Semi
Annual
Report August 31, 1997
Franklin Tax-Free Trust
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
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
the mutual fund industry has experienced profound changes in technology,
regulations and customer expectations. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest around the globe. We thank you for your past
support and look forward to serving your investment needs in the years ahead.
Charles B. Johnson (left), chairman
of Franklin Tax-Free Trust and
Thomas J. Kenny (right), director of Franklin's Municipal Bond Department
SHAREHOLDER LETTER
CONTENTS
Shareholder Letter 1
Special Feature:
Q&A with Thomas J. Kenny 3
Fund Reports
Franklin Arizona Insured
Tax-Free Income Fund 6
Franklin Florida Insured
Tax-Free Income Fund 10
Franklin Insured
Tax-Free Income Fund 14
Franklin Massachusetts Insured
Tax-Free Income Fund 20
Franklin Michigan Insured
Tax-Free Income Fund 26
Franklin Minnesota Insured
Tax-Free Income Fund 32
Franklin Ohio Insured
Tax-Free Income Fund 38
Glossary of Investment Terms 44
Bond Ratings 46
Financial Highlights and
Statement of Investments 48
Financial Statements 97
Notes to Financial Statements 104
Dear Shareholder:
It's a pleasure to bring you the Franklin Tax-Free Trust's semi-annual report
for the period ended August 31, 1997.
During the six months under review, the U.S. economy continued its healthy
expansion. In March, the Federal Reserve Board (the Fed) raised short-term
interest rates 25 basis points, from 5.25% to 5.50%. The Fed's rate increase was
in response to tight labor markets and its concern that possible wage demands
could lead to inflation. Subsequently, interest rates reached their highest
point of the year in April. Concerns over inflation soon dissipated, however, as
reports released later in the period indicated few signs of inflation and showed
economic growth was moderating. In this low-inflation and moderate-growth
environment, interest rates ended near where they began. The 30-year U.S.
Treasury bond started the six-month period offering a rate of 6.80% and finished
at 6.57% on August 31, 1997.1
1. Source: Micropal.
Over the period, we have continued to see many insured municipal issues brought
to the market. As individual state economies enjoyed healthy growth, state and
local governments witnessed an increase in their revenues. Voter resistance
toward higher taxes helped restrain government spending, causing government
fiscal positions and credit ratings to strengthen. As credit qualities have
risen, municipal bond insurance has become relatively cheap for state and local
governments. Furthermore, increased competition among the municipal insurance
companies have also contributed to lower insurance costs for issuers. Overall,
municipal issuers have favored insured bonds because of the stronger market
appeal for this type of security.
Our Municipal Bond Department reacted to the opportunities inherent in both the
increased issues of insured bonds and the prepayment of outstanding municipal
securities. As a policy -- and as the market permits -- we continue to enjoy the
income from prerefunded holdings until they have a term left of approximately
five years. Ideally, at this time the gains are captured and the proceeds are
reinvested in bonds with greater call protection.
As always, we continue to stress a long-term investment perspective. The
financial markets always have been -- and probably always will be -- subject to
daily fluctuation. No one can predict the future performance of the securities
markets, but history has shown that, over the long term, stocks and bonds have
delivered impressive results when income is left to compound. We encourage you
to review your investment program periodically with your investment
representative, and focus on your continuing long-term goals. If you have any
questions concerning the funds in the Franklin Tax-Free Trust, we welcome the
opportunity to answer them.
Sincerely,
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
Thomas J. Kenny
Director
Franklin Municipal Bond Department
Q&A
SPECIAL FEATURE:
Q&A WITH THOMAS J. KENNY
Q: Tom, the U.S. economy has shown strong growth, yet increased inflation hasn't
been an issue. Any thoughts why not?
Many factors have contributed to the current economic environment in the U.S.
Most notably: 1) The U.S. currently has one of the strongest economies in the
world, with U.S. dollar-denominated assets in worldwide demand, which has led to
a stronger U.S. dollar and cheaper foreign goods; 2) technology has enabled U.S.
corporations to improve productivity efficiency, which has improved their bottom
lines without raising prices; 3) until recently, labor forces have not
renegotiated salary/wage contracts in lieu of job security; and 4) consumers
have become more price conscious, requiring companies to be more competitive to
maintain market share.
Q: Did the Federal Reserve Board's quarter-point interest rate hike in March --
and further neutral activity -- have any effect on the municipal bond market?
The Fed raised rates in March in a pre-emptive move against inflation as labor
markets continued to strengthen. The Fed's tightening injected volatility into
the fixed-income markets, as participants were uncertain about the future
posturing by the Federal Reserve Board. Though it generally trended with the
government market, the municipal market was slightly less volatile due to price
support from comparatively low levels of municipal bond supply. As economic
numbers indicate that the economy has continued on its path of moderate growth
and low levels of inflation, we have seen overall interest rates trend downward.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q: It seems that portfolio managers have been increasing their purchases of
insured bonds. Why is that?
First of all, more municipal issues have been brought to the market as insured.
Municipal bond insurers currently insure approximately 60% of new issues, and
also make insurance available for secondary market securities. Second, the
sustained low interest rate environment has increased demand for lower quality,
higher yielding securities (causing their yields to decline), which has
contributed to the narrowing of quality spreads between insured bonds and lower
quality bonds. Simply speaking, we think insured bonds have generally offered
the best relative value in the municipal market.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q: Do you anticipate any impact to the municipal bond market as a result of the
recent tax law changes?
Fortunately, the new tax law changes have not altered the tax advantages enjoyed
by municipal bonds. Municipals continue to distribute income that is free from
federal and state income taxes. It is difficult to determine the extent to which
investors might change their investment strategies based upon the reduced
capital gains rate and other tax rule changes. However, we currently do not
expect any significant impact on the municipal bond market.
Q: What is your outlook for the municipal bond market for the remainder of 1997?
We expect the municipal bond market to do well through the rest of the year as
the demand for municipals remains strong -- retail investors, insurance
companies and institutional investors remain active in the market. Even with the
adoption of the recent tax legislation, tax equivalent yields remain attractive
and should lend some support for asset allocation into the municipal arena.
Thanks for sharing your thoughts, Tom.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Thomas J. Kenny,
director of Franklin's Municipal Bond
Department, discusses some issues facing the municipal bond market.
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high current income exempt from regular
federal and Arizona state personal income taxes through a portfolio consisting
primarily of insured Arizona municipal bonds.1
STATE UPDATE
During the reporting period, Arizona experienced moderate economic expansion.
The state's population growth eased from highs experienced during the 1980s and
early 1990s, in part because of improved economic prospects in California.
Furthermore, DRI/McGraw Hill projects population growth in Arizona will slow
further, from 2.9% in 1996 to an estimated 2.1% for 1998.
Although California's economic recovery may have slowed immigration, the outlook
suggests continued above-average population growth largely because of Arizona's
low housing prices. Arizona's employment growth in 1996 was 5.6%, a slowdown
only in relative terms from the strong 6.6% growth in 1994.2 Additionally, the
state projects a substantially higher 1997 fiscal year-end general fund balance
resulting from higher-than-expected income tax receipts.
The state, constitutionally prohibited from using general obligation debt,
relies on lease obligations, revenue bonds, and pay-as-you-go financing for its
capital needs, which results in moderate levels of gross state debt. Arizona's
creditworthiness is reflected by its ratings on certificates of participation,
which remained in the A+ to AAA range, as rated by Standard & Poor's, a national
credit rating agency.3
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
Fund shares are not insured by any U.S. or other government agency. Insurance is
related only to the payment of principal and interest on the portfolio's
securities. It does not eliminate market risks to the fund's yield or share
price or insure the fund's yield or share value. Terms of the insurance are more
fully described in the prospectus, and no representation is made to any
insurer's ability to meet its commitments.
The risks of investing in a non-diversified fund, such as increased
susceptibility to adverse economic or regulatory developments, are described in
the fund's prospectus.
2. Source: Standard & Poor's Creditweek Municipal, 7/7/97.
3. This does not indicate Standard & Poor's rating of the fund.
PORTFOLIO NOTES
We closely monitored the supply of insured Arizona municipal bonds over the
reporting period. For the first half of 1997, the state issued a total of $1.6
billion in municipal bonds, 57% of which was insured.4 Arizona continues to
experience strong economic and population growth, which increases the need for
new infrastructure such as highways, schools, and affordable housing. This
growth should increase the requirement for new borrowing. In addition, if
interest rates remain low, refunding issues resulting from lower borrowing costs
available to issuers could add to the supply of new issues.
We maintained the fund's broad sector exposure. Our education sector holdings
increased approximately 7% during the period. Education credits added to the
portfolio include Yuma County Elementary School District #1, Maricopa County
Unified School District #9 (Wickenburg), and Maricopa County Unified School
District #66 (Roosevelt Elementary). Other notable additions to the portfolio
included the Phoenix Civic Improvement Corp. Wastewater System revenue bonds and
the Yuma County Regional Medical Center revenue bonds.
4. Source: Bond Buyer, 8/5/97.
Franklin Arizona Insured
Tax-Free Income Fund
Portfolio Breakdown 8/31/97
% of Total
Long-Term
Sector Investments
Education 38.2%
Utilities 23.6%
Industrial 11.1%
Hospitals 8.1%
General Obligations 5.5%
Prerefunded 5.4%
Certificates of Participation 2.3%
Other Revenue Bonds 2.3%
Housing 1.4%
Miscellaneous 1.2%
Sales Tax 0.9%
For a complete list of portfolio holdings, please see page 49 of this report.
PERFORMANCE SUMMARY
The Franklin Arizona Insured Tax-Free Income Fund's share price, as measured by
net asset value, increased 14.0 cents, from $10.36 on February 28, 1997, to
$10.50 on August 31, 1997.
The fund posted a cumulative total return of +4.05% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.03%,
based on annualization of the current monthly dividend of 4.6 cents ($0.046) per
share and the maximum offering price of $10.97 on August 31, 1997. This tax-free
rate is generally higher than the after-tax return on a comparable taxable
investment. For example, an investor in the maximum combined federal and Arizona
state personal income tax bracket would need to earn 8.78% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Arizona Insured
Tax-Free Income Fund
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 4.6 cents
April 4.6 cents
May 4.6 cents
June 4.6 cents
July 4.6 cents
August 4.6 cents
Total 27.6 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Arizona Insured Tax-Free Income Fund
Periods ended 8/31/97
Since
Inception
1-Year 3-Year (4/30/93)
Cumulative Total Return1 9.95% 27.29% 31.08%
Average Annual Total Return2 5.24% 6.82% 5.39%
Distribution Rate3 5.03%
Taxable Equivalent Distribution Rate4 8.78%
30-Day Standardized Yield5 3.69%
Taxable Equivalent Yield4 6.44%
1. Cumulative total returns measures the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 4.6 cent per
share monthly dividend and the maximum offering price of $10.97 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Arizona state personal income tax bracket of 42.72%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a higher initial sales
charge. Thus, actual total returns would be somewhat lower.
The fund's manager agreed in advance to waive a portion of management fees,
which reduces operating expenses and increases yield, distribution rate and
total return to shareholders. Without these reductions, the fund's distribution
rate would have been lower, and yield for the period would have been 3.23%. The
fee waiver may be discontinued at any time upon notification to the fund's Board
of Trustees.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares. Past performance is not predictive of future results.
FRANKLIN FLORIDA INSURED
TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high current income exempt from regular
federal personal income taxes through a portfolio consisting primarily of
insured Florida municipal bonds.1 In addition, the fund's shares are free from
Florida's annual intangibles tax.
STATE UPDATE
Florida's general obligation debt rating by Standard & Poor's, a national credit
rating agency, was upgraded from AA to AA+ during the reporting period.2 This
rating upgrade reflected the state's economic expansion, strength in financial
management, and discipline in maintaining its budget stabilization reserve, as
required by the state's constitution. Florida did face some ongoing challenges,
especially in Medicaid and school and correctional facilities. Although
education initiatives continued to be the policy focus of the governor's budget
in 1997, proposed bond programs for all of these areas are expected for fiscal
1998.
Employment has increased steadily since 1992. The estimated unemployment rate
through 1996 was 5.3%, down from a recessionary peak of 8.2% in 1992. Strong
growth in the services, construction, and trade sectors led to the state's
expansion, with more than 64% of Florida's workforce tied to these sectors.3
PORTFOLIO NOTES
Over the last six months, the Franklin Florida Insured Tax-Free Income Fund
continued to invest in current coupon bonds with good call protection. The
Florida municipal bond market issued $5.5 billion in new supply between January
and July 1997, and we found appealing securities during the reporting period.
Some of the new issues we added to the portfolio were Celebration Community
Development District, Cocoa Beach Water & Sewer, Indian Trail Water Control
District, Orange County School Board, and Sarasota County Utility System. We
will continue to monitor the municipal market for securities that fit our
investment criteria.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
Fund shares are not insured by any U.S. or other government agency. Insurance is
related only to the payment of principal and interest on the portfolio's
securities. It does not eliminate market risks to the fund's yield or share
price or insure the fund's yield or share value. Terms of the insurance are more
fully described in the prospectus, and no representation is made to any
insurer's ability to meet its commitments.
The risks of investing in a non-diversified fund, such as increased
susceptibility to adverse economic or regulatory developments, are described in
the fund's prospectus.
2. This does not indicate Standard & Poor's rating of the fund.
3. Source: Standard & Poor's Creditweek Municipal, 4/7/97.
Franklin Florida Insured
Tax-Free Income Fund
Portfolio Breakdown 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 55.1%
Other Revenue 14.4%
Hospitals 8.8%
Certificates of Participation 6.9%
Sales Tax 4.0%
Housing 2.7%
Transportation 2.7%
General Obligations 2.3%
Prerefunded 1.3%
Industrial 1.2%
Tax Assessment 0.6%
For a complete list of portfolio holdings, please see page 52 of this report.
PERFORMANCE SUMMARY
The Franklin Florida Insured Tax-Free Income Fund's share price, as measured by
net asset value, increased 15.0 cents, from $9.99 on February 28, 1997, to
$10.14 on August 31, 1997.
The fund posted a cumulative total return of +4.18% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 4.99%,
based on an annualization of the current monthly dividend of 4.4 cents ($0.044)
per share and the maximum offering price of $10.59 on August 31, 1997. This
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum federal income tax
bracket would need to earn 8.25% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Florida Insured
Tax-Free Income Fund
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 4.4 cents
April 4.4 cents
May 4.4 cents
June 4.4 cents
July 4.4 cents
August 4.4 cents
Total 26.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Florida Insured Tax-Free Income Fund
Periods ended 8/31/97
Since
Inception
1-Year 3-Year (4/30/93)
Cumulative Total Return1 9.36% 26.65% 26.52%
Average Annual Total Return2 4.75% 6.63% 4.53%
Distribution Rate3 4.99%
Taxable Equivalent Distribution Rate4 8.25%
30-Day Standardized Yield5 4.69%
Taxable Equivalent Yield4 7.76%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 4.4 cent per
share monthly dividend and the maximum offering price of $10.59 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a higher initial sales
charge. Thus, actual total returns would be somewhat lower.
The fund's manager agreed in advance to waive a portion of management fees,
which reduces operating expenses and increases yield, distribution rate and
total return to shareholders. Without these reductions, the fund's distribution
rate would have been lower, and yield for the period would have been 4.24%. The
fee waiver may be discontinued at any time upon notification to the fund's
Board of Trustees.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Top Five States
FRANKLIN INSURED TAX-FREE INCOME FUND
8/31/97
% of Total
Long-Term
State Investments
Texas 8.38%
New York 8.09%
Colorado 6.29%
Washington 5.98%
Massachusetts 5.71%
FRANKLIN INSURED TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high current income exempt from regular
federal income taxes through a portfolio consisting primarily of insured
municipal bonds.1
During the reporting period, we sold prerefunded issues and reinvested the
proceeds in securities with longer call protection. In attempting to extend the
fund's income-earning potential and protect the share price, we generally sell
prerefunded bonds whose call dates are approximately five years away and replace
them with bonds that have 10 years of call protection. Such sales are necessary
to keep the portfolio within its stated objective of providing long-term income
to shareholders.
As you can see from the tables to the left and right, we maintained portfolio
diversification, both by type of holding and geographical distribution. Such
diversification in a broad range of sectors and geographical locations can help
us reduce the fund's exposure to risk and volatility that may affect any one
sector or area.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
Fund shares are not insured by any U.S. or other government agency. Insurance is
related only to the payment of principal and interest on the portfolio's
securities. It does not eliminate market risks to the fund's yield or share
price or insure the fund's yield or share value. Terms of the insurance are more
fully described in the prospectus, and no representation is made to any
insurer's ability to meet its commitments.
At this point, we are monitoring closely the supply of insured municipal bonds.
On the one hand, the nation's growing need for new infrastructure -- including
schools, affordable housing, highways and transportation projects -- as well as
for repairs and upgrading of existing resources should increase the requirement
for new borrowing. Also, if interest rates remain low, refunding issues
resulting from lower borrowing costs available to issuers could add to the
overall supply. On the other hand, borrowing limitations, such as the recent
passage of Proposition 218 in California, may restrict the supply of tax-exempt
bonds. Many states currently are enjoying substantial increases in revenues
which they are using to fund many of their own infrastructure needs. Should
issuance decline, future demand would be greater than supply, placing upward
pressure on tax-exempt bond prices and downward pressure on yields.
Franklin Insured Tax-Free Income Fund
Portfolio Breakdown 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 27.7%
Prerefunded 15.9%
Hospitals 15.0%
Transportation 12.0%
Education 10.5%
Housing 5.7%
General Obligations 5.0%
Certificates of Participation 3.9%
Other Revenue 2.5%
Sales Tax 1.0%
Industrial 0.5%
Miscellaneous 0.2%
Special Assessment Bonds 0.1%
For a complete list of portfolio holdings, please see page 55 of this report.
Franklin Insured Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 5.7 cents
April 5.7 cents
May 5.7 cents
June 5.7 cents
July 5.7 cents
August 5.7 cents
Total 34.2 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
PERFORMANCE SUMMARY
CLASS I
The Franklin Insured Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 6.0 cents, from $12.15 on February 28, 1997, to
$12.21 on August 31, 1997.
The fund posted a cumulative total return of +3.33% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.18%,
based on an annualization of the current monthly dividend of 5.5 cents ($0.055)
per share, which includes a dividend adjustment, and the maximum offering price
of $12.75 on August 31, 1997. This tax-free rate is generally higher than the
after-tax return on a comparable taxable investment. For example, an investor in
the maximum federal income tax bracket would need to earn 8.57% from a taxable
investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Insured Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-year 5-Year 10-Year (4/3/85)
Cumulative Total Return1 7.61% 36.03% 115.95% 173.99%
Average Annual Total Return2 3.06% 5.43% 7.54% 8.08%
Distribution Rate3 5.18%
Taxable Equivalent Distribution Rate4 8.57%
30-Day Standardized Yield5 4.27%
Taxable Equivalent Yield4 7.07%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.5 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.75 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
Franklin Insured Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 5.09 cents
April 5.12 cents
May 5.12 cents
June 5.12 cents
July 5.14 cents
August 5.14 cents
Total 30.73 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Past performance is not predictive of future results.
CLASS II
The Franklin Insured Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 6.0 cents, from $12.21 on February 28, 1997, to
$12.27 on August 31, 1997.
The fund posted a cumulative total return of +3.02% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
sales charges.
At the end of this reporting period, the fund's distribution rate was 4.75%,
based on an annualization of the current monthly dividend of 4.90 cents
($0.0490) per share, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $12.39 on August 31, 1997.
This tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum federal income tax
bracket would need to earn 7.86% from a taxable investment to match the fund's
tax-free distribution rate.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Insured Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.05% 15.33%
Average Annual Total Return2 5.00% 5.84%
Distribution Rate3 4.75%
Taxable Equivalent Distribution Rate4 7.86%
30-Day Standardized Yield5 3.85%
Taxable Equivalent Yield4 6.37%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.90 cent per
share monthly dividend, which includes a dividend ajustment and a 12b-1
differential adjustment, and the maximum offering price of $12.39 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
FRANKLIN MASSACHUSETTS INSURED
TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high current income exempt from regular
federal and Massachusetts state personal income taxes through a portfolio
consisting primarily of insured Massachusetts municipal bonds.1
COMMONWEALTH UPDATE
Education, health care, high technology, and financial services drove the
commonwealth's economy during the reporting period. In fact, high tech
employment represented 9.1% of Massachusetts' total employment -- the highest
concentration of any state.2 Research laboratories, together with venture
capital, gave the commonwealth an edge in such emerging industries as
biotechnology, software and communications.
Massachusetts' focus turned primarily to debt management issues this period.
After several years of restraining debt issuances, the commonwealth is feeling
increased pressure to borrow for infrastructure needs. Massachusetts is
attempting to fund a major highway improvement -- the Central Artery/Third
Harbor Tunnel Project (also known as the "Big Dig") -- but significant issues
remain, including the timing and availability of future federal highway funding.
To limit its financial exposure, the commonwealth is seeking additional project
funds (as much as $10.4 billion over the next five years) from "third parties"
such as the Massachusetts Turnpike Authority and Massachusetts Port Authority.3
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
Fund shares are not insured by any U.S. or other government agency. Insurance is
related only to the payment of principal and interest on the portfolio's
securities. It does not eliminate market risks to the fund's yield or share
price or insure the fund's yield or share value. Terms of the insurance are more
fully described in the prospectus, and no representation is made to any
insurer's ability to meet its commitments.
2. Source: Standard & Poor's Creditweek Municipal, 10/28/96.
3. Source: Reuter, 7/23/97.
PORTFOLIO NOTES
During the reporting period, we closely monitored insured Massachusetts
municipal bond supply. For the first half of 1997, Massachusetts issued a total
of $2.3 billion, of which 67% was insured. Looking ahead, the first billion
dollars to help finance the Big Dig's construction is expected to be issued
before the year's end. In addition, if interest rates remain low, refunding
issues resulting from lower borrowing costs available to issuers could add to
the supply of new issues.
Over the reporting period, we continued to sell prerefunded issues and reinvest
the proceeds in securities with longer call protection. The sale of prerefunded
bonds is necessary to keep the portfolio within its stated objective of
providing long-term income to shareholders. Many issuers are taking advantage of
lower interest rates to refinance their outstanding debt. In the last six months
alone, approximately 3% of the portfolio's total long-term investments was
prerefunded, bringing the fund's total up to 14.7%.
We maintained our portfolio's credit and sector diversification over this
reporting period. We reduced our health care sector exposure from 1.6% on
February 28, 1997, to 1.3%, and increased transportation from 4.6% to 9.4%. A
notable credit added to the portfolio during this six-month period was the
Massachusetts Port Authority's Bosfuel Project, which finances the construction
of a new aviation fuel storage and distribution system at the Boston-Logan
International Airport. Other notable additions to the portfolio include North
Hampton general obligation bonds and Massachusetts Industrial Finance Agency
revenue bonds for Simons Rock College. Such diversification can help us reduce
the fund's exposure to risk and volatility that may affect any one sector.
Franklin Massachusetts Insured Tax-Free
Income Fund
Portfolio Breakdown 8/31/97
% of Total
Long-Term
Sector Investments
Hospitals 29.8%
Education 19.7%
Prerefunded 13.1%
General Obligations 9.7%
Transportation 9.4%
Utilities 8.4%
Housing 6.9%
Health Care 1.3%
Certificates of Participation 0.9%
Other Revenue 0.8%
For a complete list of portfolio holdings, please see page 72 of this report.
PERFORMANCE SUMMARY
Franklin Massachusetts Insured Tax-Free
Income Fund
Class I
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
CLASS I
The Franklin Massachusetts Insured Tax-Free Income Fund - Class I share price,
as measured by net asset value, increased 8.0 cents, from $11.54 on February 28,
1997, to $11.62 on August 31, 1997.
The fund posted a cumulative total return of +3.80% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
In addition to distributing 31.2 cents ($0.312) per share in dividend income,
the fund paid out a long-term capital gain of 4.33 cents ($0.0433) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 4.94%,
based on an annualization of the current monthly dividend of 5.0 cents ($0.050)
per share, which includes a dividend adjustment, and the maximum offering price
of $12.14 on August 31, 1997. This tax-free rate is generally higher than the
after-tax return on a comparable taxable investment. For example, an investor in
the maximum combined federal and Massachusetts state personal income tax bracket
would need to earn 9.30% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Massachusetts Insured Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-year 5-Year 10-Year (4/3/85)
Cumulative Total Return1 8.14% 36.90% 108.67% 152.09%
Average Annual Total Return2 3.50% 5.57% 7.17% 7.36%
Distribution Rate3 4.94%
Taxable Equivalent Distribution Rate4 9.30%
30-Day Standardized Yield5 4.23%
Taxable Equivalent Yield4 7.96%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.0 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.14 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Massachusetts state personal income tax rate of 46.85%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Franklin Massachusetts Insured Tax-Free Income Fund - Class I paid
distributions derived from long-term capital gains of 4.33 cents ($0.0433) per
share in June 1997. The fund hereby designates such distributions as capital
gain dividends per Section 852 (b)(3) of the Internal Revenue Code.
Franklin Massachusetts Insured Tax-Free
Income Fund
Class II
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 4.65 cents
April 4.71 cents
May 4.71 cents
June 4.71 cents
July 4.64 cents
August 4.64 cents
Total 28.06 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
CLASS II
The Franklin Massachusetts Insured Tax-Free Income Fund - Class II share price,
as measured by net asset value, increased 7.0 cents, from $11.59 on February 28,
1997, to $11.66 on August 31, 1997.
The fund posted a cumulative total return of +3.42% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
sales charges.
In addition to distributing 28.06 cents ($0.2806) per share in dividend income,
the fund paid out a long-term capital gain of 4.33 cents ($0.0433) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not indicative of future results.
At the end of this reporting period, the fund's distribution rate was 4.49%,
based on an annualization of the current monthly dividend of 4.41 cents
($0.0441) per share, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $11.78 on August 31, 1997.
This tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum combined federal and
Massachusetts state personal income tax bracket would need to earn 8.45% from a
taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Massachusetts Insured Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.53% 15.61%
Average Annual Total Return2 5.42% 5.97%
Distribution Rate3 4.49%
Taxable Equivalent Distribution Rate4 8.45%
30-Day Standardized Yield5 3.81%
Taxable Equivalent Yield4 7.17%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.41 cent per
share monthly dividend, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $11.78 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Massachusetts state personal income tax rate of 46.85%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Franklin Massachusetts Insured Tax-Free Income Fund - Class II paid
distributions derived from long-term capital gains of 4.33 cents ($0.0433) per
share in June 1997. The fund hereby designates such distributions as capital
gain dividends per Section 852 (b)(3) of the Internal Revenue Code.
Past performance is not predictive of future results.
FRANKLIN MICHIGAN INSURED
TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high current income exempt from regular
federal and Michigan state personal income taxes through a portfolio consisting
primarily of insured Michigan municipal bonds.1
STATE UPDATE
Michigan displayed strong economic performance during the six-month reporting
period. The state's economy and operating funds remained satisfactory.
Performance continued at a steady pace, reflecting the state administration's
response to the national recession that weakened Michigan's fiscal position in
the early 1990s. Reserves previously depleted as a result of the recession, such
as the state's budget stabilization fund, were sufficiently replenished. These
reserve levels provided increased stability, which was necessary to offset the
effects of escalated state expenditures, especially school funding needs.
The state's employment reached a historically high level during the period.
Increased employment in the service sectors, brought on by manufacturers'
outsourcing efforts and the effects of strong export activity, positively
impacted employment trends. As of the end of first quarter 1997, Michigan's
unemployment rate was not only at its lowest since the 1960s, but was below the
national average.2
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
Fund shares are not insured by any U.S. or other government agency. Insurance is
related only to the payment of principal and interest on the portfolio's
securities. It does not eliminate market risks to the fund's yield or share
price or insure the fund's yield or share value. Terms of the insurance are more
fully described in the prospectus, and no representation is made to any
insurer's ability to meet its commitments.
2. Source: Standard & Poor's Creditweek Municipal, 3/24/97.
PORTFOLIO NOTES
There were a number of new purchases in the portfolio over the reporting period
as we moved to sell prerefunded issues. Among the new issues we purchased for
the fund were Gladstone Area (MI) public schools, Michigan State Hospital
Finance Authority revenue bonds, Michigan State Housing Development Authority
bonds, and Detroit Water and Sewer revenue bonds.
We continue to monitor the supply of Michigan insured municipal bonds. On the
one hand, the nation's growing need for infrastructure -- including schools,
affordable housing, highways and transportation projects -- as well as for
repairs and upgrading of existing resources should increase the requirement for
new borrowing. In addition, if interest rates remain low, refunding issues
resulting from lower borrowing costs available to issuers could add to new
supply. On the other hand, borrowing limitations could restrict the supply of
tax-exempt bonds. Many states currently are enjoying substantial increases in
revenues, which they are using to fund many of their own infrastructure needs.
Should issuance decline, future demand could be greater than supply, placing
upward pressure on tax-exempt bond prices and downward pressure on yields.
Franklin Michigan Insured Tax-Free Income Fund
Portfolio Breakdown 8/31/97
% of Total
Long-Term
Sector Investments
Education 33.3%
Prerefunded 15.8%
Hospitals 14.6%
Utilities 12.8%
General Obligations 12.5%
Transportation 4.7%
Other Revenue 3.5%
Housing 1.4%
Industrial 0.9%
Health Care 0.4%
Sales Tax Revenue Bonds 0.1%
For a complete list of portfolio holdings, please see page 77 of this report.
PERFORMANCE SUMMARY
CLASS I
The Franklin Michigan Insured Tax-Free Income Fund - Class I share price, as
measured by net asset value, ended the reporting period unchanged at $12.00 from
February 28, 1997, through August 31, 1997.
The fund posted a cumulative total return of +3.16% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
In addition to distributing 32.7cents ($0.327) per share in dividend income, the
fund paid out a long-term capital gain of 4.97 cents ($0.0497) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 5.17%,
based on an annualization of the current monthly dividend of 5.4 cents ($0.054)
per share and the maximum offering price of $12.53 on August 31, 1997. This
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum combined federal and
Michigan state personal income tax bracket would need to earn 8.96% from a
taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Michigan Insured Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-year 5-Year 10-Year (4/3/85)
Cumulative Total Return1 7.66% 35.81% 110.92% 161.59%
Average Annual Total Return2 3.12% 5.40% 7.29% 7.68%
Distribution Rate3 5.17%
Taxable Equivalent Distribution Rate4 8.96%
30-Day Standardized Yield5 4.25%
Taxable Equivalent Yield4 7.36%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and includes the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.4 cent per
share monthly dividend and the maximum offering price of $12.53 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Michigan state personal income tax rate of 42.26%, based on
the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Franklin Michigan Insured Tax-Free Income Fund - Class I paid distributions
derived from long-term capital gains of 4.97 cents ($0.0497) per share in June
1997. The fund hereby designates such distributions as capital gain dividends
per Section 852 (b)(3) of the Internal Revenue Code.
Franklin Michigan Insured Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 5.5 cents
April 5.5 cents
May 5.5 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
Total 32.7 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
Franklin Michigan Insured Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 4.80 cents
April 4.97 cents
May 4.97 cents
June 4.87 cents
July 4.82 cents
August 4.82 cents
Total 29.25 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
CLASS II
The Franklin Michigan Insured Tax-Free Income Fund - Class II share price, as
measured by net asset value, decreased 1.0 cent, from $12.07 on February 28,
1997, to $12.06 on August 31, 1997.
The fund posted a cumulative total return of +2.78% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
sales charges.
In addition to distributing 29.25 cents ($0.2925) per share in dividend income,
the fund paid out a long-term capital gain of 4.97 cents ($0.0497) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not predictive of future trends.
At the end of this reporting period, the fund's distribution rate was 4.72%,
based on an annualization of the current monthly dividend of 4.79 cents
($0.0479) per share, which includes a 12b-1 differential adjustment, and the
offering price of $12.18 on August 31, 1997. This tax-free rate is generally
higher than the after-tax return on a comparable taxable investment. For
example, an investor in the maximum combined federal and Michigan state personal
income tax bracket would need to earn 8.17% from a taxable investment to match
the fund's tax-free distribution rate.
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Michigan Insured Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.00% 15.36%
Average Annual Total Return2 4.94% 5.85%
Distribution Rate3 4.72%
Taxable Equivalent Distribution Rate4 8.17%
30-Day Standardized Yield5 3.83%
Taxable Equivalent Yield4 6.63%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.79 cent per
share monthly dividend, which includes a 12b-1 differential adjustment, and the
offering price of $12.18 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Michigan state personal income tax rate of 42.26%, based on
the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Franklin Michigan Insured Tax-Free Income Fund - Class II paid distributions
derived from long-term capital gains of 4.97 cents ($0.0497) per share in June
1997. The fund hereby designates such distributions as capital gain dividends
per Section 852 (b)(3) of the Internal Revenue Code.
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high current income exempt from regular
federal and Minnesota state personal income taxes through a portfolio consisting
primarily of insured Minnesota municipal bonds.1
STATE UPDATE
Minnesota's deep, steadily growing economic base is well diversified among
services, trade and manufacturing. Overall state employment growth lagged
slightly behind the nation, largely because of losses in mining and agriculture,
while slow growth in the trade and services sector contributed to some labor
force softness. Employment and income projections indicate the continuation of
steady job creation through 2002 in nearly all segments of the economy. In
addition, the annual unemployment rate is expected to remain between 3.5% to 4%.
The state's financial position is very positive, and fiscal management with
established reserves should be sufficient to maintain its creditworthiness
during a potential future economic downturn. Minnesota's strong income tax
receipts have allowed the state to build its financial position steadily and
establish reserve funds for unforeseen future needs.
Minnesota also has a moderate debt burden with manageable future capital needs.
The state has formalized a number of prudent management measures to maintain a
long-term budgetary balance for the 1997-1999 biennium. In addition, two
statutory reserves were created for cash flow and budgetary purposes, which
together represent over 6% of General Fund revenues.2 This solid position
eliminates the need for external cashflow borrowing and provides flexibility to
address unexpected challenges.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
Fund shares are not insured by any U.S. or other government agency. Insurance is
related only to the payment of principal and interest on the portfolio's
securities. It does not eliminate market risks to the fund's yield or share
price or insure the fund's yield or share value. Terms of the insurance are more
fully described in the prospectus, and no representation is made to any
insurer's ability to meet its commitments.
2. Source: Standard & Poor's Creditweek Municipal, 7/28/97.
PORTFOLIO NOTES
There were a number of new purchases in the portfolio over the reporting period
as we moved to sell prerefunded issues. Among the new issues we purchased for
the fund were Columbia Heights (MN) insured bonds #13, Minneapolis/St. Paul
Childrens Health Care, Buffalo (MN) general obligation bonds, and Inner Grove
Heights (MN) tax allocation bonds.
We continued to monitor the supply of Minnesota insured municipal bonds over the
reporting period and intend to maintain our conservative management style,
especially as borrowing needs and municipal supply change. On the one hand, the
nation's growing need for infrastructure -- including schools, affordable
housing, highways and transportation projects -- as well as for repairs anD
upgrading of existing resources should increase the requirement for new
borrowing. In addition, if interest rates remain low, refunding issues resulting
from lower borrowing costs available to issuers could add to new supply. On the
other hand, borrowing limitations could restrict the supply of tax-exempt bonds.
Many states currently are enjoying substantial increases in revenues, which they
are using to fund many of their own infrastructure needs. Should issuance
decline, future demand could be greater than supply, placing upward pressure on
tax-exempt bond prices and downward pressure on yields.
Franklin Minnesota Insured Tax-Free Income Fund
Portfolio Breakdown 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 20.4%
Prerefunded 16.8%
Hospitals 16.4%
Housing 15.8%
Education 13.9%
General Obligations 5.1%
Health Care 4.9%
Other Revenue 2.6%
Certificates of Participation 2.3%
Tax Allocation Bonds 1.5%
Transportation 0.3%
For a complete list of portfolio holdings, please see page 85 of this report.
PERFORMANCE SUMMARY
Franklin Minnesota Insured Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
Total 32.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
CLASS I
The Franklin Minnesota Insured Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased 8.0 cents, from $12.01 on February 28,
1997, to $12.09 on August 31, 1997.
The fund posted a cumulative total return of +3.39% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.04%,
based on an annualization of the current monthly dividend of 5.3 cents ($0.053)
per share, which includes a dividend adjustment, and the maximum offering price
of $12.63 on August 31, 1997. This tax-free rate is generally higher than the
after-tax return on a comparable taxable investment. For example, an investor in
the maximum combined federal and Minnesota state personal income tax bracket
would need to earn 9.11% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Minnesota Insured Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-year 5-Year 10-Year (4/3/85)
Cumulative Total Return1 7.66% 33.68% 105.46% 162.42%
Average Annual Total Return2 3.05% 5.07% 7.00% 7.71%
Distribution Rate3 5.04%
Taxable Equivalent Distribution Rate4 9.11%
30-Day Standardized Yield5 4.26%
Taxable Equivalent Yield4 7.71%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.3 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.63 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Minnesota state personal income tax rate of 44.73%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
CLASS II
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 4.43 cents
April 4.87 cents
May 4.87 cents
June 4.87 cents
July 4.75 cents
August 4.75 cents
Total 28.54 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
CLASS II
The Franklin Minnesota Insured Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 8.0 cents, from $12.05 on February 28,
1997, to $12.13 on August 31, 1997.
The fund posted a cumulative total return of +3.07% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 4.63%,
based on an annualization of the current monthly dividend of 4.73 cents
($0.0473) per share, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $12.25 on August 31, 1997.
This tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum combined federal and
Minnesota state personal income tax bracket would need to earn 8.38% from a
taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Minnesota Insured Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 6.97% 14.20%
Average Annual Total Return2 4.91% 5.40%
Distribution Rate3 4.63%
Taxable Equivalent Distribution Rate4 8.38%
30-Day Standardized Yield5 3.84%
Taxable Equivalent Yield4 6.95%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.73 cent per
share monthly dividend, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $12.25 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Minnesota state personal income tax rate of 44.73%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
FRANKLIN OHIO INSURED
TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high current income exempt from regular
federal and Ohio state personal income taxes through a portfolio consisting
primarily of insured Ohio municipal securities.1
STATE UPDATE
During the reporting period, Ohio's economy remained dominated by manufacturing.
Although such dominance may make the state financially unstable and vulnerable
during a recession, Ohio's strength in the export markets for the its key
industrial products, particularly transportation equipment and non-electrical
machinery, helps offset such a threat.
Ohio's resources, debt position, and conservative financial approach helped
maintain a very high credit quality for the period: AA+ by Fitch, a national
credit rating agency. 2 The state's debt burden was low to moderate, and
amoritization was rapid. Financial operations continued to be strong.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
Fund shares are not insured by any U.S. or other government agency. Insurance is
related only to the payment of principal and interest on the portfolio's
securities. It does not eliminate market risks to the fund's yield or share
price or insure the fund's yield or share value. Terms of the insurance are more
fully described in the prospectus, and no representation is made to any
insurer's ability to meet its commitments.
2. This does not indicate Fitch's rating of the fund.
PORTFOLIO NOTES
There were a number of new purchases in the portfolio over the reporting period
as we moved to sell prerefunded issues. Among the new issues we purchased for
the fund were Cleveland (OH) Water Works revenue bonds, Delaware (OH) School
District bonds, Franklin County Hospital revenue bonds, and Ohio State Building
Authority.
We continue to monitor closely the supply of Ohio insured municipal bonds. On
the one hand, the nation's growing need for infrastructure -- including schools,
affordable housing, highways and transportation projects -- as well as for
repairs and upgrading of existing resources should increase the requirement for
new borrowing. In addition, if interest rates remain low, refunding issues
resulting from lower borrowing costs available to issuers could add to new
supply. On the other hand, borrowing limitations could restrict the supply of
tax-exempt bonds. Many states currently are enjoying substantial increases in
revenues, which they are using to fund many of their own infrastructure needs.
Should issuance decline, future demand could be greater than supply, placing
upward pressure on tax-exempt bond prices and downward pressure on yields.
Franklin Ohio Insured Tax-Free Income Fund
Portfolio Breakdown 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 28.5%
Education 21.8%
Hospitals 13.5%
General Obligations 11.5%
Prerefunded 10.0%
Housing 5.2%
Transportation 3.6%
Certificates of Participation 2.7%
Industrial 2.4%
Other Revenue Bonds 0.8%
For a complete list of portfolio holdings, please see page 90 of this report.
PERFORMANCE SUMMARY
Franklin Ohio Insured
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 5.5 cents
April 5.5 cents
May 5.5 cents
June 5.5 cents
July 5.5 cents
August 5.5 cents
Total 33.0 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
CLASS I
The Franklin Ohio Insured Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased 8.0 cents, from $12.19 on February 28,
1997, to $12.27 on August 31, 1997.
The fund posted a cumulative total return of +3.38% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 4.96%,
based on an annualization of the current monthly dividend of 5.3 cents ($0.053)
per share, which includes a dividend adjustment, and the maximum offering price
of $12.81 on August 31, 1997. This tax-free rate is generally higher than the
after-tax return on a comparable taxable investment. For example, an investor in
the maximum combined federal and Ohio state personal income tax bracket would
need to earn 8.84% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Ohio Insured Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-year 5-Year 10-Year (4/3/85)
Cumulative Total Return1 8.09% 36.85% 112.78% 163.65%
Average Annual Total Return2 3.51% 5.55% 7.38% 7.75%
Distribution Rate3 4.96%
Taxable Equivalent Distribution Rate4 8.84%
30-Day Standardized Yield5 4.26%
Taxable Equivalent Yield4 7.58%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.3 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.81 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Ohio state personal income tax rate of 43.83%, based on the
federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
Franklin Ohio Insured
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-8/31/97*
Dividend
Month per Share
March 4.94 cents
April 4.93 cents
May 4.93 cents
June 4.93 cents
July 4.94 cents
August 4.94 cents
Total 29.61 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
CLASS II
The Franklin Ohio Insured Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 9.0 cents, from $12.24 on February 28,
1997, to $12.33 on August 31, 1997.
The fund posted a cumulative total return of +3.17% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
sales charges.
At the end of this reporting period, the fund's distribution rate was 4.55%,
based on an annualization of the current monthly dividend of 4.72 cents
($0.0472) per share, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $12.45 on August 31, 1997.
This tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum federal and Ohio
state personal income tax bracket would need to earn 8.10% from a taxable
investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Ohio Insured Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.51% 16.03%
Average Annual Total Return2 5.46% 6.12%
Distribution Rate3 4.55%
Taxable Equivalent Distribution Rate4 8.10%
30-Day Standardized Yield5 3.84%
Taxable Equivalent Yield4 6.84%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.72 cent per
share monthly dividend, which includes a dividend adjustment and a 12b-1
differential adjustment, and the maximum offering price of $12.45 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Ohio state personal income tax rate of 43.83%, based on the
federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GLOSSARY OF INVESTMENT TERMS
Average Annual Total Return: The average annual change in value of an investment
over the periods indicated. Unless otherwise stated, figures shown in this
report include sales charges.
Discount: Amount by which a bond sells below its face (par) value. For instance,
a bond with a $1,000 face value that sells for $900 would have a $100 discount.
Call Protection: The length of time during which a bond cannot be redeemed by
its issuer.
Coupon: A bond's interest rate that the issuer promises to pay to the holder
until the bond matures.
Cumulative Total Return: Measures the change in value of an investment over the
periods indicated. Unless otherwise stated, figures shown in this report exclude
sales charges.
Current-Coupon Bond: A bond with a coupon rate that is within half a percentage
point of current market interest rates. See also Full Coupon Bond.
Full-Coupon Bond: A bond with a coupon rate that is near or above current market
interest rates. See also Current Coupon Bond.
High-Grade Bond/High-Quality Bond: A bond rated AAA or AA by Standard &
Poor's(R) or Aaa or Aa by Moody's Investors Service -- two national
credit-rating agencies.
Investment-Grade Bond: A bond with a rating of AAA to BBB, usually within the
top four rating categories assigned to bonds.
Premium: Amount by which a bond sells above its face (par) value. For instance,
a bond with a $1,000 face value that sells for a $1,100 would have a $100
premium.
Prerefunded Bond: A bond that will be paid off at its first call date with
proceeds of the sale of a second bond carrying a lower interest rate. The
proceeds are generally invested in U.S. Treasuries set to mature at the original
bonds first call date. When a bond is prerefunded its premium rises, and then
falls to par value as the refunding date approaches.
Par Value: The face value or amount at which a security will be redeemed at
maturity -- typically $1,000 for a bond.
Yield Spread: The relative yield differential between lower- and higher-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for added credit risk.
MUNICIPAL BOND RATINGS
Moody's
Aaa: 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 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: High quality by all standards. Together with the Aaa group, they comprise
what are generally known as high-grade bonds. Aa bonds are rated lower than Aaa
because margins of protection may not be as large, fluctuation of protective
elements may be of greater amplitude, or there may be other elements which make
the long-term risks appear larger.
A: Possess many favorable investment attributes and are considered 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: 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.
Ba: Contain speculative elements. 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: 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: Poor standing. Such issues may be in default, or elements of danger with
respect to principal or interest may be present.
Ca: Obligations that are highly speculative. Such issues are often in default or
have other marked shortcomings.
C: Lowest-rated class of bonds. Issues rated C can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
S&P(R)
AAA: The highest rating assigned by S&P to a debt obligation and indicates the
ultimate degree of protection as to principal and interest.
AA: Also qualify as high-grade obligations, and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Generally 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.
BBB: 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: 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.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Arizona Insured Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996 1995 19941
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .............................. $10.36 $10.36 $9.80 $10.28 $10.00
---------------------------------------------------------------------
Income from investment operations:
Net investment income ............................................ .27 .55 .55 .55 .34
Net realized and unrealized gains (losses) ....................... .15 -- .57 (.48) .27
---------------------------------------------------------------------
Total from investment operations .................................. .42 .55 1.12 .07 .61
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income ............................. (.28) (.55) (.56) (.55) (.33)
---------------------------------------------------------------------
Net asset value, end of period .................................... $10.50 $10.36 $10.36 $9.80 $10.28
=====================================================================
Total return* ..................................................... 4.05% 5.55% 11.64% .94% 6.04%
Ratios/Supplemental Data:
Net assets, end of period (000's) ................................. $45,102 $39,693 $38,199 $20,794 $12,895
Ratio to average net assets:
Expenses ......................................................... .40%** .25% .16% .10% .03%**
Expenses excluding waiver and payments by affiliate .............. .88%** .86% .86% .96% .83%**
Net investment income ............................................ 5.24%** 5.45% 5.51% 5.80% 4.85%**
Portfolio turnover rate ........................................... 10.06% 18.27% 4.12% 44.61% 62.88%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
1For the period April 30, 1993 (effective date) to February 28, 1994.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Arizona Insured Tax-Free Income Fund AMOUNT VALUE
bLong Term Investments 98.1%
<S> <C> <C>
Arizona State Management Authority, Financial Assistance Revenue, AMBAC Insured, 5.75%, 7/01/15 ...... $ 750,000 $ 770,895
Arizona State Power Authority, Power Resources Revenue, Refunding,
Hoover Uprating Project, MBIA Insured, 5.375%, 10/01/13 .............................................. 900,000 903,168
Arizona State University Revenues, Refunding, Series A, MBIA Insured, 5.50%, 7/01/19 ................. 1,000,000 1,003,370
Casa Grande Excise Tax Revenue, FGIC Insured, 6.00%, 4/01/10 ......................................... 400,000 422,388
Douglas Municipal Property Corp., Municipal Facilities Excise Tax Revenue, MBIA Insured, 5.75%, 7/01/15 525,000 540,687
Gilbert GO, Projects of 1988, Series C, MBIA Insured, 5.50%, 7/01/23 ................................. 1,000,000 1,010,360
La Paz County School District No. 4, Quartzsite Elementary School Improvement,
MBIA Insured, 5.70%, 7/01/16 ......................................................................... 480,000 488,362
Maricopa County School District No. 3, Tempe Elementary, Refunding, AMBAC Insured, 6.00%, 7/01/13 .... 700,000 739,676
Maricopa County School District No. 8, Osborn, Series A, FGIC Insured, Refunding, 5.875%, 7/01/14 .... 500,000 525,330
Maricopa County School District No. 9, Wickenburg Projects of 1997, AMBAC Insured,
5.55%, 7/01/14 ................................................................................... 1,000,000 1,019,640
5.65%, 7/01/16 ................................................................................... 1,055,000 1,074,001
Maricopa County School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10 ..... 700,000 759,136
Maricopa County School District No. 28, Kyrene Elementary, Series B, FGIC Insured, 6.00%, 7/01/14 .... 500,000 521,525
Maricopa County School District No. 31, Series A, AMBAC Insured, 6.20%, 7/01/13 ...................... 570,000 606,697
Maricopa County School District No. 66, Roosevelt Elementary, Series B, FGIC Insured, 5.30%, 7/01/13 . 1,540,000 1,541,124
Maricopa County School District No. 68, Alhambra Elementary, Refunding & Improvement,
AMBAC Insured, 5.125%, 7/01/13 ...................................................................... 500,000 493,825
Maricopa County School District No. 98, Fountain Hills,
AMBAC Insured, 5.75%, 7/01/12 ........................................................................ 500,000 521,125
MBIA Insured, Pre-Refunded, 6.20%, 7/01/10 ........................................................... 235,000 260,700
Maricopa County USD No. 41, Series G, FGIC Insured, 5.50%, 7/01/12 ................................... 670,000 678,710
Maricopa County USD No. 80, Chandler, Refunding, FGIC Insured, 5.85%, 7/01/13 ........................ 700,000 729,092
Maricopa County USD No. 95, Queens Creek, Series A, AMBAC Insured, 5.70%, 7/01/14 .................... 400,000 412,404
bMesa Utility System Revenue, FGIC Insured, 5.375%, 7/01/17 ........................................... 500,000 500,610
Mohave County, Hospital District No. 1, Kingman Regional Medical Center Project,
FGIC Insured, 6.50%, 6/01/15......................................................................... 610,000 654,036
Navajo County PCR, Arizona Public Service Co., Series A,
AMBAC Insured, 5.50%, 8/15/28 ........................................................................ 2,400,000 2,382,264
MBIA Insured, 5.875%, 8/15/28 ........................................................................ 2,450,000 2,508,408
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA Insured, 5.55%, 7/01/17 .... 700,000 712,810
Phoenix Civic Improvement Corp., Municipal Facilities Excise Tax Revenue,
MBIA Insured, Pre-Refunded, 6.90%, 7/01/21 .......................................................... 1,000,000 1,154,370
Phoenix Civic Improvement Corp., Wastewater Systems Lease Revenue,
Refunding, MBIA Insured, 5.00%, 7/01/18.............................................................. 800,000 754,488
Phoenix Civic Improvement Corp., Water Systems Revenue, Junior Lien,
AMBAC Insured, 5.50%, 7/01/21 ........................................................................ 500,000 496,020
FGIC Insured, 5.50%, 7/01/24 ......................................................................... 1,000,000 991,600
MBIA Insured, 5.375%, 7/01/22 ........................................................................ 1,000,000 988,430
Pima County IDA, SFMR, GNMA Secured, 6.625%, 11/01/14 ................................................ 600,000 637,452
Puerto Rico Commonwealth GO, MBIA Insured, 6.45%, 7/01/17 ............................................ 845,000 923,568
Puerto Rico Electric Power Authority Revenue,
Series AA, MBIA Insured, 5.375%, 7/01/27 ............................................................. 500,000 491,565
Series R, FSA Insured, 6.25%, 7/01/17 ................................................................ 800,000 845,432
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities,
Financing Authority Hospital Revenue, Hospital Auxilio Mutuo Obligation Group,
Series A, MBIA Insured, 6.25%, 7/01/24 .............................................................. 840,000 901,874
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue,
Refunding, Series D, FGIC Insured,
5.50%, 1/01/25 ....................................................................................... 1,000,000 999,910
6.25%, 1/01/27 ....................................................................................... 1,500,000 1,570,680
Santa Cruz County USD, No. 1, Nogales, Series B, AMBAC Insured, Pre-Refunded, 6.10%, 7/01/14 ......... 250,000 274,033
Sierra Vista Municipal Property Corp. Facilities Revenue, AMBAC Insured, 6.15%, 1/01/15 .............. 360,000 382,597
Tucson GO,
Series A, MBIA Insured, 5.375%, 7/01/19 .............................................................. 500,000 499,640
Series G, 1984, FGIC Insured, Pre-Refunded, 6.25%, 7/01/18 ........................................... 650,000 720,954
University of Arizona COP, Administrative & Packaging Facility, MBIA Insured, 6.00%,
7/15/16 .............................................................................................. 500,000 528,445
7/15/23 .............................................................................................. 1,625,000 1,692,828
University of Arizona COP, Residence Life Project, Series A, FSA Insured, 5.80%, 9/01/13 ............. 1,000,000 1,038,280
University of Arizona Medical Center Corp., Hospital Revenue, Refunding, MBIA Insured, 5.00%, 7/01/21 1,050,000 988,628
Yavapai County, Elementary School District No. 6, Cottonwood-Oak Creek,
1993 Project, AMBAC Insured, Series B, 6.70%, 7/01/09................................................ 250,000 279,773
Yavapai County, Elementary School District No. 028, Refunding,
Camp Verde, FGIC Insured, 6.00%, 7/01/09 ............................................................ 775,000 841,619
Yavapai County USD No. 22, Humboldt,
Series A, FGIC Insured, 5.95%, 7/01/14 ............................................................... $ 300,000 $ 315,111
Series C, FGIC Insured, 5.40%, 7/01/14 ............................................................... 575,000 581,975
Yuma County Elementary School District No. 1, MBIA Insured,
Series A, 5.75%, 7/01/14 ............................................................................. 500,000 519,980
Series B, 5.50%, 7/01/14 ............................................................................. 1,000,000 1,016,440
Yuma County Jail District Revenue, AMBAC Insured, 5.25%, 7/01/12 ..................................... 1,000,000 1,008,350
Yuma IDA Hospital Revenue, Refunding, MBIA Insured, 5.50%, 8/01/17 ................................... 1,000,000 1,009,517
------------
Total Long Term Investments (Cost $42,243,016)........................................................ 44,233,902
------------
aShort Term Investments 1.8%
Maricopa County IDA Hospital Revenue, Samaritan Health Service,
MBIA Insured, Daily VRDN and Put, 3.80%, 12/01/08.................................................... 700,000 700,000
Phoenix, Series 95-2, GO, Daily VRDN and Put, 3.75%, 6/01/20 ......................................... 100,000 100,000
------------
Total Short Term Investments (Cost $800,000).......................................................... 800,000
------------
Total Investments (Cost $43,043,016) 99.9% ........................................................... 45,033,902
Other Assets, less Liabilities .1% ................................................................... 67,962
------------
Net Assets 100.0% .................................................................................... $45,101,864
============
</TABLE>
See glossary of abbreviations on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Florida Insured Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996 1995 19941
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .............................. $9.99 $10.02 $9.53 $10.07 $10.00
-------------------------------------------------
Income from investment operations:
Net investment income ............................................ .26 .53 .53 .52 .34
Net realized and unrealized gains (losses) ....................... .15 (.03) .49 (.53) .06
-------------------------------------------------
Total from investment operations .................................. .41 .50 1.02 (.01) .40
-------------------------------------------------
Less distributions:
Dividends from net investment income ............................. (.26) (.53) (.53) (.53) (.33)
-------------------------------------------------
Net asset value, end of period .................................... $10.14 $9.99 $10.02 $9.53 $10.07
=================================================
Total return* ..................................................... 4.18% 5.17% 10.95% .21% 3.97%
Ratios/Supplemental Data:
Net assets, end of period (000's) ................................. $89,508 $77,177 $69,583 $46,847 $32,150
Ratio to average net assets:
Expenses......................................................... .35%** .35% .35% .35% --
Expenses excluding waiver and payments by affiliate .............. .80%** .80% .82% .88% .83%**
Net investment income ............................................ 5.25%** 5.36% 5.37% 5.61% 4.97%**
Portfolio turnover rate ........................................... 2.94% 32.23% 24.36% 43.71% 28.72%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
1For the period April 30, 1993 (effective date) to February 28, 1994.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Florida Insured Tax-Free Income Fund AMOUNT VALUE
aLong Term Investments 97.0%
<S> <C> <C>
Canaveral Port Authority Revenue, Refunding, Series B, FGIC Insured, 5.625%, 6/01/21 ................. $1,000,000 $ 1,014,800
Celebration Community Development District Special Assessment,
Series A, MBIA Insured, 5.50%, 5/01/18 ............................................................... 535,000 532,994
Citrus County PCR, Refunding, Florida Power Co., MBIA Insured, 6.625%, 1/01/27 ....................... 2,435,000 2,652,153
Clay County Utilities System Revenue, Series B, FGIC Insured, 5.25%, 11/01/13 ........................ 1,000,000 1,008,500
Cocoa Beach Improvement Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/20 ........................... 1,000,000 993,390
Cocoa Water and Sewer Revenue Improvement, FGIC Insured, 5.875%, 10/01/22 ............................ 1,000,000 1,040,000
Escambia County Utilities Authority, Utility System Revenue, FGIC Insured, 5.625%, 1/01/27 ........... 1,500,000 1,510,140
Florida State HFA, Spinnaker Cove Apartments, Series G, AMBAC Insured, 6.50%, 7/01/36 ................ 1,600,000 1,684,992
Gainesville Public Improvements, Guaranteed, Refunding, AMBAC Insured, 5.50%, 8/01/17 ................ 1,000,000 1,007,640
Gulf Breeze Revenue, Local Government Loan Program, FGIC Insured, 6.05%, 12/01/13 .................... 1,915,000 2,040,605
Hernando County Water and Sewer Revenue, Refunding and Improvement,
FGIC Insured, 6.00%, 6/01/19 ......................................................................... 2,000,000 2,093,280
Hillsborough County IDA, MBIA Insured,
IDR, University Community Hospital, 5.80%, 8/15/24 ................................................... 2,000,000 2,050,400
PCR, Refunding, Tampa Electric Co. Project, 6.25%, 12/01/34 .......................................... 1,500,000 1,622,145
Indian River County Water and Sewer Revenue, FGIC Insured, 5.50%, 9/01/26 ............................ 1,250,000 1,254,075
Indian Trail Water Control District Improvement Bonds, MBIA Insured,
5.75%, 8/01/16 ....................................................................................... 1,090,000 1,139,366
5.60%, 8/01/17 ....................................................................................... 1,000,000 1,012,150
5.50%, 8/01/22 ....................................................................................... 500,000 500,785
Jacksonville Sales Tax Revenue, River City Renaissance Project, FGIC Insured, 5.375%, 10/01/18 ....... 1,000,000 991,860
Jacksonville Water and Sewer Revenue, United Water Project, AMBAC Insured, 6.35%, 8/01/25 ............ 1,000,000 1,085,690
Lake Clarke Shores, Utility Systems Revenue, Refunding and Improvement, FGIC Insured, 5.80%, 10/01/18 1,415,000 1,461,256
Lake Mary Public Improvement Revenue, FGIC Insured, 5.25%, 9/01/15 ................................... 1,000,000 1,002,300
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project,
Refunding, MBIA Insured, 5.25%, 11/15/16 ............................................................ 2,000,000 1,976,000
Lakeland Utility Tax Revenue, Refunding and Improvement, Series A, FGIC Insured, 6.00%, 10/01/17 ..... 500,000 526,035
Lee County Capital and Transportation Facilities Revenue,
Refunding, Series A, MBIA Insured, 5.55%, 10/01/18 ................................................... 3,000,000 3,028,980
Lee County IDA, Utilities Revenue, Refunding, Bonita Springs Utilities Project, MBIA Insured, 6.05%,
11/01/15 ............................................................................................. 2,000,000 2,111,660
11/01/20 ............................................................................................. 1,500,000 1,571,745
Lee County Solid Waste Systems Revenue, MBIA Insured, 5.375%, 10/01/15 ............................... 2,000,000 1,989,600
Lynn Haven Capital Improvement Revenue, Series A, MBIA Insured, 5.75%, 12/01/16 ...................... 1,000,000 1,035,120
Martin County Consolidated Utilities Systems Revenue, Refunding and Improvement,
FGIC Insured, 6.00%, 10/01/24 ....................................................................... 1,000,000 1,052,070
Martin County Improvement Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/14 ......................... 1,000,000 1,062,440
Miramar Waste Water Improvement Assessment Revenue, FGIC Insured, 6.75%, 10/01/25 .................... 2,000,000 2,230,520
Ocoee Water and Sewer System Revenue, AMBAC Insured, 5.625%, 10/01/26 ................................ 5,220,000 5,277,629
Okaloosa County Gas District Revenue, Gas System, MBIA Insured, 5.50%, 10/01/21 ...................... 2,795,000 2,809,897
Okeechobee Utility Systems Authority Revenue, Acquisition and Improvement,
Refunding, MBIA Insured, 5.60%, 10/01/25 ............................................................ 1,500,000 1,510,245
Orange County Capital Improvement Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/22 ................. 1,300,000 1,371,058
Orange County Health Facilities Authority Revenue,
Orlando Regional Healthcare, Series A, MBIA Insured, 6.00%, 11/01/24 ................................. 2,400,000 2,471,424
Sunbelt Adventist Health, Series B, FSA Insured, 6.75%, 11/15/21 ..................................... 1,000,000 1,094,030
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 ............................. 1,000,000 1,052,450
Orange County Sales Tax Revenue, FGIC Insured,
6.125%, 1/01/19 ...................................................................................... 500,000 520,210
5.375%, 1/01/24 ...................................................................................... 1,000,000 977,190
Orange County School Board COP, Series A, MBIA Insured, 5.375%, 8/01/22 .............................. 875,000 860,213
Osceola County HFA, MFHR, Tierra Vista Apartment Project, Series A, FSA Insured, 5.70%, 12/01/17 ..... 630,000 636,974
Osceola County School Board COP, Series A, AMBAC Insured, 6.00%, 6/01/19 ............................. 1,900,000 1,995,969
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured, 6.10%, 4/01/17 ......... 1,225,000 1,289,852
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured, 6.00%, 6/01/15 .................. 1,000,000 1,053,370
Pinellas County Sewer Revenue, FGIC Insured, 6.00%, 10/01/24 ......................................... 1,250,000 1,292,813
Port Orange Water and Sewer Revenue, Refunding, Junior Lien, AMBAC Insured, 5.25%, 10/01/21 .......... 4,000,000 3,903,720
Puerto Rico Commonwealth GO, FSA Insured, 6.00%, 7/01/22 ............................................. 1,000,000 1,044,800
Puerto Rico Electric Power Authority Revenue, Series P, Pre-Refunded, FSA Insured, 7.00%, 7/01/21 .... 1,000,000 1,116,850
Puerto Rico Public Buildings Authority Revenue, Government Facilities,
Series A, AMBAC Insured, 5.50%, 7/01/25 .............................................................. 1,000,000 990,070
Sarasota County Utility System Revenue, FGIC Insured, 5.75%, 10/01/27 ................................ 520,000 535,501
Seminole County School Board COP, Series A, MBIA Insured, 6.125%,
7/01/14............................................................................................... $1,000,000 $ 1,066,900
7/01/19............................................................................................... 1,000,000 1,056,020
St. Lucie County Water and Sewer Revenue, Refunding, AMBAC Insured, 5.50%, 10/01/17 .................. 500,000 502,275
Stuart Utilities Revenue, FGIC Insured,
6.70%, 10/01/14 ...................................................................................... 500,000 553,960
6.80%, 10/01/24 ...................................................................................... 500,000 553,515
Sunrise Utility System Revenue, Series A, AMBAC Insured, 5.75%, 10/01/26 ............................. 1,000,000 1,019,860
Tampa Sports Authority Revenue, Tourist Development, FSA Insured, 5.25%, 1/01/27 ..................... 2,000,000 1,924,620
Titusville Water and Sewer Revenue, Refunding, MBIA Insured, 6.20%, 10/01/14 ......................... 490,000 529,122
Vero Beach Electric Revenue, Refunding, Series A, MBIA Insured, 5.375%, 12/01/21 ..................... 1,500,000 1,488,810
West Melbourne Water and Sewer Revenue, Refunding and Improvement, FGIC Insured, 6.75%, 10/01/14...... 500,000 564,665
West Palm Beach Utility Systems Revenue, Series B, FGIC Insured, 5.40%, 10/01/23 ..................... 1,500,000 1,475,189
------------
Total Long Term Investments (Cost $83,510,053)........................................................ 86,821,892
------------
aShort Term Investments 1.1%
Dade County Health Facilities, Daily VRDN and Put, 3.75%, 9/01/20 .................................... 200,000 200,000
Manatee County Pollution Control Revenue, Refunding, Daily VRDN and Put, 3.70%, 9/01/24 .............. 600,000 600,000
Pinellas County Health Facilities, Daily VRDN and Put, 3.75%, 12/01/15 ............................... 200,000 200,000
------------
Total Short Term Investments (Cost $1,000,000)........................................................ 1,000,000
------------
Total Investments (Cost $84,510,053) 98.1%............................................................ 87,821,892
Other Assets, less Liabilities 1.9%................................................................... 1,686,051
------------
Net Assets 100.0%..................................................................................... $89,507,943
============
</TABLE>
See glossary of abbreviations on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Insured Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $12.15 $12.27 $11.97 $12.45 $12.43 $11.68
---------------------------------------------------------------------
Income from investment operations:
Net investment income ................................ .34 .69 .71 .71 .73 .74
Net realized and unrealized gains (losses)............ .06 (.11) .30 (.48) .02 .75
---------------------------------------------------------------------
Total from investment operations ...................... .40 .58 1.01 .23 .75 1.49
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income ................. (.34)3 (.70) (.71) (.71) (.73) (.74)
---------------------------------------------------------------------
Net asset value, end of period ........................ $12.21 $12.15 $12.27 $11.97 $12.45 $12.43
=====================================================================
Total return* ......................................... 3.33% 4.88% 8.66% 2.03% 5.93% 12.93%
Ratios/Supplemental Data
Net assets, end of period (000's) ..................... $1,669,831 $1,662,087$1,705,038$1,683,234$1,802,548$1,539,186
Ratio to average net assets:
Expenses ............................................. .62%** .60% .60% .59% .52% .53%
Net investment income ................................ 5.56%** 5.68% 5.81% 6.00% 5.79% 6.22%
Portfolio turnover rate ............................... 15.06% 18.66% 13.52% 14.42% 6.85% 7.95%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period................... $12.21 $12.31 $11.98
------------------------------------
Income from investment operations:
Net investment income................................. .31 .62 .54
Net realized and unrealized gains (losses)............ .05 (.10) .32
------------------------------------
Total from investment operations....................... .36 .52 .86
------------------------------------
Less distributions:
Dividends from net investment income.................. (.30) (.63) (.53)
------------------------------------
Net asset value, end of period......................... $12.27 $12.21 $12.31
====================================
Total return*.......................................... 3.02% 4.42% 7.32%
Ratios/Supplemental Data
Net assets, end of period (000's)...................... $29,985 $21,521 $8,152
Ratio to average net assets:
Expenses.............................................. 1.18%** 1.17% 1.18%**
Net investment income................................. 4.98%** 5.10% 5.21%**
Portfolio turnover rate................................ 15.06% 18.66% 13.52%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
3Includes distributions in excess of net investment income in the amount of
$.001.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Insured Tax-Free Income Fund AMOUNT VALUE
aLong Term Investments 99.4%
Alabama 3.0%
<S> <C> <C>
Alabama Agricultural and Mechanical University Revenues, MBIA Insured, 5.50%, 11/01/20 ............... $ 1,000,000 $ 999,910
Alabama HFA, SFMR Program, Series A-1, GNMA Secured, 7.80%, 10/01/20 ................................. 4,600,000 4,776,548
Alabama State Board Educational Revenue, Southern Union State Junior College,
MBIA Insured, 6.50%, 7/01/12 ......................................................................... 1,000,000 1,086,010
Alabama Water Pollution Control Authority, Revolving Fund Loan, AMBAC Insured,
6.25%, 8/15/14 ....................................................................................... 100,000 104,315
Series A, 5.60%, 8/15/16 ............................................................................. 2,000,000 2,015,920
Auburn Governmental Utility Services Corp., Waste Water Treatment Revenue,
Merscot-Auburn L. P. Project, FGIC Insured, 7.30%, 1/01/12............................................ 1,565,000 1,678,306
Birmingham Airport Authority, Airport Revenue, MBIA Insured, 5.625%, 7/01/26 ......................... 2,000,000 2,008,660
Birmingham Baptist Medical Center, Special Care Facilities Financing Authority Revenue,
Refunding, Baptist Health Systems, Inc.,
MBIA Insured, 5.875%, 11/15/19 ...................................................................... 3,500,000 3,605,350
Daphne Utilities Board, Water, Gas and Sewer Revenue, Series B, FGIC Insured,
Capital Improvement Bonds, 7.35%, 6/01/20 ............................................................ 2,000,000 2,145,700
Refunding, 7.30%, 6/01/10 ............................................................................ 4,030,000 4,381,295
Fort Payne Waterworks, Board of Water Revenue, MBIA Insured, 5.45%, 7/01/21 .......................... 3,550,000 3,516,950
Huntsville Health Care Facilities Authority Revenue, Series A, MBIA Insured, 6.375%, 6/01/22 ......... 300,000 322,602
Jefferson County Sewer Revenue, Series D, FGIC Insured, 5.75%, 2/01/22 ............................... 5,000,000 5,100,300
Marshall County Limited Obligation, AMBAC Insured, Pre-Refunded, 7.00%, 2/01/12 ...................... 1,500,000 1,650,480
Mobile Board of Water and Sewer Commissioners, Water and Sewer Utilities Revenue,
Series A, FGIC Insured, Pre-Refunded, 9.375%,
1/01/12 ............................................................................................. 500,000 508,845
Montgomery Medical Clinic Board, Health Care Facilities Revenue, Jackson Hospital
and Clinic, Refunding, AMBAC Insured, 6.00%, 3/01/26 ................................................ 4,000,000 4,151,320
Pelham GO Unlimited Warrants, AMBAC Insured, 5.50%,
12/01/21.............................................................................................. 1,565,000 1,564,844
12/01/26.............................................................................................. 2,000,000 1,985,420
University of Alabama, University Hospital Revenues, Refunding,
Huntsville, Series A, MBIA Insured, 5.50%, 5/01/18 ................................................... 4,000,000 3,994,760
West Jefferson IDB, PCR, Refunding, Alabama Power Co., Miller Plant Co.,
Series C, MBIA Insured, 6.05%, 5/01/23 ............................................................... 5,000,000 5,088,900
------------
50,686,435
------------
Alaska 4.8%
Alaska Energy Authority Power Revenue, Bradley Lake Hydro Project,
MBIA Insured, 7.25%, 7/01/21 ......................................................................... 5,795,000 6,303,685
Series 1, BIG Insured, 7.25%, 7/01/09 ................................................................ 5,000,000 5,346,500
Series 1, BIG Insured, 7.25%, 7/01/16 ................................................................ 4,765,000 5,082,158
Series 1, BIG Insured, 6.25%, 7/01/21 ................................................................ 3,205,000 3,260,895
Alaska Energy Utilities Revenue, City and Boro of Sitka, Refunding,
FSA Insured, 6.75%, 7/01/20 .......................................................................... 18,500,000 20,054,555
Alaska Industrial Development and Export Authority, Refunding,
Series A, MBIA Insured, 6.125%, 4/01/27............................................................... 5,000,000 5,169,400
Alaska State HFC, Refunding, Series A, MBIA Insured,
6.00%, 6/01/27 ....................................................................................... 5,000,000 5,126,600
5.875%, 12/01/30 ..................................................................................... 485,000 492,217
6.10%, 12/01/37 ...................................................................................... 5,000,000 5,147,350
Anchorage Electric Utility Revenue, Refunding, Senior Lien,
Series A, MBIA Insured, 7.125%, 6/01/06................................................................ 5,000,000 5,323,450
Anchorage GO, AMBAC Insured,
General Purpose, Pre-Refunded, 7.30%, 8/01/10 ........................................................ 2,765,000 2,989,352
Refunding, 7.20%, 6/01/17 ............................................................................ 5,000,000 5,283,300
Refunding, 6.25%, 6/01/23 ............................................................................ 3,505,000 3,568,651
Anchorage Water Revenue, Refunding, Senior Lien, MBIA Insured, 7.25%, 8/01/14 ........................ 5,100,000 5,344,035
University of Alaska COP, Series 1990, FSA Insured, 7.375%, 10/01/07 ................................. 500,000 549,245
University of Alaska Revenues,
Series B, AMBAC Insured, 6.50%, 10/01/17 ............................................................. 250,000 263,978
Series G, FSA Insured, 5.45%, 10/01/22 ............................................................... 3,155,000 3,133,514
------------
82,438,885
------------
Arizona 3.2%
Arizona State Municipal Financing Program, COP, BIG Insured,
Series 1986-20, ETM, 7.70%, 8/01/10 .................................................................. 6,000,000 7,339,800
Series 1986-26, 7.70%, 8/01/05 ....................................................................... 10,000,000 10,403,500
Chandler Water and Sewer Revenue, Refunding, FGIC Insured, 7.00%, 7/01/12 ............................ 2,200,000 2,412,894
Arizona (cont.)
Cochise County USD No. 68, Sierra Vista, FGIC Insured,
Refunding, 7.50%, 7/01/10 ............................................................................ $ 500,000 $ 614,565
Series B, Pre-Refunded, 7.625%, 7/01/10 .............................................................. 3,000,000 3,297,420
Maricopa County IDAR, Hospital Facility Revenue, Samaritan Hospital Health
Services, Refunding, Series A,
MBIA Insured, 7.00%, 12/01/16 ....................................................................... 300,000 358,581
Maricopa County USD No. 80, Chandler, FGIC Insured, Pre-Refunded,
7.20%, 7/01/07 ....................................................................................... 775,000 843,154
7.20%, 7/01/08 ....................................................................................... 825,000 897,551
7.25%, 7/01/09 ....................................................................................... 500,000 544,630
Maricopa County USD No. 98, Fountain Hills, Series A, FGIC Insured, Pre-Refunded, 7.10%, 7/01/10 ..... 1,000,000 1,063,260
Maricopa UHSD No. 216, Refunding and Improvement, FGIC Insured, 6.70%, 7/01/11 ....................... 1,000,000 1,074,750
Mesa IDA, Health Care Facilities Revenue, Western Health Network,
Refunding, Series B-2, BIG Insured, 7.50%, 1/01/08 ................................................... 1,000,000 1,057,330
Mohave County USD No. 1, Lake Havasu Project, Series B, AMBAC Insured, 5.375%, 7/01/11................ 500,000 509,065
Navajo County PCR, Arizona Public Service Co., Series A, MBIA Insured, 5.875%, 8/15/28 ............... 3,925,000 4,018,572
Phoenix Civic Improvement Corp., Wastewater Systems Lease Revenue,
Refunding, MBIA Insured, 5.00%, 7/01/18 .............................................................. 2,700,000 2,546,397
Phoenix GO, Refunding, Series B, MBIA Insured, 5.50%, 7/01/16 ........................................ 890,000 898,936
Pima County Sewer Revenue, FGIC Insured,
Pre-Refunded, 6.75%, 7/01/15 ......................................................................... 230,000 252,041
Refunding, 6.75%, 7/01/15 ............................................................................ 270,000 292,394
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue,
Refunding, Series A, FGIC Insured, 5.50%, 1/01/19 .................................................... 1,150,000 1,152,530
Refunding, Series C, MBIA Insured, 5.00%, 1/01/13 .................................................... 10,000,000 9,738,200
Series A, MBIA Insured, 6.50%, 1/01/22 ............................................................... 300,000 318,690
Tucson Water Revenue, Series A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/21 ........................... 5,000,000 5,536,100
------------
55,170,360
------------
Arkansas .2%
Arkansas State Development Finance Authority Water Revenue, Series A, MBIA Insured,
Pre-Refunded, 7.00%, 6/01/14 ......................................................................... 1,400,000 1,541,162
Refunding, 6.50%, 7/01/10 ............................................................................ 2,000,000 2,295,680
Pulaski County Health Facilities Board, Hospital Revenue,
St. Vincent's Infirmary, MBIA Insured, Pre-Refunded, 10.00%, 9/01/12 ................................. 25,000 27,793
------------
3,864,635
------------
California 3.2%
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ......................... 15,000,000 20,431,500
Lancaster RDA, Refunding, Residential Redevelopment, MBIA Insured, 6.10%, 8/01/19 .................... 1,515,000 1,583,523
Los Angeles County Metropolitan Transportation Authority,
Sales Tax Revenue, Proposition C, Series A, AMBAC Insured, 5.00%,
7/01/25 ............................................................................................. 12,000,000 11,197,680
Los Angeles County Sanitation Districts Financing, MBIA Insured, 5.25%, 10/01/19 ..................... 3,000,000 2,897,220
Oakland RDA, Refunding, Central District Redevelopment, AMBAC Insured, 5.50%, 2/01/14 ................ 250,000 257,638
bSacramento Area Flood Control Agency, Capital
Assessment District No. 2, FGIC Insured, 5.375%, 10/01/25.............................................. 5,000,000 4,932,000
Sacramento Municipal Utility District, Refunding, Series D, MBIA Insured, 5.25%, 11/15/20 ............ 5,500,000 5,306,565
San Francisco Bay Area Rapid Transit, District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/20 ....... 2,000,000 1,994,660
San Jose and Santa Clara Water Financing Authority, Sewer Revenue,
Series A, FGIC Insured, 5.375%, 11/15/20 ............................................................. 2,670,000 2,626,319
Stockton, East Water District, 1992 Project, Series A, AMBAC Insured, 6.40%, 4/01/22 ................. 2,250,000 2,416,050
------------
53,643,155
------------
Colorado 6.3%
Adams and Weld Counties GO, Brighton School District No. 27-J,
MBIA Insured, Pre-Refunded, 6.30%, 12/01/12 .......................................................... 3,500,000 3,827,250
Arapahoe County COP, Arapahoe County Building Finance Corp.,
FSA Insured, Pre-Refunded, 7.50%, 12/01/10 ........................................................... 1,000,000 1,097,350
Arapahoe County COP, Refunding, FSA Insured, 6.625%, 12/01/16 ........................................ 8,695,000 9,477,028
Castle Pines Metropolitan District, Refunding & Improvement,
FSA Insured, 7.625%, 12/01/15 ........................................................................ 1,500,000 1,675,395
Colorado Association of School Boards, COP, Pueblo School
District No. 60, Project Series A, MBIA Insured, Pre-Refunded, 7.25%,
12/01/09 ............................................................................................ 2,400,000 2,579,352
Colorado Health Facilities Authority Revenue,
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.25%, 7/15/17 ........................ 1,174,000 1,277,277
Rose Medical Center, MBIA Insured, Pre-Refunded, 7.00%, 8/15/21 ...................................... 3,000,000 3,336,000
Colorado (cont.)
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%, 12/15/24 .......................... $ 2,455,000 $ 2,567,832
Colorado Springs Utilities Revenue, Refunding and Improvement,
Series A, MBIA Insured, 5.125%, 11/15/18 ............................................................. 1,000,000 967,900
Colorado State Board of Agriculture Revenue, Refunding and Improvement,
Colorado State University Auxiliary Facilities, MBIA Insured, 6.40%,
3/01/11............................................................................................... 800,000 860,648
3/01/17 .............................................................................................. 1,000,000 1,062,460
Colorado Water Resources and Power Development Authority,
Small Water Resource Revenue, Series A, FGIC Insured, 6.70%, 11/01/12 ................................ 2,000,000 2,168,800
Denver City and County Airport Revenue, MBIA Insured,
Series A, 5.50%, 11/15/25 ............................................................................ 7,250,000 7,157,273
Series C, 6.125%, 11/15/25 ........................................................................... 8,000,000 8,221,360
Series D, 5.50%, 11/15/25 ............................................................................ 3,900,000 3,850,119
bSeries E, 5.50%, 11/15/25 ........................................................................... 5,000,000 4,936,050
Denver City and County Board, Water Commissioner,
COP, FGIC Insured, 6.625%, 11/15/11 .................................................................. 1,500,000 1,619,850
Denver City and County Revenue, Children's Hospital Association Project,
FGIC Insured, 6.00%, 10/01/15 ........................................................................ 3,000,000 3,120,360
Denver City and County Revenue, Mercy Medical Center Project,
MBIA Insured, Pre-Refunded, 7.75%, 5/01/14 ........................................................... 2,000,000 2,089,740
Denver City and County SFMR, Series A, GNMA Secured, 8.125%, 12/01/20 ................................ 945,000 977,243
Douglas County School District No. 1, Douglas and Elbert Counties COP,
Series D, FGIC Insured, 6.80%, 12/01/11 .............................................................. 2,000,000 2,183,300
El Paso County SFMR, Series A, GNMA Secured, 8.00%, 9/01/22 .......................................... 375,000 394,598
Garfield, Pitkin and Eagle Counties, Reorganized School District No. 1,
MBIA Insured, Pre-Refunded, 6.60%, 12/15/14 .......................................................... 3,600,000 4,052,628
Goldsmith Metropolitan District, Refunding, MBIA Insured, 6.125%, 12/01/12 ........................... 2,000,000 2,106,200
Havana Water and Sanitation District Sewer Revenue, FSA Insured, Pre-Refunded, 7.375%, 9/15/14........ 1,000,000 1,038,180
Jefferson County COP, MBIA Insured,
Pre-Refunded, 7.125%, 12/01/10 ....................................................................... 2,000,000 2,229,340
Refunding, 6.65%, 12/01/08 ........................................................................... 5,000,000 5,536,100
Jefferson County School District No. R-001, AMBAC Insured, 6.25%, 12/15/12 ........................... 5,000,000 5,313,000
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 ........................... 325,000 346,986
La Plata County School District No. R-9, Durango City, FGIC Insured, 6.55%,
11/01/12.............................................................................................. 490,000 2,770,362
Pre-Refunded,11/01/12 ................................................................................ 2,510,000 537,270
Morgan County PCR, Refunding, First Mortgage, Public Service Co.,
Series A, MBIA Insured, 5.50%, 6/01/12 ............................................................... 1,000,000 1,012,820
Mountain College Residence Hall Revenue Authority, MBIA Insured,
5.625%, 6/01/12 ...................................................................................... 1,900,000 1,952,155
5.75%, 6/01/23 ....................................................................................... 3,000,000 3,071,580
Parker Water and Sanitation District, Water and Sewer Revenue,
Refunding, FGIC Insured, 6.20%, 10/01/15.............................................................. 1,600,000 1,680,576
Postsecondary Educational Facilities Revenue Authority, Connie Lee Insured,
Refunding, University of Denver Project, 6.00%, 3/01/10 .............................................. 1,000,000 1,045,810
Regis University Project, 6.625%, 6/01/13 ............................................................ 1,000,000 1,052,190
University of Denver Project, 6.25%, 3/01/12 ......................................................... 2,700,000 2,839,212
University of Denver Project, 6.25%, 3/01/18 ......................................................... 2,700,000 2,809,485
Regional Transportation District Sales Tax Revenue, Refunding and
Improvement, FGIC Insured, 6.25%,11/01/12.............................................................. 235,000 250,233
Pre-Refunded, 11/01/12................................................................................ 2,265,000 2,468,941
------------
107,560,253
------------
Connecticut .5%
Connecticut State Health and Educational Facilities Authority Revenue,
Danbury Hospital, Series E, MBIA Insured, 6.50%, 7/01/14 2,000,000 2,141,260
Mansfield Nursing Home, AMBAC Insured, 6.00%, 11/01/22 ............................................... 2,450,000 2,532,688
Trinity College, Series D, FGIC Insured, 6.125%, 7/01/24 ............................................. 2,000,000 2,087,700
New Haven Air Rights Parking Facility Revenue, Refunding, MBIA Insured, 6.50%, 12/01/15 .............. 2,000,000 2,157,600
------------
8,919,248
------------
Delaware .2%
Delaware State EDA, PCR, Refunding, Series B, AMBAC Insured, 6.75%, 5/01/19 .......................... 1,000,000 1,085,110
Delaware State Health Facilities Authority Revenue, Refunding,
Medical Center, MBIA Insured, 7.00%, 10/01/15 ........................................................ 2,900,000 3,084,121
------------
4,169,231
------------
District of Columbia .2%
District of Columbia HFA, RMR, Series 1986-1, FGIC Insured, 7.75%, 9/01/16 ........................... $ 875,000 $ 895,151
District of Columbia Revenue, Howard University, Series A, MBIA Insured, 8.00%, 10/01/17 ............. 2,000,000 2,045,800
------------
2,940,951
------------
Florida 4.2%
Bay Medical Center Hospital Revenue, Refunding,
Bay Medical Center Project, AMBAC Insured, 5.65%, 10/01/26 ........................................... 2,500,000 2,520,350
Cape Coral, Franchise Fees Revenue, AMBAC Insured, 5.40%, 12/01/13 ................................... 1,800,000 1,823,490
bCelebration Community Development District,
Special Assessment, Series B, MBIA Insured, 5.50%, 5/01/19 ........................................... 2,375,000 2,365,856
Dade County Seaport Revenue, Refunding, Series E, MBIA Insured, 8.00%, 10/01/08 ...................... 200,000 252,890
Florida HFA, SFMR, Series 1, FGIC Insured, 8.00%, 12/15/13 ........................................... 725,000 743,089
Florida State Municipal Power Agency Revenue, Refunding,
Stanton Project, MBIA Insured, 6.00%,10/01/15 ........................................................ 200,000 205,804
Florida State Turnpike Authority Revenue, Department of Transportation, Series A,
AMBAC Insured, Pre-Refunded, 7.20%, 7/01/11 .......................................................... 3,000,000 3,354,570
FGIC Insured, 6.35%, 7/01/22 ......................................................................... 710,000 761,851
FGIC Insured, 5.625%, 7/01/25 ........................................................................ 7,400,000 7,494,276
FGIC Insured, Pre-Refunded, 6.35%, 7/01/22 ........................................................... 1,290,000 1,408,641
Fort Myers Utility Revenue, Refunding, Series A, BIG Insured, 6.00%, 10/01/19 ........................ 25,000 25,451
Halifax Hospital Medical Center Revenue, Refunding and Improvement,
Series A, MBIA Insured, 5.25%, 10/01/15 .............................................................. 2,000,000 1,979,200
Hillsborough County IDA, PCR, Refunding, Tampa Electric Co. Project,
MBIA Insured, 6.25%, 12/01/34 ........................................................................ 1,000,000 1,081,430
Hillsborough County IDAR, University Community Hospital,
MBIA Insured, 5.80%, 8/15/24 ......................................................................... 3,000,000 3,075,600
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project,
Refunding MBIA Insured, 5.25%, 11/15/25 .............................................................. 1,500,000 1,461,120
Lee County IDA, Utilities Revenue, Refunding, Bonita Springs
Utilities Project, MBIA Insured, 6.05%,
11/01/15.............................................................................................. 1,000,000 1,055,830
11/01/20.............................................................................................. 1,000,000 1,047,830
Lee County Solid Waste Systems Revenue, MBIA Insured, 5.375%, 10/01/15 ............................... 2,000,000 1,989,600
Manatee County School Board COP, MBIA Insured, 6.125%, 7/01/21 ....................................... 5,000,000 5,306,400
North Port Utility Revenue, FGIC Insured, 6.20%, 10/01/12 ............................................ 2,000,000 2,144,900
Opa-Locka Capital Improvement Revenue, Refunding, FGIC Insured, 6.125%, 1/01/24 ...................... 1,000,000 1,063,850
Orange County Health Facilities Authority Revenue, Crossover Refunding,
Orlando Regional Healthcare, Series A,
MBIA Insured, 6.00%, 11/01/24....................................................................... 1,000,000 1,029,760
Orange County School Board COP, Series A, MBIA Insured, 5.375%, 8/01/22 .............................. 3,000,000 2,949,300
Orlando and Orange County Expressway Authority Revenue, FGIC Insured,
Junior Lien, 6.50%, 7/01/10 .......................................................................... 100,000 114,271
Junior Lien, 6.50%, 7/01/12 .......................................................................... 225,000 259,250
Refunding, Senior Lien, 5.25%, 7/01/23 ............................................................... 2,765,000 2,707,350
Orlando Utilities Commission, Water and Electric Revenue,
Series A, AMBAC Insured, 5.50%, 10/01/26.............................................................. 2,535,000 2,502,273
Osceola County School Board COP, Refunding, Series A,
AMBAC Insured, 5.50%, 6/01/19 ........................................................................ 1,000,000 1,001,970
Osceola County Transportation Revenue, Osceola Parkway Project,
MBIA Insured, 6.10%, 4/01/17 ......................................................................... 1,000,000 1,052,940
Panama City Water and Sewer Revenue, Refunding and Improvement,
AMBAC Insured, 5.625%, 6/01/19........................................................................ 1,000,000 1,010,230
Polk County IDAR, Winter Haven Hospital, Series 2,
MBIA Insured, 6.25%, 9/01/15 ......................................................................... 990,000 1,064,072
Reedy Creek Improvement District, Utilities Revenue, Refunding
, Series 1, MBIA Insured, 5.00%, 10/01/19.............................................................. 3,500,000 3,290,455
Saint Petersburg Public Utilities Revenue, MBIA Insured, 5.60%, 10/01/18 ............................. 3,910,000 3,947,692
Sumter County School District Revenue, Multi-District Loan Program,
FSA Insured, 7.15%, 11/01/15 ......................................................................... 250,000 310,195
Temple Terrace Water and Sewer Revenue, FGIC Insured,
Pre-Refunded, 6.25%, 10/01/12 ........................................................................ 1,200,000 1,296,648
Vero Beach Electric Revenue, Refunding, Series A,
MBIA Insured, 5.375%, 12/01/21 ........................................................................ 3,200,000 3,176,128
West Palm Beach Utilities System Revenue, MBIA Insured, 5.75%, 10/01/27 .............................. 5,000,000 5,093,400
------------
71,967,962
------------
Georgia 1.9%
Atlanta Water and Sewer Revenue, FGIC Insured,
5.375%, 1/01/20 ...................................................................................... 5,000,000 4,945,100
5.25%, 1/01/27 ....................................................................................... 5,000,000 4,797,550
Bartow County Water and Sewage Revenue, Refunding,
AMBAC Insured, Pre-Refunded, 8.00%, 9/01/15........................................................... 2,860,000 3,032,344
Brunswick Water and Sewer Revenue, Refunding and Improvement,
MBIA Insured, 6.10%, 10/01/14 ........................................................................ 1,535,000 1,686,336
Burke County Development Authority, PCR, Georgia Power Co.,
Vogtle Project, MBIA Insured, Seventh Series, 6.625%, 10/01/24 ....................................... 2,000,000 2,111,500
Cherokee County Water and Sewage Revenue, Refunding, MBIA Insured, 6.90%, 8/01/18 .................... 1,000,000 1,089,460
Columbia County Water and Sewage Revenue, Refunding, AMBAC Insured, 6.25%, 6/01/12 ................... 1,500,000 1,591,500
Fitzgerald Housing Authority Mortgage Revenue, Refunding,
Bridge Creek, Series A, MBIA Insured, 6.50%, 7/01/24 ................................................. 1,055,000 1,095,691
Georgia (cont.)
Fulton and De Kalb County Hospital Authority Revenue, COP,
Grady Memorial Hospital Project, AMBAC Insured, Pre-Refunded, 6.90%,
1/01/15 ............................................................................................. $ 200,000 $ 219,406
Macon and Bibb County Urban Development Authority Revenue,
Refunding, Multifamily Housing, Series A, MBIA Insured, 5.55%, 1/01/24 ............................... 1,590,000 1,583,306
Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue,
Series A, Refunding, Second Indenture, MBIA Insured, 5.625%,
7/01/20 ............................................................................................. 5,000,000 5,033,800
Municipal Electric Authority of Georgia, Project One, Subseries A,
Refunding, MBIA Insured, 5.375%, 1/01/19 .............................................................. 5,000,000 4,927,800
------------
32,113,793
------------
Hawaii 1.1%
Hawaii County GO, Refunding and Improvement, Series A, FGIC Insured, 5.60%,
5/01/12 .............................................................................................. 1,000,000 1,046,880
5/01/13............................................................................................... 1,000,000 1,043,500
Hawaii State Airports System Revenue, Second Series, FGIC Insured, 7.50%, 7/01/20 .................... 5,000,000 5,474,450
Hawaii State Department of Budget and Finance, Special Purpose Mortgage Revenue,
Hawaiian Electric Co., MBIA Insured, 6.55%, 12/01/22 ................................................. 3,000,000 3,233,580
Refunding, St. Francis Medical Centers, FSA Insured, 6.50%, 7/01/22 .................................. 4,000,000 4,304,560
Hawaii State Department of Budget and Finance, Special Purpose Revenue,
Hawaiian Electric Co. Project, Series B, MBIA Insured, 5.875%,
12/01/26 ............................................................................................ 2,000,000 2,051,940
Hawaii State Harbor Capital Improvement Revenue, FGIC Insured, 6.40%,
7/01/05............................................................................................... 535,000 584,060
7/01/06 .............................................................................................. 605,000 657,738
7/01/07 .............................................................................................. 610,000 660,417
------------
19,057,125
------------
Idaho .1%
Idaho State University at Boise Revenue, Student Fees, MBIA Insured, 6.50%, 4/01/19 .................. 1,000,000 1,095,640
------------
Illinois 3.4%
Aurora SFMR, GNMA Secured, AMBAC Insured, 7.80%, 12/01/15 ............................................ 460,000 478,869
Bloomingdale Waterworks and Sewer Revenue, MBIA Insured, 7.80%, 5/01/06 .............................. 270,000 274,312
bBlue Island Waterworks and Sewer Revenue, MBIA Insured, 5.55%, 12/01/24 .............................. 2,270,000 2,260,239
Central Lake County Joint Action Water Agency, Interim Revenue,
Series A, AMBAC Insured, Pre-Refunded, 7.00%, 5/01/19 ................................................ 100,000 108,756
Chicago Board of Education Lease, Series A, Refunding, MBIA Insured, 6.25%, 1/01/09 .................. 320,000 356,294
Chicago Central Public Library, Series B, AMBAC Insured,
6.70%, 1/01/06 ....................................................................................... 1,800,000 1,982,718
6.75%, 1/01/07 ....................................................................................... 1,800,000 1,986,390
Chicago Heights, MBIA Insured, Pre-Refunded, 7.40%, 12/01/03 ......................................... 100,000 111,279
Chicago Public Building Commission Revenue, Community College
District No. 508, Series A, MBIA Insured, ETM, Pre-Refunded, 7.70%,
1/01/08 ............................................................................................. 1,600,000 1,651,376
Chicago Waste Water Transmission Revenue, AMBAC Insured, Pre-Refunded, 7.20%, 11/15/19 ............... 100,000 108,271
Cicero GO, FSA Insured, 6.90%, 12/01/12 .............................................................. 1,500,000 1,651,530
Cook County Community College District No. 508, COP, FGIC Insured,
8.50%, 1/01/02 ....................................................................................... 7,470,000 8,619,035
8.75%, 1/01/05 ....................................................................................... 5,000,000 6,210,550
Des Plains Hospital Facility Revenue, Refunding, Holy Family
Hospital, AMBAC Insured, 9.25%, 1/01/14................................................................ 750,000 754,088
Evergreen Park, Hospital Facility Revenue, Refunding, Little Co. of Mary
Hospital, Inc., MBIA Insured, 7.75%, 2/15/09 ......................................................... 2,000,000 2,068,440
Franklin Park Alternate Revenue, AMBAC Insured, Pre-Refunded, 6.85%, 7/01/22 ......................... 500,000 563,680
Illinois Health Facilities Authority Revenue,
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.35%, 8/15/10 ........................ 4,452,000 4,963,579
Methodist Health Services Corp., Series G, BIG Insured, 8.00%, 8/01/15 ............................... 2,595,000 2,777,558
Michael Reese Hospital, Series A, FSA Insured, ETM, 7.60%, 2/15/05 ................................... 4,280,000 4,888,958
Refunding, Series B, MBIA Insured, ETM, 7.90%, 8/15/03 ............................................... 403,000 461,133
Series 1990, FSA Insured, 7.75%, 8/15/10 ............................................................. 2,525,000 2,791,842
Series 1990, FSA Insured, ETM, 7.75%, 8/15/10 ........................................................ 105,000 131,357
Series B, MBIA Insured, 7.90%, 8/15/03 ............................................................... 2,025,000 2,079,716
Silver Cross Hospital, MBIA Insured, 7.00%, 8/15/21 .................................................. 1,000,000 1,090,640
Illinois State COP, FSA Insured, 6.95%, 7/01/13 ...................................................... 5,750,000 6,307,693
Illinois (cont.)
Macon County and Decatur COP, Decatur Public Building
Commission, FGIC Insured, 6.50%, 1/01/06............................................................... $ 300,000 $ 332,247
Onterie Center Project, HFC, Mortgage Revenue, Refunding,
Series A, MBIA Insured, 7.05%, 7/01/27................................................................ 2,000,000 2,131,420
Regional Transportation Authority, Series A, AMBAC Insured, 7.20%, 11/01/20 .......................... 300,000 369,936
------------
57,511,906
------------
Indiana 1.4%
Carroll County Consolidated School Building Corp., Refunding,
First Mortgage, AMBAC Insured, 7.625%, 1/01/04 ....................................................... 1,000,000 1,030,800
Fort Wayne Hospital Authority Revenue, Ancillary System, Inc.,
Parkview Memorial Hospital Project, Series A, FGIC Insured, 7.50%, 11/15/11 .......................... 250,000 271,023
Refunding, Series C, BIG Insured, Pre-Refunded, 8.125%, 7/01/18 ...................................... 2,000,000 2,160,820
Indiana Health Facility Financing Authority Hospital Revenue,
MBIA Insured, Refunding and Improvement,
Community Hospital Project, 6.40%, 5/01/12 .......................................................... 250,000 266,828
Indianapolis Airport Authority, Indianapolis International
Airport Revenue, BIG Insured, 8.30%, 7/01/18.......................................................... 10,000,000 10,490,200
Indianapolis Gas Utility Revenue, Refunding, Series B,
FGIC Insured, 4.00%, 6/01/15 ......................................................................... 500,000 410,730
Jasper County PCR, Refunding, Collateralized, Northern Indiana
Public Service Co., MBIA Insured, 7.10%, 7/01/17 ...................................................... 500,000 543,460
Monroe County Hospital Authority Revenue, Refunding,
Bloomington Hospital Project, BIG Insured, 7.125%, 5/01/11 ........................................... 6,000,000 6,326,880
Patoka Lake Regional Water and Sewer District, Waterworks
Revenue, Series A, AMBAC Insured, 6.45%, 1/01/15 ..................................................... 1,500,000 1,598,145
Rockport PCR, Refunding, Michigan Power Co., Series B, FGIC Insured, 7.60%, 3/01/16 .................. 185,000 205,235
------------
23,304,121
------------
Iowa .4%
Davenport Hospital Facility Revenue, Mercy Hospital Project, MBIA Insured, 6.625%, 7/01/14 ........... 4,040,000 4,372,613
Davenport Hospital Revenue, St. Lukes Hospital, Series A, AMBAC Insured, 7.40%, 7/01/20 .............. 200,000 217,730
Greater Iowa Housing Assistance Corp., Mortgage Revenue,
Refunding, Logan Park Project, Series B, MBIA Insured, 6.50%, 1/01/24 ................................ 2,130,000 2,217,500
6,807,843
Kansas .6%
Burlington PCR, Refunding, Kansas Gas and Electric Co. Project, MBIA Insured, 7.00%, 6/01/31 ......... 3,350,000 3,680,880
Cowley and Shawnee Counties, SFMR, GNMA Secured, AMBAC Insured, 7.35%, 12/01/11 ...................... 1,200,000 1,269,276
Kansas State Development Finance Authority, Health Facility Revenue, MBIA Insured, 5.80% 11/15/21..... 1,330,000 1,369,009
Wichita Hospital Revenue, Refunding and Improvement, St. Francis, MBIA Insured, 6.25%, 10/01/10 ...... 2,000,000 2,149,340
Wichita Water and Sewer Utility Revenue, Refunding and Improvement,
Series B, FGIC Insured, 6.00%, 10/01/12 .............................................................. 1,000,000 1,035,560
------------
9,504,065
------------
Kentucky 1.1%
Danville Multi-City Lease Revenue, Sewer and Drain System, Series G,
MBIA Insured, Pre-Refunded, 6.75%, 3/01/11 ........................................................... 2,000,000 2,218,220
Jefferson County Capital Projects Corp., Leasehold Revenue, MBIA Insured,
5.375%, 6/01/22 ...................................................................................... 2,000,000 1,968,880
5.50%, 6/01/28 ....................................................................................... 3,000,000 2,982,090
Jefferson County Health Facilities Revenue, Jewish Hospital Healthcare
Services, Inc., AMBAC Insured, 6.55%, 5/01/22 ........................................................ 1,000,000 1,082,550
Kenton County Water District No. 001, Waterworks Revenue,
Series B, FGIC Insured, 5.70%, 2/01/20................................................................ 1,250,000 1,271,575
Kentucky Economic Development Financing Authority,
Hospital Facilities Revenue, Baptist Healthcare System, Refunding,
MBIA Insured, 5.00%, 8/15/24.......................................................................... 2,000,000 1,844,440
Hospital Facilities Revenue, St. Elizabeth Medical Center Project,
Series A, FGIC Insured, 6.00%, 12/01/22 ............................................................... 2,375,000 2,473,848
Medical Center Revenue, Refunding and Improvement, Ashland Hospital Corp.,
Series A, FSA Insured, 6.125%, 2/01/12 ............................................................... 1,000,000 1,061,890
Louisville and Jefferson County Metropolitan Sewer District, Sewer and Drain System Revenue,
FGIC Insured, Pre-Refunded, 7.35%, 5/01/19 ........................................................... 100,000 109,628
Refunding, Series A, AMBAC Insured, 6.75%, 5/15/25 ................................................... 2,000,000 2,289,580
Northern Kentucky University COP, Student Housing Facilities, FSA Insured, 7.25%, 1/01/12 ............ 2,000,000 2,171,300
------------
19,474,001
------------
Louisiana .1%
Jefferson Sales Tax District, Special Sales Tax Revenue, Refunding,
Series A, BIG Insured, Pre-Refunded, 8.00%, 7/01/05 .................................................. 1,700,000 1,813,730
Louisiana Regional Transit Authority Revenue, Refunding, FGIC Insured, 8.00%, 12/01/13 ............... 150,000 159,584
New Orleans Public Improvement, FGIC Insured, Pre-Refunded, 7.50%, 9/01/21 ........................... 500,000 567,585
------------
2,540,899
------------
Maine .7%
Maine Health and Higher Educational Facilities Authority Hospital Revenue,
Eastern Maine Health Care, FGIC Insured, 6.625%,
10/01/11 ............................................................................................ $ 2,000,000 $ 2,175,040
Maine Health and Higher Educational Facilities Authority Revenue, FSA Insured,
Series B, 7.00%, 7/01/24 ............................................................................. 2,000,000 2,230,140
Series C, 6.20%, 7/01/25 ............................................................................. 2,015,000 2,125,462
Maine State Turnpike Authority Revenue, MBIA Insured, 6.00%,
7/01/14 .............................................................................................. 525,000 554,757
7/01/18............................................................................................... 2,500,000 2,623,650
Old Orchard Beach GO, MBIA Insured, 6.65%,
9/01/11............................................................................................... 1,180,000 1,298,248
9/01/12 .............................................................................................. 535,000 587,109
------------
11,594,406
------------
Maryland .4%
Maryland State Health and Higher Educational Facilities Authority Revenue,
University of Maryland Medical System, FGIC Insured,
Refunding, 5.00%, 7/01/20 ............................................................................ 3,000,000 2,832,120
Series B, 7.00%, 7/01/22 ............................................................................. 200,000 243,450
Maryland State Housing and Community Development Administration
Department, Infrastructure Financing, Series A, AMBAC Insured,
6.625%, 6/01/12 ...................................................................................... 2,000,000 2,164,480
6.70%, 6/01/22 ....................................................................................... 820,000 898,384
------------
6,138,434
------------
Massachusetts 5.7%
Boston Water and Sewer Commission Revenue, Series A, FGIC Insured, 6.00%, 11/01/21 ................... 3,700,000 3,793,795
Massachusetts Municipal Wholesale Electric Co., Power Supply System
Revenue, Refunding, Series A, AMBAC Insured, 6.00%,
7/01/18 ............................................................................................. 4,455,000 4,559,202
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ...................................... 10,000,000 10,361,500
Beverly Hospital, Series E, MBIA Insured, Pre-Refunded, 7.70%, 7/01/20 ............................... 1,500,000 1,662,900
Fallon Health Care System, Series A, FSA Insured, Pre-Refunded, 6.75%, 6/01/20 ....................... 12,555,000 13,820,670
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 ................................. 1,000,000 981,430
Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 7/01/20 .............................. 9,220,000 9,642,092
Massachusetts Medical Center, Series A, AMBAC Insured, 7.10%, 7/01/21 ................................ 1,000,000 1,097,560
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 ..................................... 8,500,000 9,235,930
Refunding, Mclean Hospital, Series C, FGIC Insured, 6.625%, 7/01/15 .................................. 1,085,000 1,184,093
Stonehill College, Refunding, Series E, MBIA Insured, 6.60%, 7/01/20 ................................. 2,000,000 2,171,500
Youville Hospital, Refunding, Series B, MBIA Insured, 6.00%, 2/15/25 ................................. 2,000,000 2,076,340
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, 6.50%, 10/01/22 .............................................. 3,000,000 3,232,020
Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19 ......................................... 5,000,000 5,334,850
Refunding, Combined Jewish Philanthropies, Series A, AMBAC Insured, 6.375%, 2/01/15 .................. 5,000,000 5,411,150
bSuffolk University, AMBAC Insured, 5.25%, 7/01/17 ................................................... 3,000,000 2,924,010
Massachusetts State Port Authority Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 7/01/23 .................................................... 4,000,000 4,094,760
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/20 ................................... 1,590,000 1,584,785
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/21 ................................... 1,560,000 1,554,774
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/23 ................................... 2,155,000 2,147,522
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/24 ................................... 2,910,000 2,899,728
Massachusetts State Water Resources Authority, Series A, FGIC Insured, 5.50%, 11/01/21 ............... 3,000,000 2,991,780
Monson GO, School District, Series 1990, MBIA Insured, Pre-Refunded, 7.70%, 10/15/10 ................. 2,000,000 2,234,220
Palmer GO, Series B, AMBAC Insured, Pre-Refunded, 7.70%, 10/01/10 .................................... 2,300,000 2,566,777
------------
97,563,388
------------
Michigan 3.0%
Chippewa Valley School Building and Site, FGIC Insured, Pre-Refunded, 6.375%, 5/01/06 ................ 100,000 108,231
Clarkston Community Schools, MBIA Insured, 5.25%, 5/01/23 ............................................ 3,750,000 3,591,788
Michigan (cont.)
Detroit Sewerage Disposal Revenue, MBIA Insured, 5.00%, 7/01/25 ...................................... $ 6,000,000 $ 5,534,520
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/27 .......................................... 7,250,000 7,145,093
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue,
Refunding and Improvement, Bronson Methodist, MBIA Insured,
5.875%, 5/15/26 ...................................................................................... 5,500,000 5,606,645
Series A, 6.375%, 5/15/17 ............................................................................ 2,000,000 2,140,160
Kent Hospital Finance Authority, Health Care Revenue, Butterworth Health System,
Series A, MBIA Insured, 5.625%, 1/15/26 .............................................................. 10,000,000 10,003,100
Marquette City Hospital Finance Authority Revenue, Refunding,
Marquette General Hospital, Series D, FSA Insured, 6.10%, 4/01/19 .................................... 5,000,000 5,270,700
Michigan State Hospital Finance Authority Revenue, St. John's Hospital, AMBAC Insured,
5.25%, 5/15/26 ....................................................................................... 3,000,000 2,883,750
Refunding, Series A, 6.00%, 5/15/13 ................................................................... 2,500,000 2,615,625
Michigan State Strategic Fund, Limited Obligation Revenue, Refunding, Detroit Edison Co.,
FGIC Insured, 6.875%, 12/01/21 ....................................................................... 200,000 216,358
Series BB, AMBAC Insured, 7.00%, 5/01/21 ............................................................. 250,000 303,050
Rochester Community School District, MBIA Insured, 5.00%, 5/01/19 .................................... 2,000,000 1,908,240
Zeeland Public Schools, Refunding, MBIA Insured, 5.25%, 5/01/24 ...................................... 3,180,000 3,039,285
------------
50,366,545
------------
Minnesota 2.3%
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 .................. 2,000,000 2,088,300
Minnesota Agricultural and Economic Development Board Revenue,
Refunding, Health Care System, Fairview Hospital, Series A,
MBIA Insured, 5.75%. 11/15/26 ....................................................................... 5,000,000 5,096,150
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22 ............... 2,275,000 2,345,729
Minneapolis-St. Paul Housing Finance Board, MFMR, GNMA Secured,
Mortgage Loan, Riverside Plaza Project, 8.20%, 12/20/18 .............................................. 4,000,000 4,148,480
Northern Municipal Power Agency, Minnesota Electric System Revenue,
Refunding, Series B, AMBAC Insured, 5.50%, 1/01/18 ................................................... 2,100,000 2,106,090
Southern Minnesota Municipal Power Agency, Power Supply System Revenue,
Series A, AMBAC Insured, 5.75%, 1/01/18 .............................................................. 2,870,000 2,945,567
St. Louis Park Health Care Facilities Revenue, Healthsystem of Minnesota-Obligated Group,
Refunding, Series A, AMBAC Insured,
5.20%, 7/01/16 ...................................................................................... 8,200,000 7,950,474
Washington County, Raymie Johnson Apartments, Series C,
Refunding, FGIC Insured, 6.30%, 1/01/20............................................................... 2,415,000 2,577,843
Washington County Governmental Housing, Scandia II, Series B,
FGIC Insured, 6.30%, 7/01/24 ......................................................................... 1,200,000 1,280,916
Western Minnesota Municipal Power Agency, Power Supply Revenue,
Series A, MBIA Insured, 6.125%, 1/01/16 .............................................................. 8,775,000 8,804,133
------------
39,343,682
------------
Mississippi
Harrison County Waste Water Management District Revenue, Refunding,
Waste Water Treatment Facilities, Series A, FGIC Insured,
8.50%, 2/01/13 ...................................................................................... 200,000 272,470
Mississippi HFC, SFMR, Refunding, Series A, FGIC Insured, 7.70%, 10/15/08 ............................ 10,000 10,270
------------
282,740
------------
Missouri 1.6%
Branson Reorganization School District No. R-4, Refunding and Improvement,
FSA Insured, Pre-Refunded, 6.20%, 3/01/06 ............................................................ 2,000,000 2,064,540
Cape Girardeau County IDA, Health Care Facilities Revenue,
Refunding, Southeast Missouri Hospital Association, MBIA Insured,
5.25%, 6/01/16 ...................................................................................... 1,000,000 991,670
Missouri HDC, SFMR, Series B, GNMA Secured, 7.75%, 6/01/22 ........................................... 1,350,000 1,426,410
Missouri School Board Lease Association, COP, Series R-III,
School District Project, MBIA Insured, Pre-Refunded, 6.875%, 3/01/11 ................................. 1,000,000 1,086,030
Missouri State Health and Educational Facilities Authority,
Health Facilities Revenue, Heartland Health System Project, AMBAC Insured,
6.35%, 11/15/17 ..................................................................................... 1,000,000 1,068,420
Missouri State Health and Educational Facilities Authority Revenue,
Sisters of St. Mary's Health Care Project, Series A, BIG Insured,
Pre-Refunded, 7.75%, 6/01/16 ........................................................................ 7,500,000 7,865,475
St. Charles County Public Facilities Authority Leasehold Revenue, FGIC Insured, 6.375%, 3/15/07 ...... 2,850,000 3,092,535
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 ..................................... 460,000 477,512
St. Louis Municipal Finance Corp., Leasehold Revenue,
City Justice Center, Series A, AMBAC Insured, 5.95%, 2/15/16 ......................................... 2,000,000 2,091,760
Refunding and Improvement, Refunded, FGIC Insured, Pre-Refunded, 6.25%, 2/15/12 ...................... 2,025,000 2,240,318
St. Louis School District GO, Refunding, FGIC Insured, 6.00%, 4/01/12 ................................ 2,950,000 3,107,973
Washington County GO, Pauwels Transformers Project, Series A, FGIC Insured, 7.60%, 12/01/09 .......... 1,250,000 1,282,750
------------
26,795,393
------------
Montana 1.4%
Forsyth PCR, Refunding,
Puget Sound Power and Light Project, AMBAC Insured, 6.80%, 3/01/22 ................................... $ 4,475,000 $ 4,861,461
Washington Water Co., Series A, MBIA Insured, 7.125%, 12/01/13 ....................................... 5,000,000 5,363,550
Helena Water Revenue, Series C, FGIC Insured, 6.65%, 11/01/12 ........................................ 750,000 819,983
Montana State Board, Workers Compensation Investment Program, MBIA Insured, ETM, 6.875%,
6/01/20 .............................................................................................. 1,560,000 1,705,189
6/01/20 .............................................................................................. 4,545,000 4,968,003
6/01/20 .............................................................................................. 2,395,000 2,617,903
Montana State University Revenue, Higher Education Facilities,
Acquisition and Improvement, Series C, MBIA Insured, 6.00%,
11/15/14 ............................................................................................ 1,000,000 1,001,810
Montana Water System Revenue, Butte-Silver Bow Project, FGIC Insured, 6.50%, 11/01/14 ................ 3,000,000 3,273,000
------------
24,610,899
------------
Nebraska 2.1%
Cass County School District No. 001, Plattsmouth Community Schools,
FGIC Insured, 6.35%,12/01/19.......................................................................... 2,500,000 2,587,175
Lancaster County Hospital Authority Revenue, Bryan Memorial
Hospital Project No. 1, MBIA Insured, 6.70%, 6/01/22 ................................................. 2,500,000 2,731,175
Lincoln Electric System Revenue, Refunding, Series A, MBIA Insured, 5.25%, 9/01/15 ................... 3,000,000 2,969,010
Lincoln Hospital Revenue, Refunding, Lincoln General Hospital,
Series A, FSA Insured, 6.20%, 12/01/14 ............................................................... 2,000,000 2,126,640
Municipal Energy Agency of Nebraska, Power Supply System Revenue,
Refunding, Series A, AMBAC Insured, 6.00%,
4/01/15............................................................................................... 2,000,000 2,104,140
4/01/17............................................................................................... 1,350,000 1,412,478
Nebraska Educational Finance Authority Revenue, Creighton University Project,
AMBAC Insured, 5.95%, 1/01/11 ........................................................................ 1,000,000 1,057,050
Nebraska Investment Finance Authority, SFMR, Refunding,
Series 1, GNMA Secured, MBIA Insured, 8.125%, 8/15/38 ................................................ 395,000 409,915
Series B, FGIC Insured, 8.00%, 7/15/17 ............................................................... 3,470,000 3,611,368
Series R1-A, FGIC Insured, 8.00%, 7/15/17 ............................................................ 265,000 272,266
Nebraska Public Power District, Revenue, Power System, MBIA Insured,
Refunding, Series B, 5.25%, 1/01/13................................................................... 5,000,000 4,942,600
Series A, 5.25%, 1/01/22 ............................................................................. 12,200,000 11,856,326
------------
36,080,143
------------
Nevada .5%
Carson City Hospital Revenue, Series B, AMBAC Insured, 5.40%, 3/01/17 ................................ 1,000,000 991,660
Clark County GO, Series A, AMBAC Insured, 6.50%, 6/01/17 ............................................. 250,000 286,088
Clark County School District, Series A, MBIA Insured, 7.00%, 6/01/10 ................................. 4,000,000 4,738,440
Reno Hospital Revenue, Refunding, St. Mary's Regional Medical
Center, Series A, MBIA Insured, 7.75%, 7/01/07 ....................................................... 10,000 10,489
Sparks Public Safety, GO, AMBAC Insured, Pre-Refunded, 7.50%, 10/01/09 ............................... 1,695,000 1,841,363
------------
7,868,040
------------
New Hampshire 1.2%
New Hampshire Higher Educational and Health Facilities Authority Revenue,
Mary Hitchcock Memorial Hospital, FGIC Insured, 5.75%, 8/15/23 ....................................... 11,000,000 11,145,310
Refunding, Concord Hospital, AMBAC Insured, 6.00%, 10/01/26 .......................................... 4,300,000 4,440,266
Refunding, University System, MBIA Insured, 6.25%, 7/01/20 ........................................... 4,000,000 4,163,800
------------
19,749,376
------------
New Jersey 2.2%
Camden County Municipal Utilities Authority, Sewer Revenue, FGIC Insured, 8.25%, 12/01/17 ............ 2,050,000 2,112,320
Essex County Improvement Authority Lease, Jail and Youth House Projects, AMBAC Insured,
Pre-Refunded, 7.00%, 12/01/24 ........................................................................ 3,000,000 3,502,320
Refunding, 5.35%, 12/01/24 ........................................................................... 4,250,000 4,142,560
Essex County Improvement Authority Revenue, Garden State Cancer
Center Project, AMBAC Insured, 6.00%, 12/01/20 ........................................................ 2,525,000 2,632,641
Hoboken Union City, Weehawken Sewer Authority Revenue,
MBIA Insured, Pre-Refunded, 7.25%, 8/01/19 ........................................................... 90,000 96,900
Hudson County COP, Correctional Facility, BIG Insured, Pre-Refunded, 7.60%, 12/01/21 ................. 5,000,000 5,313,800
Lacey Municipal Utilities Authority, Water Revenue, MBIA Insured,
6.10%, 12/01/23 ...................................................................................... 2,500,000 2,621,700
6.25%, 12/01/24 ...................................................................................... 3,255,000 3,466,054
New Jersey (cont.)
Mantua Township, New Jersey School District COP, MBIA Insured,
Pre-Refunded, 7.25%, 6/30/10 .......................................................................... $ 1,700,000 $ 1,871,513
Mount Laurel Township Municipal Utilities Authority System Revenue,
Refunding, Series A, MBIA Insured, 6.00%, 7/01/15 .................................................... 2,000,000 2,103,660
New Jersey Health Care Facilities Financing Authority Revenue,
Community Medical Center, Series D, MBIA Insured, 6.00%, 7/01/19 ..................................... 2,000,000 2,025,600
Jersey Shore Memorial Hospital, Series B, AMBAC Insured, Pre-Refunded, 8.00%, 7/01/18 ................ 2,860,000 3,013,067
Muhlenberg Regional Medical Center, Series B, AMBAC Insured, 8.00%, 7/01/18 .......................... 3,000,000 3,155,490
New Jersey HFA, Home Buyer Revenue, Series C, MBIA Insured, 7.375%, 10/01/17 ......................... 485,000 505,506
New Jersey State Turnpike Authority Revenue, Refunding, Series C, AMBAC Insured, 6.50%, 1/01/16....... 300,000 344,535
North Bergen Township Municipal Utilities Authority Sewer Revenue,
FGIC Insured, Pre-Refunded, 7.625%, 12/15/19 ......................................................... 100,000 103,066
------------
37,010,732
------------
New Mexico .7%
Albuquerque Airport Revenue, Series B, AMBAC Insured, 7.00%, 7/01/16 ................................. 3,600,000 3,626,748
Farmington PCR, Refunding, Public Service Co. of New Mexico,
Series A, AMBAC Insured, 6.375%, 12/15/22 ............................................................ 5,000,000 5,314,450
Gallup PCR, Refunding, Plains Electric Generation, MBIA Insured, 6.65%, 8/15/17 ...................... 2,000,000 2,194,640
New Mexico Mortgage Finance Authority, SFMR, Series C,
FGIC Insured, 8.625%, 7/01/17 ........................................................................ 1,155,000 1,190,100
------------
12,325,938
------------
New York 8.1%
Central Square School District, FGIC Insured, 6.50%, 6/15/10 ......................................... 900,000 1,013,553
Metropolitan Transportation Authority Service Contract, Refunding,
Series K, AMBAC Insured, Pre-Refunded, 7.50%, 7/01/17 ................................................ 1,585,000 1,663,458
New York City GO, Series C, Subseries C-1, MBIA Insured, 6.625%, 8/01/12 ............................. 105,000 114,968
New York City Municipal Water Finance Authority, Water and Sewer System Revenue,
Series A, FGIC Insured, Pre-Refunded, 6.75%, 6/15/14 ................................................. 430,000 456,101
Series A, MBIA Insured, Pre-Refunded, 7.25%, 6/15/15 ................................................. 2,000,000 2,182,300
Series C, AMBAC Insured, 6.20%, 6/15/21 .............................................................. 5,000,000 5,289,200
New York City Trust for Cultural Resources Revenue, New York
Botanical Garden, MBIA Insured, 5.80%, 7/01/26 ....................................................... 2,000,000 2,044,880
New York State Dormitory Authority Revenues,
Brooklyn Law School, FSA Insured, 6.40%, 7/01/11 ..................................................... 4,000,000 4,290,520
City University System, Series C, FGIC Insured, 7.00%, 7/01/14 ....................................... 8,655,000 9,355,622
Pace University, MBIA Insured, 5.70%, 7/01/22 ........................................................ 7,500,000 7,661,175
Pace University, MBIA Insured, 5.75%, 7/01/26 ........................................................ 2,500,000 2,564,525
Pooled Capital Program, FGIC Insured, 7.80%, 12/01/05 ................................................ 4,980,000 5,247,575
Refunding, Mt. Sinai School of Medicine, MBIA Insured, 6.75%, 7/01/15 ................................ 1,500,000 1,625,985
St. John's University, MBIA Insured, 5.70%, 7/01/26 .................................................. 15,000,000 15,240,900
New York State Energy Research and Development Authority, PCR,
Central Hudson Gas, Series A, FGIC Insured, 7.375%, 10/01/14 ......................................... 2,000,000 2,174,000
Refunding, Niagara Mohawk Power Corp., Series A, FGIC Insured, 6.625%, 10/01/13 ...................... 3,500,000 3,799,530
Refunding, Rochester Gas and Electric Project, Series B, MBIA Insured, 6.75%, 1/15/27 ................ 5,000,000 5,336,950
Refunding, Rochester Gas and Electric Project, Series B, MBIA Insured, 6.50%, 5/15/32 ................ 5,000,000 5,358,850
New York State Local Government Assistance Corp., Refunding, Series C,
MBIA Insured, 5.00%, 4/01/21 ......................................................................... 5,415,000 5,032,484
New York State Medical Care Facilities, Financing Agency Revenue, MBIA Insured,
North Shore University Hospital, Mortgage Project, Series A, 7.20%, 11/01/20 ......................... 3,000,000 3,276,720
St. Lukes Hospital, Series B, Pre-Refunded, 7.45%, 2/15/29 ........................................... 5,000,000 5,470,450
New York State Thruway Authority, General Revenue,
Series B, MBIA Insured, 5.00%, 1/01/20 ............................................................... 6,635,000 6,235,241
Series C, FGIC Insured, 6.00%, 1/01/25 ............................................................... 7,815,000 8,136,822
Niagara Frontier Transportation Authority, Airport Revenue,
Greater Buffalo International Airport, Series A, AMBAC Insured, 6.25%, 4/01/24 ....................... 9,000,000 9,500,130
Port Authority of New York and New Jersey, Consolidated,
102nd Series, MBIA Insured, 5.625%, 10/15/17 ......................................................... 5,000,000 5,065,350
102nd Series, MBIA Insured, 5.875%, 10/15/27 ......................................................... 10,000,000 10,158,800
109th Series, FGIC Insured, 5.375%, 7/15/22 .......................................................... 10,000,000 9,857,600
------------
138,153,689
------------
North Carolina .1%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ......................................... $ 1,000,000 $ 1,014,540
North Carolina Municipal Power Agency No. 1, Catawba
Electric Revenue, MBIA Insured, 6.50%, 1/01/10 ....................................................... 80,000 85,041
ETM, 1/01/10 ......................................................................................... 20,000 22,488
------------
1,122,069
------------
North Dakota .6%
Grand Forks Health Care System Revenue, Altru Health System
Obligation Group, MBIA Insured, 5.625%, 8/15/27 ...................................................... 9,785,000 9,749,480
North Dakota State Building Authority Lease Revenue, Series B,
Department of Corrections and Rehabilitation, AMBAC Insured,
Pre-Refunded, 7.40%, 6/01/10 ........................................................................ 150,000 162,294
North Dakota State Building Authority Revenue, Refunding,
Series A, AMBAC Insured, 6.75%, 6/01/11................................................................ 300,000 320,211
------------
10,231,985
------------
Ohio 3.0%
Akron Waterworks Mortgage Revenue, AMBAC Insured,
Pre-Refunded, 6.55%, 3/01/12 .......................................................................... 2,000,000 2,185,740
Clermont County, Refunding, Building and Road Improvement,
AMBAC Insured, 5.60%, 9/01/14 ......................................................................... 2,000,000 2,042,580
Cleveland Waterworks First Mortgage Revenue, Series F, AMBAC Insured, 6.50%,
1/01/11............................................................................................... 1,625,000 1,767,383
Pre-Refunded, 1/01/11 ................................................................................ 1,375,000 1,513,133
Cuyahoga County Hospital Revenue, Metrohealth Systems Project,
MBIA Insured, 6.00%, 2/15/19 ......................................................................... 1,080,000 1,098,079
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 ........................ 1,750,000 1,856,050
Lucas County Hospital Revenue, St. Vincent Medical Center, MBIA Insured, 6.625%, 8/15/22 ............. 3,000,000 3,306,840
Montgomery County Hospital Facilities Revenue, Kettering Medical
Center Facilities, MBIA Insured, Pre-Refunded, 7.50%, 4/01/14 ........................................ 12,720,000 13,651,740
Ohio HFA, SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 ............................................... 3,675,000 3,870,547
bOhio State Turnpike Commission, Turnpike Revenue,
Series A, MBIA Insured, 5.50%, 2/15/26 ............................................................... 15,900,000 15,876,627
West Holmes Local School District, MBIA Insured, 5.375%, 12/01/17 .................................... 3,350,000 3,323,167
------------
50,491,886
------------
Oklahoma 1.1%
Grady County HFA, SFMR, Refunding, Series A, FGIC Insured, 6.70%, 1/01/12 ............................ 595,000 632,693
McGee Creek Authority Water Revenue, MBIA Insured, 6.00%, 1/01/23 .................................... 300,000 326,409
Moore Public Works Authority Revenue, Refunding, AMBAC Insured, 7.60%, 7/01/06 ....................... 5,000,000 5,369,550
Muskogee County, HFAR, Refunding, SFMR, Series A, FGIC Insured, 7.60%, 12/01/10 ...................... 770,000 803,333
Oklahoma State Turnpike Authority Revenue, Series A, AMBAC Insured, 6.00%, 1/01/12 ................... 2,000,000 2,125,900
Owasso Public Works Authority, Public Improvement Revenue, FSA Insured, 7.40%, 11/01/07 .............. 1,255,000 1,315,002
Pottawatomie County Development Authority Water Revenue, North Deer
Creek Reservoir Project, AMBAC Insured, Pre-Refunded,
7.375%, 7/01/26 ..................................................................................... 250,000 275,008
Tulsa County HFAR, GNMA Secured,
Series A, 8.30%, 12/01/19 ............................................................................ 4,220,000 4,401,333
Series D, 6.95%, 12/01/22 ............................................................................ 315,000 331,352
Tulsa Industrial Authority Revenue, Holland Hall School Project,
FSA Insured, 6.75%, 12/01/14 ......................................................................... 3,270,000 3,613,154
------------
19,193,734
------------
Oregon 1.8%
Chemeketa Community College District, FGIC Insured, 5.95%, 6/01/16 ................................... 3,000,000 3,188,640
Clackamas Oregon Community College District, MBIA Insured, 5.80%, 6/01/26 ............................ 2,955,000 3,025,861
Deschutes and Jefferson Counties School District No. 2-J, Redmond,
MBIA Insured, 5.60%, 6/01/09 ......................................................................... 1,500,000 1,554,900
Josephine County School District No. 7, FGIC Insured, 5.70%, 6/01/13 ................................. 5,000,000 5,184,850
Northern Wasco County Peoples Utilities District, Electric Revenue,
FGIC Insured, 5.625%, 12/01/22 ....................................................................... 1,000,000 1,012,480
Ontario Catholic Health Corp., Hospital Facilities Authority Revenue,
Holy Rosary Medical Facility, Refunding, Series C, MBIA Insured,
5.50%, 11/15/12 ..................................................................................... 700,000 713,622
Oregon Health Sciences University Revenue, Series B, MBIA Insured, 5.25%, 7/01/15 .................... 1,500,000 1,493,010
Oregon State Department of Administrative Services, COP, Series A,
AMBAC Insured, 5.80%, 5/01/24 ........................................................................ 5,000,000 5,184,650
MBIA Insured, 5.70%, 5/01/17 ......................................................................... 1,000,000 1,030,610
Port of Portland International Airport Revenue, Portland International Airport,
Series 11, FGIC Insured, 5.625%, 7/01/26 ............................................................. 1,000,000 1,000,310
Oregon (cont.)
Washington County Unified Sewer Agency Revenue,
Refunding, Senior Lien, Series A, AMBAC Insured, 6.125%, 10/01/12 .................................... $ 1,000,000 $ 1,097,490
Senior Lien, FGIC Insured, 5.50%, 10/01/16 ........................................................... 1,845,000 1,872,435
Subordinated Lien, Series 1, AMBAC Insured, 6.125%, 10/01/12 ......................................... 1,000,000 1,097,490
Western Lane Hospital District, Hospital Facilities Authority Revenue,
Sisters St. Joseph Peace,
MBIA Insured, 5.875%, 8/01/12 ....................................................................... 3,000,000 3,153,660
------------
30,610,008
------------
Pennsylvania 2.0%
Beaver County, Series A, MBIA Insured, 5.90%, 10/01/26 ............................................... 2,000,000 2,062,200
Cambria County Hospital Development Authority Revenue, Refunding and
Improvement, Conemaugh Valley Hospital, Series B,
Connie Lee Insured, 6.375%, 7/01/18 ................................................................. 5,000,000 5,263,100
Delaware River Port Authority, Pennsylvania and New Jersey Delaware
River Bridges Revenue, Refunding, AMBAC Insured, 7.375%,
1/01/07 ............................................................................................. 1,500,000 1,587,810
Exeter Township School District, FGIC Insured, Pre-Refunded, 6.50%, 5/15/06 .......................... 200,000 217,632
Lehigh County General Purpose Authority Revenues, Hospital Healtheast, Inc.,
Series A, Refunding, MBIA Insured, 7.00%, 7/01/15 .................................................... 100,000 106,719
Montgomery County IDAR, PCR, Philadelphia Electric Co., Series B,
MBIA Insured, 6.70%, 12/01/21 ......................................................................... 8,000,000 8,700,640
Pennsylvania Convention Center Authority Revenue, Series A, FGIC Insured,
ETM, 6.00%, 9/01/19 ................................................................................... 500,000 546,505
Pennsylvania State Higher Educational Facilities Authority, College and
University Revenues, Hahnemann University Project,
MBIA Insured, Pre-Refunded, 7.20%, 7/01/19 .......................................................... 100,000 107,338
Pennsylvania State Pooled Finance Authority, Lease Revenue, Capital Improvement,
Series B, MBIA Insured, 8.00%, 11/01/09 .............................................................. 2,740,000 2,874,835
Pennsylvania State Turnpike Commission Revenue, Refunding, Series P,
AMBAC Insured, 6.00%, 12/01/17 ........................................................................ 500,000 520,160
Philadelphia Airport Revenue, Philadelphia Airport System, Series A,
AMBAC Insured, 6.10%, 6/15/25 ......................................................................... 4,000,000 4,163,920
Philadelphia Water and Waste Water Revenue, Refunding, FSA Insured, 5.50%, 6/15/15 ................... 1,000,000 995,410
Pittsburgh Water and Sewer System Authority Revenue, Refunding,
FGIC Insured, ETM, 7.25%, 9/01/14..................................................................... 90,000 107,646
Quaker Valley School District, FGIC Insured, 5.70%, 1/15/19 .......................................... 2,000,000 2,027,420
Scranton-Lackawanna Health and Welfare Authority Revenue,
Community Medical Center Project, BIG Insured, 7.875%, 7/01/10 ........................................ 10,000 10,503
Southeastern Pennsylvania Transportation Authority, Special Revenue,
FGIC Insured, 5.375%, 3/01/22......................................................................... 4,825,000 4,744,326
------------
34,036,164
------------
Rhode Island 1.8%
Kent County Water Authority, General Revenue, Series A,
MBIA Insured, 6.35%, 7/15/14 .......................................................................... 2,100,000 2,282,532
Providence GO, Series A, FSA Insured, 5.70%, 7/15/19 ................................................. 3,000,000 3,033,270
Providence PBA General Revenue, Series A, FSA Insured,
Pre-Refunded, 7.25%, 12/15/10 ......................................................................... 5,000,000 5,541,450
bRhode Island Clean Water Financing Agency Revenue, Wastewater
Treatment System, Cranston, MBIA Insured, 5.80%, 9/01/22 .............................................. 10,000,000 10,077,300
Rhode Island Convention Center Authority Revenue, Series A,
MBIA Insured, Pre-Refunded, 6.65%, 5/15/12............................................................ 350,000 383,159
Rhode Island Health and Educational Building Corp. Revenue,
Higher Educational Facilities, Connie Lee Insured, Roger Williams
Facility, Pre-Refunded, 7.25%, 11/15/24 ............................................................. 2,000,000 2,350,260
Rhode Island Port Authority and Economic Development Corp. Revenue,
Shepard Building Project, Series B, AMBAC Insured,
6.75%, 6/01/25 ...................................................................................... 2,000,000 2,197,680
Rhode Island State, Refunding, Series A, FGIC Insured, 6.25%, 6/15/07 ................................ 250,000 271,635
Rhode Island State Health and Educational Building Corp. Revenue, Lifespan
Obligation Group, Refunding, MBIA Insured, 5.75%, 5/15/23 ............................................ 2,250,000 2,295,878
West Warwick GO, MBIA Insured, Pre-Refunded, 7.25%, 9/01/11 .......................................... 2,000,000 2,260,960
------------
30,694,124
------------
South Carolina .4%
Charleston Waterworks and Sewer Revenue, Refunding and Improvement,
AMBAC Insured, 6.00%, 1/01/16 ......................................................................... 250,000 259,685
Cherokee County COP, Peachtree Centre Project, FSA Insured, 7.05%, 9/01/11 ........................... 2,910,000 3,216,918
Edgefield County School District, Refunding, FSA Insured, 8.50%, 2/01/01 ............................. 250,000 283,283
Piedmont Municipal Power Agency, South Carolina Electric Revenue,
Refunding, FGIC Insured, 6.25%, 1/01/21 .............................................................. 200,000 222,094
Richland County Hospital Facilities Revenue, Community Provider,
Pooled Loan Program, Series A, FSA Insured, ETM, 7.125%, 7/01/17 ...................................... 3,000,000 3,435,420
------------
7,417,400
------------
South Dakota .7%
Grant County PCR, Refunding, MBIA Insured, 5.90%, 6/01/23 ............................................ 4,800,000 4,879,920
Lawrence County COP, Courthouse, FSA Insured, 7.65%, 7/01/10 ......................................... 2,000,000 2,202,140
Sioux Falls Medical Clinic Revenue, AMBAC Insured, 8.00%, 9/01/08 .................................... 2,225,000 2,268,321
South Dakota (cont.)
South Dakota State Lease Revenue, Series A, FSA Insured, 6.75%, 12/15/16 ............................. $ 2,720,000 $ 3,138,418
South Dakota State University Revenue, Housing and Auxiliary Facilities,
Refunding, Series A, MBIA Insured, 5.50%, 4/01/17 .................................................... 20,000 19,857
------------
12,508,656
------------
Tennessee .3%
Greater Tennessee Housing Assistance Corp., Mortgage Revenue,
Refunding, Series A, MBIA Insured, 6.00%, 7/01/24 .................................................... 1,445,000 1,473,972
Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured, 6.60%, 7/01/15 ............. 200,000 215,398
Trenton Special School District, AMBAC Insured, 5.75%, 11/01/20 ...................................... 3,000,000 3,064,530
------------
4,753,900
------------
Texas 8.2%
Austin Combined Utility System Revenue,
BIG Insured, Pre-Refunded, 8.625%, 11/15/17 .......................................................... 1,000,000 1,175,100
Refunding, Series A, FGIC Insured, 6.00%, 5/15/15 .................................................... 50,000 50,965
Series A, BIG Insured, Pre-Refunded, 8.00%, 11/15/16 ................................................. 3,000,000 3,369,960
Bexar County HFC Revenue, GNMA Secured, Series A, 8.20%, 4/01/22 ..................................... 3,475,000 3,661,955
Brazos River Authority Revenue, Refunding, Houston Light and Power Co. Project,
Series A, AMBAC Insured, 6.70%, 3/01/17 .............................................................. 2,000,000 2,185,920
Series D, FGIC Insured, 7.75%, 10/01/15 .............................................................. 3,360,000 3,547,824
Coastal Bend Health Facilities Development Corp., Series B, AMBAC Insured, 6.30%, 1/01/17 ............ 12,230,000 13,009,051
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10 ...................................................... 760,000 802,431
East Texas HFC, SFMR, Series 1990, GNMA Secured, 7.85%, 12/01/10 ..................................... 745,000 790,654
Faulkey Gully MUD, Refunding, Waterworks and Sewerage System,
AMBAC Insured, 6.625% 3/01/07 ......................................................................... 1,520,000 1,642,330
Fort Bend County Levee Improvement District No. 011, AMBAC Insured, 6.00%,
9/01/21............................................................................................... 1,395,000 1,446,908
9/01/22............................................................................................... 1,495,000 1,550,629
9/01/23............................................................................................... 1,610,000 1,675,189
Grand Prairie Health Facilities, Refunding, Dallas/Fort Worth Medical
Center Project, AMBAC Insured, 6.875%, 11/01/10 ....................................................... 2,700,000 3,026,997
Harris County Hospital District Mortgage Revenue, Refunding, AMBAC
Insured, 7.40%, 2/15/10 .............................................................................. 2,350,000 2,788,346
Harris County Public Facilities Corp., Detention Facility Mortgage Revenue,
MBIA Insured, Pre-Refunded, 7.80%, 12/15/11 .......................................................... 3,000,000 3,197,670
Harris County Toll Road,
Series A, FGIC Insured, 6.50%, 8/15/11 ............................................................... 35,000 38,129
Series A, Senior Lien, AMBAC Insured, 6.50%, 8/15/17 ................................................. 1,580,000 1,711,772
Series B, Senior Lien, AMBAC Insured, 6.625%, 8/15/17 ................................................ 240,000 246,653
Houston Airport System Revenue, Subordinated Lien, FGIC Insured,
Series A, 6.75%, 7/01/21 ............................................................................. 2,500,000 2,691,750
Series B, Pre-Refunded, 6.625%, 7/01/22 .............................................................. 1,000,000 1,096,250
Houston Water and Sewer System Revenue, Refunding, Junior Lien, Series C,
AMBAC Insured, 6.375%, 12/01/17 ...................................................................... 935,000 1,005,742
AMBAC Insured, Pre-Refunded, 6.375%, 12/01/17 ........................................................ 65,000 71,126
MBIA Insured, 5.75%, 12/01/15 ........................................................................ 500,000 510,025
MBIA Insured, 6.375%, 12/01/22 ....................................................................... 6,380,000 6,829,088
MBIA Insured, Pre-Refunded, 6.375%, 12/01/22 ......................................................... 1,620,000 1,789,954
Lubbock HFC, SFMR, Refunding, Mortgage Extension Program, Series B,
BIG Insured, 8.875%, 12/01/12 ........................................................................ 940,000 946,674
Matagorda County Navigation District No. 1,
PCR, Central Power & Light Co. Project, AMBAC Insured, 7.50%, 12/15/14 ............................... 200,000 218,726
PCR, Refunding, Central Power & Light Co. Project, Series E, MBIA Insured, 6.10%, 7/01/28 ............ 12,850,000 13,281,375
Refunding, Houston Light and Power Co., Series C, FGIC Insured, 7.125%, 7/01/19 ...................... 2,000,000 2,129,520
Refunding, Houston Light and Power Co., Series E, FGIC Insured, 7.20%, 12/01/18 ...................... 100,000 107,608
Palo Duro River Authority, Refunding, FSA Insured, 6.375%, 8/01/08 ................................... 6,000,000 6,195,420
Sabine River Authority, PCR, Refunding, Collateralized, Texas Utilities Electri
c Co. Project, FGIC Insured, 6.55%, 10/01/22 .......................................................... 3,250,000 3,496,448
San Antonio Water Revenue, MBIA Insured,
Refunding, 6.50%, 5/15/10 ............................................................................ 5,200,000 5,664,360
Refunding and Improvement, 5.60%, 5/15/21 ............................................................ 3,250,000 3,265,275
San Patricio County COP, MBIA Insured, 6.60%, 4/01/07 ................................................ 2,500,000 2,701,900
Smithville HDC Mortgage Revenue, Smithville Retirement, Refunding,
Series A, MBIA Insured, 6.40%, 1/01/22 ............................................................... 1,085,000 1,125,720
Southeast HDC Mortgage Revenue, Stonegate Retirement, MBIA Insured, 6.40%, 1/01/24 ................... 1,170,000 1,231,741
Tarrant County HFC, Health System Revenue, Harris Methodist
Health System, MBIA Insured, 6.00%, 9/01/24 ........................................................... 3,250,000 3,345,453
Texas (cont.)
Tarrant County HFC, SFMR, GNMA Secured, Series A, 8.00%, 7/01/21 ..................................... $ 8,365,000 $ 8,771,288
Texas Health Facilities Development Corp. Hospital Revenue, Refunding,
All Saints Episcopal Hospitals, Series B, MBIA Insured, 6.25%, 8/15/22 ............................... 2,500,000 2,657,300
All Saints Episcopal Hospitals, Series B, MBIA Insured, 6.375%, 8/15/23 .............................. 4,885,000 5,218,548
Cook-Fort Worth Medical Center Project, FGIC Insured, Pre-Refunded, 8.125%, 6/01/18 .................. 2,000,000 2,101,380
Texas State Turnpike Authority Revenue, Dallas North Tollway,
Refunding, AMBAC Insured, 5.00%, 1/01/20 ............................................................. 7,250,000 6,751,345
Texas Water Resources Financial Authority Revenue, AMBAC Insured, 7.50%, 8/15/13 ..................... 5,975,000 6,312,229
Travis County HFC, SFMR, GNMA Secured, 8.20%, 4/01/22 ................................................ 3,285,000 3,427,438
------------
138,862,166
------------
Utah 1.4%
Intermountain Power Agency, Power Supply Revenue, Refunding,
Series A, AMBAC Insured, 5.50%, 7/01/20 .............................................................. 4,680,000 4,619,675
Series B, MBIA Insured, 5.75%, 7/01/19 ............................................................... 3,250,000 3,308,338
Intermountain Power Agency, Special Obligation, Refunding,
Fifth Crossover Series, FGIC Insured, 7.00%, 7/01/15 .................................................. 6,230,000 6,389,675
Provo Electric System Revenue, Refunding, Series A, AMBAC Insured, ETM, 10.375%, 9/15/15 ............. 40,000 57,717
Utah County Hospital Revenue, IHC Health Services, Inc., MBIA Insured, 5.25%, 8/15/21 ................ 5,000,000 4,783,250
Utah State Board of Regents, Student Loan Revenue, Series H, AMBAC Insured, 6.70%, 11/01/15 .......... 1,080,000 1,130,382
Weber County Municipal Building Authority, Lease Revenue, FSA Insured, Pre-Refunded, 7.20%,
6/01/05............................................................................................... 825,000 867,488
6/01/06 .............................................................................................. 875,000 920,063
6/01/07............................................................................................... 950,000 998,925
------------
23,075,513
------------
Vermont .7%
Swanton Village Electric System Revenue, Refunding, MBIA Insured, 5.75%, 12/01/19 .................... 1,740,000 1,786,006
Vermont, COP, MBIA Insured, 7.25%, 6/15/11 ........................................................... 2,205,000 2,399,349
Vermont Home Mortgage, Series B, MBIA Insured, 7.60%, 12/01/24 ....................................... 6,630,000 6,944,660
Vermont Municipal Bond Bank, Series 2, FSA Insured, 6.25%, 12/01/19 .................................. 1,000,000 1,054,570
------------
12,184,585
------------
Virginia 1.4%
Chesapeake Bay Bridge and Tunnel Commission, Virginia District Revenue,
Refunding, General Resolution, MBIA Insured, 5.75%,
7/01/25 ............................................................................................. 9,850,000 9,909,396
Chesapeake IDA, Public Facilities, Lease Revenue, Chesapeake Jail Project,
MBIA Insured, 6.00%, 6/01/12 ......................................................................... 5,000,000 5,306,500
Danville IDA, Hospital Revenue, Danville Regional Medical Center,
Refunding, FGIC Insured, 6.50%, 10/01/24 .............................................................. 1,000,000 1,079,340
Hampton Roads Regional Jail Authority, Regional Jail Facilities Revenue,
Series A, MBIA Insured, 5.00%, 7/01/28 ............................................................... 3,405,000 3,191,609
Spotsylvania County Water and Sewer System Revenue, MBIA Insured, 5.40%, 6/01/27 ..................... 3,850,000 3,760,526
------------
23,247,371
------------
Washington 6.0%
Benton County School District No. 400, Richland, MBIA Insured, 5.60%, 12/01/16 ....................... 1,850,000 1,888,850
Clallam County PUD No. 001, Electric Revenue, Refunding, AMBAC Insured, 6.50%, 1/01/08 ............... 2,000,000 2,189,980
Douglas County PUD No. 001, Electric Distribution System Revenue,
MBIA Insured, 6.00%, 1/01/15 .......................................................................... 900,000 950,544
Everett COP, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 4/01/09 ................................... 850,000 932,229
Grant County PUD No. 002, Wanapum Hydro-Electric Revenue, Second Series,
Series B, AMBAC Insured, 6.75%, 1/01/23 .............................................................. 2,000,000 2,144,880
Grays Harbor County PUD No. 001, Electric Revenue, Refunding, AMBAC Insured, 7.10%, 1/01/06........... 2,245,000 2,323,171
King County Public Hospital District No. 001, Hospital Facilities Revenue,
Valley Medical Center, AMBAC Insured, Pre-Refunded,
7.25%, 9/01/15 ...................................................................................... 1,500,000 1,649,385
King County School District No. 411, Issaquah, Refunding, AMBAC Insured,
Pre-Refunded, 6.50%, 12/01/09.......................................................................... 3,375,000 3,703,253
King County Sewer, MBIA Insured, 6.125%, 1/01/33 ..................................................... 3,000,000 3,119,550
Kitsap County School District No. 100-C, Refunding, MBIA Insured, 6.60%, 12/01/08 .................... 1,015,000 1,108,502
Klickitat County PUD No. 001, Electric Revenue, FGIC Insured,
5.65%, 10/01/15 ...................................................................................... 1,000,000 1,014,120
5.75%, 10/01/27 ...................................................................................... 1,000,000 1,017,620
Mason County School District No. 402, Pioneer, MBIA Insured, 6.60%, 12/01/11 ......................... 1,040,000 1,152,601
Pierce County School District No. 003, Puyallup, FGIC Insured, 5.70%, 12/01/15 ....................... 1,000,000 1,027,230
Port of Longview, Cowlitz County, Airport and Marina Improvements,
MBIA Insured, 6.00%, 11/01/15 ......................................................................... 2,000,000 2,128,720
Washington (cont.)
Port Seattle Revenue, Series A, FGIC Insured, 5.50%, 9/01/21 ......................................... $ 5,430,000 $ 5,387,049
Seatac Storm Water Revenue, MBIA Insured, 6.50%, 12/01/13 ............................................ 2,890,000 3,141,025
Seattle Metropolitan Sewer System Revenue, Series W, MBIA Insured, 6.30%, 1/01/33 .................... 11,000,000 11,557,370
Seattle Water System Revenue, FGIC Insured, 5.625%, 8/01/26 .......................................... 2,000,000 2,007,620
Snohomish County PUD No. 001, Electric Revenue, Generation System,
FGIC Insured, ETM, 6.65%, 1/01/16 ..................................................................... 4,250,000 4,820,010
Spokane Public Facilities District, Hotel, Motel and Sales Use Tax Revenue,
Multi-Purpose Arena Project, AMBAC Insured, 6.50%, 1/01/18 ........................................... 5,000,000 5,326,450
Tacoma Electric System Revenue,
Refunding, AMBAC Insured, 6.25%, 1/01/11 ............................................................. 500,000 531,670
Refunding, FGIC Insured, 6.25%, 1/01/15 .............................................................. 6,190,000 6,572,542
Tacoma GO, Series A, MBIA Insured, 5.625%, 12/01/22 .................................................. 3,400,000 3,424,650
Thurston and Pierce Counties, Community Schools, Series B, AMBAC Insured, 6.65%, 12/01/09 ............ 1,305,000 1,426,065
Washington Public Power Supply System, Nuclear Project No. 1 Revenue,
Refunding, Series A, MBIA Insured, 6.25%, 7/01/17 .................................................... 500,000 521,915
Refunding, Series B, FGIC Insured, Pre-Refunded, 7.25%, 7/01/12 ...................................... 4,420,000 4,841,359
Refunding, Series C, FGIC Insured, Pre-Refunded, 7.75%, 7/01/08 ...................................... 2,500,000 2,771,250
Washington Public Power Supply System Revenue, Nuclear Project No. 3,
Refunding, Series A, BIG Insured, Pre-Refunded, 7.25%, 7/01/16 ........................................ 100,000 107,333
Washington State Health Care Facilities Authority Revenue, Swedish
Hospital Medical Center, AMBAC Insured, 6.30%, 11/15/22 .............................................. 3,250,000 3,412,305
Washington State HFA, Series A, GNMA Secured, 7.70%, 7/01/32 ......................................... 2,885,000 3,010,440
Washington State University Revenues, Refunding, Housing and Dining System,
MBIA Insured, 6.40%, 10/01/24 ......................................................................... 6,130,000 6,565,537
Western Washington University Revenue, Housing and Dining System, MBIA Insured,
6.375%, 10/01/22 ..................................................................................... 3,000,000 3,166,080
Refunding, 6.70%, 10/01/11 ........................................................................... 1,050,000 1,128,215
Refunding, 6.375%, 10/01/21 .......................................................................... 3,500,000 3,637,375
Whatcom County School District No. 501, Bellingham, FGIC Insured, 6.125%, 12/01/13 ................... 2,000,000 2,133,860
Yakima-Tieton Irrigation District Revenue, Refunding, FSA Insured, 6.20%, 6/01/19 .................... 350,000 371,123
------------
102,211,878
------------
West Virginia 1.8%
Harrison County, Community Solid Waste Disposal Revenue, Potomac Edison Co.,
Series C, AMBAC Insured, 6.75%, 8/01/24 .............................................................. 11,560,000 12,581,210
Monongalia County Building Community Hospital Revenue, Refunding, Monongalia
General Hospital, Series B, MBIA Insured, 6.50%,
7/01/17 ............................................................................................. 1,000,000 1,055,190
South Charleston Hospital Revenue, Refunding, Herbert J. Thomas Memorial Hospital, BIG Insured,
Pre-Refunded, 8.00%,
10/01/04.............................................................................................. 3,060,000 3,252,749
10/01/10 ............................................................................................. 2,400,000 2,551,176
West Virginia School Building Authority Revenue, Capital Improvement,
Series B, MBIA Insured, Pre-Refunded, 6.75%, 7/01/17 ................................................. 300,000 324,651
West Virginia State HDA, SFMR, MBIA Insured, 7.40%, 11/01/11 ......................................... 2,000,000 2,044,220
West Virginia State University Revenue, Refunding, AMBAC Insured, 6.00%, 4/01/12 ..................... 2,250,000 2,393,235
West Virginia State Water Development Authority Revenue, FSA Insured,
Loan Program II, Series B, Pre-Refunded, 7.50%, 11/01/29 ............................................. 3,000,000 3,263,370
Refunding, Loan Program, Series A, 7.00%, 11/01/25 ................................................... 2,750,000 2,986,830
------------
30,452,631
------------
Wisconsin .9%
Holmen School District, Series A, AMBAC Insured, 6.25%, 10/01/10 ..................................... 500,000 530,315
Lake County School District GO, Refunding, AMBAC Insured, 6.35%,
4/01/11 .............................................................................................. 850,000 896,733
4/01/12 .............................................................................................. 900,000 955,737
Superior Limited Obligation Revenue, Refunding, Midwest Energy Resources,
Series E, FGIC Insured, 6.90%, 8/01/21 ................................................................ 3,000,000 3,572,730
Wisconsin Health Educational Revenue, Series A, FSA Insured, 7.50%,
1/15/09............................................................................................... 2,000,000 2,119,560
Community Provider Program, 1/15/04 .................................................................. 1,965,000 2,083,824
Wisconsin Health Facilities Authority Revenue, Milwaukee Psychiatric Hospital,
MBIA Insured, 7.30%, 4/01/12 .......................................................................... 4,000,000 4,087,680
Wisconsin State Health and Educational Facilities Authority Revenue, Refunding,
Series AA, MBIA Insured, 6.25%, 6/01/20 .............................................................. 500,000 522,550
------------
14,769,129
------------
Wyoming 1.4%
Gillette Health Facilities Revenue, Lutheran Hospital and Home Society,
Refunding, MBIA Insured, 5.90%, 1/01/16 .............................................................. $ 500,000 $ 516,135
Natrona County Hospital Revenue, Wyoming Medical Center Projects,
Refunding, AMBAC Insured, 6.00%, 9/15/24 .............................................................. 9,885,000 10,235,918
University of Wyoming, University Facilities Revenues, MBIA Insured, 7.10%, 6/01/10 .................. 2,245,000 2,370,226
Worland GO, Refunding, AMBAC Insured, 5.30%, 6/01/12 ................................................. 1,525,000 1,515,621
Wyoming CDA, AMBAC Insured, 6.00%, 6/01/23 ........................................................... 6,750,000 6,891,548
Wyoming Municipal Power Agency, Power Supply System Revenue,
Refunding, Series A, MBIA Insured, 6.125%, 1/01/16 ................................................... 2,000,000 2,103,860
------------
23,633,308
------------
Total Long Term Investments (Cost $1,593,311,509)..................................................... 1,690,150,420
------------
aShort Term Investments 1.1%
California Health Facilities Financing Authority Revenue, Refunding, Sutter/CHS,
Series B, AMBAC Insured, Daily VRDN and Put, 3.40%,
7/01/12 ............................................................................................. 2,200,000 2,200,000
Farmington New Mexico PCR, Refunding, Arizona Public Service Co., Series B,
Barclays Bank Plc. Insured, Daily VRDN and Put, 3.80%,
9/01/24 ............................................................................................. 750,000 750,000
Irvine Ranch California Water District, District Nos. 140-240-105-250,
Bank of America NT & SA Insured, Daily VRDN and Put, 3.40%,
4/01/33 ............................................................................................. 200,000 200,000
La Crosse Wisconsin IDR, Refunding, Dairyland Power Cooperative,
Series C, AMBAC Insured, Daily VRDN and Put, 3.70%, 2/01/15............................................ 800,000 800,000
New Jersey State Turnpike Authority Revenue, Refunding, Series D,
FGIC Insured, Weekly VDRN and Put, 2.70%, 1/01/18 .................................................... 1,000,000 1,000,000
New York City GO, Series B, Subseries B-4, MBIA Insured, Daily VDRNand Put, 3.70%, 8/15/23 ........... 100,000 100,000
New York City Municipal Water Finance Authority, Water and Sewer System Revenue,
Series 93-C, FGIC Insured, Daily VDRN and Put,
3.70%, 6/15/22 ...................................................................................... 100,000 100,000
Orange County California Sanitation Districts COP Nos. 1-3, 5-7, 11, 13, &14,
Series A, Capital Improvement Program 1990-92,
National Westminster Bank Plc. Insured, Daily VRDN and Put, 3.40%, 8/01/15 .......................... 13,500,000 13,500,000
------------
Total Short Term Investments (Cost $18,650,000)....................................................... 18,650,000
------------
Total Investments (Cost $1,611,961,509) 100.5%........................................................ 1,708,800,420
Other Assets, less Liabilities (.5%).................................................................. (8,984,553)
------------
Net Assets 100.0% .................................................................................... $1,699,815,867
============
</TABLE>
See glossary of abbreviations on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Massachusetts Insured Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $11.54 $11.65 $11.34 $11.81 $11.73 $11.03
---------------------------------------------------------------------
Income from investment operations:
Net investment income ............................... .30 .63 .66 .66 .67 .69
Net realized and unrealized gains (losses) .......... .13 (.10) .31 (.47) .09 .69
---------------------------------------------------------------------
Total from investment operations ..................... .43 .53 .97 .19 .76 1.38
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income ................. (.31)6 (.64)3 (.66) (.66) (.68) (.68)
Distributions from net realized gains ................ (.04) -- -- -- -- --
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Total distributions ................................... (.35) (.64) (.66) (.66) (.68) (.68)
---------------------------------------------------------------------
Net asset value, end of period ........................ $11.62 $11.54 $11.65 $11.34 $11.81 $11.73
=====================================================================
Total return* ......................................... 3.80% 4.75% 8.80% 1.83% 6.39% 12.61%
Ratios/Supplemental Data
Net assets, end of period (000's) ..................... $332,621 $325,065 $301,529 $288,331 $307,013 $278,510
Ratio to average net assets:
Expenses ............................................. .68%** .68% .69% .67% .60% .64%
Net investment income ................................ 5.30%** 5.51% 5.67% 5.89% 5.69% 6.09%
Portfolio turnover rate ............................... 13.56% 29.22% 10.29% 16.90% 13.82% 9.65%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $11.59 $11.69 $11.36
---------------------------------------
Income from investment operations:
Net investment income ................................ .28 .57 .50
Net realized and unrealized gains (losses) ........... .11 (.09) .32
---------------------------------------
Total from investment operations ...................... .39 .48 .82
---------------------------------------
Less distributions:
Dividends from net investment income ................. (.28) (.58)3 (.49)
Distributions from net realized gains ................ (.04) -- --
---------------------------------------
Total distributions ................................... (.32) (.58) (.49)
---------------------------------------
Net asset value, end of period ........................ $11.66 $11.59 $11.69
=======================================
Total return* ......................................... 3.42% 4.22% 7.36%
Ratios/Supplemental Data
Net assets, end of period (000's)...................... $10,484 $6,378 $2,759
Ratio to average net assets:
Expenses.............................................. 1.24%** 1.25% 1.26%**
Net investment income................................. 4.68%** 4.96% 5.06%**
Portfolio turnover rate................................ 13.56% 29.22% 10.29%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
3Includes distributions in excess of net investment income in the amount of
$.001.
6Includes distributions in excess of net investment income in the amount of
$.005.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Massachusetts Insured Tax-Free Income Fund AMOUNT VALUE
aLong Term Investments 99.3%
<S> <C> <C>
Ashburnham & Westminister, Regional School District, MBIA Insured, 6.00%, 12/15/13 ................... $ 2,700,000 $ 2,823,255
Attleboro Municipal Purpose GO, AMBAC Insured, 6.00%,
7/01/11 .............................................................................................. 1,045,000 1,117,199
7/01/12 .............................................................................................. 1,045,000 1,108,024
7/01/13 .............................................................................................. 685,000 726,312
7/01/14 .............................................................................................. 755,000 797,793
Blackstone-Milville School District, AMBAC Insured, 6.50%,
5/01/08 .............................................................................................. 705,000 766,363
5/01/09 .............................................................................................. 750,000 812,003
5/01/10 .............................................................................................. 795,000 858,990
Boston Hospital Revenue, Refunding, Series B, FHA, MBIA Insured, 5.75%, 2/15/23 ...................... 10,500,000 10,616,445
Boston Water and Sewage Commission, General Revenue, Series A,
BIG Insured, 7.25%, 11/01/06 ......................................................................... 3,000,000 3,164,250
Pre-Refunded, GNMASecured , 7.10%, 11/01/19 .......................................................... 1,400,000 1,511,454
Central Berkshire GO, School District, MBIA Insured, 7.25%, 6/01/08 .................................. 1,095,000 1,187,276
Framingham Housing Authority Mortgage Revenue, Beaver Terrace Apartments,
Series A, GNMA Secured, 6.65%, 2/20/32 ............................................................... 1,650,000 1,712,205
Greenfield GO, MBIA Insured, 6.50%,
10/15/08 ............................................................................................. 500,000 542,715
10/15/09 ............................................................................................. 500,000 540,755
Holyoke GO, School Project Loans, MBIA Insured, Pre-Refunded, 8.05%, 6/15/04 ......................... 1,000,000 1,180,080
Hudson GO, MBIA Insured, 6.00%,
5/15/13 .............................................................................................. 250,000 265,623
5/15/14 .............................................................................................. 240,000 253,961
Lenox GO, Refunding, AMBAC Insured,
6.60%, 10/15/11 ...................................................................................... 1,000,000 1,078,180
6.625%, 10/15/15 ..................................................................................... 500,000 537,610
Leominster GO, MBIA Insured, Pre-Refunded, 7.50%, 4/01/09 ............................................ 450,000 494,532
Ludlow GO, School Project, Limited Tax, MBIA Insured,
7.30%, 11/01/07 ...................................................................................... 210,000 252,174
7.30%, 11/01/08 ...................................................................................... 210,000 253,308
7.40%, 11/01/09 ...................................................................................... 210,000 255,912
Lynn Water and Sewer General Revenue, Series A, MBIA Insured, Pre-Refunded, 7.25%, 12/01/10 .......... 4,000,000 4,429,240
Mansfield GO, AMBAC Insured, 6.70%, 1/15/11 .......................................................... 2,000,000 2,177,900
Mansfield Municipal Purpose Loan, FGIC Insured, 5.125%, 8/15/17 ...................................... 1,685,000 1,622,807
Martha's Vineyard, Regional High School District No. 100, AMBAC Insured,
6.55%, 12/15/10 ...................................................................................... 830,000 923,516
6.60%, 12/15/11 ...................................................................................... 725,000 806,526
6.65%, 12/15/12 ...................................................................................... 880,000 979,326
6.70%, 12/15/14 ...................................................................................... 210,000 233,518
Mashpee GO, MBIA Insured, 5.50%, 2/01/17 ............................................................. 2,000,000 2,021,400
Mashpee Water District GO, MBIA Insured, 6.40%, 10/15/12 ............................................. 500,000 538,740
Massachusetts Bay Transportation Authority,
COP, BIG Insured, 7.75%, 1/15/06 ..................................................................... 2,500,000 3,016,325
General Transportation System, Series A, FSA Insured, 5.625%, 3/01/26 ................................ 1,470,000 1,482,157
General Transportation System, Series A, GNMA Secured, Pre-Refunded, 7.75%, 3/01/13 .................. 3,000,000 3,116,790
General Transportation System, Series B, AMBAC Insured, 5.375%, 3/01/25 .............................. 2,970,000 2,909,412
Massachusetts Education Loan Authority Revenue, Issue D, Series A, MBIA Insured, 7.25%, 1/01/09 ...... 1,960,000 2,073,347
Massachusetts State GO, Series B,
AMBAC Insured, 6.50%, 8/01/11 ........................................................................ 1,665,000 1,799,782
MBIA Insured, 6.50%, 8/01/11 ......................................................................... 855,000 924,212
Massachusetts State Health & Educational Facilities Authority Revenue,
Bay State Medical Center, Refunding, Series D, FGIC Insured, 6.00%, 7/01/15 .......................... 1,500,000 1,567,380
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ...................................... 5,000,000 5,180,750
Bentley College, Series I, MBIA Insured, 6.125%, 7/01/17 ............................................. 1,250,000 1,304,663
Berklee College of Music, Series E, MBIA Insured, 5.00%, 10/01/16 .................................... 1,180,000 1,126,876
Berkshire Health System, Series A, MBIA Insured, Pre-Refunded, 7.50%, 10/01/08 ....................... 2,000,000 2,116,640
Berkshire Health System, Series A, MBIA Insured, Pre-Refunded, 6.75%, 10/01/19 ....................... 1,500,000 1,546,920
Berkshire Health System, Series D, MBIA Insured, 6.00%, 10/01/19 ..................................... 5,500,000 5,757,895
Massachusetts State Health & Educational Facilities Authority Revenue, (cont.)
Beverly Hospital, Lot 1, Refunding, Series D, MBIA Insured, 7.30%, 7/01/13 ........................... $ 1,900,000 $ 2,037,142
Beverly Hospital, Lot 2, Series D, MBIA Insured, Pre-Refunded, 7.30%, 7/01/19 ........................ 4,000,000 4,300,480
Boston College, Series J, FGIC Insured, 6.625%, 7/01/21 .............................................. 2,250,000 2,429,258
Brigham & Women's Hospital, Series C, MBIA Insured, 7.00%,6/01/18 .................................... 500,000 529,920
Cable Housing & Health Services, Series A, MBIA Insured, 5.25%, 7/01/23 .............................. 1,000,000 972,370
Children's Hospital, Refunding, Series E, AMBAC Insured, 6.20%, 10/01/16 ............................. 2,200,000 2,295,678
Community College Program, Series A, Connie Lee Insured, 6.50%, 10/01/09 ............................. 1,000,000 1,093,810
Community College Program, Series A, Connie Lee Insured, 6.60%, 10/01/22 ............................. 3,250,000 3,515,720
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/18 .................................. 5,595,000 5,611,785
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/25 .................................. 7,520,000 7,508,570
Dana-Farber Cancer Institute, Series F, Refunding, FGIC Insured, 6.00%, 12/01/15 ..................... 1,000,000 1,048,870
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 ................................. 26,730,000 26,233,624
Massachusetts General Hospital, Refunding, Series F, AMBAC Insured, 6.00%, 7/01/15 ................... 2,500,000 2,615,550
Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 7/01/20 .............................. 11,465,000 11,989,868
McLean Hospital, Series C, FGIC Insured, 6.625%, 7/01/15 ............................................. 1,280,000 1,396,902
Milton Hospital, Series B, MBIA Insured, 7.00%, 7/01/16 .............................................. 5,400,000 5,838,642
Mt. Auburn Hospital, Series B-1, MBIA Insured, 6.30%, 8/15/24 ........................................ 6,500,000 6,958,120
New England Medical Center Hospitals, Series D, AMBAC Insured, 6.875%, 4/01/22 ....................... 1,895,000 2,085,201
Newton-Wellesley Hospital, Series D, MBIA Insured, Pre-Refunded, 7.00%, 7/01/15 ...................... 4,030,000 4,467,577
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/18 .................................... 1,300,000 1,349,712
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/25 .................................... 6,750,000 6,982,200
Northeastern University, Series D, AMBAC Insured, 7.125%, 10/01/10 ................................... 1,250,000 1,369,913
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 ..................................... 3,900,000 4,237,662
Stonehill College, Refunding, Series E, MBIA Insured, 6.55%, 7/01/12 ................................. 890,000 968,445
Stonehill College, Refunding, Series E, MBIA Insured, 6.60%, 7/01/20 ................................. 3,000,000 3,257,250
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.65%, 7/01/10 ............................. 1,025,000 1,134,962
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.70%, 7/01/20 ............................. 515,000 570,929
Stonehill College, Series F, AMBAC Insured, 5.75%, 7/01/26 ........................................... 1,690,000 1,728,110
Suffolk University, Series B, Connie Lee Insured, 6.35%, 7/01/22 ..................................... 3,000,000 3,185,490
Tufts University, FGIC Insured, 5.95%, 8/15/18 ....................................................... 5,000,000 5,154,450
University Hospital, Series C, MBIA Insured, Pre-Refunded, 7.25%, 7/01/19 ............................ 1,500,000 1,635,435
Wentworth Institute of Technology, Series A, AMBAC Insured, Pre-Refunded, 7.40%, 4/01/10 ............. 1,820,000 1,995,703
Wheaton College, Series B, FSA Insured, Pre-Refunded, 7.25%, 7/01/19 ................................. 3,000,000 3,222,750
Williams College, Series F, MBIA Insured, 5.50%, 7/01/26 ............................................. 2,500,000 2,505,850
Massachusetts State HFA, Housing Revenue,
Series 8, BIG Insured, 7.70%, 6/01/17 ................................................................ 1,975,000 2,048,134
SFMR, Series 18, MBIA Insured, 7.35%, 12/01/16 ....................................................... 1,500,000 1,582,020
Massachusetts State HFA, MFHR, Section 8 Assisted, Series A, GNMASecured, ETM, 7.00%, 4/01/21 ........ 430,000 506,342
Massachusetts State HFA, SFHR, Series 53, MBIA Insured, 6.15%, 12/01/29 .............................. 2,500,000 2,577,775
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, 6.375%, 10/01/09 ............................................. 750,000 816,885
Babson College, Series A, MBIA Insured, 6.50%, 10/01/22 .............................................. 3,105,000 3,345,141
Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19 ......................................... 7,075,000 7,548,813
Milton Academy, Series A, MBIA Insured, Pre-Refunded, 7.25%, 9/01/19 ................................. 1,000,000 1,079,100
Refunding, College of The Holy Cross, MBIA Insured, 5.625%, 3/01/26 .................................. 1,000,000 1,009,060
Refunding, Combined Jewish Philanthropies, Series A, AMBAC Insured, 6.375%, 2/01/15 .................. 2,010,000 2,175,282
Rock College, AMBAC Insured, 5.50%, 6/01/17 .......................................................... 1,000,000 1,005,060
Rock College, AMBAC Insured, 5.50%, 6/01/27 .......................................................... 1,560,000 1,541,826
Saint Marks School Issue, MBIA Insured, 5.375%, 1/01/21 .............................................. 2,665,000 2,624,732
bSuffolk University, AMBAC Insured, 5.25%, 7/01/17 ................................................... 2,000,000 1,949,340
bSuffolk University, AMBAC Insured, 5.25%, 7/01/27 .................................................... 2,000,000 1,924,100
Worcester Polytech Institute, Refunding, MBIA Insured, 5.125%, 9/01/17 ............................... 2,720,000 2,674,875
Worcester Polytech Institute, Refunding, MBIA Insured, 5.125, 9/01/27 ................................ 3,000,000 2,831,400
Worcester Polytech Institute, Refunding, Series II, MBIA Insured, 5.50%, 9/01/21 ..................... 3,500,000 3,518,270
Massachusetts State Industrial Finance Agency Electrical Utility Revenue, Nantucket Electric Company,
Series A, AMBAC Insured, 5.875%, 7/01/17 ............................................................ 4,000,000 4,160,480
Massachusetts State Municipal Wholesale Electric Co., Power Supply System Revenue,
Series D, MBIA Insured, 6.125%, 7/01/19 .............................................................. 4,395,000 4,574,448
Massachusetts State Port Authority Revenue,
Series A, FGIC Insured, 7.50%, 7/01/20 ............................................................... $ 5,200,000 $ 5,657,236
Series A, USAir Project, MBIA Insured, 5.875%, 9/01/23 ............................................... 4,500,000 4,567,275
Series B, FSA Insured, 6.00%, 7/01/23 ................................................................ 1,000,000 1,035,850
Massachusetts State Port Authority Revenue Special Facilities, Bosfuel Project, MBIA Insured,
5.625%, 7/01/19 ...................................................................................... 2,215,000 2,207,890
5.625%, 7/01/22 ...................................................................................... 2,610,000 2,601,100
5.625%, 7/01/27 ...................................................................................... 1,500,000 1,494,480
5.75%, 7/01/29 ....................................................................................... 7,450,000 7,512,878
Massachusetts State Water Resources Authority,
General, Series A, MBIA Insured, 6.00%. 8/01/24 ...................................................... 3,495,000 3,606,630
Revenue, Refunding, Series B, MBIA Insured, 5.00%, 3/01/22 ........................................... 12,250,000 11,431,088
Melrose Municipal Purpose GO, MBIA Insured,
6.00%, 8/15/11 ....................................................................................... 200,000 213,980
6.05%, 8/15/12 ....................................................................................... 200,000 214,100
6.10%, 8/15/13 ....................................................................................... 200,000 214,812
6.10%, 8/15/14 ....................................................................................... 200,000 214,068
Millis School Project, GO, Unlimited Tax, AMBAC Insured, 7.40%,
5/01/06............................................................................................... 270,000 293,617
5/01/07 .............................................................................................. 270,000 293,617
5/01/08 .............................................................................................. 270,000 293,261
Norfolk GO, AMBAC Insured, 6.00%,
1/15/10 .............................................................................................. 450,000 475,416
1/15/11 .............................................................................................. 425,000 447,674
1/15/12 .............................................................................................. 375,000 396,410
1/15/13 .............................................................................................. 300,000 317,133
North Andover Massachusetts GO, FGIC Insured, 5.50%,
1/15/14............................................................................................... 850,000 869,414
1/15/15............................................................................................... 420,000 427,791
North Andover Municipal Purpose, Limited Tax, MBIA Insured, 7.40%, 9/15/09 ........................... 300,000 332,520
North Attleborough GO, Limited Tax, AMBAC Insured, Pre-Refunded, 7.20%, 6/01/09 ...................... 125,000 137,006
North Attleborough, MBIA Insured, 5.70%, 1/15/16 ..................................................... 850,000 871,327
Northhampton Massachusetts, MBIA Insured, 5.60%, 5/15/17 ............................................. 1,085,000 1,100,711
Peabody GO, Electric Light, AMBAC Insured, Pre-Refunded,
6.75%, 8/01/05 ....................................................................................... 500,000 552,080
6.85%, 8/01/06 ....................................................................................... 750,000 830,790
6.90%, 8/01/07 ....................................................................................... 500,000 554,750
6.95%, 8/01/08 ....................................................................................... 555,000 616,760
Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue, Refunding, Series X, FSA Insured,
5.50%, 7/01/19 ...................................................................................... 3,250,000 3,272,295
Puerto Rico HFC, SFMR, Portfolio No. 1, GNMA Secured,
Series A, 7.80%, 10/15/21 ............................................................................ 340,000 352,271
Series B, 7.65%, 10/15/22 ............................................................................ 665,000 702,486
Puerto Rico Municipal Finance Agency, Series A, FSA Insured, 5.50%, 7/01/21 .......................... 2,500,000 2,501,925
Quabbin Regional School District, GO, AMBAC Insured, Pre-Refunded, 7.00%,
6/15/04............................................................................................... 275,000 300,264
6/15/05............................................................................................... 275,000 300,264
6/15/06............................................................................................... 275,000 300,264
6/15/07............................................................................................... 275,000 300,264
6/15/08............................................................................................... 275,000 300,264
6/15/09............................................................................................... 250,000 272,968
Rochester School GO, Lot B, MBIA Insured, Pre-Refunded, 7.30%,
4/01/04............................................................................................... 150,000 160,295
4/01/05............................................................................................... 150,000 160,295
4/01/06............................................................................................... 150,000 160,295
4/01/07............................................................................................... 150,000 160,295
4/01/08............................................................................................... 150,000 160,295
4/01/09............................................................................................... 120,000 128,236
Salem GO, AMBAC Insured,
6.70%, 8/15/05 ....................................................................................... $ 425,000 $ 466,722
6.80%, 8/15/07 ....................................................................................... 500,000 551,835
Somerville Housing Authority Revenue, Clarendon Hill, GNMA Secured, 7.95%, 11/20/30 .................. 3,000,000 3,193,500
South Essex Sewer District,
AMBAC Insured, 6.25%, 11/01/11 ....................................................................... 330,000 351,430
Series B, MBIA Insured, Pre-Refunded, 7.00%, 6/01/24 ................................................. 2,800,000 3,244,388
Southbridge GO, AMBAC Insured, 6.375%, 1/01/12 ....................................................... 2,375,000 2,537,783
Westfield School District GO, AMBAC Insured, Pre-Refunded, 7.10%, 12/15/08 ........................... 2,000,000 2,207,480
Westford GO,
FGIC Insured, Pre-Refunded, 7.60%, 10/15/10 .......................................................... 800,000 891,376
Refunding, AMBAC Insured, 5.45%, 10/15/10 ............................................................ 2,000,000 2,055,280
Whately GO, AMBAC Insured,
6.20%, 1/15/07 ....................................................................................... 215,000 230,822
6.30%, 1/15/08 ....................................................................................... 215,000 231,217
6.40%, 1/15/10 ....................................................................................... 200,000 215,126
Worcester GO, Refunding, Series E, MBIA Insured, 6.00%, 10/01/15 ..................................... 1,335,000 1,417,863
Worcester Municipal Purpose Loan, Series A, AMBAC Insured, 5.25%, 8/01/16 ............................ 1,410,000 1,386,693
------------
Total Long Term Investments (Cost $322,207,674)....................................................... 340,529,727
------------
aShort Term Investment .5%
Massachusetts State Health and Educational Facilities Authority Revenue,
Cap Assets Project, Series D, MBIA Insured,
Weekly VRDN and Put, 3.65%, 1/01/35 (Cost $1,800,000) ............................................... 1,800,000 1,800,000
------------
Total Investments (Cost $324,007,674) 99.8%........................................................... 342,329,727
Other Assets, less Liabilities .2% ................................................................... 774,992
------------
Net Assets 100.0%..................................................................................... $343,104,719
============
</TABLE>
See glossary of abbreviations on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Michigan Insured Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $12.00 $12.09 $11.76 $12.24 $12.18 $11.41
---------------------------------------------------------------------
Income from investment operations:
Net investment income ............................... .32 .66 .68 .69 .70 .71
Net realized and unrealized gains (losses) ........... .05 (.09) .34 (.48) .07 .77
---------------------------------------------------------------------
Total from investment operations ...................... .37 .57 1.02 .21 .77 1.48
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income ................. (.32)7 (.66)4 (.69)3 (.69) (.71) (.71)
Distributions from net realized gains ................ (.05) -- -- -- -- --
---------------------------------------------------------------------
Total distributions ................................... (.37) (.66) (.69) (.69) (.71) (.71)
---------------------------------------------------------------------
Net asset value, end of period ........................ $12.00 $12.00 $12.09 $11.76 $12.24 $12.18
=====================================================================
Total return* ......................................... 3.16% 4.90% 8.86% 1.87% 6.18% 13.23%
Ratios/Supplemental Data
Net assets, end of period (000's) ..................... $1,119,273 $1,111,537$1,115,454$1,037,717$1,055,452 $882,361
Ratio to average net assets:
Expenses ............................................. .64%** .62% .62% .61% .54% .58%
Net investment income ................................ 5.36%** 5.52% 5.65% 5.87% 5.66% 6.09%
Portfolio turnover rate ............................... 10.79% 30.03% 9.38% 9.12% 3.21% 2.04%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $12.07 $12.14 $11.77
---------------------------------------
Income from investment operations:
Net investment income ................................ .29 .59 .51
Net realized and unrealized gains (losses) ........... .04 (.07) .37
---------------------------------------
Total from investment operations ...................... .33 .52 .88
---------------------------------------
Less distributions:
Dividends from net investment income ................. (.29) (.59) (.51)
Distributions from net realized gains ................ (.05) -- --
---------------------------------------
Total distributions ................................... (.34) (.59) (.51)
---------------------------------------
Net asset value, end of period ........................ $12.06 $12.07 $12.14
=======================================
Total return* ......................................... 2.78% 4.44% 7.58%
Ratios/Supplemental Data
Net assets, end of period (000's) ..................... $25,509 $20,162 $6,683
Ratio to average net assets:
Expenses ............................................. 1.21%** 1.19% 1.20%**
Net investment income ................................ 4.80%** 4.94% 5.03%**
Portfolio turnover rate ............................... 10.79% 30.03% 9.38%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
3Includes distributions in excess of net investment income in the amount of
$.001.
4Includes distributions in excess of net investment income in the amount of
$.002.
7Includes distributions in excess of net investment income in the amount of
$.006.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Michigan Insured Tax-Free Income Fund AMOUNT VALUE
aLong Term Investments 98.7%
<S> <C> <C>
Allegan Public School District, AMBAC Insured, 5.75%, 5/01/22 ........................................ $ 4,165,000 $ 4,229,391
Allegan Public School District GO, School Building and Site, AMBAC Insured, 5.875%, 5/01/18 .......... 1,325,000 1,365,625
Allendale Public School District, School Building, MBIA Insured,
5.875%, 5/01/14 ...................................................................................... 2,000,000 2,075,480
6.00%, 5/01/24 ....................................................................................... 3,750,000 3,934,725
Almont Community Schools, FGIC Insured, 5.50%, 5/01/26 ............................................... 1,925,000 1,889,445
Alpena Public Schools GO, MBIA Insured, 5.625%, 5/01/22 .............................................. 1,665,000 1,675,323
bAnchor Bay School District, MBIA Insured, 5.50%, 5/01/26 ............................................. 7,380,000 7,274,614
Avondale School District, AMBAC Insured, 5.75%, 5/01/22 .............................................. 3,850,000 3,906,634
Bath Community Schools GO, Refunding, FGIC Insured, 5.75%, 5/01/25 ................................... 1,625,000 1,645,264
Berkley City School District, FGIC Insured,
5.625%, 1/01/15 ...................................................................................... 2,060,000 2,114,672
6.00%, 1/01/19 ....................................................................................... 2,125,000 2,216,779
Big Rapids Public School District, Building and Site, FGIC Insured, 5.625%, 5/01/25 .................. 1,470,000 1,476,938
Brandon School District, FGIC Insured, 5.875%,
5/01/16............................................................................................... 5,540,000 5,739,772
5/01/26............................................................................................... 7,000,000 7,172,970
Breitung Township School District GO,
FSA Insured, Pre-Refunded, 7.20%, 5/01/19 ............................................................ 7,500,000 8,069,550
Refunding, MBIA Insured, 6.30%, 5/01/15 .............................................................. 2,935,000 3,116,765
Byron Center Public Schools, Refunding, MBIA Insured, 5.875%, 5/01/24 ................................ 5,250,000 5,387,340
bCadillac Area Public Schools, FGIC Insured, 5.50%, 5/01/22 ........................................... 5,375,000 5,303,136
Caledonia Community Schools,
MBIA Insured, 5.85%, 5/01/22 ......................................................................... 4,400,000 4,520,428
Refunding, AMBAC Insured, 6.625%, 5/01/14 ............................................................ 3,750,000 4,032,113
Refunding, AMBAC Insured, 5.50%, 5/01/22 ............................................................. 1,500,000 1,501,725
Calhoun County, Western Calhoun County Sanitary Sewer System No. 1,
Township of Emmett, Refunding, AMBAC Insured,
Pre-Refunded, 7.75%, 11/01/18 ....................................................................... 1,290,000 1,344,864
Calumet, Laurium and Keweenaw Public Schools GO, FSA Insured, 5.875%, 5/01/20 ........................ 875,000 893,340
Cedar Springs Public School District, MBIA Insured, 5.875%,
5/01/19............................................................................................... 4,175,000 4,274,991
5/01/24............................................................................................... 3,875,000 3,950,408
Central Michigan University Revenue, FGIC Insured, 5.625%, 10/01/22 .................................. 2,500,000 2,520,675
Chelsea School District, FGIC Insured, 5.875%, 5/01/25 ............................................... 3,140,000 3,224,309
Chippewa Valley Schools GO, BIG Insured, Pre-Refunded, 7.40%,
5/01/07............................................................................................... 500,000 534,000
5/01/08 .............................................................................................. 500,000 534,000
5/01/09............................................................................................... 500,000 534,000
5/01/10 .............................................................................................. 500,000 534,000
Clarkston Community Schools, MBIA Insured, 5.25%, 5/01/23 ............................................ 1,925,000 1,843,784
Coldwater Community Schools, MBIA Insured,
6.20%, 5/01/15 ....................................................................................... 1,100,000 1,174,228
6.30%, 5/01/23 ....................................................................................... 1,700,000 1,811,809
De Witt Public Schools, AMBAC Insured,
5.70%, 5/01/21 ....................................................................................... 6,905,000 6,981,024
5.50%, 5/01/26 ....................................................................................... 5,500,000 5,460,290
Dearborn EDC Hospital Revenue, Oakwood Obligation Group, Series A,
FGIC Insured, 5.875%, 11/15/25 ....................................................................... 4,400,000 4,499,440
Refunding, MBIA Insured, 5.25%, 8/15/21 .............................................................. 1,000,000 963,040
Detroit City School District, Series A, AMBAC Insured, 5.70%, 5/01/25 ................................ 14,000,000 14,098,840
Detroit Sewage Disposal Revenue, Refunding, Series B, MBIA Insured, 5.25%, 7/01/21 ................... 4,000,000 3,872,920
Detroit State Aid GO, AMBAC Insured, Pre-Refunded, 7.20%, 5/01/09 .................................... 6,000,000 6,417,000
Detroit Water Supply System Revenue,
FGIC Insured, Pre-Refunded, 7.125%, 7/01/10 .......................................................... 4,960,000 5,423,512
FGIC Insured, Pre-Refunded, 7.25%, 7/01/20 ........................................................... 3,500,000 3,838,590
Refunding, FGIC Insured, 6.25%, 7/01/12 .............................................................. 5,000,000 5,347,800
Series A, MBIA Insured, 5.00%, 7/01/27 ............................................................... 5,000,000 4,635,150
Detroit/Wayne County Stadium Authority, FGIC Insured, 5.25%, 2/01/27 ................................. 5,000,000 4,783,450
Dexter Community Schools, Refunding, AMBAC Insured, 5.70%, 5/01/14 ................................... $ 1,050,000 $ 1,073,415
East Detroit School District, Refunding, FGIC Insured, 6.10%, 5/01/16 ................................ 6,000,000 6,372,660
East Lansing Building Authority GO, Refunding, AMBAC Insured, 7.00%, 10/01/16 ........................ 1,250,000 1,325,775
Eastern Michigan University Revenue,
FGIC Insured, 5.50%, 6/01/27 ......................................................................... 7,250,000 7,175,978
Refunding, AMBAC Insured, 6.375%, 6/01/14 ............................................................ 1,000,000 1,077,060
Eaton Rapids Public Schools, Building and Site, MBIA Insured, 5.50%, 5/01/20 ......................... 2,435,000 2,431,664
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/17 .......................................... 5,000,000 4,981,750
Farmington Hills Hospital Finance Authority Revenue, Refunding, Botsford
General Hospital, Series A, MBIA Insured, 7.10%, 2/15/14 .............................................. 10,140,000 10,943,696
Ferndale School District GO, FGIC Insured,
5.50%, 5/01/22 ....................................................................................... 4,525,000 4,527,987
Refunding, 5.375%, 5/01/21 ........................................................................... 4,185,000 4,088,829
Ferris State College Revenue, AMBAC Insured,
6.15%, 10/01/14 ...................................................................................... 1,000,000 1,069,420
6.25%, 10/01/19 ...................................................................................... 1,000,000 1,063,720
Ferris State University Revenue, AMBAC Insured,
5.75%, 10/01/17 ...................................................................................... 2,500,000 2,565,625
5.85%, 10/01/22 ...................................................................................... 2,500,000 2,561,250
5.90%, 10/01/26 ...................................................................................... 6,600,000 6,787,902
Fowlerville Community School District,
MBIA Insured, 5.60%, 5/01/21 ......................................................................... 2,000,000 2,017,640
Refunding, FGIC Insured, 5.75%, 5/01/20 .............................................................. 2,150,000 2,185,712
Gibraltar School District GO, FSA Insured, Pre-Refunded, 7.00%, 5/01/15 .............................. 4,000,000 4,190,400
Gladstone Area Public Schools GO, AMBAC Insured, 5.50%, 5/01/26 ...................................... 1,500,000 1,491,300
Godfrey-Lee Public School District, MBIA Insured, 5.50%, 5/01/27 ..................................... 1,150,000 1,134,993
Gogebic-Iron Wastewater Authority, Wastewater Treatment System Revenue,
Refunding, MBIA Insured, 5.95%, 1/01/15 ............................................................... 1,015,000 1,044,597
Grand Haven Area Public Schools, Refunding, MBIA Insured, 6.05%, 5/01/14 ............................. 5,000,000 5,281,400
Grand Ledge Public School District, MBIA Insured,
Pre-Refunded, 6.60%, 5/01/24 ......................................................................... 10,000,000 11,344,600
Refunding, 5.375%, 5/01/24 ........................................................................... 11,955,000 11,680,872
Grand Rapids Community College, MBIA Insured, 5.90%,
5/01/19............................................................................................... 610,000 624,884
5/01/22............................................................................................... 1,725,000 1,761,156
Grand Rapids Downtown Development Authority, Tax Increment Revenue,
MBIA Insured, 6.875%, 6/01/24 ........................................................................ 7,500,000 8,334,675
Grand Rapids Sanitary Sewer System Revenue, Refunding and Improvement,
MBIA Insured, 6.00%, 1/01/20 ......................................................................... 3,850,000 3,901,975
Grand Rapids Water Supply System Revenue, FGIC Insured, Pre-Refunded, 7.25%, 1/01/20 ................. 5,375,000 5,837,949
Grand Traverse County Building Authority, AMBAC Insured, 5.75%, 9/01/15 .............................. 1,700,000 1,747,515
Grand Traverse County Hospital Finance Authority Revenue, Refunding,
Munson Healthcare, Series A, AMBAC Insured, 6.25%,
7/01/12 .............................................................................................. 2,500,000 2,673,900
7/01/22 .............................................................................................. 7,900,000 8,328,970
Gratiot County EDC Limited Obligation Revenue, Masonic Home Project,
AMBAC Insured, Pre-Refunded, 7.375%, 4/01/20 ......................................................... 3,000,000 3,287,820
Greenville Public School Building GO, MBIA Insured, 5.75%,
5/01/19............................................................................................... 1,850,000 1,885,187
5/01/24............................................................................................... 1,050,000 1,066,349
Grosse Ile Township School District, Refunding, FGIC Insured, 6.00%, 5/01/22 ......................... 5,100,000 5,273,196
Harrison Community Schools GO, AMBAC Insured, 6.25%, 5/01/13 ......................................... 4,715,000 5,104,412
Haslett Public School District GO,
FSA Insured, Pre-Refunded, 7.50%, 5/01/20 ............................................................ 4,000,000 4,369,520
MBIA Insured, 5.70%, 5/01/26 ......................................................................... 3,900,000 3,945,825
Refunding, FSA Insured, 6.625%, 5/01/19 .............................................................. 3,875,000 4,163,184
Hastings School District, FGIC Insured, 5.625%, 5/01/15 .............................................. 1,000,000 1,015,920
Holland School District GO, Refunding, AMBAC Insured, 6.375%, 5/01/10 ................................ 2,000,000 2,144,620
Holly Area School District, FGIC Insured, 5.625%, 5/01/25 ............................................ 8,775,000 8,849,061
Holt Public Schools, Building and Site, MBIA Insured,
6.25%, 5/01/16 ....................................................................................... 1,000,000 1,048,960
6.25%, 5/01/18 ....................................................................................... 3,060,000 3,204,585
6.30%, 5/01/20 ....................................................................................... 2,525,000 2,644,180
6.50%, 5/01/21 ....................................................................................... 1,425,000 1,501,622
Hopkins Public Schools, FGIC Insured,
5.70%, 5/01/21 ....................................................................................... $ 4,000,000 $ 4,058,960
5.50%, 5/01/26 ....................................................................................... 1,000,000 992,780
Houghton-Portage Township School District, Refunding,
AMBAC Insured, 6.00%, 5/01/14 ........................................................................ 2,000,000 2,106,140
FSA Insured, Pre-Refunded, 7.00%, 5/01/17 ............................................................ 2,700,000 2,828,520
Howell Public Schools, MBIA Insured, 5.60%, 5/01/21 .................................................. 3,475,000 3,474,687
Hudsonville Building Authority, Refunding, AMBAC Insured, 6.60%, 10/01/17 ............................ 750,000 795,068
Hudsonville Public Schools GO, Refunding, Series B, FGIC Insured,
6.05%, 5/01/19 ....................................................................................... 2,000,000 2,104,320
6.10%, 5/01/24 ....................................................................................... 2,000,000 2,104,100
Huron Valley School District, FGIC Insured,
5.75%, 5/01/22 ....................................................................................... 2,350,000 2,379,305
Refunding, 6.125%, 5/01/20 ........................................................................... 11,535,000 12,030,774
Imlay City Community School District GO, Refunding, FSA Insured, Pre-Refunded, 6.70%, 5/01/21 ........ 6,800,000 7,462,864
Jackson County GO, Pre-Refunded, 8.60%, 4/01/12 ...................................................... 400,000 420,700
Kalamazoo Hospital Finance Authority Facility Revenue,
Borgess Medical Center, Series A, AMBAC Insured, 5.625%, 6/01/14 ..................................... 3,805,000 3,855,150
Refunding and Improvement, Bronson Methodist, MBIA Insured, 5.875%, 5/15/26 .......................... 25,940,000 26,442,977
Refunding and Improvement, Bronson Methodist, Series A, MBIA Insured, 6.25%, 5/15/12 ................. 5,000,000 5,363,500
Refunding and Improvement, Bronson Methodist, Series A, MBIA Insured, 6.375%, 5/15/17 ................ 2,460,000 2,632,397
Kelloggsville Public School District GO, FGIC Insured, 5.75%, 5/01/13 ................................ 1,000,000 1,032,330
Kenowa Hills Public Schools, MBIA Insured, 5.875%,
5/01/21............................................................................................... 1,235,000 1,263,035
5/01/26............................................................................................... 9,000,000 9,204,300
Kent Hospital Finance Authority Health Care Revenue, Butterworth Health System,
Series A, MBIA Insured, 5.625%, 1/15/26 .............................................................. 15,500,000 15,504,805
Lake Linden-Hubbell Public Schools, FSA Insured,
5.40%, 5/01/18 ....................................................................................... 825,000 824,934
5.50%, 5/01/23 ....................................................................................... 675,000 677,248
Lake Orion Community School District GO, Refunding, AMBAC Insured, 5.50%, 5/01/20 .................... 2,200,000 2,205,830
Lake Shore Public Schools, Macomb County, FSA Insured, 5.50%,
5/01/17............................................................................................... 4,500,000 4,488,885
5/01/20............................................................................................... 3,540,000 3,508,034
Lake Superior State University Revenue,
AMBAC Insured, 6.375%, 11/15/15 ...................................................................... 1,500,000 1,628,115
MBIA Insured, 6.50%, 11/15/11 ........................................................................ 2,135,000 2,322,816
Lakeshore Public Schools, Berrien County, MBIA Insured, 5.70%, 5/01/22 ............................... 3,500,000 3,530,730
Lakeview Community Schools GO, Refunding, MBIA Insured, 6.75%, 5/01/13 ............................... 1,500,000 1,624,800
Lakewood Public Schools, MBIA Insured,
5.375%, 5/01/20 ...................................................................................... 3,300,000 3,238,290
5.75%, 5/01/22 ....................................................................................... 2,200,000 2,234,254
Lansing Building Authority, Refunding, MBIA Insured, 5.60%, 6/01/19 .................................. 1,470,000 1,475,321
Leslie Public Schools GO, Ingham and Jackson Counties, Refunding, AMBAC Insured, 6.00%, 5/01/25 ...... 3,500,000 3,651,025
Lincoln Park School District, FGIC Insured,
5.85%, 5/01/15 ....................................................................................... 2,885,000 3,007,930
5.90%, 5/01/26 ....................................................................................... 6,050,000 6,282,260
Marquette City Hospital Finance Authority Revenue, Refunding, Marquette General Hospital,
Series C, AMBAC Insured, Pre-Refunded, 7.50%, 4/01/07 ................................................ 5,000,000 5,362,250
Series D, FSA Insured, 5.875%, 4/01/11 ............................................................... 4,525,000 4,767,042
Series D, FSA Insured, 6.10%, 4/01/19 ................................................................ 5,225,000 5,507,882
Marysville Public School District, MBIA Insured, 5.75%, 5/01/22 ...................................... 1,100,000 1,115,620
Mason Public School District, FGIC Insured, 5.40%, 5/01/21 ........................................... 1,400,000 1,376,018
Mattawan Consolidated School District, AMBAC Insured, Pre-Refunded,
7.50%, 5/01/13 ....................................................................................... 775,000 808,790
7.55%, 5/01/16 ....................................................................................... 775,000 809,038
Menominee Area Public School District GO, Refunding, AMBAC Insured, 6.00%, 5/01/20 ................... 2,675,000 2,810,275
Merrill Community School District, FGIC Insured, 5.60%, 5/01/26 ...................................... 4,000,000 4,029,320
Michigan Higher Education Student Loan Authority Revenue, Series XIII-A, MBIA Insured,
7.40%, 10/01/04 ...................................................................................... $ 1,360,000 $ 1,440,838
7.55%, 10/01/08 ...................................................................................... 1,325,000 1,392,827
Michigan Municipal Bond Authority Revenue, Local Government Loan Program,
Group 15, AMBAC Insured, 7.60%, 5/01/09 .............................................................. 850,000 900,269
Refunding, Series G, AMBAC Insured, 6.75%, 11/01/14 .................................................. 6,490,000 7,194,749
Refunding, Series G, AMBAC Insured, 6.80%, 11/01/14 .................................................. 1,650,000 1,834,058
Refunding, Series G, AMBAC Insured, 6.80%, 11/01/23 .................................................. 825,000 907,632
Series C, MBIA Insured, 6.00%, 11/01/10 .............................................................. 3,790,000 4,013,875
Michigan Public Power Agency Revenue, Refunding, Campbell Project,
AMBAC Insured, Pre-Refunded, 6.125%, 1/01/10.......................................................... 1,900,000 1,951,471
Michigan State Building Authority Revenue,
Detroit Regional Prisons, Series I, MBIA Insured, Pre-Refunded, 7.25%, 10/01/08 ...................... 10,000,000 10,630,200
Refunding, Series I, AMBAC Insured, 6.25%, 10/01/20 .................................................. 1,500,000 1,566,000
Series II, MBIA Insured, 6.25%, 10/01/20 ............................................................. 4,645,000 4,873,859
Series II, MBIA Insured, ETM, 7.40%, 4/01/01 ......................................................... 5,000,000 5,289,250
Michigan State Comprehensive Transportation Revenue,
Refunding, Series 1988-II, 7.625%, 5/01/11 ........................................................... 1,750,000 1,823,710
Series A, MBIA Insured, 5.50%, 5/15/22 ............................................................... 4,500,000 4,433,850
Michigan State HDA, Series A,
MFHR, FGIC Insured, 7.55%, 7/01/09 ................................................................... 2,880,000 3,006,403
MFHR, FGIC Insured, 7.65%, 7/01/15 ................................................................... 2,945,000 3,066,275
MFHR, FGIC Insured, 7.70%, 7/01/18 ................................................................... 4,415,000 4,596,280
SFMR, AMBAC Insured, 5.95%, 6/01/17 .................................................................. 2,500,000 2,567,800
SFMR, AMBAC Insured, 6.05%, 12/01/27 ................................................................. 1,000,000 1,031,280
Michigan State Hospital Finance Authority Revenue,
Crittenton Hospital, Series A, FGIC Insured, 6.75%, 3/01/20 .......................................... 1,750,000 1,840,475
Holland Community Hospital, AMBAC Insured, 5.625%, 1/01/28 ........................................... 3,000,000 3,000,960
Mercy Health Services, Series U, MBIA Insured, 5.75%, 8/15/26 ........................................ 2,300,000 2,335,673
Oakwood Hospital, FGIC Insured, Pre-Refunded, 7.10%, 7/01/18 ......................................... 13,250,000 14,479,468
Oakwood Hospital Obligated Group, Series B, FGIC Insured, Pre-Refunded, 7.20%, 11/01/15 .............. 10,000,000 10,975,500
Refunding, Mercy Health Services, Series T, MBIA Insured, 5.75%, 8/15/15 ............................. 10,525,000 10,780,547
Refunding, MidMichigan, MBIA Insured, 6.625%, 6/01/10 ................................................ 3,500,000 3,686,725
Refunding, Oakland General Hospital Obligation, AMBAC Insured, 7.00%, 7/01/15 ........................ 9,020,000 9,571,483
Refunding, Sparrow Obligated Group, MBIA Insured, 6.50%, 11/15/11 .................................... 1,500,000 1,628,115
Refunding, St. John's Hospital, Series A, AMBAC Insured, 6.00%, 5/15/13 .............................. 3,445,000 3,604,331
Refunding, St. John's Hospital, Series A, AMBAC Insured, 6.25%, 5/15/14 .............................. 9,545,000 10,135,836
Michigan State Strategic Fund Limited Obligation Revenue,
Refunding, Detroit Edison Co., Pollution Project, FGIC Insured, 6.875%, 12/01/21 ..................... 20,000,000 21,635,800
Refunding, Detroit Edison Co., Pollution Project, Series AA, FGIC Insured, 6.95%, 5/01/11 ............ 5,000,000 5,923,300
Refunding, Detroit Edison Co., Pollution Project, Series BB, AMBAC Insured, 7.00%, 5/01/21 ........... 3,000,000 3,636,600
Refunding, Detroit Edison Co., Pollution Project, Series BB, MBIA Insured, 6.05%, 10/01/23 ........... 1,285,000 1,341,579
Refunding, Detroit Edison Co., Pollution Project, Series BB, MBIA Insured, 6.20%,8/15/25 ............. 10,250,000 10,858,133
Refunding, Detroit Edison Co., Pollution Project, Series CC, FGIC Insured, 6.95%, 9/01/21 ............ 5,540,000 5,990,236
Refunding, Detroit Edison Co., Pollution Project, Series CC, MBIA Insured, 6.05%, 10/01/23 ........... 5,825,000 6,081,475
St. John-Bon Secours Care Center, 7.90%, 11/15/16 .................................................... 1,800,000 1,846,926
Michigan State Trunk Line,
Refunding, Series B, AMBAC Insured, 5.50%, 10/01/21 .................................................. 1,400,000 1,377,908
Refunding, Series B, MBIA Insured, 5.50%, 10/01/21 ................................................... 4,500,000 4,428,990
Series A, FGIC Insured, 5.625%, 11/01/20 ............................................................. 2,765,000 2,777,277
Series A, FGIC Insured, 5.50%, 10/01/21 .............................................................. 1,475,000 1,451,725
Series A, FGIC Insured, 5.80%, 11/15/24 .............................................................. 6,000,000 6,097,661
Series A, FGIC Insured, 5.625%, 11/01/26 ............................................................. 8,990,000 9,029,916
Monroe County EDC Limited Obligation Revenue, Monroe Community
Health Services, MBIA Insured, Pre-Refunded, 7.00%, 9/01/21 .......................................... 2,500,000 2,787,350
Monroe County PCR, Detroit Edison Co.,
Series 1, MBIA Insured, 6.875%, 9/01/22 .............................................................. 4,000,000 4,314,600
Series 1-B, MBIA Insured, 6.55%, 9/01/24 ............................................................. 4,000,000 4,276,040
Series CC, AMBAC Insured, 7.50%, 12/01/19 ............................................................ 10,000,000 10,910,100
Series CC, MBIA Insured, 6.55%, 6/01/24 .............................................................. 1,150,000 1,227,234
Morley-Stanwood Community Schools, Building and Site, FGIC Insured, 5.625%, 5/01/21 .................. $ 2,000,000 $ 2,005,940
Muskegon Public Schools, Series 95, FGIC Insured, 5.25%,
5/01/18............................................................................................... 1,900,000 1,880,943
5/01/21............................................................................................... 2,000,000 1,952,200
Northern Michigan University Revenue, AMBAC Insured,
5.60%, 12/01/13 ...................................................................................... 1,715,000 1,743,898
6.55%, 12/01/14 ...................................................................................... 1,000,000 1,107,290
Northview Public School District, Refunding, MBIA Insured, 5.80%, 5/01/21 ............................ 4,500,000 4,614,705
Norway Electric Utilities System Revenue, Refunding, AMBAC Insured, 5.375%, 2/01/12 .................. 1,000,000 1,002,960
Novi Community School District,
Building and Site, FGIC Insured, 5.30%, 5/01/21 ...................................................... 1,960,000 1,895,732
FGIC Insured, 6.125%, 5/01/18........................................................................ 4,750,000 4,963,228
Oakland Community College District, Washtenaw County, AMBAC Insured, 6.65%, 5/01/11 .................. 3,500,000 3,877,475
Otsego Public School District, Building and Site, FSA Insured, 6.625%, 5/01/16 ....................... 2,270,000 2,444,518
Paw Paw Public School District, Building and Site, FGIC Insured, 5.625%, 5/01/25 ..................... 3,500,000 3,544,170
Petoskey Hospital Finance Authority Facilities Revenue, Refunding,
Northern Michigan Hospital, MBIA Insured,
7.00%, 11/15/07 ...................................................................................... 4,500,000 4,836,645
6.75%, 11/15/19 ...................................................................................... 1,000,000 1,048,910
Pinckney Community Schools, Livingston and Washtenaw Counties, FGIC Insured, 5.50%, 5/01/27 .......... 1,300,000 1,292,356
Plymouth-Canton Community School District,
Refunding, AMBAC Insured, 5.50%, 5/01/13 ............................................................. 4,000,000 4,057,040
Series C, FGIC Insured, 6.50%, 5/01/16 ............................................................... 3,500,000 3,795,435
Series C, MBIA Insured, 6.50%, 5/01/16 ............................................................... 3,000,000 3,253,230
Pontiac General Building Authority, Refunding, AMBAC Insured, 6.875%, 4/01/06 ........................ 1,305,000 1,411,971
Port Huron School District,
FSA Insured, Pre-Refunded, 7.25%, 5/01/15 ............................................................ 5,500,000 6,023,160
Refunding, AMBAC Insured, 6.00%, 5/01/12 ............................................................. 4,500,000 4,718,070
Portage Lake Water and Sewer Authority GO, Refunding, AMBAC Insured,
6.10%, 10/01/14 ...................................................................................... 770,000 831,931
6.20%, 10/01/20 ...................................................................................... 670,000 722,535
Portage Public Schools GO, MBIA Insured, 5.625%, 5/01/19 ............................................. 2,750,000 2,772,715
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
ETM, 8.75%, 7/01/00 .................................................................................. 500,000 560,665
Pre-Refunded, 9.00%, 7/01/09 ......................................................................... 2,500,000 3,179,825
Puerto Rico Commonwealth Public Improvement GO, MBIA Insured, 6.75%, 7/01/06 ......................... 2,280,000 2,344,319
Puerto Rico Electric Power Authority Revenue,
Refunding, Series B, MBIA Insured, 5.00%, 7/01/07 .................................................... 5,145,000 5,232,568
Refunding, Series U, FSA Insured, 6.00%, 7/01/14 ..................................................... 3,400,000 3,582,852
Series P, FSA Insured, Pre-Refunded, 7.00%, 7/01/21 .................................................. 7,000,000 7,817,950
Series AA, MBIA Insured, 5.00%, 7/01/08 .............................................................. 7,335,000 7,438,644
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Insured, 6.85%, 10/15/23 ...................... 1,290,000 1,368,484
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ........................... 8,700,000 9,493,092
Redford Unified School District No. 1, FGIC Insured, 6.00%, 5/01/22 .................................. 14,090,000 14,836,066
Rockford Public Schools GO, Refunding,
AMBAC Insured, 5.875%, 5/01/19 ....................................................................... 3,900,000 3,973,749
FGIC Insured, 5.25%, 5/01/22 ......................................................................... 1,250,000 1,203,100
FGIC Insured, 5.25%, 5/01/27.......................................................................... 3,000,000 2,865,360
FSA Insured, 5.875%, 5/01/19 ......................................................................... 3,150,000 3,209,567
FSA Insured, Pre-Refunded, 7.375%, 5/01/19 ........................................................... 9,750,000 10,620,285
MBIA Insured, 5.875%, 5/01/12 ........................................................................ 1,850,000 1,906,777
MBIA Insured, 5.875%, 5/01/19 ........................................................................ 1,925,000 1,961,402
Romulus Community Schools, Refunding, FGIC Insured, 5.75%,
5/01/13 .............................................................................................. 690,000 714,109
5/01/17 .............................................................................................. 1,200,000 1,228,224
5/01/22 .............................................................................................. 5,435,000 5,545,711
Royal Oak Hospital Finance Authority Revenue, Refunding, MBIA Insured, 6.25%, 1/01/19 ................ 5,000,000 5,251,950
Saginaw Hospital Finance Authority Revenue, Refunding, St. Luke's Hospital Project, MBIA Insured,
Series C, 6.875%, 7/01/14 ............................................................................ $ 5,325,000 $ 5,706,217
Series C, 6.75%, 7/01/17 ............................................................................. 2,000,000 2,132,480
Series C, 6.00%, 7/01/21 ............................................................................. 3,875,000 3,951,338
Series D, 6.50%, 7/01/11 ............................................................................. 1,000,000 1,076,450
Saranac Community School District, Building and Site, MBIA Insured, 5.25%, 5/01/21 ................... 1,350,000 1,331,897
Sault Ste. Marie Water Treatment GO, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/10 ..................... 2,000,000 2,167,660
Schoolcraft Community School District, FGIC Insured,
5.75%, 5/01/21 ....................................................................................... 3,575,000 3,614,254
5.375%, 5/01/26 ...................................................................................... 1,000,000 967,990
Shelby Charter Township Building Authority, AMBAC Insured, 5.75%,
11/01/11 ............................................................................................. 750,000 777,870
11/01/12 ............................................................................................. 750,000 778,448
Shelby Public School District, Series 95, MBIA Insured, 5.625%, 5/01/21 .............................. 1,925,000 1,950,487
South Haven Public Schools, Refunding, FGIC Insured, 5.50%,
5/01/13 .............................................................................................. 1,000,000 1,013,000
5/01/17 .............................................................................................. 1,725,000 1,734,488
South Redford School District, FGIC Insured, 5.50%, 5/01/22 .......................................... 4,610,000 4,597,276
St. Clair County EDC, PCR, Refunding, Detroit Edison Co., Series DD,
AMBAC Insured, 6.05%, 8/01/24 ........................................................................ 7,745,000 8,045,119
St. Johns Public Schools, FGIC Insured,
5.625%, 5/01/20 ...................................................................................... 7,000,000 7,053,830
5.75%, 5/01/25 ....................................................................................... 2,000,000 2,026,440
Sturgis Public School District, MBIA Insured, 6.10%, 5/01/18 ......................................... 1,000,000 1,057,790
Thornapple Kellogg School District, FGIC Insured, 5.375%, 5/01/22 .................................... 1,960,000 1,908,922
Three Rivers Community Schools, Building and Site, MBIA Insured, 6.00%, 5/01/23 ...................... 2,400,000 2,542,512
Traverse City Area Public Schools, Building and Site, Series I, MBIA Insured, 5.70%, 5/01/20 ......... 4,550,000 4,627,305
University Revenues Medical Service Plan, MBIA Insured, 6.50%, 12/01/21 .............................. 2,365,000 2,509,170
Vestaburg Community Schools, Refunding, MBIA Insured, 5.50%, 5/01/26 ................................. 1,000,000 992,780
Vicksburg Community Schools, Refunding, MBIA Insured, 5.625%,
5/01/12 .............................................................................................. 2,175,000 2,224,329
5/01/20 .............................................................................................. 1,000,000 1,011,380
Walled Lake Consolidated School District, Refunding, MBIA Insured, 5.50%, 5/01/22 .................... 3,000,000 2,987,700
Wayland Union School District, FGIC Insured, 6.75%, 5/01/24 .......................................... 2,000,000 2,235,300
Wayne Charter County Airport Revenue, Sub Lien, Detroit Metro Airport, MBIA Insured,
Refunding, Series C, 5.25%, 12/01/21 ................................................................. 1,000,000 970,560
Series A, Pre-Refunded, 7.00%, 12/01/21 .............................................................. 6,635,000 7,433,058
Series B, 6.875%, 12/01/11 ........................................................................... 300,000 328,995
Series B, 6.75%, 12/01/21 ............................................................................ 2,000,000 2,166,920
Wayne County Airport Revenue, Sub Lien, Series B, AMBAC Insured, 6.00%, 12/01/20 ..................... 10,585,000 10,779,870
Wayne County, Ecorse Creek Drain District, Pollution Abatement No. 1, AMBAC Insured,
7.40%, 11/01/04 ...................................................................................... 500,000 517,305
7.50%, 11/01/05 ...................................................................................... 500,000 517,340
7.50%, 11/01/06 ...................................................................................... 490,000 507,037
7.50%, 11/01/07 ...................................................................................... 450,000 465,683
Wayne-Westland Community Schools, Refunding, FGIC Insured, 6.10%, 5/01/13 ............................ 2,275,000 2,410,886
West Ottawa Public School District, FGIC Insured,
5.60%, 5/01/21 ....................................................................................... 2,355,000 2,374,005
5.60%, 5/01/26 ....................................................................................... 12,100,000 12,152,635
Refunding, 6.00%, 5/01/20 ............................................................................ 6,630,000 6,853,166
Western Michigan University Revenue, FGIC Insured, 6.25%, 11/15/12 ................................... 5,000,000 5,352,700
Western School District, Refunding, MBIA Insured, 5.50%, 5/01/20 ..................................... 1,660,000 1,663,254
Western Townships Utilities Authority GO, Sewer Disposal System, Refunding, FSA Insured,
6.75%, 1/01/15 ....................................................................................... 18,710,000 19,892,846
6.50%, 1/01/19 ....................................................................................... 6,115,000 6,438,117
White Cloud Public Schools, Refunding, FSA Insured, 5.50%, 5/01/20 ................................... 1,000,000 1,002,390
Williamston Community School District, Building and Site, MBIA Insured, 5.375%, 5/01/15 .............. 4,900,000 4,917,346
Williamston County GO, Refunding, AMBAC Insured, 6.90%, 11/01/17 ..................................... 1,800,000 1,968,930
Wyandotte City School District, Refunding, FSA Insured, 5.625%, 5/01/13 .............................. 1,800,000 1,838,556
Wyandotte Electric Revenue, Refunding, 10/01/17,
AMBAC Insured, Pre-Refunded, 7.875%................................................................... $16,060,000 $ 16,431,307
MBIA Insured, 6.25%................................................................................... 9,980,000 10,692,572
Yale Public School District GO, Building and Site, AMBAC Insured,
5.375%, 5/01/17 ...................................................................................... 2,000,000 1,989,040
5.50%, 5/01/19 ....................................................................................... 1,500,000 1,502,940
Ypsilanti School District, Refunding, FGIC Insured,
5.75%, 5/01/20 ....................................................................................... 4,700,000 4,786,715
5.375%, 5/01/26 ...................................................................................... 2,000,000 1,949,900
Zeeland Public Schools, Refunding, Series B, MBIA Insured, Pre-Refunded,
6.05%, 5/01/19 ....................................................................................... 2,900,000 3,190,232
6.10%, 5/01/24 ....................................................................................... 4,000,000 4,411,720
------------
Total Long Term Investments (Cost $1,070,260,208)..................................................... 1,129,834,084
------------
aShort Term Investments .1%
Delta County EDC Environmental Improvement Revenue, Refunding,
Mead Escanaba Paper Project, Daily VRDN and Put, 12/01/23
3.75% ................................................................................................ 100,000 100,000
Series C, 3.70% ...................................................................................... 200,000 200,000
Grand Rapids Water Supply System Revenue, Refunding, FGIC Insured,
Daily VRDN and Put, 3.25%, 1/01/20 ................................................................... 100,000 100,000
Michigan State Strategic Fund Limited Obligation Revenue, Refunding,
Detroit Edison Co., Series CC, Daily VRDN and Put, 3.70%, 9/01/30 .................................... 200,000 200,000
Midland County EDC Limited Obligation Revenue, Dow Chemical Co. Project, Daily VRDN and Put,
Refunding, Series B, 3.70%, 12/01/15 ................................................................. 400,000 400,000
Series A, 3.80%, 12/01/23 ............................................................................ 300,000 300,000
------------
Total Short Term Investments (Cost $1,300,000)........................................................ 1,300,000
------------
Total Investments (Cost $1,071,560,208) 98.8%......................................................... 1,131,134,084
Other Assets, less Liabilities 1.2%................................................................... 13,647,066
------------
Net Assets 100.0%..................................................................................... $1,144,781,150
============
</TABLE>
See glossary of abbreviations on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Minnesota Insured Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $12.01 $12.14 $11.88 $12.33 $12.35 $11.68
---------------------------------------------------------------------
Income from investment operations:
Net investment income ................................ .32 .65 .67 .69 .70 .73
Net realized and unrealized gains (losses) ........... .08 (.12) .27 (.45) (.01) .67
---------------------------------------------------------------------
Total from investment operations ...................... .40 .53 .94 .24 .69 1.40
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income ................. (.32) (.66) (.68) (.69) (.71) (.73)
---------------------------------------------------------------------
Net asset value, end of period ........................ $12.09 $12.01 $12.14 $11.88 $12.33 $12.35
=====================================================================
Total return* ......................................... 3.39% 4.54% 8.06% 2.12% 5.42% 12.23%
Ratios/Supplemental Data
Net assets, end of period (000's) ..................... $482,865 $482,128 $492,139 $479,934 $499,619 $445,767
Ratios to average net assets:
Expenses ............................................. .69%** .66% .66% .66% .60% .63%
Net investment income ................................ 5.37%** 5.47% 5.58% 5.81% 5.67% 6.12%
Portfolio turnover rate ............................... 9.08% 14.40% 17.72% 17.59% 13.42% 5.58%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $12.05 $12.17 $11.89
---------------------------------------
Income from investment operations:
Net investment income ................................ .29 .59 .50
Net realized and unrealized gains (losses) ........... .08 (.12) .28
---------------------------------------
Total from investment operations ...................... .37 .47 .78
---------------------------------------
Less distributions:
Dividends from net investment income ................. (.29) (.59) (.50)
---------------------------------------
Net asset value, end of period ........................ $12.13 $12.05 $12.17
=======================================
Total return* ......................................... 3.07% 3.98% 6.67%
Ratios/Supplemental Data
Net assets, end of period (000's) ..................... $6,846 $4,844 $1,152
Ratios to average net assets:
Expenses ............................................. 1.26%** 1.23% 1.25%**
Net investment income ................................ 4.80%** 4.87% 4.94%**
Portfolio turnover rate ............................... 9.08% 14.40% 17.72%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Minnesota Insured Tax-Free Income Fund AMOUNT VALUE
aLong Term Investments 99.1%
<S> <C> <C>
Albany ISD No. 745, Series A, FSA Insured, 6.00%, 2/01/16 ............................................ $ 2,295,000 $ 2,387,511
Anoka County Housing and Redevelopment Authority, Ice Arena,
Series A, MBIA Insured, 5.70%, 2/01/23 ............................................................... 2,195,000 2,236,464
Anoka County Resource Recovery Revenue, Northern States Power Co.,
AMBAC Insured, 7.15%, 12/01/08 ....................................................................... 2,100,000 2,258,487
Becker GO, Refunding, Tax Increment, Series D, MBIA Insured, 6.25%, 8/01/15 .......................... 4,870,000 5,171,989
Becker GO, Waste Water Treatment Facility, Series A, MBIA Insured,
5.90%, 2/01/12 ....................................................................................... 625,000 647,856
5.95%, 2/01/15 ....................................................................................... 610,000 630,600
Benson ISD No. 777 GO, FSA Insured, 6.00%, 2/01/15 ................................................... 290,000 297,410
Big Lake ISD No. 727, MBIA Insured,
5.625%, 2/01/19 ...................................................................................... 500,000 506,345
5.70%, 2/01/21 ....................................................................................... 3,085,000 3,129,640
Bloomington Health Care Facilities Revenue, Masonic Home Care Center,
AMBAC Insured, 5.875%, 7/01/22 ....................................................................... 2,685,000 2,749,064
Braham ISD No. 314, MBIA Insured, 5.20%, 2/01/19 ..................................................... 1,800,000 1,752,318
Brainerd Health Care Facilities Revenue, Refunding, Benedictine Health-St. Joseph,
Series D, MBIA Insured, 5.875%, 2/15/13 .............................................................. 3,500,000 3,648,575
Buffalo, AMBAC Insured, 5.55%, 6/01/17 ............................................................... 1,000,000 1,008,860
Buffalo ISD No. 877, FSA Insured, 6.15%, 2/01/18 ..................................................... 2,800,000 2,914,464
Burnsville ISD, Series A, FSA Insured, 6.20%, 2/01/17 ................................................ 2,105,000 2,232,921
Champlin EDA, Housing Development, MBIA Insured, 5.625%, 2/01/26 ..................................... 1,000,000 1,007,590
Chanhassen Apartments Project GO, Series B, AMBAC Insured, 6.20%, 1/01/25 ............................ 2,975,000 3,120,805
Columbia Heights ISD No. 013, FSA Insured,
5.375%, 2/01/19 ...................................................................................... 2,450,000 2,454,337
5.50%, 2/01/23 ....................................................................................... 6,000,000 6,021,480
Dakota, Washington and Stearns County SFMR, Series 1990, GNMA Secured,
7.80%, 12/01/10 ..................................................................................... 875,000 930,860
7.85%, 12/01/30 ..................................................................................... 3,055,000 3,241,874
Dakota County Housing and Redevelopment Authority, SFMR, FNMA & GNMA Secured,
5.75%, 4/01/18 ....................................................................................... 3,000,000 3,038,940
5.85%, 10/01/30 ...................................................................................... 5,000,000 5,064,550
Dakota County Housing and Redevelopment Authority, SFMR,
Refunding, GNMA Secured, 8.10%, 3/01/16 .............................................................. 735,000 762,827
Dilworth ISD No. 147, MBIA Insured, 6.00%, 2/01/15 ................................................... 1,040,000 1,076,743
Duluth EDA, Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured,
6.20%, 11/01/12 ...................................................................................... 2,880,000 3,089,376
6.30%, 11/01/22 ...................................................................................... 5,405,000 5,781,350
Pre-Refunded, 6.20%, 11/01/12 ........................................................................ 1,120,000 1,231,742
Pre-Refunded, 6.30%, 11/01/22 ........................................................................ 2,125,000 2,349,868
Duluth EDA, Hospital Facilities Revenue, St. Lukes Hospital, Series A,
Connie Lee Insured, 6.40%, 5/01/12 ................................................................... 3,000,000 3,113,760
Duluth EDA Tax Increment Revenue, Refunding, MBIA Insured, 7.25%, 8/01/08 ............................ 3,500,000 3,690,960
Eagan MFMR, Refunding, Forest Ridge Apartments, BIG Insured, 7.50%, 3/01/27 .......................... 4,420,000 4,611,961
Eden Prairie ISD No. 272, Series A,
FGIC Insured, 5.45%, 2/01/08 ......................................................................... 1,000,000 1,023,500
FSA Insured, 5.75%, 2/01/15 .......................................................................... 4,980,000 5,108,285
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 .................. 2,000,000 2,088,300
Eveleth EDA, Housing Development, MBIA Insured, 5.80%, 7/01/25 ....................................... 1,000,000 1,016,470
Faribault ISD No. 656, FSA Insured, 5.75%, 6/01/15 ................................................... 1,500,000 1,536,000
Ham Lake, Anoka County Housing, MBIA Insured, 6.10%, 1/01/26 ......................................... 2,180,000 2,245,683
Hibbing Health Care Facilities Revenue, The Duluth Clinic, Ltd., FSA Insured, 5.00%, 11/01/25 ........ 9,300,000 8,624,727
Inner Grove Heights, Tax Increment, Series D, MBIA Insured, 5.50%, 2/01/19 ........................... 1,000,000 1,007,990
Kenyon Wanamingo ISD No. 2172, MBIA Insured, 6.00%, 2/01/22 .......................................... 4,030,000 4,210,786
Lakeville ISD No. 194,
FGIC Insured, 5.40%, 2/01/13 ......................................................................... 1,000,000 1,004,220
FGIC Insured, 5.60%, 2/01/18 ......................................................................... 3,555,000 3,567,158
Series C, FGIC Insured, 6.70%, 2/01/12 ............................................................... 1,000,000 1,036,560
Series C, MBIA Insured, 5.125%, 2/01/13 .............................................................. 5,325,000 5,260,514
Marshall County Utility Revenue, FSA Insured, 5.375%,
1/01/14............................................................................................... 750,000 754,388
1/01/15 .............................................................................................. 825,000 828,242
Minneapolis and St. Paul Housing and Redevelopment Authority,
Health Care System Revenue, Childrens Health Care, Series A, FSA
Insured, 5.70%, 8/15/16 ............................................................................. $ 1,005,000 $ 1,035,733
Minneapolis and St. Paul Housing and Redevelopment Authority,
Health Care System Revenue, Health One Obligated Group,
Series A, MBIA Insured,
7.40%, 8/15/11 ....................................................................................... 10,390,000 11,352,530
6.75%, 8/15/14 ....................................................................................... 3,950,000 4,241,431
Minneapolis CDA and St. Paul Housing and Redevelopment Authority, Health
Care Facilities Revenue, Carondelet Community Hospitals,
Inc., Series B, BIG Insured, Pre-Refunded, 8.875%, 11/01/15 ......................................... 900,000 1,186,992
Minneapolis CDA, Tax Increment Revenue, Series 1990, MBIA Insured, 7.00%, 3/01/01 .................... 2,100,000 2,284,842
Minneapolis Hospital Facilities Revenue, Refunding,
Fairview Hospital and Healthcare, Series A, MBIA Insured, 6.50%, 1/01/11 ............................. 600,000 649,620
Fairview Hospital and Healthcare, Series B, MBIA Insured, 6.70%, 1/01/17 ............................. 7,815,000 8,410,269
LifeSpan, Inc., Series B, Pre-Refunded, 9.125%, 12/01/14 ............................................. 700,000 722,911
Minneapolis Special School District No. 001, Series A, MBIA Insured, 5.90%, 2/01/17 .................. 5,000,000 5,177,100
Minneapolis St. Paul Housing Finance Board, SFMR, GNMA Secured,
Phase VI, Series A, 8.30%, 8/01/21 ................................................................... 3,130,000 3,210,253
Series A, 8.375%, 11/01/17 ........................................................................... 690,000 712,253
Series C, 8.875%, 11/01/18 ........................................................................... 435,000 448,955
Minnesota Agriculture and Economic Development Board Revenue, Refunding,
Health Care System, Fairview Hospital, Series A,
MBIA Insured, 5.75%, 11/15/26 ....................................................................... 14,000,000 14,269,220
Minnesota State GO, Refunding, MBIA Insured, 5.40%, 8/01/09 .......................................... 3,000,000 3,060,570
Minnesota State HFA, Housing Development, MFMR, Series A, FGIC Insured, 7.80%, 8/01/18 ............... 2,000,000 2,047,460
Minnesota State HFA, MFHR, Series A, FGIC Insured, 6.375%, 2/01/20 ................................... 835,000 845,020
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured,
5.90%, 8/01/15 ....................................................................................... 1,405,000 1,445,759
5.95%, 2/01/18 ....................................................................................... 2,975,000 3,056,723
6.00%, 2/01/22 ....................................................................................... 3,490,000 3,598,504
Minnesota State HFA, SFMR,
Series A, FGIC Insured, 8.00%, 7/01/29 ............................................................... 2,760,000 2,873,132
Series B, FGIC Insured, 7.25%, 7/01/06 ............................................................... 2,085,000 2,119,882
Series B, FGIC Insured, 7.25%, 7/01/16 ............................................................... 615,000 623,333
Series C, FGIC Insured, 7.00%, 7/01/16 ............................................................... 365,000 370,157
Series D, AMBAC Insured, 7.30%, 7/01/09 .............................................................. 3,250,000 3,392,025
Series D, FGIC Insured, 8.80%, 7/01/16 ............................................................... 205,000 212,737
Series F, MBIA Insured, 6.30%, 7/01/25 ............................................................... 1,500,000 1,574,040
Series G, AMBAC Insured, 6.25%, 7/01/26 .............................................................. 2,750,000 2,870,890
Series I, MBIA Insured, 6.25%, 1/01/15 ............................................................... 1,430,000 1,493,807
Minnesota State Higher Educational Facilities Authority Revenue,
Series 3, Connie Lee Insured, 6.50%, 1/01/17 ......................................................... 3,940,000 4,140,743
Minnetonka MFHR,
Cedar Hills East Project, FGIC Insured, 7.40%, 12/01/07 .............................................. 350,000 368,603
Cedar Hills East Project, FGIC Insured, 7.50%, 12/01/27 .............................................. 1,000,000 1,039,570
Refunding, Brier Creek Project, Series A, GNMA Secured, 6.45%, 6/20/24 ............................... 2,720,000 2,861,304
New Hope MFR, Refunding, North Ridge, Series A, GNMA Secured,
6.05%, 1/01/17 ....................................................................................... 450,000 466,385
6.20%, 1/01/31 ....................................................................................... 5,470,000 5,624,801
North Branch ISD No. 138, Series A, FGIC Insured, 5.625%, 2/01/17 .................................... 1,240,000 1,258,290
North St. Paul ISD No. 622, Maplewood, Series A, MBIA Insured, Pre-Refunded, 7.10%, 2/01/19 .......... 2,000,000 2,310,780
Northeast Metropolitan ISD No. 916, FSA Insured, 5.80%, 1/01/16 ...................................... 5,475,000 5,642,261
Northern Municipal Power Agency, Minnesota Electric System Revenue,
Refunding, Series A, AMBAC Insured, 6.00%, 1/01/19 ................................................... 11,900,000 11,990,559
Refunding, Series A, AMBAC Insured, 6.00%, 1/01/20 ................................................... 4,000,000 4,029,920
Refunding, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 1/01/17 ..................................... 3,500,000 3,711,505
Refunding, Series A, AMBAC Insured, Pre-Refunded, 7.40%, 1/01/18 ..................................... 9,500,000 10,092,230
Refunding, Series A, MBIA Insured, 6.00%, 1/01/20 .................................................... 4,200,000 4,231,416
Refunding, Series B, AMBAC Insured, 5.50%, 1/01/18 ................................................... 8,150,000 8,173,635
Series B, AMBAC Insured, Pre-Refunded, 7.40%, 1/01/18 ................................................ 1,500,000 1,593,510
Series C, AMBAC Insured, 6.125%, 1/01/20 ............................................................. 8,090,000 8,425,331
Northfield College Facility Revenue, St. Olaf College Project, BIG Insured,
Pre-Refunded, 8.00%, 10/01/18......................................................................... 2,000,000 2,088,640
Owatonna Public Utilities Commission, Public Utilities Revenue,
Refunding, Series A, AMBAC Insured, 5.45%, 1/01/16 ................................................... $ 3,350,000 $ 3,365,712
Perham ISD No. 549, FSA Insured, 5.375%, 2/01/14 ..................................................... 2,500,000 2,509,750
Plymouth Health Facilities Revenue, Westhealth Project, Series A, FSA Insured,
6.25%, 6/01/16........................................................................................ 1,600,000 1,705,072
6.125%, 6/01/24 ...................................................................................... 1,815,000 1,897,818
Princeton Hospital Revenue, Fairview Hospital and Healthcare, Series C, MBIA Insured, 6.25%, 1/01/21 . 7,205,000 7,607,687
Princeton ISD No. 477, Mille Lacs County, Series A, FSA Insured, 5.375%, 2/01/17 ..................... 2,540,000 2,544,623
Puerto Rico Commonwealth Public Improvement GO,
MBIA Insured, 6.50%, 7/01/23 ......................................................................... 3,000,000 3,278,430
Series A, FGIC Insured, Pre-Refunded, 7.375%, 7/01/04 ................................................ 10,000,000 10,736,200
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ...................... 1,395,000 1,473,636
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ........................... 1,300,000 1,418,508
Robbinsdale Hospital Revenue, North Memorial Medical Center Project, AMBAC Insured,
Refunding, Pre-Refunded, 7.375%, 1/01/19 ............................................................. 6,450,000 6,850,094
Refunding, Series A, 5.45%, 5/15/13 .................................................................. 2,000,000 2,027,420
Refunding, Series A, 5.55%, 5/15/19 .................................................................. 1,000,000 1,002,390
Series B, 5.45%, 5/15/13 ............................................................................. 2,900,000 2,939,759
Series B, 5.50%, 5/15/23 ............................................................................. 7,900,000 7,834,825
Roseville ISD No. 623, Series A,
FGIC Insured, 6.00%, 2/01/23 ......................................................................... 1,250,000 1,289,363
FSA Insured, 5.80%, 2/01/19 .......................................................................... 1,200,000 1,226,292
FSA Insured, 5.85%, 2/01/24 .......................................................................... 2,470,000 2,524,019
FSA Insured, 6.00%, 2/01/25 .......................................................................... 4,260,000 4,483,096
Scott County Housing and Redevelopment Authority Facilities, AMBAC Insured,
5.25%, 12/01/11 ...................................................................................... 2,380,000 2,404,205
5.50%, 12/01/15 ...................................................................................... 1,750,000 1,784,160
Shakopee Public Utilities Commission Revenue, AMBAC Insured, 5.60%, 8/01/18 .......................... 1,750,000 1,761,253
South Washington County ISD No. 833, Refunding, Series A, FGIC Insured, 6.125%, 6/01/10 .............. 2,080,000 2,166,674
Southern Minnesota Municipal Power Agency, Power Supply System Revenue,
Refunding, Series B, AMBAC Insured, 6.00%, 1/01/16 ................................................... 5,000,000 5,163,800
Series A, AMBAC Insured, 6.00%, 1/01/13 .............................................................. 2,500,000 2,531,450
Series A, AMBAC Insured, 5.75%, 1/01/18 .............................................................. 2,250,000 2,309,243
Series A, FGIC Insured, 5.75%, 1/01/18 ............................................................... 1,000,000 1,039,250
Series A, MBIA Insured, 5.00%, 1/01/12 ............................................................... 5,975,000 5,938,314
Series A, MBIA Insured, 6.00%, 1/01/13 ............................................................... 12,500,000 12,657,250
Series A, MBIA Insured, 5.75%, 1/01/18 ............................................................... 8,865,000 9,098,415
Series A, MBIA Insured, Pre-Refunded, 5.75%, 1/01/18 ................................................. 1,000,000 1,026,330
Series C, AMBAC Insured, 5.00%, 1/01/17 .............................................................. 1,000,000 945,420
St. Cloud Hospital Facilities Revenue, St. Cloud Hospital, AMBAC Insured,
Refunding, Series A, 5.00%, 7/01/15 .................................................................. 2,165,000 2,095,374
Series B, Pre-Refunded, 7.00%, 7/01/20 ............................................................... 5,000,000 5,537,300
St. Francis ISD No. 015, Series A, FSA Insured,
6.35%, 2/01/13 ....................................................................................... 1,500,000 1,664,700
6.375%, 2/01/16 ...................................................................................... 5,465,000 6,074,402
St. Louis Park Health Care Facilities Revenue, Healthsystem of Minnesota-Obligated
Group, Refunding, Series A, AMBAC Insured, 5.20%,
7/01/16............................................................................................... 1,000,000 969,570
7/01/23............................................................................................... 9,000,000 8,593,470
St. Louis Park Hospital Facilities Revenue, Refunding, Methodist Hospital Project, AMBAC Insured,
Series A, 7.25%, 7/01/08 ............................................................................. 4,115,000 4,478,519
Series A, 7.25%, 7/01/15 ............................................................................. 1,000,000 1,088,340
Series C, Pre-Refunded, 7.25%, 7/01/08 ............................................................... 1,350,000 1,480,599
Series C, Pre-Refunded, 7.25%, 7/01/18 ............................................................... 4,000,000 4,386,960
St. Paul Housing and Redevelopment Authority Parking Revenue, Series A, FSA Insured, 5.75%, 8/01/13 .. 5,105,000 5,258,201
St. Paul ISD No. 625,
Series A, FSA Insured, 5.75%, 2/01/16 ................................................................ 3,500,000 3,597,405
Series C, MBIA Insured, 6.10%, 2/01/14 ............................................................... 1,075,000 1,129,481
Series C, MBIA Insured, 6.10%, 2/01/15 ............................................................... 500,000 530,655
St. Paul Port Authority, IDR, FGIC Insured, Series K, 9.50%,
12/01/01.............................................................................................. $ 5,000 $ 5,109
12/01/02.............................................................................................. 5,000 5,229
12/01/14 ............................................................................................. 190,000 194,499
St. Paul Sewer Revenue, Series A, AMBAC Insured, 8.00%, 12/01/08 ..................................... 8,000,000 8,439,200
Stearns County Housing and Redevelopment Authority Lease Revenue,
Refunding, Administration Building Project, AMBAC Insured,
7.00%, 2/01/11 ...................................................................................... 3,645,000 3,784,895
Stillwater ISD No. 834, GO, MBIA Insured, 5.75%, 2/01/15 ............................................. 2,990,000 3,082,451
Virginia, Governmental Housing Project, Refunding, MBIA Insured, 5.90%, 2/01/26 ...................... 2,915,000 3,029,705
Wadena ISD No. 819, Refunding, AMBAC Insured, 5.60%, 2/01/20 ......................................... 3,150,000 3,169,341
Washington County Housing and Redevelopment Authority, Jail Facility Revenue,
MBIA Insured, Unlimited Tax, Pre-Refunded, 7.00%, 2/01/12 ........................................... 3,000,000 3,315,630
Washington County SFRMR, Housing and Redevelopment Authority,
GNMA Secured, FGIC Insured, 7.60%, 12/01/11 .......................................................... 165,000 165,398
Western Minnesota Municipal Power Agency, Power Supply Revenue, Refunding, Series A,
AMBAC Insured, 5.50%, 1/01/12 ........................................................................ 2,745,000 2,838,742
AMBAC Insured, 5.50%, 1/01/13 ........................................................................ 4,500,000 4,635,450
MBIA Insured, 5.50%, 1/01/15 ......................................................................... 5,425,000 5,430,696
Western Minnesota Municipal Power Agency, Transmission Project Revenue,
Refunding, AMBAC Insured, 6.75%, 1/01/16 ............................................................. 2,000,000 2,138,480
------------
Total Long Term Investments (Cost $463,689,925)....................................................... 485,470,240
------------
aShort Term Investments .1%
Beltrami County Environmental Control Revenue, Northwood Panelboard Co. Project,
Daily VRDN and Put, 3.75%, 7/01/25 ................................................................... 200,000 200,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15 ................................................................. 200,000 200,000
------------
Total Short Term Investments (Cost $400,000).......................................................... 400,000
------------
Total Investments (Cost $464,089,925) 99.2%........................................................... 485,870,240
Other Assets, less Liabilities .8%.................................................................... 3,840,971
------------
Net Assets 100.00% ................................................................................... $489,711,211
============
See glossary of abbreviations on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Ohio Insured Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period................... $12.19 $12.22 $11.90 $12.40 $12.34 $11.55
---------------------------------------------------------------------
Income from investment operations:
Net investment income................................. .33 .66 .68 .69 .70 .72
Net realized and unrealized gains (losses)............ .08 (.03) .33 (.50) .07 .78
---------------------------------------------------------------------
Total from investment operations....................... .41 .63 1.01 .19 .77 1.50
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income.................. (.33)7 (.66)5 (.69)3 (.69) (.71) (.71)
---------------------------------------------------------------------
Net asset value, end of period......................... $12.27 $12.19 $12.22 $11.90 $12.40 $12.34
=====================================================================
Total return*.......................................... 3.38% 5.35% 8.66% 1.74% 6.08% 13.26%
Ratios/Supplemental Data
Net assets, end of period (000's)...................... $720,903 $698,360 $685,783 $652,545 $686,398 $564,758
Ratio to average net assets:
Expenses.............................................. .66%** .64% .64% .63% .56% .59%
Net investment income................................. 5.32%** 5.43% 5.58% 5.83% 5.59% 6.05%
Portfolio turnover rate................................ 5.47% 14.95% 11.47% 11.76% 7.29% 2.87%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period................... $12.24 $12.26 $11.90
----------------------------------
Income from investment operations:
Net investment income................................. .29 .59 .52
Net realized and unrealized gains (losses)............ .09 (.02) .35
----------------------------------
Total from investment operations....................... .38 .57 .87
----------------------------------
Less distributions:
Dividends from net investment income.................. (.29) (.59) (.51)
----------------------------------
Net asset value, end of period......................... $12.33 $12.24 $12.26
==================================
Total return*.......................................... 3.17% 4.79% 7.43%
Ratios/Supplemental Data
Net assets, end of period (000's)...................... $19,831 $15,786 $6,085
Ratio to average net assets:
Expenses.............................................. 1.22%** 1.20% 1.22%**
Net investment income................................. 4.76%** 4.80% 4.99%**
Portfolio turnover rate................................ 5.47% 14.95% 11.47%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
3Includes distributions in excess of net investment income in the amount of
$.001.
5Includes distributions in excess of net investment income in the amount of
$.003.
7Includes distributions in excess of net investment income in the amount of
$.006.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Ohio Insured Tax-Free Income Fund AMOUNT VALUE
aLong Term Investments 98.8%
<S> <C> <C>
Akron Bath Copley Joint Township Hospital District Revenue, AMBAC Insured,
Akron General Medical Center Project, 5.375%, 1/01/17 ................................................ $ 1,000,000 $ 995,750
Akron General Medical Center Project, 5.375%, 1/01/22 ................................................ 1,500,000 1,478,850
Children's Hospital Medical Center, Pre-Refunded, 7.45%, 11/15/20 .................................... 2,000,000 2,227,420
Akron GO, Limited Tax, FGIC Insured, 7.50%, 9/01/05 .................................................. 500,000 585,830
Akron Sewer System Revenue, Refunding, MBIA Insured, 5.55%, 12/01/16 ................................. 3,660,000 3,696,673
Akron Waterworks System First Mortgage Revenue, FGIC Insured, 6.00%, 3/01/14 ......................... 1,000,000 1,062,810
Allen County, Refunding, AMBAC Insured, 5.30%, 12/01/15 .............................................. 1,250,000 1,246,988
Allen County Sewer Revenue, MBIA Insured, 5.70%, 12/01/13 ............................................ 1,200,000 1,232,064
Archbold Area Local School District GO,
AMBAC Insured, 6.00%, 12/01/21 ....................................................................... 2,000,000 2,129,460
Refunding, MBIA Insured, 5.90%, 12/01/11 ............................................................. 600,000 615,744
Aurora City School District GO, Refunding and Improvement, FGIC Insured, 5.80%, 12/01/16 ............. 1,075,000 1,111,797
Avon Local School District, AMBAC Insured, 6.00%, 12/01/20 ........................................... 2,500,000 2,624,600
Beavercreek Local School District GO, FGIC Insured, 5.70%, 12/01/20 .................................. 8,375,000 8,530,273
Belmont County Correctional Facility, MBIA Insured, 5.85%, 12/01/16 .................................. 500,000 518,270
Big Walnut Local School District, Delaware County Construction and Improvement,
AMBAC Insured, 6.625%, 12/01/15 ...................................................................... 1,450,000 1,564,159
Bluffton Exempt Village School District, AMBAC Insured, 5.50%, 12/01/16 .............................. 1,000,000 1,010,770
Brunswick City School District, AMBAC Insured, 6.90%, 12/01/12 ....................................... 2,295,000 2,495,858
Butler County GO, AMBAC Insured, 5.75%, 12/01/16 ..................................................... 1,000,000 1,036,720
Butler County Hospital Facilities Revenue, FGIC Insured,
Refunding and Improvement, Middletown Regional Hospital, 6.75%, 11/15/10 ............................. 2,150,000 2,372,117
Series A, Pre-Refunded, 9.30%, 11/01/15 .............................................................. 1,400,000 1,412,306
Butler County Waterworks Revenue, AMBAC Insured,
6.35%, 12/01/08 ...................................................................................... 790,000 859,512
6.40%, 12/01/12 ...................................................................................... 500,000 539,575
5.45%, 12/01/16 ...................................................................................... 1,000,000 1,003,020
Cardington and Lincoln Local School District, MBIA Insured, 6.60%, 12/01/14 .......................... 400,000 432,392
Celina Wastewater System Mortgage Revenue, FGIC Insured, 6.55%, 11/01/16 ............................. 1,200,000 1,276,404
Centerville GO, Capital Facilities, MBIA Insured, 5.65%, 12/01/18 .................................... 2,265,000 2,319,632
Chillicothe GO, Limited Tax, AMBAC Insured, 6.05%, 12/01/12 .......................................... 675,000 708,845
Chillicothe Sanitary Sewer System First Mortgage Revenue, BIG Insured, Pre-Refunded, 7.65%, 12/01/08 . 1,000,000 1,077,420
Claymont City School District, FGIC Insured, 5.70%, 12/01/21 ......................................... 1,000,000 1,014,830
Clermont County Hospital Facilities Revenue, Mercy Health System,
Refunding, Provine of Cincinnati, AMBAC Insured,
Series A, Pre-Refunded, 7.50%, 9/01/19 ............................................................... 515,000 575,852
Series B, 6.00%, 9/01/19 ............................................................................. 1,750,000 1,811,670
Clermont County Road Improvement GO, AMBAC Insured, 7.125%, 9/01/11 .................................. 1,500,000 1,648,620
Clermont County Sewer System Revenue, AMBAC Insured, Pre-Refunded, 7.10%, 12/01/15 ................... 4,280,000 4,639,734
Clermont County Waterworks Revenue, Refunding, AMBAC Insured, 5.80%, 12/01/18 ........................ 11,000,000 11,324,170
Cleveland Airport Systems Revenue, FGIC Insured,
Series A, 6.25%, 1/01/20 ............................................................................. 3,000,000 3,179,190
Series B, 6.00%, 1/01/14 ............................................................................. 985,000 1,038,968
Series B, 6.10%, 1/01/24 ............................................................................. 1,450,000 1,525,139
Cleveland GO, Series 1994, MBIA Insured, 6.70%, 11/15/18 ............................................. 2,000,000 2,296,820
Cleveland Waterworks First Mortgage Revenue,
Refunding, Series F, AMBAC Insured, 6.25%, 1/01/16 ................................................... 2,000,000 2,105,180
Refunding and Improvement, Series H, MBIA Insured, 5.75%, 1/01/26 .................................... 19,750,000 20,274,165
Series F-92, AMBAC Insured, 6.25%, 1/01/15 ........................................................ 1,000,000 1,055,340
Clinton-Massie Local School District, Refunding, Issue I, AMBAC Insured, 7.50%, 12/01/11 ............. 1,000,000 1,132,790
Columbus GO, Limited Tax, FGIC Insured, 9.50%, 4/15/03 ............................................... 975,000 1,214,938
Columbus State Community College, General Receipts, AMBAC Insured, 5.75%, 12/01/16 ................... 2,100,000 2,168,271
Coshocton Sewer System GO, AMBAC Insured, 6.50%, 12/01/12 ............................................ 1,530,000 1,657,403
Crestview Local School District GO, Construction and Improvement, AMBAC Insured, 6.65%, 12/01/14 ..... 1,650,000 1,793,897
Cuyahoga County GO, Limited Tax, MBIA Insured, 9.375%, 10/01/04 ...................................... 100,000 126,136
Cuyahoga County Hospital Revenue, Metrohealth System Project, MBIA Insured,
6.00%, 2/15/19 ....................................................................................... 10,200,000 10,370,748
Refunding & Improvements, 5.50%, 2/15/27 ............................................................. 3,000,000 2,973,930
Cuyahoga County Utility System Revenue, Refunding, Medical Center Company
Project, Series B, MBIA insured, 6.10%, 8/15/15 ...................................................... 2,945,000 3,062,859
Dayton Airport Revenue, Refunding, AMBAC Insured, 5.25%,12/01/15 ..................................... 2,000,000 1,972,120
Dayton Water System Mortgage Revenue, Refunding, MBIA Insured, 6.75%, 12/01/10 ....................... 1,395,000 1,432,065
Defiance GO, MBIA Insured,
6.10%, 12/01/14 ...................................................................................... $ 1,000,000 $ 1,072,100
6.20%, 12/01/20 ...................................................................................... 750,000 802,703
Delaware City School District, FGIC Insured, 5.75%, 12/01/15 ......................................... 1,640,000 1,684,772
Delphos Sewer System Revenue, FSA Insured, Pre-Refunded, 7.25%, 9/01/20 .............................. 1,100,000 1,212,816
Dover City School District, AMBAC Insured, 6.25%, 12/01/16 ........................................... 2,000,000 2,120,740
Dover Municipal Electric System Revenue, FGIC Insured, 6.00%, 12/01/19 ............................... 1,625,000 1,704,690
Dover Waterworks Systems Revenue, AMBAC Insured, 6.00%, 12/01/13 ..................................... 1,100,000 1,172,127
Dublin City School District, AMBAC Insured, 6.20%, 12/01/19 .......................................... 5,735,000 6,098,140
Fairborn GO, Limited Tax, Series 1991, MBIA Insured, 7.00%, 10/01/11 ................................. 1,390,000 1,558,107
Fairfield City School District GO, FGIC Insured, 6.00%, 12/01/20 ..................................... 1,000,000 1,050,240
Finneytown Local School District, FGIC Insured, 5.80%, 12/01/24 ...................................... 1,980,000 2,033,995
Forest Hills Local School District, MBIA Insured, 5.70%, 12/01/16 .................................... 1,500,000 1,538,670
Fostoria City School District GO, AMBAC Insured, 6.70%, 12/01/16 ..................................... 2,500,000 2,721,300
Franklin County Hospital Revenue,
Holy Cross Health Systems, AMBAC Insured, 5.875%, 6/01/21 ......................................... 2,500,000 2,566,850
Refunding & Improvement, Riverside United Hospital, MBIA Insured,
Pre-Refunded, 7.25%, 5/15/20 ......................................................................... 2,000,000 2,195,000
Granville Exempted Village School District, Unlimited Tax, AMBAC Insured,
Pre-Refunded, 7.15%, 12/01/15 ........................................................................ 5,150,000 5,901,076
Green County Water System Revenue, Series A, FGIC Insured, 6.125%, 12/01/21 .......................... 2,100,000 2,240,700
Green Local School District GO, Summit County, FGIC Insured,
5.875%, 12/01/14 ..................................................................................... 2,800,000 2,912,028
5.90%, 12/01/19 ..................................................................................... 5,150,000 5,319,744
Hamilton City Electric System Mortgage Revenue, FGIC Insured,
Refunding, Series A, 6.00%, 10/15/23 ................................................................. 18,450,000 19,474,160
Series B, 6.30%, 10/15/25 ............................................................................ 2,340,000 2,505,391
Series B, Pre-Refunded, 8.00%, 10/15/22 ............................................................. 9,500,000 10,123,485
Hamilton County Hospital Facilities Revenue,
Christ Hospital, Series 1987, FGIC Insured, Pre-Refunded, 8.375%, 1/01/07 ............................ 990,000 1,024,254
Refunding, Bethesda Hospital, Series A, AMBAC Insured, 6.25%, 1/01/12 ................................ 3,650,000 3,895,536
Hamilton County Sewer System Revenue, Series A, Refunding, FGIC Insured, 6.05%, 12/01/15 ............. 3,010,000 3,201,045
Hamilton Wastewater System Revenue, Series A, FSA Insured, 5.90%, 10/15/21 ........................... 3,040,000 3,128,403
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 ........................ 4,665,000 4,947,699
Hillard School District, Refunding, FGIC Insured, 6.55%, 12/01/05 .................................... 500,000 565,110
Hudson Local School District, Refunding, FGIC Insured, 5.60%, 12/15/14 ............................... 2,750,000 2,810,005
Indian Lake Local School District GO, Construction and Improvement, FGIC Insured, 5.375%, 12/01/23 ... 1,000,000 989,500
Indian Valley Local School District GO, AMBAC Insured, 5.75%, 12/01/19 ............................... 1,000,000 1,027,160
Ironton Building Improvement, AMBAC Insured, 5.50%, 12/01/22 ......................................... 1,000,000 998,550
Jackson Local School District, Stark and Summit Counties School Building,
Construction and Improvement, MBIA Insured,
5.40%, 12/01/13 ...................................................................................... 2,750,000 2,791,443
5.50%, 12/01/21 ...................................................................................... 3,060,000 3,074,994
Jackson Waterworks Revenue, AMBAC Insured, 5.60%, 12/01/18 ........................................... 500,000 505,285
Kent City School District, FGIC Insured, 5.75%, 12/01/21 ............................................. 1,500,000 1,546,440
Kent State University Revenues,
AMBAC Insured, 6.45%, 5/01/12 ........................................................................ 1,195,000 1,287,170
General Receipts, MBIA Insured, 5.50%, 5/01/28 ....................................................... 5,920,000 5,902,062
Kettering City School District, FGIC Insured, 5.25%, 12/01/22 ........................................ 1,000,000 976,670
Lake County Hospital Improvement Revenue, Lake Hospital System, Inc., Series B and C, AMBAC Insured,
7.875%, 1/01/05 ...................................................................................... 1,940,000 1,993,272
Pre-Refunded, 8.00%, 1/01/13 ....................................................................... 2,185,000 2,244,257
Lake Local School District, Stark County, AMBAC Insured, 6.25%, 12/01/09 ............................. 1,000,000 1,087,360
Lakota Local District GO, AMBAC Insured, 6.125%, 12/01/17 ............................................ 3,200,000 3,413,728
Lebanon Electric Revenue Mortgage, AMBAC Insured, 5.60%, 12/01/16 .................................... 795,000 797,997
Liberty Benton Local School District, AMBAC Insured,
6.00%, 12/01/15 ...................................................................................... 2,000,000 2,120,540
6.10%, 12/01/19 ...................................................................................... 2,045,000 2,157,005
bLincolnview Local School District, FGIC Insured, 5.535%, 12/01/25 .................................... 4,225,000 4,194,622
Lorain County Hospital Revenue, Refunding, Catholic Healthcare Partners,
Series B, MBIA Insured, 5.50%, 9/01/27 ............................................................... 2,200,000 2,171,334
Lucas County GO, Limited Tax, FGIC Insured, 8.00%,
12/01/06 ............................................................................................. 120,000 146,968
12/01/08.............................................................................................. 110,000 137,671
Lucas County GO, Limited Tax, FGIC Insured, 8.00%, (cont.)
12/01/09 ............................................................................................. $ 120,000 $ 150,882
12/01/10.............................................................................................. 220,000 277,431
Lucas County Hospital Revenue, MBIA Insured,
Promedica Healthcare Obligation, Refunding, 5.75%,11/15/14 ........................................... 5,000,000 5,192,000
St. Vincent Medical Center, Series B, Refunding, 5.25%, 8/15/20 ...................................... 4,000,000 3,845,200
St. Vincent Medical Center, Series C, 5.25%, 8/15/22 ................................................. 4,140,000 3,973,158
Mahoning County GO, Bridge Improvement, AMBAC Insured,
Limited Tax, 7.20%, 12/01/09 ......................................................................... 1,500,000 1,621,500
Unlimited Tax, 7.15%, 12/01/04 ....................................................................... 1,500,000 1,613,205
Mahoning County Hospital Facilities Revenue, MBIA Insured,
Western Reserve Care, 5.50%, 10/15/25 ................................................................ 5,000,000 4,950,200
Youngstown Hospital, Inc. Project, Series B, 7.00%, 10/15/08 ......................................... 2,000,000 2,183,960
Mansfield Hospital Improvement Revenue, Mansfield General Hospital Project,
AMBAC Insured, 6.70%, 12/01/09 ....................................................................... 2,500,000 2,755,475
Marietta City School District, Series B, AMBAC Insured, 5.75%, 12/01/07 .............................. 1,000,000 1,061,210
Marietta Sewer System Mortgage Revenue, BIG Insured, 7.50%, 11/01/07 ................................. 500,000 512,730
Marietta Water Revenue, AMBAC Insured, 5.95%, 12/01/21 ............................................... 3,875,000 4,018,956
Marysville Exempted Village School District GO, MBIA Insured, 5.75%, 12/01/23 ........................ 1,000,000 1,022,180
Marysville Water Systems, Refunding, AMBAC Insured,
5.40%, 12/01/13 ...................................................................................... 1,000,000 1,003,470
5.50%, 12/01/18 ...................................................................................... 1,500,000 1,502,520
Mason Sewer Systems Revenue, FGIC Insured, 6.00%, 12/01/19 ........................................... 1,935,000 2,021,669
Massillon City School District GO, AMBAC Insured, Pre-Refunded, Series 1, 7.10%, 12/01/11 ............ 1,500,000 1,626,075
Maumee Hospital Revenue, Refunding, Saint Luke's Hospital Project,
AMBAC Insured, 5.80%, 12/01/14 ...................................................................... 2,755,000 2,870,710
Medina City School District, FGIC Insured, 6.20%, 12/01/18 ........................................... 3,000,000 3,180,660
Mentor Exempted Village School District, MBIA Insured,
5.375%, 12/01/11 ..................................................................................... 1,000,000 1,014,870
6.625%, 12/01/13 ..................................................................................... 2,000,000 2,162,260
Pre-Refunded, 7.40%, 12/01/11 ........................................................................ 2,040,000 2,224,457
Miami County Hospital Facilities Revenue, Upper Valley Medical Center,
Nursing Care, Inc., Series B, MBIA Insured, 6.50%, 5/01/21 ........................................... 1,340,000 1,420,360
Middleburg Heights Hospital Revenue, Refunding, Southwest General Health Center,
FSA Insured, 5.75%, 8/15/21 .......................................................................... 1,500,000 1,524,615
Montgomery County Hospital Facilities Revenue, Kettering Medical Center , MBIA Insured,
7.40%, 4/01/09 ....................................................................................... 15,000,000 16,009,200
5.50%, 4/01/26 ....................................................................................... 2,000,000 1,979,980
Pre-Refunded, 7.50%, 4/01/14 ......................................................................... 5,000,000 5,366,250
Montgomery County Revenue, Series A,
Refunding, Miami Valley Hospital, AMBAC Insured, 6.25%, 11/15/12 ..................................... 1,600,000 1,709,824
Refunding, Miami Valley Hospital, AMBAC Insured, 6.25%, 11/15/16 ..................................... 3,250,000 3,454,393
Sisters of Charity Health Care, AMBAC Insured, 6.25%, 5/15/14 ........................................ 1,780,000 1,892,389
Sisters of Charity Health Care, MBIA Insured, 6.625%, 5/15/21 ........................................ 1,565,000 1,662,140
Muskingum County GO, AMBAC Insured,
County Office Building Improvement, 7.20%, 12/01/10 .................................................. 1,000,000 1,098,450
Justice Center Improvement, 6.375%, 12/01/17 ......................................................... 1,695,000 1,815,921
Napoleon City School District GO, AMBAC Insured, 5.375%, 12/01/18 .................................... 1,000,000 989,290
New Lexington HDC, Mortgage Revenue, Refunding, Lincoln Park, Series A,
MBIA Insured, FHA Insured, 5.85%, 1/01/21 ............................................................ 1,100,000 1,129,920
New Philadelphia City School District, School and Improvement, AMBAC Insured, 6.25%, 12/01/17 ........ 2,000,000 2,126,420
New Richmond Exempted Village School District GO, AMBAC Insured, 7.125%, 9/01/09 ..................... 1,500,000 1,589,985
Newark Water System, AMBAC Insured, 6.00%, 12/01/18 .................................................. 1,000,000 1,040,060
North Olmsted GO, AMBAC Insured, 6.25%, 12/15/12 ..................................................... 3,800,000 4,070,750
North Ridgeville GO, AMBAC Insured, 5.125%, 12/01/13 ................................................. 1,000,000 993,920
North Ridgeville GO, City School District, AMBAC Insured, 6.30%, 12/01/17 ............................ 2,900,000 3,103,928
Northeastern Local School District, Clark County Improvement, FGIC Insured, 5.55%, 12/01/18 .......... 1,000,000 1,015,790
Northridge Local School District, Licking, Knox and Del Counties Improvement,
FSA Insured, 5.75%, 12/01/18 ......................................................................... 1,090,000 1,126,537
Northwest Local School District, Scioto County, AMBAC Insured, 7.05%, 12/01/14 ....................... 2,000,000 2,197,680
Norwalk Waterworks System Revenue, Series 1990, AMBAC Insured, Pre-Refunded, 7.20%, 4/01/15 .......... 1,000,000 1,094,280
Ohio Capital Corp. for Housing Mortgage Revenue, Refunding, MBIA Insured,
6.35%, 7/01/22 ....................................................................................... 2,000,000 2,091,960
6.90%, 7/01/24 ....................................................................................... 4,215,000 4,396,456
Series J, 6.50%, 1/01/25 ............................................................................. 3,500,000 3,622,675
Ohio Capital Corp. for Housing Mortgage Revenue, Refunding, MBIA Insured, (cont.)
Westview Apartments, Series A, 6.125%, 1/01/15 ....................................................... $ 1,625,000 $ 1,700,579
Westview Apartments, Series A, 6.25%, 1/01/23 ........................................................ 2,565,000 2,673,217
Ohio HFA, MFHR, Northridge Apartments, FGIC Insured, 10.35%, 12/01/25 ................................ 770,000 841,271
Ohio HFA, SFMR, GNMA Secured,
Series-A, 7.65%, 3/01/29 ............................................................................. 3,355,000 3,528,722
Series-B, 7.40%, 9/01/15 ............................................................................. 825,000 872,273
Series-C, 8.00%, 9/01/08 ............................................................................. 2,155,000 2,272,254
Series-C, 8.125%, 3/01/20 ............................................................................ 2,030,000 2,127,948
Series-C, 7.85%, 9/01/21 ............................................................................. 1,830,000 1,959,381
Series-D, 7.50%, 9/01/13 ............................................................................. 1,160,000 1,234,310
Series-D, 7.05%, 9/01/16 ............................................................................. 4,305,000 4,534,069
Series-I, 7.60%, 9/01/16 ............................................................................. 3,320,000 3,536,962
Ohio Municipal Electric Generation Agency, AMBAC Insured, Joint Venture,
5.625%, 2/15/16 ...................................................................................... 13,000,000 13,161,070
Certificates of Beneficial Interest, 5.375%, 2/15/24 ................................................. 7,680,000 7,620,787
Ohio State Air Quality Development Authority Revenue,
Columbus Southern Power, Series A, FGIC Insured, 6.375%, 12/01/20 .................................... 4,000,000 4,260,640
Refunding, Cincinnati Gas & Electric, MBIA Insured, 5.45%, 1/01/24 ................................... 5,000,000 4,924,000
Refunding, JMG Funding, L.P., AMBAC Insured, 6.375%, 1/01/29 ......................................... 1,230,000 1,305,116
Refunding, JMG Funding, L.P., AMBAC Insured, 6.375%, 4/01/29 ......................................... 15,245,000 16,176,012
Refunding, PCR, FGIC Insured, 7.45%, 3/01/16 ......................................................... 1,000,000 1,083,480
Refunding, PCR, Ohio Edison, Series B, AMBAC Insured, 5.625%, 11/15/29 ............................... 5,400,000 5,418,792
Refunding, PCR, Pennsylvania Power Co., AMBAC Insured, 6.45%, 5/01/27 ................................ 7,000,000 7,458,430
Ohio State Building Authority, Adult Correctional Facility, Series A,
AMBAC Insured, 5.60%, 4/01/16 ........................................................................ 2,000,000 2,025,400
MBIA Insured, 6.125%, 10/01/13 ....................................................................... 13,000,000 13,967,460
Ohio State Department of Transportation, COP, Panhandle Rail Line Project,
Series A, FSA Insured, 6.50%, 4/15/12 ................................................................ 1,100,000 1,187,516
Ohio state Education Loan Revenue, Series A-1, AMBAC Insured, 5.85%, 12/01/19 ........................ 5,000,000 5,080,150
Ohio State Higher Educational Facility Commission Revenue,
Dayton University Project, FGIC Insured, 7.25%, 12/01/12 ............................................. 2,050,000 2,273,286
Dayton University Project, FGIC Insured, 7.25%, 12/01/12 ............................................. 450,000 493,970
Dayton University Project, FGIC Insured, 5.80%, 12/01/14 ............................................. 1,300,000 1,333,514
Dayton University Project, FGIC Insured, 6.75%, 12/01/15 ............................................. 1,725,000 1,884,114
Northern University Project, FGIC Insured, Pre-Refunded, 7.30%, 5/15/10 .............................. 1,135,000 1,226,742
Xavier University, MBIA Insured, 5.375%, 5/15/22 ..................................................... 5,000,000 4,962,400
Xavier University Project, MBIA Insured, Pre-Refunded, 7.625%, 11/01/08 .............................. 1,500,000 1,562,565
Ohio State Turnpike Commission, Turnpike Revenue, Series A,
FGIC Insured, 5.75%, 2/15/24 ......................................................................... 1,000,000 1,016,000
MBIA Insured, 5.50%, 2/15/26 ......................................................................... 5,400,000 5,392,062
Ohio State Water Development Authority, PCR Facilities, Refunding,
PA Power Co. Project, AMBAC Insured, 6.15%, 8/01/23 .................................................. 3,420,000 3,594,352
Ohio State Water Development Authority Revenue,
Fresh Water Service, AMBAC Insured, 5.90%, 12/01/21 .................................................. 8,750,000 9,050,388
Refunding & Improvement, AMBAC Insured, 5.50%, 12/01/11 .............................................. 1,000,000 1,022,050
Refunding & Improvement, Pure Water, AMBAC Insured, 5.50%, 12/01/18 .................................. 4,450,000 4,444,037
Refunding, Cincinnati Gas, Series A, MBIA Insured, 5.45%, 1/01/24 .................................... 4,000,000 3,955,560
Refunding, Dayton Power, Series A, AMBAC Insured, 6.40%, 8/15/27 ..................................... 5,000,000 5,309,100
Series I, AMBAC Insured, ETM, 7.00%, 12/01/09 ........................................................ 2,000,000 2,346,640
Olentangy Local School District GO, BIG Insured, 7.75%,
12/01/08 ............................................................................................. 375,000 471,701
12/01/09 ............................................................................................. 375,000 474,068
12/01/10 ............................................................................................. 375,000 475,639
Olmsted Falls Local School District, FGIC Insured,
7.05%, 12/15/11 ...................................................................................... 1,000,000 1,118,870
5.85%, 12/15/17 ...................................................................................... 1,500,000 1,555,260
Orrville Electric System Mortgage Revenue, Refunding, Series A and B,
AMBAC Insured, 7.50%, 12/01/10 ....................................................................... 2,500,000 2,650,750
Orrville Sewer System Revenue, Improvement Mortgage, MBIA Insured, 7.875%, 12/01/12 .................. 4,100,000 4,218,203
Orrville Water Systems Improvement Revenue, MBIA Insured, 6.125%, 12/01/18 ........................... 1,150,000 1,216,781
Ottawa County GO, Catawba Isle, AMBAC Insured, 7.00%, 9/01/11 ........................................ 1,500,000 1,657,830
Ottawa County Sewer System Revenue, Refunding, Danbury Project,
AMBAC Insured, 5.50%, 10/01/14 ....................................................................... 1,950,000 1,977,261
Painesville Township Local School District GO, Lake County, FGIC Insured,
5.625%, 12/01/09 ..................................................................................... $ 3,240,000 $ 3,353,011
5.65%, 12/01/15 ...................................................................................... 4,490,000 4,602,430
Perrysburg Exempted Village School District, AMBAC Insured, 6.00%, 12/01/15 .......................... 2,000,000 2,123,840
Pickerington Local School District GO, Refunding, AMBAC Insured, 5.55%, 12/01/07 ..................... 1,000,000 1,056,740
Powell Village, Series A, MBIA Insured,
5.55%, 12/01/17 ...................................................................................... 840,000 849,727
5.60%, 12/01/22 ...................................................................................... 445,000 450,140
Puerto Rico Commonwealth GO,
FSA Insured, 5.40%, 7/01/25 .......................................................................... 3,000,000 2,974,140
MBIA Insured. 5.75%,7/01/24 .......................................................................... 2,000,000 2,058,800
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 ........................... 11,000,000 11,228,140
Puerto Rico PBA Revenue, Guaranteed, Government Facilities, Series A,
AMBAC Insured, 5.50%, 7/01/21 ........................................................................ 4,000,000 3,989,120
Revere Local School District, AMBAC Insured, 12/01/16,
5.25%, ............................................................................................... 2,000,000 1,990,240
6.00%, ............................................................................................. 1,600,000 1,685,856
Reynoldsburg City School District, FGIC Insured, 12/01/17,
6.55%, ............................................................................................... 1,300,000 1,396,863
Refunding, 5.45%, .................................................................................... 4,075,000 4,095,008
Rural Lorain County Water Authority, Water Resource Revenue, Refunding,
AMBAC Insured, Pre-Refunded, 7.70%, 10/01/08 ......................................................... 1,200,000 1,273,152
Saint Mary's Electric System Mortgage Revenue, AMBAC Insured, 6.65%, 12/01/11 ........................ 600,000 657,966
Saint Mary's Waterworks Revenue, AMBAC Insured, 6.65%, 12/01/11 ...................................... 750,000 822,458
Salem GO, AMBAC Insured, 6.50%, 12/01/06 ............................................................. 2,000,000 2,257,560
South Euclid Lyndhurst City School District, FGIC Insured, 5.30%, 12/01/14 ........................... 1,000,000 1,004,260
South Range Local School District, MBIA Insured, 6.15%, 12/01/18 ..................................... 700,000 746,942
South-Western City School District of Ohio, Franklin and Pickway Counties, FGIC Insured, ETM, 7.875%,
12/01/03.............................................................................................. 490,000 580,537
12/01/04 ............................................................................................. 550,000 661,694
12/01/06 ............................................................................................. 600,000 743,958
12/01/07 ............................................................................................. 600,000 737,964
SouthWest Regional Water District, Water Revenue, MBIA Insured, 6.00%,
12/01/15 ............................................................................................. 1,000,000 1,050,530
12/01/20 ............................................................................................. 700,000 732,767
Springboro Sewer Systems Revenue, Refunding, MBIA Insured, 5.70%, 6/01/18 ............................ 1,410,000 1,435,944
Springboro Water Systems Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/18 .......................... 1,125,000 1,119,285
Stark County GO, Refunding, AMBAC Insured, 5.70%, 11/15/17 ........................................... 2,775,000 2,831,138
Stark County Sanitary Sewer System Revenue, Series A, MBIA Insured,
Pre-Refunded, 7.75%, 11/15/18 ........................................................................ 8,500,000 9,040,685
Stark County Sewer District Improvement Bonds, FGIC Insured, 5.80%, 12/01/16 ......................... 1,000,000 1,038,410
Steubenville City School District, Series A, AMBAC Insured, 6.20%, 12/01/17 .......................... 2,075,000 2,221,059
Struthers City School District, AMBAC Insured, 6.50%, 12/01/14 ....................................... 1,750,000 1,907,588
Summit County GO, Limited Tax, AMBAC Insured,
Building Improvement, Pre-Refunded, 8.00%, 12/01/07 .................................................. 595,000 612,963
Capital Improvement, Pre-Refunded, 8.00%, 12/01/07 ................................................... 315,000 324,510
County Jail Improvement, Pre-Refunded, 7.85%, 12/01/08 ............................................... 3,530,000 3,764,357
Justice Facilities, Pre-Refunded, 8.00%, 12/01/07 .................................................... 720,000 741,737
Refunding, Series B, 6.95%, 8/01/08 .................................................................. 400,000 440,704
Sewer System Improvement, Pre-Refunded, 8.00%, 12/01/07 .............................................. 610,000 628,416
Water System Improvement, Pre-Refunded, 8.00%, 12/01/07 .............................................. 450,000 463,586
Sylvania City School District, FGIC Insured, 5.75%, 12/01/22 ......................................... 4,830,000 4,926,600
Toledo GO, Limited Tax,
AMBAC Insured, 5.95%, 12/01/15 ....................................................................... 3,715,000 3,942,804
AMBAC Insured, 6.00%, 12/01/16 ....................................................................... 1,000,000 1,072,640
FGIC Insured, 7.375%, 12/01/00 ....................................................................... 500,000 540,665
FGIC Insured, 7.375%, 12/01/02 ....................................................................... 400,000 446,408
FGIC Insured, 7.375%, 12/01/03 ....................................................................... 650,000 734,052
FGIC Insured, 7.375%, 12/01/04 ....................................................................... 650,000 741,059
FGIC Insured, 7.375%, 12/01/05 ....................................................................... 650,000 746,532
FGIC Insured, 7.375%, 12/01/06 ....................................................................... 625,000 721,688
MBIA Insured, 6.50%, 12/01/11 ........................................................................ 4,500,000 4,903,020
Toledo Sewerage System Mortgage Revenue, Series B, MBIA Insured,
7.75%, 11/15/17 ...................................................................................... $ 2,320,000 $ 2,461,636
Pre-Refunded, 7.75%, 11/15/17 ........................................................................ 3,680,000 3,914,085
Trumbull County Hospital Revenue, FGIC Insured,
Refunding and Improvement, Series A, 6.25%, 11/15/12 ................................................. 1,000,000 1,066,490
Refunding, Series B, 6.90%, 11/15/12 ................................................................. 2,000,000 2,188,120
Twinsburg City School District, FSA Insured, 6.70%, 12/01/11 ......................................... 4,000,000 4,337,480
University of Cincinnati, MBIA Insured,
COP, 6.75%, 12/01/09 ................................................................................. 1,600,000 1,761,328
General Receipt, Series W, 5.85%, 6/01/16 ............................................................ 1,630,000 1,698,623
University of Puerto Rico Revenue, Series M, MBIA Insured, 5.25%, 6/01/25 ............................ 6,000,000 5,853,960
University of Toledo General Receipt, FGIC Insured,
5.30%, 6/01/18 ....................................................................................... 2,000,000 1,950,680
Refunding, Series A, 5.90%, 6/01/20 .................................................................. 5,500,000 5,622,815
Upper Arlington County School District, MBIA Insured, 5.25%, 12/01/22 ................................ 5,000,000 4,930,750
Urbana Wastewater Treatment Plant GO, AMBAC Insured, 7.05%, 12/01/11 ................................. 1,000,000 1,121,150
Valley Local School District, AMBAC Insured, 7.00%, 12/01/13 ......................................... 1,400,000 1,550,640
Warren GO,
MBIA Insured, 6.65%, 11/01/12 ........................................................................ 2,415,000 2,664,808
Refunding, AMBAC Insured, 5.50%, 11/15/13 ............................................................ 1,015,000 1,030,966
Wausen Exempt Village School District, Refunding and School Improvements,
MBIA Insured, 5.50%, 12/01/17 ........................................................................ 1,800,000 1,802,916
Wayne Local School District, Warren County, AMBAC Insured, 6.10%, 12/01/24 ........................... 1,800,000 1,919,826
Westerville, Minerva Park and Blendon Joint Township Hospital District Revenue,
Refunding, St. Ann's Hospital, Series B, AMBAC Insured,
ETM, 7.00%, 9/15/12 ................................................................................. 5,000,000 5,378,150
Wilmington City School District, FGIC Insured, 6.30%, 12/01/14 ....................................... 2,000,000 2,132,880
Wilmington Sewer System Revenue, Refunding, First Mortgage, MBIA Insured,
5.20%, 2/15/13 ....................................................................................... 1,085,000 1,082,678
5.30%, 2/15/18 ....................................................................................... 1,170,000 1,155,574
Wilmington Water Revenue, First Mortgage System, AMBAC Insured,
5.90%, 6/15/14 ....................................................................................... 1,275,000 1,331,521
6.00%, 6/15/21 ....................................................................................... 2,510,000 2,624,305
Woodmore Local School District, Refunding, AMBAC Insured, 5.65%, 12/01/08 ............................ 500,000 526,520
Wooster City School District, AMBAC Insured, 6.50%, 12/01/17 ......................................... 8,700,000 9,822,200
Worthington City School District, Refunding, FGIC Insured, 6.375%, 12/01/12 .......................... 2,350,000 2,515,675
Youngstown State University, General Receipts, AMBAC Insured, 6.00%, 12/15/16 ........................ 2,250,000 2,369,115
Zane Trace Local School District, AMBAC Insured, 5.45%, 12/01/19 ..................................... 1,000,000 996,070
------------
Total Long Term Investments (Cost $692,514,444)....................................................... 731,926,595
------------
aShort Term Investments .2%
Ohio State Air Quality Development Authority Revenue, Refunding, Environmental-Mead
Corporation, Daily VRDN, 3.65%, 10/01/01 ............................................................. 200,000 200,000
Ohio State Air Quality Development Authority Revenue, Refunding,
Cincinnati Gas & Electric, Series-A, Daily VRDN, 3.75%, 9/01/30 ...................................... 1,000,000 1,000,000
Puerto Rico Commonwealth Government Development Bank,
Refunding, Weekly VRDN, and Put, 2.90%, 12/01/15 ..................................................... 700,000 700,000
------------
Total Short Term Investments (Cost $1,900,000)........................................................ 1,900,000
------------
Total Investments (Cost $694,414,444) 99.0%........................................................... 733,826,595
Other Assets, less Liabilities 1.0%................................................................... 6,907,416
------------
Net Assets 100.0% .................................................................................... $740,734,011
============
</TABLE>
See glossary of abbreviations on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
Glossary of Abbreviations
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co. (acquired by MBIA in 1989
and no longer does business under this name.)
CDA - Community Development Agency
COP - Certificate of Participation
EDA - Economic Development Authority/Agency
EDC - Economic Development Co.
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance (some of the securities shown as FSA
Insured were originally insured by Capital Guaranty Insurance Co.
(CGIC) which was acquired by FSA in 1995 and no longer does business
under this name).
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Agency Revenue
HFC - Housing Finance Corp.
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
IDB - Industrial Development Board
IDR - Industrial Development Revenue
ISD - Independent School District
L. P. - Limited Partnership
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MUD - Municipal Utility District
PBA - Public Building Authority
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Agency
RMR - Residential Mortgage Revenue
SFHR - Single Family Housing Revenue
SFMR - Single Family Mortgage Revenue
SFRMR - Single Family Residential Mortgage Revenue
UHSD - Unified High School District
USD - Unified School District
FRANKLIN TAX-FREE TRUST
Financial Statements
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
August 31, 1997 (unaudited)
Franklin Franklin
Arizona InsuredFlorida InsuredFranklin
Tax-Free Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund
Assets:
<S> <C> <C> <C>
Investments in securities:
Cost ..................................................................... $43,043,016 $84,510,053$1,611,961,509
--------------------------------------------
Value .................................................................... 45,033,902 87,821,8921,708,800,420
============================================
Cash ...................................................................... 45,582 112,840 1,930,206
Receivables:
Investment securities sold ............................................... 15,331 -- 2,670,448
Capital shares sold ...................................................... 122,091 184,513 1,033,652
Interest ................................................................. 466,932 1,531,400 24,926,809
Affiliates ............................................................... -- 31,765 --
Other assets .............................................................. 6,814 -- --
--------------------------------------------
Total assets .......................................................... 45,690,652 89,682,4101,739,361,535
============================================
Liabilities:
Payables:
Investment securities purchased .......................................... 503,148 -- 33,071,985
Capital shares redeemed .................................................. 15,000 -- 974,684
Affiliates ............................................................... 11,405 28,617 959,655
Shareholders ............................................................. 6,025 40,610 2,383,381
Distributions to shareholders ............................................. 53,210 105,240 2,081,162
Other liabilities ......................................................... -- -- 74,801
--------------------------------------------
Total liabilities ..................................................... 588,788 174,467 39,545,668
--------------------------------------------
Net assets, at value ................................................. $45,101,864 $89,507,943$1,699,815,867
============================================
Net assets consist of:
Undistributed net investment income ....................................... $ 71,520 $ 75,382 $--
Accumulated distributions in excess of net investment income .............. -- -- (102,408)
Net unrealized appreciation ............................................... 1,990,886 3,311,839 96,838,911
Accumulated net realized gain (loss) ...................................... (362,754) (1,421,395) 9,095,737
Capital shares ............................................................ 43,402,212 87,542,1171,593,983,627
--------------------------------------------
Net assets, at value ................................................. $45,101,864 $89,507,943$1,699,815,867
============================================
Class I:
Net assets, at value ...................................................... $45,101,864 $89,507,943$1,669,830,868
============================================
Shares outstanding ........................................................ 4,296,084 8,829,927 136,730,947
============================================
Net asset value per share* ................................................ $10.50 $10.14 $12.21
============================================
Maximum offering price per share (net asset value per share / 95.75%) ..... $10.97 $10.59 $12.75
============================================
Class II:
Net assets, at value ...................................................... -- -- $ 29,984,999
============================================
Shares outstanding ........................................................ -- -- 2,443,581
============================================
Net asset value per share* ................................................ -- -- $12.27
============================================
Maximum offering price per share (net asset value per share / 99.00%) ..... -- -- $12.39
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
August 31, 1997 (unaudited)
Franklin Franklin Franklin Franklin
Massachusetts Michigan Minnesota Ohio
Insured Tax-FreeInsured Tax-FreeInsured Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund Income Fund
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
Cost ........................................................ $324,007,674$1,071,560,208$464,089,925 $694,414,444
---------------------------------------------------------------------
Value ....................................................... 342,329,7271,131,134,084 485,870,240 733,826,595
Cash ......................................................... 738,011 365,775 44,228 149,021
Receivables:
Investment securities sold .................................. -- 5,100,000 110,436 940,000
Capital shares sold ......................................... 207,570 2,004,657 205,288 513,340
Interest .................................................... 4,887,574 20,043,242 5,140,517 11,675,158
====================================================================
Total assets ............................................. 348,162,8821,158,647,758 491,370,709 747,104,114
====================================================================
Liabilities:
Payables:
Investment securities purchased.............................. 3,906,647 10,335,677 -- 4,205,811
Capital shares redeemed...................................... 275,650 371,588 216,564 245,602
Affiliates................................................... 209,523 689,461 299,594 457,150
Shareholders................................................. 262,905 991,822 486,511 539,757
Distributions to shareholders................................. 400,547 1,399,015 584,617 869,903
Other liabilities............................................. 2,891 79,045 72,212 51,880
---------------------------------------------------------------------
Total liabilities......................................... 5,058,163 13,866,608 1,659,498 6,370,103
---------------------------------------------------------------------
Net assets, at value..................................... $343,104,719$1,144,781,150$489,711,211 $740,734,011
====================================================================
Net assets consist of:
Undistributed net investment income........................... $ -- $ -- $ 308,586 $--
Accumulated distributions in excess of net investment income.. (130,642) (551,762) -- (370,855)
Net unrealized appreciation................................... 18,322,053 59,573,876 21,780,315 39,412,151
Accumulated net realized gain ................................ 804,025 2,474,308 2,364,231 1,116,451
Capital shares................................................ 324,109,2831,083,284,728 465,258,079 700,576,264
---------------------------------------------------------------------
Net assets, at value..................................... $343,104,719$1,144,781,150$489,711,211 $740,734,011
====================================================================
Class I:
Net assets, at value ......................................... $332,620,598$1,119,272,506$482,865,393 $720,903,186
====================================================================
Shares outstanding............................................ 28,635,265 93,298,330 39,940,884 58,739,548
====================================================================
Net asset value per share*.................................... $11.62 $12.00 $12.09 $12.27
====================================================================
Maximum offering price per share (net asset value per share / 95.75%) $12.14 $12.53 $12.63 $12.81
====================================================================
Class II:
Net assets, at value ......................................... $ 10,484,121 $25,508,644 $6,845,817 $19,830,825
====================================================================
Shares outstanding............................................ 899,183 2,114,696 564,269 1,608,437
====================================================================
Net asset value per share*.................................... $11.66 $12.06 $12.13 $12.33
====================================================================
Maximum offering price per share (net asset value per share / 99.00%) $11.78 $12.18 $12.25 $12.45
====================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations
for the six months ended August 31, 1997 (unaudited)
Franklin Franklin
Arizona InsuredFlorida InsuredFranklin
Tax-Free Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund
<S> <C> <C> <C>
Investment income:
Interest................................................................... $1,181,436 $2,317,047 $52,014,575
----------------------------------------
Expenses:
Management fees (Note 5)................................................... 134,328 261,452 3,913,991
Distribution fees (Note 5)
Class I................................................................... 19,650 37,880 668,663
Class II.................................................................. -- -- 82,753
Transfer agent fees (Note 5)............................................... 7,130 11,327 284,858
Custodian fees............................................................. 167 376 15,123
Reports to shareholders.................................................... 5,384 7,295 157,897
Registration and filing fees............................................... 3,894 4,137 44,914
Professional fees.......................................................... 1,021 1,309 22,815
Trustees' fees and expenses (Note 5)....................................... 264 481 10,017
Other...................................................................... 11,571 7,266 68,182
----------------------------------------
Total expenses............................................................ 183,409 331,523 5,269,213
Expenses waived/paid by affiliate (Note 5)................................ (100,271) (185,189) --
----------------------------------------
Net expenses.............................................................. 83,138 146,334 5,269,213
----------------------------------------
Net investment income................................................. 1,098,298 2,170,713 46,745,362
----------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments.................................. 70,405 (11,880) 9,132,459
Net unrealized appreciation (depreciation) on investments.................. 580,795 1,283,627 (867,107)
----------------------------------------
Net realized and unrealized gain............................................ 651,200 1,271,747 8,265,352
----------------------------------------
Net increase in net assets resulting from operations........................ $1,749,498 $3,442,460 $55,010,714
========================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended August 31, 1997 (unaudited)
Franklin Franklin Franklin Franklin
Massachusetts Michigan Minnesota Ohio
Insured Tax-FreeInsured Tax-FreeInsured Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund Income Fund
Investment income:
<S> <C> <C> <C> <C>
Interest ..................................................... $ 9,998,171 $33,971,123 $14,715,980 $21,668,578
---------------------------------------------------------------------
Expenses:
Management fees (Note 5) ..................................... 879,836 2,673,996 1,218,477 1,760,330
Distribution fees (Note 5)
Class I ..................................................... 132,321 474,517 197,754 304,456
Class II .................................................... 25,612 74,389 20,021 57,445
Transfer agent fees (Note 5) ................................. 51,747 241,696 112,181 153,431
Custodian fees ............................................... 1,448 5,410 2,409 3,812
Reports to shareholders ...................................... 28,248 128,490 58,147 75,883
Registration and filing fees ................................. 5,720 16,681 12,208 5,376
Professional fees ............................................ 3,981 16,572 6,867 7,619
Trustees' fees and expenses (Note 5) ......................... 2,162 7,522 3,449 4,206
Other ........................................................ 19,425 63,625 56,333 42,843
---------------------------------------------------------------------
Total expenses .............................................. 1,150,500 3,702,898 1,687,846 2,415,401
---------------------------------------------------------------------
Net investment income ................................... 8,847,671 30,268,225 13,028,134 19,253,177
---------------------------------------------------------------------
Realized and unrealized gains:
Net realized gain from investments ........................... 806,324 2,595,049 2,908,020 2,177,982
Net unrealized appreciation on investments ................... 2,690,378 1,659,426 419,831 2,861,609
---------------------------------------------------------------------
Net realized and unrealized gain .............................. 3,496,702 4,254,475 3,327,851 5,039,591
---------------------------------------------------------------------
Net increase in net assets resulting from operations .......... $12,344,373 $34,522,700 $16,355,985 $24,292,768
=====================================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
Franklin Arizona Insured Franklin Florida Insured
Tax-Free Income Fund Tax-Free Income Fund
Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 1,098,298 $ 2,067,720 $ 2,170,713 $ 3,829,611
Net realized gain (loss) from investments ............ 70,405 (5,619) (11,880) (119,240)
Net unrealized appreciation (depreciation) on investments 580,795 (10,776) 1,283,627 (44,777)
---------------------------------------------------------------------
Net increase in net assets resulting from operations 1,749,498 2,051,325 3,442,460 3,665,594
Distributions to shareholders from:
Net investment income ................................ (1,114,496) (2,055,948) (2,145,980) (3,811,701)
Capital share transactions (Note 2)................... 4,773,734 1,498,955 11,034,564 7,739,653
---------------------------------------------------------------------
Net increase in net assets ....................... 5,408,736 1,494,332 12,331,044 7,593,546
Net assets:
Beginning of period ................................... 39,693,128 38,198,796 77,176,899 69,583,353
---------------------------------------------------------------------
End of period ......................................... $ 45,101,864 $ 39,693,128 $ 89,507,943 $ 77,176,899
=====================================================================
Undistributed net investment income included in net assets:
Beginning of period ................................... $ 87,718 $ 75,946 $ 50,649 $ 32,739
=====================================================================
End of period ......................................... $ 71,520 $ 87,718 $ 75,382 $ 50,649
=====================================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
Franklin Insured Franklin Massachusetts Insured
Tax-Free Income Fund Tax-Free Income Fund
Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 46,745,362 $ 95,995,749 $ 8,847,671 $ 17,080,884
Net realized gain from investments ................... 9,132,459 189,172 806,324 4,857,234
Net unrealized appreciation (depreciation) on investments (867,107) (14,843,798) 2,690,378 (7,367,674)
---------------------------------------------------------------------
Net increase in net assets resulting from operations 55,010,714 81,341,123 12,344,373 14,570,444
Distributions to shareholders from:
Net investment income:
Class I ............................................. (46,135,242) (96,336,110) (8,623,691) (17,006,052)
Class II ............................................ (630,860) (757,108) (187,275) (230,919)
In excess of net investment income:
Class I ............................................. (102,408) -- (130,642) (36,375)
Class II ............................................ -- -- -- (330)
Net realized gains:
Class I ............................................. -- -- (1,225,175) --
Class II ............................................ -- -- (29,948) --
Capital share transactions (Note 2 ):
Class I ............................................. (231,386) (27,168,822) 5,468,791 26,245,016
Class II ............................................ 8,296,398 13,338,878 4,045,440 3,613,523
---------------------------------------------------------------------
Net increase (decrease) in net assets ............ 16,207,216 (29,582,039) 11,661,873 27,155,307
Net assets:
Beginning of period ................................... 1,683,608,651 1,713,190,690 331,442,846 304,287,539
---------------------------------------------------------------------
End of period ......................................... $1,699,815,867$1,683,608,651 $343,104,719 $331,442,846
=====================================================================
Undistributed net investment income (accumulated distributions
in excess of net investment income) included in net assets:
Beginning of period ................................... $ 20,740 $ 1,118,209 $ (36,705) $ 156,087
=====================================================================
End of period ......................................... $ (102,408) $ 20,740 $ (130,642) $ (36,705)
=====================================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
Franklin Michigan Insured Franklin Minnesota Insured Franklin Ohio Insured
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
Six months Year ended Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 30,268,225 $ 61,749,585 $ 13,028,134 $ 26,628,971 $ 19,253,177 $ 37,792,356
Net realized gain (loss)
from investments 2,595,049 4,589,908 2,908,020 (540,028) 2,177,982 4,543,907
Net unrealized appreciation
(depreciation) on
investments 1,659,426 (11,934,831) 419,831 (4,659,743) 2,861,609 (5,685,110)
-----------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations 34,522,700 54,404,662 16,355,985 21,429,200 24,292,768 36,651,153
Distributions to shareholders from:
Net investment income:
Class I (29,501,166) (61,003,949) (12,839,557) (26,722,891) (18,572,577) (37,223,762)
Class II (553,336) (634,617) (143,011) (132,990) (421,743) (514,622)
In excess of net investment income:
Class I (551,762) (213,723) -- -- (370,855) (258,857)
Net realized gains:
Class I (4,602,602) -- -- -- -- --
Class II (97,242) -- -- -- -- --
Capital share transactions (Note 2):
Class I 8,537,160 3,608,574 (2,578,669) (4,581,379) 17,766,417 13,994,327
Class II 5,328,427 13,400,553 1,945,320 3,688,022 3,894,326 9,628,987
-----------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets 13,082,179 9,561,500 2,740,068 (6,320,038) 26,588,336 22,277,226
Net assets:
Beginning of period 1,131,698,9711,122,137,471 486,971,143 493,291,181 714,145,675 691,868,449
-----------------------------------------------------------------------------------------------
End of period $1,144,781,150$1,131,698,971 $489,711,211 $486,971,143 $740,734,011 $714,145,675
===============================================================================================
Undistributed net investment
income (accumulated distributions
in excess of net investment income)
included in net assets:
Beginning of period $ (213,723) $ (111,019) $ 263,020 $ 489,930 $ (258,857) $ (53,972)
===============================================================================================
End of period $ (551,762) $ (213,723) $ 308,586 $ 263,020 $ (370,855) $ (258,857)
===============================================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-eight
separate series. All funds included in this report (the Funds) are diversified
except the Franklin Arizona Insured Tax-Free Income Fund and the Franklin
Florida Insured Tax-Free Income Fund. The investment policy of the Funds is to
provide tax-free income.
The following summarizes the Funds' significant accounting policies.
a. Security Valuation
Tax-free bonds generally trade in the over-the-counter market and are valued
within the range of the latest quoted bid and asked prices. In the absence of a
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 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. Securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. Insurance
The scheduled payments of interest and principal for each long-term municipal
security in the Trust is insured by either a new issue insurance policy, a
portfolio insurance policy, a secondary insurance policy, or by collateral
guaranteed by an agency of the U.S. government.
Depending on the type of coverage, premiums for insurance are either added to
the cost basis of the security, included as an expense of the fund, or paid by a
third party.
c. Income Taxes
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
d. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount and
premium are amortized on an income tax basis. Distributions to shareholders are
recorded on the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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. Other expenses are
charged to each Fund on a specific identification basis.
e. Accounting Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. TRUST SHARES
The Funds, except the Franklin Arizona Insured Tax-Free Income Fund and the
Franklin Florida Insured Tax-Free Income Fund, offer two classes of shares:
Class I and Class II. The shares have the same rights except for their initial
sales load, distribution fees, voting rights on matters affecting a single class
and the exchange privilege of each class.
2. TRUST SHARES (cont.)
At August 31, 1997, there were an unlimited number of shares authorized (no par
value). Transactions in the Fund's shares 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
Class I Shares: Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Six months ended August 31, 1997
Shares sold ............ 817,789 $ 8,472,706 1,599,187 $15,997,438 8,740,237 $106,047,398
Shares issued in reinvestment
of distributions ...... 40,835 424,342 73,006 731,852 1,626,639 19,753,373
Shares redeemed ........ (393,939) (4,123,314) (570,947) (5,694,726) (10,389,214)(126,032,157)
-----------------------------------------------------------------------------------------------
Net increase (decrease) 464,685 $ 4,773,734 1,101,246 $11,034,564 (22,338)$ (231,386)
===============================================================================================
Year ended February 28, 1997
Shares sold ............ 1,063,087 $10,804,634 2,159,414 $21,306,582 15,746,969 $190,229,186
Shares issued in reinvestment
of distributions ...... 84,472 860,990 134,268 1,324,324 3,354,125 40,515,344
Shares redeemed ........ (1,004,299) (10,166,669) (1,507,044) (14,891,253) (21,353,609)(257,913,352)
-----------------------------------------------------------------------------------------------
Net increase (decrease) 143,260 $ 1,498,955 786,638 $ 7,739,653 (2,252,515)$(27,168,822)
===============================================================================================
Class II Shares:
Six months ended August 31, 1997
Shares sold ............................................................................. 792,322 $ 9,658,745
Shares issued in reinvestment
of distributions ....................................................................... 32,735 399,756
Shares redeemed ......................................................................... (144,371) (1,762,103)
----------------------------
Net increase ............................................................................ 680,686 $ 8,296,398
============================
Year ended February 28, 1997
Shares sold ............................................................................. 1,172,093 $ 14,208,657
Shares issued in reinvestment
of distributions ....................................................................... 39,161 475,591
Shares redeemed ......................................................................... (110,718) (1,345,370)
---------------------------
Net increase ............................................................................ 1,100,536 $ 13,338,878
===========================
Franklin Massachusetts Franklin Michigan Insured
Insured Tax-Free Income Fund Tax-Free Income Fund
Class I Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Six months ended August 31, 1997
Shares sold ............................................ 1,595,949 $18,365,648 4,250,885 $ 50,775,016
Shares issued in reinvestment of distributions ......... 416,556 4,809,979 1,475,079 17,649,638
Shares redeemed ........................................ (1,539,702) (17,706,836) (5,017,105) (59,887,494)
---------------------------------------------------------------------
Net increase ........................................... 472,803 $ 5,468,791 708,859 $ 8,537,160
=====================================================================
Year ended February 28, 1997
Shares sold ............................................ 4,567,263 $52,464,615 7,814,075 $ 93,018,944
Shares issued in reinvestment of distributions ......... 640,639 7,340,858 2,519,009 30,001,284
Shares redeemed ........................................ (2,926,859) (33,560,457) (10,033,049)(119,411,654)
---------------------------------------------------------------------
Net increase ........................................... 2,281,043 $26,245,016 300,035 $ 3,608,574
=====================================================================
2. TRUST SHARES (cont.)
Franklin Massachusetts Franklin Michigan
Insured Tax-Free Insured Tax-Free
Income Fund Income Fund
Class II Shares: Shares Amount Shares Amount
Six months ended August 31, 1997
Shares sold ............................................ 371,044 $ 4,303,415 589,752 $ 7,074,685
Shares issued in reinvestment of distributions ......... 14,496 168,210 38,040 457,755
Shares redeemed ........................................ (36,788) (426,185) (183,823) (2,204,013)
---------------------------------------------------------------------
Net increase ........................................... 348,752 $ 4,045,440 443,969 $ 5,328,427
=====================================================================
Year ended February 28, 1997
Shares sold ............................................ 316,475 $ 3,638,171 1,155,661 $13,825,406
Shares issued in reinvestment of distributions ......... 15,223 175,286 36,857 441,821
Shares redeemed ........................................ (17,305) (199,934) (72,368) (866,674)
---------------------------------------------------------------------
Net increase ........................................... 314,393 $ 3,613,523 1,120,150 $13,400,553
=====================================================================
Franklin Minnesota Franklin Ohio Insured
Tax-Free Income Fund Tax-Free Income Fund
Class I Shares: Shares Amount Shares Amount
Six months ended August 31, 1997
Shares sold ............................................ 1,525,337 $18,292,548 3,922,046 $47,690,597
Shares issued in reinvestment of distributions ......... 554,136 6,650,962 751,453 9,155,621
Shares redeemed ........................................ (2,296,564) (27,522,179) (3,213,563) (39,079,801)
---------------------------------------------------------------------
Net increase (decrease) ................................ (217,091) $(2,578,669) 1,459,936 $17,766,417
=====================================================================
Year ended February 28, 1997
Shares sold ............................................ 3,044,882 $36,326,513 5,875,366 $70,906,972
Shares issued in reinvestment of distributions ......... 1,139,291 13,599,170 1,470,891 17,763,260
Shares redeemed ........................................ (4,566,009) (54,507,062) (6,187,100) (74,675,905)
---------------------------------------------------------------------
Net increase (decrease) ................................ (381,836) $(4,581,379) 1,159,157 $13,994,327
=====================================================================
Class II Shares:
Six months ended August 31, 1997
Shares sold ............................................ 186,802 $ 2,241,166 376,992 $ 4,594,318
Shares issued in reinvestment of distributions ......... 7,410 89,321 24,558 300,979
Shares redeemed ........................................ (32,017) (385,167) (82,297) (1,000,971)
---------------------------------------------------------------------
Net increase ........................................... 162,195 $ 1,945,320 319,253 $ 3,894,326
=====================================================================
Year ended February 28, 1997
Shares sold ............................................ 335,271 $ 4,021,564 868,125 $10,536,543
Shares issued in reinvestment of distributions ......... 7,301 87,474 29,854 362,556
Shares redeemed ........................................ (35,169) (421,016) (105,328) (1,270,112)
---------------------------------------------------------------------
Net increase ........................................... 307,403 $ 3,688,022 792,651 $ 9,628,987
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
3. INCOME TAXES
At February 28, 1997, the Funds had tax basis capital losses which may be carried over to offset future capital gains. Such losses
expire as follows:
Franklin
Franklin ArizonaFranklin FloridaFranklin Minnesota Franklin Ohio
Insured Tax-FreeInsured Tax-FreeInsured Tax-Free Insured Tax-Free Insured
Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C> <C>
Capital loss carryovers expiring in: 2002 ............ $ 21,282 $ 16,913 $-- $-- $--
2003 ............ 394,514 1,225,446 37,322 2,767 1,059,282
2004 ............ -- -- -- --
2005 ............ 17,363 167,156 -- 540,028 --
---------------------------------------------------------------------
$433,159 $1,409,515 $37,322 $542,795 $1,059,282
=====================================================================
At August 31, 1997, the net unrealized appreciation based on the cost of investments for income tax purposes was as follows:
Franklin Franklin
Franklin ArizonaFranklin FloridaFranklin MassachusettsFranklin MichiganMinnesota Franklin Ohio
Insured Tax-FreeInsured Tax-FreeInsured Tax-Free Insured Tax-FreeInsured Tax-FreeInsured Tax-Free
Insured Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C> <C>
Investments at cost ....... $43,043,016 $84,510,053 $1,611,964,628 $324,007,674 $1,071,672,234$464,090,919 $694,414,444
----------------------------------------------------------------------------------------------
Unrealized appreciation ... $ 1,993,781 $ 3,454,749 $ 97,585,238 $ 18,521,816 $ 59,657,596 $ 21,788,028 $ 39,676,061
Unrealized depreciation ... (2,895) (142,910) (749,446) (199,763) (195,746) (8,707) (263,910)
----------------------------------------------------------------------------------------------
Net unrealized
appreciation $ 1,990,886 $ 3,311,839 $ 96,835,792 $ 18,322,053 $ 59,461,850 $ 21,779,321 $ 39,412,151
==============================================================================================
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differences between book and tax recognition of dividend distributions.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatment of wash sales.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended August 31, 1997 were as follows:
<TABLE>
Franklin Franklin
Franklin ArizonaFranklin FloridaFranklin MassachusettsFranklin MichiganMinnesota Franklin Ohio
Insured Tax-FreeInsured Tax-FreeInsured Tax-Free Insured Tax-FreeInsured Tax-FreeInsured Tax-Free
Insured Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases .............. $9,111,428 $12,259,924 $273,099,101 $66,829,618 $132,713,524 $43,738,455 $62,701,429
Sales .................. $4,212,840 $ 2,363,032 $250,525,954 $44,701,010 $120,161,743 $47,134,367 $39,123,122
</TABLE>
5. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers or directors of
Franklin/Templeton Distributors, Inc. (Distributors), Franklin Advisers Inc.
(Advisers), Franklin/Templeton Investor Services, Inc. (Investor Services), and
Franklin Templeton Services, Inc. (FT Services), the Funds' principal
underwriter, investment manager, transfer agent, and administrative manager,
respectively.
The Funds pay an investment management fee to Advisers based on the average net
assets of the Funds as follows:
Annualized Fee RateMonth-End Net Assets
0.625% First $100 million
0.50% Over $100 million, up to and including $250 million
0.45% In excess of $250 million
5. TRANSACTIONS WITH AFFILIATES (cont.)
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
Advisers agreed in advance to waive management fees and assume payment of other
expenses for the Franklin Arizona Insured Tax-Free Income Fund and the Franklin
Florida Insured Tax-Free Income Fund, as noted in the Statements of Operations.
The Funds reimburse Distributors up to 0.10% and 0.65% per year of their average
daily net assets of Class I and Class II, respectively, for costs incurred in
marketing the Funds' shares.
Distributors received (paid) net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the period as follows:
<TABLE>
<CAPTION>
Franklin Franklin
Franklin ArizonaFranklin FloridaFranklin MassachusettsFranklin MichiganMinnesota Franklin Ohio
Insured Tax-FreeInsured Tax-FreeInsured Tax-Free Insured Tax-FreeInsured Tax-FreeInsured Tax-Free
Insured Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
Net commissions
<S> <C> <C> <C> <C> <C> <C> <C>
received (paid) ............ $14,141 $(16,434) $(103,502) $(14,731) $(2,629) $10,669 $(33,558)
Contingent deferred
sales charges .............. -- -- $ 8,509 $ 1,890 $12,850 $ 389 $ 4,120
</TABLE>
6. CREDIT RISK
The Funds have investments in excess of 10% of their total net assets in their
respective states. Such concentration may subject the Funds more significantly
to economic changes occurring within those states.
Franklin Tax-Free Trust #1 & #4 (Insured Series) Semi-Annual Report August
31, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the total return of the municipal bond market
over a ten-year period, from 9/1/87 to 8/31/97.
Over the Long Term, Income Drives Total Return Municipal Bond Market
Income 84.01%
Appreciation on Initial 15.99%
Investment
GRAPHIC MATERIAL (2)
This bar chart shows the percentage of insured vs. Non-insured municipal bond
issuance over a three-year period.
Insured and Non-Insured Municipal Bonds as a Percentage of Total Long-Term
Investments
Year Insured Bonds Non-Insured Bonds
1994 37% 63%
1995 43% 57%
1996 47% 53%
1997 61% 39%
GRAPHIC MATERIAL (3)
This chart shows in bar format the dollar amount (in billions) of new
long-term municipal bond issuance from 1987 to 1997: $105 (1987); $117.3
(1988); $125 (1989); $127.8 (1990); $172.4 (1991); $234.7 (1992); $292.2
(1993); $164.8 (1994); $160.3 (1995); $183.5 (1996); $105.7 (1997).
GRAPHIC MATERIAL (4)
This chart shows in bar format the comparison between the fund's distribution
rate of 5.03% and the taxable equivalent rate of 8.78%.
GRAPHIC MATERIAL (5)
This chart shows in bar format the comparison between the fund's distribution
rate of 4.99% and the taxable equivalent rate of 8.25%.
GRAPHIC MATERIAL (6)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.18% and the taxable equivalent rate of 8.57%.
GRAPHIC MATERIAL (7)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.75% and the taxable equivalent rate of 7.86%.
GRAPHIC MATERIAL (8)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 4.94% and the taxable equivalent rate of 9.30%.
GRAPHIC MATERIAL (9)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.49% and the taxable equivalent rate of 8.45%.
GRAPHIC MATERIAL (10)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.17% and the taxable equivalent rate of 8.96%.
GRAPHIC MATERIAL (11)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.72% and the taxable equivalent rate of 8.17%.
GRAPHIC MATERIAL (12)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.04% and the taxable equivalent rate of 9.11%.
GRAPHIC MATERIAL (13)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.63% and the taxable equivalent rate of 8.38%.
GRAPHIC MATERIAL (14)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 4.96% and the taxable equivalent rate of 8.84%.
GRAPHIC MATERIAL (15)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.55% and the taxable equivalent rate of 8.10%.
Semi
Annual
Report
August 31, 1997
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
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these
years, the mutual fund industry has experienced profound changes in
technology, regulations and customer expectations. As one of the largest
mutual fund families, we're proud to be an innovative industry leader,
providing people like you with an opportunity to invest around the globe. We
thank you for your past support and look forward to serving your investment
needs in the years ahead.
Charles B. Johnson (left), chairman
of Franklin Tax-Free Trust and
Thomas Kenny (right), director of Franklin's Municipal Bond Department
CONTENTS
Shareholder Letter 1
Special Feature:
Q&A with Thomas J. Kenny 3
Fund Reports
Franklin Alabama
Tax-Free Income Fund 6
Franklin Florida
Tax-Free Income Fund 12
Franklin Georgia
Tax-Free Income Fund 18
Franklin Kentucky
Tax-Free Income Fund 24
Franklin Louisiana
Tax-Free Income Fund 28
Franklin Maryland
Tax-Free Income Fund 34
Franklin Missouri
Tax-Free Income Fund 40
Franklin North Carolina
Tax-Free Income Fund 46
Franklin Texas
Tax-Free Income Fund 52
Franklin Virginia
Tax-Free Income Fund 58
Glossary of
Investment Terms 64
Bond Ratings 66
Financial Highlights and
Statement of Investments 68
Financial Statements 116
Notes to Financial Statements 124
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you the Franklin Tax-Free Trust's semi-annual report
for the period ended August 31, 1997.
During the six months under review, the U.S. economy continued its healthy
expansion. In March, the Federal Reserve Board (the Fed) raised short-term
interest rates 25 basis points, from 5.25% to 5.50%. The Fed's rate increase
was in response to tight labor markets and its concern that possible wage
demands could lead to inflation. Subsequently, interest rates reached their
highest point of the year in April. Concerns over inflation soon dissipated,
however, as reports released later in the period indicated few signs of
inflation and showed economic growth was moderating. In this low-inflation
and moderate-growth environment, interest rates ended near where they began.
The 30-year U.S. Treasury bond started the six-month period offering a rate
of 6.80% and finished at 6.57% on August 31, 1997.1
1. Source: Micropal.
Over the period, we have continued to see many insured municipal issues
brought to the market. As individual state economies enjoyed healthy growth,
state and local governments witnessed an increase in their revenues. Voter
resistance toward higher taxes helped restrain government spending, causing
government fiscal positions and credit ratings to strengthen. As credit
qualities have risen, municipal bond insurance has become relatively cheap
for state and local governments. Furthermore, increased competition among the
municipal insurance companies have also contributed to lower insurance costs
for issuers. Overall, municipal issuers have favored insured bonds because of
the stronger market appeal for this type of security.
Our Municipal Bond Department reacted to the opportunities inherent in both
the increased issues of insured bonds and the prepayment of outstanding
municipal securities. As a policy -- and as the market permits -- we continue
to enjoy the income from prerefunded holdings until they have a term left of
approximately five years. Ideally, at this time the gains are captured and
the proceeds are reinvested in bonds with greater call protection.
As always, we continue to stress a long-term investment perspective. The
financial markets always have been -- and probably always will be -- subject to
daily fluctuation. No one can predict the future performance of the
securities markets, but history has shown that, over the long term, stocks
and bonds have delivered impressive results when income is left to compound.
We encourage you to review your investment program periodically with your
investment representative, and focus on your continuing long-term goals. If
you have any questions concerning the funds in the Franklin Tax-Free Trust,
we welcome the opportunity to answer them.
Sincerely,
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
Thomas J. Kenny
Director
Franklin Municipal Bond Department
Q&A
Thomas J. Kenny, director of Franklin's Municipal Bond Department, discusses
some issues facing the municipal bond market.
SPECIAL FEATURE:
Q&A WITH THOMAS J. KENNY
Q: Tom, the U.S. economy has shown strong growth, yet increased inflation
hasn't been an issue. Any thoughts why not?
Many factors have contributed to the current economic environment in the U.S.
Most notably: 1) The U.S. currently has one of the strongest economies in the
world, with U.S. dollar-denominated assets in worldwide demand, which has led
to a stronger U.S. dollar and cheaper foreign goods; 2) technology has
enabled U.S. corporations to improve productivity efficiency, which has
improved their bottom lines without raising prices; 3) until recently, labor
forces have not renegotiated salary/wage contracts in lieu of job security;
and 4) consumers have become more price conscious, requiring companies to be
more competitive to maintain market share.
Q: Did the Federal Reserve Board's quarter-point interest rate hike in March
- -- and further neutral activity -- have any effect on the municipal bond market?
The Fed raised rates in March in a pre-emptive move against inflation as
labor markets continued to strengthen. The Fed's tightening injected
volatility into the fixed-income markets, as participants were uncertain
about the future posturing by the Federal Reserve Board. Though it generally
trended with the government market, the municipal market was slightly less
volatile due to price support from comparatively low levels of municipal bond
supply. As economic numbers indicate that the economy has continued on its
path of moderate growth and low levels of inflation, we have seen overall
interest rates trend downward.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q: It seems that portfolio managers have been increasing their purchases of
insured bonds. Why is that?
First of all, more municipal issues have been brought to the market as
insured. Municipal bond insurers currently insure approximately 60% of new
issues, and also make insurance available for secondary market securities.
Second, the sustained low interest rate environment has increased demand for
lower quality, higher yielding securities (causing their yields to decline),
which has contributed to the narrowing of quality spreads between insured
bonds and lower quality bonds. Simply speaking, we think insured bonds have
generally offered the best relative value in the municipal market.
Q: Do you anticipate any impact to the municipal bond market as a result of
the recent tax law changes?
Fortunately, the new tax law changes have not altered the tax advantages
enjoyed by municipal bonds. Municipals continue to distribute income that is
free from federal and state income taxes. It is difficult to determine the
extent to which investors might change their investment strategies based upon
the reduced capital gains rate and other tax rule changes. However, we
currently do not expect any significant impact on the municipal bond market.
Q: What is your outlook for the municipal bond market for the remainder of
1997?
We expect the municipal bond market to do well through the rest of the year
as the demand for municipals remains strong -- retail investors, insurance
companies and institutional investors remain active in the market. Even with
the adoption of the recent tax legislation, tax equivalent yields remain
attractive and should lend some support for asset allocation into the
municipal arena.
Thanks for sharing your thoughts, Tom.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN ALABAMA TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Alabama
Tax-Free Income Fund celebrated its 10th anniversary in September 1997 by
paying its 117th consecutive monthly income dividend. Since the fund's first
dividend payment on January 15, 1988, it has helped investors increase their
income potential by reducing their tax burdens. We remain committed to
helping you achieve your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and Alabama state personal income taxes through a portfolio
consisting primarily of Alabama municipal bonds.1
State Update
During the period, Alabama's economic base experienced increased
diversification, with growth in high-tech firms, health care and business
services. Over the last several years, Alabama has created aggressive
economic development policies that have fueled growth. These policies have
aided in attracting significant investments, offsetting losses in the state's
traditional manufacturing industries such as textiles, apparel, and food
processing. As a result, per capita personal income growth has outpaced the
national average in recent years.
Alabama's economy is expected to grow at a stronger pace throughout the
remainder of 1997, with employment forecast to increase 1.6%.2 A stabilized
manufacturing sector and expanding services and trade sectors account for
much of the expected growth. For example, the opening of a Mercedes-Benz
assembly plant should aid the manufacturing sector. With Alabama's moderate
economic growth, the Alabama Special Education Trust Fund (the state's
largest operating fund) has averaged approximately 3.6% revenue growth over
the past three years. As of May 26, 1997, fiscal 1997 revenues are slightly
ahead of the 5.3% increase anticipated.3
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject
to such tax. Distributions of capital gains and of ordinary income from
accrued market discount, if any, are generally taxable.
2. Source: Standard & Poor's Creditweek Municipal, 5/26/97.
3. Ibid.
Portfolio Notes
During the six-month reporting period, we continued to sell prerefunded bonds
and buy debt securities with longer call protections. Generally, we attempt
to replace prerefunded bonds when their call dates are approximately five
years away with bonds that have better call protection. Prerefunded bonds'
values decline rapidly to their call price, as they approach five years to
their call date. Thus selling prerefunded bonds can help extend the fund's
income earning potential and protect your share value. As a result of this
investment strategy, prerefunded bond holdings decreased from 5.1% to 2.4% of
the fund's total long-term investments over the course of the reporting
period.
Although the supply of Alabama bonds remained light, we were able to make
several new purchases, including Jefferson, AL, Sewer Revenue Bonds; Lee Co.,
AL, General Obligation Warrants; and Birmingham, AL, Baptist Medical Center.
Looking forward, we expect the supply to remain low, and we plan to focus our
efforts on purchasing Alabama current coupon bonds that represent good values.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Alabama
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 33.1%
Hospitals 19.4%
General
Obligation 15.0%
Industrial 10.5%
Housing 6.2%
Education 4.3%
Transportation 4.0%
Health Care 2.8%
Prerefunded 2.4%
Other Revenue 2.3%
For a complete list of portfolio holdings, please see page 69.
PERFORMANCE SUMMARY
Franklin Alabama
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.5 cents
April 5.5 cents
May 5.5 cents
June 5.5 cents
July 5.5 cents
August 5.5 cents
Total 33.0 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period.
PERFORMANCE SUMMARY
CLASS I
The Franklin Alabama Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 7.0 cents, from $11.73 on February 28, 1997, to
$11.80 on August 31, 1997.
The fund posted a cumulative total return of 3.78% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
In addition to distributing 5.5 cents ($0.055) per share in dividend income,
the fund paid out a long-term capital gain of 3.88 cents ($0.0388) in
June 1997. Distributions will vary, depending on income earned by the fund
and any profits realized from the sale of securities in the fund's portfolio.
Past distributions are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 5.36%,
based on an annualization of the current monthly dividend of 5.5 cents
($0.055) per share and the maximum offering price of $12.32 on August 31,
1997. This double tax-free rate is generally higher than the after-tax return
on a comparable taxable investment. For example, an investor in the maximum
combined federal and Alabama state personal income tax bracket would need to
earn 9.34% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Alabama Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.71% 39.31% 116.31%
Average Annual Total Return2 4.10% 5.93% 7.55%
Distribution Rate3 5.36%
Taxable Equivalent
Distribution Rate4 9.34%
30-Day Standardized Yield5 4.46%
Taxable Equivalent Yield4 7.77%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.5 cents
per share monthly dividend and the maximum offering price of $12.32 on August
31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Alabama state personal income tax bracket of 42.62%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested
at the offering price. Thus, actual returns would differ. Effective May 1,
1994, the fund eliminated the sales charge on reinvested dividends and
implemented a Rule 12b-1 plan, which affects subsequent performance. Past
expense reductions by the fund's manager increased the fund's total returns.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
The Franklin Alabama Tax-Free Income Fund - Class I paid distributions
derived from long-term capital gains of 3.88 cents ($0.0388) per share in
June 1997. The fund hereby designates such distributions as capital gain
dividends per Section 852 (b)(3) of the Internal Revenue Code.
Franklin Alabama
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.93 cents
April 4.95 cents
May 4.95 cents
June 4.95 cents
July 4.96 cents
August 4.96 cents
Total 29.7 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period.
CLASS II
The Franklin Alabama Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 7.0 cents, from $11.78 on February 28, 1997, to
$11.85 on August 31, 1997.
The fund posted a cumulative total return of 3.48% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the sales charges.
In addition to distributing 4.96 cents ($0.0496) per share in dividend
income, the fund paid out a long-term capital gain of 3.88 cents ($0.0388) in
June 1997. Distributions will vary, depending on income earned by the fund
and any profits realized from the sale of securities in the fund's portfolio.
Past distributions are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 4.95%,
based on an annualization of the current monthly dividend of 4.94 cents
($0.0494) per share, which includes a -.02 cent 12b-1 differential
adjustment, and the offering price of $11.97 on August 31, 1997. This double
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum combined federal
and Alabama state personal income tax bracket would need to earn 8.63% from a
taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Alabama Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 8.14% 17.56%
Average Annual Total Return2 6.04% 6.73%
Distribution Rate3 4.95%
Taxable Equivalent
Distribution Rate4 8.63%
30-Day Standardized Yield5 4.04%
Taxable Equivalent Yield4 7.04%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.94 cents
per share monthly dividend, which includes a -.02 cent 12b-1 differential
adjustment, and the offering price of $11.97 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Alabama state personal income tax bracket of 42.62%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
The Franklin Alabama Tax-Free Income Fund - Class II paid distributions
derived from long-term capital gains of 3.88 cents ($0.0388) per share in
June 1997. The fund hereby designates such distributions as capital gain
dividends per Section 852 (b)(3) of the Internal Revenue Code.
Past performance is not predictive of future results.
FRANKLIN FLORIDA TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Florida Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 118th
consecutive monthly income dividend. Since the fund's first dividend payment
on December 15, 1987, it has helped investors increase their income potential
by reducing their tax burdens. We remain committed to helping you achieve
your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal tax through a portfolio consisting primarily of Florida
municipal bonds.1 In addition, the fund's shares are free from Florida's
annual intangibles tax.
State Update
During the period, Florida's general obligation debt rating by Standard &
Poor's, a national credit rating agency, was upgraded from AA to AA+.2 This
rating upgrade reflected Florida's strength in financial management, economic
expansion and discipline in maintaining its budget stabilization reserve as
required by the state's constitution. Florida did face some ongoing
challenges, especially in Medicaid and school and correctional facilities.
Although education initiatives continued to be the policy focus of the
governor's budget in 1997, proposed bond programs for all of these areas are
expected for fiscal 1998.
Employment has increased steadily since 1992. Florida's estimated average
unemployment rate through 1996 was 5.3%, down from a recessionary peak of
8.2% in 1992.3 Strong growth in the services, construction, and trade sectors
led the state's expansion, with more than 64% of the state's work force tied
to these sectors.
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject
to such tax. Distributions of capital gains and of ordinary income from
accrued market discount, if any, are generally taxable.
2. This does not indicate Standard & Poor's rating of the fund.
3. Source: Standard & Poor's Creditweek Municipal, 4/7/97.
Portfolio Notes
During the six-month reporting period, we continued to sell prerefunded bonds
and buy debt securities with longer call protections. Generally, we attempt
to replace prerefunded bonds when their call dates are approximately five
years away with bonds that have better call protection. Prerefunded bonds'
values decline rapidly to their call price, as they approach five years to
their call date. Thus selling prerefunded bonds can help extend the fund's
income-earning potential and protect your share value. As a result of this
investment strategy, prerefunded bond holdings decreased from 18.8% to 12.0%
of the fund's total long-term investments over the course of the reporting
period.
The supply of Florida bonds continued to grow, and we made several new
purchases, including Jacksonville, FL, Electric Authority; North Broward
Hospital; and Orlando Waste Water System. Looking forward, we expect the
supply to grow further and plan to focus our efforts on purchasing Florida
current coupon bonds that represent good values.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Florida
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 29.9%
Transportation 12.6%
Prerefunded 12.0%
Housing 8.1%
Hospitals 7.9%
Other Revenue 7.7%
Special
Assessment 6.3%
Certificates of
Participation 5.8%
Health Care 3.5%
General
Obligation 2.4%
Education 1.9%
Sales Tax 1.3%
Industrial 0.6%
For a complete list of portfolio holdings, please see page 73.
PERFORMANCE SUMMARY
Franklin Florida
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.7 cents
April 5.7 cents
May 5.7 cents
June 5.7 cents
July 5.7 cents
August 5.7 cents
Total 34.2 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
Class I
The Franklin Florida Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 7.0 cents, from $11.59 on February 28, 1997, to
$11.66 on August 31, 1997.
The fund posted a cumulative total return of 3.58% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.32%,
based on an annualization of the current monthly dividend of 5.4 cents
($0.054) per share, which includes a dividend adjustment, and the maximum
offering price of $12.18 on August 31, 1997. This tax-free rate is generally
higher than the after-tax return on a comparable taxable investment. For
example, an investor in the maximum federal income tax bracket would need to
earn 8.81% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Florida Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.10% 38.22% 120.61%
Average Annual Total Return2 3.49% 5.77% 7.76%
Distribution Rate3 5.32%
Taxable Equivalent
Distribution Rate4 8.81%
30-Day Standardized Yield5 4.37%
Taxable Equivalent Yield4 7.24%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.4 cents
per share monthly dividend, which includes a dividend adjustment, and the
maximum offering price of $12.18 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax rate of 39.60%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual
returns would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Franklin Florida
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.45 cents
April 5.24 cents
May 5.24 cents
June 5.24 cents
July 5.07 cents
August 5.07 cents
Total 31.31 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
Class II
The Franklin Florida Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 7.0 cents, from $11.67 on February 28, 1997, to
$11.74 on August 31, 1997.
The fund posted a cumulative total return of 3.28% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the sales charges.
At the end of this reporting period, the fund's distribution rate was 4.90%,
based on an annualization of the current monthly dividend of 4.84 cents
($0.0484) per share, which includes a -.23 cent 12b-1 differential and
dividend adjustment, and the offering price of $11.86 on August 31, 1997.
This tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum
federal income tax bracket would need to earn 8.11% from a taxable investment
to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Florida Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.66% 16.68%
Average Annual Total Return2 5.55% 6.39%
Distribution Rate3 4.90%
Taxable Equivalent Distribution Rate4 8.11%
30-Day Standardized Yield5 3.96%
Taxable Equivalent Yield4 6.56%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.84 cents
per share monthly dividend,
which includes a -.23 cent 12b-1 differential and dividend adjustment, and
the offering price of $11.86 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax bracket of 39.60%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
FRANKLIN GEORGIA TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Georgia Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 117th
consecutive monthly income dividend. Since the fund's first dividend payment
on January 15, 1988, it has helped investors increase their income potential
by reducing their tax burdens. We remain committed to helping you achieve
your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and Georgia state personal income taxes through a portfolio
consisting primarily of Georgia municipal bonds.1
State Update
During the period, economic growth and expansion continued throughout
Georgia. The state's strong job creation, low cost of living, and extensive
transportation infrastructure drove economic growth, while low unemployment
rates were indicative of Georgia's tight labor market. The state's overall
debt burden remained moderate, at $677 per capita, or 3.25% of personal
income.2
After weathering the 1989 national recession, Georgia's economy began to show
recovery in 1992. Since then, the state has produced steady and sustainable
economic and employment growth. Georgia saw exceptional general fund
operating surpluses in 1995 and is expected to duplicate similar surpluses in
fiscal year 1997.3
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject
to such tax. Distributions of capital gains and of ordinary income from
accrued market discount, if any, are generally taxable.
2. Source: Standard & Poor's Creditweek Municipal, 5/12/97.
3. Ibid.
Portfolio Notes
During the six-month reporting period, we continued to sell prerefunded bonds
and buy debt securities with longer call protections. Generally, we attempt
to replace prerefunded bonds when their call dates are approximately five
years away with bonds that have better call protection. Prerefunded bonds'
values decline rapidly to their call price, as they approach five years to
their call date. Thus selling prerefunded bonds can help extend the fund's
income-earning potential and protect your share value. Looking forward, we
plan to focus our efforts on purchasing Georgia current coupon bonds that
represent good values.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Georgia
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 23.7%
Housing 17.4%
Prerefunded 13.9%
General
Obligation 8.1%
Transportation 7.9%
Industrial 7.2%
Hospitals 7.0%
Education 6.6%
Other Revenue 3.7%
Certificates of
Participation 3.6%
Health Care .9%
For a complete list of portfolio holdings, please see page 82.
PERFORMANCE SUMMARY
Franklin Georgia
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.3 cents
April 5.3 cents
May 5.3 cents
June 5.3 cents
July 5.3 cents
August 5.3 cents
Total 31.8 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
Class I
The Franklin Georgia Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 7.0 cents, from $11.86 on February 28, 1997, to
$11.93 on August 31, 1997.
The fund posted a cumulative total return of 3.29% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.10%,
based on an annualization of the current monthly dividend of 5.3 cents
($0.053) per share and the maximum offering price of $12.46 on August 31,
1997. This double tax-free rate is generally higher than the after-tax return
on a comparable taxable investment. For example, an investor in the maximum
combined federal and Georgia state personal income tax bracket would need to
earn 8.99% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Georgia Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 7.84% 37.12% 115.33%
Average Annual Total Return2 3.24% 5.60% 7.50%
Distribution Rate3 5.10%
Taxable Equivalent
Distribution Rate4 8.99%
30-Day Standardized Yield5 4.23%
Taxable Equivalent Yield4 7.45%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.3 cents
per share monthly dividend and the maximum offering price of $12.46 on August
31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Georgia state personal income tax bracket of 43.22%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual
returns would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Franklin Georgia
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.85 cents
April 4.71 cents
May 4.71 cents
June 4.71 cents
July 4.77 cents
August 4.77 cents
Total 28.52 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
Class II
The Franklin Georgia Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 7.0 cents, from $11.92 on February 28, 1997, to
$11.99 on August 31, 1997.
The fund posted a cumulative total return of 2.99% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the sales charges.
At the end of this reporting period, the fund's distribution rate was 4.68%,
based on an annualization of the current monthly dividend of 4.72 cents
($0.0472) per share, which includes a -.05 cent 12b-1 differential
adjustment, and the offering price of $12.11 on August 31, 1997. This double
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum combined federal
and Georgia state personal income tax bracket would need to earn 8.24% from a
taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Georgia Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.29% 15.98%
Average Annual Total Return2 5.21% 6.08%
Distribution Rate3 4.68%
Taxable Equivalent
Distribution Rate4 8.24%
30-Day Standardized Yield5 3.81%
Taxable Equivalent Yield4 6.71%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.72 cents
per share monthly dividend, which includes a -.05 cent 12b-1 differential
adjustment, and the offering price of $12.11 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Georgia state personal income tax bracket of 43.22%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and Kentucky state personal income taxes through a portfolio
consisting primarily of Kentucky municipal bonds.1
Commonwealth Update
During the period, Kentucky maintained a steadily growing economic base, low
unemployment, improved financial position, and a manageable debt load. These
favorable attributes were reflected in its stable general obligation debt
rating of AA, given by Standard & Poor's, a national credit rating agency.2
The commonwealth continued to diversify its economy, relying less on
traditional coal, tobacco, and heavy manufacturing industries and more on
modern manufacturing and service-oriented bases. Because its economic
vitality depends on the transportation equipment sector, Kentucky attracted
and maintained such businesses by offering a low cost structure and a
probusiness regulatory environment.
Kentucky's conservative fiscal management should contribute to its debt
levels remaining manageable. Limited expenditure growth, if kept to recent
levels, may enable the commonwealth to maintain the trends of strengthened
financial operations.
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject
to such tax. Distributions of capital gains and of ordinary income from
accrued market discount, if any, are generally taxable.
2. This does not indicate Standard & Poor's rating of the fund.
Portfolio Notes
The number of new Kentucky bonds entering the municipal market almost doubled
in the first half of 1997, as compared with the same period last year. This
increase was generated largely by new issues from the commonwealth's
education, health care and public facilities sectors. Over half of these new
issues were high-rated, insured securities.3 We concentrated on purchasing
insured securities, because the difference in yields between AAA and
lower-rated securities is very tight. We increased the fund's portfolio
holdings of AAA rated securities by 7%, from 50.8% to 57.8%, over the
six-month reporting period. Recent purchases included: Kentucky Housing
Finance Authority, Jefferson County University Medical Center, and Louisville
& Jefferson County Water and Sewer. Looking forward, we expect the stable
supply and strong demand for Kentucky bonds to continue, and these securities
should remain an attractive investment.
3. Fund shares are not insured by any U.S. or other government agency, are
subject to market risks and will fluctuate in value. Insurance relates only
to the payment of principal and interest on the portfolio's securities.
Franklin Kentucky
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Hospitals 23.9%
Utilities 13.7%
Housing 12.7%
Other Revenue 12.7%
Transportation 10.6%
Industrial 9.1%
Certificates of
Participation 7.5%
Education 6.4%
Prerefunded 2.3%
General Obligation 1.1%
For a complete list of portfolio holdings, please see page 86.
PERFORMANCE SUMMARY
Franklin Kentucky
Tax-Free Income Fund
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.1 cents
April 5.1 cents
May 5.1 cents
June 5.1 cents
July 5.1 cents
August 5.1 cents
Total 30.6 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
The Franklin Kentucky Tax-Free Income Fund's share price, as measured by net
asset value, increased 14.0 cents, from $11.05 on February 28, 1997, to
$11.19 on August 31, 1997.
The fund posted a cumulative total return of 4.08% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.24%,
based on an annualization of the current monthly dividend of 5.1 cents
($0.051) per share and the maximum offering price of $11.69 on August 31,
1997. This double tax-free rate is generally higher than the after-tax return
on a comparable taxable investment. For example, an investor in the maximum
combined federal and Kentucky state personal income tax bracket would need to
earn 9.22% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Kentucky Tax-Free Income Fund
Periods ended 8/31/97
Since
Inception
1-Year 5-Year(10/12/91)
Cumulative Total Return1 9.61% 40.75% 54.26%
Average Annual Total Return2 4.94% 6.15% 6.86%
Distribution Rate3 5.24%
Taxable Equivalent
Distribution Rate4 9.22%
30-Day Standardized Yield5 4.79%
Taxable Equivalent Yield4 8.44%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.1 cents
per share monthly dividend and the maximum offering price of $11.69 on August
31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Kentucky state personal income tax bracket of 43.22%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual
returns would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. The fund's manager agreed in advance to waive
a portion of the management fees, which reduces operating expenses and
increases distribution rate, yield, and total return to shareholders. Without
this waiver, the fund's distribution rate would have been lower, and yield
for the period would have been 4.34%. The fee waiver may be discontinued at
any time upon notice to the fund's Board of Trustees.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Louisiana Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 118th
consecutive monthly income dividend. Since the fund's first dividend payment
on December 15, 1987, it has helped investors increase their income potential
by reducing their tax burdens. We remain committed to helping you achieve
your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and Louisiana state personal income taxes through a portfolio
consisting primarily of Louisiana municipal bonds.1
State Update
During the period, Louisiana experienced economic expansion because of
increased oil and natural gas production and exploration. The state remained
troubled, however, with below-average personal income levels and its high to
moderate debt. Nevertheless, new fiscal management policies, combined with
continued Congressional Medicaid funding and general operating revenue
growth, allowed the state to make significant progress in addressing its
financial position and liquidity. By statute, debt must be reduced to 6% of
general state receipts by fiscal year-end 2004, from the current limit of
10.6%.2
Louisiana's gaming activities enhanced construction and service sector
employment in some areas. The construction of a new casino in New Orleans is
pending resettlement of an agreement among the state, city and a developer,
and may aid in creating an economic upturn.
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are
generally taxable.
2. Source: Standard & Poor's Credit Week Municipal, 5/5/97.
Portfolio Notes
The supply of Louisiana bonds remained low during the period. Insured bonds
continued to make up a larger portion of issued securities and now constitute
almost half of the entire municipal bond market. Because of the relatively
large number of these high-rated, insured securities in the market, the
difference in yields between AAA and lower-rated securities narrowed.
Consequently, we concentrated on purchasing higher-grade, essential-service
issues and increased the fund's portfolio holdings of AAA rated securities by
3.6%, from 58.8% to 62.4%, over the six-month reporting period.3
Recent purchases included Orleans Parish School District and Xavier
University.
Looking forward, we expect the supply of Louisiana bonds to remain light,
while the difference in yields between AAA and lower rated securities should
continue to be tight. As a result, the fund will likely focus on purchasing
high-quality issues with good call protection. We also plan to sell those
prerefunded bonds in the fund's portfolio that have five to six years
remaining on their call dates. Such sales should help finance new purchases
and safeguard the fund's income-earning potential.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
3. This does not indicate a rating of the fund.
Franklin Louisiana
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 21.3%
Housing 16.9%
Education 14.8%
Prerefunded 12.3%
Hospitals 9.7%
Industrial 8.1%
Sales Tax Bonds 5.9%
Other Revenue 5.1%
General Obligation 3.4%
Certificates of
Participation 1.5%
Transportation 1.0%
For a complete list of portfolio holdings, please see page 89.
PERFORMANCE SUMMARY
Franklin Louisiana
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
Total 32.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
Class I
The Franklin Louisiana Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased 9.0 cents, from $11.32 on February 28,
1997, to $11.41 on August 31, 1997.
The fund posted a cumulative total return of 3.69% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.34%,
based on an annualization of the current monthly dividend of 5.3 cents ($0.053)
per share, which includes a -.1 cent dividend adjustment, and the maximum
offering price of $11.92 on August 31, 1997. This double tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
For example, an investor in the maximum combined federal and Louisiana state
personal income tax bracket would need to earn 9.40% from a taxable investment
to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Louisiana Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.35% 36.14% 114.12%
Average Annual Total Return2 3.79% 5.44% 7.44%
Distribution Rate3 5.34%
Taxable Equivalent
Distribution Rate4 9.40%
30-Day Standardized Yield5 4.42%
Taxable Equivalent Yield4 7.78%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.3 cents
per share monthly dividend, which includes a -.1 cent dividend adjustment,
and the maximum offering price of $11.92 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Louisiana state personal income tax bracket of 43.22%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual
returns would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Franklin Louisiana
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.74 cents
April 4.88 cents
May 4.88 cents
June 4.88 cents
July 4.96 cents
August 4.96 cents
Total 29.3 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
Class II
The Franklin Louisiana Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 11.0 cents, from $11.37 on
February 28, 1997, to $11.48 on August 31, 1997.
The fund posted a cumulative total return of 3.58% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the sales charges.
At the end of this reporting period, the fund's distribution rate was 4.96%,
based on an annualization of the current monthly dividend of 4.79 cents
($0.0479) per share, which includes a -.17 cent 12b-1 differential and
dividend adjustment, and the offering price of $11.60 on August 31, 1997.
This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum
combined federal and Louisiana state personal income tax bracket would need
to earn 8.73% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Louisiana Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.85% 17.38%
Average Annual Total Return2 5.81% 6.65%
Distribution Rate3 4.96%
Taxable Equivalent
Distribution Rate4 8.73%
30-Day Standardized Yield5 3.99%
Taxable Equivalent Yield4 7.03%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.79 cents
per share monthly dividend,
which includes a -.17 cent 12b-1 differential and dividend adjustment, and
the offering price of $11.60 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Louisiana state personal income tax bracket of 43.22%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MARYLAND TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and Maryland state personal income taxes through a portfolio
consisting primarily of Maryland municipal bonds.1
State Update
Maryland's creditworthiness, diversified economic base and progressive
recovery from the early 1990's recession contributed to its strengthening
economy during the period. With employment now increasing at rates close to
the national rate, Maryland is anticipated to present competitive
unemployment figures. Despite personal income growth lagging the national
average, Maryland retained its rank of sixth among the states for personal
income per capita in 1996.2
Maryland experienced economic improvements, which translated into financial
gain. It is estimated that the general fund may have an operating surplus of
about $80 million for fiscal year 1996-1997, primarily because revenues were
$125 million above estimates. This strength mainly resulted from income
taxes, which were up 5%.3
We expect Maryland to maintain its AAA rating by Fitch Research, a national
credit rating agency.4
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are
generally taxable.
2. Source: Fitch Research, 7/25/97.
3. Ibid.
4. This does not indicate Fitch's rating of the fund.
Portfolio Notes
During the six-month reporting period, we sold prerefunded bonds and bought
securities with longer call protection. Generally, we attempt to replace
prerefunded bonds when their call dates are approximately five years away
with bonds that have 10 years of call protection. Purchasing such bonds can
help extend the fund's income-earning potential and protect your fund's share
value. Although the fund has sold many of its prerefunded bonds, several of
its other holdings were prerefunded during this reporting period, and the
percentage of prerefunded bonds in its portfolio stayed approximately the
same. When a bond gets prerefunded, it will be called on its first call date
and consequently will cease generating income at that time.
The supply of Maryland bonds remained very light, and in addition to
purchasing some attractive Maryland offerings, we took advantage of U.S.
tax-free bond offerings from U.S. territories such as Puerto Rico. During the
six-month period we acquired bonds issued by Puerto Rico Commonwealth,
Maryland Stadium Authority, and Maryland Health and Higher Education. Looking
forward, we expect Maryland's municipal bond supply to remain low and plan on
focusing our efforts on purchasing current coupon bonds that represent good
values.
Franklin Maryland
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Housing 21.8%
Utilities 19.6%
Other Revenue 13.2%
Prerefunded 9.6%
General Obligation 9.2%
Hospitals 9.0%
Education 7.2%
Certificates of
Participation 6.6%
Transportation 3.8%
For a complete list of portfolio holdings, please see page 93.
PERFORMANCE SUMMARY
Franklin Maryland
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
Total 30.6 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
CLASS I
The Franklin Maryland Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 10.0 cents, from $11.33 on February 28, 1997,
to $11.43 on August 31, 1997.
The fund posted a cumulative total return of 3.61% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.03%,
based on an annualization of the current monthly dividend of 5.0 cents
($0.050) per share and the maximum offering price of $11.94 on August 31,
1997. This double tax-free rate is generally higher than the after-tax return
on a comparable taxable investment. For example, an investor in the maximum
combined federal and Maryland state personal income tax bracket would need to
earn 9.00% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Maryland Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (10/3/88)
Cumulative Total Return1 8.44% 39.19% 92.34%
Average Annual Total Return2 3.87% 5.92% 7.10%
Distribution Rate3 5.03%
Taxable Equivalent
Distribution Rate4 9.00%
30-Day Standardized Yield5 4.38%
Taxable Equivalent Yield4 7.84%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.0 cents
per share monthly dividend and the maximum offering price of $11.94 on August
31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Maryland state personal income tax bracket of 44.13%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual
returns would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Franklin Maryland
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.57 cents
April 4.67 cents
May 4.67 cents
June 4.47 cents
July 4.48 cents
August 4.48 cents
Total 27.34 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
Class II
The Franklin Maryland Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 11.0 cents, from $11.40 on
February 28, 1997, to $11.51 on August 31, 1997.
The fund posted a cumulative total return of 3.40% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the sales charges.
At the end of this reporting period, the fund's distribution rate was 4.59%,
based on an annualization of the current monthly dividend of 4.45 cents
($0.0445) per share, which includes a -.03 cent 12b-1 differential
adjustment, and the offering price of $11.63 on August 31, 1997. This double
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum combined federal
and Maryland state personal income tax bracket would need to earn 8.22% from
a taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Maryland Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.86% 17.93%
Average Annual Total Return2 5.82% 6.86%
Distribution Rate3 4.59%
Taxable Equivalent
Distribution Rate4 8.22%
30-Day Standardized Yield5 3.97%
Taxable Equivalent Yield4 7.11%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.45 cents
per share monthly dividend, which includes a -.03 cent 12b-1 differential
adjustment, and the offering price of $11.63 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Maryland state personal income tax bracket of 44.13%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
FRANKLIN MISSOURI TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Missouri Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 118th
consecutive monthly income dividend. Since your fund's first dividend payment
on December 15, 1987, it has helped investors increase their income potential
by reducing their tax burdens. We remain committed to helping you achieve
your investment goals.
Your Fund's Objective: Seeks to provide high current income exempt from
regular federal and Missouri state personal income taxes through a portfolio
consisting primarily of Missouri municipal bonds.1
State Update
During the period, Missouri's strong economic performance helped its general
obligation debt maintain its AAA rating by Standard & Poor's, a national
credit rating agency.2 Missouri's economy continued to grow at a healthy
pace, with employment and personal income outpacing the national average.
Sprint Corp. recently completed a joint venture with Telecommunications Inc.,
Cox Communications, and Comcast Cablevision. The venture should bring 1,000
new employees to the area. As of November 1996, the state's unemployment
level was well below the national average, at 4.0%.3 Furthermore, the state
instituted expenditure controls so it would not have to rely heavily on
borrowing to meet capital needs.
To keep Missouri within its revenue limits, the governor recommended
eliminating the general sales tax on food. If implemented, the repeal may
keep Missouri within its revenue limits but restrict the state's financial
flexibility. Nevertheless, we expect the state's financial position to remain
healthy.
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are
generally taxable.
2. This does not indicate Standard & Poor's rating of the fund.
3. Source: Standard & Poor's Creditweek Municipal, 3/10/97.
Portfolio Notes
During the six-month reporting period, we continued to sell prerefunded bonds
and buy debt securities with longer call protections. Generally, we attempt
to replace prerefunded bonds when their call dates are approximately five
years away with bonds that have better call protection. Prerefunded bonds'
values decline rapidly to their call price, as they approach five years to
their call date. Thus selling prerefunded bonds can help extend the fund's
income-earning potential and protect your share value. As a result of this
investment strategy, prerefunded bond holdings decreased from 18.1% to 15.7%
of the fund's total long-term investments over the course of the reporting
period.
Looking forward, we plan to continue selling the fund's prerefunded bonds and
reinvesting the proceeds in securities possessing strong call protection,
which should generate a relatively long-term, stable stream of income.
Despite the decreased supply of Missouri bonds, the state's secondary market
remained active, and we were able to make several new purchases, in line with
our strategy of focusing on income, including: University of Missouri, Ewing
Marion Kauffman Foundation, Lutheran Senior Services and Taney County School
District.
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Missouri
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Certificates of
Participation 16.8%
Prerefunded 15.7%
Hospitals 11.6%
Other Revenue 11.0%
Housing 10.4%
Transportation 9.4%
Utilities 9.2%
Health Care 5.3%
Education 5.3%
General Obligation 2.1%
Industrial1 .9%
Tax Allocation Bonds 1.3%
For a complete list of portfolio holdings, please see page 97.
PERFORMANCE SUMMARY
Franklin Missouri
Tax-Free Income Fund
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
Total 32.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period.
Class I
The Franklin Missouri Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 13.0 cents, from $11.83 on February 28, 1997,
to $11.96 on August 31, 1997.
The fund posted a cumulative total return of 3.94% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
In addition to distributing 5.4 cents ($0.054) per share in dividend income,
the fund paid out a long-term capital gain of 0.84 cents ($0.0084) in
June 1997. Distributions will vary, depending on income earned by the fund
and any profits realized from the sale of securities in the fund's portfolio.
Past distributions are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 5.19%,
based on an annualization of the current monthly dividend of 5.4 cents
($0.054) per share and the maximum offering price of $12.49 on August 31,
1997. This double tax-free rate is generally higher than the after-tax return
on a comparable taxable investment. For example, an investor in the maximum
combined federal and Missouri state personal income tax bracket would need to
earn 9.14% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 22 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Missouri Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.69% 40.05% 117.14%
Average Annual Total Return2 4.06% 6.05% 7.59%
Distribution Rate3 5.19%
Taxable Equivalent
Distribution Rate4 9.14%
30-Day Standardized Yield5 4.35%
Taxable Equivalent Yield4 7.66%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.4 cents
per share monthly dividend and the maximum offering price of $12.49 on August
31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Missouri state personal income tax bracket of 43.22%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual
returns would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
The Franklin Missouri Tax-Free Income Fund - Class I paid distributions
derived from long-term capital gains of 0.84 cents ($0.0084) per share in
June 1997. The fund hereby designates such distributions as capital gain
dividends per Section 852 (b)(3) of the Internal Revenue Code.
Franklin Missouri
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.47 cents
April 4.83 cents
May 4.83 cents
June 4.83 cents
July 4.85 cents
August 4.85 cents
Total 28.66 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period.
Class II
The Franklin Missouri Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 15.0 cents, from $11.85 on
February 28, 1997, to $12.00 on August 31, 1997.
The fund posted a cumulative total return of 3.81% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
sales charges.
In addition to distributing 4.85 cents ($0.0485) per share in dividend
income, the fund paid out a long-term capital gain of 0.84 cents ($0.0084) in
June 1997. Distributions will vary, depending on income earned by the fund
and any profits realized from the sale of securities in the fund's portfolio.
Past distributions are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 4.78%,
based on an annualization of the current monthly dividend of 4.83 cents
($0.0483) per share, which includes a -.02 cent 12b-1 differential adjustment,
and the offering price of $12.12 on August 31, 1997. This double tax-free rate
is generally higher than the after-tax return on a comparable taxable
investment. For example, an investor in the maximum combined federal and
Missouri state personal income tax bracket would need to earn 8.42% from a
taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 23 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Missouri Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 8.09% 17.56%
Average Annual Total Return2 6.01% 6.70%
Distribution Rate3 4.78%
Taxable Equivalent
Distribution Rate4 8.42%
30-Day Standardized Yield5 3.94%
Taxable Equivalent Yield4 6.94%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.83 cents
per share monthly dividend, which includes a -.02 cent 12b-1 differential
adjustment, and the offering price of $12.12 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Missouri state personal income tax bracket of 43.22%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
The Franklin Missouri Tax-Free Income Fund - Class II paid distributions
derived from long-term capital gains of 0.84 cents ($0.0084) per share in
June 1997. The fund hereby designates such distributions as capital gain
dividends per Section 852 (b)(3) of the Internal Revenue Code.
Past performance is not predictive of future results.
FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND
We are pleased to announce that the Franklin North Carolina Tax-Free Income
Fund celebrated its 10th anniversary in September 1997 by paying its 118th
consecutive monthly income dividend. Since your fund's first dividend payment
on December 15, 1987, it has helped investors increase their income potential
by reducing their tax burdens. We remain committed to helping you achieve
your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and North Carolina state personal income taxes through a
portfolio consisting primarily of North Carolina municipal bonds.1
State Update
During the period, North Carolina maintained broad-based economic and
employment growth. Manufacturing remained the leading economic sector, making
North Carolina one of the few states with an export trade surplus.
Nonetheless, the state continues its transition from a manufacturing economy
to one that is more diversified, relying more on services, trade and finance.
Some parts of North Carolina still have poor rural populations who need
educational improvements, employment opportunities, and new infrastructure to
further expand the state's economy. On November 5, 1996, voters approved a
$2.75 billion bond authorization to fund capital improvements for schools and
highways. It is anticipated that the state may provide substantial relief for
its school systems. Going forward, we expect North Carolina's economy will
continue to expand and that the state will exercise budgetary discipline to
maintain strong financial operations.
North Carolina's general obligation bonds maintained the highest possible
rating of AAA by Standard & Poor's, a national credit rating agency.2 This
rating reflected the state's strong economic characteristics, sound financial
performance and low debt level.
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are
generally taxable.
2. This does not indicate Standard & Poor's rating of the fund.
Portfolio Notes
During the six-month reporting period, we sold prerefunded bonds and bought
securities with longer call protection. Generally, we attempt to replace
prerefunded bonds when their call dates are approximately five years away
with bonds that have 10 years of call protection. Purchasing such bonds can
help extend the fund's income-earning potential and protect your fund's share
value. Although the fund has sold many of its prerefunded bonds, several of
its other holdings were prerefunded during this reporting period, and the
percentage of prerefunded bonds in its portfolio stayed approximately the
same. When a bond gets prerefunded, it will be called on its first call date
and consequently will cease generating income at that time.
Although the supply of North Carolina bonds remained light, we were able to
make several new purchases including North Carolina Medical Corp. Wake County
Hospital, University of North Carolina Greensboro, North Carolina Water and
Sewer Revenue, and North Carolina Housing Finance Authority. At the same
time, we decreased our position in unenhanced North Carolina Eastern (NCE)
Municipal Power bonds. Though we maintain a positive outlook for the company,
we believed that the current uncertainty involving electric utility industry
deregulation made it prudent to decrease our position slightly. Looking
forward, we expect the supply of North Carolina municipal bonds to remain low
and plan on focusing our efforts on purchasing current coupon bonds that
represent good values.
GRAPHIC MATERIAL 24 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin North Carolina
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 28.1%
Housing 14.8%
Certificates of
Participation 14.5%
Hospitals 13.6%
Prerefunded 9.6%
Industrial 4.9%
Other Revenue 4.6%
General
Obligation 3.9%
Education 2.6%
Health Care 1.8%
Transportation 1.1%
Sales Tax
Revenue 0.5%
For a complete list of portfolio holdings, please see page 102.
PERFORMANCE SUMMARY
Franklin North Carolina
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
CLASS I
The Franklin North Carolina Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased 13.0 cents, from $11.73 on
February 28, 1997, to $11.86 on August 31, 1997.
The fund posted a cumulative total return of 3.80% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.04%,
based on an annualization of the current monthly dividend of 5.2 cents
($0.052) per share and the maximum offering price of $12.39 on August 31,
1997. This double tax-free rate is generally higher than the after-tax return
on a comparable taxable investment. For example, an investor in the maximum
combined federal and North Carolina state personal income tax bracket would
need to earn 9.04% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 25 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin North Carolina Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.47% 37.01% 115.55%
Average Annual Total Return2 3.87% 5.57% 7.52%
Distribution Rate3 5.04%
Taxable Equivalent
Distribution Rate4 9.04%
30-Day Standardized Yield5 4.37%
Taxable Equivalent Yield4 7.84%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.2 cents
per share monthly dividend and the maximum offering price of $12.39 on August
31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and North Carolina state personal income tax bracket of
44.28%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual
returns would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Franklin North Carolina
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.49 cents
April 4.67 cents
May 4.67 cents
June 4.67 cents
July 4.65 cents
August 4.65 cents
Total 27.8 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period. Distributions will vary based
on the earnings of the fund's portfolio, and past distributions are not
predictive of future trends.
Class II
The Franklin North Carolina Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 13.0 cents, from $11.79 on
February 28, 1997, to $11.92 on August 31, 1997.
The fund posted a cumulative total return of 3.49% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the sales charges.
At the end of this reporting period, the fund's distribution rate was 4.62%,
based on an annualization of the current monthly dividend of 4.64 cents
($0.0464) per share, which includes a -.01 cent 12b-1 differential
adjustment, and the offering price of $12.04 on August 31, 1997. This double
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum combined federal
and North Carolina state personal income tax bracket would need to earn 8.29%
from a taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 26 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin North Carolina Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.89% 16.81%
Average Annual Total Return2 5.79% 6.40%
Distribution Rate3 4.62%
Taxable Equivalent
Distribution Rate4 8.29%
30-Day Standardized Yield5 3.97%
Taxable Equivalent Yield4 7.12%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.64 cents
per share monthly dividend, which includes a -.01 cent 12b-1 differential
adjustment, and the offering price of $12.04 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and North Carolina state personal income tax bracket of
44.28%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
FRANKLIN TEXAS TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Texas Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 118th
consecutive monthly income dividend. Since your fund's first dividend payment
on December 15, 1987, it has helped investors increase their income potential
by reducing their tax burdens. We remain committed to helping you achieve
your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal income tax through a portfolio consisting primarily of Texas
municipal bonds.1
State Update
During the period, Texas maintained its steadily growing and diversifying
economy. Strong revenue growth and financial performance continued to
solidify Texas' debt rating, currently AA from Standard & Poor's, a national
credit rating agency.2 Long-term debt represented a modest burden on state
resources.
As Texas continued to outpace the U.S. economy in job creation, the state
diversified and attracted investment from elsewhere in the nation. Texas has
been responsible for 11% of all new jobs created in the U.S. since 1990. The
242,000 jobs added between February 1996 and February 1997 were second only
to California, and Texas' 3% growth rate was 16th among all states.3
The growing prominence of the high-tech sector replaced some of the
volatility of the once dominant oil and gas industry which today represents
only 12% of the total economy, down from 24% in 1980.4 We anticipate
increased employment and lower cost of business within the technology sector.
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are
generally taxable.
2. This does not indicate Standard & Poor's rating of the fund.
3. Source: Standard & Poor's Creditweek Municipal, 6/16/97.
4. Ibid.
Portfolio Notes
The supply of Texas bonds remained stable during the reporting period.
Insured bonds continued to make up a larger portion of issued securities and
now constitute almost half of the entire municipal bond market. Because of
the relatively large number of these high-rated, insured securities in the
market, the difference in yields between AAA and lower-rated securities
narrowed. Consequently, we concentrated on purchasing higher-grade,
essential-purpose issues and increased the fund's portfolio holdings of AAA
rated securities from 63.8%, to 68.1%, over the six-month reporting period.
Recent purchases included Austin Utility System and Van Alstyne Independent
School District PSF.
Looking forward, we expect the supply of Texas bonds to remain stable, while
the difference in yields between AAA and lower rated securities should
continue to be tight. As a result, the fund will likely focus on purchasing
high-quality issues with good call protection. We plan to also focus on
selling those prerefunded bonds in the fund's portfolio that have five to six
years remaining on their call dates. Such sales should help finance new
purchases and safeguard the fund's income-earning potential.
GRAPHIC MATERIAL 27 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Texas
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 25.1%
Prerefunded 13.9%
Industrial 10.8%
Education 10.4%
Hospitals 9.2%
Health Care 8.9%
Transportation 7.3%
Other Revenue 6.5%
Housing 6.5%
General Obligation 1.4%
For a complete list of portfolio holdings, please see page 107.
PERFORMANCE SUMMARY
Franklin Texas
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.6 cents
April 5.6 cents
May 5.6 cents
June 5.3 cents
July 5.3 cents
August 5.3 cents
Total 32.7 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period.
CLASS I
The Franklin Texas Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 6.0 cents, from $11.37 on February 28, 1997, to
$11.43 on August 31, 1997.
The fund posted a cumulative total return of 3.71% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
In addition to distributing 5.3 cents ($0.053) per share in dividend income,
the fund paid out long-term and short-term capital gains of 1.71 cents
($0.0171) and 1.39 cents ($0.0139) respectively, in June 1997. Distributions
will vary, depending on income earned by the fund and any profits realized
from the sale of securities in the fund's portfolio. Past distributions are
not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 5.33%,
based on an annualization of the current monthly dividend of 5.3 cents
($0.053) per share and the maximum offering price of $11.94 on August 31,
1997. This tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum
federal income tax bracket would need to earn 8.82% from a taxable investment
to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 28 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Texas Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.18% 38.53% 119.05%
Average Annual Total Return2 3.55% 5.81% 7.69%
Distribution Rate3 5.33%
Taxable Equivalent
Distribution Rate4 8.82%
30-Day Standardized Yield5 4.28%
Taxable Equivalent Yield4 7.09%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.3 cents
per share monthly dividend and the maximum offering price of $11.94 on August
31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax rate of 39.60%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual
returns would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
The Franklin Texas Tax-Free Income Fund - Class I paid distributions derived
from long-term capital gains of 1.71 cents ($0.0171) per share in June 1997.
The fund hereby designates such distributions as capital gain dividends per
Section 852 (b)(3) of the Internal Revenue Code.
Franklin Texas
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.94 cents
April 5.13 cents
May 5.13 cents
June 4.83 cents
July 4.78 cents
August 4.78 cents
Total 29.59 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions and total return calculations include all accrued income
earned by the fund during the reporting period.
Class II
The Franklin Texas Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 6.0 cents, from $11.49 on February 28, 1997, to
$11.55 on August 31, 1997.
The fund posted a cumulative total return of 3.40% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
sales charges.
In addition to distributing 4.78 cents ($0.0478) per share in dividend
income, the fund paid out long-term and short-term capital gains of 1.71
cents ($0.0171) and 1.39 cents ($0.0139) respectively, in June 1997.
Distributions will vary, depending on income earned by the fund and any
profits realized from the sale of securities in the fund's portfolio. Past
distributions are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 4.90%,
based on an annualization of the current monthly dividend of 4.77 cents
($0.0477) per share, which includes a -.01 cent 12b-1 differential
adjustment, and the offering price of $11.67 on August 31, 1997. This
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum federal income
tax bracket would need to earn 8.11% from a taxable investment to match the
fund's tax-free distribution rate.
GRAPHIC MATERIAL 29 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Texas Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.65% 17.92%
Average Annual Total Return2 5.55% 6.87%
Distribution Rate3 4.90%
Taxable Equivalent
Distribution Rate4 8.11%
30-Day Standardized Yield5 3.88%
Taxable Equivalent Yield4 6.42%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.77 cents
per share monthly dividend, which includes a -.01 cent 12b-1 differential
adjustment, and the offering price of $11.67 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax rate of 39.60%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
The Franklin Texas Tax-Free Income Fund - Class II paid distributions derived
from long-term capital gains of 1.71 cents ($0.0171) per share in June 1997.
The fund hereby designates such distributions as capital gain dividends per
Section 852 (b)(3) of the Internal Revenue Code.
Past performance is not predictive of future results.
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Virginia Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 118th
consecutive monthly income dividend. Since your fund's first dividend payment
on December 15, 1987, it has helped investors increase their income potential
by reducing their tax burdens. We remain committed to helping you achieve
your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and Virginia state personal income taxes through a portfolio
consisting primarily of Virginia municipal bonds.1
Commonwealth Update
During the period, Virginia's strong economic growth continued, as the state
showed stellar financial management by maintaining low debt burdens,
above-average income levels and consistently low unemployment rates. The
state's substantial resources, conservative financial operations, and careful
attention to its debt obligations provided superior protection to bondholders
and allowed the state to maintain its AAA rating by Standard & Poor's,
Moody's, and Fitch Research; the three major national credit rating agencies.2
Cutbacks in defense spending could exert considerable influence on
unemployment. By 2000, it is estimated that 44,000 jobs, or 12% of total
military employment, will be lost. This loss equals about 1.5% of total
employment.3 Nevertheless, despite the drag on the economy represented by
federal cutbacks, Virginia's employment growth matched the national rate.
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject
to such tax. Distributions of capital gains and of ordinary income from
accrued market discount, if any, are generally taxable.
2. This does not indicate ratings of the fund.
3. Source: Fitch Research, 6/9/97.
Portfolio Notes
The supply of Virginia bonds decreased slightly during the six-month period,
while at the same time, insured securities made up a large portion of new
municipal issues. The relatively large number of insured securities in the
market, has contributed to the difference in yields between AAA and
lower-rated securities narrowing. Consequently, we concentrated on purchasing
insured issues and increased the fund's portfolio holdings of AAA rated
securities from 44.2% to 48.9% of the fund's entire portfolio.4 We
participated in issues throughout several different sectors, including
Metropolitan Washington DC Airport, Virginia Port Authority and Spotsylvania
County Water System.
In addition to purchasing high-rated, insured securities, we also focused on
selling those prerefunded bonds in the fund's portfolio that have
approximately five years remaining to their call dates, and replaced them
with securities that possess longer call protections. The longer call
protections of such bonds should help safeguard the fund's income-earning
potential and its share value. Looking forward, we expect the stable supply
and strong demand for Virginia bonds to continue, and these securities should
remain an attractive investment.
4. Fund shares are not insured by any U.S. or other government agency, are
subject to market risks and will fluctuate in value. Insurance relates only
to the payment of principal and interest on the portfolio's securities.
GRAPHIC MATERIAL 30 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Virginia
Tax-Free Income Fund
Portfolio Breakdown on 8/31/97
% of Total
Long-Term
Sector Investments
Utilities 22.8%
Housing 15.0%
Hospitals 15.0%
Transportation 12.5%
Prerefunded 12.2%
Industrial 7.5%
Education 5.2%
Other Revenue 5.0%
Certificates of
Participation 2.8%
General Obligation 1.9%
Health Care 0.1%
For a complete list of portfolio holdings, please see page 111.
PERFORMANCE SUMMARY
Franklin Virginia
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
Total 32.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
CLASS I
The Franklin Virginia Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 4.0 cents, from $11.65 on February 28, 1997, to
$11.69 on August 31, 1997.
The fund posted a cumulative total return of 3.43% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
In addition to distributing 5.4 cents ($0.054) per share in dividend income,
the fund paid out a long-term capital gain of 3.26 cents ($0.0326) in
June 1997. Distributions will vary, depending on income earned by the fund
and any profits realized from the sale of securities in the fund's portfolio.
Past distributions are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 5.11%,
based on an annualization of the current monthly dividend of 5.2 cents
($0.052) per share, which includes a -.2 cent dividend adjustment, and the
maximum offering price of $12.21 on August 31, 1997. This double tax-free
rate is generally higher than the after-tax return on a comparable taxable
investment. For example, an investor in the maximum combined federal and
Virginia state personal income tax bracket would need to earn 8.98% from a
taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 31 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Virginia Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 7.79% 37.70% 116.39%
Average Annual Total Return2 2.69% 5.69% 7.55%
Distribution Rate3 5.11%
Taxable Equivalent
Distribution Rate4 8.98%
30-Day Standardized Yield5 4.36%
Taxable Equivalent Yield4 7.66%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the current, maximum
4.25% initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.2 cents
per share monthly dividend, which includes a -.2 cent dividend adjustment,
and the maximum offering price of $12.21 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Virginia state personal income tax bracket of 43.07%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge with dividends reinvested at the offering price. Thus, actual
returns would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
The Franklin Virginia Tax-Free Income Fund - Class I paid distributions
derived from long-term capital gains of 3.26 cents ($0.0326) per share in
June 1997. The fund hereby designates such distributions as capital gain
dividends per Section 852 (b)(3) of the Internal Revenue Code.
Franklin Virginia
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.89 cents
April 4.89 cents
May 4.89 cents
June 4.89 cents
July 4.83 cents
August 4.83 cents
Total 29.22 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
Class II
The Franklin Virginia Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 5.0 cents, from $11.71 on February 28,
1997, to $11.76 on August 31, 1997.
The fund posted a cumulative total return of 3.22% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
sales charges.
In addition to distributing 4.83 cents ($0.0483) per share in dividend
income, the fund paid out a long-term capital gain of 3.26 cents ($0.0326) in
June 1997. Distributions will vary, depending on income earned by the fund
and any profits realized from the sale of securities in the fund's portfolio.
Past distributions are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 4.68%,
based on an annualization of the current monthly dividend of 4.63 cents
($0.0463) per share, which includes a -.2 cent dividend adjustment, and the
offering price of $11.88 on August 31, 1997. This double tax-free rate is
generally higher than the after-tax return on a comparable taxable
investment. For example, an investor in the maximum combined federal and
Virginia state personal income tax bracket would need to earn 8.22% from a
taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 32 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Virginia Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.38% 16.58%
Average Annual Total Return2 5.29% 6.35%
Distribution Rate3 4.68%
Taxable Equivalent
Distribution Rate4 8.22%
30-Day Standardized Yield5 3.95%
Taxable Equivalent Yield4 6.94%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.63 cents
per share monthly dividend, which includes a -.2 cent dividend adjustment,
and the offering price of $11.88 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Virginia state personal income tax bracket of 43.07%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
The Franklin Virginia Tax-Free Income Fund - Class II paid distributions
derived from long-term capital gains of 3.26 cents ($0.0326) per share in
June 1997. The fund hereby designates such distributions as capital gain
dividends per Section 852 (b)(3) of the Internal Revenue Code.
Past performance is not predictive of future results.
GLOSSARY OF INVESTMENT TERMS
Average Annual Total Return: The average annual change in value of an
investment over the periods indicated. Unless otherwise stated, figures shown
in this report include sales charges.
Discount: Amount by which a bond sells below its face (par) value. For
instance, a bond with a $1,000 face value that sells for $900 would have a
$100 discount.
Call Protection: The length of time during which a bond cannot be redeemed by
its issuer.
Coupon: A bond's interest rate that the issuer promises to pay to the holder
until the bond matures.
Cumulative Total Return: Measures the change in value of an investment over
the periods indicated. Unless otherwise stated, figures shown in this report
exclude sales charges.
Current-Coupon Bond: A bond with a coupon rate that is within half a
percentage point of current market interest rates. See also Full Coupon Bond.
Full-Coupon Bond: A bond with a coupon rate that is near or above current
market interest rates. See also Current Coupon Bond.
High-Grade Bond/High-Quality Bond: A bond rated AAA or AA by Standard &
Poor's(R) or Aaa or Aa by Moody's Investors Service -- two national
credit-rating agencies.
Investment-Grade Bond: A bond with a rating of AAA to BBB, usually within the
top four rating categories assigned to bonds.
Premium: Amount by which a bond sells above its face (par) value. For
instance, a bond with a $1,000 face value that sells for a $1,100 would have
a $100 premium.
Prerefunded Bond: A bond that will be paid off at its first call date with
proceeds of the sale of a second bond carrying a lower interest rate. The
proceeds are generally invested in U.S. Treasuries set to mature at the
original bonds first call date. When a bond is prerefunded its premium rises,
and then falls to par value as the refunding date approaches.
Par Value: The face value or amount at which a security will be redeemed at
maturity -- typically $1,000 for a bond.
Yield Spread: The relative yield differential between lower- and
higher-quality issues. Normally, lower-quality issues provide higher yields
to compensate investors for added credit risk.
MUNICIPAL BOND RATINGS
Moody's
Aaa: 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 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: High quality by all standards. Together with the Aaa group, they comprise
what are generally known as high-grade bonds. Aa bonds are rated lower than
Aaa because margins of protection may not be as large, fluctuation of
protective elements may be of greater amplitude, or there may be other
elements which make the long-term risks appear larger.
A: Possess many favorable investment attributes and are considered 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: 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.
Ba: Contain speculative elements. 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: 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: Poor standing. Such issues may be in default, or elements of danger with
respect to principal or interest may be present.
Ca: Obligations that are highly speculative. Such issues are often in default
or have other marked shortcomings.
C: Lowest-rated class of bonds. Issues rated C can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
S&P(R)
AAA: The highest rating assigned by S&P to a debt obligation and indicates
the ultimate degree of protection as to principal and interest.
AA: Also qualify as high-grade obligations, and, in the majority of
instances, differ from AAA issues only in a small degree.
A: Generally 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.
BBB: 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: 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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Alabama Tax-Free Income Fund
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996*** 1995 1994 1993
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.73 $11.73 $11.31 $11.80 $11.71 $11.00
---------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .65 .66 .66 .66 .68
Net realized and unrealized gains (losses) .12 .01 .42 (.50) .09 .71
---------------------------------------------------------------------
Total from investment operations .44 .66 1.08 .16 .75 1.39
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.33) (.66) (.66) (.65) (.66) (.68)
Distributions from net realized gains (.04) -- -- -- -- --
---------------------------------------------------------------------
Total distributions (.37) (.66) (.66) (.65) (.66) (.68)
---------------------------------------------------------------------
Net asset value, end of period $11.80 $11.73 $11.73 $11.31 $11.80 $11.71
=====================================================================
Total Return* 3.78% 5.84% 9.74% 1.54% 6.35% 12.84%
Ratios/Supplemental Data
Net assets, end of period (000's) $203,251 $193,466 $185,981 $170,051 $178,414 $144,480
Ratio to average net assets:
Expenses .72%** .71% .72% .72% .64% .68%
Net investment income 5.51%** 5.62% 5.69% 5.88% 5.62% 6.04%
Portfolio turnover rate 6.62% 15.47% 12.39% 19.85% 14.87% 11.27%
Class II
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.78 $11.77 $11.36
---------------------------------------
Income from investment operations:
Net investment income .29 .59 .49
Net realized and unrealized gains .11 .01 .41
---------------------------------------
Total from investment operations .40 .60 .90
---------------------------------------
Less distributions:
Dividends from net investment income (.29) (.59) (.49)
Distributions from net realized gains (.04) -- --
---------------------------------------
Total distributions (.33) (.59) (.49)
---------------------------------------
Net asset value, end of period $11.85 $11.78 $11.77
=======================================
Total Return* 3.48% 5.28% 8.01%
Ratios/Supplemental Data
Net assets, end of period (000's) $7,386 $5,683 $1,662
Ratio to average net assets:
Expenses 1.28%** 1.28% 1.29%**
Net investment income 4.93%** 5.05% 5.09%**
Portfolio turnover rate 6.62% 15.47% 12.39%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
*** For the period May 1, 1995 (effective date) to February 29, 1996 for Class
II.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Alabama Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 98.4%
<S> <C> <C>
Alabama Building Renovation Financing Authority Revenue, 7.45%, 9/01/11.................... $ 1,500,000 $ 1,654,155
Alabama HFA, SFMR, GNMA Secured,
Series A, 7.50%, 10/01/10................................................................. 490,000 516,798
Series A, 8.00%, 10/01/20................................................................. 120,000 124,096
Series A-1, 6.50%, 4/01/17................................................................ 3,440,000 3,592,736
Series A-2, 6.80%, 4/01/25................................................................ 1,215,000 1,292,724
Series C, 7.45%, 10/01/21................................................................. 285,000 296,950
Series C-2, 7.75%, 4/01/22................................................................ 970,000 1,018,141
Alabama State Docks Department, Docks Facilities Revenue, MBIA Insured, 6.30%, 10/01/21.... 4,500,000 4,768,560
Alabama State IDA, Solid Waste Disposal Revenue, Pine City Fiber Co., 6.45%, 12/01/23...... 2,000,000 2,074,640
Alabama State University Dormitory Revenue, Pre-Refunded, 8.00%, 1/01/14................... 250,000 269,533
Alabama Water Pollution Control Authority, Revolving Fund Loan, Series B, 7.75%, 8/15/12... 3,095,000 3,282,557
Alabaster Water and Gas Board Revenue, AMBAC Insured, 6.35%, 9/01/14....................... 2,215,000 2,403,164
Alexander City Utility Revenue, Warrants, FSA Insured, 6.20%, 8/15/10...................... 2,000,000 2,158,340
Anniston Regional Medical Center Board, Hospital Revenue, Refunding,
Northeast Alabama Regional Medical Center Project,
Series A, 7.70%, 7/01/08..................................................................... 250,000 255,118
Athens Electric Revenue, Warrants, MBIA Insured, 6.00%, 6/01/25............................ 1,000,000 1,055,750
Athens Water and Sewer Revenue, Warrants, AMBAC Insured, 6.10%, 8/01/18.................... 1,500,000 1,587,075
Auburn Governmental Utility Services Corp., Waste Water Revenue, Merscot-Auburn, L.P.,
FGIC Insured, 7.30%, 1/01/12.............................................................. 1,520,000 1,630,048
Auburn University General Fee Revenue, Refunding, 7.00%, 6/01/11........................... 2,000,000 2,200,440
Bessemer Medical Clinic Board Revenue, Refunding, Bessemer Carraway Center,
Series A, MBIA Insured, 7.25%, 4/01/15.................................................... 1,000,000 1,074,050
Birmingham Airport Authority Revenue, Series A, AMBAC Insured, 7.375%, 7/01/10............. 500,000 540,830
Birmingham Baptist Medical Center, Special Care Facilities,
Financing Authority Revenue, MBIA Insured,
Refunding, Baptist Health System, Inc., 5.875%, 11/15/19.................................. 3,500,000 3,605,350
Refunding, Baptist Health System, Inc., 5.875%, 11/15/26.................................. 2,000,000 2,051,800
Series A, 7.00%, 1/01/21.................................................................. 1,870,000 2,011,821
Birmingham GO, Refunding,
8.00%, 10/01/15 ........................................................................ 145,000 148,338
Series B, 6.25%, 4/01/12.................................................................. 1,000,000 1,063,080
Series B, 6.25%, 4/01/16.................................................................. 1,000,000 1,058,860
Birmingham-Jefferson Civic Center Authority, Special Tax, Capital Outlay,
7.40%, 1/01/08 ........................................................................ 285,000 301,165
7.25%, 1/01/12 ........................................................................ 640,000 660,083
Birmingham Special Care Facilities Financing Authority Revenue,
Health Care Medical Center East, MBIA Insured, 7.00%, 7/01/12............................. 1,200,000 1,307,628
Birmingham Special Care Facilities Financing Authority Revenue, Refunding,
Medical Center East, MBIA Insured, 7.25%, 7/01/15......................................... 2,000,000 2,033,260
Camden IDB, PCR, Facilities Revenue, Refunding, MacMillian Bloedel
Project, Series A, 7.75%, 5/01/09......................................................... 3,250,000 3,560,408
Citronelle IDB, PCR, Stauffer Chemical Project, Guaranteed by
Imperial Chemical, Plc., Series 1982, 8.00%, 12/01/12..................................... 500,000 552,715
Coffee County PBA, Building Revenue, Warrants, FSA Insured, 6.10%, 9/01/16................. 1,000,000 1,047,310
Colbert County Health Care Authority, Helen Keller Hospital, 8.75%, 6/01/09................ 1,750,000 1,916,705
Columbia IDB, PCR, Refunding, Alabama Power Co. Project, AMBAC Insured, 6.50%, 9/01/23..... 5,000,000 5,233,050
Courtland IDB, Environmental Improvement Revenue, Refunding,
Champion International Corp. Project, 6.40%, 11/01/26..................................... 2,000,000 2,039,720
Courtland IDB, Solid Waste Disposal Revenue, Champion International Corp. Project,
7.75%, 1/01/20 ........................................................................ 505,000 542,804
Series A, 6.50%, 9/01/25.................................................................. 5,000,000 5,293,650
Courtland IDBR, Refunding, Champion International Corp. Project, Series A, 7.20%, 12/01/13. 4,000,000 4,430,080
Cullman Water Revenue, Warrants, Series A, AMBAC Insured, 6.20%, 10/01/12.................. 2,000,000 2,097,780
Daphne Utilities Board, Water, Gas and Sewer Revenue, Refunding, Series A,
FGIC Insured, Pre-Refunded, 7.35%, 6/01/20................................................ 2,000,000 2,197,040
Demopolis HDC, MFHR, Refunding, Series A, FSA Insured, 7.625%, 8/01/19..................... 1,400,000 1,464,694
Fairfield IDB, Environmental Improvement Revenue, Refunding,
USX Corp. Project, Series A, 6.70%, 12/01/24.............................................. 3,500,000 3,742,900
Fairfield, Warrants, AMBAC Insured, 6.30%, 6/01/22......................................... 3,000,000 3,202,140
Gadsden HDC, MFR, Refunding, Series A, 7.00%, 1/01/22...................................... 1,565,000 1,622,780
Guam Airport Authority Revenue, Refunding, Series A, 6.50%, 10/01/23....................... 1,000,000 1,056,430
Gulf Shores GO, Refunding, Warrants, AMBAC Insured, 6.00%, 9/01/21......................... 1,935,000 2,039,742
Helena Utilities Board, Water and Sewer Revenue, MBIA Insured, 5.75%, 9/01/25.............. 6,000,000 6,087,840
Homewood Special Care Facilities Financing Authority Revenue, Refunding,
Lakeshore Hospital Project, Series B, Pre-Refunded,
8.25%, 2/01/04 ........................................................................ 430,000 458,354
Houston County Health Care Authority Revenue, Southeast Alabama
Medical Center, MBIA Insured, 6.125%, 10/01/12............................................ 2,070,000 2,176,543
Huntsville Health Care Authority Facilities Revenue, Series B, MBIA Insured, 6.50%, 6/01/13 2,175,000 2,423,102
Huntsville Solid Waste Disposal Authority and Resource Recovery
Revenue, FGIC Insured, 7.00%, 10/01/14.................................................... $ 230,000 $ 247,722
Jasper County Waterworks & Sewer Board, Water and Sewer Revenue,
AMBAC Insured, 6.15%, 6/01/14............................................................. 1,000,000 1,072,490
Jefferson County Sewer Revenue, Warrants,
ETM, 7.50%, 9/01/13....................................................................... 200,000 210,724
Refunding, Series A, FGIC Insured, 5.375%, 2/01/27........................................ 3,675,000 3,576,878
Series D, FGIC Insured, 5.75%, 2/01/27.................................................... 6,000,000 6,094,980
LCM Housing Assistance Corp. Project, MFR, Refunding, Series A, 7.875%, 1/01/22............ 1,255,000 1,308,338
Lee County GO, Warrants, AMBAC Insured, 5.50%, 2/01/21..................................... 2,250,000 2,229,390
Limestone County Water Authority Revenue, FGIC Insured, 7.70%, 12/01/19.................... 1,050,000 1,096,652
Madison County PBA Revenue, Warrants, 6.90%, 11/01/11...................................... 500,000 534,430
Madison GO, Warrants, MBIA Insured,
6.00%, 4/01/23 ........................................................................ 2,000,000 2,113,200
Series B, 6.25%, 2/01/15.................................................................. 1,560,000 1,677,749
Madison School, Warrants, MBIA Insured, 6.25%, 2/01/14..................................... 2,290,000 2,462,849
Marshall County Health Care Authority Hospital Revenue,
Crossover Refunding, Guntersville-Arab Medical Center, 7.60%, 10/01/07.................... 2,530,000 2,754,816
Refunding, Boaz-Albertville Medical Center, 6.50%, 1/01/18................................ 10,810,000 10,971,934
Mobile Airport Authority Revenue, Mae Project, 7.375%, 11/01/12............................ 1,000,000 1,081,020
Mobile Commission of Water and Sewer Revenue, Refunding, 6.50%, 1/01/09.................... 1,500,000 1,624,665
Mobile Housing Assistance Corp., MFHR, Refunding, Series A, FSA Insured, 7.625%, 2/01/21... 1,340,000 1,399,067
Mobile IDB, Mobile Energy Service Co. Project, Solid Waste
Disposal Revenue, Refunding, 6.95%, 1/01/20............................................... 8,000,000 8,662,080
Montgomery Medical Clinic Board, Health Care Facility Revenue, Refunding,
Jackson Hospital & Clinic, AMBAC Insured, 6.00%, 3/01/26................................. 6,000,000 6,226,980
Morgan County, Decatur Health Care Revenue, Refunding, Decatur General Hospital,
Connie Lee Insured, 6.375%, 3/01/24....................................................... 5,750,000 6,087,640
Moulton Waterworks Board, Water Revenue, Series A, 6.30%, 1/01/18.......................... 1,500,000 1,502,520
Muscle Shoals GO, Refunding, Warrants, MBIA Insured,
5.80%, 8/01/16 ........................................................................ 1,725,000 1,780,666
5.90%, 8/01/25 ........................................................................ 7,000,000 7,196,840
Northeast Alabama Water, Sewer and Fire Protection District Revenue, AMBAC Insured,
6.375%, 5/01/22 ........................................................................ 2,000,000 2,124,000
Pre-Refunded, 7.90%, 5/01/15 ............................................................. 30,000 31,375
Northport GO, Warrants, FGIC Insured, Pre-Refunded, 7.70%, 12/01/13 ....................... 200,000 212,666
Oneonta Utilities Board Revenue,
FSA Insured, 6.90%, 11/01/24.............................................................. 5,000,000 5,483,150
Refunding, MBIA Insured, 5.50%, 11/01/23.................................................. 3,820,000 3,793,489
Pelham GO, Warrants, AMBAC Insured,
6.25%, 11/01/12 ........................................................................ 1,000,000 1,068,800
6.25%, 11/01/22 ........................................................................ 2,500,000 2,674,375
Piedmont IDBR, Springs Industrial Project, 8.25%, 9/01/10.................................. 780,000 847,852
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, Pre-Refunded,
7.90%, 7/01/07 ........................................................................ 500,000 526,780
7.875%, 7/01/17 ........................................................................ 175,000 184,338
Puerto Rico Commonwealth Highway Authority Revenue,
Refunding, Series R, 7.15%, 7/01/00....................................................... 600,000 644,322
Series P, Pre-Refunded, 8.125%, 7/01/13................................................... 155,000 163,582
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A, 7.90%, 7/01/07............................................. 175,000 183,591
Puerto Rico Commonwealth Urban Renewal and Housing Corp.,
Commonwealth Appropriation, Refunding, 7.875%, 10/01/04................................... 300,000 324,114
Puerto Rico Electric Power Authority Revenue, Water Resources, Refunding,
Series M, Pre-Refunded, 8.00%, 7/01/08.................................................... 350,000 369,026
Series N, 7.00%, 7/01/07.................................................................. 355,000 374,876
Puerto Rico Industrial, Medical and Environmental Facilities,
PCFA Revenue, Upjohn Co. Project, 7.50%, 12/01/23......................................... 200,000 214,218
Russell County PBA Revenue, Jail Project, Pre-Refunded, 8.50%, 1/01/14..................... 200,000 215,008
Russellville GO, Refunding, Warrants, MBIA Insured, 5.75%, 12/01/26........................ 2,500,000 2,534,874
Tuscaloosa, Warrants, AMBAC Insured, 6.75%, 7/01/20........................................ 4,925,000 5,254,826
West Jefferson IDB, PCR, Refunding, Alabama Power Co., Miller Plant,
Series C, MBIA Insured, 6.05%, 5/01/23.................................................... 5,000,000 5,088,900
Wilsonville IDB, PCR, Refunding, Southern Electric Generating System,
Series C, MBIA Insured, 6.75%, 2/01/15.................................................... 3,500,000 3,758,964
-------------
Total Long Term Investments (Cost $195,833,357)............................................ 207,209,633
-------------
a Short Term Investments .2%
Columbia IDB, PCR, Refunding, Alabama Power Co. Project, Series D,
Daily VRDN and Put, 3.70%, 10/01/22....................................................... $ 300,000 $ 300,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15...................................................... 200,000 200,000
-------------
Total Short Term Investments (Cost $500,000)............................................... 500,000
-------------
Total Investments (Cost $196,333,357) 98.6%................................................ 207,709,633
Other Assets, less Liabilities 1.4%........................................................... 2,927,641
-------------
Net Assets 100.0% ........................................................................ $210,637,274
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Florida Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996***1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.59 $11.69 $11.35 $11.77 $11.68 $11.04
---------------------------------------------------------------------
Income from investment operations:
Net investment income .33 .67 .69 .69 .70 .71
Net realized and unrealized gains (losses) .08 (.08) .34 (.44) .09 .65
---------------------------------------------------------------------
Total from investment operations .41 .59 1.03 .25 .79 1.36
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.34) (.69) (.69) (.67) (.70) (.72)
---------------------------------------------------------------------
Net asset value, end of period $11.66 $11.59 $11.69 $11.35 $11.77 $11.68
=====================================================================
Total Return* 3.58% 5.20% 9.28% 2.36% 6.63% 12.45%
Ratios/Supplemental Data
Net assets, end of period (000's) $1,537,672 $1,458,087 $1,353,541 $1,265,018 $1,361,583 $1,164,827
Ratio to average net assets:
Expenses .61%** .60% .60% .59% .52% .54%
Net investment income 5.62%** 5.78% 5.93% 6.15% 5.90% 6.30%
Portfolio turnover rate 5.17% 12.00% 11.78% 14.34% 11.77% 11.72%
<S> <C> <C> <C>
Class II
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.67 $11.76 $11.37
---------------------------------------
Income from investment operations:
Net investment income .30 .60 .52
Net realized and unrealized gains (losses) .08 (.07) .38
---------------------------------------
Total from investment operations .38 .53 .90
---------------------------------------
Less distributions:
Dividends from net investment income (.30) (.62) (.51)
In excess of net investment income (.01) -- --
---------------------------------------
Total distributions (.31) (.62) (.51)
---------------------------------------
Net asset value, end of period $11.74 $11.67 $11.76
=======================================
Total Return* 3.28% 4.65% 8.05%
Ratios/Supplemental Data
Net assets, end of period (000's) $40,187 $23,556 $7,644
Ratio to average net assets:
Expenses 1.18%** 1.17% 1.18%**
Net investment income 5.05%** 5.17% 5.33%**
Portfolio turnover rate 5.17% 12.00% 11.78%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class
II.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Florida Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 98.3%
Bonds 94.9%
<S> <C> <C>
Alachua County Health Facilities Authority Revenue,
Refunding, Santa Fe Health Care Facilities Project, Pre-Refunded, 7.60%, 11/15/13 ........$ 6,705,000 $ 7,486,468
Shands Teaching Hospital, Series A, MBIA Insured, 5.80%, 12/01/26......................... 12,000,000 12,338,160
Alachua County Public Improvement Revenue, Refunding, FSA Insured, 5.375%, 8/01/17......... 5,755,000 5,716,442
Atlantic Beach Utilities Systems Revenue, MBIA Insured, 5.50%, 10/01/25.................... 2,000,000 1,999,900
Bay County Hospital System Revenue, Refunding, Bay Medical Center Project,
Pre-Refunded, 8.00%, 10/01/12............................................................. 11,205,000 13,683,546
Bay County Resource Recovery Revenue, Refunding, MBIA Insured,
Series A, 6.60%, 7/01/11 ................................................................. 3,710,000 4,088,754
Series B, 6.60%, 7/01/12 ................................................................. 18,150,000 20,002,934
Bay County Water System Revenue, Refunding, AMBAC Insured,
6.50%, 9/01/07 ........................................................................ 525,000 580,377
6.60%, 9/01/11 ........................................................................ 675,000 745,673
Bay Medical Center, Hospital Revenue, Refunding, Bay Medical Center Project,
AMBAC Insured, 5.60%, 10/01/19............................................................ 13,130,000 13,247,907
Boynton Beach Public Service Tax Revenue, MBIA Insured, Pre-Refunded, 7.50%, 11/01/10...... 4,000,000 4,405,360
Brevard County Health Facilities Authority Revenue, Refunding, Wuesthoff Memorial Hospital,
Series B, Pre-Refunded, 7.20%, 4/01/13 ................................................... 5,000,000 5,633,900
Brevard County HFA, SFMR, Refunding, Series B, FSA Insured, 7.00%, 3/01/13 ................ 1,325,000 1,408,356
Brevard County School Board COP, Series A, Refunding, AMBAC Insured, 5.40%, 7/01/11........ 4,415,000 4,549,304
Broward County Educational Facilities Authority Revenue, Refunding,
Nova Southeastern University Project, Connie Lee Insured,
6.125%, 4/01/17 ........................................................................ 2,250,000 2,341,868
Broward County Health Facility Authority Revenue, Nursing Home, Refunding,
7.40%, 8/15/10 ........................................................................ 2,080,000 2,218,362
7.50%, 8/15/20 ........................................................................ 1,475,000 1,605,980
Broward County HFA Revenue, GNMA Secured,
Series B, 7.55%, 3/01/15 ................................................................. 3,710,000 3,907,001
Series C, 8.00%, 3/01/21 ................................................................. 1,150,000 1,210,203
Series D, 6.90%, 6/01/09 ................................................................. 360,000 383,526
Series D, 7.375%, 6/01/21 ................................................................ 865,000 924,996
Broward County Professional Sports Facilities, Tax Revenue,
Civic Arena Project, Series A, MBIA Insured,
5.75%, 9/01/21 ........................................................................ 5,000,000 5,122,100
5.625%, 9/01/28 ........................................................................ 8,745,000 8,808,051
Broward County Resource Recovery Revenue,
Broward Waste Energy Co., L.P., North Project, 7.95%, 12/01/08............................ 5,840,000 6,357,190
SES Waste Energy Co., L.P., South Project, 7.95%, 12/01/08................................ 11,145,000 12,132,001
Broward County School Board COP, Series C, AMBAC Insured, 5.375%, 7/01/17.................. 10,000,000 9,861,200
Broward County Tourist Development, Special Tax Revenue, Convention Center Project,
FGIC Insured, Pre-Refunded,
7.75%, 10/01/13 ........................................................................ 200,000 212,186
Broward County Water and Sewer Utility Revenue, Series B, AMBAC Insured,
Pre-Refunded, 7.50%, 10/01/18............................................................. 585,000 598,297
Cape Canaveral Hospital District Revenue, Certificates, AMBAC Insured, 6.875%, 1/01/21..... 1,500,000 1,626,360
Celebration Community Development District, Special Assessment, MBIA Insured,
6.00%, 5/01/10 ........................................................................ 5,500,000 5,817,240
6.10%, 5/01/16 ........................................................................ 4,000,000 4,216,960
Series A, 5.50%, 5/01/18.................................................................. 2,000,000 1,992,500
Charlotte County Utilities Revenue, Refunding, Series A, FGIC Insured,
5.625%, 10/01/21 ........................................................................ 3,000,000 3,038,100
6.20%, 10/01/23 ........................................................................ 5,000,000 5,006,750
Citrus County PCR, Florida Power and Light Co., Crystal River, Refunding,
Series A, 6.625%, 1/01/27 ................................................................ 11,100,000 11,994,549
Series B, 6.35%, 2/01/22.................................................................. 20,400,000 21,932,244
Clay County HFA Revenue, SFM, Series A, GNMA Secured,
8.20%, 6/01/21 ........................................................................ 1,925,000 2,019,575
7.80%, 6/01/22 ........................................................................ 4,675,000 4,967,889
7.45%, 9/01/23 ........................................................................ 1,310,000 1,381,434
Clearwater MFR, Rental Housing, Drew Gardens Projects, Refunding, Series A,
FHA Insured, 6.50%, 10/01/25 ............................................................. 2,885,000 3,005,737
Clewiston Water and Sewer Revenue, Refunding, AMBAC Insured, Pre-Refunded, 7.65%, 10/01/10. 1,000,000 1,089,310
Cocoa Water and Sewer Improvement Revenue, FGIC Insured, 5.875%, 10/01/22.................. 4,000,000 4,160,000
Collier County Water and Sewer District Revenue, Sewer Assessment,
East and South Naples Project, MBIA Insured,
7.15%, 10/01/11 ........................................................................ 305,000 315,605
Coral Springs ID, Special Water and Sewer Project, 6.75%, 11/01/02 ........................$ 3,095,000 $ 3,160,057
Dade County Health Facilities Authority, Hospital Revenue,
Mt. Sinai Medical Center Project, FSA Insured, Pre-Refunded, 8.40%, 12/01/17 ............. 75,000 77,326
Refunding, Catholic Health and Rehabilitation, Inc. Project, 7.625%, 8/15/20 ............. 7,475,000 7,999,222
Dade County HFA, MFMR, GNMA Secured, Hialeah Center,
Series 5, Pre-Refunded, 7.875%, 12/01/32.................................................. 1,930,000 2,132,785
Dade County HFA, SFMR,
Refunding, Series A, 8.125%, 7/01/07...................................................... 30,000 30,382
Refunding, Series D, FSA Insured, 6.95%, 12/15/12 ........................................ 980,000 1,047,806
Refunding, Series E, FNMA Secured, 7.00%, 3/01/24 ........................................ 300,000 317,022
Series A, GNMA Secured, 7.50%, 9/01/13 ................................................... 2,470,000 2,536,888
Series A, GNMA Secured, 7.10%, 3/01/17 ................................................... 1,555,000 1,641,800
Series B, GNMA Secured, 7.25%, 9/01/23 ................................................... 260,000 274,750
Dade County IDA Revenue, Epworth Village West, FHA Insured, Pre-Refunded, 8.25%, 2/01/28 .. 125,000 129,684
Dade County IDA, Solid Waste Disposal Revenue, Florida Power
and Light Co. Project, 7.15%, 2/01/23..................................................... 5,695,000 6,131,522
Dade County Public Facilities Revenue, Jackson Memorial Hospital,
Series A, MBIA Insured, 7.30%, 6/01/12 ................................................... 140,000 142,477
Dade County School Board COP, Series B, AMBAC Insured, 5.75%, 8/01/19...................... 14,610,000 14,941,209
Dade County School District GO, Pre-Refunded, 7.375%, 7/01/08 ............................. 5,960,000 6,415,523
Dade County Seaport Revenue, Refunding, Series 95, MBIA Insured, 5.75%, 10/01/15........... 4,100,000 4,248,871
Dade County, Special Obligation, Courthouse Center Project, 6.10%, 4/01/20................. 5,000,000 5,220,700
Dade County Water and Sewer System Revenue, FGIC Insured,
5.25%, 10/01/21 ........................................................................ 5,000,000 4,834,050
5.75%, 10/01/22 ........................................................................ 8,245,000 8,415,177
5.50%, 10/01/25 ........................................................................ 32,045,000 31,816,840
5.25%, 10/01/26 ........................................................................ 12,000,000 11,566,560
Dovera Community Development District Revenue, Special Assessment,
7.625%, 5/01/03 ........................................................................ 345,000 366,431
7.875%, 5/01/12 ........................................................................ 925,000 985,181
Dunes Community Development District Revenue, Water and Sewer Project,
Pre-Refunded, 8.25%, 10/01/18............................................................. 670,000 713,945
Duval County HFA, MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured,
5.60%, 7/01/17 ........................................................................ 1,000,000 1,000,740
5.70%, 7/01/27 ........................................................................ 2,000,000 2,001,460
Duval County HFA, SFMR, GNMA Secured,
Series 1988, 8.625%, 12/01/19 ............................................................ 50,000 54,764
Series A, 8.50%, 9/01/19 ................................................................. 80,000 83,379
Series A, 7.85%, 12/01/22................................................................. 2,470,000 2,606,962
Series B, 7.70%, 11/01/11 ................................................................ 545,000 568,740
Series C, FGIC Insured, 7.70%, 9/01/24 ................................................... 1,170,000 1,247,805
Escambia County HFA, SFMR,
cMulti-County Program, Series C, FNMA/GNMA Secured, 5.80%,10/01/19........................ 1,500,000 1,502,340
cMulti-County Program, Series C, FNMA/GNMA Secured, 5.875%, 10/01/28...................... 6,500,000 6,512,740
Refunding, 8.75%, 10/01/15 ............................................................... 15,000 15,458
Series A, GNMA Secured, 7.40%, 10/01/23 .................................................. 4,235,000 4,450,985
Escambia County HFA Revenue, Refunding, Baptist Hospital and Manor, 6.75%, 10/01/14 ....... 4,350,000 4,685,211
Escambia County Revenue, Series B, Sub-Series 1, MBIA Insured, 7.20%, 1/01/15.............. 4,000,000 4,224,720
Escambia County School Board COP, FSA Insured, Pre-Refunded, 6.375%, 2/01/12............... 1,210,000 1,281,390
Escambia County Tourist Development Revenue, Pre-Refunded, 8.40%, 12/01/12................. 90,000 92,779
Escambia County Utilities Authority, Sanitary System Revenue, FSA Insured, 6.00%, 1/01/23.. 2,500,000 2,624,975
Escambia County Utilities Authority System Revenue, Refunding, FGIC Insured, 7.75%, 1/01/15 2,000,000 2,126,100
First Governmental Financing Commission Revenue, Gainsville,
Hollywood, and St. Petersburg, AMBAC Insured, 5.75%, 7/01/16.............................. 3,700,000 3,803,082
Florida HFA,
General Mortgage, Refunding, Series A, 6.40%, 6/01/24 .................................... 3,700,000 3,895,323
Homeowner Mortgage, Series 1, MBIA Insured, 5.625%, 7/01/17............................... 5,000,000 5,075,100
Homeownership Revenue, Series G-1, GNMA Secured, 7.80%, 9/01/10 .......................... 690,000 731,993
Homeownership Revenue, Series G-1, GNMA Secured, 8.30%, 6/01/20 .......................... 290,000 303,195
Homeownership Revenue, Series G-1, GNMA Secured, 7.90%, 3/01/22 .......................... 3,530,000 3,772,299
MF Housing, Citrus Meadows Apartments Project, Series Q, GNMA Secured, 7.65%, 6/20/31..... 4,000,000 4,137,400
MF Housing, Driftwood Terrace Project, Series I, 7.65%, 12/20/31 ......................... 3,445,000 3,628,894
Florida HFA, (cont.)
MF Mortgage, Lake Carlton Arms, Guaranteed, Refunding, Series F,
Mandatory Put 12/01/99, 7.375%, 12/01/07..................................................$ 4,000,000 $ 4,024,000
MFHR, Refunding, Series A, 6.95%, 10/01/21 ............................................... 2,900,000 3,030,123
Reserve at Kanapaha, Series G, AMBAC Insured, 5.70%, 7/01/37.............................. 5,000,000 4,976,100
Reserve at Northshore, Series H, AMBAC Insured, 5.70%, 5/01/37............................ 2,000,000 1,990,460
Riverfront Apartments, Series A, AMBAC Insured, 6.25%, 4/01/37............................ 1,300,000 1,345,422
SFMR, Series A, 8.60%, 7/01/16 ........................................................... 355,000 359,817
Florida State Board of Education, Capital Outlay, Public Education,
Refunding, Series A, 7.25%, 6/01/23 ...................................................... 8,775,000 9,542,988
Series A, 5.875%, 6/01/16................................................................. 4,500,000 4,673,700
Series B, 5.875%, 6/01/24................................................................. 8,990,000 9,245,676
Series B, 5.875%, 6/01/25................................................................. 7,000,000 7,199,080
Series B-1, Pre-Refunded, 7.875%, 6/01/19................................................. 650,000 682,019
Series F, FGIC Insured, 5.50%, 6/01/26.................................................... 10,000,000 10,028,900
Florida State Community Services Corp., Walton County Water and
Sewer Revenue, South Walton County Regional Utilities, 7.00%, 3/01/18...................... 2,550,000 2,798,421
Florida State Correctional Privatization Commission COP, Correctional
Facility Bay Project, MBIA Insured, 6.00%, 8/01/15........................................ 6,000,000 6,303,480
Florida State Department of Corrections COP, Okeechobee Correctional
Facility, AMBAC Insured, 6.25%, 3/01/15 .................................................. 2,960,000 3,225,808
Florida State Department of General Services, Board of Finance Division,
Department of Natural Resources Revenues,
AMBAC Insured, 6.75%, 7/01/13............................................................... 3,000,000 3,282,900
Florida State Department of General Services, Facilities Management
Division, Revenue, Florida Facilities Pool,
Pre-Refunded, 8.125%, 9/01/17............................................................. 145,000 153,913
Refunding, Series B, AMBAC Insured, 5.70%, 9/01/20........................................ 7,000,000 7,093,240
Florida State GO, Pre-Refunded, 7.375%, 7/01/19 ........................................... 3,715,000 3,998,937
Florida State Mid-Bay Bridge Authority Revenue,
Crossover Refunding, Series A, 6.00%, 10/01/13 ........................................... 13,505,000 13,737,286
Crossover Refunding, Series A, 6.10%, 10/01/22 ........................................... 7,000,000 7,119,910
Refunding, Series D, 6.125%, 10/01/22 .................................................... 11,100,000 11,307,792
Series A, 8.00%, 10/01/06................................................................. 2,600,000 2,906,930
Series A, 7.50%, 10/01/17 ................................................................ 14,250,000 15,674,715
Series A, ETM, 6.875%, 10/01/22 .......................................................... 6,000,000 7,179,660
Florida State Turnpike Authority Revenue, Department of Transportation, Series A,
AMBAC Insured, Pre-Refunded, 7.125%, 7/01/18 ............................................. 8,780,000 9,794,705
FGIC Insured, 5.50%, 7/01/21 ............................................................. 17,350,000 17,481,166
FGIC Insured, 5.625%, 7/01/25 ............................................................ 7,000,000 7,089,180
Pre-Refunded, 7.75%, 7/01/09 ............................................................. 2,375,000 2,572,030
Gainesville Utility System Revenue,
Series B, 6.00%, 10/01/17................................................................. 3,500,000 3,613,855
Sub-Series A, AMBAC Insured, Pre-Refunded, 7.25%, 10/01/13 ............................... 1,600,000 1,689,136
Gateway Services District Revenue, Transportation Roadway Service Charges, 8.75%, 5/01/14.. 8,675,000 9,435,190
Gulf Breeze Local Government Loan Program Revenue, FGIC Insured, 7.75%, 12/01/15 .......... 2,000,000 2,196,140
Hillsborough County Aviation Authority Revenue,
Refunding, Special Purpose, Delta Airlines, Inc., 7.75%, 1/01/24 ......................... 14,945,000 15,983,827
Refunding, Tampa International Airport, Series A, FGIC Insured, 6.90%, 10/01/11 .......... 8,500,000 9,085,905
Tampa International Airport, Series B, FGIC Insured, 5.875%, 10/01/23 .................... 5,730,000 5,939,833
Hillsborough County Capital Improvement Revenue, County Center Project,
Second Series, Pre-Refunded,
6.625%, 7/01/12 ........................................................................ 8,300,000 9,190,507
6.75%, 7/01/22 ........................................................................ 1,250,000 1,390,825
Hillsborough County IDA Revenue, Colonial Penn Insurance Project, 7.35%, 8/01/13 .......... 5,300,000 5,849,981
Hillsborough County Port District Revenue, Tampa Port Authority, Pre-Refunded, 8.25%, 6/01/093,000,000 3,406,950
Hillsborough County School Board COP, MBIA Insured,
6.00%, 7/01/12 ........................................................................ 9,500,000 10,059,170
6.00%, 7/01/14 ........................................................................ 5,500,000 5,783,910
Hillsborough County Utilities Revenue, Refunding,
Series A, 6.625%, 8/01/11 ................................................................ 10,400,000 11,057,176
Series A, 7.00%, 8/01/14 ................................................................. 5,515,000 5,941,751
Hillsborough County Utilities Revenue, Refunding, (cont.)
Series A, 6.50%, 8/01/16 .................................................................$ 3,000,000 $ 3,168,840
Series B, 6.50%, 8/01/16 ................................................................. 1,000,000 1,056,280
Indian River County Hospital District Revenue, Refunding, FSA Insured, 5.70%, 10/01/15..... 1,000,000 1,028,910
Jacksonville Capital Improvement Revenue Certificates, Gator Bowl Project, 5.875%, 10/01/25 5,000,000 5,170,650
Jacksonville Electric Authority Revenue,
Refunding, St. John's River Park System, Issue 2, Series 11, 5.25%, 10/01/20.............. 1,750,000 1,686,475
cWater and Sewer, Series B, FGIC Insured, 5.40%, 10/01/20................................. 3,000,000 2,960,910
Jacksonville Health Facilities Authority, Hospital Revenue, Refunding,
Baptist Medical Center Project, Series A, MBIA Insured, 7.30%, 6/01/19.................... 2,500,000 2,667,675
Riverside Hospital Project, Pre-Refunded, 7.625%, 10/01/13 ............................... 8,480,000 9,224,290
Jacksonville Hospital Revenue, University Medical Center, Inc. Project,
Connie Lee Insured, 6.60%, 2/01/21........................................................ 1,750,000 1,868,213
Jupiter Sales Tax Revenue, Series 1990, Pre-Refunded, 7.40%, 9/01/20....................... 1,000,000 1,103,760
Kissimmee Water and Sewer Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/15 .............. 5,000,000 5,243,050
Lakeland Electric and Water Revenue,
5.50%, 10/01/26 ........................................................................ 10,700,000 10,622,639
5.625%, 10/01/36 ........................................................................ 11,670,000 11,693,223
Refunding & Improvement, Senior Series B, 5.625%, 10/01/19................................ 12,800,000 12,930,688
Lakeland Utility Tax Revenue, Refunding & Improvement,
Series A, FGIC Insured, 6.00%, 10/01/17 ................................................ 4,500,000 4,734,315
Lee County Capital Bonds, Refunding, Series A, MBIA Insured, 7.30%, 10/01/07 .............. 1,000,000 1,080,740
Lee County Hospital Revenue, Board of Directors, Lee Memorial Health Systems,
Series A, MBIA Insured, 5.875%, 4/01/24................................................... 18,000,000 18,540,180
Lee County IDA Revenue, Bonita Springs Sewer Project, Asset Guaranty, Insured,
7.20%, 11/01/11 ........................................................................ 5,000,000 5,442,050
7.25%, 11/01/20 ........................................................................ 2,000,000 2,170,340
Lee County Local Option Gas Tax Revenue, FGIC Insured, 5.75%, 10/01/20..................... 2,575,000 2,632,139
Lee County Solid Waste System Revenue, Series A, MBIA Insured,
7.00%, 10/01/04 ........................................................................ 1,945,000 2,145,821
7.00%, 10/01/05 ........................................................................ 1,175,000 1,296,319
7.00%, 10/01/06 ........................................................................ 1,305,000 1,442,312
7.00%, 10/01/11 ........................................................................ 4,600,000 5,100,342
Lee County Transportation Facilities Revenue, MBIA Insured,
5.75%, 10/01/22 ........................................................................ 4,500,000 4,620,915
5.75%, 10/01/27 ........................................................................ 5,900,000 6,058,533
Leesburg Hospital Revenue, Capital Improvement, Leesburg Regional Medical
Center Project, Series A, Pre-Refunded,
7.375%, 7/01/11 ........................................................................ 1,250,000 1,427,300
7.50%, 7/01/21 ........................................................................ 2,115,000 2,426,349
Leesburg Hospital Revenue, Refunding, Leesburg Regional Medical
Center Project, Series A, 6.125%, 7/01/18................................................. 7,000,000 7,260,960
Leesburg Utilities Revenue, Refunding, FGIC Insured, 7.60%, 10/01/09 ...................... 500,000 528,695
Leon HFA, SFMR, Series A, GNMA Secured, 7.30%, 4/01/21..................................... 895,000 941,638
Manatee County HFA, SFMR, Series A, GNMA Secured,
8.10%, 11/01/20 ........................................................................ 1,080,000 1,122,908
6.85%, 11/01/23 ........................................................................ 4,320,000 4,527,274
Manatee County IDR, Manatee Hospital and Health Systems, Inc.,
ETM, 8.25%, 3/01/01 ...................................................................... 1,200,000 1,285,860
Pre-Refunded, 9.25%, 3/01/21 ............................................................. 6,700,000 7,856,219
Manatee County School Board COP, MBIA Insured, 6.125%, 7/01/21............................. 5,575,000 5,916,636
Martin County Consolidated Utilities System Revenue, Refunding & Improvement,
FGIC Insured, 6.00%, 10/01/24 ............................................................ 4,000,000 4,208,280
Martin County PCR, Refunding, Florida Power and Light Co. Project,
MBIA Insured, 7.30%, 7/01/20.............................................................. 14,500,000 15,872,860
Miami Beach Special Obligation, Subordinated, FGIC Insured, 7.375%, 12/01/08............... 2,000,000 2,168,940
Miami Health Facilities Authority Revenue, Mercy Hospital Project, Refunding,
8.125%, 8/01/11 ........................................................................ 250,000 261,683
Series A, Pre-Refunded, 7.35%, 8/01/15 ................................................... 7,500,000 8,088,675
Miramar Waste Water Improvement Assessment Revenue, FGIC Insured, 6.75%, 10/01/25.......... 6,500,000 7,249,190
Nassau County PCR, Refunding, ITT Rayonier, Inc. Project, 6.25%, 6/01/10 .................. 5,000,000 5,162,850
North Broward Hospital District Revenue, Refunding & Improvement, MBIA Insured,
5.375%, 1/15/24 ........................................................................ 10,710,000 10,480,271
5.75%, 1/15/27 ........................................................................ 14,370,000 14,669,471
North Miami Health Facilities Authority Revenue, Catholic Health Services Obligation Group,
6.00%, 8/15/16 ........................................................................$ 2,000,000 $ 2,058,120
6.00%, 8/15/24 ........................................................................ 1,750,000 1,793,680
North Port Utilities Revenue, FGIC Insured, 6.25%, 10/01/22 ............................... 1,500,000 1,608,495
Northern Palm Beach County Water Control District, Unit Development No. 31, Project 2,
6.75%, 11/01/07 ........................................................................ 725,000 764,375
6.625%, 11/01/13 ........................................................................ 1,470,000 1,528,433
Ocala Gas Tax Revenue, MBIA Insured, Pre-Refunded, 7.40%, 12/01/09 ........................ 1,000,000 1,028,640
Orange County Capital Improvement Revenue, MBIA Insured,
Series A, 7.70%, 10/01/18................................................................. 170,000 179,804
Series A, Pre-Refunded, 7.70%, 10/01/18................................................... 30,000 31,812
Series B, Pre-Refunded, 7.70%, 10/01/18................................................... 180,000 190,874
Orange County Health Facilities Authority Revenue, Series A,
Adventist/Sunbelt, AMBAC Insured, 6.875%, 11/15/15 ....................................... 1,000,000 1,104,790
Adventist/Sunbelt, FSA Insured, 7.00%, 11/15/14 .......................................... 3,000,000 3,208,050
Crossover Refunding, Orlando Regional Health Care, MBIA Insured, 6.00%, 11/01/24.......... 1,000,000 1,029,760
Orange County HFA Revenue, GNMA Secured,
Refunding, Series A, FGIC Insured, 7.60%, 1/01/24 ........................................ 4,730,000 5,006,563
Series A, 7.75%, 11/01/12 ................................................................ 1,825,000 1,925,904
Series A, 7.375%, 9/01/24................................................................. 410,000 435,916
Series D, 7.80%, 10/01/22 ................................................................ 720,000 763,402
Orange County Public Service, Tax Revenue, FGIC Insured, 6.00%, 10/01/24 .................. 5,050,000 5,314,873
Orange County Tourist Development Tax Revenue,
AMBAC Insured, Pre-Refunded, 7.25%, 10/01/10.............................................. 3,000,000 3,309,450
Series B, MBIA Insured, 6.00%, 10/01/24 .................................................. 24,675,000 25,959,827
Orlando and Orange County Expressway Authority Revenue, Senior Lien,
AMBAC Insured, ETM, 7.625%, 7/01/18 ...................................................... 265,000 277,847
Orlando Community RDA, Tax Increment Revenue, Series A,
6.50%, 10/01/11 ........................................................................ 2,155,000 2,295,635
6.75%, 10/01/16 ........................................................................ 2,585,000 2,769,285
Orlando Waste Water Systems Revenue, Refunding, Series C, AMBAC Insured,
5.15%, 10/01/13 ........................................................................ 3,410,000 3,376,787
5.20%, 10/01/14 ........................................................................ 2,740,000 2,712,353
Osceola County Gas Tax Revenue, Refunding & Improvement, FGIC Insured, 6.00%, 4/01/13...... 3,500,000 3,700,200
Osceola County IDA Revenue,Community Provider Pooled Loan Program, FSA Insured,
Series A, 7.75%, 7/01/10.................................................................. 4,634,000 5,026,778
Series C, 7.60%, 7/01/10.................................................................. 795,000 859,284
Osceola County Transportation Revenue, Series A, FGIC Insured, Pre-Refunded, 7.70%, 4/01/13 200,000 208,358
Pace Property Finance Authority, Utilities System Revenue, Refunding & Improvement,
6.125%, 9/01/07 ........................................................................ 1,000,000 1,034,880
6.25%, 9/01/13 ........................................................................ 2,545,000 2,598,420
6.125%, 9/01/17 ........................................................................ 840,000 846,258
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured,
6.00%, 6/01/15 ........................................................................ 5,000,000 5,266,850
Pre-Refunded, 7.25%, 6/01/11.............................................................. 6,950,000 7,626,444
Palm Beach County HFA, SFM Purchase Revenue, GNMA Secured,
Series A, 7.70%, 3/01/22 ................................................................. 7,485,000 7,874,594
Series B, 7.60%, 3/01/23 ................................................................. 5,270,000 5,585,410
Palm Beach County IDR, Lourdes-Noreen McKeen Residence, Geriatric Care, Inc.,
6.55%, 12/01/16 ........................................................................ 1,755,000 1,853,473
6.625%, 12/01/26 ........................................................................ 4,000,000 4,293,240
Palm Beach County Solid Waste Authority Revenue, Refunding, BIG Insured,
7.40%, 12/01/05 ........................................................................ 535,000 567,089
Pre-Refunded, 7.40%, 12/01/05 ............................................................ 1,965,000 2,083,607
d Palm Beach County Solid Waste, IDR, Okeelanta Power and Light Co. Project, Series A,
6.50%, 2/15/09 ........................................................................ 3,600,000 2,839,500
6.70%, 2/15/15 ........................................................................ 11,700,000 9,228,375
Pensacola Airport Revenue, Series A, MBIA Insured, 5.75%, 10/01/27......................... 5,615,000 5,757,284
Pensacola-Westwood Homes Development Corp. Revenue, Refunding,
Mortgage Loan, FHA Insured, 6.40%, 7/15/23................................................$ 1,005,000 $ 1,032,014
Pinellas County HFA, SFMR, GNMA Secured,
Multi-County Program, Series B, 6.875%, 8/01/10 .......................................... 1,380,000 1,454,037
Multi-County Program, Series B, 7.375%, 2/01/24 .......................................... 5,445,000 5,776,873
Series A, 7.30%, 8/01/22 ................................................................. 1,765,000 1,847,973
Series A, 7.75%, 8/01/23 ................................................................. 1,600,000 1,692,896
Pinellas County PCR, Refunding, Florida Power and Light Co., 7.20%, 12/01/14 .............. 12,200,000 13,372,908
Plantation Health Facilities Authority Revenue, Covenant Retirement Community, Inc.,
7.625%, 12/01/12 ........................................................................ 1,500,000 1,644,240
7.75%, 12/01/22 ........................................................................ 3,000,000 3,290,940
Polk County HFA, Refunding, Series A, GNMA Secured, 7.15%, 9/01/23 ........................ 2,035,000 2,152,704
Polk County IDA Revenue, Solid Waste Disposal Facility,
Tampa Electric Co. Project, 5.85%, 12/01/30............................................... 20,500,000 20,801,555
Port Everglades Authority, Port Improvement Revenue,
Refunding, Series A, 7.50%, 9/01/12 ...................................................... 18,050,000 18,951,778
Series 1986, ETM, 7.50%, 11/01/06......................................................... 575,000 669,421
Royal Palm Beach Utility System Revenue, Series A, AMBAC Insured,
Pre-Refunded, 8.875%, 10/15/13............................................................ 65,000 66,671
Santa Rosa County Health Facilities Authority Revenue,
Gulf Breeze Hospital, Inc., Refunding, 8.60%, 10/01/02................................... 40,000 41,922
Pre-Refunded, 8.70%, 10/01/14 ............................................................ 520,000 556,837
Series A, 6.20%, 10/01/14................................................................. 14,350,000 14,761,558
Santa Rosa County IDR, Holley Navarre Water System Project, 6.75%, 5/01/24................. 4,290,000 4,510,249
Sarasota County Solid Waste System Revenue, AMBAC Insured, 5.50%, 10/01/16................. 6,250,000 6,316,875
Sarasota County Utility System Revenue, FGIC Insured,
5.75%, 10/01/27 ........................................................................ 18,000,000 18,536,580
Refunding, Series A, 5.25%, 10/01/25...................................................... 9,000,000 8,792,820
Seminole County Sales Tax Revenue, MBIA Insured, 5.80%, 10/01/26........................... 5,000,000 5,145,750
Seminole County School Board COP, MBIA Insured,
Series A, 6.125%, 7/01/14 ................................................................ 1,150,000 1,226,935
Series B, Pre-Refunded, 6.50%, 7/01/21 ................................................... 5,000,000 5,618,550
South Florida Water Management District, Special Obligation,
Land Acquisition Bonds, AMBAC Insured, 6.00%, 10/01/15.................................... 1,000,000 1,049,450
South Indian River Water Control District, Refunding, Series C,
Pre-Refunded, 7.50%, 10/01/06............................................................. 3,000,000 3,173,310
St. Johns County IDA Revenue, Professional Golf Hall of Fame Project,
MBIA Insured, 5.80%, 9/01/16.............................................................. 4,660,000 4,780,741
St. Johns County Water and Sewer Revenue, Series B-1, FGIC Insured, 7.00%, 6/01/11 ........ 2,995,000 3,074,248
St. Lucie County Solid Waste Disposal Revenue, Florida Power and Light
Co. Project, 7.15%, 2/01/23............................................................... 7,500,000 8,108,625
St. Lucie, West, Services District, Capital Improvement Revenue, Lake Charles
Project, 7.50%, 2/01/00................................................................... 4,990,000 5,068,143
St. Petersburg Health Facilities Authority Revenue,
Allegany Health System, Series A, MBIA Insured, 7.00%, 12/01/15........................... 10,500,000 11,650,380
Allegany Health System, St. Mary, Series B, Pre-Refunded, 7.75%, 12/01/15 ................ 8,630,000 9,464,607
Bon Secours-Maria Manor Project, Series B, Pre-Refunded, 7.875%, 8/15/18 ................. 2,500,000 2,642,050
Refunding, Allegany Health System, St. Anthony, Series C, 7.75%, 1/01/14 ................. 2,940,000 3,031,993
Refunding, Allegany Health System, St. Anthony, Series C, Pre-Refunded, 7.75%, 1/01/14.... 340,000 351,026
Sunrise Lakes Recreation District, Phase 4, Series A,
6.75%, 8/01/15 ........................................................................ 3,080,000 3,266,956
6.75%, 8/01/24 ........................................................................ 6,120,000 6,398,215
Sunrise Special Tax District No. 1, Refunding,
6.375%, 11/01/08 ........................................................................ 3,485,000 3,697,724
6.375%, 11/01/21 ........................................................................ 12,390,000 13,074,300
Sunrise Utility System Revenue, Series A, AMBAC Insured,
5.75%, 10/01/16 ........................................................................ 1,780,000 1,839,007
5.90%, 10/01/18 ........................................................................ 4,230,000 4,395,816
5.75%, 10/01/21 ........................................................................ 3,000,000 3,071,250
5.75%, 10/01/26 ........................................................................ 32,775,000 33,425,912
Tallahassee Consolidated Utility System Revenue, Series 1994, 6.20%, 10/01/19.............. 3,400,000 3,607,876
Tampa Allegany Health System Revenue, St. Joseph, MBIA Insured,
6.75%, 12/01/17 ........................................................................ 1,180,000 1,287,486
6.50%, 12/01/23 ........................................................................ 7,000,000 7,801,080
Tampa Capital Improvement Program Revenue,
Series A, 8.25%, 10/01/18.................................................................$ 6,300,000 $ 6,536,061
Series B, 8.375%, 10/01/18................................................................ 31,670,000 32,897,846
Tampa Guaranteed Entitlement Revenue, Refunding, AMBAC Insured, 7.15%, 10/01/18 ........... 2,000,000 2,217,520
Tampa Sports Authority Revenue, Guaranteed Package, Tampa Bay Arena Project, MBIA Insured,
6.00%, 10/01/15 ........................................................................ 1,000,000 1,089,270
6.05%, 10/01/20 ........................................................................ 1,715,000 1,877,754
6.10%, 10/01/26 ........................................................................ 2,695,000 2,978,460
Tampa Sports Authority Revenue, Interlock Agreement, Tampa Bay, MBIA Insured,
6.05%, 10/01/15 ........................................................................ 4,250,000 4,522,850
6.10%, 10/01/20 ........................................................................ 5,160,000 5,470,580
6.125%, 10/01/26 ........................................................................ 6,800,000 7,195,692
Tampa Water and Sewer Revenue, Subordinated Lien, Series A, AMBAC Insured,
7.75%, 10/01/14 ........................................................................ 340,000 359,485
7.25%, 10/01/16 ........................................................................ 3,000,000 3,145,260
Titusville Water and Sewer Revenue, MBIA Insured, 6.20%, 10/01/14 ......................... 6,000,000 6,479,040
University Community Hospital, Inc., Florida Hospital Revenue,
Refunding, FSA Insured, Pre-Refunded,
7.375%, 9/01/07 ........................................................................ 5,000,000 5,522,750
7.50%, 9/01/11 ........................................................................ 5,000,000 5,540,150
Venice Health Care Revenue, Bon Secours Health System Project,
MBIA Insured, 5.625%, 8/15/26............................................................. 6,000,000 6,026,520
Viera East Community Development District, Special Assessment,
7.50%, 5/01/03 ........................................................................ 2,005,000 2,116,799
8.50%, 5/01/04 ........................................................................ 3,650,000 4,045,003
8.625%, 5/01/14 ........................................................................ 10,640,000 11,854,130
Pre-Refunded, 7.50%, 5/01/12.............................................................. 5,225,000 5,961,621
Refunding, 6.30%, 5/01/26................................................................. 7,355,000 7,704,289
Refunding, Series A, 6.00%, 5/01/14 ...................................................... 11,295,000 11,536,939
Refunding, Water Management, Series A, 6.50%, 5/01/22..................................... 11,340,000 11,512,822
Series B, 6.75%, 5/01/14.................................................................. 7,490,000 7,641,298
Series B, Water Management, 6.50%, 5/01/05................................................ 465,000 469,180
Series B, Water Management, 6.50%, 5/01/22................................................ 4,580,000 4,579,450
Viera East Community Development District, Water and Sewer Revenue,
7.875%, 5/01/03 ........................................................................ 3,290,000 3,451,802
6.75%, 5/01/09 ........................................................................ 2,850,000 2,920,338
Volusia County Educational Facility Authority Revenue, Embry-Riddle
Aeronautical University, Connie Lee Insured, 6.625%, 10/15/22 ........................... 500,000 538,350
Volusia County Health Facilities Authority Revenue, Hospital Facilities,
Memorial Health Systems Project, AMBAC Insured, 5.50%, 11/15/26.......................... 9,770,000 9,740,885
West Lake Community Development District, Special Assessment,
MBIA Insured, 5.75%, 5/01/17.............................................................. 1,970,000 2,016,688
West Palm Beach Utility System Revenue, MBIA Insured, 5.75%, 10/01/27...................... 3,000,000 3,056,040
Westgate/Belvedere Homes Community RDA Revenue, Series 1992,
6.50%, 11/01/09 ........................................................................ 410,000 433,751
6.60%, 11/01/17 ........................................................................ 1,410,000 1,474,196
-------------
Total Bonds (Cost $1,414,451,485).......................................................... 1,497,656,338
-------------
b Zero Coupon Bonds 3.4%
Broward County Water and Sewer Utility Revenue, Refunding, Series A,
AMBAC Insured, (original accretion rate 7.50%), 10/01/08 ................................. 3,670,000 2,074,027
Dade County Guaranteed Entitlement Revenue, Capital Appreciation,
AMBAC Insured, Pre-Refunded, (original accretion rate 7.70%), 8/01/18.................... 17,020,000 4,600,675
Hillsborough County Utilities Revenue, Refunding, Series A,
(original accretion rate 6.97%), 8/01/98.................................................. 1,625,000 1,558,960
Lakeland Electric and Water Revenue, Capital Appreciation,
(original accretion rate 7.00%), 10/01/14................................................. 5,770,000 2,334,541
Port Everglades Authority, Port Improvement Revenue, Refunding, Series A,
(original accretion rate 7.40%), 9/01/02 ................................................. 10,575,000 8,256,431
(original accretion rate 7.40%), 9/01/03 ................................................. 9,075,000 6,683,737
(original accretion rate 7.40%), 9/01/04 ................................................. 3,550,000 2,467,604
(original accretion rate 7.45%), 9/01/10 ................................................. 50,000,000 23,461,000
Sarasota Special Obligated Revenue, Refunding, AMBAC Insured,
(original accretion rate 6.69%), 11/01/09 ................................................$ 1,365,000 $ 737,331
(original accretion rate 6.74%), 11/01/12 ................................................ 1,780,000 794,841
(original accretion rate 6.74%), 11/01/15 ................................................ 2,180,000 808,170
-------------
Total Zero Coupon Bonds (Cost $46,691,684)................................................. 53,777,317
-------------
Total Long Term Investments (Cost $1,461,143,169).......................................... 1,551,433,655
-------------
a Short Term Investments .7%
Dade County Health Facilities Authority Revenue, Miami Children's
Hospital Project, Daily VRDN and Put, 3.75%, 9/01/20 ..................................... 700,000 700,000
Dade County IDA Revenue, Dolphins Stadium Project, Series D, Weekly
VRDN and Put, 3.35%, 1/01/16.............................................................. 1,750,000 1,750,000
Dade County IDA, PCR, Refunding, Florida Power and Light Co. Project,
Daily VRDN and Put, 3.65%, 4/01/20........................................................ 1,000,000 1,000,000
Hillsborough County IDA, PCR, Refunding, Tampa Electric Co. Project, Daily VRDN and Put,
3.65%, 5/15/18 ........................................................................ 200,000 200,000
3.75%, 9/01/25 ........................................................................ 300,000 300,000
Jacksonville PCR, Refunding, Florida Power and Light Co. Project,
Daily VRDN and Put, 3.65%, 5/01/29........................................................ 200,000 200,000
Manatee County PCR, Refunding, Florida Power and Light Co.
Project, Daily VRDN and Put, 3.70%, 9/01/24............................................... 3,900,000 3,900,000
Pinellas County Health Facilities Authority Revenue, DATES, Refunding,
Pooled Hospital Loan Program, Daily VRDN and Put, 3.75%, 12/01/15........................ 400,000 400,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15...................................................... 1,200,000 1,200,000
Saint Lucie County PCR, Refunding, Florida Power and Light Co. Project,
Daily VRDN and Put, 3.70%, 1/01/26........................................................ 1,200,000 1,200,000
-------------
Total Short Term Investments (Cost $10,850,000)............................................ 10,850,000
-------------
Total Investments (Cost $1,471,993,169) 99.0%.............................................. 1,562,283,655
Other Assets, less Liabilities 1.0%........................................................ 15,575,497
-------------
Net Assets 100.0% ........................................................................ $1,577,859,152
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bZero coupon/step-up bonds. The current effective yield may vary. The original
accretion rate will remain constant.
cSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
dSee Note 6 regarding defaulted securities.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Georgia Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996***1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.86 $11.88 $11.54 $12.00 $11.85 $11.18
---------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .65 .66 .66 .66 .68
Net realized and unrealized gains (losses) .07 (.02) .34 (.46) .15 .66
---------------------------------------------------------------------
Total from investment operations .39 .63 1.00 .20 .81 1.34
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.32) (.65) (.66) (.66) (.66) (.67)
---------------------------------------------------------------------
Net asset value, end of period $11.93 $11.86 $11.88 $11.54 $12.00 $11.85
=====================================================================
Total Return* 3.29% 5.47% 8.90% 1.87% 6.77% 12.09%
Ratios/Supplemental Data
Net assets, end of period (000's) $142,369 $139,903 $130,380 $116,771 $120,882 $91,017
Ratio to average net assets:
Expenses .77%** .75% .77% .76% .69% .71%
Net investment income 5.38%** 5.49% 5.58% 5.76% 5.48% 5.91%
Portfolio turnover rate 11.50% 17.47% 10.98% 36.17% 16.75% 17.10%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.92 $11.92 $11.57
---------------------------------------
Income from investment operations:
Net investment income .29 .58 .50
Net realized and unrealized gains (losses) .06 (.01) .34
---------------------------------------
Total from investment operations .35 .57 .84
---------------------------------------
Less distributions:
Dividends from net investment income (.28) (.57) (.49)
---------------------------------------
Net asset value, end of period $11.99 $11.92 $11.92
=======================================
Total Return* 2.99% 4.97% 7.40%
Ratios/Supplemental Data
Net assets, end of period (000's) $6,000 $4,484 $1,335
Ratio to average net assets:
Expenses 1.33%** 1.32% 1.34%**
Net investment income 4.83%** 4.87% 5.04%**
Portfolio turnover rate 11.50% 17.47% 10.98%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class
II.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Georgia Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 98.5%
Albany-Dougherty County Hospital Authority Revenue, Anticipation Certificates,
Series B, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/10 ....................................... $ 500,000 $ 554,015
Albany-Dougherty Inner City Authority, Improvement Revenue,
Municipal Auditorium Project, Series B, Pre-Refunded, 7.875%, 1/01/09 .................... 50,000 51,634
Athens Housing Authority, MFHR, Oakwood Forest Apartments Project, 8.125%, 12/01/05 ....... 50,000 50,145
Atlanta Airport Facilities Revenue, Series B, AMBAC Insured, 6.00%, 1/01/21................ 1,100,000 1,131,064
Atlanta and Fulton Counties Recreation Authority Revenue, Refunding,
Downtown Arena Public Improvement Project, Series A, MBIA Insured,
5.375%, 12/01/21 ........................................................................ 3,000,000 2,949,840
5.375%, 12/01/26 ........................................................................ 1,500,000 1,470,600
Atlanta COP, Pretrial Detention Center, MBIA Insured,
6.25%, 12/01/11 ........................................................................ 1,000,000 1,073,790
6.25%, 12/01/17 ........................................................................ 3,800,000 4,026,062
Atlanta Downtown Development Authority Revenue, Refunding,
Underground Atlanta Project, 6.25%, 10/01/16 ............................................. 2,000,000 2,108,360
Atlanta GO, Series A, 6.125%, 12/01/23..................................................... 6,000,000 6,325,980
Atlanta HDC, Mortgage Revenue, Refunding, Oakland City/West,
Series A, FHA Insured, 6.375%, 3/01/23.................................................... 1,480,000 1,535,648
Atlanta Special Purpose Facilities Revenue, Delta Air Lines, Inc.
Project, Series B, 7.90%, 12/01/18 ....................................................... 3,500,000 3,767,225
Atlanta Urban Residential Finance Authority, MFHR,
Defoors Ferry Manor Project, 5.90%, 10/01/18.............................................. 1,700,000 1,744,404
Fulton Cotton Mill, 6.00%, 5/20/17........................................................ 1,045,000 1,073,205
Fulton Cotton Mill, 6.125%, 5/20/27....................................................... 1,575,000 1,616,549
Atlanta Urban Residential Finance Authority, SFMR, GNMA Secured, 8.25%, 10/01/21 .......... 70,000 71,562
Atlanta Water and Sewer Revenue, Second Subordinated Lien,
FGIC Insured, 5.375%, 1/01/20............................................................. 1,000,000 989,020
Barnesville Water and Sewer Revenue, Refunding, 6.85%, 9/01/17............................. 1,000,000 1,073,020
Bartow County Water and Sewage Revenue, Refunding,
AMBAC Insured, Pre-Refunded, 8.00%, 9/01/15 .............................................. 100,000 106,026
Burke County Development Authority, PCR, Georgia Power Co.,
Refunding, Plant Vogtle, First Series, 6.10%, 4/01/25.................................... 1,000,000 1,027,170
MBIA Insured, 6.60%, 7/01/24 ............................................................. 10,000,000 10,511,400
Chatham County Hospital Authority Revenue, Memorial Medical Center, Series A,
MBIA Insured, Pre-Refunded, 7.00%, 1/01/21................................................ 1,700,000 1,870,170
Refunding & Improvement, AMBAC Insured, 5.70%, 1/01/19.................................... 1,000,000 1,010,720
Cherokee County Hospital Authority Revenue, Certificates, MBIA Insured, 8.00%, 12/01/13 ... 90,000 94,112
Cherokee County Water and Sewage Revenue, Refunding, MBIA Insured, 6.90%, 8/01/18 ......... 1,595,000 1,737,689
Clayton County Development Authority, Special Facility Revenue,
Refunding, Delta Air Lines, Inc. Project, 7.625%, 1/01/20 ................................ 1,400,000 1,500,380
Clayton County Hospital Authority Revenue, Anticipation Certificates,
Southern Regional Medical Center, MBIA Insured, 7.00%, 8/01/13 .......................... 2,400,000 2,646,672
Clayton County MFHR, Pointe Clear Apartments Project, FSA Insured, 5.70%, 7/01/23.......... 1,000,000 1,002,460
Cobb County, Kennestone Hospital Authority Revenue, Series A,
MBIA Insured, ETM, 7.75%, 2/01/07 ........................................................ 100,000 113,901
Cobb County Residential Care Facilities Authority Revenue, Refunding, 7.50%, 8/01/15 ...... 1,000,000 1,041,350
Columbia County Water and Sewer Revenue, Series A,
AMBAC Insured, Pre-Refunded, 6.90%, 6/01/11 .............................................. 100,000 110,594
Commerce, City of, Combined Public Utility Revenue, Refunding & Improvement,
AMBAC Insured, Pre-Refunded, 7.50%, 12/01/20 ............................................. 100,000 109,141
Conyers Water and Sewer Revenue, Series A, AMBAC Insured, 6.60%, 7/01/15 .................. 1,000,000 1,094,170
Coweta County Association, County Commissioners of Georgia Leasing Program,
MBIA Insured, Pre-Refunded, 7.00%, 12/01/10 .............................................. 750,000 804,788
Dade County Water and Sewer Authority Revenue, Refunding,
FGIC Insured, Pre-Refunded, 7.60%, 7/01/15 ............................................... 300,000 324,105
Dekalb County Housing Authority, SFMR, GNMA Secured, 7.70%, 2/01/24 ....................... 405,000 433,322
Dekalb County Water and Sewer Revenue, Series 1990, Pre-Refunded, 7.00%, 10/01/10 ......... 600,000 657,606
Dekalb Private Hospital Authority Revenue, Anticipation Certificates,
Emory University Project, 7.00%, 4/01/21 ................................................. 1,315,000 1,417,609
Ellijay-Gilmer County Water and Sewer Authority Revenue, Pre-Refunded, 7.875%, 1/01/14 .... 95,000 98,104
Fitzgerald Housing Authority Mortgage Revenue, Refunding, Bridge Creek,
Series A, MBIA Insured, 6.50%, 7/01/24 ................................................... 940,000 976,256
Fulco Hospital Authority Revenue, Anticipation Certificates,
Shepherd Spinal Center Project, Series A, 7.75%, 10/01/08 ................................ 100,000 102,251
Fulton County Building Authority Revenue,
Human Resources and Government Facilities Program, 7.10%, 1/01/15......................... 750,000 811,553
Refunding, Judicial Center Facilities Project, 6.50%, 1/01/15............................. 1,000,000 1,052,850
Fulton County Water and Sewer Revenue, Pre-Refunded, 8.25%, 1/01/14 ....................... 115,000 118,913
Fulton Dekalb Hospital Authority Revenue, Grady Memorial Hospital Project,
Series A, AMBAC Insured, Pre-Refunded, 7.25%, 1/01/20 .................................... 1,480,000 1,607,472
Gainesville and Hall County Hospital Authority Revenue, Anticipation Certificates,
Refunding, Northeast Georgia Health Care Project, MBIA Insured,
5.75%, 10/01/17 ........................................................................ $ 210,000 $ 214,824
6.00%, 10/01/25 ........................................................................ 750,000 780,435
Series B, 7.20%, 10/01/20................................................................. 455,000 476,945
Georgia Municipal Electric Authority, Refunding,
Project One, Sub-Series A, MBIA Insured, 5.375%, 1/01/19.................................. 3,000,000 2,956,680
Special Obligation, Second Crossover Series, 8.125%, 1/01/17 ............................. 140,000 144,493
Special Obligation, Third Crossover Series, 6.60%, 1/01/18 ............................... 1,000,000 1,137,490
Georgia Municipal Electric Power Authority Revenue, Pre-Refunded,
Refunding, Series R, 7.40%, 1/01/25 ...................................................... 800,000 849,872
Series A, 7.40%, 1/01/25 ................................................................. 400,000 424,936
Series S, 7.25%, 1/01/09 ................................................................. 100,000 106,043
Georgia State HFA,
Homeownership Opportunity Program, Series A-1, 6.75%, 6/01/17............................. 2,895,000 3,086,157
Homeownership Opportunity Program, Series C, 6.60%, 12/01/23 ............................. 1,995,000 2,094,630
MFMR, Club Candlewood Project, FSA Insured, 7.15%, 1/01/25 ............................... 1,000,000 1,174,900
MFR, Lake Vista Apartments Project, Series A, FSA Insured, 5.95%, 1/01/27................. 1,000,000 1,025,590
Refunding, SFMR, Series A, 6.60%, 12/01/23................................................ 640,000 679,162
SFMR, Series B, Sub-Series B-2, 6.15%, 12/01/28........................................... 1,000,000 1,034,860
SFMR, Sub-Series B-2, 5.85%, 12/01/28..................................................... 3,000,000 3,048,090
Georgia State Residential Finance Authority, Homeownership Mortgage,
Series B, FHA/VA, 7.00%, 12/01/12 ........................................................ 1,140,000 1,224,634
Series B, Sub-Series B-1, Convertible Loans, 7.50%, 6/01/17 .............................. 250,000 267,133
Series E, Sub-Series E-1, FHA Insured, 7.50%, 6/01/17 .................................... 385,000 410,441
Georgia State Residential Finance Authority, SFM, FHA Insured, VA/GML,
Series A-2, 8.40%, 12/01/18............................................................... 5,000 5,160
Georgia State Tollway Authority Revenue, Guaranteed, Georgia 400 Project, 6.80%, 7/01/10... 1,000,000 1,096,780
Hogansville Combined Public Utility System Revenue, Refunding, FSA Insured, 6.00%, 10/01/23 3,300,000 3,465,693
Houston County School District, Intergovernmental Contract Trust,
MBIA Insured, 6.00%, 3/01/14 ........................................................... 2,000,000 2,100,300
La Grange Water and Sewerage Revenue, Pre-Refunded, 7.375%, 1/01/12 ....................... 1,000,000 1,087,700
Liberty County IDR, Refunding, Leconte Property, Inc. Project, 7.875%, 12/01/14 ........... 850,000 931,779
Macon-Bibb County Urban Development Authority Revenue, MFHR,
Collateralized, Series A, FNMA Secured, 7.50%, 1/01/24 ................................... 1,000,000 1,000,000
Marietta Development Authority Revenue, Life College, Refunding,
First Mortgage, Series A, FSA Insured,
5.75%, 9/01/14 ........................................................................ 2,600,000 2,673,580
5.80%, 9/01/19 ........................................................................ 1,100,000 1,124,244
5.95%, 9/01/19 ........................................................................ 1,000,000 1,033,450
Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue,
Refunding, Second Indenture, Series A, MBIA Insured, 5.625%, 7/01/20...................... 2,670,000 2,688,049
Series A, MBIA Insured, Pre-Refunded, 6.90%, 7/01/20 ..................................... 5,930,000 6,826,438
Series K, 7.25%, 7/01/10 ................................................................. 630,000 658,067
Series L, Pre-Refunded, 7.20%, 7/01/10 ................................................... 250,000 268,115
Series O, Pre-Refunded, 6.55%, 7/01/20 ................................................... 1,000,000 1,093,640
Monroe County Development Authority, PCR,
Georgia Power Co., Scherer Project, First Series, Senior Lien, 5.75%, 9/01/23............. 1,000,000 1,017,540
Refunding, Georgia Power Co., AMBAC Insured, 6.25%, 7/01/19............................... 1,000,000 1,038,970
Refunding, Oglethorpe Power Co., Scherer Project, Series A, 6.80%, 1/01/12 ............... 1,500,000 1,735,200
Paulding County Water and Sewer Revenue, AMBAC Insured, 5.80%, 12/01/16.................... 500,000 513,545
Peachtree City Water and Sewer Authority, Sewer Systems Revenue, Series A, 5.60%, 3/01/27.. 3,000,000 3,032,910
Pike County School District, Refunding, AMBAC Insured, 5.70%, 2/01/16...................... 1,000,000 1,057,500
Polk County Water Authority, Water and Sewerage Revenue, Refunding,
MBIA Insured, 7.00%, 12/01/15 ............................................................ 100,000 106,323
Private Colleges and Universities, Facilities Authority Revenue,
Spellman College Project, Pre-Refunded, 7.75%, 6/01/13 ................................... 50,000 52,418
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded, 7.875%, 7/01/17 .................................................. 250,000 263,340
Puerto Rico Commonwealth Highway Authority Revenue,
Refunding, Series R, 7.15%, 7/01/00 ...................................................... 230,000 246,990
Series P, Pre-Refunded, 8.125%, 7/01/13 .................................................. 100,000 105,537
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ........................................................................ 175,000 183,591
7.50%, 7/01/09 ........................................................................ 50,000 52,236
Puerto Rico Commonwealth Public Improvement GO, Series A, Pre-Refunded, 7.75%, 7/01/13..... $ 80,000 $ 84,188
Puerto Rico Commonwealth, Refunding, Series A, 6.00%, 7/01/14 ............................. 1,500,000 1,548,945
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08......................................... 150,000 158,154
Refunding, Series N, 7.125%, 7/01/14 ..................................................... 50,000 53,044
Refunding, Series N, Pre-Refunded, 7.125%, 7/01/14 ....................................... 130,000 139,003
Refunding, Series U, 6.00%, 7/01/14....................................................... 1,000,000 1,041,590
Series O, 7.125%, 7/01/14 ................................................................ 165,000 175,043
Series O, Pre-Refunded, 7.125%, 7/01/14 .................................................. 235,000 251,275
Series T, 6.00%, 7/01/16.................................................................. 1,000,000 1,038,030
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Baxter Travenol Labs., Series A, 8.00%, 9/01/12 .......................................... 200,000 213,103
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 8.25%, 7/01/08 .............. 110,000 116,154
Puerto Rico PBA, Guaranteed Public Education and Health Facilities,
Pre-Refunded, Series J, 7.00%, 7/01/19 ................................................... 100,000 104,146
Richmond County Board of Education, MBIA Insured, 5.95%, 11/01/26.......................... 1,000,000 1,009,810
Richmond County Development Authority, Solid Waste Disposal Revenue,
International Paper Co. Project, 5.80%, 12/01/20.......................................... 1,500,000 1,506,360
Savannah EDA, IDR, Refunding, Hershey Foods Corp. Project, 6.60%, 6/01/12 ................. 1,000,000 1,091,400
Savannah Hospital Authority Revenue, Refunding,
St. Joseph's Hospital Project, 6.20%, 7/01/23 ........................................... 3,000,000 3,083,790
Savannah Port Authority PCR, Refunding, Union Carbide Plastic Co., Inc., 7.55%, 8/01/04.... 4,600,000 4,624,333
St. Mary's Housing Authority MFMR, FNMA Secured,
Pine Apartments, Series C, 7.375%, 4/01/22 ............................................... 700,000 726,571
Refunding, Cumberland Oaks Apartments, Series A, 7.375%, 9/01/22.......................... 500,000 532,040
Tift County School District, MBIA Insured, 6.125%, 2/01/15 ................................ 2,330,000 2,425,880
Walker, Dade and Catoosa County Hospital Authority Revenue, Anticipation Certificates,
Series A, FGIC Insured, 7.00%, 10/01/10 .................................................. 1,500,000 1,661,370
Walton County Water and Sewer Authority Revenue, Refunding & Improvement,
MBIA Insured, 6.00%, 2/01/21.............................................................. 2,000,000 2,099,340
White County IDA Revenue, Refunding, Clark Schwebel Fiber Glass, 6.85%, 6/01/10 ........... 1,780,000 1,907,963
-------------
Total Long Term Investments (Cost $138,497,754) ........................................... 146,180,849
-------------
a Short Term Investments .2%.................................................................
Burke County Development Authority, PCR, Georgia Power Co., Plant Vogtle,
Fifth Series, Daily VRDN and Put, 3.70%, 7/01/24.......................................... 100,000 100,000
Hapeville Development Authority, IDR, Hapeville Hotel, Ltd.,
Daily VRDN and Put, 3.70%, 11/01/15 ...................................................... 100,000 100,000
Putnam County Development Authority, PCR, Georgia Power Co., Plant Branch,
First Series, Daily VRDN and Put, 3.65%, 6/01/23.......................................... 100,000 100,000
-------------
Total Short Term Investments (Cost $300,000) .............................................. 300,000
-------------
Total Investments (Cost $138,797,754) 98.7% ............................................... 146,480,849
Other Assets, less Liabilities 1.3% ....................................................... 1,887,883
-------------
Net Assets 100.0% ........................................................................ $148,368,732
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Kentucky Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.05 $11.04 $10.54 $11.18 $11.05 $10.30
---------------------------------------------------------------------
Income from investment operations:
Net investment income .31 .61 .62 .61 .63 .57
Net realized and unrealized gains (losses) .13 .01 .50 (.62) .16 .83
---------------------------------------------------------------------
Total from investment operations .44 .62 1.12 (.01) .79 1.40
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.30) (.61) (.62) (.63) (.66) (.65)
---------------------------------------------------------------------
Net asset value, end of period $11.19 $11.05 $11.04 $10.54 $11.18 $11.05
=====================================================================
Total Return* 4.08% 5.86% 10.73% 0.11% 7.07% 13.81%
Ratios/Supplemental Data
Net assets, end of period (000's) $48,188 $44,289 $38,991 $32,831 $28,057 $11,678
Ratio to average net assets:
Expenses .35%** .34% .33% .29% -- --
Expenses excluding waiver and payments by affiliate .82%** .81% .82% .80% .71% .81%
Net investment income 5.52%** 5.63% 5.65% 5.94% 5.73% 6.11%
Portfolio turnover rate 14.12% 24.81% 31.89% 32.92% 13.22% 18.41%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Kentucky Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 98.3%
Ashland PCR, Refunding, Ashland Oil, Inc. Project, 6.65%, 8/01/09.......................... $ 700,000 $ 749,588
Ashland Solid Waste Revenue, Ashland Oil, Inc. Project, 7.20%, 10/01/20 ................... 1,000,000 1,080,330
Boone County PCR, Refunding, Collateralized, Series A,
Dayton Power and Light Co., 6.50%, 11/15/22 ................................................. 710,000 759,345
Campbell County Water Revenue, District No. 1, 6.60%, 12/01/11 ............................ 200,000 217,342
Carroll County PCR, Collateralized, Kentucky Utilities Co. Project, Series B, 6.25%, 2/01/18 325,000 341,751
Christian County Hospital Revenue, Jennie Stuart Medical Center, Series A, 6.00%, 7/01/17.. 1,000,000 1,025,510
Danville Multi-City Lease Revenue,
Campbellsville, Series B, MBIA Insured, 6.15%, 7/01/12 ................................... 1,500,000 1,614,570
Housing Authority, Jefferson County, 6.50%, 2/01/12 ...................................... 125,000 131,969
Shelbyville, Series H, MBIA Insured, 6.70%, 7/01/11 ...................................... 100,000 109,815
Daviess County Hospital Revenue, Odch, Inc., Series A, MBIA Insured,
6.25%, 8/01/12 ........................................................................ 100,000 106,449
6.25%, 8/01/22 ........................................................................ 210,000 221,651
Daviess County Public Improvement Corp. Revenue, Refunding, First Mortgage,
Court Facilities Project, Series A, 5.70%, 10/01/14 ...................................... 545,000 559,650
Eastern University Revenues, Consolidated Educational Building............................,
Series Q, AMBAC Insured, 6.40%, 5/01/08 .................................................. 100,000 107,561
Edgewood Public Properties Corp. Revenue, First Mortgage,
Public Facilities Project, Pre-Refunded, 6.70%, 12/01/21.................................. 200,000 220,520
Fulton County Industrial Building Revenue, H.I.S., Inc. Project, 7.50%, 2/01/10 ........... 500,000 515,800
Greater Kentucky Housing Assistance Corp. Projects, Mortgage Revenue,
Refunding, Series A, MBIA Insured, 6.10%, 1/01/24......................................... 3,000,000 3,070,710
Guam Airport Authority Revenue, Refunding, Series A, 6.50%, 10/01/23 ...................... 400,000 422,572
Guam Power Authority Revenue, Series A, 6.30%, 10/01/22 ................................... 225,000 233,951
Hancock County Solid Waste Disposal Revenue,
Willamette Industries, Inc. Project, 6.60%, 5/01/26 ..................................... 1,000,000 1,073,530
Hopkins County Hospital Revenue, Trover Clinic
Foundation, Inc., MBIA Insured, 6.625%, 11/15/11 ....................................... 125,000 136,766
Jefferson County Capital Projects Corp., Lease Revenue,
MBIA Insured, 5.375%, 6/01/22............................................................. 2,000,000 1,968,880
Series A, AMBAC Insured, 5.60%, 4/01/14................................................... 1,000,000 1,022,370
Jefferson County Health Facilities Revenue,
Jewish Hospital Health Care Services, Inc., AMBAC Insured, 6.50%, 5/01/15 ................ 750,000 810,368
Jewish Hospital Health Care Services, Inc., AMBAC Insured, 6.55%, 5/01/22................. 720,000 779,436
Refunding, Jewish Hospital Health Care Services, Inc., AMBAC Insured, 5.75%, 1/01/26...... 2,000,000 2,031,420
University Medical Center, Inc. Project, MBIA Insured, 5.50%, 7/01/17..................... 2,000,000 2,006,720
Jefferson County Hospital Revenue, Alliant Health System Project,
Series C, MBIA Insured, 6.20%, 10/01/04 ..................................................... 100,000 108,894
Jefferson County MFHR, Watterson Park Apartments Project, Series A, 6.35%, 11/15/11 ....... 1,995,000 2,074,800
Jefferson County PCR, Series A,
DuPont, 6.30%, 7/01/12.................................................................... 450,000 489,812
Refunding, Louisville Gas and Electric Co. Project, 7.45%, 6/15/15 ....................... 100,000 108,782
Jefferson County School District Finance Corp., School Building Revenue,
MBIA Insured, Refunding, Series B, 6.20%, 1/01/07 ........................................... 250,000 271,013
Kenton County Airport Board Revenue,
Cincinnati/Northern Kentucky International Airport, Series B, MBIA Insured, 5.75%, 3/01/13 1,230,000 1,275,104
Delta Airlines Project, Special Facilities, Series A, 7.50%, 2/01/20...................... 445,000 488,784
Delta Airlines Project, Special Facilities, Series A, 7.125%, 2/01/21 .................... 150,000 161,046
Delta Airlines Project, Special Facilities, Series B, 7.25%, 2/01/22...................... 445,000 482,638
Kenton County Water District No. 001, Waterworks Revenue,
Refunding, FGIC Insured, 6.375%, 2/01/17 ................................................. 155,000 167,584
Series A, MBIA Insured, 5.80%, 2/01/15 ................................................... 500,000 518,360
Series B, FGIC Insured, 5.70%, 2/01/20 ................................................... 500,000 508,630
Kentucky Development Finance Authority, Hospital Revenue,
Refunding & Improvement, St. Elizabeth Medical Center, Series A,
FGIC Insured, 6.00%, 11/01/10 ............................................................... 750,000 780,068
Kentucky Economic Development Financing Authority, Hospital Facilities
Revenue, St. Elizabeth Medical Center Project, Series A,
FGIC Insured, 6.00%, 12/01/22................................................................ 625,000 651,013
Kentucky Economic Development Financing Authority, Medical Center
Revenue, Refunding & Improvement, Ashland Hospital Corp.,
Series A, FSA Insured, 6.125%, 2/01/12 ...................................................... 500,000 530,945
Kentucky HFC Revenue,
Refunding, Series A, 6.375%, 7/01/28...................................................... 1,500,000 1,564,785
Series B, 6.25%, 7/01/28.................................................................. 1,280,000 1,326,208
Series C, FHA Insured, 6.40%, 1/01/17 .................................................... 1,435,000 1,521,114
SFMR, Series A, 6.60%, 7/01/11 ........................................................... 40,000 42,262
SFMR, Series B, 6.60%, 7/01/11 ........................................................... 150,000 158,483
SFMR, Series D, FHA/VA, 7.45%, 1/01/23.................................................... 115,000 121,763
Kentucky Infrastructure Authority Revenue, Revolving Fund Program,
Series E, 6.50%, 6/01/11 ............................................................... $ 100,000 $ 106,820
Series G, 6.30%, 6/01/12 ............................................................... 100,000 106,738
Series J, 6.375%, 6/01/14 .............................................................. 500,000 545,395
Wastewater Revolving Fund Program, Series D, 5.75%, 6/01/15 ............................ 300,000 305,568
Kentucky State Development Finance Authority Revenue,
Refunding, Sisters of Charity of Nazareth Health Corp., 6.75%, 11/01/12 ................ 100,000 108,117
St. Claire Medical Center Project, Pre-Refunded, 7.125%, 9/01/21 ....................... 110,000 122,713
Kentucky State Property and Buildings Commission Revenue,
Project No. 50, Pre-Refunded, 6.00%, 2/01/10 ............................................. 45,000 47,326
Project No. 56, 6.00%, 9/01/14 ........................................................... 700,000 730,611
Kentucky State Turnpike Authority, EDR, Revitalization Road Project,
Pre-Refunded, 7.25%, 5/15/10................................................................. 15,000 16,355
Lexington-Fayette Urban County Government Revenue, University
of Kentucky Library Project, MBIA Insured,
6.625%, 11/01/13 ........................................................................ 500,000 547,440
6.75%, 11/01/24 ........................................................................ 750,000 825,270
Louisville and Jefferson County Metropolitan Sewer District Revenue,
Refunding, Series A, MBIA Insured, 5.50%, 5/15/21 ........................................... 400,000 398,388
Louisville and Jefferson County Metropolitan Sewer District, Sewer and Drain System Revenue,
Refunding, Series A, AMBAC Insured, 6.75%, 5/15/25 ....................................... 500,000 572,395
cRefunding, Series B, MBIA Insured, 5.30%, 5/15/18 ....................................... 1,000,000 986,310
Series A, FGIC Insured, 5.20%, 5/15/26.................................................... 800,000 764,376
Series A, MBIA Insured, 5.50%, 5/15/21.................................................... 500,000 499,295
McCracken County Hospital Revenue, Refunding, Mercy Health System,
Series A, MBIA Insured, 6.40%, 11/01/07 ..................................................... 500,000 555,060
Mount Sterling Lease Revenue, Kentucky League Cities Funding,
Series A, 6.10%, 3/01/08 .................................................................... 625,000 656,369
Pendleton Multi-County Association Trust, Lease Revenue, Series A, 6.50%, 3/01/19 ......... 1,050,000 1,125,107
Puerto Rico Commonwealth GO, 6.45%, 7/01/17................................................ 430,000 470,768
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Refunding, Series V, 6.625%, 7/01/12 ........................................................ 100,000 109,323
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA,
Special Facilities, American Airlines, Series A, 6.45%, 12/01/25............................. 1,480,000 1,575,430
Russell Health System Facilities Revenue, Franciscan Health Center,
Series B, 8.10%, 7/01/15...................................................................... 350,000 412,646
Somerset Water Project Revenue, MBIA Insured, 6.40%, 12/01/06 ............................. 100,000 102,521
University of Kentucky Revenues, Community College Educational Buildings,
Series I, 6.40%, 5/01/08...................................................................... 100,000
107,560
University of Kentucky Revenues, Consolidated Educational Buildings,
Series M, 6.40%, 5/01/10 ................................................................. 145,000 155,451
University of Louisville Revenues, Refunding, Consolidated Educational Buildings,
Series I, 5.40%, 5/01/16 ................................................................. 750,000 753,674
-------------
Total Long Term Investments (Cost $44,872,424) ............................................ 47,377,688
-------------
a Short Term Investments 2.3%
Ashland PCR, Ashland Oil Inc. Project, Weekly VRDN and Put, 3.20%, 4/01/09................. 400,000 400,000
Kentucky Development Financing Authority Revenue, Pooled Loan Program,
Series A, FGIC Insured, Weekly VRDN and Put, 3.35%, 12/01/15 ............................ 400,000 400,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15...................................................... 300,000 300,000
-------------
Total Short Term Investments (Cost $1,100,000) ............................................ 1,100,000
-------------
Total Investments (Cost $45,972,424) 100.6%................................................ 48,477,688
Other Assets, less Liabilities (.6)%....................................................... (290,183)
-------------
Net Assets 100.0% ........................................................................ $48,187,505
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
cSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Louisiana Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996***1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.32 $11.32 $11.03 $11.56 $11.57 $10.90
---------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .65 .66 .66 .67 .69
Net realized and unrealized gains (losses) .09 -- .28 (.55) (.01) .67
---------------------------------------------------------------------
Total from investment operations .41 .65 .94 .11 .66 1.36
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.32) (.65) (.65) (.64) (.67) (.69)
---------------------------------------------------------------------
Net asset value, end of period $11.41 $11.32 $11.32 $11.03 $11.56 $11.57
=====================================================================
Total Return* 3.69% 5.94% 8.75% 1.14% 5.63% 12.61%
Ratios/Supplemental Data
Net assets, end of period (000's) $123,792 $112,981 $107,461 $104,980 $115,971 $95,368
Ratio to average net assets:
Expenses .77%** .76% .78% .75% .68% .70%
Net investment income 5.63%** 5.76% 5.89% 5.98% 5.70% 6.18%
Portfolio turnover rate 8.01% 13.68% 5.23% 32.28% 17.63% 23.37%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.37 $11.37 $11.01
---------------------------------------
Income from investment operations:
Net investment income .29 .58 .49
Net realized and unrealized gains .11 -- .35
---------------------------------------
Total from investment operations .40 .58 .84
---------------------------------------
Less distributions:
Dividends from net investment income (.29) (.58) (.48)
---------------------------------------
Net asset value, end of period $11.48 $11.37 $11.37
=======================================
Total Return* 3.58% 5.27% 7.76%
Ratios/Supplemental Data
Net assets, end of period (000's) $3,678 $3,004 $1,438
Ratio to average net assets:
Expenses 1.33%** 1.33% 1.35%**
Net investment income 5.08%** 5.29% 5.27%**
Portfolio turnover rate 8.01% 13.68% 5.23%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class
II.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Louisiana Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
b Long Term Investments 99.7%
Bonds 98.0%
Ascension Parish Sales and Use Tax, Gravity Drainage District No. 1, Pre-Refunded,
7.25%, 12/01/06 ........................................................................ $ 300,000 $ 323,451
7.25%, 12/01/07 ........................................................................ 300,000 323,451
7.25%, 12/01/08 ........................................................................ 200,000 215,634
Bastrop, Inc., IDB, PCR, Refunding, International Paper Co. Project, 6.90%, 3/01/07 ....... 500,000 542,225
Baton Rouge Public Improvement, Sales and Use Tax Revenue, AMBAC Insured,
7.00%, 8/01/08 ........................................................................ 150,000 159,987
Calcasieu Parish Memorial Hospital Service District Revenue, Lake Charles Memorial
Hospital Project, BIG Insured, Pre-Refunded, 7.50%, 12/01/18 ............................. 400,000 403,520
Series A, 7.75%, 6/01/12 ................................................................. 935,000 998,748
Series B, 6.875%, 11/01/12 ............................................................... 980,000 1,038,722
Calcasieu Parish Public Trust Authority, SFMR, Series A, 6.40%, 4/01/32.................... 2,000,000 2,072,700
Denham Springs-Livingston Housing and Mortgage Finance Authority, SFMR, ETM, 7.20%, 8/01/10 1,380,000 1,611,467
DeSoto Parish Environmental Improvement Revenue, International Paper Co. Project,
Series A, 7.70%, 11/01/18 ................................................................ 1,500,000 1,738,455
DeSoto Parish GO,
School District No. 1, Pre-Refunded, 8.00%, 1/01/09 ...................................... 150,000 157,356
School District No. 2, 8.00%, 8/01/06 .................................................... 50,000 52,973
East Baton Rouge Mortgage Finance Authority,
MBS, Series A, 7.875%, 8/01/23 ........................................................... 840,000 887,233
SF Purchase, Series F, GNMA Secured, 7.875%, 12/01/21 .................................... 1,180,000 1,260,346
SFM, Refunding, Series A, 6.10%, 10/01/29................................................. 1,000,000 1,036,620
East Baton Rouge Parish Public Improvement, Sales and Use Tax,
MBIA Insured, Pre-Refunded, 7.25%, 2/01/13................................................ 425,000 449,438
East Baton Rouge Parish Sales and Use Tax, FGIC Insured, 5.90%, 2/01/18.................... 750,000 777,390
Franklin Public Improvement GO, Sales and Use Tax Revenue, Refunding,
Pre-Refunded, 8.40%, 12/01/03 ............................................................ 50,000 51,526
Iberville Parish Consolidated School District No. 005, Pre-Refunded,
8.125%, 10/01/08 ........................................................................ 125,000 132,968
GO, Unlimited Tax, 8.00%, 10/01/04 ....................................................... 245,000 260,298
Jefferson Parish Home Mortgage Authority, SFMR, GNMA Secured, Series A, 8.30%, 4/01/20 .... 105,000 109,681
Jefferson Parish Road District No. 1, GO, FGIC Insured, Pre-Refunded,
7.40%, 3/01/06 ........................................................................ 100,000 101,711
7.40%, 3/01/08 ........................................................................ 50,000 50,856
Jefferson Parish School Board, Sales and Use Tax Revenue, Series A, ETM, 7.35%, 2/01/03.... 500,000 514,825
Lafayette Parish Consolidated School District No. 1,
FGIC Insured, Pre-Refunded, 7.70%, 3/01/07 .............................................. 400,000 424,092
Lafayette Public Improvement, Sales Tax Revenue, Refunding, Series 1988, FGIC Insured,
Pre-Refunded, 8.00%, 3/01/08.............................................................. 25,000 25,991
Lafayette Public Trust Financing Authority, SFMR, Series A,
ETM, 7.20%, 4/01/11....................................................................... 30,000 34,894
Refunding, 8.50%, 11/15/12................................................................ 345,786 365,130
Lafourche Parish Home Mortgage Authority, SFMR, ETM, 7.40%, 7/01/10 ....................... 95,000 110,202
Lake Charles Harbor and Terminal District, Port Facilities Revenue, Refunding,
Occidental Petroleum Corp., 7.20%, 12/01/20 .............................................. 3,000,000 3,324,990
Lake Charles Nonprofit HDC, Section 8, Assisted Mortgage Revenue, Refunding,
Chateau Project, Series A, FSA Insured, 7.875%, 2/15/25 ................................. 750,000 812,550
Leesville IDBR, Refunding, Wal-Mart Stores, Inc. Project, 7.10%, 3/01/11 .................. 1,750,000 1,855,473
Louisiana Gas Fuel Tax Revenue, 7.25%, 11/15/04 ........................................... 500,000 535,520
Louisiana Mortgage, HFA Revenue,
MF, Refunding, Series A, FHA Insured, 7.00%, 7/01/22 ..................................... 2,795,000 2,873,372
MF, Westview Project, FHA Insured, 7.80%, 4/01/30 ........................................ 750,000 788,873
SF, GNMA Secured, 9.125%, 11/01/18 ....................................................... 15,000 15,477
SF, GNMA Secured, 8.30%, 11/01/20 ........................................................ 585,000 604,562
Louisiana Office Capital Facility Corp., Non-Profit Corp., 7.75%, 12/01/10 ................ 1,600,000 1,769,904
Louisiana Public Facilities Authority, Hospital Revenue, Refunding,
Touro Infirmary Project, Series A, BIG Insured, Pre-Refunded, 8.00%, 6/01/09 ............. 75,000 78,734
Women's Hospital Foundation Project, FGIC Insured, Pre-Refunded, 8.125%, 10/01/14 ........ 65,000 69,143
Women's Hospital Foundation Project, FSA Insured, 5.60%, 10/01/19......................... 1,500,000 1,503,780
Louisiana Public Facilities Authority, Lease Revenue, Orleans Parish School
Board Project, FSA Insured, 5.65%, 6/15/11................................................ 1,230,000 1,246,863
Louisiana Public Facilities Authority Revenue,
Alton Ochsner Medical Foundation Project, Series C, MBIA Insured, 6.50%, 5/15/22 ......... 930,000 987,121
Centenary College Project, 5.90%, 2/01/17................................................. 1,000,000 997,530
MFHR, Pontchartrain Apartments, Series A, GNMA Secured, 8.375%, 7/20/23................... 62,169 65,796
Louisiana Public Facilities Authority Revenue, (cont.)
Mortgage Purchase, HFA, 6.05%, 1/01/26.................................................... $1,200,000 $ 1,229,532
Refunding, Jefferson Parish Eastbank Office, FGIC Insured, 7.70%, 8/01/10 ................ 200,000 214,322
Refunding, Loyola University Project, MBIA Insured, 5.625%, 10/01/16...................... 1,000,000 1,013,510
Refunding, MF Housing, Series A, One Lakeshore, GNMA Secured, 6.40%, 7/20/20.............. 1,900,000 1,968,742
cRefunding, Xavier, University of Louisiana Project, MBIA Insured, 5.25%, 9/01/17......... 1,000,000 974,630
cRefunding, Xavier, University of Louisiana Project, MBIA Insured, 5.25%, 9/01/27......... 6,015,000 5,786,731
SFM Purchase, Series C, 8.45%, 12/01/12................................................... 1,695,545 1,818,439
Student Loan, Series A, Sub-Series 3, 7.00%, 9/01/06 ..................................... 1,500,000 1,586,370
Tulane University, AMBAC Insured, 6.05%, 10/01/25......................................... 5,500,000 5,738,810
Louisiana Public Facilities Authority, SFM Purchase, Series C, GNMA Secured, 8.80%, 4/01/13 30,000 30,975
Louisiana Stadium and Exposition District, Hotel Occupancy Tax and Stadium Revenue,
FGIC Insured, Series A, 6.00%, 7/01/16 ................................................... 5,000,000 5,200,800
Louisiana State Offshore Terminal Authority, Deepwater Port Revenue,
Loop, Inc. Project, First Stage, Refunding,
Series B, 7.20%, 9/01/08 ................................................................. 1,000,000 1,101,630
Series E, 7.60%, 9/01/10 ................................................................. 1,000,000 1,093,630
Louisiana State University, Agricultural and Mechanical College, University Revenues,
Auxiliary, MBIA Insured, 5.50%, 7/01/26................................................... 1,500,000 1,474,320
Mississippi River Bridge Authority Revenue, 6.75%, 11/01/12 ............................... 1,050,000 1,145,309
Morgan City GO, Sales and Use Tax Revenue, Refunding, Pre-Refunded, 8.40%, 12/01/03 ....... 50,000 51,532
Natchitoches Parish GO, Consolidated School District No. 7, Pre-Refunded,
8.30%, 3/01/10 ........................................................................ 125,000 133,604
Series B, 7.50%, 3/01/09 ................................................................. 230,000 247,213
Series B, 7.50%, 3/01/10 ................................................................. 235,000 252,587
New Orleans GO,
Public Improvement, FGIC Insured, 5.90%, 11/01/25......................................... 1,000,000 1,023,280
Public Improvement, Series A, FGIC Insured, 5.50%,12/01/21................................ 1,290,000 1,283,034
Refunding, AMBAC Insured, 6.00%, 9/01/21.................................................. 2,000,000 2,039,680
New Roads Electric System Revenue, 7.00%, 7/01/17 ......................................... 1,000,000 1,065,380
Orleans Levee District, GO, Levee Improvement, FSA Insured, 5.95%, 11/01/14................ 970,000 1,025,319
Orleans Parish Law Enforcement District, GO, AMBAC Insured,
7.10%, 5/01/05 ........................................................................ 185,000 195,958
7.10%, 5/01/10 ........................................................................ 750,000 796,538
Orleans Parish, Parishwide School District, AMBAC Insured, 5.375%, 9/01/21................. 2,000,000 1,980,040
Orleans Parish School Board, Series 95, FGIC Insured, 5.375%, 9/01/18...................... 1,950,000 1,931,826
Ouachita Parish Hospital Service Revenue, District No. 1, Glenwood Regional
Medical Center, Refunding, FSA Insured, 5.75%, 5/15/21................................... 2,500,000 2,519,925
Plaquemines Parish GO, Unlimited Tax, Pre-Refunded, 8.40%, 8/01/06 ........................ 75,000 77,978
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, Pre-Refunded,
7.90%, 7/01/07 ........................................................................ 500,000 526,780
7.875%, 7/01/17 ........................................................................ 1,000,000 1,053,360
Puerto Rico Commonwealth GO, Series 1990, Pre-Refunded, 7.70%, 7/01/20 .................... 500,000 555,715
Puerto Rico Commonwealth Highway Authority Revenue, Series Q, Pre-Refunded, 8.00%, 7/01/18. 1,000,000 1,119,350
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ........................................................................ 525,000 550,772
7.75%, 7/01/08 ........................................................................ 100,000 104,672
Puerto Rico Electric Power Authority Revenue, Pre-Refunded,
Refunding, Series M, 8.00%, 7/01/08 ...................................................... 100,000 105,436
Refunding, Series N, 7.125%, 7/01/14...................................................... 560,000 594,087
Series P, 7.00%, 7/01/21 ................................................................. 1,000,000 1,114,970
Puerto Rico HFC, SFMR, Portfolio No. 1, GNMA Secured,
Series B, 7.65%, 10/15/22 ................................................................ 230,000 242,965
Series C, 6.85%, 10/15/23 ................................................................ 650,000 689,546
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue, Baxter
Travenol Labs., Series A, 8.00%, 9/01/12 ................................................. 150,000 159,828
Puerto Rico PBA, Guaranteed Public Education and Health Facilities, Pre-Refunded,
Series J, 7.25%, 7/01/17 ................................................................. 1,000,000 1,043,480
Rapides Parish GO, Consolidated School District No. 52, Pineville, 8.40%, 3/01/03 ......... 75,000 78,434
Rapides Parish Housing and Mortgage Finance Authority, SFM, ETM, 7.25%, 8/01/10 ........... 1,370,000 1,527,468
Shreveport GO, Series A, Pre-Refunded, 7.50%, 1/01/09 ..................................... 150,000 156,401
Shreveport Water and Sewer Revenue, Refunding, Series A, FGIC Insured, 5.95%, 12/01/14 .... 3,500,000 3,642,275
St. Bernard Parish Exempt Facilities Revenue, Mobil Oil Corp. Project, 5.90%, 11/01/26..... $2,000,000 $ 2,030,860
St. Bernard Parish Home Mortgage Authority Revenue, SFMR, Series A,
FGIC Insured, ETM, 7.50%, 9/01/10......................................................... 435,000 518,150
Refunding, 8.00%, 3/25/12................................................................. 829,279 886,442
St. Charles Parish PCR, Louisiana Power and Light Co. Project, 7.50%, 6/01/21 ............. 2,500,000 2,696,925
St. Charles Parish Solid Waste Disposal Revenue, Louisiana Power and Light Co. Project,
7.05%, 4/01/22 ........................................................................ 1,500,000 1,593,105
Series A, 7.00%, 12/01/22 ................................................................ 750,000 804,015
St. John's Baptist Parish Sales Tax District,
7.30%, 12/01/08 ........................................................................ 430,000 462,990
7.30%, 12/01/09 ........................................................................ 275,000 295,001
St. Mary's Parish Public Improvement, Sales and Use Tax Revenue,
Refunding, Pre-Refunded, 8.40%, 12/01/03 ................................................. 50,000 51,532
St. Mary's Public Trust Financing Authority, SFMR, Refunding, Series A, 7.625%, 3/25/12.... 306,176 337,654
St. Tammany's Parish Hospital Service Revenue, District No. 2, Pre-Refunded, 8.00%, 10/01/08 125,000 132,805
St. Tammany's Public Trust Financing Authority, SFMR, Series A, ETM,
7.20%, 7/01/10 ........................................................................ 165,000 190,220
7.20%, 7/01/11 ........................................................................ 50,000 58,255
State Colleges & Universities, Lease Revenue, University of Southwestern Louisiana,
Cajundome, MBIA Insured, 5.65%, 9/01/26................................................... 4,080,000 4,094,075
Tangipahoa Parish Hospital Service Revenue, District No. 1, Refunding,
AMBAC Insured, 6.25%, 2/01/24............................................................. 5,500,000 5,785,724
Terrebonne Parish Hospital Service Revenue, District No. 1, Refunding,
Terrebonne General Medical Center Project, BIG Insured, 7.50%, 4/01/15 .................. 125,000 129,614
Ville Platte Utilities Revenue, Refunding, Pre-Refunded, 7.80%, 5/01/02 ................... 205,000 218,767
West Feliciana Parish PCR, Gulf States Utilities Co. Project,
7.70%, 12/01/14 ........................................................................ 6,500,000 7,264,854
Refunding, 8.00%, 12/01/24 ............................................................... 5,000,000 5,354,700
-------------
Total Bonds (Cost $117,847,167)............................................................ 124,934,449
-------------
b Zero Coupon Bonds 1.7%
Shreveport Water and Sewer Revenue, Refunding, Series B, FGIC Insured,
(original accretion rate 7.05%), 12/01/11 (Cost $1,850,935) .............................. 5,000,000 2,157,250
-------------
Total Long Term Investments (Cost $119,698,102)............................................ 127,091,699
-------------
a Short Term Investments 2.8%
Calcasieu Parish, Inc. IDB, PCR, Citgo Petroleum Corp., Weekly VRDN and Put, 3.35%, 8/01/04 1,000,000 1,000,000
East Baton Rouge Parish PCR, Refunding, Rhone-Poulenc, Inc., Project,
Daily VRDN and Put, 3.75%, 12/01/11....................................................... 230,000 230,000
Louisiana Public Facilities Authority Revenue, Kenner Hotel, Ltd.,
Daily VRDN and Put, 3.70%, 12/01/15....................................................... 100,000 100,000
Louisiana State Offshore Term Authority, Deepwater Port Revenue, ACES,
Refunding, Loop, Inc., First Stage, Daily VRDN and Put, 3.80%, 9/01/06................... 1,100,000 1,100,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15...................................................... 500,000 500,000
South Louisiana Port Commission Revenue, Refunding, Occidental Petroleum Corp.
Project, Weekly VRDN and Put, 3.35%, 7/01/18.............................................. 300,000 300,000
West Feliciana Parish PCR, Gulf State Utility Co. Project, Daily VRDN and Put, 3.80%, 4/01/16 300,000 300,000
-------------
Total Short Term Investments (Cost $3,530,000)............................................. 3,530,000
-------------
Total Investments (Cost $123,228,102) 102.5% .............................................. 130,621,699
Other Assets, less Liabilities (2.5)% ..................................................... (3,151,559)
4 -------------
Net Assets 100.0% ........................................................................ $127,470,140
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest adjustment formula and an unconditional right of
demand to receive payment of the principal balance plus accrued interest at
specified dates.
bZero coupon/step-up bonds. The current effective yield may vary. The original
accretion rate will remain constant.
cSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Maryland Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996***1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.33 $11.38 $10.92 $11.36 $11.27 $10.60
---------------------------------------------------------------------
Income from investment operations:
Net investment income .30 .61 .62 .63 .64 .65
Net realized and unrealized gains (losses) .10 (.03) .47 (.45) .09 .67
---------------------------------------------------------------------
Total from investment operations .40 .58 1.09 .18 .73 1.32
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.30)1 (.63) (.63) (.62) (.64) (.65)
---------------------------------------------------------------------
Net asset value, end of period $11.43 $11.33 $11.38 $10.92 $11.36 $11.27
=====================================================================
Total Return* 3.61% 5.24% 10.18% 1.78% 6.40% 12.64%
Ratios/Supplemental Data
Net assets, end of period (000's) $198,102 $185,234 $175,078 $153,145 $156,683 $115,873
Ratio to average net assets:
Expenses .74%** .73% .74% .73% .66% .71%
Net investment income 5.29%** 5.42% 5.56% 5.86% 5.58% 6.00%
Portfolio turnover rate .72% 12.71% 8.11% 20.30% 18.38% 14.73%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.40 $11.44 $10.93
---------------------------------------
Income from investment operations:
Net investment income .27 .55 .47
Net realized and unrealized gains (losses) .11 (.03) .51
---------------------------------------
Total from investment operations .38 .52 .98
---------------------------------------
Less distributions:
Dividends from net investment income (.27)2 (.56) (.47)
---------------------------------------
Net asset value, end of period $11.51 $11.40 $11.44
=======================================
Total Return* 3.40% 4.68% 9.06%
Ratios/Supplemental Data
Net assets, end of period (000's) $7,823 $5,084 $913
Ratio to average net assets:
Expenses 1.31%** 1.27% 1.31%**
Net investment income 4.71%** 4.78% 4.95%**
Portfolio turnover rate 0.72% 12.71% 8.11%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class
II.
1Includes distributions in excess of net investment income in the amount of
$.003.
2Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Maryland Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 97.1%
Anne Arundel County GO, Second Issue, 7.75%, 3/15/08....................................... $ 200,000 $ 213,920
Anne Arundel County Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.00%, 1/01/26 ... 1,650,000 1,702,784
Anne Arundel County PCR, Refunding, Baltimore Gas and Electric Co. Project, 6.00%, 4/01/24 9,500,000 9,853,590
Baltimore Consolidated Public Improvement, Series A, FGIC Insured,
5.30%, 10/15/15 ........................................................................ 1,470,000 1,468,207
5.30%, 10/15/17 ........................................................................ 1,500,000 1,485,255
Baltimore Convention Center Revenue, FGIC Insured, 6.15%, 9/01/19 ......................... 4,250,000 4,451,153
Baltimore COP, Refunding, Series C, MBIA Insured, 7.25%, 4/01/16........................... 545,000 586,600
Baltimore County Authority Revenue, Series 1989, 7.20%, 7/01/19 ........................... 90,000 95,081
Baltimore County Mortgage Revenue, Old Orchard Apartments Project,
Refunding, Series A, MBIA Insured,
7.00%, 7/01/16 ........................................................................ 1,000,000 1,077,910
7.125%, 1/01/27 ........................................................................ 3,000,000 3,254,610
Baltimore Economic Development Lease Revenue, Refunding, Armistead Partnership, Series A,
6.75%, 8/01/02 ........................................................................ 1,220,000 1,309,097
7.00%, 8/01/11 ........................................................................ 3,225,000 3,533,342
Baltimore GO, Series B, 7.15%, 10/15/08 ................................................... 1,000,000 1,190,980
Baltimore Port Facilities Revenue, Consolidated Coal Sales, Series A, 6.50%, 10/01/11 ..... 1,850,000 2,015,982
Baltimore Revenue, Refunding, Series A, FGIC Insured,
Waste Water Project, 5.80%, 7/01/15....................................................... 5,000,000 5,230,650
Water Project, 5.50%, 7/01/26............................................................. 2,000,000 1,994,080
Bel Air COP, Parking Facilities, FSA Insured, Pre-Refunded, 7.80%, 6/01/10 ................ 250,000 266,448
Frederick County College Revenue, Hood College Project, 7.20%, 7/01/09 .................... 350,000 373,902
Frederick County EDR, Refunding, Manekin Frederick Project, Series A, 7.50%, 12/01/14 ..... 500,000 543,335
Gaithersburg Hospital Facilities Revenue, Shady Grove Hospital,
Improvement Revenue, Series A, Pre-Refunded, 8.25%, 9/01/21............................... 10,000,000 11,583,400
Refunding & Improvement, FSA Insured, 6.00%, 9/01/21...................................... 8,000,000 8,298,000
Harford County Mortgage Revenue, Refunding, Greenbrier V Apartments Project,
FHA Insured, 6.50%, 11/01/26 ............................................................. 3,000,000 3,196,710
Howard County EDR, Refunding, 7.75%, 6/01/12............................................... 1,250,000 1,306,375
Howard County Metropolitan District, Series A, Pre-Refunded, 7.40%, 2/15/18 ............... 215,000 226,629
Howard County Mortgage Revenue, Refunding, Normandy Woods III Apartments Project,
Series A, 6.10%, 7/01/25.................................................................. 2,000,000 2,065,400
Kent County College Revenue, Refunding, Washington College Project, 7.70%, 7/01/18 ........ 300,000 318,273
Maryland Environmental Services, COP, Water and Waste Facilities, Series A, 6.70%, 6/01/11. 1,900,000 2,040,372
Maryland Local Government Insurance Trust Capitalization Program, Series A, 7.125%, 8/01/09 650,000 708,156
Maryland State CDA, Department of Economic and Community Development,
SF Program, First Series, 7.00%, 4/01/14.................................................. 350,000 360,759
SFHR Program, Fourth Series, 7.30%, 4/01/17............................................... 1,000,000 1,057,390
Maryland State CDA, Department of Housing and Community Development,
Infrastructure Financing, Series A, AMBAC Insured, 7.25%, 6/01/09 ........................ 130,000 138,067
MFHR Mortgage, Series A, 7.80%, 5/15/32 .................................................. 990,000 1,062,557
MFHR Mortgage, Series A, 6.85%, 5/15/33 .................................................. 1,800,000 1,902,420
MFHR Mortgage, Series D, 7.70%, 5/15/20 .................................................. 1,000,000 1,068,810
MFHR Mortgage, Series E, 7.10%, 5/15/28................................................... 675,000 712,591
SF Program, 1st Series, 7.40%, 4/01/17 ................................................... 140,000 145,445
SF Program, 2nd Series, 7.60%, 4/01/23 ................................................... 680,000 719,868
SF Program, 2nd Series, 7.85%, 4/01/29 ................................................... 260,000 274,170
SF Program, 3rd Series, 7.375%, 4/01/26................................................... 300,000 310,410
SF Program, 3rd Series, 7.25%, 4/01/27 ................................................... 1,435,000 1,510,338
SF Program, 4th Series, 7.375%, 4/01/10 .................................................. 995,000 1,053,606
SF Program, 4th Series, 7.45%, 4/01/32 ................................................... 940,000 989,115
SF Program, 5th Series, 6.85%, 4/01/11 ................................................... 1,955,000 2,072,339
Maryland State Community Development Administration, MFHR, Series A,
Department of Economics and Community Development, 7.375%, 5/15/26 ....................... 195,000 199,274
Department of Housing and Community Development, 7.50%, 5/15/31 .......................... 30,000 31,871
Maryland State EDC Lease Revenue, Hilton Street Facilities, Series A, 7.00%, 1/01/10 ...... 1,000,000 1,101,820
Maryland State Energy Financing Administration, Solid Waste Disposal Revenue,
Limited Obligation, Wheelabrator Water Projects, 6.45%, 12/01/16......................... 3,000,000 3,228,450
Maryland State Health and Higher Educational Facilities Authority Revenue,
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/12 .................................$ 1,000,000 $ 1,136,260
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/22 ................................. 250,000 284,065
Franklin Square Hospital, MBIA Insured, 7.50%, 7/01/19 ................................... 150,000 161,294
Hartford Memorial Hospital and Fallston General Hospital, 8.50%, 7/01/14 ................. 100,000 103,180
Johns Hopkins Medical Institutions, Parking Facilities, AMBAC Insured, 5.50%, 7/01/26..... 9,750,000 9,707,198
Kernan Hospital, Connie Lee Insured, 6.10%, 7/01/24 ...................................... 1,700,000 1,763,172
North Arundel Hospital, BIG Insured, Pre-Refunded, 7.875%, 7/01/21 ....................... 100,000 105,251
Refunding, Doctors Community Hospital, 5.75%, 7/01/13 .................................... 3,000,000 2,984,310
Refunding, Johns Hopkins Hospital, 7.375%, 7/01/09 ....................................... 150,000 157,878
Refunding, Johns Hopkins University, 7.375%, 7/01/08 ..................................... 100,000 104,547
Refunding, Johns Hopkins University, 5.625%, 7/01/17 ..................................... 1,150,000 1,171,287
Refunding, Junior Lien, Francis Scott Key Facility, 5.625%, 7/01/25....................... 2,520,000 2,544,368
Refunding, Mercy Medical Center Project, FSA Insured, 5.75%, 7/01/26...................... 1,500,000 1,526,475
Maryland State IDA Financing, EDR, FSA Insured, 7.10%, 7/01/18 ............................ 1,350,000 1,474,754
Maryland State IDA Revenue Financing, American Center Physics Headquarters, 6.625%, 1/01/17 6,000,000 6,331,620
Maryland State Stadium Authority, Lease Revenue, Convention Center Expansion,
AMBAC Insured, 5.875%, 12/15/14........................................................... 4,655,000 4,880,069
Maryland State Stadium Authority, Sports Facilities Lease Revenue,
AMBAC Insured, 5.75%, 3/01/22............................................................. 5,000,000 5,080,350
AMBAC Insured, 5.80%, 3/01/26............................................................. 2,045,000 2,082,301
Series D, 7.60%, 12/15/19 ................................................................ 500,000 538,255
Maryland State Transportation Facilities Authority Revenue,
Refunding, Series 1992, 5.75%, 7/01/13 .................................................. 5,400,000 5,451,462
Maryland Water Quality Financing Administration Revenue,
Revolving Loan Fund, Series A, 6.55%, 9/01/14 ............................................ 1,000,000 1,075,530
Montgomery County Housing Opportunities Commission, MFHR, Series B, 6.00%, 7/01/37......... 2,500,000 2,561,750
Montgomery County Housing Opportunities Commission, MFMR, Series A,
7.25%, 7/01/11 ........................................................................ 430,000 458,432
7.00%, 7/01/23 ........................................................................ 2,410,000 2,547,201
Montgomery County Housing Opportunities Commission, SFMR, Series A,
6.80%, 7/01/17 ........................................................................ 2,015,000 2,110,148
7.50%, 7/01/17 ........................................................................ 450,000 476,429
7.625%, 7/01/17 ........................................................................ 175,000 180,206
Montgomery County Revenue Authority, Golf Course System, Series A, 6.125%, 10/01/22........ 1,000,000 1,022,940
Northeast Solid Waste Disposal Authority Revenue, Montgomery County
Resources Recreation Project, Series A,
6.20%, 7/01/10 ........................................................................ 3,100,000 3,224,186
6.30%, 7/01/16 ........................................................................ 6,000,000 6,262,560
Ocean City GO, Refunding, MBIA Insured,
5.75%, 3/15/12 ........................................................................ 1,880,000 1,955,726
5.75%, 3/15/13 ........................................................................ 1,120,000 1,165,114
5.75%, 3/15/14 ........................................................................ 1,180,000 1,222,586
Prince George's County COP, Real Estate Acquisition Program II,
MBIA Insured, 6.00%, 9/15/14 ............................................................ 2,050,000 2,174,517
Prince George's County GO, Consolidated Public Improvement,
Series A, Pre-Refunded, 7.20%, 2/01/08.................................................... 130,000 136,864
Prince George's County Hospital Revenue, Dimensions Health Corp., Pre-Refunded,
7.25%, 7/01/17 ........................................................................ 3,500,000 3,985,835
7.00%, 7/01/22 ........................................................................ 1,000,000 1,128,050
Prince George's County Housing Authority, MFHR, Emerson
House Project, Series A, 7.00%, 4/15/19 ................................................... 5,500,000 5,837,700
Prince George's County Housing Authority Mortgage Revenue, Refunding,
New Keystone Apartments Project, Series A, MBIA Insured, 6.80%, 7/01/25.................. 2,900,000 3,051,408
Prince George's County IDA Lease Revenue, Upper Marlboro Justice
Center Project, MBIA Insured, 5.80%, 6/30/14.............................................. 2,750,000 2,858,267
Prince George's County Parking Authority Revenue, Refunding, Justice
Center Facilities Project, 6.45%, 5/01/05 ................................................ 500,000 544,370
Prince George's County PCR, Refunding, Potomac Electric Project,
6.00%, 9/01/22 ........................................................................ 1,200,000 1,237,931
6.375%, 1/15/23 ........................................................................ 2,975,000 3,173,075
Puerto Rico Commonwealth GO, 5.50%, 7/01/17 ............................................... 3,000,000 3,009,450
Puerto Rico Commonwealth Highway and Transportation
Authority Revenue, Series Y, 5.50%, 7/01/26............................................... 3,000,000 2,961,270
Puerto Rico Commonwealth Public Improvement, GO, 5.75%, 7/01/17............................ 3,000,000 3,066,900
Puerto Rico Electric Power Authority Revenue, Series AA, MBIA Insured, 5.375%, 7/01/27..... 3,000,000 2,949,390
Rockville Mortgage Revenue, Refunding, Summit Apartments Project,
Series A, MBIA Insured, 5.70%, 1/01/26.................................................... 1,145,000 1,166,147
University of Maryland, Auxiliary Facilities System and Tuition Revenue,
Series A, 5.60%, 4/01/16....................................................................$ 1,000,000 $ 1,014,750
Washington Suburban Sanitary District, General Construction,
5.25%, 6/01/19 ........................................................................ 1,330,000 1,330,717
Pre-Refunded, 7.25%, 12/01/09 ............................................................ 100,000 105,855
-------------
Total Long Term Investments (Cost $189,000,502) ........................................... 199,912,941
-------------
a Short Term Investments 1.5%................................................................
Baltimore County Housing Revenue, Mortgage, Spring Hill, Weekly VRDN and Put, 3.35%, 9/20/28 1,585,000 1,585,000
Howard County MFHR, Avalon Meadows Project, Weekly VRDN and Put, 3.30%, 6/15/26............ 700,000 700,000
Maryland State Health and Higher Educational Facilities Authority Revenue,
Pooled Loan Program, Series A, Weekly VRDN and Put, 3.35%, 4/01/35....................... 700,000 700,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15...................................................... 200,000 200,000
-------------
Total Short Term Investments (Cost $3,185,000) ............................................ 3,185,000
-------------
Total Investments (Cost $192,185,502) 98.6%................................................ 203,097,941
Other Assets, less Liabilities 1.4%........................................................ 2,827,402
-------------
Net Assets 100.0% ........................................................................ $205,925,343
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Missouri Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996***1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.83 $11.94 $11.44 $11.94 $11.75 $11.07
---------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .65 .65 .65 .66 .68
Net realized and unrealized gains (losses) .14 (.07) .49 (.50) .21 .68
---------------------------------------------------------------------
Total from investment operations .46 .58 1.14 .15 .87 1.36
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.32) (.65) (.64) (.65) (.68) (.68)
Distributions from net realized capital gains (.01) (.04) -- -- -- --
---------------------------------------------------------------------
Total distributions (.33) (.69) (.64) (.65) (.68) (.68)
---------------------------------------------------------------------
Net asset value, end of period $11.96 $11.83 $11.94 $11.44 $11.94 $11.75
=====================================================================
Total Return* 3.95% 5.06% 10.23% 1.44% 7.29% 12.40%
Ratios/Supplemental Data
Net assets, end of period (000's) $282,942 $269,564 $247,522 $227,442 $228,149 $164,122
Ratio to average net assets:
Expenses .70%** .70% .71% .70% .64% .67%
Net investment income 5.44%** 5.56% 5.58% 5.75% 5.55% 6.03%
Portfolio turnover rate 10.25% 21.81% 18.27% 19.84% 11.02% 10.28%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.85 $11.97 $11.47
---------------------------------------
Income from investment operations:
Net investment income .29 .57 .48
Net realized and unrealized gains (losses) .16 (.07) .50
---------------------------------------
Total from investment operations .45 .50 .98
---------------------------------------
Less distributions:
Dividends from net investment income (.29) (.58) (.48)
Distributions from net realized capital gains (.01) (.04) --
---------------------------------------
Total distributions (.30) (.62) (.48)
---------------------------------------
Net asset value, end of period $12.00 $11.85 $11.97
=======================================
Total Return* 3.82% 4.32% 8.66%
Ratios/Supplemental Data
Net assets, end of period (000's) $6,600 $4,295 $1,325
Ratio to average net assets:
Expenses 1.27%** 1.27% 1.27%**
Net investment income 4.90%** 4.92% 4.94%**
Portfolio turnover rate 10.25% 21.81% 18.27%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class
II.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Missouri Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 99.7%
Audrain County Hospital Revenue, Refunding, Audrain Medical Center Project,
AMBAC Insured, 7.35%, 11/01/08 ........................................................... $ 500,000 $ 561,355
Bi-State Development Agency, Missouri-Illinois Metropolitan District No. 5,
Refunding, American Commercial Terminals, 7.75%, 6/01/10................................. 3,000,000 3,269,340
Bowling Green School District R1, Building Corp., Leasehold Revenue,
MBIA Insured, 6.50%, 3/01/13 ............................................................. 1,400,000 1,488,158
Franklin County Consolidated School District No. 2, GO, FGIC Insured, Pre-Refunded,
7.20%, 3/01/05 ........................................................................ 500,000 508,445
7.25%, 3/01/06 ........................................................................ 500,000 508,565
Guam Airport Authority Revenue,
Refunding, Series A, 6.50%, 10/01/23 ..................................................... 1,075,000 1,135,662
Series B, 6.60%, 10/01/10 ................................................................ 500,000 531,425
Series B, 6.70%, 10/01/23 ................................................................ 4,000,000 4,276,640
Hannibal IDA, Health Facilities, 5.75%, 3/01/22............................................ 1,800,000 1,839,816
Hazelwood IDA, MFHR, Refunding, Lakes Apartments Project, Series A, 6.10%, 9/20/26......... 1,745,000 1,821,920
Jackson County IDA Revenue, St. Joseph's Health Center Corp., MBIA Insured, 6.50%, 7/01/19 3,000,000 3,213,750
Jackson County Lease COP, Longview Recreation Complex Project,
Pre-Refunded, 8.00%, 11/01/07............................................................. 880,000 903,162
Jackson County Public Building Corp., Leasehold Revenue, Capital
Improvement Projects, MBIA Insured, 5.70%, 12/01/17....................................... 1,595,000 1,618,654
Jefferson County Reorganized School District No. R-3, AMBAC Insured, 7.00%, 3/01/09 ....... 370,000 395,267
Joplin Catholic Health Facilities Corp. Revenue, IDA, St. John's Regional
Medical Center Project, Series 1987,
COP, 7.125%, 6/01/14...................................................................... 150,000 153,669
Refunding, MBIA Insured, 7.125%, 6/01/14 ................................................. 200,000 205,326
Kansas City Airport Revenue, General Improvement, Series B,
FSA Insured, Pre-Refunded, 6.875%, 9/01/12 ............................................... 605,000 694,806
Kansas City IDA,
Ewing Marion Kauffman, Series B, 5.70%, 4/01/27........................................... 11,100,000 11,304,351
MFHR, Mews Apartments Project, Series A, 6.30%, 7/01/20................................... 3,345,000 3,468,564
Refunding, MFHR, Hilltop Village Apartments Project, Series A, 5.70%, 10/01/17 ........... 1,555,000 1,555,000
Refunding, MFHR, Hilltop Village Apartments Project, Series A, 5.80%, 10/01/27 ........... 1,030,000 1,030,000
Kansas City Land Clearance, Redevelopment Authority Lease Revenue,
Municipal Auditorium and Muehlebach Hotel, Series A,
FSA Insured, 5.90%, 12/01/18 ................................................................ 5,000,000 5,185,000
Kansas City MAC, Leasehold Revenue, Capital Improvement,
Citywide Infrastructure, Series B, FSA Insured, 6.50%, 3/01/14 ........................... 7,790,000 8,390,687
Truman Medical Center, Series A, 7.00%, 11/01/11.......................................... 1,665,000 1,789,775
Kansas City School District, Building Corp., Leasehold Revenue,
Capital Improvement Project, Series A, FGIC Insured, Pre-Refunded,
7.90%, 2/01/08 ........................................................................ 1,850,000 1,917,488
Kansas City Tax Increment Financing Commission, Tax Increment Revenue,
Briarcliff West Project, Series B, 7.00%, 11/01/14........................................ 3,525,000 3,665,753
Lake of The Ozarks Community Bridge Corp., Bridge System Revenue,
6.25%, 12/01/16 ........................................................................ 3,035,000 3,118,523
6.40%, 12/01/25 ........................................................................ 7,000,000 7,219,940
Lee's Summit COP, 8.50%, 8/01/02........................................................... 75,000 76,158
Lee's Summit, IDA Revenue, John Knox Village Project,
6.55%, 8/15/10 ........................................................................ 1,000,000 1,056,810
6.625%, 8/15/13 ........................................................................ 2,000,000 2,117,100
Missouri School Board Association COP, Lease Participation,
North St. Francois County Project, MBIA Insured, Pre-Refunded,
7.375%, 4/01/10 ........................................................................ 1,000,000 1,038,340
Missouri School Board Association COP, Pooled Finance Program, BIG Insured,
Series A-3, 7.875%, 3/01/06............................................................... 30,000 30,952
Series A-5, 7.375%, 3/01/06............................................................... 130,000 134,715
Missouri School Boards Association, Lease Participation Certificates, FSA Insured,
Fox C-6 School District, 5.75%, 3/01/16................................................... 6,150,000 6,299,015
Refunding, Republic R-3 School District Project, 6.00%, 3/01/16........................... 2,220,000 2,322,053
Missouri State Environmental Improvement and Energy Resources Authority,
National Rural Association, PCR, Electric Project,
Series G-6, AMBAC Insured, 5.85%, 2/01/13 ............................................... 2,100,000 2,194,500
Revolving Fund Program, PCR, Lee's Summit, Series B, 7.125%, 12/01/10..................... 950,000 1,039,889
Revolving Fund Program, PCR, Series A, 6.55%, 7/01/14..................................... 4,500,000 4,850,145
Revolving Fund Program, PCR, Series A, FSA Insured, 6.05%, 7/01/16 ....................... 1,000,000 1,054,390
Revolving Fund Program, PCR, Series A, Kansas City Project, 5.75%, 1/01/16................ 1,000,000 1,030,530
Revolving Fund Program, PCR, Series B, 5.80%, 1/01/15..................................... 1,000,000 1,033,350
Revolving Fund Program, PCR, Series B, 7.20%, 7/01/16..................................... 2,000,000 2,272,660
Revolving Fund Program, Water Pollution Control Revenue, Series A, 7.00%, 10/01/10........ 1,945,000 2,126,898
Missouri State Environmental Improvement and Energy Resources Authority, (cont.)
Thomas Hill Electric Cooperative, PCR, 5.50%, 12/01/11....................................$ 2,000,000 $ 2,053,840
Union Electric Project, 7.40%, 5/01/20.................................................... 2,390,000 2,595,277
Missouri State Health and Educational Facilities Authority, Health Facilities Revenue,
Bethesda Health Group, Inc. Project, Pre-Refunded, 8.00%, 4/01/13 ........................ 100,000 103,398
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 .......................... 2,745,000 2,932,813
Lake of The Ozarks General Hospital, Pre-Refunded, 8.00%, 2/15/11 ........................ 3,500,000 3,758,335
Lutheran Senior Services, Series A, 6.375%, 2/01/27....................................... 4,000,000 4,180,720
Refunding, Charles E. Still Osteopathic Hospital Project, 7.625%, 2/01/08................. 125,000 126,858
Refunding, Lake Of The Ozarks General Hospital, 6.25%, 2/15/11 ........................... 1,250,000 1,298,525
Refunding, Lake Of The Ozarks General Hospital, 6.50%, 2/15/21............................ 1,000,000 1,055,030
Refunding, Lutheran Senior Services, 5.875%, 2/01/23...................................... 2,600,000 2,600,884
Spelman-St. Luke's Hospital Corp. Project, Pre-Refunded, 7.875%, 10/01/18 ................ 175,000 185,890
Missouri State Health and Educational Facilities Authority Revenue,
Health Midwest, Series A, MBIA Insured, 6.40%, 2/15/15 ................................... 5,000,000 5,321,050
Health Midwest, Series B, MBIA Insured, 6.10%, 6/01/11 ................................... 700,000 749,315
Health Midwest, Series B, MBIA Insured, 6.25%, 6/01/14.................................... 1,990,000 2,141,399
Health Midwest, Series B, MBIA Insured, 6.25%, 2/15/22.................................... 1,100,000 1,158,234
Jefferson Memorial Hospital Obligated Group, 6.75%, 5/15/15............................... 4,000,000 4,220,680
Jefferson Memorial Hospital Obligated Group, 6.80%, 5/15/25 .............................. 3,250,000 3,416,725
Refunding, SSM Health Care, Series AA, MBIA Insured, 6.25%, 6/01/16 ...................... 1,000,000 1,057,800
Refunding, St. Louis University, Series A, AMBAC Insured, 7.875%, 6/01/12 ................ 50,000 51,427
Refunding & Improvement, Heartland Health, 8.125%, 10/01/10............................... 865,000 933,361
Sisters of St. Mary's Health Care Project, BIG Insured, Pre-Refunded, 7.75%, 6/01/16 ..... 950,000 996,294
Missouri State HDC, GNMA Secured,
Series B, 6.40%, 12/01/24................................................................. 2,240,000 2,330,362
SFMR, Homeowner Loan, Series D, 6.125%, 3/01/28........................................... 1,935,000 1,983,240
SFMR, Series A, 7.90%, 2/01/21............................................................ 135,000 140,144
SFMR, Series A, 7.625%, 2/01/22 .......................................................... 410,000 429,459
SFMR, Series B, 6.10%, 9/01/14............................................................ 1,945,000 2,024,667
SFMR, Series B, 7.625%, 6/01/21........................................................... 330,000 343,259
SFMR, Series B, 7.75%, 6/01/22............................................................ 1,645,000 1,738,107
SFMR, Series B, 6.45%, 9/01/27............................................................ 1,890,000 1,987,241
SFMR, Series C, 6.90%, 7/01/18............................................................ 1,620,000 1,712,810
Missouri State Housing Development Commission, MFHR, FHA Insured, 8.50%, 12/01/29.......... 135,000 139,705
Missouri State Western College Revenue, Refunding,
Student Housing, Pre-Refunded, 8.00%, 10/01/16............................................ 5,000,000 5,768,600
Moberly Combined Waterworks and Sewerage System, Refunding
& Improvement Bonds, FGIC Insured, Pre-Refunded, 7.50%, 8/01/15.......................... 1,000,000 1,107,120
Moberly IDA, Hospital Revenue, Refunding, Moberly Regional Medical Center, Inc.,
Pre-Refunded, 8.75%, 3/01/16.............................................................. 50,000 52,434
North Kansas City School District Facilities Authority,
BIG Insured, Pre-Refunded, 7.40%, 3/01/06 .............................................. 300,000 305,355
Northeast State University Recreational Facility Revenue, Campus Recreational
Center Project, AMBAC Insured, 5.80%, 6/01/15 ............................................ 1,000,000 1,024,300
Northwest R-I Educational Facilities Authority, Leasehold Revenue,
Jefferson County, FSA Insured, 5.70%, 3/01/15............................................. 5,200,000 5,266,300
Phelps County Hospital Revenue, Refunding, Phelps County Regional Medical Center,
Connie Lee Insured, 6.00%, 5/15/13 ....................................................... 5,000,000 5,127,700
Platte County Reorganized School District No. R-5, Pre-Refunded, 7.25%, 3/01/06............ 250,000 254,220
Poplar Bluff Public Building Corp., Leasehold Revenue, Series A,
MBIA Insured, 5.50%, 9/01/12.............................................................. 2,820,000 2,894,871
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, Pre-Refunded,
7.90%, 7/01/07 ........................................................................ 500,000 526,780
7.875%, 7/01/17 ........................................................................ 375,000 395,010
FSA Insured, 9.00%, 7/01/09............................................................... 40,000 50,877
Puerto Rico Commonwealth Highway Authority Revenue, Series P, Pre-Refunded, 8.125%, 7/01/13 75,000 79,153
Puerto Rico Commonwealth IDC, General Purpose Revenues, 8.00%, 1/01/03 .................... 20,000 20,107
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ........................................................................ 200,000 209,818
7.75%, 7/01/08 ........................................................................ 975,000 1,020,552
Puerto Rico Commonwealth Public Improvement GO, Series A, Pre-Refunded, 7.75%, 7/01/13..... 120,000 126,282
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 ........................................ 25,000 26,359
Refunding, Series N, 7.125%, 7/01/14 ..................................................... 1,110,000 1,177,566
Puerto Rico Electric Power Authority Revenue, (cont.)
Series O, 7.125%, 7/01/14................................................................. $ 280,000 $ 297,044
Series X, 6.00%, 7/01/15.................................................................. 2,375,000 2,495,270
Puerto Rico HFC, MFMR, Portfolio A, Series 1, 7.50%, 4/01/22 .............................. 380,000 400,938
Puerto Rico HFC, SFMR, Portfolio No. 1, GNMA Secured,
Series A, 7.80%, 10/15/21 ................................................................ 40,000 41,444
Series C, 6.85%, 10/15/23................................................................. 1,265,000 1,341,963
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Baxter Travenol Labs., Series A, 8.00%, 9/01/12........................................... 350,000 372,932
Upjohn Co. Project, 7.50%, 12/01/23....................................................... 300,000 321,327
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities,
Financing Authority, Industrial Revenue,
Guaynabo Municipal Government Center, Series A, 5.625%, 7/01/22.............................. 2,500,000 2,423,400
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 8.25%, 7/01/08 .............. 130,000 137,274
Puerto Rico PBA, Guaranteed Public Education and Health Facilities,
Series H, Pre-Refunded, 7.25%, 7/01/17 .................................................... 1,750,000 1,826,090
Puerto Rico Ports Authority Revenue, Special Facilities,
American Airlines, Series A, 6.25%, 6/01/26 .............................................. 2,500,000 2,631,625
Raymore GO, FSA Insured, 6.00%, 3/01/14 ................................................... 1,000,000 1,044,090
Sikeston Electric Revenue, Refunding, MBIA Insured, 5.00%, 6/01/22......................... 2,500,000 2,347,925
Southwest University Housing System Revenue, FGIC Insured, Pre-Refunded, 7.00%, 10/01/10 .. 250,000 255,600
Springfield Waterworks Revenue, Series A, 5.60%, 5/01/23................................... 2,000,000 2,010,940
St. Charles County Community College, Pre-Refunded, 7.25%, 3/01/06 ........................ 500,000 537,440
St. Charles Public Facility Authority, Leasehold Revenue,
AMBAC Insured, Refunding, 5.80%, 2/01/10 ................................................ 3,000,000 3,148,230
St. Louis Airport Revenue, Lambert-St. Louis International Airport,
Refunding & Improvement, FGIC Insured, 6.125%, 7/01/15.................................... 2,000,000 2,086,300
cSeries A, FGIC Insured, 5.125%, 7/01/27.................................................. 6,425,000 6,109,404
St. Louis County Housing Authority, MFHR, Kensington Square Apartments Project, Refunding,
6.55%, 3/01/14 ........................................................................ 1,000,000 1,067,680
6.65%, 3/01/20 ........................................................................ 2,750,000 2,935,295
St. Louis County IDA,
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.40%, 4/01/14.............. 1,000,000 1,026,250
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.55%, 4/01/19.............. 1,000,000 1,026,050
Health Facilities Revenue, Mother of Perpetual Help, 6.40%, 8/01/35....................... 1,895,000 2,040,726
Refunding, MFHR, South Summit Apartments, Series A, 6.10%, 4/20/32........................ 1,250,000 1,285,550
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 .......................... 25,000 25,952
St. Louis County Regional Convention and Sports Complex Authority,
Convention and Sports Project, Series B, Pre-Refunded,
7.00%, 8/15/21 ........................................................................ 5,050,000 5,730,336
Refunding, 5.75%, 8/15/21................................................................. 5,565,000 5,437,506
St. Louis IDA, Sewer and Solid Waste Disposal Facilities Revenue,
Anheuser-Busch Project, 5.875%, 11/01/26 ................................................. 1,000,000 1,032,730
St. Louis Land Clearance RDA,
Leasehold Revenue, Capital Improvement, Pre-Refunded, 7.60%, 8/15/08 ..................... 250,000 258,865
Refunding, Kiel Site Lease, Series A, MBIA Insured, 5.125%, 7/01/21....................... 1,625,000 1,542,418
St. Louis Municipal Finance Corp., Leasehold Revenue, Series A,
City Justice Center Improvement, AMBAC Insured, 6.00%, 2/15/19............................ 5,370,000 5,620,135
Refunding, 6.00%, 7/15/13................................................................. 10,000,000 10,206,200
St. Louis Parking Facilities Revenue, Pre-Refunded, 6.625%, 12/15/21....................... 470,000 526,226
St. Louis Public School District Building Corp., Leasehold Revenue,
School District Capital Improvement, FGIC Insured, 5.40%, 4/01/17......................... 2,100,000 2,084,859
St. Louis Regional Convention and Sports Complex Authority, Series C,
7.75%, 8/15/01 ........................................................................ 2,370,000 2,506,061
7.90%, 8/15/21 ........................................................................ 555,000 613,185
Pre-Refunded, 7.90%, 8/15/21.............................................................. 11,345,000 13,402,528
Refunding, Convention and Sports Facilities, AMBAC Insured, 5.625%, 8/15/21............... 4,725,000 4,762,374
Sullivan County Public Water Supply District No. 1, Waterworks Revenue,
Refunding, Pre-Refunded, 7.70%, 12/15/13.................................................. 300,000 309,302
Taney County Reorganization, School District No. R-V, 5.80%, 3/01/17....................... 2,585,000 2,620,724
University of Missouri, Health Facilities Revenue, Refunding, University of
Missouri Health System, Series A, AMBAC Insured, 5.60%, 11/01/26......................... 5,000,000 5,040,850
University of Missouri Revenues, System Facilities, 5.80%, 11/01/27........................ 4,000,000 4,098,720
Washington County GO, Industrial Bonds, Pauwels Transformer Project,
Series A, 7.60%, 12/01/09................................................................. 500,000 513,100
Webb City School District No. R-VII, Facilities Group, Leasehold Revenue,
Refunding & Improvement, FSA Insured, 5.625%, 8/01/16.....................................$ 1,115,000 $ 1,116,092
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project, Series A, 8.625%, 9/15/20 2,000,000 2,202,620
-------------
Total Long Term Investments (Cost $272,981,937)............................................ 288,510,369
-------------
a Short Term Investments 1.9%
Kansas City IDA, Hospital Revenue, Resh Health Services System, MBIA Insured, Daily VRDN and Put,
3.80%, 4/15/15 ........................................................................ 200,000 200,000
3.80%, 10/15/15 ........................................................................ 600,000 600,000
Refunding, 3.80%, 10/15/14................................................................ 1,850,000 1,850,000
Missouri State Environmental Improvement and Energy Resources Authority
Revenue, Refunding, Bayer Corp. Project,
Daily VRDN and Put, 3.70%, 3/01/09........................................................... 1,600,000 1,600,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15...................................................... 1,300,000 1,300,000
-------------
Total Short Term Investments (Cost $5,550,000)............................................. 5,550,000
-------------
Total Investments (Cost $278,531,937) 101.6%............................................... 294,060,369
Other Assets, less Liabilities (1.6)%...................................................... (4,518,619)
-------------
Net Assets 100.0% ........................................................................ $289,541,750
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
cSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin North Carolina Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996***1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.73 $11.75 $11.37 $11.92 $11.88 $11.12
---------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .64 .64 .65 .65 .67
Net realized and unrealized gains (losses) .12 (.03) .39 (.55) .05 .75
---------------------------------------------------------------------
Total from investment operations .44 .61 1.03 .10 .70 1.42
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.31) (.63) (.65) (.65) (.66) (.66)
---------------------------------------------------------------------
Net asset value, end of period $11.86 $11.73 $11.75 $11.37 $11.92 $11.88
=====================================================================
Total Return* 3.80% 5.38% 9.28% 1.06% 5.81% 12.97%
Ratios/Supplemental Data
Net assets, end of period (000's) $274,582 $260,979 $247,031 $216,263 $215,540 $156,517
Ratio to average net assets:
Expenses .71%** .70% .71% .70% .63% .67%
Net investment income 5.35%** 5.47% 5.52% 5.75% 5.44% 5.86%
Portfolio turnover rate 3.69% 9.98% 25.19% 25.05% 3.86% 8.48%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.79 $11.80 $11.41
---------------------------------------
Income from investment operations:
Net investment income .28 .57 .49
Net realized and unrealized gains (losses) .13 (.02) .38
---------------------------------------
Total from investment operations .41 .55 .87
---------------------------------------
Less distributions:
Dividends from net investment income (.28) (.56) (.48)
---------------------------------------
Net asset value, end of period $11.92 $11.79 $11.80
=======================================
Total Return* 3.49% 4.83% 7.77%
Ratios/Supplemental Data
Net assets, end of period (000's) $14,173 $9,607 $2,430
Ratio to average net assets:
Expenses 1.27%** 1.26% 1.28%**
Net investment income 4.78%** 4.85% 4.90%**
Portfolio turnover rate 3.69% 9.98% 25.19%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class
II.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin North Carolina Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 98.0%
Appalachian State University Revenue, Teachers College Utility System,
MBIA Insured, 6.10%, 5/15/13 .............................................................$ 1,075,000 $ 1,142,670
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25............................... 4,000,000 4,058,159
Buncombe County Metropolitan Sewage District System Revenue, Series B, 6.75%, 7/01/16...... 10,000 10,889
Charlotte COP, Convention Facility Project, AMBAC Insured, Pre-Refunded, 7.00%, 12/01/11 .. 2,250,000 2,520,629
Charlotte GO, Water and Sewer,
5.90%, 2/01/18 ........................................................................ 1,000,000 1,048,159
5.60%, 5/01/20 ........................................................................ 5,980,000 6,170,402
Charlotte-Mecklenburg Hospital Authority, Health Care System Revenue,
Refunding, Series 1992, 6.25%, 1/01/20.................................................... 6,100,000 6,400,729
Refunding, Series G, Pre-Refunded, 7.875%, 10/01/15....................................... 150,000 153,451
Refunding, Series I, Pre-Refunded, 7.80%, 10/01/18 ....................................... 350,000 371,507
Series A, 5.90%, 1/15/16.................................................................. 5,000,000 5,200,050
Charlotte Special Facilities Revenue, Piedmont Aviation, Inc. Project, Douglas International Airport,
8.375%, 7/01/17 ........................................................................ 260,000 265,156
9.00%, 7/01/17 ........................................................................ 1,255,000 1,305,539
Coastal Solid Waste Disposal System Authority Revenue, Refunding, Regional
Solid Waste Management, 6.50%, 6/01/08 ................................................... 3,100,000 3,311,668
Concord COP, Series B, MBIA Insured,
5.75%, 6/01/16 ........................................................................ 1,475,000 1,502,066
6.125%, 6/01/21 ........................................................................ 2,180,000 2,285,577
County of Cleveland GO, AMBAC Insured, Pre-Refunded, 7.10%, 6/01/06 ....................... 1,000,000 1,093,480
Craven County Regional Medical Facility, MBIA Insured, Pre-Refunded, 7.20%, 10/01/19 ...... 1,400,000 1,542,408
Cumberland County COP, Civic Center Project, Series A, AMBAC Insured,
6.40%, 12/01/19 ........................................................................ 3,500,000 3,814,195
6.40%, 12/01/24 ........................................................................ 3,765,000 4,102,984
Cumberland County Hospital Facility System Revenue,
BIG Insured, Pre-Refunded, 7.875%, 10/01/14 .............................................. 110,000 116,845
MBIA Insured, 6.00%, 10/01/21 ............................................................ 2,500,000 2,556,825
Dare County Utility System Revenue, MBIA Insured, 5.75%, 6/01/14 .......................... 1,000,000 1,026,140
Davie County GO, North Carolina Water, Unlimited Tax,
7.10%, 4/01/10 ........................................................................ 350,000 379,008
7.10%, 4/01/11 ........................................................................ 250,000 270,338
Duplin County COP, Social Service Administrative Building, Solid Waste Project,
FGIC Insured, 6.75%, 9/01/12 ............................................................. 2,000,000 2,164,860
Durham COP, Series 1991, 6.875%, 4/01/09 .................................................. 1,650,000 1,800,975
Durham County COP, Hospital and Office Facilities Project,
6.00%, 5/01/14 ........................................................................ 3,000,000 3,146,160
6.00%, 5/01/17 ........................................................................ 3,200,000 3,313,216
Durham County COP, Jail Facilities and Computer Equipment Project, 6.625%, 5/01/14 ........ 3,000,000 3,197,460
Fayetteville Public Works Commission Revenue,
FGIC Insured, Pre-Refunded, 7.00%, 3/01/11 ............................................... 1,500,000 1,627,275
Series A, FSA Insured, 6.00%, 3/01/16 .................................................... 2,000,000 2,079,380
Gaston COP, Police Station Project, FGIC Insured, 5.70%, 8/01/15........................... 1,500,000 1,527,180
Gaston County COP, Public Facilities Project, MBIA Insured, 5.25%, 12/01/16................ 1,000,000 986,800
Gaston County Industrial Facilities and PCFA Revenue, 7.70%, 10/01/12...................... 750,000 814,845
Gastonia Combined Utilities System Revenue, MBIA Insured, 6.10%, 5/01/19................... 2,200,000 2,325,444
Greensboro COP,
Coliseum Arena Expansion Project, 6.75%, 12/01/09......................................... 1,610,000 1,749,539
Greensboro Center City Corp., Pre-Refunded, 7.90%, 7/01/09 ............................... 350,000 368,449
Greensboro HDC, Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.70%, 1/01/24 ....... 1,320,000 1,392,112
Guam Power Authority Revenue, Series A, 6.375%, 10/01/08................................... 1,000,000 1,045,890
Halifax County Insured Facility, PCR, Solid Waste Disposal,
Champion International Corp., 8.15%, 11/01/19............................................. 400,000 435,984
Haywood County Industrial Facilities and PCFA, Environmental Improvement Revenue,
Champion International Project, 6.25%, 9/01/25............................................ 2,000,000 2,086,000
Haywood County Insured Facility, PCR, Solid Waste Disposal,
Champion International Corp., 8.10%, 11/01/09............................................. 200,000 215,938
Highpoint Special Obligation Sales Tax Revenue,
Solid Waste Management Project, 7.15%, 7/01/01 .......................................... 1,500,000 1,543,170
Kinston Enterprise System Revenue, Combined Enterprise System, FSA Insured, 5.70%, 4/01/21. 1,700,000 1,740,596
Kinston Housing Authority Mortgage Revenue, Refunding,
Kinston Towers Project, 6.75%, 12/01/18 .................................................. 3,155,000 3,306,913
Martin County Industrial Facilities and PCFA Revenue,
Refunding, 6.375%, 1/01/10 ............................................................... 3,000,000 3,215,250
Solid Waste, Weyerhaeuser Co. Project, 6.00%, 11/01/25 ................................... 4,000,000 4,103,600
Mooresville Grade School District, COP, AMBAC Insured, 6.35%, 10/01/14 ....................$ 1,000,000 $ 1,073,970
New Hanover County Industrial Facilities and PCFA Revenue, Refunding, 6.70%, 7/01/19....... 1,000,000 1,073,910
North Carolina Eastern Municipal Power Agency System Revenue, Refunding,
Series A, Pre-Refunded, 8.00%, 1/01/21.................................................... 400,000 413,292
Series A, Pre-Refunded, 7.75%, 1/01/12.................................................... 750,000 800,108
Series A, 6.50%, 1/01/17 ................................................................. 9,000,000 9,304,560
Series A, 6.50%, 1/01/18.................................................................. 3,000,000 3,259,770
Series B, MBIA Insured, 5.875%, 1/01/21................................................... 5,000,000 5,173,100
North Carolina Educational Facilities Finance Agency Revenue, Highpoint College Project,
7.10%, 12/01/07 ........................................................................ 190,000 203,420
7.10%, 12/01/08 ........................................................................ 205,000 219,479
7.10%, 12/01/09 ........................................................................ 220,000 235,246
North Carolina HFA, MFR, Refunding, Series B, 6.90%, 7/01/24 .............................. 2,925,000 3,141,187
North Carolina HFA, Refunding,
MF, Series A, AMBAC Insured, 5.90%, 7/01/20 .............................................. 3,000,000 3,051,150
Series F, 6.70%, 1/01/27 ................................................................. 4,855,000 5,204,900
Series H, Mortgage Loan Resolution, 6.05%, 7/01/28........................................ 2,500,000 2,606,975
SF, Series DD, 6.20%, 9/01/27 ............................................................ 3,000,000 3,108,750
SF, Series JJ, 6.45%, 9/01/27............................................................. 4,935,000 5,204,254
North Carolina HFA, SFMR,
Series H, 8.05%, 3/01/19 ................................................................. 70,000 71,831
Series J, 7.40%, 3/01/22 ................................................................. 180,000 187,922
Series M, 7.85%, 9/01/28 ................................................................. 410,000 418,772
North Carolina HFA, SFR,
Refunding, Series S, 6.95%, 3/01/17....................................................... 3,105,000 3,264,110
Series AA, 6.25%, 3/01/17 ................................................................ 950,000 1,005,727
Series RR, 5.85%, 9/01/28................................................................. 3,000,000 3,002,460
Series X, 6.65%, 9/01/19.................................................................. 3,000,000 2,270,017
North Carolina Medical Care Commission, Health Care Facilities Revenue,
Stanley Memorial Hospital, Pre-Refunded, 7.80%, 10/01/19 ................................. 1,250,000 1,365,338
North Carolina Medical Care Commission, Hospital Revenue,
Halifax Memorial Hospital Project, 6.75%, 8/15/24......................................... 3,500,000 3,675,525
Memorial Mission Hospital Project, MBIA Insured, Pre-Refunded, 7.80%, 10/01/18 ........... 160,000 169,832
Presbyterian Hospital Project, Pre-Refunded, 7.375%, 10/01/20............................. 1,850,000 2,047,414
Refunding, Annie Pen Memorial Hospital Project, 7.50%, 8/15/21 ........................... 4,700,000 5,062,746
Refunding, North Carolina Baptist Hospitals Project, Series A, 6.00%, 6/01/22............. 4,830,000 5,024,649
Refunding, St. Joseph's Hospital Project, AMBAC Insured, Pre-Refunded, 7.25%, 10/01/14.... 250,000 263,928
Refunding, Wilson Memorial Hospital Project, AMBAC Insured, 5.625%, 11/01/18.............. 5,000,000 5,047,700
Roanoke-Chowan Hospital Project, 7.75%, 10/01/19.......................................... 3,000,000 3,207,300
Scotland Memorial Hospital, MBIA Insured, Pre-Refunded, 8.625%, 10/01/11.................. 195,000 208,554
Wake County Hospital System, MBIA Insured, 5.375%, 10/01/26............................... 5,000,000 4,881,250
Wayne Memorial Hospital Project, AMBAC Insured, 6.00%, 10/01/21........................... 1,000,000 1,030,670
Wilson Memorial Hospital Project, AMBAC Insured, Pre-Refunded, 6.50%, 11/01/20............ 3,240,000 3,509,827
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue,
Refunding, Series 1992, 6.25%, 1/01/17 ................................................... 10,500,000 10,727,430
North Carolina State Education Assistance Authority Revenue,
Guaranteed, Student Loan, Subordinated Lien,
Series A, 6.05%, 7/01/10 ................................................................. 3,310,000 3,385,898
Series A, 6.30%, 7/01/15 ................................................................. 1,500,000 1,550,880
Series C, 6.35%, 7/01/16.................................................................. 4,500,000 4,645,305
Northampton County Insured Facility, PCR, Solid Waste Disposal,
Champion International Corp., 8.05%, 11/01/04............................................. 400,000 431,732
Onslow County Combined Enterprise System Revenue, MBIA Insured, 6.00%, 6/01/15 ............ 2,000,000 2,093,880
Orange County GO, Series 1989, Pre-Refunded, 7.20%, 5/01/08 ............................... 350,000 374,031
Pender County COP, Pre-Refunded, 7.70%, 6/01/11............................................ 1,195,000 1,352,083
Person County COP, Law Enforcement Center Project, Series 1991,
MBIA Insured, 7.125%, 6/01/11 ............................................................ 2,165,000 2,397,521
Pitt County COP,
FGIC Insured, 6.00%, 4/01/12.............................................................. 750,000 789,833
FGIC Insured, Pre-Refunded, 6.90%, 4/01/08 ............................................... 2,750,000 2,982,238
MBIA Insured, 5.85%, 4/01/17.............................................................. 5,055,000 5,239,811
Pitt County Revenue, Pitt County Memorial Hospital, Refunding, 5.25%, 12/01/21............. 1,650,000 1,592,828
Polk County School GO, FGIC Insured, Pre-Refunded,
6.70%, 5/01/08 ........................................................................ $ 700,000 $ 768,236
6.70%, 5/01/09 ........................................................................ 700,000 768,236
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded, 7.875%, 7/01/17 .................................................. 1,000,000 1,053,360
Puerto Rico Commonwealth GO,
6.45%, 7/01/17 ........................................................................ 8,050,000 8,813,221
Series 1990, Pre-Refunded, 7.25%, 7/01/10................................................. 500,000 549,075
Puerto Rico Commonwealth Highway Authority Revenue,
Refunding, Series N, Pre-Refunded, 8.00%, 7/01/03 ........................................ 100,000 105,436
Refunding, Series R, 7.15%, 7/01/00 ...................................................... 1,250,000 1,342,338
Series P, Pre-Refunded, 8.125%, 7/01/13 .................................................. 170,000 179,413
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.75%, 7/01/08 ........................................................................ 250,000 261,680
7.50%, 7/01/09 ........................................................................ 250,000 261,178
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 ........................................ 250,000 263,590
Refunding, Series N, 7.125%, 7/01/14 ..................................................... 160,000 169,739
Series O, 7.125%, 7/01/14................................................................. 850,000 901,740
Series P, Pre-Refunded, 7.00%, 7/01/21 ................................................... 1,000,000 1,114,970
Series T, 6.375%, 7/01/24 ................................................................ 1,000,000 1,071,260
Series X, 6.125%, 7/01/21 ................................................................ 5,000,000 5,265,300
Puerto Rico HFC, MFHR, Portfolio A, Series I, 7.50%, 4/01/22 .............................. 410,000 432,591
Puerto Rico HFC, SFMR, Portfolio No. 1, GNMA Secured,
Series A, 7.80%, 10/15/21................................................................. 20,000 20,722
Series C, 6.85%, 10/15/23 ................................................................ 2,205,000 2,339,152
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Upjohn Co. Project, 7.50%, 12/01/23....................................................... 300,000 321,327
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 8.25%, 7/01/08 .............. 125,000 131,994
Puerto Rico Telephone Authority Revenue, Series L, Refunding,
6.00%, 1/01/12 ........................................................................ 1,885,000 1,946,583
6.125%, 1/01/22 ........................................................................ 1,490,000 1,538,216
Raeford HDC Revenue, First Lien, Refunding, Yadkin Trail, Series A, 6.00%, 7/15/22......... 1,435,000 1,468,335
Robeson County GO, Refunding,
7.20%, 6/01/10 ........................................................................ 110,000 116,775
7.20%, 6/01/11 ........................................................................ 115,000 121,983
7.20%, 6/01/12 ........................................................................ 120,000 127,286
Pre-Refunded, 7.80%, 6/01/11 ............................................................. 145,000 152,063
Robeson County Industrial Facilities and PCFA Revenue, Refunding,
Campbell Soup Co. Project, 6.40%, 12/01/06................................................ 1,750,000 1,958,233
Rutherford County COP, Public Facilities Project, FGIC Insured, 6.25%, 6/01/23............. 1,850,000 1,963,516
Scotland County COP, Jail/Courthouse Project, FSA Insured, 6.75%, 3/01/11 ................. 1,000,000 1,083,650
Southern Pines GO, Refunding, Pre-Refunded, 7.40%, 6/01/08................................. 150,000 156,816
Stokes County COP, MBIA Insured, 7.00%, 3/01/06............................................ 1,000,000 1,091,620
University of North Carolina at Chapel Hill, Parking System, Series A, 5.70%, 5/15/27...... 3,000,000 3,035,640
University of North Carolina at Charlotte Revenue,
Refunding, Series K, Pre-Refunded, 7.375%, 1/01/03 ....................................... 100,000 103,107
Student Activity Center, MBIA Insured, 5.50%, 6/01/16 .................................... 1,000,000 1,002,890
Student Activity Center, MBIA Insured, 5.50%, 6/01/21 .................................... 3,500,000 3,510,115
University of North Carolina at Greensboro Revenue, Student Facilities System,
Series B, MBIA Insured, 5.45%, 4/01/23.................................................... 1,000,000 990,420
University of North Carolina at Wilmington, Student Union System Revenue,
AMBAC Insured, Pre-Refunded, 6.90%, 1/01/07............................................... 250,000 269,613
Wake County Hospital Revenue, MBIA Insured, Pre-Refunded, 7.40%, 10/01/16 ................. 250,000 255,605
Wake County Industrial Facilities and PCFA Revenue, Carolina Power
and Light Co. Project, 6.90%, 4/01/09..................................................... 10,000,000 10,727,400
Wilmington City GO, Sanitary Sewer, 6.90%, 3/01/05......................................... 400,000 427,880
Winston-Salem SFMR, 8.00%, 9/01/07......................................................... 405,000 386,816
Winston-Salem Water and Sewer System Revenue, Series B, 5.70%, 6/01/17 .................... 2,250,000 2,278,283
-------------
Total Long Term Investments (Cost $267,866,201) ........................................... 283,036,426
-------------
a Short Term Investments .4%
North Carolina Medical Care Commission, Hospital Revenue, ACES,
Pooled Financing Project, Series B, Daily VRDN and Put,
3.50%, 10/01/13 ........................................................................ $ 200,000 $ 200,000
North Carolina Medical Care Commission Revenue, Carol Woods Project,
Daily VRDN and Put, 3.75%, 4/01/21........................................................ 500,000 500,000
University of North Carolina at Chapel Hill Revenue, Parking System,
Series C, Weekly VRDN and Put, 3.25%, 5/15/27............................................. 500,000 500,000
-------------
Total Short Term Investments (Cost $1,200,000) ............................................ 1,200,000
-------------
Total Investments (Cost $269,066,201) 98.4% ............................................... 284,236,426
Other Assets, less Liabilities 1.6%........................................................ 4,518,351
-------------
Net Assets 100.0% ........................................................................ $288,754,777
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Texas Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996***1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.37 $11.58 $11.25 $11.72 $11.69 $11.03
---------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .66 .67 .68 .69 .69
Net realized and unrealized gains (losses) .09 -- .34 (.49) .03 .66
---------------------------------------------------------------------
Total from investment operations .41 .66 1.01 .19 .72 1.35
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.32)1 (.67) (.68) (.66) (.69) (.69)
Distributions from net realized capital gains (.03) (.20) -- -- -- -
---------------------------------------------------------------------
Total distributions (.35) (.87) (.68) (.66) (.69) (.69)
---------------------------------------------------------------------
Net asset value, end of period $11.43 $11.37 $11.58 $11.25 $11.72 $11.69
=====================================================================
Total Return* 3.71% 5.91% 9.15% 1.80% 6.09% 12.41%
Ratios/Supplemental Data
Net assets, end of period (000's) $127,092 $126,612 $129,702 $130,684 $148,684 $139,389
Ratio to average net assets:
Expenses .76%** .75% .76% .73% .65% .66%
Net investment income 5.52%** 5.70% 5.86% 6.05% 5.85% 6.15%
Portfolio turnover rate 13.28% 35.57% 18.38% 6.36% 20.18% 12.33%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.49 $11.68 $11.27
-------------------------------------
Income from investment operations:
Net investment income .30 .60 .51
Net realized and unrealized gains .08 .02 .40
-------------------------------------
Total from investment operations .38 .62 .91
-------------------------------------
Less distributions:
Dividends from net investment income (.29)2 (.61) (.50)
Distributions from net realized capital gains (.03) (.20) --
-------------------------------------
Total distributions (.32) (.81) (.50)
-------------------------------------
Net asset value, end of period $11.55 $11.49 $11.68
=====================================
Total Return* 3.40% 5.48% 8.23%
Ratios/Supplemental Data
Net assets, end of period (000's) $1,272 $740 $79
Ratio to average net assets:
Expenses 1.31%** 1.32% 1.33%**
Net investment income 4.90%** 5.03% 5.23%**
Portfolio turnover rate 13.28% 35.57% 18.38%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class
II.
1Includes distributions in excess of net investment income in the amount of
$.003.
2Includes distributions in excess of net investment income in the amount of
$.004.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Texas Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 98.0%
Alliance Airport Authority, Inc., Special Facilities Revenue, American
Airlines, Inc. Project, 7.00%, 12/01/11................................................... $2,250,000 $ 2,565,608
Austin Combined Utility System Revenue,
Refunding, MBIA Insured, 5.50%, 5/15/14................................................... 1,325,000 1,334,792
Series A, AMBAC Insured, 6.75%, 11/15/07 ................................................. 800,000 877,792
Series A, Pre-Refunded, 8.00%, 11/15/16 .................................................. 50,000 56,166
Bexar County Health Facilities Development Corp. Revenue, Refunding,
Incarnate Word Health Services, FSA Insured, 6.00%, 11/15/15 ............................. 3,000,000 3,127,470
Bexar County HFC Revenue, GNMA Secured, 8.10%, 3/01/24..................................... 100,000 106,229
Bexar Metropolitan Water District, Waterworks System Revenue,
Refunding, MBIA Insured, 6.35%, 5/01/25 .................................................. 3,210,000 3,441,858
Brazos Higher Education Authority Revenue, Student Loan, Inc.,
Refunding, Series A-2, 6.80%, 12/01/04.................................................... 1,000,000 1,069,900
Series B-2, 8.25%, 6/01/23 ............................................................... 1,300,000 1,308,190
Brazos River Authority, PCR, Collateralized, Series A, Texas Utilities
Electric Co. Project, 7.875%, 3/01/21 .................................................... 500,000 550,055
Brazos River Authority Revenue, Refunding, Collateralized, Houston Light and Power Co.
Project, Series A, 7.625%, 5/01/19 ....................................................... 100,000 107,324
Cameron County HFC, Collateralized Mortgage Obligation, Refunding, Series B,
FGIC Insured, Pre-Refunded, 7.85%, 3/01/24 ............................................... 80,000 84,607
Castleberry ISD, Refunding, 6.00%, 8/15/25................................................. 2,000,000 2,081,300
Cimarron MUD, Waterworks and Sewer System, Asset Guaranteed,
Refunding, Combined Tax and Revenue,
7.50%, 3/01/15 ........................................................................ 2,775,000 2,938,281
Pre-Refunded, 7.50%, 3/01/15.............................................................. 1,225,000 1,318,174
Clinton ISD, Refunding, 7.00%, 3/01/15..................................................... 4,000,000 4,159,080
Coastal Water Authority, Water Conveyance System Revenue, Pre-Refunded, 8.20%, 12/15/07 ... 50,000 50,616
Comal County Health Facilities Development Corp. Revenue, Refunding,
McKenna Memorial Hospital, FHA Insured, 7.375%, 1/15/21 .................................. 1,750,000 1,880,743
Coppell ISD, Refunding, 6.50%, 8/15/26 .................................................... 1,500,000 1,553,100
Corpus Christi HFC, SFMR, Refunding, Series A, MBIA Insured, 7.70%, 7/01/11................ 1,130,000 1,212,015
Dallas Civic Center Convention Complex Revenue, Senior Lien, AMBAC Insured,
7.00%, 1/01/10 ........................................................................ 2,000,000 2,141,800
Refunding, 6.75%, 1/01/12................................................................. 1,000,000 1,039,650
Dallas-Ft. Worth International Airport Facilities Improvement Corp. Revenue,
American Airlines, Inc., 8.00%, 11/01/24 ................................................. 1,000,000 1,099,640
Delta Airlines, Inc., 7.625%, 11/01/21 ................................................... 2,000,000 2,194,020
Refunding, American Airlines, Inc., 6.00%, 11/01/14 ...................................... 2,000,000 2,078,440
Dallas-Ft. Worth Regional Airport Revenue, Refunding, Joint Dallas-Ft. Worth
International, MBIA Insured, 5.75%, 11/01/24.............................................. 1,000,000 1,006,990
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10 ........................................... 135,000 142,537
Dallas Housing Corp., Capital Projects Revenue, Refunding, Section Eight,
Assisted Projects, 7.70%, 8/01/05......................................................... 500,000 525,415
Denison Hospital Authority Revenue, Texoma Medical Center, Inc.
Project, 7.00%, 8/15/14 .................................................................. 1,250,000 1,368,825
Ector County Hospital District Revenue, Medical Center Hospital,
Pre-Refunded, 7.30%, 4/15/12 ............................................................. 2,000,000 2,267,900
El Paso County HFC, SFMR, Refunding,
Series 1988, GNMA Secured, 8.20%, 9/01/20 ................................................ 60,000 62,549
Series A, 8.75%, 10/01/11................................................................. 550,000 597,025
Ft. Worth HFC, HMR, Refunding, Series A, 8.50%, 10/01/11................................... 970,000 1,056,805
Ft. Worth HFC, SFMR, GNMA Secured, 8.25%, 12/01/11......................................... 25,000 25,784
Gonzales County Hospital District GO, Refunding, MBIA Insured, 7.65%, 2/15/07 ............. 100,000 104,404
Gulf Coast Waste Disposal Authority, PCR, Union Carbide
Chemical and Plastic Co., 7.45%, 8/01/04 ................................................. 1,200,000 1,215,072
Gulf Coast Waste Disposal Authority Revenue, Champion
International Corp., Series A, 6.875%, 12/01/28........................................... 1,000,000 1,079,880
Harris County Health Facilities Development Corp., Health Care System
Revenue, Sisters of Charity, Pre-Refunded, 7.10%, 7/01/21 ................................ 5,000,000 5,554,750
Harris County Health Facilities Development Corp., Hospital Revenue, Pre-Refunded,
Memorial Hospital System, AMBAC Insured, 7.00%, 6/01/12 .................................. 225,000 240,032
The Herman Trust, 9.00%, 10/01/17 ........................................................ 45,000 46,071
Harris County Health Facilities Development Corp. Revenue, Herman Hospital
Project, FSA Insured, 7.00%, 10/01/14..................................................... 750,000 821,273
Harris County Health Facilities Development Corp., Special Facilities
Revenue, Medical Center Project, MBIA Insured, Pre-Refunded,
7.375%, 5/15/20 ........................................................................ 500,000 548,975
Harris County MUD No. 208, Waterworks and Sewer System,
Unlimited Tax, Pre-Refunded, 8.00%, 11/01/13.............................................. 80,000 83,534
Harris County Public Facilities Corp., Detention Facility Mortgage Revenue,
Series 1988, MBIA Insured, Pre-Refunded, 7.75%, 12/15/07 ................................. 70,000 74,569
Harris County Toll Road, Multimode Senior Lien, Series C, Pre-Refunded, 8.125%, 8/15/17.... 830,000 870,205
Houston Airport System Revenue, Subordinated Lien, Series B,
FGIC Insured, Pre-Refunded, 6.625%, 7/01/22............................................... 2,000,000 2,192,500
Houston Water and Sewer System Revenue,
Exchange, Prior Lien, Pre-Refunded, 8.125%, 12/01/17...................................... 50,000 51,512
Junior Lien, Refunding, Series A, MBIA Insured, 6.20%, 12/01/20 .......................... 6,500,000 6,863,675
Irving Hospital Authority Revenue, Irving Health Care System, Series 1990,
FGIC Insured, Pre-Refunded, 7.25%, 7/01/15 ............................................... 285,000 298,535
Joshua ISD, Refunding, Series B, Pre-Refunded, 6.125%, 2/15/26............................. $ 100,000 $ 102,885
Keller Waterworks and Sewer System Revenue, Refunding, AMBAC Insured,
Pre-Refunded, 7.70%, 1/01/10.............................................................. 125,000 130,818
Laredo Airport, Certificates of Obligation, Limited Tax, AMBAC Insured, 7.00%, 8/01/09..... 200,000 209,332
Laredo International Toll Bridge System Revenue, Pre-Refunded, 7.40%, 10/01/06............. 400,000 455,280
Leon County PCR, Refunding, Nucor Corp. Project, Series A, 7.375%, 8/01/09................. 2,000,000 2,224,500
Lower Colorado River Authority Revenue, Refunding,
MBIA Insured, Pre-Refunded, 7.625%, 1/01/16 .............................................. 75,000 77,390
Series B, AMBAC Insured, 7.00%, 1/01/11 .................................................. 205,000 224,049
Matagorda County Navigation District No. 1, PCR, Central Power and Light Co. Project,
Collateralized, 7.50%, 12/15/14........................................................... 1,200,000 1,310,700
Refunding, Series E, MBIA Insured, 6.10%, 7/01/28 ........................................ 1,500,000 1,550,355
Matagorda County Navigation District No. 1 Revenue, Refunding, Houston Lighting and Power Co.,
Collateralized, Series B, 7.70%, 2/01/19.................................................. 100,000 103,250
Series C, FGIC Insured, 7.125%, 7/01/19 .................................................. 1,500,000 1,597,140
Mesquite Health Facilities Development, Refunding, Christian Retirement Facility, Series A,
6.40%, 2/15/16 ........................................................................ 1,000,000 1,023,650
6.40%, 2/15/20 ........................................................................ 2,000,000 2,033,400
Midland County Hospital District Revenue, Midland Memorial Hospital, 7.50%, 6/01/16........ 1,000,000 1,065,970
Montgomery County Library, Refunding, FGIC Insured,
6.75%, 9/01/10 ........................................................................ 775,000 842,441
6.75%, 9/01/11 ........................................................................ 825,000 892,988
North Central Health Facility Development Corp. Revenue, Refunding, C. C. Young
Memorial Home Project,
6.30%, 2/15/15 ........................................................................ 1,530,000 1,562,788
6.375%, 2/15/20 ........................................................................ 2,785,000 2,849,863
North Harris County Junior College District, FGIC Insured, Pre-Refunded, 7.20%, 8/15/10 ... 285,000 307,640
Panhandle-Plains Higher Education Authority, Inc., Student Loan Revenue,
Series B, 8.75%, 6/01/23.................................................................. 1,000,000 1,028,940
Red River Authority, PCR, Refunding, West Texas Utilities Co., Public Service Co.,
Oklahoma Central Power and Light Co.,
MBIA Insured, 6.00%, 6/01/20................................................................. 7,000,000 7,303,380
Sabine River Authority, PCR, Refunding,
Collateralized, Texas Utilities Electric Co. Project, FGIC Insured, 6.55%, 10/01/22 ...... 1,200,000 1,290,996
Southwestern Electric Power, MBIA Insured, 6.10%, 4/01/18................................. 5,000,000 5,254,250
San Antonio Electric and Gas Revenue, Refunding,
7.00%, 2/01/09 ........................................................................ 100,000 105,115
Pre-Refunded, 7.00%, 2/01/09.............................................................. 150,000 158,010
San Antonio Water Revenue, Prior Lien, Refunding, Series A, Pre-Refunded, 7.35%, 5/01/07... 300,000 311,226
South Padre Island, Certificate of Obligation, Pre-Refunded, 7.875%, 3/01/10............... 350,000 379,694
Tarrant County Health Facilities Development Corp., Health Systems Revenue,
Harris Methodist Health, FGIC Insured, 6.00%, 9/01/24..................................... 4,000,000 4,117,480
Texarkana Health Facilities Development Corp., Hospital Revenue,
Refunding & Improvement, Wadley Regional Medical Center Project,
8.50%, 10/01/12 ........................................................................ 50,000 51,083
Texas City IDC, Marine Terminal Revenue, Refunding, ARCO Pipe Line Co.
Project, 7.375%, 10/01/20 ................................................................ 500,000 632,470
Texas HFA, SFMR, Series B, 8.20%, 3/01/16.................................................. 5,000 5,121
Texas Housing Agency, Residential Development Revenue, Series A, 7.60%, 7/01/16 ........... 1,410,000 1,475,015
Texas State Department of Housing and Community Affairs, HMR, Refunding,
Series A, GNMA Secured, 6.95%, 7/01/23 ................................................... 1,650,000 1,752,465
Texas State GO, Veterans Housing Assistance Fund I, Refunding, Series A, 6.15%, 12/01/25 .. 1,000,000 1,033,650
Texas State Higher Education Coordinating Board, College Student Loan Revenue,
Senior Lien, 7.70%, 10/01/25.............................................................. 1,450,000 1,533,114
Texas State Turnpike Authority Revenue, Dallas North Tollway, Pre-Refunded,
Series 1989, 7.125%, 1/01/15.............................................................. 225,000 231,624
Series 1990, AMBAC Insured, 7.125%, 1/01/15............................................... 1,000,000 1,058,160
Texas State Turnpike Authority Revenue, Mountain Creek Lake Bridge, 7.00%, 1/01/07 ........ 50,000 51,558
Texas Water Development Board Revenue, State Revolving, Senior Lien,
Series A, 5.75%, 7/15/16................................................................. 3,275,000 3,354,648
Texas Water Resources Finance Authority Revenue, 7.625%, 8/15/08 .......................... 885,000 937,162
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23............................. 2,000,000 2,021,440
Travis County HFC, SFMR, GNMA Secured, 8.20%, 4/01/22 ..................................... 65,000 67,818
Trinity River Authority, Tex Big Bear Creek Interceptor, System Control,
MBIA Insured, Pre-Refunded, 7.40%, 2/01/09 ............................................... 250,000 267,538
University of Texas Revenues, Refunding, Financing System,
Series A, 7.00%, 8/15/07.................................................................. 665,000 738,456
Series B, 6.75%, 8/15/13.................................................................. 1,300,000 1,415,114
Van Alstyne ISD, Refunding, 5.95%, 8/15/29................................................. 1,885,000 1,944,867
Waco Health Facilities Development Corp., Hospital Revenue, Hillcrest Baptist
Medical Center Project, MBIA Insured, 7.125%, 9/01/14..................................... $ 500,000 $ 549,840
Webb County GO, Limited Tax, FSA Insured, Pre-Refunded, 7.25%, 2/15/09 .................... 160,000 167,120
West Side Calhoun County Navigation District, Solid Waste Disposal Revenue,
Union Carbide Chemical and Plastics Co. Project,
8.20%, 3/15/21 ........................................................................ 1,000,000 1,111,600
Wichita County, Wichita Falls General Hospital Revenue, Refunding, 7.50%, 9/01/09.......... 50,000 51,604
Wylie GO, ISD, Taylor County, Refunding, 7.00%, 8/15/24 ................................... 1,000,000 1,180,230
Ysleta GO, ISD, Unlimited Tax, AMBAC Insured, Pre-Refunded, 7.10%, 8/15/05 ................ 200,000 211,111
-------------
Total Long Term Investments (Cost $117,755,570)............................................ 125,832,005
-------------
a Short Term Investments .8%
Grapevine IDC Revenue, Multiple Mode, American Airlines, Daily VRDN and Put,
Series A4, 3.75%, 12/01/24................................................................ 100,000 100,000
Series B1, 3.75%, 12/01/24................................................................ 200,000 200,000
Lone Star Airport Improvement Authority, Inc. Revenue, Multiple Mode,
American Airlines, Series B-3, Daily VRDN and Put,
3.50%, 12/01/14 ........................................................................ 100,000 100,000
North Central Health Facilities Development Corp. Revenue, DATES, Presbyterian
Medical Center, Series D, MBIA Insured,
Daily VRDN and Put, 3.75%, 12/01/15.......................................................... 245,000 245,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15...................................................... 300,000 300,000
-------------
Total Short Term Investments (Cost $945,000)............................................... 945,000
-------------
Total Investments (Cost $118,700,570) 98.8% ............................................... 126,777,005
Other Assets, less Liabilities 1.2%........................................................ 1,587,113
-------------
Net Assets 100.0% ........................................................................ $128,364,118
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Virginia Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996***1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.65 $11.72 $11.33 $11.82 $11.69 $10.98
---------------------------------------------------------------------
Income from investment operations:
Net investment income .31 .65 .66 .66 .67 .67
Net realized and unrealized gains (losses) .08 (.07) .38 (.50) .14 .70
---------------------------------------------------------------------
Total from investment operations .39 .58 1.04 .16 .81 1.37
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.32) (.64) (.65) (.65) (.68) (.66)
Distributions from net realized gains (.03) (.01) -- -- -- --
---------------------------------------------------------------------
Total distributions (.35) (.65) (.65) (.65) (.68) (.66)
---------------------------------------------------------------------
Net asset value, end of period $11.69 $11.65 $11.72 $11.33 $11.82 $11.69
=====================================================================
Total Return* 3.43% 5.15% 9.41% 1.56% 6.80% 12.67%
Ratios/Supplemental Data
Net assets, end of period (000's) $305,192 $287,172 $271,396 $255,965 $260,913 $211,171
Ratio to average net assets:
Expenses .70%** .69% .69% .69% .62% .65%
Net investment income 5.42%** 5.56% 5.66% 5.86% 5.65% 5.98%
Portfolio turnover rate 3.97% 19.25% 12.96% 21.73% 6.86% 5.74%
Class II
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.71 $11.77 $11.35
---------------------------------------
Income from investment operations:
Net investment income .29 .58 .49
Net realized and unrealized gains (losses) .08 (.05) .41
---------------------------------------
Total from investment operations .37 .53 .90
---------------------------------------
Less distributions:
Dividends from net investment income (.29) (.58) (.48)
Distributions from net realized gains (.03) (.01) --
---------------------------------------
Total distributions (.32) (.59) (.48)
---------------------------------------
Net asset value, end of period $11.76 $11.71 $11.77
=======================================
Total Return* 3.22% 4.61% 8.07%
Ratios/Supplemental Data
Net assets, end of period (000's) $10,126 $6,674 $2,050
Ratio to average net assets:
Expenses 1.26%** 1.25% 1.26%**
Net investment income 4.86%** 4.94% 5.06%**
Portfolio turnover rate 3.97% 19.25% 12.72%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class
II.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
PRINCIPAL
Franklin Virginia Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 98.6%
Albermarle County IDA Revenue, Refunding, Martha Jefferson Hospital,
5.875%, 10/01/13 ........................................................................$ 5,000,000 $ 5,166,750
Albermarle County IDA Revenue, University of Virginia Health Services
Foundation, 6.50%, 10/01/22 .............................................................. 1,125,000 1,192,838
Alexandria IDA Revenue, Alexandria/Arlington Waste Resource Recovery, 7.40%, 1/01/08....... 1,690,000 1,701,509
Arlington County GO, 6.00%, 8/01/13 ....................................................... 2,085,000 2,214,812
Arlington County IDA, Hospital Facility Revenue, Arlington Hospital, Series A,
Pre-Refunded, 7.125%, 9/01/21 ............................................................ 2,000,000 2,238,960
Ashland GO, Refunding, Pre-Refunded, 7.75%, 8/01/12 ....................................... 100,000 105,421
Augusta County IDA Revenue, Augusta Hospital Corp. Project,
AMBAC Insured, 6.625%, 9/01/12............................................................ 1,000,000 1,092,050
Pre-Refunded, 7.00%, 9/01/21.............................................................. 2,000,000 2,225,960
Blacksburg Polytechnic Institute, Sanitation Authority Sewer
System Revenue, 6.25%, 11/01/12 .......................................................... 1,230,000 1,283,124
Campbell County Utilities Services Authority, Water and Sewer Revenue,
MBIA Insured, Pre-Refunded, 7.25%, 10/01/19 .............................................. 950,000 1,027,359
Charlottesville IDA Revenue, Martha Jefferson Hospital, Pre-Refunded, 7.375%, 10/01/20..... 2,000,000 2,213,420
Chesapeake Hospital Authority Facilities Revenue, Chesapeake General Hospital,
8.20%, 7/01/05 ........................................................................ 2,500,000 2,760,625
BIG Insured, Pre-Refunded, 7.625%, 7/01/18................................................ 450,000 472,725
Chesapeake IDA, Nursing Home Revenue, Sentara Life Care Corp. Project, 8.00%, 11/01/17 .... 235,000 248,733
Chesapeake IDA, Public Facilities Lease Revenue, Chesapeake Jail Project,
MBIA Insured, 6.00%, 6/01/12 ............................................................. 3,940,000 4,181,522
Covington-Alleghany County IDA, PCR, Refunding, Westvaco Corp. Project, 6.65%, 9/01/18..... 5,000,000 5,505,750
Danville COP, Social Services, 7.625%, 4/01/13 ............................................ 2,000,000 2,185,420
Danville GO, Series 1991,
6.75%, 2/01/10 ........................................................................ 655,000 703,247
6.75%, 2/01/11 ........................................................................ 705,000 755,781
Danville IDA, Hospital Revenue, Refunding, Danville Regional Medical Center,
FGIC Insured, 6.50%, 10/01/24 ............................................................ 5,000,000 5,396,700
Danville IDA, Solid Waste Disposal Revenue, International Paper Co., 6.50%, 3/01/19 ....... 500,000 544,105
Fairfax County EDA, Parking Revenue, Huntington Metrorail, 7.00%, 9/01/10.................. 1,000,000 1,081,770
Fairfax County EDA, Resource Recovery Revenue, Ogden Martin System of Fairfax, Inc........
Project, Series A, 7.75%, 2/01/11.......................................................... 1,500,000 1,606,050
Fairfax County IDA Revenue, Health Care, Inova Health System Project, 6.00%, 8/15/26....... 5,000,000 5,199,200
Fairfax County Redevelopment and Housing Authority, MFHR,
Cedar Ridge Apartments, GNMA Secured, 6.30%, 12/20/27..................................... 4,700,000 4,987,828
Refunding, Paul Spring Center, Series A, FHA Insured, 5.90%, 6/15/17...................... 1,000,000 1,032,560
Refunding, Paul Spring Center, Series A, FHA Insured, 6.00%, 12/15/28..................... 1,000,000 1,032,380
Fairfax County Sewer Revenue, MBIA Insured, 5.875%, 7/15/28................................ 6,500,000 6,729,125
Frederick County IDA Lease Revenue, Government Complex Facilities Project,
MBIA Insured, 6.50%, 12/01/09 ............................................................ 2,040,000 2,262,870
Frederick Winchester Sewer Service Authority Revenue, Refunding, AMBAC Insured,
Pre-Refunded, 7.20%, 10/01/08 ............................................................ 250,000 270,110
Fredericksburg IDA Revenue, Crossover Refunding, Mary Washington Hospital,
AMBAC Insured, Pre-Refunded, 7.80%, 7/01/14 .............................................. 165,000 173,565
Front Royal and Warren County IDA Revenue, Refunding, Mortgage,
Heritage Hall No. 13, FHA Insured, 8.25%, 7/15/05 ........................................ 25,000 25,777
Guam Airport Authority Revenue, Refunding, Series A,
6.375%, 10/01/10 ........................................................................ 830,000 870,180
6.50%, 10/01/23 ........................................................................ 1,000,000 1,056,430
Halifax County IDA, Exempt Facilities Revenue, Old Dominion Electric
Cooperative Project, 6.50%, 12/01/12 ..................................................... 3,000,000 3,202,470
Hampton Museum Revenue, Pre-Refunded,
Series 1989, 7.50%, 1/01/14............................................................... 1,200,000 1,275,540
Series 1990, 7.30%, 1/01/14............................................................... 1,000,000 1,086,060
Hampton Redevelopment and Housing Authority, Senior Living Association
Revenue, Refunding, Series A, GNMA Secured,
6.00%, 1/20/26 ........................................................................ 1,100,000 1,140,315
Hampton Roads Medical College General Revenue, Refunding, Series A, 6.875%, 11/15/16....... 1,500,000 1,610,025
Hampton Roads Regional Jail Authority, Jail Facilities Revenue, Series A,
MBIA Insured, 5.00%, 7/01/28.............................................................. 10,000,000 9,373,300
Hampton Roads Sanitation District, Primary Pledge Sewer Revenue,
Pre-Refunded, 7.20%, 7/01/09.............................................................. 3,500,000 3,756,830
Hanover County IDA, Hospital Revenue, Bon Secours Health Systems
Projects, MBIA Insured, 5.50%, 8/15/25 ................................................... 1,000,000 997,130
Hanover County Water and Sewer System Revenue, MBIA Insured, 5.25%, 2/01/26................ 1,275,000 1,243,686
Henrico County IDA, Hospital Facilities Revenue, Bon Secours Health System,
St. Mary's Hospital, Series A, Pre-Refunded,
7.875%, 8/15/18 ........................................................................ 275,000 290,626
Henrico County IDA Revenue,
Bon Secours, Maryview Nursing Center, Series B, Pre-Refunded, 7.625%, 8/15/18............. 250,000 263,630
Solid Waste, Browning-Ferris Industries, South Atlantic, Inc., Series A, 5.875%, 3/01/17.. 1,000,000 1,027,980
Henry County IDA, Hospital Revenue, Refunding, Memorial Hospital
of Martinsville and Henry, 6.00%, 1/01/27 ................................................ 1,250,000 1,284,000
Leesburg Utilities System Revenue, MBIA Insured, 6.30%, 7/01/17 ........................... 1,250,000 1,333,488
Loudoun County IDA, Hospital Revenue, Loudoun Hospital Center, FSA Insured,
5.80%, 6/01/20 ........................................................................$ 2,000,000 $ 2,041,560
5.80%, 6/01/26 ........................................................................ 3,000,000 3,051,030
Loudoun County Sanitation Authority, Water and Sewer Revenue,
AMBAC Insured, Pre-Refunded, 7.50%, 1/01/10 .............................................. 650,000 691,353
Refunding, FGIC Insured, 5.125%, 1/01/26.................................................. 2,500,000 2,379,750
Refunding, FGIC Insured, 5.125%, 1/01/30.................................................. 5,250,000 4,983,930
Series 96, FGIC Insured, 5.25%, 1/01/26................................................... 3,500,000 3,394,370
Series 96, FGIC Insured, 5.25%, 1/01/30................................................... 1,000,000 968,200
Lynchburg IDA, Hospital Facilities Revenue, Refunding, First Mortgage,
Central Health, Inc., 8.125%, 1/01/16 .................................................... 190,000 198,556
Lynchburg Redevelopment and Housing Authority Revenue, Refunding,
Waldon Pond III, Series A, GNMA Secured, 6.20%, 7/20/27 .................................. 1,000,000 1,050,800
Manassas IDA, Hospital Revenue, Prince William Hospital, Pre-Refunded, 8.125%, 4/01/19 .... 500,000 540,145
Mecklenburg County IDA Revenue, Exempt Facility, Series A, 7.35%, 5/01/08 ................. 4,500,000 4,792,860
Metropolitan Washington D.C. Airports, General Airport Authority Revenue,
Series A, 7.60%, 10/01/14................................................................. 1,000,000 1,094,280
Series B, 5.75%, 10/01/20................................................................. 6,000,000 6,067,380
Newport News IDA, Mortgage Revenue, Mennowood Communities, Inc., Series A,
GNMA Secured, 6.25%, 8/01/36.............................................................. 3,000,000 3,151,620
c Newport News Redevelopment and Housing Authority Revenue, Refunding, Series A,
GNMA Secured, 5.85%, 12/20/30............................................................. 1,250,000 1,250,950
Norfolk GO, MBIA Insured, 5.75%, 6/01/14 .................................................. 2,075,000 2,151,194
Norfolk IDA Revenue,
Children's Hospital of the Kings' Daughters, Inc., Series A, 8.375%, 6/01/12 ............. 50,000 51,466
Children's Hospital of the Kings' Group, Inc., AMBAC Insured, Pre-Refunded, 7.00%, 6/01/11 3,000,000 3,328,080
Medical Center Hospital Project, Series A, 7.00%, 11/01/07 ............................... 20,000 20,091
Medical Center Hospital Project, Series A, Pre-Refunded, 7.00%, 11/01/07 ................. 30,000 30,152
Norfolk Parking System Revenue, MBIA Insured, 5.55%, 2/01/27............................... 4,475,000 4,485,964
Norfolk Water Revenue,
AMBAC Insured, 5.375%, 11/01/23........................................................... 1,500,000 1,459,830
MBIA Insured, 5.875%, 11/01/20............................................................ 7,000,000 7,218,050
MBIA Insured, 5.90%, 11/01/25............................................................. 5,900,000 6,072,044
Northern Virginia Transportation District Commission, Commuter Rail Revenue,
Railway Express Project, FSA Insured, 7.00%, 7/01/05 ..................................... 360,000 389,844
Peninsula Airport Commission Revenue, Airport Improvement, 7.25%, 7/15/11.................. 1,000,000 1,086,500
Peninsula Ports Authority, Coal Terminal Revenue, Refunding, Coal Terminal
Association Project, 7.375%, 6/01/20 ..................................................... 5,480,000 5,990,188
Peninsula Ports Authority, Health Care Facilities Revenue, Refunding,
Bon Secours Health System, Series A, MBIA Insured,
5.25%, 8/15/23 ........................................................................ 1,500,000 1,444,440
Peninsula Ports Authority, Hospital Facility Revenue, Refunding, Whittaker Memorial
Hospital Project, FHA Insured, 8.70%, 8/01/23............................................. 50,000 51,760
Peninsula Ports Authority Revenue, Refunding, Riverside Health System
Project, Series A, 6.625%, 7/01/18 ....................................................... 6,000,000 6,416,580
Portsmouth Public Utility, GO, Refunding, Pre-Refunded, 7.50%, 11/01/12.................... 50,000 51,534
Prince William County Service Authority, Water and Sewer Systems
Revenue, FGIC Insured, 6.00%, 7/01/29 .................................................... 5,500,000 5,612,145
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded, 7.90%, 7/01/07.................................................... 1,000,000 1,053,560
Puerto Rico Commonwealth GO, Pre-Refunded,
Public Improvement, Series A, 7.75%, 7/01/13 ............................................. 75,000 78,926
Series 1990, 7.30%, 7/01/20............................................................... 1,000,000 1,100,880
Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue, Series Y, 6.00%, 7/01/22................................................. 2,000,000 2,073,960
Puerto Rico Commonwealth Highway Authority Revenue, Pre-Refunded,
Series P, 8.125%, 7/01/13 ................................................................ 225,000 237,458
Series Q, 8.00%, 7/01/18 ................................................................. 1,000,000 1,119,350
Series R, 7.20%, 7/01/01 ................................................................. 2,000,000 2,196,480
Puerto Rico Commonwealth IDC, General Purpose Revenue, 8.00%, 1/01/03...................... 25,000 25,134
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ........................................................................ 350,000 367,182
7.75%, 7/01/08 ........................................................................ 750,000 785,040
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 ........................................ 600,000 632,616
Refunding, Series Z, 5.25%, 7/01/21....................................................... 1,500,000 1,431,270
Series P, Pre-Refunded, 7.00%, 7/01/21.................................................... 1,500,000 1,672,455
Puerto Rico HFC Revenue,
FHA Mortgage Insured, Sixth Portfolio, Section 8, Pre-Refunded, 7.75%, 12/01/26........... 20,000 24,147
MFMR, Portfolio A, Series 1, 7.50%, 4/01/22 .............................................. 2,460,000 2,595,546
Puerto Rico HFC, SFMR, Portfolio 1, Series B, GNMA Secured, 7.65%, 10/15/22................ $ 265,000 $ 279,938
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Baxter Travenol Labs., Series A, 8.00%, 9/01/12........................................... 300,000 319,656
Upjohn Co. Project, 7.50%, 12/01/23 ...................................................... 250,000 267,773
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 8.25%, 7/01/08 .............. 185,000 195,351
Puerto Rico Telephone Authority Revenue, Series L, 6.125%, 1/01/22......................... 5,000,000 5,161,800
Richmond Metropolitan Authority, Expressway Revenue,
AMBAC Insured, 7.00%, 10/15/13............................................................ 2,000,000 2,124,900
Refunding, Series A, FGIC Insured, 6.375%, 7/15/16 ....................................... 2,500,000 2,662,450
Series B, FGIC Insured, 6.25%, 7/15/22 ................................................... 5,000,000 5,249,400
Richmond Public Utilities Revenue, Series A, Pre-Refunded, 8.00%, 1/15/18 ................. 175,000 181,162
Roanoke IDA Revenue, Roanoke Memorial Hospital, Pre-Refunded, 7.50%, 7/01/20 .............. 3,000,000 3,305,760
South Boston IDA Revenue, Halifax-Community Hospital, Inc. Project, 7.375%, 9/01/11........ 4,250,000 4,524,933
Spotsylvania County Water and Sewer System Revenue, GO, MBIA Insured, 5.40%, 6/01/27....... 8,800,000 8,595,488
Staunton IDA, Facilities Revenue, Mary Baldwin College, Series B,
Pre-Refunded, 8.00%, 11/01/17............................................................... 895,000 1,013,784
Suffolk IDA Revenue, Louise Obici Memorial Hospital, 7.875%, 1/01/05....................... 325,000 340,317
Virginia Beach Development Authority, General Hospital Facility Revenue,
Series A, Pre-Refunded, 8.75%, 12/01/17 .................................................. 50,000 51,586
Virginia College Building Authority, Educational Facilities Revenue,
Hampton University Project, Series A, Pre-Refunded, 7.75%, 4/01/14 ....................... 750,000 805,973
Marymount University Project, 7.00%, 7/01/22 ............................................. 1,750,000 1,875,878
Refunding, Washington and Lee University Project, 5.75%, 1/01/19.......................... 2,345,000 2,383,528
Refunding, Washington and Lee University Project, 5.80%, 1/01/24.......................... 3,500,000 3,557,365
Twenty-first Century College Program, 5.25%, 8/01/16...................................... 1,000,000 992,840
Virginia Education Loan Authority, Guaranteed, Student Loan Program Revenue,
Series B, Pre-Refunded, 8.00%, 3/01/04.................................................... 175,000 181,893
Virginia Polytechnic Institute Revenue, Dormitory and Dining Hall,
BIG Insured, 7.00%, 6/01/09............................................................... 900,000 956,673
Virginia Port Authority Revenue, MBIA Insured, 5.50%, 7/01/24 ............................. 4,250,000 4,185,188
Virginia Port Authority Revenue, Commonwealth Port Fund, 8.20%, 7/01/08 ................... 400,000 420,564
Virginia State HDA, Commonwealth Mortgage,
Series A, 7.10%, 1/01/17 ................................................................. 1,000,000 1,064,600
Series A, 7.15%, 1/01/33 ................................................................. 5,500,000 5,854,805
Series A-1, 8.10%, 1/01/17................................................................ 5,000 5,127
Series B-3, 7.375%, 7/01/17............................................................... 45,000 47,153
Series B-3, 6.80%, 1/01/27................................................................ 2,000,000 2,095,800
Series B-4, 6.85%, 7/01/17................................................................ 5,000,000 5,218,550
Series B-4, 6.55%, 1/01/27................................................................ 1,000,000 1,066,680
Series C, Sub-Series C-3, 6.00%, 1/01/17.................................................. 2,000,000 2,070,660
Series D-1, 6.40%, 7/01/17................................................................ 4,900,000 5,170,823
Series D-2, 7.35%, 7/01/17................................................................ 155,000 156,982
Series H-2, 6.55%, 1/01/27 ............................................................... 2,000,000 2,077,180
Virginia State HDA, MF, Series F, 7.10%, 5/01/13 .......................................... 9,000,000 9,587,070
Virginia State Resources Authority, Sewer System Revenue, Refunding, Harrisonburg
Rockingham Region, Series A, 6.00%, 5/01/22 .............................................. 2,000,000 2,043,980
Virginia State Resources Authority, Water and Sewer System Revenue,
Lot #7, Rapidan Service Authority, 7.125%, 10/01/16 ...................................... 1,000,000 1,060,170
Pooled Loan Program, Series A, 7.35%, 11/01/16 ........................................... 400,000 415,240
Pooled Loan Program, Series A, 7.45%, 11/01/16............................................ 100,000 103,874
Pooled Loan Program, Series A, Pre-Refunded, 7.35%, 11/01/16.............................. 190,000 206,096
Pooled Loan Program, Series A, Pre-Refunded, 7.85%, 11/01/17.............................. 100,000 107,814
Virginia State Resources Authority, Water System Revenue,
Refunding, Series A, 6.125%, 4/01/19 ..................................................... 1,000,000 1,021,280
Series 1988, Pre-Refunded, 7.875%, 10/01/18 .............................................. 85,000 90,242
Virginia State Transportation Board, Transportation Contract Revenue,
Refunding, U.S. Route 28 Project, 6.50%, 4/01/18 ......................................... 9,000,000 9,692,910
U.S. Route 28 Project, Pre-Refunded, 7.80%, 3/01/16 ...................................... 475,000 493,605
U.S. Route 58 Corridor Development Program, 6.00%, 5/15/19................................ 2,500,000 2,550,874
Washington County IDA, College Facilities Revenue, Emory and Henry College
Project, 6.375%, 4/01/23 ................................................................. 3,295,000 3,421,890
Washington County IDA, Hospital Facilities Revenue, First Mortgage,
Johnston Memorial Hospital, 7.00%, 7/01/22................................................ 3,000,000 3,256,920
West Point IDA, Solid Waste Disposal Revenue, Refunding, Chesapeake Corp.
Project, Series B, 6.25%, 3/01/19.........................................................$ 5,450,000 $ 5,750,785
Winchester IDA, Educational Facilities Revenue, Refunding, First Mortgage,
Shenandoah University Project, Asset Guaranteed,
6.80%, 10/01/24 ........................................................................ 2,000,000 2,201,340
-------------
Total Long Term Investments (Cost $293,787,981) ........................................... 310,807,036
-------------
a Short Term Investments .5%
Hampton Redevelopment and Housing Authority, MFHR, Refunding, Avalon at Hampton I,
Series A, FNMA Secured, Weekly VRDN
and Put, 3.30%, 6/15/26...................................................................... 300,000 300,000
Peninsula Ports Authority, Coal Terminal Revenue, DATES, Dominion Terminal Project,
Series C, Refunding, Daily VRDN and Put,
3.65%, 7/01/16 ........................................................................ 100,000 100,000
Peninsula Ports Authority Revenue Updates, Refunding, Port Facility, Shell Oil Co.,
Series A, Daily VRDN and Put, 3.80%, 12/01/05............................................. 1,200,000 1,200,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15...................................................... 100,000 100,000
-------------
Total Short Term Investments (Cost $1,700,000) ............................................ 1,700,000
-------------
Total Investments (Cost $295,487,981) 99.1%................................................ 312,507,036
Other Assets, less Liabilities .9% ........................................................ 2,811,065
-------------
Net Assets 100.0% ........................................................................ $315,318,101
=============
</TABLE>
See glossary of abbreviations on page 115
aVariable rate demand notes (VRDNs) are tax exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
cSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
Glossary of Abbreviations
ACES - Adjustable Convertible Exempt Securities
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co. (Acquired by MBIA in 1989 and no
longer does business under this name)
CDA - Community Development Authority/Agency
COP - Certificate of Participation
DATES - Demand Adjustable Tax-Exempt Securities
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance (Some of the securities shown as FSA
Insured were originally insured by Capital Guaranty Insurance Co.
(CGIC) which was acquired by FSA in 1995 and no longer does business
under this name.)
GML - Guaranteed Mortgage Loan
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Authority/Agency
HMR - Home Mortgage Revenue
ID - Improvement District
IDA - Industrial Development Authority/Agency
IDB - Industrial Development Board
IDBR - Industrial Development Board Revenue
IDC - Industrial Development Corp.
IDR - Industrial Development Revenue
ISD - Independent School District
MAC - Municipal Assistance Corp.
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Securities
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MUD - Municipal Utility District
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
RDA - Redevelopment Agency
SF - Single Family
SFHR - Single Family Housing Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
VA - Veterans Administration
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements
Statements of Assets and Liabilities
August 31, 1997 (unaudited)
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:
Cost $196,333,357$1,471,993,169 $138,797,754 $45,972,424 $123,228,102
=========================================================================
Value 207,709,633 1,562,283,655 146,480,849 48,477,688 130,621,699
Cash 240,260 303,756 193,104 25,993 76,450
Receivables:
Investment securities sold -- 1,315,753 10,188 -- 2,023,402
Capital shares sold 315,351 3,163,830 137,136 54,255 284,084
Interest 3,579,494 29,068,920 2,130,335 775,806 2,077,858
Affiliates -- -- -- 2,975 --
-------------------------------------------------------------------------
Total assets 211,844,738 1,596,135,914 148,951,612 49,336,717 135,083,493
-------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- 11,022,819 -- 997,381 6,980,161
Capital shares redeemed 129,513 968,271 13,024 -- 160,833
Affiliates 139,448 895,582 108,123 13,283 89,137
Shareholders 699,004 3,603,235 274,639 85,524 233,822
Distributions to shareholders 236,077 1,764,461 179,775 53,024 142,386
Other liabilities 3,422 22,394 7,319 -- 7,014
-------------------------------------------------------------------------
Total liabilities 1,207,464 18,276,762 582,880 1,149,212 7,613,353
-------------------------------------------------------------------------
Net assets, at value $210,637,274$1,577,859,152 $148,368,732 $48,187,505 $127,470,140
=========================================================================
Net assets consist of:
Undistributed net investment income $ 199,474 $-- $ 79,003 $ 39,073 $ 270,362
Accumulated distributions in excess of
net investment income -- (5,815) -- -- --
Net unrealized appreciation 11,376,276 90,290,486 7,683,095 2,505,264 7,393,597
Accumulated net realized gain (loss) 844,314 (801,305) (43,914) (1,193,661) (1,859,113)
Capital shares 198,217,210 1,488,375,786 140,650,548 46,836,829 121,665,294
-------------------------------------------------------------------------
Net assets, at value $210,637,274$1,577,859,152 $148,368,732 $48,187,505 $127,470,140
=========================================================================
Class I:
Net Assets, at value $203,251,543$1,537,671,821 $142,368,982 $48,187,505 $123,792,018
=========================================================================
Shares outstanding 17,226,858 131,898,476 11,928,993 4,304,545 10,845,128
=========================================================================
Net asset value per share* $11.80 $11.66 $11.93 $11.19 $11.41
=========================================================================
Maximum offering price per share
(net asset value per share O 95.75%) $12.32 $12.18 $12.46 $11.69 $11.92
=========================================================================
Class II:
Net Assets, at value $ 7,385,731 $ 40,187,331 $ 5,999,750 -- $ 3,678,122
=========================================================================
Shares outstanding 623,296 3,422,125 500,266 -- 320,499
=========================================================================
Net asset value per share* $11.85 $11.74 $11.99 -- $11.48
=========================================================================
Maximum offering price per share
(net asset value per share O 99.00%) $11.97 $11.86 $12.11 -- $11.60
=========================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
August 31, 1997 (unaudited)
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:
Cost $192,185,502 $278,531,937 $269,066,201 $118,700,570 $295,487,981
=========================================================================
Value 203,097,941 294,060,369 284,236,426 126,777,005 312,507,036
Cash 142,322 275,705 716,828 39,055 205,681
Receivables:
Investment securities sold -- 298,900 105,000 -- --
Capital shares sold 188,019 408,623 328,473 110,326 238,669
Interest 3,459,073 4,426,025 4,653,684 2,044,731 4,823,646
-------------------------------------------------------------------------
Total assets 206,887,355 299,469,622 290,040,411 128,971,117 317,775,032
-------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- 8,720,166 -- -- 1,252,844
Capital shares redeemed 85,993 79,011 208,727 132,957 50,884
Affiliates 143,750 166,033 199,708 85,562 205,238
Shareholders 510,612 640,962 563,682 240,375 599,371
Distributions to shareholders 217,438 316,398 304,623 143,766 338,624
Other liabilities 4,219 5,302 8,894 4,339 9,970
-------------------------------------------------------------------------
Total liabilities 962,012 9,927,872 1,285,634 606,999 2,456,931
-------------------------------------------------------------------------
Net assets, at value $205,925,343 $289,541,750 $288,754,777 $128,364,118 $315,318,101
=========================================================================
Net assets consist of:
Undistributed net investment income $-- $ 590,618 $ 263,625 $-- $ 396,227
Accumulated distributions in excess
of net investment income (6,494) -- -- (29,940) --
Net unrealized appreciation 10,912,439 15,528,432 15,170,225 8,076,435 17,019,055
Accumulated net realized gain (loss) (254,803) 808,536 (2,540,919) (163,583) 121,573
Capital shares 195,274,201 272,614,164 275,861,846 120,481,206 297,781,246
-------------------------------------------------------------------------
Net assets, at value $205,925,343 $289,541,750 $288,754,777 $128,364,118 $315,318,101
=========================================================================
Class I:
Net Assets, at value $198,102,263 $282,941,753 $274,581,706 $127,092,220 $305,191,643
=========================================================================
Shares outstanding 17,327,962 23,651,715 23,160,184 11,118,616 26,105,193
=========================================================================
Net asset value per share* $11.43 $11.96 $11.86 $11.43 $11.69
=========================================================================
Maximum offering price per share
(net asset value per share O 95.75%) $11.94 $12.49 $12.38 $11.94 $12.21
=========================================================================
Class II:
Net Assets, at value $ 7,823,080 $ 6,599,997 $ 14,173,071 $ 1,271,898 $ 10,126,458
=========================================================================
Shares outstanding 679,528 550,001 1,188,953 110,104 861,176
=========================================================================
Net asset value per share* $11.51 $12.00 $11.92 $11.55 $11.76
=========================================================================
Maximum offering price per share
(net asset value per share O 99.00%) $11.63 $12.12 $12.04 $11.67 $11.88
=========================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations
for the six months ended August 31, 1997 (unaudited)
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 $6,363,110 $47,323,828 $4,448,031 $1,339,862 $3,849,462
-------------------------------------------------------------------------
Expenses:
Management fees (Note 5) 575,573 3,556,232 424,751 143,424 365,095
Distribution fees (Note 5)
Class I 85,419 642,865 62,399 22,376 49,346
Class II 20,912 104,399 16,359 -- 10,589
Transfer agent fees (Note 5) 33,207 213,085 32,770 9,227 22,705
Custodian fees 960 6,045 690 216 548
Reports to shareholders 20,440 125,106 16,234 4,460 11,420
Registration and filing fees 1,289 23,124 2,710 1,384 175
Professional fees 2,695 16,172 2,040 1,100 1,670
Trustees' fees and expenses (Note 5) 1,274 9,504 973 285 737
Other 9,748 37,797 9,635 5,499 10,564
-------------------------------------------------------------------------
Total expenses 751,517 4,734,329 568,561 187,971 472,849
Expenses waived/paid by affiliate (Note 5) -- -- -- (107,910) --
-------------------------------------------------------------------------
Net expenses 751,517 4,734,329 568,561 80,061 472,849
-------------------------------------------------------------------------
Net investment income 5,611,593 42,589,499 3,879,470 1,259,801 3,376,613
-------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments 846,693 3,585,682 873,764 (48,230) 595,148
Net unrealized appreciation (depreciation)
on investments 1,178,070 7,501,696 (63,754) 635,150 503,310
-------------------------------------------------------------------------
Net realized and unrealized gain 2,024,763 11,087,378 810,010 586,920 1,098,458
-------------------------------------------------------------------------
Net increase in net assets
resulting from operations $7,636,356 $53,676,877 $4,689,480 $1,846,721 $4,475,071
=========================================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended August 31, 1997 (unaudited)
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 $5,965,443 $ 8,609,028 $ 8,418,351 $4,023,677 $ 9,298,703
-------------------------------------------------------------------------
Expenses:
Management fees (Note 5) 559,738 756,703 752,289 380,022 812,737
Distribution fees (Note 5)
Class I 87,220 121,191 120,662 51,245 127,488
Class II 21,083 17,895 37,597 3,226 27,842
Transfer agent fees (Note 5) 46,622 56,578 58,823 25,306 62,850
Custodian fees 874 1,300 1,502 647 1,481
Reports to shareholders 21,426 28,815 25,782 11,996 31,712
Registration and filing fees 2,240 6,242 6,232 6,587 1,494
Professional fees 2,765 3,419 3,222 1,944 3,789
Trustees' fees and expenses (Note 5) 1,204 1,856 1,693 847 1,938
Other 9,923 12,008 13,311 9,903 16,558
-------------------------------------------------------------------------
Total expenses 753,095 1,006,007 1,021,113 491,723 1,087,889
-------------------------------------------------------------------------
Net investment income 5,212,348 7,603,021 7,397,238 3,531,954 8,210,814
-------------------------------------------------------------------------
Realized and unrealized gains (losses) :
Net realized gain (loss) from investments 239 810,928 576,797 (163,056) 122,468
Net unrealized appreciation on investments 1,929,579 2,570,854 2,291,879 1,208,372 2,097,519
-------------------------------------------------------------------------
Net realized and unrealized gain 1,929,818 3,381,782 2,868,676 1,045,316 2,219,987
-------------------------------------------------------------------------
Net increase in net
assets resulting from operations $7,142,166 $10,984,803 $10,265,914 $4,577,270 $10,430,801
=========================================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
Franklin Alabama Franklin Florida Franklin Georgia
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
----------------------------------------------------------------------------------------------
Six months Year ended Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 5,611,593 $ 10,690,673 $ 42,589,499 $ 80,839,961 $ 3,879,470 $ 7,502,961
Net realized gain (loss)
from investments 846,693 826,032 3,585,682 (1,969,420) 873,764 (83,809)
Net unrealized appreciation
(depreciation) on
investments 1,178,070 (664,763) 7,501,696 (7,137,684) (63,754) 63,481
----------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations 7,636,356 10,851,942 53,676,877 71,732,857 4,689,480 7,482,633
Distributions to shareholders from:
Net investment income:
Class I (5,530,700) (10,601,182) (43,433,699) (81,984,156) (3,711,286) (7,369,738)
Class II (159,748) (186,416) (785,564) (797,622) (118,551) (144,408)
In excess of net investment
income:
Class II -- -- (36,504) -- -- --
Net realized gains:
Class I (658,302) -- -- -- -- --
Class II (21,353) -- -- -- -- --
Capital share transactions
(Note 2):
Class I 8,564,565 7,460,992 70,437,303 115,644,487 1,641,118 9,587,752
Class II 1,658,119 3,980,187 16,358,100 15,862,746 1,480,620 3,115,832
----------------------------------------------------------------------------------------------
Net increase in
net assets 11,488,937 11,505,523 96,216,513 120,458,312 3,981,381 12,672,071
Net assets:
Beginning of period 199,148,337 187,642,814 1,481,642,639 1,361,184,327 144,387,351 131,715,280
----------------------------------------------------------------------------------------------
End of period $210,637,274 $199,148,337 $1,577,859,152 $1,481,642,639 $148,368,732 $144,387,351
==============================================================================================
Undistributed net investment
income (accumulated
distributions in excess of net
investment income) included
in net assets:
Beginning of period $ 278,329 $ 375,254 $ 1,660,453 $ 3,602,270 $ 29,370 $ 40,555
==============================================================================================
End of period $ 199,474 $ 278,329 $ (5,815) $ 1,660,453 $ 79,003 $ 29,370
==============================================================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
Franklin Kentucky Franklin Louisiana Franklin Maryland
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
----------------------------------------------------------------------------------------------
Six months Year ended Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,259,801 $ 2,336,528 $ 3,376,613 $ 6,506,641 $ 5,212,348 $ 9,805,450
Net realized gain (loss)
from investments (48,230) (266,464) 595,148 483,603 239 1,025,103
Net unrealized appreciation
(depreciation) on
investments 635,150 403,814 503,310 (403,628) 1,929,579 (1,388,666)
----------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations 1,846,721 2,473,878 4,475,071 6,586,616 7,142,166 9,441,887
Distributions to shareholders from:
Net investment income:
Class I (1,250,297) (2,331,502) (3,316,840) (6,387,908) (5,107,528) (9,897,629)
Class II -- -- (84,185) (129,018) (147,725) (136,501)
In excess of net investment
income:
Class I -- -- -- -- (4,696) --
Class II -- -- -- -- (1,798) --
Capital share transactions
(Note 2):
Class I 3,302,417 5,155,164 9,769,173 5,472,390 11,069,222 10,781,449
Class II -- -- 641,647 1,544,030 2,656,904 4,138,354
----------------------------------------------------------------------------------------------
Net increase in
net assets 3,898,841 5,297,540 11,484,866 7,086,110 15,606,545 14,327,560
Net assets:
Beginning of period 44,288,664 38,991,124 115,985,274 108,899,164 190,318,798 175,991,238
End of period $48,187,505 $44,288,664 $127,470,140 $115,985,274 $205,925,343 $190,318,798
==============================================================================================
Undistributed net investment
income (accumulated
distributions in excess of
net investment income)
included in net assets:
Beginning of period $ 29,569 $ 24,543 $ 294,774 $ 305,059 $ 42,905 $ 271,585
==============================================================================================
End of period $ 39,073 $ 29,569 $ 270,362 $ 294,774 $ (6,494) $ 42,905
==============================================================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
Franklin Missouri Franklin North Carolina
Tax-Free Income Fund Tax-Free Income Fund
--------------------------------------------------------------
Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 7,603,021 $ 14,349,923 $ 7,397,238 $ 14,036,822
Net realized gain (loss) from investments 810,928 1,156,378 576,797 (187,812)
Net unrealized appreciation (depreciation) on investments 2,570,854 (2,475,177) 2,291,879 (124,286)
--------------------------------------------------------------
Net increase in net assets resulting from operations 10,984,803 13,031,124 10,265,914 13,724,724
Distributions to shareholders from:
Net investment income:
Class I (7,428,704) (14,073,629) (7,002,451) (13,584,397)
Class II (132,404) (133,456) (268,872) (284,498)
Net realized gains:
Class I (195,070) (937,804) -- --
Class II (3,999) (13,403) -- --
Capital share transactions (Note 2):
Class I 10,234,956 24,181,345 10,743,746 14,170,466
Class II 2,222,838 2,958,437 4,430,963 7,097,408
--------------------------------------------------------------
Net increase in net assets 15,682,420 25,012,614 18,169,300 21,123,703
Net assets:
Beginning of period 273,859,330 248,846,716 270,585,477 249,461,774
--------------------------------------------------------------
End of period $289,541,750 $273,859,330 $288,754,777 $270,585,477
==============================================================
Undistributed net investment income (accumulated distributions
in excess of net investment income) included in net assets:
Beginning of period $ 548,705 $ 405,867 $ 137,710 $ (30,217)
==============================================================
End of period $ 590,618 $ 548,705 $ 263,625 $ 137,710
==============================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
Franklin Texas Franklin Virginia
Tax-Free Income Fund Tax-Free Income Fund
--------------------------------------------------------------
Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,531,954 $ 7,276,977 $ 8,210,814 $ 15,637,918
Net realized gain (loss) from investments (163,056) 2,502,380 122,468 1,469,868
Net unrealized appreciation (depreciation) on investments 1,208,372 (2,443,895) 2,097,519 (2,766,723)
--------------------------------------------------------------
Net increase in net assets resulting from operations 4,577,270 7,335,462 10,430,801 14,341,063
Distributions to shareholders from:
Net investment income:
Class I (3,558,659) (7,454,483) (8,138,552) (15,478,276)
Class II (24,455) (20,024) (209,666) (217,282)
In excess of net investment income:
Class I (29,580) -- -- --
Class II (360) -- -- --
Net realized gains:
Class I (344,573) (2,155,163) (832,088) (96,953)
Class II (3,045) (11,013) (25,459) (2,027)
Capital share transactions (Note 2):
Class I (128,343) (792,576) 16,848,444 17,247,917
Class II 523,855 668,698 3,398,683 4,605,404
--------------------------------------------------------------
Net increase (decrease) in net assets 1,012,110 (2,429,099) 21,472,163 20,399,846
Net assets:
Beginning of period 127,352,008 129,781,107 293,845,938 273,446,092
--------------------------------------------------------------
End of period $128,364,118 $127,352,008 $315,318,101 $293,845,938
==============================================================
Undistributed net investment income (accumulated distributions
in excess of net investment income) included in net assets:
Beginning of period $ 51,160 $ 247,882 $ 533,631 $ 591,271
==============================================================
End of period $ (29,940) $ 51,160 $ 396,227 $ 533,631
==============================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-eight
separate series. All funds included in this report (the Funds) are diversified
except the Franklin Maryland Tax-Free Income Fund. The investment policy of the
Funds is to provide tax-free income.
The following summarizes the Funds' significant accounting policies.
a. Security Valuation
Tax-free bonds generally trade in the over-the-counter market and are valued
within the range of the latest quoted bid and asked prices. In the absence of a
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 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. Securities for which market quotations are not readily
available are valued at fair value as determined by management in accordance
with procedures established by the Board of Trustees.
b. Income Taxes
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
c. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount and
premium are amortized on an income tax basis. Distributions to shareholders are
recorded on the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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. Other expenses are
charged to each Fund on a specific identification basis.
d. Accounting Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. TRUST SHARES
The Funds, except the Franklin Kentucky Tax-Free Income Fund, offer two classes
of shares: Class I and Class II. The shares have the same rights except for
their initial sales load, distribution fees, voting rights on matters affecting
a single class and the exchange privilege of each class.
At August 31, 1997, there were an unlimited number of shares authorized (no par
value). Transactions in the Fund's shares 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>
Class I Shares:
Six months ended August 31, 1997
Shares sold 1,303,768 $15,262,570 12,766,422 $147,653,035 989,066 $11,722,286
Shares issued in reinvestment
of distributions 228,344 2,678,311 1,016,185 11,767,730 163,887 1,943,650
Shares redeemed (800,825) (9,376,316) (7,700,104) (88,983,462) (1,016,121) (12,024,818)
------------------------------------------------------------------------------------
Net increase 731,287 $ 8,564,565 6,082,503 $ 70,437,303 136,832 $ 1,641,118
====================================================================================
Year ended February 28, 1997
Shares sold 1,942,732 $22,560,116 23,001,817 $265,470,186 2,139,522 $25,173,634
Shares issued in reinvestment
of distributions 372,840 4,328,659 1,884,098 21,720,755 310,722 3,654,123
Shares redeemed (1,676,632) (19,427,783) (14,883,522) (171,546,454) (1,635,886) (19,240,005)
------------------------------------------------------------------------------------
Net increase 638,940 $ 7,460,992 10,002,393 $115,644,487 814,358 $ 9,587,752
====================================================================================
Class II Shares:
Six months ended
August 31, 1997
Shares sold 189,884 $ 2,235,917 1,623,250 $ 18,917,431 165,083 $ 1,969,416
Shares issued in
reinvestment of distributions 7,240 85,304 40,627 474,378 6,338 75,612
Shares redeemed (56,425) (663,102) (260,273) (3,033,709) (47,391) (564,408)
------------------------------------------------------------------------------------
Net increase 140,699 $ 1,658,119 1,403,604 $ 16,358,100 124,030 $ 1,480,620
====================================================================================
Year ended February 28, 1997
Shares sold 355,918 $ 4,150,114 1,489,791 $ 17,278,719 272,485 $ 3,213,354
Shares issued in
reinvestment of distributions 6,865 80,183 38,788 450,543 7,721 91,370
Shares redeemed (21,459) (250,110) (160,270) (1,866,516) (15,969) (188,892)
------------------------------------------------------------------------------------
Net increase 341,324 $ 3,980,187 1,368,309 $ 15,862,746 264,237 $ 3,115,832
====================================================================================
Franklin Kentucky Franklin Louisiana Franklin Maryland
------------------------------------------------------------------------------------
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------------
Class I Shares:
Six months ended August 31, 1997
Shares sold 454,691 $5,024,954 1,346,445 $15,271,591 1,820,022 $20,573,104
Shares issued in
reinvestment of distributions 49,993 552,794 124,705 1,412,008 234,472 2,654,698
Shares redeemed (206,994) (2,275,331) (610,625) (6,914,426) (1,073,953) (12,158,580)
------------------------------------------------------------------------------------
Net increase 297,690 $3,302,417 860,525 $ 9,769,173 980,541 $11,069,222
====================================================================================
Year ended February 28, 1997
Shares sold 890,801 $9,695,973 1,474,073 $16,486,181 2,604,160 $29,219,599
Shares issued in
reinvestment of distributions 100,867 1,099,535 234,695 2,631,214 444,248 4,988,597
Shares redeemed (517,693) (5,640,344) (1,216,948) (13,645,005) (2,087,746) (23,426,747)
------------------------------------------------------------------------------------
Net increase 473,975 $5,155,164 491,820 $ 5,472,390 960,662 $10,781,449
====================================================================================
<S> <C> <C> <C> <C>
Class II Shares:
Six months ended August 31, 1997
Shares sold 75,210 $ 858,313 253,925 $ 2,885,104
Shares issued in reinvestment of distributions 4,902 55,843 7,668 87,497
Shares redeemed (23,744) (272,509) (27,975) (315,697)
------------------------------------------------------
Net increase 56,368 $ 641,647 233,618 $ 2,656,904
======================================================
Year ended February 28, 1997
Shares sold 193,161 $ 2,170,906 394,873 $ 4,464,492
Shares issued in reinvestment of distributions 5,780 65,217 7,393 83,785
Shares redeemed (61,281) (692,093) (36,209) (409,923)
------------------------------------------------------
Net increase 137,660 $ 1,544,030 366,057 $ 4,138,354
======================================================
2. TRUST SHARES (cont.)
Franklin Missouri Franklin North Carolina
Tax-Free Income Fund Tax-Free Income Fund
------------------------------------------------------
Shares Amount Shares Amount
------------------------------------------------------
Class I Shares:
Six months ended August 31, 1997
Shares sold 2,278,817 $27,024,902 2,201,042 $25,842,179
Shares issued in reinvestment of distributions 306,490 3,635,706 294,030 3,455,798
Shares redeemed (1,722,909) (20,425,652) (1,580,869) (18,554,231)
------------------------------------------------------
Net increase 862,398 $10,234,956 914,203 $10,743,746
======================================================
Year ended February 28, 1997
Shares sold 3,966,235 $46,599,538 3,552,504 $41,297,199
Shares issued in reinvestment of distributions 594,955 6,994,954 573,276 6,662,552
Shares redeemed (2,503,773) (29,413,147) (2,910,471) (33,789,285)
------------------------------------------------------
Net increase 2,057,417 $24,181,345 1,215,309 $14,170,466
======================================================
Class II Shares:
Six months ended August 31, 1997
Shares sold 218,168 $ 2,587,884 400,132 $ 4,733,895
Shares issued in reinvestment of distributions 8,079 96,215 13,775 162,923
Shares redeemed (38,665) (461,261) (39,662) (465,855)
------------------------------------------------------
Net increase 187,582 $ 2,222,838 374,245 $ 4,430,963
======================================================
Year Ended February 28, 1997
Shares sold 269,876 $ 3,172,482 616,676 $ 7,189,961
Shares issued in reinvestment of distributions 9,403 110,971 14,587 170,617
Shares redeemed (27,585) (325,016) (22,519) (263,170)
------------------------------------------------------
Net increase 251,694 $ 2,958,437 608,744 $ 7,097,408
======================================================
Franklin Texas Franklin Virginia
Tax-Free Income Fund Tax-Free Income Fund
------------------------------------------------------
Shares Amount Shares Amount
------------------------------------------------------
Class I Shares:
Six months ended August 31, 1997
Shares sold 618,339 $ 7,018,412 2,416,274 $28,044,798
Shares issued in reinvestment of distributions 150,659 1,712,819 365,555 4,255,614
Shares redeemed (781,606) (8,859,574) (1,330,552) (15,451,968)
------------------------------------------------------
Net increase (decrease) (12,608) $ (128,343) 1,451,277 $16,848,444
======================================================
Year ended February 28, 1997
Shares sold 891,121 $10,192,268 3,444,893 $39,877,525
Shares issued in reinvestment of distributions 372,717 4,259,781 601,492 6,965,421
Shares redeemed (1,329,365) (15,244,625) (2,557,004) (29,595,029)
------------------------------------------------------
Net increase (decrease) (65,527) $ (792,576) 1,489,381 $17,247,917
======================================================
Class II Shares:
Six months ended August 31, 1997
Shares sold 53,503 $ 613,428 339,392 $ 3,960,066
Shares issued in reinvestment of distributions 1,971 22,657 11,347 132,919
Shares redeemed (9,744) (112,230) (59,433) (694,302)
------------------------------------------------------
Net increase 45,730 $ 523,855 291,306 $ 3,398,683
======================================================
Year ended February 28, 1997
Shares sold 55,787 $ 647,380 408,327 $ 4,752,900
Shares issued in reinvestment of distributions 2,377 27,381 10,741 125,196
Shares redeemed (521) (6,063) (23,383) (272,692)
------------------------------------------------------
Net increase 57,643 $ 668,698 395,685 $ 4,605,404
======================================================
</TABLE>
3. INCOME TAXES
<TABLE>
<CAPTION>
At February 28, 1997, the Funds had tax basis capital losses which may be carried over to offset future capital gains.
Such losses expire as follows:
Franklin Franklin Franklin Franklin Franklin Franklin
Florida Georgia Kentucky Louisiana Maryland North Carolina
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital loss carryovers expiring in:2000 $-- $-- $ 495 $-- $-- $ 19,393
2001 -- -- 1,213 -- -- 147,462
2002 -- -- 24,595 -- -- 14,532
2003 2,417,567 833,869 759,461 2,454,261 -- 2,746,697
2004 -- -- 65,389 -- 255,042 --
2005 1,969,420 83,809 294,278 -- -- 187,812
-------------------------------------------------------------------------------
$4,386,987 $917,678 $1,145,431 $2,454,261 $255,042 $3,115,896
===============================================================================
</TABLE>
At August 31, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<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>
Investments at cost $196,334,107$1,471,993,169 $138,797,754 $45,972,424 $123,228,102
====================================================================
Unrealized appreciation $11,493,625 $93,839,724 $7,719,559 $2,512,654 $7,400,563
Unrealized depreciation (118,099) (3,549,238) (36,464) (7,390) (6,966)
--------------------------------------------------------------------
Net unrealized appreciation $11,375,526 $90,290,486 $7,683,095 $2,505,264 $7,393,597
====================================================================
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
--------------------------------------------------------------------
Investments at cost $192,185,502 $278,532,623 $269,068,021 $118,700,570 $295,487,981
====================================================================
Unrealized appreciation $10,963,281 $15,627,781 $15,212,405 $8,076,435 $17,218,033
Unrealized depreciation (50,842) (100,035) (44,000) -- (198,978)
--------------------------------------------------------------------
Net unrealized appreciation $10,912,439 $15,527,746 $15,168,405 $8,076,435 $17,019,055
====================================================================
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differences between book and tax recognition of dividend distributions
and differing treatment of defaulted securities.
Net realized capital gains (losses) differ for financial statements and tax
purposes primarily due to differing treatment of wash sales.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended August 31, 1997 were as follows:
<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>
Purchases $23,868,945 $162,864,785 $19,615,255 $9,482,430 $21,126,675
Sales $13,249,816 $ 76,678,856 $16,436,641 $6,411,400 $ 9,436,816
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>
Purchases $14,676,969 $40,521,663 $25,584,948 $16,608,420 $34,025,092
Sales $ 1,380,100 $28,327,245 $10,021,001 $16,912,525 $11,765,192
</TABLE>
5. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trusts are also officers or directors of
Franklin/Templeton Distributors, Inc. (Distributors), Franklin Advisers, Inc.
(Advisers), Franklin/Templeton Investor Services, Inc (Investor Services), and
Franklin Templeton Services, Inc. (FT Services), the Funds' principal
underwriter, investment manager, transfer agent, and administrative manager,
respectively.
The Funds pay an investment management fee to Advisers based on the average net
assets of the Funds as follows:
Annualized Fee RateMonth-End Net Assets
-------------------------------------------------------------------
0.625% First $100 million
0.50% Over $100 million up to and including $250 million
0.45% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
Advisers agreed in advance to waive a portion of the management fees for the
Franklin Kentucky Tax-Free Income Fund, as noted in the Statements of
Operations.
The Funds reimburse Distributors up to 0.10% and 0.65% per year of the average
daily net assets of Class I and Class II, respectively, for costs incurred in
marketing the Funds' shares.
Distributors received (paid) net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the period as follows:
<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>
Net commissions received (paid) $ 502 $(174,728) $(3,601) $10,805 $(34,801)
Contingent deferred sales charges $2,815 $ 4,940 $1,411 $-- $ 1,319
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>
Net commissions received (paid) $(14,017) $14,665 $(22,725) $556 $2,803
Contingent deferred sales charges $ 1,450 $ 3,107 $ 3,548 $753 $3,157
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
At August 31, 1997, the Franklin Florida Tax-Free Income Fund held two defaulted
securities issued by Palm Beach County Solid Waste with a value aggregating
$12,067,875 representing 0.76% of the Fund's net assets. For information as to
specific securities, see the accompanying Statement of Investments. For
financial reporting purposes, the Fund discontinues accruing income on defaulted
bonds and provides an estimate for losses on interest receivable.
The Funds have investments in excess of 10% of their total net assets in their
respective states and U.S. territories and possessions. Such concentration may
subject the Funds more significantly to economic changes occurring within those
states and U.S. territories and possessions.
Franklin Tax-Free Trust #2 (Alabama Series) Semi-Annual Report August 31, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the total return of the municipal bond market
over a ten-year period, from 9/1/87 to 8/31/97.
<TABLE>
<CAPTION>
Over the Long Term, Income Drives Total Return Municipal Bond Market
<S> <C>
Income 84.01%
Appreciation on Initial 15.99%
Investment
</TABLE>
GRAPHIC MATERIAL (2)
This bar chart shows the percentage of insured vs. Non-insured municipal bond
issuance over a three-year period.
<TABLE>
<CAPTION>
Insured and Non-Insured Municipal Bonds as a Percentage of Total Long-Term
Investments
<S> <C> <C>
Year Insured Bonds Non-Insured Bonds
1994 37% 63%
1995 43% 57%
1996 47% 53%
1997 61% 39%
</TABLE>
GRAPHIC MATERIAL (3)
This chart shows in bar format the dollar amount (in billions) of new long-term
municipal bond issuance from 1987 to 1997: $105 (1987); $117.3 (1988); $125
(1989); $127.8 (1990); $172.4 (1991); $234.7 (1992); $292.2 (1993); $164.8
(1994); $160.3 (1995); $183.5 (1996); $105.7 (1997).
GRAPHIC MATERIAL (4)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 66.2%
AA 3.2%
A 4.2%
BBB 26.4%
</TABLE>
GRAPHIC MATERIAL (5)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.36% and the taxable equivalent rate of 9.34%.
GRAPHIC MATERIAL (6)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.95% and the taxable equivalent rate of 8.63%.
GRAPHIC MATERIAL (7)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 62.0%
AA 13.0%
A 4.2%
BBB 19.0%
Below 1.8%
Investment Grade
</TABLE>
GRAPHIC MATERIAL (8)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.32% and the taxable equivalent rate of 8.81%.
GRAPHIC MATERIAL (9)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.90% and the taxable equivalent rate of 8.11%.
GRAPHIC MATERIAL (10)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 58.4%
AA 21.9%
A 8.9%
BBB 8.2%
Below 2.6%
Investment Grade
</TABLE>
GRAPHIC MATERIAL (11)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.10% and the taxable equivalent rate of 8.99%.
GRAPHIC MATERIAL (12)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.68% and the taxable equivalent rate of 8.24%.
GRAPHIC MATERIAL (13)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 57.8%
AA 7.8%
A 20.2%
BBB 14.2%
</TABLE>
GRAPHIC MATERIAL (14)
This chart shows in bar format the comparison between the fund's distribution
rate of 5.24% and the taxable equivalent rate of 9.22%.
GRAPHIC MATERIAL (15)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 62.4%
AA 3.6%
A 11.3%
BBB 12.1%
Below 10.6%
Investment Grade
</TABLE>
GRAPHIC MATERIAL (16)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.34% and the taxable equivalent rate of 9.40%.
GRAPHIC MATERIAL (17)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.96% and the taxable equivalent rate of 8.73%.
GRAPHIC MATERIAL (18)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 49.1%
AA 16.2%
A 26.5%
BBB 8.2%
</TABLE>
GRAPHIC MATERIAL (19)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.03% and the taxable equivalent rate of 9.00%.
GRAPHIC MATERIAL (20)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.59% and the taxable equivalent rate of 8.22%.
GRAPHIC MATERIAL (21)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 63.3%
AA 14.6%
A 5.4%
BBB 16.7%
</TABLE>
GRAPHIC MATERIAL (22)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.19% and the taxable equivalent rate of 9.14%.
GRAPHIC MATERIAL (23)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.78% and the taxable equivalent rate of 8.42%.
GRAPHIC MATERIAL (24)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 40.1%
AA 24.4%
A 21.6%
BBB 13.3%
Below 0.6%
Investment Grade
</TABLE>
GRAPHIC MATERIAL (25)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.04% and the taxable equivalent rate of 9.04%.
GRAPHIC MATERIAL (26)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.62% and the taxable equivalent rate of 8.29%.
GRAPHIC MATERIAL (27)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 68.1%
AA 5.6%
A 6.3%
BBB 20.0%
</TABLE>
GRAPHIC MATERIAL (28)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.33% and the taxable equivalent rate of 8.82%.
GRAPHIC MATERIAL (29)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.90% and the taxable equivalent rate of 8.11%.
GRAPHIC MATERIAL (30)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 48.9%
AA 28.0%
A 15.4%
BBB 7.7%
</TABLE>
GRAPHIC MATERIAL (31)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.11% and the taxable equivalent rate of 8.98%.
GRAPHIC MATERIAL (32)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.68% and the taxable equivalent rate of 8.22%.
CONTENTS
Shareholder Letter 1
Special Feature:
Q&A with Thomas J. Kenny 3
Fund Reports
Franklin Arizona
Tax-Free Income Fund 6
Franklin Colorado
Tax-Free Income Fund 12
Franklin Connecticut
Tax-Free Income Fund 18
Franklin Indiana
Tax-Free Income Fund 24
Franklin Michigan
Tax-Free Income Fund 28
Franklin New Jersey
Tax-Free Income Fund 32
Franklin Oregon
Tax-Free Income Fund 38
Franklin Pennsylvania
Tax-Free Income Fund 44
Franklin Puerto Rico
Tax-Free Income Fund 50
Franklin Federal Intermediate-
Term Tax-Free Income Fund 56
Franklin High Yield
Tax-Free Income Fund 60
Glossary of
Investment Terms 66
Bond Ratings 68
Financial Highlights and
Statement of Investments 70
Financial Statements 135
Notes to
Financial Statements 143
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you the Franklin Tax-Free Trust's semi-annual report
for the period ended August 31, 1997.
During the six months under review, the U.S. economy continued its healthy
expansion. In March, the Federal Reserve Board (the Fed) raised short-term
interest rates 25 basis points, from 5.25% to 5.50%. The Fed's rate increase was
in response to tight labor markets and its concern that possible wage demands
could lead to inflation. Subsequently, interest rates reached their highest
point of the year in April. Concerns over inflation soon dissipated, however, as
reports released later in the period indicated few signs of inflation and showed
economic growth was moderating. In this low-inflation and moderate-growth
environment, interest rates ended near where they began. The 30-year U.S.
Treasury bond started the six-month period offering a rate of 6.80% and finished
at 6.57% on August 31, 1997.1
Over the period, we have continued to see many insured municipal issues brought
to the market. As individual state economies enjoyed healthy growth, state and
local governments witnessed an increase in their revenues. Voter resistance
toward higher taxes helped restrain government spending, causing government
fiscal positions and credit ratings to strengthen. As credit qualities have
risen, municipal bond insurance has become relatively cheap for state and local
governments. Furthermore, increased competition among the municipal insurance
companies have also contributed to lower insurance costs for issuers. Overall,
municipal issuers have favored insured bonds because of the stronger market
appeal for this type of security.
1. Source: Micropal.
Our Municipal Bond Department reacted to the opportunities inherent in both the
increased issues of insured bonds and the prepayment of outstanding municipal
securities. As a policy -- and as the market permits -- we continue to enjoy the
income from prerefunded holdings until they have a term left of approximately
five years. Ideally, at this time the gains are captured and the proceeds are
reinvested in bonds with greater call protection.
As always, we continue to stress a long-term investment perspective. The
financial markets always have been -- and probably always will be -- subject to
daily fluctuation. No one can predict the future performance of the securities
markets, but history has shown that, over the long term, stocks and bonds have
delivered impressive results when income is left to compound. We encourage you
to review your investment program periodically with your investment
representative, and focus on your continuing long-term goals. If you have any
questions concerning the funds in the Franklin Tax-Free Trust, we welcome the
opportunity to answer them.
Sincerely,
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
Thomas J. Kenny
Director
Franklin Municipal Bond Department
Q&A
SPECIAL FEATURE:
Q&A WITH THOMAS J. KENNY
Thomas J. Kenny, director of Franklin's Municipal Bond Department, discusses
some issues facing the municipal bond market.
Q: Tom, the U.S. economy has shown strong growth, yet increased inflation hasn't
been an issue. Any thoughts why not?
Many factors have contributed to the current economic environment in the U.S.
Most notably: 1) The U.S. currently has one of the strongest economies in the
world, with U.S. dollar-denominated assets in worldwide demand, which has led to
a stronger U.S. dollar and cheaper foreign goods; 2) technology has enabled U.S.
corporations to improve productivity efficiency, which has improved their bottom
lines without raising prices; 3) until recently, labor forces have not
renegotiated salary/wage contracts in lieu of job security; and 4) consumers
have become more price conscious, requiring companies to be more competitive to
maintain market share. Q: Did the Federal Reserve Board's quarter-point interest
rate hike in March -- and further neutral activity -- have any effect on the
municipal bond market?
The Fed raised rates in March in a pre-emptive move against inflation as labor
markets continued to strengthen. The Fed's tightening injected volatility into
the fixed-income markets, as participants were uncertain about the future
posturing by the Federal Reserve Board. Though it generally trended with the
government market, the municipal market was slightly less volatile due to price
support from comparatively low levels of municipal bond supply. As economic
numbers indicate that the economy has continued on its path of moderate growth
and low levels of inflation, we have seen overall interest rates trend downward.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q: It seems that portfolio managers have been increasing their purchases of
insured bonds. Why is that?
First of all, more municipal issues have been brought to the market as insured.
Municipal bond insurers currently insure approximately 60% of new issues, and
also make insurance available for secondary market securities. Second, the
sustained low interest rate environment has increased demand for lower quality,
higher yielding securities (causing their yields to decline), which has
contributed to the narrowing of quality spreads between insured bonds and lower
quality bonds. Simply speaking, we think insured bonds have generally offered
the best relative value in the municipal market.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q: Do you anticipate any impact to the municipal bond market as a result of the
recent tax law changes?
Fortunately, the new tax law changes have not altered the tax advantages enjoyed
by municipal bonds. Municipals continue to distribute income that is free from
federal and state income taxes. It is difficult to determine the extent to which
investors might change their investment strategies based upon the reduced
capital gains rate and other tax rule changes. However, we currently do not
expect any significant impact on the municipal bond market.
Q: What is your outlook for the municipal bond market for the remainder of 1997?
We expect the municipal bond market to do well through the rest of the year as
the demand for municipals remains strong -- retail investors, insurance
companies and institutional investors remain active in the market. Even with the
adoption of the recent tax legislation, tax equivalent yields remain attractive
and should lend some support for asset allocation into the municipal arena.
Thanks for sharing your thoughts, Tom.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN ARIZONA TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Arizona Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 118th
consecutive monthly income dividend. Since its first dividend payment on
December 15, 1987, your fund has helped investors increase their income
potential by reducing their tax burdens. We remain committed to helping you
achieve your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal and Arizona state personal income taxes through a portfolio consisting
primarily of Arizona municipal bonds.1
STATE UPDATE
During the reporting period, Arizona experienced moderate economic growth. The
state's population growth eased from its continuous high throughout the 1980s
and 1990s, due in part to improved economic prospects in neighboring California.
Furthermore, DRI/McGraw-Hill projects population growth in Arizona will slow
further, from 2.9% in 1996, to an estimated 2.1% for 1998.2
Although California's economic recovery may have slowed Arizona's immigration,
the outlook suggests continued above-average growth largely because of Arizona's
low housing prices. Arizona's employment growth in 1996 was 5.6%, a slowdown
only in relative terms from the blistering 6.6% growth in 1994. The state
projects a substantially higher 1997 fiscal year-end general fund balance
resulting from higher-than-expected income tax receipts.2
The state, constitutionally prohibited from using General Obligation debt,
relies on lease obligations, revenue bonds, and pay-as-you-go financing for its
capital needs, which results in moderate levels of gross state debt. Arizona's
creditworthiness is reflected by its ratings on Certificates of Participation
which remained in the A+ to AAA range, as rated by Standard & Poor's, a national
credit rating agency.3
1. For investors subject to the federal alternative minimum tax, a portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Standard & Poor's Creditweek Municipal,7/7/97.
3. This does not indicate Standard & Poor's rating of the fund.
PORTFOLIO NOTES
New municipal supply in Arizona was $1.6 million in the first six months of
1997-- about 57% of which was insured.4 Franklin's Arizona Tax-Free Income Fund
reflected this trend toward high-quality paper. At the close of the reporting
period, 55% of the fund's total long-term investments were in AAA-rated issues.
During the six-month reporting period, we sold pre-refunded bonds and reinvested
the proceeds in bonds with longer call protection. Investing in such bonds
slightly increased the portfolio's weighted average life-to-first-call, from
5.86 years on February 28, 1997, to 6.05 years on August 31, 1997. Likewise, our
prerefunded exposure decreased, from 15% to 13.3%, over the same period.
Although selling pre-refunded issues at opportune times helps to protect the
fund's net asset value and long-term earnings potential, it can lead to capital
gains. In June, your fund distributed 1.15 cents ($0.0115) per share of
long-term capital gains. Also, reinvesting proceeds from prerefunded issues in
the current market of lower interest rates lowered the average coupon of the
fund -- from 6.51% on February 28, 1997, to 6.34% on August 31, 1997. This is
quite a difference from when we first began selling prerefunded bonds in
mid-1994, when the average coupon of the portfolio was 6.8%.
One of our largest purchases during the fiscal period was in May, the Maricopa
County Hospital Revenue Sun Health Corp. With this purchase, we increased our
portfolio's hospital sector by roughly 3 percentage points, from 9.2% of total
long-term investments on February 28, 1997, to 12.9% on August 31, 1997. We also
participated in several new primary market deals, including Mesa Arizona Utility
Systems revenue, Yuma Regional Medical Center, Phoenix Civic Wastewater, Phoenix
USD, and Tucson Water.
Going forward, we expect the supply of Arizona municipal bonds in 1997 to remain
low, making the state's securities attractive investments.
4. Source: Bond Buyer, 8/5/97.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Arizona Tax-Free
Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Utilities 35.6%
Prerefunded 13.3%
Hospitals 12.9%
Education 11.6%
Transportation 6.7%
Housing 5.7%
Other Revenue 5.3%
General Obligations 3.9%
Certificates of
Participation 3.0%
Miscellaneous 0.9%
Industrial 0.8%
Sales Tax 0.3%
For a complete list of portfolio holdings, please see page 71 of this report.
PERFORMANCE SUMMARY
CLASS I
The Franklin Arizona Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 7.0 cents, from $11.24 on February 28, 1997, to
$11.31 on August 31, 1997.
The fund posted a cumulative total return of +3.44% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
In addition to distributing 31.2 cents ($0.312) per share in dividend income,
the fund paid out a long-term capital gain of 1.15 cents ($0.0115) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 5.28%,
based on an annualization of the current monthly dividend of 5.2 cents ($0.052)
per share and the maximum offering price of $11.81 on August 31, 1997. This
double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum combined
federal and Arizona state personal income tax bracket would need to earn 9.22%
from a taxable investment to match the fund's tax-free distribution rate.
Franklin Arizona Tax-Free
Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
Franklin Arizona Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.17% 37.55% 112.08%
Average Annual Total Return2 3.59% 5.67% 7.34%
Distribution Rate3 5.28%
Taxable Equivalent Distribution Rate4 9.22%
30-Day Standardized Yield5 4.32%
Taxable Equivalent Yield4 7.54%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.2 cent per
share monthly dividend and the maximum offering price of $11.81 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Arizona state personal income tax bracket of 42.72%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. All total return calculations assume reinvestment of dividends and
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
The Franklin Arizona Tax-Free Income Fund - Class I paid
distributions derived from long-term capital gains of 1.15 cents ($0.0115) per
share in June 1997. The fund hereby designates such distributions as capital
gain dividends per Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
The Franklin Arizona Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 7.0 cents, from $11.30 on February 28, 1997, to
$11.37 on August 31, 1997.
The fund posted a cumulative total return of +3.23% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
In addition to distributing 28.4 cents ($0.284) per share in dividend income,
the fund paid out a long-term capital gain of 1.15 cents ($0.0115) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 4.84%,
based on an annualization of the current monthly dividend of 4.63 cents
($0.0463) per share, which includes a 12b-1 differential adjustment, and the
offering price of $11.48 on August 31, 1997. This double tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
For example, an investor in the maximum combined federal and Arizona state
personal income tax bracket would need to earn 8.45% from a taxable investment
to match the fund's tax-free distribution rate.
Franklin Arizona Tax-Free
Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.0 cents
April 4.66 cents
May 4.66 cents
June 4.66 cents
July 4.71 cents
August 4.71 cents
Total 28.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
Franklin Arizona Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.65% 16.38%
Average Annual Total Return2 5.61% 6.26%
Distribution Rate3 4.84%
Taxable Equivalent Distribution Rate4 8.45%
30-Day Standardized Yield5 3.90%
Taxable Equivalent Yield4 6.81%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.63 cent per
share monthly dividend, which includes a 12b-1 differential adjustment, and the
offering price of $11.48 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Arizona state personal income tax bracket of 42.72%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Franklin Arizona Tax-Free Income Fund - Class II paid distributions
derived from long-term capital gains of 1.15 cents ($0.0115) per share in June
1997. The fund hereby designates such distributions as capital gain dividends
per Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN COLORADO TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Colorado Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 118th
consecutive monthly income dividend. Since its first dividend payment on
December 15, 1987, your fund has helped investors increase their income
potential by reducing their tax burdens. We remain committed to helping you
achieve your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal and Colorado state personal income taxes through a portfolio consisting
primarily of Colorado municipal bonds.1
STATE UPDATE
During the period, Colorado's continued economic growth, low debt
burden, and strengthened financial position helped maintain its very high credit
quality.
The state's strong economic growth yielded revenues over and above budget
projections. In 1997-1998, the state's ample revenue growth, coupled with lower
inflation and slower population growth, should cause the state to reach its
constitutional limit on revenues for the first time. As a result, the state is
likely to refund a $40 million excess to taxpayers in fiscal 1998, but this
would have practically no impact on budgeted state reserves or liquidity.2
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Standard & Poor's Creditweek Municipal, 6/23/97.
PORTFOLIO NOTES
During this six-month period, the supply of Colorado municipal securities
increased slightly over the same period in 1996. Insured bonds continued to
dominate new municipal supply, as more than 44% of the new issuance in Colorado
came to market insured3. Additionally, yields between insured and uninsured
securities continued to narrow. Because investments in lower-rated securities
did not produce yields high enough to justify their added credit risk, we
purchased mostly insured issues. As a result, the fund's overall credit quality
improved during the period, with the percentage of total long-term investments
invested in AAA-rated securities increasing from 64% to 65%. As of August 31,
1997, approximately 89% of these AAA-rated issues were insured.
Purchases over the period came from many different sectors. For example, the
fund participated in the following deals: Denver International Airport, Arapahoe
E-470 Toll Road, Platte River Power Authority, and Colorado Housing Finance
Authority. Many of the fund's purchases were financed with proceeds from the
sales of pre-refunded bonds. Selling prerefunded issues allowed us to maximize
gains, while reducing the volatility of the fund's future income stream, by
purchasing bonds offering longer call protection than the bonds we sold.
Going forward, our outlook for the Colorado municipal market, as well as for the
Franklin Colorado Tax-Free Income Fund, remains positive. We expect the supply
of Colorado municipal issues to remain relatively stable in 1998. This stable
supply, coupled with a strong demand for Colorado bonds, should help keep the
state's issues an attractive investment.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Colorado Tax-Free
Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Transportation 16.1%
Utilities 15.4%
Hospitals 13.9%
Housing 13.8%
Prerefunded 10.0%
Education 6.3%
Health Care 5.6%
General Obligations 5.0%
Sales Tax 4.7%
Certificates of
Participation 4.7%
Industrial 3.5%
Other Revenue 0.6%
Tax Allocation 0.4%
For a complete list of portfolio holdings, please see page 77 of this report.
3. Source: Bond Buyer, 8/5/97.
PERFORMANCE SUMMARY
CLASS I
The Franklin Colorado Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 8.0 cents, from $11.80 on February 28, 1997, to
$11.88 on August 31, 1997.
The fund posted a cumulative total return of +3.50% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.03%,
based on an annualization of the current monthly dividend of 5.2 cents ($0.052)
per share, which includes a dividend adjustment, and the maximum offering price
of $12.41 on August 31, 1997. This double tax-free rate is generally higher than
the after-tax return on a comparable taxable investment. For example, an
investor in the maximum combined federal and Colorado state personal income tax
bracket would need to earn 8.76% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Colorado Tax-Free
Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.5 cents
April 5.5 cents
May 5.5 cents
June 5.5 cents
July 5.5 cents
August 5.5 cents
Total 33.0 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin Colorado Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.27% 39.17% 117.65%
Average Annual Total Return2 3.71% 5.90% 7.62%
Distribution Rate3 5.03%
Taxable Equivalent Distribution Rate4 8.76%
30-Day Standardized Yield5 4.37%
Taxable Equivalent Yield4 7.62%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.2 cent, which
includes a dividend adjustment, per share monthly dividend and the maximum
offering price of $12.41 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Colorado state personal income tax bracket of 42.62%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
The Franklin Colorado Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 9.0 cents, from $11.84 on February 28, 1997, to
$11.93 on August 31, 1997.
The fund posted a cumulative total return of +3.28% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 4.61%,
based on an annualization of the current monthly dividend of 4.63 cents
($0.0463) per share, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $12.05 on August 31, 1997.
This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum combined
federal and Colorado state personal income tax bracket would need to earn 8.04%
from a taxable investment to match the fund's tax-free distribution rate.
Franklin Colorado Tax-Free
Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.94 cents
April 4.92 cents
May 4.92 cents
June 4.92 cents
July 4.97 cents
August 4.97 cents
Total 29.64 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin Colorado Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.73% 17.54%
Average Annual Total Return2 5.64% 6.68%
Distribution Rate3 4.61%
Taxable Equivalent Distribution Rate4 8.04%
30-Day Standardized Yield5 3.95%
Taxable Equivalent Yield4 6.88%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and does not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.63 cent per
share monthly dividend, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $12.05 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Colorado state personal income tax bracket of 42.62%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal and Connecticut state personal income taxes through a portfolio
consisting primarily of Connecticut municipal bonds.1
STATE UPDATE
During the period, Connecticut maintained steady economic performance. The
state's rating remained AA-, by Standard & Poor's, a national credit rating
agency.2 This excellent rating reflected Connecticut's dynamic economic base,
above-average income levels, and an increased but manageable debt burden. Growth
in business services, media and communications, and biopharmaceuticals, led the
state's economic expansion. Tourism should contribute more to Connecticut's
economy in the near future, with the opening of Mohegan Sun Casino. Connecticut
remains the nation's richest state, with a per capita income at $33,189 -- 137%
of the U.S. average.3
As a result of much stronger-than-anticipated income tax returns, the state is
estimating a fiscal 1997 general fund surplus of $255 million. This marks the
state's sixth consecutive surplus since fiscal 1991's massive $809 million
deficit.3 Connecticut's outlook remains positive. The state looks forward to a
AA rating by Standard & Poor's, depending upon its stability and commitment to
reduce debt levels.
1. For investors subject to the federal alternative minimum tax, a portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable. The
risks of investing in a non-diversified fund, such as increased susceptibility
to adverse economic or regulatory developments, are described in the fund's
prospectus.
2. This does not indicate Standard & Poor's rating of the fund.
3. Source: Business Wire via Dow Jones, 8/7/97.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PORTFOLIO NOTES
The market action for Connecticut municipal bonds -- rather than reflecting
improvements in the state's economy -- was more closely tied to expected changes
in the nation's overall economic activity. With the consensus opinion that
inflation is not likely to be a near-term problem, the municipal market, with
only brief and moderate setbacks, was strong over the six-month reporting
period.
Over the reporting period, we tried -- as usual -- to concentrate our investment
activity during periods of market weakness. Toward that end, we purchased $6.5
million in hospital and higher education bonds between March and early April.
Almost 70% of these were insured, AAA-rated bonds. The balance was BBB-rated
issues, purchased at what we felt were attractive yields.
During a recovery in market prices early in the period, we added to our
AAA-rated hospital bonds and bought some strong, A-rated hospital bonds. For
almost two months (since late June), we watched the market continue its upward
move. Then, toward the end of August, an issue of AA-rated Connecticut Housing
Finance Authority bonds came to market, priced to yield an attractive 5.85%. We
purchased $1.5 million of these bonds.
The percentage of total long-term investments in AAA-rated bonds increased
during the period, from 39.3% on February 28, 1997, to 44.7% on August 31, 1997.
For the most part, this change resulted from an increase in bonds becoming
prerefunded and moving up to AAA rating. We decreased the percentage of total
long-term investments in practicing hospital bonds, from 13.21% to 6.93% during
the reporting period.
Our investment aim is to continue focusing on tax-exempt income. We believe
that, over the long term, the fund's approach to portfolio management best
serves our shareholders' interests.
Franklin Connecticut
Tax-Free Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Prerefunded 30.5%
Hospitals 18.0%
Housing 17.2%
Education 12.0%
Utilities 11.4%
General Obligations 5.4%
Health Care 3.5%
Industrial 1.2%
Transportation 0.8%
For a complete list of portfolio holdings, please see page 81 of this report.
PERFORMANCE SUMMARY
CLASS I
The Franklin Connecticut Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 10.0 cents, from $10.92 on February 28, 1997, to
$11.02 on August 31, 1997.
The fund posted a cumulative total return of +3.75% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.21%,
based on an annualization of the current monthly dividend of 5.0 cents ($0.050)
per share and the maximum offering price of $11.51 on August 31, 1997. This
double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum combined
federal and Connecticut state personal income tax bracket would need to earn
9.04% from a taxable investment to match the fund's tax-free distribution rate.
Franklin Connecticut
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
Total 30.6 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin Connecticut Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (10/3/88)
Cumulative Total Return1 7.96% 36.39% 85.11%
Average Annual Total Return2 3.36% 5.48% 6.64%
Distribution Rate3 5.21%
Taxable Equivalent Distribution Rate4 9.04%
30-Day Standardized Yield5 4.17%
Taxable Equivalent Yield4 7.23%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.0 cent per
share monthly dividend and the maximum offering price of $11.51 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Connecticut state personal income tax bracket of 42.32%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
The Franklin Connecticut Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 10.0 cents, from $10.94 on February 28,
1997, to $11.04 on August 31, 1997.
The fund posted a cumulative total return of +3.45% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 4.81%,
based on an annualization of the current monthly dividend of 4.47 cents
($0.0447) per share, which includes a 12b-1 differential adjustment, and the
offering price of $11.15 on August 31, 1997. This double tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
For example, an investor in the maximum combined federal and Connecticut state
personal income tax bracket would need to earn 8.34% from a taxable investment
to match the fund's tax-free distribution rate.
Franklin Connecticut
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.66 cents
April 4.68 cents
May 4.68 cents
June 4.48 cents
July 4.50 cents
August 4.50 cents
Total 27.5 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin Connecticut Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.34% 16.64%
Average Annual Total Return2 5.27% 6.34%
Distribution Rate3 4.81%
Taxable Equivalent Distribution Rate4 8.34%
30-Day Standardized Yield5 3.76%
Taxable Equivalent Yield4 6.52%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.47 cent per
share monthly dividend, which includes a 12b-1 differential adjustment, and the
offering price of $11.15 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Connecticut state personal income tax bracket of 42.32%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN INDIANA TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Indiana Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 118th
consecutive monthly income dividend. Since its first dividend payment on
December 15, 1987, your fund has helped investors increase their income
potential by reducing their tax burdens. We remain committed to helping you
achieve your investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal and Indiana state personal income taxes through a portfolio consisting
primarily of Indiana municipal bonds.1
STATE UPDATE
During the period, Indiana's outlook remained stable, and the state's strong
creditworthiness reflected its sound financial position, which is among the best
in the nation. Aggressive budget cuts and moderate revenue growth from a strong
economy, resulted in operating surpluses. Despite Indiana's economic and
financial performance, the State Teachers Retirement Fund (STRF) continued to
show large, unfunded, accrued liabilities. In November 1996, the state
electorate approved investing STRF funds in equities to help reduce the unfunded
liabilities. Indiana's economy remained dependent on the manufacturing sector.
Through 1996, this sector still accounted for a high 23% of the labor force, a
figure that surpassed 49 of the 50 states.2 With such sector strength, Indiana
experienced good cyclical employment and positive income growth. We expect
Indiana to maintain its leadership in the manufacturing sector.
1. For investors subject to the federal alternative minimum tax, a portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Standard & Poor's Creditweek Municipal, 2/3/97.
Portfolio Notes
During the six-month period, the supply of Indiana municipal bonds remained low.
Refunding volume also rose as interest rates generally declined over the period.
As of August 31, 1997, prerefunded bonds comprised 7.9% of the fund's total
long-term investments. We intend to sell pre-refunded bonds with approximately
five to six years remaining until the call date to maximize any price gains. By
reinvesting proceeds in bonds offering longer call protection, we may also
extend the fund's long-term, income-earning potential.
Insured bonds represented more than 51% of new issues during the first six
months of 1997. The insured sector represented 61% of the entire municipal
market, up from 26% in 1990.3 This increase led to narrowing difference in
yields between AAA and lower-rated securities, which, in turn, provided the
market with more liquidity and less risk.
In response to these market factors, the fund concentrated its purchases in
higher-grade, essential purpose issues. AAA-rated bonds comprised 39.5% of the
fund's total long-term investments on August 31, 1997. Education bonds were
20.9% of the fund's total long-term investments at the close of the period.
Recent purchases included Duneland School Building and Indiana Bond Bank. Assets
in the fund grew modestly over the six months, helping us diversify the fund's
holdings.
We anticipate a relatively stable interest-rate environment, moderate economic
growth, mild inflation, and stable municipal supply in the coming months. Based
on these expectations, we believe the Franklin Indiana Tax-Free Income Fund
should perform well during the next reporting period.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Indiana Tax-Free Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Education 20.9%
Hospitals 19.3%
General Obligations 17.3%
Industrial 11.0%
Prerefunded 7.9%
Certificates of
Participation 7.0%
Housing 5.0%
Other Revenue 4.9%
Transportation 3.1%
Utilities 3.0%
Sales Tax 0.5%
Tax Assessment 0.1%
For a complete list of portfolio holdings, please see page 85 of this report.
3. Source: The Bond Buyer.
PERFORMANCE SUMMARY
The Franklin Indiana Tax-Free Income Fund's share price, as measured by net
asset value, increased 9.0 cents, from $11.77 on February 28, 1997, to $11.86 on
August 31, 1997.
The fund posted a cumulative total return of +3.60% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.23%,
based on an annualization of the current monthly dividend of 5.4 cents ($0.054)
per share, which includes a dividend adjustment, and the maximum offering price
of $12.39 on August 31, 1997. This double tax-free rate is generally higher than
the after-tax return on a comparable taxable investment. For example, an
investor in the maximum combined federal and Indiana state personal income tax
bracket would need to earn 9.06% from a taxable investment to match the fund's
tax-free distribution rate.
FRANKLIN INDIANA TAX-FREE INCOME FUND
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.5 cents
April 5.5 cents
May 5.5 cents
June 5.5 cents
July 5.5 cents
August 5.5 cents
Total 33.0 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin Indiana Tax-Free Income Fund
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.69% 37.90% 119.19%
Average Annual Total Return2 4.09% 5.71% 7.69%
Distribution Rate3 5.23%
Taxable Equivalent Distribution Rate4 9.06%
30-Day Standardized Yield5 4.24%
Taxable Equivalent Yield4 7.34%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.4 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.39 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Indiana state personal income tax bracket of 42.26%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal and Michigan state personal income taxes through a portfolio consisting
primarily of Michigan municipal bonds.1
STATE UPDATE
During the period, Michigan displayed strong economic performance. The state's
economy and operating funds remained satisfactory. Performance remained steady,
reflecting the state administration's response to the national recession that
weakened Michigan's position in the early 1990s. Reserves such as the state's
budget stabilization fund, previously depleted as a result of the recession,
were sufficiently replenished. These reserve levels provided increased
stability, which was necessary to offset the effects of increased state
expenditures, especially for school funding needs.
Michigan's total employment reached an historically high level during the
period.2 Increased employment in the service sectors, brought on by
manufacturers' outsourcing efforts and the effects of strong export activity,
positively impacted employment trends. As of March 31, 1997, the state's
unemployment rate was at its lowest since the 1960s, and also below the national
average.2
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
1. For investors subject to the federal alternative minimum tax, a portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable. The
risks of investing in a non-diversified fund, such as increased susceptibility
to adverse economic or regulatory developments, are described in the fund's
prospectus.
2. Source: Standard & Poor's Creditweek Municipal, 3/24/97.
PORTFOLIO NOTES
The Franklin Michigan Tax-Free Income Fund opened to investors on July 1,1996.
Since then, the funds have been fully invested, and total net assets increased
to $7.49 million on August 31, 1997. Additionally, the fund raised its monthly
dividend, from 4.5 cents to 4.8 cents, in March 1997.
The portfolio's credit quality changed significantly since the last reporting
period. For example, the percentage of total long-term investments in AAA-rated
bonds decreased, from 74.2% on February 28, 1997, to 59.7% on August 31, 1997.
BBB-rated bonds, on the other hand, increased from 3.4% to 20.6% over the same
period.
Much of this change in the portfolio's average credit quality resulted from our
May purchase of a BBB-rated issue for the Michigan State Hospital-Presbyterian
Villages obligation. Some of this health system's strengths are its large cash
position, strong historical occupancy at all facilities, and lower rates and
costs than its competitors. This purchase increased the fund's sector weighting
in hospital issues, from 17.7% of total long-term investments on February 28,
1997, to 40.9% on August 31, 1997.
We also participated in some other attractive new issues including Ferris State
University revenue, Michigan State Hospital Mercy Health Services, Detroit
Sewage Disposal revenues, and Ottawa County Building Authority.
The outlook for the fund remains positive. Currently, the fund's average credit
quality is very high -- over 50% of the portfolio's total long-term investments
are rated AAA. That puts us in a good position to trade out of our highly liquid
paper and into bonds that offer higher yields as they become available.
Franklin Michigan Tax-Free
Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Hospitals 40.9%
Education 29.0%
Housing 12.9%
Utilities 10.2%
Certificates of
Participation 3.4%
Sales Tax 2.1%
Prerefunded 1.5%
For a complete list of portfolio holdings, please see page 88 of this report.
PERFORMANCE SUMMARY
The Franklin Michigan Tax-Free Income Fund's share price, as measured by net
asset value, increased 17.0 cents, from $10.42 on February 28, 1997, to $10.59
on August 31, 1997.
The fund posted a cumulative total return of +4.44% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.21%,
based on an annualization of the current monthly dividend of 4.8 cents ($0.048)
per share and the maximum offering price of $11.06 on August 31, 1997. This
double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum combined
federal and Michigan state personal income tax bracket would need to earn 9.02%
from a taxable investment to match the fund's tax-free distribution rate.
Franklin Michigan Tax-Free Income Fund
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.8 cents
April 4.8 cents
May 4.8 cents
June 4.8 cents
July 4.8 cents
August 4.8 cents
Total 28.8 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual disributions will vary depending on the date
you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin Michigan Tax-Free Income Fund
Periods ended 8/31/97
Since
Inception
1-Year (7/1/96)
Cumulative Total Return1 10.00% 10.75%
Average Annual Total Return2 5.30% 5.19%
Distribution Rate3 5.21%
Taxable Equivalent Distribution Rate4 9.02%
30-Day Standardized Yield5 5.08%
Taxable Equivalent Yield4 8.80%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the maximum 4.25% initial
sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 4.8 cent per
share monthly dividend and the maximum offering price of $11.06 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Michigan state personal income tax bracket of 42.26%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The fund's manager agreed in advance to waive a portion of management expenses,
which reduces operating expenses and increases yield, distribution rate and
total return to shareholders. Without these reductions, the fund's distribution
rate would have been lower and yield for the period would have been 4.47%. The
fee waiver may be discontinued at any time upon notification to the fund's Board
of Trustees.
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal and New Jersey state personal income taxes through a portfolio
consisting primarily of New Jersey municipal bonds.1
STATE UPDATE
During the period, New Jersey's economic expansion, now beginning its seventh
year, was consistent. Slowly, the state made progress in decreasing its spending
to levels it could afford, following the tax cuts of recent years. New Jersey
recently issued state pension-funding bonds in an effort to fund portions of
accrued pension and cost-of-living adjustment liabilities. Moody's, a national
credit rating agency, assigned the state an overall debt rating of Aa1.2
Expectations concerning New Jersey's budgets are somewhat vague. Although the
state is seeking an aggressive budget strategy, its increasing debt levels and
slower-than-average economic growth may leave it unprepared to deal with the
next economic downturn. Nevertheless, New Jersey's economy has been improving,
recording job gains and narrowing gaps between its growth rate and the national
pace. New Jersey maintained a strong credit position this period, and we
anticipate the state's borrowing will aid, not hinder, its economic strength.
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
1. For investors subject to the federal alternative minimum tax, a portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable. The
fund seeks to comply with New Jersey requirements for the pass-through of
tax-exempt income dividends.
2. This does not indicate Moody's rating of the fund.
PORTFOLIO NOTES
During the six-month period, the overall supply of New Jersey municipal bonds
was light, resulting in favorable performance for the state's outstanding debt.
Interest rates generally declined during the period, leading to increased
refunding volume. As of August 31, 1997, prerefunded bonds comprised 10.6% of
the fund's total long-term investments. We intend to sell prerefunded bonds with
approximately five to six years remaining until the call date to maximize any
price gains. By reinvesting the proceeds in bonds offering longer call
protection, we may also extend the fund's income-earning potential.
Insured bonds represented more than 51% of new issues during the first six
months of 1997. The insured sector represented 61% of the entire municipal
market -- up from 26% in 1990.3 This increase has led to the difference in
yields between AAA-rated and lower-rated securities narrowing, which, in turn,
provided the market with more liquidity and less risk.
In response to these market factors, the fund concentrated its purchases in
higher-grade, essential purpose issues. AAA-rated bonds comprised 64.5% of the
fund's total long-term investments on August 31, 1997, compared with 60.7% six
months ago. Essential-purpose education bonds were 10.9% of the fund's total
long-term investments at the close of the period, while direct revenue utility
issues represented 16.4%. Recent purchases included North Brunswick Township
Board of Education and Camden County Municipal Utility Authority District.
Going forward, we anticipate a relatively stable interest-rate environment with
moderate economic growth and mild inflation. Combining these circumstances with
continued light supply in municipals, the Franklin New Jersey Tax-Free Income
Fund should perform well during the next reporting period.
Franklin New Jersey
Tax-Free Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Utilities 16.4%
Hospitals 15.8%
Transportation 14.8%
Housing 12.5%
Education 10.9%
Prerefunded 10.6%
Other Revenue 6.8%
Certificates of
Participation 3.6%
General Obligations 3.6%
Health Care 3.3%
Industrial 1.7%
For a complete list of portfolio holdings, please see page 90 of this report.
3. Source: The Bond Buyer.
PERFORMANCE SUMMARY
CLASS I
The Franklin New Jersey Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 8.0 cents, from $11.61 on February 28, 1997, to
$11.69 on August 31, 1997.
The fund posted a cumulative total return of +3.51% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.11%,
based on an annualization of the current monthly dividend of 5.2 cents ($0.052)
per share, which includes a dividend adjustment, and the maximum offering price
of $12.21 on August 31, 1997. This double tax-free rate is generally higher than
the after-tax return on a comparable taxable investment. For example, an
investor in the maximum combined federal and New Jersey state personal income
tax bracket would need to earn 9.04% from a taxable investment to match the
fund's tax-free distribution rate.
Franklin New Jersey
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
Total 32.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin New Jersey Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (5/12/88)
Cumulative Total Return1 8.22% 35.34% 104.68%
Average Annual Total Return2 3.60% 5.32% 7.50%
Distribution Rate3 5.11%
Taxable Equivalent Distribution Rate4 9.04%
30-Day Standardized Yield5 4.42%
Taxable Equivalent Yield4 7.82%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.2 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.21 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and New Jersey state personal income tax bracket of 43.45%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. All total return calculations assume reinvestment of dividends and
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
The Franklin New Jersey Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 9.0 cents, from $11.66 on February 28, 1997, to
$11.75 on August 31, 1997.
The fund posted a cumulative total return of +3.30% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 4.72%,
based on an annualization of the current monthly dividend of 4.67 cents
($0.0467) per share, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $11.87 on August 31, 1997.
This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum combined
federal and New Jersey state personal income tax bracket would need to earn
8.35% from a taxable investment to match the fund's tax-free distribution rate.
Franklin New Jersey
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.89 cents
April 4.85 cents
May 4.85 cents
June 4.85 cents
July 4.94 cents
August 4.94 cents
Total 29.32 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin New Jersey Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.73% 16.57%
Average Annual Total Return2 5.62% 6.35%
Distribution Rate3 4.72%
Taxable Equivalent Distribution Rate4 8.35%
30-Day Standardized Yield5 4.00%
Taxable Equivalent Yield4 7.07%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.67 cent per
share monthly dividend, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $11.87 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and New Jersey state personal income tax bracket of 43.45%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN OREGON TAX-FREE INCOME FUND
We are pleased to announce that the Franklin Oregon Tax-Free Income Fund
celebrated its 10th anniversary in September 1997 by paying its 117th
consecutive monthly income dividend. Since its first dividend payment on January
15, 1988, your fund has helped investors increase their income potential by
reducing their tax burdens. We remain committed to helping you achieve your
investment goals.
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal and Oregon state personal income taxes through a portfolio consisting
primarily of Oregon municipal bonds.1
STATE UPDATE
During the period, Oregon's low level of tax-supported debt and sound financial
operations kept economic growth vibrant. The state's voters approved ballot
Measure 47 in 1996, and in May 1997 passed a remedial referendum, ballot Measure
50, to clarify Measure 47's ambiguities. Measure 50 ensures that the state of
Oregon will make up the school share of tax loss. With these measures, Oregon
maintained successful financial management.
1. For investors subject to the federal alternative minimum tax, a portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
Oregon continued to diversify away from a dependence on the timber industry.
Comparatively affordable land prices, together with an increasingly skilled
workforce, has helped Oregon establish itself as an attractive place to locate
facilities and operations. With diversification of Oregon's economic base,
income levels grew more quickly than the national average; further, a projected
population increase should prove valuable for its expanding overall employment
base.
PORTFOLIO NOTES
We sought opportunities to replace some of the fund's lower-coupon issues with
those offering a higher interest rate. As we made such portfolio adjustments, we
remained mindful of the portfolio's overall credit quality. For example, nearly
65% of the Franklin Oregon Tax-Free Income Fund's total net assets were invested
in issues rated AAA or AA, as of August 31, 1997.
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Oregon
Tax-Free Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Prerefunded 19.1%
Hospitals 15.9%
Housing 13.6%
General Obligations 12.7%
Education 9.2%
Industrial 8.2%
Utilities 7.6%
Transportation 6.5%
Certificates of
Participation 3.0%
Tax Allocation Bonds 1.6%
Health Care 1.3%
Other Revenue 1.1%
Special Assessment Bonds 0.2%
For a complete list of portfolio holdings, please see page 95 of this report.
PERFORMANCE SUMMARY
CLASS I
The Franklin Oregon Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 11.0 cents, from $11.55 on February 28, 1997, to
$11.66 on August 31, 1997.
The fund posted a cumulative total return of +3.69% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.12%,
based on an annualization of the current monthly dividend of 5.2 cents ($0.052)
per share and the maximum offering price of $12.18 on August 31, 1997. This
double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum combined
federal and Oregon state personal income tax bracket would need to earn 9.32%
from a taxable investment to match the fund's tax-free distribution rate.
Franklin Oregon
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin Oregon Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year (9/1/87)
Cumulative Total Return1 8.04% 36.06% 105.47%
Average Annual Total Return2 3.41% 5.43% 7.00%
Distribution Rate3 5.12%
Taxable Equivalent Distribution Rate4 9.32%
30-Day Standardized Yield5 4.26%
Taxable Equivalent Yield4 7.75%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.2 cent per
share monthly dividend and the maximum offering price of $12.18 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Oregon state personal income tax bracket of 45.04%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
The Franklin Oregon Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 11.0 cents, from $11.61 on February 28, 1997, to
$11.72 on August 31, 1997.
The fund posted a cumulative total return of +3.39% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
sales charges.
At the end of this reporting period, the fund's distribution rate was 4.70%,
based on an annualization of the current monthly dividend of 4.64 cents
($0.0464) per share, which includes a 12b-1 differential adjustment, and the
offering price of $11.84 on August 31, 1997. This double tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
For example, an investor in the maximum combined federal and Oregon state
personal income tax bracket would need to earn 8.55% from a taxable investment
to match the fund's tax-free distribution rate.
Franklin Oregon
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.47 cents
April 4.69 cents
May 4.69 cents
June 4.69 cents
July 4.67 cents
August 4.67 cents
Total 27.88 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin Oregon Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.49% 16.66%
Average Annual Total Return2 5.38% 6.38%
Distribution Rate3 4.70%
Taxable Equivalent Distribution Rate4 8.55%
30-Day Standardized Yield5 3.82%
Taxable Equivalent Yield4 6.95%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.64 cent per
share monthly dividend, which includes a 12b-1 differential adjustment, and the
offering price of $11.84 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Oregon state personal income tax bracket of 45.04%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GRAPHIC MATERIAL 22 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal and Pennsylvania state personal income taxes through a portfolio
consisting primarily of Pennsylvania municipal bonds.1 The fund's shares are
also free from Pennsylvania personal property taxes.
COMMONWEALTH UPDATE
Pennsylvania finished the reporting period with a healthy debt position. Its
general obligation debt maintained an AA- grade by Fitch Research, a national
credit rating company.2 Economic growth has been relatively steady, and
successful operations for three consecutive years allowed the budgetary surplus
to reach $425 million by the close of the 1994-1995 fiscal year. In 1997,
revenues have been revised upward by $194.5 million, and with additional
expenditures of $89.5 million expected -- a surplus of $208.9 million is now
anticipated.3
Pennsylvania's population continued to rise, but the state's growth in personal
income levels lagged the national average. This sluggishness resulted from both
the 1990's recession and industrial restructuring. Manufacturing, currently 18%
of state employment, remains an important industry. However, the state is
diversifying toward service and trade. Looking forward, we maintain a positive
outlook and anticipate restoration of Pennsylvania's economic strengths.
1. For investors subject to the federal alternative minimum tax, a portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. This does not indicate Fitch's rating of the fund.
3. Source: Fitch Research, 3/10/97.
GRAPHIC MATERIAL 23 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PORTFOLIO NOTES
During the six-month period, Pennsylvania's municipal bond supply remained
strong, contributing to the fund's well-diversified holdings. With the general
lowering of interest rates during the period, refunding volume increased. As of
August 31, 1997, prerefunded bonds comprised 12.8% of the fund's total long-term
investments. We intend to sell prerefunded bonds with approximately five to six
years remaining until the call date to maximize any price gains. By reinvesting
proceeds in bonds offering longer call protection, we may also extend the fund's
income-earning potential.
Insured bonds represented more than 51% of total municipal market new issues
during the first six months of 1997. The insured sector represented 61% of the
entire municipal market -- up from 26% in 1990.4 This increase in insurance has
led to a narrowing of yields between AAA-rated and lower-rated securities, which
in turn, has provided the market with more liquidity and less risk.
In response to these market factors, the fund concentrated its purchases in
higher-grade, essential purpose issues. AAA-rated bonds comprised 56.3% of the
fund's total long-term investments on August 31, 1997, compared with 53.9% six
months ago. Essential-purpose education bonds were 11.7% of the fund's total
long-term investments at the close of the period, while direct revenue utility
issues represented 19.4%. Some of the fund's recent purchases included
University of Pittsburgh and Exeter Township general obligation bonds.
Going forward, we anticipate a relatively stable interest-rate environment with
moderate economic growth and mild inflation. Combining these circumstances with
a continued, stable municipal supply, the Franklin Pennsylvania Tax-Free Income
Fund should perform well during the next reporting period.
Franklin Pennsylvania
Tax-Free Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Hospitals 22.4%
Utilities 19.4%
Prerefunded 12.8%
Education 11.7%
Housing 10.0%
General Obligations 5.5%
Industrial 4.8%
Transportation 4.6%
Other Revenue 4.4%
Health Care 4.4%
For a complete list of portfolio holdings, please see page 100 of this report.
4. Source: The Bond Buyer
PERFORMANCE SUMMARY
CLASS I
The Franklin Pennsylvania Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased 4.0 cents, from $10.39 on February 28,
1997, to $10.43 on August 31, 1997.
The fund posted a cumulative total return of +3.71% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
In addition to distributing 30.0 cents ($0.300) per share in dividend income,
the fund paid out a long-term capital gain of 4.26 cents ($0.0426) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 5.29%,
based on an annualization of the current monthly dividend of 4.8 cents ($0.048)
per share, which includes a dividend adjustment, and the maximum offering price
of $10.89 on August 31, 1997. This double tax-free rate is generally higher than
the after-tax return on a comparable taxable investment. For example, an
investor in the maximum combined federal and Pennsylvania state personal income
tax bracket would need to earn 9.01% from a taxable investment to match the
fund's tax-free distribution rate.
Franklin Pennsylvania
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.0 cents
April 5.0 cents
May 5.0 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
Total 30.0 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
Franklin Pennsylvania Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year 10-Year (12/1/86)
Cumulative Total Return1 8.43% 38.93% 120.56% 110.73%
Average Annual Total Return2 3.86% 5.88% 7.76% 6.75%
Distribution Rate3 5.29%
Taxable Equivalent Distribution Rate4 9.01%
30-Day Standardized Yield5 4.51%
Taxable Equivalent Yield4 7.68%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 4.8 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $10.89 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Pennsylvania state personal income tax bracket of 41.29%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Franklin Pennsylvania Tax-Free Income Fund - Class I paid distributions
derived from long-term capital gains of 4.26 cents ($0.0426) per share in June
1997. The fund hereby designates such distributions as capital gain dividends
per Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 24 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
The Franklin Pennsylvania Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 4.0 cents, from $10.43 on February 28,
1997, to $10.47 on August 31, 1997.
The fund posted a cumulative total return of +3.41% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
In addition to distributing 27.08 cents ($0.2708) per share in dividend income,
the fund paid out a long-term capital gain of 4.26 cents ($0.0426) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 4.87%,
based on an annualization of the current monthly dividend of 4.29 cents
($0.0429) per share, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $10.58 on August 31, 1997.
This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum combined
federal and Pennsylvania state personal income tax bracket would need to earn
8.29% from a taxable investment to match the fund's tax-free distribution rate.
Franklin Pennsylvania
Tax-Free Income Fund
Class II
Dividend Distributions 3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.52 cents
April 4.50 cents
May 4.50 cents
June 4.50 cents
July 4.53 cents
August 4.53 cents
Total 27.08 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
Franklin Pennsylvania Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.86% 16.80%
Average Annual Total Return2 5.83% 6.43%
Distribution Rate3 4.87%
Taxable Equivalent Distribution Rate4 8.29%
30-Day Standardized Yield5 4.11%
Taxable Equivalent Yield4 7.00%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.29 cent per
share monthly dividend, which includes a dividend adjustment and a 12b-1
differential adjustment, and the offering price of $10.58 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Pennsylvania state personal income tax bracket of 41.29%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Franklin Pennsylvania Tax-Free Income Fund - Class II paid distributions
derived from long-term capital gains of 4.26 cents ($0.0426) per share in June
1997. The fund hereby designates such distributions as capital gain dividends
per Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 25 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal and many states' individual income taxes through a portfolio consisting
primarily of Puerto Rico municipal bonds.1
COMMONWEALTH UPDATE
Revenue growth, resulting from favorable economic conditions and aggressive tax
collection procedures, improved Puerto Rico's financial performance during the
period. Puerto Rico maintained an A rating by Standard & Poor's, a national
credit rating agency, reflecting the Commonwealth's high, but manageable debt
structure.2 In addition to needing capital and infrastructure aid, Puerto Rico's
latest actuary reports showed an unfunded pension obligation in excess of $5
billion.3 Nevertheless, Puerto Rico's economic indicators show positive signs.
Construction, trade and service sectors, which account for over 50% of the
employment base, continued to create job opportunities.
The benefits of Section 936 of the U.S. Internal Revenue Code, which provided
tax incentives that have been instrumental in attracting manufacturing business
development to the island over the past two decades, continued to phase out. The
Commonwealth is expected to offset potential, long-term, negative effects of
this important loss by increasing its economic competitiveness, developing
additional incentives to attract and maintain companies, and by diversifying its
economic base.
GRAPHIC MATERIAL 26 OMITTED - SEE APPENDIX AT END OF DOCUMENT
1. For investors subject to the federal and state alternative minimum tax, a
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
2. This does not indicate Standard & Poor's rating of the fund.
3. Source: Standard & Poor's Creditweek Municipal, 3/17/97.
PORTFOLIO NOTES
During the reporting period, we continued to focus on diversifying the fund's
investments, while increasing the portfolio's average credit quality. For
example, the fund's total long-term investments invested in AAA-rated issues
increased during the six months, from 31.3% to 36%, while those rated BBB
decreased, from 48% to 45.9%. These changes in the portfolio's credit-quality
breakdown resulted in part from an increase in the volume of insured Puerto Rico
bonds coming to market. Additionally, several of the fund's bonds became
prerefunded during the six months, which improved their credit quality.
The total municipal market supply of primary issues was approximately 22% higher
than for this same period last year.4 Most of the major issuers sold bonds over
the last six months, and Franklin's Puerto Rico Tax-Free Income Fund was an
active buyer. The fund continued to stay diversified, as evidenced by recent
purchases including Puerto Rico Public Building Authority, Puerto Rico
Commonwealth Highway and Transportation Authority, Hospital Auxilio Mutuo
Obligation Group, and University of Puerto Rico Revenue.
Our strategy going forward will continue to emphasize an income-oriented
approach, while maintaining strong diversification among issuers.
Franklin Puerto Rico
Tax-Free Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Utilities 23.3%
Transportation 20.1%
Hospitals 10.2%
General Obligations 10.2%
Other Revenue 9.3%
Prerefunded 7.9%
Housing 7.7%
Education 5.0%
Industrial 4.7%
Sales Tax Revenue 1.6%
For a complete list of portfolio holdings, please see page 105 of this report.
4. Source: The Bond Buyer, 8/5/97.
PERFORMANCE SUMMARY
CLASS I
The Franklin Puerto Rico Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 12.0 cents, from $11.51 on February 28, 1997, to
$11.63 on August 31, 1997.
The fund posted a cumulative total return of +3.93% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
In addition to distributing 31.5 cents ($0.315) per share in dividend income,
the fund paid out a long-term capital gain of 1.40 cents ($0.0140) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 5.04%,
based on an annualization of the current monthly dividend of 5.1 cents ($0.051)
per share and the maximum offering price of $12.15 on August 31, 1997. This
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum federal income tax
bracket would need to earn 8.34% from a taxable investment to match the fund's
tax-free distribution rate. Additionally, the fund's income dividends are free
from some states' personal income taxes, which may further increase the taxable
equivalent rate.
Franklin Puerto Rico
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.40 cents
April 5.40 cents
May 5.40 cents
June 5.10 cents
July 5.10 cents
August 5.10 cents
Total 31.5 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
Franklin Puerto Rico Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year 10-Year (4/3/85)
Cumulative Total Return1 8.60% 37.48% 110.22% 158.87%
Average Annual Total Return2 3.96% 5.65% 7.25% 7.59%
Distribution Rate3 5.04%
Taxable Equivalent Distribution Rate4 8.34%
30-Day Standardized Yield5 4.31%
Taxable Equivalent Yield4 7.14%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.1 cent per
share monthly dividend and the maximum offering price of $12.15 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Franklin Puerto Rico Tax-Free Income Fund - Class I paid distributions
derived from long-term capital gains of 1.4 cents ($0.0140) per share in June
1997. The fund hereby designates such distributions as capital gain dividends
per Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 27 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
The Franklin Puerto Rico Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 11.0 cents, from $11.53 on February 28,
1997, to $11.64 on August 31, 1997.
The fund posted a cumulative total return of +3.55% for the six month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
In addition to distributing 28.24 cents ($0.2824) per share in dividend income,
the fund paid out a long-term capital gain of 1.4 cents ($0.0140) in June 1997.
Distributions will vary, depending on income earned by the fund and any profits
realized from the sale of securities in the fund's portfolio. Past distributions
are not indicative of future trends.
At the end of this reporting period, the fund's distribution rate was 4.64%,
based on an annualization of the current monthly dividend of 4.55 cents
($0.0455) per share, which includes a 12b-1 differential adjustment, and the
offering price of $11.76 on August 31, 1997. This tax-free rate is generally
higher than the after-tax return on a comparable taxable investment. For
example, an investor in the maximum federal income tax bracket would need to
earn 7.69% from a taxable investment to match the fund's tax-free distribution
rate. Additionally, the fund's income dividends are free from some states'
personal income taxes, which may further increase the taxable equivalent rate.
Franklin Puerto Rico
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.83 cents
April 4.85 cents
May 4.85 cents
June 4.55 cents
July 4.58 cents
August 4.58 cents
Total 28.24 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.
Franklin Puerto Rico Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.79% 16.81%
Average Annual Total Return2 5.68% 6.44%
Distribution Rate3 4.64%
Taxable Equivalent Distribution Rate4 7.69%
30-Day Standardized Yield5 3.90%
Taxable Equivalent Yield4 6.46%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 4.55 cent per
share monthly dividend, which includes a 12b-1 differential adjustment, and the
offering price of $11.76 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The Franklin Puerto Rico Tax-Free Income Fund - Class II paid distributions
derived from long-term capital gains of 1.4 cents ($0.0140) per share in June
1997. The fund hereby designates such distributions as capital gain dividends
per Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 28 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN FEDERAL INTERMEDIATE-TERM
TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high, current income exempt from
regular, federal income tax through a portfolio of municipal bonds with an
average weighted maturity (the time in which a debt must be repaid) between
three and 10 years.1
PORTFOLIO NOTES
During the six-month reporting period, the U.S. economy continued to exhibit
steady growth and expanding job opportunities. The emergence of higher inflation
was seemingly absent, however. As a result, interest rates generally declined,
with the 10-year T-Note yielding 6.34% on August 31, 1997, compared with 6.58%
on February 28, 1997.2
Total net assets in Franklin's Federal Intermediate-Term Tax-Free Income Fund
increased from $104.7 million on February 28, 1997, to $116.6 million on August
31, 1997.
The fund's credit-quality breakdown changed somewhat during the period. In
particular, issues rated AAA to A increased over the period, from 35.9% of total
long-term investments, to 48.7%. Some of this increase resulted from our
purchases of New York City general obligation bonds. New York issues were one of
the strongest segments of the municipal market during the reporting period.
Other additions to the portfolio included Houston Texas Airport System bonds for
Continental Airlines, Memphis-Shelby County Airport Authority Tennessee for
Federal Express Corporation, and Hillsboro Oregon Hospital Authority-Tuality
Health Care.
GRAPHIC MATERIAL 29 OMITTED - SEE APPENDIX AT END OF DOCUMENT
1. For investors subject to the federal or state alternative minimum tax, a
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable. The risks of investing in a non-diversified fund, such as increased
susceptibility to adverse economic or regulatory developments, are described in
the fund's prospectus.
2. Source: Micropal.
Although the fund continued to perform well, we had one issue of the 143 issues
held by the fund that experienced difficulty and filed for bankruptcy
protection. We reduced the position, and presently it represents less than 1% of
the fund's total long-term investments. We are closely monitoring the situation.
We anticipate interest rates will continue to move within a relatively narrow
range in the foreseeable future. If our expectations hold true, the Franklin
Federal Intermediate-Term Tax-Free Income Fund should perform well in the coming
months.
Franklin Federal Intermediate-Term
Tax-Free Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Utilities 12.7%
General Obligations 12.7%
Hospitals 10.5%
Housing 10.1%
Industrial 10.0%
Certificates of
Participation 8.6%
Special Assessments 8.3%
Education 7.7%
Transportation 5.5%
Other Revenue 4.4%
Health Care 3.9%
Marks-Roos 2.6%
Tax Allocation Bonds 2.6%
Prerefunded 0.4%
For a complete list of portfolio holdings, please see page 108 of this report.
PERFORMANCE SUMMARY
The Franklin Federal Intermediate-Term Tax-Free Income Fund's share price, as
measured by net asset value, increased 9.0 cents, from $10.94 on February 28,
1997, to $11.03 on August 31, 1997.
The fund posted a cumulative total return of +3.37% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 4.89%,
based on an annualization of the current monthly dividend of 4.6 cents ($0.046)
per share and the maximum offering price of $11.28 on August 31, 1997. This
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum federal income tax
bracket would need to earn 8.10% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Federal Intermediate-Term
Tax-Free Income Fund
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 4.6 cents
April 4.6 cents
May 4.6 cents
June 4.6 cents
July 4.6 cents
August 4.6 cents
Total 27.6 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin Federal Intermediate-Term Tax-Free Income Fund
Periods ended 8/31/97
Since
Inception
1-Year 3-Year (9/23/92)
Cumulative Total Return1 7.90% 21.98% 39.80%
Average Annual Total Return2 5.44% 6.05% 6.53%
Distribution Rate3 4.89%
Taxable Equivalent Distribution Rate4 8.10%
30-Day Standardized Yield5 4.27%
Taxable Equivalent Yield4 7.07%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the maximum 2.25% initial
sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 4.6 cent per
share monthly dividend and the maximum offering price of $11.28 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax bracket of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
The fund's manager has agreed to waive a portion of management expenses, which
reduces operating expenses and increased yield, distribution rate and total
return to shareholders. Without these reductions, the fund's distribution rate
would have been lower, and yield for the period would have been 4.21%. The fee
waiver may be discontinued at any time upon notification to the fund's Board of
Trustees.
GRAPHIC MATERIAL 30 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
Your Fund's Objective: Seeks to provide high, current income exempt from regular
federal income tax through a portfolio consisting primarily of higher-yielding,
medium- to lower-rated and non-rated municipal securities.1 As discussed in the
fund's prospectus, these securities entail greater risk than higher-rated
municipal securities.
MARKET OVERVIEW
In a pre-emptive move against potentially higher inflation, the Federal Reserve
Board raised short-term interest rates a quarter-point in March 1997. Although
interest rates reached their highest level for the year early in the second
quarter, they began trending downward when it became evident that inflation was
benign and economic growth was moderating.
Healthy economies have led to increased revenues for many state and local
governments. Voters have been reluctant to approve any new measures that would
increase taxes, and many government policies have shifted toward spending
restraints. In light of such fiscal improvements, Standard & Poor's and other
national credit rating agencies have upgraded many municipalities' credit
ratings, allowing municipal bond insurers to offer very attractive rates. As a
result, insured issues continued to dominate the new issue market.
1. The fund's dividends are generally subject to state and local income taxes,
if any. For investors subject to the federal or state alternative minimum tax, a
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable. In general, an investor is paid a higher yield to assume a greater
degree of credit risk.
GRAPHIC MATERIAL 31 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PORTFOLIO UPDATE
Municipal bond insurance helps issuers market their securities and attract the
widest variety of investors. The availability of insurance for new issues (as
well as secondary securities) also contributed to the narrowing of quality
spreads during the period. Also, the sustained low-interest-rate environment has
created greater demand for higher-yielding, lower-quality securities, as fund
managers throughout the municipal market strive to maintain their dividends.
Nonetheless, we found what we felt were compelling values in certain
investment-grade and high-yield sectors of the market.
For example, earlier in the period we took advantage of the large supply of New
York bonds by purchasing a significant amount of New York State-appropriated
(backed) paper, as well as New York City general obligation bonds (G.O.) This
slightly increased our overall exposure to New York bonds, from 15.0% of total
long-term investments on February 28, 1997, to approximately 15.7% on August 31,
1997. Since the time of our purchases, there has been positive news regarding
both New York State's and City's fiscal results. Consequently Standard & Poor's
upgraded the ratings on New York state bonds and, as a result, the New York
municipal market has outperformed the general bond market, contributing to the
fund's performance during the period under review. In fact, New York City G.O.s
have been some of the best-performing bonds in the market over the past few
months.
Other sectors we felt provided value included certain lower-quality utility
credits whose bond prices were depressed, in part, as a result of negative press
regarding deregulation. For example, we purchased issues from Tucson Electric,
Public Service Colorado, and Public Service New Mexico. These bonds performed
extremely well over the period. We also looked for value in the health care
sector, although we were less successful in finding opportunities in this area.
At the close of the period, 25.1% of the fund's total long-term investments were
in AAA-rated securities, up slightly from 25% on February 28, 1997. Total
long-term investments in general obligation bonds increased, from 9.9% on
February 28, 1997, to 10.6% on August 31, 1997, while the industrial development
sector increased, from 5.7% to 7.6%, for the same period. Non-rated issues
decreased slightly, from 34.4% to 30.3% of total long-term investments.
Although the fund performed well during the reporting period, one of the fund's
828 issues which experienced difficulty when the borrower filed bankruptcy. This
issuer currently is in litigation, but the market value of this position is less
than .5% of the fund's total long-term investments.
Franklin High Yield
Tax-Free Income Fund
Portfolio breakdown on 8/31/97
% of total
long-term
Sector investments
Utilities 22.6%
Transportation 12.6%
General Obligations 10.6%
Hospitals 10.5%
Special Assessment 8.2%
Prerefunded 8.0%
Industrial 7.6%
Housing 4.7%
Health Care 4.7%
Other Revenue 3.7%
Education 2.8%
Mello-Roos 1.8%
Certificates of
Participation 1.6%
Tax Allocation 0.4%
Marks-Roos 0.1%
Sales Tax 0.1%
For a complete list of portfolio holdings, please see page 114 of this report.
PERFORMANCE SUMMARY
CLASS I
The Franklin High Yield Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 14.0 cents, from $11.21 on February 28, 1997, to
$11.35 on August 31, 1997.
The fund posted a cumulative total return of +4.38% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge.
At the end of this reporting period, the fund's distribution rate was 5.77%,
based on an annualization of the current monthly dividend of 5.7 cents ($0.057)
per share and the maximum offering price of $11.85 on August 31, 1997. This
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, an investor in the maximum federal income tax
bracket would need to earn 9.56% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin High Yield
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 6.1 cents
April 5.7 cents
May 5.7 cents
June 5.7 cents
July 5.7 cents
August 5.7 cents
Total 34.6 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin High Yield Tax-Free Income Fund - Class I
Periods ended 8/31/97
Since
Inception
1-Year 5-Year 10-Year (3/18/86)
Cumulative Total Return1 10.13% 48.04% 137.03% 157.47%
Average Annual Total Return2 5.42% 7.22% 8.55% 8.20%
Distribution Rate3 5.77%
Taxable Equivalent Distribution Rate4 9.56%
30-Day Standardized Yield5 5.05%
Taxable Equivalent Yield4 8.36%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the initial sales charge.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.7 cent per
share monthly dividend and the maximum offering price of $11.85 on August 31,
1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax bracket of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual returns
would differ. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. Past expense reductions by the fund's manager increased the fund's
total returns. All total return calculations assume reinvestment of dividends
and capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
GRAPHIC MATERIAL 32 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
The Franklin High Yield Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 15.0 cents, from $11.26 on February 28, 1997, to
$11.41 on August 31, 1997.
The fund posted a cumulative total return of +4.15% for the six-month period
ended August 31, 1997. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
sales charges.
At the end of this reporting period, the fund's distribution rate was 5.36%,
based on an annualization of the current monthly dividend of 5.15 cents
($0.0515) per share, which includes a 12b-1 differential adjustment, and the
offering price of $11.53 on August 31, 1997. This tax-free rate is generally
higher than the after-tax return on a comparable taxable investment. For
example, an investor in the maximum federal income tax bracket would need to
earn 8.87% from a taxable investment to match the fund's tax-free distribution
rate.
Franklin High Yield
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97 - 8/31/97*
Dividend
Month per Share
March 5.49 cents
April 5.17 cents
May 5.17 cents
June 5.17 cents
July 5.17 cents
August 5.17 cents
Total 31.34 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Franklin High Yield Tax-Free Income Fund - Class II
Periods ended 8/31/97
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 9.54% 20.91%
Average Annual Total Return2 7.46% 8.00%
Distribution Rate3 5.36%
Taxable Equivalent Distribution Rate4 8.87%
30-Day Standardized Yield5 4.64%
Taxable Equivalent Yield4 7.68%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charges.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months.
3. Distribution rate is based on an annualization of the current 5.15 cent per
share monthly dividend, which includes a 12b-1 differential adjustment, and the
offering price of $11.53 on August 31, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax bracket of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended August 31, 1997.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
GRAPHIC MATERIAL 33 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GLOSSARY OF INVESTMENT TERMS
Average Annual Total Return: The average annual change in value of an investment
over the periods indicated. Unless otherwise stated, figures shown in this
report include sales charges.
Discount: Amount by which a bond sells below its face (par) value. For instance,
a bond with a $1,000 face value that sells for $900 would have a $100 discount.
Call Protection: The length of time during which a bond cannot be redeemed by
its issuer.
Coupon: A bond's interest rate that the issuer promises to pay to the holder
until the bond matures.
Cumulative Total Return: Measures the change in value of an investment over the
periods indicated. Unless otherwise stated, figures shown in this report exclude
sales charges.
Current-Coupon Bond: A bond with a coupon rate that is within half a percentage
point of current market interest rates. See also Full Coupon Bond.
Full-Coupon Bond: A bond with a coupon rate that is near or above current market
interest rates. See also Current Coupon Bond.
High-Grade Bond/High-Quality Bond: A bond rated AAA or AA by Standard &
Poor's(R) or Aaa or Aa by Moody's Investors Service -- two national
credit-rating agencies.
Investment-Grade Bond: A bond with a rating of AAA to BBB, usually within the
top four rating categories assigned to bonds.
Premium: Amount by which a bond sells above its face (par) value. For instance,
a bond with a $1,000 face value that sells for a $1,100 would have a $100
premium.
Prerefunded Bond: A bond that will be paid off at its first call date with
proceeds of the sale of a second bond carrying a lower interest rate. The
proceeds are generally invested in U.S. Treasuries set to mature at the original
bonds first call date. When a bond is prerefunded its premium rises, and then
falls to par value as the refunding date approaches.
Par Value: The face value or amount at which a security will be redeemed at
maturity -- typically $1,000 for a bond.
Yield Spread: The relative yield differential between lower- and higher-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for added credit risk.
MUNICIPAL BOND RATINGS
Moody's
Aaa: 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 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: High quality by all standards. Together with the Aaa group, they comprise
what are generally known as high-grade bonds. Aa bonds are rated lower than Aaa
because margins of protection may not be as large, fluctuation of protective
elements may be of greater amplitude, or there may be other elements which make
the long-term risks appear larger.
A: Possess many favorable investment attributes and are considered 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: 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.
Ba: Contain speculative elements. 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: 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: Poor standing. Such issues may be in default, or elements of danger with
respect to principal or interest may be present.
Ca: Obligations that are highly speculative. Such issues are often in default or
have other marked shortcomings.
C: Lowest-rated class of bonds. Issues rated C can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
S&P(R)
AAA: The highest rating assigned by S&P to a debt obligation and indicates the
ultimate degree of protection as to principal and interest.
AA: Also qualify as high-grade obligations, and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Generally 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.
BBB: 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: 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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Arizona Tax-Free Income Fund
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ...... $11.24 $11.34 $11.11 $11.58 $11.57 $10.82
Income from investment operations:
Net investment income .................... .31 .62 .64 .65 .66 .68
Net realized and unrealized gains (losses) .08 (.04) .36 (.48) .02 .73
Total from investment operations .......... .39 .58 1.00 .17 .68 1.41
Less distributions:
Dividends from net investment income ..... (.31) (.63) (.65) (.64) (.67) (.66)
Distributions from net realized gains .... (.01) (.05) (.12) -- -- --
Total distributions ....................... (.32) (.68) (.77) (.64) (.67) (.66)
Net asset value, end of period ............ $11.31 $11.24 $11.34 $11.11 $11.58 $11.57
Total return+ ............................. 3.44% 5.33% 9.24% 1.63% 5.76% 13.22%
Ratios/Supplemental Data
Net assets, end of period (000's) ......... $779,438 $752,335 $750,797 $720,801 $796,838 $707,702
Ratio to average net assets:
Expenses ................................. .63%* .62% .62% .60% .54% .55%
Net investment income .................... 5.48%* 5.59% 5.67% 5.86% 5.65% 6.11%
Portfolio turnover rate ................... 10.13% 16.57% 25.12% 18.65% 14.17% 5.67%
Class II
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ...... $11.30 $11.38 $11.15
Income from investment operations:
Net investment income .................... .28 .57 .49
Net realized and unrealized gains (losses) .08 (.03) .34
Total from investment operations .......... .36 .54 .83
Less distributions:
Dividends from net investment income ..... (.28) (.57) (.48)
Distributions from net realized gains .... (.01) (.05) (.12)
Total distributions ....................... (.29) (.62) (.60)
Net asset value, end of period ............ $11.37 $11.30 $11.38
Total return+ ............................. 3.23% 4.89% 7.60%
Ratios/Supplemental Data
Net assets, end of period (000's) ......... $8,893 $5,486 $1,892
Ratio to average net assets:
Expenses ................................. 1.20%* 1.19% 1.20%*
Net investment income .................... 4.96%* 5.01% 5.05%*
Portfolio turnover rate ................... 10.13% 16.57% 25.12%
</TABLE>
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Arizona Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 99.7%
<S> <C> <C>
Apache Junction, Arizona Water Utilities Community, 5.80%, 7/01/17 ................. $ 1,200,000 $ 1,244,460
Arizona Educational Loan Marketing Corp. Revenue,
MBIA Insured, Series B, 7.35%, 9/01/04 ............................................. 1,000,000 1,061,950
MBIA Insured, Series B, 7.375%, 9/01/05 ............................................ 775,000 821,849
Senior Series, 6.375%, 9/01/05 ..................................................... 10,000,000 10,538,500
Series B, 7.00%, 3/01/03 ........................................................... 1,000,000 1,080,880
Series B, 7.00%, 3/01/05 ........................................................... 1,000,000 1,072,580
Sub-Series, 6.625%, 9/01/05 ........................................................ 1,000,000 1,064,690
Arizona Health Facilities Authority, Hospital System Revenue, Phoenix Baptist Hospital,
MBIA Insured, ETM, 6.25%, 9/01/11 .................................................. 2,000,000 2,173,280
Arizona Health Facilities Authority Revenue, Arizona Voluntary Hospital, FGIC Insured, Series B,
7.25%, 10/01/13 .................................................................... 5,000,000 5,311,750
Hospital Federal Pooled Loan Revenue, 7.75%, 10/01/07 .............................. 770,000 823,738
Arizona State COP,
AMBAC Insured, Refunding, Series B, 6.25%, 9/01/10 ................................. 5,000,000 5,415,850
FSA Insured, 6.625%, 9/01/08 ....................................................... 5,000,000 5,454,500
Arizona State Municipal Financing Program, COP, BIG Insured,
Dysart School, Series 22, ETM, 7.875%, 8/01/05 ..................................... 1,350,000 1,637,253
Peoria School, Series 19, ETM, 7.75%, 8/01/04 ...................................... 500,000 595,540
Pre-Refunded, Series 29, 7.125%, 8/01/14 ........................................... 2,500,000 2,665,225
Series 20, ETM, 7.625%, 8/01/06 .................................................... 3,250,000 3,770,780
Series 25, 7.875%, 8/01/14 ......................................................... 500,000 647,865
Arizona State Transportation Board, Excise Tax Revenue, Maricopa County Regional
Area Road Fund, Pre-Refunded, Series A, 7.60%, 7/01/05 ............................ 1,750,000 1,838,760
Arizona State Waste Management Authority, Wastewater Financial Assistance Revenue,
6.80%, 7/01/11 ..................................................................... 4,000,000 4,416,960
AMBAC Insured, Series A, 5.625%, 7/01/15 ........................................... 1,000,000 1,015,710
Arizona Water Infrastructure Finance Authority Revenue, Water Quality Financial
Assistance, MBIA Insured, Series A, 5.00%, 7/01/17 ................................. 1,670,000 1,606,874
Bullhead City Municipal Property Corp., Municipal Facilities Revenue,
MBIA Insured, Pre-Refunded, 7.20%, 7/01/09 .......................................... 2,125,000 2,263,125
Casa Grande Excise Tax Revenue, 6.20%, 4/01/15 ..................................... 930,000 988,162
Casa Grande IDA, Frito Lay/PepsiCo,
IDR, 6.65%, 12/01/14 ............................................................... 500,000 547,450
PCR, 6.60%, 12/01/10 ............................................................... 1,800,000 1,967,598
Central Arizona Water Conservation District Contract Revenue, Central Project,
Pre-Refunded, Series A, 7.65%, 11/01/09 ............................................ 3,000,000 3,350,760
Chandler GO, FGIC Insured,
Pre-Refunded, 6.80%, 7/01/13 ....................................................... 1,750,000 1,997,048
Pre-Refunded, 6.85%, 7/01/14 ....................................................... 1,625,000 1,859,130
Refunding, 7.00%, 7/01/12 .......................................................... 1,000,000 1,096,770
Chandler IDA, MFHR, Refunding, Hacienda Apartments, Project A, GNMA Secured, 6.05%,
7/20/30 4,055,000 4,169,635
Chandler Street and Highway Revenue, MBIA Insured, Pre-Refunded, 6.85%, 7/01/13 .... 1,250,000 1,430,100
Chandler Water and Sewer Revenue, FGIC Insured, Refunding,
7.00%, 7/01/12 ..................................................................... 6,715,000 7,364,811
6.25%, 7/01/13 ..................................................................... 2,165,000 2,320,425
5.25%, 7/01/15 ..................................................................... 2,270,000 2,241,375
Coconino County,
Arizona Public Service Co., PCC Revenue, MBIA Insured, Refunding, Series A, 5.875%,
8/15/28 5,275,000 5,400,756
Flagstaff USD No. 1, AMBAC Insured, 6.20%, 7/01/06 ................................. 1,095,000 1,150,155
PCC Revenue, 6.375%, 10/01/36 ...................................................... 3,500,000 3,596,320
Eloy Municipal Property Corp., Facilities Revenue, 7.80%, 7/01/09 .................. 1,475,000 1,574,725
Gila County IDAR, PCR, ASARCO, Inc. Project, Refunding, 8.90%, 7/01/06 ............. 3,320,000 3,436,200
Gilbert ID No. 11, FGIC Insured, 7.60%, 1/01/05 .................................... 1,500,000 1,554,330
Gilbert Water and Sewer Revenue, FGIC Insured, Refunding, 6.50%,
7/01/12 ............................................................................ 1,500,000 1,649,370
7/01/22 ............................................................................ 3,250,000 3,530,280
Glendale IDA, Educational Facilities Revenue, Refunding, American Graduate
School International, Connie Lee Insured,
5.875%, 7/01/15 .................................................................... 2,200,000 2,261,776
Pre-Refunded, 7.00%, 7/01/14 ....................................................... 1,000,000 1,166,730
Pre-Refunded, 7.125%, 7/01/20 ...................................................... 1,250,000 1,468,600
Glendale IDAR, Midwestern University, Connie Lee Insured, Series A, 6.00%,
5/15/16............................................................................. 1,940,000 2,025,438
5/15/26............................................................................. 2,000,000 2,079,860
Glendale Municipal Property Corp., MBIA Insured, 7.00%, 7/01/09 .................... $ 2,400,000 $ 2,531,112
Guam Power Authority Revenue, Series A, 6.30%,
10/01/12............................................................................ 3,630,000 3,785,146
10/01/22............................................................................ 4,000,000 4,159,120
Lake Havasu City, Wastewater COP, FGIC Insured, 7.00%, 6/01/05 ..................... 2,700,000 2,945,835
Maricopa County COP, 6.00%, 6/01/04 ................................................ 8,000,000 8,327,840
Maricopa County Hospital Revenue, Sun Health Corp., Refunding,
5.80%, 4/01/08 ..................................................................... 3,870,000 3,965,086
5.90%, 4/01/09 ..................................................................... 2,120,000 2,175,332
6.125%, 4/01/18 .................................................................... 14,150,000 14,556,954
Maricopa County IDA,
Hospital Facility Revenue, FSA Insured, 7.50%, 12/01/13 ............................ 1,445,000 1,594,644
Hospital Facility Revenue, FSA Insured, Pre-Refunded, 7.50%, 12/01/13 .............. 1,305,000 1,456,928
Hospital Facility Revenue, Samaritan Hospital Health Services, MBIA Insured,
Refunding, Series A, 7.00%, 12/01/13 .............................................. 17,800,000 19,463,054
Hospital Facility Revenue, Samaritan Hospital Health Services, MBIA Insured,
Refunding, Series A, 7.00%, 12/01/16 .............................................. 1,890,000 2,259,060
IDR, Citizens Utilities Co. Project, 6.20%, 5/01/30 ................................ 5,000,000 5,292,350
Mercy Health System, MBIA Insured, Pre-Refunded, Series A, 7.125%, 7/01/07 ......... 1,660,000 1,779,653
Mercy Health System, MBIA Insured, Pre-Refunded, Series C, 7.15%, 7/01/15 .......... 750,000 805,073
MFHR, Madera Pointe Apts, FSA Insured, 5.90%, 6/01/26 .............................. 2,105,000 2,163,793
SFMR, GNMA Secured, 8.00%, 9/01/09 ................................................. 875,000 916,790
Maricopa County School District No. 4, Mesa Unified, FGIC Insured,
5.65%, 7/01/11 ..................................................................... 1,500,000 1,558,305
5.70%, 7/01/12 ..................................................................... 2,000,000 2,077,560
Maricopa County School District No. 28, Kyrene Elementary, FGIC Insured, Series B, 6.00%,
7/01/14 2,000,000 2,086,100
Maricopa County Stadium District Revenue, MBIA Insured, 5.75%, 7/01/16 ............. 3,000,000 3,072,660
Maricopa County UHSD No. 210,
Series A, 5.70%, 7/01/15 ........................................................... 500,000 515,895
Series B, 5.50%, 7/01/17 ........................................................... 9,050,000 9,076,426
Maricopa County USD No. 8, Osborn School Improvement Project,
FGIC Insured, Series A, 5.875%, 7/01/14 ............................................ 3,500,000 3,677,310
Pre-Refunded, Series B, 7.10%, 7/01/05 ............................................. 500,000 531,175
Pre-Refunded, Series B, 7.15%, 7/01/07 ............................................. 1,075,000 1,142,962
Pre-Refunded, Series B, 7.20%, 7/01/09 ............................................. 1,885,000 2,005,810
Maricopa County USD No. 11, Peoria, Refunding,
AMBAC Insured, 6.10%, 7/01/10 ...................................................... 6,300,000 6,832,224
MBIA Insured, 7.00%, 7/01/10 ....................................................... 2,800,000 3,064,768
Maricopa County USD No. 41, Gilbert, 6.25%, 7/01/15 ................................ 2,000,000 2,063,280
Maricopa County USD No. 65, Littleton School Improvement, FGIC Insured, Series B, 6.40%,
7/01/14 1,175,000 1,276,802
Maricopa County USD No. 66, Roosevelt Elementary Project, FGIC Insured, Series B, 5.25%,
7/01/17 2,500,000 2,436,675
Maricopa County USD No. 68, Alhambra, Refunding & Improvement, AMBAC Insured, 5.625%,
7/01/13 4,000,000 4,131,200
Maricopa County USD No. 69, GO, Paradise Valley, Series A, 7.10%, 7/01/05 .......... 1,000,000 1,137,780
Maricopa County USD No. 80, Chandler, FGIC Insured, 6.00%, 7/01/13 ................. 1,600,000 1,693,056
Maricopa County USD No. 89, Dysart, Refunding & Improvement, FGIC Insured,
6.70%, 7/01/05 ..................................................................... 240,000 256,550
6.75%, 7/01/06 ..................................................................... 1,760,000 1,881,246
Maricopa County USD No. 98, Fountain Hills School, Improvement Bond,
FGIC Insured, Refunding, 6.625%, 7/01/10 .......................................... 1,300,000 1,399,333
Maricopa County USD No. 214, Tolleson GO, FGIC Insured, 5.75%, 7/01/14 ............. 1,000,000 1,034,810
Mesa Arizona Utility Systems Revenue, FGIC Insured,
5.125%, 7/01/15 .................................................................... 7,750,000 7,620,498
5.375%, 7/01/17 .................................................................... 15,500,000 15,518,910
Mesa IDA, Health Care Facilities Revenue, Western Health Network, BIG Insured,
Refunding, Series B-2, 7.50%, 1/01/08 .............................................. 750,000 792,998
Series A-2, 7.625%, 1/01/13 ........................................................ 5,250,000 5,586,735
Series A-3, 7.625%, 1/01/13 ........................................................ 250,000 266,035
Series A-4, 7.625%, 1/01/09 ........................................................ 2,190,000 2,319,035
Mohave County, Hospital District No. 1, Kingman Regional Medical Center Project,
FGIC Insured, 6.50%, 6/01/15 ....................................................... 1,500,000 1,608,285
Pre-Refunded, 8.375%, 6/01/15 ...................................................... 6,350,000 7,124,827
Mohave County IDA,
Health Care Revenue, Chris Ridge and Silver Insured, GNMA Secured,
Refunding, 6.375%, 11/01/31 ....................................................... $ 1,585,000 $ 1,686,678
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.50%, 9/01/21 ........... 1,500,000 1,498,005
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.75%, 9/01/26 ........... 4,675,000 4,766,537
Hospital Systems Revenue, Medical Environments, Inc., Phoenix Hospital
and Medical Center, ETM, 5.80%, 7/01/99 ............................................ 1,595,000 1,644,939
IDR, Citizens Utilities Co. Project, 6.60%, 5/01/29 ................................ 4,100,000 4,401,801
IDR, Citizens Utilities Co. Project, Series A, 7.15%, 2/01/26 ...................... 10,000,000 10,659,400
IDR, Citizens Utilities Co. Project, Series B, 7.15%, 2/01/26 ...................... 5,000,000 5,329,700
Navajo County PCR, Refunding, Arizona Public Service Co.,
MBIA Insured, 5.875%, 8/15/28 ...................................................... 3,000,000 3,071,520
Series A, 5.875%, 8/15/28 .......................................................... 54,500,000 55,413,410
Nogales Municipal Development Authority, Inc., Municipal Facilities Revenue,
MBIA Insured, Refunding,
7.20%, 6/01/08 ..................................................................... 6,350,000 6,971,411
Pre-Refunded, 8.00%, 6/01/08 ....................................................... 500,000 520,405
Northern Arizona University System Revenue,
FGIC Insured, Refunding, 6.40%, 6/01/07 ............................................ 2,750,000 2,975,748
Pre-Refunded, 7.50%, 6/01/06 ....................................................... 3,700,000 3,915,414
Northern Mariana Islands, Commonwealth Ports Authority, Seaport Revenue, Port Saipan
Harbor Improvement, Series A,
5.35%, 10/01/98 .................................................................... 310,000 311,429
5.45%, 10/01/99 .................................................................... 330,000 331,264
5.55%, 10/01/00 .................................................................... 345,000 347,401
5.65%, 10/01/01 .................................................................... 365,000 367,482
5.75%, 10/01/02 .................................................................... 385,000 388,176
6.85%, 10/01/25 .................................................................... 7,150,000 7,380,373
Oro Valley, COP, MBIA Insured, 5.750%, 7/01/17 ..................................... 1,000,000 1,034,030
Oro Valley Municipal Property Corp. Revenue, Municipal Water Systems, MBIA Insured,
5.55%, 7/01/17 ..................................................................... 1,150,000 1,171,045
5.375%, 7/01/26 .................................................................... 1,000,000 989,070
Peoria Municipal Development Authority, Water and Sewer Revenue,
FGIC Insured, Refunding, 6.625%, 7/01/06 .......................................... 1,000,000 1,061,510
Phoenix Airport Revenue, MBIA Insured,
Refunding, Series B, 6.20%, 7/01/10 ................................................ 700,000 753,354
Refunding, Series C, 6.30%, 7/01/10 ................................................ 1,680,000 1,817,626
Refunding, Series C, 6.40%, 7/01/11 ................................................ 1,785,000 1,936,029
Refunding, Series C, 6.40%, 7/01/12 ................................................ 570,000 619,601
Series D, 6.30%, 7/01/10 ........................................................... 1,800,000 1,947,456
Series D, 6.40%, 7/01/11 ........................................................... 3,825,000 4,148,633
Series D, 6.40%, 7/01/12 ........................................................... 820,000 891,356
Phoenix Civic Improvement Corp.,
Airport Terminal Excise Tax Revenue, 7.80%, 7/01/11 ................................ 4,165,000 4,285,702
Airport Terminal Excise Tax Revenue, 7.875%, 7/01/14 ............................... 2,915,000 3,001,342
Airport Terminal Excise Tax Revenue, Pre-Refunded, 8.375%, 7/01/09 ................. 275,000 287,535
Municipal Facilities Excise Tax Revenue, MBIA Insured, Pre-Refunded, 6.90%,
7/01/21 1,000,000 1,154,370
Wastewater Systems Revenue, MBIA Insured, 5.375%, 7/01/22 .......................... 7,880,000 7,788,828
Water Systems Revenue, 5.95%, 7/01/15 .............................................. 3,090,000 3,209,985
Water Systems Revenue, 5.95%, 7/01/16 .............................................. 3,665,000 3,802,071
Water Systems Revenue, 6.00%, 7/01/19 .............................................. 3,000,000 3,101,370
Phoenix Civic Plaza Building Corp., 6.00%, 7/01/14 ................................. 4,300,000 4,528,158
Phoenix GO,
Refunding, 6.375%, 7/01/13 ......................................................... 5,000,000 5,412,450
Refunding, Series A, 5.50%, 7/01/15 ................................................ 5,000,000 5,083,450
Series B, 5.25%, 7/01/15 ........................................................... 2,775,000 2,771,587
Phoenix HFC, Mortgage Revenue, MBIA Insured, Refunding,
Project A, 6.50%, 7/01/24 .......................................................... 2,750,000 2,849,193
Section 8 Project, Series A, 6.90%, 1/01/23 ........................................ 1,750,000 1,837,640
Section 8 Project, Series A, 7.25%, 1/01/23 ........................................ 2,260,000 2,324,636
Phoenix IDA,
Hospital Revenue, Connie Lee Insured, Refunding, Series B, 5.75%, 12/01/16 ......... 3,500,000 3,545,710
SFMR, FNMA Insured, 6.30%, 12/01/12 ................................................ 925,000 974,423
Phoenix IDAR, Home Purchase Mortgage, GNMA Secured, Series B, 8.20%, 4/01/22 ....... 1,575,000 1,629,479
Phoenix Municipal Housing Revenue, Refunding, Fillmore Gardens Project, 6.30%,
6/01/09 $ 1,500,000 $ 1,583,610
Phoenix Street and Highway Revenue,
ETM, 6.80%, 7/01/03 ................................................................ 1,000,000 1,122,060
Refunding, 6.60%, 7/01/07 .......................................................... 5,000,000 5,451,300
Pima County IDA,
Health Care Corp. Revenue, Carondelet St. Joseph's and St. Mary's Hospital,
BIG Insured, 8.00%, 7/01/13 ....................................................... 65,000 68,353
Health Care Corp. Revenue, Carondelet St. Joseph's and St. Mary's Hospital,
BIG Insured, 8.00%, 7/01/13 ....................................................... 535,000 563,858
Health Care Corp. Revenue, Carondelet St. Joseph's and St. Mary's Hospital,
MBIA Insured, 6.75%, 7/01/10 ...................................................... 2,250,000 2,446,403
MFR, Series A, 6.00%, 12/01/21 ..................................................... 2,720,000 2,789,034
SFMR, GNMA Secured, 6.40%, 11/01/09 ................................................ 880,000 940,139
SFMR, GNMA Secured, 8.125%, 9/01/20 ................................................ 1,385,000 1,436,702
SFMR, GNMA Secured, 6.750%, 11/01/27 ............................................... 3,935,000 4,172,477
SFMR, Refunding, Series A, 7.625%, 2/01/12 ......................................... 4,285,000 4,508,163
SFMR, Refunding, Series A, 6.50%, 2/01/17 .......................................... 810,000 846,628
Pima County IDAR, MBIA Insured, Refunding, Series A, 5.625%, 4/01/14 ............... 2,250,000 2,304,720
Pima County Sewer Revenue, FGIC Insured, Refunding, 6.75%, 7/01/15 ................. 1,410,000 1,526,945
Pima County USD No. 1, Tucson Project, FGIC Insured, 5.875%, 7/01/14 ............... 21,000,000 21,878,010
Pinal County USD No. 43, Apache Junction, Refunding and Improvement, FGIC Insured,
7.15%, 7/01/05 ..................................................................... 500,000 526,990
Pre-Refunded, 7.20%, 7/01/07 ....................................................... 700,000 745,500
Series A, 5.85%, 7/01/15 ........................................................... 2,500,000 2,620,475
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, FSA Insured,
Pre-Refunded, Series A, 9.00%, 7/01/09 ............................................. 75,000 95,395
Puerto Rico Commonwealth Highway and Transportation Authority Highway
Revenue, Series Y, 5.00%, 7/01/36 ................................................. 9,000,000 8,227,080
Puerto Rico Commonwealth Highway Authority, Highway Revenue,
Pre-Refunded, Series P, 8.125%, 7/01/13 ........................................... 750,000 791,528
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.75%, 7/01/08 ..................................................................... 9,215,000 9,645,525
7.50%, 7/01/09 ..................................................................... 2,000,000 2,089,420
Puerto Rico Electric Power Authority Revenue,
Pre-Refunded, Series R, 6.25%, 7/01/17 ............................................. 3,745,000 3,965,918
Refunding, Pre-Refunded, Series M, 8.00%, 7/01/08 .................................. 3,000,000 3,163,080
Refunding, Series N, 7.00%, 7/01/07 ................................................ 745,000 786,713
Refunding, Series N, 7.125%, 7/01/14 ............................................... 2,205,000 2,339,218
Series O, 7.125%, 7/01/14 .......................................................... 1,510,000 1,601,914
Series U, 6.00%, 7/01/14 ........................................................... 2,000,000 2,083,180
Series X, 6.125%, 7/01/21 .......................................................... 25,720,000 27,084,703
Puerto Rico GO, 6.50%, 7/01/23 ..................................................... 4,850,000 5,323,700
Puerto Rico HFC, SFMR, GNMA Secured, Series B, 7.65%, 10/15/22 ..................... 980,000 1,035,243
Puerto Rico HFC Revenue,
FHA Mortgage Insured, Pre-Refunded, 7.75%, 12/01/26 ................................ 40,000 48,294
MFMR, Portfolio A, Series 1, 7.50%, 4/01/22 ........................................ 1,445,000 1,524,620
Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control
Facilities, Financing Authority, Hospital Revenue, Series A,
Dr. Pila Hospital, FHA Insured, Refunding, 5.875%, 8/01/12 ......................... 5,225,000 5,511,644
Hospital Auxilio Mutuo Obligation Group, MBIA Insured, 6.25%, 7/01/24 .............. 1,950,000 2,093,637
Puerto Rico PBA Revenue, Series B,
5.25%, 7/01/21 ..................................................................... 5,000,000 4,777,200
MBIA Insured, 5.00%, 7/01/14 ....................................................... 4,155,000 4,030,516
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue,
MBIA Insured, Series A, 6.00%, 1/01/31 ............................................. 1,845,000 1,883,727
Pre-Refunded, Series A, 7.875%, 1/01/28 ............................................ 2,500,000 2,582,500
Pre-Refunded, Series E, 8.25%, 1/01/13 ............................................. 110,000 111,588
Pre-Refunded, Series E, 8.25%, 1/01/28 ............................................. 625,000 634,025
Refunding, Series A, 5.75%, 1/01/13 ................................................ 2,435,000 2,502,084
Refunding, Series B, 5.25%, 1/01/19 ................................................ 2,000,000 1,942,380
Refunding, Series D, 5.50%, 1/01/25 ................................................ 4,550,000 4,549,591
Refunding, Series D, 6.25%, 1/01/27 ................................................ 6,000,000 6,282,720
Series A, 6.50%, 1/01/22 ........................................................... 2,000,000 2,115,140
Series A, 6.00%, 1/01/31 ........................................................... 4,600,000 4,690,942
Series C, 6.20%, 1/01/12 ........................................................... 5,925,000 6,259,940
Series C, 6.25%, 1/01/19 ........................................................... 9,975,000 10,483,127
Series C, 5.50%, 1/01/28 ........................................................... 5,760,000 5,725,843
San Luis Municipal Property Corp., Municipal Facilities Revenue, 8.125%, 7/01/19 ... $ 3,190,000 $ 3,338,654
Santa Cruz County IDAR, Citizens Utilities Co. Project, 6.60%, 5/01/29 ............. 8,000,000 8,554,560
Scottsdale IDA, Hospital Revenue, Scottsdale Memorial Hospital, AMBAC Insured, Refunding, Series A,
5.625%, 9/01/12 .................................................................... 7,000,000 7,111,860
5.70%, 9/01/15 ..................................................................... 1,250,000 1,261,963
5.70%, 9/01/18 ..................................................................... 4,045,000 4,093,985
Sedona Sewer Sales Tax Revenue,
Pre-Refunded, Series A, 7.50%, 7/01/20 ............................................. 6,500,000 7,180,810
Refunding, 6.75%, 7/01/07 .......................................................... 3,800,000 4,188,778
Refunding, 7.00%, 7/01/12 .......................................................... 5,000,000 5,379,200
Tucson, Series A, 5.375%, 7/01/20 .................................................. 2,300,000 2,268,559
Tucson Airport Authority Revenue, MBIA Insured,
Refunding, 5.70%, 6/01/13 .......................................................... 6,700,000 6,859,192
Series A, 6.875%, 6/01/20 .......................................................... 1,090,000 1,157,504
Series B, 7.125%, 6/01/15 .......................................................... 1,175,000 1,271,233
Series B, 7.25%, 6/01/20 ........................................................... 1,125,000 1,220,715
Tucson IDA, MFR, Refunding,
La Entrada, 7.40%, 7/01/26 ......................................................... 1,885,000 1,997,271
Los Portales Apts., 5.90%, 12/20/31 ................................................ 2,000,000 2,049,520
Tuscon Water Revenue,
FGIC Insured, Refunding, 5.00%, 7/01/19 ............................................ 2,100,000 1,992,900
FGIC Insured, Refunding, 5.125%, 7/01/20 ........................................... 6,000,000 5,784,480
FGIC Insured, Refunding, 5.125%, 7/01/21 ........................................... 8,030,000 7,735,299
MBIA Insured, Pre-Refunded, Series A, 6.00%, 7/01/21 ............................... 14,650,000 16,220,773
MBIA Insured, Refunding, 7.00%, 7/01/10 ............................................ 2,250,000 2,372,153
Pre-Refunded, Series D, 7.10%, 7/01/18 ............................................. 6,750,000 7,524,225
University of Arizona System Revenue,
6.25%, 6/01/11 ..................................................................... 1,000,000 1,076,670
6.35%, 6/01/14 ..................................................................... 1,300,000 1,382,225
Pre-Refunded, 7.625%, 6/01/11 ...................................................... 1,700,000 1,780,665
Yavapai County IDA, Hospital Facility Revenue, FSA Insured, Series A, 5.125%,
12/01/13 2,000,000 1,970,580
Yavapai County USD No. 22, Humboldt,
FGIC Insured, Series A, 5.95%, 7/01/14 ............................................. 1,500,000 1,575,555
MBIA Insured, Series B, 5.60%, 7/01/14 ............................................. 1,825,000 1,884,696
Yuma County Elementary School District No. 1,
MBIA Insured, Series A, 5.75%, 7/01/14 ............................................. 1,500,000 1,559,940
MBIA Insured, Series B, 5.50%, 7/01/14 ............................................. 2,000,000 2,032,880
Yuma IDA,
Hospital Revenue, Yuma Regional Medical Center, MBIA Insured, Refunding, 5.50%,
8/01/17 4,000,000 4,038,080
MFHR, Alexandrite Sands Apartments Project, FHA Insured, 7.60%, 12/01/15 ........... 1,000,000 1,049,050
MFHR, Alexandrite Sands Apartments Project, FHA Insured, 7.70%, 12/01/29 ........... 2,000,000 2,101,980
-------------
Total Long Term Investments (Cost $741,270,289) .................................... 786,185,132
-------------
a Short Term Investments .1%
Maricopa County IDA, Hospital Facilities Revenue, Samaritan Health Service,
Series B-2, MBIA Insured, Daily VRDN and Put, 3.50%,
12/01/08 (Cost $200,000) ........................................................... 200,000 200,000
-------------
Total Investments (Cost $741,470,289) 99.8% ........................................ 786,385,132
Other Assets, less Liabilities .2% ................................................. 1,946,147
-------------
Net Assets 100.0% .................................................................. $788,331,279
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Colorado Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.80 $11.84 $11.38 $11.94 $11.85 $11.00
Income from investment operations:
Net investment income .32 .66 .67 .67 .68 .70
Net realized and unrealized gains (losses) .09 (.04) .45 (.57) .10 .85
Total from investment operations .41 .62 1.12 .10 .78 1.55
Less distributions:
Dividends from net investment income (.33) (.66) (.66) (.66) (.69) (.70)
Net asset value, end of period $11.88 $11.80 $11.84 $11.38 $11.94 $11.85
Total return+ 3.50% 5.44% 10.12% 1.05% 6.49% 14.26%
Ratios/Supplemental Data
Net assets, end of period (000's) $254,316 $236,609 $215,609 $194,564 $202,158 $159,280
Ratio to average net assets:
Expenses .72%* .71% .71% .70% .64% .67%
Net investment income 5.42%* 5.59% 5.73% 5.94% 5.69% 6.20%
Portfolio turnover rate 10.92% 14.13% 17.58% 28.83% 10.85% 5.66%
Class II
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.84 $11.87 $11.40
Income from investment operations:
Net investment income .29 .59 .50
Net realized and unrealized gains (losses) .09 (.02) .46
Total from investment operations .38 .57 .96
Less distributions:
Dividends from net investment income (.29) (.60) (.49)
Net asset value, end of period $11.93 $11.84 $11.87
Total return+ 3.28% 4.93% 8.57%
Ratios/Supplemental Data
Net assets, end of period (000's) $8,186 $5,654 $1,656
Ratio to average net assets:
Expenses 1.30%* 1.28% 1.29%*
Net investment income 4.91%* 4.99% 5.12%*
Portfolio turnover rate 10.92% 14.13% 17.58%
</TABLE>
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Colorado Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 98.5%
<S> <C> <C>
Adams County PCR, Refunding, Public Service Co. of Colorado Project, Series A, 7.375%,
11/01/09 $ 770,000 $ 780,934
Adams County School District No.12, FGIC Insured, 5.40%, 12/15/14 .................. 1,000,000 1,020,240
Arapahoe County Capital Improvements Transportation Fund Highway Revenue,
Vehicle Registration, Series A, MBIA Insured, 6.15%,
8/31/26 ............................................................................ 8,000,000 8,519,760
Arapahoe County COP, Refunding, FSA Insured, 6.625%, 12/01/16 ...................... 805,000 877,402
Arapahoe County School District, No. 2, Refunding, MBIA Insured, 5.70%, 6/01/19 .... 2,200,000 2,235,112
Arvada MFHR, Refunding, Springwood Community Project, 6.35%, 8/20/16 ............... 1,000,000 1,043,050
Auraria Higher Education Center, Parking Facilities Revenue, Refunding, Pre-Refunded, 7.875%,
4/01/12 1,500,000 1,631,220
Aurora COP, Refunding, 6.25%, 12/01/09 ............................................. 2,850,000 3,065,888
Aurora MFHR, Dayton Place Project, Series A, GNMA Secured, 8.25%, 1/20/29 .......... 150,000 155,825
Aurora Urban Renewal Authority, Tax Increment Revenue, Pre-Refunded, 7.50%, 11/15/07 750,000 787,020
Bayfield School District No. 10, MBIA Insured, 6.65%, 6/01/15 ...................... 1,000,000 1,100,030
Boulder County Hospital Revenue, Longmont United Hospital Project,
5.80%, 12/01/13 .................................................................... 2,000,000 2,011,520
5.875%, 12/01/20 ................................................................... 1,285,000 1,287,480
Pre-Refunded, 8.20%, 12/01/20 ...................................................... 3,000,000 3,371,460
Boulder GO, Refunding, 7.20%, 8/15/13 .............................................. 1,250,000 1,324,138
Castle Pines Metropolitan District, Refunding and Improvement, FSA Insured,
5.25%, 12/01/15 .................................................................... 1,900,000 1,854,096
7.625%, 12/01/15 ................................................................... 1,400,000 1,563,702
Colorado Health Facilities Authority Revenue,
Birchwood Manor Project, Series A, GNMA Secured, 7.625%, 4/01/26 ................... 1,615,000 1,684,284
Boulder Community Hospital, Refunding, Series B, MBIA Insured, 5.875%, 10/01/23 .... 1,500,000 1,538,610
Children's Hospital Association Project, MBIA Insured, 5.25%, 10/01/26 ............. 1,000,000 963,880
Community Provider Pooled Loan Program, FSA Insured, 6.75%, 7/15/17 ................ 954,000 1,024,195
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.25%, 7/15/17 ...... 6,570,000 7,147,963
Covenant Retirement Communities, 6.75%, 12/01/15 ................................... 1,750,000 1,881,023
Covenant Retirement Communities, 6.75%, 12/01/25 ................................... 4,950,000 5,281,155
Mercy Medical Center Durango, 6.20%, 11/15/15 ...................................... 1,250,000 1,303,563
Oakbrook I Manor, Series A, GNMA Secured, 7.25%, 4/01/11 ........................... 400,000 415,476
Oakbrook I Manor, Series A, GNMA Secured, 7.625%, 4/01/26 .......................... 885,000 922,967
PSL Health System Project, Series B, Pre-Refunded, 8.50%, 2/15/21 .................. 2,000,000 2,297,440
Colorado HFA,
MF, Series A, 6.80%, 8/01/14 ....................................................... 3,740,000 3,945,775
MF, Series A, 6.85%, 8/01/24 ....................................................... 6,070,000 6,403,425
MF, Series A, 6.875%, 8/01/30 ...................................................... 2,405,000 2,536,289
MF, Series A-2, 6.00%, 10/01/28 .................................................... 1,000,000 1,020,860
Series A, Pre-Refunded, 8.375%, 1/01/30 ............................................ 100,000 103,426
SF, Series A, 7.50%, 5/01/29 ....................................................... 1,000,000 1,055,150
SF Program, Refunding, Series A-2, MBIA Insured, 5.625%, 11/01/23 .................. 4,000,000 3,996,920
SF Program, Series A-1, 8.00%, 8/01/17 ............................................. 250,000 259,893
SF Program, Series A-2, 7.70%, 2/01/23 ............................................. 780,000 821,168
SF Program, Series A-3, 7.90%, 8/01/21 ............................................. 330,000 345,457
SF Program, Series C-2, 7.375%, 8/01/10 ............................................ 1,570,000 1,646,271
SF Program, Series C-2, 7.85%, 2/01/21 ............................................. 235,000 244,532
SFMR, Series C, 8.75%, 9/01/17 ..................................................... 15,000 15,401
Colorado Mountain College Residence Hall Authority Revenue, MBIA Insured, 5.75%, 6/01/23 3,000,000 3,071,580
Colorado Postsecondary Educational Facilities Authority Revenue,
Auraria Foundation Project, FSA Insured, 6.00%, 9/01/15 ............................ 1,000,000 1,043,790
Regis University Project, Connie Lee Insured, 6.625%, 6/01/13 ...................... 3,250,000 3,419,618
University of Denver Project, Series B, Pre-Refunded, 9.00%, 12/01/07 .............. 300,000 309,693
Colorado Public Highway Authority Revenue, Highway E-470, Refunding, Sr. Series A,
MBIA Insured, 5.25%, 9/01/18 ....................................................... 3,795,000 3,686,880
Colorado Springs Airport Revenue,Series A, MBIA Insured, 5.25%, 1/01/22 ............ 2,500,000 2,442,725
Colorado Springs Hospital Revenue,
Memorial Hospital, Pre-Refunded, 8.75%, 12/15/07 ................................... 75,000 77,510
Refunding, MBIA Insured, 6.00%, 12/15/15 ........................................... 5,575,000 5,876,162
Refunding, MBIA Insured, 6.00%, 12/15/24 ........................................... 10,955,000 11,458,492
Colorado Springs Utilities Revenue,
Series A, 5.75%, 11/15/23 .......................................................... $ 1,450,000 $ 1,475,752
Series A, 6.10%, 11/15/24 .......................................................... 11,000,000 11,600,270
Colorado State, Board Community Colleges and Occupational Educational Revenue,
Red Rocks Community College Project,
AMBAC Insured, 6.00%, 11/01/19 ..................................................... 1,090,000 1,139,181
Colorado Water Resource and Power Development Authority,
Clean Water Revenue, Series A, 6.15%, 9/01/11 ...................................... 1,765,000 1,880,449
Clean Water Revenue, Series A, 6.30%, 9/01/14 ...................................... 1,000,000 1,064,650
Clean Water Revenue, Series A, 5.80%, 9/01/17 ...................................... 2,000,000 2,073,500
Small Water Resource Revenue, Series A, FGIC Insured, 6.70%, 11/01/12 .............. 750,000 813,300
Stagecoach Project, Pre-Refunded, 8.00%, 11/01/17 .................................. 65,000 70,110
Denver City and County Airport Revenue,
Refunding, Series D, MBIA Insured, 5.875%, 11/15/16 ................................ 3,000,000 3,076,320
Series A, 7.50%, 11/15/23 .......................................................... 4,000,000 4,557,240
Series A, 8.50%, 11/15/23 .......................................................... 4,000,000 4,505,920
Series A, MBIA Insured, 5.60%, 11/15/20 ............................................ 3,200,000 3,212,032
Series A, MBIA Insured, 5.50%, 11/15/25 ............................................ 2,000,000 1,974,420
Series A, Pre-Refunded, 7.50%, 11/15/12 ............................................ 6,250,000 7,224,688
Series D, 7.75%, 11/15/13 .......................................................... 1,000,000 1,231,720
Series D, MBIA Insured, 5.50%, 11/15/25 ............................................ 1,500,000 1,480,815
bSeries E, Refunding, MBIA Insured, 5.50%, 11/15/25 ................................ 3,750,000 3,702,038
Denver City and County COP, Series A, MBIA Insured, 5.20%,5/01/17 .................. 1,500,000 1,462,035
Denver City and County IDR, University of Denver Project, 7.50%, 3/01/11 ........... 1,880,000 2,029,686
Denver City and County MFHR, The Boston Lofts Project, Series A, 5.75%, 10/01/27 ... 1,500,000 1,489,305
Denver City and County Revenue,
Children's Hospital Association Project, FGIC Insured, 6.00%, 10/01/15 ............. 3,150,000 3,276,378
Refunding, St. Anthony's Hospital, Sisters of Charity Health Care System,
Series A, MBIA Insured, Pre-Refunded, 7.75%, 5/01/14 ............................... 150,000 160,331
Denver City and County SFMR, Series A, GNMA Secured, 8.125%, 12/01/20 .............. 230,000 237,848
Denver City and County Special Facilities Airport Revenue, United Airlines Project, Series A,
6.875%, 10/01/32 ................................................................... 2,000,000 2,134,080
Donala Colorado Water and Sanitary District, Improvement Series B, 6.50%, 12/01/14 . 1,000,000 1,053,190
Douglas County, School District No. 1, Douglas and Elbert Counties,
Improvement Series A, MBIA Insured,
6.50%, 12/15/16 .................................................................... 230,000 254,348
Pre-Refunded, 6.50%, 12/15/16 ...................................................... 2,000,000 2,253,640
El Paso County,
HMR, Series A, GNMA Secured, 8.00%, 3/01/21 ........................................ 130,000 134,432
HMR, Series B, GNMA Secured, 8.125%, 11/01/13 ...................................... 95,000 99,185
Revenue, Refunding, St. Francis Hospital System, Sisters of Charity Health Care System,
Series A, MBIA Insured, Pre-Refunded, 7.75%, 5/01/14 .............................. 100,000 104,487
El Paso County, School District No. 20, GO, Series B,
8.00%, 12/01/06 .................................................................... 20,000 20,167
Pre-Refunded, 8.00%, 12/01/06 ...................................................... 30,000 30,300
Estes Park Urban Renewal Authority, Tax Increment Revenue, Pre-Refunded, 7.625%, 5/15/08 1,500,000 1,599,705
Foothill Metropolitan Recreational and Park District, Golf Course Revenue,
Series A, Pre-Refunded, 8.00%, 11/15/04 ........................................... 1,035,000 1,053,692
Fort Collins IDR, Vipont Pharmaceutical Inc. Project, Pre-Refunded, 9.25%, 8/01/13 . 190,000 202,464
Fort Collins PCR, Anheuser-Busch Co. Project, Refunding, 6.00%, 9/01/31 ............ 5,000,000 5,159,150
Fort Collins Stormwater Utilitiy Enterprise Storm Drain Revenue, Refunding and Improvement,
AMBAC Insured, 5.25%, 12/01/17 .................................................... 2,000,000 1,967,980
Frisco Fire Protection District, Refunding and Improvement, 7.20%, 12/01/05 ........ 250,000 262,908
bGreeley MFHR Mortgage, FHA Insured, Creek Stone Project, 5.95%, 7/01/28 ............ 1,000,000 1,012,610
Guam Airport Revenue Authority,Series A, Refunding,
6.375%, 10/01/10 ................................................................... 400,000 419,364
6.50%, 10/01/23 .................................................................... 800,000 845,144
Guam Power Authority Revenue, Series A, 6.375%, 10/01/08 ........................... 1,000,000 1,045,890
Jefferson County District Wide Sales Tax Revenue, Local Improvement District,
MBIA Insured, 6.30%, 6/01/22 ....................................................... 7,450,000 7,828,013
Pre-Refunded, 8.20%, 12/01/13 ...................................................... 200,000 209,932
Jefferson County School District No. R-001, AMBAC Insured, 6.25%, 12/15/12 ......... 1,000,000 1,062,600
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 ......... 470,000 501,796
Lakewood MFHR Mortgage, FHA Insured Mortgage,
6.65%, 10/01/25 .................................................................... $ 1,235,000 $1,304,518
6.70%, 10/01/36 .................................................................... 3,025,000 3,183,177
Larimer County Health Care Facilities Revenue, Refunding, Western Health Network, Inc.,
BIG Insured, 7.625%, 1/01/12 ...................................................... 250,000 263,300
Larimer County School District, No. R1 Poudre COP, MBIA Insured, 5.65%, 12/01/16 ... 2,300,000 2,330,222
Las Animas County School District No. 1, Refunding,
6.15%, 12/01/08 .................................................................... 1,000,000 1,033,320
6.20%, 12/01/10 .................................................................... 935,000 967,445
Left Hand Water District Revenue, MBIA Insured, 5.70%, 11/15/15 .................... 1,400,000 1,436,120
Logan County, SFMR, Refunding, Series A, 8.50%, 11/01/11 ........................... 465,000 488,483
Louisville Water District GO, Refunding, FGIC Insured, 7.20%, 12/01/09 ............. 910,000 936,845
Mesa County Sales Tax Revenue, Refunding, MBIA Insured, 7.75%, 12/01/13 ............ 350,000 365,061
Metex Metropolitan Disrict, Refunding, Series A, MBIA Insured, 5.80%, 12/01/16 ..... 500,000 517,695
Metropolitan of Denver Revenue, Sewer Disposal District No. 1, Series A, MBIA
Insured, Pre-Refunded, 7.60%, 4/01/14 .............................................. 575,000 597,776
Montrose County COP, 6.35%, 6/15/06 ................................................ 1,850,000 1,965,089
Northern Colorado Municipal Water Subdistrict, Water Conservancy Revenue, Series G,
5.25%, 12/01/15 2,000,000 1,974,420
Platte River Power Authority Revenue, Series D-2, Refunding, MBIA Insured, 5.375%, 6/01/17 5,490,000 5,459,750
Pueblo County COP, Public Parking, 6.90%, 7/01/15 .................................. 525,000 543,191
Pueblo County, MBIA Insured, 6.00%, 6/01/16 ........................................ 4,395,000 4,616,991
Pueblo County School District No. 70, Pueblo Rural, GO, AMBAC Insured, 6.40%, 12/01/14 1,000,000 1,085,980
Pueblo Urban Renewal Authority Tax Increment Revenue, Refunding, AMBAC Insured, 6.10%, 12/01/15 1,000,000 1,061,060
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
FSA Insured, Pre-Refunded, 9.00%, 7/01/09 .......................................... 55,000 69,956
Puerto Rico Commonwealth Highway Authority Revenue, Series Q, Pre-Refunded, 8.00%, 7/01/18 1,000,000 1,119,350
Puerto Rico Electric Power Authority Revenue, Refunding, Series N, 7.125%, 7/01/14 . 155,000 164,435
Puerto Rico HFC, SFMR, Portfolio No. 1, Series A, GNMA Secured, 7.80%, 10/15/21 .... 15,000 15,541
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Baxter Travenol Lab., Series A, 8.00%, 9/01/12 .................................... 600,000 639,312
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities,
Financing Authority, Industrial Revenue,
Guaynabo Municipal Government Center, Series A, 5.625%, 7/01/22 .................... 1,335,000 1,294,096
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 8.25%, 7/01/08 ....... 145,000 153,113
Regional Transportation District Sales Tax Revenue,
Refunding and Improvement, FGIC Insured, 6.25%, 11/01/12 ........................... 1,080,000 1,173,208
Series 1988, Pre-Refunded, 8.00%, 11/01/08 ......................................... 100,000 104,417
Southwestern SFMR, Refunding, Series A, 7.375%, 9/01/11 ............................ 550,000 575,801
Stonegate Village Metropolitan District, Refunding and Improvement, Series A, FSA Insured,
5.60%, 12/01/25 4,500,000 4,540,680
Summit County SFMR, Series A, 7.50%, 12/01/11 ...................................... 160,000 167,883
Summit County Sports Facilities Revenue, Refunding, Keystone Resorts Project,
Ralston Purina Co., 7.875%, 9/01/08 ............................................... 2,750,000 3,301,045
University of Colorado, Hospital Authority Revenue, Series A, AMBAC Insured, 6.40%, 11/15/22 7,000,000 7,424,970
University of Northern Colorado, Authority Facilities System Revenue, MBIA Insured, 5.60%,
6/01/24 2,000,000 2,015,220
Westminster City Sales and Use Tax Revenue, Refunding and Improvement,
FGIC Insured, 7.00%, 12/01/08....................................................... 2,000,000 2,165,740
Storm Project, Series A, 5.60%,12/01/16 ............................................ 1,500,000 1,527,825
Widefield Water and Sanitary District, Water and Sewage Revenue, Refunding and Improvement,
Series A, MBIA Insured, 5.70%, 12/01/16 .......................................... 2,000,000 2,040,448
-------------
Total Long Term Investments (Cost $244,445,356) .................................... 258,486,998
-------------
aShort Term Investments .6%
Denver City and County MFHR, Ogden Residence Project, Daily VRDN and Put,
3.50%, 12/01/09 (Cost $1,600,000) ................................................. 1,600,000 1,600,000
-------------
Total Investments (Cost $246,045,356) 99.1% ........................................ 260,086,998
Other Assets, less Liabilities .9% ................................................. 2,414,392
-------------
Net Assets 100.0% .................................................................. $262,501,390
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable 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 at
specified dates. bSufficient collateral has been segregated for securities
traded on a when-issued or delayed delivery basis.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Connecticut Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
Per Share Operating Performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.92 $10.96 $10.64 $11.23 $11.16 $10.49
Income from investment operations:
Net investment income .30 .61 .62 .62 .62 .64
Net realized and unrealized gains (losses) .10 (.02) .32 (.60) .08 .66
Total from investment operations .40 .59 .94 .02 .70 1.30
Less distributions:
Dividends from net investment income (.30) (.63) (.62) (.61) (.63) (.63)
Net asset value, end of period $11.02 $10.92 $10.96 $10.64 $11.23 $11.16
Total return+ 3.75% 5.52% 9.04% .37% 6.16% 12.60%
Ratios/Supplemental Data
Net assets, end of period (000's) $193,866 $183,649 $167,045 $155,623 $163,050 $126,816
Ratio to average net assets:
Expenses .74%* .72% .73% .71% .65% .69%
Net investment income 5.50%* 5.62% 5.70% 5.83% 5.54% 5.97%
Portfolio turnover rate 3.08% 14.53% 3.88% 75.72% 5.54% 28.52%
Class II
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $10.94 $10.97 $10.65
Income from investment operations:
Net investment income .28 .60 .47
Net realized and unrealized gains (losses) .09 (.07) .31
Total from investment operations .37 .53 .78
Less distributions:
Dividends from net investment income (.27) (.56) (.46)
Net asset value, end of period $11.04 $10.94 $10.97
Total return+ 3.45% 5.03% 7.45%
Ratios/Supplemental Data
Net assets, end of period (000's) $6,152 $4,149 $1,656
Ratio to average net assets:
Expenses 1.28%* 1.29% 1.30%*
Net investment income 4.94%* 5.01% 5.12%*
Portfolio turnover rate 3.08% 14.53% 3.88%
</TABLE>
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Connecticut Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 98.3%
Bridgeport GO,
<S> <C> <C>
Series A, 7.25%, 6/01/00 ........................................................... $ 300,000 $ 316,902
Series A, Pre-Refunded, 7.625%, 1/15/09 ............................................ 600,000 642,792
Series B, 7.55%, 11/15/00 .......................................................... 1,375,000 1,476,420
Series B, Pre-Refunded, 7.75%, 11/15/10 ............................................ 3,750,000 4,197,713
Series B, State Guaranteed, Pre-Refunded, 7.30%, 1/15/09 ........................... 425,000 453,611
Unlimited Tax, ETM, Series A, 7.30%, 3/01/99 ....................................... 750,000 784,380
Connecticut HFA, Housing Mortgage Finance,
Series A, Sub-Series 2, 7.20%, 11/15/08 ............................................ 915,000 977,458
Series B, 7.20%, 11/15/09 .......................................................... 90,000 93,704
Series B, 6.75%, 11/15/23 .......................................................... 14,705,000 15,684,353
Series C-1, 6.60%, 11/15/23 ........................................................ 500,000 530,750
Series C-2, 6.25%, 11/15/18 ........................................................ 1,500,000 1,589,910
Series C-2, 6.70%, 11/15/22 ........................................................ 4,735,000 4,996,514
bSeries C-2, 5.85%, 11/15/28 ....................................................... 1,500,000 1,501,140
Series E, 6.30%, 5/15/17 ........................................................... 3,815,000 4,032,608
Sub-Series A-1, 6.10%, 5/15/17 ..................................................... 750,000 777,690
Sub-Series B-1, 6.50%, 5/15/18 ..................................................... 640,000 674,656
Sub-Series B-1, 6.30%, 5/15/25 ..................................................... 700,000 738,885
Sub-Series B-2, 6.75%, 5/15/22 ..................................................... 390,000 414,980
Sub-Series G-1, 6.20%, 11/15/16 .................................................... 1,380,000 1,425,871
Connecticut Higher Education Supplemental Loan Authority, Series A,
7.00%, 11/15/05 .................................................................... 830,000 883,751
7.20%, 11/15/10 .................................................................... 245,000 260,780
7.50%, 11/15/10 .................................................................... 395,000 411,061
Connecticut State Development Authority,
Health Care Revenue, Masonic Charity of Connecticut, 6.50%, 8/01/20 ................ 5,800,000 6,084,258
PCR, New England Power Co., 7.25%, 10/15/15 ........................................ 750,000 800,970
Solid Waste Disposal Authority, Pfizer, Inc. Project, 7.00%, 7/01/25 ............... 2,000,000 2,269,440
Water Facility Revenue, Bridgeport Hydraulic Co. Project, 6.15%, 4/01/35 ........... 1,000,000 1,080,230
Water Facility Revenue, Bridgeport Hydraulic Co. Project, Refunding, 7.25%, 6/01/20 1,000,000 1,027,780
Connecticut State Health and Educational Facilities Authority Revenue,
Abbot Terrace Health Center Project, Series A, 6.00%, 11/01/14 ..................... 2,000,000 2,137,500
Capital Assets, Series B, ETM, 7.00%, 1/01/00 ...................................... 635,000 673,938
Capital Assets, Series C, MBIA Insured, 7.00%, 1/01/20 ............................. 1,265,000 1,373,929
Capital Assets, Series C, MBIA Insured, Pre-Refunded, 7.00%, 1/01/20 ............... 730,000 803,073
Choate Rosemary Hall, Series A, Pre-Refunded, 7.00%, 7/01/25 ....................... 5,600,000 6,437,928
Greenwich Hospital, Series A, MBIA Insured, 5.75%, 7/01/16 ......................... 1,000,000 1,027,490
Greenwich Hospital, Series A, MBIA Insured, 5.80%, 7/01/26 ......................... 2,500,000 2,546,050
Hartford University, Series C, Pre-Refunded, 8.00%, 7/01/18 ........................ 1,325,000 1,517,324
Hartford University, Series D, 6.80%, 7/01/22 ...................................... 5,000,000 5,119,650
Hebrew Home and Hospital, Series A, 7.00%, 8/01/30 ................................. 1,240,000 1,277,101
Lawrence Memorial Hospital, Series B, MBIA Insured, Pre-Refunded, 7.00%, 7/01/20 ... 1,000,000 1,090,150
Lutheran General Health Care System, ETM, 7.375%, 7/01/19 .......................... 500,000 598,830
New Britain Memorial Hospital, Series A, 7.75%, 7/01/22 ............................ 1,000,000 1,093,010
New Horizons Village Project, 7.30%, 11/01/16 ...................................... 2,905,000 3,352,951
Quinnipiac College, Series C, Pre-Refunded, 7.75%, 7/01/20 ......................... 960,000 1,064,160
Sacred Heart University, Refunding, Series C, 6.50%, 7/01/16 ....................... 1,000,000 1,046,580
Sacred Heart University, Series A, Pre-Refunded, 6.85%, 7/01/22 .................... 615,000 688,351
Sacred Heart University, Series C, 6.625%, 7/01/26 ................................. 7,000,000 7,332,500
Sacred Heart University, Series D, 6.20%, 7/01/27 .................................. 1,700,000 1,724,004
San Raphael Hospital, Series C, AMBAC Insured, Pre-Refunded, 7.50%, 7/01/14 ........ 275,000 288,613
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 ........................... 2,695,000 2,650,047
St. Mary's Hospital, Refunding, Series E, 5.875%, 7/01/22 .......................... 3,510,000 3,580,130
St. Mary's Hospital, Series B, Pre-Refunded, 7.50%, 7/01/02 ........................ 100,000 104,950
St. Mary's Hospital, Series C, Pre-Refunded, 7.375%, 7/01/20 ....................... 1,000,000 1,098,620
Taft School, Series A, Pre-Refunded, 7.375%, 7/01/20 ............................... 1,000,000 1,098,620
Taft School, Series C, 6.00%, 7/01/16 .............................................. 2,500,000 2,536,475
Connecticut State Health and Educational Facilities Authority Revenue, (cont.)
Taft School, Series C, Asset Guarantee, 5.75%, 7/01/26 ............................. $ 3,325,000 $ 3,340,993
Trinity College, Series E, MBIA Insured, 5.875%, 7/01/26 ........................... 2,200,000 2,257,398
Veterans Memorial Medical Center, MBIA Insured, Series A, 5.50%, 7/01/26 ........... 4,210,000 4,161,627
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/20 ...................... 8,000,000 8,019,280
Yale New Haven Hospital, MBIA Insured, Refunding, Series H, 5.70%, 7/01/25 ......... 4,500,000 4,550,310
Yale New Haven Hospital, MBIA Insured, Series F, Pre-Refunded, 7.10%, 7/01/25 ...... 12,350,000 13,495,957
Connecticut State Resource Recovery Authority Revenue,
American Refunding, Series A, 7.70%, 11/15/01 ...................................... 200,000 212,244
American Refunding, Series A, 8.10%, 11/15/15 ...................................... 200,000 213,406
Bridgeport Resco, Ltd. Partnership Project, Series A, 7.625%, 1/01/09 .............. 835,000 863,407
Wallingford Recovery Project, Series A, 7.125%, 11/15/08 ........................... 205,000 209,022
Connecticut State Special Tax Obligation Revenue, Transportation Infrastructure
Purpose, Series A, Pre-Refunded,
7.20%, 2/01/09 ..................................................................... 2,000,000 2,124,520
7.30%, 2/15/18 ..................................................................... 900,000 931,698
East Haven, Utah Bank Qualified GO, 7.00%, 9/15/07 ................................. 200,000 212,806
Griswold GO, AMBAC Insured, 7.50%, 4/01/06 ......................................... 200,000 238,982
Guam Airport Authority Revenue, Series B
6.60%, 10/01/10 .................................................................... 250,000 265,713
6.70%, 10/01/23 .................................................................... 1,300,000 1,389,908
Guam Power Authority Revenue, Series A, 6.75%, 10/01/24 ............................ 5,500,000 5,969,700
Montville Town GO, Pre-Refunded, 7.35%, 12/01/10 ................................... 210,000 222,417
New Haven GO,
Series A, Pre-Refunded, 7.40%, 3/01/12 ............................................. 4,545,000 5,169,983
Series B, Pre-Refunded, 6.75%, 12/01/05 ............................................ 2,000,000 2,249,540
Plainfield GO,
7.20%, 6/15/08 ..................................................................... 100,000 102,743
Series 1988, 7.30%, 9/01/10 ........................................................ 150,000 164,235
Series 1991, 7.25%, 9/01/05 ........................................................ 335,000 368,108
Series 1991, 7.30%, 9/01/07 ........................................................ 335,000 367,428
Series 1991, 7.30%, 9/01/09 ........................................................ 335,000 366,792
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
Pre-Refunded, 7.00%, 7/01/19 ...................................................... 1,500,000 1,569,480
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series S, Pre-Refunded, 6.625%, 7/01/18 ........................................... 1,000,000 1,112,470
Puerto Rico Commonwealth Highway Authority Revenue, Series R, Pre-Refunded, 6.75%, 7/01/05 1,800,000 1,955,448
Puerto Rico Electric Power Authority Revenue,
Series P, Pre-Refunded, 7.00%, 7/01/11 ............................................. 700,000 780,479
Series P, Pre-Refunded, 7.00%, 7/01/21 ............................................. 2,950,000 3,289,162
Series T, 6.375%, 7/01/24 .......................................................... 5,000,000 5,356,300
Puerto Rico HFC, SFMR, Portfolio No. 1, GNMA Insured, Series C, 6.85%, 10/15/23 .... 775,000 822,151
Puerto Rico Municipal Finance Agency, Series A, 6.50%, 7/01/19 ..................... 5,000,000 5,461,000
Puerto Rico PBA, Guaranteed Public Education and Health Facilities, Pre-Refunded, 7.25%, 7/01/17,
Series H............................................................................ 1,000,000 1,043,480
Series J............................................................................ 700,000 730,436
Stratford GO, Unlimited Tax, Pre-Refunded, 7.30%, 3/01/12 .......................... 1,130,000 1,256,345
Virgin Islands Water and Power Authority, Electric System Revenue, Series A, 7.40%, 7/01/11 6,290,000 6,740,112
Waterbury GO, Pre-Refunded,
7.25%, 3/01/03 ..................................................................... 785,000 871,515
7.25%, 3/01/04 ..................................................................... 785,000 871,515
7.50%, 3/01/07 ..................................................................... 780,000 872,217
-------------
Total Long Term Investments (Cost $183,121,026) .................................... 196,590,908
-------------
aShort Term Investments 1.2%
Connecticut State Development Authority, PCR, Refunding, Connecticut Light & Power Co.
Project, Series A, Weekly VRDN and Put, 3.40%, 9/01/28 ........................... $ 700,000 $ 700,000
Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN
and Put, 2.95%, 12/01/15 ........................................................... 1,800,000 1,800,000
-------------
Total Short Term Investments (Cost $2,500,000) ..................................... 2,500,000
-------------
Total Investments (Cost $185,621,026) 99.5% ........................................ 199,090,908
Other Assets, less Liabilities .5% ................................................. 926,844
-------------
Net Assets 100.0% .................................................................. $200,017,752
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Indiana Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.77 $11.76 $11.40 $12.01 $11.90 $11.07
Income from investment operations:
Net investment income .33 .66 .67 .66 .68 .71
Net realized and unrealized gains (losses) .09 .01 .35 (.61) .11 .83
Total from investment operations .42 .67 1.02 .05 .79 1.54
Less distributions:
Dividends from net investment income (.33) (.66) (.66) (.66) (.68) (.71)
Net asset value, end of period $11.86 $11.77 $11.76 $11.40 $12.01 $11.90
Total return+ 3.60% 5.91% 9.20% .58% 6.53% 14.10%
Ratios/Supplemental Data
Net assets, end of period (000's) $52,614 $51,137 $48,949 $46,583 $47,870 $37,367
Ratio to average net assets:
Expenses .82%* .82% .80% .81% .71% .59%
Expenses excluding waiver and payments by affiliate .82%* .82% .80% .81% .71%
.73%
Net investment income 5.62%* 5.69% 5.80% 5.84% 5.62% 6.16%
Portfolio turnover rate 14.45% 23.54% 10.56% 26.49% 16.12% 7.98%
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Indiana Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 101.5%
Beech Grove EDR, Westvaco Corp., 8.75%, 7/01/10 .................................... $ 50,000 $ 50,703
Carmel EDR, Refunding, Cool Creek Association, 6.50%, 9/01/15 ...................... 1,000,000 1,046,200
bCarmel Redevelopment Authority County Opt., 5.25%, 1/01/18 ......................... 2,700,000 2,627,451
Center Grove Central Elementary School Building Corp., First Mortgage, Pre-Refunded, 7.375%,
7/01/09 75,000 77,318
Chesterton Sewer Revenue, Pre-Refunded, 8.10%, 8/01/07 ............................. 50,000 51,833
Clarke County Hospital Association, First Mortgage, Refunding, MBIA Insured, 7.50%, 9/01/07 250,000 265,868
Columbus Sewage Works Revenue, MBIA Insured, Pre-Refunded, 6.50%, 2/15/13 .......... 710,000 768,114
Crown Point Redevelopment District, Lake County Tax Increment, 8.10%, 2/01/07 ...... 50,000 50,770
Duneland School Building Corp., First Mortgage, MBIA Insured, 5.50%, 8/01/17 ....... 1,000,000 997,540
Eastern Hancock Middle School Building Corp., Indianapolis First Mortgage, Refunding, 6.00%,
1/15/21 1,000,000 1,018,530
Elkhart County, Hospital Authority Revenue, Goshen Hospital Association, Inc. Project, 7.35%,
7/01/12 1,750,000 1,882,965
Elwood Middle School Building Corp., First Mortgage, Refunding, 7.30%, 1/01/08 ..... 500,000 541,980
Flat Rock-Hawcreek Elementary School Building Corp., First Mortgage, Pre-Refunded, 8.30%, 1/01/09 55,000 58,029
Fort Wayne Hospital Authority Revenue, Parkview Memorial Hospital Project, Series A,
FGIC Insured, 6.50%, 11/15/12 ..................................................... 1,000,000 1,054,270
Franklin Township of Marion County, Multi-School Building Corp., First Mortgage,
Pre-Refunded, 7.50%, 1/15/12 ...................................................... 200,000 213,114
Hamilton Southeastern Building Corp., Consolidated School Building Corp.,
First Mortgage, Pre-Refunded, 8.40%, 1/01/15 ...................................... 125,000 131,986
Hammond Industrial Sewer and Solid Waste Disposal Revenue,
American Maize-Products Co. Project, Series A, 8.00%, 12/01/24 .................... 3,000,000 3,469,470
Hammond Multi-School Building Corp., Refunding, First Mortgage, Series A, 6.20%,
7/10/15 1,500,000 1,555,305
Hammond PCR, Stauffer Chemical Project, Guaranteed Imperial, 8.00%, 11/01/12 ....... 300,000 330,894
Indiana Bond Bank, Special Program,
Series A, Pre-Refunded, 8.375%, 2/01/18 ............................................ 300,000 310,647
Series A, 7.50%, 2/01/20 ........................................................... 250,000 267,908
Series B, 6.20%, 1/01/23 ........................................................... 3,500,000 3,621,310
Series C, 8.00%, 8/01/11 ........................................................... 20,000 20,602
Indiana Health Facility Financing Authority, Hospital Revenue,
Hancock Memorial Hospital Health Services, 6.125%, 8/15/17 ......................... 2,000,000 2,024,560
Jackson County Schneck Memorial Hospital, 7.50%, 2/15/22 ........................... 1,835,000 1,983,360
Methodist Hospital, Inc., 6.75%, 9/15/09 ........................................... 1,280,000 1,380,659
St. Anthony's Medical Center/Home, Inc., Pre-Refunded, 9.25%, 10/01/17 ............. 50,000 51,197
St. Anthony's Medical Center/Home, Inc., Series A, 7.00%, 10/01/17 ................. 1,000,000 1,078,020
Indiana State Development Financing Authority Environmental Revenue, 6.25%, 7/15/30 2,000,000 2,038,920
Indiana State Educational Facilities Authority Revenue,
Anderson University Project, 8.40%, 10/01/08 ....................................... 175,000 185,162
Butler University Project No. 2, Series B, FGIC Insured, Pre-Refunded, 8.00%, 11/01/09 175,000 186,174
Valparaiso University Project, MBIA Insured, Pre-Refunded, 7.80%, 10/01/08 ......... 100,000 106,090
Indiana State HFA, SFMR,
6.10%, 7/1/22....................................................................... 1,000,000 1,036,580
Series A, 7.875%, 1/01/17 .......................................................... 20,000 20,589
Series A, GNMA Secured, 8.125%, 7/01/06 ............................................ 45,000 47,259
Series F-2, GNMA Secured, 7.75%, 7/01/22 ........................................... 460,000 488,433
Indiana State Office Building Commission, Correctional Facilities Program Revenue, 6.375%,
7/01/16 1,000,000 1,043,450
Indiana State Vocational Technical College Building Facilities, Student Fee, Series B,
MBIA Insured, Pre-Refunded, 7.90%, 7/01/07 ........................................ 95,000 98,110
Indiana Transportation Finance Authority Highway Revenue, Series A, Pre-Refunded, 8.125%, 6/01/11 100,000 105,031
Indiana University Revenue Hospital Facilities, Pre-Refunded, 7.30%, 1/01/03 ....... 200,000 211,946
Indianapolis Airport Authority, Indianapolis International Airport Revenue,
6.50%, 11/15/31 .................................................................... 1,460,000 1,550,389
BIG Insured, 8.30%, 7/01/18 ........................................................ 85,000 89,167
Indianapolis Local Public Improvement Bond Bank, Series D,
Pre-Refunded, 8.50%, 2/01/18 ....................................................... 225,000 233,609
Refunding, 6.75%, 2/01/20 .......................................................... 2,300,000 2,464,841
Refunding, 6.50%, 2/01/22 .......................................................... 2,540,000 2,557,805
Jasper County PCR, Refunding, Collateralized, Northern Indiana Public
Service Co., MBIA Insured, 7.10%, 7/01/17 .......................................... 500,000 543,460
Jefferson County Hospital Authority Facility Revenue, Refunding, King's
Daughters' Hospital, Pre-Refunded, 8.50%, 8/15/13 .................................. 300,000 318,483
Kendallville Sewage Works Revenue, GO, Pre-Refunded, 7.60%, 7/01/07 ................ 50,000 51,581
Kokomo Hospital Authority Revenue, Refunding, St. Joseph's Hospital and Health
Center of Kokomo, 8.75%, 2/15/13
Pre-Refunded, Series A.............................................................. 300,000 319,320
Series B............................................................................ 225,000 236,050
Lake Central Industrial Multi-School Building, First Mortgage, MBIA Insured, 6.50%, 1/15/14 2,100,000 2,257,941
Madison County Authority, Anderson Hospital Revenue, Refunding, Series A, BIG Insured, 8.00%,
1/01/14 $ 95,000 $ 97,978
Manchester Community, Elementary School Building Corp., First Mortgage, Pre-Refunded, 7.80%,
1/01/12 100,000 105,107
Marion County Convention and Recreational Facilities Authority, Excise Tax Revenue,
Lease Rental, Series A, AMBAC Insured, 7.00%, 6/01/21 ............................ 250,000 272,523
Monroe County, Community School Corp., MBIA Insured, 5.25%, 7/01/16 ................ 2,000,000 1,962,340
Monroe County, Hospital Authority Revenue, Bloomington Hospital Project, MBIA Insured, 6.70%,
5/01/12 300,000 330,537
Muncies Edit Building Corp., Industrial First Mortgage, Series A, AMBAC Insured, 6.60%,12/01/17 2,000,000 2,164,180
New Prairie Unified School Building Corp., Revenue, First Mortgage, Refunding, 5.80%, 7/05/11 1,520,000 1,586,120
North Lawrence Community School, COP, Multi-School Building Corp.,
Pre-Refunded, 8.10%, 1/01/10 ...................................................... 85,000 87,823
North Montgomery Elementary School Building Corp., COP, Pre-Refunded, 8.375%, 7/01/08 60,000 62,045
Northridge High School Additions, Building Corp., Middlebury, First Mortgage,
Pre-Refunded, 8.00%, 12/30/08...................................................... 125,000 131,570
Perry Township Multi-School Building Corp. Revenue, First Mortgage, Pre-Refunded, 7.80%, 1/01/03 100,000 103,226
Peru Community School Building Corp., First Mortgage, Pre-Refunded,
Series 1988, 7.90%, 7/01/08 ........................................................ 150,000 160,107
Series 1989, 7.80%, 1/01/11 ........................................................ 100,000 106,611
PHM Multi-School Building Corp., First Mortgage, FSA Insured 5.90%, 7/15/14 ........ 1,000,000 1,037,670
Princeton PCR, Refunding, Public Service Co. of Indiana Project, Series C, MBIA Insured,
7.375%, 3/15/12 ................................................................... 250,000 268,665
South Bend Redevelopment Authority Lease Revenue, Rental Parking Facility Project,
Pre-Refunded, 7.90%, 2/01/07 ...................................................... 150,000 152,420
Steuben County Metropolitan School District, COP, 6.90%, 1/01/08 ................... 500,000 532,015
Sullivan Industrial PCR, Refunding, Hoosier Energy, Meron Project, 7.10%, 4/01/19 .. 750,000 808,133
Twin Lakes School Building Improvement Corp., First Mortgage, Pre-Refunded, 7.50%, 1/15/08 250,000 265,875
Warsaw High School Building Corp., First Mortgage, Pre-Refunded, 8.10%, 1/01/09 .... 50,000 52,695
-------------
Total Long Term Investments (Cost $50,435,352) ..................................... 53,408,633
-------------
aShort Term Investments .4%
Indiana Secondary Market, Educational Loans Inc., Educational Loan Revenue, Series B,
AMBAC Insured, Weekly VRDN and Put, 3.40%,
12/01/14 ........................................................................... 100,000 100,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.90%, 12/01/15 ............................................... 100,000 100,000
-------------
Total Short Term Investments (Cost $200,000) ....................................... 200,000
Total Investments (Cost $50,635,352) 101.9% ........................................ 53,608,633
Other Assets, less Liabilities (1.9%) .............................................. (994,213)
-------------
Net Assets 100.0% .................................................................. $52,614,420
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates. bSufficient collateral has been segregated for securities
traded on a when-issued or delayed delivery basis.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Michigan Tax-Free Income Fund
Six Months EndedYear Ended
August 31, 1997February 28,
Class I (unaudited) 19973
<S> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $10.42 $10.00
Income from investment operations:
Net investment income .24 .30
Net realized and unrealized gains .22 .32
Total from investment operations .46 .62
Less distributions:
Dividends from net investment income (.29) (.20)
Net asset value, end of period $10.59 $10.42
Total return+ 4.44% 6.17%
Ratios/Supplemental Data
Net assets, end of period (000's) $7,491 $3,884
Ratio to average net assets:
Expenses .25%* .34%*
Expenses excluding waiver and payments by affiliate 1.22%* 1.21%*
Net investment income 5.44%* 4.90%*
Portfolio turnover rate 34.59% 42.83%
</TABLE>
3For the period July 1, 1996 (effective date) to February 28, 1997. +Total
return does not reflect sales commissions or the contingent deferred sales
charge, and is not annualized. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Michigan Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 96.1%
<S> <C> <C>
Avondale School District, AMBAC Insured, 5.75%, 5/01/22 ............................ $ 150,000 $ 152,207
Caledonia Community Schools, MBIA Insured, 5.85%, 5/01/22 .......................... 100,000 102,737
Cedar Springs Public School District, MBIA Insured, 5.875%, 5/01/19 ................ 250,000 255,988
Dearborn EDC Hospital Revenue, Oakwood Obligation Group, Series A, FGIC Insured, 5.75%, 11/15/15 100,000 102,078
Detroit Sewage Disposal Revenue, Series A, MBIA Insured, 5.50%, 7/01/20 ............ 215,000 215,722
Farmington Hills EDC Revenue, Botsford Continuing Care, Series A, MBIA Insured, 5.75%, 2/15/25 100,000 101,304
Ferris State University Revenue, AMBAC Insured, 5.90%, 10/01/26 .................... 240,000 246,833
Gogebic-Iron Wastewater Authority, Wastewater Treatment System Revenue,
Refunding, MBIA Insured, 6.05%, 1/01/25 ........................................... 500,000 517,565
Greenville Public Schools Building, MBIA Insured, 5.75%, 5/01/19 ................... 160,000 163,043
Grosse Ile Township School District, Refunding, FGIC Insured, 6.00%, 5/01/22 ....... 150,000 155,094
Huron Valley School District, FGIC Insured,
5.875%, 5/01/16 .................................................................... 100,000 103,302
5.75%, 5/01/22 ..................................................................... 100,000 101,247
Jackson County Hospital Finance Authority Revenue, Foote Memorial Hospital,
Series A, AMBAC Insured, 5.25%, 6/01/17............................................ 300,000 290,658
Jenison Public Schools, Refunding, FGIC Insured, 5.75%, 5/01/16 .................... 130,000 132,594
Kalamazoo Hospital Finance Authority Hospital Facility Revenue, Refunding and Improvement,
Bronson Methodist, MBIA Insured, 5.875%, 5/15/26 ................................. 225,000 229,363
Kenowa Hills Public Schools, MBIA Insured, 5.875%, 5/01/21 ......................... 275,000 281,243
Lakeview Community Schools, FGIC Insured, 5.75%, 5/01/16 ........................... 100,000 101,920
Lincoln Consolidated School District, Refunding, FGIC Insured, 5.85%, 5/01/21 ...... 140,000 142,940
Michigan Municipal Bond Authority Revenue, Local Government Loan Program,
Series B, 5.50%, 11/01/27 ......................................................... 150,000 147,987
Michigan State HDA,
Rental Housing Revenue, Refunding, Series A, AMBAC Insured, 6.00%, 4/01/16 ......... 200,000 206,392
SFMR, Refunding, Series B, 6.20%, 6/01/27 .......................................... 100,000 102,912
SFMR, Series D, 5.95%,12/01/16 ..................................................... 250,000 257,830
SFMR, Series E, 6.20%, 12/01/27 .................................................... 350,000 359,947
Michigan State Hospital Finance Authority Revenue,
Mercy Health Services, Series Q, AMBAC Insured, 5.375%, 8/15/26 .................... 200,000 194,418
Mercy Health Services, Series U, 5.75%, 8/15/26 .................................... 300,000 303,348
Presbyterian Villages Obligation, 6.375%, 1/01/15 .................................. 225,000 227,232
Presbyterian Villages Obligation, 6.375%, 1/01/25 .................................. 1,250,000 1,252,350
Refunding, Henry Ford Health Systems, FSA Insured, 5.75%, 9/01/17 .................. 140,000 142,251
Sparrow Obligated Group, MBIA Insured, 5.90%, 11/15/26 ............................. 100,000 102,712
Ottawa County Building Authority, Series A, 5.25%, 11/01/17 ........................ 250,000 245,408
Pinckney Community Schools, Livingston and Washtenaw Counties, FGIC Insured, 5.50%, 5/01/27 150,000 149,118
Zeeland Public Schools, Refunding, Series B, MBIA Insured, Pre-Refunded, 6.05%, 5/01/19 100,000 110,008
-------------
Total Long Term Investments (Cost $7,003,835) ...................................... 7,197,751
-------------
aShort Term Investments 5.3%
Michigan State Strategic Fund Limited Obligation Revenue, Refunding, Detroit Edison Co.,
Daily VRDN and Put, 3.70%, 9/01/30 ................................................ 200,000 200,000
Midland County EDC Limited Obligation Revenue, Refunding, Dow Chemical Co. Project,
Series B, Daily VRDN and Put, 3.70%, 12/01/15 ..................................... 200,000 200,000
-------------
Total Short Term Investments (Cost $400,000) ....................................... 400,000
-------------
Total Investments (Cost $7,403,835) 101.4% ......................................... 7,597,751
Other Assets, less Liabilities (1.4%) .............................................. (106,831)
-------------
Net Assets 100.0% .................................................................. $7,490,920
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable 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 at
specified dates.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin New Jersey Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.61 $11.68 $11.28 $11.82 $11.85 $11.16
Income from investment operations:
Net investment income .32 .64 .65 .66 .67 .69
Net realized and unrealized gains (losses) .08 (.06) .39 (.55) (.02) .69
Total from investment operations .40 .58 1.04 .11 .65 1.38
Less distributions:
Dividends from net investment income (.32) (.65) (.64) (.65) (.68) (.68)
Distributions from net realized gains -- -- -- -- -- (.01)
Total distributions (.32) (.65) (.64) (.65) (.68) (.69)
Net asset value, end of period $11.69 $11.61 $11.68 $11.28 $11.82 $11.85
Total return+ 3.51% 5.13% 9.43% 1.12% 5.39% 12.55%
Ratios/Supplemental Data
Net assets, end of period (000's) $606,104 $574,691 $564,864 $533,937 $561,130 $433,702
Ratio to average net assets:
Expenses .67%* .64% .65% .63% .57% .59%
Net investment income 5.42%* 5.58% 5.65% 5.86% 5.60% 6.06%
Portfolio turnover rate 7.13% 8.87% 12.04% 31.05% 4.16% 14.12%
Class II
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.66 $11.72 $11.30
Income from investment operations:
Net investment income .28 .57 .49
Net realized and unrealized gains (losses) .10 (.05) .40
Total from investment operations .38 .52 .89
Less distributions:
Dividends from net investment income (.29) (.58) (.47)
Net asset value, end of period $11.75 $11.66 $11.72
Total return+ 3.30% 4.57% 8.02%
Ratios/Supplemental Data
Net assets, end of period (000's) $21,106 $13,095 $4,542
Ratio to average net assets:
Expenses 1.23%* 1.21% 1.23%*
Net investment income 4.86%* 5.01% 5.15%*
Portfolio turnover rate 7.13% 8.87% 12.04%
</TABLE>
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin New Jersey Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 98.9%
<S> <C> <C>
Aberdeen Township, Refunding, FGIC Insured, 5.70%, 2/01/22 ......................... $ 4,100,000 $ 4,196,473
Allamuchy Town Board of Education, COP, MBIA Insured, 6.00%, 11/01/14 .............. 1,000,000 1,051,670
Atlantic City Municipal Utilities Authority Revenue, Water System, Pre-Refunded, 7.75%, 5/01/17 2,000,000 2,212,460
Atlantic County Improvement Authority, Luxury Tax Revenue, Convention Center Project,
MBIA Insured, ETM, 7.40%, 7/01/16 ................................................. 9,500,000 11,817,810
Atlantic County Utilities Authority, Solid Waste Revenue,
7.00%, 3/01/08 ..................................................................... 2,000,000 2,009,260
7.125%, 3/01/16 .................................................................... 6,600,000 6,656,034
Bedminister Township Board of Education, COP, 7.125%, 9/01/10 ...................... 2,000,000 2,203,480
Bergen County Utility Authority, Solid Waste System Revenue, Series A, FGIC Insured
6.25%, 6/15/11 ..................................................................... 1,325,000 1,424,256
Pre-Refunded, 7.75%, 3/15/13 ....................................................... 100,000 102,079
Bridgeview Manor Housing Corp. Revenue, Series A, Pre-Refunded, 8.20%, 12/01/08 .... 100,000 103,041
Camden County, Municipal Utilities Authority, Sewer Revenue, Refunding, FGIC Insured, 5.125%,
7/15/17 4,560,000 4,429,675
Cape May County, IPC, Financing Authority Revenue, Refunding, Atlantic City Electric Co.,
Series A, MBIA Insured, 6.80%, 3/01/21 ............................................ 5,400,000 6,423,786
Carteret Board of Education, COP, MBIA Insured, 6.25%, 4/15/19 ..................... 2,750,000 2,918,328
Church Street Corp., Keansburg Elderly Housing Mortgage Revenue, Refunding, 5.625%, 3/01/11 1,890,000 1,914,797
Delaware River and Bay Authority Revenue, FGIC Insured, 5.25%, 1/01/26 ............. 10,200,000 9,906,444
Delaware River Joint Toll Bridge System Commission Revenue, Pre-Refunded, 7.875%, 7/01/18 200,000 210,334
Delaware River Port Authority, Pennsylvania and New Jersey Revenue, FGIC Insured,5.50%,1/01/26 24,000,000 24,054,000
Delaware River Port Authority, Pennsylvania and New Jersey River Bridges Revenue,
Refunding, AMBAC Insured, 7.375%, 1/01/07 ......................................... 1,000,000 1,058,540
Essex County Improvement Authority, GO, Lease Revenue, MBIA Insured, 6.00%, 12/01/17 2,510,000 2,613,939
Evesham Municipal Utilities Authority Revenue, Series B, MBIA Insured, 7.00%, 7/01/10 3,000,000 3,199,080
Freehold Township Board of Education, FSA, 5.40%, 7/15/28 .......................... 1,080,000 1,053,000
Gloucester County Improvement Authority Revenue,
Justice Complex Lease Project, Pre-Refunded, 7.50%, 12/15/10 ....................... 1,000,000 1,082,330
Solid Waste Resource Recovery, SES Gloucester Co., Limited Partnership Project,
Series B, 8.375%, 7/01/10 ......................................................... 275,000 278,245
Hamilton Township Board of Education, COP, Series B, FSA Insured, 7.00%, 12/15/15 .. 4,670,000 5,083,669
Howell Township, GO, Refunding, FGIC Insured, 6.80%, 1/01/14 ....................... 1,750,000 1,905,680
Howell Township Municipal Utilities Authority Revenue, Monmouth County,
BIG Insured, Pre-Refunded, 7.375%, 1/01/14 ........................................ 100,000 104,849
Hudson County, COP, Correctional Facility, BIG Insured, Pre-Refunded, 7.60%, 12/01/21 2,550,000 2,710,038
Hudson County Improvement Authorities Facilities Lease Revenue, Hudson County Lease Project,
FGIC Insured, 6.00%, 12/01/25 ..................................................... 2,000,000 2,062,480
Lacey Municipal Utilities Authority, Water Revenue, MBIA Insured,
6.125%, 12/01/14 ................................................................... 1,225,000 1,317,426
6.10%, 12/01/23 .................................................................... 2,500,000 2,621,700
Mercer County Improvement Authority Revenue, Library Systems, Series A, 6.00%, 12/01/14 2,500,000 2,606,900
Middlesex County, COP, MBIA Insured,
6.00%, 8/15/14 ..................................................................... 1,500,000 1,584,165
6.125%, 2/15/19 .................................................................... 2,300,000 2,414,954
Middlesex County Improvement Authority Revenue, Guaranteed Educational Services,
Commission Project, 6.00%, 9/15/14 ................................................ 2,000,000 2,114,100
Middlesex County Utilities Authority, Sewer Revenue, Refunding, Series A,
FGIC Insured, 5.375%, 9/15/15 ..................................................... 2,100,000 2,121,840
Middletown Township, Board of Education, MBIA Insured,
5.85%, 8/01/24 ..................................................................... 4,295,000 4,434,888
5.85%, 8/01/25 ..................................................................... 4,300,000 4,440,051
Monmouth County Improvement Authority Revenue, Wall and Keyport Projects,
BIG Insured, Pre-Refunded, 7.90%, 7/15/13 ......................................... 100,000 105,469
New Jersey EDA,
Auto Parking Revenue, Elizabeth Development Co., FGIC Insured, 5.60%, 10/15/26 ..... 2,000,000 2,012,100
Heating and Cooling Revenue, Trigen-Trenton Project, Series A, 6.20%, 12/01/10 ..... 6,370,000 6,513,389
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.10%, 12/01/04 ..... 3,375,000 3,473,955
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.20%, 12/01/07 ..... 2,720,000 2,790,176
Hillcrest Health Services System Project, Refunding, AMBAC Insured, 5.375%, 1/01/16 2,500,000 2,503,125
Jersey Central Power and Light, 7.10%, 7/01/15 ..................................... 550,000 603,163
Market Transition Facilities Revenue, Senior Lien, Series A, MBIA Insured, 5.875%, 7/01/11 3,000,000 3,176,430
Middlesex Water Co. Project, Water Facilities Revenue, 7.25%, 7/01/21 .............. 6,000,000 6,530,580
Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project,
Series A, AMBAC Insured, 6.25%, 8/01/24 ........................................... 8,200,000 8,661,332
Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project, Series B, 7.25%, 3/01/21 7,810,000 8,066,793
School Revenue, Blair Academy, 1995 Project, Series A, 5.85%, 9/01/16 .............. 1,640,000 1,668,224
Series M, 7.90%, 12/01/08 .......................................................... 340,000 355,290
New Jersey EDA, (cont.)
Series N, 6.90%, 12/01/11 .......................................................... $ 3,865,000 $ 4,154,063
Series P, 6.90%, 12/01/11 .......................................................... 435,000 467,534
St. Barnabas Project, Series A, MBIA Insured, 5.375%, 7/01/27 ...................... 4,375,000 4,276,081
State Lease Revenue Refunding, Liberty State Park Lease Rental, AMBAC Insured, 5.75%, 3/15/20 4,605,000 4,725,605
State Lease Revenue Refunding, Liberty State Park Lease Rental, AMBAC Insured, 5.75%, 3/15/22 3,315,000 3,401,820
Terminal GATX Corp. Project, 6.65%, 9/01/22 ........................................ 7,440,000 7,969,654
Water Facilities Revenue Refunding, Hackensack Water Co. Project, Series A,
MBIA Insured, 5.80%, 3/01/24 ...................................................... 1,000,000 1,022,850
New Jersey Health Care Facilities Financing Authority Revenue,
Atlantic City Medical Center, Series C, 6.80%, 7/01/11 ............................. 2,500,000 2,676,500
Atlantic Health Systems, Series A, 5.00%, 7/01/27 .................................. 4,000,000 3,691,640
Berkeley Heights Convalescent Hospital, AMBAC Insured, 5.00%, 7/01/26 .............. 6,000,000 5,625,780
Beth Israel Hospital Association Passaic, 7.80%, 7/01/04 ........................... 3,065,000 3,245,927
Beth Israel Hospital Association Passaic, Refunding, 7.875%, 7/01/07 ............... 1,000,000 1,060,310
Cathedral Health, Series A, FHA Insured, 7.25%, 2/15/10 ............................ 9,370,000 10,107,138
Cathedral Health, Series A, FHA Insured, 7.25%, 2/15/21 ............................ 2,020,000 2,182,913
Clara Maas Medical Center, Series B, Pre-Refunded, 7.30%, 7/01/09 .................. 1,000,000 1,074,200
Clara Maas Medical Center, Series B, Pre-Refunded, 7.25%, 7/01/19 .................. 2,435,000 2,613,559
Community Memorial Hospital Association, Series C, 8.00%, 7/01/14 .................. 100,000 104,763
East Orange General Hospital, Series B, 7.75%, 7/01/20 ............................. 5,445,000 5,842,431
Elizabeth General Medical Center, Series C, 7.375%, 7/01/15 ........................ 4,890,000 5,199,635
Franciscan St. Mary's Hospital, 5.875%, 7/01/12 .................................... 5,150,000 5,205,775
Hackensack Medical Center, FGIC Insured, 6.25%, 7/01/21 ............................ 2,400,000 2,487,840
Holy Name Hospital, 6.00%, 7/01/25 ................................................. 3,000,000 3,047,970
Holy Name Hospital, AMBAC Insured, 5.25%, 7/01/20 .................................. 4,380,000 4,260,426
Holy Name Hospital, Series B, AMBAC Insured, Pre-Refunded, 7.00%, 7/01/08 .......... 4,000,000 4,360,600
Jersey Shore Medical Center, Revenue Refunding, AMBAC Insured, 5.875%, 7/01/24 ..... 2,500,000 2,561,075
John F. Kennedy Health Systems, Obligation Group Revenue, FGIC Insured, 5.70%, 7/01/25 5,000,000 5,067,100
Kennedy Memorial Hospitals-University Medical Center, Inc., Series D, 7.875%, 7/01/09 230,000 240,571
Monmouth Medical Center, Series C, FSA Insured, 6.25%, 7/01/16 ..................... 4,900,000 5,249,223
Monmouth Medical Center, Series C, FSA Insured, 6.25%, 7/01/24 ..................... 8,250,000 8,754,158
Morristown Memorial Hospital, Series C, 7.125%, 7/01/08 ............................ 1,800,000 1,900,908
New Jersey Geriatric Center of Workmen's Circle, Inc., Series A,
FHA Mortgage Insured, 8.00%, 2/01/28 .............................................. 125,000 131,083
Newcomb Medical Center, Series A, 7.875%, 7/01/03 .................................. 3,110,000 3,331,339
Overlook Hospital Association, Series E, FGIC Insured, 6.70%, 7/01/13 .............. 8,500,000 8,748,370
Pascack Valley Hospital, 6.90%, 7/01/21 ............................................ 3,565,000 3,786,244
Riverview Medical Center, 5.875%, 7/01/16 .......................................... 10,000,000 10,378,800
Shoreline Behavioral Health, MBIA Insured, Pre-Refunded, 5.50%, 7/01/27 ............ 1,500,000 1,503,750
St. Joseph's Hospital and Medical Center, Revenue Refunding, 5.75%, 7/01/16 ........ 2,050,000 2,089,524
St. Joseph's Hospital and Medical Center, Revenue Refunding, 6.00%, 7/01/26 ........ 1,000,000 1,027,960
Wayne General Hospital, Series B, 5.75%, 8/01/11 ................................... 1,795,000 1,854,235
Wayne General Hospital, Series B, 5.875%, 8/01/18 .................................. 1,000,000 1,031,040
Zurbrugg Memorial Hospital Issue, Series C, 8.50%, 7/01/12 ......................... 475,000 489,393
New Jersey State Building Authority Revenue, Refunding, 7.20%, 6/15/13 ............. 1,850,000 1,921,022
New Jersey State Educational Facilities Authority Revenue,
Institute of Technology, Series A, MBIA Insured, 6.00%, 7/01/15 .................... 4,000,000 4,226,720
Jersey State College, Series D, MBIA Insured, 6.125%, 7/01/22 ...................... 2,000,000 2,075,900
New Jersey Institute of Technology Revenue, Refunding, Series A, MBIA Insured, 6.00%, 7/01/24 1,455,000 1,510,334
New Jersey Institute of Technology, Series 95-E, MBIA Insured, 5.375%, 7/01/25 ..... 2,500,000 2,445,075
Princeton University, Series A, 5.875%, 7/01/18 .................................... 2,000,000 2,047,720
Princeton University, Series C, 5.25%, 7/01/25 ..................................... 2,760,000 2,700,494
Ramapo College, Series C, BIG Insured, Pre-Refunded, 7.70%, 7/01/13 ................ 500,000 525,340
Rider College, Series D, AMBAC Insured, 6.20%, 7/01/17 ............................. 3,000,000 3,170,220
Rowan College, Series E, AMBAC Insured, 6.00%, 7/01/26 ............................. 9,810,000 10,237,127
Seton Hall University Project, Series C, BIG Insured, 6.85%, 7/01/19 ............... 445,000 472,345
Seton Hall University Project, Series C, BIG Insured, Pre-Refunded, 6.85%, 7/01/19 . 555,000 592,346
Seton Hall University Project, Series D, 7.00%, 7/01/21 ............................ 4,400,000 4,677,068
Seton Hall University Project, Series E, Refunding, MBIA Insured, 5.60%, 7/01/16 ... 1,765,000 1,800,741
New Jersey State Educational Facilities Authority Revenue, (cont.)
Trenton State College, Series B, AMBAC Insured, 6.125%, 7/01/19 .................... $ 4,780,000 $ 5,005,616
Trenton State College, Series B, AMBAC Insured, 6.125%, 7/01/24 .................... 7,845,000 8,192,455
New Jersey State Highway Authority, Garden State Parkway, Senior Parkway Revenue,
6.20%, 1/01/10 ..................................................................... 5,000,000 5,546,650
6.25%, 1/01/14 ..................................................................... 2,500,000 2,627,350
6.00%, 1/01/16 ..................................................................... 2,900,000 2,967,164
New Jersey State Housing and Mortgage Finance Agency,
Home Buyer Revenue, Series B, MBIA Insured, 7.90%, 10/01/22 ........................ 585,000 620,685
Home Buyer Revenue, Series D, MBIA Insured, 7.70%, 10/01/29 ........................ 3,100,000 3,242,383
Home Buyer Revenue, Series J, MBIA Insured, 6.20%, 10/01/25 ........................ 4,980,000 5,163,812
Home Buyer Revenue, Series N, MBIA Insured, 6.35%, 10/01/27 ........................ 4,000,000 4,203,240
Home Buyer Revenue, Series U, MBIA Insured, 5.85%, 4/01/29 ......................... 12,000,000 12,238,920
Home Mortgage Purchase Revenue, Series A, MBIA Insured, 7.875%, 10/01/17 ........... 40,000 41,242
MFHR, Montclarion Project, Series J, FHA Insured, 7.70%, 11/01/29 .................. 2,195,000 2,306,133
MFHR, Refunding, Series A, AMBAC Insured, 6.00%, 11/01/14 .......................... 5,000,000 5,211,550
MFHR, Refunding, Series A, AMBAC Insured, 6.05%, 11/01/20 .......................... 12,500,000 12,980,250
MFHR, Regency Park Project, Series H, 7.70%, 11/01/30 .............................. 450,000 468,612
Section 8, Refunding, Series 1, 6.70%, 11/01/28 .................................... 5,000,000 5,337,650
Section 8, Refunding, Series A, 6.95%, 11/01/13 .................................... 12,400,000 13,189,632
New Jersey State Sports and Expo. Authority, State Contract, Series A, MBIA Insured,
6.60%, 7/01/15 ..................................................................... 8,000,000 8,696,800
Refunding, 6.25%, 7/01/20 .......................................................... 6,800,000 7,141,496
Newark Board of Education, MBIA Insured, 5.875%, 12/15/14 .......................... 3,250,000 3,365,993
North Bergen Township Municipal Utility Authority Sewer Revenue,
FGIC Insured, Pre-Refunded, 7.625%, 12/15/19 ...................................... 1,000,000 1,030,660
North Brunswick Township, Board of Education, Refunding, FGIC Insured, 5.00%, 2/1/15 2,000,000 1,921,240
Northern Mariana Islands, Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Harbor Improvement, Series A, 6.85%, 10/01/25 ........................ 2,000,000 2,064,440
Ocean Township Municipal Utilities Authority Revenue, Refunding, MBIA Insured, Pre-Refunded,
7.875%, 8/01/15 .................................................................... 100,000 105,578
5.80%, 12/01/18 .................................................................... 7,400,000 7,552,514
Piscataway Township School District, COP, MBIA Insured, Pre-Refunded, 7.50%, 6/15/09 1,000,000 1,058,600
Port Authority of New York and New Jersey,
Consolidated 67th Series, 6.875%, 1/01/25 .......................................... 2,500,000 2,640,650
Consolidated 67th Series, AMBAC Insured, 6.875%, 1/01/25 ........................... 750,000 791,513
Consolidated 71st Series, 6.50%, 1/15/26 ........................................... 2,500,000 2,612,075
Consolidated 72nd Series, Pre-Refunded, 7.35%, 10/01/27 ............................ 12,000,000 13,660,680
Consolidated 74th Series, 6.75%, 8/01/26 ........................................... 1,000,000 1,064,120
Consolidated 84th Series, 6.00%, 1/15/28 ........................................... 1,125,000 1,148,355
Consolidated 94th Series, 6.00%, 12/01/16 .......................................... 2,000,000 2,071,480
Consolidated 94th Series, 6.00%, 6/01/17 ........................................... 5,000,000 5,160,450
Consolidated 102nd Series, MBIA Insured, 5.75%, 10/15/23 ........................... 5,000,000 5,043,150
Consolidated 109th Series, FGIC Insured, 5.375%, 7/15/22 ........................... 4,645,000 4,578,855
Delta Airlines, Inc., Special Project, Series 1R, 6.95%, 6/01/08 ................... 5,000,000 5,423,750
Special Obligation Revenue, 4th Installment, Special Project, 6.75%, 10/01/11 ...... 2,500,000 2,677,150
Special Obligation Revenue, John F. Kennedy International Air Terminal,
MBIA Insured, 5.75%, 12/01/22 ..................................................... 8,000,000 8,076,240
Puerto Rico Commonwealth, GO, 6.45%, 7/01/17 ....................................... 5,000,000 5,474,050
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
Pre-Refunded, 7.90%, 7/01/07 ...................................................... 6,500,000 6,848,140
Puerto Rico Commonwealth Highway Authority Revenue, Pre-Refunded,
Series P, 8.125%, 7/01/13 .......................................................... 275,000 290,227
Series Q, 8.00%, 7/01/18 ........................................................... 8,000,000 8,954,800
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ..................................................................... 350,000 367,182
7.75%, 7/01/08 ..................................................................... 5,500,000 5,756,960
7.50%, 7/01/09 ..................................................................... 250,000 261,178
Puerto Rico Commonwealth Urban Renewal and Housing Corp., Commonwealth Appropriation,
Refunding, 7.875%, 10/01/04 ....................................................... 1,000,000 1,080,380
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.125%, 07/01/14 .............................................. 2,355,000 2,498,349
Series T, 6.00%, 7/01/16 ........................................................... 11,535,000 11,973,676
Puerto Rico Electric Power Authority Revenue, (cont.)
Series X, 6.00%, 7/01/15 ........................................................... $ 2,000,000 $ 2,101,280
Series X, 6.125%, 07/01/21 ......................................................... 5,000,000 5,265,300
Puerto Rico HFC,
FHA Mortgage Insured, Sixth Portfolio, Section 8, Pre-Refunded, 7.75%, 12/01/26 .... 125,000 150,918
MFMR, Portfolio A, Series 1, 7.50%, 04/01/22 ....................................... 5,000,000 5,275,500
SFMR, Portfolio No. 1, Series A, GNMA Secured, 7.80%, 10/15/21 ..................... 210,000 217,579
SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ..................... 1,110,000 1,172,571
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA,
Baxter Travenol Labs., Series A, 8.00%, 9/01/12 ................................... 2,000,000 2,131,040
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 8.25%, 7/01/08 ....... 100,000 105,595
Rutgers State University, Series A, 6.50%, 5/01/18 ................................. 4,250,000 4,502,578
Salem County IPC, Financing Authority Revenue, Refunding, Public Services,
Electric and Gas Co., Series D, MBIA Insured, 6.55%, 10/01/29 .................... 5,000,000 5,514,700
Sayreville HDC, Mortgage Revenue, Refunding, Lakeview, Section 8, FHA Insured, 7.75%, 8/01/24 1,935,000 1,965,263
South Brunswick Township, Board of Education, Refunding, Series AA, FGIC Insured, 5.50%, 8/1/24 1,720,000
1,717,489
Stony Brook Regional Sewerage Authority Revenue, Series A, Pre-Refunded, 7.40%, 12/01/09 1,000,000 1,088,160
Sussex County Municipal Utilities Authority, Solid Waste Revenue, Series A,
BIG Insured, Pre-Refunded, 7.875%, 12/01/13 ....................................... 100,000 106,606
Union County Improvement Authority Revenue, Plainfield Board of Education,
FGIC Insured, 5.85%, 8/01/26 ...................................................... 5,000,000 5,170,850
University of Medicine and Dentistry Revenue,
Series A, MBIA Insured, 5.00%, 9/1/22 .............................................. 1,700,000 1,611,762
Series C, Pre-Refunded, 7.20%, 12/01/09 ............................................ 750,000 812,940
Series C, Pre-Refunded, 7.20%, 12/01/19 ............................................ 725,000 785,842
Warren Hills Regional School District COP, BIG Insured, Pre-Refunded, 7.375%, 12/15/09 1,200,000 1,267,764
Winslow Township, GO, Camden County, Refunding, AMBAC Insured, Pre-Refunded, 7.80%, 7/01/18 100,000 104,221
-------------
Total Long Term Investments (Cost $586,359,300) .................................... 620,056,099
-------------
aShort Term Investments .1%
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VRDN and Put, 2.95%, 12/01/15 (Cost $600,000) .............................. 600,000 600,000
-------------
Total Investments (Cost $586,959,300) 99.0%......................................... 620,656,099
Other Assets, less Liabilities 1.0%................................................. 6,554,751
-------------
Net Assets 100.0%................................................................... $627,210,850
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Oregon Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.55 $11.60 $11.22 $11.70 $11.73 $11.02
Income from investment operations:
Net investment income .31 .63 .63 .63 .64 .66
Net realized and unrealized gains (losses) .11 (.05) .38 (.49) (.02) .70
Total from investment operations .42 .58 1.01 .14 .62 1.36
Less distributions:
Dividends from net investment income (.31) (.63) (.63) (.62) (.65) (.65)
Net asset value, end of period $11.66 $11.55 $11.60 $11.22 $11.70 $11.73
Total return+ 3.69% 5.13% 9.19% 1.36% 5.15% 12.52%
Ratios/Supplemental Data
Net assets, end of period (000's) $402,154 $384,003 $375,415 $349,458 $375,684 $303,719
Ratio to average net assets:
Expenses .68%* .66% .66% .65% .58% .62%
Net investment income 5.42%* 5.52% 5.51% 5.71% 5.47% 5.87%
Portfolio turnover rate 2.91% 4.47% 6.52% 26.44% 9.42% 7.78%
Class II
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.61 $11.65 $11.23
Income from investment operations:
Net investment income .28 .56 .47
Net realized and unrealized gains (losses) .11 (.04) .41
Total from investment operations .39 .52 .88
Less distributions:
Dividends from net investment income (.28) (.56) (.46)
Net asset value, end of period $11.72 $11.61 $11.65
Total return+ 3.39% 4.59% 7.99%
Ratios/Supplemental Data
Net assets, end of period (000's) $11,116 $7,100 $2,044
Ratio to average net assets:
Expenses 1.24%* 1.23% 1.24%*
Net investment income 4.84%* 4.93% 4.87%*
Portfolio turnover rate 2.91% 4.47% 6.52%
</TABLE>
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Oregon Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 98.8%
<S> <C> <C>
Albany Sewer Revenue, Series A, Pre-Refunded, 7.00%, 2/01/12 ....................... $ 750,000 $ 813,525
Albany Water Revenue, Second Lien, Pre-Refunded, 7.25%, 8/01/09 .................... 1,000,000 1,058,140
Bay Area Health District Hospital Facility Authority, Health Facilities Revenue,
Evergreen Court Project, 7.25%, 10/01/14 .......................................... 2,000,000 2,142,680
Bear Creek Valley Sanitary Authority, GO,
7.30%, 6/01/05 ..................................................................... 100,000 103,126
7.35%, 6/01/06 ..................................................................... 105,000 108,320
7.70%, 5/01/07 ..................................................................... 50,000 50,779
7.40%, 6/01/07 ..................................................................... 115,000 118,678
7.40%, 6/01/08 ..................................................................... 125,000 128,998
Benton County, Oregon Hospital Facilities Authority, Good Samaritan Hospital, Corvallis, 6.25%,
10/01/09 1,125,000 1,175,985
Central Lincoln Utility District Electric Revenue, Pre-Refunded, 6.75%, 1/01/11 .... 1,000,000 1,075,070
Chemeketa Community College District, FGIC Insured, 5.80%, 6/01/12 ................. 1,000,000 1,068,410
City of Bend, Urban Renewal Agency Tax Revenue, Series A,
6.85%, 9/01/06 ..................................................................... 600,000 609,498
7.00%, 9/01/11 ..................................................................... 750,000 762,518
City of Oregon, Sewer Revenue, 6.875%, 10/01/19 .................................... 4,000,000 4,154,240
Clackamas County, Health Facilities Authority Hospital Revenue, Refunding, Adventist Health,
Series A, MBIA Insured, 6.35%, 3/01/09 ............................................ 4,945,000 5,337,534
Clackamas County, Hospital Facilities Authority Revenue,
Elderly Housing, Pre-Refunded, 7.00%, 11/15/11 ..................................... 1,250,000 1,399,150
GNMA Secured, Jennings Lodge Project, 7.50%, 10/20/31 .............................. 2,990,000 3,230,366
Kaiser Permanente, Series A, 6.50%, 4/01/11 ........................................ 1,635,000 1,730,664
Kaiser Permanente, Series A, 6.25%, 4/01/21 ........................................ 4,950,000 5,256,455
Refunding, Gross Willamette Falls, 5.75%, 4/01/15 .................................. 2,250,000 2,261,970
Refunding, Willamette View Inc. Project, 6.10%, 11/01/12 ........................... 500,000 507,675
Refunding, Willamette View Inc. Project, 6.30%, 11/01/21 ........................... 1,500,000 1,526,625
Sisters of Providence Project, 8.125%, 10/01/07 .................................... 110,000 112,488
Clackamas County USD No. 115, AMBAC Insured, 6.15%, 6/01/14 ........................ 4,000,000 4,310,320
Clackamas Oregon Community College District, MBIA Insured, 5.80%, 6/01/26 .......... 1,000,000 1,023,980
Clairmont Water District Revenue, 6.50%, 2/01/12 ................................... 1,125,000 1,161,923
Deschutes County Hospital Facilities Authority, Hospital Revenue,
St. Charles Medical Center, 6.00%, 1/01/13 ........................................ 3,000,000 3,168,720
Douglas County, Hospital Facilities Authority Revenue, Catholic Health Facilities,
Series B, MBIA Insured, 6.00%, 11/15/15 ............................................ 1,950,000 2,070,042
Emerald People's Utility District, Electric System Revenue, Refunding,
AMBAC Insured, Series B, Pre-Refunded, 7.30%, 11/01/11 ............................. 500,000 533,755
Eugene Electric Utility System Revenue,
6.65%, 8/01/08 ..................................................................... 1,145,000 1,225,070
6.65%, 8/01/09 ..................................................................... 615,000 658,007
6.65%, 8/01/10 ..................................................................... 655,000 699,599
6.70%, 8/01/11 ..................................................................... 700,000 748,895
5.75%, 8/01/16 ..................................................................... 3,000,000 3,092,550
Eugene Public Safety Facilities, FGIC Insured, 5.70%, 6/01/16 ...................... 500,000 515,210
Eugene Trojan Nuclear Project Revenue, Refunding, 5.90%, 9/01/09 ................... 840,000 841,756
Florence Improvement, GO, Lane County, Pre-Refunded, 8.50%, 10/01/07 ............... 70,000 70,246
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ................................................................... 750,000 797,138
6.70%, 10/01/23 ................................................................... 1,900,000 2,031,404
Guam Power Authority Revenue, Series A, 6.30%, 10/01/12 ............................ 825,000 860,261
Hermiston, GO, AMBAC Insured, 6.00%, 8/01/15 ....................................... 1,000,000 1,059,550
Hillsboro Hopital Facility Authority Revenue, Refunding, 5.75%, 10/01/12 ........... 205,000 207,298
Klamath Falls Intercommunity Hospital Revenue, Merle West Medical Center Project,
7.00%, 6/01/02 .................................................................... 1,500,000 1,625,745
7.25%, 6/01/06 .................................................................... 2,310,000 2,511,409
Lane County, COP, Fairground Project, 7.00%, 8/01/04 ............................... 1,000,000 1,042,380
Lane County PCR, Refunding, Weyerhaeuser Co. Project, 6.50%, 7/01/09 ............... 11,575,000 12,531,674
Lebanon Wastewater Revenue, Refunding, 5.875%, 6/01/20 ............................. 2,425,000 2,387,364
Marion County Housing Authority Revenue, Elliott Residence Project, GNMA Secured, 7.50%,
10/20/25 1,250,000 1,407,088
Marion County Union High School District No. 7J, 6.00%, 6/01/13 .................... 1,000,000 1,071,410
Medford Hospital Facilities Authority Revenue, Gross Rogue Valley Health Services,
MBIA Insured, 6.75%, 12/01/20 ...................................................... 4,475,000 4,801,988
Metropolitan Service District, Convention Center, GO,
Series A, 6.25%, 1/01/13 ........................................................... 4,865,000 5,101,877
Unlimited Tax, Pre-Refunded, 7.60%, 12/01/10 ....................................... 115,000 116,082
Metropolitan Service District, Convention Center, GO, (cont.)
Unlimited Tax, Pre-Refunded, 7.65%, 12/01/11 ....................................... $ 80,000 $ 80,762
Unlimited Tax, Pre-Refunded, 7.65%, 12/01/12 ....................................... 85,000 85,810
Waste Disposal System, Revenue Bonds, Pre-Refunded, 7.30%, 1/01/11 ................. 2,000,000 2,176,780
Multnomah County Drain District No. 1 Assessment, MBIA Insured, 5.25%, 7/01/17 ..... 1,000,000 971,140
Multnomah County School District, COP, Series A, Pre-Refunded, 6.90%, 8/01/09 ...... 175,000 179,947
Multnomah Educational Service District, 5.40%, 6/01/17 ............................. 1,000,000 997,500
Northern Mariana Islands, Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Harbor Improvement, Series A, 6.85%, 10/01/25 .......................... 3,500,000 3,612,770
Oak Lodge Water District, GO, AMBAC Insured,
7.40%, 12/01/08 .................................................................... 215,000 250,546
7.50%, 12/01/09 .................................................................... 215,000 250,419
Ontario Hospital Facility Authority-Catholic Health Corp., Facilities Revenue,
Dominican Sisters of Ontario, Inc., Holy Rosary Hospital Project, 6.10%, 11/15/17 . 1,500,000 1,559,970
Oregon Health Sciences University Revenue, Series A, MBIA Insured, 5.25%, 7/01/25 .. 2,000,000 1,959,700
Oregon State Bond Bank Revenue, EDR, Series B, Pre-Refunded, 6.80%, 1/01/11 ........ 1,610,000 1,699,114
Oregon State Department of Administrative Services, COP,
Series A, AMBAC Insured, 5.80%, 5/01/24 ............................................ 5,000,000 5,184,650
Series C, MBIA Insured, 5.75%, 5/01/17 ............................................. 2,000,000 2,076,380
Oregon State Department of General Services, COP,
Real Property Financing Program, Series A, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/15 750,000 832,140
Real Property Financing Program, Series A, MBIA Insured, Pre-Refunded, 7.20%, 1/15/15 10,000 10,873
Refunding, Series D, MBIA Insured, 5.80%, 3/01/15 .................................. 1,000,000 1,024,020
Series B, MBIA Insured, Pre-Refunded, 7.20%, 1/15/15 ............................... 150,000 163,089
Series F, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/15 .............................. 3,150,000 3,494,988
Series G, AMBAC Insured, 6.25%, 9/01/15 ............................................ 750,000 793,418
Oregon State EDR, Georgia-Pacific Corp., Series CLVII, 6.35%, 8/01/25 .............. 18,500,000 19,168,220
Oregon State Elderly and Disabled Housing Authority,
Series A, 6.00%, 8/01/15 ........................................................... 1,000,000 1,047,860
Series A, 6.00%, 8/01/21 ........................................................... 500,000 520,030
Series B, 6.10%, 8/01/17 ........................................................... 1,470,000 1,539,796
Series B, 6.25%, 8/01/23 ........................................................... 2,100,000 2,247,777
Series B, 6.375%, 8/01/24 .......................................................... 2,155,000 2,268,331
Series C, 6.50%, 8/01/22 ........................................................... 6,000,000 6,538,800
Oregon State Elderly Housing, GO, Series A, 7.125%, 8/01/30 ........................ 635,000 677,266
Oregon State, GO, Board of Higher Education,
6.50%, 10/01/17 .................................................................... 750,000 802,650
Series A, 5.65%, 8/01/27 ........................................................... 4,440,000 4,508,998
Series A, Pre-Refunded, 8.125%, 10/01/17 ........................................... 60,000 60,197
Series A, Pre-Refunded, 7.50%, 5/01/18 ............................................. 300,000 307,323
Series C, 5.65%, 8/01/27 ........................................................... 1,460,000 1,481,404
Oregon State, GO, Department of Energy, Series B, 6.80%, 1/01/17 ................... 400,000 412,712
Oregon State, GO, Department of Transportation Revenue, Regional Light Rail,
Federal Westside Project, MBIA Insured,
6.10%, 6/01/07 ..................................................................... 2,000,000 2,180,740
6.20%, 6/01/08 ..................................................................... 2,500,000 2,740,200
6.25%, 6/01/09 ..................................................................... 1,750,000 1,917,808
Oregon State, GO, Series B, 6.875%, 12/01/13 ....................................... 1,000,000 1,051,190
Oregon State HFA, SFMR Program, Series A, 7.20%, 7/01/15 ........................... 4,450,000 4,719,359
Oregon State Higher Education, GO, Series C, Pre-Refunded, 7.25%, 10/15/18 ......... 1,445,000 1,500,387
Oregon State Housing, Educational and Cultural Facility Authority,
Lewis and Clark College Project, Series A, 6.125%,10/01/24 ......................... 10,500,000 11,109,420
Lewis and Clark College Project, Series A, MBIA Insured, Pre-Refunded, 7.125%, 7/01/20 800,000 875,880
Reed College Project, Pre-Refunded, 6.75%, 7/01/11 ................................. 700,000 770,427
Reed College Project, Series A, Pre-Refunded, 6.75%, 7/01/21 ....................... 1,250,000 1,378,100
Oregon State Housing and Community Service Department, Finance Housing Revenue,
Multi-Unit, Series A, 6.80%, 7/01/13 ............................................... 6,710,000 7,091,732
Multi-Unit, Series A, 6.15%, 7/01/21 ............................................... 910,000 943,397
Multi-Unit, Series C, 6.85%, 7/01/22 ............................................... 180,000 189,907
SFM, Series A, 5.75%, 7/01/12 ...................................................... 850,000 879,113
SFM, Series A, 6.35%, 7/01/14 ...................................................... 3,130,000 3,309,255
Oregon State Housing and Community Service Department, Finance Housing Revenue, (cont.)
SFM, Series A, 6.40%, 7/01/18 ...................................................... $ 1,455,000 $ 1,527,808
SFM, Series A, 6.45%, 7/01/26 ...................................................... 3,100,000 3,267,958
SFM, Series B, 6.875%, 7/01/28 ..................................................... 12,000,000 12,758,760
SFM, Series C, 6.20%, 7/01/15 ...................................................... 2,500,000 2,592,800
SFM, Series C, 6.40%, 7/01/26 ...................................................... 1,195,000 1,252,563
SFM, Series D, 6.80%, 7/01/27 ...................................................... 1,750,000 1,851,413
SFM, Series E, 7.00%, 7/01/09 ...................................................... 260,000 279,193
SFM, Series E, 5.80%, 7/01/16 ...................................................... 800,000 813,704
SFM, Series E, 6.75%, 7/01/16 ...................................................... 2,165,000 2,278,294
SFM, Series E, 7.15%, 7/01/25 ...................................................... 1,025,000 1,104,991
SFM, Series F, 7.00%, 7/01/22 ...................................................... 2,560,000 2,697,651
SFM, Series F, 5.65%, 7/01/28 ...................................................... 1,000,000 995,560
SFM, Series G, 6.80%, 7/01/22 ...................................................... 645,000 686,802
Oregon State Veteran's Welfare, GO,
Series 73-A, 7.00%, 12/01/11 ....................................................... 2,500,000 2,639,225
Series 75, 5.85%, 10/01/15 ......................................................... 850,000 889,466
Series 75, 5.875%, 10/01/18 ........................................................ 485,000 507,683
Series 75, 6.00%, 4/01/27 .......................................................... 2,870,000 3,000,040
Series 76-A, 6.05%, 10/01/28 ....................................................... 3,000,000 3,116,280
Port of Astoria, GO, MBIA Insured, Pre-Refunded, 6.60%, 9/01/11 .................... 750,000 815,513
Port of Morrow PCR, Idaho Power Co., Boardman Project, 7.25%, 8/01/08 .............. 2,200,000 2,227,302
Port of Morrow Revenue, Refunding, Pre-Refunded, 8.00%, 12/01/11 ................... 500,000 524,250
Port of Portland Special Obligation Revenue, Delta Airlines, Inc. Project, 6.20%, 9/01/22 4,000,000 4,111,640
Port of St. Helens PCR, Refunding, Boise Cascade Corp. Project, 7.375%, 11/01/04 ... 1,500,000 1,535,865
Port of Umpqua PCR, International Paper Co. Project, Series A, 6.60%, 3/15/05 ...... 320,000 326,563
Portland, COP, Refunding, PBA, Series A, Pre-Refunded, 7.25%, 4/01/08 .............. 2,000,000 2,098,160
Portland Airport Way-Urban Renewal and Redevelopment Tax Increment,
Sub-Series B-3, FGIC Insured, Pre-Refunded, 7.60%, 6/01/10 ......................... 2,825,000 3,067,216
Portland Hospital Facilities Authority Hospital Revenue,Refunding, Legacy
Health System, AMBAC Insured, 6.70%, 5/01/21,
Series A ........................................................................... 10,500,000 11,445,105
Series B ........................................................................... 10,475,000 11,417,855
Portland Housing Authority MFR, Berry Ridge Project, 6.30%, 5/01/29 ................ 1,500,000 1,540,215
Portland Housing Authority Revenue, 7.10%, 7/01/15 ................................. 1,000,000 1,055,340
Portland Hydroelectric Power Revenue, Bull Run Project, Series C, 7.00%, 10/01/16 .. 635,000 635,692
Portland International Airport,
Series 7-A, MBIA Insured, 6.75%, 7/01/09 ........................................... 1,500,000 1,626,060
Series 7-B, MBIA Insured, 7.10%, 7/01/21 ........................................... 200,000 218,208
Series 7-B, MBIA Insured, Pre-Refunded, 7.10%, 7/01/21 ............................. 2,800,000 3,332,392
Series 10, FGIC Insured, 5.75%, 7/01/25 ............................................ 300,000 304,014
Portland Multifamily Revenue Housing, Civic Stadium Housing Project, Series A, 6.00%, 3/01/17 1,000,000 1,021,750
Portland Parking Revenue, Pre-Refunded, 8.625%, 10/01/12 ........................... 170,000 174,005
Portland Sewer System Revenue,
Pre-Refunded, 7.125%, 3/01/10 ...................................................... 5,000,000 5,082,600
Refunding, Series A, FGIC Insured, 5.00 %, 6/01/15 ................................. 1,000,000 966,800
Series A, 6.25%, 6/01/15 ........................................................... 14,100,000 15,581,064
Series A, FGIC Insured, 6.00%, 10/01/12 ............................................ 950,000 1,035,928
Portland Urban Renewal and Redevelopment, Downtown Waterfront,
Refunding, Series A, 6.40%, 6/01/08 ................................................ 5,555,000 5,963,904
Series H, Pre-Refunded, 8.25%, 12/01/07 ............................................ 125,000 126,369
Puerto Rico Commonwealth, GO, 6.45%, 7/01/17 ....................................... 1,000,000 1,094,810
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
FSA Insured, Pre-Refunded, 9.00%, 7/01/09 .......................................... 75,000 95,395
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series Y, 5.50%, 7/01/26 ........................................................... 500,000 493,545
Series Y, 5.50 %, 7/01/36 .......................................................... 4,000,000 3,942,800
Puerto Rico Commonwealth Highway Authority Revenue,
Series Q, Pre-Refunded, 8.00%, 7/01/18 ............................................. 4,000,000 4,477,400
Puerto Rico Commonwealth IDC, General Purpose Revenue, 8.00%, 1/01/03 .............. 15,000 15,080
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A, 7.75%, 7/01/08 ...................................... 2,400,000 2,512,128
Puerto Rico Commonwealth Public Improvement, GO, Series A, Pre-Refunded, 7.75%,
7/01/06 ............................................................................ 250,000 263,088
7/01/13 ............................................................................ 280,000 294,658
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 .................................. $ 600,000 $ 632,616
Refunding, Series X, 5.50%, 7/01/25 ................................................ 600,000 587,394
Series O, 7.125%, 7/01/14 .......................................................... 1,065,000 1,129,827
Series O, Pre-Refunded, 7.125%, 7/01/14 ............................................ 935,000 999,758
Series R, 6.25%, 7/01/17 ........................................................... 2,070,000 2,192,109
Series X, 6.00%, 7/01/15 ........................................................... 2,500,000 2,626,600
Puerto Rico HFC,
FHA Mortgage Insured, Sixth Portfolio, Section 8, Pre-Refunded, 7.75%, 12/01/26 .... 395,000 476,899
SFMR, Portfolio No. 1, Series A, GNMA Secured, 7.80%, 10/15/21 ..................... 60,000 62,165
SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ..................... 505,000 533,467
Puerto Rico Housing Bank and Finance Agency, SFMR, Homeownership,
Fifth Portfolio, Pre-Refunded, 7.50%, 12/01/15 ..................................... 500,000 542,260
Puerto Rico Municipal Finance Agency, Series A, 8.25%, 7/01/08 ..................... 205,000 216,470
Puerto Rico PBA, Guaranteed Public Education and Health Facilities,
Refunding, Series M, 5.75%, 7/01/15 ................................................ 2,500,000 2,532,725
Puerto Rico Telephone Authority Revenue, Series L, 6.125%, 1/01/22 ................. 1,100,000 1,135,596
Roseburg Urban Sanitary Authority, Improvement, GO, Unlimited Tax, Douglas County,
7.40%, 1/01/06 ..................................................................... 60,000 62,044
7.50%, 1/01/08 ..................................................................... 230,000 238,126
Salem, GO, Series A, 5.875%, 1/01/07 ............................................... 1,250,000 1,299,463
Salem Educational Facilities Revenue, Refunding, Williamette University, 6.10%, 4/01/14 1,000,000 1,037,430
Salem-Keizer School District No. 24J, FGIC Insured, 6.00%,
6/01/13 ............................................................................ 4,345,000 4,613,651
6/01/14 ............................................................................ 4,395,000 4,651,229
Taft-Nelscott-Delake Rural Fire Protection District, 6.00%, 6/01/16 ................ 1,110,000 1,138,705
Tillamook People Utilities District, 5.75%, 1/01/28 ................................ 2,765,000 2,698,861
Tri-County, Metro Transportation District, COP, 7.50%, 12/15/02 .................... 1,235,000 1,245,745
Tri-County, Metro Transportation District, Light Rail Extended, Series A, 6.00%, 7/01/12 2,500,000
2,628,625
Umatilla County Hospital Facility Authority, Hospital Revenue, Refunding,
Good Shepherd Community Hospital, 7.50%, 1/01/10 ................................... 1,375,000 1,384,185
Umatilla County USD No. 16R, Pendletron Project, AMBAC Insured, 6.00%, 7/01/14 ..... 5,300,000 5,621,710
Wasco County Hospital Facility Authority Hospital Revenue, 7.375%, 7/01/00 ......... 2,000,000 2,094,000
Washington County Building, GO, Pre-Refunded, 7.75%, 12/01/06 ...................... 100,000 100,964
bWashington County Housing Authority, MFR, Bethany Meadows II Project, 5.85 %, 9/01/27 1,435,000
1,434,986
Washington County USD No. 88J, 6.10%, 6/01/12 ...................................... 1,000,000 1,079,120
Washington County Unified Sewer Agency Revenue,
Pre-Refunded, 7.00%, 11/01/09 ...................................................... 2,700,000 2,865,690
Refunding, Series A, 6.20%, 10/01/10 ............................................... 4,000,000 4,369,960
Refunding, Series A, AMBAC Insured, 6.125%, 10/01/12 ............................... 1,000,000 1,097,490
Subordinated Senior Lien, Series 1, AMBAC Insured, 6.125%, 10/01/12 ................ 7,500,000 8,231,175
Western Lane Hospital District, Hospital Facilities Authority Revenue, Sister/St. Joseph
Peace Health and Hospital Services, Refunding,
MBIA Insured,
5.875%, 8/01/12 .................................................................... 4,400,000 4,625,368
Pre-Refunded, 7.125%, 8/01/17 ...................................................... 2,700,000 2,903,472
Yamhill County USD No. 29J, 6.10%, 6/01/11 ......................................... 5,000,000 5,400,450
-------------
Total Investments (Cost $382,976,289) 98.8%......................................... 408,221,170
Other Assets, less Liabilities 1.2%................................................. 5,047,996
-------------
Net Assets 100.0%................................................................... $413,269,166
=============
</TABLE>
See glossary of abbreviations on page 134.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Pennsylvania Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $10.39 $10.44 $10.16 $10.56 $10.55 $ 9.84
Income from investment operations:
Net investment income .29 .60 .62 .62 .63 .64
Net realized and unrealized gains (losses) .09 (.04) .29 (.41) .01 .70
Total from investment operations .38 .56 .91 .21 .64 1.34
Less distributions:
Dividends from net investment income (.30) (.61) (.63) (.61) (.63) (.63)
Distributions from net realized gains (.04) -- -- -- -- --
Total distributions (.34) (.61) (.63) (.61) (.63) (.63)
Net asset value, end of period $10.43 $10.39 $10.44 $10.16 $10.56 $10.55
Total return+ 3.71% 5.53% 9.15% 2.22% 5.99% 13.84%
Ratios/Supplemental Data
Net assets, end of period (000's) $679,975 $658,339 $639,847 $587,366 $615,546 $505,845
Ratio to average net assets:
Expenses .66%* .64% .64% .63% .56% .58%
Net investment income 5.64%* 5.84% 5.96% 6.15% 5.90% 6.34%
Portfolio turnover rate 6.59% 22.24% 9.71% 12.91% 4.73% 5.87%
Class II
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $10.43 $10.47 $10.17
Income from investment operations:
Net investment income .26 .55 .47
Net realized and unrealized gains (losses) .09 (.05) .30
Total from investment operations .35 .50 .77
Less distributions:
Dividends from net investment income (.27) (.54) (.47)
Distributions from net realized gains (.04) -- --
Total distributions (.31) (.54) (.47)
Net asset value, end of period $10.47 $10.43 $10.47
Total return+ 3.41% 4.98% 7.71%
Ratios/Supplemental Data
Net assets, end of period (000's) $18,589 $11,935 $3,110
Ratio to average net assets:
Expenses 1.22%* 1.21% 1.22%*
Net investment income 5.04%* 5.22% 5.36%*
Portfolio turnover rate 6.59% 22.24% 9.71%
</TABLE>
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Pennsylvania Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 98.9%
<S> <C> <C>
Abington Pennsylvania School District, FGIC Insured, 6.00%, 5/15/26 ................ $ 2,000,000 $ 2,092,100
Allegheny County Hospital Development Authority Revenue,
Allegheny General Hospital Project, Series A, MBIA Insured, 6.25%, 9/01/20 ......... 10,000,000 10,633,800
Allegheny Hospital, South Hills Health System, Series A, MBIA Insured, 5.875%, 5/01/26 1,700,000 1,747,991
Refunding, Divine Providence Hospital, Series B, Pre-Refunded, 8.75%, 1/01/14 ...... 500,000 529,350
Refunding, Health Center, University of Pittsburgh, Series A, MBIA Insured, 5.625%, 4/01/27 8,000,000 8,002,960
Allegheny County IDAR, Refunding,
Environmental Improvement, 6.10%,1/15/18 ........................................... 2,000,000 2,059,320
Kaufmann Medical Project, Series A, MBIA Insured, 6.80%, 3/01/15 ................... 1,000,000 1,081,740
Allegheny County RDAR, Refunding, Home Improvement Loan, Series A, 5.90%, 2/01/11 .. 2,855,000 2,927,003
Allegheny County Residential Finance Authority, Mortgage Revenue,
Ladies Grand Army Republic Health Facilities Project, Series G, FHA Secured, 6.35%, 10/01/36 2,000,000 2,079,140
Lemington Home, Series E, 7.125%, 2/01/27 .......................................... 3,800,000 3,972,710
Series D, MFMR, FHA Secured, 7.50%, 6/01/33 ........................................ 1,400,000 1,469,734
Series H, SFMR, GNMA Secured, 8.00%, 6/01/17 ....................................... 1,240,000 1,280,027
Series J, GNMA Secured, 7.50%, 6/01/17 ............................................. 2,280,000 2,360,849
Series K, GNMA Secured, 7.75%, 12/01/22 ............................................ 2,155,000 2,240,166
Series M, SFMR, GNMA Secured, 7.90%, 6/01/11 ....................................... 1,320,000 1,390,924
Series T, SFMR, GNMA Secured, 6.95%, 5/01/17 ....................................... 810,000 864,861
bAllegheny County Sanitation Authority Sewer Revenue, MBIA Insured, 5.375%, 12/01/24 5,000,000 4,877,350
Ambridge Area School District, Refunding, Series A, FGIC Insured, 5.25%, 11/01/16 .. 2,730,000 2,621,483
Beaver County GO, Series A, MBIA Insured, 5.90%, 10/01/26 .......................... 8,000,000 8,248,800
Beaver County Hospital Authority Revenue, Refunding, Beaver County
Medical Center, Inc., AMBAC Insured, 6.625%, 7/01/10 ................................ 5,000,000 5,481,600
Beaver County IDA, PCR, Refunding, Series A,
Beaver Valley Project, Pennsylvania Power & Light, 7.15%, 9/01/21 .................. 4,400,000 4,695,196
Ohio Edison Project, 7.75%, 9/01/24 ................................................ 6,475,000 6,861,234
Bensalem Township, Refunding, FGIC Insured, 5.75%,12/01/16 ......................... 3,000,000 3,086,850
Berks County Municipal Authority Revenue, FGIC Insured, Pre-Refunded, 7.00%, 5/15/18 4,000,000 4,559,920
Bethlehem Area School District, MBIA Insured, 6.00%, 3/01/16 ....................... 4,000,000 4,360,600
Blair County Hospital Authority Revenue, Bon Secours Health Systems,
Series C, MBIA Insured, 5.25%, 8/15/27 .............................................. 2,665,000 2,526,500
Bradford County IDA, Solid Waste Disposal Revenue, International Paper Co.
Projects, Series A, 6.60%, 3/01/19 ................................................. 2,500,000 2,735,825
Burrell School District, FGIC Insured, 5.60%, 11/15/15 ............................. 2,890,000 2,965,718
Butler County IDA, PCR, Refunding, Witco Corp. Project, 5.85%, 12/01/23 ............ 2,000,000 2,052,340
Cambria County Hospital Development Authority Revenue, Refunding,
Conemaugh Valley Hospital, Series B, 7/01/18,
Connie Lee Insured, 6.375%.......................................................... 3,500,000 3,684,170
Pre-Refunded, 8.875%................................................................ 1,000,000 1,059,700
Cambria County IDA,
PCR, Refunding, Pennsylvania Electric Company Project, Series A, MBIA Insured, 5.80%, 11/01/20 5,000,000 5,095,600
Resource Recovery Revenue, Cambria Cogen Project, Series F-1, 7.75%, 9/01/19 ....... 4,000,000 4,053,160
Resource Recovery Revenue, Cambria Cogen Project, Series F-2, 7.75%, 9/01/19 ....... 2,715,000 2,751,082
Charters Valley Industrial and Commercial Development Authority Revenue, Refunding, First Mortgage,
Asbury Place Project, 6.50%, 2/01/36 ............................................... 4,295,000 4,579,028
Refunding, United Methodist Health Center, Series A, Pre-Refunded, 9.25%, 12/01/08 . 1,000,000 1,081,260
Dauphin County General Authority Health System Revenue, Refunding,
Pinnacle Health System Project, MBIA Insured, 5.50%, 5/15/17 ....................... 4,280,000 4,294,252
Dauphin County General Authority Hospital Revenue, Refunding,
Hapsco-Western Hospital Project, MBIA Insured,
Series A, 6.50%, 7/01/12 ........................................................... 4,500,000 4,842,630
Series B, 6.25%, 7/01/16 ........................................................... 5,000,000 5,271,500
Dauphin County General Authority Revenue, School District 0014, 7.50%, 6/01/26...... 1,000,000 1,008,040
Delaware County Authority Health Facility Revenue, Refunding, Mercy
Health Corporation Project, 6.00%, 12/15/26 ........................................ 10,800,000 10,860,372
Delaware County Authority Healthcare Revenue, Mercy Health Corporation
Southeastern, Series B, 6.00%, 11/15/07 ............................................ 9,000,000 9,419,670
Delaware County Authority Revenue, Elwyn, Inc. Project, Pre-Refunded, 8.35%, 6/01/15 2,000,000 2,242,760
Delaware County IDAR, PCR, Philadelphia Electric Co. Project, 7.375%, 4/01/21 ...... 5,000,000 5,442,100
Delaware River Joint Toll Bridge System Commission Revenue, Pre-Refunded, 7.875%, 7/01/18 450,000 473,252
Delaware River Port Authority,
Pennsylvania and New Jersey Delaware River Bridges Revenue,
Refunding, AMBAC Insured, 7.375%, 1/01/07 .......................................... 1,000,000 1,058,540
Pennsylvania and New Jersey Revenue, Series 1995, FGIC Insured, 5.50%, 1/01/26 ..... 7,350,000 7,366,538
Delaware Valley Regional Finance Authority, Local Government Revenue,
Series B, AMBAC Insured, 5.60%, 7/01/17 ............................................ 5,000,000 5,176,000
Erie County Hospital Authority Revenue, St. Vincent Health Center Project,
Series A, MBIA Insured, 6.375%, 7/01/22 ............................................ 7,000,000 7,434,000
Erie County IDAR, Nursing Home-Sarah Reed Center, 8.625%, 7/01/14 .................. 2,110,000 2,222,463
Erie Higher Educational Building Authority Revenue, Gannon University,
Series A, Pre-Refunded, 8.50%, 6/01/15 ............................................. 3,000,000 3,275,280
Erie Western Pennsylvania Port Authority General Revenue,
8.625%, 6/15/10 .................................................................... $ 1,850,000 $ 2,038,830
6.875%, 6/15/16 .................................................................... 920,000 955,714
Exeter Township, Refunding, Series B, FGIC Insured, 5.30%, 7/15/21 ................. 6,100,000 5,883,511
Harrisburg Authority Revenue, Series I, MBIA Insured, 5.625%, 4/01/19 .............. 6,000,000 6,044,880
Harrisburg Authority Water Revenue, FGIC Insured, Pre-Refunded, 7.00%, 7/15/15 ..... 4,000,000 4,372,960
Hazleton Health Services Authority Hospital Revenue, Hazleton General Hospital, 5.50%, 7/01/27 1,500,000 1,414,110
Interboro School District, Delaware County, MBIA Insured, 5.375%, 8/15/22 .......... 2,335,000 2,264,740
Jeannette County Health Service Authority Hospital Revenue, Jeannette District Memorial Hospital,
Pre-Refunded, 8.625%, 1/01/18 ...................................................... 4,000,000 4,579,560
Refunding, Series A, 6.00%, 11/01/18 ............................................... 785,000 791,908
Jeannette County Municipal Authority Sewer Revenue, 7.00%, 7/01/17 ................. 1,250,000 1,332,025
Lancaster County Hospital Authority Revenue,
Refunding, Health Center, Masonic Homes Project, AMBAC Insured, 5.00%, 11/15/20 .... 1,600,000 1,491,760
Willow Valley Lakes Manor, Series B, Pre-Refunded, 9.00%, 6/01/12 .................. 1,000,000 1,036,820
Lancaster County Solid Waste Management Authority, Resource
Recovery System Revenue, Series A, 8.50%, 12/15/10 ................................. 1,000,000 1,045,340
Lawrence County IDA, PCR, Refunding, Pennsylvania Power Co., New Castle Project, 7.15%, 3/01/17 5,595,000 5,966,228
Lebanon County, Good Samaritan Hospital Authority Revenue,
Good Samaritan Hospital Project, Refunding, 6.00%, 11/15/18 ........................ 2,500,000 2,540,325
Lehigh County General Purpose Authority Revenue,
Exempt Facility, Lehigh Pretreatment Plant Project, FGIC Insured, Pre-Refunded, 7.25%, 1/01/10 1,000,000 1,030,670
Good Shepherd Rehabilitation Hospital, 7.50%, 11/15/21 ............................. 3,000,000 3,271,950
Lehigh Valley Hospital, Inc., Refunding, Series A, MBIA Insured, 5.875%, 7/01/15 ... 1,000,000 1,030,370
Muhlenburg Hospital Center, Refunding, Series A, 8.00%, 7/15/01 .................... 1,300,000 1,396,759
Muhlenburg Hospital Center, Series A, 6.60%, 7/15/22 ............................... 5,800,000 6,122,886
Muhlenburg Hospital Center, Series B, Pre-Refunded, 8.00%, 7/15/01 ................. 1,100,000 1,194,450
Lehigh County IDA, PCR, Refunding, Pennsylvania Power & Light Co. Project, MBIA Insured,
Series A, 6.40%, 11/01/21 .......................................................... 5,000,000 5,330,650
Series A, 6.15%, 8/01/29 ........................................................... 5,550,000 5,835,381
Series B, 6.40%, 9/01/29 ........................................................... 10,000,000 10,756,100
Lower Providence Township, Pennsylvania Sewer Authority Revenue,
Refunding, MBIA Insured, 5.25%, 5/01/14 ............................................ 2,000,000 2,001,220
Luzerne County IDA, Exempt Facility Revenue, Refunding, Gas & Water Co. Project, Series A,
6.05%, 1/01/19 ..................................................................... 4,750,000 4,827,045
AMBAC Insured, 7.00%, 12/01/17 ..................................................... 5,000,000 5,674,000
Meadville GO, Series A, AMBAC Insured, 5.25%, 10/01/25 ............................. 2,285,000 2,222,757
Montgomery County Higher Education and Health Authority Revenue,
Bryn Mawr Hospital Project, Pre-Refunded, 9.375%, 12/01/19 ......................... 500,000 516,600
Holy Redeemer Hospital, Series A, AMBAC Insured, 7.625%, 2/01/20 ................... 2,375,000 2,507,478
Jeanes Health System Project, Pre-Refunded, 8.75%, 7/01/20 ......................... 10,000,000 11,333,900
Pottstown Memorial Medical Center Project, 7.35%, 11/15/05 ......................... 1,315,000 1,439,346
St. Joseph's University, Pre-Refunded, 8.30%, 6/01/10 .............................. 5,500,000 6,168,140
St. Joseph's University, Refunding, Connie Lee Insured, 6.50%, 12/15/22 ............ 1,750,000 1,869,490
Montgomery County IDA, Retirement Community Revenue, Adult Community Total Services,
Refunding, Series A, 5.875%, 11/15/22 .............................................. 4,850,000 4,887,103
Series B, 5.75%, 11/15/17 .......................................................... 3,000,000 3,016,920
Montgomery County IDAR,
PCR, Philadelphia Electric Co., Series B, MBIA Insured, 6.70%, 12/01/21 ............ 5,000,000 5,437,900
Refunding, PCR, Philadelphia Electric Co., Series A, 7.60%, 4/01/21 ................ 2,530,000 2,727,264
Resources Recovery, 7.50%, 1/01/12 ................................................. 10,000,000 10,589,900
Moon Transportation Authority, Highway Improvement Revenue, Pre-Refunded, 9.50%, 2/01/16 600,000 613,422
Neshaminy School District, FGIC Insured, 7.00%, 2/15/14 ............................ 1,000,000 1,141,300
North Hampton Borough Municipal Authority Water Revenue,
AMBAC Insured, Pre-Refunded, 7.00%, 9/01/14 ........................................ 1,175,000 1,211,249
North Hampton County IDAR, PCR, Refunding, Series A, MBIA Insured, 6.10%, 7/15/21 .. 6,100,000 6,408,416
Northeastern Pennsylvania Hospital and Educational Authority Revenue, Refunding,
Kings College Project, Series B, 6.00%, 7/15/11 .................................... 1,000,000 1,012,400
Kings College Project, Series B, 6.00%, 7/15/18 .................................... 1,000,000 987,030
Wilkes University, 6.125%, 10/01/11 ................................................ 5,000,000 5,000,300
Pennsylvania Convention Center Authority Revenue, Refunding, Series A, 6.60%, 9/01/09 5,000,000 5,441,900
Pennsylvania EDA,
Exempt Facilities Revenue, MacMillian L.P. Project, 7.60%, 12/01/20 ................ 3,000,000 3,429,450
Resources Recovery Revenue, Colver Project, Series D, 7.125%, 12/01/15 ............. 5,000,000 5,418,650
Pennsylvania HFA,
Refunding, Rental Housing, FNMA Insured, 5.75%, 7/01/14 ............................ $10,000,000 $ 10,284,300
Refunding, Series 1991-32, 7.15%, 4/01/15 .......................................... 4,370,000 4,628,966
Refunding, SFMR, Series 54-A, 6.15%, 10/01/22 ...................................... 1,500,000 1,546,080
Refunding, SFMR, Series Y, 7.45%, 4/01/16 .......................................... 2,735,000 2,862,205
SFMR, Series 29, 7.375%, 10/01/16 .................................................. 3,725,000 3,958,967
SFMR, Series 30, 7.30%, 10/01/17 ................................................... 2,725,000 2,906,785
SFMR, Series 34-A, 6.85%, 4/01/16 .................................................. 3,000,000 3,174,720
SFMR, Series 34-B, 7.00%, 4/01/24 .................................................. 6,000,000 6,331,620
SFMR, Series 38, 6.125%, 10/01/24 .................................................. 5,395,000 5,581,775
SFMR, Series P, 8.00%, 4/01/16 ..................................................... 750,000 767,265
SFMR, Series U, 7.80%, 10/01/20 .................................................... 4,885,000 5,174,339
SFMR, Series W, 7.80%, 10/01/20 .................................................... 1,965,000 2,057,846
Pennsylvania Infrastructure Investment Authority Revenue,
Pennvest Loan Pool Program, MBIA Insured, 5.625%,
9/01/13 ............................................................................ 6,010,000 6,150,995
9/01/14 ............................................................................ 2,870,000 2,937,330
Pennsylvania Intergovernmental Cooperative Authority,
Special Tax Revenue, Philadelphia Funding Project, FGIC Insured, Pre-Refunded,
7.00%, 6/15/14 ..................................................................... 6,000,000 6,932,340
Pennsylvania State Finance Authority Revenue, Refunding,
Municipal Capital Improvements Program, 6.60%, 11/01/09 ............................ 12,565,000 13,579,498
Pennsylvania State Higher Educational Facilities Authority Revenue,
Drexel University, Refunding, 6.375%, 5/01/17 ...................................... 5,220,000 5,389,911
Health Services, Refunding, Allegheny Delaware Valley, Series A,
MBIA Insured, 5.875%, 11/15/21 ..................................................... 17,000,000 17,497,420
Health Services, Refunding, University of Pennsylvania, Series A, 5.75%, 1/01/22 ... 10,000,000 10,186,100
Lycoming College, Pre-Refunded, 8.375%, 10/01/18 ................................... 1,000,000 1,066,350
Medical College of Pennsylvania, Series A, Pre-Refunded, 8.375%, 3/01/11 ........... 1,000,000 1,080,820
Medical College of Pennsylvania, Series A, Pre-Refunded, 7.50%, 3/01/14 ............ 3,135,000 3,289,994
Philadelphia College of Textiles and Science, 6.75%, 4/01/20 ....................... 3,040,000 3,174,338
Refunding, Allegheny College Project, Series B, 6.125%, 11/01/13 ................... 1,000,000 1,023,400
Refunding, Allegheny College Project, Series B, 6.00%, 11/01/22 .................... 3,140,000 3,151,744
Refunding, Drexel University, MBIA Insured, 5.75%, 5/01/22 ......................... 4,385,000 4,489,407
Refunding, La Salle University, MBIA Insured, 5.625%, 5/01/17 ...................... 4,000,000 4,052,440
State System of Higher Education, Series L, AMBAC Insured, 6.20%, 6/15/19 .......... 2,220,000 2,332,332
State System of Higher Education, Series N, MBIA Insured, 5.80%, 6/15/24 ........... 3,000,000 3,057,540
Temple University, 7.375%, 10/01/06 ................................................ 1,955,000 1,989,467
Temple University, 7.40%, 10/01/10 ................................................. 4,505,000 4,582,171
Widner University, AMBAC Insured, Pre-Refunded, 7.625%, 10/01/13 ................... 1,000,000 1,039,870
Pennsylvania State IDAR, Economic Revenue, AMBAC Insured, 6.00%, 1/01/12 ........... 4,250,000 4,509,420
Pennsylvania State Pooled Finance Authority Lease Revenue, Capital Improvement,
Series B, MBIA Insured, 8.00%, 11/01/09 ............................................ 890,000 933,797
Pennsylvania State Turnpike Commission Revenue, Series C, FGIC Insured,
Pre-Refunded, 7.625%, 12/01/17 ..................................................... 1,000,000 1,062,430
Philadelphia Airport System Revenue, Series A, AMBAC Insured, 6.10%, 6/15/25 ....... 5,000,000 5,204,900
Philadelphia Gas Works Revenue,
11th Series C, AMBAC Insured, 7.25%, 1/01/10 ....................................... 795,000 840,490
11th Series C, AMBAC Insured, Pre-Refunded, 7.25%, 1/01/10 ......................... 205,000 217,251
12th Series B, MBIA Insured, ETM, 7.00%, 5/15/20 ................................... 1,000,000 1,165,670
13th Series, Pre-Refunded, 7.70%, 6/15/11 .......................................... 1,255,000 1,418,966
13th Series, Pre-Refunded, 7.70%, 6/15/11 .......................................... 2,745,000 3,108,767
Refunding, 14th Series A, 6.375%, 7/01/26 .......................................... 10,100,000 10,505,111
Philadelphia Hospitals and Higher Educational Facilities Authority Hospital Revenue,
Albert Einstein Medical Center, 7.30%, 10/01/08 .................................... 5,225,000 5,675,552
Albert Einstein Medical Center, 7.625%, 4/01/11 .................................... 7,755,000 8,207,504
Children's Seashore House, Series A, 7.00%, 8/15/17 ................................ 1,000,000 1,071,800
Children's Seashore House, Series B, 7.00%, 8/15/22 ................................ 2,600,000 2,780,856
Frankford Hospital, Series A, 6.00%, 6/01/14 ....................................... 2,500,000 2,557,125
Refunding, Children's Hospital, Series A, 5.00%, 2/15/21 ........................... 2,465,000 2,288,309
Temple University Hospital, 5.875%, 11/15/23 ....................................... 5,000,000 5,013,700
Philadelphia Municipal Authority, Gas Works Lease Revenue, 7.625%, 5/01/14 ......... 2,750,000 2,894,073
Philadelphia Municipal Authority Lease Revenue, Refunding, Series D, 6.30%, 7/15/17 2,000,000 2,060,980
Philadelphia Parking Authority Airport Revenue, Refunding, AMBAC Insured, 5.50%, 9/01/18 1,000,000 996,290
Philadelphia RDA, Home Improvement Loan Revenue, FHA Insured,
Series A, 7.375%, 6/01/03 .......................................................... $ 160,000 $ 162,637
Series B, 6.10%, 6/01/17 ........................................................... 1,000,000 1,025,920
Philadelphia RDA, Housing Revenue,
Sub-Series 2, 8.625%, 8/01/26 ...................................................... 285,000 288,149
Sub-Series 3, 8.00%, 8/01/13 ....................................................... 500,000 524,745
Philadelphia School District, Series B, AMBAC Insured, 5.50%, 9/01/15 .............. 5,000,000 5,034,350
Philadelphia Water and Sewer Revenue, 10th Series, ETM, 7.35%, 9/01/04 ............. 6,875,000 7,844,513
Philadelphia Water and Wastewater Revenue, Refunding, 5.75%, 6/15/13 ............... 10,000,000 10,011,400
Pittsburgh Urban RDA,
Mortgage Revenue, Series A, 7.15%, 10/01/27 ........................................ 840,000 903,193
Mortgage Revenue, Series D, 6.25%, 10/01/17 ........................................ 1,700,000 1,781,651
SFMR, Series B, GNMA Secured, 7.375%, 12/01/16 ..................................... 2,335,000 2,438,441
Pittsburgh Water and Sewer Authority Revenue, Refunding, FGIC Insured, ETM, 7.25%, 9/01/14 1,250,000 1,495,088
Pottstown Borough Authority, Pre-Refunded,
Sewer Revenue, FSA Insured, 7.70%, 11/01/21 ........................................ 4,000,000 4,231,560
Water Revenue, 7.80%, 8/01/10 ...................................................... 1,000,000 1,006,130
Rose Tree Media School District, FGIC Insured, 5.85%, 2/15/17 ...................... 5,000,000 5,137,150
Schuylkill County IDA, Resource Recovery Revenue, Refunding,
Schuylkill Energy Resource, Inc., 6.50%, 1/01/10 ................................... 18,205,000 18,365,568
Schuylkill County RDA, Lease Revenue, Series A, FGIC Insured, 7.125%, 6/01/13 ...... 1,500,000 1,662,750
Scranton-Lackawanna Health and Welfare Authority Revenue,
Allied Services, Series C, FHA Insured, Pre-Refunded, 8.125%, 1/15/28 .............. 500,000 527,625
South Fork Municipal Authority Hospital Revenue, Conemaugh Valley
Memorial Hospital Project, Series A, MBIA Insured, 5.75%,
7/01/26 ............................................................................ 10,000,000 10,143,900
Southeastern Pennsylvania Transportation Authority Special Revenue, FGIC Insured,
5.375%, 3/01/22 .................................................................... 4,000,000 3,933,120
Series A, 5.75%, 3/01/20 ........................................................... 9,660,000 9,808,861
State Public School Building Authority Revenue, Refunding,
Cornell School District Project, Series B, MBIA Insured, 5.375%, 9/01/12 ........... 2,165,000 2,181,086
Shenandoah Valley School District Project, AMBAC Insured, 7.375%, 9/15/10 .......... 1,000,000 1,079,330
Temple University, System of Higher Education, Pennsylvania Hospital Revenue,
Series A, FHA Insured, Pre-Refunded, 7.25%, 8/01/16 ................................ 1,975,000 2,035,159
Union School District, AMBAC Insured, Pre-Refunded, 7.25%, 4/01/15 ................. 3,000,000 3,059,040
University of Pittsburgh, Higher Education, Refunding, Series B, MBIA Insured, 5.00%, 6/01/21 10,000,000 9,403,800
Upper St. Clair Township School District, Refunding, 5.20%, 7/15/27 ................ 5,000,000 4,816,300
Westmoreland County IDAR, Refunding, Citizen's General Hospital Project,
Series A, 8.25%, 7/01/13 ........................................................... 1,500,000 1,541,760
Wilkes Barre Area School District, FGIC Insured,
6.375%, 4/01/15 .................................................................... 3,000,000 3,248,700
bRefunding, 5.25%, 4/01/16 ......................................................... 1,385,000 1,349,669
York County Solid Waste and Refuse Authority, IDR, Resource Recovery Project, 8.20%, 12/01/14,
Series A ........................................................................... 105,000 109,074
Series C ........................................................................... 900,000 934,920
-------------
Total Long Term Investments (Cost $654,129,246) .................................... 690,985,510
-------------
aShort Term Investments .2%
Chester County IDAR, Refunding, General Motors Corporation Project,
Daily VDRN and Put, 3.40%, 8/01/01 ................................................. 700,000 700,000
Pennsylvania State Higher Educational Facilities Authority Revenue,
Council of Independent Colleges, Cabrini University, Series 2A,
Weekly VDRN and Put, 3.45%, 4/01/22 ................................................ 300,000 300,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
Weekly VDRN and Put, 2.90%, 12/01/15 ............................................... 600,000 600,000
-------------
Total Short Term Investments (Cost $1,600,000) ..................................... 1,600,000
-------------
Total Investments (Cost $655,729,246) 99.1% ........................................ 692,585,510
Other Assets, less Liabilities .9% ................................................. 5,978,853
-------------
Net Assets 100.0% .................................................................. $698,564,363
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates. bSufficient collateral has been segregated for securities
traded on a when-issued or delayed delivery basis.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Puerto Rico Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.51 $11.59 $11.31 $11.83 $11.81 $11.12
Income from investment operations:
Net investment income .31 .65 .66 .67 .68 .70
Net realized and unrealized gains (losses) .13 .02 .30 (.50) .03 .67
Total from investment operations .44 .67 .96 .17 .71 1.37
Less distributions:
Dividends from net investment income (.31) (.65)++ (.67)+++ (.69) (.69) (.68)
Distributions from net realized gains (.01) (.10) (.01) -- -- --
Total distributions (.32) (.75) (.68) (.69) (.69) (.68)
Net asset value, end of period $11.63 $11.51 $11.59 $11.31 $11.83 $11.81
Total return+ 3.93% 6.03% 8.68% 1.60% 5.95% 12.48%
Ratios/Supplemental Data
Net assets, end of period (000's) $199,308 $192,525 $190,577 $176,888 $175,036 $144,806
Ratio to average net assets:
Expenses .78%* .73% .74% .73% .66% .69%
Net investment income 5.42%* 5.62% 5.71% 5.95% 5.77% 6.18%
Portfolio turnover rate 2.84% 21.09% 27.99% 18.30% 5.10% 10.37%
Class II
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.53 $11.62 $11.32
Income from investment operations:
Net investment income .28 .58 .50
Net realized and unrealized gains .12 .02 .30
Total from investment operations .40 .60 .80
Less distributions:
Dividends from net investment income (.28) (.59) (.49)
Distributions from net realized gains (.01) (.10) (.01)
Total distributions (.29) (.69) (.50)
Net asset value, end of period $11.64 $11.53 $11.62
Total return+ 3.55% 5.33% 7.21%
Ratios/Supplemental Data
Net assets, end of period (000's) $2,574 $1,679 $533
Ratio to average net assets:
Expenses 1.34%* 1.30% 1.32%*
Net investment income 4.84%* 5.04% 5.16%*
Portfolio turnover rate 2.84% 21.09% 27.99%
</TABLE>
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price. ++Includes
distributions in excess of net investment income in the amount of $0.006.
+++Includes distributions in excess of net investment income in the amount of
$0.001. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Puerto Rico Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 98.4%
Guam Airport Authority Revenue, Series B,
<S> <C> <C>
6.60%, 10/01/10 .................................................................... $ 1,675,000 $ 1,780,274
6.70%, 10/01/23 .................................................................... 5,800,000 6,201,128
Guam Government GO, Series A,
5.90%, 9/01/05 ..................................................................... 4,575,000 4,644,586
6.00%, 9/01/06 ..................................................................... 1,085,000 1,103,044
Guam Government Limited Obligation Highway, Refunding, Series A, 6.30%, 5/01/12 .... 5,590,000 6,013,331
Guam Power Authority Revenue, Series A,
6.30%, 10/01/22 .................................................................... 7,190,000 7,476,018
6.75%, 10/01/24 .................................................................... 2,680,000 2,908,872
Northern Mariana Islands, Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Harbor Improvement, Series A, 6.85%,
10/01/25 ........................................................................... 5,000,000 5,161,100
Puerto Rico Commonwealth GO,
6.25%, 7/01/10 ..................................................................... 250,000 263,980
6.40%, 7/01/11 ..................................................................... 3,905,000 4,240,400
Refunding, MBIA Insured, 5.75%, 7/01/24 ............................................ 2,000,000 2,058,800
Puerto Rico Commonwealth Highway and Transportation Authority, Highway Revenue, Series Y,
6.00%, 7/01/22 ..................................................................... 8,000,000 8,295,840
5.50%, 7/01/26 ..................................................................... 1,500,000 1,480,635
Puerto Rico Commonwealth Highway Authority, Highway Revenue, Pre-Refunded,
Refunding, Series N, 8.00%, 7/01/03 ................................................ 70,000 73,805
Series P, 8.125%, 7/01/13 .......................................................... 3,925,000 4,142,327
Series Q, 7.75%, 7/01/10 ........................................................... 350,000 389,463
Puerto Rico Commonwealth IDC, General Purpose Revenue, 8.00%, 1/01/03 .............. 1,990,000 2,000,666
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ..................................................................... 3,000,000 3,147,270
7.75%, 7/01/08 ..................................................................... 2,300,000 2,407,456
7.50%, 7/01/09 ..................................................................... 2,600,000 2,716,246
Puerto Rico Commonwealth Urban Renewal and Housing Corp., Commonwealth
Appropriation, Refunding, 7.875%, 10/01/04 ......................................... 3,350,000 3,619,273
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 .................................. 1,000,000 1,054,360
Refunding, Series U, 6.00%, 7/01/14 ................................................ 700,000 729,113
Series O, 7.125%, 7/01/14 .......................................................... 1,525,000 1,617,827
Series P, Pre-Refunded, 7.00%, 7/01/11 ............................................. 615,000 685,707
Series P, Pre-Refunded, 7.00%, 7/01/21 ............................................. 1,000,000 1,114,970
Series T, 6.375%, 7/01/24 .......................................................... 10,000,000 10,712,600
Series X, 6.125%, 7/01/21 .......................................................... 7,225,000 7,608,359
Puerto Rico HFC,
MFMR, Portfolio A, Series I, 7.50%, 4/01/22 ........................................ 1,750,000 1,846,425
SFMR, Portfolio No. 1, Series C, GNMA Insured, 6.85%, 10/15/23 ..................... 2,320,000 2,461,149
Puerto Rico HFC Revenue,
FHA Mortgage Insured, Sixth Portfolio, Section 8, Pre-Refunded, 7.75%, 12/01/26 .... 2,060,000 2,487,120
MF, Portfolio A, Series I, 7.50%, 10/01/15 ......................................... 420,000 442,113
MF, Series A, 8.25%, 6/01/11 ....................................................... 360,000 360,191
Puerto Rico Housing Bank and Finance Agency, SFMR, Homeownership,
Affordable Housing Mortgage, First Portfolio, 6.25%, 4/01/29 ....................... 3,020,000 3,145,602
Fifth Portfolio, Pre-Refunded, 7.50%, 12/01/15 ..................................... 955,000 1,035,717
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
5.10%, 12/01/18 .................................................................... 2,090,000 2,008,595
Baxter Travenol Labs., Series A, 8.00%, 9/01/12 .................................... 4,010,000 4,272,735
PepsiCo, Inc. Project, 6.25%, 11/15/13 ............................................. 900,000 973,467
Special Facilities, American Airlines, Series A, 6.45%, 12/01/25 ................... 2,000,000 2,128,960
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority,
Hospital Revenue, Hospital Auxilio Mutuo Obligation Group, Series A, MBIA Insured,5.50%,7/01/17 2,750,000 2,787,978
Hospital Revenue, Hospital Auxilio Mutuo Obligation Group, Series A, MBIA Insured, 6.25%,
7/01/24 8,445,000 9,067,059
Hospital Revenue, Mennonite General Hospital Project, Series A, 6.50%, 7/01/26 ..... 5,000,000 5,168,200
Hospital Revenue, Refunding, Dr. Pila Hospital Project, Series A, 6.125%, 8/01/25 .. 2,500,000 2,639,475
Hospital Revenue, Refunding, Dr. Pila Hospital Project, Series A, 6.25%, 8/01/32 ... 500,000 532,285
Industrial Revenue, Guaynabo Municipal Government Center, Series A, 5.625%, 7/01/15 6,550,000 6,415,922
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities, Financing Authority, (cont.)
Industrial Revenue, Teachers Retirement System Revenue, Series B, 5.50%, 7/01/16 ... $ 3,175,000 $ 3,258,122
Industrial Revenue, Teachers Retirement System Revenue, Series B, 5.50%, 7/01/21 ... 5,335,000 5,452,477
Puerto Rico Municipal Finance Agency, Series A,
6.50%, 7/01/19 ..................................................................... 2,000,000 2,184,400
5.50%, 7/01/21 ..................................................................... 2,500,000 2,501,925
Pre-Refunded 8.25%, 7/01/08 ........................................................ 4,550,000 4,804,573
Puerto Rico PBA, Guaranteed Government Facilities,
Series A, AMBAC Insured, 5.75%, 7/01/22 ............................................ 1,000,000 1,026,320
Series B, MBIA Insured, 5.125%, 7/01/17 ............................................ 500,000 488,105
Puerto Rico Port Authority Revenue,
Series D, FGIC Insured, 6.00%, 7/01/21 ............................................. 1,250,000 1,275,925
Special Facilities, American Airlines, Series A, 6.30%, 6/01/23 .................... 5,500,000 5,777,310
Special Facilities, American Airlines, Series A, 6.25%, 6/01/26 .................... 1,900,000 2,000,035
Puerto Rico Telephone Authority Revenue, Refunding,
Series L, 6.125%, 1/01/22 .......................................................... 6,450,000 6,658,722
Series N, 5.50%, 1/01/13 ........................................................... 500,000 502,950
Series N, 5.50%, 1/01/22 ........................................................... 2,375,000 2,343,436
University of Puerto Rico Revenue, Series M, MBIA Insured,
5.50%, 6/01/15 ..................................................................... 4,000,000 4,062,920
5.25%, 6/01/25 ..................................................................... 5,925,000 5,780,786
Virgin Islands HFA, SFR, Refunding, Series A, GNMA Insured,
6.45%, 3/01/16 ..................................................................... 950,000 990,356
6.50%, 3/01/25 ..................................................................... 2,250,000 2,353,680
Virgin Islands Water and Power Authority, Electric System Revenue, Series A, 7.40%, 7/01/11 5,390,000 5,775,703
-------------
Total Long Term Investments (Cost $187,480,585) .................................... 198,658,188
-------------
aShort Term Investments .2%
Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly
VRDN and Put, 2.95%, 12/01/15 (Cost $300,000) ...................................... 300,000 300,000
-------------
Total Investments (Cost $187,780,585) 98.6%......................................... 198,958,188
Other Assets, less Liabilities 1.4%................................................. 2,923,116
-------------
Net Assets 100.0%................................................................... $201,881,304
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Federal Intermediate-Term Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 1996 1995 1994 19931
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $10.94 $10.95 $10.48 $10.80 $10.54 $10.00
Income from investment operations:
Net investment income .27 .55 .55 .54 .52 .14
Net realized and unrealized gains (losses) .09 (.01) .47 (.33) .29 .50
Total from investment operations .36 .54 1.02 .21 .81 .64
Less distributions:
Dividends from net investment income (.27) (.55) (.55) (.53) (.55) (.10)
Net asset value, end of period $11.03 $10.94 $10.95 $10.48 $10.80 $10.54
Total return+ 3.37% 5.12% 9.93% (.20%) 7.82% 14.77%
Ratios/Supplemental Data
Net assets, end of period (000's) $116,604 $104,715 $85,967 $73,977 $67,603 $9,192
Ratio to average net assets:
Expenses .75%* .68% .65% .56% .30% --
Expenses excluding waiver and payments by affiliate .83%* .84% .85% .84% .89% 1.60%*
Net investment income 5.03%* 5.16% 5.12% 5.25% 4.93% 5.49%*
Portfolio turnover rate 5.90% 22.54% 3.35% 38.46% 28.76% 22.54%
</TABLE>
1For the period September 21, 1992 (effective date) to February 28, 1993. +Total
return does not reflect sales commissions or the contingent deferred sales
charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price. *Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Federal Intermediate-Term Tax-Free Income Fund AMOUNT VALUE
Long Term Investments 101.7%
Alabama .9%
Morgan County, Decatur Health Care Authority, Hospital Revenue, Refunding,
<S> <C> <C>
Connie Lee Insured, 5.80%, 3/01/04 .................................................. $1,000,000 $ 1,045,000
-------------
Alaska .6%
Alaska State HFC, Collateral, First Series, Veteran's Mortgage Program, 5.80%, 6/01/04 480,000 505,349
Anchorage Parking Authority Lease Revenue, Refunding, 5th Avenue Garage Project, 6.50%, 12/01/02 200,000 212,810
-------------
718,159
-------------
Arizona 2.9%
Maricopa County COP, 5.625%, 6/01/00 ............................................... 2,000,000 2,047,420
Maricopa County School District No. 40, Glendale Improvement, 6.10%, 7/01/08 ....... 1,000,000 1,062,530
Mohave County IDA, Hospital Systems Revenue, Refunding, Medical Environments, Inc.,
Phoenix Hospital and Medical Center, ETM,
6.00%, 7/01/00 ..................................................................... 200,000 209,482
Phoenix HFC, Mortgage Revenue, Refunding, Project A, MBIA Insured, 6.00%, 7/01/02 .. 55,000 57,543
-------------
3,376,975
-------------
California 13.1%
ABAG Finance Corp., COP, Association XXVI, Series B, 6.30%, 10/01/02 ............... 100,000 105,942
Bakersfield Public Financing Authority Revenue, Refunding, Series A, 5.80%, 9/15/05 3,000,000 3,131,490
California Educational Facilities Authority Revenue, Pooled College and University Financing,
Refunding, Series B, 5.90%, 6/01/03 ................................................ 1,500,000 1,568,040
California Statewide CDA Revenue, COP, Refunding, Health Facilities, Barton Memorial Hospital, Series B,
5.70%, 12/01/00 .................................................................... 200,000 206,702
6.40%, 12/01/05 .................................................................... 300,000 320,142
California Statewide Community Development Corp., COP, Pacific Homes, Series A, 5.90%, 4/01/09 1,000,000 1,042,680
Coalinga Public Financing Authority Revenue, Series B, 6.10%, 9/15/04 .............. 300,000 308,148
Fresno Joint Powers Financing Authority, Local Agency Revenue, Refunding,Series A,6.00%,9/02/0 12,600,000 2,651,636
Los Angeles County Transportation Commission, COP, Series B, 5.90%, 7/01/00 ........ 100,000 104,558
Merced Irrigation District, COP, Water Facilities Project, 6.00%, 11/01/02 ......... 450,000 474,381
Paso Robles USD, COP, Measure D, Capital Projects, Phase III, 5.75%, 8/01/02 ....... 200,000 209,366
San Diego Port Facilities Revenue, Refunding, National Steel and Shipbuilding Co.,6.60%,12/01/02 100,000 104,893
San Francisco City and County RDA, Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.125%,
7/01/02 110,000 110,455
San Francisco Downtown Parking Corp., Parking Revenue, 6.25%, 4/01/04 .............. 200,000 216,998
San Joaquin County COP, General Hospital Project, 5.90%, 9/01/03 ................... 200,000 209,958
San Ramon Valley USD, COP, Measure A, Capital Projects, Series A, 5.95%, 10/01/01 .. 2,000,000 2,112,120
Snowline Joint USD, COP,
5.50%, 7/01/00 ..................................................................... 245,000 249,525
5.60%, 7/01/01 ..................................................................... 260,000 265,894
5.70%, 7/01/02 ..................................................................... 275,000 282,664
5.80%, 7/01/03 ..................................................................... 290,000 299,503
Solano County COP, Refunding, Justice Facility and Public Building Project, 5.875%, 10/01/05 400,000 417,512
Southern California Rapid Transit District Revenue, Special Benefit AD A2, 6.00%, 9/01/02 100,000 105,633
Susanville Public Financing Authority Revenue, Series A, AMBAC Insured,
5.90%, 9/01/02 ...................................................................... 25,000 26,552
6.00%, 9/01/03 ..................................................................... 100,000 106,485
Tahoe City Public Utilities District, COP, Capital Facilities Project, Series B, 6.05%, 6/01/01 500,000 518,355
Tuolumne County COP, Multiple Facilities Project, 6.00%, 6/01/99 ................... 100,000 101,356
-------------
15,250,988
-------------
Colorado 5.4%
Denver City and County Airport Revenue,
Series A, 7.00%, 11/15/99 .......................................................... 3,000,000 3,152,400
Series C, 6.25%, 11/15/00 .......................................................... 335,000 348,805
Denver Housing Corp., MFR, Series A, 5.35%, 10/01/12 ............................... 1,000,000 996,880
Montrose County COP, 6.20%, 6/15/03 ................................................ 1,500,000 1,573,155
Summit County Recreational Facilities Revenue, Refunding, Copper Mountain,
Mandatory Put 10/01/99, 5.90%, 4/01/17 ............................................. 255,000 262,851
-------------
6,334,091
-------------
Connecticut 2.3%
Connecticut State Health and Educational Facilities Authority Revenue,
Sacred Heart University, Refunding, Series C, 6.00%, 7/01/05 ....................... 560,000 580,798
Connecticut HFA, Housing Mortgage Finance, Series C-2, 6.00%, 11/15/10 ............. 2,000,000 2,081,500
-------------
2,662,298
-------------
District of Columbia .6%
District of Columbia GO, Refunding, Series A, 5.875%, 6/01/05 ...................... $ 700,000 $ 734,272
-------------
Florida 9.9%
Alachua County Health Facilities Authority Revenue, Santa Fe Health Systems Project,
Pre-Refunded, 6.875%, 11/15/02 ..................................................... 125,000 135,555
Gateway Services District, Transportation/Roadway Service Charges, 8.50%, 5/01/04 .. 2,490,000 2,678,842
Meadow Pointe II Community Development District, Capital Improvement Revenue, 6.00%, 7/01/01 2,590,000 2,607,275
Nassau County PCR, Refunding, ITT Rayonier, Inc. Project, 6.25%, 6/01/10 ........... 1,000,000 1,032,570
Northern Palm Beach County Water Control District, Refunding, Unit Development No. 31,
6.60%, 11/01/03,
Program 1 .......................................................................... 405,000 424,521
Program 2 .......................................................................... 320,000 335,424
Pace Property Financial Authority, Inc., Utilities System Revenue,
Refunding and Improvement, AMBAC Insured, 5.125%, 9/01/10 .......................... 425,000 421,222
Palm Bay Lease Revenue, Refunding, Florida Education and Research Foundation Project,
Series A, 6.10%, 9/01/03 ........................................................... 795,000 820,329
Palm Beach County IDR, Lourdes-Noreen Mckeen Residence, Geriatric Care, Inc. Project,
6.20%, 12/01/08 .................................................................... 275,000 290,716
6.30%, 12/01/09 .................................................................... 580,000 612,973
cPalm Beach County Solid Waste IDR, Okeelanta Power Project, Series A, 6.375%, 2/15/07 1,400,000 1,104,250
Pembroke Pines Special Assessment, No. 94-1, 5.75%, 11/01/05 ....................... 1,000,000 1,026,080
-------------
11,489,757
-------------
Georgia 4.0%
Fulton County Development Authority, Special Facilities Revenue, Refunding,
Delta Air Lines, Inc. Project, 6.85%, 11/01/07 ..................................... 100,000 107,307
Macon Bibb County Urban Development Authority Revenue, Refunding, MFHR,
Series A, MBIA Insured, 5.00%, 1/01/07 ............................................. 1,290,000 1,287,046
Wayne County Development Authority, PCR, Refunding, ITT Rayonier, Inc. Project, 6.10%, 11/01/07 3,105,000 3,249,476
-------------
4,643,829
-------------
Guam .9%
Guam Government GO, Series A, 5.90%, 9/01/05 ....................................... 1,000,000 1,015,210
-------------
Hawaii .4%
Hawaii State Department of Budget and Finance, Special Purpose Revenue,
Kapi'Olani Health Obligation, 5.60%, 7/01/06 ....................................... 500,000 519,705
-------------
Illinois 3.4%
Illinois Educational Facilities Authority Revenue, Columbia College, 5.875%, 12/01/03 850,000 888,454
Illinois HDA Revenue, Homeowner Mortgage, Sub-Series A-1, 6.10%, 2/01/05 ........... 360,000 384,016
Illinois Health Facilities Authority Revenue,
Franciscan Sisters Health Care, Refunding, MBIA Insured, Series C, 6.00%, 9/01/09 .. 1,115,000 1,174,050
St. Elizabeth's Hospital, 6.00%, 7/01/05 ........................................... 425,000 437,236
Metropolitan Pier and Exposition Authority, Hospitality Facilities Revenue,
McCormick Place Convention, 5.75%, 7/01/06 ......................................... 1,000,000 1,021,340
-------------
3,905,096
-------------
Indiana 5.0%
Franklin EDR, Refunding, Hoover Universal, Inc. Project, Johnson Controls, 6.10%, 12/01/04 2,000,000
2,138,360
Indianapolis Local Public Improvement Bond Bank, Refunding, Series D, 6.10%, 2/01/02 100,000
106,451
Sullivan PCR, Refunding, Michigan Power Company Project, Series C, 5.95%, 5/01/09 .. 3,500,000 3,581,690
-------------
5,826,501
-------------
Iowa .2%
Iowa State Financial Authority, Hospital Facilities Revenue, Refunding,
Trinity Regional Hospital Project, 6.50%, 7/01/00 ................................... 200,000 208,918
-------------
Kentucky .5%
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines
Project, Series A, 6.75%, 2/01/02 100,000 105,708
Mt. Sterling Lease Revenue, Kentucky League Cities Funding, Series A, 5.625%, 3/01/03 500,000 517,020
-------------
622,728
-------------
Louisiana .2%
Calcasieu Parish Public Trust Authority, Mortgage Revenue, Refunding, Series B, 6.375%, 11/01/02 30,000 31,699
Louisiana State Offshore Terminal Authority, Deepwater Port Revenue,
Refunding, First Stage, Loop, Inc., Series B, 6.20%, 9/01/03 ....................... 100,000 107,214
Louisiana State Public Facilities Authority Revenue, Refunding, Student Loan,
Series A-1, 6.20%, 3/01/01 ....................................................... 100,000 104,581
-------------
243,494
-------------
Maryland .2%
Baltimore Economic Development Lease Revenue, Refunding, Armistead Partnership,
Series A, 6.75%, 8/01/02 ........................................................... 200,000 214,606
-------------
Massachusetts .5%
Massachusetts State Industrial Finance Agency, Resource Recovery Revenue,
Refunding, Refusetech, Inc. Project, FSA Insured, Series A,
5.45%, 7/01/01 ..................................................................... $ 200,000 $ 207,518
New England Educational Loan Marketing Corp., Student Loan Revenue,
Refunding, Series B, 5.60%, 6/01/02 ................................................ 415,000 429,251
-------------
636,769
-------------
Michigan .9%
Detroit GO, Refunding, Series B, 6.375%, 4/01/06 ................................... 1,000,000 1,082,780
-------------
Minnesota .2%
Minneapolis CDA, Supported Development Revenue, Common Bond Fund,
Series 91-5A, 7.20%, 12/01/04 ...................................................... 200,000 216,494
-------------
Mississippi .6%
Mississippi Development Bank, Special Obligation, Refunding, Oktibbeha
County Hospital Revenue Project, 5.65%, 7/01/06 .................................... 725,000 732,453
-------------
Nebraska 1.1%
Nebraska Higher Education Loan Program, Inc. Revenue, Subject Lien, Series A-6, 6.70%, 12/01/02 300,000 317,985
Wayne State College Revenue, Refunding, Student Fees and Facilities, MBIA Insured,
b4.90%, 7/01/08 .................................................................... 330,000 325,347
b5.00%, 7/01/09 .................................................................... 250,000 246,255
b5.05%, 7/01/10 ..................................................................... 365,000 359,222
-------------
1,248,809
-------------
Nevada 2.6%
bSparks Redevelopment Agency, Tax Allocation Revenue, Refunding, Asset Guaranty, 5.15%, 1/15/08 3,110,000 3,080,268
-------------
New Hampshire 1.3%
bNew Hampshire Higher Educational and Health Facilities Authority Revenue,
Refunding, New Hampshire Catholic Charities, Series A, 5.10%, 8/01/04 ............. 1,540,000 1,537,259
-------------
New Jersey 1.0%
New Jersey EDA Revenue, Economic Growth, 2nd Series F-1, 6.00%, 12/01/02 ........... 95,000 98,703
New Jersey Health Care Facilities Financing Authority Revenue, Monmouth Medical Center,
FSA Insured, Refunding, Series C, 5.80%, 7/01/04 .................................. 1,000,000 1,068,930
-------------
1,167,633
-------------
New York 16.5%
New York City GO,
Refunding, Series C, 6.50%, 8/01/04 ................................................ 515,000 555,685
Refunding, Series C, 6.50%, 8/01/07 ................................................ 1,850,000 1,976,947
Refunding, Series D, 5.70%, 11/01/06 ............................................... 500,000 522,810
Refunding, Series H, 5.90%, 8/01/09 ................................................ 500,000 525,445
Refunding, Series J, 6.00%, 8/01/08 ................................................ 3,000,000 3,187,440
Series B, 6.25%, 10/01/01 .......................................................... 100,000 106,368
Series H, 7.00%, 2/01/05 ........................................................... 245,000 268,028
Series H, Pre-Refunded, 7.00%, 2/01/05 ............................................. 5,000 5,577
Series J, 6.00%, 2/15/04 ........................................................... 1,000,000 1,061,850
New York City Health and Hospital Corp. Revenue, Refunding, Series A, 6.00%, 2/15/06 2,500,000 2,609,550
New York City IDA, Civic Facilities Revenue, New York Blood Center, Inc. Project,
ETM, 6.80%, 5/01/02................................................................ 90,000 95,081
New York State Dormitory Authority Revenue, Refunding,
City University, Series V, 5.60% 7/01/10 ........................................... 1,000,000 1,010,000
Mental Health Services Facilities Improvement, Series D, 5.60%, 2/15/07 ............ 140,000 144,028
New York State HFA, Refunding, Series A, 5.90%, 5/01/05 ............................ 1,000,000 1,043,670
New York State Housing Corp. Revenue, Refunding, 5.50%, 11/01/10 ................... 1,000,000 1,017,000
New York State Tollway Authority, Service Contract Revenue, Local Highway and Bridge,
5.75%, 4/01/08 ...................................................................... 500,000 521,715
5.90%, 4/01/08 ..................................................................... 1,000,000 1,051,450
5.75%, 4/01/09 ..................................................................... 1,150,000 1,190,480
Oneida-Herkimer Solid Waste Management Authority, Solid Waste Systems Revenue,
Refunding, 6.20%, 4/01/00........................................................... 100,000 102,618
Port Authority of New York and New Jersey, Special Obligation Revenue,
3rd Installment, 7.00%, 10/01/07 ................................................. 1,000,000 1,113,140
Ulster County Resident Recovery Agency, Solid Waste System Revenue, 5.90%, 3/01/07 . 1,100,000 1,152,129
-------------
19,261,011
-------------
Oklahoma 2.8%
Jackson County Memorial Hospital Authority Revenue, Refunding, Jackson County
Memorial Hospital Project, 6.75%, 8/01/04 .......................................... $2,020,000 $ 2,103,345
Tulsa Public Facilities Authority, Lease Payment Revenue, Refunding, Assembly
Center, 5.80%, 7/01/01 ............................................................ 100,000 103,307
Valley View Hospital Authority Revenue, Refunding, Valley View Regional Medical
Center, 5.75%, 8/15/06............................................................ 1,000,000 995,820
-------------
3,202,472
-------------
Oregon 1.3%
Clackamas County, Hospital Facility Authority Revenue, Refunding,
Willamette View Inc., Project, 6.00%, 11/01/06 ...................................... 500,000 513,410
Hillsboro Hospital, Facility Authority Revenue, Refunding, Tuality Healthcare, 5.75%, 10/01/12 1,000,000 1,011,210
-------------
1,524,620
-------------
Pennsylvania 2.9%
Cambria County Hospital Development Authority Revenue, Refunding and Improvement,
Conemaugh Valley Hospital, Connie Lee Insured, Series B, 5.90%, 7/01/03 ........... 100,000 105,680
Chartiers Valley Industrial and Commercial Development Authority, First Mortgage Revenue,
Asbury Place Project, 6.25%, 2/01/06 ............................................... 325,000 343,678
Northeastern Hospital and Educational Authority, College Revenue, Refunding,
Kings College Project, Series B, 5.60%, 7/15/03 .................................... 410,000 418,581
Philadelphia Gas Works Revenue, Refunding, Series A,
5.70%, 7/01/00 ..................................................................... 300,000 306,711
5.80%, 7/01/01 ..................................................................... 300,000 308,868
Schuylkill County IDA, Resource Recovery Revenue, Refunding,
Schuykill Energy Resource, Inc., 6.50%, 1/01/10 .................................... 1,890,000 1,906,670
-------------
3,390,188
-------------
Puerto Rico 1.3%
Puerto Rico Electric Power Authority Revenue,
Refunding, Series Q, 5.90%, 7/01/01 ................................................ 100,000 105,508
Series T, 6.00%, 7/01/04 ........................................................... 1,345,000 1,438,679
-------------
1,544,187
-------------
South Dakota 2.7%
South Dakota HDA, Homeownership Mortgage, Series D, 6.05%, 5/01/04 ................. 1,000,000 1,072,210
South Dakota Student Loan Finance Corp., Student Loan Revenue, Refunding,
Series A, 6.35%, 8/01/05 .......................................................... 2,000,000 2,070,380
-------------
3,142,590
-------------
Tennessee 2.4%
Memphis-Shelby County Airport Authority, Special Facility and Project Revenues,
Refunding, Federal Express Corp., 5.35%, 9/01/12 ................................... 1,000,000 990,840
Metropolitan Government, Nashville and Davidson County IDBR, Refunding
and Improvement, Osco Treatment, Inc., 6.00%, 5/01/03 .............................. 750,000 772,358
Tennesse State GO, Series A, 4.80%, 5/01/10 ........................................ 1,000,000 987,800
-------------
2,750,998
-------------
Texas 2.8%
Abilene Higher Education Facilities Corp., Higher Education Revenue, Refunding
and Improvement, Abilene Christian Facility, 5.90%, 10/01/05 ...................... 785,000 825,043
Houston Independent School District, Refunding, 5.50%, 8/15/09 ..................... 1,000,000 1,029,560
North Central Health Facility Development Corp. Revenue, Refunding, CC Young
Memorial Home Project, Series C, 6.10%, 2/15/06 .................................... 400,000 409,784
Travis County GO, Refunding, 5.00%, 3/01/11 ........................................ 1,000,000 987,440
-------------
3,251,827
-------------
Utah .7%
Utah State HFA, Refunding, SFM, 5.85%, 7/01/08 ..................................... 815,000 863,207
-------------
Virginia 6.4%
Covington-Alleghany County IDA, PCR, Refunding, Westvaco Corp. Project, 5.85%, 9/01/04 2,800,000 3,049,088
Virginia State GO, 5.00%, 6/01/09 .................................................. 1,000,000 1,016,120
Virginia State HDA, Commonwealth Mortgage, Sub-Series C-7,
5.60%, 1/01/03 ..................................................................... 1,695,000 1,787,208
5.70%, 1/01/04 ..................................................................... 1,475,000 1,565,685
-------------
7,418,101
-------------
Washington 2.3%
Marysville Water and Sewer Revenue, Refunding, MBIA Insured, 5.75%, 12/01/05 ....... $ 600,000 $ 631,368
Washington State Public Power Supply System, Refunding, Series A, Nuclear Project Revenue,
No. 1, AMBAC Insured, 5.70%, 7/01/09 ............................................... 1,000,000 1,045,120
No. 2, 5.375%, 7/01/10 ............................................................. 1,000,000 997,620
-------------
2,674,108
-------------
Wisconsin .9%
Wisconsin State GO, Refunding, Series 1, 5.50%, 5/01/10 ............................ 1,000,000 1,018,670
Total Long Term Investments (Cost $114,286,441) .................................... 118,556,071
-------------
aShort Term Investments 1.4%
Hapeville Georgia Development Authority, IDR, Hapeville Hotel, Ltd.,
Daily VRDN and Put, 3.70%, 11/01/15 ................................................ 400,000 400,000
Massachusetts State Health and Educational Facilities Authority Revenue,
Capital Assets Program, Series D, MBIA Insured, Daily VRDN
and Put, 3.45%, 1/01/35 ............................................................ 500,000 500,000
New York City GO, Sub-Series B-7, AMBAC Insured, Daily VRDN and Put, 3.70%, 8/15/18 500,000 500,000
Peninsula Ports Authority, Virginia Revenue, Refunding, Port Facility, Shell Oil Co.,
Series A, Daily VRDN and Put, 3.80%, 12/01/05 ...................................... 300,000 300,000
-------------
Total Short Term Investments (Cost $1,700,000) ..................................... 1,700,000
-------------
Total Investments (Cost $115,986,441) 103.1%........................................ 120,256,071
Other Assets, Less Liablities (3.1%)................................................ (3,652,340)
-------------
Net Assets 100.0% .................................................................. $116,603,731
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable rate adjustment formula and an unconditional right of
demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
cSee Note 6 regarding defaulted securities.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin High Yield Tax-Free Income Fund
Six Months Ended
August 31, 1997 Year Ended February 28,
Class I (unaudited) 1997 19962 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.21 $11.19 $10.74 $11.25 $11.10 $10.48
Income from investment operations:
Net investment income .34 .71 .74 .74 .76 .79
Net realized and unrealized gains (losses) .14 .04 .45 (.51) .17 .62
Total from investment operations .48 .75 1.19 .23 .93 1.41
Less distributions:
Dividends from net investment income (.34) (.73)+++ (.74) (.74) (.78) (.78)
Distributions from net realized gains -- -- -- -- -- (.01)
Total distributions (.34) (.73) (.74) (.74) (.78) (.79)
Net asset value, end of period $11.35 $11.21 $11.19 $10.74 $11.25 $11.10
Total return+ 4.38% 7.01% 11.35% 2.28% 8.33% 13.72%
Ratios/Supplemental Data
Net assets, end of period (000's) $4,900,558$4,505,258$3,787,147$3,287,270$3,372,533$2,742,765
Ratio to average net assets:
Expenses .63%* .62% .61% .60% .53% .54%
Net investment income 6.11%* 6.41% 6.68% 6.92% 6.79% 7.45%
Portfolio turnover rate 8.02% 6.98% 9.23% 15.89% 16.09% 33.46%
Class II
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.26 $11.24 $10.81
Income from investment operations:
Net investment income .32 .66 .56
Net realized and unrealized gains .14 .03 .42
Total from investment operations .46 .69 .98
Less distributions:
Dividends from net investment income (.31) (.67)++ (.55)
Net asset value, end of period $11.41 $11.26 $11.24
Total return+ 4.15% 6.36% 9.27%
Ratios/Supplemental Data
Net assets, end of period (000's) $297,206 $194,400 $48,163
Ratio to average net assets:
Expenses 1.20%* 1.18% 1.18%*
Net investment income 5.53%* 5.78% 6.07%*
Portfolio turnover rate 8.02% 6.98% 9.23%
</TABLE>
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
++Includes distributions in excess of net investment income in the amount of
$0.003.
+++Includes distributions in excess of net investment income in the amount of
$0.008.
*Annualized
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin High Yield Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 97.7%
Bonds 95.1%
Alabama 1.0%
Homewood Special Care Facilities Financing Authority, Hospital Revenue,
Lakeshore Hospital Project, Refunding, Series B,
Pre-Refunded, 8.25%, 2/01/04 ....................................................... $ 5,890,000 $ 6,278,387
Jefferson County Sewer Revenue,
Refunding, FGIC Insured, Series A, 5.375%, 2/01/27 ................................. 9,690,000 9,431,277
Series D, 5.75%, 2/01/22 ........................................................... 7,500,000 7,650,450
Series D, 5.75%, 2/01/27 ........................................................... 18,535,000 18,828,409
Marshall County Health Care Authority, Hospital Revenue,
Guntersville, Arab Medical Center, 10.25%, 10/01/13 ................................ 4,785,000 5,169,905
Refunding, Boaz-Albertville Medical Center, 6.20%, 1/01/08 ......................... 3,300,000 3,377,517
Prichard Water Works and Sewer Board Revenue, Pre-Refunded, 9.50%, 11/15/14 ........ 2,500,000 2,728,875
-------------
53,464,820
-------------
Alaska 1.7%
Alaska Industrial Development & Export Revenue,
American President Lines Project, 8.00%, 11/01/09 .................................. 4,000,000 4,270,760
Revolving Fund, Series A, 6.20%, 4/01/10 ........................................... 870,000 917,728
Alaska State HFC, Refunding, MBIA Insured, Series A,
5.85%, 12/01/15 .................................................................... 4,670,000 4,796,230
6.00%, 12/01/15 .................................................................... 4,500,000 4,643,325
5.875%, 12/01/24 ................................................................... 5,000,000 5,105,550
5.875%, 12/01/30 ................................................................... 12,475,000 12,660,628
6.10%, 12/01/37 .................................................................... 22,000,000 22,648,340
Anchorage Electric Utility Revenue, Senior Lien, 5.50%, 2/01/26 .................... 4,000,000 3,932,040
Palmer Golf Course Lease, COP, 10.25%, 7/01/08 ..................................... 1,560,000 1,684,145
Valdez Marine Terminal Revenue, Refunding,
BP Pipelines, Series A, 5.85%, 8/01/25 ............................................. 13,550,000 13,634,281
Mobil Alaska Pipeline, 5.75%, 11/01/28 ............................................. 15,000,000 15,037,350
-------------
89,330,377
-------------
Arizona 1.4%
Coconino County PCR, Refunding, Tucson Electric Power Navajo, 10/01/32
Series A, 7.125%.................................................................... 21,125,000 22,144,281
Series B, 7.00%..................................................................... 7,500,000 7,867,500
Gila County IDAR, PCR, ASARCO, Inc. Project, Refunding, 8.90%, 7/01/06 ............. 950,000 983,250
Gilbert Water Reservoir Municipal Property Corp. Water and Wastewater
System Revenue, Sub-Lien, 6.875%,
4/01/14 ............................................................................ 1,000,000 1,008,430
4/01/16 ............................................................................ 1,000,000 1,010,850
Health Facilities Authority Revenue Bethesda Foundation Project, Series A,
6.375%, 8/15/15 .................................................................... 400,000 398,920
6.40%, 8/15/27 ..................................................................... 3,000,000 2,964,390
Maricopa County PCR, Public Services, Palo Verde, Series A, 6.375%, 8/15/23 ........ 8,500,000 8,741,995
Maricopa County Rural Road ID, 8.625%, 7/01/07 ..................................... 4,000,000 4,466,840
Red Hawk Canyon Community Facility, 7.625%, 6/01/05 ................................ 16,785,000 16,952,514
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue,
Series A, 6.00%, 1/01/31 ........................................................... 5,000,000 5,098,850
Tempe IDA, Residential Care Facilities Revenue, Volunteers of America
Care Facilities, 9.00%, 6/01/18 .................................................... 2,205,000 2,285,946
-------------
73,923,766
-------------
Arkansas .3%
Baxter County IDR, Refunding, Aeroquip/Trinova Corp. Project, 5.80%, 10/01/13 ...... 2,400,000 2,457,984
Conway Hospital Revenue, Refunding, 8.375%, 7/01/11 ................................ 1,000,000 1,090,480
Independence County PCR,
Mississippi Power & Light Co. Project, Series A, 9.00%, 7/01/13 .................... 4,275,000 4,589,298
Mississippi Power & Light Co. Project, Series B, 9.00%, 7/01/13 .................... 1,185,000 1,272,121
Mississippi Power & Light Co. Project, Series C, 9.50%, 7/01/14 .................... 200,000 216,396
Refunding, Arkansas Power & Light Co. Project, 6.25%, 1/01/21 ...................... 5,000,000 5,199,950
Litte Rock Sewer Revenue, Refunding, 5.40%, 8/01/10 ................................ 750,000 754,845
North Little Rock Health Facilities, Baptist Hospital Revenue,
Series A, MBIA Insured, 5.50%, 12/01/21 ............................................ 700,000 701,561
-------------
16,282,635
-------------
California 9.6%
Adelanto California Water Authority Revenue, Water Systems
Acquisition Project, Series A, 7.50%, 9/01/28 ...................................... $ 21,330,000 $ 22,130,302
Alameda County MFHR, Claremont House Project, Refunding, Series A, 8.00%, 12/01/23 . 13,250,000 14,096,410
Antioch 1915 Act, AD No. 27, Lone Tree,
Series C, 7.70%, 9/02/17 ........................................................... 11,080,000 11,449,629
Series D, 7.30%, 9/02/13 ........................................................... 4,385,000 4,523,961
Arroyo Grande California COP, Vista Hospital Systems, Series A, 8.375%, 7/01/06 .... 2,500,000 2,761,175
Arroyo Grande Hospital System COP, Vista Hospital Systems, Refunding, Series A, 9.50%, 7/01/20 22,515,000 25,497,562
Azusa RDA, Tax Allocation, Refunding, Merged Area Project, Series A, 6.75%, 8/01/23 2,850,000 3,013,989
Beaumont Public Financing Authority Revenue, Sewer Enterprise Project,
Series A, Pre-Refunded, 6.90%, 9/01/23 ............................................. 4,575,000 5,426,316
Benicia 1915 Act, Refunding, Fleetside Industrial Park Assessment,
4.80%, 9/02/97 ..................................................................... 210,000 210,000
5.00%, 9/02/98 ..................................................................... 180,000 180,171
5.25%, 9/02/99 ..................................................................... 185,000 185,518
5.50%, 9/02/00 ..................................................................... 200,000 201,642
5.65%, 9/02/01 ..................................................................... 210,000 212,612
5.80%, 9/02/02 ..................................................................... 220,000 223,806
5.90%, 9/02/03 ..................................................................... 230,000 234,641
6.00%, 9/02/04 ..................................................................... 245,000 250,606
6.10%, 9/02/05 ..................................................................... 255,000 261,474
6.20%, 9/02/06 ..................................................................... 275,000 282,623
6.30%, 9/02/07 ..................................................................... 295,000 303,812
6.40%, 9/02/08 ..................................................................... 310,000 319,622
6.50%, 9/02/09 ..................................................................... 330,000 340,240
6.60%, 9/02/10 ..................................................................... 350,000 360,854
6.70%, 9/02/11 ..................................................................... 375,000 386,625
6.80%, 9/02/12 ..................................................................... 245,000 252,651
California Educational Facilities Authority Revenue, Pooled College & University
Financing, Series B, 6.125%, 6/01/09 ............................................... 3,000,000 3,125,610
California HFA MFHR, Series A, AMBAC Insured, 6.05%, 8/01/27 ....................... 2,000,000 2,074,240
California Special Districts, Association Financial Corp. COP, Santa Cruz Port
Authority, Series B, 7.50%, 5/01/13 ................................................ 920,000 972,081
California State Health Facilities Hospital Revenue, Summit Medical Center, Pre-Refunded,
Series A, 7.50%, 5/01/09 ........................................................... 4,620,000 4,967,008
Series A, 7.60%, 5/01/15 ........................................................... 2,155,000 2,320,267
Series B, 7.50%, 5/01/09 ........................................................... 5,555,000 5,972,236
California State Variable Purpose, 5.75%, 3/01/19 .................................. 7,320,000 7,464,716
California Statewide CDA, California State University Northridge, Refunding,
AMBAC Insured, 6.00%, 4/01/26 ...................................................... 2,500,000 2,622,825
Capistrano USD, CFD, Special Tax No. 92-1,
6.60%, 9/01/05 ..................................................................... 285,000 298,119
6.70%, 9/01/06 ..................................................................... 280,000 292,838
6.80%, 9/01/07 ..................................................................... 325,000 339,846
6.90%, 9/01/08 ..................................................................... 260,000 271,830
7.00%, 9/01/18 ..................................................................... 1,000,000 1,029,520
City of Oakland Revenue, YMCA East Bay Project, Refunding, 7.10%, 6/01/10 .......... 2,335,000 2,510,989
Colton Community Facilities District, Special Tax No. 90-1, 9.00%, 9/01/20 ......... 3,695,000 3,378,412
Contra Costa County Public Financing Authority Revenue, Refunding,
6.625%, 9/02/10 .................................................................... 2,375,000 2,448,696
6.875%, 9/02/16 .................................................................... 2,735,000 2,821,125
Corona COP,
Corona Community Hospital Project, ETM, 9.425%, 9/01/06 ............................ 8,555,000 10,406,473
Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ................... 8,820,000 12,013,722
Vista Hospital Systems, Refunding, Series B, 8.375%, 7/01/06 ....................... 11,100,000 12,259,617
Vista Hospital Systems, Refunding, Series B, 9.50%, 7/01/20 ........................ 10,885,000 12,326,936
Eden Township Hospital District Health Facilities Revenue, COP, Refunding,
Insured Eden Hospital Health Services Corp., 5.85%,
7/01/18 ............................................................................ 4,845,000 4,917,384
Emeryville RDA, MFHR, Emery Bay Apartments, 8.75%,
12/01/02 ........................................................................... 220,000 226,811
12/01/21 ........................................................................... 3,770,000 3,857,841
Foothill Eastern Transportation Corridor Agency, California Toll Road Revenue,
Series A, 6.50%, 1/01/32 ........................................................... 37,675,000 39,911,765
California (cont.)
Gateway Improvement Authority, Marin City Community Facilities District,
Series A, 7.75%, 9/01/25 ........................................................... $ 4,500,000 $ 4,941,675
Hawthorne CRDA, Refunding, Hawthorne Plaza Project, 8.50%, 7/01/20 ................. 4,175,000 4,393,770
Hesperia Public Financing Authority Revenue, Series B, 7.375%, 10/01/23 ............ 6,365,000 6,563,715
Lake Elsinore, 1915 Act, AD No. 93-1, Series A, 7.90%, 9/02/24 ..................... 6,000,000 6,302,520
Long Beach Special Tax, CFD No. 2, West Long Beach, 7.50%, 9/01/11 ................. 3,065,000 3,098,776
Los Angeles County, CFD No. 4, Special Tax Improvement, Calabassas Area B,
Series A, 9.25%, 9/01/22 ........................................................... 29,800,000 27,657,082
Los Angeles MFR, Refunding, 1/01/24,
Series J-1A, 7.125%................................................................. 215,000 217,718
Series J-1B, 7.125%................................................................. 675,000 683,532
Series J-1C, 7.125%................................................................. 1,435,000 1,453,138
Series J-2A, 8.50%.................................................................. 1,165,000 1,178,258
Series J-2B, 8.50%.................................................................. 3,345,000 3,383,066
Series J-2C, 8.50%.................................................................. 7,120,000 7,201,026
Los Angeles Regional Airports Improvement Corp., Lease Revenue,
Refunding, Delta Airlines, Inc., 6.35%, 11/01/25 ................................... 25,000,000 26,652,750
Refunding, United Airlines, Inc., 6.875%, 11/15/12 ................................. 9,500,000 10,397,465
Sub-Lease Revenue, Continental Airlines, Inc., Terminal Facilities, 9.00%, 8/01/08 . 1,900,000 2,006,001
Sub-Lease Revenue, Continental Airlines, Inc., Terminal Facilities, 9.00%, 8/01/17 . 7,655,000 8,082,072
Needles Public Financing Authority, Local Agency Revenue, Series A, 10.00%, 10/01/24 4,220,000 3,370,725
Orinda, 1915 Act, AD No. 94-1, Oak Springs, 8.25%, 9/02/19 ......................... 2,879,000 2,975,360
Palmdale California Special Tax Community Facility, Ritter Ranch, Series A, 8.50%, 9/01/24 23,500,000 22,328,995
Perris Public Financing Authority, Local Agency Revenue, Series B,
7.125%, 8/15/15 .................................................................... 2,035,000 2,074,581
7.25%, 8/15/23 ..................................................................... 4,095,000 4,194,754
Riverside County COP, Airforce Village Project, 8.125%,
6/15/07 ............................................................................ 7,160,000 7,760,509
6/15/12 ............................................................................ 5,290,000 5,722,299
Roseville Special Tax, North Center Community Facility District, 8.60%, 11/01/17 ... 12,000,000 12,749,160
Sacramento County, 1915 Act, Refunding, Sunrise/US Corridor Assessment,
6.10%, 9/02/01 ..................................................................... 1,020,000 1,042,766
6.30%, 9/02/02 ..................................................................... 1,125,000 1,160,370
6.50%, 9/02/03 ..................................................................... 1,515,000 1,565,237
6.60%, 9/02/04 ..................................................................... 1,620,000 1,673,687
6.70%, 9/02/05 ..................................................................... 1,725,000 1,782,149
6.80%, 9/02/06 ..................................................................... 1,835,000 1,895,757
6.90%, 9/02/07 ..................................................................... 1,965,000 2,030,022
7.00%, 9/02/08 ..................................................................... 2,095,000 2,164,303
7.00%, 9/02/09 ..................................................................... 2,160,000 2,230,373
San Bernardino County Finance Authority Revenue, Refunding, Public Improvement, AD, Series A,
6.00%, 9/02/01 ..................................................................... 1,450,000 1,477,231
6.50%, 9/02/04 ..................................................................... 1,285,000 1,325,362
7.00%, 9/02/17 ..................................................................... 2,720,000 2,804,755
San Francisco Downtown Parking Corp. Revenue,
6.55%, 4/01/12 ..................................................................... 1,800,000 1,922,454
6.65%, 4/01/18 ..................................................................... 2,150,000 2,304,349
San Joaquin Hills Transportation, Corridor Agency Toll Road Revenue, Senior Lien,
6.75%, 1/01/32 ..................................................................... 12,350,000 13,184,860
5.00%, 1/01/33 ..................................................................... 5,930,000 5,309,485
San Jose MFHR, Timberwood Apartments, Series B, 9.25%, 2/01/10 ..................... 1,500,000 1,555,410
San Luis Obispo Vista Hospital System, COP, 8.375%, 7/01/29 ........................ 22,000,000 22,350,240
San Ramon, 1915 Act, Fostoria Parkway Reassessment District No. 93-1,
6.30%, 9/02/03 ..................................................................... 435,000 452,378
6.80%, 9/02/15 ..................................................................... 1,325,000 1,381,154
Santa Margarita, Dana Point Authority, California Revenue, Refunding,
Improvement Districts, Series B, MBIA Insured, 5.75%,
8/01/20 ............................................................................ 3,000,000 3,058,410
Santa Rosa, 1915 Act, Fountaingrove Parkway, Extension,
7.40%, 9/02/13 ..................................................................... 3,340,000 3,447,281
7.625%, 9/02/19 .................................................................... 3,450,000 3,561,987
California (cont.)
South San Francisco RDA, Tax Allocation, Gateway Redevelopment Project, 7.60%, 9/01/18 $ 2,000,000$ 2,133,900
Vallejo Special Tax, CFD No. 1988-1, 8.90%, 8/01/21 ................................ 7,500,000 7,848,000
-------------
496,988,015
-------------
Colorado 3.6%
Arvada Limited Sales and Use Tax Revenue, Pre-Refunded, 7.50%, 6/01/11 ............. 2,485,000 2,747,838
Arvada MFHR, Springwood Community, Project A, 6.45%, 2/20/26 ....................... 3,000,000 3,148,140
Auraria Higher Education Center, Parking Facilities Revenue, Refunding, Pre-Refunded,
7.75%, 4/01/09 ..................................................................... 3,450,000 3,741,387
7.875%, 4/01/12 .................................................................... 1,600,000 1,739,968
Colorado Health Facilities Authority, Beneficial Living System, Inc.,
Series A, 10.125%, 10/01/20 .................................................... 12,600,000 13,644,918
Colorado HFA,
SF Program, Issue A-2, 9.375%, 8/01/02 ............................................. 420,000 443,528
SF Program, Series A-2, 9.25%, 8/01/01 ............................................. 285,000 298,948
SF Program, Series B-1, 8.70%, 8/01/01 ............................................. 390,000 407,160
SFMR, Series B-3, 9.75%, 8/01/02 ................................................... 425,000 434,852
SFMR, Series C, 9.20%, 8/01/02 ..................................................... 720,000 754,726
SFMR, Series C, 9.075%, 8/01/03 .................................................... 940,000 992,584
Colorado Public Highway Authority Revenue, Highway E-470, Refunding,
Senior Series A, MBIA Insured, 5.25%, 9/01/18 ...................................... 10,000,000 9,715,100
Colorado Springs, Utilities Revenue, Series A, 6.10%, 11/15/24 ..................... 3,735,000 3,938,819
Denver City and County Airport Revenue,
bRefunding, Series E, MBIA Insured, 5.50%, 11/15/25 ................................ 10,000,000 9,872,100
Series A, 8.25%, 11/15/12 .......................................................... 5,840,000 6,535,836
Series A, 8.00%, 11/15/17 .......................................................... 11,065,000 11,360,104
Series A, 8.50%, 11/15/23 .......................................................... 31,800,000 35,822,064
Series A, 8.00%, 11/15/25 .......................................................... 145,000 161,214
Series A, MBIA Insured, 5.50%, 11/15/25 ............................................ 16,930,000 16,713,465
Series A, Pre-Refunded, 7.50%, 11/15/12 ............................................ 5,830,000 6,739,189
Series D, 7.75%, 11/15/13 .......................................................... 500,000 615,860
Series D, 7.75%, 11/15/21 .......................................................... 4,190,000 4,685,635
Eagle County Airport Terminal Project Revenue, 7.50%, 5/01/21 ...................... 2,305,000 2,457,914
Eagle County Sports Facilities Revenue, Refunding, 8.00%, 8/01/09
Beaver Creek Association Project ................................................... 19,600,000 21,202,104
Vail Association Project ........................................................... 21,600,000 23,365,584
Fort Collins IDR, Vipont Pharmaceutical, Inc. Project, Pre-Refunded, 9.25%, 8/01/13 300,000 319,680
Stonegate Village Metropolitan District, Refunding and Improvement,
Series A, FSA Insured, 5.60%, 12/01/25 ............................................. 4,640,000 4,681,946
eVillage Castle Rock Metropolitan District No. 4, 8.50%, 6/01/31 .................... 3,000,000 1,447,890
-------------
187,988,553
-------------
Connecticut .7%
Connecticut HFA Housing Mortgage Finance,
Series C-1, 6.30%, 11/15/17 ........................................................ 19,995,000 21,356,859
Sub-Series F-1, 6.00%, 5/15/17 ..................................................... 3,500,000 3,648,715
Connecticut State Development Authority, First Mortgage Revenue,
East Hill Gladeview Health Project 86, 9.75%, 12/15/16 .............................. 2,755,000 3,013,970
Connecticut State Development Authority, Water Facility Revenue,
Bridgeport Hydraulic Co. Project, 6.15%, 4/01/35 ................................... 3,000,000 3,083,340
Connecticut State Health and Educational Facilities Authority Revenue, Series C,
Sacred Heart University, Refunding, 6.50%, 7/01/16 ................................. 2,000,000 2,093,160
Windham Community Memorial Hospital, 6.00%, 7/01/11 ................................ 2,500,000 2,529,300
-------------
35,725,344
-------------
District of Columbia 2.6%
District of Columbia, Association of American Medical Colleges
Revenue Refunding, 5.375%, 2/15/17 ................................................. 4,200,000 4,113,060
District of Columbia, Carnegie Endowment Revenue, 5.75%, 11/15/26 .................. 5,410,000 5,440,512
District of Columbia GO,
Refunding, Series A, 5.875%, 6/01/05 ............................................... 7,800,000 8,181,888
Refunding, Series A, 6.00%, 6/01/07 ................................................ 11,775,000 12,486,681
Series A, 6.375%, 6/01/11 .......................................................... 22,770,000 24,083,146
Series A, 6.375%, 6/01/16 .......................................................... 27,230,000 28,688,167
Series E, 6.00%, 6/01/11 ........................................................... 5,000,000 5,209,750
District of Columbia (cont.)
District of Columbia Hospital Revenue, Series A
Medlantic Healthcare Group, Refunding, MBIA Insured, 5.70%, 8/15/08 ................ $ 6,500,000 $ 6,823,830
Medlantic Healthcare Group, Refunding, MBIA Insured, 5.875%, 8/15/19 ............... 8,850,000 9,075,941
Washington Hospital Center, 7.00%, 8/15/05 ......................................... 2,000,000 2,163,420
Washington Hospital Center, Pre-Refunded, 9.00%, 1/01/08 ........................... 14,045,000 16,193,745
Washington Hospital Center, Pre-Refunded, 8.75%, 1/01/15 ........................... 3,750,000 4,288,838
Washington Hospital Center, Pre-Refunded, 7.125%, 8/15/19 .......................... 4,500,000 5,037,480
District of Columbia Redevelopment Agency, Washington D. C.
Sports Arena Special Tax Revenue, 5.625%, 11/01/10 ................................. 1,410,000 1,410,522
-------------
133,196,980
-------------
Florida 8.4%
Alachua County Health Facilities Authority Revenue, Shands Teaching Hospital,
Series A, MBIA Insured, 5.80%, 12/01/26 ............................................ 2,990,000 3,074,258
Broward County Resource Recovery Revenue, Broward Waste Energy L. P. North Project,
7.95%, 12/01/08 .................................................................... 19,170,000 20,867,695
Capron Trails CDD,
9.375%, 12/01/01 ................................................................... 1,685,000 1,767,194
9.50%, 12/01/10 .................................................................... 5,795,000 6,129,140
East County Water Control District, Lee County Drain, Series 1991, Pre-Refunded,
8.75%, 9/01/01 ..................................................................... 2,305,000 2,528,078
8.625%, 9/01/11 .................................................................... 10,565,000 12,020,857
Escambia County Health Facilities Authority Revenue, Refunding, Baptist Hospital, Inc.,
Series A, 8.70%, 10/01/14 .......................................................... 1,640,000 1,735,514
Flagler County IDA, First Mortgage Revenue,
RHA South Florida Properties, Inc. Projects, 10.50%, 12/01/18 ...................... 2,915,000 2,404,875
Florida Board of Education, Capital Outlay, Public Education,
Series B, 5.875%, 6/01/24 .......................................................... 7,000,000 7,199,080
Series B, 5.875%, 6/01/25 .......................................................... 2,000,000 2,056,880
Series F, 5.50%, 6/01/19 ........................................................... 3,110,000 3,130,682
Florida State, Mid Bay Bridge Authority, Series B, 8.50%,
10/01/08 ........................................................................... 3,200,000 3,635,552
10/01/22 ........................................................................... 15,400,000 17,496,094
Gateway Services District, Florida Water Management Benefit Tax Revenue,
Second Assessment Area Phase One, 8.00%, 5/01/20 ................................... 4,020,000 4,100,440
Indian Trace CDD, Florida Water and Sewer Revenue, Expansion, 6.875%, 4/01/10 ...... 11,000,000 11,161,040
Indian Trace CDD, Refunding, Water Management Special Benefit, Sub-Series B, 8.25%,
5/01/05 ............................................................................ 10,515,000 11,116,668
5/01/11 ............................................................................ 12,760,000 13,612,240
Lake Clarke Shores Utility System Revenue, Pre-Refunded, 8.75%, 10/01/18 ........... 1,765,000 1,889,980
Lakeland Electricity and Water Revenue, Refunding and Improvements, Series B, 5.625%, 10/01/19 6,280,000 6,344,119
Lakeland Retirement Community First Mortgage Revenue, Carpenters
Home Estates Project, 9.75%, 9/01/18 ............................................... 12,000,000 12,530,400
Lakewood Ranch Community Development, District 2, Benefit Special Assessment, 8.125%, 5/01/17,
Series A ........................................................................... 10,495,000 10,916,059
Series B ........................................................................... 8,765,000 9,116,652
Lakewood Ranch Community Development, District 3, Special Assessment Revenue, 7.625%, 5/01/18 9,995,000 10,227,484
Manatee County IDR, Manetee Hospital and Health Systems, Inc., Pre-Refunded, 9.25%, 3/01/21 6,500,000 7,621,705
Meadow Pointe CDD, Capital Improvement Revenue,
6.25%, 7/01/98 ..................................................................... 785,000 787,724
6.875%, 7/01/99 .................................................................... 7,870,000 7,961,371
Mount Dora County Club CDD, Special Assessment Revenue,
6.75%, 5/01/03 ..................................................................... 1,480,000 1,467,509
7.125%, 5/01/05 .................................................................... 3,935,000 3,956,288
7.75%, 5/01/13 ..................................................................... 2,705,000 2,711,844
Naples Heritage CDD, Capital Improvement Revenue, 6.15%, 11/01/01 .................. 15,185,000 15,255,155
North Broward Hospital District Revenue, Refunding and Improvement,
MBIA Insured, 5.75%, 1/15/27....................................................... 20,000,000 20,416,800
North Springs ID, Water Management, 5/01/24,
Series A, 8.20%..................................................................... 1,960,000 2,104,942
Series B, 8.30%..................................................................... 1,725,000 1,852,064
Northwood CDD, Special Assessment Revenue,
6.40%, 5/01/02 ..................................................................... 3,300,000 3,322,011
Series A, 7.125%, 5/01/00 .......................................................... 1,285,000 1,295,139
Series B, 7.60%, 5/01/17 ........................................................... 1,620,000 1,658,345
Florida (cont.)
Orlando Utility Commission Water and Electric Revenue, 5.25%, 10/01/23
Refunding, Subordinate Series A..................................................... $ 7,625,000 $ 7,301,243
Series B ........................................................................... 4,900,000 4,691,946
Palm Beach County Health Facilities Authority Revenue, Refunding,
Abbey del Ray Project, 8.25%, 10/01/15 ............................................. 6,000,000 6,596,880
cPalm Beach County Solid Waste IDR, Okeelanta Power, L. P. Project,
Series A, 6.85%, 2/15/21 ........................................................... 26,000,000 20,507,500
Pelican Marsh CDD, Special Assessment Revenue
Refunding, Series A, 5.00%, 5/01/11 ................................................ 7,650,000 7,650,153
Refunding, Series A, 5.50%, 5/01/16 ................................................ 4,370,000 4,370,000
Refunding, Series B, 5.25%, 5/01/09 ................................................ 1,305,000 1,305,013
Series A, 8.25%, 5/01/16 ........................................................... 8,360,000 9,812,048
Series C, 7.00%, 5/01/19 ........................................................... 13,460,000 13,460,269
Series D, 6.95%, 5/01/19 ........................................................... 8,185,000 8,185,164
Pembroke Pines Florida, Capital Improvement Revenue, AMBAC Insured, 5.95%, 10/01/20 1,225,000 1,273,657
Port Orange Lease Finance Corp., Recreation Facilities Lease Revenue,
Pre-Refunded, 8.75%, 10/01/12 ................................................... 2,365,000 2,624,961
Riverwood Community Development, Special AD, Series A,
6.75%, 5/01/04 ..................................................................... 4,215,000 4,339,427
7.75%, 5/01/14 ..................................................................... 2,095,000 2,179,408
St. Lucie County Florida, Reserve CDD, Storm Water Management, 8.25%, 5/01/14 ...... 4,835,000 5,067,805
St. Lucie West Services District, Florida Water Management Benefit Tax, 7.70%, 5/01/25 5,000,000 5,112,200
St. Lucie West Services District Revenue, Refunding, Port St. Lucie,
7.875%, 5/01/20 .................................................................... 20,120,000 21,022,181
8.25%, 12/01/23 .................................................................... 23,245,000 24,661,550
Santa Rosa County Health Facilities Authority Revenue, Refunding, Gulf Breeze Hospital, Inc.,
8.60%, 10/01/02 .................................................................... 240,000 251,530
Pre-Refunded, 8.70%, 10/01/14 ...................................................... 835,000 894,151
Sunrise Utilities System Revenue, Series A, AMBAC Insured, 5.90%, 10/01/18 ......... 4,500,000 4,676,400
Tampa Capital Improvement Program Revenue, 10/01/18,
Series A, 8.25%..................................................................... 3,085,000 3,200,595
Series B, 8.375%.................................................................... 8,900,000 9,245,053
Tampa Revenue, Aquarium, Inc. Project, Pre-Refunded, 7.55%, 5/01/12 ................ 9,700,000 11,087,682
Village Center CDD Recreational Revenue, Sub-Series B, 8.25%, 1/01/17 .............. 2,885,000 2,998,554
Village Community Development, District No. 1, Capital Improvement Revenue,
6.75%, 5/01/02 ..................................................................... 2,255,000 2,325,356
8.40%, 5/01/12 ..................................................................... 1,700,000 1,812,744
8.00%, 5/01/15 ..................................................................... 4,030,000 4,225,697
-------------
436,351,045
-------------
Georgia .5%
Chatham County Hospital Authority Revenue, Refunding and Improvement,
Memorial Medical Center, Series A, AMBAC Insured, 5.70%, 1/01/19 .................. 10,000,000 10,107,200
Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue, Refunding,
Second Indenture, Series A, MBIA Insured, 5.625%, 7/01/20 ......................... 15,000,000 15,101,400
Tift County IDAR, Beverly Enterprises, 10.125%, 9/01/10 ............................ 1,320,000 1,474,374
-------------
26,682,974
-------------
Hawaii .4%
Hawaii Department of Transportation Special Revenue, Continental Airlines, Inc., 9.70%, 6/01/20 6,500,000 7,189,975
Hawaii State Housing Finance and Development Corp., SMFR, Series B, 5.45%, 7/01/17 . 5,040,000 4,973,472
Hawaii State Special AD No. 17, AMBAC Insured, 9.50%, 8/01/11 ...................... 4,820,000 4,877,454
Hawaiian Home Lands Department Revenue, 7.60%, 7/01/08 ............................. 1,315,000 1,430,312
-------------
18,471,213
-------------
Idaho .4%
Nez Perce County, PCR, Refunding, Potlatch Corp. Project, 6.00%, 10/01/24 .......... 22,360,000 22,978,030
-------------
Illinois 5.7%
Alton Hospital Facilities Revenue, Refunding, St. Anthony's Health Center Project,
Pre-Refunded, 8.375%, 9/01/14 ...................................................... 8,915,000 9,783,143
Aurora MFR, Refunding, Fox Valley Two-Oxford Limited Development,
GNMA Secured, Series A, 6.125%, 2/20/32 ............................................ 5,635,000 5,815,151
Bryant PCR, Refunding, Central Illinois Light Company Project, MBIA Insured, 5.90%, 8/01/23 11,000,000 11,158,730
Illinois (cont.)
Chicago O'Hare Airport Special Facility,
Refunding, American Airlines, Inc. Project, 8.20%, 12/01/24 ........................ $ 7,830,000 $ 9,292,331
United Airlines, Inc., Revenue, 8.85%, 5/01/18 ..................................... 3,610,000 4,067,315
United Airlines, Inc., Series A, 8.85%, 5/01/18 .................................... 15,155,000 17,074,835
Chicago Wastewater Transmission Revenue,
FGIC Insured, Pre-Refunded, 6.35%, 1/01/22 ......................................... 2,810,000 3,104,881
MBIA Insured, 6.375%, 1/01/24 ...................................................... 4,780,000 5,103,032
Cook County, Refunding, Series A, MBIA Insured, 5.625%, 11/15/22 ................... 40,875,000 40,888,898
Illinois Development Financial Authority PCR, Refunding,
Commonwealth Edison Co. Project, 7.25%, 6/01/11 .................................... 7,000,000 7,569,590
Illinois Educational Facilities Authority Revenue, Osteopathic Health Systems,
ETM, 7.125%, 5/15/11 ............................................................... 2,330,000 2,547,086
Pre-Refunded, 7.25%, 5/15/22 ....................................................... 7,000,000 7,688,170
Illinois Health Facilities Authority Revenue,
Bensenville Home Society, Series B, 8.20%, 2/15/19 ................................. 3,000,000 3,163,500
Northwestern Medical Center, 6.625%, 11/15/25 ...................................... 6,500,000 7,029,165
Refunding, Rush Presbyterian Hospital, MBIA Insured, Series A, 6.25%, 11/15/20 ..... 9,000,000 9,542,340
Refunding, Sarah Bush Lincoln Health Center, Series B, 6.00%, 2/15/11 .............. 3,370,000 3,456,845
Refunding, Westlake Community Hospital, 7.875%, 1/01/13 ............................ 3,000,000 3,151,230
Revolving Fund, Pooled Financing, Thorek Hospital and Medical Center,
Series H, 9.50%, 08/01/15........................................................... 18,380,000 19,428,395
Sarah Bush Lincoln Health Center, Pre-Refunded, 7.25%, 5/15/12 ..................... 2,000,000 2,267,360
Servantcor, Series B, Pre-Refunded, 7.875%, 8/15/19 ................................ 3,000,000 3,262,260
St. Elizabeth's Hospital, 6.25%, 7/01/16 ........................................... 1,215,000 1,241,706
St. Elizabeth's Hospital, 6.375%, 7/01/26 .......................................... 6,695,000 6,854,542
Metropolitan Pier and Exposition Authority, Hospitality Facilities Revenue, McCormick Place Convention,
5.75%, 7/01/06 ..................................................................... 1,650,000 1,685,211
6.25%, 7/01/17 ..................................................................... 11,000,000 11,491,700
7.00%, 7/01/26 ..................................................................... 7,500,000 8,647,275
Robbins Resource Recovery Revenue Partners, 8.375%, 10/15/16,
Series A ........................................................................... 63,170,000 66,507,903
Series B ........................................................................... 17,500,000 18,424,700
Springfield, Series C, MBIA Insured, 5.375%, 12/01/16 .............................. 5,830,000 5,791,464
Sterling Illinois First Mortgage Revenue, Hoosier Care Project, Series A, 9.75%, 8/01/19 1,300,000 1,382,433
-------------
297,421,191
-------------
Indiana .5%
Crawfordsville Industrial EDR, Refunding, Kroger Co., 7.70%, 11/01/12 .............. 5,000,000 5,659,750
Duneland School Building Corp., First Mortgage, MBIA Insured, 5.50%, 8/01/17 ....... 4,060,000 4,050,012
Indiana Health Facility Financing Authority, Hospital Revenue,
Hancock Memorial Hospital Project, Pre-Refunded, 8.30%, 8/15/20 .................... 3,000,000 3,372,750
Indiana State Educational Facilities Authority Revenue,
Anderson University Project, 8.40%, 10/01/08 .................................... 1,000,000 1,058,070
Jefferson County Hospital Authority Facility Revenue, Refunding, King's Daughters'
Hospital, Pre-Refunded, 8.50%, 8/15/13 ............................................. 2,500,000 2,654,025
Kokomo Hospital Authority Revenue, Refunding, St. Joseph's Hospital and Health
Center of Kokomo, 8.75%, 2/15/13,Pre-Refunded, Series A............................. 3,700,000 3,938,280
Series B ........................................................................... 2,370,000 2,486,391
-------------
23,219,278
Iowa .0%
Clinton Hospital Facilities Revenue, Jane Lamb Health Center Project,
Pre-Refunded, 8.75%, 8/01/03 ............................................. 500,000 531,760
-------------
Kansas .1%
Prairie Village Revenue, Claridge Court Project, Series A, 8.75%, 8/15/23 .......... 5,730,000 6,313,199
-------------
Kentucky 1.0%
Danville Multi-City Lease Revenue, Sewer & Drain System, Series G,
MBIA Insured, Pre-Refunded, 6.75%, 3/01/11 ........................................ 900,000 998,199
Jefferson County, Health Facilities Revenue, Beverly Project, 10.125%, 8/01/07 ..... 3,000,000 3,176,520
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Project,
8.10%, 12/01/15 .................................................................... 11,000,000 11,885,830
Series A, 7.50%, 2/01/20 ........................................................... 11,230,000 12,334,920
Series B, 7.25%, 2/01/22 ........................................................... 3,595,000 3,899,065
Powderly IDR, First Mortgage Revenue, Kroger Co., Refunding, 7.375%, 9/01/06 ....... 905,000 1,008,794
Kentucky (cont.)
Russell Health System Revenue, Franciscan Health Center, Series B, 8.10%,
7/01/01 ............................................................................ $ 1,400,000 $ 1,526,868
7/01/15 ............................................................................ 7,500,000 8,842,425
Stanford Health Facilities Revenue, Refunding, Beverly Project, 10.375%, 11/01/09 .. 900,000 1,015,344
-------------
44,687,965
-------------
Louisiana 2.4%
Calcasieu Parish Public Trust Authority, Mortgage Revenue, Refunding, Series A, 7.75%, 6/01/12 2,190,000 2,339,314
Iberville Parish Consolidated School District No. 5, GO, Unlimited Tax, Pre-Refunded,
8.00%, 10/01/06 ................................................................... 705,000 749,020
Lake Charles Harbor & Terminal District Port Facilities Revenue, Refunding,
Trunkline Co. Project, 7.75%, 8/15/22 ............................................. 35,000,000 39,860,450
Pointe Coupee Parish, PCR, Refunding, Gulf States Utilities Co. Project, 6.70%, 3/01/13 4,850,000 5,092,209
St. Charles Parish PCR, Louisiana Power and Light Co. Project,
8.25%, 6/01/14 ..................................................................... 25,500,000 27,510,930
8.00%, 12/01/14 .................................................................... 13,525,000 14,670,432
West Feliciana PCR,
Refunding, Gulf System Utilities Co. Project, 8.00%, 12/01/24 ...................... 17,200,000 18,420,168
Series A, 7.50%, 5/01/15 ........................................................... 8,740,000 9,553,869
bXavier University, Public Facilities Authority Revenue, Refunding, MBIA Insured,
5.25%, 9/01/17 .................................................................. 5,000,000 4,873,150
-------------
123,069,542
-------------
Maine .8%
Maine State Finance Authority Solid Waste Disposal Revenue, Boise Cascade
Corp. Project, 7.90%, 6/01/15 .................................................... 5,000,000 5,361,900
Rumford PCR, Boise Cascade Corp. Project, Refunding, 6.625%, 7/01/20 ............... 4,800,000 5,103,984
Skowhegan PCR, S.D. Warren Co., 6.65%, 10/15/15
Series A ........................................................................... 24,570,000 24,914,471
Series B ........................................................................... 4,940,000 5,013,408
-------------
40,393,763
-------------
Maryland .8%
Gaithersberg Hospital Facilities Revenue, Refunding and Improvement, Shady Grove,
Nursing Home, Series B, Pre-Refunded, 8.50%, 9/01/22 ............................... 3,595,000 4,289,051
Series B, 8.50%, 9/01/03 ........................................................... 5,330,000 5,868,383
Series B, 8.50%, 9/01/07 ........................................................... 5,340,000 6,032,117
Series C, 6.00%, 9/01/21 ........................................................... 5,000,000 5,186,250
Maryland State CDA, Department of Housing and Community Development, Series A, 5.875%, 7/01/16 3,975,000 4,102,439
Takoma Park, Hospital Facilities Revenue, Washington Adventist Hospital Project, Series B, 8.50%,
9/01/03 ............................................................................ 5,550,000 5,758,347
9/01/07 ............................................................................ 6,975,000 7,709,049
-------------
38,945,636
-------------
Massachusetts 1.5%
Bay Transit Authority, General Transportation System, Series A, 7.00%, 3/01/21 ..... 2,000,000 2,441,420
Cape Cod Health Systems, Massachusetts Industry Finance Authority,
Pre-Refunded, 8.50%, 11/15/20 .................................................... 4,500,000 5,144,310
Massachusetts Health and Educational Facilitity Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 .................... 5,000,000 5,180,750
Framingham, Union Hospital, Pre-Refunded, 8.50%, 7/01/10 ........................... 2,000,000 2,256,480
Saint Memorial Medical Center, Refunding, Series A, 5.75%, 10/01/06 ................ 3,250,000 3,160,398
Saint Memorial Medical Center, Refunding, Series A, 6.00%, 10/01/23 ................ 5,735,000 5,336,016
Massachusetts Municipal Wholesale, Electric Co. Power Supply System Revenue, 6.75%,
Series A, 7/01/11 .................................................................. 4,435,000 4,752,502
Series B, 7/01/17 .................................................................. 3,170,000 3,385,782
Massachusetts State Industrial Finance Agency, First Mortgage Revenue,
Brookhaven at Lexington Retirement Project, Pre-Refunded,
10.25%, 1/01/18 .................................................................... 2,000,000 2,099,900
Massachusetts State Industrial Finance Agency, Semass Project, 7/01/15,
Series A, 9.00%..................................................................... 15,490,000 17,539,792
Series B, 9.25%..................................................................... 20,570,000 23,351,887
Massachusetts State Water Resources Authority, Series A, 6.00%, 4/01/20 ............ 1,000,000 1,008,220
-------------
75,657,457
-------------
Michigan 2.0%
City of Cadillac, Local Development Financial Authority, Tax Increment Revenue,
Refunding, 8.50%, 3/01/10 .......................................................... $ 5,990,000 $ 6,492,980
Detroit GO,
City School District, Series A, AMBAC Insured, 5.85%, 5/01/16 ...................... 5,175,000 5,335,994
Series A, Pre-Refunded, 6.80%, 4/01/15 ............................................. 5,160,000 5,915,476
Series B, Refunding, 6.375%, 4/01/07 ............................................... 7,535,000 8,134,183
Series B, Refunding, 6.25%, 4/01/08 ................................................ 3,000,000 3,205,620
Dickinson County, Memorial Hospital System Revenue, 8.125%, 11/01/24 ............... 4,250,000 4,766,290
Kent Hospital Finance Authority, Michigan Health Care Revenue,
Series A, MBIA Insured, 6.125%, 1/15/21 ............................................ 11,770,000 12,372,742
Michigan State Hospital Finance Authority Revenue,
Mercy Hospital Services, Series Q, AMBAC Insured, 5.75%, 8/15/16 ................... 9,310,000 9,522,175
Refunding, Detroit Osteopathic Hospital, Series A, Pre-Refunded, 7.50%, 11/01/10 ... 6,605,000 6,775,343
Michigan State Strategic Fund Limited Obligation Revenue, Refunding,
Detroit Edison Co., Series BB, MBIA Insured, 6.20%, 8/15/25.......................... 7,825,000 8,289,257
Midland County EDC, PCR, Refunding, 9.50%, 7/23/09 ................................. 12,000,000 13,204,800
Muskegon, Hospital Finance Authority, Muskegon General Hospital, 8.25%, 2/15/11 .... 3,500,000 3,804,745
Tawas City HFA, Hospital Revenue, Tawas St. Joseph's Hospital Project, Series A, 8.50%, 3/15/12 2,020,000 2,081,145
Wayne County, Downriver Systems Sewer Disposal, Series A, 7.00%, 11/01/13 .......... 1,900,000 1,991,846
Wayne County, Michigan Building Authority IDA, Pre-Refunded, 8.00%, 3/01/17 ........ 4,500,000 5,217,750
Wayne County, South Huron Valley Wastewater Control, Refunding, 7.875%, 5/01/02 .... 3,650,000 4,066,502
Wyandotte Tax Increment Finance Authority, Central Development Area Project, Pre-Refunded, 7.875%,
6/01/09 ............................................................................ 500,000 536,025
6/01/10 ............................................................................ 500,000 536,025
-------------
102,248,898
-------------
Minnesota 2.6%
Agriculture and EDR Board Revenue, Health Care System, Fairview Hospital,
Refunding, Series A, MBIA Insured, 5.75%, 11/15/26.................................. 23,380,000 23,829,597
Burnsville Solid Waste Revenue, Freeway Transfer, Inc. Project, 9.00%,
10/01/00 ........................................................................... 415,000 453,462
4/01/10 ............................................................................ 1,500,000 1,648,650
Duluth Minnesota, Commercial Development Revenue, Refunding,
Duluth Radisson Hotel Project, 8.00%, 12/01/15 ..................................... 5,000,000 5,072,200
Maplewood Health Care Facility Revenue, Health East Project, 5.95%, 11/15/06 ....... 2,200,000 2,255,814
Minneapolis CDA, Limited Tax, Supported Development Revenue,
Series 2, 8.40%, 12/01/12 .......................................................... 2,985,000 3,164,458
Series 3-A, 8.375%, 12/01/19 ....................................................... 600,000 660,114
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured, 5.95%, 2/01/18 3,605,000 3,704,029
Northfield First Mortgage Nursing Home Revenue, Minnesota Odd Fellows Home Project,
8.75%, 10/01/03................................................................... 1,140,000 1,187,880
Northwest Multi-County RDA, Governmental Housing Revenue Pooled Housing Project,
7.40%, 7/01/26.................................................................... 5,165,000 5,109,580
Robbinsdale, MFHR, Refunding, Copperfield Phase II Apartments, 9.00%, 3/01/25 ...... 4,110,000 4,196,639
South Central Multi-County Housing and RDA, Pooled Housing, 8.00%, 2/01/25 ......... 10,000,000 6,000,000
St. Cloud, IDR, Nahan Printing, 9.75%, 6/01/20 ..................................... 5,860,000 6,468,092
St. Paul Housing and RDA, Hospital Facility Revenue, Health East Project, 9.75%, 11/01/17,
Series A ........................................................................... 4,415,000 4,540,651
Series B ........................................................................... 410,000 421,439
Series C ........................................................................... 650,000 668,499
Series D ........................................................................... 3,270,000 3,363,064
St. Paul Housing and RDA, Housing Tax, 8.625%, 9/01/07 ............................. 1,440,000 1,614,226
St. Paul Port Authority Commercial Development, Theole Printing Project, 9.00%, 10/01/21 585,000 609,804
St. Paul Port Authority Energy Park, Tax Increment Revenue, Refunding, Pre-Refunded,
8.00%, 12/01/07 .................................................................. 4,465,000 4,766,655
St. Paul Port Authority IDR,
SDA Enterprises, Series K, 10.25%, 10/01/10 ........................................ 1,095,000 1,090,149
Series 2, 7.50%, 10/01/09 .......................................................... 40,000 39,653
Series A-I, 8.50%, 12/01/01 ........................................................ 1,025,000 1,006,909
Series A-I, 9.00%, 12/01/02 ........................................................ 260,000 260,567
Series A-I, 9.00%, 12/01/12 ........................................................ 4,300,000 3,947,228
Series A-II, 8.50%, 12/01/01 ....................................................... 1,005,000 987,262
Series A-II, 9.00%, 12/01/02 ....................................................... 255,000 255,556
Series A-II, 9.00%, 12/01/12 ....................................................... 4,235,000 3,887,561
Series A-III, 8.50%, 12/01/01 ...................................................... 1,055,000 1,036,379
Series A-III, 9.00%, 12/01/02 ...................................................... 265,000 265,578
Series A-III, 9.00%, 12/01/12 ...................................................... 4,430,000 4,066,563
Minnesota (cont.)
St. Paul Port Authority IDR, (cont.)
Series A-IV, 8.50% 12/01/01 ........................................................ $ 805,000 $ 790,792
Series A-IV, 9.00%, 12/01/02 ....................................................... 205,000 205,447
Series A-IV, 9.00%, 12/01/12 ....................................................... 3,375,000 3,098,115
Series C, 10.00%, 12/01/01 ......................................................... 860,000 872,926
Series C, 10.00%, 12/01/02 ......................................................... 715,000 722,250
Series C, 10.00%, 12/01/06 ......................................................... 2,930,000 2,916,932
Series C, 9.875%, 12/01/08 ......................................................... 3,100,000 3,060,940
Series F, 10.25%, 10/01/97 ......................................................... 55,000 55,012
Series F, 10.25%, 10/01/98 ......................................................... 60,000 60,413
Series F, 10.25%, 10/01/99 ......................................................... 65,000 65,659
Series F, 8.00%, 9/01/00 ........................................................... 25,000 24,702
Series F, 10.25%, 10/01/00 ......................................................... 70,000 70,693
Series F, 8.00%, 9/01/01 ........................................................... 25,000 24,769
Series F, 10.25%, 10/01/01 ......................................................... 80,000 80,795
Series F, 8.00%, 9/01/02 ........................................................... 25,000 24,846
Series F, 10.25%, 10/01/02 ......................................................... 90,000 90,578
Series F, 8.00%, 9/01/19 ........................................................... 1,025,000 839,332
Series I, 10.75%, 12/01/00 ......................................................... 15,000 15,275
Series I, 10.75%, 12/01/01 ......................................................... 15,000 15,345
Series I, 10.75%, 12/01/02 ......................................................... 15,000 15,276
Series J, 9.50%, 12/01/01 .......................................................... 80,000 81,230
Series J, 9.50%, 12/01/02 .......................................................... 95,000 96,006
Series J, 9.50%, 12/01/11 .......................................................... 1,325,000 1,269,072
Series L, 9.50%, 12/01/01 .......................................................... 40,000 40,615
Series L, 9.75%, 12/01/01 .......................................................... 25,000 25,380
Series L, 9.50%, 12/01/02 .......................................................... 45,000 45,477
Series L, 9.75%, 12/01/02 .......................................................... 30,000 30,310
Series L, 9.50%, 12/01/14 .......................................................... 1,025,000 978,147
Series L, 9.75%, 12/01/14 .......................................................... 1,530,000 1,491,062
Series N, 10.00%, 12/01/01 ......................................................... 65,000 65,977
Series N, 10.75%, 10/01/02 ......................................................... 1,300,000 1,312,896
Series N, 10.00%, 12/01/02 ......................................................... 65,000 65,659
Series N, 10.00%, 12/01/14 ......................................................... 1,405,000 1,369,777
Series S, 9.625%, 12/01/01 ......................................................... 55,000 55,029
Series S, 9.625%, 12/01/02 ......................................................... 60,000 60,004
Series S, 9.625%, 12/01/14 ......................................................... 1,280,000 1,234,458
Series T, 9.625%, 12/01/01 ......................................................... 30,000 30,458
Series T, 9.625%, 12/01/02 ......................................................... 35,000 35,366
Series T, 9.625%, 12/01/14 ......................................................... 910,000 877,622
St. Paul Port Authority Lease Revenue, Mears Park Center Project, 6.50%,
6/01/16 ............................................................................ 5,140,000 5,210,624
6/01/26 ............................................................................ 10,660,000 10,806,468
-------------
134,809,992
-------------
Mississippi 1.2%
Claiborne County PCR, Middle South Energy, Inc. Project,
Series A, 9.50%, 12/01/13 .......................................................... 10,680,000 11,546,041
Series B, 8.25%, 6/01/14 ........................................................... 9,750,000 10,469,550
Series C, 9.875%, 12/01/14 ......................................................... 10,000,000 10,855,400
System Energy Residential Income Project, 6.20%, 2/01/26 ........................... 22,795,000 23,095,666
Claiborne County PCR, System Energy Resources Inc., 7.30%, 5/01/25 ................. 2,500,000 2,652,250
Lowndes County, Golden Triangle Medical Center, 8.50%, 2/01/10 ..................... 4,250,000 4,602,155
Mississippi Hospital Equipment and Facilities Authority Revenue, Refunding,
Mississippi Methodist Hospital and Rehabilitation Center,
Pre-Refunded, 9.375%, 5/01/12 ...................................................... 720,000 766,858
-------------
63,987,920
-------------
Missouri 1.3%
Lake of the Ozarks Community Bridge Corp., Bridge System Revenue, 6.40%, 12/01/25 .. $ 3,000,000 $ 3,094,260
Missouri Health and Educational Facilities Authority, Health Facility Marshall, IDA,
John Fitzgibbons Hospital, Pre-Refunded, 10.00%,
5/01/20 ............................................................................ 8,700,000 10,111,575
Missouri State Health and Educational Facilities Authority, Revenue,
Heartland Health, Refunding and Improvement, 8.125%,
10/01/10 ........................................................................... 7,300,000 7,876,919
Moberly IDA, Hospital Revenue, Refunding, Moberly Regional Medical Center, Inc.,
Pre-Refunded, 8.75%, 3/01/16 ........................................................ 175,000 183,517
Newton County IDA, Health Facilities Revenue, Beverly Enterprises, 10.375%, 11/01/08 1,455,000 1,599,336
Perry Co., Perry Memorial Hospital, 9.125%, 6/01/11 ................................ 1,700,000 1,872,006
St. Louis County IDA, Refunding, Kiel Center,
7.625%, 12/01/09 ................................................................... 8,000,000 8,640,960
7.75%, 12/01/13 .................................................................... 5,175,000 5,596,452
7.875%, 12/01/24 ................................................................... 6,000,000 6,493,680
St. Louis Municipal Financial Corp. Leasehold Revenue, Refunding, Series A,
6.00%, 7/15/13 ..................................................................... 14,250,000 14,543,835
City Justice Center, AMBAC Insured, 5.95%, 2/15/16 ................................. 8,640,000 9,036,403
-------------
69,048,943
-------------
Montana .5%
Montana State Board of Housing, SFM, Senior Bonds, Series B-2, 8.90%, 10/01/00 ..... 305,000 314,217
Montana State Board of Investments EDR, Refunding, Bozeman Holiday Inn Project, 11.00%,
12/01/07 2,500,000 2,564,275
Montana State Board of Investments, Resource Recovery Revenue,
Yellowstone Energy Project, 7.00%, 12/31/19 ........................................ 22,550,000 21,809,233
Montana State SFMR, Series A, 8.275%, 10/01/03 ..................................... 610,000 644,105
-------------
25,331,830
-------------
Nebraska .1%
Douglas County, Hospital No. 1, Authority Revenue, 5.25%, 9/01/21 .................. 3,670,000 3,524,925
Scotts Bluff County, Hospital No. 1, Hospital Revenue, 6.375%, 12/15/08 ............ 2,100,000 2,225,580
-------------
5,750,505
-------------
Nevada 2.6%
Clark County IDR, Southwest Gas Corp., Series A, 6.50%, 12/01/33 ................... 13,775,000 14,685,803
Clark County Special ID No. 108, Summerlin, 6.625%, 2/01/17 ........................ 6,550,000 6,604,169
Henderson Local Improvement,
District No. 2, 9.50%, 8/01/11 ..................................................... 5,945,000 6,181,017
District No. T-1, Series A, 8.50%, 8/01/13 ......................................... 43,255,000 45,966,223
District No. T-4, Series A, 8.50%, 11/01/12 ........................................ 10,480,000 11,022,550
District No. T-4, Series B, 7.30%, 11/01/12 ........................................ 4,855,000 5,024,634
District No. T-10, 7.50%, 8/01/15 .................................................. 7,345,000 7,620,658
Las Vegas Downtown RDA, Tax Increment Revenue, Fremont Street Project, Series A,6.10%, 6/15/14 2,000,000 2,043,360
Las Vegas Special ID,
No. 404, 5.85%, 11/01/09 ........................................................... 3,535,000 3,609,589
No. 505, Elkhorn Springs, 8.00%, 9/15/13 ........................................... 7,910,000 8,068,754
No. 707, 6.60%, 6/01/05 ............................................................ 1,000,000 1,037,520
No. 707, 6.70%, 6/01/06 ............................................................ 1,235,000 1,281,337
No. 707, 6.80%, 6/01/07 ............................................................ 1,805,000 1,872,724
No. 707, 7.10%, 6/01/16 ............................................................ 8,000,000 8,300,160
Nevada Housing Division, SF Program, Subordinated, FI/GML,
Series A, 9.30%, 10/01/00 ......................................................... 195,000 201,928
Series A-1, 8.75%, 10/01/04 ....................................................... 270,000 286,119
Series A-2, 9.375%, 10/01/00 ...................................................... 210,000 217,883
Series A-2, 8.65%, 10/01/01 ....................................................... 445,000 460,887
Series A-3, 9.20%, 10/01/00 ....................................................... 230,000 237,556
Series B, 9.50%, 10/01/01 ......................................................... 325,000 339,563
Series B-1, 7.90%, 10/01/05 ....................................................... 660,000 689,502
Series C-1, 7.55%, 10/01/05 ....................................................... 830,000 868,122
Nevada Housing Finance Division Subordinate,
Series B-2, 9.65%, 10/01/02 ........................................................ 240,000 247,682
Series C-1, 9.60%, 10/01/02 ........................................................ 315,000 324,437
White Pine County, School District Building, 6.75%, 6/01/18 ........................ 6,310,000 6,562,463
-------------
133,754,640
-------------
New Hampshire 1.5%
New Hampshire Higher Education and Health Facility Authority Revenue,
bCatholic Charities, Refunding, Series A, 5.75%, 8/01/11............................ $ 1,300,000 $ 1,301,859
Hillcrest Terrace, 7.50%, 7/01/24 .................................................. 18,950,000 18,229,521
Kendal at Hanover Project, Pre-Refunded, 8.00%, 10/01/19 ........................... 9,590,000 10,492,419
New Hampshire IDA, PCR,
Public Service Co., Project A, 7.65%, 5/01/21 ...................................... 9,225,000 9,756,637
Public Service Co., Project C, 7.65%, 5/01/21 ...................................... 32,575,000 34,452,297
New Hampshire State Business Financial Authority, PCR, Refunding,
United Illuminating Co., Series A, 5.875%, 10/01/33 ................................. 3,000,000 2,889,150
-------------
77,121,883
-------------
New Jersey .5%
New Jersey EDA, EDR, Refunding, Stolt Terminals, Series A, 10.50%, 1/15/18 ......... 4,000,000 4,191,200
New Jersey EDA, Natural Gas Facilities Revenue, Nui Corp. Projects, Series A, MBIA Insured,
5.70%, 6/01/32 7,975,000 8,042,150
New Jersey Health Care Facilities Financing Authority Revenue, Lutheran Home, Series A, 8.40%,
7/01/19 2,100,000 2,200,233
New Jersey State Housing and Mortgage Finance Agency, MFHR, Refunding, Series A, AMBAC Insured,
6.00%, 11/01/14 .................................................................... 3,000,000 3,126,930
6.05%, 11/01/20 .................................................................... 5,500,000 5,711,310
-------------
23,271,823
-------------
New Mexico 2.3%
Farmington PCR, San Juan Project,
Refunding, Public Service of New Mexico Co., Series A, 6.30%, 12/01/16 ............. 4,000,000 4,123,040
Refunding, Public Service of New Mexico Co., Series A, 6.40%, 8/15/23 .............. 38,850,000 40,140,986
Refunding, Public Service of New Mexico Co., Series C, AMBAC Insured, 5.70%, 12/01/16 8,500,000 8,633,110
Refunding, Public Service of New Mexico Co., Series D, 6.375%, 4/01/22 ............. 28,850,000 29,936,780
Tucson Electrical Power Co., Series A, 6.95%, 10/01/20 ............................. 27,000,000 28,443,150
New Mexico Mortgage Finance Authority, SFM Program,
Refunding Series A-1, 7.90%, 7/01/04 ............................................... 1,385,000 1,444,652
Series A, 9.50%, 9/01/00 ........................................................... 350,000 356,591
Series A, 9.10%, 9/01/03 ........................................................... 930,000 985,530
Series A, FHA Insured, 8.80%, 9/01/01 .............................................. 320,000 333,507
Series B, 9.30%, 9/01/00 ........................................................... 180,000 183,353
Sub Series A, 9.55%, 9/01/02 ....................................................... 735,000 757,469
Rio Rancho Water and Wastewater Revenue, Series A, 5.90%, 5/15/15 .................. 3,620,000 3,731,279
-------------
119,069,447
-------------
New York 15.7%
Babylon IDAR, Resource Recovery, Ogden Martin System, Babylon Inc., Pre-Refunded, 8.50%, 1/01/19,
Series B ........................................................................... 1,000,000 1,066,380
Series C ........................................................................... 3,920,000 4,180,210
Battery Park City Authority, Series A, AMBAC Insured, 5.50%, 11/01/26 .............. 3,350,000 3,316,098
Metropolitan Transportation Authority, Service Contract,
Commuter Facilities, Series A, MBIA Insured, 5.625%, 7/01/27 ....................... 12,880,000 13,006,224
Commuter Facilities, Series A, MBIA Insured, 5.875%, 7/01/27 ....................... 22,700,000 23,410,737
Refunding, Commuter Facilities, Series 1, 5.70%, 7/01/24 ........................... 10,000,000 10,165,400
Refunding, Commuter Facilities, Series 5, 6.50%, 7/01/16 ........................... 3,860,000 4,032,195
Refunding, Commuter Facilities, Series A, FGIC Insured, 6.10%, 7/01/26 ............. 7,500,000 7,976,025
Refunding, Commuter Facilities, Series N, 6.80%, 7/01/04 ........................... 3,330,000 3,625,837
Refunding, Commuter Facilities, Series N, 6.90%, 7/01/05 ........................... 3,050,000 3,313,337
Refunding, Transportation Facilities, Series N, 6.80%, 7/01/04 ..................... 2,330,000 2,535,949
Refunding, Transportation Facilities, Series N, 6.90%, 7/01/05 ..................... 2,470,000 2,683,260
Refunding, Transportation Facilities, Series N, 7.125%, 7/01/09 .................... 7,830,000 8,608,537
Refunding, Transportation Facilities, Series P, 5.75%, 7/01/15 ..................... 13,565,000 13,657,106
New York City Educational Construction Fund, Revenue, AMBAC Insured, 5.50%, 4/01/26 5,500,000 5,444,945
New York City GO,
Refunding, Series A, 6.125%, 8/01/06 ............................................... 10,190,000 10,979,419
Refunding, Series A, 6.25%, 8/01/08 ................................................ 10,000,000 10,683,400
Refunding, Series F, 6.00%, 8/01/11 ................................................ 10,000,000 10,455,500
Refunding, Series G, 5.75%, 8/01/10 ................................................ 1,795,000 1,840,126
New York (cont.)
New York City GO, (cont.)
Refunding, Series H, 6.25%, 8/01/15 ................................................ $ 25,000,000 $ 26,385,500
Refunding, Series H, 6.125%, 8/01/25 ............................................... 5,600,000 5,788,664
Refunding, Series J, 6.00%, 8/01/21 ................................................ 10,000,000 10,256,100
Series A, 6.25%, 8/01/21 ........................................................... 1,200,000 1,240,632
Series A, Pre-Refunded, 7.25%, 3/15/20 ............................................. 330,000 353,107
Series B, 7.00%, 8/15/16 ........................................................... 14,755,000 16,444,448
Series B, 7.00%, 2/01/18 ........................................................... 4,090,000 4,452,333
Series B, 7.50%, 2/01/18 ........................................................... 385,000 427,439
Series B, 7.00%, 2/01/19 ........................................................... 5,000,000 5,442,950
Series B, 7.00%, 2/01/20 ........................................................... 5,745,000 6,099,352
Series B, 6.00%, 8/15/26 ........................................................... 5,000,000 5,108,450
Series B, Pre-Refunded, 7.00%, 8/15/16 ............................................. 2,315,000 2,666,440
Series B, Pre-Refunded, 7.50%, 2/01/18 ............................................. 4,615,000 5,239,502
Series B, Sub Series B-1, 7.25%, 8/15/19 ........................................... 1,620,000 1,813,801
Series B, Sub Series B-1, Pre-Refunded, 7.25%, 8/15/19 ............................. 3,380,000 3,942,973
Series C, 6.75%, 10/01/15 .......................................................... 4,250,000 4,641,128
Series C, 7.00%, 8/01/17 ........................................................... 4,615,000 5,068,470
Series C, 7.25%, 8/15/24 ........................................................... 7,905,000 8,581,747
Series C, Sub Series C-1, 7.00%, 8/01/16 ........................................... 280,000 307,513
Series C, Sub Series C-1, 7.50%, 8/01/21 ........................................... 435,000 486,099
Series C, Sub Series C-1, Pre-Refunding, 7.50%, 8/01/21 ............................ 4,440,000 5,095,211
Series D, 6.00%, 2/15/10 ........................................................... 11,600,000 12,106,920
Series D, 7.625%, 2/01/13 .......................................................... 400,000 447,736
Series D, 7.625%, 2/01/14 .......................................................... 315,000 352,592
Series D, 7.625%, 2/01/14 .......................................................... 810,000 906,665
Series D, 7.50%, 2/01/19 ........................................................... 330,000 365,686
Series D, Pre-Refunded, 7.625%, 2/01/02 ............................................ 8,190,000 9,338,811
Series D, Pre-Refunded, 7.70%, 2/01/11 ............................................. 150,000 168,342
Series D, Pre-Refunded, 7.70%, 2/01/11 ............................................. 3,350,000 3,829,888
Series D, Pre-Refunded, 7.625%, 2/01/13 ............................................ 4,600,000 5,245,242
Series D, Pre-Refunded, 7.625%, 2/01/14 ............................................ 4,185,000 4,772,030
Series D, Pre-Refunded, 7.50%, 2/01/19 ............................................. 4,670,000 5,301,944
Series E, 6.25%, 2/15/07 ........................................................... 10,000,000 10,728,500
Series E, 7.50%, 2/01/18 ........................................................... 45,000 49,960
Series E, Pre-Refunded, 7.50%, 2/01/18 ............................................. 480,000 544,954
Series F, 7.625%, 2/01/13 .......................................................... 355,000 397,366
Series F, 7.625%, 2/01/15 .......................................................... 30,000 33,517
Series F, 7.50%, 2/01/21 ........................................................... 685,000 759,076
Series F, 6.625%, 2/15/25 .......................................................... 8,625,000 9,412,118
Series F, Pre-Refunded, 7.625%, 2/01/13 ............................................ 4,145,000 4,726,419
Series F, Pre-Refunded, 7.50%, 2/01/21 ............................................. 7,860,000 8,923,615
Series G, 6.125%, 10/15/11 ......................................................... 20,480,000 21,677,670
Series G, 6.200%, 10/15/14 ......................................................... 10,000,000 10,522,900
Series G, 7.50%, 2/01/22 ........................................................... 60,000 66,488
Series G, Pre-Refunded, 7.50%, 2/01/22 ............................................. 780,000 883,865
Series H, 7.20%, 2/01/14 ........................................................... 3,025,000 3,335,577
Series H, 7.20%, 2/01/15 ........................................................... 7,080,000 7,762,583
Series H, 7.00%, 2/01/19 ........................................................... 12,000,000 13,063,080
Series H, 7.00%, 2/01/20 ........................................................... 1,025,000 1,119,638
Series H, 7.00%, 2/01/22 ........................................................... 350,000 381,007
Series I, 6.25%, 4/15/17 ........................................................... 25,370,000 26,633,680
Series I, 6.25%, 4/15/27 ........................................................... 22,920,000 23,957,588
New York City Health and Hospital Corp. Revenue, Refunding, Series A, 6.30%, 2/15/20 8,885,000 9,188,156
New York City IDA, Civic Facility Revenue, Amboy Corp. Project, 9.625%, 6/01/15 .... 6,540,000 7,177,846
New York City Municipal Assistance Corp., Series H, 5.00%, 7/01/08 ................. 5,000,000 5,053,800
New York City Municipal Water Financing Authority, Water and Sewer System Revenue,
Series B, 5.75%, 6/15/26 ........................................................... 14,005,000 14,308,208
New York (cont.)
New York State Dormitory Authority Revenue, City University System,
Refunding, 3rd General Residence, Series 2, 6.00%, 7/01/26 ......................... $ 21,850,000 $ 22,248,326
Series B, Pre-Refunded, 7.20%, 7/01/21 ............................................. 1,000,000 1,116,310
Series F, Pre-Refunded, 7.875%, 7/01/07 ............................................ 1,000,000 1,114,630
Series F, Pre-Refunded, 7.875%, 7/01/17 ............................................ 8,500,000 9,462,285
New York State Dormitory Authority Revenue, Mental Health Services Facilities,
Refunding, Series B, 5.625%, 2/15/21 ............................................... 8,360,000 8,257,841
Series A, 6.00%, 8/15/17 ........................................................... 11,240,000 11,567,871
Series A, 5.75%, 2/15/27 ........................................................... 5,000,000 5,016,400
New York State Dormitory Authority Revenue, State University Educational Facilities,
6.00%, 5/15/18 ..................................................................... 5,000,000 5,106,350
5.50%, 5/15/26 ..................................................................... 16,000,000 15,526,880
Refunding, Series A, 6.00%, 5/15/25 ................................................ 33,750,000 34,495,200
Series B, 5.75%, 5/15/24 ........................................................... 23,000,000 23,010,350
New York State Energy Research and Development Authority, Gas Facilities Revenue,
Refunding, Brooklyn Union Gas Company,
MBIA Insured, 5.50%, 1/01/21 ....................................................... 8,000,000 7,936,960
New York State Environmental Facility Corp.,
PCR, State Water Revenue, New York Municipal Water, Refunding, Series A, 5.875%, 6/15/14 5,000,000 5,199,300
Water Facility Revenue, Long Island Water Corp. Project, Series A, 10.00%, 10/01/17 1,000,000 1,022,770
New York State HFA, Series A,
Revenue, Refunding, 5.90%, 11/01/05 ................................................ 12,515,000 13,090,315
Service Contract Obligation, 6.50%, 3/15/25 ........................................ 10,000,000 10,565,400
Service Contract Obligation, Pre-Refunded, 7.80%, 9/15/20 .......................... 9,715,000 10,856,804
Service Contract Obligation, Revenue, Series A, 6.00%, 3/15/26 ..................... 4,975,000 5,063,207
New York State Local Government Assistance Corp., Series D, Pre-Refunded, HFA, 7.80%, 9/15/10 6,850,000 7,655,081
New York State Medical Care Facilities Finance Agency Revenue,
Montefiore Medical Center, Insured Mortgage, Series A, AMBAC Insured,
FHA Guaranteed, 5.75%, 2/15/25 ..................................................... 6,175,000 6,251,014
Security Hospital, Series A, 7.35%, 8/15/11 ........................................ 2,500,000 2,720,950
St. Luke's Nursing Home Mortgage Insured, Series B, 6.95%, 2/15/32 ................. 4,000,000 4,315,040
New York State Mortgage Agency Revenue, Homeowner Mortgage,
Series 59, 6.10%, 10/01/15 ......................................................... 2,000,000 2,106,920
Series 59, 6.15%, 10/01/17 ......................................................... 2,750,000 2,908,345
Series 61, 5.80%, 10/01/16 ......................................................... 7,100,000 7,307,320
New York State Urban Development Corp. Revenue, Correctional Capital Facilities,
Series 7, 5.70%, 1/01/27 ........................................................... 22,750,000 22,523,865
Port Authority of New York and New Jersey, Special Obligation Revenue,
2nd Installment, 6.50%, 10/01/01 ................................................... 1,000,000 1,057,270
3rd Installment, 7.00%, 10/01/07 ................................................... 8,000,000 8,905,120
4th Installment, Special Project, 6.75%, 10/01/11 .................................. 5,000,000 5,354,300
5th Installment, 6.75%, 10/01/19 ................................................... 17,500,000 18,622,625
Consolidated 102nd Series, MBIA Insured, 5.75%, 10/15/23 ........................... 5,000,000 5,043,150
Continental Airlines, Inc., Eastern Project, La Guardia, 9.00%, 12/01/10 ........... 10,000,000 11,342,800
Continental Airport Project, Eastern Project, La Guardia, 9.125%, 12/01/15 ......... 27,650,000 31,464,871
Warren & Wash Counties IDAR, Refunding, Resource Recovery, Series A, 7.90%, 12/15/07 1,410,000 1,456,530
-------------
814,058,411
-------------
North Carolina .7%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ....................... 2,500,000 2,536,350
North Carolina Eastern Municipal Power Agency System Revenue, Refunding, Series B,
MBIA Insured, 5.875%, 1/01/21 ...................................................... 20,000,000 20,692,400
North Carolina HFA, SF, Series II, GNMA Secured, 6.20%,
3/01/16 ............................................................................ 2,960,000 3,135,587
9/01/17 ............................................................................ 1,970,000 2,070,785
University of North Carolina, Chapel Hill Hospital Revenue, 5.25%, 2/15/26 ......... 6,570,000 6,371,652
-------------
34,806,774
-------------
North Dakota .5%
Mercer County, PCR, Refunding, Basin Electric Power, Second Series,
AMBAC Insured, 6.05%, 1/01/19 ...................................................... 24,655,000 25,999,437
-------------
Ohio 5.7%
Allen County Nursing Home, First Mortgage Revenue, Volunteers of America
Care Facilities Project, 9.00%, 3/01/18 ............................................ $ 2,630,000 $ 2,712,214
Cleveland Airport Special Revenue, Continental Airlines, Inc. Project, 9.00%, 12/01/19 21,235,000 23,306,687
Cuyahoga County Hospital Revenue, Refunding, University Hospitals Health System,
Series B, MBIA Insured, 5.50%, 1/15/16 ............................................. 10,065,000 10,052,721
Dayton Special Facilities IDR, Refunding, 6.05%, 10/01/09 .......................... 11,500,000 11,969,545
Franklin County Health Care Facilities Revenue, Ohio Presbyterian Retirement Services,
Series A, 6.625%, 7/01/13 .......................................................... 1,000,000 1,011,730
Lucas County Health Facilities Revenue, Refunding, Ohio Presbyterian
Retirement Services, Series A,
6.625%, 7/01/14 .................................................................... 1,000,000 1,021,670
6.75%, 7/01/20 ..................................................................... 2,000,000 2,052,180
Montgomery County Health Systems Revenue, Franciscan,
Series B, 8.10%, 7/01/01 ........................................................... 1,000,000 1,090,260
Series B, 8.10%, 7/01/18 ........................................................... 6,300,000 7,427,637
Series B-1, 8.10%, 7/01/01 ......................................................... 900,000 981,234
Series B-1, 8.10%, 7/01/18 ......................................................... 6,500,000 7,663,435
Series B-2, 8.10%, 7/01/18 ......................................................... 9,600,000 11,318,304
Muskingum County, Ohio Hospital Facilities Revenue, Refunding, Franciscan Sisters,
Connie Lee Insured, 5.375%, 2/15/12 ................................................ 1,200,000 1,175,772
Ohio State Air Quality Authority,
Dayton Power and Light Company Project, Refunding, 6.10%, 9/01/30 .................. 17,900,000 18,745,059
Toledo Edison, Series B, 8.00%, 5/15/19 ............................................ 5,265,000 5,681,040
Ohio State Air Quality Development Authority Revenue, Refunding, Pollution Control,
Series A, 6.10%, 8/01/20 ........................................................... 5,400,000 5,454,270
Series B, 6.00%, 8/01/20 ........................................................... 35,860,000 36,222,186
Toledo, Series C, 6.10%, 8/01/27 ................................................... 5,000,000 5,050,250
Ohio State HFA, Chagrin Fall, Retirement Rental Housing Revenue, 10.375%, 4/01/09 .. 9,800,000 10,598,504
Ohio State Solid Waste Revenue, Republic Engineered Steels Inc., 9.00%, 6/01/21 .... 16,650,000 17,224,925
Ohio State Water Development Authority Revenue,
Fresh Water Service, AMBAC Insured, 5.90%, 12/01/21 ................................ 9,250,000 9,567,553
PCR, Refunding, Cleveland Electric, Series A, 6.10%, 8/01/20 ....................... 10,000,000 10,100,500
PCR, Refunding, Cleveland Electric, Series A, 8.00%, 10/01/23 ...................... 27,700,000 31,218,454
Toledo Edison, Series A, 8.00%, 5/15/19 ............................................ 6,200,000 6,673,742
Pike County Hospital Facilities Revenue, National Church Residences,
Pre-Refunded, 9.875%, 7/01/17 ................................................... 500,000 524,460
Seneca County Nursing HMR, Refunding and Improvement,
Volunteers of America Care Facilities, 9.00%, 1/01/13 .............................. 3,670,000 3,769,861
Toledo-Lucas County Port Authority Airport Revenue, Burlington Air Express,
Project 1, 7.00%, 4/01/04 .......................................................... 6,055,000 6,512,092
Project 1, 7.25%, 4/01/09 .......................................................... 5,385,000 5,871,158
Project 1, 7.375%, 4/01/14 ......................................................... 8,200,000 8,948,496
Project 1, 7.50%, 4/01/19 .......................................................... 14,365,000 15,690,746
Series 1, 9.125%, 9/15/01 .......................................................... 940,000 1,018,020
Series 1, 9.125%, 9/15/13 .......................................................... 5,875,000 6,320,736
Toledo-Lucas County Port Authority Development Revenue, Nortwest Ohio Bond Fund,
Series A, Pre-Refunded, 8.625%, 5/15/10 ............................................ 1,210,000 1,374,451
Series B, 9.00%, 11/15/08 .......................................................... 1,715,000 1,826,492
Series D, 8.25%, 5/15/20 ........................................................... 2,965,000 3,147,733
Willoughby IDR, Refunding, Ohio Presbyterian Retirement Services, Series A, 6.875%, 7/01/16 1,500,000 1,525,905
-------------
294,850,022
-------------
Oklahoma .4%
Tulsa Municipal Airport Transportation Revenue, American Airlines, Inc., 7.375%, 12/01/20 12,845,000 13,840,616
Valley View Hospital Authority, Oklahoma Revenue, Refunding, Valley View
Regional Medical Center, 6.00%, 8/15/14 ............................................ 4,000,000 3,892,120
Washington County Medical Authority Revenue, Bartlesville, Refunding,
Jane Phillips Hospital, Series A, Pre-Refunded, 8.50%, 11/01/10 ................... 2,500,000 2,721,125
-------------
20,453,861
-------------
Oregon .3%
Northern Wasco County, Peoples Utilities District, Oregon Electric Revenue,
FGIC Insured, 5.625%, 12/01/22 ..................................................... 2,500,000 2,531,200
Oregon State Department of Administrative Services, COP, MBIA Insured,
Series A, 5.50%, 11/01/20 .......................................................... 5,585,000 5,648,613
Series C, 5.75%, 5/01/17 ........................................................... 4,665,000 4,843,156
-------------
13,022,969
-------------
Pennsylvania 4.9%
Beaver County, Series A, MBIA Insured, 5.90%, 10/01/26 ............................. $ 10,000,000 $ 10,311,000
Chartiers Valley Industrial and Commercial Development Authority Revenue, Refunding,
Asbury Health Center Project, 7.40%, 12/01/15 ...................................... 5,250,000 5,558,700
First Mortgage, United Methodist Health Center, Series A, Pre-Refunded, 9.50% 12/01/15 6,000,000 6,505,560
Delaware River Port Authority, Pennsylvania and New Jersey Revenue,
Series 1995, FGIC Insured, 5.50%, 1/01/26 .......................................... 20,750,000 20,796,688
Franklin County IDA, Health Facilities Revenue, Encore Nursing Center, 7/01/11,
10.375% ............................................................................ 650,000 736,320
Refunding, 10.375%.................................................................. 3,000,000 3,388,770
Gettysburg IDA, Health Facilities Revenue, Refunding, Encore Nursing Center, 10.375%, 7/01/11 3,100,000 3,511,680
Lehigh County IDA, PCR, Refunding, Pennsylvania Power & Light Co. Project,
Series A, MBIA Insured, 6.15%, 8/01/29 ............................................. 4,000,000 4,205,680
Montgomery County Higher Education and Health Authority Revenue,
First Mortgage, Holy Redeemer Long-Term Care, Series A, 8.20%, 6/01/06 ............. 1,755,000 1,864,916
First Mortgage, Holy Redeemer Long-Term Care, Series A, 8.00%, 6/01/22 ............. 3,500,000 3,655,225
St. Joseph's University, Pre-Refunded, 8.30%, 6/01/10 .............................. 5,000,000 5,607,400
Montgomery County Higher Education and Health Authority Revenue,
United Hospital, Pre-Refunded,
Series A, 8.375%, 11/01/11 ......................................................... 200,000 221,136
Series A, 7.50%, 11/01/12 .......................................................... 3,560,000 3,803,504
Series A, 7.50%, 11/01/13 .......................................................... 750,000 801,300
Series A, 7.50%, 11/01/14 .......................................................... 600,000 641,676
Series B, 7.50%, 11/01/14 .......................................................... 3,940,000 4,209,496
Series B, 7.50%, 11/01/15 .......................................................... 1,600,000 1,711,136
Montgomery County IDAR, Recources Recovery, 7.50%, 1/01/12 ......................... 10,000,000 10,589,900
Pennsylvania Convention Center Authority Revenue, Series A, Refunding,
5.75%, 9/01/99 ..................................................................... 3,400,000 3,477,486
6.25%, 9/01/04 ..................................................................... 5,000,000 5,377,100
6.60%, 9/01/09 ..................................................................... 16,000,000 17,414,080
6.70%, 9/01/14 ..................................................................... 20,760,000 22,524,185
6.75%, 9/01/19 ..................................................................... 15,800,000 17,139,998
Pennsylvania EDA, Resource Recovery Revenue, Colver Project, Series D, 7.125%, 12/01/15 10,000,000 10,837,300
Pennsylvania State Higher Educational Facilities Authority Revenue, Series A,
Health Services Revenue, Allegheny Deleware Valley Obligated Group,
MBIA Insured, 5.875%, 11/15/16 ..................................................... 15,000,000 15,502,200
Medical College of Pennsylvania, Pre-Refunded, 8.375%, 3/01/11 ..................... 1,200,000 1,296,984
Pennsylvania State Pooled Finance Authority, Lease Revenue, Capital Improvement,
Series B, MBIA Insured, 8.00%, 11/01/09 ............................................ 1,825,000 1,914,808
Philadelphia GO, Refunding, Series A, 6.00%, 5/15/05 ............................... 3,080,000 3,194,822
Philadelphia Gas Works Revenue, 14th Series A, 6.375%, 7/01/26 ..................... 2,850,000 2,964,314
Philadelphia Municipal Authority Revenue, Lease,
Refunding, Series D, 6.30%, 7/15/17 ................................................ 3,500,000 3,606,715
Sub-Series C, 8.625%, 11/15/16 ..................................................... 3,460,000 3,852,918
Sub-Series D, 6.25%, 7/15/13 ....................................................... 3,000,000 3,091,650
Philadelphia Water and Sewer Revenue, 10th Series, ETM, 7.35%, 9/01/04 ............. 14,345,000 16,367,932
Schuylkill County IDA, Resources Recovery Revenue, Refunding,
Schuylkill Energy Resources Inc., 6.50%, 1/01/10 ................................... 15,130,000 15,263,447
South Fork Municipal Authority Hospital Revenue, Conemaugh Valley
Memorial Hospital Project, Series A, MBIA Insured, 5.75%,
7/01/16 ............................................................................ 8,130,000 8,266,828
South Wayne County, Water and Sewer Authority Revenue, Refunding, 8.20%, 4/15/13 ... 8,620,000 8,906,356
Washington County IDA, PCR, West Pennsylvania Power Company, 6.05%, 4/01/14 ........ 5,025,000 5,308,762
-------------
254,427,972
-------------
Puerto Rico .0%
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A, 7.75%, 7/01/08 ...................................... 1,875,000 1,962,600
-------------
Rhode Island .3%
Rhode Island HFC, Homeownership Opportunity, Series 17-A, 6.25%, 4/01/17 ........... 5,000,000 5,005,900
Rhode Island State Health and Educational Building Corp. Revenue,
Landmark Medical Center Assessment, 5.875%, 10/01/19 ............................... 6,000,000 6,063,000
Lifespan Obligation Group, MBIA Insured, 5.75%, 5/15/23 ............................ 5,000,000 5,101,950
West Warwick GO, Series A,
6.80%, 7/15/98 ..................................................................... 880,000 890,182
7.00%, 8/15/02 ..................................................................... 145,000 150,100
7.30%, 7/15/08 ..................................................................... 915,000 981,219
-------------
18,192,351
-------------
South Carolina 1.0%
Charleston County Hospital Facilities, First Mortgage Revenue,
Sandpiper Village, Inc., 8.00%, 11/01/13 ........................................... $ 3,730,000 $ 3,699,377
Piedmont Municipal Power Agency, Electricity Revenue, Refunding,
6.55%, 1/01/16 ..................................................................... 9,500,000 9,520,045
6.60%, 1/01/21 ..................................................................... 8,770,000 8,788,505
South Carolina State Public Service Authority Revenue, Refunding,
Series A, MBIA Insured, 5.75%, 1/01/22 ............................................. 32,500,000 33,130,500
-------------
55,138,427
-------------
South Dakota .2%
South Dakota HDA, Homeownership Mortgage, Series A, 6.125%, 5/01/17 ................ 5,000,000 5,191,800
South Dakota State Health and Educational Facilities Authority Revenue,
Refunding, Prairie Lakes Health Care, 7.25%, 4/01/22 ............................... 3,500,000 3,749,655
Watertown Hospital Facilities Revenue, Prairie Lakes Health Care System Project,
Pre-Refunded, 9.125%, 4/01/13 ...................................................... 3,000,000 3,147,660
-------------
12,089,115
-------------
Tennessee .4%
Johnson City Health and Educational Facilities Board Revenue Mortgage,
Pine Oaks Assisted Project, Series A, 5.90%, 6/20/37 ............................... 2,620,000 2,626,131
Knox County Health, Educational and Housing Facilities Board, MFHR,
GNMA Secured, Eastowne Village Project, 8.20%, 7/01/28 ............................. 3,090,000 3,221,758
Memphis-Shelby County Airport Authority, Special Facilities and Project Revenue,
Federal Express Corp., 7.875%, 9/01/09 ............................................. 6,000,000 6,737,040
Metropolitan Government, Nashville and Davidson County Public Improvements, 5.875%, 5/15/26 5,000,000 5,186,500
Shelby County, Health and Education Housing Facility Revenue, Beverly Enterprise,
10.125%, 12/01/11.................................................................. 2,900,000 3,219,377
Tennessee HDA, Financial Mortgage, Series A, 6.90%, 7/01/25 ........................ 200,000 215,056
-------------
21,205,862
-------------
Texas 2.9%
Alliance Airport Authority, Special Facilities Revenue, 7.50%, 12/01/29 ............ 10,000,000 10,864,900
Bexar County Health Facilities Development Corp. Revenue, Refunding,
Incarnate Word Health Services, FSA Insured, 6.00%,
11/15/15............................................................................ 8,750,000 9,121,788
Brazos River Authority, PCR,
Houston Light and Power Co., 8.25%, 5/01/19 ........................................ 16,000,000 16,709,120
Texas Utilities Electric Co. Project, Collateralized, Series A, 9.25%, 3/01/18 ..... 1,675,000 1,747,779
Coppell Special Assessment Gateway Project, 8.70%, 3/01/12 ......................... 4,510,000 4,650,847
Copperas Cove Health Facilities Development Corp., Hospital Revenue,
First Mortgage, Metroplex Health, Series B, Pre-Refunded,
9.125%, 12/01/19 ................................................................... 5,491,000 6,114,229
El Paso HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11 ............................ 5,355,000 5,812,853
Harris County Health Facilities Development Corp., MBIA Insured,
Hospital Revenue, Refunding, Memorial Hospital System Project, Series A, 5.75%, 6/01/19 15,165,000 15,409,460
Hospital Revenue, Refunding, Memorial Hospital System Project, Series A, 5.50%, 6/01/24 12,000,000 11,817,120
Special Facilities Revenue, Texas Medical Center Project, 6.00%, 5/15/20 ........... 7,000,000 7,279,510
Matagorda County Navigation District No. 1 Revenue, Refunding,
Houston Light and Power Co., Collateralized, Series B, 7.70%,
2/01/19 ............................................................................ 4,550,000 4,697,875
Midland County Hospital District Revenue, Series 1989, Pre-Refunded, 8.375%, 6/01/02 2,000,000 2,084,780
Nueces River Authority, Texas Water Supply Revenue Facilities, 5.50%, 3/01/27 ...... 7,500,000 7,467,375
Red River Authority, PCR, Refunding, West Texas Utilities Co., Public Service Co.,
Oklahoma Central Power and Light Co.,
MBIA Insured, 6.00%, 6/01/20........................................................ 8,000,000 8,346,720
Sabine River Authority, PCR, Refunding, Southwestern Electric Power,
MBIA Insured, 6.10%, 4/01/18 ....................................................... 7,000,000 7,355,950
Sam Rayburn Texas Municipal Power Agency Supply System Revenue, Refunding,
Series A, 6.50%, 10/01/08 .......................................................... 250,000 252,803
Series A, 6.75%, 10/01/14 .......................................................... 1,490,000 1,506,554
bSeries A, 6.25%, 10/01/17 ......................................................... 500,000 487,150
bSeries B, 6.125%, 10/01/13 ........................................................ 500,000 484,825
bSeries B, 5.50%, 10/01/20 ......................................................... 500,000 441,710
San Antonio Texas Electric and Gas Revenue, Series 95, MBIA Insured, 5.375%, 2/01/18 6,000,000 5,930,100
Tarrant County, Texas Health Facilities Development Corp., Health Systems Revenue,
Refunding, Harris Methodist Health,
AMBAC Insured, 5.125%, 9/01/12 ..................................................... 3,000,000 2,943,090
Texas State Refunding, VHA, Series A, 6.15%, 12/01/25 .............................. 7,430,000 7,680,020
Texas State Water Development Board Revenue, 6.00%, 7/15/13 ........................ 4,000,000 4,170,720
Tomball Texas Hospital Authority Revenue, Refunding, 6.125%, 7/01/23 ............... 8,750,000 8,843,800
-------------
152,221,078
-------------
United States Territories .4%
American Samoa EDA, Executive Office Building Revenue, 10.125%, 9/01/08 ............ $ 2,295,000 $ 2,411,242
Virgin Island Public Finance Authority Revenue, Refunding,
Matching Fund Loan Notes, Series A, 7.25%, 10/01/18 ................................ 14,000,000 15,647,100
Virgin Islands Water and Power Authority,
Electric System Revenue, Series A, 7.40%, 7/01/11 .................................. 385,000 412,551
Water Power Revenue, Series B, 7.60%, 1/01/12 ...................................... 4,000,000 4,357,720
-------------
22,828,613
-------------
Utah .9%
Box Elder County PCR, Nucor Corp. Project, 6.90%, 5/15/17 .......................... 2,000,000 2,180,060
Carbon County Solid Waste Disposal Revenue, Refunding, Laidlaw Environmental,
Series A, 7.45%, 7/01/17 ........................................................... 2,500,000 2,564,825
Davis County Solid Waste Management Energy Recovery Revenue,
Refunding, Special Services District, 6.125%, 6/15/09 .............................. 16,800,000 17,220,672
Tooele County PCR, Refunding, Laidlaw Environmental, Series A, 7.55%, 7/01/27 ...... 3,500,000 3,590,265
Utah Assessed Municipal Power Systems Revenue, San Juan Project, 6.375%, 6/01/22 ... 11,000,000 11,777,920
Utah State HFA, SFM,
Series A, 9.625%, 7/01/00 .......................................................... 45,000 46,601
Series A-2, 9.625%, 7/01/02 ........................................................ 55,000 56,742
Series A-2, 9.45%, 7/01/03 ......................................................... 180,000 186,851
Series B, 9.50%, 7/01/00 ........................................................... 60,000 62,208
Series B, 9.60%, 7/01/00 ........................................................... 30,000 30,727
Series B, 9.25%, 7/01/01 ........................................................... 65,000 66,804
Series B-2, 9.50%, 7/01/02 ......................................................... 65,000 67,386
Series B-2, 9.45%, 7/01/03 ......................................................... 195,000 202,940
Series C-1, 9.375%, 7/01/00 ........................................................ 120,000 123,527
Series C-2, 9.05%, 7/01/03 ......................................................... 230,000 242,972
Series D-2, 9.00%, 7/01/03 ......................................................... 465,000 491,198
Series E, 9.50%, 7/01/00 ........................................................... 40,000 41,299
Series E-1, 8.70%, 7/01/03 ......................................................... 445,000 471,251
Series F, 9.60%, 7/01/00 ........................................................... 20,000 20,699
Series G-2, 9.30%, 7/01/00 ......................................................... 45,000 45,621
Sub-Series B-2, 8.70%, 7/01/04 ..................................................... 580,000 615,044
Sub-Series D, 8.45%, 7/01/04 ....................................................... 385,000 399,110
Weber County Municipal Building Authority Lease Revenue, Refunding,
MBIA Insured, 5.75%, 12/15/19 .................................................... 5,000,000 5,061,600
-------------
45,566,322
-------------
Virginia .4%
Hanover County, Virginia IDA Hospital Revenue, Memorial Regional Medical Center Project,
MBIA Insured, 5.50%, 8/15/25 ....................................................... 9,725,000 9,697,089
Norfolk Water Revenue, AMBAC Insured, 5.375%, 11/01/23 ............................. 2,855,000 2,778,543
Virginia State HDA Commonwealth Mortgage, Series D,
Sub Series D-3, 6.125%, 1/01/19 .................................................... 9,715,000 10,065,712
-------------
22,541,344
-------------
Washington .6%
Washington State Health Care Facilities Authority Revenue, Swedish
Hospital Medical Center, AMBAC Insured, 6.30%, 11/15/22 ............................ 2,675,000 2,808,590
Washington State Public Power Supply System Revenue, Refunding
Nuclear Project No. 1, Series C, Pre-Refunded, 8.00%, 7/01/17 ...................... 5,000,000 5,575,400
Nuclear Project No. 2, Series A, 6.00%, 7/01/12 .................................... 20,300,000 20,713,917
Nuclear Project No. 2, Series A, 6.50%, 7/01/15 .................................... 3,000,000 3,196,500
Yakima-Tieton Irrigation District Revenue, Refunding, Pre-Refunded, 8.40%, 6/01/18 . 1,000,000 1,033,230
-------------
33,327,637
-------------
West Virginia .4%
West Virginia State Hospital Finance Authority, Hospital Revenue, 7.25%, 7/01/20 ... 15,000,000 15,519,300
West Virginia State Water Development Authority Revenue,
Loan Program II, Series A, Pre-Refunded, 8.625%, 11/01/28 .......................... 1,550,000 1,659,818
Loan Program II, Series A, Pre-Refunded, 8.125%, 11/01/29 .......................... 2,790,000 2,972,048
Solid Waste Management, Series C, 8.125%, 8/01/15 .................................. 2,420,000 2,614,786
-------------
22,765,952
-------------
Wisconsin 1.2%
Wisconsin Central District, Wisconsin Tax Revenue, Junior Dedicated, Series B, 5.75%, 12/15/27 12,840,000 12,927,826
Wisconsin Housing EDA, Home Ownership Revenue, Series C, 6.15%, 9/01/17 ............ 2,470,000 2,559,735
Wisconsin (cont.)
Wisconsin State Health and Educational Facilities Authority Revenue,
Bethany Lutheran Home of La Crosse, 8.75%, 12/01/06 ................................ $ 1,000,000 $ 1,037,310
Franciscan Health System, Inc. Project, 6.25%, 11/15/20 ............................ 9,510,000 10,052,450
Franciscan Health System, Inc. Project, Pre-Refunded, 8.375%, 3/01/05 .............. 6,000,000 6,687,360
Franciscan Health System, Inc. Project, Pre-Refunded, 8.50%, 3/01/20 ............... 6,000,000 6,704,880
Refunding, Felician Health Care, Series A, AMBAC Insured, 7.00%, 1/01/15 ........... 5,000,000 5,321,500
Sisters Sorrowful Mother, Series A, MBIA Insured, 5.90%, 8/15/24 ................... 22,055,000 22,514,185
-------------
67,805,246
-------------
Wyoming .2%
Sweetwater County PCR, Refunding, Idaho Power Co., Series A, 6.05%, 7/15/26 ........ 10,500,000 10,931,839
Wyoming CDA Revenue, Series 1, 6.15%, 6/01/17 ...................................... 1,000,000 1,043,810
-------------
11,975,649
-------------
Total Bonds ........................................................................ 4,941,259,066
-------------
dZero Coupon Bonds 2.6%
Akron Ohio COP, Akron Municipal Baseball Stadium Project, Capital Appreciation, zero coupon to 12/01/01,
(original accretion rate 6.30%), 6.30% thereafter, 12/01/05 ........................ 1,700,000 1,386,707
(original accretion rate 6.40%), 6.40% thereafter, 12/01/06 ........................ 1,685,000 1,376,712
(original accretion rate 6.50%), 6.50% thereafter, 12/01/07 ........................ 1,750,000 1,431,588
(original accretion rate 6.90%), 6.90% thereafter, 12/01/16 ........................ 2,500,000 2,074,250
City of Troy, Municipal Assistance Corp., Series C, MBIA Insured, Capital Appreciation,
(original accretion rate 5.71%), 7/15/21 ........................................... 428,010 114,827
(original accretion rate 5.72%), 1/15/22 ........................................... 649,658 169,554
San Francisco City and County RDA, Lease Revenue, George Moscone Center,
(original accretion rate 7.00%), 7/01/09 ........................................... 3,750,000 1,992,450
(original accretion rate 7.00%), 7/01/10 ........................................... 4,500,000 2,238,300
(original accretion rate 7.05%), 7/01/12 ........................................... 4,500,000 1,950,300
(original accretion rate 7.05%), 7/01/13 ........................................... 4,250,000 1,727,583
(original accretion rate 7.05%), 7/01/14 ........................................... 2,250,000 864,023
San Joaquin Hills Transportation, Corridor Agency Toll Road Revenue, Junior Lien,
(original accretion rate 8.00%), 1/01/01 ........................................... 9,100,000 7,561,008
(original accretion rate 8.50%), 1/01/04 ........................................... 7,400,000 5,107,036
(original accretion rate 8.50%), 1/01/05 ........................................... 8,000,000 5,206,720
(original accretion rate 8.50%), 1/01/06 ........................................... 9,000,000 5,479,560
(original accretion rate 8.50%), 1/01/07 ........................................... 9,400,000 5,343,336
(original accretion rate 8.50%), 1/01/08 ........................................... 10,400,000 5,508,880
(original accretion rate 8.75%), 1/01/09 ........................................... 21,900,000 10,729,905
(original accretion rate 8.75%), 1/01/10 ........................................... 15,000,000 6,859,500
(original accretion rate 8.75%), 1/01/12 ........................................... 30,100,000 12,039,699
(original accretion rate 9.00%), 1/01/24 ........................................... 52,700,000 9,416,436
(original accretion rate 9.00%), 1/01/25 ........................................... 45,200,000 7,564,672
(original accretion rate 9.00%), 1/01/26 ........................................... 131,900,000 20,677,963
(original accretion rate 9.00%), 1/01/27 ........................................... 139,100,000 20,425,444
-------------
Total Zero Coupon Bonds ............................................................ 137,246,453
-------------
Total Long Term Investments (Cost $4,769,041,190) .................................. 5,078,505,519
-------------
aShort Term Investments .4%
Allegheny County Pennsylvania Hospital Development Authority Revenue,
Presbyterian Health Center, MBIA Insured, Series A,
Weekly VRDN and Put, 3.45%, 3/01/20,................................................ 200,000 200,000
Apache County Arizona IDA, PCR, Tucson Electric Power, Series A,
Weekly VRDN and Put, 3.35%, 6/15/20 ................................................ 500,000 500,000
Arkansas State Development Financial Authority Higher Education,
Series A, FGIC Insured, Weekly VRDN and Put, 3.35%, 12/01/15 ....................... 300,000 300,000
Hapeville Georgia Development Authority, IDR, Hapeville Hotel Ltd.,
Daily VRDN and Put, 3.70%, 11/01/15 ................................................ 2,600,000 2,600,000
Indiana Health Facilities Financing Authority Revenue, Saint Anthony
Medical Center Project, Weekly VRDN and Put, 3.40%, 12/01/14 ....................... 100,000 100,000
Kentucky Development Finance Authority Revenue, Pooled Loan Program,
Series A, FGIC Insured, Weekly VRDN and Put, 3.35%, 12/01/15 ...................... 200,000 200,000
Massachusetts State Health and Educational Facilities Authority Revenue,
Capital Assets Program, Series D, MBIA Insured, Weekly VRDN and Put, 3.65%, 1/01/35 4,500,000 4,500,000
North Carolina Medical Care Common Revenue, Carol Woods Project,
Daily VRDN and Put, 3.70%, 4/01/21 ................................................. $ 5,400,000 $ 5,400,000
New York City Municipal Water Financing Authority, Water and Sewer System Revenue,
Series C, FGIC Insured, Daily VRDN and Put, 3.70%, 6/15/23 ........................ 4,100,000 4,100,000
University of Arkansas, University of Arkansas Medical Sciences Campus Revenues,
Weekly VRDN and Put, 3.35%, 12/01/19 .............................................. 200,000 200,000
Washington State Health Care Facilities Authority Revenue, Sisters Providence,
Series B, Daily VRDN and Put, 3.80%, 10/01/05 ...................................... 100,000 100,000
Washington State Public Power Supply System, Nuclear Project No. 3,
Refunding, Series 3A-1, Weekly VRDN and Put 3.40%, 7/01/18 ........................ 100,000 100,000
-------------
Total Short Term Investments (Cost $18,300,000) .................................... 18,300,000
-------------
Total Investments (Cost $4,787,341,190) 98.1% ...................................... 5,096,805,519
Other Assets, less Liabilities 1.9% ................................................ 100,958,204
-------------
Net Assets 100.0% .................................................................. $5,197,763,723
=============
</TABLE>
See glossary of abbreviations on page 134.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates. bSufficient collateral has been segregated for securities
traded on a when-issued or delayed delivery basis. cSee Note 6 regarding
defaulted securities. dZero coupon/step-up bonds. The current effective yield
may vary. The original accretion rate will remain constant. eThe bond pays
interest based upon the issuer's ability to pay, which may be less than the
stated interest rate.
Franklin Tax-Free Trust
Statement of Investments, August 31, 1997 (unaudited)
Glossary of Abbreviations
1915 Act- Improvement Bond Act of 1915
ABAG - Association of Bay Area Governments
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
(acquired by MBIA in 1989 and no longer does business under this name).
CDA - Community Development Agency
CDD - Community Development District
CFD - Community Facilities District
COP - Certificate of Participation
CRDA - Community Redevelopment Agency
EDA - Economic Development Authority/Agency
EDC - Economic Development Co.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FI/GML - Federally Insured or Guaranteed Mortgage Loans
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance (some of the securities shown as FSA
Insured were originally insured by Capital Guaranty Insurance Co.
(CGIC)which was acquired by FSA in 1995 and no longer does business
under this name).
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
ID - Improvement District
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
IDBR - Industrial Development Board Revenue
IDC - Industrial Development Corp.
IDR - Industrial Development Revenue
IPC - Industrial Pollution Control
L.P. - Limited Partnership
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
PBA - Public Building Authority
PCC - Pollution Control Corp.
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
RDA - Redevelopment Agency
RDAR - Redevelopment Agency Revenue
RHA - Resource Housing of America
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
UHSD - Unified High School District
USD - Unified School District
VHA - Volunteer Hospital of America
FRANKLIN TAX-FREE TRUST
Financial Statements
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
August 31, 1997 (unaudited)
Franklin Franklin Franklin Franklin Franklin
Arizona Colorado Connecticut Indiana Michigan
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:
Cost $741,470,289 $246,045,356 $185,621,026 $50,635,352 $7,403,835
Value 786,385,132 260,086,998 199,090,908 53,608,633 7,597,751
Cash 130,150 967,177 114,623 152,536 73,591
Receivables:
Investment securities sold 511,670 2,510,828 -- 3,089,970 --
Capital shares sold 1,205,821 403,976 192,065 3,623 --
Interest 9,953,804 4,261,531 2,895,987 594,991 117,953
Affiliates -- -- -- -- 9,000
Other assets -- -- -- -- 1,142
Total assets 798,186,577 268,230,510 202,293,583 57,449,753 7,799,437
Liabilities:
Payables:
Investment securities purchased 7,789,619 4,718,923 1,510,969 4,593,423 294,770
Capital shares redeemed 108,434 298,676 9,407 49,434 --
Affiliates 456,957 177,523 136,219 32,961 --
Shareholders 484,083 214,502 398,770 98,206 265
Distributions to shareholders 984,517 310,061 219,499 57,970 9,445
Other liabilities 31,688 9,435 967 3,339 4,037
Total liabilities 9,855,298 5,729,120 2,275,831 4,835,333 308,517
Net assets, at value $788,331,279 $262,501,390 $200,017,752 $52,614,420 $7,490,920
Net assets consist of:
Undistributed net investment income $ 267,142 $ 209,758 $-- $ 131,168 $ 38,381
Accumulated distributions in excess of net
investment income -- -- (6,154) -- --
Net unrealized appreciation 44,914,843 14,041,642 13,469,882 2,973,281 193,916
Accumulated net realized gain (loss) 2,340,148 841,073 (6,515,597) (55,380) 13,446
Capital shares 740,809,146 247,408,917 193,069,621 49,565,351 7,245,177
Net assets, at value $788,331,279 $262,501,390 $200,017,752 $52,614,420 $7,490,920
Class I:
Net assets, at value $779,437,944 $254,315,573 $193,865,857 $52,614,420 $7,490,920
Shares outstanding 68,904,250 21,405,789 17,590,706 4,435,719 707,310
Net asset value per share* $11.31 $11.88 $11.02 $11.86 $10.59
Maximum offering price per share
(net asset value per share / 95.75%) $11.81 $12.41 $11.51 $12.39 $11.06
Class II:
Net assets, at value $ 8,893,335 $ 8,185,817 $ 6,151,895 -- --
Shares outstanding 782,255 686,321 557,058 -- --
Net asset value per share* $11.37 $11.93 $11.04 -- --
Maximum offering price per share
(net asset value per share / 99.00%) $11.48 $12.05 $11.15 -- --
*Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
</TABLE>
Statements of Assets and Liabilities (cont.)
August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin Franklin Federal Franklin
New Jersey Oregon Pennsylvania Puerto Rico Intermediate- High Yield
Tax-Free Tax-Free Tax-Free Tax-Free Term Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost $586,959,300 $382,976,289 $655,729,246 $187,780,585 $115,986,441$4,787,341,190
Value 620,656,099 408,221,170 692,585,510 198,958,188 120,256,0715,096,805,519
Cash 1,300,893 133,600 109,611 400,013 2,125 5,669,592
Receivables:
Investment securities sold -- 1,343,121 445,000 -- 100,500 48,728,074
Capital shares sold 2,792,703 235,115 1,514,245 148,390 415,795 12,313,915
Interest 9,204,514 6,302,177 12,447,546 3,068,572 1,808,840 89,924,485
Total assets 633,954,209 416,235,183 707,101,912 202,575,163 122,583,3315,253,441,585
Liabilities:
Payables:
Investment securities purchased 3,730,422 1,435,700 6,305,880 -- 5,588,574 33,676,106
Capital shares redeemed 148,988 161,794 259,384 16,445 9,249 1,292,055
Affiliates 401,643 265,690 432,910 136,624 63,334 3,080,200
Shareholders 1,763,605 641,301 651,816 283,148 181,796 11,138,256
Distributions to shareholders 669,170 446,347 872,186 240,692 131,737 6,271,473
Other liabilities 29,531 15,185 15,373 16,950 4,910 219,772
Total liabilities 6,743,359 2,966,017 8,537,549 693,859 5,979,600 55,677,862
Net assets, at value $627,210,850 $413,269,166 $698,564,363 $201,881,304 $116,603,731$5,197,763,723
Net assets consist of:
Undistributed net investment income $ 766,816 $ 1,610,599 $ 89,522 $-- $ 291,313 $ --
Accumulated distributions in excess of net
investment income -- -- -- (89,946) -- (2,609,647)
Net unrealized appreciation 33,696,799 25,244,881 36,856,264 11,177,603 4,269,630 309,464,329
Accumulated net realized gain (loss) (2,455,218) (4,802,837) 2,970,743 (13,618) (1,628,992) (28,697,616)
Capital shares 595,202,453 391,216,523 658,647,834 190,807,265 113,671,7804,919,606,657
Net assets, at value $627,210,850 $413,269,166 $698,564,363 $201,881,304 $116,603,731$5,197,763,723
Class I:
Net assets, at value $606,104,360 $402,153,555 $679,975,006 $199,307,737 $116,603,731$4,900,558,106
Shares outstanding 51,826,368 34,485,727 65,207,172 17,131,985 10,571,436 431,747,454
Net asset value per share* $11.69 $11.66 $10.43 $11.63 $11.03 $11.35
Maximum offering price per share
(net asset value per share / 95.75%) $12.21 $12.18 $10.89 $12.15 $11.28+ $11.85
Class II:
Net assets, at value $ 21,106,490 $ 11,115,611 $ 18,589,357 $ 2,573,567 -- $297,205,617
Shares outstanding 1,796,926 948,114 1,775,835 221,071 -- 26,038,200
Net asset value per share* $11.75 $11.72 $10.47 $11.64 -- $11.41
Maximum offering price per share
(net asset value per share / 99.00%) $11.87 $11.84 $10.58 $11.76 -- $11.53
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge. +The maximum offering price for Franklin Federal
Intermediate-Term Tax-Free Income Fund is calculated at $11.03 / 97.75%.
Statements of Operations
for the six months ended August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin Franklin
Arizona Colorado Connecticut Indiana Michigan
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 $23,730,234 $7,726,778 $6,028,317 $1,667,527 $163,073
Expenses:
Management fees (Note 5) 1,861,764 694,822 547,913 162,542 18,858
Distribution fees (Note 5)
Class I 328,318 105,887 86,381 21,012 1,298
Class II 23,155 21,895 16,634 -- --
Transfer agent fees (Note 5) 114,801 51,405 36,775 13,114 999
Custodian fees 3,570 1,046 909 332 22
Reports to shareholders 84,838 24,429 16,521 7,990 775
Registration and filing fees 13,871 2,808 3,503 269 4,075
Professional fees 10,651 3,599 2,741 412 2,119
Trustees' fees and expenses (Note 5) 5,233 1,734 1,226 404 35
Amortization of offering costs (Note 1) -- -- -- -- 4,229
Other 26,199 14,160 8,653 4,059 2,690
Total expenses 2,472,400 921,785 721,256 210,134 35,100
Expenses waived/paid by affiliate (Note 5) -- -- -- -- (28,001)
Net expenses 2,472,400 921,785 721,256 210,134 7,099
Net investment income 21,257,834 6,804,993 5,307,061 1,457,393 155,974
Realized and unrealized gains:
Net realized gain from investments 2,346,564 1,780,276 4,622 365,161 9,842
Net unrealized appreciation on investments 3,076,593 240,866 1,780,157 33,611 125,484
Net realized and unrealized gain 5,423,157 2,021,142 1,784,779 398,772 135,326
Net increase in net assets resulting from operations $26,680,991 $8,826,135 $7,091,840 $1,856,165 $291,300
</TABLE>
Statements of Operations (cont.)
for the six months ended August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin Franklin Federal Franklin
New Jersey Oregon Pennsylvania Puerto Rico Intermediate- High Yield
Tax-Free Tax-Free Tax-Free Tax-Free Term Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $18,372,027 $12,207,056 $21,454,789 $6,088,404 $3,145,978 $165,607,121
Expenses:
Management fees (Note 5) 1,486,933 1,028,487 1,663,777 555,705 336,587 11,272,968
Distribution fees (Note 5)
Class I 261,998 171,332 288,271 83,562 50,457 1,864,369
Class II 55,843 28,539 48,590 6,472 -- 791,887
Transfer agent fees (Note 5) 144,519 78,701 168,302 56,108 21,313 892,464
Custodian fees 2,237 1,940 3,428 686 526 29,512
Reports to shareholders 79,184 40,161 75,325 26,800 15,608 484,014
Registration and filing fees 5,157 4,352 6,331 24,474 14,752 262,438
Professional fees 6,898 5,758 9,607 3,058 1,671 78,224
Trustees' fees and expenses (Note 5) 4,286 2,702 4,444 1,327 672 30,891
Other 25,070 17,867 22,484 5,530 10,958 381,764
Total expenses 2,072,125 1,379,839 2,290,559 763,722 452,544 16,088,531
Expenses waived/paid by affiliate
(Note 5) -- -- -- -- (45,022) --
Net expenses 2,072,125 1,379,839 2,290,559 763,722 407,522 16,088,531
Net investment income 16,299,902 10,827,217 19,164,230 5,324,682 2,738,456 149,518,590
Realized and unrealized gains (losses):
Net realized gain (loss)
from investments 843,285 468,957 2,971,823 (12,156) (462,893) 19,261,067
Net unrealized appreciation on
investments 3,802,450 3,404,128 2,732,648 2,341,877 1,351,412 46,072,146
Net realized and unrealized gain 4,645,735 3,873,085 5,704,471 2,329,721 888,519 65,333,213
Net increase in net assets resulting
from operations $20,945,637 $14,700,302 $24,868,701 $7,654,403 $3,626,975 $214,851,803
</TABLE>
Statements of Changes in Net Assets
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
<TABLE>
<CAPTION>
Franklin Arizona Franklin Colorado Franklin Connecticut
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
Six months Year ended Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 21,257,834 $ 41,897,411 $ 6,804,993 $ 12,630,944 $ 5,307,061 $ 9,915,351
Net realized gain (loss) from
investments 2,346,564 2,134,164 1,780,276 947,229 4,622 (367,976)
Net unrealized appreciation
(depreciation) on
investments 3,076,593 (4,443,512) 240,866 (1,527,211) 1,780,157 244,537
Net increase in net
assets resulting from
operations 26,680,991 39,588,063 8,826,135 12,050,962 7,091,840 9,791,912
Distributions to shareholders
from:
Net investment income:
Class I (20,979,793) (42,443,851) (6,783,864) (12,524,223) (5,201,706) (9,979,953)
Class II (174,212) (182,399) (165,039) (173,036) (125,153) (150,117)
In excess of net investment
income:
Class I -- -- -- -- (5,334) --
Class II -- -- -- -- (820) --
Net realized gains:
Class I (779,756) (3,059,354) -- -- -- --
Class II (7,690) (16,297) -- -- -- --
Capital share transactions
(Note 2):
Class I 22,425,030 7,663,191 15,887,204 21,676,316 8,514,006 16,956,345
Class II 3,346,167 3,581,489 2,474,378 3,967,572 1,947,423 2,478,532
Net increase in
net assets 30,510,737 5,130,842 20,238,814 24,997,591 12,220,256 19,096,719
Net assets:
Beginning of period 757,820,542 752,689,700 242,262,576 217,264,985 187,797,496 168,700,777
End of period $788,331,279 $757,820,542 $262,501,390 $242,262,576 $200,017,752 $187,797,496
Undistributed net investment
income (accumulated distribu-
tions in excess of net investment
income) included in net assets:
Beginning of period $ 163,313 $ 892,152 $ 353,668 $ 419,983 $ 19,798 $ 234,517
End of period $ 267,142 $ 163,313 $ 209,758 $ 353,668 $ (6,154) $ 19,798
</TABLE>
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
<TABLE>
<CAPTION>
Franklin Indiana Franklin Michigan Franklin New Jersey
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
Six months Year ended Six months Period ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97* ended 8/31/97 2/28/97
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease)in net assets:
Operations:
Net investment income $ 1,457,393 $ 2,832,470 $ 155,974 $ 100,332 $ 16,299,902 $ 31,823,180
Net realized gain from
investments 365,161 451,723 9,842 3,604 843,285 2,380,405
Net unrealized appreciation
(depreciation) on
investments 33,611 (363,352) 125,484 68,432 3,802,450 (5,332,217)
Net increase in net
assets resulting from
operations 1,856,165 2,920,841 291,300 172,368 20,945,637 28,871,368
Distributions to shareholders
from:
Net investment income:
Class I (1,442,256) (2,822,030) (155,648) (62,277) (16,143,210) (31,578,177)
Class II -- -- -- -- (422,087) (413,207)
Capital share transactions
(Note 2):
Class I 1,063,194 2,089,230 3,471,138 3,774,039 27,201,922 12,995,401
Class II -- -- -- -- 7,842,123 8,505,683
Net increase in
net assets 1,477,103 2,188,041 3,606,790 3,884,130 39,424,385 18,381,068
Net assets:
Beginning of period 51,137,317 48,949,276 3,884,130 -- 587,786,465 569,405,397
End of period $52,614,420 $51,137,317 $7,490,920 $3,884,130 $627,210,850 $587,786,465
Undistributed net investment
income included in net assets:
Beginning of period $ 116,031 $ 105,591 $ 38,055 $-- $ 1,032,211 $ 1,200,415
End of period $ 131,168 $ 116,031 $ 38,381 $ 38,055 $ 766,816 $ 1,032,211
</TABLE>
*For the period July 1, 1996 (effective date) to February 28, 1997.
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
<TABLE>
<CAPTION>
Franklin Oregon Franklin Pennsylvania Franklin Puerto Rico
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
Six months Year ended Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 10,827,217 $ 20,962,424 $19,164,230 $ 37,938,588 $5,324,682 $ 10,748,114
Net realized gain (loss) from
investments 468,957 (67,453) 2,971,823 5,857,039 (12,156) 2,031,659
Net unrealized appreciation
(depreciation) on
investments 3,404,128 (1,899,285) 2,732,648 (8,671,626) 2,341,877 (1,447,567)
Net increase in net
assets resulting from
operations 14,700,302 18,995,686 24,868,701 35,124,001 7,654,403 11,332,206
Distributions to shareholders
from:
Net investment income:
Class I (10,478,227) (20,472,473) (19,065,609) (37,722,774) (5,259,483) (10,680,927)
Class II (208,562) (200,164) (383,026) (374,193) (47,687) (52,013)
In excess of net investment
income:
Class I -- -- -- -- -- (107,458)
Net realized gains:
Class I -- -- (2,742,252) -- (237,542) (1,706,390)
Class II -- -- (60,718) -- (2,435) (13,384)
Capital share transactions
(Note 2):
Class I 14,242,699 10,295,368 19,095,368 21,520,820 4,698,155 3,175,600
Class II 3,910,217 5,025,416 6,578,247 8,769,287 871,455 1,146,899
Net increase in
net assets 22,166,429 13,643,833 28,290,711 27,317,141 7,676,866 3,094,533
Net assets:
Beginning of period 391,102,737 377,458,904 670,273,652 642,956,511 194,204,438 191,109,905
End of period $413,269,166 $391,102,737 $698,564,363 $670,273,652 $201,881,304 $194,204,438
Undistributed net investment
income (accumulated
distributions in excess of
net investment income)
included in net assets:
Beginning of period $ 1,470,171 $ 1,180,384 $ 373,927 $ 532,306 $ (107,458) $ (15,174)
End of period $ 1,610,599 $ 1,470,171 $ 89,522 $ 373,927 $ (89,946) $ (107,458)
</TABLE>
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1997 (unaudited)
and the year ended February 28, 1997
<TABLE>
<CAPTION>
Franklin
Federal Intermediate-Term Franklin High Yield
Tax-Free Income Fund Tax-Free Income Fund
Six months Year ended Six months Year ended
ended 8/31/97 2/28/97 ended 8/31/97 2/28/97
<S> <C> <C> <C> <C>
Increase (decrease)in net assets:
Operations:
Net investment income $ 2,738,456 $ 4,814,011 $ 149,518,590 $ 266,294,299
Net realized gain (loss) from investments (462,893) (99,478) 19,261,067 (1,562,428)
Net unrealized appreciation on investments 1,351,412 157,409 46,072,146 23,745,558
Net increase in net assets resulting from operations 3,626,975 4,871,942 214,851,803 288,477,429
Distributions to shareholders from:
Net investment income:
Class I (2,712,663) (4,748,392) (142,235,740) (263,983,718)
Class II -- -- (6,626,634) (6,203,344)
In excess of net investment income:
Class I -- -- -- (3,211,797)
Class II -- -- -- (54,066)
Capital share transactions (Note 2)
Class I 10,974,249 18,624,135 333,085,277 704,755,425
Class II -- -- 99,031,485 144,567,654
Net increase in net assets 11,888,561 18,747,685 498,106,191 864,347,583
Net assets:
Beginning of period 104,715,170 85,967,485 4,699,657,532 3,835,309,949
End of period $116,603,731 $104,715,170 $5,197,763,723$4,699,657,532
Undistributed net investment income (accumulated distributions in
excess of net investment income) included in net assets:
Beginning of period $ 265,520 $ 199,901 $ (3,265,863) $ 3,892,763
End of period $ 291,313 $ 265,520 $ (2,609,647)$ (3,265,863)
</TABLE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-eight
separate series. All funds included in this report (the Funds) are diversified
except the Franklin Connecticut Tax-Free Income Fund, the Franklin Michigan
Tax-Free Income Fund and the Franklin Federal Intermediate-Term Tax-Free Income
Fund. The investment policy of the Funds is to provide tax-free income.
The following summarizes the Funds' significant accounting policies.
a. Security Valuation
Tax-free bonds generally trade in the over-the-counter market and are valued
within the range of the latest quoted bid and asked prices. In the absence of a
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 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. Securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. Income Taxes
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
c. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount and
premium are amortized on an income tax basis. Distributions to shareholders are
recorded on the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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. Other expenses are
charged to each Fund on a specific identification basis.
d. Accounting Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
e. Offering Costs
Offering costs are amortized on a straight-line basis over twelve months.
2. TRUST SHARES
The Funds, except the Franklin Indiana Tax-Free Income Fund, the Franklin
Michigan Tax-Free Income Fund and the Franklin Federal Intermediate-Term
Tax-Free Income Fund, offer two classes of shares: Class I and Class II. The
shares have the same rights except for their initial sales load, distribution
fees, voting rights on matters affecting a single class and the exchange
privilege of each class.
2. TRUST SHARES (cont.)
At August 31, 1997, there were an unlimited number of shares authorized (no par
value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
Franklin Arizona Franklin Colorado Franklin Connecticut
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
Class I Shares: Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Six months ended August 31, 1997
Shares sold 5,531,146 $62,109,270 2,524,574 $29,728,416 1,612,106 $17,596,627
Shares issued in reinvestment
of distributions 769,491 8,649,040 271,113 3,198,293 209,105 2,284,866
Shares redeemed (4,308,829) (48,333,280) (1,445,275) (17,039,505) (1,041,803) (11,367,487)
Net increase 1,991,808 $22,425,030 1,350,412 $15,887,204 779,408 $ 8,514,006
Year ended February 28, 1997
Shares sold 7,998,298 $89,211,140 3,365,949 $39,446,492 3,013,488 $32,678,988
Shares issued in reinvestment
of distributions 1,620,931 18,115,046 515,694 6,032,862 403,771 4,380,528
Shares redeemed (8,930,597) (99,662,995) (2,036,403) (23,803,038) (1,853,538) (20,103,171)
Net increase 688,632 $ 7,663,191 1,845,240 $21,676,316 1,563,721 $16,956,345
Class II Shares:
Six months ended August 31, 1997
Shares sold 333,186 $ 3,760,885 230,941 $ 2,735,980 207,567 $ 2,275,362
Shares issued in reinvestment
of distributions 10,877 122,982 9,841 116,673 6,962 76,310
Shares redeemed (47,486) (537,700) (32,004) (378,275) (36,604) (404,249)
Net increase 296,577 $ 3,346,167 208,778 $ 2,474,378 177,925 $ 1,947,423
Year ended February 28, 1997
Shares sold 376,534 $ 4,223,178 429,745 $ 5,050,296 231,440 $ 2,513,435
Shares issued in reinvestment
of distributions 11,069 124,484 10,140 119,253 9,160 99,611
Shares redeemed (68,188) (766,173) (101,865) (1,201,977) (12,392) (134,514)
Net increase 319,415 $ 3,581,489 338,020 $ 3,967,572 228,208 $ 2,478,532
Franklin Indiana Franklin Michigan Franklin New Jersey
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
Class I Shares: Shares Amount Shares Amount Shares Amount
Six months ended August 31, 1997
Shares sold 312,149 $3,665,174 352,611 $3,658,122 4,606,661 $53,517,532
Shares issued in reinvestment
of distributions 65,044 765,573 10,327 108,169 710,455 8,249,970
Shares redeemed (286,048) (3,367,553) (28,427) (295,153) (2,978,717) (34,565,580)
Net increase 91,145 $1,063,194 334,511 $3,471,138 2,338,399 $27,201,922
Year ended February 28, 1997*
Shares sold 534,226 $6,210,915 379,169 $3,839,046 6,265,119 $72,134,679
Shares issued in reinvestment
of distributions 128,039 1,490,773 4,786 49,840 1,388,739 15,999,117
Shares redeemed (481,802) (5,612,458) (11,156) (114,847) (6,530,752) (75,138,395)
Net increase 180,463 $2,089,230 372,799 $3,774,039 1,123,106 $12,995,401
2. TRUST SHARES (cont.)
Franklin New Jersey
Tax-Free Income Fund
Class II Shares: Shares Amount
Six months ended August 31, 1997
Shares sold 712,000 $ 8,287,869
Shares issued in reinvestment of distributions 24,910 290,904
Shares redeemed (63,266) (736,650)
Net increase 673,644 $ 7,842,123
Year ended February 28, 1997
Shares sold 823,396 $ 9,520,495
Shares issued in reinvestment of distributions 25,105 290,846
Shares redeemed (112,665) (1,305,658)
Net increase 735,836 $ 8,505,683
Franklin Oregon Franklin Pennsylvania Franklin Puerto Rico
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
Class I Shares: Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Six months ended August 31, 1997
Shares sold 2,534,272 $29,245,863 4,593,606 $47,636,842 1,208,006 $13,892,793
Shares issued in reinvestment
of distributions 516,688 5,973,229 967,599 10,045,927 233,797 2,695,328
Shares redeemed (1,817,134) (20,976,393) (3,720,399) (38,587,401) (1,033,996) (11,889,966)
Net increase 1,233,826 $14,242,699 1,840,806 $19,095,368 407,807 $4,698,155
Year ended February 28, 1997
Shares sold 3,911,445 $44,814,258 7,716,132 $79,515,366 1,806,977 $20,742,655
Shares issued in reinvestment
of distributions 1,008,332 11,559,976 1,565,965 16,144,953 539,619 6,199,054
Shares redeemed (4,024,495) (46,078,866) (7,195,099) (74,139,499) (2,068,913) (23,766,109)
Net increase 895,282 $10,295,368 2,086,998 $21,520,820 277,683 $ 3,175,600
Class II Shares:
Six months ended August 31, 1997
Shares sold 372,919 $ 4,332,285 650,239 $ 6,774,909 87,451 $ 1,009,977
Shares issued in reinvestment
of distributions 13,131 152,712 28,134 293,391 2,440 28,195
Shares redeemed (49,638) (574,780) (47,103) (490,053) (14,495) (166,717)
Net increase 336,412 $ 3,910,217 631,270 $ 6,578,247 75,396 $ 871,455
Year ended February 28, 1997
Shares sold 464,993 $ 5,357,866 881,728 $ 9,122,622 144,789 $ 1,664,480
Shares issued in reinvestment
of distributions 13,728 158,332 23,191 240,276 3,261 37,572
Shares redeemed (42,568) (490,782) (57,329) (593,611) (48,280) (555,153)
Net increase 436,153 $ 5,025,416 847,590 $ 8,769,287 99,770 $ 1,146,899
2. TRUST SHARES (cont.)
Franklin
Federal Intermediate-Term Franklin High Yield
Tax-Free Income Fund Tax-Free Income Fund
Class I Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Six months ended August 31, 1997
Shares sold 3,294,293 $36,019,636 52,263,321$ 585,905,240
Shares issued in reinvestment of distributions 149,367 1,634,127 5,130,194 57,581,345
Shares redeemed (2,443,430) (26,679,514) (27,717,515)(310,401,308)
Net increase 1,000,230 $10,974,249 29,676,000$ 333,085,277
Year ended February 28, 1997
Shares sold 4,345,155 $47,044,282 96,413,033$1,068,273,093
Shares issued in reinvestment of distributions 258,673 2,803,060 9,358,868 103,625,570
Shares redeemed (2,881,216) (31,223,207) (42,224,510)(467,143,238)
Net increase 1,722,612 $18,624,135 63,547,391$ 704,755,425
Class II Shares:
Six months ended August 31, 1997
Shares sold 9,651,587$ 108,868,882
Shares issued in reinvestment of distributions 333,060 3,763,609
Shares redeemed (1,204,722) (13,601,006)
Net increase 8,779,925 $ 99,031,485
Year ended February 28, 1997
Shares sold 13,680,514$ 152,469,159
Shares issued in reinvestment of distributions 304,948 3,402,828
Shares redeemed (1,013,757) (11,304,333)
Net increase 12,971,705$ 144,567,654
*For the period July 1, 1996 (effective date) to February 28, 1997 for the Franklin Michigan Tax-Free Income Fund.
3. INCOME TAXES
At February 28, 1997, the Funds had tax basis capital losses which may be carried over to offset future capital gains.
Such losses expire
as follows:
Franklin Franklin Franklin Franklin
Colorado Connecticut Indiana New Jersey
Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund
Capital loss carryovers expiring in:
<C> <C> <C> <C> <C>
2001 ............................................................ $ -- $ 261,598 $ -- $--
2003 ............................................................ 938,315 5,817,978 420,541 3,298,503
2004 ............................................................ -- 46,957 -- --
2005 ............................................................ -- 322,502 -- --
$938,315 $6,449,035 $420,541 $3,298,503
Franklin Franklin Federal Franklin
Oregon Intermediate- High Yield
Tax-Free Term Tax-Free Tax-Free
Income Fund Income Fund Income Fund
Capital loss carryovers expiring in:
<C> <C> <C> <C>
2001 ....................................................................... $ 74,144 $-- $--
2002 ........................................................................ 54,202 -- 22,886,561
2003 ........................................................................ 5,075,995 1,066,621 23,501,819
2005 ........................................................................ 67,453 99,478 1,567,803
$5,271,794 $1,166,099 $47,956,183
3. INCOME TAXES (cont.)
At February 28, 1997, the Franklin Connecticut Tax-Free Income Fund had deferred capital losses occurring subsequent to
October 31, 1996 of $45,474. For tax purposes, such losses will be reflected in the year ending February 28, 1998.
At August 31, 1997, the net unrealized appreciation based on the cost of investments for income tax purposes was as
follows:
Franklin Franklin Franklin Franklin Franklin Franklin
Arizona Colorado Connecticut Indiana Michigan New Jersey
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C> <C>
Investments at cost ................. $741,474,071 $246,046,244 $185,646,736 $50,635,352 $7,403,835 $586,959,300
Unrealized appreciation ............. $ 45,384,253 $ 14,253,139 $ 13,444,172 $ 2,975,741 $ 201,878 $ 33,917,483
Unrealized depreciation ............. (473,192) (212,385) -- (2,460) (7,962) (220,684)
Net unrealized appreciation ......... $ 44,911,061 $ 14,040,754 $ 13,444,172 $ 2,973,281 $ 193,916 $ 33,696,799
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>
Investments at cost .............................. $382,976,289 $655,729,246 $187,780,585 $115,986,441$4,787,343,690
Unrealized appreciation .......................... $ 25,363,760 $ 37,374,637 $ 11,187,609 $ 4,618,661$ 326,631,096
Unrealized depreciation .......................... (118,879) (518,373) (10,006) (349,031) (17,169,267)
Net unrealized appreciation ...................... $ 25,244,881 $ 36,856,264 $ 11,177,603 $ 4,269,630$ 309,461,829
Net investment income differs for financial statement and tax purposes primarily
due to differences between book and tax recognition of dividend distributions.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatment of wash sales.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended August 31, 1997 were as follows:
Franklin Franklin Franklin Franklin Franklin Franklin
Arizona Colorado Connecticut Indiana Michigan New Jersey
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C> <C>
Purchases ........................... $108,859,313 $38,193,185 $18,816,652 $10,057,188 $5,224,535 $79,539,032
Sales ............................... $ 76,985,966 $27,058,769 $ 5,835,625 $ 7,367,014 $1,943,311 $42,157,974
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 ........................................ $31,073,363 $71,635,219 $14,631,737 $22,745,474 $778,499,579
Sales ............................................ $11,484,225 $44,409,451 $ 5,477,735 $ 6,303,743 $386,929,343
</TABLE>
5. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers or directors of
Franklin Advisers Inc. (Advisers), Franklin Investment Advisory Services, Inc.
(Investment Advisory), Franklin/Templeton Distributors, Inc. (Distributors),
Franklin Templeton Services, Inc. (FT Services), and Franklin/Templeton Investor
Services, Inc. (Investor Services), the Funds' investment managers, principal
underwriter, administrative manager and transfer agent, respectively.
5. TRANSACTIONS WITH AFFILIATES (cont.)
The Franklin Connecticut Tax-Free Income Fund and the remaining funds pay an
investment management fee to Investment Advisory and Advisers, respectively
based on the average net assets of the Funds as follows:
Annualized
Fee Rate Month-End Net Assets
0.625% First $100 million
0.50% Over $100 million, up to and including $250 million
0.45% In excess of $250 million
Under agreements with Advisers and Investment Advisory, FT Services provides
administrative services to the Funds. The fee is paid by Advisers and Investment
Advisory based on average daily net assets, and is not an additional expense of
the Funds.
Advisers agreed in advance to waive management fees and assume payment of other
expenses for the Franklin Michigan Tax-Free Income Fund and the Franklin Federal
Intermediate-Term Tax-Free Income Fund, as noted in the Statement of Operations.
The Funds reimburse Distributors up to 0.10% and 0.65% per year of their average
daily net assets of Class I and Class II, respectively, for costs incurred
inmarketing the Funds' shares.
Distributors received (paid) net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the period as follows:
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin Franklin Franklin
Arizona Colorado Connecticut Indiana Michigan New Jersey
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C> <C>
Net commissions received (paid) ...... $(3,811) $(36,183) $9,894 $5,893 $(2,532) $(48,242)
Contingent deferred sales charges .... $2,230 $ 438 $1,480 -- -- $ 3,387
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
Net commissions received (paid) ................. $(8,411) $(1,396) $13,537 $(33,512) $(1,023,462)
Contingent deferred sales charges .................. $3,413 $2,968 $ 1,587 -- $ 68,617
</TABLE>
6. CREDIT RISK ANDDEFAULTEDSECURITIES
The Franklin High Yield Tax-Free Income Fund has 30.3% of its portfolio invested
in lower rated and comparable quality unrated high yield securities, which tend
to be more sensitive to economic conditions than higher rated securities. The
risk of loss due to default by the issuer may be significantly greater for the
holders of high yielding securities as compared to investment grade securities.
At August 31, 1997, the Franklin Federal Intermediate-Term Tax-Free Income Fund
and the Franklin High Yield Tax-Free Income Fund held defaulted securities with
a value aggregating $1,104,250 and $20,507,500 representing .95% and .39%,
respectively, of the funds' net assets. For information as to specific
securities, see the accompanying Statements of Investments.
For financial reporting purposes, the funds discontinue accruing income on
defaulted bonds and provide an estimate for losses on interest receivable.
All of the funds have investments in excess of 10% of their total net assets in
their respective states or U.S. territories and possessions except the Franklin
Intermediate-Term Tax-Free Income Fund and the Franklin High Yield Tax-Free
Income Fund which have investments in excess of 10% of their total assets in the
states of New York and/or California. Such concentration may subject the Funds
more significantly to economic changes occurring within those states or
territories or possessions.
Franklin Tax-Free Trust #3 (Arizona Series) Semi-Annual Report August 31, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the total return of the municipal bond market
over a ten-year period, from 9/1/87 to 8/31/97.
<TABLE>
<CAPTION>
Over the Long Term, Income Drives Total Return Municipal Bond Market
<S> <C>
Income 84.01%
Appreciation on Initial 15.99%
Investment
</TABLE>
GRAPHIC MATERIAL (2)
This bar chart shows the percentage of insured vs. Non-insured municipal bond
issuance over a three-year period.
<TABLE>
<CAPTION>
Insured and Non-Insured Municipal Bonds as a Percentage of Total Long-Term Investments
<S> <C> <C>
Year Insured Bonds Non-Insured Bonds
1994 37% 63%
1995 43% 57%
1996 47% 53%
1997 61% 39%
</TABLE>
GRAPHIC MATERIAL (3)
This chart shows in bar format the dollar amount (in billions) of new long-term
municipal bond issuance from 1987 to 1997: $105 (1987); $117.3 (1988); $125
(1989); $127.8 (1990); $172.4 (1991); $234.7 (1992); $292.2 (1993); $164.8
(1994); $160.3 (1995); $183.5 (1996); $105.7 (1997).
GRAPHIC MATERIAL (4)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 55.4%
AA 17.7%
A 5.4%
BBB 21.5%
</TABLE>
GRAPHIC MATERIAL (5)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.28% and the taxable equivalent rate of 9.22%.
GRAPHIC MATERIAL (6)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.84% and the taxable equivalent rate of 8.45%.
GRAPHIC MATERIAL (7)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 65.4%
AA 10.9%
A 10.8%
BBB 12.9%
</TABLE>
GRAPHIC MATERIAL (8)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.03% and the taxable equivalent rate of 8.76%.
GRAPHIC MATERIAL (9)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.61% and the taxable equivalent rate of 8.04%.
GRAPHIC MATERIAL (10)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 44.7%
AA 19.8%
A 10.9%
BBB 24.6%
</TABLE>
GRAPHIC MATERIAL (11)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.21% and the taxable equivalent rate of 9.04%.
GRAPHIC MATERIAL (12)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.81% and the taxable equivalent rate of 8.34%.
GRAPHIC MATERIAL (13)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 39.5%
AA 8.7%
A 26.2%
BBB 25.3%
Below 0.3%
Investment Grade
</TABLE>
GRAPHIC MATERIAL (14)
This chart shows in bar format the comparison between the fund's distribution
rate of 5.23% and the taxable equivalent rate of 8.96%.
GRAPHIC MATERIAL (15)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 59.7%
AA 17.6%
A 2.1%
BBB 20.6%
</TABLE>
GRAPHIC MATERIAL (16)
This chart shows in bar format the comparison between the fund's distribution
rate of 5.21% and the taxable equivalent rate of 9.02%.
GRAPHIC MATERIAL (17)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 64.5%
AA 9.8%
A 9.8%
BBB 14.5%
Below 1.4%
Investment Grade
</TABLE>
GRAPHIC MATERIAL (18)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.11% and the taxable equivalent rate of 9.04%.
GRAPHIC MATERIAL (19)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.72% and the taxable equivalent rate of 8.35%.
GRAPHIC MATERIAL (20)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 40.4%
AA 24.0%
A 20.3%
BBB 14.3%
Below 1.0%
Investment Grade
</TABLE>
GRAPHIC MATERIAL (21)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.12% and the taxable equivalent rate of 9.32%.
GRAPHIC MATERIAL (22)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.70% and the taxable equivalent rate of 8.55%.
GRAPHIC MATERIAL (23)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 56.3%
AA 9.1%
A 15.3%
BBB 19.3%
</TABLE>
GRAPHIC MATERIAL (24)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.29% and the taxable equivalent rate of 9.01%.
GRAPHIC MATERIAL (25)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.87% and the taxable equivalent rate of 8.29%.
GRAPHIC MATERIAL (26)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 36.0%
AA 1.2%
A 16.9%
BBB 45.9%
</TABLE>
GRAPHIC MATERIAL (27)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.04% and the taxable equivalent rate of 8.34%.
GRAPHIC MATERIAL (28)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 4.64% and the taxable equivalent rate of 7.69%.
GRAPHIC MATERIAL (29)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 11.5%
AA 12.8%
A 24.4%
BBB 47.9%
Below 3.4%
Investment Grade
</TABLE>
GRAPHIC MATERIAL (30)
This chart shows in bar format the comparison between the fund's distribution
rate of 4.89% and the taxable equivalent rate of 8.10%.
GRAPHIC MATERIAL (31)
This chart shows in pie format the quality breakdown of the fund's securities on
8/31/97, based on total long-term investments.
<TABLE>
<CAPTION>
Quality Breakdown
<S> <C>
AAA 25.1%
AA 4.7%
A 13.3%
BBB 26.6%
Below 30.3%
Investment Grade
</TABLE>
GRAPHIC MATERIAL (32)
This chart shows in bar format the comparison between the fund's Class I
distribution rate of 5.77% and the taxable equivalent rate of 9.56%.
GRAPHIC MATERIAL (33)
This chart shows in bar format the comparison between the fund's Class II
distribution rate of 5.36% and the taxable equivalent rate of 8.87%.
