home Buyer Revenue, Series C, MBIA Insured, 7.375%, 10/01/17 . . . . . 511,200
300,000 New Jersey State Turnpike Authority Revenue, Refunding, Series C, AMBAC Insured, 6.50%,
01/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,226
100,000 North Bergen Township Municipal Utilities Authority Sewer Revenue, FGIC Insured,
Pre-Refunded, 7.625%, 12/15/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,100
2,235,000 Ocean County Utilities Authority, Waste Water Revenue, Refunding, FGIC Insured,
Pre-Refunded, 8.70%, 01/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,469,116
--------------
35,568,147
--------------
NEW MEXICO .6%
1,100,000 Albuquerque Hospital System Revenue, Southwest Community Health Services, Series B,
MBIA Insured, 9.25%, 08/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208,174
5,500,000 Farmington PCR, Refunding, Public Service Co. of New Mexico, Series A, AMBAC Insured,
6.375%, 12/15/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,795,185
2,000,000 Gallup PCR, Refunding, Plains Electric Generation, MBIA Insured, 6.65%, 08/15/17 . . . 2,183,080
New Mexico Mortgage Finance Authority, SFMR,
150,000 Series 1985-A, FGIC Insured, 9.25%, 07/01/12 . . . . . . . . . . . . . . . . . . . . 156,882
1,960,000 Series 1987-C, FGIC Insured, 8.625%, 07/01/17 . . . . . . . . . . . . . . . . . . . . 2,078,306
--------------
11,421,627
--------------
NEW YORK 4.7%
4,000,000 Battery Park City Authority, Special Obligation, Series 1, MBIA Insured, Pre-Refunded,
7.25%, 11/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,211,800
900,000 Central Square School District, FGIC Insured, 6.50%, 06/15/10 . . . . . . . . . . . . . 1,010,376
Metropolitan Transportation Authority Service Contract,
10,000 Refunding, Commuter Facilities, Series M, AMBAC Insured, Pre-Refunded, 7.50%,
07/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,435
1,585,000 Refunding, Series K, AMBAC Insured, Pre-Refunded, 7.50%, 07/01/17 . . . . . . . . . . 1,812,495
2,900,000 Municipal Assistance Corp. for the City of New York, Series 61, MBIA Insured, 6.875%,
07/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,130,840
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK (CONT.)
New York City GO,
$ 1,000,000 Series B, FGIC Insured, Pre-Refunded, 7.25%, 08/01/11 . . . . . . . . . . . . . . . . $ 1,123,290
2,350,000 Series C, MBIA Insured, 6.625%, 08/01/12 . . . . . . . . . . . . . . . . . . . . . . 2,579,760
New York City Municipal Water Finance Authority, Water & Sewer System Revenue,
2,500,000 Refunding, Series B, AMBAC Insured, 5.375%, 06/15/19. . . . . . . . . . . . . . . . . 2,394,875
2,000,000 Series A, AMBAC Insured, Pre-Refunded, 7.25%, 06/15/15. . . . . . . . . . . . . . . . 2,314,220
1,325,000 Series A, FGIC Insured, 6.75%, 06/15/14 . . . . . . . . . . . . . . . . . . . . . . . 1,443,906
5,000,000 Series B, FGIC Insured, Pre-Refunded, 7.625%, 06/15/17 . . . . . . . . . . . . . . . 5,715,100
9,000,000 Series C, AMBAC Insured, 6.20%, 06/15/21 . . . . . . . . . . . . . . . . . . . . . . 9,377,100
New York State Dormitory Authority Revenues,
4,000,000 Brooklyn Law School, CGIC Insured, 6.40%, 07/01/11 . . . . . . . . . . . . . . . . . 4,304,600
8,655,000 City University System, Series C, FGIC Insured, 7.00%, 07/01/14 . . . . . . . . . . . 9,638,727
7,100,000 Pooled Capital Program, FGIC Insured, 7.80%, 12/01/05 . . . . . . . . . . . . . . . . 7,898,963
1,500,000 Refunding, Mt. Sinai School of Medicine, MBIA Insured, 6.75%, 07/01/15 . . . . . . . 1,652,730
4,000,000 New York State Energy Research & Development Authority Facilities Revenue, Refunding,
Series B, MBIA Insured, 5.25%, 08/15/20 . . . . . . . . . . . . . . . . . . . . . . . 3,781,560
1,000,000 New York State Energy Research & Development Authority Gas Facilities Revenue,
Brooklyn Union Gas, Series II, MBIA Insured, 7.00%, 12/01/20 . . . . . . . . . . . . 1,085,280
New York State Energy Research & Development Authority, PCR,
2,000,000 Central Hudson Gas, Series A, FGIC Insured, 7.375%, 10/01/14 . . . . . . . . . . . . 2,268,560
3,500,000 Refunding, Niagara Mohawk Power Corp., Series A, FGIC Insured, 6.625%, 10/01/13 . . . 3,826,060
10,000 New York State Environment Facilities Corp., Water Facilities Revenue, Refunding,
Spring Valley Water Co. Project, Series B, AMBAC Insured, 7.70%, 12/01/18 . . . . . . 10,297
New York State Medical Care Facilities Financing Agency Revenue,
3,000,000 North Shore University Hospital, Mortgage Project, Series A, MBIA Insured,
7.20%, 11/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,379,650
5,000,000 St. Lukes Hospital, Series B, MBIA Insured, Pre-Refunded, 7.45%, 02/15/29 . . . . . . 5,809,300
New York State Urban Development Corp. Revenue, Correctional Facilities,
3,400,000 Series D, AMBAC Insured, Pre-Refunded, 7.50%, 01/01/12. . . . . . . . . . . . . . . . 3,856,042
15,000 Series D, AMBAC Insured, Pre-Refunded, 7.75%, 01/01/13. . . . . . . . . . . . . . . . 17,143
1,000,000 Suffolk County Water Authority Waterworks Revenue, AMBAC Insured, Pre-Refunded,
7.00%, 06/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,146,690
1,560,000 Triborough Bridge & Tunnel Authority Revenues, Series T, FGIC Insured, Pre-Refunded,
7.00%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,794,733
--------------
85,595,532
--------------
NORTH CAROLINA
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue,
20,000 MBIA Insured, 6.50%, 01/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,826
80,000 MBIA Insured, 6.50%, 01/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,654
500,000 Refunding, MBIA Insured, 5.75%, 01/01/20. . . . . . . . . . . . . . . . . . . . . . . 495,305
--------------
601,785
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NORTH DAKOTA
$ 150,000 North Dakota State Building Authority Lease Revenue, Series B, Department of
Corrections & Rehabilitation, AMBAC Insured, Pre-Refunded, 7.40%, 06/01/10 . . . . . $ 172,521
300,000 North Dakota State Building Authority Revenue, Refunding, Series A, AMBAC Insured,
6.75%, 06/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,071
--------------
497,592
--------------
OHIO 2.2%
2,000,000 Akron Waterworks Mortgage Revenue, AMBAC Insured, 6.55%, 03/01/12 . . . . . . . . . . 2,164,740
5,000,000 Clermont County, Refunding, Building & Road Improvement, AMBAC Insured,
5.60%, 09/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,016,700
Cleveland Waterworks 1st Mortgage Revenue,
3,000,000 Series 1992-F, AMBAC Insured, 6.50%, 01/01/11 . . . . . . . . . . . . . . . . . . . 3,261,480
2,750,000 Series 1992-F, AMBAC Insured, Pre-Refunded, 6.50%, 01/01/21 . . . . . . . . . . . . 3,108,710
3,000,000 Lucas County Hospital Revenue, St. Vincent Medical Center, MBIA Insured, 6.625%,
08/15/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,360,660
12,720,000 Montgomery County Hospital Facilities Revenue, Refunding, Kettering Medical Center
Facilities, MBIA Insured, 7.50%, 04/01/14 . . . . . . . . . . . . . . . . . . . . . 14,319,158
4,395,000 Ohio HFA, SFMR, Series D, GNMA Collateralized, 7.05%, 09/01/16 . . . . . . . . . . . . 4,646,834
2,750,000 Ohio Municipal Electrical Generation Agency, Joint Venture, AMBAC Insured,
5.375%, 02/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,681,333
1,750,000 Ohio Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 . . . . . . . 1,854,598
--------------
40,414,213
--------------
OKLAHOMA 2.9%
14,215,000 Comanche Country, Hospital Authority Revenue, Refunding, Series A, Connie Lee Insured,
5.50%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,642,420
1,000,000 Grady County Home Finance Authority, SFMR, Refunding, Series A, FGIC Insured,
6.70%, 01/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,064,230
3,300,000 Jenks Public Works Authority Revenue, Refunding, AMBAC Insured, 7.80%, 07/01/11 . . . 3,706,098
300,000 McGee Creek Authority Water Revenue, MBIA Insured, 6.00%, 01/01/23 . . . . . . . . . . 316,146
5,000,000 Moore Public Works Authority Revenue, Refunding, AMBAC Insured, 7.60%, 07/01/06 . . . 5,651,650
1,840,000 Muskogee, SFMR, HFA, FGIC Insured, 7.60%, 12/01/10 . . . . . . . . . . . . . . . . . . 1,920,758
30,000 Oklahoma Baptist University Authority Revenue, Refunding, Series A, FGIC Insured,
Pre-Refunded, 8.00%, 12/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,196
2,250,000 Oklahoma State Municipal Power Authority Supply System Revenue, Series A, FGIC Insured,
Pre-Refunded, 6.00%, 01/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,431,665
2,500,000 Oklahoma State Turnpike Authority Revenue, Series A, AMBAC Insured, 6.00%, 01/01/12 . . 2,601,175
1,255,000 Owasso Public Works Authority, Public Improvement Revenue, CGIC Insured,
7.40%, 11/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,409,528
Pottawatomie County Development Authority Water Revenue,
5,000,000 North Deer Creek Reservoir Project, AMBAC Insured, 5.90%, 07/01/26 . . . . . . . . . 5,094,600
250,000 North Deer Creek Reservoir Project, AMBAC Insured, Pre-Refunded, 7.375%, 07/01/26 . . 290,635
3,000,000 Refunding, North Deer Creek Reservoir Project, AMBAC Insured, 5.80%, 07/01/15 . . . . 3,044,460
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
OKLAHOMA (CONT.)
$ 3,275,000 Tulsa Airports Improvements Trust, General Revenue Consolidated, MBIA Insured, 7.50%,
06/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,649,726
Tulsa County HFAR,
6,530,000 Series A, GNMA Collateralized Mortgage, 8.30%, 12/01/19 . . . . . . . . . . . . . . . 7,024,713
395,000 Series D, GNMA Collateralized Mortgage, 6.95%, 12/01/22 . . . . . . . . . . . . . . . 418,009
--------------
52,301,009
--------------
OREGON .5%
1,500,000 Deschutes & Jefferson Counties School District No. 2-J, Redmond, MBIA Insured, 5.60%,
06/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,540,095
6,025,000 Portland Hospital Facilities Authority Revenue, Legacy Health System, Series A, AMBAC
Insured, 6.70%, 05/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,626,657
1,000,000 Washington County, Unified Sewer Agency Revenue, Series 1, AMBAC Insured, 6.125%,
10/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,051,170
--------------
9,217,922
--------------
PENNSYLVANIA 5.2%
1,000,000 Allegheny County Hospital Development Authority Revenue, St. Francis Medical Center
Project, Refunding, AMBAC Insured, Pre-Refunded, 8.125%, 06/01/13 . . . . . . . . . . 1,108,920
3,000,000 Bristol Township, Bucks County GO, FGIC Insured, 7.875%, 09/01/16 . . . . . . . . . . . 3,249,270
3,900,000 Butler County Hospital Authority Revenue, North Hills Passavant Hospital,
CGIC Insured, 7.00%, 06/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,263,168
5,000,000 Cambria County Hospital Development Authority Revenue, Refunding & Improvement,
Conemaugh Valley Hospital, Series B, Connie Lee Insured, 6.375%, 07/01/18 . . . . . . 5,232,200
3,000,000 Dauphin County Hospital Authority Revenue, Refunding, Harrisburg Hospital,
MBIA Insured, 8.25%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,401,460
1,500,000 Delaware River Port Authority, Pennsylvania and New Jersey River Bridges Revenue,
Refunding, AMBAC Insured, 7.375%, 01/01/07 . . . . . . . . . . . . . . . . . . . . . 1,680,495
200,000 Exeter Township School District, FGIC Insured, 6.50%, 05/15/06 . . . . . . . . . . . . 215,482
1,200,000 Harrisburg RDAR, Capital Improvement, Series A, FGIC Insured, 7.875%, 11/02/16 . . . . 1,328,448
100,000 Lehigh County General Purpose Authority Revenues, Hospital Healtheast, Inc., Series A,
Refunding, MBIA Insured, 7.00%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . 110,395
8,000,000 Montgomery County IDAR, PCR, Refunding, Series B, MBIA Insured, 6.70%, 12/01/21 . . . . 8,578,000
500,000 Pennslyvania Convention Center Authority Revenue, Series A, FGIC Insured, 6.00%,
09/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529,070
100,000 Pennsylvania State Higher Educational Facilities Authority, College & University
Revenues, Hahnemann University Project, MBIA Insured, 7.20%, 07/01/19 . . . . . . . . 111,738
15,000,000 Pennsylvania State Pooled Finance Authority, Lease Revenue, Capital Improvement,
Series B, MBIA Insured, 8.00%, 11/01/09 . . . . . . . . . . . . . . . . . . . . . . . 15,964,800
Pennsylvania State Turnpike Commission Revenue,
500,000 Refunding, Series P, AMBAC Insured, 6.00%, 12/01/17 . . . . . . . . . . . . . . . . . 509,855
300,000 Series E, MBIA Insured, Pre-Refunded, 7.55%, 12/01/17 . . . . . . . . . . . . . . . . 350,406
2,500,000 Series K, MBIA Insured, Pre-Refunded, 7.50%, 12/01/12 . . . . . . . . . . . . . . . . 2,913,800
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
PENNSYLVANIA (CONT.)
$ 2,000,000 Philadelphia City GO, Refunding, Series 1986, FGIC Insured, Pre-Refunded, 8.25%,
02/15/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,203,940
Philadephia Municipal Authority Revenue,
10,000,000 Justice Lease, Series B, FGIC Insured, Pre-Refunded, 7.10%, 11/15/11 . . . . . . . . 11,637,400
11,300,000 Justice Lease, Series B, FGIC Insured, Pre-Refunded, 7.125%, 11/15/18 . . . . . . . 13,168,229
7,000,000 Philadelphia Water & Sewer Revenue, 16th Series, CGIC Insured, Pre-Refunded, 7.00%,
08/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,071,490
Philadelphia Water & Wastewater Revenue, Refunding,
5,000,000 CGIC Insured, 5.50%, 06/15/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,827,800
1,000,000 CGIC Insured, 5.50%, 06/15/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 964,680
90,000 Pittsburg Water & Sewer Authority System Revenue, Refunding, FGIC Insured,
ETM 09/01/05, 7.25%, 09/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,246
10,000 Scranton-Lackawanna Health & Welfare Authority Revenue, Community Medical Center
Project, BIG Insured, 7.875%, 07/01/10 . . . . . . . . . . . . . . . . . . . . . . . 11,361
1,690,000 Westmoreland IDAR, Refunding, South West Health System Project, AMBAC Insured,
Pre-Refunded, 7.25%, 07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,814,114
1,500,000 York County Hospital Authority Revenue, Series 1991, AMBAC Insured,
Pre-Refunded, 7.00%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,725,705
--------------
94,078,472
--------------
RHODE ISLAND 1.3%
620,000 Newport, GO, Refunding, Series B, FGIC Insured, 5.125%, 05/15/10 . . . . . . . . . . . 597,810
5,000,000 Providence Public Building Authority General Revenue, Series A, CGIC Insured,
7.25%, 12/15/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,658,100
Rhode Island Convention Center Authority Revenue,
2,000,000 Series A, AMBAC Insured, 5.75%, 05/15/20 . . . . . . . . . . . . . . . . . . . . . . 1,973,160
350,000 Series A, MBIA Insured, Pre-Refunded, 6.65%, 05/15/12 . . . . . . . . . . . . . . . 395,063
2,000,000 Rhode Island Depositors Economic Protection Corp., Special Obligation, Series A,
MBIA Insured, Pre-Refunded, 7.10%, 08/01/18 . . . . . . . . . . . . . . . . . . . . 2,325,320
3,335,000 Rhode Island Health & Education Building Authority, Series A, CGIC Insured,
Pre-Refunded, 7.50%, 09/15/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,871,501
Rhode Island Health & Educational Building Corp. Revenue,
3,000,000 Higher Educational Facilities, Connie Lee Insured, 6.30%, 03/15/20 . . . . . . . . . 3,093,720
3,000,000 Refunding, Providence Collateral, MBIA Insured, 5.60%, 11/01/15. . . . . . . . . . . 2,940,780
250,000 Rhode Island State, Refunding, Series A, FGIC Insured, 6.25%, 06/15/07 . . . . . . . . 271,240
2,000,000 West Warwick GO, MBIA Insured, 7.25%, 09/01/11 . . . . . . . . . . . . . . . . . . . . 2,304,500
--------------
23,431,194
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
SOUTH CAROLINA .6%
$ 250,000 Charleston Waterworks & Sewer Revenue, Refunding & Improvement, AMBAC Insured, 6.00%,
01/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 254,990
2,910,000 Cherokee County COP, Peachtree Centre Project, CGIC Insured, 7.05%, 09/01/11 . . . . . 3,268,221
250,000 Edgefield County School District, Refunding, FSA Insured, 8.50%, 02/01/01 . . . . . . . 303,440
50,000 Greenville Hospital System Facilities Revenue, Series A, FGIC Insured, 7.50%, 05/01/16 53,999
200,000 North Charleston Sewer District Revenue, MBIA Insured, Pre-Refunded, 7.75%, 08/01/18 . 230,698
Piedmont Municipal Power Agency, South Carolina Electric Revenue,
115,000 Refunding, AMBAC Insured, Pre-Refunded, 9.375%, 01/01/14 . . . . . . . . . . . . . . 124,031
990,000 Refunding, AMBAC Insured, Pre-Refunded, 9.25%, 01/01/19 . . . . . . . . . . . . . . . 1,112,423
200,000 Refunding, FGIC Insured, 6.25%, 01/01/21 . . . . . . . . . . . . . . . . . . . . . . 216,742
2,000,000 Refunding, Series A, AMBAC Insured, Pre-Refunded, 7.60%, 01/01/18 . . . . . . . . . . 2,271,440
3,000,000 Richard County Hospital Facilities Revenue, Community Provider, Pooled Loan Program,
Series A, CGIC Insured, 7.125%, 07/01/17 . . . . . . . . . . . . . . . . . . . . . . 3,388,620
South Carolina Public Service Authority Electric Revenue, Electric System Expansion,
150,000 Refunding, Series A, MBIA Insured, 7.75%, 07/01/15 . . . . . . . . . . . . . . . . . 161,631
100,000 Refunding, Series C, AMBAC Insured, 7.30%, 07/01/21 . . . . . . . . . . . . . . . . . 106,976
--------------
11,493,211
--------------
SOUTH DAKOTA .7%
25,000 Aberdeen GO, MBIA Insured, Pre-Refunded, 10.10%, 08/01/04 . . . . . . . . . . . . . . . 25,714
1,355,000 Heartland Consumer Power District, Electric System Revenue, Refunding, MBIA Insured,
Pre-Refunded, 7.625%, 01/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,489,619
2,000,000 Lawrence County, COP, Courthouse, CGIC Insured, 7.65%, 07/01/10 . . . . . . . . . . . . 2,293,160
2,655,000 Sioux Falls Medical Clinic Revenue, AMBAC Insured, 8.00%, 09/01/08 . . . . . . . . . . 2,732,632
2,720,000 South Dakota State Lease Revenue, Series A, CGIC Insured, 6.75%, 12/15/16 . . . . . . . 3,070,091
2,220,000 South Dakota State University Revenue, Housing & Auxiliary Facilities, Refunding,
Series A, MBIA Insured, 5.50%, 04/01/17 . . . . . . . . . . . . . . . . . . . . . . . 2,127,604
--------------
11,738,820
--------------
TENNESSEE .2%
1,490,000 Greater Tennessee Housing Assistance Corp., Mortgage Revenue, Refunding, Series A, MBIA
Insured, 6.00%, 07/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,501,473
2,000,000 Memphis-Shelby County Airport Authority Revenue, Refunding, MBIA Insured, 5.65%,
09/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,997,500
200,000 Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured, 6.60%,
07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,818
--------------
3,717,791
--------------
TEXAS 11.1%
Austin Combined Utility System Revenue,
1,000,000 BIG Insured, Pre-Refunded, 8.625%, 11/15/17 . . . . . . . . . . . . . . . . . . . . . 1,260,240
50,000 Refunding, Series A, FGIC Insured, 6.00%, 05/15/15 . . . . . . . . . . . . . . . . . 50,794
3,000,000 Series A, BIG Insured, Pre-Refunded, 8.00%, 11/15/16 . . . . . . . . . . . . . . . . 3,597,720
5,000,000 Bexar County Health Facilities Development Corp., Hospital Revenue, Refunding,
Southwest Methodist Church, AMBAC Insured, 6.625%, 11/01/15 . . . . . . . . . . . . . 5,519,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLINSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS (CONT.)
$ 4,080,000 Bexar County HFC Revenue, GNMA Collateralized Mortgage Loan, Series A, 8.20%,
04/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,329,614
3,450,000 Brazos River Authority PCR, Texas Utilities Electric Co. Project, Series A, AMBAC
Insured, 6.05%, 04/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,458,073
Brazos River Authority Revenue, Refunding, Houston Light & Power Co. Project,
2,000,000 MBIA Insured, 5.60%, 12/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,936,080
2,000,000 Series A, AMBAC Insured, 6.70%, 03/01/17 . . . . . . . . . . . . . . . . . . . . . . . 2,153,780
3,360,000 Series D, FGIC Insured, 7.75%, 10/01/15 . . . . . . . . . . . . . . . . . . . . . . . 3,783,595
1,000,000 Brownsville Utility System Priority Revenue, Series B, FGIC Insured, Pre-Refunded,
7.50%, 09/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,103,840
12,230,000 Coastal Bend Health Facilities Development Corp., Series B, AMBAC Insured, 6.30%,
01/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,744,883
7,000,000 Coastal Water Authority, Water Conveyance System Revenue, Series 1987, MBIA Insured,
Pre-Refunded, 8.125%, 12/15/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,987,910
1,040,000 Dallas, Texas, HFC, SFMR, GNMA Collateralized, 7.85%, 12/01/10 . . . . . . . . . . . . 1,091,137
2,540,000 East Texas HFC, SFMR, Series 1990, GNMA Collateralized, 7.85%, 12/01/10 . . . . . . . . 2,688,641
1,520,000 Faulkey Gully MUD, Refunding, Waterworks & Sewerage System, AMBAC Insured, 6.625%,
03/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,637,405
200,000 Fort Bend County, Permanent Improvement, FGIC Insured, Pre-Refunded, 6.60%,
09/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,842
Harris County Hospital District Mortgage Revenue,
2,350,000 Refunding, AMBAC Insured, 7.40%, 02/15/10 . . . . . . . . . . . . . . . . . . . . . . 2,814,219
3,000,000 Refunding, BIG Insured, Pre-Refunded, 8.50%, 04/01/15 . . . . . . . . . . . . . . . . 3,333,090
3,000,000 Harris County Public Facilities Corp., Detention Facility Mortgage Revenue,
MBIA Insured, Pre-Refunded, 7.80%, 12/15/11 . . . . . . . . . . . . . . . . . . . . . 3,490,260
Harris County Toll Road, Senior Lien,
15,000,000 FGIC Insured, 5.50%, 08/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,444,700
10,000,000 Refunding, Series A, AMBAC Insured, 6.50%, 08/15/17 . . . . . . . . . . . . . . . . . 10,630,500
1,490,000 Refunding, Series B, AMBAC Insured, 6.625%, 08/15/17. . . . . . . . . . . . . . . . . 1,589,726
200,000 Series A, FGIC Insured, 6.50%, 08/15/11 . . . . . . . . . . . . . . . . . . . . . . . 224,108
Houston Airport System Revenue,
8,000,000 Series A, MBIA Insured, 6.375%, 12/01/22 . . . . . . . . . . . . . . . . . . . . . . 8,447,920
2,500,000 Sub Lien, Series A, FGIC Insured, 6.75%, 07/01/21 . . . . . . . . . . . . . . . . . . 2,676,250
1,000,000 Sub Lien, Series B, FGIC Insured, 6.625%, 07/01/22 . . . . . . . . . . . . . . . . . 1,079,100
Houston Water & Sewer System Revenue,
6,000,000 Prior Lien, FGIC Insured, Pre-Refunded, 8.125%, 12/01/17 . . . . . . . . . . . . . . 6,942,000
1,450,000 Refunding, Junior Lien, FGIC Insured, Pre-Refunded, 9.375%, 12/01/13 . . . . . . . . 1,619,215
1,000,000 Refunding, Junior Lien, Series C, AMBAC Insured, 6.375%, 12/01/17 . . . . . . . . . . 1,052,070
500,000 Refunding, Junior Lien, Series C, MBIA Insured, 5.75%, 12/01/15 . . . . . . . . . . . 503,930
2,300,000 Irving Hospital Authority Revenue, Irving Health Care System, Series 1990, FGIC Insured,
7.25%, 07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,552,701
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS (CONT.)
Lower Colorado River Authority Priority Revenue,
$ 2,000,000 BIG Insured, Pre-Refunded, 7.75%, 01/01/10 . . . . . . . . . . . . . . . . . . . . . $ 2,173,108
1,600,000 MBIA Insured, Pre-Refunded, 7.625%, 01/01/16 . . . . . . . . . . . . . . . . . . . . 1,818,560
5,000,000 Lubbock Health Facilities Development Corp., Hospital Revenue, Refunding, Methodist
Hospital, Series A, AMBAC Insured, 5.875%, 12/01/13 . . . . . . . . . . . . . . . . . 5,077,850
2,175,000 Lubbock HFC, SFMR, Refunding, Mortgage Extension Program, Series B, BIG Insured,
8.875%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,322,813
Matagorda County Navigation District No. 1 Revenue,
200,000 PCR, Central P & L Co. Project, AMBAC Insured, 7.50%, 12/15/14 . . . . . . . . . . . 226,800
2,000,000 Refunding, Houston Light & Power Co., Series C, FGIC Insured, 7.125%, 07/01/19 . . . 2,204,120
100,000 Refunding, Houston Light & Power Co., Series E, FGIC Insured, 7.20%, 12/01/18 . . . . 111,126
2,000,000 Metro Health Facilities Development Corp., Hospital Revenue, The Wilson N. Jones
Memorial Hospital, Refunding, Connie Lee Insured, 5.60%, 01/01/17 . . . . . . . . . . 1,917,840
North Central Health Facility Development Corp. Revenue,
200,000 Refunding, Methodist Hospital of Dallas, Series A, BIG Insured, 9.50%, 10/01/15 . . . 221,428
2,000,000 Refunding, Presbiterian Health Care Project, Series A, BIG Insured, Pre-Refunded,
8.875%, 12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,357,800
6,000,000 Palo Duro River Authority, Refunding, CGIC Insured, 6.375%, 08/01/08 . . . . . . . . . 6,279,000
105,000 Park Ten MUD, Waterworks & Sewer System, FGIC Insured, Pre-Refunded, 9.25%,
03/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,726
Sabine River Authority, PCR,
3,250,000 Refunding, Collateralized, Texas Utilities Electric Co. Project, FGIC Insured,
6.55%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,498,950
2,000,000 Texas Utility Co. Project, Collateralized, FGIC Insured, 7.75%, 04/01/16 . . . . . . 2,164,120
San Antonio Electric & Gas System Revenue,
300,000 Series A, BIG Insured, Pre-Refunded, 9.375%, 02/01/09 . . . . . . . . . . . . . . . . 320,661
9,900,000 Series A, FGIC Insured, Pre-Refunded, 8.00%, 02/01/16 . . . . . . . . . . . . . . . . 11,388,762
2,500,000 San Patricio County COP, MBIA Insured, 6.60%, 04/01/07. . . . . . . . . . . . . . . . . 2,724,650
11,000,000 Tarrant County HFC, SFMR, GNMA Mortgage Backed Securities, Series A, 8.00%, 07/01/21. . 11,861,520
Texas Health Facilities Development Corp. Hospital Revenue,
2,500,000 Refunding, All Saints Episcopal Hospitals, Series B, MBIA Insured, 6.25%,
08/15/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,599,350
4,885,000 Refunding, All Saints Episcopal Hospitals, Series B, MBIA Insured, 6.375%,
08/15/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,150,695
2,000,000 Refunding, Cook-Fort Worth Medical Center Project, FGIC Insured, Pre-Refunded,
8.125%, 06/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,322,180
200,000 Texas Municipal Power Agency Revenue, Refunding, MBIA Insured, Pre-Refunded, 5.75%,
09/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,110
Texas State Turnpike Authority Revenue,
100,000 Dallas North Tollway, AMBAC Insured, Pre-Refunded, 7.125%, 01/01/15 . . . . . . . . . 113,325
50,000 Dallas North Tollway, FGIC Insured, 7.125%, 01/01/15 . . . . . . . . . . . . . . . . 54,969
6,000,000 Texas Water Resources Financial Authority Revenue, AMBAC Insured, 7.50%, 08/15/13 . . . 6,668,400
4,245,000 Travis County HFC, SFMR, GNMA Mortgage Backed Securities, 8.20%, 04/01/22 . . . . . . . 4,437,681
100,000 Trinity River Authority, Waste Water System Revenue, AMBAC Insured, Pre-Refunded,
7.10%, 08/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,718
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS (CONT.)
$ 4,195,000 Tyler Health Facilities Development Corp., Hospital Revenue, Mother Frances,
FGIC Insured, 6.50%, 07/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,456,978
220,000 Waco Health Facilities Development Corp., Hospital Revenue, Hillcrest Baptist Medical
Center Project, MBIA Insured, Pre-Refunded, 9.20%, 09/01/14 . . . . . . . . . . . . . 242,488
1,965,000 Webb County, Limited Tax GO, CGIC Insured, Pre-Refunded, 7.25%, 02/15/09 . . . . . . . 2,206,459
--------------
200,332,030
--------------
UTAH 2.7%
6,250,000 Emery Country PCR, Refunding, Series A, AMBAC Insured, 5.65%, 11/01/23 . . . . . . . . 6,023,375
Intermountain Power Agency, Power Supply Revenue,
2,000,000 Refunding, Series 1987-C, AMBAC Insured, Pre-Refunded, 8.375%, 07/01/12 . . . . . . . 2,300,760
6,300,000 Refunding, Series 1987-D, AMBAC Insured, 8.375%, 07/01/12 . . . . . . . . . . . . . . 7,137,774
Intermountain Power Agency, Special Obligation,
7,500,000 Refunding, 2nd Crossover Series 1986-C, FGIC Insured, 7.25%, 07/01/17 . . . . . . . . 8,061,150
6,230,000 Refunding, 5th Crossover Series, FGIC Insured, 7.00%, 07/01/15 . . . . . . . . . . . 6,725,534
3,350,000 Layton City Municipal Building Facilities Authority Revenue, BIG Insured, Pre-Refunded,
7.25%, 08/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,687,111
5,000,000 Provo City Energy System Revenue, Series A, FGIC Insured, Pre-Refunded, 7.625%,
11/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,771,450
40,000 Provo Electric System Revenue, Refunding, Series 1984-A, AMBAC Insured, ETM 09/15/00,
10.375%, 09/15/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,591
5,000 Salt Lake County Water Conservancy District Revenue, Series A, MBIA Insured, ETM
10/01/93, 10.875%, 10/01/02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,516
1,080,000 Utah State Board Regents Student Loan Revenue, Series H, AMBAC Insured, 6.70%,
11/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,158,095
660,000 Utah State Municipal Finance Corp., Local Government Revenue, St. George Water, FGIC
Insured, 6.90%, 06/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733,088
2,935,000 Washington County Water Conservancy District, MBIA Insured, 8.20%, 02/01/18 . . . . . . 3,301,405
Weber County Municipal Building Authority Lease Revenue,
825,000 CGIC Insured, Pre-Refunded, 7.20%, 06/01/05 . . . . . . . . . . . . . . . . . . . . . 929,800
875,000 CGIC Insured, Pre-Refunded, 7.20%, 06/01/06 . . . . . . . . . . . . . . . . . . . . . 986,151
950,000 CGIC Insured, Pre-Refunded, 7.20%, 06/01/07 . . . . . . . . . . . . . . . . . . . . . 1,070,679
--------------
47,949,479
--------------
VERMONT 1.0%
Burlington Electric System Revenue,
1,000,000 Series 1986-A, MBIA Insured, 7.25%, 07/01/06 . . . . . . . . . . . . . . . . . . . . 1,083,110
6,000,000 Series 1986-A, MBIA Insured, 7.375%, 07/01/12 . . . . . . . . . . . . . . . . . . . . 6,465,180
2,205,000 State of Vermont, COP, MBIA Insured, 7.25%, 06/15/11 . . . . . . . . . . . . . . . . . 2,481,066
6,630,000 Vermont Home Mortgage, Series 1989-B, MBIA Insured, 7.60%, 12/01/24 . . . . . . . . . . 7,204,821
--------------
17,234,177
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
VIRGINIA .3%
$ 4,500,000 (e)Chesapeake Bay Bridge & Tunnel Commission, District Revenue, Refunding, General
Resolution, MBIA Insured, 5.75%, 07/01/25 . . . . . . . . . . . . . . . . . . . . . . $ 4,502,205
85,000 Southeastern Public Service Authority Revenue, Refunding, Senior Regional Waste System,
BIG Insured, Pre-Refunded, 7.00%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . 96,283
--------------
4,598,488
--------------
WASHINGTON 9.3%
Benton County PUD No. 1, Electric Revenue,
400,000 Refunding, AMBAC Insured, Pre-Refunded, 9.375%, 11/01/04 . . . . . . . . . . . . . . . 440,760
5,700,000 Refunding, AMBAC Insured, 6.75%, 11/01/11 . . . . . . . . . . . . . . . . . . . . . . 6,177,489
1,600,000 Benton County School District No. 400, Richland, AMBAC Insured, Pre-Refunded,
7.875%, 12/01/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,763,232
150,000 Chelan County PUD No. 1, Columbia River, Rock Island Hydro-Electric System Revenue,
Series 1985-A, AMBAC Insured, 9.75%, 06/01/15 . . . . . . . . . . . . . . . . . . . . 163,655
190,000 Chelan County PUD No. 1, Rocky Reach Hydro-Electric System Revenue, Series 1985-A,
FGIC Insured, 9.20%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206,032
2,000,000 Clallam County PUD No. 1, Revenue, Refunding, AMBAC Insured, 6.50%, 01/01/08 . . . . . . 2,192,320
1,420,000 Cowlitz & Clark Counties School District No. 404-102, Woodland, AMBAC Insured,
Pre-Refunded, 6.75%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,587,262
850,000 Everett COP, Series A, AMBAC Insured, 7.25%, 04/01/09 . . . . . . . . . . . . . . . . . 948,184
2,000,000 Grant County PUD No. 2, Wanapum Hydro-Electric Revenue, Series B, AMBAC Insured,
6.75%, 01/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,146,660
2,245,000 Grays Harbor County PUD No. 001 Electric Revenue, Refunding, AMBAC Insured,
7.10%, 01/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,463,483
1,500,000 King County Public Hospital District No. 001, Hospital Facilities Revenue,
Valley Medical Center, AMBAC Insured, 7.25%, 09/01/15 . . . . . . . . . . . . . . . . 1,698,645
3,375,000 King County School District No. 411, Issaquah, Refunding, AMBAC Insured, 6.50%,
12/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,615,874
2,530,000 King & Snohomish Counties School District No. 417, Northshore, FGIC Insured,
Pre-Refunded, 8.00%, 06/01/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,560,436
1,015,000 Kitsap County School District No. 100-C, Refunding, MBIA Insured, 6.60%, 12/01/08 . . . 1,101,011
2,105,000 Kittitas County School District No. 404, AMBAC Insured, 6.80%, 12/01/11 . . . . . . . . 2,280,768
1,575,000 Marysville GO, MBIA Insured, 5.875%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . 1,605,807
Marysville Water & Sewer Revenue,
4,975,000 MBIA Insured, Pre-Refunded, 7.00%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . 5,775,577
5,000,000 Refunding, MBIA Insured, 6.10%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . 5,139,750
1,040,000 Mason County School District No. 402, Pioneer, MBIA Insured, 6.60%, 12/01/11 . . . . . . 1,117,719
350,000 Port Angeles Revenue, Limited Tax, GO, AMBAC Insured, Pre-Refunded, 10.30%,
03/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373,685
3,000,000 Seattle, Washington, Metropolitan Sewer System, Series S, AMBAC Insured, Pre-Refunded,
7.375%, 01/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,383,610
4,770,000 Snohomish County Public Hospital District No. 002, Stevens Memorial Hospital,
FGIC Insured, Pre-Refunded, 6.85%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . 5,411,517
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
WASHINGTON (CONT.)
Snohomish County PUD No. 1, Electric Revenue,
$ 4,250,000 Generation System, FGIC Insured, ETM 01/01/13, 6.65%, 01/01/16 . . . . . . . . . . . $ 4,901,738
15,950,000 Generation System, Series 1986-A, BIG Insured, Pre-Refunded, 7.375%, 01/01/19 . . . . 17,631,928
9,000,000 Refunding, BIG Insured, Pre-Refunded, 8.00%, 01/01/15 . . . . . . . . . . . . . . . . 10,097,280
5,000,000 Spokane Public Facilities District, Hotel, Motel & Sales Use Tax Revenue, Multi-Purpose
Arena Project, AMBAC Insured, 6.50%, 01/01/18 . . . . . . . . . . . . . . . . . . . . 5,367,000
14,000,000 Spokane Regional Solid Waste Management System Revenue, Series B, AMBAC Insured,
Pre-Refunded, 7.625%, 01/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,133,180
Tacoma Electric System Revenue,
6,000,000 AMBAC Insured, Pre-Refunded, 8.00%, 01/01/11 . . . . . . . . . . . . . . . . . . . . 6,898,140
500,000 Refunding, AMBAC Insured, 6.25%, 01/01/11 . . . . . . . . . . . . . . . . . . . . . . 525,394
1,305,000 Thurston & Pierce Counties, Community Schools, Series B, AMBAC Insured, 6.65%, 12/01/09 1,424,185
Washington Public Power Supply System, Nuclear Project No. 1 Revenue,
2,000,000 Refunding, Bonneville Power Administration, Series B, MBIA Insured, 5.60%, 07/01/15 . 1,958,400
1,150,000 Refunding, Series A, MBIA Insured, 7.50%, 07/01/15 . . . . . . . . . . . . . . . . . 1,329,572
500,000 Refunding, Series A, MBIA Insured, 6.25%, 07/01/17 . . . . . . . . . . . . . . . . . 520,384
2,515,000 Refunding, Series A, MBIA Insured, Pre-Refunded, 7.50%, 07/01/15 . . . . . . . . . . 2,807,494
4,420,000 Refunding, Series B, FGIC Insured, 7.25%, 07/01/12 . . . . . . . . . . . . . . . . . 4,938,067
2,500,000 Refunding, Series C, FGIC Insured, 7.75%, 07/01/08 . . . . . . . . . . . . . . . . . 2,901,824
5,000,000 Washington Public Power Supply System Revenue, Nuclear Project No. 2, Refunding,
Series B, FGIC Insured, 7.375%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . 5,827,700
100,000 Washington Public Power Supply System, Nuclear Project No. 3 Revenue, Refunding,
Series A, BIG Insured, Pre-Refunded, 7.25%, 07/01/16 . . . . . . . . . . . . . . . . 114,443
Washington State Health Care Facilities Authority Revenue,
250,000 Empire Health Services, Spokane, MBIA Insured, 5.80%, 11/01/10 . . . . . . . . . . . 252,374
1,000,000 Franciscan Health System, BIG Insured, Pre-Refunded, 7.70%, 01/01/13 . . . . . . . . 1,130,680
240,000 Franciscan Health System, BIG Insured, Pre-Refunded, 9.25%, 07/01/15 . . . . . . . . 262,333
1,900,000 Harrison Memorial Hospital, AMBAC Insured, 5.40%, 08/15/23 . . . . . . . . . . . . . 1,798,331
5,000,000 Mason Medical Center, MBIA Insured, 8.00%, 07/01/15 . . . . . . . . . . . . . . . . . 5,591,400
1,750,000 Refunding, Franciscan Health/St. Joseph Hospital, MBIA Insured, 5.625%, 01/01/13 . . 1,722,910
6,000,000 Refunding, Franciscan Health System, BIG Insured, Pre-Refunded, 7.60%, 01/01/08 . . . 6,763,140
3,250,000 Swedish Hospital Medical Center, AMBAC Insured, 6.30%, 11/15/22 . . . . . . . . . . . 3,412,110
2,925,000 Washington State Housing Finance Commission, MFMR, Series A, GNMA Collateralized,
7.70%, 07/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,195,152
Western Washington University Revenues,
3,000,000 Housing & Dining System, MBIA Insured, 6.375%, 10/01/22 . . . . . . . . . . . . . . . 3,149,970
1,050,000 Refunding, Housing & Dining System, MBIA Insured, 6.70%, 10/01/11 . . . . . . . . . . 1,122,386
3,500,000 Refunding, Housing & Dining System, MBIA Insured, 6.375%, 10/01/21 . . . . . . . . . 3,639,020
350,000 Yakima-Tieton Irrigation District Revenue, Refunding, FSA Insured, 6.20%, 06/01/19 . . 363,451
--------------
167,933,462
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
WEST VIRGINIA 1.4%
$ 1,000,000 Monongalia County Building Community Hospital Revenue, Refunding, Monongalia General
Hospital, Series B, MBIA Insured, 6.50%, 07/01/17 . . . . . . . . . . . . . . . . . . $ 1,073,510
1,000,000 Morgantown Building Commission, Municipal Building Lease Revenue, Refunding,
MBIA Insured, 5.75%, 01/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,006,300
1,000,000 Parkersburg Waterworks Revenue, Refunding, MBIA Insured, 7.60%, 09/01/19. . . . . . . . 1,082,060
South Charleston Hospital Revenue,
3,060,000 Refunding, Herbert J. Thomas Memorial Hospital, BIG Insured, Pre-Refunded,
8.00%, 10/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,575,151
2,400,000 Refunding, Herbert J. Thomas Memorial Hospital, BIG Insured, Pre-Refunded,
8.00%, 10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,793,167
1,000,000 West Virginia Resource & Recovery, Solid Waste Disposal System Authority Revenue,
BIG Insured, Pre-Refunded, 8.25%, 06/01/09 . . . . . . . . . . . . . . . . . . . . . 1,109,280
West Virginia School Building Authority Revenue,
300,000 Capital Improvement, Series B, MBIA Insured, 6.75%, 07/01/17 . . . . . . . . . . . . 329,582
100,000 Series A, MBIA Insured, Pre-Refunded, 7.25%, 07/01/15 . . . . . . . . . . . . . . . . 115,874
2,000,000 West Virginia State HDA, SFMR, MBIA Insured, 7.40%, 11/01/11 . . . . . . . . . . . . . 2,134,100
West Virginia State Hospital Finance Authority Revenue,
2,000,000 Monongalia General Hospital Project, BIG Insured, Pre-Refunded, 8.60%, 07/01/17 . . . 2,276,240
1,000,000 West Virginia University Hospitals, Inc., MBIA Insured, Pre-Refunded, 7.20%,
06/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,088,190
2,250,000 West Virginia State University Revenue, Refunding, AMBAC Insured, 6.00%, 04/01/12 . . . 2,332,777
West Virginia State Water Development Authority Revenue,
3,000,000 Loan Program II, Series B, CGIC Insured, Pre-Refunded, 7.50%, 11/01/29 . . . . . . . 3,499,200
2,750,000 Refunding, Loan Program, Series A, CGIC Insured, 7.00%, 11/01/25 . . . . . . . . . . 3,088,607
--------------
25,504,038
--------------
WISCONSIN 1.1%
500,000 Holmen School District, Series A, AMBAC Insured, 6.25%, 10/01/10 . . . . . . . . . . . 540,584
Lake County School District GO,
850,000 Refunding, AMBAC Insured, 6.35%, 04/01/11 . . . . . . . . . . . . . . . . . . . . . . 900,371
900,000 Refunding, AMBAC Insured, 6.35%, 04/01/12 . . . . . . . . . . . . . . . . . . . . . . 953,333
1,970,000 Sturgeon Bay, Combined Utilities Mortgage Revenue, Refunding, AMBAC Insured,
5.20%, 01/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,905,915
3,000,000 Superior Limited Obligation Revenue, Refunding, Midwest Energy Resources,
Series E, FGIC Insured, 6.90%, 08/01/21 . . . . . . . . . . . . . . . . . . . . . . . 3,533,400
Wisconsin Health Educational Revenue,
1,965,000 Community Provider Program, Series A, CGIC Insured, 7.50%, 01/15/04 . . . . . . . . . 2,221,570
2,000,000 Series A, CGIC Insured, 7.50%, 01/15/ 09 .. . . . . . . . . . . . . . . . . . . . . . 2,240,800
Wisconsin Health Facilities Authority Revenue,
600,000 Columbia Hospital, Inc., BIG Insured, Pre-Refunded, 9.50%, 06/01/12 .. . . . . . . . 654,827
105,000 Franciscan Health Care, Inc., MBIA Insured, Pre-Refunded, 8.875%, 12/01/10 .. . . . . 116,378
2,000,000 Meriter Hospital, Inc., FGIC Insured, Pre-Refunded, 8.375%, 12/01/09 .. . . . . . . . 2,323,560
4,000,000 Milwaukee Psychiatric Hospital, MBIA Insured, 7.30%, 04/01/12 . . . . . . . . . . . . 4,382,240
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
WISCONSIN (CONT.)
$ 100,000 Wisconsin Public Power, Inc., Power Supply System Revenue, Series A, AMBAC Insured,
Pre-Refunded, 7.40%, 07/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 116,688
500,000 Wisconsin State Health & Educational Facilities Authority Revenue, Refunding, Series AA,
MBIA Insured, 6.25%, 06/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519,864
--------------
20,409,530
--------------
WYOMING .4%
500,000 Gillette Health Facilities Revenue, Lutheran Hospital & Home Society, Refunding, MBIA
Insured, 5.90%, 01/01/16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507,134
835,000 Lincoln City, PCR, Refunding, Pacificorp Projects, AMBAC Insured, 5.625%,
11/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799,421
2,245,000 University Facilities Revenues, MBIA Insured, 7.10%, 06/01/10 . . . . . . . . . . . . . 2,556,311
1,525,000 Worland GO, Refunding, AMBAC Insured, 5.30%, 06/01/12 . . . . . . . . . . . . . . . . . 1,462,916
2,000,000 Wyoming Municipal Power Agency, Power Supply System Revenue, Refunding, Series A,
MBIA Insured, 6.125%, 01/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,064,460
--------------
7,390,242
--------------
TOTAL BONDS (COST $1,626,843,884). . . . . . . . . . . . . . . . . . . . . . . 1,773,373,660
--------------
(c) ZERO COUPON BONDS
South Putnam High School Building Corp.,
325,000 Refunding, First Mortgage, MBIA Insured (original accretion rate 7.10%), 0.00%,
01/05/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,331
325,000 Refunding, First Mortgage, MBIA Insured (original accretion rate 7.10%), 0.00%,
07/05/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,613
--------------
TOTAL ZERO COUPON BONDS (COST $217,698) . . . . . . . . . . . . . . . . . . . 248,944
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,627,061,582). . . . . . . . . . . . . . . 1,773,622,604
--------------
(g) SHORT TERM INVESTMENTS .2%
200,000 California Health Care Facilities, Financing Authority Revenue, Refunding, St. Joseph
Health Systems, Series A, Daily VRDN and Put, 2.20%, 07/01/13 . . . . . . . . . . . 200,000
700,000 Detroit, Michigan Tax Increment Financial Authority, Central Industrial Park Project,
Weekly VRDN and Put, 2.40%, 10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . 700,000
1,700,000 Grand Rapids, Michigan Water Supply System Revenue, Refunding, Daily VRDN and Put,
2.15%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700,000
300,000 Irvine Ranch, California, Water District, Consolidated Board, Series C, Daily VRDN
and Put, 2.25%, 10/01/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $2,900,000) . . . . . . . . . . . . . . . . 2,900,000
--------------
TOTAL INVESTMENTS (COST $1,629,961,582) 98.6% . . . . . . . . . . . . . . . 1,776,522,604
OTHER ASSETS AND LIABILITIES, NET 1.47 . . . . . . . . . . . . . . . . . . . 26,025,007
--------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,802,547,611
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
VALUE
FRANKLIN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $1,630,010,587 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,873,408
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value. . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,361,391)
-------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 146,512,017
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
EDA - Economic Development Authority
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority
HDC - Housing Development Corp.
HFA - Housing Finance Agency/Authority
HFAR - Housing Finance Agency Revenue
HFC - Housing Finance Corp.
HMR - Housing Mortgage Revenue
IDA - Industrial Development Authority
IDAR - Industrial Development Authority Revenue
IDB - Industrial Development Bond
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MUD - Municipal Utility District
NUFIC - National Union Fire Insurance Co.
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Agency
RDAR - Redevelopment Agency Revenue
RMR - Residential Mortgage Revenue
SFHR - Single Family Housing Revenue
SFMR - Single Family Mortgage Revenue
UHSD - Unified High School District
USD - Unified School District
(c)Zero coupon bonds. The current effective yield may vary. The original
accretion rate by security, as reported, will remain constant.
(e)See Note 1 regarding securities purchased on a when-issued basis.
(g)Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified date in relationship with changes
in a designated rate (such as the prime interest rate or U.S. Treasury
bills rate).
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.9%
$1,300,000 Billerica GO, Lot B, MBIA Insured, 5.50%, 07/15/13............................................... $ 1,298,362
Blackstone-Milville School District,
705,000 AMBAC Insured, 6.50%, 05/01/08................................................................. 771,016
750,000 AMBAC Insured, 6.50%, 05/01/09................................................................. 815,535
795,000 AMBAC Insured, 6.50%, 05/01/10................................................................. 861,716
7,450,000 Boston City Hospital Revenue, Refunding, Series B, MBIA Insured, 5.75%, 02/15/23................. 7,418,412
6,000,000 Boston GO, AMBAC Insured, Pre-Refunded, 7.375%, 08/01/04......................................... 6,644,340
1,500,000 Boston IDAR, Massachusetts College of Pharmacy, Project 1, Connie Lee Insured,
5.25%, 10/01/26................................................................................ 1,367,580
Boston Water & Sewage Commission, General Revenue,
3,000,000 Series 1988-A, BIG Insured, 7.25%, 11/01/06.................................................... 3,356,250
3,000,000 Series 1989-A, FGIC Insured, Pre-Refunded, 7.10%, 11/01/19..................................... 3,439,860
3,800,000 Series 1991-A, FGIC Insured, Pre-Refunded, 7.00%, 11/01/18..................................... 4,409,140
1,095,000 Central Berkshire GO, School District, MBIA Insured, 7.25%, 06/01/08............................. 1,233,988
300,000 Chicopee Electric System Revenue, Series B, MBIA Insured, 9.125%, 01/01/05....................... 318,312
2,000,000 Fall River School Project, MBIA Insured, 7.20%, 06/01/10......................................... 2,271,160
Framingham Housing Authority Mortgage Revenue,
500,000 Beaver Terrace Apartments, Series A, GNMA Mortgage Backed Securities,
6.60%, 08/20/16.............................................................................. 529,890
1,650,000 Beaver Terrace Apartments, Series A, GNMA Mortgage Backed Securities,
6.65%, 02/20/32.............................................................................. 1,738,556
Greenfield GO,
500,000 MBIA Insured, 6.50%, 10/15/08.................................................................. 543,180
500,000 MBIA Insured, 6.50%, 10/15/09.................................................................. 541,870
750,000 Haverhill, City of, GO, AMBAC Insured, Pre-Refunded, 8.875%, 12/01/10............................ 830,603
1,000,000 Holyoke GO, School Project Loans, MBIA Insured, 8.05%, 06/15/04.................................. 1,242,230
Lenox GO, Refunding,
1,000,000 AMBAC Insured, 6.60%, 10/15/11................................................................. 1,096,510
500,000 AMBAC Insured, 6.625%, 10/15/15................................................................ 549,030
450,000 Leominster GO, Series 1990, MBIA Insured, 7.50%, 04/01/09........................................ 514,638
Ludlow GO,
210,000 School Project, Limited Tax, MBIA Insured, 7.30%, 11/01/07..................................... 251,101
210,000 School Project, Limited Tax, MBIA Insured, 7.30%, 11/01/08..................................... 251,918
210,000 School Project, Limited Tax, MBIA Insured, 7.40%, 11/01/09..................................... 253,722
Lynn Water & Sewer Commission Revenue,
200,000 Series 1985-A, FGIC Insured, Pre-Refunded, 8.40%, 06/01/99..................................... 215,798
210,000 Series 1985-A, FGIC Insured, Pre-Refunded, 8.75%, 06/01/05..................................... 227,468
4,000,000 Lynn Water & Sewer General Revenue, Series 1990-A, MBIA Insured, Pre-Refunded,
7.25%, 12/01/10................................................................................ 4,666,320
2,000,000 Mansfield GO, AMBAC Insured, 6.70%, 01/15/11..................................................... 2,189,460
500,000 Mashpee Water District GO, MBIA Insured, 6.40%, 10/15/12......................................... 539,980
Massachusetts Bay Transportation Authority,
2,500,000 COP, BIG Insured, 7.75%, 01/15/06.............................................................. 2,960,850
3,000,000 General Transportation System, Series 1988-A, FGIC Insured, Pre-Refunded,
7.75%, 03/01/13.............................................................................. 3,437,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Massachusetts Bay Transportation Authority, (cont.)
$1,350,000 Series A, FGIC Insured, 5.75%, 03/01/22........................................................ $1,353,402
1,000,000 Series C, FGIC Insured, 6.10%, 03/01/23........................................................ 1,037,050
40,000 Massachusetts College Student Loan Authority, Educational Loan Revenue, Series A,
AMBAC Insured, 8.875%, 10/01/99................................................................ 40,221
2,755,000 Massachusetts Education Loan Authority Revenue, Issue D, Series A, MBIA Insured,
7.25%, 01/01/09................................................................................ 3,087,170
Massachusetts GO,
1,200,000 Commonwealth, Series A, FGIC Insured, Pre-Refunded, 7.25%, 03/01/09............................ 1,382,952
585,000 Commonwealth, Series A, FGIC Insured, Pre-Refunded, 7.25%, 03/01/09............................ 676,190
800,000 Commonwealth, Series C, AMBAC Insured, 6.75%, 08/01/09......................................... 896,232
2,870,000 Commonwealth, Series C, AMBAC Insured, Pre-Refunded, 7.00%, 06/01/09........................... 3,246,429
1,000,000 Commonwealth, Series C, CGIC Insured, Pre-Refunded, 7.00%, 12/01/10............................ 1,140,630
4,000,000 Refunding, Series A, AMBAC Insured, 6.50%, 08/01/11............................................ 4,419,960
2,000,000 Refunding, Series B, MBIA Insured, 6.50%, 08/01/11............................................. 2,209,980
880,000 Refunding, Series C, AMBAC Insured, 6.75%, 08/01/09............................................ 985,855
Massachusetts Health & Educational Facilities Authority Revenue,
2,000,000 Berkshire Health System, Series A, MBIA Insured, 7.50%, 10/01/08............................... 2,260,880
4,000,000 Beverly Hospital, Lot 2, Series D, MBIA Insured, Pre-Refunded, 7.30%, 07/01/19................. 4,587,120
2,250,000 Boston College, Series J, FGIC Insured, 6.625%, 07/01/21....................................... 2,476,643
500,000 Brigham & Women's Hospital, Series C, MBIA Insured, 7.00%, 06/01/18............................ 554,195
5,545,000 Cape Cod Health System, Series A, Connie Lee Insured, 5.625%, 11/15/23......................... 5,354,529
1,000,000 Community College Program, Series A, CGIC Insured, 6.50%, 10/01/09............................. 1,067,710
1,250,000 Community College Program, Series A, Connie Lee Insured, 6.60%, 10/01/22....................... 1,334,213
5,250,000 Fallon Healthcare System, Series A, CGIC Insured, 6.875%, 06/01/11............................. 5,752,950
7,550,000 Fallon Healthcare System, Series A, CGIC Insured, 6.75%, 06/01/20.............................. 8,217,571
600,000 Fallon Healthcare System, Series A, CGIC Insured, 6.00%, 06/01/21.............................. 622,308
3,490,000 Lahey Clinic Medical Center, Series A, MBIA Insured, Pre-Refunded, 7.625%, 07/01/18............ 4,000,517
2,000,000 Lahey Clinic Medical Center, Series B, MBIA Insured, 5.625%, 07/01/15.......................... 1,974,140
5,000,000 Massachusetts General Hospital, MBIA Insured, Pre-Refunded, 7.75%, 07/01/20.................... 5,279,000
5,930,000 Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 07/01/20....................... 6,208,710
2,000,000 Metro West Health, Inc., Series C, AMBAC Insured, 6.40%, 11/15/11.............................. 2,142,140
5,400,000 Milton Hospital, Series B, MBIA Insured, 7.00%, 07/01/16....................................... 6,038,604
6,000,000 Mt. Auburn Hospital, Series 1988-A, MBIA Insured, 7.875%, 07/01/18............................. 6,816,360
1,000,000 New England Medical Center Hospitals, Series D, BIG Insured, Pre-Refunded,
7.20%, 07/01/10.............................................................................. 1,089,460
1,000,000 New England Medical Center Hospitals, Series F, FGIC Insured, 6.50%, 07/01/12.................. 1,078,650
5,750,000 New England Medical Center Hospitals, Series F, FGIC Insured, 6.625%, 07/01/25................. 6,206,493
1,000,000 (e)New England Medical Center Hospitals, Series G, MBIA Insured, 5.375%, 07/01/24................. 947,750
5,000,000 Newton-Wellesley Hospital, Series C, BIG Insured, 8.00%, 07/01/18.............................. 5,736,100
3,000,000 Newton-Wellesley Hospital, Series D, MBIA Insured, 7.00%, 07/01/15............................. 3,342,720
1,250,000 Northeastern University, Series D, AMBAC Insured, 7.125%, 10/01/10............................. 1,410,638
2,000,000 Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22............................... 2,184,220
1,900,000 Refunding, Beverly Hospital, Lot 1, Series D, MBIA Insured, 7.30%, 07/01/13.................... 2,136,550
2,200,000 Refunding, Children's Hospital, Series E, AMBAC Insured, 6.20%, 10/01/16....................... 2,289,848
3,400,000 Refunding, Dana-Farber Cancer Institute, Series F, FGIC Insured, 6.00%, 12/01/15............... 3,491,902
1,500,000 Refunding, Massachusetts General Hospital, Series F, AMBAC Insured, 6.00%, 07/01/15............ 1,539,525
</TABLE>
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Massachusetts Health & Educational Facilities Authority Revenue, (cont.)
$1,000,000 Refunding, Massachusetts General Hospital, Series G, AMBAC Insured, 5.25%, 07/01/23............ $ 938,860
550,000 Refunding, Metro West Health, Inc., Series C, AMBAC Insured, 6.30%, 11/15/12................... 581,504
890,000 Refunding, Stonehill College, Series E, MBIA Insured, 6.55%, 07/01/12.......................... 966,059
3,000,000 Refunding, Stonehill College, Series E, MBIA Insured, 6.60%, 07/01/20.......................... 3,276,870
2,600,000 Refunding, Wentworth Technology Institute, Series B, Connie Lee Insured, 5.625%,
10/01/13..................................................................................... 2,574,026
1,500,000 Refunding, Wentworth Technology Institute, Series B, Connie Lee Insured, 5.50%,
10/01/23..................................................................................... 1,424,475
2,750,000 Refunding, Worcester Polytech Institute, MBIA Insured, 6.625%, 09/01/17........................ 2,990,213
5,750,000 Salem Hospital, Series 1987-A, MBIA Insured, 7.25%, 07/01/09................................... 6,211,380
4,000,000 St. Elizabeth's Hospital of Boston, Series B, FHA Mortgage Insured, FGIC Insured,
Pre-Refunded, 7.75%, 08/01/27................................................................ 4,528,400
6,200,000 St. Luke's Hospital, New Bedford, Series B, AMBAC Insured, Pre-Refunded, 7.75%,
07/01/13..................................................................................... 7,013,254
1,025,000 Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.65%, 07/01/10...................... 1,209,972
515,000 Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.70%, 07/01/20...................... 609,333
3,250,000 Suffolk University, Series B, Connie Lee Insured, 6.35%, 07/01/22.............................. 3,364,010
1,500,000 University Hospital, Series C, MBIA Insured, 7.25%, 07/01/19................................... 1,697,445
1,820,000 Wentworth Institute of Technology, Series A, AMBAC Insured, Pre-Refunded, 7.40%,
04/01/10..................................................................................... 2,119,918
3,000,000 Wheaton College, Series B, CGIC Insured, 7.25%, 07/01/19....................................... 3,366,540
6,000,000 Massachusetts Municipal Wholesale Electric Co., Power Supply System Revenue, Series A,
AMBAC Insured, 6.00%, 07/01/18................................................................. 6,109,320
Massachusetts State HFA,
430,000 MFHR, Section 8 Assisted, Series 1979-A, FGIC Insured, ETM 04/01/19, 7.00%, 04/01/21........... 493,528
2,930,000 MFHR, Series 1985-A, MBIA Insured, 8.875%, 07/01/18............................................ 3,095,399
Massachusetts State HFA, Housing Revenue,
2,700,000 MFHR, Series 1985-A, MBIA Insured, 9.25%, 12/01/14............................................. 2,893,266
3,000,000 Rental Housing, Series One, AMBAC Insured, 7.20%, 08/01/26..................................... 3,223,140
150,000 Series 1985-A, FGIC Insured, 9.50%, 12/01/16................................................... 156,470
4,100,000 Series 1986-A, MBIA Insured, 7.50%, 12/01/06................................................... 4,454,322
1,975,000 Series 1988-8, BIG Insured, 7.70%, 06/01/17.................................................... 2,125,910
255,000 SFHR, Series 1985-1, FGIC Insured, 9.375%, 06/01/12............................................ 263,808
1,800,000 SFHR, Series 1986-2, FGIC Insured, 8.25%, 06/01/14............................................. 1,878,606
1,500,000 SFMR, Series 18, MBIA Insured, 7.35%, 12/01/16................................................. 1,643,265
15,000 Massachusetts State HFA, SFM, Series 1984-A, FGIC Insured, 11.00%, 12/01/09...................... 15,557
Massachusetts State Industrial Finance Agency Revenue,
750,000 Babson College, Series A, MBIA Insured, 6.375%, 10/01/09....................................... 804,510
3,105,000 Babson College, Series A, MBIA Insured, 6.50%, 10/01/22........................................ 3,312,693
7,075,000 Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19................................... 7,827,073
1,000,000 Milton Hospital, Series A, MBIA Insured, Pre-Refunded, 7.25%, 09/01/19......................... 1,153,260
Massachusetts State Port Authority Revenue,
115,000 Refunding, Series B, FGIC Insured, 9.375%, 07/01/15............................................ 125,602
285,000 Refunding, Series B, FGIC Insured, Pre-Refunded, 9.375%, 07/01/15.............................. 312,172
5,200,000 Series A, FGIC Insured, 7.50%, 07/01/20........................................................ 5,911,568
</TABLE>
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Millis School Project, GO,
$ 270,000 Unlimited Tax, AMBAC Insured, 7.40%, 05/01/06.................................................. $ 307,595
270,000 Unlimited Tax, AMBAC Insured, 7.40%, 05/01/07.................................................. 307,595
270,000 Unlimited Tax, AMBAC Insured, 7.40%, 05/01/08.................................................. 305,294
270,000 Unlimited Tax, AMBAC Insured, 7.40%, 05/01/09.................................................. 306,212
300,000 North Andover Municipal Purpose, Limited Tax, MBIA Insured, 7.40%, 09/15/09...................... 346,899
North Attleborough GO,
125,000 Limited Tax, AMBAC Insured, 7.05%, 06/01/06.................................................... 140,978
125,000 Limited Tax, AMBAC Insured, 7.10%, 06/01/07.................................................... 141,309
125,000 Limited Tax, AMBAC Insured, 7.15%, 06/01/08.................................................... 141,641
125,000 Limited Tax, AMBAC Insured, 7.20%, 06/01/09.................................................... 141,684
Northfolk GO,
450,000 AMBAC Insured, 6.00%, 01/15/10................................................................. 464,085
425,000 AMBAC Insured, 6.00%, 01/15/11................................................................. 438,303
375,000 AMBAC Insured, 6.00%, 01/15/12................................................................. 385,204
300,000 AMBAC Insured, 6.00%, 01/15/13................................................................. 308,163
1,500,000 Palmer GO, Refunding, MBIA Insured, 5.50%, 10/01/10.............................................. 1,498,305
Peabody GO,
500,000 Electric Light, AMBAC Insured, 6.75%, 08/01/05................................................. 561,465
750,000 Electric Light, AMBAC Insured, 6.85%, 08/01/06................................................. 841,823
500,000 Electric Light, AMBAC Insured, 6.90%, 08/01/07................................................. 559,450
555,000 Electric Light, AMBAC Insured, 6.95%, 08/01/08................................................. 620,856
1,900,000 Puerto Rico Commonwealth, Public Improvement, MBIA Insured, Pre-Refunded, 6.50%,
07/01/09....................................................................................... 2,159,426
Puerto Rico HFC, SFMR,
2,840,000 Portfolio No. 1, Series 1988-A, GNMA Mortgage Backed Securities, 7.80%, 10/15/21............... 3,008,298
1,030,000 Portfolio No. 1, Series 1988-B, GNMA Mortgage Backed Securities, 7.65%, 10/15/22............... 1,076,680
Quabbin Regional School District, GO,
275,000 AMBAC Insured, 7.00%, 06/15/04................................................................. 309,573
275,000 AMBAC Insured, 7.00%, 06/15/05................................................................. 308,781
275,000 AMBAC Insured, 7.00%, 06/15/06................................................................. 307,989
275,000 AMBAC Insured, 7.00%, 06/15/07................................................................. 307,200
275,000 AMBAC Insured, 7.00%, 06/15/08................................................................. 307,200
250,000 AMBAC Insured, 7.00%, 06/15/09................................................................. 279,415
Quincy Massachusetts Revenue, Quincy City Hospital, FHA Mortgage Insured,
1,500,000 Series A, FGIC Insured, Pre-Refunded, 7.75%, 01/15/06.......................................... 1,657,845
3,475,000 Series A, FGIC Insured, Pre-Refunded, 7.875%, 01/15/16......................................... 3,846,200
Rochester School GO,
150,000 Lot B, MBIA Insured, 7.30%, 04/01/04........................................................... 169,985
150,000 Lot B, MBIA Insured, 7.30%, 04/01/05........................................................... 169,620
150,000 Lot B, MBIA Insured, 7.30%, 04/01/06........................................................... 169,259
150,000 Lot B, MBIA Insured, 7.30%, 04/01/07........................................................... 168,896
150,000 Lot B, MBIA Insured, 7.30%, 04/01/08........................................................... 168,536
120,000 Lot B, MBIA Insured, 7.30%, 04/01/09........................................................... 134,598
</TABLE>
The accompanying notes are an integral part of these financial statements.
66
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Salem GO,
$ 425,000 AMBAC Insured, 6.70%, 08/15/05................................................................. $ 473,323
500,000 AMBAC Insured, 6.80%, 08/15/07................................................................. 558,265
470,000 MBIA Insured, 5.20%, 07/15/11.................................................................. 453,813
470,000 MBIA Insured, 5.20%, 07/15/12.................................................................. 450,655
3,000,000 Somerville Housing Authority Revenue, Clarendon Hill, GNMA Mortgage Backed Securities,
7.95%, 11/20/30................................................................................ 3,276,750
2,375,000 Southbridge GO, AMBAC Insured, 6.375%, 01/01/12.................................................. 2,528,924
330,000 South Essex Sewer District, AMBAC Insured, 6.25%, 11/01/11....................................... 353,684
Tyngsborough GO,
600,000 School Project Loan, AMBAC Insured, 6.90%, 05/15/09............................................ 676,404
600,000 School Project Loan, AMBAC Insured, 6.90%, 05/15/10............................................ 676,403
2,000,000 Westfield School District GO, AMBAC Insured, 7.10%, 12/015/08.................................... 2,240,180
Westford GO,
800,000 FGIC Insured, 7.60%, 10/15/10.................................................................. 949,695
2,000,000 Refunding, AMBAC Insured, 5.45%, 10/15/10...................................................... 1,976,220
Whately GO,
215,000 AMBAC Insured, 6.20%, 01/15/07................................................................. 231,285
215,000 AMBAC Insured, 6.30%, 01/15/08................................................................. 231,932
200,000 AMBAC Insured, 6.40%, 01/15/10................................................................. 216,485
Whitman GO, Various Purpose Loan,
250,000 MBIA Insured, Pre-Refunded, 7.60%, 06/15/04.................................................... 275,920
250,000 MBIA Insured, Pre-Refunded, 7.60%, 06/15/05.................................................... 275,920
150,000 MBIA Insured, Pre-Refunded, 7.60%, 06/15/06.................................................... 165,551
25,000 Worcester GO, Various Purpose Loan, AMBAC Insured, 9.70%, 07/01/02............................... 25,972
------------
LONG TERM INVESTMENTS (COST $274,812,931).................................................. 300,479,483
------------
(g)SHORT TERM INVESTMENTS .2%
700,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and
Put, 2.25%, 12/01/15 (Cost $700,000)........................................................... 700,000
------------
TOTAL INVESTMENTS (COST $275,512,931) 98.1%........................................... 301,179,483
OTHER ASSETS AND LIABILITIES, NET 1.9%................................................ 5,833,575
------------
NET ASSETS 100.0%..................................................................... $307,013,058
============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $275,535,282 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost............................................................. $ 26,146,893
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value............................................................. (502,692)
------------
Net unrealized appreciation.................................................................. $ 25,644,201
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Corp.
IDAR - Industrial Development Authority/Agency Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
SFHR - Single Family Housing Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
(e) See Note 1 regarding securities purchased on a when-issued basis.
(g) Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate). The accompanying notes are an integral part of these financial
statements.
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.8%
$ 995,000 Alpena County GO, Hospital Improvement, Refunding, Series 1985-B, AMBAC Insured,
Pre-Refunded, 8.75%, 06/01/02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,077,764
5,000,000 Anchor Bay School District GO, FGIC Insured, 5.55%, 05/01/19 . . . . . . . . . . . . . 4,860,950
530,000 Battle Creek, Limited Tax GO, Refunding, AMBAC Insured, 8.25%, 04/01/97 . . . . . . . . 547,050
1,135,000 Bay City GO, Refunding, AMBAC Insured, 5.20%, 09/01/12 . . . . . . . . . . . . . . . . 1,078,114
Bay City Electric Utility Revenue,
3,100,000 AMBAC Insured, 6.60%, 01/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,356,308
2,000,000 Refunding, AMBAC Insured, Pre-Refunded, 7.30%, 01/01/05 . . . . . . . . . . . . . . . 2,209,780
Belding Area School,
375,000 Series B, AMBAC Insured, 6.15%, 05/01/13 . . . . . . . . . . . . . . . . . . . . . . 390,476
675,000 Series B, AMBAC Insured, 6.15%, 05/01/14 . . . . . . . . . . . . . . . . . . . . . . 702,857
1,450,000 Breckenridge Community School District, AMBAC Insured, 5.75%, 05/01/23 . . . . . . . . 1,447,825
Breitung Township School District,
7,500,000 CGIC Insured, Pre-Refunded, 7.20%, 05/01/19 . . . . . . . . . . . . . . . . . . . . . 8,512,125
2,935,000 MBIA Insured, 6.30%, 05/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,094,488
Caledonia Community Schools,
3,750,000 Refunding, AMBAC Insured, 6.625%, 05/01/14 . . . . . . . . . . . . . . . . . . . . . 4,095,263
15,560,000 Refunding, AMBAC Insured, 5.50%, 05/01/22 . . . . . . . . . . . . . . . . . . . . . . 15,040,296
1,290,000 Calhoun County, Western Calhoun County Sanitary Sewer System No. 1, Township of Emmett,
Refunding, AMBAC Insured, Pre-Refunded, 7.75%, 11/01/18 . . . . . . . . . . . . . . . 1,478,585
5,000,000 Central Michigan University Revenue, MBIA Insured, Pre-Refunded, 7.90%, 10/01/15 . . . 5,710,800
Chippewa Valley School District,
500,000 BIG Insured, Pre-Refunded, 7.40%, 05/01/07 . . . . . . . . . . . . . . . . . . . . . 564,725
500,000 BIG Insured, Pre-Refunded, 7.40%, 05/01/08 . . . . . . . . . . . . . . . . . . . . . 564,725
500,000 BIG Insured, Pre-Refunded, 7.40%, 05/01/09 . . . . . . . . . . . . . . . . . . . . . 564,725
500,000 BIG Insured, Pre-Refunded, 7.40%, 05/01/10 . . . . . . . . . . . . . . . . . . . . . 564,725
9,845,000 FGIC Insured, Pre-Refunded, 6.375%, 05/01/15 . . . . . . . . . . . . . . . . . . . . 10,941,733
6,750,000 FGIC Insured, Pre-Refunded, 6.375%, 05/01/21 . . . . . . . . . . . . . . . . . . . . 7,501,950
3,000,000 Comstock Park Public Schools, Refunding, School Building & Site, FGIC Insured, 5.25%,
05/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,838,570
65,000 Coopersville Area Public Schools, Counties of Ottawa & Muskegon, MBIA Insured,
Pre-Refunded, 8.60%, 05/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,104
Dearborn EDC Revenue, Oakwood Hospital,
11,400,000 Series A, MBIA Insured, 6.95%, 08/15/21 . . . . . . . . . . . . . . . . . . . . . . . 13,194,474
3,000,000 Refunding, Series A, MBIA Insured, 5.25%, 08/15/14 . . . . . . . . . . . . . . . . . 2,824,320
2,535,000 Refunding, Series A, MBIA Insured, 5.25%, 08/15/21 . . . . . . . . . . . . . . . . . 2,331,566
13,050,000 Detroit City Water Supply System Revenue, MBIA Insured, Pre-Refunded, 7.875%, 07/01/19 15,114,249
3,680,000 Detroit Convention Facility Revenue, Limited Tax, Cobo Hall Expansion, MBIA Insured,
9.00%, 09/30/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,892,594
Detroit Sewage Disposal System Revenue,
1,330,000 AMBAC Insured, Pre-Refunded, 10.625%, 12/15/09 . . . . . . . . . . . . . . . . . . . 1,447,333
1,000,000 FGIC Insured, 6.625%, 07/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080,360
10,300,000 FGIC Insured, Pre-Refunded, 7.125%, 07/01/19 . . . . . . . . . . . . . . . . . . . . 11,686,895
3,500,000 FGIC Insured, Pre-Refunded, 7.25%, 07/01/20 . . . . . . . . . . . . . . . . . . . . . 4,055,625
4,000,000 Refunding, BIG Insured, 7.00%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . . . 4,354,160
500,000 Refunding, BIG Insured, Pre-Refunded, 8.00%, 07/01/08 . . . . . . . . . . . . . . . . 569,430
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 6,000,000 Detroit State Aid GO, AMBAC Insured, Pre-Refunded, 7.20%, 05/01/09 . . . . . . . . . . $ 6,877,080
Detroit Water Supply System Revenue,
5,000,000 FGIC Insured, 6.25%, 07/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,211,750
4,960,000 FGIC Insured, Pre-Refunded, 7.125%, 07/01/10 . . . . . . . . . . . . . . . . . . . . 5,713,771
DeWitt Public Schools Building & Site,
350,000 AMBAC Insured, Pre-Refunded, 6.60%, 05/01/15 . . . . . . . . . . . . . . . . . . . . 392,592
350,000 AMBAC Insured, Pre-Refunded, 6.60%, 05/01/16 . . . . . . . . . . . . . . . . . . . . 392,592
1,250,000 East Lansing Building Authority, GO, Refunding, AMBAC Insured, 7.00%, 10/01/16 . . . . 1,392,988
Eastern Michigan University Revenue,
1,000,000 Refunding, AMBAC Insured, 6.375%, 06/01/14 . . . . . . . . . . . . . . . . . . . . . 1,071,150
2,105,000 Refunding, Residence Hall, FGIC Insured, 7.875%, 10/01/10 . . . . . . . . . . . . . . 2,293,692
4,500,000 Refunding, Special Project, Student Fee, FGIC Insured, Pre-Refunded, 7.875%,
10/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,967,595
Farmington Hills Building Authority,
225,000 Limited Tax, MBIA Insured, Pre-Refunded, 8.40%, 11/01/02 . . . . . . . . . . . . . . 237,465
265,000 Limited Tax, MBIA Insured, Pre-Refunded, 8.50%, 11/01/03 . . . . . . . . . . . . . . 279,851
10,140,000 Farmington Hills Hospital Finance Authority Revenue, Refunding, Botsford General
Hospital, Series A, MBIA Insured, 7.10%, 02/15/14 . . . . . . . . . . . . . . . . . . 11,353,961
Ferris State College Revenue,
1,000,000 AMBAC Insured, 6.15%, 10/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,040,260
1,000,000 AMBAC Insured, 6.25%, 10/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,044,340
7,700,000 Flint Hospital Building Authority Revenue, Refunding, Hurley Medical Center,
Series A, BIG Insured, 7.75%, 07/01/00 . . . . . . . . . . . . . . . . . . . . . . . 8,432,963
Fowlerville Community School District,
645,000 Refunding, FGIC Insured, 5.50%, 05/01/13 . . . . . . . . . . . . . . . . . . . . . . 648,148
2,150,000 Refunding, FGIC Insured, 5.75%, 05/01/20 . . . . . . . . . . . . . . . . . . . . . . 2,151,548
4,425,000 Gaylord Community Schools, Refunding, MBIA Insured, 5.625%, 05/01/21 . . . . . . . . . 4,415,442
Gerrish & Higgins School District, Building & Site,
3,000,000 CGIC Insured, 6.40%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,236,130
2,500,000 CGIC Insured, 6.50%, 05/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,703,750
4,000,000 Gibraltar School District GO, CGIC Insured, 7.00%, 05/01/15 . . . . . . . . . . . . . . 4,445,080
Grand Rapids Water Supply System Revenue,
5,375,000 FGIC Insured, Pre-Refunded, 7.25%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . 6,191,624
4,500,000 MBIA Insured, Pre-Refunded, 7.875%, 01/01/18 . . . . . . . . . . . . . . . . . . . . 5,153,985
Grand Traverse County Hospital Finance Authority Revenue,
5,500,000 Munson Medical Center, Series A, FGIC Insured, Pre-Refunded, 7.625%, 12/01/15 . . . . 6,117,155
2,500,000 Refunding, Munson Healthcare, Series A, AMBAC Insured, 6.25%, 07/01/12 . . . . . . . 2,635,800
2,900,000 Refunding, Munson Healthcare, Series A, AMBAC Insured, 6.25%, 07/01/22 . . . . . . . 3,041,259
3,000,000 Gratiot County EDC, EDR, Masonic Home Project, AMBAC Insured, Pre-Refunded, 7.375%,
04/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,481,740
2,750,000 Gull Lake Community School District, FGIC Insured, Pre-Refunded, 6.80%, 05/01/21 . . . 3,136,485
Haslett Public School District,
4,000,000 CGIC Insured, Pre-Refunded, 7.50%, 05/01/20 . . . . . . . . . . . . . . . . . . . . . 4,645,120
3,875,000 Refunding, CGIC Insured, 6.625%, 05/01/19 . . . . . . . . . . . . . . . . . . . . . . 4,291,408
2,000,000 Holland School District GO, Refunding, AMBAC Insured, 6.375%, 05/01/10 . . . . . . . . 2,140,980
</TABLE>
The accompanying notes are an integral part of these financial statements.
70
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Holt Public Schools Building & Site,
$ 1,000,000 MBIA Insured, 6.25%, 05/01/16. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,057,580
3,060,000 MBIA Insured, 6.25%, 05/01/18. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,236,195
2,525,000 MBIA Insured, 6.30%, 05/01/20. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,677,788
1,275,000 MBIA Insured, 6.50%, 05/01/21. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,367,081
Houghton-Portage Township School District,
2,000,000 Refunding, AMBAC Insured, 6.00%, 05/01/14. . . . . . . . . . . . . . . . . . . . . . 2,078,380
2,700,000 Refunding, CGIC Insured, Pre-Refunded, 7.00%, 05/01/17 . . . . . . . . . . . . . . . 3,000,429
5,695,000 Howell Public Schools, Refunding, AMBAC Insured, 5.375%, 05/01/20. . . . . . . . . . . 5,414,806
750,000 Hudsonville Building Authority, Refunding, AMBAC Insured, 6.60%, 10/01/17. . . . . . . 805,455
6,300,000 Huron Valley School District, Refunding, FGIC Insured, 6.125%, 05/01/20. . . . . . . . 6,602,967
6,800,000 Imlay City Community School District, Refunding, CGIC Insured, Pre-Refunded, 6.70%,
05/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,543,648
Ingham County Medical Center Revenue,
475,000 Refunding, FGIC Insured, Pre-Refunded, 8.25%, 05/01/00 . . . . . . . . . . . . . . . 519,398
500,000 Refunding, FGIC Insured, Pre-Refunded, 8.25%, 11/01/00 . . . . . . . . . . . . . . . 546,735
Inkster Michigan School District,
1,500,000 Refunding, AMBAC Insured, 5.50%, 05/01/13. . . . . . . . . . . . . . . . . . . . . . 1,466,895
450,000 Series 1990, AMBAC Insured, Pre-Refunded, 7.00%, 05/01/14. . . . . . . . . . . . . . 512,348
450,000 Series 1990, AMBAC Insured, Pre-Refunded, 7.00%, 05/01/16. . . . . . . . . . . . . . 512,348
2,250,000 Iron Mountain School District, Building & Site, AMBAC Insured, 6.30%, 05/01/21 . . . . 2,379,285
1,350,000 Ithaca Public Schools GO, AMBAC Insured, 5.75%, 05/01/21 . . . . . . . . . . . . . . . 1,366,376
Jackson County GO,
3,000,000 (e)Refunding, AMBAC Insured, 5.50%, 04/01/13. . . . . . . . . . . . . . . . . . . . . 2,996,340
420,000 Refunding, Series 1987, MBIA Insured, 6.75%, 04/01/12. . . . . . . . . . . . . . . . 459,165
400,000 Series 1985, FGIC Insured, Pre-Refunded, 8.60%, 04/01/12 . . . . . . . . . . . . . . 472,764
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue,
3,500,000 Refunding, Borgess Medical Center, FGIC Insured, Pre-Refunded, 9.125%, 01/01/16 . . . 3,822,525
5,150,000 Refunding, Borgess Medical Center, Series A, FGIC Insured, 5.25%, 06/01/17. . . . . . 4,821,636
5,000,000 Refunding & Improvement, Bronson Methodist, Series A, MBIA Insured, 6.25%, 05/15/12 . 5,220,450
2,460,000 Refunding & Improvement, Bronson Methodist, Series A, MBIA Insured, 6.375%, 05/15/17. 2,593,627
1,000,000 Kelloggsville Public School District GO, FGIC Insured, 5.75%, 05/01/13. . . . . . . . . 1,019,200
2,100,000 Kent County Hospital Finance Authority Revenue, Pine Rest Christian Hospital
Association, FGIC Insured, Pre-Refunded, 9.00%, 11/01/10 . . . . . . . . . . . . . . 2,321,298
Lake City Area School District GO,
2,500,000 AMBAC Insured, Pre-Refunded, 6.95%, 05/01/13. . . . . . . . . . . . . . . . . . . . . 2,770,100
2,955,000 Refunding, AMBAC Insured, 5.625%, 05/01/13. . . . . . . . . . . . . . . . . . . . . . 2,987,682
2,135,000 Lake Superior State University Revenue, MBIA Insured, 6.50%, 11/15/11 . . . . . . . . . 2,322,090
1,500,000 Lakeview Community School District GO, Refunding, MBIA Insured, 6.75%, 05/01/13 . . . . 1,663,710
Lansing Sewage Disposal System Revenue,
12,500,000 Refunding, Series 1988, MBIA Insured, 7.625%, 05/01/06. . . . . . . . . . . . . . . . 13,694,125
1,500,000 Series 1985, MBIA Insured, Pre-Refunded, 9.25%, 05/01/06. . . . . . . . . . . . . . . 1,640,400
Livonia Public School District,
10,415,000 Refunding, FGIC Insured, 5.50%, 05/01/16. . . . . . . . . . . . . . . . . . . . . . . 10,166,706
3,625,000 Refunding, FGIC Insured, 5.50%, 05/01/21. . . . . . . . . . . . . . . . . . . . . . . 3,505,738
3,500,000 Series II, FGIC Insured, Pre-Refunded, 6.30%, 05/01/22. . . . . . . . . . . . . . . . 3,897,950
</TABLE>
The accompanying notes are an integral part of these financial statements.
71
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 1,000,000 Marquette Area Public School Building & Site, Series B, FGIC Insured, Pre-Refunded,
6.65%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,134,790
5,000,000 Marquette City Hospital Finance Authority Revenue, Refunding, Marquette General
Hospital, Series C, AMBAC Insured, 7.50%, 04/01/07 . . . . . . . . . . . . . . . . . 5,650,200
Mattawan Consolidated School District, Counties of Van Buren and Kalamazoo, School
Building & Site, GO,
775,000 Unlimited Tax, AMBAC Insured, Pre-Refunded, 7.50%, 05/01/13 . . . . . . . . . . . . . 881,268
775,000 Unlimited Tax, AMBAC Insured, Pre-Refunded, 7.55%, 05/01/16 . . . . . . . . . . . . . 882,725
800,000 Unlimited Tax, AMBAC Insured, Pre-Refunded, 7.55%, 05/01/17 . . . . . . . . . . . . . 911,200
800,000 Unlimited Tax, AMBAC Insured, Pre-Refunded, 7.55%, 05/01/18 . . . . . . . . . . . . . 911,200
1,675,000 Menominee Area Public School District, Refunding, AMBAC Insured, 6.00%, 05/01/20 . . . 1,738,298
Michigan Higher Education Student Loan Authority Revenue,
2,000,000 Series 8-A, MBIA Insured, 7.40%, 10/01/04 . . . . . . . . . . . . . . . . . . . . . . 2,166,920
2,000,000 Series 8-A, MBIA Insured, 7.55%, 10/01/08 . . . . . . . . . . . . . . . . . . . . . . 2,156,880
Michigan Municipal Bond Authority Revenue,
1,400,000 Local Government Loan Program, Group 2, BIG Insured, Pre-Refunded, 7.30%, 05/01/16 . 1,525,972
720,000 Local Government Loan Program, Series A, AMBAC Insured, 5.75%, 05/01/08 . . . . . . . 744,869
290,000 Local Government Loan Program, Series A, AMBAC Insured, 5.875%, 05/01/13 . . . . . . 297,476
850,000 Local Government Loan Program, Series A, Group 15, AMBAC Insured, 7.60%, 05/01/09 . . 963,603
1,000,000 Local Government Loan Program, Wayne County Project, Series A, FGIC Insured, 7.00%,
12/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,109,200
2,015,000 Refunding, Local Government Loan Program, Series B, AMBAC Insured, 5.70%, 11/11/16 . 2,014,819
Michigan Public Power Agency Revenue,
10,310,000 Refunding, Belle River Project, AMBAC Insured, Pre-Refunded, 7.25%, 01/01/12 . . . . 11,120,469
4,300,000 Refunding, Belle River Project, AMBAC Insured, Pre-Refunded, 7.00%, 01/01/18 . . . . 4,586,982
1,900,000 Refunding, Campbell Project, AMBAC Insured, 6.125%, 01/01/10 . . . . . . . . . . . . 1,949,457
Michigan State Building Authority Revenue,
10,000,000 Detroit Regional Prisons, Series I, MBIA Insured, Pre-Refunded, 7.25%, 10/01/08 . . . 11,366,700
1,000,000 Refunding, University of Michigan, Adult General Hospital, AMBAC Insured,
Pre-Refunded, 7.375%, 12/01/00 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,107,180
5,625,000 Refunding, University of Michigan, Adult General Hospital, BIG Insured, Pre-Refunded,
7.875%, 12/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,292,294
5,000,000 Series II, MBIA Insured, ETM 04/01/98, 7.40%, 04/01/01 . . . . . . . . . . . . . . . 5,758,100
4,645,000 Series II, MBIA Insured, 6.25%, 10/01/20 . . . . . . . . . . . . . . . . . . . . . . 4,983,388
Michigan State Comprehensive Transportation Revenue,
1,940,000 Refunding, Series 1986-II, FGIC Insured, Pre-Refunded, 7.625%, 08/01/05 . . . . . . . 2,110,798
1,000,000 Refunding, Series 1986-II, FGIC Insured, Pre-Refunded, 7.75%, 08/01/11 . . . . . . . 1,091,270
1,750,000 Refunding, Series 1988-II, FGIC Insured, 7.625%, 05/01/11 . . . . . . . . . . . . . . 1,941,625
Michigan State HDA, Limited Obligation Revenue,
3,200,000 Mercy Bellbrook Project, MBIA Insured, Pre-Refunded, 8.00%, 04/01/07 . . . . . . . . 3,622,496
1,200,000 Mercy Bellbrook Project, MBIA Insured, Pre-Refunded, 8.125%, 04/01/18 . . . . . . . . 1,358,988
Michigan State HDA, MFHR,
50,000 Series 1985-A, FGIC Insured, 8.625%, 07/01/03 . . . . . . . . . . . . . . . . . . . . 52,607
2,990,000 Series 1985-A, FGIC Insured, 8.875%, 07/01/17 . . . . . . . . . . . . . . . . . . . . 3,124,161
5,750,000 Series 1987-A, FGIC Insured, 8.375%, 07/01/19 . . . . . . . . . . . . . . . . . . . . 6,090,400
4,415,000 Series 1988-A, FGIC Insured, 7.70%, 07/01/18 . . . . . . . . . . . . . . . . . . . . 4,733,189
</TABLE>
The accompanying notes are an integral part of these financial statements.
72
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Michigan State HDA, MFHR, (cont.)
$ 2,880,000 Series 1989-A, FGIC Insured, 7.55%, 07/01/09 . . . . . . . . . . . . . . . . . . . . $ 3,090,989
2,945,000 Series 1989-A, FGIC Insured, 7.65%, 07/01/15 . . . . . . . . . . . . . . . . . . . . 3,173,915
490,000 Michigan State HDA, Section 8 Assisted, Mortgage Revenue, Series 1983-1, FGIC Insured,
10.25%, 04/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506,062
9,000,000 Michigan State HDA, SFHR, Series 1986-A, FGIC Insured, 8.00%, 10/01/06 . . . . . . . . 9,358,290
1,800,000 Michigan State HDA, SFMR, Series 1978, FGIC Insured, 6.30%, 04/01/11 . . . . . . . . . 1,801,764
Michigan State Hospital Finance Authority Revenue,
1,750,000 Crittenton Hospital, FGIC Insured, 6.75%, 03/01/20 . . . . . . . . . . . . . . . . . 1,917,458
2,000,000 Crittenton Hospital, Series A, FGIC Insured, 7.125%, 12/01/06 . . . . . . . . . . . 2,180,200
4,295,000 Crittenton Hospital, Series A, FGIC Insured, Pre-Refunded, 7.25%, 12/01/13 . . . . . 4,722,653
1,795,000 Daughters of Charity, Providence Hospital, FGIC Insured, 10.00%, 11/01/15 . . . . . 1,995,986
1,000,000 Henry Ford Hospital, Series 1985-A, FGIC Insured, Pre-Refunded, 7.50%, 07/01/13 . . . 1,107,330
3,500,000 MidMichigan Hospital, MBIA Insured, 6.625%, 06/01/10 . . . . . . . . . . . . . . . . 3,820,950
8,750,000 Mt. Sinai Hospital of Detroit, FGIC Insured, 7.00%, 01/01/09 . . . . . . . . . . . . 9,439,938
9,020,000 Oakland General Hospital, AMBAC Insured, 7.00%, 07/01/15 . . . . . . . . . . . . . . 10,013,282
10,000,000 Oakwood Hospital, FGIC Insured, 7.20%, 11/01/15 . . . . . . . . . . . . . . . . . . . 11,576,200
2,200,000 Oakwood Hospital, FGIC Insured, Pre-Refunded, 7.00%, 07/01/10 . . . . . . . . . . . . 2,512,884
13,250,000 Oakwood Hospital, FGIC Insured, Pre-Refunded, 7.10%, 07/01/18 . . . . . . . . . . . . 15,206,230
7,635,000 Pontiac Osteopathic, Series B, AMBAC Insured, Pre-Refunded, 7.75%, 02/01/05 . . . . . 8,427,437
35,000 Refunding, Edward W. Sparrow Hospital, MBIA Insured, Pre-Refunded, 8.70%,
06/01/03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,890
2,695,000 Refunding, Edward W. Sparrow Hospital, MBIA Insured, Pre-Refunded, 8.75%,
06/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,919,170
8,000,000 Refunding, Oakwood Hospital, Group A, FGIC Insured, 5.50%, 11/01/13 . . . . . . . . . 7,802,400
10,400,000 Refunding, Oakwood Hospital, Group A, FGIC Insured, 5.625%, 11/01/18 . . . . . . . . 10,242,336
2,000,000 Refunding, Sisters of Mercy Health Corp., Series H, MBIA Insured, 7.50%,
08/15/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,231,040
3,445,000 Refunding, St. John's Hospital, Series A, AMBAC Insured, 6.00%, 05/15/13 . . . . . . 3,540,771
9,545,000 Refunding, St. John's Hospital, Series A, AMBAC Insured, 6.25%, 05/15/14 . . . . . . 10,006,119
50,000 Sisters of Mercy Health Corp., Series E, FGIC Insured, 10.50%, 07/01/14 . . . . . . . 51,940
880,000 Sisters of Mercy Health Corp., Series E, FGIC Insured, Pre-Refunded,
10.50%, 07/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 918,658
2,455,000 Sisters of Mercy Health Corp., Series G, FGIC Insured, Pre-Refunded, 7.00%,
07/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,669,592
4,900,000 Sisters of Mercy Health Corp., Series H, MBIA Insured, 7.50%, 08/15/13 . . . . . . . 5,464,382
1,500,000 Sparrow Obligation Group, MBIA Insured, 6.50%, 11/15/11 . . . . . . . . . . . . . . . 1,598,580
4,500,000 St. Joseph's Hospital Corp., Series A, FGIC Insured, 8.125%, 07/01/05 . . . . . . . . 4,833,675
3,000,000 Michigan State South Central Power Agency, Power Supply System Revenue, Refunding,
AMBAC Insured, Pre-Refunded, 7.25%, 11/01/06 . . . . . . . . . . . . . . . . . . . . 3,300,630
Michigan State Strategic Fund, Limited Obligation Revenue,
3,000,000 Refunding, Detroit Edison Co., AMBAC Insured, 7.00%, 05/01/21 . . . . . . . . . . . . 3,635,190
5,000,000 Refunding, Detroit Edison Co., FGIC Insured, 6.95%, 05/01/11 . . . . . . . . . . . . 5,834,550
20,000,000 Refunding, Detroit Edison Co., FGIC Insured, 6.875%, 12/01/21 . . . . . . . . . . . . 21,960,600
1,285,000 Refunding, Detroit Edison Co., Series BB, MBIA Insured, 6.05,10/01/23 . . . . . . . . 1,316,084
5,540,000 Refunding, Detroit Edison Co., Series CC, FGIC Insured, 6.95%, 09/01/21 . . . . . . . 6,097,490
5,825,000 Refunding, Detroit Edison Co., Series CC, MBIA Insured, 6.05%, 10/01/23 . . . . . . . 5,965,907
1,800,000 St. John-Bon Secours Care Center, FGIC Insured, 7.90%, 11/15/16 . . . . . . . . . . . 2,007,540
6,000,000 Michigan State Trunk Line GO, Refunding Series B-2, MBIA Insured, 5.50%, 10/01/21 . . . 5,850,180
2,500,000 Monroe County EDC, Limited Obligation Revenue, Monroe Community Health Services,
MBIA Insured, Pre-Refunded, 7.00%, 09/01/21 . . . . . . . . . . . . . . . . . . . . . 2,828,375
</TABLE>
The accompanying notes are an integral part of these financial statements.
73
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Monroe County PCR,
$ 4,000,000 Detroit Edison Co., Series 1, MBIA Insured, 6.875%, 09/01/22 . . . . . . . . . . . . $ 4,365,120
9,420,000 Detroit Edison Co., Series A, AMBAC Insured, 9.625%, 12/01/15 . . . . . . . . . . . . 10,575,175
10,000,000 Detroit Edison Co., Series C, AMBAC Insured, 7.50%, 12/01/19 . . . . . . . . . . . . 11,350,200
1,150,000 Detroit Edison Co., Series CC, MBIA Insured, 6.55%, 06/01/24 . . . . . . . . . . . . 1,226,211
Mount Clemens Community School District,
10,000 AMBAC Insured, 9.30%, 05/01/99 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,066
1,250,000 MBIA Insured, Pre-Refunded, 6.60%, 05/01/20 . . . . . . . . . . . . . . . . . . . . . 1,417,163
2,040,000 Refunding, MBIA Insured, 5.50%, 05/01/19 . . . . . . . . . . . . . . . . . . . . . . 1,975,067
3,200,000 North Branch Area Schools, Lapeer County Building & Site, Refunding, CGIC Insured,
Pre-Refunded, 6.60%, 05/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,627,936
Northern Michigan University Revenue,
1,715,000 AMBAC Insured, 5.60%, 12/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,712,788
1,000,000 AMBAC Insured, 6.55%, 12/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093,310
1,000,000 (e)Norway Electric Utilities System Revenue, Refunding, AMBAC Insured, 5.375%,
02/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974,710
4,750,000 Novi Community School District, FGIC Insured, 6.125%, 05/01/18 . . . . . . . . . . . . 4,978,428
3,500,000 Oakland Community College District, Washtenaw County, AMBAC Insured, Pre-Refunded,
6.65%, 05/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,992,520
7,165,000 Oakland County EDC, EDR, FHA Mortgage Insured, Series A, FGIC Insured, 8.00%,
08/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,594,613
4,750,000 Oak Park GO, Refunding, AMBAC Insured, 5.50%, 05/01/12 . . . . . . . . . . . . . . . . 4,701,218
Okemos Public School District,
5,390,000 Refunding, MBIA Insured, 5.50%, 05/01/11 . . . . . . . . . . . . . . . . . . . . . . 5,324,781
3,000,000 Series I, MBIA Insured, Pre-Refunded, 6.90%, 05/01/11 . . . . . . . . . . . . . . . . 3,439,650
1,800,000 Olivet Community School District, Refunding, MBIA Insured, 5.50%, 05/01/20 . . . . . . 1,741,716
2,270,000 Otsego Public School District, Building & Site, CGIC Insured, 6.625%, 05/01/16 . . . . 2,506,466
Perry Public School Building & Site,
1,650,000 MBIA Insured, Pre-Refunded, 6.375%, 05/01/12 . . . . . . . . . . . . . . . . . . . . 1,789,029
3,755,000 Refunding, FGIC Insured, 5.45%, 05/01/22 . . . . . . . . . . . . . . . . . . . . . . 3,654,629
Petoskey Hospital Finance Authority Facilities Revenue,
4,500,000 Refunding, Northern Michigan Hospital, MBIA Insured, 7.00%, 11/15/07 . . . . . . . . 5,051,250
1,000,000 Refunding, Northern Michigan Hospital, MBIA Insured, 6.75%, 11/15/19 . . . . . . . . 1,073,410
Plymouth-Canton Community School District,
4,725,000 Refunding, AMBAC Insured, 5.50%, 05/01/13 . . . . . . . . . . . . . . . . . . . . . . 4,728,497
1,875,000 Refunding, AMBAC Insured, 5.50%, 05/01/17 . . . . . . . . . . . . . . . . . . . . . . 1,865,119
3,000,000 Series C, FGIC Insured, 6.50%, 05/01/16 . . . . . . . . . . . . . . . . . . . . . . . 3,287,220
3,500,000 Series C, FGIC Insured, 6.50%, 05/01/16 . . . . . . . . . . . . . . . . . . . . . . . 3,835,090
1,305,000 Pontiac General Building Authority, Series 1991, Refunding, AMBAC Insured, 6.875%,
04/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,441,085
Portage Public Schools GO,
4,750,000 MBIA Insured, 5.70%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,804,293
2,750,000 (e)MBIA Insured, 5.625%, 05/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,704,378
Port Huron School District,
5,500,000 CGIC Insured, Pre-Refunded, 7.25%, 05/01/15 . . . . . . . . . . . . . . . . . . . . . 6,339,685
4,500,000 Refunding, AMBAC Insured, 6.00%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . 4,651,605
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue,
500,000 Series 1985-A, FSA Insured, ETM 07/01/00, 8.75%, 07/01/00 . . . . . . . . . . . . . . 618,760
</TABLE>
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue, (cont.)
$ 2,500,000 Series 1985-A, FSA Insured, Pre-Refunded, 9.00%, 07/01/09 . . . . . . . . . . . . . $ 3,374,175
Puerto Rico Commonwealth Public Improvement GO,
10,875,000 MBIA Insured, Pre-Refunded, 6.60%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . 12,434,149
1,000,000 Refunding, Series 1987, MBIA Insured, 7.125%, 07/01/02 . . . . . . . . . . . . . . . 1,116,940
8,500,000 Series 1987, MBIA Insured, 6.75%, 07/01/06 . . . . . . . . . . . . . . . . . . . . . 9,198,870
2,000,000 Puerto Rico HFC, SFMR, Portfolio No. 1, Series 1988-C, GNMA Mortgage Backed Securities,
6.85%, 10/15/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,086,980
8,700,000 Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 07/01/14 . . . . . . 9,795,591
Reeths-Puffer Schools,
2,985,000 Refunding, MBIA Insured, 6.625%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . 3,263,978
1,000,000 Refunding, MBIA Insured, 6.625%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . 1,093,460
2,000,000 Riverview Community School District, Refunding, AMBAC Insured, 5.25%, 05/01/21 . . . . 1,865,840
Rockford Public Schools GO,
9,750,000 Refunding, CGIC Insured, Pre-Refunded, 7.375%, 05/01/19 . . . . . . . . . . . . . . . 11,257,838
1,850,000 Refunding, MBIA Insured, 5.875%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . 1,890,256
Romulus Community Schools,
690,000 Refunding, FGIC Insured, 5.75%, 05/01/13 . . . . . . . . . . . . . . . . . . . . . . 699,011
1,200,000 Refunding, FGIC Insured, 5.75%, 05/01/17 . . . . . . . . . . . . . . . . . . . . . . 1,210,704
3,500,000 Refunding, FGIC Insured, 5.75%, 05/01/22 . . . . . . . . . . . . . . . . . . . . . . 3,531,220
2,220,000 Refunding, Series II, FGIC Insured, 6.40%, 05/01/17 . . . . . . . . . . . . . . . . . 2,380,750
25,000 Saginaw City School District, Unlimited Tax, MBIA Insured, Pre-Refunded, 11.00%,
06/01/03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,695
Saginaw Hospital Finance Authority Revenue,
5,325,000 Refunding, St. Luke's Hospital Project, Series C, MBIA Insured, 6.875%, 07/01/14. . . 5,828,798
2,000,000 Refunding, St. Luke's Hospital Project, Series C, MBIA Insured, 6.75%, 07/01/17 . . . 2,184,480
1,000,000 Refunding, St. Luke's Hospital Project, Series D, MBIA Insured, 6.50%, 07/01/11 . . . 1,084,900
1,000,000 St. Luke's Hospital Project, Series A, FGIC Insured, Pre-Refunded, 10.25%,
07/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,043,210
2,185,000 St. Luke's Hospital Project, Series B, AMBAC Insured, Pre-Refunded, 7.625%,
07/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,486,421
3,540,000 St. Luke's Hospital Project, Series B, AMBAC Insured, Pre-Refunded, 7.75%,
07/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,045,618
3,875,000 St. Luke's Hospital Project, Series B, MBIA Insured, 6.00%, 07/01/21 . . . . . . . . 3,929,483
1,000,000 Saginaw Valley State University Revenue, MBIA Insured, 5.375%, 07/01/16 . . . . . . . . 964,050
Sandusky Community School District,
3,425,000 CGIC Insured, 6.50%, 05/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,721,194
3,340,000 Refunding, AMBAC Insured, 5.40%, 05/01/14 . . . . . . . . . . . . . . . . . . . . . . 3,224,436
2,000,000 Sault Ste. Marie GO, Series 1990, AMBAC Insured, 7.50%, 09/01/10 . . . . . . . . . . . 2,299,960
Shelby Charter Township Authority,
750,000 AMBAC Insured, 5.75%, 11/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 769,230
750,000 AMBAC Insured, 5.75%, 11/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 769,868
South Haven Public Schools,
1,640,000 Refunding, FGIC Insured, 5.50%, 05/01/13 . . . . . . . . . . . . . . . . . . . . . . 1,603,805
1,725,000 Refunding, FGIC Insured, 5.50%, 05/01/17 . . . . . . . . . . . . . . . . . . . . . . 1,672,181
4,245,000 St. Clair County EDC, PCR, Refunding, Detroit Edison Co., Series DD, AMBAC Insured,
6.05%, 08/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,353,375
1,000,000 Sturgis Public School District, MBIA Insured, 6.10%, 05/01/18 . . . . . . . . . . . . . 1,042,660
375,000 Three Rivers City Revenue, GO, Refunding, Unlimited Tax, MBIA Insured, Pre-Refunded,
8.60%, 11/01/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412,455
</TABLE>
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Tri County Area School District,
$ 1,850,000 School Building & Site, MBIA Insured, Pre-Refunded, 6.875%, 05/01/11 . . . . . . . . $ 2,111,701
2,325,000 School Building & Site, MBIA Insured, Pre-Refunded, 6.875%, 05/01/16 . . . . . . . . 2,653,895
1,395,000 University of Michigan Construction Project, Student Fee Revenue, FGIC Insured,
Pre-Refunded, 7.25%, 04/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,514,091
10,635,000 University of Michigan Hospital Revenue, Refunding, Series 1986-A, FGIC Insured, 7.75%,
12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,862,492
2,365,000 University Revenues Medical Service Plan, MBIA Insured, 6.50%, 12/01/21 . . . . . . . . 2,572,884
Vicksburg Community School District,
2,175,000 Refunding, MBIA Insured, 5.625%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . 2,166,235
1,000,000 Refunding, MBIA Insured, 5.625%, 05/01/20 . . . . . . . . . . . . . . . . . . . . . . 981,780
Warren Consolidated School District,
6,500,000 Refunding, CGIC Insured, Pre-Refunded, 6.70%, 05/01/16 . . . . . . . . . . . . . . . 7,395,700
3,735,000 Refunding, MBIA Insured, 5.50%, 05/01/14 . . . . . . . . . . . . . . . . . . . . . . 3,641,476
1,030,000 Refunding, MBIA Insured, 5.50%, 05/01/21 . . . . . . . . . . . . . . . . . . . . . . 993,363
1,225,000 Refunding, Series II, FGIC Insured, 5.375%, 05/01/14 . . . . . . . . . . . . . . . . 1,176,134
3,405,000 Refunding, Series II, FGIC Insured, 5.50%, 05/01/16 . . . . . . . . . . . . . . . . . 3,315,448
Wayne Charter County Airport Revenue,
2,900,000 Detroit Metro Airport, MBIA Insured, Pre-Refunded, 6.75%, 12/01/19 . . . . . . . . . 3,313,801
6,635,000 Detroit Metro Airport, MBIA Insured, Pre-Refunded, 7.00%, 12/01/21 . . . . . . . . . 7,730,438
2,450,000 Detroit Metro Airport, Series A, MBIA Insured, Pre-Refunded, 6.50%, 12/01/11 . . . . 2,775,702
300,000 Detroit Metro Airport, Series B, MBIA Insured, 6.875%, 12/01/11 . . . . . . . . . . . 333,224
2,000,000 Detroit Metro Airport, Series B, MBIA Insured, 6.75%, 12/01/21 . . . . . . . . . . . 2,205,820
6,980,000 Wayne County Airport Revenue, Series B, AMBAC Insured, 6.00%, 12/01/20 . . . . . . . . 7,079,394
Wayne County, Ecorse Creek Drain District, Pollution Abatement No. 1,
500,000 AMBAC Insured, 7.40%, 11/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . 558,850
500,000 AMBAC Insured, 7.50%, 11/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . 560,510
490,000 AMBAC Insured, 7.50%, 11/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . 549,300
450,000 AMBAC Insured, 7.50%, 11/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . 504,458
11,500,000 Wayne State University Revenues, Refunding, AMBAC Insured, 5.65%, 11/15/15 . . . . . . 11,572,220
2,275,000 Wayne-Westland Community School, Refunding, FGIC Insured, 6.10%, 05/01/13 . . . . . . . 2,381,697
Western Michigan University Revenues,
5,000,000 FGIC Insured, 6.25%, 11/15/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,262,350
5,000,000 Refunding, Series A, FGIC Insured, 5.50%, 07/15/16 . . . . . . . . . . . . . . . . . 4,898,850
5,000,000 Series 1991-A, AMBAC Insured, Pre-Refunded, 6.75%, 07/15/11 . . . . . . . . . . . . . 5,701,850
4,290,000 Special Projects, Student Fees, BIG Insured, Pre-Refunded, 7.375%, 10/01/11 . . . . . 4,722,731
Western Townships Utilities Authority, Sewer Disposal System,
15,210,000 Refunding, CGIC Insured, 6.75%, 01/01/15 . . . . . . . . . . . . . . . . . . . . . . 16,615,100
6,115,000 Refunding, CGIC Insured, 6.50%, 01/01/19 . . . . . . . . . . . . . . . . . . . . . . 6,522,625
2,400,000 West Ottawa Public School District, Refunding, FGIC Insured, 6.00%, 05/01/20 . . . . . 2,471,471
1,800,000 Williamston County GO, Refunding, AMBAC Insured, 6.90%, 11/01/17 . . . . . . . . . . . 2,016,467
6,210,000 Willow Run Community School, CGIC Insured, 6.375%, 05/01/18 . . . . . . . . . . . . . . 6,717,480
Wyandotte Electric Revenue,
16,060,000 Refunding, AMBAC Insured, Pre-Refunded, 7.875%, 10/01/17 . . . . . . . . . . . . . . 18,358,667
9,980,000 Refunding, MBIA Insured, 6.25%, 10/01/17 . . . . . . . . . . . . . . . . . . . . . . 10,483,490
</TABLE>
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Yale Public School District, School Building & Site,
$ 2,000,000 AMBAC Insured, 5.375%, 05/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,919,320
1,500,000 AMBAC Insured, 5.500%, 05/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,462,004
--------------
TOTAL LONG TERM INVESTMENTS ($958,756,900) . . . . . . . . . . . . . . . . . . . 1,042,933,846
--------------
(g) SHORT TERM INVESTMENTS .1%
100,000 Detroit Tax Increment Finance Authority, Central Park Project, Weekly VRDN and Put,
2.40%, 10/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
800,000 Grand Rapids, Michigan, Water Supply System Revenue, Daily VRDN and Put, 2.15%,
01/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $900,000) . . . . . . . . . . . . . . . . . 900,000
--------------
TOTAL INVESTMENTS (COST $959,656,900) 98.9% . . . . . . . . . . . . . . . . 1,043,833,846
OTHER ASSETS AND LIABILITIES, NET 1.1% . . . . . . . . . . . . . . . . . . . 11,617,883
--------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,055,451,729
==============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $959,656,900 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . 86,463,801
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . (2,286,855)
--------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,176,946
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assistance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority
HFC - Housing Finance Corp.
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
PCR - Pollution Control Revenue
SFHR - Single-Family Housing Revenue
SFMR - Single-Family Mortgage Revenue
(e)See Note 1 regarding securities purchased on a when-issued basis.
(g)Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes
in a designated rate (such as the prime interest rate or U.S. Treasury
bills rate).
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.2%
$ 2,100,000 Anoka County Resource Recovery Revenue, Northern, AMBAC Insured, 7.15%, 12/01/08 . . . $ 2,402,778
Brainerd Health Care Facilities Revenue,
2,000,000 Refunding, Benedictine Health-St. Joseph, Series D, MBIA Insured, 5.875%,
02/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,034,620
5,990,000 Refunding, Benedictine Health-St. Joseph, Series E, Connie Lee Insured, 6.00%,
02/15/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,114,951
1,500,000 Refunding, Benedictine Health-St. Joseph, Series E, Connie Lee Insured, Pre-Refunded,
6.00%, 02/15/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,527,630
935,000 Brainerd Hospital Facilities Revenue, Benedictine Health System, St. Joseph's Medical
Center, MBIA Insured, 9.625%, 10/01/12 . . . . . . . . . . . . . . . . . . . . . . . 1,038,467
4,120,000 Breckenridge Health Facilities Revenue, Catholic Health Corp., MBIA Insured, 5.25%,
11/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,948,938
3,695,000 Burnsville Hospital System Revenue, Refunding, Fairview Community Hospitals,
Series 1985-A, MBIA Insured, 9.00%, 05/01/12 . . . . . . . . . . . . . . . . . . . . 3,988,863
Byron ISD No. 531 GO,
600,000 AMBAC Insured, 6.90%, 06/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . 663,726
625,000 AMBAC Insured, 6.90%, 06/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 691,381
Cannon Falls ISD No. 252 GO, School Building,
610,000 Series 1987-A, AMBAC Insured, 8.00%, 02/01/05 . . . . . . . . . . . . . . . . . . . . 670,006
655,000 Series 1987-A, AMBAC Insured, 8.10%, 02/01/06 . . . . . . . . . . . . . . . . . . . . 721,201
705,000 Series 1987-A, AMBAC Insured, 8.20%, 02/01/07 . . . . . . . . . . . . . . . . . . . . 778,151
760,000 Series 1987-A, AMBAC Insured, 8.20%, 02/01/08 . . . . . . . . . . . . . . . . . . . . 838,858
Cass Lake ISD No. 115,
460,000 AMBAC Insured, 6.625%, 02/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . 491,795
495,000 AMBAC Insured, 6.625%, 02/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 529,214
3,855,000 Cold Spring ISD No. 750, Series A, FGIC Insured, 6.15%, 02/01/11 . . . . . . . . . . . 4,023,579
Crystal GO, Tax Increment,
250,000 Refunding, Series 1986-A, MBIA Insured, 7.75%, 02/01/04 . . . . . . . . . . . . . . . 266,265
490,000 Refunding, Series 1986-A, MBIA Insured, 7.80%, 02/01/05 . . . . . . . . . . . . . . . 522,320
475,000 Refunding, Series 1986-A, MBIA Insured, 7.80%, 02/01/06 . . . . . . . . . . . . . . . 506,331
460,000 Refunding, Series 1986-A, MBIA Insured, 7.80%, 02/01/07 . . . . . . . . . . . . . . . 490,342
445,000 Refunding, Series 1986-A, MBIA Insured, 7.80%, 02/01/08 . . . . . . . . . . . . . . . 474,352
Dakota County GO,
2,020,000 Refunding, Series B, AMBAC Insured, 6.30%, 02/01/06 . . . . . . . . . . . . . . . . 2,134,675
1,365,000 Refunding, Series B, AMBAC Insured, 6.35%, 02/01/07 . . . . . . . . . . . . . . . . . 1,442,368
1,000,000 Refunding, Series B, AMBAC Insured, 6.40%, 02/01/08 . . . . . . . . . . . . . . . . . 1,056,600
1,500,000 Refunding, Series B, AMBAC Insured, 6.45%, 02/01/09 . . . . . . . . . . . . . . . . . 1,581,660
Dakota County Housing and Redevelopment Authority,
25,000 City of South St. Paul, SFMR, Burnsville & Inver Grove Heights, FGIC Insured,
9.375%, 05/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,819
1,425,000 Refunding, SFRMR, GNMA Mortgage Backed Securities, 8.10%, 03/01/16 . . . . . . . . . 1,530,222
Dakota, Washington & Stearns County SFMR,
1,945,000 Series 1990, GNMA Collateralized, 7.80%, 12/01/10 . . . . . . . . . . . . . . . . . . 2,120,672
7,055,000 Series 1990, GNMA Collateralized, 7.85%, 12/01/30 . . . . . . . . . . . . . . . . . . 7,653,052
</TABLE>
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Delano ISD No. 879,
$ 810,000 Refunding, Series A, AMBAC Insured, 5.55%, 02/01/09 . . . . . . . . . . . . . . . . . $ 817,873
855,000 Refunding, Series A, AMBAC Insured, 5.60%, 02/01/10 . . . . . . . . . . . . . . . . . 863,294
400,000 Refunding, Series A, AMBAC Insured, 5.60%, 02/01/11 . . . . . . . . . . . . . . . . . 403,880
Dover & Eyota ISD No. 533 GO,
1,940,000 AMBAC Insured, 7.25%, 02/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,121,506
1,000,000 Refunding, AMBAC Insured, 5.25%, 02/01/14 . . . . . . . . . . . . . . . . . . . . . . 957,100
Duluth EDA Health Care Facilities Revenue,
1,145,000 Benedictine Health System, Series B, Connie Lee Insured, 6.00%, 02/15/17 . . . . . . 1,166,091
5,500,000 The Duluth Clinic, Ltd., AMBAC Insured, 6.20%, 11/01/12 . . . . . . . . . . . . . . . 5,788,585
5,250,000 The Duluth Clinic, Ltd., AMBAC Insured, 6.30%, 11/01/22 . . . . . . . . . . . . . . . 5,567,258
3,000,000 Duluth EDA Hospital Facilities Revenue, St. Lukes Hospital, Series A, Connie Lee
Insured, 6.40%, 05/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,202,770
3,500,000 Duluth EDA, Tax Increment Revenue, Refunding, MBIA Insured, 7.25%, 08/01/08 . . . . . . 3,919,300
Duluth ISD No. 709 GO,
600,000 School Building, Series 1986, FGIC Insured, Pre-Refunded, 7.80%, 02/01/00 . . . . . . 643,554
4,350,000 Series A, FGIC Insured, 5.25%, 02/01/14 . . . . . . . . . . . . . . . . . . . . . . . 4,214,063
4,420,000 Eagan MFMR, Refunding, Forest Ridge Apartments, BIG Insured, 7.50%, 03/01/27 . . . . . 4,717,068
Eden Prairie ISD No. 272,
1,530,000 Series A, FGIC Insured, 5.30%, 02/01/06 . . . . . . . . . . . . . . . . . . . . . . . 1,543,663
1,475,000 Series A, FGIC Insured, 5.40%, 02/01/07 . . . . . . . . . . . . . . . . . . . . . . . 1,488,113
1,000,000 Series A, FGIC Insured, 5.45%, 02/01/08 . . . . . . . . . . . . . . . . . . . . . . . 1,008,880
500,000 Eden Valley ISD No. 463, CGIC Insured, 6.60%, 02/01/16 . . . . . . . . . . . . . . . . 556,685
Elk River School District ISD No. 728 GO,
950,000 CGIC Insured, 6.35%, 02/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,029,572
4,480,000 CGIC Insured, 6.40%, 02/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,869,670
3,795,000 Refunding, Series B, CGIC Insured, 5.20%, 02/01/17 . . . . . . . . . . . . . . . . . 3,642,745
4,610,000 Refunding, Series B, CGIC Insured, 5.25%, 02/01/22 . . . . . . . . . . . . . . . . . 4,370,879
650,000 Series A, CGIC Insured, 7.00%, 02/01/11 . . . . . . . . . . . . . . . . . . . . . . . 731,556
Farmington ISD No. 192 GO, School Building,
4,290,000 AMBAC Insured, 5.125%, 02/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,081,120
425,000 FGIC Insured, 8.20%, 01/01/02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451,329
500,000 FGIC Insured, 8.20%, 01/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 531,425
340,000 FGIC Insured, 8.20%, 01/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361,063
Forest Lake ISD No. 831 GO, School Building,
675,000 Series A, FGIC Insured, 7.30%, 02/01/05 . . . . . . . . . . . . . . . . . . . . . . . 726,752
1,055,000 Series A, FGIC Insured, 7.35%, 02/01/06 . . . . . . . . . . . . . . . . . . . . . . . 1,137,311
Golden Valley GO, Tax Increment,
335,000 Series C, FGIC Insured, 8.00%, 02/01/04 . . . . . . . . . . . . . . . . . . . . . . . 358,624
535,000 Series C, FGIC Insured, 8.00%, 02/01/05 . . . . . . . . . . . . . . . . . . . . . . . 572,728
1,500,000 Kerkhoven Murdock Sunburg ISD No. 775, AMBAC Insured, 6.40%, 02/01/14 . . . . . . . . . 1,657,995
Lake of the Woods, ISD No. 390, School Building,
325,000 AMBAC Insured, Pre-Refunded, 7.40%, 02/01/18 . . . . . . . . . . . . . . . . . . . . 367,536
350,000 AMBAC Insured, Pre-Refunded, 7.40%, 02/01/19 . . . . . . . . . . . . . . . . . . . . 395,808
375,000 AMBAC Insured, Pre-Refunded, 7.40%, 02/01/20 . . . . . . . . . . . . . . . . . . . . 424,080
</TABLE>
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Lakeview ISD No. 194,
$ 500,000 Series A, FGIC Insured, 7.00%, 02/01/14 . . . . . . . . . . . . . . . . . . . . . . . $ 547,265
2,105,000 Series C, FGIC Insured, 6.70%, 02/01/12 . . . . . . . . . . . . . . . . . . . . . . . 2,325,941
Marshall County Utility Revenue,
750,000 CGIC Insured, 5.375%, 01/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 726,398
825,000 CGIC Insured, 5.375%, 01/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 798,336
1,565,000 Menahga ISD No. 821 GO, AMBAC Insured, 6.25%, 02/01/18 . . . . . . . . . . . . . . . . 1,633,171
Minneapolis CDA, MFHR, Rental, Laurel Village,
9,000,000 Project No. 9, Mandatory Put 12/01/97, CGIC Insured, 7.50%, 12/01/31 . . . . . . . . 9,467,010
1,645,000 Project No. 10, Mandatory Put 12/01/99, CGIC Insured, 7.50%, 12/01/31 . . . . . . . . 1,730,359
Minneapolis CDA & St. Paul Housing and Redevelopment Authority,
Health Care Facilities Revenue,
900,000 Carondelet Community Hospitals, Inc., Series B, BIG Insured, Pre-Refunded, 8.875%,
11/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,672
300,000 Healthone Obligated Group, MBIA Insured, Pre-Refunded, 10.50%, 11/01/13 . . . . . . . 320,646
4,436,000 Minneapolis CDA & St. Paul Housing and Redevelopment Authority, Homeownership Mortgage
Revenue, Joint Housing Program, Phase II, FGIC Insured, 7.875%, 07/01/17 . . . . . . 4,617,743
2,100,000 Minneapolis CDA, Tax Increment Revenue, Series 1990, MBIA Insured, 7.00%, 03/01/01 . . 2,383,332
Minneapolis Convention Center, Sales Tax Revenue,
2,000,000 AMBAC Insured, Pre-Refunded, 7.625%, 04/01/04 . . . . . . . . . . . . . . . . . . . . 2,187,600
10,410,000 AMBAC Insured, Pre-Refunded, 7.75%, 04/01/11 . . . . . . . . . . . . . . . . . . . . 11,412,067
1,750,000 Minneapolis Health Care Facilities Revenue, Refunding, Fairview Hospital & Healthcare,
Series A, MBIA Insured, 5.25%, 11/15/19 . . . . . . . . . . . . . . . . . . . . . . . 1,644,283
Minneapolis Hospital Facilities Revenue,
2,750,000 LifeSpan, Inc., Abbott Northwestern, AMBAC Insured, 7.00%, 12/01/14 . . . . . . . . . 3,069,688
1,475,000 LifeSpan, Inc., Series 1987-A, FGIC Insured, Pre-Refunded, 8.125%, 04/01/07 . . . . . 1,675,025
4,450,000 LifeSpan, Inc., Series 1987-A, FGIC Insured, Pre-Refunded, 8.125%, 04/01/17 . . . . . 5,053,465
1,645,000 Refunding, Fairview Hospital & Healthcare, Series A, MBIA Insured, 6.50%, 01/01/11 . 1,768,326
7,815,000 Refunding, Fairview Hospital & Healthcare, Series B, MBIA Insured, 6.70%, 01/01/17 . 8,584,387
700,000 Refunding, LifeSpan, Inc., Series 1987-B, FGIC Insured, Pre-Refunded, 9.125%,
12/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832,573
915,000 Refunding, LifeSpan, Inc., Series 1988-A, FGIC Insured, Pre-Refunded, 7.875%,
12/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,047,364
1,000,000 Minneapolis Hospital System Revenue, Refunding, Fairview Community Hospital,
Series 1985-A, MBIA Insured, Pre-Refunded, 9.00%, 01/01/11 . . . . . . . . . . . . . 1,066,210
1,585,000 Minneapolis Housing and Redevelopment Authority, Home Ownership Mortgage Program,
BIG Insured, 7.10%, 12/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,592,006
Minneapolis-St. Paul Housing Finance Board, SFMR,
4,890,000 Phase VI, Series A, GNMA Mortgage Backed Securities, 8.30%, 08/01/21 . . . . . . . . 5,153,767
1,685,000 Series A, GNMA Mortgage Backed Securities, 8.375%, 11/01/17 . . . . . . . . . . . . . 1,784,668
1,000,000 Series C, GNMA Mortgage Backed Securities, 8.875%, 11/01/18 . . . . . . . . . . . . . 1,059,690
Minneapolis-St. Paul Housing and Redevelopment Authority, Health Care System Revenue,
10,390,000 Series A, MBIA Insured, 7.40%, 08/15/11 . . . . . . . . . . . . . . . . . . . . . . . 11,868,185
3,950,000 Series A, MBIA Insured, 6.75%, 08/15/14 . . . . . . . . . . . . . . . . . . . . . . . 4,303,920
Minneapolis Special School District No. 001, COP,
1,100,000 Refunding, MBIA Insured, 5.30%, 02/01/11 . . . . . . . . . . . . . . . . . . . . . . 1,068,848
3,630,000 Refunding, MBIA Insured, 5.45%, 02/01/15 . . . . . . . . . . . . . . . . . . . . . . 3,580,777
</TABLE>
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Minnesota State GO,
$ 6,250,000 Refunding, MBIA Insured, 5.40%, 08/01/08. . . . . . . . . . . . . . . . . . . . . . . $ 6,309,250
3,000,000 Refunding, MBIA Insured, 5.40%, 08/01/09. . . . . . . . . . . . . . . . . . . . . . . 3,008,580
Minnesota State HFA, Housing Development,
185,000 FGIC Insured, 7.25%, 02/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,104
845,000 MF Program, Series 1978-A, FGIC Insured, 7.125%, 02/01/20 . . . . . . . . . . . . . . 862,441
3,170,000 MF Program, Series 1978-B, FGIC Insured, 7.10%, 02/01/21. . . . . . . . . . . . . . . 3,228,487
485,000 MF Program, Series 1980-A, FGIC Insured, 7.00%, 02/01/22. . . . . . . . . . . . . . . 497,421
230,000 MF Program, Series 1985-B, FGIC Insured, 9.375%, 02/01/18 . . . . . . . . . . . . . . 242,174
2,000,000 MFMR, Series 1988-A, FGIC Insured, 7.80%, 08/01/18 . . . . . . . . . . . . . . . . . 2,071,160
2,350,000 Minnesota State HFA, MFHR, Series 1977-A, FGIC Insured, 6.375%, 02/01/20. . . . . . . . 2,416,364
70,000 Minnesota State HFA, RMR, Series 1985-A, FGIC Insured, 10.00%, 07/01/16 . . . . . . . . 73,936
Minnesota State HFA, SFMR,
2,580,000 Series 1986-B, FGIC Insured, 7.25%, 07/01/06 . . . . . . . . . . . . . . . . . . . . 2,717,540
1,005,000 Series 1986-B, FGIC Insured, 7.25%, 07/01/16 . . . . . . . . . . . . . . . . . . . . 1,037,783
540,000 Series 1986-C, FGIC Insured, 7.00%, 07/01/16 . . . . . . . . . . . . . . . . . . . . 561,821
3,000,000 Series 1987-A, FGIC Insured, 8.50%, 02/01/17 . . . . . . . . . . . . . . . . . . . . 3,160,740
205,000 Series 1987-D, FGIC Insured, 8.80%, 07/01/16 . . . . . . . . . . . . . . . . . . . . 216,300
5,115,000 Series 1989-A, FGIC Insured, 8.00%, 07/01/29 . . . . . . . . . . . . . . . . . . . . 5,303,744
4,585,000 Series 1989-D, AMBAC Insured, 7.30%, 07/01/09 . . . . . . . . . . . . . . . . . . . . 4,978,255
1,500,000 Series 1992-I, MBIA Insured, 6.25%, 01/01/15 . . . . . . . . . . . . . . . . . . . . 1,545,000
3,940,000 Minnesota State Higher Educational Facilities Authority Revenue, Series 3,
Connie Lee Insured, 6.50%, 01/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . 4,244,089
Minnetonka MFHR,
350,000 Cedar Hills East Project, FGIC Insured, 7.40%, 12/01/07 . . . . . . . . . . . . . . . 372,796
1,000,000 Cedar Hills East Project, FGIC Insured, 7.50%, 12/01/27 . . . . . . . . . . . . . . . 1,109,010
Monticello ISD No. 882 GO,
750,000 Series 1991, CGIC Insured, Pre-Refunded, 6.80%, 02/01/06. . . . . . . . . . . . . . . 825,053
1,310,000 Series 1991, CGIC Insured, Pre-Refunded, 6.80%, 02/01/07. . . . . . . . . . . . . . . 1,441,092
1,040,000 New London Spicer ISD No. 345, AMBAC Insured, Pre-Refunded, 6.60%, 02/01/11 . . . . . . 1,158,466
Northern Municipal Power Agency, Electric System Revenue,
4,150,000 Refunding, Series A, AMBAC Insured, 6.00%, 01/01/19 . . . . . . . . . . . . . . . . . 4,232,834
3,500,000 Refunding, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 01/01/17 . . . . . . . . . . 3,985,170
9,500,000 Refunding, Series A, AMBAC Insured, Pre-Refunded, 7.40%, 01/01/18 . . . . . . . . . . 10,878,070
2,000,000 Refunding, Series A, MBIA Insured, 6.00%, 01/01/20. . . . . . . . . . . . . . . . . . 2,034,000
5,290,000 Refunding, Series B, AMBAC Insured, 5.50%, 01/01/18 . . . . . . . . . . . . . . . . . 5,227,261
1,500,000 Series B, AMBAC Insured, Pre-Refunded, 7.40%, 01/01/18. . . . . . . . . . . . . . . . 1,717,590
7,590,000 Series C, AMBAC Insured, 6.125%, 01/01/20 . . . . . . . . . . . . . . . . . . . . . . 7,978,456
2,000,000 Northfield College Facility Revenue, St. Olaf College Project, BIG Insured,
Pre-Refunded, 8.00%, 10/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,308,240
165,000 Olmsted County Solid Waste Resource Recovery Revenue, GO, Refunding,
FGIC Insured, 8.10%, 02/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,283
3,350,000 Owatonna Public Utilities Commission, Public Utilities Revenue, Refunding,
Series A, AMBAC Insured, 5.45%, 01/01/16 . . . . . . . . . . . . . . . . . . . . . . 3,291,007
2,835,000 Perham ISD No. 549, CGIC Insured, 5.375%, 02/01/14. . . . . . . . . . . . . . . . . . . 2,788,903
</TABLE>
The accompanying notes are an integral part of these financial statements.
81
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 250,000 Pine River Nursing Home Revenue, Evangelic Lutheran Good Samaritan Society Project,
AMBAC Insured, 9.25%, 01/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . $ 266,535
6,800,000 Princeton Hospital Revenue, Fairview Hospital & Healthcare, Series C, MBIA Insured,
6.25%, 01/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,171,620
Princeton ISD No. 477, Mille Lacs County,
2,550,000 Refunding, FGIC Insured, 6.30%, 02/01/17 . . . . . . . . . . . . . . . . . . . . 2,643,636
2,550,000 (e)Series A, CGIC Insured, 5.375%, 02/01/17 . . . . . . . . . . . . . . . . . . . 2,489,157
185,000 Proctor ISD No. 704 GO, Refunding, Series A, MBIA Insured, 8.90%, 01/01/00 . . . . 192,652
Puerto Rico Commonwealth Public Improvement GO,
10,000,000 Series 1989-A, FGIC Insured, Pre-Refunded, 7.375%, 07/01/04 . . . . . . . . . . . 11,566,300
400,000 Series 1992, MBIA Insured, Pre-Refunded, 6.50%, 07/01/09 . . . . . . . . . . . . 454,616
1,230,000 Series 1992, MBIA Insured, Pre-Refunded, 6.60%, 07/01/13 . . . . . . . . . . . . 1,406,345
Puerto Rico HFC, SFMR,
2,365,000 Portfolio No. 1, Series B, GNMA Mortgage Backed Securities, 7.65%, 10/15/22 . . . 2,472,182
1,150,000 Portfolio No. 1, Series D, GNMA Mortgage Backed Securities, 6.75%, 10/15/14 . . . 1,220,806
520,000 Portfolio No. 1, Series D, GNMA Mortgage Backed Securities, 6.85%, 10/15/24 . . . 551,871
1,300,000 Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 07/01/14 . . . . 1,463,709
Robbinsdale Hospital Revenue,
6,450,000 Refunding, North Memorial Medical Center Project, AMBAC Insured, Pre-Refunded,
7.375%, 01/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,409,115
5,705,000 Refunding, North Memorial Medical Center Project, Series A, AMBAC Insured, 5.55%,
05/15/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,568,422
3,900,000 Refunding, North Memorial Medical Center Project, Series B, AMBAC Insured, 5.50%,
05/15/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,762,486
400,000 Rochester Hospital Facilities Revenue, Rochester Methodist Hospital Project,
Refunding, FGIC Insured, Pre-Refunded, 8.75%, 06/01/05 . . . . . . . . . . . . . 456,396
1,750,000 Shakopee Public Utilities Commission Revenue, AMBAC Insured, 5.60%, 08/01/18 . . . 1,733,795
2,080,000 South Washington County ISD No. 833, Refunding, Series A, FGIC Insured, 6.125%,
06/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,148,994
Southern Minnesota Municipal Power Agency, Power Supply System Revenue,
5,000,000 Refunding, Series B, AMBAC Insured, 6.00%, 01/01/16 . . . . . . . . . . . . . . . 5,172,450
2,500,000 Series A, AMBAC Insured, 6.00%, 01/01/13 . . . . . . . . . . . . . . . . . . . . 2,549,900
300,000 Series A, BIG Insured, Pre-Refunded, 9.50%, 01/01/17 . . . . . . . . . . . . . . 335,598
5,975,000 Series A, MBIA Insured, 5.00%, 01/01/12 . . . . . . . . . . . . . . . . . . . . . 5,657,369
3,000,000 Series A, MBIA Insured, 6.00%, 01/01/13 . . . . . . . . . . . . . . . . . . . . . 3,059,880
6,100,000 Southern Municipal Power Agency, Power Supply System Revenue, Series A,
MBIA Insured, 5.75%, 01/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . 6,163,013
St. Cloud Hospital Facilities Revenue,
2,000,000 Refunding, St. Cloud Hospital, Series 1990-C, AMBAC Insured, 7.00%, 07/01/07 . . 2,244,040
2,535,000 Refunding, St. Cloud Hospital, Series 1990-C, AMBAC Insured, 6.75%, 07/01/11 . . 2,786,599
1,350,000 Refunding, St. Cloud Hospital, Series 1990-C, AMBAC Insured, 6.75%, 07/01/15 . . 1,483,988
695,000 St. Cloud Hospital, Series 1985-A, FGIC Insured, Pre-Refunded, 9.40%, 12/01/15 . 777,031
12,305,000 St. Cloud Hospital, Series 1990-B, AMBAC Insured, Pre-Refunded, 7.00%, 07/01/20 . 14,214,121
2,000,000 St. Louis Health Care Facilities Revenue, Refunding, Series A, AMBAC Insured,
5.20%, 07/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,884,060
</TABLE>
The accompanying notes are an integral part of these financial statements.
82
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
St. Louis Park Hospital Facilities Revenue,
$ 1,000,000 Refunding, Methodist Hospital Project, Series 1985-A, AMBAC Insured, 7.25%,
07/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,140,980
4,500,000 Refunding, Methodist Hospital Project, Series 1985-C, AMBAC Insured, Pre-Refunded,
7.25%, 07/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,214,375
440,000 Refunding, Methodist Hospital Project, Series 1990-A, AMBAC Insured, 7.20%,
07/01/03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,848
920,000 Refunding, Methodist Hospital Project, Series 1990-A, AMBAC Insured, 7.25%,
07/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,049,702
500,000 Refunding, Methodist Hospital Project, Series 1990-A, AMBAC Insured, 7.30%,
07/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 582,230
4,115,000 Refunding, Methodist Hospital Project, Series 1990-A, AMBAC Insured, 7.25%,
07/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,695,133
1,350,000 Refunding, Methodist Hospital Project, Series 1990-C, AMBAC Insured,
Pre-Refunded, 7.25%, 07/01/08 1,564,313 . . . . . . . . . . . . . . . . . . . . . . 1,564,313
3,840,000 St. Louis Park MFHR, Rental Community Housing & Service Corp. Project, FHA Mortgage
Insured, FGIC Insured, 7.375%, 12/01/28 . . . . . . . . . . . . . . . . . . . . . . . 4,044,403
1,200,000 St. Paul Housing and Redevelopment Authority Hospital Revenue, St. Paul-Ramsey
Medical Center Project, AMBAC Insured, 5.50%, 05/15/13 . . . . . . . . . . . . . . . 1,181,724
St. Paul Housing and Redevelopment Authority Revenue, Tax Increment,
355,000 AMBAC Insured, 7.20%, 09/01/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . 373,421
380,000 AMBAC Insured, 7.25%, 09/01/02 . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,151
405,000 AMBAC Insured, 7.30%, 09/01/03 . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,522
2,325,000 Downtown & Seventh Place Project, AMBAC Insured, 5.40%, 09/01/08 . . . . . . . . . . 2,326,814
200,000 St. Paul Port Authority, IDR, Series 1985-K, FGIC Insured, 9.50%, 12/01/14 . . . . . . 194,852
8,000,000 St. Paul Sewer Revenue, Series A, AMBAC Insured, 8.00%, 12/01/08 . . . . . . . . . . . 9,190,400
3,645,000 Stearns County Housing and Redevelopment Authority Lease Revenue, Refunding,
Administration Building Project, AMBAC Insured, 7.00%, 02/01/11 . . . . . . . . . . . 3,898,546
3,375,000 Stillwater ISD No. 834, FGIC Insured, 6.75%, 02/01/09 . . . . . . . . . . . . . . . . . 3,666,768
University of Minnesota GO,
2,100,000 Refunding, Series 1986-A, FGIC Insured, Pre-Refunded, 7.625%, 02/01/05 . . . . . . . 2,288,936
2,300,000 Refunding, Series 1986-A, FGIC Insured, Pre-Refunded, 7.75%, 02/01/10 . . . . . . . . 2,512,151
1,850,000 Vadnais Heights Housing Development Revenue, Riverwood Housing Project, FGIC
Insured, 7.50%, 08/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,874,216
375,000 Wabasha ISD, No. 811, Refunding, Series A, CGIC Insured, 5.20%, 02/01/12 . . . . . . . 361,852
Waconia ISD No. 110, Carver County,
630,000 Refunding, Series A, CGIC Insured, 5.25%, 02/01/10 . . . . . . . . . . . . . . . . . 619,302
2,740,000 Series A, FGIC Insured, 6.35%, 02/01/11 . . . . . . . . . . . . . . . . . . . . . . . 2,992,545
3,150,000 Wadena ISD No. 819, Refunding, AMBAC Insured, 5.60%, 02/01/20 . . . . . . . . . . . . . 3,145,526
Washington County Housing and Redevelopment Authority, Jail Facility Revenue,
3,735,000 Refunding, MBIA Insured, 5.40%, 02/01/08 . . . . . . . . . . . . . . . . . . . . . . 3,629,112
10,185,000 Unlimited Tax, MBIA Insured, Pre-Refunded, 7.00%, 02/01/12 . . . . . . . . . . . . . 11,679,241
240,000 Washington County SFRMR, Housing and Redevelopment Authority, City of Cottage Grove,
GNMA Mortgage Backed Securities, Series 1986, FGIC Insured, 7.60%, 12/01/11 . . . . . 240,347
Western Minnesota Municipal Power Agency, Power Supply Revenue,
1,090,000 Refunding, Series A, AMBAC Insured, 7.00%, 01/01/13 . . . . . . . . . . . . . . . . . 1,179,860
7,000,000 Refunding, Series A, MBIA Insured, 6.875%, 01/01/09 . . . . . . . . . . . . . . . . . 7,554,190
5,425,000 Refunding, Series A, MBIA Insured, 5.50%, 01/01/15 . . . . . . . . . . . . . . . . . 5,378,020
1,875,000 Refunding, Series A, MBIA Insured, Pre-Refunded, 9.10%, 01/01/15 . . . . . . . . . . 2,086,218
</TABLE>
The accompanying notes are an integral part of these financial statements.
83
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Western Minnesota Municipal Power Agency, Transmission Project Revenue,
$ 2,000,000 Refunding, AMBAC Insured, 6.75%, 01/01/16 . . . . . . . . . . . . . . . . . . . . . . $ 2,195,520
200,000 Series A, AMBAC Insured, Pre-Refunded, 8.00%, 01/01/06 . . . . . . . . . . . . . . . 218,700
1,000,000 Series A, AMBAC Insured, Pre-Refunded, 8.125%, 01/01/16 . . . . . . . . . . . . . . . 1,094,750
--------------
TOTAL LONG TERM INVESTMENTS (COST $456,003,349) . . . . . . . . . . . . . . . . 490,457,208
--------------
(g) SHORT TERM INVESTMENTS .7%
500,000 Duluth Tax Increment Revenue, Lake Superior Paper, Weekly VRDN and Put,
2.55%, 09/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
2,500,000 Minneapolis Hospital Revenue, Children's Medical Center, Series A, Daily VRDN and Put,
2.30%, 02/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000
600,000 Minnetonka MFHR, Cliffs At Ridgedale, Weekly VRDN and Put, 2.45%, 03/01/09 . . . . . . 600,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $3,600,000) . . . . . . . . . . . . . . . . 3,600,000
--------------
TOTAL INVESTMENTS (COST $459,603,349) 98.9% . . . . . . . . . . . . . . . . . 494,057,208
OTHER ASSETS AND LIABILITIES, NET 1.1% . . . . . . . . . . . . . . . . . . . 5,561,420
--------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 499,618,628
==============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $459,604,343 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,806,961
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,354,096)
--------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,452,865
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CDA - Community Development Agency
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
EDA - Economic Development Authority
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Agency/Authority
HFC - Housing Finance Corp.
IDR - Industrial Development Revenue
ISD - Independent School District
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
RMR - Residential Mortgage Revenue
SFMR - Single Family Mortgage Revenue
SFRMR - Single Family Residential Mortgage Revenue
(*)See Note 1 regarding securities purchased on a when-issued basis.
(9)Variable rate deemed notes (VRDN's) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
The accompanying notes are an integral part of these financial statements.
84
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Akron Bath Copley Joint Township Hospital District Revenue,
$ 2,425,000 Akron General Medical Center Project, AMBAC Insured, 6.50%, 01/01/11 . . . . . . . . $ 2,594,120
5,000,000 Akron General Medical Center Project, AMBAC Insured, 6.50%, 01/01/19 . . . . . . . . 5,330,700
2,000,000 Children's Hospital Medical Center, AMBAC Insured, Pre-Refunded, 7.45%, 11/15/20. . . 2,360,660
500,000 Akron GO, Limited Tax, FGIC Insured, 7.50%, 09/01/05 . . . . . . . . . . . . . . . . . 588,040
500,000 Akron Waterworks System 1st Mortgage Revenue, Series 1985, AMBAC Insured,
Pre-Refunded, 9.125%, 03/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . 537,885
1,250,000 Akron University COP, Dock Project, Series B, MBIA Insured, 6.40%, 01/01/12 . . . . . . 1,338,250
1,250,000 Allen County, Refunding, AMBAC Insured, 5.30%, 12/01/15 . . . . . . . . . . . . . . . . 1,209,175
1,200,000 Allen County Sewer Revenue, MBIA Insured, 5.70%, 12/01/13 . . . . . . . . . . . . . . . 1,214,292
250,000 Alliance Sewer System Mortgage Revenue, BIG Insured, Pre-Refunded, 9.55%, 10/01/10. . . 277,585
600,000 Archbold Area Local School District GO, Refunding, MBIA Insured, 5.90%, 12/01/11 . . 614,514
Bedford Sewer System Mortgage Revenue,
310,000 AMBAC Insured, Pre-Refunded, 7.75%, 07/01/02 . . . . . . . . . . . . . . . . . . . . 345,405
335,000 AMBAC Insured, Pre-Refunded, 7.75%, 07/01/03 . . . . . . . . . . . . . . . . . . . . 373,260
360,000 AMBAC Insured, Pre-Refunded, 7.75%, 07/01/04 . . . . . . . . . . . . . . . . . . . . 401,116
2,000,000 Bellefontaine, Ohio City School District GO, Unlimited Tax, AMBAC Insured,
Pre-Refunded, 7.125%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,332,260
430,000 Belmont County, AMBAC Insured, 5.20%, 12/01/13. . . . . . . . . . . . . . . . . . . . . 416,558
Berne & Union Local School District,
640,000 Series A, AMBAC Insured, 5.40%, 12/01/11. . . . . . . . . . . . . . . . . . . . . . . 632,032
370,000 Series A, AMBAC Insured, 5.50%, 12/01/14. . . . . . . . . . . . . . . . . . . . . . . 369,512
Big Walnut Local School District, Delaware County Construction & Improvement,
1,450,000 AMBAC Insured, 6.625%, 12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,583,980
750,000 Refunding, AMBAC Insured, 5.70%, 06/01/14 . . . . . . . . . . . . . . . . . . . . . . 758,610
Brunswick City School District,
2,295,000 AMBAC Insured, 6.90%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,569,872
1,535,000 AMBAC Insured, 6.15%, 12/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,608,081
Butler County Hospital Facilities Revenue,
2,150,000 Refunding & Improvement, Middletown Regional Hospital, FGIC Insured, 6.75%, 11/15/10. 2,363,280
1,400,000 Series 1985-A, FGIC Insured, Pre-Refunded, 9.30%, 11/01/15 . . . . . . . . . . . . . 1,644,328
1,870,000 Series 1986-A, FGIC Insured, Pre-Refunded, 8.25%, 11/01/02 . . . . . . . . . . . . . 2,062,442
2,650,000 Series 1986-A, FGIC Insured, Pre-Refunded, 8.375%, 11/01/15 . . . . . . . . . . . . . 2,927,959
Butler County Waterworks Revenue,
790,000 AMBAC Insured, 6.35%, 12/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . 852,315
500,000 AMBAC Insured, 6.40%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 537,020
400,000 Cardington & Lincoln Local School District, MBIA Insured, 6.60%, 12/01/14 . . . . . . . 433,684
1,200,000 Celina Wastewater System Mortgage Revenue, FGIC Insured, 6.55%, 11/01/16. . . . . . . . 1,304,424
675,000 Chillicothe GO, Limited Tax, AMBAC Insured, 6.05%, 12/01/12 . . . . . . . . . . . . . . 704,693
1,000,000 Chillicothe Sanitary Sewer System 1st Mortgage Revenue, BIG Insured, Pre-Refunded,
7.65%, 12/01/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,157,520
Clermont County Hospital Facilities Revenue, Mercy Health System,
1,475,000 Refunding, Province of Cincinnati, Series 1985-A, AMBAC Insured, Pre-Refunded,
9.75%, 09/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,637,412
2,000,000 Refunding, Province of Cincinnati, Series 1988-A, MBIA Insured, Pre-Refunded,
7.625%, 01/01/15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,273,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
85
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Clermont County Hospital Facilities Revenue, Mercy Health System, (cont.)
$ 3,500,000 Refunding, Mercy Health System, Series B, AMBAC Insured, 5.875%, 09/01/15 . . . . . . $ 3,565,800
6,000,000 Refunding, Mercy Health System, Series B, AMBAC Insured, 6.00%, 09/01/19 . . . . . . 6,160,260
2,250,000 Series A, AMBAC Insured, Pre-Refunded, 7.50%, 09/01/19 . . . . . . . . . . . . . . . 2,568,645
225,000 Series A, MBIA Insured, 5.875%, 01/01/15 . . . . . . . . . . . . . . . . . . . . . . 229,034
1,500,000 Clermont County Road Improvement GO, AMBAC Insured, Pre-Refunded, 7.125%, 09/01/11 . . 1,741,755
Clermont County Sewer System Revenue,
4,280,000 Refunding, AMBAC Insured, Pre-Refunded, 7.10%, 12/01/15 . . . . . . . . . . . . . . 4,902,740
5,500,000 Series 1991, AMBAC Insured, Pre-Refunded, 7.10%, 12/01/21 . . . . . . . . . . . . . 6,423,835
Clermont County Waterworks Revenue,
1,000,000 AMBAC Insured, Pre-Refunded, 6.625%, 12/01/13. . . . . . . . . . . . . . . . . . . . 1,140,980
2,775,000 AMBAC Insured, Pre-Refunded, 6.625%, 12/01/15. . . . . . . . . . . . . . . . . . . . 3,166,220
2,960,000 AMBAC Insured, Pre-Refunded, 6.625%, 12/01/16. . . . . . . . . . . . . . . . . . . . 3,377,301
3,160,000 AMBAC Insured, Pre-Refunded, 6.625%,12/01/17 . . . . . . . . . . . . . . . . . . . . 3,605,497
11,000,000 Refunding, Clermont County Sewer District, AMBAC Insured, 5.80%, 12/01/1 . . . . . . 11,102,630
3,965,000 Cleveland GO, City School District, Series A, FGIC Insured, 5.875%, 12/01/11 . . . . . 4,064,522
2,000,000 Cleveland GO, Refunding, Series 1991-A, AMBAC Insured, Pre-Refunded, 6.75%, 10/01/1. . 2,286,580
Cleveland Waterworks 1st Mortgage Revenue,
3,000,000 Refunding, Series D, AMBAC Insured, Pre-Refunded, 7.25%, 01/01/12. . . . . . . . . . 3,306,450
2,000,000 Refunding, Series F, AMBAC Insured, 6.25%, 01/01/16. . . . . . . . . . . . . . . . . 2,139,040
11,225,000 Series F, AMBAC Insured, Pre-Refunded, 6.50%, 01/01/21 . . . . . . . . . . . . . . . 12,689,189
1,000,000 Clinton-Massie Local School District, Refunding, Issue I, AMBAC Insured, 7.50%,
12/01/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,164,530
1,360,000 Columbus City School District GO, Renovation & Improvement, FGIC Insured,
Pre-Refunded, 6.65%, 12/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,555,609
975,000 Columbus GO, Limited Tax, FGIC Insured, 9.50%, 04/15/03 . . . . . . . . . . . . . . . 1,286,805
2,500,000 Columbus Sewer System Revenue, Series A, FGIC Insured, Pre-Refunded, 8.00%, 06/01/08 . 2,765,675
1,530,000 Coshocton Sewer System GO, AMBAC Insured, 6.50%, 12/01/12. . . . . . . . . . . . . . . 1,663,890
1,650,000 Crestview Local School District GO, Construction & Improvement, AMBAC Insured,
6.65%, 12/01/14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,811,436
100,000 Cuyahoga County GO, Limited Tax, MBIA Insured, 9.375%, 10/01/04 . . . . . . . . . . . 133,899
Cuyahoga County Hospital Revenue,
1,490,000 Deaconess Hospital of Cleveland, Series A, FGIC Insured, 9.25%, 10/01/09 . . . . . . 1,640,639
11,600,000 Metro Health System Project, MBIA Insured, 6.00%, 02/15/19 . . . . . . . . . . . . . 11,807,756
2,685,000 Mt. Sinai Medical Center, AMBAC Insured, 6.625%, 11/15/21. . . . . . . . . . . . . . 2,935,779
5,360,000 Refunding, University Hospital Health System, Series A, BIG Insured,
6.875%, 01/15/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,802,307
4,850,000 Cuyahoga County IDR, Harbour Court, Limited Partnership Project, Series A,
FHA Mortgage Insured, FGIC Insured, 7.875%, 06/01/16 . . . . . . . . . . . . . . . . 5,310,071
5,200,000 Dayton Airport Revenue, James M. Cox Dayton International Airport, AMBAC Insured,
8.25%, 01/01/16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,693,376
1,395,000 Dayton Water System Mortgage Revenue, Refunding, MBIA Insured, 6.75%, 12/01/10 . . . . 1,486,470
Delphos Sewer System Revenue,
450,000 CGIC Insured, 7.20%, 09/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . 498,353
1,100,000 CGIC Insured, 7.25%, 09/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,241,119
2,000,000 Dover City School District, AMBAC Insured, 6.25%, 12/01/16 . . . . . . . . . . . . . . 2,110,140
5,000,000 Dublin City School District, AMBAC Insured, 6.20%, 12/01/19. . . . . . . . . . . . . . 5,276,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
86
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 800,000 Dublin Local School District GO, Franklin, Delaware and Union Counties, Unlimited Tax
for School Buildings Construction & Improvements, Series 1988, AMBAC Insured,
Pre-Refunded, 7.30%, 12/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 916,656
1,390,000 Fairborn GO, Limited Tax, Series 1991, MBIA Insured, 7.00%, 10/01/11 . . . . . . . . . 1,577,998
5,915,000 Fairfield County Hospital Improvement Revenue, Lancaster-Fairfield Community Hospital,
Series A, MBIA Insured, Pre-Refunded, 7.10%, 06/15/21 . . . . . . . . . . . . . . . . 6,864,653
Findlay Waterworks System Revenue,
1,000,000 Refunding, BIG Insured, 7.20%, 11/01/04 . . . . . . . . . . . . . . . . . . . . . . . 1,070,600
3,500,000 Refunding, BIG Insured, 7.30%, 11/01/09 . . . . . . . . . . . . . . . . . . . . . . . 3,739,190
2,500,000 Fostoria City School District GO, AMBAC Insured, 6.70%, 12/01/16 . . . . . . . . . . . 2,771,700
Franklin County Convention Facility Authority, Tax & Lease Revenue, Anticipation Bonds,
5,000,000 MBIA Insured, Pre-Refunded, 7.00%, 12/01/19 . . . . . . . . . . . . . . . . . . . . . 5,761,200
2,095,000 Refunding, MBIA Insured, 5.85%, 12/01/19 . . . . . . . . . . . . . . . . . . . . . . 2,151,921
Franklin County Hospital Revenue,
420,000 Refunding & Improvement, Grant Medical Center Project, Series A, MBIA Insured, ETM
12/01/95, 8.50%, 12/01/95 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455,645
1,500,000 Refunding & Improvement, Grant Medical Center Project, Series A, MBIA Insured,
Pre-Refunded, 9.25%, 12/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,671,930
2,000,000 Refunding & Improvement, Riverside United Hospital, MBIA Insured, 7.25%, 05/15/20 . . 2,248,020
1,000,000 Refunding, Riverside United Methodist Hospital, Series A, AMBAC Insured, 5.75%,
05/15/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,011,420
5,150,000 Granville Exempted Village School District, Unlimited Tax, AMBAC Insured,
Pre-Refunded, 7.15%, 12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,092,965
Hamilton County Health Care System Revenue,
2,000,000 Refunding, Sisters of Charity, Good Samaritan Hospital, MBIA Insured, 7.625%,
08/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,249,780
60,000 Refunding, Sisters of Charity, Good Samaritan Hospital, Series A, MBIA Insured,
7.50%, 08/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,301
Hamilton County Hospital Facilities Revenue,
2,000,000 Children's Hospital Medical Center, FGIC Insured, Pre-Refunded, 7.125%, 05/15/09 . . 2,247,760
990,000 Christ Hospital, Series 1987, FGIC Insured, 8.375%, 01/01/07 . . . . . . . . . . . . 1,151,152
3,650,000 Refunding, Bethesda Hospital, Series A, AMBAC Insured, 6.25%, 01/01/12 . . . . . . . 3,855,349
4,410,000 Hamilton County Sewer System Revenue, Metropolitan Sewer District of Greater
Cincinnati, Series A, FGIC Insured, Pre-Refunded, 7.50%, 12/01/10 . . . . . . . . . . 4,836,932
Hamilton Electric System Mortgage Revenue,
4,500,000 Refunding, Series A, FGIC Insured, 6.00%, 10/15/23 . . . . . . . . . . . . . . . . . 4,645,800
9,500,000 Refunding, Series B, FGIC Insured, Pre-Refunded, 8.00%, 10/15/22 . . . . . . . . . . 11,110,060
2,340,000 Refunding, Series B, FGIC Insured, 6.30%, 10/15/25 . . . . . . . . . . . . . . . . . 2,498,441
4,665,000 Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 . . . . . 4,943,827
500,000 Hillard School District, Refunding, FGIC Insured, 6.55%, 12/01/05 . . . . . . . . . . . 564,790
Hudson Local School District,
2,750,000 (e)Refunding, FGIC Insured, 5.60%, 12/15/14 . . . . . . . . . . . . . . . . . . . . . 2,750,000
3,350,000 Series A, FGIC Insured, Pre-Refunded, 7.10%, 12/15/13 . . . . . . . . . . . . . . . . 3,892,164
Jackson Local School District, Stark & Summit Counties School Building,
2,750,000 Construction & Improvement, MBIA Insured, 5.40%, 12/01/13 . . . . . . . . . . . . . . 2,729,953
4,060,000 Construction & Improvement, MBIA Insured, 5.50%, 12/01/21 . . . . . . . . . . . . . . 4,025,368
</TABLE>
The accompanying notes are an integral part of these financial statements.
87
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 500,000 Jackson Waterworks Revenue, AMBAC Insured, 5.60%, 12/01/18. . . . . . . . . . . . . . . . $ 498,750
225,000 Kent Sewer System Mortgage Revenue, Series 1985, AMBAC Insured, Pre-Refunded,
8.875%, 12/01/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251,503
1,195,000 Kent State University, University Revenues, AMBAC Insured, 6.45%, 05/01/12. . . . . . . . 1,297,997
Kettering City School District,
1,000,000 FGIC Insured, 5.30%, 12/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962,190
1,000,000 FGIC Insured, 5.25%, 12/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 936,660
Lake County Hospital Improvement Revenue, Lake Hospital System, Inc.,
3,000,000 Refunding, AMBAC Insured, 5.50%, 08/15/20 . . . . . . . . . . . . . . . . . . . . . . . 2,934,450
3,910,000 Series B & C, AMBAC Insured, 7.875%, 01/01/05 . . . . . . . . . . . . . . . . . . . . . 4,311,987
590,000 Series B & C, AMBAC Insured, Pre-Refunded, 7.875%, 01/01/05 . . . . . . . . . . . . . . 658,310
4,360,000 Series B & C, AMBAC Insured, 8.00%, 01/01/13 . . . . . . . . . . . . . . . . . . . . . 4,822,465
640,000 Series B & C, AMBAC Insured, Pre-Refunded, 8.00%, 01/01/13. . . . . . . . . . . . . . . 718,029
1,000,000 Lake Local School District, Stark County, AMBAC Insured, 6.25%, 12/01/09. . . . . . . . . 1,072,160
Lucas County GO,
120,000 Limited Tax, FGIC Insured, 8.00%, 12/01/06 . . . . . . . . . . . . . . . . . . . . . . 143,882
110,000 Limited Tax, FGIC Insured, 8.00%, 12/01/08 . . . . . . . . . . . . . . . . . . . . . . 132,271
120,000 Limited Tax, FGIC Insured, 8.00%, 12/01/09 . . . . . . . . . . . . . . . . . . . . . . 144,752
220,000 Limited Tax, FGIC Insured, 8.00%, 12/01/10 . . . . . . . . . . . . . . . . . . . . . . 267,084
Lucas County Hospital Revenue,
8,125,000 Refunding, The Toledo Hospital, MBIA Insured, 5.00%, 11/15/22 . . . . . . . . . . . . . 7,346,625
4,500,000 St. Vincent Medical Center, Series C, MBIA Insured, 5.375%, 08/15/17. . . . . . . . . . 4,323,195
2,790,000 St. Vincent Medical Center, Series A, MBIA Insured, 6.75%, 08/15/20 . . . . . . . . . . 3,112,803
6,660,000 St. Vincent Medical Center, Series B, MBIA Insured, 6.75%, 08/15/20 . . . . . . . . . . 7,430,562
1,050,000 The Toledo Hospital, MBIA Insured, 9.625%, 10/01/14 . . . . . . . . . . . . . . . . . . 1,103,487
5,000,000 The Toledo Hospital, MBIA Insured, 5.25%, 11/15/15 . . . . . . . . . . . . . . . . . . 4,733,350
3,200,000 The Toledo Hospital, MBIA Insured, Pre-Refunded, 7.50%, 11/15/14 . . . . . . . . . . . 3,690,176
Mahoning County GO,
1,500,000 Limited Tax, Bridge Improvement, AMBAC Insured, 7.20%, 12/01/09 . . . . . . . . . . . . 1,688,385
1,500,000 Unlimited Tax, Bridge Improvement, AMBAC Insured, 7.15%, 12/01/04 . . . . . . . . . . . 1,687,890
2,000,000 Mahoning County Hospital Facilities Revenue, YHA, Inc. Project, Series B, MBIA Insured,
7.00%, 10/15/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,215,600
2,500,000 Mansfield Hospital Improvement Revenue, Mansfield General Hospital Project, AMBAC
Insured, 6.70%, 12/01/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,764,575
1,000,000 Marietta City School District, Series B, AMBAC Insured, 5.75%, 12/01/07 . . . . . . . . . 1,031,420
500,000 Marietta Sewer System Mortgage Revenue, BIG Insured, 7.50%, 11/01/07 . . . . . . . . . . 558,250
Marysville Water Systems,
1,000,000 Refunding, AMBAC Insured, 5.40%, 12/01/13 . . . . . . . . . . . . . . . . . . . . . . . 978,530
1,500,000 Refunding, AMBAC Insured, 5.50%, 12/01/18 . . . . . . . . . . . . . . . . . . . . . . . 1,483,860
Massillon City School District GO,
1,500,000 Series 1, AMBAC Insured, 7.10%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . . . 1,688,190
1,000,000 Unlimited Tax, AMBAC Insured, 7.20%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . 1,128,880
3,000,000 Medina City School District, FGIC Insured, 6.20%, 12/01/18 . . . . . . . . . . . . . . . 3,178,200
Mentor Exempted Village School District,
1,000,000 MBIA Insured, 5.375%, 12/01/11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990,330
2,000,000 MBIA Insured, 6.625%, 12/01/13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,191,480
2,040,000 MBIA Insured, Pre-Refunded, 7.40%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . . 2,378,742
</TABLE>
The accompanying notes are an integral part of these financial statements.
88
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Miami County Hospital Facilities Revenue, Upper Valley Medical Center,
Nursing Care, Inc.,
$ 525,000 Series A, BIG Insured, 8.375%, 05.01/13 . . . . . . . . . . . . . . . . . . . . . . . $ 592,211
1,340,000 Series B, MBIA Insured, 6.50%, 05/01/21 . . . . . . . . . . . . . . . . . . . . . . . 1,452,145
2,000,000 Miami University, FGIC Insured, 5.60%, 12/01/13 . . . . . . . . . . . . . . . . . . . . 2,016,920
Montgomery County Greater Moraine-Beaver Creek Sewer Revenue,
500,000 Series A, FGIC Insured, Pre-Refunded, 7.45%, 09/01/00 . . . . . . . . . . . . . . . . 550,705
500,000 Series A, FGIC Insured, Pre-Refunded, 7.50%, 09/01/01 . . . . . . . . . . . . . . . . 551,290
3,800,000 Series A, FGIC Insured, Pre-Refunded, 7.75%, 09/01/11 . . . . . . . . . . . . . . . . 4,212,072
Montgomery County Hospital Facilities Revenue,
300,000 Miami Valley Hospital, Series 1985-A, FGIC Insured, 9.25%, 12/01/00 . . . . . . . . . 332,226
250,000 Miami Valley Hospital, Series 1985-A, FGIC Insured, 9.375%, 12/01/05 . . . . . . . . 277,375
15,000,000 Refunding, Kettering Medical Center Project, MBIA Insured, 7.40%, 04/01/09 . . . . . 6,819,350
5,000,000 Refunding, Kettering Medical Center Project, MBIA Insured, 7.50%, 04/01/14 . . . . . 5,628,600
Montgomery County Revenue,
1,600,000 Refunding, Miami Valley Hospital, Series A, AMBAC Insured, 6.25%, 11/15/12 . . . . . 1,694,528
1,780,000 Sisters of Charity Health Care, Series A, AMBAC Insured, 6.25%, 05/15/14 . . . . . . 1,913,927
500,000 Sisters of Charity Health Care, Series A, MBIA Insured, 6.625%, 05/15/21 . . . . . . 544,110
3,500,000 Montgomery County Water Revenue, Refunding, Greater Moraine-Beaver Creek,
FGIC Insured, Pre-Refunded, 7.25%, 11/15/08 3,782,205
Muskingum County,
1,000,000 Ohio County Office Building Improvement, AMBAC Insured, 7.20%, 12/01/10 . . . . . . . 1,138,080
1,695,000 Ohio Justice Center Improvement, AMBAC Insured, 6.375%, 12/01/17 . . . . . . . . . . 1,826,685
2,000,000 New Philadelphia City School District, School & Improvement, AMBAC Insured, 6.25%,
12/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,099,380
1,500,000 New Richmond Exempted Village School District GO, AMBAC Insured, 7.125%, 09/01/09 . . . 1,677,165
1,000,000 Newark Water System, AMBAC Insured, 6.00%, 12/01/18 . . . . . . . . . . . . . . . . . . 1,041,830
3,800,000 North Olmsted GO, AMBAC Insured, 6.25%, 12/15/12 . . . . . . . . . . . . . . . . . . . 4,025,758
1,000,000 North Ridgeville, AMBAC Insured, 5.125%, 12/01/13 . . . . . . . . . . . . . . . . . . . 945,890
2,900,000 North Ridgeville GO, City School District, AMBAC Insured, 6.30%, 12/01/17 . . . . . . . 3,132,290
455,000 Northeast Regional Sewer District Wastewater Revenue, AMBAC Insured, 6.50%, 11/15/16. . 502,115
Northeast Regional Sewer District Water Resource Revenue,
25,000 Junior Lien, MBIA Insured, ETM 10/01/96, 9.80%, 10/01/96 . . . . . . . . . . . . . . 28,535
475,000 Junior Lien, MBIA Insured, Pre-Refunded, 10.50%, 04/01/08 . . . . . . . . . . . . . . 509,423
2,000,000 Northwest Local School District, Scioto County, AMBAC Insured, 7.05%, 12/01/14 . . . . 2,272,160
1,000,000 Norwalk Waterworks System Revenue, Series 1990, AMBAC Insured, 7.20%, 04/01/15 . . . . 1,125,310
Ohio Capital Corp. for Housing Mortgage Revenue,
4,215,000 Refunding, MBIA Insured, 6.90%, 07/01/24 . . . . . . . . . . . . . . . . . . . . . . 4,374,032
3,500,000 Refunding, Series J, MBIA Insured, 6.50%, 01/01/25 . . . . . . . . . . . . . . . . . 3,633,140
785,000 Ohio HFA, MFHR, Northridge Apartments, FGIC Insured, 10.35%, 12/01/25 . . . . . . . . . 834,745
Ohio HFA, SFMR,
20,000 Series 1985-A, FGIC Insured, 9.00%, 01/15/09 . . . . . . . . . . . . . . . . . . . . 20,805
25,000 Series 1985-C, FGIC Insured, 9.40%, 09/15/08 . . . . . . . . . . . . . . . . . . . . 26,516
3,860,000 Series 1988-C, GNMA Mortgage Backed Securities, 8.00%, 09/01/08 . . . . . . . . . . . 4,199,333
3,620,000 Series 1988-C, GNMA Mortgage Backed Securities, 8.125%, 03/01/20 . . . . . . . . . . 3,870,613
4,590,000 Series 1989-A, GNMA Mortgage Backed Securities, 7.65%, 03/01/29 . . . . . . . . . . . 5,021,552
1,480,000 Series 1990-B, GNMA Mortgage Backed Securities, 7.40%, 09/01/15 . . . . . . . . . . . 1,567,572
</TABLE>
The accompanying notes are an integral part of these financial statements.
89
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Ohio HFA, SFMR, (cont.)
$ 2,965,000 Series 1990-C, GNMA Mortgage Backed Securities, 7.85%, 09/01/21 . . . . . . . . . . . $ 3,186,545
1,710,000 Series 1990-D, GNMA Mortgage Backed Securities, 7.50%, 09/01/13 . . . . . . . . . . . 1,827,015
4,750,000 Series 1990-I, GNMA Mortgage Backed Securities, 7.60%, 09/01/16 . . . . . . . . . . . 5,001,180
5,100,000 Series 1991-D, GNMA Mortgage Backed Securities, 7.05%, 09/01/16 . . . . . . . . . . . 5,392,230
Ohio Municipal Electric Generation Agency, Joint Venture,
19,320,000 AMBAC Insured, 5.625%, 02/15/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,373,903
4,070,000 AMBAC Insured, 5.375%, 02/15/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,897,758
Ohio State Air Quality Development Authority Revenue,
1,000,000 PCR, Refunding, FGIC Insured, 7.45%, 03/01/16 . . . . . . . . . . . . . . . . . . . . 1,129,670
7,000,000 PCR, Refunding, Pennsylvania Power Co., AMBAC Insured, 6.45%, 05/01/27. . . . . . . . 7,488,810
8,700,000 Refunding, Cincinnati Gas & Electric, MBIA Insured, 5.45%, 01/01/24 . . . . . . . . . 8,401,068
4,000,000 Series A, FGIC Insured, 6.375%, 12/01/20. . . . . . . . . . . . . . . . . . . . . . . 4,247,120
1,100,000 Ohio State Department of Transportation, COP, Panhandle Rail Line Project, Series A,
CGIC Insured, 6.50%, 04/15/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,191,278
Ohio State Higher Educational Facility Commission Revenue,
2,500,000 Dayton University Project, FGIC Insured, 7.25%, 12/01/12. . . . . . . . . . . . . . . 2,833,825
1,725,000 Dayton University Project, FGIC Insured, 6.75%, 12/01/15. . . . . . . . . . . . . . . 1,904,383
1,135,000 Northern University Project, FGIC Insured, 7.30%, 05/15/10. . . . . . . . . . . . . . 1,245,174
915,000 Oberlin College Project, FGIC Insured, Pre-Refunded, 9.25%, 10/01/15. . . . . . . . . 1,012,566
1,000,000 Wittenberg University Project, FGIC Insured, 7.85%, 06/01/07. . . . . . . . . . . . . 1,119,550
1,500,000 Xavier University Project, MBIA Insured, Pre-Refunded, 7.625%, 11/01/08 . . . . . . . 1,711,440
Ohio State Water Development Authority Revenue,
670,000 AMBAC Insured, 9.375%, 12/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . 726,709
1,915,000 AMBAC Insured, Pre-Refunded, 9.375%, 12/01/18 . . . . . . . . . . . . . . . . . . . . 2,106,979
5,000,000 Refunding, Dayton Power, Series A, AMBAC Insured, 6.40%, 08/15/27 . . . . . . . . . . 5,337,150
1,000,000 Refunding & Improvement, AMBAC Insured, 5.50%, 12/01/11 . . . . . . . . . . . . . . . 995,420
1,270,000 Refunding & Improvement, AMBAC Insured, 5.50%, 12/01/18 . . . . . . . . . . . . . . . 1,258,011
2,000,000 Series I, AMBAC Insured, ETM 06/01/05, 7.00%, 12/01/09. . . . . . . . . . . . . . . . 2,336,100
Olentangy Local School District GO,
375,000 BIG Insured, 7.75%, 12/01/08. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467,213
375,000 BIG Insured, 7.75%, 12/01/09. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467,115
375,000 BIG Insured, 7.75%, 12/01/10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473,156
1,000,000 MBIA Insured, 6.35%, 12/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,081,810
1,000,000 Olmsted Falls Local School District, FGIC Insured, 7.05%, 12/15/11. . . . . . . . . . . 1,140,020
2,500,000 Orrville Electric System Mortgage Revenue, Refunding, Series A & B, AMBAC Insured,
7.50%, 12/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,845,275
450,000 Orrville Electric System Revenue, Refunding & Improvement, Series 1985, AMBAC Insured,
Pre-Refunded, 9.50%, 12/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,861
4,100,000 Orrville Sewer System Revenue, Improvement Mortgage, MBIA Insured, 7.875%, 12/01/12 . . 4,662,479
1,500,000 Ottawa County GO, Catawba Isle, AMBAC Insured, 7.00%, 09/01/11. . . . . . . . . . . . . 1,674,135
1,950,000 Ottawa County Sewer System Revenue, Refunding, Danbury Project, AMBAC Insured,
5.50%, 10/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,930,968
3,225,000 Oxford Water Supply System Mortgage Revenue, AMBAC Insured, Pre-Refunded,
7.625%, 12/01/14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,732,228
</TABLE>
The accompanying notes are an integral part of these financial statements.
90
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Painesville Township Local School District GO,
$ 3,240,000 Lake County, FGIC Insured, 5.625%, 12/01/09 . . . . . . . . . . . . . . . . . . . . . $ 3,299,616
4,490,000 Lake County, FGIC Insured, 5.65%, 12/01/15 . . . . . . . . . . . . . . . . . . . . . 4,562,738
2,000,000 Perrysburg Exempted Village School District, AMBAC Insured, 6.00%, 12/01/15 . . . . . . 2,074,900
Pickerington Local School District GO,
1,000,000 Construction & Improvement, FGIC Insured, 5.375%, 12/01/19 . . . . . . . . . . . . . 956,310
1,000,000 Refunding, AMBAC Insured, 5.55%, 12/01/07 . . . . . . . . . . . . . . . . . . . . . . 1,026,820
Puerto Rico Commonwealth Public Improvement,
1,000,000 MBIA Insured, Pre-Refunded, 6.50%, 07/01/09 . . . . . . . . . . . . . . . . . . . . . 1,136,540
3,250,000 MBIA Insured, Pre-Refunded, 6.60%, 07/01/13 . . . . . . . . . . . . . . . . . . . . . 3,715,953
11,000,000 Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 07/01/21 . . . . . . 11,233,640
Revere Local School District,
2,000,000 AMBAC Insured, 5.25%, 12/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,920,360
1,600,000 AMBAC Insured, 6.00%, 12/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,656,864
1,300,000 Reynoldsburg City School District, FGIC Insured, 6.55%, 12/01/17 . . . . . . . . . . . 1,402,830
1,000,000 Richland County Hospital Improvement Mortgage Revenue, Refunding, Mansfield General
Hospital Project, AMBAC Insured, 9.375%, 12/01/09 . . . . . . . . . . . . . . . . . . 1,108,420
2,000,000 Ross County Hospital Revenue, Refunding, Medical Center Hospital, AMBAC Insured,
5.60%, 12/01/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,975,640
1,200,000 Rural Lorain County Water Authority, Water Resource Revenue, Refunding, AMBAC
Insured, Pre-Refunded, 7.70%, 10/01/08 . . . . . . . . . . . . . . . . . . . . . . . 1,387,248
600,000 Saint Mary's Electric System Mortgage Revenue, AMBAC Insured, 6.65%, 12/01/11 . . . . . 660,396
750,000 Saint Mary's Waterworks Revenue, AMBAC Insured, 6.65%, 12/01/11 . . . . . . . . . . . . 825,495
2,000,000 Salem GO, AMBAC Insured, 6.50%, 12/01/06 . . . . . . . . . . . . . . . . . . . . . . . 2,255,660
1,000,000 South Euclid Lyndhurst City School District, FGIC Insured, 5.30%, 12/01/14 . . . . . . 962,190
600,000 South Range Local School District, MBIA Insured, 6.15%, 12/01/18 . . . . . . . . . . . 630,150
South-Western City School District of Ohio, Franklin & Pickway Counties,
490,000 FGIC Insured, 7.875%, 12/01/03 . . . . . . . . . . . . . . . . . . . . . . . . . . . 590,318
550,000 FGIC Insured, 7.875%, 12/01/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . 666,243
600,000 FGIC Insured, 7.875%, 12/01/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . 731,028
600,000 FGIC Insured, 7.875%, 12/01/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . 734,712
1,125,000 Springboro Water Systems Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/18 . . . . . . 1,102,444
Springfield City School District,
1,220,000 Clark County, AMBAC Insured, 6.40%, 12/01/12 . . . . . . . . . . . . . . . . . . . . 1,315,123
1,000,000 Clark County, AMBAC Insured, 6.60%, 12/01/12 . . . . . . . . . . . . . . . . . . . . 1,107,640
315,000 Springfield Sewer System 1st Mortgage Revenue, Series 1985, FGIC Insured,
Pre-Refunded, 9.00%, 02/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,247
315,000 Springfield Water System 1st Mortgage Revenue, Series 1985, FGIC Insured,
Pre-Refunded, 9.00%, 02/01/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,247
2,500,000 Stark County GO, Refunding, AMBAC Insured, 5.70%, 11/15/17 . . . . . . . . . . . . . . 2,518,850
3,830,000 Stark County Hospital Facilities Revenue, Refunding, Timken Mercy Medical Center,
Series A, FGIC Insured, Pre-Refunded, 7.50%, 12/01/07 . . . . . . . . . . . . . . . . 4,247,508
8,500,000 Stark County Sanitary Sewer System Revenue, Series A, MBIA Insured, Pre-Refunded,
7.75%, 11/15/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,871,730
2,075,000 Steubenville City School District, Series A, AMBAC Insured, 6.20%, 12/01/17 . . . . . . 2,188,108
</TABLE>
The accompanying notes are an integral part of these financial statements.
91
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 1,750,000 Struthers City School District, AMBAC Insured, 6.50%, 12/01/14 . . . . . . . . . . . . $ 1,909,548
Summit County GO,
660,000 Limited Tax, Building Improvement, AMBAC Insured, Pre-Refunded, 8.00%, 12/01/07 . . . 760,789
355,000 Limited Tax, Capital Improvement, AMBAC Insured, Pre-Refunded, 8.00%, 12/01/07 . . . 409,212
3,530,000 Limited Tax, County Jail Improvement, AMBAC Insured, Pre-Refunded, 7.85%, 12/01/08 . 4,118,910
795,000 Limited Tax, Justice Facilities, AMBAC Insured, Pre-Refunded, 8.00%, 12/01/07 . . . . 916,404
1,000,000 Limited Tax, Refunding, Series B, AMBAC Insured, 6.95%, 08/01/08 . . . . . . . . . . 1,128,540
690,000 Limited Tax, Sewer System Improvement, AMBAC Insured, Pre-Refunded, 8.00%, 12/01/07 . 795,370
500,000 Limited Tax, Water System Improvement, AMBAC Insured, Pre-Refunded, 8.00%, 12/01/07 . 576,355
Toledo GO,
500,000 Limited Tax, FGIC Insured, 7.375%, 12/01/00 . . . . . . . . . . . . . . . . . . . . . 569,270
400,000 Limited Tax, FGIC Insured, 7.375%, 12/01/02 . . . . . . . . . . . . . . . . . . . . . 462,528
650,000 Limited Tax, FGIC Insured, 7.375%, 12/01/03 . . . . . . . . . . . . . . . . . . . . . 755,222
650,000 Limited Tax, FGIC Insured, 7.375%, 12/01/04 . . . . . . . . . . . . . . . . . . . . . 760,416
650,000 Limited Tax, FGIC Insured, 7.375%, 12/01/05 . . . . . . . . . . . . . . . . . . . . . 761,664
625,000 Limited Tax, FGIC Insured, 7.375%, 12/01/06 . . . . . . . . . . . . . . . . . . . . . 729,331
4,500,000 Limited Tax, MBIA Insured, 6.50%, 12/01/11 . . . . . . . . . . . . . . . . . . . . . 4,893,795
Toledo Sewerage System Mortgage Revenue,
275,000 Refunding, MBIA Insured, Pre-Refunded, 10.625%, 12/01/00 . . . . . . . . . . . . . . 295,768
6,000,000 Refunding, Series 1988-B, MBIA Insured, 7.75%, 11/15/17 . . . . . . . . . . . . . . . 6,841,620
Trumbull County GO,
3,000,000 Hillside Hospital Project, Series 1990, CGIC Insured, 7.125%, 12/01/14 . . . . . . . 3,467,070
1,500,000 Refunding, AMBAC Insured, 5.30%, 12/01/14 . . . . . . . . . . . . . . . . . . . . . . 1,452,210
Trumbull County Hospital Revenue,
1,000,000 Refunding & Improvement, Series A, FGIC Insured, 6.25%, 11/15/12 . . . . . . . . . . 1,057,020
2,000,000 Refunding, Series B, FGIC Insured, 6.90%, 11/15/12 . . . . . . . . . . . . . . . . . 2,211,740
4,000,000 Twinsburg City School District, CGIC Insured, 6.70%, 12.01/11 . . . . . . . . . . . . . 4,415,240
1,600,000 University of Cincinnati, COP, MBIA Insured, 6.75%, 12/01/09. . . . . . . . . . . . . . 1,774,352
University of Toledo General Receipt,
2,535,000 FGIC Insured, 5.30%, 06/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,408,808
2,350,000 MBIA Insured, Pre-Refunded, 7.65%, 06/01/08 . . . . . . . . . . . . . . . . . . . . . 2,695,685
3,450,000 MBIA Insured, Pre-Refunded, 7.70%, 06/01/18 . . . . . . . . . . . . . . . . . . . . . 3,964,119
1,000,000 Urbana Wastewater Treatment Plant GO, AMBAC Insured, 7.05%, 12/01/11. . . . . . . . . . 1,140,440
1,400,000 Valley Local School District, AMBAC Insured, 7.00%, 12/01/13. . . . . . . . . . . . . . 1,600,452
1,250,000 Warren County, Ohio Sewer Revenue, Series A, FGIC Insured, Pre-Refunded, 7.20%,
12/01/15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,462,588
2,000,000 Warren County Waterworks District Revenue, Refunding, FGIC Insured, 5.45%, 12/01/15 . . 1,967,300
Warren GO,
2,415,000 MBIA Insured, 6.65%, 11/01/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,695,551
1,015,000 Refunding, AMBAC Insured, 5.50%, 11/15/13 . . . . . . . . . . . . . . . . . . . . . . 1,007,672
1,150,000 Washington City Water System Revenue, AMBAC Insured, 5.30%, 12/01/13 . . . . . . . . . 1,114,338
500,000 Washington County Hospital Revenue, Refunding, Marietta Memorial Hospital,
AMBAC Insured, Pre-Refunded, 9.00%, 06/01/98. . . . . . . . . . . . . . . . . . . . . 563,154
</TABLE>
The accompanying notes are an integral part of these financial statements.
92
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Westerville, Minerva Park & Blendon Joint Township Hospital District Revenue,
$ 825,000 Refunding & Improvement, St. Ann's Hospital, AMBAC Insured, Pre-Refunded, 9.50%,
09/15/12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 908,176
5,000,000 Refunding, St. Ann's Hospital, Series B, AMBAC Insured, 7.00%, 09/15/12 . . . . . . . 5,595,700
2,000,000 Wilmington City School District, FGIC Insured, 6.30%, 12/01/14 . . . . . . . . . . . . 2,140,920
500,000 Woodmore Local School District, Refunding, AMBAC Insured, 5.65%, 12/01/08 . . . . . . . 516,420
8,700,000 Wooster City School District, AMBAC Insured, 6.50%, 12/01/17 . . . . . . . . . . . . . 9,461,336
2,350,000 Worthington City School District, Refunding, FGIC Insured, 6.375%, 12/01/12 . . . . . . 2,553,674
410,000 Xenia Waterworks 1st Mortgage Revenue, AMBAC Insured, 9.20%, 08/15/00 . . . . . . . . . 455,435
--------------
TOTAL LONG TERM INVESTMENTS (COST $620,774,161) . . . . . . . . . . . . . . . . 673,548,158
--------------
(g)SHORT TERM INVESTMENTS .5%
1,400,000 Ohio Air Quality Development Authority Revenue, Refunding, Environmental Mead Corp.,
Daily VRDN and Put, 2.30%, 10/01/01 . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000
1,400,000 Ohio State Water Development Authority Revenue, Refunding, Environmental Mead Co.,
Series B, Daily VRDN and Put, 2.30%, 11/01/15 . . . . . . . . . . . . . . . . . . . . 1,400,000
100,000 Puerto Rico Commonwealth, Government Development Bank, Refunding, Weekly VRDN and
Put, 2.25%, 12/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $2,900,000) . . . . . . . . . . . . . . . 2,900,000
--------------
TOTAL INVESTMENTS (COST $623,674,161) 98.6% . . . . . . . . . . . . . . . . . 676,448,158
OTHER ASSETS AND LIABILITIES, NET 1.4% . . . . . . . . . . . . . . . . . . . 9,950,308
--------------
NET ASSETS 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 686,398,466
==============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $623,738,953 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,458,874
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value . . . . . . . . . . . . . . . . . . . . . . . . (1,749,669)
--------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,709,205
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Authority/Agency
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
PCR - Pollution Control Revenue
SFMR - Single Family Mortgage Revenue
YHA - Young's Town Hospital
(e)See Note 1 regarding securities purchased on a when-issued basis.
(g)Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
93
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost . . . . . . . . . . . . $12,450,011 $32,474,689 $1,629,961,582 $275,512,931
=========== =========== ============== ============
At value . . . . . . . . . . . . . . . . 12,360,543 31,837,549 1,776,522,604 301,179,483
Cash . . . . . . . . . . . . . . . . . . . . 284,992 131,728 149,266 652,876
Receivables:
Interest . . . . . . . . . . . . . . . . . 160,752 566,650 27,060,383 4,363,465
Investment securities sold . . . . . . . . -- -- 6,404,589 3,133,331
Capital shares sold . . . . . . . . . . . 103,578 401,915 4,627,126 316,238
----------- ----------- -------------- ------------
Total assets. . . . . . . . . . . . . . . 12,909,865 32,937,842 1,814,763,968 309,645,393
----------- ----------- -------------- ------------
Liabilities:
Payables:
Investment securities purchased:
When-issued basis (Note 1) . . . . . . . -- 732,812 5,530,636 1,967,918
Distributions payable to shareholders . . . 12,321 30,802 1,931,754 323,782
Capital shares repurchased . . . . . . . . -- 23,900 3,904,237 177,467
Management fees . . . . . . . . . . . . . . -- -- 696,715 135,992
Shareholder servicing costs . . . . . . . . -- -- 22,260 3,954
Accrued expenses and other liabilities . . . 2,100 -- 130,755 23,222
----------- ----------- -------------- ------------
Total liabilities . . . . . . . . . . . . 14,421 787,514 12,216,357 2,632,335
----------- ----------- -------------- ------------
Net assets, at value . . . . . . . . . . . . $12,895,444 $32,150,328 $1,802,547,611 $307,013,058
=========== =========== ============== ============
Net assets consist of:
Undistributed net investment income . . . . $ 21,629 $ 36,544 $ 1,437,812 $ 381,928
Unrealized appreciation (depreciation)
on investments . . . . . . . . . . . . . (89,468) (637,140) 146,561,022 25,666,552
Accumulated net realized loss . . . . . . . (41,795) (94,569) (4,394,298) (2,014,015)
Capital shares . . . . . . . . . . . . . . 13,005,078 32,845,493 1,658,943,075 282,978,593
----------- ----------- -------------- ------------
Net assets, at value . . . . . . . . . . . . $12,895,444 $32,150,328 $1,802,547,611 $307,013,058
=========== =========== ============== ============
Shares outstanding . . . . . . . . . . . . . 1,254,849 3,193,936 144,787,839 25,995,155
=========== =========== ============== ============
Net asset value per share . . . . . . . . . . $10.28 $10.07 $12.45 $11.81
=========== =========== ============== ============
Representative computation (Franklin Insured
Tax-Free Income Fund) of net asset value
and offering price per share:
Net asset value and redemption price per
share ($1,802,547,611 divided by
144,787,839) $12.45
===========
Maximum offering price (100/96 of $12.45)+ $12.97**
===========
</TABLE>
(**)The maximum offering price for Franklin Arizona Insured Tax-Free Income
Fund and Franklin Florida Insured Tax-Free Income Fund is calculated at
100/95.5 of $10.28 and $10.07, respectively.
(+)Effective July 1, 1994, the maximum offering price for the Trust
(excluding the Franklin Arizona Insured Tax-Free Income and the Franklin
Florida Insured Tax-Free Income Fund) will increase to 4.25%. On sales of
$100,000 or more, the offering price is reduced as stated in the section
of the prospectus entitled ``How to Buy Shares of the Fund?'' The
accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
94
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------- ---------------- -----------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ............................ $ 959,656,900 $459,603,349 $623,674,161
============== ============ ============
At value ...................................... 1,043,833,846 494,057,208 676,448,158
Cash ........................................... 487,611 2,767,936 1,331,906
Receivables:
Interest ...................................... 17,925,435 6,121,197 11,751,749
Investment securities sold .................... 40,800 715,190 1,950,000
Capital shares sold ........................... 2,606,689 800,198 1,998,564
-------------- ------------ ------------
Total assets ................................ 1,064,894,381 504,461,729 693,480,377
-------------- ------------ ------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery .............................. -- 1,029,111 2,197,780
When-issued basis (Note 1) .................... 6,753,031 2,531,564 2,788,928
Distributions payable to shareholders .......... 1,109,204 521,705 712,514
Capital shares repurchased ..................... 1,079,435 489,979 1,043,482
Management fees ................................ 416,355 208,190 278,315
Shareholder servicing costs .................... 16,283 8,380 10,475
Accrued expenses and other liabilities .......... 68,344 54,172 50,417
-------------- ------------ ------------
Total liabilities............................. 9,442,652 4,843,101 7,081,911
-------------- ------------ ------------
Net assets, at value............................. $1,055,451,729 $499,618,628 $686,398,466
============== ============ ============
Net assets consist of:
Undistributed net investment income ............ $ 802,583 $ 545,129 $ 713,281
Unrealized appreciation on investments ......... 84,176,946 34,453,859 52,773,997
Accumulated net realized gain (loss) ........... (2,257,113) 145,502 (5,739,009)
Capital shares ................................. 972,729,313 464,474,138 638,650,197
-------------- ------------ ------------
Net assets, at value ............................ $1,055,451,729 $499,618,628 $686,398,466
============== ============ ============
Shares outstanding .............................. 86,212,902 40,506,368 55,334,796
============== ============ ============
Net asset value per share ....................... $12.24 $12.33 $12.40
============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
95
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION> FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND* INCOME FUND* INCOME FUND INCOME FUND
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Investment income:
Interest (Note 1) . . . . . . . . . . . . $ 317,969 $ 694,879 $107,083,408 $18,644,915
--------- --------- ------------ -----------
Expenses:
Management fees (Note 5) . . . . . . . . . -- -- 7,938,004 1,592,310
Shareholder servicing costs (Note 5) . . . -- -- 261,838 48,462
Reports to shareholders. . . . . . . . . . -- -- 287,555 53,896
Custodian fees . . . . . . . . . . . . . . -- -- 184,485 32,237
Professional fees. . . . . . . . . . . . . -- -- 49,822 8,546
Trustees' fees and expenses. . . . . . . . -- -- 30,806 5,421
Registration fees . . . . . . . . . . . . -- -- 58,466 962
Insurance (Note 1) . . . . . . . . . . . . -- -- 1,206 21,853
Distribution fees (Rule 12b-1) . . . . . . 2,090 -- -- --
Other . . . . . . . . . . . . . . . . . . -- -- 60,417 14,948
--------- --------- ------------ -----------
Total expenses . . . . . . . . . . . . . 2,090 -- 8,872,599 1,778,635
--------- --------- ------------ -----------
Net investment income. . . . . . . . . 315,879 694,879 98,210,809 16,866,280
--------- --------- ------------ -----------
Realized and unrealized gain (loss) on
investments:
Net realized gain (loss) . . . . . . . . . (41,795) (94,569) (182,322) 171,880
Net unrealized appreciation (depreciation)
during the year. . . . . . . . . . . . . (89,468) (637,140) 2,238,586 1,772,216
--------- --------- ------------ -----------
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . (131,263) (731,709) 2,056,264 1,944,096
--------- --------- ------------ -----------
Net increase (decrease) in net assets
resulting from operations. . . . . . . . . $ 184,616 $ (36,830) $100,267,073 $18,810,376
========= ========= ============ ===========
</TABLE>
*For the period April 30, 1993 (effective date of registration) to February 28,
1994.
The accompanying notes are an integral part of these financial statements.
96
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------- ---------------- ----------------
<S> <C> <C> <C>
Investment income:
Interest (Note 1) . . . . . . . . . . . . . . . . . . . . . . $61,363,634 $30,096,509 $39,161,256
----------- ----------- -----------
Expenses:
Management fees (Note 5) . . . . . . . . . . . . . . . . . . 4,738,911 2,422,894 3,143,227
Shareholder servicing costs (Note 5) . . . . . . . . . . . . 195,027 100,667 123,700
Reports to shareholders . . . . . . . . . . . . . . . . . . . 195,307 117,986 129,299
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . 108,259 52,127 69,681
Professional fees . . . . . . . . . . . . . . . . . . . . . . 26,277 13,194 17,305
Trustees' fees and expenses . . . . . . . . . . . . . . . . . 17,958 8,768 11,552
Registration fees . . . . . . . . . . . . . . . . . . . . . . 2,601 28,328 2,849
Insurance (Note 1) . . . . . . . . . . . . . . . . . . . . . 70,237 138,086 56,935
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,240 20,517 23,457
----------- ----------- -----------
Total expenses . . . . . . . . . . . . . . . . . . . . 5,385,817 2,902,567 3,578,005
----------- ----------- -----------
Net investment income . . . . . . . . . . . . . . . . 55,977,817 27,193,942 35,583,251
----------- ----------- -----------
Realized and unrealized gain (loss) on investments:
Net realized gain . . . . . . . . . . . . . . . . . . . . . . 459,461 2,976,878 637,987
Net unrealized appreciation (depreciation) during the year. . 3,729,678 (4,088,719) 1,766,334
----------- ----------- -----------
Net realized and unrealized gain (loss) on investments . . . . 4,189,139 (1,111,841) 2,404,321
----------- ----------- -----------
Net increase in net assets resulting from operations . . . . . $60,166,956 $26,082,101 $37,987,572
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
97
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 28, 1993 AND 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
ARIZONA FLORIDA
INSURED INSURED
TAX-FREE TAX-FREE FRANKLIN INSURED FRANKLIN MASSACHUSETTS
INCOME FUND* INCOME FUND* TAX-FREE INCOME FUND INSURED TAX-FREE INCOME FUND
------------ ------------ -------------------------------- ----------------------------
1994 1994 1994 1993 1994 1993
------------ ------------ -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets:
Operations:
Net investment income . . . . . $ 315,879 $ 694,879 $ 98,210,809 $ 82,510,488 $ 16,866,280 $ 14,801,690
Net realized gain (loss) from
security transactions . . . . (41,795) (94,569) (182,322) (2,150,831) 171,880 (28,337)
Net unrealized appreciation
(depreciation) during the
year . . . . . . . . . . . . . (89,468) (637,140) 2,238,586 87,155,668 1,772,216 15,405,128
----------- ----------- -------------- -------------- ------------ ------------
Net increase (decrease)
in net assets resulting
from operations . . . . . 184,616 (36,830) 100,267,073 167,515,325 18,810,376 30,178,481
Distributions to shareholders:
From undistributed net
investment income . . . . . . (294,250) (658,335) (98,675,451) (81,809,452) (17,044,673) (14,485,698)
Increase in net assets from
capital share transactions
(Note 2) . . . . . . . . . . . . 13,005,078 32,845,493 261,770,193 322,887,497 26,737,308 44,481,476
----------- ----------- -------------- -------------- ------------ ------------
Net increase in net
assets . . . . . . . . . 12,895,444 32,150,328 263,361,815 408,593,370 28,503,011 60,174,259
Net assets:
Beginning of year . . . . . . . _ _ 1,539,185,796 1,130,592,426 278,510,047 218,335,788
----------- ----------- -------------- -------------- ------------ ------------
End of year . . . . . . . . . . $12,895,444 $32,150,328 $1,802,547,611 $1,539,185,796 $307,013,058 $278,510,047
=========== =========== ============== ============== ============ ============
Undistributed net investment
income included in net
assets:
Beginning of year . . . . . . $ _ $ _ $ 1,902,454 $ 1,201,418 $ 560,321 $ 244,329
=========== =========== ============== ============== ============ ============
End of year . . . . . . . . . $ 21,629 $ 36,544 $ 1,437,812 $ 1,902,454 $ 381,928 $ 560,321
=========== =========== ============== ============== ============ ============
</TABLE>
*For the period April 30, 1993 (effective date of registration) to
February 28, 1994
The accompanying notes are an integral part of these financial statements.
98
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1993 AND 1994
<TABLE>
<CAPTION>
Franklin Michigan Insured Franklin Minnesota Insured Franklin Ohio Insured
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
----------------------------- --------------------------- ---------------------------
1994 1993 1994 1993 1994 1993
-------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease)
in net assets:
Operations:
Net investment income . . . $ 55,977,817 $ 46,700,039 $ 27,193,942 $ 24,226,622 $ 35,583,251 $ 29,209,062
Net realized gain (loss)
from security
transactions . . . . . . 459,461 89,322 2,976,878 (47,992) 637,987 (90,225)
Net unrealized appreciation
(depreciation) during
the year . . . . . . . . 3,729,678 51,303,870 (4,088,719) 22,823,512 1,766,334 33,025,434
-------------- ------------ ------------ ------------ ------------ ------------
Net increase in net
assets resulting
from operations . . 60,166,956 98,093,231 26,082,101 47,002,142 37,987,572 62,144,271
Distributions to shareholders:
From undistributed net
investment income . . . . (56,524,804) (45,991,601) (27,179,498) (24,016,269) (35,851,022) (28,600,275)
Increase in net assets from
capital share transactions
(Note 2) . . . . . . . . . 169,448,399 164,345,939 54,949,390 65,501,573 119,504,297 122,169,468
-------------- ------------ ------------ ------------ ------------ ------------
Net increase in net
assets . . . . . . 173,090,551 216,447,569 53,851,993 88,487,446 121,640,847 155,713,464
Net assets:
Beginning of year . . . . . 882,361,178 665,913,609 445,766,635 357,279,189 564,757,619 409,044,155
-------------- ------------ ------------ ------------ ------------ ------------
End of year . . . . . . . . $1,055,451,729 $882,361,178 $499,618,628 $445,766,635 $686,398,466 $564,757,619
============== ============ ============ ============ ============ ============
Undistributed net investment
income included in net
assets:
Beginning of year . . . . . $ 1,349,570 $ 641,132 $ 530,685 $ 320,332 $ 981,052 $ 372,265
============== ============ ============ ============ ============ ============
End of year . . . . . . . . $ 802,583 $ 1,349,570 $ 545,129 $ 530,685 $ 713,281 $ 981,052
============== ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
99
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is an open-end, diversified management
investment company (mutual fund), registered under the Investment Company Act
of 1940 as amended. The Trust currently consists of twenty-seven separate funds
(the Funds). This report pertains only to the seven Funds included in the
accompanying financial statements, two of which became operational as of April
30, 1993. Each of the Funds issues a separate series of the Trust's shares and
maintains a totally separate investment portfolio.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATIONS: Tax-free bonds generally trade in the over-the-counter
market rather than on a national securities exchange. Often there are no
transactions in a particular security on any given day. In the absence of a
recorded sale or reported bid and asked prices, information with respect to
bond and note transactions, quotations from bond dealers, market transactions
in comparable securities, and various relationships between securities are
used to determine the value of the security. The Trust may also utilize a
pricing service, bank or broker/dealer experienced in such matters to perform
any of the pricing functions, under procedures approved by the Board of
Trustees. Short-term securities and similar investments with remaining
maturities of 60 days or less are valued at amortized cost, which approximates
value.
B. MUNICIPAL BONDS OR NOTES WITH "PUTS": The Trust has purchased municipal
bonds or notes with the right to resell the bonds or notes to the seller at an
agreed upon price or yield on a specified date or within a specified period
(which will be prior to the maturity date of the bonds or notes). Such a right
to resell is commonly known as a "put".
C. INSURANCE: Each long-term municipal security in the Trust is insured as to
the scheduled payments of interest and principal by either a mutual fund
Portfolio Insurance Policy, a Secondary Market Insurance Policy, a New Issue
Insurance Policy or collateral guaranteed by an agency of the U.S. government.
The providers of secondary market and new issue insurance are rated "AAA" by
Standard & Poor's.
Premiums for a mutual fund Portfolio Insurance Policy or a Secondary Market
Insurance Policy are paid from the Trust's assets. Premiums for a mutual fund
Portfolio Insurance Policy (effective only so long as the Trust is in
existence, Financial Guaranty (the insurer) remains in business and the
municipal security insured under the policy continues to be held by the Trust)
will reduce the current income of the portfolio by the amount thereof. Premiums
paid by the Trust for a Secondary Market Insurance Policy (effective so long as
the security so insured is outstanding and the insurer remains in business) are
added to the cost basis of the municipal security insured and are not
considered an expense of the Trust. Premiums for a New Issue Insurance Policy
(effective so long as the security so insured is outstanding and the insurer
remains in business) are paid in advance by the insured security issuer or by
another third party prior to acquisition of the security by the Trust and are
not considered an expense of the Trust.
D. INCOME TAXES: The Trust 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. Each Fund is treated as a separate entity in the
determination of compliance with the Internal Revenue Code.
E. SECURITY TRANSACTIONS: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses on
security transactions are determined on the basis of specific identification
for both financial statement and income tax purposes.
F. INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS: Distributions to
shareholders are recorded on the ex-dividend date. Interest income and
estimated expenses are accrued daily. Bond discount and premium, if any, are
amortized as required by the Internal Revenue Code. The Funds normally declare
dividends from their net investment income daily and distribute monthly. Daily
allocations of net investment income will commence on the date of receipt of an
investor's funds. Dividends are normally declared each day the New York Stock
Exchange is open for business equal to an amount per day set from time to time
by the Board of Trustees, and are payable to shareholders of record at the
beginning of business on the ex-date. Once each month, dividends are reinvested
in additional shares of the Funds, or paid in cash as requested by the
shareholders.
Distributions from undistributed net investment income, and net realized
capital gains from security transactions, to the extent they exceed available
capital loss carryovers, are generally made during each year to avoid the 4%
excise tax imposed on regulated investment companies by the Internal Revenue
Code.
Net realized capital gains and loss differ for financial statement and tax
purposes primarily due to losses deferred for wash sales.
100
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
g. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS OR DELAYED DELIVERY BASIS: The
Funds 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 Funds will generally purchase these securities with the intention
of acquiring such securities, they may sell such securities before the
settlement date. The Funds have 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.
h. EXPENSE ALLOCATION: Common expenses incurred by the Trust are allocated
among the Funds based on the ratio of net assets of each Fund to the combined
net assets. In all other respects, expenses are charged to each Fund as
incurred on a specific identification basis.
2. TRUST SHARES
At February 28, 1994, there were an unlimited number of shares of no par value
authorized. Transactions in each of the Fund's shares for the years ended
February 28, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Franklin Arizona Insured Franklin Florida Insured Franklin Insured
Tax-Free Income Fund* Tax-Free Income Fund* Tax-Free Income Fund
------------------------- ------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
--------- ----------- --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended February 28, 1994
Shares sold . . . . . . . . . . 1,139,006 $11,785,848 2,919,579 $30,013,775 28,471,368 $ 356,483,380
Shares issued in connection
with merger (Note 7) . . . . . _ _ _ _ 2,593,362 32,598,558
Shares issued in reinvestment
of distributions . . . . . . . 15,291 160,077 20,884 215,324 2,862,815 35,839,828
Shares redeemed . . . . . . . . (9,013) (94,657) (114,447) (1,181,506) (11,849,686) (148,759,222)
Changes from exercise
of exchange privilege:
Shares sold . . . . . . . . 159,431 1,679,398 428,998 4,430,908 7,066,865 88,477,586
Shares redeemed . . . . . . (49,866) (525,588) (61,078) (633,008) (8,219,372) (102,869,937)
--------- ----------- --------- ----------- ---------- -------------
Net increase . . . . . . . . . . 1,254,849 $13,005,078 3,193,936 $32,845,493 20,925,352 $ 261,770,193
========= =========== ========= =========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
Franklin Massachusetts Insured
Tax-Free Income Fund
------------------------------
Shares Amount
----------- -------------
<S> <C> <C>
Year ended February 28, 1994
Shares sold . . . . . . . . . . . . . . . . . . . . 4,437,891 $ 52,598,781
Shares issued in connection
with merger (Note 7) . . . . . . . . . . . . . . _ _
Shares issued in reinvestment
of distributions . . . . . . . . . . . . . . . . 535,785 6,356,171
Shares redeemed . . . . . . . . . . . . . . . . . . (2,234,748) (26,498,193)
Changes from exercise
of exchange privilege:
Shares sold . . . . . . . . . . . . . . . . . . 1,784,355 21,209,070
Shares redeemed . . . . . . . . . . . . . . . . (2,271,987) (26,928,521)
---------- ------------
Net increase . . . . . . . . . . . . . . . . . . . 2,251,296 $ 26,737,308
========== ============
</TABLE>
<TABLE>
<CAPTION>
Franklin Insured Franklin Massachusetts Insured
Tax-Free Income Fund Tax-Free Income Fund
---------------------------- ------------------------------
Shares Amount Shares Amount
---------- ------------- ----------- -------------
Year ended February 28, 1993 <C> <C> <C> <C>
Shares sold . . . . . . . . . . 31,278,705 $ 373,271,944 4,644,423 $ 52,350,152
Shares issued in reinvestment of distributions . . . . . 2,480,858 29,653,266 475,260 5,361,889
Shares redeemed . . . . . . . . . . . . . . . . . . . . . (7,374,446) (88,115,454) (1,406,700) (15,817,539)
Changes from exercise of exchange privilege:
Shares sold . . . . . . . . . . . . . . . . . . . . . . 6,031,974 71,815,853 2,865,325 32,210,634
Shares redeemed . . . . . . . . . . . . . . . . . . . . (5,330,481) (63,738,112) (2,626,518) (29,623,660)
---------- ------------- ---------- ------------
Net increase . . . . . . . . . . . . . . . . . . . . . . 27,086,610 $ 322,887,497 3,951,790 $ 44,481,476
========== ============= ========== ============
</TABLE>
*For the period April 30, 1993 (effective date of registration) to February 28,
1994.
<TABLE>
<CAPTION>
Franklin Michigan Insured Franklin Minnesota Insured Franklin Ohio Insured
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
-------------------------- -------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended February 28, 1994
Shares sold . . . . . . . . . . . 17,033,485 $209,411,748 6,113,477 $ 76,019,793 11,782,700 $147,064,536
Shares issued in reinvestment
of distributions. . . . . . . . 1,868,012 23,008,684 1,012,321 12,603,066 1,185,589 14,817,672
Shares redeemed . . . . . . . . . (4,842,074) (59,718,468) (2,800,600) (34,891,098) (3,406,820) (42,637,712)
Changes from exercise of exchange
privilege:
Shares sold . . . . . . . . . 1,445,394 17,825,337 664,074 8,275,048 702,104 8,763,342
Shares redeemed . . . . . . . (1,706,763) (21,078,902) (566,546) (7,057,419) (681,770) (8,503,541)
---------- ------------ ---------- ------------ ---------- ------------
Net increase. . . . . . . . . . . 13,798,054 $169,448,399 4,422,726 $ 54,949,390 9,581,803 $119,504,297
========== ============ ========== ============ ========== ============
</TABLE>
101
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
2. TRUST SHARES (CONT.)
<TABLE>
<CAPTION>
Franklin Michigan Insured Franklin Minnesota Insured
Tax-Free Income Fund Tax-Free Income Fund
------------------------------ ----------------------------
Shares Amount Shares Amount
---------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended February 28, 1993
Shares sold . . . . . . . . . . . . . . . . . . . . . 16,668,931 $194,957,164 6,841,592 $ 81,577,126
Shares issued in reinvestment of distributions. . . . 1,555,316 18,222,142 926,914 11,060,657
Shares redeemed . . . . . . . . . . . . . . . . . . . (4,331,594) (50,700,009) (2,342,828) (27,979,609)
Changes from exercise of exchange privilege:
Shares sold . . . . . . . . . . . . . . . . . . . . 1,282,515 15,010,463 787,967 9,372,383
Shares redeemed . . . . . . . . . . . . . . . . . . (1,123,094) (13,143,821) (715,686) (8,528,984)
---------- ------------ ---------- ------------
Net increase. . . . . . . . . . . . . . . . . . . . . 14,052,074 $164,345,939 5,497,959 $ 65,501,573
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
Franklin Ohio Insured
Tax-Free Income Fund
------------------------------
Shares Amount
---------- --------------
<S> <C> <C>
Year ended February 28, 1993
Shares sold . . . . . . . . . . . . . . . . . . . . . 11,954,242 $141,111,834
Shares issued in reinvestment of distributions. . . . 996,325 11,783,748
Shares redeemed . . . . . . . . . . . . . . . . . . . (2,646,899) (31,292,002)
Changes from exercise of exchange privilege:
Shares sold . . . . . . . . . . . . . . . . . . . . 651,068 7,666,481
Shares redeemed . . . . . . . . . . . . . . . . . . (601,736) (7,100,593)
---------- ------------
Net increase. . . . . . . . . . . . . . . . . . . . . 10,353,000 $122,169,468
========== ============
</TABLE>
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At February 28, 1994, for income tax purposes, the Funds had accumulated
undistributed net realized capital gains or capital loss carryovers as
follows:
<TABLE>
<CAPTION>
Franklin Minnesota
Insured Tax-Free
Income Fund
------------------
<S> <C>
Undistributed net realized capital gain . . . . . $146,496
========
</TABLE>
<TABLE>
<CAPTION>
Franklin Franklin
Arizona Insured Florida Insured Franklin
Tax-Free Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund
--------------- --------------- ----------------
<S> <C> <C> <C>
Capital loss carryovers
Expiring in: 1996 . . . . . . . $ - $ - $ -
1997 . . . . . . . - - 1,780,770
1998 . . . . . . . - - 280,975
1999 . . . . . . . - - -
2000 . . . . . . . - - -
2001 . . . . . . . - - 2,150,831
2002 . . . . . . . 41,544 94,569 132,717
--------- --------- ----------
$ 41,544 $ 94,569 $4,345,293
========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Franklin
Massachusetts Franklin Michigan Franklin Ohio
Insured Tax-Free Insured Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund
---------------- ---------------- ----------------
<S> <C> <C> <C>
Capital loss carryovers
Expiring in: 1996 . . . . . . . $ 162,106 $ - $1,606,253
1997 . . . . . . . 1,463,422 2,257,113 3,975,739
1998 . . . . . . . 359,586 - -
1999 . . . . . . . - - -
2000 . . . . . . . - - 2,000
2001 . . . . . . . 6,640 - 90,225
2002 . . . . . . . - - -
---------- ---------- ----------
$1,991,664 $2,257,113 $5,674,217
========== ========== ==========
</TABLE>
The aggregate cost of securities is higher for income tax purposes than for
financial reporting purposes at February 28, 1994 by $251 in the Franklin
Arizona Insured Tax-Free Income Fund, $49,005 in the Franklin Insured Tax-Free
Income Fund, $22,351 in the Franklin Massachusetts Insured Tax-Free Income
Fund, $994 in the Franklin Minnesota Insured Tax-Free Income Fund, and $64,792
in the Franklin Ohio Insured Tax-Free Income Fund.
4. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended February 28, 1994 were as follows:
<TABLE>
<CAPTION>
Franklin Franklin Franklin
Arizona Florida Franklin Massachusetts
Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund Income Fund
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Purchases. . . . . . $16,994,373 $36,795,777 $367,611,392 $64,589,516
=========== =========== ============ ===========
Sales. . . . . . . . $ 4,604,817 $ 4,628,057 $113,941,660 $40,219,689
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Franklin Franklin
Michigan Minnesota Franklin Ohio
Insured Tax-Free Insured Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund
---------------- ---------------- ----------------
<S> <C> <C> <C>
Purchases. . . . . . $205,163,716 $115,118,206 $161,524,643
============ ============ ============
Sales. . . . . . . . $ 31,235,310 $ 63,480,067 $ 45,673,838
============ ============ ============
</TABLE>
102
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
for investment advice, administrative services, office space and facilities to
each Fund, and receives fees computed monthly on the net assets of each 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, and 45/100 of 1% of net assets in excess of $250
million. Fees incurred by the seven Funds aggregated $19,974,007 for the year
ended February 28, 1994. The terms of the management agreement provide that
aggregate annual expenses of the Funds be limited to the extent necessary to
comply with the limitations set forth in the laws, regulations and
administrative interpretations of the states in which the Funds' shares are
registered. The Funds' expenses did not exceed these limitations; however, for
the year ended February 28, 1994, Franklin Advisers, Inc. reduced its
management fees by $43,672 and $94,989 for the Franklin Arizona Insured
Tax-Free Income Fund and the Franklin Florida Insured Tax-Free Income Fund,
respectively. In addition, Franklin Advisers, Inc. bore other expenses of
$8,151 and $21,118 for the Arizona Insured Tax-Free Income Fund and the Florida
Insured Tax-Free Income Fund, respectively, which are not reflected in the
Statement of Operations.
In its capacity as underwriter for the shares of the Funds, Franklin/Templeton
Distributors, Inc. received commissions on sales of the Funds' shares.
Commissions received by Franklin/Templeton Distributors, Inc. and the amounts
which were subsequently paid to other dealers for the year ended February 28,
1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS MICHIGAN MINNESOTA OHIO
INSURED INSURED INSURED INSURED INSURED INSURED INSURED
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND* INCOME FUND* INCOME FUND* INCOME FUND* INCOME FUND* INCOME FUND* INCOME FUND*
------------ ------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total commissions received $399,345 $1,143,608 $12,230,430 $2,068,206 $8,310,641 $3,123,021 $5,867,852
======== ========== =========== ========== ========== ========== ==========
Paid to other dealers . . $386,723 $1,091,172 $11,605,428 $1,950,867 $7,870,421 $2,901,107 $5,590,312
======== ========== =========== ========== ========== ========== ==========
</TABLE>
Commissions are deducted from the gross proceeds received from the sale of
the Funds' shares, and as such are not expenses of the Funds.
Under the terms of a shareholder servicing agreement with Franklin/Templetion
Investor Services, Inc., the Trust pays costs on a per shareholder account
basis. Shareholder servicing costs incurred by the seven Funds for the year
ended February 28, 1994 aggregated $733,471 of which $654,595 was paid to
Franklin/Templeton Investor Services, Inc. and $3,777 was borne by Franklin
Advisers, Inc.
Under the terms of a Distribution Plan pursuant to Rule 12b-1 of the Investment
Company Act of 1940, the Arizona Insured Tax-Free Income Fund and the Florida
Insured Tax-Free Income Fund will reimburse Franklin/Templeton Distributors,
Inc., in an amount up to .10% per annum of the Funds' average daily net assets
for costs incurred in the promotion, offering and marketing of the Funds'
shares. Fees totalling $4,525 and $13,928, which would have been incurred by
the Arizona Insured Tax-Free Income Fund and the Florida Insured Tax-Free
Income Fund, respectively, under the distribution plan, were borne by
Franklin/Templeton Distributors, Inc.
Certain officers and trustees of the Trust are also officers and/or directors
of Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., and
Franklin/Templeton Investor Services, Inc., all wholly-owned subsidiaries of
Franklin Resources, Inc.
6. CREDIT RISK
Although each of the Funds has a diversified investment portfolio, all of its
investments are in the securities of issuers within its respective state and
Puerto Rico, except for the Franklin Insured Tax-Free Income Fund. Such
concentration may subject the Funds more significantly to economic changes
occurring within those states and Puerto Rico.
The Franklin Insured Tax-Free Income Fund has investments in excess of 10% of
its total net assets in the state of Texas.
Each of the insurance policies covering securities held by the funds is issued
by an insurer rated "AA" by Standard & Poor's. Only eight insurers provide
coverage to the funds. As a result the funds may face the risk of loss if
changes in the solvency of an insurer occur.
103
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
7. ACQUISITION OF TEMPLETON INSURED TAX FREE FUND
On August 27, 1993, the Franklin Insured Tax-Free Income Fund acquired all of
the net assets of the Templeton Insured Tax Free Fund (Templeton Insured)
pursuant to a plan of reorganization approved by the shareholders of Templeton
Insured on August 27, 1993.
The acquisition was accomplished by a tax-free exchange of Franklin Insured
Tax-Free Income Fund shares for all the net assets of the Templeton Insured,
which was accounted for as a pooling-of-interest without restatement for
financial reporting purposes.
The selected financial information and shares outstanding immediately before
and after the acquisition for the funds were as follows:
<TABLE>
<CAPTION>
Net Asset
Value Shares Exchange
Net Assets Per Share Outstanding Ratio
---------------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Templeton Insured
Tax Free Fund ..................... $ 32,598,558 $11.76 2,772,792 0.93528889
Franklin Insured
Tax-Free Income Fund .............. 1,696,663,673 12.57 134,925,173
Combined ............................ 1,729,262,231 12.57 137,518,535
</TABLE>
<TABLE>
<CAPTION>
Undistributed Accumulated Unrealized
Net Investment Net Realized Appreciation
Income Gain (Loss) on Investments
-------------- ------------ --------------
<S> <C> <C> <C>
Templeton Insured
Tax Free Fund ..................... - $ 600 $ 3,194,669
Franklin Insured
Tax-Free Income Fund .............. $450,384 (4,302,663) 163,032,062
Combined ............................ 450,384 (4,302,063) 166,226,731
</TABLE>
8. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout each
period are set forth in the prospectus under the caption "Financial
Highlights."
104
<PAGE>
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN TAX-FREE TRUST
FRANKLIN ARIZONA TAX-FREE INCOME FUND
FRANKLIN COLORADO TAX-FREE INCOME FUND
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
FRANKLIN INDIANA TAX-FREE INCOME FUND
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
FRANKLIN OREGON TAX-FREE INCOME FUND
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
DATED JULY 1, 1994
The following sections of the prospectus are revised to reflect changes to the
operational policies of the Funds effective February 1, 1995:
1. EXPENSE TABLE
Revised to reflect that investments of $1,000,000 or more are not subject to a
front-end sales charge. A contingent deferred sales charge of 1%, however, will
be imposed on certain redemptions within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares of
the Fund-Contingent Deferred Sales Charge."
2. MANAGEMENT OF THE TRUST
Revised to add the definition "Franklin Templeton Group" to describe the
subsidiaries of Resources.
3. HOW TO BUY SHARES OF THE FUNDS:
a) Add the following language under "General":
The Fund may impose a $10 charge for each returned item against any
shareholder account which, in connection with the purchase of the Funds'
shares, submits a check or a draft which is returned unpaid to a Fund.
b) Substitute the following for the sales charge table and the ensuing two
paragraphs:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-----------------------------------------------------------
AS A AS A DEALER CONCESSION
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF NET AS A PERCENTAGE
AT OFFERING PRICE OFFERING PRICE AMOUNT INVESTED OF OFFERING PRICE* ***
- ------------------- -------------- ----------------- -----------------------
<S> <C> <C> <C>
Less than $100,000................... 4.25% 4.44% 4.00%
$100,000 but less than $250,000...... 3.50% 3.63% 3.25%
$250,000 but less than $500,000...... 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000.... 2.15% 2.20% 2.00%
$1,000,000 or more................... none none (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, from its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 0.75% on sales of $1 million but less than $2 million,
plus 0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million but
less than $100 million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases.
***At the discretion of Distributors, all sales charges may at times be allowed
to the securities dealer. If 90% or more of the sales commission is allowed,
such securities dealer may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
investments of $ 1 million or more within 12 months
1
<PAGE>
of the calendar month following such investments ("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 each Fund's 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(R) 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. mutual funds in the Templeton Group of
Funds except Templeton American Trust, Inc., Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund (the "Templeton Funds"). (Franklin Funds and Templeton Funds are
collectively referred to as the "Franklin Templeton Funds.") Sales charge
reductions based upon aggregate holdings of (a), (b) and (c) above ("Franklin
Templeton Investments") may be effective only after notification to
Distributors that the investment qualifies for a discount. References
throughout the Prospectus, for purposes of aggregating assets or describing
the exchange privilege, refer to the above descriptions.
Distributors, or one of its affiliates, may make payments, out of its own
resources, of up to 1% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset value by certain
trust companies and trust departments of banks. See definitions under
"Description of Special Net Asset Value Purchases" and as set forth in the SAI.
c) Substitute the following for the current "Purchases at Net Asset Value"
subsection:
PURCHASES AT NET ASSET VALUE
Shares of the Funds may be purchased without the imposition of either a
front-end sales charge ("net asset value") or a contingent deferred sales
charge by (1) officers, directors, trustees and full-time employees of the
Trust, any of the Franklin Templeton Funds, or of the Franklin Templeton Group,
and by their spouses and family members; (2) companies exchanging shares with
or selling assets pursuant to a merger, acquisition or exchange offer;
(3) registered securities dealers and their affiliates, for their investment
account only, and (4) registered personnel and employees of securities dealers
and by their spouses and family members, in accordance with the internal
policies and procedures of the employing securities dealer.
Shares of the Funds may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of a Fund or another of
the Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. An
investor may reinvest an amount not exceeding the redemption proceeds. While
credit will be given for any contingent deferred sales charge paid on the
shares redeemed, a new contingency period will begin. Shares of a 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 a 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.
2
<PAGE>
Dividends and capital gains received in cash by the shareholder may also be
used to purchase shares of the Funds or another of the Franklin Templeton
Funds at net asset value and without the imposition of a contingent deferred
sales charge within 120 days of the payment date of such distribution. To
exercise this privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be obtained from
Shareholder Services at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Shares of the Funds may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have,
within the past 60 days, redeemed an investment in an unaffiliated mutual
fund which charged the investor a contingent deferred sales charge upon
redemption and which has investment objectives similar to those of the Funds.
Shares of the Funds may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by registered investment
advisors and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with Distributors, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).
Shares of the Funds 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 Funds are legally permissible investments 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 Funds should consult with expert counsel to determine the effect, if any,
of various payments made by the Funds or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a dealer who has executed a dealer agreement
with Distributors, Distributors or one of its affiliates may make a payment,
out of their own resources, to such dealer in an amount not to exceed 0.25% of
the amount invested. Contact Franklin's Institutional Sales Department for
additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in these Funds or any of the
Franklin Templeton Investments must total at least $1,000,000. Orders for such
accounts will be accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.
Refer to the SAI for further information.
4. EXCHANGE PRIVILEGE
a) The following has been added to the end of the first paragraph: Investors
should review the prospectus of the fund they wish to exchange from and the
fund they wish to exchange into for all specific requirements or limitations
on exercising the exchange privilege, for example, minimum holding periods or
applicable sales charges.
b) The following option is added to "Exchanges By Telephone":
3
<PAGE>
The automatic TeleFACTS(R) system at 1-800/247-1753 is available for
processing exchanges (day or night). During periods of drastic economic or
market changes, however, this option may not be available, in which event the
shareholder should follow other exchange procedures discussed in the Prospectus.
c) Add the following paragraph under the subsection "Additional Information
Regarding Exchanges":
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales
charge in the original fund purchased, and shares are subsequently redeemed
within the contingency period, a contingent deferred sales charge will be
imposed. The contingency period will be tolled (or stopped) for the period
such shares are exchanged into and held in a Franklin or Templeton money
market fund. See also "How to Sell Shares of the Fund - Contingent Deferred
Sales Charge."
d) Substitute the following for the subsection "Timing Accounts":
As of March 1, 1995, "Timing Accounts" will no longer be permitted to purchase
shares of the Funds or to exchange into the Funds. This policy does not affect
any other types of investor. "Timing Accounts" generally include market timing
or allocation services; accounts administered so as to redeem or purchase
shares based upon certain predetermined market indicators; or any person whose
transactions seem to follow a timing pattern. The sections of the Prospectus
"How to Buy Shares of Each Fund" and "Exchange Privilege", specifically
"Restrictions on Exchanges" are amended to reflect the Funds' new policy.
5. HOW TO SELL SHARES OF A FUND
Add the following subsection:
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers on investments of
$1 million or more, a contingent deferred sales charge of 1% applies to
redemptions of those investments within the contingency period of 12 months
of the calendar month following such purchase. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares,
and is retained by Distributors. In determining if a charge applies, shares
not subject to a contingent deferred sales charge are deemed to be redeemed
first, in the following order: (i) shares representing amounts attributable
to capital appreciation of those shares held less than 12 months; (ii)
shares purchased with reinvested dividends and capital gain distributions;
and (iii) other shares held longer than 12 months; and followed by any
shares held less than 12 months, on a "first in, first out" basis.
The contingent deferred sales charge is waived for: exchanges; redemptions
through a Systematic Withdrawal Plan set up prior to February 1, 1995 and
for Systematic Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6% semiannually or
12% annually); and redemptions initiated by a Fund due to a shareholder's
account falling below the minimum specified account size.
Requests for redemptions for a specified dollar amount will result in
additional shares being redeemed to cover any applicable contingent deferred
sales charge, while requests for redemption of a specific number of shares
will result in the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.
6. PORTFOLIO OPERATIONS
The section "Portfolio Operations" is changed to add Thomas Kenny as Portfolio
Manager in place of Gregory Harrington. Mr. Kenny is Senior Vice President of
the investment manager and director of Franklin's municipal bond department.
He joined Franklin in 1986. He received a Bachelor of Arts degree in Business
and Economics from the University of California at Santa Barbara and Master of
Science degree in Finance from Golden Gate University. He is a member of
several municipal securities industry related committees and associations.
4
<PAGE>
FRANKLIN
TAX-FREE TRUST
PROSPECTUS July 1, 1994
[LOGO]
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin Tax-Free Trust (the "Trust") is an open-end management investment
company consisting of 27 separate series. This Prospectus relates to the nine
series listed on the cover (separately or collectively the "Fund" or "Funds").
Each Fund seeks to provide investors with as high a level of income exempt from
federal income taxes as is consistent with prudent investing, while seeking
preservation of shareholders' capital. Each Fund, other than Franklin High
Yield Tax-Free Income Fund, also seeks to provide a maximum level of income
which is exempt from the personal income taxes for resident shareholders of the
named state or territory (which collectively may be referred to hereafter as
the "State Funds" or individually by the state, territory or investment policy
included in its name). The High Yield Fund seeks to provide investors with a
high current yield exempt from federal income taxes by investing in municipal
securities which have been rated in the lower-grade categories by one of
various nationally recognized statistical rating organizations ("NRSROs") such
as Moody's Investors Service ("Moody's"), Standard and Poor's Corporation
("S&P"), or Fitch Investors Service, Inc.("Fitch"), or in unrated municipal
securities deemed to be of comparable credit quality by the Fund's investment
manager. As a secondary objective, the Fund will seek capital appreciation to
the extent this is possible and is consistent with its principal investment
objective. Franklin Puerto Rico Tax-Free Income Fund seeks to provide a maximum
level of income which is exempt from the personal income taxes of the majority
of states. Residents of Puerto Rico should consult their tax advisers prior to
investing in any of the Funds.
Franklin High Yield Tax-Free Income Fund invests in a diversified portfolio of
municipal securities from different states. Each State Fund invests primarily
in municipal securities issued by its respective state and its political
subdivisions, agencies and instrumentalities.
THE HIGH YIELD FUND MAY INVEST UP TO 100% OF ITS PORTFOLIO IN NON-INVESTMENT
GRADE BONDS, COMMONLY KNOWN AS "JUNK BONDS", WHICH ENTAIL DEFAULT AND OTHER
RISKS GREATER THAN THOSE ASSOCIATED WITH HIGHER RATED SECURITIES. INVESTORS
SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE HIGH
YIELD FUND. SEE "INVESTMENT RISK CONSIDERATIONS - RISK FACTORS RELATING TO HIGH
YIELDING, FIXED-INCOME SECURITIES."
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 intended to set forth in a clear and concise manner
information about the Trust
1
<PAGE>
and each of the nine Funds that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
A Statement of Additional Information ("SAI"), concerning the Funds, dated
July 1, 1994, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be
of interest to some investors. It has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated herein by reference. A copy
is available without charge from the Trust or the Trust's principal
underwriter, Franklin/Templeton Distributors, Inc. ("Distributors") at the
address or telephone number listed above.
SHARES OF THE FUNDS 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 FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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.
<TABLE>
<CAPTION>
CONTENTS ................................................................ PAGE
<S> <C>
Expense Table ........................................................... 3
Financial Highlights .................................................... 4
About the Trust ......................................................... 7
Investment Objective and
Policies of Each Fund .................................................. 7
Investment Risk Considerations .......................................... 11
Management of the Trust ................................................. 16
Distributions to Shareholders ........................................... 18
Taxation of the Funds
and Their Shareholders ................................................ 19
How to Buy Shares of the Funds .......................................... 22
Other Programs and Privileges
Available to Shareholders of the Funds ................................. 27
Exchange Privilege ...................................................... 29
How to Sell Shares of a Fund ............................................ 31
Telephone Transactions .................................................. 34
Valuation of Shares of the Funds......................................... 34
How to Get Information Regarding
an Investment in a Fund ................................................ 35
Performance ............................................................. 36
General Information ..................................................... 37
Account Registrations ................................................... 38
Important Notice Regarding
Taxpayer IRS Certifications ............................................ 39
Portfolio Operations .................................................... 40
Appendix A -
Description of State Tax Treatment ..................................... 41
Appendix B -
Special Factors Affecting Each State Fund .............................. 44
Appendix C -
Description of Municipal
Securities Ratings ..................................................... 47
</TABLE>
2
<PAGE>
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 a Fund. These figures are based on the
operating expenses of the Funds for the fiscal year ended February 28, 1994,
restated to reflect 12b-1 fees as though such had been in effect at the
beginning of the fiscal year.
<TABLE>
CONNEC- HIGH NEW PENN- PUERTO
ARIZONA COLORADO TICUT YIELD INDIANA JERSEY OREGON SYLVANIA RICO
FUND FUND FUND FUND FUND FUND FUND FUND FUND
------- -------- ------- ----- ------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)....... 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
Maximum Sales Charge Imposed on
Reinvested Dividends...................... NONE NONE NONE NONE NONE NONE NONE NONE NONE
Deferred Sales Charge........................ NONE NONE NONE NONE NONE NONE NONE NONE NONE
Redemption Fees.............................. NONE NONE NONE NONE NONE NONE NONE NONE NONE
*Exchange Fee (per transaction).............. $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees.............................. 0.49% 0.57% 0.59% 0.46% 0.63% 0.50% 0.53% 0.50% 0.58%
**12b-1 Fees................................. 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Other Expenses:
Shareholder Servicing Costs................ 0.01% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.03%
Reports to Shareholders.................... 0.02% 0.02% 0.03% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Other...................................... 0.02% 0.03% 0.01% 0.03% 0.03% 0.02% 0.01% 0.02% 0.03%
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses................ 0.64% 0.74% 0.75% 0.63% 0.67% 0.81% 0.68% 0.66% 0.76%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
*$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
**Shareholders of each Fund approved a plan of distribution (the "Plan")
pursuant to Rule 12b-1 of the Investment Company Act of 1940 which provides for
payments by each Fund for distribution of its shares, up to a maximum annual
rate of 0.10% of average net assets. See "Management of the Funds - Plans of
Distribution." 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 a Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by regulations of the SEC, the following examples illustrate the
expenses, including the initial sales charge, that apply to a $1,000 investment
in a Fund over various time periods assuming (1) a 5% annual rate of return and
(2) redemption at the end of each time period. As noted in the table above, the
Funds charge no redemption fees:
<TABLE>
<CAPTION>
CONNEC- HIGH NEW PENN- PUERTO
ARIZONA COLORADO TICUT YIELD INDIANA JERSEY OREGON SYLVANIA RICO
FUND FUND FUND FUND FUND FUND FUND FUND FUND
------- -------- ------- ----- ------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Year......................... $ 49 $ 50 $ 50 $ 49 $ 50 $ 49 $ 49 $ 49 $ 50
Three Years...................... 62 65 65 62 67 63 63 63 66
Five Years....................... 77 82 82 76 86 78 79 78 83
Ten Years........................ 119 130 132 118 138 122 124 121 133
</TABLE>
3
<PAGE>
THE ABOVE EXAMPLES ARE BASED ON THE RESTATED AGGREGATE ANNUAL OPERATING
EXPENSES 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 each Fund and only indirectly by shareholders as a result of their
investment in a Fund. In addition, federal regulations require the example to
assume an annual return of 5%, but each Fund's actual return may be more or
less than 5%.
FINANCIAL HIGHLIGHTS
Set forth below is a table containing the financial highlights for a share of
each Fund from its effective date of registration, as indicated below, through
the fiscal year ended February 28, 1994. The information for each of the five
fiscal years in the period ended February 28, 1994, has been audited by Coopers
& Lybrand, independent auditors, whose audit report appears in the financial
statements in the SAI. The remaining figures, which are also audited, are not
covered by the auditors' current report. See the discussion "Reports to
Shareholders" under "General Information."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-----------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN ARIZONA TAX-FREE INCOME FUND:
1988(4) $10.00 $0.42 $ 0.170 $0.590 $(0.180) $ -- $(0.180) $10.41 9.88%*
1989 10.41 0.75 (0.040) 0.710 (0.748) (0.002) (0.750) 10.37 6.86
1990 10.37 0.71 0.198 0.908 (0.768) -- (0.768) 10.51 8.70
1991 10.51 0.70 0.128 0.828 (0.768) -- (0.768) 10.57 7.92
1992 10.57 0.67 0.308 0.978 (0.728) -- (0.728) 10.82 9.45
1993 10.82 0.68 0.733 1.413 (0.663) -- (0.663) 11.57 13.22
1994 11.57 0.66 0.020 0.680 (0.670) -- (0.670) 11.58 5.76
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1988(4) $ 7,885 -- % 6.20%* 24.07%
1989 65,710 0.51 6.58 26.64
1990 214,606 0.68 6.53 20.82
1991 412,912 0.59 6.58 4.13
1992 585,986 0.56 6.37 1.56
1993 707,702 0.55 6.11 5.67
1994 796,838 0.54 5.65 14.17
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-----------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN COLORADO TAX-FREE INCOME FUND:
1988(4) $10.00 $0.46 $0.117 $0.577 $(0.177) $ -- $(0.177) $10.40 9.00%*
1989 10.40 0.79 0.076 0.866 (0.736) -- (0.736) 10.53 8.41
1990 10.53 0.73 0.196 0.926 (0.756) -- (0.756) 10.70 8.76
1991 10.70 0.70 0.056 0.756 (0.756) -- (0.756) 10.70 7.07
1992 10.70 0.68 0.361 1.041 (0.741) -- (0.741) 11.00 9.93
1993 11.00 0.70 0.845 1.545 (0.695) -- (0.695) 11.85 14.26
1994 11.85 0.68 0.100 0.780 (0.690) -- (0.690) 11.94 6.49
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1988(4) $ 1,969 -- % 6.91%* 22.46%
1989 11,026 -- 7.25 7.83
1990 38,315 0.56 6.63 0.82
1991 69,715 0.74 6.54 17.72
1992 110,085 0.70 6.44 21.46
1993 159,280 0.67 6.20 5.66
1994 202,158 0.64 5.69 10.85
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-----------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND:
1989(6) $10.00 $0.20 $0.017 $0.217 $(0.057) $ -- $(0.057) $10.16 5.16%*
1990 10.16 0.70 0.184 0.884 (0.684) -- (0.684) 10.36 8.65
1991 10.36 0.64 0.024 0.664 (0.684) -- (0.684) 10.34 6.39
1992 10.34 0.62 0.211 0.831 (0.681) -- (0.681) 10.49 8.16
1993 10.49 0.64 0.664 1.304 (0.634) -- (0.634) 11.16 12.60
1994 11.16 0.62 0.080 0.700 (0.630) -- (0.630) 11.23 6.16
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1989(6) $ 5,637 -- % 4.68%* 5.21
1990 22,793 0.36 6.37 3.69
1991 48,035 0.71 6.10 8.65
1992 88,184 0.71 6.11 28.28
1993 126,816 0.69 5.97 28.52
1994 163,050 0.65 5.54 5.54
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN INDIANA TAX-FREE INCOME FUND:
1988(4) $10.00 $0.45 $ 0.209 $0.659 $(0.189) $ -- $(0.189) $10.47 11.28%*
1989 10.47 0.79 (0.014) 0.776 (0.756) -- (0.756) 10.49 7.47
1990 10.49 0.80 0.236 1.036 (0.756) -- (0.756) 10.77 9.86
1991 10.77 0.74 0.096 0.836 (0.776) -- (0.776) 10.83 7.78
1992 10.83 0.69 0.325 1.015 (0.775) -- (0.775) 11.07 9.53
1993 11.07 0.71 0.828 1.538 (0.708) -- (0.708) 11.90 14.10
1994 11.90 0.68 0.108 0.788 (0.678) -- (0.678) 12.01 6.53
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1988(4) $ 1,693 -- % 6.70%* -- %
1989 5,875 -- 7.41 10.67
1990 11,310 0.06 7.34 0.06
1991 14,946 0.51 6.91 24.60
1992 23,914 0.50 6.60 0.03
1993 37,367 0.59 6.16 7.98
1994 47,870 0.71 5.62 16.12
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND:
1989(3) $10.00 $0.58 $ 0.317 $0.897 $(0.375) $(0.002) $(0.377) $10.52 11.20%*
1990 10.52 0.71 0.230 0.940 (0.780) -- (0.780) 10.68 8.87
1991 10.68 0.69 0.238 0.928 (0.768) -- (0.768) 10.84 8.79
1992 10.84 0.68 0.348 1.028 (0.708) -- (0.708) 11.16 9.65
1993 11.16 0.69 0.694 1.384 (0.688) (0.006) (0.694) 11.85 12.55
1994 11.85 0.67 (0.016) 0.654 (0.684) -- (0.684) 11.82 5.39
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1989(3) $ 19,973 0.25% 6.09%* 7.44%
1990 99,299 0.73 6.41 10.86
1991 258,514 0.65 6.40 1.84
1992 332,536 0.60 6.30 3.66
1993 433,702 0.59 6.06 14.12
1994 561,130 0.57 5.60 4.16
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN OREGON TAX-FREE INCOME FUND:
1988(4) $10.00 $0.44 $ 0.046 $0.486 $(0.116) $ -- $(0.116) $10.37 6.56%*
1989 10.37 0.72 0.046 0.766 (0.696) -- (0.696) 10.44 7.44
1990 10.44 0.69 0.165 0.855 (0.705) -- (0.705) 10.59 8.11
1991 10.59 0.68 0.148 0.828 (0.708) -- (0.708) 10.71 7.87
1992 10.71 0.63 0.384 1.014 (0.704) -- (0.704) 11.02 9.61
1993 11.02 0.66 0.702 1.362 (0.652) -- (0.652) 11.73 12.52
1994 11.73 0.64 (0.021) 0.619 (0.649) -- (0.649) 11.70 5.15
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1988(4) $ 5,436 -- % 6.16%* 14.49%
1989 24,453 0.45 6.72 15.08
1990 73,798 0.70 6.28 12.58
1991 123,486 0.70 6.40 10.74
1992 208,972 0.65 6.09 4.65
1993 303,719 0.62 5.87 7.78
1994 375,684 0.58 5.47 9.42
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND:
1987(3) $10.00 $0.17 $ 0.060 $ 0.230 $ -- $ -- $ 0.000 $10.23 9.20%*
1988 10.23 0.72 (0.799) (0.079) (0.660) (0.001) (0.661) 9.49 (0.53)
1989 9.49 0.69 0.060 0.750 (0.720) -- (0.720) 9.52 7.97
1990 9.52 0.66 0.190 0.850 (0.720) -- (0.720) 9.65 8.86
1991 9.65 0.65 (0.090) 0.560 (0.720) -- (0.720) 9.49 5.76
1992 9.49 0.64 0.380 1.020 (0.670) -- (0.670) 9.84 10.99
1993 9.84 0.64 0.703 1.343 (0.633) -- (0.633) 10.55 13.84
1994 10.55 0.63 0.014 0.644 (0.634) -- (0.634) 10.56 5.99
<CAPTION>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1987(3) $ 1,706 -- % 3.95%* 3.80%
1988 20,663 0.24 7.21 18.69
1989 73,851 0.59 6.97 1.56
1990 180,720 0.73 6.66 6.31
1991 305,592 0.62 6.82 5.23
1992 391,301 0.59 6.71 4.44
1993 505,845 0.58 6.34 5.87
1994 615,546 0.56 5.90 4.73
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND:
1986(1) $10.00 $0.62 $ 0.925 $1.545 $(0.355) $ -- $(0.355) $11.19 16.92%*
1987 11.19 0.85 0.139 0.989 (0.872) (0.017) (0.889) 11.29 8.92
1988 11.29 0.72 (0.588) 0.132 (0.852) -- (0.852) 10.57 1.29
1989 10.57 0.70 0.042 0.742 (0.772) -- (0.772) 10.54 7.06
1990 10.54 0.71 0.235 0.945 (0.725) -- (0.725) 10.76 8.91
1991 10.76 0.76 0.040 0.800 (0.720) -- (0.720) 10.84 7.45
1992 10.84 0.69 0.301 0.991 (0.711) -- (0.711) 11.12 9.31
1993 11.12 0.70 0.673 1.373 (0.683) -- (0.683) 11.81 12.48
1994 11.81 0.68 0.034 0.714 (0.694) -- (0.694) 11.83 5.95
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) (IN 000'S) NET ASSETS RATE
- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1986(1) $ 1,638 -- % 6.55%* 26.52%
1987 22,913 0.28 5.83 1.68
1988 66,598 0.75 6.67 41.98
1989 80,431 0.72 6.76 50.57
1990 82,819 0.70 6.65 14.12
1991 91,601 0.70 7.08 6.09
1992 112,714 0.70 6.45 15.01
1993 144,806 0.69 6.18 10.37
1994 175,036 0.66 5.77 5.10
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-----------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- ----------- --------- ---------- ------------- ---------- ------------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND:
1987(2) $10.00 $0.62 $ 0.222 $0.842 $(0.142) $ -- $(0.142) $10.70 8.73%*
1988 10.70 1.00 (0.409) 0.591 (0.951) -- (0.951) 10.34 5.70
1989 10.34 0.79 0.240 1.030 (0.870) -- (0.870) 10.50 10.87
1990 10.50 0.81 0.120 0.930 (0.890) -- (0.890) 10.54 8.80
1991 10.54 0.82 (0.210) 0.610 (0.840) -- (0.840) 10.31 5.71
1992 10.31 0.78 0.230 1.010 (0.840) -- (0.840) 10.48 9.97
1993 10.48 0.79 0.624 1.414 (0.784) (0.100) (0.794) 11.10 13.72
1994 11.10 0.76 0.169 0.929 (0.779) -- (0.779) 11.25 8.33
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS** TO AVERAGE TURNOVER
FEBRUARY 28 (IN 000'S) (IN 000'S) NET ASSETS RATE
- ----------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1987(2) $ 2,604 -- % 7.10%* 118.29%
1988 103,807 0.65 7.79 26.65
1989 746,018 0.61 7.68 2.02
1990 1,575,016 0.54 7.52 23.41
1991 1,718,082 0.52 7.90 70.60
1992 2,110,055 0.53 7.73 102.57
1993 2,742,765 0.54 7.45 33.46
1994 3,372,533 0.53 6.79 16.09
</TABLE>
(1) For the period April 3, 1985 (Effective date of registration) to February
28, 1986.
(2) For the period March 1, 1986 (Effective date of registration) to February
28, 1987.
(3) For the period December 1, 1986 (Effective date of registration) to February
28, 1987.
(4) For the period September 1, 1987 (Effective date of registration) to
February 29, 1988.
(5) For the period April 23, 1988 (Effective date of registration) to February
28, 1989.
(6) For the period October 3, 1988 (Effective date of registration) to February
28, 1989.
+ Total return measures the change in value of an investment over the periods
indicated. It does not include the Funds' maximum 4.0% initial sales
charge and assumes reinvestment of dividends at the offering price and of
capital gains, if any, at net asset value.
* Annualized
** During the periods indicated below, Franklin Advisers, Inc., the investment
manager, reduced its management fees and reimbursed other expenses
incurred by the Funds. Had such action not been taken, the ratios of
expenses to average net assets would have been as follows:
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS
----------
<S> <C>
Franklin Arizona Tax-Free Income Fund:
1989...................................... 0.73%
Franklin Colorado Tax-Free Income Fund:
1989...................................... 0.74%
1990...................................... 0.72%
Franklin Connecticut Tax-Free Income Fund
1989(6)................................... 0.65%*
1990...................................... 0.72%
1991...................................... 0.72%
Franklin Indiana Tax-Free Income Fund:
1989...................................... 0.77%
1990...................................... 0.70%
1991...................................... 0.74%
1992...................................... 0.74%
1993...................................... 0.73%
Franklin New Jersey Tax-Free Income Fund:
1989(5)................................... 0.66%*
Franklin Oregon Tax-Free Income Fund:
1989...................................... 0.73%
Franklin Pennsylvania Tax-Free Income Fund:
1989...................................... 0.75%
</TABLE>
6
<PAGE>
ABOUT THE TRUST
The Trust is an open-end management investment company, or mutual fund,
organized as a Massachusetts business trust in September 1984 and registered
with the SEC under the Investment Company Act of 1940 (the "1940 Act"). The
Trust currently consists of 27 separate series, as listed under the section
"General Information." Each is a separate series of the Trust's shares and
maintains a totally separate investment portfolio. This Prospectus relates to
the nine series shown below, of which only the Connecticut Fund is
non-diversified:
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Shares of each Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "Valuation of Shares of the Funds") plus a sales
charge based upon a variable percentage (ranging from 4.25% to less than 1.0%
of the offering price) depending upon the amount invested. (See "How to Buy
Shares of a Fund.")
INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND
Each State Fund will attempt to invest 100% and, as a matter of fundamental
policy, will invest at least 80% of the value of its net assets in securities,
the interest on which is exempt from federal income taxes, including the
individual alternative minimum tax, and from the personal income taxes, if any,
for resident shareholders of the named state. Each Fund's objective is a
fundamental policy and may not be changed without shareholder approval.
Although not anticipated, it is possible that up to 20% of a State Fund's net
assets could be in municipal securities from another state and each Fund could
be invested in taxable obligations and municipal obligations, including
"private activity bonds," the interest on which may be subject to the
alternative minimum tax. A Fund would only make such investments on a temporary
basis, when necessary, pending the investment or reinvestment in municipal
obligations, in order to avoid the necessity of liquidating portfolio
securities to satisfy redemptions or pay expenses. Any such investments in
taxable obligations would be in U.S. government securities, commercial paper
rated in the highest grade (Prime-1 or A-1) by either Moody's or by S&P, or in
obligations of banks with assets of $1 billion or more. It is also possible
that a Fund may generate short-term capital gain (taxable as ordinary income
when distributed to shareholders) as a result of market transactions. See
"Taxation of the Funds and Their Shareholders." To the extent that a state
requires that a Fund consist of a specified amount of obligations of that state
or its political subdivisions and obligations of the U.S. and its possessions
in order for any portion of its distributions to be exempt from income
taxation, the respective Fund will endeavor to invest its net assets in such
securities. This, however, is not a fundamental policy and in the event the
investment manager believes that investments in other permissible securities
are necessary to protect the value of such Fund's shares, or if a shareholder's
net return would be increased by investment in such respective state
obligations that
7
<PAGE>
pay taxable income, investments in other permissible obligations may be made.
As a fundamental policy, the Pennsylvania Fund will invest in securities for
income earnings rather than trading for profit. This Fund will not vary its
investments, except to 1) eliminate unsafe investments and investments not
consistent with the preservation of the capital or the tax status of such Fund;
2) honor redemption orders, meet anticipated redemption requirements and negate
gains from discount purchases; 3) reinvest the earnings from securities in like
securities; or 4) defray normal administrative expenses.
Each State Fund may invest, without percentage limitation, in securities
having, at the time of purchase, one of the four highest ratings of Moody's
(Aaa, Aa, A, Baa), S&P (AAA, AA, A, BBB), Fitch (AAA, AA, A, BBB), or in
securities which are not rated, provided that, in the opinion of each Fund's
investment manager, such securities are comparable in quality to those within
the four highest ratings. These are considered to be "investment grade"
securities, although bonds rated Baa are regarded as having an adequate
capacity to pay principal and interest but with greater vulnerability to
adverse economic conditions and to have some speculative characteristics. A
description of the ratings is contained in Appendix C to this Prospectus.
The investment manager considers the terms of the offering and various other
factors in order 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 typically (i) interviews 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) performs
analysis of the issuer's financial and credit position, including comparisons
of all appropriate ratios, and (iii) compares other similar securities
offerings to the issuer's proposed offering.
For temporary defensive purposes only, when the investment manager believes
that market conditions, such as rising interest rates or other adverse factors,
would cause serious erosion of portfolio value, (i) each of the Funds may
invest more than 20% of its assets (which could be up to 100%) in fixed-income
obligations the interest on which is subject to federal income tax and (ii) a
State Fund may invest more than 20% of the value of its net assets (which could
be up to 100%) in instruments the interest on which is exempt from federal
income taxes but not to a resident shareholder's named state's personal income
taxes. Such temporary investments will be limited to obligations issued or
guaranteed by the full faith and credit of the U.S. government or, except for
the High Yield Fund, in securities of other states, territories, their agencies
or instrumentalities, or in the highest quality commercial paper rated A-1 by
S&P. The High Yield Fund may invest in commercial paper rated in any of the
three categories of S&P.
Each Fund may borrow from banks for temporary or emergency purposes up to 5% of
its total assets and pledge up to 5% of its total assets in connection
therewith. As approved by the Board of Trustees and subject to the following
conditions, each Fund may lend its portfolio securities to qualified securities
dealers or other institutional investors, provided that such loans do not
exceed 10% of the value of the Fund's total assets at the time of the most
recent loan, and further provided that the borrower deposits and maintains 102%
collateral for the benefit of the Fund. The lending of securities is a common
practice in the securities industry. Each Fund engages in security loan
arrangements
8
<PAGE>
with the primary objective of increasing the Fund's income either through
investing the cash collateral in short-term, interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan
agreement, the Fund continues to be entitled to all dividends or interest on
any loaned securities. As with any extension of credit, there are risks of
delay in recovery and loss of rights in the collateral should the borrower of
the security fail financially. These restrictions have been adopted as
fundamental policies of each of the Funds and may not be changed without the
approval of a majority of the outstanding voting securities of that Fund. A
complete description of the Funds' investment restrictions is included under
"Investment Restrictions" in the SAI.
The High Yield Fund seeks to provide investors with a high current yield exempt
from federal income taxes by investing primarily in non-investment grade rated
or in unrated municipal securities. As a secondary objective, the Fund will
seek capital appreciation to the extent this is possible and is consistent with
its principal investment objective. The High Yield Fund may invest in municipal
securities regardless of the rating given by the NRSROs, including, from time
to time, defaulted debt securities if, in the opinion of the investment
manager, the issuer may resume interest payments or other advantageous
developments appear likely, in the near term. The Fund may also invest in
municipal securities which are unrated by any NRSRO but which are deemed to be
of comparable credit quality by the investment manager. Higher yields are
ordinarily available from municipal securities in the lower-rated categories of
the NRSROs (that is, municipal securities rated Baa or lower by Moody's or BBB
or lower by S&P) or from unrated securities of comparable quality. Securities
in the categories which are rated below investment grade by the NRSROs are
regarded, on balance, as predominantly speculative with respect to the capacity
to pay interest and repay principal in accordance with the terms of the
obligation. The Fund does not intend to invest more than 10% of its total
assets (at the time of purchase) in defaulted debt securities. If the rating on
an issue held in any Fund's portfolio is changed by an NRSRO, such event will
be considered by the Fund in its evaluation of the overall investment merits of
that security.
While it is expected that the portfolio of the High Yield Fund will normally
consist of lower-rated, higher yielding bonds, there may be instances when the
portfolio will contain medium grade (BBB or Baa rated), lower yielding bonds
because adequate quantities of lower-rated bonds are not available at that
time. In addition, there may be times when, due to unusual market conditions,
or when the difference in yields on higher and lower-rated bonds is narrowed to
the extent that higher risk is not justified by higher return, that the High
Yield Fund may acquire higher-rated bonds for its portfolio. It is expected
that the portfolio of the High Yield Fund will generally consist of longer-term
municipal securities as these normally return higher yields than short-term
issues.
In order to achieve its objectives, the High Yield Fund will invest primarily
in securities of states, territories, and possessions of the United States
("U.S.") and the District of Columbia and their political subdivisions,
agencies, and instrumentalities, the interest on which is exempt from federal
income taxes. Under normal market conditions, the High Yield Fund will attempt
to invest 100% and, as a matter of fundamental policy, will invest at least 80%
of the value of its net assets in securities the interest on which is exempt
from federal income tax, including the individual alternative minimum tax.
9
<PAGE>
MUNICIPAL SECURITIES
The term "municipal securities," as used in this Prospectus, means obligations
issued by or on behalf of states, territories and possessions of the U.S. and
the District of Columbia and their political subdivisions, agencies, and
instrumentalities, the interest on which is exempt from federal income tax. An
opinion as to the tax-exempt status of a municipal security generally is
rendered to the issuer by the issuer's counsel at the time of issuance of the
security.
Municipal securities are used to raise money for various public purposes such
as constructing public facilities and making loans to public institutions.
Certain types of municipal bonds are issued to provide funding for privately
operated facilities. Further information on the maturity and funding
classifications of municipal securities is included in the SAI.
The Trust has no restrictions on the maturities of municipal securities in
which the Funds may invest. Each Fund will seek to invest in municipal
securities of such maturities that, in the judgment of the Fund and its
investment manager, will provide a high level of current income consistent with
prudent investment. The investment manager will also consider current market
conditions.
It is possible that any Fund from time to time will invest more than 25% of its
assets in a particular segment of the municipal securities market, such as
hospital revenue bonds, housing agency bonds, industrial development bonds,
transportation bonds, or pollution control revenue bonds, or in securities the
interest on which is paid from revenues of a similar type of project. In such
circumstances, economic, business, political or other changes affecting one
bond (such as proposed legislation affecting the financing of a project;
shortages or price increases of needed materials; or declining markets or needs
for the projects) might also affect other bonds in the same segment, thereby
potentially increasing market risk.
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the municipal
securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Generally, municipal securities
of longer maturities produce higher current yields than municipal securities
with shorter maturities but are subject to greater price fluctuation due to
changes in interest rates, tax laws and other general market factors.
Lower-rated municipal securities generally produce a higher yield than higher
rated municipal securities due to the perception of a greater degree of risk as
to the ability of the issuer to make timely payment of principal and interest
on its obligations.
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 Internal Revenue Code of 1986, as amended
(the "Code"), and under the income tax provisions of several states. This
interest could subject a shareholder to, or increase liability under, the
federal and state alternative minimum 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 a Fund may also be
fully taxable to a corporate shareholder under the state franchise tax system.
10
<PAGE>
Consistent with each Fund's investment objective, a 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 a
Fund. For fiscal year ended February 28, 1994, the portfolios of the
Funds derived the following percentages of their income from bonds the
interest on which constitutes a preference item subject to the federal
alternative minimum tax for certain investors:
<TABLE>
<CAPTION>
FUND PERCENTAGE
- ---- ----------
<S> <C>
Arizona Fund .......................................... 8.43%
Colorado Fund ......................................... 8.95%
Connecticut Fund ...................................... 7.55%
High Yield Fund ....................................... 14.39%
Indiana Fund .......................................... 2.34%
New Jersey Fund ....................................... 10.22%
Oregon Fund ........................................... 8.36%
Pennsylvania Fund ..................................... 7.16%
</TABLE>
Each Fund may purchase floating rate and variable rate obligations. Variable
and floating rate obligations bear interest at prevailing market rates. The
Funds may also invest in variable or floating rate demand notes ("VRDNs").
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 according to its terms 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. Although it is not a put
option in the usual sense, such a demand feature is sometimes known as a "put."
Except for the Connecticut Fund, with respect to 75% of the total value of a
Fund's assets, no more than 5% of such value may be in securities underlying
"puts" from the same institution, except that each Fund may invest up to 10% of
its asset value in unconditional "puts" (exercisable even in the event of a
default in the payment of principal or interest on the underlying security) and
other securities issued by the same institution.
Each Fund may purchase and sell municipal securities on a "when-issued" and
"delayed-delivery" basis. These transactions are subject to market fluctuation,
and the value at delivery may be more or less than the purchase price. Although
the Funds will generally purchase municipal securities on a when-issued basis
with the intention of acquiring such securities, it may sell such securities
before the settlement date if it is deemed advisable. When a Fund is the buyer
in such a transaction, it will maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. To the
extent a Fund engages in "when-issued" and "delayed delivery" transactions, it
will do so for the purpose of acquiring securities for that Fund's portfolio
consistent with its investment objectives and policies and not for the purpose
of investment leverage.
INVESTMENT RISK CONSIDERATIONS
GENERAL
While an investment in any of the Funds is not without risk, certain policies
are followed in managing the Funds 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
11
<PAGE>
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 the Fund's debt investments may rise. Price
changes of debt securities held by a Fund have a direct impact on the net asset
value per share of that Fund. Since each State Fund generally will invest
primarily in the securities of its respective state or territory, there are
certain specific factors and considerations concerning each state or territory
which may affect the credit and market risk of the municipal securities which
such Fund purchases. There are certain specific factors and considerations
concerning each state or territory which may affect the credit and market risk
of the municipal securities which such Fund purchases. These factors are
described in Appendix B to this Prospectus and in the SAI.
The High Yield Fund is diversified nationally and, as a matter of policy the
Fund, will not invest more than 25% of its net assets in the municipal
securities of any one state or territory. In addition, with respect to 75% of
its net assets, each Fund except the Connecticut Fund, as a fundamental policy,
will not purchase a security if, as a result of the investment, more than 5% of
its assets would be in the securities of any single issuer (with the exception
of obligations of the U.S. government). For this purpose, each political
subdivision, agency, or instrumentality and each multi-state agency of which a
state is a member, and each public authority which issues private activity
bonds on behalf of a private entity, will be regarded as a separate issuer for
determining the diversification of each Fund's portfolio. A bond for which the
payments of principal and interest are secured by an escrow account of
securities backed by the full faith and credit of the U.S. government
("defeased") as described in the SAI, in general, will not be treated as an
obligation of the original municipality for purposes of determining industry
concentration.
The Connecticut Fund is non-diversified under the federal securities laws. As a
non-diversified Fund, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. The Fund, however, intends to comply with the diversification and
other requirements of the Code, applicable to "regulated investment companies"
so that it will not be subject to federal income tax, and distributions to
shareholders will be free from regular federal income tax to the extent they
are derived from interest on municipal securities. For this reason the
Connecticut Fund has adopted an investment restriction, which may not be
changed without the approval of shareholders, prohibiting it from purchasing a
security if, as a result, more than 25% of the Fund's total assets would be
invested in the securities of a single issuer, or with respect to 50% of the
Fund's total assets, more than 5% of such assets would be invested in the
securities of a single issuer. To the extent the Fund is not fully diversified
under the 1940 Act, it may be more susceptible to adverse economic, political
or regulatory developments affecting a single issuer than would be the case if
the Fund was more broadly diversified.
RISK FACTORS RELATING TO HIGH YIELDING, FIXED-INCOME SECURITIES
The portfolio of the High Yield Fund is subject to greater risks due to its
ability to invest in municipal securities rated below investment grade by the
NRSROs, or which are unrated by an NRSRO but
12
<PAGE>
deemed by the investment manager to be of comparable quality. The market values
of such securities tend to reflect individual developments affecting the issuer
to a greater extent than do higher-rated securities, which react primarily to
fluctuations in the general level of interest rates. Such lower-rated
securities also tend to be more sensitive to economic conditions than
higher-rated securities. These lower-rated fixed-income securities are
considered by the NRSROs, on balance, to be predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation and will generally involve more
credit risk than securities in the higher rating categories. Even securities
rated BBB or Baa by S&P and Moody's, ratings which are considered investment
grade, possess some speculative characteristics.
Projects which are financed by the issuance of high yielding, fixed-income
securities are often highly leveraged and may not have more traditional methods
of financing available to them. Therefore, the risk associated with acquiring
the securities of such issuers is generally greater than is the case with
higher-rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, projects financed by high yielding
securities may experience financial stress. During such periods, such projects
may not have sufficient funds to meet their interest payment obligations. The
issuer's ability to service its debt obligations may also be adversely affected
by specific developments, or the issuer's inability to meet specific projected
revenue forecasts, or by the unavailability of additional financing.
The High Yield Fund may have difficulty disposing of certain high yielding
securities because there may be a thin trading market for a particular security
at any given time. The market for lower-rated fixed-income securities generally
tends to be concentrated among a smaller number of dealers than is the case for
securities which trade in a broader secondary retail market. Generally,
purchasers of these securities are predominantly dealers and other
institutional buyers, rather than individuals. To the extent a secondary
trading market for high yielding, fixed-income securities does exist, it is
generally not as liquid as the secondary market for higher-rated securities.
Reduced liquidity in the secondary market may have an adverse impact on market
price and the High Yield Fund's ability to dispose of particular issues, when
necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as the deterioration in the creditworthiness of the
issuer. Reduced liquidity in the secondary market for certain securities may
also make it more difficult for the Fund to obtain market quotations based on
actual trades for purposes of valuing the Fund's portfolio. Current values for
these high yield issues are obtained from pricing services and/or a limited
number of dealers and may be based upon factors other than actual sales. (See
"Valuation of Shares of the Funds.")
Factors adversely impacting the market value of high yielding securities may
adversely impact the High Yield Fund's net asset value. In addition, the Fund
may incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
holding. The Fund will rely on the investment manager's judgment, analysis and
experience in evaluating the creditworthiness of an issuer. In this evaluation,
the investment manager will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters.
13
<PAGE>
Current prices for defaulted bonds are generally significantly lower than their
purchase price, and the Fund may have unrealized losses on such defaulted
securities which are reflected in the price of the Fund's shares. In general,
securities which default lose much of their value in the period prior to the
actual default so that the Fund's net assets are impacted prior to the default.
The Fund may retain an issue which has defaulted because such issue may present
an opportunity for subsequent price recovery. As previously noted, the Fund may
also, consistent with its investment objectives and policies, purchase debt
obligations of issuers not currently paying interest as well as issuers who are
in default. Issues that are in default carry a high degree of risk and may have
the consequence that interest payments with respect to such securities may be
reduced, deferred, suspended, eliminated or never begin, and may have the
further consequences that principal payments may likewise be reduced, suspended
or cancelled, causing the loss of the entire amount of the investment. As of
February 28, 1994, the Trust's fiscal year end, 0.02% of the market value of
the securities (7 of 606 issues) (excluding short-term securities or cash
equivalents) in the High Yield Fund's portfolio were in default on their
contractual provisions.
As of February 28, 1994, approximately 23% of the Fund's assets were invested
in municipal securities which were rated lower than investment grade (rated
below the four highest grades assigned by the NRSROs) or in securities unrated
by any NRSRO but deemed by the investment manager to be of comparable credit
characteristics. (A breakdown of the bonds' ratings in the Fund's portfolio,
based on a dollar weighted average for the fiscal year ended February 28, 1994,
is included under "Asset Composition Table" below.) Because of the High Yield
Fund's policy of seeking high current yield and its ability to invest in
lower-grade debt securities, including defaulted securities, a higher degree of
risk accompanies an investment in the Fund's shares than is the case in a more
conservative tax-free, income-type investment company. As with any other
investment, there is no assurance that this Fund's objective will be obtained.
The High Yield Fund's investment in lower-rated, unrated, and zero coupon
municipal securities may cause this Fund to recognize income and make
distributions to shareholders prior to the receipt of cash payments by the
Fund. For example, with respect to any non-performing obligations, this Fund
may be required to accrue as income the original amount of interest due on its
obligations even though such interest is not received by the Fund. In order to
generate cash to satisfy this Fund's distribution requirements, it may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares.
ASSET COMPOSITION TABLE
A credit rating by an NRSRO evaluates only the safety of principal and interest
of the bond, and does not consider the market value risk associated with an
investment in such a bond. The table below shows the percentage invested in
each of the specific rating categories by an NRSRO and those that are not rated
by the NRSROs but deemed by the investment manager to be of the same credit
quality. The information was prepared based on a dollar weighted average of the
Fund's portfolio composition based on month-end assets for each of the 12
months in the fiscal year ended February 28, 1994. Appendix C to the Prospectus
includes a description of each rating category.
14
<PAGE>
<TABLE>
<CAPTION>
AVERAGE WEIGHTED
MOODY'S RATING PERCENTAGE OF ASSETS
<S> <C>
Aaa..................... 8.4%
Aa...................... 4.3%
A....................... 15%
Baa..................... 50.3%
Ba...................... 19.6%
B....................... 1.5%
Caa..................... 1.1%
Ca...................... .0%
C....................... .0%
D....................... .0%
</TABLE>
CALLABLE BONDS
Each Fund may purchase and hold callable municipal bonds which contain a
provision in the indenture permitting the issuer to redeem the bonds prior to
their maturity dates at a specified price which typically reflects a premium
over the bonds' original issue price. These bonds generally have call
protection (that is, a period of time during which the bonds may not be called)
which usually lasts for 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 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 Funds, depending on the price at which such bonds were
redeemed.
CERTIFICATES OF PARTICIPATION
Each 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 Funds
believe that this risk is mitigated by their policy of investing only in COPs
15
<PAGE>
rated within the four highest rating categories of the NRSROs (except for the
High Yield Fund which may invest in securities rated in any category of the
NRSROs), or in unrated COPs believed by the investment manager to be of
comparable quality. Criteria considered by the rating agencies and the
investment manager in assessing such risk include the issuing municipality's
credit rating, 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 Trustees reviews the COPs held in each 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 each Fund's
investment, including an assessment of the likelihood that the leases will not
be cancelled; (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
each 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 each Fund may invest
in COPs, as of February 28, 1994, none of the Funds held as much as 5% of their
total assets in COPs and other municipal leases, except for the New Jersey
Fund, which held 6.38% of such securities.
MANAGEMENT OF THE TRUST
The Board of Trustees has the primary responsibility for the overall management
of the Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations. Franklin Advisers, Inc. ("Advisers" or
"Manager") serves as each Fund's investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a publicly owned holding
company, the principal shareholders of which are Charles B. Johnson, Rupert H.
Johnson, Jr. and R. Martin Wiskemann, who own approximately 20%, 16% and 10%,
respectively, of Resources' outstanding shares. Through its subsidiaries,
Resources is engaged in various aspects of the financial services industry.
Advisers acts as investment manager to 34 U.S. registered investment companies
(112 separate series) with aggregate assets of over $75 billion, approximately
$40 billion of which are in the municipal securities market. Pursuant to the
management agreement, the Manager supervises and implements each Fund's
investment activities and provides certain administrative services and
facilities which are necessary to conduct each Fund's business.
The management fees which each Fund paid to the Manager during the fiscal year
ended February 28, 1994 (as a percentage of average net assets) were as
follows:
<TABLE>
<CAPTION>
FUND NAME MANAGEMENT FEES PAID
- --------- --------------------
<S> <C>
Arizona Fund .......... 0.49%
Colorado Fund.......... 0.57%
Connecticut Fund....... 0.59%
High Yield Fund........ 0.46%
Indiana Fund........... 0.63%
New Jersey Fund........ 0.50%
Oregon Fund............ 0.53%
Pennsylvania Fund...... 0.50%
Puerto Rico Fund ...... 0.58%
</TABLE>
It is not anticipated that any of the Funds 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
16
<PAGE>
commissions or transfer taxes. To the extent that a 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 Trust as factors in
selecting a broker. Further information is included under "The Trust's Policies
Regarding Brokers Used on Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for each 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 February 28, 1994, total operating expenses paid
by each Fund (as a percentage of average net assets), including fees paid to
the Manager and Investor Services, were as follows:
<TABLE>
<CAPTION>
FUND NAME TOTAL OPERATING EXPENSES
- --------- ------------------------
<S> <C>
Arizona Fund.......... 0.54%
Colorado Fund......... 0.64%
Connecticut Fund...... 0.65%
High Yield Fund....... 0.53%
Indiana Fund.......... 0.71%
New Jersey Fund....... 0.57%
Oregon Fund........... 0.58%
Pennsylvania Fund..... 0.56%
Puerto Rico Fund...... 0.66%
</TABLE>
PLAN OF DISTRIBUTION
Effective May 1, 1994 (the "Effective Date") each Fund adopted a plan (the
"Plan[s]"), pursuant to Rule 12b-1 under the 1940 Act as approved by
shareholders of the respective Funds at special meetings held in the latter
part of April 1994. Under each Plan, the respective Fund may reimburse
Distributors or others for all expenses incurred by Distributors or others in
the promotion and distribution of the Fund's shares. Such expenses may include,
but are not limited to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related expenses, including a
prorated portion of Distributors' overhead expenses attributable to the
distribution of Fund shares, as well as any distribution or service fees paid
to securities dealers or their firms or others who have executed a servicing
agreement with the Funds, Distributors or its affiliates. The maximum amount
which the Fund may pay to Distributors or others for such distribution expenses
is 0.10% per annum of the average daily net assets of each Fund, payable on a
quarterly basis. All expenses of distribution and marketing in excess of 0.10%
for each Fund per annum will be borne by Distributors, or others who have
incurred them, without reimbursement from the Funds. The Plans also cover any
payments to or by the Funds, Distributors, or other parties on behalf of the
Funds 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 each
Plan are included in the maximum operating expenses which may be borne by each
Fund.
In implementing the Plan, the Board has determined that the annual fees payable
thereunder will be equal to the sum of: (i) the amount obtained by multiplying
0.05% by the average daily net assets represented by shares of a Fund that were
acquired
17
<PAGE>
by investors on or after the Effective Date of the Plan ("New Assets"), and
(ii) the amount obtained by multiplying 0.05% by the average daily net assets
represented by shares of the Fund that were acquired before the Effective Date
of the Plan ("Old Assets"). Such fees will be paid to the current securities
dealer of record on the shareholder's account. In addition, until such time as
the maximum payment of 0.10% is reached on a yearly basis, up to an additional
0.02% will be paid to Distributors under the Plan. The payments to be made to
Distributors will be used by Distributors to defray other marketing expenses
that have been incurred in accordance with the Plans, such as advertising.
The fees are Fund expenses so that the shareholders of each Fund regardless of
when they purchased their shares will bear 12b-1 expenses at the same rate.
That rate initially will be at least 0.07% (0.05% plus 0.02%) of such average
daily net assets and, as a Fund shares are sold on or after the Effective Date,
will increase over time. Thus, as the proportion of a Fund shares purchased on
or after the Effective Date increases in relation to outstanding shares of a
Fund, the expenses attributable to payments under the proposed Plan will also
increase (but will not exceed 0.10% of average daily net assets). While this is
the currently anticipated calculation for fees payable under the Plans, the
Plans permit the trustees of the Trust to allow a Fund to pay a full 0.10% on
all assets at any time. The approval of the Fund's Board of Trustees would be
required to change the calculation of the payments to be made under each Plan.
DISTRIBUTIONS TO SHAREHOLDERS
There are two types of distributions which a Fund may make to its shareholders:
1. Income dividends. Each Fund receives income in the form of interest and
other income derived from its investments. This income, less the expenses
incurred in the operation of such Fund, 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. Each Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by a Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made twice each year. One distribution may be made in December to reflect
any net short-term and net long-term capital gains realized by a Fund as of
October 31 of such year. Any net short-term and net long-term capital gains
realized by a Fund during the remainder of the fiscal year may be distributed
following the end of the fiscal year. These distributions, when made, will
generally be fully taxable to such Fund's shareholders. Each 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 its distributions for operational or
other reasons.
DISTRIBUTION DATE
Although subject to change by the Trust's Board of Trustees without prior
notice to or approval by shareholders, each Fund's current policy is to declare
income dividends daily and pay them monthly on or about the last business day
of that month. The amount of income dividend payments by each Fund is dependent
upon the amount of net income received from such Fund's portfolio holdings, is
not guaranteed, and is subject to the discretion of the Trust's Board of
Trustees. THE FUNDS DO NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN
ON AN INVESTMENT IN THEIR SHARES.
18
<PAGE>
DIVIDEND REINVESTMENT
Unless requested otherwise in writing or on the Shareholder Application, income
dividends and capital gain distributions, if any, will be automatically
reinvested in the shareholder's account in the form of additional shares,
valued at the closing net asset value (that is, without sales charge) on the
dividend reinvestment date. Shareholders have the right to change their
election with respect to the receipt of distributions by notifying the Fund,
but any such change will be effective only as to distributions for which the
reinvestment date is seven or more business days after the Fund has been
notified. See the SAI for more information. Many of the Funds' 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.
HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF A FUND'S ACTIVITIES
The assets of each Fund are invested in portfolio securities. If the securities
owned by a Fund increase in value, the value of the shares of such Fund will
increase. If the securities owned by a Fund decrease in value, the value of the
shareholder's shares in such Fund will also decline. In this way, shareholders
participate in any change in the value of the securities owned by a Fund.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to
another fund in the Franklin Group of Funds or the Templeton Group, to another
person, or directly to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the payments may be
made automatically by electronic funds transfer. If this last option is
requested, the shareholder should allow at least 15 days for initial
processing. Dividends which may be paid in the interim will be sent to the
address of record. Additional information regarding automated fund transfers
may be obtained from Franklin's Shareholder Services Department. Income
dividend and capital gain distributions are eligible for investment into
another fund in the Franklin Group of Funds or the Templeton Group at net asset
value.
Shareholders may also be able to change their dividend options by telephone.
See "Telephone Transactions."
TAXATION OF THE FUNDS AND THEIR 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 Funds and their shareholders is included in the section
entitled, "Additional Information Regarding Taxation" in the SAI.
Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund has elected to be treated as a regulated investment company under
Subchapter M of the Code, qualified as such and intends to continue to so
qualify. By distributing all of its income, and meeting certain other
requirements relating to the sources of its income and diversification of its
assets, a Fund will not be liable for federal income or excise taxes.
By meeting certain requirements of the Code, each Fund has qualified and
continues to qualify to pay
19
<PAGE>
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 each Fund's shareholders. In
addition, to the extent that exempt-interest dividends are derived from
interest on obligations of the state or political subdivisions of the state of
residence of the shareholder, from interest on direct obligations of the
federal government, or from interest on obligations of Puerto Rico, the U.S.
Virgin Islands or Guam, they may also be exempt from personal income tax in
such state. More information on the state taxation of interest from federal and
municipal obligations is included in the section "State Income Taxes" below and
in "Appendix A -Description of State Tax Treatment."
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, a 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, each 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 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 shares of a Fund and regardless of
whether such distributions are received in cash or in additional shares.
Redemptions and exchanges of a Fund's shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange
of such 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.
All or a portion of the sales charge incurred in purchasing shares of a 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
20
<PAGE>
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 a Fund's shares.
Since each Fund's income is derived from interest income and gain on the sale
of portfolio securities rather than dividend income, no portion of any of the
Fund's distributions will generally be eligible for the corporate
dividends-received deduction. None of the distributions paid by any Fund for
the fiscal year ended February 28, 1994, qualified for this deduction and it is
not anticipated that any of the current year's dividends will so qualify.
Each Fund will inform its 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 a 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 a Fund.
Exempt-interest dividends of any 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 a Fund's shares may not be fully deductible for federal
income tax purposes.
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 a
Fund and the application of foreign tax laws to these distributions.
STATE INCOME TAXES
The exemption of interest on tax-exempt municipal securities for federal income
tax purposes does not necessarily result in exemption from the income,
corporate or personal property taxes of any state or city when such income is
distributed to shareholders of a mutual fund. Appendix A to this Prospectus
discusses the tax treatment of the State Funds with respect to distributions
from each respective Fund to investors in such states. Generally, individual
shareholders of the Funds are afforded tax-exempt treatment at the state level
for distributions derived from municipal securities of their state of
residency. In some states, shareholders of the High Yield Fund also may be
afforded tax-exempt treatment at the state level on distributions from that
Fund to the extent they are derived from tax-exempt securities issued by that
state or its municipalities.
Pursuant to federal law, interest received directly from U.S. government
obligations and from obligations of the U.S. territories is exempt from
taxation by all states and their municipal subdivisions. Certain states may,
nevertheless, treat the dividends paid by a mutual fund from such interest as
taxable income to the shareholder. Each state's treatment of dividends paid
from the interest earned on direct federal and U.S. territorial obliga-
21
<PAGE>
tions is discussed in "Appendix A, Description of State Tax Treatment."
Shareholders should consult their tax advisors with respect to the
applicability of other state and local intangible property or income taxes to
their shares in a Fund and to distributions and redemption proceeds received
from such Fund.
Additional information on tax matters relating to a Fund and its shareholders
is included under the caption "Additional Information Regarding Taxation" in
the SAI.
HOW TO BUY SHARES OF THE FUNDS
Shares of the Funds are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of each
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 a
Fund. Such reference however is for convenience only and does not indicate a
legal conclusion of capacity. Sales of the shares of the State Funds may be
restricted to residents of their respective states. The minimum initial
investment in each Fund is $100 and subsequent investments must be $25 or more.
These minimums may be waived when the shares are purchased through plans
established at Franklin providing for regular periodic investments. The Trust
and Distributors reserve the right to refuse any order for the purchase of
shares.
PURCHASE PRICE OF SHARES OF THE FUNDS
Shares of each Fund are offered at the public offering price which is the net
asset value per share, plus a sales charge, next computed (1) after the
shareholder's securities dealer receives the order which is promptly
transmitted to such Fund, or (2) after receipt of an order by mail from the
shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The sales charge is
a variable percentage of the offering price depending upon the amount of the
sale. On orders for 100,000 shares or more, the offering price will be
calculated to four decimal places. On orders for less than 100,000 shares, the
offering price will be calculated to two decimal places using standard rounding
criteria. A description of the method of calculating net asset value per share
is included under the caption "Valuation of Shares of the Funds."
Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
----------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
------------------- ----------------- --------------- ------------------
<S> <C> <C> <C>
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 through $2,500,000 1.00% 1.01% 1.00%
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
22
<PAGE>
On purchases in excess of $2,500,000, the sales charge is 1% of the offering
price on the first $2,500,000, plus 0.5% on the next $2,500,000, plus 0.25% on
the excess over $5,000,000. Sales charges on purchases of $1,000,000 or more
are paid to the securities dealer, if any, involved in the trade, who may
therefore be deemed an "underwriter" under the Securities Act of 1933, as
amended.
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of many of the funds in the
Franklin Group of Funds and the Templeton Group of Funds. Included for these
purposes are (a) the open-end investment companies in the Franklin Group
(except Franklin Valuemark Funds and Franklin Government Securities Trust) (the
"Franklin Group of Funds") (b) other investment products in the Franklin Group
underwritten by Distributors or its affiliates (although certain investments
may not have the same schedule of sales charges and/or may not be subject to
reduction) (the products in subparagraphs (a) and (b) are referred to as the
"Franklin Group") and (c) the open-end U.S. registered investment companies in
the Templeton Group of Funds except Templeton American Trust, Inc., Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Group"). Purchases pursuant to a
Letter of Intent for more than $2,500,000 will be at a 1% sales charge until
cumulative purchases reach $2,500,000 and at the incremental sales charge on
the excess over $2,500,000. Purchases pursuant to the Rights of Accumulation
will be at the applicable sales charge of 1% or more until the additional
purchase, plus the value of the account or the amount previously invested, less
redemptions, exceeds $2,500,000, in which event the sales charge on the excess
will be calculated as stated above. Sales charge reductions based upon
purchases in more than one of the funds in the Franklin Group or Templeton
Group (the "Franklin/Templeton Group") may be effective only after notification
to Distributors that the investment qualifies for a discount.
Distributors or its affiliates, at their expense, may also provide additional
compensation to dealers in connection with sales of shares of the Funds and
other funds in the Franklin Group of Funds or the Templeton Group. Compensation
may include financial assistance to dealers in connection with conferences,
sales or training programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and programs regarding
one or more of the Franklin Group of Funds or the Templeton Group and other
dealer-sponsored programs or events. In some instances, this compensation may
be made available only to certain dealers whose representatives have sold or
are expected to sell significant amounts of such shares. Compensation may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the U.S. for meetings or seminars of
a business nature. Dealers may not use sales of the Funds' 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 Funds or their shareholders.
Certain officers and trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the SAI.
23
<PAGE>
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide for a reduced
sales charge. To be certain to obtain the reduction of the sales charge, the
investor or the dealer should notify Distributors at the time of each purchase
of shares which qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, investments in any of the
Franklin/Templeton Group may be combined with those of the investor's spouse
and children under the age of 21. In addition, the aggregate investments of a
trustee or other fiduciary account (for an account under exclusive investment
authority) may be considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of the account.
In addition, an investment in each Fund may qualify for a reduction in the
sales charge under the following programs:
1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in the Franklin/Templeton Group may be combined with the
amount of the current purchase in determining the sales charge to be paid.
2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of a Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which if made at one time would qualify for a
reduced sales charge.
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 such Fund. After the
Letter of Intent is filed, each additional investment made will be entitled to
the sales charge applicable to the level of investment indicated on the Letter
of Intent as described above. Sales charge reductions based upon purchases in
more than one company in the Franklin/Templeton Group will be effective only
after notification to Distributors that the investment qualifies for a
discount. The shareholder's holdings in the Franklin/Templeton Group acquired
more than 90 days before the Letter of Intent is filed will be counted towards
completion of the Letter of Intent but will not be entitled to a retroactive
downward adjustment of sales charge. Any redemptions made by the shareholder
during the 13-month period will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the Letter of Intent have been
completed. If the Letter of Intent is not completed within the 13-month period,
there will be an upward adjustment of the sales charge as specified below,
depending upon the amount actually purchased (less redemptions) during the
period. An investor who executes a Letter of Intent prior to the change in the
sales charge structure for a Fund will be entitled to complete the Letter at
the lower of (i) the new sales charge structure; or (ii) the sales charge
structure in effect at the time the Letter was filed with such Fund.
AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five percent (5%)
of the amount of the total intended purchase will be reserved in shares of the
Fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the intended purchase is not completed. The
reserved shares will be included in the total shares owned as reflected on
periodic statements; income
24
<PAGE>
and capital gain distributions on the reserved shares will be paid as directed
by the investor. The reserved shares will not be available for disposal by the
investor until the Letter of Intent has been completed or the higher sales
charge paid. If the total purchases, less redemptions, equal the amount
specified under the Letter, the reserved shares will be deposited to an account
in the name of the investor or delivered to the investor or the investor's
order. If the total purchases, less redemptions, exceed the amount specified
under the Letter and is an amount which would qualify for a further quantity
discount, a retroactive price adjustment will be made by Distributors and the
dealer through whom purchases were made pursuant to the Letter of Intent (to
reflect such further quantity discount) on purchases made within 90 days before
and on those made after filing the Letter. The resulting difference in offering
price will be applied to the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases. If the total purchases, less redemptions, are less than the amount
specified under the Letter, the investor will remit to Distributors an amount
equal to the difference in the dollar amount of sales charge actually paid and
the amount of sales charge which would have applied to the aggregate purchases
if the total of such purchases had been made at a single time. Upon such
remittance the reserved shares held for the investor's account will be
deposited to an account in the name of the investor or delivered to the
investor or to the investor's order. If within 20 days after written request
such difference in sales charge is not paid, the redemption of an appropriate
number of reserved shares to realize such difference will be made. In the event
of a total redemption of the account prior to fulfillment of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the investor. By completing
the Letter of Intent section of the Shareholder Application, an investor grants
to Distributors a security interest in the reserved shares and irrevocably
appoints Distributors as attorney-in-fact with full power of substitution to
surrender for redemption any or all shares for the purpose of paying any
additional sales charge due. Purchases under the Letter of Intent will conform
with the requirements of Rule 22d-1 under the 1940 Act. The investor or the
investor's securities dealer must inform Investor Services or Distributors that
this Letter is in effect each time a purchase is made.
Additional terms concerning the offering of the Funds' shares are included in
the SAI.
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares of
a Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of shares previously
purchased and still owned by the group, plus the amount of the current
purchase. For example, if members of the group had previously invested and
still held $80,000 of a Fund's 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, must be available to arrange for group meetings between repre-
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sentatives of the Funds or Distributors and the members, must agree to include
sales and other materials related to the Funds in its publications and mailings
to members at reduced or no cost to Distributors, and must seek to arrange for
payroll deduction or other bulk transmission of investments to the Funds.
If an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies such Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the payroll deduction
information to a Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches such Fund. The investment in such Fund
will be made at the offering price per share determined on the day that both
the check and payroll deduction data are received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Shares of each Fund may be purchased at net asset value (without 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 the amount of purchase, which
may be established by Distributors. Currently, those criteria require that the
amount invested or to be invested during the subsequent 13-month period in a
Fund or any other company in the Franklin/Templeton Group must total at least
$1,000,000. Orders for such accounts will be accepted by mail accompanied by a
check or by telephone or other means of electronic data transfer directly from
the bank or trust company, with payment by federal funds received by the close
of business on the next business day following such order. If an investment by
a trust company or bank trust department at net asset value is made through a
dealer who has executed a dealer agreement with Distributors, Distributors or
one of its affiliates may make payment, out of their own resources, to such
dealer in an amount not to exceed 0.25% of the amount invested. Contact
Franklin's Institutional Sales Department for additional information.
Shares of the Funds may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of a Fund or another fund
in the Franklin Group of Funds or the Templeton Group which were purchased with
a sales charge. An investor may reinvest an amount not exceeding the redemption
proceeds. Shares of a 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
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this Prospectus and the Statement of Additional Information.
Shares of the Funds may also be purchased at net asset value by (1) officers,
trustees or directors and full-time employees of the Fund or any fund in the
Franklin Group of Funds or the Templeton Group, the Manager and Distributors
and affiliates of such companies, if they have been such for at least 90 days,
and by their spouses and family members, (2) registered securities dealers and
their affiliates, for their investment account only, and (3) registered
personnel and employees of securities dealers and by their spouses and family
members, in accordance with the internal policies and procedures of the
employing securities dealer. Such sales are made upon the written assurance of
the purchaser that the purchase is made for investment purposes and that the
securities will not be transferred or resold except through redemption or
repurchase by or on behalf of a Fund. Employees of securities dealers must
obtain a special application from their employers or from Franklin's Sales
Department in order to qualify.
GENERAL
Securities laws of states in which each Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling shares of such Fund may be required to register as dealers
pursuant to state law.
OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO SHAREHOLDERS OF THE FUNDS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM A 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 Funds,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. A lost, stolen or destroyed certificate cannot
be replaced without obtaining a sufficient indemnity bond. The cost of such a
bond, which is generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate will be
issued if requested in writing by the shareholder or by the broker 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
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Shareholder Application included with this Prospectus contains the requirements
applicable to this program. In addition, shareholders may obtain more
information concerning this program from their securities dealers or from
Distributors.
The market value of each 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 fund in the Franklin
Group of Funds or the Templeton Group, to another person, or directly to a
checking account. If the bank at which the account is maintained is a member of
the Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing. Withdrawals which may be
paid in the interim will be sent to the address of record. Liquidation of
shares may reduce or possibly exhaust the shares in the shareholder's account,
to the extent withdrawals exceed shares earned through dividends and
distributions, particularly in the event of a market decline. If the withdrawal
amount exceeds the total plan balance, the account will be closed and the
remaining balance will be sent to the shareholder. As with other redemptions, a
liquidation to make a withdrawal payment is a sale for federal income tax
purposes. Because the amount withdrawn under the plan may be more than the
shareholder's actual yield or income, part of the payment may be a return of
the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of a Fund would be disadvantageous because of the sales
charge on the additional purchases. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual
withdrawals under the plan during the time such a plan is in effect. A
Systematic Withdrawal Plan may be terminated on written notice by the
shareholder or the Fund, and it will terminate automatically if all shares are
liquidated or withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving written notice to
In-
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vestor 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 Funds available to institutional accounts. For further information,
contact Franklin's Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment companies with various investment objectives or policies. The shares
of most of these investment companies are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for the securities
markets changes, the Fund shares may be exchanged for shares of other mutual
funds in the Franklin Group of Funds or the Templeton Group (as defined under
"How to Buy Shares of the 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. 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(R) SYSTEM (DAY OR NIGHT) AT
1-800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A
PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account in one of the other available
funds in the Franklin Group of Funds or the Templeton Group. The Telephone
Exchange Privilege is available only for uncertificated shares or those which
have previously been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Please refer to "Telephone
Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the
other exchange procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares,
Investor Services will accept exchange orders by telephone or by other means of
electronic transmission from securities dealers who execute a dealer or similar
agreement with Distributors. See also "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.
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ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of a Fund account, accrued but unpaid income
dividends and capital gain distributions will be reinvested in the Fund at the
net asset value on the date of the exchange, and then the entire share balance
will be exchanged into the new fund in accordance with the procedures set forth
above. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the Statement of Additional Information.
There are differences among the many funds in the Franklin Group of Funds and
the Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the shareholder wishes to
transfer.
If a substantial portion of a Fund's shareholders should, within a short
period, elect to redeem their shares of that 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
Funds to initially invest this money in short-term, interest-bearing municipal
securities, unless it is felt that attractive investment opportunities
consistent with a Fund's investment objectives exist immediately. Subsequently,
this money will be withdrawn from such short-term municipal securities and
invested in portfolio securities in as orderly a manner as is possible when
attractive investment opportunities arise.
The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
Effective September 1, 1994, the Funds will amend their policy in regard to
Timing Accounts, to reflect the following:
Each Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing Account
or any person whose transactions seem to follow a timing pattern who: (i) make
an exchange
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request out of a Fund within two weeks of an earlier exchange request out of a
Fund, or (ii) make more than two exchanges out of a Fund per calendar quarter,
or (iii) exchange shares equal in value to at least $5 million, or more than 1%
of a 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.
Each Fund reserves the right to refuse the purchase side of exchange requests
by any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected.
A shareholder's purchase exchanges may be restricted or refused if a 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 a Fund and therefore may be
refused.
The Funds 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 A FUND
A shareholder may at any time liquidate shares owned and receive from a Fund
the value of the shares. Shares may be redeemed in any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by Investor
Services. Redemption requests received after the time at which the net asset
value is calculated (at 1:00 p.m. Pacific time) each day that the New York
Stock Exchange (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's ability to contact a shareholder
promptly when necessary will speed the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000;
or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instruc-
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tions received by the Fund are given by an agent, not the actual
registered owner, (e) the Fund determines that joint owners who are
married to each other are separated or may be the subject of divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934.
Generally, eligible guarantor institutions include (1) national or state banks,
savings associations, savings and loan associations, trust companies, savings
banks, industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; (3)
securities dealers which are members of a national securities exchange or a
clearing agency or which have minimum net capital of $100,000; or (4)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature guarantee medallion program. A
notarized signature will not be sufficient for the request to be in proper
form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.
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 file a Telephone Transaction Application (the "Application")
may redeem shares of a Fund by telephone. THE APPLICATION MAY BE OBTAINED BY
WRITING TO THE FUNDS OR INVESTOR SERVICES AT THE ADDRESS SHOWN ON THE COVER OR
BY CALLING 1-800/632-2301. THE FUNDS 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 a completed Application on file, redemptions of
uncertificated shares
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or shares which have previously been deposited with the Fund or Investor
Services may be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before 1:00 p.m. Pacific time on any business day
will be processed that same day. The redemption check will be sent within seven
days, made payable to all the registered owners on the account, and will be
sent only to the address of record. Redemption requests by telephone will not
be accepted within 30 days following an address change by telephone. In that
case, a shareholder should follow the other redemption procedures set forth in
this Prospectus. Institutional accounts (certain corporations, bank trust
departments, government entities, and qualified retirement plans which qualify
to purchase shares at net asset value pursuant to the terms of this Prospectus)
which wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available from Franklin's
Institutional Services Department by telephoning 1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Funds will accept redemption orders by telephone or other means of
electronic transmission from securities dealers who have entered into a dealer
or similar agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer receives the
order which is promptly transmitted to a Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. These documents, as
described in the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt of a
repurchase order from the dealer, the Fund will still require a signed letter
of instruction and all other documents set forth above. A shareholder's letter
should reference the Fund, the account number, the fact that the repurchase was
ordered by a dealer and the dealer's name. Details of the dealer-ordered trade,
such as trade date, confirmation number, and the amount of shares or dollars,
will help speed processing of the redemption. The seven-day period within which
the proceeds of the shareholder's redemption will be sent will begin when the
Fund receives all documents required to complete ("settle") the repurchase in
proper form. The redemption proceeds will not earn dividends or interest during
the time between receipt of the dealer's repurchase order and the date the
redemption is processed upon receipt of all documents necessary to settle the
repurchase. Thus, it is in a shareholder's best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. The
shareholder's dealer may charge a fee for handling the order. The Statement of
Additional Information contains more information on the redemption of shares.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
A 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
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permits it, by order, for the protection of shareholders. Of course, the amount
received may be more or less than the amount invested by the shareholder,
depending on fluctuations in the market value of securities owned by the Fund.
OTHER
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the broker dealer may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Application as described under "How to Sell Shares of the
Fund - Redemptions by Telephone" will be able to redeem shares of a Fund.
VERIFICATION PROCEDURES
The Funds and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the
purpose of establishing the caller's identification, and by sending a
confirmation statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as the Fund and Investor
Services follow instructions communicated by telephone which were reasonably
believed to be genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused by an
unauthorized transaction. Shareholders are, of course, under no obligation to
apply for or accept telephone transaction privileges. In any instance where the
Fund or Investor Services is not reasonably satisfied that instructions
received by telephone are genuine, the requested transaction will not be
executed, and neither the Fund nor Investor Services will be liable for any
losses which may occur because of a delay in implementing a transaction.
GENERAL
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 Funds 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 a Fund
at any time upon 60 days' written notice to shareholders.
VALUATION OF SHARES OF THE FUNDS
The net asset value per share of each Fund is determined separately as of 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)
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and "ask" (offering price, which includes the maximum sales charge of each
Fund).
The net asset value per share of each Fund is determined in the following
manner: The aggregate of all liabilities, accrued expenses and taxes and any
necessary reserves, is deducted from the aggregate gross value of all assets,
and the difference is divided by the number of shares of the Fund outstanding
at the time. For the purpose of determining the aggregate net assets of each
Fund, cash and receivables are valued at their realizable amounts. Interest is
recorded as accrued. Portfolio securities for which market quotations are
readily available are valued within the range of the most recent bid and ask
prices as obtained from one or more dealers that make markets in the
securities. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market as determined by the Manager. Municipal securities
generally trade in the over-the-counter market rather than on a securities
exchange. Other securities for which market quotations are readily available
are valued at the current market price which may be obtained from a pricing
service based on a variety of factors, including recent trades, institutional
size trading in similar types of securities (considering yield, risk and
maturity) and/or developments related to specific issues. Securities and other
assets for which market prices are not readily available are valued at fair
value as determined following procedures approved by the Board of Trustees. All
money market instruments with a maturity of more than 60 days are valued at
current market, as discussed above. All money market instruments with a
maturity of 60 days or less are valued at their amortized cost which the Board
of Trustees has determined in good faith constitutes fair value for purposes of
complying with the 1940 Act. This valuation method will continue to be used
until such time as the trustees determine that it does not constitute fair
value for such purposes. With the approval of trustees, the Trust may utilize a
pricing service, bank or securities dealer to perform any of the above
described functions.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN A FUND
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds by
calling the automated Franklin TeleFACTS(R) system (day or night) at
1-800/247-1753. Information about each Fund may be accessed by entering the
Fund's Code followed by the # sign when requested to do so by the automated
operator. The Funds' Codes are: 26 for the Arizona Fund, 27 for the Colorado
Fund, 66 for the Connecticut Fund, 67 for the Indiana Fund, 71 for the New
Jersey Fund, 61 for the Oregon Fund, 29 for the Pennsylvania Fund, 23 for the
Puerto Rico Fund and 30 for the High Yield Fund. The TeleFACTS system is also
available for exchanges. See "Exchange Privilege."
To assist shareholders and brokers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
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<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
--------------- ------------- ---------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
various measures of a Fund's performance including current yield, tax
equivalent yield, various expressions of total return, current distribution
rate and taxable equivalent distribution rate. Each Fund 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. Each Fund may also furnish total return quotations for other
periods or based on investments at various sales charge levels or at net asset
value. For such purposes total return equals the total of all income and
capital gain paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed
as a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments; it is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result. Tax equivalent yield
demonstrates the yield from a taxable investment necessary to produce an
after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of a fund's
yield (calculated as indicated) by one minus a stated income tax rate and
adding the product to the taxable portion (if any) of the Fund's yield.
Current yield and tax equivalent yield which are calculated according to a
formula prescribed by the SEC (see the SAI) are not indicative of the dividends
or distributions which were or will be paid to a Fund's shareholders. Dividends
or distributions paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by dividing the total
amount of dividends per share paid by a Fund during the past 12 months by the
current maximum offering price. A taxable equivalent distribution rate
demonstrates the taxable distribution rate necessary to produce an after tax
distribution rate equivalent to a Fund's 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
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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 Fund's income and will assume the payment of the
maximum sales charge on the purchase 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 a Fund, like all other
investment companies, will fluctuate over time; thus, performance figures
should not be considered to represent what an investment may earn in the future
or what a Fund's yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Trust's fiscal year ends February 28. Annual Reports containing audited
financial statements of the Trust, including the auditor's report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this prospectus.
Additional Information on the performance of each Fund is included in the
Annual Report to Shareholders and the SAI.
ORGANIZATION
The Trust was organized as a Massachusetts business trust on September 18,
1984. The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution. Additional series may be added in
the future by the Board of Trustees.
Following is a list of the 27 series currently authorized by the Board of
Trustees:
Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
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Franklin Pennsylvania Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
VOTING RIGHTS
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series, or the Trust, unless otherwise permitted by the
1940 Act. Voting rights are noncumulative, so that in any election of trustees,
the holders of more than 50% of the shares voting can elect all of the
trustees, if they choose to do so, and in such event the holders of the
remaining shares voting will not be able to elect any person or persons to the
Board of Trustees. The Trust does not intend to hold annual shareholders
meetings. The Trust may however, hold a special shareholders meeting of a
series for such purposes as changing fundamental investment restrictions for
the series, approving a new management agreement or any other matters which are
required to be acted on by shareholders under the 1940 Act. A meeting may also
be called by the trustees in their discretion or by shareholders holding at
least ten percent of the outstanding shares of the Trust. Shareholders will
receive assistance in communicating with other shareholders in connection with
the election or removal of trustees such as that provided in Section 16(c) of
the 1940 Act.
REDEMPTIONS BY THE FUND
Each Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the
value of such account has been reduced by the shareholder's prior voluntary
redemption of shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided advance notice is
given to the shareholder. More information is included in the Statement of
Additional Information.
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
Funds nor their 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 a Fund may be made by check, draft or wire. The
Funds have 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.
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<PAGE>
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 a Fund carried in
"street" or "nominee" name by the shareholder's broker dealer to a comparably
registered Fund account maintained by another broker dealer. Both the
delivering and receiving broker dealer must have executed dealer agreements on
file with Distributors. Unless a dealer agreement has been executed and is on
file with Distributors, the Fund will not process the transfer and will so
inform the shareholder's delivering broker dealer. To effect the transfer, a
shareholder should instruct the broker dealer to transfer the account to a
receiving broker dealer and sign any documents required by the broker dealer to
evidence consent to the transfer. Under current procedures the account transfer
may be processed by the delivering broker dealer and a Fund after such Fund
receives authorization in proper form from the shareholder's delivering broker
dealer. In the future it may be possible to effect such transfers
electronically through the services of the NSCC.
Each 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, a Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend, capital
gain distribution or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number ("TIN") and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to backup
withholding if the IRS or a broker 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.
Each 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
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<PAGE>
with a certified TIN within 60 days after opening the account.
PORTFOLIO OPERATIONS
The following persons are primarily responsible for the day-to-day management
of the Funds' portfolios:
John Pinkham
Portfolio Manager
Franklin Advisers, Inc.
Mr. Pinkham has been responsible for portfolio recommendations and decisions
since inception of the Connecticut Fund. He has a Bachelor of Science degree in
business from Columbia University, has been in the municipal securities
industry since 1956 and with Advisers since 1985. He is a member of the
Financial Analysts Federation.
John Pomeroy
Portfolio Manager
Franklin Advisers, Inc.
Mr. Pomeroy has been responsible for portfolio recommendations and decisions
since inception of the Connecticut Fund. He received a Bachelor of Arts degree
in Business Administration from San Francisco State University and joined
Advisers in 1986 and is a member of industry-related committees and
associations.
Stella Wong
Portfolio Manager
Franklin Advisers, Inc.
Ms. Wong has been responsible for portfolio recommendations and decisions for
the Indiana Fund, New Jersey Fund and Pennsylvania Fund since their inception
and the Puerto Rico Fund since she joined Advisers in 1986. She holds a
Bachelor of Science degree in Business Administration from San Francisco State
University and a Master's degree in Financial Planning from Golden Gate
University, and is a member of several industry-related committees and
associations.
Greg Harrington
Senior Vice President
Franklin Advisers, Inc.
Mr. Harrington has been responsible for portfolio recommendations and decisions
since inception of the Arizona Fund, Connecticut Fund, High Yield Fund, Oregon
Fund, Pennsylvania Fund, and Puerto Rico Fund. Effective in June 1994, Mr.
Harrington became responsible for the Colorado Fund, Indiana Fund and New
Jersey Fund. He is a graduate of Mount Saint Mary's College in Maryland and has
studied at the New York School of Finance. His experience in the municipal
securities industry dates back to 1946. He joined Advisers in 1983.
Andrew Jennings, Sr.
Vice President
Franklin Advisers, Inc.
Mr. Jennings has been responsible for portfolio recommendations and decisions
of the High Yield Fund and Indiana Fund, since joining Advisers in 1990. He
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. From 1985 to 1990 Mr. Jennings
was First Vice President and Manager of the Municipal Institutional Bond
Department at Dean Witter Reynolds Inc.
Don Duerson
Vice President
Franklin Advisers, Inc.
Mr. Duerson has been responsible for portfolio recommendations and decisions
since inception of the Arizona Fund, Colorado Fund and Oregon Fund. He has a
Bachelor of Science degree in Business and Public Administration from the
Univer-
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sity of Arizona, has experience in the portfolio management business dating
back to 1956 and is a member of industry-related committees and associations.
He joined Advisers in 1986.
Sheila Amoroso
Portfolio Manager
Franklin Advisers, Inc.
Ms. Amoroso has been responsible for portfolio recommendations and decisions of
the Arizona Fund, Colorado Fund, High Yield Fund, Oregon Fund, Pennsylvania
Fund and Puerto Rico Fund since 1987 and the New Jersey Fund since its
inception. 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.
APPENDIX A - DESCRIPTION OF STATE TAX TREATMENT
The following information on the state income tax treatment of dividends from
the State Funds is based upon correspondence and sources believed to be
reliable. Except where otherwise noted, the information pertains to individual
state income taxation only. Investors may be subject to local taxes on
dividends or the value of their shares. Corporations, trusts, estates and other
entities may be subject to other taxes and should consult with their tax
advisors or their state department of revenue. For some investors, a portion of
the dividend income may be subject to the federal and/or state alternative
minimum tax.
ARIZONA
Section 43-1021(4) of the Arizona Income Tax Code states that interest on
obligations of the state of Arizona or its political subdivisions is exempt
from personal and corporate income tax. Sections 43-1022(6) and 43-1122(6)
provide similar tax-exempt treatment for interest on obligations of the U.S. or
its territories (including Puerto Rico, Guam and the Virgin Islands). Pursuant
to State Income Tax Ruling Number 84-10-5, Arizona does not tax dividend income
from regulated investment companies, such as the Arizona Fund, to the extent
that such income is derived from such exempt obligations. Dividends paid from
interest earned on indirect U.S. government obligations (GNMAs, FNMAs, etc.),
repurchase agreements collateralized by U.S. government obligations or
obligations from other states and their political subdivisions are fully
taxable. To the extent that such taxable investments are made by the Fund for
temporary or defensive purposes, the distributions will be taxable on a pro
rata basis.
Any distributions of net short-term and net long-term capital gain earned by
the Fund are included in each shareholder's Arizona taxable income as dividend
income and long-term capital gain respectively, and are taxed at ordinary
income tax rates.
COLORADO
Sections 39-22-104 and 39-22-304 of the Colorado Revised Statutes state that
interest on obligations of the state of Colorado or its political subdivisions
and direct obligations of the U.S. or its possessions is exempt from personal
and corporate income tax. The Colorado Department of Revenue has advised that
distributions from a regulated investment company, such as the Colorado Fund,
will also be exempt from personal and corporate income tax if the Fund invests
in such exempt obligations. The state of Colorado has confirmed that this
exclusion also applies to territorial obligations of the U.S. (including Puerto
Rico, Guam and the Virgin Islands). Dividends paid from interest earned on
indirect U.S. government obligations (GNMAs, FNMAs, etc.), repurchase
agreements collateralized by U.S. government
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obligations or obligations of other states and their political subdivisions do
not qualify for this exemption. To the extent that such taxable investments are
made by the Fund for temporary or defensive purposes, the distributions will be
taxable on a pro rata basis.
Any distributions of net short-term and net long-term capital gain earned by
the Fund are included in each shareholder's Colorado taxable income as dividend
income and long-term capital gain respectively, and are taxed at ordinary
income tax rates.
CONNECTICUT
Section 12-701(a)(20) of the Connecticut General Statutes states that interest
income from obligations issued by or on behalf of the state of Connecticut, its
political subdivisions, public instrumentalities, state or local authority,
district, or a similar public entity created under the laws of the state of
Connecticut and direct obligations of the U.S. or its territories (including
Puerto Rico, Guam and the Virgin Islands) is exempt from state personal income
tax. Dividends paid by a regulated investment company, such as the Connecticut
Fund, which are derived from such exempt obligations will be exempt from state
personal income tax to the extent of such obligations. Corporate shareholders
are generally subject to Connecticut corporation income taxes on distributions
from the Fund. Section 12-701(a)(20) of the Connecticut General Statutes also
states that a fund is qualified to pay exempt dividends derived from exempt
U.S. government obligations to its shareholders if, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of exempt U.S. government obligations. Dividends paid from interest
earned on indirect U.S. government obligations (GNMAs, FNMAs, etc.), repurchase
agreements collateralized by U.S. government securities or obligations of other
states and their political subdivisions do not qualify for this exemption. It
is not anticipated that the Fund will invest 50% or more of the value of its
assets in qualifying U.S. government obligations and, therefore, will not be
able to pass through tax-exempt income derived from such obligations.
Any distributions of net short-term and long-term capital gain earned by the
Fund are included in each shareholder's Connecticut taxable income as dividend
income and long-term capital gain, respectively, and are taxed at ordinary
income tax rates.
INDIANA
Information Bulletins 19 and 79 of the state of Indiana Department of Revenue
provide that the proportionate share of dividends received from a regulated
investment company, such as the Indiana Fund, derived from investments in
direct obligations of the U.S. or its possessions (including Puerto Rico, Guam
and the Virgin Islands), will be exempt from the Indiana Gross Income Tax (for
residents and persons or corporations doing business in Indiana). An exemption
is also provided under Indiana law for exempt interest dividends derived from
interest on obligations of the state of Indiana or its political subdivisions.
For the Indiana Adjusted Gross Income Tax (for resident individuals, estates
and trusts), all of the above obligations are exempt from taxation in addition
to obligations of other states and their political subdivisions. Dividends paid
from interest earned on indirect U.S. government obligations (GNMAs, FNMAs,
etc.) and repurchase agreements collateralized by U.S. government obligations,
to the extent that such taxable investments are made by the Fund for temporary
or defensive purposes, will be taxable on a pro rata basis. The Fund will file
all appropriate certification documents with the Indiana Department of Revenue
indicating the exempt portion of distributions to shareholders.
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Any distributions of net short-term and net long-term capital gain earned by
the Fund are included in each shareholder's Indiana taxable income as dividend
income and long-term capital gain, respectively, and are taxed at ordinary
income tax rates.
NEW JERSEY
Section 54A:6-14.1 of the New Jersey Statutes provides that distributions paid
by qualified investment funds, such as the New Jersey Fund, are not included in
gross income for purposes of the New Jersey gross income tax to the extent the
distributions are attributable to interest or gain from obligations issued by
or on behalf of the state of New Jersey or its political subdivisions, or
obligations free from state or local taxation by any act of the state of New
Jersey or laws of the U.S. (including obligations of the District of Columbia,
Puerto Rico, Guam and the Virgin Islands). To qualify the Fund must invest at
least 80% of its assets (excluding financial options, futures, forward
contracts, or other similar financial instruments related to interest-bearing
obligations, obligations issued at a discount or bond indexes related thereto,
cash and cash items) in such exempt obligations and have no investments other
than interest-bearing or discounted obligations, cash or cash items, including
receivables, and financial options, futures, forward contracts or other similar
financial instruments related to interest-bearing obligations, obligations
issued at a discount or bond indexes related thereto. Dividends paid from
interest earned on indirect U.S. government obligations (GNMAs, FNMAs, etc.),
repurchase agreements collateralized by U.S. government obligations or
obligations of other states and their political subdivisions are fully taxable.
To the extent that such taxable investments are made by the Fund for temporary
or defensive purposes, the distributions will be taxable on a pro rata basis.
Any distributions of net short-term and net long-term capital gain earned by
the Fund from taxable obligations are included in each shareholder's New Jersey
taxable income as dividend income and long-term capital gain, respectively, and
are taxed at ordinary income tax rates.
OREGON
Section 316.683 of the Oregon Revised Statutes and Oregon Administrative Rule
150-316.680(B) provide that the state exempt-interest dividends received by
residents of the state paid by a regulated investment company, such as the
Oregon Fund, are exempt from Oregon personal income tax. State exempt-interest
dividends are dividends from interest earned on exempt obligations of the U.S.,
its territories (including Puerto Rico, Guam and the Virgin Islands), and
possessions of any U.S. authority, commission, or instrumentality, or on state
and local obligations of Oregon. Corporate shareholders are generally subject
to the Oregon corporation income tax on distributions from the Fund. Dividends
paid from interest earned on indirect U.S. government obligations (GNMAs,
FNMAs, etc.), repurchase agreements collateralized by U.S. government
obligations or obligations of other states and their political subdivisions are
fully taxable. To the extent that such taxable investments are made by the Fund
for temporary or defensive purposes, the distributions will be taxable on a pro
rata basis.
Any distributions of net short-term and net long-term capital gain earned by
the Fund are included in each shareholder's Oregon taxable income as dividend
income and long-term capital gain respectively, and are taxed at ordinary
income tax rates.
PENNSYLVANIA
Section 303 of the Tax Reform Code of Pennsylvania states that interest income
derived from obliga-
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tions which are statutorily free from state or local taxation under the laws of
the Commonwealth of Pennsylvania or under the laws of the U.S. is exempt from
state personal income tax. Such exempt obligations include obligations issued
by the Commonwealth of Pennsylvania, any public authority, commission, board or
other state agency, any political subdivision of the state or its public
authority, and certain obligations of the U.S. or its territories (including
Puerto Rico, Guam and the Virgin Islands). Section 301 of the Code of
Pennsylvania states that interest derived by an investment trust, such as the
Pennsylvania Fund, from such exempt obligations is not subject to state
personal or corporate net income tax. Fund distributions and the value of Fund
shares, however, are generally included in the tax base in determining the
corporation capital stock or foreign franchise tax. Distributions paid from
interest earned on indirect U.S. government obligations (GNMAs, FNMAs, etc.),
repurchase agreements collateralized by U.S. government obligations or
obligations of other states and their political subdivisions are fully taxable.
To the extent that such taxable investments are made by the Fund for temporary
or defensive purposes, the distributions will be taxable on a pro rata basis.
Distributions paid by the Fund are also generally exempt from the Philadelphia
School District Investment Income Tax.
Shareholders of the Fund who are subject to the Pennsylvania personal property
tax in their county of residence will be exempt from county personal property
tax to the extent that the portfolio of the Fund consists of such exempt
obligations on the annual assessment date of January 1. Information regarding
the portion of the value of the shares, if any, which is subject to the
Pennsylvania personal property tax will be provided to shareholders of the
Fund.
Any distributions of net short-term and long-term capital gain earned by the
Fund are included in each shareholder's Pennsylvania taxable income as dividend
income and long-term capital gain respectively, and are taxed at ordinary
income tax rates.
PUERTO RICO
For U.S. citizens and residents, exempt-interest dividends received from the
Puerto Rico Fund are generally exempt from federal and state income taxation.
Residents of Puerto Rico should consult their tax advisors prior to investing
in any of the Funds.
APPENDIX B -
SPECIAL FACTORS AFFECTING EACH STATE FUND
The following information is a brief summary of factors affecting each of the
individual State Funds and does not purport to be a complete description of
such factors. The information is based primarily upon information derived from
public documents relating to securities offerings of issuers of such states,
from independent municipal credit reports and historically reliable sources,
but has not been independently verified by the Trust. The market value of the
shares of any Fund may fluctuate due to factors such as changes in interest
rates, matters affecting a particular state or for other reasons. Additional
information regarding each state is included in the SAI.
FACTORS AFFECTING ARIZONA
Arizona continues to be one of the fastest growing states in the U.S. While the
state's economy is growing somewhat slower than it did in the mid-1980s, its
growth in employment and population still exceeds the national average.
Contributing to the economy's growth have been the state's affordable housing
and competitive wage rates, which
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have successfully allowed the state to attract new businesses.
Arizona's economy has been undergoing a restructuring, shifting away from
agriculture and mining towards manufacturing and services industries. At
present, the state's agricultural industry consumes approximately 80% of the
water used in the state. The continued shift away from farming will provide a
greater amount of water for municipal use and growth, as will the completion of
the Central Arizona Project, a 335 mile aqueduct which will enable the state to
fully utilize its allotted share of water from the Colorado River. As the state
continues to urbanize, incomes and jobs should increase, due to the generally
higher demand for services in urban areas. Although Arizona experienced an
overall job loss of 2% and a rise in unemployment during the recession, recent
indicators suggest the state's economic downturn may be over, and long-term
employment growth is projected.
COLORADO
During the mid- to late-1980s, Colorado's economy was centered around the
energy sector. As a result, the state experienced severe economic dislocation,
losing some 38,000 jobs in mining and construction from 1985 to 1988. Since
then, however, the state's economy has diversified and rebounded, remaining
relatively strong, particularly in 1991-1992, significantly outpacing the
national economy during the recessionary period. The state's strengths are its
services, construction and trade sectors. The state's weakness is its
manufacturing sector, which continues to lose jobs, particularly those
connected to defense. Cuts in the timber and mineral markets also will affect
the economy of the entire Mountain region.
Wage and salary employment expanded 1.6% and 3.4% in 1991 and 1992,
respectively, while real personal income grew 1.6% and 2.8% for the same
periods. Unemployment has remained below the national level. Employment
consists of services (27.2% of total), trade (24.7%), government (18.0%) and
manufacturing (11.9%). Housing contracts in 1992 registered an over 50% gain
from its 1989 low point. Population gains should continue, drawing some of the
influx from California.
CONNECTICUT
Despite being considered the wealthiest of the states, with income levels of
135% of the national average, Connecticut has experienced a substantial decline
in employment through the national recession. From 1988 through 1992, the state
lost approximately 153,000 non-farm jobs, a reduction of over 9%, with the
impact felt in every economic sector. The pace of job decline slowed somewhat
during 1993 but was still the weakest performance of any state in the nation.
The state has a concentrated economy, with manufacturing, particularly defense
industries, comprising the largest concentration in the nation, ranking
eleventh in terms of the dollar amount of prime defense contracts and first on
a per capita basis.
Because of its high per capita income level and its concentration of
defense-related industries, passage of the federal Omnibus Budget
Reconciliation Act in August 1993 will be specially disadvantageous to the
state because it increases taxes on wealthier households and continues to cut
on defense spending.
An early return to the pre-recession rate of economic growth is not likely,
with any significant growth not predicted until the end of the decade. The best
growth prospects are in the service-related industries, including health care,
business/professional and tourism. Recovery for the manufacturing industry will
depend to a great extent on
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the ability of defense contractors to expand their commercial business lines to
offset for job losses.
Despite continued economic weaknesses and overall debt levels, which are among
the highest in the states, the state's outlook reflects an improved fiscal
position and revenue structure that was initiated with measures started in
fiscal 1992.
INDIANA
Indiana's stable outlook is reflected by its state government's strong
operating balance. The administration's ability and proven willingness to
adjust state spending in response to revenue shortfalls has been a positive
force.
The state's economy continues to rely heavily on its manufacturing sector,
which provides products such as primary metals, machinery and transportation
equipment. Although this concentration has lessened of late, manufacturing
still accounts for about 25% of employment.
During 1992-1993, the state experienced good cyclical employment and income
growth, with the state's manufacturing sector experiencing positive growth,
fueled by the national economic recovery. There has been increased business and
capital spending by the state's manufacturing firms, which has contributed to
the expanding support industries. Basic considerations for the inflow of
capital are the state's central location, competitive costs, and extensive
transit network. The state is also emerging as a transportation and
distribution center due to a $1 billion ongoing construction of a maintenance
facility by United Air Lines, Inc. and various airport expansions underway.
NEW JERSEY
The state's economy performed strongly for much of the 1980s. Like much of the
Northeast in the 1980s, the state's economy outpaced national trends. However,
since 1989 the state's economic performance has been weak and it has
under-performed the rest of the nation. Unemployment currently exceeds the
national average, and weakness in the economy appears in many employment
sectors. The downward trend was apparent in New Jersey 18 months before
national indicators. Economic recovery will be slower due to the weakness in
the real estate and construction sectors, the lack of consumer confidence, and
the loss of manufacturing and high level corporate service jobs.
Nevertheless, New Jersey's economic base continues to be strong, fortified by
one of the most diversified structures in the nation. The leading employment
sectors are services, wholesale and retail trade, government and manufacturing.
Over the longer term, advanced technology, pharmaceuticals, trade, and business
service sectors will provide the basis for economic growth.
OREGON
The state's lumber and wood products industries continue to decrease, but the
state's economy has benefitted from increased export activity and expansion in
the state's trade and service sector. The construction industry has benefitted
from the increase in population growth which is expected to be twice the
national rate over the next five years. In the early part of 1991, the state
started to feel the impact of the national recession, but the economy began a
recovery by the second half of the year. Oregon officials expect the recovery
to continue, outpacing the nation, although at a more modest rate than in prior
years. The state unemployment rate in February 1993 was 7.3% compared to the
7.0% national rate. Employment is expected to increase 1.7% in 1993.
PENNSYLVANIA
While Pennsylvania is among the leading states in manufacturing and mining, it
is transforming to a
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services and high-tech economy as evidenced by the state's growing reputation
as a health and education center.
The national recession adversely affected the Commonwealth starting in 1991,
but has been more moderate than in other Mid-Atlantic and Northeastern states
as its economy is less dependent on financial services and the
defense/aerospace industry. Projections made in early 1994 are for an economy
which should be stronger than its neighboring states for the next several
years, due to the restructuring and modernization of many of its manufacturing
factories, but that will still lag the expected growth in the South and
Midwest. Competition from foreign markets has contributed to job losses in the
Commonwealth's manufacturing sector and forced restructuring. This trend will
probably continue, although employment growth should keep pace with the rest of
the nation. The replacement of highly paid manufacturing jobs for those in the
services and trade sectors will impede income growth. The growth in personal
income, which was 5% for the one-year period that ended June 30, 1993, has been
slightly lower than the 5.5% national average but in line with most of its
neighboring states.
Relative cost advantages which are available to businesses in the commonwealth
compared to its neighboring states, as well as the restructuring and
modernization of manufacturing plans, should aid in boosting the economy.
FACTORS AFFECTING PUERTO RICO
Despite economic progress, Puerto Rico continues to suffer from high
unemployment and poverty. In 1992, Puerto Rico's unemployment rate was 16.7%,
more than twice the corresponding rate in the U.S., and its income levels were
below even the poorest of the 50 states. Manufacturing has accounted for the
majority of Puerto Rico's growth since the early 1970s, especially in the areas
of pharmaceuticals, machinery and metal products, with manufacturing's share in
the island's gross product increasing from 25% in 1971 to 39% in 1991.
Puerto Rico is uniquely susceptible to outside influences which affect its
economic development. Largely dependent on imported oil as a primary energy
source, the island's economy is vulnerable to changes in the price and supply
of such oil. In the early 1980s, high oil prices adversely affected Puerto
Rico's economy and enhanced the effects of an economic recession, while later
in the decade, lower oil prices contributed to economic growth. Similarly,
Puerto Rico's relationship with the U.S., while providing economic benefit to
the island, has left it vulnerable to changes in U.S. policy. Recently, changes
were made to Section 936 of the Internal Revenue Code. Section 936 had been a
major force behind the development of manufacturing in Puerto Rico, allowing
qualifying U.S. corporations to receive tax credits which offset all or a
portion of their tax liability on earnings from Puerto Rican operations. The
impact of changes to Section 936 on future investment in Puerto Rico is
uncertain.
APPENDIX C -
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
MUNICIPAL BONDS
Moody's
Aaa: Municipal bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such
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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.
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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.
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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 throughtout 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.
MUNICIPAL NOTES
Moody's
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as
follows:
MIG 1: Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although
not so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market access
for refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds.
After June 29, 1984, for new municipal note issues due in three years or less,
the ratings below will usually be assigned. Notes maturing beyond three years
will most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER
Moody's
Moody's Commercial Paper ratings, which are also applicable to municipal paper
investments permit-
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ted to be made by the Trust, are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger likelihood
of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Fitch's
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect on assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
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SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN TAX FREE TRUST
FRANKLIN ARIZONA TAX-FREE INCOME FUND
FRANKLIN COLORADO TAX-FREE INCOME FUND
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
FRANKLIN INDIANA TAX-FREE INCOME FUND
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
FRANKLIN OREGON TAX-FREE INCOME FUND
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
DATED JULY 1, 1994
The following substitutes subsection "Purchases at Net Asset Value" under
"Additional Information Regarding Fund Shares":
ADDITIONAL INFORMATION REGARDING PURCHASES
Special Net Asset Value Purchases. As discussed in the Prospectus under
"How to Buy Shares of the Fund - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase 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. As a condition for these
payments, Distributors or its affiliates may require reimbursement from the
securities dealers with respect to certain redemptions made within 12 months
of the calendar month following purchase, as well as other conditions, all
of which may be imposed by an agreement between Distributors, or its
affiliates, and the securities dealer.
The following amounts may be paid by Distributors or one of its affiliates,
out of its own resources, to securities dealers who initiate and are
responsible for (i) purchases of most equity and taxable income Franklin
Templeton Funds made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers): 1.00% on sales of $1 million but less than
$2 million, plus 0.80% on sales of $2 million but less than $3 million, plus
0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales of
$50 million but less than $100 million, plus 0.15% on sales of $100 million or
more; and (ii) purchases of most taxable income Franklin Templeton Funds made
at net asset value by non-designated retirement plans: 0.75% on sales of $1
million but less than $2 million, plus 0.60% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but less than $50 million,
plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. These payment breakpoints are reset every 12
months for purposes of additional purchases. With respect to purchases made at
net asset value by certain trust companies and trust departments of banks and
certain retirement plans of organizations with collective retirement plan
assets of $10 million or more, Distributors, or one of its affiliates, out of
its own resources, may pay up to 1% of the amount invested.
Letter of Intent. An investor may qualify for a reduced sales charge on the
purchase of shares of 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.
Sales charge reductions based upon purchases in more than one of the Franklin
Templeton Funds will be effective only after notification to Distributors that
the investment qualifies for a discount. The shareholder's holdings in the
Franklin Templeton Funds acquired more than 90 days before the Letter of
Intent is filed will be counted towards completion of the Letter of Intent but
will not be entitled to a retroactive downward adjustment in the sales charge.
Any redemptions made by the shareholder, other than by a designated benefit
plan, during the 13-month period will be subtracted from the amount of the
purchases for purposes of determining whether the terms of the Letter of
Intent have been completed. If the Letter of Intent is not completed within
the 13-month period, there will be an upward adjustment of the sales charge,
depending upon the amount actually purchased (less redemptions) during the
period. The upward adjustment does not apply to designated benefit plans. An
investor who executes a Letter of Intent prior to a change in the sales charge
structure for the Fund will be entitled to complete the Letter of Intent at
the lower of (i) the new sales charge structure; or (ii) the sales charge
structure in effect at the time the Letter of Intent was filed with the Fund.
<PAGE>
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, the reserved shares will be deposited to an account
in the name of the investor or delivered to the investor or the investor's
order. If the total purchases, less redemptions, exceed the amount specified
under the Letter of Intent and is an amount which would qualify for a further
quantity discount, a retroactive price adjustment will be made by Distributors
and the securities dealer through whom purchases were made pursuant to the
Letter of Intent (to reflect such further quantity discount) on purchases made
within 90 days before and on those made after filing the Letter. The resulting
difference in offering price will be applied to the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases. If the total purchases, less redemptions, are
less than the amount specified under the Letter, the investor will remit to
Distributors an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge which would have applied to
the aggregate purchases if the total of such purchases had been made at a
single time. Upon such remittance the reserved shares held for the investor's
account will be deposited to an account in the name of the investor or
delivered to the investor or to the investor's order. If within 20 days after
written request such difference in sales charge is not paid, the redemption of
an appropriate number of reserved shares to realize such difference will be
made. In the event of a total redemption of the account prior to fulfillment of
the Letter of Intent, the additional sales charge due will be deducted from the
proceeds of the redemption, and the balance will be forwarded to the investor.
<PAGE>
FRANKLIN
TAX-FREE
TRUST
STATEMENT OF [FRANKLIN LOGO]
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX 7777
JULY 1, 1994 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
<PAGE>
FRANKLIN
TAX-FREE
TRUST
STATEMENT OF [FRANKLIN LOGO]
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX 7777
JULY 1, 1994 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Franklin Tax-Free Trust (the "Trust") is an open-end investment company
consisting of 27 separate series. This Statement of Additional Information (the
"SAI") relates only to the nine series shown below (which separately may be
referred to as the "Fund" or by the state, territory or policy included in its
name, and collectively as the "Funds" or "State Funds"):
Franklin Arizona Tax-Free Income Fund Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund Franklin High Yield Tax-Free Income
Fund Franklin Indiana Tax-Free Income Fund Franklin New Jersey Tax-Free Income
Fund Franklin Oregon Tax-Free Income Fund Franklin Pennsylvania Tax-Free Income
Fund Franklin Puerto Rico Tax-Free Income Fund
The principal investment objective of each Fund, except the High Yield Fund, is
to provide investors with as high a level of income exempt from federal income
taxes as is consistent with prudent investing, while seeking preservation of
shareholders' capital. The High Yield Fund seeks to provide investors with a
high current yield exempt from federal income taxes by investing primarily in
municipal securities which have been rated in the lower-grade categories by one
of the various nationally recognized statistical rating organizations
("NRSROs") such as Moody's Investors Service ("Moody's"), Standard and Poor's
Corporation ("S&P"), or Fitch Investors Service, Inc.("Fitch"), or in unrated
municipal securities deemed to be of comparable quality by the Fund's
investment manager. As a secondary objective, the High Yield Fund will seek
capital appreciation to the extent that this is possible and is consistent with
its principal investment objective. The investment objectives of each Fund are
fundamental policies. Each Fund, other than the High Yield Fund, also seeks to
provide a maximum level of income exempt from state personal income taxes, if
any, to shareholders resident in the named state. The Puerto Rico Fund seeks to
provide a maximum level of income which is exempt from the personal income
taxes of the majority of states. The Connecticut Fund is non-diversified; the
other Funds are diversified.
Generally, the High Yield Fund invests in a diversified portfolio of municipal
securities from different states. Each State Fund invests primarily in
municipal securities issued by its respective state and the state's political
subdivisions, agencies, and instrumentalities.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN
MORE DETAIL THAN SET FORTH IN THE PROSPECTUSES OF THE RESPECTIVE FUNDS. THIS
SAI IS INTENDED TO PROVIDE A PROSPECTIVE INVESTOR WITH ADDITIONAL INFORMATION
REGARDING THE ACTIVITIES AND OPERATIONS OF THE TRUST AND EACH FUND AND SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS COVERING THE SPECIFIC FUND.
A Prospectus for the Funds dated July 1, 1994, as may be amended from time to
time, provides the basic information a prospective investor should know before
investing in the Funds and may be obtained without charge from the Trust or
from the Trust's principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address listed above.
1
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<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
About the Trust.................................... 2
The Trust's Investment Objectives and Policies..... 2
Description of Municipal and Other Securities...... 2
Investment Restrictions............................ 5
Trustees and Officers.............................. 6
Investment Advisory and Other Services............. 8
The Trust's Policies Regarding Brokers
Used on Portfolio Transactions................... 10
Additional Information Regarding Purchases
and Redemptions of Trust Shares.................. 10
The Trust's Underwriter............................ 12
Plans of Distribution.............................. 13
Additional Information Regarding Taxation.......... 14
Performance........................................ 15
Miscellaneous Information.......................... 20
Appendix........................................... 20
Financial Statements............................... 24
</TABLE>
ABOUT THE TRUST
The Trust is an open-end management investment company, commonly called a
"mutual fund," and has registered as such under the Investment Company Act of
1940 (the "1940 Act"). The Trust was organized as a Massachusetts business
trust in September 1984. The Trust issues its shares of beneficial interest
with no par value in several series. The Trust currently has 27 separate
series, each of which maintains a totally separate investment portfolio. This
SAI discusses only the nine series listed on the cover.
THE TRUST'S INVESTMENT OBJECTIVES AND POLICIES
As noted in the Prospectus, the Puerto Rico Fund seeks to provide a maximum
level of income which is exempt from the personal income taxes of the majority
of states; the High Yield Fund seeks to provide investors with a high current
yield exempt from federal income taxes by investing primarily in lower-rated or
unrated municipal securities; and the State Funds seek to provide a maximum
level of income which is exempt from the personal income taxes for resident
shareholders of the named state.
Although the Trust seeks to invest all the assets of each Fund in a manner
designed to accomplish the objective of each Fund, there may be times when
market conditions limit the availability of appropriate municipal securities
or, in the investment manager's opinion, there exist uncertain economic,
market, political, or legal conditions which may jeopardize the value of
municipal securities. For temporary defensive purposes, a State Fund may invest
more than 20% and up to 100% of the value of its net assets in instruments the
interest on which is exempt from federal income taxes only, and each Fund may
invest more than 20% and up to 100% of its net assets in taxable, fixed-income
obligations. To the extent that the states of Connecticut and New Jersey
require dividends to be derived exclusively from interest on obligations of
such states or of the United States ("U.S.") and its territories in order to be
tax-exempt, the Trust will endeavor to meet such requirements. The policy
followed by these Funds of attempting to meet such state requirements in order
to distribute tax-exempt income is not a fundamental policy with respect to the
Funds and may be changed without notification to shareholders. If, due to
unusual market or political conditions, investments in securities as described
above would be advisable, in the investment manager's opinion, in order to
protect the value of the Funds' shares or their net yield, such investments may
be made, notwithstanding the potential state income tax effects.
It is the policy of each Fund that illiquid securities (including illiquid
securities with contractual or other restrictions on resale or instruments
which are not readily marketable or have no readily ascertainable market value)
may not constitute, at the time of the purchase, more than 10% of the value of
the total net assets of the Fund.
DESCRIPTION OF MUNICIPAL AND OTHER 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 each of the Funds may invest.
MUNICIPAL NOTES
Tax Anticipation Notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
which will be used to pay the notes. They are usu-
2
<PAGE>
ally 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. The 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. These 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.
Variable or Floating Rate Demand Notes ("VRDNs"). As stated in the Prospectus,
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 frequently
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 Trust 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
3
<PAGE>
assets of a Fund are held in cash pending the settlement of a purchase of
securities, the Fund would earn no income; however, it is the Trust's intention
to have each Fund fully invested to the extent practicable and subject to the
policies stated in the Prospectus. At the time a Fund makes the commitment to
purchase a municipal bond on a when-issued basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Trust does not believe that any Fund's net asset value or income
will be adversely affected by the purchase of municipal bonds on a when-issued
basis. Each Fund will establish a segregated account in which it will maintain
cash and marketable securities equal in value to commitments for when-issued
securities.
Municipal Securities may also be sold in "stripped" form. Stripped Municipal
Securities represent separate ownership of interest and principal payments on
municipal obligations.
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 Funds' investment manager, the Funds believe they have 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 each Fund's portfolio, each
callable bond is marked to market daily based on the bond's call date. Thus,
the call of some or all of each Fund's callable bonds may have an impact on
such Fund's net asset value. In light of each Fund's pricing policies and
because the Funds follow certain amortization procedures required by the
Internal Revenue Service, the Funds are not expected to suffer any material
adverse impact related to the value at which the Funds have 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 won't have a
more substantial impact than anticipated or that the Funds' objectives will be
achieved.
Certificates of Participation. As stated in the Prospectus, each 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 Funds
believe that this risk is mitigated by their policy of investing only in COPs
rated within the four highest rating categories of the NRSROs, or in unrated
COPs believed to be of comparable quality. Criteria considered by the NRSROs
and the 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 Trustees has determined that COPs held in each
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 each Fund, both
in general and with respect to COPs; and (c) the extent to which the type of
COPs held by each 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 each 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.
4
<PAGE>
U.S. Government Obligations which may be owned by a 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 Funds may also invest, to the extent such investments would be
consistent with the foregoing objectives and policies.
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions as additional fundamental
policies of each Fund. These policies may not be changed with respect to any
Fund without the approval of a majority of the outstanding voting securities of
such Fund. Under the 1940 Act, a "vote of a majority of the outstanding voting
securities" of the Trust or of a particular Fund means the affirmative vote of
the lesser of (1) more than 50% of the outstanding shares of the Trust or of
such Fund or (2) 67% or more of the shares of the Trust or of such Fund present
at a shareholders meeting if more than 50% of the outstanding shares of the
Trust or of such Fund are represented at the meeting in person or by proxy. A
Fund MAY NOT:
1. Borrow money or mortgage or pledge any of its assets, except that
borrowings (and a pledge of assets therefore) for temporary or emergency
purposes may be made from banks in any amount up to 5% of the total asset
value.
2. Buy any securities on "margin" or sell any securities "short," except that
it may use such short-term credits as are necessary for the clearance of
transactions.
3. Make loans, except through the purchase of readily marketable debt
securities which are either publicly distributed or customarily purchased by
institutional investors. Although such loans are not presently intended, this
prohibition will not preclude a Fund from loaning portfolio securities to
broker/dealers or other institutional investors if at least 102% cash
collateral is pledged and maintained by the borrower; provided such portfolio
security loans may not be made if, as a result, the aggregate of such loans
exceeds 10% of the value of 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, except with respect to the
Connecticut Fund, which will not purchase a security if, as a result: i) more
than 25% of its total assets would be invested in the securities of a single
issuer or ii) with respect to 50% of its total assets, more than 5% of its
assets would be invested in the securities of a single issuer.
6. Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own beneficially more than
1/2 of 1% of the securities of such issuer and all such officers and trustees
together own beneficially more than 5% of such securities.
7. Acquire, lease or hold real estate, except such as may be necessary or
advisable for the maintenance of its offices and provided that this limitation
shall not prohibit the purchase of municipal and other debt securities secured
by real estate or interests therein.
8. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads or any combination thereof, or interests in oil, gas, or other mineral
exploration or development programs, except that it may purchase, hold and
dispose of "obligations with puts attached" in accordance with its investment
policies.
9. Invest in companies for the purpose of exercising control or management.
10. Purchase securities of other investment companies, except in connection
with a merger, consolidation or reorganization, except to the extent the Fund
invests its uninvested daily cash balances in shares of the 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
5
<PAGE>
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 its assets in securities of any industry; although
for purposes of this limitation, tax-exempt securities and U.S. government
obligations are not considered to be part of any industry.
Portfolio Turnover: The portfolio turnover of the Funds for each of the two
fiscal years ended February 28, 1994 was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------
FUND 1994 1993
- ---- ------ ------
<S> <C> <C>
Arizona Fund.................... 14.17% 5.67%
Colorado Fund................... 10.85% 5.66%
Connecticut Fund................ 5.54% 28.52%
High Yield Fund................. 16.09% 33.46%
Indiana Fund.................... 16.12% 7.98%
New Jersey Fund................. 4.16% 14.12%
Oregon Fund..................... 9.42% 7.78%
Pennsylvania Fund............... 4.73% 5.87%
Puerto Rico Fund................ 5.10% 10.37%
</TABLE>
TRUSTEES AND OFFICERS
The trustees have the responsibility for the overall management of the Trust,
including general supervision and review of each Fund's investment activities.
The trustees elect the officers of the Trust who are responsible for
administering the day-to-day operations of the Trust. The affiliations of the
officers and trustees and their principal occupations for the past five years
are listed below. Trustees who are deemed to be "interested persons" of the
Trust, as defined in the 1940 Act, are indicated by an asterisk (*)
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ---------------- --------------------- --------------------------------------------
<S> <C> <C>
Frank H. Abbott, III Trustee President and Director, Abbott Corporation (an investment
1045 Sansome St. company); Director, Vacu-Dry Co. (a food processing company)
San Francisco, CA 94111 and Mother Lode Gold Mines Consolidated; and director,
trustee or managing general partner, as the case may be, of
most of the investment companies in the Franklin Group of
Funds.
Harris J. Ashton Trustee President, Chief Executive Officer and Chairman of the Board,
General Host Corporation General Host Corporation (nursery and craft centers);
Metro Center, 1 Station Place Director, RBC Holdings, Inc. (a bank holding company), Bar-S
Stamford, CT 06904-2045 Foods and Sunbelt Nursery Group, Inc.; director of certain of
the investment companies in the Templeton Group of Funds; and
director, trustee or managing general partner, as the case
may be, of most of the investment companies in the Franklin
Group of Funds.
David W. Garbellano Trustee Private Investor; Assistant Secretary/Treasurer and Director,
111 New Montgomery St., #402 Berkeley Science Corporation (a venture capital company); and
San Francisco, CA 94105 director, trustee or managing general partner, as the case
may be, of most of the investment companies in the Franklin
Group of Funds.
S. Joseph Fortunato Trustee Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Park Avenue at Morris County Director of General Host Corporation; director of certain of
P. O. Box 1945 the investment companies in the Templeton Group of Funds; and
Morristown, NJ 07962-1945 director, trustee or managing general partner, as the case
may be, of most of the investment companies in the Franklin
Group of Funds.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ---------------- --------------------- --------------------------------------------
<S> <C> <C>
*Charles B. Johnson President President and Director, Franklin Resources, Inc. and
777 Mariners Island Blvd. and Trustee Franklin/Templeton Distributors, Inc.; Chairman of the Board
San Mateo, CA 94404 and Director, Franklin Advisers, Inc.; Director, Franklin/
Templeton Investor Services, Inc. and General Host
Corporation; director of certain of the investment companies
in the Templeton Group of Funds; and officer and/or director,
trustee or managing general partner, as the case may be, of
most other subsidiaries of Franklin Resources, Inc. and of
most of the investment companies in the Franklin Group of
Funds.
*Rupert H. Johnson, Jr. Vice President Executive Vice President and Director, Franklin Resources,
777 Mariners Island Blvd. and Trustee Inc. and Franklin/Templeton Distributors, Inc.; President and
San Mateo, CA 94404 Director, Franklin Advisers, Inc.; Director, Franklin/
Templeton Investor Services, Inc.; director of certain of the
investment companies in the Templeton Group of Funds; and
officer and/or director, trustee or managing general partner,
as the case may be, of most other subsidiaries of Franklin
Resources, Inc. and of most of the investment companies in the
Franklin Group of Funds.
Frank W. T. LaHaye Trustee General Partner, Peregrine Associates and Miller & LaHaye,
20833 Stevens Creek Blvd. which are General Partners of Peregrine Ventures and Peregrine
Suite 102 Ventures II (venture capital firms); Chairman of the Board and
Cupertino, CA 95014 Director, Quarterdeck Office Systems, Inc.; Director,
FischerImaging Corporation; and director or trustee, as the
case may be, of most of the investment companies in the
Franklin Group of Funds.
Gordon S. Macklin Trustee Chairman, White River Corporation (financial services);
8212 Burning Tree Road Director, Fundamerican Enterprises Holdings, Inc., Martin
Bethesda, MD 20817 Marietta Corporation, and MCI Communications Corporation;
director of certain of the investment companies in the
Templeton Group of Funds; and director, trustee or managing
general partner, as the case may be, of most of the investment
companies in the Franklin Group of Funds; formerly, Chairman,
Hambrecht and Quist Group; Director, H & Q Healthcare
Investors; and President, National Association of Securities
Dealers, Inc.
Don Duerson Vice President Employee of Franklin Resources, Inc. and its subsidiaries in
777 Mariners Island Blvd. senior portfolio management capacities.
San Mateo, CA 94404
Andrew R. Johnson Vice President Senior Vice President, Franklin Advisers, Inc.; employee of
777 Mariners Island Blvd. Franklin Resources, Inc. and its subsidiaries in
San Mateo, CA 94404 administrative and portfolio management capacities; and
officer of some of the investment companies in the Franklin
Group of Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ---------------- --------------------- --------------------------------------------
<S> <C> <C>
Edward V. McVey Vice President Senior Vice President/National Sales Manager, Franklin/
777 Mariners Island Blvd. Templeton Distributors, Inc.; and officer of many of the
San Mateo, CA 94404 investment companies in the Franklin Group of Funds.
Harmon E. Burns Vice President Executive Vice President, Secretary and Director, Franklin
777 Mariners Island Blvd. Resources, Inc.; Executive Vice President and Director,
San Mateo, CA 94404 Franklin/Templeton Distributors, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director, Franklin/
Templeton Investor Services, Inc.; director of certain of the
investment companies in the Templeton Group of Funds; officer
and/or director, as the case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or director or
trustee of all the investment companies in the Franklin Group
of Funds.
Kenneth V. Domingues Vice President Senior Vice President, Franklin Resources, Inc. and Franklin
777 Mariners Island Blvd. and Treasurer Advisers, Inc.; Vice President, Franklin/Templeton
San Mateo, CA 94404 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 all the investment companies in the Franklin Group of
Funds.
Deborah R. Gatzek Vice President Senior Vice President - Legal, Franklin Resources, Inc. and
777 Mariners Island Blvd. and Secretary Franklin/Templeton Distributors, Inc.; Vice President,
San Mateo, CA 94404 Franklin Advisers, Inc.; and officer of all the investment
companies in the Franklin Group of Funds.
</TABLE>
As indicated above, certain of the trustees and officers hold positions with
other companies in the Franklin Group of Funds. Trustees not affiliated with the
investment manager are currently paid fees of $700 per month plus $700 per
meeting attended and are reimbursed for expenses incurred in connection with
attending such meetings, which amounts are apportioned between all series of the
Trust based on their respective net assets. During the fiscal year ended
February 28, 1994, the total amount paid by the Funds to cover such fees and
expenses was:
<TABLE>
<CAPTION>
TRUSTEES FEES
FUND AND EXPENSES
- ---- -------------
<S> <C>
Arizona Fund........................... $13,903
Colorado Fund.......................... 3,294
Connecticut Fund....................... 2,680
High Yield Fund........................ 55,907
Indiana Fund........................... 778
New Jersey Fund........................ 9,129
Oregon Fund............................ 6,304
Pennsylvania Fund...................... 10,291
Puerto Rico Fund....................... 2,915
</TABLE>
No officer or trustee received any other compensation directly from the Trust.
As of April 19, 1994, the officers and trustees, as a group, owned of record
and beneficially 5,705 shares of the Arizona Fund, 19,313 shares of the
Connecticut Fund, 26,151 shares of the New Jersey Fund and 3,857 shares of the
Oregon Fund, which shares are less than 1% of the total outstanding shares of
the respective Funds. Certain officers or trustees who are shareholders of
Franklin Resources, Inc. may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
Charles B. Johnson, Rupert H. Johnson, Jr. and Andrew R. Johnson are brothers.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager for each Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange. Resources owns several other
8
<PAGE>
subsidiaries which are involved in investment management and shareholder
services. The Manager and other subsidiary companies of Resources currently
manage over $112 billion in assets for more than 3.5 million shareholders. The
preceding table indicates those officers and trustees who are affiliated
persons of the Funds and 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 Funds to purchase, hold or sell and the selection of brokers through whom
the portfolio transactions of each Fund 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 trustees to whom the Manager renders periodic reports of the
Trust's investment activities. The Manager, at its own expense, furnishes the
Trust with office space and furnishings, facilities and equipment required for
managing the business affairs of the Trust; maintains all internal bookkeeping,
clerical, secretarial and administrative personnel and services; and provides
certain telephone and other mechanical services. The Manager is covered by
fidelity insurance on its officers, directors and employees for the protection
of the Funds. Each Fund bears all of its expenses not assumed by the Manager.
See the Statement of Operations for each Fund in the financial statements at
the end of this SAI for additional details of these expenses.
Pursuant to the management agreement, each Fund is obligated to pay the Manager
a fee computed at the close of business on the last business day of each month
equal to a monthly rate of 5/96 of 1% (approximately 5/8 of 1% per year) for
the first $100 million of average monthly net assets of the Fund; 1/24 of 1%
(approximately 1/2 of 1% per year) of average monthly net assets of the Fund in
excess of $100 million up to $250 million; and 9/240 of 1% (approximately
45/100 of 1% per year) of average monthly net assets of the Fund in excess of
$250 million. Advisers may, however, limit or may not impose its management
fees and may also assume responsibility for making payments, if necessary, to
offset certain operating expenses otherwise payable by such Fund(s). This
action by Advisers to limit its management fees and assume responsibility for
payment of the expenses related to the operations of any Fund may be terminated
by Advisers at any time.
The management agreement specifies that the management fee be reduced to the
extent necessary to comply with the most stringent limits on the expenses which
may be borne by a Fund prescribed by any state in which a Fund's shares are
offered for sale. The most stringent current limit requires the Manager to
reduce or eliminate its fee to the extent that aggregate operating expenses of
a Fund (excluding interest, taxes, brokerage commissions and extraordinary
expenses such as litigation costs) would otherwise exceed in any fiscal year
2.5% of the first $30 million of average annual net assets of a Fund, 2% of the
next $70 million of average annual net assets of a Fund, and 1.5% of average
annual net assets of a Fund in excess of $100 million. Expense reductions have
not been necessary based on state limitation requirements.
The table below sets forth on a per Fund basis the management fees which each
Fund was obligated to pay Advisers:
FISCAL YEAR ENDED FEBRUARY 28:
<TABLE>
<CAPTION>
MANAGEMENT FEES
-------------------------------------------
FUND 1994 1993 1992
- ---- ----------- ----------- ----------
<S> <C> <C> <C>
Arizona Fund..................................................... $ 3,701,321 $ 3,131,852 $2,590,005
Colorado Fund.................................................... 1,046,886 791,120 575,299
Connecticut Fund................................................. 876,259 665,608 425,358
High Yield Fund.................................................. 14,279,943 11,262,179 8,864,985
Indiana Fund..................................................... 272,338 184,624* 125,692**
New Jersey Fund.................................................. 2,552,530 1,941,488 1,623,670
Oregon Fund...................................................... 1,832,220 1,390,785 970,801
Pennsylvania Fund................................................ 2,828,236 2,257,960 1,841,276
Puerto Rico Fund................................................. 936,205 759,846 677,664
</TABLE>
* After reduction by the Manager, the Fund paid management fees of $145,359.
**After reduction by the Manager, the Fund paid management fees of $78,299.
9
<PAGE>
The management agreement is in effect until March 31, 1995. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Trust's Board of
Trustees or as to each Fund by a vote of the holders of a majority of the
outstanding voting securities of such Fund, and in either event by a majority
vote of the trustees who are not parties to the management agreement or
interested persons of any such party (other than as trustees), cast in person
at a meeting called for that purpose. The management agreement may be
terminated without penalty at any time by the Trust or one or more of its Funds
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.
OTHER SERVICES
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Trust and acts as the Trust's transfer agent and
dividend-paying agent. Investor Services is compensated by each Fund 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 each
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, 333 Market Street, San Francisco, California 94105, are the
Trust's independent auditors. During the fiscal year ended February 28, 1994,
their auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report and this SAI.
THE TRUST'S POLICIES REGARDING BROKERS USED ON PORTFOLIO TRANSACTIONS
Since most purchases made by the Trust are principal transactions at net
prices, the Trust incurs little or no brokerage costs. The Trust deals directly
with the selling or purchasing principal or market maker without incurring
charges for the services of a broker on its behalf, unless it is determined
that a better price or execution may be obtained by utilizing the services of a
broker. Purchases of portfolio securities from underwriters include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include a spread between the bid and ask price. As a general rule,
the Funds do not purchase bonds in underwritings where they are not given any
choice, or only limited choice, in the designation of dealers to receive the
commission. The Trust seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers in return for
research and statistical information, as well as for special services rendered
by such dealers in the execution of orders. It is not possible to place a
dollar value on the special executions or on the research services received by
Advisers from dealers effecting transactions in portfolio securities. The
allocations of transactions in order to obtain additional research services
permits Advisers to supplement its own research and analysis activities and to
receive the views and information of individuals and research staff of other
securities firms which the Manager or its affiliates may lawfully and
appropriately use in their investment advisory capacities with other clients.
Provided that the best execution is obtained, the sale of shares of a Fund may
also be considered as a factor in the selection of securities dealers to
execute the Trust's portfolio transactions.
If purchases or sales of securities of a Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of
the security so far as any Fund is concerned. In other cases, however, it is
possible that the ability to participate in volume transactions and to
negotiate lower broker commissions will be beneficial to a Fund.
During each of the three fiscal years ended February 29, 1992 and February 28,
1993 and 1994, none of the Funds incurred any brokerage commissions. The Funds
have not acquired the securities of any broker-dealer during the last fiscal
year.
ADDITIONAL INFORMATION REGARDING PURCHASES AND REDEMPTIONS OF TRUST SHARES
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of
10
<PAGE>
the Funds must be denominated in U.S. dollars. Each 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.
Shares are eligible to receive dividends beginning on the first business day
following settlement of the purchase transaction through the date on which a
Fund writes a check or sends a wire on redemption transactions.
Dividend checks which are returned to the Funds 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.
Each Fund may deduct from a shareholder's account the costs of its efforts to
locate a shareholder if mail to that shareholder 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 Funds'
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service
fees may be paid to Distributors, or an affiliate of Distributors, to help
defray expenses of maintaining a service office in Taiwan, including expenses
related to local literature fulfillment and communication facilities.
Shares of the Funds may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
conformity with local business practices in Taiwan, shares of the Funds will be
offered with the following schedule of sales charges:
<TABLE>
<CAPTION>
SALES
SIZE OF PURCHASE CHARGE
- ---------------- ------
<S> <C>
Up to U.S. $100,000.......................... 3%
U.S. $100,000 to U.S. $1,000,000............. 2%
Over U.S. $1,000,000......................... 1%
</TABLE>
PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
Orders for the purchase of shares of each Fund received in proper form prior to
1:00 p.m. Pacific time any business day that the New York Stock Exchange (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 1:00 p.m.
Pacific time will be effected at each Fund's public offering price on the day
it is next calculated. The use of the term "securities dealer" herein shall
include other financial institutions which, pursuant to an agreement with
Distributors (directly or through affiliates), handle customer orders and
accounts with each Fund. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion
and any loss to the customer resulting from failure to do so must be settled
between the customer and the securities dealer.
PURCHASES AT NET ASSET VALUE
As discussed in the Prospectus, certain categories of investors may purchase
shares of the Funds at net asset value (without a sales charge) or at a reduced
sales charge. The reason for this is that there is minimal or no sales effort
required with respect to these investors. If certain investments at net asset
value are made through a dealer who has executed a dealer or similar agreement
with Distributors, Distributors or its affiliates may make a payment, out of
their own resources, to such dealer in an amount not to exceed 0.25% of the
amount invested, paid pro rata on a quarterly basis on average quarterly
balances for a period of one year.
REDEMPTIONS BY THE FUNDS
Due to the relatively high cost of handling small investments, each Fund
reserves the right to redeem, involuntarily, at net asset value, the shares of
any shareholder whose account in any single Fund 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. Before a 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 will
allow the shareholder 30 days to make an additional invest-
11
<PAGE>
ment in an amount which will increase the value of the account in the
applicable Fund to at least $100.
REDEMPTIONS IN KIND
Each Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of a Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. In the case of requests for redemption in excess
of such amounts, the trustees reserve the right to make payments in whole or in
part in securities or other assets of such Fund 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 such Fund's net assets. Should a
Fund do so, a shareholder may incur brokerage fees in converting the securities
to cash.
CALCULATION OF NET ASSET VALUE
As noted in the Prospectus, each Fund generally calculates net asset value as
of 1:00 p.m. Pacific time each day that the Exchange is open for trading. As of
the date of this SAI, the Trust is informed that the Exchange observes the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each 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 a Fund's shares are determined as of such times. Occasionally, events
affecting the values of such securities may occur between the times at which
they are determined and 1:00 p.m. Pacific time which will not be reflected in
the computation of a Fund's net asset value. 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
Trustees.
REINVESTMENT DATE
The dividend reinvestment date is the date on which the additional shares are
purchased for the investor who has elected to have dividends reinvested. This
date will vary from month to month, based on operational considerations, and is
not necessarily the same date as the payable date for cash dividends.
SPECIAL SERVICES
The Trust and Institutional Services Division of Distributors provides
specialized services, including recordkeeping, for institutional investors of
the Funds. The cost of these services is not borne by the Funds.
Investor Services or the Trust may pay certain financial institutions which
maintain omnibus accounts with the Funds on behalf of numerous beneficial
owners for recordkeeping operations performed with respect to such beneficial
owners. For each beneficial owner in the omnibus account, the Funds may
reimburse Investor Services an amount not to exceed the per account fee which
the Funds normally pay Investor Services. Such financial institutions may also
charge a fee for their services directly to their clients.
THE TRUST'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April 30, 1995,
Distributors acts as principal underwriter in a continuous public offering for
shares of each Fund.
Distributors pays the expenses of distribution of each Fund's shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Trust 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 Trust's Board of Trustees or by a vote of the holders
of a majority of the outstanding voting securities of each Fund, and in either
event by a majority of the Trust's trustees who are not parties to the
underwriting agreement or interested persons of any such party (other than as
trustees of the Trust), cast in person at a meeting called for that purpose.
The underwriting agreement terminates automatically in the event of its
assignment and may be terminated by either party on 90 days' written notice.
Prior to May 1, 1994, ordinary dividends were reinvested at the offering price
(which includes the sales charge) and 50% of such sales charge was paid to the
securities dealer of record, if any, on the
12
<PAGE>
account. As of May 1, 1994, such reinvestment will be at net asset value. In
addition, prior to July 1, 1994, the entire sales charge on the sale of each
Fund's shares was paid to the securities dealer of record, if any, on the
account. As of July 1, 1994, Distributors will allow a portion of such
underwriting commission (sales charge) to the securities dealer of record. The
tables below reflect the prior structure.
Underwriting commissions received by Distributors and the amounts which were
subsequently paid by Distributors to other dealers for each of the three fiscal
years ending on February 29, 1992 and February 28, 1993 and 1994 were as
follows:
<TABLE>
<CAPTION>
1994 TOTAL
COMMISSIONS PAID TO
FUND RECEIVED OTHER DEALERS
- ---- ----------- -------------
<S> <C> <C>
Arizona Fund............. $ 4,856,037 $ 4,609,675
Colorado Fund............ 1,851,780 1,766,011
Connecticut Fund......... 1,525,567 1,457,899
High Yield Fund.......... 28,269,127 27,116,786
Indiana Fund............. 512,478 493,597
New Jersey Fund.......... 5,864,699 5,619,474
Oregon Fund.............. 3,420,681 3,250,943
Pennsylvania Fund........ 5,211,610 4,977,728
Puerto Rico Fund......... 1,580,955 1,507,342
</TABLE>
<TABLE>
<CAPTION>
1993 TOTAL
COMMISSIONS PAID TO
FUND RECEIVED OTHER DEALERS
- ---- ----------- -------------
<S> <C> <C>
Arizona Fund............. $ 4,548,313 $ 4,342,624
Colorado Fund............ 1,627,553 1,561,409
Connecticut Fund......... 1,457,153 1,402,950
High Yield Fund.......... 23,636,987 22,591,135
Indiana Fund............. 367,784 353,348
New Jersey Fund.......... 4,087,815 3,888,860
Oregon Fund.............. 3,353,292 3,228,060
Pennsylvania Fund........ 4,096,911 3,914,769
Puerto Rico Fund......... 1,220,228 1,163,103
</TABLE>
<TABLE>
<CAPTION>
1992 TOTAL
COMMISSIONS PAID TO
FUND RECEIVED OTHER DEALERS
- ---- ----------- -------------
<S> <C> <C>
Arizona Fund............. $ 7,011,277 $ 6,824,804
Colorado Fund............ 1,514,211 1,461,092
Connecticut Fund......... 1,456,506 1,421,116
High Yield Fund.......... 19,079,580 18,203,219
Indiana Fund............. 305,309 294,418
New Jersey Fund.......... 3,624,871 3,473,716
Oregon Fund.............. 3,183,564 3,088,071
Pennsylvania Fund........ 3,730,558 3,567,595
Puerto Rico Fund......... 1,035,151 988,773
</TABLE>
The only compensation Distributors receives from the Funds for acting as
underwriter is the commissions discussed above and payments it will receive in
connection with each of the distribution plans adopted by the Funds, as
discussed below.
PLANS OF DISTRIBUTION
The Funds have each adopted a Distribution Plan (a "Plan" or "Plans") pursuant
to Rule 12b-1 under the 1940 Act whereby each Fund may pay up to a maximum of
0.10% per annum (1/10 of 1%) of its average daily net assets, payable on a
quarterly basis, for expenses incurred in the distribution of its shares.
Pursuant to each Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum as stated above) for all expenses incurred in
the distribution and promotion of the Funds' shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparation and distribution of sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
each Fund's 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 Funds, Distributors or its affiliates. In addition to the
payments to which Distributors or others are entitled under each Plan, each
Plan also provides that to the extent a Fund, the Manager or Distributors or
other parties on behalf of a 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 a 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 Plan.
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 a 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 each Plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plans do not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
subsequent years.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks will not be entitled to participate in each Plan as a result of
applicable federal law prohibiting certain
13
<PAGE>
banks from engaging in the distribution of mutual fund shares. Such banking
institutions, however, are permitted to receive fees under each Plan for
administrative servicing or for agency transactions. If a bank were prohibited
from providing such services, its customers who are shareholders would be
permitted to remain shareholders of the Funds and alternate means for
continuing the servicing of such shareholders would be sought. In such an
event, changes in the services provided might occur and such shareholders might
no longer be able to avail themselves of any automatic investment or other
services then being provided by the bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
changes. Securities laws of states in which a 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 Funds may be required to
register as dealers pursuant to state law.
The Board of Trustees has determined that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and to
take advantage of buying opportunities of portfolio securities without having
to make unwarranted liquidations of other portfolio securities. The Board of
Trustees, therefore, felt that it would benefit the Funds to have monies
available for the direct distribution activities of Distributors or others in
promoting the sale of the Funds' shares. The Board of Trustees, including the
non-interested trustees, concluded that, in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plans will benefit the Funds and their shareholders.
Each Plan was approved by the trustees of the trust and by the shareholders of
each Fund, at special shareholders meetings held in April 1994. Each Plan is
effective for an initial one-year period ending on April 30, 1995 and is
renewable annually thereafter by a vote of the Trust's Board of Trustees,
including a majority of the trustees who are non-interested persons of the
Trust and who have no direct or indirect financial interest in the operation of
each Plan, cast in person at a meeting called for that purpose. It is also
required that the selection and nomination of such trustees be done by the
non-interested trustees. Each Plan and any related agreement may be terminated
at any time, without penalty, by the trustees or by Distributors on not more
than 60 days' written notice, by any act that terminates the underwriting
agreement with Distributors, or, as to each Fund, by vote of a majority of that
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. Each 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 the affected Fund's outstanding shares, and all such
material amendments to the Plan or any distribution or service agreements also
shall be approved by a vote of the non-interested trustees, cast in person at a
meeting called for the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board of Trustees at least
quarterly on the amounts and purpose of any payment made under a Plan and any
related agreements, as well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether a Plan should be
continued.
ADDITIONAL INFORMATION REGARDING TAXATION
As stated in the Prospectus, each Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code (the
"Code"). The trustees reserve the right not to maintain the qualification of
any Fund as a regulated investment company if they determine such course of
action to be beneficial to the shareholders. In such case, a Fund will be
subject to federal and possibly state corporate taxes on its taxable income and
gains and to the alternative minimum tax on its tax-exempt income;
distributions to shareholders derived from tax-exempt interest will be taxable
dividend income to the extent of a 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 a 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 shareholders until the
following January, will be treated for tax purposes as if paid by the Funds and
received by shareholders on December 31 of the calendar year in which
14
<PAGE>
they are declared. The Funds intend as a matter of policy to declare and pay
such dividends, if any, in December to avoid the imposition of this tax, but do
not guarantee that the distributions will be sufficient to avoid any or all
federal excise taxes.
Redemptions and exchanges of a Fund's 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 such 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 a fund from direct obligations of the U.S.
government, subject in some states to minimum investment requirements that must
be met by a 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 any
Fund of the Trust to invest in such obligations, the Funds are authorized to so
invest for temporary or defensive purposes. To the extent that such investments
are made, any affected 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 their tax
advisors before purchasing shares of a Fund.
PERFORMANCE
As noted in the Prospectus, a Fund may from time to time quote various
performance figures to illustrate its past performance. Each Fund 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
Fund be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and average annual compounded total return
quotations used by the Funds are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the Funds to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five-, and ten-year periods, or
fractional portion thereof, that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes the maximum
sales charge is deducted from the initial $1,000 purchase order and that income
dividends and capital gains are reinvested at net asset value on the
reinvestment dates during the period. 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 to the sales
charge structure, historical performance information will be restated to
reflect the maximum sales charge currently in effect.
In considering the quotations set forth below, investors should remember that
the maximum sales charge reflected in each quotation is a one-time fee (charged
on all direct purchases) which will have its greatest impact during the early
stages of an investment in one of the Funds. The actual performance of an
investment will be affected less by this charge the longer an investor retains
the investment in such Fund. The average annual compounded rates of return for
each Fund for the indicated periods ended on the date of the financial
statements included herein were as shown below.
15
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
INCEPTION FROM
OF THE FUND ONE-YEAR FIVE-YEAR INCEPTION
----------- -------- --------- ---------
<S> <C> <C> <C> <C>
Arizona Fund....................................................... 09/01/87 1.51% 8.10% 8.06%
Colorado Fund...................................................... 09/01/87 2.22% 8.37% 8.45%
Connecticut Fund................................................... 10/03/88 1.84% 7.49% 7.32%
High Yield Fund.................................................... 03/18/86 3.98% 8.38% 8.40%
Indiana Fund....................................................... 09/01/87 2.19% 8.63% 8.69%
New Jersey Fund.................................................... 05/12/88 1.17% 8.11% 8.52%
Oregon Fund........................................................ 09/01/87 0.90% 7.73% 7.62%
Pennsylvania Fund.................................................. 12/01/86 1.70% 8.12% 6.93%
Puerto Rico Fund................................................... 04/03/85 1.69% 7.91% 8.07%
</TABLE>
The above figures were calculated according to the following SEC formula:
P(1+T)n = ERV
where:
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the end of the one-,
five-, or ten-year periods (or fractional portion thereof)
As discussed in each Prospectus, a Fund may quote total rates of return in
addition to its average annual total return. Such quotations are computed in
the same manner as the average annual compounded rate, except that such
quotations will be based on the actual return for a specified period instead of
the average return over one-, five- and ten-year periods. The rates of total
return for each Fund for the indicated periods ended on February 28, 1994 were
as follows:
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
----------------------------------------------
INCEPTION FROM
OF THE FUND ONE-YEAR FIVE-YEAR INCEPTION
----------- -------- --------- ---------
<S> <C> <C> <C> <C>
Arizona Fund...................................................... 09/01/87 1.51% 7.61% 5.50%
Colorado Fund..................................................... 09/01/87 2.22% 49.48% 69.39%
Connecticut Fund.................................................. 10/03/88 1.84% 43.51% 46.50%
High Yield Fund................................................... 03/18/86 3.98% 49.55% 89.90%
Indiana Fund...................................................... 09/01/87 2.19% 51.28% 71.81%
New Jersey Fund................................................... 05/12/88 1.17% 47.71% 60.78%
Oregon Fund....................................................... 09/01/87 0.90% 45.11% 61.14%
Pennsylvania Fund................................................. 12/01/86 1.70% 47.94% 62.53%
Puerto Rico Fund.................................................. 04/03/85 1.69% 46.35% 99.61%
</TABLE>
YIELD
Current yield reflects the income per share earned by a Fund's portfolio
investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
yield for each Fund (except those that were not in effect at fiscal year-end)
for the 30-day period ended on the date of the financial statements included
herein was as follows:
<TABLE>
<CAPTION>
CURRENT
30-DAY
YIELD
-------
<S> <C>
Arizona Fund................................. 4.18%
Colorado Fund................................ 4.41%
Connecticut Fund............................. 4.58%
High Yield Fund.............................. 5.61%
Indiana Fund................................. 4.32%
New Jersey Fund.............................. 4.43%
Oregon Fund.................................. 4.51%
Pennsylvania Fund............................ 4.55%
Puerto Rico Fund............................. 3.98%
</TABLE>
16
<PAGE>
These figures were obtained using the SEC formula:
Yield = 2 [(a-b + 1)6 - 1]
---
cd
where:
a = interest earned during the period
b = net expenses accrued for the period
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
30-DAY TAX EQUIVALENT YIELD
A 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 a Fund (computed as indicated above) which is
tax-exempt by one minus the highest applicable combined federal and state
income tax rate (and adding the product to that portion of the yield of a Fund
that is not tax-exempt, if any). The tax equivalent yield for each Fund for the
30-day period ended on the date of the financial statements included herein was
as follows:
<TABLE>
<CAPTION>
30-DAY TAX
EQUIVALENT
YIELD*
----------
<S> <C>
Arizona Fund.............................. 7.44%
Colorado Fund............................. 7.68%
Connecticut Fund.......................... 7.94%
High Yield Fund........................... 9.29%
Indiana Fund.............................. 7.41%
New Jersey Fund........................... 7.88%
Oregon Fund............................... 8.20%
Pennsylvania Fund......................... 7.75%
Puerto Rico Fund.......................... 6.59%
</TABLE>
The following table lists for each state, the state and the combined state and
federal income tax rates upon which the Trust's tax equivalent yield quotations
are based. From time to time, as any changes to such rates become effective,
tax equivalent yield quotations advertised by the Trust will be updated to
reflect such changes. The Trust expects updates will be necessary as tax rates
are frequently changed by federal, state and local governments. The advantage
of tax-free investments, such as the Funds of the Trust, will be enhanced by
any tax rate increases. Therefore, the details of specific tax increases may be
used in sales material for any Fund.
<TABLE>
<CAPTION>
STATE COMBINED*
----- ---------
<S> <C> <C>
Arizona......................... 7.00% 43.83%
Colorado........................ 5.00% 42.62%
Connecticut..................... 4.50% 42.32%
Indiana......................... 3.40% 41.65%
New Jersey...................... 7.00% 43.83%
Oregon.......................... 9.00% 45.04%
Pennsylvania.................... 2.80% 41.29%
Puerto Rico..................... 0.00% 39.60%
</TABLE>
*Based on the maximum (with the exception of Arizona) combined state and
federal tax rate in effect as of the date of this SAI. The maximum federal tax
rate in effect as of the date of this SAI was 39.6%.
Quotations of taxable equivalent yield by the Funds in advertisements may
reflect assumed rates of return which are not intended to represent historical
or current distribution rates or yields. Such quotations will be used in sales
literature, such as Franklin's Tax-Free Yield Calculator, to illustrate the
general principle of the impact taxes have on rates of return or to show the
taxable rate of return that would be needed to match a tax-free rate of return.
CURRENT DISTRIBUTION RATE
Current yield and tax equivalent yield, which are calculated according to a
formula prescribed by the SEC, are not indicative of the amounts which were or
will be paid to a Fund's shareholders. Amounts paid to shareholders are
reflected in the quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by dividing the
total amount of dividends per share paid by the Fund during the past twelve
months by a current maximum offering price. A taxable equivalent distribution
rate demonstrates the taxable distribution rate equivalent to a Fund's current
distribution rate (calculated as indicated above). The advertised taxable
equivalent distribution rate will reflect the most current federal and state
tax rates available to a Fund.
Under certain circumstances, such as when there has been a change in the amount
of dividend payout or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid over the period such policies were
in effect, rather than using the dividends during the past twelve months. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from additional sources (i.e.,
sources other than dividends and interest), such as short-term capital gains,
and is calculated over a different period of time.
The current distribution rate for each Fund for the 12-month period ended on
the date of the financial statements included herein was as follows:
17
<PAGE>
<TABLE>
<CAPTION>
CURRENT
DISTRIBUTION
RATE
------------
<S> <C>
Arizona Fund............................. 5.47%
Colorado Fund............................ 5.31%
Connecticut Fund......................... 5.23%
High Yield Fund.......................... 6.55%
Indiana Fund............................. 5.28%
New Jersey Fund.......................... 5.36%
Oregon Fund.............................. 5.02%
Pennsylvania Fund........................ 5.56%
Puerto Rico Fund......................... 5.55%
</TABLE>
VOLATILITY
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility or
risk is standard deviation. Standard deviation is used to measure variability
of net asset value or total return around an average over a specified period of
time. The premise is that greater volatility connotes greater risk undertaken
in achieving performance.
OTHER PERFORMANCE QUOTATIONS
With respect to those categories of investors who are permitted to purchase
shares of a Fund at net asset value, sales literature pertaining to a Fund may
quote a "Current Distribution Rate for Net Asset Value Investments." This rate
is computed by adding the income dividends paid by a Fund during the last 12
months and dividing that sum by a current net asset value. Figures for yield,
total return and other measures of performance for net asset value investments
may also be quoted. These will be derived as described elsewhere in this SAI
with the substitution of net asset value for public offering price.
Regardless of the method used, past performance is not necessarily indicative
of future results, but is an indication of the return to shareholders only for
the limited historical period used.
A Fund may include in its advertising or sales material information relating to
investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisers and
underwriter of both the Franklin Group of Funds and the Templeton Group of
Funds.
COMPARISONS
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements and other materials regarding the
Funds may discuss various measures of Fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
When advertising current ratings or rankings, the Fund may advertise together
or separately the following past ratings and rankings, and such information in
those categories which may appear in the future:
Lipper Fixed-Income Fund Performance Analysis ranked the Indiana Fund number
one in total return (in the Indiana tax-free funds category) for its five-year
total return for the year ended December 31, 1993, with a total return of
63.53%. There were eight funds in the category.
Lipper Fixed-Income Fund Performance Analysis ranked the Oregon Fund number one
for its five-year total return (in the Oregon tax-free funds category) for the
year ended 12/31/93, with a total return of 56.42%. There were five funds in
the category.
The Lipper Fixed-Income Fund Performance Analysis and Lipper Mutual Fund Yield
Survey for Industry Averages - measure total return and average current yield
for the mutual fund industry. They rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.
In addition to such reports by Lipper, the following publications and indices
may be used to discuss or compare Fund performance:
Lehman Brothers Municipal Bond Index measures yield, price, and total return
for the municipal bond market.
Bond Buyer 20 Bond Index is an index of municipal bond yields based on yields
of 20 general obligation bonds maturing in 20 years.
Bond Buyer 40 Bond Index is an index of municipal bond yields based on yields
of 40 general obligation bonds maturing in 40 years.
Salomon Brothers Composite High Yield Index covers much of the below-investment
grade U.S. corporate bond market. It combines previously published indices to
create a broad index for the high-yield market. To enter the index, an issue
must be rated speculative by S&P or Moody's.
Salomon Brothers Broad Investment Grade Index is representative of the entire
universe of taxable fixed-income investments. It includes issues of U.S.
government securities, and any agency thereof; corporate issues of investment
grade, mortgage backed securities; and yankee bonds.
18
<PAGE>
Lehman Brothers Aggregate Bond Index includes fixed-rate debt issues rated
investment grade or higher by Moody's, S&P or Fitch, in that order. All issues
have at least one year to maturity and an outstanding par value of at least
$100 million for U.S. government, $50 million for all others. It is a composite
of the Government Corporate Index and the Mortgage-Backed Securities Index.
Savings & Loan Historical Interest Rates as published by the U.S. Savings &
Loan League Fact Book.
Inflation as measured by the Consumer Price Index, published by the U.S. Bureau
of Labor Statistics.
CDA Mutual Fund Report, published by CDA Investment Technologies Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
Financial Publications: The Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, and Money magazine.
Standard & Poor's Bond Indices - measure yield and price of corporate,
municipal, and government bonds.
From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may also compare a Fund's
performance to the return on certificates of deposit or other investments.
Investors should be aware, however, that an investment in a Fund involves the
risk of fluctuation of principal value, a risk generally not present in an
investment in a certificate of deposit issued by a bank. For example, as the
general level of interest rates rise, the value of 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 a Fund's shares can be expected to
increase. Certificates of deposit are frequently insured by an agency of the
U.S. government. An investment in any of the Funds 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 Funds' portfolios, that the averages are generally
unmanaged, and that the items included in the calculations of such averages may
not be identical to the formula used by the Funds to calculate their figures.
In addition, there can be no assurance that the Funds will continue this
performance as compared to such other averages.
Franklin had the first single-state municipal bond funds in California,
Massachusetts, Michigan, Minnesota and Ohio.
OTHER FEATURES AND BENEFITS
Founded in 1947, Franklin is a leader in the tax-free mutual fund industry,
currently offering 40 tax-free funds, including 31 funds free from both federal
and state personal income taxes, and managing more than $40 billion in
municipal bond assets for over half a million investors.
Under current tax laws, municipal securities remain one of the few investments
offering the potential for tax-free income. In 1994, taxes could cost as much
as $47 on every $100 earned from a fully taxable investment (based on the
maximum combined 39.6% federal tax rate and the highest state tax rate of 12%
for 1994.) Franklin tax-free funds, however, offer tax relief through a
professionally managed portfolio of tax-free securities selected based on their
yield, quality and maturity. An investment in a Franklin tax-free fund can
provide an investor with the potential to earn income free of federal taxes
and, depending on the fund, state and local taxes as well, while supporting
state and local public projects. Franklin tax-free funds may also provide
tax-free compounding, when dividends are reinvested. An investment in
Franklin's tax-free funds can grow more rapidly than similar taxable
investments.
Each Fund may help investors achieve various investment goals such as
accumulating money for retirement, saving for a down payment on a home, college
costs and/or other long-term goals. The Franklin College Costs Planner may
assist an investor in determining how much money must be invested on a monthly
basis in order to have a projected amount available in the future to fund a
child's college education. (Projected college cost estimates are based upon
current costs published by the College Board.)
Each Fund is a member of the Franklin/Templeton Group, one of the largest
mutual fund organizations in the United States and may be considered in a
program for diversification of assets. Franklin, one of the oldest mutual fund
organizations, has managed mutual funds for over 45 years and now services more
than 2.4 million shareholder accounts. In
19
<PAGE>
1992, Franklin, a leader in managing fixed-income mutual funds and an innovator
in creating domestic equity funds, joined forces with Templeton Worldwide,
Inc., a pioneer in international investing. Together, the Franklin/Templeton
Group has over $112 billion in assets under management for more than 3.5
million shareholder accounts and offers 101 U.S.-based mutual funds. The Fund
may identify itself by its Quotron or CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one of
36 mutual fund groups in service quality for 1993. One other fund group was
also ranked number one. Franklin has been ranked number one in service quality
by Dalbar for five of the past six years.
From time to time, advertisements or sales material issued by a Fund may
discuss or be based upon information in a recent issue of the Special Report on
Tax Freedom Day published by the Tax Foundation, a Washington, D.C. based
nonprofit, research and public education organization. The report illustrates,
among other things, the amount of time, on an annual basis, the average
taxpayer works to satisfy his or her tax obligations to the federal, state and
local taxing authorities.
MISCELLANEOUS INFORMATION
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations. The
Trust's Declaration of Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust also provides for indemnification and reimbursement of expenses out of
Trust assets for any shareholder held personally liable for obligations of the
Trust. The Declaration of Trust provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Trust and satisfy any judgement thereon. All such rights are
limited to the assets of the Fund(s) of which a shareholder holds shares. The
Declaration of Trust further provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance)
for the protection of the Trust, its shareholders, Trustees, officers,
employees and agents to cover possible tort and other liabilities. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which both inadequate insurance exists
and the Trust itself is unable to meet its obligations.
From time to time, the number of shares of beneficial interest of any Fund 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 Funds, no other person
holds beneficially or of record more than 5% of a Fund's outstanding shares.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority to
control a shareholder's account, the Trust has the right (but has no
obligation) to: (a) freeze the account and require the written agreement of all
persons deemed by the Trust to have a potential property interest in the
account, prior to executing instructions regarding the account; (b) interplead
disputed funds or accounts with a court of competent jurisdiction; or (c)
surrender ownership of all or a portion of the account to the Internal Revenue
Service in response to a Notice of Levy.
APPENDIX
FURTHER INFORMATION ON SPECIAL
FACTORS AFFECTING EACH STATE FUND
The following information is a summary of special factors affecting each of the
individual State Funds. It does not purport to be a complete description of
such factors and is based primarily upon information derived from public
documents relating to securities offerings of issuers of such states and other
historically reliable sources such as S&P Creditweek Municipal. The Trust has
not independently verified any of this data. The market value of the shares of
any Fund may fluctuate due to factors such as changes in interest rates,
matters affecting a particular state, or for other reasons.
ARIZONA
In 1970, Arizona retired its general obligation bonds and is now
constitutionally prohibited from issuing such debt. The state currently relies
on revenue bonds, lease obligations, and pay-as-you-go financing to support its
financing needs. Arizona's debt level is moderate with debt service
representing 2.4% of the state's revenues. On a per capita basis, debt was $279
or 1.6% of personal income for fiscal 1993.
Beginning in 1985, Arizona experienced 5 consecutive fiscal years with budget
shortfalls. These shortfalls were managed with budget cuts, one-time
adjustments, tax accelerations and borrowing. In 1990, a $250 million tax
increase, combined with
20
<PAGE>
budget cuts, resulted in a general fund balance equal to 2% of operating
expenditures, down from 21% in 1980. This balance was maintained in fiscal 1991
and fell to 0.2% in 1992 with a $5.2 million general fund balance. Fiscal 1993
also ended with a balance of less than 1% of operating expenditures, although
the general fund balance improved to $11.4 million. For fiscal 1994, the
general fund budget is estimated at $87.3 million, a 2.4% increase from 1993,
and includes approximately $25 million in tax reductions.
COLORADO
As of June 30, 1993, Colorado reported a $326 million General Fund reserved
balance, a sharp increase from the previous year's $133 million figure and an
amount well below the statutorily required reserve of 3%. The increase was
attributable to a better than anticipated operating surplus of $89 million,
resulting from reduced expenditures, and the elimination of certain tax
deductions.
As a result of the state's weak 1991 closing position and the increased
Medicaid funding demands, the state faced a potential $92 million funding gap
at the beginning of fiscal 1992. By implementing a combination of reduced
appropriations and revenue adjustments, including elimination of the deduction
for state income taxes, the state closed the funding gap and, as of June 30,
1992, reported a General Fund balance of $72 million. This figure fell short of
the 3% statutorily required reserve of $84 million. Colorado, however, has
maintained an adequate financial position since June 30, 1992, despite
increasing expenditure demands from Medicaid, corrections and education.
By fiscal 1994, the state is committed to fully fund the implementation of the
School Finance Act of 1988 ("1988 Act"). While the 1994 budget increases the
state's share of total K-12 education funding, the funding is not at the levels
anticipated by the 1988 Act. The purpose of the 1988 Act was to reduce school
districts' reliance on property taxes, while equalizing school funding across
the state. The act included a series of actions designed to ease the state's
increased funding commitment, which has fallen short of expectations.
For fiscal 1994, revenue estimates are more than $17 million above the December
1993 estimates. The state estimates that it will finish fiscal 1994 with a
surplus of approximately $283 million and fiscal 1995 with a surplus of
approximately $245 million.
CONNECTICUT
In the mid-1980s, Connecticut's strong economy resulted in successful financial
operations. Beginning in 1988, the state's economy weakened, producing severe
revenue shortfalls and social service spending in excess of budgeted amounts.
Large tax increases and spending control measures proved inadequate. For the
fiscal year ended 1991, four years of successive operating deficits had
accumulated into a substantial negative position for the General Fund, which
was addressed through the issuance of five year recovery notes totaling almost
$966 million.
For stability, a new tax structure more favorable to business and industry was
introduced. The new structure eliminated the taxes on capital gains, dividends
and interest, instituted a personal income tax of 4.5% and reduced the sales
tax to 6%. In addition, the state adopted a slower rate of spending. As a
result of the tax change, the severe spending restraint and increased federal
Medicaid reimbursement, the state posted an operating surplus of $110 million
for fiscal 1992, after a four-year series of deficits, with the entire amount
applied to the retirement of state economic recovery notes.
The state's fiscal 1993 budget retained the 1992 tax structure, sharpened the
focus on spending restraint, and incorporated pension funding changes to
generate savings. The operating surplus for the fiscal year was $113 million
(mostly in corporation taxes), comparing favorably with the budgeted surplus of
$4 million; but was partly offset by a shortfall in federal aid payments. This
amount was reserved for regular debt service payments in 1994.
The 1994 expenditure budget of $7.7 billion represents an increase of 3.1% over
1993. Most of the increase will be used in human service programs, education
and corrections.
The budget projects increases in unrestricted revenues for the General Fund for
1994 and 1995 of 2.8% and 5.5%, respectively, which are net of debt service on
the economic recovery notes ($186 million in 1994 and $267 million in 1995) and
transfers to the Mashantucket Pequot Fund (which is used to supplement payments
in lieu of taxes for tax-exempt state-owned and private college and hospital
properties). Growth projections are based on fiscal 1993 revenue estimates and
economic forecasts which assume personal income growth of 4.7% and 5.3% in 1994
and 1995, respectively, job growth of 1.2% and 2.0% and unemployment rates of
6.2% and 5.2%. Through mid-March 1994, tax revenues were exceeding projected
amounts by 2%.
21
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INDIANA
The state's economy exhibited steady growth from the mid- to late 1980s, as the
national economy recovered from the recession of the early 1980s. Total state
income continued to grow at a slower rate than the region and nation (despite
steady employment growth). As a result, Indiana's per capita personal income
remained below regional and national averages at 91% and 90%, respectively, in
1990.
The state's financial position, which had declined significantly during the
recession of the early 1980s, has improved substantially as a result of
sustained income and sales tax revenue. In 1984, the state legislature
established an economic stabilization reserve fund intended to lessen the
impact of future economically-driven revenue shortfalls. As of June 30, 1993,
the budget stabilization fund had grown to $334.8 million and the general and
property tax replacement operating cash balance to $189.7 million, for a
combined working balance of $524.5 million or 8.3% of general and property tax
replacements, down from 11% in 1992.
During the latter part of the 1990 fiscal year, the national economic slowdown
started to affect state revenues. Through June 30, 1994, the state had seen a
significant slow down in sales and personal income taxes which are the most
important revenue sources for the state. In addition to slower revenue growth,
the state had balance drawdowns due to some expenditure pressures, with
Medicaid the fastest-growing portion of the state's budget. The fiscal 1993
Medicaid-assistance budget was nearly $200 million over initial budget
projections. While the state has initiated some expenditure controls, the
shortfalls primarily have been made up by balance utilization. To address a
budgeted shortfall in the fiscal 1994-1995 biennium, the state effected large
Medicaid cost controls.
NEW JERSEY
New Jersey's economy has continued to weaken, and its financial operations have
suffered. To balance the budget for the last three fiscal years, the state has
utilized nonrecurring revenues and expenditure deferrals. It is anticipated,
however, that the fiscal 1994 budget gap will be in excess of $1 billion. The
state is currently able to actively manage its debt, however, by using
contractual obligations and moral obligation debt to finance various
infrastructure improvements, economic development, and housing projects.
New Jersey's credit strength is based on its broad-based economy, high wealth
levels, and moderate debt ratios. The state's debt levels are moderate in
relation to the state's wealth and resources, however the state has recently
increased debt issuances. During the period from December 1991 to December
1992, the state's tax supported debt grew 40%, rising from $4.3 billion to $6.0
billion.
Revenue collections for the seven months ended January 1993 were above the
level expected at 2.1%. The governor's budget proposal anticipates revenue
growth of 8.3%. The proposed budget will draw down balances and use resources
derived from one-time revenue items, such as retroactive Medicaid
reimbursements, the advance payment of utility taxes, and the revenue made
available by the state's December 1992 bond refunding.
OREGON
Legislation enacted in Oregon in 1979 limits the biennial increase in state
appropriations for general governmental purposes, excluding debt service and
property tax relief, to an amount not greater than the rate of growth in
personal income during the preceding two calendar years. Due to the slow rate
of increase in revenues to the general fund compared to the rate of growth in
personal income in recent years, appropriations since this legislation was
enacted have been limited by availability of revenues rather than this
legislation.
The state's General Fund financial performance has been strong. After
addressing financial problems in the earlier part of the recession, the state
has been able to maintain satisfactory General Fund operations. The fiscal year
ends on June 30, with bienniums ending on odd years. For the 1989-1991
biennium, General Fund revenues were $163 million or 3.6% above original
budgeted amounts. The 1991-1993 biennium had an ending balance surplus of $361
million. The 1993-1995 biennium budget anticipates an ending balance surplus of
$221 million.
In November 1990, voters approved Measure 5, the property tax limitation
initiative, which required the state to overhaul its expenditure and revenue
structure. It also required the state to replace local property tax revenues
lost by the public school system, as a result of the initiative, through fiscal
1996. The replacement requirement rose from $491 million in 1991-1993 to $1.6
billion in the 1993-1995 biennium. It is anticipated that by the 1995-1997
biennium, education funding will account for $1.4 billion or more than 50% of
general fund expenditures. As a result of the passage of Measure 5, the state
has reexamined its debt policy and existing debt has been restructured. The
state has established a debt management plan which is intended
22
<PAGE>
to limit debt issuance to high priority projects thereby reducing the issuance
of new debt.
In November 1994, voters will consider an initiative requiring voter approval
of all new state and local taxes, as well as any increases to existing taxes.
Under the measure, in the case of an emergency, a three quarters vote of the
legislature, along with approval by the governor, would permit the enactment of
a tax, to be in effect for no more than 12 months, without the approval of the
voters.
PENNSYLVANIA
Pennsylvania experienced severe revenue shortfalls and declining human services
expenditure growth in 1990-1991, due largely to the recession. Operating
deficits for those two years exceeded $1.2 billion on a cash basis. To
eliminate the deficit and meet increased spending requirements, the
Commonwealth adopted tax increases and controlled expenditures for fiscal 1992,
such that the Commonwealth ended fiscal 1992 with a small operating surplus of
$8.8 million on a budgetary basis, which includes the elimination of the prior
year's deficit of $453 million.
The Commonwealth relied on cost controls rather than tax increases during
fiscal 1993 and ended fiscal 1993 with a $64 million unreserved and
undesignated General Fund surplus.
For fiscal 1994, the Commonwealth is relying on its projected revenue growth of
3.7%, as well as surplus funds, to balance the budget. The largest area of
increased spending is Medicaid, which is anticipated to grow by $681 million.
The Commonwealth anticipates that this will be offset by increased federal
reimbursements totalling $520 million, as well as using cost containment and
reducing programs.
The Commonwealth has a moderate per capita debt level of $840.
PUERTO RICO
Puerto Rico's debt level is high, due in large part to the island's development
efforts and its centralized government which performs many functions carried on
at the local level in the states. At fiscal year-end 1992, debt per capita was
$2,351 or 36.5% of personal income. Puerto Rico has attempted to maintain its
rate of debt growth at or below that of the gross domestic product.
In the past, Puerto Rico's financial position has followed general economic
trends, with fiscal improvement occurring during periods of economic growth and
deteriorations in financial conditions experienced during economic downturns.
During the recent recession, Puerto Rico has been able to balance its budget
but only through the use of non-recurring measures such as tax amnesties, the
sale of assets, and deductions from reserve funds. The proposed General Fund
budget for fiscal 1994 estimates a 3.5% increase in expenditures from fiscal
1993, with a 17.6% increase in spending for public safety. The budget is
expected to be balanced, but includes over $100 million in nonrecurring
revenues, including $80 million from the sale of a long distance company, and
is based on optimistic estimates of economic growth.
23
<PAGE>
FRANKLIN TAX-FREE TRUST
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
of Franklin Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities of the
various funds comprising the Franklin Tax-Free Trust (the Funds) including each
Fund's statement of investments in securities and net assets, as of February
28, 1994, and the related statements 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 Funds'
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 February 28, 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 the
various funds comprising the Franklin Tax-Free Trust as of February 28, 1994,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and their
financial highlights for each the periods indicated thereon, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND
San Francisco, California
April 1, 1994
24
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.8%
Arizona Educational Loan Marketing Corp. Revenue,
$10,000,000 Senior Series, 6.375%, 09/01/05 ................................................................... $ 10,496,500
1,000,000 Series B, 7.00%, 03/01/03 ......................................................................... 1,062,940
1,000,000 Series B, 7.00%, 03/01/05 ......................................................................... 1,052,340
1,000,000 Series B, MBIA Insured, 7.35%, 09/01/04 ........................................................... 1,105,900
775,000 Series B, MBIA Insured, 7.375%, 09/01/05 .......................................................... 857,979
1,000,000 Sub-Series, 6.625%, 09/01/05 ...................................................................... 1,050,580
1,000,000 Sub-Series, 5.70%, 12/01/08 ...................................................................... 992,030
Arizona Health Facilities Authority, Hospital System Revenue,
2,000,000 Phoenix Baptist Hospital, MBIA Insured, 6.25%, 09/01/11 ........................................... 2,084,160
9,500,000 Refunding, Samaritan Health System, MBIA Insured, 5.625%, 12/01/15 ................................ 9,511,116
Arizona Health Facilities Authority Revenue,
770,000 Arizona Voluntary Hospital, Hospital Federal Pooled Loan Revenue, Series B, FGIC Insured,
7.75%, 10/01/07 ................................................................................. 877,353
5,000,000 Arizona Voluntary Hospital, Series B, FGIC Insured, 7.25%, 10/01/13 ............................... 5,573,350
1,395,000 Arizona State COP, Director of Department Administration, MBIA Insured, 7.00%, 09/01/09 ............. 1,429,038
2,500,000 Arizona State COP, Refunding, Series B, AMBAC Insured, 6.25%, 09/01/10 .............................. 2,623,450
2,000,000 Arizona State COP, Refunding, West Campus Project, MBIA Insured, 5.375%, 07/15/09 ................... 1,988,480
5,000,000 Arizona State Department of Administration, COP, 6.625%, 09/01/08 ................................... 5,430,350
Arizona State Municipal Financing Program, COP,
85,000 Flagstaff School, Series 15, BIG Insured, 8.75%, 08/01/07 ......................................... 96,898
255,000 Phoenix Civic Improvement, Series 17, BIG Insured, Pre-Refunded, 8.125%, 08/01/12 ................. 282,073
825,000 Phoenix Water, Series 10, BIG Insured, Pre-Refunded, 7.90%, 08/01/17 .............................. 930,683
1,500,000 Series G, 5.50%, 08/01/19 ......................................................................... 1,471,740
500,000 Series 19, BIG Insured, 7.75%, 08/01/04 ........................................................... 610,420
3,250,000 Series 20, BIG Insured, 7.625%, 08/01/06 .......................................................... 3,980,210
1,350,000 Series 22, BIG Insured, Pre-Refunded, 7.875%, 08/01/05 ............................................ 1,497,987
500,000 Series 25, BIG Insured, 7.875%, 08/01/14 .......................................................... 640,850
2,500,000 Series 29, BIG Insured, Pre-Refunded, 7.125%, 08/01/14 ............................................ 2,824,600
Arizona State Power Authority Resource Revenue,
3,520,000 Hoover Uprating Project, MBIA Insured, 5.375%, 10/01/13 ........................................... 3,442,771
2,425,000 Hoover Uprating Project, MBIA Insured, 5.25%, 10/01/17 ............................................ 2,323,732
1,630,000 Hoover Uprating Project, Pre-Refunded, 7.10%, 10/01/06 ............................................ 1,700,693
6,000,000 Hoover Uprating Project, Pre-Refunded, 7.20%, 10/01/17 ............................................ 6,268,800
Arizona State Transportation Board, Excise Tax Revenue, Maricopa County Regional Area Road Fund,
8,500,000 Series A, MBIA Insured, 7.00%, 07/01/05 ........................................................... 9,508,100
1,750,000 Series A, Pre-Refunded, 7.60%, 07/01/05 ........................................................... 2,000,547
Arizona State Transportation Board, Highway Revenue,
1,750,000 Series 1990, Pre-Refunded, 7.00%, 07/01/09 ........................................................ 1,990,940
18,175,000 Sub-Series A, Pre-Refunded, 6.50%, 07/01/11 ....................................................... 20,373,084
5,500,000 Sub-Series B, Pre-Refunded, 6.50%, 07/01/11 ....................................................... 6,190,030
Arizona State University System Revenue,
4,500,000 Refunding, Series A, 5.75%, 07/01/12 .............................................................. 4,551,300
11,890,000 Refunding, Series A, 5.50%, 07/01/19 .............................................................. 11,587,756
130,000 Series 1986-A, Pre-Refunded, 7.875%, 07/01/15 ..................................................... 143,706
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Arizona State University System Revenue (cont.)
$ 3,160,000 Series 1986, Pre-Refunded, 7.50%, 07/01/16........................................................ $ 3,467,183
2,400,000 Series 1989, Pre-Refunded, 7.00%, 07/01/15........................................................ 2,783,472
12,145,000 Series 1991, Pre-Refunded, 7.10%, 07/01/16........................................................ 14,103,746
4,000,000 Arizona State Waste Management Authority Financial Assistance Revenue, 6.80%, 07/01/11.............. 4,456,440
Avondale Municipal Development Corp. Facilities Revenue,
80,000 Series 1987, AMBAC Insured, 8.85%, 07/01/13....................................................... 86,537
700,000 Series 1992, MBIA Insured, 6.625%, 07/01/11....................................................... 748,489
Casa Grande IDA, PCR,
1,800,000 Frito Lay/Pepsico, 6.60%, 12/01/10................................................................ 1,964,430
500,000 Frito Lay/Pepsico, 6.65%, 12/01/14................................................................ 546,455
Central Arizona Water Conservation District Contract Revenue, Central Project,
3,000,000 Series 1990-A, Pre-Refunded, 7.65%, 11/01/09...................................................... 3,563,190
2,000,000 Series 1993-A, 5.50%, 11/01/09.................................................................... 2,033,500
Chandler GO,
1,000,000 Refunding, Series 1991, FGIC Insured, 7.00%, 07/01/12............................................. 1,148,030
4,500,000 Series 1991, MBIA Insured, 6.90%, 07/01/04........................................................ 4,933,305
Chandler Water & Sewer Revenue, Refunding,
6,715,000 Series 1991, FGIC Insured, 7.00%, 07/01/12........................................................ 7,457,948
2,165,000 Series 1992, FGIC Insured, 6.25%, 07/0/13......................................................... 2,272,449
City of Bullhead, Municipal Property Corp., Facilities Revenue,
2,125,000 Series 1990, MBIA Insured, 7.20%, 07/01/09........................................................ 2,349,698
4,000,000 Series 1991, FGIC Insured, 7.20%, 07/01/10........................................................ 4,449,960
Cochise County, Palominas Elementary School District No. 49, School Improvement,
155,000 Series A, Pre-Refunded, 7.70%, 07/01/00........................................................... 175,094
165,000 Series A, Pre-Refunded, 7.80%, 07/01/01........................................................... 186,897
175,000 Series A, Pre-Refunded, 7.85%, 07/01/02........................................................... 198,494
5,000,000 Cochise County, USD No. 68, Sierra Vista, Series B, FGIC Insured, Pre-Refunded, 7.625%, 07/01/10.... 5,873,000
500,000 Coconino County, Tuba City USD No. 15, Improvement & Development, Pre-Refunded, 7.70%, 07/01/95..... 510,675
1,095,000 Coconino County, Flagstaff USD No. 1, 6.20%, 07/01/06............................................... 1,162,956
Coconino County, USD No. 8,
525,000 Page Elementary School, Improvement Project, Series D, AMBAC Insured, Pre-Refunded, 6.85%,
07/01/03........................................................................................ 581,558
575,000 Page Elementary School, Improvement Project, Series D, AMBAC Insured, Pre-Refunded, 6.90%,
07/01/04........................................................................................ 638,066
600,000 Page Elementary School, Improvement Project, Series D, AMBAC Insured, Pre-Refunded, 6.95%,
07/01/05........................................................................................ 666,978
625,000 Page Elementary School, Improvement Project, Series D, AMBAC Insured, Pre-Refunded, 7.00%,
07/01/06........................................................................................ 695,988
725,000 Page Elementary School, Improvement Project, Series D, AMBAC Insured, Pre-Refunded, 7.05%,
07/01/07........................................................................................ 808,759
1,500,000 Page Elementary School, Pre-Refunded, 7.125%, 07/01/06............................................ 1,690,155
1,250,000 Page Elementary School, Pre-Refunded, 7.125%, 07/01/07............................................ 1,408,463
1,475,000 Eloy Municipal Property Corp., Facilities Revenue, Series 1989, 7.80%, 07/01/09..................... 1,640,082
</TABLE>
The accompanying notes are an integral part of these financial statements
26
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN COLORADO TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 3,320,000 Gila County IDA, PCR, Refunding, ASARCO, Inc. Project, 8.90%, 07/01/06............................... $ 3,808,604
1,500,000 Gilbert Improvement District No. 11, FGIC Insured, 7.60%, 01/01/05................................... 1,561,695
Gilbert Water & Sewer Revenue, Refunding,
1,500,000 FGIC Insured, 6.50%, 07/01/12 ..................................................................... 1,626,555
3,250,000 FGIC Insured, 6.50%, 07/01/22 ..................................................................... 3,513,510
750,000 Glendale IDA, Hospital Revenue, Northwest Development, Inc. Project, 8.875%, 01/01/16................ 813,285
2,400,000 Glendale Municipal Property Corp., Series 1991, MBIA Insured, 7.00%, 07/01/09........................ 2,631,648
11,495,000 Greenlee County, IDA, PCR, Refunding, Phelps Dodge Corp. Project, 5.45%, 06/01/09 ................... 11,307,172
Guam Power Authority Revenue,
5,750,000 Series A, 6.375%, 10/01/08......................................................................... 6,082,695
3,630,000 Series A, 6.30%, 10/01/12 ......................................................................... 3,774,619
4,000,000 Series A, 6.30%, 10/01/22 ......................................................................... 4,127,440
2,700,000 Lake Havasu City, Wastewater COP, FGIC Insured, 7.00%, 06/01/05 ..................................... 3,037,743
50,000 Maricopa County Hospital District No. 1, Facilities Revenue, East Valley Behavioral Health
Facility, FGIC Insured, Pre-Refunded, 7.80%, 06/01/14 ............................................. 56,502
2,790,000 Maricopa County IDA, Health Facilities Revenue, Refunding, Evangelical Lutheran Samaritan
Project, AMBAC Insured, 5.35%, 12/01/18 ........................................................... 2,682,529
Maricopa County IDA, SFMR,
1,405,000 GNMA Mortgage Backed Securities Program, 8.00%, 09/01/09 .......................................... 1,515,250
500,000 GNMA Mortgage Backed Securities Program, 7.90%, 09/01/20 .......................................... 523,785
Maricopa County IDAR,
1,895,000 Mercy Health System, Series A, MBIA Insured, Pre-Refunded, 7.125%, 07/01/07 ....................... 2,162,479
750,000 Mercy Health System, Series C, MBIA Insured, Pre-Refunded, 7.15%, 07/01/15 ........................ 856,740
3,025,000 Maricopa County IDAR, Health Facilities Revenue, Catholic H.C. West, Series A, MBIA Insured,
5.50%, 07/01/10.................................................................................... 2,979,928
Maricopa County IDAR, Hospital Facility Revenues,
2,750,000 Refunding, John C. Lincoln Hospital, 7.50%, 12/01/13 .............................................. 3,140,665
17,800,000 Refunding, Samaritan Hospital Health Services, Series A, MBIA Insured, 7.00%, 12/01/13 ............ 19,829,022
1,890,000 Refunding, Samaritan Hospital Health Services, Series A, MBIA Insured, 7.00%, 12/01/16 ............ 2,222,205
1,750,000 Samaritan Hospital Health Services, MBIA Insured, Pre-Refunded, 7.60%, 12/01/15 ................... 1,803,795
1,145,000 Maricopa County Stadium District Revenue, Series A, MBIA Insured, 5.50%, 07/01/13 ................... 1,135,485
600,000 Maricopa County Union High School District No. 216, Series A, Pre-Refunded, 7.80%, 07/01/07 ......... 679,626
Maricopa County USD No. 8, Osborn School, Improvement Project,
500,000 Series B, Pre-Refunded, 7.10%, 07/01/05 ........................................................... 564,765
1,075,000 Series B, Pre-Refunded, 7.15%, 07/01/07 ........................................................... 1,216,760
1,885,000 Series B, Pre-Refunded, 7.20%, 07/01/09 ........................................................... 2,137,986
Maricopa County USD No. 11, Peoria,
2,800,000 Refunding, MBIA Insured, 7.00%, 07/01/10 .......................................................... 3,185,504
65,000 Series C, MBIA Insured, 9.20%, 07/01/04 ........................................................... 71,718
1,400,000 Maricopa County USD No. 40, Glendale Elementary School, FGIC Insured, Pre-Refunded, 6.50%, 07/01/05.. 1,564,346
1,320,000 Maricopa County USD No. 40, Glendale Elementary School Improvement Bond, FGIC Insured,
Pre-Refunded, 6.50%, 07/01/06...................................................................... 1,474,955
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Maricopa County USD No. 41,
$ 850,000 Gilbert, Series C, FGIC Insured, Pre-Refunded, 7.125%, 07/01/01 ................................... $ 950,682
750,000 Gilbert, Series C, FGIC Insured, Pre-Refunded, 7.20%, 07/01/02..................................... 841,035
5,000,000 Gilbert, Series D, FGIC Insured, Pre-Refunded, 7.00%, 07/01/05..................................... 5,624,250
4,000,000 Maricopa County USD No. 68, Alhambra, Refunding & Improvement, AMBAC Insured, 5.625%,
07/01/13........................................................................................... 4,004,600
1,000,000 Maricopa County USD No. 69, Paradise Valley, Series A, 7.10%, 07/01/05............................... 1,151,740
Maricopa County USD No. 89,
240,000 Dysart, Refunding & Improvement, FGIC Insured, 6.70%, 07/01/05..................................... 262,646
1,760,000 Dysart, Refunding & Improvement, FGIC Insured, 6.75%, 07/01/06..................................... 1,920,811
2,245,000 Maricopa County USD No. 91, Phoenix Elementary School, 6.60%, 07/01/03............................... 2,468,131
Maricopa County USD No. 92, Pendergast Elementary School,
250,000 FGIC Insured, Pre-Refunded, 7.20%, 07/01/02........................................................ 276,380
1,300,000 FGIC Insured, Pre-Refunded, 7.20%, 07/01/03........................................................ 1,437,176
3,000,000 Maricopa County USD No. 97, Deer Valley Project, Series D, MBIA Insured, Pre-Refunded,
6.90%, 07/01/01.................................................................................... 3,396,750
Maricopa County USD No. 98, Fountain Hills School, Improvement Bond,
1,300,000 Refunding, FGIC Insured, 6.625%, 07/01/10.......................................................... 1,403,051
2,800,000 Series B, FGIC Insured, 7.00%, 07/01/10............................................................ 3,129,672
Maricopa County USD No. 214, Tolleson GO,
500,000 Pre-Refunded, 7.30%, 07/01/03...................................................................... 558,670
2,000,000 Pre-Refunded, 7.35%, 07/01/04...................................................................... 2,237,760
Mesa IDA, Health Care Facilities Revenue, Western Health Network,
750,000 Refunding, Series B-2, BIG Insured, 7.50%, 01/01/08................................................ 846,982
5,250,000 Series A-2, BIG Insured, 7.625%, 01/01/13.......................................................... 5,898,848
250,000 Series A-3, BIG Insured, 7.625%, 01/01/13.......................................................... 280,897
2,400,000 Series A-4, BIG Insured, 7.625%, 01/01/09.......................................................... 2,696,616
Mohave County, Hospital District No. 1, GO,
1,500,000 Kingman Regional Medical Center Project, 6.50%, 06/01/15........................................... 1,604,595
6,350,000 Kingman Regional Medical Center Project, Pre-Refunded, 8.375%, 06/01/15............................ 7,731,188
Mohave County, IDA, Citizens Utilities Project,
10,000,000 Series A, 7.15%, 02/01/26.......................................................................... 11,010,200
5,000,000 Series B, 7.15%, 02/01/26.......................................................................... 5,505,100
5,000,000 Series B, 5.80%, 11/15/28.......................................................................... 4,933,300
Mohave County, IDA, Hospital Systems Revenue, Refunding,
1,595,000 Medical Environments, Inc. & Phoenix Hospital & Medical Center, 5.80%, 07/01/99...................... 1,662,102
1,700,000 Medical Environments, Inc. & Phoenix Hospital & Medical Center, 7.00%, 07/01/16...................... 1,790,831
1,000,000 Mohave County, Union High School District No. 30, Series B, FGIC Insured, Pre-Refunded,
6.70%, 07/01/11.................................................................................... 1,129,650
38,000,000 Navajo County PCR, Arizona Public Service, Series A, 5.875%, 08/15/28................................ 36,932,960
Nogales Municipal Development Authority, Inc., Municipal Facilities Revenue,
6,350,000 Refunding, MBIA Insured, 7.20%, 06/01/08........................................................... 7,179,310
500,000 Refunding, MBIA Insured, Pre-Refunded, 8.00%, 06/01/08............................................. 573,985
3,700,000 Northern Arizona University System Revenue, Pre-Refunded, 7.50%, 06/01/06............................ 4,212,080
2,750,000 Northern Arizona University System Revenue, Refunding, FGIC Insured, 6.40%, 06/01/07................. 2,971,128
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Peoria Municipal Development Authority, Inc., Municipal Facilities Revenue,
$ 3,000,000 MBIA Insured, 7.00%, 07/01/09..................................................................... $ 3,273,360
1,300,000 Series 1991, MBIA Insured, 7.00%, 07/01/10........................................................ 1,441,869
1,000,000 Peoria Municipal Development Authority, Water and Sewer Revenue, Refunding, FGIC Insured, 6.625%,
07/01/06.......................................................................................... 1,095,450
Phoenix Civic Improvement Corp.,
5,000,000 Airport Terminal Excise Tax Revenue, 7.80%, 07/01/11.............................................. 5,554,450
3,500,000 Airport Terminal Excise Tax Revenue, 7.875%, 07/01/14............................................. 3,896,095
275,000 Airport Terminal Excise Tax Revenue, Refunding, 8.375%, 07/01/09.................................. 315,015
13,090,000 Wastewater System Lease Revenue, Pre-Refunded, 6.125%, 07/01/23................................... 14,443,506
4,210,000 Phoenix Civic Improvement Corp., Series B, FGIC Insured, 7.50%, 07/01/09............................ 4,722,904
Phoenix GO,
1,000,000 Pre-Refunded, 6.50%, 07/01/11..................................................................... 1,109,340
5,000,000 Refunding, 6.375%, 07/01/13....................................................................... 5,356,700
1,000,000 Refunding, Pre-Refunded, 7.15%, 07/01/08.......................................................... 1,127,750
1,000,000 Refunding, Pre-Refunded, 7.375%, 07/01/11......................................................... 1,117,990
1,705,000 Refunding, Pre-Refunded, 7.375%, 07/01/12......................................................... 1,906,173
1,000,000 Refunding, Series B, 5.50%, 07/01/16.............................................................. 992,290
6,500,000 Series 1990, Pre-Refunded, 6.75%, 07/01/08........................................................ 7,228,975
9,425,000 Series 1991, Pre-Refunded, 6.80%, 07/01/07........................................................ 10,587,856
1,000,000 Series 1991, Pre-Refunded, 6.25%, 07/01/16........................................................ 1,100,130
Phoenix IDAR,
1,060,000 Home Purchase Mortgage, GNMA Mortgage Backed Securities Program, Series B, 7.70%, 10/01/11........ 1,100,704
1,880,000 Home Purchase Mortgage, GNMA Mortgage Backed Securities Program, Series B, 8.20%, 04/01/22........ 2,044,914
Phoenix Street & Highway User Revenue,
5,000,000 Refunding, Series 1992, 6.60%, 07/01/07........................................................... 5,479,100
1,000,000 Series 1987, ETM 07/01/03, 6.80%, 07/01/03........................................................ 1,144,690
1,000,000 Series 1989, Pre-Refunded, 7.375%, 07/01/05....................................................... 1,117,990
3,310,000 Series 1989, Pre-Refunded, 7.375%, 07/01/06....................................................... 3,700,547
2,000,000 Series 1989, Pre-Refunded, 7.375%, 07/01/08....................................................... 2,235,980
4,665,000 Series 1990, Pre-Refunded, 7.125%, 07/01/10....................................................... 5,256,382
Pima County IDA, Health Care Revenue, Carondelet St. Joseph's and St. Mary's,
600,000 BIG Insured, 8.00%, 07/01/13...................................................................... 685,290
2,250,000 MBIA Insured, 6.75%, 07/01/10..................................................................... 2,444,715
600,000 MBIA Insured, 5.25%, 07/01/13..................................................................... 580,848
745,000 Pima County IDA, MFHR, Fountains La Cholla Project, FHA Mortgage Insured, 8.00%, 12/01/25........... 765,197
Pima County IDA, SFMR,
1,905,000 GNMA Mortgage Backed Securities Program, 8.00%, 09/01/09.......................................... 2,071,116
1,640,000 GNMA Mortgage Backed Securities Program, 8.125%, 09/01/20......................................... 1,780,827
9,130,000 Pima County IDA, SFMR, Refunding, Series A, 7.625%, 02/01/12........................................ 9,508,438
1,650,000 Pima County IDAR, Refunding, Tucson Medical Center, Series A, MBIA Insured, 5.40%, 04/01/09......... 1,638,170
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONT.)
$ 2,610,000 Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 07/01/15 ................................. $ 2,888,044
Pima County USD No. 1,
4,500,000 Tucson Project of 1989, Series E, FGIC Insured, 5.40%, 07/01/13 ................................... 4,414,995
10,000,000 Tucson School Improvement, Series B, Pre-Refunded, 7.20%, 07/01/10 ................................ 11,485,400
7,000,000 Tucson School Improvement, Series C, MBIA Insured, Pre-Refunded, 6.875%, 07/01/10 ................. 7,982,590
3,400,000 Pima County USD No. 6, Marana, Series A, FGIC Insured, 5.75%, 07/01/12 .............................. 3,453,380
500,000 Pima County USD No. 10, Amphitheater School, Refunding & Improvement, Pre-Refunded, 7.70%, 07/01/03.. 560,440
Pinal County USD No. 43,
500,000 Apache Junction, Refunding & Improvement, FGIC Insured, 7.15%, 07/01/05 ........................... 550,490
500,000 Apache Junction, Refunding & Improvement, FGIC Insured, Pre-Refunded, 7.15%, 07/01/06 ............. 565,935
700,000 Apache Junction, Refunding & Improvement, FGIC Insured, Pre-Refunded, 7.20%, 07/01/07 ............. 793,947
2,360,000 Prescott Muni Property, Series 1990-C, MBIA Insured, Pre-Refunded, 7.00%, 07/01/10 .................. 2,654,646
6,405,000 Price Elliott Research Park, Inc. Revenue, Refunding, Arizona State University Research Park,
MBIA Insured, 7.00%, 07/01/21 ..................................................................... 7,199,028
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
75,000 Refunding, Series 1985-A, FSA Insured, Pre-Refunded, 9.00%, 07/01/09 .............................. 101,225
6,000,000 Series 1988-A, 7.875%, 07/01/17 ................................................................... 6,844,140
750,000 Puerto Rico Commonwealth Highway Authority Revenue, Series P, Pre-Refunded, 8.125%, 07/01/13 ........ 879,210
Puerto Rico Commonwealth Highway & Transportation Authority Revenue,
6,000,000 Series S, Pre-Refunded, 6.625%, 07/01/18 .......................................................... 6,870,480
4,500,000 Series T, 6.625%, 07/01/18 ........................................................................ 4,892,490
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
9,215,000 Series 1988-A, 7.75%, 07/01/08 .................................................................... 10,297,762
2,000,000 Series 1988-A, 7.50%, 07/01/09 .................................................................... 2,225,740
Puerto Rico Commonwealth Public Improvement, GO,
130,000 Pre-Refunded, 7.90%, 07/01/11 ..................................................................... 145,587
1,000,000 Series A, 6.00%, 07/01/14 ......................................................................... 1,023,060
1,100,000 Series A, Pre-Refunded, 6.50%, 07/01/18 ........................................................... 1,213,839
3,190,000 Series 1987, Pre-Refunded. 7.25%, 07/01/12 ........................................................ 3,575,320
1,000,000 Series 1990, Pre-Refunded, 7.625%, 07/01/10 ....................................................... 1,188,210
1,300,000 Series 1992, Pre-Refunded, 6.80%, 07/01/21 ........................................................ 1,504,152
Puerto Rico Electric Power Authority, Power Revenue, Refunding,
125,000 Series 1987-L, 8.40%, 07/01/15 .................................................................... 142,466
3,000,000 Series 1988-M, 8.00%, 07/01/08 .................................................................... 3,456,990
2,000,000 Series 1989-N, 7.00%, 07/01/07 .................................................................... 2,237,440
5,695,000 Series 1989-N, 7.125%, 07/01/14 ................................................................... 6,249,010
4,050,000 Series 1990-O, 7.125%, 07/01/14 ................................................................... 4,443,984
600,000 Series 1991-P, 7.00%, 07/01/11 .................................................................... 666,997
1,685,000 Puerto Rico HFC, MFMR, Portfolio A, Series I, 7.50%, 04/01/22 ....................................... 1,796,985
40,000 Puerto Rico HFC Revenue, FHA Mortgage Insured, Section 8 Assisted, 6th Portfolio, Pre-Refunded,
7.75%, 12/01/26 ................................................................................... 49,448
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONT.)
$ 1,665,000 Puerto Rico HFC, SFMR, Portfolio No. 1, Series 1988-B, GNMA Mortgage
Backed Securities, 7.65%, 10/15/22................................................................. $ 1,740,458
Puerto Rico Public Building Authority, Guaranteed, Public Education & Health Facilities,
115,000 Refunding, Series F, Pre-Refunded, 8.875%, 07/01/12................................................ 125,388
2,585,000 Refunding, Series H, Pre-Refunded, 7.00%, 07/01/19................................................. 2,905,695
10,000,000 Refunding, Series M, 5.75%, 07/01/15............................................................... 9,938,300
1,000,000 Series F, Pre-Refunded, 8.00%, 07/01/12............................................................ 1,122,100
1,000,000 Series H, Pre-Refunded, 7.875%, 07/01/16........................................................... 1,140,050
3,100,000 Series H, Pre-Refunded, 7.25%, 07/01/17............................................................ 3,514,904
3,555,000 Series J, Pre-Refunded, 7.25%, 07/01/17............................................................ 4,030,801
1,000,000 Series L, Pre-Refunded, 6.875%, 07/01/21........................................................... 1,162,160
3,000,000 Puerto Rico Telephone Authority Revenue, Refunding, Series M, 5.40%, 01/01/08........................ 3,009,480
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue,
7,000,000 Refunding, Series B, 5.25%, 01/01/11............................................................... 6,712,650
2,000,000 Refunding, Series D, 5.75%, 01/01/19............................................................... 2,016,080
6,000,000 Refunding, Series D, 6.25%, 01/01/27............................................................... 6,235,740
2,500,000 Series A, Pre-Refunded, 7.875%, 01/01/28........................................................... 2,863,325
7,975,000 Series B, 6.25%, 01/01/19.......................................................................... 8,318,722
3,010,000 Series B, Pre-Refunded, 7.50%, 01/01/29............................................................ 3,262,479
110,000 Series E, Pre-Refunded, 8.25%, 01/01/13............................................................ 125,548
625,000 Series E, Pre-Refunded, 8.25%, 01/01/28............................................................ 713,344
3,290,000 San Luis Municipal Property Corp., Municipal Facilities Revenue, 8.125%, 07/01/19.................... 3,554,944
Santa Cruz Valley USD No. 35,
250,000 Refunding, AMBAC Insured, 5.55%, 07/01/06.......................................................... 254,820
250,000 Refunding, AMBAC Insured, 5.65%, 07/01/07.......................................................... 255,855
250,000 Refunding, AMBAC Insured, 5.75%, 07/01/08.......................................................... 256,888
250,000 Refunding, AMBAC Insured, 5.80%, 07/01/09.......................................................... 256,020
50,000 Scottsdale, City of, Municipal Property Corp., Refunding, Series 1987, Pre-Refunded, 7.75%, 07/01/05. 56,475
50,000 Scottsdale, City of, Street & Highway User Revenue, 1983 Project,
Series 1987-C, Pre-Refunded, 7.60%, 07/01/07....................................................... 53,634
Scottsdale IDA, Hospital Revenue, Scottsdale Memorial Hospital,
180,000 Refunding, Series 1987-A, AMBAC Insured, 8.50%, 09/01/17........................................... 205,803
1,660,000 Series A, AMBAC Insured, 7.05%, 09/01/18........................................................... 1,807,059
2,750,000 Series B, AMBAC Insured, 7.00%, 09/01/08........................................................... 3,033,497
Sedona Sewer Sales Tax Revenue,
3,800,000 Refunding, Series 1992, 6.75%, 07/01/07............................................................ 4,052,207
5,000,000 Refunding, Series 1992, 7.00%, 07/01/12............................................................ 5,249,450
6,500,000 Series 1990-A, Pre-Refunded, 7.50%, 07/01/20....................................................... 7,639,710
Tucson Airport Authority Revenue,
6,700,000 Refunding, MBIA Insured, 5.70%, 06/01/13........................................................... 6,771,355
1,090,000 Series A, MBIA Insured, 6.875%, 06/01/20........................................................... 1,189,648
1,175,000 Series B, MBIA Insured, 7.125%, 06/01/15........................................................... 1,309,714
1,125,000 Series B, MBIA Insured, 7.25%, 06/01/20............................................................ 1,256,265
4,950,000 Tucson GO, Series D, Pre-Refunded, 6.75%, 07/01/14................................................... 5,606,914
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARIZONA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 1,955,000 Tucson IDA, MFHR, La Entrada, Refunding, 7.40%, 07/01/26............................................. $ 2,106,845
900,000 Tucson Local Development Corp., Leasehold Revenue, Series F, FGIC Insured, Pre-Prefunded, 7.30%,
07/01/10........................................................................................... 1,012,725
Tucson Water Revenue,
5,500,000 1981 Project, Series 1986, Pre-Refunded, 7.70%, 07/01/15........................................... 6,058,800
2,270,000 1984 Project, Series B, Pre-Refunded, 7.70%, 07/01/18.............................................. 2,479,862
2,250,000 Refunding, MBIA Insured, 7.00%, 07/01/10........................................................... 2,448,450
6,750,000 Series D, Pre-Refunded, 7.10%, 07/01/18............................................................ 7,838,640
1,500,000 University of Arizona COP, University of Arizona Telecommunications System, Pre-Refunded, 7.60%,
07/15/03........................................................................................... 1,691,610
University of Arizona Medical Center Corp., Hospital Revenue,
225,000 Series 1986, Pre-Refunded, 8.10%, 07/01/16......................................................... 256,556
250,000 Series 1987, Pre-Refunded, 8.10%, 07/01/16......................................................... 285,482
5,000,000 Series 1991, MBIA Insured, Pre-Refunded, 7.00%, 07/01/11........................................... 5,758,950
6,500,000 Series 1991, MBIA Insured, Pre-Refunded, 6.875%, 07/01/21.......................................... 7,436,910
University of Arizona System Revenue,
1,700,000 Series 1988, Pre-Refunded, 7.625%, 06/01/11........................................................ 1,944,869
6,405,000 Series 1990, Pre-Refunded, 7.00%, 06/01/15......................................................... 7,306,952
2,600,000 Series 1990-B, Pre-Refunded, 6.90%, 06/01/16..................................................... 2,959,788
2,650,000 Williams Municipal Development Authority, Inc., Municipal Facilities Revenue, 7.625%, 07/01/05....... 2,845,411
800,000 Yavapai County, Community College District, Refunding, FGIC Insured, 5.40%, 07/01/10................. 786,312
Yuma IDA, MFHR,
1,000,000 Alexandrite Sands Apartments Project, 7.60%, 12/01/15.............................................. 1,091,280
2,000,000 Alexandrite Sands Apartments Project, 7.70%, 12/01/29.............................................. 2,083,880
------------
TOTAL LONG TERM INVESTMENTS (COST $719,735,351)............................................ 787,185,615
------------
gSHORT TERM INVESTMENTS
200,000 Maricopa County IDA, Hospital Facilities Revenue, Samaritan Health Services, Series B-2, MBIA
Insured, Daily VRDN and Put, 2.30%, 12/01/08 (COST $200,000)....................................... 200,000
------------
TOTAL INVESTMENTS (COST $719,935,351) 98.8%............................................. 787,385,615
OTHER ASSETS AND LIABILITIES, NET 1.2%.................................................. 9,452,494
------------
NET ASSETS 100.0%....................................................................... $796,838,109
============
At February 28, 1994, the net unrealized appreciation based on the cost of investments for income
tax purposes of $719,948,261 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an excess of
value over tax cost.............................................................................. $ 68,730,862
Aggregate gross unrealized depreciation for all investments in which there was an excess of tax
cost over value.................................................................................. (1,293,508)
------------
Net unrealized appreciation........................................................................ $ 67,437,354
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN ARIZONA TAX-FREE INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
COP - Certificate of Participation
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HFC - Housing Finance Corp.
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
PCR - Pollution Control Revenue
SFMR - Single Family Mortgage Revenue
USD - Unified School District
</TABLE>
(g)Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes in
a designated rate (such as the prime interest rate or U.S. Treasury bills
rate).
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN COLORADO TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.1%
Adams County PCR, Refunding, Public Service Co. of Colorado Project,
$ 770,000 Series A, 7.375%, 11/01/09......................................................................... $ 827,303
5,500,000 Series A, MBIA Insured, 5.875%, 04/01/14........................................................... 5,722,255
1,500,000 Adams County, USD No. 1, FGIC Insured, Pre-Refunded, 6.625%, 12/01/16............................... 1,703,190
1,000,000 Adams County, USD No. 12, GO & Improvement, FGIC Insured, Pre-Refunded, 7.375%, 12/15/10............. 1,159,800
400,000 Arapahoe County COP, Building Finance Corp., CGIC Insured, 7.50%, 12/01/10........................... 449,484
805,000 Arapahoe County COP, Refunding, 6.625%, 12/01/16..................................................... 879,084
500,000 Arapahoe County USD No. 5, Cherry Creek, 7.125%, 12/15/10............................................ 561,480
200,000 Arkansas River Power Authority, Power Revenue, 8.35%, 12/01/09....................................... 218,728
Arvada Limited Sales & Use Tax Revenue,
500,000 Pre-Refunded, 7.00%, 06/01/05...................................................................... 568,140
5,000,000 Pre-Refunded, 7.50%, 06/01/11...................................................................... 5,849,550
75,000 Arvada MFR, Rental Housing, Arvada Manor Project, GNMA Mortgage Backed Securities, 8.25%, 12/20/25... 77,135
Aspen GO,
1,000,000 Series A, FGIC Insured, Pre-Refunded, 7.20%, 04/15/10.............................................. 1,058,970
500,000 Series A, FGIC Insured, Pre-Refunded, 7.25%, 04/15/20.............................................. 529,755
Auraria Higher Education Center,
3,500,000 Parking Facilities Revenue, Refunding, 5.30%, 04/01/12............................................. 3,412,500
2,500,000 Parking Facilities Revenue, Refunding, Pre-Refunded, 7.875%, 04/01/12.............................. 2,929,025
2,000,000 Student Fee Revenues, Series A, AMBAC Insured, 6.50%, 11/01/16..................................... 2,148,200
300,000 Student Fee Revenues, Series A, MBIA Insured, 7.35%, 05/01/09...................................... 335,388
150,000 Aurora MFHR, Dayton Place Project, GNMA Mortgage Backed Securities, Series 1988-A, 8.25%, 01/20/29... 157,643
750,000 Aurora Urban Renewal Authority, Tax Increment Revenue, 7.50%, 11/15/07............................... 831,390
1,000,000 Beaver Creek Metropolitan District GO, Unlimited Tax, Refunding, MBIA Insured, 7.25%, 12/01/09....... 1,086,990
Boulder County Hospital Revenue,
2,000,000 Longmont United Hospital Project, 5.80%, 12/01/13.................................................. 1,949,360
1,285,000 Longmont United Hospital Project, 5.875%, 12/01/20................................................. 1,243,674
3,000,000 Longmont United Hospital Project, Pre-Refunded, 8.20%, 12/01/20.................................... 3,631,320
1,250,000 Boulder GO, Refunding, Open Space Acquisition, 7.20%, 08/15/13....................................... 1,401,075
2,900,000 Castle Pines Metropolitan District, Refunding & Improvement, CGIC Insured, 7.625%, 12/01/15.......... 3,370,119
1,750,000 Colorado Association of School Boards, COP, Pueblo School District No. 60, Project A, MBIA Insured,
7.25%, 12/01/09.................................................................................... 1,957,165
Colorado Health Facilities Authority Revenue,
1,615,000 Birchwood Manor Project, Series A, GNMA Mortgage Backed Securities, 7.625%, 04/01/26 .............. 1,712,740
955,000 Community Provider Pooled, 6.75%, 07/15/17 ........................................................ 1,055,676
4,693,000 Community Provider Pooled, Series A, CGIC Insured, 7.25%, 07/15/17 ................................ 5,320,219
1,250,000 Mercy Medical Center, 6.20% 11/15/15 .............................................................. 1,285,275
440,000 Oakbrook I Manor, Series A, GNMA Insured, 7.25%, 04/01/11 ......................................... 464,284
885,000 Oakbrook I Manor, Series A, GNMA Insured, 7.625%, 04/01/26 ........................................ 946,649
6,000,000 PSL Health System Project, Series B, 8.50%, 02/15/21 .............................................. 6,832,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN COLORADO TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Colorado Health Facilities Authority Revenue (cont.)
$ 775,000 Refunding, Porter Memorial Hospital Project, Series A, Pre-Refunded, 7.40%, 02/01/16............... $ 885,965
500,000 Refunding, Rose Medical Center, MBIA Insured, 5.125%, 08/15/21..................................... 472,905
2,000,000 Rose Medical Center, MBIA Insured, Pre-Refunded, 7.00%, 08/15/11................................... 2,307,360
1,000,000 (e)Sisters Charity Health Care System, 5.25%, 05/15/14............................................. 934,980
3,000,000 Swedish Medical Center, Project A, 6.80%, 01/01/23................................................. 3,125,550
Colorado HFA,
1,000,000 GO, Series A, 7.50%, 05/01/29...................................................................... 1,063,780
100,000 GO, Series A, 8.375%, 01/01/30..................................................................... 104,723
350,000 GO, SF Program, Series A, 7.50%, 08/01/26.......................................................... 364,189
440,000 SF Program, Series A-1, 8.00%, 08/01/17............................................................ 477,761
625,000 SF Program, Series A-3, 7.90%, 08/01/21............................................................ 674,544
1,370,000 SFMR, Series A-2, 7.70%, 02/01/23.................................................................. 1,471,394
2,360,000 SFMR, Series C-2, 7.375%, 08/01/10................................................................. 2,501,222
410,000 SFMR, Series C-2, 7.85%, 02/01/21.................................................................. 439,856
55,000 SFRHR, Series C, 8.75%, 09/01/17................................................................... 58,032
Colorado Postsecondary Educational Facilities Authority Revenue,
3,250,000 University of Denver Project, Connie Lee Insured, 6.625%, 06/01/13................................. 3,540,745
2,500,000 University of Denver Project, Connie Lee Insured, 6.00%, 03/01/16.................................. 2,591,550
300,000 University of Denver Project, Series B, Pre-Refunded, 9.00%, 12/01/07.............................. 355,530
75,000 Colorado Springs Hospital Revenue, Memorial Hospital, 8.75%, 12/15/07................................ 84,716
Colorado Springs Utilities System Revenue,
2,000,000 Refunding & Improvement, Series A, 5.125%, 11/15/23................................................ 1,833,440
2,000,000 Series 1986-A, Pre-Refunded, 7.30%, 11/15/20....................................................... 2,125,120
295,000 Series 1988-A, Pre-Refunded, 8.00%, 11/15/20....................................................... 329,972
Colorado Water Resources and Power Development Authority Revenue,
750,000 Small Water Resources, Series A, 6.70%, 11/01/12................................................... 811,223
65,000 Stagecoach Project, Pre-Refunded, 8.00%, 11/01/17.................................................. 76,233
Denver City & County Airport System Revenue,
50,000 Series 1985, 8.875%, 08/01/15...................................................................... 51,576
4,000,000 Series 1990-A, 8.50%, 11/15/23..................................................................... 4,559,520
7,500,000 Series A, 7.50%, 11/15/12.......................................................................... 8,363,550
2,000,000 Series B, 7.25%, 11/15/23.......................................................................... 2,152,360
2,250,000 Series C, 6.75%, 11/15/13.......................................................................... 2,347,178
1,000,000 Series D, 7.75%, 11/15/13.......................................................................... 1,167,150
100,000 Denver City & County Excise Tax Revenue, BIG Insured, Pre-Refunded, 8.30%, 09/01/14.................. 114,547
1,000,000 Denver City & County GO, Refunding, 5.10%, 09/01/09.................................................. 978,000
Denver City & County IDR,
1,880,000 University of Denver Project, 7.50%, 03/01/11...................................................... 2,101,539
720,000 University of Denver Project, Pre-Refunded, 7.50%, 03/01/11........................................ 846,878
2,100,000 University of Denver Project, Pre-Refunded, 7.50%, 03/01/16........................................ 2,470,062
3,400,000 Denver City & County Revenue, Children's Hospital Association Project, FGIC Insured, 6.00%,
10/01/15........................................................................................... 3,491,154
150,000 Denver City & County Revenue, Refunding, St. Anthony Hospital, Sisters of Charity Health
Care System, Series A, MBIA Insured, 7.75%, 05/01/14............................................... 169,224
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN COLORADO TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 4,325,000 Denver City & County School District No. 1, Refunding, Series A, 5.125%, 12/01/12 ................... $ 4,102,522
475,000 Denver City & County SFMR, Series A, GNMA Mortgage Backed Securities, 8.125%, 12/01/20 .............. 499,586
2,000,000 Denver City & County Special Facilities Airport Revenue, United Airlines Project, Series A, 6.875%,
10/01/32 .......................................................................................... 2,035,140
2,500,000 Denver USD No 1, GO Bonds, Pre-Refunded, 7.25%, 12/15/10 ............................................ 2,899,875
El Paso County,
225,000 HMR, Series A, GNMA Mortgage Backed Securities, 8.00%, 03/01/21 ................................... 239,044
205,000 HMR, Series B, GNMA Mortgage Backed Securities, 8.125%, 11/01/13 .................................. 222,466
100,000 Revenue, Refunding, St. Francis Hospital System, Sisters of Charity Health Care System, Series A,
MBIA Insured, 7.75%, 05/01/14 .................................................................... 113,018
4,600,000 School District No. 20, GO, Refunding, Series A, 5.55%, 12/15/11 .................................. 4,418,852
50,000 School District No. 20, GO, Refunding, Series B, 8.00%, 12/01/06 .................................. 55,820
1,500,000 Estes Park Urban Renewal Authority, Tax Increment Revenue, Pre-Refunded, 7.625%, 05/15/08 ........... 1,726,530
1,035,000 Foothill Metropolitan Recreational & Park District Golf Course Revenue,
Series A, Pre-Refunded, 8.00%, 11/15/04 ........................................................... 1,178,793
190,000 Fort Collins IDR, Vipont Pharmaceutical, Inc. Project, 9.25%, 08/01/13 .............................. 209,342
500,000 Fort Collins PCR, Anheuser-Busch Co. Project, Series 1984, 7.375%, 12/01/14 ......................... 533,220
250,000 Frisco Fire Protection District, Refunding & Improvement, 7.20%, 12/01/05 ........................... 275,657
Guam Airport Authority Revenue,
400,000 Series A, Refunding, 6.375%, 10/01/10 ............................................................. 416,084
800,000 Series A, Refunding, 6.50%, 10/01/23 .............................................................. 837,048
Guam Power Authority Revenue,
1,000,000 Series A, 6.375%, 10/01/08 ........................................................................ 1,057,860
2,000,000 Series A, 6.30%, 10/01/22 ......................................................................... 2,063,720
Jefferson County, Districtwide Sales Tax Revenue, Southeast Jefferson County,
1,800,000 Local Improvement District, MBIA Insured, 6.30%, 06/01/22 ......................................... 1,912,716
200,000 Local Improvement District, Pre-Refunded, 8.20%, 12/01/13 ......................................... 232,134
1,000,000 Jefferson County, School District No. R-001, AMBAC Insured, 6.25%, 12/15/12 ......................... 1,071,450
1,165,000 Jefferson County, SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 ......................... 1,232,302
750,000 La Plata County School District No. 9-R, Durango City COP, FGIC Insured, 7.40%, 11/15/07 ............ 836,003
250,000 Larimer County Health Care Facilities Revenue, Refunding, Western Health Network, Inc.,
BIG Insured, 7.625%, 01/01/12 ..................................................................... 281,698
735,000 Left Hand Water District - Boulder & Weld Counties Water Revenue Bonds, MBIA Insured,
Pre-Refunded, 7.40%, 11/15/09 ..................................................................... 857,694
500,000 Logan County, Health Care Facilities Revenue, Western Health Network, Inc., Refunding,
MBIA Insured, 5.90%, 01/01/19 ..................................................................... 516,095
1,105,000 Logan County, SFMR, Refunding, Series A, 8.50%, 11/01/11 ............................................ 1,154,703
910,000 Louisville Water District GO, Refunding, FGIC Insured, 7.20%, 12/01/09 .............................. 1,001,582
625,000 Louisville Sewer Revenue, Refunding, FGIC Insured, 7.60%, 12/01/06 .................................. 687,750
350,000 Mesa County Sales Tax Revenue, Refunding, MBIA Insured, 7.75%, 12/01/13 ............................. 394,636
575,000 Metropolitan of Denver Revenue, Sewer Disposal District No. 1, Series A, MBIA Insured,
Pre-Refunded, 7.60%, 04/01/14 ..................................................................... 652,889
5,000,000 Morgan County PCR, Refunding, 1st. Mortgage Public Services Co., Series A, MBIA Insured, 5.50%,
06/01/12 .......................................................................................... 5,011,150
450,000 Northern Colorado Water Conservancy District Revenue, Municipal Subdistrict,
Series D, 7.75%, 12/01/12 ......................................................................... 498,339
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN COLORADO TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 250,000 Northglenn GO, Refunding, Series B, MBIA Insured, 7.125%, 11/01/09................................... $ 253,685
Platte River Power Authority, Electric Revenue,
500,000 Series BB, 5.50%, 06/01/18......................................................................... 495,325
2,150,000 Series I, Pre-Refunded, 7.70%, 06/01/16............................................................ 2,364,806
1,070,000 Poudre Valley Hospital District, Hospital Revenue, Refunding, AMBAC Insured, 5.20%, 12/01/11......... 1,040,917
1,170,000 Project 7 Water Authority Revenue, Refunding, FGIC Insured, 5.70%, 12/01/12.......................... 1,193,973
40,000 Pueblo County Hospital Facility Revenue, Parkview Episcopal Medical Center, Inc., Pre-Refunded,
8.75%, 09/01/09.................................................................................... 43,800
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
55,000 Refunding, Series 1985-A, FSA Insured, Pre-Refunded, 9.00%, 07/01/09............................... 74,231
490,000 Series 1988-A, 7.875%, 07/01/17 ................................................................... 558,938
1,000,000 Puerto Rico Commonwealth, GO, Pre-Refunded, 7.30%, 07/01/20.......................................... 1,170,490
1,000,000 Puerto Rico Commonwealth Highway Authority Revenue, Series G, Pre-Refunded, 8.00%, 07/01/18.......... 1,208,660
Puerto Rico Commonwealth Highway & Transportation Authority Revenue,
2,000,000 Series T, Pre-Refunded, 6.50%, 07/01/22............................................................ 2,273,080
5,500,000 Series W, 5.50%, 07/01/17.......................................................................... 5,290,010
Puerto Rico Electric Power Authority, Power Revenue, Refunding,
50,000 Series 1987-L, 8.40%, 07/01/15..................................................................... 56,987
500,000 Series N, 7.125%, 07/01/14......................................................................... 548,640
200,000 Puerto Rico HFC, SFMR, Portfolio No. 1, Series 1988-A, GNMA Mortgage Backed Securities, 7.80%,
10/15/21........................................................................................... 211,852
600,000 Puerto Rico Industrial, Medical & Environmental PCR, Facilities Financing Authority, Baxter
Travenol, Inc., Series A, 8.00%, 09/01/12.......................................................... 694,344
145,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08................................. 166,482
2,000,000 Puerto Rico Public Buildings Authority, Guaranteed Public Education & Health Facilities, Series L,
Pre-Refunded, 6.875%, 07/01/21..................................................................... 2,324,320
Regional Transportation District, Sales Tax Revenue,
2,000,000 Refunding, FGIC Insured, 5.375%, 11/01/10.......................................................... 1,972,800
100,000 Series 1988, Pre-Refunded, 8.00%, 11/01/08......................................................... 114,981
1,500,000 Series 1990, FGIC Insured, Pre-Refunded, 7.10%, 11/01/10........................................... 1,723,710
1,350,000 Southwestern SFMR, Refunding, Series A, 7.375%, 09/01/11............................................. 1,417,406
530,000 Summit County, SFMR, Series A, 7.50%, 12/01/11....................................................... 578,182
2,750,000 Summit County, Sports Facilities Revenue, Refunding, Keystone Resorts Project, 7.875%, 09/01/08...... 3,235,457
1,300,000 Thornton Sales and Use Tax Revenue, Series B, 5.35%, 09/01/12........................................ 1,277,536
7,000,000 University of Colorado Hospital Authority, Hospital Revenue, Series A, 6.40%, 11/15/22............... 7,503,300
University of Colorado Revenue, Refunding,
1,000,000 Auxiliary Facility Systems, Boulder Campus, 7.05%, 06/01/15........................................ 1,119,860
50,000 Recreations & Parking Facilities Revenue, Pre-Refunded, 7.90%, 05/01/06............................ 55,112
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN COLORADO TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
University of Puerto Rico Revenues, Refunding,
$ 400,000 Series J, 7.75%, 06/01/07 ......................................................................... $ 437,672
250,000 Series L, 7.75%, 06/01/07 ......................................................................... 273,545
2,000,000 Westminster City Sales & Use Tax Revenue, Refunding & Improvement, FGIC Insured, 7.00%,
12/01/08 .......................................................................................... 2,267,400
------------
TOTAL LONG TERM INVESTMENTS (COST $182,661,015) .............................................. 198,292,513
------------
gSHORT TERM INVESTMENTS .2%
400,000 Puerto Rico Commonwealth Government Bank, Weekly VRDN and Put, 2.25%, 12/01/15
(COST $400,000) ................................................................................... 400,000
-----------
TOTAL INVESTMENTS (COST $183,061,015) 98.3% .................................................. 198,692,513
OTHER ASSETS AND LIABILITIES, NET 1.7% ....................................................... 3,465,179
------------
NET ASSETS 100.0% ............................................................................ $202,157,692
============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $183,061,903 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................................. $ 16,404,340
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................................. (773,730)
------------
Net unrealized appreciation ................................................................... $ 15,630,610
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Financing Agency/Authority
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
IDR - Industrial Development Revenue
MBIA - Multi-Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFR - Multi-Family Revenue
PCR - Pollution Control Revenue
SF - Single Family
SFMR - Single Family Mortgage Revenue
SFRHR - Single Family Residential Housing Revenue
USD - Unified School District
eSee Note 1 regarding securities purchased on a when-issued basis.
gVariable rate demand notes (VRDN's) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONNECTICUT TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.9%
$ 100,000 Berlin GO, 7.10%, 06/15/04........................................................................... $ 115,135
Bridgeport GO,
300,000 Series A, 7.25%, 06/01/00.......................................................................... 321,150
600,000 Series A, 7.625%, 01/15/09......................................................................... 644,694
170,000 Series B, 7.20%, 11/15/98.......................................................................... 181,565
1,375,000 Series B, 7.55%, 11/15/00.......................................................................... 1,500,304
425,000 Series B, 7.30%, 01/15/09.......................................................................... 468,775
3,750,000 Series B, 7.75%, 11/15/10.......................................................................... 4,087,800
750,000 Unlimited Tax, Series A, 7.30%, 03/01/99........................................................... 800,408
325,000 Canterbury GO, 7.20%, 05/01/08....................................................................... 374,283
Chester,
210,000 GO, 7.00%, 10/01/06................................................................................ 230,891
210,000 GO, 7.00%, 10/01/07................................................................................ 230,891
100,000 Clinton GO, 7.25%, 06/15/08.......................................................................... 115,413
250,000 Connecticut Columbia GO, 5.75%, 06/15/12............................................................. 252,608
Connecticut HFA,
250,000 Housing Mortgage Finance, State Program, Series A, 7.60%, 11/15/05................................. 261,758
815,000 Housing Mortgage Finance, State Program, Series A, 7.50%, 11/15/09................................. 831,781
2,075,000 Housing Mortgage Finance, State Program, Series A, 6.20%, 05/15/14................................. 2,145,861
500,000 Housing Mortgage Finance, State Program, Series A-1, 7.00%, 11/15/09............................... 525,585
555,000 Housing Mortgage Finance, State Program, Series A-1, 5.85%, 11/15/16............................... 559,329
1,165,000 Housing Mortgage Finance, State Program, Series A-1, 5.90%, 11/15/25............................... 1,150,065
1,725,000 Housing Mortgage Finance, State Program, Series A-2, 7.20%, 11/15/08............................... 1,804,764
10,000 Housing Mortgage Finance, State Program, Series B, 7.40%, 11/15/05................................. 10,473
2,270,000 Housing Mortgage Finance, State Program, Series B, 6.00%, 05/15/09................................. 2,310,860
935,000 Housing Mortgage Finance, State Program, Series B, 7.20%, 11/15/09................................. 954,392
500,000 Housing Mortgage Finance, State Program, Series B, 6.20%, 05/15/12................................. 510,295
9,600,000 Housing Mortgage Finance, State Program, Series B, 6.75%, 11/15/23................................. 9,923,616
1,690,000 Housing Mortgage Finance, State Program, Series B, 6.30%, 05/15/24................................. 1,725,034
2,050,000 Housing Mortgage Finance, State Program, Series B-1, 7.55%, 11/15/08............................... 2,225,460
35,000 Housing Mortgage Finance, State Program, Series B-3, 7.70%, 11/15/09............................... 37,819
110,000 Housing Mortgage Finance, State Program, Series B-3, 7.75%, 11/15/22............................... 118,223
1,660,000 Housing Mortgage Finance, State Program, Series C, 7.625%, 11/15/17................................ 1,710,082
5,000,000 Housing Mortgage Finance, State Program, Series C-2, 6.70%, 11/15/22............................... 5,156,000
6,000,000 Housing Mortgage Finance, State Program, Series F-1, 5.60%, 05/15/19............................... 5,975,340
Connecticut Health & Education Facilities Authority Revenue,
5,000,000 Hartford University, Series D, 6.80%, 07/01/22..................................................... 5,395,650
1,000,000 St. Francis Hospital & Medical Center, Series C, FGIC Insured, 5.00%, 07/01/23..................... 908,660
1,250,000 St. Joseph Living Center Project, 5.10%, 11/01/19.................................................. 1,179,962
615,000 Sacred Heart University, Series A, 6.85%, 07/01/22................................................. 640,775
1,250,000 Taft School, Series B, 5.40%, 07/01/20............................................................. 1,237,763
Connecticut Higher Education Supplemental Loan Authority,
285,000 Series A, 7.20%, 11/15/10.......................................................................... 302,992
480,000 Series A, 7.50%, 11/15/10.......................................................................... 492,313
400,000 Connecticut State Clean Water Fund Revenue, 7.00%, 01/01/11.......................................... 449,920
750,000 Connecticut State Development Authority, PCR, New England Power Co., 7.25%, 10/15/15................. 838,628
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONNECTICUT TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Connecticut State Development Authority, Water Facility Revenue,
$ 1,000,000 Refunding, Bridgeport Hydraulic Co. Project, 7.25%, 06/01/20....................................... $ 1,088,710
1,650,000 Refunding, The Connecticut Water Co., Series B, 5.30%, 09/01/28.................................... 1,569,909
1,200,000 Series A, 5.25%, 11/15/12.......................................................................... 1,158,348
250,000 Water Co. Project, AMBAC Insured, 5.875%, 09/01/22................................................. 252,803
Connecticut State GO,
420,000 Refunding, Series A, 5.60%, 11/15/10............................................................... 423,906
750,000 Refunding, Series B, 5.40%, 03/15/09............................................................... 754,590
1,000,000 Refunding, Series B, 5.50%, 03/15/10............................................................... 1,011,680
1,500,000 Refunding, Series B, 5.50%, 03/15/11............................................................... 1,518,195
240,000 Refunding, Series B, 5.50%, 03/15/12............................................................... 241,637
275,000 Series A, Pre-Refunded, 7.25%, 03/01/08............................................................ 313,488
1,500,000 Series A, Pre-Refunded, 6.90%, 03/15/09............................................................ 1,702,470
1,200,000 Series C, Pre-Refunded, 7.00%, 09/15/10............................................................ 1,382,184
Connecticut State Health & Educational Facilities Authority Revenue,
635,000 Capital Assets, Series B, 7.00%, 01/01/00.......................................................... 685,070
1,435,000 Hartford University, Series C, Pre-Refunded, 8.00%, 07/01/18....................................... 1,754,388
1,250,000 Hebrew Home and Hospital, Series A, 7.00%, 08/01/30................................................ 1,318,150
1,000,000 Lawrence Memorial Hospital, Series B, MBIA Insured, Pre-Refunded, 7.00%, 07/01/20.................. 1,145,180
500,000 Lutheran General Health Care System, ETM 07/01/05, 7.375%, 07/01/19................................ 611,455
1,000,000 New Britain Memorial Hospital, Series A, 7.75%, 07/01/22........................................... 1,108,680
250,000 Quinnipiac College, Series B, Pre-Refunded, 7.125%, 07/01/09....................................... 284,648
1,000,000 Quinnipiac College, Series C, Pre-Refunded, 7.75%, 07/01/20........................................ 1,179,840
100,000 St. Mary's Hospital, Series B, 7.50%, 07/01/02..................................................... 109,111
1,000,000 St. Mary's Hospital, Series C, 7.375%, 07/01/20.................................................... 1,063,310
275,000 St. Raphael Hospital, Series C, AMBAC Insured, Pre-Refunded, 7.50%, 07/01/14....................... 313,885
965,000 Student Supplemental Loan Authority Revenue, Series A, 7.00%, 11/15/05............................. 997,057
1,000,000 Taft School, Issue A, Pre-Refunded, 7.375%, 07/01/20............................................... 1,162,540
710,000 Taft School, Issue B, 5.25%, 07/01/13.............................................................. 691,448
480,000 Trinity College, Series C, MBIA Insured, 6.00%, 07/01/22........................................... 494,083
3,350,000 Yale New Haven Hospital, Series F, MBIA Insured, 7.10%, 07/01/25................................... 3,742,820
Connecticut State Municipal Electric Energy, Coop Power Supply,
220,000 MBIA Insured, Pre-Refunded, 6.875%, 01/01/08....................................................... 235,455
4,545,000 Series A, 5.00%, 01/01/18.......................................................................... 4,222,169
Connecticut State Resource Recovery Authority Revenue,
200,000 American REF-FUEL Co. of Southeastern Connecticut Project, Series A, 7.70%, 11/15/01............... 228,694
200,000 American REF-FUEL Co. of Southeastern Connecticut Project, Series A, 8.10%, 11/15/15............... 232,016
835,000 Bridgeport Resco, Ltd. Partnership Project, Series A, 7.625%, 01/01/09............................. 908,538
1,850,000 System Bonds, Series B, 7.30%, 11/15/12............................................................ 2,035,352
205,000 Wallingford Resource Recovery Project, Series A, 7.125%, 11/15/08.................................. 218,551
Connecticut State Special Tax Obligation Revenue,
740,000 Transportation Infrastructure Purposes, Series A, 5.40%, 09/01/09 ................................. 739,985
1,000,000 Transportation Infrastructure Purposes, Series A, 5.40%, 09/01/10 ................................. 994,590
900,000 Transportation Infrastructure Purposes, Series A, Pre-Refunded, 7.30%, 02/15/08 ................... 1,015,560
2,000,000 Transportation Infrastructure Purposes, Series A, Pre-Refunded, 7.20%, 02/01/09 ................... 2,276,620
500,000 Transportation Infrastructure Purposes, Series B, 6.125%, 09/01/12 ................................ 539,605
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONNECTICUT TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 100,000 Derby GO, 7.20%, 05/15/08............................................................................ $ 115,190
200,000 East Haven Utah Bank Qualified GO, 7.00%, 09/15/07................................................... 224,404
335,000 East Lyme, 5.625%, 08/01/10.......................................................................... 342,946
East Windsor GO,
100,000 Unlimited, 6.90%, 03/15/07......................................................................... 114,096
100,000 Unlimited, 6.90%, 03/15/08......................................................................... 114,298
100,000 Unlimited, 6.90%, 03/15/09......................................................................... 114,629
100,000 Unlimited, 6.90%, 03/15/10......................................................................... 114,665
225,000 Franklin GO, 7.30%, 03/15/09......................................................................... 267,062
200,000 Griswold GO, MBIA Insured, 7.50%, 04/01/06........................................................... 242,444
270,000 Groton City, GO, 5.50%, 05/15/10..................................................................... 271,126
Groton Town GO, Unlimited Tax,
240,000 Lot B, 6.80%, 09/01/07............................................................................. 264,396
240,000 Lot B, 6.80%, 09/01/08............................................................................. 264,396
240,000 Lot B, 6.80%, 09/01/09............................................................................. 263,424
Guam Airport Authority Revenue,
250,000 Series A, 6.375%, 10/01/08......................................................................... 264,465
250,000 Series A, 6.60%, 10/01/10.......................................................................... 261,518
7,000,000 Series A, 5.375%, 11/15/13......................................................................... 6,590,220
500,000 Series A, 6.30%, 10/01/22.......................................................................... 515,930
1,300,000 Series A, 6.70%, 10/01/23.......................................................................... 1,365,078
175,000 Guilford GO, Unlimited Tax, Pre-Refunded, 6.80%, 06/15/08............................................ 196,940
100,000 Hartford County Metropolitan District GO, 7.00%, 12/01/06 ........................................... 116,294
100,000 Hartford GO, 7.00%, 12/15/02 ........................................................................ 115,590
100,000 Killingly GO, 7.30%, 12/15/06 ....................................................................... 111,996
Lebanon GO,
225,000 Series 2008, 7.00%, 09/15/08 ...................................................................... 253,307
225,000 Series 2009, 7.00%, 09/15/09 ...................................................................... 252,236
225,000 Series 2010, 7.00%, 09/15/10 ...................................................................... 252,236
Milford GO,
225,000 Unlimited Tax, 6.90%, 02/01/09 .................................................................... 249,469
225,000 Unlimited Tax, 6.90%, 02/01/10 .................................................................... 249,469
210,000 Montville Town GO, 7.35%, 12/01/10 .................................................................. 235,956
New Haven GO,
1,100,000 Series A, 7.00%, 03/01/96 ......................................................................... 1,148,840
2,250,000 Series A, 7.10%, 03/01/97 ......................................................................... 2,383,898
4,545,000 Series A, 7.40%, 03/01/12 ......................................................................... 4,967,231
490,000 Series B, 5.90%, 12/01/98 ......................................................................... 505,631
2,000,000 Series B, 6.75%, 12/01/05 ......................................................................... 2,120,440
Plainfield,
335,000 GO, 7.25%, 09/01/05 ............................................................................... 378,781
335,000 GO, 7.30%, 09/01/07 ............................................................................... 374,289
335,000 GO, 7.30%, 09/01/09 ............................................................................... 371,461
150,000 GO, 7.30%, 09/01/10 ............................................................................... 166,326
100,000 Plainville GO, 7.20%, 06/15/08 ...................................................................... 109,431
260,000 Pomfret GO, Unlimited Tax, 7.10%, 11/15/08 .......................................................... 287,508
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONNECTICUT TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 1,500,000 Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series 1988-A, 7.00%, 07/01/19........ $ 1,654,065
1,800,000 Puerto Rico Commonwealth, Highway Authority Revenue, Refunding, Series R, 6.75%, 07/01/05............ 1,976,472
1,000,000 Puerto Rico Commonwealth, Highway Authority & Transportation Revenue, Series S, Pre-Refunded,
6.625%, 07/01/18................................................................................... 1,145,080
Puerto Rico Electric Power Authority Revenue,
700,000 Series P, 7.00%, 07/01/11.......................................................................... 778,162
2,950,000 Series P, 7.00%, 07/01/21.......................................................................... 3,279,397
500,000 Series R, 6.25%, 07/01/17.......................................................................... 523,960
1,250,000 Puerto Rico HFC, SFMR, Series C, GNMA Insured, 6.85%, 10/15/23....................................... 1,304,363
Puerto Rico Public Building Authority, Guaranteed, Public Education & Health Facilities,
1,000,000 Refunding, Series M, 5.50%, 07/01/21............................................................... 956,390
1,000,000 Series H, Pre-Refunded, 7.25%, 07/01/17............................................................ 1,133,840
700,000 Series J, Pre-Refunded, 7.25%, 07/01/17............................................................ 793,688
South Central Regional Water Authority, Water System Revenue,
1,020,000 Refunding, Pre-Refunded, 7.125%, 08/01/12.......................................................... 1,111,973
370,000 Series 1986, Pre-Refunded, 7.125%, 08/01/06........................................................ 403,811
Stafford GO,
300,000 Unlimited Tax, ETM 03/01/00, 7.00%, 03/01/00....................................................... 338,954
845,000 Unlimited Tax, ETM 03/01/01, 7.00%, 03/01/01....................................................... 964,945
800,000 Unlimited Tax, Pre-Refunded, 7.05%, 03/01/02....................................................... 924,968
345,000 Unlimited Tax, Pre-Refunded, 7.15%, 03/01/03....................................................... 400,931
345,000 Unlimited Tax, Pre-Refunded, 7.20%, 03/01/04....................................................... 401,949
175,000 Unlimited Tax, 6.80%, 10/01/08..................................................................... 196,088
175,000 Unlimited Tax, 6.80%, 10/01/09..................................................................... 196,422
1,130,000 Unlimited Tax, Pre-Refunded, 7.30%, 03/01/12....................................................... 1,315,829
6,550,000 Virgin Islands Water & Power Authority, Electric System Revenue, 7.40%, 07/01/11..................... 7,433,923
Waterbury GO,
785,000 Pre-Refunded, 7.25%, 03/01/03...................................................................... 909,234
785,000 Pre-Refunded, 7.25%, 03/01/04...................................................................... 914,337
780,000 Pre-Refunded, 7.50%, 03/01/07...................................................................... 920,002
1,000,000 Refunding, FGIC Insured, 5.375%, 04/15/08.......................................................... 1,008,680
600,000 West Haven Connecticut, GO, Series B, 5.375%, 06/01/07............................................... 605,826
100,000 Winchester GO, 7.10%, 11/15/08....................................................................... 115,091
Windsor GO,
300,000 Series 1993, 5.20%, 01/15/12....................................................................... 292,821
300,000 Series 1993, 5.20%, 01/15/13....................................................................... 290,865
Woodstock GO,
235,000 MBIA Insured, 5.30%, 02/15/11...................................................................... 230,869
155,000 MBIA Insured, 5.30%, 02/15/12...................................................................... 152,178
------------
TOTAL LONG TERM INVESTMENTS (COST $150,051,433)............................................ 159,666,766
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONNECTICUT TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
gSHORT TERM INVESTMENTS .1%
$ 200,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and
Put, 2.25%, 12/01/15 (COST $ 200,000)............................................................ $ 200,000
------------
TOTAL INVESTMENTS (COST $150,251,433) 98.0%............................................ 159,866,766
OTHER ASSETS AND LIABILITIES, NET 2.0%................................................. 3,183,625
------------
NET ASSETS 100.0%...................................................................... $163,050,391
============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $150,251,433 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ........................................................ $ 10,456,257
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................................ (840,924)
------------
Net unrealized appreciation..................................................................... $ 9,615,333
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Agency
HFC - Housing Finance Corp.
MBIA - Municipal Bond Investors Assurance Corp.
PCR - Pollution Control Revenue
SFMR - Single Family Mortgage Revenue
gVariable rate demand notes (VRDN's) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INDIANA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.7%
$ 75,000 Allen County COP, Fort Wayne Memorial Coliseum, Pre-Refunded, 8.125%, 11/01/17....................... $ 85,269
50,000 Beech Grove EDR, Westvaco Corp., 8.75%, 07/01/10................................................... 50,604
500,000 Boonville Junior High School Building Corp., Pre-Refunded, 7.25%, 07/15/09........................... 573,570
75,000 Center Grove Central Elementary School Building Corp., 1st Mortgage, Pre-Refunded, 7.375%,
07/01/09........................................................................................... 84,590
50,000 Chesterton Sewer Revenue, Pre-Refunded, 8.10%, 08/01/07............................................ 57,794
250,000 Clarke County Hospital Association, Refunding, 1st Mortgage, MBIA Insured, 7.50%, 09/01/07........... 284,263
710,000 Columbus Sewage Works Revenue, MBIA Insured, 6.50%, 02/15/13......................................... 761,745
260,000 Columbus Sewage Works Revenue, Series 1990, 7.25%, 02/15/09.......................................... 286,403
500,000 Crawfordsville School Building Corp., 1st Mortgage, Pre-Refunded, 7.70%, 07/15/11.................... 592,025
50,000 Crown Point Redevelopment District, Lake County Tax Increment, 8.10%, 02/01/07....................... 54,527
1,750,000 Elkhart County, Hospital Authority Revenue, Goshen Hospital Association, Inc. Project, 7.35%,
07/01/12........................................................................................... 1,871,170
500,000 Elwood Middle School Building Corp., 1st Mortgage, Refunding, 7.30%, 01/01/08........................ 554,420
55,000 Flat Rock-Hawcreek Elementary School Building Corp., 1st Mortgage, Pre-Refunded, 8.30%, 01/01/09..... 64,493
150,000 Franklin Community Elementary School Building Corp., 1st Mortgage, Pre-Refunded, 7.80%, 01/01/09..... 169,405
200,000 Franklin Township of Marion County Multi-School Building Corp., 1st Mortgage, Pre-Refunded,
7.50%, 01/15/12.................................................................................... 229,114
50,000 Frankton-Lapel School Building Corp., 1st Mortgage, Pre-Refunded, 7.90%, 01/01/09.................... 56,622
500,000 Hamilton Heights High School Building Corp., 1st Mortgage, Pre-Refunded, 7.375%, 07/15/10............ 583,240
125,000 Hamilton Southeastern Building Corp., Consolidated School Building Corp., 1st Mortgage,
Pre-Refunded, 8.40%, 01/01/15...................................................................... 147,064
1,500,000 Hammond Multi-School Building Corp., Refunding, 1st Mortgage, Series A, 6.20%, 07/10/15.............. 1,547,640
Hammond PCR,
55,000 Commonwealth Edison Co. of Indiana, Inc. Project, 9.125%, 06/15/10................................. 55,643
300,000 Stauffer Chemical Project, Guaranteed, Imperial 82, 8.00%, 11/01/12................................ 352,887
Indiana Bond Bank, Special Program,
110,000 Series 1986-C, 8.00%, 08/01/11..................................................................... 121,007
300,000 Series 1988-A, Pre-Refunded, 8.375%, 02/01/18...................................................... 339,111
250,000 Series 1990-A, 7.50%, 02/01/20..................................................................... 283,800
1,665,000 Series A-1, 5.55%, 08/01/10........................................................................ 1,610,971
Indiana Health Facility Financing Authority, Hospital Revenue,
500,000 Bartholomew Indiana County Hospital, CGIC Insured, Pre-Refunded, 7.75%, 08/15/20................... 592,810
750,000 Community Hospitals of Indiana, MBIA Insured, 7.00%, 07/01/21...................................... 843,472
175,000 Deaconess Hospital, Inc., Refunding, Pre-Refunded, 7.75%, 03/01/15................................. 190,979
1,250,000 Hancock Memorial Hospital Project, Series 1990, 8.30%, 08/15/20.................................... 1,391,013
1,000,000 Improvement Ancilla Systems, Inc., Series B, MBIA Insured, 5.75%, 07/01/15......................... 1,000,670
1,835,000 Jackson County Schneck Memorial Hospital, 7.50%, 02/15/22.......................................... 1,973,249
1,280,000 Methodist Hospital, Inc., 6.75%, 09/15/09.......................................................... 1,370,585
1,000,000 Methodist Hospital, Inc., Series A, 5.75%, 09/01/15................................................ 995,100
55,000 St. Anthony's Medical Center/Home, Inc., Pre-Refunded, 9.25%, 10/01/17............................. 65,057
1,000,000 St. Anthony's Medical Center/Home, Inc., Series A, 7.00%, 10/01/17................................. 1,073,120
50,000 Welborn Memorial Baptist Hospital Project, Pre-Refunded, 8.00%, 07/01/02........................... 56,775
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INDIANA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Indiana Municipal Power Agency, Power Supply System Revenue, Refunding,
$ 65,000 Original Issue Discount, Series A, 5.75%, 01/01/18 ................................................ $ 65,327
500,000 Original Issue Discount, Series A, Pre-Refunded, 7.25%, 01/01/15 .................................. 539,305
1,000,000 Series A, AMBAC Insured, Pre-Refunded, 6.50%, 01/01/16 ............................................ 1,104,090
Indiana State Educational Facilities Authority Revenue,
175,000 Anderson University Project, 8.40%, 10/01/08 ...................................................... 198,882
175,000 Butler University Project No. 2, Series B, FGIC Insured, Pre-Refunded, 8.00%, 11/01/09............. 204,883
500,000 University of Evansville, 8.125%, 11/01/10 ........................................................ 571,360
100,000 Valparaiso University Project, Refunding, BIG Insured, Pre-Refunded, 7.80%, 10/01/08 .............. 116,014
Indiana State HFA, SFMR,
35,000 Series A, 7.875%, 01/01/17......................................................................... 37,052
105,000 Series A, GNMA Mortgage Backed Securities, 8.125%, 07/01/06 ....................................... 110,894
460,000 Series F-2, GNMA Mortgage Backed Securities, 7.75%, 07/01/22 ...................................... 483,538
1,000,000 Indiana State Office Building Commission, Correctional Facilities Program Revenue, 6.375%,
07/01/16 .......................................................................................... 1,034,290
95,000 Indiana State Vocational Technical College Building Facilities, Student Fee, Series B, MBIA
Insured, 7.90%, 07/01/07........................................................................... 107,340
100,000 Indiana Transportation Finance Authority, Highway Revenue, Series A, Pre-Refunded, 8.125%,
06/01/11........................................................................................... 116,109
200,000 Indiana University Hospital Facilities Revenue, 7.30%, 01/01/03 ..................................... 222,062
85,000 Indianapolis Airport Authority, Indianapolis International Airport Revenue, BIG Insured, 8.30%,
07/01/18 .......................................................................................... 97,062
Indianapolis Gas Utility Revenue,
1,000,000 Series A, FGIC Insured, 6.20%, 06/01/23 ........................................................... 1,030,430
200,000 Series A, FGIC Insured, Pre-Refunded, 7.10%, 06/01/20 ............................................. 217,440
Indianapolis Local Public Bank Improvement Bond,
225,000 Series D, Pre-Refunded, 8.50%, 02/01/18 ........................................................... 262,838
1,500,000 Series D, Refunding, 6.75%, 02/01/20 .............................................................. 1,593,870
Indianapolis Resource Recovery Revenue, Ogden Martin System, Inc.,
100,000 Series A, 7.90%, 12/01/08 ......................................................................... 110,531
150,000 Series B, 7.90%, 12/01/08 ......................................................................... 165,797
Jasper County PCR, Collateralized, Northern Indiana Public Service Co., Refunding,
300,000 MBIA Insured, 7.50%, 10/15/14 ....................................................................... 319,971
500,000 MBIA Insured, 7.10%, 07/01/17 ....................................................................... 564,020
300,000 Jefferson County Hospital Authority Facility Revenue, Refunding, King's Daughters' Hospital,
8.50%, 08/15/13 ................................................................................... 332,208
50,000 Kendallville Sewage Works Revenue, GO, Pre-Refunded, 7.60%, 07/01/07 ................................ 56,786
Kokomo Hospital Authority Revenue, Refunding, St. Joseph's Hospital & Health Center of Kokomo,
300,000 Series A, Pre-Refunded, 8.75%, 02/15/13 ........................................................... 358,380
240,000 Series B, Pre-Refunded, 8.75%, 02/15/13 ........................................................... 286,164
Lake Central Industrial Multi-School Building,
755,000 1st Mortgage, Pre-Refunded, 7.00%, 01/15/18 ....................................................... 871,580
1,000,000 Refunding, 1st Mortgage, 5.60%, 01/15/18 .......................................................... 954,400
2,750,000 Lawrenceburg PCR, Refunding, Michigan Power Co. Project, Series E, 5.90%, 11/01/19 .................. 2,678,858
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INDIANA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 95,000 Madison County Authority, Anderson Hospital Revenue, Refunding, Series A, BIG Insured, 8.00%,
01/01/14 .......................................................................................... $ 107,205
100,000 Manchester Community Elementary School Building Corp., 1st Mortgage, Pre-Refunded, 7.80%, 01/01/12 .. 115,525
Marion County Convention & Recreational Facilities Authority, Excise Tax Revenue,
250,000 Lease Rental, Series A, AMBAC Insured, 7.00%, 06/01/21 ............................................ 276,745
500,000 Lease Rental, Series B, AMBAC Insured, Pre-Refunded, 7.00%, 06/01/21 .............................. 576,925
375,000 Marion County Hospital Authority Facility Revenue, Refunding, Methodist Hospital of Indiana, Inc.,
Series A, Pre-Refunded, 7.75%, 03/01/16 ........................................................... 409,620
165,000 Meister School Building Corp., Refunding, 1st Mortgage, 5.75%, 01/01/16 ............................. 163,365
1,000,000 Merrillville Multi-School Building Corp., 1st Mortgage, Pre-Refunded, 7.50%, 07/15/09 ............... 1,173,140
300,000 Monroe County, Hospital Authority Revenue, Bloomington Hospital Project, MBIA Insured, Pre-Refunded,
6.70%, 05/01/12 ................................................................................... 328,185
250,000 Monroe-Gregg School Building Corp., 1st Mortgage, Pre-Refunded, 7.30%, 01/15/11 ..................... 290,558
500,000 North Harrison High School Building Corp., 1st Mortgage, Pre-Refunded, 7.30%, 07/15/12 .............. 582,670
85,000 North Lawrence Community School COP, Multi-School Building Corp., Pre-Refunded, 8.10%, 01/01/10 ..... 98,020
60,000 North Montgomery Elementary School Building Corp., COP, Pre-Refunded, 8.375%, 07/01/08 .............. 69,767
125,000 Northridge High School Additions, Building Corp., Middlebury, 1st Mortgage, Pre-Refunded, 8.00%,
12/30/08 .......................................................................................... 144,834
100,000 Perry Township Multi-School Building Corp., 1st Mortgage Revenue, Pre-Refunded, 7.80%, 01/01/03 ..... 114,271
Peru Community School Building Corp., 1st Mortgage,
150,000 Series 1988, Pre-Refunded, 7.90%, 07/01/08 ........................................................ 174,625
100,000 Series 1989, Pre-Refunded, 7.80%, 01/01/11 ........................................................ 116,225
1,000,000 Petersburg Industrial PCR, Refunding, Indianapolis Power & Light, Series A, 6.10%, 01/01/16 ......... 1,034,310
1,000,000 Plymouth Industry, Multi-School Building Corp., 1st Mortgage, AMBAC Insured, 6.75%, 01/01/13 ........ 1,100,940
Princeton PCR, Refunding, Public Service Co. of Indiana Project,
300,000 Series C, BIG Insured, 7.60%, 03/15/12 ............................................................ 331,605
250,000 Series C, MBIA Insured, 7.375%, 03/15/12 .......................................................... 283,418
520,000 Richmond Hospital Facilities Revenue, Refunding, Reid Hospital & Health Care, FGIC Insured, 6.25%,
01/01/12 .......................................................................................... 536,879
205,000 South Bend Public Library, Pre-Refunded, 7.25%, 01/01/06 ............................................ 217,285
150,000 South Bend Redevelopment Authority, Lease Revenue, Rental Parking Facility Project, Pre-Refunded,
7.90%, 02/01/07 ................................................................................... 169,764
225,000 Southern Hancock County Community School Corp., COP, AMBAC Insured, Pre-Refunded, 7.10%, 07/01/11 ... 255,919
500,000 Steuben County Metropolitan School District, COP, 6.90%, 01/01/08 ................................... 539,495
750,000 Sullivan Industrial PCR, Refunding, Hoosier Energy, Meron Project, 7.10%, 04/01/19 .................. 823,635
1,000,000 Sullivan Industrial PCR, Refunding, Indiana/Michigan Power Co., Project, Series C, 5.95%, 05/01/09 .. 993,010
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN INDIANA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 250,000 Twin Lakes School Building Improvement Corp., 1st Mortgage, Pre-Refunded, 7.50%, 01/15/08 ........... $ 286,985
200,000 University of Southern Indiana Revenue, Student Fee, Series B, Pre-Refunded, 7.70%, 10/01/09 ........ 229,560
50,000 Warsaw High School Building Corp., 1st Mortgage, Pre-Refunded, 8.10%, 01/01/09 ...................... 58,240
------------
TOTAL LONG TERM INVESTMENTS (COST $43,172,339) 97.7% ...................................... 46,784,413
OTHER ASSETS AND LIABILITIES, NET 2.3% .................................................... 1,085,126
------------
NET ASSETS 100.0% ......................................................................... $ 47,869,539
============
At February 28, 1994, the net unrealized appreciation based on the cost of investments for income
tax purposes of $43,172,339 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an excess of value
over tax cost .................................................................................... $ 3,760,492
Aggregate gross unrealized depreciation for all investments in which there was an excess of tax
cost over value .................................................................................. (148,418)
------------
Net unrealized appreciation ....................................................................... $ 3,612,074
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
EDR - Economic Development Revenue
FGIC - Financial Guaranty Insurance Co.
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Agency/Authority
MBIA - Municipal Bond Investors Assurance Corp.
PCR - Pollution Control Revenue
SFMR - Single Family Mortgage Revenue
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 96.7%
$ 2,000,000 Atlantic City Municipal Utilities Authority Revenue, Water System, Pre-Refunded, 7.75%, 05/01/17..... $ 2,370,120
9,500,000 Atlantic County Improvement Authority, Luxury Tax Revenue, Convention Center Project,
MBIA Insured, ETM 07/01/11, 7.40%, 07/01/16........................................................ 11,874,145
Atlantic County Utilities Authority,
2,000,000 Solid Waste Revenue, 7.00%, 03/01/08............................................................... 2,104,060
6,600,000 Solid Waste Revenue, 7.125%, 03/01/16.............................................................. 6,948,876
500,000 Bayshores Regional Sewer Authority Revenue, Sub-Series A, MBIA Insured, 5.40%, 05/01/12.............. 489,210
2,000,000 Bedminister Township Board of Education, COP, 7.125%, 09/01/10....................................... 2,262,300
Bergen County Utility Authority, Solid Waste System Revenue,
1,325,000 Series A, FGIC Insured, 6.25%, 06/15/11............................................................ 1,403,122
100,000 Series A, FGIC Insured, Pre-Refunded, 7.75%, 03/15/13.............................................. 113,011
100,000 Bridgeview Manor Housing Corp. Revenue, Series A, 8.20%, 12/01/08.................................... 105,615
1,200,000 Camden County Improvement Authority, Housing Development Revenue, Crestburny
Apartments Project, 8.75%, 12/15/16................................................................ 1,248,792
Cape May County, IPC, Financing Authority Revenue, Refunding,
5,400,000 Atlantic City Electric Co., Series A, MBIA Insured, 6.80%, 03/01/21................................ 6,262,920
2,500,000 Series B, FGIC Insured, 5.00%, 01/01/16............................................................ 2,324,100
1,890,000 eChurch Street Corp., Keansburg, Elderly Housing Mortgage Revenue, Refunding, 5.625%, 03/01/11........ 1,864,561
200,000 Delaware River Joint Toll Bridge System Commission Revenue, Series I-78, Pre-Refunded,
7.875%, 07/01/18................................................................................... 231,206
1,000,000 Delaware River Port Authority, Pennsylvania and New Jersey River Bridges Revenue,
Refunding, AMBAC Insured, 7.375%, 01/01/07......................................................... 1,120,330
3,265,000 East Brunswick Township GO, Refunding, 5.125%, 04/01/13.............................................. 3,117,650
Essex County Improvement Authority GO, Lease Revenue,
8,000,000 AMBAC Insured, Pre-Refunded, 7.00%, 12/01/20....................................................... 9,217,920
2,510,000 MBIA Insured, 6.00%, 12/01/17...................................................................... 2,597,423
Evesham Municipal Utilities Authority Revenue,
3,000,000 Series B, MBIA Insured, 7.00%, 07/01/10............................................................ 3,314,430
3,000,000 Series B, MBIA, Insured, 5.625%, 07/01/16.......................................................... 3,015,930
3,675,000 Evesham Township Board of Education, COP, FGIC Insured, 6.875%, 09/01/11............................. 4,124,526
Gloucester County Improvement Authority Revenue,
1,000,000 Justice Complex Lease Project, Pre-Refunded, 7.50%, 12/15/10....................................... 1,164,190
275,000 Solid Waste Resource Recovery, SES Gloucester Co., Ltd. Parnership Project, Series B,
8.375%, 07/01/10................................................................................. 299,387
3,000,000 Gloucester County Industrial, Refunding, Mobil Oil Refinance Corp. Project, 5.625%, 12/01/28......... 2,961,360
5,375,000 Guam Government GO, Series A, 5.40%, 11/15/18........................................................ 5,007,565
9,500,000 Guam Power Authority Revenue, Series A, 6.30%, 10/01/22.............................................. 9,802,670
4,670,000 Hamilton Township Board of Education COP, Series B, FSA Insured, 7.00%, 12/15/15..................... 5,225,310
95,000 Hillsborough Township School District, Board of Education COP, Lease Purchase Agreement,
MBIA Insured, Pre-Refunded, 8.00%, 08/15/08........................................................ 105,939
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 6,900,000 Hoboken Union City, Weehawken Sewerage Authority Revenue, MBIA Insured, Pre-Refunded,
7.25%, 08/01/19.................................................................................... $ 7,926,720
1,750,000 Howell Township, GO, Refunding, FGIC Insured, 6.80%, 01/01/14........................................ 1,944,058
100,000 Howell Township Municipal Utilities Authority Revenue, Monmouth County, BIG Insured,
Pre-Refunded, 7.375%, 01/01/14..................................................................... 113,865
4,000,000 Hudson County Correctional Facility, COP,
2,550,000 BIG Insured, Pre-Refunded, 7.60%, 12/01/21......................................................... 2,948,361
4,000,000 Hudson County, MBIA Insured, Pre-Refunded, 7.25%, 12/01/21......................................... 4,666,320
2,000,000 Hudson County Improvement Authorities Facilities Lease Revenue, Hudson County Lease
Project, FGIC Insured, 6.00%, 12/01/25............................................................. 2,065,300
1,685,000 Jersey City Sewer Authority Revenue, Refunding, FGIC Insured, Pre-Refunded, 7.00%, 01/01/19.......... 1,833,785
2,500,000 Lacey Municipal Utilities Authority, Water Revenue, MBIA Insured, 6.10%, 12/01/23.................... 2,612,525
2,000,000 Landis Sewerage Authority Revenue, 2nd Lien, FGIC Insured, Pre-Refunded, 7.25%, 10/01/19............. 2,171,740
100,000 Lumberton Township School District, COP, Fiscal Funding, New Jersey, Inc., MBIA Insured,
Pre-Refunded, 7.70%, 10/01/13...................................................................... 115,153
3,050,000 Mercer County Improvement Authority Revenue, Social Services School District, County
Guaranteed, Pre-Refunded, 7.20%, 12/15/12.......................................................... 3,484,564
100,000 Monmouth County Improvement Authority Revenue, Wall and Keyport Projects, BIG Insured,
7.90%, 07/15/13.................................................................................... 114,522
2,590,000 Monroe Township Municipal Utilities Authority, Middlesex County Revenue, Refunding, MBIA
Insured, 5.50%, 02/01/17........................................................................... 2,573,165
2,000,000 New Brunswick Parking Authority Revenue, Series B, FGIC Insured, Pre-Refunded, 7.20%, 09/01/15....... 2,288,540
1,850,000 New Jersey Building Authority, State Building Revenue, 7.20%, 06/15/13............................... 2,071,704
New Jersey EDA,
575,000 1st Mortgage Gross Revenue, Mega Care, Inc. Project, Pre-Refunded, 8.625%, 08/01/07................ 665,775
4,000,000 Barnabas Realty Project, MBIA Insured, 5.25%, 07/01/13............................................. 3,853,960
4,270,000 Calvary Temple, Series N, 6.90%, 12/01/11.......................................................... 4,666,939
6,000,000 Development Authority Water Facilities Revenue, Midddlesex Water Co. Project, 7.25%,
07/01/21......................................................................................... 6,775,920
795,000 EDR, Series MM, 7.50%, 12/01/19.................................................................... 838,558
5,070,000 Heating & Cooling Revenue, Trigen-Trenton Project, Series A, 6.20%, 12/01/10....................... 5,111,422
3,375,000 Heating & Cooling Revenue, Trigen-Trenton Project, Series B, 6.10%, 12/01/04....................... 3,449,284
2,720,000 Heating & Cooling Revenue, Trigen-Trenton Project, Series B, 6.20%, 12/01/07....................... 2,778,834
3,300,000 Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project, 8.50%, 06/01/18................ 3,519,153
7,810,000 Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project, Series B, 7.25%
03/01/21......................................................................................... 8,462,447
2,300,000 PCR, General Motors Corp., 5.35%, 04/01/09......................................................... 2,257,933
550,000 PCR, Jersey Central Power & Light, 7.10%, 07/01/15................................................. 617,012
1,625,000 Performing Arts Center, 6.75%, 06/15/12............................................................ 1,777,376
440,000 Series M, 7.90%, 12/01/08.......................................................................... 474,250
480,000 Series P, 6.90%, 12/01/11.......................................................................... 524,621
7,440,000 Terminal GATX Corp. Project, 6.65%, 09/01/22....................................................... 7,889,450
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 2,860,000 New Jersey Educational Facilities Financing Authority Revenue, Rowan College, Series A,
AMBAC Insured, 5.75%, 07/01/23..................................................................... $ 2,909,735
New Jersey Health Care Facilities Financing Authority Revenue,
2,500,000 Atlantic City Medical Center, Series C, 6.80%, 07/01/11............................................ 2,701,850
3,380,000 Beth Israel Hospital Association Passaic, 7.80%, 07/01/04.......................................... 3,762,886
1,000,000 Beth Israel Hospital Association Passaic, Refunding, 7.875%, 07/01/07.............................. 1,116,680
10,000,000 Cathedral Health, Series A, FHA Mortgage Insured, 7.25%, 02/15/10.................................. 10,988,800
2,045,000 Cathedral Health, Series A, FHA Mortgage Insured, 7.25%, 02/15/21.................................. 2,242,281
2,475,000 Chilton Memorial Hospital, Series D, Refunding, 5.00%, 07/01/13.................................... 2,295,340
1,000,000 Clara Maas Medical Center, Series B, 7.30%, 07/01/09............................................... 1,090,590
2,435,000 Clara Maas Medical Center, Series B, 7.25%, 07/01/19............................................... 2,620,912
100,000 Community Memorial Hospital Association, Series C, 7.75%, 07/01/14................................. 111,560
5,445,000 East Orange General Hospital, Series B, 7.75%, 07/01/20............................................ 6,081,248
5,000,000 Elizabeth General Medical Center, Series C, 7.375%, 07/01/15....................................... 5,370,550
2,400,000 Hackensack Medical Center, FGIC Insured, 6.25%, 07/01/21 .......................................... 2,493,816
4,000,000 Holy Name Hospital, Series B, AMBAC Insured, 7.00%, 07/01/08....................................... 4,470,720
230,000 Kennedy Memorial Hospitals-University Medical Center, Inc., Series D, 7.875%, 07/01/09............. 252,671
1,800,000 Morristown Memorial Hospital, Series C, 7.125%, 07/01/08........................................... 1,959,174
4,150,000 Newcomb Medical Center, Series A, 7.875%, 07/01/03................................................. 4,656,466
130,000 New Jersey Geriatric Center of Workmen's Circle, Inc.,
Series A, FHA Mortgage Insured, 8.00%, 02/01/28................................................... 145,050
8,500,000 Overlook Hospital Association, Series E, FGIC Insured, 6.70%, 07/01/13............................. 9,191,475
3,750,000 Pascack Valley Hospital, 6.90%, 07/01/21........................................................... 3,990,525
4,245,000 Refunding, Allegany Health, Our Lady Lourdes, MBIA Insured, 5.20%, 07/01/18........................ 4,004,436
3,150,000 Refunding, St. Mary's Hospital, 5.875%, 07/01/12................................................... 3,075,503
3,000,000 Somerest Medical Center, Series A, FGIC Insured, 5.10%, 07/01/14................................... 2,842,050
100,000 St. Clare's Riverside Medical Center, Series D, BIG Insured, 8.00%, 07/01/14....................... 110,450
475,000 Zurbrugg Memorial Hospital Issue, Series C, 8.50%, 07/01/12........................................ 508,340
New Jersey State Educational Facilities Authority Revenue,
500,000 Ramapo College, Series C, BIG Insured, Pre-Refunded, 7.70%, 07/01/13............................... 575,670
1,000,000 Seton Hall University Project, Series C, BIG Insured, 6.85%, 07/01/19.............................. 1,101,210
4,400,000 Seton Hall University Project, Series D, 7.00%, 07/01/21........................................... 4,776,816
10,040,000 New Jersey State, GO, Refunding, Series D, 5.50%, 02/15/12........................................... 10,138,392
New Jersey State Highway Authority,
1,540,000 Garden State Parkway, Senior Parkway Revenue, 5.75%, 01/01/19...................................... 1,565,025
5,950,000 Garden State Parkway, Senior Parkway Revenue, Pre-Refunded, 7.25%, 01/01/16........................ 6,774,789
New Jersey State Housing and Mortgage Finance Agency,
960,000 Home Buyer Revenue, Series B, MBIA Insured, 7.90%, 10/01/22........................................ 1,024,435
8,325,000 Home Buyer Revenue, Series D, MBIA Insured, 7.70%, 10/01/29........................................ 8,807,184
3,650,000 Home Buyer Revenue, Series F-2, MBIA Insured, 6.30%, 04/01/25...................................... 3,739,498
11,150,000 Home Buyer Revenue, Series G, MBIA Insured, 5.35%, 10/01/15........................................ 10,967,363
40,000 Home Mortgage Purchase Revenue, Series A, MBIA Insured, 7.875%, 10/01/17........................... 42,771
6,000,000 MFHR Section 8, 5.95%, 04/01/25.................................................................... 6,088,080
5,000,000 MFHR Section 8, 6.70%, 11/01/28.................................................................... 5,292,150
12,400,000 Refunding, MFHR Section 8, Series A, 6.95%, 11/01/13............................................... 13,074,188
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
New Jersey State Housing and Mortgage Finance Agency, MFHR,
$ 2,245,000 Montclarion Project, Series J, FHA Insured, 7.70%, 11/01/29 ....................................... $ 2,348,921
450,000 Regency Park Project, Series H, 7.70%, 11/01/30 ................................................... 478,967
4,670,000 New Jersey State Housing and Mortgage Finance Agency, Wastewater Treatment Trust Revenue, Series B,
7.00%, 07/01/11 ................................................................................... 5,064,101
New Jersey State Sports & Expo Authority,
1,410,000 Convention Center Luxury Tax Revenue, Series A, Refunding, MBIA Insured, 5.50%, 07/01/22 .......... 1,407,857
8,000,000 State Contract, Series A, 6.60%, 07/01/15 ......................................................... 8,743,920
1,500,000 State Contract, Series A, 6.00%, 03/01/21 ......................................................... 1,543,035
1,000,000 New Jersey State Turnpike Authority Revenue, Series C, FGIC Insured, 5.75%, 01/01/11 ................ 1,012,820
1,000,000 North Bergen Township Municipal Utility Authority Sewer Revenue, FGIC Insured, Pre-Refunded, 7.625%,
12/15/19 .......................................................................................... 1,141,000
6,640,000 North Jersey District Water Supply Commission Revenue, Wanaque South Project, Series A,
Pre-Refunded, 7.375%, 07/01/16 .................................................................... 7,275,050
2,000,000 Northeast Monmouth County, Regional Sewer Authority Revenue, MBIA Insured, Pre-Refunded, 6.70%,
11/01/16 .......................................................................................... 2,259,020
100,000 Ocean Township Municipal Utilities Authority Revenue, Refunding, MBIA Insured, Pre-Refunded, 7.875%,
08/01/15 .......................................................................................... 116,064
Passaic Valley Sewerage Commissioners, Sewer System,
6,500,000 Series C, AMBAC Insured, Pre-Refunded, 7.10%, 12/01/20 ............................................ 7,291,830
2,500,000 Series D, AMBAC Insured, 5.75%, 12/01/13 .......................................................... 2,551,950
7,400,000 Series D, AMBAC Insured, 5.80%, 12/01/18 .......................................................... 7,553,328
2,100,000 Series D, AMBAC Insured, 5.875%, 12/01/22 ......................................................... 2,156,133
1,000,000 Pine Hill Borough School District COP, Fiscal Funding of New Jersey, Inc., BIG Insured,
Pre-Refunded, 7.60%, 12/30/09 ..................................................................... 1,119,380
Piscataway Township School District COP,
1,000,000 MBIA Insured, Pre-Refunded, 7.50%, 06/15/09 ....................................................... 1,141,830
1,975,000 MBIA Insured, Pre-Refunded, 7.00%, 12/15/10 ....................................................... 2,276,977
Port Authority of New York and New Jersey,
5,000,000 Delta Air Lines Special Project, Series 1R, 6.95%, 06/01/08 ....................................... 5,264,850
5,250,000 Consolidated 58th Series, 7.50%, 06/15/17 ......................................................... 5,402,512
200,000 Consolidated 60th Series, 8.25%, 04/01/23 ......................................................... 212,702
500,000 Consolidated 62th Series, 8.00%, 12/01/23 ......................................................... 541,735
500,000 Consolidated 64th Series, 7.25%, 04/01/14 ......................................................... 538,110
3,875,000 Consolidated 65th Series, 7.00%, 09/01/24 ......................................................... 4,201,314
750,000 Consolidated 67th Series, AMBAC Insured, 6.875%, 01/01/25 ......................................... 816,278
1,000,000 Consolidated 74th Series, 6.75%, 08/01/26 ......................................................... 1,102,920
1,125,000 Consolidated 84th Series, 6.00%, 01/15/28 ......................................................... 1,149,199
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
6,500,000 Series A, 7.90%, 07/01/07 ......................................................................... 7,412,535
2,000,000 Series A, 7.875%, 07/01/17 ........................................................................ 2,281,380
1,945,000 Series A, 7.00%, 07/01/19 ......................................................................... 2,144,771
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Highway & Transportation Authority, Highway Revenue,
$ 5,000,000 Refunding, Series S, Pre-Refunded, 6.625%, 07/01/18................................................ $ 5,725,400
1,000,000 Refunding, Series T, Pre-Refunded, 6.50%, 07/01/22................................................. 1.136,540
2,170,000 Refunding, Series V, 6.625%, 07/01/12.............................................................. 2,344,121
275,000 Series P, Pre-Refunded, 8.125%, 07/01/13........................................................... 322,377
8,000,000 Series Q, Pre-Refunded, 8.00%, 07/01/18............................................................ 9,669,280
2,360,000 Series R, 7.25%, 07/01/02.......................................................................... 2,651,531
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
350,000 Series 1988-A, 7.90%, 07/01/07..................................................................... 393,862
5,500,000 Series 1988-A, 7.75%, 07/01/08..................................................................... 6,146,250
250,000 Series 1988-A, 7.50%, 07/01/09..................................................................... 278,218
Puerto Rico Commonwealth Public Improvement GO,
5,000,000 Refunding, 5.25%, 07/01/18 ........................................................................ 4,655,750
100,000 Series A, Pre-Refunded, 7.75%, 07/01/13 ........................................................... 115,760
5,250,000 Series B, Pre-Refunded, 7.25%, 07/01/12 ........................................................... 5,884,148
1,000,000 Puerto Rico Commonwealth Urban Renewal and Housing Corp., Refunding, 7.875%, 10/01/04 ............... 1,150,170
Puerto Rico Electric Power Authority, Power Revenue, Refunding,
590,000 Series 1988-M, 8.00%, 07/01/08 .................................................................... 679,875
6,425,000 Series 1989-N, 7.125%, 07/01/14 ................................................................... 7,050,024
Puerto Rico HFC Revenue,
125,000 FHA Mortgage Insured, Section 8 Assisted, 6th Portfolio, Pre-Refunded, 7.75%, 12/01/26 ............ 154,526
5,985,000 MF, Portfolio A, Series 1, 7.50%, 04/01/22 ........................................................ 6,382,763
Puerto Rico HFC, SFMR,
1,460,000 Portfolio No. 1, Series A, 7.80%, 10/15/21 ........................................................ 1,546,520
1,720,000 Portfolio No. 1, Series B, 7.65%, 10/15/22 ........................................................ 1,797,950
13,000,000 Puerto Rico Highway & Transportation Authority, Series W, 5.50%, 07/01/17 ........................... 12,503,660
Puerto Rico Housing Bank & Finance Agency, SF Commonwealth Appropriation,
150,000 Loan Insurance Claims, Pre-Refunded, 7.25%, 12/01/06 .............................................. 159,096
95,000 Subsidy Prepayment, Pre-Refunded, 7.25%, 12/01/06 ................................................. 100,761
2,000,000 Puerto Rico Industrial, Medical & Environmental PCR, Facilities Financing Authority, Baxter
Travenol Labs., Series A, 8.00%, 09/01/12 ......................................................... 2,314,480
100,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08 ................................ 114,815
Puerto Rico Public Buildings Authority, Guaranteed, Public Education & Health Facilities,
6,000,000 Refunding, Series M, 5.75%, 07/01/15 .............................................................. 5,962,980
1,285,000 Series H, Pre-Refunded, 7.25%, 07/01/17 ........................................................... 1,456,984
3,000,000 Series J, Pre-Refunded, 7.25%, 07/01/17 ........................................................... 3,401,520
4,750,000 Rutgers State University, Pre-Refunded, 7.00%, 05/01/19 ............................................. 5,377,333
Rutgers State University Revenues,
1,160,000 Refunding, Series N, Pre-Refunded, 7.375%, 05/01/16 ............................................... 1,267,416
4,000,000 Refunding, Series R, 5.75%, 05/01/18............................................................... 4,038,480
1,000,000 Series 1, Pre-Refunded, 7.625%, 05/01/15 .......................................................... 1,067,010
5,000,000 Salem County IPC, Electric & Gas Co., Series A, MBIA Insured, 5.70%, 05/01/28........................ 4,999,550
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Salem County Improvement Authority Revenue, County Correctional Facility and Courthouse
Annex Project,
$ 630,000 AMBAC Insured, Pre-Refunded, 7.05%, 05/01/03....................................................... $ 714,640
675,000 AMBAC Insured, Pre-Refunded, 7.10%, 05/01/04....................................................... 767,225
500,000 AMBAC Insured, Pre-Refunded, 7.125%, 05/01/17 ..................................................... 568,885
2,000,000 Sayreville HDC, Mortgage Revenue, Refunding, Lakeview, Section 8, FHA Insured, 7.75%, 08/01/24 ...... 2,102,260
1,000,000 Stony Brook Regional Sewerage Authority Revenue, Series 1989-A, Pre-Refunded, 7.40%, 12/01/09 ....... 1,163,280
100,000 Sussex County Municipal Utilities Authority, Solid Waste Revenue, Series A, BIG Insured,
Pre-Refunded, 7.875%, 12/01/13..................................................................... 116,789
University of Medicine and Dentistry Revenue,
750,000 Series C, 7.20%, 12/01/09 ......................................................................... 847,005
2,725,000 Series C, 7.20%, 12/01/19 ......................................................................... 3,077,451
1,500,000 Wanaque Valley Regional Sewer Authority, Refunding, Series B, AMBAC Insured, 5.75%, 09/01/18 ........ 1,545,990
1,200,000 Warren Hills Regional School District COP, BIG Insured, Pre-Refunded, 7.375%, 12/15/09 .............. 1,363,212
1,000,000 West Morris Regional High School District COP, BIG Insured, 7.50%, 03/15/09 ......................... 1,126,840
West New York Municipal Utilities Authority, Sewer Revenue,
6,150,000 Refunding, FGIC Insured, 5.125%, 12/15/17.......................................................... 5,837,765
1,275,000 Series A, Pre-Refunded, 8.125%, 12/15/17 .......................................................... 1,398,178
100,000 Winslow Township GO, Camden County, Refunding, AMBAC Insured, Pre-Refunded, 7.80%, 07/01/18 ......... 114,691
------------
TOTAL LONG TERM INVESTMENTS (COST $503,556,606) ................................................. 542,374,453
------------
gSHORT TERM INVESTMENTS 1.7%
2,500,000 New Jersey EDA, EDR, EL Dorado Terminal, Series 1984-B, Down Chemical, Daily VRDN and
Put, 2.20%, 05/01/01 .............................................................................. 2,500,000
6,300,000 New Jersey State Turnpike Authority Revenue, Series A, Weekly VRDN and Put, 2.25%, 01/01/18 ......... 6,300,000
1,000,000 Union City, Industrial PCR, Refunding, Exxon Project, Daily VRDN and Put, 2.20%, 07/01/33............ 1,000,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $9,800,000) .................................................. 9,800,000
------------
TOTAL INVESTMENTS (COST $513,356,606) 98.4% .................................................. 552,174,453
OTHER ASSETS AND LIABILITIES, NET 1.6% ....................................................... 8,955,294
------------
NET ASSETS 100.0% ............................................................................ $561,129,747
============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for federal income tax purposes of $513,356,606 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................................... $ 40,698,188
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................................... (1,880,341)
------------
Net unrealized appreciation........................................................................ $ 38,817,847
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
- ------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
COP - Certificate of Participation
EDA - Economic Development Authority
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency
FSA - Financial Security Assistance
GO - General Obligation
HDC - Housing Finance Corp.
HFC - Housing Finance Corp.
IPC - Industrial Pollution Control
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
PCR - Pollution Control Revenue
SF - Single Family
SFMR - Single Family Mortgage Revenue
eSee Note 1 regarding securities purchased on a when-issued basis.
gVariable 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 unpaid principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
The accompanying notes are an integral part of these financial statements.
54
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OREGON TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.4%
$ 750,000 Albany Sewer Revenue, Series A, Pre-Refunded, 7.00%, 02/01/12........................................ $ 855,345
Albany Water Revenue,
1,000,000 Second Lien, Pre-Refunded, 7.25%, 08/01/09......................................................... 1,135,600
500,000 Second Lien, Pre-Refunded, 6.875%, 10/01/12........................................................ 571,975
2,000,000 Bay Area Health District Hospital Facility Authority, Health Facilities Revenue, Evergreen Court
Project, 7.25%, 10/01/14........................................................................... 2,236,260
Bear Creek Valley Sanitary Authority, GO,
50,000 Series 1987, 7.70%, 05/01/07....................................................................... 55,080
100,000 Series 1988, 7.30%, 06/01/05....................................................................... 110,890
105,000 Series 1988, 7.35%, 06/01/06....................................................................... 116,634
115,000 Series 1988, 7.40%, 06/01/07....................................................................... 127,726
125,000 Series 1988, 7.40%, 06/01/08....................................................................... 138,833
1,125,000 Benton County Oregon Hospital Facilities Authority, Good Samaritan Hospital, Corvallis,
6.25%, 10/01/09.................................................................................... 1,189,822
750,000 Benton County School District No. 17J, 5.50%, 06/01/10............................................... 762,503
2,000,000 Central Lincoln Utility District Electric Revenue, Pre-Refunded, 6.75%, 01/01/11..................... 2,249,000
City of Bend, Urban Renewal Agency Tax Revenue,
600,000 Series A, 6.85%, 09/01/06.......................................................................... 626,226
750,000 Series A, 7.00%, 09/01/11.......................................................................... 784,170
1,000,000 City of Brookings GO, Refunding, 5.375%, 12/01/14.................................................... 991,880
4,945,000 Clackamas County Health Facilities Authority Hospital Revenue, Refunding, Adventist Health,
Series A, MBIA Insured, 6.35%, 03/01/09............................................................ 5,374,869
Clackamas County Hospital Facilities Authority Revenue,
1,250,000 Elderly Housing, 7.00%, 11/15/11................................................................... 1,334,725
2,990,000 GNMA, Jennings Lodge Project, 7.50%, 10/20/31...................................................... 3,327,093
1,635,000 Kaiser Permanente, Series A, 6.50%, 04/01/11....................................................... 1,767,876
4,950,000 Kaiser Permanente, Series A, 6.25%, 04/01/21....................................................... 5,233,734
4,250,000 Refunding, Gross Willamette Falls, 5.75%, 04/01/15................................................. 4,088,798
110,000 Sisters of Providence Project, 8.125%, 10/01/07.................................................... 121,456
1,125,000 Clairmont Water District Revenue, 6.50%, 02/01/12.................................................... 1,172,419
1,400,000 Columbia Gorge College, GO, 5.40%, 06/01/13.......................................................... 1,393,238
50,000 Coos Bay Waste Water GO, MBIA Insured, Pre-Refunded, 7.50%, 09/01/06................................. 55,637
Deschutes County Hospital Facilities Authority, Hospital Revenue,
390,000 St. Charles Medical Center, 7.50%, 01/01/08........................................................ 429,488
125,000 St. Charles Medical Center, 7.60%, 01/01/13........................................................ 137,246
Emerald People's Utility District, Electric System Revenue, Refunding,
100,000 Series A, AMBAC Insured, Pre-Refunded, 7.20%, 11/01/06............................................. 107,791
55,000 Series A, AMBAC Insured, Pre-Refunded, 7.35%, 11/01/13............................................. 59,802
195,000 Series B, AMBAC Insured, 7.35%, 11/01/13........................................................... 209,274
500,000 Series B, AMBAC Insured, Pre-Refunded, 7.30%, 11/01/11............................................. 571,800
1,700,000 Series B, Pre-Refunded, 6.75%, 11/01/16............................................................ 1,933,325
Eugene Electric Utility System Revenue,
125,000 Series 1987, Pre-Refunded, 7.90%, 08/01/11......................................................... 138,926
1,145,000 Series 1991, 6.65%, 08/01/08....................................................................... 1,260,588
615,000 Series 1991, 6.65%, 08/01/09....................................................................... 673,105
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OREGON TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Eugene Electric Utility System Revenue (cont.)
$ 655,000 Series 1991, 6.65%, 08/01/10....................................................................... $ 714,775
700,000 Series 1991, 6.70%, 08/01/11....................................................................... 766,017
2,980,000 Series 1994, 5.00%, 08/01/17....................................................................... 2,822,537
9,840,000 Eugene Trojan Nuclear Project Revenue, Refunding, 5.90%, 09/01/09.................................... 9,847,970
70,000 Florence Improvement GO, Lane County, Pre-Refunded, 8.50%, 10/01/07.................................. 80,371
355,000 Gresham Improvement GO, Advance Revenue, Refunding, Unlimited Tax, 7.20%, 04/01/03................... 366,356
Gresham Water Revenue,
1,525,000 Series A, 5.20%, 11/01/10.......................................................................... 1,511,473
2,000,000 Series A, 5.30%, 11/01/18.......................................................................... 1,938,340
Guam Airport Authority Revenue,
750,000 Series B, 6.60%, 10/01/10.......................................................................... 784,553
1,900,000 Series B, 6.70%, 10/01/23.......................................................................... 1,995,114
Guam Power Authority,
825,000 Series A, 6.30%, 10/01/12.......................................................................... 857,868
4,850,000 Series A, 6.30%, 10/01/22.......................................................................... 5,004,521
1,280,000 Hillsboro Hospital Facility Authority, 1st Mortgage Revenue, Advance Refunding, Tuality
Community Hospital, Inc., Pre-Refunded, 7.60%, 10/01/12............................................ 1,416,077
Klamath Falls Intercommunity Hospital Revenue,
1,500,000 Merle West Medical Center Project, 7.00%, 06/01/02................................................. 1,734,255
2,310,000 Merle West Medical Center Project, 7.25%, 06/01/06................................................. 2,597,456
1,000,000 Lane County COP, Fairground Project, 7.00%, 08/01/04................................................. 1,084,220
11,575,000 Lane County PCR, Refunding, Weyerhaeuser Co., Project, 6.50%, 07/01/09............................... 12,549,499
2,425,000 Lebanon Wastewater Revenue, Refunding, 5.875%, 06/01/20.............................................. 2,419,908
Lincoln City GO,
1,000,000 Series B, 5.375%, 02/01/10......................................................................... 1,004,500
700,000 Series B, 5.50%, 06/01/10.......................................................................... 709,541
600,000 Series B, 5.60%, 06/01/13.......................................................................... 608,142
495,000 Marion County Solid Waste & Electric Revenue, Ogden Martin System Marion, Inc. Project,
AMBAC Insured, 7.70%, 10/01/09..................................................................... 544,847
2,500,000 McMinnville Sewer System Revenue, Series A, FGIC Insured, 5.00%, 02/01/14............................ 2,384,675
4,475,000 Medford Hospital Facilities Authority Revenue, Gross Rogue Valley Health Services, MBIA
Insured, 6.75%, 12/01/20........................................................................... 4,992,668
Metropolitan General Revenue, Refunding, Metropolitan Regional Center Project,
980,000 Series A, 5.10%, 08/01/11 ......................................................................... 950,267
1,030,000 Series A, 5.10%, 08/01/12 ......................................................................... 991,859
500,000 Series A, 5.10%, 08/01/13 ......................................................................... 479,750
8,000,000 Series A, 5.25%, 08/01/22 ......................................................................... 7,669,440
Metropolitan Service District,
4,865,000 Convention Center GO, Series A, 6.25%, 01/01/13.................................................... 5,225,886
115,000 Convention Center GO, Unlimited Tax, Pre-Refunded, 7.60%, 12/01/10................................. 129,214
80,000 Convention Center GO, Unlimited Tax, Pre-Refunded, 7.65%, 12/01/11................................. 90,026
85,000 Convention Center GO, Unlimited Tax, Pre-Refunded, 7.65%, 12/01/12................................. 95,652
2,000,000 Waste Disposal System, Revenue Bonds, Pre-Refunded, 7.30%, 01/01/11................................ 2,314,480
2,200,000 Metropolitan Service District, Headquarters Building, Project A, Pre-Refunded, 6.75%,
07/01/22........................................................................................... 2,483,030
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OREGON TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 175,000 Multnomah County School District COP, Series A, Pre-Refunded, 6.90%, 08/01/09........................ $ 194,162
60,000 North Bend Construction & Sewer Revenue, Advance Refunding, Coos County, 8.60%,
03/01/01........................................................................................... 63,182
3,000,000 Northern Wasco County Peoples Utilities District, Oregon Hydroelectric Revenue, McNary Dam
Fishway Project, 5.20%, 12/01/24................................................................... 2,866,980
Oak Lodge Water District GO,
215,000 AMBAC Insured, 7.40%, 12/01/08..................................................................... 258,030
215,000 AMBAC Insured, 7.50%, 12/01/09..................................................................... 258,013
Ontario Hospital Facility Authority-Catholic Health Corp., Facilities Revenue,
1,500,000 Dominican Sisters of Ontario, Inc., Holy Rosary Hospital Project, 6.10%, 11/15/17.................. 1,530,525
1,675,000 Dominican Sisters of Ontario, Inc., Holy Rosary Hospital Project, GNMA Mortgage Backed
Securities, 7.00%, 06/01/12...................................................................... 1,785,332
Oregon State Bond Bank Revenue, EDR,
1,700,000 Department C, 5.375, 01/01/14...................................................................... 1,684,513
345,000 Series 1991-B, Pre-Refunded, 6.60%, 01/01/06....................................................... 383,188
1,610,000 Series 1991-B, Pre-Refunded, 6.80%, 01/01/11....................................................... 1,802,041
1,070,000 Series A, 5.35%, 01/01/09.......................................................................... 1,074,387
590,000 Series A, 5.40%, 01/01/10.......................................................................... 592,000
Oregon State Department of General Services, COP,
750,000 Real Property Financing Program, Series A, AMBAC Insured, Pre-Refunded, 7.50%,
09/01/15......................................................................................... 884,212
4,110,000 Real Property Financing Program, Series A, MBIA Insured, Pre-Refunded, 7.20%, 01/15/15............. 4,715,732
2,000,000 Refunding, Series D, MBIA Insured, 5.80%, 03/01/15................................................. 2,049,160
1,000,000 Series A, 5.50%, 01/15/15.......................................................................... 1,006,890
250,000 Series B, 5.50%, 01/15/15.......................................................................... 251,723
150,000 Series B, MBIA Insured, Pre-Refunded, 7.20%, 01/15/15.............................................. 172,107
3,150,000 Series F, AMBAC Insured, Pre-Refunded, 7.50%, 09/01/15............................................. 3,713,692
750,000 Series G, AMBAC Insured, 6.25%, 09/01/15........................................................... 800,333
Oregon State Elderly and Disabled,
1,000,000 Series B, 6.375%, 08/01/24......................................................................... 1,089,210
4,800,000 Series B, 5.50%, 08/01/26.......................................................................... 4,741,728
6,000,000 Series C, 6.50%, 08/01/22.......................................................................... 6,585,720
635,000 Oregon State Elderly Housing GO, Series A, 7.125%, 08/01/30.......................................... 715,581
Oregon State GO, Board of Higher Education,
750,000 Series 1991, 6.50%, 0/01/17........................................................................ 810,802
60,000 Series A, Pre-Refunded, 8.125%, 10/01/17........................................................... 68,148
300,000 Series A, Pre-Refunded, 7.50%, 05/01/18............................................................ 337,320
400,000 Oregon State GO, Department of Energy, Series B, 6.80%, 01/01/17..................................... 427,972
1,000,000 Oregon State GO, Series B, 6.875%, 12/01/13.......................................................... 1,108,200
Oregon State HFA, SFMR Program,
1,545,000 SF, Series 1990-C, 7.70%, 07/01/17................................................................. 1,593,760
1,485,000 SF, Series 1990-C, 7.70%, 07/01/20................................................................. 1,574,412
6,030,000 Series 1991-A, 7.20%, 07/01/15..................................................................... 6,191,906
3,750,000 Series 1990-E, 7.60%, 07/01/21..................................................................... 3,933,338
1,445,000 Oregon State Higher Education GO, Series C, Pre-Refunded, 7.25%, 10/15/18............................ 1,624,512
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OREGON TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Oregon State Housing & Community Service Department, Finance Housing Revenue,
$ 6,710,000 Multi-Unit, Series A, 6.80%, 07/01/13.............................................................. $ 6,962,028
180,000 Multi-Unit, Series C, 6.85%, 07/01/22.............................................................. 186,746
9,500,000 SFM, Series A, 5.75%, 07/01/12..................................................................... 9,499,050
5,150,000 SFM, Series A, 5.50%, 07/01/13..................................................................... 5,029,851
2,500,000 SFM, Series A, 5.55%, 07/01/16..................................................................... 2,437,350
2,000,000 SFM, Series A, 5.65%, 07/01/19..................................................................... 1,904,260
4,035,000 SFM, Series B, 5.30%, 07/01/13..................................................................... 3,851,650
2,970,000 SFM, Series B, 5.375, 07/01/17..................................................................... 2,824,025
11,500,000 SFM, Series B, 6.875%, 07/01/28.................................................................... 11,909,055
1,750,000 SFM, Series D, 6.80%, 07/01/27..................................................................... 1,801,293
3,000,000 SFM, Series E, 6.75%, 07/01/16..................................................................... 3,108,420
3,000,000 SFM, Series F, 7.00%, 07/01/22..................................................................... 3,102,570
645,000 SFM, Series G, 6.80%, 07/01/22..................................................................... 668,710
Oregon State Housing, Educational and Cultural Facility Authority,
2,100,000 Lewis & Clark College, Project 1999, Series A, MBIA Insured, 7.125%, 07/01/20...................... 2,357,523
700,000 Reed College Project, 6.75%, 07/01/11.............................................................. 783,062
1,250,000 Reed College Project, Series A, 6.75%, 07/01/21.................................................... 1,398,325
2,500,000 Oregon State Veteran Welfare GO, Series 73-A, 7.00%, 12/01/11........................................ 2,783,625
750,000 Port of Astoria, GO, MBIA Insured, 6.60%, 09/01/11................................................... 821,197
2,200,000 Port of Morrow PCR, Idaho Power Co., Boardman Project, 7.25%, 08/01/08............................... 2,210,208
500,000 Port of Morrow Revenue, Refunding, Pre-Refunded, 8.00%, 12/01/11..................................... 579,575
4,000,000 Port of Portland Special Obligation Revenue, Delta Air Lines, Inc., Project, 6.20%, 09/01/22......... 3,815,320
1,500,000 Port of St. Helens PCR, Refunding, Boise Cascade Corp. Project, 7.375%, 11/01/04..................... 1,623,990
320,000 Port of Umpqua PCR, International Paper Co. Project, Series A, 6.60%, 03/15/05....................... 344,419
2,825,000 Portland, Oregon Airport Way-Urban Renewal & Redevelopment Tax Increment, Sub
Series B-3, FGIC Insured, 7.60%, 06/01/10.......................................................... 3,220,359
2,000,000 Portland COP, Refunding, Public Building, Series A, Pre-Refunded, 7.25%, 04/01/08.................... 2,251,440
670,000 Portland EDR, Public Broadcasting Foundation Project, Series A, 7.20%, 06/01/09...................... 670,013
135,000 Portland GO, Unlimited Tax, Series A, 7.30%, 07/01/08................................................ 136,334
Portland Hospital Facilities Authority Hospital Revenue,
10,500,000 Legacy Health System, Series A, AMBAC Insured, 6.70%, 05/01/21..................................... 11,548,530
10,475,000 Legacy Health System, Series B, AMBAC Insured, 6.70%, 05/01/21..................................... 11,521,034
1,000,000 Portland Housing Authority, Series 1990, Revenue Bonds, 7.10%, 07/01/15.............................. 1,083,730
635,000 Portland Hydroelectric Power Revenue, Bull Run Project, Series C, 7.00%, 10/01/16.................... 641,801
Portland International Airport,
1,500,000 Series 7-A, MBIA Insured, 6.75%, 07/01/09.......................................................... 1,656,900
3,000,000 Series 7-B, MBIA Insured, 7.10%, 07/01/21.......................................................... 3,377,160
3,500,000 Series 9-B, MBIA Insured, 6.00%, 07/01/23.......................................................... 3,631,075
170,000 Portland Parking Revenue, Pre-Refunded, 8.625%, 10/01/12............................................. 198,837
75,000 Portland Sewage Facilities Revenue, Refunding, Pre-Refunded, 8.35%, 04/01/04......................... 80,300
Portland Sewer System Revenue,
5,035,000 Refunding, Series A, 5.25%, 03/01/10............................................................... 4,954,742
5,000,000 Series 1990, Pre-Refunded, 7.125%, 03/01/10........................................................ 5,550,600
950,000 Series A, FGIC Insured, 6.00%, 10/01/12............................................................ 990,727
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
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<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OREGON TAX-FREE INCOME FUND (NOTE 1)
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LONG TERM INVESTMENT (CONT.)
Portland Urban Renewal & Redevelopment,
$ 125,000 Downtown Waterfront, Series H, Pre-Refunded, 8.25%, 12/01/07...................................... $ 142,775
5,555,000 Refunding, Downtown Waterfront, Series A, 6.40%, 06/01/08......................................... 6,000,122
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
75,000 Refunding, Series 1985-A, FSA Insured, Pre-Refunded, 9.00%, 07/01/09.............................. 101,225
3,175,000 Series 1988-A, 7.875%, 07/01/17................................................................... 3,621,691
Puerto Rico Commonwealth Highway Authority Revenue,
250,000 Series P, Pre-Refunded, 8.125%, 07/01/13.......................................................... 293,070
4,000,000 Series Q, 8.00%, 07/01/18......................................................................... 4,834,640
40,000 Puerto Rico Commonwealth IDC, General Purpose Revenue, 8.00%, 01/01/03.............................. 40,466
2,400,000 Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
Series 1988-A, 7.75%, 07/01/08.................................................................... 2,682,000
Puerto Rico Commonwealth Public Improvement GO,
500,000 Pre-Refunded, 7.25%, 07/01/10..................................................................... 583,885
355,000 Pre-Refunded, 7.90%, 07/01/11..................................................................... 397,565
1,000,000 Refunding, Series A, 6.25%, 07/01/10.............................................................. 1,046,320
1,000,000 Series 1990, Pre-Refunded, 7.70%, 07/01/20........................................................ 1,192,300
250,000 Series A, Pre-Refunded, 7.75%, 07/01/06........................................................... 289,400
280,000 Series A, Pre-Refunded, 7.75%, 07/01/13........................................................... 324,128
2,700,000 Series B, Pre-Refunded, 7.25%, 07/01/12........................................................... 3,026,133
Puerto Rico Electric Power Authority Revenue, Refunding,
190,000 Series 1987-L, 8.40%, 07/01/15.................................................................... 216,549
600,000 Series 1988-M, 8.00%, 07/01/08.................................................................... 691,398
3,000,000 Series 1989-O, 7.125%, 07/01/14................................................................... 3,291,840
Puerto Rico HFC Revenue,
395,000 FHA Mortgage Insured, Section 8 Assisted, 6th Portfolio, Pre-Refunded, 7.75%, 12/01/26............ 488,303
780,000 Portfolio No. 1, Series 1988-A, GNMA Mortgage Backed Securities, 7.80%, 10/15/21.................. 826,223
820,000 Portfolio No. 1, Series 1988-B, GNMA Mortgage Backed Securities, 7.65%, 10/15/22.................. 857,162
Puerto Rico Housing Bank & Finance Agency,
50,000 SF, Commonwealth Appropriation, Subsidy Prepayment, Pre-Refunded, 7.125%, 12/01/01................ 52,987
500,000 SFMR, Homeowner's Development Program, 5th Portfolio, Pre-Refunded, 7.50%, 12/01/15............... 580,695
205,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08................................ 235,371
Puerto Rico PBA, Guaranteed, Public Education & Health Facilities,
75,000 Refunding, Series F, Pre-Refunded, 8.875%, 07/01/12............................................... 81,775
90,000 Refunding, Series G, Pre-Refunded, 7.875%, 07/01/07............................................... 102,604
365,000 Series F, Pre-Refunded, 8.00%, 07/01/12........................................................... 409,566
260,000 Series H, Pre-Refunded, 7.875%, 07/01/16.......................................................... 296,413
720,000 Series H, Pre-Refunded, 7.25%, 07/01/17........................................................... 816,365
1,500,000 Series J, Pre-Refunded, 7.25%, 07/01/17........................................................... 1,700,760
1,500,000 Puerto Rico Public Education and Health Facilities, 5.75%, 07/01/15................................. 1,490,745
50,000 Redmond Improvement GO, 7.80%, 05/01/17............................................................. 55,567
Roseburg Urban Sanitary Authority, Improvement GO, Unlimited Tax,
60,000 Douglas County, 7.40%, 01/01/06................................................................... 65,341
230,000 Douglas County, 7.50%, 01/01/08................................................................... 251,440
</TABLE>
The accompanying notes are an integral part of these financial statements.
59
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN OREGON TAX-FREE INCOME FUND (NOTE 1)
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LONG TERM INVESTMENTS (CONT.)
$ 1,250,000 Salem GO, Series A, 5.875%, 01/01/07................................................................. $ 1,307,075
150,000 Salem Hospital Facility Authority Revenue, 7.375%, 12/01/04.......................................... 151,149
Seaside Improvement GO, Unlimited Tax,
110,000 Clatsop County, Pre-Refunded, 7.40%, 02/01/07...................................................... 114,111
120,000 Clatsop County, Pre-Refunded, 7.40%, 02/01/08...................................................... 124,484
280,000 Springfield Improvement GO, Refunding, Pre-Refunded, 8.70%, 06/01/04................................. 309,083
3,265,000 Tillamook People Utilities District, 5.75%, 01/01/28................................................. 3,280,345
1,235,000 Tri-County, Metro Transportation District COP, 7.50%, 12/15/02....................................... 1,322,771
2,500,000 Tri-County, Metro Transportation District, Light Rail Extension, Series A, 6.00%, 07/01/12........... 2,653,550
1,375,000 Umatilla County Hospital Facility Authority, Hospital Revenue, Refunding, Good Shepherd
Community Hospital, 7.50%, 01/01/10................................................................. 1,454,777
2,000,000 Wasco County Hospital, Facility Authority Hospital Revenue, Pre-Refunded, 7.375%, 07/01/00........... 2,160,000
100,000 Washington County Building GO, Pre-Refunded, 7.75%, 12/01/06......................................... 112,876
2,000,000 eWashington County School District No. 48J, 5.00%, 09/01/12........................................... 1,913,920
Washington County Unified Sewerage Agency, Sewer Revenue,
50,000 Pre-Refunded, 7.90%, 07/01/07..................................................................... 55,914
4,000,000 Refunding, Series A, 6.20%, 10/01/10.............................................................. 4,274,840
4,700,000 Refunding, Series A, 6.125%, 10/01/12............................................................. 4,940,499
2,700,000 Unified Sewage Agency, 7.00%, 11/01/09............................................................ 3,047,598
5,700,000 Western Lane Hospital District, Hospital Facilities Authority Revenue, Sisters of St. Joseph of
Peace, Health and Hospital Services, MBIA Insured, 7.125%, 08/01/17............................. 6,345,354
------------
TOTAL LONG TERM INVESTMENTS (COST $345,892,642) 98.4%........................................ 369,568,236
OTHER ASSETS AND LIABILITIES, NET 1.6%....................................................... 6,115,588
------------
NET ASSETS 100.0%............................................................................ $375,683,824
============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $345,896,122 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost..................................................................... $ 25,244,993
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value..................................................................... (1,572,879)
------------
Net unrealized appreciation........................................................................ $ 23,672,114
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
COP - Certificate of Participation
EDR - Economic Development Revenue
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Agency/Authority
HFC - Housing Finance Corp.
IDC - Industrial Development Control.
MBIA - Municipal Bond Investors Assurance Corp.
PBA - Public Building Authority
PCR - Pollution Control Revenue
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
eSee Note 1 regarding securities purchased on a when-issued basis.
The accompanying notes are an integral part of these financial statements.
60
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<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (NOTE 1)
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<S> <C> <C>
LONG TERM INVESTMENTS 97.6%
$ 4,250,000 Allegheny County Higher Education Building Authority Revenue, Community College, Series A,
5.80%, 06/01/13.................................................................................... $ 4,263,473
Allegheny County Hospital Development Authority Revenue,
500,000 Refunding, Divine Providence Hospital, Series 1988-B, 8.75%, 01/01/14.............................. 552,244
5,250,000 Refunding, Southside Hospital, Pittsburg, Series 1987, 8.75%, 06/01/10............................. 5,651,835
1,000,000 Allegheny County IDA, Presbyterian University Hospital, Kaufmann Medical Project,
Refunding, Series A, MBIA Insured, 6.80%, 03/01/15................................................. 1,098,770
3,270,000 Allegheny County RDAR, Refunding, Home Improvement Line-Impact, Series A, 5.90%, 02/01/11............ 3,238,739
Allegheny County Residential Finance Authority ,
2,495,000 SFMR, GNMA Mortgage Backed Securities, 7.75%, 12/01/22............................................. 2,631,177
3,955,000 SFMR, Lemington Home, Series E, 7.125%, 02/01/27................................................... 4,126,054
110,000 SFMR, Series D, FGIC Insured, 8.90%, 12/01/10...................................................... 112,323
1,400,000 SFMR, Series D, GNMA Mortgage Backed Securities, 7.50%, 06/01/33................................... 1,464,694
1,680,000 SFMR, Series H, GNMA Mortgage Backed Securities, 8.00%, 06/01/17................................... 1,758,842
2,945,000 SFMR, Series J, GNMA Mortgage Backed Securities, 7.50%, 06/01/17................................... 3,064,184
1,835,000 SFMR, Series M, GNMA Mortgage Backed Securities, 7.90%, 06/01/11................................... 1,946,164
885,000 SFMR, Series T, GNMA Mortgage Backed Securities, 6.95%, 05/01/17................................... 913,647
1,200,000 Allegheny County Sanitary Authority, Sewer Revenue, Series A, FGIC Insured, Pre-Refunded,
7.45%, 12/01/09.................................................................................... 1,339,032
150,000 Allentown School District GO, Series 1987, 8.00%, 08/01/02........................................... 152,579
5,000,000 Beaver County Hospital Authority Revenue, Refunding, Medical Center Beaver County, Inc.,
AMBAC Insured, 6.625%, 07/01/10.................................................................... 5,483,850
6,475,000 Beaver County IDA, PCR, Refunding, Ohio Edison Project, Series A, 7.75%, 09/01/24.................... 7,040,656
4,400,000 Beaver County IDA, PCR, Refunding, Power Co., Beaver Valley Project, Series A, 7.15%,
09/01/21........................................................................................... 4,741,351
800,000 Berks and Montgomery Counties MunicipalPre-Refunded, 8.60%, Pre-Refunded, 8.60%,
08/01/13........................................................................................... 886,264
9,695,000 Berks County, GO Bonds, FGIC Insured, Pre-Refunded, 7.25%, 11/15/20.................................. 11,301,946
1,000,000 Berks County Municipal Authority Revenue, Highlands Wyomissing Project, Series 1989-A,
Pre-Refunded, 7.25%, 10/01/19...................................................................... 1,131,410
1,400,000 Butler County Hospital Authority, Hospital Revenue, Butler Memorial Hospital, 8.00%, 07/01/16........ 1,523,662
2,000,000 Butler County IDA, PCR, Refunding, Witco Corp. Project, 5.85%, 12/01/23.............................. 1,994,180
Cambria County Hospital Development Authority, Hospital Revenue, Refunding,
3,500,000 Conemaugh Valley Memorial Hospital, Series B, 6.375%, 07/01/18..................................... 3,662,540
1,000,000 Conemaugh Valley Memorial Hospital, Series B, Pre-Refunded, 8.875%, 07/01/18....................... 1,190,660
Cambria County IDA, Resource Recovery Revenue,
4,000,000 Cambria Cogen Project, Series F-1, 7.75%, 09/01/19................................................. 4,286,200
2,715,000 Cambria Cogen Project, Series F-2, 7.75%, 09/01/19................................................ 2,909,258
1,200,000 Canon McMillan School District GO, AMBAC Insured, Pre-Refunded, 7.60%, 03/01/14...................... 1,286,304
2,510,000 Carlisle Area Hospital Authority, Cumberland County Revenue, Cumberland Crossing, 7.45%,
08/01/17........................................................................................... 2,602,820
1,715,000 Centre County GO, Series 5.30%, 07/01/18............................................................. 1,633,846
1,000,000 Charleroi Area School Authority Revenue, MBIA Insured, Pre-Refunded, 7.35%, 02/01/14................. 1,128,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
61
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (NOTE 1)
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<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Chartiers Valley Industrial and Commercial Development Authority Revenue,
$ 1,000,000 Refunding, 1st Mortgage, United Methodist Health Center, Series A, 9.25%, 12/01/08................. $ 1,056,770
1,315,000 Refunding, Friendship Village of South Hills Project, 9.25%, 08/15/08.............................. 1,405,880
1,350,000 Chester County Hospital Authority Revenue, Paoli Memorial Hospital, 7.625%, 10/01/13................. 1,494,328
6,265,000 Dauphin County General Authority Hospital Revenue, Hapsco-Western Pennsylvania Hospital,
Project A-1, MBIA Insured, 5.75%, 07/01/16......................................................... 6,311,048
Dauphin County General Authority Revenue,
750,000 11-15 School District, Central Fulton, Mandatory Tender 06/01/06, 7.70%, 06/01/26.................. 785,258
1,250,000 AA-13 School District, Pinecrest, Mandatory Tender 06/01/09, 7.875%, 06/01/26...................... 1,304,038
1,000,000 College Revenue, Lebanon College Project, Pre-Refunded, 8.10%, 04/01/09............................ 1,083,610
4,500,000 Hapsco-Western Hospital Project, Series A, MBIA Insured, 6.50%, 07/01/12........................... 4,770,180
1,000,000 Municipal Pooled Program, Downingtown, Series A, BIG Insured, 7.506%, 06/01/26..................... 1,064,800
1,000,000 Northeast Bradford School, 7.75%, 06/01/06......................................................... 1,107,340
350,000 School District Pooled Finance, Series 1986, Mandatory Tender 06/01/12, 8.30%, 06/01/26............ 353,798
350,000 School District Pooled Finance, Series 1986, Mandatory Tender 06/01/13, 8.30%, 06/01/26............ 353,798
2,000,000 Delaware County Authority Revenue Bond 1990, Elwyn, Inc. Project, 8.35%, 06/01/15.................... 2,225,660
2,510,000 Delaware County Authority University Revenue, Villanova University, MBIA Insured, 5.50%,
08/01/23........................................................................................... 2,442,130
Delaware County IDAR,
1,000,000 Refunding, Resource Recovery, Series A, 7.90%, 12/01/05............................................ 1,090,350
6,000,000 Refunding, Resource Recovery, Series A, 8.10%, 12/01/13............................................ 6,561,840
5,000,000 Delaware County IDAR, PCR, Philadelphia Electric Co. Project, 7.375%, 04/01/21....................... 5,490,200
450,000 Delaware River Joint Toll Bridge System Commission Revenue, Series I-78, Pre-Refunded,
7.875%, 07/01/18................................................................................... 520,214
1,000,000 Delaware River Port Authority, Pennsylvania and New Jersey River Bridges Revenue,
Refunding, AMBAC Insured, 7.375%, 01/01/07......................................................... 1,120,330
400,000 Dubois Hospital Authority Revenue, Refunding, Dubois Regional Medical Center Project,
Series 1987-A, 8.75%, 07/01/11..................................................................... 458,692
Duquesne School District,
1,400,000 AMBAC Insured, 7.00%, 09/01/10..................................................................... 1,535,632
1,000,000 GO, 5.75%, 10/01/13................................................................................ 978,140
1,500,000 GO, 5.75%, 10/01/18................................................................................ 1,453,920
1,000,000 East Strausburg GO, AMBAC Insured, 7.00%, 12/01/09................................................... 1,107,950
250,000 Edinboro Municipal Authority Sewer Revenue, Guaranteed, Series 1987, Pre-Refunded, 8.25%,
08/01/07........................................................................................... 282,598
4,000,000 Elizabeth Forward School District GO, AMBAC Insured, Pre-Refunded, 7.25%, 01/15/10................... 4,549,360
7,000,000 Erie County Hospital Authority Revenue, St. Vincent Health Center Project, Series A, AMBAC
Insured, 6.375%, 07/01/22.......................................................................... 7,380,730
2,110,000 Erie County IDAR, Nursing Home-Sarah Reed Center Project, 8.625%, 07/01/14........................... 2,286,016
3,000,000 Erie Higher Educational Building Authority, Gannon University, Series A, Pre-Refunded, 8.50%,
06/01/15........................................................................................... 3,609,000
1,850,000 Erie Western Pennsylvania Port Authority, GO, 8.625%, 06/15/10....................................... 2,040,088
1,250,000 Fayette County Hospital Authority Revenue, Refunding, Uniontown Hospital Project, 7.625%,
07/01/15........................................................................................... 1,313,300
4,275,000 Greater Johnston School District GO, MBIA Insured, 6.75%, 03/01/10.................................. 4,699,422
</TABLE>
The accompanying notes are an integral part of these financial statements.
62
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 2,000,000 Greensburg Salem School District GO, Westmoreland County, MBIA Insured, Pre-Refunded,
7.10%, 01/01/19.................................................................................... $ 2,227,320
1,310,000 Hampton Township, Municipal Authority Water Revenue, Series A, 6.85%, 05/01/12....................... 1,372,592
4,000,000 Harrisburg Authority Water Revenue, FGIC Insured, Pre-Refunded, 7.00%, 07/15/15...................... 4,566,240
800,000 Harrisburg RDAR, Capital Improvement, Series A, FGIC Insured, 7.875%, 11/02/16....................... 885,632
4,000,000 Jeannette County Health Service Authority Hospital Revenue, Jeannette District Memorial
Hospital, 8.625%, 01/01/18......................................................................... 4,556,000
1,250,000 Jeannette County Municipal Authority Sewer Revenue, 7.00%, 07/01/17.................................. 1,330,763
Lancaster County Hospital Authority Revenue,
5,000,000 eRefunding, Health Center Masonic Homes Project, AMBAC Insured, 5.50%, 11/15/14..................... 4,855,300
1,000,000 Willow Valley Lakes Manor, Series B, 9.00%, 06/01/12............................................... 1,089,900
1,000,000 Lancaster County Solid Waste Management Authority, Resource Recovery System Revenue,
Series A, 8.50%, 12/15/10.......................................................................... 1,151,300
2,000,000 Langhorne Manor Borough Higher Education, Health Authority Hospital Revenue, Lower
Bucks Hospital, 7.35%, 07/01/22.................................................................... 2,164,720
2,500,000 Lebanon County, Good Samaritan Hospital Authority Revenue, Good Samaritan Hospital
Project, Refunding, 6.00%, 11/15/18................................................................ 2,415,500
Lehigh County General Purpose Authority Revenue,
1,000,000 Exempt Facility, FGIC Insured, Pre-Refunded, 7.25%, 01/01/10...................................... 1,119,730
3,000,000 Good Shepherd Rehabilitation Hospital, 7.50%, 11/15/21............................................. 3,234,480
1,100,000 Horizon Health Systems, Inc., Pre-Refunded, 8.25%, 07/01/13........................................ 1,240,118
2,000,000 Muhlenburg Hospital "A", 8.00%, 07/15/01........................................................... 2,340,300
5,800,000 Muhlenburg Hospital "A", 6.60%, 07/15/22........................................................... 6,010,598
2,000,000 Muhlenburg Hospital "B", 8.00%, 07/15/01........................................................... 2,340,300
5,500,000 Lehigh County IDA, PCR, Pennsylvania Power and Light Co., Limited Tax, Series A, 6.40%, 11/01/21.... 5,839,790
2,405,000 Lehigh Northampton Airport Authority Revenue, Allentown-Bethlehem International,
Refunding, Series B, MBIA Insured, 5.50%, 01/01/18................................................. 2,351,705
2,185,000 Lower Providence Towership, Sewer Authority, Sewer Revenue, 6.75%, 05/01/22.......................... 2,356,304
4,750,000 Luzerne County, IDA, Exempt Facilities Revenue, Refunding, Pennsylvania Gas & Water Co.
Project, Series A, 6.05%, 01/01/19................................................................. 4,648,018
1,000,000 McCandless IDA, Commercial Development, First Mortgage Revenue, Refunding, K-Mart
Corp., Series A, 7.20%, 07/15/07................................................................... 1,111,040
500,000 Mercer Borough Sewer Revenue, Guaranteed, Pre-Refunded, 8.25%, 02/15/08.............................. 523,390
1,250,000 Middletown Township, Delawere County Sewer Authority, Sewer Revenue, CGIC Insured,
6.35%, 11/15/17.................................................................................... 1,304,063
Montgomery County Higher Education and Health Authority, Hospital Revenue,
2,500,000 Bryn Mawr Hospital Project, 7.375%, 12/01/19....................................................... 2,891,275
500,000 Bryn Mawr Hospital Project, Pre-Refunded, 9.375%, 12/01/19......................................... 598,015
2,375,000 Holy Redeemer Hospital, Series A, AMBAC Insured, 7.625%, 02/01/20.................................. 2,613,426
610,000 Jeanes Health System Project, Series 1987, 7.625%, 07/01/17........................................ 644,014
10,000,000 Jeanes Health System Project, Series 1990, Pre-Refunded, 8.75%, 07/01/20........................... 12,370,400
1,315,000 Pottstown Memorial Medical Center Project, 7.35%, 11/15/05......................................... 1,450,734
1,750,000 St. Joseph's University, Series 1990, 6.50%, 12/15/22.............................................. 1,878,853
5,500,000 St. Joseph's University, Series 1990, Pre-Refunded, 8.30%, 06/01/10................................ 6,640,810
</TABLE>
The accompanying notes are an integral part of these financial statements.
63
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 2,530,000 Montgomery County IDAR, Refunding, PCR, Philadelphia Electric Co., Series A, 7.60%, 04/01/21 ........ $ 2,787,377
10,000,000 Montgomery County IDAR, Resources Recovery, 7.50%, 01/01/12 ......................................... 11,147,800
5,000,000 Montgomery County, PCR, Philadelphia Electric Revenue, Series B, MBIA Insured, 6.70%, 12/01/21 ...... 5,361,250
2,305,000 Moon Township Municipal Authority, Allegheny County Water & Sewer, Series 1990, FGIC Insured,
Pre-Refunded, 7.20%, 12/01/09 ..................................................................... 2,655,614
600,000 Moon Transportation Authority, Highway Improvement Revenue, 9.50%, 02/01/16 ......................... 681,072
6,600,000 North Allegheny School District GO, AMBAC Insured, Pre-Refunded, 7.60%, 05/01/13 .................... 7,649,598
600,000 North Eastern Pennsylvania Hospital Authority Revenue, Wilkes Barre General Hospital,
Series B, 8.375%, 07/01/06 ........................................................................ 674,838
North Eastern Pennsylvania Hospital & Educational Authority Revenue,
5,000,000 Refunding, Wilkes University, 6.125%, 10/01/11 .................................................... 5,009,800
2,500,000 Refunding, Wilkes University, 5.625%, 10/01/18 .................................................... 2,361,800
2,600,000 North Eastern Pennsylvania Hospital & Educational Authority University Revenue, Refunding,
Wilkes University, 5.75%, 11/15/18 ................................................................ 2,612,116
400,000 North Eastern York County Sewer Authority Revenue, Series 1987, Pre-Refunded, 8.75%, 09/01/18 ....... 460,500
1,175,000 North Hampton Borough Municipal Authority, Water Revenue, Leigh & North Hampton Counties Project,
AMBAC Insured, Pre-Refunded, 7.00%, 09/01/14 ...................................................... 1,303,099
1,720,000 North Pennsylvania Water Authority Revenue, FGIC Insured, Pre-Refunded, 7.00%, 11/01/09 ............. 1,917,026
1,190,000 North Wales Water Authority Revenue, FGIC Insured, Pre-Refunded, 7.00%, 11/01/09 .................... 1,326,314
Northeastern Hospital & Education Revenue, Refunding,
1,000,000 Kings College Project, Series B, 6.00%, 07/15/11 .................................................. 996,700
1,000,000 Kings College Project, Series B, 6.00%, 07/15/18 .................................................. 983,570
Pennsylvania HFA,
25,000,000 Refunding, Rental Housing, FNMA Insured, 5.75%, 07/01/14 .......................................... 24,761,250
1,000,000 SFMR, Series 1986-K, 7.375%, 04/01/11 ............................................................. 1,037,260
2,785,000 SFMR, Series 1987-K, 7.125%, 10/01/13 ............................................................. 2,926,367
50,000 SFMR, Series 1987-L, 7.125%, 04/01/14 ............................................................. 52,919
100,000 SFMR, Series 1987-N, 8.25%, 04/01/14 .............................................................. 105,426
750,000 SFMR, Series 1987-P, 8.00%, 04/01/16 .............................................................. 787,140
2,500,000 SFMR, Series 1988-R, 8.125%, 10/01/19 ............................................................. 2,629,725
4,885,000 SFMR, Series 1988-U, 7.80%, 10/01/20 .............................................................. 5,105,753
1,965,000 SFMR, Series 1989-W, 7.80%, 10/01/20 .............................................................. 2,123,517
3,570,000 SFMR, Series 1989-Y, 7.45%, 04/01/16 .............................................................. 3,725,509
5,440,000 SFMR, Series 1990-27, 8.15%, 10/01/21 ............................................................. 5,712,598
5,715,000 SFMR, Series 1990-29, 7.375%, 10/01/16 ............................................................ 5,972,804
4,500,000 SFMR, Series 1991-30, 7.30%, 10/01/17 ............................................................. 4,807,260
5,000,000 SFMR, Series 1991-32, 7.15%, 04/01/15 ............................................................. 5,224,550
3,000,000 SFMR, Series 1992-34-A, 6.85%, 04/01/16 ........................................................... 3,206,790
6,000,000 SFMR, Series 1992-34-B, 7.00%, 04/01/24 ........................................................... 6,396,720
</TABLE>
The accompanying notes are an integral part of these financial statements.
64
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$12,565,000 Pennsylvania State Financial Authority Revenue, Refunding, 6.60%, 11/01/09........................... $ 13,103,410
Pennsylvania State Higher Educational Facilities Authority, College and University Revenue,
1,000,000 Allegheny College Project, Series B, 6.125%, 11/01/13.............................................. 1,007,770
1,500,000 Allegheny College Project, Series B, 6.00%, 11/01/22............................................... 1,493,744
2,000,000 Hahnemann University Project, MBIA Insured, 7.20%, 07/01/09........................................ 2,234,760
5,350,000 Hahnemann University Project, MBIA Insured, 7.20%, 07/01/19........................................ 5,977,983
1,000,000 Lycoming College, Pre-Refunded, 8.375%, 10/01/18................................................... 1,183,750
1,000,000 Medical College of Pennsylvania, Series A, 8.375%, 03/01/11........................................ 1,129,260
3,135,000 Medical College of Pennsylvania, Series A, 7.50%, 03/01/14......................................... 3,401,381
2,250,000 Philadelphia College of Textiles and Science, Pre-Refunded, 7.50%, 02/01/07........................ 2,466,698
2,350,000 Refunding, Drexel University, 6.375%, 05/01/17..................................................... 2,409,125
2,700,000 Refunding, Duquesne University Project, Series A, MBIA Insured, 5.80%, 09/01/12.................... 2,734,155
1,955,000 Temple University, 7.375%, 10/01/06................................................................ 2,135,583
4,505,000 Temple University, 7.40%, 10/01/10................................................................. 4,919,235
1,000,000 Widner University, AMBAC Insured, 7.625%, 10/01/13................................................. 1,119,780
Pennsylvania State Intergovernmental Cooperative Authority,
2,000,000 Special Tax Revenue, City of Philadelphia, MBIA Insured, 5.60%, 06/15/15........................... 1,960,840
12,500,000 Special Tax Revenue, City of Philadelphia, Pre-Refunded, 6.80%, 06/15/22........................... 14,143,500
5,000,000 Pennsylvania State Pooled Finance Authority, Lease Revenue, Capital Improvement, Series B, MBIA
Insured, 8.00%, 11/01/09........................................................................... 5,321,600
1,000,000 Pennsylvania State Public School Building Authority, School Revenue, Shenandoh Valley School
District, AMBAC Insured, 7.375%, 09/15/10.......................................................... 1,119,310
Pennsylvania State Turnpike Commission Revenue,
1,100,000 Refunding, Series O, FGIC Insured, 5.50%, 12/01/17................................................. 1,071,466
1,000,000 Series A, Pre-Refunded, 7.875%, 12/01/15........................................................... 1,118,630
1,000,000 Series C, FGIC Insured, Pre-Refunded, 7.625%, 12/01/17............................................. 1,157,280
1,000,000 Series H, FGIC Insured, Pre-Refunded, 7.40%, 12/01/17.............................................. 1,175,180
2,500,000 Series K, MBIA Insured, Pre-Refunded, 7.50%, 12/01/12.............................................. 2,913,800
1,900,000 Series K, Pre-Refunded, 7.50%, 12/01/19............................................................ 2,214,488
2,300,000 Pennsylvania State University, Pre-Refunded, 7.75%, 03/01/11......................................... 2,512,336
Philadelphia City GO,
2,000,000 Refunding, Series 1986, Pre-Refunded, 8.25%, 02/15/09.............................................. 2,203,940
4,100,000 Refunding, Series 1986-A, Pre-Refunded, 7.625%, 08/01/16........................................... 4,516,191
3,000,000 Refunding, Series 1987-B, Pre-Refunded, 8.125%, 08/01/17........................................... 3,431,670
Philadelphia Gas Works Revenue,
8,300,000 11th Series A, Pre-Refunded, 7.875%, 07/01/17...................................................... 9,420,666
1,000,000 11th Series C, AMBAC Insured, 7.25%, 01/01/10...................................................... 1,112,740
1,000,000 12th Series, MBIA Insured, ETM 05/15/06, 7.00%, 05/15/20........................................... 1,168,010
1,255,000 13th Series, Pre-Refunded, 7.70%, 06/15/11......................................................... 1,470,960
2,745,000 13th Series, Pre-Refunded, 7.70%, 06/15/11......................................................... 3,276,760
10,100,000 14th Series, 6.375%, 07/01/26...................................................................... 10,423,502
</TABLE>
The accompanying notes are an integral part of these financial statements.
65
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Philadelphia Hospitals & Higher Educational Facilities Authority, Hospital Revenue,
$ 5,225,000 Albert Einstein Medical Center, 7.30%, 10/01/08 ................................................... $ 5,797,608
7,755,000 Albert Einstein Medical Center, 7.625%, 04/01/11................................................... 8,466,366
1,000,000 Children's Seashore House, Series A, 7.00%, 08/15/17 .............................................. 1,045,890
2,600,000 Children's Seashore House, Series B, 7.00%, 08/15/22 .............................................. 2,719,314
100,000 Presbyterian Medical Center, AMBAC Insured, Pre-Refunded, 8.00%, 07/01/13 ......................... 113,718
Philadelphia Municipal Authority Revenue,
1,500,000 Refunding, Criminal Justice Center, FGIC Insured, 7.80%, 04/01/18 ................................. 1,719,135
300,000 Refunding, Series 1987, Pre-Refunded, 7.875%, 07/15/17 ............................................ 340,887
50,000 Philadelphia Parking Authority, Airport Revenue, Refunding, 7.30%, 09/01/03 ......................... 50,486
Philadelphia RDA,
295,000 Housing Revenue, Sub-Series 2-B, 8.625%, 08/01/26 ................................................. 296,652
500,000 Housing Revenue, Sub-Series 3-B, 8.00%, 08/01/13 .................................................. 573,015
265,000 Philadelphia RDA, Home Improvement Loan Revenue, Series A, FHA Mortgage Insured,
7.375%, 06/01/03 .................................................................................. 271,249
5,700,000 Philadelphia Regional Port Authority Lease Revenue Bonds, MBIA Insured, Pre-Refunded,
7.15%, 08/01/20 ................................................................................... 6,480,614
Philadelphia Water & Sewer Revenue,
2,750,000 Series 5, 7.625%, 05/01/14 ........................................................................ 3,026,843
6,975,000 Series 10, ETM 09/01/92, 7.35%, 09/01/04 .......................................................... 8,280,860
600,000 Series 11, Pre-Refunded, 9.10%, 12/01/02 .......................................................... 668,358
4,000,000 Series 12, Pre-Refunded, 7.25%, 07/01/14 .......................................................... 4,339,600
11,000,000 Series 16, 7.50%, 08/01/10 ........................................................................ 12,262,470
14,000,000 Philadelphia Water & Wastewater Revenue, Refunding, 5.75%, 06/15/13 ................................. 13,508,880
345,000 Pittsburgh Public Parking Authority Revenue, Converted Option Bond, Pre-Refunded,
7.50%, 12/01/07 ................................................................................... 374,177
2,500,000 Pittsburgh Urban RDA, SFMR, Series B, GNMA Mortgage Program, 7.375%, 12/01/16 ....................... 2,640,100
1,250,000 Pittsburgh Water & Sewer System, Refunding, FGIC Insured, ETM 09/01/05, 7.25%, 09/01/14 ............. 1,475,638
4,000,000 Pottstown Borough Authority, Sewer Revenue, Guaranteed, CGIC Insured, 7.70%, 11/01/21 ............... 4,484,640
1,000,000 Pottstown Borough Authority, Water Revenue, 7.80%, 08/01/10 ......................................... 1,083,600
10,750,000 Schuylkill County, IDA, Resource Recovery Revenue, Refunding, Schuylkill Energy Resource, Inc.,
6.50%, 01/01/10 ................................................................................... 10,655,508
1,500,000 Schuylkill County, Redevelopment Authority Lease Revenue, Series A, FGIC Insured,
Pre-Refunded, 7.125%, 06/01/13 .................................................................... 1,742,160
500,000 Scranton-Lackawanna Health and Welfare Authority, Health Facilities Revenue, Allied Services,
Series C, Pre-Refunded, 8.125%, 01/15/28 .......................................................... 573,580
200,000 Sewickley Valley Hospital Authority Revenue, Allegheny County, Hamarville Rehabilitation
Center Project, Series A, 7.375%, 07/01/08 ........................................................ 202,216
750,000 Silver Spring Towership Authority, Sewer Revenue, FGIC Insured, 6.70%, 07/15/21 ..................... 808,057
2,715,000 Southside Area School District, AMBAC Insured, Pre-Refunded, 7.00%, 04/15/10 ........................ 2,982,672
1,975,000 Temple University of the Commonwealth System of Higher Education, Pennsylvania Hospital Revenue,
Series A, FHA Insured, Pre-Refunded, 7.25%, 08/01/16 .............................................. 2,206,174
100,000 Union County Higher Educational Facilities Financing Authority, University Revenue, Bucknell
University, MBIA Insured, Pre-Refunded, 7.75%, 04/01/07 ........................................... 110,565
</TABLE>
The accompanying notes are an integral part of these financial statements.
66
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 3,000,000 Union School District GO, AMBAC Insured, Pre-Refunded, 7.25%, 04/01/15............................... $ 3,332,730
100,000 University of Pittsburgh Higher Education, University Capital Project, Series 1987-A,
Pre-Refunded, 8.375%, 06/01/05..................................................................... 114,730
1,000,000 Venango County GO, AMBAC Insured, Pre-Refunded, 7.25%, 09/15/19...................................... 1,133,130
1,000,000 Warren County GO, MBIA Insured, Pre-Refunded, 7.20%, 07/01/16........................................ 1,153,180
2,520,000 Warrington Township, Buck Co., FGIC Insured, 5.75%, 12/01/20......................................... 2,553,944
2,000,000 Washington County, Authority Lease Revenue, Municipal Facilities Pool, Capital C, Shadyside
Hospital "A", AMBAC Insured, Pre-Refunded, 7.375%, 12/15/09........................................ 2,338,320
100,000 Washington County Hospital Authority Revenue, Washington Hospital, Series 1987,
Pre-Refunded, 9.50%, 07/01/17...................................................................... 117,450
1,500,000 Westmoreland County IDAR, Refunding, Citizen's General Hospital Project, Series A, 8.25%, 07/01/13... 1,645,020
750,000 Wyoming Valley Sanitary Authority, Sewer Revenue, BIG Insured, Pre-Refunded, 7.25%, 11/15/05......... 850,298
York County Solid Waste & Refuse Authority, IDR,
105,000 Resource Recovery Project, Series B, 8.20%, 12/01/14............................................... 117,960
900,000 Resource Recovery Project, Series C, 8.20%, 12/01/14............................................... 1,011,086
------------
TOTAL LONG TERM INVESTMENTS (COST $553,363,943).............................................. 600,698,899
------------
gSHORT TERM INVESTMENTS 1.2%
Allegheny County, Hospital Development Authority Revenue, Presbyterian Health Center,
700,000 Series A, MBIA Insured, Weekly VRDN and Put, 2.35%, 03/01/20....................................... 700,000
1,200,000 Series B, MBIA Insured, Weekly VRDN and Put, 2.35%, 03/01/20....................................... 1,200,000
900,000 Series B, MBIA Insured, Weekly VRDN and Put, 2.35%, 03/01/20....................................... 900,000
400,000 Series B-1, Weekly VRDN and Put, 2.35%, 03/01/18................................................... 400,000
1,000,000 Montgomery County, Higher Education & Health Authority Hospital Revenue, Holy Redeemer
Hospital, AMBAC Insured, Weekly VRDN and Put, 2.35%, 09/01/18...................................... 1,000,000
3,150,000 Schuylkill County IDA, Resource Recovery Revenue, Westwood Energy Project, Daily VRDN
and Put, 2.35%, 11/01/09........................................................................... 3,150,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $7,350,000)................................................. 7,350,000
------------
TOTAL INVESTMENTS (COST $560,713,943) 98.8%.............................................. 608,048,899
OTHER ASSETS AND LIABILITIES, Net 1.2%................................................... 7,496,635
------------
NET ASSETS 100.0%........................................................................ $615,545,534
============
At February 28, 1994 the net unrealized appreciation based on the cost of investments
for income tax purposes of $560,713,943 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.................................................................. $ 48,331,691
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value.................................................................. (996,735)
------------
Net unrealized appreciation...................................................................... $ 47,334,956
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
<S> <C>
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CGIC - Capital Guaranty Insurance Co.
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Financing Agency
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
MBIA - Municipal Bond Investors Assurance Corp.
PCR - Pollution Control Revenue
RDA - Redevelopment Agency
RDAR - Redevelopment Agency Revenue
SFMR - Single Family Mortgage Revenue
</TABLE>
eSee Note 1 regarding securities purchased on a when-issued basis.
gVariable rate demand notes (VRDN's) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
The accompanying notes are an integral part of these financial statements.
68
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PUERTO RICO TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 96.8%
Guam Airport Authority Revenue,
$ 2,000,000 Series A, 5.40%, 11/15/18.......................................................................... $ 1,863,280
1,675,000 Series B, 6.60%, 10/01/10.......................................................................... 1,752,167
4,800,000 Series B, 6.70%, 10/01/23.......................................................................... 5,040,288
5,590,000 Guam Government Limited Obligation Highway, Series A, Refunding, 6.30%, 05/01/12..................... 6,063,473
7,190,000 Guam Power Authority Revenue, GO, 6.30%, 10/01/22.................................................... 7,419,073
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
4,340,000 Series 1988-A, 7.875%, 07/01/17.................................................................... 4,950,595
1,620,000 Series 1988-A, 7.00%, 07/01/19..................................................................... 1,786,390
Puerto Rico Commonwealth Highway & Transportation Authority Revenue,
70,000 Refunding, Series N, Pre-Refunded, 8.00%, 07/01/03................................................. 81,717
1,200,000 Refunding, Series V, 5.75%, 07/01/18............................................................... 1,192,116
2,500,000 Refunding, Series W, 5.50%, 07/01/17............................................................... 2,404,550
3,870,000 Refunding, Series X, 5.50%, 07/01/19............................................................... 3,716,516
3,925,000 Series P, Pre-Refunded, 8.125%, 07/01/13........................................................... 4,601,199
3,010,000 Series Q, 6.00%, 07/01/20.......................................................................... 3,036,398
350,000 Series Q, Pre-Refunded, 7.75%, 07/01/10........................................................... 418,260
3,060,000 Puerto Rico Commonwealth IDC, General Purpose Revenue, 8.00%, 01/01/03.............................. 3,095,680
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
3,000,000 Series 1988-A, 7.90%, 07/01/07..................................................................... 3,375,960
2,300,000 Series 1988-A, 7.75%, 07/01/08..................................................................... 2,570,250
2,600,000 Series 1988-A, 7.50%, 07/01/09..................................................................... 2,893,462
Puerto Rico Commonwealth Public Improvement,
250,000 GO, 6.25%, 07/01/10................................................................................ 261,580
2,930,000 GO, Pre-Refunded, 7.90%, 07/01/11.................................................................. 3,281,307
1,250,000 GO, Pre-Refunded, 6.80%, 07/01/21.................................................................. 1,446,300
1,515,000 GO, Series B, Pre-Refunded, 7.25%, 07/01/12........................................................ 1,697,997
3,350,000 Puerto Rico Commonwealth Urban Renewal & Housing Corp., Refunding, 7.875%, 10/01/04.................. 3,853,070
Puerto Rico Electric Power Authority Revenue,
1,445,000 Refunding, Series 1987-K, Pre-Refunded, 9.375%, 07/01/17........................................... 1,714,175
500,000 Refunding, Series 1987-L, 8.375%, 07/01/07......................................................... 570,485
2,160,000 Refunding, Series 1987-L, 8.40%, 07/01/15.......................................................... 2,461,817
6,850,000 Refunding, Series 1988-M, 8.00%, 07/01/08.......................................................... 7,893,461
3,955,000 Refunding, Series 1989-O, 7.125%, 07/01/14......................................................... 4,339,742
2,115,000 Refunding, Series 1991-P, 7.00%, 07/01/11.......................................................... 2,351,161
1,650,000 Refunding, Series 1992-R, 6.25%, 07/01/17.......................................................... 1,729,068
Puerto Rico HFC Revenue,
2,060,000 FHA Mortgage Insured, Section 8 Assisted, 6th Portfolio, Pre-Refunded, 7.75%, 12/01/26............. 2,546,593
3,750,000 GNMA, Series C, 6.85%, 10/15/23.................................................................... 3,913,088
495,000 MFMR, Portfolio A-1, 7.50%, 10/01/15............................................................... 527,898
2,085,000 MFMR, Portfolio A-I, 7.50%, 04/01/22............................................................... 2,223,569
400,000 MFMR, Series A, 8.25%, 06/01/11.................................................................... 408,088
500,000 SFMR, Portfolio 1-D, 6.85%, 10/15/24............................................................... 530,645
Puerto Rico Housing Bank & Finance Agency, SF, Commonwealth Appropriation,
4,400,000 Loan Insurance Claims, Pre-Refunded, 7.25%, 12/01/06............................................... 4,666,816
5,060,000 Subsidy Prepayment, Pre-Refunded, 7.25%, 12/01/06.................................................. 5,366,838
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PUERTO RICO TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
$ 955,000 Puerto Rico Housing Bank & Finance Agency, SFMR, Homeownership Development Program,
5th Portfolio, Pre-Refunded, 7.50%, 12/01/15....................................................... $ 1,109,127
Puerto Rico Industrial, PCFA, Medical & Environmental Facilities Revenue,
2,750,000 1978 American Home, Series A, 5.10%, 12/01/18...................................................... 2,645,143
2,575,000 American Cyanamid Co. Project, 8.75%, 05/01/13..................................................... 2,641,590
4,010,000 Baxter Travenol Labs., Series A, 8.00%, 09/01/12................................................... 4,640,532
140,000 Higher Citiproperties, Inc., 8.75%, 12/01/00....................................................... 154,935
330,000 Hospital Auxilio Mutuo Project, 8.75%, 05/01/08.................................................... 335,458
3,925,000 Motorola, Inc. Project, Series A, 6.75%, 01/01/14.................................................. 4,425,437
900,000 Pepsico, Inc. Project, 6.25%, 11/15/13............................................................. 970,713
Puerto Rico Industrial, Tourist Educational Medical & Environmental Control Facilities Financing
Authority, Higher Educational Revenue, Polytechnic University of Puerto Rico Project,
1,000,000 Series A, 5.70%, 08/01/13.......................................................................... 975,870
1,500,000 Series A, 5.50%, 08/01/24.......................................................................... 1,413,555
4,550,000 Puerto Rico Municipal Finance Agency, Series 1988-A, 8.25%, 07/01/08................................. 5,224,083
Puerto Rico PBA, Guaranteed, Public Education & Health Facilities,
5,000,000 Refunding, Series M, 5.50%, 07/01/21............................................................... 4,781,950
1,745,000 Series H, Pre-Refunded, 7.25%, 07/01/17............................................................ 1,978,551
8,090,000 Puerto Rico Port Authority Revenue, Special Facilities, American Airlines, Series A, 6.30%,
06/01/23........................................................................................... 8,199,457
Puerto Rico, PBA, Guaranteed, Public Education and Health Facilities,
3,150,000 Series J, Pre-Refunded, 7.25%, 07/01/17............................................................ 3,571,596
800,000 Series L, Pre-Refunded, 6.875%, 07/01/21........................................................... 929,728
Puerto Rico Telephone Authority Revenue,
3,000,000 Series 1992-L, 6.125%, 01/01/22.................................................................... 3,133,260
500,000 Series 1993-N, 5.50%, 01/01/13..................................................................... 500,760
1,885,000 Series 1993-N, 5.50%, 01/01/22..................................................................... 1,879,495
San Juan Public Improvement GO,
1,215,000 Loan from Government Development Bank, Series 1972-A, 8.20%, 07/01/95.............................. 1,237,307
345,000 Loan from Government Development Bank, Series 1974-A, 8.20%, 07/01/95.............................. 351,334
University of Puerto Rico, University System Revenue,
35,000 Series G, 8.00%, 06/01/07.......................................................................... 35,665
25,000 Series G, 8.00%, 06/01/09.......................................................................... 25,472
245,000 Series J, 6.50%, 06/01/13.......................................................................... 264,065
3,250,000 Series L, 6.50%, 06/01/13.......................................................................... 3,502,915
5,600,000 Virgin Island Water and Power Authority Electric System Revenue, Series A, 7.40%, 07/01/11........... 6,355,720
------------
TOTAL LONG TERM INVESTMENTS (COST $ 155,704,902)........................................... 169,328,790
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
70
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN PUERTO RICO TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS 1.6%
$ 1,500,000 gPuerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and Put,
2.25%, 12/01/15.................................................................................... $ 1,500,000
San Juan Public Improvement GO,
1,060,000 Loan from Government Development Bank, Series 1972-A, 8.20%, 07/01/94.............................. 1,075,423
290,000 Loan from Government Development Bank, Series 1974-A, 8.20%, 07/01/94.............................. 294,220
------------
SHORT TERM INVESTMENTS (COST $3,008,359)........................................................... 2,869,643
------------
TOTAL INVESTMENTS (COST $158,713,261) 98.4%..................................................... 172,198,433
OTHER ASSETS AND LIABILITIES, NET 1.6%.......................................................... 2,837,540
------------
NET ASSETS 100.0%............................................................................... $175,035,973
============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $ 158,746,544 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.................................................................... $ 14,001,408
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value.................................................................... (549,519)
------------
Net unrealized appreciation........................................................................ $ 13,451,889
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHA - Federal Housing Agency
GNMA - Government National Mortgage Association
GO - General Obligation
HFC - Housing Finance Corp.
IDC - Industrial Development Corp.
MFMR - Multi-Family Mortgage Revenue
PBA - Public Building Authority
PCFA - Pollution Control Financing Revenue
SF - Single Family
SFMR - Single Family Mortgage Revenue
gVariable 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 unpaid principal balance plus
accrued interest upon short notice prior to specified dates. The interest
rate may change on specified dates in relationship with changes in a
designated rate (such as the prime interest rate or U.S. Treasury bills
rate). The accompanying notes are an integral part of these financial
statements.
The accompanying notes are an integral part of these financial statements.
71
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 90.3%
ALASKA .3%
$ 200,000 Anchorage Parking Authority Revenue, Refunding Lease, 5th Avenue Garage, 6.50%, 12/01/02............. $ 213,272
------------
ARIZONA .4%
200,000 Mohave County IDA, Hospital System Revenue, Refunding, Medical Environments, Inc., Phoenix
Hospital & Medical Center, 6.00%, 07/01/00......................................................... 209,708
90,000 Phoenix HFC, Mortgage Revenue, Project A, 6.00%, 07/01/02............................................ 93,363
------------
303,071
------------
CALIFORNIA 24.8%
100,000 Association of Bay Area Governments Finance Corp. COP, Association XXVI, Series B, 6.30%,
10/01/02........................................................................................... 104,984
1,500,000 California Educational Facilities Authority Revenue Pooled, College & University Financing,
Refunding, Series B, 5.90%, 06/01/03............................................................... 1,525,455
California Statewide CDA Revenue, COP, Refunding, Health Facilities, Barton Memorial Hospital,
200,000 Series B, 5.70%, 12/01/00.......................................................................... 209,696
300,000 Series B, 6.40%, 12/01/05.......................................................................... 327,222
300,000 Coalinga Public Financing Authority Revenue, Series B, 6.10%, 09/15/04............................... 304,335
Eden Township Hospital District Health Facilities Revenue, COP, Refunding,
400,000 Eden Hospital Health Services Corp., 5.30%, 07/01/02............................................... 399,168
450,000 Eden Hospital Health Services Corp., 5.40%, 07/01/03............................................... 448,983
500,000 Eden Hospital Health Services Corp., 5.50%, 07/01/04............................................... 498,785
500,000 Eden Hospital Health Services Corp., 5.60%, 07/01/05............................................... 498,710
2,000,000 Foothill Transportation Zone COP, Refunding, Series A, 5.35%, 05/01/03............................... 1,952,760
Hesperia Public Finance Authority Revenue,
505,000 Highway and Street Improvement, Series A, 4.75%, 10/01/96.......................................... 503,414
555,000 Highway and Street Improvement, Series A, 5.00%, 10/01/97.......................................... 553,546
605,000 Highway and Street Improvement, Series A, 5.25%, 10/01/98.......................................... 605,460
Imperial County Local Transportation Authority,
440,000 Sales Tax Revenue, 5.375%, 05/01/02................................................................ 430,184
465,000 Sales Tax Revenue, 5.375%, 05/01/03................................................................ 450,441
2,000,000 Loma Linda Hospital Revenue, Refunding, Loma University Medical Center, Series C, MBIA
Insured, 5.00%, 12/01/04........................................................................... 1,983,460
100,000 Los Angeles County Transportation Commission, COP, Series B, 5.90%, 07/01/00......................... 105,091
450,000 Merced Irrigation District COP, Water Facilities Project, 6.00%, 11/01/02............................ 459,383
500,000 New Haven USD, COP, Refunding, 5.30%, 07/01/01....................................................... 508,445
200,000 Paso Robles USD, COP, Measure D Capital Projects, Phase III, 5.75%, 08/01/02......................... 202,362
140,000 Pleasanton USD, COP, Refunding, 6.30%, 02/01/00...................................................... 140,602
100,000 San Diego County COP, Children's Center Project, 6.00%, 10/01/02..................................... 102,111
100,000 San Diego Port Facilities Revenue, Refunding, National Steel and Shipbuilding Co., 6.60%,
12/01/02........................................................................................... 105,901
165,000 San Francisco City and County RDA Meeting, Refunding, FHA Insured, Section 8, Series A,
6.125%, 07/01/02................................................................................... 165,241
200,000 San Francisco Downtown Parking Corp. Revenue, 6.25%, 04/01/04........................................ 203,878
200,000 San Joaquin County COP, General Hospital Project, 5.90%, 09/01/03.................................... 207,042
</TABLE>
The accompanying notes are an integral part of these financial statements.
72
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONT.)
CALIFORNIA (CONT.)
$ 520,000 San Juan USD, COP, Golden River Elementary School Construction Project, 5.40%, 04/01/01.............. $ 520,827
Snowline Joint USD, COP,
245,000 Series 1993, 5.50%, 07/01/00....................................................................... 246,666
260,000 Series 1993, 5.60%, 07/01/01....................................................................... 261,992
275,000 Series 1993, 5.70%, 07/01/02....................................................................... 276,601
290,000 Series 1993, 5.80%, 07/01/03....................................................................... 291,836
400,000 Solano County COP, Refunding, Justice Facility and Public Building Project, 5.875%, 10/01/05......... 403,912
100,000 Southern California Rapid Transit District Revenue, Special Benefit AD A2, Series 92A, 6.00%,
09/01/02........................................................................................... 104,801
Susanville Public Financing Authority Revenue, Water Facilities,
25,000 Series A, AMBAC Insured, 5.90%, 09/01/02........................................................... 26,928
100,000 Series A, AMBAC Insured, 6.00%, 09/01/03........................................................... 107,681
500,000 Tahoe City, Public Utilities District, COP, Capital Facilities Project, Series B, 6.05% 06/01/01..... 510,200
100,000 Tuolumne County COP, Multiple Facilities Project, 6.00%, 06/01/99.................................... 102,739
1,000,000 Walnut Creek COP, Refunding, John Muir Medical Center, MBIA Insured, 4.80%, 02/15/04................. 969,980
------------
16,820,822
------------
COLORADO .9%
335,000 Denver City and County Airport Revenue, Series C, 6.25%, 11/15/00.................................... 341,553
255,000 Summit County Recreational Facilities Revenue, Refunding, Copper Mountain, 5.90%, 04/01/17........... 255,179
------------
596,732
------------
DISTRICT OF COLUMBIA 1.1%
700,000 District of Columbia GO, Refunding, Series A, 5.875%, 06/01/05....................................... 714,063
------------
FLORIDA 11.5%
275,000 Alachua County, HFA, Santa Fe Health Care Facilities Project, Refunding, 6.875%, 11/15/02............ 288,797
Collier County Special Assessment,
675,000 Pine/Naples Municipal Service Tax & Benefits, 5.10%, 11/01/00...................................... 662,283
845,000 Pine/Naples Municipal Service Tax & Benefits, 5.30%, 11/01/02...................................... 825,481
565,000 Pine/Naples Municipal Service Tax & Benefits, 5.40%, 11/01/03...................................... 550,869
2,000,000 Lake County Resources IDR, Refunding, Recovery Group, Series A, 5.40%, 10/01/03...................... 1,968,120
Northern Palm Beach County Water Control District, Unit Development Number 31,
405,000 Program 1, 6.60%, 11/01/03......................................................................... 415,996
320,000 Program 2, 6.60%, 11/01/03......................................................................... 328,688
2,700,000 Palm Beach County Solid Waste IDR, Okeelanta Power Project, Series A, 6.375%, 02/15/07............... 2,705,427
------------
7,745,661
------------
GEORGIA .2%
100,000 Fulton County Development Authority Special Facilities Revenue, Delta Air Lines, Inc. Project,
6.85%, 11/01/07.................................................................................... 103,035
------------
ILLINOIS 4.3%
850,000 Illinois Educational Facilities Authority Revenues, Columbia College, 5.875%, 12/01/03............... 867,910
500,000 Illinois Health Facilities Authority Revenue, Refunding, Edward Hospital, Series A, 5.35%,
02/15/03........................................................................................... 492,660
1,575,000 Illinois HDA, Series A, 5.25%, 01/01/03.............................................................. 1,560,636
------------
2,921,206
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
73
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FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONT.)
INDIANA .2%
$ 100,000 Indianapolis Local Public Improvement Bond, Series D, 6.10%, 02/01/02 ............................... $ 106,496
------------
IOWA .3%
200,000 Iowa State Financial Authority Hospital, Facilities Revenue, Refunding, Trinity Regional
Hospital Project, 6.50%, 07/01/00 ................................................................. 213,384
------------
KENTUCKY .9%
100,000 Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Project A, 6.75%, 02/01/02 .. 103,323
500,000 Mt. Sterling Lease Revenue, Kentucky League Cities Funding, Series A, 5.625%, 03/01/03 .............. 511,490
------------
614,813
------------
LOUISIANA .9%
70,000 Calcasieu Parish, Public Transportation Authority Mortgage Revenue, Refunding, Series B, 6.375%,
11/01/02 .......................................................................................... 72,706
300,000 Louisiana State Correctional Facilities Corp., Lease Revenue, Refunding, FSA Insured, 5.25%,
12/15/00 .......................................................................................... 309,453
100,000 Louisiana State Offshore Terminal Authority, Deepwater Port Revenue, Refunding, 1st. Stage,
Loop, Inc., Series B, 6.20%, 09/01/03 ............................................................. 109,924
100,000 Louisiana State Public Facility Authority Revenue Loan, Series A-1, 6.20%, 03/01/01 ................. 105,314
------------
597,397
------------
MARYLAND 1.3%
270,000 Baltimore Economic Development Lease Revenue, Refunding, Armistead Partnership Series A,
6.75%, 08/01/02 ................................................................................... 292,628
575,000 Northeast Waste Disposal Authority, Solid Waste Revenue, Montgomery County Research Recreation,
Project A, 5.80%, 07/01/04 ........................................................................ 587,932
------------
880,560
------------
MASSACHUSETTS 1.8%
200,000 Massachusetts State Industrial Finance Agency, Resource Recovery Revenue, Refunding, Refusetech, Inc.
Project, Series A, 5.45%, 07/01/01................................................................. 206,928
New England Educational Loan Corp. Massachusetts Student Loan Revenue, Refunding,
600,000 Series B, 5.00%, 06/01/98 ......................................................................... 609,786
415,000 Series B, 5.60%, 06/01/02 ......................................................................... 424,292
------------
1,241,006
------------
MINNESOTA .3%
200,000 Minneapolis CDA, Supported Development Revenue, Series 91-5A, 7.20%, 12/01/04 ....................... 213,672
------------
MISSISSIPPI 1.8%
1,250,000 Mississippi State Higher Education Assistant Corp. Student Loan Revenue, Series A, 4.80%, 09/01/99... 1,241,662
------------
MISSOURI 1.5%
1,000,000 St. Louis Municipal Finance Corp., Leasehold Revenue, Refunding, Series A, 5.375%, 07/15/03 ......... 1,001,740
------------
NEBRASKA .5%
300,000 Nebraska Higher Education Loan Program, Inc., Revenue, Subject Lien, Series A-6, 6.70%, 12/01/02 .... 324,882
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
NEW JERSEY .2%
$ 135,000 New Jersey EDA, Economic Growth 2nd Revenue, Series F-1, 6.00%, 12/01/02 ............................ $ 141,525
------------
NEW YORK 8.2%
New York City GO,
515,000 Refunding, Series C, 6.50%, 08/01/04 .............................................................. 547,686
800,000 Refunding, Series D, 5.75%, 08/01/03 .............................................................. 812,712
100,000 Series B, 6.25%, 10/01/01 ......................................................................... 104,712
250,000 Series H, 7.00%, 02/01/05 ......................................................................... 275,683
2,500,000 New York City Health and Hospital Authority, Local Government Revenue, Refunding, Series A, 6.00%,
02/15/06 .......................................................................................... 2,574,675
100,000 New York City IDA, Civic Facilities Revenue, New York Blood Center, Inc., Project, 6.80%, 05/01/02 .. 107,283
1,000,000 New York State Housing Finance Agency Service, 5.10%, 09/15/04 ...................................... 987,180
100,000 Oneida-Herkimer Solid Waste Management Authority, Solid Waste Systems Revenue, Refunding, 6.20%,
04/01/00 .......................................................................................... 104,087
------------
5,514,018
------------
OKLAHOMA .2%
100,000 Tulsa Public Facilities Authority, Lease Payment Revenue, Refunding, Assembly Center, 5.80%,
07/01/01 .......................................................................................... 102,991
------------
PENNSYLVANIA 8.4%
500,000 Allegheny County Higher Education, Building Authority Revenue, Community College Allegheny County,
Series A, 5.50%, 06/01/05 ........................................................................ 507,070
100,000 Cambria County Hospital Development Authority Hospital Revenue, Refunding & Improvement, Conemaugh
Valley Hospital, Series B, 5.90%, 07/01/03 ....................................................... 106,782
100,000 Langhorne Manor Borough Higher Education and Health Authority Revenue, Lower Bucks Hospital, 6.75%,
07/01/02 ......................................................................................... 108,090
Lebanon County Good Samaritan Hospital Authority Revenue,
535,000 Good Samaritan Hospital Project, Refunding, 5.25%, 11/15/01 ...................................... 532,614
615,000 Good Samaritan Hospital Project, Refunding, 5.35%, 11/15/02 ...................................... 611,993
575,000 Good Samaritan Hospital Project, Refunding, 5.50%, 11/15/03 ...................................... 571,964
Northeastern Hospital and Educational Authority,
390,000 College Revenue, Kings College, 5.50%, 07/15/02 .................................................. 386,369
410,000 College Revenue, Kings College, 5.60%, 07/15/03 .................................................. 405,855
845,000 University Revenue, 5.40%, 10/01/03 .............................................................. 835,029
Philadelphia Gas Works Revenue,
300,000 Series A, Refunding, 5.70%, 07/01/00 .............................................................. 310,410
300,000 Series A, Refunding, 5.80%, 07/01/01 .............................................................. 311,736
1,000,000 Philadelphia Municipal Authority Revenue, Refunding, Series C, FGIC Insured, 4.90%, 04/01/04 ........ 985,140
------------
5,673,052
------------
PUERTO RICO .3%
100,000 Puerto Rico Electric Power Authority Revenue, Series Q, 5.90%, 07/01/01 ............................. 105,701
100,000 Puerto Rico Municipal Finance Agency, Series A, 5.30%, 07/01/00 ..................................... 102,142
------------
207,843
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONT.)
SOUTH DAKOTA 1.8%
$1,205,000 South Dakota HDA, Homeownership Mortgage, Series B, 5.15%, 05/01/04.................................. $ 1,205,000
-----------
TENNESSEE 1.1%
750,000 Metropolitan Government Nashville & Davidson County IDB Revenue, Refunding & Improvement,
Osco Treatment, Inc., 6.00%, 05/01/03.............................................................. 766,335
-----------
TEXAS 4.1%
1,000,000 Brazos Higher Education Authority, Inc., Student Loan Revenue, Refunding, Sub-Series C-2,
5.875%, 06/01/04................................................................................... 1,004,090
1,310,000 East Texas Criminal Justice Facilities Financing Corp., Mortgage Revenue, Angelica County
Project, Series A, MBIA Insured, 5.00%, 05/01/03................................................... 1,312,764
470,000 Houston HFC, SF, Mortgage Revenue, Refunding, Series A, FSA Insured, 5.45%, 06/01/03................. 477,796
-----------
2,794,650
-----------
VIRGINIA 1.5%
1,000,000 Virginia College Building Authority, Educational Facilities Revenue, Hampton University Project,
5.375%, 04/01/03................................................................................... 1,017,540
-----------
UTAH 3.0%
2,000,000 Davis County Solid Waste Management & Energy Recovery Revenue, Refunding, Special Service
District, 5.50%, 06/15/00.......................................................................... 2,015,620
-----------
WASHINGTON 7.7%
600,000 Marysville Water and Sewer Revenue, Refunding, MBIA Insured, 5.75%, 12/01/05.......................... 626,765
Washington State Health Care Facilities Authority Revenue,
345,000 Heart Institute Spokane, Series A, 5.125%, 08/15/02.................................................. 345,807
300,000 Heart Institute Spokane, Series A, 5.25%, 08/15/03................................................... 301,317
390,000 Heart Institute Spokane, Series A, 5.25%, 08/15/04................................................... 388,744
315,000 Refunding, Dominican Health Services, Connie Lee Insured, 5.25%, 06/01/02............................ 319,385
365,000 Refunding, Dominican Health Services, Connie Lee Insured, 5.35%, 06/01/03............................ 370,548
445,000 Refunding, Dominican Health Services, Connie Lee Insured, 5.50%, 06/01/04............................ 454,034
900,000 St. Joseph Hospital Service, MBIA Insured, 4.90%, 03/01/04........................................... 877,113
1,005,000 St. Joseph Hospital Service, MBIA Insured, 5.00%, 03/01/05........................................... 977,674
500,000 Washington State Public Power Supply System Revenue, Nuclear Project No. 1, Refunding,
Series A, 5.50%, 07/01/04............................................................................ 514,635
-----------
5,176,022
-----------
WYOMING .8%
545,000 Wyoming CDA, SFM, Series E, 5.05%, 06/01/03............................................................ 539,021
-----------
TOTAL LONG TERM INVESTMENTS (COST $60,370,394)....................................................... 61,007,091
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS 9.0%
$ 400,000 gBrevard County, HFA, MFHR, Eks, Inc. Project, Weekly VRDN and Put, 2.45%, 01/01/15 ................. $ 400,000
200,000 gCalifornia Health Facilities Finance Authority Revenue, Sutter Health, Series A, Daily VRDN and
Put, 2.20%, 03/01/20............................................................................... 200,000
California PCFA, PCR, Refunding, Shell Oil Co. Project,
200,000 gSeries C, Daily VRDN and Put, 2.20%, 11/01/00 .................................................... 200,000
300,000 gSeries C, Daily VRDN and Put, 2.20%, 10/01/08 .................................................... 300,000
100,000 gFlorida State HFA, MF, Monterey Meadows Apartments, Weekly VRDN and Put, 2.40%, 12/01/07............ 100,000
3,000,000 Gateway Service District Florida Revenue, North Transportation Roadway Service, 5.50%, 11/30/94 ..... 3,004,500
200,000 gIrvine Ranch, California, Water Distribution, Daily VRDN and Put, 2.25%, 10/01/00 .................. 200,000
400,000 gMaricopa County, Arizona, IDA, Hospital Facilities Revenue, Samaritan Health Services Hospital
B-2, MBIA Insured, Daily VRDN and Put, 2.30%, 12/01/08 ............................................ 400,000
500,000 gNew York City Municipal Water Finance Authority Water & Sewer System Revenue, Series C,
Daily VRDN and Put, 2.20%, 06/15/22................................................................ 500,000
600,000 gNew York State Energy Research & Development Authority PCR, Niagara Mohawk Power, Series A,
Daily VRDN and Put, 2.20%, 07/01/15................................................................ 600,000
200,000 gPuerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and Put, 2.25%,
12/01/15 .......................................................................................... 200,000
-----------
TOTAL SHORT TERM INVESTMENTS (COST $6,100,000) ................................................ 6,104,500
-----------
TOTAL INVESTMENTS (COST $66,470,394) 99.3%.................................................. 67,111,591
OTHER ASSETS AND LIABILITIES, NET .7% ...................................................... 491,383
-----------
NET ASSETS 100.0%........................................................................... $67,602,974
===========
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $66,470,394 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.................................................................... $ 900,351
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................................... (259,154)
-----------
Net unrealized appreciation ....................................................................... $ 641,197
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
CDA - Community Development Agency
COP - Certificate of Participation
EDA - Economic Development Authority
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency
FSA - Financial Security Assistance
GO - General Obligation
HDA - Housing Development Authority/Agency
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Corp.
IDA - Industrial Development Authority/Agency
IDB - Industrial Development Board
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
PCFA - Pollution Control Finance Authority
PCR - Pollution Control Revenue
RDA - Redevelopment Agency
SF - Single Family
SFM - Single Family Mortgage
USD - Unified School District
(e)See Note 1 regarding securities purchased on a when-issued basis.
(g)Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes
in a designated rate (such as the prime interest rate or U.S. Treasury
bills rate).
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.3%
BONDS 96.0%
ALABAMA .8%
$ 5,000,000 Birmingham Baptist Medical Center, Special Care Facilities Financing Authority Revenue,
Baptist Medical Center, Series A, Refunding, MBIA Insured, 5.50%, 08/15/13 ........................ $ 4,888,900
7,570,000 Homewood Special Care Facilities Financing Authority, Hospital Revenue, Lakeshore
Hospital Project, Series B, 8.25%, 02/01/04 ....................................................... 8,399,899
Marshall County Health Care Authority, Hospital Revenue,
5,000,000 Guntersville, Arab Medical Center, 10.25%, 10/01/13 ............................................... 6,041,650
3,300,000 Refunding, Boaz-Albertville Medical Center, 6.20%, 01/01/08 ....................................... 3,338,511
500,000 Marshall County Hospital Board Revenue, Refunding, Boaz-Albertville Medical Center,
Pre-Refunded, 8.875%, 01/01/05 .................................................................... 571,770
2,500,000 Prichard Waterworks & Sewer Board, Water & Sewer Revenue, 9.50%, 11/15/14 ........................... 2,712,000
700,000 Wedowee Utilities Board, COP, Consolidated Financial Services, Inc., Pre-Refunded,
10.50%, 01/15/11 .................................................................................. 839,251
------------
26,791,981
------------
ALASKA .4%
Alaska Industrial Development and Export Revenue, Refunding,
4,000,000 American President Lines Project, 8.00%, 11/01/09 ................................................. 4,329,240
1,500,000 Revolving Fund, Series A, 6.20%, 04/01/10 ......................................................... 1,519,080
5,000,000 Alaska State Housing Financing Corp., Mortgage Program, First Series, 5.90%, 12/01/33 ............... 4,999,450
1,825,000 Palmer Golf Course Lease, COP, 10.25%, 07/01/08 ..................................................... 2,009,617
------------
12,857,387
------------
ARIZONA .8%
950,000 Gila County IDA, PCR, Refunding, ASARCO, Inc. Project, 8.90%, 07/01/06 .............................. 1,089,812
8,500,000 Maricopa County PCR, Refunding, Public Services, Palo Alto, Series A, 6.375%, 08/15/23 .............. 8,502,890
4,000,000 Maricopa County Rural Road Improvement District, 8.625%, 07/01/07 ................................... 4,538,720
8,900,000 Salt River Project, Agricultural Improvement & Power District Electric System Revenue,
Series A, 6.00%, 01/01/31 ......................................................................... 9,038,128
2,355,000 Tempe IDA, Residential Care Facilities Revenue, Volunteers of America Care Facilities,
9.00%, 06/01/18 ................................................................................... 2,526,020
------------
25,695,570
------------
ARKANSAS .7%
2,400,000 Baxter County IDR, Refunding, Aeroquip/Trinova Corp. Project, 5.80%, 10/01/13 ....................... 2,318,256
1,000,000 Conway Hospital Revenue, Refunding, Series 1990, 8.375%, 07/01/11 ................................... 1,114,030
Independence County PCR,
200,000 Mississippi Power and Light Co. Project, 9.50%, 07/01/14 .......................................... 237,534
4,275,000 Mississippi Power and Light Co. Project, Series A, 9.00%, 07/01/13 ................................ 4,979,606
1,185,000 Mississippi Power and Light Co. Project, Series B, 9.00%, 07/01/13 ................................ 1,380,311
5,000,000 Refunding, Arkansas Power & Light Co. Project, 6.25%, 01/01/21 .................................... 5,134,150
Little Rock Sewer Revenue,
750,000 Refunding, 5.40%, 02/01/10 ........................................................................ 740,505
750,000 Refunding, 5.40%, 08/01/10 ........................................................................ 740,325
6,925,000 Pope County PCR, Arkansas Power and Light Co. Project, 11.00%, 12/01/15 ............................. 7,808,422
------------
24,453,139
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
79
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA 11.7%
$20,350,000 Adelanto Improvement Agency Tax Allocation, Refunding & Improvement Project,
Series C, 7.75%, 12/01/2........................................................................... $ 19,893,957
13,400,000 Alameda County MFHR, Refunding, Claremont House Project, Series A, 8.00%,
12/01/23........................................................................................... 13,322,012
Antioch 1915 ACT, AD No. 27,
11,085,000 Lone Tree, Series C, 7.70%, 09/02/17............................................................... 11,515,874
4,500,000 Lone Tree, Series D, 7.30%, 09/02/13............................................................... 4,674,870
22,515,000 Arroyo Grande Hospital System COP, Vista Hospital Systems, Series A, Refunding, 9.50%,
07/01/20........................................................................................... 24,566,342
7,820,000 Beaumont Public Financing Authority Revenue, Sewer Enterprise Project, Series A, 6.90%,
09/01/23........................................................................................... 7,832,121
Benicia Improvement Bond, 1915 ACT, Refunding,
189,000 Fleetside Industrial Park Assessment, 4.00%, 09/02/95.............................................. 188,754
205,000 Fleetside Industrial Park Assessment, 4.50%, 09/02/96.............................................. 204,570
215,000 Fleetside Industrial Park Assessment, 4.80%, 09/02/97.............................................. 214,383
225,000 Fleetside Industrial Park Assessment, 5.00%, 09/02/98.............................................. 224,195
235,000 Fleetside Industrial Park Assessment, 5.25%, 09/02/99.............................................. 234,001
250,000 Fleetside Industrial Park Assessment, 5.50%, 09/02/00.............................................. 248,785
265,000 Fleetside Industrial Park Assessment, 5.65%, 09/02/01.............................................. 263,561
275,000 Fleetside Industrial Park Assessment, 5.80%, 09/02/02.............................................. 273,361
290,000 Fleetside Industrial Park Assessment, 5.90%, 09/02/03.............................................. 288,127
310,000 Fleetside Industrial Park Assessment, 6.00%, 09/02/04.............................................. 307,855
325,000 Fleetside Industrial Park Assessment, 6.10%, 09/02/05.............................................. 322,615
345,000 Fleetside Industrial Park Assessment, 6.20%, 09/02/06.............................................. 342,337
370,000 Fleetside Industrial Park Assessment, 6.30%, 09/02/07.............................................. 367,014
390,000 Fleetside Industrial Park Assessment, 6.40%, 09/02/08.............................................. 386,728
415,000 Fleetside Industrial Park Assessment, 6.50%, 09/02/09.............................................. 411,402
440,000 Fleetside Industrial Park Assessment, 6.60%, 09/02/10.............................................. 436,071
470,000 Fleetside Industrial Park Assessment, 6.70%, 09/02/11.............................................. 465,700
305,000 Fleetside Industrial Park Assessment, 6.80%, 09/02/12.............................................. 302,148
3,000,000 California Educational Facilities Authority Revenue, Pooled College and University
Financing, Series B, 6.125%, 06/01/09.............................................................. 3,029,970
1,300,000 California Special Districts, Association Financial Corp., Santa Cruz Port Authority, COP,
Series B, 7.50%, 05/01/13.......................................................................... 1,328,171
California State Health Facilities Hospital Revenue, Summit Medical Center, Refunding,
5,455,000 Series A, 7.50%, 05/01/09.......................................................................... 5,578,010
6,565,000 Series B, 7.50%, 05/01/09.......................................................................... 6,713,041
2,155,000 California State Health Facilities, Summit Medical Center, Series A, 7.60%, 05/01/15................. 2,215,512
3,500,000 California State Higher Education Loan Authority, Inc., Student Loan Revenue,
Refunding, Junior Lien, Series B, 9.00%, 07/03/97.................................................. 3,579,555
Capistrano USD, Community Facilities District,
285,000 Special Tax No. 92-1, 6.60%, 09/01/05.............................................................. 285,447
280,000 Special Tax No. 92-1, 6.70%, 09/01/06.............................................................. 280,437
325,000 Special Tax No. 92-1, 6.80%, 09/01/07.............................................................. 325,504
260,000 Special Tax No. 92-1, 6.90%, 09/01/08.............................................................. 260,403
1,000,000 Special Tax No. 92-1, 7.00%, 09/01/18.............................................................. 1,008,610
</TABLE>
The accompanying notes are an integral part of these financial statements.
80
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
$ 3,780,000 Colton Community Facilities District, Special Tax, No 90-1, 9.00%, 09/01/20 ...................... $ 3,142,238
Contra Costa County Public Financing Authority Revenue,
2,545,000 Refunding, 6.625%, 09/02/10 ................................................................... 2,644,051
3,025,000 Refunding, 6.875%, 09/02/16 ................................................................... 3,142,703
Corona COP,
8,820,000 Corona Community Hospital Project, 7.00%, 09/01/20 ............................................... 11,483,287
9,655,000 Corona Community Hospital Project, ETM 09/01/96, 7.00%, 09/01/06 ................................. 12,059,578
7,800,000 Vista Hospital Systems, Series B, Refunding, 9.00%, 01/01/01 ..................................... 7,920,978
10,885,000 Vista Hospital Systems, Series B, Refunding, 9.50%, 07/01/20 ..................................... 11,876,732
4,845,000 Eden Township Hospital District Health Facilities Revenue, COP, Refunding, Insured Eden Hospital
Health Services Corp., 5.85%, 07/01/18 ......................................................... 4,721,937
Emeryville RDA, MFHR, Emerybay Apartments,
230,000 Series 1991, 8.75%, 12/01/02 ................................................................... 242,859
3,770,000 Series 1991, 8.75%, 12/01/21 ................................................................... 3,932,035
3,600,000 Glendale Parking Facilities Joint Powers Authority, Parking Revenue, Series A, 5.875, 03/01/14 ... 3,365,424
4,175,000 Hawthorne CRDA, Refunding, Hawthorne Plaza Project, 8.50%, 07/01/20 .............................. 4,331,646
8,900,000 Hesperia Public Financing Authority Revenue, Series B, 7.375%, 10/01/23 .......................... 9,033,500
100,000 a,b,hLong Beach IDR, Kress Rehabilitation Project, 9.75%, 12/01/16 .................................... 63,500
3,065,000 Long Beach Special Tax Community Facilities District 2, West Long Beach, 7.50%, 09/01/11 ......... 3,215,921
1,530,000 Long Beach Special Tax Community Facilities District 3, Pine Ave., 6.25%, 09/01/07 ............... 1,510,936
30,800,000 Los Angeles County, Community Facilities District No. 4, Special Tax Improvement, Calabassas,
Area B, Series A, 9.25%, 09/01/22 .............................................................. 31,938,060
Los Angeles County COP, Marina del Rey,
5,000,000 Series A, 6.25%, 07/01/03 ...................................................................... 5,091,250
4,900,000 Series A, 6.50%, 07/01/08 ...................................................................... 4,997,755
Los Angeles MFR, Refunding,
280,000 J-1A, 7.125%, 01/01/24 ......................................................................... 278,244
675,000 J-1B, 7.125%, 01/01/24 ......................................................................... 670,768
1,435,000 J-1C, 7.125%, 01/01/24 ......................................................................... 1,426,003
1,520,000 J-2A, 8.50%, 01/01/24 .......................................................................... 1,511,518
3,345,000 J-2A, 8.50%, 01/01/24 .......................................................................... 3,326,335
7,120,000 J-2A, 8.50%, 01/01/24 .......................................................................... 7,080,270
Los Angeles Regional Airports Improvement Corp., Lease Revenue,
5,000,000 Refunding, United Air Lines, 6.875%, 11/15/12 .................................................. 5,134,450
2,300,000 Sub Lease Revenue, Continental Airlines, Inc., Terminal Facilities, 9.00%, 08/01/08 ............ 2,571,124
7,900,000 Sub Lease Revenue, Continental Airlines, Inc., Terminal Facilities, 9.00%, 08/01/17 ............ 8,831,252
4,985,000 Needles Public Financing Authority, Local Agency Revenue, Series B, 8.75%, 10/01/22 .............. 5,514,906
5,000,000 Northern California Power Agency, Multiple Capital Facilities Revenue, Series A,
MBIA Insured, 6.50%, 08/01/12 .................................................................. 5,387,550
700,000 Novato 1915 ACT, Golden Gate Plaza Project No. 93-1, 6.50%, 09/02/19 ............................. 699,125
Perris Public Financing Authority, Local Agency Revenue,
2,035,000 Series B, 7.125%, 08/15/15 ..................................................................... 2,112,310
4,095,000 Series B, 7.25%, 08/15/23 ...................................................................... 4,258,226
</TABLE>
The accompanying notes are an integral part of these financial statements.
81
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
Riverside County COP, Airforce Village Project,
$ 7,160,000 Series 1992, 8.125%, 06/15/07 ..................................................................... $ 7,612,369
5,290,000 Series 1992, 8.125%, 06/15/12 ..................................................................... 5,584,970
12,000,000 Roseville Special Tax, North Center Community Facility District, 8.60%, 11/01/17 .................... 12,479,760
Sacramento County 1915 ACT, Refunding,
1,160,000 Sunrise/US Corridor Assessment, 6.10%, 09/02/01 ................................................... 1,176,101
1,275,000 Sunrise/US Corridor Assessment, 6.30%, 09/02/02 ................................................... 1,294,291
1,725,000 Sunrise/US Corridor Assessment, 6.50%, 09/02/03 ................................................... 1,756,964
1,835,000 Sunrise/US Corridor Assessment, 6.60%, 09/02/04 ................................................... 1,870,966
1,955,000 Sunrise/US Corridor Assessment, 6.70%, 09/02/05 ................................................... 1,995,136
2,090,000 Sunrise/US Corridor Assessment, 6.80%, 09/02/06 ................................................... 2,134,768
2,235,000 Sunrise/US Corridor Assessment, 6.90%, 09/02/07 ................................................... 2,284,595
2,385,000 Sunrise/US Corridor Assessment, 7.00%, 09/02/08 ................................................... 2,439,736
2,455,000 Sunrise/US Corridor Assessment, 7.00%, 09/02/09 ................................................... 2,513,110
15,000,000 San Francisco City & County RDA, 7.75%, 09/01/06 .................................................... 15,902,550
San Francisco Downtown Parking Corp.,
1,800,000 Parking Revenue, 6.55%, 04/01/12 .................................................................. 1,877,634
2,000,000 Parking Revenue, 6.65%, 04/01/18 .................................................................. 2,102,260
San Joaquin Hills Transportation, Corridor Agency Toll Road Revenue,
10,850,000 Jr. Lien, 6.75%, 01/01/32 ........................................................................ 11,082,299
5,765,000 Jr. Lien, 5.00%, 01/01/33 ........................................................................ 4,619,551
1,500,000 San Jose MFHR, Timberwood Apartments, Series B, 9.25%, 02/01/10 ..................................... 1,537,440
San Ramon 1915 ACT,
1,190,000 Fostoria Parkway Reassessment District 93-1, 6.30%, 09/02/03 ...................................... 1,237,218
2,585,000 Fostoria Parkway Reassessment District 93-1, 6.80%, 09/02/15 ...................................... 2,690,520
2,000,000 South San Francisco RDA Tax Allocation, Gateway Redevelopment Project, 7.60%, 09/01/18 .............. 2,141,760
Vallejo Special Tax, Community Facilities District,
7,500,000 No. 1988-1, 8.90%, 08/01/21 ....................................................................... 8,341,274
12,000,000 No. 1991-1, 8.80%, 10/01/21 ....................................................................... 13,345,200
------------
393,428,386
------------
COLORADO 3.9%
2,485,000 Arvada Limited Sales & Use Tax Revenue, Pre-Refunded, 7.50%, 06/01/11 ................................ 2,907,226
Auraria Higher Educational Center, Parking Facilities Revenue,
1,600,000 Refunding, Pre-Refunded, 7.875%, 04/01/12 .......................................................... 1,874,576
3,450,000 Refunding, Pre-Refunded, 7.75%, 04/01/09 ........................................................... 4,019,457
12,900,000 Colorado Health Facilities Authority Beneficial Living System, Inc.,
Series A, 10.125%, 10/01/20 ........................................................................ 13,916,778
Colorado HFA,
785,000 SF Program, Issue A-2, 9.375%, 08/01/02 ............................................................ 833,254
790,000 SF Program, Series A-2, 9.25%, 08/01/01 ............................................................ 837,914
945,000 SF Program, Series B-1, 8.70%, 08/01/01 ............................................................ 994,716
910,000 SFMR, Series B-3, 9.75%, 08/01/02 .................................................................. 922,794
1,410,000 SFMR, Series C, 9.20%, 08/01/02 .................................................................... 1,493,317
</TABLE>
The accompanying notes are an integral part of these financial statements.
82
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
$ 1,435,000 Colorado HFA, SFMR, Series 1991-C, 9.075%, 08/01/03 ................................................. $ 1,520,784
Denver City and County Airport System Revenue,
870,000 Series A, 8.375%, 08/01/97 ........................................................................ 883,354
3,840,000 Series A, 7.50%, 11/15/12 ......................................................................... 4,282,138
24,360,000 Series A, 8.50%, 11/15/23 ......................................................................... 27,767,477
16,400,000 Series A, 7.25%, 11/15/25 ......................................................................... 17,954,884
145,000 Series A, 8.00%, 11/15/25 ......................................................................... 161,105
500,000 Series D, 7.75%, 11/15/13 ......................................................................... 583,575
4,190,000 Series D, 7.75%, 11/15/21 ......................................................................... 4,631,542
Eagle County Sports Facilities Revenue, Refunding,
19,600,000 Beaver Creek Association Project, 8.00%, 08/01/09 ................................................. 21,594,300
21,600,000 Vail Association Project, 8.00%, 08/01/09 ......................................................... 23,797,800
300,000 Fort Collins IDR, Vipont Pharmaceutical, Inc. Project, 9.25%, 08/01/13 .............................. 330,540
3,000,000 a,bVillages Castle Rock Metropolitan District No. 4, Refunding, Series 1991, 8.50%, 06/01/31 ........ 690,000
------------
131,997,532
------------
CONNECTICUT .1%
2,970,000 Connecticut Development Authority, 1st Mortgage Revenue, East Hill Gladeview Health
Project 86, 9.75%, 12/15/16........................................................................ 3,433,320
------------
DISTRICT OF COLUMBIA 1.9%
District of Columbia Hospital Revenue,
10,570,000 Hadley Memorial Hospital, Series A, 9.50%, 05/01/17 ............................................... 10,892,492
2,000,000 Washington Hospital Center, Series A, 7.00%, 08/15/05.............................................. 2,177,340
4,500,000 Washington Hospital Center, Series A, 7.125%, 08/15/19 ............................................ 4,752,405
16,060,000 Washington Hospital Center, Series A, Pre-Refunded, 9.00%, 01/01/08................................ 20,280,246
3,750,000 Washington Hospital Center, Series A, Pre-Refunded, 8.75%, 01/01/15................................ 4,681,275
Washington GO,
7,800,000 Series A, 5.875%, 06/01/05......................................................................... 7,956,702
11,775,000 Series A, 6.00%, 06/01/07 ......................................................................... 11,956,570
------------
62,697,030
------------
FLORIDA 5.6%
1,075,000 Bay County Resource Recovery Revenue, Series 1984, Pre-Refunded, 8.00%, 07/01/12 .................... 1,206,569
20,590,000 Broward County Resource Recovery Revenue, Broward Waste Energy Co., Limited Partnership, North
Project, Series 1984, 7.95%, 12/01/08.............................................................. 23,208,430
12,500,000 Cape Coral Health Facilities Authority, Revenue, Refunding, 1st Mortgage, Gulf Care, Inc. Project,
8.125%, 10/01/17................................................................................... 12,401,625
Capron Trails Community Development District,
2,385,000 Series 1990, 9.375%, 12/01/01 ..................................................................... 2,544,008
5,795,000 Series 1990, 9.50%, 12/01/10 ...................................................................... 6,248,111
East County Water Control District, Lee County Drain,
3,955,000 Series 1991, 8.75%, 09/01/01 ...................................................................... 4,372,173
10,565,000 Series 1991, 8.625%, 09/01/11 ..................................................................... 11,570,999
</TABLE>
The accompanying notes are an integral part of these financial statements.
83
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<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
$ 1,640,000 Escambia County Health Facilities Authority Revenue, Refunding, Baptist Hospital, Inc.,
Series A, 8.70%, 10/01/14.......................................................................... $ 1,872,749
3,000,000 Flagler County IDA, 1st Mortgage Revenue, RHA, South Florida Properties, Inc., Projects, 10.50%,
12/01/18 .......................................................................................... 3,042,660
Florida State, Mid Bay Bridge Authority,
3,200,000 Series 1991-B, 8.50%, 10/01/08 .................................................................... 3,710,016
15,400,000 Series 1991-B, 8.50%, 10/01/22 .................................................................... 17,854,452
1,765,000 Lake Clarke Shores Utility System Revenue, 8.75%, 10/01/18 .......................................... 1,979,448
12,000,000 Lakeland Retirement Community 1st Mortgage Revenue, Carpenters Home Estates Project, 9.75%, 09/01/18. 13,319,040
6,500,000 Manatee County IDR, Manetee Hospital and Health Systems, Inc., 9.25%, 03/01/21....................... 7,565,740
10,000,000 Meadow Pointe Community Development District, Capital Improvement Revenue, 6.25%, 07/01/98........... 10,040,800
Mount Dora County Club Community Development District,
6,040,000 eSpecial Assessment Revenue, 6.75%, 05/01/03 ...................................................... 5,990,593
5,465,000 eSpecial Assessment Revenue, 7.75%, 05/01/13 ...................................................... 5,399,803
6,000,000 Palm Beach County Health Facility Authority Revenue, Refunding, Abbey del Ray Project,
Series 1992, 8.25%, 10/01/15....................................................................... 6,563,520
2,530,000 Port Orange Lease Finance Corp., Recreation Facilities Lease Revenue, Pre-Refunded, 8.75%, 10/01/12.. 3,079,643
Riverwood Community Development, Special AD,
6,190,000 eSeries A, 6.75%, 05/01/04......................................................................... 6,190,000
3,165,000 eSeries A, 7.75%, 05/01/14......................................................................... 3,165,000
Santa Rosa County Health Facilities Authority Revenue,
300,000 Gulf Breeze Hospital, Inc., 8.60%, 10/01/02 ....................................................... 335,187
835,000 Gulf Breeze Hospital, Inc., PreRefunded, 8.70%, 10/01/14 .......................................... 991,897
Tampa Capital Improvement Program Revenue,
3,085,000 Series A, 8.25%, 10/01/18 ......................................................................... 3,398,497
8,900,000 Series B, 8.375%, 10/01/18......................................................................... 9,792,403
10,000,000 Tampa Revenue, Aquarium, Inc. Project, 7.55%, 05/01/12 .............................................. 11,069,000
7,745,000 Village Community Development District No. 1, 8.40%, 05/01/12 ....................................... 8,061,073
4,155,000 West Volusia Hospital Authority Revenue, Series 1986-B, 9.375%, 09/01/16 ............................ 4,333,250
------------
189,306,686
------------
GEORGIA .4%
735,000 Burke County Development Authority, PCR, Georgia Power Co., Plant Vogtle Project, 8.375%, 07/01/17... 828,852
5,000,000 Fulton County Hospital Authority Revenue, Refunding, Northside Hospital, Series A,
MBIA, Insured, 5.375%, 10/01/12.................................................................... 4,820,650
155,000 Fulton County Residential Care Facilities, Elderly Authority Revenue, Refunding,
Lenbrook Square Foundation, Inc. Project, Series 1987, 9.75%, 01/01/17............................. 164,614
4,655,000 South Georgia Hospital Authority Revenue, FGIC Insured, 7.80%, 05/01/16.............................. 4,776,961
1,475,000 Tift County IDAR, Beverly Enterprises, 10.125%, 09/01/10 ............................................ 1,765,369
------------
12,356,446
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
84
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
HAWAII .6%
$ 6,500,000 Hawaii Department of Transportation Special Revenue, Continental Airlines, 9.70%, 06/01/20 .......... $ 7,217,210
4,665,000 Hawaii State Airports Systems Revenue, Second Series, 7.00%, 07/01/18 ............................... 5,073,281
5,385,000 Hawaii State Special AD 17, AMBAC Insured, 9.50%, 08/01/11 .......................................... 5,600,400
1,315,000 Hawaiian Home Lands Department Revenue, 7.60%, 07/01/08 ............................................. 1,454,193
------------
19,345,084
------------
ILLINOIS 3.6%
9,150,000 Alton Hospital Facilities Revenue, Refunding, St. Anthony's Health Center Project, 8.375%,
09/01/14 .......................................................................................... 10,230,249
5,910,000 Aurora MFMR, Fox Valley Two-Oxford, 8.50%, 12/01/08 ................................................. 5,850,132
3,880,000 Chicago O'Hare Airport Special Facility, United Airlines Revenue, 8.85%, 05/01/18 ................... 4,498,821
14,160,000 Chicago O'Hare International Airport, United Airlines 1984-A, 8.85%, 05/01/18 ....................... 16,418,378
2,810,000 Chicago Wastewater Transmission Revenue, FGIC Insured, PreRefunded, 6.35%, 01/01/22 ................. 3,124,580
7,000,000 Illinois Development Financial Authority PCR, Refunding, Commonwealth Edison Co., Project, 7.25%,
06/01/11 .......................................................................................... 7,706,230
Illinois Educational Facilities Authority Revenues,
4,330,000 Osteopathic Health Systems, 7.125%, 05/15/11 ...................................................... 4,492,851
11,695,000 Osteopathic Health Systems, 7.25%, 05/15/22 ....................................................... 12,197,885
Illinois Health Facilities Authority Revenue,
3,000,000 Bensenville Home Society, Series B, 8.20%, 02/15/19 ............................................... 3,349,050
4,770,000 Blessing Home & Retirement Project, PreRefunded, 7.70%, 10/01/09 .................................. 5,601,411
3,000,000 Refunding, Westlake Community Hospital, 7.875%, 01/01/13 .......................................... 3,267,810
2,000,000 Sarah Bush Lincoln Health Center, 7.25%, 05/15/12 ................................................. 2,151,920
3,000,000 Servantor, Series 1989-B, 7.875%, 08/15/19 ........................................................ 3,261,720
19,735,000 Illinois Health Facilities Authority Revenue, Revolving Fund, Pooled Financing, Thorek Hospital and
Medical Center, Series H, 9.50%, 08/01/15 ......................................................... 21,706,329
6,265,000 Kendalle County Public Building Community Revenue, Refunding, Series A, AMBAC Insured, 6.00%,
12/01/10 .......................................................................................... 6,391,303
6,500,000 Lombard, Village of, Revenue, Refunding, Beacon Hill Project, 9.30%, 02/15/18 ....................... 6,831,500
4,000,000 Metropolitan Pier & Exposition Authority, Dedicated State Tax Revenue, 6.50%, 06/15/27 .............. 4,175,000
1,375,000 Sterling 1st Mortgage Revenue, Hoosier Care Project, Series A, 9.75%, 08/01/19 ...................... 1,463,770
------------
122,718,939
------------
INDIANA 1.0%
2,875,000 hColumbus, Plc., EDR, Packaging Mid-West, Inc. Project, 10.00%, 12/01/00 ............................. 1,437,500
5,000,000 Crawfordsville Industrial EDR, Refunding, Kroger Co., 7.70%, 11/01/12 ............................... 5,540,450
3,000,000 Indiana Health Facility Authority, Hancock Memorial Hospital University Project, 8.30%, 01/15/20 .... 3,338,430
1,000,000 Indiana State Educational Facilities Authority Revenue, Anderson University Project, 8.40%,
10/01/08 .......................................................................................... 1,136,470
12,500,000 Indianapolis Local Public Improvement Bond, Series C, 6.00%, 01/10/18 ............................... 12,993,875
</TABLE>
The accompanying notes are an integral part of these financial statements.
85
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
INDIANA (CONT.)
$ 2,500,000 Jefferson County Hospital Authority Facility Revenue, Refunding, King's Daughter's
Hospital, 8.50%, 08/15/13 ......................................................................... $ 2,768,400
Kokomo Hospital Authority Revenue, Refunding, St. Joseph's Hospital & Health Center of Kokomo,
2,625,000 Series A, 8.75%, 02/15/13 ......................................................................... 3,129,919
3,700,000 Series B, Pre-Refunded, 8.75%, 02/15/13 ........................................................... 4,420,020
------------
34,765,064
------------
IOWA .3%
500,000 Clinton Hospital Facilities Revenue, Jane Lamb Health Center Project, Pre-Refunded, 8.75%,
08/01/03 .......................................................................................... 587,200
9,180,000 Des Moines General Hospital, 10.125%, 12/01/11 ...................................................... 9,452,003
------------
10,039,203
------------
KANSAS .2%
5,730,000 Prairie Village Revenue Claridge Court Project, Series A, 8.75%, 08/15/23 ........................... 5,652,015
------------
KENTUCKY 1.8%
900,000 Danville Multi-City Lease Revenue, Sewer & Drain System, Series G, MBIA Insured, Pre-Refunded,
6.75%, 03/01/11 ................................................................................... 1,027,566
990,000 Florence Housing Facility Revenue, Bluegrass Retirement Housing Foundation Project,
9.50%, 07/01/17 ................................................................................... 989,960
3,500,000 Jefferson County, Health Facilities Revenue, Beverly Project, 10.125%, 08/01/07 ..................... 4,031,090
Kenton County Airport Revenue, Special Facilities, Delta Airlines,
11,000,000 Project, 8.10%, 12/01/15 .......................................................................... 11,965,360
11,230,000 Project, Series A, 7.50%, 02/01/20 ................................................................ 11,929,854
10,275,000 Project, Series A, 7.125%, 02/01/21 ............................................................... 10,638,940
3,595,000 Project, Series B, 7.25%, 02/01/22 ................................................................ 3,781,221
1,155,000 Powderly IDR, 1st Mortgage Revenue, Kroger Co., Refunding, 7.375%, 09/01/06 ......................... 1,251,639
Russell County, Franciscan Health System Revenue,
2,400,000 Franciscan, Series B, 8.10%, 07/01/01 ............................................................. 2,740,368
7,500,000 Franciscan, Series B, 8.10%, 07/01/15 ............................................................. 8,777,400
1,000,000 Stanford Health Facilities Revenue, Beverly Project, Refunding, 10.375%, 11/01/09 ................... 1,154,010
3,350,000 Winchester Hospital Revenue, Refunding, Clark County Hospital Project, 7.75%, 04/01/13 .............. 3,544,468
------------
61,831,876
------------
LOUISIANA 3.1%
4,000,000 Calcasieu Parish, Inc. IDB, PCR, Gulf States Utilities Co., Project, 5.90%, 09/01/07 ................ 3,995,880
3,965,000 Calcasieu Parish, SFMR, Series 1991-A, 7.75%, 06/01/12 .............................................. 4,142,235
705,000 Iberville Parish Consolidated School District No. 5, GO, Unlimited Tax, Pre-Refunded,
8.00%, 10/01/06 ................................................................................... 822,086
35,000,000 Lake Charles Harbor & Terminal District Port Facilities Revenue, Refunding, Trunkline Co. Project,
7.75%, 08/15/22 ................................................................................... 38,976,000
St. Charles Parish PCR,
</TABLE>
The accompanying notes are an integral part of these financial statements.
86
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONT.)
BONDS (CONT.)
LOUISIANA (CONT.)
St. Charles Parish PCR,
$25,500,000 Louisiana Power & Light Co. Project, 8.25%, 06/01/14............................................... $ 29,464,485
13,525,000 Louisiana Power & Light Co. Project, 8.00%, 12/01/14............................................... 15,601,764
2,000,000 Louisiana Power & Light Co. Project, 6.20%, 05/01/23............................................... 2,019,980
8,740,000 West Feliciana PCR, Series B, 7.50%, 05/01/15........................................................ 9,748,334
------------
104,770,764
------------
MARYLAND 1.1%
Gaithersberg Hospital Facilities Revenue, Refunding,
2,125,000 Shady Grove Adventist Hospital, Series 1992-A, 9.00%, 09/01/22..................................... 2,204,496
7,930,000 Shady Grove Adventist Hospital, Series 1992-B, 8.50%, 09/01/03..................................... 8,550,364
5,340,000 Shady Grove Adventist Hospital, Series 1992-B, 8.50%, 09/01/07..................................... 6,037,831
3,710,000 Shady Grove Adventist Hospital, Series 1992-B, 8.50%, 09/01/22..................................... 3,932,007
Takoma Park, Hospital Facilities Revenue, Washington Adventist Hospital Project,
8,235,000 Series B, 8.50%, 09/01/03.......................................................................... 8,879,224
6,975,000 Series B, 8.50%, 09/01/07.......................................................................... 8,037,711
------------
37,641,633
------------
MASSACHUSETTS 3.9%
2,000,000 Bay Transit Authority, General Transportation System, Series A, 7.00%, 03/01/21...................... 2,362,200
4,500,000 Cape Cod Health Systems, Massachusetts Industry Finance Authority, BIG Insured, Pre-Refunded, 8.50%,
11/15/20 .......................................................................................... 5,566,545
6,000,000 Holyoke, Revenue Bonds, McCormack-Partyka, Series 1990, 10.00%, 08/15/10............................. 5,328,960
Massachusetts Municipal Wholesale, Electric Co. Power Supply System Revenue,
4,435,000 Series A, 6.75%, 07/01/11 ......................................................................... 4,761,726
10,500,000 Series B, 6.75%, 07/01/17 ......................................................................... 11,231,430
2,000,000 Massachusetts State Health and Educational Facilities, Framingham, Union Hospital,
Pre-Refunded, 8.50%, 07/01/10 ..................................................................... 2,453,180
Massachusetts State Industrial Finance Agency,
4,300,000 Bethzata Corporation, Series 1990-A, 9.00%, 05/01/20 .............................................. 5,041,234
15,490,000 Semass Project, Series 1991-A, 9.00%, 07/01/15 .................................................... 17,936,026
20,590,000 Semass Project, Series 1991-B, 9.25%, 07/01/15 .................................................... 23,939,581
Massachusetts State Industrial Finance Agency, 1st Mortgage Revenue,
3,000,000 Berkshire Retirement Community, Lenox, 9.875%, 07/01/18 .......................................... 3,513,870
2,000,000 Brookhaven at Lexington Retirement Project, 10.25%, 01/01/18 .................................... 2,344,940
10,000,000 Massachusetts State, Port Authority Special Project, Harborside Hyatt, 10.00%, 03/01/26 ............. 10,900,400
Massachusetts State, Water Resources Authority,
1,000,000 Series A, 6.00%, 04/01/20 ........................................................................ 1,004,980
3,550,000 Series A, 5.75%, 12/01/21 ........................................................................ 3,449,074
8,000,000 Series A, Pre-Refunded, 7.00%, 04/01/18 .......................................................... 9,150,320
17,700,000 Series A, Pre-Refunded, 6.50%, 07/15/21 .......................................................... 20,053,569
5,000,000 New England Educational Loan Marketing Co., Massachusetts Student Loan Revenue, Refunding,
Series B, 5.60%, 06/01/02 ........................................................................ 5,111,950
------------
134,149,985
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
87
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MICHIGAN 1.5%
$15,000,000 Dickinson County EDC, PCR, Refunding, Champion International Corp., Project, 5.85%, 0/01/18.......... $ 14,506,350
2,000,000 Lanawee County EDC, Limited Obligation, 1st Mortgage Revenue, Lanawee Long Term
Project, 9.00%, 11/01/19........................................................................... 2,050,360
6,605,000 Michigan State Hospital, Finance Authority Revenue, Refunding, Detroit Osteopathic
Hospital, Series A, 7.50%, 11/01/10................................................................ 6,661,275
12,000,000 Midland County EDC, PCR, Refunding, 9.50%, 07/23/09.................................................. 13,620,120
3,500,000 Muskegon, Hospital Finance Authority, Muskegon General, 8.25%, 02/15/11.............................. 3,887,520
2,195,000 Tawas City HFA, Hospital Revenue, Tawas St. Joseph's Hospital Project, Series A, 8.50%, 03/15/12..... 2,327,314
4,500,000 Wayne County, Michigan Building Authority IDA Source, Inc., Series F, 8.00%, 03/01/17................ 5,101,920
5,000,000 Wayne County, South Huron Valley Wastewater Control, Refunding, 7.875%, 05/01/02..................... 5,749,750
Wyandotte Tax Increment Finance Authority,
500,000 Central Development Area Project, PreRefunded, 7.875%, 06/01/08.................................... 564,770
500,000 Central Development Area Project, PreRefunded, 7.875%, 06/01/09.................................... 581,815
500,000 Central Development Area Project, PreRefunded, 7.875%, 06/01/10.................................... 581,815
------------
55,633,009
------------
MINNESOTA 3.6%
Burnsville Solid Waste Revenue,
705,000 Freeway Transfer, Inc., Project, 9.00%, 10/01/00................................................... 748,950
1,500,000 Freeway Transfer, Inc., Project, 9.00%, 04/01/10................................................... 1,642,350
3,365,000 Chaska Housing & Redevelopment Authority MFR, Chaska Rent 120 Project, 8.50%, 12/01/18............... 3,495,798
6,675,000 Edina MFR, Refunding Mortgage, Vernon Terrace Project, 5.00%, 07/01/22............................... 6,764,779
Minneapolis CDA, Limited Tax, Supported Development Revenue,
3,230,000 Series 2, 8.40%, 12/01/12.......................................................................... 3,514,175
600,000 Series 3-A, 8.375%, 12/01/19....................................................................... 669,720
305,000 Minneapolis CDR, Selwyn/Lavin Project, 9.00%, 12/01/11............................................... 314,617
1,000,000 Minnesota State Higher Educational Facilities Authority Revenue, St. Marys Collage,
Series Q-3, 6.10%, 10/01/16........................................................................ 1,016,290
Minnetonka Housing and Redevelopment Authority, Tax Increment Revenue,
40,000 Ridge Point Senior Housing Project, Phase II, Series 1985-A, 11.00%, 02/01/96...................... 41,466
170,000 The Cliffs at Ridgedale Project, Phase II, 11.00%, 02/01/02........................................ 178,053
1,460,000 Northfield 1st Mortgage Nursing Home Revenue, Minnesota Odd Fellows Home project,
8.75%, 10/01/03.................................................................................... 1,580,800
4,110,000 Robbinsdale, MFHR, Refunding, Copperfield Phase II Apartments, 9.00%, 03/01/25....................... 4,191,871
10,000,000 South Central Multi County Housing and Redevelopment Authority, Pooled Housing and
Development Revenue, 8.00%, 02/01/25............................................................... 10,291,700
6,110,000 St. Cloud, Industry Development Revenue, Nahan Printing, 9.75%, 06/01/20 ............................ 6,573,810
St. Paul Housing and Redevelopment Authority, Hospital Facility Revenue, Healtheast Project,
4,590,000 Series A, 9.75%, 11/01/17.......................................................................... 5,444,658
410,000 Series B, 9.75%, 11/01/17.......................................................................... 477,146
680,000 Series C, 9.75%, 11/01/17.......................................................................... 806,616
3,405,000 Series D, 9.75%, 11/01/17 ......................................................................... 4,039,011
</TABLE>
The accompanying notes are an integral part of these financial statements.
88
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MINNESOTA (CONT.)
$ 1,755,000 St. Paul Housing and Redevelopment Authority, Housing Tax, 8.625%, 09/01/07 ......................... $ 2,030,096
600,000 St. Paul Port Authority Commercial Development, Theole Printing Project, 9.00%, 10/01/21 ............ 627,294
5,115,000 St. Paul Port Authority Energy Park, Tax Increment Revenue, Refunding, 8.00%, 12/01/07 .............. 5,917,185
St. Paul Port Authority GO, Mears Park Centre Building Project,
6,495,000 Series 1989-1, 8.25%, 09/01/09 .................................................................... 7,034,994
9,510,000 Series 1989-1, 8.50%, 09/01/18 .................................................................... 10,476,692
St. Paul Port Authority, IDR,
1,645,000 SDA Enterprises, Series K, 10.25%, 10/01/10 ....................................................... 1,644,095
40,000 Series 1979-2, 7.50%, 10/01/09 .................................................................... 40,012
1,300,000 Series 1982-N, 10.75%, 10/01/02 ................................................................... 1,273,285
4,505,000 Series 1983-C, 10.00%, 12/01/06 ................................................................... 4,272,092
3,100,000 Series 1983-C, 9.875%, 12/01/08 ................................................................... 2,952,285
2,805,000 Series 1983-U, 10.75%, 12/01/13 ................................................................... 2,803,541
485,000 Series 1984-I, 10.75%, 12/01/13 ................................................................... 484,733
1,585,000 Series 1984-L, 9.75%, 12/01/14 .................................................................... 1,584,128
1,535,000 Series 1984-N, FGIC Insured, 10.00%, 12/01/14 ..................................................... 1,534,156
1,500,000 Series 1985-J, 9.50%, 12/01/11 .................................................................... 1,379,400
1,110,000 Series 1985-L, 9.50%, 12/01/14 .................................................................... 1,109,390
1,395,000 Series 1985-S, 9.625%, 12/01/14 ................................................................... 1,394,233
975,000 Series 1985-T, 9.625%, 12/01/14 ................................................................... 974,464
1,100,000 Series 1989-F, 8.00%, 09/01/19 .................................................................... 854,205
1,465,000 Series 1991 A-I, 8.50%, 12/01/01 .................................................................. 1,243,785
4,490,000 Series 1991 A-I, 9.00%, 12/01/12 .................................................................. 3,933,240
1,510,000 Series 1991 A-II, 8.50%, 12/01/01 ................................................................. 1,281,990
4,695,000 Series 1991 A-II, 9.00%, 12/01/12 ................................................................. 4,112,820
1,150,000 Series 1991 A-III, 8.50%, 12/01/01 ................................................................ 976,350
4,560,000 Series 1991 A-III, 9.00%, 12/01/12 ................................................................ 3,994,560
1,440,000 Series 1991 A-IV, 8.50%, 12/01/01 ................................................................. 1,222,560
3,580,000 Series 1991 A-IV, 9.00%, 12/01/12 ................................................................. 3,136,080
9,430,000 Washington County Housing and Redevelopment Authority MFHR, Season Villas, 9.00%, 12/01/22 .......... 9,637,742
------------
129,717,217
------------
MISSISSIPPI 1.9%
Claiborne County PCR, Middle South Energy, Inc. Project,
10,680,000 Series A, 9.50%, 12/01/13 ......................................................................... 12,789,728
9,750,000 Series B, 8.25%, 06/01/14 ......................................................................... 11,188,320
10,000,000 Series C, 9.875%, 12/01/14 ........................................................................ 12,130,500
19,975,000 Series E, 9.50%, 04/01/16 ......................................................................... 22,292,699
4,250,000 Lowndes County, Golden Triangle Medical Center, 8.50%, 02/01/10 ..................................... 4,738,835
720,000 Mississippi Hospital Equipment and Facilities Authority Revenue, Refunding, Mississippi Methodist
Hospital and Rehabilitation Center, PreRefunded, 9.375%, 05/01/12 ................................. 874,015
------------
64,014,097
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
89
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MISSOURI 2.4%
$ 9,100,000 Missouri Health and Educational Facilities Authority, Health Facility Marshall, IDA, John
Fitzgibbons Hospital, Series 1990, 10.00%, 05/01/20................................................ $ 10,371,725
7,300,000 Missouri State, Refunding and Improvement Revenue, Heartland Health Systems Project,
8.125%, 10/01/10................................................................................... 8,376,896
200,000 Moberly IDA, Hospital Revenue, Refunding, Moberly Regional Medical Center, Inc. Project,
8.75%, 03/01/16.................................................................................... 218,350
1,620,000 Newton County IDA, Health Facilities Revenue, Beverly Enterprises, 10.375%, 11/01/08................. 1,925,500
2,000,000 Perry Co., Perry Memorial Hospital, Series 1990, 9.125%, 06/01/11.................................... 2,211,720
1,000,000 St. Louis County IDA, Health Facilities Revenue, Refunding and Improvement, 1st Mortgage,
Normandy Osteopathic Hospitals Project, 9.125%, 08/01/13........................................... 1,081,820
St. Louis County IDA, Refunding,
8,000,000 Kiel Center, 7.625%, 12/01/09...................................................................... 8,508,320
5,000,000 Kiel Center, 7.75%, 12/01/13....................................................................... 5,364,800
6,000,000 Kiel Center, 7.875%, 12/01/24...................................................................... 6,493,740
St. Louis Municipal Financial Corp. Leasehold Revenue, Refunding,
21,160,000 Series A, 5.85%, 07/15/09.......................................................................... 20,905,022
14,250,000 Series A, 6.00%, 07/15/13.......................................................................... 14,216,370
------------
79,674,263
------------
MONTANA 1.2%
760,000 Montana State Board of Housing, SFM, Senior Bonds, Series B-2, 8.90%, 10/01/00....................... 795,439
2,500,000 Montana State Board of Investments EDR, Refunding, Bozeman Holiday Inn Project,
11.00%, 12/01/07................................................................................... 2,739,050
35,000,000 Montana State Board of Investments Resource Recovery Revenue, Yellowstone Energy
Project, 7.00%, 12/31/19........................................................................... 35,560,350
940,000 Montana State SFMR, Series 1991-A, 8.275%, 10/01/03.................................................. 996,738
------------
40,091,577
------------
NEBRASKA .1%
2,100,000 Scotts Bluff County, Hospital No 1, Hospital Revenue, 6.375%, 12/15/08............................... 2,212,707
------------
NEVADA 3.1%
Henderson Local Improvement,
6,990,000 District No. 2, 9.50%, 08/01/11.................................................................... 7,339,500
46,000,000 District No. T-1, Series A, 8.50%, 08/01/13........................................................ 45,477,440
11,000,000 District No. T-4, Series A, 8.50%, 11/01/12........................................................ 11,517,440
2,000,000 Las Vegas Downtown RDA, Tax Increment Revenue, Fremont Street Project, Series A,
6.10%, 06/15/14.................................................................................... 1,947,620
8,565,000 Las Vegas Special Improvement District No. 505, Elkhorn Springs, 8.00%, 09/15/13..................... 8,556,264
Nevada Housing Division,
655,000 SF Program, Subordinated, Federally Insured or Guaranteed Mortgage Loans,
Series A, 9.30%, 10/01/00........................................................................ 686,230
385,000 SF Program, Subordinated, Federally Insured or Guaranteed Mortgage Loans,
Series A-1 8.75%, 10/01/04....................................................................... 409,317
</TABLE>
The accompanying notes are an integral part of these financial statements.
90
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEVADA (CONT.)
Nevada Housing Division, (cont.)
$ 750,000 SF Program, Subordinated, Federally Insured or Guaranteed Mortgage Loans,
Series A-2, 9.375%, 10/01/00 .................................................................... $ 788,565
975,000 SF Program, Subordinated, Federally Insured or Guaranteed Mortgage Loans,
Series A-2, 8.65%, 10/01/01 ..................................................................... 1,019,821
715,000 SF Program, Subordinated, Federally Insured or Guaranteed Mortgage Loans,
Series A-3, 9.20%, 10/01/00 ..................................................................... 745,531
860,000 SF Program, Subordinated, Federally Insured or Guaranteed Mortgage Loans,
Series B, 9.50%, 10/01/01 ....................................................................... 901,607
800,000 SF Program, Subordinated, Federally Insured or Guaranteed Mortgage Loans,
Series B-1, 7.90%, 10/01/05 ..................................................................... 843,392
1,015,000 SF Program, Subordinated, Federally Insured or Guaranteed Mortgage Loans,
Series C-1, 7.55%, 10/01/05 ..................................................................... 1,026,134
14,765,000 SF Program, Subordinated, Federally Insured or Guaranteed Mortgage Loans,
Series R, 5.95%, 10/01/11 ....................................................................... 14,871,308
Nevada Housing Finance Division Subordinate,
555,000 Series 1989 B-2, 9.65%, 10/01/02 .................................................................. 586,352
555,000 Series 1990 C-1, 9.60%, 10/01/02 .................................................................. 568,448
6,310,000 White Pine County, School District Building, 6.75%, 06/01/18 ........................................ 6,479,044
------------
103,764,013
------------
NEW HAMPSHIRE 2.3%
11,500,000 New Hampshire HFA, SFMR, Financing Authority, Series B, 5.95%, 07/01/13 ............................. 11,459,520
New Hampshire Higher Education & Health Facility Authority, Revenue,
18,950,000 Hillcrest Terrace, 7.50%, 07/01/24 ................................................................ 18,723,548
10,000,000 Kendal at Hanover Project, 8.00%, 10/01/19 ........................................................ 10,238,500
New Hampshire IDA, PCR,
8,835,000 Public Service Co., Project A, 7.65%, 05/01/21 .................................................... 9,705,954
21,930,000 Public Service Co., Project C, 7.65%, 05/01/21 .................................................... 24,091,859
500,000 United Illuminating Co., 10.75%, 10/01/12 ......................................................... 604,295
3,000,000 New Hampshire State Business Financial Authority PCR, Refunding, Illuminating Co.,
Series A, 5.875%, 10/01/33 ........................................................................ 2,858,310
------------
77,681,986
------------
NEW JERSEY 1.6%
New Jersey City GO,
1,500,000 Series 1992, 6.60%, 02/15/10 ...................................................................... 1,623,405
2,035,000 Series 1992, 6.60%, 02/15/11 ...................................................................... 2,202,419
1,500,000 Series 1992, 6.60%, 02/15/12 ...................................................................... 1,617,810
4,000,000 New Jersey EDA, EDR, Refunding, Stolt Terminals, Series 1988-A, 10.50%, 01/15/18 .................... 4,709,240
2,100,000 New Jersey Health Care Facilities Financing Authority Revenue, Lutheran Home, Series A,
8.40%, 07/01/19 ................................................................................... 2,243,934
8,500,000 New Jersey State Educational Facilities Authority, Refunding, Fairleigh Dickinson
University, Series C, 6.625%, 07/01/23 ............................................................ 8,505,270
31,500,000 Salem County PCR, Electric & Gas Co., 5.70%, 05/01/28 ............................................... 31,497,165
------------
52,399,243
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
91
<PAGE>
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENT (CONT.)
BONDS (CONT.)
NEW MEXICO 1.6%
Farmington PCR, Refunding, Public Service Co.,
$ 29,900,000 San Juan Project, Series A, 6.40%, 08/15/23........................................................ $ 29,970,265
2,900,000 San Juan Project, Series X, 5.90%, 04/01/07........................................................ 2,848,119
10,755,000 Los Alamos County, Inc., Utility System Revenue, Refunding, Series 1986-A, 7.75%, 01/01/15........... 11,518,067
New Mexico Mortgage Finance Authority,
2,825,000 SFM Program, Refunding Series A-1, 7.90%, 07/01/04................................................. 2,987,861
930,000 SFM Program, Series A, FHA Insured, 8.80%, 09/01/01................................................ 980,332
845,000 SFM Program, Series 1988-A, 9.50%, 09/01/00........................................................ 892,743
735,000 SFM Program, Series 1988-B, 9.30%, 09/01/00 ....................................................... 777,277
1,285,000 SFMR, Series 1991-A, 9.10%, 09/01/03............................................................... 1,361,188
1,350,000 SFMR, Sub Series 1990-A, 9.55%, 09/01/02........................................................... 1,432,741
------------
52,768,593
------------
NEW YORK 10.9%
8,440,000 Babylon IDA, Recycling Facilities Revenue, Babylon Recycling Center, Inc., Series A,
8.875%, 03/01/11.................................................................................... 8,462,366
Babylon IDA, Resource Recovery Revenue, Inc.,
1,000,000 Ogden Martin System, Babylon, Inc., Series B, 8.50%, 01/01/19...................................... 1,132,930
3,920,000 Ogden Martin System, Babylon, Inc., Series C, 8.50%, 01/01/19...................................... 4,441,086
Metropolitan Transportation Authority, Service Contract,
3,860,000 Commuter Facilities, Series 5, Refunding, 6.50%, 07/01/16.......................................... 4,043,466
3,330,000 Commuter Facilities, Series N, Refunding, 6.80%, 07/01/04.......................................... 3,643,819
3,050,000 Commuter Facilities, Series N, Refunding, 6.90%, 07/01/05.......................................... 3,336,121
2,330,000 Transportation Facilities, Series N, Refunding, 6.80%, 07/01/04.................................... 2,549,579
2,470,000 Transportation Facilities, Series N, Refunding, 6.90%, 07/01/05.................................... 2,701,711
7,830,000 Transportation Facilities, Series N, Refunding, 7.125%, 07/01/09................................... 8,658,101
3,450,000 Metropolitan Transportation Authority, Transit Facilities, Obligation Revenue, Series J,
Pre-Refunded, 7.375%, 07/01/15...................................................................... 3,566,955
New York City GO,
1,795,000 Refunding, Series G, 5.75%, 08/01/10............................................................... 1,752,100
10,000,000 Series A, 7.25%, 03/15/20......................................................................... 10,941,000
1,200,000 Series A, 6.25%, 08/01/21.......................................................................... 1,220,088
4,500,000 Series B, 7.625%, 02/01/14......................................................................... 5,187,240
4,090,000 Series B, 7.00%, 02/01/18......................................................................... 4,532,374
5,000,000 Series B, 7.00%, 02/01/19.......................................................................... 5,734,250
5,745,000 Series B, 7.00%, 02/01/20.......................................................................... 6,288,764
4,250,000 Series C, 6.75%, 10/01/15.......................................................................... 4,486,300
4,800,000 Series C, 7.00%, 08/01/17.......................................................................... 5,341,584
1,000,000 Series C, Sub Series C-1, 7.00%, 08/01/16.......................................................... 1,112,830
4,875,000 Series C, Sub Series C-1, 7.50%, 08/01/21.......................................................... 5,623,313
3,500,000 Series D, 7.70%, 02/01/11.......................................................................... 4,063,535
5,000,000 Series D, 7.625%, 02/01/13......................................................................... 5,763,600
9,000,000 Series D, 7.625%, 02/01/14........................................................................ 10,374,480
5,000,000 Series D, 7.00%, 02/01/18.......................................................................... 5,734,250
5,000,000 Series D, 7.00%, 02/01/19.......................................................................... 5,473,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
92
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK (CONT.)
New York City GO. (cont.)
$ 525,000 Series E, 7.50%, 02/01/18.......................................................................... $ 602,096
4,500,000 Series F, 7.625%, 02/01/13......................................................................... 5,187,240
400,000 Series F, 7.625%, 02/01/15......................................................................... 461,928
8,545,000 Series F, 7.50%, 02/01/21.......................................................................... 9,799,833
840,000 Series G, 7.50%, 02/01/22.......................................................................... 963,354
5,000,000 Series H, 7.20%, 02/01/14.......................................................................... 5,492,600
12,600,000 Series H, 7.20%, 02/01/15.......................................................................... 14,122,836
12,000,000 Series H, 7.00%, 02/01/19.......................................................................... 13,135,800
2,925,000 Series H, 7.00%, 02/01/20.......................................................................... 3,201,851
350,000 Series H, 7.00%, 02/01/22.......................................................................... 383,128
7,190,000 New York City IDA, Civic Facility Revenue, Amboy Corp. Project, Series 1990, 9.625%,
06/01/15........................................................................................... 8,465,937
5,900,000 New York City Municipal Water Financing Authority Water and Sewer System Revenue,
Series A, 6.00%, 06/15/17.......................................................................... 5,957,879
New York State Dormitory Authority Revenue, City University System,
1,000,000 Series B, 7.20%, 07/01/21.......................................................................... 1,110,120
1,000,000 Series F, Pre-Refunded, 7.875%, 07/01/07........................................................... 1,195,720
8,500,000 Series F, Pre-Refunded, 7.875%, 07/01/17........................................................... 10,163,620
New York State Dormitory Authority Revenue, State University Educational Facilities,
1,520,000 Series A, Pre-Refunded, 7.125%, 05/15/17........................................................... 1,730,596
730,000 Series A, Pre-Refunded, 7.125%, 05/15/17........................................................... 831,142
270,000 Series B, Pre-Refunded, 7.25%, 05/15/15............................................................ 312,206
2,070,000 Series B, Pre-Refunded, 7.25%, 05/15/15............................................................ 2,393,582
1,000,000 New York State Environmental Facility Corp., Water Facility Revenue, Long Island Corp.
Project, Series 1987-A, 10.00%, 10/01/17........................................................... 1,132,840
New York State HFA, Service Contract Obligation Revenue,
6,850,000 Series A, Pre-Refunded, 7.80%, 09/15/10 ........................................................... 8,196,299
9,715,000 Series A, Pre-Refunded, 7.80%, 09/15/20 ........................................................... 11,624,386
New York State Local Government Assistance Corp.,
7,405,000 Series A, Pre-Refunded, 7.25%, 04/01/18............................................................ 8,659,999
15,000,000 Series B, 7.25%, 04/01/05.......................................................................... 17,035,650
10,000,000 Series B, 7.25%, 04/01/06.......................................................................... 11,376,300
9,800,000 Series B, Pre-Refunded, 7.50%, 04/01/20............................................................ 11,607,022
5,000,000 Series B, Pre-Refunded, 7.00%, 04/01/21............................................................ 5,700,600
7,000,000 Series C, Pre-Refunded, 7.00%, 04/01/21............................................................ 8,081,990
3,500,000 Series D, Pre-Refunded, 7.00%, 04/01/18............................................................ 4,070,395
3,200,000 Series D, Pre-Refunded, 6.75%, 04/01/21............................................................ 3,668,416
4,000,000 New York State Medical Care Facilities Finance Agency Revenue, Hospital & Nursing Home
Insured Mortgage, Series B, 6.95%, 02/15/32........................................................ 4,385,560
2,500,000 New York State Medical Care Facilities Finance Agency Revenue, Security Hospital,
Series A, 7.35%, 08/15/11.......................................................................... 2,805,975
Port Authority of New York and New Jersey, Special Obligation Revenue,
10,000,000 Continental Airlines, Eastern Project, 9.00%, 12/01/10............................................... 11,599,100
27,650,000 La Guardia Airport Project, Eastern Project, 9.125%, 12/01/15........................................ 32,258,702
</TABLE>
The accompanying notes are an integral part of these financial statements.
93
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK (CONT.)
Troy IDA, Lease Revenue,
$ 5,000,000 City of Troy, 8.00%, 03/15/12..................................................................... $ 5,392,400
5,500,000 City of Troy, 8.00%, 03/15/22..................................................................... 5,790,070
1,500,000 Warren & Wash Counties IDAR, Refunding, Recovery, Series A, 7.90%, 12/15/07......................... 1,387,500
------------
366,449,764
------------
NORTH CAROLINA .1%
5,000,000 North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue, Refunding,
5.75%, 01/01/15................................................................................... 4,927,950
------------
NORTH DAKOTA .2%
4,640,000 Mercer County PCR, Basin Electric Power Co., Series 1984-C, 7.70%, 01/01/19......................... 4,964,893
1,875,000 North Dakota State HFA, SFMR, Series A, 5.55%, 07/01/24............................................. 1,805,700
425,000 Wahpeton IDR, Auburn Apartments Project, 11.00%, 12/01/15........................................... 443,577
------------
7,214,170
------------
OHIO 4.6%
2,745,000 Allen County Nursing Home, 1st Mortage Revenue, Volunteers of America Care Facilities
Project, 9.00%, 03/01/18.......................................................................... 2,991,638
13,235,000 Cleveland Airport Special Revenue, Continental Airlines, Inc. Project, 9.00%, 12/01/19.............. 14,141,730
Montgomery County Health Systems Revenue,
1,700,000 Franciscan, Series B, 8.10%, 07/01/01............................................................. 1,943,287
9,600,000 Franciscan, Series B, 8.10%, 07/01/18............................................................. 10,974,144
1,800,000 Franciscan, Series B-1, 8.10%, 07/01/01........................................................... 2,057,598
6,300,000 Franciscan, Series B-1, 8.10%, 07/01/18........................................................... 7,201,782
6,500,000 Franciscan, Series B-2, 8.10%, 07/01/18........................................................... 7,430,410
5,265,000 Ohio State Air Quality Authority, Toledo Edison, Series B, 8.00%, 05/15/19.......................... 5,848,994
10,700,000 Ohio State HFA, Chagrin Fall, Retirement Rental Housing Revenue, 10.375%, 04/01/09.................. 12,591,867
6,200,000 Ohio State Water Development Authority, Toledo Edison, Series A, 8.00%, 05/15/19.................... 6,911,512
28,000,000 Perry Local School District COP, 8.15%, 07/01/99.................................................... 28,732,200
500,000 Pike County Hospital Facilities Revenue, National Church Residences, Series 1987, 9.875%,
07/01/17.......................................................................................... 569,905
3,955,000 Seneca County Nursing Home Mortgage Revenue, Refunding and Improvement, Volunteers
of America Care Facilities, 9.00%, 01/01/13....................................................... 4,299,639
Toledo-Lucas County Port Authority Airport Revenue, Burlington Air Express,
30,245,000 Series 1989-1, 9.875%, 04/01/19................................................................... 32,155,274
1,595,000 Series 1991-1, 9.125%, 10/15/01................................................................... 1,705,103
5,875,000 Series 1991-1, 9.125%, 09/15/13................................................................... 6,255,171
Toledo-Lucas County Port Authority Development Revenue,
2,730,000 Northwest Ohio Bond Fund, Series 1989-B, 9.00%, 11/15/08.......................................... 3,042,530
1,365,000 Northwest Ohio Bond Fund, Series 1990-A, 8.625%, 05/15/10......................................... 1,469,259
3,110,000 Northwest Ohio Bond Fund, Series 1990-D, 8.25%, 05/15/20.......................................... 3,271,596
------------
153,593,639
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
94
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
OKLAHOMA 1.4%
$ 6,335,000 Jackson County Memorial Hospital Authority Revenue, Refunding, Jackson County
Memorial Hospital Project, 9.00%, 08/01/15 ....................................................... $ 6,839,900
15,000,000 McGree Creek Authority Water Revenue, MBIA Insured, 6.00%, 01/01/23 ................................ 15,807,300
Pottawatomie Water Revenue,
3,165,000 Refunding, AMBAC Insured, 5.80%, 07/01/15 ........................................................ 3,211,905
5,925,000 Refunding, AMBAC Insured, 5.90%, 07/01/26 ........................................................ 6,037,101
12,845,000 Tulsa Municipal Airport Transportation Revenue, American Airlines, Inc., 7.375%, 12/01/20 .......... 13,644,601
2,500,000 Washington County Medical Authority Revenue, Bartlesville, Refunding, Jane Phillips
Hospital, Series A, 8.50%, 11/01/10 .............................................................. 2,798,025
------------
48,338,832
------------
PENNSYLVANIA 5.8%
Chartiers Valley Industrial and Commercial Development Authority Revenue,
6,000,000 Refunding, 1st Mortgage, United Methodist Health Center, Series A, 9.50%, 12/01/15 ............... 6,398,580
2,000,000 Refunding, Friendship Village of South Hills Project, 9.25%, 08/15/08 ............................ 2,138,220
4,000,000 Refunding, Friendship Village of South Hills Project, 9.50%, 08/15/18 ............................ 4,298,400
5,000,000 Delaware County IDAR, Refunding, Resource Recovery Project, Series A, 8.10%, 12/01/13 .............. 5,468,200
3,000,000 Erie Higher Educational Building Authority, College Revenue, Series A, Pre-Refunded,
8.50%, 06/01/15 .................................................................................. 3,609,000
980,000 Fayette County Hospital Authority Revenue, Refunding, Uniontown Hospital Project, 7.625%
07/01/15 ......................................................................................... 1,029,627
Franklin County IDA, Health Facilities Revenue,
650,000 Fayetteville, 10.375%, 07/01/11 .................................................................. 776,633
3,250,000 Fayetteville, 10.375%, 07/01/11 .................................................................. 3,865,550
3,400,000 Gettysburg IDA, Beverly Enterprises, 10.375%, 07/01/11 ............................................. 4,062,388
Montgomery County Higher Education & Health Authority Hospital Revenue,
200,000 United Hospital, Series A, 8.375%, 11/01/11 ...................................................... 217,188
3,560,000 United Hospital, Series A, 7.50%, 11/01/12 ....................................................... 3,684,920
750,000 United Hospital, Series A, 7.50%, 11/01/13 ....................................................... 776,318
600,000 United Hospital, Series A, 7.50%, 11/01/14 ....................................................... 621,054
3,940,000 United Hospital, Series B, 7.50%, 11/01/14 ....................................................... 4,078,255
1,600,000 United Hospital, Series B, 7.50%, 11/01/15 ....................................................... 1,656,144
Montgomery County Higher Education & Health Authority Revenue,
2,120,000 1st Mortgage Redeemer Long Term, Series A, 8.20%, 06/01/06 ....................................... 2,221,103
3,500,000 1st Mortgage Redeemer Long Term, Series A, 8.00%, 06/01/22 ....................................... 3,597,685
5,000,000 Joseph's University, Series 1990, Pre-Refunded, 8.30%, 06/01/10 .................................. 6,037,100
10,000,000 Montgomery County IDA, PCR, Series 1991, 7.50%, 01/01/12 ........................................... 11,147,800
1,200,000 Pennsylvania State Higher Educational Facilities Authority, College and University
Revenues, Medical College of Pennsylvania, 8.375%, 03/01/11 ...................................... 1,355,112
10,000,000 Pennsylvania State Pooled Finance Authority, Lease Revenue, Capital Improvement,
Series B, MBIA Insured, 8.00%, 11/01/09 .......................................................... 10,643,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
95
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
PENNSYLVANIA (CONT.)
Philadelphia Gas Works Revenue,
$ 3,850,000 Series A, 6.375%, 07/01/14......................................................................... $ 3,989,332
2,850,000 Series A, 6.375%, 07/01/26......................................................................... 2,941,286
3,080,000 Philadelphia GO, Refunding, Series A, 6.00%, 05/15/05................................................ 3,114,681
Philadelphia Municipal Authority Revenue, Justice Lease,
4,000,000 Sub Series C, 8.625%, 11/15/16..................................................................... 4,453,200
25,500,000 Sub Series C, Pre-Refunded, 8.625%, 11/15/16....................................................... 32,155,245
3,000,000 Sub Series D, 6.25%, 07/15/13...................................................................... 3,023,940
1,750,000 Sub Series D, 6.30%, 07/15/17...................................................................... 1,763,930
14,580,000 Philadelphia Water and Sewer Revenue, 10th Series, 7.35%, 09/01/04................................... 17,309,667
Philadelphia Water and Sewer Revenue, 11th Series,
2,500,000 Sub Series A, Pre-Refunded, 8.70%, 12/01/98........................................................ 2,762,725
3,000,000 Sub Series A, Pre-Refunded, 8.90%, 12/01/00........................................................ 3,325,290
2,500,000 Sub Series B, Pre-Refunded, 8.40%, 10/01/96........................................................ 2,732,425
2,500,000 Sub Series B, Pre-Refunded, 8.70%, 10/01/98........................................................ 2,743,750
500,000 Sub Series B, Pre-Refunded, 9.00%, 10/01/01........................................................ 551,015
9,750,000 Philadelphia Water and Sewer Revenue, 16th Series, 7.00%, 08/01/18................................... 10,360,837
15,000,000 Schuylkill County IDA, Recovery Resource Revenue, Refunding, Schuylkill Energy
Resource, Inc., 6.50%, 01/01/10.................................................................... 14,868,150
9,315,000 South Wayne County, Water & Sewer Authority Revenue, Refunding, 8.20%, 04/15/13...................... 10,085,071
100,000 Washington County Hospital Authority Revenue, Washington Hospital, Series 1987,
Pre-Refunded, 9.50%, 07/01/17...................................................................... 117,450
------------
193,980,471
------------
PUERTO RICO .1%
1,875,000 Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
Series 1988-A, 7.75%, 07/01/08..................................................................... 2,095,312
------------
RHODE ISLAND 2.3%
Depositors Economic Protection Corp.,
37,845,402 Series C, 4.875%, 07/01/96......................................................................... 37,552,857
28,500,000 Sub Series B, 10.00%, 07/01/07..................................................................... 29,860,305
1,000,000 Rhode Island Housing & Mortgage Finance Corp., MFMR, Series B-8, 8.75%, 07/01/07..................... 995,200
6,000,000 Rhode Island State Health & Educational Building Corp., Revenue Hospital Financing,
Landmark Medical Center Assessment, 5.875%, 10/01/19............................................... 5,826,000
West Warwick GO,
3,200,000 Series A, 6.80%, 07/15/98.......................................................................... 3,259,776
915,000 Series A, 7.30%, 07/15/08.......................................................................... 929,713
------------
78,423,851
------------
SOUTH CAROLINA .5%
6,000,000 Berkeley County, PCR, 6.50%, 10/01/14................................................................ 6,394,560
3,805,000 Charleston County Hospital Facilities, 1st Mortgage Revenue, Sandpiper Village, Inc., 7.00%,
11/01/13........................................................................................... 3,424,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
96
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
SOUTH CAROLINA (CONT.)
$ 3,050,000 Piedmont Municipal Power Agency Electric Revenue, Refunding, Pre-Refunded, 7.00%,
01/01/25 .......................................................................................... $ 3,222,264
2,325,000 South Carolina Public Service Authority Revenue, Refunding, Series A, MBIA Insured,
5.50%, 07/01/21 ................................................................................... 2,242,067
------------
15,283,391
------------
SOUTH DAKOTA .2%
3,500,000 South Dakota State Health & Educational Facilities Authority Revenue, Refunding, Prairie
Lakes Health Care, 7.25%, 04/01/22 ................................................................ 3,776,360
3,000,000 Watertown Hospital Facilities Revenue, Prairie Lakes Health Care System Project,
Pre-Refunded, 9.125%, 04/01/13 .................................................................... 3,585,090
------------
7,361,450
------------
TENNESSEE .7%
4,000,000 Jackson, IDB, Beatrice Foods, 10.75%, 12/01/06 ...................................................... 4,003,800
3,160,000 Knox County Health, Educational & Housing Facilities Board, MFHR, GNMA Collateralized,
Eastown Village Project, 8.20%, 07/01/28 .......................................................... 3,284,188
Memphis-Shelby County Airport Authority, Special Facilities & Project Revenues,
3,250,000 Federal Express Corp., Series 1982-B, 8.30%, 09/01/12 ............................................. 3,468,693
6,000,000 Federal Express Corp., Series 1984, 7.875%, 09/01/09 .............................................. 6,840,720
1,815,000 Scott County IDB, IDR, Fruehauf Corp. Project, 10.75%,
01/01/09 .......................................................................................... 2,008,914
3,100,000 Shelby County, Health & Education Housing Facility Revenue, Beverly Enterprise, 10.125%
12/01/11 .......................................................................................... 3,672,818
------------
23,279,133
------------
TEXAS 3.6%
10,000,000 Alliance Airport Authority, Special Facilities Revenue, Series 1990, 7.50%, 12/01/29 ................ 10,656,900
Brazos River Authority, PCR,
16,000,000 Houston Power & Light Co., 8.25%, 05/01/19 ........................................................ 17,987,200
1,675,000 Collateralized, Texas Utilities Electric Co. Project, Series 1988-A, 9.25%, 03/01/18............... 1,944,843
4,895,000 Coppell Special Assessment Gateway Project, 8.70%, 03/01/12 ......................................... 5,070,926
5,685,000 Copperas Cove Health Facilities Development Corp., Hospital Revenue, 1st Mortgage,
Metroplex Health, Series B, 9.125%, 12/01/19 ...................................................... 6,499,945
8,275,000 El Paso County, SFMR, Series 1991-A, 8.75%, 10/01/11 ................................................ 8,648,285
5,025,000 a,bFalls County Jail Facilities Financing Corp., Criminal Detention Center Revenue, 9.75%,
08/01/09 .......................................................................................... --
500,000 Harris County Hospital District Mortgage Revene, Refunding, Pre-Refunded, 8.50%,
04/01/15 .......................................................................................... 555,515
18,160,000 Harris County Toll Road, Multiple Mode, Senior Lien Revenue, Series D, Pre-Refunded,
8.30%, 08/15/17 ................................................................................... 21,517,239
1,950,000 a,bLa Salle County Jail Facilities Financing Corp., Criminal Detention Center Revenue, 9.75%,
08/01/09 .......................................................................................... --
4,550,000 Matagorda County Navigation District No. 1, PCR, Collateralized, Refunding, Houston
Lighting & Power Co., Series B, 7.70%, 02/01/19 ................................................... 5,043,175
</TABLE>
The accompanying notes are an integral part of these financial statements.
97
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS (CONT.)
Metropolitan Health Facilities Development Corp., Hospital Revenue,
$ 2,770,000 Refunding and Improvement, Wilson N. Jones Memorial Hospital Project,
Pre-Refunded, 7.75%, 01/01/05 ................................................................... $ 3,085,531
7,500,000 Refunding and Improvement, Wilson N. Jones Memorial Hospital Project,
Pre-Refunded, 7.875%, 01/01/14 .................................................................. 8,400,375
2,000,000 Midland County Hospital District Revenue, Series 1989, Pre-Refunded, 8.375%, 06/01/02 ............... 2,324,640
18,000,000 National Research Laboratory Commission Financing Corp. Lease Revenue, 7.10%,
12/01/21 .......................................................................................... 18,363,060
2,260,000 a,bPecos County Jail Facilities Financing Corp., Criminal Detention Center Mortgage
Revenue, 9.75%, 08/01/09 ......................................................................... --
250,000 Port of Corpus Christi Industrial Development Corp. Revenue, Refunding, Valero and
Marketing Co., Series A, 10.25%, 06/01/17 ........................................................ 294,927
7,180,000 Rio Grande Valley Health Facilities Development Corp., 1st Mortgage Revenue, Refunding,
Golden Palms Retirement and Health Center, Pre-Refunded, 9.25%, 08/01/15 ......................... 8,154,613
3,290,000 a,bSan Saba County Jail Facilities Financing Corp., Criminal Detention Center Revenue,
9.75%, 08/01/09 .................................................................................. --
3,340,000 a,bSwisher County Jail Facilities Financing Corp., Criminal Detention Center Revenue, 9.75%,
08/01/09 ......................................................................................... --
4,000,000 Texas State Water Development Board Revenue, 6.00%, 07/15/13 ....................................... 4,143,160
------------
122,690,334
------------
UNITED STATES TERRITORIES .8%
2,680,000 American Samoa EDA Executive Office Building Revenue, 10.125%, 09/01/08 ............................. 2,959,283
16,200,000 Virgin Island Public Finance Authority Revenue, Refunding, Matching Fund Loan Notes,
Series A, 7.25%, 10/01/18 ......................................................................... 17,850,132
400,000 Virgin Island Water and Power Authority, Electric Services, Series A, 7.40%, 07/01/11 ............... 453,980
4,000,000 Virgin Island Water and Power Authority, Water Power Revenue, Series B, 7.60%,
01/01/12 .......................................................................................... 4,462,680
------------
25,726,075
------------
UTAH .8%
2,000,000 Box Elder County PCR, Nucor Corp. Project, 6.90%, 05/15/17 .......................................... 2,213,640
11,800,000 Davis County Solid Waste Management Energy Recovery Revenue, Refunding, Special
Services District, 6.125%, 06/15/09 ............................................................... 11,850,976
Utah State HFA, SFM,
490,000 Series 1988-A, 9.625%, 07/01/00 ................................................................... 519,341
435,000 Series 1988-B, 9.60%, 07/01/00 .................................................................... 464,841
960,000 Series 1988-C-1, 9.375%, 07/01/00 ................................................................. 1,005,898
410,000 Series 1988-E, 9.50%, 07/01/00 .................................................................... 432,079
425,000 Series 1988-F, 9.60%, 07/01/00 .................................................................... 449,935
335,000 Series 1988-G-2, 9.30%, 07/01/00 .................................................................. 340,822
470,000 Series 1989-B, 9.25%, 07/01/01 .................................................................... 486,746
435,000 Series 1990-A-2, 9.625%, 07/01/02 ................................................................. 454,914
545,000 Series 1990-B-2, 9.50%, 07/01/02 .................................................................. 571,220
895,000 Series 1991-A-2, 9.45%, 07/01/03 .................................................................. 933,288
</TABLE>
The accompanying notes are an integral part of these financial statements.
98
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
UTAH (CONT.)
Utah State HFA, SFM, (cont.)
$ 845,000 Series 1991-B-2, 9.45%, 07/01/03 .................................................................. $ 898,615
670,000 Series 1991-C-2, 9.05%, 07/01/03 .................................................................. 709,141
1,295,000 Series 1991-D-2, 9.00%, 07/01/03 .................................................................. 1,370,473
770,000 Series 1991-E-1, 8.70%, 07/01/03 .................................................................. 815,137
880,000 Sub Series B-2, 8.70%, 07/01/04 ................................................................... 928,866
500,000 Sub Series BD-B, 9.50%, 07/01/00 .................................................................. 526,925
730,000 Sub Series D, 8.45%, 07/01/04 ..................................................................... 776,370
------------
25,749,227
------------
VIRGINIA .1%
3,670,000 Richmond, IDC Revenue, 7.35%, 07/01/21 .............................................................. 4,004,814
------------
WASHINGTON 1.4%
2,370,000 Chelan County Public Utilities District No. 1, Columbia River Rock 1st Hydro Electric
System Revenue, 6.375%, 06/01/29 .................................................................. 2,424,012
Washington State Health Care Facilities Authority Revenue,
10,000,000 Swedish Hospital Medical Center Seattle, AMBAC Insured, 6.30%, 11/15/12 ........................... 10,417,400
2,675,000 Swedish Hospital Medical Center Seattle, AMBAC Insured, 6.30%, 11/15/22 ........................... 2,808,429
Washington State Public Power Supply System Revenue, Nuclear Project No. 1,
10,335,000 Refunding, Series A, 6.50%, 07/01/15 .............................................................. 11,013,596
5,000,000 Refunding, Series C, PreRefunded, 8.00%, 07/01/17 ................................................. 5,997,250
14,300,000 Washington State Public Power Supply System Revenue, Nuclear Project No. 2, Refunding,
Series A, 6.00%, 07/01/12 ......................................................................... 14,458,587
30,000 Washington State Public Power Supply System Revenue, Nuclear Project No. 3, Refunding,
Series C, 5.375%, 07/01/15 ........................................................................ 28,309
1,000,000 Yakima-Tieton Irrigation District Revenue, Refunding, PreRefunded, 8.40%, 06/01/18 .................. 1,157,030
------------
48,304,613
------------
WEST VIRGINIA .5%
1,415,000 Beckley 1st Mortgage Revenue, Refunding, Pine Lodge Health Care Center, 10.25%, 08/01/12 ............ 1,504,499
2,185,000 Kanawha County IDR, Beverly Enterprise, 10.375%, 11/01/08 ........................................... 2,206,741
5,600,000 West Virginia State Hospital Finance Authority, Hospital Revenue, Refunding, St. Francis
Hospital, Charleston, 7.75%, 08/15/13 ............................................................. 5,702,312
West Virginia State Water Development Authority Revenue,
1,550,000 Loan Program II, Series A, PreRefunded, 8.625%, 11/01/28 .......................................... 1,847,848
2,790,000 Loan Program II, Series A, PreRefunded, 8.125%, 11/01/29 .......................................... 3,268,067
2,635,000 Solid Waste Management, Series C, 8.125%, 08/01/15 ................................................ 2,932,043
------------
17,461,510
------------
WISCONSIN .7%
Wisconsin State Health and Educational Facilities Authority Revenue,
1,000,000 Bethany Lutheran Home of La Crosse, 8.75%, 12/01/06 ............................................... 1,057,630
6,000,000 Franciscan Health System, Inc. Project, 8.375%, 03/01/05 .......................................... 6,814,380
</TABLE>
The accompanying notes are an integral part of these financial statements.
99
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
WISCONSIN (CONT.)
Wisconsin State Health and Educational Facilities Authority Revenue, (cont.)
$ 6,000,000 Franciscan Health System, Inc. Project, 8.50%, 03/01/20......................................... $ 6,761,100
5,000,000 Refunding, Felician Health Care, Series A, AMBAC Insured, 7.00%, 01/01/15....................... 5,536,400
1,670,000 Wisconsin State Health Facilities Authority Revenue, Refunding, Franciscan Health
Advisory, 7.80%, 03/01/14....................................................................... 1,770,968
--------------
21,940,478
--------------
WYOMING .1%
1,575,000 Natrona County Health Care Facility Revenue, Luthercare, Inc. Project, 9.25%, 07/15/08............ 1,703,551
--------------
TOTAL BONDS (COST $3,012,521,815)........................................................... 3,240,417,309
--------------
cZERO COUPON BONDS 2.3%
12,000,000 Harris County Flood Control District, Refunding, (original accretion rate 7.20%), 0.00%,
10/01/06 ....................................................................................... 5,478,360
2,990,000 Romeo Community School District, Refunding, FSA Insured, (original accretion rate
6.20%), 0.00%, 05/01/11......................................................................... 1,138,502
San Francisco City & County RDA, Lease Revenue,
3,750,000 George Moscone Center, (original accretion rate 7.00%), 0.00%, 07/01/09......................... 1,480,650
4,500,000 George Moscone Center, (original accretion rate 7.00%), 0.00%, 07/01/10......................... 1,659,015
4,500,000 George Moscone Center, (original accretion rate 7.05%), 0.00%, 07/01/12......................... 1,455,030
4,250,000 George Moscone Center, (original accretion rate 7.05%), 0.00%, 07/01/13......................... 1,292,043
2,250,000 George Moscone Center, (original accretion rate 7.05%), 0.00%, 07/01/14......................... 643,118
San Joaquin Hills Transportation, Corridor Agency Toll Road Revenue,
7,400,000 Jr. Lien, (original accretion rate 8.50%), 0.00%, 01/01/04...................................... 3,488,138
8,000,000 Jr. Lien, (original accretion rate 8.75%), 0.00%, 01/01/05...................................... 3,492,880
9,000,000 Jr. Lien, (original accretion rate 8.60%), 0.00%, 01/01/06...................................... 3,639,690
9,400,000 Jr. Lien, (original accretion rate 8.60%), 0.00%, 01/01/07...................................... 3,521,051
10,400,000 Jr. Lien, (original accretion rate 8.60%), 0.00%, 01/01/08...................................... 3,608,384
21,900,000 Jr. Lien, (original accretion rate 8.75%), 0.00%, 01/01/09...................................... 6,743,448
15,000,000 Jr. Lien, (original accretion rate 8.75%), 0.00%, 01/01/10...................................... 4,265,850
30,100,000 Jr. Lien, (original accretion rate 8.50%), 0.00%, 01/01/12...................................... 7,301,658
52,700,000 Jr. Lien, (original accretion rate 9.00%), 0.00%, 01/01/24...................................... 4,544,848
45,200,000 Jr. Lien, (original accretion rate 9.00%), 0.00%, 01/01/25...................................... 3,590,236
131,900,000 Jr. Lien, (original accretion rate 9.00%), 0.00%, 01/01/26...................................... 9,651,123
139,100,000 Jr. Lien, (original accretion rate 9.00%), 0.00%, 01/01/27...................................... 9,373,949
--------------
TOTAL ZERO COUPON BONDS (COST $61,494,694)................................................ 76,367,973
--------------
TOTAL LONG TERM INVESTMENTS (COST $3,074,016,509)......................................... 3,316,785,282
--------------
gSHORT TERM INVESTMENTS .2%
1,500,000 Houston, Texas, Health Facilities Development, Methodist Hospital Project, Daily VRDN
and Put, 2.30%, 12/01/14........................................................................ 1,500,000
800,000 New York State Energy Research & Development Authority PCR, Niagara Mohawk Power
Series A, Daily VRDN and Put, 2.20%, 07/1/15.................................................... 800,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
100
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
gSHORT TERM INVESTMENTS (CONT.)
Oregon States GO,
$ 500,000 Series 73-E, Weekly VRDN and Put, 2.50%, 12/01/16 ................................................ $ 500,000
300,000 Series 73-G, Weekly VRDN and Put, 2.35%, 12/01/18 ................................................ 300,000
2,600,000 Puerto Rico Government Development Bank, Weekly VRDN and Put, 2.25%, 12/01/15 ...................... 2,600,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $5,700,000) ............................................... 5,700,000
--------------
TOTAL INVESTMENTS (COST $3,079,716,509) 98.5% ............................................... 3,322,485,282
OTHER ASSETS AND LIBILITIES, NET 1.5% ........................................................ 50,047,912
--------------
NET ASSETS 100.0% ............................................................................ $3,372,533,194
==============
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $3,079,727,623 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................................ $ 270,786,710
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................................ (28,029,051)
--------------
Net unrealized appreciation .................................................................... $ 242,757,659
==============
</TABLE>
PORTFOLIO ABBREVIATIONS:
1915 ACT - Improvement Bond Act of 1915
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
CDA - Community Development Agency
CDR - Community Development Revenue
CRDA - Community Redevelopment Agency
COP - Certificate of Participation
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Corp.
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
IDB - Industrial Development Board
IDC - Industrial Development Corp.
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
PCR - Pollution Control Revenue
RDA - Redevelopment Agency
RHA - Resource Housing of America
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
USD - Unified School District
aNon-income producing.
bSee Note 6 regarding defaulted securities.
cZero coupon bonds. The current effective yield may vary. The original
accretion rate by security, as reported, will remain constant.
eSee Note 1 regarding securities purchased on a when-issued basis.
gVariable 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).
hSecurity value estimated by Board of Trustees. See note 1.
The accompanying notes are an integral part of these financial statements.
101
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost................................ $719,935,351 $183,061,015 $150,251,433 $43,172,339 $513,356,606
============ ============ ============ =========== ============
At value.......................................... 787,385,615 198,692,513 159,866,766 46,784,413 552,174,453
Cash................................................ 670,670 229,758 215,865 438,802 1,919,230
Receivables:
Interest.......................................... 9,860,263 3,512,918 2,950,421 607,444 8,637,562
Investment securities sold........................ 5,303,563 599,835 -- -- 5,033
Capital shares sold............................... 1,562,409 574,326 306,818 161,294 1,734,153
------------ ------------ ------------ ----------- ------------
Total assets................................ 804,782,520 203,609,350 163,339,870 47,991,953 564,470,431
------------ ------------ ------------ ----------- ------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery............................... 5,852,044 -- -- -- --
When-issued basis (Note 1)..................... -- 952,796 -- -- 1,871,943
Distributions payable to shareholders............. 840,633 206,574 136,865 40,763 489,897
Capital shares repurchased........................ 872,660 178,940 54,387 50,826 705,362
Management fees................................... 319,606 94,595 78,325 24,888 230,953
Shareholder servicing costs....................... 8,879 3,250 2,300 920 9,270
Accrued expenses and other liabilities............. 50,589 15,503 17,602 5,017 33,259
------------ ------------ ------------ ----------- ------------
Total liabilities.......................... 7,944,411 1,451,658 289,479 122,414 3,340,684
------------ ------------ ------------ ----------- ------------
Net assets, at value................................. $796,838,109 $202,157,692 $163,050,391 $47,869,539 $561,129,747
============ ============ ============ =========== ============
Net assets consist of:
Undistributed net investment income................ $ 858,804 $ 197,514 $ 146,237 $ 42,704 $ 259,824
Unrealized appreciation on investments............. 67,450,264 15,631,498 9,615,333 3,612,074 38,817,847
Accumulated net realized loss...................... (492,377) (314,793) (261,598) (143,717) (836,134)
Capital shares..................................... 729,021,418 186,643,473 153,550,419 44,358,478 522,888,210
------------ ------------ ------------ ----------- ------------
Net assets, at value................................ $796,838,109 $202,157,692 $163,050,391 $47,869,539 $561,129,747
============ ============ ============ =========== ============
Shares outstanding.................................. 68,826,579 16,934,511 14,514,694 3,987,092 47,457,617
============ ============ ============ =========== ============
Net asset value per share........................... $11.58 $11.94 $11.23 $12.01 $11.82
============ ============ ============ =========== ============
Representative computation (Franklin
Arizona Tax-Free Income Fund) of net
asset value and offering price per share:
Net asset value and redemption price per
share ($796,838,109 / 68,828,579)........... $11.58
============
Maximum offering price*+ (100/96 of $11.58)... $12.06
============
</TABLE>
*The maximum offering price for Franklin Federal Intermediate-Term Tax-Free
Income Fund is calculated at 100/97.75 of $10.80.
+Effective July 1, 1994, the maximum offering price will increase to 4.25%.
On sales of $100,000 or more, the offering price is reduced as stated in the
section of the Prospectus entitled "How to Buy Shares of the Fund."
The accompanying notes are an integral part of these financial statements.
102
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (cont.)
STATEMENTS OF ASSETS AND LIABILITIES (cont.)
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost.......................... $345,892,642 $560,713,943 $158,713,261 $66,470,394 $3,079,716,509
============ ============ ============ =========== ==============
At value.................................... 369,568,236 608,048,899 172,198,433 67,111,591 3,322,485,282
Cash......................................... 389,493 583,946 266,963 524,568 781,571
Receivables:
Interest.................................... 5,673,365 10,533,259 2,645,984 950,838 64,455,562
Investment securities sold.................. 1,905,290 1,350,000 -- 5,106 2,112,132
Capital shares sold......................... 805,599 1,476,180 366,091 435,112 10,794,783
------------ ------------ ------------ ----------- --------------
Total assets.......................... 378,341,983 621,992,284 175,477,471 69,027,215 3,400,629,330
------------ ------------ ------------ ----------- --------------
Liabilities:
Payables:
Investment securities purchased:
When-issued basis (Note 1)................. 1,985,278 5,022,917 -- 1,211,206 20,932,304
Distributions payable to shareholders....... 302,812 658,677 187,067 60,301 3,547,124
Capital shares repurchased.................. 180,529 459,956 152,415 115,410 2,084,296
Management fees............................. 161,660 251,720 83,363 21,180 1,285,786
Shareholder servicing costs................. 5,530 10,099 3,800 1,015 49,551
Accrued expenses and other liabilities....... 22,350 43,381 14,853 15,129 197,075
------------ ------------ ------------ ----------- --------------
Total liabilities..................... 2,658,159 6,446,750 441,498 1,424,241 28,096,136
------------ ------------ ------------ ----------- --------------
Net assets, at value.......................... $375,683,824 $615,545,534 $175,035,973 $67,602,974 $3,372,533,194
============ ============ ============ =========== ==============
Net assets consist of:
Undistributed net investment income.......... $ 469,533 $ 746,662 $ 410,812 $ 66,016 $ 2,517,139
Unrealized appreciation on investments....... 23,675,594 47,334,956 13,485,172 641,197 242,768,773
Accumulated net realized loss................ (344,823) (563,377) (365,261) (13,267) (32,901,847)
Capital shares............................... 351,883,520 568,027,293 161,505,250 66,909,028 3,160,149,129
------------ ------------ ------------ ----------- --------------
Net assets, at value.......................... $375,683,824 $615,545,534 $175,035,973 $67,602,974 $3,372,533,194
============ ============ ============ =========== ==============
Shares outstanding............................ 32,112,174 58,271,465 14,801,566 6,259,709 299,864,353
============ ============ ============ =========== ==============
Net asset value per share..................... $11.70 $10.56 $11.83 $10.80 $11.25
============ ============ ============ =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
103
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (cont.)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest (Note 1)................ $47,139,814 $11,535,087 $9,189,112 $2,727,997 $31,168,214
----------- ----------- ---------- ---------- -----------
Management fees (Note 5) ........ 3,701,321 1,046,886 876,259 272,338 2,552,530
Shareholder servicing
costs (Note 5)................. 109,786 36,404 25,710 10,111 106,915
Custodian fees .................. 83,216 20,019 16,270 4,742 55,340
Reports to shareholders.......... 120,336 39,409 38,581 9,903 108,859
Professional fees ............... 20,387 5,677 4,805 2,106 13,988
Trustees' fees and expenses ..... 13,903 3,294 2,680 778 9,129
Other ........................... 29,988 8,942 7,937 4,652 17,128
----------- ----------- ---------- ---------- -----------
Total expenses ............... 4,078,935 1,160,631 972,242 304,630 2,861,889
----------- ----------- ---------- ---------- -----------
Net investment income ........ 43,060,879 10,374,456 8,216,870 2,423,367 28,306,325
----------- ----------- ---------- ---------- -----------
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) ....... 2,167,355 (48,802) 163,733 (115,564) (816,160)
Net unrealized appreciation
(depreciation) during the year. (1,451,799) 1,198,857 579,348 372,216 (524,329)
----------- ----------- ---------- ---------- -----------
Net realized and unrealized
gain (loss) on investments..... 715,556 1,150,055 743,081 256,652 (1,340,489)
----------- ----------- ---------- ---------- -----------
Net increase in net assets
resulting from operations..... $43,776,435 $11,524,511 $8,959,951 $2,680,019 $26,965,636
=========== =========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
104
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (cont.)
STATEMENTS OF OPERATIONS (cont.)
FOR THE YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION> FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest (Note 1)........... $21,045,512 $36,666,325 $10,349,028 $1,940,917 $226,151,095
----------- ----------- ----------- ---------- ------------
Expenses:
Management fees (Note 5).... 1,832,220 2,828,236 936,205 45,151 14,279,943
Shareholder servicing costs
(Note 5)................... 63,229 118,789 43,895 5,527 586,157
Custodian fees.............. 38,192 62,008 17,650 4,379 336,226
Reports to shareholders..... 67,762 126,976 39,993 6,552 583,695
Professional fees........... 9,909 15,476 5,108 8,268 257,038
Trustees' fees and expenses. 6,304 10,291 2,915 -- 55,907
Distribution fees
(Rule 12b-1) (Note 5)...... -- -- -- 10,278 --
Other....................... 15,680 20,634 12,545 32,235 238,683
----------- ----------- ----------- ---------- ------------
Total expenses.......... 2,033,316 3,182,610 1,058,311 112,390 16,337,649
----------- ----------- ----------- ---------- ------------
Net investment income.. 19,012,196 33,483,715 9,290,717 1,828,527 209,813,446
----------- ----------- ----------- ---------- ------------
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss).... (54,202) 502,951 (120,033) (13,267) (32,087,278)
Net unrealized appreciation
(depreciation) during
the year................... (1,162,634) (440,476) 213,990 395,231 76,071,675
----------- ----------- ----------- ---------- ------------
Net realized and unrealized
gain (loss) on investments. (1,216,836) 62,475 93,957 381,964 43,984,397
----------- ----------- ----------- ---------- ------------
Net increase in net assets
resulting from operations. $17,795,360 $33,546,190 $ 9,384,674 $2,210,491 $253,797,843
=========== =========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
105
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1994 AND 1993
<TABLE>
<CAPTION>
FRANKLIN INDIANA FRANKLIN NEW JERSEY FRANKLIN OREGON
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- --------------------------- ---------------------------
1994 1993 1994 1993 1994 1993
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.................. $ 2,423,367 $ 1,794,489 $ 28,306,325 $ 22,569,544 $ 19,012,196 $ 14,720,702
Net realized gain (loss) from
security transactions................. (115,564) 621 (816,160) 190,615 (54,202) (262,334)
Net unrealized appreciation
(depreciation) during the year........ 372,216 2,288,814 (524,329) 23,038,227 (1,162,634) 16,690,929
----------- ----------- ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations.......... 2,680,019 4,081,924 26,965,836 45,798,386 17,795,360 31,149,297
Distributions to shareholders:
From undistributed net investment income (2,415,719) (1,788,558) (28,824,200) (22,315,754) (19,045,652) (14,448,564)
From realized gain on securities
transactions........................... -- -- -- (187,340) -- --
Increase in net assets from capital share
transactions (Note 2)................... 10,238,426 11,159,064 129,286,136 77,870,676 73,214,689 78,046,478
----------- ----------- ------------ ------------ ------------ ------------
Net increase in net assets............ 10,502,726 13,452,430 127,427,772 101,165,968 71,964,397 94,747,211
Net assets:
Beginning of year....................... 37,366,813 23,914,383 433,701,975 332,536,007 303,719,427 208,972,216
----------- ----------- ------------ ------------ ------------ ------------
End of year............................. $47,869,539 $37,366,813 $561,129,747 $433,701,975 $375,683,824 $303,719,427
=========== =========== ============ ============ ============ ============
Undistributed net investment income
included in net assets:
Beginning of year...................... $ 35,056 $ 29,125 $ 777,699 $ 523,909 $ 502,989 $ 230,851
=========== =========== ============ ============ ============ ============
End of year............................ $ 42,704 $ 35,056 $ 259,824 $ 777,699 $ 469,533 $ 502,989
=========== =========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
106
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 28, 1994 AND 1993
<TABLE>
<CAPTION>
FRANKLIN ARIZONA FRANKLIN COLORADO FRANKLIN CONNECTICUT
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- --------------------------- ---------------------------
1994 1993 1994 1993 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.................. $ 43,060,879 $ 38,848,681 $ 10,374,456 $ 8,147,052 $ 8,216,870 $ 6,384,379
Net realized gain (loss) from security
transactions.......................... 2,167,355 (2,325,068) (48,802) (224,977) 163,733 (303,385)
Net unrealized appreciation
(depreciation) during the year........ (1,451,799) 45,073,505 1,198,857 10,478,960 579,348 7,180,626
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations..................... 43,776,435 81,597,118 11,524,511 18,401,035 8,959,951 13,261,620
Distributions to shareholders:
From undistributed net investment
income................................. (43,768,763) (37,898,345) (10,448,564) (8,028,059) (8,245,310) (6,292,187)
Increase in net assets from capital share
transactions (Note 2)................... 89,128,757 78,017,012 41,801,490 38,822,268 35,520,199 31,662,166
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets............ 89,136,429 121,715,785 42,877,437 49,195,244 36,234,840 38,631,599
Net assets:
Beginning of year....................... 707,701,680 585,985,895 159,280,255 110,085,011 126,815,551 88,183,952
------------ ------------ ------------ ------------ ------------ ------------
End of year............................. $796,838,109 $707,701,680 $202,157,692 $159,280,255 $163,050,391 $126,815,551
============ ============ ============ ============ ============ ============
Undistributed net investment income
included in net assets:
Beginning of year...................... $ 1,566,688 $ 616,352 $ 271,622 $ 152,629 $ 174,677 $ 82,485
============ ============ ============ ============ ============ ============
End of year........................... $ 858,804 $ 1,566,888 $ 197,514 $ 271,622 $ 146,237 $ 174,677
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
107
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1994 AND 1993
<TABLE>
<CAPTION>
FRANKLIN PENNSYLVANIA FRANKLIN PUERTO RICO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.......................................... $ 33,483,715 $ 28,040,480 $ 9,290,717 $ 7,784,032
Net realized gain (loss) from security transactions............ 502,951 (308,838) (120,033) 250,976
Net unrealized appreciation (depreciation) during the year..... (440,476) 31,835,249 213,990 7,297,862
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations......... 33,546,190 59,566,891 9,384,874 15,332,870
Distributions to shareholders:
From undistributed net investment income....................... (33,696,846) (27,508,622) (9,358,331) (7,513,871)
From realized gain on securities transactions.................. -- -- -- --
Increase in net assets from capital share transactions (Note 2).. 109,850,819 82,485,835 30,203,734 24,272,817
------------ ------------ ------------ ------------
Net increase in net assets................................... 109,700,063 114,544,204 30,230,077 32,091,816
Net assets:
Beginning of year................................................ 505,845,471 391,301,267 144,805,896 112,714,080
------------ ------------ ------------ ------------
End of year...................................................... $615,545,534 $505,845,471 $175,035,973 $144,805,896
============ ============ ============ ============
Undistributed net investment income included in net assets:
Beginning of year................................................ $ 959,579 $ 427,721 $ 478,426 $ 208,265
============ ============ ============ ============
End of year...................................................... $ 748,662 $ 969,579 $ 410,812 $ 478,426
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FEDERAL INTERMEDIATE- FRANKLIN HIGH YIELD
TERM TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------ -------------------------------
1994 1993 1994 1993
------------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.......................................... $ 1,828,527 $ 90,179 $ 209,813,446 $ 180,332,317
Net realized gain (loss) from security transactions............ (13,267) 1,312 (32,087,278) 10,910,579
Net unrealized appreciation (depreciation) during the year..... 396,231 245,966 76,071,675 130,154,034
----------- ---------- -------------- --------------
Net increase in net assets resulting from operations......... 2,210,491 337,457 253,797,843 321,396,830
Distributions to shareholders:
From undistributed net investment income....................... (1,800,704) (51,986) (213,633,875) (176,569,672)
From realized gain on securities transactions.................. -- -- -- (2,266,287)
Increase in net assets from capital share transactions (Note 2).. 58,001,366 8,906,350 589,604,213 490,148,992
----------- ---------- -------------- --------------
Net increase in net assets................................... 58,411,153 9,191,821 629,768,181 632,709,963
Net assets:
Beginning of year................................................ 9,191,821 -- 2,742,765,013 2,110,055,050
----------- ---------- -------------- --------------
End of year...................................................... $67,602,974 $9,191,821 $3,372,533,194 $2,742,765,013
=========== ========== ============== ==============
Undistributed net investment income included in net assets:
Beginning of year................................................ $ 38,193 $ -- $ 6,337,568 $ 2,574,923
=========== ========== ============== ==============
End of year...................................................... $ 66,016 $ 38,793 $ 2,517,139 $ 6,337,568
=========== ========== ============== ==============
</TABLE>
(1)For the period September 21, 1992 (effective date of registration) to
February 28, 1993.
The accompanying notes are an integral part of these financial statements.
108
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is an open-end, management investment
company (mutual fund) registered under the Investment Company Act of 1940 as
amended. The Trust currently consists of twenty-seven separate funds (the
Funds). This report pertains only to the ten Funds included in the accompanying
financial statements. Each of the Funds issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio. The Trust's
Franklin Connecticut Tax-Free Income Fund and the Franklin Federal
Intermediate-Term Tax-Free Income Fund are non-diversified, although all other
Funds included in this report are diversified.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATIONS: Tax-free bonds generally trade in the over-the-counter
market rather than on a national securities exchange. Often there are no
transactions in a particular security on any given day. In the absence of a
recorded sale or reported bid and asked prices, information with respect to
bond and note transactions, quotations from bond dealers, market transactions
in comparable securities, and various relationships between securities are used
to determine the value of the security. The Trust may also utilize a pricing
service, bank or broker/dealer experienced in such matters to perform any of
the pricing functions, under procedures approved by the Board of Trustees.
Short-term securities and similar investments with remaining maturities of 60
days or less are valued at amortized cost, which approximates value.
B. MUNICIPAL BONDS OR NOTES WITH "PUTS": The Trust has purchased municipal
bonds or notes with the right to resell the bonds or notes to the seller at an
agreed upon price or yield on a specified date or within a specified period
(which will be prior to the maturity date of the bonds or notes). Such a right
to resell is commonly known as a "put".
C. INCOME TAXES: The Trust 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, if any, are amortized as required
by the Internal Revenue Code. The Funds normally declare dividends from their
net investment income daily and distribute monthly. Daily allocations of net
investment income will commence on the date of receipt of an investor's funds.
Dividends are normally declared each day the New York Stock Exchange is open
for business equal to an amount per day set from time to time by the Board of
Trustees and are payable to shareholders of record at the beginning of business
on the ex-date. Once each month, dividends are reinvested in additional shares
of the Fund or paid in cash as requested by the shareholders.
Distributions from undistributed net investment income, and net realized
capital gains from security transactions, to the extent they exceed available
capital loss carryovers, are generally made during each year to avoid the 4%
excise tax imposed on regulated investment companies by the Internal Revenue
Code.
Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of interest income on defaulted
securities -- see Note 6.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to losses deferred from wash sales.
F. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: The Funds 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 may be more or less than the trade date
purchase price transactions. Although the Funds will generally purchase these
securities with the intention of acquiring such securities, they may sell such
securities before the settlement date. The Funds have 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.
109
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
g. EXPENSE ALLOCATION: Common expenses incurred by the Trust are allocated
among the Funds based on the ratio of net assets of each Fund to the combined
net assets. In all other respects, expenses are charged to each Fund as
incurred on a specific identification basis.
h. CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS: Effective February
28, 1994, the Funds 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.
2. TRUST SHARES
At February 28, 1994, there were an unlimited number of shares of no par value
authorized. Transactions in each of the Funds' shares for the years ended
February 28, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
FRANKLIN ARIZONA FRANKLIN COLORADO FRANKLIN CONNECTICUT FRANKLIN INDIANA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------ ------------------------ ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994
Shares sold ................ 10,731,345 $124,909,839 3,903,990 $ 46,699,264 3,545,800 $ 39,948,225 1,275,280 $15,344,871
Shares issued in reinvestment
of distributions .......... 1,190,334 13,872,249 356,019 4,260,259 303,266 3,420,636 99,283 1,195,794
Shares redeemed ............ (4,697,506) (54,750,815) (1,235,128) (14,793,458) (902,414) (10,186,672) (493,716) (5,902,005)
Changes from exercise of
exchange privilege:
Shares sold .............. 1,978,191 23,073,197 872,731 10,457,740 514,425 5,790,651 234,890 2,835,671
Shares redeemed .......... (1,544,073) (17,975,713) (403,026) (4,822,315) (306,485) (3,452,641) (268,675) (3,235,905)
---------- ------------ --------- ------------ --------- ------------ --------- -----------
Net increase ............... 7,658,291 $ 89,128,757 3,494,586 $ 41,801,490 3,154,612 $ 35,520,199 847,062 $10,238,426
========== ============ ========= ============ ========= ============ ========= ===========
1993
Shares sold ................ 10,698,748 $118,641,138 3,603,675 $ 40,784,503 3,733,504 $ 39,975,963 1,044,285 $11,917,773
Shares issued in reinvestment
of distributions .......... 1,072,516 11,904,007 299,410 3,387,859 264,802 2,833,256 76,476 870,370
Shares redeemed ............ (4,970,045) (54,984,721) (1,118,967) (12,646,850) (964,522) (10,360,914) (175,176) (1,986,732)
Changes from exercise of
exchange privilege:
Shares sold .............. 2,055,724 22,838,205 953,682 10,800,658 488,690 5,208,124 228,023 2,578,001
Shares redeemed .......... (1,840,587) (20,381,617) (309,558) (3,503,902) (588,811) (5,994,263) (194,793) (2,220,348)
---------- ------------ --------- ------------ --------- ------------ --------- -----------
Net increase ............... 7,016,356 $ 78,017,012 3,428,242 $ 38,822,268 2,953,663 $ 31,662,166 978,815 $11,159,064
========== ============ ========= ============ ========= ============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN NEW JERSEY FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------ ---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
1994
Shares sold .......................................... 12,844,291 $153,010,120 7,291,665 $85,851,067 12,436,846 $132,160,316
Shares issued in reinvestment of distribution ........ 1,079,918 12,870,266 777,027 9,156,392 1,110,313 11,798,953
Shares redeemed ...................................... (3,031,217) (36,155,593) (2,405,841) (28,382,167) (3,610,572) (38,344,857)
Changes from exercise of exchange privilege:
Shares sold ........................................ 1,223,509 14,566,749 1,328,080 15,643,163 1,374,918 14,606,798
Shares redeemed .................................... (1,261,880) (15,005,406) (766,167) (9,053,766) (975,101) (10,370,391)
---------- ------------ --------- ------------ ---------- ------------
Net increase ......................................... 10,854,621 $129,286,136 6,224,764 $ 73,214,689 10,336,404 $109,850,819
========== ============ ========= ============ ========== ============
</TABLE>
110
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
2. TRUST SHARES (CONT.)
<TABLE>
<CAPTION>
FRANKLIN NEW JERSEY FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1993
Shares sold ................................ 8,906,616 $101,728,408 7,402,089 $83,271,845 10,098,412 $101,977,129
Shares issued in reinvestment
of distributions.......................... 896,397 10,225,225 628,170 6,957,679 947,178 9,557,585
Shares redeemed............................. (3,013,226) (34,285,286) (1,791,406) (20,122,180) (3,470,503) (34,981,097)
Changes from exercise of exchange privilege:
Shares sold............................... 1,130,693 12,904,343 1,314,985 14,792,300 1,248,931 12,650,365
Shares redeemed........................... (1,118,963) (12,702,014) (612,693) (6,853,166) (664,315) (6,738,047)
--------- ------------ --------- ----------- ---------- ------------
6,801,517 $ 77,870,676 6,931,125 $78,046,478 8,159,703 $ 82,485,935
Net increase................................ ========= ============ ========= =========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FEDERAL
FRANKLIN PUERTO RICO INTERMEDIATE-TERM FRANKLIN HIGH YIELD
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994
Shares sold ................................ 3,383,748 $40,176,539 4,213,747 $45,372,770 68,715,489 $769,333,841
Shares issued in reinvestment
of distributions.......................... 327,573 3,880,149 89,826 972,049 5,995,877 67,208,174
Shares redeemed............................. (1,034,636) (12,281,340) (353,985) (3,845,607) (20,804,398) (233,218,712)
Changes from exercise of exchange privilege:
Shares sold............................... 244,614 2,910,335 1,812,152 19,576,758 11,970,484 134,417,257
Shares redeemed........................... (378,581) (4,491,949) (373,747) (4,074,604) (13,198,255) (148,136,347)
--------- ----------- --------- ----------- ----------- ------------
Net increase................................ 2,542,718 $30,203,734 5,387,983 $58,001,366 52,679,197 $589,604,213
========= =========== ========= =========== =========== ============
1993**
Shares sold ................................ 2,733,346 $31,167,382 620,989 $ 8,335,867 60,371,513 $644,824,923
Shares issued in reinvestment
of distributions.......................... 264,356 3,009,102 3,244 33,638 5,315,057 56,884,128
Shares redeemed............................. (920,074) (10,456,039) (729) (7,523) (21,194,778) (226,611,761)
Changes from exercise of exchange privilege:
Shares sold............................... 276,365 3,157,896 251,282 2,576,136 12,995,301 138,601,805
Shares redeemed........................... (230,569) (2,605,524) (3,070) (30,768) (11,557,799) (123,550,103)
---------- ----------- --------- ----------- ----------- ------------
Net increase................................ 2,123,424 $24,272,817 871,716 $ 8,906,350 45,929,294 $490,148,992
========== =========== ========= =========== =========== ============
</TABLE>
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At February 28, 1994, for income tax purposes, the funds had accumulated
capital loss carryovers as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Capital loss carryovers
Expiring in 1996..... - - - - -
1997..... - - - $ 3,344 -
1998..... - - - - -
1999..... - $ 31,579 - 24,809 -
2000..... - - - - -
2001..... $479,467 224,977 $261,598 - -
2002..... - 57,349 - 115,564 $834,134
-------- -------- -------- -------- --------
$479,467 $313,905 $261,598 $143,717 $836,134
======== ======== ======== ======== ========
</TABLE>
111
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (cont.)
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (CONT.)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Capital loss carryovers
Expiring in: 1996................................... -- -- $138,864 -- --
1997................................... -- -- 47,310 -- --
1998................................... -- -- -- -- --
1999................................... $ 24,807 $132,175 25,692 -- --
2000................................... -- 122,364 -- -- --
2001................................... 262,334 308,838 -- -- --
2002................................... 54,202 -- 120,112 $13,267 $32,890,733
-------- -------- -------- ------- -----------
$341,343 $563,377 $331,978 $13,267 $32,890,733
======== ======== ======== ======= ===========
</TABLE>
The aggregate cost of securities is higher (and unrealized appreciation
is lower) for income tax purposes than for financial reporting purposes at
February 28, 1994 by $12,910 in the Franklin Arizona Tax-Free Income Fund, $888
in the Franklin Colorado Tax-Free Income Fund, $3,480 in the Franklin Oregon
Tax-Free Income Fund, $33,283 in the Franklin Puerto Rico Tax-Free Income Fund
and $11,114 in the Franklin High Yield Tax-Free Income Fund.
4. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and
sales of short-term securities) for the year ended February 28, 1994, were as
follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Purchases.................................. $200,378,157 $ 59,439,606 $42,729,400 $16,425,886 $ 139,077,472
============ ============ =========== =========== ==============
Sales...................................... $106,843,890 $ 19,484,685 $ 8,057,252 $ 6,817,820 $ 20,606,995
============ ============ =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Purchases.................................. $107,579,992 $133,710,618 $37,094,277 $63,223,866 $1,060,929,081
============ ============ =========== =========== ==============
Sales...................................... $ 32,159,075 $ 26,177,584 $ 8,026,147 $10,321,988 $ 490,084,534
============ ============ =========== =========== ==============
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement,
provides for investment advice, administrative services, office space and
facilities to each Fund, and receives fees computed monthly on the net assets of
each 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, and 45/100 of 1% of net assets in
excess of $250 million. Fees incurred by the ten Funds aggregated $28,572,270
for the year ended February 28, 1994. The terms of the management agreement
provide that aggregate annual expenses of the Funds be limited to the extent
necessary to comply with the limitations set forth in the laws, regulations and
administrative interpretations of the states in which the Funds shares are
registered. The Funds' expenses did not exceed these limitations; however, for
the year ended February 28, 1994, Franklin Advisers, Inc. reduced its management
fees by $201,181 for the Franklin Federal Intermediate-Term Tax-Free Income
Fund.
The accompanying notes are an integral part of these financial statements.
112
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
In its capacity as underwriter for the shares of the Funds,
Franklin/Templeton Distributors, Inc. received commissions on sales of the
Funds' shares. Commissions received by Franklin/Templeton Distributors, Inc. and
the amounts which were subsequently paid to other dealers for the year ended
February 28, 1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total commissions received............... $4,856,037 $1,851,780 $1,525,567 $512,478 $5,864,699
========== ========== ========== ======== ==========
Paid to other dealers.................... $4,609,675 $1,766,011 $1,457,899 $493,597 $5,619,474
========== ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Total commissions received............... $3,420,681 $5,211,610 $1,580,955 $729,010 $28,269,127
========== ========== ========== ======== ===========
Paid to other dealers.................... $3,250,943 $4,977,728 $1,507,342 $643,695 $27,116,786
========== ========== ========== ======== ===========
</TABLE>
Commissions are deducted from the gross proceeds received from the sale
of the Funds' shares, and as such are not expenses of the Funds.
Under the terms of a shareholder servicing agreement with
FRANKLIN/Templeton Investor Services, Inc., the Trust pays costs on a per
shareholder account basis. Shareholder servicing costs incurred by the ten Funds
for the year ended February 28, 1994 aggregated $1,108,071, of which $1,054,329
was paid to FRANKLIN/Templeton Investor Services, Inc. Shareholder servicing
fees which would have been incurred by the FRANKLIN Federal Intermediate-Term
TAX-FREE INCOME FUND but were borne by FRANKLIN Advisers, Inc., totalled $1,548.
Under the terms of a Distribution Plan pursuant to Rule 12b-1 of the
Investment Company Act of 1940, the FRANKLIN Federal Intermediate-Term TAX-FREE
INCOME FUND will reimburse FRANKLIN/Templeton Distributors, Inc., in an amount
up to .10% per annum of the Fund's average daily net assets for the costs
incurred in the promotion, offering and marketing of the Funds' shares. Fees
incurred by the FRANKLIN Federal Intermediate-Term TAX-FREE INCOME FUND under
the agreement aggregated $23,885 for the year ended February 28, 1994, of which
$13,607 was borne by FRANKLIN/Templeton Distributors, Inc.
Certain officers and trustees of the Trust are also officers and/or
directors of FRANKLIN/Templeton Distributors, Inc., FRANKLIN Advisers, Inc. and
FRANKLIN/Templeton Investor Services Inc., all wholly owned subsidiaries of
FRANKLIN Resources, Inc.
6. CREDIT RISK
Although each of the Funds has a diversified investment portfolio, other
than the FRANKLIN Connecticut TAX-FREE INCOME FUND and the FRANKLIN Federal
Intermediate-Term TAX-FREE INCOME FUND, all of their investments are in the
securities of issuers within their respective states and Puerto Rico except for
the FRANKLIN Federal Intermediate-Term TAX-FREE INCOME FUND and the FRANKLIN
High Yield TAX-FREE INCOME FUND. Such concentration may subject these Funds
more significantly to economic changes occurring within those states and Puerto
Rico.
The FRANKLIN Federal Intermediate-Term TAX-FREE INCOME FUND has
investments in excess of 10% of its total net assets in the state of California.
The FRANKLIN High Yield TAX-FREE INCOME FUND has investments in excess of 10% of
its total net assets in the states of California and New York.
Although the FRANKLIN High Yield TAX-FREE INCOME FUND has a diversified
portfolio, the Fund has 22.8% 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.
113
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
6. CREDIT RISK (CONT.)
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
February 28, 1994 the Franklin High Yield Tax-Free Income Fund held seven
defaulted securities issued by seven separate entities, with a value
aggregating $753,500, representing 0.02% of the Fund's net assets. For more
information as to specific securities, 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 beneficial interest outstanding throughout each
period are set forth in the Prospectus under the caption "Financial
Highlights."
During this fiscal year, each Fund paid distributions from undistributed net
investment income in the amounts shown in the Statement of Changes in Net
Assets. Each Fund hereby designates the total amount of these distributions as
exempt-interest dividends under Section 852(b)(5) of the Internal Revenue Code.
114
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This page intentionally left blank.
<PAGE>
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
FRANKLIN TAX-FREE TRUST
DATED JULY 1, 1994
AS AMENDED SEPTEMBER 30, 1994
The following sections of the prospectus are revised to reflect changes to the
operational policies of the Fund effective February 1, 1995:
1. EXPENSE TABLE
Revised to reflect that investments of $1,000,000 or more are not subject to a
front-end sales charge. A contingent deferred sales charge of 1%, however, will
be imposed on certain redemptions within 12 months of the calendar month
following such investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
2. MANAGEMENT OF THE FUND
Revised to add the definition "Franklin Templeton Group" to describe the
subsidiaries of Resources.
3. HOW TO BUY SHARES OF THE FUND:
a) Add the following language under "General":
The Fund may impose a $10 charge for each returned item against any
shareholder account which, in connection with the purchase of the Fund
shares, submits a check or a draft which is returned unpaid to a Fund.
b) Substitute the following for the sales charge table and the ensuing two
paragraphs:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-------------------------------------------------------------
AS A AS A DEALER CONCESSION
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF NET AS A PERCENTAGE
AT OFFERING PRICE OFFERING PRICE AMOUNT INVESTED OF OFFERING PRICE*,***
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 .................. 2.25% 2.30% 2.00%
$100,000 but less than $250,000 ..... 1.75% 1.78% 1.50%
$250,000 but less than $500,000 ..... 1.25% 1.26% 1.00%
$500,000 but less than $1,000,000 ... 1.00% 1.01% 0.85%
$1,000,000 or more .................. none none (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, from its own
resources, to securities dealers who initiate and are responsible for
purchases of $1 million or more: 0.75% on sales of $1 million but less than
$2 million, plus 0.60% on sales of $2 million but less than $3 million, plus
0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales
of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. Dealer concession breakpoints are reset every 12 months for
purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at times be
allowed to the securities dealer. If 90% or more of the sales commission is
allowed, such securities dealer may be deemed to be an underwriter as that
term is defined in the Securities Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
investments of $1 million or more within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares of
the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the
shareholder's current purchase plus the cost or current value (whichever is
higher) of a shareholder's existing investment in one or more of the funds in
the Franklin
1
<PAGE>
Group of Funds(R) 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. mutual funds in the Templeton Group of Funds except Templeton American
Trust, Inc., Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund (the "Templeton
Funds"). (Franklin Funds and Templeton Funds are collectively referred to as
the "Franklin Templeton Funds.") Sales charge reductions based upon aggregate
holdings of (a), (b) and (c) above ("Franklin Templeton Investments") may be
effective only after notification to Distributors that the investment
qualifies for a discount. References throughout the Prospectus, for purposes
of aggregating assets or describing the exchange privilege, refer to the
above descriptions.
Distributors, or one of its affiliates, may make payments, out of its own
resources, of up to 1% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset value by certain
trust companies and trust departments of banks. See definition under
"Description of Special Net Asset Value Purchases" as set forth in the SAI.
c) Substitute the following for the current "Purchases at Net Asset Value"
subsection:
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased without the imposition of either a
front-end sales charge ("net asset value") or a contingent deferred sales
charge by (1) officers, directors, trustees 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; (2) companies exchanging
shares with or selling assets pursuant to a merger, acquisition or exchange
offer; (3) registered securities dealers and their affiliates, for their
investment account only, and (4) registered personnel and employees of
securities dealers, and by their spouses and family members, in accordance
with the internal policies and procedures of the employing securities dealer.
Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund or another
of the Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. An
investor may reinvest an amount not exceeding the redemption proceeds. While
credit will be given for any contingent deferred sales charge paid on the
shares redeemed, a new contingency period will begin. Shares of the Fund
redeemed in connection with an exchange into another fund (see "Exchange
Privilege") are not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 120 days after the redemption. The 120 days, however, do not begin to
run on redemption proceeds placed immediately after redemption in a Franklin
Bank Certificate of Deposit ("CD") until the CD (including any rollover)
matures. Reinvestment at net asset value may also be handled by a securities
dealer or other financial institution, who may charge the shareholder a fee
for this service. The redemption is a taxable transaction but reinvestment
without a sales charge may affect the amount of gain or loss recognized and
the tax basis of the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the same fund is
made within a 30-day period. Information regarding the possible tax
consequences of such a reinvestment is included in the tax section of this
Prospectus and the SAI.
Dividends and capital gains received in cash by the shareholder may also be
used to purchase shares of the Fund or another of the Franklin Templeton
Funds at net asset value and without the imposition of a contingent deferred
sales charge within 120 days of the payment date of such distribution. To
exercise this privilege, a written request to reinvest the distribution must
accompany the purchase order. Addi-
2
<PAGE>
tional information may be obtained from Shareholder Services at
1-800/632-2301. See "Distributions in Cash" under "Distributions to
Shareholders."
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have,
within the past 60 days, redeemed an investment in an unaffiliated mutual
fund which charged the investor a contingent deferred sales charge upon
redemption and which has investment objectives similar to those of the Fund.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by registered investment
advisors and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with Distributors, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or
city, or any instrumentality, department, authority or agency thereof which
has determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any,
of various payments made by the Fund or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority
at net asset value is made through a dealer who has executed a securities
dealer agreement with Distributors, Distributors or one of its affiliates may
make a payment, out of their own resources, to such securities dealer in an
amount not to exceed 0.25% of the amount invested. Contact Franklin's
Institutional Sales Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or
to be invested during the subsequent 13-month period in this Fund or any of
the Franklin Templeton Investments must total at least $1,000,000. Orders for
such accounts will be accepted by mail accompanied by a check or by telephone
or other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.
Refer to the SAI for further information.
4. EXCHANGE PRIVILEGE
a) The following option is added to "Exchanges By Telephone":
The automatic TeleFACTS(R) system at 1-800/247-1753 is available for
processing exchanges (day or night). During periods of drastic economic or
market changes, however, this option may not be available, in which event the
shareholder should follow other exchange procedures discussed in the
Prospectus.
b) The subsection "Miscellaneous Information" is retitled "Additional
Information Regarding Exchanges" and the following paragraph is added to this
section:
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 a contingency period, a contingent deferred sales charge will be
im-
3
<PAGE>
posed. The contingency period will be tolled (or stopped) for the period such
shares are exchanged into and held in a Franklin or Templeton money market
fund. See also "How to Sell Shares of the Fund - Contingent Deferred Sales
Charge."
c) Substitute the following for the subsection "Timing Accounts":
As of March 1, 1995, "Timing Accounts" will no longer be permitted to
purchase shares of the Funds or to exchange into the Funds. This policy does
not affect any other types of investor. "Timing Accounts" generally include
market timing or allocation services; accounts administered so as to redeem
or purchase shares based on certain predetermined market indicators; or any
person whose transactions seem to follow a timing pattern. The sections of
the Prospectus "How to Buy Shares of the Fund" and "Exchange Privilege",
specifically "Restrictions on Exchanges," are hereby amended to reflect the
Fund's new policy.
5. HOW TO SELL SHARES OF THE FUND
Add the following subsection:
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers on investments of
$1 million or more, a contingent deferred sales charge of 1% applies to
redemptions of those investments within 12 months of the calendar month
following such purchase. The charge is 1% of the lesser of the value of the
shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the total cost of such shares, and is retained by
Distributors. In determining if a charge applies, shares not subject to a
contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than 12 months; (ii) shares purchased
with reinvested dividends and capital gain distributions; and (iii) other
shares held longer than 12 months; and followed by any shares held less than
12 months, on a "first in, first out" basis.
The contingent deferred sales charge is waived for: exchanges; redemptions
through a Systematic Withdrawal Plan set up prior to February 1, 1995 and for
Systematic Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6% semiannually or 12%
annually); and redemptions initiated by the Fund due to a shareholder's
account falling below the minimum specified account size.
Requests for redemptions for a specified dollar amount will result in
additional shares being redeemed to cover any applicable contingent deferred
sales charge while requests for redemption of a specific number of shares
will result in the applicable contingent deferred sales charge being deducted
from the total dollar amount redeemed.
6. PORTFOLIO OPERATIONS
The section "Portfolio Operations" is changed to add Thomas Kenny as Portfolio
Manager in place of Gregory Harrington. Mr. Kenny is Senior Vice President of
the investment manager and director of Franklin's municipal bond department. He
joined Franklin in 1986. He received a Bachelor of Arts degree in Business and
Economics from the University of California at Santa Barbara and Master of
Science degree in Finance from Golden Gate University. He is a member of several
municipal securities industry related committees and associations.
4
<PAGE>
FRANKLIN FEDERAL
INTERMEDIATE-TERM
TAX-FREE INCOME FUND
FRANKLIN TAX-FREE TRUST
PROSPECTUS JULY 1, 1994
AS AMENDED SEPTEMBER 30, 1994
[FRANKLIN LOGO]
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
- -------------------------------------------------------------------------------
Franklin Tax-Free Trust (the "Trust") is an open-end management investment
company consisting of twenty-seven separate series. This Prospectus relates only
to the Franklin Federal Intermediate-Term Tax-Free Income Fund (the "Fund"), a
non-diversified series of the Trust. The Fund seeks to provide investors with as
high a level of income exempt from federal income taxes, including the
individual alternative minimum tax, as is consistent with prudent investing and
the preservation of shareholders' capital. The Fund seeks to accomplish its
objective by investing primarily in a portfolio of investment grade obligations
with a dollar weighted average portfolio maturity of more than three years but
not more than ten years.
This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and the Fund that a prospective investor should know
before investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
A Statement of Additional Information concerning the Trust and the Fund, dated
July 1, 1994, as may be amended from time to time, provides a further discussion
of certain areas in this Prospectus and other matters which may be of interest
to some investors. It has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is available without
charge from the Trust or from the Trust's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number listed above.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Expense Table ............................................................. 2
Financial Highlights ...................................................... 4
About the Trust ........................................................... 4
Investment Objective and Policies of the Fund ............................. 4
Management of the Fund .................................................... 9
Distributions to Shareholders ............................................. 10
Taxation of the Fund and Its Shareholders ................................. 11
How to Buy Shares of the Fund ............................................. 13
Other Programs and Privileges Available to Fund Shareholders .............. 19
Exchange Privilege ........................................................ 20
How to Sell Shares of the Fund ............................................ 22
Telephone Transactions .................................................... 25
Valuation of Fund Shares .................................................. 26
How to Get Information Regarding an Investment in the Fund ................ 27
Performance ............................................................... 27
General Information ....................................................... 28
Account Registrations ..................................................... 29
Important Notice Regarding Taxpayer IRS Certifications .................... 30
Portfolio Operations ...................................................... 31
</TABLE>
EXPENSE TABLE
- -------------------------------------------------------------------------------
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund (including fees set by contract) for the fiscal
year ended February 28, 1994.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ............................. 2.25%
Maximum Sales Charge Imposed on Reinvested Dividends ............ NONE
Deferred Sales Charge ........................................... NONE
Redemption Fees ................................................. NONE
Exchange Fee (per transaction) .................................. $5.00*
2
<PAGE>
</TABLE>
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ....................................................... 0.63%**
12b-1 Fees ............................................................ 0.06%+
Other Expenses:
Professional Fees ........................................ 0.03%
Shareholder Servicing Costs .............................. 0.02%
Other .................................................... 0.15%
-----
Total Other Expenses .................................................. 0.20%
-----
Total Fund Operating Expenses ......................................... 0.89%**
=====
</TABLE>
*$5.00 fee is only imposed on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
**Represents the amount that would have been payable to the investment manager,
absent a fee reduction by the investment manager. The investment manager,
however, has voluntarily agreed to limit its management fees and assume
responsibility for making payments to offset certain operating expenses
otherwise payable by the Fund. With this reduction, management fees and total
operating expenses represented 0.12% and 0.30%, respectively, of the average net
assets of the Fund. This arrangement may be terminated by the investment manager
at any time.
+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 preceding table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by regulations of the SEC, the following example illustrates the
expenses, including the initial sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period. As noted in the preceding
table, the Fund charges no redemption fees:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$31 $50 $71 $130
</TABLE>
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, INCLUDING FEES
SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The
operating expenses are borne by the Fund and only indirectly by shareholders as
a result of their investment in the Fund. In addition, federal regulations
require the example to assume an annual return of 5%, but the Fund's actual
return may be more or less than 5%.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Set forth below is a table containing the financial highlights for a share of
the Fund outstanding throughout the period September 21, 1992 (the effective
date of the registration statement of the Fund) through February 28, 1993 and
for the fiscal year ended February 28, 1994. The information has been audited by
Coopers & Lybrand, the Fund's independent auditors, whose audit report appears
in the financial statements in the Fund's Statement of Additional Information.
See the discussion "Reports to Shareholders" under "General Information."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------------------------
NET ASSETS NET REALIZED DISTRIBUTIONS NET ASSETS
YEAR VALUES AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END
FEBRUARY 28 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993(1) $10.00 $0.14 $0.499 $0.639 $(0.099) $ - $(0.099) $10.54
1994 10.54 0.52 0.289 0.809 (0.549) - (0.549) 10.80
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
YEAR AT END EXPENSES INCOME PORTFOLIO
ENDED TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
FEBRUARY 28 RETURN+ (IN 000'S) NET ASSETS** NET ASSETS RATE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993(1) 14.77%* $ 9,192 - % 5.49% 22.54%
1994 7.82 67,603 0.30 4.93 28.76
</TABLE>
*Annualized
(1)For the period September 21, 1992 (effective date of registration) to
February 28, 1993.
+Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 2.25% initial sales charge and
assumes reinvestment of dividends and of capital gains, if any, at net asset
value.
**During the periods indicated, the investment manager reduced its management
fees and reimbursed other expenses incurred by the Fund. Had such action not
been taken, the ratio of expenses to average net assets for the periods ended
February 28, 1993 and 1994 would have been 1.60%* and 0.89%, respectively.
ABOUT THE TRUST
- -------------------------------------------------------------------------------
The Trust is an open-end management investment company, or mutual fund,
organized as a Massachusetts business trust in September 1984 and registered
with the SEC under the Investment Company Act of 1940 (the "1940 Act"). The
Trust currently consists of twenty-seven separate series, each of which issues a
separate series of the Trust's shares and maintains a totally separate
investment portfolio. This Prospectus relates only to the Franklin Federal
Intermediate-Term Tax-Free Income Fund.
Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge
based upon a variable percentage (ranging from 2.25% to 0% of the offering
price) depending upon the amount invested. (See "How to Buy Shares of the
Fund.")
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
- -------------------------------------------------------------------------------
The Fund seeks to provide investors with as high a level of income exempt from
federal income taxes, including the individual alternative minimum tax, as is
consistent with prudent investing and the preservation of shareholders' capital.
The objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. The Fund intends to invest primarily in a portfolio of
investment grade obligations with a dollar weighted average portfolio maturity
of more than three years but not more than ten years. There is, of course, no
assurance that the Fund's objective will be achieved.
Under normal market conditions, the Fund attempts to invest 100%, and, as a
matter of fundamental policy, will invest at least 80% of its total assets in
debt obligations issued by or on behalf of any state, territory or possession of
the United States, the District of Columbia and their respective au-
4
<PAGE>
thorities, agencies, instrumentalities and political subdivisions, the interest
on which is exempt from federal income tax. It is possible, although not
anticipated, that up to 20% of the Fund's net assets could be in municipal
securities subject to the alternative minimum tax and/or in taxable obligations.
The Fund may invest, without percentage limitation, in securities having, at the
time of purchase, one of the four highest ratings of Moody's Investors Service
("Moody's") (Aaa, Aa, A, Baa), Standard & Poor's Corporation ("S&P") (AAA, AA,
A, BBB), Fitch Investors Service, Inc. - Municipal Division ("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. These are considered to be "investment
grade" securities, although bonds rated in the fourth highest ratings level (Baa
by Moody's) are regarded as having an adequate capacity to pay principal and
interest but with greater vulnerability to adverse economic conditions and as
having some speculative characteristics. In the event the rating on an issue
held in the Fund's portfolio is lowered 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. For a description of municipal securities ratings, see the
Appendix to the Statement of Additional Information.
For temporary defensive purposes only, the Fund may invest up to 100% of its
assets in fixed-income obligations the interest on which is subject to federal
income tax. Any such temporary taxable investments will be limited to
obligations issued or guaranteed by the full faith and credit of the U.S.
government or commercial paper rated A-1 by S&P.
The Fund may borrow from banks for temporary or emergency purposes and pledge up
to 5% of its total assets therefor. With approval of the Board of Trustees and
subject to the following conditions, the Fund may lend its portfolio securities
to qualified securities dealers or other institutional investors, provided that
such loans do not exceed 10% of the value of the Fund's total assets at the time
of the most recent loan, and further provided that the borrower deposits and
maintains 102% collateral for the benefit of the Fund. The lending of securities
is a common practice in the securities industry. The Fund engages in security
loan arrangements with the primary objective of increasing the Fund's income
either through investing the cash collateral in short-term interest bearing
obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially. These restrictions have been adopted
as fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting securities of the Fund. A complete
description of the Fund's investment restrictions is included under "Investment
Restrictions" in the Statement of Additional Information.
The Fund may purchase or sell securities without regard to the length of time
the security has been held, and the frequency of portfolio transactions (the
turnover rate) will vary from year to year, depending on market conditions. The
Fund's annual portfolio turnover rate for the period September 21, 1992
(effective date of registration) to February 28, 1993 and the fiscal year ended
February 28, 1994 was 22.54% and 28.76%, respectively.
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 approxi-
5
<PAGE>
mately 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.
MUNICIPAL SECURITIES
The term "municipal securities," as used in this Prospectus, means obligations
issued by or on behalf of states, territories and possessions of the U.S. and
the District of Columbia and their political subdivisions, agencies, and
instrumentalities, the interest on which is exempt from federal income tax. An
opinion as to the tax-exempt status of a municipal security is generally
rendered to the issuer by the issuer's bond counsel at the time of issuance of
the security.
Municipal securities are used to raise money for various public purposes such as
constructing public facilities and making loans to public institutions. Certain
types of municipal bonds are issued to obtain funding for privately operated
facilities. Further information on the maturity and funding classifications of
municipal securities is included in the Statement of Additional Information.
It is possible, from time to time, that the Fund will invest more than 25% of
its assets in a particular segment of the Municipal Securities market, such as
hospital revenue bonds, housing agency bonds, industrial development bonds or
airport bonds, or in securities the interest upon which is paid from revenues of
a similar type of project. In such circumstances, economic, business, political
or other changes affecting one bond (such as proposed legislation affecting the
financing of a project; shortages or price increases of needed materials; or
declining markets or need for the projects) might also affect other bonds in the
same segment, thereby potentially increasing market risk.
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the municipal
securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Generally, municipal securities
of longer maturities produce higher current yields than municipal securities
with shorter maturities, but are subject to greater price fluctuation due to
changes in interest rates, tax laws and other general market factors.
Lower-rated municipal securities generally produce a higher yield than
higher-rated municipal securities due to the perception of a greater degree of
risk as to the ability of the issuer to pay principal and interest obligations.
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 Internal Revenue Code of 1986, as amended (the
"Code"), and under the income tax provisions of some states. This interest could
subject a shareholder to, or increase the shareholder's 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
its 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.
6
<PAGE>
Consistent with the Fund's investment objective, 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 February 28, 1994, the Fund derived 12.90% of its income from bonds, the
interest on which constitutes a preference item subject to the federal
alternative minimum tax for certain investors.
The Fund may purchase floating rate and variable rate obligations. These
obligations bear interest at rates that are not fixed, but that vary with
changes in prevailing market rates on predesignated dates. The Fund may also
invest in variable or floating rate demand notes ("VRDNs"), which carry a demand
feature that permits the Fund to tender the obligation back to the issuer or a
third party at par value plus accrued interest prior to maturity, according to
the terms of the obligation, which amount may be more or less than the amount
the Fund paid for such obligation. Frequently, VRDNs are secured by letters of
credit or other credit support arrangements provided by banks. Because of the
demand feature, the prices of VRDNs may be higher and the yields lower than they
otherwise would be for obligations without a demand feature. The Fund will limit
its purchase of municipal securities that are floating rate and variable rate
obligations to those meeting the quality standards set forth in this Prospectus.
The Fund may purchase and sell Municipal Securities on a "when-issued" and
"delayed delivery" basis. These transactions are subject to market fluctuation,
and the value at delivery may be more or less than the purchase price. Although
the Fund will generally purchase municipal securities on a when-issued basis
with the intention of acquiring such securities, it may sell such securities
before the settlement date if it is deemed advisable. When the Fund is the buyer
in such a transaction, it will maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments, until payment is made. To the
extent the Fund engages in "when-issued" and "delayed delivery" transactions, it
will do so for the purpose of acquiring securities for the Fund's portfolio
consistent with its investment objective and policies and not for the purpose of
investment leverage.
The Fund may also invest in municipal lease obligations primarily through
Certificates of Participation ("COPs"). COPs, which are widely used by state and
local governments to finance the purchase of property, function much like
installment purchase agreements. For example, COPs may be created when long-term
lease revenue bonds are issued by a governmental corporation to pay for the
acquisition of property or facilities which are then leased to a municipality.
The payments made by the municipality under the lease are used to repay interest
and principal on the bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of the property for a
nominal sum. This lease format is generally not subject to constitutional
limitations on the issuance of state debt, and COPs may enable a governmental
issuer to increase government liabilities beyond constitutional debt limits.
A feature which distinguishes COPs from municipal debt is that the lease which
is the subject of the transaction must contain a "nonappropriation" or
"abatement" clause. A nonappropriation clause provides that, while the
municipality will use its best efforts to make lease payments, the municipality
may terminate the lease without penalty if the municipality's appropriating body
does not allocate the necessary funds. Local administrations, being faced with
increasingly tight budgets, therefore have more discretion to curtail payments
under COPs than
7
<PAGE>
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 COPs financing, the Fund
believes that this risk is mitigated by its policy of investing only in COPs
rated within the four highest rating categories of Moody's, S&P or Fitch, or in
unrated COPs believed to be of comparable quality. Criteria considered by the
rating agencies and the investment manager in assessing such risk include the
issuing municipality's credit rating, evaluation of how essential the leased
property is to the municipality and the term of the lease compared to the useful
life of the leased property. While there is no limit as to the amount of assets
which the Fund may invest in COPs, as of February 28, 1994, the Fund held 10.19%
of its net assets in COPs and other municipal leases.
The Fund may purchase and hold callable municipal bonds which contain a
provision in the indenture permitting the issuer to redeem the bonds prior to
their maturity dates at a specified price which typically reflects a premium
over the bonds' original issue price. These bonds generally have call-protection
(a period of time during which the bonds may not be called) which usually lasts
for five to ten 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. Notwithstanding the
call feature, any such investment would still be subject to the policy whereby
the Fund is required to maintain a dollar weighted average portfolio maturity of
between three and ten years.
INVESTMENT RISK CONSIDERATIONS
While an investment in the Fund is not without risk, certain policies are
followed in managing the Fund which may help to reduce 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 the Fund invests are likely to decrease in times of
rising interest rates. Conversely, when rates fall, the value of the Fund's debt
investments may rise. Price changes of debt securities held by the Fund have a
direct impact on the net asset value per share of the Fund.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the 1940 Act with respect to the concentration of
its investments in the assets of one or more issuers.
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<PAGE>
This concentration may present greater risks than in the case of a diversified
company. (See the Statement of Additional Information for the diversification
requirements the Fund intends to meet in order to qualify as a regulated
investment company under the Code.)
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. For a list of these restrictions and more information
concerning the policies discussed herein, please see the Statement of Additional
Information.
MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------
The Board of Trustees has the primary responsibility for the overall management
of the Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations.
Franklin Advisers, Inc. ("Advisers" or "Manager"), serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson, Rupert H. Johnson, Jr. and R.
Martin Wiskemann, who own approximately 20%, 16% and 10%, respectively, of
Resources' outstanding shares. Through its subsidiaries, Resources is engaged
in various aspects of the financial services industry. Advisers acts as
investment manager to 34 U.S. registered investment companies (112 separate
series) with aggregate assets of over $75 billion, approximately $40 billion of
which are in the municipal securities market.
Pursuant to the management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.
During the fiscal year ended February 28, 1994, fees totaling 0.63% of the
average monthly net assets of the Fund would have accrued to Advisers. Total
operating expenses, including management fees, would have represented 0.89% of
the average monthly net assets of the Fund. Pursuant to an agreement by Advisers
to limit its fees, the Fund paid management fees totaling 0.12% of the average
monthly net assets of the Fund and operating expenses totaling 0.30%.
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 Statement of Additional
Information.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
9
<PAGE>
PLAN OF DISTRIBUTION
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act (the "Plan") whereby it may reimburse Distributors for expenses
actually incurred by Distributors in the promotion and distribution of the
Fund's shares, including, but not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparation of sales literature and
related expenses, advertisements, and other distribution-related expenses,
including payments to securities dealers and others participating in the sale of
Fund shares. The maximum amount which the Fund may pay to Distributors (and
which Distributors may reallow to securities dealers and others participating in
the sale of shares) for such distribution expenses is 0.10% per annum of the
average daily net assets of the Fund, payable on a quarterly basis. All expenses
of distribution and marketing in excess of 0.10% per annum will be borne by
Distributors without reimbursement from the Fund. The Plan also covers any
payments to or by the Fund, Distributors, or other parties on behalf of the Fund
or Distributors, to the extent such payments are deemed to be for the financing
of any activity primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1. The payments under the Plan are included
in the maximum operating expenses which may be borne by the Fund.
DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------
There are two types of distributions which the Fund may make to its
shareholders:
1. Income Dividends. The Fund receives income in the form of interest and other
income derived from its investments. This income, less the expenses incurred in
the Fund's operations, is its net investment income from which income dividends
may be distributed. Thus, the amount of dividends paid per share may vary with
each distribution.
2. Capital Gain Distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made twice each year. One distribution may be made in December to reflect the
net short-term and net long-term capital gains realized by the Fund as of
October 31 of such year. Any net short-term and net long-term capital gains
realized by the Fund during the remainder of the fiscal year may be distributed
following the end of the fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund may make only
one distribution derived from net short-term and net long-term capital gains in
any year or adjust the timing of its distributions for operational or other
reasons.
DISTRIBUTION DATE
Although subject to change by the Trust's Board of Trustees without prior notice
to or approval by shareholders, the Fund's current policy is to declare income
dividends daily and pay them monthly on or about the last business day of that
month. The amount of income dividend payments by the Fund is dependent upon the
amount of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Fund's Board of Trustees. THE
FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN
INVESTMENT IN ITS SHARES.
DIVIDEND REINVESTMENT
Unless requested otherwise in writing or on the Shareholder Application, income
dividends and capital gain distributions, if any, will be automatically
10
<PAGE>
reinvested in the shareholder's account in the form of additional shares, valued
at the closing net asset value (without sales charge) on the dividend
reinvestment date. Shareholders have the right to change their election with
respect to the receipt of distributions by notifying the Fund, but any such
change will be effective only as to distributions for which the reinvestment
date is seven or more business days after the Fund has been notified. See the
Statement of Additional Information for more information.
Many of the Fund's shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of course, any shares so
acquired remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to
another fund in the Franklin Group of Funds(R) or the Templeton Group, to
another person, or directly to a checking account. If the bank at which the
account is maintained is a member of the Automated Clearing House, the payments
may be made automatically by electronic funds transfer. If this last option is
requested, the shareholder should allow at least 15 days for initial processing.
Dividends which may be paid in the interim will be sent to the address of
record. Additional information regarding automated fund transfers may be
obtained from Franklin's Shareholder Services Department. Dividend and capital
gain distributions are eligible for investment in another fund in the Franklin
Group of Funds or the Templeton Group at net asset value.
Shareholders may change their dividend options by telephone. See "Telephone
Transactions."
HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund.
TAXATION OF THE FUND AND ITS SHAREHOLDERS
- -------------------------------------------------------------------------------
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled
"Additional Information Regarding Taxation" in the Statement of Additional
Information.
Each series of the Trust is treated as a separate entity for federal income tax
purposes. The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, qualified as such and intends to continue to so
qualify. By distributing all of its income and meeting certain other
requirements relating to the sources of its income and diversification of its
assets, the Fund will not be liable for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders. Such
exempt-interest dividends are derived from interest income exempt from regular
federal income tax, and are not subject to regular federal income tax for Fund
shareholders. In addition, to the extent
11
<PAGE>
that exempt-interest dividends are derived from interest on obligations of the
state of residence of the shareholder or such state's political subdivisions,
from interest on direct obligations of the federal government, or from interest
on obligations of Puerto Rico, the U.S. Virgin Islands or Guam, they may also be
exempt from personal income tax in such state.
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, instead, to 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 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 the sale or
exchange of Fund 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.
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(R) 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 corpo-
12
<PAGE>
rate dividends-received deduction. None of the distributions paid by the Fund
for the fiscal year ended February 28, 1994 qualified for this deduction and it
is not anticipated that any of the current year's dividends will so qualify.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions, including the portion of the
dividends on an average basis which constitutes taxable income or 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 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 at Franklin providing for regular
periodic investments. The Fund and Distributors reserve the right to refuse any
order for the purchase of shares.
PURCHASE PRICE OF FUND SHARES
Shares of the Fund are offered at the public offering price, which is the net
asset value per share plus a sales charge, next computed (1) after the
shareholder's securities dealer receives the order which is promptly transmitted
to the Fund or (2) after receipt of an order by mail from the shareholder
directly in proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check). The sales charge is a variable
percentage of the offering price depending upon the amount of the sale. On
orders for 100,000 shares
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<PAGE>
or more, the offering price will be calculated to four decimal places. On orders
for less than 100,000 shares, the offering price will be calculated to two
decimal places using standard rounding criteria. A description of the method of
calculating net asset value per share is included under "Valuation of Fund
Shares."
Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SALES CHARGE
----------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 ............................................... 2.25% 2.30% 2.00%
$100,000 but less than $250,000 .................................. 1.75% 1.78% 1.50%
$250,000 but less than $500,000 .................................. 1.25% 1.27% 1.00%
$500,000 but less than $1,000,000 ................................ 1.00% 1.01% 0.85%
$1,000,000 but less than $2,500,000 .............................. 0.50% 0.50% 0.50%
$2,500,000 but less than $5,000,000 .............................. 0.25% 0.25% 0.25%
5,000,000 or more ................................................ 0.00% 0.00% 0.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
All sales charges on purchases of $1,000,000 or more are paid to the securities
dealer, if any, involved in the trade, who may therefore be deemed an
"underwriter" under the Securities Act of 1933, as amended.
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of many of the funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds. Included for these
purposes are (a) the open-end investment companies in the Franklin Group (except
Franklin Valuemark II and Franklin Government Securities Trust) (the "Franklin
Group of Funds"), (b) other investment products in the Franklin Group
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) (the products in subparagraphs (a) and (b) are referred to as the
"Franklin Group"), and (c) the open-end U.S. registered investment companies in
the Templeton Group of Funds except Templeton American Trust, Inc., Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Group"). Purchases pursuant to a
Letter of Intent for $5,000,000 or more will bear no sales charge. Purchases
pursuant to the Rights of Accumulation will be at the applicable sales charge of
0.25% or more until the additional purchase, plus the value of the account or
the amount previously invested, less redemptions, equals $5,000,000 or more.
Sales charge reductions based upon purchases in more than one of the funds in
the Franklin Group or Templeton Group (the "Franklin/Templeton Group") may be
effective only after notification to Distributors that the investment qualifies
for a discount.
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<PAGE>
Distributors or its affiliates, at their expense, may also provide additional
compensation to dealers in connection with sales of shares of the Fund and other
funds in the Franklin Group of Funds or the Templeton Group. Compensation may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and/or shareholder services and programs regarding one or more
of the Franklin Group of Funds or the Templeton Group and other dealer-sponsored
programs or events. In some instances, this compensation may be made available
only to certain dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Dealers may not use sales of the Fund's shares to qualify for this compensation
to the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. None of the aforementioned additional compensation is paid for by the Fund
or its shareholders.
Certain officers and trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the Statement of Additional
Information.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide for a reduced
sales charge. To be certain to obtain the reduction of the sales charge, the
investor or the dealer should notify Distributors at the time of each purchase
of shares which qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, investments in any of the Franklin/Templeton
Group may be combined with those of the investor's spouse and children under the
age of 21. In addition, the aggregate investments of a trustee or other
fiduciary account (for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is available, even
though there may be a number of beneficiaries of the account.
In addition, an investment in the Fund may qualify for a reduction in the sales
charge under the following programs:
1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in the Franklin/Templeton Group may be combined with the
amount of the current purchase in determining the sales charge to be paid.
2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of the Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which if made at one time would qualify for a
reduced sales charge. At any time within 90 days after the first investment
which the investor wants to qualify for the reduced sales charge, a signed
Shareholder Application, with the Letter of Intent section completed, may be
filed with the Fund. After the Letter of Intent is filed, each additional
investment made will be entitled to the sales charge applicable to the level of
investment indicated on the Letter of Intent as described above. Sales charge
reductions based upon purchases in more than one company in the
Franklin/Templeton Group will be effective only after notification to
Distributors that the investment qualifies for a discount. The shareholder's
holdings in the Franklin/Templeton Group acquired
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more than 90 days before the Letter of Intent is filed will be counted towards
completion of the Letter of Intent but will not be entitled to a retroactive
downward adjustment of 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 as specified below,
depending upon the amount actually purchased (less redemptions) during the
period.
AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five percent (5%)
of the amount of the total intended purchase will be reserved in shares of the
Fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the intended purchase is not completed. The
reserved shares will be included in the total shares owned as reflected on
periodic statements; income and capital gain distributions on the reserved
shares will be paid as directed by the investor. The reserved shares will not be
available for disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. If the total purchases, less
redemptions, equal the amount specified under the Letter, the reserved shares
will be deposited to an account in the name of the investor or delivered to the
investor or the investor's order. If the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made by Distributors and the dealer through whom purchases were made pursuant to
the Letter of Intent (to reflect such further quantity discount) on purchases
made within 90 days before, and on those made after filing the Letter. The
resulting difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single purchase or the
dollar amount of the total purchases. If the total purchases, less redemptions,
are less than the amount specified under the Letter, the investor will remit to
Distributors an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge which would have applied to
the aggregate purchases if the total of such purchases had been made at a single
time. Upon such remittance, the reserved shares held for the investor's account
will be deposited to an account in the name of the investor or delivered to the
investor or to the investor's order. If within 20 days after written request
such difference in sales charge is not paid, the redemption of an appropriate
number of reserved shares to realize such difference will be made. In the event
of a total redemption of the account prior to fulfillment of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the investor. By completing
the Letter of Intent section of the Shareholder Application, an investor grants
to Distributors a security interest in the reserved shares and irrevocably
appoints Distributors as attorney-in-fact, with full power of substitution to
surrender for redemption any or all shares for the purpose of paying any
additional sales charge due. Purchases under the Letter of Intent will conform
with the requirements of Rule 22d-1 under the 1940 Act. The investor or the
investor's securities dealer must inform Investor Services or Distributors that
this Letter is in effect each time a purchase is made.
Additional terms concerning the offering of the Fund's shares are included in
the Statement of Additional Information.
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<PAGE>
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares of
the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of shares previously
purchased and still owned by the group, plus the amount of the current purchase.
For example, if members of the group had previously invested and still held
$80,000 of Fund shares and now were investing $25,000, the sales charge would be
1.75%. Information concerning the current sales charge applicable to a group may
be obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund shares at a discount and
(iii) satisfies uniform criteria which enable Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or Distributors and the members, must agree to
include sales and other materials related to the Fund in its publications and
mailings to members at reduced or no cost to Distributors, and must seek to
arrange for payroll deduction or other bulk transmission of investments to the
Fund.
If an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies the Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and 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
Shares of the Fund may be purchased at net asset value by trust companies and
bank trust departments for funds over which they exercise exclusive
discretionary investment authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in this Fund or any other
company in the Franklin/Templeton Group must total at least $1,000,000. Orders
for such accounts will be accepted by mail accompanied by a check, or by
telephone or other means of electronic data transfer directly from the bank or
trust company, with payment by federal funds received by the close of business
on the next business day following such order. If an investment by a trust
company or bank trust department at net asset value is made through a dealer who
has executed a dealer agreement with Distributors, Distributors or one of its
affiliates may make payment, out of their own resources, to such dealer in an
amount not to exceed 0.25% of the amount invested. Contact Franklin's
Institutional Sales Department for additional information.
Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund or another fund
in the Franklin Group of Funds or the Templeton Group which were purchased with
a sales charge. An investor may reinvest an amount not exceeding the redemption
proceeds. Shares of the Fund redeemed in connection with an exchange into
another fund (see "Exchange Privilege") are not considered "redeemed" for this
privilege. In
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<PAGE>
order to exercise this privilege, a written order for the purchase of shares of
the Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 120 days after the redemption. The 120 days, however, do not begin to run
on redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the Statement
of Additional Information.
Dealers may place trades to purchase shares of the Fund at net asset value on
behalf of investors who have, within the past 60 days, redeemed an investment in
a registered management investment company which charges a contingent deferred
sales charge and which has investment objectives similar to those of the Fund.
Shares of the Fund may also be purchased at net asset value by (1) officers,
trustees, directors and full-time employees of the Fund or any fund in the
Franklin Group of Funds or the Templeton Group, the Manager and Distributors and
affiliates of such companies, if they have been such for at least 90 days, and
by their spouses and family members, (2) registered securities dealers and their
affiliates, for their investment account only, and (3) registered personnel and
employees of securities dealers and by their spouses and family members, in
accordance with the internal policies and procedures of the employing securities
dealer. Such sales are made upon the written assurance of the purchaser that the
purchase is made for investment purposes and that the securities will not be
transferred or resold except through redemption or repurchase by or on behalf of
the Fund. Employees of securities dealers must obtain a special application from
their employers or from Franklin's Sales Department in order to qualify.
Shares of the Fund may also be purchased at net asset value by any state,
county, or city, or any instrumentality, department, authority or agency
thereof, which has determined that the Fund is a legally permissible investment
and which is prohibited by applicable investment laws from paying a sales charge
or commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a dealer who has executed a dealer agreement with
Distributors, Distributors or one of its affiliates may make a payment, out of
their own resources, to such dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales Department for
additional information.
GENERAL
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
insti-
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tutions selling Fund shares may be required to register as securities 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 Shareholder Application included with
this Prospectus contains the requirements applicable to this program. In
addition, shareholders may obtain more information concerning this program from
their securities dealers or from Distributors.
The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net 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
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<PAGE>
is generally the first business day of the month in which the payment is
scheduled) with payment generally received by the shareholder three to five days
after the date of liquidation. By completing the "Special Payment Instructions
for Distributions" section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to another fund in
the Franklin Group of Funds(R) or the Templeton Group, to another person, or
directly to a checking account. If the bank at which the account is maintained
is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial processing.
Withdrawals which may be paid in the interim will be sent to the address of
record. Liquidation of shares may reduce or possibly exhaust the shares in the
shareholder's account, to the extent withdrawals exceed shares earned through
dividends and distributions, particularly in the event of a market decline. If
the withdrawal amount exceeds the total plan balance, the account will be closed
and the remaining balance will be sent to the shareholder. As with other
redemptions, a liquidation to make a withdrawal payment is a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than the shareholder's actual yield or income, part of the payment may be a
return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual withdrawals
under the plan during the time such a plan is in effect. A Systematic Withdrawal
Plan may be terminated on written notice by the shareholder or the Fund, and it
will terminate automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death or incapacity
of the shareholder. Shareholders may change the amount (but not below the
specified minimum) and schedule of withdrawal payments, or suspend one such
payment by giving written notice to Investor Services at least seven business
days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.
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
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The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment companies with various investment objectives and policies. The shares
of most of these investment companies are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for the securities
markets changes, the Fund shares may be exchanged for shares of other mutual
funds in the Franklin Group of Funds or the Templeton Group (as defined under
"How to Buy Shares of the Fund") which are eligible for sale in the
shareholder's state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums. 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 excercising the
exchange
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<PAGE>
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.
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 in one of the other available
funds in the Franklin Group of Funds or the Templeton Group. The Telephone
Exchange Privilege is available only for uncertificated shares or those which
have previously been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone Transactions -
Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement. 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 by telephone or by other means of
electronic transmission 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.
MISCELLANEOUS INFORMATION
Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account, accrued but unpaid income
dividends and capital gain distributions will be reinvested in the Fund at the
net asset value on the date of the exchange, and then the entire share balance
will be exchanged into the new fund in accordance with the procedures set forth
above. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the Statement of Additional Information.
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<PAGE>
There are differences among the many funds in the Franklin Group of Funds and
the Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the shareholder wishes to
transfer.
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 tax-exempt
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objective exist immediately. Subsequently,
this money will be withdrawn from such short-term tax-exempt instruments and
invested in portfolio securities in as orderly a manner as is possible when
attractive investment opportunities arise.
The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
TIMING ACCOUNTS
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% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objective 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
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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:
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<PAGE>
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by Investor
Services. Redemption requests received after the time at which the net asset
value is calculated (at 1:00 p.m. Pacific time) each day that the New York Stock
Exchange (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.
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
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<PAGE>
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 file the Franklin/Templeton Telephone Redemption Authorization
Agreement (the "Agreement") included with this Prospectus may redeem shares of
the Fund by telephone. Information may be obtained by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions - Verification Procedures."
For shareholder accounts with a 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 before 1:00 p.m. Pacific time on
any business day will be processed that same day. The redemption check will be
sent within seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record. Redemption requests by
telephone will not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts (certain
corporations, bank trust departments, government entities, and qualified
retirement plans which qualify to purchase shares at net asset value pursuant to
the terms of this Prospectus) which wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from Franklin's Institutional Services Department by telephoning
1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders by telephone or other means of electronic
transmission from securities dealers who have entered into a dealer or similar
agreement with Distributors. This is known as a repurchase. The only difference
between a normal redemption and a repurchase is that if the shareholder redeems
shares through a dealer, the redemption price will be the net asset value next
calculated after the shareholder's dealer receives the order which is promptly
transmitted
24
<PAGE>
to the Fund, rather than on the day the Fund receives the shareholder's written
request in proper form. These documents, as described in the preceding section,
are required even if the shareholder's securities dealer has placed the
repurchase order. After receipt of a repurchase order from the dealer, the Fund
will still require a signed letter of instruction and all other documents set
forth above. A shareholder's letter should reference the Fund, the account
number, the fact that the repurchase was ordered by a dealer and the dealer's
name. Details of the dealer-ordered trade, such as trade date, confirmation
number, and the amount of shares or dollars, will help speed processing of the
redemption. The seven-day period within which the proceeds of the shareholder's
redemption will be sent will begin when the Fund receives all documents required
to complete ("settle") the repurchase in proper form. The redemption proceeds
will not earn dividends or interest during the time between receipt of the
dealer's repurchase order and the date the redemption is processed upon receipt
of all documents necessary to settle the repurchase. Thus, it is in a
shareholder's best interest to have the required documentation completed and
forwarded to the Fund as soon as possible. The shareholder's dealer may charge a
fee for handling the order. The Statement of Additional Information contains
more information on the redemption of shares.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.
OTHER
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the 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 Application as described under "How to Sell Shares of the
Fund -Redemptions by Telephone" will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions com-
25
<PAGE>
municated by telephone are genuine. These will include: recording all telephone
calls requesting account activity by telephone, requiring that the caller
provide certain personal and/or account information requested by the telephone
service agent at the time of the call for the purpose of establishing the
caller's identification, and sending a confirmation statement on redemptions to
the address of record each time account activity is initiated by telephone. So
long as the Fund and Investor Services follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
shareholder caused by an unauthorized transaction. Shareholders are, of course,
under no obligation to apply for 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
registered investment representative for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
VALUATION OF FUND SHARES
- -------------------------------------------------------------------------------
The net asset value per share of the Fund is determined as of 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 sales charge of the Fund).
The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, accrued expenses and taxes and any necessary
reserves is deducted from the aggregate gross value of all assets, and the
difference is divided by the number of shares of the Fund outstanding at the
time. For the purpose of determining the aggregate net assets of the Fund, cash
and receivables are valued at their realizable amounts. Interest is recorded as
accrued. Portfolio securities for which market quotations are readily available
are valued within the range of the most recent bid and ask prices as obtained
from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Municipal securities generally trade in the
over-the-counter market rather than on a securities exchange. Other securities
for which market quotations are readily available are valued at the current
market price, which may be obtained from a pricing service, based on a variety
of factors, including recent trades, institutional size trading in similar types
of securities (considering yield, risk and maturity) and/or developments related
to specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. All money market instruments with a maturity
of
26
<PAGE>
more than 60 days are valued at current market, as discussed above. All money
market instruments with a maturity of 60 days or less are valued at their
amortized cost, which the Board of Trustees has determined in good faith
constitutes fair value for purposes of complying with the 1940 Act. This
valuation method will continue to be used until such time as the trustees
determine that it does not constitute fair value for such purposes. With the
approval of trustees, the Fund may utilize a pricing service, bank or securities
dealer to perform any of the above described functions.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
- -------------------------------------------------------------------------------
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds(R) by
calling the automated Franklin TeleFACTS system (day or night) at
1-800/247-1753. Information about the Fund may be accessed by entering Fund Code
74 followed by the # sign, when requested to do so by the automated operator.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
----------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>
PERFORMANCE
- --------------------------------------------------------------------------------
Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance, including current yield, tax
equivalent yield, various expressions of total return, current distribution rate
and taxable equivalent distribution rate. They may occasionally cite statistics
to reflect its volatility or risk. Average annual total return figures as
prescribed by the SEC represent the average annual percentage change in value of
$1,000 invested at the maximum public offering price (offering price includes
sales charge) for one-, five- and ten-year periods, or portion thereof, to the
extent applicable, through the end of the most recent calendar quarter, assuming
reinvestment of all distributions. The Fund may also furnish total return
quotations for other periods or based on investments at various sales charge
levels or at net asset value. For such purposes, total return equals the total
of all income and capital gain paid to shareholders, assuming reinvestment of
all distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.
27
<PAGE>
Current yield reflects the income per share earned by the Fund's portfolio
investments; it is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result. Tax equivalent yield
demonstrates the yield from a taxable investment necessary to produce an
after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of a fund's yield
(calculated as indicated) by one minus a stated income tax rate and adding the
product to the taxable portion (if any) of a fund's yield.
Current yield and tax equivalent yield which are calculated according to a
formula prescribed by the SEC (see the Statement of Additional Information) are
not indicative of the dividends or distributions which were or will be paid to
the Fund's shareholders. Dividends or distributions paid to shareholders are
reflected in the current distribution rate or taxable equivalent distribution
rate, which may be quoted to shareholders. The current distribution rate is
computed by dividing the total amount of dividends per share paid by the Fund
during the past 12 months by a current maximum offering price. A taxable
equivalent distribution rate demonstrates the taxable distribution rate
necessary to produce an after tax distribution rate equivalent to the Fund's
distribution rate (calculated as indicated above). Under certain circumstances,
such as when there has been a change in the amount of dividend payout, or a
fundamental change in investment policies, it might be appropriate to annualize
the dividends paid during the period such policies were in effect, rather than
using the dividends during the past 12 months. The current distribution rate
differs from the current yield computation because it may include distributions
to shareholders from sources other than dividends and interest, such as
short-term capital gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. The investment results of the Fund, like
all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in the
future or what the Fund's yield, tax equivalent yield, distribution rate,
taxable equivalent distribution rate or total return may be in any future
period.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends February 28. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and the Statement of Additional Information.
ORGANIZATION
The Trust was organized as a Massachusetts business trust on September 18, 1984.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such
28
<PAGE>
series and the net assets of such series upon liquidation or dissolution.
Additional series may be added in the future by the Board of Trustees.
VOTING RIGHTS
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series, or the Trust, unless otherwise permitted by the
1940 Act. Voting rights are noncumulative, so that in any election of trustees,
the holders of more than 50% of the shares voting can elect all of the trustees,
if they choose to do so, and in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board of Trustees.
The Trust does not intend to hold annual shareholders' meetings. The Trust may,
however, hold a special shareholders' meeting for such purposes as changing
fundamental investment restrictions, approving a new management agreement or any
other matters which are required to be acted on by shareholders under the 1940
Act. A meeting may also be called by the trustees in their discretion or by
shareholders holding at least 10% of the shares entitled to vote at the meeting.
Shareholders may receive assistance in communicating with other shareholders in
connection with the election or removal of trustees such as that provided in
Section 16(c) of the 1940 Act.
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 Statement of Additional
Information.
MISCELLANEOUS 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
29
<PAGE>
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 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 dealer to transfer the account to a receiving
securities dealer and sign any documents required by the dealer(s) to evidence
consent to the transfer. Under current procedures, the account transfer may be
processed by the delivering 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 TIN furnished by the shareholder is incorrect
or that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
30
<PAGE>
PORTFOLIO OPERATIONS
- -------------------------------------------------------------------------------
The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio.
Greg Harrington
Senior Vice President
Franklin Advisers, Inc.
Mr. Harrington has been responsible for portfolio recommendations and decisions
since July 1994. He is a graduate of Mount Saint Mary's College in Maryland and
has studied at the New York School of Finance. His experience in the municipal
securities industry dates back to 1946. He joined Advisers in 1983.
Stella Wong
Portfolio Manager of Advisers
Ms. Wong has been responsible for portfolio recommendations and decisions for
the Fund since its inception. She holds a Bachelor of Science degree in Business
Administration from San Francisco State University and a Master's degree in
Financial Planning from Golden Gate University, and is a member of several
industry-related committees and associations. She joined Advisers in 1986.
Andrew Jennings, Sr
Vice President and Portfolio Manager of Advisers
Mr. Jennings has been responsible for portfolio recommendations and decisions of
the Fund since its inception. He 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. From 1985 to
1990, Mr. Jennings was First Vice President and Manager of the Municipal
Institutional Bond Department at Dean Witter Reynolds, Inc.
31
<PAGE>
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
DATED JULY 1, 1994
The following substitutes subsection "Purchases at Net Asset Value" under
"Additional Information Regarding Fund Shares":
ADDITIONAL INFORMATION REGARDING PURCHASES
Special Net Asset Value Purchases. As discussed in the Prospectus under "How
to Buy Shares of the Fund - Description of Special Net Asset Value
Purchases", certain categories of investors may purchase 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. As a condition for these payments,
Distributors or its affiliates may require reimbursement from the securities
dealers with respect to certain redemptions made within 12 months of the
calendar month following purchase, as well as other conditions, all of which
may be imposed by an agreement between Distributors, or its affiliates, and
the securities dealer.
The following amounts may be paid by Distributors or one of its affiliates,
out of its own resources, to securities dealers who initiate and are
responsible for (i) purchases of most equity and taxable income Franklin
Templeton Funds made at net asset value by certain designated retirement
plans (excluding IRA and IRA rollovers): 1.00% on sales of $1 million but
less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus
0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales
of $100 million or more; and (ii) purchases of most taxable income Franklin
Templeton Funds made at net asset value by non-designated retirement plans:
0.75% on sales of $1 million but less than $2 million, plus 0.60% on sales of
$2 million but less than $3 million, plus 0.50% on sales of $3 million but
less than $50 million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more. These payment
breakpoints are reset every 12 months for purposes of additional purchases.
With respect to purchases made at net asset value by certain trust companies
and trust departments of banks and certain retirement plans of organizations
with collective retirement plan assets of $10 million or more, Distributors,
or one of its affiliates, out of its own resources, may pay up to 1% of the
amount invested.
Letter of Intent. An investor may qualify for a reduced sales charge on the
purchase of shares of 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.
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 shareholders holdings in
the Franklin Templeton Funds acquired more than 90 days before the Letter of
Intent is filed will be counted towards completion of the Letter of Intent
but will not be entitled to a retroactive downward adjustment in the sales
charge. Any redemptions made by the shareholder, other than by a designated
benefit plan, during the 13-month period will be subtracted from the amount
of the purchases for purposes of determining whether the terms of the Letter
of Intent have been completed. If the Letter of Intent is not completed
within the 13-month period, there will be an upward adjustment of the sales
charge, depending upon the amount actually purchased (less redemptions)
during the period. The upward adjustment does not apply to designated benefit
plans. An investor who executes a Letter of Intent prior to a change in the
sales charge structure for the Fund will be entitled to complete the Letter
of Intent at the lower of (i) the new sales charge structure; or (ii) the
sales charge structure in effect at the time the Letter of Intent was filed
with the Fund.
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
investors name. If the total purchases, less redemptions, equal the amount
specified under the Letter, the reserved shares will be deposited to an
account in the name of the investor or delivered to the investor or the
investors order. If the total purchases, less redemptions, exceed the amount
specified under the Letter of Intent and is an amount which would qualify for
a further quantity discount, a retroactive price adjustment will be made by
Distributors and the securities dealer through whom purchases were made
pursuant to the Letter of Intent (to reflect such further quantity discount)
on purchases made within 90 days before and on those made after filing the
Letter. The resulting difference in offering price will be applied to the
purchase of additional shares at the offering price applicable to a single
purchase or the dollar amount of the total purchases. If the total purchases,
less redemptions, are less than the amount specified under the Letter, the
investor will remit to Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount of
<PAGE>
sales charge which would have applied to the aggregate purchases if the total
of such purchases had been made at a single time. Upon such remittance the
reserved shares held for the investors account will be deposited to an
account in the name of the investor or delivered to the investor or to the
investors 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.
<PAGE>
FRANKLIN FEDERAL
INTERMEDIATE-TERM [FRANKLIN LOGO]
TAX-FREE INCOME FUND
FRANKLIN TAX-FREE TRUST
STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOx 7777
JULY 1, 1994 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
- --------------------------------------------------------------------------------
Franklin Federal Intermediate-Term Tax-Free Income Fund (the "Fund") is a
non-diversified series of Franklin Tax-Free Trust (the "Trust"), an open-end
management investment company. The principal investment objective of the Fund is
to provide investors with as high a level of income exempt from federal income
taxes, including the individual alternative minimum tax, as is consistent with
prudent investing and the preservation of shareholders' capital. The investment
objective of the Fund is a fundamental policy.
A Prospectus for the Fund dated July 1, 1994, as may be amended from time to
time, provides the basic information a prospective investor should know before
investing in the Fund and may be obtained without charge from the Fund or the
Fund's principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT CONTAINS
INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION IS INTENDED TO PROVIDE A PROSPECTIVE
INVESTOR WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF
THE TRUST AND THE FUND AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
About the Trust......................................................... 2
The Fund's Investment Objective and Policies............................ 2
Description of Municipal and Other Securities........................... 2
Investment Restrictions................................................. 4
Trustees and Officers................................................... 5
Investment Advisory and Other Services.................................. 8
The Fund's Policies Regarding Brokers Used on Portfolio
Transactions.......................................................... 9
Additional Information Regarding Fund Shares............................ 10
Additional Information Regarding Taxation............................... 12
The Fund's Underwriter.................................................. 12
General Information..................................................... 14
Miscellaneous Information............................................... 17
Appendix................................................................ 18
Financial Statements.................................................... 21
</TABLE>
1
<PAGE>
ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust is an open-end management investment company, commonly called a
"mutual fund," and registered with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940 (the "1940 Act"). The Trust was
organized as a Massachusetts business trust in September 1984. The Trust issues
its shares of beneficial interest with no par value in several series. The Trust
currently has 27 separate series, each of which maintains a totally separate
investment portfolio.
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
As noted in the Prospectus, the Fund's investment objective is to provide
investors with as high a level of income exempt from federal income taxes,
including the individual alternative minimum tax, as is consistent with prudent
investing and the preservation of shareholders' capital. The Fund intends to
invest primarily in a portfolio of investment grade obligations with a
dollar-weighted average portfolio maturity of more than three years but not more
than ten years.
Although the Fund seeks to invest all of its assets in a manner designed to
accomplish its objective, there may be times when market conditions limit the
availability of appropriate municipal securities or, in the investment manager's
opinion, there exist uncertain economic, market, political, or legal conditions
which may jeopardize the value of municipal securities. For temporary defensive
purposes only, when the investment manager believes that market conditions, such
as rising interest rates or other adverse factors, would cause serious erosion
of portfolio value, the Fund may invest more than 20% and up to 100% of its net
assets in taxable, fixed-income obligations.
It is the policy of the Fund that illiquid securities (including illiquid
securities with contractual or other restrictions on resale or instruments which
are not readily marketable or have no readily ascertainable market value) may
not constitute, at the time of the purchase, more than 10% of the value of the
total net assets of the Fund.
DESCRIPTION OF MUNICIPAL AND OTHER 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 other kinds of revenue,
such as federal revenues available under the Federal Revenue Sharing Program.
They, also, are usually general obligations of the issuer.
Bond Anticipation Notes are normally issued to provide interim financing until
long-term financing can be arranged. Long-term bonds then provide the money for
the repayment of the notes.
Construction Loan Notes are sold to provide construction financing for specific
projects. After successful completion and acceptance, many projects receive
permanent financing through the Federal Housing Administration under the Federal
National Mortgage Association or the Government National Mortgage Association.
Tax-Exempt Commercial Paper typically represents a short-term obligation (270
days or less) issued by a municipality to meet working capital needs.
Municipal Bonds, which meet longer term capital needs and generally have
maturities of more than one year when issued, have two principal
classifications: general obligation bonds and revenue bonds.
1. General Obligation Bonds. Issuers of general obligation bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways, roads, and water and sewer
systems. The basic security behind general obligation bonds is the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to the rate or amount of special assessments.
2. Revenue Bonds. A revenue bond is not secured by the full faith, credit and
taxing power of an issuer. Rather, the principal security for a revenue bond is
generally the net revenue derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects, including: electric, gas, water and sewer systems;
2
<PAGE>
highways, bridges and tunnels; port and airport facilities; colleges and
universities; and hospitals. The principal security behind these bonds may vary.
Housing finance authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. Many bonds
provide additional security in the form of a debt service reserve fund which may
be used to make principal and interest payments on the issuer's obligations.
Some authorities are provided further security in the form of a state's
assurance (although without obligation) to make up deficiencies in the debt
service reserve fund.
Industrial Development Bonds which pay tax-exempt interest are in most cases
revenue bonds and are issued by or on behalf of public authorities to raise
money to finance various privately operated facilities for business,
manufacturing, housing, sports, and pollution control. These bonds are also used
to finance public facilities such as airports, mass transit systems, ports, and
parking. The payment of the principal and interest on such bonds is solely
dependent on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of the real and personal property so
financed as security for such payments.
When-Issued Purchases. Municipal bonds are frequently offered on a "when-issued"
basis. When so offered, the price, which is generally expressed in yield terms,
is fixed at the time the commitment to purchase is made, but delivery and
payment for the when-issued securities take place at a later date. During the
period between purchase and settlement, no payment is made by the Fund to the
issuer and no interest accrues to the Fund. To the extent that assets of the
Fund are held in cash pending the settlement of a purchase of securities, the
Fund 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 above.
While when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them,
unless a sale appears desirable for investment reasons. 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 believes that its net asset value or income will
not be adversely affected by its 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.
Callable Bonds. There are municipal bonds which are issued with provisions which
prevent them from being called, typically for periods of 5 to 10 years. 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 dates, 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 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 the Fund's 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, 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 objective will be
achieved.
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 Standard & Poor's Corporation ("S&P") and Moody's
Investors Service ("Moody's").
Stripped Municipal Securities. Municipal Securities may also be sold in
"stripped" form. Stripped Municipal Securities represent separate ownership
3
<PAGE>
of interest and principal payments on municipal obligations.
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, and
are calculated to maintain the market value of the VRDN at approximately its par
value upon the adjustment date.
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
Investors Service, Inc. - Municipal Division ("Fitch"), or in unrated COPs
believed to be of comparable quality. Criteria considered by the rating agencies
and the investment manager in assessing such risk include the issuing
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 Trustees 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.
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.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Trust has adopted the following restrictions as additional fundamental
policies of the Fund. These policies may not be changed with respect to the Fund
without the approval of a majority of the outstanding voting securities of the
Fund. Under the 1940 Act, a "vote of a majority of the outstanding voting
securities" of the Trust or of the Fund means the affirmative vote of the lesser
of (1) more than 50% of the outstanding shares of the Trust or of the Fund or
(2) 67% or more of the shares of the Trust or of the Fund present at a
shareholders meeting if more than 50% of the outstanding shares of the Trust or
of the Fund are represented at the meeting in person or by proxy. The Fund MAY
NOT:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefore) for temporary or emergency purposes may be
made from banks in any amount up to 5% of the total asset value.
2. Buy any securities on "margin" or sell any securities "short," except that
it may use such short-term credits as are necessary for the clearance of
transactions.
3. Make loans, except through the purchase of readily marketable debt
securities which are either publicly distributed or customarily purchased by
institutional investors. Although such loans are not presently intended, this
prohibition will not preclude the Fund from loaning portfolio securities to
broker/dealers or other institutional investors if at least 102% cash collateral
is pledged and maintained by the borrower; provided such portfolio security
loans may not be made if, as a result, the aggregate of such loans exceeds 10%
of the value of the Fund's total assets at the time of the most recent loan.
4
<PAGE>
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, except the Fund will not purchase a
security, if as a result: i) more than 25% of its total assets would be invested
in the securities of a single issuer or ii) with respect to 50% of its total
assets, more than 5% of its assets would be invested in the securities of a
single issuer.
6. Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and trustees
together own beneficially more than 5% of such securities.
7. Acquire, lease or hold real estate, except such as may be necessary or
advisable for the maintenance of its offices and provided that this limitation
shall not prohibit the purchase of municipal and other debt securities secured
by real estate or interests therein.
8. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads or any combination thereof, or interests in oil, gas, or other mineral
exploration or development programs, except that it may purchase, hold and
dispose of "obligations with puts attached" in accordance with its investment
policies.
9. Invest in companies for the purpose of exercising control or management.
10. Purchase securities of other investment companies, except in connection with
a merger, consolidation, acquisition or reorganization. To the extent permitted
by exemptions which may be granted under the 1940 Act, the Fund may invest in
shares of one or more investment companies, of the type generally referred to as
money market funds, managed by Franklin Advisers, Inc. or its affiliates.
11. Purchase securities, in private placements or in other transactions, for
which there are legal or contractual restrictions on resale.
12. 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 addition to these fundamental policies, it is a non-fundamental policy of the
Fund not to invest in real estate limited partnerships or in oil, gas, or other
mineral leases.
Portfolio Turnover: The portfolio turnover for the period from September 21,
1992 (effective date of registration) through February 28, 1993 and for the
fiscal year ended February 28, 1994, was 22.54% and 28.76%, respectively.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Board of Trustees has the responsibility for the overall management of the
Trust, including general supervision and review of its investment activities.
The trustees, in turn, elect the officers of the Trust who are responsible for
administering the day-to-day operations of the Trust. The affiliations of the
officers and trustees and their principal occupations for the past five years
are listed below. Trustees who are deemed to be "interested persons" of the
Trust, as defined in the 1940 Act, are indicated by an asterisk (*).
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank H. Abbott, III Trustee President and Director, Abbott Corporation
1045 Sansome St. (an investment company); Director, Vacu-Dry
San Francisco, CA 94111 Co. (a food processing company) and
Mother Lode Gold Mines Consolidated; and
director, trustee or managing general
partner, as the case may be, of most of
the investment companies in the Franklin
Group of Funds.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harris J. Ashton Trustee President, Chief Executive Officer and Chairman
General Host Corporation of the Board, General Host Corporation
Metro Center, 1 Station Place (nursery and craft centers); Director, RBC
Stamford, CT 06904-2045 Holdings, Inc. (a bank holding company), Bar-S
Foods and Sunbelt Nursery Group, Inc.; director
of certain of the investment companies in the
Templeton Group of Funds; and director, trustee
or managing general partner, as the case may be,
of most of the investment companies in the
Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------
S. Joseph Fortunato Trustee Member of the law firm of Pitney, Hardin, Kipp
Park Avenue at Morris County & Szuch; Director of General Host Corporation;
P. O. Box 1945 director of certain of the investment companies
Morristown, NJ 07962-1945 in the Templeton Group of Funds; and director,
trustee or managing general partner, as the case
may be, of most of the investment companies in
the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------
David W. Garbellano Trustee Private Investor; Assistant Secretary/Treasurer
111 New Montgomery St., #402 and Director, Berkeley Science Corporation (a
San Francisco, CA 94105 venture capital company); and director, trustee
or managing general partner, as the case may be,
of most of the investment companies in the
Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------
*Charles B. Johnson Chairman of the President and Director, Franklin Resources,
777 Mariners Island Blvd. Board and Trustee Inc. and Franklin/Templeton Distributors, Inc.;
San Mateo, CA 94404 Chairman of the Board and Director, Franklin
Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc. and General Host
Corporation; director of certain of the
investment companies in the Templeton Group of
Funds; and officer and/or director, trustee or
managing general partner, as the case may be, of
most other subsidiaries of Franklin Resources,
Inc. and of most of the investment companies in
the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------
*Rupert H. Johnson, Jr. President and Executive Vice President and Director, Franklin
777 Mariners Island Blvd. Trustee Resources, Inc. and Franklin/Templeton
San Mateo, CA 94404 Distributors, Inc.; President and Director,
Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.;
director of certain of the investment companies
in the Templeton Group of Funds; and officer
and/or director, trustee or managing general
partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and
of most of the investment companies in the
Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank W. T. LaHaye Trustee General Partner, Peregrine Associates and
20833 Stevens Creek Blvd. Miller & LaHaye, which are General Partners
Suite 102 of Peregrine Ventures and Peregrine Ventures
Cupertino, CA 95014 II (venture capital firms); Chairman of the
Board and Director, Quarterdeck Office Systems,
Inc.; Director, FischerImaging Corporation;
and director or trustee, as the case may be,
of most of the investment companies in the
Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------
Gordon S. Macklin Trustee Chairman, White River Corporation (financial
8212 Burning Tree Road services); Director, Fundamerican Enterprises
Bethesda, MD 20817 Holdings, Inc., Martin Marietta Corporation,
and MCI Communications Corporation; director
of certain of the investment companies in the
Templeton Group of Funds; and director, trustee
or managing general partner, as the case may
be, of most of the investment companies in the
Franklin Group of Funds; formerly, Chairman,
Hambrecht and Quist Group; Director, H & Q
Healthcare Investors; and President, National
Association of Securities Dealers, Inc.
- ------------------------------------------------------------------------------------------------------------------
Don Duerson Vice President Employee of Franklin Resources, Inc. and its
777 Mariners Island Blvd. subsidiaries in senior portfolio management
San Mateo, CA 94404 capacities.
- ------------------------------------------------------------------------------------------------------------------
Andrew R. Johnson Vice President Senior Vice President, Franklin Advisers, Inc.;
777 Mariners Island Blvd. employee of Franklin Resources, Inc. and its
San Mateo, CA 94404 subsidiaries in administrative and
portfolio management capacities; and officer of
some of the investment companies in the Franklin
Group of Funds.
- ------------------------------------------------------------------------------------------------------------------
Edward V. McVey Vice President Senior Vice President/National Sales Manager,
777 Mariners Island Blvd. Franklin/Templeton Distributors, Inc.; and
San Mateo, CA 94404 officer of many of the investment companies in
the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------
Harmon E. Burns Vice President Executive Vice President, Secretary and
777 Mariners Island Blvd. Director, Franklin Resources, Inc.; Executive
San Mateo, CA 94404 Vice President and Director,
Franklin/Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor
Services, Inc.; director of certain of the
investment companies in the Templeton Group
of Funds; officer and/or director, as the
case may be, of other subsidiaries of Franklin
Resources, Inc.; and officer and/or director
or trustee of all the investment companies in
the Franklin Group of Funds.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Trust Principal Occupations During Past Five Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kenneth V. Domingues Vice President, Senior Vice President, Franklin Resources, Inc.
777 Mariners Island Blvd. Treasurer and Chief and Franklin Advisers, Inc.; Vice President,
San Mateo, CA 94404 Financial Officer Franklin/Templeton Distributors, Inc.; officer
or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and
officer and/or managing general partner, as the
case may be, of all the investment companies in
the Franklin Group of Funds.
- -----------------------------------------------------------------------------------------------------------------
Deborah R. Gatzek Vice President Senior Vice President - Legal, Franklin
777 Mariners Island Blvd. and Secretary Resources, Inc. and Franklin/Templeton
San Mateo, CA 94404 Distributors, Inc.; Vice President, Franklin
Advisers, Inc.; and officer of all the
investment companies in the Franklin Group of
Funds.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
As indicated above, certain of the trustees and officers hold positions with
other companies in the Franklin Group of Funds(R). Trustees not affiliated with
the investment manager are currently paid fees of $1,300 per month plus $1,300
per meeting attended and are reimbursed for expenses incurred in connection with
attending such meetings. During the fiscal year ended February 28, 1994, the
Fund did not pay any such fees or expenses. No officer or trustee received any
other compensation directly from the Trust. As of April 5, 1994, the officers
and trustees, as a group, did not own of record or beneficially any outstanding
shares of the Fund. Certain officers or trustees who are shareholders of
Franklin Resources, Inc. may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
Charles B. Johnson, Rupert H. Johnson, Jr. and Andrew R. Johnson are brothers.
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 Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange ("Exchange"). Resources owns several other subsidiaries
which are involved in investment management and shareholder services.
The Manager and other subsidiary companies of Resources currently manage over
$112 billion in assets for more than 3.5 million shareholders. The preceding
table indicates those officers and trustees 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 trustees to whom the Manager renders periodic reports of the
Fund's investment activities. The Manager, at its own expense, furnishes the
Trust with office space and office furnishings, facilities and equipment
required for managing the business affairs of the Trust; maintains all internal
bookkeeping, clerical, secretarial and administrative personnel and services;
and provides certain telephone and other mechanical services. The Manager is
covered by fidelity insurance on its officers, 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 for the Fund in the financial
statements at the end of this Statement of Additional Information for additional
details of these expenses.
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 average monthly net assets of the Fund;
8
<PAGE>
1/24 of 1% (approximately 1/2 of 1% per year) of average monthly net assets of
the Fund in excess of $100 million up to $250 million; and 9/240 of 1%
(approximately 45/100 of 1% per year) of average monthly net assets of the Fund
in excess of $250 million.
The Manager has limited its management fees and has assumed responsibility for
making payments to offset certain operating expenses otherwise payable by the
Fund. This action by the Manager to limit its management fees and to assume
responsibility for payment of the expenses related to the operations of the Fund
may be terminated by the Manager at any time. The management agreement specifies
that the management fee will be reduced to the extent necessary to comply with
the most stringent limits on the expenses which may be borne by 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.
For the period from September 21, 1992 (effective date of registration) through
February 28, 1993 and for the fiscal year ended February 28, 1994, the
management fees the Fund was contractually obligated to pay the Manager were
$13,573 and $246,332, respectively, and the management fees actually paid by the
Fund for the same periods were $0 and $45,151, respectively.
The management agreement is in effect until March 31, 1995. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Trust's Board of
Trustees or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority vote of the trustees who
are not parties to the management agreement or interested persons of any such
party (other than as trustees), cast in person at a meeting called for that
purpose. The management agreement may be terminated without penalty at any time
by the Trust or one or more of its Funds 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, 333 Market Street, San Francisco, California 94105, are the
Trust's independent auditors. During the fiscal year ended February 28, 1994,
their auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report and this Statement
of Additional Information.
THE 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 include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
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
9
<PAGE>
and to receive the views and information of individuals and research staff of
other securities firms which the Manager or its affiliates may lawfully and
appropriately use in their investment advisory capacities with other clients.
Provided 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 fiscal years ended February 28, 1993 and 1994, the Fund paid no
brokerage commissions. As of February 28, 1994, the Fund did not own 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.
Shares are eligible to receive dividends beginning on the first business day
following settlement of the purchase transaction, through the date on which the
Fund writes a check or sends a wire on redemption transactions.
Dividend checks which are returned to the 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 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.
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, shares of the Fund will be
offered with the following schedule of sales charges:
<TABLE>
<CAPTION>
SALES
SIZE OF PURCHASE CHARGE
- --------------------------------------- ------
<S> <C>
Up to U.S. $100,000 ................... 3%
U.S. $100,000 to U.S. $1,000,000 ...... 2%
Over U.S. $1,000,000 .................. 1%
</TABLE>
PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form prior 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 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 re-
10
<PAGE>
sulting from failure to do so must be settled between the customer and the
securities dealer.
PURCHASES AT NET ASSET VALUE
As discussed in the Prospectus, certain categories of investors may purchase
shares of the Fund at net asset value (without a sales charge) or at a reduced
sales charge. The reason for this is that there is minimal or no sales effort
required with respect to these investors. If certain investments at net asset
value are made through a dealer who has executed a dealer or similar agreement
with respect to Distributors, Distributors or its affiliates may make a payment,
out of their own resources, to such dealer in an amount not to exceed 0.25% of
the amount invested, paid pro rata on a quarterly basis on average quarterly
balances for a period of one year.
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 SEC. In the case of requests for redemption in excess
of such amounts, the trustees 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 as of
1:00 p.m. Pacific time each day that the Exchange is open for trading. As of the
date of this Statement of Additional Information, 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 and such exchange rates may occur
between the times at which they are determined and 1:00 p.m. Pacific time which
will not be reflected in the computation of the Fund's net asset value. 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 Trustees.
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.
11
<PAGE>
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 Internal Revenue Code of 1986, as
amended (the "Code"). The trustees 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 the Fund to distribute at least 98% of its taxable ordinary
income earned during the calendar year and at least 98% of its 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 the distributions
will be sufficient to avoid any or all federal excise taxes.
Redemptions and exchanges of the Fund's 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 the
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.
THE FUND'S UNDERWRITER
- --------------------------------------------------------------------------------
Pursuant to an underwriting agreement in effect until March 31, 1995,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Fund.
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 Trust's Board of Trustees 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 Trust's trustees who are not parties to the underwriting agreement
or interested persons of any such party (other than as trustees of the Trust),
cast in person at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment
12
<PAGE>
and may be terminated by either party on 90 days' written notice.
Distributors reallows a portion of the underwriting commission on the sale of
the Fund's shares to the securities dealer of record, if any, on the account.
In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the period September 21, 1992 (effective date of registration)
to February 28, 1993 and the fiscal year ended February 28, 1994, were $77,920
and $729,010, respectively. After allowances to dealers, Distributors retained
$2,935 and $85,315, during the periods ended February 28, 1993 and 1994,
respectively. Distributors received no other compensation from the Fund for
acting as underwriter.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan") whereby 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.
Pursuant to the 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 the Fund's shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparation and distribution of sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
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.
In addition to the payments to which Distributors or others are entitled under
the Plan, the Plan also provides 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 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 Plan.
In no event shall the aggregate asset-based sales charges which include payments
made under the 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 Plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plan does not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
subsequent years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plan 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 Board of Trustees has determined that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and to
take advantage of buying opportunities of portfolio securities without having to
make unwarranted liquidations of other portfolio securities. The Board of
Trustees, therefore, felt that it would benefit the Fund to have monies
available for the direct distribution activities of Distributors or others in
promoting the sale of Fund shares. The Board of Trustees, including the
non-interested trustees, concluded that, in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
The Plan has been approved by Resources, the initial shareholder of the Fund,
and by the trustees of the Trust, including those trustees who are not
interested persons, as defined in the 1940 Act. The Plan is effective through
March 31, 1995 and
13
<PAGE>
renewable annually by a vote of the Trust's Board of Trustees, including a
majority vote of the trustees who are non-interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the Plan,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such trustees be done by the non-interested
trustees. The Plan and any related agreement may be terminated at any time,
without any penalty, by vote of a majority of the non-interested trustees on not
more than 60 days' written notice, by Distributors on not more than 60 days'
written notice, by any act that constitutes an assignment of the Management
Agreement with the Manager or the Underwriting Agreement with Distributors, 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.
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 the Fund's outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non-interested trustees,
cast in person at a meeting called for the purpose of voting on any such
amendment.
Distributors is required to report in writing to the Board of Trustees at least
quarterly on the amounts and purpose of any payment made under the Plan and any
related agreements, as well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether the Plan should be
continued.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time quote various
performance figures to illustrate the Fund's past performance. It 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 perform- ance quotations
or, alternatively, that every non-standardized performance quotation furnished
by the Fund be accompanied by certain standardized performance information
computed as required by the SEC. Current yield and average annual compounded
total return quotations used by the Fund are based on the standardized methods
of computing performance mandated by the SEC. An explanation of those and other
methods used by the Fund to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five-, and ten-year periods, or fractional
portion thereof, that would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the maximum sales charge is
deducted from the initial $1,000 purchase order, and that income dividends and
capital gains are reinvested at net asset value, on the reinvestment dates
during the period. 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 on the sales charge structure,
historical performance information will be restated to reflect the maximum sales
charge in effect currently.
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 Fund for the one-year period ending February 28, 1994, was 5.42%,
and for the period from commencement of operations (September 23, 1992) to
February 28, 1994, was 8.32%.
These figures were calculated according to the SEC formula:
P(1+T) n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the end of the one-,
five-, or ten-year periods (or fractional portion thereof)
As discussed in the Prospectus, the Fund may quote total rates of return in
addition to its average annual total return. Such quotations are computed in the
same manner as the Fund's average annual
14
<PAGE>
compounded rate, except that such quotations will be based on the Fund's actual
return for a specified period rather than on its average return over one-, five-
and ten-year periods, or fractional portion thereof. The total rate of return
for the one-year period ended February 28, 1994, was 5.42% and for the period
from commencement of operations (September 23, 1992) to February 28, 1994, was
12.15%.
YIELD
Current yield reflects the income per share earned by the Fund's portfolio
investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
yield for the Fund for the 30-day period ended on the date of the financial
statements included herein was 4.51%.
These figures were obtained using the following SEC formula:
Yield = 2 [(a-b + 1)(6) - 1]
---
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive 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 a 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 a fund that is not tax-exempt, if any).
The tax equivalent yield for the Fund for the 30-day period ended on the date of
the financial statements included herein was 7.47%.
As of the date of this Statement of Additional Information, the federal income
tax rate upon which the Fund's tax equivalent yield quotations are based was
39.6%. From time to time, as any changes to such rate 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 the federal government. 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 the Fund's shareholders. Amounts paid to shareholders are
reflected in the quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by dividing the
total amount of dividends per share paid by the Fund during the past 12 months
by a current maximum offering price. A taxable equivalent distribution rate
demonstrates the taxable distribution rate equivalent to the Fund's current
distribution rate (calculated as indicated above). The advertised taxable
equivalent distribution rate will reflect the most current federal tax rate
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
shares of the Fund at net asset value, sales literature pertaining to the
15
<PAGE>
Fund may quote a "Current Distribution Rate for Net Asset Value Investments."
This rate is computed by adding the income dividends paid by the Fund during the
last 12 months and dividing that sum by a current net asset value. Figures for
yield, total return and other measures of performance for net asset value
investments may also be quoted. These will be derived as described elsewhere in
this Statement of Additional Information with the substitution of net asset
value for public offering price.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisers and
underwriter of both the Franklin Group of Funds(R) 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 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) Lehman Brothers Municipal Bond Index (LBMBI) or its component indices - LBMBI
measures yield, price and total return for the municipal bond market.
d) Financial publications: The Wall Street Journal and Business Week, Financial
World, Forbes, Fortune, and Money magazines - provide performance statistics
over specified time periods.
e) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg, L.P.
f) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
g) Savings & Loan Historical Interest Rates as published by the U.S. Savings &
Loan League Fact Book.
h) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
i) Standard & Poor's Bond Indices - measure yield and price of corporate,
municipal, and government bonds.
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 also compare the Fund's
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.
16
<PAGE>
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
cost 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.
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 45 years and now services
more than 2.4 million shareholder accounts. In 1992, Franklin, a leader in
managing fixed-income mutual funds and an innovator in creating domestic equity
funds, joined forces with Templeton Worldwide, Inc., a pioneer in international
investing. Together, the Franklin/Templeton Group has over $112 billion in
assets under management for more than 3.5 million shareholder accounts and
offers 101 U.S.-based mutual funds. The Fund may identify itself by its Quotron
or CUSIP number.
Franklin is a leader in the tax-free mutual fund industry, currently offering 40
tax-free funds, including 31 funds free from both federal and state personal
income taxes, and managing more than $40 billion in municipal bond assets for
over half a million investors.
Under current tax laws, municipal securities remain one of the few investments
offering the potential for tax-free income. In 1994, taxes could cost as much as
$47 on every $100 earned from a fully taxable investment (based on the maximum
combined 39.6% federal tax rate and the highest state tax rate of 12% for 1994.)
Franklin tax-free funds, however, offer tax relief through a professionally
managed portfolio of tax-free securities selected based on their yield, quality
and maturity. An investment in a Franklin tax-free fund can provide an investor
with the potential to earn income free of federal taxes and, depending on the
fund, state and local taxes as well, while supporting state and local public
projects. Franklin tax-free funds may also provide tax-free compounding, when
dividends are reinvested. An investment in Franklin's tax-free funds can grow
more rapidly than a similar taxable investment.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one of
36 mutual fund groups in service quality for 1993. One other fund group was also
ranked number one. Franklin has been ranked number one in service quality by
Dalbar for five of the past six years.
From time to time, advertisements or sales material issued by 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.
MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
The Trust amortizes the organizational expenses attributable to the Fund over a
period of five years from the effective date of the registration statement
covering the Fund. New investors purchasing shares of the Fund after the
effective date of the Fund's registration statement under the Securities Act of
1933 will bear such expenses during the amortization period.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations. The
Trust's Declaration of Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust also provides for indemnification and reimbursement of expenses out of
Trust assets for any shareholder held personally liable for obligations of the
Trust. The Declaration of Trust provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Trust and satisfy any judgment thereon. All such rights are
limited to the assets of the fund of which a shareholder holds shares. The
Declaration of Trust further provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, trustees, officers, employees and
agents to cover possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to
17
<PAGE>
circumstances in which both inadequate insurance exists and the Trust itself is
unable to meet its obligations.
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 Internal Revenue Service in response
to a Notice of Levy.
APPENDIX - DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
- --------------------------------------------------------------------------------
MUNICIPAL BONDS
Moody's
Aaa: Municipal bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Municipal bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Municipal Bonds which are rated Baa are considered 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: Municipal 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: Municipal 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: Municipal 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: Municipal Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Municipal 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. (-): Municipal 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 municipal bond ratings. 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: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
18
<PAGE>
AA: Municipal bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A: Municipal bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB: Municipal Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit 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: Municipal 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: (highest quality) "the obligor has an extraordinary ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events."
AA bonds: (high quality) "the obligor's ability to pay interest and repay
principal, while very strong, is somewhat less than for AAA-rated securities or
more subject to possible change over the term of the issue."
A bonds: (good quality) "the obligor's ability to pay interest and repay
principal is strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings."
BBB bonds: (satisfactory bonds) "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 weaken this ability than bonds
with higher ratings."
MUNICIPAL NOTES
Moody's
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in long-term
borrowing risk are of lesser importance in the short run. Symbols used will be
as follows:
MIG-1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG-2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG-3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG-4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER
Moody's
Moody's Commercial Paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Trust, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in
19
<PAGE>
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the A category are delineated with the numbers
1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Fitch's Short-term and Commercial Paper Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflects an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
20
<PAGE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 90.3%
ALASKA .3%
$ 200,000 Anchorage Parking Authority Revenue, Refunding Lease, 5th Avenue Garage, 6.50%, 12/01/02............. $ 213,272
------------
ARIZONA .4%
200,000 Mohave County IDA, Hospital System Revenue, Refunding, Medical Environments, Inc., Phoenix
Hospital & Medical Center, 6.00%, 07/01/00......................................................... 209,708
90,000 Phoenix HFC, Mortgage Revenue, Project A, 6.00%, 07/01/02............................................ 93,363
------------
303,071
------------
CALIFORNIA 24.8%
100,000 Association of Bay Area Governments Finance Corp. COP, Association XXVI, Series B, 6.30%,
10/01/02........................................................................................... 104,984
1,500,000 California Educational Facilities Authority Revenue Pooled, College & University Financing,
Refunding, Series B, 5.90%, 06/01/03............................................................... 1,525,455
California Statewide CDA Revenue, COP, Refunding, Health Facilities, Barton Memorial Hospital,
200,000 Series B, 5.70%, 12/01/00.......................................................................... 209,696
300,000 Series B, 6.40%, 12/01/05.......................................................................... 327,222
300,000 Coalinga Public Financing Authority Revenue, Series B, 6.10%, 09/15/04............................... 304,335
Eden Township Hospital District Health Facilities Revenue, COP, Refunding,
400,000 Eden Hospital Health Services Corp., 5.30%, 07/01/02............................................... 399,168
450,000 Eden Hospital Health Services Corp., 5.40%, 07/01/03............................................... 448,983
500,000 Eden Hospital Health Services Corp., 5.50%, 07/01/04............................................... 498,785
500,000 Eden Hospital Health Services Corp., 5.60%, 07/01/05............................................... 498,710
2,000,000 Foothill Transportation Zone COP, Refunding, Series A, 5.35%, 05/01/03............................... 1,952,760
Hesperia Public Finance Authority Revenue,
505,000 Highway and Street Improvement, Series A, 4.75%, 10/01/96.......................................... 503,414
555,000 Highway and Street Improvement, Series A, 5.00%, 10/01/97.......................................... 553,546
605,000 Highway and Street Improvement, Series A, 5.25%, 10/01/98.......................................... 605,460
Imperial County Local Transportation Authority,
440,000 Sales Tax Revenue, 5.375%, 05/01/02................................................................ 430,184
465,000 Sales Tax Revenue, 5.375%, 05/01/03................................................................ 450,441
2,000,000 Loma Linda Hospital Revenue, Refunding, Loma University Medical Center, Series C, MBIA
Insured, 5.00%, 12/01/04........................................................................... 1,983,460
100,000 Los Angeles County Transportation Commission, COP, Series B, 5.90%, 07/01/00......................... 105,091
450,000 Merced Irrigation District COP, Water Facilities Project, 6.00%, 11/01/02............................ 459,383
500,000 New Haven USD, COP, Refunding, 5.30%, 07/01/01....................................................... 508,445
200,000 Paso Robles USD, COP, Measure D Capital Projects, Phase III, 5.75%, 08/01/02......................... 202,362
140,000 Pleasanton USD, COP, Refunding, 6.30%, 02/01/00...................................................... 140,602
100,000 San Diego County COP, Children's Center Project, 6.00%, 10/01/02..................................... 102,111
100,000 San Diego Port Facilities Revenue, Refunding, National Steel and Shipbuilding Co., 6.60%,
12/01/02........................................................................................... 105,901
165,000 San Francisco City and County RDA Meeting, Refunding, FHA Insured, Section 8, Series A,
6.125%, 07/01/02................................................................................... 165,241
200,000 San Francisco Downtown Parking Corp. Revenue, 6.25%, 04/01/04........................................ 203,878
200,000 San Joaquin County COP, General Hospital Project, 5.90%, 09/01/03.................................... 207,042
</TABLE>
The accompanying notes are an integral part of these financial statements.
72
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONT.)
CALIFORNIA (CONT.)
$ 520,000 San Juan USD, COP, Golden River Elementary School Construction Project, 5.40%, 04/01/01.............. $ 520,827
Snowline Joint USD, COP,
245,000 Series 1993, 5.50%, 07/01/00....................................................................... 246,666
260,000 Series 1993, 5.60%, 07/01/01....................................................................... 261,992
275,000 Series 1993, 5.70%, 07/01/02....................................................................... 276,601
290,000 Series 1993, 5.80%, 07/01/03....................................................................... 291,836
400,000 Solano County COP, Refunding, Justice Facility and Public Building Project, 5.875%, 10/01/05......... 403,912
100,000 Southern California Rapid Transit District Revenue, Special Benefit AD A2, Series 92A, 6.00%,
09/01/02........................................................................................... 104,801
Susanville Public Financing Authority Revenue, Water Facilities,
25,000 Series A, AMBAC Insured, 5.90%, 09/01/02........................................................... 26,928
100,000 Series A, AMBAC Insured, 6.00%, 09/01/03........................................................... 107,681
500,000 Tahoe City, Public Utilities District, COP, Capital Facilities Project, Series B, 6.05% 06/01/01..... 510,200
100,000 Tuolumne County COP, Multiple Facilities Project, 6.00%, 06/01/99.................................... 102,739
1,000,000 Walnut Creek COP, Refunding, John Muir Medical Center, MBIA Insured, 4.80%, 02/15/04................. 969,980
------------
16,820,822
------------
COLORADO .9%
335,000 Denver City and County Airport Revenue, Series C, 6.25%, 11/15/00.................................... 341,553
255,000 Summit County Recreational Facilities Revenue, Refunding, Copper Mountain, 5.90%, 04/01/17........... 255,179
------------
596,732
------------
DISTRICT OF COLUMBIA 1.1%
700,000 District of Columbia GO, Refunding, Series A, 5.875%, 06/01/05....................................... 714,063
------------
FLORIDA 11.5%
275,000 Alachua County, HFA, Santa Fe Health Care Facilities Project, Refunding, 6.875%, 11/15/02............ 288,797
Collier County Special Assessment,
675,000 Pine/Naples Municipal Service Tax & Benefits, 5.10%, 11/01/00...................................... 662,283
845,000 Pine/Naples Municipal Service Tax & Benefits, 5.30%, 11/01/02...................................... 825,481
565,000 Pine/Naples Municipal Service Tax & Benefits, 5.40%, 11/01/03...................................... 550,869
2,000,000 Lake County Resources IDR, Refunding, Recovery Group, Series A, 5.40%, 10/01/03...................... 1,968,120
Northern Palm Beach County Water Control District, Unit Development Number 31,
405,000 Program 1, 6.60%, 11/01/03......................................................................... 415,996
320,000 Program 2, 6.60%, 11/01/03......................................................................... 328,688
2,700,000 Palm Beach County Solid Waste IDR, Okeelanta Power Project, Series A, 6.375%, 02/15/07............... 2,705,427
------------
7,745,661
------------
GEORGIA .2%
100,000 Fulton County Development Authority Special Facilities Revenue, Delta Air Lines, Inc. Project,
6.85%, 11/01/07.................................................................................... 103,035
------------
ILLINOIS 4.3%
850,000 Illinois Educational Facilities Authority Revenues, Columbia College, 5.875%, 12/01/03............... 867,910
500,000 Illinois Health Facilities Authority Revenue, Refunding, Edward Hospital, Series A, 5.35%,
02/15/03........................................................................................... 492,660
1,575,000 Illinois HDA, Series A, 5.25%, 01/01/03.............................................................. 1,560,636
------------
2,921,206
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
73
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONT.)
INDIANA .2%
$ 100,000 Indianapolis Local Public Improvement Bond, Series D, 6.10%, 02/01/02 ............................... $ 106,496
------------
IOWA .3%
200,000 Iowa State Financial Authority Hospital, Facilities Revenue, Refunding, Trinity Regional
Hospital Project, 6.50%, 07/01/00 ................................................................. 213,384
------------
KENTUCKY .9%
100,000 Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Project A, 6.75%, 02/01/02 .. 103,323
500,000 Mt. Sterling Lease Revenue, Kentucky League Cities Funding, Series A, 5.625%, 03/01/03 .............. 511,490
------------
614,813
------------
LOUISIANA .9%
70,000 Calcasieu Parish, Public Transportation Authority Mortgage Revenue, Refunding, Series B, 6.375%,
11/01/02 .......................................................................................... 72,706
300,000 Louisiana State Correctional Facilities Corp., Lease Revenue, Refunding, FSA Insured, 5.25%,
12/15/00 .......................................................................................... 309,453
100,000 Louisiana State Offshore Terminal Authority, Deepwater Port Revenue, Refunding, 1st. Stage,
Loop, Inc., Series B, 6.20%, 09/01/03 ............................................................. 109,924
100,000 Louisiana State Public Facility Authority Revenue Loan, Series A-1, 6.20%, 03/01/01 ................. 105,314
------------
597,397
------------
MARYLAND 1.3%
270,000 Baltimore Economic Development Lease Revenue, Refunding, Armistead Partnership Series A,
6.75%, 08/01/02 ................................................................................... 292,628
575,000 Northeast Waste Disposal Authority, Solid Waste Revenue, Montgomery County Research Recreation,
Project A, 5.80%, 07/01/04 ........................................................................ 587,932
------------
880,560
------------
MASSACHUSETTS 1.8%
200,000 Massachusetts State Industrial Finance Agency, Resource Recovery Revenue, Refunding, Refusetech, Inc.
Project, Series A, 5.45%, 07/01/01................................................................. 206,928
New England Educational Loan Corp. Massachusetts Student Loan Revenue, Refunding,
600,000 Series B, 5.00%, 06/01/98 ......................................................................... 609,786
415,000 Series B, 5.60%, 06/01/02 ......................................................................... 424,292
------------
1,241,006
------------
MINNESOTA .3%
200,000 Minneapolis CDA, Supported Development Revenue, Series 91-5A, 7.20%, 12/01/04 ....................... 213,672
------------
MISSISSIPPI 1.8%
1,250,000 Mississippi State Higher Education Assistant Corp. Student Loan Revenue, Series A, 4.80%, 09/01/99... 1,241,662
------------
MISSOURI 1.5%
1,000,000 St. Louis Municipal Finance Corp., Leasehold Revenue, Refunding, Series A, 5.375%, 07/15/03 ......... 1,001,740
------------
NEBRASKA .5%
300,000 Nebraska Higher Education Loan Program, Inc., Revenue, Subject Lien, Series A-6, 6.70%, 12/01/02 .... 324,882
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
NEW JERSEY .2%
$ 135,000 New Jersey EDA, Economic Growth 2nd Revenue, Series F-1, 6.00%, 12/01/02 ............................ $ 141,525
------------
NEW YORK 8.2%
New York City GO,
515,000 Refunding, Series C, 6.50%, 08/01/04 .............................................................. 547,686
800,000 Refunding, Series D, 5.75%, 08/01/03 .............................................................. 812,712
100,000 Series B, 6.25%, 10/01/01 ......................................................................... 104,712
250,000 Series H, 7.00%, 02/01/05 ......................................................................... 275,683
2,500,000 New York City Health and Hospital Authority, Local Government Revenue, Refunding, Series A, 6.00%,
02/15/06 .......................................................................................... 2,574,675
100,000 New York City IDA, Civic Facilities Revenue, New York Blood Center, Inc., Project, 6.80%, 05/01/02 .. 107,283
1,000,000 New York State Housing Finance Agency Service, 5.10%, 09/15/04 ...................................... 987,180
100,000 Oneida-Herkimer Solid Waste Management Authority, Solid Waste Systems Revenue, Refunding, 6.20%,
04/01/00 .......................................................................................... 104,087
------------
5,514,018
------------
OKLAHOMA .2%
100,000 Tulsa Public Facilities Authority, Lease Payment Revenue, Refunding, Assembly Center, 5.80%,
07/01/01 .......................................................................................... 102,991
------------
PENNSYLVANIA 8.4%
500,000 Allegheny County Higher Education, Building Authority Revenue, Community College Allegheny County,
Series A, 5.50%, 06/01/05 ........................................................................ 507,070
100,000 Cambria County Hospital Development Authority Hospital Revenue, Refunding & Improvement, Conemaugh
Valley Hospital, Series B, 5.90%, 07/01/03 ....................................................... 106,782
100,000 Langhorne Manor Borough Higher Education and Health Authority Revenue, Lower Bucks Hospital, 6.75%,
07/01/02 ......................................................................................... 108,090
Lebanon County Good Samaritan Hospital Authority Revenue,
535,000 Good Samaritan Hospital Project, Refunding, 5.25%, 11/15/01 ...................................... 532,614
615,000 Good Samaritan Hospital Project, Refunding, 5.35%, 11/15/02 ...................................... 611,993
575,000 Good Samaritan Hospital Project, Refunding, 5.50%, 11/15/03 ...................................... 571,964
Northeastern Hospital and Educational Authority,
390,000 College Revenue, Kings College, 5.50%, 07/15/02 .................................................. 386,369
410,000 College Revenue, Kings College, 5.60%, 07/15/03 .................................................. 405,855
845,000 University Revenue, 5.40%, 10/01/03 .............................................................. 835,029
Philadelphia Gas Works Revenue,
300,000 Series A, Refunding, 5.70%, 07/01/00 .............................................................. 310,410
300,000 Series A, Refunding, 5.80%, 07/01/01 .............................................................. 311,736
1,000,000 Philadelphia Municipal Authority Revenue, Refunding, Series C, FGIC Insured, 4.90%, 04/01/04 ........ 985,140
------------
5,673,052
------------
PUERTO RICO .3%
100,000 Puerto Rico Electric Power Authority Revenue, Series Q, 5.90%, 07/01/01 ............................. 105,701
100,000 Puerto Rico Municipal Finance Agency, Series A, 5.30%, 07/01/00 ..................................... 102,142
------------
207,843
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONT.)
SOUTH DAKOTA 1.8%
$1,205,000 South Dakota HDA, Homeownership Mortgage, Series B, 5.15%, 05/01/04.................................. $ 1,205,000
-----------
TENNESSEE 1.1%
750,000 Metropolitan Government Nashville & Davidson County IDB Revenue, Refunding & Improvement,
Osco Treatment, Inc., 6.00%, 05/01/03.............................................................. 766,335
-----------
TEXAS 4.1%
1,000,000 Brazos Higher Education Authority, Inc., Student Loan Revenue, Refunding, Sub-Series C-2,
5.875%, 06/01/04................................................................................... 1,004,090
1,310,000 East Texas Criminal Justice Facilities Financing Corp., Mortgage Revenue, Angelica County
Project, Series A, MBIA Insured, 5.00%, 05/01/03................................................... 1,312,764
470,000 Houston HFC, SF, Mortgage Revenue, Refunding, Series A, FSA Insured, 5.45%, 06/01/03................. 477,796
-----------
2,794,650
-----------
VIRGINIA 1.5%
1,000,000 Virginia College Building Authority, Educational Facilities Revenue, Hampton University Project,
5.375%, 04/01/03................................................................................... 1,017,540
-----------
UTAH 3.0%
2,000,000 Davis County Solid Waste Management & Energy Recovery Revenue, Refunding, Special Service
District, 5.50%, 06/15/00.......................................................................... 2,015,620
-----------
WASHINGTON 7.7%
600,000 Marysville Water and Sewer Revenue, Refunding, MBIA Insured, 5.75%, 12/01/05.......................... 626,765
Washington State Health Care Facilities Authority Revenue,
345,000 Heart Institute Spokane, Series A, 5.125%, 08/15/02.................................................. 345,807
300,000 Heart Institute Spokane, Series A, 5.25%, 08/15/03................................................... 301,317
390,000 Heart Institute Spokane, Series A, 5.25%, 08/15/04................................................... 388,744
315,000 Refunding, Dominican Health Services, Connie Lee Insured, 5.25%, 06/01/02............................ 319,385
365,000 Refunding, Dominican Health Services, Connie Lee Insured, 5.35%, 06/01/03............................ 370,548
445,000 Refunding, Dominican Health Services, Connie Lee Insured, 5.50%, 06/01/04............................ 454,034
900,000 St. Joseph Hospital Service, MBIA Insured, 4.90%, 03/01/04........................................... 877,113
1,005,000 St. Joseph Hospital Service, MBIA Insured, 5.00%, 03/01/05........................................... 977,674
500,000 Washington State Public Power Supply System Revenue, Nuclear Project No. 1, Refunding,
Series A, 5.50%, 07/01/04............................................................................ 514,635
-----------
5,176,022
-----------
WYOMING .8%
545,000 Wyoming CDA, SFM, Series E, 5.05%, 06/01/03............................................................ 539,021
-----------
TOTAL LONG TERM INVESTMENTS (COST $60,370,394)....................................................... 61,007,091
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS 9.0%
$ 400,000 gBrevard County, HFA, MFHR, Eks, Inc. Project, Weekly VRDN and Put, 2.45%, 01/01/15 ................. $ 400,000
200,000 gCalifornia Health Facilities Finance Authority Revenue, Sutter Health, Series A, Daily VRDN and
Put, 2.20%, 03/01/20............................................................................... 200,000
California PCFA, PCR, Refunding, Shell Oil Co. Project,
200,000 gSeries C, Daily VRDN and Put, 2.20%, 11/01/00 .................................................... 200,000
300,000 gSeries C, Daily VRDN and Put, 2.20%, 10/01/08 .................................................... 300,000
100,000 gFlorida State HFA, MF, Monterey Meadows Apartments, Weekly VRDN and Put, 2.40%, 12/01/07............ 100,000
3,000,000 Gateway Service District Florida Revenue, North Transportation Roadway Service, 5.50%, 11/30/94 ..... 3,004,500
200,000 gIrvine Ranch, California, Water Distribution, Daily VRDN and Put, 2.25%, 10/01/00 .................. 200,000
400,000 gMaricopa County, Arizona, IDA, Hospital Facilities Revenue, Samaritan Health Services Hospital
B-2, MBIA Insured, Daily VRDN and Put, 2.30%, 12/01/08 ............................................ 400,000
500,000 gNew York City Municipal Water Finance Authority Water & Sewer System Revenue, Series C,
Daily VRDN and Put, 2.20%, 06/15/22................................................................ 500,000
600,000 gNew York State Energy Research & Development Authority PCR, Niagara Mohawk Power, Series A,
Daily VRDN and Put, 2.20%, 07/01/15................................................................ 600,000
200,000 gPuerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and Put, 2.25%,
12/01/15 .......................................................................................... 200,000
-----------
TOTAL SHORT TERM INVESTMENTS (COST $6,100,000) ................................................ 6,104,500
-----------
TOTAL INVESTMENTS (COST $66,470,394) 99.3%.................................................. 67,111,591
OTHER ASSETS AND LIABILITIES, NET .7% ...................................................... 491,383
-----------
NET ASSETS 100.0%........................................................................... $67,602,974
===========
At February 28, 1994, the net unrealized appreciation based on the cost of investments
for income tax purposes of $66,470,394 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.................................................................... $ 900,351
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................................... (259,154)
-----------
Net unrealized appreciation ....................................................................... $ 641,197
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, FEBRUARY 28, 1994 (CONT.)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
CDA - Community Development Agency
COP - Certificate of Participation
EDA - Economic Development Authority
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Agency
FSA - Financial Security Assistance
GO - General Obligation
HDA - Housing Development Authority/Agency
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Corp.
IDA - Industrial Development Authority/Agency
IDB - Industrial Development Board
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
PCFA - Pollution Control Finance Authority
PCR - Pollution Control Revenue
RDA - Redevelopment Agency
SF - Single Family
SFM - Single Family Mortgage
USD - Unified School District
(e)See Note 1 regarding securities purchased on a when-issued basis.
(g)Variable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest upon short notice prior to specified dates. The
interest rate may change on specified dates in relationship with changes
in a designated rate (such as the prime interest rate or U.S. Treasury
bills rate).
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost................................ $719,935,351 $183,061,015 $150,251,433 $43,172,339 $513,356,606
============ ============ ============ =========== ============
At value.......................................... 787,385,615 198,692,513 159,866,766 46,784,413 552,174,453
Cash................................................ 670,670 229,758 215,865 438,802 1,919,230
Receivables:
Interest.......................................... 9,860,263 3,512,918 2,950,421 607,444 8,637,562
Investment securities sold........................ 5,303,563 599,835 -- -- 5,033
Capital shares sold............................... 1,562,409 574,326 306,818 161,294 1,734,153
------------ ------------ ------------ ----------- ------------
Total assets................................ 804,782,520 203,609,350 163,339,870 47,991,953 564,470,431
------------ ------------ ------------ ----------- ------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery............................... 5,852,044 -- -- -- --
When-issued basis (Note 1)..................... -- 952,796 -- -- 1,871,943
Distributions payable to shareholders............. 840,633 206,574 136,865 40,763 489,897
Capital shares repurchased........................ 872,660 178,940 54,387 50,826 705,362
Management fees................................... 319,606 94,595 78,325 24,888 230,953
Shareholder servicing costs....................... 8,879 3,250 2,300 920 9,270
Accrued expenses and other liabilities............. 50,589 15,503 17,602 5,017 33,259
------------ ------------ ------------ ----------- ------------
Total liabilities.......................... 7,944,411 1,451,658 289,479 122,414 3,340,684
------------ ------------ ------------ ----------- ------------
Net assets, at value................................. $796,838,109 $202,157,692 $163,050,391 $47,869,539 $561,129,747
============ ============ ============ =========== ============
Net assets consist of:
Undistributed net investment income................ $ 858,804 $ 197,514 $ 146,237 $ 42,704 $ 259,824
Unrealized appreciation on investments............. 67,450,264 15,631,498 9,615,333 3,612,074 38,817,847
Accumulated net realized loss...................... (492,377) (314,793) (261,598) (143,717) (836,134)
Capital shares..................................... 729,021,418 186,643,473 153,550,419 44,358,478 522,888,210
------------ ------------ ------------ ----------- ------------
Net assets, at value................................ $796,838,109 $202,157,692 $163,050,391 $47,869,539 $561,129,747
============ ============ ============ =========== ============
Shares outstanding.................................. 68,826,579 16,934,511 14,514,694 3,987,092 47,457,617
============ ============ ============ =========== ============
Net asset value per share........................... $11.58 $11.94 $11.23 $12.01 $11.82
============ ============ ============ =========== ============
Representative computation (Franklin
Arizona Tax-Free Income Fund) of net
asset value and offering price per share:
Net asset value and redemption price per
share ($796,838,109 / 68,828,579)........... $11.58
============
Maximum offering price*+ (100/96 of $11.58)... $12.06
============
</TABLE>
*The maximum offering price for Franklin Federal Intermediate-Term Tax-Free
Income Fund is calculated at 100/97.75 of $10.80.
+Effective July 1, 1994, the maximum offering price will increase to 4.25%.
On sales of $100,000 or more, the offering price is reduced as stated in the
section of the Prospectus entitled "How to Buy Shares of the Fund."
The accompanying notes are an integral part of these financial statements.
102
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (cont.)
STATEMENTS OF ASSETS AND LIABILITIES (cont.)
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost.......................... $345,892,642 $560,713,943 $158,713,261 $66,470,394 $3,079,716,509
============ ============ ============ =========== ==============
At value.................................... 369,568,236 608,048,899 172,198,433 67,111,591 3,322,485,282
Cash......................................... 389,493 583,946 266,963 524,568 781,571
Receivables:
Interest.................................... 5,673,365 10,533,259 2,645,984 950,838 64,455,562
Investment securities sold.................. 1,905,290 1,350,000 -- 5,106 2,112,132
Capital shares sold......................... 805,599 1,476,180 366,091 435,112 10,794,783
------------ ------------ ------------ ----------- --------------
Total assets.......................... 378,341,983 621,992,284 175,477,471 69,027,215 3,400,629,330
------------ ------------ ------------ ----------- --------------
Liabilities:
Payables:
Investment securities purchased:
When-issued basis (Note 1)................. 1,985,278 5,022,917 -- 1,211,206 20,932,304
Distributions payable to shareholders....... 302,812 658,677 187,067 60,301 3,547,124
Capital shares repurchased.................. 180,529 459,956 152,415 115,410 2,084,296
Management fees............................. 161,660 251,720 83,363 21,180 1,285,786
Shareholder servicing costs................. 5,530 10,099 3,800 1,015 49,551
Accrued expenses and other liabilities....... 22,350 43,381 14,853 15,129 197,075
------------ ------------ ------------ ----------- --------------
Total liabilities..................... 2,658,159 6,446,750 441,498 1,424,241 28,096,136
------------ ------------ ------------ ----------- --------------
Net assets, at value.......................... $375,683,824 $615,545,534 $175,035,973 $67,602,974 $3,372,533,194
============ ============ ============ =========== ==============
Net assets consist of:
Undistributed net investment income.......... $ 469,533 $ 746,662 $ 410,812 $ 66,016 $ 2,517,139
Unrealized appreciation on investments....... 23,675,594 47,334,956 13,485,172 641,197 242,768,773
Accumulated net realized loss................ (344,823) (563,377) (365,261) (13,267) (32,901,847)
Capital shares............................... 351,883,520 568,027,293 161,505,250 66,909,028 3,160,149,129
------------ ------------ ------------ ----------- --------------
Net assets, at value.......................... $375,683,824 $615,545,534 $175,035,973 $67,602,974 $3,372,533,194
============ ============ ============ =========== ==============
Shares outstanding............................ 32,112,174 58,271,465 14,801,566 6,259,709 299,864,353
============ ============ ============ =========== ==============
Net asset value per share..................... $11.70 $10.56 $11.83 $10.80 $11.25
============ ============ ============ =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
103
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (cont.)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest (Note 1)................ $47,139,814 $11,535,087 $9,189,112 $2,727,997 $31,168,214
----------- ----------- ---------- ---------- -----------
Management fees (Note 5) ........ 3,701,321 1,046,886 876,259 272,338 2,552,530
Shareholder servicing
costs (Note 5)................. 109,786 36,404 25,710 10,111 106,915
Custodian fees .................. 83,216 20,019 16,270 4,742 55,340
Reports to shareholders.......... 120,336 39,409 38,581 9,903 108,859
Professional fees ............... 20,387 5,677 4,805 2,106 13,988
Trustees' fees and expenses ..... 13,903 3,294 2,680 778 9,129
Other ........................... 29,988 8,942 7,937 4,652 17,128
----------- ----------- ---------- ---------- -----------
Total expenses ............... 4,078,935 1,160,631 972,242 304,630 2,861,889
----------- ----------- ---------- ---------- -----------
Net investment income ........ 43,060,879 10,374,456 8,216,870 2,423,367 28,306,325
----------- ----------- ---------- ---------- -----------
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) ....... 2,167,355 (48,802) 163,733 (115,564) (816,160)
Net unrealized appreciation
(depreciation) during the year. (1,451,799) 1,198,857 579,348 372,216 (524,329)
----------- ----------- ---------- ---------- -----------
Net realized and unrealized
gain (loss) on investments..... 715,556 1,150,055 743,081 256,652 (1,340,489)
----------- ----------- ---------- ---------- -----------
Net increase in net assets
resulting from operations..... $43,776,435 $11,524,511 $8,959,951 $2,680,019 $26,965,636
=========== =========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
104
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (cont.)
STATEMENTS OF OPERATIONS (cont.)
FOR THE YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION> FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest (Note 1)........... $21,045,512 $36,666,325 $10,349,028 $1,940,917 $226,151,095
----------- ----------- ----------- ---------- ------------
Expenses:
Management fees (Note 5).... 1,832,220 2,828,236 936,205 45,151 14,279,943
Shareholder servicing costs
(Note 5)................... 63,229 118,789 43,895 5,527 586,157
Custodian fees.............. 38,192 62,008 17,650 4,379 336,226
Reports to shareholders..... 67,762 126,976 39,993 6,552 583,695
Professional fees........... 9,909 15,476 5,108 8,268 257,038
Trustees' fees and expenses. 6,304 10,291 2,915 -- 55,907
Distribution fees
(Rule 12b-1) (Note 5)...... -- -- -- 10,278 --
Other....................... 15,680 20,634 12,545 32,235 238,683
----------- ----------- ----------- ---------- ------------
Total expenses.......... 2,033,316 3,182,610 1,058,311 112,390 16,337,649
----------- ----------- ----------- ---------- ------------
Net investment income.. 19,012,196 33,483,715 9,290,717 1,828,527 209,813,446
----------- ----------- ----------- ---------- ------------
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss).... (54,202) 502,951 (120,033) (13,267) (32,087,278)
Net unrealized appreciation
(depreciation) during
the year................... (1,162,634) (440,476) 213,990 395,231 76,071,675
----------- ----------- ----------- ---------- ------------
Net realized and unrealized
gain (loss) on investments. (1,216,836) 62,475 93,957 381,964 43,984,397
----------- ----------- ----------- ---------- ------------
Net increase in net assets
resulting from operations. $17,795,360 $33,546,190 $ 9,384,674 $2,210,491 $253,797,843
=========== =========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
105
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1994 AND 1993
<TABLE>
<CAPTION>
FRANKLIN INDIANA FRANKLIN NEW JERSEY FRANKLIN OREGON
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- --------------------------- ---------------------------
1994 1993 1994 1993 1994 1993
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.................. $ 2,423,367 $ 1,794,489 $ 28,306,325 $ 22,569,544 $ 19,012,196 $ 14,720,702
Net realized gain (loss) from
security transactions................. (115,564) 621 (816,160) 190,615 (54,202) (262,334)
Net unrealized appreciation
(depreciation) during the year........ 372,216 2,288,814 (524,329) 23,038,227 (1,162,634) 16,690,929
----------- ----------- ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations.......... 2,680,019 4,081,924 26,965,836 45,798,386 17,795,360 31,149,297
Distributions to shareholders:
From undistributed net investment income (2,415,719) (1,788,558) (28,824,200) (22,315,754) (19,045,652) (14,448,564)
From realized gain on securities
transactions........................... -- -- -- (187,340) -- --
Increase in net assets from capital share
transactions (Note 2)................... 10,238,426 11,159,064 129,286,136 77,870,676 73,214,689 78,046,478
----------- ----------- ------------ ------------ ------------ ------------
Net increase in net assets............ 10,502,726 13,452,430 127,427,772 101,165,968 71,964,397 94,747,211
Net assets:
Beginning of year....................... 37,366,813 23,914,383 433,701,975 332,536,007 303,719,427 208,972,216
----------- ----------- ------------ ------------ ------------ ------------
End of year............................. $47,869,539 $37,366,813 $561,129,747 $433,701,975 $375,683,824 $303,719,427
=========== =========== ============ ============ ============ ============
Undistributed net investment income
included in net assets:
Beginning of year...................... $ 35,056 $ 29,125 $ 777,699 $ 523,909 $ 502,989 $ 230,851
=========== =========== ============ ============ ============ ============
End of year............................ $ 42,704 $ 35,056 $ 259,824 $ 777,699 $ 469,533 $ 502,989
=========== =========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
106
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 28, 1994 AND 1993
<TABLE>
<CAPTION>
FRANKLIN ARIZONA FRANKLIN COLORADO FRANKLIN CONNECTICUT
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- --------------------------- ---------------------------
1994 1993 1994 1993 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.................. $ 43,060,879 $ 38,848,681 $ 10,374,456 $ 8,147,052 $ 8,216,870 $ 6,384,379
Net realized gain (loss) from security
transactions.......................... 2,167,355 (2,325,068) (48,802) (224,977) 163,733 (303,385)
Net unrealized appreciation
(depreciation) during the year........ (1,451,799) 45,073,505 1,198,857 10,478,960 579,348 7,180,626
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations..................... 43,776,435 81,597,118 11,524,511 18,401,035 8,959,951 13,261,620
Distributions to shareholders:
From undistributed net investment
income................................. (43,768,763) (37,898,345) (10,448,564) (8,028,059) (8,245,310) (6,292,187)
Increase in net assets from capital share
transactions (Note 2)................... 89,128,757 78,017,012 41,801,490 38,822,268 35,520,199 31,662,166
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets............ 89,136,429 121,715,785 42,877,437 49,195,244 36,234,840 38,631,599
Net assets:
Beginning of year....................... 707,701,680 585,985,895 159,280,255 110,085,011 126,815,551 88,183,952
------------ ------------ ------------ ------------ ------------ ------------
End of year............................. $796,838,109 $707,701,680 $202,157,692 $159,280,255 $163,050,391 $126,815,551
============ ============ ============ ============ ============ ============
Undistributed net investment income
included in net assets:
Beginning of year...................... $ 1,566,688 $ 616,352 $ 271,622 $ 152,629 $ 174,677 $ 82,485
============ ============ ============ ============ ============ ============
End of year........................... $ 858,804 $ 1,566,888 $ 197,514 $ 271,622 $ 146,237 $ 174,677
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
107
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1994 AND 1993
<TABLE>
<CAPTION>
FRANKLIN PENNSYLVANIA FRANKLIN PUERTO RICO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.......................................... $ 33,483,715 $ 28,040,480 $ 9,290,717 $ 7,784,032
Net realized gain (loss) from security transactions............ 502,951 (308,838) (120,033) 250,976
Net unrealized appreciation (depreciation) during the year..... (440,476) 31,835,249 213,990 7,297,862
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations......... 33,546,190 59,566,891 9,384,874 15,332,870
Distributions to shareholders:
From undistributed net investment income....................... (33,696,846) (27,508,622) (9,358,331) (7,513,871)
From realized gain on securities transactions.................. -- -- -- --
Increase in net assets from capital share transactions (Note 2).. 109,850,819 82,485,835 30,203,734 24,272,817
------------ ------------ ------------ ------------
Net increase in net assets................................... 109,700,063 114,544,204 30,230,077 32,091,816
Net assets:
Beginning of year................................................ 505,845,471 391,301,267 144,805,896 112,714,080
------------ ------------ ------------ ------------
End of year...................................................... $615,545,534 $505,845,471 $175,035,973 $144,805,896
============ ============ ============ ============
Undistributed net investment income included in net assets:
Beginning of year................................................ $ 959,579 $ 427,721 $ 478,426 $ 208,265
============ ============ ============ ============
End of year...................................................... $ 748,662 $ 969,579 $ 410,812 $ 478,426
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FEDERAL INTERMEDIATE- FRANKLIN HIGH YIELD
TERM TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------ -------------------------------
1994 1993 1994 1993
------------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.......................................... $ 1,828,527 $ 90,179 $ 209,813,446 $ 180,332,317
Net realized gain (loss) from security transactions............ (13,267) 1,312 (32,087,278) 10,910,579
Net unrealized appreciation (depreciation) during the year..... 396,231 245,966 76,071,675 130,154,034
----------- ---------- -------------- --------------
Net increase in net assets resulting from operations......... 2,210,491 337,457 253,797,843 321,396,830
Distributions to shareholders:
From undistributed net investment income....................... (1,800,704) (51,986) (213,633,875) (176,569,672)
From realized gain on securities transactions.................. -- -- -- (2,266,287)
Increase in net assets from capital share transactions (Note 2).. 58,001,366 8,906,350 589,604,213 490,148,992
----------- ---------- -------------- --------------
Net increase in net assets................................... 58,411,153 9,191,821 629,768,181 632,709,963
Net assets:
Beginning of year................................................ 9,191,821 -- 2,742,765,013 2,110,055,050
----------- ---------- -------------- --------------
End of year...................................................... $67,602,974 $9,191,821 $3,372,533,194 $2,742,765,013
=========== ========== ============== ==============
Undistributed net investment income included in net assets:
Beginning of year................................................ $ 38,193 $ -- $ 6,337,568 $ 2,574,923
=========== ========== ============== ==============
End of year...................................................... $ 66,016 $ 38,793 $ 2,517,139 $ 6,337,568
=========== ========== ============== ==============
</TABLE>
(1)For the period September 21, 1992 (effective date of registration) to
February 28, 1993.
The accompanying notes are an integral part of these financial statements.
108
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is an open-end, management investment
company (mutual fund) registered under the Investment Company Act of 1940 as
amended. The Trust currently consists of twenty-seven separate funds (the
Funds). This report pertains only to the ten Funds included in the accompanying
financial statements. Each of the Funds issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio. The Trust's
Franklin Connecticut Tax-Free Income Fund and the Franklin Federal
Intermediate-Term Tax-Free Income Fund are non-diversified, although all other
Funds included in this report are diversified.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATIONS: Tax-free bonds generally trade in the over-the-counter
market rather than on a national securities exchange. Often there are no
transactions in a particular security on any given day. In the absence of a
recorded sale or reported bid and asked prices, information with respect to
bond and note transactions, quotations from bond dealers, market transactions
in comparable securities, and various relationships between securities are used
to determine the value of the security. The Trust may also utilize a pricing
service, bank or broker/dealer experienced in such matters to perform any of
the pricing functions, under procedures approved by the Board of Trustees.
Short-term securities and similar investments with remaining maturities of 60
days or less are valued at amortized cost, which approximates value.
B. MUNICIPAL BONDS OR NOTES WITH "PUTS": The Trust has purchased municipal
bonds or notes with the right to resell the bonds or notes to the seller at an
agreed upon price or yield on a specified date or within a specified period
(which will be prior to the maturity date of the bonds or notes). Such a right
to resell is commonly known as a "put".
C. INCOME TAXES: The Trust 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, if any, are amortized as required
by the Internal Revenue Code. The Funds normally declare dividends from their
net investment income daily and distribute monthly. Daily allocations of net
investment income will commence on the date of receipt of an investor's funds.
Dividends are normally declared each day the New York Stock Exchange is open
for business equal to an amount per day set from time to time by the Board of
Trustees and are payable to shareholders of record at the beginning of business
on the ex-date. Once each month, dividends are reinvested in additional shares
of the Fund or paid in cash as requested by the shareholders.
Distributions from undistributed net investment income, and net realized
capital gains from security transactions, to the extent they exceed available
capital loss carryovers, are generally made during each year to avoid the 4%
excise tax imposed on regulated investment companies by the Internal Revenue
Code.
Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of interest income on defaulted
securities -- see Note 6.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to losses deferred from wash sales.
F. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: The Funds 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 may be more or less than the trade date
purchase price transactions. Although the Funds will generally purchase these
securities with the intention of acquiring such securities, they may sell such
securities before the settlement date. The Funds have 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.
109
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
g. EXPENSE ALLOCATION: Common expenses incurred by the Trust are allocated
among the Funds based on the ratio of net assets of each Fund to the combined
net assets. In all other respects, expenses are charged to each Fund as
incurred on a specific identification basis.
h. CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS: Effective February
28, 1994, the Funds 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.
2. TRUST SHARES
At February 28, 1994, there were an unlimited number of shares of no par value
authorized. Transactions in each of the Funds' shares for the years ended
February 28, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
FRANKLIN ARIZONA FRANKLIN COLORADO FRANKLIN CONNECTICUT FRANKLIN INDIANA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------ ------------------------ ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994
Shares sold ................ 10,731,345 $124,909,839 3,903,990 $ 46,699,264 3,545,800 $ 39,948,225 1,275,280 $15,344,871
Shares issued in reinvestment
of distributions .......... 1,190,334 13,872,249 356,019 4,260,259 303,266 3,420,636 99,283 1,195,794
Shares redeemed ............ (4,697,506) (54,750,815) (1,235,128) (14,793,458) (902,414) (10,186,672) (493,716) (5,902,005)
Changes from exercise of
exchange privilege:
Shares sold .............. 1,978,191 23,073,197 872,731 10,457,740 514,425 5,790,651 234,890 2,835,671
Shares redeemed .......... (1,544,073) (17,975,713) (403,026) (4,822,315) (306,485) (3,452,641) (268,675) (3,235,905)
---------- ------------ --------- ------------ --------- ------------ --------- -----------
Net increase ............... 7,658,291 $ 89,128,757 3,494,586 $ 41,801,490 3,154,612 $ 35,520,199 847,062 $10,238,426
========== ============ ========= ============ ========= ============ ========= ===========
1993
Shares sold ................ 10,698,748 $118,641,138 3,603,675 $ 40,784,503 3,733,504 $ 39,975,963 1,044,285 $11,917,773
Shares issued in reinvestment
of distributions .......... 1,072,516 11,904,007 299,410 3,387,859 264,802 2,833,256 76,476 870,370
Shares redeemed ............ (4,970,045) (54,984,721) (1,118,967) (12,646,850) (964,522) (10,360,914) (175,176) (1,986,732)
Changes from exercise of
exchange privilege:
Shares sold .............. 2,055,724 22,838,205 953,682 10,800,658 488,690 5,208,124 228,023 2,578,001
Shares redeemed .......... (1,840,587) (20,381,617) (309,558) (3,503,902) (588,811) (5,994,263) (194,793) (2,220,348)
---------- ------------ --------- ------------ --------- ------------ --------- -----------
Net increase ............... 7,016,356 $ 78,017,012 3,428,242 $ 38,822,268 2,953,663 $ 31,662,166 978,815 $11,159,064
========== ============ ========= ============ ========= ============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN NEW JERSEY FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------ ---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
1994
Shares sold .......................................... 12,844,291 $153,010,120 7,291,665 $85,851,067 12,436,846 $132,160,316
Shares issued in reinvestment of distribution ........ 1,079,918 12,870,266 777,027 9,156,392 1,110,313 11,798,953
Shares redeemed ...................................... (3,031,217) (36,155,593) (2,405,841) (28,382,167) (3,610,572) (38,344,857)
Changes from exercise of exchange privilege:
Shares sold ........................................ 1,223,509 14,566,749 1,328,080 15,643,163 1,374,918 14,606,798
Shares redeemed .................................... (1,261,880) (15,005,406) (766,167) (9,053,766) (975,101) (10,370,391)
---------- ------------ --------- ------------ ---------- ------------
Net increase ......................................... 10,854,621 $129,286,136 6,224,764 $ 73,214,689 10,336,404 $109,850,819
========== ============ ========= ============ ========== ============
</TABLE>
110
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
2. TRUST SHARES (CONT.)
<TABLE>
<CAPTION>
FRANKLIN NEW JERSEY FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1993
Shares sold ................................ 8,906,616 $101,728,408 7,402,089 $83,271,845 10,098,412 $101,977,129
Shares issued in reinvestment
of distributions.......................... 896,397 10,225,225 628,170 6,957,679 947,178 9,557,585
Shares redeemed............................. (3,013,226) (34,285,286) (1,791,406) (20,122,180) (3,470,503) (34,981,097)
Changes from exercise of exchange privilege:
Shares sold............................... 1,130,693 12,904,343 1,314,985 14,792,300 1,248,931 12,650,365
Shares redeemed........................... (1,118,963) (12,702,014) (612,693) (6,853,166) (664,315) (6,738,047)
--------- ------------ --------- ----------- ---------- ------------
6,801,517 $ 77,870,676 6,931,125 $78,046,478 8,159,703 $ 82,485,935
Net increase................................ ========= ============ ========= =========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FEDERAL
FRANKLIN PUERTO RICO INTERMEDIATE-TERM FRANKLIN HIGH YIELD
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994
Shares sold ................................ 3,383,748 $40,176,539 4,213,747 $45,372,770 68,715,489 $769,333,841
Shares issued in reinvestment
of distributions.......................... 327,573 3,880,149 89,826 972,049 5,995,877 67,208,174
Shares redeemed............................. (1,034,636) (12,281,340) (353,985) (3,845,607) (20,804,398) (233,218,712)
Changes from exercise of exchange privilege:
Shares sold............................... 244,614 2,910,335 1,812,152 19,576,758 11,970,484 134,417,257
Shares redeemed........................... (378,581) (4,491,949) (373,747) (4,074,604) (13,198,255) (148,136,347)
--------- ----------- --------- ----------- ----------- ------------
Net increase................................ 2,542,718 $30,203,734 5,387,983 $58,001,366 52,679,197 $589,604,213
========= =========== ========= =========== =========== ============
1993**
Shares sold ................................ 2,733,346 $31,167,382 620,989 $ 8,335,867 60,371,513 $644,824,923
Shares issued in reinvestment
of distributions.......................... 264,356 3,009,102 3,244 33,638 5,315,057 56,884,128
Shares redeemed............................. (920,074) (10,456,039) (729) (7,523) (21,194,778) (226,611,761)
Changes from exercise of exchange privilege:
Shares sold............................... 276,365 3,157,896 251,282 2,576,136 12,995,301 138,601,805
Shares redeemed........................... (230,569) (2,605,524) (3,070) (30,768) (11,557,799) (123,550,103)
---------- ----------- --------- ----------- ----------- ------------
Net increase................................ 2,123,424 $24,272,817 871,716 $ 8,906,350 45,929,294 $490,148,992
========== =========== ========= =========== =========== ============
</TABLE>
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At February 28, 1994, for income tax purposes, the funds had accumulated
capital loss carryovers as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Capital loss carryovers
Expiring in 1996..... - - - - -
1997..... - - - $ 3,344 -
1998..... - - - - -
1999..... - $ 31,579 - 24,809 -
2000..... - - - - -
2001..... $479,467 224,977 $261,598 - -
2002..... - 57,349 - 115,564 $834,134
-------- -------- -------- -------- --------
$479,467 $313,905 $261,598 $143,717 $836,134
======== ======== ======== ======== ========
</TABLE>
111
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (cont.)
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (CONT.)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Capital loss carryovers
Expiring in: 1996................................... -- -- $138,864 -- --
1997................................... -- -- 47,310 -- --
1998................................... -- -- -- -- --
1999................................... $ 24,807 $132,175 25,692 -- --
2000................................... -- 122,364 -- -- --
2001................................... 262,334 308,838 -- -- --
2002................................... 54,202 -- 120,112 $13,267 $32,890,733
-------- -------- -------- ------- -----------
$341,343 $563,377 $331,978 $13,267 $32,890,733
======== ======== ======== ======= ===========
</TABLE>
The aggregate cost of securities is higher (and unrealized appreciation
is lower) for income tax purposes than for financial reporting purposes at
February 28, 1994 by $12,910 in the Franklin Arizona Tax-Free Income Fund, $888
in the Franklin Colorado Tax-Free Income Fund, $3,480 in the Franklin Oregon
Tax-Free Income Fund, $33,283 in the Franklin Puerto Rico Tax-Free Income Fund
and $11,114 in the Franklin High Yield Tax-Free Income Fund.
4. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and
sales of short-term securities) for the year ended February 28, 1994, were as
follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Purchases.................................. $200,378,157 $ 59,439,606 $42,729,400 $16,425,886 $ 139,077,472
============ ============ =========== =========== ==============
Sales...................................... $106,843,890 $ 19,484,685 $ 8,057,252 $ 6,817,820 $ 20,606,995
============ ============ =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Purchases.................................. $107,579,992 $133,710,618 $37,094,277 $63,223,866 $1,060,929,081
============ ============ =========== =========== ==============
Sales...................................... $ 32,159,075 $ 26,177,584 $ 8,026,147 $10,321,988 $ 490,084,534
============ ============ =========== =========== ==============
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement,
provides for investment advice, administrative services, office space and
facilities to each Fund, and receives fees computed monthly on the net assets of
each 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, and 45/100 of 1% of net assets in
excess of $250 million. Fees incurred by the ten Funds aggregated $28,572,270
for the year ended February 28, 1994. The terms of the management agreement
provide that aggregate annual expenses of the Funds be limited to the extent
necessary to comply with the limitations set forth in the laws, regulations and
administrative interpretations of the states in which the Funds shares are
registered. The Funds' expenses did not exceed these limitations; however, for
the year ended February 28, 1994, Franklin Advisers, Inc. reduced its management
fees by $201,181 for the Franklin Federal Intermediate-Term Tax-Free Income
Fund.
The accompanying notes are an integral part of these financial statements.
112
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
In its capacity as underwriter for the shares of the Funds,
Franklin/Templeton Distributors, Inc. received commissions on sales of the
Funds' shares. Commissions received by Franklin/Templeton Distributors, Inc. and
the amounts which were subsequently paid to other dealers for the year ended
February 28, 1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INDIANA NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total commissions received............... $4,856,037 $1,851,780 $1,525,567 $512,478 $5,864,699
========== ========== ========== ======== ==========
Paid to other dealers.................... $4,609,675 $1,766,011 $1,457,899 $493,597 $5,619,474
========== ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Total commissions received............... $3,420,681 $5,211,610 $1,580,955 $729,010 $28,269,127
========== ========== ========== ======== ===========
Paid to other dealers.................... $3,250,943 $4,977,728 $1,507,342 $643,695 $27,116,786
========== ========== ========== ======== ===========
</TABLE>
Commissions are deducted from the gross proceeds received from the sale
of the Funds' shares, and as such are not expenses of the Funds.
Under the terms of a shareholder servicing agreement with
FRANKLIN/Templeton Investor Services, Inc., the Trust pays costs on a per
shareholder account basis. Shareholder servicing costs incurred by the ten Funds
for the year ended February 28, 1994 aggregated $1,108,071, of which $1,054,329
was paid to FRANKLIN/Templeton Investor Services, Inc. Shareholder servicing
fees which would have been incurred by the FRANKLIN Federal Intermediate-Term
TAX-FREE INCOME FUND but were borne by FRANKLIN Advisers, Inc., totalled $1,548.
Under the terms of a Distribution Plan pursuant to Rule 12b-1 of the
Investment Company Act of 1940, the FRANKLIN Federal Intermediate-Term TAX-FREE
INCOME FUND will reimburse FRANKLIN/Templeton Distributors, Inc., in an amount
up to .10% per annum of the Fund's average daily net assets for the costs
incurred in the promotion, offering and marketing of the Funds' shares. Fees
incurred by the FRANKLIN Federal Intermediate-Term TAX-FREE INCOME FUND under
the agreement aggregated $23,885 for the year ended February 28, 1994, of which
$13,607 was borne by FRANKLIN/Templeton Distributors, Inc.
Certain officers and trustees of the Trust are also officers and/or
directors of FRANKLIN/Templeton Distributors, Inc., FRANKLIN Advisers, Inc. and
FRANKLIN/Templeton Investor Services Inc., all wholly owned subsidiaries of
FRANKLIN Resources, Inc.
6. CREDIT RISK
Although each of the Funds has a diversified investment portfolio, other
than the FRANKLIN Connecticut TAX-FREE INCOME FUND and the FRANKLIN Federal
Intermediate-Term TAX-FREE INCOME FUND, all of their investments are in the
securities of issuers within their respective states and Puerto Rico except for
the FRANKLIN Federal Intermediate-Term TAX-FREE INCOME FUND and the FRANKLIN
High Yield TAX-FREE INCOME FUND. Such concentration may subject these Funds
more significantly to economic changes occurring within those states and Puerto
Rico.
The FRANKLIN Federal Intermediate-Term TAX-FREE INCOME FUND has
investments in excess of 10% of its total net assets in the state of California.
The FRANKLIN High Yield TAX-FREE INCOME FUND has investments in excess of 10% of
its total net assets in the states of California and New York.
Although the FRANKLIN High Yield TAX-FREE INCOME FUND has a diversified
portfolio, the Fund has 22.8% 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.
113
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
6. CREDIT RISK (CONT.)
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
February 28, 1994 the Franklin High Yield Tax-Free Income Fund held seven
defaulted securities issued by seven separate entities, with a value
aggregating $753,500, representing 0.02% of the Fund's net assets. For more
information as to specific securities, 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 beneficial interest outstanding throughout each
period are set forth in the Prospectus under the caption "Financial
Highlights."
During this fiscal year, each Fund paid distributions from undistributed net
investment income in the amounts shown in the Statement of Changes in Net
Assets. Each Fund hereby designates the total amount of these distributions as
exempt-interest dividends under Section 852(b)(5) of the Internal Revenue Code.
114
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