CONTENTS
Shareholder Letter .......................................... 1
Special Feature:
Q&A with Franklin's
Municipal Bond Department.................................... 3
Fund Reports
Franklin Arizona Insured
Tax-Free Income Fund ........................................ 8
Franklin Florida Insured
Tax-Free Income Fund ........................................ 12
Franklin Insured
Tax-Free Income Fund ........................................ 16
Franklin Massachusetts Insured
Tax-Free Income Fund ........................................ 22
Franklin Michigan Insured
Tax-Free Income Fund ....................................... 28
Franklin Minnesota Insured
Tax-Free Income Fund ........................................ 34
Franklin Ohio Insured
Tax-Free Income Fund ........................................ 40
Glossary of Investment Terms ................................ 46
Municipal Bond Ratings ...................................... 48
Financial Highlights &
Statement of Investments .................................... 50
Financial Statements ........................................ 98
Notes to Financial Statements ............................... 105
Independent Auditors' Report................................. 110
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's annual report for the
period ended February 28, 1998.
ECONOMIC OVERVIEW
The U.S. economy remained strong over the Trust's reporting period, and showed
no discernible indications of ending one of the longest, sustained economic
expansions in its history. This expansion continued to feature moderate growth
with few signs of inflation. Overall, interest rates declined during the year,
and the 30-year Treasury yield ended the period at 5.92%, down from 6.80% on
February 28, 1997. A generally benign inflationary environment, and a balanced
budget agreement between the President and Congress, as well as expectations for
a 1998 budget surplus, contributed to declining rates.
Interest rates directly affect tax-free bonds, and help shape the economic
environment that determines the general fiscal health of the municipalities
issuing them. Higher interest rates raise the cost of borrowing for state and
local governments, while lower rates generally translate into a decrease in
borrowing costs. A drop in rates usually causes the value of existing bonds to
increase, while a rise in rates often has the opposite effect.
Not all news during the Trust's reporting period was positive. Many economists
feared that the Asian crisis would have a negative effect on the U.S. economy,
but the worst of those concerns did not come to pass during this period, as U.S.
growth continued. Although the International Monetary Fund's strong intervention
in many affected Asian countries clearly helped dampen the effects of this
crisis, it is still likely that U.S. economic growth may slow somewhat in the
future, as several of its Asian trading partners attempt to rebuild their
once-thriving economies. With the potential rise in economic uncertainties and
the continued increase in stock market valuations, many investors are giving
more consideration to allocating a larger portion of their portfolios in
investments such as tax-free bonds, which generally enjoy greater stability than
stocks.
We encourage you to discuss your financial goals with your investment
representative. He or she can address concerns about volatility and help you
diversify your investments and stay focused on the long term. Mutual funds offer
a level of diversification that is almost impossible for individual investors to
achieve on their own.
Regardless of the market's direction, Franklin Templeton's disciplined
investment strategy remains the same. All of our portfolio managers are
dedicated to providing shareholders like you with careful selection and constant
professional supervision. As always, we appreciate your support, welcome your
questions and comments, and look forward to serving your investment needs in the
years ahead.
Sincerely,
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
Thomas J. Kenny
Director
Franklin Municipal Bond Department
Q&A
SPECIAL FEATURE:
Q&A WITH FRANKLIN'S
MUNICIPAL BOND DEPARTMENT
Thomas J. Kenny, Director of Franklin Templeton's Municipal Bond Department, and
portfolio managers Sheila Amoroso and Bernie Schroer discuss the issues that
shaped the 1997 municipal bond market.
Q: HOW WOULD YOU DESCRIBE THE MUNICIPAL BOND MARKET'S PERFORMANCE IN 1997?
TOM KENNY: Long-term interest rates trended lower in 1997. The Bond Buyer
40 Index (BB40), a measurement of the municipal bond market, started the year
yielding 5.78% and hit a low of 5.23% on December 26. We saw some fluctuations
over the course of the year, however, with the BB40 yield reaching a high of
6.01% on April 14, 1997. These fluctuations, specifically when interest rates
rose, created opportunities to purchase bonds on the "downswings," or when bond
prices were lower. Over the past ten years, rates have been trending downward,
creating a positive environment for the tax-exempt market. This atmosphere
should prevail if inflation remains under control and the economy continues to
grow moderately. Of course, market conditions can change rapidly, and there is
no guarantee that the economy will remain on its current path.
Q: RECENTLY, THERE HAS BEEN A LOT OF DISCUSSION ABOUT THE ASIAN MARKET
VOLATILITY. DO YOU THINK THE PROBLEMS THERE WILL HAVE ANY IMPACT ON THE U.S.
BOND MARKET THIS YEAR?
BERNIE SCHROER: The decline in Asia's currency and equity markets may help the
U.S. bond market. In 1997, we experienced a strong U.S. economy, which normally
would have pressured the Federal Reserve (the Fed) to raise interest rates,
causing bond prices to fall. Instead, the Fed left interest rates alone,
probably in part due to the Asian turmoil and the dampening effect it could have
on U.S. economic growth this year.
Q: HAVE THE RECENT TAX LAW CHANGES HAD ANY IMPACT ON THE MUNICIPAL BOND MARKET?
SHEILA AMOROSO: Changes in the tax law did not alter the tax advantages of
municipal bonds. Municipals still distribute income free from regular federal,
and in many cases, state income taxes.*
*Source: Bond Buyer 40. Index is composed of 40 actively traded municipal bonds
and does not represent the performance of any Franklin Templeton fund. Investors
cannot invest directly in this unmanaged index.
*For investors subject to regular federal or state alternative minimum tax, all
or a portion of municipal bond interest and municipal bond fund dividends may be
subject to such tax, depending on the source. Fund distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
Q: WHAT ROLE CAN MUNICIPAL BONDS PLAY IN A DIVERSIFIED PORTFOLIO?
SHEILA: After three years of healthy returns due to historic stock market gains,
individuals have seen an increase in the percentage of equities in their
portfolios. As a result, many investors are beginning to re-examine asset
allocation. Municipal bonds generally enjoy low volatility while providing
tax-free income, which can offset some of the risks associated with investing in
a portfolio composed mainly of stocks. The chart on page 6 shows how adding
municipal bonds in different proportions to a stock portfolio has historically
lowered volatility in providing solid after-tax returns. In short, prudent
investors may be able to reduce their risk, and maintain their potential for
competitive return, by including municipal bonds in their portfolios.
BERNIE: Municipal bonds remain a strong investment for investors looking for
tax-free income. Franklin tax-free income funds can help investors diversify a
heavily weighted stock portfolio, while providing a convenient and effective way
to participate in the municipal bond market.
"FRANKLIN TAX-FREE INCOME FUNDS CAN HELP INVESTORS DIVERSIFY A HEAVILY WEIGHTED
STOCK PORTFOLIO, WHILE PROVIDING A CONVENIENT AND EFFECTIVE WAY TO PARTICIPATE
IN THE MUNICIPAL BOND MARKET."
Q: LOOKING AHEAD, WHAT DO YOU THINK MIGHT AFFECT THE MUNICIPAL BOND MARKET AND
THE FRANKLIN TAX-FREE INCOME FUNDS?
TOM: Municipal bonds generally share the same trends as U.S. government
securities, such as Treasury bonds. These securities are sensitive to a variety
of factors that affect interest rates in general, including the Federal
Reserve's monetary policy. During most of 1997, the Fed was biased toward
raising interest rates in order to stave off inflationary pressures as the
economy continued its solid growth. However, toward the end of the year and into
1998, the Fed appears to have adopted a more neutral stance for a couple of
reasons. First, although the economy is experiencing moderate growth, inflation
remains subdued. Also, the potential still exists for the Asian crisis to slow
the U.S. economy.
Regardless of changing market conditions, our focus will remain on providing
shareholders with high current income free from regular federal, and depending
on the fund, state income taxes.* Franklin has become the nation's largest
tax-free fund manager**, in part by adhering to a consistent, disciplined
investment philosophy, which historically has proved successful in both strong
and weak bond markets. Of course, past performance is no guarantee of future
results.
*For investors subject to regular federal or state alternative minimum tax, all
or a portion of municipal bond interest and municipal bond fund dividends may be
subject to such tax, depending on the source. Fund distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
**Source: Strategic Insight, 11/97.
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
YOUR FUND'S OBJECTIVE: FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND 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
Arizona ended 1997 on a positive note, with job creation high, and unemployment
near its all-time low. A 4.6% increase in non-farm jobs was reported in 1997, a
slow-down only in relative terms from the strong 6.6% growth in 1994.2# The
state's budget surplus, which includes a "rainy day fund," now approaches $900
million.#3
1997 also marked the end of a five-year period that was the strongest period of
job growth in Arizona history. High-technology is an important sector of that
growth, as the state enters 1998, with both Intel and Motorola building, or
planning to build, billion-dollar projects in the state.
As a state where population growth historically has fueled the economy, Arizona
remains the nation's fastest growing state, with a projected population of 5
million by 2001. Phoenix is now the nation's sixth largest city.#4
The state, constitutionally prohibited from using general obligation debt,
continues to rely on lease obligations, revenue bonds, and pay-as-you-go
financing for its capital needs, which results in moderate levels of gross state
debt.
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, are subject
to market risks and will fluctuate in value. Insurance relates only to the
payment of principal and interest on the portfolio's insured securities and the
terms of the insurance as outlined in the prospectus. No representation is made
to any insurer's ability to meet its commitments. A non-diversified fund may be
subject to greater risk of adverse economic or regulatory developments in that
state than a fund with broader geographical diversification.
2. Source: Standard & Poor's CreditWeek Municipal, 7/7/97.
3. Source: Arizona Department of Commerce, 1/8/98.
4. Ibid.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PORTFOLIO NOTES
The fund sought investments in securities with good call protection during the
reporting period, as many issuers took advantage of lower interest rates to
prerefund their outstanding debt. In 1997 alone, approximately 5% of the
portfolio's total long-term investments were prerefunded. Prerefunded bonds in
the portfolio grew to 6.3% at the end of the period, from 1.7% on February 28,
1997.
When an outstanding bond becomes prerefunded, it will be paid off at its first
call date. Prerefunded bonds are generally backed by an escrow of U.S. Treasury
securities. This usually leads to a substantial rise in price for these bonds,
with a subsequent decrease to the call price, depending on their first call date
and price. Seeking to extend the fund's income-earning potential and protect the
share value, we typically sell prerefunded bonds whose call dates are
approximately five years away, and replace them with bonds having about 10 years
of call protection.
We maintained sector diversification in the fund's holdings, making purchases
such as Mesa Street and Highway revenue bonds, Prescott Valley Municipal
Property Corp. and Maricopa Unified School District No. 41, Gilbert. Other
notable additions to the fund during the reporting period include Phoenix Civic
Improvement Corp. Wastewater System revenue bonds and Yuma Regional Medical
Center revenue bonds. This type of diversification over a broad range of sectors
may help us reduce the fund's exposure to the risks and volatility involved with
investing in any single sector.
A state with strong economic growth and a booming population, Arizona has a
growing need for new infrastructure such as schools, highways, and affordable
housing. During 1997, this led the state to issue a total of $3 billion in new
municipal bonds, more than half of which were insured. If interest rates remain
low, it is possible that the refunding trend could continue, and the supply of
new issues may increase as well.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Franklin Arizona Insured Tax-Free Income Fund's share price, as measured by net
asset value, increased 41 cents, from $10.36 on February 28, 1997, to $10.77 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 55.2 cents ($0.5520) per share. Distributions will
vary based on the earnings of the fund's portfolio, and past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.4 cents
($0.044), which includes a dividend adjustment, and the maximum offering price
of $11.25 on February 28, 1998, your fund's distribution rate was 4.69%. 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 8.19% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 11 compares your fund's shares' performance with that of the
unmanaged Lehman Brothers Municipal Bond Index. The index includes over 25,000
municipal securities from across the country, while your fund consists primarily
of insured Arizona municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Arizona Insured Tax-Free Income Fund's
had been applied to this index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Arizona Insured Tax-Free Income Fund
Periods ended 2/28/98
Since
Inception
1-YEAR 3-YEAR (4/30/93)
- ----------------------------------------------------------------------
Cumulative Total Return1 9.53% 28.92% 37.83%
Average Annual Total Return2 4.78% 7.29% 5.92%
Distribution Rate3 4.69%
Taxable Equivalent Distribution Rate4 8.19%
30-Day Standardized Yield5 4.34%
Taxable Equivalent Yield4 7.58%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 4.4 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $11.25 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Arizona state personal income tax bracket of 42.7%, 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
February 28, 1998.
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 its 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 3.78%. 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. 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 INSURED
TAX-FREE INCOME FUND
YOUR FUND'S OBJECTIVE: FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND SEEKS TO
PROVIDE HIGH, CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX 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
On April 3, 1997, Standard & Poor's, a national credit rating agency, upgraded
Florida's general obligation debt rating from AA to AA+.#2 This upgrade
reflected the state's successful transformation, from a narrow economic base of
agriculture and seasonal tourism, into a broadly based service and trade economy
with substantial insurance, banking and export participation, all against a
backdrop of year-round tourist appeal.
Despite pressure for more infrastructure and educational facilities to support
its growing population, debt has remained moderate.
We expect Florida, now America's fourth largest state, to maintain its
better-than-expected financial performance in the months ahead.
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, are subject
to market risks and will fluctuate in value. Insurance relates only to the
payment of principal and interest on the portfolio's insured securities and the
terms of the insurance as outlined in the prospectus. No representation is made
to any insurer's ability to meet its commitments.
A non-diversified fund may be subject to greater risk of adverse economic or
regulatory developments in that state than a fund with broader geographical
diversification.
2. This does not indicate Standard & Poor's rating of the fund.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PORTFOLIO NOTES
Interest rates trended lower during the reporting period leading to an increase
in the portfolio's holdings of prerefunded bonds, from 1.5% of total long-term
investments on February 28, 1997, to 4.6% on February 28, 1998. We maintained
our focus on selling prerefunded securities throughout the fund's fiscal year.
It has generally been our practice to sell prerefunded bonds about five years
before the call date, capturing any premium on the bond, and to reinvest the
proceeds in securities with longer call protection. This allows us to protect
the income-earning potential of the fund.
The supply of Florida municipal bonds increased 17.5% during the period, and we
found some appealing securities in this market. Some of the new issues we added
to our portfolio were Cocoa Beach Water & Sewer, Indian Trail Water Control
District, Orange County School Board, and Sarasota County Utility System.
While we strived to improve the fund's call protection and the structure of the
portfolio, we were forced to reinvest proceeds at lower interest rates. The
combination of selling prerefunded bonds, reinvesting at lower rates, and
narrowing yield spreads could affect the fund's dividend distributions,
especially if interest rates remain at recent levels or continue to drift
downward. Despite market conditions at the close of the reporting period, our
investment philosophy remains disciplined and focused, seeking high tax-free
income and preservation of principal.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Franklin Florida Insured Tax-Free Income Fund's share price, as measured by net
asset value, increased 44 cents, from $9.99 on February 28, 1997, to $10.43 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 52.8 cents ($0.5280) per share. Distributions will
vary based on the earnings of the fund's portfolio, and past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.3 cents
($0.043), which includes a dividend adjustment, and the maximum offering price
of $10.89 on February 28, 1998, your fund's distribution rate was 4.74%. 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 7.85% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 15 compares your fund's shares' performance with that of the
unmanaged Lehman Brothers Municipal Bond Index. The index includes over 25,000
municipal securities from across the country, while your fund consists primarily
of insured Florida municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Florida Insured Tax-Free Income Fund's
had been applied to this index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Florida Insured Tax-Free Income Fund
Periods ended 2/28/98
Since
Inception
1-YEAR 3-YEAR (4/30/93)
- ------------------------------------------------------------------------------
Cumulative Total Return1 9.94% 28.28% 33.49%
Average Annual total Return2 5.30% 7.10% 5.22%
Distribution Rate3 4.74%
Taxable Equivalent Distribution Rate4 7.85%
30-Day Standardized Yield5 4.30%
Taxable Equivalent Yield4 7.12%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 4.3 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $10.89 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
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 its 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 3.81%. 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. Since markets can go down as well as up, 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 INSURED TAX-FREE INCOME FUND
YOUR FUND'S OBJECTIVE: FRANKLIN INSURED TAX-FREE INCOME FUND SEEKS TO PROVIDE
HIGH CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAXES THROUGH A PORTFOLIO
CONSISTING PRIMARILY OF INSURED MUNICIPAL BONDS.#1
PORTFOLIO NOTES
During the one-year period, many bonds, including several owned by the fund,
were prerefunded. We attempted to achieve the maximum gain possible on these
securities by selling them approximately five years prior to their call date.
Consequently, the percentage of prerefunded bonds owned by the fund decreased
from 21.8% of long-term investments on February 28, 1997, to 15.0% on February
28, 1998. Ironically, the continuing low interest rate environment, which has
increased the value of many of the fund's bonds, forced us to declare a capital
gain when we sold our prerefunded issues, since we were unable to record enough
capital losses to offset the profits made through our sales. During the one-year
period, the fund made a capital gain distribution of 12.4 cents ($0.124) per
share. We also sold some of our lower coupon bonds at prices close to par value,
which we had purchased at a discount. These sales and the purchases of new
issues helped decrease the average amount by which the bonds currently in our
portfolio are discounted below their par value. However, because interest rates
fell during the period and the new bonds bought by the fund offered a lower
interest rate than the prerefunded issues sold, the fund may be forced to reduce
its dividend in the future.
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, are subject
to market risks and will fluctuate in value. Insurance relates only to the
payment of principal and interest on the portfolio's insured securities and the
terms of the insurance as outlined in the prospectus. No representation is made
to any insurer's ability to meet its commitments.
Q. WHAT HAPPENS WHEN A MUNICIPAL BOND IS PREREFUNDED, AND HOW DOES THIS AFFECT
ITS VALUE?
A. When a tax-free bond is prerefunded, it will be paid-off at its first call
date by the proceeds from the sale of a new municipal bond issue that usually
offers a lower interest rate. Using this refinancing method, a municipality can
reduce its interest expense, by replacing higher-yielding bond issues with
lower-yielding ones. Money derived from the sale of the refinancing issue is
normally invested in U.S. Treasuries, which will mature upon the now prerefunded
bond's first call date and be used to pay off its prior financings. Because the
prerefunded bond now will have a shorter life and is also usually backed by U.S.
Treasuries, which enjoy the highest of credit ratings, the value of a municipal
bond goes up when it is prerefunded. However, as a prerefunded bond approaches
its call date, its value decreases as its premium falls to near its call price.
"GOING INTO THE FUTURE, WE WILL CONTINUE TO MANAGE FRANKLIN INSURED TAX-FREE
INCOME FUND WITH THE INTENTION OF REDUCING THE VOLATILITY OF ITS SHARE VALUE AND
MAINTAINING ITS COMPETITIVE YIELD."
Going into the future, we will continue to manage Franklin Insured Tax-Free
Income Fund with the intention of reducing the volatility of its share value and
maintaining its competitive yield. We believe our responsible investment
approach, shunning risky derivative investments, and purchases of current coupon
bonds with long call protections, will benefit our shareholders. We remain
optimistic regarding insured municipal securities, as the relatively large
number of these high-rated bonds available in the market continues to keep their
prices down and yields comparatively high, making them excellent investments, in
our opinion.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Insured Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 16 cents, from $12.15 on February 28, 1997, to $12.31 on
February 28, 1998. In addition to distributing 67.2 cents ($0.672) per share in
dividend income, the fund made a long-term capital gain distribution of 12.4
cents ($0.124) per share during the 12-month reporting period. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.5 cents
($0.055) and the maximum offering price of $12.86 on February 28, 1998, your
fund's distribution rate was 5.13%. 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 8.49% from
a taxable investment to match the fund's tax-free distribution rate.
The chart on page 19 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Insured Tax-Free Income Fund's had been
applied to this index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot invest
in it directly.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Insured Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ------------------------------------------------------------------------------
Cumulative Total Return1 8.09% 33.40% 111.23% 186.56%
Average Annual Total Return2 3.49% 5.02% 7.30% 8.14%
Distribution Rate3 5.13%
Taxable Equivalent Distribution Rate4 8.49%
30-Day Standardized Yield5 4.06%
Taxable Equivalent Yield4 6.72%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.5 cent per
share monthly dividend, and the maximum offering price of $12.86 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
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 total
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. 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 Insured Tax-Free Income Fund - Class I paid distributions derived
from long-term capital gains of 12.4 cents ($0.124) per share in December 1997.
The fund hereby designates such distributions as capital gain dividends per
Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Insured Tax-Free Income Fund - Class II share price, as measured by net
asset value, increased 17 cents, from $12.21 on February 28, 1997, to $12.38 on
February 28, 1998. In addition to distributing 60.15 cents ($0.6015) per share
in dividend income, the fund made a long-term capital gain distribution of 12.4
cents ($0.124) per share during the 12-month reporting period. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.91
cents ($0.0491) and the maximum offering price of $12.51 on February 28, 1998,
your fund's distribution rate was 4.71%. 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 7.80% from
a taxable investment to match the fund's tax-free distribution rate.
The chart on page 21 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Insured Tax-Free Income Fund's had been
applied to this index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot invest
in it directly.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Insured Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-YEAR (5/1/95)
- --------------------------------------------------------------------------
Cumulative Total Return1 7.52% 20.35%
Average Annual total Return2 5.49% 6.38%
Distribution Rate3 4.71%
Taxable Equivalent Distribution Rate4 7.80%
30-Day Standardized Yield5 3.63%
Taxable Equivalent Yield4 6.01%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.91 cent per
share monthly dividend, and the offering price of $12.51 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. 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 Insured Tax-Free Income Fund - Class II paid distributions derived
from long-term capital gains of 12.4 cents ($0.124) per share in December 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
YOUR FUND'S OBJECTIVE: FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND 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
On October 29, 1997, Standard & Poor's, a national credit rating agency, raised
its rating on Massachusetts' general obligation debt, from A+ to AA-.2# The
improved rating is due, in part, to the state's success in building financial
reserves in a period of increased revenues and reduced expenses. If
Massachusetts maintains fiscal 1998 spending at or below budgeted levels, the
state is expected to generate its seventh consecutive budget surplus.#3
During the reporting period, education, health care, high-technology, and
financial services continued to drive the state's economy. Other key sectors,
including manufacturing and construction, also showed signs of renewed strength.
Although Massachusetts carries a relatively high level of debt, its resources,
capital, and effective fiscal management warrant the higher rating from Standard
& Poor's, and an optimistic outlook from us.
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, are subject
to market risks and will fluctuate in value. Insurance relates only to the
payment of principal and interest on the portfolio's insured securities and the
terms of the insurance as outlined in the prospectus. No representation is made
to any insurer's ability to meet its commitments.
A non-diversified fund may be subject to greater risk of adverse economic or
regulatory developments in that state than a fund with broader geographical
diversification.
2. This does not indicate Standard & Poor's rating of the fund.
3. Standard & Poor's CreditWeek Municipal, 11/24/97.
PORTFOLIO NOTES
Many municipal bond issuers sought to take advantage of lower interest rates
during the reporting period by refinancing their outstanding debt. This led to
many of the portfolio's bonds becoming prerefunded, which means that the bond
will be paid off at its first call date. Prerefunded bonds are also generally
backed by U.S. Treasury securities, which usually causes these bond's prices to
rise when they become prerefunded, depending on the bond's call date. The fund
therefore seeks to sell prerefunded bonds and replace them with securities
offering longer call protection. This not only allows us to capture the price
increase in prerefunded bonds, but also extends the fund's income-earning
potential and protects the share value. We typically try to sell prerefunded
bonds approximately five years before their call dates, reinvesting in issues
with about 10 years of call protection. Prerefunding could be a trend if
interest rates remain low throughout the coming months, with issuers looking to
lower their borrowing costs.
We are closely monitoring the supply of insured Massachusetts municipal bonds.
The state issued a total of $7.7 billion in bonds during 1997, with over 60% of
that being insured.
During the fiscal year, there were some notable changes to the fund's portfolio
breakdown. While seeking to maintain credit and sector diversification in our
holdings, we reduced exposure to the health care sector and increased
investments in the education and transportation sectors. An important addition
to the portfolio was the Massachusetts State Turnpike Authority's Metropolitan
Highway System revenue bonds, which will help finance construction of the
Central Artery/Ted Williams Tunnel. Some other new additions to the portfolio
are revenue bonds for Deerfield Academy, Worcester Polytechnic, and Suffolk
University.
Looking forward, we will closely monitor Massachusetts' debt management ability.
The Commonwealth still benefits from the fiscal conservatism implemented by
former Governor William Weld. For example, the audited financial statements for
the Commonwealth's 1997 fiscal year reflect continued strengthening of financial
operations. However, pressure is mounting to increase borrowing needed to meet
routine infrastructure needs, and to fund the Central Artery Tunnel Project -
now estimated to cost $11.6 billion.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Massachusetts Insured Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased 21 cents, from $11.54 on February 28,
1997, to $11.75 on February 28, 1998. In addition to distributing 61.2 cents
($0.612) per share in dividend income, the fund made long-term capital gain
distributions totaling 13.23 cents ($0.1323) per share during the 12-month
reporting period. Distributions will vary based on the earnings of the fund's
portfolio, and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.9 cents
($0.049), which includes a dividend adjustment, and the maximum offering price
of $12.27 on February 28, 1998, your fund's distribution rate was 4.79%. 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 9.01% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 25 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured Massachusetts municipal bonds. Of course, such unmanaged
market indices have inherent performance differentials over any fund. They do
not pay management fees to cover salaries of securities analysts or portfolio
managers, or pay commissions or market spreads to buy and sell securities.
Unlike unmanaged indices, mutual funds are never 100% invested because they need
cash on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Massachusetts Insured Tax-Free Income
Fund's had been applied to this index, the index's performance would have been
lower. Please remember that an index is simply a measure of performance and one
cannot invest in it directly.
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Massachusetts Insured Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ----------------------------------------------------------------------
Cumulative Total Return1 8.50% 34.22% 105.90% 163.47%
Average Annual Total Return2 3.91% 5.15% 7.02% 7.44%
Distribution Rate3 4.79%
Taxable Equivalent Distribution Rate4 9.01%
30-Day Standardized Yield5 4.04%
Taxable Equivalent Yield4 7.60%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 4.9 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.27 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Massachusetts state personal income tax bracket of 46.8%,
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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus, actual
total 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. 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 and 8.9 cents ($0.089) per share in December 1997. The fund
hereby designates such distributions as capital gain dividends per Section 852
(b)(3) of the Internal Revenue Code.
CLASS II
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Massachusetts Insured Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 21 cents, from $11.59 on February 28,
1997, to $11.80 on February 28, 1998. In addition to distributing 54.58 cents
($0.5458) per share in dividend income, the fund made long-term capital gain
distributions totaling 13.23 cents ($0.1323) per share during the 12-month
reporting period. Distributions will vary based on the earnings of the fund's
portfolio, and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.34
cents ($0.0434), which includes a dividend adjustment, and the maximum offering
price of $11.92 on February 28, 1998, your fund's distribution rate was 4.37%.
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 Insured state personal income tax bracket, would need to earn
8.22% from a taxable investment to match the fund's tax-free distribution rate.
The chart on page 27 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured Massachusetts municipal bonds. Of course, such unmanaged
market indices have inherent performance differentials over any fund. They do
not pay management fees to cover salaries of securities analysts or portfolio
managers, or pay commissions or market spreads to buy and sell securities.
Unlike unmanaged indices, mutual funds are never 100% invested because they need
cash on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Massachusetts Insured Tax-Free Income
Fund's had been applied to this index, the index's performance would have been
lower. Please remember that an index is simply a measure of performance and one
cannot invest in it directly.
GRAPHIC MATERIAL 22 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Massachusetts Insured Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-YEAR (5/1/95)
- ------------------------------------------------------------------------
Cumulative Total Return1 7.86% 20.55%
Average Annual Total Return2 5.76% 6.46%
Distribution Rate3 4.37%
Taxable Equivalent Distribution Rate4 8.22%
30-Day Standardized Yield5 3.63%
Taxable Equivalent Yield4 6.83%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.34 cent per
share monthly dividend which includes a dividend adjustment, and the offering
price of $11.92 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Massachusetts state personal income tax bracket of 46.8%,
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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. 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 and 8.9 cents ($0.089) per share December 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
YOUR FUND'S OBJECTIVE: FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND 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
During the reporting period, Michigan continued to display strong economic
performance. The state's unemployment rate, when measured in August 1997, was
3.4%, well below the 4.8% national rate.
The favorable employment picture reflects Michigan's full participation in a
vital national economy. The state's record of higher than average employment now
stretches to 2.5 years.2
Strong export activity and increased service sector employment have contributed
to Michigan's robust economy. On the state government level, restrained spending
and historically high reserve levels, including $1.2 billion in the state's
"rainy day fund," permit the state to project a narrow budget balance for fiscal
year 1998.3
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, are subject
to market risks and will fluctuate in value. Insurance relates only to the
payment of principal and interest on the portfolio's insured securities and the
terms of the insurance as outlined in the prospectus.
No representation is made to any insurer's ability to meet its commitments. A
non-diversified fund may be subject to greater risk of adverse economic or
regulatory developments in that state than a fund with broader geographical
diversification.
2. Source: Moody's Investors Service, 10/20/97.
3. Ibid.
PORTFOLIO NOTES
During the reporting period, interest rates generally declined, with the 30-year
Treasury bond yield moving from 6.80% on February 28, 1997, to 5.92% on February
28, 1998. In light of recent levels of inflation and the potential effects of
the Asian economic crisis on the U.S. economy, the Federal Reserve appears
comfortable with the level of short-term interest rates.
As interest rates declined, we saw bonds become prerefunded. When this occurs,
the outstanding bond will be called on its first call date. Additionally, most
prerefunded bonds are backed by U.S. Treasuries, which can increase their prices
substantially, depending on their call dates. The fund focused on selling
prerefunded securities and reinvesting in bonds with longer call protection,
seeking to extend the fund's income-earning potential. Within the relatively low
interest rate environment of the past few years, the fund has been unable to
book enough capital losses to offset the gains realized from the sale of
prerefunded bonds. Thus, the fund distributed a capital gain of 12.94 cents
($0.1294) per share during the reporting period.
The lower interest rate environment should continue to exert pressure on the
fund's overall income earnings, as yields also trend downward. Please keep in
mind that the fund can only distribute what it earns, so it is possible that the
fund's dividend distributions may be decreased in the future. This, of course,
depends on whether the current interest rate environment prevails. Regardless of
the direction of interest rates, we will continue our consistent, conservative
approach of investing for tax-free income and stability of share value.
Looking ahead, Franklin Michigan Insured Tax-Free Income Fund should continue to
offer good value, as bond issuers face a very competitive business environment
that has driven down the cost of insurance. With lower interest rates, some
investors elected to seek out higher-yielding securities, which forced a
narrowing of the yield spread between insured and lower-quality bonds. Thus,
Michigan insured municipal bonds remain relatively attractive.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 23 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 24 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 25 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Michigan Insured Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased 20 cents, from $12.00 on February 28,
1997, to $12.20 on February 28, 1998. In addition to distributing 64.5 cents
($0.645) per share in dividend income, the fund made long-term capital gain
distributions totaling 12.94 cents ($0.1294) per share during the 12-month
reporting period. Distributions will vary based on the earnings of the fund's
portfolio, and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.1 cents
($0.051), which includes a dividend adjustment, and the maximum offering price
of $12.74 on February 28, 1998, your fund's distribution rate was 4.80%. 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 have to earn 8.31% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 31 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured Michigan municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Michigan Insured Tax-Free Income Fund's
had been applied to this index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 26 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Michigan Insured Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-YEAR 5-YEAR 10-YEAR (4/3/85)
- -----------------------------------------------------------------------------
Cumulative Total Return1 8.37% 34.12% 109.08% 174.77%
Average Annual Total Return2 3.79% 5.13% 7.19% 7.79%
Distribution Rate3 4.80%
Taxable Equivalent Distribution Rate4 8.31%
30-Day Standardized Yield5 4.04%
Taxable Equivalent Yield4 7.00%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.1 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.74 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Michigan state personal income tax bracket of 42.3%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus, actual
total 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. 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 and 7.97 cents ($0.0797) per share in December 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
GRAPHIC MATERIAL 28 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Michigan Insured Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 20 cents, from $12.07 on February 28,
1997, to $12.27 on February 28, 1998. In addition to distributing 57.39 cents
($0.5739) per share in dividend income, the fund made long-term capital gain
distributions totaling 12.94 cents ($0.1294) per share during the 12-month
reporting period. Distributions will vary based on the earnings of the fund's
portfolio, and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.49
cents ($0.0449), which includes a dividend adjustment, and the maximum offering
price of $12.39 on February 28, 1998, your fund's distribution rate was 4.35%.
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 have to earn 7.53% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 33 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured Michigan municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Michigan Insured Tax-Free Income Fund's
had been applied to this index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 29 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Michigan Insured Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-YEAR (5/1/95)
- ---------------------------------------------------------------------------
Cumulative Total Return1 7.70% 20.88%
Average Annual Total Return2 5.65% 6.55%
Distribution Rate3 4.35%
Taxable Equivalent Distribution Rate4 7.53%
30-Day Standardized Yield5 3.61%
Taxable Equivalent Yield4 6.25%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.49 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $12.39 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Michigan state personal income tax bracket of 42.3%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. 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 and 7.97 cents ($0.0797) per share in December 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
GRAPHIC MATERIAL 30 OMITTED - SEE APPENDIX AT END OF DOCUMENT
YOUR FUND'S OBJECTIVE: FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND 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
The economic stars remain in alignment for the state of Minnesota and its
inhabitants. Not only is the state's traditional manufacturing sector showing
sustained growth, but Minnesota also benefited from expansion in computers,
business services and the financial sector. The result: steady employment growth
and a per capita income level that approaches 106% of the national average.2
Minnesota's vibrant economy was recognized in 1997 by Standard & Poor's, a
national credit rating agency, which upgraded its rating on the state's general
obligation debt from AA+ to AAA, its highest rating.3
During 1997, Minnesota reported increased income tax revenues, which allowed the
state to continue to build its financial position while maintaining reserve
funds for future needs. From our point of view, the state's present financial
position is solid and its future outlook, positive.
PORTFOLIO NOTES
As a result of the lower interest rate environment, many bonds, including
several owned by the fund, were prerefunded during the one-year reporting
period. When a bond is prerefunded it will be replaced at its first call date by
another bond issued by its municipality that will pay a lower yield. This
refinancing method allows a municipal government to lower its borrowing cost,
and it also increases the value of the pre refunded bond, as its debt will
almost certainly be paid off early. As the date approaches when the prerefunded
bond's debt will be retired, however, the premium people are willing to pay for
it decreases to its call price. Consequently, we sought to sell our prerefunded
bonds when they had typically five years remaining before their first call date,
and the percentage of prerefunded bonds owned by the fund decreased from 23.9%
of total long-term investments on February 28, 1997, to 15.5% on February 28,
1998.
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, are subject
to market risks and will fluctuate in value. Insurance relates only to the
payment of principal and interest on the portfolio's insured securities and the
terms of the insurance as outlined in the prospectus. No representation is made
to any insurer's ability to meet its commitments.
A non-diversified fund may be subject to greater risk of adverse economic or
regulatory developments in that state than a fund with broader geographical
diversification.
2. Source: Standard & Poor's CreditWeek Municipal, 7/28/97.
3. This does not indicate Standard & Poor's rating of the fund.
Using the proceeds from the securities we sold, we purchased insured, current
coupon bonds with relatively long call protection. However, because interest
rates fell during the period and the new bonds bought by the fund offered a
lower interest rate than the prerefunded issues sold, the fund may be forced to
reduce its dividend in the future. Also, as a result of the continuing low
interest rate environment, the fund has not been able to record enough capital
losses to offset the gains made when we sold many of our prerefunded securities.
Thus, the fund made a capital gain distribution of 9.66 cents ($0.0966) per
share during the one-year period.
"USING THE PROCEEDS FROM THE SECURITIES WE SOLD, WE PURCHASED INSURED, CURRENT
COUPON BONDS WITH RELATIVELY LONG CALL PROTECTION."
Q. WHY DID WE PURCHASE BONDS WITH LONG CALL PROTECTION?
A. When a municipal bond is "called" the government that issued it pays off the
debt the bond represents and the security stops generating income. Call
protection refers to the period of time after the bond is issued during which
that security cannot be retired or paid off by its issuer. Because we purchase
bonds in order to generate income for our shareholders, it is in our interest to
obtain securities with generally long call protection. In this way, we can be
assured of a protected income stream that is longer than other bonds, which
possess shorter call protection. Purchasing bonds with long call protections
helps us to maintain a relatively steady dividend for our shareholders, even
when interest rates are changing.
Going into the future, we will continue to manage Franklin Minnesota Insured
Tax-Free Income Fund with the intention of protecting its share value and
maintaining its competitive yield. We believe our conservative investment
approach, shunning risky derivative investments, and purchases of current coupon
bonds with long call protections, will benefit our shareholders. We remain
optimistic regarding insured municipal securities, as the relatively large
number of these high-rated bonds available in the market continues to keep their
prices down and yields comparatively high, making them excellent investments, in
our opinion.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 31 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 32 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS I
Franklin Minnesota Insured Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased 15 cents, from $12.01 on February 28,
1997, to $12.16 on February 28, 1998. In addition to distributing 64.20 cents
($0.6420) per share in dividend income, the fund made a long-term capital gain
distribution of 9.66 cents ($0.0966) per share during the 12-month reporting
period. Distributions will vary based on the earnings of the fund's portfolio,
and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.2 cents
($0.052), which includes a dividend adjustment, and the maximum offering price
of $12.70 on February 28, 1998, your fund's distribution rate was 4.91%. 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 8.88% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 37 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured Minnesota municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Minnesota Insured Tax-Free Income Fund's
had been applied to this index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 33 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Minnesota Insured Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-YEAR 5-YEAR 10-YEAR (4/3/85)
- -------------------------------------------------------------------------------
Cumulative Total Return1 7.60% 31.10% 101.57% 173.06%
Average Annual Total Return2 3.05% 4.65% 6.80% 7.73%
Distribution Rate3 4.91%
Taxable Equivalent Distribution Rate4 8.88%
30-Day Standardized Yield5 4.04%
Taxable Equivalent Yield4 7.31%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.2 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.70 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Minnesota state personal income tax bracket of 44.7%,
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 February 28, 1998.
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 total
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. 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 Minnesota Insured Tax-Free Income Fund - Class I paid distributions
derived from long-term capital gains of 9.66 cents ($0.0966) per share in
December 1997. The fund hereby designates such distributions as capital gain
dividends per Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 34 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 35 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Minnesota Insured Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased 16 cents, from $12.05 on February 28,
1997, to $12.21 on February 28, 1998. In addition to distributing 56.88 cents
($0.5688) per share in dividend income, the fund made a long-term capital gain
distribution of 9.66 cents ($0.0966) per share during the 12-month reporting
period. Distributions will vary based on the earnings of the fund's portfolio,
and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.61
cents ($0.0461), which includes a dividend adjustment, and the maximum offering
price of $12.33 on February 28, 1998, your fund's distribution rate was 4.49%.
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 8.12% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 39 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured Minnesota municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Minnesota Insured Tax-Free Income Fund's
had been applied to this index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 36 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Minnesota Insured Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-YEAR (5/1/95)
- -----------------------------------------------------------------------------
Cumulative Total Return1 7.04% 18.58%
Average Annual Total Return2 4.99% 5.83%
Distribution Rate3 4.49%
Taxable Equivalent Distribution Rate4 8.12%
30-Day Standardized Yield5 3.61%
Taxable Equivalent Yield4 6.53%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investments.
3. Distribution rate is based on an annualization of the current 4.61 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $12.33 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Minnesota state personal income tax bracket of 44.7%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. 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 Minnesota Insured Tax-Free Income Fund - Class II paid
distributions derived from long-term capital gains of 9.66 cents ($0.0966) per
share in December 1997. The fund hereby designates such distributions as capital
gain dividends per Section 852 (b)(3) of the Internal Revenue Code.
FRANKLIN OHIO INSURED
TAX-FREE INCOME FUND
GRAPHIC MATERIAL 37 OMITTED - SEE APPENDIX AT END OF DOCUMENT
YOUR FUND'S OBJECTIVE: FRANKLIN OHIO INSURED TAX-FREE INCOME FUND 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
BONDS.1
STATE UPDATE
During the reporting period, the Ohio economy demonstrated both strength and
breadth. When combined with its 5% reserve, low debt position, and responsible
financial approach, this economic vitality supports a AA+ rating for its general
obligation debt from Standard & Poor's, a national credit rating agency.2
Ohio remains a major force in the country's manufacturing sector. The state's
dependence on this volatile sector can be a powerful asset in the strong
economic climate we have experienced in recent years. Recognizing that
manufacturing can also be vulnerable during a downturn, Ohio has encouraged both
exports and diversification. Growth of high-tech industries in northern Ohio and
job gains in the business services and distribution sectors should help broaden
the state's economic base and help insulate it from economic volatility in the
future.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.
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 insured securities and the
terms of the insurance as outlined in the prospectus. No representation is made
to any insurer's ability to meet its commitments.
A non-diversified fund may be subject to greater risk of adverse economic or
regulatory developments in that state than a fund with broader geographical
diversification.
2. This does not indicate Standard & Poor's rating of the fund.
3. Source: Moody's Investor Services, 1/06/98.
PORTFOLIO NOTES
"LOOKING AHEAD, FRANKLIN OHIO INSURED TAX-FREE INCOME FUND SHOULD OFFER GOOD
VALUE, AS BOND ISSUERS FACE A VERY COMPETITIVE BUSINESS ENVIRONMENT THAT HAS
DRIVEN DOWN THE COST OF INSURANCE."
Interest rates generally declined during the reporting period, with the 30-year
Treasury bond yield moving from 6.80% on February 28, 1997, to 5.92% on February
28, 1998. As interest rates declined, many bonds in the portfolio became
prerefunded. When this occurs, the outstanding bond will be called on its first
call date. Additionally, most prerefunded bonds are backed by U.S. Treasuries,
which can increase their prices substantially, depending on their call dates.
The fund focused on selling prerefunded securities to reinvest in bonds with
longer call protection. In this way, we tried to extend the fund's
income-earning potential. Within the relatively low interest rate environment of
the past few years, the fund has been unable to book enough capital losses to
offset the gains realized from the sale of prerefunded bonds. Thus, the fund
distributed a capital gain of 6.77 cents ($0.0677) per share during the
reporting period.
The lower interest-rate environment should continue to keep yields down near
recent levels, exerting pressure on the overall income earnings of the fund.
Please keep in mind that the fund can only distribute what it earns, so it is
possible that the fund's dividend distributions may be decreased in the future.
This, of course, depends on whether the recent interest-rate environment
prevails. Regardless of the direction of interest rates, we will continue to
employ a consistent, fiscally responsible approach to investing for tax-free
income and stability of share value.
Looking ahead, Franklin Ohio Insured Tax-Free Income Fund should offer good
value, as bond issuers face a very competitive business environment that has
driven down the cost of insurance. With lower interest rates, some investors
elected to seek out higher-yielding securities, which forced a narrowing of the
yield spread between insured and lower-quality bonds. This kept Ohio insured
municipal bonds relatively attractive.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 38 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 39 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Ohio Insured Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 26 cents, from $12.19 on February 28, 1997, to $12.45
on February 28, 1998. In addition to distributing 64.80 cents ($0.6480) per
share in dividend income, the fund made a long-term capital gain distribution of
6.77 cents ($0.0677) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.3 cents
($0.053) and the maximum offering price of $13.00 on February 28, 1998, your
fund's distribution rate was 4.89%. 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 8.72% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 43 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured Ohio municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Ohio Insured Tax-Free Income Fund's had
been applied to this index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 40 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Ohio Insured Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-YEAR 5-YEAR 10-YEAR (4/3/85)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.22% 33.96% 110.13% 175.93%
Average Annual total Return2 3.63% 5.10% 7.24% 7.82%
Distribution Rate3 4.89%
Taxable Equivalent Distribution Rate4 8.72%
30-Day Standardized Yield5 4.06%
Taxable Equivalent Yield4 7.24%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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, and the maximum offering price of $13.00 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Ohio state personal income tax bracket of 43.9%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus, actual
total 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. 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 Ohio Insured Tax-Free Income Fund - Class I paid distributions
derived from long-term capital gains of 6.77 cents ($0.0677) per share in
December 1997. The fund hereby designates such distributions as capital gain
dividends per Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 41 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 42 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Ohio Insured Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 27 cents, from $12.24 on February 28, 1997, to
$12.51 on February 28, 1998. In addition to distributing 57.89 cents ($0.5789)
per share in dividend income, the fund made a long-term capital gain
distribution of 6.77 cents ($0.0677) per share during the 12-month reporting
period. Distributions will vary based on the earnings of the fund's portfolio,
and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.70
cents ($0.0470) and the maximum offering price of $12.64 on February 28, 1998,
your fund's distribution rate was 4.46%. 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 7.96% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 45 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of insured Ohio municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Ohio Insured Tax-Free Income Fund's had
been applied to this index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 43 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Ohio Insured Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-YEAR (5/1/95)
- --------------------------------------------------------------------
Cumulative Total Return1 7.66% 21.07%
Average Annual total Return2 5.63% 6.61%
Distribution Rate3 4.46%
Taxable Equivalent Distribution Rate4 7.96%
30-Day Standardized Yield5 3.63%
Taxable Equivalent Yield4 6.48%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.70 cent per
share monthly dividend, and the offering price of $12.64 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Ohio state personal income tax bracket of 43.9%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. 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 Ohio Insured Tax-Free Income Fund - Class II paid distributions
derived from long-term capital gains of 6.77 cents ($0.0677) per share in
December 1997. The fund hereby designates such distributions as capital gain
dividends per Section 852 (b)(3) of the Internal Revenue Code.
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
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 generally are invested in U.S. Treasuries set to mature at the original
bond's 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 RATING
MOODY'S
AAA: Best quality. They carry the smallest degree of investment risk and
generally are referred to as "gilt-edged." Interest payments are protected by a
large or exceptionally stable margin, and principal is secure. Although 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 generally are 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 likely will 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
<TABLE>
<CAPTION>
Franklin Arizona Insured Tax-Free Income Fund
Year Ended February 28,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class I 1998 1997 1996 1995 19941
- -----------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $10.36 $10.36 $9.80 $10.28 $10.00
------------------------------------------------
Income from investment operations:
Net investment income ............................................ .54 .55 .55 .55 .34
Net realized and unrealized gains (losses) ....................... .42 -- .57 (.48) .27
------------------------------------------------
Total from investment operations .................................. .96 .55 1.12 .07 .61
------------------------------------------------
Less distributions from:
Net investment income ............................................ (.55) (.55) (.56) (.55) (.33)
------------------------------------------------
Net asset value, end of year ...................................... $10.77 $10.36 $10.36 $9.80 $10.28
================================================
Total return* ..................................................... 9.53% 5.55% 11.64% .94% 6.04%
Ratios/supplemental data
Net assets, end of year (000's) ................................... $58,059 $39,693 $38,199 $20,794 $12,895
Ratios to average net assets:
Expenses ......................................................... .30% .25% .16% .10% .03%**
Expenses excluding waiver and payments by affiliate .............. .82% .86% .86% .96% .83%**
Net investment income ............................................ 5.11% 5.45% 5.51% 5.80% 4.85%**
Portfolio turnover rate ........................................... 17.44% 18.27% 4.12% 44.61% 62.88%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized 1For the period April 30, 1993 (effective date) to February 28,
1994.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Arizona Insured Tax-Free Income Fund AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
Long Term Investments 101.8%
<S> <C> <C>
Arizona State Management Authority, Financial Assistance Revenue, AMBAC Insured,5.75%, 7/01/15.....$ 750,000 $ 796,620
Arizona State Power Authority, Power Resources Revenue, Refunding, Hoover Uprating Project,
MBIA Insured, 5.375%, 10/01/13 .................................................................... 900,000 925,596
Arizona State University Revenue, Refunding, Series A, MBIA Insured, 5.50%, 7/01/19 ............... 1,000,000 1,021,640
Casa Grande Excise Tax Revenue, FGIC Insured, 6.00%, 4/01/10 ...................................... 400,000 431,344
Douglas Municipal Property Corp., Municipal Facilities Excise Tax Revenue, MBIA Insured,
5.75%, 7/01/15.................................................................................... 525,000 556,269
Gilbert GO, Projects of 1988, Series C, MBIA Insured, 5.50%, 7/01/23 .............................. 1,000,000 1,036,270
La Paz County School District No. 4, Quartzsite Elementary School Improvement, MBIA Insured,
5.70%, 7/01/16.................................................................................... 480,000 499,306
Marana Municipal Property Corp., Municipal Facilities Revenue, Refunding, MBIA Insured,
5.25%, 7/01/22.................................................................................... 1,100,000 1,114,872
Maricopa County, IDA, MFHR, National Health Facilities II Project, Series A, FSA Insured,
5.10%, 1/01/33.................................................................................... 2,500,000 2,475,675
Maricopa County, IDA, Water System Revenue, AMBAC Insured,
Series A, 5.40%, 12/01/22 ...................................................................... 1,000,000 1,015,560
Series B, 5.30%, 12/01/22 ...................................................................... 515,000 520,794
Maricopa County School District No. 3, Tempe Elementary, Refunding, AMBAC Insured, 6.00%, 7/01/13 . 700,000 771,015
Maricopa County School District No. 8, Osborn, Refunding, Series A, FGIC Insured, 5.875%, 7/01/14 . 500,000 544,530
Maricopa County School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10 .. 700,000 771,974
Maricopa County School District No. 28, Kyrene Elementary, Series B, FGIC Insured, 6.00%, 7/01/14 . 500,000 538,850
Maricopa County School District No. 31, Series A, AMBAC Insured, 6.20%, 7/01/13 ................... 570,000 624,771
Maricopa County School District No. 66, Roosevelt Elementary, Projects of 1996, Series B,
FGIC Insured, 5.30%, 7/01/13 ................................................................... 1,540,000 1,599,459
Maricopa County School District No. 68, Alhambra Elementary, Refunding and Improvement, AMBAC Insured,
5.125%, 7/01/13 ................................................................................ 500,000 510,320
Maricopa County School District No. 98, Fountain Hills,
AMBAC Insured, 5.75%, 7/01/12 ..................................................................... 500,000 538,315
Series A, MBIA Insured, Pre-Refunded, 6.20%, 7/01/10 .............................................. 235,000 264,051
Maricopa County USD No. 9, Wickenburg Projects of 1997, AMBAC Insured,
5.55%, 7/01/14 .................................................................................... 1,000,000 1,054,230
5.65%, 7/01/16 .................................................................................... 1,055,000 1,111,959
Maricopa County USD No. 41, Gilbert Projects of 1993, Series E, FSA Insured, 5.00%, 7/01/17 ....... 1,500,000 1,488,870
Maricopa County USD No. 80, Chandler, Refunding, FGIC Insured, 5.85%, 7/01/13 ..................... 700,000 749,959
Maricopa County USD No. 95, Queens Creek, Series A, AMBAC Insured, 5.70%, 7/01/14 ................. 400,000 428,132
bMesa GO, FGIC Insured, 5.00%, 7/01/18 ............................................................. 1,750,000 1,719,183
Mesa Street and Highway Revenue, FGIC Insured, 5.00%, 7/01/17 ..................................... 1,000,000 993,800
Mesa Utility System Revenue, FGIC Insured, 5.375%, 7/01/17......................................... 500,000 516,460
Mohave County, Hospital District No. 1, Kingman Regional Medical Center Project,
FGIC Insured, 6.50%, 6/01/15 ...................................................................... 610,000 661,380
Navajo County PCR, Arizona Public Service Co., Series A,
AMBAC Insured, 5.50%, 8/15/28 .................................................................. 2,400,000 2,451,336
MBIA Insured, 5.875%, 8/15/28 .................................................................. 2,450,000 2,574,068
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA Insured, 5.55%, 7/01/17 700,000 737,800
Phoenix Civic Improvement Corp., Municipal Facilities Excise Tax Revenue, MBIA Insured, Pre-Refunded,
6.90%, 7/01/21 ................................................................................ 1,000,000 1,166,950
Phoenix Civic Improvement Corp., Water Systems Revenue, Junior Lien,
AMBAC Insured, 5.50%, 7/01/21 .................................................................. 500,000 511,345
FGIC Insured, 5.50%, 7/01/24 ................................................................... 1,000,000 1,022,690
MBIA Insured, 5.375%, 7/01/22 .................................................................. 1,000,000 1,019,380
Pima County IDA, SFMR, GNMA Secured, 6.625%, 11/01/14 .......................................... 570,000 610,538
Pinal County USD No. 43, Apache Junction, Series C, FGIC Insured, 5.00%, 7/01/15 ............... 1,000,000 996,480
Prescott Municipal Property Corp., Municipal Facility Revenue, FGIC Insured, 5.125%, 1/01/18 ... 1,000,000 1,010,090
Puerto Rico Commonwealth GO,
AMBAC Insured, 5.40%, 7/01/25 .................................................................. 500,000 512,690
MBIA Insured, 6.45%, 7/01/17 ................................................................... 845,000 966,934
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
AMBAC Insured, 5.00%, 7/01/28 ................................................................. 1,200,000 1,174,236
Puerto Rico Electric Power Authority Revenue,
Series AA, MBIA Insured, 5.375%, 7/01/27 ....................................................... 500,000 507,805
Series R, FSA Insured, 6.25%, 7/01/17 .......................................................... 800,000 860,376
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 ............... 840,000 923,807
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue,
Refunding, Series D, FGIC Insured,
5.50%, 1/01/25 ................................................................................. 1,000,000 1,014,700
6.25%, 1/01/27 ................................................................................. 1,205,000 1,293,724
Pre-refunded, 6.25%, 1/01/27 ................................................................... 295,000 322,273
Santa Cruz County USD No. 1, Nogales, Series B, AMBAC Insured, Pre-Refunded, 6.10%, 7/01/14 .... 250,000 277,590
Sierra Vista Municipal Property Corp. Facilities Revenue, AMBAC Insured,
6.15%, 1/01/15 ................................................................................. $ 360,000 $ 391,230
5.00%, 1/01/18 ................................................................................. 1,250,000 1,229,838
Tucson GO,
Series A, MBIA Insured, 5.375%, 7/01/19 ........................................................ 500,000 512,300
Series G, 1984, FGIC Insured, Pre-Refunded, 6.25%, 7/01/18 ..................................... 650,000 730,217
Tucson Local Development Business, Development Financial Corp., Lease Revenue,
Refunding, FGIC Insured, 4.75%, 7/01/11 ........................................................... 1,000,000 998,950
University of Arizona COP, Administrative and Packaging Facility, MBIA Insured, 6.00%,
7/15/16 ........................................................................................ 500,000 541,650
7/15/23 ........................................................................................ 1,625,000 1,740,570
University of Arizona COP, Residence Life Project, Series A, FSA Insured, 5.80%, 9/01/13 ....... 1,000,000 1,068,340
Yavapai County, Elementary School District No. 6, Cottonwood-Oak Creek, Projects of 1993,
AMBAC Insured, Series B, 6.70%, 7/01/09 ...................................................... 250,000 283,918
Yavapai County, Elementary School District No. 28, Refunding, Camp Verde, FGIC Insured,
6.00%, 7/01/09................................................................................. 775,000 856,344
Yavapai County USD No. 22, Humboldt, FGIC Insured,
Series A, 5.95%, 7/01/14 ....................................................................... 300,000 322,422
Series C, 5.40%, 7/01/14 ....................................................................... 575,000 600,225
Yuma County Elementary School District No. 1, MBIA Insured,
Series A, 5.75%, 7/01/14 ....................................................................... 500,000 534,190
Series B, 5.50%, 7/01/14 ....................................................................... 1,000,000 1,055,380
Yuma County Jail District Revenue, AMBAC Insured, 5.25%, 7/01/12 ............................... 1,000,000 1,032,590
Yuma Industrial Authority MFR, Refunding, Regency Apartments, GNMA Insured, 5.50%, 12/20/32 .... 920,000 928,416
Yuma IDA Hospital Revenue, Refunding, MBIA Insured, 5.50%, 8/01/17 ............................. 1,000,000 1,042,130
---------
Total Long Term Investments (Cost $55,964,671) 101.8% .......................................... 59,104,726
Other Assets, less Liabilities (1.8%) .......................................................... (1,045,993)
---------
Net Assets 100.0% .............................................................................. $58,058,733
=========
</TABLE>
See glossary of terms on page 97.
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 Florida Insured Tax-Free Income Fund
Year Ended February 28,
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class I 1998 1997 1996 1995 19941
- ----------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................. $ 9.99 $10.02 $9.53 $10.07 $10.00
-------------------------------------------------------
Income from investment operations:
Net investment income............................................. .53 .53 .53 .52 .34
Net realized and unrealized gains (losses)........................ .44 (.03) .49 (.53) .06
-------------------------------------------------------
Total from investment operations................................... .97 .50 1.02 (.01) .40
-------------------------------------------------------
Less distributions from:
Net investment income............................................. (.53) (.53) (.53) (.53) (.33)
-------------------------------------------------------
Net asset value, end of year....................................... $10.43 $9.99 $10.02 $9.53 $10.07
=======================================================
Total return*...................................................... 9.94% 5.17% 10.95% .21% 3.97%
Ratios/supplemental data
Net assets, end of year (000's).................................... $101,506 $77,177 $69,583 $46,847 $32,150
Ratios to average net assets:
Expenses.......................................................... .35% .35% .35% .35% --
Expenses excluding waiver and payments by affiliate............... .80% .80% .82% .88% .83%**
Net investment income............................................. 5.16% 5.36% 5.37% 5.61% 4.97%**
Portfolio turnover rate............................................ 8.08% 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.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Florida Insured Tax-Free Income Fund AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Long Term Investments 95.4%
<S> <C> <C>
Bay Medical Center Hospital Revenue, Bay Medical Center Project, AMBAC Insured,
5.00%, 10/01/27 ................................................................................... $2,025,000 $ 1,943,433
Broward County HFA, FSA Insured,
5.60%, 11/01/17 ................................................................................... 630,000 638,524
5.65%, 11/01/22 ................................................................................... 885,000 896,948
5.70%, 11/01/29 ................................................................................... 1,345,000 1,363,104
Canaveral Port Authority Revenue, Refunding, Series B, FGIC Insured, 5.625%, 6/01/21 .............. 1,000,000 1,047,888
Celebration Community Development District, Special Assessment, Series A,
MBIA Insured, 5.50%, 5/01/18...................................................................... 535,000 552,537
Citrus County PCR, Refunding, Florida Power Co., MBIA Insured, 6.625%, 1/01/27 .................... 2,435,000 2,672,997
Cocoa Beach Improvement Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/20 ........................ 1,000,000 1,013,650
Cocoa Water and Sewer Improvement Revenue, FGIC Insured, 5.875%, 10/01/22 ......................... 1,000,000 1,077,100
Dade County HFA, MF, 5.75%, 9/01/29 ............................................................... 1,890,000 1,927,271
Escambia County Utilities Authority, Utility System Revenue, FGIC Insured, 5.625%, 1/01/27 ........ 1,500,000 1,558,515
Florida State HFA, Spinnaker Cove Apartments, Series G, AMBAC Insured, 6.50%, 7/01/36 ............. 1,600,000 1,727,216
Gainesville Public Improvements, Guaranteed, Refunding, AMBAC Insured, 5.50%, 8/01/17 ............. 1,000,000 1,040,890
Gulf Breeze Revenue, Local Government Loan Program, FGIC Insured, 6.05%, 12/01/13 ................. 1,915,000 2,101,061
Hernando County Water and Sewer Revenue, Refunding and Improvement, FGIC Insured, 6.00%, 6/01/19 .. 2,000,000 2,130,800
Hillsborough County IDA, MBIA Insured,
PCR, Refunding, Tampa Electric Co. Project, 6.25%, 12/01/34 ....................................... 1,500,000 1,666,785
Revenue, University Community Hospital, 5.80%, 8/15/24 ............................................ 2,000,000 2,106,260
Indian River County Water and Sewer Revenue, FGIC Insured, 5.50%, 9/01/26 ......................... 1,250,000 1,297,425
Indian Trail Water Control District Improvement Bonds, MBIA Insured,
5.75%, 8/01/16 .................................................................................... 1,090,000 1,168,458
5.60%, 8/01/17 .................................................................................... 1,000,000 1,047,350
5.50%, 8/01/22 .................................................................................... 500,000 518,015
Jacksonville Sales Tax Revenue, River City Renaissance Project, FGIC Insured, 5.375%, 10/01/18 .... 1,000,000 1,020,250
Jacksonville Water and Sewer Revenue, United Water Project, AMBAC Insured, 6.35%, 8/01/25 ......... 1,000,000 1,112,350
Lake Clarke Shores, Utility Systems Revenue, Refunding and Improvement,
FGIC Insured, 5.80%, 10/01/18..................................................................... 1,415,000 1,504,244
Lake Mary Public Improvement Revenue, FGIC Insured, 5.25%, 9/01/15 ................................ 1,000,000 1,024,780
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project, Refunding,
MBIA Insured, 5.25%, 11/15/16 .................................................................... 2,000,000 2,030,920
Lakeland Utilities Tax Revenue, Refunding and Improvement, Series A, FGIC Insured, 6.00%, 10/01/17. 500,000 543,745
Lee County Capital and Transportation Facilities Revenue, Refunding,
Series A, MBIA Insured, 5.55%, 10/01/18 ........................................................... 3,000,000 3,106,680
Lee County IDA, Utilities Revenue, Refunding, Bonita Springs Utilities Project, MBIA Insured, 6.05%,
11/01/15 .......................................................................................... 2,000,000 2,179,620
11/01/20 .......................................................................................... 1,500,000 1,623,645
Lee County Solid Waste Systems Revenue, MBIA Insured, 5.375%, 10/01/15 ............................ 2,000,000 2,057,960
Lynn Haven Capital Improvement Revenue, Series A, MBIA Insured, 5.75%, 12/01/16 ................... 1,000,000 1,065,930
Martin County Construction, Utilities System Revenue, Refunding and Improvement,
FGIC Insured, 6.00%, 10/01/24 ..................................................................... 1,000,000 1,085,120
Martin County Improvement Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/14 ...................... 1,000,000 1,097,640
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured, 6.75%, 10/01/25 .................. 2,000,000 2,269,720
Ocoee Water and Sewer System Revenue, AMBAC Insured, 5.625%, 10/01/26 ............................. 5,220,000 5,472,074
Okaloosa County Gas District Revenue, Gas System, MBIA Insured, 5.50%, 10/01/21 ................... 2,795,000 2,900,176
Okeechobee Utility Systems Authority Revenue, Acquisition and Improvement, Refunding, MBIA Insured,
5.60%, 10/01/25 ................................................................................ 1,500,000 1,558,485
Orange County Capital Improvement Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/22 .............. 1,300,000 1,400,412
Orange County Health Facilities Authority Revenue,
Refunding, Orlando Regional Healthcare, Series A, MBIA Insured, 6.00%, 11/01/24 ................... 2,400,000 2,576,016
Sunbelt Adventist Health, Series B, FSA Insured, 6.75%, 11/15/21 .................................. 1,000,000 1,101,370
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 .......................... 1,000,000 1,087,370
Orange County Sales Tax Revenue, FGIC Insured,
6.125%, 1/01/19 ................................................................................... 500,000 522,275
5.375%, 1/01/24 ................................................................................... 1,000,000 1,011,580
Orange County School Board, COP, Series A, MBIA Insured, 5.375%, 8/01/22 .......................... 875,000 890,663
Osceola County HFA, MFHR, Tierra Vista Apartment Project, Series A, FSA Insured, 5.70%, 12/01/17 .. 630,000 644,465
Osceola County School Board COP, Series A, AMBAC Insured, 6.00%, 6/01/19 .......................... 1,900,000 2,059,467
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured, 6.10%, 4/01/17 ...... 1,225,000 1,318,566
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured, 6.00%, 6/01/15 ............... 1,000,000 1,094,180
Pinellas County Sewer Revenue, FGIC Insured, 6.00%, 10/01/24 ...................................... 1,250,000 1,346,550
Port Orange Water and Sewer Revenue, Refunding, Junior Lien, AMBAC Insured, 5.25%, 10/01/21 ....... 1,500,000 1,504,575
Port St. Lucie Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured,
5.125%, 9/01/27................................................................................... $1,000,000 $ 981,340
Puerto Rico Commonwealth GO, FSA Insured, Pre-Refunded, 6.00%, 7/01/22 ............................ 1,000,000 1,093,370
Puerto Rico Public Buildings Authority Revenue, Government Facilities, Series A, AMBAC Insured,
5.50%, 7/01/25 ................................................................................... 1,000,000 1,033,810
Sarasota County Utilities System Revenue, FGIC Insured, 5.75%, 10/01/27 ........................... 520,000 554,648
Seminole County School Board, COP, Series A, MBIA Insured, Pre-Refunded, 6.125%,
7/01/14 ........................................................................................... 1,000,000 1,124,230
7/01/19 ........................................................................................... 1,000,000 1,124,230
St. Johns County IDA, Series A, MBIA Insured,
5.25%, 3/01/11 .................................................................................... 1,250,000 1,273,100
5.50%, 3/01/17 .................................................................................... 1,000,000 1,026,640
St. Lucie County Water and Sewer Revenue, Refunding, AMBAC Insured, 5.50%, 10/01/17 ............... 500,000 520,745
Stuart Utilities Revenue, FGIC Insured, Pre-Refunded,
6.70%, 10/01/14 ................................................................................... 500,000 562,855
6.80%, 10/01/24 ................................................................................... 500,000 565,320
Sunrise Utilities System Revenue, Series A, AMBAC Insured, 5.75%, 10/01/26 ........................ 1,000,000 1,054,130
Tampa Occupational License Tax, Refunding, Series B, FGIC Insured, 5.50%, 10/01/27 ................ 1,000,000 1,026,580
Tampa Sports Authority Revenue, Tourist Development, FSA Insured, 5.25%, 1/01/27 .................. 2,000,000 2,006,400
Titusville Florida Water and Sewer Revenue, Refunding, MBIA Insured, 6.20%, 10/01/14 .............. 490,000 543,062
Vero Beach Electric Revenue, Refunding, Series A, MBIA Insured, 5.375%, 12/01/21 .................. 1,500,000 1,529,820
Village Center Community Development District Recreational Revenue, Refunding, Series A,
MBIA Insured, 5.00%, 11/01/21 ..................................................................... 1,000,000 984,920
West Melbourne Water and Sewer Revenue, Refunding and Improvement,
FGIC Insured, 6.75%, 10/01/14 ..................................................................... 500,000 571,415
West Palm Beach Utility Systems Revenue, Series B, FGIC Insured, 5.40%, 10/01/23 .................. 1,500,000 1,517,895
----------
Total Long Term Investments (Cost $90,991,246)..................................................... 96,801,565
----------
aShort Term Investments 2.8%
Dade County Health Facilities Authority Hospital Revenue, Miami Children's Hospital Project,
VRDN and Put, 3.70%, 9/01/20..................................................................... 200,000 200,000
Dade County IDR, Dolphins Stadium Project, Series A, Weekly VRDN and Put, 3.40%, 1/01/16 .......... 1,000,000 1,000,000
Dade County Water and Sewer System Revenue, FGIC Insured, Weekly VRDN and Put, 3.35%, 10/05/22 .... 1,000,000 1,000,000
Hillsborough County IDA, PCR, Daily VRDN and Put, 3.55%, 5/15/18 .................................. 500,000 500,000
Pinellas County Health Facilities Authority Revenue, Refunding, Pooled Hospital Loan
Program, Daily VRDN and Put, 3.70%, 12/01/15 ..................................................... 200,000 200,000
----------
Total Short Term Investments (Cost $2,900,000) .................................................... 2,900,000
----------
Total Investments (Cost $93,891,246) 98.2% ........................................................ 99,701,565
Other Assets, less Liabilities 1.8% ............................................................... 1,804,017
----------
Net Assets 100.0% ................................................................................. $101,505,582
==========
</TABLE>
See glossary of terms on page 97.
a Variable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Insured Tax-Free Income Fund
Year Ended February 28,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class I 1998 1997 19962 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................. $12.15 $12.27 $11.97 $12.45 $12.43
--------------------------------------------------------
Income from investment operations:
Net investment income............................................. .66 .69 .71 .71 .73
Net realized and unrealized gains (losses)........................ .29 (.11) .30 (.48) .02
--------------------------------------------------------
Total from investment operations................................... .95 .58 1.01 .23 .75
--------------------------------------------------------
Less distributions from:
Net investment income............................................. (.66) (.70) (.71) (.71) (.73)
In excess of net investment income................................ (.01) -- -- -- --
Net realized gains................................................ (.12) -- -- -- --
--------------------------------------------------------
Total distributions................................................ (.79) (.70) (.71) (.71) (.73)
--------------------------------------------------------
Net asset value, end of year....................................... $12.31 $12.15 $12.27 $11.97 $12.45
========================================================
Total return*...................................................... 8.09% 4.88% 8.66% 2.03% 5.93%
Ratios/supplemental data
Net assets, end of year (000's).................................... $1,685,260 $1,662,087 $1,705,038 $1,683,234 $1,802,548
Ratios to average net assets:
Expenses.......................................................... .61% .60% .60% .59% .52%
Net investment income............................................. 5.44% 5.68% 5.81% 6.00% 5.79%
Portfolio turnover rate............................................ 27.77% 18.66% 13.52% 14.42% 6.85%
</TABLE>
<TABLE>
<CAPTION>
Class II
Per share operating performance
(for a share outstanding throughout the year)
<S> <C> <C> <C>
Net asset value, beginning of year................................. $12.21 $12.31 $11.98
---------------------------------
Income from investment operations:
Net investment income............................................. .60 .62 .54
Net realized and unrealized gains (losses)........................ .29 (.09) .32
---------------------------------
Total from investment operations................................... .89 .53 .86
---------------------------------
Less distributions from:
Net investment income............................................. (.60) (.63) (.53)
Net realized gains................................................ (.12) -- -
---------------------------------
Total distributions................................................ (.72) (.63) (.53)
---------------------------------
Net asset value, end of year....................................... $12.38 $12.21 $12.31
=================================
Total return*...................................................... 7.52% 4.42% 7.32%
Ratios/supplemental data
Net assets, end of year (000's).................................... $38,057 $21,521 $8,152
Ratios to average net assets:
Expenses.......................................................... 1.18% 1.17% 1.18%**
Net investment income............................................. 4.86% 5.10% 5.21%**
Portfolio turnover rate............................................ 27.77% 18.66% 13.52%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized
2For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Insured Tax-Free Income Fund AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
Long Term Investments 98.7%
Alabama 3.0%
<S> <C> <C>
Alabama Agricultural and Mechanical University Revenues, MBIA Insured, 5.50%, 11/01/20 ............$ 1,000,000 $ 1,030,130
Alabama HFA, SFMR Program, Series A-1, GNMA Secured, 7.80%, 10/01/20 .............................. 4,600,000 4,763,162
Alabama State Board Educational Revenue, Southern Union State Junior College,
MBIA Insured, 6.50%, 7/01/12 ...................................................................... 1,000,000 1,098,370
Alabama Water Pollution Control Authority, Revolving Fund Loan, AMBAC Insured,
6.25%, 8/15/14 .................................................................................... 100,000 105,266
Series A, 5.60%, 8/15/16 .......................................................................... 2,000,000 2,058,720
Auburn Governmental Utility Services Corp., Waste Water Treatment Revenue,
Merscot-Auburn L.P. Project, FGIC Insured,
7.30%, 1/01/12 ................................................................................... 1,480,000 1,580,818
Birmingham Airport Authority, Airport Revenue, MBIA Insured, 5.625%, 7/01/26 ...................... 2,000,000 2,080,040
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 3,565,030
Daphne Utilities Board, Water, Gas and Sewer Revenue, Series B, FGIC Insured,
Capital Improvement Bonds, 7.35%, 6/01/20 ......................................................... 2,000,000 2,145,120
Refunding, 7.30%, 6/01/10 ......................................................................... 4,030,000 4,374,001
Fort Payne Waterworks, Board of Water Revenue, MBIA Insured, 5.45%, 7/01/21 ....................... 3,550,000 3,634,100
Huntsville Health Care Authority, Series A, MBIA Insured, 5.00%, 6/01/23 .......................... 2,000,000 1,941,220
Huntsville Health Care Facilities Authority Revenue, Series A, MBIA Insured, 6.375%, 6/01/22 ...... 300,000 325,959
Jefferson County Sewer Revenue, Series D, 5.75%, 2/01/22 .......................................... 5,000,000 5,324,850
Montgomery Medical Clinic Board, Health Care Facilities Revenue,
Jackson Hospital and Clinic, Refunding, AMBAC Insured,
6.00%, 3/01/26 ................................................................................... 4,000,000 4,288,760
Pelham GO Unlimited Warrants, AMBAC Insured, 5.50%,
12/01/21........................................................................................... 1,565,000 1,614,830
12/01/26........................................................................................... 2,000,000 2,055,360
University of Alabama, University Hospital Revenues, Refunding, Huntsville, Series A,
MBIA Insured, 5.50%, 5/01/18 ..................................................................... 4,000,000 4,092,240
West Jefferson IDB, PCR, Refunding, Alabama Power Co., Miller Plant Co., Series C,
MBIA Insured, 6.05%, 5/01/23 ...................................................................... 5,000,000 5,110,250
-----------
51,188,226
-----------
Alaska 5.8%
Alaska Energy Authority Power Revenue, Bradley Lake Hydro Project,
MBIA Insured, 7.25%, 7/01/21 ...................................................................... 5,795,000 6,291,400
Series 1, BIG Insured, 7.25%, 7/01/09 ............................................................. 5,000,000 5,306,150
Series 1, BIG Insured, 7.25%, 7/01/16 ............................................................. 4,765,000 5,048,470
Series 1, BIG Insured, 6.25%, 7/01/21 ............................................................. 3,205,000 3,264,517
Alaska Energy Authority Utilities Revenue, Refunding, FSA Insured,
5.20%, 7/01/17 .................................................................................... 3,000,000 2,996,130
5.375%, 7/01/20 ................................................................................... 5,000,000 5,044,950
Alaska Energy Utilities Revenue, City and Boro of Sitka, FSA Insured, Pre-Refunded, 6.75%, 7/01/20 18,500,000 20,733,875
Alaska Industrial Development and Export Authority, Refunding, Series A, MBIA Insured,
6.125%, 4/01/27................................................................................... 5,000,000 5,333,300
Alaska State HFC, Refunding, Series A, MBIA Insured,
6.00%, 6/01/27 .................................................................................... 5,000,000 5,271,400
5.875%, 12/01/30 .................................................................................. 485,000 504,090
6.10%, 12/01/37 ................................................................................... 5,000,000 5,291,550
Anchorage Electric Utility Revenue, Senior Lien,
Series B, MBIA Insured, 5.50%, 2/01/26 ............................................................ 4,000,000 4,060,800
Municipal Light and Power, Series C, AMBAC Insured, 5.125%, 12/01/26 .............................. 5,000,000 4,892,850
Refunding Series A, MBIA Insured, 7.125%, 6/01/06 ................................................. 5,000,000 5,285,950
Anchorage GO, AMBAC Insured,
General Purpose, Pre-Refunded, 7.30%, 8/01/10 ..................................................... 2,765,000 2,976,965
Refunding, 7.20%, 6/01/17 ......................................................................... 5,000,000 5,242,200
Refunding, 6.25%, 6/01/23 ......................................................................... 3,505,000 3,590,767
Anchorage Water Revenue, Refunding, Senior Lien, MBIA Insured, 7.25%, 8/01/14 ..................... 5,100,000 5,274,726
University of Alaska COP, Series 1990, FSA Insured, 7.375%, 10/01/07 .............................. 500,000 547,450
University of Alaska Revenues,
Series B, AMBAC Insured, 6.50%, 10/01/17 .......................................................... 250,000 267,470
Series G, FSA Insured, 5.45%, 10/01/22 ............................................................ 3,155,000 3,225,672
-----------
100,450,682
-----------
Arizona 2.5%
Arizona State Municipal Financing Program, COP, BIG Insured,
Series 1986-20, ETM, 7.70%, 8/01/10 ...............................................................$ 6,000,000$ 7,547,760
Series 1986-26, 7.70%, 8/01/05 .................................................................... 10,000,000 10,253,700
Chandler Water and Sewer Revenue, Refunding, FGIC Insured, 7.00%, 7/01/12 ......................... 2,200,000 2,409,726
Cochise County USD No. 68, Sierra Vista, FGIC Insured,
Refunding, 7.50%, 7/01/10 ......................................................................... 500,000 634,665
Series B, Pre-Refunded, 7.625%, 7/01/10 ........................................................... 3,000,000 3,274,650
Maricopa County IDA Revenue, Hospital Facility Revenue, Samaritan Hospital
Health Services, Refunding, Series A, MBIA Insured,
7.00%, 12/01/16 .................................................................................. 300,000 374,094
Maricopa County USD No. 80, Chandler, FGIC Insured, Pre-Refunded,
7.20%, 7/01/07 .................................................................................... 775,000 838,705
7.20%, 7/01/08 .................................................................................... 825,000 892,815
7.25%, 7/01/09 .................................................................................... 500,000 541,650
Maricopa County USD No. 98, Fountain Hills, Series A, FGIC Insured, Pre-Refunded, 7.10%, 7/01/10 .. 1,000,000 1,053,290
Maricopa UHSD No. 216, Refunding and Improvement, FGIC Insured, 6.70%, 7/01/11 .................... 1,000,000 1,068,880
Mesa IDA, Health Care Facilities Revenue, Western Health Network,
Refunding, Series B-2, BIG Insured, 7.50%, 1/01/08 ................................................ 950,000 995,182
Mohave County USD No. 1, Lake Havasu Project, Series B, AMBAC Insured, 5.375%, 7/01/11 ............ 500,000 518,405
Navajo County PCR, Arizona Public Service Co., Series A, MBIA Insured, 5.875%, 8/15/28 ............ 3,925,000 4,123,762
Phoenix GO, Refunding, Series B, MBIA Insured, 5.50%, 7/01/16 ..................................... 890,000 922,467
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15 ................................ 270,000 293,487
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue,
Refunding, Series A, FGIC Insured, 5.50%, 1/01/19 ................................................. 1,150,000 1,171,827
Series A, MBIA Insured, Pre-Refunded, 6.50%, 1/01/22 .............................................. 300,000 325,356
Tucson Water Revenue, Series A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/21 ........................ 5,000,000 5,643,000
-----------
42,883,421
-----------
Arkansas .1%
Arkansas State Development Finance Authority Water Revenue, Series A,
MBIA Insured, Refunding, 6.50%, 7/01/10 ........................................................... 2,000,000 2,346,040
Pulaski County Health Facilities Board, Hospital Revenue, St. Vincent's Infirmary,
MBIA Insured, Pre-Refunded, 10.00%, 9/01/12 ....................................................... 25,000 27,273
----------
2,373,313
----------
California 3.3%
California Statewide Communities Development Authority Revenue, COP, John Muir /
Mt. Diablo Health System, MBIA Insured,
5.25%, 8/15/27 ................................................................................... 3,085,000 3,080,280
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ...................... 15,000,000 21,394,200
El Centro Financing Authority Water and Wastewater Revenue, Series A, AMBAC Insured,
5.125%, 10/01/27.................................................................................. 1,800,000 1,779,642
Lancaster RDA, Refunding, Residential Redevelopment, MBIA Insured, 6.10%, 8/01/19 ................. 1,515,000 1,606,370
Los Angeles County Metropolitan Transportation Authority, Sales Tax Revenue, Proposition C,
Series B-2, AMBAC Insured, 5.25%, 7/01/23 ........................................................ 2,000,000 2,005,860
Oakland RDA, Refunding, Central District Redevelopment, AMBAC Insured, 5.50%, 2/01/14 ............. 250,000 269,303
Sacramento Area Flood Control Agency, Capital Assessment District No. 2, FGIC Insured,
5.375%, 10/01/25.................................................................................. 5,000,000 5,083,950
Sacramento Municipal Utility District, Refunding, Series D, MBIA Insured, 5.25%, 11/15/20 ......... 4,000,000 4,007,200
San Francisco Bay Area Rapid Transit, District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/20 .... 2,000,000 2,059,020
San Joaquin Hills Transportation Coordinator Agency Toll Road Revenue, Refunding, Series A,
MBIA Insured, 5.25%, 1/15/30...................................................................... 5,000,000 5,024,300
5.375%, 1/15/29 ................................................................................... 5,000,000 5,079,850
San Jose and Santa Clara Water Financing Authority, Sewer Revenue, Series A, FGIC Insured,
5.375%, 11/01/20 .................................................................................. 2,670,000 2,719,262
Stockton, East Water District, COP, 1990 Project A, AMBAC Insured,
6.40%, 4/01/22 .................................................................................... 1,460,000 1,588,801
Pre-Refunded, 6.40%, 4/01/22 ...................................................................... 790,000 874,056
-----------
56,572,094
-----------
Colorado 5.9%
Arapahoe County COP, Arapahoe County Building Finance Corp., FSA Insured, Pre-Refunded,
7.50%, 12/01/10................................................................................... 1,000,000 1,094,570
Arapahoe County COP, Refunding, FSA Insured, 6.625%, 12/01/16 ..................................... 8,695,000 9,573,021
Castle Pines Metropolitan District, Refunding and Improvement, FSA Insured, Pre-Refunded,
7.625%, 12/01/15.................................................................................. 1,500,000 1,671,630
Centennial Water & Sanitation District, Water and Sewer Revenue, Refunding, Series A,
FSA Insured, 5.125%, 12/01/17 ..................................................................... 5,000,000 5,001,600
Colorado (cont.)
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 $ 2,561,376
Colorado Health Facilities Authority Revenue,
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.25%, 7/15/17 ..................... 1,174,000 1,283,053
Rose Medical Center, MBIA Insured, Pre-Refunded, 7.00%, 8/15/21 ................................... 3,000,000 3,336,270
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%, 12/15/24 ....................... 2,455,000 2,674,772
Colorado Springs Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured,
5.125%, 11/15/18................................................................................. 1,000,000 1,003,570
Colorado State Board of Agriculture Revenue, MBIA Insured,
6.40%, 3/01/11 .................................................................................... 350,000 379,915
6.40%, 3/01/17 .................................................................................... 440,000 472,248
Pre-Refunded, 6.40%, 3/01/11 ...................................................................... 450,000 492,449
Pre-Refunded, 6.40%, 3/01/17 ...................................................................... 560,000 612,825
Colorado Water Resources and Power Development Authority, Small Water Resource Revenue,
Series A, FGIC Insured, 6.70%, 11/01/12 ........................................................... 2,000,000 2,182,020
Denver City and County Airport Revenue, MBIA Insured,
Series A, 5.50%, 11/15/25 ......................................................................... 7,250,000 7,432,048
Series C, 6.125%, 11/15/25 ........................................................................ 4,410,000 4,640,334
Series C, ETM, 6.125%, 11/15/25 ................................................................... 3,590,000 3,988,634
Series D, 5.50%, 11/15/25 ......................................................................... 3,900,000 3,997,929
Series E, 5.50%, 11/15/25 ......................................................................... 5,000,000 5,134,200
Denver City and County Board, Water Commissioner, COP, FGIC Insured, 6.625%, 11/15/11 ............. 1,500,000 1,634,490
Denver City and County Revenue, Children's Hospital Association Project, FGIC Insured,
6.00%, 10/01/15................................................................................... 3,000,000 3,200,400
Denver City and County SFMR, Series A, GNMA Secured, 8.125%, 12/01/20 ............................. 835,000 860,401
Douglas County School District No. 1, Douglas and Elbert Counties COP, Series D,
FGIC Insured, Pre-Refunded, 6.80%, 12/01/11 ....................................................... 2,000,000 2,207,680
El Paso County SFMR, Series A, GNMA Secured, 8.00%, 9/01/22 ....................................... 360,000 379,231
Garfield, Pitkin and Eagle Counties, Reorganized School District No. 1, MBIA Insured,
Pre-Refunded, 6.60%, 12/15/14 ..................................................................... 3,600,000 4,121,496
Goldsmith Metropolitan District, Refunding, MBIA Insured, 6.125%, 12/01/12 ........................ 2,000,000 2,134,580
Havana Water and Sanitation District Sewer Revenue, FSA Insured, Pre-Refunded, 7.375%, 9/15/14 .... 1,000,000 1,021,110
Jefferson County COP, MBIA Insured,
Pre-Refunded, 7.125%, 12/01/10 .................................................................... 2,000,000 2,230,040
Refunding, 6.65%, 12/01/08 ........................................................................ 5,000,000 5,591,900
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 ........................ 260,000 278,668
La Plata County School District No. R-9, Durango City, FGIC Insured, 6.55%, 11/01/12 .............. 490,000 539,858
Morgan County PCR, Refunding, First Mortgage, Public Service Co., Series A, MBIA Insured,
5.50%, 6/01/12.................................................................................... 1,000,000 1,036,190
Mountain College Residence Hall Revenue Authority, MBIA Insured,
5.625%, 6/01/12 ................................................................................... 1,900,000 2,014,285
5.75%, 6/01/23 .................................................................................... 3,000,000 3,169,170
Parker Water and Sanitation District, Water and Sewer Revenue, Refunding, FGIC Insured,
6.20%, 10/01/15................................................................................... 1,600,000 1,697,568
Postsecondary Educational Facilities Revenue Authority, Connie Lee Insured,
Refunding, University of Denver Project, 6.00%, 3/01/10 ........................................... 1,000,000 1,063,330
Regis University Project, Pre-Refunded, 6.625%, 6/01/13 ........................................... 1,000,000 1,076,660
Regional Transportation District Sales Tax Revenue, Refunding and Improvement,
FGIC Insured, 6.25%, 11/01/12 .................................................................... 235,000 253,899
University of Colorado Hospital Authority Revenue, Refunding, Series A, AMBAC Insured,
5.20%, 11/15/17 ................................................................................... 5,675,000 5,667,566
5.25%, 11/15/22 ................................................................................... 3,800,000 3,806,270
-----------
101,517,256
-----------
Connecticut .5%
Connecticut State Health and Educational Facilities Authority Revenue,
Danbury Hospital, Series E, MBIA Insured, 6.50%, 7/01/14 .......................................... 2,000,000 2,159,160
Mansfield Nursing Home, AMBAC Insured, 6.00%, 11/01/22 ............................................ 2,450,000 2,610,524
Trinity College, Series D, FGIC Insured, 6.125%, 7/01/24 .......................................... 2,000,000 2,137,480
New Haven Air Rights Parking Facility Revenue, Refunding, MBIA Insured, 6.50%, 12/01/15 ........... 2,000,000 2,170,020
-----------
9,077,184
-----------
Delaware .3%
Delaware State EDA, PCR, Refunding, Series B, AMBAC Insured, 6.75%, 5/01/19 .......................$ 1,000,000 $ 1,100,600
Delaware State Health Facilities Authority Revenue, Refunding, Medical Center,
MBIA Insured, 7.00%, 10/01/15 .................................................................... 2,900,000 3,075,305
-----------
4,175,905
-----------
District of Columbia
District of Columbia HFA, RMR, Series 1986-1, FGIC Insured, 7.75%, 9/01/16 ........................ 875,000 879,375
-----------
Florida 4.3%
Bay Medical Center Hospital Revenue, Refunding, Bay Medical Center Project,
AMBAC Insured, 5.65%, 10/01/26 ................................................................... 2,500,000 2,590,500
Cape Coral, Franchise Fees Revenue, AMBAC Insured, 5.40%, 12/01/13 ................................ 1,800,000 1,865,628
Celebration Community Development District, Special Assessment, Series B, MBIA Insured,
5.50%, 5/01/19.................................................................................... 2,375,000 2,454,895
Dade County Seaport Revenue, Refunding, Series E, MBIA Insured, 8.00%, 10/01/08 ................... 200,000 258,576
Florida HFA, SFMR, Series 1, FGIC Insured, 8.00%, 12/15/13 ........................................ 725,000 736,600
Florida State Municipal Power Agency Revenue, Refunding, Stanton Project, MBIA Insured,
Pre-Refunded, 6.00%, 10/01/15 ..................................................................... 200,000 211,576
Florida State Turnpike Authority Revenue, Department of Transportation, Series A,
AMBAC Insured, Pre-Refunded, 7.20%, 7/01/11 ....................................................... 3,000,000 3,345,480
FGIC Insured, 5.625%, 7/01/25 ..................................................................... 7,400,000 7,721,456
FGIC Insured, Pre-Refunded, 6.35%, 7/01/22 ........................................................ 710,000 780,113
Fort Myers Utility Revenue, Refunding, Series A, BIG Insured, 6.00%, 10/01/19 ..................... 25,000 25,674
Hillsborough County IDA, PCR, Refunding, Tampa Electric Co. Project, MBIA Insured, 6.25%, 12/01/34 1,000,000 1,111,190
Hillsborough County IDA Revenue, University Community Hospital, MBIA Insured, 5.80%, 8/15/24 ...... 3,000,000 3,159,390
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project, Refunding,
MBIA Insured, 5.25%, 11/15/25 ..................................................................... 1,250,000 1,255,988
Lee County IDA, Utilities Revenue, Refunding, Bonita Springs Utilities Project, MBIA Insured, 6.05%,
11/01/15........................................................................................... 1,000,000 1,089,810
11/01/20........................................................................................... 1,000,000 1,082,430
Lee County Solid Waste Systems Revenue, MBIA Insured, 5.375%, 10/01/15 ............................ 2,000,000 2,057,960
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 ...................... 5,000,000 5,721,650
North Port Utility Revenue, FGIC Insured, 6.20%, 10/01/12 ......................................... 2,000,000 2,174,320
Opa-Locka Capital Improvement Revenue, Refunding, FGIC Insured, 6.125%, 1/01/24 ................... 1,000,000 1,086,520
Orange County Health Facilities Authority Revenue, Orlando Regional Healthcare, Series A,
MBIA Insured, 6.00%, 11/01/24 ..................................................................... 1,000,000 1,073,340
Orange County School Board COP, Series A, MBIA Insured, 5.375%, 8/01/22 ........................... 5,000,000 5,089,500
Orlando and Orange County Expressway Authority Revenue, FGIC Insured, Junior Lien, 6.50%,
7/01/10............................................................................................ 100,000 118,337
7/01/12............................................................................................ 225,000 268,945
Orlando Utilities Commission, Water and Electric Revenue, Series A, AMBAC Insured, 5.50%, 10/01/26 2,535,000 2,562,682
Osceola County School Board COP, Refunding, Series A, AMBAC Insured, 5.50%, 6/01/19 ............... 1,000,000 1,030,620
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured, 6.10%, 4/01/17 ...... 1,000,000 1,076,380
Panama City Water and Sewer Revenue, Refunding and Improvement, AMBAC Insured, 5.625%, 6/01/19 .... 1,000,000 1,034,150
Polk County IDAR, Winter Haven Hospital, Series 2, MBIA Insured, 6.25%, 9/01/15 ................... 990,000 1,079,813
Port St. Lucie Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured,
5.125%, 9/01/27................................................................................... 5,000,000 4,906,700
Reedy Creek Improvement District, Utilities Revenue, Refunding, Series 1, MBIA Insured,
5.00%, 10/01/19................................................................................... 3,500,000 3,409,700
Saint Petersburg Public Utilities Revenue, MBIA Insured, 5.60%, 10/01/18 .......................... 3,910,000 4,048,766
Sumter County School District Revenue, Multi-District Loan Program, FSA Insured, 7.15%, 11/01/15 .. 250,000 316,630
Vero Beach Electric Revenue, Refunding, Series A, MBIA Insured, 5.375%, 12/01/21 .................. 3,200,000 3,263,616
West Palm Beach Utilities System Revenue, MBIA Insured, 5.75%, 10/01/27 ........................... 5,000,000 5,233,800
-----------
73,242,735
-----------
Georgia 1.7%
Atlanta Water and Sewer Revenue, FGIC Insured,
5.375%, 1/01/20 ................................................................................... 5,000,000 5,100,400
5.25%, 1/01/27 .................................................................................... 5,000,000 5,003,700
Bartow County Water and Sewage Revenue, Refunding, AMBAC Insured, Pre-Refunded, 8.00%, 9/01/15 .... 2,860,000 2,977,231
Brunswick Water and Sewer Revenue, Refunding and Improvement, MBIA Insured, 6.10%, 10/01/14 ....... 1,535,000 1,759,356
Burke County Development Authority, PCR, Georgia Power Co., Vogtle Project, MBIA Insured,
Seventh Series, 6.625%, 10/01/24 .................................................................. 2,000,000 2,107,400
Cherokee County Water and Sewage Authority Revenue, Water and Sewer, FGIC Insured, 5.00%, 8/01/27 . 1,500,000 1,452,780
Cherokee County Water and Sewage Revenue, Refunding, MBIA Insured, 6.90%, 8/01/18 ................. 1,000,000 1,094,510
Columbia County Water and Sewage Revenue, Refunding, AMBAC Insured, 6.25%, 6/01/12 ................ 1,500,000 1,608,825
Fitzgerald Housing Authority Mortgage Revenue, Refunding, Bridge Creek, Series A,
MBIA Insured, 6.50%, 7/01/24 ...................................................................... 1,050,000 1,103,718
Georgia (cont.)
Macon and Bibb County Urban Development Authority Revenue, Refunding, Multifamily Housing,
Series A, MBIA Insured, 5.55%, 1/01/24 ............................................................$ 1,590,000$ 1,631,483
Municipal Electric Authority of Georgia, Project One, Subseries A, Refunding,
MBIA Insured, 5.375%, 1/01/19 .................................................................... 5,000,000 5,063,050
-----------
28,902,453
-----------
Hawaii 1.4%
Hawaii County GO, Refunding and Improvement, Series A, FGIC Insured, 5.60%,
5/01/12 ........................................................................................... 1,000,000 1,091,130
5/01/13............................................................................................ 1,000,000 1,089,900
Hawaii State Airports System Revenue, Second Series, FGIC Insured, 7.50%, 7/01/20 ................. 5,000,000 5,460,400
Hawaii State Department of Budget and Finance, Special Purpose Mortgage Revenue,
Hawaiian Electric Co., MBIA Insured, 6.55%, 12/01/22 .............................................. 3,000,000 3,286,680
Refunding, St. Francis Medical Centers, FSA Insured, 6.50%, 7/01/22 ............................... 4,000,000 4,357,080
Hawaii State Department of Budget and Finance, Special Purpose Revenue,
Hawaiian Electric Co. Project, MBIA Insured,
Series A, 5.65%, 10/01/27 ......................................................................... 5,000,000 5,243,400
Series B, 5.875%, 12/01/26 ........................................................................ 2,000,000 2,111,540
Hawaii State Harbor Capital Improvement Revenue, FGIC Insured, 6.40%,
7/01/05............................................................................................ 535,000 586,654
7/01/06 ........................................................................................... 605,000 664,169
7/01/07 ........................................................................................... 610,000 667,127
----------
24,558,080
----------
Idaho .1%
Idaho State University at Boise Revenue, Student Fees, MBIA Insured, 6.50%, 4/01/19 ............... 1,000,000 1,115,120
----------
Illinois 3.0%
Aurora SFMR, GNMA Secured, AMBAC Insured, 7.80%, 12/01/15 ......................................... 435,000 453,996
Blue Island Waterworks and Sewer Revenue, MBIA Insured, 5.55%, 12/01/24 ........................... 2,270,000 2,340,415
Chicago Board of Education Lease, Series A, Refunding, MBIA Insured, 6.25%, 1/01/09 ............... 320,000 366,067
Chicago Central Public Library, Series B, AMBAC Insured,
6.70%, 1/01/06 .................................................................................... 1,800,000 1,996,524
6.75%, 1/01/07 .................................................................................... 1,800,000 1,997,712
Chicago Heights, MBIA Insured, Pre-Refunded, 7.40%, 12/01/03 ...................................... 100,000 111,220
Cicero GO, FSA Insured, 6.90%, 12/01/12 ........................................................... 1,500,000 1,667,475
Cook County Community College District No. 508, COP, FGIC Insured,
8.50%, 1/01/02 .................................................................................... 7,470,000 8,610,520
8.75%, 1/01/05 .................................................................................... 5,000,000 6,276,500
Illinois Health Facilities Authority Revenue,
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.35%, 8/15/10 ..................... 4,452,000 4,947,330
Methodist Health Services Corp., Series G, BIG Insured, 8.00%, 8/01/15 ............................ 2,595,000 2,750,752
Michael Reese Hospital, Series A, FSA Insured, ETM, 7.60%, 2/15/05 ................................ 4,280,000 4,927,521
Refunding, Series B, MBIA Insured, ETM, 7.90%, 8/15/03 ............................................ 403,000 462,451
Series 1990, FSA Insured, 7.75%, 8/15/10 .......................................................... 2,525,000 2,771,945
Series 1990, FSA Insured, ETM, 7.75%, 8/15/10 ..................................................... 105,000 134,456
Series B, MBIA Insured, 7.90%, 8/15/03 ............................................................ 1,877,000 1,904,667
Silver Cross Hospital, MBIA Insured, 7.00%, 8/15/21 ............................................... 1,000,000 1,100,510
Illinois State COP, FSA Insured, 6.95%, 7/01/13 ................................................... 5,750,000 6,361,283
Macon County and Decatur COP, Decatur Public Building Commission, FGIC Insured, 6.50%, 1/01/06 .... 300,000 340,029
Onterie Center Project, HFC, Mortgage Revenue, Refunding, Series A, MBIA Insured, 7.05%, 7/01/27 .. 2,000,000 2,149,300
Regional Transportation Authority, Series A, AMBAC Insured, 7.20%, 11/01/20 ....................... 300,000 385,473
----------
52,056,146
----------
Indiana 1.4%
Carroll County Consolidated School Building Corp., Refunding, First Mortgage,
AMBAC Insured, 7.625%, 1/01/04 ................................................................... 1,000,000 1,032,000
Fort Wayne Hospital Authority Revenue, Ancillary System, Inc.,
Parkview Memorial Hospital Project, Series A, FGIC Insured, 7.50%, 11/15/11 ....................... 250,000 268,100
Refunding, Series C, BIG Insured, Pre-Refunded, 8.125%, 7/01/18 ................................... 2,000,000 2,129,640
Indiana Health Facility Financing Authority Hospital Revenue, MBIA Insured, Refunding and
Improvement, Community Hospital Project, 6.40%, 5/01/12 ......................................... 250,000 271,370
Indiana (cont.)
Indianapolis Airport Authority, Indianapolis International Airport Revenue, BIG Insured,
8.30%, 7/01/18....................................................................................$10,000,000 $10,327,800
Indianapolis Gas Utility Revenue, Refunding, Series B, FGIC Insured, 4.00%, 6/01/15 ............... 500,000 440,005
Jasper County PCR, Refunding, Collateralized, Northern Indiana Public Service Co.,
MBIA Insured, 7.10%, 7/01/17 ..................................................................... 500,000 545,875
Monroe County Hospital Authority Revenue, Refunding, Bloomington
Hospital Project, BIG Insured, 7.125%, 5/01/11 ................................................... 6,000,000 6,254,460
Patoka Lake Regional Water and Sewer District, Waterworks Revenue, Series A,
AMBAC Insured, 6.45%, 1/01/15 .................................................................... 1,500,000 1,627,770
Rockport PCR, Refunding, Michigan Power Co., Series B, FGIC Insured, 7.60%, 3/01/16 ............... 185,000 205,224
----------
23,102,244
----------
Iowa .1%
Davenport Hospital Revenue, St. Lukes Hospital, Series A, AMBAC Insured,
Pre-Refunded, 7.40%, 7/01/20 ..................................................................... 200,000 219,384
Greater Iowa Housing Assistance Corp., Mortgage Revenue, Refunding, Logan Park Project, Series B,
MBIA Insured, 6.50%, 1/01/24 ..................................................................... 2,125,000 2,238,730
----------
2,458,114
----------
Kansas .6%
Burlington PCR, Refunding, Kansas Gas and Electric Co. Project, MBIA Insured, 7.00%, 6/01/31 ...... 3,350,000 3,690,829
Cowley and Shawnee Counties, SFMR, GNMA Secured, AMBAC Insured, 7.35%, 12/01/11 ................... 1,115,000 1,180,361
bJohnson County Community College, Student Commons and Packaging System Revenue,
MBIA Insured, 5.05%, 11/15/21 .................................................................... 1,560,000 1,551,342
Kansas State Development Finance Authority, Health Facility Revenue, MBIA Insured, 5.80%, 11/15/21 1,330,000 1,409,960
Wichita Hospital Revenue, Refunding and Improvement, St. Francis, MBIA Insured, 6.25%, 10/01/10 ... 2,000,000 2,186,240
Wichita Water and Sewer Utility Revenue, Refunding and Improvement, Series B,
FGIC Insured, 6.00%, 10/01/12 .................................................................... 1,000,000 1,042,730
-----------
11,061,462
-----------
Kentucky 1.6%
Jefferson County Capital Projects Corp., Leasehold Revenue, MBIA Insured,
5.375%, 6/01/22 ................................................................................... 2,000,000 2,039,580
5.50%, 6/01/28 .................................................................................... 3,000,000 3,091,080
Jefferson County Health Facilities Revenue, Jewish Hospital Healthcare Services, Inc.,
AMBAC Insured, 6.55%, 5/01/22 ..................................................................... 1,000,000 1,087,530
Jefferson County Health Facilities Revenue, Refunding, Alliant Health System, Inc.,
MBIA Insured, 5.125%, 10/01/27 .................................................................... 10,000,000 9,798,100
Kenton County Water District No. 001, Waterworks Revenue, Series B, FGIC Insured, 5.70%, 2/01/20 .. 1,250,000 1,315,313
Kentucky Economic Development Financing Authority,
Hospital Facilities Revenue, Baptist Healthcare System, Refunding, MBIA Insured, 5.00%, 8/15/24 ... 2,000,000 1,934,420
Hospital Facilities Revenue, St. Elizabeth Medical Center Project, Series A, FGIC Insured,
6.00%, 12/01/22................................................................................... 2,375,000 2,531,513
Medical Center Revenue, Refunding and Improvement, Ashland Hospital Corp.,
Series A, FSA Insured, 6.125%, 2/01/12 ............................................................ 1,000,000 1,078,140
Louisville and Jefferson County Metropolitan Sewer District, Sewer and Drain
System Revenue, Refunding, Series A, AMBAC Insured,
Pre-Refunded, 6.75%, 5/15/25 ...................................................................... 2,000,000 2,325,160
Northern Kentucky University COP, Student Housing Facilities, FSA Insured, 7.25%, 1/01/12 ......... 2,000,000 2,175,000
-----------
27,375,836
-----------
Louisiana .2%
Jefferson Sales Tax District, Special Sales Tax Revenue, Refunding, Series A,
BIG Insured, Pre-Refunded, 8.00%, 7/01/05 ......................................................... 1,700,000 1,791,715
Louisiana Regional Transit Authority Revenue, Refunding, FGIC Insured, 8.00%, 12/01/13 ............ 150,000 157,604
New Orleans Public Improvement, FGIC Insured, Pre-Refunded, 7.50%, 9/01/21 ........................ 500,000 569,090
-----------
2,518,409
-----------
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 2,184,740
Maine Health and Higher Educational Facilities Authority Revenue, FSA Insured,
Series B, 7.00%, 7/01/24 .......................................................................... 2,000,000 2,293,040
Series C, 6.20%, 7/01/25 .......................................................................... 2,015,000 2,187,081
Maine State Turnpike Authority Revenue, MBIA Insured, 6.00%,
7/01/14 ........................................................................................... 525,000 568,549
7/01/18............................................................................................ 2,500,000 2,693,125
Old Orchard Beach GO, MBIA Insured, 6.65%,
9/01/11............................................................................................ 1,180,000 1,310,602
9/01/12 ........................................................................................... 535,000 592,823
-----------
11,829,960
-----------
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$ 2,932,680
Series B, 7.00%, 7/01/22 .......................................................................... 200,000 255,580
Maryland State Housing and Community Development Administration
Department, Infrastructure Financing, Series A, AMBAC Insured,
6.625%, 6/01/12 ................................................................................... 2,000,000 2,197,020
6.70%, 6/01/22 .................................................................................... 820,000 904,804
-----------
6,290,084
-----------
Massachusetts 6.1%
Boston Water and Sewer Commission Revenue, Series A, FGIC Insured, 6.00%, 11/01/21 ................ 3,700,000 3,834,495
bCentral Berkshire Reglious School District, Series B, FSA Insured, 5.125%, 3/01/18 ................ 1,125,000 1,107,709
Massachusetts Municipal Wholesale Electric Co., Power Supply System Revenue, Refunding, Series A,
AMBAC Insured, 6.00%, 7/01/18 ..................................................................... 4,455,000 4,617,207
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ................................... 10,000,000 10,681,500
Beverly Hospital, Series E, MBIA Insured, Pre-Refunded, 7.70%, 7/01/20 ............................ 1,500,000 1,653,525
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 .............................. 1,000,000 1,012,890
Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 7/01/20 ........................... 9,220,000 9,844,747
Massachusetts Medical Center, Series A, AMBAC Insured, 7.10%, 7/01/21 ............................. 1,000,000 1,100,870
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 .................................. 8,500,000 9,329,260
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 4/01/24 ............................... 12,200,000 12,338,348
Refunding, Caregroup Issue, Series A, MBIA Insured, 5.00%, 7/01/18 ................................ 2,000,000 1,954,920
Refunding, Caregroup Issue, Series A, MBIA Insured, 5.00%, 7/01/25 ................................ 5,000,000 4,833,350
Refunding, Mclean Hospital, Series C, FGIC Insured, 6.625%, 7/01/15 ............................... 1,085,000 1,192,513
Refunding, Stonehill College, Series E, MBIA Insured, 6.60%, 7/01/20 .............................. 2,000,000 2,191,260
Youville Hospital, Refunding, Series B, MBIA Insured, 6.00%, 2/15/25 .............................. 2,000,000 2,127,080
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, 6.50%, 10/01/22 ........................................... 3,000,000 3,269,640
Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19 ...................................... 5,000,000 5,284,800
Refunding, Combined Jewish Philanthropies, Series A, AMBAC Insured, 6.375%, 2/01/15 ............... 5,000,000 5,489,800
Suffolk University, AMBAC Insured, 5.25%, 7/01/17 ................................................. 3,000,000 3,048,450
Massachusetts State Port Authority Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 7/01/23 ................................................. 4,000,000 4,190,040
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/20 ................................ 1,590,000 1,641,659
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/21 ................................ 1,560,000 1,610,684
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/23 ................................ 2,155,000 2,225,016
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/24 ................................ 2,910,000 3,004,546
Massachusetts State Water Resources Authority, Series A, FGIC Insured, 5.50%, 11/01/21 ............ 3,000,000 3,090,030
Monson GO, School District, Series 1990, MBIA Insured, Pre-Refunded, 7.70%, 10/15/10 .............. 2,000,000 2,224,220
Palmer GO, Series B, AMBAC Insured, Pre-Refunded, 7.70%, 10/01/10 ................................. 2,300,000 2,554,886
-----------
105,453,445
-----------
Michigan 3.0%
Chippewa Valley Schools, Refunding, AMBAC Insured, 5.00%, 5/01/27 ................................. 1,000,000 968,610
Detroit Sewerage Disposal Revenue, MBIA Insured, 5.00%, 7/01/25 ................................... 6,000,000 5,808,540
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/27 ....................................... 7,250,000 7,468,950
Jackson County Hospital Finance Authority, Hospital Revenue, W.A. Foote Memorial Hospital,
Series A, AMBAC Insured, 5.25%, 6/01/17 ........................................................... 750,000 756,915
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue, Refunding and Improvement,
Bronson Methodist, AMBAC Insured,
5.875%, 5/15/26 ................................................................................... 5,500,000 5,799,365
Series A, 6.375%, 5/15/17 ......................................................................... 2,000,000 2,175,420
Kent Hospital Finance Authority, Health Care Revenue, Butterworth Health System, Series A,
MBIA Insured, 5.625%, 1/15/26 ..................................................................... 10,000,000 10,347,400
Marquette City Hospital Finance Authority Revenue, Refunding, Marquette General Hospital,
Series D, FSA Insured, 6.10%, 4/01/19 ............................................................. 5,000,000 5,439,050
Michigan State Hospital Finance Authority Revenue, St. John's Hospital, AMBAC Insured,
5.25%, 5/15/26 .................................................................................... 3,000,000 2,999,730
Refunding, Series A, 6.00%, 5/15/13 ............................................................... 2,500,000 2,677,800
Michigan (cont.)
Michigan State Strategic Fund, Limited Obligation Revenue, Refunding, Detroit Edison Co.,
FGIC Insured, 6.875%, 12/01/21 .................................................................... $ 200,000$ 219,122
Series BB, AMBAC Insured, 7.00%, 5/01/21 .......................................................... 250,000 318,518
Yale Public Schools District, Refunding, FSA Insured, 5.375%, 5/01/27 ............................. 3,845,000 3,912,864
Zeeland Public Schools, Refunding, MBIA Insured, 5.25%, 5/01/24 ................................... 3,180,000 3,186,614
-----------
52,078,898
-----------
Minnesota 2.3%
Agricultural and EDR Board Revenue, Health Care System, Fairview Hospital, Refunding,
Series A, MBIA Insured, 5.75%, 11/15/26 ........................................................... 5,000,000 5,301,350
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 ............... 2,000,000 2,139,740
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22 ............ 2,235,000 2,354,550
Minneapolis-St. Paul Housing Finance Board, MFMR, GNMA Secured, Mortgage Loan,
Riverside Plaza Project, 8.20%, 12/20/18 .......................................................... 4,000,000 4,130,640
Northern Municipal Power Agency, Minnesota Electric System Revenue, Refunding, Series B,
AMBAC Insured, 5.50%, 1/01/18 ..................................................................... 2,100,000 2,150,169
Southern Minnesota Municipal Power Agency, Power Supply System Revenue, Series A,
AMBAC Insured, 5.75%, 1/01/18 ..................................................................... 2,870,000 3,006,440
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 8,229,028
Washington County Governmental Housing, Scandia II, Series B, FGIC Insured, 6.30%, 7/01/24 ........ 1,200,000 1,303,104
Washington County, Raymie Johnson Apartments, Series C, Refunding, FGIC Insured, 6.30%, 1/01/20 ... 2,415,000 2,622,497
Western Minnesota Municipal Power Agency, Power Supply Revenue,
Series A, MBIA Insured, 6.125%, 1/01/16 ........................................................... 8,350,000 8,390,498
-----------
39,628,016
-----------
Mississippi
Harrison County Waste Water Management District Revenue, Refunding, Waste Water
Treatment Facilities, Series A, FGIC Insured,
8.50%, 2/01/13 ................................................................................... 200,000 281,324
Mississippi HFC, SFMR, Refunding, Series A, FGIC Insured, 7.70%, 10/15/08 ......................... 10,000 10,214
----------
291,538
----------
Missouri 1.4%
Kansas City Industrial Development Authority, Mortgage Revenue, Refunding,
Mortgage Presidential Gardens, Series A, FNMA Secured,
5.55%, 8/01/25 ................................................................................... 1,000,000 1,020,920
Missouri HDC, SFMR, Series B, GNMA Secured, 7.75%, 6/01/22 ........................................ 1,260,000 1,330,497
Missouri State Health and Educational Facilities Authority, Health Facilities Revenue,
Heartland Health System Project, AMBAC Insured,
6.35%, 11/15/17 .................................................................................. 1,000,000 1,090,570
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 7,724,175
Richmound Heights COP Partner Capital Improvement Projects, Series A, MBIA Insured, 5.30%, 8/15/17 2,000,000 2,019,800
St. Charles County Public Facilities Authority Leasehold Revenue, FGIC Insured, 6.375%, 3/15/07 ... 2,850,000 3,119,126
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 .................................. 440,000 457,318
St. Louis Municipal Finance Corp., Leasehold Revenue,
City Justice Center, Refunding, Series A, AMBAC Insured, 5.95%, 2/15/16 ........................... 2,000,000 2,160,440
Refunding and Improvement, Refunded, FGIC Insured, Pre-Refunded, 6.25%, 2/15/12 ................... 2,025,000 2,279,320
St. Louis School District GO, Refunding, FGIC Insured, 6.00%, 4/01/12 ............................. 2,950,000 3,155,556
-----------
24,357,722
-----------
Montana 1.4%
Forsyth PCR, Refunding,
Puget Sound Power and Light Project, AMBAC Insured, 6.80%, 3/01/22 ................................ 4,475,000 4,899,722
Washington Water Co., Series A, MBIA Insured, 7.125%, 12/01/13 .................................... 5,000,000 5,339,200
Helena Water Revenue, Series C, FGIC Insured, 6.65%, 11/01/12 ..................................... 750,000 827,775
Montana State Board, Workers Compensation Investment Program, MBIA Insured, ETM, 6.875%,
6/01/20 ........................................................................................... 1,560,000 1,710,368
6/01/20 ........................................................................................... 4,545,000 4,983,093
6/01/20 ........................................................................................... 2,395,000 2,625,854
Montana State University Revenue, Higher Education Facilities, Acquisition and Improvement, Series C,
MBIA Insured, 6.00%, 11/15/14 ..................................................................... 1,000,000 1,002,710
Montana Water System Revenue, Butte-Silver Bow Project, FGIC Insured, 6.50%, 11/01/14 ............. 3,000,000 3,314,190
-----------
24,702,912
-----------
Nebraska 2.7%
Cass County School District No. 001, Plattsmouth Community Schools, FGIC Insured,
Pre-Refunded, 6.35%, 12/01/19 .....................................................................$ 2,500,000 $ 2,621,325
Lancaster County Hospital Authority Revenue, Bryan Memorial Hospital Project No. 1, MBIA Insured,
ETM, 6.70%, 6/01/22 ............................................................................... 2,500,000 2,879,575
Series A, 5.375%, 6/01/19 ......................................................................... 2,715,000 2,773,373
Series B, 5.375%, 6/01/17 ......................................................................... 5,000,000 5,096,200
Lincoln Hospital Revenue, Refunding, Lincoln General Hospital, Series A, FSA Insured,
6.20%, 12/01/14................................................................................... 2,000,000 2,158,980
Municipal Energy Agency of Nebraska, Power Supply System Revenue, Refunding,
Series A, AMBAC Insured, 6.00%,
4/01/15 ........................................................................................... 2,000,000 2,146,740
4/01/17............................................................................................ 1,350,000 1,436,157
Nebraska Educational Finance Authority Revenue, Creighton University Project, AMBAC Insured,
5.95%, 1/01/11.................................................................................... 1,000,000 1,087,240
Nebraska Investment Finance Authority, Health Facilities Revenue, Childrens Healthcare Services,
AMBAC Insured, 5.50%, 8/15/27 .................................................................... 2,000,000 2,049,240
Nebraska Investment Finance Authority, SFMR, Refunding,
Series 1, GNMA Secured, MBIA Insured, 8.125%, 8/15/38 ............................................. 370,000 380,956
Series B, FGIC Insured, 8.00%, 7/15/17 ............................................................ 3,470,000 3,597,731
Series R1-A, FGIC Insured, 8.00%, 7/15/17 ......................................................... 235,000 239,799
Nebraska Public Power District, Revenue, Power System, MBIA Insured, Series A, 5.25%,
1/01/22 ........................................................................................... 12,200,000 12,214,518
1/01/28 ........................................................................................... 7,900,000 7,863,976
-----------
46,545,810
-----------
Nevada .5%
Carson City Hospital Revenue, Series B, AMBAC Insured, 5.40%, 3/01/17 ............................. 1,000,000 1,025,610
Clark County GO, Series A, AMBAC Insured, 6.50%, 6/01/17 .......................................... 250,000 297,705
Clark County School District, Series A, MBIA Insured, 7.00%, 6/01/10 .............................. 4,000,000 4,899,000
Reno Hospital Revenue, Refunding, St. Mary's Regional Medical Center, Series A,
MBIA Insured, 7.75%, 7/01/07 ..................................................................... 10,000 10,316
Sparks Public Safety, GO, AMBAC Insured, Pre-Refunded, 7.50%, 10/01/09 ............................ 1,695,000 1,823,769
-----------
8,056,400
-----------
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 11,477,730
Refunding, Concord Hospital, AMBAC Insured, 6.00%, 10/01/26 ....................................... 4,300,000 4,594,937
Refunding, University System, MBIA Insured, 6.25%, 7/01/20 ........................................ 4,000,000 4,316,640
-----------
20,389,307
-----------
New Jersey 1.8%
Essex County Improvement Authority Lease, Jail and Youth House Projects, AMBAC Insured,
Pre-Refunded, 7.00%, 12/01/24 ..................................................................... 3,000,000 3,553,290
Refunding, 5.35%, 12/01/24 ........................................................................ 4,000,000 4,051,840
Essex County Improvement Authority Revenue, Garden State Cancer Center Project,
AMBAC Insured, 6.00%, 12/01/20 .................................................................... 2,525,000 2,705,538
Hudson County COP, Correctional Facility, BIG Insured, Pre-Refunded, 7.60%, 12/01/21 .............. 5,000,000 5,242,800
Lacey Municipal Utilities Authority, Water Revenue, MBIA Insured, Pre-Refunded, 6.10%, 12/01/23 ... 2,500,000 2,792,900
Mantua Township, New Jersey School District COP, MBIA Insured, Pre-Refunded, 7.25%, 6/30/10 ....... 1,700,000 1,859,001
Mount Laurel Township Municipal Utilities Authority System Revenue, Refunding, Series A,
MBIA Insured, 6.00%, 7/01/15 ...................................................................... 2,000,000 2,130,000
New Jersey Health Care Facilities Financing Authority Revenue,
Community Medical Center, Series D, MBIA Insured, Pre-Refunded, 6.00%, 7/01/19 .................... 2,000,000 2,059,340
Jersey Shore Memorial Hospital, Series B, AMBAC Insured, Pre-Refunded, 8.00%, 7/01/18 ............. 2,860,000 2,957,154
Muhlenberg Regional Medical Center, Series B, AMBAC Insured, 8.00%, 7/01/18 ....................... 3,000,000 3,101,400
New Jersey HFA, Home Buyer Revenue, Series C, MBIA Insured, 7.375%, 10/01/17 ...................... 485,000 511,336
New Jersey State Turnpike Authority Revenue, Refunding, Series C, AMBAC Insured, 6.50%, 1/01/16 ... 300,000 358,995
-----------
31,323,594
-----------
New Mexico .7%
Albuquerque Airport Revenue, Series B, AMBAC Insured, 7.00%, 7/01/16 .............................. 3,600,000 3,604,392
Farmington PCR, Refunding, Public Service Co. of New Mexico, Series A,
AMBAC Insured, 6.375%, 12/15/22 .................................................................. 5,000,000 5,438,950
Gallup PCR, Refunding, Plains Electric Generation, MBIA Insured, 6.65%, 8/15/17 ................... 2,000,000 2,214,580
New Mexico Mortgage Finance Authority, SFMR, Series C, FGIC Insured, 8.625%, 7/01/17 .............. 1,095,000 1,123,645
-----------
12,381,567
-----------
New York 7.9%
Central Square School District, FGIC Insured, 6.50%, 6/15/10 ...................................... $ 900,000$ 1,046,106
Dutchess County Industrial Development Agency Civic Facilities Revenue, The Baird College Project,
AMBAC Insured, 5.375%, 6/01/27 .................................................................... 3,945,000 3,986,107
New York City GO, Series C, Subseries C-1, MBIA Insured, 6.625%, 8/01/12 .......................... 105,000 116,232
New York City Municipal Water Finance Authority, Water and Sewer System Revenue,
Series A, MBIA Insured, Pre-Refunded, 7.25%,
6/15/15 .......................................................................................... 2,000,000 2,173,060
New York City Trust for Cultural Resources Revenue, New York Botanical Garden,
MBIA Insured, 5.80%, 7/01/26 ...................................................................... 2,000,000 2,102,700
New York State Dormitory Authority Revenues,
Brooklyn Law School, FSA Insured, 6.40%, 7/01/11 .................................................. 4,000,000 4,308,680
City University System, Series C, FGIC Insured, 7.00%, 7/01/14 .................................... 8,655,000 9,322,820
Pace University, MBIA Insured, 5.70%, 7/01/22 ..................................................... 7,500,000 7,915,950
Pace University, MBIA Insured, 5.75%, 7/01/26 ..................................................... 2,500,000 2,649,325
Pooled Capital Program, FGIC Insured, 7.80%, 12/01/05 ............................................. 4,980,000 5,189,110
Refunding, Mt. Sinai School of Medicine, MBIA Insured, 6.75%, 7/01/15 ............................. 1,500,000 1,630,845
St. John's University, MBIA Insured, 5.70%, 7/01/26 ............................................... 15,000,000 15,837,600
Vassar Brothers Hospital, FSA Insured, 5.375%, 7/01/25 ............................................ 4,000,000 4,044,600
New York State Energy Research and Development Authority, PCR,
Central Hudson Gas, Series A, FGIC Insured, 7.375%, 10/01/14 ...................................... 2,000,000 2,158,960
Refunding, Niagara Mohawk Power Corp., Series A, FGIC Insured, 6.625%, 10/01/13 ................... 3,500,000 3,812,340
Refunding, Rochester Gas and Electric Project, Series B, MBIA Insured, 6.75%, 1/15/27 ............. 5,000,000 5,346,950
Refunding, Rochester Gas and Electric Project, Series B, MBIA Insured, 6.50%, 5/15/32 ............. 5,000,000 5,441,050
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 3,272,070
Presbyterian Hospital, FHA Mortgage, Series A, MBIA Insured, 5.375%, 2/15/25 ...................... 3,055,000 3,083,381
New York State Thruway Authority, General Revenue,
Series B, MBIA Insured, 5.00%, 1/01/20 ............................................................ 6,635,000 6,496,395
Series C, FGIC Insured, 6.00%, 1/01/25 ............................................................ 7,815,000 8,472,476
Niagara Frontier Transportation Authority, Airport Revenue, Greater Buffalo
International Airport, Series A, AMBAC Insured, 6.25%,
4/01/24 .......................................................................................... 9,000,000 9,701,280
Port Authority of New York and New Jersey, Consolidated,
102nd Series, MBIA Insured, 5.625%, 10/15/17 ...................................................... 5,000,000 5,261,750
102nd Series, MBIA Insured, 5.875%, 10/15/27 ...................................................... 10,000,000 10,626,500
109th Series, FGIC Insured, 5.375%, 7/15/22 ....................................................... 10,000,000 10,159,700
Upper Mohawk Valley Regional Water Finance Authority, Water Systems Revenue, Series A,
FSA Insured, 5.125%, 10/01/26 ..................................................................... 1,495,000 1,482,741
-----------
135,638,728
-----------
North Carolina .1%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ...................................... 1,000,000 1,056,210
New Hanover County Hospital Revenue, New Hanover Regional Medical Center Project,
AMBAC Insured, 5.75%, 10/01/26 .................................................................... 1,150,000 1,220,116
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue, MBIA Insured, 6.50%,
1/01/10 ........................................................................................... 80,000 84,662
ETM, 1/01/10 ...................................................................................... 20,000 22,932
-----------
2,383,920
-----------
North Dakota .4%
Grand Forks Health Care System Revenue, Altru Health System Obligation Group,
MBIA Insured, 5.625%, 8/15/27 ..................................................................... 5,500,000 5,699,540
North Dakota State Building Authority Lease Revenue, Series B, Department of Corrections and
Rehabilitation, AMBAC Insured,
Pre-Refunded, 7.40%, 6/01/10 ..................................................................... 150,000 161,051
North Dakota State Building Authority Revenue, Refunding, Series A, AMBAC Insured, 6.75%, 6/01/11 . 300,000 322,179
-----------
6,182,770
-----------
Ohio 3.6%
Clermont County, Refunding, Building and Road Improvement, AMBAC Insured, 5.60%, 9/01/14 .......... 2,000,000 2,086,880
Cleveland Apirport System Revenue, Series A, FSA Insured, 5.125%, 1/01/27 ......................... 6,000,000 5,836,620
Cleveland Waterworks First Mortgage Revenue, Series F, AMBAC Insured, 6.50%, 1/01/11 .............. 1,625,000 1,774,923
Elyria GO, FGIC Insured, 5.40%, 12/01/17 .......................................................... 2,400,000 2,460,072
Hamilton Wastewater System Revenue, Series A, FSA Insured, 5.15%, 10/15/17 ........................ 3,015,000 3,020,035
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 ..................... 1,750,000 1,875,178
Ohio (cont.)
Montgomery County Hospital Facilities Revenue, Kettering Medical Center Facilities,
MBIA Insured, Pre-Refunded, 7.50%, 4/01/14 ........................................................$12,720,000$ 13,478,621
Ohio HFA, SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 ............................................ 3,185,000 3,376,928
Ohio Municipal Electric Generation Agency, Joint Venture 5, AMBAC Insured, 5.375%, 2/15/24 ........ 5,500,000 5,593,775
Ohio State Turnpike Commission, Turnpike Revenue, Series A, MBIA Insured, 5.50%, 2/15/26 .......... 15,900,000 16,516,602
University of Cincinnati COP, University of Cincinnati University Center Project,
MBIA Insured, 5.125%, 6/01/24 .................................................................... 2,950,000 2,926,607
West Holmes Local School District, MBIA Insured, 5.375%, 12/01/17 ................................. 3,100,000 3,185,343
-----------
62,131,584
-----------
Oklahoma 1.1%
Grady County HFA, SFMR, Refunding, Series A, FGIC Insured, 6.70%, 1/01/12 ......................... 595,000 638,161
McGee Creek Authority Water Revenue, MBIA Insured, 6.00%, 1/01/23 ................................. 300,000 344,706
Moore Public Works Authority Revenue, Refunding, AMBAC Insured, 7.60%, 7/01/06 .................... 5,000,000 5,327,200
Muskogee County, HFAR, Refunding, SFMR, Series A, FGIC Insured, 7.60%, 12/01/10 ................... 680,000 710,525
Oklahoma State Turnpike Authority Revenue, Series A, AMBAC Insured, 6.00%, 1/01/12 ................ 2,000,000 2,150,380
Owasso Public Works Authority, Public Improvement Revenue, FSA Insured, Pre-Refunded,
7.40%, 11/01/07 .................................................................................. 1,255,000 1,298,084
Pottawatomie County Development Authority Water Revenue, North Deer Creek Reservoir Project,
AMBAC Insured, Pre-Refunded,
7.375%, 7/01/26 .................................................................................. 250,000 273,800
Tulsa County HFAR, GNMA Secured,
Series A, 8.30%, 12/01/19 ......................................................................... 4,050,000 4,194,950
Series D, 6.95%, 12/01/22 ......................................................................... 295,000 313,676
Tulsa Industrial Authority Revenue, Holland Hall School Project, FSA Insured, 6.75%, 12/01/14 ..... 3,270,000 3,676,690
-----------
18,928,172
-----------
Oregon 1.7%
Chemeketa Community College District, FGIC Insured, 5.95%, 6/01/16 ................................ 3,000,000 3,266,370
Clackamas Oregon Community College District, MBIA Insured, 5.80%, 6/01/26 ......................... 2,500,000 2,649,100
Deschutes and Jefferson Counties School District No. 2-J, Redmond, MBIA Insured, 5.60%, 6/01/09 ... 1,500,000 1,579,020
Josephine County School District No. 7, FGIC Insured, 5.70%, 6/01/13 .............................. 5,000,000 5,336,100
Northern Wasco County, Peoples Utilities District, Oregon Electric Revenue,
FGIC Insured, 5.625%, 12/01/22 ................................................................... 1,000,000 1,043,730
Ontario Catholic Health Corp., Hospital Facilities Authority Revenue, Holy Rosary Medical Facility,
Refunding, Series C, MBIA Insured,
5.50%, 11/15/12 .................................................................................. 700,000 737,583
Oregon Health Sciences University Revenue, Series B, MBIA Insured, 5.25%, 7/01/15 ................. 1,500,000 1,531,050
Oregon State Department of Administrative Services, COP, Series A,
AMBAC Insured, 5.80%, 5/01/24 ..................................................................... 5,000,000 5,360,450
MBIA Insured, 5.70%, 5/01/17 ...................................................................... 1,000,000 1,062,940
Port of Portland International Airport Revenue, Portland International Airport, Series 11,
FGIC Insured, 5.625%, 7/01/26 ..................................................................... 1,000,000 1,035,960
Washington County Unified Sewer Agency Revenue,
Refunding, Senior Lien, Series A, AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 ................... 1,000,000 1,115,630
Senior Lien, FGIC Insured, 5.50%, 10/01/16 ........................................................ 1,845,000 1,937,822
Western Lane Hospital District, Hospital Facilities Authority Revenue, Refunding, Sisters of
St. Joseph of Peace Health and Hospital Services,
MBIA Insured, 5.875%, 8/01/12 .................................................................... 3,000,000 3,268,890
-----------
29,924,645
-----------
Pennsylvania 1.7%
Beaver County, Series A, MBIA Insured, Pre-Refunded, 5.90%, 10/01/26 .............................. 2,000,000 2,227,380
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 5,346,750
Delaware River Port Authority, Pennsylvania and New Jersey Delaware River Bridges Revenue,
Refunding, AMBAC Insured, 7.375%, 1/01/07 ...................................................... 1,500,000 1,569,720
Exeter Township School District, FGIC Insured, Pre-Refunded, 6.50%, 5/15/06 ....................... 200,000 218,724
Lehigh County General Purpose Authority Revenues, Hospital Healtheast, Inc., Series A,
Refunding, MBIA Insured, 7.00%, 7/01/15 ........................................................... 100,000 107,094
Montgomery County IDA Revenue, PCR, Philadelphia Electric Co., Series B,
MBIA Insured, 6.70%, 12/01/21 .................................................................... 8,000,000 8,757,840
Pennsylvania Convention Center Authority Revenue, Series A, FGIC Insured, ETM, 6.00%, 9/01/19 ..... 500,000 559,035
Pennsylvania State Pooled Finance Authority, Lease Revenue, Capital Improvement,
Series B, MBIA Insured, 8.00%, 11/01/09 ........................................................... 2,740,000 2,871,301
Pennsylvania State Turnpike Commission Revenue, Refunding, Series P, AMBAC Insured, 6.00%, 12/01/17 500,000
531,580
Philadelphia Airport Revenue, Philadelphia Airport System, Series A, AMBAC Insured, 6.10%, 6/15/25 4,000,000 4,292,440
Philadelphia Water and Waste Water Revenue, Refunding, FSA Insured, 5.50%, 6/15/15 ................ 1,000,000 1,031,960
Pittsburgh Water and Sewer System Authority Revenue, Refunding, FGIC Insured, ETM, 7.25%, 9/01/14 . 90,000 110,150
Pennsylvania (cont.)
Quaker Valley School District, FGIC Insured, 5.70%, 1/15/19 .......................................$ 2,000,000$ 2,076,820
Scranton-Lackawanna Health and Welfare Authority Revenue, Community Medical
Center Project, BIG Insured, 7.875%, 7/01/10 ...................................................... 10,000 10,334
-----------
29,711,128
-----------
Rhode Island 1.5%
Kent County Water Authority, General Revenue, Series A, MBIA Insured, 6.35%, 7/15/14 .............. 2,100,000 2,328,354
Providence GO, Series A, FSA Insured, 5.70%, 7/15/19 .............................................. 3,000,000 3,160,350
Rhode Island Clean Water Financing Agency Revenue, Wastewater Treatment System, Cranston,
MBIA Insured, 5.80%, 9/01/22 ...................................................................... 10,000,000 10,461,200
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 2,383,000
Rhode Island Port Authority and Economic Development Corp. Revenue, Shepard Building Project,
Series B, AMBAC Insured, Pre-Refunded,
6.75%, 6/01/25 ................................................................................... 2,000,000 2,308,160
Rhode Island State, FGIC Insured,
Series A, 6.25%, 6/15/07 .......................................................................... 75,000 82,526
Series A, Pre-Refunded, 6.25%, 6/15/07 ............................................................ 175,000 191,837
Rhode Island State Health and Educational Building Corp. Revenue, Lifespan Obligation Group,
MBIA Insured, 5.75%, 5/15/23 ...................................................................... 1,750,000 1,844,448
West Warwick GO, MBIA Insured, Pre-Refunded, 7.25%, 9/01/11 ....................................... 2,000,000 2,256,480
-----------
25,016,355
-----------
South Carolina .6%
Charleston Waterworks and Sewer Revenue, Refunding and Improvement, AMBAC Insured, 6.00%, 1/01/16 . 250,000 264,790
Cherokee County COP, Peachtree Centre Project, FSA Insured, Pre-Refunded, 7.05%, 9/01/11 .......... 2,910,000 3,244,184
Edgefield County School District, Refunding, FSA Insured, 8.50%, 2/01/01 .......................... 250,000 280,875
Luxington Water and Sewer Revenue, FSA Insured, 5.45%, 4/01/19 .................................... 2,320,000 2,380,042
Piedmont Municipal Power Agency, South Carolina Electric Revenue, Refunding, FGIC Insured,
6.25%, 1/01/21.................................................................................... 200,000 231,684
Richland County Hospital Facilities Revenue, Community Provider, Pooled Loan Program,
Series A, FSA Insured, ETM, 7.125%, 7/01/17 ...................................................... 3,000,000 3,369,720
Spartanburg Sanitation Sewer District, Sewer System Revenue Implementation, MBIA Insured,
5.50%, 6/01/27.................................................................................... 500,000 511,750
-----------
10,283,045
-----------
South Dakota .7%
Grant County PCR, Refunding, MBIA Insured, 5.90%, 6/01/23 ......................................... 4,800,000 5,006,016
Lawrence County COP, Courthouse, FSA Insured, Pre-Refunded, 7.65%, 7/01/10 ........................ 2,000,000 2,200,140
Sioux Falls Medical Clinic Revenue, AMBAC Insured, 8.00%, 9/01/08 ................................. 2,225,000 2,269,856
South Dakota State Lease Revenue, Series A, FSA Insured, 6.75%, 12/15/16 .......................... 2,720,000 3,276,458
South Dakota State University Revenue, Housing and Auxiliary Facilities, Refunding, Series A,
MBIA Insured, 5.50%, 4/01/17 ...................................................................... 20,000 20,402
-----------
12,772,872
-----------
Tennessee .4%
Greater Tennessee Housing Assistance Corp., Mortgage Revenue, Refunding, Series A,
MBIA Insured, 6.00%, 7/01/24 ...................................................................... 1,435,000 1,482,958
Johnson County Public Building Authority Revenue, Public Facilities, MBIA Insured, 5.125%, 9/01/20 1,665,000 1,657,274
Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured, 6.60%, 7/01/15 .......... 200,000 217,696
Trenton Special School District, AMBAC Insured, 5.75%, 11/01/20 ................................... 3,000,000 3,163,410
-----------
6,521,338
-----------
Texas 8.8%
Austin Combined Utility System Revenue, BIG Insured, Pre-Refunded,
8.625%, 11/15/17 .................................................................................. 1,000,000 1,172,750
Series A, 8.00%, 11/15/16 ......................................................................... 3,000,000 3,353,640
Austin Utility System Revenue, Refunding, FGIC Insured, 6.00%,
5/15/15............................................................................................ 35,000 36,546
Pre-Refunded, 5/15/15 ............................................................................. 15,000 15,408
Bexar County HFC Revenue, GNMA Secured, Series A, 8.20%, 4/01/22 .................................. 3,305,000 3,467,771
Brazos River Authority Revenue, Refunding, Houston Light and Power Co. Project,
Series A, AMBAC Insured, 6.70%, 3/01/17 ........................................................... 2,000,000 2,201,880
Series D, FGIC Insured, 7.75%, 10/01/15 ........................................................... 3,360,000 3,500,179
Coastal Bend Health Facilities Development Corp., Series B, AMBAC Insured, 6.30%, 1/01/17 ......... 12,230,000 13,210,724
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10 ................................................... 730,000 771,625
East Texas HFC, SFMR, Series 1990, GNMA Secured, 7.85%, 12/01/10 .................................. 710,000 753,715
Texas (cont.)
Faulkey Gully MUD, Refunding, Waterworks and Sewerage System, AMBAC Insured, 6.625%, 3/01/07 ......$ 1,520,000$ 1,649,504
Fort Bend County Levee Improvement District No. 011, AMBAC Insured, 6.00%,
9/01/21............................................................................................ 1,395,000 1,506,572
9/01/22............................................................................................ 1,495,000 1,589,364
9/01/23............................................................................................ 1,610,000 1,738,768
Grand Prairie Health Facilities, Refunding, Dallas/Fort Worth Medical Center Project,
AMBAC Insured, 6.875%, 11/01/10 ................................................................... 2,700,000 3,101,976
Harris County Hospital District Mortgage Revenue, Refunding, AMBAC Insured, 7.40%, 2/15/10 ........ 2,350,000 2,888,479
Harris County Public Facilities Corp., Detention Facility Mortgage Revenue, MBIA Insured,
Pre-Refunded, 7.80%, 12/15/11 ..................................................................... 3,000,000 3,153,480
Harris County Toll Road,
Series A, FGIC Insured, 6.50%, 8/15/11 ............................................................ 35,000 38,620
Series A, Senior Lien, AMBAC Insured, 6.50%, 8/15/17 .............................................. 1,580,000 1,732,628
Series B, Senior Lien, AMBAC Insured, 6.625%, 8/15/17 ............................................. 240,000 244,798
Houston Airport System Revenue, Subordinated Lien, FGIC Insured, Series A, 6.75%, 7/01/21 ......... 2,500,000 2,706,725
Houston Water and Sewer System Revenue, Refunding, Junior Lien, Series C,
AMBAC Insured, 6.375%, 12/01/17 ................................................................... 935,000 1,014,886
MBIA Insured, 5.75%, 12/01/15 ..................................................................... 500,000 522,065
MBIA Insured, 6.375%, 12/01/22 .................................................................... 6,380,000 6,925,618
Lubbock HFC, SFMR, Refunding, Mortgage Extension Program, Series B, BIG Insured, 8.875%, 12/01/12 . 875,000 881,773
Matagorda County Navigation District No. 1,
PCR, Central Power and Light Co. Project, AMBAC Insured, 7.50%, 12/15/14 .......................... 200,000 217,488
PCR, Refunding, Central Power and Light Co. Project, Series E, MBIA Insured, 6.10%, 7/01/28 ....... 12,850,000 13,427,993
Refunding, Houston Light and Power Co., Series C, FGIC Insured, 7.125%, 7/01/19 ................... 2,000,000 2,116,320
Refunding, Houston Light and Power Co., Series E, FGIC Insured, 7.20%, 12/01/18 ................... 100,000 107,102
Revenue, Refunding, Houston Industrial, Inc. Project, Series A, MBIA Insured, 5.25%, 11/01/29 ..... 3,185,000 3,103,209
Revenue, Refunding, Houston Industrial, Inc. Project, Series B, MBIA Insured, 5.15%, 11/01/29 ..... 2,750,000 2,699,235
Palo Duro River Authority, Refunding, FSA Insured, 6.375%, 8/01/08 ................................ 6,000,000 6,173,820
Portland Community Center Complex Development Corp. Sales Tax Revenue, Refunding,
AMBAC Insured, 5.45%, 2/15/25 ..................................................................... 1,450,000 1,476,695
Sabine River Authority, PCR, Refunding, Collateralized, Texas Utilities Electric Co. Project,
FGIC Insured, 6.55%, 10/01/22 ..................................................................... 3,250,000 3,536,098
San Antonio Water Revenue, MBIA Insured,
6.50, 5/15/10 ..................................................................................... 2,920,000 3,210,540
ETM, 6.50%, 5/15/10 ............................................................................... 775,000 913,609
Pre-Refunded, 6.50%, 5/15/10 ...................................................................... 1,505,000 1,672,567
Refunding and Improvement, 5.60%, 5/15/21 ......................................................... 3,250,000 3,367,228
San Marcos Waterworks and Sewer Systems Revenue, Series 1998, FSA Insured, 5.125%, 8/15/20 ........ 2,870,000 2,826,634
San Patricio County COP, MBIA Insured, 6.60%, 4/01/07 ............................................. 2,500,000 2,714,675
Smithville HDC Mortgage Revenue, Smithville Retirement, Refunding, Series A, MBIA Insured,
6.40%, 1/01/22.................................................................................... 1,075,000 1,139,909
Southeast HDC Mortgage Revenue, Stonegate Retirement, MBIA Insured, 6.40%, 1/01/24 ................ 1,170,000 1,263,869
Tarrant County HFC, Health System Revenue, Harris Methodist Health System, MBIA Insured,
6.00%, 9/01/24.................................................................................... 3,250,000 3,523,065
Tarrant County HFC, SFMR, GNMA Secured, Series A, ETM, 8.00%, 7/01/21 ............................. 7,815,000 8,128,616
Tarrant County Health Facilities Development Corp., Hospital Revenue, FT. Worth Osteopathic Hospital,
MBIA Insured, 5.125%, 5/15/21 ..................................................................... 2,905,000 2,864,040
Texas Health Facilities Development Corp. Hospital Revenue, Refunding,
All Saints Episcopal Hospitals, Series B, MBIA Insured, 6.25%, 8/15/22 ............................ 2,500,000 2,707,975
All Saints Episcopal Hospitals, Series B, MBIA Insured, 6.375%, 8/15/23 ........................... 4,885,000 5,310,484
Cook-Fort Worth Medical Center Project, FGIC Insured, Pre-Refunded, 8.125%, 6/01/18 ............... 2,000,000 2,061,060
Texas State Turnpike Authority Revenue, Dallas North Tollway, Refunding, AMBAC Insured,
5.00%, 1/01/20.................................................................................... 7,250,000 7,033,950
Texas Water Resources Financial Authority Revenue, AMBAC Insured, 7.50%, 8/15/13 .................. 5,975,000 6,165,005
Travis County HFC, SFMR, GNMA Secured, 8.20%, 4/01/22 ............................................. 3,035,000 3,162,470
Tyler Health Facilities Development COP, Hospital Revenue, East Texas Medical Center Project,
FSA Insured, Series B, 5.50%, 11/01/17............................................................ 1,000,000 1,025,020
Series C, 5.60%, 11/01/27 ......................................................................... 1,430,000 1,478,162
-----------
151,606,332
-----------
Utah 1.3%
Intermountain Power Agency, Power Supply Revenue, Refunding,
Series A, AMBAC Insured, 5.50%, 7/01/20 ........................................................... 4,680,000 4,769,950
Series B, MBIA Insured, 5.75%, 7/01/19 ............................................................ 3,250,000 3,475,973
Utah (cont.)
Provo Electric System Revenue, Refunding, Series A, AMBAC Insured, ETM, 10.375%, 9/15/15 .......... $ 40,000 $ 58,767
Utah County Hospital Revenue, IHC Health Services, Inc., MBIA Insured, 5.25%,
8/15/21............................................................................................ 5,000,000 4,986,450
8/15/26............................................................................................ 5,000,000 4,948,800
Utah State Board of Regents, Student Loan Revenue, Series H, AMBAC Insured, 6.70%, 11/01/15 ....... 1,080,000 1,147,003
White City Water Implementation District, GO , Refunding, AMBAC Insured, 5.30%, 2/01/25 ........... 3,435,000 3,461,484
-----------
22,848,427
-----------
Vermont .7%
Swanton Village Electric System Revenue, Refunding, MBIA Insured, 5.75%, 12/01/19 ................. 1,740,000 1,854,683
Vermont, COP, MBIA Insured, 7.25%, 6/15/11 ........................................................ 2,205,000 2,388,191
Vermont Home Mortgage, Series B, MBIA Insured, 7.60%, 12/01/24 .................................... 6,630,000 7,030,784
Vermont Municipal Bond Bank, Series 2, FSA Insured, 6.25%, 12/01/19 ............................... 1,000,000 1,072,310
-----------
12,345,968
-----------
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 10,039,711
Chesapeake IDA, Public Facilities, Lease Revenue, Chesapeake Jail Project, MBIA Insured,
6.00%, 6/01/12.................................................................................... 5,000,000 5,433,850
Danville IDA, Hospital Revenue, Danville Regional Medical Center, Refunding, FGIC Insured,
6.50%, 10/01/24................................................................................... 1,000,000 1,101,560
Hampton Roads Regional Jail Authority, Regional Jail Facilities Revenue, Series A, MBIA Insured,
5.00%, 7/01/28.................................................................................... 3,405,000 3,326,787
Spotsylvania County Water and Sewer System Revenue, MBIA Insured, 5.40%, 6/01/27 .................. 3,850,000 3,908,020
-----------
23,809,928
-----------
Washington 5.0%
Bellingham Housing Authority Revenue, Refunding, Pacific Rim and Cascade Meadows Projects,
MBIA Insured, 5.20%, 11/01/27 ..................................................................... 4,000,000 3,969,800
Douglas County PUD No. 001, Electric Distribution System Revenue, MBIA Insured, 6.00%, 1/01/15 .... 900,000 976,266
Everett COP, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 4/01/09 ................................ 850,000 929,662
Grant County PUD No. 002, Wanapum Hydro-Electric Revenue, Second Series, Series B,
AMBAC Insured, 6.75%, 1/01/23 ..................................................................... 2,000,000 2,162,860
King County Public Hospital District No. 001, Hospital Facilities Revenue, Valley Medical Center, AMBAC Insured,
Pre-Refunded,
King County Sewer, MBIA Insured, 6.125%, 1/01/33 ................................................. 3,000,000 3,230,160
Kitsap County School District No. 100-C, Refunding, MBIA Insured, 6.60%, 12/01/08 ................. 1,015,000 1,118,662
Klickitat County PUD No. 001, Electric Revenue, FGIC Insured,
5.65%, 10/01/15 ................................................................................... 1,000,000 1,044,830
5.75%, 10/01/27 ................................................................................... 1,000,000 1,048,180
Mason County School District No. 402, Pioneer, MBIA Insured, 6.60%, 12/01/11 ...................... 1,040,000 1,170,842
Pierce County School District No. 003, Puyallup, FGIC Insured, 5.70%, 12/01/15 .................... 1,000,000 1,058,910
Port of Longview, Cowlitz County, Airport and Marina Improvements, MBIA Insured, 6.00%, 11/01/15 .. 2,000,000 2,187,500
Seatac Storm Water Revenue, MBIA Insured, 6.50%, 12/01/13 ......................................... 2,890,000 3,196,196
Seattle Metropolitan Sewer System Revenue, Series W, MBIA Insured, 6.30%, 1/01/33 ................. 11,000,000 11,778,690
Seattle Water System Revenue, FGIC Insured, 5.625%, 8/01/26 ....................................... 2,000,000 2,084,580
Snohomish County PUD No. 001, Electric Revenue, Generation System, FGIC Insured, ETM,
6.65%, 1/01/16.................................................................................... 4,250,000 4,957,328
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 5,384,050
Tacoma Electric System Revenue,
Refunding, AMBAC Insured, 6.25%, 1/01/11 .......................................................... 500,000 540,115
Refunding, FGIC Insured, 6.25%, 1/01/15 ........................................................... 6,190,000 6,711,693
Tacoma GO, Series A, MBIA Insured, 5.625%, 12/01/22 ............................................... 3,400,000 3,538,040
Thurston and Pierce Counties, Community Schools, Series B, AMBAC Insured, 6.65%, 12/01/09 ......... 1,305,000 1,450,455
Washington Public Power Supply System, Nuclear Project No. 1 Revenue,
Refunding, Series A, MBIA Insured, 6.25%, 7/01/17 ................................................. 420,000 449,824
Refunding, Series A, MBIA Insured, Pre-Refunded, 6.25%, 7/01/17 ................................... 80,000 87,922
Refunding, Series C, FGIC Insured, Pre-Refunded, 7.75%, 7/01/08 ................................... 2,500,000 2,755,675
Washington State Health Care Facilities Authority Revenue, Swedish Hospital Medical Center,
AMBAC Insured, 6.30%, 11/15/22 .................................................................... 3,250,000 3,476,168
Washington State HFA, Series A, GNMA Secured, 7.70%, 7/01/32 ...................................... 2,870,000 2,994,156
Washington State University Revenues, Refunding, Housing and Dining System, MBIA Insured,
6.40%, 10/01/24................................................................................... 6,130,000 6,751,153
Western Washington University Revenue, Housing and Dining System, MBIA Insured,
6.375%, 10/01/22 .................................................................................. 3,000,000 3,210,900
Refunding, 6.70%, 10/01/11 ........................................................................ 1,050,000 1,131,554
Refunding, 6.375%, 10/01/21 ....................................................................... 3,500,000 3,674,265
Washington (cont.)
Whatcom County School District No. 501, Bellingham, FGIC Insured, 6.125%, 12/01/13 ................$ 2,000,000 $ 2,176,100
Yakima-Tieton Irrigation District Revenue, Refunding, FSA Insured, 6.20%, 6/01/19 ................. 350,000 378,067
-----------
85,624,603
-----------
West Virginia 2.0%
Harrison County, Community Solid Waste Disposal Revenue, Potomac Edison Co., Series C,
AMBAC Insured, 6.75%, 8/01/24 ..................................................................... 11,560,000 12,798,423
Monongalia County Building Community Hospital Revenue, Refunding, Monongalia General Hospital,
Series B, MBIA Insured, 6.50%,
7/01/17 .......................................................................................... 1,000,000 1,068,010
South Charleston Hospital Revenue, Refunding, Herbert J. Thomas Memorial Hospital, BIG Insured,
Pre-Refunded, 8.00%, 10/01/04..................................................................... 3,060,000 3,195,221
10/01/10 .......................................................................................... 2,400,000 2,506,056
bWest Virginia State GO, Series A, FGIC Insured, 5.00%, 11/01/21 ................................... 5,000,000 4,857,850
West Virginia State HDA, SFMR, MBIA Insured, 7.40%, 11/01/11 ...................................... 2,000,000 2,041,180
West Virginia State University Revenue, Refunding, AMBAC Insured, 6.00%, 4/01/12 .................. 2,250,000 2,434,208
West Virginia State Water Development Authority Revenue, FSA Insured,
Loan Program II, Series B, Pre-Refunded, 7.50%, 11/01/29 .......................................... 3,000,000 3,233,910
Refunding, Loan Program, Series A, 7.00%, 11/01/25 ................................................ 2,750,000 3,005,503
-----------
35,140,361
-----------
Wisconsin .5%
Superior Limited Obligation Revenue, Refunding, Midwest Energy Resources, Series E,
FGIC Insured, 6.90%, 8/01/21 ...................................................................... 3,000,000 3,756,840
Wisconsin Health Educational Revenue, Series A, FSA Insured, 7.50%,
1/15/09............................................................................................ 2,000,000 2,098,060
Community Provider Program, 1/15/04 ............................................................... 1,965,000 2,061,320
Wisconsin State Health and Educational Facilities Authority Revenue, Refunding, Series AA,
MBIA Insured, 6.25%, 6/01/20 ...................................................................... 500,000 531,880
-----------
8,448,100
-----------
Wyoming 1.3%
Gillette Health Facilities Revenue, Lutheran Hospital and Home Society, Refunding,
MBIA Insured, 5.90%, 1/01/16 ...................................................................... 500,000 528,370
Natrona County Hospital Revenue, Wyoming Medical Center Projects, Refunding, AMBAC Insured,
6.00%, 9/15/24 .................................................................................... 9,885,000 10,530,985
University of Wyoming, University Facilities Revenues, MBIA Insured, 7.10%, 6/01/10 ............... 2,245,000 2,366,140
Wyoming CDA, AMBAC Insured, 6.00%, 6/01/23 ........................................................ 6,750,000 7,018,110
Wyoming Municipal Power Agency, Power Supply System Revenue, Refunding, Series A,
MBIA Insured, 6.125%, 1/01/16 ..................................................................... 2,000,000 2,143,681
-----------
22,587,286
-----------
Total Long Term Investments (Cost $1,586,767,378).................................................. 1,700,742,870
-----------
aShort Term Investments .6%
California Pollution Control Financing Authority, PCR, Refunding, Project-A,
Daily VRDN and Put, 3.55%, 10/01/08 ............................................................... 400,000 400,000
Irvine Ranch Water District, Construction Bonds, Series B, Daily VRDN and Put, 3.65%, 10/01/05 .... 500,000 500,000
Hawaii State Finance and Development COP Revenue, Rental Housing System, Series A,
Weekly VRDN and Put, 3.50%, 7/01/24 ............................................................... 100,000 100,000
Kansas City, IDA, Hospital Revenue, Resh Health Services System, MBIA Insured,
Daily VRDN and Put, 3.65%, 10/15/14 ............................................................... 1,200,000 1,200,000
New York City Municipal Water Financing Authority, Water and Sewer System Revenue,
Bond Purchase Agreement, FGIC Insured,
Series C, Daily VRDN and Put, 3.65%, 6/15/23 ...................................................... 3,500,000 3,500,000
Series G, Daily VRDN and Put, 3.65%, 6/15/24 ...................................................... 400,000 400,000
Princeton Industrial, PCR, Refunding, PSI Energy, Inc. Project, Morgan Guaranty Trust Co. Insured,
Daily VRDN and Put, 3.60%, 4/01/22 ................................................................ 1,000,000 1,000,000
Washington State Health Care Facilities Authority Revenue, Sisters of Providence, Series B,
Daily VRDN and Put, 3.65%, 10/15/05 ............................................................... 2,790,000 2,790,000
-----------
Total Short Term Investments (Cost $9,890,000)..................................................... 9,890,000
-----------
Total Investments (Cost $1,596,657,378) 99.3%...................................................... 1,710,632,870
Other Assets, less Liabilities .7%................................................................. 12,684,313
-----------
Net Assets 100.0% ................................................................................. $1,723,317,183
-----------
</TABLE>
See glossary of terms on page 97.
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 deliver basis.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Massachusetts Insured Tax-Free Income Fund
Year Ended February 28,
<S> <C> <C> <C> <C> <C>
Class I 1998 1997 19962 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.54 $11.65 $11.34 $11.81 $11.73
--------------------------------------------------------
Income from investment operations:
Net investment income .61 .63 .66 .66 .67
Net realized and unrealized gains (losses) .35 (.10) .31 (.47) .09
--------------------------------------------------------
Total from investment operations .96 .53 .97 .19 .76
--------------------------------------------------------
Less distributions from:
Net investment income (.61) (.64)3 (.66) (.66) (.68)
In excess of net investment income (.01) -- -- -- --
Net realized gains (.13) -- -- -- --
--------------------------------------------------------
Total distributions (.75) (.64) (.66) (.66) (.68)
--------------------------------------------------------
Net asset value, end of year $11.75 $11.54 $11.65 $11.34 $11.81
========================================================
Total return* 8.50% 4.75% 8.80% 1.83% 6.39%
Ratios/supplemental data
Net assets, end of year (000's) $328,147 $325,065 $301,529 $288,331 $307,013
Ratios to average net assets:
Expenses .68% .68% .69% .67% .60%
Net investment income 5.21% 5.51% 5.67% 5.89% 5.69%
Portfolio turnover rate 30.46% 29.22% 10.29% 16.90% 13.82%
</TABLE>
<TABLE>
<CAPTION>
Class II
Per share operating performance
(for a share outstanding throughout the year)
<S> <C> <C> <C>
Net asset value, beginning of year $11.59 $11.69 $11.36
-----------------------------------
Income from investment operations:
Net investment income .55 .57 .50
Net realized and unrealized gains (losses) .34 (.09) .32
-----------------------------------
Total from investment operations .89 .48 .82
-----------------------------------
Less distributions from:
Net investment income (.55) (.58)3 (.49)
Net realized gains (.13) -- --
-----------------------------------
Total distributions (.68) (.58) (.49)
-----------------------------------
Net asset value, end of year $11.80 $11.59 $11.69
===================================
Total return* 7.86% 4.22% 7.36%
Ratios/supplemental data
Net assets, end of year (000's) $13,937 $6,378 $2,759
Ratios to average net assets:
Expenses 1.25% 1.25% 1.26%**
Net investment income 4.59% 4.96% 5.06%**
Portfolio turnover rate 30.46% 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
$.001.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Massachusetts Insured Tax-Free Income Fund AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
Long Term Investments 98.5%
<S> <C> <C>
Ashburnham and Westminister, Regional School District, MBIA Insured, 6.00%, 12/15/13 ..............$ 2,700,000 $ 2,904,093
Attleboro Municipal Purpose GO, AMBAC Insured, 6.00%,
7/01/11 ........................................................................................... 1,045,000 1,138,893
7/01/12 ........................................................................................... 1,045,000 1,135,884
7/01/13 ........................................................................................... 685,000 742,609
7/01/14 ........................................................................................... 755,000 816,336
Blackstone-Milville School District, AMBAC Insured, 6.50%,
5/01/08 ........................................................................................... 705,000 772,976
5/01/09 ........................................................................................... 750,000 819,315
5/01/10 ........................................................................................... 795,000 866,892
Boston Hospital Revenue, Refunding, Series B, FHA, MBIA Insured, 5.75%, 2/15/23 ................... 10,500,000 10,776,465
Boston Water and Sewage Commission, General Revenue, Series A,
BIG Insured, 7.25%, 11/01/06 ...................................................................... 3,000,000 3,069,000
GNMA Secured, Pre-Refunded, 7.10%, 11/01/19 ....................................................... 1,400,000 1,500,240
Central Berkshire GO, School District, MBIA Insured, 7.25%, 6/01/08 ............................... 1,095,000 1,184,845
Framingham Housing Authority Mortgage Revenue, Beaver Terrace Apartments, Series A,
GNMA Secured, 6.65%, 2/20/32 ...................................................................... 1,650,000 1,733,160
Greenfield GO, MBIA Insured, 6.50%,
10/15/08 .......................................................................................... 500,000 546,055
10/15/09 .......................................................................................... 500,000 544,295
Holyoke GO,
Refunding, FSA Insured, 5.20%, 8/01/17 ............................................................ 690,000 692,470
School Project Loans, MBIA Insured, Pre-Refunded, 8.05%, 6/15/04 .................................. 1,000,000 1,180,930
Hudson GO, MBIA Insured, 6.00%,
5/15/13 ........................................................................................... 250,000 271,308
5/15/14 ........................................................................................... 240,000 259,644
Lenox GO, Refunding, AMBAC Insured,
6.60%, 10/15/11 ................................................................................... 1,000,000 1,085,240
6.625%, 10/15/15 .................................................................................. 500,000 541,285
Leominster GO, MBIA Insured, Pre-Refunded, 7.50%, 4/01/09 ......................................... 450,000 490,941
Ludlow GO, School Project, Limited Tax, MBIA Insured,
7.30%, 11/01/07 ................................................................................... 210,000 257,853
7.30%, 11/01/08 ................................................................................... 210,000 260,543
7.40%, 11/01/09 ................................................................................... 210,000 263,886
Lynn Water and Sewer Commission, General Revenue, Series A,
FSA Insured, 5.125%, 12/01/17 ..................................................................... 3,000,000 2,972,160
MBIA Insured, Pre-Refunded, 7.25%, 12/01/10 ....................................................... 4,000,000 4,419,040
Mansfield Municipal Purpose Loan, FGIC Insured, 5.125%, 8/15/17 ................................... 1,685,000 1,687,106
Martha's Vineyard, Regional High School District No. 100, AMBAC Insured,
6.55%, 12/15/10 ................................................................................... 830,000 939,643
6.60%, 12/15/11 ................................................................................... 725,000 820,135
6.65%, 12/15/12 ................................................................................... 880,000 995,808
6.70%, 12/15/14 ................................................................................... 210,000 237,191
Mashpee GO, MBIA Insured, 5.50%, 2/01/17 .......................................................... 2,000,000 2,099,140
Mashpee Water District GO, MBIA Insured, 6.40%, 10/15/12 .......................................... 500,000 545,760
Massachusetts Bay Transportation Authority,
COP, BIG Insured, 7.75%, 1/15/06 .................................................................. 2,500,000 3,068,250
General Transportation System, Series A, FSA Insured, Pre-Refunded, 5.625%, 3/01/26 ............... 1,470,000 1,616,236
General Transportation System, Series B, AMBAC Insured, 5.375%, 3/01/25 ........................... 4,570,000 4,653,083
bMassachusetts Educational Financing Authority, Education Loan Revenue, Issue G,
MBIA Insured, 5.15%, 12/01/15 ..................................................................... 2,000,000 1,988,320
Massachusetts Education Loan Authority Revenue, Issue D, Series A, MBIA Insured, 7.25%, 1/01/09 ... 1,905,000 2,022,577
Massachusetts Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Refunding, Series D, FGIC Insured, 6.00%, 7/01/15 ....................... 1,500,000 1,598,115
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ................................... 5,000,000 5,340,750
Bentley College, Series I, MBIA Insured, 6.125%, 7/01/17 .......................................... 1,250,000 1,327,188
Berklee College of Music, Series E, MBIA Insured, 5.00%, 10/01/16 ................................. 1,180,000 1,163,102
Berkshire Health System, Series A, MBIA Insured, Pre-Refunded, 7.50%, 10/01/08 .................... 2,000,000 2,083,320
Berkshire Health System, Series A, MBIA Insured, Pre-Refunded, 6.75%, 10/01/19 .................... 1,500,000 1,526,760
Berkshire Health System, Series D, MBIA Insured, 6.00%, 10/01/19 .................................. 5,500,000 5,922,840
Beverly Hospital, Lot 1, Refunding, Series D, MBIA Insured, 7.30%, 7/01/13 ........................$ 1,900,000 $ 2,019,605
Massachusetts Health and Educational Facilities Authority Revenue, (cont.)
Beverly Hospital, Lot 2, Series D, MBIA Insured, Pre-Refunded, 7.30%, 7/01/19 ..................... 4,000,000 4,261,520
Boston College, Series J, FGIC Insured, 6.625%, 7/01/21 ........................................... 2,250,000 2,441,295
Brigham and Women's Hospital, Series C, MBIA Insured, Pre-Refunded, 7.00%, 6/01/18 ................ 500,000 529,485
Cable Housing and Health Services, Series A, MBIA Insured, 5.25%, 7/01/23 ......................... 1,000,000 1,003,140
bCatholic Health East, Series B, AMBAC Insured, 5.00%, 11/15/28 ................................... 3,000,000 2,868,390
Children's Hospital, Refunding, Series E, AMBAC Insured, 6.20%, 10/01/16 .......................... 2,200,000 2,337,104
Community College Program, Series A, Connie Lee Insured, 6.50%, 10/01/09 .......................... 1,000,000 1,104,260
Community College Program, Series A, Connie Lee Insured, 6.60%, 10/01/22 .......................... 3,250,000 3,552,543
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/18 ............................... 5,595,000 5,759,717
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/25 ............................... 7,520,000 7,735,598
Dana-Farber Cancer Institute, Series F, Refunding, FGIC Insured, 6.00%, 12/01/15 .................. 1,000,000 1,067,410
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 .............................. 26,730,000 27,074,550
Massachusetts General Hospital, Refunding, Series F, AMBAC Insured, 6.00%, 7/01/15 ................ 2,500,000 2,661,000
Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 7/01/20 ........................... 11,465,000 12,241,868
McLean Hospital, Refunding, Series C, FGIC Insured, 6.625%, 7/01/15 ............................... 1,280,000 1,406,835
Milton Hospital, Series B, MBIA Insured, 7.00%, 7/01/16 ........................................... 2,400,000 2,601,912
Mt. Auburn Hospital, Series B-1, MBIA Insured, 6.30%, 8/15/24 ..................................... 6,500,000 7,092,800
New England Deaconess Hospitals, Series D, AMBAC Insured, Pre-Refunded, 6.875%, 4/01/22 ........... 1,895,000 2,126,342
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/18 ................................. 1,300,000 1,390,831
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/25 ................................. 6,750,000 7,180,313
Northeastern University, Series D, AMBAC Insured, 7.125%, 10/01/10 ................................ 1,250,000 1,367,838
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 .................................. 3,900,000 4,280,484
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ............................... 5,000,000 5,056,700
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.65%, 7/01/10 .......................... 1,025,000 1,128,781
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.70%, 7/01/20 .......................... 515,000 567,710
Stonehill College, Series E, Refunding, MBIA Insured, 6.55%, 7/01/12 .............................. 890,000 976,330
Stonehill College, Series E, Refunding, MBIA Insured, 6.60%, 7/01/20 .............................. 3,000,000 3,286,890
Stonehill College, Series F, AMBAC Insured, 5.75%, 7/01/26 ........................................ 1,690,000 1,779,435
Suffolk University, Series B, Connie Lee Insured, 6.35%, 7/01/22 .................................. 3,000,000 3,223,410
Tufts University, FGIC Insured, 5.95%, 8/15/18 .................................................... 5,000,000 5,258,850
University Hospital, Series C, MBIA Insured, Pre-Refunded, 7.25%, 7/01/19 ......................... 1,500,000 1,631,295
Wentworth Institute of Technology, Series A, AMBAC Insured, Pre-Refunded, 7.40%, 4/01/10 .......... 1,820,000 1,981,980
Wheaton College, Series B, FSA Insured, Pre-Refunded, 7.25%, 7/01/19 .............................. 3,000,000 3,194,190
Williams College, Series F, MBIA Insured, 5.50%, 7/01/26 .......................................... 2,500,000 2,583,350
Massachusetts State GO, Series B,
AMBAC Insured, 6.50%, 8/01/11 ..................................................................... 1,665,000 1,812,586
MBIA Insured, 6.50%, 8/01/11 ...................................................................... 855,000 930,787
Massachusetts State HFA, Housing Revenue,
Series 8, BIG Insured, 7.70%, 6/01/17 ............................................................. 1,975,000 2,038,556
SF, Series 57, MBIA Insured, 5.55%, 6/01/25 ....................................................... 5,100,000 5,189,148
SFMR, Series 18, MBIA Insured, 7.35%, 12/01/16 .................................................... 1,500,000 1,587,510
Massachusetts State HFA, MFHR, Section 8 Assisted, Series A, GNMA Secured, ETM, 7.00%, 4/01/21 .... 430,000 522,717
Massachusetts State HFA, SFHR, Series 53, MBIA Insured, 6.15%, 12/01/29 ........................... 2,500,000 2,660,550
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, 6.375%, 10/01/09 .......................................... 750,000 825,008
Babson College, Series A, MBIA Insured, 6.50%, 10/01/22 ........................................... 3,105,000 3,384,077
Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19 ...................................... 7,075,000 7,477,992
College of the Holy Cross, Refunding, MBIA Insured, 5.625%, 3/01/26 ............................... 1,000,000 1,033,570
Combined Jewish Philanthropies, Refunding, Series A, AMBAC Insured, 6.375%, 2/01/15 ............... 2,010,000 2,206,900
Milton Academy, Series A, MBIA Insured, Pre-Refunded, 7.25%, 9/01/19 .............................. 1,000,000 1,070,290
Saint Marks School Issue, MBIA Insured, 5.375%, 1/01/21 ........................................... 2,665,000 2,716,728
Simons Rock College, AMBAC Insured, 5.50%, 6/01/17 ................................................ 1,000,000 1,042,510
Simons Rock College, AMBAC Insured, 5.50%, 6/01/27 ................................................ 1,560,000 1,600,654
Suffolk University, AMBAC Insured, 5.25%, 7/01/17 ................................................. 3,510,000 3,566,687
Suffolk University, AMBAC Insured, 5.25%, 7/01/27 ................................................. 2,000,000 2,013,420
Trustees Deerfield Academy, 5.25%, 10/01/27 ....................................................... 2,800,000 2,812,180
Worcester Polytechnic Institute, Refunding, MBIA Insured, 5.125%, 9/01/17 ......................... 3,720,000 3,731,197
Massachusetts State Industrial Finance Agency Revenue,(cont.)
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.50%, 9/01/21 ...............$ 3,500,000 $ 3,623,655
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.125%, 9/01/27 .............. 4,000,000 3,919,520
Massachusetts State Industrial Finance Agency Electrical Utility Revenue, Nantucket Electric Co.,
Series A, AMBAC Insured, 5.875%, 7/01/17 ......................................................... 4,000,000 4,289,280
Massachusetts State Municipal Wholesale Electric Co., Power Supply System Revenue, Series D,
MBIA Insured, 6.125%, 7/01/19 ..................................................................... 4,395,000 4,662,831
Massachusetts State Port Authority Revenue,
Series A, FGIC Insured, 7.50%, 7/01/20 ............................................................ 3,980,000 4,327,892
Series A, FGIC Insured, Pre-Refunded, 7.50%, 7/01/20 .............................................. 1,220,000 1,335,192
Series A, US Air Project, MBIA Insured, 5.875%, 9/01/23 ........................................... 4,500,000 4,732,065
Massachusetts State Port Authority Revenue Special Facilities, Bosfuel Project, MBIA Insured,
5.625%, 7/01/19 ................................................................................... 2,215,000 2,286,965
5.625%, 7/01/22 ................................................................................... 2,610,000 2,694,799
5.625%, 7/01/27 ................................................................................... 1,500,000 1,548,735
5.75%, 7/01/29 .................................................................................... 7,450,000 7,770,797
Massachusetts State Turnpike Authority, Series A, MBIA Insured,
Metropolitan Highway System Revenue, 5.00%, 1/01/27 ............................................... 5,000,000 4,843,850
Western Turnpike Revenue, 5.55%, 1/01/17 .......................................................... 2,000,000 2,031,800
Massachusetts State Water Resources Authority Revenue, Refunding, Series B, MBIA Insured,
5.00%, 3/01/22.................................................................................... 3,000,000 2,890,380
Melrose Municipal Purpose GO, MBIA Insured,
6.00%, 8/15/11 .................................................................................... 200,000 218,210
6.05%, 8/15/12 .................................................................................... 200,000 218,762
6.10%, 8/15/13 .................................................................................... 200,000 218,494
6.10%, 8/15/14 .................................................................................... 200,000 217,908
Millis School Project, GO, Unlimited Tax, AMBAC Insured, 7.40%,
5/01/06............................................................................................ 270,000 292,858
5/01/07 ........................................................................................... 270,000 292,680
5/01/08 ........................................................................................... 270,000 292,388
Norfolk GO, AMBAC Insured, 6.00%,
1/15/10 ........................................................................................... 450,000 482,931
1/15/11 ........................................................................................... 425,000 457,066
1/15/12 ........................................................................................... 375,000 403,294
1/15/13 ........................................................................................... 300,000 322,362
North Andover Massachusetts GO, FGIC Insured, 5.50%,
1/15/14............................................................................................ 850,000 897,439
1/15/15............................................................................................ 420,000 442,508
North Andover Municipal Purpose, Limited Tax, MBIA Insured, 7.40%, 9/15/09 ........................ 300,000 331,914
North Attleborough GO, Limited Tax, AMBAC Insured, Pre-Refunded, 7.20%, 6/01/09 ................... 125,000 136,110
North Attleborough, MBIA Insured, 5.70%, 1/15/16 .................................................. 850,000 899,895
Northhampton Massachusetts, MBIA Insured, 5.60%, 5/15/17 .......................................... 1,085,000 1,136,418
Puerto Rico HFC, SFMR, Portfolio No. 1, GNMA Secured,
Series A, 7.80%, 10/15/21 ......................................................................... 315,000 324,623
Series B, 7.65%, 10/15/22 ......................................................................... 595,000 633,009
Salem GO, AMBAC Insured,
6.70%, 8/15/05 .................................................................................... 425,000 468,720
6.80%, 8/15/07 .................................................................................... 500,000 553,710
Somerville Housing Authority Revenue, Clarendon Hill, GNMA Secured, 7.95%, 11/20/30 ............... 3,000,000 3,187,080
South Essex Sewer District,
AMBAC Insured, 6.25%, 11/01/11 .................................................................... 330,000 354,281
Series B, MBIA Insured, Pre-Refunded, 7.00%, 6/01/24 .............................................. 2,800,000 3,286,388
Southbridge GO, AMBAC Insured, 6.375%, 1/01/12 .................................................... 2,375,000 2,563,646
Whately GO, AMBAC Insured,
6.20%, 1/15/07 .................................................................................... 215,000 232,793
6.30%, 1/15/08 .................................................................................... 215,000 233,150
6.40%, 1/15/10 .................................................................................... 200,000 216,916
Worcester GO, Refunding, Series E, MBIA Insured, 6.00%, 10/01/15 .................................. 1,335,000 1,457,887
Worcester Municipal Purpose Loan, Series A, AMBAC Insured, 5.25%, 8/01/16 ......................... 1,410,000 1,435,972
----------
Total Long Term Investments (Cost $315,207,175) ................................................... 337,045,683
----------
Massachusetts State Health and Educational Facilities Authority Revenue, Capital Asset Program,
Series E, Daily VRDN and Put, 3.60%, 1/01/35 (Cost $3,000,000)....................................$ 3,000,000 $ 3,000,000
----------
Total Investments (Cost $318,207,175) 99.4% ....................................................... 340,045,683
Other Assets, less Liabilities .6% ................................................................ 2,037,581
----------
Net Assets 100.0%.................................................................................. $342,083,264
----------
</TABLE>
See glossary of terms on page 97.
a Variable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates. b\Sufficient 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 Insured Tax-Free Income Fund
Year Ended February 28,
<S> <C> <C> <C> <C> <C>
Class I 1998 1997 19962 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year $12.00 $12.09 $11.76 $12.24 $12.18
---------------------------------------------------------------
Income from investment operations:
Net investment income .63 .66 .68 .69 .70
Net realized and unrealized gains (losses) .34 (.09) .34 (.48) .07
---------------------------------------------------------------
Total from investment operations .97 .57 1.02 .21 .77
---------------------------------------------------------------
Less distributions from:
Net investment income (.63) (.66)4 (.69)3 (.69) (.71)
In excess of net investment income (.01) -- -- -- --
Net realized gains (.13) -- -- -- --
---------------------------------------------------------------
Total distributions (.77) (.66) (.69) (.69) (.71)
---------------------------------------------------------------
Net asset value, end of year $12.20 $12.00 $12.09 $11.76 $12.24
===============================================================
Total return* 8.37% 4.90% 8.86% 1.87% 6.18%
Ratios/supplemental data
Net assets, end of year (000's) $1,142,565 $1,111,537 $1,115,454 $1,037,717 $1,055,452
Ratios to average net assets:
Expenses .63% .62% .62% .61% .54%
Net investment income 5.24% 5.52% 5.65% 5.87% 5.66%
Portfolio turnover rate 20.08% 30.03% 9.38% 9.12% 3.21%
</TABLE>
<TABLE>
<CAPTION>
Class II
Per share operating performance
(for a share outstanding throughout the year)
<S> <C> <C> <C>
Net asset value, beginning of year $12.07 $12.14 $11.77
Income from investment operations:
Net investment income .57 .59 .51
Net realized and unrealized gains (losses) .33 (.07) .37
Total from investment operations .90 .52 .88
Less distributions from:
Net investment income (.57) (.59) (.51)
Net realized gains (.13) -- --
Total distributions (.70) (.59) (.51)
Net asset value, end of year $12.27 $12.07 $12.14
Total return* 7.70% 4.44% 7.58%
Ratios/supplemental data
Net assets, end of year (000's) $32,873 $20,162 $6,683
Ratios to average net assets:
Expenses 1.20% 1.19% 1.20%**
Net investment income 4.67% 4.94% 5.03%**
</TABLE>
Portfolio turnover rate 20.08% 30.03% 9.38% *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
$.002.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Michigan Insured Tax-Free Income Fund AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Long Term Investments 99.2%
<S> <C> <C>
Allegan Public School District, AMBAC Insured, Pre-Refunded, 5.75%, 5/01/22 .......................$ 4,165,000 $ 4,617,902
Allegan Public School District GO, School Building and Site, AMBAC Insured, Pre-Refunded,
5.875%, 5/01/18.................................................................................. 1,325,000 1,439,030
Allendale Public School District, MBIA Insured,
5.875%, 5/01/14 ................................................................................... 2,000,000 2,174,720
School Building, Pre-Refunded, 6.00%, 5/01/24 ..................................................... 3,750,000 4,152,450
Almont Community Schools, FGIC Insured, 5.50%, 5/01/26 ............................................ 1,925,000 1,974,415
Alpena Public Schools GO, MBIA Insured, 5.625%, 5/01/22 ........................................... 1,665,000 1,739,342
Anchor Bay School District, MBIA Insured, 5.50%, 5/01/26........................................... 7,380,000 7,587,821
Avondale School District, AMBAC Insured, 5.75%, 5/01/22 ........................................... 3,850,000 4,042,462
Bath Community Schools GO, Refunding, FGIC Insured, 5.75%, 5/01/25 ................................ 1,625,000 1,696,549
Battle Creek Downtown Development Authority, Refunding, MBIA Insured, 5.125%, 5/01/20 ............. 4,500,000 4,496,715
Belding Area Schools, Refunding, AMBAC Insured, 5.00%, 5/01/26 .................................... 2,485,000 2,397,528
Berkley City School District, FGIC Insured,
5.625%, 1/01/15 ................................................................................... 2,060,000 2,166,523
6.00%, 1/01/19 .................................................................................... 2,125,000 2,274,303
Big Rapids Public School District, Building and Site, FGIC Insured, 5.625%, 5/01/25 ............... 1,470,000 1,523,611
Brandon School District, FGIC Insured, Pre-Refunded, 5.875%,
5/01/16............................................................................................ 5,540,000 6,194,108
5/01/26............................................................................................ 7,000,000 7,826,490
Breitung Township School District GO,
FSA Insured, Pre-Refunded, 7.20%, 5/01/19 ......................................................... 7,500,000 8,018,250
Refunding, MBIA Insured, 6.30%, 5/01/15 ........................................................... 2,935,000 3,172,559
Byron Center Public Schools, Refunding, MBIA Insured, 5.875%, 5/01/24 ............................. 5,250,000 5,536,283
Cadillac Area Public Schools, FGIC Insured, 5.50%, 5/01/22......................................... 5,375,000 5,487,821
Caledonia Community Schools,
MBIA Insured, 5.85%, 5/01/22 ...................................................................... 4,400,000 4,658,500
Refunding, AMBAC Insured, 6.625%, 5/01/14 ......................................................... 3,750,000 4,073,888
Refunding, AMBAC Insured, 5.50%, 5/01/22 .......................................................... 1,500,000 1,536,390
Calhoun County, Western Calhoun County Sanitary Sewer System No. 1, Township of Emmett,
AMBAC Insured, Pre-Refunded,
7.75%, 11/01/18 .................................................................................. 1,290,000 1,324,585
Calumet, Laurium and Keweenaw Public Schools GO, FSA Insured, 5.875%, 5/01/20 ..................... 875,000 917,639
Cedar Springs Public School District, MBIA Insured, Pre-Refunded, 5.875%,
5/01/19............................................................................................ 4,175,000 4,599,222
5/01/24............................................................................................ 3,875,000 4,268,739
Central Michigan University Revenue, FGIC Insured, 5.625%, 10/01/22 ............................... 2,500,000 2,608,300
Chelsea School District, FGIC Insured, 5.875%, 5/01/25 ............................................ 3,140,000 3,313,359
Chippewa Valley Schools GO, BIG Insured, Pre-Refunded, 7.40%,
5/01/07............................................................................................ 500,000 528,055
5/01/08 ........................................................................................... 500,000 528,055
5/01/09............................................................................................ 500,000 528,055
5/01/10 ........................................................................................... 500,000 528,055
Clarkston Community Schools, MBIA Insured, 5.25%, 5/01/23 ......................................... 1,925,000 1,937,378
Coldwater Community Schools, MBIA Insured, Pre-Refunded,
6.20%, 5/01/15 .................................................................................... 1,100,000 1,238,446
6.30%, 5/01/23 .................................................................................... 1,700,000 1,923,108
De Witt Public Schools, AMBAC Insured,
5.70%, 5/01/21 .................................................................................... 6,905,000 7,199,429
5.50%, 5/01/26 .................................................................................... 5,500,000 5,634,695
Dearborn EDC Hospital Revenue, Oakwood Obligation Group, Series A,
FGIC Insured, 5.875%, 11/15/25 .................................................................... 4,400,000 4,647,588
Refunding, MBIA Insured, 5.25%, 8/15/21 ........................................................... 1,000,000 1,001,990
Detroit City School District, Series A, AMBAC Insured, 5.70%, 5/01/25 ............................. 14,000,000 14,602,000
Detroit Sewage Disposal Revenue, Refunding, Series B, MBIA Insured, 5.25%, 7/01/21 ................ 12,585,000 12,704,054
Detroit State Aid GO, AMBAC Insured, Pre-Refunded, 7.20%, 5/01/09 ................................. 6,000,000 6,351,960
Detroit Water Supply System Revenue,
FGIC Insured, Pre-Refunded, 7.25%, 7/01/20 ........................................................ 3,500,000 3,823,540
Refunding, FGIC Insured, 6.25%, 7/01/12 ........................................................... 5,000,000 5,381,500
Detroit Water Supply System Revenue, (cont.)
Series A, MBIA Insured, 5.00%, 7/01/27 ............................................................$ 5,000,000 $ 4,835,400
Detroit/Wayne County Stadium Authority, FGIC Insured, 5.25%, 2/01/27 .............................. 5,000,000 5,003,850
Dexter Community Schools, Refunding, AMBAC Insured, 5.70%, 5/01/14 ................................ 1,050,000 1,102,059
East Detroit School District, Refunding, FGIC Insured, 6.10%, 5/01/16 ............................. 6,000,000 6,548,940
East Lansing Building Authority GO, Refunding, AMBAC Insured, 7.00%, 10/01/16 ..................... 1,250,000 1,321,625
Eastern Michigan University Revenue,
FGIC Insured, 5.50%, 6/01/27 ...................................................................... 9,100,000 9,344,335
Refunding, AMBAC Insured, 6.375%, 6/01/14 ......................................................... 1,000,000 1,085,510
Eaton Rapids Public Schools, Building and Site, MBIA Insured, 5.50%, 5/01/20 ...................... 2,435,000 2,495,875
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/17 ....................................... 5,000,000 5,194,100
Farmington Hills Hospital Finance Authority Revenue, Refunding, Botsford General Hospital,
Series A, MBIA Insured, 7.10%, 2/15/14 ............................................................ 10,140,000 10,978,984
Ferndale School District GO, FGIC Insured,
5.50%, 5/01/22 .................................................................................... 4,525,000 4,655,773
Refunding, 5.375%, 5/01/21 ........................................................................ 4,185,000 4,246,771
Ferris State College Revenue, AMBAC Insured,
6.15%, 10/01/14 ................................................................................... 1,000,000 1,088,870
6.25%, 10/01/19 ................................................................................... 1,000,000 1,084,470
Ferris State University Revenue, AMBAC Insured,
5.75%, 10/01/17 ................................................................................... 2,500,000 2,652,975
5.85%, 10/01/22 ................................................................................... 2,500,000 2,648,200
5.90%, 10/01/26 ................................................................................... 6,600,000 7,016,988
Fowlerville Community School District,
MBIA Insured, 5.60%, 5/01/21 ...................................................................... 2,000,000 2,073,760
Refunding, FGIC Insured, 5.75%, 5/01/20 ........................................................... 2,150,000 2,240,601
Gibraltar School District GO, FSA Insured, Pre-Refunded, 7.00%, 5/01/15 ........................... 4,000,000 4,148,960
Gladstone Area Public Schools GO, AMBAC Insured, 5.50%, 5/01/26 ................................... 1,500,000 1,537,830
Godfrey-Lee Public School District, MBIA Insured, 5.50%, 5/01/27 .................................. 1,150,000 1,174,794
Gogebic-Iron Wastewater Authority, Wastewater Treatment System Revenue, Refunding,
MBIA Insured, 5.95%, 1/01/15 ...................................................................... 1,015,000 1,075,504
Grand Haven Area Public Schools, Refunding, MBIA Insured, 6.05%, 5/01/14 .......................... 5,000,000 5,391,500
Grand Ledge Public School District, MBIA Insured,
Pre-Refunded, 6.60%, 5/01/24 ...................................................................... 10,000,000 11,503,500
Refunding, 5.375%, 5/01/24 ........................................................................ 13,105,000 13,317,170
Grand Rapids Community College, MBIA Insured, 5.90%,
5/01/19............................................................................................ 610,000 641,732
5/01/22............................................................................................ 1,725,000 1,810,715
Grand Rapids Downtown Development Authority, Tax Increment Revenue, MBIA Insured, 6.875%, 6/01/24 . 7,500,000 8,463,300
Grand Rapids Sanitary Sewer System Revenue, Refunding and Improvement, MBIA Insured, 6.00%, 1/01/20 3,850,000 3,921,418
Grand Rapids Water Supply System Revenue, FGIC Insured, Pre-Refunded, 7.25%, 1/01/20 .............. 5,375,000 5,795,916
Grand Traverse County Building Authority, AMBAC Insured, 5.75%, 9/01/15 ........................... 1,700,000 1,779,526
Grand Traverse County Hospital Finance Authority Revenue, Refunding, Munson Healthcare,
Series A, AMBAC Insured, 6.25%,
7/01/12 ........................................................................................... 2,500,000 2,699,950
7/01/22 ........................................................................................... 7,900,000 8,499,531
Greenville Public School Building GO, MBIA Insured, 5.75%,
5/01/19............................................................................................ 1,850,000 1,933,269
5/01/24............................................................................................ 1,050,000 1,094,426
Grosse Ile Township School District, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 ................... 5,100,000 5,750,250
bHancock Hospital Finance Authority Revenue, Portage Health, MBIA and FHA Insured, 5.45%, 8/01/47 .. 4,400,000 4,399,736
Harrison Community Schools GO, AMBAC Insured, 6.25%, 5/01/13 ...................................... 4,715,000 5,196,307
Haslett Public School District GO,
FSA Insured, Pre-Refunded, 7.50%, 5/01/20 ......................................................... 4,000,000 4,337,880
MBIA Insured, 5.70%, 5/01/26 ...................................................................... 3,900,000 4,077,918
Refunding, FSA Insured, 6.625%, 5/01/19 ........................................................... 3,875,000 4,202,011
Hastings School District, FGIC Insured, 5.625%, 5/01/15 ........................................... 1,000,000 1,050,320
Holland School District GO, Refunding, AMBAC Insured, 6.375%, 5/01/10 ............................. 2,000,000 2,165,920
Holly Area School District, FGIC Insured, 5.625%, 5/01/25 ......................................... 8,775,000 9,151,799
Holt Public Schools, Building and Site, MBIA Insured, Pre-Refunded,
6.30%, 5/01/20 ....................................................................................$ 2,525,000 $ 2,730,510
6.50%, 5/01/21 .................................................................................... 1,425,000 1,549,360
Hopkins Public Schools, FGIC Insured,
5.70%, 5/01/21 .................................................................................... 4,000,000 4,185,480
5.50%, 5/01/26 .................................................................................... 1,000,000 1,024,490
Houghton-Portage Township School District,
FSA Insured, Pre-Refunded, 7.00%, 5/01/17 ......................................................... 2,700,000 2,800,548
Refunding, AMBAC Insured, 6.00%, 5/01/14 .......................................................... 2,000,000 2,143,340
Howell Public Schools, MBIA Insured, 5.60%, 5/01/21 ............................................... 3,475,000 3,580,571
Hudsonville Building Authority, Pre-Refunded, AMBAC Insured, 6.60%, 10/01/17 ...................... 750,000 839,918
Hudsonville Public Schools GO, Refunding, Series B, FGIC Insured, Pre-Refunded,
6.05%, 5/01/19 .................................................................................... 2,000,000 2,235,560
6.10%, 5/01/24 .................................................................................... 2,000,000 2,240,940
Huron Valley School District, FGIC Insured,
5.75%, 5/01/22 .................................................................................... 2,350,000 2,453,471
Refunding, 6.125%, 5/01/20 ........................................................................ 11,535,000 12,301,962
Jackson County GO, Pre-Refunded, 8.60%, 4/01/12 ................................................... 400,000 411,448
Kalamazoo Hospital Finance Authority Facility Revenue,
Borgess Medical Center, Series A, AMBAC Insured, 5.625%, 6/01/14 .................................. 3,805,000 4,021,581
Refunding and Improvement, Bronson Methodist, MBIA Insured, 5.875%, 5/15/26 ....................... 25,940,000 27,351,914
Refunding and Improvement, Bronson Methodist, Series A, MBIA Insured, 6.25%, 5/15/12 .............. 5,000,000 5,451,200
Refunding and Improvement, Bronson Methodist, Series A, MBIA Insured, 6.375%, 5/15/17 ............. 2,460,000 2,675,767
Kelloggsville Public School District GO, FGIC Insured, 5.75%, 5/01/13 ............................. 1,000,000 1,052,740
Kenowa Hills Public Schools, MBIA Insured, 5.875%,
5/01/21............................................................................................ 1,235,000 1,298,121
5/01/26............................................................................................ 9,000,000 9,459,990
Kent County Michigan Airport Facility Revenue, Kent County International Airport, MBIA Insured, 5.00%,
1/01/21............................................................................................ 3,885,000 3,761,418
1/01/28............................................................................................ 4,180,000 4,010,919
Kent Hospital Finance Authority Health Care Revenue, Butterworth Health System, Series A,
MBIA Insured, 5.625%, 1/15/26 ..................................................................... 15,500,000 16,038,470
Lake Linden-Hubbell Public Schools, FSA Insured,
5.40%, 5/01/18 .................................................................................... 825,000 843,497
5.50%, 5/01/23 .................................................................................... 675,000 694,595
Lake Orion Community School District GO, Refunding, AMBAC Insured, 5.50%, 5/01/20 ................. 2,200,000 2,272,776
Lake Shore Public Schools, Macomb County, FSA Insured, 5.50%,
5/01/17............................................................................................ 4,500,000 4,670,055
5/01/20............................................................................................ 3,540,000 3,634,483
Lake Superior State University Revenue,
AMBAC Insured, Pre-Refunded, 6.375%, 11/15/15 ..................................................... 1,500,000 1,716,075
MBIA Insured, Pre-Refunded, 6.50%, 11/15/11 ....................................................... 2,135,000 2,370,960
Lakeshore Public Schools, Berrien County, MBIA Insured, 5.70%, 5/01/22 ............................ 3,500,000 3,653,020
Lakeview Community Schools GO, Refunding, MBIA Insured, 6.75%, 5/01/13 ............................ 1,500,000 1,629,840
Lakewood Public Schools, MBIA Insured,
5.375%, 5/01/20 ................................................................................... 3,300,000 3,342,108
5.75%, 5/01/22 .................................................................................... 2,200,000 2,297,262
Lansing Building Authority, Refunding, MBIA Insured, 5.60%, 6/01/19 ............................... 1,470,000 1,518,025
Leslie Public Schools GO, Ingham and Jackson Counties, AMBAC Insured, Pre-Refunded, 6.00%, 5/01/25 3,500,000 3,911,775
Lincoln Park School District, FGIC Insured,
5.85%, 5/01/15 .................................................................................... 2,885,000 3,090,729
5.90%, 5/01/26 .................................................................................... 6,050,000 6,459,464
Marquette City Hospital Finance Authority Revenue, Refunding, Marquette General Hospital,
Series C, AMBAC Insured, Pre-Refunded, 7.50%, 4/01/07 ............................................. 5,000,000 5,298,200
Series D, FSA Insured, 5.875%, 4/01/11 ............................................................ 4,525,000 4,921,662
Series D, FSA Insured, 6.10%, 4/01/19 ............................................................. 5,225,000 5,683,807
Marysville Public School District, MBIA Insured, 5.75%, 5/01/22 ................................... 1,100,000 1,145,364
Mason Public School District, FGIC Insured, 5.40%, 5/01/21 ........................................ 1,400,000 1,421,098
Mattawan Consolidated School District, AMBAC Insured, Pre-Refunded,
7.50%, 5/01/13 .................................................................................... $ 775,000 $ 795,142
7.55%, 5/01/16 .................................................................................... 775,000 795,204
Menominee Area Public School District GO, Refunding, AMBAC Insured, 6.00%, 5/01/20 ................ 2,675,000 2,855,482
Merrill Community School District, FGIC Insured, 5.60%, 5/01/26 ................................... 4,000,000 4,141,600
Michigan Higher Education Student Loan Authority Revenue, Series XIII-A, MBIA Insured,
7.40%, 10/01/04 ................................................................................... 1,360,000 1,445,163
7.55%, 10/01/08 ................................................................................... 1,325,000 1,397,610
Michigan Municipal Bond Authority Revenue, Local Government Loan Program,
Group 15, AMBAC Insured, 7.60%, 5/01/09 ........................................................... 850,000 888,403
Refunding, Series G, AMBAC Insured, 6.75%, 11/01/14 ............................................... 6,490,000 7,317,929
Refunding, Series G, AMBAC Insured, 6.80%, 11/01/14 ............................................... 1,650,000 1,865,144
Refunding, Series G, AMBAC Insured, 6.80%, 11/01/23 ............................................... 825,000 923,522
Series C, MBIA Insured, 6.00%, 11/01/10 ........................................................... 3,790,000 4,105,442
Michigan State Building Authority Revenue,
Detroit Regional Prisons, Series I, MBIA Insured, Pre-Refunded, 7.25%, 10/01/08 ................... 10,000,000 10,533,100
Refunding, Series I, AMBAC Insured, 6.25%, 10/01/20 ............................................... 1,500,000 1,602,060
Series II, MBIA Insured, 6.25%, 10/01/20 .......................................................... 4,645,000 4,976,932
Series II, MBIA Insured, ETM, 7.40%, 4/01/01 ...................................................... 5,000,000 5,283,850
Michigan State Comprehensive Transportation Revenue,
Refunding, Series 1988-II, 7.625%, 5/01/11 ........................................................ 1,750,000 1,795,098
Series A, MBIA Insured, 5.50%, 5/15/22 ............................................................ 4,500,000 4,548,240
Michigan State HDA, Series A,
MFHR, FGIC Insured, 7.55%, 7/01/09 ................................................................ 2,880,000 2,997,936
MFHR, FGIC Insured, 7.65%, 7/01/15 ................................................................ 2,945,000 3,059,708
MFHR, FGIC Insured, 7.70%, 7/01/18 ................................................................ 4,415,000 4,543,609
SFMR, AMBAC Insured, 5.95%, 6/01/17 ............................................................... 2,500,000 2,620,925
SFMR, AMBAC Insured, 6.05%, 12/01/27 .............................................................. 1,000,000 1,060,200
Michigan State Hospital Finance Authority Revenue,
Crittenton Hospital, Series A, FGIC Insured, 6.75%, 3/01/20 ....................................... 1,750,000 1,842,838
Holland Community Hospital, AMBAC Insured, 5.625%, 1/01/28 ........................................ 3,000,000 3,106,800
Mercy Health Services, Series R, AMBAC Insured, 5.375%, 8/15/16 ................................... 1,500,000 1,528,170
Mercy Health Services, Series U, MBIA Insured, 5.75%, 8/15/26 ..................................... 2,300,000 2,418,105
Mercy Health Services, Series W, FSA Insured, 5.25%, 8/15/27 ...................................... 8,605,000 8,540,893
Refunding, Detroit Medical Group, Series A, AMBAC Insured, 5.50%, 8/15/24 ......................... 15,000,000 15,345,000
Refunding, Mercy Health Services, Series T, MBIA Insured, 5.75%, 8/15/15 .......................... 10,525,000 11,146,607
Refunding, MidMichigan Obligation Group, Series A, FSA Insured, 5.375%, 6/01/27 ................... 7,500,000 7,554,525
Refunding, Oakland General Hospital Obligation, AMBAC Insured, 7.00%, 7/01/15 ..................... 9,020,000 9,518,175
Refunding, Sparrow Obligated Group, MBIA Insured, 6.50%, 11/15/11 ................................. 1,500,000 1,638,285
bRefunding, St. John's Health System, Series A, AMBAC Insured, 5.125%, 5/15/17 .................... 14,500,000 14,298,450
Refunding, St. John's Hospital, Series A, AMBAC Insured, 6.00%, 5/15/13 ........................... 3,445,000 3,690,008
Refunding, St. John's Hospital, Series A, AMBAC Insured, 6.25%, 5/15/14 ........................... 9,545,000 10,309,555
St. John Hospital & Medical Center, Series A, AMBAC Insured, 5.25%, 5/15/26 ....................... 17,880,000 17,878,391
Michigan State Strategic Fund Limited Obligation Revenue,
Refunding, Detroit Edison Co., Pollution Project, FGIC Insured, 6.875%, 12/01/21 .................. 20,000,000 21,912,200
Refunding, Detroit Edison Co., Pollution Project, Series AA, FGIC Insured, 6.95%, 5/01/11 ......... 5,000,000 6,127,500
Refunding, Detroit Edison Co., Pollution Project, Series BB, AMBAC Insured, 7.00%, 5/01/21 ........ 3,000,000 3,822,210
Refunding, Detroit Edison Co., Pollution Project, Series BB, MBIA Insured, 6.05%, 10/01/23 ........ 1,285,000 1,374,590
Refunding, Detroit Edison Co., Pollution Project, Series BB, MBIA Insured, 6.20%, 8/15/25 ......... 10,250,000 11,215,653
Refunding, Detroit Edison Co., Pollution Project, Series CC, FGIC Insured, 6.95%, 9/01/21 ......... 5,540,000 6,057,547
Refunding, Detroit Edison Co., Pollution Project, Series CC, MBIA Insured, 6.05%, 10/01/23 ........ 5,825,000 6,231,119
St. John-Bon Secours Care Center, 7.90%, 11/15/16 ................................................. 1,800,000 1,850,112
Michigan State Trunk Line,
Refunding, Series B, AMBAC Insured, 5.50%, 10/01/21 ............................................... 1,400,000 1,428,238
Refunding, Series B, MBIA Insured, 5.50%, 10/01/21 ................................................ 4,500,000 4,590,765
Series A, FGIC Insured, 5.625%, 11/01/20 .......................................................... 2,765,000 2,893,130
Series A, FGIC Insured, 5.50%, 10/01/21 ........................................................... 1,475,000 1,504,751
Series A, FGIC Insured, 5.80%, 11/15/24 ........................................................... 6,000,000 6,334,664
Michigan State Trunk Line, (cont.)
Series A, FGIC Insured, 5.625%, 11/01/26 ..........................................................$ 8,990,000 $ 9,406,597
Monroe County PCR, Detroit Edison Co.,
Series 1, MBIA Insured, 6.875%, 9/01/22 ........................................................... 4,000,000 4,360,760
Series 1-B, MBIA Insured, 6.55%, 9/01/24 .......................................................... 4,000,000 4,341,400
Series CC, AMBAC Insured, 7.50%, 12/01/19 ......................................................... 10,000,000 10,849,800
Series CC, MBIA Insured, 6.55%, 6/01/24 ........................................................... 1,150,000 1,245,059
Morley-Stanwood Community Schools, Building and Site, FGIC Insured, 5.625%, 5/01/21 ............... 2,000,000 2,063,820
Muskegon Public Schools, Series 95, FGIC Insured, 5.25%,
5/01/18............................................................................................ 1,900,000 1,922,477
5/01/21............................................................................................ 2,000,000 2,017,000
Northern Michigan University Revenue, AMBAC Insured, 5.60%, 12/01/13 .............................. 1,715,000 1,784,115
Northview Public School District, Refunding, MBIA Insured, 5.80%, 5/01/21 ......................... 4,500,000 4,756,095
bNovi Community School District,
Building and Site, FGIC Insured, 5.30%, 5/01/21..................................................... 1,960,000 1,971,446
FGIC Insured, Pre-Refunded, 6.125%, 5/01/18......................................................... 4,750,000 5,269,840
Novi Michigan Water Supply & Sew Disposal System Revenue, MBIA Insured, 5.00%, 7/01/19 ............ 2,000,000 1,936,140
Oakland Community College District, Washtenaw County, AMBAC Insured, 6.65%, 5/01/11 ............... 3,500,000 3,896,900
Otsego Public School District, Building and Site, FSA Insured, Pre-Refunded, 6.625%, 5/01/16 ...... 2,270,000 2,520,290
Paw Paw Public School District, Building and Site, FGIC Insured, 5.625%, 5/01/25 .................. 3,500,000 3,634,260
Petoskey Hospital Finance Authority Facilities Revenue, Northern Michigan Hospital, MBIA Insured,
Pre-Refunded, 6.75%, 11/15/19 ..................................................................... 1,000,000 1,067,930
Pre-Refunded, 7.00%, 11/15/07 ..................................................................... 4,500,000 4,824,000
Refunding, 5.00%, 11/15/18 ........................................................................ 3,000,000 2,905,770
Pinckney Community Schools, Livingston and Washtenaw Counties, FGIC Insured, 5.50%, 5/01/27 ....... 10,700,000 10,985,583
Plymouth-Canton Community School District,
Refunding, AMBAC Insured, 5.50%, 5/01/13 .......................................................... 4,000,000 4,155,360
Series C, FGIC Insured, 6.50%, 5/01/16 ............................................................ 3,500,000 3,834,670
Series C, MBIA Insured, 6.50%, 5/01/16 ............................................................ 3,000,000 3,286,860
Pontiac General Building Authority, Pre-Refunded, AMBAC Insured, 6.875%, 4/01/06 .................. 1,305,000 1,424,838
Port Huron School District,
FSA Insured, Pre-Refunded, 7.25%, 5/01/15 ......................................................... 5,500,000 5,987,025
Refunding, AMBAC Insured, 6.00%, 5/01/12 .......................................................... 4,500,000 4,787,190
Portage Lake Water and Sewer Authority GO, Refunding, AMBAC Insured,
6.10%, 10/01/14 ................................................................................... 770,000 851,435
6.20%, 10/01/20 ................................................................................... 670,000 740,558
Portage Public Schools GO, MBIA Insured, 5.625%, 5/01/19 .......................................... 2,750,000 2,843,775
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
ETM, 8.75%, 7/01/00 ............................................................................... 500,000 554,765
Pre-Refunded, 9.00%, 7/01/09 ...................................................................... 2,500,000 3,191,550
Puerto Rico Commonwealth Public Improvement GO, MBIA Insured, 6.75%, 7/01/06 ...................... 2,280,000 2,335,336
Puerto Rico Electric Power Authority Revenue,
Refunding, Series B, MBIA Insured, 5.00%, 7/01/07 ................................................. 5,145,000 5,435,127
Refunding, Series U, FSA Insured, 6.00%, 7/01/14 .................................................. 3,400,000 3,685,940
Series AA, MBIA Insured, 5.00%, 7/01/08 ........................................................... 7,335,000 7,721,481
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Insured, 6.85%, 10/15/23 ................... 1,290,000 1,377,114
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ........................ 8,700,000 9,516,843
Redford Unified School District No. 1, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 ................. 14,090,000 15,873,935
Rockford Public Schools GO, Refunding,
AMBAC Insured, 5.875%, 5/01/19 .................................................................... 3,900,000 4,059,783
FGIC Insured, 5.25%, 5/01/22 ...................................................................... 1,250,000 1,254,413
FGIC Insured, 5.25%, 5/01/27 ...................................................................... 3,000,000 3,004,080
FSA Insured, 5.875%, 5/01/19 ...................................................................... 3,150,000 3,279,056
MBIA Insured, 5.875%, 5/01/12 ..................................................................... 1,850,000 1,946,755
MBIA Insured, 5.875%, 5/01/19 ..................................................................... 1,925,000 2,003,867
Romulus Community Schools, Refunding, FGIC Insured, 5.75%,
5/01/13 ........................................................................................... 690,000 729,261
5/01/17 ........................................................................................... 1,200,000 1,254,972
Romulus Community Schools, Refunding, FGIC Insured, 5.75% (cont.)
5/01/22 ...........................................................................................$ 5,435,000 $ 5,667,346
Royal Oak Hospital Finance Authority Revenue, Refunding, MBIA Insured, 6.25%, 1/01/19 ............. 5,000,000 5,324,550
Saginaw Hospital Finance Authority Revenue, Refunding, St. Luke's Hospital Project, MBIA Insured,
Series C, 6.875%, 7/01/14 ......................................................................... 5,325,000 5,741,042
Series C, 6.75%, 7/01/17 .......................................................................... 2,000,000 2,146,760
Series C, 6.00%, 7/01/21 .......................................................................... 3,875,000 3,995,590
Series D, 6.50%, 7/01/11 .......................................................................... 1,000,000 1,085,420
Saranac Community School District, Building and Site, MBIA Insured, 5.25%, 5/01/21 ................ 1,350,000 1,368,671
Sault Ste. Marie Water Treatment GO, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/10 .................. 2,000,000 2,147,780
Schoolcraft Community School District, FGIC Insured,
5.75%, 5/01/21 .................................................................................... 3,575,000 3,727,116
5.375%, 5/01/26 ................................................................................... 1,000,000 1,008,190
Shelby Charter Township Building Authority, AMBAC Insured, Pre-Refunded, 5.75%,
11/01/11 .......................................................................................... 750,000 806,385
11/01/12 .......................................................................................... 750,000 806,385
Shelby Public School District, Series 95, MBIA Insured, 5.625%, 5/01/21 ........................... 1,925,000 2,003,194
South Haven Public Schools, Refunding, FGIC Insured, 5.50%,
5/01/13 ........................................................................................... 1,000,000 1,037,620
5/01/17 ........................................................................................... 1,725,000 1,779,372
South Redford School District, FGIC Insured, 5.50%, 5/01/22 ....................................... 4,610,000 4,753,417
St. Clair County Building Authority, MBIA Insured, 5.25%,
4/01/18............................................................................................ 2,065,000 2,082,594
4/01/21............................................................................................ 2,400,000 2,403,600
St. Clair County EDC, PCR, Refunding, Detroit Edison Co., Series DD, AMBAC Insured, 6.05%, 8/01/24 7,745,000 8,212,643
St. Johns Public Schools, FGIC Insured,
5.625%, 5/01/20 ................................................................................... 7,000,000 7,274,890
5.75%, 5/01/25 .................................................................................... 2,000,000 2,087,260
Sturgis Public School District, MBIA Insured, Pre-Refunded, 6.10%, 5/01/18 ........................ 1,000,000 1,104,240
Thornapple Kellogg School District, FGIC Insured, 5.375%, 5/01/22 ................................. 1,960,000 1,978,522
Three Rivers Community Schools, Building and Site, MBIA Insured, Pre-Refunded, 6.00%, 5/01/23 ..... 2,400,000 2,703,864
Traverse City Area Public Schools, Building and Site, Series I, MBIA Insured, 5.70%, 5/01/20 ...... 4,550,000 4,762,895
University Revenues Medical Service Plan, MBIA Insured, 6.50%, 12/01/21 ........................... 2,365,000 2,536,368
Vestaburg Community Schools, Refunding, MBIA Insured, 5.50%, 5/01/26 .............................. 1,000,000 1,024,490
Vicksburg Community Schools, Refunding, MBIA Insured, 5.625%,
5/01/12 ........................................................................................... 2,175,000 2,279,487
5/01/20 ........................................................................................... 1,000,000 1,037,140
Walled Lake Consolidated School District, Refunding, MBIA Insured, 5.50%, 5/01/22 ................. 3,000,000 3,077,880
Wayland Union School District, FGIC Insured, Pre-Refunded, 6.75%, 5/01/24 ......................... 2,000,000 2,327,200
Wayne Charter County Airport Revenue, Sub Lien, Detroit Metro Airport, MBIA Insured,
Refunding, Series C, 5.25%, 12/01/21 .............................................................. 1,000,000 1,002,430
Series B, 6.875%, 12/01/11 ........................................................................ 300,000 330,648
Series B, 6.75%, 12/01/21 ......................................................................... 2,000,000 2,181,980
Wayne County Airport Revenue, Sub Lien, Series B, AMBAC Insured, 6.00%, 12/01/20 .................. 10,585,000 10,873,865
Wayne-Westland Community Schools, Refunding, FGIC Insured, 6.10%, 5/01/13 ......................... 2,275,000 2,439,414
West Ottawa Public School District, FGIC Insured,
5.60%, 5/01/21 .................................................................................... 2,355,000 2,440,110
5.60%, 5/01/26 .................................................................................... 12,100,000 12,492,645
Refunding, 6.00%, 5/01/20 ......................................................................... 6,630,000 7,022,098
Western School District, Refunding, MBIA Insured, 5.50%, 5/01/20 .................................. 1,660,000 1,705,965
Western Townships Utilities Authority GO, Sewer Disposal System, Refunding, FSA Insured,
6.75%, 1/01/15 .................................................................................... 18,710,000 20,029,991
6.50%, 1/01/19 .................................................................................... 6,115,000 6,500,123
White Cloud Public Schools, Refunding, FSA Insured, 5.50%, 5/01/20 ................................ 1,000,000 1,025,470
Williamston Community School District, Building and Site, MBIA Insured, 5.375%, 5/01/15 ........... 4,900,000 5,068,266
Williamston County GO, Refunding, AMBAC Insured, 6.90%, 11/01/17 .................................. 1,800,000 1,979,154
Wyandotte City School District, Refunding, FSA Insured, 5.625%, 5/01/13 ........................... 1,800,000 1,882,278
Wyandotte Electric Revenue, Refunding, MBIA Insured, 6.25%, 10/01/17 .............................. 9,980,000 10,839,977
Yale Public School District GO, Building and Site, AMBAC Insured,
5.375%, 5/01/17 ...................................................................................$ 2,000,000 $ 2,045,560
5.50%, 5/01/19 .................................................................................... 1,500,000 1,541,535
Ypsilanti School District, Refunding, FGIC Insured,
5.75%, 5/01/20 .................................................................................... 4,700,000 4,959,628
5.375%, 5/01/26 ................................................................................... 3,000,000 3,050,760
Zeeland Public Schools, Series B, MBIA Insured, Pre-Refunded,
6.05%, 5/01/19 .................................................................................... 2,900,000 3,241,562
6.10%, 5/01/24 .................................................................................... 4,000,000 4,481,880
----------
Total Long Term Investments (Cost $1,086,333,245).................................................. 1,165,345,294
----------
aShort Term Investments 1.0%
Michigan State Strategic Fund Limited Obligation Revenue, Refunding, Detroit Edison Co.,
Reserve 1, Daily VRDN and Put,
3.55%, 9/01/30 ................................................................................... 1,900,000 1,900,000
Midland County EDC Limited Obligation Revenue, Dow Chemical Co. Project,
Daily VRDN and Put, Refunding, Series B,
3.70%, 12/01/15 .................................................................................. 650,000 650,000
University Revenues Hospital, Series A,
Daily VRDN, 3.65%, 12/01/27 ....................................................................... 3,000,000 3,000,000
Daily VRDN and Put, Refunding, 3.65%, 12/01/19 .................................................... 5,500,000 5,500,000
University Revenues Medical Service Plan, Series A, Daily VRDN, 3.65%, 12/01/27 ................... 1,000,000 1,000,000
-----------
Total Short Term Investments (Cost $12,050,000) ................................................... 12,050,000
-----------
Total Investments (Cost $1,098,383,245) 100.2% .................................................... 1,177,395,294
Other Assets, less Liabilities (.2%) .............................................................. (1,957,823)
-----------
Net Assets 100.0% ................................................................................. $1,175,437,471
-----------
</TABLE>
See glossary of terms on page 97.
a Variable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates. 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 Minnesota Insured Tax-Free Income Fund
Year Ended February 28,
<S> <C> <C> <C> <C> <C>
Class I 1998 1997 19962 1995 1994
- -----------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year $12.01 $12.14 $11.88 $12.33 $12.35
---------------------------------------------------------
Income from investment operations:
Net investment income .64 .65 .67 .69 .70
Net realized and unrealized gains (losses) .25 (.12) .27 (.45) (.01)
---------------------------------------------------------
Total from investment operations .89 .53 .94 .24 .69
---------------------------------------------------------
Less distributions from:
Net investment income (.64) (.66) (.68) (.69)7 (.71)
Net realized gains (.10) -- -- -- --
--------------------------------------------------------
Total distributions (.74) (.66) (.68) (.69) (.71)
--------------------------------------------------------
Net asset value, end of year $12.16 $12.01 $12.14 $11.88 $12.33
========================================================
Total return* 7.60% 4.54% 8.06% 2.12% 5.42%
Ratios/supplemental data
Net assets, end of year (000's) $495,315 $482,128 $492,139 $479,934 $499,619
Ratios to average net assets:
Expenses .65% .66% .66% .66% .60%
Net investment income 5.29% 5.47% 5.58% 5.81% 5.67%
Portfolio turnover rate 14.87% 14.40% 17.72% 17.59% 13.42%
</TABLE>
<TABLE>
<CAPTION>
Class II
Per share operating performance
(for a share outstanding throughout the year)
<S> <C> <C> <C>
Net asset value, beginning of year $12.05 $12.17 $11.89
-------------------------------------
Income from investment operations:
Net investment income .57 .59 .50
Net realized and unrealized gains (losses) .26 (.12) .28
-------------------------------------
Total from investment operations .83 .47 .78
-------------------------------------
Less distributions from:
Net investment income (.57) (.59) (.50)
Net realized gains (.10) -- --
-------------------------------------
Total distributions (.67) (.59) (.50)
-------------------------------------
Net asset value, end of year $12.21 $12.05 $12.17
-------------------------------------
Total return* 7.04% 3.98% 6.67%
Ratios/supplemental data
Net assets, end of year (000's) $ 10,131 $ 4,844 $1,152
Ratios to average net assets:
Expenses 1.22% 1.23% 1.25%**
Net investment income 4.72% 4.87% 4.94%**
</TABLE>
Portfolio turnover rate 14.87% 14.40% 17.72%
*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.
7Includes distributions from net realized gains of $.004.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Minnesota Insured Tax-Free Income Fund AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
Long Term Investments 97.9%
Agriculture and Economic Development Board Revenue,
<S> <C> <C>
Evangelical Lutheran Good Samaritan, Society Project, AMBAC Insured, 5.15%, 12/01/22 ..............$ 3,180,000 $ 3,127,307
Health Care System, Fairview Hospital, Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 ......... 14,000,000 14,843,780
Albany ISD No. 745, Series A, FSA Insured, 6.00%, 2/01/16 ......................................... 2,295,000 2,481,629
bAlbert Lea Minnesota ISD No. 241, MBIA Insured, 5.00%, 2/01/18 .................................... 2,000,000 1,982,480
Anoka County Housing and Redevelopment Authority, Ice Arena, Series A, MBIA Insured, 5.70%, 2/01/23 2,195,000
2,296,211
Anoka County Resource Recovery Revenue, Northern States Power Co., AMBAC Insured, 7.15%, 12/01/08 . 2,100,000 2,247,756
Becker GO, Refunding, Tax Increment, Series D, MBIA Insured, 6.25%, 8/01/15 ....................... 4,870,000 5,274,843
Becker GO, Waste Water Treatment Facility, Series A, MBIA Insured,
5.90%, 2/01/12 .................................................................................... 625,000 660,631
5.95%, 2/01/15 .................................................................................... 610,000 642,483
Benson ISD No. 777 GO, FSA Insured, 6.00%, 2/01/15 ................................................ 290,000 304,541
Big Lake ISD No. 727, MBIA Insured,
5.625%, 2/01/19 ................................................................................... 500,000 521,850
5.70%, 2/01/21 .................................................................................... 3,085,000 3,224,997
Bloomington Health Care Facilities Revenue, Masonic Home Care Center,
AMBAC Insured, 5.875%, 7/01/22 ................................................................... 2,685,000 2,801,959
Braham ISD No. 314, MBIA Insured, 5.20%, 2/01/19 .................................................. 1,800,000 1,809,900
Brainerd Health Care Facilities Revenue, Refunding, Benedictine Health-St. Joseph, Series D,
MBIA Insured, 5.875%, 2/15/13 .................................................................... 3,500,000 3,713,570
Buffalo, AMBAC Insured, 5.55%, 6/01/17 ............................................................ 1,000,000 1,034,640
Buffalo ISD No. 877, FSA Insured, 6.15%, 2/01/18 .................................................. 2,800,000 2,959,628
Burnsville ISD, Series A, FSA Insured, 6.20%, 2/01/17 ............................................. 2,105,000 2,281,567
Champlin EDA, Housing Development, MBIA Insured, 5.625%, 2/01/26 .................................. 1,000,000 1,032,450
Chanhassen Apartments Project GO, Series B, AMBAC Insured, 6.20%, 1/01/25 ......................... 2,975,000 3,189,676
Columbia Heights ISD No. 013, FSA Insured,
5.375%, 2/01/19 ................................................................................... 2,450,000 2,504,660
5.50%, 2/01/23 .................................................................................... 6,000,000 6,187,080
Dakota, Washington and Stearns County SFMR, Series 1990, GNMA Secured,
7.80%, 12/01/10 ................................................................................... 795,000 844,266
7.85%, 12/01/30 ................................................................................... 2,745,000 2,909,014
Dakota County Housing and Redevelopment Authority, Governmental Housing Revenue,
Eagan Senior Housing Facility, MBIA Insured,
5.40%, 1/01/27 ................................................................................... 1,315,000 1,335,882
Dakota County Housing and Redevelopment Authority, SFMR, FNMA and GNMA Secured,
5.75%, 4/01/18 .................................................................................... 3,000,000 3,110,280
5.85%, 10/01/30 ................................................................................... 5,000,000 5,182,800
Dakota County Housing and Redevelopment Authority, SFMR, Refunding, GNMA Secured, 8.10%, 3/01/16 .. 600,000 612,000
Dilworth ISD No. 147, MBIA Insured, 6.00%, 2/01/15 ................................................ 1,040,000 1,114,578
Duluth EDA, Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured,
6.20%, 11/01/12 ................................................................................... 2,880,000 3,122,669
6.30%, 11/01/22 ................................................................................... 5,405,000 5,849,669
Pre-Refunded, 6.20%, 11/01/12 ..................................................................... 1,120,000 1,252,306
Pre-Refunded, 6.30%, 11/01/22 ..................................................................... 2,125,000 2,388,266
Duluth EDA, Hospital Facilities Revenue, St. Lukes Hospital, Series A, Connie Lee Insured,
6.40%, 5/01/12.................................................................................... 3,000,000 3,120,030
Duluth EDA Tax Increment Revenue, Refunding, MBIA Insured, 7.25%, 8/01/08 ......................... 3,500,000 3,661,420
Eagan MFMR, Refunding, Forest Ridge Apartments, BIG Insured, 7.50%, 3/01/27 ....................... 4,420,000 4,603,784
Eden Prairie ISD No. 272, Series A,
FGIC Insured, 5.45%, 2/01/08 ...................................................................... 1,000,000 1,035,460
FSA Insured, 5.75%, 2/01/15 ....................................................................... 4,980,000 5,212,815
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 ............... 2,000,000 2,139,740
Eveleth EDA, Housing Development, MBIA Insured, 5.80%, 7/01/25 .................................... 1,000,000 1,045,540
Faribault ISD No. 656, FSA Insured, 5.75%, 6/01/15 ................................................ 1,500,000 1,598,400
Ham Lake, Anoka County Housing, MBIA Insured, 6.10%, 1/01/26 ...................................... 2,180,000 2,291,747
Hibbing Health Care Facilities Revenue, The Duluth Clinic, Ltd., FSA Insured, 5.00%, 11/01/25 ..... 9,300,000 9,068,058
Hopkins Minnesota Elderly Housing Revenue, Refunding, St. Therese Project, GNMA Secured, Series A,
5.60%, 11/20/17 ................................................................................... 750,000 769,373
5.70%, 11/20/32 ................................................................................... 3,000,000 3,077,070
Inner Grove Heights, Tax Increment, Series D, MBIA Insured, 5.50%, 2/01/19 ........................ 1,000,000 1,027,310
Kenyon Wanamingo ISD No. 2172, MBIA Insured, 6.00%, 2/01/22 ....................................... 4,030,000 4,306,377
Lakeville ISD No. 194,
FGIC Insured, 5.40%, 2/01/13 ......................................................................$ 1,000,000 $ 1,039,500
FGIC Insured, 5.60%, 2/01/18 ...................................................................... 3,555,000 3,720,770
Series C, MBIA Insured, 5.125%, 2/01/13 ........................................................... 5,325,000 5,367,227
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 1,063,632
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 11,322,503
6.75%, 8/15/14 .................................................................................... 3,950,000 4,238,785
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 1,208,241
Minneapolis CDA, Tax Increment Revenue, Series 1990, MBIA Insured, 7.00%, 3/01/01 ................. 2,100,000 2,283,372
Minneapolis Hospital Facilities Revenue, Refunding, Fairview Hospital and Healthcare,
Series A, MBIA Insured, 6.50%, 1/01/11 ............................................................ 600,000 653,580
Series B, MBIA Insured, 6.70%, 1/01/17 ............................................................ 7,815,000 8,469,350
Minneapolis Revenue University Gateway Project, Series A, 5.25%, 12/01/24 ......................... 3,000,000 3,017,700
Minneapolis Special School District No. 001, Series A, MBIA Insured, 5.90%, 2/01/17 ............... 5,000,000 5,297,400
Minneapolis St. Paul Housing Finance Board, SFMR, GNMA Secured,
Phase VI, Series A, 8.30%, 8/01/21 ................................................................ 2,870,000 2,939,511
Series A, 8.375%, 11/01/17 ........................................................................ 665,000 686,739
Series C, 8.875%, 11/01/18 ........................................................................ 415,000 428,492
Minnesota State GO, Refunding, MBIA Insured, 5.40%, 8/01/09 ....................................... 3,000,000 3,113,610
Minnesota State HFA, MFHR, Series A, FGIC Insured, 6.375%, 2/01/20 ................................ 765,000 775,205
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured,
5.90%, 8/01/15 .................................................................................... 1,345,000 1,414,308
5.95%, 2/01/18 .................................................................................... 2,885,000 3,029,135
6.00%, 2/01/22 .................................................................................... 3,365,000 3,544,994
Minnesota State HFA, SFMR,
Series A, FGIC Insured, 8.00%, 7/01/29 ............................................................ 2,690,000 2,785,092
Series B, FGIC Insured, 7.25%, 7/01/06 ............................................................ 2,045,000 2,061,299
Series B, FGIC Insured, 7.25%, 7/01/16 ............................................................ 605,000 608,812
Series C, FGIC Insured, 7.00%, 7/01/16 ............................................................ 345,000 346,856
Series D, AMBAC Insured, 7.30%, 7/01/09 ........................................................... 3,170,000 3,299,368
Series D, FGIC Insured, 8.80%, 7/01/16 ............................................................ 205,000 210,689
Series F, MBIA Insured, 6.30%, 7/01/25 ............................................................ 1,500,000 1,602,555
Series G, AMBAC Insured, 6.25%, 7/01/26 ........................................................... 2,750,000 2,941,290
Series I, MBIA Insured, 6.25%, 1/01/15 ............................................................ 1,410,000 1,496,207
Minnesota State Higher Educational Facilities Authority Revenue, Series 3,
Connie Lee Insured, 6.50%, 1/07/17 Minnetonka MFHR,................................................ 3,940,000 4,143,225
Cedar Hills East Project, FGIC Insured, 7.40%, 12/01/07 ........................................... 350,000 368,428
Cedar Hills East Project, FGIC Insured, 7.50%, 12/01/27 ........................................... 1,000,000 1,041,890
Refunding, Brier Creek Project, Series A, GNMA Secured, 6.45%, 6/20/24 ............................ 2,720,000 2,919,539
New Hope MFR, Refunding, North Ridge, Series A, GNMA Secured,
6.05%, 1/01/17 .................................................................................... 450,000 478,026
6.20%, 1/01/31 .................................................................................... 5,470,000 5,765,599
North Branch ISD No. 138, Series A, FGIC Insured, 5.625%, 2/01/17 ................................. 1,240,000 1,289,141
North St. Paul Maplewood Minnesota ISD No. 622, Series A,
Refunding, 5.125%, 2/01/25 ........................................................................ 2,000,000 2,344,560
MBIA Insured, Pre-Refunded, 7.10%, 2/01/19 ........................................................ 2,275,000 2,240,579
Northeast Metropolitan ISD No. 916, FSA Insured, 5.80%, 1/01/16 ................................... 5,475,000 5,773,716
Northern Municipal Power Agency, Minnesota Electric System Revenue,
Refunding, FSA Insured, 5.00%, 1/01/12 ............................................................ 1,780,000 1,789,345
Refunding, FSA Insured, 5.25%, 1/01/17 ............................................................ 1,000,000 1,010,460
Refunding, FSA Insured, 5.30%, 1/01/21 ............................................................ 1,000,000 1,006,910
Refunding, Series A, AMBAC Insured, 6.00%, 1/01/19 ................................................ 11,900,000 12,005,434
Refunding, Series A, AMBAC Insured, 6.00%, 1/01/20 ................................................ 4,000,000 4,035,440
Refunding, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 1/01/17 .................................. 3,500,000 3,669,750
Northern Municipal Power Agency, Minnesota Electric System Revenue, (cont.)
Refunding, Series A, AMBAC Insured, Pre-Refunded, 7.40%, 1/01/18 ..................................$ 9,500,000 $ 9,972,245
Refunding, Series A, MBIA Insured, 6.00%, 1/01/20 ................................................. 4,200,000 4,237,212
Refunding, Series B, AMBAC Insured, 5.50%, 1/01/18 ................................................ 8,150,000 8,344,704
Series C, AMBAC Insured, 6.125%, 1/01/20 .......................................................... 8,090,000 8,588,344
Northfield College Facility Revenue, St. Olaf College Project, BIG Insured, Pre-Refunded,
8.00%, 10/01/18................................................................................... 2,000,000 2,049,760
Owatonna Public Utilities Commission, Public Utilities Revenue, Refunding, Series A,
AMBAC Insured, 5.45%, 1/01/16 ..................................................................... 3,350,000 3,430,199
Plymouth Health Facilities Revenue, Westhealth Project, Series A, FSA Insured,
6.25%, 6/01/16 .................................................................................... 1,600,000 1,742,976
6.125%, 6/01/24 ................................................................................... 1,815,000 1,959,982
Princeton Hospital Revenue, Fairview Hospital and Healthcare, Series C, MBIA Insured,
6.25%, 1/01/21.................................................................................... 7,205,000 7,704,018
Princeton ISD No. 477 GO, FSA Insured, 5.125%, 2/01/24 ............................................ 2,190,000 2,160,523
Princeton ISD No. 477, Mille Lacs County, Series A, FSA Insured, 5.375%, 2/01/17 .................. 2,540,000 2,578,989
Puerto Rico Commonwealth Public Improvement GO, Pre-Refunded,
MBIA Insured, 6.50%, 7/01/23 ...................................................................... 3,000,000 3,441,210
Series A, FGIC Insured, 7.375%, 7/01/04 ........................................................... 10,000,000 10,629,200
Puerto Rico HFC, SFMR, Portfolio 1, Series B, GNMA Secured, 7.65%, 10/15/22 ....................... 1,210,000 1,287,295
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ........................ 1,300,000 1,422,057
Robbinsdale Hospital Revenue, North Memorial Medical Center Project, AMBAC Insured,
Refunding, Pre-Refunded, 7.375%, 1/01/19 .......................................................... 6,450,000 6,769,275
Refunding, Series A, 5.45%, 5/15/13 ............................................................... 2,000,000 2,072,000
Refunding, Series A, 5.55%, 5/15/19 ............................................................... 1,000,000 1,025,530
Series B, 5.45%, 5/15/13 .......................................................................... 2,900,000 3,004,400
Series B, 5.50%, 5/15/23 .......................................................................... 7,900,000 8,054,366
Roseville ISD No. 623, Series A,
FGIC Insured, 6.00%, 2/01/23 ...................................................................... 1,250,000 1,302,813
FSA Insured, 5.80%, 2/01/19 ....................................................................... 1,200,000 1,251,636
FSA Insured, 5.85%, 2/01/24 ....................................................................... 2,470,000 2,576,111
FSA Insured, 6.00%, 2/01/25 ....................................................................... 4,260,000 4,557,305
Scott County Housing and Redevelopment Authority Facilities, AMBAC Insured,
5.25%, 12/01/11 ................................................................................... 2,380,000 2,466,108
5.50%, 12/01/15 ................................................................................... 1,750,000 1,834,560
Scott County Housing and Redevelopment Authority, Housing Development Revenue,
River City Centre Project, Series A, FSA Insured, 5.35%, 2/01/20 .................................. 760,000 776,492
5.375%, 2/01/27 ................................................................................... 1,520,000 1,550,689
Scott County Housing and Redevelopment Authority, Special Benefits Tax, River City Centre Project,
Series B, AMBAC Insured, 5.50%, 2/01/27 .......................................................... 675,000 693,698
Scott County Housing and Redevelopment Authority, Tax Increment Development, Revenue,
River City Centre Project, Series E, FSA Insured, 5.375%, 2/01/25 ................................ 1,170,000 1,197,460
Shakopee Public Utilities Commission Revenue, AMBAC Insured, 5.60%, 8/01/18 ....................... 1,750,000 1,790,810
South Washington County ISD No. 833, Refunding, Series A, FGIC Insured, 6.125%, 6/01/10 ........... 2,080,000 2,190,968
Southern Minnesota Municipal Power Agency, Power Supply System Revenue,
Refunding, Series B, AMBAC Insured, 6.00%, 1/01/16 ................................................ 5,000,000 5,273,850
Series A, AMBAC Insured, 6.00%, 1/01/13 ........................................................... 2,500,000 2,526,800
Series A, AMBAC Insured, 5.75%, 1/01/18 ........................................................... 2,250,000 2,356,965
Series A, FGIC Insured, 5.75%, 1/01/18 ............................................................ 1,000,000 1,071,810
Series A, MBIA Insured, 5.00%, 1/01/12 ............................................................ 5,975,000 6,064,267
Series A, MBIA Insured, 6.00%, 1/01/13 ............................................................ 12,500,000 12,634,000
Series A, MBIA Insured, 5.75%, 1/01/18 ............................................................ 8,865,000 9,286,442
Series A, MBIA Insured, Pre-Refunded, 5.75%, 1/01/18 .............................................. 1,000,000 1,047,540
Series C, AMBAC Insured, 5.00%, 1/01/17 ........................................................... 1,000,000 985,530
St. Cloud Hospital Facilities Revenue, St. Cloud Hospital, AMBAC Insured, Refunding, Series A,
5.00%, 7/01/20.................................................................................... 2,165,000 2,164,827
St. Francis ISD No. 015, Series A, FSA Insured,
6.35%, 2/01/13 .................................................................................... 1,500,000 1,684,980
6.375%, 2/01/16 ................................................................................... 5,465,000 6,147,961
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 1,003,540
7/01/23............................................................................................ 9,000,000 8,986,680
St. Louis Park Hospital Facilities Revenue, Refunding, Methodist Hospital Project, AMBAC Insured,
Series A, 7.25%, 7/01/08..........................................................................$ 4,115,000 $ 4,464,610
7/01/15 ........................................................................................... 1,000,000 1,084,960
St. Paul Housing and Redevelopment Authority Parking Revenue, Series A, FSA Insured,
5.75%, 8/01/13.................................................................................... 5,105,000 5,361,884
St. Paul ISD No. 625,
Series A, FSA Insured, 5.75%, 2/01/16 ............................................................. 3,500,000 3,682,840
Series C, MBIA Insured, 6.10%, 2/01/14 ............................................................ 1,075,000 1,156,388
Series C, MBIA Insured, 6.10%, 2/01/15 ............................................................ 500,000 540,270
St. Paul Port Authority, IDR, FGIC Insured, Series K, 9.50%,
12/01/01........................................................................................... 5,000 5,113
12/01/02........................................................................................... 5,000 5,267
12/01/14 .......................................................................................... 190,000 194,678
St. Paul Sewer Revenue, Series A, AMBAC Insured, 8.00%, 12/01/08 .................................. 8,000,000 8,310,240
Stearns County Housing and Redevelopment Authority Lease Revenue, Refunding,
Administration Building Project, AMBAC Insured, 7.00%, 2/01/11 .................................. 3,645,000 3,772,466
Stillwater ISD No. 834, GO, MBIA Insured, 5.75%, 2/01/15 .......................................... 2,990,000 3,155,168
Virginia, Governmental Housing Project, Refunding, MBIA Insured, 5.90%, 2/01/26 ................... 2,915,000 3,106,137
Wadena ISD No. 819, Refunding, AMBAC Insured, 5.60%, 2/01/20 ...................................... 3,150,000 3,210,575
Washington County Housing and Redevelopment Authority, Governmental Revenue,
Refunding, Housing, Landfall Terrace Project,
5.40%, 8/01/27 ................................................................................... 2,015,000 2,039,039
5.35%, 2/01/22 .................................................................................... 1,000,000 1,011,950
Washington County SFRMR, Housing and Redevelopment Authority, GNMA Secured,
FGIC Insured, 7.60%, 12/01/11 ..................................................................... 155,000 155,471
Western Minnesota Municipal Power Agency, Power Supply Revenue, Refunding, Series A,
AMBAC Insured, 5.50%, 1/01/12 ..................................................................... 2,745,000 2,922,684
AMBAC Insured, 5.50%, 1/01/13 ..................................................................... 4,500,000 4,765,815
MBIA Insured, 5.50%, 1/01/15 ...................................................................... 5,425,000 5,437,362
Western Minnesota Municipal Power Agency, Transmission Project Revenue, Refunding,
AMBAC Insured, 6.75%, 1/01/16 ..................................................................... 2,000,000 2,148,241
-----------
Total Long Term Investments (Cost $467,973,445).................................................... 495,080,041
-----------
aShort Term Investments 1.2%
Beltrami County Environmental Control Revenue, Northwood Panelboard, Weekly VRDN and Put,
3.65%, 12/01/21 ................................................................................... 1,400,000 1,400,000
Beltrami County Environmental Control Revenue, Northwood Panelboard Co. Project,
Daily VRDN and Put, 3.70%, 7/01/25 ................................................................ 4,300,000 4,300,000
Duluth Minnesota Tax Increment Revenue, Lake Superior Paper, Registered,
Weekly VRDN and Put, 7.00%, 7/01/14 ............................................................... 300,000 300,000
-----------
Total Short Term Investments (Cost $6,000,000)..................................................... 6,000,000
-----------
Total Investments (Cost $473,973,445) 99.1%........................................................ 501,080,041
Other Assets, less Liabilities .9%................................................................. 4,365,701
-----------
Net Assets 100.00% ................................................................................ $505,445,742
===========
</TABLE>
See glossary of terms on page 97.
a Variable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates. 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 Ohio Insured Tax-Free Income Fund
Year Ended February 28,
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS I 1998 1997 19962 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year $12.19 $12.22 $11.90 $12.40 $12.34
--------------------------------------------------------------
Income from investment operations:
Net investment income .64 .66 .68 .69 .70
Net realized and unrealized gains (losses) .33 (.03) .33 (.50) .07
--------------------------------------------------------------
Total from investment operations .97 .63 1.01 .19 .77
--------------------------------------------------------------
Less distributions from:
Net investment income (.64)6 (.66)5 (.69)3 (.69) (.71)
Net realized gains (.07) -- -- -- --
--------------------------------------------------------------
Total distributions (.71) (.66) (.69) (.69) (.71)
--------------------------------------------------------------
Net asset value, end of year $12.45 $12.19 $12.22 $11.90 $12.40
==============================================================
Total return* 8.22% 5.35% 8.66% 1.74% 6.08%
Ratios/supplemental data
Net assets, end of year (000's) $741,079 $698,360 $685,783 $652,545 $686,398
Ratios to average net assets:
Expenses .64% .64% .64% .63% .56%
Net investment income 5.24% 5.43% 5.58% 5.83% 5.59%
Portfolio turnover rate 12.84% 14.95% 11.47% 11.76% 7.29%
</TABLE>
<TABLE>
<CAPTION>
Class II
Per share operating performance
(for a share outstanding throughout the year)
<S> <C> <C> <C>
Net asset value, beginning of year $12.24 $12.26 $11.90
------------------------------
Income from investment operations:
Net investment income .58 .59 .52
Net realized and unrealized gains (losses) .34 (.02) .35
-------------------------------
Total from investment operations .92 .57 .87
-------------------------------
Less distributions from:
Net investment income (.58) (.59) (.51)
Net realized gains (.07) -- --
-------------------------------
Total distributions (.65) (.59) (.51)
-------------------------------
Net asset value, end of year $12.51 $12.24 $12.26
===============================
Total return* 7.66% 4.79% 7.43%
Ratios/supplemental data
Net assets, end of year (000's) $28,178 $15,786 $6,085
Ratios to average net assets:
Expenses 1.20% 1.20% 1.22%**
Net investment income 4.67% 4.80% 4.99%**
Portfolio turnover rate 12.84% 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.
6Includes distributions in excess of net investment income in the amount of
$.007.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Ohio Insured Tax-Free Income Fund AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
Long Term Investments 98.3%
Akron Bath Copley Joint Township Hospital District Revenue, Akron General Medical Center Project,
<S> <C> <C>
Refunding, AMBAC Insured, 5.375%
1/01/17............................................................................................$ 1,000,000 $ 1,030,130
1/01/22............................................................................................ 1,500,000 1,530,120
1/01/27............................................................................................ 1,000,000 1,013,440
Akron GO, Limited Tax, FGIC Insured, 7.50%, 9/01/05 ............................................... 500,000 599,775
Akron Sewer System Revenue, Refunding, MBIA Insured, 5.55%, 12/01/16 .............................. 3,660,000 3,807,681
Akron Waterworks System First Mortgage Revenue, FGIC Insured, 6.00%, 3/01/14 ...................... 1,000,000 1,086,170
Allen County, Refunding, AMBAC Insured, 5.30%, 12/01/15 ........................................... 1,250,000 1,276,150
Allen County Sewer Revenue, MBIA Insured, 5.70%, 12/01/13 ......................................... 1,200,000 1,261,476
Archbold Area Local School District GO,
AMBAC Insured, 6.00%, 12/01/21 .................................................................... 2,000,000 2,197,460
Refunding, MBIA Insured, 5.90%, 12/01/11 .......................................................... 600,000 624,594
Aurora City School District GO, Refunding and Improvement, FGIC Insured, 5.80%, 12/01/16 .......... 1,075,000 1,147,422
Avon Local School District, AMBAC Insured, 6.00%, 12/01/20 ........................................ 2,500,000 2,715,350
Beavercreek Local School District GO, FGIC Insured, 5.70%, 12/01/20 ............................... 8,375,000 8,808,825
Belmont County Correctional Facility, MBIA Insured, 5.85%, 12/01/16 ............................... 500,000 534,800
Bluffton Exempt Village School District, AMBAC Insured, 5.50%, 12/01/16 ........................... 1,000,000 1,047,010
Brunswick City School District, AMBAC Insured, 6.90%, 12/01/12 .................................... 2,295,000 2,519,702
Butler County GO, AMBAC Insured, 5.75%, 12/01/16 .................................................. 1,000,000 1,062,740
Butler County Hospital Facilities Revenue, FGIC Insured, Refunding and Improvement,
Middletown Regional Hospital, 6.75%, 11/15/10 ..................................................... 2,150,000 2,361,732
Butler County Transporation Improvement, Series A, FSA Insured, 5.125%, 4/01/17 ................... 2,000,000 2,000,800
Butler County Waterworks Revenue, AMBAC Insured,
6.35%, 12/01/08 ................................................................................... 790,000 864,837
6.40%, 12/01/12 ................................................................................... 500,000 543,940
5.45%, 12/01/16 ................................................................................... 1,000,000 1,033,500
Cardington and Lincoln Local School District, MBIA Insured, 6.60%, 12/01/14 ....................... 400,000 435,076
Celina Wastewater System Mortgage Revenue, FGIC Insured, 6.55%, 11/01/16 .......................... 1,200,000 1,285,932
Centerville GO, Capital Facilities, MBIA Insured, 5.65%, 12/01/18 ................................. 2,265,000 2,388,714
Chillicothe GO, Limited Tax, AMBAC Insured, 6.05%, 12/01/12 ....................................... 675,000 719,866
Claymont City School District, FGIC Insured, 5.70%, 12/01/21 ...................................... 1,000,000 1,050,750
Clermont County Hospital Facilities Revenue, Mercy Health System, Refunding,
Provine of Cincinnati, AMBAC Insured,
Series A, Pre-Refunded, 7.50%, 9/01/19 ............................................................ 515,000 572,658
Series B, 6.00%, 9/01/19 .......................................................................... 1,750,000 1,858,220
Clermont County Sewer System Revenue, AMBAC Insured, Pre-Refunded, 7.10%, 12/01/15 ................ 4,280,000 4,600,956
Clermont County Waterworks Revenue, Refunding, AMBAC Insured, 5.80%, 12/01/18 ..................... 11,000,000 11,616,110
Cleveland Airport Systems Revenue, FGIC Insured,
Series A, 6.25%, 1/01/20 .......................................................................... 3,000,000 3,241,710
Series B, 6.00%, 1/01/14 .......................................................................... 985,000 1,093,872
Series B, 6.10%, 1/01/24 .......................................................................... 1,450,000 1,617,692
Cleveland Airport System Revenue, Series A, FSA Insured, 5.125%, 1/01/27 .......................... 2,000,000 1,945,540
Cleveland GO, Series 1994, MBIA Insured, 6.70%, 11/15/18 .......................................... 2,000,000 2,325,760
Cleveland Waterworks First Mortgage Revenue,
Refunding, Series F, AMBAC Insured, 6.25%, 1/01/16 ................................................ 2,000,000 2,154,580
Refunding and Improvement, Series H, MBIA Insured, 5.75%, 1/01/26 ................................. 19,750,000 20,871,405
Series F-92, AMBAC Insured, 6.25%, 1/01/15 ........................................................ 1,000,000 1,077,290
Clinton-Massie Local School District, Refunding, Issue I, AMBAC Insured, 7.50%, 12/01/11 .......... 1,000,000 1,136,540
Columbiana County, Refunding, FSA Insured, 5.25%, 12/01/24 ........................................ 1,000,000 1,008,640
Columbus GO, Limited Tax, FGIC Insured, 9.50%, 4/15/03 ............................................ 975,000 1,216,615
bColumbus Municipal Airport Authority, Revenue Airport Improvement, Port Columbus International B,
AMBAC Insured, 5.00%, 1/01/18 ..................................................................... 3,815,000 3,739,539
Columbus State Community College, General Receipts, AMBAC Insured, 5.75%, 12/01/16 ................ 2,100,000 2,245,698
Coshocton Sewer System GO, AMBAC Insured, 6.50%, 12/01/12 ......................................... 1,530,000 1,679,160
Crestview Local School District GO, Construction and Improvement, AMBAC Insured, 6.65%, 12/01/14 .. 1,650,000 1,822,805
Cuyahoga County GO, Limited Tax, MBIA Insured, 9.375%, 10/01/04 ................................... 100,000 127,213
Cuyahoga County Hospital Revenue, Metrohealth System Project, MBIA Insured,
Refunding and Improvement, 5.50%, 2/15/27 ......................................................... 3,915,000 4,002,109
Cuyahoga County Utility System Revenue, Refunding, Medical Center Company Project,
Series B, MBIA Insured, 6.10%, 8/15/15 ............................................................ 2,945,000 3,158,925
Dayton Airport Revenue, Refunding, AMBAC Insured, 5.25%,12/01/15 .................................. 2,000,000 2,033,480
Dayton Water System Mortgage Revenue, Refunding, MBIA Insured, 6.75%, 12/01/10 .................... 1,395,000 1,438,594
Defiance GO, MBIA Insured,
6.10%, 12/01/14 ...................................................................................$ 1,000,000 $ 1,095,230
6.20%, 12/01/20 ................................................................................... 750,000 821,145
Delaware City School District, FGIC Insured, 5.75%, 12/01/15 ...................................... 1,640,000 1,734,431
Dover City School District, AMBAC Insured, 6.25%, 12/01/16 ........................................ 2,000,000 2,150,660
Dover Municipal Electric System Revenue, FGIC Insured, 6.00%, 12/01/19 ............................ 1,625,000 1,753,310
Dover Waterworks Systems Revenue, AMBAC Insured, 6.00%, 12/01/13 .................................. 1,100,000 1,201,134
Dublin City School District, AMBAC Insured, 6.20%, 12/01/19 ....................................... 5,735,000 6,356,502
East Liverpool Hospital Revenue, East Liverpool City Hospital Project,
Series B, FSA Insured, 5.00%, 10/01/21 ........................................................... 1,000,000 969,000
Fairborn GO, Limited Tax, Series 1991, MBIA Insured, 7.00%, 10/01/11 .............................. 1,390,000 1,569,658
Fairfield City School District GO, FGIC Insured, 6.00%, 12/01/20 .................................. 1,000,000 1,076,740
Finneytown Local School District, FGIC Insured, 5.80%, 12/01/24 ................................... 1,980,000 2,110,145
Forest Hills Local School District, MBIA Insured, 5.70%, 12/01/16 ................................. 1,500,000 1,592,715
Fostoria City School District GO, AMBAC Insured, 6.70%, 12/01/16 .................................. 2,500,000 2,750,175
Franklin County Convention Facilities Authority, Tax and Lease Revenue Anticipation Bonds,
MBIA Insured, 5.00%, 12/01/27 ..................................................................... 5,350,000 5,212,184
Franklin County Hospital Revenue, Holy Cross Health Systems, AMBAC Insured, 5.875%, 6/01/21 ....... 2,500,000 2,654,900
Green County Water System Revenue, Series A, FGIC Insured, 6.125%, 12/01/21 ....................... 2,100,000 2,319,954
Green Local School District GO, Summit County, FGIC Insured,
5.875%, 12/01/14 .................................................................................. 2,800,000 2,991,968
5.90%, 12/01/19 ................................................................................... 5,150,000 5,474,502
Hamilton City Electric System Mortgage Revenue, FGIC Insured,
Refunding, Series A, 6.00%, 10/15/23 .............................................................. 18,450,000 19,659,767
Series B, 6.30%, 10/15/25 ......................................................................... 2,340,000 2,540,444
Series B, Pre-Refunded, 8.00%, 10/15/22 ........................................................... 9,500,000 9,937,950
Hamilton County Hospital Facilities Revenue, Refunding, Bethesda Hospital, Series A,
AMBAC Insured, 6.25%, 1/01/12 ..................................................................... 3,650,000 3,954,702
Hamilton County Sewer System Revenue, Series A, Refunding, FGIC Insured, 6.05%, 12/01/15 .......... 3,010,000 3,294,385
Hamilton Wastewater System Revenue, Series A, FSA Insured,
5.90%, 10/15/21 ................................................................................... 3,040,000 3,229,909
5.20%, 10/15/23 ................................................................................... 7,525,000 7,537,567
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 ..................... 4,665,000 4,998,687
Hillard School District, Refunding, FGIC Insured, 6.55%, 12/01/05 ................................. 500,000 576,215
Hudson Local School District, Refunding, FGIC Insured, 5.60%, 12/15/14 ............................ 2,750,000 2,873,063
Indian Lake Local School District GO, Construction and Improvement, FGIC Insured, 5.375%, 12/01/23 1,000,000 1,020,050
Indian Valley Local School District GO, AMBAC Insured, 5.75%, 12/01/19 ............................ 1,000,000 1,060,360
Ironton Building Improvement, AMBAC Insured, 5.50%, 12/01/22 ...................................... 1,000,000 1,031,010
Jackson Local School District, Stark and Summit Counties School Building,
Construction and Improvement, MBIA Insured,
5.40%, 12/01/13 ................................................................................... 2,750,000 2,875,235
5.50%, 12/01/21 ................................................................................... 3,060,000 3,172,822
Jackson Waterworks Revenue, AMBAC Insured, 5.60%, 12/01/18 ........................................ 500,000 516,370
Kent City School District, FGIC Insured, 5.75%, 12/01/21 .......................................... 1,500,000 1,593,870
Kent State University Revenues,
AMBAC Insured, 6.45%, 5/01/12 ..................................................................... 1,195,000 1,301,773
General Receipts, MBIA Insured, 5.50%, 5/01/28 .................................................... 5,920,000 6,102,573
Kettering City School District, FGIC Insured, 5.25%, 12/01/22 ..................................... 1,000,000 1,010,390
Lake County Hospital Improvement Revenue, Lake Hospital System, Inc., Series B and C, AMBAC Insured,
7.875%, 1/01/05 ................................................................................... 1,940,000 1,973,950
Pre-Refunded, 8.00%, 1/01/13 ...................................................................... 2,185,000 2,247,185
Lake Local School District, Stark County, AMBAC Insured, 6.25%, 12/01/09 .......................... 1,000,000 1,100,450
Lakota Local District GO, AMBAC Insured, 6.125%, 12/01/17 ......................................... 3,200,000 3,497,120
Lebanon Electric Revenue Mortgage, AMBAC Insured, 5.60%, 12/01/16 ................................. 795,000 822,062
Liberty Benton Local School District, AMBAC Insured,
6.00%, 12/01/15 ................................................................................... 2,000,000 2,170,540
6.10%, 12/01/19 ................................................................................... 2,045,000 2,218,682
Lincolnview Local School District, FGIC Insured, 5.535%, 12/01/25 ................................. 4,225,000 4,341,948
Lorain County Hospital Revenue, Refunding, Catholic Healthcare Partners, Series B,
MBIA Insured, 5.50%, 9/01/27 ..................................................................... 12,200,000 12,588,204
Lucas County GO, Limited Tax, FGIC Insured, 8.00%,
12/01/06 .......................................................................................... 120,000 149,671
12/01/08........................................................................................... 110,000 140,653
Lucas County GO, Limited Tax, FGIC Insured, 8.00% (cont.)
12/01/09 .......................................................................................... $ 120,000 $ 154,525
12/01/10........................................................................................... 220,000 284,777
Lucas County Hospital Revenue, MBIA Insured,
Promedica Healthcare Obligation, Refunding, 5.75%,11/15/14 ........................................ 5,000,000 5,376,000
St. Vincent Medical Center, Series B, Refunding, 5.25%, 8/15/20 ................................... 3,500,000 3,501,995
Mahoning County GO, Bridge Improvement, AMBAC Insured,
Limited Tax, 7.20%, 12/01/09 ...................................................................... 1,500,000 1,609,695
Unlimited Tax, 7.15%, 12/01/04 .................................................................... 1,500,000 1,607,385
Mahoning County Hospital Facilities Revenue, MBIA Insured,
Western Reserve Care, 5.50%, 10/15/25 ............................................................. 5,000,000 5,238,600
Youngstown Hospital, Inc. Project, Series B, 7.00%, 10/15/08 ...................................... 2,000,000 2,245,900
Mansfield Hospital Improvement Revenue, Mansfield General Hospital Project,
AMBAC Insured, 6.70%, 12/01/09 ................................................................... 2,500,000 2,744,100
Marietta City School District, Series B, AMBAC Insured, 5.75%, 12/01/07 ........................... 1,000,000 1,076,080
Marietta Sewer System Mortgage Revenue, BIG Insured, 7.50%, 11/01/07 .............................. 500,000 512,775
Marietta Water Revenue, AMBAC Insured, 5.95%, 12/01/21 ............................................ 3,875,000 4,149,621
Marysville Exempted Village School District GO, MBIA Insured, 5.75%, 12/01/23 ..................... 1,000,000 1,052,500
Marysville Water Systems, Refunding, AMBAC Insured,
5.40%, 12/01/13 ................................................................................... 1,000,000 1,026,020
5.50%, 12/01/18 ................................................................................... 1,500,000 1,536,315
Mason Sewer Systems Revenue, FGIC Insured, 6.00%, 12/01/19 ........................................ 1,935,000 2,073,178
Maumee Hospital Revenue, Refunding, Saint Luke's Hospital Project, AMBAC Insured, 5.80%, 12/01/14 . 2,755,000 2,955,674
Medina City School District, FGIC Insured, 6.20%, 12/01/18 ........................................ 3,000,000 3,230,490
Mentor Exempted Village School District, MBIA Insured,
5.375%, 12/01/11 .................................................................................. 1,000,000 1,032,810
6.625%, 12/01/13 .................................................................................. 2,000,000 2,175,640
Pre-Refunded, 7.40%, 12/01/11 ..................................................................... 2,040,000 2,203,200
Miami County Hospital Facilities Revenue, Upper Valley Medical Center, Nursing Care, Inc.,
Series B, MBIA Insured, 6.50%, 5/01/21 ............................................................ 1,340,000 1,431,830
Middleburg Heights Hospital Revenue, Refunding, Southwest General Health
Center, FSA Insured, 5.75%, 8/15/21 ............................................................... 1,500,000 1,586,145
Montgomery County Hospital Facilities Revenue, Kettering Medical Center Facilities, MBIA Insured,
7.40%, 4/01/09 .................................................................................... 15,000,000 15,834,600
5.50%, 4/01/26 .................................................................................... 2,000,000 2,051,220
Pre-Refunded, 7.50%, 4/01/14 ...................................................................... 5,000,000 5,298,200
Montgomery County Revenue, Series A,
Refunding, Miami Valley Hospital, AMBAC Insured, 6.25%, 11/15/12 .................................. 1,600,000 1,734,672
Refunding, Miami Valley Hospital, AMBAC Insured, 6.25%, 11/15/16 .................................. 3,250,000 3,506,360
Sisters of Charity Health Care, AMBAC Insured, 6.25%, 5/15/14 ..................................... 1,780,000 1,971,777
Sisters of Charity Health Care, MBIA Insured, 6.625%, 5/15/21 ..................................... 1,565,000 1,707,180
Muskingum County GO, AMBAC Insured,
County Office Building Improvement, 7.20%, 12/01/10 ............................................... 1,000,000 1,097,970
Justice Center Improvement, 6.375%, 12/01/17 ...................................................... 1,695,000 1,841,465
Napoleon City School District GO, AMBAC Insured, 5.375%, 12/01/18 ................................. 1,000,000 1,019,280
New Lexington HDC, Mortgage Revenue, Refunding, Lincoln Park, Series A, MBIA Insured,
FHA Insured, 5.85%, 1/01/21 ....................................................................... 1,090,000 1,128,597
New Philadelphia City School District, School and Improvement, AMBAC Insured, 6.25%, 12/01/17 ..... 2,000,000 2,156,860
New Richmond Exempted Village School District GO, AMBAC Insured, 7.125%, 9/01/09 .................. 1,500,000 1,580,685
Newark Water System, AMBAC Insured, 6.00%, 12/01/18 ............................................... 1,000,000 1,070,570
North Olmsted GO, AMBAC Insured, 6.25%, 12/15/12 .................................................. 3,800,000 4,128,852
North Ridgeville GO, City School District, AMBAC Insured, 6.30%, 12/01/17 ......................... 2,900,000 3,147,892
Northeastern Local School District, Clark County Improvement, FGIC Insured, 5.55%, 12/01/18 ....... 1,000,000 1,047,740
Northridge Local School District, Licking, Knox and Del Counties Improvement,
FSA Insured, 5.75%, 12/01/18 ..................................................................... 1,090,000 1,157,940
Northwest Local School District, Scioto County, AMBAC Insured, 7.05%, 12/01/14 .................... 2,000,000 2,207,500
Oak Hills Local School District, MBIA Insured, 5.45%, 12/01/21 .................................... 5,000,000 5,147,100
Ohio Capital Corp. for Housing Mortgage Revenue, Refunding, MBIA Insured,
6.35%, 7/01/22 .................................................................................... 2,000,000 2,137,580
6.90%, 7/01/24 .................................................................................... 4,215,000 4,468,827
Series J, 6.50%, 1/01/25 .......................................................................... 3,500,000 3,671,710
Westview Apartments, Series A, 6.125%, 1/01/15 .................................................... 1,625,000 1,736,085
Westview Apartments, Series A, 6.25%, 1/01/23 ..................................................... 2,565,000 2,729,160
Ohio HFA, MFHR, Northridge Apartments, FGIC Insured, 10.35%, 12/01/25 ............................. $ 765,000 $ 841,469
Ohio HFA, MFHR, Wind River Apartment Project, Series A, GNMA Secured, 5.65%, 5/01/32 .............. 2,035,000 2,073,116
Ohio HFA, SFMR, GNMA Secured,
Series A, 7.65%, 3/01/29 .......................................................................... 2,960,000 3,101,902
Series B, 7.40%, 9/01/15 .......................................................................... 755,000 796,721
Series C, 8.00%, 9/01/08 .......................................................................... 1,965,000 2,061,364
Series C, 8.125%, 3/01/20 ......................................................................... 1,895,000 1,980,067
Series C, 7.85%, 9/01/21 .......................................................................... 1,690,000 1,806,728
Series D, 7.50%, 9/01/13 .......................................................................... 1,085,000 1,153,832
Series D, 7.05%, 9/01/16 .......................................................................... 3,840,000 4,071,398
Series I, 7.60%, 9/01/16 .......................................................................... 3,085,000 3,284,075
Ohio Municipal Electric Generation Agency, Joint Venture 5, AMBAC Insured, Joint Venture,
5.625%, 2/15/16 ................................................................................... 13,000,000 13,494,650
5.375%, 2/15/24 ................................................................................... 7,680,000 7,810,944
Ohio State Air Quality Development Authority Revenue,
Columbus Southern Power, Series A, FGIC Insured, 6.375%, 12/01/20 ................................. 4,000,000 4,381,480
JMG Funding, L.P., AMBAC Insured, 5.625%, 10/01/22 ................................................ 7,500,000 7,881,525
Refunding, Cincinnati Gas and Electric, MBIA Insured, 5.45%, 1/01/24 .............................. 5,000,000 5,075,900
Refunding, JMG Funding, L.P., AMBAC Insured, 6.375%, 1/01/29 ...................................... 1,230,000 1,337,158
Refunding, JMG Funding, L.P., AMBAC Insured, 6.375%, 4/01/29 ...................................... 15,245,000 16,573,144
Refunding, PCR, FGIC Insured, 7.45%, 3/01/16 ...................................................... 1,000,000 1,079,280
Refunding, PCR, Ohio Edison, Series B, AMBAC Insured, 5.625%, 11/15/29 ............................ 5,400,000 5,571,234
Refunding, PCR, Pennsylvania Power Co., AMBAC Insured, 6.45%, 5/01/27 ............................. 7,000,000 7,628,180
Ohio State Building Authority, Adult Correctional Facility, Series A,
AMBAC Insured, 5.60%, 4/01/16 ..................................................................... 2,000,000 2,091,920
MBIA Insured, 6.125%, 10/01/13 .................................................................... 13,000,000 14,274,910
Ohio State Department of Transportation, COP, Panhandle Rail Line Project, Series A,
FSA Insured, 6.50%, 4/15/12 ...................................................................... 1,100,000 1,200,463
Ohio State Education Loan Revenue, Series A-1, AMBAC Insured, 5.85%, 12/01/19 ..................... 5,000,000 5,251,800
Ohio State Higher Educational Facility Commission Revenue,
Dayton University Project, FGIC Insured, 7.25%, 12/01/12 .......................................... 450,000 493,799
Dayton University Project, FGIC Insured, 5.80%, 12/01/14 .......................................... 1,300,000 1,373,749
Dayton University Project, FGIC Insured, 6.75%, 12/01/15 .......................................... 1,725,000 1,904,366
Xavier University, MBIA Insured, 5.375%, 5/15/22 .................................................. 5,000,000 5,124,350
Xavier University Project, MBIA Insured, Pre-Refunded, 7.625%, 11/01/08 ........................... 1,500,000 1,539,015
Ohio State Turnpike Commission, Turnpike Revenue, Series A,
FGIC Insured, 5.75%, 2/15/24 ...................................................................... 1,000,000 1,048,650
MBIA Insured, 5.50%, 2/15/26 ...................................................................... 19,400,000 20,152,332
Ohio State Water Development Authority, PCR Facilities, Refunding, Pennsylvania Power Co. Project,
AMBAC Insured, 6.15%, 8/01/23 ..................................................................... 3,420,000 3,688,915
Ohio State Water Development Authority Revenue,
COP, Fresh Water Service, AMBAC Insured, 5.90%, 12/01/21 .......................................... 8,750,000 9,333,013
Refunding and Improvement, AMBAC Insured, 5.50%, 12/01/11 ......................................... 1,000,000 1,051,580
Refunding and Improvement, Pure Water, AMBAC Insured, 5.50%, 12/01/18 ............................. 4,450,000 4,547,544
Refunding, Cincinnati Gas, Series A, MBIA Insured, 5.45%, 1/01/24 ................................. 4,000,000 4,068,440
Refunding, Dayton Power, Series A, AMBAC Insured, 6.40%, 8/15/27 .................................. 5,000,000 5,383,150
Series I, AMBAC Insured, ETM, 7.00%, 12/01/09 ..................................................... 2,000,000 2,371,220
Olentangy Local School District GO, BIG Insured, 7.75%,
12/01/08 .......................................................................................... 375,000 478,980
12/01/09........................................................................................... 375,000 482,393
12/01/10 .......................................................................................... 375,000 484,935
Olmsted Falls Local School District, FGIC Insured,
7.05%, 12/15/11 ................................................................................... 1,000,000 1,122,030
5.85%, 12/15/17 ................................................................................... 1,500,000 1,593,960
Orrville Electric System Mortgage Revenue, Refunding, Series A and B,
AMBAC Insured, 7.50%, 12/01/10 ................................................................... 2,500,000 2,614,650
Orrville Water Systems Improvement Revenue, MBIA Insured, 6.125%, 12/01/18 ........................ 1,150,000 1,248,613
Ottawa County GO, Catawba Isle, AMBAC Insured, 7.00%, 9/01/11 ..................................... 1,500,000 1,658,955
Ottawa County Sewer System Revenue, Refunding, Danbury Project, AMBAC Insured,
5.50%, 10/01/14 .................................................................................. 1,950,000 2,024,978
Painesville Township Local School District GO, Lake County, FGIC Insured,
5.625%, 12/01/09 ..................................................................................$ 3,240,000 $ 3,432,359
5.65%, 12/01/15 ................................................................................... 4,490,000 4,725,052
Perrysburg Exempted Village School District, AMBAC Insured, 6.00%, 12/01/15 ....................... 2,000,000 2,163,580
Pickerington Local School District GO, Refunding, AMBAC Insured, 5.55%, 12/01/07 .................. 1,000,000 1,076,470
Powell Village, Series A, MBIA Insured,
5.55%, 12/01/17 ................................................................................... 840,000 876,540
5.60%, 12/01/22 ................................................................................... 445,000 464,309
Puerto Rico Commonwealth GO,
FSA Insured, 5.40%, 7/01/25 ....................................................................... 3,000,000 3,076,140
Refunding, MBIA Insured, 5.75%,7/01/24 ............................................................ 2,000,000 2,113,600
Puerto Rico PBA Revenue, Guaranteed, Government Facilities, Series A, AMBAC Insured,
5.50%, 7/01/21 ................................................................................... 4,000,000 4,135,240
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 ........................ 11,000,000 11,335,610
Revere Local School District, AMBAC Insured, 12/01/16
5.25%.............................................................................................. 2,000,000 2,041,900
6.00%.............................................................................................. 1,600,000 1,723,776
Reynoldsburg City School District, FGIC Insured, 6.55%, 12/01/17 .................................. 4,075,000 4,225,612
Saint Mary's Electric System Mortgage Revenue, AMBAC Insured, 6.65%, 12/01/11 ..................... 600,000 659,748
Saint Mary's Waterworks Revenue, AMBAC Insured, 6.65%, 12/01/11 ................................... 750,000 824,685
Salem GO, AMBAC Insured, 6.50%, 12/01/06 .......................................................... 2,000,000 2,312,880
South Range Local School District, MBIA Insured, 6.15%, 12/01/18 .................................. 700,000 761,215
South-Western City School District of Ohio, Franklin and Pickway Counties, FGIC Insured, ETM, 7.875%
12/01/04 .......................................................................................... 550,000 667,552
12/01/06 .......................................................................................... 600,000 754,866
12/01/07 .......................................................................................... 600,000 750,672
SouthWest Regional Water District, Water Revenue, MBIA Insured, 6.00%,
12/01/15 .......................................................................................... 1,000,000 1,080,300
12/01/20 .......................................................................................... 700,000 753,858
Springboro Sewer Systems Revenue, Refunding, MBIA Insured, 5.70%, 6/01/18 ......................... 1,410,000 1,485,914
Springboro Water Systems Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/18 ....................... 1,125,000 1,144,553
Stark County GO, Refunding, AMBAC Insured, 5.70%, 11/15/17 ........................................ 2,775,000 2,906,646
Stark County Sanitary Sewer System Revenue, Series A, MBIA Insured, Pre-Refunded, 7.75%, 11/15/18 . 8,500,000 8,907,065
Stark County Sewer District Improvement Bonds, FGIC Insured, 5.80%, 12/01/16 ...................... 1,000,000 1,074,380
Steubenville City School District, Series A, AMBAC Insured, 6.20%, 12/01/17 ....................... 2,075,000 2,261,626
Struthers City School District, AMBAC Insured, 6.50%, 12/01/14 .................................... 1,750,000 1,930,093
Summit County GO, Limited Tax, AMBAC Insured,
County Jail Improvement, Pre-Refunded, 7.85%, 12/01/08 ............................................ 3,530,000 3,707,806
Refunding, Series B, 6.95%, 8/01/08 ............................................................... 400,000 442,188
Sylvania City School District, FGIC Insured, 5.75%, 12/01/22 ...................................... 4,830,000 5,073,094
Toledo GO, Limited Tax,
AMBAC Insured, 5.95%, 12/01/15 .................................................................... 3,715,000 4,057,374
AMBAC Insured, 6.00%, 12/01/16 .................................................................... 1,000,000 1,105,550
FGIC Insured, 7.375%, 12/01/00 .................................................................... 500,000 539,715
FGIC Insured, 7.375%, 12/01/02 .................................................................... 400,000 449,660
FGIC Insured, 7.375%, 12/01/03 .................................................................... 650,000 741,098
FGIC Insured, 7.375%, 12/01/04 .................................................................... 650,000 751,842
FGIC Insured, 7.375%, 12/01/05 .................................................................... 650,000 759,844
FGIC Insured, 7.375%, 12/01/06 .................................................................... 625,000 736,775
MBIA Insured, 6.50%, 12/01/11 ..................................................................... 4,500,000 5,045,355
Toledo Sewerage System Mortgage Revenue, Series B, MBIA Insured,
7.75%, 11/15/17 ................................................................................... 2,320,000 2,428,947
Pre-Refunded, 7.75%, 11/15/17 ..................................................................... 3,680,000 3,856,235
Trumbull County Hospital Revenue, FGIC Insured,
Refunding and Improvement, Series A, 6.25%, 11/15/12 .............................................. 1,000,000 1,108,170
Refunding, Series B, 6.90%, 11/15/12 .............................................................. 2,000,000 2,281,780
Twinsburg City School District, FSA Insured, 6.70%, 12/01/11 ...................................... 4,000,000 4,365,840
University of Cincinnati, MBIA Insured,
COP, 6.75%, 12/01/09 ..............................................................................$ 1,600,000 $ 1,761,888
General Receipt, Series AD, 5.125%, 6/01/20 ....................................................... 1,500,000 1,498,890
General Receipt, Series W, 5.85%, 6/01/16 ......................................................... 1,630,000 1,750,098
University of Puerto Rico, University System Revenues, Series M, MBIA Insured, 5.25%, 6/01/25 ..... 6,000,000 6,065,160
University of Toledo General Receipt, FGIC Insured,
5.30%, 6/01/18 .................................................................................... 2,000,000 2,019,760
Refunding, Series A, 5.90%, 6/01/20 ............................................................... 5,500,000 5,757,400
Upper Arlington County School District, MBIA Insured, 5.25%, 12/01/22 ............................. 5,000,000 5,087,300
Urbana Wastewater Treatment Plant GO, AMBAC Insured, 7.05%, 12/01/11 .............................. 1,000,000 1,130,310
Valley Local School District, AMBAC Insured, 7.00%, 12/01/13 ...................................... 1,400,000 1,580,936
Warren GO,
MBIA Insured, 6.65%, 11/01/12 ..................................................................... 2,415,000 2,761,383
Refunding, AMBAC Insured, 5.50%, 11/15/13 ......................................................... 1,015,000 1,057,539
Wausen Exempt Village School District, Refunding and School Improvements, MBIA Insured,
5.50%, 12/01/17................................................................................... 1,800,000 1,870,236
Wayne Local School District, Warren County, AMBAC Insured, 6.10%, 12/01/24 ........................ 1,800,000 1,975,842
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 5,392,050
Wilmington City School District, FGIC Insured, 6.30%, 12/01/14 .................................... 2,000,000 2,152,800
Wilmington Sewer System Revenue, Refunding, First Mortgage, MBIA Insured, 5.30%, 2/15/18 .......... 1,170,000 1,192,616
Wilmington Water Revenue, First Mortgage System, AMBAC Insured,
5.90%, 6/15/14 .................................................................................... 1,275,000 1,369,350
6.00%, 6/15/21 .................................................................................... 2,510,000 2,698,451
Woodmore Local School District, Refunding, AMBAC Insured, 5.65%, 12/01/08 ......................... 500,000 537,570
Wooster City School District, AMBAC Insured, 6.50%, 12/01/17 ...................................... 8,700,000 9,754,353
Worthington City School District, Refunding, FGIC Insured, 6.375%, 12/01/12 ....................... 2,350,000 2,545,732
Youngstown State University, General Receipts, AMBAC Insured, 6.00%, 12/15/16 ..................... 2,250,000 2,527,695
Zane Trace Local School District, AMBAC Insured, 5.45%, 12/01/19 .................................. 1,000,000 1,025,250
---------
Total Long Term Investments (Cost $705,703,279).................................................... 756,533,140
---------
aShort Term Investment .6%
Ohio State Air Quality Development Authority Revenue, Refunding, Cincinnati Gas and Electric,
Series A, Daily VRDN and Put, 2.60%, 9/01/30
(Cost $4,600,000)................................................................................. 4,600,000 4,600,000
---------
Total Investments (Cost $710,303,279) 98.9%........................................................ 761,133,140
Other Assets, less Liabilities 1.1% ............................................................... 8,124,619
---------
Net Assets 100.0% ................................................................................. $769,257,759
=========
</TABLE>
See glossary of terms on page 97.
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
Statement of Investments, February 28, 1998 (cont.)
Glossary of Terms
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
COP - Certificate of Participation
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance (some of the securities shown as
FSAInsured 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 Authority 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.
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
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Authority/Agency
RMR - Residential Mortgage Revenue
SF - Single Family
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
Statements of Assets and Liabilities
February 28, 1998
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
ARIZONA INSURED FLORIDA INSURED FRANKLIN
TAX-FREE TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C>
Cost..................................................................... $55,964,671 $ 93,891,246 $1,596,657,378
===============================================
Value.................................................................... 59,104,726 99,701,565 1,710,632,870
Cash...................................................................... 105,724 134,856 1,727,235
Receivables:
Investment securities sold............................................... 15,331 -- 654,152
Capital shares sold...................................................... 75,824 238,748 712,492
Interest................................................................. 579,068 1,649,995 24,681,865
Affiliates................................................................. 25,657 82,246 --
-----------------------------------------------
Total assets............................................................... 59,906,330 101,807,410 1,738,408,614
-----------------------------------------------
Liabilities:
Payables:
Investment securities purchased.......................................... 1,742,238 -- 9,070,307
Capital shares redeemed.................................................. -- 35,300 139,759
Affiliates............................................................... -- 23,065 993,378
Shareholders............................................................. 22,735 104,565 2,335,112
Distributions to shareholders............................................. 76,074 132,867 2,462,187
Other liabilities......................................................... 6,550 6,031 90,688
----------------------------------------------
Total liabilities.......................................................... 1,847,597 301,828 15,091,431
----------------------------------------------
Net assets, at value...................................................... $58,058,733 $101,505,582 $1,723,317,183
==============================================
Net assets consist of:
Undistributed net investment income....................................... $ 55,295 $ 48,730 $--
Accumulated distributions in excess of net investment income.............. -- -- (851,836)
Net unrealized appreciation............................................... 3,140,055 5,810,319 113,975,492
Accumulated net realized gain (loss)...................................... (246,893) (1,270,415) 6,770,015
Capital shares............................................................ 55,110,276 96,916,948 1,603,423,512
---------------------------------------------
Net assets, at value....................................................... $58,058,733 $101,505,582 $1,723,317,183
=============================================
Class I:
Net assets, at value...................................................... $58,058,733 $101,505,582 $1,685,259,780
==============================================
Shares outstanding........................................................ 5,392,194 9,733,038 136,849,855
==============================================
Net asset value per share*................................................ $10.77 $10.43 $12.31
==============================================
Maximum offering price per share (net asset value per share / 95.75%)..... $11.25 $10.89 $12.86
==============================================
Class II:
Net assets, at value...................................................... -- -- $ 38,057,403
==============================================
Shares outstanding........................................................ -- -- 3,074,478
==============================================
Net asset value per share*................................................ -- -- $12.38
==============================================
Maximum offering price per share (net asset value per share / 99.00%)..... -- -- $12.51
==============================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
February 28, 1998
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MASSACHUSETTS MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
Cost...........................................................$318,207,175 $1,098,383,245 $473,973,445 $710,303,279
=============================================================
Value.......................................................... 340,045,683 1,177,395,294 501,080,041 761,133,140
Cash............................................................ 24,443 6,499,280 2,281,350 501,965
Receivables:
Investment securities sold....................................... 3,060,000 -- 130,834 1,705,000
Capital shares sold.............................................. 671,421 753,991 254,997 839,496
Interest......................................................... 4,711,183 19,481,230 5,342,875 11,936,137
=============================================================
Total assets..................................................... 348,512,730 1,204,129,795 509,090,097 776,115,738
-------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased.................................. 4,905,280 24,400,386 1,987,996 3,760,204
Capital shares redeemed.......................................... 469,082 397,902 137,589 659,635
Affiliates....................................................... 226,842 707,151 304,471 492,254
Shareholders..................................................... 353,434 1,513,486 484,020 858,222
Distributions to shareholders................................... 455,756 1,573,234 692,532 1,048,197
Other liabilities............................................... 19,072 100,165 37,747 39,567
-------------------------------------------------------------
Total liabilities................................................ 6,429,466 28,692,324 3,644,355 6,858,079
-------------------------------------------------------------
Net assets, at value............................................$342,083,264 $1,175,437,471 $505,445,742 $769,257,659
=============================================================
Net assets consist of:
Undistributed net investment income............................. $-- $-- $ 157,545 $--
Accumulated distributions in excess of net investment income.... (210,542) (1,346,656) -- (434,981)
Net unrealized appreciation..................................... 21,838,508 79,012,049 27,106,596 50,829,861
Accumulated net realized gain .................................. 1,463,945 3,019,077 115,678 578,408
Capital shares.................................................. 318,991,353 1,094,753,001 478,065,923 718,284,371
-------------------------------------------------------------
Net assets, at value.............................................$342,083,264 $1,175,437,471 $505,445,742 $769,257,659
=============================================================
Class I:
Net assets, at value............................................$328,146,764 $1,142,564,763 $495,315,034 $741,079,269
=============================================================
Shares outstanding.............................................. 27,917,603 93,666,608 40,727,502 59,513,390
=============================================================
Net asset value per share*...................................... $11.75 $12.20 $12.16 $12.45
=============================================================
Maximum offering price per share (net asset value per share / 95.75%) $12.27 $12.74 $12.70 $13.00
=============================================================
Class II:
Net assets, at value............................................$ 13,936,500 $ 32,872,708 $ 10,130,708 $ 28,178,390
=============================================================
Shares outstanding.............................................. 1,180,684 2,679,153 829,737 2,251,795
=============================================================
Net asset value per share*...................................... $11.80 $12.27 $12.21 $12.51
=============================================================
Maximum offering price per share (net asset value per share / 99.00%) $11.92 $12.39 $12.33 $12.64
=============================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations
for the year ended February 28, 1998
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
ARIZONA INSURED FLORIDA INSURED
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
Investment income:
<S> <C> <C>
Interest ................................................................................. $2,561,113 $4,880,645
---------------------------
Expenses:
Management fees (Note 3) ................................................................. 300,020 559,377
Distribution fees (Note 3) ............................................................... 45,714 88,442
Transfer agent fees (Note 3) ............................................................. 15,927 29,194
Custodian fees ........................................................................... 512 969
Reports to shareholders .................................................................. 10,952 11,809
Registration and filing fees ............................................................. 6,240 5,711
Professional fees ........................................................................ 2,104 3,434
Trustees' fees and expenses .............................................................. 495 951
Other .................................................................................... 6,541 5,426
---------------------------
Total expenses ............................................................................ 388,505 705,313
Expenses waived by affiliate (Note 3) ..................................................... (246,420) (395,140)
---------------------------
Net expenses .............................................................................. 142,085 310,173
---------------------------
Net investment income .................................................................... 2,419,028 4,570,472
---------------------------
Realized and unrealized gains:
Net realized gain from investments ....................................................... 186,266 139,100
Net unrealized appreciation on investments ............................................... 1,729,964 3,782,107
---------------------------
Net realized and unrealized gain .......................................................... 1,916,230 3,921,207
---------------------------
Net increase in net assets resulting from operations ...................................... $4,335,258 $8,491,679
===========================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations (cont.)
for the year ended February 28, 1998
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
FRANKLIN MASSACHUSETTS MICHIGAN MINNESOTA OHIO INSURED
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest.......................................... $102,645,300 $20,130,653 $67,328,888 $29,224,690 $43,438,906
------------------------------------------------------------------------------
Expenses:
Management fees (Note 3).......................... 7,894,099 1,792,766 5,414,427 2,465,946 3,586,169
Distribution fees (Note 3)
Class I............................................ 1,348,816 271,659 932,884 401,092 616,329
Class II........................................... 192,208 63,625 165,773 46,675 134,054
Transfer agent fees (Note 3)...................... 596,981 124,003 504,683 210,809
324,190
Custodian fees.................................... 15,137 3,560 12,080 5,166 7,732
Reports to shareholders........................... 284,331 51,892 216,751 90,763 123,112
Registration and filing fees...................... 68,742 19,858 15,850 8,330 15,869
Professional fees................................. 40,799 9,194 28,775 12,987 19,093
Trustees' fees and expenses....................... 18,153 3,738 12,461 5,367 8,028
Other............................................. 95,366 28,721 107,381 40,729 35,983
-----------------------------------------------------------------------------
Total expenses..................................... 10,554,632 2,369,016 7,411,065 3,287,864 4,870,559
-----------------------------------------------------------------------------
Net investment income............................. 92,090,668 17,761,637 59,917,823 25,936,826 38,568,347
-----------------------------------------------------------------------------
Realized and unrealized gains:
Net realized gain from investments................ 23,962,647 4,132,958 10,732,851 4,596,300 5,741,354
Net unrealized appreciation on investments........ 16,269,474 6,206,833 21,097,599 5,746,112 14,279,319
-----------------------------------------------------------------------------
Net realized and unrealized gain................... 40,232,121 10,339,791 31,830,450 10,342,412 20,020,673
-----------------------------------------------------------------------------
Net increase in net assets resulting from operations $132,322,789 $28,101,428 $91,748,273 $36,279,238 $58,589,020
=============================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the years ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
Franklin Arizona Insured Franklin Florida Insured
Tax-Free Income Fund Tax-Free Income Fund
--------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Increase in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income................................. $2,419,028 $2,067,720 $4,570,472 $3,829,611
Net realized gain (loss) from investments............. 186,266 (5,619) 139,100 (119,240)
Net unrealized appreciation (depreciation) on investments 1,729,964 (10,776) 3,782,107 (44,777)
---------------------------------------------------------------
Net increase in net assets resulting from operations.... 4,335,258 2,051,325 8,491,679 3,665,594
Distributions to shareholders from:
Net investment income................................. (2,451,451) (2,055,948) (4,572,391) (3,811,701)
Capital share transactions (Note 2).................... 16,481,798 1,498,955 20,409,395 7,739,653
---------------------------------------------------------------
Net increase in net assets.............................. 18,365,605 1,494,332 24,328,683 7,593,546
Net assets:
Beginning of year...................................... 39,693,128 38,198,796 77,176,899 69,583,353
---------------------------------------------------------------
End of year............................................ $58,058,733 $39,693,128 $101,505,582 $77,176,899
===============================================================
Undistributed net investment income included in net assets
End of year............................................ $ 55,295 $ 87,718 $ 48,730 $ 50,649
===============================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the years ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
Franklin Insured Franklin Massachusetts Insured
Tax-Free Income Fund Tax-Free Income Fund
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income.................................. $92,090,668 $95,995,749 $17,761,637 $17,080,884
Net realized gain from investments..................... 23,962,647 189,172 4,132,958 4,857,234
Net unrealized appreciation (depreciation) on investments 16,269,474 (14,843,798) 6,206,833 (7,367,674)
------------------------------------------------------------
Net increase in net assets resulting from operations... 132,322,789 81,341,123 28,101,428 14,570,444
Distributions to shareholders from:
Net investment income:
Class I............................................... (90,659,720) (96,336,110) (17,272,533) (17,006,052)
Class II.............................................. (1,442,616) (757,108) (450,151) (230,919)
In excess of net investment income:
Class I............................................... (860,908) -- (212,790) (36,375)
Class II.............................................. -- -- -- (330)
Net realized gains:
Class I .............................................. (16,811,655) -- (3,803,786) --
Class II.............................................. (343,655) -- (118,051) --
------------------------------------------------------------
Total distributions to shareholders................... (110,118,554) (97,093,218) (21,857,311) (17,273,676)
Capital share transactions: (Note 2)
Class I............................................... 1,404,896 (27,168,822) (2,973,753) 26,245,016
Class II.............................................. 16,099,401 13,338,878 7,370,054 3,613,523
------------------------------------------------------------
Total capital share transactions...................... 17,504,297 (13,829,944) 4,396,301 29,858,539
Net increase (decrease) in net assets.................. 39,708,532 (29,582,039) 10,640,418 27,155,307
Net assets:
Beginning of year...................................... 1,683,608,651 1,713,190,690 331,442,846 304,287,539
------------------------------------------------------------
End of year............................................ $1,723,317,183 $1,683,608,651 $342,083,264 $331,442,846
============================================================
Undistributed net investment income (accumulated distributions in
excess of net investment income) included in net assets
End of year............................................ $ (851,836) $ 20,740 $ (210,542) $ (36,705)
============================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the years ended February 28, 1998 and 1997
Franklin Michigan Insured Franklin Minnesota Insured Franklin Ohio Insured
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
----------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income...... $ 59,917,823 $ 61,749,585 $ 25,936,826 $ 26,628,971 $ 38,568,347 $ 37,792,356
Net realized gain (loss)
from investments............. 10,732,851 4,589,908 4,596,300 (540,028) 5,741,354 4,543,907
Net unrealized appreciation
(depreciation) on
investments.................. 21,097,599 (11,934,831) 5,746,112 (4,659,743) 14,279,319 (5,685,110)
----------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations............. 91,748,273 54,404,662 36,279,238 21,429,200 58,589,020 36,651,153
Distributions to
shareholders from:
Net investment income:
Class I..................... (58,492,475) (61,003,949) (25,706,309) (26,722,891) (37,331,056) (37,223,762)
Class II.................... (1,211,205) (634,617) (335,992) (132,990) (963,819) (514,622)
In excess of net investment income:
Class I..................... (1,347,076) (213,723) -- -- (449,596) (258,857)
Net realized gains:
Class I..................... (12,008,053) -- (3,868,308) -- (3,968,675) --
Class II.................... (284,824) -- (68,525) -- (134,989) --
-----------------------------------------------------------------------------------------------
Total distributions to
shareholders................ (73,343,633) (61,852,289) (29,979,134) (26,855,881) (42,848,135) (37,997,241)
Capital share
transactions: (Note 2)
Class I...................... 13,102,580 3,608,574 6,985,703 (4,581,379) 27,458,447 13,994,327
Class II..................... 12,231,280 13,400,553 5,188,792 3,688,022 11,912,652 9,628,987
----------------------------------------------------------------------------------------------
Total capital share transactions 25,333,860 17,009,127 12,174,495 (893,357) 39,371,099 23,623,314
Net increase (decrease)
in net assets............... 43,738,500 9,561,500 18,474,599 (6,320,038) 55,111,984 22,277,226
Net assets:
Beginning of year............ 1,131,698,971 1,122,137,471 486,971,143 493,291,181 714,145,675 691,868,449
----------------------------------------------------------------------------------------------
End of year.................. $1,175,437,471 $1,131,698,971 $505,445,742 $486,971,143 $769,257,659 $714,145,675
==============================================================================================
Undistributed net investment
income (accumulated distributions
in excess of net investment income)
included in net assets
End of year $ (1,346,656) $ (213,723) $ 157,545 $ 263,020 $ (434,981) $ (258,857)
==============================================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements
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 (the Funds). All Funds included in this report 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. 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. 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.
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. SHARES OF BENEFICIAL INTEREST
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. SHARES OF BENEFICIAL INTEREST (cont.)
At February 28, 1998, 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 Florida Insured
Insured Tax-Free Income Fund Tax-Free Income Fund
---------------------------------------------------------------
Class I Shares: Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
1998
<S> <C> <C> <C> <C>
Shares sold ............................................ 2,255,909 $23,825,186 3,398,220 $34,631,405
Shares issued in reinvestment of distributions ......... 93,722 989,777 152,966 1,558,437
Shares redeemed ........................................ (788,836) (8,333,165) (1,546,829) (15,780,447)
--------------------------------------------------------------
Net increase ............................................ 1,560,795 $16,481,798 2,004,357 $20,409,395
==============================================================
1997
Shares sold............................................. 1,063,087 $10,804,634 2,159,414 $21,306,582
Shares issued in reinvestment of distributions.......... 84,472 860,990 134,268 1,324,324
Shares redeemed......................................... (1,004,299) (10,166,669) (1,507,044) (14,891,253)
--------------------------------------------------------------
Net increase ............................................ 143,260 $ 1,498,955 786,638 $ 7,739,653
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Franklin Insured Franklin Massachusetts
Tax-Free Income Fund Insured Tax-Free Income Fund
---------------------------------------------------------------
Class I Shares: Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
1998
<S> <C> <C> <C> <C>
Shares sold............................................. 17,269,623 $211,180,919 3,519,323 $40,939,910
Shares issued in reinvestment of distributions.......... 3,958,810 48,486,276 897,006 10,455,135
Shares redeemed......................................... (21,131,863) (258,262,299) (4,661,188) (54,368,798)
---------------------------------------------------------------
Net increase (decrease).................................. 96,570 $ 1,404,896 (244,859) $(2,973,753)
===============================================================
1997
Shares sold............................................. 15,746,969 $190,229,186 4,567,263 $52,464,615
Shares issued in reinvestment of distributions.......... 3,354,125 40,515,344 640,639 7,340,858
Shares redeemed......................................... (21,353,609) (257,913,352) (2,926,859) (33,560,457)
---------------------------------------------------------------
Net increase (decrease).................................. (2,252,515) $(27,168,822) 2,281,043 $26,245,016
===============================================================
Class II Shares:
1998
Shares sold............................................ 1,667,248 $ 20,488,591 765,610 $ 8,960,256
Shares issued in reinvestment of distributions.......... 94,459 1,164,085 37,126 435,243
Shares redeemed......................................... (450,124) (5,553,275) (172,483) (2,025,445)
---------------------------------------------------------------
Net increase ............................................ 1,311,583 $ 16,099,401 630,253 $ 7,370,054
===============================================================
1997
Shares sold............................................. 1,172,093 $ 14,208,657 316,475 $ 3,638,171
Shares issued in reinvestment of distributions.......... 39,161 475,591 15,223 175,286
Shares redeemed......................................... (110,718) (1,345,370) (17,305) (199,934)
---------------------------------------------------------------
Net increase ............................................ 1,100,536 $ 13,338,878 314,393 $ 3,613,523
===============================================================
</TABLE>
2. SHARES OF BENEFICIAL INTEREST (cont.)
<TABLE>
<CAPTION>
Franklin Michigan Insured Franklin Minnesota Insured
Tax-Free Income Fund Tax-Free Income Fund
---------------------------------------------------------------
Class I Shares: Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
1998
<S> <C> <C> <C> <C>
Shares sold............................................. 7,753,171 $ 93,289,744 3,600,732 $43,558,572
Shares issued in reinvestment of distributions.......... 3,048,762 36,772,450 1,292,002 15,628,194
Shares redeemed......................................... (9,724,796) (116,959,614) (4,323,207) (52,201,063)
--------------------------------------------------------------
Net increase ............................................ 1,077,137 $ 13,102,580 569,527 $ 6,985,703
==============================================================
1997
Shares sold............................................. 7,814,075 $ 93,018,944 3,044,882 $36,326,513
Shares issued in reinvestment of distributions.......... 2,519,009 30,001,284 1,139,291 13,599,170
Shares redeemed......................................... (10,033,049) (119,411,654) (4,566,009) (54,507,062)
--------------------------------------------------------------
Net increase (decrease).................................. 300,035 $ 3,608,574 (381,836) $(4,581,379)
==============================================================
Class II Shares:
1998
Shares sold............................................. 1,286,100 $ 15,582,043 456,070 $ 5,531,391
Shares issued in reinvestment of distributions.......... 87,059 1,057,035 21,848 265,662
Shares redeemed......................................... (364,733) (4,407,798) (50,255) (608,261)
--------------------------------------------------------------
Net increase ............................................ 1,008,426 $ 12,231,280 427,663 $ 5,188,792
==============================================================
1997
Shares sold............................................. 1,155,661 $ 13,825,406 335,271 $ 4,021,564
Shares issued in reinvestment of distributions.......... 36,857 441,821 7,301 87,474
Shares redeemed......................................... (72,368) (866,674) (35,169) (421,016)
--------------------------------------------------------------
Net increase ............................................ 1,120,150 $ 13,400,553 307,403 $ 3,688,022
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Franklin Ohio Insured
Tax-Free Income Fund
Class I Shares: Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
1998
<S> <C> <C>
Shares sold.................................................................................. 6,967,848 $85,498,458
Shares issued in reinvestment of distributions............................................... 1,663,920 20,491,535
Shares redeemed.............................................................................. (6,397,990) (78,531,546)
-------------------------
Net increase ................................................................................. 2,233,778 $27,458,447
=========================
1997
Shares sold.................................................................................. 5,875,366 $70,906,972
Shares issued in reinvestment of distributions............................................... 1,470,891 17,763,260
Shares redeemed.............................................................................. (6,187,100) (74,675,905)
-------------------------
Net increase ................................................................................. 1,159,157 $13,994,327
=========================
Class II Shares:
1998
Shares sold.................................................................................. 1,087,152 $13,445,487
Shares issued in reinvestment of distributions............................................... 64,382 798,328
Shares redeemed.............................................................................. (188,923) (2,331,163)
-------------------------
Net increase ................................................................................. 962,611 $11,912,652
=========================
1997
Shares sold.................................................................................. 868,125 $10,536,543
Shares issued in reinvestment of distributions............................................... 29,854 362,556
Shares redeemed.............................................................................. (105,328) (1,270,112)
-------------------------
Net increase ................................................................................. 792,651 $ 9,628,987
=========================
</TABLE>
3. 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 Fund's 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 Rate Month-End Net Assets
-------------------------------------------------------------------------
.625% First $100 million
.50% Over $100 million, up to and including $250 million
.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 management fees for the Franklin Arizona
Insured Tax-Free Income Fund and the Franklin Florida Insured Tax-Free Income
Fund, as noted in the Statement of Operations.
The Funds reimburse Distributors up to .10% and .65% per year of their average
daily net asset of Class I and Class II, respectively, for costs incurred in
marketing the Fund's shares.
Distributors received (paid) net commissions on sales of the Funds shares, and
received contingent deferred sales charges for the year as follows:
<TABLE>
<CAPTION>
Franklin Franklin
Massachusetts Franklin Franklin Ohio
Franklin Arizona Franklin Florida Franklin Insured Michigan Minnesota Insured
Insured Tax-Free Insured Tax-Free Insured Tax-Free Tax-Free Insured Tax-Free Insured Tax-Free 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) $8,345 $(16,157) $(226,798) $(61,516) $(39,789) $(9,423) $(76,708)
Contingent deferred
sales charges -- -- $ 9,982 $4,495 $18,468 $1,216 $ 6,228
</TABLE>
The Funds included in this report paid transfer agent fees of $1,805,787, of
which $1,661,630 was paid to Investor Services.
4. INCOME TAXES
At February 28, 1998, the Funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
FRANKLIN ARIZONAFRANKLIN FLORIDA
INSURED TAX-FREEINSURED TAX-FREE
INCOME FUND INCOME FUND
---------------------------------
Capital loss carryovers expiring in: 2003 $229,530 $1,103,259
2005 17,363 167,156
---------------------------------
$246,893 $1,270,415
=================================
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. INCOME TAXES (cont.)
At February 28, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
Franklin Franklin
Franklin Franklin Franklin Minnesota Ohio
Franklin Arizona Franklin Florida Insured Massachusetts Michigan Insured Insured
Insured Tax-Free Insured Tax-Free Tax-Free Insured Tax-Free Insured Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at cost $55,964,671 $93,891,246 $1,596,660,497 $318,207,175 $1,098,495,271 $473,974,439 $710,303,279
Unrealized appreciation $ 3,198,149 $ 5,833,662 $ 114,346,449 $ 21,871,678 $ 79,133,445 $ 27,154,797 $ 50,878,155
Unrealized depreciation (58,094) (23,343) (374,076) (33,170) (233,422) (49,195) (48,294)
Net unrealized appreciation $ 3,140,055 $ 5,810,319 $ 113,972,373 $ 21,838,508 $ 78,900,023 $ 27,105,602 $ 50,829,861
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended February 28, 1998 were as follows:
<TABLE>
<CAPTION>
Franklin Franklin
Franklin Franklin Franklin Minnesota Ohio
Franklin Arizona Franklin Florida Insured Massachusetts Michigan Insured Insured
Insured Tax-Free Insured Tax-Free Tax-Free Insured Tax-Free Insured Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases $26,531,635 $24,178,498 $465,496,018 $114,395,555 $246,673,135 $72,146,452 $126,856,632
Sales $ 8,032,809 $ 6,959,712 $464,292,557 $102,642,510 $226,310,614 $72,964,340 $ 93,674,191
</TABLE>
6. CREDIT RISK
All Funds, except the Franklin Insured Tax-Free Income Fund, 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.
To the Shareholders and Board of Trustees
of Franklin Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities of each of
the twenty-eight Funds comprising the Franklin Tax-Free Trust (seven of which
are included in this report), including each Fund's statement of investments, as
of February 28, 1998, and the related statements of operations, the statements
of changes in net assets and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1998, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds comprising the Franklin Tax-Free Trust, as of February 28, 1998,
the results of their operations, the changes in their net assets and their
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
April 3, 1998
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Trust hereby
designates the following amounts as capital gain dividends for the fiscal year
ended February 28, 1998:
<TABLE>
<CAPTION>
CAPITAL GAINS
-----------------------------
28% RATE GAIN 20% RATE GAIN TOTAL
-------------------------------------------
<S> <C> <C> <C>
Franklin Insured Tax-Free Income Fund.................................... $2,152,021 $20,690,733 $22,842,754
Franklin Massachusetts Insured Tax-Free Income Fund...................... -- 3,074,390 3,074,390
Franklin Michigan Insured Tax-Free Income Fund........................... -- 10,724,361 10,724,361
Franklin Minnesota Insured Tax-Free Income Fund.......................... 557,723 3,495,782 4,053,505
Franklin Ohio Insured Tax-Free Income Fund............................... -- 4,682,072 4,682,072
</TABLE>
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Trust hereby
designates 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 28, 1998.
Franklin Tax-Free Trust (1)
Annual Report
February 28, 1998.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Arizona Insured
Tax-Free Income Fund.
Education 32.5%
Utilities 29.3%
Other Revenue 9.1%
Housing 6.8%
General Obligation 6.4%
Prerefunded 6.3%
Hospitals 4.5%
Certificates of Participation 1.8%
Road Improvement Bonds 1.7%
Miscellaneous 0.9%
Sales Tax 0.7%
GRAPHIC MATERIAL (2)
This chart shows in bar format the comparison between Franklin Arizona
Insured Tax-Free Income Fund's Class I distribution rate of 4.69% and the
taxable equivalent rate of 8.19% on 2/28/98.
GRAPHIC MATERIAL (3)
This chart shows the dividend distributions for Franklin Arizona Insured
Tax-Free Income Fund's Class I from 3/1/97 to 2/28/98.
March 4.6 cents
April 4.6 cents
May 4.6 cents
June 4.6 cents
July 4.6 cents
August 4.6 cents
September 4.6 cents
October 4.6 cents
November 4.6 cents
December 4.6 cents
January 4.6 cents
February 4.6 cents
Total 55.2 cents
GRAPHIC MATERIAL (4)
The following line graph compares the performance of the Franklin Arizona
Insured Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 4/30/93 to 2/28/98.
- -------------------------------------------------------------------------------
Franklin Arizona Insured Lehman Brothers CPI
Tax-Free Municipal Bond
Income Fund-Class I Index
- -------------------------------------------------------------------------------
4/30/93 $9,579 $10,000 $10,000
5/31/93 $9,646 0.56% $10,056 0.14% $10,014
6/30/93 $9,837 1.67% $10,224 0.14% $10,028
7/31/93 $9,837 0.13% $10,237 0.00% $10,028
8/31/93 $10,053 2.08% $10,450 0.28% $10,056
9/30/93 $10,183 1.14% $10,569 0.21% $10,077
10/31/93 $10,187 0.19% $10,589 0.41% $10,119
11/30/93 $10,047 -0.88% $10,496 0.07% $10,126
12/31/93 $10,334 2.11% $10,718 0.00% $10,126
1/31/94 $10,477 1.14% $10,840 0.27% $10,153
2/28/94 $10,147 -2.59% $10,559 0.34% $10,187
3/31/94 $9,518 -4.07% $10,129 0.34% $10,222
4/30/94 $9,613 0.85% $10,215 0.14% $10,236
5/31/94 $9,707 0.87% $10,304 0.07% $10,244
6/30/94 $9,612 -0.61% $10,241 0.34% $10,278
7/31/94 $9,848 1.83% $10,429 0.27% $10,306
8/31/94 $9,864 0.35% $10,465 0.40% $10,347
9/30/94 $9,666 -1.47% $10,312 0.27% $10,375
10/31/94 $9,425 -1.78% $10,128 0.07% $10,383
11/30/94 $9,185 -1.81% $9,945 0.13% $10,396
12/31/94 $9,480 2.20% $10,163 0.00% $10,396
1/31/95 $9,870 2.86% $10,454 0.40% $10,438
2/28/95 $10,240 2.91% $10,758 0.40% $10,479
3/31/95 $10,382 1.15% $10,882 0.33% $10,514
4/30/95 $10,388 0.12% $10,895 0.33% $10,549
5/31/95 $10,764 3.19% $11,243 0.20% $10,570
6/30/95 $10,600 -0.87% $11,145 0.20% $10,591
7/31/95 $10,660 0.95% $11,251 0.00% $10,591
8/31/95 $10,817 1.27% $11,394 0.26% $10,618
9/30/95 $10,899 0.63% $11,465 0.20% $10,640
10/31/95 $11,078 1.45% $11,632 0.33% $10,675
11/30/95 $11,345 1.66% $11,825 -0.07% $10,667
12/31/95 $11,494 0.96% $11,938 -0.07% $10,660
1/31/96 $11,555 0.76% $12,029 0.59% $10,723
2/29/96 $11,429 -0.68% $11,947 0.32% $10,757
3/31/96 $11,227 -1.28% $11,794 0.52% $10,813
4/30/96 $11,189 -0.28% $11,761 0.39% $10,855
5/31/96 $11,184 -0.04% $11,757 0.19% $10,876
6/30/96 $11,348 1.09% $11,885 0.06% $10,882
7/31/96 $11,445 0.91% $11,993 0.19% $10,903
8/31/96 $11,417 -0.02% $11,990 0.19% $10,924
9/30/96 $11,651 1.40% $12,158 0.32% $10,959
10/31/96 $11,783 1.13% $12,296 0.32% $10,994
11/30/96 $12,031 1.83% $12,521 0.19% $11,015
12/31/96 $11,957 -0.42% $12,468 0.00% $11,015
1/31/97 $11,953 0.19% $12,492 0.32% $11,050
2/28/97 $12,064 0.92% $12,607 0.31% $11,084
3/31/97 $11,872 -1.33% $12,439 0.25% $11,112
4/30/97 $11,996 0.84% $12,544 0.12% $11,125
5/31/97 $12,192 1.51% $12,733 -0.06% $11,119
6/30/97 $12,328 1.07% $12,869 0.12% $11,132
7/31/97 $12,715 2.77% $13,226 0.12% $11,145
8/31/97 $12,555 -0.94% $13,101 0.19% $11,166
9/30/97 $12,706 1.19% $13,257 0.25% $11,194
10/31/97 $12,773 0.64% $13,342 0.25% $11,222
11/30/97 $12,853 0.59% $13,421 -0.06% $11,216
12/31/97 $13,066 1.46% $13,617 -0.12% $11,202
1/31/98 $13,207 1.03% $13,757 0.19% $11,223
2/28/98 $13,202 0.03% $13,761 0.19% $11,245
Total 32.02% 37.61% 12.45%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (5)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Florida Insured
Tax-Free Income Fund.
Utilities 47.1%
Other Revenue 15.3%
Hospitals 10.0%
Housing 7.4%
Prerefunded 4.6%
Certificates of Participation 4.2%
Sales Tax 3.7%
Industrial 3.5%
Transportation 2.5%
General Obligation 1.1%
Tax Assessment 0.6%
GRAPHIC MATERIAL (6)
This chart shows in bar format the comparison between Franklin Florida
Insured Tax-Free Income Fund's Class I distribution rate of 4.74% and the
taxable equivalent rate of 7.85% on 2/28/98.
GRAPHIC MATERIAL (7)
This chart shows the dividend distributions for Franklin Florida Insured
Tax-Free Income Fund's Class I from 3/1/97 to 2/28/98.
March 4.4 cents
April 4.4 cents
May 4.4 cents
June 4.4 cents
July 4.4 cents
August 4.4 cents
September 4.4 cents
October 4.4 cents
November 4.4 cents
December 4.4 cents
January 4.4 cents
February 4.4 cents
Total 52.8 cents
GRAPHIC MATERIAL (8)
The following line graph compares the performance of the Franklin Florida
Insured Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 4/30/93 to 2/28/98.
- -------------------------------------------------------------------------------
Franklin Florida Insured Lehman Brothers CPI
Tax-Free Municipal Bond
Income Fund-Class I Index
- -------------------------------------------------------------------------------
4/30/93 $9,579 $10,000 $10,000
5/31/93 $9,550 0.56% $10,056 0.14% $10,014
6/30/93 $9,703 1.67% $10,224 0.14% $10,028
7/31/93 $9,722 0.13% $10,237 0.00% $10,028
8/31/93 $9,921 2.08% $10,450 0.28% $10,056
9/30/93 $10,024 1.14% $10,569 0.21% $10,077
10/31/93 $10,059 0.19% $10,589 0.41% $10,119
11/30/93 $9,910 -0.88% $10,496 0.07% $10,126
12/31/93 $10,207 2.11% $10,718 0.00% $10,126
1/31/94 $10,319 1.14% $10,840 0.27% $10,153
2/28/94 $9,949 -2.59% $10,559 0.34% $10,187
3/31/94 $9,309 -4.07% $10,129 0.34% $10,222
4/30/94 $9,382 0.85% $10,215 0.14% $10,236
5/31/94 $9,446 0.87% $10,304 0.07% $10,244
6/30/94 $9,359 -0.61% $10,241 0.34% $10,278
7/31/94 $9,635 1.83% $10,429 0.27% $10,306
8/31/94 $9,569 0.35% $10,465 0.40% $10,347
9/30/94 $9,369 -1.47% $10,312 0.27% $10,375
10/31/94 $9,056 -1.78% $10,128 0.07% $10,383
11/30/94 $8,846 -1.81% $9,945 0.13% $10,396
12/31/94 $9,201 2.20% $10,163 0.00% $10,396
1/31/95 $9,599 2.86% $10,454 0.40% $10,438
2/28/95 $9,968 2.91% $10,758 0.40% $10,479
3/31/95 $10,056 1.15% $10,882 0.33% $10,514
4/30/95 $10,070 0.12% $10,895 0.33% $10,549
5/31/95 $10,444 3.19% $11,243 0.20% $10,570
6/30/95 $10,289 -0.87% $11,145 0.20% $10,591
7/31/95 $10,357 0.95% $11,251 0.00% $10,591
8/31/95 $10,491 1.27% $11,394 0.26% $10,618
9/30/95 $10,570 0.63% $11,465 0.20% $10,640
10/31/95 $10,769 1.45% $11,632 0.33% $10,675
11/30/95 $11,001 1.66% $11,825 -0.07% $10,667
12/31/95 $11,159 0.96% $11,938 -0.07% $10,660
1/31/96 $11,185 0.76% $12,029 0.59% $10,723
2/29/96 $11,057 -0.68% $11,947 0.32% $10,757
3/31/96 $10,863 -1.28% $11,794 0.52% $10,813
4/30/96 $10,812 -0.28% $11,761 0.39% $10,855
5/31/96 $10,816 -0.04% $11,757 0.19% $10,876
6/30/96 $10,978 1.09% $11,885 0.06% $10,882
7/31/96 $11,084 0.91% $11,993 0.19% $10,903
8/31/96 $11,076 -0.02% $11,990 0.19% $10,924
9/30/96 $11,296 1.40% $12,158 0.32% $10,959
10/31/96 $11,392 1.13% $12,296 0.32% $10,994
11/30/96 $11,603 1.83% $12,521 0.19% $11,015
12/31/96 $11,539 -0.42% $12,468 0.00% $11,015
1/31/97 $11,509 0.19% $12,492 0.32% $11,050
2/28/97 $11,629 0.92% $12,607 0.31% $11,084
3/31/97 $11,436 -1.33% $12,439 0.25% $11,112
4/30/97 $11,557 0.84% $12,544 0.12% $11,125
5/31/97 $11,727 1.51% $12,733 -0.06% $11,119
6/30/97 $11,861 1.07% $12,869 0.12% $11,132
7/31/97 $12,257 2.77% $13,226 0.12% $11,145
8/31/97 $12,118 -0.94% $13,101 0.19% $11,166
9/30/97 $12,254 1.19% $13,257 0.25% $11,194
10/31/97 $12,368 0.64% $13,342 0.25% $11,222
11/30/97 $12,457 0.59% $13,421 -0.06% $11,216
12/31/97 $12,656 1.46% $13,617 -0.12% $11,202
1/31/98 $12,794 1.03% $13,757 0.19% $11,223
2/28/98 $12,787 0.03% $13,761 0.19% $11,245
Total 27.87% 37.61% 12.45%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (9)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Insured Tax-Free
Income Fund.
Utilities 26.2%
Hospitals 18.8%
Prerefunded 15.0%
Transportation 11.2%
Education 10.0%
Housing 6.0%
General Obligation 4.9%
Certificates of Participation 4.0%
Other Revenue 2.7%
Industrial 0.6%
Sales Tax 0.5%
Special Assessment Bonds 0.1%
GRAPHIC MATERIAL (10)
This chart shows in bar format the comparison between Franklin Insured
Tax-Free Income Fund's Class I distribution rate of 5.13% and the taxable
equivalent rate of 8.49% on 2/28/98.
GRAPHIC MATERIAL (11)
This chart shows the dividend distributions for Franklin Insured Tax-Free
Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.7 cents
April 5.7 cents
May 5.7 cents
June 5.7 cents
July 5.7 cents
August 5.7 cents
September 5.5 cents
October 5.5 cents
November 5.5 cents
December 5.5 cents
January 5.5 cents
February 5.5 cents
Total 67.2 cents
GRAPHIC MATERIAL (12)
The following line graph compares the performance of the Franklin Insured
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Insured Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class I Index
- -------------------------------------------------------------------------------
3/1/88 $9,578 $10,000 $10,000
3/31/88 $9,320 -1.16% $9,884 0.43% $10,043
4/30/88 $9,356 0.76% $9,959 0.52% $10,095
5/31/88 $9,392 -0.29% $9,930 0.34% $10,130
6/30/88 $9,587 1.46% $10,075 0.43% $10,173
7/31/88 $9,659 0.65% $10,141 0.42% $10,216
8/31/88 $9,704 0.09% $10,150 0.42% $10,259
9/30/88 $9,912 1.81% $10,334 0.67% $10,327
10/31/88 $10,193 1.76% $10,515 0.33% $10,362
11/30/88 $10,084 -0.92% $10,419 0.08% $10,370
12/31/88 $10,205 1.02% $10,525 0.17% $10,387
1/31/89 $10,408 2.07% $10,743 0.50% $10,439
2/28/89 $10,316 -1.14% $10,620 0.41% $10,482
3/31/89 $10,314 -0.24% $10,595 0.58% $10,543
4/30/89 $10,546 2.37% $10,846 0.65% $10,612
5/31/89 $10,760 2.08% $11,072 0.57% $10,672
6/30/89 $10,900 1.36% $11,222 0.24% $10,698
7/31/89 $10,992 1.36% $11,375 0.24% $10,723
8/31/89 $10,941 -0.98% $11,263 0.16% $10,740
9/30/89 $10,880 -0.30% $11,229 0.32% $10,775
10/31/89 $10,984 1.22% $11,366 0.48% $10,827
11/30/89 $11,128 1.75% $11,565 0.24% $10,853
12/31/89 $11,224 0.82% $11,660 0.16% $10,870
1/31/90 $11,131 -0.47% $11,605 1.03% $10,982
2/28/90 $11,258 0.89% $11,709 0.47% $11,033
3/31/90 $11,255 0.03% $11,712 0.55% $11,094
4/30/90 $11,151 -0.72% $11,628 0.16% $11,112
5/31/90 $11,411 2.18% $11,881 0.23% $11,137
6/30/90 $11,510 0.88% $11,986 0.54% $11,198
7/31/90 $11,702 1.48% $12,163 0.38% $11,240
8/31/90 $11,420 -1.45% $11,987 0.92% $11,344
9/30/90 $11,507 0.06% $11,994 0.84% $11,439
10/31/90 $11,679 1.81% $12,211 0.60% $11,507
11/30/90 $11,925 2.01% $12,457 0.22% $11,533
12/31/90 $11,961 0.44% $12,512 0.00% $11,533
1/31/91 $12,156 1.34% $12,679 0.60% $11,602
2/28/91 $12,235 0.87% $12,789 0.15% $11,619
3/31/91 $12,282 0.04% $12,795 0.15% $11,637
4/30/91 $12,459 1.34% $12,966 0.15% $11,654
5/31/91 $12,540 0.89% $13,081 0.30% $11,689
6/30/91 $12,533 -0.10% $13,068 0.29% $11,723
7/31/91 $12,703 1.22% $13,228 0.15% $11,741
8/31/91 $12,807 1.32% $13,402 0.29% $11,775
9/30/91 $12,978 1.30% $13,577 0.44% $11,827
10/31/91 $13,060 0.90% $13,699 0.15% $11,844
11/30/91 $13,053 0.28% $13,737 0.29% $11,879
12/31/91 $13,318 2.15% $14,033 0.07% $11,887
1/31/92 $13,367 0.23% $14,065 0.15% $11,905
2/29/92 $13,384 0.03% $14,069 0.36% $11,948
3/31/92 $13,423 0.04% $14,075 0.51% $12,009
4/30/92 $13,531 0.89% $14,200 0.14% $12,025
5/31/92 $13,732 1.18% $14,367 0.14% $12,042
6/30/92 $13,912 1.68% $14,609 0.36% $12,086
7/31/92 $14,418 3.00% $15,047 0.21% $12,111
8/31/92 $14,220 -0.98% $14,900 0.28% $12,145
9/30/92 $14,246 0.65% $14,996 0.28% $12,179
10/31/92 $14,010 -0.98% $14,850 0.35% $12,222
11/30/92 $14,348 1.79% $15,115 0.14% $12,239
12/31/92 $14,542 1.02% $15,270 -0.07% $12,230
1/31/93 $14,738 1.16% $15,447 0.49% $12,290
2/28/93 $15,166 3.62% $16,006 0.35% $12,333
3/31/93 $15,071 -1.06% $15,836 0.35% $12,376
4/30/93 $15,171 1.01% $15,996 0.28% $12,411
5/31/93 $15,235 0.56% $16,086 0.14% $12,428
6/30/93 $15,496 1.67% $16,354 0.14% $12,446
7/31/93 $15,520 0.13% $16,376 0.00% $12,446
8/31/93 $15,833 2.08% $16,716 0.28% $12,480
9/30/93 $16,009 1.14% $16,907 0.21% $12,507
10/31/93 $16,034 0.19% $16,939 0.41% $12,558
11/30/93 $15,983 -0.88% $16,790 0.07% $12,567
12/31/93 $16,264 2.11% $17,144 0.00% $12,567
1/31/94 $16,418 1.14% $17,339 0.27% $12,601
2/28/94 $16,096 -2.59% $16,890 0.34% $12,644
3/31/94 $15,577 -4.07% $16,203 0.34% $12,687
4/30/94 $15,642 0.85% $16,341 0.14% $12,704
5/31/94 $15,747 0.87% $16,483 0.07% $12,713
6/30/94 $15,693 -0.61% $16,382 0.34% $12,756
7/31/94 $15,944 1.83% $16,682 0.27% $12,791
8/31/94 $15,984 0.35% $16,740 0.40% $12,842
9/30/94 $15,835 -1.47% $16,494 0.27% $12,877
10/31/94 $15,630 -1.78% $16,201 0.07% $12,886
11/30/94 $15,373 -1.81% $15,908 0.13% $12,902
12/31/94 $15,681 2.20% $16,258 0.00% $12,902
1/31/95 $16,046 2.86% $16,723 0.40% $12,954
2/28/95 $16,426 2.91% $17,209 0.40% $13,006
3/31/95 $16,562 1.15% $17,407 0.33% $13,049
4/30/95 $16,601 0.12% $17,428 0.33% $13,092
5/31/95 $16,975 3.19% $17,984 0.20% $13,118
6/30/95 $16,889 -0.87% $17,827 0.20% $13,144
7/31/95 $16,972 0.95% $17,997 0.00% $13,144
8/31/95 $17,126 1.27% $18,225 0.26% $13,178
9/30/95 $17,209 0.63% $18,340 0.20% $13,205
10/31/95 $17,421 1.45% $18,606 0.33% $13,248
11/30/95 $17,662 1.66% $18,915 -0.07% $13,239
12/31/95 $17,819 0.96% $19,097 -0.07% $13,230
1/31/96 $17,919 0.76% $19,242 0.59% $13,308
2/29/96 $17,844 -0.68% $19,111 0.32% $13,350
3/31/96 $17,669 -1.28% $18,866 0.52% $13,420
4/30/96 $17,623 -0.28% $18,813 0.39% $13,472
5/31/96 $17,650 -0.04% $18,806 0.19% $13,498
6/30/96 $17,827 1.09% $19,011 0.06% $13,506
7/31/96 $17,944 0.91% $19,184 0.19% $13,532
8/31/96 $17,972 -0.02% $19,180 0.19% $13,557
9/30/96 $18,192 1.40% $19,449 0.32% $13,601
10/31/96 $18,353 1.13% $19,668 0.32% $13,644
11/30/96 $18,606 1.83% $20,028 0.19% $13,670
12/31/96 $18,556 -0.42% $19,944 0.00% $13,670
1/31/97 $18,582 0.19% $19,982 0.32% $13,714
2/28/97 $18,715 0.92% $20,166 0.31% $13,756
3/31/97 $18,541 -1.33% $19,898 0.25% $13,791
4/30/97 $18,676 0.84% $20,065 0.12% $13,807
5/31/97 $18,889 1.51% $20,368 -0.06% $13,799
6/30/97 $19,056 1.07% $20,586 0.12% $13,816
7/31/97 $19,506 2.77% $21,156 0.12% $13,832
8/31/97 $19,344 -0.94% $20,957 0.19% $13,858
9/30/97 $19,542 1.19% $21,206 0.25% $13,893
10/31/97 $19,662 0.64% $21,342 0.25% $13,928
11/30/97 $19,798 0.59% $21,468 -0.06% $13,919
12/31/97 $20,069 1.46% $21,781 -0.12% $13,903
1/31/98 $20,240 1.03% $22,006 0.19% $13,929
2/28/98 $20,231 0.03% $22,012 0.19% $13,956
Total 102.31% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (13)
This chart shows in bar format the comparison between Franklin Insured
Tax-Free Income Fund's Class II distribution rate of 4.71% and the taxable
equivalent rate of 7.80% on 2/28/98.
GRAPHIC MATERIAL (14)
This chart shows the dividend distributions for Franklin Insured Tax-Free
Income Fund's Class II from 3/1/97 to 2/28/98.
March 5.09 cents
April 5.12 cents
May 5.12 cents
June 5.12 cents
July 5.14 cents
August 5.14 cents
September 4.90 cents
October 4.90 cents
November 4.90 cents
December 4.90 cents
January 4.91 cents
February 4.91 cents
Total 60.15 cents
GRAPHIC MATERIAL (15)
The following line graph compares the performance of the Franklin Insured
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Insured Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,901 $10,000 $10,000
5/31/95 $10,122 3.19% $10,319 0.20% $10,020
6/30/95 $10,075 -0.87% $10,229 0.20% $10,040
7/31/95 $10,119 0.95% $10,326 0.00% $10,040
8/31/95 $10,206 1.27% $10,458 0.26% $10,066
9/29/95 $10,259 0.63% $10,523 0.20% $10,086
10/31/95 $10,379 1.45% $10,676 0.33% $10,120
11/30/95 $10,509 1.66% $10,853 -0.07% $10,112
12/29/95 $10,605 0.96% $10,957 -0.07% $10,105
1/31/96 $10,659 0.76% $11,041 0.59% $10,165
2/29/96 $10,610 -0.68% $10,966 0.32% $10,198
3/29/96 $10,502 -1.28% $10,825 0.52% $10,251
4/30/96 $10,478 -0.28% $10,795 0.39% $10,291
5/31/96 $10,489 -0.04% $10,791 0.19% $10,310
6/28/96 $10,589 1.09% $10,908 0.06% $10,316
7/31/96 $10,662 0.91% $11,008 0.19% $10,336
8/30/96 $10,665 -0.02% $11,005 0.19% $10,356
9/30/96 $10,790 1.40% $11,159 0.32% $10,389
10/31/96 $10,880 1.13% $11,286 0.32% $10,422
11/29/96 $11,024 1.83% $11,492 0.19% $10,442
12/31/96 $10,989 -0.42% $11,444 0.00% $10,442
1/31/97 $10,999 0.19% $11,466 0.32% $10,475
2/28/97 $11,081 0.92% $11,571 0.31% $10,508
3/31/97 $10,963 -1.33% $11,417 0.25% $10,534
4/30/97 $11,047 0.84% $11,513 0.12% $10,547
5/31/97 $11,167 1.51% $11,687 -0.06% $10,540
6/30/97 $11,260 1.07% $11,812 0.12% $10,553
7/31/97 $11,519 2.77% $12,139 0.12% $10,565
8/31/97 $11,419 -0.94% $12,025 0.19% $10,586
9/30/97 $11,529 1.19% $12,168 0.25% $10,612
10/31/97 $11,594 0.64% $12,246 0.25% $10,639
11/30/97 $11,668 0.59% $12,318 -0.06% $10,632
12/31/97 $11,831 1.46% $12,498 -0.12% $10,619
1/31/98 $11,916 1.03% $12,627 0.19% $10,640
2/28/98 $11,915 0.03% $12,631 0.19% $10,660
Total 19.15% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (16)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Massachusetts Insured
Tax-Free Income Fund.
Hospitals 30.3%
Education 24.0%
Transportation 10.3%
Prerefunded 9.8%
General Obligations 9.7%
Housing 8.4%
Utilities 5.3%
Health Care 1.3%
Certificates of Participation 0.9%
GRAPHIC MATERIAL (17)
This chart shows in bar format the comparison between Franklin Massachusetts
Insured Tax-Free Income Fund's Class I distribution rate of 4.79% and the
taxable equivalent rate of 9.01% on 2/28/98.
GRAPHIC MATERIAL (18)
This chart shows the dividend distributions for Franklin Massachusetts
Insured Tax-Free Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
September 5.0 cents
October 5.0 cents
November 5.0 cents
December 5.0 cents
January 5.0 cents
February 5.0 cents
Total 61.20 cents
GRAPHIC MATERIAL (19)
The following line graph compares the performance of the Franklin
Massachusetts Insured Tax-Free Income Fund's Class I shares to that of the
Lehman Brothers Municipal Bond Index, and to the Consumer Price Index based
on a $10,000 investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Massachusetts Lehman Brothers CPI
Insured Tax- Municipal Bond
Free Income Fund-Class I Index
- -------------------------------------------------------------------------------
3/1/88 $9,576 $10,000 $10,000
3/31/88 $9,368 -1.16% $9,884 0.43% $10,043
4/30/88 $9,396 0.76% $9,959 0.52% $10,095
5/31/88 $9,423 -0.29% $9,930 0.34% $10,130
6/30/88 $9,589 1.46% $10,075 0.43% $10,173
7/31/88 $9,617 0.65% $10,141 0.42% $10,216
8/31/88 $9,681 0.09% $10,150 0.42% $10,259
9/30/88 $9,867 1.81% $10,334 0.67% $10,327
10/31/88 $10,102 1.76% $10,515 0.33% $10,362
11/30/88 $10,016 -0.92% $10,419 0.08% $10,370
12/31/88 $10,129 1.02% $10,525 0.17% $10,387
1/31/89 $10,310 2.07% $10,743 0.50% $10,439
2/28/89 $10,232 -1.14% $10,620 0.41% $10,482
3/31/89 $10,212 -0.24% $10,595 0.58% $10,543
4/30/89 $10,406 2.37% $10,846 0.65% $10,612
5/31/89 $10,630 2.08% $11,072 0.57% $10,672
6/30/89 $10,766 1.36% $11,222 0.24% $10,698
7/31/89 $10,874 1.36% $11,375 0.24% $10,723
8/31/89 $10,784 -0.98% $11,263 0.16% $10,740
9/30/89 $10,743 -0.30% $11,229 0.32% $10,775
10/31/89 $10,832 1.22% $11,366 0.48% $10,827
11/30/89 $10,973 1.75% $11,565 0.24% $10,853
12/31/89 $11,053 0.82% $11,660 0.16% $10,870
1/31/90 $10,949 -0.47% $11,605 1.03% $10,982
2/28/90 $11,061 0.89% $11,709 0.47% $11,033
3/31/90 $11,061 0.03% $11,712 0.55% $11,094
4/30/90 $10,947 -0.72% $11,628 0.16% $11,112
5/31/90 $11,176 2.18% $11,881 0.23% $11,137
6/30/90 $11,271 0.88% $11,986 0.54% $11,198
7/31/90 $11,451 1.48% $12,163 0.38% $11,240
8/31/90 $11,238 -1.45% $11,987 0.92% $11,344
9/30/90 $11,217 0.06% $11,994 0.84% $11,439
10/31/90 $11,357 1.81% $12,211 0.60% $11,507
11/30/90 $11,584 2.01% $12,457 0.22% $11,533
12/31/90 $11,616 0.44% $12,512 0.00% $11,533
1/31/91 $11,825 1.34% $12,679 0.60% $11,602
2/28/91 $11,879 0.87% $12,789 0.15% $11,619
3/31/91 $11,934 0.04% $12,795 0.15% $11,637
4/30/91 $12,101 1.34% $12,966 0.15% $11,654
5/31/91 $12,179 0.89% $13,081 0.30% $11,689
6/30/91 $12,191 -0.10% $13,068 0.29% $11,723
7/31/91 $12,361 1.22% $13,228 0.15% $11,741
8/31/91 $12,463 1.32% $13,402 0.29% $11,775
9/30/91 $12,612 1.30% $13,577 0.44% $11,827
10/31/91 $12,704 0.90% $13,699 0.15% $11,844
11/30/91 $12,703 0.28% $13,737 0.29% $11,879
12/31/91 $12,948 2.15% $14,033 0.07% $11,887
1/31/92 $13,006 0.23% $14,065 0.15% $11,905
2/29/92 $13,002 0.03% $14,069 0.36% $11,948
3/31/92 $13,034 0.04% $14,075 0.51% $12,009
4/30/92 $13,149 0.89% $14,200 0.14% $12,025
5/31/92 $13,324 1.18% $14,367 0.14% $12,042
6/30/92 $13,524 1.68% $14,609 0.36% $12,086
7/31/92 $13,966 3.00% $15,047 0.21% $12,111
8/31/92 $13,781 -0.98% $14,900 0.28% $12,145
9/30/92 $13,802 0.65% $14,996 0.28% $12,179
10/31/92 $13,541 -0.98% $14,850 0.35% $12,222
11/30/92 $13,881 1.79% $15,115 0.14% $12,239
12/31/92 $14,087 1.02% $15,270 -0.07% $12,230
1/31/93 $14,282 1.16% $15,447 0.49% $12,290
2/28/93 $14,690 3.62% $16,006 0.35% $12,333
3/31/93 $14,686 -1.06% $15,836 0.35% $12,376
4/30/93 $14,795 1.01% $15,996 0.28% $12,411
5/31/93 $14,842 0.56% $16,086 0.14% $12,428
6/30/93 $15,080 1.67% $16,354 0.14% $12,446
7/31/93 $15,114 0.13% $16,376 0.00% $12,446
8/31/93 $15,393 2.08% $16,716 0.28% $12,480
9/30/93 $15,543 1.14% $16,907 0.21% $12,507
10/31/93 $15,576 0.19% $16,939 0.41% $12,558
11/30/93 $15,519 -0.88% $16,790 0.07% $12,567
12/31/93 $15,749 2.11% $17,144 0.00% $12,567
1/31/94 $15,915 1.14% $17,339 0.27% $12,601
2/28/94 $15,658 -2.59% $16,890 0.34% $12,644
3/31/94 $15,134 -4.07% $16,203 0.34% $12,687
4/30/94 $15,168 0.85% $16,341 0.14% $12,704
5/31/94 $15,255 0.87% $16,483 0.07% $12,713
6/30/94 $15,220 -0.61% $16,382 0.34% $12,756
7/31/94 $15,444 1.83% $16,682 0.27% $12,791
8/31/94 $15,478 0.35% $16,740 0.40% $12,842
9/30/94 $15,321 -1.47% $16,494 0.27% $12,877
10/31/94 $15,148 -1.78% $16,201 0.07% $12,886
11/30/94 $14,908 -1.81% $15,908 0.13% $12,902
12/31/94 $15,179 2.20% $16,258 0.00% $12,902
1/31/95 $15,562 2.86% $16,723 0.40% $12,954
2/28/95 $15,947 2.91% $17,209 0.40% $13,006
3/31/95 $16,067 1.15% $17,407 0.33% $13,049
4/30/95 $16,130 0.12% $17,428 0.33% $13,092
5/31/95 $16,450 3.19% $17,984 0.20% $13,118
6/30/95 $16,385 -0.87% $17,827 0.20% $13,144
7/31/95 $16,493 0.95% $17,997 0.00% $13,144
8/31/95 $16,630 1.27% $18,225 0.26% $13,178
9/30/95 $16,739 0.63% $18,340 0.20% $13,205
10/31/95 $16,935 1.45% $18,606 0.33% $13,248
11/30/95 $17,147 1.66% $18,915 -0.07% $13,239
12/31/95 $17,316 0.96% $19,097 -0.07% $13,230
1/31/96 $17,398 0.76% $19,242 0.59% $13,308
2/29/96 $17,345 -0.68% $19,111 0.32% $13,350
3/31/96 $17,175 -1.28% $18,866 0.52% $13,420
4/30/96 $17,107 -0.28% $18,813 0.39% $13,472
5/31/96 $17,144 -0.04% $18,806 0.19% $13,498
6/30/96 $17,288 1.09% $19,011 0.06% $13,506
7/31/96 $17,417 0.91% $19,184 0.19% $13,532
8/31/96 $17,439 -0.02% $19,180 0.19% $13,557
9/30/96 $17,642 1.40% $19,449 0.32% $13,601
10/31/96 $17,799 1.13% $19,668 0.32% $13,644
11/30/96 $18,050 1.83% $20,028 0.19% $13,670
12/31/96 $17,991 -0.42% $19,944 0.00% $13,670
1/31/97 $18,026 0.19% $19,982 0.32% $13,714
2/28/97 $18,169 0.92% $20,166 0.31% $13,756
3/31/97 $17,936 -1.33% $19,898 0.25% $13,791
4/30/97 $18,082 0.84% $20,065 0.12% $13,807
5/31/97 $18,339 1.51% $20,368 -0.06% $13,799
6/30/97 $18,538 1.07% $20,586 0.12% $13,816
7/31/97 $19,041 2.77% $21,156 0.12% $13,832
8/31/97 $18,866 -0.94% $20,957 0.19% $13,858
9/30/97 $19,077 1.19% $21,206 0.25% $13,893
10/31/97 $19,175 0.64% $21,342 0.25% $13,928
11/30/97 $19,306 0.59% $21,468 -0.06% $13,919
12/31/97 $19,584 1.46% $21,781 -0.12% $13,903
1/31/98 $19,717 1.03% $22,006 0.19% $13,929
2/28/98 $19,717 0.03% $22,012 0.19% $13,956
Total 97.17% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (20)
This chart shows in bar format the comparison between Franklin Massachusetts
Insured Tax-Free Income Fund's Class II distribution rate of 4.37% and the
taxable equivalent rate of 8.22% on 2/28/98.
GRAPHIC MATERIAL (21)
This chart shows the dividend distributions for Franklin Massachusetts
Insured Tax-Free Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.65 cents
April 4.71 cents
May 4.71 cents
June 4.71 cents
July 4.64 cents
August 4.64 cents
September 4.41 cents
October 4.41 cents
November 4.41 cents
December 4.41 cents
January 4.44 cents
February 4.44 cents
Total 54.58 cents
GRAPHIC MATERIAL (22)
The following line graph compares the performance of the Franklin
Massachusetts Insured Tax-Free Income Fund's Class II shares to that of the
Lehman Brothers Municipal Bond Index, and to the Consumer Price Index based
on a $10,000 investment from 5/1/95 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Massachusetts Lehman Brothers CPI
Insured Tax- Municipal Bond
Free Income Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,100 3.19% $10,319 0.20% $10,020
6/30/95 $10,064 -0.87% $10,229 0.20% $10,040
7/31/95 $10,125 0.95% $10,326 0.00% $10,040
8/31/95 $10,213 1.27% $10,458 0.26% $10,066
9/29/95 $10,265 0.63% $10,523 0.20% $10,086
10/31/95 $10,380 1.45% $10,676 0.33% $10,120
11/30/95 $10,513 1.66% $10,853 -0.07% $10,112
12/29/95 $10,611 0.96% $10,957 -0.07% $10,105
1/31/96 $10,655 0.76% $11,041 0.59% $10,165
2/29/96 $10,618 -0.68% $10,966 0.32% $10,198
3/29/96 $10,501 -1.28% $10,825 0.52% $10,251
4/30/96 $10,464 -0.28% $10,795 0.39% $10,291
5/31/96 $10,481 -0.04% $10,791 0.19% $10,310
6/28/96 $10,564 1.09% $10,908 0.06% $10,316
7/31/96 $10,647 0.91% $11,008 0.19% $10,336
8/30/96 $10,646 -0.02% $11,005 0.19% $10,356
9/30/96 $10,774 1.40% $11,159 0.32% $10,389
10/31/96 $10,855 1.13% $11,286 0.32% $10,422
11/29/96 $11,002 1.83% $11,492 0.19% $10,442
12/31/96 $10,961 -0.42% $11,444 0.00% $10,442
1/31/97 $10,977 0.19% $11,466 0.32% $10,475
2/28/97 $11,068 0.92% $11,571 0.31% $10,508
3/31/97 $10,921 -1.33% $11,417 0.25% $10,534
4/30/97 $10,996 0.84% $11,513 0.12% $10,547
5/31/97 $11,147 1.51% $11,687 -0.06% $10,540
6/30/97 $11,272 1.07% $11,812 0.12% $10,553
7/31/97 $11,561 2.77% $12,139 0.12% $10,565
8/31/97 $11,450 -0.94% $12,025 0.19% $10,586
9/30/97 $11,582 1.19% $12,168 0.25% $10,612
10/31/97 $11,635 0.64% $12,246 0.25% $10,639
11/30/97 $11,709 0.59% $12,318 -0.06% $10,632
12/31/97 $11,861 1.46% $12,498 -0.12% $10,619
1/31/98 $11,945 1.03% $12,627 0.19% $10,640
2/28/98 $11,940 0.03% $12,631 0.19% $10,660
Total 19.40% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (23)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Michigan Insured
Tax-Free Income Fund.
Education 29.0%
Hospitals 17.5%
Prerefunded 17.2%
Utilities 14.5%
General Obligation 9.6%
Transportation 5.2%
Other Revenue 3.3%
Health Care 1.9%
Housing 1.3%
Tax Allocation Bonds 0.4%
Sales Tax Revenue Bonds 0.1%
GRAPHIC MATERIAL (24)
This chart shows in bar format the comparison between Franklin Michigan
Insured Tax-Free Income Fund's Class I distribution rate of 4.80% and the
taxable equivalent rate of 8.31% on 2/28/98.
GRAPHIC MATERIAL (25)
This chart shows the dividend distributions for Franklin Michigan Insured
Tax-Free Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.5 cents
April 5.5 cents
May 5.5 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
September 5.4 cents
October 5.4 cents
November 5.4 cents
December 5.2 cents
January 5.2 cents
February 5.2 cents
Total 64.5 cents
GRAPHIC MATERIAL (26)
The following line graph compares the performance of the Franklin Michigan
Insured Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Michigan Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class I Index
- -------------------------------------------------------------------------------
3/1/88 $9,578 $10,000 $10,000
3/31/88 $9,390 -1.16% $9,884 0.43% $10,043
4/30/88 $9,422 0.76% $9,959 0.52% $10,095
5/31/88 $9,454 -0.29% $9,930 0.34% $10,130
6/30/88 $9,630 1.46% $10,075 0.43% $10,173
7/31/88 $9,654 0.65% $10,141 0.42% $10,216
8/31/88 $9,714 0.09% $10,150 0.42% $10,259
9/30/88 $9,893 1.81% $10,334 0.67% $10,327
10/31/88 $10,147 1.76% $10,515 0.33% $10,362
11/30/88 $10,056 -0.92% $10,419 0.08% $10,370
12/31/88 $10,178 1.02% $10,525 0.17% $10,387
1/31/89 $10,357 2.07% $10,743 0.50% $10,439
2/28/89 $10,292 -1.14% $10,620 0.41% $10,482
3/31/89 $10,265 -0.24% $10,595 0.58% $10,543
4/30/89 $10,465 2.37% $10,846 0.65% $10,612
5/31/89 $10,715 2.08% $11,072 0.57% $10,672
6/30/89 $10,861 1.36% $11,222 0.24% $10,698
7/31/89 $10,939 1.36% $11,375 0.24% $10,723
8/31/89 $10,872 -0.98% $11,263 0.16% $10,740
9/30/89 $10,814 -0.30% $11,229 0.32% $10,775
10/31/89 $10,903 1.22% $11,366 0.48% $10,827
11/30/89 $11,063 1.75% $11,565 0.24% $10,853
12/31/89 $11,143 0.82% $11,660 0.16% $10,870
1/31/90 $11,054 -0.47% $11,605 1.03% $10,982
2/28/90 $11,166 0.89% $11,709 0.47% $11,033
3/31/90 $11,168 0.03% $11,712 0.55% $11,094
4/30/90 $11,068 -0.72% $11,628 0.16% $11,112
5/31/90 $11,325 2.18% $11,881 0.23% $11,137
6/30/90 $11,461 0.88% $11,986 0.54% $11,198
7/31/90 $11,629 1.48% $12,163 0.38% $11,240
8/31/90 $11,392 -1.45% $11,987 0.92% $11,344
9/30/90 $11,404 0.06% $11,994 0.84% $11,439
10/31/90 $11,554 1.81% $12,211 0.60% $11,507
11/30/90 $11,799 2.01% $12,457 0.22% $11,533
12/31/90 $11,823 0.44% $12,512 0.00% $11,533
1/31/91 $12,007 1.34% $12,679 0.60% $11,602
2/28/91 $12,084 0.87% $12,789 0.15% $11,619
3/31/91 $12,129 0.04% $12,795 0.15% $11,637
4/30/91 $12,294 1.34% $12,966 0.15% $11,654
5/31/91 $12,373 0.89% $13,081 0.30% $11,689
6/30/91 $12,365 -0.10% $13,068 0.29% $11,723
7/31/91 $12,522 1.22% $13,228 0.15% $11,741
8/31/91 $12,613 1.32% $13,402 0.29% $11,775
9/30/91 $12,772 1.30% $13,577 0.44% $11,827
10/31/91 $12,864 0.90% $13,699 0.15% $11,844
11/30/91 $12,855 0.28% $13,737 0.29% $11,879
12/31/91 $13,119 2.15% $14,033 0.07% $11,887
1/31/92 $13,166 0.23% $14,065 0.15% $11,905
2/29/92 $13,157 0.03% $14,069 0.36% $11,948
3/31/92 $13,194 0.04% $14,075 0.51% $12,009
4/30/92 $13,324 0.89% $14,200 0.14% $12,025
5/31/92 $13,536 1.18% $14,367 0.14% $12,042
6/30/92 $13,734 1.68% $14,609 0.36% $12,086
7/31/92 $14,229 3.00% $15,047 0.21% $12,111
8/31/92 $14,038 -0.98% $14,900 0.28% $12,145
9/30/92 $14,072 0.65% $14,996 0.28% $12,179
10/31/92 $13,832 -0.98% $14,850 0.35% $12,222
11/30/92 $14,155 1.79% $15,115 0.14% $12,239
12/31/92 $14,335 1.02% $15,270 -0.07% $12,230
1/31/93 $14,516 1.16% $15,447 0.49% $12,290
2/28/93 $14,930 3.62% $16,006 0.35% $12,333
3/31/93 $14,892 -1.06% $15,836 0.35% $12,376
4/30/93 $14,989 1.01% $15,996 0.28% $12,411
5/31/93 $15,075 0.56% $16,086 0.14% $12,428
6/30/93 $15,323 1.67% $16,354 0.14% $12,446
7/31/93 $15,321 0.13% $16,376 0.00% $12,446
8/31/93 $15,622 2.08% $16,716 0.28% $12,480
9/30/93 $15,808 1.14% $16,907 0.21% $12,507
10/31/93 $15,881 0.19% $16,939 0.41% $12,558
11/30/93 $15,803 -0.88% $16,790 0.07% $12,567
12/31/93 $16,069 2.11% $17,144 0.00% $12,567
1/31/94 $16,208 1.14% $17,339 0.27% $12,601
2/28/94 $15,882 -2.59% $16,890 0.34% $12,644
3/31/94 $15,372 -4.07% $16,203 0.34% $12,687
4/30/94 $15,473 0.85% $16,341 0.14% $12,704
5/31/94 $15,547 0.87% $16,483 0.07% $12,713
6/30/94 $15,490 -0.61% $16,382 0.34% $12,756
7/31/94 $15,724 1.83% $16,682 0.27% $12,791
8/31/94 $15,761 0.35% $16,740 0.40% $12,842
9/30/94 $15,583 -1.47% $16,494 0.27% $12,877
10/31/94 $15,376 -1.78% $16,201 0.07% $12,886
11/30/94 $15,130 -1.81% $15,908 0.13% $12,902
12/31/94 $15,438 2.20% $16,258 0.00% $12,902
1/31/95 $15,789 2.86% $16,723 0.40% $12,954
2/28/95 $16,182 2.91% $17,209 0.40% $13,006
3/31/95 $16,316 1.15% $17,407 0.33% $13,049
4/30/95 $16,352 0.12% $17,428 0.33% $13,092
5/31/95 $16,738 3.19% $17,984 0.20% $13,118
6/30/95 $16,636 -0.87% $17,827 0.20% $13,144
7/31/95 $16,730 0.95% $17,997 0.00% $13,144
8/31/95 $16,881 1.27% $18,225 0.26% $13,178
9/30/95 $16,976 0.63% $18,340 0.20% $13,205
10/31/95 $17,185 1.45% $18,606 0.33% $13,248
11/30/95 $17,439 1.66% $18,915 -0.07% $13,239
12/31/95 $17,578 0.96% $19,097 -0.07% $13,230
1/31/96 $17,690 0.76% $19,242 0.59% $13,308
2/29/96 $17,612 -0.68% $19,111 0.32% $13,350
3/31/96 $17,416 -1.28% $18,866 0.52% $13,420
4/30/96 $17,394 -0.28% $18,813 0.39% $13,472
5/31/96 $17,386 -0.04% $18,806 0.19% $13,498
6/30/96 $17,571 1.09% $19,011 0.06% $13,506
7/31/96 $17,713 0.91% $19,184 0.19% $13,532
8/31/96 $17,704 -0.02% $19,180 0.19% $13,557
9/30/96 $17,937 1.40% $19,449 0.32% $13,601
10/31/96 $18,095 1.13% $19,668 0.32% $13,644
11/30/96 $18,390 1.83% $20,028 0.19% $13,670
12/31/96 $18,322 -0.42% $19,944 0.00% $13,670
1/31/97 $18,330 0.19% $19,982 0.32% $13,714
2/28/97 $18,475 0.92% $20,166 0.31% $13,756
3/31/97 $18,251 -1.33% $19,898 0.25% $13,791
4/30/97 $18,383 0.84% $20,065 0.12% $13,807
5/31/97 $18,624 1.51% $20,368 -0.06% $13,799
6/30/97 $18,785 1.07% $20,586 0.12% $13,816
7/31/97 $19,248 2.77% $21,156 0.12% $13,832
8/31/97 $19,064 -0.94% $20,957 0.19% $13,858
9/30/97 $19,261 1.19% $21,206 0.25% $13,893
10/31/97 $19,380 0.64% $21,342 0.25% $13,928
11/30/97 $19,499 0.59% $21,468 -0.06% $13,919
12/31/97 $19,823 1.46% $21,781 -0.12% $13,903
1/31/98 $19,989 1.03% $22,006 0.19% $13,929
2/28/98 $20,025 0.03% $22,012 0.19% $13,956
Total 100.25% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (27)
This chart shows in bar format the comparison between Franklin Michigan
Insured Tax-Free Income Fund's Class II distribution rate of 4.35% and the
taxable equivalent rate of 7.53% on 2/28/98.
GRAPHIC MATERIAL (28)
This chart shows the dividend distributions for Franklin Michigan Insured
Tax-Free Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.80 cents
April 4.97 cents
May 4.97 cents
June 4.87 cents
July 4.82 cents
August 4.82 cents
September 4.79 cents
October 4.79 cents
November 4.79 cents
December 4.59 cents
January 4.59 cents
February 4.59 cents
Total 57.39 cents
GRAPHIC MATERIAL (29)
The following line graph compares the performance of the Franklin Michigan
Insured Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Michigan Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,899 $10,000 $10,000
5/31/95 $10,141 3.19% $10,319 0.20% $10,020
6/30/95 $10,082 -0.87% $10,229 0.20% $10,040
7/31/95 $10,134 0.95% $10,326 0.00% $10,040
8/31/95 $10,220 1.27% $10,458 0.26% $10,066
9/29/95 $10,281 0.63% $10,523 0.20% $10,086
10/31/95 $10,402 1.45% $10,676 0.33% $10,120
11/30/95 $10,549 1.66% $10,853 -0.07% $10,112
12/29/95 $10,629 0.96% $10,957 -0.07% $10,105
1/31/96 $10,690 0.76% $11,041 0.59% $10,165
2/29/96 $10,639 -0.68% $10,966 0.32% $10,198
3/29/96 $10,513 -1.28% $10,825 0.52% $10,251
4/30/96 $10,495 -0.28% $10,795 0.39% $10,291
5/31/96 $10,494 -0.04% $10,791 0.19% $10,310
6/28/96 $10,591 1.09% $10,908 0.06% $10,316
7/31/96 $10,671 0.91% $11,008 0.19% $10,336
8/30/96 $10,670 -0.02% $11,005 0.19% $10,356
9/30/96 $10,805 1.40% $11,159 0.32% $10,389
10/31/96 $10,895 1.13% $11,286 0.32% $10,422
11/29/96 $11,066 1.83% $11,492 0.19% $10,442
12/31/96 $11,020 -0.42% $11,444 0.00% $10,442
1/31/97 $11,019 0.19% $11,466 0.32% $10,475
2/28/97 $11,109 0.92% $11,571 0.31% $10,508
3/31/97 $10,960 -1.33% $11,417 0.25% $10,534
4/30/97 $11,034 0.84% $11,513 0.12% $10,547
5/31/97 $11,173 1.51% $11,687 -0.06% $10,540
6/30/97 $11,273 1.07% $11,812 0.12% $10,553
7/31/97 $11,544 2.77% $12,139 0.12% $10,565
8/31/97 $11,420 -0.94% $12,025 0.19% $10,586
9/30/97 $11,541 1.19% $12,168 0.25% $10,612
10/31/97 $11,596 0.64% $12,246 0.25% $10,639
11/30/97 $11,671 0.59% $12,318 -0.06% $10,632
12/31/97 $11,858 1.46% $12,498 -0.12% $10,619
1/31/98 $11,951 1.03% $12,627 0.19% $10,640
2/28/98 $11,966 0.03% $12,631 0.19% $10,660
Total 19.66% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (30)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Minnesota Insured
Tax-Free Income Fund.
Utilities 20.8%
Housing 16.7%
Hospitals 16.4%
Prerefunded 15.5%
Education 13.1%
Health Care 6.4%
General Obligation 4.4%
Other Revenue 2.6%
Certificates of Participation 2.3%
Tax Allocation 1.5%
Transportation 0.3%
GRAPHIC MATERIAL (31)
This chart shows in bar format the comparison between Franklin Minnesota
Insured Tax-Free Income Fund's Class I distribution rate of 4.91% and the
taxable equivalent rate of 8.88% on 2/28/98.
GRAPHIC MATERIAL (32)
This chart shows the dividend distributions for Franklin Minnesota Insured
Tax-Free Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
September 5.3 cents
October 5.3 cents
November 5.3 cents
December 5.3 cents
January 5.3 cents
February 5.3 cents
Total 64.20 cents
GRAPHIC MATERIAL (33)
The following line graph compares the performance of the Franklin Minnesota
Insured Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Minnesota Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class I Index
- -------------------------------------------------------------------------------
3/1/88 $9,575 $10,000 $10,000
3/31/88 $9,393 -1.16% $9,884 0.43% $10,043
4/30/88 $9,433 0.76% $9,959 0.52% $10,095
5/31/88 $9,446 -0.29% $9,930 0.34% $10,130
6/30/88 $9,608 1.46% $10,075 0.43% $10,173
7/31/88 $9,640 0.65% $10,141 0.42% $10,216
8/31/88 $9,698 0.09% $10,150 0.42% $10,259
9/30/88 $9,888 1.81% $10,334 0.67% $10,327
10/31/88 $10,134 1.76% $10,515 0.33% $10,362
11/30/88 $10,050 -0.92% $10,419 0.08% $10,370
12/31/88 $10,163 1.02% $10,525 0.17% $10,387
1/31/89 $10,322 2.07% $10,743 0.50% $10,439
2/28/89 $10,264 -1.14% $10,620 0.41% $10,482
3/31/89 $10,252 -0.24% $10,595 0.58% $10,543
4/30/89 $10,469 2.37% $10,846 0.65% $10,612
5/31/89 $10,687 2.08% $11,072 0.57% $10,672
6/30/89 $10,832 1.36% $11,222 0.24% $10,698
7/31/89 $10,913 1.36% $11,375 0.24% $10,723
8/31/89 $10,853 -0.98% $11,263 0.16% $10,740
9/30/89 $10,801 -0.30% $11,229 0.32% $10,775
10/31/89 $10,893 1.22% $11,366 0.48% $10,827
11/30/89 $11,042 1.75% $11,565 0.24% $10,853
12/31/89 $11,125 0.82% $11,660 0.16% $10,870
1/31/90 $11,044 -0.47% $11,605 1.03% $10,982
2/28/90 $11,156 0.89% $11,709 0.47% $11,033
3/31/90 $11,162 0.03% $11,712 0.55% $11,094
4/30/90 $11,109 -0.72% $11,628 0.16% $11,112
5/31/90 $11,343 2.18% $11,881 0.23% $11,137
6/30/90 $11,458 0.88% $11,986 0.54% $11,198
7/31/90 $11,615 1.48% $12,163 0.38% $11,240
8/31/90 $11,409 -1.45% $11,987 0.92% $11,344
9/30/90 $11,385 0.06% $11,994 0.84% $11,439
10/31/90 $11,544 1.81% $12,211 0.60% $11,507
11/30/90 $11,766 2.01% $12,457 0.22% $11,533
12/31/90 $11,772 0.44% $12,512 0.00% $11,533
1/31/91 $11,945 1.34% $12,679 0.60% $11,602
2/28/91 $12,003 0.87% $12,789 0.15% $11,619
3/31/91 $12,051 0.04% $12,795 0.15% $11,637
4/30/91 $12,227 1.34% $12,966 0.15% $11,654
5/31/91 $12,318 0.89% $13,081 0.30% $11,689
6/30/91 $12,311 -0.10% $13,068 0.29% $11,723
7/31/91 $12,476 1.22% $13,228 0.15% $11,741
8/31/91 $12,555 1.32% $13,402 0.29% $11,775
9/30/91 $12,721 1.30% $13,577 0.44% $11,827
10/31/91 $12,812 0.90% $13,699 0.15% $11,844
11/30/91 $12,804 0.28% $13,737 0.29% $11,879
12/31/91 $13,050 2.15% $14,033 0.07% $11,887
1/31/92 $13,097 0.23% $14,065 0.15% $11,905
2/29/92 $13,090 0.03% $14,069 0.36% $11,948
3/31/92 $13,150 0.04% $14,075 0.51% $12,009
4/30/92 $13,254 0.89% $14,200 0.14% $12,025
5/31/92 $13,450 1.18% $14,367 0.14% $12,042
6/30/92 $13,622 1.68% $14,609 0.36% $12,086
7/31/92 $14,082 3.00% $15,047 0.21% $12,111
8/31/92 $13,875 -0.98% $14,900 0.28% $12,145
9/30/92 $13,876 0.65% $14,996 0.28% $12,179
10/31/92 $13,633 -0.98% $14,850 0.35% $12,222
11/30/92 $13,961 1.79% $15,115 0.14% $12,239
12/31/92 $14,151 1.02% $15,270 -0.07% $12,230
1/31/93 $14,329 1.16% $15,447 0.49% $12,290
2/28/93 $14,722 3.62% $16,006 0.35% $12,333
3/31/93 $14,687 -1.06% $15,836 0.35% $12,376
4/30/93 $14,796 1.01% $15,996 0.28% $12,411
5/31/93 $14,866 0.56% $16,086 0.14% $12,428
6/30/93 $15,094 1.67% $16,354 0.14% $12,446
7/31/93 $15,103 0.13% $16,376 0.00% $12,446
8/31/93 $15,357 2.08% $16,716 0.28% $12,480
9/30/93 $15,514 1.14% $16,907 0.21% $12,507
10/31/93 $15,561 0.19% $16,939 0.41% $12,558
11/30/93 $15,484 -0.88% $16,790 0.07% $12,567
12/31/93 $15,705 2.11% $17,144 0.00% $12,567
1/31/94 $15,841 1.14% $17,339 0.27% $12,601
2/28/94 $15,549 -2.59% $16,890 0.34% $12,644
3/31/94 $15,104 -4.07% $16,203 0.34% $12,687
4/30/94 $15,152 0.85% $16,341 0.14% $12,704
5/31/94 $15,264 0.87% $16,483 0.07% $12,713
6/30/94 $15,215 -0.61% $16,382 0.34% $12,756
7/31/94 $15,431 1.83% $16,682 0.27% $12,791
8/31/94 $15,480 0.35% $16,740 0.40% $12,842
9/30/94 $15,319 -1.47% $16,494 0.27% $12,877
10/31/94 $15,104 -1.78% $16,201 0.07% $12,886
11/30/94 $14,850 -1.81% $15,908 0.13% $12,902
12/31/94 $15,148 2.20% $16,258 0.00% $12,902
1/31/95 $15,514 2.86% $16,723 0.40% $12,954
2/28/95 $15,882 2.91% $17,209 0.40% $13,006
3/31/95 $16,010 1.15% $17,407 0.33% $13,049
4/30/95 $16,045 0.12% $17,428 0.33% $13,092
5/31/95 $16,377 3.19% $17,984 0.20% $13,118
6/30/95 $16,290 -0.87% $17,827 0.20% $13,144
7/31/95 $16,380 0.95% $17,997 0.00% $13,144
8/31/95 $16,526 1.27% $18,225 0.26% $13,178
9/30/95 $16,630 0.63% $18,340 0.20% $13,205
10/31/95 $16,818 1.45% $18,606 0.33% $13,248
11/30/95 $17,021 1.66% $18,915 -0.07% $13,239
12/31/95 $17,169 0.96% $19,097 -0.07% $13,230
1/31/96 $17,247 0.76% $19,242 0.59% $13,308
2/29/96 $17,157 -0.68% $19,111 0.32% $13,350
3/31/96 $16,968 -1.28% $18,866 0.52% $13,420
4/30/96 $16,934 -0.28% $18,813 0.39% $13,472
5/31/96 $16,942 -0.04% $18,806 0.19% $13,498
6/30/96 $17,109 1.09% $19,011 0.06% $13,506
7/31/96 $17,247 0.91% $19,184 0.19% $13,532
8/31/96 $17,226 -0.02% $19,180 0.19% $13,557
9/30/96 $17,435 1.40% $19,449 0.32% $13,601
10/31/96 $17,587 1.13% $19,668 0.32% $13,644
11/30/96 $17,814 1.83% $20,028 0.19% $13,670
12/31/96 $17,761 -0.42% $19,944 0.00% $13,670
1/31/97 $17,797 0.19% $19,982 0.32% $13,714
2/28/97 $17,936 0.92% $20,166 0.31% $13,756
3/31/97 $17,762 -1.33% $19,898 0.25% $13,791
4/30/97 $17,889 0.84% $20,065 0.12% $13,807
5/31/97 $18,091 1.51% $20,368 -0.06% $13,799
6/30/97 $18,248 1.07% $20,586 0.12% $13,816
7/31/97 $18,665 2.77% $21,156 0.12% $13,832
8/31/97 $18,548 -0.94% $20,957 0.19% $13,858
9/30/97 $18,722 1.19% $21,206 0.25% $13,893
10/31/97 $18,819 0.64% $21,342 0.25% $13,928
11/30/97 $18,932 0.59% $21,468 -0.06% $13,919
12/31/97 $19,134 1.46% $21,781 -0.12% $13,903
1/31/98 $19,280 1.03% $22,006 0.19% $13,929
2/28/98 $19,300 0.03% $22,012 0.19% $13,956
Total 93.00% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (34)
This chart shows in bar format the comparison between Franklin Minnesota
Insured Tax-Free Income Fund's Class II distribution rate of 4.49% and the
taxable equivalent rate of 8.12% on 2/28/98.
GRAPHIC MATERIAL (35)
This chart shows the dividend distributions for Franklin Minnesota Insured
Tax-Free Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.43 cents
April 4.87 cents
May 4.87 cents
June 4.87 cents
July 4.75 cents
August 4.75 cents
September 4.73 cents
October 4.73 cents
November 4.73 cents
December 4.73 cents
January 4.71 cents
February 4.71 cents
Total 56.88 cents
GRAPHIC MATERIAL (36)
The following line graph compares the performance of the Franklin Minnesota
Insured Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Minnesota Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,900 $10,000 $10,000
5/31/95 $10,105 3.19% $10,319 0.20% $10,020
6/30/95 $10,046 -0.87% $10,229 0.20% $10,040
7/31/95 $10,097 0.95% $10,326 0.00% $10,040
8/31/95 $10,190 1.27% $10,458 0.26% $10,066
9/29/95 $10,240 0.63% $10,523 0.20% $10,086
10/31/95 $10,351 1.45% $10,676 0.33% $10,120
11/30/95 $10,479 1.66% $10,853 -0.07% $10,112
12/29/95 $10,565 0.96% $10,957 -0.07% $10,105
1/31/96 $10,608 0.76% $11,041 0.59% $10,165
2/29/96 $10,547 -0.68% $10,966 0.32% $10,198
3/29/96 $10,426 -1.28% $10,825 0.52% $10,251
4/30/96 $10,399 -0.28% $10,795 0.39% $10,291
5/31/96 $10,408 -0.04% $10,791 0.19% $10,310
6/28/96 $10,496 1.09% $10,908 0.06% $10,316
7/31/96 $10,576 0.91% $11,008 0.19% $10,336
8/30/96 $10,567 -0.02% $11,005 0.19% $10,356
9/30/96 $10,682 1.40% $11,159 0.32% $10,389
10/31/96 $10,770 1.13% $11,286 0.32% $10,422
11/29/96 $10,904 1.83% $11,492 0.19% $10,442
12/31/96 $10,867 -0.42% $11,444 0.00% $10,442
1/31/97 $10,882 0.19% $11,466 0.32% $10,475
2/28/97 $10,969 0.92% $11,571 0.31% $10,508
3/31/97 $10,855 -1.33% $11,417 0.25% $10,534
4/30/97 $10,927 0.84% $11,513 0.12% $10,547
5/31/97 $11,045 1.51% $11,687 -0.06% $10,540
6/30/97 $11,145 1.07% $11,812 0.12% $10,553
7/31/97 $11,383 2.77% $12,139 0.12% $10,565
8/31/97 $11,306 -0.94% $12,025 0.19% $10,586
9/30/97 $11,406 1.19% $12,168 0.25% $10,612
10/31/97 $11,460 0.64% $12,246 0.25% $10,639
11/30/97 $11,523 0.59% $12,318 -0.06% $10,632
12/31/97 $11,650 1.46% $12,498 -0.12% $10,619
1/31/98 $11,733 1.03% $12,627 0.19% $10,640
2/28/98 $11,739 0.03% $12,631 0.19% $10,660
Total 17.39% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (37)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Ohio Insured Tax-Free
Income Fund.
Utilities 28.1%
Education 19.6%
Hospitals 11.9%
Prerefunded 11.7%
General Obligation 10.8%
Transportation 5.5%
Housing 4.9%
Industrial 3.4%
Certificates of Participation 3.3%
Other Revenue 0.8%
GRAPHIC MATERIAL (38)
This chart shows in bar format the comparison between Franklin Ohio Insured
Tax-Free Income Fund's Class I distribution rate of 4.89% and the taxable
equivalent rate of 8.72% on 2/28/98.
GRAPHIC MATERIAL (39)
This chart shows the dividend distributions for Franklin Ohio Insured
Tax-Free Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.5 cents
April 5.5 cents
May 5.5 cents
June 5.5 cents
July 5.5 cents
August 5.5 cents
September 5.3 cents
October 5.3 cents
November 5.3 cents
December 5.3 cents
January 5.3 cents
February 5.3 cents
Total 64.8 cents
GRAPHIC MATERIAL (40)
The following line graph compares the performance of the Franklin Ohio
Insured Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Ohio Insured Lehman Brothers CPI
Tax-Free Municipal Bond
Income Fund-Class I Index
- -------------------------------------------------------------------------------
3/1/88 $9,571 $10,000 $10,000
3/31/88 $9,388 -1.16% $9,884 0.43% $10,043
4/30/88 $9,416 0.76% $9,959 0.52% $10,095
5/31/88 $9,452 -0.29% $9,930 0.34% $10,130
6/30/88 $9,640 1.46% $10,075 0.43% $10,173
7/31/88 $9,669 0.65% $10,141 0.42% $10,216
8/31/88 $9,724 0.09% $10,150 0.42% $10,259
9/30/88 $9,906 1.81% $10,334 0.67% $10,327
10/31/88 $10,172 1.76% $10,515 0.33% $10,362
11/30/88 $10,081 -0.92% $10,419 0.08% $10,370
12/31/88 $10,211 1.02% $10,525 0.17% $10,387
1/31/89 $10,379 2.07% $10,743 0.50% $10,439
2/28/89 $10,324 -1.14% $10,620 0.41% $10,482
3/31/89 $10,297 -0.24% $10,595 0.58% $10,543
4/30/89 $10,497 2.37% $10,846 0.65% $10,612
5/31/89 $10,735 2.08% $11,072 0.57% $10,672
6/30/89 $10,880 1.36% $11,222 0.24% $10,698
7/31/89 $10,958 1.36% $11,375 0.24% $10,723
8/31/89 $10,893 -0.98% $11,263 0.16% $10,740
9/30/89 $10,846 -0.30% $11,229 0.32% $10,775
10/31/89 $10,926 1.22% $11,366 0.48% $10,827
11/30/89 $11,075 1.75% $11,565 0.24% $10,853
12/31/89 $11,156 0.82% $11,660 0.16% $10,870
1/31/90 $11,059 -0.47% $11,605 1.03% $10,982
2/28/90 $11,180 0.89% $11,709 0.47% $11,033
3/31/90 $11,182 0.03% $11,712 0.55% $11,094
4/30/90 $11,103 -0.72% $11,628 0.16% $11,112
5/31/90 $11,358 2.18% $11,881 0.23% $11,137
6/30/90 $11,485 0.88% $11,986 0.54% $11,198
7/31/90 $11,674 1.48% $12,163 0.38% $11,240
8/31/90 $11,472 -1.45% $11,987 0.92% $11,344
9/30/90 $11,497 0.06% $11,994 0.84% $11,439
10/31/90 $11,647 1.81% $12,211 0.60% $11,507
11/30/90 $11,851 2.01% $12,457 0.22% $11,533
12/31/90 $11,897 0.44% $12,512 0.00% $11,533
1/31/91 $12,092 1.34% $12,679 0.60% $11,602
2/28/91 $12,139 0.87% $12,789 0.15% $11,619
3/31/91 $12,175 0.04% $12,795 0.15% $11,637
4/30/91 $12,352 1.34% $12,966 0.15% $11,654
5/31/91 $12,433 0.89% $13,081 0.30% $11,689
6/30/91 $12,427 -0.10% $13,068 0.29% $11,723
7/31/91 $12,596 1.22% $13,228 0.15% $11,741
8/31/91 $12,688 1.32% $13,402 0.29% $11,775
9/30/91 $12,859 1.30% $13,577 0.44% $11,827
10/31/91 $12,953 0.90% $13,699 0.15% $11,844
11/30/91 $12,946 0.28% $13,737 0.29% $11,879
12/31/91 $13,199 2.15% $14,033 0.07% $11,887
1/31/92 $13,249 0.23% $14,065 0.15% $11,905
2/29/92 $13,227 0.03% $14,069 0.36% $11,948
3/31/92 $13,263 0.04% $14,075 0.51% $12,009
4/30/92 $13,390 0.89% $14,200 0.14% $12,025
5/31/92 $13,577 1.18% $14,367 0.14% $12,042
6/30/92 $13,753 1.68% $14,609 0.36% $12,086
7/31/92 $14,232 3.00% $15,047 0.21% $12,111
8/31/92 $14,042 -0.98% $14,900 0.28% $12,145
9/30/92 $14,053 0.65% $14,996 0.28% $12,179
10/31/92 $13,814 -0.98% $14,850 0.35% $12,222
11/30/92 $14,159 1.79% $15,115 0.14% $12,239
12/31/92 $14,361 1.02% $15,270 -0.07% $12,230
1/31/93 $14,565 1.16% $15,447 0.49% $12,290
2/28/93 $15,013 3.62% $16,006 0.35% $12,333
3/31/93 $15,011 -1.06% $15,836 0.35% $12,376
4/30/93 $15,095 1.01% $15,996 0.28% $12,411
5/31/93 $15,168 0.56% $16,086 0.14% $12,428
6/30/93 $15,439 1.67% $16,354 0.14% $12,446
7/31/93 $15,450 0.13% $16,376 0.00% $12,446
8/31/93 $15,735 2.08% $16,716 0.28% $12,480
9/30/93 $15,908 1.14% $16,907 0.21% $12,507
10/31/93 $15,942 0.19% $16,939 0.41% $12,558
11/30/93 $15,877 -0.88% $16,790 0.07% $12,567
12/31/93 $16,154 2.11% $17,144 0.00% $12,567
1/31/94 $16,317 1.14% $17,339 0.27% $12,601
2/28/94 $15,956 -2.59% $16,890 0.34% $12,644
3/31/94 $15,385 -4.07% $16,203 0.34% $12,687
4/30/94 $15,460 0.85% $16,341 0.14% $12,704
5/31/94 $15,575 0.87% $16,483 0.07% $12,713
6/30/94 $15,519 -0.61% $16,382 0.34% $12,756
7/31/94 $15,766 1.83% $16,682 0.27% $12,791
8/31/94 $15,803 0.35% $16,740 0.40% $12,842
9/30/94 $15,600 -1.47% $16,494 0.27% $12,877
10/31/94 $15,355 -1.78% $16,201 0.07% $12,886
11/30/94 $15,112 -1.81% $15,908 0.13% $12,902
12/31/94 $15,430 2.20% $16,258 0.00% $12,902
1/31/95 $15,832 2.86% $16,723 0.40% $12,954
2/28/95 $16,236 2.91% $17,209 0.40% $13,006
3/31/95 $16,368 1.15% $17,407 0.33% $13,049
4/30/95 $16,391 0.12% $17,428 0.33% $13,092
5/31/95 $16,800 3.19% $17,984 0.20% $13,118
6/30/95 $16,685 -0.87% $17,827 0.20% $13,144
7/31/95 $16,765 0.95% $17,997 0.00% $13,144
8/31/95 $16,943 1.27% $18,225 0.26% $13,178
9/30/95 $17,023 0.63% $18,340 0.20% $13,205
10/31/95 $17,230 1.45% $18,606 0.33% $13,248
11/30/95 $17,481 1.66% $18,915 -0.07% $13,239
12/31/95 $17,648 0.96% $19,097 -0.07% $13,230
1/31/96 $17,744 0.76% $19,242 0.59% $13,308
2/29/96 $17,639 -0.68% $19,111 0.32% $13,350
3/31/96 $17,430 -1.28% $18,866 0.52% $13,420
4/30/96 $17,408 -0.28% $18,813 0.39% $13,472
5/31/96 $17,444 -0.04% $18,806 0.19% $13,498
6/30/96 $17,642 1.09% $19,011 0.06% $13,506
7/31/96 $17,782 0.91% $19,184 0.19% $13,532
8/31/96 $17,774 -0.02% $19,180 0.19% $13,557
9/30/96 $18,034 1.40% $19,449 0.32% $13,601
10/31/96 $18,206 1.13% $19,668 0.32% $13,644
11/30/96 $18,498 1.83% $20,028 0.19% $13,670
12/31/96 $18,431 -0.42% $19,944 0.00% $13,670
1/31/97 $18,438 0.19% $19,982 0.32% $13,714
2/28/97 $18,582 0.92% $20,166 0.31% $13,756
3/31/97 $18,360 -1.33% $19,898 0.25% $13,791
4/30/97 $18,506 0.84% $20,065 0.12% $13,807
5/31/97 $18,745 1.51% $20,368 -0.06% $13,799
6/30/97 $18,922 1.07% $20,586 0.12% $13,816
7/31/97 $19,396 2.77% $21,156 0.12% $13,832
8/31/97 $19,216 -0.94% $20,957 0.19% $13,858
9/30/97 $19,424 1.19% $21,206 0.25% $13,893
10/31/97 $19,508 0.64% $21,342 0.25% $13,928
11/30/97 $19,640 0.59% $21,468 -0.06% $13,919
12/31/97 $19,942 1.46% $21,781 -0.12% $13,903
1/31/98 $20,123 1.03% $22,006 0.19% $13,929
2/28/98 $20,111 0.03% $22,012 0.19% $13,956
Total 101.11% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (41)
This chart shows in bar format the comparison between Franklin Ohio Insured
Tax-Free Income Fund's Class II distribution rate of 4.46% and the taxable
equivalent rate of 7.96% on 2/28/98.
GRAPHIC MATERIAL (42)
This chart shows the dividend distributions for Franklin Ohio Insured
Tax-Free Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.94 cents
April 4.93 cents
May 4.93 cents
June 4.93 cents
July 4.94 cents
August 4.94 cents
September 4.72 cents
October 4.72 cents
November 4.72 cents
December 4.72 cents
January 4.70 cents
February 4.70 cents
Total 57.89 cents
GRAPHIC MATERIAL (43)
The following line graph compares the performance of the Franklin Ohio
Insured Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- -------------------------------------------------------------------------------
Date Franklin Ohio Insured Lehman Brothers CPI
Tax-Free Municipal Bond
Income Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,900 $10,000 $10,000
5/31/95 $10,139 3.19% $10,319 0.20% $10,020
6/30/95 $10,065 -0.87% $10,229 0.20% $10,040
7/31/95 $10,116 0.95% $10,326 0.00% $10,040
8/31/95 $10,218 1.27% $10,458 0.26% $10,066
9/29/95 $10,261 0.63% $10,523 0.20% $10,086
10/31/95 $10,389 1.45% $10,676 0.33% $10,120
11/30/95 $10,535 1.66% $10,853 -0.07% $10,112
12/29/95 $10,631 0.96% $10,957 -0.07% $10,105
1/31/96 $10,692 0.76% $11,041 0.59% $10,165
2/29/96 $10,623 -0.68% $10,966 0.32% $10,198
3/29/96 $10,492 -1.28% $10,825 0.52% $10,251
4/30/96 $10,474 -0.28% $10,795 0.39% $10,291
5/31/96 $10,490 -0.04% $10,791 0.19% $10,310
6/28/96 $10,595 1.09% $10,908 0.06% $10,316
7/31/96 $10,692 0.91% $11,008 0.19% $10,336
8/30/96 $10,682 -0.02% $11,005 0.19% $10,356
9/30/96 $10,823 1.40% $11,159 0.32% $10,389
10/31/96 $10,929 1.13% $11,286 0.32% $10,422
11/29/96 $11,098 1.83% $11,492 0.19% $10,442
12/31/96 $11,052 -0.42% $11,444 0.00% $10,442
1/31/97 $11,051 0.19% $11,466 0.32% $10,475
2/28/97 $11,131 0.92% $11,571 0.31% $10,508
3/31/97 $10,994 -1.33% $11,417 0.25% $10,534
4/30/97 $11,076 0.84% $11,513 0.12% $10,547
5/31/97 $11,213 1.51% $11,687 -0.06% $10,540
6/30/97 $11,313 1.07% $11,812 0.12% $10,553
7/31/97 $11,599 2.77% $12,139 0.12% $10,565
8/31/97 $11,487 -0.94% $12,025 0.19% $10,586
9/30/97 $11,597 1.19% $12,168 0.25% $10,612
10/31/97 $11,650 0.64% $12,246 0.25% $10,639
11/30/97 $11,723 0.59% $12,318 -0.06% $10,632
12/31/97 $11,897 1.46% $12,498 -0.12% $10,619
1/31/98 $11,999 1.03% $12,627 0.19% $10,640
2/28/98 $11,986 0.03% $12,631 0.19% $10,660
Total 19.86% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
ANNUAL REPORT
FEBRUARY 28, 1998
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
CONTENTS
Shareholder Letter 1
Special Feature:
Q&A with Franklin's
Municipal Bond Department 3
Fund Reports
Franklin Alabama
Tax-Free Income Fund 8
Franklin Florida
Tax-Free Income Fund 14
Franklin Georgia
Tax-Free Income Fund 20
Franklin Kentucky
Tax-Free Income Fund 26
Franklin Louisiana
Tax-Free Income Fund 30
Franklin Maryland
Tax-Free Income Fund 37
Franklin Missouri
Tax-Free Income Fund 44
Franklin North Carolina
Tax-Free Income Fund 50
Franklin Texas
Tax-Free Income Fund 56
Franklin Virginia
Tax-Free Income Fund 63
Glossary of Investment Terms 69
Municipal Bond Ratings 71
Financial Highlights &
Statement of Investments 73
Financial Statements 121
Notes to Financial Statements 129
Independent Auditors' Report 135
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's annual report for the
period ended February 28, 1998.
ECONOMIC OVERVIEW
The U.S. economy remained strong over the Trust's reporting period, and showed
no discernible indications of ending one of the longest, sustained economic
expansions in its history. This expansion continued to feature moderate growth
with few signs of inflation. Overall, interest rates declined during the year,
and the 30-year Treasury yield ended the period at 5.92%, down from 6.80% on
February 28, 1997. A generally benign inflationary environment, and a balanced
budget agreement between the President and Congress, as well as expectations for
a 1998 budget surplus, contributed to declining rates.
Interest rates affect tax-free bonds, and help shape the economic environment
that determines the general fiscal health of the municipalities issuing them.
Higher interest rates often generate higher yields for new bond issues, while
lower rates generally translate into a decrease in yields. Furthermore, a drop
in rates usually causes the value of existing bonds to increase, while a rise in
rates often has the opposite effect.
However, not all news during the Trust's reporting period was positive. Many
economists feared that the Asian crisis would have a negative effect on the U.S.
economy, but the worst of those concerns did not come to pass during this
period, as U.S. growth continued. Although the International Monetary Fund's
strong intervention in many affected Asian countries clearly helped alleviate
this crisis, it is still likely that U.S. economic growth may slow somewhat in
the future, as several of its Asian trading partners attempt to rebuild their
once-thriving economies. With the potential rise in economic uncertainties and
the continued increase in stock market valuations, many investors are giving
more consideration to allocating a larger portion of their portfolios in
investments such as tax-free bonds, which generally enjoy greater stability than
stocks.
Regardless of the market's direction, Franklin Templeton's disciplined
investment strategy remains the same. All of our portfolio managers are
dedicated to providing shareholders like you with careful selection and constant
professional supervision. As always, we appreciate your support, welcome your
questions and comments, and look forward to serving your investment needs in the
years ahead.
Sincerely,
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
Thomas J. Kenny
Director
Franklin Municipal Bond Department
Q&A
SPECIAL FEATURE:
Q&A WITH FRANKLIN'S
MUNICIPAL BOND DEPARTMENT
Thomas J. Kenny, Director of Franklin Templeton's Municipal Bond Department, and
portfolio managers Sheila Amoroso and Bernie Schroer discuss the issues that
shaped the 1997 municipal bond market.
Q: HOW WOULD YOU DESCRIBE THE MUNICIPAL BOND MARKET'S PERFORMANCE IN 1997?
TOM KENNY: Long-term interest rates trended lower in 1997. The Bond Buyer 40
Index (BB40), a measurement of the municipal bond market, started the year
yielding 5.78% and hit a low of 5.23% on December 26. We saw some fluctuations
over the course of the year, however, with the BB40 yield reaching a high of
6.01% on April 14, 1997. These fluctuations, specifically when interest rates
rose, created opportunities to purchase bonds on the "downswings," or when bond
prices were lower. Over the past ten years, rates have been trending downward,
creating a positive environment for the tax-exempt market. This atmosphere
should prevail if inflation remains under control and the economy continues to
grow moderately. Of course, market conditions can change rapidly, and there is
no guarantee that the economy will remain on its current path.
Q: RECENTLY, THERE HAS BEEN A LOT OF DISCUSSION ABOUT THE ASIAN MARKET
VOLATILITY. DO YOU THINK THE PROBLEMS THERE WILL HAVE ANY IMPACT ON THE U.S.
BOND MARKET THIS YEAR?
BERNIE SCHROER: The decline in Asia's currency and equity markets may help the
U.S. bond market. In 1997, we experienced a strong U.S. economy, which normally
would have pressured the Federal Reserve (the Fed) to raise interest rates,
causing bond prices to fall. Instead, the Fed left interest rates alone,
probably in part due to the Asian turmoil and the dampening effect it could have
on U.S. economic growth this year.
Q: HAVE THE RECENT TAX LAW CHANGES HAD ANY IMPACT ON THE MUNICIPAL BOND MARKET?
SHEILA AMOROSO: Changes in the tax law did not alter the tax advantages of
municipal bonds. Municipals still distribute income free from regular federal,
and in many cases, state income taxes.*
*For investors subject to regular federal or state alternative minimum tax, all
or a portion of municipal bond interest and municipal bond fund dividends may be
subject to such tax, depending on the source. Fund distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
Q: WHAT ROLE CAN MUNICIPAL BONDS
PLAY IN A DIVERSIFIED PORTFOLIO?
SHEILA: After three years of healthy returns due to historic stock market gains,
individuals have seen an increase in the percentage of equities in their
portfolios. As a result, many investors are beginning to re-examine asset
allocation. Municipal bonds generally enjoy low volatility while providing
tax-free income, which can offset some of the risks associated with investing in
a portfolio composed mainly of stocks. The chart on page 6 shows how adding
municipal bonds in different proportions to a stock portfolio has historically
lowered volatility in providing solid after-tax returns. In short, prudent
investors may be able to reduce their risk, and maintain their potential for
competitive return, by including municipal bonds in their portfolios.
BERNIE: Municipal bonds remain a strong investment for investors looking for
tax-free income. Franklin tax-free income funds can help investors diversify a
heavily weighted stock portfolio, while providing a convenient and effective way
to participate in the municipal bond market.
Q: LOOKING AHEAD, WHAT DO YOU THINK MIGHT AFFECT THE MUNICIPAL BOND MARKET AND
THE FRANKLIN TAX-FREE INCOME FUNDS?
TOM: Municipal bonds generally share the same trends as U.S. government
securities, such as Treasury bonds. These securities are sensitive to a variety
of factors that affect interest rates in general, including the Federal
Reserve's monetary policy. During most of 1997, the Fed was biased toward
raising interest rates in order to stave off inflationary pressures as the
economy continued its solid growth. However, toward the end of the year and into
1998, the Fed appears to have adopted a more neutral stance for a couple of
reasons. First, although the economy is experiencing moderate growth, inflation
remains subdued. Also, the potential still exists for the Asian crisis to slow
the U.S. economy.
Regardless of changing market conditions, our focus will remain on providing
shareholders with high current income free from regular federal, and depending
on the fund, state income taxes.* Franklin has become the nation's largest
tax-free fund manager**, in part by adhering to a consistent, disciplined
investment philosophy, which historically has proved successful in both strong
and weak bond markets. Of course, past performance is no guarantee of future
results.
*For investors subject to regular federal or state alternative minimum tax, all
or a portion of municipal bond interest and municipal bond fund dividends may be
subject to such tax, depending on the source. Fund distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable. **Source: Strategic Insight, 11/97.
FRANKLIN ALABAMA TAX-FREE INCOME FUND
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
YOUR FUND'S OBJECTIVE: FRANKLIN ALABAMA TAX-FREE INCOME FUND 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
In his 1998 State of the State address, Alabama's governor commented, "Alabama
is an attractive place to do business," and "we can only strive to set new
economic growth gains in the future."2 Alabama's positive business attitude
coupled with low inflation and declining interest rates contributed to the
positive total return of the Franklin Alabama Tax-Free Income Fund.
The opening of a new Mercedes-Benz plant is only one of the more visible
examples of Alabama's success in expanding and diversifying its economy, a trend
that continued during the reporting period. As result, per capita income growth
has outpaced the national average, and unemployment has decreased to 4.9%, a low
for the state in the 1990's.3
Based on its economic growth and conservative financial practices, Standard &
Poor's, a national credit rating agency, gives Alabama's general obligation
bonds a rating of AA.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.State Update
2. Source: Alabama Development Office.
3. Source: Standard & Poor's CreditWeek Municipal, 1/26/97.
4. This does not indicate Standard & Poor's rating of the fund.
You may find a complete listing of the fund's portfolio holdings beginning on
page 74 of this report.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PORTFOLIO NOTES
During the one-year reporting period, we sold prerefunded issues, as they
approached five years before their call date, and sought to buy current coupon
bonds with good call protection. Many of the bonds we purchased were insured,
since so many insured bonds made up the Alabama municipal market. Because of
this ample supply of insured Alabama bonds, their prices have fallen, and the
price difference between these and lower-rated securities is relatively small.
In most cases, we did not believe the marginally higher yields of lower-rated
securities were enough to justify their added credit risk, and we concentrated
on purchasing the high-rated insured bonds. Among the municipal securities we
purchased during the 1-year period were: Oneonta Utility, Lee County general
obligation warrants, Tuscaloosa Co. Board of Education general obligation
warrants, Birmingham-Southern College, Montgomery AL Baptist Health Systems,
Athens AL general obligation bonds and Jefferson AL Water & Sewer. In addition,
we continued to attempt to diversify our holdings among several different
investment sectors, as shown in the chart to the right, which should help
protect the fund's share value.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Alabama Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 25 cents, from $11.73 on February 28, 1997, to $11.98 on
February 28, 1998. In addition to distributing income distributions totaling
65.4 cents ($0.654) per share, your fund also made long-term capital gain
distributions totaling 9.63 cents ($0.0963) per share during the 12-month
reporting period. Distributions will vary based on the earnings of the fund's
portfolio, and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.3 cents
($0.053) and the maximum offering price of $12.51 on February 28, 1998, your
fund's distribution rate was 5.08%. 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 Alabama state personal income tax
bracket would need to earn 8.85% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 11 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. This index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Alabama municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Alabama Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN ALABAMA TAX-FREE INCOME FUND - CLASS I
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (9/1/87)
- --------------------------------------------------------------------------
Cumulative Total Return1 8.79% 36.69% 114.54% 126.72%
Average Annual Total
Return2 4.17% 5.53% 7.46% 7.66%
Distribution Rate3 5.08%
Taxable Equivalent
Distribution Rate4 8.85%
30-Day Standardized
Yield5 4.06%
Taxable Equivalent
Yield4 7.08%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annualtotal return represents 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 5.3 cent per
share monthly dividend and the maximum offering price of $12.51 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Alabama state personal income tax bracket of 42.6%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
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 and 5.75
cents ($0.0575) per share in December 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
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Alabama Tax-Free Income Fund - Class II share price, as measured by net
asset value, increased 26 cents, from $11.78 on February 28, 1997, to $12.04 on
February 28, 1998. In addition to distributing income distributions totaling
58.72 cents ($0.5872) per share, your fund also made long-term capital gain
distributions totaling 9.63 cents ($0.0963) per share during the 12-month
reporting period. Distributions will vary based on the earnings of the fund's
portfolio, and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per share dividend of 4.73
cents ($0.0473) and the maximum offering price of $12.16 on February 28, 1998,
your fund's distribution rate was 4.67%. 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 Alabama state personal income tax
bracket, would need to earn 8.14% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 13 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. This index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Alabama municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Alabama Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN ALABAMA TAX-FREE INCOME FUND - CLASS II
Periods ended 2/28/98
SINCE
INCEPTION
1-YEAR (5/1/95)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.23% 22.95%
Average Annual Total Return2 6.15% 7.20%
Distribution Rate3 4.67%
Taxable Equivalent
Distribution Rate4 8.14%
30-Day Standardized Yield5 3.64%
Taxable Equivalent Yield4 6.34%
- -------------------------------------------------------------------------------
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.73 cent per
share monthly dividend, and the offering price of $12.16 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Alabama state personal income tax bracket of 42.6%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
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 and 5.75
cents ($0.0575) per share in December 1997. The fund hereby designates such
distributions as capital gain dividends per Section 852 (b)(3) of the Internal
Revenue Code.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN FLORIDA TAX-FREE INCOME FUND
YOUR FUND'S OBJECTIVE: FRANKLIN FLORIDA TAX-FREE INCOME FUND 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
On April 3, 1997, Standard & Poor's, a national credit rating agency, upgraded
Florida's general obligation debt rating from AA to AA+.2 This upgrade reflected
the state's successful transformation, from a narrow economic base of
agriculture and seasonal tourism, into a broadly based service and trade economy
with substantial insurance, banking and export participation, all against a
backdrop of year-round tourist appeal.
Despite pressure for more infrastructure and educational facilities to support
its growing population, debt has remained moderate.
We expect Florida to maintain its better-than-expected financial performance in
the months ahead.
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.
You may find a complete listing of the fund's portfolio holdings beginning on
page 78 of this report.
PORTFOLIO NOTES
During the reporting period, we sought to take advantage of buying opportunities
in the Florida municipal bond market, as many new issues came to market. We
concentrated on purchasing current coupon bonds with good call protection, while
also seeking to take advantage of the large supply of Florida insured bond
issues. Because of the increased availability of high-rated, insured securities,
these bonds were competitively priced against lower-rated municipal securities,
and we actively attempted to buy what we considered were the best of the insured
issues. Also during the period, we sought to sell the prerefunded bonds in our
portfolio, as they approached five years to their call date, and used the
proceeds from these sales to help finance many of our acquisitions. The
increased supply of Florida bonds aided our buying opportunities, and we made
several new purchases during the fiscal year, including: Alachua County School
Board COP, Florida Department of Transportation, Lee County Memorial Hospital
and Tampa-Hillsborough County Expressway.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS I
Franklin Florida Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 28 cents, from $11.59 on February 28, 1997, to $11.87 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 66.3 cents ($0.663) per share. Distributions will
vary based on the earnings of the fund's portfolio, and past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.2 cents
($0.052), which includes a dividend adjustment, and the maximum offering price
of $12.40 on February 28, 1998, your fund's distribution rate was 5.03%. 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 8.33% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 17 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Florida municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Florida Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN FLORIDA TAX-FREE INCOME FUND - CLASS I
Periods ended 2/28/98 Since
INCEPTION
1-YEAR 5-YEAR 10-YEAR (9/1/87)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.37% 36.24% 115.15 130.77%
Average Annual Total
Return2 3.80% 5.46% 7.50% 7.84%
Distribution Rate3 5.03%
Taxable Equivalent
Distribution Rate4 8.33%
30-Day Standardized
Yield5 4.10%
Taxable Equivalent
Yield4 6.79%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.2 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.40 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
federal personal 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 February
28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower
initial sales charge, with dividends reinvested at the offering price. Thus
actual total 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. Since markets can go down as well as up, 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
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Florida Tax-Free Income Fund - Class II share price, as measured by net
asset value, increased 29 cents, from $11.67 on February 28, 1997, to $11.96 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 60.03 cents ($0.6003) per share. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.63
cents ($0.0463), which includes a dividend adjustment, and the maximum offering
price of $12.08 on February 28, 1998, your fund's distribution rate was 4.60%.
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 7.62% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 19 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Florida municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Florida Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN FLORIDA TAX-FREE INCOME FUND - CLASS II
Periods ended 2/28/98
SINCE
INCEPTION
1-YEAR (5/1/95)
- -------------------------------------------------------------------------
Cumulative Total Return1 7.80% 21.77%
Average Annual Total Return2 5.71% 6.84%
Distribution Rate3 4.60%
Taxable Equivalent
Distribution Rate4 7.62%
30-Day Standardized
Yield5 3.69%
Taxable Equivalent Yield4 6.11%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.63 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $12.08 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
federal personal 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN GEORGIA TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
YOUR FUND'S OBJECTIVE: FRANKLIN GEORGIA TAX-FREE INCOME FUND 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
In August 1997, Standard & Poor's, a national credit rating agency, upgraded
Georgia's general obligation debt rating, from AA+ to AAA.2 This upgrade
reflected low debt, sustained economic expansion, and strengthened financial
management and reporting.
Since achieving a peak of economic activity and media attention with the July
1996 Summer Olympics, Georgia has demonstrated steady economic and employment
growth that ranks among the fastest in the nation.3 As a result, the state has
maintained required reserves while providing tax relief and budgetary expansion.
Georgia saw exceptional general fund operating surpluses in 1996 and 1997.4
Key attributes of the state's growth include strong job creation, favorable cost
of living and extensive transportation infrastructure. Georgia's economy is
well-diversified, and the state is home to many major corporate headquarters.
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: Moody's Investors Service, 6/01/97.
4. Source: Standard & Poor's CreditWeek Municipal, 12/08/97.
You may find a complete listing of the fund's portfolio holdings beginning on
page 87 of this report.
PORTFOLIO NOTES
As a result of the lower interest rate environment, many municipal bonds,
including several owned by the fund, were prerefunded, during the one-year
reporting period. When a bond is prerefunded, it will be replaced at its first
call date by a lower yielding bond issued by its municipality. This refinancing
method allows a municipal government to lower its borrowing cost, and increases
the value of the prerefunded bond. However, this premium decreases over time. As
the date approaches when the prerefunded bond's debt will be retired, its price
drops to its call price. Consequently, we sought to sell our prerefunded bonds
typically when they had five years remaining before their first call date, and
the percentage of prerefunded bonds owned by the fund increased from 10.7% of
long-term investments on February 28, 1997, to 14.5% on February 28, 1998.
The strong economy and low interest rates experienced over the period encouraged
municipalities not only to prerefund outstanding bonds, but also to issue more
insured debt. In fact, more than half of new bonds entering the municipal
securities market were insured. We sought to take advantage of the large number
of insured issues by purchasing a significant number of these bonds across
several different investment sectors. As the chart to the right indicates, the
fund's investments are very diverse, so that difficulties in any one sector
should not exert an undue negative influence on Franklin Georgia Tax-Free Income
Fund. At the same time, we sought to purchase bonds with relatively long call
protection to help protect the fund's income-earning potential. Among the bonds
we purchased during the fiscal year were: Fulco Hospital Authority, Cherokee
County Water & Sewer, Atlanta Water & Sewer and Atlanta & Fulton Counties
Recreation Authority general obligations.
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q. WHY DID WE BELIEVE INSURED BONDS REPRESENTED GOOD VALUE IN THE MARKET?
A. Several local and state governments were able to purchase bond insurance on
generally easy terms, because lower interest rates reduced borrowing costs and,
coupled with a strong economy, improved the financial standing of many
municipalities. Consequently, we saw a large increase in the number of insured
bonds issued in many states, including Georgia. As a result of a bond having
insurance, it is typically valued at a higher premium than similar, lower-rated
bonds that lack insurance. However, the Georgia municipal market had so many
insured bonds that their prices have fallen, and the price difference between
them and lower-rated securities was relatively small. We did not believe the
marginally higher yields of lower-rated securities were enough to justify their
added credit risk in most cases, and we concentrated on purchasing the
high-rated, insured bonds, which, as a result of their large supply, were
relatively cheap.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Georgia Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 26 cents, from $11.86 on February 28, 1997, to $12.12 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 63.6 cents ($0.636) per share. Distributions will
vary based on the earnings of the fund's portfolio, and past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.2 cents
($0.052), which includes a dividend adjustment, and the maximum offering price
of $12.66 on February 28, 1998, your fund's distribution rate was 4.93%. 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 8.68%
from a taxable investment to match the fund's tax-free distribution rate.
The chart on page 23 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Georgia municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Georgia Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN GEORGIA TAX-FREE INCOME FUND - CLASS I
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ------------------------------------------------------------------------------
Cumulative Total Return1 7.75% 34.85% 112.32% 124.58%
Average Annual Total
Return2 3.14% 5.24% 7.35% 7.57%
Distribution Rate3 4.93%
Taxable Equivalent
Distribution Rate4 8.68%
30-Day Standardized
Yield5 3.90%
Taxable Equivalent
Yield4 6.87%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.2 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.66 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Georgia personal income tax bracket of 43.2% 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 February 28, 1998.
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 total
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. Since markets can go down as well as up, 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
GRAPHIC MATERIAL 23 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Georgia Tax-Free Income Fund - Class II share price, as measured by net
asset value, increased 27 cents, from $11.92 on February 28, 1997, to $12.19 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 56.84 cents ($0.5684) per share. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.62
cents ($0.0462), which incudes a dividend adjustment, and the maximum offering
price of $12.31 on February 28, 1998, your fund's distribution rate was 4.50%.
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 7.93%
from a taxable investment to match the fund's tax-free distribution rate.
The chart on page 25 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Georgia municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Georgia Tax-Free Income Fund's had been
applied to this index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot invest
in it directly.
GRAPHIC MATERIAL 24 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN GEORGIA TAX-FREE INCOME FUND - CLASS II
Periods ended 2/28/98
Since
Inception
1-Year (5/1/95)
- ----------------------------------------------------------------------------
Cumulative Total Return1 7.19% 20.69%
Average Annual Total Return2 5.13% 6.48%
Distribution Rate3 4.50%
Taxable Equivalent
Distribution Rate4 7.93%
30-Day Standardized Yield5 3.47%
Taxable Equivalent Yield4 6.11%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.62 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $12.31 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Georgia state personal income tax bracket of 43.2%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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 25 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
YOUR FUND'S OBJECTIVE: FRANKLIN KENTUCKY TAX-FREE INCOME FUND 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
The "Bluegrass State" concluded fiscal 1997 with revenues of $5.68 billion
(unaudited). This represents an increase of 5.6% over 1996 and indicates to us
that Kentucky is likely to grow its economic base. Kentucky has grown at a rate
that has outperformed the nation in terms of employment growth and personal
income since 1990.2 Kentucky's vigorous economic growth, combined with an
improving financial condition and a manageable debt load has prompted Standard &
Poor's, a national credit rating service, to rate the commonwealth's credit
quality AA.3
One of the keys to Kentucky's success has been diversification away from the
state's traditional dependence on agriculture and manufacturing. The
transportation sector continues to be the engine of the state's economy with
some of the nation's most popular cars - Toyota Camry, Ford Explorer, and
General Motors' Corvette - produced within its borders.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: The State of Kentucky.
3. This does not indicate Standard & Poor's rating of the fund.
4. Source: Standard & Poor's CreditWeek Municipal, 7/14/97. You may find a
complete listing of the fund's portfolio holdings beginning on page 91 of this
report.
PORTFOLIO NOTES
During the one-year reporting period, falling interest rates caused many
outstanding Kentucky municipal bonds to be prerefunded by their issuing
municipality. When a bond is prerefunded it will be replaced at its first call
date by a lower-yielding bond issued by its municipality. This refinancing
method allows a municipal government to lower its borrowing cost, and it also
increases the value of the prerefunded bond, as its debt will almost certainly
be paid off early. However, this premium decreases over time. As the date
approaches when the prerefunded bond's debt will be retired, its price drops to
its call price. Consequently, we sought to sell our prerefunded bonds when they
had typically five years remaining before their first call date.
The strong economy and low interest rates experienced over the period encouraged
municipalities not only to prerefund outstanding bonds, but also to issue more
insured debt. In fact, more than half of new bonds entering the municipal
securities market were insured. We sought to take advantage of the large number
of high-rated insured issues by purchasing a significant number of insured bonds
that represented a good value compared with other municipal securities, and the
fund's holding of AAA-rated securities increased from 50.8% of long-term
investments on February 28, 1997, to 60.2% on February 28, 1998. At the same
time, we sought to purchase bonds with relatively long call protection to help
protect the fund's income-earning potential. Among the bonds we purchased during
the fiscal year were: Jefferson County, Louisville and Jefferson Water & Sewer,
and Kentucky Housing Finance Authority.
GRAPHIC MATERIAL 26 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q. WHY DID WE PURCHASE BONDS WITH LONG CALL PROTECTION?
A. When a municipal bond is "called," the issuer pays off the debt the bond
represents, and the security stops generating income. Call protection refers to
the period of time after the bond is issued during which the issuer cannot
redeem or pay off that security. We purchase bonds seeking to generate income
for our shareholders. Therefore it is in our interest to obtain securities with
relatively long call protection. In this way, we can be assured of a protected
income stream that is longer than for other bonds, which possess shorter call
protection.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 27 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 28 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Franklin Kentucky Tax-Free Income Fund's share price, as measured by net asset
value, increased 40 cents, from $11.05 on February 28, 1997, to $11.45 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 60.9 cents ($0.609) per share. Distributions will
vary based on the earnings of the fund's portfolio, and past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per share dividend of 5 cents
($0.05) and the maximum offering price of $11.96 on February 28, 1998, your
fund's distribution rate was 5.02%. 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 8.84% from a taxable investment to match
the fund's tax-free distribution rate.
The chart on page 29 compares your fund's shares' performance with that of the
unmanaged Lehman Brothers Municipal Bond Index. The index includes over 25,000
municipal securities from across the country, while your fund consists primarily
of Kentucky municipal bonds. Of course, such a market index has inherent
performance differentials over any fund. It does not pay management fees to
cover salaries of securities analysts or portfolio managers, or pay commissions
or market spreads to buy and sell securities. Unlike an index, mutual funds are
never 100% invested because they need cash on hand to redeem shares. In
addition, the performance shown for the fund includes the maximum initial sales
charge, all fund expenses and account fees. If operating expenses such as
Franklin Kentucky Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 29 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR 5-YEAR (10/12/91)
- -------------------------------------------------------------------------------
Cumulative Total Return1 9.38% 37.83% 62.10%
Average Annual Total Return2 4.74% 5.71% 7.14%
Distribution Rate3 5.02%
Taxable Equivalent
Distribution Rate4 8.84%
30-Day Standardized
Yield5 4.44%
Taxable Equivalent
Yield4 7.82%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 cent per
share monthly dividend and the maximum offering price of $11.96 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Kentucky state personal income tax bracket of 43.2%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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 its management fees, which reduces operating expenses and increases
distribution rate, yield and total return to shareholders. Without this waiver,
the fund's distribution rate and total return would have been lower, and yield
for the period would have been 4.01%. 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. Since markets can go down as well as up, 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 30 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
YOUR FUND'S OBJECTIVE: FRANKLIN LOUISIANA TAX-FREE INCOME FUND 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
Louisiana demonstrates the cyclical nature of a resource economy. Although the
state continues to diversify its base by providing a favorable environment for
the services, manufacturing, tourism and gaming sectors, Louisiana remains
largely dependent on the demand for, and the production of, petroleum, natural
gas, chemicals and minerals.
During the reporting period, the state benefited from an expansionary phase of
the economic cycle, with increased levels of oil and natural gas exploration and
production driving employment gains. In addition, increased revenues combined
with financially responsible government policies to produce operating
surpluses.2
The state still faces challenges in terms of per-capita income, but the trends
for Louisiana's economy remain positive.
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, 5/5/97.
You may find a complete listing of the fund's portfolio holdings beginning on
page 94 of this report.
PORTFOLIO NOTES
During the one-year reporting period, the general decline in interest rates led
to an increasing number of Louisiana municipal bonds being prerefunded. We
attempted to realize the greatest gain possible on those municipal bonds we
owned that were prerefunded, by selling them before they reached their call
date. As a result, the fund reduced its exposure to prerefunded bonds from 14.8%
of long-term investments on February 28, 1997, to 9.1% on February 28, 1998.
GRAPHIC MATERIAL 31 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q. WHAT HAPPENS WHEN A MUNICIPAL BOND IS PREREFUNDED, AND HOW DOES THIS AFFECT
ITS VALUE?
A. When a tax-free bond is prerefunded, it will be paid off at its first call
date by the proceeds from the sale of a new municipal bond issue that usually
offers a lower interest rate. Using this refinancing method, a municipality can
reduce its interest expense, by replacing higher-yielding bond issues with
lower-yielding ones. Money derived from the sale of the refinancing issue is
normally invested in U.S. Treasuries, which will mature upon the now prerefunded
bond's first call date and be used to pay off its prior financings. Because the
prerefunded bond now will have a shorter life and is also usually backed by U.S.
Treasuries, which enjoy the highest of credit ratings, the value of a municipal
bond increases when it is prerefunded. However, as a prerefunded bond approaches
its call date, its value decreases, as its premium falls to near its call price.
Using the proceeds from the securities we sold, we purchased current coupon
bonds with longer call protection, giving the fund an income stream with longer
protection. We tried to take advantage of any price drops over the one-year
period in Louisiana's bond market to buy bonds at relatively cheap prices, and
focused primarily on purchasing insured issues, which we believed to be
generally good values in relation to other municipal securities. The
comparatively large number of these high-rated, insured securities in the
Louisiana municipal bond market narrowed the difference in yields between AAA-
and lower-rated securities. Consequently, we concentrated on buying
higher-grade, essential-purpose issues and increased the fund's portfolio
holdings of AAA-rated securities from 58.8% of long-term investments, to 67.4%,
over the reporting period. Recent purchases included Dillard and Tulane
University revenue bonds.
Interest rates fell during the period, and the new bonds bought by the fund in
this environment offered an interest rate lower than that of the prerefunded
issues sold, forcing the fund to reduce its dividend. However, we continue to
manage Franklin Louisiana Tax-Free Income Fund with the intention of protecting
its share value and maintaining its competitive yield. We believe our
responsible investment approach, shunning risky derivative investments, and
purchases of current coupon bonds with long call protections, will benefit our
shareholders.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 32 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 33 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Louisiana Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 29 cents, from $11.32 on February 28, 1997, to $11.61
on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 64.2 cents ($0.642) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.2 cents
($0.052), which includes a dividend adjustment, and the maximum offering price
of $12.13 on February 28, 1998, your fund's distribution rate was 5.14%. 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 9.05%
from a taxable investment to match the fund's tax-free distribution rate.
The chart on page 34 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Louisiana municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Lousiana Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 34 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Louisiana Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.46% 33.74% 112.89% 123.93%
Average Annual Total Return2 3.87% 5.08% 7.38% 7.54%
Distribution Rate3 5.14%
Taxable Equivalent
Distribution Rate4 9.05%
30-Day Standardized
Yield5 4.16%
Taxable Equivalent
Yield4 7.33%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.2 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.13 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Louisiana personal income tax bracket of 43.2%, 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 February 28, 1998.
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 total
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. Since markets can go down as well as up, 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 35 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 36 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Louisiana Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 31 cents, from $11.37 on February 28, 1997, to $11.68
on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 57.96 cents ($0.5796) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.65
cents ($0.0465), which includes a dividend adjustment, and the maximum offering
price of $11.80 on February 28, 1998, your fund's distribution rate was 4.73%.
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 8.33%
from a taxable investment to match the fund's tax-free distribution rate.
The chart on page 36 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Louisiana municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Lousiana Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 37 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN LOUISIANA TAX-FREE INCOME FUND - CLASS II
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR (5/1/95)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.02% 22.40%
Average Annual Total Return2 5.99% 7.02%
Distribution Rate3 4.73%
Taxable Equivalent
Distribution Rate4 8.33%
30-Day Standardized
Yield5 3.73%
Taxable Equivalent
Yield4 6.57%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.65 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $11.80 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Louisiana state personal income tax bracket of 43.2%,
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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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
- -------------------------------------------------------------------------------
YOUR FUND'S OBJECTIVE: FRANKLIN MARYLAND TAX-FREE INCOME FUND 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
Economic growth in Maryland accelerated in 1997, with general fund revenues for
the period estimated at $7.6 billion, a 5.6% increase over the prior year.2 This
growth reflects the state's broad-based economy and a well-educated, highly
productive workforce. Strong wealth and income levels also contribute to the
state's sound financial position.
Maryland's population continues to show growth with its residents, new and old,
benefiting from a spurt of new employment opportunities that took the state from
49th to 23rd in job creation, as reported during 1997.3
Diversifying from its dependence on government employment -- a situation
resulting largely from the state's proximity to Washington, D.C. -- the twin
foundations of Maryland's economic strength today are services and trade. The
state also benefits from an advanced infrastructure that includes land, air, and
sea transportation.
GRAPHIC MATERIAL 38 OMITTED - SEE APPENDIX AT END OF DOCUMENT
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, 12/15/97.
3. Ibid.
You may find a complete listing of the fund's portfolio holdings beginning on
page 98 of this report.
GRAPHIC MATERIAL 39 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PORTFOLIO NOTES
During the one-year reporting period, many of the bonds in the fund's portfolio
were prerefunded, as interest rates continued to fall. We seek to sell
prerefunded bonds approximately five years before their call date, to obtain the
greatest gain we believe possible on those securities. As a result, the fund
sold several of its prerefunded issues and used the proceeds to purchase
municipal issues, which were not prerefunded. Unfortunately, the drop in
interest rates and the generally tight supply of Maryland municipal bonds
limited the fund's buying opportunities.
Q. WHAT HAPPENS WHEN A MUNICIPAL BOND IS PREREFUNDED, AND HOW DOES THIS AFFECT
ITS VALUE?
A. When a tax-free bond is prerefunded, it will be paid off at its first call
date by the proceeds from the sale of a new municipal bond issue that usually
offers a lower interest rate. Using this refinancing method, a municipality can
reduce its interest expense, by replacing higher-yielding bond issues with
lower-yielding ones. Money derived from the sale of the refinancing issue is
normally invested in U.S. Treasuries, which will mature upon the now prerefunded
bond's first call date and be used to pay off its prior financings. Because the
prerefunded bond now will have a shorter life and is also usually backed by U.S.
Treasuries, which enjoy the highest of credit ratings, the value of a municipal
bond goes up when it is prerefunded. However, as a prerefunded bond approaches
its call date, its value decreases, as its premium falls to near its call price.
The relatively small number of bonds in the Maryland municipal securities market
caused Maryland tax-free bonds to trade at a premium in comparison to most other
states' bonds. The limited number of available issues also resulted in fewer
buying opportunities for the fund than might be present in other municipal bond
markets. Within this challenging environment, we concentrated on purchasing
current coupon bonds with long call protection, which should stabilize Franklin
Maryland Tax-Free Income Fund's income stream in the future. The fund's income
earnings, however, have come under pressure because interest rates fell during
the period, reducing the amount of income all new municipal security issues pay.
At the same time, the high demand for Maryland securities allows them to offer a
lower yield than other tax-free bonds.
Despite the pressures on the fund's income, we believe Maryland tax-free bonds
remain a competitive investment choice for those desiring a relatively stable
share value and tax-free income. Going forward, we will continue to manage
Franklin Maryland Tax-Free Income Fund with the intention of protecting its
share value and maintaining its competitive yield. We believe our financially
responsible investment approach, shunning risky derivative investments, and
purchases of current coupon bonds with long call protections, will benefit our
shareholders.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 40 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 41 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Maryland Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 31 cents, from $11.33 on February 28, 1997, to $11.64 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 60.3 cents ($0.603) per share. Distributions will
vary based on the earnings of the fund's portfolio, and past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.9 cents
($0.049) and the maximum offering price of $12.16 on February 28, 1998, your
fund's distribution rate was 4.84%. This triple 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 and
local personal income tax bracket would need to earn 8.66% from a taxable
investment to match the fund's tax-free distribution rate.
The chart on page 41 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Maryland municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Maryland Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 42 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MARYLAND TAX-FREE INCOME FUND - CLASS I
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR 5-YEAR (10/3/88)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.27% 36.22% 100.95%
Average Annual Total Return2 3.69% 5.46% 7.21%
Distribution Rate3 4.84%
Taxable Equivalent
Distribution Rate4 8.66%
30-Day Standardized
Yield5 4.10%
Taxable Equivalent
Yield4 7.33%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 4.9 cent per
share monthly dividend and the maximum offering price of $12.16 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Maryland personal and local income tax bracket of 44.1%,
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 February 28, 1998.
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 total
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. Since markets can go down as well as up,
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 43 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 44 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Maryland Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 32 cents, from $11.40 on February 28, 1997, to $11.72
on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 53.74 cents ($0.5374) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.35
cents ($0.0435) and the maximum offering price of $11.84 on February 28, 1998,
your fund's distribution rate was 4.41%. This triple 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 and
local personal income tax bracket would need to earn 7.89% from a taxable
investment to match the fund's tax-free distribution rate.
The chart on page 43 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Maryland municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Maryland Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 45 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MARYLAND TAX-FREE INCOME FUND - CLASS II
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR 5/1/95)
- -------------------------------------------------------------------------
Cumulative Total Return1 7.70% 22.82%
Average Annual Total Return2 5.59% 7.15%
Distribution Rate3 4.41%
Taxable Equivalent
Distribution Rate4 7.89%
30-Day Standardized
Yield5 3.68%
Taxable Equivalent
Yield4 6.58%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.35 cent per
share monthly dividend, and the offering price of $11.84 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Maryland state personal income tax bracket of 44.1%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. 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 46 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MISSOURI TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
YOUR FUND'S OBJECTIVE: FRANKLIN MISSOURI TAX-FREE INCOME FUND 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
Missouri's AAA rating from Standard & Poor's, a national credit rating agency,
is based on the state's low debt burden, a diversified economic base and sound
financial management.2
Missouri demonstrated these same favorable economic attributes during the
reporting period. At the end of 1997, Missourians' personal income rose 5.9%.
The state's unemployment rate of 3.5% for the year represents a historic low and
is almost a full point below the nation's.3
1997 saw the elimination of the state's general sales tax for food. In his State
of the State address in January 1998, the governor proposed an incremental cut
on property tax for homeowners and for renters. If implemented, this 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: Governor's State of the State Speech, 1/21/98.
You may find a complete listing of the fund's portfolio holdings beginning on
page 102 of this report.
PORTFOLIO NOTES
In managing of Franklin Missouri Tax-Free Income Fund, we actively pursued
several strategies. We sought to sell prerefunded bonds in our portfolio, as
they approached five years to their call date, to achieve what we believed would
be the maximum gain possible on those securities. Also, we attempted to invest
the proceeds from those sales in current coupon bonds with good call protection,
in the interest of extending the fund's income-earning potential. At the same
time, we focused on buying bonds possessing insurance. The large number of
high-rated, insured bonds in the Missouri municipal bond market made them, in
our opinion, excellent buys, as their prices fell to near the general level of
lower-rated bonds.
During the one-year reporting period, we also concentrated on diversifying our
fund across several investment sectors in an effort to minimize our risk. As the
chart to the right demonstrates, we are currently invested in twelve different
sectors. The majority of our investment sectors comprise between 5%-15% of the
fund's total long-term holdings, with only three of the sectors falling
marginally outside this range. As a result, our investment exposure is generally
well-spread among different investment sectors, with no single sector
constituting too large a proportion of our holdings.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 47 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 48 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 49 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Missouri Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 40 cents, from $11.83 on February 28, 1997, to $12.23 on
February 28, 1998. In addition to distributing 64.2 cents ($0.642) per share in
dividend income, the fund made long-term capital gain distributions totaling
4.25 cents ($0.0425) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.2 cents
($0.052) and the maximum offering price of $12.77 on February 28, 1998, your
fund's distribution rate was 4.89%. 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 Missouri state personal income tax
bracket would need to earn 8.61% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 47 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Missouri municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Missouri Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 50 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MISSOURI TAX-FREE INCOME FUND - CLASS I
Periods ended 2/28/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
- -------------------------------------------------------------------------------
Cumulative Total Return1 9.43% 38.19% 119.36% 128.56%
Average Annual Total Return2 4.73% 5.76% 7.70% 7.75%
Distribution Rate3 4.89%
Taxable Equivalent
Distribution Rate4 8.61%
30-Day Standardized
Yield5 4.06%
Taxable Equivalent
Yield4 7.15%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.2 cent per
share monthly dividend and the maximum offering price of $12.77 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Missouri state personal income tax bracket of 43.2%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
Franklin Missouri Tax-Free Income Fund - Class I paid distributions derived from
long-term capital gains of .84 cents ($0.0084) per share in June 1997 and 3.41
cents ($0.0341) per share in December 1997. The fund hereby designates such
distributions as capital gain dividends per Section 852 (b)(3) of the Internal
Revenue Code.
GRAPHIC MATERIAL 51 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 52 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Missouri Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 42 cents, from $11.85 on February 28, 1997, to $12.27
on February 28, 1998. In addition to distributing 57.04 cents ($0.5704) per
share in dividend income, the fund made long-term capital gain distributions
totaling 4.25 cents ($0.0425) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.63
cents ($0.0463) and the maximum offering price of $12.39 on February 28, 1998,
your fund's distribution rate was 4.48%. 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 Missouri state personal income tax
bracket, would need to earn 7.89% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 49 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Missouri municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Missouri Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 53 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MISSOURI TAX-FREE INCOME FUND - CLASS II
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR (5/1/95)
- ------------------------------------------------------------------------------
Cumulative Total Return1 8.96% 23.38%
Average Annual Total Return2 6.88% 7.31%
Distribution Rate3 4.48%
Taxable Equivalent
Distribution Rate4 7.89%
30-Day Standardized
Yield5 3.64%
Taxable Equivalent
Yield4 6.41%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.63 cent per
share monthly dividend, and the offering price of $12.39 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Missouri state personal income tax bracket of 43.2%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
Franklin Missouri Tax-Free Income Fund - Class II paid distributions derived
from long-term capital gains of .84 cents ($0.0084) per share in June 1997 and
3.41 cents ($0.0341) per share in December 1997. The fund hereby designates such
distributions as capital gain dividends per Section 852 (b)(3) of the Internal
Revenue Code.
GRAPHIC MATERIAL 54 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
YOUR FUND'S OBJECTIVE: FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND 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
In 1997, North Carolina's economy demonstrated both strong growth and healthy
change. No longer so heavily reliant on textile and apparel manufacture, the
state now boasts strengths in services, finance, and trade. In addition, an
expansion of its high-tech industry, centered in the Research Triangle Park
region, leverages the presence of three important research universities that
provide the state with a source of highly educated labor.
North Carolina is an infrequent borrower and has long followed responsible debt
issuance policies. With debt ratios among the lowest in the nation, Standard &
Poor's, a national credit rating agency, gives North Carolina's general
obligation bonds its highest rating, AAA.2
We expect North Carolina's economy will expand and that the state will continue
to exercise budgetary discipline to maintain its strong 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.
You may find a complete listing of the fund's portfolio holdings beginning on
page 107 of this report.
PORTFOLIO NOTES
As a result of the lower interest rate environment, many municipal bonds,
including several owned by the fund, were prerefunded, during the one-year
reporting period. When a bond is prerefunded, it will be replaced at its first
call date by a lower yielding bond issued by its municipality. This refinancing
method allows a municipal government to lower its borrowing cost, and also
increases the value of the prerefunded bond, as its debt will almost certainly
be paid off early. However, this premium decreases over time. As the date
approaches when the prerefunded bond's debt will be retired, its price drops to
its call price. Consequently, we sought to sell our prerefunded bonds typically
when they had five years remaining before their first call date.
The strong economy and low interest rates experienced over the period encouraged
municipalities not only to prerefund outstanding bonds, but also to issue more
insured debt. In fact, more than half of new bonds entering the municipal
securities market were insured. We sought to take advantage of the large number
of high-rated insured issues by purchasing a significant number of insured bonds
that represented a good value compared with other municipal securities. The
fund's holding of AAA-rated securities increased from 37.0% of long-term
investments on February 28, 1997, to 45.6% on February 28, 1998. At the same
time, we sought to purchase bonds with relatively long call protection to help
protect the fund's income-earning potential. Among the bonds we purchased during
the period were: North Carolina Housing Finance Authority, Charlotte-Mecklenburg
Hospital, University North Carolina Greensboro and Centennial North Carolina
Arena Project.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 55 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 56 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 57 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin North Carolina Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased 38 cents, from $11.73 on February 28, 1997, to
$12.11 on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 62.4 cents ($0.624) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.1 cents
($0.051), which includes a dividend adjustment, and the maximum offering price
of $12.65 on February 28, 1998, your fund's distribution rate was 4.84%. 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
8.69% from a taxable investment to match the fund's tax-free distribution rate.
The chart on page 53 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of North Carolina municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin North Carolina Tax-Free Income Fund's had been applied to this
index, the index's performance would have been lower. Please remember that an
index is simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 58 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND - CLASS I
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (9/1/87)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.78% 34.15% 112.64% 125.86%
Average Annual Total
Return2 4.17% 5.13% 7.37% 7.63%
Distribution Rate3 4.84%
Taxable Equivalent
Distribution Rate4 8.69%
30-Day Standardized
Yield5 4.05%
Taxable Equivalent
Yield4 7.27%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.1 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.65 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and North Carolina personal income tax bracket of 44.3% 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 February 28, 1998.
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 total
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. Since markets can go down as well as up, 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 59 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 60 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin North Carolina Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 39 cents, from $11.79 on February 28, 1997, to
$12.18 on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 55.62 cents ($0.5562) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per share dividend of 4.53
cents ($0.0453), which includes a dividend adjustment, and the maximum offering
price of $12.30 on February 28, 1998, your fund's distribution rate was 4.42%.
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
North Carolina state personal income tax bracket would need to earn 7.94% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 55 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of North Carolina municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin North Carolina Tax-Free Income Fund's had been applied to this
index, the index's performance would have been lower. Please remember that an
index is simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 61 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND - CLASS II
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR (5/1/95)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.22% 22.13%
Average Annual Total Return2 6.14% 6.92%
Distribution Rate3 4.42%
Taxable Equivalent
Distribution Rate4 7.94%
30-Day Standardized Yield5 3.63%
Taxable Equivalent Yield4 6.52%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.53 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $12.30 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and North Carolina state personal income tax bracket of 44.3%,
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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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 62 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN TEXAS TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
YOUR FUND'S OBJECTIVE: FRANKLIN TEXAS TAX-FREE INCOME FUND 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, a hearty Texas economy continued to grow and expand. Although
traditionally dependent on gas and oil, Texas has reduced this volatile sector's
economic importance more than 50% since the early 1980s.2
In the Texas of today, the stellar performers include apparel and technology. Of
special interest is the high-tech sector, second only to California's in total
jobs. With the state's favorable cost of business and high-quality workforce,
Texas has successfully attracted technology investments, particularly in Dallas
and Austin.
Economic forecasts for fiscal 1997 show the state estimating an ending cash
position of $1.6 billion and a general fund surplus of $413 million.3 Our
outlook for Texas is for the continued, steady improvement of an economy whose
growth already outpaces the national average.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: Moody's Investors Service, 07/25/97.
3. Source: Standard & Poor's CreditWeek Municipal, 11/10/97.
4. Ibid.
You may find a complete listing of the fund's portfolio holdings beginning on
page 112 of this report.
PORTFOLIO NOTES
Many municipalities took advantage of the general decline in interest rates to
prerefund a significant number of their outstanding tax-free bonds, during the
one-year reporting period. We attempted to realize the greatest gain possible on
those municipal bonds we owned that were prerefunded, by selling them before
they reached their call date, and on February 28, 1998, prerefunded bonds
comprised 9.5% of the fund's long-term investments.
GRAPHIC MATERIAL 63 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q. WHAT HAPPENS WHEN A MUNICIPAL BOND IS PREREFUNDED, AND HOW DOES THIS AFFECT
ITS VALUE?
A. When a tax-free bond is prerefunded, it will be paid off at its first call
date by the proceeds from the sale of a new municipal bond issue that usually
offers a lower interest rate. Using this refinancing method, a municipality can
reduce its interest expense, by replacing higher-yielding bond issues with
lower-yielding ones. Money derived from the sale of the refinancing issue is
normally invested in U.S. Treasuries, which will mature upon the now prerefunded
bond's first call date and be used to pay off its prior financings. Because the
prerefunded bond now will have a shorter life and is also usually backed by U.S.
Treasuries, which enjoy the highest of credit ratings, the value of a municipal
bond goes up when it is prerefunded. However, as a prerefunded bond approaches
its call date, its value decreases, as its premium falls to near its call price.
We tried to take advantage of any price drops over the one-year period in the
Texas municipal bond market to buy bonds at relatively cheap prices, and focused
primarily on purchasing insured issues, which we believed to be generally good
values in relation to other municipal securities. The comparatively large number
of these high-rated, insured securities in the Texas municipal bond market
narrowed the difference in yields between AAA- and lower-rated securities.
Consequently, we concentrated on buying higher-grade, essential-purpose issues.
As the table on the previous page shows, direct revenue utility issues made up
23.1%, and education issues comprised 16.2% of the fund at the close of the
period. Recent purchases included Rio Hondo Independent School District and
Brazos River Authority. On February 28, 1998, the fund held 62.7% of long-term
investments in AAA-rated securities.
Interest rates fell during the period and the many of the new bonds bought by
the fund offered a lower interest rate than the prerefunded issues we sold,
forcing the fund to reduce its dividend. Yet, in addition to purchasing insured
bonds, we also sought to buy municipal securities with relatively long call
protections. In the future, this should stabilize the fund's income stream. We
continue to manage Franklin Texas Tax-Free Income Fund with the intention of
protecting its share value and maintaining its competitive yield. We believe our
fiscally responsible investment approach, shunning of risky derivative
investments, and purchases of current coupon bonds with long call protections,
will benefit our shareholders.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 64 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 65 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Texas Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 31 cents, from $11.37 on February 28, 1997, to $11.68 on
February 28, 1998. In addition to distributing 64.2 cents ($0.642) per share in
dividend income, the fund made a long-term capital gain distribution of 1.71
cents ($0.0171) per share, and a short-term capital gain distribution of 1.39
cents ($0.0139) per share during the 12-month reporting period. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.1 cents
($0.051), which includes a dividend adjustment, and the maximum offering price
of $12.20 on February 28, 1998, your fund's distribution rate was 5.02%. 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 have to earn 8.31% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 60 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Texas municipal bonds. Of course, such a market index has inherent
performance differentials over any fund. It does not pay management fees to
cover salaries of securities analysts or portfolio managers, or pay commissions
or market spreads to buy and sell securities. Unlike an index, mutual funds are
never 100% invested because they need cash on hand to redeem shares. In
addition, the performance shown for the fund includes the maximum initial sales
charge, all fund expenses and account fees. If operating expenses such as
Franklin Texas Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 66 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN TEXAS TAX-FREE INCOME FUND - CLASS I
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-Year 5-Year 10-Year (9/1/87)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.91% 36.22% 116.06% 129.98%
Average Annual Total
Return2 4.32% 5.46% 7.54% 7.81%
Distribution Rate3 5.02%
Taxable Equivalent
Distribution Rate4 8.31%
30-Day Standardized
Yield5 4.01%
Taxable Equivalent
Yield4 6.64%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.1 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.20 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
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.
GRAPHIC MATERIAL 67 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 68 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Texas Tax-Free Income Fund - Class II share price, as measured by net
asset value, increased 32 cents, from $11.49 on February 28, 1997, to $11.81 on
February 28, 1998. In addition to distributing 57.81 cents ($0.5781) per share
in dividend income, the fund made a long-term capital gain distribution of 1.71
cents ($0.0171) per share, and a short-term capital gain distribution of 1.39
cents ($0.0139) per share during the 12-month reporting period. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.52
cents ($0.0452), which includes a dividend adjustment, and the maximum offering
price of $11.93 on February 28, 1998, your fund's distribution rate was 4.55%.
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 have to earn 7.53% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 62 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Texas municipal bonds. Of course, such a market index has inherent
performance differentials over any fund. It does not pay management fees to
cover salaries of securities analysts or portfolio managers, or pay commissions
or market spreads to buy and sell securities. Unlike an index, mutual funds are
never 100% invested because they need cash on hand to redeem shares. In
addition, the performance shown for the fund includes the maximum initial sales
charge, all fund expenses and account fees. If operating expenses such as
Franklin Texas Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 69 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN TEXAS TAX-FREE INCOME FUND - CLASS II
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR (5/1/95)
- ------------------------------------------------------------------------------
Cumulative Total Return1 8.31% 23.50%
Average Annual Total Return2 6.20% 7.37%
Distribution Rate3 4.55%
Taxable Equivalent
Distribution Rate4 7.53%
30-Day Standardized Yield5 3.58%
Taxable Equivalent Yield4 5.93%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.52 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $11.93 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
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.
GRAPHIC MATERIAL 70 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
YOUR FUND'S OBJECTIVE: FRANKLIN VIRGINIA TAX-FREE INCOME FUND 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
Standard & Poor's AAA rating for Virginia's general obligation debt reflects a
growing, diversified economy; above-average income levels; strong financial
management; and a low debt burden.2 The state's population growth over the past
two years has been among the nation's strongest, increasing more than 1%
annually.3
During 1997, as in previous years, the technology industry was a powerful engine
of Virginia's economic development. During the reporting period, IBM, Siemens,
Toshiba, and Motorola participated in the construction of new semiconductor
facilities in the state.4 Virginia's success in attracting such companies led to
a new name for the state known traditionally as "Old Dominion." Virginia in the
last half of the 1990s is "the Silicon Dominion."
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. Ibid.
4. Ibid.
You may find a complete listing of the fund's portfolio holdings beginning on
page 116 of this report.
GRAPHIC MATERIAL 71 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PORTFOLIO NOTES
During the one-year reporting period, we actively pursued several strategies in
managing the Franklin Virginia Tax-Free Income Fund. We sought to sell
prerefunded bonds in our portfolio, as they approached five years to their call
date to achieve what we believed would be the maximum gain possible on those
securities. Also, we attempted to invest the proceeds from those sales in
current coupon bonds with good call protection, in the interest of extending the
fund's income earning potential. At the same time, we focused on buying bonds
possessing insurance. The large number of high-rated insured bonds in the
Virginia municipal bond market made them, in our opinion, excellent buys, as
their yields fell near the general level of lower-rated bonds.
Largely as a result of our purchases of insured bonds, over half the bonds in
Franklin Virginia Tax-Free Income Fund's portfolio now enjoy the highest credit
rating of AAA, as demonstrated by the credit quality chart on page 63. Overall,
the supply of Virginia municipal securities remained stable, and our purchases
during the one-year period included: Norfolk Water revenue bonds, Fredericksburg
VA IDA Hospital Facility Revenue Refunding-Medicorp Health System Obligation,
Loudoun County VA IDA Hospital Revenue Loudoun Hospital Center, Spotsylvania
County VA Water and Sewer System Revenue Bond.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 72 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 73 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Franklin Virginia Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 23 cents, from $11.65 on February 28, 1997, to $11.88 on
February 28, 1998. In addition to distributing 63.6 cents ($0.636) per share in
dividend income, the fund made long-term capital gain distributions totaling
9.85 cents ($0.0985) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.1 cents
($0.051), which includes a dividend adjustment, and the maximum offering price
of $12.41 on February 28, 1998, your fund's distribution rate was 4.93%. 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
Virginia state personal income tax bracket would have to earn 8.66% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 66 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Virginia municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Virginia Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 74 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN VIRGINIA TAX-FREE INCOME FUND - CLASS I
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (9/1/87)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.53% 35.69% 114.11% 127.02%
Average Annual Total Return2 3.89% 5.37% 7.45% 7.67%
Distribution Rate3 4.93%
Taxable Equivalent
Distribution Rate4 8.66%
30-Day Standardized
Yield5 4.15%
Taxable Equivalent
Yield4 7.29%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.1 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.41 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Virginia state personal income tax bracket of 43.1%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower
initial sales charge, with dividends reinvested at the offering price. Thus
actual total 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. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
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 and 6.59 cents ($0.0659) per share in December 1997. The fund hereby
designates such distributions as capital gain dividends per Section 852 (b)(3)
of the Internal Revenue Code.
GRAPHIC MATERIAL 75 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 76 OMITTED - SEE APPENDIX AT END OF DOCUMENT
CLASS II
Franklin Virginia Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 24 cents, from $11.71 on February 28, 1997, to $11.95
on February 28, 1998. In addition to distributing 57.04 cents ($0.5704) per
share in dividend income, the fund made long-term capital gain distributions
totaling 9.85 cents ($0.0985) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.55
cents ($0.0455), which includes a dividend adjustment, and the maximum offering
price of $12.07 on February 28, 1998, your fund's distribution rate was 4.52%.
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
Virginia state personal income tax bracket, would have to earn 7.94% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 68 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Virginia municipal bonds. Of course, such a market index has
inherent performance differentials over any fund. It does not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin Virginia Tax-Free Income Fund's had been applied to this index,
the index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 77 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN VIRGINIA TAX-FREE INCOME FUND - CLASS II
PERIODS ENDED 2/28/98
SINCE
INCEPTION
1-YEAR (5/1/95)
- -------------------------------------------------------------------------------
Cumulative Total Return1 7.97% 21.92%
Average Annual Total Return2 5.88% 6.89%
Distribution Rate3 4.52%
Taxable Equivalent
Distribution Rate4 7.94%
30-Day Standardized
Yield5 3.73%
Taxable Equivalent
Yield4 6.55%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investments.
3. Distribution rate is based on an annualization of the current 4.55 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $12.07 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
Franklin Virginia Tax-Free Income Fund - Class II paid distributions derived
from long-term capital gains 3.26 cents ($0.0326) per share in June 1997 and
6.59 cents ($0.0659) per share in December 1997. The fund hereby designates such
distributions as capital gain dividends per Section 852 (b)(3) of the Internal
Revenue Code.
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
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 generally are invested in U.S. Treasuries set to mature at the original
bond's 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
generally are referred to as "gilt-edged." Interest payments are protected by a
large or exceptionally stable margin, and principal is secure. Although 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 generally are 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 likely will 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>
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS I 1998 1997 1996*** 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.73 $11.73 $11.31 $11.80 $11.71
----------------------------------------
Income from investment operations:
Net investment income .64 .65 .66 .66 .66
Net realized and unrealized gains (losses) .36 .01 .42 (.50) .09
----------------------------------------
Total from investment operations 1.00 .66 1.08 .16 .75
----------------------------------------
Less distributions from:
Net investment income (.65) (.66) (.66) (.65) (.66)
Net realized gains (.10) -- -- -- --
----------------------------------------
Total distributions (.75) (.66) (.66) (.65) (.66)
----------------------------------------
Net asset value, end of year $11.98 $11.73 $11.73 $11.31 $11.80
========================================
Total return* 8.79% 5.84% 9.74% 1.54% 6.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $216,98 $193,466 $185,981 $170,051 $178,414
to average net assets:
Expenses .72% .71% .72% .72% .64%
Net investment income 5.39% 5.62% 5.69% 5.88% 5.62%
Portfolio turnover rate 10.44% 15.47% 12.39% 19.85% 14.87%
Class II
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.78 $11.77 $11.36
-------------------------
Income from investment operations:
Net investment income .58 .59 .49
Net realized and unrealized gains .36 .01 .41
-------------------------
Total from investment operations .94 .60 .90
-------------------------
Less distributions from:
Net investment income (.58) (.59) (.49)
Net realized gains (.10) -- --
-------------------------
Total distributions (.68) (.59) (.49)
-------------------------
Net asset value, end of year $12.04 $11.78 $11.77
=========================
Total return* 8.23% 5.28% 8.01%
Ratios/supplemental data
Net assets, end of year (000's) $9,469 $5,683 $1,662
Ratios to average net assets:
Expenses 1.29% 1.28% 1.29%**
Net investment income 4.80% 5.05% 5.09%**
Portfolio turnover rate 10.44% 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.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.5%
<S> <C> <C>
Alabama Building Renovation Financing Authority Revenue, 7.45%, 9/01/11 $1,500,000$ 1,647,990
Alabama HFA, SFMR, GNMA Secured,
Series A, 7.50%, 10/01/10 490,000 517,362
Series A, 8.00%, 10/01/20 115,000 118,350
Series A-1, 6.50%, 4/01/17 3,440,000 3,648,017
Series A-2, 6.80%, 4/01/25 1,215,000 1,312,382
Series C, 7.45%, 10/01/21 285,000 296,645
Series C-2, 7.75%, 4/01/22 910,000 956,865
Series D-2, 5.75%, 10/01/23 2,000,000 2,057,820
Alabama State Docks Department, Docks Facilities Revenue,
MBIA Insured, 6.30%, 10/01/21 4,500,000 4,922,910
Alabama State IDA, Solid Waste Disposal Revenue,
Pine City Fiber Co., 6.45%, 12/01/23 2,000,000 2,170,240
Alabama State 1University Dormitory Revenue,
Pre-Refunded, 8.00%, 1/01/14 250,000 265,848
Alabama Water Pollution Control Authority,
Revolving Fund Loan, Series B, 7.75%, 8/15/12 3,095,000 3,392,894
Alabaster Water and Gas Board Revenue, AMBAC
Insured, 6.35%, 9/01/14 2,215,000 2,452,825
Alexander City Utility Revenue,
Refunding, Warrants, FSA Insured, 6.20%, 8/15/10 2,000,000 2,206,220
Anniston Regional Medical Center Board, Hospital Revenue,
Refunding, Northeast Alabama Regional Medical Center Project, Series A,
7.70%, 7/01/08 250,000 255,425
Athens Electric Revenue, Warrants, MBIA Insured, 6.00%, 6/01/25 1,000,000 1,077,800
Athens-Limestone Health Care Authority, Hospital Tax Anticipation & Revenue,
Asset Guaranty Insured, 5.00%, 5/01/13 2,000,000 1,997,740
Athens Water and Sewer Revenue, Warrants, AMBAC Insured, 6.10%, 8/01/18 1,500,000 1,609,590
Auburn Governmental Utility Services Corp., Waste Water Revenue,
Merscot-Auburn, L.P., FGIC Insured, 7.30%, 1/01/12 1,460,000 1,559,455
Auburn University General Fee Revenue, Refunding, 7.00%, 6/01/11 2,000,000 2,204,760
Bessemer Medical Clinic Board Revenue, Refunding, Bessemer Carraway
Center, Series A, MBIA Insured, 7.25%, 4/01/15 1,000,000 1,072,290
Birmingham Airport Authority Revenue, Series A, AMBAC Insured, 7.375%, 7/01/10 500,000 536,100
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 3,565,030
Refunding, Baptist Health System, Inc., 5.875%. 11/15/26 2,000,000 2,029,140
Series A, 7.00%, 1/01/21 1,870,000 2,000,769
Birmingham GO, Refunding, Series B, 6.25%, 4/01/16 1,000,000 1,078,410
Birmingham-Jefferson Civic Center Authority, Special Tax, Capital Outlay,
7.40%, 1/01/08 285,000 298,233
7.25%, 1/01/12 640,000 655,450
Birmingham Special Care Facilities Financing Authority Revenue, Health Care,
Medical Center East, MBIA Insured, 7.00%, 7/01/12 1,200,000 1,313,064
Birmingham Special Care Facilities Financing Authority Revenue, Refunding,
Medical Center East, MBIA Insured, 7.25%, 7/01/15 2,000,000 2,018,620
Birmingham Southern College, Private Educational Building Authority Tuition,
Refunding, 5.35%, 12/01/19 1,000,000 1,006,410
Camden IDB, PCR, Facilities Revenue, Refunding, MacMillian Bloedel Project,
Series A, 7.75%, 5/01/09 3,250,000 3,558,978
Citronelle IDB, PCR, Stauffer Chemical Project, Guaranteed by Imperial
Chemical, Plc., Series 1982, 8.00%, 12/01/12 500,000 548,260
Coffee County PBA, Building Revenue, Warrants, FSA Insured,
6.10%, 9/01/16 1,000,000 1,083,000
Colbert County Health Care Authority, Helen Keller Hospital,
Refunding, 8.75%, 6/01/09 1,750,000 1,933,505
Columbia IDB, PCR, Refunding, Alabama Power Co.
Project, AMBAC
Insured, 6.50%, 9/01/23 5,000,000 5,234,000
Courtland IDB, Environmental Improvement Revenue, Refunding, Champion
International Corp. Project, 6.40%, 11/01/26 2,000,000 2,160,280
Courtland IDB, Solid Waste Disposal Revenue, Champion
International Corp. Project, 7.75%, 1/01/20 505,000 541,784
Series A, 6.50%, 9/01/25 5,000,000 5,431,300
Courtland IDBR, Refunding, Champion International Corp. Project,
Series A, 7.20%, 12/01/13 4,000,000 4,465,840
Demopolis HDC, MFHR,
Refunding, Series A, FSA Insured, 7.625%, 8/01/19 1,400,000 1,467,746
Fairfield IDB,
Environmental Improvement Revenue, Refunding, USX Corp.
Project, Series A, 6.70%, 12/01/24 3,500,000 3,813,495
Fairfield, Warrants, AMBAC Insured, 6.30%, 6/01/22 3,000,000 3,241,290
Gadsden HDC, MFR, Refunding, Series A, 7.00%, 1/01/22 1,565,000 1,628,257
Guam Airport Authority Revenue, Refunding, Series A, 6.50%, 10/01/23 1,000,000 1,101,730
Gulf Shores GO, Refunding, Warrants, AMBAC Insured, 6.00%, 9/01/21 1,935,000 2,103,306
Helena Utilities Board, Water and Sewer Revenue,
MBIA Insured, 5.75%, 9/01/25 6,000,000 6,303,840
Homewood Special Care Facilities Financing Authority Hospital Revenue,
Lakeshore Hospital Project, Refunding, Series B,
Pre-Refunded, 8.25%, 2/01/04 360,000 378,875
Houston County Health Care Authority Revenue, Southeast Alabama
Medical Center, MBIA Insured, 6.125%, 10/01/12 2,070,000 2,209,208
Huntsville Health Care Authority Facilities Revenue, Series B, MBIA
Insured, 6.50%, 6/01/13 2,175,000 2,480,544
Huntsville Solid Waste Disposal Authority and Resource Recovery
Revenue, FGIC Insured, 7.00%, 10/01/14 230,000 248,391
Jackson IDBR, Refunding, Solid Waste-Boise Cascade, 5.7% 12/01/27 4,150,000 4,224,285
Jasper County Waterworks & Sewer Board, Water and Sewer Revenue,
AMBAC Insured, 6.15%, 6/01/14 $ 1,000,000$ 1,094,810
Jefferson County Sewer Revenue, Warrants,
ETM, 7.50%, 9/01/13 200,000 207,606
Refunding, Series A, FGIC Insured, 5.375%, 2/01/27 4,675,000 4,735,822
Series D, 5.75%, 2/01/27 6,000,000 6,376,440
LCM Housing Assistance Corp. Project, MFR, Refunding,
Series A, 7.875%, 1/01/22 1,255,000 1,308,074
Lee County GO, Warrants, AMBAC Insured, 5.50%, 2/01/21 2,250,000 2,286,113
Limestone County Water Authority Revenue, FGIC Insured,
7.70%, 12/01/19 1,050,000 1,080,366
Madison County PBA Revenue, Warrants, 6.90%, 11/01/11 500,000 545,450
Madison GO, Warrants, MBIA Insured, 6.00%, 4/01/23 2,000,000 2,171,040
Series B, 6.25%, 2/01/15 1,560,000 1,708,808
Madison School, Warrants, MBIA Insured, 6.25%, 2/01/14 2,290,000 2,508,443
Marshall County Health Care Authority Hospital Revenue,
Crossover Refunding, Guntersville-Arab Medical Center, 7.60%, 10/01/07 2,530,000 2,832,942
Refunding, Boaz-Albertville Medical Center, 6.50%, 1/01/18 10,810,000 11,565,835
Mobile Airport Authority Revenue, Mae Project, 7.375%, 11/01/12 1,000,000 1,082,130
Mobile Commission of Water and Sewer Revenue, Refunding, 6.50%, 1/01/09 1,500,000 1,636,170
Mobile Housing Assistance Corp., MFHR, Refunding, Series A, FSA Insured,
7.625%, 2/01/21 1,340,000 1,399,697
Mobile IDB, Mobile Energy Service Co. Project, Solid Waste Disposal Revenue,
Refunding, 6.95%, 1/01/20 8,000,000 8,844,320
Montgomery BMC Special Care Facilities, Financing Authority Revenue,
Baptist Medical Center, Series A, 5.00%, 5/01/20 1,250,000 1,207,675
Montgomery Medical Clinic Board, Health Care Facilities Revenue, Jackson
Hospital & Clinic, Refunding, AMBAC Insured, 6.00%, 3/01/26 6,000,000 6,433,140
Morgan County, Decatur Health Care Revenue, Refunding, Decatur General
Hospital, Connie Lee Insured, 6.375%, 3/01/24 5,750,000 6,224,950
Moulton Waterworks Board, Water Revenue, Series A, 6.30%, 1/01/18 1,500,000 1,549,290
Muscle Shoals GO, Refunding, Warrants, MBIA Insured,
5.80%, 8/01/16 1,725,000 1,838,643
5.90%, 8/01/25 7,000,000 7,430,920
Northeast Alabama Water, Sewer and Fire Protection District Revenue,
AMBAC Insured, 6.375%, 5/01/22 2,000,000 2,150,920
Pre-Refunded, 7.90%, 5/01/15 30,000 30,796
Northport GO, Water and Sewer, Warrants, FGIC Insured,
Pre-Refunded, 7.70%, 12/01/13 200,000 209,780
Oneonta Utilities Board Revenue,
FSA Insured, 6.90% 11/01/24 230,000 260,443
Pre-Refunded, 6.90% 11/01/24 4,770,000 5,583,285
Refunding, MBIA Insured, 5.50%, 11/01/23 3,820,000 3,928,297
Pelham GO, Warrants, AMBAC Insured, 6.25%, 11/01/22 2,500,000 2,711,450
Perdido Bay Water Sewer & Fire Protection District Water Revenue,
Refunding, FSA Insured, 5.375%, 11/01/22 1,085,000 1,094,993
Phenix City IDB, Environmental Improvement Revenue, Refunding, Mead
Coated Board, Series A, 5.30%, 4/01/27 2,000,000 1,970,720
Piedmont IDBR, Springs Industrial Project, 8.25%, 9/01/10 780,000 856,541
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded,
7.90%, 7/01/07 500,000 516,995
7.875%, 7/01/17 175,000 180,905
Puerto Rico Commonwealth Highway Authority Revenue,
Refunding, Series R, 7.15%, 7/01/00 600,000 642,756
Series P, Pre-Refunded, 8.125%, 7/01/13 155,000 160,354
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A, 7.90%, 7/01/07 175,000 180,831
Puerto Rico Commonwealth Urban Renewal and Housing Corp.,
Refunding, 7.875%, 10/01/04 300,000 322,092
Puerto Rico Electric Power Authority Revenue, Refunding,
Series M, Pre-Refunded, 8.00%, 7/01/08 350,000 362,009
Series N, 7.00%, 7/01/07 355,000 373,066
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA,
Upjohn Co. Project, Limited Offering, 7.50%, 12/01/23 200,000 211,576
Russell County PBA Revenue, Jail Project, Pre-Refunded, 8.50%, 1/01/14 200,000 211,542
Russellville GO, Refunding, Warrants, MBIA Insured, 5.75% 12/01/26 2,500,000 2,624,450
Tuscaloosa, Warrants, AMBAC Insured, 6.75%, 7/01/20 4,925,000 5,259,948
Tuscaloosa County Board Education, Capital Outlay, Warrants, Series A,
AMBAC Insured, 5.5% 02/01/27 2,375,000 2,450,310
Valley Special Care Facilities, Financing Authority Revenue, Lanier
Memorial Hospital, Series A, 5.65%, 11/01/22 1,500,000 1,504,950
West Jefferson IDB, PCR, Refunding, Alabama Power Co., Miller Plant,
Series C, MBIA Insured, 6.05%, 5/01/23 $ 5,000,000 $5,110,250
Wilsonville IDB, PCR, Refunding, Southern Electric Generating System,
Series C, MBIA Insured, 6.75%, 2/01/15 3,500,000 3,772,754
---------
TOTAL INVESTMENTS (COST $207,787,674) 98.5% 223,153,265
OTHER ASSETS, LESS LIABILITIES 1.5% 3,298,260
-----------
NET ASSETS 100% $226,451,525
============
</TABLE>
See glossary of terms on page 120.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN FLORIDA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS I 1998 1997 1996*** 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.59 $11.69 $11.35 $11.77 $11.68
------------------------------------
Income from investment operations:
Net investment income .64 .67 .69 .69 .70
Net realized and unrealized gains (losses) .30 (.08) .34 (.44) .09
----------------------------------
Total from investment operations .94 .59 1.03 .25 .79
----------------------------------
Less distributions from:
Net investment income (.65) (.69) (.69) (.67) (.70)
In excess of net investment income (.01) -- -- -- --
-----------------------------------
Total distributions (.66) (.69) (.69) (.67) (.70)
------------------------------------
Net asset value, end of year $11.87 $11.59 $11.69 $11.35 $11.77
=====================================
Total return* 8.37% 5.20% 9.28% 2.36% 6.63%
Ratios/supplemental data
Net assets, end of year (000's) $1,650,068 $1,458,087 $1,353,54 $1,265,018 $1,361,583
Ratios to average net assets:
Expenses .61% .60% .60% .59% .52%
Net investment income 5.45% 5.78% 5.93% 6.15% 5.90%
Portfolio turnover rate 5.60% 12.00% 11.78% 14.34% 11.77%
CLASS II
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.67 $11.76 $11.37
----------------------
Income from investment operations:
Net investment income .60 .60 .52
Net realized and unrealized gains (losses) .29 (.07) .38
-------------------
Total from investment operations .89 .53 .90
-------------------
Less distributions from:
Net investment income (.59) (.62) (.51)
In excess of net investment income (.01) -- --
--------------------
Total distributions (.60) (.62) (.51)
---------------------
Net asset value, end of year $11.96 $11.67 $11.76
=======================
Total return* 7.80% 4.65% 8.05%
Ratios/supplemental data
Net assets, end of year (000's) $56,027 $23,556 $7,644
Ratios to average net assets:
Expenses 1.17% 1.17% 1.18%**
Net investment income 4.88% 5.17% 5.33%**
Portfolio turnover rate 5.60% 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.
FRANKLIN TAX-FREE TRUST Statement of
Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.6%
BONDS 94.1%
Alachua County Health Facilities Authority Revenue,
Refunding, Santa Fe Health Care Facilities Project,
<S> <C> <C> <C> <C> <C>
Pre-Refunded, 7.60%, 11/15/13 $ 6,705,000 $ 7,458,240
Shanda Teaching Hospital, Series A, MBIA Insured, 5.80%, 12/01/26 12,000,000 12,789,240
Alachua County Public Improvement Revenue, Refunding, FSA Insured,
5.375%, 8/01/17 5,755,000 5,928,168
Alachua County School Board, COP, Series 1997, AMBAC Insured,
5.00%, 7/01/18 3,250,000 3,204,890
Atlantic Beach Utilities Systems Revenue, MBIA Insured, 5.50%, 10/01/25 2,000,000 2,069,640
Bay County Hospital System Revenue, Refunding, Bay Medical Center Project,
Pre-Refunded, 8.00%, 10/01/12 11,205,000 13,835,598
Bay County Resource Recovery Revenue, Refunding, MBIA Insured, 6.60%,
Series A, 7/01/11 3,710,000 4,126,744
Series B, 7/01/12 18,150,000 20,181,167
Bay County Water System Revenue, Refunding, AMBAC Insured,
6.50%, 9/01/07 525,000 585,417
6.60%, 9/01/11 675,000 753,064
Bay Medical Center, Hospital Revenue, Bay Medical Center Project,
AMBAC Insured, 5.00%, 10/01/27 1,000,000 959,720
Refunding, 5.60%, 10/01/19 13,130,000 13,671,744
Boynton Beach Public Service Tax Revenue, MBIA Insured, Pre-Refunded,
7.50%, 11/01/10 4,000,000 4,374,720
Brevard County Health Facilities Authority Revenue, Refunding, Wuesthoff
Memorial Hospital, Series B, Pre-Refunded, 7.20%, 4/01/13 5,000,000 5,660,750
Brevard County HFA, SFMR, Refunding, Series B, FSA Insured, 7.00%, 3/01/13 1,190,000 1,271,955
Brevard County School Board COP, Series A, Refunding, AMBAC Insured,
5.40%, 7/01/11 4,415,000 4,749,922
Broward County Educational Facilities Authority Revenue, Refunding,
Nova Southeastern University Project, Connie Lee Insured,
6.125%, 4/01/17 2,250,000 2,402,505
Broward County Health Facility Authority Revenue, Nursing Home, Refunding,
7.40%, 8/15/10 2,080,000 2,233,566
7.50%, 8/15/20 1,475,000 1,625,627
Broward County HFA Revenue, GNMA Secured,
Series B, 7.55%, 3/01/15 3,355,000 3,528,957
Series C, 8.00%, 3/01/21 1,150,000 1,208,420
Series D, 6.90%, 6/01/09 340,000 364,517
Series D, 7.375%, 6/01/21 820,000 880,024
bBroward County HFA, SFMR, Refunding, Series B, 5.40%, 4/01/29 4,000,000 4,000,000
Broward County Professional Sports Facilities, Tax Revenue,
Civic Arena Project, Series A, MBIA Insured,
5.75%, 9/01/21 5,000,000 5,292,250
5.625%, 9/01/28 13,745,000 14,314,043
Broward County Resource Recovery Revenue, 7.95%, 12/01/08,
Broward Waste Energy Co., L.P., North Project 5,840,000 6,362,330
SES Waste Energy Co., L.P., South Project 10,675,000 11,629,772
Broward County School Board COP, Series C, AMBAC Insured,
5.375%, 7/01/17 10,000,000 10,259,500
Broward County Tourist Development, Special Tax Revenue,
Convention Center Project, FGIC Insured, Pre-Refunded,
7.75%, 10/01/13 200,000 208,614
Cape Canaveral Hospital District Revenue, Certificates, AMBAC Insured,
6.875%, 1/01/21 1,500,000 1,630,710
Celebration Community Development District,
Special Assessment, MBIA Insured,
6.00%, 5/01/10 5,500,000 5,919,375
6.10%, 5/01/16 4,000,000 4,312,840
Series A, 5.50%, 5/01/18 2,000,000 2,065,560
Charlotte County Utilities Revenue, Refunding, Series A, FGIC Insured,
5.625%, 10/01/21 3,000,000 3,157,440
6.20%, 10/01/23 5,000,000 5,008,500
Citrus County PCR, Florida Power and Light Co., Crystal River, Refunding,
Series A, 6.625%, 1/01/27 11,100,000 12,078,021
Series B, 6.35%, 2/01/22 20,400,000 22,168,272
Clay County HFA Revenue, SFM, Series A, GNMA Secured,
8.20%, 6/01/21 1,725,000 1,806,058
7.80%, 6/01/22 4,275,000 4,543,085
7.45%, 9/01/23 1,310,000 1,385,102
Clearwater MFR, Rental Housing, Drew Gardens Projects, Refunding,
Series A, FHA Insured, 6.50%, 10/01/25 2,865,000 3,024,351
Clewiston Water and
Sewer Revenue, Refunding, AMBAC Insured, Pre-Refunded,
7.65%, 10/01/10 1,000,000 1,078,240
Cocoa Water and Sewer Improvement Revenue, FGIC Insured,
5.875%, 10/01/22 4,000,000 4,308,400
Collier County Water and Sewer District
Revenue, Sewer Assessment, East and South Naples Project,
MBIA Insured, 7.15%, 10/01/11 $ 80,000 $ 82,850
Coral Springs ID, Special Water and Sewer Project,
6.75%, 11/01/02 2,660,000 2,717,270
Dade County Aviation Revenue, Miami
International Airport, Series B, FSA Insured, 5.125%, 10/01/22 4,750,000 4,674,760
Dade County Health Facilities Authority, Hospital Revenue, Refunding,
Catholic Health and Rehabilitation, Inc. Project, 7.625%, 8/15/20 7,475,000 8,009,089
Dade County HFA, MFMR, GNMA Secured, Hialeah Center, Series 5,
Pre-Refunded, 7.875%, 12/01/32 1,930,000 2,112,617
Dade County HFA, SFMR,
Refunding, Series D, FSA Insured, 6.95%, 12/15/12 870,000 935,876
Refunding, Series E, FNMA Secured, 7.00%, 3/01/24 300,000 318,381
Series A, GNMA Secured, 7.50%, 9/01/13 2,270,000 2,345,614
Series A, GNMA Secured, 7.10%, 3/01/17 1,510,000 1,602,971
Series B, GNMA Secured, 7.25%, 9/01/23 255,000 270,619
Dade County IDA, Solid Waste Disposal Revenue, Florida Power and Light Co.
Project, 7.15%, 2/01/23 5,695,000 6,153,448
Dade County Public Facilities Revenue, Jackson Memorial
Hospital, Series A, MBIA Insured, 7.30%, 6/01/12 140,000 141,733
Dade County School Board COP, Series B, AMBAC Insured, 5.75%,
8/01/19 14,610,000 15,434,881
Dade County School District GO, Pre-Refunded,
7.375%, 7/01/08 5,960,000 6,355,386 Dade County
Seaport Revenue, Refunding, Series 95, MBIA Insured,
5.75%, 10/01/15 4,100,000 4,392,740
Dade County, Special Obligation, Courthouse Center Project,
6.10%, 4/01/20 5,000,000 5,370,650
Dade County Water and Sewer System Revenue, FGIC Insured,
5.25%, 10/01/21 5,000,000 5,069,100
5.75%, 10/01/22 8,245,000 8,723,457
5.50%, 10/01/25 35,325,000 36,627,080
5.25%, 10/01/26 12,000,000 12,051,120
Dovera Community Development District Revenue, Special Assessment,
7.625%, 5/01/03 320,000 344,499
7.875%, 5/01/12 865,000 931,363
Dunes Community Development District Revenue, Water and Sewer Project,
Pre-Refunded, 8.25%, 10/01/18 670,000 700,545
Duval County HFA, MFHR, Mortgage, Eagles Point North,
Series A, MBIA Insured,
5.60%, 7/01/17 1,000,000 1,029,370
5.70%, 7/01/27 2,000,000 2,058,440
Duval County HFA, SFMR, GNMA Secured,
b5.30%, 4/01/31 1,800,000 1,789,056
b5.25%, 10/01/18 1,000,000 995,100
Series 1988, 8.625%, 12/01/19 50,000 52,338
Series A, 8.50%, 9/01/19 80,000 82,995
Series A, 7.85%, 12/01/22 2,425,000 2,558,351
Series B, 7.70%, 11/01/11 480,000 500,414
Series C, FGIC Insured, 7.70%, 9/01/24 1,070,000 1,141,786
Escambia County HFA, SFMR,
Multi-County Program, Series C, FNMA/GNMA Secured, 5.80%, 10/01/19 1,500,000 1,550,220
Multi-County Program, Series C, FNMA/GNMA Secured, 5.875%, 10/01/28 6,500,000 6,735,365
Series A, GNMA Secured, 7.40%, 10/01/23 4,235,000 4,465,892
Escambia County HFA Revenue, Refunding, Baptist Hospital
and Manor, 6.75%, 10/01/14 4,350,000 4,829,414
Escambia County Revenue, Series B, Sub-Series 1, MBIA Insured,
7.20%, 1/01/15 4,000,000 4,185,640
Escambia County School Board COP, FSA Insured, 6.375%, 2/01/12 1,210,000 1,293,986
Escambia County Utilities Authority, Sanitary System Revenue,
FSA Insured, Pre-Refunded, 6.00%, 1/01/23 2,500,000 2,746,950
Escambia County Utilities Authority System Revenue, Refunding,
FGIC Insured, Pre-Refunded, 7.75%, 1/01/15 2,000,000 2,101,500
First Governmental Financing Commission Revenue, Gainsville,
Hollywood, and St. Petersburg, AMBAC Insured, 5.75%, 7/01/16 3,700,000 3,929,992
Florida HFA,
General Mortgage, Refunding, Series A, 6.40%, 6/01/24 3,700,000 3,953,006
Homeowner Mortgage, Series 1, MBIA Insured, 5.625%, 7/01/17 5,000,000 5,223,300
Homeownership Revenue, Series G-1, GNMA Secured, 7.80%, 9/01/10 635,000 673,557
Homeownership Revenue, Series G-1, GNMA Secured, 8.30%, 6/01/20 270,000 281,143
Homeownership Revenue, Series G-1, GNMA Secured, 7.90%, 3/01/22 3,245,000 3,463,486
MF Housing, Citrus Meadows Apartments Project, Series Q,
GNMA Secured, 7.65%, 6/20/31 4,000,000 4,123,720
MF Housing, Driftwood Terrace Project, Series I, 7.65%, 12/20/31 3,445,000 3,618,662
MF Mortgage, Lake Carlton Arms, Guaranteed, Refunding,
Series F, Mandatory Put 12/01/99, 7.375%, 12/01/07 4,000,000 4,026,560
MFHR, Refunding, Series A, 6.95%, 10/01/21 2,900,000 3,028,209
Florida HFA, (cont.)
Reserve at Kanapaha, Series G, AMBAC Insured, 5.70%, 7/01/37 $ 5,000,000$ 5,091,450
Reserve at Northshore, Series H, AMBAC Insured, 5.70%, 5/01/37 2,000,000 2,037,360
Riverfront Apartments, Series A, AMBAC Insured, 6.25%, 4/01/37 1,300,000 1,382,212
SFMR, Series A, 8.60%, 7/01/16 350,000 355,047
Florida State Board of Education, Capital Outlay, Public Education,
Refunding, Series A, 7.25%, 6/01/23 8,775,000 9,502,886
Series A, 5.875%, 6/01/16 4,500,000 4,753,125
Series B, 5.875%, 6/01/24 8,990,000 9,459,368
Series B, 5.875%, 6/01/25 7,000,000 7,365,470
Series B-1, Pre-Refunded, 7.875%, 6/01/19 650,000 669,546
Series F, FGIC Insured, 5.50%, 6/01/26 10,000,000 10,328,200
Florida State Community Services Corp., Walton County Water and
Sewer Revenue, South Walton County Regional Utilities,
7.00%, 3/01/18 2,550,000 2,831,877
Florida State Correctional Privatization Commission COP, Correctional
Facility Bay Project, MBIA Insured, 6.00%, 8/01/15 6,000,000 6,558,000
Florida State Department of Corrections COP, Okeechobee Correctional
Facility, AMBAC Insured, 6.25%, 3/01/15 2,960,000 3,301,673
Florida State Department of General Services, Board of Finance Division,
Department of Natural Resources Revenues, AMBAC Insured,
Pre-Refunded, 6.75%, 7/01/13 3,000,000 3,303,870
Florida State Department of General Services, Facilities Management
Division, Revenue, Florida Facilities Pool,
Pre-Refunded, 8.125%, 9/01/17 145,000 151,032
Refunding, Series B, AMBAC Insured, 5.70%, 9/01/20 7,000,000 7,315,910
Florida State Department of Transportation, Right of Way,
5.375%, 7/01/26 5,000,000 5,067,300
Series A, 5.00%, 7/01/27 10,000,000 9,714,600
Florida State GO, Pre-Refunded, 7.375%, 7/01/19 3,715,000 3,961,453
Florida State Mid-Bay Bridge Authority Revenue,
Exchangeable, Series A, 5.95%, 10/01/13 13,505,000 14,113,130
Exchangeable, Series A, 6.05%, 10/01/22 7,000,000 7,313,390
Exchangeable, Series D, 6.10%, 10/01/22 11,100,000 11,646,786
Series A, 8.00%, 10/01/06 2,600,000 2,933,268
Series A, 7.50%, 10/01/17 14,250,000 15,845,145
Series A, ETM, 6.875%, 10/01/22 6,000,000 7,433,340
Florida State Turnpike Authority Revenue, Department of
Transportation, Series A,
AMBAC Insured, Pre-Refunded, 7.125%, 7/01/18 8,780,000 9,770,823
FGIC Insured, 5.50%, 7/01/21 17,350,000 17,981,193
FGIC Insured, 5.625%, 7/01/25 7,000,000 7,304,080
Pre-Refunded, 7.75%, 7/01/09 2,375,000 2,543,958
Gainesville Utility System Revenue,
Series B, 6.00%, 10/01/17 3,500,000 3,667,580
Sub-Series A, AMBAC Insured, Pre-Refunded, 7.25%, 10/01/13 1,600,000 1,664,400
Gainesville Utility Systems, Series A, 5.20%, 10/01/26 7,590,000 7,614,136
Gateway Services District Revenue, Transportation Roadway
Service Charges, 8.75%, 5/01/14 8,675,000 9,591,254
Gulf Breeze Local Government Loan Program Revenue,
FGIC Insured, 7.75%, 12/01/15 2,000,000 2,162,100
Hillsborough County Aviation Authority Revenue,
Refunding, Special Purpose, Delta Airlines, Inc., 7.75%, 1/01/24 14,945,000 15,943,924
Tampa International Airport, Series A, FGIC Insured, 6.90%, 10/01/11 4,490,000 4,774,576
Tampa International Airport, Series A, FGIC Insured,
Pre-Refunded, 6.90%, 10/01/11 4,010,000 4,278,189
Tampa International Airport, Series B, FGIC Insured, 5.875%, 10/01/23 5,730,000 6,152,244
Hillsborough County Capital Improvement Revenue, County Center Project,
Second Series, Pre-Refunded,
6.625%, 7/01/12 8,300,000 9,261,472
6.75%, 7/01/22 1,250,000 1,400,938
Hillsborough County IDA Revenue, Colonial Penn Insurance
Project, 7.35%, 8/01/13 5,300,000 5,876,534
Hillsborough County Port District Revenue, Tampa Port Authority,
Pre-Refunded, 8.25%, 6/01/09 3,000,000 3,387,360
Hillsborough County School Board COP, MBIA Insured, 6.00%,
7/01/12 9,500,000 10,364,500
7/01/14 5,500,000 6,006,825
Hillsborough County Utilities Revenue, Refunding,
Series A, 6.625%, 8/01/11 $10,400,000$ 11,139,336
Series A, 7.00%, 8/01/14 5,515,000 5,973,076
Series A, 6.50%, 8/01/16 3,000,000 3,197,730
Series B, 6.50%, 8/01/16 1,000,000 1,065,910
Indian River County Hospital District, Revenue, Refunding,
FSA Insured, 5.70%, 10/01/15 1,000,000 1,060,280
Jacksonville Capital Improvement Revenue Certificates, Gator Bowl
Project, 5.875%, 10/01/25 5,000,000 5,316,950
Jacksonville Electric Authority Revenue, Water and Sewer, Series B,
FGIC Insured, 5.40%, 10/01/20 3,000,000 3,090,300
Jacksonville Health Facilities Authority, Hospital Revenue, Refunding,
Baptist Medical Center Project, Series A, MBIA Insured, 7.30%, 6/01/19 2,500,000 2,648,225
Riverside Hospital Project, Pre-Refunded, 7.625%, 10/01/13 8,480,000 9,133,469
Jacksonville Hospital Revenue, University Medical Center, Inc. Project,
Connie Lee Insured, 6.60%, 2/01/21 1,750,000 1,891,978
Jupiter Sales Tax Revenue, Series 1990, Pre-Refunded, 7.40%, 9/01/20 1,000,000 1,099,740
Kissimmee Water and Sewer Revenue, Refunding,
AMBAC Insured, 6.00%, 10/01/15 5,000,000 5,397,000
Lakeland Electric and Water Revenue,
5.50%, 10/01/26 10,700,000 11,072,574
5.625%, 10/01/36 11,670,000 12,175,194
Refunding & Improvement, Senior Series B, 5.625%, 10/01/19 12,800,000 13,453,824
Lakeland Utility Tax Revenue, Refunding and Improvement,
Series A, FGIC Insured, 6.00%, 10/01/17 4,500,000 4,893,705
Lee County Capital Bonds, Refunding, Series A,
MBIA Insured, 7.30%, 10/01/07 1,000,000 1,072,940
Lee County Hospital Revenue, Board of Directors, Lee Memorial Health
Systems, Series A, MBIA Insured, 5.875%, 4/01/24 18,000,000 19,215,540
Lee County IDA Revenue, Bonita Springs Sewer Project,
Asset Guaranty, Insured,
7.20%, 11/01/11 5,000,000 5,474,750
7.25%, 11/01/20 2,000,000 2,184,060
Lee County Local Option Gas Tax Revenue, FGIC Insured, 5.75%, 10/01/20 2,575,000 2,722,419
Lee County Solid Waste System Revenue, Series A, MBIA Insured, 7.00%,
10/01/04 1,945,000 2,157,472
10/01/05 1,175,000 1,303,357
10/01/06 1,305,000 1,449,868
10/01/11 4,600,000 5,123,664
Lee County Transportation Facilities Revenue, MBIA Insured, 5.75%,
10/01/22 4,500,000 4,754,115
10/01/27 5,900,000 6,260,844
Leesburg Hospital Revenue, Capital Improvement, Leesburg Regional
Medical Center Project, Series A, Pre-Refunded,
7.375%, 7/01/11 1,250,000 1,431,613
7.50%, 7/01/21 2,115,000 2,432,652
Leesburg Hospital Revenue, Refunding, Leesburg Regional Medical
Center Project, Series A, 6.125%, 7/01/18 7,000,000 7,420,210
Leesburg Utilities Revenue, Refunding, FGIC Insured, 7.60%, 10/01/09 500,000 521,200
Leon HFA, SFMR, Series A, GNMA Secured, 7.30%, 4/01/21 855,000 902,453
Manatee County HFA, SFMR, Series A, GNMA Secured,
8.10%, 11/01/20 985,000 1,021,356
6.85%, 11/01/23 4,320,000 4,569,912
Manatee County IDR, Manatee Hospital and Health System, Inc.,
ETM, 8.25%, 3/01/01 900,000 957,222
Pre-Refunded, 9.25%, 3/01/21 6,700,000 7,784,931
Manatee County School Board COP, MBIA Insured, Pre-Refunded,
6.125%, 7/01/21 5,575,000 6,379,640
Martin County Construction, Utilities System Revenue, Refunding and
Improvement, FGIC Insured, 6.00%, 10/01/24 4,000,000 4,340,480
Martin County PCR, Refunding, Florida Power and Light Co. Project,
MBIA Insured, 7.30%, 7/01/20 14,500,000 15,839,365
Miami Beach Special Obligation, Subordinated, FGIC Insured,
7.375%, 12/01/08 2,000,000 2,150,680
Miami Health Facilities Authority Revenue, Mercy
Hospital Project, Refunding, 8.125%, 8/01/11 250,000 258,405
Series A, Pre-Refunded, 7.35%, 8/01/15 7,500,000 8,016,525
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured,
6.75%, 10/01/25 6,500,000 7,376,590
Nassau County PCR, Refunding, ITT Rayonier, Inc. Project, 6.25%, 6/01/10 5,000,000 5,336,650
North Broward Hospital District Revenue, Refunding
and Improvement, MBIA Insured, 5.375%, 1/15/24 10,710,000 10,898,924
5.75%, 1/15/27 14,370,000 15,194,120
North Miami Health Facilities Authority Revenue, Catholic Health
Services Obligation Group, 6.00%
8/15/16 $ 2,000,000 $ 2,119,360
8/15/24 1,750,000 1,847,248
North Port Utilities Revenue, FGIC Insured, 6.25%, 10/01/22 1,500,000 1,631,205
Northern Palm Beach County Water Control District,
Unit Development No. 31, Project 2,
6.75%, 11/01/07 725,000 779,883
6.625%, 11/01/13 1,470,000 1,564,536
Orange County Capital Improvement Revenue, MBIA Insured, 7.70%, 10/01/18,
Series A 170,000 176,924
Series A, Pre-Refunded 30,000 31,284
Series B, Pre-Refunded 180,000 187,702
Orange County Health Facilities Authority Revenue, Series A
Adventist/Sunbelt, AMBAC Insured, 6.875%, 11/15/15 1,000,000 1,110,340
Adventist/Sunbelt, FSA Insured, 7.00%, 11/15/14 3,000,000 3,202,110
Refunding, Orlando Regional Healthcare, MBIA Insured, 6.00%, 11/01/24 1,000,000 1,073,340
Orange County HFA Revenue, GNMA Secured,
Refunding, Series A, FGIC Insured, 7.60%, 01/01/24 4,730,000 5,011,861
Series A, 7.75%, 11/01/12 1,725,000 1,812,785
Series A, 7.375%, 9/01/24 410,000 437,163
Series D, 7.80%, 10/01/22 685,000 724,285
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 5,050,000 5,491,219
Orange County Tourist Development Tax Revenue,
AMBAC Insured, Pre-Refunded, 7.25%, 10/01/10 3,000,000 3,299,700
Series B, MBIA Insured, 6.00%, 10/01/24 24,675,000 26,819,258
Orlando and Orange County Expressway Authority Revenue, Senior Lien,
AMBAC Insured, ETM, 7.625%, 7/01/18 265,000 278,311
Orlando Community RDA, Tax Increment Revenue, Series A,
6.50%, 10/01/11 2,155,000 2,313,996
6.75%, 10/01/16 2,585,000 2,789,629
Orlando Waste Water Systems Revenue, Refunding, Series C, AMBAC Insured,
5.15%, 10/01/13 3,410,000 3,477,007
5.20%, 10/01/14 2,740,000 2,795,814
Osceola County Gas Tax Revenue, Refunding & Improvement, FGIC Insured,
6.00%, 4/01/13 3,500,000 3,793,195
Osceola County IDA Revenue, Community Provider Pooled Loan Program,
FSA Insured, 7/01/10,
Series A, 7.75% 4,634,000 5,017,093
Series C, 7.60% 795,000 858,131
Osceola County Transportation Revenue, Series A, FGIC Insured, Pre-Refunded,
7.70%, 4/01/13 200,000 204,596
Pace Property Finance Authority, Inc., Utility Systems Revenue,
Refunding and Improvement,
AMBAC Insured, 6.125%, 9/01/07 270,000 284,934
AMBAC Insured, 6.25%, 9/01/13 685,000 725,545
Pre-Refunded, 6.125%, 9/01/07 730,000 780,925
Pre-Refunded, 6.25%, 9/01/13 1,860,000 1,997,528
Pre-Refunded, 6.125%, 9/01/17 840,000 898,598
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured,
6.00%, 6/01/15 5,000,000 5,470,900
Pre-Refunded, 7.25%, 6/01/11 6,950,000 7,575,153
Palm Beach County HFA, SFM Purchase Revenue, GNMA Secured,
Series A, 7.70%, 3/01/22 7,195,000 7,575,616
Series B, 7.60%, 3/01/23 5,035,000 5,344,350
Palm Beach County IDR, Lourdes-Noreen McKeen Residence,
Geriatric Care, Inc.,
6.55%, 12/01/16 1,755,000 1,907,018
6.625%, 12/01/26 4,000,000 4,405,320
Palm Beach County Solid Waste Authority Revenue, Refunding, BIG Insured,
7.40%, 12/01/05 535,000 560,364
Pre-Refunded, 7.40%, 12/01/05 1,965,000 2,057,571
cPalm Beach County Solid Waste, IDR, Okeelanta Power and Light Co.
Project, Series A,
6.50%, 2/15/09 3,600,000 2,808,000
6.70%, 2/15/15 11,700,000 9,126,000
Pensacola Airport Revenue, Series A, MBIA Insured,
5.75, 10/01/27 $ 5,615,000 $ 5,981,435
Pensacola-Westwood Homes Development Corp. Revenue, Refunding,
Mortgage Loan, FHA Insured, 6.40%, 7/15/23 995,000 1,035,089
Pinellas County, HFA, SF Housing Revenue,
Multi-County Program, Series A-1, 5.30%, 9/01/30 1,500,000 1,501,35
Pinellas County HFA, SFMR, GNMA Secured,
Multi-County Program, Series B, 6.875%, 8/01/10 1,330,000 1,407,419
Multi-County Program, Series B, 7.375%, 2/01/24 5,235,000 5,562,711
Series A, 7.30%, 8/01/22 1,695,000 1,781,411
Series A, 7.75%, 8/01/23 1,600,000 1,696,112
Pinellas County PCR, Refunding, Florida Power and Light Co.,
7.20%, 12/01/14 12,200,000 13,416,584
Plantation Health Facilities Authority Revenue,
Covenant Retirement Community, Inc., Pre-Refunded, 7.625%, 12/01/12 1,500,000 1,750,350
Covenant Retirement Community, Inc., Pre-Refunded, 7.75%, 12/01/22 3,000,000 3,516,720
Refunding, Covenant Village of Florida, Inc., 5.125%, 12/01/22 750,000 731,955
Polk County HFA, Refunding, Series A, GNMA Secured, 7.15%, 9/01/23 2,035,000 2,161,618
Polk County IDA Revenue, Solid Waste Disposal Facility,
Tampa Electric Co. Project, 5.85%, 12/01/30 20,500,000 21,480,925
Polk County School Board, COP, FSA Insured, 5.00%, 1/01/23 10,000,000 9,790,400
Port Everglades Authority, Port Improvement Revenue, 7.50%,
Refunding, Series A, 9/01/12 18,050,000 18,908,819
Series 1986, ETM, 11/01/06 575,000 675,849
Santa Rosa County Health Facilities Authority Revenue,
Gulf Breeze Hospital, Inc.,
Refunding, Pre-Refunded, 8.70%, 10/01/14 520,000 545,184
Refunding, 8.60%, 10/01/02 25,000 25,934
Series A, 6.20%, 10/01/14 14,350,000 15,100,792
Santa Rosa County IDR, Holley Navarre Water System Project,
6.75%, 5/01/24 4,290,000 4,663,144
Sarasota County Solid Waste System Revenue, AMBAC Insured,
5.50%, 10/01/16 6,250,000 6,556,313
Sarasota County Utilities System Revenue,
FGIC Insured,
5.75%, 10/01/27 18,000,000 19,199,340
Refunding, Series A, 5.25%, 10/01/25 9,000,000 9,116,190
Seminole County Sales Tax Revenue, MBIA Insured, 5.80%, 10/01/26 5,000,000 5,305,100
Seminole County School Board COP, MBIA Insured, Pre-Refunded,
Series A, 6.125%, 7/01/14 1,150,000 1,292,865
Series B, 6.50%, 7/01/21 5,000,000 5,700,900
South Broward Hospital District, Revenue, Refunding,
MBIA Insured, 5.25%, 5/01/21 5,000,000 5,038,800
South Florida Water Management District, Special Obligation,
Land Acquisition Bonds, AMBAC Insured, 6.00%, 10/01/15 1,000,000 1,084,880
South Indian River Water Control District, Refunding,
Series C, Pre-Refunded, 7.50%, 10/01/06 3,000,000 3,124,110
St. Johns County IDA Revenue, Professional Golf Hall of Fame Project,
MBIA Insured, 5.80%, 9/01/16 4,660,000 4,942,582
St. Johns County Water and Sewer Revenue,
Series B-1, FGIC Insured, 7.00%, 6/01/11 2,995,000 3,077,482
St. Lucie County Solid Waste Disposal Revenue, Florida Power and Light Co.
Project, 7.15%, 2/01/23 7,500,000 8,133,150
St. Lucie, West, Services District, Capital Improvement Revenue, Lake
Charles Project, 7.50%, 2/01/00 4,010,000 4,090,561
St. Petersburg Health Facilities Authority Revenue,
Allegheny Health System, Series A, MBIA Insured,
Pre-Refunded, 7.00%, 12/01/15 10,500,000 11,753,070
Allegheny Health System, St. Mary, Series B,
Pre-Refunded, 7.75%, 12/01/15 8,630,000 9,370,799
Bon Secours-Maria Manor Project, Series B, Pre-Refunded, 7.875%, 8/15/18 2,500,000 2,595,725
Refunding, Allegany Health System, St. Anthony, Series C, 7.75%, 1/01/14 2,940,000 3,005,915
Sunrise Lakes Recreation District, Phase 4, Series A, 6.75%,
8/01/15 3,080,000 3,424,406
8/01/24 6,120,000 6,744,546
Sunrise Special Tax District No. 1, Refunding, 6.375%,
11/01/08 3,485,000 3,729,089
11/01/21 12,390,000 13,193,244
Sunrise Utilities System Revenue, Series A, AMBAC Insured,
5.75%, 10/01/16 1,780,000 1,901,467
5.90%, 10/01/18 4,230,000 4,536,633
5.75%, 10/01/21 3,000,000 3,174,090
5.75%, 10/01/26 32,775,000 34,549,111
Tallahassee Consolidated Utility System Revenue,
Series 1994, 6.20%, 10/01/19 3,400,000 3,677,236
Tampa Allegheny Health System Revenue, St. Joseph, Pre-Refunded,
MBIA Insured, 6.75%, 12/01/17 $ 1,180,000$ 1,310,673
MBIA Insured, 6.50%, 12/01/23 7,000,000 8,064,280
Tampa Capital Improvement Program Revenue, 10/01/18,
Series A, 8.25% 6,300,000 6,441,309
Series B, 5.805% 31,670,000 32,307,834
Tampa Guaranteed Entitlement Revenue, Refunding, AMBAC Insured,
7.15%, 10/01/18 2,000,000 2,226,920
Tampa-Hillsborough County, Expressway Authority Revenue, AMBAC
Insured, 5.00%, 7/01/22 11,500,000 11,324,165
Tampa Occupational License Tax, Refunding, Series B,
FGIC Insured, 5.50%, 10/01/27 10,525,000 10,804,755
Tampa Sports Authority Revenue, Guaranteed Package, Tampa Bay Arena
Project, MBIA Insured,
6.00%, 10/01/15 1,000,000 1,131,100
6.05%, 10/01/20 1,715,000 1,959,473
6.10%, 10/01/26 2,695,000 3,124,987
Tampa Sports Authority Revenue, Interlock Agreement,
Tampa Bay, MBIA Insured,
6.05%, 10/01/15 4,250,000 4,647,545
6.10%, 10/01/20 5,160,000 5,625,432
6.125%, 10/01/26 6,800,000 7,397,720
Tampa Water and Sewer Revenue, Subordinated Lien, Series A, AMBAC Insured,
7.75%, 10/01/14 340,000 354,504
7.25%, 10/01/16 3,000,000 3,113,550
Titusville Water and Sewer Revenue, Refunding, MBIA Insured,
6.20%, 10/01/14 6,000,000 6,649,740
University Community Hospital, Inc., Florida Hospital Revenue,
Refunding, FSA
Insured, Pre-Refunded,
7.375%, 9/01/07 5,000,000 5,502,050
7.50%, 9/01/11 5,000,000 5,516,750
Venice Health Care Revenue, Bon Secours Health System Project, MBIA
Insured, 5.625%, 8/15/26 6,000,000 6,247,500
Viera East Community Development District, Special Assessment,
7.50%, 5/01/03 2,005,000 2,146,573
8.50%, 5/01/04 3,650,000 4,126,836
8.625%, 5/01/14 10,640,000 12,088,849
Pre-Refunded, 7.50%, 5/01/12 5,225,000 5,985,708
Refunding, 6.30%, 5/01/26 7,355,000 8,037,691
Refunding, Series A, 6.00%, 5/01/14 11,295,000 11,807,793
Refunding, Water Management, Series A, 6.50%, 5/01/22 11,340,000 11,870,825
Series B, 6.75%, 5/01/14 7,490,000 7,816,639
Series B, Water Management, 6.50%, 5/01/05 465,000 480,285
Series B, Water Management, 6.50%, 5/01/22 4,580,000 4,723,720
Viera East Community Development District, Water and Sewer Revenue,
7.875%, 5/01/03 3,290,000 3,501,383
6.75%, 5/01/09 2,850,000 3,009,401
Village Center Community Development District Recreational Revenue,
Refunding, Series A, MBIA Insured, 5.00%, 11/01/21 2,000,000 1,969,840
Village Community Development, District No. 2, Special Assessment
Revenue, MBIA Insured, 5.20%, 5/01/19 1,720,000 1,717,678
Volusia County Educational Facility Authority Revenue, Embry-Riddle
Aeronautical University, Connie Lee Insured, 6.625%, 10/15/22 500,000 544,930
Volusia County Health Facilities Authority Revenue, Hospital Facilities,
Memorial Health Systems Project, AMBAC Insured,
5.50%, 11/15/26 9,770,000 10,047,859
West Lake Community Development District, Special Assessment,
MBIA Insured, 5.75%, 5/01/17 1,970,000 2,105,161
West Palm Beach Utilities System Revenue, MBIA Insured, 5.75%, 10/01/27 3,000,000 3,140,280
Westgate/Belvedere Homes Community RDA Revenue, Series 1992,
6.50%, 11/01/09 410,000 433,972
6.60%, 11/01/17 1,410,000 1,486,140
---------
TOTAL BONDS (COST $1,493,239,773) 1,604,773,383
-------------
ZERO COUPON BONDS 3.5%
Broward County Water and Sewer Utility Revenue, Refunding,
Series A, AMBAC Insured, 10/01/08 3,670,000 2,266,444
Dade County Guaranteed Entitlement Revenue, Capital Appreciation,
AMBAC Insured, Pre-Refunded, 8/01/18 17,020,000 4,879,122
Florida State Mid-Bay Bridge Authority Revenue, Series A, AMBAC Insured,
10/01/25 5,000,000 1,158,200
10/01/26 2,500,000 548,524
Hillsborough County Utilities Revenue, Refunding, Series A, 8/01/98 $ 1,625,000$ 1,596,886
Lakeland Electric and Water Revenue, Capital Appreciation, 10/01/14 5,770,000 2,553,166
Miami-Dade County, Special Obligation, MBIA Insured,
Sub-Series B, 10/01/36 5,635,000 686,173
Sub-Series C, 10/01/28 8,305,000 1,592,234
Port Everglades Authority, Port Improvement Revenue, Refunding, Series A,
9/01/02 10,575,000 8,587,111
9/01/03 9,075,000 6,978,856
9/01/04 3,550,000 2,586,103
9/01/10 50,000,000 25,080,500
Sarasota Special Obligated Revenue, Refunding, AMBAC Insured,
11/01/09 1,365,000 793,270
11/01/12 1,780,000 869,226
11/01/15 2,180,000 903,610
-------
TOTAL ZERO COUPON BONDS (COST $52,127,990) 61,079,425
----------
TOTAL LONG TERM INVESTMENTS (COST $1,545,367,763) 1,665,852,808
-------------
ASHORT TERM INVESTMENTS 1.1%
Dade County IDA, PCR, Refunding, Florida Power and Light Co.
Project, Daily VRDN and Put, 3.55%, 4/01/20 1,200,000 1,200,000
Dade County IDA, Dolphin Stadium Project, Series A, Weekly VRDN and
Put, 3.40%, 1/01/16 1,000,000 1,000,000
Hillsborough County IDA, PCR, Refunding, Tampa Electric Co. Project,
Daily VRDN and Put, 3.55%, 5/15/18 2,750,000 2,750,000
Manatee County PCR, Refunding, Florida Power and Light Co.
Project, Daily VRDN and Put, 3.60%, 9/01/24 400,000 400,000
Martin County, PCR, Refunding, Florida Power and Light Co. Project,
Daily VRDN and Put, 3.60%, 9/01/24 4,500,000 4,500,000
Pinellas County Health Facilities Authority Revenue, DATES, Refunding,
Pooled Hospital Loan Program, Daily VRDN and Put,
3.70%, 12/01/15 1,900,000 1,900,000
Putnam County Development Authority, PCT, Refunding, Florida Power
and Light Co. Project, Daily VRDN and Put, 3.60%, 9/01/24 700,000 700,000
Saint Lucie County PCR, Refunding, Florida Power and Light Co.
Project, Daily VRDN and Put,
3.60%, 1/01/26 3,300,000 3,300,000
3.55%, 3/01/27 2,500,000 2,500,000
---------
TOTAL SHORT TERM INVESTMENTS (COST $18,250,000) 18,250,000
----------
TOTAL INVESTMENTS (COST $1,563,617,763) 98.7% 1,684,102,808
OTHER ASSETS, LESS LIABILITIES 1.3% 21,992,670
------------
NET ASSETS 100.0% $1,706,095,478
==============
</TABLE>
See glossary of terms on page 120
aVariable rate demante 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.
cSee Note 6 regarding defaulted securities.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN GEORGIA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS I 1998 1997 1996*** 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.86 $11.88 $11.54 $12.00 $11.85
-------------------------------------
Income from investment operations:
Net investment income .63 .65 .66 .66 .66
Net realized and unrealized gains (losses) .27 (.02) .34 (.46) .15
----------------------------------
Total from investment operations .90 .63 1.00 .20 .81
----------------------------------
Less distributions from net investment income (.64)1 (.65) (.66) (.66) (.66)
------------------------------------
Net asset value, end of year $12.12 $11.86 $11.88 $11.54 $12.00
=====================================
Total return* 7.75% 5.47% 8.90% 1.87% 6.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $149,642 $139,903 $130,380 $116,771 $120,882
Ratios to average net assets:
Expenses .76% .75% .77% .76% .69%
Net investment income 5.28% 5.49% 5.58% 5.76% 5.48%
Portfolio turnover rate 14.77% 17.47% 10.98% 36.17% 16.75%
CLASS II
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.92 $11.92 $11.57
----------------------
Income from investment operations:
Net investment income .57 .58 .50
Net realized and unrealized gains (losses) .27 (.01) .34
-------------------
Total from investment operations .84 .57 .84
-------------------
Less distributions from net investment income (.57) (.57) (.49)
---------------------
Net asset value, end of year $12.19 $11.92 $11.92
----------------------
Total return* 7.19% 4.97% 7.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $9,107 $4,484 $1,335
Ratios to average net assets:
Expenses 1.32% 1.32% 1.34%**
Net investment income 4.72% 4.87% 5.04%**
Portfolio turnover rate 14.77% 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.
1Includes distributions in excess of net investment income in the amount of
$.001.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.1%
Albany-Dougherty County Hospital Authority Revenue, Anticipation
<S> <C> <C>
Certificates, Series B, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/10 $ 500,000 $ 551,675
Atlanta Airport Facilites Revenue, Series B, AMBAC Insured, 6.00%, 1/01/21 1,100,000 1,161,666
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 3,056,790
12/01/26 1,500,000 1,523,280
Atlanta COP, Pretrial Detention Center, MBIA Insured, 6.25%,
12/01/11 1,000,000 1,095,490
12/01/17 3,800,000 4,115,134
Atlanta Downtown Development Authority Revenue, Refunding, Underground
Atlanta Project, 6.25%, 10/01/16 2,000,000 2,143,980
Atlanta GO, Series A, 6.125%, 12/01/23 6,000,000 6,587,280
Atlanta HDC, Mortgage Revenue, Refunding, Oakland City/West, Series A,
FHA Insured, 6.375%, 3/01/23 1,480,000 1,561,326
Atlanta Special Purpose Facilities Revenue, Delta Air Lines, Inc. Project,
Series B, 7.90%, 12/01/18 3,500,000 3,749,970
Atlanta Urban Residential Finance Authority, MFHR,
Defoors Ferry Manor Project, 5.90%, 10/01/18 1,700,000 1,791,528
Fulton Cotton Mill, 6.00%, 5/20/17 1,045,000 1,103,416
Fulton Cotton Mill, 6.125%, 5/20/27 1,575,000 1,661,798
Atlanta Urban Residential Finance Authority, SFMR,
GNMA Secured, 8.25%, 10/01/21 65,000 66,824
Atlanta Water and Sewer Revenue, FGIC Insured,
5.25%, 1/01/27 400,000 400,296
Second Subordinated Lien, 5.375%, 1/01/20 1,000,000 1,020,080
Barnesville Water and Sewer Revenue, Refunding, 6.85%, 9/01/17 1,000,000 1,087,930
Bartow County Water and Sewage Revenue, Refunding, AMBAC Insured,
Pre-Refunded, 8.00%, 9/01/15 100,000 104,099
Burke County Development Authority, PCR, Georgia Power Co., Refunding,
Plant Vogtle, First Series,
6.10%, 4/01/25 1,000,000 1,039,230
MBIA Insured, 6.60%, 7/01/24 10,000,000 10,481,400
Chatham County Hospital Authority Revenue, Memorial
Medical Center, Series A,
MBIA Insured, Pre-Refunded, 7.00%, 1/01/21 1,700,000 1,866,175
Refunding & Improvement, AMBAC Insured, 5.70%, 1/01/19 1,000,000 1,047,660
Cherokee County Hospital Authority Revenue, Certificates,
MBIA Insured, 8.00%, 12/01/13 90,000 92,640
Cherokee County Water and Sewage Authority Revenue,
FGIC Insured, 5.00%, 8/01/27 2,000,000 1,937,040
Refunding, MBIA Insured, 6.90%, 8/01/18 1,595,000 1,745,743
Clayton County Development Authority, Special Facility Revenue, Refunding,
Delta Air Lines, Inc. Project, 7.625%, 1/01/20 1,400,000 1,495,886
Clayton County Hospital Authority Revenue, Anticipation
Certificates, Southern
Regional Medical Center, MBIA Insured, 7.00%, 8/01/13 2,400,000 2,655,288
Clayton County MFHR, Pointe Clear Apartments
Project, FSA Insured, 5.70%, 7/01/23 1,000,000 1,031,930
Cobb County, Kennestone Hospital Authority Revenue, Series A, MBIA
Insured, ETM, 7.75%, 2/01/07 100,000 115,367
Cobb County Residential Care Facilities Authority Revenue,
Refunding, 7.50%, 8/01/15 1,000,000 1,031,250
Columbia County Water and Sewer Revenue, Series A, AMBAC Insured,
Pre-Refunded, 6.90%, 6/01/11 100,000 110,550
Commerce, City of, Combined Public Utility Revenue,
Refunding & Improvement,
AMBAC Insured, Pre-Refunded, 7.50%, 12/01/20 100,000 108,167
Conyers Water and Sewer Revenue, Series A, AMBAC Insured, 6.60%, 7/01/15 1,000,000 1,104,980
Coweta County Association, County Commissioners of Georgia Leasing
Program, MBIA Insured, Pre-Refunded, 7.00%, 12/01/10 750,000 799,710
Dade County Water and Sewer Authority Revenue, Refunding, FGIC Insured,
Pre-Refunded, 7.60%, 7/01/15 300,000 320,766
Dekalb County Housing Authority, SFMR, GNMA Secured, 7.70%, 2/01/24 405,000 433,188
Dekalb County Water and Sewer Revenue, Series 1990,
Pre-Refunded, 7.00%, 10/01/10 600,000 656,298
Dekalb Private Hospital Authority Revenue, Anticipation Certificates,
Emory University Project, Pre-Refunded, 7.00%, 4/01/21 1,315,000 1,450,090
Downtown Smyrna Development Authority Revenue, Refunding &
Improvement, 5.15%, 2/01/16 550,000 562,936
Fitzgerald Housing Authority Mortgage Revenue, Refunding, Bridge Creek,
Series A, MBIA Insured, 6.50%, 7/01/24 935,000 982,835
Fulco Hospital Authority Revenue, Anticipation Certificates, Health System,
Catholic Health East, Series A, MBIA Insured,
4.875%, 11/15/18 1,000,000 961,470
5.00%, 11/15/28 4,000,000 3,859,840
Fulton County Building Authority Revenue,
Human Resources and Government Facilities Program, 7.10%, 1/01/15 750,000 813,930
Refunding, Judicial Center Facilities Project, 6.50%, 1/01/15 1,000,000 1,060,450
Fulton Dekalb Hospital Authority Revenue, Grady Memorial Hospital
Project, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 1/01/20 1,480,000 1,595,899
Gainesville and Hall County Hospital Authority Revenue,
Anticipation Certificates,
Refunding, Northeast Georgia Health Care Project,
MBIA Insured,
5.75%, 10/01/17 $ 210,000 $ 221,859
6.00%, 10/01/25 750,000 805,298
Series B, 7.20%, 10/01/20 455,000 472,094
Georgia Municipal Electric Authority, Refunding, Project One,
Sub-Series A,
MBIA Insured, 5.375%, 1/01/19 4,820,000 4,880,780
Georgia Municipal Electric Power Authority Revenue,
Refunding, Series R, Pre-Refunded, 7.40%, 1/01/25 800,000 839,768
Series A, Pre-Refunded, 7.40%, 1/01/25 400,000 419,884
Series S, Pre-Refunded, 7.25%, 1/01/09 100,000 104,850
Series W, 6.60%, 1/01/18 1,000,000 1,191,240
Georgia State HFA,
Homeownership Opportunity Program, Series A-1, 6.75%, 6/01/17 2,895,000 3,111,228
Homeownership Opportunity Program, Series C, 6.60%, 12/01/23 1,995,000 2,134,550
MFMR, Club Candlewood Project, FSA Insured, Pre-Refunded, 7.15%, 1/01/25 1,000,000 1,199,240
MFR, Lake Vista Apartments Project, Series A, FSA Insured, 5.95%, 1/01/27 1,000,000 1,053,770
Refunding, SFMR, Series A, 6.60%, 12/01/23 615,000 659,544
SFMR, Series B, Sub-Series B-2, 6.15%, 12/01/28 1,000,000 1,061,540
SFMR, Sub-Series B-2, 5.85%, 12/01/28 3,000,000 3,107,220
Georgia State Residential Finance Authority, Homeownership Mortgage,
Series B, FHA/VA, 7.00%, 12/01/12 1,065,000 1,145,439
Series B, Sub-Series B-1, Convertible Loans, 7.50%, 6/01/17 230,000 246,072
Series E, Sub-Series E-1, FHA Insured, 7.50%, 6/01/17 375,000 400,414
Georgia State Tollway Authority Revenue, Guaranteed, Georgia 400 Project,
Pre-Refunded, 6.8%, 7/01/10 1,000,000 1,104,480
Gwinnett County Hospital Authority Revenue, Anticipation
Certificates, Gwinnett
Hospital System Inc. Project, Series A, MBIA Insured,
5.25%, 9/01/27 700,000 700,588
Henry County Water & Sewer Authority Revenue, AMBAC Insured, 5.00%, 2/01/26 500,000 486,050
Hogansville Combined Public Utility System Revenue, Refunding, FSA
Insured, 6.00%, 10/01/23 3,300,000 3,660,921
Houston County School District, Intergovernmental Contract Trust, MBIA
Insured, 6.00%, 3/01/14 2,000,000 2,149,440
La Grange Water and Sewerage Revenue, Pre-Refunded, 7.375%, 1/01/12 1,000,000 1,079,570
Liberty County IDR, Refunding, Leconte Property, Inc. Project,
7.875%, 12/01/14 850,000 933,105
Marietta Development Authority Revenue, Life College, Refunding,
First Mortgage, Series A, FSA Insured,
5.75%, 9/01/14 2,600,000 2,760,030
5.80%, 9/01/19 1,100,000 1,160,742
5.95%, 9/01/19 1,000,000 1,066,420
Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue,
Refunding, Second Indenture, Series A, MBIA Insured, 5.625%, 7/01/20 2,670,000 2,796,505
Series A, MBIA Insured, Pre-Refunded, 6.90%, 7/01/20 5,930,000 6,920,014
Series K, 7.25%, 7/01/10 630,000 649,347
Series L, Pre-Refunded, 7.20%, 7/01/10 250,000 265,855
Monroe County Development Authority, PCR,
Georgia Power Co., Scherer Project, First Series, Senior Lien,
5.75%, 9/01/23 1,000,000 1,024,410
Refunding, Georgia Power Co., AMBAC Insured, 6.25%, 7/01/19 1,000,000 1,044,060
Refunding, Oglethorpe Power Co., Scherer Project,
Series A, 6.80%, 1/01/12 1,500,000 1,797,075
Paulding County Water and Sewer Revenue, AMBAC Insured, 5.80%, 12/01/16 500,000 530,505
Peachtree City Water and Sewer Authority, Sewer Systems Revenue,
Series A, 5.60%, 3/01/27 3,000,000 3,143,010
Pike County School District, Refunding, AMBAC Insured, 5.70%, 2/01/16 1,000,000 1,102,170
Polk County Water Authority, Water and Sewerage Revenue, Refunding,
MBIA Insured, 7.00%, 12/01/15 100,000 106,088
Private Colleges and Universities Authority Revenue, Refunding, Emory
University Project, Series A, 5.125%, 11/01/27 750,000 747,105
Private Colleges and Universities, Facilities Authority Revenue, Spellman
College Project, Pre-Refunded, 7.75%, 6/01/13 50,000 51,489
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded, 7.875%, 7/01/17 250,000 258,435
Puerto Rico Commonwealth Highway Authority Revenue,
Refunding, Series R, 7.15%, 7/01/00 230,000 246,390
Series P, Pre-Refunded, 8.125%, 7/01/13 100,000 103,454
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A,
7.90%, 7/01/07 175,000 180,831
7.50%, 7/01/09 50,000 51,550
Puerto Rico Commonwealth Public Improvement GO, Series A,
Pre-Refunded, 7.75%, 7/01/13 $ 80,000 $ 82,681
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 150,000 155,147
Refunding, Series N, 7.125%, 7/01/14 50,000 52,725
Refunding, Series N, Pre-Refunded, 7.125%, 7/01/14 130,000 137,762
Refunding, Series U, 6.00%, 7/01/14 1,000,000 1,088,120
Series O, 7.125%, 7/01/14 165,000 173,991
Series O, Pre-Refunded, 7.125%, 7/01/14 235,000 249,032
Series T, 6.00%, 7/01/16 1,000,000 1,080,670
Puerto Rico Industrial, Medical and Environmental Facilities,
PCFA Revenue, Baxter Travenol Labs., Series A, 8.00%, 9/01/12 200,000 209,972
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded,
8.25%, 7/01/08 110,000 113,843
Puerto Rico PBA, Guaranteed Public Education and Health Facilities,
Pre-Refunded, Series J, 7.00%, 7/01/19 100,000 102,617
Richmond County Board of Education, MBIA Insured, 5.95%, 11/01/26 1,000,000 1,002,980
Richmond County Development Authority, Solid Waste Disposal Revenue,
International Paper Co. Project, 5.80%, 12/01/20 1,500,000 1,584,960
Savannah EDA, IDR, Refunding, Hershey Foods Corp. Project, 6.60%, 6/01/12 1,000,000 1,101,230
Savannah Hospital Authority Revenue, Refunding, St. Joseph's Hospital
roject, 6.20%, 7/01/23 3,000,000 3,176,790
Savannah Port Authority PCR, Refunding, Union Carbide
Plastic Co., Inc., 7.55%, 8/01/04 4,600,000 4,627,600
St. Mary's Housing Authority MFMR, FNMA Secured,
Pine Apartments, Series C, 7.375%, 4/01/22 700,000 728,966
Refunding, Cumberland Oaks Apartments, Series A, 7.375%, 9/01/22 500,000 533,305
Tift County School District, MBIA Insured, 6.125%, 2/01/15 2,330,000 2,435,501
Walker, Dade and Catoosa County Hospital Authority Revenue, Anticipation
Certificates, Series A, FGIC Insured, Pre-Refunded,
7.00%, 10/01/10 1,500,000 1,672,890
Walton County Water and Sewer Authority Revenue, Refunding & Improvement,
MBIA Insured, 6.00%, 2/01/21 2,000,000 2,167,220
White County IDA Revenue, Refunding, Clark Schwebel
Fiber Glass, 6.85%, 6/01/10 1,780,000 1,928,166
---------
TOTAL LONG TERM INVESTMENTS (COST $145,839,668) 155,723,877
-----------
aSHORT TERM INVESTMENTS .8%
Bartow County Development Authority, PCR, Georgia Power Co., Bowen,
First Series, Daily VRDN and Put, 3.55%, 6/01/23 500,000 500,000
Burke County Development Authority, PCR, Refunding, Georgia Power Co.,
Plant Vogtle Project, First Series, Daily VRDN and Put,
3.55%, 4/01/32 300,000 300,000
Putnam County Development Authority, PCR, Georgia Power Co.,
Plant Branch, First Series, Daily VRDN and Put, 3.55%, 6/01/23 400,000 400,000
-------
TOTAL SHORT TERM INVESTMENTS (COST $1,200,000) 1,200,000
---------
TOTAL INVESTMENTS (COST $147,039,668) 98.9% 156,923,877
OTHER ASSETS, LESS LIABILITIES 1.1% 1,825,084
---------
NET ASSETS 100.0% $158,748,961
============
</TABLE>
See glossary of terms on Page 120.
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
FRANKLIN KENTUCKY
TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS I 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.05 $11.04 $10.54 $11.18 $11.05
--------------------------------------
Income from investment operations:
Net investment income .61 .61 .62 .61 .63
Net realized and unrealized gains (losses) .40 .01 .50 (.62) .16
-----------------------------------
Total from investment operations 1.01 .62 1.12 (0.01) .79
------------------------------------
Less distributions from net investment income (.61) (.61) (.62) (.63) (.66)
-------------------------------------
Net asset value, end of year $11.45 $11.05 $11.04 $10.54 $11.18
======================================
Total return* 9.38% 5.86% 10.73% .11% 7.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $54,211 $44,289 $38,991 $32,831 $28,057
Ratios to average net assets:
Expenses .35% .34% .33% .29% --
Expenses excluding waiver and payments by affiliate .81% .81% .82% .80% .71%
Net investment income 5.40% 5.63% 5.65% 5.94% 5.73%
Portfolio turnover rate 26.61% 24.81% 31.89% 32.92% 13.22%
</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.
FRANKLIN TAX-FREE TRUST
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998
PRINCIPAL
FRANKLIN KENTUCKY TAX-FREE INCOME FUND AMOUNT VALUE
LONG TERM INVESTMENTS 93.4%
<S> <C> <C>
Ashland PCR, Refunding, Ashland Oil, Inc. Project, 6.65%, 8/01/09 $ 700,000 $ 759,017
Ashland Solid Waste Revenue, Ashland Oil, Inc. Project, 7.20%, 10/01/20 1,000,000 1,087,570
Boone County PCR, Refunding, Collateralized, Series A, Dayton
Power and Light Co., 6.50%, 11/15/22 710,000 778,125
Campbell County Water Revenue, District No. 1, Pre-Refunded, 6.60%, 12/01/11 200,000 222,096
Carroll County PCR, Collateralized, Kentucky Utilities Co.
Project, Series B, 6.25%, 2/01/18 325,000 346,034
Christian County Hospital Revenue, Jennie Stuart Medical
Center, Series A, 6.00%, 7/01/17 1,000,000 1,056,650
Danville Multi-City Lease Revenue,
Campbellsville, Series B, MBIA Insured, 6.15%, 7/01/12 1,500,000 1,647,855
Housing Authority, Jefferson County, 6.50%, 2/01/12 125,000 133,144
Shelbyville, Series H, MBIA Insured, 6.70%, 7/01/11 100,000 111,120
Daviess County Hospital Revenue, Odch, Inc., Series A, MBIA Insured, 6.25%,
8/01/12 100,000 107,689
8/01/22 210,000 225,712
Daviess County Public Improvement Corp. Revenue, Refunding, First Mortgage,
Court Facilities Project, Series A, 5.70%, 10/01/14 545,000 575,264
Eastern University Revenues, Consolidated Educational Building, Series Q,
AMBAC Insured, 6.40%, 5/01/08 100,000 108,743
Edgewood Public Properties Corp. Revenue, First Mortgage, Public Facilities
Project, Pre-Refunded, 6.70%, 12/01/21 200,000 221,066
Elizabethtown Public Properties Holding, Inc. Revenue, First Mortgage,
Administrative Office of the Courts, Judicial Facilities Project,
MBIA Insured, 5.20%, 4/01/22 2,000,000 1,997,180
Fulton County Industrial Building Revenue, H.I.S., Inc.
Project, 7.50%, 2/01/10 500,000 523,265
Greater Kentucky Housing Assistance Corp. Projects, Mortgage Revenue,
Refunding, Series A, MBIA Insured, 6.10%, 1/01/24 2,000,000 2,069,720
Guam Airport Authority Revenue, Refunding, Series A,
6.50%, 10/01/23 400,000 440,692
Guam Power Authority Revenue, Series A, 6.30%, 10/01/22 225,000 238,698
Hancock County Solid Waste Disposal Revenue, Willamette Industries,
Inc. Project, 6.60%, 5/01/26 1,000,000 1,100,960
Hopkins County Hospital Revenue, Trover
Clinic Foundation, Inc., MBIA Insured, 6.625%, 11/15/11 125,000 137,053
Jefferson County Capital Projects Corp., Lease Revenue,
MBIA Insured, 5.375%, 6/01/22 2,000,000 2,039,580
Jefferson County Health Facilities Revenue,
Jewish Hospital Health Care Services, Inc., AMBAC Insured,
6.50%, 5/01/15 750,000 815,730
Jewish Hospital Health Care Services, Inc., AMBAC Insured,
6.55%, 5/01/22 720,000 783,022
Refunding, Alliant Health Systems, Inc., MBIA
Insured, 5.125%, 10/01/17 1,500,000 1,488,030
Refunding, Jewish Hospital Health Care Services, Inc.,
AMBAC Insured, 5.75%, 1/01/26 2,000,000 2,105,240
University Medical Center, Inc. Project, MBIA Insured, 5.50%, 7/01/17 1,500,000 1,562,820
Jefferson County MFHR, Watterson Park Apartments Project,
Series A, 6.35%, 11/15/11 1,945,000 2,059,911
Jefferson County PCR, Series A,
DuPont, 6.30%, 7/01/12 450,000 497,003
Refunding, Louisville Gas and Electric Co. Project, 7.45%, 6/15/15 100,000 108,556
Kenton County Airport Board Revenue,
Cincinnati/Northern Kentucky International Airport,
Series B, MBIA Insured, 5.75%, 3/01/13 1,230,000 1,317,834
Delta Airlines Project, Special Facilities, Series A, 7.50%, 2/01/20 445,000 496,411
Delta Airlines Project, Special Facilities, Series A, 7.125%, 2/01/21 325,000 355,797
Delta Airlines Project, Special Facilities, Series B, 7.25%, 2/01/22 445,000 490,799
Kenton County Water District No. 001, Waterworks Revenue,
Refunding, FGIC Insured, 6.375%, 2/01/17 155,000 169,091
Series A, MBIA Insured, 5.80%, 2/01/15 500,000 532,380
Series B, FGIC Insured, 5.70%, 2/01/20 500,000 526,125
Kentucky Development Finance Authority, Hospital Revenue,
Refunding & Improvement, St. Elizabeth Medical Center, Series A,
FGIC Insured, 6.00%, 11/01/10 750,000 788,535
Kentucky Economic Development Financing Authority,
Hospital Facilities Revenue, St. Elizabeth Medical Center Project,
Series A, FGIC Insured, 6.00%, 12/21/22 625,000 666,188
Hospital Systems Revenue, Refunding & Improvement, Appalachian
Regional, 5.875%, 10/01/22 2,000,000 2,056,540
Medical Center Revenue, Refunding & Improvement, Ashland
Hospital Corp., Series A, FSA Insured, 6.125%, 2/01/12 500,000 539,070
Kentucky HFC Revenue,
Refunding, Series A, 6.375%, 7/01/28 1,500,000 1,592,475
Series B, 6.25%, 7/01/28 1,280,000 1,362,880
Series C, FHA Insured, 6.40%, 1/01/17 1,420,000 1,531,243
SFMR, Series A, 6.60%, 7/01/11 40,000 42,684
SFMR, Series B, 6.60%, 7/01/11 150,000 160,067
SFMR, Series D, FHA/VA, 7.45%, 1/01/23 110,000 116,852
Kentucky Infrastructure Authority Revenue, Revolving Fund Program,
Series G, 6.30%, Pre-Refunded, 6/01/12 $ 100,000 $ 109,955
Series J, 6.375%, 6/01/14 500,000 556,365
Wastewater Revolving Fund Program, Series D, 5.75%, 6/01/15 300,000 315,327
Kentucky State Development Finance Authority Revenue, Refunding,
Sisters of Charity of Nazareth Health Corp., 6.75%, 11/01/12 100,000 108,848
Kentucky State Property and Buildings Commission Revenue
Project No. 56, 6.00%, 9/01/14 700,000 751,380
Lexington-Fayette Urban County Government Revenue, University of
Kentucky Library Project, MBIA Insured,
6.625%, 11/01/13 500,000 557,210
6.75%, 11/01/24 750,000 839,730
Louisville and Jefferson County Metropolitan Sewer District, Sewer and Drain
System Revenue, Refunding, Series A, AMBAC Insured, Pre-Refunded, 6.75%,
5/15/25 500,000 581,290 Refunding, Series B, MBIA Insured, 5.30%, 5/15/18
1,000,000 1,019,140 Series A, MBIA Insured, 5.50%, 5/15/21 500,000 515,565
Madison County Utility District Revenue, Refunding, FSA Insured,
5.20%, 2/01/22 1,000,000 998,590
McCracken County Hospital Revenue, Refunding, Mercy Health System,
Series A, MBIA Insured, 6.40%, 11/01/07 500,000 565,865
Pendleton Multi-County Association Trust, Lease Revenue,
Series A, 6.50%, 3/01/19 1,050,000 1,152,333
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 430,000 492,049
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA,
Special Facilities, American Airlines, Series A, 6.45%, 12/01/25 1,480,000 1,618,823
Russell Health Systems Revenue, 7/01/15, 8.10% 205,000 247,720
Pre-Refunded, 8.10% 145,000 184,650
Refunding, Our Lady of Bellefonte, 5.50% 1,800,000 1,810,727
Somerset Water Project Revenue, MBIA Insured, 6.40%, 12/01/06 100,000 102,635
---------
TOTAL LONG TERM INVESTMENTS (COST $47,245,406) 50,620,718
----------
aSHORT TERM INVESTMENTS 4.6%
Ashland PCR, Ashland Oil Inc. Project, Weekly VRDN and Put, 3.25%, 4/01/09 700,000 700,000
Kentucky Development Financing Authority Revenue, Pooled Loan Program,
Series A, FGIC Insured, Weekly VRDN and Put, 3.40%, 12/01/15 1,800,000 1,800,000
---------
TOTAL SHORT TERM INVESTMENTS (COST $2,500,000) 2,500,000
---------
TOTAL INVESTMENTS (COST $49,745,406) 98.0% 53,120,718
OTHER ASSETS, LESS LIABILITIES 2.0% 1,090,012
---------
NET ASSETS 100.0% $54,210,730
===========
</TABLE>
See glossary of terms on page 120.
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 LOUISIANA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS I 1998 1997 1996*** 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.32 $11.32 $11.03 $11.56 $11.57
-------------------------------------
Income from investment operations:
Net investment income .63 .65 .66 .66 .67
Net realized and unrealized gains (losses) .30 -- .28 (.55) (.01)
-----------------------------------
Total from investment operations .93 .65 .94 .11 .66
----------------------------------
Less distributions from net investment income (.64) (.65) (.65) (.64) (.67)
------------------------------------
Net asset value, end of year $11.61 $11.32 $11.32 $11.03 $11.56
=====================================
Total return* 8.46% 5.94% 8.75% 1.14% 5.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $134,922 $112,981 $107,461 $104,980 $115,971
Ratios to average net assets:
Expenses .76% .76% .78% .75% .68%
Net investment income 5.50% 5.76% 5.89% 5.98% 5.70%
Portfolio turnover rate 15.26% 13.68% 5.23% 32.28% 17.63%
Class II
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.37 $11.37 $11.01
----------------------
Income from investment operations:
Net investment income .57 .58 .49
Net realized and unrealized gains .32 -- .35
-------------------
Total from investment operations .89 .58 .84
-------------------
Less distributions from net investment income (.58) (.58) (.48)
---------------------
Net asset value, end of year $11.68 $11.37 $11.37
======================
Total return* 8.02% 5.27% 7.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $4,469 $3,004 $1,438
Ratios to average net assets:
Expenses 1.32% 1.33% 1.35%**
Net investment income 4.95% 5.29% 5.27%**
Portfolio turnover rate 15.26% 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.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
INVESTMENTS 97.6%
BONDS 96.0%
Ascension Parish Sales and Use Tax, Gravity Drainage District
No. 1, Pre-Refunded, 7.25%,
<S> <C> <C>
12/01/06 $ 300,000 $ 321,051
12/01/07 300,000 321,051
12/01/08 200,000 214,034
Bastrop, Inc., IDB, PCR, Refunding, International Paper Co.
Project, 6.90%, 3/01/07 500,000 547,340
Baton Rouge Public Improvement, Sales and Use Tax Revenue,
AMBAC Insured, 7.00%, 8/01/08 150,000 159,146
Calcasieu Parish Memorial Hospital Service District Revenue,
Lake Charles Memorial Hospital Project,
Series A, 7.75%, 6/01/12 870,000 932,196
Series B, 6.875%, 11/01/12 875,000 940,170
Calcasieu Parish Public Trust Authority, SFMR, Series A, 6.40%, 4/01/32 2,000,000 2,128,900
Denham Spring Livingston Housing and Mortgage Finance Authority, SFHR,
Series A, 7.20%, 8/01/10 1,380,000 1,641,137
DeSoto Parish Environmental Improvement Revenue, International
Paper Co. Project, Series A,
7.70%, 11/01/18 1,500,000 1,769,970
5.65%, 12/01/21 1,000,000 1,024,060
DeSoto Parish GO, 8.00%,
School District No. 1, Pre-Refunded, 1/01/09 150,000 155,081
School District No. 2, 8/01/06 50,000 52,250
East Baton Rouge Mortgage Finance Authority,
MBS, Series A, 7.875%, 8/01/23 835,000 882,111
SF Purchase, Series F, GNMA Secured, 7.875%, 12/01/21 1,090,000 1,165,744
SFM, Refunding, Series A, 6.10%, 10/01/29 990,000 1,053,439
East Baton Rouge Parish Public Improvement, Sales and Use Tax,
MBIA Insured, Pre-Refunded, 7.25%, 02/01/13 425,000 444,576
East Baton Rouge Parish Sales and Use Tax, FGIC Insured, 5.90%, 2/01/18 750,000 796,523
bErnest N Morial, New Orleans Exhibit Hall Authority,
Special Tax, Insured MBIA, 5.00%, 7/15/27 4,500,000 4,319,190
Iberville Parish Consolidated School District No. 005, Pre-Refunded,
8.125%, 10/01/08 125,000 130,575
GO, Unlimited Tax, 8.00%, 10/01/04 245,000 255,753
Jefferson Parish Home Mortgage Authority, SFMR, GNMA Secured,
Series A, 8.30%, 4/01/20 100,000 103,939
Jefferson Parish School Board, Sales and Use Tax Revenue,
Series A, ETM, 7.35%, 2/01/03 500,000 512,175
Lafayette Parish Consolidated School District No. 1,
FGIC Insured, Pre-Refunded, 7.70%, 3/01/07 400,000 418,972
Lafayette Public Trust Financing Authority, SFMR, Series A,
ETM, 7.20%, 4/01/11 30,000 35,829
Refunding, 8.50%, 11/15/12 301,890 318,078
Lafourche Parish Home Mortgage Authority, SFMR, ETM, 7.40%, 7/01/10 95,000 112,117
Lake Charles Harbor and Terminal District, Port Facilities Revenue,
Refunding, Occidental Petroleum Corp., 7.20%, 12/01/20 3,000,000 3,345,630
Lake Charles Nonprofit HDC, Section 8, Assisted Mortgage Revenue,
Refunding, Chateau Project, Series A, FSA Insured, 7.875%, 2/15/25 750,000 795,675
Leesville IDBR, Refunding, Wal-Mart Stores, Inc. Project, 7.10%, 3/01/11 1,750,000 1,861,913
Louisiana Mortgage, HFA Revenue,
MF, Refunding, Series A, FHA Insured, 7.00%, 7/01/22 2,795,000 2,869,682
MF, Westview Project, FHA Insured, 7.80%, 4/01/30 750,000 789,788
SF, GNMA Secured, 8.30%, 11/01/20 565,000 581,611
Louisiana Office Capital Facility Corp., Non-Profit Corp., 7.75%, 12/01/10 1,600,000 1,778,272
Louisiana Public Facilities Authority, Hospital Revenue, Refunding,
Touro Infirmary Project, Series A, BIG Insured,
Pre-Refunded, 8.00%, 6/01/09 75,000 77,268
Womens Hospital Foundation Project, FGIC Insured,
Pre-Refunded, 8.125%, 10/01/14 65,000 67,899
Womens Hospital Foundation Project, FSA Insured, 5.60%, 10/01/19 1,500,000 1,540,875
Louisiana Public Facilities Authority, Lease Revenue, Orleans Parish
School Board Project, FSA Insured, 5.65%, 6/15/11 1,230,000 1,283,554
Louisiana Public Facilities Authority Revenue,
Alton Ochsner Medical Foundation Project, Series C,
MBIA Insured, 6.50%, 5/15/22 930,000 1,007,199
Centenary College Project, 5.90%, 2/01/17 1,000,000 1,032,340
MFHR, Pontchartrain Apartments, Series A, GNMA Secured,
8.375%, 7/20/23 61,842 65,211
Mortgage Purchase, HFA, 6.05%, 1/01/26 1,200,000 1,256,544
Refunding, Dillard University Project, AMBAC Insured,
5.00%, 2/01/18 2,000,000 1,960,380
Refunding, Jefferson Parish Eastbank Office,
FGIC Insured, 7.70%, 8/01/10 200,000 212,236
Refunding, Loyola University Project, MBIA Insured, 5.625%,
10/01/16 1,000,000 1,052,580 Refunding, MF Housing,
Series A, One Lakeshore, GNMA Secured, 6.40%, 7/20/20 1,900,000 2,010,789
Refunding, Tulane, University of Lousiana,
Series A-1, MBIA Insured, 5.10%, 11/15/21 1,000,000 995,830
Louisiana Public Facilities Authority Revenue, (cont.)
cRefunding, Xavier, University of Louisiana Project,
MBIA Insured, 5.25%, 9/01/17 $ 1,000,000 $1,011,180
cRefunding, Xavier, University of Louisiana Project,
MBIA Insured, 5.25%, 9/01/27 6,015,000 6,014,940
SFM Purchase, Series C, 8.45%, 12/01/12 1,513,242 1,628,915
Student Loan, Series A, Sub-Series 3, 7.00%, 9/01/06 955,000 1,021,955
Tulane University, AMBAC Insured, 6.05%, 10/01/25 5,500,000 6,018,980
Louisiana Stadium and Exposition District, Hotel Occupancy Tax
and Stadium Revenue, FGIC Insured, Series A, 6.00%, 7/01/16 5,000,000 5,347,200
Louisiana State Gas and Fuels Tax Revenue, Series A, 7.25%, 11/15/04 500,000 535,370
Louisiana State Offshore Terminal Authority, Deepwater Port Revenue,
Refunding, Series B, Loop Inc., First Stage, 7.20%, 9/01/98 1,000,000 1,105,510
Series E, 7.60%, 9/01/10 480,000 526,277
Series E, Pre-Refunded 7.60%, 9/01/10 520,000 573,004
Louisiana State University, Agricultural and Mechanical College,
University Revenues, Auxiliary, MBIA Insured,
5.00%, 7/01/17 500,000 492,355
5.50%, 7/01/26 1,500,000 1,533,075
Mississippi River Bridge Authority Revenue, 6.75%, 11/01/12 1,050,000 1,158,728
Natchitoches Parish GO, Consolidated School District No. 7, Pre-Refunded,
8.30%, 3/01/10 125,000 131,651
Series B, 7.50%, 3/01/09 230,000 245,353
Series B, 7.50%, 3/01/10 235,000 250,686
New Orleans Aviation Board Revenue, Series B-1, AMBAC Insured,
5.45% 10/01/27 1,200,000 1,209,168
New Orleans GO,
Public Improvement, FGIC Insured, 5.90%, 11/01/25 1,000,000 1,053,350
Public Improvement, Series A, AMBAC Insured, 5.125%,12/01/27 1,000,000 978,250
Public Improvement, Series A, FGIC Insured, 5.50%,12/01/21 1,290,000 1,321,347
Refunding, AMBAC Insured, 6.00%, 9/01/21 2,000,000 2,079,560
New Roads Electric System Revenue, 7.00%, 07/01/17 1,000,000 1,074,750
Orleans Levee District, GO, Levee Improvement, FSA Insured,
5.95%, 11/01/14 940,000 1,024,045
Orleans Parish, Parishwide School District, AMBAC Insured, 5.375%, 9/01/21 2,000,000 2,030,600
Orleans Parish School Board, Series 95, FGIC Insured, 5.375%, 9/01/18 1,950,000 1,981,805
Ouachita Parish Hospital Service Revenue, District No. 1,
Glenwood Regional Medical Center, Refunding, FSA Insured, 5.75%, 5/15/21 2,500,000 2,620,525
Plaquemines Parish GO, Unlimited Tax, Pre-Refunded, 8.40%, 8/01/06 75,000 76,400
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded,
7.90%, 7/01/07 500,000 516,995
7.875%, 7/01/17 1,000,000 1,033,740
Puerto Rico Commonwealth GO, Series 1990, Pre-Refunded, 7.70%, 7/01/20 500,000 552,360
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A,
7.90%, 7/01/07 525,000 542,492
7.75%, 7/01/08 100,000 103,186
Puerto Rico Electric Power Authority Revenue, Pre-Refunded,
Refunding, Series M, 8.00%, 7/01/08 100,000 103,431
Refunding, Series N, 7.125%, 7/01/14 560,000 590,514
Puerto Rico HFC, SFMR, Portfolio No. 1, GNMA Secured,
Series B, 7.65%, 10/15/22 205,000 218,095
Series C, 6.85%, 10/15/23 650,000 693,895
Puerto Rico Industrial, Medical and Environmental Facilities,
PCFA Revenue, Baxter Travenol Labs., Series A, 8.00%, 9/01/12 150,000 157,479
Puerto Rico PBA, Guaranteed Public Education and Health Facilities,
Pre-Refunded, Series J, 7.25%, 7/01/17 1,000,000 1,026,970
Rapides Parish GO, Consolidated School District No. 52,
Pineville, 8.40%, 3/01/03 75,000 78,341
Rapides Parish Housing and Mortgage Finance Authority
SFM, ETM, 7.25%, 8/01/10 1,370,000 1,558,265
Shreveport Airport System Revenue, Series A,
FSA Insured, 5.375%, 1/1/28 1,000,000 1,005,570
Shreveport GO, Pre-Refunded, 7.50%, 1/01/09 150,000 154,478
Shreveport Water and Sewer Revenue, Series A, FGIC Insured,
5.95%, 12/01/14 3,500,000 3,743,950
St. Bernard Parish Exempt Facilities Revenue,
Mobil Oil Corp. Project, 5.90%, 11/01/26 2,000,000 2,096,580
St. Bernard Parish Home Mortgage Authority Revenue, SFMR, Series A,
FGIC Insured, ETM, 7.50%, 9/01/10 435,000 524,240
Refunding, 8.00%, 3/25/12 753,818 822,921
St. Charles Parish PCR, Louisiana Power and Light Co.
Project, 7.50%, 6/01/21 2,500,000 2,730,375
St. Charles Parish Solid Waste Disposal Revenue,
Louisiana Power and Light Co. Project, 7.05%, 4/01/22 $ 1,500,000 $1,609,665
Series A, 7.00%, 12/01/22 750,000 822,742
St. John's Baptist Parish Sales Tax District,
7.30%, 12/01/08 430,000 461,695
7.30%, 12/01/09 275,000 294,258
St. Mary's Public Trust Financing Authority, SFMR, Refunding,
Series A, 7.625%, 3/25/12 279,562 314,876
St. Tammany's Parish Hospital Service Revenue,
District No. 2, Pre-Refunded, 8.00%, 10/01/08 125,000 130,486
St. Tammany's Public Trust Financing Authority, SFMR, Series A, ETM,
7.20%, 7/01/10 165,000 193,910
7.20%, 7/01/11 50,000 59,844
State Colleges & Universities, Lease Revenue, University
of Southwestern Louisiana,
Cajundome, MBIA Insured, 5.65%, 9/01/26 4,080,000 4,251,646
Tangipahoa Parish Hospital Service Revenue, District No. 1, Refunding,
AMBAC Insured, 6.25%, 2/01/24 5,500,000 5,923,940
Terrebonne Parish Hospital Service Revenue, District No. 1, Refunding,
Terrebonne General Medical Center Project, BIG Insured,
7.50%, 4/01/15 125,000 127,807
Ville Platte Utilities Revenue, Refunding, Pre-Refunded, 7.80%, 05/01/02 205,000 216,080
West Feliciana Parish PCR, Gulf States Utilities Co. Project,
7.70%, 12/01/14 6,500,000 7,341,945
Refunding, 8.00%, 12/01/24 5,000,000 5,383,750
---------
TOTAL BONDS (COST $124,900,140) 126,170,354 133,772,183
---------
ZERO COUPON BONDS 1.6%
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 2,252,050
---------
TOTAL LONG TERM INVESTMENTS (COST $126,751,075) 136,024,233
---------
aSHORT TERM INVESTMENTS 2.1%
Ascension Parish IDR, BASF Corp., Project, Daily VRDN and Put, 3.70%, 12/01/27 300,000 300,000
Calcasieu Parish, Inc. IDB, IDR, Refunding, Olin Corp. Project,
Series B, Daily VRDN and Put 3.60%, 2/01/16 100,000 100,000
East Baton Rouge Parish PCR, Refunding, Rhone-Poulenc, Inc.,
Project, Daily VRDN and Put, 3.75%,
6/01/98 100,000 100,000
12/01/11 230,000 230,000
Louisiana Public Facilities Authority Revenue, Kenner Hotel, Ltd.,
Daily VRDN and Put, 3.65%, 12/01/15 1,600,000 1,600,000
West Feliciana Parish PCR, Daily VRDN and Put, 3.70%,
Gulf State Utility Co. Project, Series D, 12/01/15 300,000 300,000
Gulf State Utility Co. Project-Entergy, 4/01/16 300,000 300,000
-------
TOTAL SHORT TERM INVESTMENTS (COST $2,930,000) 2,930,000
---------
TOTAL INVESTMENTS (COST $129,681,075) 99.7% 138,954,233
OTHER ASSETS, LESS LIABILITIES .3% 436,350
-------
NET ASSETS 100.0% $139,390,583
============
</TABLE>
See glossary of terms on page 120.
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.
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 MARYLAND TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS I 1998 1997 1996*** 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.33 $11.38 $10.92 $11.36 $11.27
-------------------------------------
Income from investment operations:
Net investment income .59 .61 .62 .63 .64
Net realized and unrealized gains (losses) .32 (.03) .47 (.45) .09
----------------------------------
Total from investment operations .91 .58 1.09 .18 .73
----------------------------------
Less distributions from net investment income (.60)1 (.63) (.63) (.62) (.64)
------------------------------------
Net asset value, end of year $11.64 $11.33 $11.38 $10.92 $11.36
=====================================
Total return* 8.27% 5.24% 10.18% 1.78% 6.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $213,005 $185,234 $175,078 $153,145 $156,683
Ratios to average net assets:
Expenses .74% .73% .74% .73% .66%
Net investment income 5.20% 5.42% 5.56% 5.86% 5.58%
Portfolio turnover rate 3.19% 12.71% 8.11% 20.30% 18.38%
CLASS II
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.40 $11.44 $10.93
----------------------
Income from investment operations:
Net investment income .54 .55 .47
Net realized and unrealized gains (losses) .31 (.03) .51
-------------------
Total from investment operations .85 .52 .98
-------------------
Less distributions from net investment income (.53) (.56) (.47)
---------------------
Net asset value, end of year $11.72 $11.40 $11.44
======================
Total return* 7.70% 4.68% 9.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $10,515 $5,084 $913
Ratios to average net assets:
Expenses 1.30% 1.27% 1.31%**
Net investment income 4.63% 4.78% 4.95%**
Portfolio turnover rate 3.19% 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
$.005 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.8%
<S> <C> <C>
Anne Arundel County GO, Second Issue, 7.75%, 3/15/08 $ 200,000 $ 211,586
Anne Arundel County Mortgage Revenue, Refunding, Series A,
MBIA Insured, 6.00%, 1/01/26 1,650,000 1,733,507
Anne Arundel County PCR, Refunding, Baltimore Gas and Electric Co.
Project, 6.00%, 4/01/24 9,500,000 10,098,405
Baltimore Consolidated Public Improvement, Series A, FGIC Insured,
5.30%, 10/15/15 1,470,000 1,525,478
5.30%, 10/15/17 1,500,000 1,543,185
Baltimore Convention Center Revenue, FGIC Insured, 6.15%, 9/01/19 4,250,000 4,544,738
Baltimore COP, Refunding, Series C, MBIA Insured, 7.25%, 4/01/16 545,000 584,959
Baltimore County Authority Revenue, Series 1989, 7.20%, 7/01/19 90,000 94,721
Baltimore County Mortgage Revenue, Old Orchard Apartments Project,
Refunding, Series A, MBIA Insured,
7.00%, 7/01/16 1,000,000 1,092,740
7.125%, 1/01/27 3,000,000 3,298,020
Baltimore Economic Development Lease Revenue, Refunding,
Armistead Partnership, Series A,
6.75%, 8/01/02 1,220,000 1,320,992
7.00%, 8/01/11 3,225,000 3,581,395
Baltimore GO, Series B, 7.15%, 10/15/08 1,000,000 1,218,770
Baltimore Port Facilities Revenue, Consolidated Coal
Sales, Series A, 6.50%, 10/01/11 1,850,000 2,034,760
Baltimore Revenue, Refunding, Series A, FGIC Insured,
Waste Water Project, 5.80%, 7/01/15 5,000,000 5,344,700
Water Project, 5.50%, 7/01/26 2,000,000 2,073,180
Waste Water Project, 5.50%, 7/01/26 1,150,000 1,192,079
Bel Air COP, Parking Facilities, FSA Insured, Pre-Refunded, 7.80%, 6/01/10 250,000 262,598
Frederick County College Revenue, Hood College Project, 7.20%, 7/01/09 350,000 374,185
Frederick County EDR, Refunding, Manekin Frederick
Project, Series A, 7.50%, 12/01/14 500,000 538,975
Gaithersburg Hospital Facilities Revenue, Shady Grove Hospital,
Improvement Revenue, Series A, Pre-Refunded, 8.25%, 9/01/21 10,000,000 11,535,600
Refunding & Improvement, FSA Insured, 6.00%, 9/01/21 8,000,000 8,524,000
Harford County Mortgage Revenue, Refunding, Greenbrier V Apartments
Project, FHA Insured, 6.50%, 11/01/26 3,000,000 3,256,860
Howard County EDR, Refunding, 7.75%, 6/01/12 1,250,000 1,286,463
Howard County Metropolitan
District, Series A, Pre-Refunded, 7.40%, 2/15/18 215,000 223,901
Howard County
Mortgage Revenue, Refunding, Normandy Woods II Apartments Project,
Series A, 6.10%, 7/01/25 2,000,000 2,119,260
Kent County College Revenue, Refunding,
Washington College Project, 7.70%, 7/01/18 300,000 317,640
Maryland Environmental Services, COP, Water and Waste Facilities,
Series A, 6.70%, 6/01/11 1,900,000 2,049,112
Maryland Local Government Insurance Trust Capitalization Program,
Series A, 7.125%, 8/01/09 650,000 706,563
Maryland State CDA, Department of Economic and Community Development,
SFHR Program, Fourth Series, 7.30%, 4/01/17 1,000,000 1,060,140
Maryland State CDA, Department of Housing and Community Development,
Infrastructure Financing, Series A, AMBAC Insured, 7.25%, 6/01/09 130,000 137,073
MFHR Mortgage, Series A, 7.80%, 5/15/32 985,000 1,053,517
MFHR Mortgage, Series A, 6.85%, 5/15/33 1,800,000 1,919,844
MFHR Mortgage, Series D, 7.70%, 5/15/20 1,000,000 1,070,640
MFHR Mortgage, Series E, 7.10%, 5/15/28 675,000 716,317
SF Program, 1st Series, 7.40%, 4/01/17 140,000 145,015
SF Program, 2nd Series, 7.60%, 4/01/23 570,000 604,890
SF Program, 2nd Series, 7.85%, 4/01/29 200,000 210,682
SF Program, 3rd Series, 7.375%, 4/01/26 300,000 309,873
SF Program, 3rd Series, 7.25%, 4/01/27 1,435,000 1,518,058
SF Program, 4th Series, 7.375%, 4/01/10 995,000 1,051,725
SF Program, 4th Series, 7.45%, 4/01/32 940,000 992,283
SF Program, 5th Series, 6.85%, 4/01/11 1,955,000 2,081,156
Maryland State Community Development Administration, MFHR, Series A,
Department of Economics and Community Development, 7.375%, 5/15/26 195,000 199,395
Department of Housing and Community Development, 7.50%, 5/15/31 30,000 31,600
bMaryland State Community Development Administration, Series B, Department of
Housing and Community Development, 5.35%, 9/01/30 3,000,000 2,968,050
Maryland State EDC Lease Revenue, Hilton Street Facilities,
Series A, 7.00%, 1/01/10 1,000,000 1,109,500
Maryland State Energy Financing Administration, Solid Waste Disposal Revenue,
Limited Obligation, Wheelabrator Water Projects, 6.45%, 12/01/16 3,000,000 3,280,980
Maryland State Health and Higher Educational Facilities Authority Revenue,
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/12 $ 1,000,000 $1,125,470
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/22 250,000 281,368
Franklin Square Hospital, MBIA Insured, 7.50%, 7/01/19 150,000 160,191
Hartford Memorial Hospital and Fallston General Hospital, 8.50%, 7/01/14 100,000 102,821
Helix Health Issue, 5.00%, 07/01/27 11,000,000 10,653,830
Johns Hopkins Medical Institutions, Parking Facilities, AMBAC Insured,
5.50%, 7/01/26 9,750,000 10,011,983
Kernan Hospital, Connie Lee Insured, 6.10%, 7/01/24 1,700,000 1,805,706
North Arundel Hospital, BIG Insured, Pre-Refunded, 7.875%, 7/01/21 100,000 103,357
Refunding, Doctors Community Hospital, 5.75%, 7/01/13 3,000,000 3,095,490
Refunding, Johns Hopkins Hospital, 7.375%, 7/01/09 150,000 156,168
Refunding, Johns Hopkins University, 7.375%, 7/01/08 100,000 103,181
Refunding, Johns Hopkins University, 5.625%, 7/01/17 1,150,000 1,212,503
Refunding, Junior Lien, Francis Scott Key Facility, 5.625%, 7/01/25 2,520,000 2,604,470
Refunding, Mercy Medical Center Project, FSA Insured, 5.75%, 7/01/26 1,500,000 1,572,465
Maryland State IDA Financing, EDR, FSA Insured, 7.10%, 7/01/18 1,350,000 1,479,114
Maryland State IDA Revenue Financing, American Center Physics
Headquarters, 6.625%, 1/01/17 6,000,000 6,526,320
Maryland State Stadium
Authority, Lease Revenue, Convention Center Expansion,
AMBAC Insured, 5.875%, 12/15/14 4,655,000 4,989,043
Maryland State Stadium Authority, Sports
Facilities Lease Revenue,
AMBAC Insured, 5.75%, 3/01/22 5,000,000 5,217,350
AMBAC Insured, 5.80%, 3/01/26 2,045,000 2,138,191
Series D, 7.60%, 12/15/19 500,000 537,840
Maryland State Transportation Facilities Authority Revenue, Refunding,
Series 1992, 5.75%, 7/01/13 5,400,000 5,591,376
Maryland Water Quality Financing Administration Revenue,
Revolving Loan Fund, Series A, 6.55%, 9/01/14 1,000,000 1,091,560
Montgomery County Housing Opportunities Commission,
MFHR, Series B, 6.00%, 7/01/37 2,500,000 2,629,425
Montgomery County Housing Opportunities Commission, MFMR, Series A,
7.25%, 7/01/11 430,000 460,530
7.00%, 7/01/23 2,410,000 2,571,856
Montgomery County Housing Opportunities Commission, SFMR, Series A,
6.80%, 7/01/17 2,015,000 2,127,054
7.50%, 7/01/17 450,000 476,159
7.625%, 7/01/17 175,000 179,300
Montgomery County Revenue Authority, Golf Course System,
Series A, 6.125%, 10/01/22 1,000,000 1,058,600
Northeast Solid Waste Disposal Authority Revenue, Montgomery County
Resources Recreation Project, Series A,
6.20%, 7/01/10 3,100,000 3,288,480
6.30%, 7/01/16 6,000,000 6,423,300
Ocean City GO, Refunding, MBIA Insured,
5.75%, 3/15/12 1,880,000 2,008,141
5.75%, 3/15/13 1,120,000 1,194,794
5.75%, 3/15/14 1,180,000 1,253,951
Prince George's County COP, Real Estate Acquisition Program II,
MBIA Insured, 6.00%, 9/15/14 2,050,000 2,216,542
Prince George's County GO, Consolidated Public Improvement,
Series A, Pre-Refunded, 7.20%, 2/01/08 130,000 135,361
Prince George's County Hospital Revenue, Dimensions Health Corp.,
Pre-Refunded, 7.00%, 7/01/22 1,000,000 1,132,700
Prince George's County Housing Authority, MFHR, Emerson House Project,
Series A, 7.00%, 4/15/19 5,500,000 5,939,450
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 3,078,379
Prince George's County IDA Lease Revenue, Upper Marlboro Justice
Center Project, MBIA Insured, 5.80%, 6/30/14 2,750,000 2,912,663
Prince George's County Parking Authority Revenue, Refunding,
Justice Center Facilities Project, 6.45%, 5/01/05 500,000 548,490
Prince George's County PCR, Refunding, Potomac Electric Project,
6.00%, 9/01/22 1,200,000 1,263,096
6.375%, 1/15/23 2,975,000 3,216,392
Puerto Rico Commonwealth GO,
5.50%, 7/01/17 4,050,000 4,178,466
5.40%, 7/01/25 1,950,000 1,983,813
Puerto Rico Commonwealth Highway and Transportation Authority
Revenue, Series Y, 5.50%, 7/01/26 6,900,000 7,057,665
Puerto Rico Commonwealth Public Improvement, GO, 5.75%, 7/01/17 3,000,000 3,176,520
Puerto Rico Electric Power Authority Revenue, Series AA,
MBIA Insured, 5.375%, 7/01/27 3,000,000 3,046,830
Rockville Mortgage Revenue,
Refunding, Summit Apartments Project, Series A,
MBIA Insured, 5.70%, 1/01/26 $1,145,000$ 1,189,518
University of Maryland, Auxiliary Facilities System and
Tuition Revenue, Series A, 5.60%, 4/01/16 1,000,000 1,043,300
Washington
Suburban Sanitary District, General Construction,
5.25%, 6/01/19 1,330,000 1,341,837
Pre-Refunded, 7.25%, 12/01/09 100,000 104,592
-------
TOTAL LONG TERM INVESTMENTS (COST $206,720,163) 220,946,111
-----------
aSHORT TERM INVESTMENTS 1.0%
Maryland Community Development Administration,
MFR, Development Revenue, 3.40%, 6/15/26
1,500,000 1,500,000
Maryland State Health and Higher Educational Facilities
Authority Revenue,
Pooled Loan Program, Series A, Weekly VRDN and Put,
3.40%, 4/01/35 200,000 200,000
Maryland State Health and Higher Educational Facilities Authority Revenue,
Catholic Health, Series B, 3.45%, 12/01/15 400,000 400,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
EDR, 2.90%, 12/01/15 100,000 100,000
-------
TOTAL SHORT TERM INVESTMENTS (COST $2,200,000) 2,200,000
---------
TOTAL INVESTMENTS (COST $208,920,163) 99.8% 223,146,111
OTHER ASSETS, LESS LIABILITIES .2% 373,140
---------
NET ASSETS 100.0% $223,519,251
============
</TABLE>
See glossary of terms on page 120.
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 MISSOURI TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
CLASS I 1998 1997 1996*** 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.83 $11.94 $11.44 $11.94 $11.75
-------------------------------------
Income from investment operations:
Net investment income .64 .65 .65 .65 .66
Net realized and unrealized gains (losses) .44 (.07) .49 (.50) .21
----------------------------------
Total from investment operations 1.08 .58 1.14 .15 .87
-----------------------------------
Less distributions from:
Net investment income (.64) (.65) (.64) (.65) (.68)
Net realized gains (.04) (.04) -- -- --
--------------------------------
Total distributions (.68) (.69) (.64) (.65) (.68)
------------------------------------
Net asset value, end of year $12.23 $11.83 $11.94 $11.44 $11.94
=====================================
Total return* 9.43% 5.06% 10.23% 1.44% 7.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $308,045 $269,564 $247,522 $227,442 $228,149
Ratios to average net assets:
Expenses .71% .70% .71% .70% .64%
Net investment income 5.32% 5.56% 5.58% 5.75% 5.55%
Portfolio turnover rate 14.30% 21.81% 18.27% 19.84% 11.02%
CLASS II
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.85 $11.97 $11.47
----------------------
Income from investment operations:
Net investment income .58 .57 .48
Net realized and unrealized gains (losses) .45 (.07) .50
-------------------
Total from investment operations 1.03 .50 .98
--------------------
Less distributions from:
Net investment income (.57) (.58) (.48)
Net realized gains (.04) (.04) --
-----------------
Total distributions (.61) (.62) (.48)
---------------------
Net asset value, end of year $12.27 $11.85 $11.97
======================
Total return* 8.96% 4.32% 8.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $10,045 $4,295 $1,325
Ratios to average net assets:
Expenses 1.27% 1.27% 1.27%**
Net investment income 4.75% 4.92% 4.94%**
Portfolio turnover rate 14.30% 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.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 100.1%
Audrain County Hospital Revenue, Refunding, Audrain
<S> <C> <C>
Medical Center Project, AMBAC Insured, 7.35%, 11/01/08 $ 500,000 $ 562,355
Bi-State Development Agency, Missouri-Illinois Metropolitan District No. 5,
Refunding, American Commercial Terminals, 7.75%, 6/01/10 3,000,000 3,276,660
Bowling Green School District R1, Building Corp., Leasehold Revenue,
MBIA Insured, 6.50%, 3/01/13 1,400,000 1,500,730
Fenton Public Facility Authority, Leashold Revenue, 5.25%, 1/01/18 1,000,000 979,410
Guam Airport Authority Revenue,
Refunding, Series A, 6.50%, 10/01/23 1,075,000 1,184,360
Series B, 6.60%, 10/01/10 500,000 549,670
Series B, 6.70%, 10/01/23 4,000,000 4,437,400
Hannibal IDA, Health Facilities, 5.75%, 3/01/22 1,800,000 1,902,240
Hazelwood IDA, MFHR, Refunding, Lakes Apartments Project,
Series A, 6.10%, 9/20/26 1,745,000 1,823,612
Jackson County IDA Revenue, St. Joseph's Health Center Corp., MBIA Insured,
6.50%, 7/01/19 3,000,000 3,281,430
Jackson County Public Building Corp., Leasehold Revenue,
Capital Improvement Projects, MBIA Insured, 5.70%, 12/01/17 1,595,000 1,675,404
Jefferson County Reorganized School District No. R-3, AMBAC Insured,
7.00%, 3/01/09 370,000 396,152
Kansas City Airport Revenue, General Improvement, Series B, FSA Insured,
Pre-Refunded, 6.875%, 9/01/12 605,000 704,486
Kansas City IDA,
Ewing Marion Kauffman, Series B, 5.70%, 4/01/27 11,100,000 11,627,805
MFHR, Mews Apartments Project, Series A, 6.30%, 7/01/20 3,345,000 3,545,366
Refunding, MFHR, Hilltop Village Apartments Project,
Series A, 5.70%, 10/01/17 1,030,000 1,048,190
Refunding, MFHR, Hilltop Village Apartments Project,
Series A, 5.80%, 10/01/27 1,555,000 1,588,122
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 5,343,700
Kansas City MAC, Leasehold Revenue, Capital Improvement,
Citywide Infrastructure, Series B, FSA Insured, 6.50%, 3/01/14 7,790,000 8,527,557
Truman Medical Center, Series A, 7.00%, 11/01/11 1,665,00 1,796,835
Kansas City Tax Increment Financing Commission, Tax Increment Revenue,
Briarcliff West Project, Series B, 7.00%, 11/01/14 3,525,000 3,696,491
Lake of the Ozarks Community Bridge Corp., Bridge System Revenue,
bRefunding, 5.25%, 12/01/14 2,500,000 2,477,800
bRefunding, 5.25%, 12/01/20 6,000,000 5,897,820
bRefunding, 5.25%, 12/01/26 6,500,000 6,330,155
6.25%, 12/01/16 4,535,000 5,235,884
6.40%, 12/01/25 7,000,000 8,157,660
Lee's Summit COP, 8.50%, 8/01/02 75,000 76,281
Lee's Summit, IDA Revenue, John Knox Village Project,
6.55%, 8/15/10 1,000,000 1,081,880
6.625%, 8/15/13 2,000,000 2,181,860
Missouri School Board Association COP, Lease Participation, North
St. Francois County Project, MBIA Insured, Pre-Refunded,
7.375%, 4/01/10 1,000,000 1,021,650
Missouri School Board Association COP, Pooled Finance Program,
BIG Insured, 3/01/06
Series A-3, 7.875% 30,000 30,714
Series A-5, 7.375% 130,000 134,787
Missouri School Boards Association, Lease Participation
Certificates, FSA Insured, 3/01/16 Fox C-6 School District, 5.75% 6,150,000 6,494,400
Refunding, Republic R-3 School District Project, 6.00% 2,220,000 2,384,413
Missouri Southern State College Revenue, Refunding, Auxiliary
Enterprise System, MBIA Insured, 5.25%, 10/01/22 2,500,000 2,509,225
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 2,250,780
Revolving Fund Program, PCR, Series A, 6.55%, 7/01/14 4,500,000 4,912,290
Revolving Fund Program, PCR, Series A, FSA Insured,
6.05%, 7/01/16 1,000,000 1,086,810
Revolving Fund Program, PCR, Series A, Kansas City Project,
5.75%, 1/01/16 1,000,000 1,061,460
Revolving Fund Program, PCR, Series B, 5.80%, 1/01/15 1,000,000 1,065,990
Revolving Fund Program, PCR, Series B, 7.20%, 7/01/16 2,000,000 2,320,780
Revolving Fund Program, Water Pollution Control Revenue,
Series A, 7.00%, 10/01/10 1,945,000 2,124,096
Revolving Fund Program, Water Pollution Control Revenue,
Series B, 7.125%, 12/01/10 950,000 1,046,463
Thomas Hill Electric Cooperative, PCR, 5.50%, 12/01/11 2,000,000 2,123,820
Union Electric Project, 7.40%, 5/01/20 2,390,000 2,588,179
Missouri State HDC, GNMA Secured,
Series B, 6.40%, 12/01/24 2,225,000 2,351,669
SFMR, Homeowner Loan, Series D, 6.125%, 3/01/28 1,935,000 2,037,323
Missouri State HDC, GNMA Secured, (cont.)
SFMR, Series A, 7.90%, 2/01/21 $ 125,000 $ 129,270
SFMR, Series A, 7.625%, 2/01/22 385,000 403,041
SFMR, Series B, 6.10%, 9/01/14 1,915,000 2,038,383
SFMR, Series B, 7.625%, 6/01/21 310,000 321,696
SFMR, Series B, 7.75%, 6/01/22 1,540,000 1,626,163
SFMR, Series B, 6.45%, 9/01/27 1,885,000 2,032,539
SFMR, Series C, 6.90%, 7/01/18 1,580,000 1,682,905
Missouri State Health and Educational Facilities Authority,
Health Facilities Revenue,
Bethesda Health Group, Inc. Project, Pre-Refunded, 8.00%, 4/01/13 100,000 101,326
Freeman Health Systems Project, 5.25%, 2/15/28 2,250,000 2,187,090
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 2,745,000 2,993,615
Lake of the Ozarks General Hospital, Pre-Refunded, 8.00%, 2/15/11 3,500,000 3,708,670
Lutheran Senior Services, Series A, 6.375%, 2/01/27 4,000,000 4,299,160
Refunding, Charles E. Still Osteopathic Hospital Project,
7.625%, 2/01/08 125,000 125,250
Refunding, Lake of the Ozarks General Hospital, 6.25%, 2/15/11 1,250,000 1,344,850
Refunding, Lake of the Ozarks General Hospital, 6.50%, 2/15/21 1,000,000 1,084,050
Refunding, Lutheran Senior Services, 5.875%, 2/01/23 2,600,000 2,685,488
Spelman-St. Luke's Hospital Corp. Project, Pre-Refunded,
7.875%, 10/01/18 175,000 182,662
Missouri State Health and Educational Facilities Authority Revenue,
Health Midwest, Series A, MBIA Insured, 6.40%, 2/15/15 5,000,000 5,410,550
Health Midwest, Series B, MBIA Insured, 6.10%, 6/01/11 700,000 769,692
Health Midwest, Series B, MBIA Insured, 6.25%, 6/01/14 1,990,000 2,184,781
Health Midwest, Series B, MBIA Insured, 6.25%, 2/15/22 1,100,000 1,184,425
Heartland Health, Refunding and Improvement, 8.125%, 10/01/10 865,000 925,680
Jefferson Memorial Hospital Obligated Group, 6.75%, 5/15/15 4,000,000 4,387,680
Jefferson Memorial Hospital Obligated Group, 6.80%, 5/15/25 3,250,000 3,554,168
Refunding, SSM Health Care, Series AA, MBIA Insured, 6.25%, 6/01/16 1,000,000 1,080,540
Refunding, St. Louis University, Series A, AMBAC Insured,
7.875%, 6/01/12 50,000 50,982
Sisters of St. Mary's Health Care Project, Series A, BIG Insured,
Pre-Refunded, 7.75%, 6/01/16 950,000 978,396
Missouri State Housing Development Commission, MFHR, FHA Insured,
8.50%, 12/01/29 135,000 138,420
Missouri State Western College Revenue, Refunding, Student Housing,
Pre-Refunded, 8.00%, 10/01/16 5,000,000 5,741,200
Moberly Combined Waterworks and Sewerage System, Refunding
& Improvement Bonds, FGIC Insured, Pre-Refunded, 7.50%, 8/01/15 1,000,000 1,101,870
Northeast State University Recreational Facility Revenue, Campus
Recreational Center Project, AMBAC Insured, 5.80%, 6/01/15 1,000,000 1,050,490
Northwest R-I Educational Facilities Authority, Leasehold Revenue,
Jefferson County, FSA Insured, 5.70%, 3/01/15 5,200,000 5,400,096
O Fallon Public Facilities Authority, Leasehold Revenue, Series A,
AMBAC Insured, 5.40%, 2/01/17 1,575,000 1,607,272
Phelps County Hospital Revenue, Refunding, Phelps County Regional
Medical Center, Connie Lee Insured, 6.00%, 5/15/13 5,000,000 5,221,250
Poplar Bluff Public Building Corp., Leasehold Revenue, Series A,
MBIA Insured, 5.50%, 9/01/12 2,820,000 2,997,942
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded,
7.90%, 7/01/07 500,000 516,995
7.875%, 7/01/17 375,000 387,653
FSA Insured, 9.00%, 7/01/09 40,000 51,065
Puerto Rico Commonwealth Highway Authority Revenue, Series P,
Pre-Refunded, 8.125%, 7/01/13 75,000 77,591
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue,
Series A, 7.90%, 7/01/07 200,000 206,664
Series A, 7.75%, 7/01/08 975,000 1,006,064
Puerto Rico Commonwealth Public Improvement GO, Series A,
Pre-Refunded, 7.75%, 7/01/13 120,000 124,021
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 25,000 25,858
Refunding, Series N, 7.125%, 7/01/14 1,110,000 1,170,484
Series O, 7.125%, 7/01/14 280,000 295,257
Series X, 6.00%, 7/01/15 2,375,000 2,567,280
Puerto Rico HFC Revenue, MFMR, Portfolio 1, Series A, 7.50%, 4/01/22 380,000 400,482
Puerto Rico HFC Revenue, SFMR, Portfolio 1, GNMA Secured,
Series A, 7.80%, 10/15/21 40,000 41,222
Series C, 6.85%, 10/15/23 1,265,000 1,350,425
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA,
Baxter Travenol Labs., Series A, 8.00%, 9/01/12 $ 350,000 $ 367,451
Upjohn Co. Project, Limited Offering, 7.50%, 12/01/23 300,000 317,364
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 2,553,775
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded,
8.25%, 7/01/08 130,000 134,542
Puerto Rico PBA, Guaranteed Public Education and Health Facilities,
Series H, Pre-Refunded, 7.25%, 7/01/17 750,000 770,228
Puerto Rico Port Authority Revenue, Special Facilities, American Airlines,
Series A, 6.25%, 6/01/26 2,500,000 2,722,475
Raymore GO, FSA Insured, 6.00%, 3/01/14 1,000,000 1,059,520
Sikeston Electric Revenue, Refunding, MBIA Insured, 5.00%, 6/01/22 5,000,000 4,903,200
Springfield Waterworks Revenue, Series A, 5.60%, 5/01/23 2,000,000 2,062,820
St. Charles County Community College, Pre-Refunded, 7.25%, 3/01/06 500,000 531,945
St. Charles Public Facility Authority, Leasehold Revenue, AMBAC Insured,
Refunding, 5.80%, 2/01/10 3,000,000 3,228,480
St. Louis Airport Revenue, Lambert-St. Louis International Airport,
Refunding & Improvement, FGIC Insured, 6.125%, 7/01/15 2,000,000 2,125,920
Series A, FGIC Insured, 5.125%, 7/01/27 6,425,000 6,427,249
Series B, FGIC Insured, 5.25%, 7/01/27 5,500,000 5,508,855
St. Louis County Housing Authority, MFHR, Kensington Square
Apartments Project, Refunding,
6.55%, 3/01/14 1,000,000 1,080,000
6.65%, 3/01/20 2,750,000 2,969,120
St. Louis County IDA, Elderly Housing Revenue, Centenary Towers
Apartments Project,
6.40%, 4/01/14 1,000,000 1,054,320
Elderly Housing Revenue, Centenary Towers Apartments Project,
6.55%, 4/01/19 1,000,000 1,053,910
Health Facilities Revenue, Mother of Perpetual Help, 6.40%, 8/01/35 1,895,000 2,096,249
Refunding, MFHR, South Summit Apartments, Series A, 6.10%, 4/20/32 1,250,000 1,321,300
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 25,000 25,984
St. Louis County Regional Convention and Sports Complex Authority,
Convention and Sports Project, Series B, Refunding, 5.75%, 8/15/21 5,565,000 5,727,554
St. Louis IDA, Sewer and Solid Waste Disposal Facilities Revenue,
Anheuser-Busch Project, 5.875%, 11/01/26 1,000,000 1,063,150
St. Louis Land Clearance RDA,
Leasehold Revenue, Capital Improvement, Pre-Refunded, 7.60%, 8/15/08 250,000 254,408
Refunding, Kiel Site Lease, Series A, MBIA Insured, 5.125%, 7/01/21 1,625,000 1,626,950
St. Louis Municipal Financial Corp., Leasehold Revenue, Series A,
City Justice Center Improvement, AMBAC Insured, 6.00%, 2/15/19 5,370,000 5,804,111
Refunding, 6.00%, 7/15/13 10,000,000 10,433,800
St. Louis Parking Facilities Revenue, Pre-Refunded, 6.625%, 12/15/21 470,000 529,845
St. Louis Public School District Building Corp., Leasehold Revenue,
School District Capital Improvement, FGIC Insured, 5.40%, 4/01/17 2,100,000 2,151,345
St. Louis Regional Convention and Sports Complex Authority, Series C,
7.75%, 8/15/01 2,370,000 2,570,028
7.90%, 8/15/21 555,000 620,529
Pre-Refunded, 7.90%, 8/15/21 11,345,000 13,460,502
Refunding, Convention and Sports Facilities, AMBAC Insured,
5.625%, 8/15/21 4,725,000 4,919,765
Taney County Reorganization, School District No. R-V, 5.80%, 3/01/17 2,585,000 2,685,840
University of Missouri, Health Facilities Revenue, Refunding, University
of Missouri Health System, Series A, AMBAC Insured,
5.60%, 11/01/26 5,000,000 5,245,150
University of Missouri Revenues, System Facilities, 5.80%, 11/01/27 4,000,000 4,241,200
Webb City School District No. R-VII, Facilities Group, Leasehold Revenue,
Refunding & Improvement, FSA Insured, 5.625%, 8/01/16 1,115,000 1,149,943
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project,
Refunding, 5.50%, 11/15/12 1,000,000 1,002,469
Refunding, 5.60%, 11/15/17 1,700,000 1,704,182
Refunding, 5.65%, 11/15/22 1,500,000 1,503,674
Series A, 8.625%, 9/15/20 1,975,000 2,215,692
---------
TOTAL LONG TERM INVESTMENTS (COST $296,407,634) 318,609,661
-----------
ASHORT TERM INVESTMENTS 2.3%
Kansas City IDA Hospital Revenue, Resh Health Services
System, MBIA Insured, Daily VRDN and Put,
3.65%, 10/15/14 $ 900,000 $ 900,000
3.65%, 4/15/15 2,400,000 2,400,000
3.65%, 10/15/15 3,900,000 3,900,000
---------
TOTAL SHORT TERM INVESTMENTS (COST $7,200,000) 7,200,000
---------
TOTAL INVESTMENTS (COST $303,607,634) 102.4% 325,809,661
OTHER ASSETS, LESS LIABILITIES (2.4)% (7,720,105)
-----------
NET ASSETS 100.0% $318,089,556
============
</TABLE>
See glossary of terms on Page 120.
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 NORTH CAROLINA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS I 1998 1997 1996*** 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.73 $11.75 $11.37 $11.92 $11.88
-------------------------------------
Income from investment operations:
Net investment income .62 .64 .64 .65 .65
Net realized and unrealized gains (losses) .38 (.03) .39 (.55) .05
----------------------------------
Total from investment operations 1.00 .61 1.03 .10 .70
-----------------------------------
Less distributions from net investment income (.62) (.63) (.65)1 (.65) (.66)
------------------------------------
Net asset value, end of year $12.11 $11.73 $11.75 $11.37 $11.92
=====================================
Total return* 8.78% 5.38% 9.28% 1.06% 5.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $297,406 $260,979 $247,031 $216,26 $215,540
Ratios to average net assets:
Expenses .70% .70% .71% .70% .63%
Net investment income 5.24% 5.47% 5.52% 5.75% 5.44%
Portfolio turnover rate 9.95% 9.98% 25.19% 25.05% 3.86%
CLASS II
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.79 $11.80 $11.41
----------------------
Income from investment operations:
Net investment income .56 .57 .49
Net realized and unrealized gains (losses) .39 (.02) .38
-------------------
Total from investment operations .95 .55 .87
-------------------
Less distributions from net investment income (.56) (.56) (.48)
---------------------
Net asset value, end of year $12.18 $11.79 $11.80
======================
Total return* 8.22% 4.83% 7.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $20,043 $9,607 $2,430
Ratios to average net assets:
Expenses 1.26% 1.26% 1.28%**
Net investment income 4.69% 4.85% 4.90%**
Portfolio turnover rate 9.95% 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. 1Includes distributions in excess of net investment income in the amount of
$.001.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.0%
Appalachian State University Revenue, Teachers College Utility
<S> <C> <C>
System, MBIA Insured, 6.10%, 5/15/13 $ 1,075,000 $ 1,175,394
Asheville COP, Series A, MBIA Insured, 5.125%, 6/01/18 1,000,000 1,001,190
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 4,000,000 4,224,840
Buncombe County Metropolitan Sewage District System Revenue, Series
B, 6.75%, 7/01/16 10,000 11,019
Centennial Authority Hotel Tax Revenue, Arena Project,
FSA Insured, 5.125%, 9/01/19 3,865,000 3,876,634
Charlotte COP, Convention Facility Project, AMBAC Insured,
Pre-Refunded, 7.00%, 12/01/11 2,250,000 2,518,515
Charlotte GO, Water and Sewer,
5.90%, 2/01/18 1,000,000 1,076,430
5.60%, 5/01/20 5,980,000 6,338,860
Charlotte-Mecklenburg Hospital Authority, Health Care System Revenue,
Carolinas Healthcare System, Series A, 5.125%, 1/15/22 8,000,000 7,928,720
Refunding, Series 1992, 6.25%, 1/01/20 2,620,000 2,807,173
Refunding, Series 1992, Pre-Refunded, 6.25%, 1/01/20 3,480,000 3,801,726
Refunding, Series I, Pre-Refunded, 7.80%, 10/01/18 350,000 365,173
Series A 5.90%, 1/15/16 3,465,000 3,702,456
Series A Pre-Refunded, 5.90%, 1/15/16 1,535,000 1,719,277
Charlotte Special Facilities Revenue, Piedmont Aviation,
Inc. Project, Douglas International Airport, 7/01/17
8.375% 260,000 263,305
9.00% 1,255,000 1,296,352
Coastal Solid Waste Disposal System Authority Revenue, Refunding,
Regional Solid Waste Management, 6.50%, 6/01/08 3,100,000 3,346,760
Columbus County Industrial Facilities and PCFA, Solid Water Disposal
Revenue, Refunding, International Paper Co. Project, Series A,
5.80%, 12/01/16 1,450,000 1,525,603
Concord COP, Series B, MBIA Insured,
5.75%, 6/01/16 1,475,000 1,554,222
6.125%, 6/01/21 2,180,000 2,361,768
Cumberland County COP, Civic Center Project, Series A,
AMBAC Insured, 6.40%
12/01/19 3,500,000 3,906,350
12/01/24 3,765,000 4,202,117
Cumberland County Hospital Facility System Revenue,
BIG Insured, Pre-Refunded, 7.875%, 10/01/14 110,000 114,816
MBIA Insured, 6.00%, 10/01/21 2,500,000 2,600,675
Davie County GO, North Carolina Water, Unlimited Tax, 7.10%
4/01/10 350,000 377,465
4/01/11 250,000 269,463
Duplin County COP, Social Service Administrative Building,
Solid Waste Project, FGIC Insured, 6.75%, 9/01/12 2,000,000 2,177,460
Durham COP, Series 1991, 6.875%, 4/01/09 1,650,000 1,804,044
Durham County COP, Hospital and Office Facilities Project, 6.00%
5/01/14 3,000,000 3,227,880
5/01/17 3,200,000 3,405,344
Durham County COP, Jail Facilities and Computer Equipment Project,
Pre-Refunded, 6.625%, 5/01/14 3,000,000 3,281,370
Fayetteville Public Works Commission Revenue, FSA Insured,
5.125%, 3/01/17 2,500,000 2,507,275
5.125%, 3/01/24 2,000,000 2,002,480
Series A, 6.00%, 3/01/16 2,000,000 2,117,820
Gaston COP, Police Station Project, FGIC Insured, 5.70%,
8/01/15 1,500,000 1,576,800
Gaston County COP, Public Facilities Project, MBIA Insured, 5.25%,
12/01/16 1,000,000 1,020,500
Gaston County Industrial Facilities and PCFA Revenue, 7.70%, 10/01/12 750,000 809,918
Gastonia Combined Utilities System Revenue, MBIA Insured, 6.10%, 5/01/19 2,200,000 2,381,148
Greensboro COP,
Coliseum Arena Expansion Project, 6.75%, 12/01/09 1,610,000 1,759,408
Greensboro Center City Corp., Pre-Refunded, 7.90%, 7/01/09 350,000 361,778
Greensboro HDC, Mortgage Revenue, Refunding, Series A,
MBIA Insured, 6.70%, 1/01/24 1,320,000 1,396,309
Guam Power Authority Revenue, Series A, 6.375%, 10/01/08 1,000,000 1,063,900
Halifax County Insured Facility, PCR, Solid Waste Disposal,
Champion International Corp., 8.15%, 11/01/19 400,000 431,812
Haywood County Industrial Facilities and PCFA, Environmental
Improvement Revenue, Champion International Project, 6.25%, 9/01/25 2,000,000 2,158,740
Haywood County Insured Facility, PCR, Solid Waste Disposal,
Champion International Corp., 8.10%, 11/01/09 200,000 215,748
Highpoint Special Obligation Sales Tax Revenue, Solid Waste
Management Project, 7.15%, 7/01/01 1,500,000 1,533,150
Kinston Enterprise System Revenue, Combined Enterprise System,
FSA Insured, 5.70%, 4/01/21 1,700,000 1,800,113
Kinston Housing Authority Mortgage Revenue, Refunding,
Kinston Towers Project, 6.75%, 12/01/18 $3,155,000$ 3,324,707
Martin County Industrial Facilities and PCFA Revenue,
Refunding, 6.375%, 1/01/10 3,000,000 3,246,930
Solid Waste, Weyerhaeuser Co. Project, 6.00%, 11/01/25 4,000,000 4,209,200
Mooresville Grade School District, COP, AMBAC Insured, 6.35%, 10/01/14 1,000,000 1,088,520
New Hanover County Industrial Facilities and PCFA Revenue,
Refunding, 6.70%, 7/01/19 1,000,000 1,085,520
North Carolina Central University Revenue, Student Fee - O Kelley/Riddick,
AMBAC Insured, 5.00%
b4/01/18 500,000 490,660
b4/01/23 650,000 634,543
North Carolina Eastern Municipal Power Agency System Revenue, Refunding,
MBIA Insured, 5.375%, 1/01/24 3,000,000 3,035,100
Series A, Pre-Refunded, 7.75%, 1/01/12 750,000 789,390
Series A, 6.50%, 1/01/17 9,000,000 9,609,660
Series A, 6.50%, 1/01/18 3,000,000 3,366,900
Series B, MBIA Insured, 5.875%, 1/01/21 5,000,000 5,314,600
North Carolina Educational Facilities Finance Agency Revenue,
Highpoint College Project, 7.10%
12/01/07 190,000 202,844
12/01/08 205,000 218,749
12/01/09 220,000 234,410
North Carolina HFA, MFR, Refunding, Series B, 6.90%, 7/01/24 2,925,000 3,165,494
North Carolina HFA, Refunding,
MF, Series A, AMBAC Insured, 5.90%, 7/01/20 3,000,000 3,121,860
MF, Series H, Mortage Loan Resolution, 6.05%, 7/01/28 2,500,000 2,647,825
Series F, 6.70%, 1/01/27 4,855,000 5,280,007
SF, Series DD, 6.20%, 9/01/27 3,000,000 3,160,410
SF, Series JJ, 6.45%, 9/01/27 4,870,000 5,206,517
North Carolina HFA, SFMR,
Series H, 8.05%, 3/01/19 70,000 70,700
Series J, 7.40%, 3/01/22 175,000 182,779
Series M, 7.85%, 9/01/28 380,000 397,795
North Carolina HFA, SFR,
Refunding, Series S, 6.95%, 3/01/17 2,890,000 3,114,004
Series AA, 6.25%, 3/01/17 935,000 1,005,490
Series RR, 5.85%, 9/01/28 3,000,000 3,098,220
bSeries VV, 5.35%, 9/01/28 3,000,000 2,995,500
Series X, 6.65%, 9/01/19 2,135,000 2,304,498
North Carolina Medical Care Commission, Health Care Facilities Revenue,
Stanley Memorial Hospital, Pre-Refunded 7.80%, 10/01/19 1,250,000 1,350,650
North Carolina Medical Care Commission, Hospital Revenue,
Duke University Hospital Project, Series C, 5.25%, 6/01/26 1,500,000 1,500,855
Halifax Memorial Hospital Project, 6.75%, 8/15/24 3,500,000 3,826,970
Memorial Mission Hospital Project, MBIA Insured, Pre-Refunded,
7.80%, 10/01/18 160,000 166,936
Refunding, Annie Pen Memorial Hospital Project, 7.50%, 8/15/21 4,700,000 5,184,429
Refunding, North Carolina Baptist Hospitals Project, Series A,
6.00%, 6/01/22 4,830,000 5,145,882
Refunding, St. Joseph's Hospital Project, AMBAC Insured,
Pre-Refunded, 7.25%, 10/01/14 250,000 260,063
Refunding, Transylvania Community Hospital, Inc., 5.75%, 10/01/19 1,090,000 1,102,808
Refunding, Wilson Memorial Hospital Project, AMBAC Insured,
5.625%, 11/01/18 5,000,000 5,217,200
Roanoke-Chowan Hospital Project, 7.75%, 10/01/19 3,000,000 3,192,000
Scotland Memorial Hospital, MBIA Insured, Pre-Refunded, 8.625%, 10/01/11 195,000 204,303
Wake County Hospital System, MBIA Insured, 5.375%, 10/01/26 10,500,000 10,685,220
Wayne Memorial Hospital Project, AMBAC Insured, 6.00%, 10/01/21 1,000,000 1,057,180
Wilson Memorial Hospital Project, AMBAC Insured, Pre-Refunded,
6.50%, 11/01/20 1,000,000 1,083,560
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue,
Refunding, Series 1992, 6.25%, 1/01/17 10,500,000 11,165,175
North Carolina State Education Assistance Authority Revenue, Guaranteed,
Student Loan, Subordinated Lien,
Series A, 6.05%, 7/01/10 3,310,000 3,465,702
Series A, 6.30%, 7/01/15 1,500,000 1,586,475
Series C, 6.35%, 7/01/16 4,500,000 4,761,450
Northampton County Insured Facility, PCR, Solid Waste Disposal,
Champion International Corp., 8.05%, 11/01/04 400,000 431,380
Onslow County Combined Enterprise System Revenue,
MBIA Insured, 6.00%, 6/01/15 2,000,000 2,149,820
Pender County COP, Pre-Refunded, 7.70%, 6/01/11 $ 1,195,000 $ 1,347,912
Person County COP, Law Enforcement Center Project, Series 1991,
MBIA Insured, 7.125%, 6/01/11 2,165,000 2,390,615
Pitt County COP,
FGIC Insured, 6.00%, 4/01/12 750,000 801,330
MBIA Insured, 5.85%, 4/01/17 5,055,000 5,430,132
Polk County School GO, FGIC Insured, Pre-Refunded, 6.70%, 5/01/09 700,000 768,299
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded, 7.875%, 7/01/17 1,000,000 1,033,740
Puerto Rico Commonwealth GO, Pre-Refunded,
6.45%, 7/01/17 8,050,000 9,211,615
Series 1990, 7.25%, 7/01/10 500,000 546,810
Puerto Rico Commonwealth Highway Authority Revenue,
Refunding, Series N, Pre-Refunded, 8.00%, 7/01/03 100,000 103,431
Refunding, Series R, 7.15%, 7/01/00 1,250,000 1,339,075
Series P, Pre-Refunded, 8.125%, 7/01/13 170,000 175,872
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A,
7.75%, 7/01/08 250,000 257,965
7.50%, 7/01/09 250,000 257,750
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 250,000 258,578
Refunding, Series N, 7.125%, 7/01/14 160,000 168,718
Series O, 7.125%, 7/01/14 850,000 896,317
Series P, Pre-Refunded, 7.00%, 7/01/21 1,000,000 1,112,310
Series T, 6.375%, 7/01/24 1,000,000 1,104,400
Series X, 6.125%, 7/01/21 5,000,000 5,413,900
Puerto Rico HFC Revenue, MFHR, Portfolio A, Series I, 7.50%, 4/01/22 410,000 432,099
Puerto Rico HFC Revenue, SFMR, Portfolio 1, GNMA Secured,
Series A, 7.80%, 10/15/21 15,000 15,458
Series C, 6.85%, 10/15/23 2,205,000 2,353,904
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Upjohn Co. Project, 7.50%, 12/01/23 300,000 317,364
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded,
8.25%, 7/01/08 125,000 129,368
Puerto Rico Telephone Authority Revenue, Series L, Refunding,
6.00%, 1/01/12 1,885,000 2,012,784
6.125%, 1/01/22 1,490,000 1,585,047
Raeford HDC Revenue, First Lien, Refunding, Yadkin Trail, Series A,
6.00%, 7/15/22 1,430,000 1,484,883
Robeson County GO, Refunding,
7.20%, 6/01/10 110,000 116,072
7.20%, 6/01/11 115,000 121,392
7.20%, 6/01/12 120,000 126,640
Pre-Refunded, 7.80%, 6/01/11 145,000 149,334
Robeson County Industrial Facilities and PCFA Revenue, Refunding,
Campbell Soup Co. Project, 6.40%, 12/01/06 1,750,000 2,008,405
Rutherford County COP, Public Facilities Project, FGIC Insured,
6.25%, 6/01/23 1,850,000 2,009,044
Scotland County COP, Jail/Courthouse Project, FSA Insured,
6.75%, 3/01/11 1,000,000 1,087,760
Southern Pines GO, Refunding, Pre-Refunded, 7.40%, 6/01/08 150,000 154,321
Stokes County COP, MBIA Insured, 7.00%, 3/01/06 1,000,000 1,094,710
University of North Carolina at Chapel Hill, Parking System, Series
A, 5.70%, 5/15/27 3,000,000 3,134,190
University of North Carolina at Charlotte Revenue, Student
Activity Center,
MBIA Insured, 5.50%,
6/01/16 1,000,000 1,035,810
6/01/21 3,500,000 3,612,244
University of North Carolina at Greensboro Revenue,
Student Facilities System, Series B, MBIA Insured,
5.45%, 4/01/23 1,000,000 1,023,340
Series C, AMBAC
Insured, 5.30%, 4/01/23 3,785,000 3,845,067
University of North Carolina at Wilmington, Student Union System Revenue,
AMBAC Insured, Pre-Refunded, 6.90%, 1/01/07 250,000 268,050
Wake County Industrial Facilities and PCFA Revenue, Carolina Power
and Light Co. Project, 6.90%, 4/01/09 10,000,000 10,705,900
Wilmington COP, AMBAC Insured, 5.20%, 11/01/17 1,500,000 1,506,674
Winston-Salem SFMR, 8.00%, 9/01/07 340,000 360,331
Winston-Salem Water and Sewer System Revenue, Series B, 5.70%, 6/01/17 2,250,000 2,353,364
----------
TOTAL LONG TERM INVESTMENTS (COST $290,665,173) 311,202,514
===========
aSHORT TERM INVESTMENTS 2.1%
North Carolina Medical Care Commission, Hospital Revenue,
ACES, Pooled Financing Project, Series A, Daily VRDN
and Put, 3.70%, 10/01/20 $ 2,900,000 $ 2,900,000
ACES, Pooled Financing Project, Series B, Daily VRDN
and Put, 3.65%, 10/01/13 800,000 800,000
Baptist Hospitals Project, Series B, Weekly VRDN and Put, 3.40%, 6/01/22 500,000 500,000
North Carolina Medical Care Commission Revenue, Carol Woods Project, Daily
VRDN and Put, 3.65%, 4/01/21 2,300,000 2,300,000
---------
Total Short Term Investments (Cost $6,500,000) 6,500,000
---------
Total Investments (Cost $297,165,173) 100.1% 317,702,514
Other Assets, less Liabilities (0.1)% (253,582)
---------
Net Assets 100.0% $317,448,932
============
</TABLE>
See glossary of terms on Page 120.
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 TEXAS TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS I 1998 1997 1996*** 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.37 $11.58 $11.25 $11.72 $11.69
-------------------------------------
Income from investment operations:
Net investment income .62 .66 .67 .68 .69
Net realized and unrealized gains (losses) .36 -- .34 (.49) .03
---------------------------------
Total from investment operations .98 .66 1.01 .19 .72
----------------------------------
Less distributions from:
Net investment income (.63) (.67) (.68) (.66) (.69)
In excess of net investment income (.01) -- -- -- --
Net realized gains (.03) (.20) -- -- --
--------------------------------
Total distributions (.67) (.87) (.68) (.66) (.69)
------------------------------------
Net asset value, end of year $11.68 $11.37 $11.58 $11.25 $11.72
=====================================
Total return* 8.91% 5.91% 9.15% 1.80% 6.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $130,578 $126,612 $129,702 $130,684 $148,684
Ratios to average net assets:
Expenses .76% .75% .76% .73% .65%
Net investment income 5.44% 5.70% 5.86% 6.05% 5.85%
Portfolio turnover rate 34.52% 35.57% 18.38% 6.36% 20.18%
CLASS II
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.49 $11.68 $11.27
----------------------
Income from investment operations:
Net investment income .58 .60 .51
Net realized and unrealized gains .35 .02 .40
-------------------
Total from investment operations .93 .62 .91
-------------------
Less distributions from:
Net investment income (.58)1 (.61) (.50)
Net realized gains (.03) (.20) --
Total distributions (.61) (.81) (.50)
---------------------
Net asset value, end of year $11.81 $11.49 $11.68
======================
Total return* 8.31% 5.48% 8.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $2,076 $740 $79
Ratios to average net assets:
Expenses 1.33% 1.32% 1.33%**
Net investment income 4.79% 5.03% 5.23%**
Portfolio turnover rate 34.52% 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
$.001.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998
PRINCIPAL
FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 107.7%
<S> <C> <C>
Aldine ISD, Series A, 5.00%, 2/15/22 $ 5,300,000 $ 5,148,526
Alliance Airport Authority, Inc., Special Facilities Revenue,
American Airlines, Inc. Project, 7.00%, 12/01/11 2,250,000 2,675,790
Austin Combined Utility System Revenue,
Refunding, MBIA Insured, 5.50%, 5/15/14 1,325,000 1,367,758
Series A, AMBAC Insured, 6.75%, 11/15/07 800,000 881,096
Series A, Pre-Refunded, 8.00%, 11/15/16 50,000 55,894
Bexar County Health Facilities Development Corp. Revenue, Refunding,
Incarnate Word Health Services, FSA Insured, 6.00%, 11/15/15 3,000,000 3,235,230
Bexar County HFC Revenue, GNMA Secured, 8.10%, 3/01/24 100,000 106,350
Bexar Metropolitan Water District, Waterworks System Revenue,
Refunding, MBIA Insured, 6.35%, 5/01/25 3,210,000 3,541,529
Brazos Higher Education Authority Revenue, Student Loan, Inc.,
Refunding, Series A-2, 6.80%, 12/01/04 825,000 897,212
Series B-2, 8.25%, 6/01/23 1,300,000 1,304,498
Brazos River Authority, PCR, Collateralized, Series A, Texas Utilities
Electric Co. Project, 7.875%, 3/01/21 500,000 550,750
Brazos River Authority Revenue
Houston Industries, Inc. Project, Series C, AMBAC Insured,
5.125%, 5/01/19 1,000,000 986,580
Refunding, Collateralized, Houston Light and Power Co. Project,
Series A, 7.625%, 5/01/19 100,000 106,454
Cameron County HFC, Collateralized Mortgage Obligation, Refunding,
Series B, FGIC Insured, Pre-Refunded, 7.85%, 3/01/24 80,000 85,103
Castleberry ISD, Refunding, 6.00%, 8/15/25 2,000,000 2,134,940
Cimarron MUD, Waterworks and Sewer System, Asset Guaranteed,
Refunding, Combined Tax and Revenue, 7.50%, 3/01/15 2,275,000 2,419,667
Clinton ISD, Refunding, 7.00%, 3/01/15 4,000,000 4,119,840
Comal County Health Facilities Development Corp. Revenue,
Refunding, McKenna Memorial Hospital, FHA Insured, 7.375%, 1/15/21 1,750,000 1,886,920
Coppell ISD, Refunding, 6.50%, 8/15/26 1,500,000 1,543,530
Corpus Christi HFC, SFMR, Refunding, Series A, MBIA Insured, 7.70%, 7/01/11 1,095,000 1,177,892
Dallas Civic Center Convention Complex Revenue, Senior Lien, AMBAC Insured,
7.00%, 1/01/10 2,000,000 2,144,780
Refunding, 6.75%, 1/01/12 1,000,000 1,038,560
Dallas-Ft. Worth International Airport Facilities Improvement Corp. Revenue,
American Airlines, Inc., 8.00%, 11/01/24 1,000,000 1,103,110
Delta Airlines, Inc., 7.625%, 11/01/21 2,000,000 2,228,080
Refunding, American Airlines, Inc., 6.00%, 11/01/14 2,000,000 2,138,920
Dallas-Ft. Worth Regional Airport Revenue, Refunding, Joint Dallas-Ft. Worth
International, MBIA Insured, 5.75%, 11/01/24 1,000,000 1,034,100
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10 125,000 132,128
Dallas Housing Corp., Capital Projects Revenue, Refunding, Section Eight,
Assisted Projects, 7.70%, 8/01/05 500,000 525,930
Denison Hospital Authority Revenue, Texoma Medical Center, Inc. Project,
7.00%, 8/15/14 1,250,000 1,392,000
El Paso County HFC, SFMR, Refunding,
Series 1988, GNMA Secured, 8.20%, 9/01/20 60,000 62,254
Series A, 8.75%, 10/01/11 540,000 586,478
Ft. Worth HFC, HMR, Refunding, Series A, 8.50%, 10/01/11 910,000 993,456
Ft. Worth HFC, SFMR, GNMA Secured, 8.25%, 12/01/11 25,000 25,910
Gonzales County Hospital District GO, Refunding, MBIA Insured,
7.65%, 2/15/07 100,000 103,233
Gulf Coast Waste Disposal Authority, PCR, Union Carbide Chemical
and Plastic Co., 7.45%, 8/01/04 1,200,000 1,202,400
Gulf Coast Waste Disposal Authority Revenue, Champion International Corp.,
Series A, 6.875%, 12/01/28 1,000,000 1,101,730
Harris County Health Facilities Development Corp., Hospital Revenue,
Pre-Refunded, Memorial Hospital System, AMBAC Insured, 7.00%, 6/01/12 225,000 238,127
bRefunding, Memorial Hermann Hospital System Project, FSA Insured,
5.00%, 6/01/18 1,000,000 968,980
Harris County Health Facilities Development Corp. Revenue, Herman
Hospital Project, FSA Insured, 7.00%, 10/01/14 750,000 825,345
Harris County MUD No. 208, Waterworks and Sewer System,
Unlimited Tax, Pre-Refunded, 8.00%, 11/01/13 80,000 82,221
Harris County Public Facilities Corp., Detention Facility Mortgage Revenue,
Series 1988, MBIA Insured, Pre-Refunded, 7.75%, 12/15/07 70,000 73,555
Harrison County Health Facilities Development Corp., Hospital Revenue,
Marshall Regional Medical Center Project, 5.50%, 1/01/18 1,750,000 1,761,953
Houston Water and Sewer System Revenue, Junior Lien, Refunding, Series A,
MBIA Insured, 6.20%, 12/01/20 6,500,000 7,328,165
Irving Hospital Authority Revenue, Irving Health Care System,
Series 1990, FGIC Insured, Pre-Refunded, 7.25%, 7/01/15 285,000 294,000
Joshua ISD, Refunding, Series B, Pre-Refunded, 6.125%, 2/15/26 100,000 102,253
Keller Waterworks and Sewer System Revenue, Refunding,
AMBAC Insured, Pre-Refunded, 7.70%, 1/01/10 125,000 129,036
Laredo Airport, Certificates of Obligation, Limited Tax, AMBAC
Insured, 7.00%, 8/01/09 200,000 208,042
Leon County PCR, Refunding, Nucor Corp. Project, Series A,
7.375%, 8/01/09 2,000,000 2,212,060
Lower Colorado River Authority Revenue, Refunding, Series B,
AMBAC Insured, 7.00%, 1/01/11 205,000 223,885
Matagorda County Navigation District No. 1, PCR, Central
Power and Light Co. Project, Collateralized, 7.50%, 12/15/14 $ 1,200,000 $ 1,303,836
Refunding, Series E, MBIA Insured, 6.10%, 7/01/28 1,500,000 1,567,470
Matagorda County Navigation District No. 1 Revenue, Refunding,
Houston Industrial, Inc. Project, Series A, MBIA Insured,
5.25%, 11/01/29 1,000,000 974,320
Houston Lighting and Power Co., Series C, FGIC Insured, 7.125%, 7/01/19 1,500,000 1,587,240
Mesquite Health Facilities Development, Refunding,
Christian Retirement Facility, Series A, 6.40%,
2/15/16 1,000,000 1,070,430
2/15/20 2,000,000 2,140,860
Montgomery County Library, Refunding, FGIC Insured, 6.75%,
9/01/10 775,000 847,501
9/01/11 825,000 898,673
Nacogdoches IDA, Inc., PCR, Refunding, International Paper Co.
Projects, Series A, 5.30%, 12/01/11 2,450,000 2,488,343
North Central Health Facility Development Corp. Revenue, Refunding,
C. C. Young Memorial Home Project,
6.30%, 2/15/15 1,530,000 1,634,836
6.375%, 2/15/20 2,785,000 3,002,871
Nueces River Authority, Environmental Improvement Revenue,
Refunding, Asarco, Inc. Project, 5.60%, 1/01/27 6,000,000 6,066,720
Panhandle-Plains Higher Education Authority, Inc., Student Loan Revenue,
Series B, 8.75%, 6/01/23 1,000,000 1,007,510
bPort Corpus Christi IDC Revenue, Refunding, Valero,
Series C, 5.40%, 4/01/18 2,000,000 2,000,000
bProsper ISD, Refunding, 5.00%, 8/15/27 1,000,000 956,930
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 7,549,220
Rio Hondo, ISD, Refunding, Series A, 5.00%, 3/01/24 1,350,000 1,304,276
Sabine River Authority, PCR, Refunding,
Collateralized, Texas Utilities Electric Co. Project,
FGIC Insured, 6.55%, 10/01/22 1,200,000 1,305,636
Southwestern Electric Power, MBIA Insured, 6.10%, 4/01/18 5,000,000 5,425,100
San Antonio Electric and Gas Revenue, Refunding, 7.00%,
2/01/09 100,000 104,146
Pre-Refunded, 2/01/09 150,000 156,509
San Antonio Water Revenue, Prior Lien, Refunding, Series A,
Pre-Refunded, 7.35%, 5/01/07 300,000 306,210
Tarrant County Health Facilities Development Corp., Health Systems
Revenue, Harris Methodist Health, FGIC Insured, 6.00%, 9/01/24 4,000,000 4,336,080
Texas City IDC, Marine Terminal Revenue, Refunding,
ARCO Pipe Line Co. Project, 7.375%, 10/01/20 500,000 647,445
Texas Housing Agency, Residential Development Revenue,
Series A, 7.60%, 7/01/16 1,410,000 1,477,031
Texas State Department of Housing and Community Affairs, HMR,
Refunding, Series A, GNMA Secured, 6.95%, 7/01/23 1,615,000 1,758,364
Texas State GO, Veterans Housing Assistance Fund I, Refunding,
Series A, 6.15%, 12/01/25 1,000,000 1,057,690
Texas State Higher Education Coordinating Board, College
Student Loan Revenue, Senior Lien, 7.70%, 10/01/25 1,345,000 1,433,447
Texas State Turnpike Authority Revenue, Dallas North Tollway,
Pre-Refunded, Series 1990, AMBAC Insured, 7.125%, 1/01/15 1,000,000 1,047,070
Texas State Turnpike Authority Revenue, Mountain Creek Lake Bridge,
7.00%, 1/01/07 25,000 25,775
Texas Water Development Board Revenue, State Revolving, Senior Lien,
Series A, 5.75%, 7/15/16 3,275,000 3,454,732
Texas Water Resources Finance Authority Revenue, 7.625%, 8/15/08 880,000 910,157
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23 2,000,000 2,096,440
Travis County HFC, SFMR, GNMA Secured, 8.20%, 4/01/22 55,000 57,310
University of Texas Revenues, Refunding, Financing System,
Series A, 7.00%, 8/15/07 665,000 741,601
Series B, 6.75%, 8/15/13 1,300,000 1,426,957
Van Alstyne ISD, Refunding, 5.95%, 8/15/29 1,885,000 2,008,222
Waco Health Facilities Development Corp., Hospital Revenue,
Hillcrest Baptist Medical Center Project, MBIA Insured, 7.125%, 9/01/14 500,000 548,520
Webb County GO, Limited Tax, FSA Insured, Pre-Refunded, 7.25%, 2/15/09 160,000 165,263
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 1,111,830
bWhitehouse ISD, Refunding, 5.00%, 2/15/23 1,000,000 970,830
Wylie GO, ISD, Taylor County, Refunding, 7.00%, 8/15/24 1,000,000 1,212,750
Ysleta GO, ISD, Unlimited Tax, AMBAC Insured, Pre-Refunded, 7.10%, 8/15/05 200,000 209,402
---------
Total Long Term Investments (Cost $125,807,194) 134,881,803
-----------
aSHORT TERM INVESTMENTS .7%
Brazos River Authority, Revenue, Refunding, Houston Lighting and Power Co.,
Series 1977, AMBAC Insured, VRDN and Put,
3.65%, 11/1/18 $ 700,000 $ 700,000
Gulf Coast Waste Disposal Authority, PCR, Refunding, AMOCO Oil Co. Project,
Daily VRDN and Put, 3.65%, 10/01/17 100,000 100,000
Harris County, IDC, Solid Waste Disposal Revenue,Exxon Project,
Daily VRDN and Put 3.60%, 4/01/32 100,000 100,000
Lone Star Airport Improvement Authority, Inc. Revenue, Multiple Mode,
American Airlines, Series B-1, Daily VRDN and Put,
3.70%, 12/01/14 100,000 100,000
-------
TOTAL SHORT TERM INVESTMENTS (COST $1,000,000) 1,000,000
---------
TOTAL INVESTMENTS (COST $125,807,194) 102.4% 135,881,803
OTHER ASSETS, LESS LIABILITIES (2.4%) (3,228,534)
-----------
NET ASSETS 100.0% $132,653,269
============
</TABLE>
See glossary of terms on Page 120.
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 VIRGINIA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------
CLASS I 1998 1997 1996*** 1995 1994
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.65 $11.72 $11.33 $11.82 $11.69
-------------------------------------
Income from investment operations:
Net investment income .62 .65 .66 .66 .67
Net realized and unrealized gains (losses) .35 (.07) .38 (.50) .14
----------------------------------
Total from investment operations .97 .58 1.04 .16 .81
----------------------------------
Less distributions from:
Net investment income (.64) (.64) (.65) (.65) (.68)
Net realized gains (.10) (.01) -- -- --
-----------------------------------
Total distributions (.74) (.65) (.65) (.65) (.68)
------------------------------------
Net asset value, end of year $11.88 $11.65 $11.72 $11.33 $11.82
=====================================
Total return* 8.53% 5.15% 9.41% 1.56% 6.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $332,199 $287,172 $271,396 $255,965 $260,913
Ratios to average net assets:
Expenses .69% .69% .69% .69% .62%
Net investment income 5.29% 5.56% 5.66% 5.86% 5.65%
Portfolio turnover rate 12.90% 19.25% 12.72% 21.73% 6.86%
CLASS II
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $11.71 $11.77 $11.35
----------------------
Income from investment operations:
Net investment income .57 .58 .49
Net realized and unrealized gains (losses) .34 (.05) .41
-------------------
Total from investment operations .91 .53 .90
------------------
Less distributions from:
Net investment income (.57) (.58) (.48)
Net realized gains (.10) (.01) --
--------------------
Total distributions (.67) (.59) (.48)
---------------------
Net asset value, end of year $11.95 $11.71 $11.77
======================
Total return* 7.97% 4.61% 8.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $13,186 $6,674 $2,050
Ratios to average net assets:
Expenses 1.25% 1.25% 1.26%**
Net investment income 4.72% 4.94% 5.06%**
Portfolio turnover rate 12.90% 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.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 100.1%
Albermarle County IDA Revenue, Refunding, Martha Jefferson
<S> <C> <C>
Hospital, 5.875%, 10/01/13 $ 5,000,000 $ 5,285,750
Albermarle County IDA Revenue, University of Virginia Health
ServicesFoundation, 6.50%, 10/01/22 1,125,000 1,215,945
Alexandria IDA Revenue, Alexandria/Arlington Waste Resource
Recovery, 7.40%, 1/01/08 1,690,000 1,706,038
Arlington County GO, 6.00%, 8/01/13 2,085,000 2,267,959
Arlington County IDA, Hospital Facility Revenue, Arlington Hospital,
Series A, Pre-Refunded, 7.125%, 9/01/21 2,000,000 2,234,520
Ashland GO, Refunding, Pre-Refunded, 7.75%, 8/01/12 100,000 103,618
Augusta County IDA Revenue, Augusta Hospital Corp. Project,
AMBAC Insured, 6.625%, 9/01/12 1,000,000 1,097,340
Pre-Refunded, 7.00%, 9/01/21 2,000,000 2,223,000
Bedford County GO, Series A, FGIC Insured, 5.35%, 12/15/17 1,250,000 1,276,600
Bedford County IDA Revenue, Refunding, Nekoosa Packaging Corp.
Project, 5.60%, 12/01/25 7,000,000 7,084,560
Blacksburg Polytechnic Institute, Sanitation Authority Sewer System Revenue,
6.25%, 11/01/12 1,230,000 1,309,987
Chesapeake Hospital Authority Facilities Revenue, Chesapeake General Hospital,
8.20%, 7/01/05 2,500,000 2,747,450
BIG Insured, Pre-Refunded, 7.625%, 7/01/18 450,000 464,747
Chesapeake IDA, Nursing Home Revenue, Sentara Life Care Corp.
Project, 8.00%, 11/01/17 230,000 240,582
Chesapeake IDA, Public Facilities, Lease Revenue, Chesapeake
Jail Project, MBIA Insured, 6.00%, 6/01/12 3,940,000 4,281,874
Covington-Alleghany County IDA, PCR, Refunding, Westvaco Corp.
Project, 6.65%, 9/01/18 5,000,000 5,602,050
Danville COP, Social Services, Pre-Refunded, 7.625%, 4/01/13 2,000,000 2,241,280
Danville GO, Series 1991, 6.75%,
2/01/10 655,000 707,348
2/01/11 705,000 761,950
Danville IDA, Hospital Revenue, Danville Regional Medical Center,
Refunding, FGIC Insured, 6.50%, 10/01/24 5,000,000 5,507,800
Danville IDA, Solid Waste Disposal Revenue, International
Paper Co., 6.50%, 3/01/19 500,000 554,945
Fairfax County EDA, Parking Revenue, Huntington Metrorail,
Pre-Refunded, 7.00%, 9/01/10 1,000,000 1,090,340
Fairfax County EDA, Resource Recovery Revenue, Ogden Martin
System of Fairfax, Inc. Project, Series A, 7.75%, 2/01/11 1,500,000 1,590,495
Fairfax County IDA Revenue, Health Care, Inova Health
System Project, 6.00%, 8/15/26 5,000,000 5,356,600
Fairfax County Redevelopment and Housing Authority, MFHR,
Cedar Ridge Apartments, GNMA Secured, 6.30%, 12/20/27 4,700,000 5,081,076
Refunding, Paul Spring Center, Series A, FHA Insured, 5.90%, 6/15/17 1,000,000 1,062,800
Refunding, Paul Spring Center, Series A, FHA Insured, 6.00%, 12/15/28 1,000,000 1,062,460
Fairfax County Sewer Revenue, MBIA Insured, 5.875%, 7/15/28 6,500,000 7,048,275
Frederick County IDA, Lease Revenue, Government
Complex Facilities Project, MBIA Insured, 6.50%, 12/01/09 2,040,000 2,310,137
Fredericksburg IDA, Hospital Facilities Revenue, Refunding,
Medicorp Health System Obligation, AMBAC Insured, 5.25%,
6/15/16 1,860,000 1,883,548
6/15/23 5,000,000 4,985,650
Fredericksburg IDA Revenue, Crossover Refunding, Mary Washington Hospital,
AMBAC Insured, Pre-Refunded, 7.80%, 7/01/14 165,000 170,499
Front Royal and Warren County IDA Revenue, Refunding, Mortgage,
Heritage Hall No. 13, FHA Insured, 8.25%, 7/15/05 25,000 25,529
Guam Airport Authority Revenue, Refunding, Series A,
6.375%, 10/01/10 830,000 903,422
6.50%, 10/01/23 1,000,000 1,101,730
Halifax County IDA, Exempt Facilities Revenue, Old Dominion Electric
Cooperative Project, 6.50%, 12/01/12 3,000,000 3,244,320
Halifax County IDA, Hospital Revenue, Refunding, Halifax Regional
Hospital, Inc., 5.25%, 9/01/17 400,000 394,240
Hampton Redevelopment and Housing Authority, Senior Living
Association Revenue, Refunding, Series A, GNMA Secured,
6.00%, 1/20/26 1,060,000 1,128,794
Hampton Roads Medical College General Revenue, Refunding,
Series A, 6.875%, 11/15/16 1,500,000 1,636,275
Hampton Roads Regional Jail Authority, Jail Facilities Revenue,
Series A, MBIA Insured, 5.00%, 7/01/28 10,000,000 9,770,300
Hanover County IDA, Hospital Revenue, Bon Secours Health Systems
Projects, MBIA Insured, 5.50%, 8/15/25 1,000,000 1,020,640
Hanover County Water and Sewer System Revenue, MBIA Insured,
5.25%, 2/01/26 4,175,000 4,187,567
Henrico County IDA, Hospital Facilities Revenue, Bon Secours
Health System, St. Mary's Hospital, Series A, Pre-Refunded,
7.875%, 8/15/18 275,000 285,530
Henrico County IDA Revenue,
Bon Secours, Maryview Nursing Center, Series B, Pre-Refunded,
7.625%, 8/15/18 250,000 259,298
Solid Waste, Browning-Ferris Industries, South Atlantic, Inc.,
Series A, 5.875%, 3/01/17 1,000,000 1,059,270
Henry County IDA, Hospital Revenue, Refunding, Memorial
Hospital of Martinsville and Henry, 6.00%, 1/01/27 1,250,000 1,327,888
Leesburg Utilities System Revenue, MBIA Insured, Refunding,
5.125%, 7/01/22 3,750,000 3,751,313
Loudoun County IDA, Hospital Revenue, Loudoun Hospital Center,
FSA Insured, 5.80%,
6/01/20 $ 2,000,000$ 2,104,980
6/01/26 3,000,000 3,146,190
Loudoun County Sanitation Authority, Water and Sewer Revenue, FGIC Insured,
Refunding, 5.125%, 1/01/26 2,500,000 2,486,950
Refunding, 5.125%, 1/01/30 5,250,000 5,221,020
Series 96, 5.25%, 1/01/26 6,500,000 6,515,470
Series 96, 5.25%, 1/01/30 1,000,000 1,002,380
Lynchburg IDA, Hospital Facilities Revenue, Refunding, First Mortgage,
Central Health, Inc., 8.125%, 1/01/16 190,000 196,243
Lynchburg Redevelopment and Housing Authority Revenue, Refunding,
Waldon Pond III, Series A, GNMA Secured, 6.20%, 7/20/27 1,000,000 1,076,550
Manassas IDA, Hospital Revenue, Prince William Hospital, Pre-Refunded,
8.125%, 4/01/19 500,000 532,530
Mecklenburg County IDA Revenue, Exempt Facility, Series A, 7.35%, 05/01/08 4,500,000 4,820,040
Metropolitan Washington D.C. Airports, General Airport Authority Revenue,
Series A, 7.60%, 10/01/14 1,000,000 1,094,160
Series A, 5.375%, 10/01/23 3,985,000 4,034,494
Series B, 5.75%, 10/01/20 6,000,000 6,287,460
Newport News IDA, Mortgage Revenue, Mennowood Communities, Inc.,
Series A, GNMA Secured, 6.25%, 8/01/36 3,000,000 3,238,800
Newport News Redevelopment and Housing Authority Revenue, Refunding,
Series A, GNMA Secured, 5.85%, 12/20/30 1,250,000 1,288,563
Norfolk GO, MBIA Insured, 5.75%, 6/01/14 2,075,000 2,207,696
Norfolk IDA Revenue,
Children's Hospital of the Kings' Daughters, Inc.,
Series A, 8.375%, 6/01/12 50,000 51,130
Children's Hospital of the Kings' Group, Inc., AMBAC Insured, Pre-Refunded,
7.00%, 6/01/11 3,000,000 3,325,530
Health Care, Bon Secours Health, Series B, MBIA Insured, 5.25%, 8/15/26 4,000,000 3,999,840
Medical Center Hospital Project, Series A, 7.00%, 11/01/07 20,000 20,104
Norfolk Parking System Revenue, MBIA Insured, 5.55%, 2/01/27 4,475,000 4,634,042
Norfolk Water Revenue,
AMBAC Insured, 5.375%, 11/01/23 1,500,000 1,514,400
MBIA Insured, 5.875%, 11/01/20 7,000,000 7,453,040
MBIA Insured, 5.90%, 11/01/25 5,900,000 6,269,812
Northern Virginia Transportation District Commission,
Commuter Rail Revenue, Railway Express Project,
FSA Insured, 7.00%, 7/01/05 360,000 389,786
Peninsula Airport Commission Revenue, Airport Improvement,
7.25%, 7/15/11 1,000,000 1,088,650
Peninsula Ports Authority, Coal Terminal Revenue, Refunding, Coal
Terminal Association Project, 7.375%, 6/01/20 5,480,000 6,082,416
Peninsula Ports Authority, Health Care Facilities Revenue, Refunding, Bon
Secours Health System, Series A, MBIA Insured, 5.25%, 8/15/23 1,500,000 1,505,070
Peninsula Ports Authority, Hospital Facility Revenue, Refunding,
Whittaker Memorial Hospital Project, FHA Insured, 8.70%, 8/01/23 50,000 51,125
Peninsula Ports
Authority Revenue, Refunding, Riverside Health System Project,
Series A, 6.625%, 7/01/18 6,000,000 6,486,000
Portsmouth, FGIC Insured, 5.25%, 8/01/21
1,000,000 1,009,530 Prince William County IDA, Hospital Revenue,
Refunding, Potomac Hospital Corp., FSA Insured, 5.00%, 10/01/25 3,500,000 3,412,920
Prince William County Service Authority Water &
Sewer Revenue, Refunding, FGIC Insured, 5.10%, 7/01/22 3,590,000 3,589,713
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded, 7.90%, 7/01/07 1,000,000 1,033,990
Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue, Series Y, 6.00%, 7/01/22 2,000,000 2,127,780
Puerto Rico
Commonwealth Highway Authority Revenue, Pre-Refunded,
Series P, 8.125%, 7/01/13 225,000 232,772
Series Q, 8.00%, 7/01/18 1,000,000 1,111,330
Puerto Rico Commonwealth Industrial Development Co., General
Purpose Revenues, Series B, 5.375%, 7/01/16 2,800,000 2,852,836
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A,
7.90%, 7/01/07 350,000 361,662
7.75%, 7/01/08 750,000 773,895
Puerto Rico Commonwealth Public Improvement GO, Pre-Refunded,
Series A, 7.75%, 7/01/13 75,000 77,513
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 600,000 620,586
Refunding, Series Z, 5.25%, 7/01/21 1,500,000 1,505,310
Series P, Pre-Refunded, 7.00%, 7/01/21 1,500,000 1,668,465
Puerto Rico HFC Revenue,
FHA Mortgage Insured, Sixth Portfolio, Section 8, Pre-Refunded,
7.75%, 12/01/26 20,000 24,748
MFMR, Portfolio 1, Series A, 7.50%, 4/01/22 2,460,000 2,592,594
Puerto Rico HFC, SFMR, Portfolio 1, Series B, GNMA Secured,
7.65%, 10/15/22 230,000 244,692
Puerto Rico Industrial, Medical and Environmental Facilities,
PCFA Revenue, Baxter Travenol Labs., Series A, 8.00%, 9/01/12 $ 300,000 $ 314,958
Upjohn Co. Project, 7.50%, 12/01/23 250,000 264,470
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded,
8.25%, 7/01/08 185,000 191,464
Puerto Rico Telephone Authority Revenue, Series L, 6.125%, 1/01/22 5,000,000 5,318,950
Richmond Metropolitan Authority, Expressway Revenue,
Refunding, Series A, FGIC Insured, 6.375%, 7/15/16 2,500,000 2,697,950
Series B, FGIC Insured, 6.25%, 7/15/22 5,000,000 5,338,800
South Boston IDA Revenue, Halifax-Community Hospital, Inc. Project,
Pre-Refunded, 7.375%, 9/01/11 4,250,000 4,775,215
Spotsylvania County Water and Sewer System Revenue, MBIA Insured,
5.25%, 6/01/22 1,500,000 1,504,920
GO, 5.40%, 6/01/27 8,800,000 8,932,616
Staunton IDA, Facilities Revenue, Mary Baldwin College, Series B,
Pre-Refunded, 8.00%, 11/01/17 895,000 1,010,231
Suffolk IDA Revenue, Louise Obici Memorial Hospital,
Pre-Refunded, 7.875%, 1/01/05 275,000 289,603
Tazewell County IDA, Lease Revenue, Courthouse Project, MBIA Insured,
5.25%, 1/01/17 1,250,000 1,260,175
5.30%, 1/01/27 500,000 502,415
Virginia College Building Authority, Educational Facilities Revenue,
Marymount University Project, 7.00%, 7/01/22 1,750,000 1,918,455
Refunding, Washington and Lee University Project, 5.75%, 1/01/19 2,345,000 2,445,202
Refunding, Washington and Lee University Project, 5.80%, 1/01/24 3,500,000 3,649,275
Twenty-first Century College Program, 5.25%, 8/01/16 1,000,000 1,023,300
Virginia Polytechnic Institute Revenue, Dormitory and Dining Hall,
BIG Insured, 7.00%, 6/01/09 900,000 950,463
Virginia Port Authority Revenue, Commonwealth Port Fund, 8.20%, 7/01/08 400,000 413,576
Virginia Port Authority Revenue, MBIA Insured, 5.50%, 7/01/24 4,250,000 4,354,083
Virginia State HDA, Commonwealth Mortgage,
Series A, 7.10%, 1/01/17 1,000,000 1,057,440
Series A, 7.15%, 1/01/33 5,500,000 5,815,865
Series A-1, 8.10%, 1/01/17 5,000 5,131
Series B-3, 7.375%, 7/01/17 45,000 47,104
Series B-3, 6.80%, 1/01/27 2,000,000 2,117,320
Series B-4, 6.85%, 7/01/17 5,000,000 5,223,500
Series B-4, 6.55%, 1/01/27 1,000,000 1,085,300
Series C, Sub-Series C-3, 6.00%, 1/01/17 2,000,000 2,124,760
Series D-1, 6.40%, 7/01/17 4,810,000 5,160,216
Series D-2, 7.35%, 7/01/17 155,000 158,129
Series H-2, 6.55%, 1/01/27 2,000,000 2,105,260
Virginia State HDA, MF Housing,
bSeries C, 5.30%, 11/01/16 2,830,000 2,830,000
bSeries C, 5.30%, 11/01/17 2,980,000 2,980,000
Series F, 7.10%, 5/01/13 9,000,000 9,625,230
Series H, 5.55%, 5/01/15 2,000,000 2,029,880
Virginia State Resources Authority, Sewer System Revenue, Refunding,
Harrisonburg Rockingham Region, Series A, Pre-Refunded, 6.00%, 5/01/22 2,000,000 2,170,100
Virginia State Resources Authority, Water and Sewer System Revenue,
Lot #7, Rapidan Service Authority, Pre-Refunded, 7.125%, 10/01/16 1,000,000 1,049,050
Pooled Loan Program, Series A, 7.35%, 11/01/16 400,000 409,896
Pooled Loan Program, Series A, 7.45%, 11/01/16 100,000 102,489
Pooled Loan Program, Series A, Pre-Refunded, 7.35%, 11/01/16 190,000 204,360
Pooled Loan Program, Series A, Pre-Refunded, 7.85%, 11/01/17 100,000 106,535
Virginia State Resources Authority, Water and Sewer Systems Revenue,
Refunding, Rapidan Service Authority, 5.30%, 10/01/18 1,610,000 1,629,384
Virginia State Resources Authority, Water System Revenue,
Refunding, Series A, 6.125%, 4/01/19 1,000,000 1,036,120
Series 1988, Pre-Refunded, 7.875%, 10/01/18 85,000 88,695
Virginia State Transportation Board, Transportation Contract Revenue,
Refunding, U.S. Route 28 Project, 6.50%, 4/01/18 9,000,000 9,756,900
U.S. Route 58 Corridor Development Program, Pre-Refunded,
6.00%, 5/15/19 2,500,000 2,561,175
Virginia State Transportation Board, Transportation Contract
Revenue, (cont.)
Washington County IDA, College Facilities Revenue, Emory
and Henry College Project, 6.375%, 4/01/23 $ 3,295,000 $ 3,497,543
Washington County IDA, Hospital Facilities Revenue, First Mortgage,
Johnston Memorial Hospital, 7.00%, 7/01/22 3,000,000 3,302,370
West Point IDA, Solid Waste Disposal Revenue, Refunding, Chesapeake
Corp. Project, Series B, 6.25%, 3/01/19 5,450,000 5,874,118
Winchester IDA, Educational Facilities Revenue, Refunding, First Mortgage,
Shenandoah University Project, Asset Guaranteed, 6.80%, 10/01/24 2,000,000 2,242,800
---------
TOTAL LONG TERM INVESTMENTS (COST $323,701,677) 345,570,937
-----------
aSHORT TERM INVESTMENTS .6%
Peninsula Ports Authority, Coal Terminal Revenue, DATES, Dominion
Terminal Project, Series C, Refunding, Daily VRDN and Put,
3.60%, 7/01/16 300,000 300,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
MBIA Insured, Weekly VRDN and Put, 2.90%,12/01/15 100,000 100,000
Roanoke IDA, Hospital Revenue Carilion Health System, Series B, Daily
VRDN and Put, 3.70%, 7/01/27 900,000 900,000
Southhampton County IDA Revenue, Various Exempt Facilities,
Hadson Power, Series 11-A, Daily VRDN and Put, 3.85%, 4/01/15 800,000 800,000
-------
TOTAL SHORT TERM INVESTMENTS (COST $2,100,000) 2,100,000
---------
TOTAL INVESTMENTS (COST $325,801,677) 100.7% 347,670,937
OTHER ASSETS, LESS LIABILITIES (.7%) (2,285,459)
-----------
NET ASSETS 100.0% $345,385,478
============
</TABLE>
See glossary of terms on page 120.
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
specificied dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis. FRANKLIN TAX-FREE TRUST STATEMENT OF
INVESTMENTS, FEBRUARY 28, 1998
GLOSSARY OF TERMS
- -------------------------------------------------------------------------------
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
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 Authority Revenue
HFC - Housing Finance Corp.
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
IDB - Industrial Development Board
IDR - Industrial Development Revenue
ISD - Independent School District
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
MUD - Municipal Utility District
PBA - Public Building Authority
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Agency
RMR - Residential Mortgage Revenue
SF - Single Family
SFHR - Single Family Housing Revenue
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
SFRMR - Single Family Residential Mortgage Revenue
UHSD - Unified High School District
USD - Unified School District
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE LOUISIANA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost $207,787,674 $1,563,617,763 $147,039,668 $49,745,406 $129,681,075
================================================================================
Value 223,153,265 1,684,102,808 156,923,877 53,120,718 138,954,233
Cash 314,558 481,309 76,837 352,455 66,243
Receivables:
Investment securities sold -- 1,945,000 -- -- 185,754
Capital shares sold 229,154 2,096,442 94,676 102,511 255,171
Interest 3,664,676 30,146,209 2,264,102 762,642 2,379,706
Affiliates -- -- -- 12,109 --
----------------------------------------------------------------------------------
Total assets 227,361,653 1,718,771,768 159,359,492 54,350,435 141,841,107
----------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- 6,825,623 -- -- 1,932,696
1,932,696
Capital shares redeemed 215,939 580,790 126,243 1,000 116,015
Affiliates 161,005 1,028,707 119,196 17,445 99,084
Shareholders 235,737 2,056,787 135,057 46,308 117,349
Distributions to shareholders 284,061 2,121,990 216,888 67,281 177,323
Other liabilities 13,386 62,393 13,147 7,671 8,057
---------------------------------------------------------------------------------
Total liabilities 910,128 12,676,290 610,531 139,705 2,450,524
---------------------------------------------------------------------------------
Net assets, at value $226,451,525 $1,706,095,478 $158,748,961 $54,210,730 $139,390,583
=================================================================================
Net assets consist of:
Undistributed net investment
income $ 28,029 $ -- $-- $ 23,121 $ 175,633
Accumulated distributions in
excess of net investment income -- (1,372,701) (14,581) -- --
Net unrealized appreciation 15,365,591 120,485,045 9,884,209 3,375,312 9,273,158
Accumulated net realized
gain (loss) 307,701 (727,155) 203,959 (920,541) (1,454,481)
Capital shares 210,750,204 1,587,710,289 148,675,374 51,732,838 131,396,273
----------------------------------------------------------------------------------
Net assets, at value $226,451,525 $1,706,095,478 $158,748,961 $54,210,730 $139,390,583
==================================================================================
Class I:
Net assets, at value $216,982,113 $1,650,068,048 $149,641,981 $54,210,730 $134,921,962
==================================================================================
Shares outstanding 18,110,125 139,068,974 12,343,294 4,734,902 11,618,476
==================================================================================
Net asset value per share* $11.98 $11.87 $12.12 $11.45 $11.61
==================================================================================
Maximum offering price per
share
(net asset value per
share / 95.75%) $12.51 $12.40 $12.66 $11.96 $12.13
==================================================================================
Class II:
Net assets, at value $ 9,469,412 $ 56,027,430 $ 9,106,980 -- $ 4,468,621
===================================================================================
Shares outstanding 786,748 4,685,874 747,179 -- 382,710
===================================================================================
Net asset value per share* $12.04 $11.96 $12.19 -- $11.68
===================================================================================
Maximum offering price per
share (net asset value per
share / 99.00%) $12.16 $12.08 $12.31 -- $11.80
===================================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
FRANKLIN TAX-FREE TRUST
Financial Statements (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE LOUISIANA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost $208,920,163 $303,607,634 $297,165,173 $126,807,194 $325,801,677
========================================================================================
Value 223,146,111 325,809,661 317,702,514 135,881,803 347,670,937
Cash 385,549 1,181,802 124,934 236,289 659,185
Receivables:
Investment securities sold -- 1,636,250 215,000 15,441 663,000
Capital shares sold 222,469 449,614 813,857 26,071 293,812
Interest 3,613,972 4,813,069 4,871,616 1,902,793 5,053,118
----------------------------------------------------------------------------------
Total assets 227,368,101 333,890,396 323,727,921 138,062,397 354,340,052
-------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities
purchased 2,989,696 14,721,648 4,144,499 4,940,763 7,800,433
Capital shares redeemed 188,318 74,573 1,196,693 51,572 169,801
Affiliates 161,223 197,116 228,323 91,309 207,831
Shareholders 228,427 404,556 312,687 148,205 334,144
Distributions to shareholders 267,151 383,441 378,780 165,139 421,984
Other liabilities 14,035 19,506 18,007 12,140 20,381
-------------------------------------------------------------------------------------
Total liabilities 3,848,850 15,800,840 6,278,989 5,409,128 8,954,574
-------------------------------------------------------------------------------------
Net assets, at value $223,519,251 $318,089,556 $317,448,932 $132,653,269 $345,385,478
=====================================================================================
Net assets consist of:
Undistributed net investment
income $-- $ 487,303 $ 56,799 $-- $ 194,415
Accumulated distributions
in excess of
net investment income (43,595) -- -- (123,363) --
Net unrealized appreciation 14,225,948 22,202,027 20,537,341 9,074,609 21,869,260
Accumulated net
realized gain (loss) 290,235 860,224 (1,379,683) 1,688,796 548,232
Capital shares 209,046,663 294,540,002 298,134,475 122,013,227 22,773,571
--------------------------------------------------------------------------------------
Net assets, at value $223,519,251 $318,089,556 $317,448,932 $132,653,269 $345,385,478
=======================================================================================
Net assets, at value $213,004,743 $308,044,789 $297,406,275 $130,577,658 $332,199,196
=======================================================================================
Shares outstanding 18,301,302 25,192,819 24,552,795 11,183,221 27,973,723
=======================================================================================
Net asset value per share* $11.64 $12.23 $12.11 $11.68 $11.88
=======================================================================================
Maximum offering price
per share (net asset value
per share / 95.75%) $12.16 $12.77 $12.65 $12.20 $12.41
======================================================================================
Class II:
Net assets, at value $ 10,514,508 $ 10,044,767 $ 20,042,657 $ 2,075,611 $ 13,186,282
=====================================================================================
Shares outstanding 896,787 818,701 1,645,295 175,794 1,103,630
======================================================================================
Net asset value per share* $11.72 $12.27 $12.18 $11.81 $11.95
======================================================================================
Maximum offering price per
share (net asset value
per share / 99%) $11.84 $12.39 $12.30 $11.93 $12.07
======================================================================================
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (CONTINUED)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
LOUISIANA TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- -----------------------------------------------------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest $12,946,566 $ 96,021,683 $ 8,995,452 $2,782,662 $ 7,874,134
- -----------------------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 1,189,527 7,419,693 872,451 304,904 758,170
Distribution fees (Note 3)
Class I 177,622 1,358,753 128,634 46,413 104,607
Class II 49,982 258,435 39,271 -- 23,717
Transfer agent fees (Note 3) 79,465 470,576 69,199 19,148 48,685
Custodian fees 2,216 16,703 1,599 515 1,325
Reports to shareholders 35,295 209,406 25,934 7,634 19,651
Registration and filing fees 5,540 49,766 6,319 1,857 2,784
Professional fees 6,055 37,687 4,403 2,148 3,973
Trustees' fees and expenses 2,333 17,137 1,625 514 1,366
Other 15,512 68,370 16,344 9,317 10,990
------------------------------------------------------------------
Total expenses 1,563,547 9,906,526 1,165,779 392,450 975,268
Expenses waived/paid
by affiliate
(Note 3 ) -- -- -- (223,704) --
Net expenses 1,563,547 9,906,526 1,165,779 168,746 975,268
------------------------------------------------------------------
Net investment income 11,383,019 86,115,157 7,829,673 2,613,916 6,898,866
------------------------------------------------------------------
Realized and unrealized gains:
Net realized gain from
investments 1,367,201 3,659,832 1,121,637 224,890 999,780
Net unrealized appreciation
on investments 5,167,385 37,696,255 2,137,360 1,505,198 2,382,871
---------------------------------------------------------------
Net realized and unrealized gain 6,534,586 41,356,087 3,258,997 1,730,088 3,382,651
---------------------------------------------------------------
Net increase in net assets
resulting from operations $17,917,605 $127,471,244 $11,088,670 $4,344,004 $10,281,517
=================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 28, 1998
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
- -----------------------------------------------------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest $12,298,178 $17,619,520 $17,283,954 $ 7,998,233 $19,021,886
------------------------------------------------------------------
Expenses:
Management fees (Note 3) 1,166,952 1,574,188 1,566,067 770,725 1,689,780
Distribution fees (Note 3)
Class I 182,772 253,144 254,463 104,938 269,802
Class II 49,898 44,775 91,852 7,996 64,117
Transfer agent fees (Note 3) 101,528 134,559 121,240 54,403 137,608
Custodian fees 2,193 3,112 3,092 1,325 3,348
Reports to shareholders 38,677 57,975 45,038 21,296 52,964
Registration and filing fees 7,583 11,895 7,892 14,000 8,560
Professional fees 6,584 7,901 8,099 4,059 8,366
Trustees' fees and expenses 2,272 3,184 3,134 1,406 3,456
Other 14,686 21,363 21,241 14,575 23,390
------------------------------------------------------------------
Total expenses 1,573,145 2,112,096 2,122,118 994,723 2,261,391
------------------------------------------------------------------
Net investment income 10,725,033 15,507,424 15,161,836 7,003,510 16,760,495
------------------------------------------------------------------
Realized and unrealized gains:
Net realized gain from
investments 545,277 1,728,020 1,738,033 1,689,323 2,402,402
Net unrealized appreciation on
investments 5,243,088 9,244,449 7,658,995 2,206,546 6,947,724
--------------------------------------------------------------
Net realized and unrealized gain 5,788,365 10,972,469 9,397,028 3,895,869 9,350,126
--------------------------------------------------------------
Net increase in net assets
resulting from operations $16,513,398 $26,479,893 $24,558,864 $10,899,379 $26,110,621
================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
FRANKLIN ALABAMA FRANKLIN FLORIDA FRANKLIN GEORGIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease)
in net assets:
Operations:
Net investment
income $ 11,383,019 $ 10,690,673 $ 86,115,157 $ 80,839,961 $ 7,829,673 $ 7,502,961
Net realized gain (loss)
from investments 1,367,201 826,032 3,659,832 (1,969,420) 1,121,637 (83,809)
Net unrealized appre-
ciation (depreciation
on investments 5,167,385 (664,763) 37,696,255 (7,137,684) 2,137,360 63,481
-----------------------------------------------------------------------------------------
Net increase in
net assets
resulting from
operations 17,917,605 10,851,942 127,471,244 71,732,857 11,088,670 7,482,633
Distributions to
shareholders from:
Net investment
income:
Class I (11,265,935) (10,601,182) (85,826,824) (81,984,156) (7,567,564) (7,369,738)
Class II (367,384) (186,416) (1,948,786) (797,622) (284,878) (144,408)
In excess of net invest-
ment income:
Class I -- -- (1,333,610) -- (21,182) --
Class II -- -- (39,091) -- -- --
Net realized gains:
Class I (1,673,585) -- -- -- -- --
Class II (63,191) -- -- -- -- --
---------------------------------------------------------------------------------------------
Total distributions to
shareholders (13,370,095) (10,787,598) (89,148,311 (82,781,778) (7,873,624) (7,514,146)
Capital share
transactions:
(Note 2)
Class I 19,138,051 7,460,992 154,783,628 115,644,487 6,663,292 9,587,752
Class II 3,617,627 3,980,187 31,346,278 15,862,746 4,483,272 3,115,832
---------------------------------------------------------------------------------------------
Total capital share
transactions 22,755,678 11,441,179 186,129,906 131,507,233 11,146,564 12,703,584
Net increase in
net assets 27,303,188 11,505,523 224,452,839 120,458,312 14,361,610 12,672,071
Net assets:
Beginning of year 199,148,337 187,642,814 1,481,642,639 1,361,184,327 144,387,351 131,715,280
----------------------------------------------------------------------------------------
End of year $226,451,525 $199,148,337 $1,706,095,478 $1,481,642,639 $158,748,961 $144,387,351
=======================================================================================
Undistributed net
investment income
(accumulated
distributions in
excess of net
investment income)
included in net assets
End of year $ 28,029 $ 278,329 $ (1,372,701) $ 1,660,453 $ (14,581) $ 29,370
==========================================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
FRANKLIN KENTUCKY FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
Increase (decrease)
in net assets:
Operations:
Net investment
income $ 2,613,916 $ 2,336,528 $ 6,898,866 $ 6,506,641 $ 10,725,033 $ 9,805,450
Net realized gain (loss)
from investments 224,890 (266,464) 999,780 483,603 545,277 1,025,103
Net unrealized
appre-
ciation (depreciation)
on investments 1,505,198 403,814 2,382,871 (403,628) 5,243,088 (1,388,666)
-------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations 4,344,004 2,473,878 10,281,517 6,586,616 16,513,398 9,441,887
Distributions to
shareholders from:
Net investment income:
Class I (2,620,364) (2,331,502) (6,832,628) (6,387,908) (10,413,553) (9,897,629)
Class II -- -- (185,379) (129,018) (352,414) (136,501)
In excess of net invest-
ment income
Class I -- -- -- -- (45,566) --
--------------------------------------------------------------------------------------------
Total distributions to
shareholders (2,620,364) (2,331,502) (7,018,007) (6,516,926) (10,811,533) (10,034,130)
Capital share transactions:
(Note 2)
Class I 8,198,426 5,155,164 18,779,995 5,472,390 22,298,675 10,781,449
Class II -- -- 1,361,804 1,544,030 5,199,913 4,138,354
---------------------------------------------------------------------------------------------
Total capital share
transactions 8,198,426 5,155,164 20,141,799 7,016,420 27,498,588 14,919,803
Net increase in net
assets 9,922,066 5,297,540 23,405,309 7,086,110 33,200,453 14,327,560
Net assets:
Beginning of year 44,288,664 38,991,124 115,985,274 108,899,164 190,318,798 175,991,238
--------------------------------------------------------------------------------------------
End of year $54,210,730 $44,288,664 $139,390,583 $115,985,274 $223,519,25 $190,318,798
============================================================================================
Undistributed net
investment income
(accumulated
distributions in
excess of net
investment income)
included in net assets
End of year $ 23,121 $ 29,569 $ 175,633 $ 294,774 $ (43,595) $ 42,905
=========================================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 15,507,424 $ 14,349,923 $ 15,161,836 $ 14,036,822
Net realized gain (loss) from investments 1,728,020 1,156,378 1,738,033 (187,812)
Net unrealized appreciation (depreciation)
on investments 9,244,449 (2,475,177) 7,658,995 (124,286)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 26,479,893 13,031,124 24,558,864 13,724,724
Distributions to shareholders from:
Net investment income:
Class I (15,241,932) (14,073,629) (14,484,337) (13,584,397)
Class II (326,894) (133,456) (658,410) (284,498)
Net realized gains:
Class I (1,036,132) (937,804) -- --
Class II (28,341) (13,403) -- --
---------------------------------------------------
Total distributions to shareholders (16,633,299) (15,158,292) (15,142,747 (13,868,895)
Capital share transactions: (Note 2)
Class I 28,895,509 24,181,345 27,492,884 14,170,466
Class II 5,488,123 2,958,437 9,954,454 7,097,408
----------------------------------------------------
Total capital share transactions 34,383,632 27,139,782 37,447,338 21,267,874
Net increase in net assets 44,230,226 25,012,614 46,863,455 21,123,703
Net assets:
Beginning of year 273,859,330 248,846,716 270,585,477 249,461,774
-----------------------------------------------------
End of year $318,089,556 $273,859,330 $317,448,932 $270,585,477
=======================================================
Undistributed net investment income
included in net assets
End of year $ 487,303 $ 548,705 $ 156,799 $ 137,710
====================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
FRANKLIN TEXAS FRANKLIN VIRGINIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 7,003,510 $ 7,276,977 $ 16,760,495 $ 15,637,918
Net realized gain from investments 1,689,323 2,502,380 2,402,402 1,469,868
Net unrealized appreciation
(depreciation) on investments 2,206,546 (2,443,895) 6,947,724 2,766,723)
----------------------------------------------------------
Net increase in net assets resulting
from operations 10,899,379 7,335,462 26,110,621 14,341,063
Distributions to shareholders from:
Net investment income:
Class I (6,995,404) (7,454,483) (16,626,624) (15,478,276)
Class II (60,074) (20,024) (473,087) (217,282)
In excess of net investment income
Class I (123,177) -- -- --
Class II (186) -- -- --
Net realized gains:
Class I (344,573) (2,155,163) (2,622,841) (96,953)
Class II (3,045) (11,013) (87,981) (2,027)
--------------------------------------------------------
Total distributions to shareholders (7,526,459) (9,640,683) (19,810,533) (15,794,538)
Capital share transactions: (Note 2)
Class I 628,778 (792,576) 38,943,306 17,247,917
Class II 1,299,563 668,698 6,296,146 4,605,404
-------------------------------------------------------
Total capital share transactions 1,928,341 (123,878) 45,239,452 21,853,321
Net increase (decrease) in net assets 5,301,261 (2,429,099) 51,539,540 20,399,846
Net assets:
Beginning of year 127,352,008 129,781,107 293,845,938 273,446,092
----------------------------------------------------------
End of year $132,653,269 $127,352,008 $345,385,478 $293,845,938
==========================================================
Undistributed net investment income
(accumulated distributions in excess
of net investment income) included in
net assets
End of year $ (123,363) $ 51,160 $ 194,415 $ 533,631
===========================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements
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 (the Funds). All Funds included in this report 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. SHARES OF BENEFICIAL INTEREST
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.
2. SHARES OF BENEFICIAL INTEREST (CONT.)
At February 28, 1998, 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
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------
CLASS I SHARES:
1998
<S> <C> <C> <C> <C>
Shares sold 2,766,059 $32,748,491 30,212,848 $353,306,324
Shares issued in reinvestment of distributions 475,292 5,629,619 2,010,605 23,484,183
Shares redeemed (1,626,797)(19,240,059) (18,970,452) (222,006,879)
------------------------------------------------------
Net increase 1,614,554 $19,138,051 13,253,001 $154,783,628
=====================================================
1997
Shares sold 1,942,732 $22,560,116 23,001,817 $265,470,186
Shares issued in reinvestment of distributions 372,840 4,328,659 1,884,098 21,720,755
Shares redeemed (1,676,632)(19,427,783) (14,883,522) (171,546,454)
------------------------------------------------------
Net increase 638,940 $ 7,460,992 10,002,393 $115,644,487
=======================================================
Class II Shares:
1998
Shares sold 390,828 $ 4,643,941 3,083,120$ 36,239,035
Shares issued in reinvestment of distributions 18,074 215,421 93,070 1,097,230
Shares redeemed (104,751) (1,241,735) (508,837) (5,989,987)
---------------------------------------------------
Net increase 304,151 $ 3,617,627 2,667,353 31,346,278
===================================================
1997
Shares sold 355,918 $ 4,150,114 1,489,791 $ 17,278,719
Shares issued in reinvestment of distributions 6,865 80,183 38,788 450,543
Shares redeemed (21,459) (250,110) (160,270) (1,866,516)
---------------------------------------------------
Net increase 341,324 $ 3,980,187 1,368,309$ 15,862,746
===================================================
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SHARES AMOUNT SHARES AMOUNT
CLASS I SHARES:
1998
<S> <C> <C> <C> <C>
Shares sold 1,933,459 $23,129,282 1,010,210 $11,338,175
Shares issued in reinvestment of distributions 320,830 3,839,224 100,997 1,132,387
Shares redeemed (1,703,156)(20,305,214) (383,160) (4,272,136)
------------------------------------------------------
Net increase 551,133 $ 6,663,292 728,047 $ 8,198,426
======================================================
1997
Shares sold 2,139,522 $25,173,634 890,801 $ 9,695,973
Shares issued in reinvestment of distributions 310,722 3,654,123 100,867 1,099,535
Shares redeemed (1,635,886)(19,240,005) (517,693) (5,640,344)
-----------------------------------------------------
Net increase 814,358 $ 9,587,752 473,975 $ 5,155,164
======================================================
Class II Shares:
1998
Shares sold 460,913 $ 5,568,131
Shares issued in reinvestment of distributions 15,385 185,462
Shares redeemed (105,355) (1,270,321)
------------------------
Net increase 370,943 $ 4,483,272
===================
1997
Shares sold 272,485 $ 3,213,354
Shares issued in reinvestment of distributions 7,721 91,370
Shares redeemed (15,969) (188,892)
--------------------
Net increase 264,237 $ 3,115,832
===================
2. SHARES OF BENEFICIAL INTEREST (CONT.)
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------
CLASS I SHARES:
1998
<S> <C> <C> <C> <C>
Shares sold 2,544,019 $29,162,908 3,401,350 $38,843,827
Shares issued in reinvestment of distributions 258,819 2,962,814 470,311 5,386,462
Shares redeemed (1,168,965)(13,345,727) (1,917,780) (21,931,614)
----------------------------------------------------
Net increase 1,633,873 $18,779,995 1,953,881 $22,298,675
=====================================================
1997
Shares sold 1,474,073 $16,486,181 2,604,160 $29,219,599
Shares issued in reinvestment of distributions 234,695 2,631,214 444,248
4,988,597
Shares redeemed (1,216,948)(13,645,005) (2,087,746) (23,426,747)
----------------------------------------------------
Net increase 491,820 $ 5,472,390 960,662 $10,781,449
=================================================
Class II Shares:
1998
Shares sold 169,745 $ 1,955,399 505,326 $ 5,826,287
Shares issued in reinvestment of distributions 10,646 122,620 18,074 208,949
Shares redeemed (61,812) (716,215) (72,523) (835,323)
--------------------------------------------------
Net increase 118,579 $ 1,361,804 450,877 $ 5,199,913
=================================================
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
==================================================
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SHARES AMOUNT SHARES AMOUNT
CLASS I SHARES:
1998
<S> <C> <C> <C> <C>
Shares sold 4,811,731 $57,764,722 4,574,465 $54,388,614
Shares issued in reinvestment of distributions 652,053 7,829,150 597,307 7,104,620
Shares redeemed (3,060,282)(36,698,363) (2,864,958) (34,000,350)
----------------------------------------------------
Net increase 2,403,502 $28,895,509 2,306,814 $27,492,884
===================================================
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:
1998
Shares sold 497,123 $ 5,978,580 917,204 $10,991,546
Shares issued in reinvestment of distributions 20,221 244,143 33,729 404,561
Shares redeemed (61,062) (734,600) (120,346) (1,441,653)
--------------------------------------------------
Net increase 456,282 $ 5,488,123 830,587 $ 9,954,454
=====================================================
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
==================================================
2. SHARES OF BENEFICIAL INTEREST (CONT.)
FRANKLIN TEXAS FRANKLIN VIRGINIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
- -----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------
CLASS I SHARES:
1998
Shares sold 1,263,835 $14,515,942 5,205,834 $61,022,963
Shares issued in reinvestment of distributions 278,940 3,202,284 795,583 9,347,069
Shares redeemed (1,490,778)(17,089,448) (2,681,610) (31,426,726)
-----------------------------------------------------
Net increase 51,997 $ 628,778 3,319,807 $38,943,306
=====================================================
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:
1998
Shares sold 125,740 $ 1,465,061 626,031 $ 7,380,721
Shares issued in reinvestment of distributions 4,001 46,495 28,027 331,650
Shares redeemed (18,321) (211,993) (120,298) (1,416,225)
------------------------------------------------------
Net increase 111,420 $ 1,299,563 533,760 $ 6,296,146
=====================================================
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. 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 Fund's 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 RATE MONTH-END NET ASSETS .625% First $100 million .50% Over $100
million, up to and including $250 million .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 management fees for the Franklin Kentucky
Tax-Free Income Fund as noted in the Statement of Operations.
The Funds reimburse Distributors up to .10% and .65% per year of their average
daily net asset of Class I and Class II, respectively, for costs incurred in
marketing the Funds' shares.
3. TRANSACTIONS WITH AFFILIATES (cont.)
Distributors received (paid) net commissions on sales of the Funds shares, and
received contingent deferred sales charges for the year 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) $(34,650) $(534,023) $(27,653) $23,180 $(60,244)
Contingent deferred sales charges $ 3,262 $ 7,601 $ 1,464 $-- $ 1,321
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAMD 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
Net commissions received (paid) $(28,294) $9,870 $(46,434) $2,014 $(62,088)
Contingent deferred sales charges $ 3,096 $3,562 $ 6,473 $1,447 $ 3,561
</TABLE>
The Funds included in this report paid transfer agent fees of $1,236,411 of
which $1,053,985 was paid to Investor Services.
4. INCOME TAXES
At February 28, 1998, the Funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
FLORIDA KENTUCKY LOUISIANANORTH CAROLINA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
Capital loss carryovers expiring in:
<S> <C> <C> <C>
2003 -- $560,874 $1,454,481 $1,190,051
2004 -- 65,389 -- --
2005 $137,923 294,278 -- 187,812
--------------------------------------------
$137,923 $920,541 $1,454,481 $1,377,863
=============================================
</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.
At February 28, 1998, 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 TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE LOUISIANA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost $207,788,424 $1,564,206,995 $147,039,668 $49,745,406 $129,681,075
============================================================================================
Unrealized appreciation $ 15,382,398 $ 123,603,790 $ 9,941,847 $ 3,375,312 $ 9,306,372
Unrealized depreciation (17,557) (3,707,977) (57,638) -- (33,214)
---------------------------------------------------------------------------------------------
Net unrealized appreciation $ 15,364,841 $ 119,895,813 $ 9,884,209 $ 3,375,312 $ 9,273,158
=============================================================================================
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND TAX-FREE MISSOURI TAX-FREE NORTH CAROLINA TAX-FREE TEXAS TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
Investments at cost $208,920,163 $303,608,311 $297,166,993 $126,807,194 $325,801,677
==============================================================================================
Unrealized appreciation $ 14,225,948 $ 22,212,435 $ 20,545,496 $ 9,132,454 $ 21,884,880
Unrealized depreciation -- (11,085) (9,975) (57,845) (15,620)
---------------------------------------------------------------------------------------------
Net unrealized appreciation $ 14,225,948 $ 22,201,350 $ 20,535,521 $ 9,074,609 $ 21,869,260
=============================================================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended February 28, 1998 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE LOUISIANA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C> <C> <C>
Purchases $43,759,971 $255,187,921 $31,983,594 $17,830,750 $37,128,965
Sales $21,716,047 $ 86,539,326 $21,702,094 $12,664,092 $18,862,861
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND TAX-FREE MISSOURI TAX-FREE NORTH CAROLINA TAX-FREE TEXAS TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
Purchases $36,887,507 $75,945,128 $65,488,774 $50,335,794 $89,986,601
Sales $ 6,426,470 $41,246,082 $ 28,300,100 $44,447,320 $40,125,127
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
At February 28, 1998, the Franklin Florida Tax-Free Income Fund held defaulted
securities with a value aggregating $11,934,000 representing .70% 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. Such concentration may subject the Funds more significantly
to economic changes occurring within those states.
FRANKLIN TAX-FREE TRUST
Independent Auditors' Report
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF THE FRANKLIN TAX-FREE TRUST:
We have audited the accompanying statements of assets and liabilities of each of
the Funds comprising the Franklin Tax-Free Trust, (ten of which are included in
this report) including each Fund's statement of investments as of February 28,
1998, and the related statements of operations, the statements of changes in net
assets, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects the financial position of each of
the Funds comprising the Franklin Tax-Free Trust as of February 28, 1998, the
results of their operations, the changes in their net assets, and their
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
April 3, 1998
FRANKLIN TAX-FREE TRUST
Tax Information
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended February 28, 1998:
CAPITAL GAINS
---------------------------------
28% RATE 20% RATE
GAIN GAIN TOTAL
---------------------------------
Franklin Alabama Tax-Free Income Fund $406,713$ 933,230 $1,367,201
Franklin Georgia Tax-Free Income Fund -- 203,959 203,959
Franklin Maryland Tax-Free Income Fund -- 290,235 290,235
Franklin Missouri Tax-Free Income Fund -- 1,728,011 1,728,011
Franklin Texas Tax-Free Income Fund -- 1,641,858 1,641,858
Franklin Virginia Tax-Free Income Fund -- 2,402,402 2,402,402
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Trust hereby
designates 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 28, 1998.
Franklin Tax-Free Trust (2)
Annual Report
February 28, 1998.
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 credit quality breakdown of the Franklin
Alabama Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 66.7%
AA 3.3%
A 4.0%
BBB 26.0%
GRAPHIC MATERIAL (2)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Alabama Tax-Free
Income Fund.
Utilities 28.3%
Hospitals 17.8%
General Obligation 12.9%
Industrial 12.7%
Housing 6.6%
Prerefunded 6.6%
Education 5.5%
Health Care 4.0%
Transportation 3.7%
Other Revenue 1.9%
GRAPHIC MATERIAL (3)
This chart shows in bar format the comparison between Franklin Alabama
Tax-Free Income Fund's Class I distribution rate of 5.08% and the taxable
equivalent rate of 8.85% on 2/28/98.
GRAPHIC MATERIAL (4)
This chart shows the dividend distributions for Franklin Alabama Tax-Free
Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.5 cents
April 5.5 cents
May 5.5 cents
June 5.5 cents
July 5.5 cents
August 5.5 cents
September 5.5 cents
October 5.5 cents
November 5.5 cents
December 5.3 cents
January 5.3 cents
February 5.3 cents
Total 65.4 cents
GRAPHIC MATERIAL (5)
The following line graph compares the performance of the Franklin Alabama
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Alabama Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class I Index
- --------------------------------------------------------------------------------
3/1/88 $9,573 $10,000 $10,000
3/31/88 $9,378 -1.16% $9,884 0.43% $10,043
4/30/88 $9,419 0.76% $9,959 0.52% $10,095
5/31/88 $9,461 -0.29% $9,930 0.34% $10,130
6/30/88 $9,641 1.46% $10,075 0.43% $10,173
7/31/88 $9,655 0.65% $10,141 0.42% $10,216
8/31/88 $9,724 0.09% $10,150 0.42% $10,259
9/30/88 $9,916 1.81% $10,334 0.67% $10,327
10/31/88 $10,147 1.76% $10,515 0.33% $10,362
11/30/88 $10,057 -0.92% $10,419 0.08% $10,370
12/31/88 $10,196 1.02% $10,525 0.17% $10,387
1/31/89 $10,412 2.07% $10,743 0.50% $10,439
2/28/89 $10,328 -1.14% $10,620 0.41% $10,482
3/31/89 $10,313 -0.24% $10,595 0.58% $10,543
4/30/89 $10,504 2.37% $10,846 0.65% $10,612
5/31/89 $10,735 2.08% $11,072 0.57% $10,672
6/30/89 $10,888 1.36% $11,222 0.24% $10,698
7/31/89 $10,962 1.36% $11,375 0.24% $10,723
8/31/89 $10,875 -0.98% $11,263 0.16% $10,740
9/30/89 $10,819 -0.30% $11,229 0.32% $10,775
10/31/89 $10,925 1.22% $11,366 0.48% $10,827
11/30/89 $11,082 1.75% $11,565 0.24% $10,853
12/31/89 $11,200 0.82% $11,660 0.16% $10,870
1/31/90 $11,121 -0.47% $11,605 1.03% $10,982
2/28/90 $11,250 0.89% $11,709 0.47% $11,033
3/31/90 $11,233 0.03% $11,712 0.55% $11,094
4/30/90 $11,142 -0.72% $11,628 0.16% $11,112
5/31/90 $11,380 2.18% $11,881 0.23% $11,137
6/30/90 $11,502 0.88% $11,986 0.54% $11,198
7/31/90 $11,689 1.48% $12,163 0.38% $11,240
8/31/90 $11,380 -1.45% $11,987 0.92% $11,344
9/30/90 $11,406 0.06% $11,994 0.84% $11,439
10/31/90 $11,564 1.81% $12,211 0.60% $11,507
11/30/90 $11,810 2.01% $12,457 0.22% $11,533
12/31/90 $11,792 0.44% $12,512 0.00% $11,533
1/31/91 $12,009 1.34% $12,679 0.60% $11,602
2/28/91 $12,103 0.87% $12,789 0.15% $11,619
3/31/91 $12,164 0.04% $12,795 0.15% $11,637
4/30/91 $12,316 1.34% $12,966 0.15% $11,654
5/31/91 $12,400 0.89% $13,081 0.30% $11,689
6/30/91 $12,394 -0.10% $13,068 0.29% $11,723
7/31/91 $12,572 1.22% $13,228 0.15% $11,741
8/31/91 $12,692 1.32% $13,402 0.29% $11,775
9/30/91 $12,884 1.30% $13,577 0.44% $11,827
10/31/91 $12,959 0.90% $13,699 0.15% $11,844
11/30/91 $13,000 0.28% $13,737 0.29% $11,879
12/31/91 $13,254 2.15% $14,033 0.07% $11,887
1/31/92 $13,299 0.23% $14,065 0.15% $11,905
2/29/92 $13,273 0.03% $14,069 0.36% $11,948
3/31/92 $13,295 0.04% $14,075 0.51% $12,009
4/30/92 $13,414 0.89% $14,200 0.14% $12,025
5/31/92 $13,594 1.18% $14,367 0.14% $12,042
6/30/92 $13,788 1.68% $14,609 0.36% $12,086
7/31/92 $14,230 3.00% $15,047 0.21% $12,111
8/31/92 $14,066 -0.98% $14,900 0.28% $12,145
9/30/92 $14,101 0.65% $14,996 0.28% $12,179
10/31/92 $13,861 -0.98% $14,850 0.35% $12,222
11/30/92 $14,185 1.79% $15,115 0.14% $12,239
12/31/92 $14,398 1.02% $15,270 -0.07% $12,230
1/31/93 $14,571 1.16% $15,447 0.49% $12,290
2/28/93 $15,025 3.62% $16,006 0.35% $12,333
3/31/93 $14,956 -1.06% $15,836 0.35% $12,376
4/30/93 $15,066 1.01% $15,996 0.28% $12,411
5/31/93 $15,139 0.56% $16,086 0.14% $12,428
6/30/93 $15,355 1.67% $16,354 0.14% $12,446
7/31/93 $15,363 0.13% $16,376 0.00% $12,446
8/31/93 $15,647 2.08% $16,716 0.28% $12,480
9/30/93 $15,851 1.14% $16,907 0.21% $12,507
10/31/93 $15,909 0.19% $16,939 0.41% $12,558
11/30/93 $15,861 -0.88% $16,790 0.07% $12,567
12/31/93 $16,161 2.11% $17,144 0.00% $12,567
1/31/94 $16,314 1.14% $17,339 0.27% $12,601
2/28/94 $16,009 -2.59% $16,890 0.34% $12,644
3/31/94 $15,456 -4.07% $16,203 0.34% $12,687
4/30/94 $15,516 0.85% $16,341 0.14% $12,704
5/31/94 $15,618 0.87% $16,483 0.07% $12,713
6/30/94 $15,567 -0.61% $16,382 0.34% $12,756
7/31/94 $15,822 1.83% $16,682 0.27% $12,791
8/31/94 $15,883 0.35% $16,740 0.40% $12,842
9/30/94 $15,707 -1.47% $16,494 0.27% $12,877
10/31/94 $15,431 -1.78% $16,201 0.07% $12,886
11/30/94 $15,114 -1.81% $15,908 0.13% $12,902
12/31/94 $15,446 2.20% $16,258 0.00% $12,902
1/31/95 $15,865 2.86% $16,723 0.40% $12,954
2/28/95 $16,258 2.91% $17,209 0.40% $13,006
3/31/95 $16,407 1.15% $17,407 0.33% $13,049
4/30/95 $16,485 0.12% $17,428 0.33% $13,092
5/31/95 $16,868 3.19% $17,984 0.20% $13,118
6/30/95 $16,786 -0.87% $17,827 0.20% $13,144
7/31/95 $16,880 0.95% $17,997 0.00% $13,144
8/31/95 $17,034 1.27% $18,225 0.26% $13,178
9/30/95 $17,143 0.63% $18,340 0.20% $13,205
10/31/95 $17,357 1.45% $18,606 0.33% $13,248
11/30/95 $17,634 1.66% $18,915 -0.07% $13,239
12/31/95 $17,807 0.96% $19,097 -0.07% $13,230
1/31/96 $17,890 0.76% $19,242 0.59% $13,308
2/29/96 $17,837 -0.68% $19,111 0.32% $13,350
3/31/96 $17,662 -1.28% $18,866 0.52% $13,420
4/30/96 $17,654 -0.28% $18,813 0.39% $13,472
5/31/96 $17,677 -0.04% $18,806 0.19% $13,498
6/30/96 $17,870 1.09% $19,011 0.06% $13,506
7/31/96 $18,002 0.91% $19,184 0.19% $13,532
8/31/96 $18,025 -0.02% $19,180 0.19% $13,557
9/30/96 $18,252 1.40% $19,449 0.32% $13,601
10/31/96 $18,449 1.13% $19,668 0.32% $13,644
11/30/96 $18,725 1.83% $20,028 0.19% $13,670
12/31/96 $18,686 -0.42% $19,944 0.00% $13,670
1/31/97 $18,726 0.19% $19,982 0.32% $13,714
2/28/97 $18,878 0.92% $20,166 0.31% $13,756
3/31/97 $18,708 -1.33% $19,898 0.25% $13,791
4/30/97 $18,862 0.84% $20,065 0.12% $13,807
5/31/97 $19,065 1.51% $20,368 -0.06% $13,799
6/30/97 $19,267 1.07% $20,586 0.12% $13,816
7/31/97 $19,736 2.77% $21,156 0.12% $13,832
8/31/97 $19,595 -0.94% $20,957 0.19% $13,858
9/30/97 $19,836 1.19% $21,206 0.25% $13,893
10/31/97 $19,962 0.64% $21,342 0.25% $13,928
11/30/97 $20,105 0.59% $21,468 -0.06% $13,919
12/31/97 $20,375 1.46% $21,781 -0.12% $13,903
1/31/98 $20,533 1.03% $22,006 0.19% $13,929
2/28/98 $20,538 0.03% $22,012 0.19% $13,956
Total 105.38% 120.12% 39.56%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (6)
This chart shows in bar format the comparison between Franklin Alabama
Tax-Free Income Fund's Class II distribution rate of 4.67% and the taxable
equivalent rate of 8.14% on 2/28/98.
GRAPHIC MATERIAL (7)
This chart shows the dividend distributions for Franklin Alabama Tax-Free
Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.93 cents
April 4.95 cents
May 4.95 cents
June 4.95 cents
July 4.96 cents
August 4.96 cents
September 4.94 cents
October 4.94 cents
November 4.94 cents
December 4.74 cents
January 4.73 cents
February 4.73 cents
Total 58.72 cents
GRAPHIC MATERIAL (8)
The following line graph compares the performance of the Franklin Alabama
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Alabama Lehman Brothers Municipal CPI
Tax-Free Income Bond Index
Fund-Class II
- --------------------------------------------------------------------------------
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,127 3.19% $10,319 0.20% $10,020
6/30/95 $10,082 -0.87% $10,229 0.20% $10,040
7/31/95 $10,141 0.95% $10,326 0.00% $10,040
8/31/95 $10,220 1.27% $10,458 0.26% $10,066
9/29/95 $10,289 0.63% $10,523 0.20% $10,086
10/31/95 $10,412 1.45% $10,676 0.33% $10,120
11/30/95 $10,572 1.66% $10,853 -0.07% $10,112
12/29/95 $10,679 0.96% $10,957 -0.07% $10,105
1/31/96 $10,723 0.76% $11,041 0.59% $10,165
2/29/96 $10,686 -0.68% $10,966 0.32% $10,198
3/29/96 $10,576 -1.28% $10,825 0.52% $10,251
4/30/96 $10,566 -0.28% $10,795 0.39% $10,291
5/31/96 $10,574 -0.04% $10,791 0.19% $10,310
6/28/96 $10,684 1.09% $10,908 0.06% $10,316
7/31/96 $10,758 0.91% $11,008 0.19% $10,336
8/30/96 $10,766 -0.02% $11,005 0.19% $10,356
9/30/96 $10,896 1.40% $11,159 0.32% $10,389
10/31/96 $11,007 1.13% $11,286 0.32% $10,422
11/29/96 $11,166 1.83% $11,492 0.19% $10,442
12/31/96 $11,138 -0.42% $11,444 0.00% $10,442
1/31/97 $11,156 0.19% $11,466 0.32% $10,475
2/28/97 $11,250 0.92% $11,571 0.31% $10,508
3/31/97 $11,144 -1.33% $11,417 0.25% $10,534
4/30/97 $11,230 0.84% $11,513 0.12% $10,547
5/31/97 $11,345 1.51% $11,687 -0.06% $10,540
6/30/97 $11,459 1.07% $11,812 0.12% $10,553
7/31/97 $11,732 2.77% $12,139 0.12% $10,565
8/31/97 $11,643 -0.94% $12,025 0.19% $10,586
9/30/97 $11,780 1.19% $12,168 0.25% $10,612
10/31/97 $11,849 0.64% $12,246 0.25% $10,639
11/30/97 $11,928 0.59% $12,318 -0.06% $10,632
12/31/97 $12,092 1.46% $12,498 -0.12% $10,619
1/31/98 $12,170 1.03% $12,627 0.19% $10,640
2/28/98 $12,177 0.03% $12,631 0.19% $10,660
Total 21.77% 26.31% 6.60%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (9)
This chart shows in pie format the credit quality breakdown of the Franklin
Florida Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 62.7%
AA 13.6%
A 5.9%
BBB 17.1%
Below Investment Grade 0.7%
GRAPHIC MATERIAL (10)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Florida Tax-Free
Income Fund.
Utilities 28.3%
Prerefunded 13.3%
Transportation 12.9%
Other Revenue 9.2%
Housing 7.8%
Hospitals 6.7%
Special Assessment 6.6%
Certificates of Participation 5.8%
General Obligation 4.0%
Health Care 3.1%
Sales Tax 1.2%
Industrial 0.6%
Education 0.5%
GRAPHIC MATERIAL (11)
This chart shows in bar format the comparison between Franklin Florida
Tax-Free Income Fund's Class I distribution rate of 5.03% and the taxable
equivalent rate of 8.33% on 2/28/98.
GRAPHIC MATERIAL (12)
This chart shows the dividend distributions for Franklin Florida Tax-Free
Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.7 cents
April 5.7 cents
May 5.7 cents
June 5.7 cents
July 5.7 cents
August 5.7 cents
September 5.4 cents
October 5.4 cents
November 5.4 cents
December 5.3 cents
January 5.3 cents
February 5.3 cents
Total 66.3 cents
GRAPHIC MATERIAL (13)
The following line graph compares the performance of the Franklin Florida
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Florida Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class I Index
- --------------------------------------------------------------------------------
3/1/88 $9,576 $10,000 $10,000
3/31/88 $9,396 -1.16% $9,884 0.43% $10,043
4/30/88 $9,434 0.76% $9,959 0.52% $10,095
5/31/88 $9,462 -0.29% $9,930 0.34% $10,130
6/30/88 $9,638 1.46% $10,075 0.43% $10,173
7/31/88 $9,676 0.65% $10,141 0.42% $10,216
8/31/88 $9,739 0.09% $10,150 0.42% $10,259
9/30/88 $9,934 1.81% $10,334 0.67% $10,327
10/31/88 $10,168 1.76% $10,515 0.33% $10,362
11/30/88 $10,070 -0.92% $10,419 0.08% $10,370
12/31/88 $10,202 1.02% $10,525 0.17% $10,387
1/31/89 $10,412 2.07% $10,743 0.50% $10,439
2/28/89 $10,303 -1.14% $10,620 0.41% $10,482
3/31/89 $10,301 -0.24% $10,595 0.58% $10,543
4/30/89 $10,515 2.37% $10,846 0.65% $10,612
5/31/89 $10,750 2.08% $11,072 0.57% $10,672
6/30/89 $10,877 1.36% $11,222 0.24% $10,698
7/31/89 $10,965 1.36% $11,375 0.24% $10,723
8/31/89 $10,863 -0.98% $11,263 0.16% $10,740
9/30/89 $10,790 -0.30% $11,229 0.32% $10,775
10/31/89 $10,930 1.22% $11,366 0.48% $10,827
11/30/89 $11,103 1.75% $11,565 0.24% $10,853
12/31/89 $11,204 0.82% $11,660 0.16% $10,870
1/31/90 $11,108 -0.47% $11,605 1.03% $10,982
2/28/90 $11,263 0.89% $11,709 0.47% $11,033
3/31/90 $11,250 0.03% $11,712 0.55% $11,094
4/30/90 $11,153 -0.72% $11,628 0.16% $11,112
5/31/90 $11,416 2.18% $11,881 0.23% $11,137
6/30/90 $11,521 0.88% $11,986 0.54% $11,198
7/31/90 $11,714 1.48% $12,163 0.38% $11,240
8/31/90 $11,386 -1.45% $11,987 0.92% $11,344
9/30/90 $11,460 0.06% $11,994 0.84% $11,439
10/31/90 $11,631 1.81% $12,211 0.60% $11,507
11/30/90 $11,890 2.01% $12,457 0.22% $11,533
12/31/90 $11,885 0.44% $12,512 0.00% $11,533
1/31/91 $12,081 1.34% $12,679 0.60% $11,602
2/28/91 $12,165 0.87% $12,789 0.15% $11,619
3/31/91 $12,216 0.04% $12,795 0.15% $11,637
4/30/91 $12,382 1.34% $12,966 0.15% $11,654
5/31/91 $12,468 0.89% $13,081 0.30% $11,689
6/30/91 $12,463 -0.10% $13,068 0.29% $11,723
7/31/91 $12,666 1.22% $13,228 0.15% $11,741
8/31/91 $12,800 1.32% $13,402 0.29% $11,775
9/30/91 $12,982 1.30% $13,577 0.44% $11,827
10/31/91 $13,059 0.90% $13,699 0.15% $11,844
11/30/91 $13,113 0.28% $13,737 0.29% $11,879
12/31/91 $13,377 2.15% $14,033 0.07% $11,887
1/31/92 $13,390 0.23% $14,065 0.15% $11,905
2/29/92 $13,404 0.03% $14,069 0.36% $11,948
3/31/92 $13,441 0.04% $14,075 0.51% $12,009
4/30/92 $13,564 0.89% $14,200 0.14% $12,025
5/31/92 $13,737 1.18% $14,367 0.14% $12,042
6/30/92 $13,899 1.68% $14,609 0.36% $12,086
7/31/92 $14,398 3.00% $15,047 0.21% $12,111
8/31/92 $14,249 -0.98% $14,900 0.28% $12,145
9/30/92 $14,251 0.65% $14,996 0.28% $12,179
10/31/92 $14,024 -0.98% $14,850 0.35% $12,222
11/30/92 $14,317 1.79% $15,115 0.14% $12,239
12/31/92 $14,533 1.02% $15,270 -0.07% $12,230
1/31/93 $14,724 1.16% $15,447 0.49% $12,290
2/28/93 $15,122 3.62% $16,006 0.35% $12,333
3/31/93 $15,069 -1.06% $15,836 0.35% $12,376
4/30/93 $15,197 1.01% $15,996 0.28% $12,411
5/31/93 $15,314 0.56% $16,086 0.14% $12,428
6/30/93 $15,536 1.67% $16,354 0.14% $12,446
7/31/93 $15,562 0.13% $16,376 0.00% $12,446
8/31/93 $15,798 2.08% $16,716 0.28% $12,480
9/30/93 $15,969 1.14% $16,907 0.21% $12,507
10/31/93 $16,087 0.19% $16,939 0.41% $12,558
11/30/93 $16,017 -0.88% $16,790 0.07% $12,567
12/31/93 $16,281 2.11% $17,144 0.00% $12,567
1/31/94 $16,451 1.14% $17,339 0.27% $12,601
2/28/94 $16,157 -2.59% $16,890 0.34% $12,644
3/31/94 $15,655 -4.07% $16,203 0.34% $12,687
4/30/94 $15,730 0.85% $16,341 0.14% $12,704
5/31/94 $15,821 0.87% $16,483 0.07% $12,713
6/30/94 $15,800 -0.61% $16,382 0.34% $12,756
7/31/94 $16,033 1.83% $16,682 0.27% $12,791
8/31/94 $16,070 0.35% $16,740 0.40% $12,842
9/30/94 $15,922 -1.47% $16,494 0.27% $12,877
10/31/94 $15,731 -1.78% $16,201 0.07% $12,886
11/30/94 $15,441 -1.81% $15,908 0.13% $12,902
12/31/94 $15,738 2.20% $16,258 0.00% $12,902
1/31/95 $16,153 2.86% $16,723 0.40% $12,954
2/28/95 $16,540 2.91% $17,209 0.40% $13,006
3/31/95 $16,667 1.15% $17,407 0.33% $13,049
4/30/95 $16,736 0.12% $17,428 0.33% $13,092
5/31/95 $17,129 3.19% $17,984 0.20% $13,118
6/30/95 $17,095 -0.87% $17,827 0.20% $13,144
7/31/95 $17,194 0.95% $17,997 0.00% $13,144
8/31/95 $17,340 1.27% $18,225 0.26% $13,178
9/30/95 $17,441 0.63% $18,340 0.20% $13,205
10/31/95 $17,647 1.45% $18,606 0.33% $13,248
11/30/95 $17,886 1.66% $18,915 -0.07% $13,239
12/31/95 $18,049 0.96% $19,097 -0.07% $13,230
1/31/96 $18,137 0.76% $19,242 0.59% $13,308
2/29/96 $18,070 -0.68% $19,111 0.32% $13,350
3/31/96 $17,927 -1.28% $18,866 0.52% $13,420
4/30/96 $17,891 -0.28% $18,813 0.39% $13,472
5/31/96 $17,901 -0.04% $18,806 0.19% $13,498
6/30/96 $18,117 1.09% $19,011 0.06% $13,506
7/31/96 $18,223 0.91% $19,184 0.19% $13,532
8/31/96 $18,217 -0.02% $19,180 0.19% $13,557
9/30/96 $18,467 1.40% $19,449 0.32% $13,601
10/31/96 $18,623 1.13% $19,668 0.32% $13,644
11/30/96 $18,892 1.83% $20,028 0.19% $13,670
12/31/96 $18,839 -0.42% $19,944 0.00% $13,670
1/31/97 $18,850 0.19% $19,982 0.32% $13,714
2/28/97 $19,008 0.92% $20,166 0.31% $13,756
3/31/97 $18,789 -1.33% $19,898 0.25% $13,791
4/30/97 $18,966 0.84% $20,065 0.12% $13,807
5/31/97 $19,177 1.51% $20,368 -0.06% $13,799
6/30/97 $19,371 1.07% $20,586 0.12% $13,816
7/31/97 $19,834 2.77% $21,156 0.12% $13,832
8/31/97 $19,695 -0.94% $20,957 0.19% $13,858
9/30/97 $19,837 1.19% $21,206 0.25% $13,893
10/31/97 $19,963 0.64% $21,342 0.25% $13,928
11/30/97 $20,089 0.59% $21,468 -0.06% $13,919
12/31/97 $20,368 1.46% $21,781 -0.12% $13,903
1/31/98 $20,580 1.03% $22,006 0.19% $13,929
2/28/98 $20,602 0.03% $22,012 0.19% $13,956
Total 106.02% 120.12% 39.56%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (14)
This chart shows in bar format the comparison between Franklin Florida
Tax-Free Income Fund's Class II distribution rate of 4.60% and the taxable
equivalent rate of 7.62% on 2/28/98.
GRAPHIC MATERIAL (15)
This chart shows the dividend distributions for Franklin Florida Tax-Free
Income Fund's Class II from 3/1/97 to 2/28/98.
March 5.45 cents
April 5.24 cents
May 5.24 cents
June 5.24 cents
July 5.07 cents
August 5.07 cents
September 4.84 cents
October 4.84 cents
November 4.84 cents
December 4.74 cents
January 4.73 cents
February 4.73 cents
Total 60.03 cents
GRAPHIC MATERIAL (16)
The following line graph compares the performance of the Franklin Florida
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Florida Lehman Brothers Municipal CPI
Tax-Free Income Bond Index
Fund-Class II
- --------------------------------------------------------------------------------
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,164 3.19% $10,319 0.20% $10,020
6/30/95 $10,147 -0.87% $10,229 0.20% $10,040
7/31/95 $10,192 0.95% $10,326 0.00% $10,040
8/31/95 $10,281 1.27% $10,458 0.26% $10,066
9/29/95 $10,344 0.63% $10,523 0.20% $10,086
10/31/95 $10,452 1.45% $10,676 0.33% $10,120
11/30/95 $10,596 1.66% $10,853 -0.07% $10,112
12/29/95 $10,687 0.96% $10,957 -0.07% $10,105
1/31/96 $10,733 0.76% $11,041 0.59% $10,165
2/29/96 $10,688 -0.68% $10,966 0.32% $10,198
3/29/96 $10,590 -1.28% $10,825 0.52% $10,251
4/30/96 $10,564 -0.28% $10,795 0.39% $10,291
5/31/96 $10,565 -0.04% $10,791 0.19% $10,310
6/28/96 $10,695 1.09% $10,908 0.06% $10,316
7/31/96 $10,742 0.91% $11,008 0.19% $10,336
8/30/96 $10,733 -0.02% $11,005 0.19% $10,356
9/30/96 $10,883 1.40% $11,159 0.32% $10,389
10/31/96 $10,978 1.13% $11,286 0.32% $10,422
11/29/96 $11,130 1.83% $11,492 0.19% $10,442
12/31/96 $11,093 -0.42% $11,444 0.00% $10,442
1/31/97 $11,095 0.19% $11,466 0.32% $10,475
2/28/97 $11,183 0.92% $11,571 0.31% $10,508
3/31/97 $11,053 -1.33% $11,417 0.25% $10,534
4/30/97 $11,152 0.84% $11,513 0.12% $10,547
5/31/97 $11,270 1.51% $11,687 -0.06% $10,540
6/30/97 $11,379 1.07% $11,812 0.12% $10,553
7/31/97 $11,653 2.77% $12,139 0.12% $10,565
8/31/97 $11,556 -0.94% $12,025 0.19% $10,586
9/30/97 $11,643 1.19% $12,168 0.25% $10,612
10/31/97 $11,711 0.64% $12,246 0.25% $10,639
11/30/97 $11,779 0.59% $12,318 -0.06% $10,632
12/31/97 $11,936 1.46% $12,498 -0.12% $10,619
1/31/98 $12,053 1.03% $12,627 0.19% $10,640
2/28/98 $12,060 0.03% $12,631 0.19% $10,660
Total 20.60% 26.31% 6.60%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (17)
This chart shows in pie format the credit quality breakdown of the Franklin
Georgia Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 63.1%
AA 19.0%
A 7.9%
BBB 10.0%
GRAPHIC MATERIAL (18)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Georgia Tax-Free
Income Fund.
Utilities 26.6%
Housing 14.7%
Prerefunded 14.5%
Hospitals 8.9%
Industrial 6.7%
General Obligation 6.6%
Transportation 6.5%
Other Revenue 6.1%
Education 5.2%
Certificates of Participation 3.4%
Health Care 0.8%
GRAPHIC MATERIAL (19)
This chart shows in bar format the comparison between Franklin Georgia
Tax-Free Income Fund's Class I distribution rate of 4.93% and the taxable
equivalent rate of 8.68% on 2/28/98.
GRAPHIC MATERIAL (20)
This chart shows the dividend distributions for Franklin Georgia Tax-Free
Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.3 cents
April 5.3 cents
May 5.3 cents
June 5.3 cents
July 5.3 cents
August 5.3 cents
September 5.3 cents
October 5.3 cents
November 5.3 cents
December 5.3 cents
January 5.3 cents
February 5.3 cents
Total 63.6 cents
GRAPHIC MATERIAL (21)
The following line graph compares the performance of the Franklin Georgia
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Georgia Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class I Index
- --------------------------------------------------------------------------------
3/1/88 $9,574 $10,000 $10,000
3/31/88 $9,383 -1.16% $9,884 0.43% $10,043
4/30/88 $9,402 0.76% $9,959 0.52% $10,095
5/31/88 $9,429 -0.29% $9,930 0.34% $10,130
6/30/88 $9,587 1.46% $10,075 0.43% $10,173
7/31/88 $9,624 0.65% $10,141 0.42% $10,216
8/31/88 $9,699 0.09% $10,150 0.42% $10,259
9/30/88 $9,925 1.81% $10,334 0.67% $10,327
10/31/88 $10,152 1.76% $10,515 0.33% $10,362
11/30/88 $10,063 -0.92% $10,419 0.08% $10,370
12/31/88 $10,197 1.02% $10,525 0.17% $10,387
1/31/89 $10,390 2.07% $10,743 0.50% $10,439
2/28/89 $10,303 -1.14% $10,620 0.41% $10,482
3/31/89 $10,274 -0.24% $10,595 0.58% $10,543
4/30/89 $10,519 2.37% $10,846 0.65% $10,612
5/31/89 $10,765 2.08% $11,072 0.57% $10,672
6/30/89 $10,914 1.36% $11,222 0.24% $10,698
7/31/89 $11,007 1.36% $11,375 0.24% $10,723
8/31/89 $10,939 -0.98% $11,263 0.16% $10,740
9/30/89 $10,882 -0.30% $11,229 0.32% $10,775
10/31/89 $11,006 1.22% $11,366 0.48% $10,827
11/30/89 $11,173 1.75% $11,565 0.24% $10,853
12/31/89 $11,289 0.82% $11,660 0.16% $10,870
1/31/90 $11,209 -0.47% $11,605 1.03% $10,982
2/28/90 $11,358 0.89% $11,709 0.47% $11,033
3/31/90 $11,350 0.03% $11,712 0.55% $11,094
4/30/90 $11,282 -0.72% $11,628 0.16% $11,112
5/31/90 $11,530 2.18% $11,881 0.23% $11,137
6/30/90 $11,631 0.88% $11,986 0.54% $11,198
7/31/90 $11,829 1.48% $12,163 0.38% $11,240
8/31/90 $11,522 -1.45% $11,987 0.92% $11,344
9/30/90 $11,506 0.06% $11,994 0.84% $11,439
10/31/90 $11,664 1.81% $12,211 0.60% $11,507
11/30/90 $11,943 2.01% $12,457 0.22% $11,533
12/31/90 $11,926 0.44% $12,512 0.00% $11,533
1/31/91 $12,154 1.34% $12,679 0.60% $11,602
2/28/91 $12,248 0.87% $12,789 0.15% $11,619
3/31/91 $12,287 0.04% $12,795 0.15% $11,637
4/30/91 $12,451 1.34% $12,966 0.15% $11,654
5/31/91 $12,536 0.89% $13,081 0.30% $11,689
6/30/91 $12,531 -0.10% $13,068 0.29% $11,723
7/31/91 $12,709 1.22% $13,228 0.15% $11,741
8/31/91 $12,842 1.32% $13,402 0.29% $11,775
9/30/91 $13,022 1.30% $13,577 0.44% $11,827
10/31/91 $13,086 0.90% $13,699 0.15% $11,844
11/30/91 $13,139 0.28% $13,737 0.29% $11,879
12/31/91 $13,385 2.15% $14,033 0.07% $11,887
1/31/92 $13,430 0.23% $14,065 0.15% $11,905
2/29/92 $13,404 0.03% $14,069 0.36% $11,948
3/31/92 $13,426 0.04% $14,075 0.51% $12,009
4/30/92 $13,555 0.89% $14,200 0.14% $12,025
5/31/92 $13,735 1.18% $14,367 0.14% $12,042
6/30/92 $13,915 1.68% $14,609 0.36% $12,086
7/31/92 $14,377 3.00% $15,047 0.21% $12,111
8/31/92 $14,213 -0.98% $14,900 0.28% $12,145
9/30/92 $14,259 0.65% $14,996 0.28% $12,179
10/31/92 $14,004 -0.98% $14,850 0.35% $12,222
11/30/92 $14,323 1.79% $15,115 0.14% $12,239
12/31/92 $14,542 1.02% $15,270 -0.07% $12,230
1/31/93 $14,662 1.16% $15,447 0.49% $12,290
2/28/93 $15,074 3.62% $16,006 0.35% $12,333
3/31/93 $15,004 -1.06% $15,836 0.35% $12,376
4/30/93 $15,176 1.01% $15,996 0.28% $12,411
5/31/93 $15,272 0.56% $16,086 0.14% $12,428
6/30/93 $15,537 1.67% $16,354 0.14% $12,446
7/31/93 $15,544 0.13% $16,376 0.00% $12,446
8/31/93 $15,811 2.08% $16,716 0.28% $12,480
9/30/93 $16,013 1.14% $16,907 0.21% $12,507
10/31/93 $16,072 0.19% $16,939 0.41% $12,558
11/30/93 $16,013 -0.88% $16,790 0.07% $12,567
12/31/93 $16,271 2.11% $17,144 0.00% $12,567
1/31/94 $16,465 1.14% $17,339 0.27% $12,601
2/28/94 $16,123 -2.59% $16,890 0.34% $12,644
3/31/94 $15,578 -4.07% $16,203 0.34% $12,687
4/30/94 $15,639 0.85% $16,341 0.14% $12,704
5/31/94 $15,741 0.87% $16,483 0.07% $12,713
6/30/94 $15,678 -0.61% $16,382 0.34% $12,756
7/31/94 $15,946 1.83% $16,682 0.27% $12,791
8/31/94 $16,008 0.35% $16,740 0.40% $12,842
9/30/94 $15,849 -1.47% $16,494 0.27% $12,877
10/31/94 $15,604 -1.78% $16,201 0.07% $12,886
11/30/94 $15,305 -1.81% $15,908 0.13% $12,902
12/31/94 $15,663 2.20% $16,258 0.00% $12,902
1/31/95 $16,080 2.86% $16,723 0.40% $12,954
2/28/95 $16,427 2.91% $17,209 0.40% $13,006
3/31/95 $16,577 1.15% $17,407 0.33% $13,049
4/30/95 $16,626 0.12% $17,428 0.33% $13,092
5/31/95 $17,007 3.19% $17,984 0.20% $13,118
6/30/95 $16,942 -0.87% $17,827 0.20% $13,144
7/31/95 $17,022 0.95% $17,997 0.00% $13,144
8/31/95 $17,190 1.27% $18,225 0.26% $13,178
9/30/95 $17,256 0.63% $18,340 0.20% $13,205
10/31/95 $17,469 1.45% $18,606 0.33% $13,248
11/30/95 $17,699 1.66% $18,915 -0.07% $13,239
12/31/95 $17,870 0.96% $19,097 -0.07% $13,230
1/31/96 $17,937 0.76% $19,242 0.59% $13,308
2/29/96 $17,884 -0.68% $19,111 0.32% $13,350
3/31/96 $17,727 -1.28% $18,866 0.52% $13,420
4/30/96 $17,734 -0.28% $18,813 0.39% $13,472
5/31/96 $17,771 -0.04% $18,806 0.19% $13,498
6/30/96 $17,948 1.09% $19,011 0.06% $13,506
7/31/96 $18,047 0.91% $19,184 0.19% $13,532
8/31/96 $18,070 -0.02% $19,180 0.19% $13,557
9/30/96 $18,291 1.40% $19,449 0.32% $13,601
10/31/96 $18,452 1.13% $19,668 0.32% $13,644
11/30/96 $18,691 1.83% $20,028 0.19% $13,670
12/31/96 $18,696 -0.42% $19,944 0.00% $13,670
1/31/97 $18,732 0.19% $19,982 0.32% $13,714
2/28/97 $18,863 0.92% $20,166 0.31% $13,756
3/31/97 $18,693 -1.33% $19,898 0.25% $13,791
4/30/97 $18,841 0.84% $20,065 0.12% $13,807
5/31/97 $19,039 1.51% $20,368 -0.06% $13,799
6/30/97 $19,205 1.07% $20,586 0.12% $13,816
7/31/97 $19,615 2.77% $21,156 0.12% $13,832
8/31/97 $19,489 -0.94% $20,957 0.19% $13,858
9/30/97 $19,690 1.19% $21,206 0.25% $13,893
10/31/97 $19,794 0.64% $21,342 0.25% $13,928
11/30/97 $19,931 0.59% $21,468 -0.06% $13,919
12/31/97 $20,167 1.46% $21,781 -0.12% $13,903
1/31/98 $20,322 1.03% $22,006 0.19% $13,929
2/28/98 $20,326 0.03% $22,012 0.19% $13,956
Total 103.26% 120.12% 39.56%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (22)
This chart shows in bar format the comparison between Franklin Georgia
Tax-Free Income Fund's Class II distribution rate of 4.50% and the taxable
equivalent rate of 7.93% on 2/28/98.
GRAPHIC MATERIAL (23)
This chart shows the dividend distributions for Franklin Georgia Tax-Free
Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.85 cents
April 4.71 cents
May 4.71 cents
June 4.71 cents
July 4.77 cents
August 4.77 cents
September 4.72 cents
October 4.72 cents
November 4.72 cents
December 4.72 cents
January 4.72 cents
February 4.72 cents
Total 56.84 cents
GRAPHIC MATERIAL (24)
The following line graph compares the performance of the Franklin Georgia
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Georgia Lehman Brothers Municipal CPI
Tax-Free Income Bond Index
Fund-Class II
- --------------------------------------------------------------------------------
5/1/95 $9,897 $10,000 $10,000
5/31/95 $10,116 3.19% $10,319 0.20% $10,020
6/30/95 $10,089 -0.87% $10,229 0.20% $10,040
7/31/95 $10,140 0.95% $10,326 0.00% $10,040
8/31/95 $10,226 1.27% $10,458 0.26% $10,066
9/29/95 $10,268 0.63% $10,523 0.20% $10,086
10/31/95 $10,381 1.45% $10,676 0.33% $10,120
11/30/95 $10,520 1.66% $10,853 -0.07% $10,112
12/29/95 $10,616 0.96% $10,957 -0.07% $10,105
1/31/96 $10,651 0.76% $11,041 0.59% $10,165
2/29/96 $10,614 -0.68% $10,966 0.32% $10,198
3/29/96 $10,517 -1.28% $10,825 0.52% $10,251
4/30/96 $10,517 -0.28% $10,795 0.39% $10,291
5/31/96 $10,534 -0.04% $10,791 0.19% $10,310
6/28/96 $10,633 1.09% $10,908 0.06% $10,316
7/31/96 $10,693 0.91% $11,008 0.19% $10,336
8/30/96 $10,698 -0.02% $11,005 0.19% $10,356
9/30/96 $10,831 1.40% $11,159 0.32% $10,389
10/31/96 $10,920 1.13% $11,286 0.32% $10,422
11/29/96 $11,047 1.83% $11,492 0.19% $10,442
12/31/96 $11,054 -0.42% $11,444 0.00% $10,442
1/31/97 $11,061 0.19% $11,466 0.32% $10,475
2/28/97 $11,143 0.92% $11,571 0.31% $10,508
3/31/97 $11,039 -1.33% $11,417 0.25% $10,534
4/30/97 $11,111 0.84% $11,513 0.12% $10,547
5/31/97 $11,231 1.51% $11,687 -0.06% $10,540
6/30/97 $11,323 1.07% $11,812 0.12% $10,553
7/31/97 $11,558 2.77% $12,139 0.12% $10,565
8/31/97 $11,480 -0.94% $12,025 0.19% $10,586
9/30/97 $11,592 1.19% $12,168 0.25% $10,612
10/31/97 $11,647 0.64% $12,246 0.25% $10,639
11/30/97 $11,722 0.59% $12,318 -0.06% $10,632
12/31/97 $11,864 1.46% $12,498 -0.12% $10,619
1/31/98 $11,939 1.03% $12,627 0.19% $10,640
2/28/98 $11,945 0.03% $12,631 0.19% $10,660
Total 19.45% 26.31% 6.60%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (25)
This chart shows in pie format the credit quality breakdown of the Franklin
Kentucky Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 60.2%
AA 3.4%
A 16.4%
BBB 20.0%
GRAPHIC MATERIAL (26)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Kentucky Tax-Free
Income Fund.
Hospitals 29.8%
Housing 17.7%
Utilities 11.1%
Other Revenue 9.8%
Transportation 9.3%
Certificates of Participation 7.9%
Industrial 7.8%
Prerefunded 3.6%
Education 3.0%
GRAPHIC MATERIAL (27)
This chart shows in bar format the comparison between Franklin Kentucky
Tax-Free Income Fund's distribution rate of 5.02% and the taxable equivalent
rate of 8.84% on 2/28/98.
GRAPHIC MATERIAL (28)
This chart shows the dividend distributions for Franklin Kentucky Tax-Free
Income Fund from 3/1/97 to 2/28/98.
March 5.1 cents
April 5.1 cents
May 5.1 cents
June 5.1 cents
July 5.1 cents
August 5.1 cents
September 5.1 cents
October 5.1 cents
November 5.1 cents
December 5.0 cents
January 5.0 cents
February 5.0 cents
Total 60.9 cents
GRAPHIC MATERIAL (29)
The following line graph compares the performance of the Franklin Kentucky
Tax-Free Income Fund's shares to that of the Lehman Brothers Municipal Bond
Index, and to the Consumer Price Index based on a $10,000 investment from
10/12/91 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Kentucky Lehman Brothers Municipal CPI
Tax-Free Income Bond Index
Fund-Class I
- --------------------------------------------------------------------------------
10/12/91 $9,579 $10,000 $10,000
10/31/91 $9,588 0.55% $10,055 0.09% $10,009
11/30/91 $9,598 0.28% $10,083 0.29% $10,038
12/31/91 $9,789 2.15% $10,300 0.07% $10,045
1/31/92 $9,856 0.23% $10,324 0.15% $10,060
2/29/92 $9,866 0.03% $10,327 0.36% $10,097
3/31/92 $9,890 0.04% $10,331 0.51% $10,148
4/30/92 $9,972 0.89% $10,423 0.14% $10,162
5/31/92 $10,122 1.18% $10,546 0.14% $10,176
6/30/92 $10,263 1.68% $10,723 0.36% $10,213
7/31/92 $10,679 3.00% $11,045 0.21% $10,235
8/31/92 $10,497 -0.98% $10,937 0.28% $10,263
9/30/92 $10,522 0.65% $11,008 0.28% $10,292
10/31/92 $10,348 -0.98% $10,900 0.35% $10,328
11/30/92 $10,643 1.79% $11,095 0.14% $10,342
12/31/92 $10,798 1.02% $11,208 -0.07% $10,335
1/31/93 $10,925 1.16% $11,338 0.49% $10,386
2/28/93 $11,265 3.62% $11,749 0.35% $10,422
3/31/93 $11,188 -1.06% $11,624 0.35% $10,459
4/30/93 $11,306 1.01% $11,741 0.28% $10,488
5/31/93 $11,393 0.56% $11,807 0.14% $10,503
6/30/93 $11,626 1.67% $12,004 0.14% $10,517
7/31/93 $11,663 0.13% $12,020 0.00% $10,517
8/31/93 $11,898 2.08% $12,270 0.28% $10,547
9/30/93 $12,071 1.14% $12,410 0.21% $10,569
10/31/93 $12,150 0.19% $12,433 0.41% $10,612
11/30/93 $12,018 -0.88% $12,324 0.07% $10,620
12/31/93 $12,300 2.11% $12,584 0.00% $10,620
1/31/94 $12,435 1.14% $12,727 0.27% $10,648
2/28/94 $12,085 -2.59% $12,398 0.34% $10,685
3/31/94 $11,396 -4.07% $11,893 0.34% $10,721
4/30/94 $11,488 0.85% $11,994 0.14% $10,736
5/31/94 $11,614 0.87% $12,099 0.07% $10,743
6/30/94 $11,505 -0.61% $12,025 0.34% $10,780
7/31/94 $11,771 1.83% $12,245 0.27% $10,809
8/31/94 $11,806 0.35% $12,288 0.40% $10,852
9/30/94 $11,528 -1.47% $12,107 0.27% $10,882
10/31/94 $11,192 -1.78% $11,892 0.07% $10,889
11/30/94 $10,913 -1.81% $11,676 0.13% $10,903
12/31/94 $11,254 2.20% $11,933 0.00% $10,903
1/31/95 $11,700 2.86% $12,275 0.40% $10,947
2/28/95 $12,112 2.91% $12,632 0.40% $10,991
3/31/95 $12,240 1.15% $12,777 0.33% $11,027
4/30/95 $12,252 0.12% $12,792 0.33% $11,063
5/31/95 $12,694 3.19% $13,200 0.20% $11,086
6/30/95 $12,508 -0.87% $13,086 0.20% $11,108
7/31/95 $12,580 0.95% $13,210 0.00% $11,108
8/31/95 $12,747 1.27% $13,378 0.26% $11,137
9/30/95 $12,854 0.63% $13,462 0.20% $11,159
10/31/95 $13,081 1.45% $13,657 0.33% $11,196
11/30/95 $13,333 1.66% $13,884 -0.07% $11,188
12/31/95 $13,491 0.96% $14,017 -0.07% $11,180
1/31/96 $13,552 0.76% $14,124 0.59% $11,246
2/29/96 $13,408 -0.68% $14,028 0.32% $11,282
3/31/96 $13,215 -1.28% $13,848 0.52% $11,341
4/30/96 $13,204 -0.28% $13,809 0.39% $11,385
5/31/96 $13,217 -0.04% $13,804 0.19% $11,406
6/30/96 $13,391 1.09% $13,954 0.06% $11,413
7/31/96 $13,479 0.91% $14,081 0.19% $11,435
8/31/96 $13,480 -0.02% $14,078 0.19% $11,457
9/30/96 $13,694 1.40% $14,276 0.32% $11,493
10/31/96 $13,859 1.13% $14,437 0.32% $11,530
11/30/96 $14,100 1.83% $14,701 0.19% $11,552
12/31/96 $14,063 -0.42% $14,639 0.00% $11,552
1/31/97 $14,065 0.19% $14,667 0.32% $11,589
2/28/97 $14,193 0.92% $14,802 0.31% $11,625
3/31/97 $14,001 -1.33% $14,605 0.25% $11,654
4/30/97 $14,132 0.84% $14,728 0.12% $11,668
5/31/97 $14,328 1.51% $14,950 -0.06% $11,661
6/30/97 $14,486 1.07% $15,110 0.12% $11,675
7/31/97 $14,880 2.77% $15,529 0.12% $11,689
8/31/97 $14,776 -0.94% $15,383 0.19% $11,711
9/30/97 $14,949 1.19% $15,566 0.25% $11,741
10/31/97 $15,030 0.64% $15,665 0.25% $11,770
11/30/97 $15,152 0.59% $15,758 -0.06% $11,763
12/31/97 $15,379 1.46% $15,988 -0.12% $11,749
1/31/98 $15,513 1.03% $16,153 0.19% $11,771
2/28/98 $15,527 0.03% $16,158 0.19% $11,793
Total 55.27% 61.58% 17.93%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (30)
This chart shows in pie format the credit quality breakdown of the Franklin
Louisiana Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 67.4%
AA 3.1%
A 9.5%
BBB 10.7%
Below Investment Grade 9.3%
GRAPHIC MATERIAL (31)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Louisiana Tax-Free
Income Fund.
Education 21.8%
Utilities 18.9%
Housing 14.3%
Prerefunded 9.1%
Hospitals 8.2%
Industrial 7.9%
Other Revenue 6.8%
Sales Tax Bonds 5.2%
General Obligation 4.0%
Transportation 2.5%
Certificates of Participation 1.3%
GRAPHIC MATERIAL (32)
This chart shows in bar format the comparison between Franklin Louisiana
Tax-Free Income Fund's Class I distribution rate of 5.14% and the taxable
equivalent rate of 9.05% on 2/28/98.
GRAPHIC MATERIAL (33)
This chart shows the dividend distributions for Franklin Louisiana Tax-Free
Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
September 5.3 cents
October 5.3 cents
November 5.3 cents
December 5.3 cents
January 5.3 cents
February 5.3 cents
Total 64.2 cents
GRAPHIC MATERIAL (34)
The following line graph compares the performance of the Franklin Louisiana
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Louisiana Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class I Index
- --------------------------------------------------------------------------------
3/1/88 $9,577 $10,000 $10,000
3/31/88 $9,386 -1.16% $9,884 0.43% $10,043
4/30/88 $9,425 0.76% $9,959 0.52% $10,095
5/31/88 $9,473 -0.29% $9,930 0.34% $10,130
6/30/88 $9,635 1.46% $10,075 0.43% $10,173
7/31/88 $9,656 0.65% $10,141 0.42% $10,216
8/31/88 $9,718 0.09% $10,150 0.42% $10,259
9/30/88 $9,896 1.81% $10,334 0.67% $10,327
10/31/88 $10,104 1.76% $10,515 0.33% $10,362
11/30/88 $10,033 -0.92% $10,419 0.08% $10,370
12/31/88 $10,175 1.02% $10,525 0.17% $10,387
1/31/89 $10,377 2.07% $10,743 0.50% $10,439
2/28/89 $10,304 -1.14% $10,620 0.41% $10,482
3/31/89 $10,300 -0.24% $10,595 0.58% $10,543
4/30/89 $10,506 2.37% $10,846 0.65% $10,612
5/31/89 $10,763 2.08% $11,072 0.57% $10,672
6/30/89 $10,911 1.36% $11,222 0.24% $10,698
7/31/89 $11,020 1.36% $11,375 0.24% $10,723
8/31/89 $10,944 -0.98% $11,263 0.16% $10,740
9/30/89 $10,888 -0.30% $11,229 0.32% $10,775
10/31/89 $10,988 1.22% $11,366 0.48% $10,827
11/30/89 $11,161 1.75% $11,565 0.24% $10,853
12/31/89 $11,262 0.82% $11,660 0.16% $10,870
1/31/90 $11,173 -0.47% $11,605 1.03% $10,982
2/28/90 $11,307 0.89% $11,709 0.47% $11,033
3/31/90 $11,313 0.03% $11,712 0.55% $11,094
4/30/90 $11,234 -0.72% $11,628 0.16% $11,112
5/31/90 $11,500 2.18% $11,881 0.23% $11,137
6/30/90 $11,616 0.88% $11,986 0.54% $11,198
7/31/90 $11,809 1.48% $12,163 0.38% $11,240
8/31/90 $11,540 -1.45% $11,987 0.92% $11,344
9/30/90 $11,513 0.06% $11,994 0.84% $11,439
10/31/90 $11,677 1.81% $12,211 0.60% $11,507
11/30/90 $11,965 2.01% $12,457 0.22% $11,533
12/31/90 $11,994 0.44% $12,512 0.00% $11,533
1/31/91 $12,207 1.34% $12,679 0.60% $11,602
2/28/91 $12,305 0.87% $12,789 0.15% $11,619
3/31/91 $12,347 0.04% $12,795 0.15% $11,637
4/30/91 $12,505 1.34% $12,966 0.15% $11,654
5/31/91 $12,605 0.89% $13,081 0.30% $11,689
6/30/91 $12,601 -0.10% $13,068 0.29% $11,723
7/31/91 $12,798 1.22% $13,228 0.15% $11,741
8/31/91 $12,924 1.32% $13,402 0.29% $11,775
9/30/91 $13,110 1.30% $13,577 0.44% $11,827
10/31/91 $13,166 0.90% $13,699 0.15% $11,844
11/30/91 $13,234 0.28% $13,737 0.29% $11,879
12/31/91 $13,461 2.15% $14,033 0.07% $11,887
1/31/92 $13,495 0.23% $14,065 0.15% $11,905
2/29/92 $13,493 0.03% $14,069 0.36% $11,948
3/31/92 $13,528 0.04% $14,075 0.51% $12,009
4/30/92 $13,637 0.89% $14,200 0.14% $12,025
5/31/92 $13,809 1.18% $14,367 0.14% $12,042
6/30/92 $13,983 1.68% $14,609 0.36% $12,086
7/31/92 $14,500 3.00% $15,047 0.21% $12,111
8/31/92 $14,319 -0.98% $14,900 0.28% $12,145
9/30/92 $14,342 0.65% $14,996 0.28% $12,179
10/31/92 $14,121 -0.98% $14,850 0.35% $12,222
11/30/92 $14,415 1.79% $15,115 0.14% $12,239
12/31/92 $14,646 1.02% $15,270 -0.07% $12,230
1/31/93 $14,814 1.16% $15,447 0.49% $12,290
2/28/93 $15,244 3.62% $16,006 0.35% $12,333
3/31/93 $15,162 -1.06% $15,836 0.35% $12,376
4/30/93 $15,265 1.01% $15,996 0.28% $12,411
5/31/93 $15,329 0.56% $16,086 0.14% $12,428
6/30/93 $15,621 1.67% $16,354 0.14% $12,446
7/31/93 $15,642 0.13% $16,376 0.00% $12,446
8/31/93 $15,880 2.08% $16,716 0.28% $12,480
9/30/93 $16,038 1.14% $16,907 0.21% $12,507
10/31/93 $16,059 0.19% $16,939 0.41% $12,558
11/30/93 $16,026 -0.88% $16,790 0.07% $12,567
12/31/93 $16,278 2.11% $17,144 0.00% $12,567
1/31/94 $16,407 1.14% $17,339 0.27% $12,601
2/28/94 $16,133 -2.59% $16,890 0.34% $12,644
3/31/94 $15,550 -4.07% $16,203 0.34% $12,687
4/30/94 $15,568 0.85% $16,341 0.14% $12,704
5/31/94 $15,699 0.87% $16,483 0.07% $12,713
6/30/94 $15,632 -0.61% $16,382 0.34% $12,756
7/31/94 $15,892 1.83% $16,682 0.27% $12,791
8/31/94 $15,940 0.35% $16,740 0.40% $12,842
9/30/94 $15,800 -1.47% $16,494 0.27% $12,877
10/31/94 $15,559 -1.78% $16,201 0.07% $12,886
11/30/94 $15,201 -1.81% $15,908 0.13% $12,902
12/31/94 $15,499 2.20% $16,258 0.00% $12,902
1/31/95 $15,945 2.86% $16,723 0.40% $12,954
2/28/95 $16,319 2.91% $17,209 0.40% $13,006
3/31/95 $16,399 1.15% $17,407 0.33% $13,049
4/30/95 $16,449 0.12% $17,428 0.33% $13,092
5/31/95 $16,844 3.19% $17,984 0.20% $13,118
6/30/95 $16,729 -0.87% $17,827 0.20% $13,144
7/31/95 $16,841 0.95% $17,997 0.00% $13,144
8/31/95 $17,000 1.27% $18,225 0.26% $13,178
9/30/95 $17,128 0.63% $18,340 0.20% $13,205
10/31/95 $17,348 1.45% $18,606 0.33% $13,248
11/30/95 $17,601 1.66% $18,915 -0.07% $13,239
12/31/95 $17,762 0.96% $19,097 -0.07% $13,230
1/31/96 $17,831 0.76% $19,242 0.59% $13,308
2/29/96 $17,743 -0.68% $19,111 0.32% $13,350
3/31/96 $17,592 -1.28% $18,866 0.52% $13,420
4/30/96 $17,567 -0.28% $18,813 0.39% $13,472
5/31/96 $17,620 -0.04% $18,806 0.19% $13,498
6/30/96 $17,802 1.09% $19,011 0.06% $13,506
7/31/96 $17,937 0.91% $19,184 0.19% $13,532
8/31/96 $17,991 -0.02% $19,180 0.19% $13,557
9/30/96 $18,207 1.40% $19,449 0.32% $13,601
10/31/96 $18,376 1.13% $19,668 0.32% $13,644
11/30/96 $18,660 1.83% $20,028 0.19% $13,670
12/31/96 $18,618 -0.42% $19,944 0.00% $13,670
1/31/97 $18,641 0.19% $19,982 0.32% $13,714
2/28/97 $18,796 0.92% $20,166 0.31% $13,756
3/31/97 $18,636 -1.33% $19,898 0.25% $13,791
4/30/97 $18,760 0.84% $20,065 0.12% $13,807
5/31/97 $18,968 1.51% $20,368 -0.06% $13,799
6/30/97 $19,177 1.07% $20,586 0.12% $13,816
7/31/97 $19,607 2.77% $21,156 0.12% $13,832
8/31/97 $19,494 -0.94% $20,957 0.19% $13,858
9/30/97 $19,722 1.19% $21,206 0.25% $13,893
10/31/97 $19,848 0.64% $21,342 0.25% $13,928
11/30/97 $19,974 0.59% $21,468 -0.06% $13,919
12/31/97 $20,256 1.46% $21,781 -0.12% $13,903
1/31/98 $20,401 1.03% $22,006 0.19% $13,929
2/28/98 $20,388 0.03% $22,012 0.19% $13,956
Total 103.88% 120.12% 39.56%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (35)
This chart shows in bar format the comparison between Franklin Louisiana
Tax-Free Income Fund's Class II distribution rate of 4.73% and the taxable
equivalent rate of 8.33% on 2/28/98.
GRAPHIC MATERIAL (36)
This chart shows the dividend distributions for Franklin Louisiana Tax-Free
Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.74 cents
April 4.88 cents
May 4.88 cents
June 4.88 cents
July 4.96 cents
August 4.96 cents
September 4.79 cents
October 4.79 cents
November 4.79 cents
December 4.79 cents
January 4.75 cents
February 4.75 cents
Total 57.96 cents
GRAPHIC MATERIAL (37)
The following line graph compares the performance of the Franklin Louisiana
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Louisiana Lehman Brothers Municipal CPI
Tax-Free Income Bond Index
Fund-Class II
- --------------------------------------------------------------------------------
5/1/95 $9,901 $10,000 $10,000
5/31/95 $10,131 3.19% $10,319 0.20% $10,020
6/30/95 $10,066 -0.87% $10,229 0.20% $10,040
7/31/95 $10,146 0.95% $10,326 0.00% $10,040
8/31/95 $10,236 1.27% $10,458 0.26% $10,066
9/29/95 $10,298 0.63% $10,523 0.20% $10,086
10/31/95 $10,434 1.45% $10,676 0.33% $10,120
11/30/95 $10,580 1.66% $10,853 -0.07% $10,112
12/29/95 $10,680 0.96% $10,957 -0.07% $10,105
1/31/96 $10,715 0.76% $11,041 0.59% $10,165
2/29/96 $10,657 -0.68% $10,966 0.32% $10,198
3/29/96 $10,553 -1.28% $10,825 0.52% $10,251
4/30/96 $10,542 -0.28% $10,795 0.39% $10,291
5/31/96 $10,569 -0.04% $10,791 0.19% $10,310
6/28/96 $10,663 1.09% $10,908 0.06% $10,316
7/31/96 $10,748 0.91% $11,008 0.19% $10,336
8/30/96 $10,775 -0.02% $11,005 0.19% $10,356
9/30/96 $10,900 1.40% $11,159 0.32% $10,389
10/31/96 $10,994 1.13% $11,286 0.32% $10,422
11/29/96 $11,157 1.83% $11,492 0.19% $10,442
12/31/96 $11,125 -0.42% $11,444 0.00% $10,442
1/31/97 $11,143 0.19% $11,466 0.32% $10,475
2/28/97 $11,219 0.92% $11,571 0.31% $10,508
3/31/97 $11,127 -1.33% $11,417 0.25% $10,534
4/30/97 $11,196 0.84% $11,513 0.12% $10,547
5/31/97 $11,324 1.51% $11,687 -0.06% $10,540
6/30/97 $11,432 1.07% $11,812 0.12% $10,553
7/31/97 $11,693 2.77% $12,139 0.12% $10,565
8/31/97 $11,622 -0.94% $12,025 0.19% $10,586
9/30/97 $11,741 1.19% $12,168 0.25% $10,612
10/31/97 $11,811 0.64% $12,246 0.25% $10,639
11/30/97 $11,880 0.59% $12,318 -0.06% $10,632
12/31/97 $12,042 1.46% $12,498 -0.12% $10,619
1/31/98 $12,122 1.03% $12,627 0.19% $10,640
2/28/98 $12,119 0.03% $12,631 0.19% $10,660
Total 21.19% 26.31% 6.60%
Return
- --------------------------------------------------------------------------------
<PAGE>
GRAPHIC MATERIAL (38)
This chart shows in pie format the credit quality breakdown of the Franklin
Maryland Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 49.6%
AA 15.6%
A 27.4%
BBB 7.4%
GRAPHIC MATERIAL (39)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Maryland Tax-Free
Income Fund.
Housing 20.9%
Utilities 20.0%
Hospitals 12.9%
Other Revenue 12.0%
General Obligation 11.4%
Prerefunded 6.9%
Education 6.5%
Certificates of Participation 5.8%
Transportation 3.6%
GRAPHIC MATERIAL (40)
This chart shows in bar format the comparison between Franklin Maryland
Tax-Free Income Fund's Class I distribution rate of 4.84% and the taxable
equivalent rate of 8.66% on 2/28/98.
GRAPHIC MATERIAL (41)
This chart shows the dividend distributions for Franklin Maryland Tax-Free
Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
September 5.0 cents
October 5.0 cents
November 5.0 cents
December 4.9 cents
January 4.9 cents
February 4.9 cents
Total 60.3 cents
GRAPHIC MATERIAL (42)
The following line graph compares the performance of the Franklin Maryland
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 10/3/88 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Maryland Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class I Index
- --------------------------------------------------------------------------------
10/3/88 9,579 10,000 10,000
10/31/88 9,588 1.76% 10,176 0.33% 10,033
11/30/88 9,521 -0.92% 10,082 0.08% 10,041
12/30/88 9,617 1.02% 10,185 0.17% 10,058
1/31/89 9,761 2.07% 10,396 0.50% 10,108
2/28/89 9,699 -1.14% 10,278 0.41% 10,150
3/31/89 9,686 -0.24% 10,253 0.58% 10,209
4/28/89 9,905 2.37% 10,496 0.65% 10,275
5/31/89 10,106 2.08% 10,714 0.57% 10,334
6/30/89 10,239 1.36% 10,860 0.24% 10,358
7/31/89 10,334 1.36% 11,008 0.24% 10,383
8/31/89 10,261 -0.98% 10,900 0.16% 10,400
9/29/89 10,217 -0.30% 10,867 0.32% 10,433
10/31/89 10,303 1.22% 11,000 0.48% 10,483
11/30/89 10,460 1.75% 11,192 0.24% 10,508
12/29/89 10,557 0.82% 11,284 0.16% 10,525
1/31/90 10,482 -0.47% 11,231 1.03% 10,634
2/28/90 10,601 0.89% 11,331 0.47% 10,684
3/30/90 10,555 0.03% 11,334 0.55% 10,742
4/30/90 10,483 -0.72% 11,253 0.16% 10,760
5/31/90 10,722 2.18% 11,498 0.23% 10,784
6/29/90 10,848 0.88% 11,599 0.54% 10,843
7/31/90 11,006 1.48% 11,771 0.38% 10,884
8/31/90 10,741 -1.45% 11,600 0.92% 10,984
9/28/90 10,731 0.06% 11,607 0.84% 11,076
10/31/90 10,892 1.81% 11,817 0.60% 11,143
11/30/90 11,140 2.01% 12,055 0.22% 11,167
12/31/90 11,129 0.44% 12,108 0.00% 11,167
1/31/91 11,347 1.34% 12,270 0.60% 11,234
2/28/91 11,435 0.87% 12,377 0.15% 11,251
3/29/91 11,479 0.04% 12,382 0.15% 11,268
4/30/91 11,624 1.34% 12,548 0.15% 11,285
5/31/91 11,691 0.89% 12,659 0.30% 11,319
6/28/91 11,702 -0.10% 12,647 0.29% 11,351
7/31/91 11,838 1.22% 12,801 0.15% 11,368
8/30/91 11,952 1.32% 12,970 0.29% 11,401
9/30/91 12,123 1.30% 13,138 0.44% 11,452
10/31/91 12,192 0.90% 13,257 0.15% 11,469
11/29/91 12,227 0.28% 13,294 0.29% 11,502
12/31/91 12,471 2.15% 13,580 0.07% 11,510
1/31/92 12,512 0.23% 13,611 0.15% 11,527
2/28/92 12,506 0.03% 13,615 0.36% 11,569
3/31/92 12,524 0.04% 13,620 0.51% 11,628
4/30/92 12,636 0.89% 13,742 0.14% 11,644
5/29/92 12,809 1.18% 13,904 0.14% 11,660
6/30/92 12,971 1.68% 14,137 0.36% 11,702
7/31/92 13,375 3.00% 14,561 0.21% 11,727
8/31/92 13,236 -0.98% 14,419 0.28% 11,760
9/30/92 13,266 0.65% 14,512 0.28% 11,793
10/30/92 13,052 -0.98% 14,370 0.35% 11,834
11/30/92 13,353 1.79% 14,627 0.14% 11,851
12/31/92 13,557 1.02% 14,777 -0.07% 11,842
1/29/93 13,725 1.16% 14,948 0.49% 11,900
2/26/93 14,131 3.62% 15,489 0.35% 11,942
3/31/93 14,061 -1.06% 15,325 0.35% 11,984
4/30/93 14,181 1.01% 15,480 0.28% 12,017
5/31/93 14,238 0.56% 15,566 0.14% 12,034
6/30/93 14,499 1.67% 15,826 0.14% 12,051
7/30/93 14,541 0.13% 15,847 0.00% 12,051
8/31/93 14,776 2.08% 16,177 0.28% 12,085
9/30/93 14,858 1.14% 16,361 0.21% 12,110
10/29/93 14,926 0.19% 16,392 0.41% 12,160
11/30/93 14,878 -0.88% 16,248 0.07% 12,168
12/31/93 15,207 2.11% 16,591 0.00% 12,168
1/31/94 15,340 1.14% 16,780 0.27% 12,201
2/28/94 15,064 -2.59% 16,345 0.34% 12,243
3/31/94 14,480 -4.07% 15,680 0.34% 12,284
4/29/94 14,494 0.85% 15,813 0.14% 12,301
5/31/94 14,630 0.87% 15,951 0.07% 12,310
6/30/94 14,563 -0.61% 15,854 0.34% 12,352
7/29/94 14,821 1.83% 16,144 0.27% 12,385
8/31/94 14,877 0.35% 16,200 0.40% 12,435
9/30/94 14,688 -1.47% 15,962 0.27% 12,468
10/31/94 14,400 -1.78% 15,678 0.07% 12,477
11/30/94 14,058 -1.81% 15,394 0.13% 12,493
12/30/94 14,435 2.20% 15,733 0.00% 12,493
1/31/95 14,884 2.86% 16,183 0.40% 12,543
2/28/95 15,334 2.91% 16,654 0.40% 12,593
3/31/95 15,478 1.15% 16,845 0.33% 12,635
4/28/95 15,494 0.12% 16,865 0.33% 12,677
5/31/95 15,908 3.19% 17,403 0.20% 12,702
6/30/95 15,782 -0.87% 17,252 0.20% 12,727
7/31/95 16,000 0.95% 17,416 0.00% 12,727
8/31/95 16,190 1.27% 17,637 0.26% 12,761
9/29/95 16,323 0.63% 17,748 0.20% 12,786
10/31/95 16,515 1.45% 18,006 0.33% 12,828
11/30/95 16,766 1.66% 18,304 -0.07% 12,819
12/29/95 16,931 0.96% 18,480 -0.07% 12,810
1/31/96 16,993 0.76% 18,621 0.59% 12,886
2/29/96 16,892 -0.68% 18,494 0.32% 12,927
3/29/96 16,702 -1.28% 18,257 0.52% 12,994
4/30/96 16,690 -0.28% 18,206 0.39% 13,045
5/31/96 16,692 -0.04% 18,199 0.19% 13,070
6/28/96 16,861 1.09% 18,397 0.06% 13,078
7/31/96 17,001 0.91% 18,565 0.19% 13,103
8/30/96 16,987 -0.02% 18,561 0.19% 13,127
9/30/96 17,235 1.40% 18,821 0.32% 13,169
10/31/96 17,392 1.13% 19,033 0.32% 13,212
11/29/96 17,673 1.83% 19,382 0.19% 13,237
12/31/96 17,598 -0.42% 19,300 0.00% 13,237
1/31/97 17,617 0.19% 19,337 0.32% 13,279
2/28/97 17,776 0.92% 19,515 0.31% 13,320
3/31/97 17,559 -1.33% 19,255 0.25% 13,353
4/30/97 17,705 0.84% 19,417 0.12% 13,370
5/31/97 17,930 1.51% 19,710 -0.06% 13,361
6/30/97 18,104 1.07% 19,921 0.12% 13,378
7/31/97 18,552 2.77% 20,473 0.12% 13,394
8/31/97 18,423 -0.94% 20,281 0.19% 13,419
9/30/97 18,633 1.19% 20,522 0.25% 13,453
10/31/97 18,731 0.64% 20,653 0.25% 13,486
11/30/97 18,861 0.59% 20,775 -0.06% 13,478
12/31/97 19,104 1.46% 21,078 -0.12% 13,462
1/31/98 19,250 1.03% 21,296 0.19% 13,488
2/28/98 19,248 0.03% 21,302 0.19% 13,513
Total 92.48% 113.02% 35.13%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (43)
This chart shows in bar format the comparison between Franklin Maryland
Tax-Free Income Fund's Class II distribution rate of 4.41% and the taxable
equivalent rate of 7.89% on 2/28/98.
GRAPHIC MATERIAL (44)
This chart shows the dividend distributions for Franklin Maryland Tax-Free
Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.57 cents
April 4.67 cents
May 4.67 cents
June 4.47 cents
July 4.48 cents
August 4.48 cents
September 4.45 cents
October 4.45 cents
November 4.45 cents
December 4.35 cents
January 4.35 cents
February 4.35 cents
Total 53.74 cents
GRAPHIC MATERIAL (45)
The following line graph compares the performance of the Franklin Maryland
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Maryland Lehman Brothers Municipal CPI
Tax-Free Income Bond Index
Fund-Class II
- --------------------------------------------------------------------------------
5/1/95 $9,900 $10,000 $10,000
5/31/95 $10,167 3.19% $10,319 0.20% $10,020
6/30/95 $10,081 -0.87% $10,229 0.20% $10,040
7/31/95 $10,224 0.95% $10,326 0.00% $10,040
8/31/95 $10,340 1.27% $10,458 0.26% $10,066
9/29/95 $10,409 0.63% $10,523 0.20% $10,086
10/31/95 $10,544 1.45% $10,676 0.33% $10,120
11/30/95 $10,699 1.66% $10,853 -0.07% $10,112
12/29/95 $10,798 0.96% $10,957 -0.07% $10,105
1/31/96 $10,841 0.76% $11,041 0.59% $10,165
2/29/96 $10,781 -0.68% $10,966 0.32% $10,198
3/29/96 $10,669 -1.28% $10,825 0.52% $10,251
4/30/96 $10,647 -0.28% $10,795 0.39% $10,291
5/31/96 $10,652 -0.04% $10,791 0.19% $10,310
6/28/96 $10,745 1.09% $10,908 0.06% $10,316
7/31/96 $10,828 0.91% $11,008 0.19% $10,336
8/30/96 $10,823 -0.02% $11,005 0.19% $10,356
9/30/96 $10,965 1.40% $11,159 0.32% $10,389
10/31/96 $11,069 1.13% $11,286 0.32% $10,422
11/29/96 $11,231 1.83% $11,492 0.19% $10,442
12/31/96 $11,189 -0.42% $11,444 0.00% $10,442
1/31/97 $11,195 0.19% $11,466 0.32% $10,475
2/28/97 $11,290 0.92% $11,571 0.31% $10,508
3/31/97 $11,147 -1.33% $11,417 0.25% $10,534
4/30/97 $11,233 0.84% $11,513 0.12% $10,547
5/31/97 $11,380 1.51% $11,687 -0.06% $10,540
6/30/97 $11,485 1.07% $11,812 0.12% $10,553
7/31/97 $11,761 2.77% $12,139 0.12% $10,565
8/31/97 $11,675 -0.94% $12,025 0.19% $10,586
9/30/97 $11,801 1.19% $12,168 0.25% $10,612
10/31/97 $11,857 0.64% $12,246 0.25% $10,639
11/30/97 $11,934 0.59% $12,318 -0.06% $10,632
12/31/97 $12,091 1.46% $12,498 -0.12% $10,619
1/31/98 $12,167 1.03% $12,627 0.19% $10,640
2/28/98 $12,160 0.03% $12,631 0.19% $10,660
Total 21.60% 26.31% 6.60%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (46)
This chart shows in pie format the credit quality breakdown of the Franklin
Missouri Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 63.5%
AA 13.4%
A 5.0%
BBB 18.1%
GRAPHIC MATERIAL (47)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Missouri Tax-Free
Income Fund.
Certificates of Participation 16.2%
Prerefunded 15.6%
Hospitals 12.0%
Transportation 11.8%
Other Revenue 10.5%
Housing 9.4%
Utilities 9.1%
Education 5.8%
Health Care 4.9%
General Obligation 1.9%
Industrial 1.6%
Tax Allocation Bonds 1.2%
GRAPHIC MATERIAL (48)
This chart shows in bar format the comparison between Franklin Missouri
Tax-Free Income Fund's Class I distribution rate of 4.89% and the taxable
equivalent rate of 8.61% on 2/28/98.
GRAPHIC MATERIAL (49)
This chart shows the dividend distributions for Franklin Missouri Tax-Free
Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
September 5.4 cents
October 5.4 cents
November 5.4 cents
December 5.2 cents
January 5.2 cents
February 5.2 cents
Total 64.2 cents
GRAPHIC MATERIAL (50)
The following line graph compares the performance of the Franklin Missouri
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Missouri Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class I Index
- --------------------------------------------------------------------------------
3/1/88 $9,574 $10,000 $10,000
3/31/88 $9,395 -1.16% $9,884 0.43% $10,043
4/30/88 $9,447 0.76% $9,959 0.52% $10,095
5/31/88 $9,491 -0.29% $9,930 0.34% $10,130
6/30/88 $9,666 1.46% $10,075 0.43% $10,173
7/31/88 $9,709 0.65% $10,141 0.42% $10,216
8/31/88 $9,777 0.09% $10,150 0.42% $10,259
9/30/88 $9,970 1.81% $10,334 0.67% $10,327
10/31/88 $10,202 1.76% $10,515 0.33% $10,362
11/30/88 $10,116 -0.92% $10,419 0.08% $10,370
12/31/88 $10,234 1.02% $10,525 0.17% $10,387
1/31/89 $10,431 2.07% $10,743 0.50% $10,439
2/28/89 $10,344 -1.14% $10,620 0.41% $10,482
3/31/89 $10,335 -0.24% $10,595 0.58% $10,543
4/30/89 $10,555 2.37% $10,846 0.65% $10,612
5/31/89 $10,787 2.08% $11,072 0.57% $10,672
6/30/89 $10,909 1.36% $11,222 0.24% $10,698
7/31/89 $11,002 1.36% $11,375 0.24% $10,723
8/31/89 $10,942 -0.98% $11,263 0.16% $10,740
9/30/89 $10,882 -0.30% $11,229 0.32% $10,775
10/31/89 $10,977 1.22% $11,366 0.48% $10,827
11/30/89 $11,135 1.75% $11,565 0.24% $10,853
12/31/89 $11,231 0.82% $11,660 0.16% $10,870
1/31/90 $11,149 -0.47% $11,605 1.03% $10,982
2/28/90 $11,299 0.89% $11,709 0.47% $11,033
3/31/90 $11,291 0.03% $11,712 0.55% $11,094
4/30/90 $11,239 -0.72% $11,628 0.16% $11,112
5/31/90 $11,489 2.18% $11,881 0.23% $11,137
6/30/90 $11,599 0.88% $11,986 0.54% $11,198
7/31/90 $11,776 1.48% $12,163 0.38% $11,240
8/31/90 $11,548 -1.45% $11,987 0.92% $11,344
9/30/90 $11,517 0.06% $11,994 0.84% $11,439
10/31/90 $11,708 1.81% $12,211 0.60% $11,507
11/30/90 $11,977 2.01% $12,457 0.22% $11,533
12/31/90 $11,980 0.44% $12,512 0.00% $11,533
1/31/91 $12,163 1.34% $12,679 0.60% $11,602
2/28/91 $12,233 0.87% $12,789 0.15% $11,619
3/31/91 $12,292 0.04% $12,795 0.15% $11,637
4/30/91 $12,467 1.34% $12,966 0.15% $11,654
5/31/91 $12,550 0.89% $13,081 0.30% $11,689
6/30/91 $12,529 -0.10% $13,068 0.29% $11,723
7/31/91 $12,730 1.22% $13,228 0.15% $11,741
8/31/91 $12,838 1.32% $13,402 0.29% $11,775
9/30/91 $13,017 1.30% $13,577 0.44% $11,827
10/31/91 $13,103 0.90% $13,699 0.15% $11,844
11/30/91 $13,165 0.28% $13,737 0.29% $11,879
12/31/91 $13,414 2.15% $14,033 0.07% $11,887
1/31/92 $13,446 0.23% $14,065 0.15% $11,905
2/29/92 $13,479 0.03% $14,069 0.36% $11,948
3/31/92 $13,512 0.04% $14,075 0.51% $12,009
4/30/92 $13,631 0.89% $14,200 0.14% $12,025
5/31/92 $13,787 1.18% $14,367 0.14% $12,042
6/30/92 $13,944 1.68% $14,609 0.36% $12,086
7/31/92 $14,426 3.00% $15,047 0.21% $12,111
8/31/92 $14,247 -0.98% $14,900 0.28% $12,145
9/30/92 $14,294 0.65% $14,996 0.28% $12,179
10/31/92 $14,037 -0.98% $14,850 0.35% $12,222
11/30/92 $14,376 1.79% $15,115 0.14% $12,239
12/31/92 $14,601 1.02% $15,270 -0.07% $12,230
1/31/93 $14,777 1.16% $15,447 0.49% $12,290
2/28/93 $15,198 3.62% $16,006 0.35% $12,333
3/31/93 $15,155 -1.06% $15,836 0.35% $12,376
4/30/93 $15,255 1.01% $15,996 0.28% $12,411
5/31/93 $15,343 0.56% $16,086 0.14% $12,428
6/30/93 $15,615 1.67% $16,354 0.14% $12,446
7/31/93 $15,690 0.13% $16,376 0.00% $12,446
8/31/93 $15,991 2.08% $16,716 0.28% $12,480
9/30/93 $16,211 1.14% $16,907 0.21% $12,507
10/31/93 $16,244 0.19% $16,939 0.41% $12,558
11/30/93 $16,157 -0.88% $16,790 0.07% $12,567
12/31/93 $16,542 2.11% $17,144 0.00% $12,567
1/31/94 $16,698 1.14% $17,339 0.27% $12,601
2/28/94 $16,337 -2.59% $16,890 0.34% $12,644
3/31/94 $15,740 -4.07% $16,203 0.34% $12,687
4/30/94 $15,788 0.85% $16,341 0.14% $12,704
5/31/94 $15,919 0.87% $16,483 0.07% $12,713
6/30/94 $15,856 -0.61% $16,382 0.34% $12,756
7/31/94 $16,100 1.83% $16,682 0.27% $12,791
8/31/94 $16,164 0.35% $16,740 0.40% $12,842
9/30/94 $15,942 -1.47% $16,494 0.27% $12,877
10/31/94 $15,677 -1.78% $16,201 0.07% $12,886
11/30/94 $15,369 -1.81% $15,908 0.13% $12,902
12/31/94 $15,702 2.20% $16,258 0.00% $12,902
1/31/95 $16,153 2.86% $16,723 0.40% $12,954
2/28/95 $16,575 2.91% $17,209 0.40% $13,006
3/31/95 $16,710 1.15% $17,407 0.33% $13,049
4/30/95 $16,772 0.12% $17,428 0.33% $13,092
5/31/95 $17,216 3.19% $17,984 0.20% $13,118
6/30/95 $17,117 -0.87% $17,827 0.20% $13,144
7/31/95 $17,210 0.95% $17,997 0.00% $13,144
8/31/95 $17,393 1.27% $18,225 0.26% $13,178
9/30/95 $17,472 0.63% $18,340 0.20% $13,205
10/31/95 $17,686 1.45% $18,606 0.33% $13,248
11/30/95 $17,963 1.66% $18,915 -0.07% $13,239
12/31/95 $18,166 0.96% $19,097 -0.07% $13,230
1/31/96 $18,339 0.76% $19,242 0.59% $13,308
2/29/96 $18,269 -0.68% $19,111 0.32% $13,350
3/31/96 $18,045 -1.28% $18,866 0.52% $13,420
4/30/96 $18,005 -0.28% $18,813 0.39% $13,472
5/31/96 $17,995 -0.04% $18,806 0.19% $13,498
6/30/96 $18,188 1.09% $19,011 0.06% $13,506
7/31/96 $18,319 0.91% $19,184 0.19% $13,532
8/31/96 $18,356 -0.02% $19,180 0.19% $13,557
9/30/96 $18,615 1.40% $19,449 0.32% $13,601
10/31/96 $18,795 1.13% $19,668 0.32% $13,644
11/30/96 $19,072 1.83% $20,028 0.19% $13,670
12/31/96 $19,018 -0.42% $19,944 0.00% $13,670
1/31/97 $19,040 0.19% $19,982 0.32% $13,714
2/28/97 $19,192 0.92% $20,166 0.31% $13,756
3/31/97 $19,003 -1.33% $19,898 0.25% $13,791
4/30/97 $19,206 0.84% $20,065 0.12% $13,807
5/31/97 $19,442 1.51% $20,368 -0.06% $13,799
6/30/97 $19,626 1.07% $20,586 0.12% $13,816
7/31/97 $20,096 2.77% $21,156 0.12% $13,832
8/31/97 $19,953 -0.94% $20,957 0.19% $13,858
9/30/97 $20,210 1.19% $21,206 0.25% $13,893
10/31/97 $20,318 0.64% $21,342 0.25% $13,928
11/30/97 $20,459 0.59% $21,468 -0.06% $13,919
12/31/97 $20,757 1.46% $21,781 -0.12% $13,903
1/31/98 $20,914 1.03% $22,006 0.19% $13,929
2/28/98 $21,003 0.03% $22,012 0.19% $13,956
Total 110.03% 120.12% 39.56%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (51)
This chart shows in bar format the comparison between Franklin Missouri
Tax-Free Income Fund's Class II distribution rate of 4.48% and the taxable
equivalent rate of 7.89% on 2/28/98.
GRAPHIC MATERIAL (52)
This chart shows the dividend distributions for Franklin Missouri Tax-Free
Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.47 cents
April 4.83 cents
May 4.83 cents
June 4.83 cents
July 4.85 cents
August 4.85 cents
September 4.83 cents
October 4.83 cents
November 4.83 cents
December 4.63 cents
January 4.63 cents
February 4.63 cents
Total 57.04 cents
GRAPHIC MATERIAL (53)
The following line graph compares the performance of the Franklin Missouri
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Missouri Lehman Brothers Municipal CPI
Tax-Free Income Bond Index
Fund-Class II
- --------------------------------------------------------------------------------
5/1/95 $9,896 $10,000 $10,000
5/31/95 $10,160 3.19% $10,319 0.20% $10,020
6/30/95 $10,096 -0.87% $10,229 0.20% $10,040
7/31/95 $10,146 0.95% $10,326 0.00% $10,040
8/31/95 $10,249 1.27% $10,458 0.26% $10,066
9/29/95 $10,298 0.63% $10,523 0.20% $10,086
10/31/95 $10,419 1.45% $10,676 0.33% $10,120
11/30/95 $10,576 1.66% $10,853 -0.07% $10,112
12/29/95 $10,690 0.96% $10,957 -0.07% $10,105
1/31/96 $10,787 0.76% $11,041 0.59% $10,165
2/29/96 $10,740 -0.68% $10,966 0.32% $10,198
3/29/96 $10,597 -1.28% $10,825 0.52% $10,251
4/30/96 $10,577 -0.28% $10,795 0.39% $10,291
5/31/96 $10,566 -0.04% $10,791 0.19% $10,310
6/28/96 $10,674 1.09% $10,908 0.06% $10,316
7/31/96 $10,746 0.91% $11,008 0.19% $10,336
8/30/96 $10,763 -0.02% $11,005 0.19% $10,356
9/30/96 $10,900 1.40% $11,159 0.32% $10,389
10/31/96 $11,009 1.13% $11,286 0.32% $10,422
11/29/96 $11,165 1.83% $11,492 0.19% $10,442
12/31/96 $11,109 -0.42% $11,444 0.00% $10,442
1/31/97 $11,116 0.19% $11,466 0.32% $10,475
2/28/97 $11,208 0.92% $11,571 0.31% $10,508
3/31/97 $11,099 -1.33% $11,417 0.25% $10,534
4/30/97 $11,212 0.84% $11,513 0.12% $10,547
5/31/97 $11,344 1.51% $11,687 -0.06% $10,540
6/30/97 $11,446 1.07% $11,812 0.12% $10,553
7/31/97 $11,723 2.77% $12,139 0.12% $10,565
8/31/97 $11,635 -0.94% $12,025 0.19% $10,586
9/30/97 $11,779 1.19% $12,168 0.25% $10,612
10/31/97 $11,836 0.64% $12,246 0.25% $10,639
11/30/97 $11,912 0.59% $12,318 -0.06% $10,632
12/31/97 $12,079 1.46% $12,498 -0.12% $10,619
1/31/98 $12,165 1.03% $12,627 0.19% $10,640
2/28/98 $12,211 0.03% $12,631 0.19% $10,660
Total 22.11% 26.31% 6.60%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (54)
This chart shows in pie format the credit quality breakdown of the Franklin
North Carolina Tax-Free Income Fund based on total long-term investments as
of 2/28/98.
AAA 45.6%
AA 23.2%
A 17.9%
BBB 12.8%
Below Investment Grade 0.5%
GRAPHIC MATERIAL (55)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin North Carolina
Tax-Free Income Fund.
Utilities 28.3%
Hospitals 14.8%
Housing 14.5%
Certificates of Participation 13.2%
Prerefunded 10.1%
Industrial 5.0%
Other Revenue 4.3%
Education 4.0%
Health Care 2.6%
Tax Allocation Bond 1.2%
Transportation 0.9%
General Obligation 0.6%
Sales Tax Revenue 0.5%
GRAPHIC MATERIAL (56)
This chart shows in bar format the comparison between Franklin North Carolina
Tax-Free Income Fund's Class I distribution rate of 4.84% and the taxable
equivalent rate of 8.69% on 2/28/98.
GRAPHIC MATERIAL (57)
This chart shows the dividend distributions for Franklin North Carolina
Tax-Free Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
September 5.2 cents
October 5.2 cents
November 5.2 cents
December 5.2 cents
January 5.2 cents
February 5.2 cents
Total 62.4 cents
GRAPHIC MATERIAL (58)
The following line graph compares the performance of the Franklin North
Carolina Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin North Carolina Lehman Brothers CPI
Tax-Free Municipal Bond
Income Fund-Class I Index
- --------------------------------------------------------------------------------
3/1/88 $9,579 $10,000 $10,000
3/31/88 $9,376 -1.16% $9,884 0.43% $10,043
4/30/88 $9,403 0.76% $9,959 0.52% $10,095
5/31/88 $9,430 -0.29% $9,930 0.34% $10,130
6/30/88 $9,635 1.46% $10,075 0.43% $10,173
7/31/88 $9,690 0.65% $10,141 0.42% $10,216
8/31/88 $9,747 0.09% $10,150 0.42% $10,259
9/30/88 $9,975 1.81% $10,334 0.67% $10,327
10/31/88 $10,185 1.76% $10,515 0.33% $10,362
11/30/88 $10,080 -0.92% $10,419 0.08% $10,370
12/31/88 $10,226 1.02% $10,525 0.17% $10,387
1/31/89 $10,450 2.07% $10,743 0.50% $10,439
2/28/89 $10,371 -1.14% $10,620 0.41% $10,482
3/31/89 $10,362 -0.24% $10,595 0.58% $10,543
4/30/89 $10,609 2.37% $10,846 0.65% $10,612
5/31/89 $10,828 2.08% $11,072 0.57% $10,672
6/30/89 $10,978 1.36% $11,222 0.24% $10,698
7/31/89 $11,059 1.36% $11,375 0.24% $10,723
8/31/89 $10,988 -0.98% $11,263 0.16% $10,740
9/30/89 $10,917 -0.30% $11,229 0.32% $10,775
10/31/89 $11,009 1.22% $11,366 0.48% $10,827
11/30/89 $11,174 1.75% $11,565 0.24% $10,853
12/31/89 $11,278 0.82% $11,660 0.16% $10,870
1/31/90 $11,205 -0.47% $11,605 1.03% $10,982
2/28/90 $11,341 0.89% $11,709 0.47% $11,033
3/31/90 $11,341 0.03% $11,712 0.55% $11,094
4/30/90 $11,269 -0.72% $11,628 0.16% $11,112
5/31/90 $11,526 2.18% $11,881 0.23% $11,137
6/30/90 $11,649 0.88% $11,986 0.54% $11,198
7/31/90 $11,824 1.48% $12,163 0.38% $11,240
8/31/90 $11,565 -1.45% $11,987 0.92% $11,344
9/30/90 $11,546 0.06% $11,994 0.84% $11,439
10/31/90 $11,713 1.81% $12,211 0.60% $11,507
11/30/90 $11,980 2.01% $12,457 0.22% $11,533
12/31/90 $11,993 0.44% $12,512 0.00% $11,533
1/31/91 $12,174 1.34% $12,679 0.60% $11,602
2/28/91 $12,243 0.87% $12,789 0.15% $11,619
3/31/91 $12,291 0.04% $12,795 0.15% $11,637
4/30/91 $12,452 1.34% $12,966 0.15% $11,654
5/31/91 $12,546 0.89% $13,081 0.30% $11,689
6/30/91 $12,526 -0.10% $13,068 0.29% $11,723
7/31/91 $12,701 1.22% $13,228 0.15% $11,741
8/31/91 $12,820 1.32% $13,402 0.29% $11,775
9/30/91 $12,985 1.30% $13,577 0.44% $11,827
10/31/91 $13,058 0.90% $13,699 0.15% $11,844
11/30/91 $13,108 0.28% $13,737 0.29% $11,879
12/31/91 $13,372 2.15% $14,033 0.07% $11,887
1/31/92 $13,403 0.23% $14,065 0.15% $11,905
2/29/92 $13,398 0.03% $14,069 0.36% $11,948
3/31/92 $13,418 0.04% $14,075 0.51% $12,009
4/30/92 $13,521 0.89% $14,200 0.14% $12,025
5/31/92 $13,675 1.18% $14,367 0.14% $12,042
6/30/92 $13,854 1.68% $14,609 0.36% $12,086
7/31/92 $14,353 3.00% $15,047 0.21% $12,111
8/31/92 $14,188 -0.98% $14,900 0.28% $12,145
9/30/92 $14,233 0.65% $14,996 0.28% $12,179
10/31/92 $14,053 -0.98% $14,850 0.35% $12,222
11/30/92 $14,361 1.79% $15,115 0.14% $12,239
12/31/92 $14,571 1.02% $15,270 -0.07% $12,230
1/31/93 $14,756 1.16% $15,447 0.49% $12,290
2/28/93 $15,183 3.62% $16,006 0.35% $12,333
3/31/93 $15,127 -1.06% $15,836 0.35% $12,376
4/30/93 $15,237 1.01% $15,996 0.28% $12,411
5/31/93 $15,296 0.56% $16,086 0.14% $12,428
6/30/93 $15,537 1.67% $16,354 0.14% $12,446
7/31/93 $15,545 0.13% $16,376 0.00% $12,446
8/31/93 $15,867 2.08% $16,716 0.28% $12,480
9/30/93 $16,043 1.14% $16,907 0.21% $12,507
10/31/93 $16,088 0.19% $16,939 0.41% $12,558
11/30/93 $16,001 -0.88% $16,790 0.07% $12,567
12/31/93 $16,273 2.11% $17,144 0.00% $12,567
1/31/94 $16,426 1.14% $17,339 0.27% $12,601
2/28/94 $16,095 -2.59% $16,890 0.34% $12,644
3/31/94 $15,463 -4.07% $16,203 0.34% $12,687
4/30/94 $15,550 0.85% $16,341 0.14% $12,704
5/31/94 $15,665 0.87% $16,483 0.07% $12,713
6/30/94 $15,546 -0.61% $16,382 0.34% $12,756
7/31/94 $15,827 1.83% $16,682 0.27% $12,791
8/31/94 $15,888 0.35% $16,740 0.40% $12,842
9/30/94 $15,672 -1.47% $16,494 0.27% $12,877
10/31/94 $15,369 -1.78% $16,201 0.07% $12,886
11/30/94 $14,983 -1.81% $15,908 0.13% $12,902
12/31/94 $15,341 2.20% $16,258 0.00% $12,902
1/31/95 $15,815 2.86% $16,723 0.40% $12,954
2/28/95 $16,263 2.91% $17,209 0.40% $13,006
3/31/95 $16,455 1.15% $17,407 0.33% $13,049
4/30/95 $16,474 0.12% $17,428 0.33% $13,092
5/31/95 $16,899 3.19% $17,984 0.20% $13,118
6/30/95 $16,774 -0.87% $17,827 0.20% $13,144
7/31/95 $16,852 0.95% $17,997 0.00% $13,144
8/31/95 $17,020 1.27% $18,225 0.26% $13,178
9/30/95 $17,114 0.63% $18,340 0.20% $13,205
10/31/95 $17,372 1.45% $18,606 0.33% $13,248
11/30/95 $17,646 1.66% $18,915 -0.07% $13,239
12/31/95 $17,816 0.96% $19,097 -0.07% $13,230
1/31/96 $17,897 0.76% $19,242 0.59% $13,308
2/29/96 $17,767 -0.68% $19,111 0.32% $13,350
3/31/96 $17,592 -1.28% $18,866 0.52% $13,420
4/30/96 $17,583 -0.28% $18,813 0.39% $13,472
5/31/96 $17,603 -0.04% $18,806 0.19% $13,498
6/30/96 $17,791 1.09% $19,011 0.06% $13,506
7/31/96 $17,918 0.91% $19,184 0.19% $13,532
8/31/96 $17,920 -0.02% $19,180 0.19% $13,557
9/30/96 $18,157 1.40% $19,449 0.32% $13,601
10/31/96 $18,332 1.13% $19,668 0.32% $13,644
11/30/96 $18,586 1.83% $20,028 0.19% $13,670
12/31/96 $18,542 -0.42% $19,944 0.00% $13,670
1/31/97 $18,561 0.19% $19,982 0.32% $13,714
2/28/97 $18,723 0.92% $20,166 0.31% $13,756
3/31/97 $18,550 -1.33% $19,898 0.25% $13,791
4/30/97 $18,714 0.84% $20,065 0.12% $13,807
5/31/97 $18,927 1.51% $20,368 -0.06% $13,799
6/30/97 $19,124 1.07% $20,586 0.12% $13,816
7/31/97 $19,550 2.77% $21,156 0.12% $13,832
8/31/97 $19,439 -0.94% $20,957 0.19% $13,858
9/30/97 $19,638 1.19% $21,206 0.25% $13,893
10/31/97 $19,774 0.64% $21,342 0.25% $13,928
11/30/97 $19,910 0.59% $21,468 -0.06% $13,919
12/31/97 $20,196 1.46% $21,781 -0.12% $13,903
1/31/98 $20,366 1.03% $22,006 0.19% $13,929
2/28/98 $20,369 0.03% $22,012 0.19% $13,956
Total 103.69% 120.12% 39.56%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (59)
This chart shows in bar format the comparison between Franklin North Carolina
Tax-Free Income Fund's Class II distribution rate of 4.42% and the taxable
equivalent rate of 7.94% on 2/28/98.
GRAPHIC MATERIAL (60)
This chart shows the dividend distributions for Franklin North Carolina
Tax-Free Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.49 cents
April 4.67 cents
May 4.67 cents
June 4.67 cents
July 4.65 cents
August 4.65 cents
September 4.64 cents
October 4.64 cents
November 4.64 cents
December 4.64 cents
January 4.63 cents
February 4.63 cents
Total 55.62 cents
GRAPHIC MATERIAL (61)
The following line graph compares the performance of the Franklin North
Carolina Tax-Free Income Fund's Class II shares to that of the Lehman
Brothers Municipal Bond Index, and to the Consumer Price Index based on a
$10,000 investment from 5/1/95 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin North Carolina Lehman Brothers Municipal CPI
Tax-Free Bond Index
Income Fund-Class II
- --------------------------------------------------------------------------------
5/1/95 $9,896 $10,000 $10,000
5/31/95 $10,144 3.19% $10,319 0.20% $10,020
6/30/95 $10,081 -0.87% $10,229 0.20% $10,040
7/31/95 $10,132 0.95% $10,326 0.00% $10,040
8/31/95 $10,227 1.27% $10,458 0.26% $10,066
9/29/95 $10,287 0.63% $10,523 0.20% $10,086
10/31/95 $10,436 1.45% $10,676 0.33% $10,120
11/30/95 $10,594 1.66% $10,853 -0.07% $10,112
12/29/95 $10,700 0.96% $10,957 -0.07% $10,105
1/31/96 $10,734 0.76% $11,041 0.59% $10,165
2/29/96 $10,651 -0.68% $10,966 0.32% $10,198
3/29/96 $10,543 -1.28% $10,825 0.52% $10,251
4/30/96 $10,532 -0.28% $10,795 0.39% $10,291
5/31/96 $10,540 -0.04% $10,791 0.19% $10,310
6/28/96 $10,656 1.09% $10,908 0.06% $10,316
7/31/96 $10,717 0.91% $11,008 0.19% $10,336
8/30/96 $10,714 -0.02% $11,005 0.19% $10,356
9/30/96 $10,859 1.40% $11,159 0.32% $10,389
10/31/96 $10,949 1.13% $11,286 0.32% $10,422
11/29/96 $11,104 1.83% $11,492 0.19% $10,442
12/31/96 $11,073 -0.42% $11,444 0.00% $10,442
1/31/97 $11,078 0.19% $11,466 0.32% $10,475
2/28/97 $11,168 0.92% $11,571 0.31% $10,508
3/31/97 $11,059 -1.33% $11,417 0.25% $10,534
4/30/97 $11,151 0.84% $11,513 0.12% $10,547
5/31/97 $11,282 1.51% $11,687 -0.06% $10,540
6/30/97 $11,384 1.07% $11,812 0.12% $10,553
7/31/97 $11,641 2.77% $12,139 0.12% $10,565
8/31/97 $11,560 -0.94% $12,025 0.19% $10,586
9/30/97 $11,682 1.19% $12,168 0.25% $10,612
10/31/97 $11,747 0.64% $12,246 0.25% $10,639
11/30/97 $11,832 0.59% $12,318 -0.06% $10,632
12/31/97 $11,985 1.46% $12,498 -0.12% $10,619
1/31/98 $12,090 1.03% $12,627 0.19% $10,640
2/28/98 $12,086 0.03% $12,631 0.19% $10,660
Total 20.86% 26.31% 6.60%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (62)
This chart shows in pie format the credit quality breakdown of the Franklin
Texas Tax-Free Income Fund based on total long-term investments as of 2/28/98.
AAA 62.7%
AA 5.3%
A 8.4%
BBB 23.6%
GRAPHIC MATERIAL (63)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Texas Tax-Free Income
Fund.
Utilities 23.1%
Education 16.2%
Industrial 11.9%
Hospitals 10.1%
Prerefunded 9.5%
Health Care 8.8%
Transportation 7.1%
Housing 6.1%
Other Revenue 5.9%
General Obligation 1.3%
GRAPHIC MATERIAL (64)
This chart shows in bar format the comparison between Franklin Texas Tax-Free
Income Fund's Class I distribution rate of 5.02% and the taxable equivalent
rate of 8.31% on 2/28/98.
GRAPHIC MATERIAL (65)
This chart shows the dividend distributions for Franklin Texas Tax-Free
Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.6 cents
April 5.6 cents
May 5.6 cents
June 5.3 cents
July 5.3 cents
August 5.3 cents
September 5.3 cents
October 5.3 cents
November 5.3 cents
December 5.2 cents
January 5.2 cents
February 5.2 cents
Total 64.2 cents
GRAPHIC MATERIAL (66)
The following line graph compares the performance of the Franklin Texas
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Texas Tax-Free Lehman Brothers CPI
Income Municipal Bond
Fund-Class I Index
- --------------------------------------------------------------------------------
3/1/88 $9,574 $10,000 $10,000
3/31/88 $9,388 -1.16% $9,884 0.43% $10,043
4/30/88 $9,411 0.76% $9,959 0.52% $10,095
5/31/88 $9,462 -0.29% $9,930 0.34% $10,130
6/30/88 $9,624 1.46% $10,075 0.43% $10,173
7/31/88 $9,685 0.65% $10,141 0.42% $10,216
8/31/88 $9,719 0.09% $10,150 0.42% $10,259
9/30/88 $9,943 1.81% $10,334 0.67% $10,327
10/31/88 $10,187 1.76% $10,515 0.33% $10,362
11/30/88 $10,108 -0.92% $10,419 0.08% $10,370
12/31/88 $10,221 1.02% $10,525 0.17% $10,387
1/31/89 $10,411 2.07% $10,743 0.50% $10,439
2/28/89 $10,360 -1.14% $10,620 0.41% $10,482
3/31/89 $10,367 -0.24% $10,595 0.58% $10,543
4/30/89 $10,571 2.37% $10,846 0.65% $10,612
5/31/89 $10,806 2.08% $11,072 0.57% $10,672
6/30/89 $10,942 1.36% $11,222 0.24% $10,698
7/31/89 $11,030 1.36% $11,375 0.24% $10,723
8/31/89 $10,966 -0.98% $11,263 0.16% $10,740
9/30/89 $10,913 -0.30% $11,229 0.32% $10,775
10/31/89 $11,012 1.22% $11,366 0.48% $10,827
11/30/89 $11,184 1.75% $11,565 0.24% $10,853
12/31/89 $11,295 0.82% $11,660 0.16% $10,870
1/31/90 $11,218 -0.47% $11,605 1.03% $10,982
2/28/90 $11,320 0.89% $11,709 0.47% $11,033
3/31/90 $11,306 0.03% $11,712 0.55% $11,094
4/30/90 $11,239 -0.72% $11,628 0.16% $11,112
5/31/90 $11,481 2.18% $11,881 0.23% $11,137
6/30/90 $11,597 0.88% $11,986 0.54% $11,198
7/31/90 $11,789 1.48% $12,163 0.38% $11,240
8/31/90 $11,502 -1.45% $11,987 0.92% $11,344
9/30/90 $11,477 0.06% $11,994 0.84% $11,439
10/31/90 $11,661 1.81% $12,211 0.60% $11,507
11/30/90 $11,946 2.01% $12,457 0.22% $11,533
12/31/90 $11,977 0.44% $12,512 0.00% $11,533
1/31/91 $12,176 1.34% $12,679 0.60% $11,602
2/28/91 $12,240 0.87% $12,789 0.15% $11,619
3/31/91 $12,283 0.04% $12,795 0.15% $11,637
4/30/91 $12,462 1.34% $12,966 0.15% $11,654
5/31/91 $12,563 0.89% $13,081 0.30% $11,689
6/30/91 $12,560 -0.10% $13,068 0.29% $11,723
7/31/91 $12,731 1.22% $13,228 0.15% $11,741
8/31/91 $12,857 1.32% $13,402 0.29% $11,775
9/30/91 $13,042 1.30% $13,577 0.44% $11,827
10/31/91 $13,110 0.90% $13,699 0.15% $11,844
11/30/91 $13,167 0.28% $13,737 0.29% $11,879
12/31/91 $13,430 2.15% $14,033 0.07% $11,887
1/31/92 $13,429 0.23% $14,065 0.15% $11,905
2/29/92 $13,464 0.03% $14,069 0.36% $11,948
3/31/92 $13,500 0.04% $14,075 0.51% $12,009
4/30/92 $13,609 0.89% $14,200 0.14% $12,025
5/31/92 $13,780 1.18% $14,367 0.14% $12,042
6/30/92 $13,965 1.68% $14,609 0.36% $12,086
7/31/92 $14,425 3.00% $15,047 0.21% $12,111
8/31/92 $14,222 -0.98% $14,900 0.28% $12,145
9/30/92 $14,257 0.65% $14,996 0.28% $12,179
10/31/92 $14,039 -0.98% $14,850 0.35% $12,222
11/30/92 $14,342 1.79% $15,115 0.14% $12,239
12/31/92 $14,557 1.02% $15,270 -0.07% $12,230
1/31/93 $14,722 1.16% $15,447 0.49% $12,290
2/28/93 $15,185 3.62% $16,006 0.35% $12,333
3/31/93 $15,078 -1.06% $15,836 0.35% $12,376
4/30/93 $15,166 1.01% $15,996 0.28% $12,411
5/31/93 $15,229 0.56% $16,086 0.14% $12,428
6/30/93 $15,477 1.67% $16,354 0.14% $12,446
7/31/93 $15,500 0.13% $16,376 0.00% $12,446
8/31/93 $15,749 2.08% $16,716 0.28% $12,480
9/30/93 $15,919 1.14% $16,907 0.21% $12,507
10/31/93 $15,955 0.19% $16,939 0.41% $12,558
11/30/93 $16,005 -0.88% $16,790 0.07% $12,567
12/31/93 $16,245 2.11% $17,144 0.00% $12,567
1/31/94 $16,378 1.14% $17,339 0.27% $12,601
2/28/94 $16,141 -2.59% $16,890 0.34% $12,644
3/31/94 $15,681 -4.07% $16,203 0.34% $12,687
4/30/94 $15,757 0.85% $16,341 0.14% $12,704
5/31/94 $15,875 0.87% $16,483 0.07% $12,713
6/30/94 $15,853 -0.61% $16,382 0.34% $12,756
7/31/94 $16,057 1.83% $16,682 0.27% $12,791
8/31/94 $16,107 0.35% $16,740 0.40% $12,842
9/30/94 $15,986 -1.47% $16,494 0.27% $12,877
10/31/94 $15,822 -1.78% $16,201 0.07% $12,886
11/30/94 $15,558 -1.81% $15,908 0.13% $12,902
12/31/94 $15,795 2.20% $16,258 0.00% $12,902
1/31/95 $16,107 2.86% $16,723 0.40% $12,954
2/28/95 $16,434 2.91% $17,209 0.40% $13,006
3/31/95 $16,574 1.15% $17,407 0.33% $13,049
4/30/95 $16,627 0.12% $17,428 0.33% $13,092
5/31/95 $16,990 3.19% $17,984 0.20% $13,118
6/30/95 $16,984 -0.87% $17,827 0.20% $13,144
7/31/95 $17,082 0.95% $17,997 0.00% $13,144
8/31/95 $17,256 1.27% $18,225 0.26% $13,178
9/30/95 $17,386 0.63% $18,340 0.20% $13,205
10/31/95 $17,561 1.45% $18,606 0.33% $13,248
11/30/95 $17,768 1.66% $18,915 -0.07% $13,239
12/31/95 $17,900 0.96% $19,097 -0.07% $13,230
1/31/96 $18,001 0.76% $19,242 0.59% $13,308
2/29/96 $17,949 -0.68% $19,111 0.32% $13,350
3/31/96 $17,865 -1.28% $18,866 0.52% $13,420
4/30/96 $17,874 -0.28% $18,813 0.39% $13,472
5/31/96 $17,915 -0.04% $18,806 0.19% $13,498
6/30/96 $18,082 1.09% $19,011 0.06% $13,506
7/31/96 $18,202 0.91% $19,184 0.19% $13,532
8/31/96 $18,211 -0.02% $19,180 0.19% $13,557
9/30/96 $18,460 1.40% $19,449 0.32% $13,601
10/31/96 $18,614 1.13% $19,668 0.32% $13,644
11/30/96 $18,849 1.83% $20,028 0.19% $13,670
12/31/96 $18,823 -0.42% $19,944 0.00% $13,670
1/31/97 $18,850 0.19% $19,982 0.32% $13,714
2/28/97 $18,992 0.92% $20,166 0.31% $13,756
3/31/97 $18,835 -1.33% $19,898 0.25% $13,791
4/30/97 $18,996 0.84% $20,065 0.12% $13,807
5/31/97 $19,209 1.51% $20,368 -0.06% $13,799
6/30/97 $19,402 1.07% $20,586 0.12% $13,816
7/31/97 $19,834 2.77% $21,156 0.12% $13,832
8/31/97 $19,702 -0.94% $20,957 0.19% $13,858
9/30/97 $19,897 1.19% $21,206 0.25% $13,893
10/31/97 $20,128 0.64% $21,342 0.25% $13,928
11/30/97 $20,255 0.59% $21,468 -0.06% $13,919
12/31/97 $20,538 1.46% $21,781 -0.12% $13,903
1/31/98 $20,682 1.03% $22,006 0.19% $13,929
2/28/98 $20,685 0.03% $22,012 0.19% $13,956
Total 106.85% 120.12% 39.56%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (67)
This chart shows in bar format the comparison between Franklin Texas Tax-Free
Income Fund's Class II distribution rate of 4.55% and the taxable equivalent
rate of 7.53% on 2/28/98.
GRAPHIC MATERIAL (68)
This chart shows the dividend distributions for Franklin Texas Tax-Free
Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.94 cents
April 5.13 cents
May 5.13 cents
June 4.83 cents
July 4.78 cents
August 4.78 cents
September 4.77 cents
October 4.77 cents
November 4.77 cents
December 4.67 cents
January 4.62 cents
February 4.62 cents
Total 57.81 cents
GRAPHIC MATERIAL (69)
The following line graph compares the performance of the Franklin Texas
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Texas Tax-Free Lehman Brothers Municipal CPI
Income Bond Index
Fund-Class II
- --------------------------------------------------------------------------------
5/1/95 $9,903 $10,000 $10,000
5/31/95 $10,120 3.19% $10,319 0.20% $10,020
6/30/95 $10,111 -0.87% $10,229 0.20% $10,040
7/31/95 $10,165 0.95% $10,326 0.00% $10,040
8/31/95 $10,290 1.27% $10,458 0.26% $10,066
9/29/95 $10,361 0.63% $10,523 0.20% $10,086
10/31/95 $10,460 1.45% $10,676 0.33% $10,120
11/30/95 $10,613 1.66% $10,853 -0.07% $10,112
12/29/95 $10,695 0.96% $10,957 -0.07% $10,105
1/31/96 $10,750 0.76% $11,041 0.59% $10,165
2/29/96 $10,704 -0.68% $10,966 0.32% $10,198
3/29/96 $10,660 -1.28% $10,825 0.52% $10,251
4/30/96 $10,660 -0.28% $10,795 0.39% $10,291
5/31/96 $10,679 -0.04% $10,791 0.19% $10,310
6/28/96 $10,782 1.09% $10,908 0.06% $10,316
7/31/96 $10,848 0.91% $11,008 0.19% $10,336
8/30/96 $10,848 -0.02% $11,005 0.19% $10,356
9/30/96 $10,989 1.40% $11,159 0.32% $10,389
10/31/96 $11,077 1.13% $11,286 0.32% $10,422
11/29/96 $11,212 1.83% $11,492 0.19% $10,442
12/31/96 $11,194 -0.42% $11,444 0.00% $10,442
1/31/97 $11,214 0.19% $11,466 0.32% $10,475
2/28/97 $11,292 0.92% $11,571 0.31% $10,508
3/31/97 $11,183 -1.33% $11,417 0.25% $10,534
4/30/97 $11,283 0.84% $11,513 0.12% $10,547
5/31/97 $11,404 1.51% $11,687 -0.06% $10,540
6/30/97 $11,512 1.07% $11,812 0.12% $10,553
7/31/97 $11,761 2.77% $12,139 0.12% $10,565
8/31/97 $11,678 -0.94% $12,025 0.19% $10,586
9/30/97 $11,787 1.19% $12,168 0.25% $10,612
10/31/97 $11,917 0.64% $12,246 0.25% $10,639
11/30/97 $11,986 0.59% $12,318 -0.06% $10,632
12/31/97 $12,157 1.46% $12,498 -0.12% $10,619
1/31/98 $12,235 1.03% $12,627 0.19% $10,640
2/28/98 $12,231 0.03% $12,631 0.19% $10,660
Total 22.31% 26.31% 6.60%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (70)
This chart shows in pie format the credit quality breakdown of the Franklin
Virginia Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 51.1%
AA 27.1%
A 12.6%
BBB 9.2%
GRAPHIC MATERIAL (71)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 2/28/98 for the Franklin Virginia Tax-Free
Income Fund.
Utilities 22.7%
Housing 16.2%
Hospitals 15.3%
Transportation 11.8%
Industrial 10.2%
Prerefunded 9.1%
Education 4.7%
Other Revenue 4.5%
General Obligation 2.4%
Certificates of Participation 1.9%
Health Care 1.2%
GRAPHIC MATERIAL (72)
This chart shows in bar format the comparison between Franklin Virginia
Tax-Free Income Fund's Class I distribution rate of 4.93% and the taxable
equivalent rate of 8.66% on 2/28/98.
GRAPHIC MATERIAL (73)
This chart shows the dividend distributions for Franklin Virginia Tax-Free
Income Fund's Class I from 3/1/97 to 2/28/98.
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.4 cents
July 5.4 cents
August 5.4 cents
September 5.2 cents
October 5.2 cents
November 5.2 cents
December 5.2 cents
January 5.2 cents
February 5.2 cents
Total 63.6 cents
GRAPHIC MATERIAL (74)
The following line graph compares the performance of the Franklin Virginia
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Virginia Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class I Index
- --------------------------------------------------------------------------------
3/1/88 $9,578 $10,000 $10,000
3/31/88 $9,380 -1.16% $9,884 0.43% $10,043
4/30/88 $9,392 0.76% $9,959 0.52% $10,095
5/31/88 $9,432 -0.29% $9,930 0.34% $10,130
6/30/88 $9,603 1.46% $10,075 0.43% $10,173
7/31/88 $9,662 0.65% $10,141 0.42% $10,216
8/31/88 $9,731 0.09% $10,150 0.42% $10,259
9/30/88 $9,915 1.81% $10,334 0.67% $10,327
10/31/88 $10,139 1.76% $10,515 0.33% $10,362
11/30/88 $10,055 -0.92% $10,419 0.08% $10,370
12/31/88 $10,174 1.02% $10,525 0.17% $10,387
1/31/89 $10,363 2.07% $10,743 0.50% $10,439
2/28/89 $10,287 -1.14% $10,620 0.41% $10,482
3/31/89 $10,270 -0.24% $10,595 0.58% $10,543
4/30/89 $10,482 2.37% $10,846 0.65% $10,612
5/31/89 $10,725 2.08% $11,072 0.57% $10,672
6/30/89 $10,869 1.36% $11,222 0.24% $10,698
7/31/89 $10,963 1.36% $11,375 0.24% $10,723
8/31/89 $10,895 -0.98% $11,263 0.16% $10,740
9/30/89 $10,836 -0.30% $11,229 0.32% $10,775
10/31/89 $10,942 1.22% $11,366 0.48% $10,827
11/30/89 $11,101 1.75% $11,565 0.24% $10,853
12/31/89 $11,198 0.82% $11,660 0.16% $10,870
1/31/90 $11,138 -0.47% $11,605 1.03% $10,982
2/28/90 $11,257 0.89% $11,709 0.47% $11,033
3/31/90 $11,249 0.03% $11,712 0.55% $11,094
4/30/90 $11,178 -0.72% $11,628 0.16% $11,112
5/31/90 $11,428 2.18% $11,881 0.23% $11,137
6/30/90 $11,528 0.88% $11,986 0.54% $11,198
7/31/90 $11,716 1.48% $12,163 0.38% $11,240
8/31/90 $11,424 -1.45% $11,987 0.92% $11,344
9/30/90 $11,406 0.06% $11,994 0.84% $11,439
10/31/90 $11,586 1.81% $12,211 0.60% $11,507
11/30/90 $11,856 2.01% $12,457 0.22% $11,533
12/31/90 $11,860 0.44% $12,512 0.00% $11,533
1/31/91 $12,055 1.34% $12,679 0.60% $11,602
2/28/91 $12,171 0.87% $12,789 0.15% $11,619
3/31/91 $12,209 0.04% $12,795 0.15% $11,637
4/30/91 $12,373 1.34% $12,966 0.15% $11,654
5/31/91 $12,457 0.89% $13,081 0.30% $11,689
6/30/91 $12,461 -0.10% $13,068 0.29% $11,723
7/31/91 $12,651 1.22% $13,228 0.15% $11,741
8/31/91 $12,772 1.32% $13,402 0.29% $11,775
9/30/91 $12,964 1.30% $13,577 0.44% $11,827
10/31/91 $13,039 0.90% $13,699 0.15% $11,844
11/30/91 $13,090 0.28% $13,737 0.29% $11,879
12/31/91 $13,346 2.15% $14,033 0.07% $11,887
1/31/92 $13,365 0.23% $14,065 0.15% $11,905
2/29/92 $13,373 0.03% $14,069 0.36% $11,948
3/31/92 $13,393 0.04% $14,075 0.51% $12,009
4/30/92 $13,510 0.89% $14,200 0.14% $12,025
5/31/92 $13,665 1.18% $14,367 0.14% $12,042
6/30/92 $13,858 1.68% $14,609 0.36% $12,086
7/31/92 $14,338 3.00% $15,047 0.21% $12,111
8/31/92 $14,196 -0.98% $14,900 0.28% $12,145
9/30/92 $14,241 0.65% $14,996 0.28% $12,179
10/31/92 $13,996 -0.98% $14,850 0.35% $12,222
11/30/92 $14,308 1.79% $15,115 0.14% $12,239
12/31/92 $14,520 1.02% $15,270 -0.07% $12,230
1/31/93 $14,694 1.16% $15,447 0.49% $12,290
2/28/93 $15,114 3.62% $16,006 0.35% $12,333
3/31/93 $15,057 -1.06% $15,836 0.35% $12,376
4/30/93 $15,168 1.01% $15,996 0.28% $12,411
5/31/93 $15,254 0.56% $16,086 0.14% $12,428
6/30/93 $15,525 1.67% $16,354 0.14% $12,446
7/31/93 $15,533 0.13% $16,376 0.00% $12,446
8/31/93 $15,819 2.08% $16,716 0.28% $12,480
9/30/93 $16,000 1.14% $16,907 0.21% $12,507
10/31/93 $16,088 0.19% $16,939 0.41% $12,558
11/30/93 $16,056 -0.88% $16,790 0.07% $12,567
12/31/93 $16,320 2.11% $17,144 0.00% $12,567
1/31/94 $16,478 1.14% $17,339 0.27% $12,601
2/28/94 $16,173 -2.59% $16,890 0.34% $12,644
3/31/94 $15,618 -4.07% $16,203 0.34% $12,687
4/30/94 $15,679 0.85% $16,341 0.14% $12,704
5/31/94 $15,767 0.87% $16,483 0.07% $12,713
6/30/94 $15,675 -0.61% $16,382 0.34% $12,756
7/31/94 $15,932 1.83% $16,682 0.27% $12,791
8/31/94 $16,008 0.35% $16,740 0.40% $12,842
9/30/94 $15,816 -1.47% $16,494 0.27% $12,877
10/31/94 $15,538 -1.78% $16,201 0.07% $12,886
11/30/94 $15,189 -1.81% $15,908 0.13% $12,902
12/31/94 $15,567 2.20% $16,258 0.00% $12,902
1/31/95 $16,033 2.86% $16,723 0.40% $12,954
2/28/95 $16,428 2.91% $17,209 0.40% $13,006
3/31/95 $16,579 1.15% $17,407 0.33% $13,049
4/30/95 $16,614 0.12% $17,428 0.33% $13,092
5/31/95 $17,015 3.19% $17,984 0.20% $13,118
6/30/95 $16,932 -0.87% $17,827 0.20% $13,144
7/31/95 $17,071 0.95% $17,997 0.00% $13,144
8/31/95 $17,242 1.27% $18,225 0.26% $13,178
9/30/95 $17,337 0.63% $18,340 0.20% $13,205
10/31/95 $17,553 1.45% $18,606 0.33% $13,248
11/30/95 $17,800 1.66% $18,915 -0.07% $13,239
12/31/95 $17,973 0.96% $19,097 -0.07% $13,230
1/31/96 $18,056 0.76% $19,242 0.59% $13,308
2/29/96 $17,970 -0.68% $19,111 0.32% $13,350
3/31/96 $17,807 -1.28% $18,866 0.52% $13,420
4/30/96 $17,813 -0.28% $18,813 0.39% $13,472
5/31/96 $17,834 -0.04% $18,806 0.19% $13,498
6/30/96 $18,012 1.09% $19,011 0.06% $13,506
7/31/96 $18,128 0.91% $19,184 0.19% $13,532
8/31/96 $18,133 -0.02% $19,180 0.19% $13,557
9/30/96 $18,361 1.40% $19,449 0.32% $13,601
10/31/96 $18,510 1.13% $19,668 0.32% $13,644
11/30/96 $18,771 1.83% $20,028 0.19% $13,670
12/31/96 $18,720 -0.42% $19,944 0.00% $13,670
1/31/97 $18,743 0.19% $19,982 0.32% $13,714
2/28/97 $18,894 0.92% $20,166 0.31% $13,756
3/31/97 $18,706 -1.33% $19,898 0.25% $13,791
4/30/97 $18,859 0.84% $20,065 0.12% $13,807
5/31/97 $19,095 1.51% $20,368 -0.06% $13,799
6/30/97 $19,253 1.07% $20,586 0.12% $13,816
7/31/97 $19,708 2.77% $21,156 0.12% $13,832
8/31/97 $19,548 -0.94% $20,957 0.19% $13,858
9/30/97 $19,768 1.19% $21,206 0.25% $13,893
10/31/97 $19,890 0.64% $21,342 0.25% $13,928
11/30/97 $20,046 0.59% $21,468 -0.06% $13,919
12/31/97 $20,313 1.46% $21,781 -0.12% $13,903
1/31/98 $20,488 1.03% $22,006 0.19% $13,929
2/28/98 $20,508 0.03% $22,012 0.19% $13,956
Total 105.08% 120.12% 39.56%
Return
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL (75)
This chart shows in bar format the comparison between Franklin Virginia
Tax-Free Income Fund's Class II distribution rate of 4.52% and the taxable
equivalent rate of 7.94% on 2/28/98.
GRAPHIC MATERIAL (76)
This chart shows the dividend distributions for Franklin Virginia Tax-Free
Income Fund's Class II from 3/1/97 to 2/28/98.
March 4.89 cents
April 4.89 cents
May 4.89 cents
June 4.89 cents
July 4.83 cents
August 4.83 cents
September 4.63 cents
October 4.63 cents
November 4.63 cents
December 4.63 cents
January 4.65 cents
February 4.65 cents
Total 57.04 cents
GRAPHIC MATERIAL (77)
The following line graph compares the performance of the Franklin Virginia
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/98.
- --------------------------------------------------------------------------------
Date Franklin Virginia Lehman Brothers Municipal CPI
Tax-Free Income Bond Index
Fund-Class II
- --------------------------------------------------------------------------------
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,162 3.19% $10,319 0.20% $10,020
6/30/95 $10,117 -0.87% $10,229 0.20% $10,040
7/31/95 $10,185 0.95% $10,326 0.00% $10,040
8/31/95 $10,290 1.27% $10,458 0.26% $10,066
9/29/95 $10,341 0.63% $10,523 0.20% $10,086
10/31/95 $10,464 1.45% $10,676 0.33% $10,120
11/30/95 $10,606 1.66% $10,853 -0.07% $10,112
12/29/95 $10,703 0.96% $10,957 -0.07% $10,105
1/31/96 $10,746 0.76% $11,041 0.59% $10,165
2/29/96 $10,690 -0.68% $10,966 0.32% $10,198
3/29/96 $10,599 -1.28% $10,825 0.52% $10,251
4/30/96 $10,588 -0.28% $10,795 0.39% $10,291
5/31/96 $10,595 -0.04% $10,791 0.19% $10,310
6/28/96 $10,695 1.09% $10,908 0.06% $10,316
7/31/96 $10,768 0.91% $11,008 0.19% $10,336
8/30/96 $10,757 -0.02% $11,005 0.19% $10,356
9/30/96 $10,895 1.40% $11,159 0.32% $10,389
10/31/96 $10,978 1.13% $11,286 0.32% $10,422
11/29/96 $11,127 1.83% $11,492 0.19% $10,442
12/31/96 $11,091 -0.42% $11,444 0.00% $10,442
1/31/97 $11,099 0.19% $11,466 0.32% $10,475
2/28/97 $11,183 0.92% $11,571 0.31% $10,508
3/31/97 $11,076 -1.33% $11,417 0.25% $10,534
4/30/97 $11,162 0.84% $11,513 0.12% $10,547
5/31/97 $11,296 1.51% $11,687 -0.06% $10,540
6/30/97 $11,374 1.07% $11,812 0.12% $10,553
7/31/97 $11,645 2.77% $12,139 0.12% $10,565
8/31/97 $11,546 -0.94% $12,025 0.19% $10,586
9/30/97 $11,660 1.19% $12,168 0.25% $10,612
10/31/97 $11,736 0.64% $12,246 0.25% $10,639
11/30/97 $11,821 0.59% $12,318 -0.06% $10,632
12/31/97 $11,972 1.46% $12,498 -0.12% $10,619
1/31/98 $12,069 1.03% $12,627 0.19% $10,640
2/28/98 $12,075 0.03% $12,631 0.19% $10,660
Total 20.75% 26.31% 6.60%
Return
- --------------------------------------------------------------------------------
Annual
Report
February 28, 1998
Franklin Tax-Free Trust
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Michigan Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to remember that all securities
markets move both up and down, as do mutual fund share prices. We appreciate
your past support and look forward to serving your investment needs in the years
ahead.
Charles B. Johnson (right), chairman
of Franklin Tax-Free Trust and
Thomas J. Kenny (left), director of
Franklin's Municipal Bond Department.
CONTENTS
Shareholder Letter ........................................... 1
Special Feature:
Q&A with Franklin's
Municipal Bond Department .................................... 3
Fund Reports
Franklin Arizona
Tax-Free Income Fund ......................................... 8
Franklin Colorado
Tax-Free Income Fund ......................................... 14
Franklin Connecticut
Tax-Free Income Fund ......................................... 20
Franklin Indiana
Tax-Free Income Fund ......................................... 26
Franklin Michigan
Tax-Free Income Fund ......................................... 30
Franklin New Jersey
Tax-Free Income Fund ......................................... 34
Franklin Oregon
Tax-Free Income Fund ......................................... 40
Franklin Pennsylvania
Tax-Free Income Fund ......................................... 46
Franklin Puerto Rico
Tax-Free Income Fund ......................................... 52
Franklin Federal Intermediate-
Term Tax-Free Income Fund .................................... 58
Franklin High Yield
Tax-Free Income Fund ......................................... 62
Glossary of
Investment Terms ............................................. 69
Municipal Bond Ratings ....................................... 71
Financial Highlights &
Statement of Investments ..................................... 73
Financial Statements ......................................... 142
Notes to
Financial Statements ......................................... 150
Independent Auditors' Report.................................. 156
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's annual report for the
period ended February 28, 1998.
Economic Overview
The U.S. economy remained strong over the Trust's reporting period, and showed
no discernible indications of ending one of the longest, sustained economic
expansions in its history. This expansion continued to feature moderate growth
with few signs of inflation. Overall, interest rates declined during the year,
and the 30-year Treasury yield ended the period at 5.92%, down from 6.80% on
February 28, 1997. A generally benign inflationary environment, and a balanced
budget agreement between the President and Congress, as well as expectations for
a 1998 budget surplus, contributed to declining rates.
Interest rates directly affect tax-free bonds and help shape the economic
environment that determines the general fiscal health of the municipalities
issuing them. Higher interest rates often generate higher yields for new bond
issues, while lower rates generally translate into a decrease in yields.
Furthermore, a drop in rates usually causes the value of existing bonds to
increase, while a rise in rates often has the opposite effect.
However, not all news during the Trust's reporting period was positive. Many
economists feared that the Asian crisis would have a negative effect on the U.S.
economy, but the worst of those concerns did not come to pass, as U.S. growth
continued. Although the International Monetary Fund's strong intervention in
many affected
Asian countries clearly helped alleviate this crisis, it is still likely that
U.S. economic growth may slow somewhat in the future, as several of its Asian
trading partners attempt to rebuild their once-thriving economies. With a
potential rise in economic uncertainties and the continued increase in stock
market valuations, many investors are giving more consideration to allocating a
larger portion of their portfolios in investments such as tax-free bonds, which
generally enjoy greater stability than stocks.
We encourage you to discuss your financial goals with your investment
representative. He or she can address concerns about volatility and help you
diversify your investments and stay focused on the long term. Mutual funds offer
a level of diversification that is almost impossible for individual investors to
achieve on their own.
Regardless of the market's direction, Franklin Templeton's disciplined
investment strategy remains the same. All of our portfolio managers are
dedicated to providing shareholders like you with careful selection and constant
professional supervision.
As always, we appreciate your support, welcome your questions and comments, and
look forward to serving your investment needs in the years ahead.
Sincerely,
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
Thomas J. Kenny
Director
Franklin Municipal Bond Department
Q&A
SPECIAL FEATURE:
Q&A WITH FRANKLIN'S
MUNICIPAL BOND DEPARTMENT
Thomas J. Kenny, Director of Franklin Templeton's Municipal Bond Department, and
portfolio managers Sheila Amoroso and Bernie Schroer discuss the issues that
shaped the 1997 municipal bond market.
Q: How would you describe the municipal bond market's performance in 1997?
Tom Kenny: Long-term interest rates trended lower in 1997. The Bond Buyer 40
Index (BB40), a measurement of the municipal bond market, started the year
yielding 5.78% and hit a low of 5.23% on December 26. We saw some fluctuations
over the course of the year, however, with the BB40 yield reaching a high of
6.01% on April 14, 1997. These fluctuations, specifically when interest rates
rose, created opportunities to purchase bonds on the "downswings," or when bond
prices were lower. Over the past ten years, rates have been trending downward,
creating a positive environment for the tax-exempt market. This atmosphere
should prevail if inflation remains under control and the economy continues to
grow moderately. Of course, market conditions can change rapidly, and there is
no guarantee that the economy will remain on its current path.
Q: Recently, there has been a lot of discussion about the Asian market
volatility. Do you think the problems there will have any impact on the U.S.
bond market this year?
Bernie Schroer: The decline in Asia's currency and equity markets may help the
U.S. bond market. In 1997, we experienced a strong U.S. economy, which normally
would have pressured the Federal Reserve (the Fed) to raise interest rates,
causing bond prices to fall. Instead, the Fed left interest rates alone,
probably in part due to the Asian turmoil and the dampening effect it could have
on U.S. economic growth this year.
Q: Have the recent tax law changes had any impact on the municipal bond market?
Sheila Amoroso: Changes in the tax law did not alter the tax advantages of
municipal bonds. Municipals still distribute income free from regular federal,
and in many cases, state income taxes.*
*For investors subject to regular federal or state alternative minimum tax, all
or a portion of municipal bond interest and municipal bond fund dividends may be
subject to such tax, depending on the source. Fund distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
Q: What role can municipal bonds play in a diversified portfolio?
Sheila: After three years of healthy returns due to historic stock market gains,
individuals have seen an increase in the percentage of equities in their
portfolios. As a result, many investors are beginning to re-examine asset
allocation. Municipal bonds generally enjoy low volatility while providing
tax-free income, which can offset some of the risks associated with investing in
a portfolio composed mainly of stocks. The chart on page 6 shows how adding
municipal bonds in different proportions to a stock portfolio has historically
lowered volatility in providing solid after-tax returns. In short, prudent
investors may be able to reduce their risk, and maintain their potential for
competitive return, by including municipal bonds in their portfolios.
Bernie: Municipal bonds remain a strong investment for investors looking for
tax-free income. Franklin tax-free income funds can help investors diversify a
heavily weighted stock portfolio, while providing a convenient and effective way
to participate in the municipal bond market.
Q: Looking ahead, what do you think might affect the municipal bond market and
the Franklin Tax-Free Income funds?
Tom: Municipal bonds generally share the same trends as U.S. government
securities, such as Treasury bonds. These securities are sensitive to a variety
of factors that affect interest rates in general, including the Federal
Reserve's monetary policy. During most of 1997, the Fed was biased toward
raising interest rates in order to stave off inflationary pressures as the
economy continued its solid growth. However, toward the end of the year and into
1998, the Fed appears to have adopted a more neutral stance for a couple of
reasons. First, although the economy is experiencing moderate growth, inflation
remains subdued. Also, the potential still exists for the Asian crisis to slow
the U.S. economy.
Regardless of changing market conditions, our focus will remain on providing
shareholders with high current income free from regular federal, and depending
on the fund, state income taxes.* Franklin has become the nation's largest
tax-free fund manager**, in part by adhering to a consistent, disciplined
investment philosophy, which historically has proved successful in both strong
and weak bond markets. Of course, past performance is no guarantee of future
results.
*For investors subject to regular federal or state alternative minimum tax, all
or a portion of municipal bond interest and municipal bond fund dividends may be
subject to such tax, depending on the source. Fund distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
**Source: Strategic Insight, 11/97.
"Franklin tax-free income funds can help investors diversify a heavily weighted
stock portfolio, while providing a convenient and effective way to participate
in the municipal bond market."
FRANKLIN ARIZONA TAX-FREE INCOME FUND
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin Arizona Tax-Free Income Fund 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
Arizona ended 1997 on a positive note, with job creation high, and unemployment
near its all-time low. A 4.6% increase in non-farm jobs was reported in 1997, a
slow-down only in relative terms from the strong 6.6% growth in 1994.2 The
state's budget surplus, which includes a "rainy day fund," now approaches $900
million.3
1997 also marked the end of a five-year period that was the strongest period of
job growth in Arizona history. High-technology is an important sector of that
growth, as the state enters 1998, with both Intel and Motorola building, or
planning to build, billion-dollar projects in the state.
As a state where population growth historically has fueled the economy, Arizona
remains the nation's fastest growing state, with a projected population of 5
million by 2001. Phoenix is now the nation's sixth largest city.4
The state, constitutionally prohibited from using general obligation debt,
continues to rely on lease obligations, revenue bonds, and pay-as-you-go
financing for its capital needs, which results in moderate levels of gross state
debt.
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. Source: Arizona Department of Commerce, 1/8/98.
4. Ibid.
You may find a complete listing of the fund's portfolio holdings beginning on
page 74 of this report.
Portfolio Notes
As issuers took advantage of lower interest rates to refinance their outstanding
debt, many of the fund's holdings became prerefunded during the one-year
reporting period. When an outstanding bond becomes prerefunded, it will be
retired at its first call date. In most cases, these bonds are backed by an
escrow of U.S. Treasury securities, which generally leads to a price increase
when they become prerefunded. The fund therefore sold prerefunded bonds and
reinvested the proceeds in securities with longer call protection. In this way,
we may extend the fund's income-earning potential and reduce the volatility of
the share value.
With a fast-growing population and strong economic growth, Arizona issued a
large supply of bonds in 1997. In fact, 61% more municipals were issued in
Arizona during 1997 than 1996, for a total of $3 billion. If interest rates
remain low, refunding issues resulting from lower borrowing costs could add to
the supply of new issues. We are closely monitoring the supply of Arizona
tax-free municipal bonds, and will continue to do so.
The fund maintained sector diversification among its portfolio holdings.
Note-worthy additions to the portfolio during the reporting period included Gila
County Industrial Development Authority revenue bonds; Marana Municipal Property
Corp.; and Chandler Water and Sewer revenue bonds. We also purchased issues such
as Phoenix Civic Improvement Corp. Water System revenue bonds and the Yuma
Regional Medical Center revenue bonds. This type of diversification in a broad
range of sectors helps reduce the fund's exposure to risk and volatility that
may affect any one sector.
Looking forward, we will consistently employ a fiscally responsible approach to
investing while managing the fund, seeking to maximize tax-free income and share
value stability without the use of derivatives or attempts to forecast interest
rate swings.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Arizona
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Utilities 37.5%
Hospitals 11.8%
Education 10.9%
Prerefunded 9.3%
Housing 7.1%
Transportation 5.6%
Industrial 5.4%
Other Revenue 5.4%
General Obligations 2.9%
Certificates
of Participation 2.9%
Miscellaneous 0.9%
Sales Tax 0.3%
PERFORMANCE SUMMARY
Class I
Franklin Arizona Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 20 cents, from $11.24 on February 28, 1997, to $11.44 on
February 28, 1998. In addition to distributing 62.4 cents ($0.624) per share in
dividend income, the fund made long-term capital gain distributions totaling
7.62 cents ($.0762) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.0 cents
($0.050), which includes a dividend adjustment, and the maximum offering price
of $11.95 on February 28, 1998, your fund's distribution rate was 5.02%. 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 8.76% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 11 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Arizona municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Arizona Tax-Free Income Fund's had been
applied to this index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot invest
in it directly.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Arizona
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-2/28/98*
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
September 5.2 cents
October 5.2 cents
November 5.2 cents
December 5.2 cents
January 5.2 cents
February 5.2 cents
Total 62.4 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 include all accrued income earned by the fund during the reporting
period.
Franklin Arizona Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 8.23% 34.12% 111.09% 121.68%
Average Annual Total Return2 3.62% 5.14% 7.29% 7.43%
Distribution Rate3 5.02%
Taxable Equivalent
Distribution Rate4 8.76%
30-Day Standardized Yield5 4.02%
Taxable Equivalent Yield4 7.02%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.0 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $11.95 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Arizona state personal income tax bracket of 42.7%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as
well as up, investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares.
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 and 6.47
cents ($0.0647) December 1997. The fund hereby designates such distributions as
capital gain dividends per Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class II
Franklin Arizona Tax-Free Income Fund - Class II share price, as measured by net
asset value, increased 21 cents, from $11.30 on February 28, 1997, to $11.51 on
February 28, 1998. In addition to distributing 56.2 cents ($0.562) per share in
dividend income, the fund made long-term capital gain distributions totaling
7.62 cents ($0.0762) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.44
cents ($0.0444), which includes a dividend adjustment, and the maximum offering
price of $11.63 on February 28, 1998, your fund's distribution rate was 4.58%.
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 8.00% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 13 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Arizona municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Arizona Tax-Free Income Fund's had been
applied to this index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot invest
in it directly.
Franklin Arizona
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-2/28/98*
Dividend
Month per share
March 5.00 cents
April 4.66 cents
May 4.66 cents
June 4.66 cents
July 4.71 cents
August 4.71 cents
September 4.63 cents
October 4.63 cents
November 4.63 cents
December 4.63 cents
January 4.64 cents
February 4.64 cents
Total 56.20 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Arizona Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.67% 21.37%
Average Annual Total Return2 5.64% 6.71%
Distribution Rate3 4.58%
Taxable Equivalent
Distribution Rate4 8.00%
30-Day Standardized Yield5 3.61%
Taxable Equivalent Yield4 6.30%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.44 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $11.63 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Arizona state personal income tax bracket of 42.7%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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 and
6.47 cents ($0.0647) in December 1997. The fund hereby designates such
distributions as capital gain dividends per Section 852 (b)(3) of the Internal
Revenue Code.
FRANKLIN COLORADO TAX-FREE INCOME FUND
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin Colorado Tax-Free Income Fund 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
Colorado's population continues to grow faster than the nation's, although
growth rates have showed signs of slowing in recent years. As in other western
states, the deceleration of the growth curve is due in part to California's
economic recovery.2
Colorado successfully diversified its economy from agriculture and mining to
create major growth sectors in services, telecommunications, transportation, and
high-technology.
The state's strong economic growth yielded revenues over and above budget
projections during the reporting period. Standard & Poor's (S&P), a national
credit rating agency, gives Colorado's general obligation debt an A rating. Its
lease obligations receive S&P's highest rating, AAA.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, 6/23/97.
3. This does not indicate Standard & Poor's rating of the fund.
You may find a complete listing of the fund's portfolio holdings beginning on
page 80 of this report.
Portfolio Notes
The lower interest-rate environment prevalent throughout most of the one-year
reporting period, prompted many municipal bond issuers to refund their
outstanding debt. Consequently, the fund's exposure to prerefunded bonds
increased over the year. We typically look to sell such prerefunded bonds
approximately five years before their call date, seeking to maximize any price
gains in the bonds. We then use these gains to reinvest in current coupon bonds
with longer call protection, which helps preserve the fund's income-earning
potential over the longer term. The fund purchased bonds over the course of the
year in many different sectors, maintaining its diversification.
The municipal bond market experienced another year of healthy supply, with over
$210 billion in new issuance coming to market in 1997, and more than 50% of
these new issues came insured. Additionally, the spread between insured bond
yields and the yields of lower-rated bonds contracted during the reporting
period. As a result, most lower-rated securities' yields simply were not high
enough to compensate for their added credit risk. The fund therefore generally
purchased insured and higher-quality bonds during the fiscal year. Some of these
purchases included University of Colorado Hospital, Arapaho E-470 Toll Road,
Colorado Springs Utility and Platte River Authority.
Going forward, our outlook for the fund and the municipal market in general
remains positive. We expect the supply of Colorado municipals to remain stable
throughout 1998. This, coupled with continued strong demand for Colorado bonds
should keep this state an attractive investment.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Franklin Colorado
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Transportation 14.7%
Housing 13.0%
Hospitals 12.9%
Prerefunded 12.8%
Utilities 12.6%
Education 8.6%
Health Care 6.7%
Certificates
of Participation 5.0%
General Obligations 4.7%
Sales Tax 4.5%
Industrial 3.6%
Other Revenue 0.5%
Tax Allocation 0.4%
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class I
Franklin Colorado Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 31 cents, from $11.80 on February 28, 1997, to $12.11 on
February 28, 1998. In addition to distributing 64.2 cents ($0.642) per share in
dividend income, the fund made a long-term capital gain distribution of 6.52
cents ($0.0652) per share during the 12-month reporting period. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.2 cents
($0.052) and the maximum offering price of $12.65 on February 28, 1998, your
fund's distribution rate was 4.93%. 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 Colorado state personal income tax
bracket would need to earn 8.59% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 17 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Colorado municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin Colorado Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin Colorado
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-2/28/98*
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
September 5.2 cents
October 5.2 cents
November 5.2 cents
December 5.2 cents
January 5.2 cents
February 5.2 cents
Total 64.2 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Colorado Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 8.86% 36.27% 118.88% 128.89%
Average Annual Total Return2 4.28% 5.46% 7.68% 7.76%
Distribution Rate3 4.93%
Taxable Equivalent
Distribution Rate4 8.59%
30-Day Standardized Yield5 4.10%
Taxable Equivalent Yield4 7.15%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.2 cent per
share monthly dividend and the maximum offering price of $12.65 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Colorado state personal income tax bracket of 42.6%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, 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 Colorado Tax-Free Income Fund - Class I paid distributions derived
from long-term capital gains of 6.52 cents ($0.0652) per share in December 1997.
The fund hereby designates such distributions as capital gain dividends per
Section 852 (b)(3) of the Internal Revenue Code.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class II
Franklin Colorado Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 33 cents, from $11.84 on February 28, 1997, to $12.17
on February 28, 1998. In addition to distributing 57.38 cents ($0.5738) per
share in dividend income, the fund made a long-term capital gain distribution of
6.52 cents ($0.0652) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.61
cents ($0.0461) and the maximum offering price of $12.29 on February 28, 1998,
your fund's distribution rate was 4.50%. 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 Colorado state personal income tax
bracket, would need to earn 7.84% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 19 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Colorado municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Colorado Tax-Free Income Fund's had been
applied to this index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot invest
in it directly.
Franklin Colorado
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-2/28/98*
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
September 4.63 cents
October 4.63 cents
November 4.63 cents
December 4.63 cents
January 4.61 cents
February 4.61 cents
Total 57.38 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Colorado Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 8.39% 23.33%
Average Annual Total Return2 6.31% 7.29%
Distribution Rate3 4.50%
Taxable Equivalent
Distribution Rate4 7.84%
30-Day Standardized Yield5 3.69%
Taxable Equivalent Yield4 6.43%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.61 cent per
share monthly dividend, which includes a 12b-1 differential adjustment, and the
offering price of $12.29 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Colorado state personal income tax bracket of 42.6%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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 Colorado Tax-Free Income Fund - Class II paid distributions derived
from long-term capital gains of 6.52 cents ($0.0652) per share in December 1997.
The fund hereby designates such distributions as capital gain dividends per
Section 852 (b)(3) of the Revenue Code.
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
Your Fund's Objective: Franklin Connecticut Tax-Free Income Fund 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
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
State Update
As the richest of our nation's 50 states in terms of personal income per capita,
Connecticut's exceptional wealth and deep resources underlie a AA- rating for
the state's general obligation bonds by Standard & Poor's, a national credit
rating agency.2,3
Although the state carries a large debt burden, we believe an accelerating
economy combined with strict financial discipline on the part of state officials
will continue to make Connecticut a steady and stable performer. During 1997,
the state's financial operations showed exceptional strength due to a
significant increase in personal income tax receipts, a trend that appears to be
continuing in 1998 and is expected to lead to Connecticut's seventh consecutive
budget surplus.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: Moody's Investors Service, 9/12/97.
3. This does not indicate Standard & Poor's rating of the fund.
4. Source: Fitch Research, 2/2/98.
You may find a complete listing of the fund's portfolio holdings beginning on
page 84 of this report.
Portfolio Notes
The municipal market was generally strong during the reporting period, with some
weakness apparent during the first quarter of 1997. From the market's low in
mid-April 1997, prices rose through mid-January 1998. After a brief period of
weakness through early February of this year, the market has moved slowly
upward.
Incoming cash from new purchases of the fund's shares fueled most of the buying
activity during the first half of the fund's fiscal year. During the second six
months, we used the proceeds from the sale of prerefunded bonds. At the start of
the reporting period, prerefunded holdings accounted for 16.7% of the fund's
total long-term investments. As interest rates declined in the strong municipal
market environment, issuers lowered their interest costs significantly by
prerefunding their older, higher-coupon bond issues. Therefore, many of the
fund's holdings became prerefunded, and by August 31, 1997, midway through the
reporting period, that sector had grown to 30.5%. We sold over $25 million (par
value) of these bonds during the second half of the fund's fiscal year, in part,
to retain for shareholders the price appreciation which results from the
prerefunding, and also to achieve a better balance for the fund by reducing that
segment to about 20%.
This investment activity altered the composition of the fund somewhat. For
instance, AAA-rated bonds, including prerefunded issues, declined from 39.3% on
February 28, 1997, to 30.8% on February 28, 1998. AA-rated and BBB-rated
holdings each declined slightly, but the most significant change was the
increase in A-rated issues to 20.5%, from only 8.3% of total long-term
investments one year earlier. This increase resulted from the purchase of $10
million of Development Authority for Bridgeport Hydraulic in early November and
$8 million of Eastern Connecticut Resource Recovery Authority-Wheelabrator
Lisbon Project. Both have performed well since their purchase.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Franklin Connecticut
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Hospitals 20.5%
Utilities 20.1%
Prerefunded 19.9%
Housing 16.9%
Education 11.7%
General Obligations 5.2%
Health Care 3.8%
Industrial 1.1%
Transportation 0.8%
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class I
Franklin Connecticut Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 31 cents, from $10.92 on February 28, 1997, to $11.23
on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 60.6 cents ($0.606) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.9 cents
($0.049), which includes a dividend adjustment, and the maximum offering price
of $11.73 on February 28, 1998, your fund's distribution rate was 5.01%. 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
Connecticut state personal income tax bracket would need to earn 8.69% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 23 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Connecticut municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin Connecticut Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin Connecticut
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-2/28/98*
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
September 5.0 cents
October 5.0 cents
November 5.0 cents
December 5.0 cents
January 5.0 cents
February 5.0 cents
Total 60.6 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Connecticut Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-Year 3-Year 5-Year (10/3/88)
Cumulative Total Return1 8.62% 24.96% 33.41% 93.77%
Average Annual Total Return2 4.06% 6.17% 5.01% 6.80%
Distribution Rate3 5.01%
Taxable Equivalent
Distribution Rate4 8.69%
30-Day Standardized Yield5 4.11%
Taxable Equivalent Yield4 7.13%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 4.9 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $11.73 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Connecticut state personal income tax bracket of 42.3%,
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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, 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
Class II
Franklin Connecticut Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 32 cents, from $10.94 on February 28, 1997, to $11.26
on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 54.32 cents ($0.5432) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.37
cents ($0.0437), which includes a dividend adjustment, and the maximum offering
price of $11.37 on February 28, 1998, your fund's distribution rate was 4.61%.
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
Connecticut state personal income tax bracket, would need to earn 7.99% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 25 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Connecticut municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin Connecticut Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin Connecticut
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-2/28/98*
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
September 4.47 cents
October 4.47 cents
November 4.47 cents
December 4.47 cents
January 4.47 cents
February 4.47 cents
Total 54.32 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Connecticut Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 8.08% 21.85%
Average Annual total Return2 6.03% 6.84%
Distribution Rate3 4.61%
Taxable Equivalent
Distribution Rate4 7.99%
30-Day Standardized Yield5 3.72%
Taxable Equivalent Yield4 6.45%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and include the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months.
3. Distribution rate is based on an annualization of the current 4.37 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $11.37 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Connecticut state personal income tax bracket of 42.3%,
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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Investment return and principal value will fluctuate with
market conditions, and you may have a gain or loss when you sell your shares.
FRANKLIN INDIANA TAX-FREE INCOME FUND
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin Indiana Tax-Free Income Fund 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
Indiana successfully reduced its dependence on manufacturing, but the state
still leads the other 49 states in this cyclical sector, with a full 24% of its
labor force employed in manufacturing at the end of 1997.2
Indiana has benefited from a competitively favorable tax climate, industrial
restructuring, and significant capital investment by foreign companies. However,
during 1997 the state's economy grew slightly slower than the nation's in terms
of employment and personal income.3 In addition, the state's central location
and extensive transportation network led to the growth of the service and trade
sectors which now rival manufacturing in terms of non-agricultural employment.4
We expect Indiana to maintain good cyclical employment and positive income
growth.
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, 1/13/98.
3. Ibid.
4. Source: Standard & Poor's Creditweek Municipal, 2/3/97.
You may find a complete listing of the fund's portfolio holdings beginning on
page 87 of this report.
Portfolio Notes
Declining interest rates coupled with moderate economic growth led to a positive
environment for municipal bonds during the one-year reporting period. Throughout
the fund's fiscal year, we sought to take advantage of periods of market
volatility to buy securities for the fund, and improve the portfolio's
structure.
In general, when interest rates are declining, municipalities typically seek to
refund outstanding debt issues in favor of new bonds with lower interest rates.
This year was no exception, as many of the municipal bonds in the portfolio
became prerefunded. When a bond becomes prerefunded, it will be paid off on its
first call date. Therefore, we intend to sell prerefunded bonds well in advance
of the call date, seeking to maximize any price gains in the prerefunded issue
and reinvest in bonds offering longer call protection. In this way, we can
extend the fund's long-term, income-earning potential. As of February 28, 1998,
prerefunded bonds comprised 7.2% of the fund's total long-term investments, down
from 11.7% a year ago.
Insured bonds are becoming pervasive in Indiana, as in the general municipal
bond market. The greater penetration of these bonds in the marketplace has led
to a narrowing in the difference between the yields of AAA- and lower-rated
securities. This convergence of yield spreads has created more value in
higher-grade, essential-purpose issues, and this is where we concentrated our
purchases. For example, we bought White River Elementary School and Carmel
Redevelopment Authority bonds.
Generally, we use proceeds from the sale of prerefunded bonds to purchase bonds
with longer call protection. In a declining interest rate environment, this
means that the newer bonds will have a lower coupon rate than the older,
prerefunded bonds, which were issued at a time when interest rates were higher.
Therefore, please keep in mind that a fund can only distribute what it earns,
and its dividend distributions may decrease when interest rates decline as they
did during the reporting period. It is important to note that we maintain our
consistent, responsible approach to investing for tax-free income and stability
of share value.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Franklin Indiana
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Education 21.2%
Hospitals 17.4%
General Obligations 17.2%
Industrial 13.1%
Prerefunded 7.2%
Certificates
of Participation 7.1%
Other Revenue 5.1%
Housing 5.0%
Transportation 3.1%
Utilities 3.0%
Sales Tax 0.5%
Tax Assessment Bonds 0.1%
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Indiana Tax-Free Income Fund's share price, as measured by net asset
value, increased 30 cents, from $11.77 on February 28, 1997, to $12.07 on
February 28, 1998. In addition to distributing 65.4 cents ($0.654) per share in
dividend income, the fund made a long-term capital gain distribution of 2.19
cents ($0.0219) per share during the 12-month reporting period. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.3 cents
($0.053), which includes a dividend adjustment, and the maximum offering price
of $12.61 on February 28, 1998, your fund's distribution rate was 5.04%. 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
Indiana state personal income tax bracket would need to earn 8.73% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 29 compares your fund's shares' performance with that of the
unmanaged Lehman Brothers Municipal Bond Index. The index includes over 25,000
municipal securities from across the country, while your fund consists primarily
of Indiana municipal bonds. Of course, such unmanaged market indices have
inherent performance differentials over any fund. They do not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike unmanaged
indices, mutual funds are never 100% invested because they need cash on hand to
redeem shares. In addition, the performance shown for the fund includes the
maximum initial sales charge, all fund expenses and account fees. If operating
expenses such as Franklin Indiana Tax-Free Income Fund's had been applied to
this index, the index's performance would have been lower. Please remember that
an index is simply a measure of performance and one cannot invest in it
directly.
Franklin Indiana
Tax-Free Income Fund
Dividend Distributions
3/1/97-2/28/98*
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
September 5.4 cents
October 5.4 cents
November 5.4 cents
December 5.4 cents
January 5.4 cents
February 5.4 cents
Total 65.4 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Indiana Tax-Free Income Fund
Periods ended 2/28/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 8.52% 34.73% 117.16% 129.57%
Average Annual Total Return2 3.94% 5.22% 7.60% 7.79%
Distribution Rate3 5.04%
Taxable Equivalent
Distribution Rate4 8.73%
30-Day Standardized Yield5 4.17%
Taxable Equivalent Yield4 7.22%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.3 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.61 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Indiana state personal income tax bracket of 42.3%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, 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 Indiana Tax-Free Income Fund - Class I paid distributions derived
from long-term capital gains of 2.19 cents ($0.0219) per share in December 1997.
The fund hereby designates such distributions as capital gain dividends per
Section 852 (b)(3) of the Internal Revenue Code.
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin Michigan Tax-Free Income Fund 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 reporting period, Michigan continued to display strong economic
performance. The state's unemployment rate, when measured in August 1997, was
3.4%, well below the 4.8% national rate.
The favorable employment picture reflects Michigan's full participation in a
vital national economy. The state's record of higher than average employment now
stretches to 2.5 years.2
Strong export activity and increased service sector employment have contributed
to Michigan's robust economy. On the state government level, restrained spending
and historically high reserve levels, including $1.2 billion in the state's
"rainy day fund," permit the state to project a narrow budget balance for fiscal
1998.3
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: Moody's Investors Service, 10/20/97.
3. Ibid.
You may find a complete listing of the fund's portfolio holdings beginning on
page 90 of this report.
Portfolio Notes
Franklin Michigan Tax-Free Income Fund continues to grow, and strives to remain
fully invested. The fund seeks investments in tax-exempt municipal securities
with good call protection, and we found many such issues during the reporting
period. We also attempt to maintain wide sector diversification when adding to
the portfolio holdings. For example, during the fiscal year we made purchases
such as Chippewa County Hospital Finance Refunding for War Memorial Hospital,
Michigan State Strategic Fund for the Worthington Armstrong Venture, and Kent
County Airport Facility revenue bonds for Kent County International Airport.
Other significant additions included Shelby Carter Township Building Authority
revenue refunding bonds, and Detroit Local Development Finance Authority for the
Chrysler Corporation. With diversification across such a broad range of sectors,
we attempted to reduce the fund's exposure to risk and volatility that may
affect any one sector.
During 1997, the state of Michigan issued a total of $5.9 billion in tax-exempt
municipal bonds. This was an 8% increase over 1996 issuance, and we closely
monitor the supply of Michigan municipals. Looking ahead, several factors could
affect the supply in coming months. Michigan's total employment has reached a
historically high level, with its manufacturing-dependent economic base still
thriving. If this continues, the state's low debt burden and growing need for
infrastructure could spur an increase in new borrowing. Additionally, if
interest rates remain low, supply could increase, as issuers look to refunding
as a means to lower their borrowing costs.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Franklin Michigan
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Hospitals 38.1%
Education 17.9%
Housing 10.8%
Utilities 8.7%
Prerefunded 6.3%
General Obligations 5.6%
Transportation 4.4%
Industrial 4.2%
Other Revenue Bonds 2.9%
Tax Allocation 1.1%
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Michigan Tax-Free Income Fund's share price, as measured by net asset
value, increased 60 cents, from $10.42 on February 28, 1997, to $11.02 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 57.6 cents ($0.576) per share. Distributions will
vary based on the earnings of the fund's portfolio, and past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.8 cents
($0.048) and the maximum offering price of $11.51 on February 28, 1998, your
fund's distribution rate was 5.00%. 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 8.66% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 33 compares your fund's shares' performance with that of the
unmanaged Lehman Brothers Municipal Bond Index. The index includes over 25,000
municipal securities from across the country, while your fund consists primarily
of Michigan municipal bonds. Of course, such unmanaged market indices have
inherent performance differentials over any fund. They do not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike unmanaged
indices, mutual funds are never 100% invested because they need cash on hand to
redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin Michigan Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin Michigan
Tax-Free Income Fund
Dividend Distributions
3/1/97-2/28/98*
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
September 4.8 cents
October 4.8 cents
November 4.8 cents
December 4.8 cents
January 4.8 cents
February 4.8 cents
Total 57.6 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Michigan Tax-Free Income Fund
Periods ended 2/28/98
Since
Inception
1-Year (7/1/96)
Cumulative Total Return1 11.62% 18.34%
Average Annual total Return2 6.90% 7.83%
Distribution Rate3 5.00%
Taxable Equivalent
Distribution Rate4 8.66%
30-Day Standardized Yield5 4.76%
Taxable Equivalent Yield4 8.24%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and include the current, maximum 4.25%
initial sales charge. Past expense reductions by the fund's manager increased
the fund's total returns.
3. Distribution rate is based on an annualization of the current 4.8 cent per
share monthly dividend and the maximum offering price of $11.51 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Michigan state personal income tax bracket of 42.3%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
GRAPHIC MATERIAL 22 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin New Jersey Tax-Free Income Fund 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
New Jersey's economic base is still one of the most diverse in the nation.2 As
home to the headquarters of firms including AT&T, Merck & Co., Johnson &
Johnson, and Exxon Corp., the state continues to participate in the nation's
economic expansion.
Although, in recent years, New Jersey has lagged economic performance by most
measures, the state ended fiscal year 1997 with a surplus and undesignated fund
balance of $1 billion that it will use to partially fund fiscal year 1998
operations.3
New Jersey's financial condition remains sound, with the last several years
seeing both spending cuts and a 30% reduction in personal income taxes.
Standard & Poor's rating for New Jersey's general obligation debt is AA+.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: Standard & Poor's CreditWeek Municipal, 11/10/97.
3. Ibid.
4. This does not indicate Standard & Poor's rating of the fund.
You may find a complete listing of the fund's portfolio holdings beginning on
page 92 of this report.
Portfolio Notes
Interest rates trended lower during the reporting period, leading to increased
refunding volume. As of February 28, 1998, prerefunded bonds accounted for 9.7%
of the fund's total long-term investments, compared to 11.1% one year ago. We
intended to reduce the amount of prerefunded bonds in the portfolio by selling
them with approximately five years remaining until the call date. By reinvesting
the proceeds in bonds with about 10 years of call protection, we may extend the
income-earning potential of the fund.
Although the supply of New Jersey municipals increased by more than 56% during
the reporting period, most of these bonds were of shorter maturities than what
we typically look to buy. A good deal of this new supply consisted of insured
municipal bonds, a trend that led to a narrowing between the yields of AAA
quality and lower quality securities, providing the market with greater
liquidity and lower risk. Therefore, we concentrated the fund's investments in
higher quality securities, as the lower quality issues' yields simply were not
high enough to compensate for their added credit risk. On February 28, 1998,
AAA-rated bonds comprised 67.4% of the portfolio's total long-term investments.
Seeking to decrease credit risk, we maintained our practice of diversifying
across different sectors. Utility issues were the fund's largest sector
weighting, at 17.7% of total long-term investments. Some new purchases during
the reporting period included North Brunswick Township Board of Education and
Bayonne County Municipal Utility Authority District.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Franklin New Jersey
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Utilities 17.7%
Hospitals 14.9%
Transportation 14.1%
Education 13.0%
Housing 11.9%
Prerefunded 9.7%
Other Revenue 6.9%
Health Care 4.0%
General Obligations 3.1%
Certificates
of Participation 3.1%
Industrial 1.6%
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 23 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class I
Franklin New Jersey Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 31 cents, from $11.61 on February 28, 1997, to $11.92
on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 63.6 cents ($0.636) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.2 cents
($0.052) and the maximum offering price of $12.45 on February 28, 1998, your
fund's distribution rate was 5.01%. 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 New Jersey state personal income
tax bracket would need to earn 8.86% from a taxable investment to match the
fund's tax-free distribution rate.
The chart on page 37 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of New Jersey municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin New Jersey Tax-Free Income Fund's had
been applied to this index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and one cannot
invest in it directly.
Franklin New Jersey
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-2/28/98*
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
September 5.2 cents
October 5.2 cents
November 5.2 cents
December 5.2 cents
January 5.2 cents
February 5.2 cents
Total 63.6 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 24 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin New Jersey Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-Year 5-Year (5/12/88)
Cumulative Total Return1 8.37% 33.10% 114.26%
Average Annual total Return2 3.73% 4.96% 7.61%
Distribution Rate3 5.01%
Taxable Equivalent
Distribution Rate4 8.86%
30-Day Standardized Yield5 4.17%
Taxable Equivalent Yield4 7.37%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.2 cent per
share monthly dividend and the maximum offering price of $12.45 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and New Jersey state personal income tax bracket of 43.4%,
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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, 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
GRAPHIC MATERIAL 25 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin New Jersey Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 32 cents, from $11.66 on February 28, 1997, to $11.98
on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 57.24 cents ($0.5724) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.62
cents ($0.0462) and the maximum offering price of $12.10 on February 28, 1998,
your fund's distribution rate was 4.58%. 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 New Jersey state personal income
tax bracket, would need to earn 8.10% from a taxable investment to match the
fund's tax-free distribution rate.
The chart on page 39 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of New Jersey municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin New Jersey Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin New Jersey
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-2/28/98*
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
September 4.67 cents
October 4.67 cents
November 4.67 cents
December 4.67 cents
January 4.62 cents
February 4.62 cents
Total 57.24 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 26 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin New Jersey Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.84% 21.67%
Average Annual Total Return2 5.77% 6.81%
Distribution Rate3 4.58%
Taxable Equivalent
Distribution Rate4 8.10%
30-Day Standardized Yield5 3.75%
Taxable Equivalent Yield4 6.63%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investments.
3. Distribution rate is based on an annualization of the current 4.62 cent per
share monthly dividend and the offering price of $12.10 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and New Jersey state personal income tax bracket of 43.4%,
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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
FRANKLIN OREGON TAX-FREE INCOME FUND
GRAPHIC MATERIAL 27 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin Oregon Tax-Free Income Fund 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
The "Beaver State" has proven to be a magnet for Americans in recent years, with
its overall growth trend significantly outperforming the national average. Since
1990, the population of Oregon has increased 11.9% to 3.2 million.2
Population growth is starting to slow, possibly due to the improved economic
conditions in California. Still, Oregon's participation in technology
manufacturing and Pacific Rim trade leads us to conclude that income,
employment, and population growth are likely to lead the nation in years to
come.
Oregon's capital needs have expanded with recent growth trends, but the state's
financial condition is expected to remain sound and stable. Oregon's general
obligation debt rating by Standard & Poor's, a national credit rating agency, is
AA.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. Standard & Poor's CreditWeek Municipal, 5/19/97.
3. This does not indicate Standard & Poor's rating of the fund.
You may find a complete listing of the fund's portfolio holdings beginning on
page 97 of this report.
Portfolio Notes
Although interest rates generally declined during the 12 months under review, we
experienced periods of market volatility, creating opportunities for us to
improve the portfolio's structure. The supply of Oregon municipal bonds was
light during this time, and greater demand for outstanding Oregon bonds
contributed to the fund's performance.
This declining interest-rate environment also led to a greater number of
municipal bonds being prerefunded during the one-year period. Seeking to extend
the portfolio's long-term, income-earning potential, we sold a percentage of
these prerefunded bonds and reinvested the proceeds in bonds offering longer
call protection.
Insured bonds dominated the municipal market, representing more than 50% of new
issues during 1997. The abundance of these high-rated, insured issues led to a
narrowing in the difference between the yields of AAA- and lower-rated
securities. As a result, we concentrated on buying higher-grade,
essential-purpose issues. We believed that these bonds had good value in
relation to other municipal securities. Recent purchases included Eugene
Electric revenue bonds and Lane County School District general obligation bonds.
We consistently employ a fiscally responsible approach to investing, while
managing the fund to maximize tax-free income and share value stability without
the use of derivatives or attempts to forecast interest rate swings. Therefore,
Franklin Oregon Tax-Free Income Fund still possesses a high percentage of higher
income, less-volatile premium bonds.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Franklin Oregon
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Hospitals 14.5%
Prerefunded 13.9%
Housing 13.6%
General Obligations 12.9%
Transportation 10.1%
Utilities 9.3%
Industrial 9.3%
Education 9.1%
Certificates
of Participation 2.9%
Tax Allocation Bonds 2.0%
Health Care 1.2%
Other Revenue 1.0%
Special Assessment
Bonds 0.2%
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 28 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class I
Franklin Oregon Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased 31 cents, from $11.55 on February 28, 1997, to $11.86 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 62.4 cents ($0.624) per share. Distributions will
vary based on the earnings of the fund's portfolio, and past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.2 cents
($0.052) and the maximum offering price of $12.39 on February 28, 1998, your
fund's distribution rate was 5.04%. 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 Oregon state personal income tax
bracket, would need to earn 9.17% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 43 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Oregon municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Oregon Tax-Free Income Fund's had been
applied to this index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot invest
in it directly.
Franklin Oregon
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-2/28/98*
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
September 5.2 cents
October 5.2 cents
November 5.2 cents
December 5.2 cents
January 5.2 cents
February 5.2 cents
Total 62.4 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 29 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Oregon Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 8.21% 32.62% 107.49% 114.40%
Average Annual Total Return2 3.64% 4.90% 7.11% 7.09%
Distribution Rate3 5.04%
Taxable Equivalent
Distribution Rate4 9.17%
30-Day Standardized Yield5 4.02%
Taxable Equivalent Yield4 7.31%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.2 cent per
share monthly dividend and the maximum offering price of $12.39 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Oregon state personal income tax bracket of 45.0%, 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, 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
GRAPHIC MATERIAL 30 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Oregon Tax-Free Income Fund - Class II share price, as measured by net
asset value, increased 31 cents, from $11.61 on February 28, 1997, to $11.92 on
February 28, 1998. During the 12-month reporting period, shareholders received
income distributions totaling 55.72 cents ($0.5572) per share. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.64
cents ($0.0464) and the maximum offering price of $12.04 on February 28, 1998,
your fund's distribution rate was 4.62%. 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 Oregon state personal income tax
bracket would need to earn 8.41% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 45 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Oregon municipal bonds. Of course, such unmanaged market indices
have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as Franklin Oregon Tax-Free Income Fund's had been
applied to this index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot invest
in it directly.
Franklin Oregon
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-2/28/98*
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
September 4.64 cents
October 4.64 cents
November 4.64 cents
December 4.64 cents
January 4.64 cents
February 4.64 cents
Total 55.72 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 31 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Oregon Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 7.66% 21.36%
Average Annual Total Return2 5.57% 6.71%
Distribution Rate3 4.62%
Taxable Equivalent
Distribution Rate4 8.41%
30-Day Standardized Yield5 3.58%
Taxable Equivalent Yield4 6.51%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.64 cent per
share monthly dividend and the offering price of $12.04 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Oregon state personal income tax bracket of 45.0%, 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
GRAPHIC MATERIAL 32 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin Pennsylvania Tax-Free Income Fund 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
Commonwealth Update
At the end of fiscal 1997, Pennsylvania reported a $342 million operating
surplus on a budgetary basis, bringing its general reserves to a total of $568.3
million. If the state keeps spending below revenue growth, another surplus
should lead to an increase in its fund balance position in fiscal 1998.2
Pennsylvania's sound financial status buttresses a state whose economy, while
growing, remains highly cyclical. With recent gains in the business, health care
and consumer services sectors, we maintain a positive outlook on the state and
expect restoration of Pennsylvania's economic strengths.
Standard & Poor's rating for the state's general obligation debt is AA-.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. The
fund's shares are free from Pennsylvania personal property tax and income is
free from Philadelphia School Investment Net Income Tax.
2. Source: Standard & Poor's CreditWeek Municipal, 10/27/97.
3. This does not indicate Standard & Poor's rating of the fund.
You may find a complete listing of the fund's portfolio holdings beginning on
page 102 of this report.
Portfolio Notes
Interest rates trended lower during the reporting period, leading to increased
refunding volume. As of February 28, 1998, prerefunded bonds accounted for 12.2%
of the fund's total long-term investments. We intend to reduce the amount of the
portfolio's prerefunded bonds by selling them with approximately five years
remaining until the call date. By reinvesting the proceeds in bonds with about
10 years of call protection, we may extend the income-earning potential of the
fund.
During the reporting period, the supply of Pennsylvania bonds remained strong,
increasing 32%. A considerable amount of this new supply consisted of insured
municipal bonds, a trend that led to a narrowing between the yields of AAA-rated
and lower-rated securities. We therefore concentrated the fund's investments in
higher-rated securities, as the lower-rated issues' yields simply were not high
enough to compensate for their added credit risk. On February 28, 1998,
AAA-rated bonds comprised 57.2% of the portfolio's total long-term investments.
Seeking to decrease credit risk, we maintained our practice of diversifying
across different sectors. Hospital and utility issues were among the fund's
largest sectors, at 21.8% and 21% of total long-term investments, respectively,
at the reporting period's end. Some new purchases during the reporting period
included University of Pittsburgh and Exeter Township general obligation bonds.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Franklin Pennsylvania
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Hospitals 21.8%
Utilities 21.0%
Prerefunded 12.2%
Education 12.5%
Housing 9.3%
General Obligations 6.0%
Health Care 5.5%
Other Revenue 4.6%
Transportation 4.2%
Industrial 2.9%
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 33 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class I
Franklin Pennsylvania Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 17 cents, from $10.39 on February 28, 1997, to $10.56
on February 28, 1998. In addition to distributing 58.80 cents ($0.5880) per
share in dividend income, the fund made long-term capital gain distributions
totaling 13.87 cents ($0.1387) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.7 cents
($0.047), which includes a dividend adjustment, and the maximum offering price
of $11.03 on February 28, 1998, your fund's distribution rate was 5.11%. 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
Pennsylvania state personal income tax bracket, would need to earn 8.70% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 49 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Pennsylvania municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin Pennsylvania Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin Pennsylvania
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-2/28/98*
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
September 4.8 cents
October 4.8 cents
November 4.8 cents
December 4.8 cents
January 4.8 cents
February 4.8 cents
Total 58.80 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 34 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Pennsylvania Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-Year 5-Year 10-Year (12/1/86)
Cumulative Total Return1 8.90% 36.18% 116.79% 121.24%
Average Annual Total Return24.29% 5.45% 7.58% 6.91%
Distribution Rate3 5.11%
Taxable Equivalent
Distribution Rate4 8.70%
30-Day Standardized Yield5 4.21%
Taxable Equivalent Yield4 7.17%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 4.7 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $11.03 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Pennsylvania state personal income tax bracket of 41.3%,
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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, 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 and 9.61 cents ($0.0961) per share in December 1997. The fund hereby
designates such distributions as capital gain dividends per Section 852 (b)(3)
of the Internal Revenue Code.
GRAPHIC MATERIAL 35 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class II
Franklin Pennsylvania Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 18 cents, from $10.43 on February 28, 1997, to
$10.61 on February 28, 1998. In addition to distributing 52.80 cents ($0.5280)
per share in dividend income, the fund made long-term capital gain distributions
totaling 13.87 cents ($0.1387) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.18
cents ($0.0418), which includes a dividend adjustment, and the maximum offering
price of $10.72 on February 28, 1998, your fund's distribution rate was 4.68%.
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
Pennsylvania state personal income tax bracket would need to earn 7.97% from a
taxable investment to match the fund's tax-free distribution rate.
The chart on page 51 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Pennsylvania municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin Pennsylvania Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin Pennsylvania
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-2/28/98*
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
September 4.29 cents
October 4.29 cents
November 4.29 cents
December 4.29 cents
January 4.28 cents
February 4.28 cents
Total 52.80 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 36 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Pennsylvania Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 8.35% 22.37%
Average Annual Total Return2 6.23% 7.02%
Distribution Rate3 4.68%
Taxable Equivalent
Distribution Rate4 7.97%
30-Day Standardized Yield5 3.79%
Taxable Equivalent Yield4 6.46%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.18 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $10.72 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal, and Pennsylvania state personal income tax bracket of 41.3%,
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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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 and 9.61 cents ($0.0961) in December 1997. The fund hereby designates such
distributions as capital gain dividends per Section 852 (b)(3) of the Internal
Revenue Code.
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
GRAPHIC MATERIAL 37 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin Puerto Rico Tax-Free Income Fund seeks to
provide high, current income exempt from regular federal and many states'
personal income taxes through a portfolio consisting primarily of Puerto Rico
municipal bonds.1
Commonwealth Update
Puerto Rico mirrored the U.S.' continued economic improvement during the
reporting period, a testament to the Commonwealth's close ties to the United
States. With its financial position strengthened and stabilized, the
Commonwealth's government maintains a program that combines tax cuts with
aggressive enforcement efforts. The result is an overall economic outlook that
we judge to be favorable.
Puerto Rico has significant infrastructure needs if it is to remain competitive
in the worldwide economy. Major spending priorities in 1998 include public
safety and education.2
One area of long-term concern is the phase-out of benefits from 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. To date, there has been no significant impact from the
phase-out, and we expect the Puerto Rican government to be aggressive in seeking
alternative incentives to attract and retain companies.3
One new element on the island's economic horizon is the plan to privatize the
Telephone Authority, with the sale proceeds applied to capital needs and debt
obligations.
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: Moody's Investor Services, 5/97.
3. Ibid.
You may find a complete listing of the fund's portfolio holdings beginning on
page 108 of this report.
Portfolio Notes
During the reporting period, we focused on diversifying the fund's investments,
while increasing the portfolio's average credit quality. For example, the fund's
total long-term investments in AAA-rated securities increased during the fund's
fiscal year, from 31.3% to 35.3%, while those rated BBB decreased from 48.2% to
47.8%. These changes in the portfolio's credit-quality breakdown resulted in
part from an increase in the supply of insured Puerto Rico bonds coming to
market.
The total supply of Puerto Rico municipal bonds jumped 89% from 1996 to 1997.
This sizeable increase was a combination of refunding and new money. The
substantial amount of refunding brought about by declining interest rates also
contributed to the changes in the portfolio's credit-quality breakdown, as
several of the fund's bonds became prerefunded during the reporting period. Some
of the fund's recent purchases include Puerto Rico Commonwealth general
obligation bonds, Puerto Rico Commonwealth Infrastructure Financing Authority,
and University of Puerto Rico.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Franklin Puerto Rico
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Utilities 23.2%
Transportation 19.2%
Hospitals 11.1%
Prerefunded 9.7%
Other Revenue 9.4%
General Obligations 8.6%
Housing 7.4%
Industrial 5.0%
Education 4.9%
Sales Tax Revenue 1.5%
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 38 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class I
Franklin Puerto Rico Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 35 cents, from $11.51 on February 28, 1997, to $11.86
on February 28, 1998. In addition to distributing 62.1 cents ($0.6210) per share
in dividend income, your fund also made a long-term capital gain distribution of
1.4 cents ($0.0140) per share during the 12-month reporting period.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.1 cents
($0.051) and the maximum offering price of $12.39 on February 28, 1998, your
fund's distribution rate was 4.94%. 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 8.18%
from a taxable investment to match the fund's tax-free distribution rate.
The chart on page 55 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Puerto Rico municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin Puerto Rico Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin Puerto Rico
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-2/28/98*
Dividend
Month per share
March 5.4 cents
April 5.4 cents
May 5.4 cents
June 5.1 cents
July 5.1 cents
August 5.1 cents
September 5.1 cents
October 5.1 cents
November 5.1 cents
December 5.1 cents
January 5.1 cents
February 5.1 cents
Total 62.10 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 39 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Puerto Rico Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-Year 5-Year 10-Year (4/3/85)
Cumulative Total Return1 8.78% 35.21% 110.95% 170.91%
Average Annual Total Return2 4.17% 5.31% 7.28% 7.67%
Distribution Rate3 4.94%
Taxable Equivalent
Distribution Rate4 8.18%
30-Day Standardized Yield5 3.92%
Taxable Equivalent Yield4 6.49%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.1 cent per
share monthly dividend and the maximum offering price of $12.39 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, 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 ($0.014) 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 40 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class II
Franklin Puerto Rico Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 34 cents, from $11.53 on February 28, 1997, to $11.87
on February 28, 1998. In addition to distributing 55.48 cents ($0.5548) per
share in dividend income, your fund also made a long-term capital gain
distribution of 1.4 cents ($0.0140) per share during the 12-month reporting
period. Distributions will vary based on the earnings of the fund's portfolio,
and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.52
cents ($0.0452) and the maximum offering price of $11.99 on February 28, 1998,
your fund's distribution rate was 4.52%. 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 7.48%
from a taxable investment to match the fund's tax-free distribution rate.
The chart on page 57 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of Puerto Rico municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin Puerto Rico Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin Puerto Rico
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-2/28/98*
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
September 4.55 cents
October 4.55 cents
November 4.55 cents
December 4.55 cents
January 4.52 cents
February 4.52 cents
Total 55.48 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 41 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Puerto Rico Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 8.07% 21.89%
Average Annual Total Return2 5.97% 6.88%
Distribution Rate3 4.52%
Taxable Equivalent
Distribution Rate4 7.48%
30-Day Standardized Yield5 3.49%
Taxable Equivalent Yield4 5.78%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.52 cent per
share monthly dividend and the offering price of $11.99 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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 ($0.014) 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 FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
GRAPHIC MATERIAL 42 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin Federal Intermediate-Term Tax-Free Income Fund
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 one-year reporting period, the U.S. economy continued to exhibit
steady growth. In spite of this, inflationary pressures actually decreased
during the year, paving the way for lower interest rates. The yield on the
bellwether 30-year Treasury bond declined from 6.80% on February 28, 1997, to
5.92% on February 28, 1998.
These downward-trending interest rates made for another strong year in the
municipal bond market, with over $210 billion in new issuance during 1997, and
more than half of that supply came to market insured. In consequence, the yield
spread between insured bonds and lower-rated bonds narrowed during the fund's
fiscal year. The fund generally purchased insured and higher-rated bonds, as
investments in lower-rated securities did not produce yields high enough to
justify their added credit risk.
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. A non-diversified fund, may be subject to greater risk of adverse
economic or regulatory developments than a fund with broader diversification.
You may find a complete listing of the fund's portfolio holdings beginning on
page 111 of this report.
The fund's credit-quality breakdown changed somewhat during the reporting
period. In particular, issues rated AAA to A increased over the period, from
35.9% of total long-term investments, to 47.8%. At the same time, our holdings
of BBB and lower-rated securities decreased from 64.1% to 52.2%. The fund
maintained wide sector diversification during the fiscal year, making purchases
such as Dade County (Florida) Airport, Tarrant County (Texas) Hospital, and
Wayne State (Nebraska) College.
In general, we take a conservative approach to managing this portfolio. In
addition to reviewing bond ratings from national rating agencies, Franklin's
group of municipal analysts perform in-depth research for our municipal bond
fund managers. By conducting thorough credit research, we seek to ensure that
our purchases fulfill the fund's investment objectives and requirements.
Going forward, our outlook for the municipal bond market remains positive. We
expect the supply of municipal bonds to remain stable in 1998. This, coupled
with a continued strong demand for municipals, should keep them an attractive
investment throughout the coming months.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Franklin Federal
Intermediate-Term
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Hospitals 14.2%
Utilities 14.0%
Transportation 10.4%
Industrial 9.1%
General Obligations 9.1%
Health Care 8.3%
Special
Assessment Bonds 7.5%
Education 7.4%
Housing 7.3%
Certificates
of Participation 5.9%
Other Revenue 2.3%
Marks-Roos Bonds 2.3%
Tax Allocation Bonds 1.6%
Prerefunded 0.6%
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 43 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Federal Intermediate-Term Tax-Free Income Fund's share price, as
measured by net asset value, increased 31 cents, from $10.94 on February 28,
1997, to $11.25 on February 28, 1998. During the 12-month reporting period,
shareholders received income distributions totaling 54.60 cents ($0.5460) per
share. Distributions will vary based on the earnings of the fund's portfolio,
and past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.4 cents
($0.044) and the maximum offering price of $11.51 on February 28, 1998, your
fund's distribution rate was 4.59%. 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 7.60% from
a taxable investment to match the fund's tax-free distribution rate.
The chart on page 61 compares your fund's shares' performance with that of the
unmanaged Lehman Brothers Municipal 10-Year Bond Index. The index includes
approximately 8,000 municipal securities from across the country, while your
fund consists of over 150 intermediate-term municipal bonds nationwide. Of
course, such unmanaged market indices have inherent performance differentials
over any fund. They do not pay management fees to cover salaries of securities
analysts or portfolio managers, or pay commissions or market spreads to buy and
sell securities. Unlike unmanaged indices, mutual funds are never 100% invested
because they need cash on hand to redeem shares. In addition, the performance
shown for the fund includes the maximum initial sales charge, all fund expenses
and account fees. If operating expenses such as Franklin Federal
Intermediate-Term Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin Federal
Intermediate-Term
Tax-Free Income Fund
Dividend Distributions
3/1/97-2/28/98*
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
September 4.6 cents
October 4.6 cents
November 4.6 cents
December 4.4 cents
January 4.4 cents
February 4.4 cents
Total 54.60 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 44 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Federal Intermediate-Term Tax-Free Income Fund
Periods ended 2/28/98
Since
Inception
1-Year 5-Year (9/23/92)
Cumulative Total Return1 8.02% 37.37% 46.07%
Average Annual Total Return2 5.62% 6.08% 6.78%
Distribution Rate3 4.59%
Taxable Equivalent
Distribution Rate4 7.60%
30-Day Standardized Yield5 3.88%
Taxable Equivalent Yield4 6.42%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, maximum 2.25%
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 $11.51 on February 28,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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 its management fees,
which reduces operating expenses and increases distribution rate, yield and
total return to shareholders. Without this waiver, the fund's distribution rate
and total return would have been lower, and yield for the period would have been
3.82%. The fee waiver may be discontinued at any time upon notice to the fund's
Board of Trustees.
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
GRAPHIC MATERIAL 45 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Your Fund's Objective: Franklin High Yield Tax-Free Income Fund 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
The U.S. has recently completed its seventh year of economic growth. The
Goldilocks economy (not too hot, not too cold) continued with moderate economic
growth, and inflation at an eleven-year low of 1.7% for 1997.2 The Federal
Reserve moved to a more neutral position from their stance in 1997, which was
biased toward a tightening of monetary policy. With inflation trending downward
during the reporting period, interest rates followed suit. The benchmark 30-year
Treasury bond yield began the reporting period at 6.80%, but declined to 5.92%
by February 28, 1998. The Bond Buyer 40 Index declined 52 basis points during
the reporting period.3 The lack of inflation in the U.S. and a flight to quality
due to the Asian crisis, helped drive this strength in the fixed-income markets.
This contributed to excellent performance in all classes of fixed-income
investments, including municipal bonds.
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: Bloomberg. Inflation measured as CPI year-over-year percentage change
as of 12/97.
3. Source: Bloomberg. Index is unmanaged and includes reinvested dividends.
You may find a complete listing of the fund's portfolio holdings beginning on
page 118 of this report.
Municipal bond insurance once again dominated the market, representing about 60%
of new issues and an even higher percentage of secondary issues. Additionally,
many issuers took advantage of the low interest-rate environment to refund their
outstanding debt. Issuers can benefit from substantial interest cost savings
when they refund outstanding debt carrying coupon rates in the 7% - 9% range and
replace them with debt in the 5% range. For example, insured municipals in the
30-year range were close to their historically low yields of 5.15%, near the end
of the reporting period. All investors in fixed-income securities were affected
by call risk due to this large interest rate differential, and witnessed
substantial reductions in income after reinvestment in this lower-rate
environment.
State and local governments continue to improve their financial positions due to
the strong economy and improved fiscal responsibility. As a result, upgrades
substantially outpaced downgrades from the national credit rating agencies
during the reporting period.
Franklin High Yield
Tax-Free Income Fund
Portfolio Breakdown on 2/28/98
% of total
long-term
Sector investments
Utilities 26.1%
General Obligations 10.6%
Prerefunded 10.2%
Transportation 10.0%
Hospitals 9.8%
Special Assessment 7.0%
Industrial 6.6%
Health Care 5.3%
Housing 4.3%
Other Revenue 3.5%
Education 3.3%
Mello-Roos 1.4%
Cert. of Participation 1.4%
Tax Allocation 0.3%
Marks-Roos 0.2%
Portfolio Notes
During the reporting period, the strong demand for high yield securities
continued as interest rates declined, and an increasing percentage of bonds came
to market with municipal bond insurance. The lower interest-rate environment and
reduced supply of lower-quality bonds further compressed the spread between
higher- and lower-rated bonds. Under these conditions, we maintain a consistent,
disciplined investment approach. We rely on thorough credit research in an
attempt to differentiate credit quality within the various sectors of the
municipal market, allowing us to identify market inefficiencies by discovering
securities that we believe are undervalued.
During the reporting period, we invested in many different sectors and issues.
We found tremendous value in New York securities, which comprised over 16% of
the fund's long-term assets at the close of the period. Today, New York City and
New York state enjoy improved fiscal positions, and both are projecting budget
surpluses for fiscal year 1998. Consequently, Standard & Poor's upgraded the
ratings on New York state bonds while Moody's upgraded the rating for New York
City bonds. As a result, New York securities were one of the best performing
sectors in the market during the fund's fiscal year.
"During the reporting period, we invested in a number of different utilities
that, in our opinion, provided such excellent opportunities."
We also found opportunities, on a selective basis, in the utility sector. With
many states preparing for the new era of utility deregulation, many market
participants have become cautious about the outlook for utility investments.
This uncertainty can also create some interesting investment opportunities,
which thorough research can uncover. During the reporting period, we invested in
a number of different utilities that, in our opinion, provided such excellent
opportunities. A few of these include Tucson Electric, Nevada Power, and Public
Service New Mexico. Each has performed extremely well during the fund's fiscal
year. Perhaps one of the best investments since the fund's inception in 1986 was
the $50 million purchase in 1993 of the non-rated San Joaquin Toll Road Junior
Lien zero coupon securities. We performed extensive research on this start-up
toll road at the time these bonds were issued. Since then, the project has been
very successful, and the issuer was able to refinance the outstanding issue. As
a result, our original $50 million investment is now secured by U.S. Treasury
securities, rated AAA, and was valued at approximately $180 million at the end
of the reporting period. Since these bonds are non-callable until their
maturity, it remains one of our core positions.
Please remember, this discussion reflects our views and opinions as of February
28, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy. We appreciate your continued support and welcome any questions about
your investment.
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 46 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class I
Franklin High Yield Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased 47 cents, from $11.21 on February 28, 1997, to $11.68
on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 68.8 cents ($0.688) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.6 cents
($0.056), which includes a dividend adjustment, and the maximum offering price
of $12.20 on February 28, 1998, your fund's distribution rate was 5.51%. 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 9.12% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 66 compares your fund's Class I shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of high yield municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin High Yield Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin High Yield
Tax-Free Income Fund
Class I
Dividend Distributions
3/1/97-2/28/98*
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
September 5.7 cents
October 5.7 cents
November 5.7 cents
December 5.7 cents
January 5.7 cents
February 5.7 cents
Total 68.8 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 47 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin High Yield Tax-Free Income Fund - Class I
Periods ended 2/28/98
Since
Inception
1-Year 5-Year 10-Year (3/18/86)
Cumulative Total Return1 10.64% 46.43% 137.22% 172.89%
Average Annual Total Return2 5.92% 7.00% 8.55% 8.37%
Distribution Rate3 5.51%
Taxable Equivalent
Distribution Rate4 9.12%
30-Day Standardized Yield5 4.69%
Taxable Equivalent Yield4 7.76%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents 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 5.6 cent per
share monthly dividend, which includes a dividend adjustment, and the maximum
offering price of $12.20 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
federal 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 February 28, 1998.
Note: Prior to July 1, 1994, Class I shares were offered at a lower initial
sales charge, with dividends reinvested at the offering price. Thus actual total
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. Since markets can go down as well as up, 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 48 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class II
Franklin High Yield Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased 49 cents, from $11.26 on February 28, 1997, to $11.75
on February 28, 1998. During the 12-month reporting period, shareholders
received income distributions totaling 62.22 cents ($0.6222) per share.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.04
cents ($0.0504), which includes a dividend adjustment, and the maximum offering
price of $11.87 on February 28, 1998, your fund's distribution rate was 5.10%.
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 8.44% from a taxable investment to match the fund's
tax-free distribution rate.
The chart on page 68 compares your fund's Class II shares' performance with that
of the unmanaged Lehman Brothers Municipal Bond Index. The index includes over
25,000 municipal securities from across the country, while your fund consists
primarily of high yield municipal bonds. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not pay
management fees to cover salaries of securities analysts or portfolio managers,
or pay commissions or market spreads to buy and sell securities. Unlike
unmanaged indices, mutual funds are never 100% invested because they need cash
on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such as
Franklin High Yield Tax-Free Income Fund's had been applied to this index, the
index's performance would have been lower. Please remember that an index is
simply a measure of performance and one cannot invest in it directly.
Franklin High Yield
Tax-Free Income Fund
Class II
Dividend Distributions
3/1/97-2/28/98*
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
September 5.15 cents
October 5.15 cents
November 5.15 cents
December 5.15 cents
January 5.14 cents
February 5.14 cents
Total 62.22 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 include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 49 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin High Yield Tax-Free Income Fund - Class II
Periods ended 2/28/98
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 10.15% 27.85%
Average Annual total Return2 8.09% 8.68%
Distribution Rate3 5.10%
Taxable Equivalent
Distribution Rate4 8.44%
30-Day Standardized Yield5 4.29%
Taxable Equivalent Yield4 7.10%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 5.04 cent per
share monthly dividend, which includes a dividend adjustment, and the offering
price of $11.87 on February 28, 1998.
4. Taxable equivalent distribution rate and yield assume the 1998 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 February 28, 1998.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, 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
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 generally are invested in U.S. Treasuries set to mature at the original
bond's 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
generally are referred to as "gilt-edged." Interest payments are protected by a
large or exceptionally stable margin, and principal is secure. Although 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 generally are 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 likely will 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
<TABLE>
<CAPTION>
Franklin Arizona Tax-Free Income Fund
Year Ended February 28,
Class I 1998 1997 19961 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.24 $11.34 $11.11 $11.58 $11.57
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .61 .62 .64 .65 .66
Net realized and unrealized gains (losses) ......................... .29 (.04) .36 (.48) .02
-----------------------------------------------------
Total from investment operations .................................... .90 .58 1.00 .17 .68
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.61) (.63) (.65) (.64) (.67)
In excess of net investment income ................................. (.01) -- -- -- --
Net realized gains.................................................. (.08) (.05) (.12) -- --
------------------------------------------------------
Total distributions.................................................. (.70) (.68) (.77) (.64) (.67)
------------------------------------------------------
Net asset value, end of year......................................... $11.44 $11.24 $11.34 $11.11 $11.58
======================================================
Total return*........................................................ 8.23% 5.33% 9.24% 1.63% 5.76%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $810,250 $752,335 $750,797 $720,801 $796,838
Ratios to average net assets:
Expenses............................................................ .63% .62% .62% .60% .54%
Net investment income .............................................. 5.40% 5.59% 5.67% 5.86% 5.65%
Portfolio turnover rate.............................................. 20.02% 16.57% 25.12% 18.65% 14.17%
Class II
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.30 $11.38 $11.15
---------------------------------
Income from investment operations:
Net investment income .............................................. .56 .57 .49
Net realized and unrealized gains (losses) ......................... .29 (.03) .34
---------------------------------
Total from investment operations..................................... .85 .54 .83
---------------------------------
Less distributions from:
Net investment income .............................................. (.56) (.57) (.48)
Net realized gains.................................................. (.08) (.05) (.12)
----------------------------------
Total distributions.................................................. (.64) (.62) (.60)
----------------------------------
Net asset value, end of year......................................... $11.51 $11.30 $11.38
==================================
Total return*........................................................ 7.67% 4.89% 7.60%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $14,537 $5,486 $1,892
Ratios to average net assets:
Expenses............................................................ 1.19% 1.19% 1.20%**
Net investment income .............................................. 4.82% 5.01% 5.05%**
Portfolio turnover rate.............................................. 20.02% 16.57% 25.12%
</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 May 1, 1995 (effective date) to February 29, 1996 for Class II.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Arizona Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 99.5%
Apache Junction, Arizona Water Utilities Community, 5.80%, 7/01/17............................ $ 1,200,000 $ 1,283,676
Arizona Educational Loan Marketing Corp. Revenue,
Senior Series, 6.375%, 9/01/05................................................................ 10,000,000 10,710,300
Series B, 7.00%, 3/01/03...................................................................... 1,000,000 1,087,700
Series B, 7.00%, 3/01/05 ..................................................................... 1,000,000 1,080,140
Series B, MBIA Insured, 7.35%, 9/01/04 ....................................................... 1,000,000 1,057,290
Series B, MBIA Insured, 7.375%, 9/01/05 ...................................................... 775,000 818,524
Sub-Series, 6.625%, 9/01/05................................................................... 1,000,000 1,075,160
Arizona Health Facilities Authority, Hospital System Revenue, Phoenix Baptist Hospital,
MBIA Insured, ETM, 6.25%, 9/01/11............................................................. 2,000,000 2,189,980
Arizona Health Facilities Authority Revenue, Arizona Voluntary Hospital, Series B, FGIC Insured,
7.25%, 10/01/13 .............................................................................. 5,000,000 5,282,150
Hospital Federal Pooled Loan Revenue, 7.75%, 10/01/07......................................... 770,000 814,098
Arizona State COP,
FSA Insured, 6.625%, 9/01/08.................................................................. 5,000,000 5,464,450
Refunding, Series B, AMBAC Insured, 6.25%, 9/01/10............................................ 5,000,000 5,468,350
Arizona State Municipal Financing Program, COP, BIG Insured,
Dysart School, Series 22, ETM, 7.875%, 8/01/05 ............................................... 1,350,000 1,654,304
Peoria School, Series 19, ETM, 7.75%, 8/01/04 ................................................ 500,000 600,345
Series 20, ETM, 7.625%, 8/01/06 .............................................................. 3,250,000 3,812,510
Series 25, 7.875%, 8/01/14 ................................................................... 500,000 671,815
Series 29, Pre-Refunded, 7.125%, 8/01/14 ..................................................... 2,500,000 2,640,775
Arizona State Transportation Board, Excise Tax Revenue, Maricopa
County Regional Area Road Fund, Series A, Pre-Refunded, 7.60%, 7/01/05 ...................... 1,750,000 1,807,208
Arizona State Wastewater Management Authority, Wastewater
Treatment Financial Assistance Revenue, 6.80%, 7/01/11....................................... 4,000,000 4,450,320
Series A, AMBAC Insured, 5.625%, 7/01/15...................................................... 1,000,000 1,057,290
Arizona Water Infrastructure Finance Authority Revenue,
Water Quality Financial Assistance, Series A, MBIA Insured, 5.00%, 7/01/17.................... 1,670,000 1,667,829
Bullhead City Municipal Property Corp., Municipal Facilities Revenue,
MBIA Insured, Pre-Refunded, 7.20%, 7/01/09.................................................... 2,125,000 2,240,961
Casa Grande, Excise Tax Revenue, FGIC Insured, 6.20%, 4/01/15................................. 930,000 1,010,761
Casa Grande IDA, Frito Lay/PepsiCo,
IDR, 6.65%, 12/01/14.......................................................................... 500,000 553,905
PCR, 6.60%, 12/01/10.......................................................................... 1,800,000 1,991,070
Chandler GO, FGIC Insured,
Pre-Refunded, 6.80%, 7/01/13 ................................................................. 1,750,000 2,019,028
Pre-Refunded, 6.85%, 7/01/14 ................................................................. 1,625,000 1,879,280
Refunding, 7.00%, 7/01/12..................................................................... 1,000,000 1,095,330
Chandler IDA, MFHR, Refunding, Hacienda Apartments,
Project A, GNMA Secured, 6.05%, 7/20/30....................................................... 4,055,000 4,245,950
Chandler Street and Highway Revenue, MBIA Insured, Pre-Refunded, 6.85%, 7/01/13............... 1,250,000 1,445,600
Chandler Water and Sewer Revenue, Refunding, FGIC Insured,
7.00%, 7/01/12 ............................................................................... 6,715,000 7,355,141
6.25%, 7/01/13 ............................................................................... 2,165,000 2,349,718
5.25%, 7/01/15 ............................................................................... 2,270,000 2,318,442
Coconino County,
Flagstaff USD No. 1, AMBAC Insured, 6.20%, 7/01/06............................................ 1,095,000 1,152,893
PCC Revenue, 6.375%, 10/01/36 ................................................................ 3,500,000 3,789,625
PCC Revenue, Nevada Power Co., Series B, 5.80%, 11/01/32 ..................................... 6,500,000 6,635,915
PCC Revenue, Refunding, Nevada Power Co., Series E, 5.35%, 10/01/22 .......................... 7,265,000 7,215,525
PCC Revenue, Refunding, Public Service Co., Series A, MBIA Insured, 5.875%, 8/15/28 .......... 5,275,000 5,542,126
Eloy Municipal Property Corp., Facilities Revenue, 7.80%, 7/01/09 ............................ 1,475,000 1,572,896
Gila County IDA Revenue, Refunding, Asarco, Inc., 5.55%, 1/01/27.............................. 38,400,000 39,130,739
Gilbert ID No. 11, FGIC Insured, 7.60%, 1/01/05............................................... 1,500,000 1,556,400
Gilbert Water and Sewer Revenue, Refunding, FGIC Insured, 6.50%,
7/01/12 ...................................................................................... 1,500,000 1,680,015
7/01/22 ...................................................................................... 3,250,000 3,598,335
Glendale IDA, Educational Facilities Revenue, Refunding, American
Graduate School International, Connie Lee Insured, 5.875%, 7/01/15 ........................... 2,200,000 2,355,430
Pre-Refunded, 7.00%, 7/01/14 ................................................................. 1,000,000 1,182,280
Pre-Refunded, 7.125%, 7/01/20 ................................................................ 1,250,000 1,487,613
Glendale IDAR, Midwestern University, Series A, Connie Lee Insured, 6.00%,
5/15/16 ...................................................................................... $ 1,940,000 $ 2,105,812
5/15/26 ...................................................................................... 2,000,000 2,149,800
Glendale Municipal Property Corp., Refunding, MBIA Insured, 7.00%, 7/01/09 ................... 2,400,000 2,519,376
Guam Power Authority Revenue,
GO, 6.30%, 10/01/22........................................................................... 4,000,000 4,243,520
Series A, 6.30%, 10/01/12 .................................................................... 3,630,000 3,858,617
Lake Havasu City, Wastewater COP, FGIC Insured, 7.00%, 6/01/05 ............................... 2,700,000 2,945,079
Marana Municipal Property Corp., Municipal Facilities Revenue,
Refunding, MBIA Insured, 5.25%, 7/01/22 ...................................................... 1,170,000 1,185,818
Maricopa County, IDA, MFHR, FSA Insured,
Madera Pointe Apts., 5.90%, 6/01/26 .......................................................... 2,105,000 2,220,649
National Health Facilities II Project, Series A, 5.10%, 1/01/33 .............................. 12,500,000 12,378,375
Maricopa County COP, 6.00%, 6/01/04........................................................... 8,000,000 8,429,200
Maricopa County Hospital Revenue, Sun Health Corp., Refunding,
5.80%, 4/01/08 ............................................................................... 3,870,000 4,074,955
5.90%, 4/01/09 ............................................................................... 2,120,000 2,239,992
6.125%, 4/01/18 .............................................................................. 15,650,000 16,625,934
Maricopa County IDA Revenue,
Hospital Facility Revenue, FSA Insured, 7.50%, 12/01/13....................................... 1,445,000 1,592,925
Hospital Facility Revenue, FSA Insured, Pre-Refunded, 7.50%, 12/01/13......................... 1,305,000 1,450,116
Hospital Facility Revenue, Samaritan Hospital Health Services,
Refunding, Series A, MBIA Insured, 7.00%, 12/01/13............................................ 17,800,000 19,393,990
Hospital Facility Revenue, Samaritan Hospital Health Services,
Refunding, Series A, MBIA Insured, 7.00%, 12/01/16............................................ 1,890,000 2,356,792
IDR, Citizens Utilities Co. Project, 6.20%, 5/01/30 .......................................... 5,000,000 5,392,200
Mercy Health System, Series A, MBIA Insured, Pre-Refunded, 7.125%, 7/01/07.................... 1,660,000 1,751,300
Mercy Health System, Series C, MBIA Insured, Pre-Refunded, 7.15%, 7/01/15 .................... 750,000 797,588
SFMR, GNMA Secured, 8.00%, 9/01/09 ........................................................... 805,000 841,531
Maricopa County School District No. 4, Mesa Unified, FGIC Insured,
5.65%, 7/01/11 ............................................................................... 1,500,000 1,621,320
5.70%, 7/01/12 ............................................................................... 2,000,000 2,161,420
Maricopa County School District No. 8, Osborn,
Refunding, Series A, FGIC Insured, 5.875%, 7/01/14 ........................................... 3,500,000 3,811,710
School Improvement Project, Series B, Pre-Refunded, 7.10%, 7/01/05 ........................... 500,000 526,310
School Improvement Project, Series B, Pre-Refunded, 7.15%, 7/01/07............................ 1,075,000 1,132,255
School Improvement Project, Series B, Pre-Refunded, 7.20%, 7/01/09 ........................... 1,885,000 1,986,602
Maricopa County School District No. 11, Peoria Unified, Refunding,
AMBAC Insured, 6.10%, 7/01/10 ................................................................ 6,300,000 6,947,766
MBIA Insured, 7.00%, 7/01/10 ................................................................. 2,800,000 3,077,900
Maricopa County School District No. 28, Kyrene Elementary,
Series B, FGIC Insured, 6.00%, 7/01/14 ....................................................... 2,000,000 2,155,400
Maricopa County Stadium District Revenue, MBIA Insured, 5.75%, 7/01/16 ....................... 3,000,000 3,161,880
Maricopa County UHSD No. 210,
Series A, 5.70%, 7/01/15 ..................................................................... 500,000 532,285
Series B, 5.50%, 7/01/17 ..................................................................... 9,050,000 9,424,308
Maricopa County USD No. 41, Gilbert, 6.25%, 7/01/15 .......................................... 2,000,000 2,124,880
Maricopa County USD No. 65, Littleton School Improvement,
Series B, FGIC Insured, 6.40%, 7/01/14 ...................................................... 1,175,000 1,291,866
Maricopa County USD No. 66, Roosevelt Elementary Project,
Series B, FGIC Insured, 5.25%, 7/01/17....................................................... 2,500,000 2,545,700
Maricopa County USD No. 69, GO, Paradise Valley, Series A, 7.10%, 7/01/05 .................... 1,000,000 1,150,120
Maricopa County USD No. 80, Chandler, FGIC Insured, 6.00%, 7/01/13............................ 1,600,000 1,742,016
Maricopa County USD No. 89, Dysart, Refunding and Improvement, FGIC Insured,
6.70%, 7/01/05 ............................................................................... 240,000 256,421
6.75%, 7/01/06 ............................................................................... 1,760,000 1,881,141
Maricopa County USD No. 98, Fountain Hills School, Improvement Bond, Refunding,
FGIC Insured, 6.625%, 7/01/10................................................................ 1,300,000 1,405,573
Maricopa County USD No. 214, Tolleson GO, FGIC Insured, 5.75%, 7/01/14 ....................... 1,000,000 1,070,190
b Mesa GO, FGIC Insured, 5.00%, 7/01/18...................................................... 4,000,000 3,929,560
Mesa IDA, Health Care Facilities Revenue, Western Health Network, BIG Insured,
Refunding, Series B-2, 7.50%, 1/01/08 ........................................................ 685,000 717,579
Series A-2, 7.625%, 1/01/13................................................................... 5,250,000 5,518,223
Series A-3, 7.625%, 1/01/13................................................................... 250,000 262,773
Series A-4, 7.625%, 1/01/09................................................................... 2,075,000 2,175,596
Mesa Utility System Revenue, FGIC Insured, 5.375%, 7/01/17 ................................... $15,500,000 $ 16,010,260
Mohave County, Hospital District No. 1, Kingman Regional Medical Center Project,
FGIC Insured, 6.50%, 6/01/15.................................................................. 1,500,000 1,626,345
Pre-Refunded, 8.375%, 6/01/15 ................................................................ 6,350,000 7,043,928
Mohave County IDA,
Health Care Revenue, Chris Ridge and Silver Insured,
Refunding, GNMA Secured, 6.375%, 11/01/31.................................................... 1,585,000 1,737,287
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.50%, 9/01/21...................... 1,500,000 1,547,040
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.75%, 9/01/26...................... 4,675,000 4,935,070
Hospital Systems Revenue, Medical Environments, Inc., Phoenix Hospital
and Medical Center, ETM, 5.80%, 7/01/99 ...................................................... 1,595,000 1,638,240
IDR, Citizens Utilities Co. Project, 6.60%, 5/01/29 .......................................... 4,100,000 4,469,492
IDR, Citizens Utilities Co. Project, Series A, 7.15%, 2/01/26 ................................ 10,000,000 10,617,900
IDR, Citizens Utilities Co. Project, Series B, 7.15%, 2/01/26 ................................ 5,000,000 5,308,950
Navajo County PCR, Arizona Public Service Co., Series A,
MBIA Insured, 5.875%, 8/15/28 ................................................................ 3,000,000 3,151,920
Refunding, 5.875%, 8/15/28.................................................................... 54,500,000 56,985,200
Nogales Municipal Development Authority, Inc., Municipal Facilities Revenue, MBIA Insured,
Refunding 7.20%, 6/01/08...................................................................... 6,350,000 6,970,522
Pre-Refunded, 8.00%, 6/01/08 ................................................................. 500,000 510,225
Northern Arizona University System Revenue,
Pre-Refunded, 7.50%, 6/01/06 ................................................................. 3,700,000 3,869,682
Refunding, FGIC Insured, 6.40%, 6/01/07....................................................... 2,750,000 2,989,993
Northern Mariana Islands, Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Improvement, Series A, 5.35%, 10/01/98 .......................................... 310,000 311,432
5.45%, 10/01/99 .............................................................................. 330,000 333,102
5.55%, 10/01/00 .............................................................................. 345,000 350,430
5.65%, 10/01/01 .............................................................................. 365,000 372,661
5.75%, 10/01/02 .............................................................................. 385,000 395,079
6.85%, 10/01/25 .............................................................................. 7,150,000 7,603,382
Oro Valley, COP, MBIA Insured, 5.750%, 7/01/17................................................ 1,000,000 1,066,790
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA Insured,
5.55%, 7/01/17................................................................................ 1,150,000 1,212,100
5.375%, 7/01/26 .............................................................................. 1,000,000 1,024,850
Peoria Municipal Development Authority, Water and Sewer Revenue,
Refunding, FGIC Insured, 6.625%, 7/01/06 ..................................................... 1,000,000 1,062,640
Phoenix Airport Revenue, MBIA Insured,
Refunding, Series B, 6.20%, 7/01/10........................................................... 700,000 776,202
Refunding, Series C, 6.30%, 7/01/10........................................................... 1,680,000 1,857,324
Refunding, Series C, 6.40%, 7/01/11........................................................... 1,785,000 1,983,099
Refunding, Series C, 6.40%, 7/01/12........................................................... 570,000 631,931
Series D, 6.30%, 7/01/10...................................................................... 1,800,000 1,989,990
Series D, 6.40%, 7/01/11...................................................................... 3,825,000 4,249,499
Series D, 6.40%, 7/01/12...................................................................... 820,000 909,093
Phoenix Civic Improvement Corp.,
Airport Terminal Excise Tax Revenue, 7.80%, 7/01/11........................................... 4,165,000 4,269,500
Airport Terminal Excise Tax Revenue, 7.875%, 7/01/14.......................................... 2,915,000 2,990,178
Airport Terminal Excise Tax Revenue, Pre-Refunded, 8.375%, 7/01/09............................ 275,000 281,771
bAirport Terminal Excise Tax Revenue, Refunding, Senior Lien, 4.90%, 7/01/13.................. 1,500,000 1,479,225
bAirport Terminal Excise Tax Revenue, Refunding, Senior Lien, 5.00%, 7/01/14.................. 1,245,000 1,234,081
Municipal Facilities Excise Tax Revenue, MBIA Insured, Pre-Refunded, 6.90%, 7/01/21........... 1,000,000 1,166,950
Water Systems Revenue, 5.95%, 7/01/15......................................................... 3,090,000 3,302,839
Water Systems Revenue, 5.95%, 7/01/16......................................................... 3,665,000 3,912,278
Water Systems Revenue, 6.00%, 7/01/19......................................................... 3,000,000 3,191,490
Water Systems Revenue, Junior Lien, MBIA Insured, 5.375%, 7/01/22............................. 8,130,000 8,287,559
Phoenix Civic Plaza Building Corp., 6.00%, 7/01/14............................................ 4,300,000 4,648,300
Phoenix GO,
Refunding, 6.375%, 7/01/13.................................................................... 5,000,000 5,471,650
Refunding, Series A, 5.50%, 7/01/15........................................................... 5,000,000 5,227,000
Refunding, Series A, 5.00%, 7/01/19........................................................... 3,500,000 3,445,610
Series B, 5.25%, 7/01/15...................................................................... 2,775,000 2,845,957
Phoenix HFC, Mortgage Revenue, Refunding, MBIA Insured,
Project A, 6.50%, 7/01/24..................................................................... $ 2,750,000 $ 2,883,595
Section 8 Project, Series A, 6.90%, 1/01/23................................................... 1,750,000 1,858,273
Section 8 Project, Series A, 7.25%, 1/01/23................................................... 2,260,000 2,353,813
Phoenix IDA,
Hospital Revenue, Connie Lee Insured, Refunding, Series B, 5.75%, 12/01/16 ................... 3,500,000 3,737,090
SFMR, FNMA Insured, 6.30%, 12/01/12 .......................................................... 855,000 922,314
Phoenix IDAR, Home Purchase Mortgage, GNMA Secured, Series B, 8.20%, 4/01/22 ................. 1,410,000 1,451,186
Phoenix Municipal Housing Revenue, Refunding, Fillmore Gardens Project, 6.30%, 6/01/09........ 1,500,000 1,617,150
Phoenix Street and Highway Revenue,
ETM, 6.80%, 7/01/03........................................................................... 1,000,000 1,127,910
Refunding, 6.60%, 7/01/07..................................................................... 5,000,000 5,482,300
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 67,197
Health Care Corp. Revenue, Carondelet St. Joseph's and St. Mary's Hospital,
BIG Insured, Pre-Refunded, 8.00%, 7/01/13..................................................... 535,000 553,174
Health Care Corp. Revenue, Carondelet St. Joseph's and St. Mary's Hospital,
MBIA Insured, 6.75%, 7/01/10.................................................................. 2,250,000 2,459,453
MFR, Series A, 6.00%, 12/01/21 ............................................................... 2,720,000 2,865,030
SFMR, GNMA Secured, 6.40%, 11/01/09 .......................................................... 830,000 889,121
SFMR, GNMA Secured, 8.125%, 9/01/20 .......................................................... 1,285,000 1,328,998
SFMR, GNMA Secured, 6.75%, 11/01/27........................................................... 3,715,000 4,003,581
SFMR, Refunding, Series A, 7.625%, 2/01/12 ................................................... 3,900,000 4,113,993
SFMR, Refunding, Series A, 6.50%, 2/01/17..................................................... 775,000 827,754
Pima County IDAR, Refunding, Series A, MBIA Insured, 5.625%, 4/01/14.......................... 2,250,000 2,390,018
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15............................ 1,410,000 1,532,656
Pima County USD No. 1, Tucson Project, FGIC Insured, 5.875%, 7/01/14 ......................... 21,000,000 22,646,820
Pinal County USD No. 43, Apache Junction Improvement, Refunding, FGIC Insured,
7.15%, 7/01/05 ............................................................................... 500,000 524,500
Pre-Refunded, 7.20%, 7/01/07 ................................................................. 700,000 738,199
Series A, 5.85%, 7/01/15 ..................................................................... 2,500,000 2,711,175
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, FSA Insured, Pre-Refunded, 9.00%, 7/01/09........................................... 75,000 95,747
Puerto Rico Commonwealth Highway and Transportation Authority Highway
Revenue, Series Y, 5.00%, 7/01/36............................................................. 9,000,000 8,701,560
Puerto Rico Commonwealth Highway Authority Revenue, Series P, Pre-Refunded, 8.125%, 7/01/13... 750,000 775,905
Puerto Rico Commonwealth Industrial Development Co., General Purpose Revenue,
Series B, 5.375%, 7/01/16 .................................................................... 2,800,000 2,852,836
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
Series A, 7.75%, 7/01/08...................................................................... 9,215,000 9,508,590
Series A, 7.50%, 7/01/09...................................................................... 2,000,000 2,062,000
Series A, AMBAC Insured, 5.00%, 7/01/28....................................................... 3,250,000 3,180,223
Puerto Rico Electric Power Authority Revenue,
Series R, 6.25%, 7/01/17...................................................................... 3,745,000 4,015,426
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 ............................................ 3,000,000 3,102,930
Refunding, Series N, 7.00%, 7/01/07........................................................... 745,000 782,913
Refunding, Series N, 7.125%, 7/01/14.......................................................... 2,205,000 2,325,150
Series O, 7.125%, 7/01/14 .................................................................... 1,510,000 1,592,280
Series X, 6.125%, 7/01/21 .................................................................... 25,720,000 27,849,102
Puerto Rico GO, Pre-Refunded, 6.50%, 7/01/23.................................................. 4,850,000 5,563,290
Puerto Rico HFC, SFMR, Portfolio 1, Series B, GNMA Secured, 7.65%, 10/15/22................... 875,000 930,895
Puerto Rico HFC Revenue,
FHA Mortgage Insured, Section 8 Assisted, Sixth Portfolio, Pre-Refunded, 7.75%, 12/01/26 ..... 40,000 49,497
MFMR, Portfolio 1, Series A, 7.50%, 4/01/22 .................................................. 1,445,000 1,522,886
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities,
Financing Authority Hospital Revenue, Series A,
Dr. Pila Hospital, Refunding, FHA Insured, 5.875%, 8/01/12.................................... 5,225,000 5,640,179
Hospital Auxilio Mutuo Obligation Group, MBIA Insured, 6.25%, 7/01/24 ........................ 1,950,000 2,144,552
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue,
Refunding, Series A, 5.75%, 1/01/13........................................................... 2,435,000 2,545,013
Refunding, Series A, 5.00%, 1/01/20........................................................... 12,500,000 12,287,125
Series A, 6.00%, 1/01/31 ..................................................................... 4,600,000 4,754,882
Series A, MBIA Insured, 6.00%, 1/01/31 ....................................................... 1,845,000 1,915,018
Series C, 6.20%, 1/01/12...................................................................... 5,925,000 6,335,840
Series C, 6.25%, 1/01/19...................................................................... 9,975,000 10,669,460
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue, (cont.)
Series D, 6.25%, 1/01/27...................................................................... $ 4,890,000 $ 5,250,051
Series D, Pre-Refunded, 6.25%, 1/01/27 ....................................................... 1,110,000 1,212,620
San Luis Municipal Property Corp., Municipal Facilities Revenue, 8.125%, 7/01/19.............. 3,190,000 3,333,678
Santa Cruz County IDAR, Citizens Utilities Co. Project, 6.60%, 5/01/29 ....................... 8,000,000 8,688,400
Scottsdale IDA, Hospital Revenue, Scottsdale Memorial Hospital,
Refunding, Series A, AMBAC Insured, 5.70%, 9/01/15 .......................................... 1,250,000 1,287,925
5.70%, 9/01/18 ............................................................................... 4,045,000 4,177,514
Sedona Sewer Sales Tax Revenue, Refunding,
6.75%, 7/01/07................................................................................ 3,800,000 4,265,462
7.00%, 7/01/12................................................................................ 5,000,000 5,489,950
Tucson, Series A, 5.375%, 7/01/20............................................................. 1,800,000 1,824,228
Tucson Airport Authority Revenue, MBIA Insured,
Series A, 6.875%, 6/01/20..................................................................... 1,090,000 1,163,030
Series B, 7.125%, 6/01/15..................................................................... 1,175,000 1,269,094
Series B, 7.25%, 6/01/20...................................................................... 1,125,000 1,218,071
Tucson IDA, MFR, Refunding,
La Entrada, 7.40%, 7/01/26 ................................................................... 1,885,000 2,006,752
Los Portales Apts., 5.90%, 12/20/31 .......................................................... 2,000,000 2,094,140
Tuscon Water Revenue,
Refunding, FGIC Insured, 5.00%, 7/01/19....................................................... 2,100,000 2,067,366
Refunding, FGIC Insured, 5.125%, 7/01/20...................................................... 6,000,000 6,001,740
Refunding, FGIC Insured, 5.125%, 7/01/21...................................................... 9,030,000 9,032,619
Refunding, MBIA Insured, 7.00%, 7/01/10....................................................... 2,250,000 2,362,208
Series A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/21 ......................................... 14,650,000 16,533,990
University of Arizona System Revenue, 6.25%, 6/01/11 ......................................... 1,000,000 1,094,460
6.35%, 6/01/14 ............................................................................... 1,300,000 1,411,345
Pre-Refunded, 7.625%, 6/01/11 ................................................................ 1,700,000 1,749,895
Yavapai County IDA, Hospital Facility Revenue, Series A, FSA Insured, 5.125%, 12/01/13 ....... 2,000,000 2,031,460
Yavapai County USD No. 22, Humboldt,
Series A, FGIC Insured, 5.95%, 7/01/14........................................................ 1,500,000 1,612,110
Series B, MBIA Insured, 5.60%, 7/01/14 ....................................................... 1,825,000 1,936,380
Yuma County Elementary School District No. 1,
Series A, 5.75%, 7/01/14 ..................................................................... 1,500,000 1,602,570
Series B, 5.50%, 7/01/14 ..................................................................... 2,000,000 2,110,760
Yuma IDA Hospital Revenue, Refunding, MBIA Insured, 5.50%, 8/01/17 ........................... 4,000,000 4,168,520
Yuma Industrial Authority MFHR, Alexandrite Sands Apartments Project, FHA Insured,
7.60%, 12/01/15 .............................................................................. 1,000,000 1,054,370
7.70%, 12/01/29 .............................................................................. 2,000,000 2,111,620
Yuma Industrial Authority MFR, Refunding, Regency Apartments, 5.50%, 12/20/32................. 2,000,000 2,018,300
--------------
Total Long Term Investments (Cost $766,537,732)............................................... 821,028,828
--------------
a Short Term Investments .3%
Apache County IDA, Pollution Control Revenue, Tucson Electric Power,
Series A, Weekly VRDN and Put, 3.40%, 6/15/20 ............................................... 200,000 200,000
Maricopa County IDA Hospital Revenue, Samaritan Health Service,
MBIA Insured, Daily VRDN and Put, 3.65%, 12/01/08 ............................................ 800,000 800,000
Maricopa County PCC, PCR, Refunding, Arizona Public Service Co.,
Series A, Daily VRDN and Put, 3.65%, 5/01/29 ................................................. 300,000 300,000
Series D, Daily VRDN and Put, 3.55%, 5/01/29 ................................................. 600,000 600,000
Pinal County IDA, PCR, Magma-Copper/Newmont Mining Corp., Daily VRDN and Put, 3.70%, 12/01/09. 200,000 200,000
--------------
Total Short Term Investments (Cost $2,100,000) ............................................... 2,100,000
--------------
Total Investments (Cost $768,637,732) 99.8% .................................................. 823,128,828
Other Assets, less Liabilities .2% ........................................................... 1,658,049
--------------
Net Assets 100.0%............................................................................. $824,786,877
==============
</TABLE>
See glossary of terms on page 141.
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 Colorado Tax-Free Income Fund
Year Ended February 28,
Class I 1998 1997 19961 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.80 $11.84 $11.38 $11.94 $11.85
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .63 .66 .67 .67 .68
Net realized and unrealized gains (losses) ......................... .39 (.04) .45 (.57) .10
-----------------------------------------------------
Total from investment operations..................................... 1.02 .62 1.12 .10 .78
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.64) (.66) (.66) (.66) (.69)
Net realized gains.................................................. (.07) -- -- -- --
-----------------------------------------------------
Total distributions.................................................. (.71) (.66) (.66) (.66) (.69)
-----------------------------------------------------
Net asset value, end of year......................................... $12.11 $11.80 $11.84 $11.38 $11.94
=====================================================
Total return*........................................................ 8.86% 5.44% 10.12% 1.05% 6.49%
Ratios/supplemental data
Net assets, end of year (000's)..................................... . $266,599 $236,609 $215,609 $194,564 $202,158
Ratios to average net assets:
Expenses............................................................ .71% .71% .71% .70% .64%
Net investment income .............................................. 5.28% 5.59% 5.73% 5.94% 5.69%
Portfolio turnover rate.............................................. 22.97% 14.13% 17.58% 28.83% 10.85%
Class II
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.84 $11.87 $11.40
---------------------------------
Income from investment operations:
Net investment income .............................................. .57 .59 .50
Net realized and unrealized gains (losses) ......................... .40 (.02) .46
---------------------------------
Total from investment operations .................................... .97 .57 .96
---------------------------------
Less distributions from:
Net investment income .............................................. (.57) (.60) (.49)
Net realized gains.................................................. (.07) -- --
---------------------------------
Total distributions.................................................. (.64) (.60) (.49)
---------------------------------
Net asset value, end of year......................................... $12.17 $11.84 $11.87
=================================
Total return*........................................................ 8.39% 4.93% 8.57%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $10,855 $5,654 $1,656
Ratios to average net assets:
Expenses............................................................ 1.27% 1.28% 1.29%**
Net investment income .............................................. 4.72% 4.99% 5.12%**
Portfolio turnover rate.............................................. 22.97% 14.13% 17.58%
</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 May 1, 1995 (effective date) to February 29, 1996 for Class II.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Colorado Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 98.2%
Adams County PCR, Refunding, Public Service Co. of Colorado Project, Series A, 7.375%, 11/01/09 $ 770,000 $ 781,450
Adams County School District No.12, FGIC Insured, 5.40%, 12/15/14............................. 1,000,000 1,044,810
Arapahoe County Capital Improvements Transportation Fund Highway Revenue,
Vehicle Registration, Series A, MBIA Insured, 6.15%, 8/31/26 ................................ 8,000,000 8,857,120
Arapahoe County COP, Refunding, FSA Insured, 6.625%, 12/01/16 ................................ 805,000 886,283
Arapahoe County School District, No. 2, Refunding, MBIA Insured, 5.70%, 6/01/19 .............. 2,200,000 2,311,254
Arvada IDR, Wanco Inc. Project
5.25%, 12/01/07............................................................................... 100,000 101,515
5.80%, 12/01/17............................................................................... 480,000 486,005
Arvada MFHR, Refunding, Springwood Community Project, 6.35%, 8/20/16.......................... 1,000,000 1,051,410
Aurora COP, Refunding, 6.25%, 12/01/09........................................................ 2,850,000 3,118,100
Aurora MFHR, Dayton Place Project, Series A, GNMA Secured, 8.25%, 1/20/29..................... 150,000 155,202
Bayfield School District No. 10, MBIA Insured, 6.65%, 6/01/15................................. 1,000,000 1,119,730
Boulder County Hospital Revenue, Longmont United Hospital Project,
5.80%, 12/01/13............................................................................... 2,000,000 2,055,880
5.60%, 12/01/17............................................................................... 1,500,000 1,558,785
5.875%, 12/01/20.............................................................................. 1,285,000 1,335,154
Pre-Refunded, 8.20%, 12/01/20................................................................. 3,000,000 3,356,550
Boulder GO, Refunding, 7.20%, 8/15/13......................................................... 1,250,000 1,315,288
Boulder, Larimer & Weld Counties, Vrain Valley School District, RE1J, Series A, FGIC Insured, 5.00%
12/15/18...................................................................................... 1,000,000 987,200
12/15/19...................................................................................... 1,000,000 985,560
12/15/22...................................................................................... 7,000,000 6,872,600
Castle Pines Metropolitan District, Refunding and Improvement, FSA Insured, 5.25%, 12/01/15... 1,900,000 1,940,527
Colorado Health Facilities Authority Revenue,
Birchwood Manor Project, Series A, GNMA Secured, 7.625%, 4/01/26.............................. 1,615,000 1,682,200
Boulder Community Hospital, Refunding, Series B, MBIA Insured, 5.875%, 10/01/23............... 1,500,000 1,584,120
Children's Hospital Association Project, MBIA Insured, 5.25%, 10/01/26 ....................... 1,000,000 1,004,790
Community Provider Pooled Loan Program, FSA Insured, 6.75%, 7/15/17........................... 954,000 1,030,444
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.25%, 7/15/17................. 6,570,000 7,180,287
Covenant Retirement Communities, 6.75%, 12/01/15.............................................. 1,750,000 1,964,690
Covenant Retirement Communities, 6.75%, 12/01/25.............................................. 4,950,000 5,557,266
Mercy Medical Center Durango, 6.20%, 11/15/15................................................. 1,250,000 1,348,750
National Benevolent Assn., Series B, 5.25%, 2/01/18........................................... 750,000 736,335
National Benevolent Assn., Series B, 5.25%, 2/01/28........................................... 2,000,000 1,941,180
Oakbrook I Manor, Series A, GNMA Secured, 7.25%, 4/01/11...................................... 395,000 410,575
Oakbrook I Manor, Series A, GNMA Secured, 7.625%, 4/01/26..................................... 885,000 921,825
PSL Health System Project, Series B, Pre-Refunded, 8.50%, 2/15/21............................. 1,000,000 1,142,300
Refunding, Series A, 5.20%, 1/01/18........................................................... 700,000 689,731
Colorado HFA,
MF, Series A, 6.80%, 8/01/14.................................................................. 3,740,000 3,988,186
MF, Series A, 6.85%, 8/01/24.................................................................. 6,070,000 6,472,259
MF, Series A, 6.875%, 8/01/30................................................................. 2,405,000 2,563,778
MF, Series A-2, 6.00%, 10/01/28............................................................... 1,000,000 1,049,470
SF, Series A, 7.50%, 5/01/29.................................................................. 1,000,000 1,058,460
SF Program, Refunding, Series A-2, MBIA Insured, 5.625%, 11/01/23............................. 4,000,000 4,078,360
SF Program, Series A-1, 8.00%, 8/01/17........................................................ 230,000 238,078
SF Program, Series A-2, 7.70%, 2/01/23........................................................ 670,000 707,165
SF Program, Series A-3, 7.90%, 8/01/21........................................................ 280,000 292,978
SF Program, Series C-2, 7.375%, 8/01/10....................................................... 1,395,000 1,464,708
SF Program, Series C-2, 7.85%, 2/01/21........................................................ 200,000 207,790
SFMR, Series C, 8.75%, 9/01/17................................................................ 10,000 10,100
Colorado Mountain College Residence Hall Revenue Authority,
MBIA Insured, 5.75%, 6/01/23................................................................. 3,000,000 3,169,170
Colorado Postsecondary Educational Facilities Authority Revenue,
Auraria Foundation Project, FSA Insured, 6.00%, 9/01/15....................................... 1,000,000 1,070,210
Refunding and Improvement, University of Denver Project,
MBIA Insured, 5.375%, 3/01/18................................................................ 2,500,000 2,557,200
Colorado Public Highway Authority Revenue, Highway E-470, Refunding,
Sr. Series A, MBIA Insured, 5.25%, 9/01/18................................................... 3,795,000 3,834,126
5.00%, 9/01/21................................................................................ 5,130,000 4,998,518
Colorado Springs Airport Revenue, Series A, MBIA Insured, 5.25%, 1/01/22...................... $ 2,500,000 $ 2,524,425
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%,
12/15/15...................................................................................... 5,575,000 6,074,074
12/15/24...................................................................................... 10,955,000 11,935,692
Colorado Springs Utilities Revenue,
Refunding and Improvement, Series A, 5.250%, 11/15/22......................................... 2,000,000 2,013,420
Refunding and Improvement, Series A, 5.375%, 11/15/26......................................... 3,340,000 3,381,249
Series A, 5.75%, 11/15/23..................................................................... 1,450,000 1,502,012
Series A, Pre-Refunded, 6.10%, 11/15/24....................................................... 11,000,000 12,323,190
Colorado State, Board of Agriculture
COP, MBIA Insured, 5.35%, 5/01/18............................................................. 1,000,000 1,016,570
State University Revenue, Refunding, 5.125%, 3/01/17.......................................... 1,000,000 1,002,700
Colorado State, Board of Community Colleges and Occupational Educational Revenue,
Red Rocks Community College Project, AMBAC Insured, 6.00%, 11/01/19.......................... 1,090,000 1,168,578
Colorado Water Resource and Power Development Authority,
Clean Water Revenue, Series A, 6.15%, 9/01/11................................................. 1,765,000 1,901,399
Clean Water Revenue, Series A, 6.30%, 9/01/14................................................. 1,000,000 1,079,910
Clean Water Revenue, Series A, 5.80%, 9/01/17................................................. 2,000,000 2,153,080
Small Water Resource Revenue, Series A, FGIC Insured, 6.70%, 11/01/12......................... 750,000 818,258
Stagecoach Project, Pre-Refunded, 8.00%, 11/01/17............................................. 65,000 69,363
Denver City and County Airport Revenue,
Series A, 7.50%, 11/15/23..................................................................... 3,315,000 3,820,803
Series A, 8.50%, 11/15/23..................................................................... 3,645,000 4,081,635
Series A, MBIA Insured, 5.60%, 11/15/20....................................................... 3,200,000 3,311,008
Series A, Pre-Refunded, 7.50%, 11/15/12....................................................... 6,250,000 7,266,875
Series A, Pre-Refunded, 7.50%, 11/15/23....................................................... 685,000 819,404
Series A, Pre-Refunded, 8.50%, 11/15/23....................................................... 355,000 401,512
Series D, 7.75%, 11/15/13..................................................................... 1,000,000 1,267,450
Series E, MBIA Insured, 5.50%, 11/15/25....................................................... 3,750,000 3,850,650
Denver City and County IDR, University of Denver Project, 7.50%, 3/01/11...................... 1,880,000 2,035,514
Denver City and County MFHR, The Boston Lofts Project, Series A, 5.75%, 10/01/27.............. 1,500,000 1,530,420
Denver City and County Revenue,
Children's Hospital Association Project, FGIC Insured, 6.00%, 10/01/15........................ 3,150,000 3,360,420
Refunding, St. Anthony's Hospital, Sisters of Charity Health Care System,
Series A, MBIA Insured, Pre-Refunded, 7.75%, 5/01/14......................................... 150,000 158,375
Denver City and County SFMR, Series A, GNMA Secured, 8.125%, 12/01/20......................... 210,000 216,388
Denver City and County Special Facilities Airport Revenue,
United Airlines Project, Series A, 6.875%, 10/01/32.......................................... 2,000,000 2,194,680
Donala Colorado Water and Sanitary District, Improvement Series B, 6.50%, 12/01/14............ 1,000,000 1,066,430
Douglas County, School District No. 1, Douglas and Elbert Counties,
Improvement Series A, MBIA Insured, 6.50%, 12/15/16.......................................... 230,000 259,311
Pre-Refunded, 12/15/16........................................................................ 2,000,000 2,296,660
El Paso County,
HMR, Series A, GNMA Secured, 8.00%, 3/01/21................................................... 115,000 118,260
HMR, Series B, GNMA Secured, 8.125%, 11/01/13................................................. 90,000 93,579
Revenue, Refunding, St. Francis Hospital System, Sisters of Charity Health Care System,
Series A, MBIA Insured, 7.75%, 5/01/14....................................................... 100,000 102,972
School District No. 20, GO, Series B, 8.00%, 12/01/06 ....................................... 20,000 20,187
Fort Collins PCR, Anheuser-Busch Co. Project, Refunding, 6.00%, 9/01/31....................... 5,000,000 5,308,150
Fort Collins Stormwater Utility Enterprise Storm Drain Revenue,
Refunding and Improvement, AMBAC Insured, 5.25%, 12/01/17.................................... 2,000,000 2,034,920
Fremont County, COP, Lease Purchase, MBIA Insured, 5.30%, 12/15/17............................ 1,570,000 1,594,351
Frisco Fire Protection District, Refunding and Improvement,
Pre-Refunded, 7.20%, 12/01/05................................................................ 250,000 264,260
Greeley MFHR Mortgage, FHA Insured, Creek Stone Project, 5.95%, 7/01/28....................... 1,000,000 1,028,120
Guam Airport Authority Revenue, Refunding, Series A,
6.375%, 10/01/10............................................................................. 400,000 435,384
6.50%, 10/01/23.............................................................................. 800,000 881,384
Guam Power Authority Revenue, Series A, 6.375%, 10/01/08...................................... 1,000,000 1,063,900
Jefferson County District Wide Sales Tax Revenue, Local Improvement District,
MBIA Insured, 6.30%, 6/01/22................................................................. 7,450,000 7,940,955
Jefferson County School District No. R-001, AMBAC Insured,
Pre-Refunded, 6.25%, 12/15/12................................................................ 1,000,000 1,102,920
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13.................... 390,000 418,002
Lakewood MFHR Mortgage, FHA Insured Mortgage,
6.65%, 10/01/25.............................................................................. $ 1,235,000 $ 1,332,738
6.70%, 10/01/36.............................................................................. 3,025,000 3,252,601
Larimer County Health Care Facilities Revenue, Refunding,
Western Health Network, Inc., BIG Insured, 7.625%, 1/01/12................................... 250,000 261,053
Larimer County School District, No. R1 Poudre COP,
MBIA Insured, 5.65%, 12/01/16................................................................ 2,300,000 2,419,094
Las Animas County School District No. 1, Refunding,
6.15%, 12/01/08.............................................................................. 1,000,000 1,056,600
6.20%, 12/01/10.............................................................................. 935,000 989,146
Left Hand Water District Revenue, MBIA Insured, 5.70%, 11/15/15............................... 1,400,000 1,479,436
Logan County, SFMR, Refunding, Series A, 8.50%, 11/01/11...................................... 375,000 397,688
Louisville Water District GO, Refunding, FGIC Insured, 7.20%, 12/01/09........................ 910,000 925,725
Mesa County Sales Tax Revenue, Refunding, MBIA Insured, 7.75%, 12/01/13....................... 350,000 360,115
Metex Metropolitan District, Refunding, Series A, MBIA Insured, 5.80%, 12/01/16............... 500,000 535,195
Montrose County COP, 6.35%, 6/15/06........................................................... 1,850,000 2,012,208
Northern Colorado Municipal Water Subdistrict, Water Conservancy Revenue,
Series G, 5.25%, 12/01/15.................................................................... 2,000,000 2,043,840
Platte River Power Authority Revenue, Refunding,
Series D-2, MBIA Insured, 5.375%, 6/01/17.................................................... 5,490,000 5,655,414
Pueblo County COP, Public Parking, 6.90%, 7/01/15............................................. 525,000 554,689
Pueblo County, MBIA Insured, 6.00%, 6/01/16................................................... 4,395,000 4,740,799
Pueblo County School District No. 70, Pueblo Rural, GO, AMBAC Insured,
Pre-Refunded, 6.40%, 12/01/14................................................................ 1,000,000 1,131,050
Pueblo Urban Renewal Authority Tax Increment Revenue, Refunding,
AMBAC Insured, 6.10%, 12/01/15 .............................................................. 1,000,000 1,080,970
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, FSA Insured, Pre-Refunded, 9.00%, 7/01/09.......................................... 55,000 70,214
Puerto Rico Electric Power Authority Revenue, Refunding, Series N, 7.125%, 7/01/14............ 155,000 163,446
Puerto Rico HFC, SFMR, Portfolio No. 1, Series A, GNMA Secured, 7.80%, 10/15/21............... 15,000 15,458
Puerto Rico Industrial, Medical and Environmental Facilities,
PCFA Revenue, Baxter Travenol Lab., Series A, 8.00%, 9/01/12................................. 600,000 629,916
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 1,363,716
Puerto Rico Municipal Finance Agency, Series A, 8.25%, 7/01/08............................... 145,000 150,066
Regional Transportation District Sales Tax Revenue, Refunding and Improvement,
FGIC Insured, 6.25%, 11/01/12................................................................ 160,000 172,867
Southwestern SFMR, Refunding, Series A, 7.375%, 9/01/11...................................... 495,000 520,290
Stonegate Village Metropolitan District, Refunding and Improvement,
Series A, FSA Insured, 5.60%, 12/01/25....................................................... 4,500,000 4,683,915
Summit County SFMR, Series A, 7.50%, 12/01/11................................................ 160,000 168,370
Summit County Sports Facilities Revenue, Refunding,
Keystone Resorts Project, Ralston Purina Co., 7.875%, 9/01/08................................ 2,750,000 3,376,698
University of Colorado Hospital Authority Revenue, Series A, AMBAC Insured,
Pre-Refunded, 6.40%, 11/15/22.............................................................. 3,000,000 3,341,430
Refunding, 5.20%, 11/15/17................................................................. 1,000,000 998,690
Refunding, 5.25%, 11/15/22................................................................. 4,000,000 4,006,600
University of Northern Colorado, Authority Facilities System Revenue,
MBIA Insured, 5.60%, 6/01/24................................................................. 2,000,000 2,095,300
Westminster City Sales and Use Tax Revenue, Refunding and Improvement,
FGIC Insured, 7.00%, 12/01/08.............................................................. 2,000,000 2,169,380
Storm Project, Series A, 5.60%,12/01/16.................................................... 1,500,000 1,584,540
Widefield Water and Sanitary District, Water and Sewage Revenue,
Refunding and Improvement, Series A, MBIA Insured,
5.70%, 12/01/16............................................................................... 2,000,000 2,119,380
-------------
Total Long Term Investments (Cost $253,455,593).............................................. 272,442,908
-------------
Short Term Investments .3%
Denver City and County MFHR, Ogden Residence Project, Daily VRDN
and Put, 3.80%, 12/01/09 (Cost $890,000)..................................................... 890,000 890,000
-------------
Total Investments (Cost $254,345,593) 98.5%.................................................. 273,332,908
Other Assets, less Liabilities 1.5%.......................................................... 4,121,386
-------------
Net Assets 100.0%............................................................................ $277,454,294
=============
</TABLE>
See glossary of terms on page 141.
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 Connecticut Tax-Free Income Fund
Year Ended February 28,
Class I 1998 1997 19961 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $10.92 $10.96 $10.64 $11.23 $11.16
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .60 .61 .62 .62 .62
Net realized and unrealized gains (losses) ......................... .32 (.02) .32 (.60) .08
-----------------------------------------------------
Total from investment operations..................................... .92 .59 .94 .02 .70
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.60) (.63) (.62) (.61) (.63)
In excess of net investment income ................................. (.01) -- -- -- --
-----------------------------------------------------
Total distributions.................................................. (.61) (.63) (.62) (.61) (.63)
-----------------------------------------------------
Net asset value, end of year......................................... $11.23 $10.92 $10.96 $10.64 $11.23
=====================================================
Total return*........................................................ 8.62% 5.52% 9.04% .37% 6.16%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $203,643 $183,649 $167,045 $155,623 $163,050
Ratios to average net assets:
Expenses............................................................ .73% .72% .73% .71% .65%
Net investment income .............................................. 5.41% 5.62% 5.70% 5.83% 5.54%
Portfolio turnover rate.............................................. 18.54% 14.53% 3.88% 75.72% 5.54%
Class II
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $10.94 $10.97 $10.65
---------------------------------
Income from investment operations:
Net investment income .............................................. .55 .60 .47
Net realized and unrealized gains (losses) ......................... .31 (.07) .31
---------------------------------
Total from investment operations..................................... .86 .53 .78
---------------------------------
Less distributions from:
Net investment income .............................................. (.54) (.56) (.46)
----------------------------------
Net asset value, end of year......................................... $11.26 $10.94 $10.97
=================================
Total return*........................................................ 8.08% 5.03% 7.45%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $8,636 $4,149 $1,656
Ratios to average net assets:
Expenses............................................................ 1.29% 1.29% 1.30%**
Net investment income .............................................. 4.85% 5.01% 5.12%**
Portfolio turnover rate.............................................. 18.54% 14.53% 3.88%
</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 May 1, 1995 (effective date) to February 29, 1996 for Class II.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Connecticut Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 97.8%
Bridgeport GO,
Series A, 7.25%, 6/01/00 ................................................................... $ 300,000 $ 316,392
Series B, 7.55%, 11/15/00 .................................................................. 1,375,000 1,474,839
Series B, Pre-Refunded, 7.75%, 11/15/10 .................................................... 3,750,000 4,180,388
Unlimited Tax, Series A, ETM, 7.30%, 3/01/99 ............................................... 750,000 776,198
Connecticut HFA, Housing Mortgage Finance Program,
Series A, Sub-Series 2, 7.20%, 11/15/08 .................................................... 890,000 955,700
Series B, 7.20%, 11/15/09 .................................................................. 90,000 93,750
Series B, 6.75%, 11/15/23 .................................................................. 14,705,000 15,918,457
Series C-1, 6.60%, 11/15/23 ................................................................. 500,000 538,165
Series C-2, 6.25%, 11/15/18.................................................................. 1,500,000 1,626,735
Series C-2, 6.70%, 11/15/22 ................................................................. 4,640,000 5,013,334
Series E, 6.30%, 5/15/17 .................................................................... 3,815,000 4,105,741
Sub-Series B-1, 6.50%, 5/15/18 .............................................................. 610,000 653,981
Sub-Series B-1, 6.30%, 5/15/25 .............................................................. 700,000 746,172
Sub-Series B-2, 6.75%, 5/15/22 .............................................................. 350,000 377,867
Sub-Series C-2, 5.85%, 11/15/28 ............................................................. 1,500,000 1,544,700
Sub-Series D-1, 5.55%, 11/15/28 ............................................................. 1,000,000 1,012,700
Sub-Series G-1, 6.20%, 11/15/16 ............................................................. 1,370,000 1,438,623
Connecticut Higher Education Supplemental Loan Authority, Series A,
7.00%, 11/15/05 ........................................................................... 810,000 868,944
7.20%, 11/15/10 ........................................................................... 245,000 262,488
7.50%, 11/15/10 ........................................................................... 395,000 408,635
Connecticut State Development Authority,
bCovenant Home, Inc., Refunding, 5.00%, 12/01/12............................................ 1,250,000 1,229,375
First Mortgage Gross Revenue, Health Care Project, Refunding,
Church Homes, Inc., 5.80%, 4/01/21........................................................... 1,000,000 1,027,090
Health Care Revenue, Masonic Charity of Connecticut, Pre-Refunded, 6.50%, 8/01/20.......... 5,300,000 5,664,375
PCR, New England Power Co., 7.25%, 10/15/15................................................ 750,000 800,408
Solid Waste Disposal Facilities Revenue, Pfizer, Inc. Project, 7.00%, 7/01/25 ............. 2,000,000 2,311,920
Water Facility Revenue, Bridgeport Hydraulic Co. Project, 6.15%, 4/01/35 .................. 1,000,000 1,068,510
Water Facility Revenue, Bridgeport Hydraulic Co. Project, 6.00%, 9/01/36 .................. 10,000,000 10,508,400
Water Facility Revenue, Bridgeport Hydraulic Co. Project, Refunding, 7.25%, 6/01/20........ 1,000,000 1,078,920
Connecticut State Health and Educational Facilities Authority Revenue,
Abbot Terrace Health Center Project, Series A, 6.00%, 11/01/14............................. 2,000,000 2,197,760
Capital Assets, Series B, ETM, 7.00%, 1/01/00.............................................. 635,000 669,531
Capital Assets, Series C, MBIA Insured, 7.00%, 1/01/20..................................... 1,265,000 1,375,156
Capital Assets, Series C, MBIA Insured, Pre-Refunded, 7.00%, 1/01/20....................... 200,000 219,550
Choate Rosemary Hall, Series A, MBIA Insured, Pre-Refunded, 7.00%, 7/01/25 ................ 3,000,000 3,494,250
Greenwich Hospital, Series A, MBIA Insured, 5.75%, 7/01/16 ................................ 1,000,000 1,064,810
Greenwich Hospital, Series A, MBIA Insured, 5.80%, 7/01/26 ................................ 2,500,000 2,651,275
Hartford University, Series C, Pre-Refunded, 8.00%, 7/01/18 ............................... 1,325,000 1,520,875
Hartford University, Series D, 6.80%, 7/01/22 ............................................. 5,000,000 5,309,800
Hebrew Home and Hospital, Series A, 7.00%, 8/01/30 ........................................ 1,230,000 1,256,445
Lutheran General Health Care System, ETM, 7.375%, 7/01/19 ................................. 500,000 612,330
New Britain Memorial Hospital, Series A, Pre-Refunded, 7.75%, 7/01/22 ..................... 1,000,000 1,162,170
New Horizons Village Project, 7.30%, 11/01/16 ............................................. 2,905,000 3,428,045
Quinnipiac College, Series C, Pre-Refunded, 7.75%, 7/01/20 ................................ 960,000 1,058,179
Refunding, Hospital for Special Care, Series B, 5.375%, 7/01/17............................ 4,000,000 3,978,240
Refunding, Hospital for Special Care, Series B, 5.50%, 7/01/27............................. 7,000,000 7,016,940
Refunding, Middlesex Hospital, Series H, MBIA Insured, 5.125%, 7/01/27..................... 500,000 495,835
Refunding, Yale New Haven Hospital, Series H, MBIA Insured, 5.70%, 7/01/25 ................ 4,500,000 4,688,595
Sacred Heart University, Series C, 6.625%, 7/01/26 ........................................ 7,000,000 7,561,820
Sacred Heart University, Series C, Refunding, 6.50%, 7/01/16............................... 1,000,000 1,096,320
Sacred Heart University, Series D, 6.20%, 7/01/27.......................................... 1,700,000 1,783,062
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 .................................. 4,615,000 4,704,254
St. Mary's Hospital, Refunding, Series E, 5.875%, 7/01/22 ................................. 3,510,000 3,698,241
St. Mary's Hospital, Series B, Pre-Refunded, 7.50%, 7/01/02 ............................... 100,000 103,238
St. Mary's Hospital, Series C, Pre-Refunded, 7.375%, 7/01/20 .............................. 1,000,000 1,094,020
Connecticut State Health and Educational Facilities Authority Revenue, (cont.)
Taft School, Series A, Pre-Refunded, 7.375%, 7/01/20 ...................................... $ 1,000,000 $ 1,094,020
Taft School, Series C, 6.00%, 7/01/16 ..................................................... 2,500,000 2,582,375
Taft School, Series C, Asset Guarantee, 5.75%, 7/01/26..................................... 3,325,000 3,424,384
Trinity College, Series E, MBIA Insured, 5.875%, 7/01/26................................... 2,200,000 2,346,278
Veterans Memorial Medical Center, Series A, MBIA Insured, 5.50%, 7/01/26 .................. 4,210,000 4,360,634
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/20.............................. 8,000,000 8,285,280
Yale New Haven Hospital, Series F, MBIA Insured, Pre-Refunded, 7.10%, 7/01/25 ............ 7,000,000 7,623,980
Connecticut State Resource Recovery Authority Revenue,
American Refunding, Series A, 7.70%, 11/15/01 ............................................. 200,000 210,584
American Refunding, Series A, 8.10%, 11/15/15 ............................................. 200,000 211,084
Bridgeport Resco, Ltd. Partnership Project, Series A, 7.625%, 1/01/09 ..................... 835,000 868,400
Wallingford Recovery Project, Series A, 7.125%, 11/15/08 .................................. 205,000 209,186
East Haven Connecticut, Utah Bank Qualified GO, 7.00%, 9/15/07 ............................... 200,000 211,874
Eastern Connecticut Resource Recovery Authority, Solid Waste Revenue, Wheelabrator
Lisbon Project, Series A, 5.50%, 1/01/15...................................................... 8,000,000 8,058,080
Griswold GO, AMBAC Insured, 7.50%, 4/01/06 ................................................... 200,000 243,568
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ........................................................................... 250,000 274,835
6.70%, 10/01/23 ........................................................................... 1,300,000 1,442,155
Guam Power Authority Revenue, Series A, 6.75%, 10/01/24 ...................................... 5,500,000 6,090,040
New Haven GO, Series A, Pre-Refunded, 7.40%, 3/01/12.......................................... 4,545,000 5,178,437
Plainfield GO,
Series 1988, 7.30%, 9/01/10 ............................................................... 150,000 166,307
Series 1991, 7.25%, 9/01/05 ............................................................... 335,000 370,999
Series 1991, 7.30%, 9/01/07 ............................................................... 335,000 371,304
Series 1991, 7.30%, 9/01/09 ............................................................... 335,000 371,418
Plainville GO, 7.20%, 6/15/08 ................................................................ 100,000 102,350
Puerto Rico Electric Power Authority Revenue,
Series P, Pre-Refunded, 7.00%, 7/01/21 .................................................... 2,450,000 2,725,160
Series T, 6.375%, 7/01/24 ................................................................. 5,000,000 5,522,000
Puerto Rico HFC, SFMR, Portfolio 1, Series C, GNMA Secured, 6.85%, 10/15/23 .................. 775,000 827,336
Puerto Rico Municipal Finance Agency, Series A, 6.50%, 7/01/19 ............................... 5,000,000 5,566,250
Stratford GO, Unlimited Tax, Pre-Refunded, 7.30%, 3/01/12 .................................... 1,130,000 1,253,215
Virgin Islands Water and Power Authority, Electric System Revenue,
Series A, 7.40%, 7/01/11 .................................................................... 6,290,000 6,796,848
Waterbury GO, Pre-Refunded,
7.25%, 3/01/03 ............................................................................ 785,000 869,497
7.25%, 3/01/04 ............................................................................ 785,000 869,497
7.50%, 3/01/07 ............................................................................ 780,000 869,403
------------
Total Long Term Investments (Cost $192,595,454) .............................................. 207,640,326
------------
a Short Term Investments 1.3%
Connecticut State Development Authority, PCR, Refunding, Connecticut Light
and Power Co., Project A, Weekly VRDN and Put, 3.40%, 9/01/28 .............................. 2,200,000 2,200,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
MBIA Insured, Weekly VRDN and Put, 2.85%, 12/01/15 .......................................... 500,000 500,000
------------
Total Short Term Investments (Cost $2,700,000) ............................................ 2,700,000
------------
Total Investments (Cost $195,295,454) 99.1% ............................................... 210,340,326
Other Assets, Less Liabilities .9% ........................................................ 1,938,808
------------
Net Assets 100.0% ......................................................................... $212,279,134
============
</TABLE>
See glossary of terms on page 141.
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
Year Ended February 28,
Class I 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.77 $11.76 $11.40 $12.01 $11.90
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .65 .66 .67 .66 .68
Net realized and unrealized gains (losses) ......................... .32 .01 .35 (.61) .11
-----------------------------------------------------
Total from investment operations..................................... .97 .67 1.02 .05 .79
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.65) (.66) (.66) (.66) (.68)
Net realized gains.................................................. (.02) -- -- -- --
--------------------------------------------------
Total distributions.................................................. (.67) (.66) (.66) (.66) (.68)
------------------------------------------------------
Net asset value, end of year......................................... $12.07 $11.77 $11.76 $11.40 $12.01
=====================================================
Total return*........................................................ 8.52% 5.91% 9.20% .58% 6.53%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $54,643 $51,137 $48,949 $46,583 $47,870
Ratios to average net assets:
Expenses............................................................ .82% .82% .80% .81% .71%
Net investment income .............................................. 5.45% 5.69% 5.80% 5.84% 5.62%
Portfolio turnover rate.............................................. 24.08% 23.54% 10.56% 26.49% 16.12%
</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.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Indiana Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 98.2%
Beech Grove EDR, Westvaco Corp., 8.75%, 7/01/10 ................................................. $ 50,000 $ 50,770
Carmel EDR, Refunding, Cool Creek Association, 6.50%, 9/01/15 ................................... 1,000,000 1,064,500
Carmel Redevelopment Authority County Option Income Tax Lease Rent Revenue,
MBIA Insured, 5.25%, 1/01/18.................................................................... 2,700,000 2,719,035
Clarke County Hospital Association, First Mortgage,
Refunding, MBIA Insured, 7.50%, 9/01/07......................................................... 250,000 263,455
Crown Point Redevelopment District, Lake County Tax Increment, 8.10%, 2/01/07.................... 50,000 50,120
Duneland School Building Corp., First Mortgage, MBIA Insured, 5.50%, 8/01/17..................... 1,000,000 1,033,570
Eastern Hancock Middle School Building Corp., Indianapolis First
Mortgage, Refunding, 6.00%, 1/15/21............................................................. 1,000,000 1,045,810
Elkhart County, Hospital Authority Revenue, Goshen Hospital
Association, Inc. Project, 7.35%, 7/01/12....................................................... 1,750,000 1,910,493
Elwood Middle School Building Corp., First Mortgage, Refunding, 7.30%, 1/01/08 .................. 500,000 543,015
Flat Rock-Hawcreek Elementary School Building Corp.,
First Mortgage, Pre-Refunded, 8.30%, 1/01/09 ................................................... 55,000 56,902
Fort Wayne Hospital Authority Revenue, Parkview Memorial Hospital Project, Series A,
FGIC Insured, 6.50%, 11/15/12 ................................................................... 1,000,000 1,054,330
Hamilton Southeastern Building Corp., Consolidated School Building Corp.,
First Mortgage, Pre-Refunded, 8.40%, 1/01/15 .................................................... 125,000 129,364
Hammond Industrial Sewer and Solid Waste Disposal Revenue, American
Maize-Products Co. Project, Series A, 8.00%, 12/01/24 ........................................... 3,000,000 3,522,120
Hammond Multi-School Building Corp., First Mortgage,
Refunding, Series A, 6.20%, 7/10/15............................................................. 1,500,000 1,591,485
Hammond PCR, Stauffer Chemical Project, Guaranteed Imperial, 8.00%, 11/01/12.................... 300,000 328,086
Indiana Bond Bank, Special Program,
Series A, 8.375%, 2/01/18 ..................................................................... 130,000 133,758
Series A, 7.50%, 2/01/20 ...................................................................... 250,000 269,343
Series B, 6.20%, 2/01/23 ...................................................................... 3,500,000 3,749,200
Series C, 8.00%, 8/01/11 ...................................................................... 20,000 20,262
Indiana Health Facility Financing Authority, Hospital Revenue,
Hancock Memorial Hospital Health Services, 6.125%, 8/15/17 .................................... 2,000,000 2,111,260
Jackson County Schneck Memorial Hospital, 5.25%, 2/15/22 ...................................... 1,200,000 1,179,096
Jackson County Schneck Memorial Hospital, Pre-Refunded, 7.50%, 2/15/22 ........................ 1,835,000 2,087,845
Methodist Hospital, Inc., 6.75%, 9/15/09 ...................................................... 1,280,000 1,397,338
St. Anthony's Medical Center/Home, Inc., Series A, 7.00%, 10/01/17............................. 1,000,000 1,090,760
Indiana State Development Financing Authority Environmental Revenue, 6.25%, 7/15/30 ............ 2,000,000 2,133,100
Indiana State Educational Facilities Authority Revenue,
Anderson University Project, 8.40%, 10/01/08 .................................................. 175,000 182,529
Butler University Project No. 2, Series B, FGIC Insured, Pre-Refunded, 8.00%, 11/01/09......... 175,000 183,335
Valparaiso University Project, MBIA Insured, Pre-Refunded, 7.80%, 10/01/08 .................... 100,000 104,306
Indiana State HFA, SFMR,
6.10%, 7/01/22................................................................................. 1,000,000 1,065,620
Series A, GNMA Secured, 8.125%, 7/01/06 ....................................................... 40,000 41,930
Series F-2, GNMA Secured, 7.75%, 7/01/22 ...................................................... 450,000 478,346
Indiana State Office Building Commission, Correctional Facilities Program
Revenue, Pre-Refunded, 6.375%, 7/01/16.......................................................... 1,000,000 1,094,180
Indiana Transportation Finance Authority Highway Revenue,
Series A, Pre-Refunded, 8.125%, 6/01/11......................................................... 100,000 103,041
Indianapolis Airport Authority, Indianapolis International Airport Revenue,
6.50%, 11/15/31 ............................................................................. 1,460,000 1,599,634
BIG Insured, 8.30%, 7/01/18 ................................................................... 85,000 87,786
Indianapolis Local Public Improvement Bond Bank, Series D,
Refunding, 6.75%, 2/01/20 ..................................................................... 2,300,000 2,490,371
Refunding, 6.50%, 2/01/22 ..................................................................... 2,540,000 2,543,480
Jasper County EDR, Georgia-Pacific Corp. Project, 5.625%, 12/01/27.............................. 1,000,000 1,006,310
Jasper County PCR, Refunding, Collateralized, Northern Indiana Public
Service Co., MBIA Insured, 7.10%, 7/01/17....................................................... 500,000 545,875
Jefferson County Hospital Authority Facility Revenue, Refunding,
King's Daughters' Hospital, Pre-Refunded, 8.50%, 8/15/13 ....................................... 300,000 312,243
Kokomo Hospital Authority Revenue, Refunding, St. Joseph's Hospital and
Health Center of Kokomo, 8.75%, 2/15/13
Pre-Refunded, Series A.......................................................................... 300,000 312,570
Series B ....................................................................................... 220,000 228,391
Lake Central Industrial Multi-School Building,
First Mortgage, MBIA Insured, 6.50%, 1/15/14 ................................................... 2,100,000 2,283,456
Madison County Authority, Anderson Hospital Revenue, Refunding,
Series A, BIG Insured, 8.00%, 1/01/14 .......................................................... 95,000 98,106
Manchester Community, Elementary School Building Corp., First Mortgage,
Pre-Refunded, 7.80%, 1/01/12..................................................................... 100,000 103,300
Marion County Convention and Recreational Facilities Authority,
Excise Tax Revenue, Lease Rental, Series A, AMBAC Insured, 7.00%, 6/01/21 ...................... 250,000 273,358
Monroe County, Community School Corp., MBIA Insured, 5.25%, 7/01/16.............................. 1,000,000 1,009,790
Muncies Edit Building Corp., Industrial First Mortgage,
Series A, AMBAC Insured, 6.60%, 12/01/17........................................................ 2,000,000 2,201,220
New Prairie Unified School Building Corp., Revenue,
First Mortgage, Refunding, 5.80%, 7/05/11....................................................... 1,520,000 1,630,489
Northridge High School Additions, Building Corp., Middlebury,
First Mortgage, Pre-Refunded, 8.00%, 12/30/08.................................................... 125,000 129,190
Peru Community School Building Corp., First Mortgage, Pre-Refunded,
Series 1988, 7.90%, 7/01/08 ..................................................................... $ 150,000 $ 157,932
Series 1989, 7.80%, 1/01/11 ..................................................................... 100,000 105,208
PHM Multi-School Building Corp., First Mortgage, FSA Insured 5.90%, 7/15/14...................... 1,000,000 1,072,060
Princeton PCR, Refunding, Public Service Co. of Indiana Project,
Series C, MBIA Insured, 7.375%, 3/15/12.......................................................... 250,000 268,108
Steuben County Metropolitan School District, COP, 6.90%, 1/01/08................................. 500,000 533,670
Sullivan Industrial PCR, Refunding, Hoosier Energy, Meron Project, 7.10%, 4/01/19................ 750,000 811,695
Warsaw High School Building Corp., First Mortgage, Pre-Refunded, 8.10%, 1/01/09 ................. 50,000 51,706
White River Elementary Building Corp., First Mortgage, AMBAC Insured, 5.00%, 7/15/16 ............ 1,020,000 999,525
------------
Total Long Term Investments (Cost $49,817,152) .................................................. 53,643,777
------------
a Short Term Investments .7%
Indiana State Development Financing Authority Revenue, Refunding,
Bayer Corp. Project, Daily VRDN and Put, 3.60%, 3/01/09.......................................... 300,000 300,000
Princeton PCR, Refunding, PSI Energy, Inc. Project, Daily VRDN and Put, 3.60%, 4/01/22........... 100,000 100,000
------------
Total Short Term Investments (Cost $400,000) .................................................... 400,000
------------
Total Investments (Cost $50,217,152) 98.9% ...................................................... 54,043,777
Other Assets, less Liabilities 1.1%.............................................................. 599,452
------------
Net Assets 100.0%................................................................................ $54,643,229
============
</TABLE>
See glossary of terms on page 141.
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 Michigan Tax-Free Income Fund
Year Ended February
28,
Class I 1998 19972
Per share operating performance
(for a share outstanding throughout the year)
<S> <C> <C>
Net asset value, beginning of year................................................................. $10.42 $10.00
------------------------
Income from investment operations:
Net investment income............................................................................. .51 .30
Net realized and unrealized gains................................................................. .67 .32
---------------------
Total from investment operations .................................................................. 1.18 .62
---------------------
Less distributions from:
Net investment income............................................................................. (.58) (.20)
-----------------------
Net asset value, end of year ...................................................................... $11.02 $10.42
========================
Total return*...................................................................................... 11.62% 6.17%
Ratios/supplemental data
Net assets, end of year (000's) ................................................................... $9,268 $3,884
Ratios to average net assets:
Expenses.......................................................................................... .25% .34%**
Expenses excluding waiver and payments by affiliate............................................... 1.01% 1.21%**
Net investment income............................................................................. 5.39% 4.90%**
Portfolio turnover rate............................................................................ 51.81% 42.83%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized.
**Annualized.
2For the period July 1, 1996 (effective date) to February 28, 1997.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Michigan Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 94.9%
Avondale School District, AMBAC Insured, 5.75%, 5/01/22 ........................................ $ 150,000 $ 157,499
Caledonia Community Schools, MBIA Insured, 5.85%, 5/01/22 ...................................... 100,000 105,875
Cedar Springs Public School District, MBIA Insured, Pre-Refunded, 5.875%, 5/01/19 .............. 250,000 275,403
Chippewa County Hospital Financing Authority Revenue, Refunding,
Chippewa County War Memorial, Series B, 5.625%, 11/01/14........................................ 650,000 657,423
Dearborn EDC Hospital Revenue, Oakwood Obligation Group,
Series A, FGIC Insured, 5.75%, 11/15/15 ........................................................ 100,000 105,463
Detroit Local Development Finance Authority, Refunding, Series A, 5.375%, 5/01/21 ............... 100,000 100,869
Detroit Sewage Disposal Revenue, Series A, MBIA Insured, 5.50%, 7/01/20 ......................... 215,000 221,751
Farmington Hills EDC Revenue, Botsford Continuing Care,
Series A, MBIA Insured, 5.75%, 2/15/25 ......................................................... 100,000 104,473
Ferris State University Revenue, AMBAC Insured, 5.90%, 10/01/26.................................. 240,000 255,163
Gogebic-Iron Wastewater Authority, Wastewater Treatment System Revenue,
Refunding, MBIA Insured, 6.05%, 1/01/25 ......................................................... 500,000 531,185
Greenville Public Schools Building, MBIA Insured, 5.75%, 5/01/19 ................................ 160,000 167,202
Grosse Ile Township School District, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22.................. 150,000 169,125
Huron Valley School District, FGIC Insured,
5.875%, 5/01/16................................................................................ 100,000 106,434
5.75%, 5/01/22................................................................................. 100,000 104,403
Jenison Public Schools, Refunding, FGIC Insured, 5.75%, 5/01/16 ................................. 130,000 137,671
Kalamazoo Downtown Development, Refunding, 5.35%, 4/01/18 ....................................... 200,000 201,384
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue, Refunding and
Improvement, Bronson Methodist, MBIA Insured, 5.875%, 5/15/26 .................................. 225,000 237,247
Kenowa Hills Public Schools, MBIA Insured, 5.875%, 5/01/21 ...................................... 275,000 289,055
Kent County Airport Facilities Revenue, Kent County International Airport,
MBIA Insured, 5.00%, 1/01/28 .................................................................... 400,000 383,820
Lakeview Community Schools, FGIC Insured, 5.75%, 5/01/16......................................... 100,000 106,053
Lincoln Consolidated School District, Refunding, FGIC Insured, 5.85%, 5/01/21 ................... 140,000 147,594
Michigan Municipal Bond Authority Revenue, 5.125%, 10/01/20...................................... 250,000 252,053
Michigan State HDA,..............................................................................
Rental Housing Revenue, Series A, AMBAC Insured, 6.00%, 4/01/16 ............................... 200,000 212,120
SFMR, Refunding, Series B, 6.20%, 6/01/27...................................................... 100,000 104,459
SFMR, Refunding, Series E, 6.20%, 12/01/27..................................................... 350,000 369,635
SFMR, Series D, 5.95%, 12/01/16 ............................................................... 250,000 264,838
Michigan State Hospital Finance Authority Revenue,
Mercy Health Services, Series U, 5.75%, 8/15/26 ............................................... 300,000 313,560
Presbyterian Villages Obligation, 6.375%, 1/01/15 ............................................. 225,000 243,745
Presbyterian Villages Obligation, 6.375%, 1/01/25.............................................. 1,250,000 1,343,488
bRefunding, St. John's Hospital, Series A, AMBAC Insured, 5.125%, 5/15/17....................... 250,000 246,525
Sparrow Obligated Group, MBIA Insured, 5.90%, 11/15/26......................................... 100,000 106,185
Michigan State Strategic Fund Limited Obligation Revenue,
Worthington Armstrong Venture, 5.75%, 10/01/22................................................... 350,000 371,980
Shelby Charter Township Building Authority, Refunding, 5.00%, 11/01/17........................... 295,000 290,619
Zeeland Public Schools, Refunding, Series B, MBIA Insured, Pre-Refunded, 6.05%, 5/01/19.......... 100,000 111,778
-----------
Total Long Term Investments (Cost $8,302,208) ................................................... 8,796,077
-----------
a Short Term Investments 4.3%
Michigan State Strategic Fund Limited Obligation Revenue, Refunding,
Detroit Edison Co., Series CC, Daily VRDN and Put, 3.55%, 9/01/30............................... 100,000 100,000
University of Michigan Hospital Revenue, Series A, Daily VRDN and Put, 3.65%, 12/01/27........... 200,000 200,000
University of Michigan Medical Services Plan Revenue,
Series A, Daily VRDN and Put, 3.65%, 12/01/27 .................................................. 100,000 100,000
-----------
Total Short Term Investments (Cost $400,000) .................................................... 400,000
-----------
Total Investments (Cost $8,702,208) 99.2% ....................................................... 9,196,077
Other Assets, less Liabilities .8% .............................................................. 71,515
-----------
Net Assets 100.0% ............................................................................... $9,267,592
===========
</TABLE>
See glossary of terms on page 141.
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 New Jersey Tax-Free Income Fund
Year Ended February 28,
Class I 1998 1997 19961 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.61 $11.68 $11.28 $11.82 $11.85
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .63 .64 .65 .66 .67
Net realized and unrealized gains (losses) ......................... .32 (.06) .39 (.55) (.02)
------------------------------------------------------
Total from investment operations..................................... .95 .58 1.04 .11 .65
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.64) (.65) (.64) (.65) (.68)
------------------------------------------------------
Net asset value, end of year......................................... $11.92 $11.61 $11.68 $11.28 $11.82
=====================================================
Total return*........................................................ 8.37% 5.13% 9.43% 1.12% 5.39%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $636,929 $574,691 $564,864 $533,937 $561,130
Ratios to average net assets:
Expenses............................................................ .66% .64% .65% .63% .57%
Net investment income .............................................. 5.34% 5.58% 5.65% 5.86% 5.60%
Portfolio turnover rate.............................................. 12.77% 8.87% 12.04% 31.05% 4.16%
Class II
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.66 $11.72 $11.30
---------------------------------
Income from investment operations:
Net investment income .............................................. .56 .57 .49
Net realized and unrealized gains (losses) ......................... .33 (.05) .40
---------------------------------
Total from investment operations..................................... .89 .52 .89
---------------------------------
Less distributions from:
Net investment income .............................................. (.57) (.58) (.47)
----------------------------------
Net asset value, end of year......................................... $11.98 $11.66 $11.72
=================================
Total return*........................................................ 7.84% 4.57% 8.02%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $28,139 $13,095 $4,542
Ratios to average net assets:
Expenses............................................................ 1.21% 1.21% 1.23%**
Net investment income .............................................. 4.77% 5.01% 5.15%**
Portfolio turnover rate.............................................. 12.77% 8.87% 12.04%
</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 May 1, 1995 (effective date) to February 29, 1996 for Class II.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin New Jersey Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 98.5%
Aberdeen Township, Refunding, FGIC Insured, 5.70%, 2/01/22 .................................. $ 4,100,000 $ 4,345,918
Allamuchy Town Board of Education, COP, MBIA Insured, 6.00%, 11/01/14 ....................... 1,000,000 1,074,490
Atlantic City Municipal Utilities Authority Revenue, Water System,
Pre-Refunded, 7.75%, 5/01/17 ............................................................... 2,000,000 2,195,420
Atlantic County Improvement Authority, Luxury Tax Revenue,
Convention Center Project,
MBIA Insured, ETM, 7.40%, 7/01/16 .......................................................... 9,500,000 12,200,755
Atlantic County Utilities Authority, Solid Waste Revenue,
7.00%, 3/01/08 ............................................................................. 2,000,000 2,041,020
7.125%, 3/01/16 ............................................................................ 6,600,000 6,759,324
Bayonne Municipal Utilities Authority, Water System Revenue,
MBIA Insured, 5.00%, 1/01/28 ................................................................ 3,000,000 2,918,190
Bedminister Township Board of Education, COP, 7.125%, 9/01/10 ............................... 2,000,000 2,208,300
Bergen County Utility Authority, Solid Waste System Revenue,
Series A, FGIC Insured,
6.25%, 6/15/11 ........................................................................... 1,325,000 1,434,538
Pre-Refunded, 7.75%, 3/15/13 ............................................................. 100,000 100,124
Camden County, Municipal Utilities Authority, Sewer Revenue,
Refunding, FGIC Insured
5.20%, 7/15/15 ........................................................................... 5,000,000 5,050,950
5.25%, 7/15/16 ........................................................................... 2,005,000 2,034,012
5.125%, 7/15/17........................................................................... 4,560,000 4,564,742
5.25%, 7/15/17............................................................................ 2,425,000 2,458,004
b Camden County Improvement Authority, Health System Revenue,
Catholic Health East, Series B, AMBAC Insured, 5.00%, 11/15/28 .............................. 8,850,000 8,552,994
Cape May County, IPC, Financing Authority Revenue, Refunding,
Atlantic City Electric Co., Series A, MBIA Insured, 6.80%, 3/01/21........................... 5,400,000 6,771,060
Carteret Board of Education, COP, MBIA Insured, 6.25%, 4/15/19 .............................. 2,750,000 2,981,055
Church Street Corp., Keansburg Elderly Housing Mortgage Revenue,
Refunding, 5.625%, 3/01/11 .................................................................. 1,890,000 1,954,449
Delaware River and Bay Authority Revenue, FGIC Insured, 5.25%, 1/01/26..................... 10,200,000 10,284,864
Delaware River Joint Toll Bridge Commission, Pennsylvania Bridge Revenue,
Pre-Refunded, 7.875%, 7/01/18................................................................ 200,000 206,648
Delaware River Port Authority, Pennsylvania and New Jersey Delaware River
Bridges Revenue, Refunding, AMBAC Insured,
7.375%, 1/01/07 ............................................................................. 1,000,000 1,046,480
Delaware River Port Authority, Pennsylvania and New Jersey Revenue,
Series 1995, FGIC Insured, 5.50%, 1/01/26.................................................... 24,000,000 24,920,640
Essex County Improvement Authority,
Utilities System Revenue, Orange Franchise, Series A,
MBIA Insured, 5.375%, 7/01/18 ............................................................... 1,400,000 1,429,372
GO, Lease Revenue, MBIA Insured, 6.00%, 12/01/17 ....................................... 2,510,000 2,672,573
Evesham Municipal Utilities Authority Revenue, Series B,
MBIA Insured, 7.00%, 7/01/10 ................................................................ 3,000,000 3,192,180
Freehold Township Board of Education, FSA, 5.40%, 7/15/28.................................. 1,080,000 1,100,585
Gloucester County Improvement Authority Revenue,
Justice Complex Lease Project, Pre-Refunded, 7.50%, 12/15/10 ............................. 1,000,000 1,072,740
Solid Waste Resource Recovery, SES Gloucester Co., Limited Partnership
Project, Series B, 8.375%, 7/01/10 .......................................................... 275,000 278,616
Hamilton Township Board of Education, COP, Series B,
FSA Insured, 7.00%, 12/15/15 ................................................................ 4,670,000 5,093,662
Highland Park School District, Refunding, MBIA Insured, 5.125%, 2/15/25.................... 7,120,000 7,150,046
Howell Township, GO, Refunding, FGIC Insured, 6.80%, 1/01/14 .............................. 1,750,000 1,916,758
Howell Township Municipal Utilities Authority Revenue, Monmouth County,
BIG Insured, Pre-Refunded, 7.375%, 1/01/14 .................................................. 100,000 103,198
Hudson County, COP, Correctional Facility, BIG Insured,
Pre-Refunded, 7.60%, 12/01/21 ............................................................... 2,550,000 2,673,828
Hudson County Improvement Authorities Facilities Lease Revenue, Hudson County
Lease Project, FGIC Insured, 6.00%, 12/01/25................................................. 2,000,000 2,103,740
Mercer County Improvement Authority Revenue, Library Systems,
Series A, 6.00%, 12/01/14 ................................................................... 2,500,000 2,690,775
Middlesex County, COP, MBIA Insured,
6.00%, 8/15/14 ........................................................................... 1,500,000 1,607,445
6.125%, 2/15/19 .......................................................................... 2,300,000 2,456,101
Middlesex County Improvement Authority Revenue, Guaranteed Educational
Services, Commission Project, 6.00%, 9/15/14................................................. 2,000,000 2,168,360
Middlesex County Utilities Authority, Sewer Revenue, Refunding, Series A,
FGIC Insured, 5.375%, 9/15/15
5.375, 9/15/15............................................................................ 2,100,000 2,178,435
5.125, 12/01/16........................................................................... 9,000,000 9,026,820
Middletown Township, Board of Education, MBIA Insured,
5.85%, 8/01/24 ........................................................................... 4,295,000 4,582,722
5.85%, 8/01/25 ........................................................................... 4,300,000 4,588,057
Monmouth County Improvement Authority Revenue, Wall and Keyport Projects,
BIG Insured, Pre-Refunded, 7.90%, 7/15/13.................................................... 100,000 103,549
Mount Olive Township, Board of Education, FGIC Insured
5.250%,11/05/22........................................................................... 2,550,000 2,565,989
5.250%,11/05/23........................................................................... 2,690,000 2,704,956
New Jersey EDA,
Auto Parking Revenue, Elizabeth Development Co., FGIC Insured, 5.60%, 10/15/26............ 2,000,000 2,076,020
Heating and Cooling Revenue, Trigen-Trenton Project, Series A, 6.20%, 12/01/10 ........... 6,370,000 6,737,804
New Jersey EDA, (cont.)
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.10%, 12/01/04 ........... $ 3,375,000 $ 3,559,275
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.20%, 12/01/07 ........... 2,720,000 2,885,920
Hillcrest Health Services System Project, Refunding, AMBAC Insured, 5.375%, 1/01/16....... 2,500,000 2,589,525
Jersey Central Power and Light, 7.10%, 7/01/15 ........................................... 550,000 606,078
Market Transition Facilities Revenue, Senior Lien, Series A,
MBIA Insured, 5.875%, 7/01/11 ............................................................... 3,000,000 3,268,200
Middlesex Water Co. Project, Water Facilities Revenue, 7.25%, 7/01/21 .................... 6,000,000 6,560,340
Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project, Series A,
AMBAC Insured, 6.25%, 8/01/24 ............................................................... 8,200,000 8,885,930
School Revenue, Blair Academy, 1995 Project, Series A, 5.85%, 9/01/16 ................... 1,640,000 1,709,569
Series M, 7.90%, 12/01/08 ................................................................ 320,000 333,414
Series N, 6.90%, 12/01/11 ................................................................ 3,710,000 4,017,077
Series P, 6.90%, 12/01/11 ................................................................ 415,000 449,350
St. Barnabas Project, Series A, MBIA Insured, 5.375%, 7/01/27 ............................ 4,375,000 4,435,813
State Lease Revenue Refunding, Liberty State Park Lease Rental,
AMBAC Insured, 5.75%, 3/15/20 ............................................................... 4,605,000 4,863,571
State Lease Revenue Refunding, Liberty State Park Lease Rental,
AMBAC Insured,5.75%, 3/15/22 ................................................................ 3,315,000 3,501,137
Terminal GATX Corp. Project, 6.65%, 9/01/22 .............................................. 7,440,000 8,063,174
Water Facilities Revenue Refunding, Hackensack Water Co. Project,
Series A, MBIA Insured, 5.80%, 3/01/24....................................................... 1,000,000 1,047,470
New Jersey Health Care Facilities Financing Authority Revenue,
Atlantic City Medical Center, Series C, 6.80%, 7/01/11.................................... 2,500,000 2,754,325
Atlantic Health Systems, Series A, 5.00%, 7/01/27 ........................................ 5,500,000 5,351,115
Berkeley Heights Convalescent Hospital, AMBAC Insured, 5.00%, 7/01/26 .................... 6,000,000 5,874,960
Beth Israel Hospital Association Passaic, 7.80%, 7/01/04 ................................. 3,065,000 3,229,560
Beth Israel Hospital Association Passaic, Refunding, 7.875%, 7/01/07 ..................... 1,000,000 1,054,640
Cathedral Health, Series A, FHA Insured, 7.25%, 2/15/10................................... 9,345,000 10,105,216
Cathedral Health, Series A, FHA Insured, 7.25%, 2/15/21................................... 2,020,000 2,199,457
Christian Health Care Center, Series A, Refunding, 5.50%, 7/01/18 ........................ 1,200,000 1,192,632
Clara Maas Medical Center, Series B, Pre-Refunded, 7.30%, 7/01/09 ........................ 1,000,000 1,064,700
Clara Maas Medical Center, Series B, Pre-Refunded, 7.25%, 7/01/19 ........................ 2,435,000 2,590,986
Community Memorial Hospital Association, Series C, 8.00%, 7/01/14 ........................ 100,000 103,380
East Orange General Hospital, Series B, 7.75%, 7/01/20 ................................... 5,445,000 5,843,901
Elizabeth General Medical Center, Series C, 7.375%, 7/01/15 .............................. 4,890,000 5,270,100
Franciscan St. Mary's Hospital, 5.875%, 7/01/12 .......................................... 5,150,000 5,308,466
Hackensack Medical Center, FGIC Insured, 6.25%, 7/01/21 .................................. 2,400,000 2,506,320
Holy Name Hospital, 6.00%, 7/01/25 ....................................................... 3,000,000 3,148,140
Holy Name Hospital, AMBAC Insured, 5.25%, 7/01/20 ........................................ 4,380,000 4,424,369
Holy Name Hospital, Series B, AMBAC Insured,
Pre-Refunded, 7.00%, 7/01/08 ........................................................... 2,000,000 2,173,880
Jersey Shore Medical Center, Revenue Refunding,
AMBAC Insured, 5.875%, 7/01/24 .......................................................... 2,500,000 2,610,275
John F. Kennedy Health Systems, Obligation Group Revenue,
FGIC Insured, 5.70%, 7/01/25 ............................................................ 5,000,000 5,206,300
Kennedy Memorial Hospitals-University Medical Center, Inc.,
Series D, 7.875%, 7/01/09 .............................................................. 230,000 237,682
Monmouth Medical Center, Series C, FSA Insured, 6.25%, 7/01/16 ........................... 4,900,000 5,341,784
Monmouth Medical Center, Series C, FSA Insured, 6.25%, 7/01/24 ........................... 8,250,000 8,909,258
Morristown Memorial Hospital, Series C, 7.125%, 7/01/08 .................................. 1,800,000 1,912,428
New Jersey Geriatric Center of Workmen's Circle, Inc., Series A,
FHA Mortgage Insured, 8.00%, 2/01/28 ..................................................... 125,000 129,328
Newcomb Medical Center, Series A, 7.875%, 7/01/03 ........................................ 3,110,000 3,326,394
Pascack Valley Hospital, 6.90%, 7/01/21 .................................................. 3,565,000 3,813,267
Riverview Medical Center, 5.875%, 7/01/16 ................................................ 10,000,000 10,624,000
Shoreline Behavioral Health, MBIA Insured, Pre-Refunded, 5.50%, 7/01/27................... 1,500,000 1,547,100
Southern Ocean County Hospital, FSA Insured, 5.00%, 7/01/27............................... 2,000,000 1,931,240
St. Joseph's Hospital and Medical Center, Revenue Refunding, 5.75%, 7/01/16 .............. 2,050,000 2,150,717
St. Joseph's Hospital and Medical Center, Revenue Refunding, 6.00%, 7/01/26 .............. 1,000,000 1,064,850
Wayne General Hospital, Series B, 5.75%, 8/01/11 ......................................... 1,795,000 1,897,746
Wayne General Hospital, Series B, 5.875%, 8/01/18 ........................................ 1,000,000 1,057,300
Zurbrugg Memorial Hospital Issue, Series C, 8.50%, 7/01/12 ............................... 475,000 485,393
New Jersey State Building Authority Revenue, Refunding, 5.00%, 6/15/15..................... 5,000,000 5,033,900
New Jersey State Educational Facilities Authority Revenue,
Institute of Technology, Series A, MBIA Insured, 6.00%, 7/01/15 .......................... 4,000,000 4,309,000
Jersey State College, Series D, MBIA Insured, 6.125%, 7/01/22 ............................ 2,000,000 2,134,800
New Jersey Institute of Technology Revenue, Refunding, Series A,
MBIA Insured, 6.00%, 7/01/24................................................................ 1,455,000 1,559,978
New Jersey State Educational Facilities Authority Revenue, (cont.)
New Jersey Institute of Technology, Series 95-E, MBIA Insured, 5.375%, 7/01/25 ........... $ 2,500,000 $ 2,542,900
Princeton University, Series A, 5.875%, 7/01/18 .......................................... 2,000,000 2,090,420
Princeton University, Series C, 5.25%, 7/01/25 ........................................... 2,760,000 2,793,230
Ramapo College, Series C, BIG Insured, Pre-Refunded, 7.70%, 7/01/13 ...................... 500,000 516,425
Rider College, Series D, AMBAC Insured, 6.20%, 7/01/17 ................................... 3,000,000 3,209,670
Rowan College, Series E, AMBAC Insured, 6.00%, 7/01/26 ................................... 9,810,000 10,487,184
Seton Hall University Project, Series C, BIG Insured, 6.85%, 7/01/19 ..................... 445,000 469,617
Seton Hall University Project, Series C, BIG Insured, Pre-Refunded, 6.85%, 7/01/19 ....... 555,000 588,084
Seton Hall University Project, Series D, 7.00%, 7/01/21 .................................. 4,400,000 4,714,116
Seton Hall University Project, Refunding, Series E, MBIA Insured, 5.60%, 7/01/16 ......... 1,765,000 1,849,173
Trenton State College, Series A, MBIA Insured, 5.10%, 7/01/21 ............................ 3,600,000 3,556,188
Trenton State College, Series B, AMBAC Insured, 6.125%, 7/01/19 .......................... 4,780,000 5,097,727
Trenton State College, Series B, AMBAC Insured, 6.125%, 7/01/24 .......................... 7,845,000 8,362,064
New Jersey State Highway Authority, Garden State Parkway, Senior Parkway Revenue,
6.20%, 1/01/10 ........................................................................... 5,000,000 5,693,550
6.25%, 1/01/14 ........................................................................... 2,500,000 2,670,425
6.00%, 1/01/16 ........................................................................... 2,900,000 3,013,883
New Jersey State Housing and Mortgage Finance Agency,
Home Buyer Revenue, Series B, MBIA Insured, 7.90%, 10/01/22 .............................. 585,000 616,730
Home Buyer Revenue, Series D, MBIA Insured, 7.70%, 10/01/29 .............................. 3,100,000 3,236,245
Home Buyer Revenue, Series J, MBIA Insured, 6.20%, 10/01/25 .............................. 4,980,000 5,264,358
Home Buyer Revenue, Series N, MBIA Insured, 6.35%, 10/01/27 .............................. 4,000,000 4,286,440
Home Buyer Revenue, Series U, MBIA Insured, 5.85%, 4/01/29 ............................... 12,000,000 12,543,840
Home Mortgage Purchase Revenue, Series A, MBIA Insured, 7.875%, 10/01/17 ................. 40,000 41,251
MFHR, Montclarion Project, Series J, FHA Insured, 7.70%, 11/01/29 ....................... 2,185,000 2,294,862
MFHR, Refunding, Series A, AMBAC Insured, 6.00%, 11/01/14 ................................ 5,000,000 5,325,600
MFHR, Refunding, Series A, AMBAC Insured, 6.05%, 11/01/20 ................................ 12,500,000 13,265,250
MFHR, Regency Park Project, Series H, 7.70%, 11/01/30 .................................... 450,000 467,199
MFHR, Series A, AMBAC Insured, 5.55%, 5/01/27............................................. 2,000,000 2,027,260
Section 8, Refunding, Series 1, 6.70%, 11/01/28 .......................................... 5,000,000 5,388,050
Section 8, Refunding, Series A, 6.95%, 11/01/13 .......................................... 12,400,000 13,401,176
New Jersey State Sports and Expo. Authority, State Contract, Series A, MBIA Insured,
6.60%, 7/01/15 ........................................................................... 8,000,000 8,755,120
Refunding, 6.25%, 7/01/20 ............................................................... 6,800,000 7,269,132
Newark Board of Education, MBIA Insured, 5.875%, 12/15/14 ................................. 3,250,000 3,483,220
North Brunswick Township, Board of Education, Refunding,
FGIC Insured, 5.00%, 2/01/15 ............................................................. 2,000,000 1,993,120
Northern Mariana Islands, Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Harbor Improvement, Series A, 6.85%, 10/01/25 ................................. 2,000,000 2,126,820
Ocean Township Municipal Utilities Authority Revenue,
Refunding, MBIA Insured, Pre-Refunded,
7.875%, 8/01/15 ........................................................................ 100,000 103,689
5.80%, 12/01/18 .......................................................................... 7,400,000 7,708,802
Piscataway Township School District, COP, MBIA Insured,
Pre-Refunded, 7.50%, 6/15/09 ............................................................. 1,000,000 1,047,270
Port Authority of New York and New Jersey,
Consolidated 67th Series, 6.875%, 1/01/25 ................................................ 2,500,000 2,637,925
Consolidated 67th Series, AMBAC Insured, 6.875%, 1/01/25 ................................. 750,000 789,210
Consolidated 71st Series, 6.50%, 1/15/26 ................................................. 2,500,000 2,649,225
Consolidated 72nd Series, Pre-Refunded, 7.35%, 10/01/27 .................................. 7,000,000 7,998,060
Consolidated 74th Series, 6.75%, 8/01/26 ................................................. 1,000,000 1,079,560
Consolidated 84th Series, 6.00%, 1/15/28 ................................................. 1,125,000 1,192,793
Consolidated 94th Series, 6.00%, 12/01/16 ................................................ 2,000,000 2,153,580
Consolidated 94th Series, 6.00%, 6/01/17 ................................................. 5,000,000 5,383,950
Consolidated 109th Series, FGIC Insured, 5.375%, 7/15/22.................................. 4,645,000 4,719,181
Delta Airlines, Inc., Special Project, Series 1R, 6.95%, 6/01/08 ......................... 5,000,000 5,499,550
Special Obligation Revenue, 4th Installment, Special Project, 6.75%, 10/01/11............. 2,500,000 2,808,525
Special Obligation Revenue, Consolidated, 102nd Series,
MBIA Insured, 5.75%, 10/15/23 ........................................................... 5,000,000 5,287,500
Special Obligation Revenue, John F. Kennedy International Air Terminal,
MBIA Insured, 5.75%, 12/01/22 ............................................................. 8,000,000 8,432,640
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded, 7.90%, 7/01/07..................................................... 6,500,000 6,720,935
Puerto Rico Commonwealth GO, 6.45%, 7/01/17 ............................................... 3,000,000 3,432,900
Puerto Rico Commonwealth Highway Authority Revenue, Pre-Refunded,
Series P, 8.125%, 7/01/13 ................................................................ $ 275,000 $ 284,499
Series Q, 8.00%, 7/01/18................................................................ 8,000,000 8,890,640
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A,
7.90%, 7/01/07 ........................................................................... 350,000 361,662
7.75%, 7/01/08 ........................................................................... 5,500,000 5,675,230
7.50%, 7/01/09 ........................................................................... 250,000 257,750
Puerto Rico Commonwealth Urban Renewal and Housing Corp.,
Refunding, 7.875%, 10/01/04 ............................................................... 1,000,000 1,073,640
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.125%, 7/01/14...................................................... 2,355,000 2,483,324
Series T, 6.00%, 7/01/16 ................................................................. 11,535,000 12,465,528
Series X, 6.00%, 7/01/15.................................................................. 2,000,000 2,161,920
Series X, 6.125%, 7/01/21 ................................................................ 5,000,000 5,413,900
Puerto Rico HFC Revenue,
FHA Mortgage Insured, Section 8 Assisted, Sixth Portfolio,
Pre-Refunded, 7.75%, 12/01/26 ............................................................ 125,000 154,678
MFMR, Portfolio No. 1, Series A, 7.50%, 4/01/22 .......................................... 5,000,000 5,269,500
SFMR, Portfolio No. 1, Series A, GNMA Secured, 7.80%, 10/15/21............................ 195,000 200,957
SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ........................... 1,000,000 1,063,880
Puerto Rico Industrial, Medical and Environmental Facilities,
PCFA, Baxter Travenol Labs., Series A, 8.00%, 9/01/12 ...................................... 2,000,000 2,099,720
Puerto Rico Municipal Finance Agency, Series A, 8.25%, 7/01/08............................. 100,000 103,494
Rutgers State University, Series A, 6.50%, 5/01/18 ....................................... 4,250,000 4,555,533
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 5,600,500
South Brunswick Township, Board of Education, Refunding, Series AA,
FGIC Insured, 5.50%, 8/01/24 .............................................................. 1,720,000 1,776,003
Stony Brook Regional Sewerage Authority Revenue, Series A,
Pre-Refunded, 7.40%, 12/01/09 .............................................................. 1,000,000 1,079,110
Sussex County Municipal Utilities Authority, Solid Waste Revenue, Series A,
BIG Insured, Pre-Refunded, 7.875%, 12/01/13................................................. 100,000 105,055
Union County Improvement Authority Revenue, Plainfield Board of Education,
FGIC Insured, 5.85%, 8/01/26................................................................ 5,000,000 5,324,600
University of Medicine and Dentistry Revenue,
Series A, MBIA Insured, 5.00%, 9/01/22 ................................................... 1,700,000 1,655,489
Series C, Pre-Refunded, 7.20%, 12/01/09 .................................................. 750,000 806,828
Series C, Pre-Refunded, 7.20%, 12/01/19 .................................................. 725,000 779,933
Warren Hills Regional School District, COP, BIG Insured,
Pre-Refunded, 7.375%, 12/15/09 ........................................................... 1,200,000 1,254,864
Winslow Township, GO, Camden County, Refunding, AMBAC Insured,
Pre-Refunded, 7.80%, 7/01/18 ............................................................... 100,000 102,345
-------------
Total Long Term Investments (Cost $610,651,934) ........................................... 654,719,244
-------------
a Short Term Investments .5%
New Jersey EDA PCR, Refunding, Exxon Project, Daily VRDN and Put, 3.00%, 4/01/22........... 100,000 100,000
New Jersey EDA Revenue, Dow Chemical, El Dorado Term 1984 A,
Refunding, Daily VRDN and Put, 3.25%, 5/01/01............................................... 100,000 100,000
New Jersey EDA Revenue, Dow Chemical, El Dorado Term 1984 B, Refunding,
Daily VRDN and Put, 3.25%, 5/01/03.......................................................... 300,000 300,000
Port Authority New York and New Jersey, Special Obligation Revenue,
Versatile Structure, Series 2, Daily VRDN and Put, 3.50%, 5/01/19........................... 2,300,000 2,300,000
Union County IPC Financing Authority Revenue, Exxon Project, Refunding,
Daily VRDN and Put, 3.00%, 10/01/24 ........................................................ 800,000 800,000
-------------
Total Short Term Investments (Cost $3,600,000) ............................................ 3,600,000
-------------
Total Investments (Cost $614,251,934) 99.0%................................................ 658,319,244
Other Assets, less Liabilities 1.0% ....................................................... 6,748,504
-------------
Net Assets 100.0% ......................................................................... $665,067,748
=============
</TABLE>
See glossary of terms on page 141.
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 Oregon Tax-Free Income Fund
Year Ended February 28,
Class I 1998 1997 19961 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.55 $11.60 $11.22 $11.70 $11.73
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .62 .63 .63 .63 .64
Net realized and unrealized gains (losses) ......................... .31 (.05) .38 (.49) (.02)
------------------------------------------------------
Total from investment operations..................................... .93 .58 1.01 .14 .62
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.62) (.63) (.63) (.62) (.65)
------------------------------------------------------
Net asset value, end of year......................................... $11.86 $11.55 $11.60 $11.22 $11.70
=====================================================
Total return*........................................................ 8.21% 5.13% 9.19% 1.36% 5.15%
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $427,022 $384,003 $375,415 $349,458 $375,684
Ratios to average net assets:
Expenses............................................................ .67% .66% .66% .65% .58%
Net investment income .............................................. 5.33% 5.52% 5.51% 5.71% 5.47%
Portfolio turnover rate.............................................. 12.18% 4.47% 6.52% 26.44% 9.42%
Class II
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.61 $11.65 $11.23
---------------------------------
Income from investment operations:
Net investment income .............................................. .56 .56 .47
Net realized and unrealized gains (losses) ......................... .31 (.04) .41
---------------------------------
Total from investment operations..................................... .87 .52 .88
---------------------------------
Less distributions from:
Net investment income .............................................. (.56) (.56) (.46)
----------------------------------
Net asset value, end of year......................................... $11.92 $11.61 $11.65
=================================
Total return*........................................................ 7.66% 4.59% 7.99%
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $15,946 $7,100 $2,044
Ratios to average net assets:
Expenses............................................................ 1.22% 1.23% 1.24%**
Net investment income .............................................. 4.74% 4.93% 4.87%**
Portfolio turnover rate.............................................. 12.18% 4.47% 6.52%
</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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Oregon Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 100.8%
Albany Water Revenue, Second Lien, Pre-Refunded, 7.25%, 8/01/09 ........................... $ 1,000,000 $ 1,048,510
Bay Area Health District Hospital Facility Authority, Health Facilities Revenue,
Evergreen Court Project, 7.25%, 10/01/14 ................................................... 2,000,000 2,170,940
Bear Creek Valley Sanitary Authority, GO,
7.30%, 6/01/05 ........................................................................... 100,000 101,787
7.35%, 6/01/06 ........................................................................... 105,000 106,888
7.70%, 5/01/07 ........................................................................... 50,000 50,561
7.40%, 6/01/07 ........................................................................... 115,000 117,076
7.40%, 6/01/08 ........................................................................... 125,000 127,248
Benton County, Oregon Hospital Facilities Authority, Good Samaritan Hospital,
Corvallis, 6.25%, 10/01/09.................................................................. 1,125,000 1,189,845
Chemeketa Community College District, FGIC Insured, 5.80%, 6/01/12 ........................ 1,000,000 1,087,180
City of Bend, Urban Renewal Agency Tax Revenue, Series A,
6.85%, 9/01/06 ........................................................................... 600,000 605,928
7.00%, 9/01/11 ........................................................................... 750,000 757,583
Clackamas County, Health Facilities Authority Hospital Revenue, Refunding,
Adventist Health, Series A, MBIA Insured, 6.35%, 3/01/09 .................................. 4,945,000 5,383,275
Clackamas County, Hospital Facilities Authority Revenue,
GNMA Secured, Jennings Lodge Project, 7.50%, 10/20/31 ................................... 2,990,000 3,222,951
Kaiser Permanente, Series A, 6.50%, 4/01/11 .............................................. 1,635,000 1,755,876
Kaiser Permanente, Series A, 6.25%, 4/01/21 .............................................. 4,950,000 5,288,184
Refunding, Gross Willamette Falls, 5.75%, 4/01/15 ........................................ 2,250,000 2,320,178
Refunding, Willamette View Inc. Project, 6.10%, 11/01/12.................................. 500,000 524,010
Refunding, Willamette View Inc. Project, 6.30%, 11/01/21.................................. 1,500,000 1,574,700
Sisters of Providence Project, 8.125%, 10/01/07 .......................................... 110,000 112,521
Clackamas County USD No. 115, AMBAC Insured, 6.15%, 6/01/14 ............................... 4,000,000 4,390,640
Clackamas Oregon Community College District, MBIA Insured, 5.80%, 6/01/26 ................ 1,000,000 1,059,640
Clairmont Water District Revenue, 6.50%, 2/01/12 .......................................... 1,125,000 1,171,013
Deschutes County Hospital Facilities Authority, Hospital Revenue,
St. Charles Medical Center, 6.00%, 1/01/13 ................................................. 3,000,000 3,232,500
Douglas County, Hospital Facilities Authority Revenue, Catholic Health Facilities,
Series B, MBIA Insured, 6.00%, 11/15/15 .................................................... 1,950,000 2,122,614
Emerald People's Utility District, Electric System Revenue, Refunding, AMBAC Insured,
Series B, Pre-Refunded, 7.30%, 11/01/11 .................................................... 500,000 528,825
Eugene Electric Utility System Revenue,
Pre-Refunded, 6.65%, 8/01/10 ............................................................. 655,000 709,110
Pre-Refunded, 6.70%, 8/01/11 ............................................................. 700,000 758,933
Pre-Refunded, 5.75%, 8/01/16 ............................................................. 3,000,000 3,290,580
bRefunding, FSA Insured, 5.00%, 8/01/18 ................................................. 3,500,000 3,464,510
bRefunding, FSA Insured, 5.05%, 8/01/22 ................................................. 13,620,000 13,468,546
Eugene Public Safety Facilities, FGIC Insured, 5.70%, 6/01/16 ............................. 500,000 529,590
Eugene Trojan Nuclear Project Revenue, Refunding, 5.90%, 9/01/09 .......................... 840,000 843,049
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 .......................................................................... 750,000 824,505
6.70%, 10/01/23 .......................................................................... 1,900,000 2,107,765
Guam Power Authority Revenue, Series A, 6.30%, 10/01/12 ................................... 825,000 876,959
Hermiston, GO, AMBAC Insured, 6.00%, 8/01/15 .............................................. 1,000,000 1,079,770
Hillsboro Hospital Facilities Authority Revenue, Refunding, 5.75%, 10/01/12................ 205,000 212,854
Klamath Falls Intercommunity Hospital Revenue, Merle West Medical Center Project,
7.00%, 6/01/02 ........................................................................... 1,500,000 1,636,545
7.25%, 6/01/06 ........................................................................... 2,310,000 2,529,542
Lane County, COP, Fairground Project, 7.00%, 8/01/04 ...................................... 1,000,000 1,037,150
Lane County PCR, Refunding, Weyerhaeuser Co. Project, 6.50%, 7/01/09 ...................... 11,575,000 12,669,648
Lane and Douglas Counties, GO, School District No. 28J,
Fern Ridge, FGIC Insured, 5.00%, 6/01/17 ................................................. 1,000,000 997,470
Lebanon Wastewater Revenue, Refunding, 5.875%, 6/01/20 .................................... 2,425,000 2,472,676
Marion County Housing Authority Revenue, Elliott Residence Project,
GNMA Secured, 7.50%, 10/20/25............................................................... 1,250,000 1,426,975
Marion County Union High School District No. 7J, 6.00%, 6/01/13 ........................... 1,000,000 1,091,180
Medford Hospital Facilities Authority Revenue, Gross Rogue
Valley Health Services, MBIA Insured, 6.75%, 12/01/20 ...................................... 4,475,000 4,827,675
Metropolitan Service District, Convention Center, GO, Series A, 6.25%, 1/01/13............. 4,865,000 5,130,921
Multnomah County Drain District No. 1 Assessment, MBIA Insured, 5.25%, 7/01/17............. 1,000,000 1,020,620
Multnomah County School District, COP, Series A, Pre-Refunded, 6.90%, 8/01/09 ............. 175,000 177,357
Multnomah Educational Service District, 5.40%, 6/01/17..................................... 1,000,000 1,027,740
Northern Mariana Islands, Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Improvement, Series A, 6.85%, 10/01/25 ......................................... 3,500,000 3,721,935
Oak Lodge Water District, GO, AMBAC Insured,
7.40%, 12/01/08 .......................................................................... $ 215,000 $ 252,666
7.50%, 12/01/09 .......................................................................... 215,000 253,221
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 1,612,245
Oregon City Sewer Revenue, Pre-Refunded, 6.875%, 10/01/19 ................................. 4,000,000 4,717,120
Oregon Health Sciences University Revenue, Series A, MBIA Insured, 5.25%,
7/01/25................................................................................... 100,000 100,865
7/01/28................................................................................... 2,000,000 2,009,340
Oregon State Bond Bank Revenue, EDR, Series B, Pre-Refunded, 6.80%, 1/01/11 ............... 1,610,000 1,682,933
Oregon State Department of Administrative Services, COP,
Series A, AMBAC Insured, 5.80%, 5/01/24................................................... 5,000,000 5,360,450
Series C, MBIA Insured, 5.75%, 5/01/17.................................................... 2,000,000 2,140,840
Oregon State Department of General Services, COP,
Real Property Financing Program, Series A, MBIA Insured, Pre-Refunded, 7.20%, 1/15/15..... 10,000 10,796
Real Property Financing Program, Series A, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/15 ... 750,000 828,465
Refunding, Series D, MBIA Insured, 5.80%, 3/01/15 ........................................ 1,000,000 1,042,110
Series B, MBIA Insured, Pre-Refunded, 7.20%, 1/15/15 ..................................... 150,000 161,937
Series F, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/15 .................................... 950,000 1,049,380
Series G, AMBAC Insured, 6.25%, 9/01/15 .................................................. 750,000 804,233
Oregon State EDR, Georgia-Pacific Corp. Project,
Refunding, Series 183, 5.70%, 12/01/25 ................................................... 1,500,000 1,522,950
Series CLVII, 6.35%, 8/01/25 ............................................................. 18,500,000 19,630,165
Oregon State Elderly and Disabled Housing Authority, GO,
Series A, 6.00%, 8/01/15 ................................................................. 910,000 974,765
Series A, 6.00%, 8/01/21 ................................................................. 455,000 483,874
Series A, 5.375%, 8/01/28................................................................. 1,950,000 1,967,277
Series B, 6.10%, 8/01/17 ................................................................. 1,410,000 1,506,345
Series B, 6.25%, 8/01/23 ................................................................. 2,015,000 2,201,831
Series B, 6.375%, 8/01/24 ................................................................ 2,155,000 2,353,863
Series C, 6.50%, 8/01/22 ................................................................. 6,000,000 6,634,320
Oregon State Elderly Housing, GO, Series A, 7.125%, 8/01/30 ............................... 635,000 673,164
Oregon State, GO, Board of Higher Education,
6.50%, 10/01/17 .......................................................................... 750,000 807,705
bBaccalaureate, Series A, 5.00%, 8/01/22 ................................................ 5,000,000 4,951,000
bBaccalaureate, Series A, 5.00%, 8/01/27................................................. 6,000,000 5,908,800
Series A, 5.65%, 8/01/27.................................................................. 4,440,000 4,648,103
Series A, Pre-Refunded, 7.50%, 5/01/18 ................................................... 300,000 301,854
Series C, 5.65%, 8/01/27.................................................................. 1,460,000 1,528,430
Oregon State, GO, Department of Energy, Series B, 6.80%, 1/01/17 .......................... 400,000 409,232
Oregon State, GO, Department of Transportation Revenue, Regional Light Rail,
Federal Westside Project, MBIA Insured,
6.10%, 6/01/07 ........................................................................... 2,000,000 2,224,580
6.20%, 6/01/08 ........................................................................... 2,500,000 2,781,175
6.25%, 6/01/09 ........................................................................... 1,750,000 1,949,518
Oregon State, GO, Series B, 6.875%, 12/01/13 .............................................. 1,000,000 1,040,590
Oregon State HFA, SFMR Program, Series A, 7.20%, 7/01/15 .................................. 3,065,000 3,261,620
Oregon State Higher Education, GO, Series C, Pre-Refunded, 7.25%, 10/15/18 ................ 1,445,000 1,477,281
Oregon State Housing, Educational and Cultural Facility Authority, Lewis and Clark
College Project, Series A, 6.125%,10/01/24 ................................................ 10,500,000 11,542,335
Oregon State Housing and Community Services Department, Finance Housing Revenue,
Multi-Unit, Series A, 6.80%, 7/01/13 ..................................................... 6,710,000 7,131,589
Multi-Unit, Series A, 6.15%, 7/01/21 ..................................................... 910,000 968,577
Multi-Unit, Series C, 6.85%, 7/01/22 ..................................................... 180,000 191,012
SFM, Series A, 5.75%, 7/01/12 ............................................................ 850,000 879,674
SFM, Series A, 6.35%, 7/01/14 ............................................................ 3,060,000 3,277,841
SFM, Series A, 6.40%, 7/01/18 ............................................................ 1,420,000 1,511,136
SFM, Series A, 6.45%, 7/01/26 ............................................................ 3,100,000 3,300,663
SFM, Series B, 6.875%, 7/01/28 ........................................................... 12,000,000 12,868,800
SFM, Series C, 6.20%, 7/01/15 ............................................................ 2,500,000 2,650,425
SFM, Series C, 6.40%, 7/01/26 ............................................................ 1,190,000 1,274,371
Oregon State Housing and Community Services Department,
Finance Housing Revenue, (cont.)
SFM, Series D, 6.80%, 7/01/27 ............................................................ $ 1,750,000 $ 1,861,615
SFM, Series E, 7.00%, 7/01/09 ............................................................ 260,000 283,093
SFM, Series E, 5.80%, 7/01/16 ............................................................ 800,000 820,184
SFM, Series E, 6.75%, 7/01/16 ............................................................ 2,125,000 2,249,971
SFM, Series E, 7.15%, 7/01/25 ............................................................ 1,010,000 1,103,718
SFM, Series F, 7.00%, 7/01/22 ............................................................ 2,520,000 2,671,301
SFM, Series F, 5.65%, 7/01/28 ............................................................ 1,000,000 1,022,590
SFM, Series G, 6.80%, 7/01/22 ............................................................ 645,000 693,414
SFM, Series H, 5.65%, 7/01/28............................................................. 2,000,000 2,028,740
Oregon State Veteran's Welfare, GO,
Series 73-A, 7.00%, 12/01/11 ............................................................. 2,500,000 2,609,025
Series 75, 5.85%, 10/01/15 ............................................................... 850,000 916,479
Series 75, 5.875%, 10/01/18 .............................................................. 485,000 519,241
Series 75, 6.00%, 4/01/27 ................................................................ 2,870,000 3,090,646
Series 76-A, 6.05%, 10/01/28 ............................................................. 3,000,000 3,233,460
Port Astoria, GO, MBIA Insured, Pre-Refunded, 6.60%, 9/01/11 .............................. 450,000 488,079
Port Morrow PCR, Idaho Power Co., Boardman Project, 7.25%, 8/01/08 ........................ 2,200,000 2,230,998
Port Morrow Revenue, Refunding, Pre-Refunded, 8.00%, 12/01/11 ............................. 500,000 515,985
Port of Portland Special Obligation Revenue, Delta Airlines, Inc. Project, 6.20%, 9/01/22.. 4,000,000 4,195,520
Port St. Helens, PCR, Refunding, Boise Cascade Corp. Project, 5.65%, 12/01/27.............. 4,500,000 4,600,395
Port Umpqua PCR, International Paper Co. Project, Refunding, Series B, 5.20%, 6/01/11...... 2,200,000 2,234,628
Portland, COP, Refunding, PBA, Series A, Pre-Refunded, 7.25%, 4/01/08 ..................... 2,000,000 2,074,500
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 3,041,988
Portland Hospital Facilities Authority Hospital Revenue,Refunding,
Legacy Health System, AMBAC Insured, 6.70%, 5/01/21
Series A.................................................................................. 10,500,000 11,481,750
Series B.................................................................................. 8,475,000 9,267,413
Portland Housing Authority MFR, Berry Ridge Project, 6.30%, 5/01/29 ....................... 1,500,000 1,555,680
Portland Housing Authority Revenue, 7.10%, 7/01/15 ........................................ 1,000,000 1,058,770
Portland Hydroelectric Power Revenue, Bull Run Project, Series C, 7.00%, 10/01/16.......... 635,000 635,857
Portland International Airport,
Series 7-A, MBIA Insured, 6.75%, 7/01/09 ................................................. 1,500,000 1,632,930
Series 7-B, MBIA Insured, 7.10%, 7/01/21.................................................. 200,000 218,832
Series 7-B, MBIA Insured, Pre-Refunded, 7.10%, 7/01/21.................................... 2,800,000 3,428,992
Series 10, FGIC Insured, 5.75%, 7/01/25 .................................................. 300,000 313,470
Portland MFHR, Civic Stadium Housing Project, Series A, 6.00%, 3/01/17..................... 1,000,000 1,038,390
Portland Sewer System Revenue,
Pre-Refunded, 7.125%, 3/01/10 ............................................................ 5,000,000 5,000,000
Pre-Refunded, Series A, 6.25%, 6/01/15.................................................... 9,100,000 10,211,019
Refunding, Series A, FGIC Insured, 5.00 %, 6/01/15 ....................................... 500,000 497,675
Portland Water System Revenue, Series A, 5.00%, 8/01/16 ................................... 1,000,000 1,001,440
Portland Urban Renewal and Redevelopment, Downtown Waterfront,
Refunding, Series A, 6.40%, 6/01/08 ........................................................ 5,555,000 6,013,621
Puerto Rico Commonwealth, GO
Pre-Refunded, 6.45%, 7/01/17.............................................................. 1,000,000 1,144,300
Refunding, 5.375%, 7/01/25 ............................................................... 1,000,000 1,010,880
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
FSA Insured, Pre-Refunded, 9.00%, 7/01/09 .................................................. 75,000 95,747
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series Y, 5.50%,
7/01/26................................................................................... 7,275,000 7,441,234
7/01/36................................................................................... 13,000,000 13,740,870
Puerto Rico Commonwealth Highway Authority Revenue, Series Q,
Pre-Refunded, 8.00%, 7/01/18 ............................................................. 4,000,000 4,445,320
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A, 7.75%, 7/01/08 .............................................. 2,400,000 2,476,464
Puerto Rico Commonwealth Public Improvement, GO, Series A, Pre-Refunded, 7.75%,
7/01/06................................................................................... 250,000 258,378
7/01/13................................................................................... 280,000 289,383
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 ....................................... 600,000 620,586
Refunding, Series X, 5.50%, 7/01/25 ...................................................... 2,600,000 2,645,214
Series O, 7.125%, 7/01/14................................................................. 1,065,000 1,123,032
Series R, 6.25%, 7/01/17 ................................................................. 2,070,000 2,219,475
Series X, 6.00%, 7/01/15 ................................................................. 2,500,000 2,702,400
Puerto Rico HFC, SFMR, Portfolio No. 1, GNMA Secured,
Series A, 7.80%, 10/15/21................................................................. $ 55,000 $ 56,680
Series B, 7.65%, 10/15/22................................................................. 455,000 484,065
Puerto Rico HFC Revenue, FHA Mortgage Insured, Section 8 Assisted,
Sixth Portfolio, Pre-Refunded, 7.75%, 12/01/26 ............................................. 395,000 488,781
Puerto Rico Housing Bank and Finance Agency, SFMR, 5th Portfolio,
Pre-Refunded, 7.50%, 12/01/15 ............................................................ 500,000 537,900
Puerto Rico Municipal Finance Agency, Series 1988-A, Pre-Refunded, 8.25%, 7/01/08 ......... 205,000 212,163
Puerto Rico PBA, Guaranteed Public Education and Health Facilities,
Refunding, Series M, 5.75%, 7/01/15 ........................................................ 2,500,000 2,596,525
Puerto Rico PBA Revenue, Guaranteed Government Facilities, Series B, 5.25%, 7/01/21........ 3,700,000 3,707,511
Puerto Rico Telephone Authority Revenue, Series 1992-L, 6.125%, 1/01/22.................... 1,100,000 1,170,169
Roseburg Urban Sanitary Authority, Improvement, GO, Unlimited Tax, Douglas County,
7.40%, 1/01/06 ........................................................................... 60,000 61,585
7.50%, 1/01/08 ........................................................................... 230,000 236,240
Salem, GO, Series A, 5.875%, 1/01/07 ...................................................... 1,250,000 1,307,063
Salem Educational Facilities Revenue, Refunding, Williamette University, 6.10%, 4/01/14 ... 1,000,000 1,057,920
Salem-Keizer School District No. 24J, FGIC Insured, 6.00%,
6/01/13................................................................................... 4,345,000 4,698,335
6/01/14................................................................................... 4,395,000 4,737,502
Taft-Nelscott-Delake Rural Fire Protection District, 6.00%, 6/01/16........................ 1,110,000 1,164,246
Tillamook Peoples Utilities District, 5.75%, 1/01/28 ...................................... 2,765,000 2,791,129
Tri-County, Metro Transportation District,
COP, 7.50%, 12/15/02 ..................................................................... 1,235,000 1,247,152
Light Rail Extended, Series A, 6.00%, 7/01/12 ............................................ 2,500,000 2,671,400
Umatilla County Hospital Facility Authority, Hospital Revenue,
Refunding, Good Shepherd Community Hospital, 7.50%, 1/01/10 .............................. 1,300,000 1,310,244
Umatilla County USD No. 16R, Pendletron Project, AMBAC Insured, 6.00%, 7/01/14 ........... 5,300,000 5,730,413
Wasco County Hospital Facility Authority Hospital Revenue, 7.375%, 7/01/00 ................ 2,000,000 2,125,400
Washington County Housing Authority, MFHR,
Bethany Meadows II Project, 5.85%, 9/01/27................................................ 1,435,000 1,482,298
Terrace View Project, 5.40%, 12/01/17..................................................... 1,725,000 1,774,473
Terrace View Project, 5.50%, 12/01/22..................................................... 1,360,000 1,398,801
Washington County USD No. 88J, 6.10%, 6/01/12 ............................................. 1,000,000 1,096,570
Washington County Unified Sewer Agency Revenue,
Pre-Refunded, 7.00%, 11/01/09 ............................................................ 2,700,000 2,842,749
Pre-Refunded, Senior Lien, Series A, 6.20%, 10/01/10...................................... 3,530,000 3,942,551
Refunding, Senior Lien, Series A, 6.20%, 10/01/10......................................... 470,000 516,699
Refunding, Senior Lien, Pre-Refunded, Series A, AMBAC Insured, 6.125%, 10/01/12 .......... 1,000,000 1,115,630
Western Lane Hospital District, Hospital Facilities Authority Revenue,
Sisters of St. Joseph of Peace Health and Hospital Services,
Refunding, MBIA Insured,
5.875%, 8/01/12 .......................................................................... 4,400,000 4,794,372
Pre-Refunded, 7.125%, 8/01/17 ............................................................ 2,700,000 2,879,604
Yamhill County USD No. 29J, 6.10%, 6/01/11 ................................................ 5,000,000 5,488,600
--------------
Total Long Term Investments (Cost $417,295,544)............................................ 446,625,006
--------------
a Short Term Investments 3.2%
Medford Hospital Authority Revenue, Rogue Valley Health Services,
Daily VRDN and Put, 3.70%, 10/01/16 ........................................................ 4,500,000 4,500,000
Port of Portland PCR, Reynolds Metals, Daily VRDN and Put, 3.70%, 12/01/09 ................ 1,600,000 1,600,000
Port St. Helens PCR, Portland General Electric Co. Project,
Series A, Daily VRDN and Put,
3.55%, 4/01/10............................................................................ 5,200,000 5,200,000
3.70%, 8/01/14 ........................................................................... 100,000 100,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
MBIA Insured, Weekly VRDN and Put, 2.90%, 12/01/15.......................................... 2,600,000 2,600,000
--------------
Total Short Term Investments (Cost $14,000,000)............................................ 14,000,000
--------------
Total Investments (Cost $431,295,544) 104.0% .............................................. 460,625,006
Other Assets, less Liabilities (4.0%) ..................................................... (17,656,361)
--------------
Net Assets 100.0% ......................................................................... $442,968,645
==============
</TABLE>
See glossary of terms on page 141.
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 Pennsylvania Tax-Free Income Fund
Year Ended February 28,
Class I 1998 1997 19961 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $10.39 $10.44 $10.16 $10.56 $10.55
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .58 .60 .62 .62 .63
Net realized and unrealized gains (losses) ......................... .32 (.04) .29 (.41) .01
-----------------------------------------------------
Total from investment operations..................................... .90 .56 .91 .21 .64
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.58) (.61) (.63) (.61) (.63)
In excess of net investment income ................................. (.01) -- -- -- --
Net realized gains.................................................. (.14) -- -- -- --
-----------------------------------------------------
Total distributions.................................................. (.73) (.61) (.63) (.61) (.63)
-----------------------------------------------------
Net asset value, end of year......................................... $10.56 $10.39 $10.44 $10.16 $10.56
=====================================================
Total return*........................................................ 8.90% 5.53% 9.15% 2.22% 5.99%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $713,141 $658,339 $639,847 $587,366 $615,546
Ratios to average net assets:
Expenses............................................................ .65% .64% .64% .63% .56%
Net investment income .............................................. 5.49% 5.84% 5.96% 6.15% 5.90%
Portfolio turnover rate.............................................. 12.74% 22.24% 9.71% 12.91% 4.73%
Class II
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $10.43 $10.47 $10.17
---------------------------------
Income from investment operations:
Net investment income .............................................. .52 .55 .47
Net realized and unrealized gains (losses) ......................... .33 (.05) .30
---------------------------------
Total from investment operations..................................... .85 .50 .77
---------------------------------
Less distributions from:
Net investment income .............................................. (.53) (.54) (.47)
Net realized gains.................................................. (.14) -- --
---------------------------------
Total distributions.................................................. (.67) (.54) (.47)
---------------------------------
Net asset value, end of year......................................... $10.61 $10.43 $10.47
=================================
Total return*........................................................ 8.35% 4.98% 7.71%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $25,899 $11,935 $3,110
Ratios to average net assets:
Expenses............................................................ 1.21% 1.21% 1.22%**
Net investment income .............................................. 4.89% 5.22% 5.36%**
Portfolio turnover rate.............................................. 12.74% 22.24% 9.71%
</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 May 1, 1995 (effective date) to February 29, 1996 for Class II.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Pennsylvania Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 99.6%
Abington Pennsylvania School District, FGIC Insured,
Pre-Refunded, 6.00%, 5/15/26 ............................................................. $ 2,000,000 $ 2,232,640
Allegheny County Higher Education Building Authority, Duquesne University
Project, AMBAC Insured, 5.00%, 3/01/21 ................................................... 1,000,000 974,650
Allegheny County Hospital Development Authority Revenue,
Allegheny General Hospital Project, Series A, MBIA Insured, 6.25%, 9/01/20 ............... 10,000,000 11,003,600
Allegheny Hospital, South Hills Health System, Series A,
MBIA Insured, 5.875%, 5/01/26.............................................................. 1,700,000 1,807,457
Health Center, University of Pittsburgh Medical Center, Series B,
MBIA Insured, 5.00%, 7/01/16.............................................................. 4,000,000 3,933,720
Refunding, Divine Providence Hospital, Series B, Pre-Refunded, 8.75%, 1/01/14............. 500,000 518,015
Refunding, Health Center, University of Pittsburgh, Series A,
MBIA Insured, 5.625%, 4/01/27............................................................. 8,000,000 8,303,600
Allegheny County IDAR, Refunding,
Kaufmann Medical Project, Series A, MBIA Insured, 6.80%, 3/01/15 ......................... 1,000,000 1,090,700
USX Project, Environmental Improvement, 6.10%,1/15/18 .................................... 2,000,000 2,122,220
Allegheny County RDAR, Refunding, Home Improvement Loan,
Series A, 5.90%, 2/01/11.................................................................. 2,855,000 2,949,415
Allegheny County Residential Finance Authority, Mortgage Revenue,
Ladies Grand Army Republic Health Facilities Project, Series G,
FHA Secured, 6.35%, 10/01/36.............................................................. 1,995,000 2,122,919
Lemington Home, Series E, 7.125%, 2/01/27................................................. 3,770,000 3,957,256
Series D, MFMR, FHA Secured, 7.50%, 6/01/33 .............................................. 1,400,000 1,476,118
Series H, SFMR, GNMA Secured, 8.00%, 6/01/17.............................................. 1,240,000 1,276,332
Series J, GNMA Secured, 7.50%, 6/01/17.................................................... 2,180,000 2,254,796
Series K, GNMA Secured, 7.75%, 12/01/22................................................... 2,065,000 2,141,921
Series M, SFMR, GNMA Secured, 7.90%, 6/01/11 ............................................. 1,280,000 1,351,232
Series T, SFMR, GNMA Secured, 6.95%, 5/01/17 ............................................. 810,000 861,168
Ambridge Area School District, Refunding, Series A, FGIC Insured, 5.25%, 11/01/16.......... 2,730,000 2,758,638
Beaver County, Series A, MBIA Insured, Pre-Refunded, 5.90%, 10/01/26 ...................... 8,000,000 8,909,520
Beaver County Hospital Authority Revenue, Refunding, Beaver County Medical
Center, Inc., AMBAC Insured, 6.625%, 7/01/10................................................. 5,000,000 5,514,150
Beaver County IDA, PCR, Refunding, Series A,
Beaver Valley Project, Pennsylvania Power & Light, 7.15%, 9/01/21 ........................ 4,400,000 4,751,604
Ohio Edison Project, 7.75%, 9/01/24....................................................... 6,475,000 6,838,507
Bensalem Township, Refunding, FGIC Insured, 5.75%,12/01/16................................. 3,000,000 3,173,010
Berks County Municipal Authority Revenue, FGIC Insured, Pre-Refunded, 7.00%, 5/15/18 ...... 4,000,000 4,617,000
Bethlehem Area School District, MBIA Insured, Pre-Refunded, 6.00%, 3/01/16................. 4,000,000 4,455,760
Bradford County IDA, Solid Waste Disposal Revenue, International Paper Co.
Projects, Series A, 6.60%, 3/01/19.......................................................... 2,500,000 2,789,400
Burrell School District, FGIC Insured, 5.60%, 11/15/15..................................... 2,890,000 3,038,922
Butler County IDA, PCR, Refunding, Witco Corp. Project, 5.85%, 12/01/23 ................... 2,000,000 2,102,600
Cambria County Hospital Development Authority Revenue,
Refunding and Improvement, Conemaugh Valley Hospital, Series B, 7/01/18,
Connie Lee Insured, 6.375%................................................................ 3,500,000 3,742,725
Pre-Refunded, 8.875% ..................................................................... 1,000,000 1,036,430
Cambria County IDA,
PCR, Refunding, Pennsylvania Electric Company Project,
Series A, MBIA Insured, 5.80%, 11/01/20................................................... 5,000,000 5,263,900
Resource Recovery Revenue, Cambria Cogen Project, Series F-1, 7.75%, 9/01/19 ............. 4,000,000 4,062,440
Resource Recovery Revenue, Cambria Cogen Project, Series F-2, 7.75%, 9/01/19 ............. 2,715,000 2,757,381
Chartiers Valley Industrial and Commercial Development
Authority Revenue, Refunding, First Mortgage,
Asbury Place Project, 6.50%, 2/01/36 ..................................................... 4,295,000 4,695,552
Refunding, United Methodist Health Center, Series A, Pre-Refunded, 9.25%, 12/01/08 ....... 1,000,000 1,059,360
Clarion County Hospital Authority Revenue, Refunding, Clarion Hospital Project,
5.40%, 7/01/07............................................................................ 1,000,000 1,019,730
5.55%, 7/01/09 ........................................................................... 2,365,000 2,418,709
5.60%, 7/01/10 ........................................................................... 600,000 608,490
5.75%, 7/01/12 ........................................................................... 1,795,000 1,832,282
5.75%, 7/01/17............................................................................ 700,000 709,828
5.625%, 7/01/21 .......................................................................... 600,000 606,204
Cranberry Township Municipal Authority, Water and Sewer Revenue,
MBIA Insured, 5.125%, 12/01/26.............................................................. 1,450,000 1,427,366
Dauphin County General Authority Health System Revenue, Refunding,
Pinnacle Health System Project, MBIA Insured, 5.50%, 5/15/17................................ 4,280,000 4,457,706
Dauphin County General Authority Hospital Revenue, Refunding,
Hapsco-Western Hospital Project, MBIA Insured,
Series A, 6.50%, 7/01/12 ................................................................. 4,500,000 4,912,830
Series B, 6.25%, 7/01/16 ................................................................. 5,000,000 5,379,450
Dauphin County General Authority Revenue, School District 0014, 7.50%, 6/01/26 ............ 1,000,000 1,008,930
Deer Lakes School District, Series A, FSA Insured, 5.00%, 1/15/23 ......................... 1,000,000 987,320
Delaware County Authority Health Facility Revenue, Refunding,
Mercy Health Corporation Project, ETM, 6.00%, 12/15/26 ..................................... 10,800,000 12,004,956
Delaware County Authority Healthcare Revenue, Mercy Health Corporation
Southeastern, Series B, Pre-Refunded, 6.00%, 11/15/07 ...................................... $ 9,000,000 $ 9,980,460
Delaware County Authority Revenue, Elwyn, Inc. Project,
Pre-Refunded, 8.35%, 6/01/15 ............................................................. 2,000,000 2,222,080
Delaware County IDAR, PCR, Philadelphia Electric Co. Project, 7.375%, 4/01/21 ............. 5,000,000 5,459,200
Delaware River Joint Toll Bridge Commission, Pennsylvania Bridge Revenue,
Pre-Refunded, 7.875%, 7/01/18............................................................... 450,000 464,958
Delaware River Port Authority,
Pennsylvania and New Jersey Delaware River Bridges Revenue, Refunding,
AMBAC Insured, 7.375%, 1/01/07 ............................................................. 1,000,000 1,046,480
Pennsylvania and New Jersey Revenue, Series 1995,
FGIC Insured, 5.50%, 1/01/26 ............................................................. 7,350,000 7,631,946
Delaware Valley Regional Finance Authority, Local Government Revenue,
Series B, AMBAC Insured, 5.60%, 7/01/17..................................................... 5,000,000 5,394,450
Erie County Hospital Authority Revenue, St. Vincent Health Center Project,
Series A, MBIA Insured, 6.375%, 7/01/22 .................................................... 7,000,000 7,579,460
Erie County IDAR, Nursing Home-Sarah Reed Center, 8.625%, 7/01/14 ......................... 2,110,000 2,232,992
Erie Higher Educational Building Authority Revenue, Gannon University,
Series A, Pre-Refunded, 8.50%, 6/01/15 ..................................................... 3,000,000 3,229,080
Erie Western Pennsylvania Port Authority General Revenue,
Pre-Refunded, 8.625%, 6/15/10 ............................................................ 1,850,000 2,069,207
6.875%, 6/15/16 .......................................................................... 920,000 984,630
Exeter Township, Refunding, Series B, FGIC Insured, 5.30%, 7/15/21 ........................ 6,100,000 6,144,347
Hampton Township School District, FGIC Insured, 5.00%, 9/01/27............................. 4,000,000 3,868,233
Harrisburg Authority Revenue, Series I, MBIA Insured, 5.625%, 4/01/19 ..................... 6,000,000 6,255,060
Hazleton Area School District, Series B, FGIC Insured, 5.00%, 3/01/23 ..................... 4,455,000 4,361,623
Hazleton Health Services Authority Hospital Revenue,
Hazleton General Hospital, 5.50%, 7/01/27 .................................................. 2,475,000 2,512,323
Interboro School District, Delaware County, MBIA Insured, 5.375%, 8/15/22 ................. 2,335,000 2,356,435
Jeannette County Health Service Authority Hospital Revenue,
Jeannette District Memorial Hospital, Refunding, Series A, 6.00%, 11/01/18 ................ 785,000 825,318
Jeannette County Municipal Authority Sewer Revenue, 7.00%, 7/01/17......................... 1,250,000 1,347,900
Lancaster County Hospital Authority Revenue,
Refunding, Health Center, Masonic Homes Project, AMBAC Insured, 5.00%, 11/15/20........... 1,600,000 1,559,600
Willow Valley Lakes Manor, Series B, Pre-Refunded, 9.00%, 6/01/12 ........................ 1,000,000 1,012,530
Lancaster County Solid Waste Management Authority, Resource Recovery
System Revenue, Series A, Pre-Refunded, 8.50%, 12/15/10 .................................... 1,000,000 1,032,690
Lawrence County IDA, PCR, Refunding, Pennsylvania Power Co.,
New Castle Project, 7.15%, 3/01/17 ......................................................... 5,595,000 6,042,096
Lebanon County Good Samaritan Hospital Authority Revenue,
Good Samaritan Hospital Project, Refunding, 6.00%, 11/15/18 ................................ 2,500,000 2,604,775
Lehigh County General Purpose Authority Revenue,
Lehigh Valley Hospital, Inc., Refunding, Series A, MBIA Insured, 5.875%, 7/01/15.......... 1,000,000 1,070,650
Muhlenburg Hospital Center, Refunding, Series A, 8.00%, 7/15/01........................... 1,300,000 1,385,150
Muhlenburg Hospital Center, Series A, 6.60%, 7/15/22 ..................................... 5,800,000 6,203,274
Muhlenburg Hospital Center, Series B, Pre-Refunded, 8.00%, 7/15/01 ....................... 1,100,000 1,181,961
Refunding, 5.25%, 11/15/27................................................................ 5,500,000 5,513,860
Lehigh County IDA, PCR, Refunding, Pennsylvania Power &
Light Co. Project, MBIA Insured,
Series A, 6.40%, 11/01/21 ................................................................ 5,000,000 5,460,650
Series A, 6.15%, 8/01/29.................................................................. 5,550,000 6,064,763
Series B, 6.40%, 9/01/29 ................................................................. 10,000,000 11,107,300
Lower Providence Township, Sewer Authority Revenue, Refunding, MBIA Insured,
5.25%, 5/01/14 ........................................................................... 2,000,000 2,049,160
5.25%, 5/01/22 ........................................................................... 3,750,000 3,762,038
Luzerne County IDA, Exempt Facility Revenue, Refunding,
Gas & Water Co. Project, Series A, 6.05%, 1/01/19 ........................................ 4,750,000 4,969,165
AMBAC Insured, 7.00%, 12/01/17 ........................................................... 5,000,000 5,765,050
Meadville GO, Series A, AMBAC Insured, 5.25%, 10/01/25 .................................... 2,285,000 2,303,349
Montgomery County Higher Education and Health Authority Revenue,
Holy Redeemer Hospital, Series A, AMBAC Insured, Pre-Refunded, 7.625%, 2/01/20 ........... 2,375,000 2,536,951
Jeanes Health System Project, Pre-Refunded, 8.75%, 7/01/20 ............................... 5,000,000 5,615,400
Pottstown Memorial Medical Center Project, 7.35%, 11/15/05................................ 1,315,000 1,446,474
St. Joseph's University, Refunding, Connie Lee Insured, 6.50%, 12/15/22................... 1,750,000 1,897,210
Montgomery County IDA, Retirement Community Revenue,
Adult Community Total Services,
Refunding, Series A, 5.875%, 11/15/22..................................................... 4,850,000 5,042,885
Series B, 5.75%, 11/15/17................................................................. 3,000,000 3,091,560
Montgomery County IDAR,
PCR, Philadelphia Electric Co., Series B, MBIA Insured, 6.70%, 12/01/21 .................. 5,000,000 5,473,650
Refunding, PCR, Philadelphia Electric Co., Series A, 7.60%, 4/01/21 ...................... 2,530,000 2,778,446
Resources Recovery, 7.50%, 1/01/12 ....................................................... 10,000,000 10,494,300
Montgomery County, GO, Refunding, Series B, 5.375%,
10/15/21.................................................................................. $ 3,400,000 $ 3,488,128
10/15/25.................................................................................. 7,930,000 8,107,711
Mount Pleasant Business District Authority, Hospital Revenue,
Refunding, Frick Hospital,
5.70%, 12/01/13 .......................................................................... 1,205,000 1,227,618
5.75%, 12/01/17........................................................................... 500,000 508,060
5.75%, 12/01/27........................................................................... 1,600,000 1,618,912
Neshaminy School District, FGIC Insured, Pre-Refunded, 7.00%, 2/15/14...................... 1,000,000 1,156,680
New Wilmington Municipal Authority, College Revenue,
Westminster College, 5.35%, 3/01/28......................................................... 1,500,000 1,484,505
North Hampton Borough Municipal Authority Water Revenue,
AMBAC Insured, Pre-Refunded, 7.00%, 9/01/14 ................................................ 1,175,000 1,194,106
North Hampton County IDAR, PCR, Metropolitan Edison Co.,
Refunding, Series A, MBIA Insured, 6.10%, 7/15/21........................................... 6,100,000 6,601,359
Northeastern Pennsylvania Hospital and Educational Authority Revenue, Refunding,
Kings College Project, Series B, 6.00%, 7/15/11 ......................................... 1,000,000 1,034,750
Kings College Project, Series B, 6.00%, 7/15/18 .......................................... 1,000,000 1,029,860
Wilkes University, 6.125%, 10/01/11....................................................... 5,000,000 5,001,750
Pennsylvania Convention Center Authority Revenue,
Series A, Refunding, 6.60%, 9/01/09 ...................................................... 5,000,000 5,558,500
Pennsylvania EDA,
Exempt Facilities Revenue, MacMillian L.P. Project, 7.60%, 12/01/20 ...................... 3,000,000 3,296,010
Resource Recovery Revenue, Colver Project, Series D, 7.125%, 12/01/15 .................... 5,000,000 5,596,450
Pennsylvania HFA,
Refunding, Rental Housing, FNMA Insured, 5.75%, 7/01/14 .................................. 10,000,000 10,306,100
Refunding, Series 1991-32, 7.15%, 4/01/15 ................................................ 4,370,000 4,648,981
Refunding, SFMR, Series 54-A, 6.15%, 10/01/22 ............................................ 1,500,000 1,579,770
Refunding, SFMR, Series Y, 7.45%, 4/01/16 ................................................ 2,665,000 2,783,326
SFMR, Series 29, 7.375%, 10/01/16 ........................................................ 3,560,000 3,783,461
SFMR, Series 30, 7.30%, 10/01/17 ......................................................... 2,580,000 2,756,266
SFMR, Series 34-A, 6.85%, 4/01/16 ........................................................ 3,000,000 3,200,790
SFMR, Series 34-B, 7.00%, 4/01/24 ........................................................ 6,000,000 6,388,680
SFMR, Series 38, 6.125%, 10/01/24 ........................................................ 5,395,000 5,691,293
SFMR, Series U, 7.80%, 10/01/20 .......................................................... 4,885,000 5,176,683
SFMR, Series W, 7.80%, 10/01/20 .......................................................... 1,965,000 2,053,366
Pennsylvania Infrastructure Investment Authority Revenue, Pennvest Loan
Pool Program, MBIA Insured, 5.625%,
9/01/13 .................................................................................. 6,010,000 6,369,098
9/01/14 .................................................................................. 2,870,000 3,041,483
Pennsylvania Intergovernmental Cooperative Authority, Special Tax Revenue,
Philadelphia Funding Project, FGIC Insured,
Pre-Refunded, 7.00%, 6/15/14 .............................................................. 6,000,000 7,043,880
Pennsylvania State Finance Authority Revenue, Refunding,
Municipal Capital Improvements Program, 6.60%, 11/01/09..................................... 12,565,000 13,778,528
Pennsylvania State Higher Educational Facilities Authority Revenue,
Drexel University, Refunding, 6.375%, 5/01/17 ............................................ 5,220,000 5,512,059
Health Services, Refunding, Allegheny Delaware Valley, Series A,
MBIA Insured, 5.875%, 11/15/21............................................................ 17,000,000 18,117,750
Health Services, Refunding, University of Pennsylvania,
Series A, 5.75%, 1/01/22 ................................................................. 10,000,000 10,488,300
Lycoming College, Pre-Refunded, 8.375%, 10/01/18 ......................................... 1,000,000 1,046,000
Medical College of Pennsylvania, Series A, Pre-Refunded, 8.375%, 3/01/11 ................. 1,000,000 1,064,590
Medical College of Pennsylvania, Series A, Pre-Refunded, 7.50%, 3/01/14 .................. 3,135,000 3,250,556
Philadelphia College of Textiles and Science, 6.75%, 4/01/20.............................. 3,040,000 3,254,229
Refunding, Allegheny College Project, Series B, 6.125%, 11/01/13 ......................... 1,000,000 1,066,180
Refunding, Allegheny College Project, Series B, 6.00%, 11/01/22 .......................... 3,140,000 3,232,818
Refunding, Drexel University, MBIA Insured, 5.75%, 5/01/22................................ 4,385,000 4,655,598
Refunding, La Salle University, MBIA Insured, 5.625%, 5/01/17............................. 4,000,000 4,189,480
State System of Higher Education, Series L, AMBAC Insured,
Pre-Refunded, 6.20%, 6/15/19 ............................................................ 2,220,000 2,380,395
State System of Higher Education, Series N, MBIA Insured, 5.80%, 6/15/24 ................. 3,000,000 3,146,310
Temple University, 7.375%, 10/01/06 ...................................................... 1,955,000 1,990,112
Temple University, 7.40%, 10/01/10 ....................................................... 4,505,000 4,583,567
Widner University, AMBAC Insured, Pre-Refunded, 7.625%, 10/01/13.......................... 1,000,000 1,022,480
Pennsylvania State IDAR, Economic Revenue, AMBAC Insured, 6.00%, 1/01/12 .................. 4,250,000 4,606,788
Pennsylvania State Pooled Finance Authority, Lease Revenue,
Capital Improvement, Series B, MBIA Insured, 8.00%, 11/01/09 ............................... 890,000 932,649
Pennsylvania State Turnpike Commission Revenue, Series C, FGIC Insured,
Pre-Refunded, 7.625%, 12/01/17 ............................................................. 1,000,000 1,048,360
Philadelphia Airport Revenue, Philadelphia Airport System, Series A,
AMBAC Insured, 6.10%, 6/15/25 .............................................................. $ 5,000,000 $ 5,365,550
Philadelphia Gas Works Revenue,
11th Series C, AMBAC Insured, 7.25%, 1/01/10 ............................................. 795,000 830,950
11th Series C, AMBAC Insured, Pre-Refunded, 7.25%, 1/01/10 ............................... 205,000 214,856
12th Series B, MBIA Insured, ETM, 7.00%, 5/15/20.......................................... 1,000,000 1,209,800
Refunding, 14th Series A, 6.375%, 7/01/26 ................................................ 10,100,000 10,694,486
Philadelphia Hospitals and Higher Educational Facilities Authority Revenue,
Albert Einstein Medical Center, 7.30%, 10/01/08 .......................................... 5,225,000 5,751,889
Albert Einstein Medical Center, 7.625%, 4/01/11 .......................................... 7,755,000 8,166,558
Children's Seashore House, Series A, 7.00%, 8/15/17....................................... 1,000,000 1,099,510
Children's Seashore House, Series B, 7.00%, 8/15/22 ...................................... 2,600,000 2,833,636
Frankford Hospital, Series A, 6.00%, 6/01/14 ............................................. 2,500,000 2,636,125
Refunding, Children's Hospital, Series A, 5.00%, 2/15/21.................................. 2,465,000 2,380,081
Temple University Hospital, 5.875%, 11/15/23 ............................................. 5,000,000 5,174,150
Philadelphia Municipal Authority, Gas Works Lease Revenue, 7.625%, 5/01/14 ................ 2,750,000 2,897,593
Philadelphia Municipal Authority Revenue, Lease,
Refunding, Series D, 6.30%, 7/15/17 ...................................................... 2,000,000 2,142,740
Philadelphia Parking Authority Airport Revenue,
Refunding, AMBAC Insured, 5.50%, 9/01/18 ................................................. 1,000,000 1,031,820
Philadelphia RDA, Home Improvement Loan Revenue, FHA Insured,
Series A, 7.375%, 6/01/03 ................................................................ 105,000 106,050
Series B, 6.10%, 6/01/17.................................................................. 1,000,000 1,050,070
Philadelphia RDA, Housing Revenue,
Sub-Series 2, 8.625%, 8/01/26 ............................................................ 265,000 269,696
Sub-Series 3, 8.00%, 8/01/13.............................................................. 500,000 517,145
Philadelphia School District, Series B, AMBAC Insured,
5.50%, 9/01/15 ........................................................................... 5,000,000 5,217,800
5.375%, 4/01/22 .......................................................................... 2,995,000 3,034,564
Philadelphia Water and Sewer Revenue,
ETM, 10th Series, 7.35%, 9/01/04 ......................................................... 6,875,000 7,896,556
Philadelphia Water and Wastewater Revenue, Refunding, 5.75%, 6/15/13 ...................... 10,000,000 10,286,200
Pittsburgh Urban RDA,
Mortgage Revenue, Series A, 7.15%, 10/01/27............................................... 840,000 917,734
Mortgage Revenue, Series D, 6.25%, 10/01/17 .............................................. 1,700,000 1,839,910
Oliver Garage Project, FGIC Insured, 5.45%, 6/01/28....................................... 3,500,000 3,529,890
SFMR, Series B, GNMA Secured, 7.375%, 12/01/16 ........................................... 2,235,000 2,332,267
Pittsburgh Water and Sewer System Authority Revenue, Refunding,
FGIC Insured, ETM, 7.25%, 9/01/14 .......................................................... 1,250,000 1,529,863
Pottstown Borough Authority, Pre-Refunded, Sewer Revenue,
FSA Insured, 7.70%, 11/01/21 ............................................................. 4,000,000 4,178,080
Rose Tree Media School District, FGIC Insured, 5.85%, 2/15/17 ............................. 5,000,000 5,275,750
Schuylkill County IDA, Resources Recovery Revenue, Refunding,
Schuylkill Energy Resources Inc., 6.50%, 1/01/10 ........................................... 17,310,000 17,907,714
Schuylkill County RDA, Lease Revenue, Series A, FGIC Insured, 7.125%, 6/01/13 ............. 1,500,000 1,665,495
Scranton-Lackawanna Health and Welfare Authority Revenue,
Allied Services, Series C, FHA Insured,
Pre-Refunded, 8.125%, 1/15/28 ............................................................. 500,000 517,865
b Scranton School District, AMBAC Insured, 5.20%, 4/01/18 ................................... 5,275,000 5,275,000
b Seneca Valley School District, Refunding, Series AA, FGIC Insured, 5.15%, 2/15/20 ......... 3,910,000 3,859,248
South Fork Municipal Authority, Hospital Revenue, MBIA Insured,
Conemaugh Valley Memorial Hospital Project, Series A, 5.75%, 7/01/26 ..................... 10,000,000 10,532,300
Refunding, Good Samaritan Medical Center,
Johnstown Project, Series B, 5.25%, 7/01/26 .............................................. 5,000,000 5,015,400
Southeastern Pennsylvania Transportation Authority Special Revenue, FGIC Insured,
5.375%, 3/01/22 .......................................................................... 4,000,000 4,101,800
Series A, 5.75%, 3/01/20 ................................................................. 9,660,000 10,249,936
State Public School Building Authority Revenue, Refunding,
Cornell School District Project, Series B, MBIA Insured, 5.375%, 9/01/12 ................. 2,165,000 2,240,277
Shenandoah Valley School District Project, AMBAC Insured, 7.375%, 9/15/10 ................ 1,000,000 1,068,120
Temple University, System of Higher Education, Pennsylvania Hospital Revenue,
Series A, FHA Insured, Pre-Refunded, 7.25%, 8/01/16 ....................................... 1,975,000 2,003,559
Union School District, AMBAC Insured, Pre-Refunded, 7.25%, 4/01/15......................... 3,000,000 3,008,100
University of Pittsburgh, Higher Education, Refunding,
Series B, MBIA Insured, 5.00%, 6/01/21.................................................... 10,000,000 9,863,900
Upper St. Clair Township School District, Refunding, 5.20%, 7/15/27........................ 5,000,000 5,025,400
Westmoreland County IDAR, Refunding, Citizen's General Hospital Project,
Series A, 8.25%, 7/01/13.................................................................. 1,500,000 1,531,035
Westtown Township, Sewer Revenue, FSA Insured, 5.25%, 12/15/27............................. $ 3,270,000 $ 3,269,706
Wilkes Barre Area School District, FGIC Insured,
6.375%, 4/01/15 .......................................................................... 3,000,000 3,302,610
Refunding, 5.25%, 4/01/16................................................................. 1,385,000 1,398,878
-------------
Total Long Term Investments (Cost $686,967,242) ........................................... $736,091,565
-------------
a Short Term Investments .1%
Pennsylvania State Higher Educational Facilities Authority Revenue,
Council of Independent Colleges, Waynesburg College,
Weekly VRDN and Put, 3.35%, 4/01/17 (Cost $800,000).......................................... 800,000 800,000
-------------
Total Investments (Cost $687,767,242) 99.7%................................................ 736,891,565
Other Assets, less Liabilities .3% ........................................................ 2,148,939
-------------
Net Assets 100.0% ......................................................................... $739,040,504
=============
</TABLE>
See glossary of terms on page 141.
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
Year Ended February 28,
Class I 1998 1997 19961 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.51 $11.59 $11.31 $11.83 $11.81
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .62 .65 .66 .67 .68
Net realized and unrealized gains (losses) ......................... .36 .02 .30 (.50) .03
-----------------------------------------------------
Total from investment operations..................................... .98 .67 .96 .17 .71
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.62) (.65)*** (.67) (.69) (.69)
Net realized gains.................................................. (.01) (.10) (.01) -- --
-----------------------------------------------------
Total distributions.................................................. (.63) (.75) (.68) (.69) (.69)
-----------------------------------------------------
Net asset value, end of year......................................... $11.86 $11.51 $11.59 $11.31 $11.83
=====================================================
Total return*........................................................ 8.78% 6.03% 8.68% 1.60% 5.95%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $210,325 $192,525 $190,577 $176,888 $175,036
Ratios to average net assets:
Expenses............................................................ .75% .73% .74% .73% .66%
Net investment income .............................................. 5.35% 5.62% 5.71% 5.95% 5.77%
Portfolio turnover rate.............................................. 7.94% 21.09% 27.99% 18.30% 5.10%
Class II
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.53 $11.62 $11.32
---------------------------------
Income from investment operations:
Net investment income .............................................. .56 .58 .50
Net realized and unrealized gains .................................. .34 .02 .30
---------------------------------
Total from investment operations..................................... .90 .60 .80
---------------------------------
Less distributions from:
Net investment income .............................................. (.55) (.59) (.49)
Net realized gains.................................................. (.01) (.10) (.01)
----------------------------------
Total distributions.................................................. (.56) (.69) (.50)
----------------------------------
Net asset value, end of year......................................... $11.87 $11.53 $11.62
=================================
Total return*........................................................ 8.07% 5.33% 7.21%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $3,615 $1,679 $533
Ratios to average net assets:
Expenses............................................................ 1.31% 1.30% 1.32%**
Net investment income .............................................. 4.78% 5.04% 5.16%**
Portfolio turnover rate.............................................. 7.94% 21.09% 27.99%
</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.
***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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Puerto Rico Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 97.2%
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 .......................................................................... $ 1,675,000 $ 1,841,395
6.70%, 10/01/23 .......................................................................... 5,800,000 6,434,230
Guam Government GO, Series A,
5.90%, 9/01/05 ........................................................................... 4,575,000 4,650,167
6.00%, 9/01/06 ........................................................................... 1,085,000 1,101,969
Guam Government Limited Obligation Highway, Refunding, Series A, 6.30%, 5/01/12............ 5,590,000 6,080,243
Guam Power Authority Revenue,
GO, 6.30%, 10/01/22....................................................................... 7,190,000 7,627,727
Series A, 5.25%, 10/01/23 ................................................................ 520,000 509,933
Series A, 6.75%, 10/01/24 ................................................................ 2,680,000 2,967,510
Northern Mariana Islands, Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Improvement, Series A, 6.85%, 10/01/25 .......................................... 5,000,000 5,317,050
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.40%, 7/01/11 ............................................................. 3,905,000 4,457,714
Refunding, MBIA Insured, 5.75%, 7/01/24 .................................................. 2,000,000 2,113,600
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
bSeries A, 5.00%, 7/01/38................................................................ 1,500,000 1,425,285
Series Y, 6.00%, 7/01/22.................................................................. 8,000,000 8,511,120
Puerto Rico Commonwealth Highway Authority Revenue, Pre-Refunded,
Refunding, Series N, 8.00%, 7/01/03....................................................... 70,000 72,402
Series P, 8.125%, 7/01/13 ................................................................ 3,925,000 4,060,570
Series Q, 7.75%, 7/01/10 ................................................................. 350,000 387,037
Puerto Rico Commonwealth IDC, General Purpose Revenue,
Series B, 5.375%, 7/01/16 ................................................................ 5,000,000 5,094,350
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A,
7.90%, 7/01/07 ........................................................................... 3,000,000 3,099,960
7.75%, 7/01/08 ........................................................................... 2,300,000 2,373,278
7.50%, 7/01/09 ........................................................................... 2,600,000 2,680,600
AMBAC Insured, 5.00%, 7/01/28............................................................. 2,000,000 1,957,060
Puerto Rico Commonwealth Public Improvement, Refunding, 5.00%, 7/01/26 .................... 2,000,000 1,962,400
Puerto Rico Commonwealth Urban Renewal and Housing Corp.,
Refunding, 7.875%, 10/01/04............................................................... 3,350,000 3,596,694
Puerto Rico Electric Power Authority Revenue,
Refunding, Series M, Pre-Refunded, 8.00%, 7/01/08 ........................................ 1,000,000 1,034,310
Refunding, Series U, 6.00%, 7/01/14....................................................... 700,000 761,684
Series O, 7.125%, 7/01/14 ................................................................ 1,525,000 1,608,097
Series P, Pre-Refunded, 7.00%, 7/01/11 ................................................... 615,000 684,071
Series P, Pre-Refunded, 7.00%, 7/01/21 ................................................... 1,000,000 1,112,310
Series T, 6.375%, 7/01/24 ................................................................ 10,000,000 11,044,000
Series X, 6.125%, 7/01/21 ................................................................ 7,225,000 7,823,086
Puerto Rico HFC, SFMR, Portfolio 1, Series C, GNMA Secured, 6.85%, 10/15/23................ 2,320,000 2,476,670
Puerto Rico HFC Revenue,
FHA Mortgage Insured, Section 8 Assisted, Sixth Portfolio,
Pre-Refunded, 7.75%, 12/01/26 ............................................................ 2,060,000 2,549,085
MF, Portfolio A, Series I, 7.50%, 10/01/15 ............................................... 420,000 441,790
MF, Series A, 8.25%, 6/01/11 ............................................................. 360,000 360,000
MFMR, Portfolio 1, Series A, 7.50%, 4/01/22............................................... 1,750,000 1,844,325
Puerto Rico Housing Bank and Financing Authority, SFMR,
Affordable Housing Mortgage, First Portfolio, 6.25%, 4/01/29 ............................. 2,990,000 3,181,300
Fifth Portfolio, Pre-Refunded, 7.50%, 12/01/15 ........................................... 955,000 1,027,389
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA,
Baxter Travenol Labs., Series A, 8.00%, 9/01/12 .......................................... 4,010,000 4,209,939
PepsiCo, Inc. Project, 6.25%, 11/15/13 ................................................... 900,000 991,494
Special Facilities, American Airlines, Series A, 6.45%, 12/01/25.......................... 2,000,000 2,187,600
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 2,877,270
Hospital Revenue, Hospital Auxilio Mutuo Obligation Group, Series A,
MBIA Insured, 6.25%, 7/01/24.............................................................. 8,445,000 9,287,558
Hospital Revenue, Mennonite General Hospital Project, Series A, 5.625%, 7/01/17........... 950,000 965,552
Hospital Revenue, Mennonite General Hospital Project, Series A, 6.50%, 7/01/26............ 5,000,000 5,485,200
Hospital Revenue, Mennonite General Hospital Project, Series A, 5.625%, 7/01/27........... 1,000,000 1,012,780
Hospital Revenue, Refunding, Dr. Pila Hospital Project, Series A, 6.125%, 8/01/25 ........ 2,500,000 2,717,650
Hospital Revenue, Refunding, Dr. Pila Hospital Project, Series A, 6.25%, 8/01/32 ......... 500,000 543,795
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities, Financing Authority, (cont.)
Industrial Revenue, Guaynabo Municipal Government Center, Series A, 5.625%, 7/01/15 ...... $ 6,550,000 $ 6,717,025
Industrial Revenue, Teachers Retirement System Revenue, Series B, 5.50%, 7/01/16.......... 3,175,000 3,296,380
Industrial Revenue, Teachers Retirement System Revenue, Series B, 5.50%, 7/01/21.......... 6,585,000 6,799,210
Puerto Rico Municipal Finance Agency, Series A,
Pre-Refunded, 8.25%, 7/01/08 ............................................................. 4,550,000 4,708,977
6.50%, 7/01/19 ........................................................................... 2,000,000 2,226,500
Puerto Rico PBA, Guaranteed Government Facilities, Series A,
AMBAC Insured, 5.75%, 7/01/22............................................................. 1,000,000 1,058,330
Puerto Rico Port Authority Revenue,
Series D, FGIC Insured, 6.00%, 7/01/21.................................................... 1,250,000 1,288,138
Special Facilities, American Airlines, Series A, 6.30%, 6/01/23........................... 5,500,000 5,894,680
Special Facilities, American Airlines, Series A, 6.25%, 6/01/26........................... 1,900,000 2,069,081
Puerto Rico Telephone Authority Revenue,
Series L, 6.125%, 1/01/22 ................................................................ 6,450,000 6,861,446
Series N, 5.50%, 1/01/13.................................................................. 500,000 514,555
Series N, 5.50%, 1/01/22.................................................................. 2,375,000 2,416,658
University of Puerto Rico, University System Revenues, Series M, MBIA Insured,
5.50%, 6/01/15 ........................................................................... 4,000,000 4,179,360
5.25%, 6/01/25 ........................................................................... 6,145,000 6,211,735
Virgin Islands HFA, SFR, Refunding, Series A, GNMA Insured,
6.45%, 3/01/16 ........................................................................... 950,000 1,011,256
6.50%, 3/01/25 ........................................................................... 2,250,000 2,402,978
Virgin Islands Water and Power Authority, Electric System Revenue,
Series A, 7.40%, 7/01/11 ................................................................. 5,390,000 5,824,321
--------------
Total Long Term Investments (Cost $193,112,122)............................................ 208,029,879
--------------
a Short Term Investments 1.0%
Puerto Rico Commonwealth Government Development Bank, Refunding,
MBIA Insured, Weekly VRDN and Put, 2.90%,
12/01/15 (Cost $2,000,000)................................................................... 2,000,000 2,000,000
--------------
Total Investments (Cost $195,112,122) 98.2% ............................................... 210,029,879
Other Assets, less Liabilities 1.8% ....................................................... 3,909,857
--------------
Net Assets 100.0% ......................................................................... $213,939,736
==============
</TABLE>
See glossary of terms on page 141.
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 basis.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Federal Intermediate-Term Tax-Free Income Fund
Year Ended February 28,
Class I 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $10.94 $10.95 $10.48 $10.80 $10.54
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .53 .55 .55 .54 .52
Net realized and unrealized gains (losses) ......................... .33 (.01) .47 (.33) .29
-----------------------------------------------------
Total from investment operations..................................... .86 .54 1.02 .21 .81
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.55) (.55) (.55) (.53) (.55)
------------------------------------------------------
Net asset value, end of year......................................... $11.25 $10.94 $10.95 $10.48 $10.80
=====================================================
Total return*........................................................ 8.02% 5.12% 9.93% (.20%) 7.82%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $139,545 $104,715 $85,967 $73,977 $67,603
Ratios to average net assets:
Expenses............................................................ .75% .68% .65% .56% .30%
Expenses excluding waiver and payments by affiliate................. .82% .84% .85% .84% .89%
Net investment income .............................................. 4.83% 5.16% 5.12% 5.25% 4.93%
Portfolio turnover rate.............................................. 23.32% 22.54% 3.35% 38.46% 28.76%
</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.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Federal Intermediate-Term Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 103.3%
Alabama .8%
Morgan County, Decatur Health Care Authority, Hospital Revenue, Refunding,
Connie Lee Insured, 5.80%, 3/01/04 ........................................................... $1,000,000 $ 1,080,680
-------------
Alaska .5%
Alaska State HFC, Collateral, First Series, Veteran's Mortgage Program,
5.80%, 6/01/04 ............................................................................... 470,000 501,833
Anchorage Parking Authority Lease Revenue, Refunding, 5th Avenue Garage
Project, 6.50%, 12/01/02 .................................................................... 200,000 215,212
-------------
717,045
-------------
Arizona 1.7%
Maricopa County COP, 5.625%, 6/01/00 ....................................................... 1,000,000 1,019,590
Maricopa County School District No. 40, Glendale Improvement, 6.10%, 7/01/08................ 1,000,000 1,087,760
Mohave County IDA, Hospital Systems Revenue, Refunding,
Medical Environments, Inc., Phoenix Hospital and Medical Center,
ETM, 6.00%, 7/01/00 ....................................................................... 200,000 209,326
Phoenix HFC, Mortgage Revenue, Refunding, Project A, MBIA Insured, 6.00%, 7/01/02 .......... 55,000 58,028
-------------
2,374,704
-------------
California 12.4%
ABAG Finance Corp., COP, Association XXVI, Series B, 6.30%, 10/01/02 ....................... 100,000 107,065
Bakersfield Public Financing Authority Revenue, Refunding, Series A, 5.80%, 9/15/05 ........ 3,000,000 3,171,150
California Educational Facilities Authority Revenue, Pooled College and
University Financing, Refunding, Series B, 5.90%, 6/01/03 ................................. 1,500,000 1,592,640
California Statewide CDA Revenue, COP, Refunding, Health Facilities,
Barton Memorial Hospital, Series B, 6.40%, 12/01/05 ....................................... 300,000 324,477
California Statewide Community Development Corp., COP,
Pacific Homes, Series A, 5.90%, 4/01/09 ................................................... 1,000,000 1,060,360
Coalinga Public Financing Authority Revenue, Series B, 6.10%, 9/15/04 ...................... 300,000 307,974
Coastside County Water District Improvement Bond, 1915 Act,
Refunding, Crystal Springs Project
5.10%, 9/02/03............................................................................. 500,000 499,570
5.30%, 9/02/05............................................................................. 630,000 629,225
Fresno Joint Powers Financing Authority, Local Agency Revenue,
Refunding, Series A, 6.00%, 9/02/01........................................................ 1,000,000 1,036,880
Los Angeles County Transportation Commission,
COP, Series B, 5.90%, 7/01/00 .............................................................. 100,000 104,534
Paso Robles USD, COP, Measure D, Capital Projects,
Pre-Refunded, Phase III, 5.75%, 8/01/02 ................................................... 200,000 203,702
San Diego Port Facilities Revenue, Refunding, National
Steel and Shipbuilding Co., 6.60%, 12/01/02 ............................................... 100,000 106,280
San Francisco City and County RDA, Mortgage Revenue,
Refunding, Series A, MBIA Insured, 6.125%, 7/01/02 ........................................ 100,000 100,521
San Francisco Downtown Parking Corp., Parking Revenue, 6.25%, 4/01/04 ..................... 200,000 220,198
San Joaquin County COP, General Hospital Project, 5.90%, 9/01/03 ........................... 200,000 212,988
d San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue,
Refunding, Series A, (original accretion rate 5.65%), 1/15/17.............................. 3,000,000 1,940,790
San Ramon Valley USD, COP, Measure A, Capital Projects, Series A, 5.95%, 10/01/01 .......... 2,000,000 2,125,900
Santa Clara Improvement Bond, 1915 Act, Refunding,
Reassessment District 187, Series 1,
5.00%, 9/02/06............................................................................. 465,000 461,508
5.25%, 9/02/11 ............................................................................ 1,000,000 989,520
Snowline Joint USD, COP, ETM,
5.60%, 7/01/01 ............................................................................ 260,000 272,566
5.70%, 7/01/02 ............................................................................ 275,000 292,817
5.80%, 7/01/03 ............................................................................ 290,000 313,351
Solano County COP, Refunding, Justice Facility and Public Building Project, 5.875%, 10/01/05 400,000 421,236
Southern California Rapid Transit District Revenue, Special Benefit AD A2, 6.00%, 9/01/02 .. 100,000 106,498
Susanville Public Financing Authority Revenue, Series A, AMBAC Insured,
5.90%, 9/01/02 ............................................................................ 25,000 26,600
6.00%, 9/01/03 ............................................................................ 100,000 106,460
Tahoe City PUD, COP, Capital Facilities Project, Series B, 6.05%, 6/01/01 .................. 500,000 522,020
Tuolumne County COP, Multiple Facilities Project, 6.00%, 6/01/99 ........................... 100,000 101,445
-------------
17,358,275
-------------
Colorado 3.8%
Denver City and County Airport Revenue,
Series A, 7.00%, 11/15/99 ................................................................. 3,000,000 3,135,450
Series C, 6.25%, 11/15/00 ................................................................. 335,000 349,619
Montrose County COP, 6.20%, 6/15/03 ........................................................ 1,500,000 1,607,625
Summit County Recreational Facilities Revenue, Refunding,
Copper Mountain, Mandatory Put 10/01/99, 5.90%, 4/01/17 ..................................... 255,000 262,668
-------------
5,355,362
-------------
Connecticut 1.9%
Connecticut HFA, Housing Mortgage Finance, Series C-2, 6.00%, 11/15/10 ..................... $2,000,000 $ 2,131,720
Connecticut State Health and Educational Facilities Authority Revenue,
Sacred Heart University, Refunding, Series C, 6.00%, 7/01/05 .............................. 560,000 594,300
-------------
2,726,020
-------------
District of Columbia .5%
District of Columbia GO, Refunding, Series A, 5.875%, 6/01/05 ............................. 700,000 747,719
-------------
Florida 9.5%
Alachua County Health Facilities Authority Revenue, Santa Fe Health
Systems Project, Pre-Refunded, 6.875%, 11/15/02............................................ 115,000 122,055
Dade County Aviation Revenue, Miami International Airport,
Series B, FSA Insured, 5.00%, 10/01/11..................................................... 2,000,000 2,017,420
Gateway Services District, Transportation/Roadway Service Charges,
8.50%, 5/01/04 ............................................................................ 2,215,000 2,421,327
Meadow Pointe II Community Development District,
Capital Improvement Revenue, 6.00%, 7/01/01................................................ 2,395,000 2,439,427
Nassau County PCR, Refunding, ITT Rayonier, Inc. Project, 6.25%, 6/01/10.................... 1,000,000 1,067,330
Northern Palm Beach County Water Control District, Refunding,
Unit Development No. 31, 6.60%, 11/01/03
Program 1 ................................................................................. 405,000 430,410
Program 2 ................................................................................. 320,000 340,077
Pace Property Financial Authority, Inc., Utilities System Revenue,
Refunding and Improvement, AMBAC Insured, 5.125%, 9/01/10.................................. 425,000 435,578
Palm Bay Lease Revenue, Refunding, Florida Education and Research
Foundation Project, Series A, 6.10%, 9/01/03 .............................................. 795,000 834,631
Palm Beach County IDR, Lourdes-Noreen Mckeen Residence, Geriatric Care, Inc. Project,
6.20%, 12/01/08 ........................................................................... 275,000 299,228
6.30%, 12/01/09 ........................................................................... 580,000 630,849
c Palm Beach County Solid Waste IDR, Okeelanta Power Project, Series A, 6.375%, 2/15/07....... 1,400,000 1,092,000
Pembroke Pines Special Assessment, No. 94-1, 5.75%, 11/01/05................................ 1,000,000 1,051,050
-------------
13,181,382
-------------
Georgia 3.4%
Fulton County Development Authority, Special Facilities Revenue, Refunding,
Delta Air Lines, Inc. Project, 6.85%, 11/01/07............................................. 100,000 108,747
Macon Bibb County Urban Development Authority Revenue, Refunding, MFHR,
Series A, MBIA Insured, 5.00%, 1/01/07..................................................... 1,290,000 1,317,606
Wayne County Development Authority, PCR, Refunding,
ITT Rayonier, Inc. Project, 6.10%, 11/01/07................................................. 3,105,000 3,319,680
-------------
4,746,033
-------------
Hawaii .4%
Hawaii State Department of Budget and Finance,
Special Purpose Revenue, Kapi'Olani Health Obligation, 5.60%, 7/01/06...................... 500,000 532,085
-------------
Illinois 2.9%
Illinois Educational Facilities Authority Revenue, Columbia College, 5.875%, 12/01/03 ...... 850,000 904,069
Illinois HDA Revenue, Homeowner Mortgage, Sub-Series A-1, 6.10%, 2/01/05 ................... 360,000 389,858
Illinois Health Facilities Authority Revenue,
St. Elizabeth's Hospital, 6.00%, 7/01/05 .................................................. 425,000 456,148
Victory Health Services, Series A, 5.25%, 8/15/09.......................................... 1,170,000 1,192,581
Metropolitan Pier and Exposition Authority, Hospitality Facilities Revenue,
McCormick Place Convention, 5.75%, 7/01/06................................................. 1,000,000 1,047,640
-------------
3,990,296
-------------
Indiana 4.3%
Franklin EDR, Refunding, Hoover Universal, Inc. Project, Johnson Controls, 6.10%, 12/01/04.. 2,000,000 2,182,920
Indianapolis Local Public Improvement Bond Bank, Series D, Refunding, 6.10%, 2/01/02 ....... 100,000 107,262
Sullivan PCR, Refunding, Michigan Power Company Project, Series C, 5.95%, 5/01/09........... 3,500,000 3,663,450
-------------
5,953,632
-------------
Iowa .2%
Iowa State Financial Authority, Hospital Facilities Revenue, Refunding,
Trinity Regional Hospital Project, ETM, 6.50%, 7/01/00..................................... 200,000 209,620
-------------
Kentucky 1.9%
Kenton County Airport Board Revenue, Special Facilities,
Delta Airlines Project, Series A, 6.75%, 2/01/02........................................... 100,000 107,716
Kentucky Economic Development Financing Authority,
Hospital System Revenue, Refunding & Improvement, Appalachian Regional,
5.70%, 10/01/10............................................................................ 1,000,000 1,029,890
5.75%, 10/01/11............................................................................ 1,500,000 1,544,715
-------------
2,682,321
-------------
Louisiana .2%
Calcasieu Parish Public Trust Authority, Mortgage Revenue,
Refunding, Series B, 6.375%, 11/01/02...................................................... $ 25,000 $ 26,646
Louisiana State Offshore Terminal Authority, Deepwater
Port Revenue, Refunding, First Stage, Loop, Inc., Series B, 6.20%, 9/01/03 ................ 100,000 108,443
Louisiana State Public Facilities Authority Revenue, Refunding,
Student Loan, Series A-1, 6.20%, 3/01/01 .................................................. 80,000 84,018
-------------
219,107
-------------
Maryland .2%
Baltimore Economic Development Lease Revenue, Refunding,
Armistead Partnership, Series A, 6.75%, 8/01/02 ........................................... 200,000 216,556
Massachusetts 3.0%
b Massachusetts Educational Finance Authority, Educational Loan Revenue,
Issue G, MBIA Insured, 5.00%, 12/01/11 .................................................... 2,000,000 1,993,940
Massachusetts State Industrial Finance Agency, Revenue, Series D,
Youville Senior Care, 5.50%, 10/01/12 ..................................................... 1,745,000 1,780,877
New England Educational Loan Marketing Corp., Student Loan Revenue,
Refunding, Series B, 5.60%, 6/01/02 ....................................................... 415,000 433,883
-------------
4,208,700
-------------
Michigan 1.6%
Chippewa County Hospital Financing Authority, Hospital Facilities Revenue,
Refunding, Chippewa County War Memorial, Series B,
5.30%, 11/01/07............................................................................ 815,000 825,383
5.625%, 11/01/14 .......................................................................... 350,000 353,997
Detroit GO, Refunding, Series B, 6.375%, 4/01/06 ........................................... 1,000,000 1,103,800
-------------
2,283,180
-------------
Minnesota .2%
Minneapolis CDA, Supported Development Revenue, Common Bond Fund,
Series 91-5A, 7.20%, 12/01/04 ............................................................. 200,000 218,006
-------------
Mississippi .5%
Mississippi Development Bank, Special Obligation, Refunding, Oktibbeha
County Hospital Revenue Project, 5.65%, 7/01/06 .............................................. 725,000 751,716
-------------
Missouri 1.5%
b Lake of the Ozarks Community Bridge Corp., Bridge System Revenue,
Refunding, 5.00%, 12/01/08 ................................................................... 1,500,000 1,488,810
West Plains Industrial Development Authority, Hospital Revenue,
Refunding, Ozarks Medical Center, 5.00%, 11/15/04 ............................................ 560,000 563,758
-------------
2,052,568
-------------
Nebraska .7%
b Nebraska Higher Education Loan Program, Inc. Revenue, Subject Lien,
Series A-6, 6.70%, 12/01/02 ............................................................... 300,000 321,261
Wayne State College Revenue, Refunding, Student Fees and Facilities, MBIA Insured,
5.00%, 7/01/09............................................................................. 250,000 254,420
5.05%, 7/01/10............................................................................. 365,000 370,705
-------------
946,386
-------------
Nevada 1.6%
Sparks Redevelopment Agency, Tax Allocation Revenue, Refunding,
Asset Guaranty, 5.15%, 1/15/08............................................................. 2,110,000 2,184,124
-------------
New Hampshire 1.1%
New Hampshire Higher Educational and Health Facilities Authority Revenue,
Refunding, New Hampshire Catholic Charities,
Series A, 5.10%, 7/01/04................................................................... 1,540,000 1,569,399
-------------
New Jersey .8%
New Jersey EDA Revenue, Economic Growth, 2nd Series F-1, 6.00%, 12/01/02 .................. 80,000 84,298
New Jersey Health Care Facilities Financing Authority Revenue, Refunding,
Monmouth Medical Center, Series C, FSA Insured, 5.80%, 7/01/04............................ 1,000,000 1,086,840
-------------
1,171,138
-------------
New York 16.1%
b Metropolitan Transportation Authority, Commuter Facilities Revenue,
Refunding, Services Contract, Series R, 5.50%, 7/01/11 .................................... 2,215,000 2,272,701
New York City GO,
Refunding, Series C, 6.50%, 8/01/04 ....................................................... 515,000 561,659
Refunding, Series C, 6.50%, 8/01/07 ....................................................... 1,850,000 2,017,610
Refunding, Series H, 5.90%, 8/01/09........................................................ 500,000 543,630
Refunding, Series J, 6.00%, 8/01/08 ....................................................... 3,000,000 3,272,340
Series B, 6.25%, 10/01/01 ................................................................ 95,000 101,398
Series B, ETM, 6.25%, 10/01/01 ............................................................ 5,000 5,357
New York (cont.)
New York City GO, (cont.)
Series H, 7.00%, 2/01/05 .................................................................. $ 75,000 $ 82,536
Series H, Pre-Refunded, 7.00%, 2/01/05 ................................................... 175,000 195,724
Series J, 6.00%, 2/15/04 .................................................................. 1,000,000 1,077,470
New York City Health and Hospital Corp. Revenue, Refunding,
Series A, 6.00%, 2/15/06 .................................................................. 2,500,000 2,658,775
New York City IDA, Civic Facilities Revenue, New York Blood
Center, Inc. Project, ETM, 6.80%, 5/01/02.................................................. 90,000 95,522
New York State Dormitory Authority Revenue, Refunding,
Mental Health Services Facilities Improvement, Series D, 5.60%, 2/15/07 ................... 140,000 148,483
bNorth General Hospital, Series G, 5.20%, 2/15/13 ............................................ 2,000,000 1,991,700
New York State HFA, Refunding, Series A, 5.90%, 5/01/05..................................... 1,000,000 1,065,900
New York State Tollway Authority, Service Contract Revenue, Local Highway and Bridge,
5.75%, 4/01/08............................................................................. 500,000 536,745
5.90%, 4/01/08............................................................................. 1,000,000 1,072,500
5.75%, 4/01/09............................................................................. 1,150,000 1,225,061
b New York State Urban Development Corp. Revenue, Refunding, Correctional Capital Facilities,
5.00%, 1/01/12............................................................................. 745,000 730,391
5.10%, 1/01/12............................................................................. 380,000 376,257
Oneida-Herkimer Solid Waste Management Authority, Solid Waste Systems
Revenue, Refunding, 6.20%, 4/01/00 .......................................................... 100,000 103,267
Port Authority of New York and New Jersey, Special Obligation Revenue,
3rd Installment, 7.00%, 10/01/07........................................................... 1,000,000 1,168,080
Ulster County Resident Recovery Agency, Solid Waste System Revenue, 5.90%, 3/01/07 ......... 1,100,000 1,175,559
-------------
22,478,665
-------------
Ohio 1.3%
Franklin County Health Care Facilities Revenue, Refunding, Ohio Presbyterian Services,
5.25%, 7/01/08 ............................................................................ 575,000 574,500
5.40%, 7/01/10............................................................................. 775,000 775,628
5.50%, 7/01/11............................................................................. 500,000 502,625
-------------
1,852,753
-------------
Oklahoma 2.3%
Jackson County Memorial Hospital Authority Revenue, Refunding, Jackson County
Memorial Hospital Project, 6.75%, 8/01/04 ................................................. 2,020,000 2,159,178
Valley View Hospital Authority Revenue, Refunding, Valley View Regional
Medical Center, 5.75%, 8/15/06 ............................................................ 1,000,000 1,021,410
-------------
3,180,588
-------------
Oregon 1.5%
Clackamas County, Hospital Facility Authority Revenue, Refunding,
Willamette View, Inc., Project, 6.00%, 11/01/06 ........................................... 500,000 526,490
Hillsboro Hospital, Facilities Authority Revenue, Refunding, 5.75%, 10/01/12 ............... 1,000,000 1,038,310
Port Umpqua PCR, Refunding, International Paper Company Projects, Series A, 5.05%, 6/01/09 . 500,000 507,680
-------------
2,072,480
-------------
Pennsylvania 4.6%
Cambria County Hospital Development Authority Revenue, Refunding and
Improvement, Conemaugh Valley Hospital, Series B,
Connie Lee Insured, 5.90%, 7/01/03 ........................................................... 100,000 107,535
Chartiers Valley Industrial and Commercial Development Authority,
First Mortgage Revenue, Asbury Place Project, 6.25%, 2/01/06.................................. 320,000 345,629
Clarion County Hospital Authority Revenue, Refunding,
Clarion Hospital Project, 5.40%, 7/01/07 ..................................................... 1,135,000 1,157,394
b Lancaster County Solid Waste Management Authority, Resource Recovery
System Revenue, Series A, AMBAC Insured, 5.00%, 12/15/14 ..................................... 2,000,000 1,951,040
Northeastern Hospital and Educational Authority, College Revenue,
Refunding, Kings College Project, Series B, 5.60%, 7/15/03 ................................... 410,000 426,105
Philadelphia Gas Works Revenue, Refunding, Series A,
5.70%, 7/01/00 ............................................................................ 300,000 309,111
5.80%, 7/01/01 ............................................................................ 300,000 312,744
Schuylkill County IDA, Resources Recovery Revenue, Refunding,
Schuykill Energy Resources Inc., 6.50%, 1/01/10 .............................................. 1,790,000 1,851,809
-------------
6,461,367
-------------
Puerto Rico 1.1%
Puerto Rico Electric Power Authority Revenue,
bRefunding, Series Q, 5.90%, 7/01/01 ..................................................... 100,000 105,822
Series T, 6.00%, 7/01/04 .................................................................. 1,345,000 1,469,574
-------------
1,575,396
-------------
South Carolina .7%
Charleston County Resource Recovery Revenue, Refunding,
Foster Wheeler Charleston, AMBAC Insured, 5.25%, 1/01/10...................................... $1,000,000 $ 1,040,170
-------------
South Dakota .8%
South Dakota HDA, Homeownership Mortgage, Series D, 6.05%, 5/01/04 ......................... 1,000,000 1,085,850
-------------
Tennessee 1.3%
Memphis-Shelby County Airport Authority, Special Facility and Project Revenues,
Refunding, Federal Express Corp., 5.35%, 9/01/12 ........................................... 1,000,000 1,026,410
Metropolitan Government, Nashville and Davidson County IDBR,
Refunding and Improvement, Osco Treatment, Inc., 6.00%, 5/01/03 ............................ 750,000 785,753
-------------
1,812,163
-------------
Texas 5.9%
Abilene Higher Education Facilities Corp., Higher Education Revenue,
Refunding and Improvement, Abilene Christian Facility, 5.90%, 10/01/05 .................... 785,000 844,417
Houston Independent School District, Refunding, 5.50%, 8/15/09 ............................. 1,000,000 1,046,330
North Central Health Facility Development Corp. Revenue, Refunding,
C Young Memorial Home Project, Series C, 6.10%, 2/15/06 ..................................... 400,000 419,200
North Texas Health Facilities Development Corp., Hospital Revenue,
Refunding, United Regional Health Care System, Inc. Project,
MBIA Insured, 5.00%, 9/01/10 ............................................................... 1,500,000 1,524,915
b Port Corpus Christi IDC Revenue, Refunding, Valero, Series D, 5.125%, 4/01/09 .............. 2,250,000 2,250,000
Tarrant County Health Facilities Development Corp. Hospital Revenue,
Ft. Worth Osteopathic Hospital, 5.00%, 5/15/11............................................. 1,110,000 1,123,209
Travis County GO, Refunding, 5.00%, 3/01/11 ................................................ 1,000,000 1,017,790
-------------
8,225,861
-------------
Utah .8%
Salt Lake County College Revenue, Westminster College Project, 5.50%, 10/01/12.............. 340,000 349,398
Utah State HFA, Refunding, SFM, 5.85%, 7/01/08 ............................................. 755,000 820,081
-------------
1,169,479
-------------
Virginia 6.7%
Covington-Alleghany County IDA, PCR, Refunding,
Westvaco Corp. Project, 5.85%, 9/01/04 ................................................... 2,800,000 3,078,460
Virginia State GO, 5.00%, 6/01/09........................................................... 1,000,000 1,040,460
Virginia State HDA, Commonwealth Mortgage, Sub-Series C-7,
5.60%, 1/01/03 ............................................................................ 1,695,000 1,804,395
5.70%, 1/01/04 ............................................................................ 1,475,000 1,576,952
b Virginia State HDA, MF Housing, Series B, 5.15%, 11/01/12 .................................. 1,905,000 1,900,238
-------------
9,400,505
-------------
Washington 2.7%
Marysville Water and Sewer Revenue, Refunding, MBIA Insured, 5.75%, 12/01/05 ............... 600,000 643,488
Washington State Public Power Supply System, Refunding, Series A, Nuclear Project Revenue,
No. 1, AMBAC Insured, 5.70%, 7/01/09 ..................................................... 1,000,000 1,080,132
No. 2, 5.00%, 7/01/12 ..................................................................... 1,000,000 990,850
No. 2, 5.375%, 7/01/10 .................................................................... 1,000,000 1,027,260
-------------
3,741,730
-------------
West Virginia 1.1%
West Virginia Public Energy Authority, Energy Revenue,
Morgantown Association Project, Series A, 5.05%, 7/01/08................................... 1,500,000 1,510,590
-------------
Wisconsin .8%
Wisconsin State GO, Refunding, Series 1, 5.50%, 5/01/10 .................................... 1,000,000 1,057,380
-------------
Total Long Term Investments (Cost $137,602,048)............................................. 144,141,031
-------------
a Short Term Investments 6.3%
Ashland PCR, 7 & 7 Ashland Oil Inc. Project, Weekly VRDN and Put, 3.25%, 4/01/09 ........... 100,000 100,000
Dade County Health Facilities Authority Hospital Revenue, Miami Children's Hospital
Project, Daily VRDN and Put, 3.70%, 9/01/20 ............................................... 500,000 500,000
Denver City & County MFHR, Ogden Residence Project, Daily VRDN and Put, 3.80%, 12/01/09..... 1,300,000 1,300,000
Hapeville IDA Revenue, Hapeville Hotel Ltd., Daily VRDN and Put, 3.65%, 11/01/15............ 400,000 400,000
Lincoln County Pollution Control Revenue, DATES, Exxon Project, Series C,
Daily VRDN and Put, 3.65%, 11/01/14........................................................ 1,700,000 1,700,000
Lubbock Texas Health Facilities Development Corporation Revenue,
St. Joseph Health System, Series A, Daily VRDN and Put, 3.65%, 7/01/13.................... 800,000 800,000
Kansas City IDA Hospital Revenue, Resh Health Service System,
MBIA Insured, Daily VRDN and Put, 3.65%, 10/15/14 ........................................ 400,000 400,000
Massachusetts State Health and Educational Facilities Authority Revenue,
Capital Assets Program, Series D, MBIA Insured,
Weekly VRDN and Put, 3.65%, 1/01/35........................................................... $2,500,000 $ 2,500,000
North Carolina Medical Care Community Hospital Revenue,
Pooled Financing Project, Series A, Daily VRDN and Put,
3.70%, 10/01/20 ............................................................................. 1,100,000 1,100,000
-------------
Total Short Term Investments (Cost $8,800,000) ............................................. 8,800,000
-------------
Total Investments (Cost $146,402,048) 109.6% ............................................... 152,941,031
Other Assets, Less Liabilities (9.6%) ...................................................... (13,396,086)
-------------
Net Assets 100.0% .......................................................................... $139,544,945
=============
</TABLE>
See glossary of terms on page 141.
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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin High Yield Tax-Free Income Fund
Year Ended February 28,
Class I 1998 1997 19961 1995 1994
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.21 $11.19 $10.74 $11.25 $11.10
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .69 .71 .74 .74 .76
Net realized and unrealized gains (losses) ......................... .47 .04 .45 (.51) .17
-----------------------------------------------------
Total from investment operations..................................... 1.16 .75 1.19 .23 .93
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.68) (.73)*** (.74) (.74) (.78)
In excess of net investment income ................................. (.01) -- -- -- --
--------------------------------------------------
Total distributions.................................................. (.69) (.73) (.74) (.74) (.78)
------------------------------------------------------
Net asset value, end of year......................................... $11.68 $11.21 $11.19 $10.74 $11.25
=====================================================
Total return*........................................................ 10.64% 7.01% 11.35% 2.28% 8.33%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $5,742,939 $4,505,258 $3,787,147 $3,287,270 $3,372,533
Ratios to average net assets:
Expenses............................................................ .61% .62% .61% .60% .53%
Net investment income .............................................. 5.98% 6.41% 6.68% 6.92% 6.79%
Portfolio turnover rate.............................................. 15.84% 6.98% 9.23% 15.89% 16.09%
Class II
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................................... $11.26 $11.24 $10.81
---------------------------------
Income from investment operations:
Net investment income .............................................. .63 .66 .56
Net realized and unrealized gains .................................. .48 .03 .42
---------------------------------
Total from investment operations..................................... 1.11 .69 .98
---------------------------------
Less distributions from:
Net investment income .............................................. (.62) (.67) (.55)
----------------------------------
Net asset value, end of year......................................... $11.75 $11.26 $11.24
=================================
Total return*........................................................ 10.15% 6.36% 9.27%
Ratios/supplemental data
Net assets, end of year (000's)...................................... $423,264 $194,400 $48,163
Ratios to average net assets:
Expenses............................................................ 1.18% 1.18% 1.18%**
Net investment income .............................................. 5.38% 5.78% 6.07%**
Portfolio turnover rate.............................................. 15.84% 6.98% 9.23%
</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.
***Includes distributions in excess of net investment income in the amount of
$.008.
+Includes distributions in excess of net investment income in the amount of
$.003.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
Franklin High Yield Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 98.8%
Bonds 95.4%
Alabama .7%
Homewood Special Care Facilities Financing Authority, Hospital Revenue,
Lakeshore Hospital Project, Refunding, Series B,
Pre-Refunded, 8.25%, 2/01/04 ................................................................ $ 5,260,000 $ 5,535,782
Jefferson County Sewer Revenue, Series D, 5.75%,
2/01/22................................................................................... 7,500,000 7,987,275
2/01/27................................................................................... 18,535,000 19,697,886
Marshall County Health Care Authority, Hospital Revenue,
Guntersville, Arab Medical Center, 10.25%, 10/01/13 ...................................... 4,785,000 5,065,640
Refunding, Boaz-Albertville Medical Center, 6.20%, 1/01/08 ............................... 3,300,000 3,442,989
Prichard Water Works and Sewer Board Revenue, Pre-Refunded, 9.50%, 11/15/14 ............... 2,500,000 2,671,200
-------------
44,400,772
-------------
Alaska 2.2%
Alaska Industrial Development & Export Revenue,
American President Lines Project, 8.00%, 11/01/09 ........................................ 4,000,000 4,273,920
Revolving Fund, Series A, 6.20%, 4/01/10 ................................................. 850,000 910,784
Alaska Industrial Development & Export Authority, Power Revenue,
Upper Lynn Canal Regional Power,
5.70%, 1/01/12 ........................................................................... 1,000,000 989,550
5.80%, 1/01/18 ........................................................................... 830,000 819,335
5.875%, 1/01/32 .......................................................................... 1,800,000 1,764,828
Alaska State HFC, Refunding, MBIA Insured, Series A,
5.85%, 12/01/15........................................................................... 4,670,000 4,910,178
6.00%, 12/01/15........................................................................... 4,500,000 4,764,285
5.875%, 12/01/24.......................................................................... 5,000,000 5,227,700
5.875%, 12/01/30.......................................................................... 12,475,000 12,966,016
6.10%, 12/01/37........................................................................... 22,000,000 23,282,820
Series A-2, 5.75%, 6/01/24 ............................................................... 2,500,000 2,577,300
Palmer Golf Course Lease, COP, Pre-Refunded, 10.25%, 7/01/08 .............................. 1,560,000 1,638,827
Valdez Marine Terminal Revenue, Refunding,
BP Pipelines Inc. Project, Series A, 5.85%, 8/01/25 ...................................... 39,010,000 40,380,421
BP Pipelines Inc. Project, Series B, 5.50%, 10/01/28 ..................................... 16,385,000 16,555,896
Mobil Alaska Pipeline, 5.75%, 11/01/28 ................................................... 15,000,000 15,447,600
-------------
136,509,460
-------------
Arizona 3.8%
Coconino County PCR, Refunding, Tucson Electric Power Navajo, 10/01/32
Series A, 7.125%.......................................................................... 21,125,000 23,988,705
Series B, 7.00%........................................................................... 7,500,000 8,507,850
Gilbert Water Resources Municipal Property Corp. Water and Wastewater
System Revenue, Sub-Lien, 6.875%,
4/01/14................................................................................... 1,000,000 1,040,070
4/01/16................................................................................... 1,000,000 1,049,600
Health Facilities Authority Revenue Bethesda Foundation Project, Series A,
6.375%, 8/15/15........................................................................... 400,000 413,276
6.40%, 8/15/27............................................................................ 3,000,000 3,083,190
Maricopa County PCR, Public Services, Refunding, Series A,
5.75%, 11/01/22........................................................................... 17,650,000 18,080,837
Palo Verde, 6.375%, 8/15/23 .............................................................. 8,500,000 9,012,975
Maricopa County Rural Road ID, 8.625%, 7/01/07 ............................................ 4,000,000 4,435,120
Pima County IDAR, Tucson Electric Power Co. Project,
Series A, 6.10%, 9/01/25.................................................................. 6,250,000 6,479,938
Series B, 6.00%, 9/01/29.................................................................. 91,750,000 95,136,493
Series C, 6.00%, 9/01/29.................................................................. 37,000,000 38,365,670
Red Hawk Canyon Community Facility, 7.625%, 6/01/05 ....................................... 16,310,000 16,850,677
Salt River Project, Agricultural Improvement and Power District,
Electric System Revenue, Series A, 6.00%, 1/01/31 ........................................... 5,000,000 5,168,350
Tempe IDA, Residential Care Facilities Revenue, Volunteers of America
Care Facilities, 9.00%, 6/01/18 ............................................................. 2,205,000 2,262,815
-------------
233,875,566
-------------
Arkansas .5%
Baxter County IDR, Refunding, Aeroquip/Trinova Corp. Project, 5.80%, 10/01/13 ............. $ 2,400,000 $ 2,562,912
Conway Hospital Revenue, Refunding, 8.375%, 7/01/11 ....................................... 1,000,000 1,098,360
Independence County PCR,
Mississippi Power & Light Co. Project, Series A, 9.00%, 7/01/13 .......................... 4,275,000 4,528,935
Mississippi Power & Light Co. Project, Series B, 9.00%, 7/01/13 .......................... 1,185,000 1,255,389
Mississippi Power & Light Co. Project, Series C, 9.50%, 7/01/14 .......................... 200,000 213,126
Refunding, Arkansas Power & Light Co. Project, 6.25%, 1/01/21 ............................ 5,000,000 5,315,950
Jefferson County PCR, Refunding, Entergy Arkansas Inc. Project, 5.60%, 10/01/17............ 13,150,000 13,266,115
North Little Rock Health Facilities, Baptist Hospital Revenue,
Series A, MBIA Insured, 5.50%, 12/01/21 ..................................................... 700,000 722,855
-------------
28,963,642
-------------
California 8.3%
Adelanto California Water Authority Revenue, Water Systems
Acquisition Project, Series A, 7.50%, 9/01/28................................................ 21,330,000 22,673,577
Alameda County MFHR, Claremont House Project, Refunding, Series A, 8.00%, 12/01/23 ........ 13,100,000 14,325,898
Antioch, 1915 Act, AD No. 27, Lone Tree,
Series C, 7.70%, 9/02/17 ................................................................. 11,030,000 11,417,594
Series D, 7.30%, 9/02/13 ................................................................. 4,315,000 4,459,423
Arroyo Grande Hospital System COP, Vista Hospital Systems, Series A
8.375%, 7/01/06........................................................................... 2,500,000 2,823,075
Refunding, 9.50%, 7/01/20 ................................................................ 22,515,000 26,730,033
Avenal California Public Financing Authority Revenue, Refunding,
7.00%, 9/02/10............................................................................ 1,745,000 1,768,488
7.25%, 9/02/27............................................................................ 3,665,000 3,733,902
Azusa RDA, Tax Allocation, Refunding, Merged Area Project, Series A, 6.75%, 8/01/23 ....... 2,850,000 3,062,553
Beaumont Public Financing Authority Revenue, Sewer Enterprise Project,
Series A, Pre-Refunded, 6.90%, 9/01/23.................................................... 4,575,000 5,504,640
Benicia 1915 Act, Refunding, Fleetside Industrial Park Assessment,
5.00%, 9/02/98 ........................................................................... 180,000 180,346
5.25%, 9/02/99 ........................................................................... 185,000 186,238
5.50%, 9/02/00 ........................................................................... 200,000 202,972
5.65%, 9/02/01 ........................................................................... 210,000 214,595
5.80%, 9/02/02 ........................................................................... 220,000 226,470
5.90%, 9/02/03 ........................................................................... 230,000 237,546
6.00%, 9/02/04 ........................................................................... 245,000 253,034
6.10%, 9/02/05 ........................................................................... 255,000 263,359
6.20%, 9/02/06 ........................................................................... 275,000 284,009
6.30%, 9/02/07 ........................................................................... 295,000 304,688
6.40%, 9/02/08 ........................................................................... 310,000 320,084
6.50%, 9/02/09 ........................................................................... 330,000 340,728
6.60%, 9/02/10 ........................................................................... 350,000 361,375
6.70%, 9/02/11 ........................................................................... 375,000 387,293
6.80%, 9/02/12 ........................................................................... 245,000 253,087
California Educational Facilities Authority Revenue, Pooled College
& University Financing, Series B, 6.125%, 6/01/09 ........................................ 3,000,000 3,190,860
California HFA MFHR, Series A, AMBAC Insured, 6.05%, 8/01/27............................... 2,000,000 2,128,580
California Special Districts, Association Financial Corp. COP,
Santa Cruz Port Authority, Series B, 7.50%, 5/01/13 ....................................... 920,000 987,114
California State Health Facilities Hospital Revenue, Summit Medical Center, Pre-Refunded,
Series A, 7.50%, 5/01/09.................................................................. 4,620,000 4,906,579
Series A, 7.60%, 5/01/15 ................................................................. 2,155,000 2,291,088
Series B, 7.50%, 5/01/09 ................................................................. 5,555,000 5,899,577
California State Variable Purpose, 5.75%, 3/01/19 ......................................... 7,320,000 7,674,654
California Statewide CDA, California State University Northridge,
Refunding, AMBAC Insured, 6.00%, 4/01/26 .................................................. 2,500,000 2,696,625
Capistrano USD, CFD, Special Tax No. 9,
6.60%, 9/01/05 ........................................................................... 285,000 303,497
6.70%, 9/01/06 ........................................................................... 280,000 298,105
6.80%, 9/01/07 ........................................................................... 325,000 346,268
6.90%, 9/01/08 ........................................................................... 260,000 276,042
7.00%, 9/01/18 ........................................................................... 1,000,000 1,049,790
City of Oakland Revenue, YMCA East Bay Project, Refunding, 7.10%, 6/01/10 ................. 2,335,000 2,565,348
California (cont.)
Contra Costa County Public Financing Authority Revenue, Refunding,
6.625%, 9/02/10 .......................................................................... $ 2,310,000 $ 2,383,458
6.875%, 9/02/16 .......................................................................... 2,620,000 2,703,840
Corona COP,
Corona Community Hospital Project, ETM, 9.425%, 9/01/06 .................................. 8,555,000 10,527,270
Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ......................... 8,820,000 12,579,790
Vista Hospital Systems, Refunding, Series B, 8.375%, 7/01/06 ............................. 11,100,000 12,534,453
Vista Hospital Systems, Refunding, Series B, 9.50%, 7/01/20 .............................. 10,885,000 13,111,091
Eden Township Hospital District Health Facilities Revenue, COP,
Refunding, Insured Eden Hospital Health Services Corp.,
5.85%, 7/01/18 .............................................................................. 4,845,000 5,028,383
Emeryville RDA, MFHR, Emery Bay Apartments, 8.75%,
12/01/02.................................................................................. 205,000 213,620
12/01/21.................................................................................. 3,770,000 3,911,337
Foothill Eastern Transportation Corridor Agency, California Toll
Road Revenue, Series A, 6.50%, 1/01/32 ................................................... 37,675,000 41,008,484
Gateway Improvement Authority, Marin City Community Facilities
District, Series A, 7.75%, 9/01/25 ....................................................... 4,500,000 5,044,770
Hawthorne CRDA, Refunding, Hawthorne Plaza Project, 8.50%, 7/01/20 ........................ 4,175,000 4,431,303
Hesperia Public Financing Authority Revenue, Series B, 7.375%, 10/01/23 ................... 6,365,000 6,693,370
Irvine, 1915 Act, AD No. 96, Group One, 5.75%, 9/02/22 .................................... 1,000,000 1,007,920
Lake Elsinore, 1915 Act, AD No. 9, Series A, 7.90%, 9/02/24 ............................... 6,000,000 6,380,340
Long Beach Special Tax, CFD No. 2, West Long Beach, 7.50%, 9/01/11 ........................ 3,065,000 3,111,465
Los Angeles County, CFD No. 4, Special Tax Improvement,
Calabassas Area B, Series A, 9.25%, 9/01/22 .............................................. 29,800,000 31,159,774
Los Angeles MFR, Refunding, 1/01/24,
Series J-1A, 7.125%....................................................................... 205,000 212,884
Series J-1B, 7.125%....................................................................... 675,000 700,961
Series J-1C, 7.125%....................................................................... 1,435,000 1,490,190
Series J-2A, 8.50% ....................................................................... 1,110,000 1,149,483
Series J-2B, 8.50% ....................................................................... 3,345,000 3,463,982
Series J-2C, 8.50% ....................................................................... 7,120,000 7,373,258
Los Angeles Regional Airports Improvement Corp., Lease Revenue,
Refunding, Delta Airlines, Inc., 6.35%, 11/01/25.......................................... 25,000,000 27,376,000
Refunding, United Airlines, Inc., 6.875%, 11/15/12 ....................................... 9,500,000 10,500,920
Sub-Lease Revenue, Continental Airlines, Inc., Terminal Facilities, 9.00%, 8/01/08 ....... 1,900,000 1,971,630
Sub-Lease Revenue, Continental Airlines, Inc., Terminal Facilities, 9.00%, 8/01/17 ....... 7,655,000 7,943,594
Orinda, 1915 Act, AD No. 9, Oak Springs, 8.25%, 9/02/19 ................................... 2,879,000 2,980,485
Palmdale California Special Tax Community Facility, Ritter Ranch, Series A, 8.50%, 9/01/24. 23,500,000 21,150,000
Perris Public Financing Authority, Local Agency Revenue, Series B,
7.125%, 8/15/15 .......................................................................... 2,035,000 2,120,592
7.25%, 8/15/23 ........................................................................... 4,095,000 4,289,308
Riverside County COP, Airforce Village Project, 8.125%,
6/15/07................................................................................... 7,160,000 7,828,529
6/15/12................................................................................... 5,290,000 5,773,453
Roseville Special Tax, North Center Community Facility District, 8.60%, 11/01/17 .......... 12,000,000 12,839,040
Sacramento County, 1915 Act, Refunding, Sunrise/US Corridor Assessment,
6.10%, 9/02/01............................................................................ 1,020,000 1,051,273
6.30%, 9/02/02 ........................................................................... 1,125,000 1,163,689
6.50%, 9/02/03 ........................................................................... 1,515,000 1,567,798
6.60%, 9/02/04 ........................................................................... 1,620,000 1,676,425
6.70%, 9/02/05 ........................................................................... 1,725,000 1,785,065
6.80%, 9/02/06 ........................................................................... 1,835,000 1,898,858
6.90%, 9/02/07 ........................................................................... 1,965,000 2,033,539
7.00%, 9/02/08 ........................................................................... 2,095,000 2,167,424
7.00%, 9/02/09............................................................................ 2,160,000 2,233,591
San Bernardino County Finance Authority Revenue, Refunding,
Public Improvement, AD, Series A,
6.00%, 9/02/01 ........................................................................... 1,450,000 1,489,875
6.50%, 9/02/04 ........................................................................... 1,285,000 1,328,189
7.00%, 9/02/17 ........................................................................... 2,720,000 2,811,664
California (cont.)
San Bernardino County MFHR, Series A,
Meadowland Apartments Project, 6.50%, 3/01/10 ............................................ $ 7,250,000 $ 7,218,680
Park Heights Apartments, 6.50%, 8/01/05 .................................................. 3,000,000 2,987,040
San Francisco Downtown Parking Corp. Revenue,
6.55%, 4/01/12 ........................................................................... 1,800,000 1,950,768
6.65%, 4/01/18 ........................................................................... 2,150,000 2,335,588
San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue, Refunding, Series A,
5.50%, 1/15/28............................................................................ 6,775,000 6,829,607
MBIA Insured, 5.375%, 1/15/29............................................................. 4,000,000 4,063,880
Senior Lien, 5.00%, 1/01/33 .............................................................. 5,930,000 5,648,147
San Jose MFHR, Timberwood Apartments, Series B, 9.25%, 2/01/10 ............................ 1,500,000 1,565,235
San Luis Obispo Vista Hospital System, COP, 8.375%, 7/01/29................................ 22,000,000 23,832,380
San Ramon, 1915 Act, Fostoria Parkway Reassessment District No. 9,
6.30%, 9/02/03 ........................................................................... 245,000 255,209
6.80%, 9/02/15 ........................................................................... 680,000 710,056
Santa Margarita, Dana Point Authority, California Revenue, Refunding,
ID, Series B, MBIA Insured, 5.75%, 8/01/20................................................ 3,000,000 3,150,660
Santa Rosa, 1915 Act, Fountaingrove Parkway Extension,
7.40%, 9/02/13 ........................................................................... 3,340,000 3,453,226
7.625%, 9/02/19 .......................................................................... 3,450,000 3,568,128
South San Francisco RDA, Tax Allocation, Gateway Redevelopment
Project, 7.60%, 9/01/18 .................................................................. 2,000,000 2,155,020
Vallejo Special Tax, CFD No. 198, 8.90%, 8/01/21........................................... 7,500,000 7,879,200
-------------
514,934,325
-------------
Colorado 2.7%
Arvada Limited Sales and Use Tax Revenue, Pre-Refunded, 7.50%, 6/01/11 .................... 2,485,000 2,744,359
Arvada MFHR, Springwood Community, Project A, 6.45%, 2/20/26............................... 3,000,000 3,163,020
Auraria Higher Education Center, Parking Facilities Revenue,
Refunding, Pre-Refunded,
7.75%, 4/01/09 ........................................................................... 3,450,000 3,713,546
7.875%, 4/01/12 .......................................................................... 1,600,000 1,726,176
Colorado Health Facilities Authority, Beneficial Living
System, Inc., Series A, 10.125%, 10/01/20 ................................................ 12,500,000 13,555,125
Colorado HFA,
SF Program, Issue A-2, 9.375%, 8/01/02 ................................................... 360,000 381,996
SF Program, Series A-2, 9.25%, 8/01/01 ................................................... 235,000 247,067
SF Program, Series B-1, 8.70%, 8/01/01 ................................................... 320,000 335,027
SFMR, Series B-3, 9.75%, 8/01/02 ......................................................... 355,000 366,932
SFMR, Series C, 9.20%, 8/01/02 ........................................................... 600,000 629,772
SFMR, Series C, 9.075%, 8/01/03 .......................................................... 855,000 909,583
Colorado Springs Utilities Revenue, Series A,
Pre-Refunded, 6.10%, 11/15/24............................................................. 3,735,000 4,184,283
Refunding and Improvement, 5.375%, 11/15/26............................................... 14,080,000 14,253,888
Denver City and County Airport Revenue,
Series A, 8.25%, 11/15/12 ................................................................ 5,350,000 5,957,225
Series A, 8.50%, 11/15/23 ................................................................ 29,060,000 32,541,097
Series A, 8.00%, 11/15/25 ................................................................ 135,000 149,475
Series A, MBIA Insured, 5.50%, 11/15/25................................................... 18,330,000 18,790,266
Series A, Pre-Refunded, 8.25%, 11/15/12 .................................................. 490,000 551,103
Series A, Pre-Refunded, 8.50%, 11/15/23 .................................................. 2,740,000 3,098,995
Series A, Pre-Refunded, 8.00%, 11/15/25 .................................................. 10,000 11,170
Series D, 7.75%, 11/15/13 ................................................................ 500,000 633,725
Series D, 7.75%, 11/15/21 ................................................................ 3,425,000 3,845,522
Series D, Pre-Refunded, 7.75%, 11/15/21 .................................................. 765,000 870,715
Eagle County Airport Terminal Project Revenue, 7.50%, 5/01/21.............................. 2,305,000 2,508,324
Eagle County Sports Facilities Revenue, Refunding, 8.00%, 8/01/09
Beaver Creek Association Project......................................................... 19,600,000 21,081,564
Vail Association Project................................................................. 21,600,000 23,232,744
Fort Collins IDR, Vipont Pharmaceutical, Inc. Project, Pre-Refunded, 9.25%, 8/01/13 ....... 300,000 312,405
Colorado (cont.)
Fremont County COP, Lease Purchase, MBIA Insured, 5.30%, 12/15/17.......................... $ 2,000,000 $ 2,031,020
Stonegate Village Metropolitan District, Refunding and Improvement,
Series A, FSA Insured, 5.60%, 12/01/25.................................................... 4,640,000 4,829,637
e Village Castle Rock Metropolitan District No. 4, 8.50%, 6/01/31 ........................... 3,000,000 1,579,980
-------------
168,235,741
-------------
Connecticut .6%
Connecticut HFA Housing Mortgage Finance,
Series C-1, 6.30%, 11/15/17............................................................... 19,995,000 21,694,375
Sub-Series F-1, 6.00%, 5/15/17............................................................ 3,500,000 3,732,785
Connecticut State Development Authority, First Mortgage Revenue,
East Hill Gladeview Health Project 86, 9.75%, 12/15/16 ................................... 2,670,000 2,920,072
Connecticut State Development Authority, Water Facility Revenue,
Bridgeport Hydraulic Co. Project, 6.15%, 4/01/35 .......................................... 3,000,000 3,205,530
Connecticut State Health and Educational Facilities Authority Revenue, Series C,
Sacred Heart University, Refunding, 6.50%, 7/01/16........................................ 2,000,000 2,192,640
Windham Community Memorial Hospital, 6.00%, 7/01/11 ...................................... 2,500,000 2,606,225
-------------
36,351,627
-------------
District of Columbia 2.1%
District of Columbia, Carnegie Endowment Revenue, 5.75%, 11/15/26.......................... 5,410,000 5,637,761
District of Columbia GO,
Refunding, Series A, 5.875%, 6/01/05 ..................................................... 7,800,000 8,331,726
Refunding, Series A, 6.00%, 6/01/07 ...................................................... 11,775,000 12,818,618
Series A, 6.375%, 6/01/11................................................................. 22,770,000 25,001,915
Series A, 6.375%, 6/01/16................................................................. 27,230,000 29,706,569
Series E, 6.00%, 6/01/11 ................................................................. 5,000,000 5,323,900
District of Columbia Hospital Revenue, Series A
Medlantic Healthcare Group, Refunding, MBIA Insured, 5.70%, 8/15/08 ...................... 6,500,000 7,059,520
Medlantic Healthcare Group, Refunding, MBIA Insured, 5.875%, 8/15/19 ..................... 8,850,000 9,392,505
Washington Hospital Center, 7.00%, 8/15/05 ............................................... 2,000,000 2,183,900
Washington Hospital Center, Pre-Refunded, 9.00%, 1/01/08 ................................. 13,270,000 15,173,183
Washington Hospital Center, Pre-Refunded, 8.75%, 1/01/15 ................................. 3,750,000 4,268,513
Washington Hospital Center, Pre-Refunded, 7.125%, 8/15/19 ................................ 4,500,000 5,083,920
District of Columbia Redevelopment Agency, Washington D. C. Sports
Arena Special Tax Revenue, 5.625%, 11/01/10............................................... 1,410,000 1,453,061
-------------
131,435,091
-------------
Florida 7.2%
Alachua County Health Facilities Authority Revenue, Shands Teaching
Hospital, Series A, MBIA Insured, 5.80%, 12/01/26......................................... 2,990,000 3,186,652
Broward County Resource Recovery Revenue, Broward Waste
Energy L. P. North Project, 7.95%, 12/01/08 .............................................. 19,170,000 20,884,565
Capron Trails CDD,
9.375%, 12/01/01.......................................................................... 1,405,000 1,485,998
9.50%, 12/01/10........................................................................... 5,795,000 6,160,549
East County Water Control District, Lee County Drain, Series 1991, Pre-Refunded,
8.75%, 9/01/01 ........................................................................... 2,305,000 2,515,723
8.625%, 9/01/11 .......................................................................... 10,565,000 11,923,131
Escambia County Health Facilities Authority Revenue, Refunding,
Baptist Hospital, Inc., Series A, 8.70%, 10/01/14 ........................................ 1,640,000 1,709,372
Florida Board of Education, Capital Outlay, Public Education, Series B, 5.875%,
6/01/24................................................................................... 7,000,000 7,365,470
6/01/25................................................................................... 2,000,000 2,104,420
Florida State Department of Transportation, Right of Way, Series A, 5.00%, 7/01/27......... 5,000,000 4,857,300
Florida State Mid Bay Bridge Authority Revenue, Series B, 4.00%
10/01/08.................................................................................. 3,200,000 3,225,856
10/01/22.................................................................................. 5,000,000 5,040,400
Gateway Services District, Florida Water Management Benefit Tax Revenue,
Second Assessment Area Phase One, 8.00%, 5/01/20........................................... 4,020,000 4,210,387
Heritage Harbor CDD, Special Assessment Revenue,
Series A, 6.70%, 5/01/19.................................................................. 1,895,000 1,884,180
Series B, 6.00%, 5/01/03.................................................................. 2,750,000 2,737,213
Indian Trace CDD, Florida Water and Sewer Revenue, Expansion, 6.875%, 4/01/10.............. 11,000,000 11,547,470
Florida (cont.)
Indian Trace CDD, Refunding, Water Management
Special Benefit, Sub-Series B, 8.25%,
5/01/05...................................................................................$ 10,515,000 $ 11,341,584
5/01/11................................................................................... 12,760,000 14,068,666
Jacksonville Health Facilities Authority Revenue, Hospital Charity
Obligation Group, Series A, MBIA Insured, 5.125%, 8/15/27 ................................. 11,940,000 11,752,303
Lake Clarke Shores Utility System Revenue, Pre-Refunded, 8.75%, 10/01/18 .................. 1,765,000 1,850,444
Lakeland Retirement Community First Mortgage Revenue,
Carpenters Home Estates Project, 9.75%, 9/01/18 ........................................... 12,000,000 12,669,000
Lakewood Ranch Community Development, District 2,
Benefit Special Assessment, 8.125%, 5/01/17,
Series A ................................................................................. 10,485,000 11,202,803
Series B ................................................................................. 7,655,000 8,179,061
Lakewood Ranch Community Development, District 3,
Special Assessment Revenue, 7.625%, 5/01/18................................................ 9,280,000 9,774,624
Manatee County IDR, Manatee Hospital and Health
Systems, Inc., Pre-Refunded, 9.25%, 3/01/21............................................... 6,500,000 7,552,545
Meadow Pointe CDD, Capital Improvement Revenue,
6.25%, 7/01/98 ........................................................................... 600,000 601,554
6.875%, 7/01/99 .......................................................................... 7,870,000 7,979,000
Mount Dora County Club CDD, Special Assessment Revenue,
6.75%, 5/01/03 ........................................................................... 960,000 966,509
7.125%, 5/01/05 .......................................................................... 3,865,000 3,958,881
7.75%, 5/01/13 ........................................................................... 2,460,000 2,521,082
Naples Heritage CDD, Capital Improvement Revenue, 6.15%, 11/01/01.......................... 11,990,000 12,204,261
North Broward Hospital District Revenue, Refunding
and Improvement, MBIA Insured, 5.75%, 1/15/27.............................................. 20,000,000 21,147,000
North Springs ID, Special Assessment Revenue, Parkland Isles Project,
Series A, 7.00%, 5/01/19.................................................................. 1,300,000 1,341,769
Series B, 6.25%, 5/01/05.................................................................. 3,785,000 3,836,817
North Springs ID, Water Management, 5/01/24,
Series A, 8.20%........................................................................... 1,960,000 2,141,770
Series B, 8.30% .......................................................................... 1,725,000 1,884,407
Northwood CDD, Special Assessment Revenue,
6.40%, 5/01/02 ........................................................................... 3,225,000 3,294,080
Series A, 7.125%, 5/01/00................................................................. 935,000 948,913
Series B, 7.60%, 5/01/17.................................................................. 1,615,000 1,689,839
Palm Beach County Health Facilities Authority Revenue,
Refunding, Abbey del Ray Project, 8.25%, 10/01/15 ........................................ 6,000,000 6,654,780
c Palm Beach County Solid Waste IDR, Okeelanta Power,
L. P. Project, Series A, 6.85%, 2/15/21 ................................................... 27,000,000 21,060,000
Pelican Marsh CDD, Special Assessment Revenue,
Refunding, Series A, 5.00%, 5/01/11 ...................................................... 7,650,000 7,935,192
Refunding, Series A, 5.50%, 5/01/16 ...................................................... 4,370,000 4,528,675
Refunding, Series B, 5.25%, 5/01/09 ...................................................... 1,305,000 1,353,011
Series A, Pre-Refunded, 8.25%, 5/01/98.................................................... 195,000 196,437
Series A, Pre-Refunded, 8.25%, 5/01/99.................................................... 215,000 225,924
Series A, Pre-Refunded, 8.25%, 5/01/00.................................................... 230,000 250,898
Series A, Pre-Refunded, 8.25%, 5/01/01.................................................... 250,000 281,843
Series A, Pre-Refunded, 8.25%, 5/01/02.................................................... 270,000 313,311
Series A, Pre-Refunded, 8.25%, 5/01/03.................................................... 295,000 351,074
Series A, Pre-Refunded, 8.25%, 5/01/04 ................................................... 315,000 384,139
Series A, Pre-Refunded, 8.25%, 5/01/16 ................................................... 6,590,000 8,110,313
Series C, 7.00%, 5/01/19 ................................................................. 13,460,000 13,913,198
Series D, 6.95%, 5/01/19 ................................................................. 8,185,000 8,461,244
Pembroke Pines Florida, Capital Improvement Revenue,
AMBAC Insured, 5.95%, 10/01/20............................................................ 1,225,000 1,312,343
Piney-Z CDD, Capital Improvement Revenue,
Series A, 7.25%, 5/01/19 ................................................................. 1,000,000 1,022,110
Series B, 6.50%, 5/01/02 ................................................................. 6,325,000 6,333,349
Port Orange Lease Finance Corp., Recreation Facilities Lease Revenue,
Pre-Refunded, 8.75%, 10/01/12 ............................................................ 2,300,000 2,516,430
Riverwood Community Development, Special AD, Series A,
6.75%, 5/01/04 ........................................................................... 3,915,000 4,109,027
7.75%, 5/01/14 ........................................................................... 2,000,000 2,122,600
St. Lucie County Florida, Reserve CDD, Storm Water Management, 8.25%, 5/01/14 ............. 4,790,000 5,115,145
St. Lucie West Services District, Capital Improvement Revenue,
Lake Charles Project, 6.375%, 8/01/02...................................................... 3,720,000 3,731,867
Florida (cont.)
St. Lucie West Services District, Florida Water Management
Benefit Tax, 7.70%, 5/01/25 ............................................................... $ 5,000,000 $ 5,245,100
St. Lucie West Services District Revenue, Refunding, Port St. Lucie,
7.875%, 5/01/20 .......................................................................... 20,120,000 21,425,788
8.25%, 12/01/23 .......................................................................... 22,990,000 24,876,100
Santa Rosa County Health Facilities Authority Revenue,
Refunding, Gulf Breeze Hospital, Inc.,
8.60%, 10/01/02 .......................................................................... 240,000 248,969
Pre-Refunded, 8.70%, 10/01/14 ............................................................ 835,000 875,439
Sumter County IDAR, Utility Co. Little Sumter Project, 7.25%, 10/01/27..................... 4,200,000 4,287,402
Sunrise Utilities System Revenue, Series A, AMBAC Insured, 5.90%, 10/01/18................. 4,500,000 4,826,205
Tampa Capital Improvement Program Revenue, 10/01/18,
Series A, 8.25%........................................................................... 3,085,000 3,154,197
Series B, 5.805%.......................................................................... 8,900,000 9,079,246
Tampa Revenue, Aquarium, Inc. Project, Pre-Refunded, 7.55%, 5/01/12 ....................... 9,700,000 11,130,556
Village Community Development, District No. 1, Capital Improvement Revenue,
6.75%, 5/01/02 ........................................................................... 585,000 610,687
8.40%, 5/01/12 ........................................................................... 1,365,000 1,471,142
8.00%, 5/01/15 ........................................................................... 4,030,000 4,285,663
Village Center CDD, Recreational Revenue,
Sub-Series B, 8.25%, 1/01/17 ............................................................. 2,790,000 2,985,523
Sub-Series C, 7.375%, 1/01/19 ............................................................ 2,670,000 2,688,423
-------------
441,218,948
-------------
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 10,476,600
Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue, Refunding,
Second Indenture, Series A, MBIA Insured,
5.625%, 7/01/20.............................................................................. 15,000,000 15,710,700
Tift County IDAR, Beverly Enterprises, 10.125%, 9/01/10 ................................... 1,320,000 1,468,342
-------------
27,655,642
-------------
Hawaii .2%
Hawaii Department of Transportation Special Revenue,
Continental Airlines, Inc., 9.70%, 6/01/20 ................................................ 6,500,000 7,183,930
Hawaii State Special AD No. 17, AMBAC Insured, 9.50%, 8/01/11 ............................. 4,820,000 5,145,157
Hawaiian Home Lands Department Revenue, 7.60%, 7/01/08 .................................... 1,315,000 1,434,797
-------------
13,763,884
-------------
Idaho .4%
Nez Perce County, PCR, Refunding, Potlatch Corp. Project, 6.00%, 10/01/24.................. 22,360,000 23,837,325
-------------
Illinois 5.8%
Alton Hospital Facilities Revenue, Refunding, St. Anthony's Health
Center Project, Pre-Refunded, 8.375%, 9/01/14 ............................................. 8,915,000 9,672,240
Aurora MFR, Refunding, Fox Valley Two-Oxford Limited Development,
GNMA Secured, Series A, 6.125%, 2/20/32.................................................... 5,635,000 5,902,944
Bryant PCR, Refunding, Central Illinois Light Company Project,
MBIA Insured, 5.90%, 8/01/23............................................................... 11,000,000 11,454,080
Chicago Board of Education, Chicago School Reform, Series A, 5.25%, 12/01/30 .............. 31,350,000 31,298,586
Chicago O'Hare Airport Special Facility,
Refunding, American Airlines, Inc. Project, 8.20%, 12/01/24 .............................. 7,830,000 9,521,593
United Airlines, Inc., Revenue, 8.85%, 5/01/18 ........................................... 3,610,000 4,103,018
United Airlines, Inc., Series A, 8.85%, 5/01/18 .......................................... 15,155,000 17,224,718
Chicago Wastewater Transmission Revenue, MBIA Insured, 6.375%, 1/01/24 .................... 4,780,000 5,238,498
Cook County, Refunding, Series A, MBIA Insured, 5.625%, 11/15/22........................... 22,875,000 23,900,715
Illinois Development Financial Authority PCR, Refunding,
Commonwealth Edison Co. Project, 7.25%, 6/01/11 ........................................... 7,000,000 7,606,410
Illinois Educational Facilities Authority Revenue, Osteopathic Health Systems,
ETM, 7.125%, 5/15/11 ..................................................................... 2,330,000 2,555,800
Pre-Refunded, 7.25%, 5/15/22 ............................................................. 7,000,000 7,725,130
Illinois Health Facilities Authority Revenue,
Bensenville Home Society, Series B, 8.20%, 2/15/19 ....................................... 3,000,000 3,139,980
Edward Obligation Group, Series A, AMBAC Insured, 5.25%, 2/15/27 ......................... 3,000,000 2,951,640
Illinois (cont.)
Illinois Health Facilities Authority Revenue, (cont.)
Northwestern Medical Center, 6.625%, 11/15/25 ............................................ $ 6,500,000 $ 7,160,270
Refunding, Rush Presbyterian Hospital, MBIA Insured, Series A, 6.25%, 11/15/20 ........... 9,000,000 9,855,090
Refunding, Sarah Bush Lincoln Health Center, Series B, 6.00%, 2/15/11..................... 3,370,000 3,630,703
Refunding, Thorek Hospital and Medical Center, 4.55%, 8/15/03 ............................ 1,540,000 1,534,086
Refunding, Thorek Hospital and Medical Center, 5.25%, 8/15/18 ............................ 5,125,000 5,042,795
Refunding, Thorek Hospital and Medical Center, 5.375%, 8/15/28 ........................... 8,595,000 8,461,692
Refunding, Westlake Community Hospital, 7.875%, 1/01/13 .................................. 3,000,000 3,137,880
Sarah Bush Lincoln Health Center, Pre-Refunded, 7.25%, 5/15/12 ........................... 2,000,000 2,274,220
Servantcor, Series B, Pre-Refunded, 7.875%, 8/15/19 ...................................... 3,000,000 3,228,150
St. Elizabeth's Hospital, 6.250%, 7/01/16................................................. 1,215,000 1,304,764
St. Elizabeth's Hospital, 6.375%, 7/01/26 ................................................ 6,695,000 7,244,392
Metropolitan Pier and Exposition Authority, Hospitality Facilities Revenue,
McCormick Place Convention,
5.75%, 7/01/06............................................................................ 1,650,000 1,728,606
6.25%, 7/01/17............................................................................ 11,000,000 11,876,260
7.00%, 7/01/26............................................................................ 7,500,000 9,204,825
Robbins Resource Recovery Revenue Partners, 8.375%
Series A, 10/15/10 ....................................................................... 8,000,000 8,485,120
Series A, 10/15/16 ....................................................................... 106,745,000 113,218,017
Series B, 10/15/16 ....................................................................... 18,500,000 19,621,840
Sterling Illinois First Mortgage Revenue, Hoosier Care Project,
Series A, 9.75%, 8/01/19 .................................................................. 1,300,000 1,378,429
-------------
360,682,491
-------------
Indiana .5%
Crawfordsville Industrial EDR, Kroger Co., Refunding, 7.70%, 11/01/12 ..................... 5,000,000 5,764,750
Duneland School Building Corp., First Mortgage, MBIA Insured, 5.50%, 8/01/17............... 4,060,000 4,196,294
Indiana Health Facility Financing Authority, Hospital Revenue,
Hancock Memorial Hospital Project, Pre-Refunded, 8.30%, 8/15/20 .......................... 3,000,000 3,353,730
Jackson County Scheck Memorial Hospital, Refunding, 5.125%, 2/15/17....................... 1,500,000 1,463,550
Indiana State Educational Facilities Authority Revenue,
Anderson University Project, 8.40%, 10/01/08 .............................................. 1,000,000 1,043,020
Jasper County EDR, Georgia-Pacific Corp. Project, 5.625%, 12/01/27 ........................ 5,250,000 5,283,128
Jefferson County Hospital Authority Facility Revenue, Refunding,
King's Daughters' Hospital, Pre-Refunded, 8.50%, 8/15/13 .................................. 2,500,000 2,602,025
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 3,855,030
Series B ................................................................................. 2,335,000 2,424,057
White River Elementary Building Corp., First Mortgage, AMBAC Insured, 5.00%, 7/15/16 ...... 1,000,000 979,930
-------------
30,965,514
-------------
Iowa .0%
Clinton Hospital Facilities Revenue, Jane Lamb Health Center Project,
Pre-Refunded, 8.75%, 8/01/03 .............................................................. 500,000 520,200
-------------
Kansas .1%
Prairie Village Revenue, Claridge Court Project, Series A, 8.75%, 8/15/23 ................. 5,730,000 6,388,434
-------------
Kentucky .9%
Adair County Public Hospital District Corp. Revenue Refunding and Improvement,
5.40%, 1/01/12 ........................................................................... 460,000 466,550
5.70%, 1/01/19 ........................................................................... 1,100,000 1,111,209
Jefferson County, Health Facilities Revenue, Beverly Project, 10.125%, 8/01/07 ............ 3,000,000 3,133,590
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Project,
8.10%, 12/01/15 .......................................................................... 11,000,000 11,821,920
Series A, 7.50%, 2/01/20 ................................................................. 11,230,000 12,527,402
Series B, 7.25%, 2/01/22 ................................................................. 3,595,000 3,964,997
Kentucky Economic Development Financing Authority,
Hospital System Revenue, Refunding and Improvement, 5.875%, 10/01/22....................... 7,835,000 8,056,495
Powderly IDR, First Mortgage Revenue, Kroger Co., Refunding, 7.375%, 9/01/06 .............. 905,000 1,027,736
Russell Health System Revenue,
8.10%, 7/01/15............................................................................ 3,230,000 3,903,100
Franciscan Health Center, Series B, 8.10%, 7/01/01........................................ 1,400,000 1,528,590
Kentucky (cont.)
Russell Health System Revenue, (cont.)
Pre-Refunded, 8.10%, 7/01/15.............................................................. $ 4,270,000 $ 5,437,632
Refunding, Our Lady of Bellefonte, 5.50%, 7/01/15 ........................................ 1,000,000 1,005,960
Stanford Health Facilities Revenue, Refunding, Beverly Project, 10.375%, 11/01/09 ........ 900,000 1,010,988
-------------
54,996,169
-------------
Louisiana 2.0%
Calcasieu Parish Public Trust Authority, Mortgage Revenue,
Refunding, Series A, 7.75%, 6/01/12 ...................................................... 2,045,000 2,191,197
Iberville Parish Consolidated School District No. 5, GO,
Unlimited Tax, Pre-Refunded, 8.00%, 10/01/06 .............................................. 705,000 735,942
Lake Charles Harbor & Terminal District Port Facilities Revenue,
Refunding, Trunkline Co. Project, 7.75%, 8/15/22 .......................................... 35,000,000 40,537,700
Pointe Coupee Parish, PCR, Refunding, Gulf States Utilities Co. Project, 6.70%, 3/01/13 ... 4,850,000 5,214,914
St. Charles Parish PCR, Louisiana Power and Light Co. Project,
8.25%, 6/01/14 ........................................................................... 25,500,000 27,395,670
8.00%, 12/01/14 .......................................................................... 13,525,000 14,683,416
West Feliciana PCR,
Refunding, Gulf System Utilities Co. Project, 8.00%, 12/01/24 ............................ 17,200,000 18,520,100
Series A, 7.50%, 5/01/15 ................................................................. 8,740,000 9,877,074
Xavier University, Public Facilities Authority Revenue, Refunding,
MBIA Insured, 5.25%, 9/01/17 ............................................................. 5,000,000 5,055,900
-------------
124,211,913
-------------
Maine .7%
Maine State Finance Authority Solid Waste Disposal Revenue,
Boise Cascade Corp. Project, 7.90%, 6/01/15 ............................................... 5,000,000 5,381,750
Rumford PCR, Boise Cascade Corp. Project, Refunding, 6.625%, 7/01/20 ...................... 4,800,000 5,228,544
Skowhegan PCR, S.D. Warren Co., 6.65%, 10/15/15
Series A ................................................................................. 24,570,000 26,401,202
Series B ................................................................................. 4,940,000 5,308,178
-------------
42,319,674
-------------
Maryland .7%
Gaithersberg Hospital Facilities Revenue, Refunding and Improvement,
Shady Grove, Nursing Home, Series B, Pre-Refunded,
8.50%, 9/01/22 ........................................................................... 3,595,000 4,306,019
Series B, 8.50%, 9/01/03 ................................................................. 5,330,000 6,311,626
Series B, 8.50%, 9/01/07 ................................................................. 5,340,000 6,734,114
Series C, 6.00%, 9/01/21.................................................................. 5,000,000 5,327,500
Maryland State CDA, Department of Housing and Community
Development, Series A, 5.875%, 7/01/16 .................................................... 3,975,000 4,214,891
Takoma Park, Hospital Facilities Revenue, Washington Adventist
Hospital Project, Series B, 8.50%,
9/01/03................................................................................... 5,550,000 6,572,144
9/01/07................................................................................... 6,975,000 8,795,963
-------------
42,262,257
-------------
Massachusetts 1.4%
Bay Transit Authority, General Transportation System, Series A, 7.00%, 3/01/21............. 2,000,000 2,533,300
Cape Cod Health Systems, Massachusetts Industry Finance Authority,
Pre-Refunded, 8.50%, 11/15/20 ............................................................. 4,500,000 5,108,265
Massachusetts Health and Educational Facility Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 .......................... 5,000,000 5,340,750
Framingham, Union Hospital, Pre-Refunded, 8.50%, 7/01/10 ................................. 2,000,000 2,237,540
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ...................... 9,000,000 9,102,060
Saint Memorial Medical Center, Refunding, Series A, 5.75%, 10/01/06 ...................... 3,250,000 3,265,665
Saint Memorial Medical Center, Refunding, Series A, 6.00%, 10/01/23 ...................... 5,735,000 5,762,356
Massachusetts Municipal Wholesale, Electric Co. Power Supply System Revenue, 6.75%,
Series A, 7/01/11 ........................................................................ 4,435,000 4,788,514
Series B, 7/01/17 ........................................................................ 3,170,000 3,414,978
Massachusetts State Industrial Finance Agency, Semass Project, 7/01/15,
Series A, 9.00%........................................................................... 15,490,000 17,630,253
Series B, 9.25%........................................................................... 20,570,000 23,498,962
Massachusetts State Turnpike Authority, Metropolitan Highway
System Revenue, Sub Series B, MBIA Insured, 5.25%, 1/01/29 ............................... 4,500,000 4,503,330
Massachusetts State Water Resources Authority, Series A,
Pre-Refunded, 6.00%, 4/01/20 .............................................................. 1,000,000 1,041,840
-------------
88,227,813
-------------
Michigan 1.9%
City of Cadillac, Local Development Financial Authority,
Tax Increment Revenue, Refunding, 8.50%, 3/01/10 ......................................... $ 5,720,000 $ 6,278,958
Detroit GO,
City School District, Series A, AMBAC Insured, 5.85%, 5/01/16 ............................ 5,175,000 5,521,622
Series A, Pre-Refunded, 6.80%, 4/01/15.................................................... 5,160,000 6,012,019
Series B, Refunding, 6.375%, 4/01/07...................................................... 7,535,000 8,283,828
Series B, Refunding, 6.25%, 4/01/08....................................................... 3,000,000 3,260,850
Dickinson County, Memorial Hospital System Revenue, 8.125%, 11/01/24 ...................... 4,250,000 4,965,275
Garden City, Hospital Financing Authority, Hospital Revenue, Refunding,
5.625%, 9/01/10........................................................................... 2,000,000 1,979,660
5.75%, 9/01/17............................................................................ 1,000,000 987,310
Kent Hospital Finance Authority, Michigan Health Care Revenue,
Series A, MBIA Insured, 6.125%, 1/15/21.................................................... 11,770,000 12,764,918
Michigan State Hospital Finance Authority Revenue,
Mercy Health Services, Series Q, AMBAC Insured, 5.375%, 8/15/26........................... 4,750,000 4,793,320
Mercy Hospital Services, Series Q, AMBAC Insured, 5.75%, 8/15/16.......................... 9,310,000 9,820,933
Refunding, Henry Ford Health, Series A, 5.25%, 11/15/25................................... 19,665,000 19,465,007
Michigan State Strategic Fund Limited Obligation Revenue,
Refunding, Detroit Edison Co., Series BB, MBIA Insured, 6.20%, 8/15/25 .................... 7,825,000 8,562,193
Muskegon, Hospital Finance Authority, Muskegon General Hospital, 8.25%, 2/15/11 ........... 3,500,000 3,784,235
Tawas City HFA, Hospital Revenue, Tawas St. Joseph's Hospital Project, Series A,
8.50%, 3/15/12............................................................................ 2,020,000 2,062,218
b5.60%, 2/15/13.......................................................................... 2,500,000 2,474,950
b5.75%, 2/15/23.......................................................................... 1,375,000 1,352,574
Wayne County, Downriver Systems Sewer Disposal, Series A, 7.00%, 11/01/13 ................. 1,900,000 2,052,190
Wayne County, Michigan Building Authority IDA, Pre-Refunded, 8.00%, 3/01/17................ 4,500,000 5,216,670
Wayne County, South Huron Valley Wastewater Control, Refunding, 7.875%, 5/01/02 ........... 3,650,000 4,084,204
Wyandotte Tax Increment Finance Authority, Central Development
Area Project, Pre-Refunded, 7.875%,
6/01/09................................................................................... 500,000 529,650
6/01/10................................................................................... 500,000 529,650
-------------
114,782,234
-------------
Minnesota 2.1%
Agriculture and EDR, Health Care System, Fairview Hospital,
Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 ........................................ 23,380,000 24,789,113
Burnsville Solid Waste Revenue, Freeway Transfer, Inc. Project, 9.00%,
10/01/00.................................................................................. 305,000 332,191
4/01/10................................................................................... 1,500,000 1,646,625
Duluth Minnesota, Commercial Development Revenue, Refunding,
Duluth Radisson Hotel Project, 8.00%, 12/01/15 ............................................ 5,000,000 5,215,300
International Falls PCR, Refunding, Boise Cascade Corp. Project, 5.65%, 12/01/22 .......... 3,500,000 3,565,870
Maplewood Health Care Facility Revenue, Health East Project, 5.95%, 11/15/06............... 2,200,000 2,323,046
Minneapolis CDA, Limited Tax, Supported Development Revenue,
Series 2, 8.40%, 12/01/12 ................................................................ 2,890,000 3,026,235
Series 3-A, 8.375%, 12/01/19 ............................................................. 600,000 660,396
Minnesota State HFA, Rental Housing, Refunding, Series D,
MBIA Insured, 5.95%, 2/01/18............................................................... 3,535,000 3,711,609
Northfield First Mortgage Nursing Home Revenue,
Minnesota Odd Fellows Home Project, 8.75%, 10/01/03 ....................................... 1,015,000 1,049,612
Northwest Multi-County RDA, Governmental Housing Revenue
Pooled Housing Project, 7.40%, 7/01/26 .................................................... 5,165,000 5,250,997
Robbinsdale, MFHR, Refunding, Copperfield Phase II Apartments, 9.00%, 3/01/25 ............. 4,110,000 4,266,386
South Central Multi-County Housing and RDA, Pooled Housing, 8.00%, 2/01/25 ............... 10,000,000 5,700,000
St. Cloud, IDR, Nahan Printing, 9.75%, 6/01/20 ............................................ 5,860,000 6,492,118
St. Paul Housing and RDA, Housing Tax, 8.625%, 9/01/07 .................................... 1,440,000 1,618,214
St. Paul Port Authority Commercial Development,
Theole Printing Project, 9.00%, 10/01/21 .................................................. 580,000 612,341
St. Paul Port Authority Energy Park, Tax Increment Revenue,
Refunding, Pre-Refunded, 8.00%, 12/01/07 ................................................. 4,265,000 4,484,434
St. Paul Port Authority, IDR,
SDA Enterprises, Series K, 10.25%, 10/01/10 .............................................. 1,095,000 1,101,252
Series 2, 7.50%, 10/01/09 ................................................................ 40,000 40,399
Series A-I, 8.50%, 12/01/01 .............................................................. 850,000 843,863
Series A-I, 9.00%, 12/01/02............................................................... 260,000 263,305
Series A-I, 9.00%, 12/01/12 .............................................................. 4,300,000 4,071,756
Series A-II, 8.50%, 12/01/01 ............................................................. 835,000 828,971
Minnesota (cont.)
St. Paul Port Authority, IDR, (cont.)
Series A-II, 9.00%, 12/01/02.............................................................. $ 255,000 $ 258,241
Series A-II, 9.00%, 12/01/12 ............................................................. 4,235,000 4,010,206
Series A-III, 8.50%, 12/01/01 ............................................................ 875,000 868,683
Series A-III, 9.00%, 12/01/02............................................................. 265,000 268,368
Series A-III, 9.00%, 12/01/12 ............................................................ 4,430,000 4,194,856
Series A-IV, 8.50% 12/01/01 .............................................................. 670,000 665,163
Series A-IV, 9.00%, 12/01/02 ............................................................. 205,000 207,606
Series A-IV, 9.00%, 12/01/12 ............................................................. 3,375,000 3,195,855
Series C, 10.00%, 12/01/01................................................................ 860,000 877,811
Series C, 10.00%, 12/01/02................................................................ 715,000 729,243
Series C, 10.00%, 12/01/06 ............................................................... 2,930,000 2,965,775
Series C, 9.875%, 12/01/08 ............................................................... 3,100,000 3,123,467
Series F, 10.25%, 10/01/98 ............................................................... 60,000 60,314
Series F, 10.25%, 10/01/99 ............................................................... 65,000 65,673
Series F, 8.00%, 9/01/00 ................................................................. 25,000 24,901
Series F, 10.25%, 10/01/00 ............................................................... 70,000 70,708
Series F, 8.00%, 9/01/01 ................................................................. 25,000 25,003
Series F, 10.25%, 10/01/01 ............................................................... 80,000 80,813
Series F, 8.00%, 9/01/02 ................................................................. 25,000 25,096
Series F, 10.25%, 10/01/02 ............................................................... 90,000 90,869
Series F, 8.00%, 9/01/19 ................................................................. 1,025,000 870,410
Series I, 10.75%, 12/01/00 ............................................................... 15,000 15,338
Series I, 10.75%, 12/01/01................................................................ 15,000 15,442
Series I, 10.75%, 12/01/02................................................................ 15,000 15,413
Series J, 9.50%, 12/01/01................................................................. 80,000 81,664
Series J, 9.50%, 12/01/02................................................................. 95,000 96,932
Series J, 9.50%, 12/01/11 ................................................................ 1,325,000 1,306,702
Series L, 9.50%, 12/01/01 ................................................................ 40,000 40,832
Series L, 9.75%, 12/01/01 ................................................................ 25,000 25,519
Series L, 9.50%, 12/01/02 ................................................................ 45,000 45,915
Series L, 9.75%, 12/01/02 ................................................................ 30,000 30,605
Series L, 9.50%, 12/01/14 ............................................................... 1,025,000 1,009,564
Series L, 9.75%, 12/01/14 ................................................................ 1,530,000 1,534,483
Series N, 10.00%, 12/01/01................................................................ 65,000 66,346
Series N, 10.75%, 10/01/02 ............................................................... 1,300,000 1,313,182
Series N, 10.00%, 12/01/02................................................................ 65,000 66,295
Series N, 10.00%, 12/01/14 ............................................................... 1,405,000 1,409,060
Series S, 9.625%, 12/01/01 ............................................................... 55,000 55,066
Series S, 9.625%, 12/01/02 ............................................................... 60,000 60,045
Series S, 9.625%, 12/01/14 ............................................................... 1,280,000 1,273,856
Series T, 9.625%, 12/01/01................................................................ 30,000 30,623
Series T, 9.625%, 12/01/02................................................................ 35,000 35,711
Series T, 9.625%, 12/01/14 ............................................................... 910,000 905,632
St. Paul Port Authority Lease Revenue, Mears Park Center Project, 6.50%,
6/01/16................................................................................... 5,140,000 5,259,556
6/01/26................................................................................... 10,660,000 10,907,952
-------------
130,174,827
-------------
Mississippi 1.0%
Claiborne County PCR, Middle South Energy, Inc. Project,
Series A, 9.50%, 12/01/13 ................................................................ 10,680,000 11,369,714
Series B, 8.25%, 6/01/14 ................................................................. 9,750,000 10,400,715
Series C, 9.875%, 12/01/14 ............................................................... 10,000,000 10,672,800
System Energy Residential Income Project, 6.20%, 2/01/26.................................. 22,795,000 23,471,784
Claiborne County PCR, System Energy Resources Inc., 7.30%, 5/01/25 ........................ 2,500,000 2,655,675
Mississippi (cont.)
Lowndes County, Golden Triangle Medical Center, 8.50%, 2/01/10 ............................ $ 4,250,000 $ 4,601,858
Mississippi Hospital Equipment and Facilities Authority Revenue,
Refunding, Mississippi Methodist Hospital and Rehabilitation
Center, Pre-Refunded, 9.375%, 5/01/12........................................................ 720,000 747,850
-------------
63,920,396
-------------
Missouri 1.4%
Lake of the Ozarks Community Bridge Corp., Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16............................................................. 1,000,000 1,154,550
Pre-Refunded, 6.40%, 12/01/25............................................................. 3,000,000 3,496,140
bRefunding, 5.25%, 12/01/14 ............................................................. 2,500,000 2,477,800
bRefunding, 5.25%, 12/01/20 ............................................................. 6,280,000 6,173,052
bRefunding, 5.255%, 12/01/26 ............................................................ 6,875,000 6,695,356
Missouri Health and Educational Facilities Authority,
Health Facility Marshall, IDA, John Fitzgibbons Hospital, Pre-Refunded,
10.00%, 5/01/20 ............................................................................. 8,700,000 9,951,495
Missouri State Health and Educational Facilities Authority Revenue,
Heartland Health, Refunding and Improvement,
8.125%, 10/01/10 ............................................................................ 7,300,000 7,812,095
Newton County IDA, Health Facilities Revenue, Beverly Enterprises,
10.375%, 11/01/08 ......................................................................... 1,390,000 1,515,031
Perry Co., Perry Memorial Hospital, 9.125%, 6/01/11 ....................................... 1,700,000 1,877,174
St. Louis County IDA, Refunding, Kiel Center,
7.625%, 12/01/09 ......................................................................... 8,000,000 8,876,960
7.75%, 12/01/13 .......................................................................... 5,175,000 5,746,010
7.875%, 12/01/24 ......................................................................... 6,000,000 6,666,360
St. Louis Municipal Financial Corp. Leasehold Revenue, Refunding, Series A,
6.00%, 7/15/13............................................................................ 14,250,000 14,868,165
City Justice Center, AMBAC Insured, 5.95%, 2/15/16 ....................................... 8,640,000 9,333,101
-------------
86,643,289
-------------
Montana .3%
Montana State Board of Housing, SFM,
Senior Bonds, Series B-2, 8.90%, 10/01/00 ................................................ 235,000 242,927
Sub-Series A, 8.275%, 10/01/03 ........................................................... 545,000 577,041
Montana State Board of Investments, Resource Recovery Revenue,
Yellowstone Energy Project, 7.00%, 12/31/19 .............................................. 19,760,000 19,845,758
-------------
20,665,726
-------------
Nebraska .3%
Douglas County, Hospital No. 1, Authority Revenue, 5.25%, 9/01/21.......................... 3,670,000 3,673,083
Lancaster County Hospital Authority No. 1, Hospital Revenue,
Bryan Memorial Hospital Project, Series A, MBIA Insured,
5.375%, 6/01/19.............................................................................. 5,465,000 5,582,498
Nebraska Investment Financing Authority, Health Facilities Revenue,
Children's Healthcare Services, AMBAC Insured, 5.50%, 8/15/27............................. 5,000,000 5,123,100
Scotts Bluff County, Hospital No. 1, Hospital Revenue, 6.375%, 12/15/08 ................... 2,100,000 2,254,392
-------------
16,633,073
-------------
Nevada 3.4%
Clark County IDR,
Nevada Power Co. Project, Series A, 5.60%, 10/01/30 ...................................... 26,900,000 26,912,643
Nevada Power Co. Project, Series A, 5.90%, 11/01/32....................................... 8,325,000 8,489,252
Refunding, Nevada Power Co. Project, Series C, 5.50%, 10/01/30............................ 34,900,000 34,793,206
Southwest Gas Corp., Series A, 6.50%, 12/01/33............................................ 13,775,000 14,943,671
Clark County Special ID No. 108, Summerlin, 6.625%, 2/01/17................................ 7,550,000 7,791,600
Henderson Local Improvement,
District No. 2, 9.50%, 8/01/11 ........................................................... 5,945,000 6,145,882
District No. T-1, Series A, 8.50%, 8/01/13 ............................................... 43,255,000 46,878,039
District No. T-4, Series A, 8.50%, 11/01/12 .............................................. 10,085,000 10,626,968
District No. T-4, Series B, 7.30%, 11/01/12 .............................................. 4,810,000 4,973,348
District No. T-10, 7.50%, 8/01/15......................................................... 7,335,000 7,583,583
Las Vegas Downtown RDA, Tax Increment Revenue,
Fremont Street Project, Series A, 6.10%, 6/15/14 ......................................... 3,500,000 3,667,055
Nevada (cont.)
Las Vegas Special ID,
No. 404, 5.85%, 11/01/09.................................................................. $ 3,500,000 $ 3,579,345
No. 505, Elkhorn Springs, 8.00%, 9/15/13 ................................................. 7,910,000 8,147,933
No. 707, 6.60%, 6/01/05................................................................... 1,000,000 1,035,440
No. 707, 6.70%, 6/01/06................................................................... 1,235,000 1,279,065
No. 707, 6.80%, 6/01/07................................................................... 1,805,000 1,869,818
No. 707, 7.10%, 6/01/16................................................................... 8,000,000 8,292,960
Nevada Housing Division, SF Program, Subordinated, FI/GML,
Series A, 9.30%, 10/01/00 ............................................................... 155,000 160,639
Series A-1, 8.75%, 10/01/04 ............................................................. 255,000 272,916
Series A-2, 9.375%, 10/01/00 ............................................................ 170,000 176,479
Series A-2, 8.65%, 10/01/01 ............................................................. 335,000 346,256
Series A-3, 9.20%, 10/01/00 ............................................................. 195,000 201,648
Series B, 9.50%, 10/01/01 ............................................................... 265,000 277,776
Series B-1, 7.90%, 10/01/05 ............................................................. 630,000 666,628
Series C-1, 7.55%, 10/01/05 ............................................................. 795,000 846,206
Nevada Housing Finance Division Subordinate, 10/01/02
Series B-2, 9.65% ........................................................................ 205,000 213,678
Series C-1, 9.60% ........................................................................ 290,000 293,837
White Pine County, School District Building, Pre-Refunded, 6.75%, 6/01/18 ................. 6,310,000 7,110,171
-------------
207,576,042
-------------
New Hampshire 1.3%
New Hampshire Higher Education and Health Facility Authority Revenue,
Catholic Charities, Refunding, Series A, 5.75%, 8/01/11 .................................. 1,300,000 1,337,973
Hillcrest Terrace, 7.50%, 7/01/24 ........................................................ 18,950,000 19,759,544
Kendal at Hanover Project, Pre-Refunded, 8.00%, 10/01/19 ................................. 9,450,000 10,224,333
New Hampshire IDA, PCR, Public Service Co., 7.65%, 5/01/21,
Project A ................................................................................ 10,970,000 11,736,474
Project C ................................................................................ 34,635,000 37,054,947
New Hampshire State Business Financial Authority, PCR,
Refunding, United Illuminating Co., Series A, 5.875%, 10/01/33 ............................ 3,000,000 3,052,050
-------------
83,165,321
-------------
New Jersey .5%
New Jersey EDA,
First Mortgage, Franciscan Oaks Project, 5.60%, 10/01/12 ................................. 3,540,000 3,567,293
First Mortgage, Franciscan Oaks Project, 5.70%, 10/01/17 ................................. 1,250,000 1,268,475
First Mortgage, Franciscan Oaks Project, 5.75%, 10/01/23 ................................. 2,000,000 2,029,480
First Mortgage, Keswick Pines, Refunding, 5.75%, 1/01/24 ................................. 1,500,000 1,510,095
Natural Gas Facilities Revenue, Nui Corp. Projects, Refunding,
Series A, MBIA Insured, 5.70%, 6/01/32 ................................................... 7,975,000 8,303,570
New Jersey Health Care Facilities Financing Authority Revenue,
Lutheran Home, Series A, 8.40%, 7/01/19 .................................................. 2,100,000 2,195,235
New Jersey State Housing and Mortgage Finance Agency, MFHR,
Refunding, Series A, AMBAC Insured,
6.00%, 11/01/14........................................................................... 3,000,000 3,195,360
6.05%, 11/01/20........................................................................... 5,500,000 5,836,710
-------------
27,906,218
-------------
New Mexico 2.8%
Farmington PCR, San Juan Project,
Refunding, Public Service of New Mexico Co., Series A, 6.30%, 12/01/16 ................... 4,000,000 4,296,840
Refunding, Public Service of New Mexico Co., Series A, 5.80%, 4/01/22 .................... 22,000,000 22,521,180
Refunding, Public Service of New Mexico Co., Series A, 6.40%, 8/15/23 .................... 38,850,000 41,374,862
Refunding, Public Service of New Mexico Co., Series B, 5.80%, 4/01/22 .................... 19,500,000 19,951,425
Refunding, Public Service of New Mexico Co., Series C, 5.80%, 4/01/22 .................... 13,900,000 14,229,291
Refunding, Public Service of New Mexico Co., Series D, 6.375%, 4/01/22 ................... 28,850,000 31,220,316
Tucson Electric Power Co., Series A, 6.95%, 10/01/20 ..................................... 27,000,000 30,703,050
New Mexico (cont.)
New Mexico Mortgage Finance Authority, SFM Program,
Refunding Series A-1, 7.90%, 7/01/04 ..................................................... $ 1,220,000 $ 1,285,953
Series A, 9.50%, 9/01/00 ................................................................. 250,000 255,895
Series A, 9.10%, 9/01/03 ................................................................. 830,000 886,116
Series A, FHA Insured, 8.80%, 9/01/01 .................................................... 255,000 265,368
Series B, 9.30%, 9/01/00 ................................................................. 120,000 122,810
Sub Series A, 9.55%, 9/01/02 ............................................................. 640,000 664,166
Rio Rancho Water and Wastewater Revenue, Series A, 5.90%, 5/15/15.......................... 3,620,000 3,861,671
-------------
171,638,943
-------------
New York 16.5%
Babylon IDAR, Resource Recovery, Ogden Martin System,
Babylon Inc., Pre-Refunded, 8.50%, 1/01/19,
Series B ................................................................................. 1,000,000 1,045,280
Series C.................................................................................. 3,920,000 4,097,498
Metropolitan Transportation Authority, Service Contract,
Commuter Facilities, Series A, MBIA Insured, 5.625%, 7/01/27 ............................. 12,880,000 13,511,764
Commuter Facilities, Series A, MBIA Insured, 5.875%, 7/01/27 ............................. 22,700,000 24,502,607
Refunding, Commuter Facilities, Series 1, 5.70%, 7/01/24 ................................. 10,000,000 10,639,100
Refunding, Commuter Facilities, Series 5, 6.50%, 7/01/16 ................................. 3,860,000 4,077,357
Refunding, Commuter Facilities, Series 8, 5.50%, 7/01/21.................................. 18,775,000 19,122,150
Refunding, Commuter Facilities, Series A, FGIC Insured, 6.10%, 7/01/26 ................... 7,500,000 8,257,650
Refunding, Commuter Facilities, Series N, 6.80%, 7/01/04 ................................. 3,330,000 3,686,776
Refunding, Commuter Facilities, Series N, 6.90%, 7/01/05 ................................. 3,050,000 3,392,485
bRefunding, Commuter Facilities, Series R, 5.50%, 7/01/17 ............................... 2,000,000 2,006,940
Refunding, Transportation Facilities, Series 7, 5.625%, 7/01/16........................... 12,000,000 12,291,720
Refunding, Transportation Facilities, Series 8, 5.375%, 7/01/21........................... 19,210,000 19,362,527
Refunding, Transportation Facilities, Series N, 6.80%, 7/01/04 ........................... 2,330,000 2,579,636
Refunding, Transportation Facilities, Series N, 6.90%, 7/01/05 ........................... 2,470,000 2,705,342
Refunding, Transportation Facilities, Series N, 7.125%, 7/01/09 .......................... 7,830,000 8,644,007
Refunding, Transportation Facilities, Series P, 5.75%, 7/01/15 ........................... 13,565,000 14,055,239
bRefunding, Transportation Facilities, Series R, 5.50%, 7/01/17.......................... 5,000,000 5,030,700
New York City GO,
Refunding, Series A, 6.125%, 8/01/06 ..................................................... 10,190,000 11,116,169
Refunding, Series A, 6.25%, 8/01/08 ...................................................... 10,000,000 10,890,300
Refunding, Series F, 6.00%, 8/01/11....................................................... 10,000,000 10,692,600
Refunding, Series F, 5.25%, 8/01/15....................................................... 20,580,000 20,723,854
Refunding, Series F, 5.375%, 8/01/19...................................................... 36,250,000 36,454,088
Refunding, Series F, 5.25%, 8/01/24....................................................... 15,750,000 15,637,860
Refunding, Series G, 5.75%, 8/01/10 ...................................................... 1,795,000 1,890,171
Refunding, Series G, 5.25%, 8/01/16 ...................................................... 5,000,000 5,004,100
Refunding, Series H, 6.25%, 8/01/15 ...................................................... 25,000,000 26,989,500
Refunding, Series H, 6.125%, 8/01/25 ..................................................... 5,600,000 6,024,424
Refunding, Series J, 6.00%, 8/01/21....................................................... 10,000,000 10,581,500
Series A, 7.25%, 3/15/20 ................................................................. 330,000 352,004
Series A, 6.25%, 8/01/21.................................................................. 845,000 899,232
Series A, Pre-Refunded, 6.25%, 8/01/21.................................................... 355,000 389,932
Series B, 6.75%, 10/01/15................................................................. 100,000 110,254
Series B, 7.00%, 2/01/18 ................................................................. 4,090,000 4,497,855
Series B, 7.50%, 2/01/18 ................................................................. 385,000 430,214
Series B, 7.00%, 2/01/19 ................................................................. 5,000,000 5,498,600
Series B, 7.00%, 2/01/20 ................................................................. 5,745,000 6,317,891
Series B, 5.25%, 8/01/20 ................................................................. 6,800,000 6,755,324
Series B, 5.375%, 8/01/22................................................................. 13,655,000 13,741,027
Series B, 6.00%, 8/15/26.................................................................. 5,000,000 5,277,850
Series B, Pre-Refunded, 6.75%, 10/01/15................................................... 4,150,000 4,656,051
Series B, Pre-Refunded, 7.00%, 8/15/16 ................................................... 7,060,000 8,241,915
New York (cont.)
New York City GO, (cont.)
Series B, Sub-Series B-1, 7.00%, 8/15/16 .................................................$ 10,010,000 $ 11,345,634
Series B, Sub Series B-1, Pre-Refunded, 7.25%, 8/15/19 ................................... 5,000,000 5,907,150
Series C, 7.00%, 8/01/17 ................................................................. 590,000 654,623
Series C, 7.25%, 8/15/24 ................................................................. 7,905,000 8,607,517
Series C, 5.375%, 11/15/27 ............................................................... 7,450,000 7,491,124
Series C, 5.50%, 11/15/37 ................................................................ 2,000,000 2,008,380
Series C, Sub Series C-1, 7.00%, 8/01/16 ................................................. 55,000 61,024
Series C, Sub Series C-1, 7.50%, 8/01/21 ................................................. 435,000 491,246
Series C, Sub Series C-1, Pre-Refunded, 7.00%, 8/01/16 ................................... 225,000 254,367
Series C, Sub Series C-1, Pre-Refunded, 7.00%, 8/01/17.................................... 4,025,000 4,550,343
Series D, 6.00%, 2/15/10.................................................................. 11,600,000 12,376,736
Series D, 7.70%, 2/01/11.................................................................. 150,000 168,680
Series D, 7.625%, 2/01/13 ................................................................ 400,000 448,748
Series D, 7.625%, 2/01/14 ................................................................ 315,000 353,389
Series D, 7.625%, 2/01/14 ................................................................ 810,000 908,715
Series D, 7.50%, 2/01/19 ................................................................. 330,000 368,755
Series D, 5.25%, 8/01/21.................................................................. 48,980,000 48,650,854
Series E, 6.25%, 2/15/07 ................................................................. 10,000,000 10,938,200
Series E, 7.50%, 2/01/18 ................................................................. 45,000 50,285
Series E, Pre-Refunded, 7.50%, 2/01/18 ................................................... 480,000 545,434
Series F, 7.625%, 2/01/13 ................................................................ 355,000 398,264
Series F, 7.625%, 2/01/15 ................................................................ 30,000 33,656
Series F, 7.50%, 2/01/21 ................................................................. 685,000 765,446
Series F, 6.625%, 2/15/25 ................................................................ 2,075,000 2,299,660
Series F, Pre-Refunded, 6.625%, 2/15/25 .................................................. 6,550,000 7,526,016
Series G, 6.125%, 10/15/11 ............................................................... 20,480,000 22,364,160
Series G, 6.20%, 10/15/14 ................................................................ 10,000,000 10,770,000
Series G, 7.50%, 2/01/22 ................................................................. 60,000 67,046
Series H, 7.20%, 2/01/14 ................................................................. 625,000 691,756
Series H, 7.20%, 2/01/15 ................................................................. 1,375,000 1,521,864
Series H, 7.00%, 2/01/19.................................................................. 2,245,000 2,469,725
Series H, 7.00%, 2/01/20 ................................................................. 280,000 307,922
Series H, 7.00%, 2/01/22.................................................................. 35,000 38,490
Series H, Pre-Refunded, 7.20%, 2/01/15 ................................................... 1,730,000 1,943,915
Series H, Pre-Refunded, 7.00%, 2/01/19.................................................... 75,000 83,737
Series H, Pre-Refunded, 7.00%, 2/01/20 ................................................... 745,000 831,785
Series H, Pre-Refunded, 7.00%, 2/01/22.................................................... 315,000 351,694
Series I, 6.25%, 4/15/17 ................................................................. 25,370,000 27,711,651
Series I, 6.25%, 4/15/27.................................................................. 22,920,000 24,789,355
New York City Health and Hospital Corp. Revenue, Refunding,
Series A, 6.30%, 2/15/20.................................................................. 8,885,000 9,379,539
New York City IDA, Civic Facility Revenue, Amboy Corp. Project,
9.625%, 6/01/15 .......................................................................... 6,540,000 7,163,327
New York City, IDAR Brooklyn Navy Yard Cogen Partners,
5.65%, 10/01/28........................................................................... 5,000,000 5,112,750
5.75%, 10/01/36........................................................................... 5,750,000 5,926,353
New York City Municipal Water Financing Authority,
Water and Sewer System Revenue,
Refunding, Series A, 5.125%, 6/15/21 ..................................................... 22,550,000 22,142,071
Series B, 5.25%, 6/15/29.................................................................. 10,000,000 9,953,400
New York State Dormitory Authority Revenue, City University System,
Refunding, 3rd General Residence, Series 2, 6.00%, 7/01/26 .............................. 21,850,000 22,998,873
Series 1, 5.25%, 7/01/17.................................................................. 15,000,000 14,908,800
Series 1, 5.375%, 7/01/24................................................................. 5,500,000 5,516,225
Series B, Pre-Refunded, 7.20%, 7/01/21 ................................................... 1,000,000 1,113,500
New York State Dormitory Authority Revenue, Mental Health Services Facilities,
Refunding, Series B, 5.625%, 2/15/21 ..................................................... 8,360,000 8,674,670
Series A, 6.00%, 8/15/17.................................................................. 11,240,000 12,012,076
Series A, 5.75%, 2/15/27.................................................................. 5,000,000 5,172,300
New York (cont.)
New York State Dormitory Authority Revenue, Second Hospital,
Southside Hospital, MBIA Insured, 5.20%, 2/15/21 ........................................ $ 5,000,000 $ 4,973,300
St. Agnes Hospital, Series A, 5.30%, 2/15/19 ............................................. 4,250,000 4,212,685
St. Clare's Hospital, Series B, 5.40%, 2/15/25............................................ 6,500,000 6,505,395
New York State Dormitory Authority Revenue, State University Educational Facilities,
6.00%, 5/15/18 ........................................................................... 5,000,000 5,321,150
5.50%, 5/15/26............................................................................ 6,055,000 6,201,652
Refunding, 5.125%, 5/15/21 ............................................................... 3,250,000 3,204,175
Refunding, Series A, 6.00%, 5/15/25 ...................................................... 33,750,000 35,751,375
Series B, 5.75%, 5/15/24 ................................................................. 23,000,000 23,870,320
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 5,349,150
New York State HFA, Series A,
Revenue, Refunding, 5.90%, 11/01/05....................................................... 12,515,000 13,387,546
Service Contract Obligation, Pre-Refunded, 7.80%, 9/15/20 ................................ 9,715,000 10,800,554
Service Contract Obligation, Revenue, 6.00%, 3/15/26...................................... 4,975,000 5,240,864
Service Contract Obligation, Revenue, Pre-Refunded, 6.50%, 3/15/25........................ 10,000,000 11,617,800
New York State Local Government Assistance Corp., Series D,
Pre-Refunded, HFA, 7.80%, 9/15/10 ........................................................ 6,850,000 7,615,419
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 6,424,223
Secured Hospital, Series A, 7.35%, 8/15/11 ............................................... 2,500,000 2,731,825
St. Luke's Nursing Home Mortgage Insured, Series B, 6.95%, 2/15/32........................ 4,000,000 4,350,960
New York State Mortgage Agency Revenue, Homeowner Mortgage,
Series 59, 6.10%, 10/01/15................................................................ 2,000,000 2,141,540
Series 59, 6.15%, 10/01/17................................................................ 2,750,000 2,955,673
Series 61, 5.80%, 10/01/16................................................................ 7,100,000 7,436,611
New York State Urban Development Corp. Revenue,
Correctional Capital Facilities, Series 6, 5.375%, 1/01/25 ............................... 5,750,000 5,737,350
Correctional Capital Facilities, Series 7, 5.70%, 1/01/27 ................................ 22,750,000 23,369,483
Refunding, Correctional Capital Facilities, Series A, 5.25%, 1/01/21 ..................... 5,650,000 5,627,174
New York State Urban Development Corp., Refunding,
Corporate Purpose, Sub-Lien, 5.50%, 7/01/22 .............................................. 7,975,000 8,157,229
Port Authority of New York and New Jersey, Special Obligation Revenue,
2nd Installment, 6.50%, 10/01/01 ......................................................... 1,000,000 1,070,770
3rd Installment, 7.00%, 10/01/07 ......................................................... 8,000,000 9,344,640
4th Installment, Special Project, 6.75%, 10/01/11 ........................................ 925,000 1,039,154
5th Installment, 6.75%, 10/01/19 ......................................................... 17,500,000 19,555,900
Consolidated, 102nd Series, MBIA Insured, 5.75%, 10/15/23 ................................ 5,000,000 5,287,500
Continental Airlines, Inc., Eastern Project, La Guardia, 9.00%, 12/01/10 ................. 10,000,000 11,255,000
Continental Airport Project, Eastern Project, La Guardia, 9.125%, 12/01/15 ............... 27,650,000 31,208,002
Warren & Wash Counties IDAR, Refunding, Resource Recovery,
Series A, 7.90%, 12/15/07 ................................................................. 1,275,000 1,329,226
-------------
1,016,476,368
-------------
North Carolina .9%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25............................... 2,500,000 2,640,525
b Charlotte Special Facilities Revenue, Refunding, Charlotte/Douglas
International Airport, 5.60%, 7/01/27 .................................................... 17,980,000 17,845,150
North Carolina Eastern Municipal Power Agency System Revenue,
Refunding, Series B,MBIA Insured, 5.875%, 1/01/21......................................... 20,000,000 21,258,400
North Carolina HFA, SF, Series II, GNMA Secured, 6.20%,
3/01/16................................................................................... 2,915,000 3,123,481
9/01/17................................................................................... 1,945,000 2,084,106
University of North Carolina, Chapel Hill Hospital Revenue, 5.25%, 2/15/26 ................ 6,570,000 6,589,973
-------------
53,541,635
-------------
North Dakota .4%
Mercer County, PCR, Refunding, Basin Electric Power,
Second Series, AMBAC Insured, 6.05%, 1/01/19 .............................................. 24,655,000 26,830,557
-------------
Ohio 5.9%
Allen County Nursing Home, First Mortgage Revenue, Volunteers of
America Care Facilities Project, 9.00%, 3/01/18 ........................................... $ 2,585,000 $ 2,674,105
Cleveland Airport Special Revenue, Continental Airlines, Inc. Project,
9.00%, 12/01/19........................................................................... 21,235,000 23,405,854
bRefunding, 5.70%, 12/01/19 ............................................................. 8,520,000 8,383,595
Cuyahoga County Hospital Revenue, Refunding, University Hospitals
Health System, Series B, MBIA Insured, 5.50%, 1/15/16..................................... 10,065,000 10,404,895
Dayton Special Facilities Revenue, Emery Air Freight
Corp./Emery Worldwide Air Inc., Refunding,
bSeries A, 5.625%, 2/01/18............................................................... 5,000,000 5,075,600
Series C, 6.05%, 10/01/09................................................................. 7,500,000 8,168,850
Series E, 6.05%, 10/01/09 ................................................................ 4,000,000 4,356,720
Elyria, FGIC Insured, 5.40%, 12/01/22 ..................................................... 2,785,000 2,833,292
Franklin County Health Care Facilities Revenue,
Ohio Presbyterian Retirement Services,
Refunding 5.50%, 7/01/17.................................................................. 2,100,000 2,101,680
Refunding 5.50%, 7/01/21.................................................................. 3,200,000 3,160,800
Series A, 6.625%, 7/01/13................................................................. 1,000,000 1,104,780
Lorain County Hospital Revenue, Refunding, Catholic Healthcare
Partners, Series B, MBIA Insured, 5.50%, 9/01/27.......................................... 17,885,000 18,454,101
Lucas County Health Facilities Revenue, Refunding,
Ohio Presbyterian Retirement Services, Series A,
6.625%, 7/01/14........................................................................... 1,000,000 1,089,330
6.75%, 7/01/20............................................................................ 2,000,000 2,181,360
Montgomery County Health Systems Revenue,
Refunding, Franciscan Medical Center at Dayton, 5.50%, 7/01/18 ........................... 1,900,000 1,903,097
Refunding, Franciscan Medical Center at St. Leonard, 5.50%, 7/01/18 ...................... 3,600,000 3,609,000
Refunding, Series B, 8.10%, 7/01/01 ...................................................... 1,000,000 1,091,530
Refunding, Series B-1, 8.10%, 7/01/01 .................................................... 900,000 982,377
Refunding, Series B-1, 8.10%, 7/01/18 .................................................... 1,955,000 2,374,308
Series B-1, Pre-Refunded, 8.10%, 7/01/18 ................................................. 4,345,000 5,568,465
Series B-2, 8.10%, 7/01/18 ............................................................... 1,995,000 2,400,165
Series B-2, Pre-Refunded, 8.10%, 7/01/18 ................................................. 4,505,000 5,755,138
St. Leonard, Series B, 8.10% 7/01/18 ..................................................... 3,100,000 3,800,600
St. Leonard, Series B, Pre-Refunded, 8.10% 7/01/18........................................ 6,500,000 8,303,750
Muskingum County, Ohio Hospital Facilities Revenue, Refunding,
Franciscan Sisters, Connie Lee Insured, 5.375%, 2/15/12 .................................. 1,200,000 1,216,548
Oak Hills Local School District, MBIA Insured, 5.45%, 12/01/21 ............................ 4,925,000 5,069,894
Ohio State Air Quality Authority,
Dayton Power and Light Company Project, Refunding, 6.10%, 9/01/30......................... 17,900,000 19,275,257
Toledo Edison, Series B, 8.00%, 5/15/19 .................................................. 5,265,000 5,679,092
Ohio State Air Quality Development Authority Revenue, Refunding, Pollution Control,
Series A, 6.10%, 8/01/20 ................................................................. 5,400,000 5,690,250
Series B, 6.00%, 8/01/20 ................................................................. 39,760,000 41,908,233
Toledo, Series C, 6.10%, 8/01/27 ......................................................... 5,000,000 5,268,750
Ohio State HFA, Chagrin Fall, Retirement Rental
Housing Revenue, 10.375%, 4/01/09 ........................................................ 9,800,000 10,481,786
Ohio State HFA, RMR, GNMA Secured, Series A-1, 5.40% 9/01/29 .............................. 6,370,000 6,341,271
Ohio State Solid Waste Revenue, Republic Engineered Steels Inc., 9.00%, 6/01/21 ........... 16,650,000 18,106,709
Ohio State Water Development Authority Revenue,
COP, Fresh Water Service, AMBAC Insured, 5.90%, 12/01/21.................................. 9,250,000 9,866,328
PCR, Refunding, Cleveland Electric, Series A, 6.10%, 8/01/20 ............................. 10,000,000 10,537,500
PCR, Refunding, Cleveland Electric, Series A, 8.00%, 10/01/23 ............................ 27,700,000 32,013,444
Toledo Edison, Series A, 8.00%, 5/15/19 .................................................. 6,200,000 6,687,630
Seneca County Nursing HMR, Refunding and Improvement,
Volunteers of America Care Facilities, 9.00%, 1/01/13 .................................... 3,560,000 3,654,340
Toledo-Lucas County Port Authority Airport Revenue, Burlington Air Express,
Project 1, 7.00%, 4/01/04 ................................................................ 6,055,000 6,599,708
Project 1, 7.25%, 4/01/09 ................................................................ 5,385,000 5,952,041
Project 1, 7.375%, 4/01/14 ............................................................... 8,200,000 9,070,922
Project 1, 7.50%, 4/01/19 ................................................................ 14,365,000 15,903,779
Series 1, 9.125%, 9/15/01 ................................................................ 940,000 1,020,708
Series 1, 9.125%, 9/15/13 ................................................................ 5,875,000 6,343,531
Ohio (cont.)
Toledo-Lucas County Port Authority Development Revenue, Nortwest Ohio Bond Fund,
Series A, Pre-Refunded, 8.625%, 5/15/10 .................................................. $ 1,185,000 $ 1,334,559
Series B, 9.00%, 11/15/08 ................................................................ 1,355,000 1,422,018
Series D, 8.25%, 5/15/20 ................................................................. 2,965,000 3,148,919
Willoughby IDR, Refunding, Ohio Presbyterian Retirement
Services, Series A, 6.875%, 7/01/16 ...................................................... 1,500,000 1,576,350
-------------
363,352,959
-------------
Oklahoma .3%
Tulsa Municipal Airport Transportation Revenue, American
Airlines, Inc., 7.375%, 12/01/20............................................................. 12,845,000 13,978,700
Valley View Hospital Authority, Oklahoma Revenue, Refunding,
Valley View Regional Medical Center, 6.00%, 8/15/14 ....................................... 4,000,000 4,150,720
Washington County Medical Authority Revenue, Bartlesville, Refunding,
Jane Phillips Hospital, Series A, Pre-Refunded,
8.50%, 11/01/10 ............................................................................. 2,500,000 2,681,650
-------------
20,811,070
-------------
Oregon .2%
Northern Wasco County, Peoples Utilities District, Oregon Electric Revenue,
FGIC Insured, 5.625%, 12/01/22............................................................ 2,500,000 2,609,325
Oregon State Department of Administrative Services, COP, MBIA Insured,
Series A, 5.50%, 11/01/20................................................................. 5,585,000 5,802,759
Series C, 5.75%, 5/01/17.................................................................. 4,665,000 4,993,509
-------------
13,405,593
-------------
Pennsylvania 4.2%
Beaver County, Series A, MBIA Insured, Pre-Refunded,
5.90%, 10/01/26............................................................................ 10,000,000 11,136,900
Chartiers Valley Industrial and Commercial Development
Authority Revenue, Refunding,
Asbury Health Center Project, 7.40%, 12/01/15 ............................................ 5,250,000 5,676,773
First Mortgage, United Methodist Health Center, Series A,
Pre-Refunded, 9.50% 12/01/15............................................................... 6,000,000 6,367,020
Delaware River Port Authority, Pennsylvania and New Jersey
Revenue, Series 1995, FGIC Insured, 5.50%, 1/01/26 ........................................ 20,750,000 21,545,970
Franklin County IDA, Health Facilities Revenue, Encore Nursing Center, 7/01/11,
10.375%................................................................................... 650,000 733,642
Refunding, 10.375% ....................................................................... 3,000,000 3,377,700
Gettysburg IDA, Health Facilities Revenue, Refunding,
Encore Nursing Center, 10.375%, 7/01/11 ................................................... 3,100,000 3,498,908
Lehigh County IDA, PCR, Refunding, Pennsylvania Power & Light Co. Project,
Series A, MBIA Insured, 6.15%, 8/01/29 .................................................... 4,000,000 4,371,000
Montgomery County Higher Education and Health Authority Revenue, Pre-Refunded,
First Mortgage, Holy Redeemer Long-Term Care, Series A, 8.20%, 6/01/06 ................... 1,755,000 2,023,129
First Mortgage, Holy Redeemer Long-Term Care, Series A, 8.00%, 6/01/22 ................... 3,500,000 4,029,025
St. Joseph's University, 8.30%, 6/01/10 .................................................. 5,000,000 5,549,900
United Hospital, Series A, 8.375%, 11/01/11 .............................................. 200,000 218,380
United Hospital, Series A, 7.50%, 11/01/12 ............................................... 3,560,000 3,767,726
United Hospital, Series A, 7.50%, 11/01/13 ............................................... 750,000 794,378
United Hospital, Series A, 7.50%, 11/01/14 ............................................... 600,000 635,502
United Hospital, Series B, 7.50%, 11/01/14 ............................................... 3,940,000 4,169,899
United Hospital, Series B, 7.50%, 11/01/15 ............................................... 1,600,000 1,694,672
Montgomery County IDAR, Resource Recovery, 7.50%, 1/01/12 ................................. 10,000,000 10,494,300
Pennsylvania Convention Center Authority Revenue, Series A, Refunding,
5.75%, 9/01/99 ........................................................................... 3,400,000 3,483,334
6.25%, 9/01/04 ........................................................................... 5,000,000 5,446,750
6.60%, 9/01/09 ........................................................................... 16,000,000 17,787,200
6.70%, 9/01/14 ........................................................................... 20,760,000 23,070,380
6.75%, 9/01/19 ........................................................................... 15,800,000 17,555,222
Pennsylvania EDA, Resource Recovery Revenue,
Colver Project, Series D, 7.125%, 12/01/15 ............................................... 10,000,000 11,192,900
Pennsylvania State Higher Educational Facilities Authority Revenue, Series A,
Health Services Revenue, Allegheny Delaware Valley Obligated Group,
MBIA Insured, 5.875%, 11/15/16............................................................ 15,000,000 16,050,150
Medical College of Pennsylvania, Pre-Refunded, 8.375%, 3/01/11............................ 1,200,000 1,277,508
Pennsylvania State Pooled Finance Authority, Lease Revenue,
Capital Improvement, Series B, MBIA Insured, 8.00%, 11/01/09 .............................. 1,825,000 1,912,454
Philadelphia Gas Works Revenue, 14th Series A, Refunding, 6.375%, 7/01/26.................. 2,850,000 3,017,751
Philadelphia GO, Refunding, Series A, 6.00%, 5/15/05 ...................................... 3,080,000 3,263,968
Pennsylvania (cont.)
Philadelphia Municipal Authority Revenue, Lease,
Refunding, Series D, 6.30%, 7/15/17 ...................................................... $ 3,500,000 $ 3,749,795
Sub-Series C, 8.625%, 11/15/16............................................................ 2,865,000 3,204,273
Sub-Series D, 6.25%, 7/15/13 ............................................................. 3,000,000 3,214,470
Philadelphia Water and Sewer Revenue, ETM, 10th Series, 7.35%, 9/01/04..................... 14,345,000 16,476,524
Schuylkill County IDA, Resources Recovery Revenue,
Refunding, Schuylkill Energy Resources Inc., 6.50%, 1/01/10................................ 14,130,000 14,804,124
South Fork Municipal Authority Hospital Revenue,
Conemaugh Valley Memorial Hospital Project, Series A, MBIA Insured,
5.75%, 7/01/16............................................................................... 8,130,000 8,596,256
South Wayne County, Water and Sewer Authority Revenue,
Refunding, 8.20%, 4/15/13................................................................. 8,620,000 9,069,533
Washington County IDA, PCR, West Pennsylvania Power
Company, 6.05%, 4/01/14.................................................................... 5,025,000 5,428,709
-------------
258,686,125
-------------
Puerto Rico .0%
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A, 7.75%, 7/01/08 ............................................ 1,875,000 1,934,738
-------------
Rhode Island .3%
Rhode Island HFC, Homeownership Opportunity, Series 17-A, 6.25%, 4/01/17 .................. 5,000,000 5,001,950
Rhode Island State Health and Educational Building Corp. Revenue,
Landmark Medical Center Assessment, 5.875%, 10/01/19 ..................................... 6,000,000 6,227,820
Lifespan Obligation Group, MBIA Insured, 5.75%, 5/15/23................................... 5,000,000 5,269,850
West Warwick GO, Series A,
6.80%, 7/15/98 ........................................................................... 880,000 887,946
7.00%, 8/15/02 ........................................................................... 145,000 155,833
7.30%, 7/15/08 ........................................................................... 915,000 1,015,934
-------------
18,559,333
-------------
South Carolina .9%
Charleston County Hospital Facilities, First Mortgage Revenue,
Sandpiper Village, Inc., 8.00%, 11/01/13 ................................................. 3,625,000 3,650,085
Piedmont Municipal Power Agency, Electricity Revenue, Refunding,
6.55%, 1/01/16............................................................................ 9,500,000 9,548,070
6.60%, 1/01/21............................................................................ 8,770,000 8,815,779
South Carolina State Public Service Authority Revenue, Refunding,
Series A, MBIA Insured, 5.75%, 1/01/22 ................................................... 32,500,000 34,216,650
-------------
56,230,584
-------------
South Dakota .4%
Education Loans Inc., Student Loan Revenue, 5.60%, 6/01/20 ................................ 5,000,000 5,025,900
South Dakota HDA, Homeownership Mortgage, Series A, 6.125%, 5/01/17........................ 5,000,000 5,324,400
South Dakota State Health and Educational Facilities Authority Revenue,
5.50%, 8/01/22............................................................................ 7,100,000 7,251,230
Refunding, Prairie Lakes Health Care, 7.25%, 4/01/22 ..................................... 3,500,000 3,893,400
Watertown Hospital Facilities Revenue, Prairie Lakes Health Care System Project,
Pre-Refunded, 9.125%, 4/01/13 ............................................................ 3,000,000 3,071,730
-------------
24,566,660
-------------
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 2,713,508
Knox County Health, Educational and Housing Facilities Board,
MFHR, GNMA Secured, Eastowne Village Project, 8.20%, 7/01/28 ............................ 3,075,000 3,202,121
Memphis-Shelby County Airport Authority, Special Facilities and Project Revenue,
Federal Express Corp., 7.875%, 9/01/09 ................................................... 6,000,000 6,757,800
Metropolitan Government, Nashville and Davidson County
Public Improvements, 5.875%, 5/15/26 ........................................................ 5,000,000 5,320,700
Shelby County, Health and Education Housing Facility Revenue,
Beverly Enterprise, 10.125%, 12/01/11 ...................................................... 2,800,000 3,092,600
Tennessee HDA, Financial Mortgage, Series A, 6.90%, 7/01/25 ............................... 200,000 218,054
-------------
21,304,783
-------------
Texas 4.1%
Alliance Airport Authority, Special Facilities Revenue, 7.50%, 12/01/29 ................... 10,000,000 10,892,800
Bexar County Health Facilities Development Corp. Revenue,
Baptist Health System Project, MBIA Insured, Series B, 5.25%, 11/15/31.................... 19,250,000 19,038,250
Refunding, Incarnate Word Health Services, FSA Insured, 6.00%, 11/15/15................... 8,750,000 9,436,088
Texas (cont.)
Brazos River Authority Revenue,
PCR, Houston Light and Power Co., 8.25%, 5/01/19 .........................................$ 16,000,000 $ 16,431,840
PCR, Texas Utilities Electric Co. Project, Collateralized, Series A, 9.25%, 3/01/18 ...... 1,675,000 1,715,200
Refunding, Houston Industries Inc. Project, Series C,
AMBAC Insured, 5.125%, 5/01/19 ............................................................. 12,000,000 11,838,960
Coppell Special Assessment Gateway Project, 8.70%, 3/01/12 ................................ 4,355,000 4,494,012
Copperas Cove Health Facilities Development Corp., Hospital Revenue,
First Mortgage, Metroplex Health, Series B,
Pre-Refunded, 9.125%, 12/01/19 .............................................................. 5,412,000 5,943,621
El Paso HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11 ................................... 5,045,000 5,479,223
b Gulf Coast IDA, Waste Disposal Revenue, Valero Refining Project, 5.60%, 12/01/31........... 10,000,000 10,000,000
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 15,985,730
Hospital Revenue, Refunding, Memorial Hospital System Project,
Series A, 5.50%, 6/01/24 ..................................................................... 12,000,000 12,292,200
Special Facilities Revenue, Texas Medical Center Project, 6.00%, 5/15/20 ................. 7,000,000 7,598,290
Matagorda County Navigation District No. 1 Revenue, Refunding,
Houston Industrial Inc. Project, Series A, MBIA Insured,
5.25%, 11/01/29 ............................................................................. 8,500,000 8,281,720
Midland County Hospital District Revenue, Series 1989,
Pre-Refunded, 8.375%, 6/01/02 ............................................................... 2,000,000 2,042,180
Nueces River Authority, Texas Water Supply
Revenue Facilities, 5.50%, 3/01/27........................................................... 7,500,000 7,716,000
b Port Corpus Christi IDC Revenue, Refunding,
Valero,Series C, 5.40%, 4/01/18 .............................................................. 5,000,000 5,000,000
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 8,627,680
Sabine River Authority, PCR, Refunding, Southwestern
Electric Power, MBIA Insured, 6.10%, 4/01/18................................................. 7,000,000 7,595,140
Sam Rayburn Texas Municipal Power Agency Supply
System Revenue, Refunding,
Series A, 6.50%, 10/01/08................................................................. 380,000 397,510
Series A, 6.75%, 10/01/14................................................................. 12,845,000 13,532,079
Series A, 6.25%, 10/01/17................................................................. 4,660,000 4,750,404
Series B, 5.75%, 10/01/08................................................................. 1,315,000 1,321,141
Series B, 6.125%, 10/01/13................................................................ 4,870,000 4,953,472
Series B, 5.50%, 10/01/20................................................................. 11,180,000 10,746,551
San Antonio Texas Electric and Gas Revenue, Series 95,
MBIA Insured, 5.375%, 2/01/18................................................................ 6,000,000 6,117,420
Tarrant County, Texas Health Facilities Development Corp.,
Health Systems Revenue, Refunding,
Harris Methodist Health, AMBAC Insured, ETM, 5.125%, 9/01/12.............................. 3,000,000 3,064,110
Texas Health Resources System, Series A, MBIA Insured, 5.25%, 2/15/22 .................... 11,650,000 11,670,038
Texas State Refunding, VHA, Series A, 6.15%, 12/01/25 ..................................... 7,430,000 7,858,637
Texas State Water Development Board Revenue, 6.00%, 7/15/13 ............................... 4,000,000 4,281,160
Tomball Texas Hospital Authority Revenue, Refunding, 6.125%, 7/01/23....................... 8,750,000 9,171,925
Tyler Health Facilities Development Corp. Hospital Revenue, 5.60%, 11/01/27 ............... 3,450,000 3,566,196
-------------
251,839,577
-------------
United States Territories .4%
American Samoa EDA, Executive Office Building Revenue, 10.125%, 9/01/08 ................... 2,295,000 2,392,492
Virgin Island Public Finance Authority Revenue, Refunding,
Matching Fund Loan Notes, Series A, 7.25%, 10/01/18 .......................................... 14,000,000 15,797,460
Virgin Islands Water and Power Authority,
Electric System Revenue, Series A, 7.40%, 7/01/11 ........................................ 385,000 416,023
Water Power Revenue, Series B, 7.60%, 1/01/12 ............................................ 4,000,000 4,405,000
-------------
23,010,975
-------------
Utah .8%
Box Elder County PCR, Nucor Corp. Project, 6.90%, 5/15/17 ................................. 2,000,000 2,199,360
Carbon County Solid Waste Disposal Revenue, Refunding,
Laidlaw Environmental, Series A, 7.45%, 7/01/17.............................................. 2,500,000 2,713,050
Davis County Solid Waste Management Energy Recovery Revenue,
Refunding, Special Services District, 6.125%, 6/15/09 ....................................... 16,800,000 17,626,560
Tooele County PCR, Refunding, Laidlaw Environmental,
Series A, 7.55%, 7/01/27...................................................................... 3,500,000 3,822,980
Utah Assessed Municipal Power Systems Revenue,
San Juan Project, 6.375%, 6/01/22 ........................................................... 11,000,000 12,087,460
Utah State HFA, SFM,
Series A, 9.625%, 7/01/00 ................................................................ 30,000 31,112
Series A-2, 9.625%, 7/01/02 .............................................................. 40,000 41,651
Series A-2, 9.45%, 7/01/03 ............................................................... 115,000 120,368
Series B, 9.50%, 7/01/00 ................................................................. 35,000 36,206
Utah (cont.)
Utah State HFA, SFM, (cont.)
Series B, 9.60%, 7/01/00 ................................................................. $ 15,000 $ 15,412
Series B, 9.25%, 7/01/01 ................................................................. 55,000 56,800
Series B-2, 9.50%, 7/01/02 ............................................................... 50,000 51,986
Series B-2, 9.45%, 7/01/03 ............................................................... 145,000 152,644
Series C-1, 9.375%, 7/01/00 .............................................................. 70,000 72,230
Series C-2, 9.05%, 7/01/03 ............................................................... 185,000 195,604
Series D-2, 9.00%, 7/01/03 ............................................................... 370,000 391,186
Series E, 9.50%, 7/01/00 ................................................................. 25,000 25,861
Series E-1, 8.70%, 7/01/03 ............................................................... 385,000 409,059
Series F, 9.60%, 7/01/00 ................................................................. 5,000 5,183
Series G-2, 9.30%, 7/01/00 ............................................................... 30,000 30,560
Sub-Series B-2, 8.70%, 7/01/04 ........................................................... 540,000 574,193
Sub-Series D, 8.45%, 7/01/04 ............................................................. 305,000 320,814
Weber County Municipal Building Authority Lease Revenue,
Refunding, MBIA Insured, 5.75%, 12/15/19..................................................... 5,000,000 5,245,350
-------------
46,225,629
-------------
Virginia .6%
Bedford County IDR, Refunding, Nekoosa
Packaging Corp. Project, 5.60%, 12/01/25 ..................................................... 7,500,000 7,590,600
Hanover County, Virginia IDA Hospital Revenue,
Memorial Regional Medical Center Project, MBIA Insured, 5.50%, 8/15/25 ....................... 14,725,000 15,028,924
Norfolk Water Revenue, AMBAC Insured, 5.375%, 11/01/23..................................... 2,855,000 2,882,408
Virginia State HDA Commonwealth Mortgage, Series D,
Sub Series D-3, 6.125%, 1/01/19 ............................................................. 9,715,000 10,290,517
-------------
35,792,449
-------------
Washington .2%
Pierce County EDR, Occidental Petrol, 5.80%, 9/01/29 ...................................... 4,050,000 4,128,732
Washington State Health Care Facilities Authority Revenue,
Swedish Hospital Medical Center, AMBAC Insured, 6.30%, 11/15/22 ............................ 2,675,000 2,861,153
Washington State Public Power Supply System Revenue,
Refunding, Nuclear Project No. 1, Series C, Pre-Refunded, 8.00%, 7/01/17 .................... 5,000,000 5,532,950
Yakima-Tieton Irrigation District Revenue, Refunding,
Pre-Refunded, 8.40%, 6/01/18 ................................................................ 1,000,000 1,011,360
-------------
13,534,195
-------------
West Virginia .7%
Braxton County, Solid Waste Disposal Revenue,
Weyerhaeuser Co. Project, Refunding, 5.40%, 5/01/25 ......................................... 12,800,000 12,726,784
b West Virginia State, Series A, FGIC Insured, 5.20%, 11/01/26 .............................. 8,600,000 8,587,444
West Virginia State Hospital Finance Authority, Hospital Revenue, 7.25%, 7/01/20 .......... 15,000,000 14,919,000
West Virginia State Water Development Authority Revenue,
Loan Program II, Series A, Pre-Refunded, 8.625%, 11/01/28 ................................ 1,550,000 1,630,058
Loan Program II, Series A, Pre-Refunded, 8.125%, 11/01/29 ................................ 2,790,000 2,925,120
Solid Waste Management, Series C, 8.125%, 8/01/15 ........................................ 2,420,000 2,615,730
-------------
43,404,136
-------------
Wisconsin 1.6%
Wisconsin Central District, Wisconsin Tax Revenue,
Junior Dedicated, Series B, 5.75%, 12/15/27................................................... 12,840,000 13,364,899
Wisconsin Housing EDA, Home Ownership Revenue,
Series C, 6.15%, 9/01/17................................................................. 2,455,000 2,599,109
Series H, 5.75%, 9/01/28................................................................. 2,500,000 2,535,675
Wisconsin State Health and Educational Facilities Authority Revenue,
Aurora Health Care Inc., Refunding, MBIA Insured, 5.25%, 8/15/27 ......................... 25,000,000 24,850,750
Bethany Lutheran Home of La Crosse, 8.75%, 12/01/06 ...................................... 945,000 976,412
Franciscan Health System, Inc. Project, 6.25%, 11/15/20 .................................. 9,510,000 10,320,918
Franciscan Health System, Inc. Project, Pre-Refunded, 8.375%, 3/01/05 .................... 6,000,000 6,617,160
Franciscan Health System, Inc. Project, Pre-Refunded 8.50%, 3/01/20 ...................... 6,000,000 6,631,380
Refunding, Felician Health Care, Series A, AMBAC Insured,
Pre-Refunded, 7.00%, 1/01/15 ................................................................ 5,000,000 5,365,150
Sisters Sorrowful Mother, Series A, MBIA Insured, 5.90%, 8/15/24 ......................... 22,055,000 23,406,310
-------------
96,667,763
-------------
Wyoming .3%
Sweetwater County PCR, Refunding, Idaho Power Co., Series A, 6.05%, 7/15/26................$ 10,500,000 $ 11,268,155
Wyoming CDA, Housing Revenue,
Series 1, 6.15%, 6/01/17.................................................................. 1,000,000 1,066,640
Series 4, 5.85%, 6/01/28 ................................................................. 5,250,000 5,430,863
-------------
17,765,658
-------------
Total Bonds................................................................................ 5,878,803,344
-------------
d Zero Coupon Bonds 3.4%
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 1,476,909
(original accretion rate 6.40%), 6.40% thereafter, 12/01/06............................... 1,685,000 1,472,437
(original accretion rate 6.50%), 6.50% thereafter, 12/01/07............................... 1,750,000 1,541,190
(original accretion rate 6.90%), 6.90% thereafter, 12/01/16............................... 2,500,000 2,217,025
City of Troy, Municipal Assistance Corp., Series C, MBIA Insured, Capital Appreciation,
(original accretion rate 5.71%), 7/15/21 ................................................. 428,010 129,875
(original accretion rate 5.72%), 1/15/22 ................................................. 649,658 192,162
Miami - Dade County Special Obligation, Series B, MBIA Insured, Capital Appreciation,
(original accretion rate 5.63%), 10/01/28 ................................................ 11,860,000 2,285,422
(original accretion rate 5.63%), 10/01/29 ................................................ 20,000,000 3,645,800
(original accretion rate 5.66%), 10/01/32 ................................................ 7,780,000 1,184,349
(original accretion rate 5.66%), 10/01/33 ................................................ 2,000,000 287,940
(original accretion rate 5.66%), 10/01/34 ................................................ 3,895,000 530,343
(original accretion rate 5.66%), 10/01/35 ................................................ 6,765,000 871,061
San Francisco City and County RDA, Lease Revenue, George Moscone Center,
(original accretion rate 7.00%), 7/01/09 ................................................. 3,750,000 2,143,538
(original accretion rate 7.00%), 7/01/10 ................................................. 4,500,000 2,419,065
(original accretion rate 7.05%), 7/01/12 ................................................. 4,500,000 2,141,910
(original accretion rate 7.05%), 7/01/13 ................................................. 4,250,000 1,906,465
(original accretion rate 7.05%), 7/01/14 ................................................. 2,250,000 957,870
San Joaquin Hills Transportation, Corridor Agency Toll Road Revenue, Junior Lien,
(original accretion rate 8.50%), ETM, 1/01/04 ............................................ 7,400,000 5,775,700
(original accretion rate 8.50%), ETM, 1/01/05 ............................................ 8,000,000 5,963,920
(original accretion rate 8.50%), ETM, 1/01/06 ............................................ 9,000,000 6,402,240
(original accretion rate 8.50%), ETM, 1/01/07 ............................................ 9,400,000 6,374,422
(original accretion rate 8.50%), ETM, 1/01/08 ............................................ 10,400,000 6,716,528
(original accretion rate 8.75%), ETM, 1/01/09 ............................................ 21,900,000 13,385,499
(original accretion rate 8.75%), ETM, 1/01/10 ............................................ 15,000,000 8,540,700
(original accretion rate 8.75%), ETM, 1/01/12 ............................................ 30,100,000 15,310,064
(original accretion rate 9.00%), ETM, 1/01/24 ............................................ 52,700,000 14,138,883
(original accretion rate 9.00%), ETM, 1/01/25 ............................................ 45,200,000 11,524,192
(original accretion rate 9.00%), ETM, 1/01/26 ............................................ 131,900,000 31,959,370
(original accretion rate 9.00%), ETM, 1/01/27 ............................................ 139,100,000 32,029,166
Refunding, Series A (original accretion rate 5.75%), 1/15/23 ............................ 20,000,000 12,959,600
Refunding Series A (original accretion rate 5.75%), 1/15/24 .............................. 20,000,000 12,799,000
-------------
Total Zero Coupon Bonds ................................................................... 209,282,645
-------------
Total Long Term Investments (Cost $5,637,488,403) ......................................... 6,088,085,989
-------------
a Short Term Investments .8%
Bradley County Tennessee IDB, Industrial Revenue, Refunding,
Olin Corp. Project, Series C, Daily VRDN and Put, 3.60%, 11/01/17............................. 500,000 500,000
Irvine Ranch California Water District Dates Conservation Bids,
Series B, Daily VRDN and Put, 3.65%, 10/01/05................................................. 7,000,000 7,000,000
Louisiana State Offshore Term Authority, Deepwater Port Revenue,
ACES, Refunding, Loop Inc., 1st Stage, Daily VRDN and Put,
3.65%, 9/01/06 ............................................................................. 7,600,000 7,600,000
Maricopa County IDA Hospital Revenue, Samaritan Health Service,
MBIA Insured, Daily VRDN and Put, 3.65%, 12/01/08 ............................................ 2,000,000 2,000,000
Massachusetts State Health and Educational Facilities Authority Revenue,
Capital Asset Program, Series E, Daily VRDN and Put,
3.60%, 1/01/35............................................................................... 1,500,000 1,500,000
New York City, Series B, Sub Series B-3 MBIA Insured, Daily
VRDN and Put, 3.65%, 8/15/04 ................................................................ 7,900,000 7,900,000
New York State Local Government Assistance Corp., Series F,
Weekly VRDN and Put, 3.15%,4/01/25........................................................... $ 6,500,000 $ 6,500,000
North Carolina Medical Care Community Hospital Revenue, ACES,
Pooled financing Project, Series B, Daily VRDN and Put,
3.65%, 10/01/13 ............................................................................ 600,000 600,000
Perry County Mississippi PCR, Refunding, Leaf River Forest Project,
Daily VRDN and Put, 3.65%, 3/01/02 ........................................................... 9,300,000 9,300,000
Stevenson Alabama IDB, Environmental Improvement Revenue,
The Mead Corp. Project, Daily VRDN and Put, 3.70%, 6/01/32................................... 7,500,000 7,500,000
-------------
Total Short Term Investments (Cost $50,400,000)............................................ 50,400,000
-------------
Total Investments (Cost $5,687,888,403) 99.6% ............................................. 6,138,485,989
Other Assets, less Liabilities .4% ........................................................ 27,716,832
-------------
Net Assets 100.0%.......................................................................... $6,166,202,821
=============
</TABLE>
See glossary of terms on page 141.
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, February 28, 1998
Glossary of Terms
1915 Act- Improvement Bond Act of 1915
ABAG - The Association of Bay Area Governments
ACES - Adjustable Convertible Exempt Securities
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 Authority/Agency
CDD - Community Development District
CFD - Community Facilities District
COP - Certificate of Participation
CRDA - Community Redevelopment Authority/Agency
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
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
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
IDB - Industrial Development Board
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
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Agency
RDAR - Redevelopment Agency Revenue
RMR - Residential Mortgage Revenue
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
USD - Unified School District
VHA - Volunteer Hospital of America
VRDN - Variable Rate Demand Notes
FRANKLIN TAX-FREE TRUST
Financial Statements
Statements of Assets and Liabilities
February 28, 1998
<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>
Assets:
Investments in securities:
Cost...................................... $768,637,732 $254,345,593 $195,295,454 $50,217,152 $8,702,208
===========================================================================
Value..................................... 823,128,828 273,332,908 210,340,326 54,043,777 9,196,077
Cash....................................... 489,855 353,608 677,050 118,667 127,851
Receivables:
Investment securities sold ................. 313,020 126,546 -- -- --
Capital shares sold ........................ 440,482 52,828 94,283 55,542 73,825
Interest.................................... 9,924,568 4,649,112 3,157,531 602,129 126,822
Affiliates.................................. -- -- -- -- 8,031
Other assets............................... -- -- -- -- 993
---------------------------------------------------------------------------
Total assets................................ 834,296,753 278,515,002 214,269,190 54,820,115 9,533,599
---------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased............. 6,731,601 -- 1,231,285 -- 248,594
Capital shares redeemed..................... 393,176 61,961 94,991 25,000 --
Affiliates.................................. 473,716 191,855 151,033 38,412 --
Shareholders................................ 725,378 412,392 240,107 38,338 2,381
Distributions to shareholders.............. 1,155,789 381,004 261,472 68,306 12,584
Other liabilities ......................... 30,216 13,496 11,168 6,830 2,448
---------------------------------------------------------------------------
Total liabilities........................... 9,509,876 1,060,708 1,990,056 176,886 266,007
---------------------------------------------------------------------------
Net assets, at value....................... $824,786,877 $277,454,294 $ 212,279,134 $54,643,229 $9,267,592
===========================================================================
Net assets consist of:
Undistributed net investment income........ $-- $ 121,387 $-- $ 95,452 $ 43,531
Accumulated distributions in excess
of net investment income................... (599,453) -- (93,984) -- --
Net unrealized appreciation................ 54,491,096 18,987,315 15,044,872 3,826,625 493,869
Accumulated net realized gain (loss)....... 2,559,586 1,188,722 (4,189,478) 60,372 21,364
Capital shares............................. 768,335,648 257,156,870 201,517,724 50,660,780 8,708,828
---------------------------------------------------------------------------
Net assets, at value....................... $824,786,877 $277,454,294 $212,279,134 $54,643,229 $9,267,592
===========================================================================
Class I:
Net assets, at value....................... $810,249,831 $266,599,034 $203,643,017 $54,643,229 $9,267,592
===========================================================================
Shares outstanding ........................ 70,818,846 22,006,468 18,135,881 4,526,785 841,149
===========================================================================
Net asset value per share*................. $11.44 $12.11 $11.23 $12.07 $11.02
===========================================================================
Maximum offering price per share
(net asset value per share O 95.75%)...... $11.95 $12.65 $11.73 $12.61 $11.51
===========================================================================
Class II:
Net assets, at value....................... $ 14,537,046 $ 10,855,260 $ 8,636,117 -- --
===========================================================================
Shares outstanding......................... 1,263,353 892,230 767,289 -- --
===========================================================================
Net asset value per share*................. $11.51 $12.17 $11.26 -- --
===========================================================================
Maximum offering price per share
(net asset value per share O 99.00%)...... $11.63 $12.29 $11.37 -- --
===========================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
February 28, 1998
<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 ...............................$614,251,934 $431,295,544 $687,767,242 $195,112,122 $146,402,048 $5,687,888,403
=======================================================================================
Value............................... 658,319,244 460,625,006 736,891,565 210,029,879 152,941,031 6,138,485,989
Cash............................... 2,081,433 2,295,155 644,039 2,810,747 347,978 13,108,457
Receivables:
Investment securities sold ......... 7,966,200 2,580,956 10,000 -- -- 6,579,140
Capital shares sold ................ 1,689,938 577,297 464,321 91,703 349,056 12,366,025
Interest............................ 9,399,786 6,246,055 13,036,734 3,176,578 1,915,729 98,510,999
---------------------------------------------------------------------------------------
Total assets........................ 679,456,601 472,324,469 751,046,659 216,108,907 155,553,794 6,269,050,610
---------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased..... 12,324,152 28,091,288 9,196,059 1,432,368 14,916,430 80,964,719
Capital shares redeemed............. 73,747 74,989 177,190 72,600 710,780 2,998,229
Affiliates.......................... 429,661 282,927 463,793 144,320 93,616 3,829,542
Shareholders........................ 715,820 331,789 1,086,124 208,429 98,602 6,497,468
Distributions to shareholders...... 818,830 549,795 1,050,257 292,088 173,878 8,344,004
Other liabilities ................. 26,643 25,036 32,732 19,366 15,543 213,827
Total liabilities................... 14,388,853 29,355,824 12,006,155 2,169,171 16,008,849 102,847,789
Net assets, at value...............$665,067,748 $442,968,645 $739,040,504 $213,939,736 $139,544,945 $6,166,202,821
=======================================================================================
Net assets consist of:
Undistributed net
investment income.................. $ 652,607 $ 1,451,796 $-- $-- $ 164,161 $--
Accumulated distributions in excess of
net investment income.............. -- -- (396,549) (47,259) -- (4,517,342)
Net unrealized appreciation........ 44,067,310 29,329,462 49,124,323 14,917,757 6,538,983 450,597,586
Accumulated net
realized gain (loss) .............. (395,880) (1,781,340) (18,067) 165,192 (1,261,877) (10,929,422)
Capital shares..................... 620,743,711 413,968,727 690,330,797 198,904,046 134,103,678 5,731,051,999
Net assets, at value...............$665,067,748 $442,968,645 $739,040,504 $213,939,736 $139,544,945 $6,166,202,821
=======================================================================================
Class I:
Net assets, at value...............$636,926,021 $427,022,416 $713,141,350 $210,324,581 $139,544,945 $5,742,938,571
=======================================================================================
Shares outstanding................. 53,422,807 36,020,329 67,536,025 17,732,666 12,400,498 491,518,335
=======================================================================================
Net asset value per share*......... $11.92 $11.86 $10.56 $11.86 $11.25 $11.68
=======================================================================================
Maximum offering price per share
(net asset value
per share O 95.75%)................ $12.45 $12.39 $11.03 $12.39 $11.51** $12.20
=======================================================================================
Class II:
Net assets, at value...............$ 28,138,727 $ 15,946,229 $ 25,899,154 $ 3,615,155 -- $ 423,264,250
=======================================================================================
Shares outstanding................. 2,349,198 1,337,390 2,442,080 304,525 -- 36,010,695
=======================================================================================
Net asset value per share*......... $11.98 $11.92 $10.61 $11.87 -- $11.75
=======================================================================================
Maximum offering price per share
(net asset value
per share O 99.00%)................ $12.10 $12.04 $10.72 $11.99 -- $11.87
=======================================================================================
</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 $11.25 O 97.75%.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations
for the year ended February 28, 1998
<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
Investment income:
<S> <C> <C> <C> <C> <C>
Interest......................................... $47,348,723 $15,644,681 $12,246,370 $3,308,465 $385,838
-------------------------------------------------------------------
Expenses:
Management fees (Note 3)......................... 3,799,811 1,432,605 1,126,660 330,541 44,302
Distribution fees (Note 3)
Class I......................................... 659,294 221,763 177,204 45,596 7,090
Class II ....................................... 58,951 52,233 39,474 -- --
Transfer agent fees (Note 3) .................... 235,272 107,508 81,425 30,912 3,121
Custodian fees................................... 8,232 2,706 2,180 591 73
Reports to shareholders.......................... 134,544 42,007 36,756 13,324 1,177
Registration and filing fees..................... 13,482 9,589 9,892 788 5,093
Professional fees................................ 18,708 7,378 8,413 2,250 1,113
Trustees' fees and expenses ..................... 8,544 2,854 2,183 599 15
Amortization of offering costs (Note 1).......... -- -- -- -- 4,229
Other............................................ 42,830 14,622 10,859 8,378 3,187
-------------------------------------------------------------------
Total expenses.................................... 4,979,668 1,893,265 1,495,046 432,979 69,400
Expenses waived/paid by affiliate (Note 3)........ -- -- -- -- (52,333)
Net expenses...................................... 4,979,668 1,893,265 1,495,046 432,979 17,067
-------------------------------------------------------------------
Net investment income ........................... 42,369,055 13,751,416 10,751,324 2,875,486 368,771
-------------------------------------------------------------------
Realized and unrealized gains:
Net realized gain from investments............... 7,063,992 3,599,269 2,330,741 578,277 21,364
Net unrealized appreciation on investments....... 12,652,846 5,186,539 3,355,147 886,955 425,437
-------------------------------------------------------------------
Net realized and unrealized gain ................. 19,716,838 8,785,808 5,685,888 1,465,232 446,801
-------------------------------------------------------------------
Net increase in net assets
resulting from operations......................... $62,085,893 $22,537,224 $16,437,212 $4,340,718 $815,572
===================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations (cont.)
for the year ended February 28, 1998
<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
Investment income:
<S> <C> <C> <C> <C> <C> <C>
Interest............................ $37,464,185 $24,806,305 $43,059,029 $12,284,332 $6,542,250 $347,062,083
----------------------------------------------------------------------------------
Expenses:
Management fees (Note 3)............ 3,074,915 2,119,137 3,414,301 1,137,320 718,091 24,164,691
Distribution fees (Note 3)
Class I............................ 532,957 350,230 595,541 169,728 117,410 4,011,306
Class II .......................... 134,470 70,678 117,650 16,131 -- 1,928,863
Transfer agent fees (Note 3)........ 284,187 152,699 329,104 113,527 47,336 2,097,896
Custodian fees...................... 6,664 4,286 7,356 2,153 1,325 57,967
Reports to shareholders............. 125,921 72,063 152,705 45,397 16,078 839,490
Registration and filing fees........ 8,910 2,970 11,639 25,303 42,063 626,855
Professional fees................... 16,475 11,637 17,606 4,990 3,669 140,093
Trustees' fees and expenses ........ 6,786 4,507 7,638 2,220 1,157 56,195
Other............................... 28,656 33,424 34,440 11,381 18,089 145,187
----------------------------------------------------------------------------------
Total expenses..................... 4,219,941 2,821,631 4,687,980 1,528,150 965,218 34,068,543
Expenses waived/paid by
affiliate (Note 3) -- -- -- -- (89,976) --
----------------------------------------------------------------------------------
Net expenses......................... 4,219,941 2,821,631 4,687,980 1,528,150 875,242 34,068,543
----------------------------------------------------------------------------------
Net investment income .............. 33,244,244 21,984,674 38,371,049 10,756,182 5,667,008 312,993,540
----------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments 2,902,623 3,490,454 6,524,504 166,654 (95,778) 37,029,261
Net unrealized appreciation
on investments ...................... 14,172,961 7,488,709 15,000,707 6,082,031 3,620,765 187,205,403
----------------------------------------------------------------------------------
Net realized and unrealized gain..... 17,075,584 10,979,163 21,525,211 6,248,685 3,524,987 224,234,664
----------------------------------------------------------------------------------
Net increase in net assets resulting
from operations..................... $50,319,828 $32,963,837 $59,896,260 $17,004,867 $9,191,995 $537,228,204
==================================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the years ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
Franklin Arizona Franklin Colorado Franklin Connecticut
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
1998 1997 1998 1997 1998 1997
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income.. $42,369,055 $41,897,411 $13,751,416 $12,630,944 $10,751,324 $9,915,351
Net realized gain (loss)
from investments........ 7,063,992 2,134,164 3,599,269 947,229 2,330,741 (367,976)
Net unrealized appreciation
(depreciation) on
investments............ 12,652,846 (4,443,512) 5,186,539 (1,527,211) 3,355,147 244,537
---------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations......... 62,085,893 39,588,063 22,537,224 12,050,962 16,437,212 9,791,912
Distributions to
shareholders from:
Net investment income:
Class I.................. (42,092,588) (42,443,851) (13,602,062) (12,524,223) (10,477,972) (9,979,953)
Class II................. (439,780) (182,399) (381,635) (173,036) (293,150) (150,117)
In excess of net investment
income:
Class I................. (598,203) -- -- -- (91,006) --
Class II................ (1,250) -- -- -- (2,978) --
Net realized gains:
Class I.................. (5,215,511) (3,059,354) (1,419,602) -- -- --
Class II................. (69,925) (16,297) (51,742) -- -- --
---------------------------------------------------------------------------------------------
Total distributions to
shareholders............. (48,417,257) (45,701,901) (15,455,041) (12,697,259) (10,865,106) (10,130,070)
Capital share transactions
(Note 2):
Class I................. 44,417,210 7,663,191 23,138,001 21,676,316 14,607,058 16,956,345
Class II................ 8,880,489 3,581,489 4,971,534 3,967,572 4,302,474 2,478,532
---------------------------------------------------------------------------------------------
Total capital share
transactions............. 53,297,699 11,244,680 28,109,535 25,643,888 18,909,532 19,434,877
Net increase in
net assets.............. 66,966,335 5,130,842 35,191,718 24,997,591 24,481,638 19,096,719
Net assets:
Beginning of year....... 757,820,542 752,689,700 242,262,576 217,264,985 187,797,496 168,700,777
---------------------------------------------------------------------------------------------
End of year............. $824,786,877 $757,820,542 $277,454,294 $242,262,576 $212,279,134 $187,797,496
---------------------------------------------------------------------------------------------
Undistributed net investment
income (accumulated distribu-
tion in excess of net investment
income) included in net assets:
End of year.............. $ (599,453) $ 163,313 $ 121,387 $ 353,668 $ (93,984) $ 19,798
=============================================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the years ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
Franklin Indiana Franklin Michigan Franklin New Jersey
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
1998 1997 1998 1997* 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.... $ 2,875,486 $ 2,832,470 $ 368,771 $ 100,332 $ 33,244,244 $ 31,823,180
Net realized gain from
investments........... 578,277 451,723 21,364 3,604 2,902,623 2,380,405
Net unrealized appreciation
(depreciation) on
investments............. 886,955 (363,352) 425,437 68,432 14,172,961 (5,332,217)
--------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations......... 4,340,718 2,920,841 815,572 172,368 50,319,828 28,871,368
Distributions to
shareholders from:
Net investment income:
Class I.................. (2,896,065) (2,822,030) (370,383) (62,277) (32,627,862) (31,578,177)
Class II................. -- -- -- -- (995,986) (413,207)
Net realized gains:
Class I.................. (97,364) -- -- -- -- --
--------------------------------------------------------------------------------------------
Total distributions to
shareholders............. (2,993,429) (2,822,030) (370,383) (62,277) (33,623,848) (31,991,384)
Capital share transactions
(Note 2):
Class I................. 2,158,623 2,089,230 4,938,273 3,774,039 46,163,845 12,995,401
Class II................ -- -- -- -- 14,421,458 8,505,683
--------------------------------------------------------------------------------------------
Total capital share
transactions........... 2,158,623 2,089,230 4,938,273 3,774,039 60,585,303 21,501,084
Net increase in
net assets.............. 3,505,912 2,188,041 5,383,462 3,884,130 77,281,283 18,381,068
Net assets:
Beginning of year....... 51,137,317 48,949,276 3,884,130 -- 587,786,465 569,405,397
--------------------------------------------------------------------------------------------
End of year............. $54,643,229 $51,137,317 $9,267,592 $3,884,130 $665,067,748 $587,786,465
============================================================================================
Undistributed net investment
income included in net assets:
End of year.............. $ 95,452 $ 116,031 $ 43,531 $ 38,055 $ 652,607 $ 1,032,211
============================================================================================
</TABLE>
*For the period July 1, 1996 (effective date) to February 28,1997.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the years ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
Franklin Oregon Franklin Pennsylvania Franklin Puerto Rico
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.... $ 21,984,674 $ 20,962,424 $ 38,371,049 $ 37,938,588 $ 10,756,182 $ 10,748,114
Net realized gain (loss)
from investments........ 3,490,454 (67,453) 6,524,504 5,857,039 166,654 2,031,659
Net unrealized appreciation
(depreciation) on
investments............. 7,488,709 (1,899,285) 15,000,707 (8,671,626) 6,082,031 (1,447,567)
--------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations......... 32,963,837 18,995,686 59,896,260 35,124,001 17,004,867 11,332,206
Distributions to
shareholders from:
Net investment income:
Class I.................. (21,486,828) (20,472,473) (37,844,881) (37,722,774) (10,578,866) (10,680,927)
Class II................. (516,221) (200,164) (900,095) (374,193) (117,117) (52,013)
In excess of net investment
income:
Class I................. -- -- (393,721) -- -- (107,458)
Class II................ -- -- (2,828) -- -- --
Net realized gains:
Class I.................. -- -- (9,091,610) -- (237,542) (1,706,390)
Class II................. -- -- (252,851) -- (2,435) (13,384)
--------------------------------------------------------------------------------------------
Total distributions
to shareholders.......... (22,003,049) (20,672,637) (48,485,986) (38,096,967) (10,935,960) (12,560,172)
Capital share transactions
(Note 2):
Class I............... 32,371,580 10,295,368 43,708,763 21,520,820 11,808,017 3,175,600
Class II.............. 8,533,540 5,025,416 13,647,815 8,769,287 1,858,374 1,146,899
--------------------------------------------------------------------------------------------
Total capital share
transactions............. 40,905,120 15,320,784 57,356,578 30,290,107 13,666,391 4,322,499
Net increase in
net assets............. 51,865,908 13,643,833 68,766,852 27,317,141 19,735,298 3,094,533
Net assets:
Beginning of year....... 391,102,737 377,458,904 670,273,652 642,956,511 194,204,438 191,109,905
--------------------------------------------------------------------------------------------
End of year............. $442,968,645 $391,102,737 $739,040,504 $670,273,652 $213,939,736 $194,204,438
============================================================================================
Undistributed net investment
income (accumulated distribu-
tion in excess of net investment
income) included in net assets:
End of year.............. $ 1,451,796 $ 1,470,171 $ (396,549) $ 373,927 $ (47,259) $ (107,458)
============================================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the years ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
Franklin
Federal Intermediate-Term Franklin High Yield
Tax-Free Income Fund Tax-Free Income Fund
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 5,667,008 $ 4,814,011 $ 312,993,540 $ 266,294,299
Net realized gain (loss) from investments............. (95,778) (99,478) 37,029,261 (1,562,428)
Net unrealized appreciation on investments............ 3,620,765 157,409 187,205,403 23,745,558
-------------------------------------------------------------
Net increase in net assets resulting from operations.... 9,191,995 4,871,942 537,228,204 288,477,429
Distributions to shareholders from:
Net investment income:
Class I................................................ (5,768,367) (4,748,392) (293,671,375) (263,983,718)
Class II .............................................. -- -- (16,003,246) (6,203,344)
In excess of net investment income:
Class I................................................ -- -- (4,570,398) (3,211,797)
Class II .............................................. -- -- -- (54,066)
-------------------------------------------------------------
Total distributions to shareholders.................... (5,768,367) (4,748,392) (314,245,019) (273,452,925)
Capital share transactions (Note 2):
Class I............................................... 31,406,147 18,624,135 1,028,368,708 704,755,425
Class II.............................................. -- -- 215,193,396 144,567,654
-------------------------------------------------------------
Total capital share transactions ...................... 31,406,147 18,624,135 1,243,562,104 849,323,079
Net increase in net assets.............................. 34,829,775 18,747,685 1,466,545,289 864,347,583
Net assets:
Beginning of year...................................... 104,715,170 85,967,485 4,699,657,532 3,835,309,949
-------------------------------------------------------------
End of year............................................ $139,544,945 $104,715,170 $6,166,202,821$4,699,657,532
=============================================================
Undistributed net investment income
(accumulated distribution in excess of net
investment income) included in net assets:
End of year........................................... $ 164,161 $ 265,520 $ (4,517,342) $ (3,265,863)
=============================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements
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 (the Funds). All Funds included in this report 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 price, 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. Offering Costs
Offering costs are amortized on a straight-line basis over twelve months.
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. SHARES OF BENEFICIAL INTEREST
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. SHARES OF BENEFICIAL INTEREST (cont.)
At February 28, 1998, 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>
1998
Shares sold............. 10,989,623 $124,544,786 4,200,877 $49,956,273 3,158,359 $34,854,687
Shares issued in reinvestment
of distributions....... 1,709,572 19,390,926 602,905 7,203,365 434,591 4,800,239
Shares redeemed......... (8,792,791) (99,518,502) (2,852,691) (34,021,637) (2,268,367) (25,047,868)
-------------------------------------------------------------------------------------------
Net increase............. 3,906,404 $ 44,417,210 1,951,091 $23,138,001 1,324,583 $14,607,058
===========================================================================================
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:
1998
Shares sold............. 944,093 $ 10,786,657 465,522 $ 5,579,219 471,457 $ 5,230,031
Shares issued in reinvestment
of distributions....... 29,661 338,868 26,102 313,854 15,933 176,704
Shares redeemed......... (196,079) (2,245,036) (76,937) (921,539) (99,234) (1,104,261)
-------------------------------------------------------------------------------------------
Net increase............. 777,675 $ 8,880,489 414,687 $ 4,971,534 388,156 $ 4,302,474
===========================================================================================
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
<S> <C> <C> <C> <C> <C> <C>
1998
Shares sold............. 579,644 $6,873,674 551,576 $5,829,785 8,712,865 $102,237,548
Shares issued in reinvestment
of distributions......... 134,539 1,599,765 23,331 248,616 1,409,016 16,532,393
Shares redeemed......... (531,972) (6,314,816) (106,557) (1,140,128) (6,187,043) (72,606,096)
-------------------------------------------------------------------------------------------
Net increase............. 182,211 $2,158,623 468,350 $4,938,273 3,934,838 $ 46,163,845
===========================================================================================
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
===========================================================================================
*For the period July 1, 1996 (effective date) to February 28, 1997 for the
Franklin Michigan Tax-Free Income Fund.
2. SHARES OF BENEFICIAL INTEREST (cont.)
Franklin New Jersey
Tax-Free Income Fund
Class II Shares: Shares Amount
1998
<S> <C> <C>
Shares sold.............................................................................. 1,400,159 $ 16,481,996
Shares issued in reinvestment of distributions........................................... 58,051 685,807
Shares redeemed.......................................................................... (232,294) (2,746,345)
-------------------------
Net increase.............................................................................. 1,225,916 $ 14,421,458
=========================
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
1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold............. 5,268,610 $61,496,989 9,004,492 $94,158,052 2,415,410 $28,143,369
Shares issued in reinvestment
of distributions....... 1,035,752 12,096,370 2,121,558 22,217,555 447,385 5,214,315
Shares redeemed......... (3,535,934) (41,221,779) (6,956,391) (72,666,844) (1,854,307) (21,549,667)
-------------------------------------------------------------------------------------------
Net increase............. 2,768,428 $32,371,580 4,169,659 $43,708,763 1,008,488 $11,808,017
===========================================================================================
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:
1998
Shares sold............. 784,427 $ 9,219,159 1,410,008 $14,834,384 194,122 $ 2,272,453
Shares issued in reinvestment
of distributions....... 31,773 373,918 73,526 774,170 5,468 63,947
Shares redeemed......... (90,512) (1,059,537) (186,019) (1,960,739) (40,740) (478,026)
-------------------------------------------------------------------------------------------
Net increase............. 725,688 $ 8,533,540 1,297,515 $13,647,815 158,850 $ 1,858,374
===========================================================================================
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. SHARES OF BENEFICIAL INTEREST (cont.)
Franklin
Federal Intermediate-Term Franklin High Yield
Tax-Free Income Fund Tax-Free Income Fund
Class I Shares: Shares Amount Shares Amount
1998
<S> <C> <C> <C>
Shares sold............................................. 7,621,870 $84,314,187 131,051,149$1,501,048,680
Shares issued in reinvestment of distributions.......... 314,345 3,475,067 10,564,487 120,432,053
Shares redeemed......................................... (5,106,923) (56,383,107) (52,168,755)(593,112,025)
-----------------------------------------------------------
Net increase............................................. 2,829,292 $31,406,147 89,446,881$1,028,368,708
===========================================================
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:
1998
<S> <C> <C>
Shares sold.............................................................................. 20,703,147$ 237,559,146
Shares issued in reinvestment of distributions........................................... 787,176 9,048,976
Shares redeemed.......................................................................... (2,737,903) (31,414,726)
---------------------------
Net increase.............................................................................. 18,752,420$ 215,193,396
===========================
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
===========================
</TABLE>
3. 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 Fund's investment managers, principal
underwriter, administrative manager and transfer agent, respectively.
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
.625% First $100 million
.50% Over $100 million, up to and including $250 million
.45% In excess of $250 million
Under agreements with Investment Advisory and Advisers, FT Services provides
administrative services to the Funds. The fee is paid by Investment Advisory and
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 Michigan Tax-Free Income Fund and the Franklin Federal
Intermediate-Term Tax-Free Income Fund, as noted in the Statement of Operations.
3. TRANSACTIONS WITH AFFILIATES (cont.)
The Funds reimburse Distributors up to .10% and .65% per year of their average
daily net asset 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 year 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) ...... $(67,975) $(55,200) $18,635 $12,455 $(3,257) $(40,661)
Contingent deferred sales charges..... $ 5,073 $ 2,658 $ 2,066 $-- $-- $10,997
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>
Net commissions received (paid) .................... $(55,568) $11,385 $6,153 $(44,182) $(2,980,498)
Contingent deferred sales charges................... $ 4,656 $ 5,534 $1,587 $-- $ 114,622
</TABLE>
The Funds paid transfer agent fees of $3,482,987, of which $3,136,888 was paid
to Investor Services.
4. INCOME TAXES
At February 28, 1998, the Funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin Federal Franklin
Connecticut New Jersey Oregon Intermediate- High Yield
Tax-Free Tax-Free Tax-Free Term Tax-Free Tax-Free
Income Fund Income FundIncome Fund Income Fund Income Fund
Capital loss carryovers expiring in:
<S> <C> <C> <C> <C> <C>
2003 .................................................. $3,794,309 $395,880 $1,713,887 -- $ 9,157,432
2004 .................................................. 46,957 -- -- $1,066,621 --
2005 .................................................. 322,502 -- 67,453 99,478 1,567,803
2006................................................... -- -- -- 95,778 --
-------------------------------------------------------------
$4,163,768 $395,880 $1,781,340 $1,261,877 $10,725,235
=============================================================
</TABLE>
At February 28, 1998, the Franklin Pennsylvania Tax-Free Income Fund has
deferred capital losses occurring subsequent to October 31, 1997 of $10,210. For
tax purposes, such losses will be reflected in the year ending February 28,
1999.
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.
At February 28, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes was 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>
Investments at cost.................. $768,641,514 $254,346,481 $195,321,164 $50,217,152 $8,702,208 $614,251,934
================================================================================
Unrealized appreciation.............. $ 54,767,763 $ 18,987,175 $ 15,022,702 $ 3,826,625 $ 506,672 $ 44,190,864
Unrealized depreciation.............. (280,449) (748) (3,540) -- (12,803) (123,554)
--------------------------------------------------------------------------------
Net unrealized appreciation.......... $ 54,487,314 $ 18,986,427 $ 15,019,162 $ 3,826,625 $ 493,869 $ 44,067,310
================================================================================
4. INCOME TAXES (cont.)
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>
Investments at cost .............................. $431,295,544 $687,777,941 $195,112,122 $146,402,048$5,688,092,590
===================================================================
Unrealized appreciation........................... $ 29,518,936 $ 49,238,494 $ 14,946,817 $ 6,883,620$ 465,452,579
Unrealized depreciation........................... (189,474) (124,870) (29,060) (344,637) (15,059,180)
-------------------------------------------------------------------
Net unrealized appreciation....................... $ 29,329,462 $ 49,113,624 $ 14,917,757 $ 6,538,983$ 450,393,399
===================================================================
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended February 28, 1998 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 ........................... $207,866,442 $77,287,233 $56,388,762 $14,323,626 $8,036,786 $138,006,590
Sales ............................... $155,515,861 $58,968,865 $36,267,149 $12,469,321 $3,469,499 $ 78,421,450
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>
Purchases ........................................ $100,482,712 $144,225,886 $30,333,625 $66,427,546$2,060,485,254
Sales............................................. $ 49,607,139 $ 87,779,966 $15,745,730 $27,080,410$ 822,582,626
</TABLE>
6. CREDIT RISK
The Franklin High Yield Tax-Free Income Fund has 29.2% 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 because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. At
February 28, 1998, 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 $1,092,000 and $21,060,000 representing .78% and .34%,
respectively, of the funds' net assets. For information as to specific
securities, see the accompanying Statement of Investments.
For financial reporting purposes, the Funds discontinue accruing income on
defaulted bonds and provide an estimate for losses on interest receivable.
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.
FRANKLIN TAX-FREE TRUST
Independent Auditors' Report
To the Shareholders and Board of Trustees
of Franklin Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities of each of
the twenty-eight Funds comprising the Franklin Tax-Free Trust (eleven of which
are included in this report), including each Fund's statement of investments, as
of February 28, 1998, and the related statements of operations, the statements
of changes in net assets, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1998, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds comprising the Franklin Tax-Free Trust, as of February 28, 1998,
the results of their operations, the changes in their net assets, and their
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
April 3, 1998
FRANKLIN TAX-FREE TRUST
Tax Information
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended February 28, 1998:
<TABLE>
<CAPTION>
Capital Gains
28% Rate Gain 20% Rate Gain Total
<S> <C> <C> <C>
Franklin Arizona Tax-Free Income Fund....... $-- $7,038,123 $7,038,123
Franklin Colorado Tax-Free Income Fund ..... -- 2,612,926 2,612,926
Franklin Indiana Tax-Free Income Fund....... -- 103,062 103,062
Franklin Michigan Tax-Free Income Fund ..... 4,477 -- 4,477
Franklin Pennsylvania Tax-Free Income Fund . 198,054 6,347,359 6,545,413
Franklin Puerto Rico Tax-Free Income Fund... -- 28,399 28,399
</TABLE>
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Funds hereby
designate 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 28, 1998.
Franklin Tax-Free Trust (3)
Annual Report
February 28, 1998.
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 credit quality breakdown of the Franklin
Arizona Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 50.3%
AA 18.2%
A 11.0%
BBB 20.5%
GRAPHIC MATERIAL (2)
This chart shows in bar format the comparison between Franklin Arizona
Tax-Free Income Fund's Class I distribution rate of 5.02% and the taxable
equivalent rate of 8.76% on 2/28/98.
GRAPHIC MATERIAL (3)
The following line graph compares the performance of the Franklin Arizona
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
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Fund No. 0126 Inception 9/1/87
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Date Franklin Arizona Tax-Free Lehman Brothers CPI
Income Municipal
Fund-Class I Bond Index
- -------------------------------------------------------------------------------
3/1/88 $9,577 $10,000 $10,000
3/31/88 $9,384 -1.16% $9,884 0.43% $10,043
4/30/88 $9,412 0.76% $9,959 0.52% $10,095
5/31/88 $9,449 -0.29% $9,930 0.34% $10,130
6/30/88 $9,627 1.46% $10,075 0.43% $10,173
7/31/88 $9,628 0.65% $10,141 0.42% $10,216
8/31/88 $9,669 0.09% $10,150 0.42% $10,259
9/30/88 $9,874 1.81% $10,334 0.67% $10,327
10/31/88 $10,099 1.76% $10,515 0.33% $10,362
11/30/88 $10,008 -0.92% $10,419 0.08% $10,370
12/31/88 $10,148 1.02% $10,525 0.17% $10,387
1/31/89 $10,358 2.07% $10,743 0.50% $10,439
2/28/89 $10,264 -1.14% $10,620 0.41% $10,482
3/31/89 $10,238 -0.24% $10,595 0.58% $10,543
4/30/89 $10,472 2.37% $10,846 0.65% $10,612
5/31/89 $10,696 2.08% $11,072 0.57% $10,672
6/30/89 $10,832 1.36% $11,222 0.24% $10,698
7/31/89 $10,927 1.36% $11,375 0.24% $10,723
8/31/89 $10,850 -0.98% $11,263 0.16% $10,740
9/30/89 $10,792 -0.30% $11,229 0.32% $10,775
10/31/89 $10,889 1.22% $11,366 0.48% $10,827
11/30/89 $11,049 1.75% $11,565 0.24% $10,853
12/31/89 $11,137 0.82% $11,660 0.16% $10,870
1/31/90 $11,057 -0.47% $11,605 1.03% $10,982
2/28/90 $11,189 0.89% $11,709 0.47% $11,033
3/31/90 $11,193 0.03% $11,712 0.55% $11,094
4/30/90 $11,132 -0.72% $11,628 0.16% $11,112
5/31/90 $11,363 2.18% $11,881 0.23% $11,137
6/30/90 $11,476 0.88% $11,986 0.54% $11,198
7/31/90 $11,667 1.48% $12,163 0.38% $11,240
8/31/90 $11,363 -1.45% $11,987 0.92% $11,344
9/30/90 $11,356 0.06% $11,994 0.84% $11,439
10/31/90 $11,528 1.81% $12,211 0.60% $11,507
11/30/90 $11,779 2.01% $12,457 0.22% $11,533
12/31/90 $11,783 0.44% $12,512 0.00% $11,533
1/31/91 $11,992 1.34% $12,679 0.60% $11,602
2/28/91 $12,110 0.87% $12,789 0.15% $11,619
3/31/91 $12,138 0.04% $12,795 0.15% $11,637
4/30/91 $12,304 1.34% $12,966 0.15% $11,654
5/31/91 $12,390 0.89% $13,081 0.30% $11,689
6/30/91 $12,367 -0.10% $13,068 0.29% $11,723
7/31/91 $12,556 1.22% $13,228 0.15% $11,741
8/31/91 $12,686 1.32% $13,402 0.29% $11,775
9/30/91 $12,864 1.30% $13,577 0.44% $11,827
10/31/91 $12,936 0.90% $13,699 0.15% $11,844
11/30/91 $12,984 0.28% $13,737 0.29% $11,879
12/31/91 $13,226 2.15% $14,033 0.07% $11,887
1/31/92 $13,274 0.23% $14,065 0.15% $11,905
2/29/92 $13,269 0.03% $14,069 0.36% $11,948
3/31/92 $13,276 0.04% $14,075 0.51% $12,009
4/30/92 $13,382 0.89% $14,200 0.14% $12,025
5/31/92 $13,551 1.18% $14,367 0.14% $12,042
6/30/92 $13,720 1.68% $14,609 0.36% $12,086
7/31/92 $14,217 3.00% $15,047 0.21% $12,111
8/31/92 $14,060 -0.98% $14,900 0.28% $12,145
9/30/92 $14,170 0.65% $14,996 0.28% $12,179
10/31/92 $14,012 -0.98% $14,850 0.35% $12,222
11/30/92 $14,339 1.79% $15,115 0.14% $12,239
12/31/92 $14,526 1.02% $15,270 -0.07% $12,230
1/31/93 $14,715 1.16% $15,447 0.49% $12,290
2/28/93 $15,073 3.62% $16,006 0.35% $12,333
3/31/93 $14,989 -1.06% $15,836 0.35% $12,376
4/30/93 $15,075 1.01% $15,996 0.28% $12,411
5/31/93 $15,162 0.56% $16,086 0.14% $12,428
6/30/93 $15,408 1.67% $16,354 0.14% $12,446
7/31/93 $15,403 0.13% $16,376 0.00% $12,446
8/31/93 $15,705 2.08% $16,716 0.28% $12,480
9/30/93 $15,872 1.14% $16,907 0.21% $12,507
10/31/93 $15,919 0.19% $16,939 0.41% $12,558
11/30/93 $15,844 -0.88% $16,790 0.07% $12,567
12/31/93 $16,151 2.11% $17,144 0.00% $12,567
1/31/94 $16,308 1.14% $17,339 0.27% $12,601
2/28/94 $15,971 -2.59% $16,890 0.34% $12,644
3/31/94 $15,453 -4.07% $16,203 0.34% $12,687
4/30/94 $15,527 0.85% $16,341 0.14% $12,704
5/31/94 $15,600 0.87% $16,483 0.07% $12,713
6/30/94 $15,562 -0.61% $16,382 0.34% $12,756
7/31/94 $15,805 1.83% $16,682 0.27% $12,791
8/31/94 $15,866 0.35% $16,740 0.40% $12,842
9/30/94 $15,714 -1.47% $16,494 0.27% $12,877
10/31/94 $15,489 -1.78% $16,201 0.07% $12,886
11/30/94 $15,208 -1.81% $15,908 0.13% $12,902
12/31/94 $15,500 2.20% $16,258 0.00% $12,902
1/31/95 $15,838 2.86% $16,723 0.40% $12,954
2/28/95 $16,235 2.91% $17,209 0.40% $13,006
3/31/95 $16,402 1.15% $17,407 0.33% $13,049
4/30/95 $16,451 0.12% $17,428 0.33% $13,092
5/31/95 $16,856 3.19% $17,984 0.20% $13,118
6/30/95 $16,743 -0.87% $17,827 0.20% $13,144
7/31/95 $16,853 0.95% $17,997 0.00% $13,144
8/31/95 $17,025 1.27% $18,225 0.26% $13,178
9/30/95 $17,106 0.63% $18,340 0.20% $13,205
10/31/95 $17,338 1.45% $18,606 0.33% $13,248
11/30/95 $17,603 1.66% $18,915 -0.07% $13,239
12/31/95 $17,765 0.96% $19,097 -0.07% $13,230
1/31/96 $17,849 0.76% $19,242 0.59% $13,308
2/29/96 $17,730 -0.68% $19,111 0.32% $13,350
3/31/96 $17,533 -1.28% $18,866 0.52% $13,420
4/30/96 $17,508 -0.28% $18,813 0.39% $13,472
5/31/96 $17,529 -0.04% $18,806 0.19% $13,498
6/30/96 $17,743 1.09% $19,011 0.06% $13,506
7/31/96 $17,861 0.91% $19,184 0.19% $13,532
8/31/96 $17,875 -0.02% $19,180 0.19% $13,557
9/30/96 $18,121 1.40% $19,449 0.32% $13,601
10/31/96 $18,286 1.13% $19,668 0.32% $13,644
11/30/96 $18,550 1.83% $20,028 0.19% $13,670
12/31/96 $18,505 -0.42% $19,944 0.00% $13,670
1/31/97 $18,541 0.19% $19,982 0.32% $13,714
2/28/97 $18,693 0.92% $20,166 0.31% $13,756
3/31/97 $18,479 -1.33% $19,898 0.25% $13,791
4/30/97 $18,633 0.84% $20,065 0.12% $13,807
5/31/97 $18,855 1.51% $20,368 -0.06% $13,799
6/30/97 $19,029 1.07% $20,586 0.12% $13,816
7/31/97 $19,473 2.77% $21,156 0.12% $13,832
8/31/97 $19,340 -0.94% $20,957 0.19% $13,858
9/30/97 $19,548 1.19% $21,206 0.25% $13,893
10/31/97 $19,656 0.64% $21,342 0.25% $13,928
11/30/97 $19,780 0.59% $21,468 -0.06% $13,919
12/31/97 $20,034 1.46% $21,781 -0.12% $13,903
1/31/98 $20,195 1.03% $22,006 0.19% $13,929
2/28/98 $20,216 0.03% $22,012 0.19% $13,956
Total 102.16% 120.12% 39.56%
Return
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GRAPHIC MATERIAL (4)
This chart shows in bar format the comparison between Franklin Arizona
Tax-Free Income Fund's Class II distribution rate of 4.58% and the taxable
equivalent rate of 8.00% on 2/28/98.
GRAPHIC MATERIAL (5)
The following line graph compares the performance of the Franklin Arizona
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
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Fund No. 226 Inception 5/1/95
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Date Franklin Arizona Tax-Free Lehman Brothers Municipal CPI
Income Bond
Fund-Class II Index
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5/1/95 $9,902 $10,000 $10,000
5/31/95 $10,155 3.19% $10,319 0.20% $10,020
6/30/95 $10,082 -0.87% $10,229 0.20% $10,040
7/31/95 $10,142 0.95% $10,326 0.00% $10,040
8/31/95 $10,249 1.27% $10,458 0.26% $10,066
9/29/95 $10,301 0.63% $10,523 0.20% $10,086
10/31/95 $10,426 1.45% $10,676 0.33% $10,120
11/30/95 $10,588 1.66% $10,853 -0.07% $10,112
12/29/95 $10,671 0.96% $10,957 -0.07% $10,105
1/31/96 $10,724 0.76% $11,041 0.59% $10,165
2/29/96 $10,638 -0.68% $10,966 0.32% $10,198
3/29/96 $10,527 -1.28% $10,825 0.52% $10,251
4/30/96 $10,507 -0.28% $10,795 0.39% $10,291
5/31/96 $10,515 -0.04% $10,791 0.19% $10,310
6/28/96 $10,627 1.09% $10,908 0.06% $10,316
7/31/96 $10,701 0.91% $11,008 0.19% $10,336
8/30/96 $10,704 -0.02% $11,005 0.19% $10,356
9/30/96 $10,844 1.40% $11,159 0.32% $10,389
10/31/96 $10,947 1.13% $11,286 0.32% $10,422
11/29/96 $11,098 1.83% $11,492 0.19% $10,442
12/31/96 $11,065 -0.42% $11,444 0.00% $10,442
1/31/97 $11,072 0.19% $11,466 0.32% $10,475
2/28/97 $11,158 0.92% $11,571 0.31% $10,508
3/31/97 $11,039 -1.33% $11,417 0.25% $10,534
4/30/97 $11,126 0.84% $11,513 0.12% $10,547
5/31/97 $11,252 1.51% $11,687 -0.06% $10,540
6/30/97 $11,339 1.07% $11,812 0.12% $10,553
7/31/97 $11,598 2.77% $12,139 0.12% $10,565
8/31/97 $11,524 -0.94% $12,025 0.19% $10,586
9/30/97 $11,642 1.19% $12,168 0.25% $10,612
10/31/97 $11,700 0.64% $12,246 0.25% $10,639
11/30/97 $11,768 0.59% $12,318 -0.06% $10,632
12/31/97 $11,912 1.46% $12,498 -0.12% $10,619
1/31/98 $12,012 1.03% $12,627 0.19% $10,640
2/28/98 $12,018 0.03% $12,631 0.19% $10,660
Total 20.18% 26.31% 6.60%
Return
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GRAPHIC MATERIAL (6)
This chart shows in pie format the credit quality breakdown of the Franklin
Colorado Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 63.1%
AA 12.7%
A 10.3%
BBB %13.9
GRAPHIC MATERIAL (7)
This chart shows in bar format the comparison between Franklin Colorado
Tax-Free Income Fund's Class I distribution rate of 4.93% and the taxable
equivalent rate of 8.59% on 2/28/98.
GRAPHIC MATERIAL (8)
The following line graph compares the performance of the Franklin Colorado
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
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Fund No. 0127 Inception 9/1/87
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Date Franklin Colorado Lehman CPI
Tax-Free Income Brothers
Fund-Class I Municipal
Bond
Index
- -------------------------------------------------------------------------------
3/1/88 $9,576 $10,000 $10,000
3/31/88 $9,401 -1.16% $9,884 0.43% $10,043
4/30/88 $9,446 0.76% $9,959 0.52% $10,095
5/31/88 $9,492 -0.29% $9,930 0.34% $10,130
6/30/88 $9,670 1.46% $10,075 0.43% $10,173
7/31/88 $9,726 0.65% $10,141 0.42% $10,216
8/31/88 $9,776 0.09% $10,150 0.42% $10,259
9/30/88 $9,979 1.81% $10,334 0.67% $10,327
10/31/88 $10,194 1.76% $10,515 0.33% $10,362
11/30/88 $10,129 -0.92% $10,419 0.08% $10,370
12/31/88 $10,259 1.02% $10,525 0.17% $10,387
1/31/89 $10,487 2.07% $10,743 0.50% $10,439
2/28/89 $10,411 -1.14% $10,620 0.41% $10,482
3/31/89 $10,375 -0.24% $10,595 0.58% $10,543
4/30/89 $10,577 2.37% $10,846 0.65% $10,612
5/31/89 $10,811 2.08% $11,072 0.57% $10,672
6/30/89 $10,955 1.36% $11,222 0.24% $10,698
7/31/89 $11,049 1.36% $11,375 0.24% $10,723
8/31/89 $10,991 -0.98% $11,263 0.16% $10,740
9/30/89 $10,933 -0.30% $11,229 0.32% $10,775
10/31/89 $11,028 1.22% $11,366 0.48% $10,827
11/30/89 $11,177 1.75% $11,565 0.24% $10,853
12/31/89 $11,274 0.82% $11,660 0.16% $10,870
1/31/90 $11,204 -0.47% $11,605 1.03% $10,982
2/28/90 $11,355 0.89% $11,709 0.47% $11,033
3/31/90 $11,347 0.03% $11,712 0.55% $11,094
4/30/90 $11,265 -0.72% $11,628 0.16% $11,112
5/31/90 $11,504 2.18% $11,881 0.23% $11,137
6/30/90 $11,638 0.88% $11,986 0.54% $11,198
7/31/90 $11,826 1.48% $12,163 0.38% $11,240
8/31/90 $11,534 -1.45% $11,987 0.92% $11,344
9/30/90 $11,526 0.06% $11,994 0.84% $11,439
10/31/90 $11,674 1.81% $12,211 0.60% $11,507
11/30/90 $11,944 2.01% $12,457 0.22% $11,533
12/31/90 $11,925 0.44% $12,512 0.00% $11,533
1/31/91 $12,087 1.34% $12,679 0.60% $11,602
2/28/91 $12,192 0.87% $12,789 0.15% $11,619
3/31/91 $12,241 0.04% $12,795 0.15% $11,637
4/30/91 $12,416 1.34% $12,966 0.15% $11,654
5/31/91 $12,524 0.89% $13,081 0.30% $11,689
6/30/91 $12,528 -0.10% $13,068 0.29% $11,723
7/31/91 $12,718 1.22% $13,228 0.15% $11,741
8/31/91 $12,828 1.32% $13,402 0.29% $11,775
9/30/91 $12,997 1.30% $13,577 0.44% $11,827
10/31/91 $13,060 0.90% $13,699 0.15% $11,844
11/30/91 $13,123 0.28% $13,737 0.29% $11,879
12/31/91 $13,398 2.15% $14,033 0.07% $11,887
1/31/92 $13,395 0.23% $14,065 0.15% $11,905
2/29/92 $13,417 0.03% $14,069 0.36% $11,948
3/31/92 $13,451 0.04% $14,075 0.51% $12,009
4/30/92 $13,571 0.89% $14,200 0.14% $12,025
5/31/92 $13,766 1.18% $14,367 0.14% $12,042
6/30/92 $13,951 1.68% $14,609 0.36% $12,086
7/31/92 $14,474 3.00% $15,047 0.21% $12,111
8/31/92 $14,322 -0.98% $14,900 0.28% $12,145
9/30/92 $14,358 0.65% $14,996 0.28% $12,179
10/31/92 $14,116 -0.98% $14,850 0.35% $12,222
11/30/92 $14,496 1.79% $15,115 0.14% $12,239
12/31/92 $14,712 1.02% $15,270 -0.07% $12,230
1/31/93 $14,878 1.16% $15,447 0.49% $12,290
2/28/93 $15,381 3.62% $16,006 0.35% $12,333
3/31/93 $15,289 -1.06% $15,836 0.35% $12,376
4/30/93 $15,405 1.01% $15,996 0.28% $12,411
5/31/93 $15,482 0.56% $16,086 0.14% $12,428
6/30/93 $15,718 1.67% $16,354 0.14% $12,446
7/31/93 $15,754 0.13% $16,376 0.00% $12,446
8/31/93 $16,070 2.08% $16,716 0.28% $12,480
9/30/93 $16,266 1.14% $16,907 0.21% $12,507
10/31/93 $16,329 0.19% $16,939 0.41% $12,558
11/30/93 $16,284 -0.88% $16,790 0.07% $12,567
12/31/93 $16,590 2.11% $17,144 0.00% $12,567
1/31/94 $16,760 1.14% $17,339 0.27% $12,601
2/28/94 $16,411 -2.59% $16,890 0.34% $12,644
3/31/94 $15,756 -4.07% $16,203 0.34% $12,687
4/30/94 $15,791 0.85% $16,341 0.14% $12,704
5/31/94 $15,895 0.87% $16,483 0.07% $12,713
6/30/94 $15,790 -0.61% $16,382 0.34% $12,756
7/31/94 $16,091 1.83% $16,682 0.27% $12,791
8/31/94 $16,127 0.35% $16,740 0.40% $12,842
9/30/94 $15,922 -1.47% $16,494 0.27% $12,877
10/31/94 $15,657 -1.78% $16,201 0.07% $12,886
11/30/94 $15,365 -1.81% $15,908 0.13% $12,902
12/31/94 $15,689 2.20% $16,258 0.00% $12,902
1/31/95 $16,173 2.86% $16,723 0.40% $12,954
2/28/95 $16,587 2.91% $17,209 0.40% $13,006
3/31/95 $16,725 1.15% $17,407 0.33% $13,049
4/30/95 $16,776 0.12% $17,428 0.33% $13,092
5/31/95 $17,210 3.19% $17,984 0.20% $13,118
6/30/95 $17,099 -0.87% $17,827 0.20% $13,144
7/31/95 $17,196 0.95% $17,997 0.00% $13,144
8/31/95 $17,444 1.27% $18,225 0.26% $13,178
9/30/95 $17,526 0.63% $18,340 0.20% $13,205
10/31/95 $17,759 1.45% $18,606 0.33% $13,248
11/30/95 $18,040 1.66% $18,915 -0.07% $13,239
12/31/95 $18,215 0.96% $19,097 -0.07% $13,230
1/31/96 $18,300 0.76% $19,242 0.59% $13,308
2/29/96 $18,261 -0.68% $19,111 0.32% $13,350
3/31/96 $18,099 -1.28% $18,866 0.52% $13,420
4/30/96 $18,091 -0.28% $18,813 0.39% $13,472
5/31/96 $18,098 -0.04% $18,806 0.19% $13,498
6/30/96 $18,263 1.09% $19,011 0.06% $13,506
7/31/96 $18,397 0.91% $19,184 0.19% $13,532
8/31/96 $18,404 -0.02% $19,180 0.19% $13,557
9/30/96 $18,650 1.40% $19,449 0.32% $13,601
10/31/96 $18,834 1.13% $19,668 0.32% $13,644
11/30/96 $19,115 1.83% $20,028 0.19% $13,670
12/31/96 $19,075 -0.42% $19,944 0.00% $13,670
1/31/97 $19,099 0.19% $19,982 0.32% $13,714
2/28/97 $19,253 0.92% $20,166 0.31% $13,756
3/31/97 $19,032 -1.33% $19,898 0.25% $13,791
4/30/97 $19,188 0.84% $20,065 0.12% $13,807
5/31/97 $19,410 1.51% $20,368 -0.06% $13,799
6/30/97 $19,617 1.07% $20,586 0.12% $13,816
7/31/97 $20,108 2.77% $21,156 0.12% $13,832
8/31/97 $19,932 -0.94% $20,957 0.19% $13,858
9/30/97 $20,204 1.19% $21,206 0.25% $13,893
10/31/97 $20,326 0.64% $21,342 0.25% $13,928
11/30/97 $20,465 0.59% $21,468 -0.06% $13,919
12/31/97 $20,766 1.46% $21,781 -0.12% $13,903
1/31/98 $20,975 1.03% $22,006 0.19% $13,929
2/28/98 $20,961 0.03% $22,012 0.19% $13,956
Total 109.61% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (9)
This chart shows in bar format the comparison between Franklin Colorado
Tax-Free Income Fund's Class II distribution rate of 4.50% and the taxable
equivalent rate of 7.84% on 2/28/98.
GRAPHIC MATERIAL (10)
The following line graph compares the performance of the Franklin Connecticut
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 226 Inception 5/1/95
- -------------------------------------------------------------------------------
Date Franklin Colorado Lehman Brothers Municipal CPI
Tax-Free Income Bond
Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,896 $10,000 $10,000
5/31/95 $10,143 3.19% $10,319 0.20% $10,020
6/30/95 $10,082 -0.87% $10,229 0.20% $10,040
7/31/95 $10,133 0.95% $10,326 0.00% $10,040
8/31/95 $10,273 1.27% $10,458 0.26% $10,066
9/29/95 $10,316 0.63% $10,523 0.20% $10,086
10/31/95 $10,457 1.45% $10,676 0.33% $10,120
11/30/95 $10,617 1.66% $10,853 -0.07% $10,112
12/29/95 $10,714 0.96% $10,957 -0.07% $10,105
1/31/96 $10,758 0.76% $11,041 0.59% $10,165
2/29/96 $10,730 -0.68% $10,966 0.32% $10,198
3/29/96 $10,630 -1.28% $10,825 0.52% $10,251
4/30/96 $10,621 -0.28% $10,795 0.39% $10,291
5/31/96 $10,620 -0.04% $10,791 0.19% $10,310
6/28/96 $10,720 1.09% $10,908 0.06% $10,316
7/31/96 $10,785 0.91% $11,008 0.19% $10,336
8/30/96 $10,794 -0.02% $11,005 0.19% $10,356
9/30/96 $10,933 1.40% $11,159 0.32% $10,389
10/31/96 $11,035 1.13% $11,286 0.32% $10,422
11/29/96 $11,194 1.83% $11,492 0.19% $10,442
12/31/96 $11,165 -0.42% $11,444 0.00% $10,442
1/31/97 $11,174 0.19% $11,466 0.32% $10,475
2/28/97 $11,259 0.92% $11,571 0.31% $10,508
3/31/97 $11,125 -1.33% $11,417 0.25% $10,534
4/30/97 $11,210 0.84% $11,513 0.12% $10,547
5/31/97 $11,334 1.51% $11,687 -0.06% $10,540
6/30/97 $11,458 1.07% $11,812 0.12% $10,553
7/31/97 $11,729 2.77% $12,139 0.12% $10,565
8/31/97 $11,631 -0.94% $12,025 0.19% $10,586
9/30/97 $11,774 1.19% $12,168 0.25% $10,612
10/31/97 $11,839 0.64% $12,246 0.25% $10,639
11/30/97 $11,924 0.59% $12,318 -0.06% $10,632
12/31/97 $12,093 1.46% $12,498 -0.12% $10,619
1/31/98 $12,209 1.03% $12,627 0.19% $10,640
2/28/98 $12,204 0.03% $12,631 0.19% $10,660
Total 22.04% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (11)
This chart shows in pie format the credit quality breakdown of the Franklin
Connecticut Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 30.8%
AA 19.4%
A 20.5%
BBB 29.3%
GRAPHIC MATERIAL (12)
This chart shows in bar format the comparison between Franklin Connecticut
Tax-Free Income Fund's Class I distribution rate of 5.01% and the taxable
equivalent rate of 8.69% on 2/28/98.
GRAPHIC MATERIAL (13)
The following line graph compares the performance of the Franklin Connecticut
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 0166 Inception 10/3/88
- -------------------------------------------------------------------------------
Date Franklin Connecticut Lehman CPI
Tax-Free Brothers
Income Fund-Class I Municipal
Bond
Index
- -------------------------------------------------------------------------------
10/3/88 $9,579 10,000 10,000
10/31/88 $9,607 1.76% 10,176 0.33% 10,033
11/30/88 $9,540 -0.92% 10,082 0.08% 10,041
12/30/88 $9,646 1.02% 10,185 0.17% 10,058
1/31/89 $9,837 2.07% 10,396 0.50% 10,108
2/28/89 $9,786 -1.14% 10,278 0.41% 10,150
3/31/89 $9,764 -0.24% 10,253 0.58% 10,209
4/28/89 $9,994 2.37% 10,496 0.65% 10,275
5/31/89 $10,196 2.08% 10,714 0.57% 10,334
6/30/89 $10,311 1.36% 10,860 0.24% 10,358
7/31/89 $10,407 1.36% 11,008 0.24% 10,383
8/31/89 $10,334 -0.98% 10,900 0.16% 10,400
9/29/89 $10,282 -0.30% 10,867 0.32% 10,433
10/31/89 $10,349 1.22% 11,000 0.48% 10,483
11/30/89 $10,507 1.75% 11,192 0.24% 10,508
12/29/89 $10,605 0.82% 11,284 0.16% 10,525
1/31/90 $10,531 -0.47% 11,231 1.03% 10,634
2/28/90 $10,661 0.89% 11,331 0.47% 10,684
3/30/90 $10,637 0.03% 11,334 0.55% 10,742
4/30/90 $10,561 -0.72% 11,253 0.16% 10,760
5/31/90 $10,798 2.18% 11,498 0.23% 10,784
6/29/90 $10,899 0.88% 11,599 0.54% 10,843
7/31/90 $11,065 1.48% 11,771 0.38% 10,884
8/31/90 $10,786 -1.45% 11,600 0.92% 10,984
9/28/90 $10,751 0.06% 11,607 0.84% 11,076
10/31/90 $10,887 1.81% 11,817 0.60% 11,143
11/30/90 $11,142 2.01% 12,055 0.22% 11,167
12/31/90 $11,128 0.44% 12,108 0.00% 11,167
1/31/91 $11,310 1.34% 12,270 0.60% 11,234
2/28/91 $11,373 0.87% 12,377 0.15% 11,251
3/29/91 $11,413 0.04% 12,382 0.15% 11,268
4/30/91 $11,554 1.34% 12,548 0.15% 11,285
5/31/91 $11,640 0.89% 12,659 0.30% 11,319
6/28/91 $11,492 -0.10% 12,647 0.29% 11,351
7/31/91 $11,657 1.22% 12,801 0.15% 11,368
8/30/91 $11,801 1.32% 12,970 0.29% 11,401
9/30/91 $11,968 1.30% 13,138 0.44% 11,452
10/31/91 $12,045 0.90% 13,257 0.15% 11,469
11/29/91 $12,099 0.28% 13,294 0.29% 11,502
12/31/91 $12,327 2.15% 13,580 0.07% 11,510
1/31/92 $12,335 0.23% 13,611 0.15% 11,527
2/28/92 $12,317 0.03% 13,615 0.36% 11,569
3/31/92 $12,333 0.04% 13,620 0.51% 11,628
4/30/92 $12,420 0.89% 13,742 0.14% 11,644
5/29/92 $12,603 1.18% 13,904 0.14% 11,660
6/30/92 $12,751 1.68% 14,137 0.36% 11,702
7/31/92 $13,164 3.00% 14,561 0.21% 11,727
8/31/92 $13,000 -0.98% 14,419 0.28% 11,760
9/30/92 $13,028 0.65% 14,512 0.28% 11,793
10/30/92 $12,825 -0.98% 14,370 0.35% 11,834
11/30/92 $13,122 1.79% 14,627 0.14% 11,851
12/31/92 $13,334 1.02% 14,777 -0.07% 11,842
1/29/93 $13,511 1.16% 14,948 0.49% 11,900
2/26/93 $13,912 3.62% 15,489 0.35% 11,942
3/31/93 $13,841 -1.06% 15,325 0.35% 11,984
4/30/93 $13,944 1.01% 15,480 0.28% 12,017
5/31/93 $13,999 0.56% 15,566 0.14% 12,034
6/30/93 $14,243 1.67% 15,826 0.14% 12,051
7/30/93 $14,247 0.13% 15,847 0.00% 12,051
8/31/93 $14,557 2.08% 16,177 0.28% 12,085
9/30/93 $14,728 1.14% 16,361 0.21% 12,110
10/29/93 $14,767 0.19% 16,392 0.41% 12,160
11/30/93 $14,704 -0.88% 16,248 0.07% 12,168
12/31/93 $14,978 2.11% 16,591 0.00% 12,168
1/31/94 $15,111 1.14% 16,780 0.27% 12,201
2/28/94 $14,797 -2.59% 16,345 0.34% 12,243
3/31/94 $14,270 -4.07% 15,680 0.34% 12,284
4/29/94 $14,258 0.85% 15,813 0.14% 12,301
5/31/94 $14,392 0.87% 15,951 0.07% 12,310
6/30/94 $14,299 -0.61% 15,854 0.34% 12,352
7/29/94 $14,556 1.83% 16,144 0.27% 12,385
8/31/94 $14,585 0.35% 16,200 0.40% 12,435
9/30/94 $14,410 -1.47% 15,962 0.27% 12,468
10/31/94 $14,138 -1.78% 15,678 0.07% 12,477
11/30/94 $13,784 -1.81% 15,394 0.13% 12,493
12/30/94 $14,171 2.20% 15,733 0.00% 12,493
1/31/95 $14,532 2.86% 16,183 0.40% 12,543
2/28/95 $14,854 2.91% 16,654 0.40% 12,593
3/31/95 $14,953 1.15% 16,845 0.33% 12,635
4/28/95 $15,010 0.12% 16,865 0.33% 12,677
5/31/95 $15,364 3.19% 17,403 0.20% 12,702
6/30/95 $15,237 -0.87% 17,252 0.20% 12,727
7/31/95 $15,324 0.95% 17,416 0.00% 12,727
8/31/95 $15,527 1.27% 17,637 0.26% 12,761
9/29/95 $15,657 0.63% 17,748 0.20% 12,786
10/31/95 $15,847 1.45% 18,006 0.33% 12,828
11/30/95 $16,053 1.66% 18,304 -0.07% 12,819
12/29/95 $16,202 0.96% 18,480 -0.07% 12,810
1/31/96 $16,278 0.76% 18,621 0.59% 12,886
2/29/96 $16,192 -0.68% 18,494 0.32% 12,927
3/29/96 $16,048 -1.28% 18,257 0.52% 12,994
4/30/96 $16,065 -0.28% 18,206 0.39% 13,045
5/31/96 $16,098 -0.04% 18,199 0.19% 13,070
6/28/96 $16,266 1.09% 18,397 0.06% 13,078
7/31/96 $16,375 0.91% 18,565 0.19% 13,103
8/30/96 $16,422 -0.02% 18,561 0.19% 13,127
9/30/96 $16,593 1.40% 18,821 0.32% 13,169
10/31/96 $16,719 1.13% 19,033 0.32% 13,212
11/29/96 $16,937 1.83% 19,382 0.19% 13,237
12/31/96 $16,925 -0.42% 19,300 0.00% 13,237
1/31/97 $16,959 0.19% 19,337 0.32% 13,279
2/28/97 $17,086 0.92% 19,515 0.31% 13,320
3/31/97 $16,948 -1.33% 19,255 0.25% 13,353
4/30/97 $17,062 0.84% 19,417 0.12% 13,370
5/31/97 $17,286 1.51% 19,710 -0.06% 13,361
6/30/97 $17,445 1.07% 19,921 0.12% 13,378
7/31/97 $17,843 2.77% 20,473 0.12% 13,394
8/31/97 $17,731 -0.94% 20,281 0.19% 13,419
9/30/97 $17,924 1.19% 20,522 0.25% 13,453
10/31/97 $18,006 0.64% 20,653 0.25% 13,486
11/30/97 $18,136 0.59% 20,775 -0.06% 13,478
12/31/97 $18,364 1.46% 21,078 -0.12% 13,462
1/31/98 $18,511 1.03% 21,296 0.19% 13,488
2/28/98 $18,561 0.03% 21,302 0.19% 13,513
Total 85.61% 113.02% 35.13%
Return
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GRAPHIC MATERIAL (14)
This chart shows in bar format the comparison between Franklin Connecticut
Tax-Free Income Fund's Class II distribution rate of 4.61% and the taxable
equivalent rate of 7.99% on 2/28/98.
GRAPHIC MATERIAL (15)
The following line graph compares the performance of the Franklin Connecticut
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 266 Inception 5/1/95
- -------------------------------------------------------------------------------
Date Franklin Connecticut Lehman Brothers Municipal CPI
Tax-Free Bond
Income Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,898 $10,000 $10,000
5/31/95 $10,125 3.19% $10,319 0.20% $10,020
6/30/95 $10,045 -0.87% $10,229 0.20% $10,040
7/31/95 $10,097 0.95% $10,326 0.00% $10,040
8/31/95 $10,234 1.27% $10,458 0.26% $10,066
9/29/95 $10,323 0.63% $10,523 0.20% $10,086
10/31/95 $10,442 1.45% $10,676 0.33% $10,120
11/30/95 $10,572 1.66% $10,853 -0.07% $10,112
12/29/95 $10,644 0.96% $10,957 -0.07% $10,105
1/31/96 $10,689 0.76% $11,041 0.59% $10,165
2/29/96 $10,618 -0.68% $10,966 0.32% $10,198
3/29/96 $10,523 -1.28% $10,825 0.52% $10,251
4/30/96 $10,539 -0.28% $10,795 0.39% $10,291
5/31/96 $10,555 -0.04% $10,791 0.19% $10,310
6/28/96 $10,631 1.09% $10,908 0.06% $10,316
7/31/96 $10,708 0.91% $11,008 0.19% $10,336
8/30/96 $10,754 -0.02% $11,005 0.19% $10,356
9/30/96 $10,861 1.40% $11,159 0.32% $10,389
10/31/96 $10,938 1.13% $11,286 0.32% $10,422
11/29/96 $11,076 1.83% $11,492 0.19% $10,442
12/31/96 $11,053 -0.42% $11,444 0.00% $10,442
1/31/97 $11,069 0.19% $11,466 0.32% $10,475
2/28/97 $11,157 0.92% $11,571 0.31% $10,508
3/31/97 $11,061 -1.33% $11,417 0.25% $10,534
4/30/97 $11,130 0.84% $11,513 0.12% $10,547
5/31/97 $11,271 1.51% $11,687 -0.06% $10,540
6/30/97 $11,379 1.07% $11,812 0.12% $10,553
7/31/97 $11,623 2.77% $12,139 0.12% $10,565
8/31/97 $11,545 -0.94% $12,025 0.19% $10,586
9/30/97 $11,675 1.19% $12,168 0.25% $10,612
10/31/97 $11,712 0.64% $12,246 0.25% $10,639
11/30/97 $11,801 0.59% $12,318 -0.06% $10,632
12/31/97 $11,944 1.46% $12,498 -0.12% $10,619
1/31/98 $12,034 1.03% $12,627 0.19% $10,640
2/28/98 $12,060 0.03% $12,631 0.19% $10,660
Total 20.60% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (16)
This chart shows in pie format the credit quality breakdown of the Franklin
Indiana Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 39.1%
AA 9.0%
A 28.3%
BBB 23.3%
Below Investment Grade .3%
GRAPHIC MATERIAL (17)
This chart shows in bar format the comparison between Franklin Indiana
Tax-Free Income Fund's distribution rate of 5.04% and the taxable equivalent
rate of 8.73% on 2/28/98.
GRAPHIC MATERIAL (18)
The following line graph compares the performance of the Franklin Indiana
Tax-Free Income Fund to that of the Lehman Brothers Municipal Bond Index, and
to the Consumer Price Index based on a $10,000 investment from 3/1/88 to
2/28/98.
- -------------------------------------------------------------------------------
Fund No. 0167 Inception 9/1/87
- -------------------------------------------------------------------------------
Date Franklin Indiana Tax-Free Lehman CPI
Income Brothers
Fund-Class I Municipal
Bond
Index
- -------------------------------------------------------------------------------
3/1/88 $9,579 $10,000 $10,000
3/31/88 $9,399 -1.16% $9,884 0.43% $10,043
4/30/88 $9,420 0.76% $9,959 0.52% $10,095
5/31/88 $9,460 -0.29% $9,930 0.34% $10,130
6/30/88 $9,622 1.46% $10,075 0.43% $10,173
7/31/88 $9,653 0.65% $10,141 0.42% $10,216
8/31/88 $9,712 0.09% $10,150 0.42% $10,259
9/30/88 $9,896 1.81% $10,334 0.67% $10,327
10/31/88 $10,148 1.76% $10,515 0.33% $10,362
11/30/88 $10,074 -0.92% $10,419 0.08% $10,370
12/31/88 $10,193 1.02% $10,525 0.17% $10,387
1/31/89 $10,381 2.07% $10,743 0.50% $10,439
2/28/89 $10,325 -1.14% $10,620 0.41% $10,482
3/31/89 $10,338 -0.24% $10,595 0.58% $10,543
4/30/89 $10,520 2.37% $10,846 0.65% $10,612
5/31/89 $10,752 2.08% $11,072 0.57% $10,672
6/30/89 $10,905 1.36% $11,222 0.24% $10,698
7/31/89 $11,010 1.36% $11,375 0.24% $10,723
8/31/89 $10,962 -0.98% $11,263 0.16% $10,740
9/30/89 $10,924 -0.30% $11,229 0.32% $10,775
10/31/89 $11,030 1.22% $11,366 0.48% $10,827
11/30/89 $11,188 1.75% $11,565 0.24% $10,853
12/31/89 $11,326 0.82% $11,660 0.16% $10,870
1/31/90 $11,256 -0.47% $11,605 1.03% $10,982
2/28/90 $11,375 0.89% $11,709 0.47% $11,033
3/31/90 $11,367 0.03% $11,712 0.55% $11,094
4/30/90 $11,296 -0.72% $11,628 0.16% $11,112
5/31/90 $11,579 2.18% $11,881 0.23% $11,137
6/30/90 $11,714 0.88% $11,986 0.54% $11,198
7/31/90 $11,893 1.48% $12,163 0.38% $11,240
8/31/90 $11,604 -1.45% $11,987 0.92% $11,344
9/30/90 $11,599 0.06% $11,994 0.84% $11,439
10/31/90 $11,759 1.81% $12,211 0.60% $11,507
11/30/90 $11,998 2.01% $12,457 0.22% $11,533
12/31/90 $12,003 0.44% $12,512 0.00% $11,533
1/31/91 $12,222 1.34% $12,679 0.60% $11,602
2/28/91 $12,296 0.87% $12,789 0.15% $11,619
3/31/91 $12,347 0.04% $12,795 0.15% $11,637
4/30/91 $12,513 1.34% $12,966 0.15% $11,654
5/31/91 $12,599 0.89% $13,081 0.30% $11,689
6/30/91 $12,594 -0.10% $13,068 0.29% $11,723
7/31/91 $12,775 1.22% $13,228 0.15% $11,741
8/31/91 $12,909 1.32% $13,402 0.29% $11,775
9/30/91 $13,092 1.30% $13,577 0.44% $11,827
10/31/91 $13,157 0.90% $13,699 0.15% $11,844
11/30/91 $13,223 0.28% $13,737 0.29% $11,879
12/31/91 $13,469 2.15% $14,033 0.07% $11,887
1/31/92 $13,487 0.23% $14,065 0.15% $11,905
2/29/92 $13,487 0.03% $14,069 0.36% $11,948
3/31/92 $13,524 0.04% $14,075 0.51% $12,009
4/30/92 $13,646 0.89% $14,200 0.14% $12,025
5/31/92 $13,905 1.18% $14,367 0.14% $12,042
6/30/92 $14,078 1.68% $14,609 0.36% $12,086
7/31/92 $14,564 3.00% $15,047 0.21% $12,111
8/31/92 $14,402 -0.98% $14,900 0.28% $12,145
9/30/92 $14,440 0.65% $14,996 0.28% $12,179
10/31/92 $14,224 -0.98% $14,850 0.35% $12,222
11/30/92 $14,542 1.79% $15,115 0.14% $12,239
12/31/92 $14,772 1.02% $15,270 -0.07% $12,230
1/31/93 $14,952 1.16% $15,447 0.49% $12,290
2/28/93 $15,440 3.62% $16,006 0.35% $12,333
3/31/93 $15,345 -1.06% $15,836 0.35% $12,376
4/30/93 $15,497 1.01% $15,996 0.28% $12,411
5/31/93 $15,572 0.56% $16,086 0.14% $12,428
6/30/93 $15,831 1.67% $16,354 0.14% $12,446
7/31/93 $15,827 0.13% $16,376 0.00% $12,446
8/31/93 $16,129 2.08% $16,716 0.28% $12,480
9/30/93 $16,325 1.14% $16,907 0.21% $12,507
10/31/93 $16,399 0.19% $16,939 0.41% $12,558
11/30/93 $16,365 -0.88% $16,790 0.07% $12,567
12/31/93 $16,670 2.11% $17,144 0.00% $12,567
1/31/94 $16,827 1.14% $17,339 0.27% $12,601
2/28/94 $16,478 -2.59% $16,890 0.34% $12,644
3/31/94 $15,866 -4.07% $16,203 0.34% $12,687
4/30/94 $15,928 0.85% $16,341 0.14% $12,704
5/31/94 $16,018 0.87% $16,483 0.07% $12,713
6/30/94 $15,982 -0.61% $16,382 0.34% $12,756
7/31/94 $16,241 1.83% $16,682 0.27% $12,791
8/31/94 $16,277 0.35% $16,740 0.40% $12,842
9/30/94 $16,072 -1.47% $16,494 0.27% $12,877
10/31/94 $15,837 -1.78% $16,201 0.07% $12,886
11/30/94 $15,531 -1.81% $15,908 0.13% $12,902
12/31/94 $15,839 2.20% $16,258 0.00% $12,902
1/31/95 $16,207 2.86% $16,723 0.40% $12,954
2/28/95 $16,577 2.91% $17,209 0.40% $13,006
3/31/95 $16,715 1.15% $17,407 0.33% $13,049
4/30/95 $16,751 0.12% $17,428 0.33% $13,092
5/31/95 $17,126 3.19% $17,984 0.20% $13,118
6/30/95 $17,074 -0.87% $17,827 0.20% $13,144
7/31/95 $17,155 0.95% $17,997 0.00% $13,144
8/31/95 $17,357 1.27% $18,225 0.26% $13,178
9/30/95 $17,439 0.63% $18,340 0.20% $13,205
10/31/95 $17,642 1.45% $18,606 0.33% $13,248
11/30/95 $17,862 1.66% $18,915 -0.07% $13,239
12/31/95 $18,083 0.96% $19,097 -0.07% $13,230
1/31/96 $18,166 0.76% $19,242 0.59% $13,308
2/29/96 $18,097 -0.68% $19,111 0.32% $13,350
3/31/96 $17,951 -1.28% $18,866 0.52% $13,420
4/30/96 $17,928 -0.28% $18,813 0.39% $13,472
5/31/96 $17,950 -0.04% $18,806 0.19% $13,498
6/30/96 $18,131 1.09% $19,011 0.06% $13,506
7/31/96 $18,248 0.91% $19,184 0.19% $13,532
8/31/96 $18,271 -0.02% $19,180 0.19% $13,557
9/30/96 $18,501 1.40% $19,449 0.32% $13,601
10/31/96 $18,684 1.13% $19,668 0.32% $13,644
11/30/96 $19,012 1.83% $20,028 0.19% $13,670
12/31/96 $18,988 -0.42% $19,944 0.00% $13,670
1/31/97 $19,013 0.19% $19,982 0.32% $13,714
2/28/97 $19,166 0.92% $20,166 0.31% $13,756
3/31/97 $18,995 -1.33% $19,898 0.25% $13,791
4/30/97 $19,134 0.84% $20,065 0.12% $13,807
5/31/97 $19,356 1.51% $20,368 -0.06% $13,799
6/30/97 $19,546 1.07% $20,586 0.12% $13,816
7/31/97 $19,953 2.77% $21,156 0.12% $13,832
8/31/97 $19,861 -0.94% $20,957 0.19% $13,858
9/30/97 $20,068 1.19% $21,206 0.25% $13,893
10/31/97 $20,194 0.64% $21,342 0.25% $13,928
11/30/97 $20,353 0.59% $21,468 -0.06% $13,919
12/31/97 $20,601 1.46% $21,781 -0.12% $13,903
1/31/98 $20,761 1.03% $22,006 0.19% $13,929
2/28/98 $20,802 0.03% $22,012 0.19% $13,956
Total 108.02% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (19)
This chart shows in pie format the credit quality breakdown of the Franklin
Michigan Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 52.0%
AA 17.1%
A 5.4%
BBB 25.5%
GRAPHIC MATERIAL (20)
This chart shows in bar format the comparison between Franklin Michigan
Tax-Free Income Fund's distribution rate of 5.00% and the taxable equivalent
rate of 8.66% on 2/28/98.
GRAPHIC MATERIAL (21)
The following line graph compares the performance of the Franklin Michigan
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 0179 Inception 7/1/96
- -------------------------------------------------------------------------------
Date Franklin Michigan Lehman Brothers Municipal CPI
Tax-Free Income Bond
Fund-Class I Index
- -------------------------------------------------------------------------------
7/1/96 $9,579 $10,000 $10,000
7/31/96 $9,703 0.91% $10,091 0.19% $10,019
8/31/96 $9,655 -0.02% $10,089 0.19% $10,038
9/30/96 $9,856 1.40% $10,230 0.32% $10,070
10/31/96 $9,933 1.13% $10,346 0.32% $10,102
11/30/96 $10,101 1.83% $10,535 0.19% $10,122
12/31/96 $10,058 -0.42% $10,491 0.00% $10,122
1/31/97 $10,053 0.19% $10,511 0.32% $10,154
2/28/97 $10,155 0.92% $10,608 0.31% $10,185
3/31/97 $9,996 -1.33% $10,466 0.25% $10,211
4/30/97 $10,112 0.84% $10,554 0.12% $10,223
5/31/97 $10,278 1.51% $10,714 -0.06% $10,217
6/30/97 $10,404 1.07% $10,828 0.12% $10,229
7/31/97 $10,720 2.77% $11,128 0.12% $10,242
8/31/97 $10,608 -0.94% $11,024 0.19% $10,261
9/30/97 $10,746 1.19% $11,155 0.25% $10,287
10/31/97 $10,825 0.64% $11,226 0.25% $10,312
11/30/97 $10,924 0.59% $11,293 -0.06% $10,306
12/31/97 $11,135 1.46% $11,457 -0.12% $10,294
1/31/98 $11,235 1.03% $11,575 0.19% $10,313
2/28/98 $11,335 0.03% $11,579 0.19% $10,333
Total 13.35% 15.79% 3.33%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (22)
This chart shows in pie format the credit quality breakdown of the Franklin
New Jersey Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 67.4%
AA 9.7%
A 7.7%
BBB 13.9%
Below Investment Grade 1.3%
GRAPHIC MATERIAL (23)
This chart shows in bar format the comparison between Franklin New Jersey
Tax-Free Income Fund's Class I distribution rate of 5.01% and the taxable
equivalent rate of 8.86% on 2/28/98.
GRAPHIC MATERIAL (24)
The following line graph compares the performance of the Franklin New Jersey
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 0171 Inception 5/12/88
- -------------------------------------------------------------------------------
Date Franklin New Jersey Lehman CPI
Tax-Free Brothers
Income Fund-Class I Municipal
Bond
Index
- -------------------------------------------------------------------------------
5/12/88 $9,579 $10,000 $10,000
5/31/88 $9,569 -0.18% $9,982 0.21% $10,021
6/30/88 $9,741 1.46% $10,128 0.43% $10,064
7/31/88 $9,789 0.65% $10,194 0.42% $10,106
8/31/88 $9,885 0.09% $10,203 0.42% $10,149
9/30/88 $10,106 1.81% $10,388 0.67% $10,217
10/31/88 $10,337 1.76% $10,570 0.33% $10,250
11/30/88 $10,240 -0.92% $10,473 0.08% $10,259
12/31/88 $10,384 1.02% $10,580 0.17% $10,276
1/31/89 $10,487 2.07% $10,799 0.50% $10,327
2/28/89 $10,443 -1.14% $10,676 0.41% $10,370
3/31/89 $10,438 -0.24% $10,650 0.58% $10,430
4/30/89 $10,693 2.37% $10,903 0.65% $10,498
5/31/89 $10,919 2.08% $11,130 0.57% $10,557
6/30/89 $11,056 1.36% $11,281 0.24% $10,583
7/31/89 $11,132 1.36% $11,434 0.24% $10,608
8/31/89 $11,025 -0.98% $11,322 0.16% $10,625
9/30/89 $10,948 -0.30% $11,288 0.32% $10,659
10/31/89 $11,129 1.22% $11,426 0.48% $10,710
11/30/89 $11,291 1.75% $11,626 0.24% $10,736
12/31/89 $11,359 0.82% $11,721 0.16% $10,753
1/31/90 $11,269 -0.47% $11,666 1.03% $10,864
2/28/90 $11,402 0.89% $11,770 0.47% $10,915
3/31/90 $11,386 0.03% $11,774 0.55% $10,975
4/30/90 $11,305 -0.72% $11,689 0.16% $10,993
5/31/90 $11,537 2.18% $11,944 0.23% $11,018
6/30/90 $11,663 0.88% $12,049 0.54% $11,077
7/31/90 $11,877 1.48% $12,227 0.38% $11,120
8/31/90 $11,573 -1.45% $12,050 0.92% $11,222
9/30/90 $11,590 0.06% $12,057 0.84% $11,316
10/31/90 $11,808 1.81% $12,275 0.60% $11,384
11/30/90 $12,080 2.01% $12,522 0.22% $11,409
12/31/90 $12,104 0.44% $12,577 0.00% $11,409
1/31/91 $12,300 1.34% $12,746 0.60% $11,477
2/28/91 $12,439 0.87% $12,856 0.15% $11,495
3/31/91 $12,476 0.04% $12,862 0.15% $11,512
4/30/91 $12,629 1.34% $13,034 0.15% $11,529
5/31/91 $12,736 0.89% $13,150 0.30% $11,564
6/30/91 $12,746 -0.10% $13,137 0.29% $11,597
7/31/91 $12,943 1.22% $13,297 0.15% $11,615
8/31/91 $13,059 1.32% $13,473 0.29% $11,648
9/30/91 $13,235 1.30% $13,648 0.44% $11,700
10/31/91 $13,316 0.90% $13,771 0.15% $11,717
11/30/91 $13,373 0.28% $13,809 0.29% $11,751
12/31/91 $13,612 2.15% $14,106 0.07% $11,759
1/31/92 $13,646 0.23% $14,138 0.15% $11,777
2/29/92 $13,656 0.03% $14,143 0.36% $11,819
3/31/92 $13,678 0.04% $14,148 0.51% $11,880
4/30/92 $13,798 0.89% $14,274 0.14% $11,896
5/31/92 $13,969 1.18% $14,443 0.14% $11,913
6/30/92 $14,166 1.68% $14,685 0.36% $11,956
7/31/92 $14,664 3.00% $15,126 0.21% $11,981
8/31/92 $14,485 -0.98% $14,978 0.28% $12,015
9/30/92 $14,496 0.65% $15,075 0.28% $12,048
10/31/92 $14,328 -0.98% $14,927 0.35% $12,090
11/30/92 $14,657 1.79% $15,194 0.14% $12,107
12/31/92 $14,841 1.02% $15,349 -0.07% $12,099
1/31/93 $14,980 1.16% $15,528 0.49% $12,158
2/28/93 $15,418 3.62% $16,090 0.35% $12,201
3/31/93 $15,324 -1.06% $15,919 0.35% $12,243
4/30/93 $15,426 1.01% $16,080 0.28% $12,278
5/31/93 $15,502 0.56% $16,170 0.14% $12,295
6/30/93 $15,764 1.67% $16,440 0.14% $12,312
7/31/93 $15,785 0.13% $16,461 0.00% $12,312
8/31/93 $16,073 2.08% $16,804 0.28% $12,347
9/30/93 $16,229 1.14% $16,995 0.21% $12,372
10/31/93 $16,277 0.19% $17,028 0.41% $12,423
11/30/93 $16,204 -0.88% $16,878 0.07% $12,432
12/31/93 $16,470 2.11% $17,234 0.00% $12,432
1/31/94 $16,616 1.14% $17,430 0.27% $12,465
2/28/94 $16,281 -2.59% $16,979 0.34% $12,508
3/31/94 $15,681 -4.07% $16,288 0.34% $12,550
4/30/94 $15,729 0.85% $16,426 0.14% $12,568
5/31/94 $15,848 0.87% $16,569 0.07% $12,577
6/30/94 $15,742 -0.61% $16,468 0.34% $12,619
7/31/94 $16,002 1.83% $16,769 0.27% $12,654
8/31/94 $16,066 0.35% $16,828 0.40% $12,704
9/30/94 $15,857 -1.47% $16,581 0.27% $12,738
10/31/94 $15,576 -1.78% $16,286 0.07% $12,747
11/30/94 $15,252 -1.81% $15,991 0.13% $12,764
12/31/94 $15,616 2.20% $16,343 0.00% $12,764
1/31/95 $16,069 2.86% $16,810 0.40% $12,815
2/28/95 $16,466 2.91% $17,299 0.40% $12,866
3/31/95 $16,617 1.15% $17,498 0.33% $12,909
4/30/95 $16,650 0.12% $17,519 0.33% $12,951
5/31/95 $17,082 3.19% $18,078 0.20% $12,977
6/30/95 $16,982 -0.87% $17,921 0.20% $13,003
7/31/95 $17,076 0.95% $18,091 0.00% $13,003
8/31/95 $17,261 1.27% $18,321 0.26% $13,037
9/30/95 $17,370 0.63% $18,436 0.20% $13,063
10/31/95 $17,616 1.45% $18,703 0.33% $13,106
11/30/95 $17,879 1.66% $19,014 -0.07% $13,097
12/31/95 $18,051 0.96% $19,197 -0.07% $13,088
1/31/96 $18,133 0.76% $19,342 0.59% $13,165
2/29/96 $18,014 -0.68% $19,211 0.32% $13,207
3/31/96 $17,818 -1.28% $18,965 0.52% $13,276
4/30/96 $17,792 -0.28% $18,912 0.39% $13,328
5/31/96 $17,797 -0.04% $18,904 0.19% $13,353
6/30/96 $17,992 1.09% $19,110 0.06% $13,361
7/31/96 $18,140 0.91% $19,284 0.19% $13,386
8/31/96 $18,114 -0.02% $19,280 0.19% $13,412
9/30/96 $18,374 1.40% $19,550 0.32% $13,455
10/31/96 $18,540 1.13% $19,771 0.32% $13,498
11/30/96 $18,835 1.83% $20,133 0.19% $13,523
12/31/96 $18,777 -0.42% $20,049 0.00% $13,523
1/31/97 $18,784 0.19% $20,087 0.32% $13,567
2/28/97 $18,936 0.92% $20,271 0.31% $13,609
3/31/97 $18,763 -1.33% $20,002 0.25% $13,643
4/30/97 $18,917 0.84% $20,170 0.12% $13,659
5/31/97 $19,122 1.51% $20,474 -0.06% $13,651
6/30/97 $19,293 1.07% $20,693 0.12% $13,667
7/31/97 $19,765 2.77% $21,267 0.12% $13,684
8/31/97 $19,605 -0.94% $21,067 0.19% $13,710
9/30/97 $19,826 1.19% $21,317 0.25% $13,744
10/31/97 $19,948 0.64% $21,454 0.25% $13,778
11/30/97 $20,087 0.59% $21,580 -0.06% $13,770
12/31/97 $20,346 1.46% $21,896 -0.12% $13,754
1/31/98 $20,520 1.03% $22,121 0.19% $13,780
2/28/98 $20,523 0.03% $22,128 0.19% $13,806
Total 105.23% 121.28% 38.06%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (25)
This chart shows in bar format the comparison between Franklin New Jersey
Tax-Free Income Fund's Class II distribution rate of 4.58% and the taxable
equivalent rate of 8.10% on 2/28/98.
GRAPHIC MATERIAL (26)
The following line graph compares the performance of the Franklin New Jersey
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 271 Inception 5/1/95
- -------------------------------------------------------------------------------
Date Franklin New Jersey Lehman Brothers Municipal CPI
Tax-Free Bond
Income Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,162 3.19% $10,319 0.20% $10,020
6/30/95 $10,098 -0.87% $10,229 0.20% $10,040
7/31/95 $10,157 0.95% $10,326 0.00% $10,040
8/31/95 $10,261 1.27% $10,458 0.26% $10,066
9/29/95 $10,330 0.63% $10,523 0.20% $10,086
10/31/95 $10,470 1.45% $10,676 0.33% $10,120
11/30/95 $10,620 1.66% $10,853 -0.07% $10,112
12/29/95 $10,717 0.96% $10,957 -0.07% $10,105
1/31/96 $10,769 0.76% $11,041 0.59% $10,165
2/29/96 $10,684 -0.68% $10,966 0.32% $10,198
3/29/96 $10,565 -1.28% $10,825 0.52% $10,251
4/30/96 $10,544 -0.28% $10,795 0.39% $10,291
5/31/96 $10,551 -0.04% $10,791 0.19% $10,310
6/28/96 $10,661 1.09% $10,908 0.06% $10,316
7/31/96 $10,744 0.91% $11,008 0.19% $10,336
8/30/96 $10,715 -0.02% $11,005 0.19% $10,356
9/30/96 $10,864 1.40% $11,159 0.32% $10,389
10/31/96 $10,955 1.13% $11,286 0.32% $10,422
11/29/96 $11,122 1.83% $11,492 0.19% $10,442
12/31/96 $11,080 -0.42% $11,444 0.00% $10,442
1/31/97 $11,079 0.19% $11,466 0.32% $10,475
2/28/97 $11,172 0.92% $11,571 0.31% $10,508
3/31/97 $11,066 -1.33% $11,417 0.25% $10,534
4/30/97 $11,151 0.84% $11,513 0.12% $10,547
5/31/97 $11,266 1.51% $11,687 -0.06% $10,540
6/30/97 $11,361 1.07% $11,812 0.12% $10,553
7/31/97 $11,634 2.77% $12,139 0.12% $10,565
8/31/97 $11,545 -0.94% $12,025 0.19% $10,586
9/30/97 $11,660 1.19% $12,168 0.25% $10,612
10/31/97 $11,726 0.64% $12,246 0.25% $10,639
11/30/97 $11,802 0.59% $12,318 -0.06% $10,632
12/31/97 $11,958 1.46% $12,498 -0.12% $10,619
1/31/98 $12,044 1.03% $12,627 0.19% $10,640
2/28/98 $12,050 0.03% $12,631 0.19% $10,660
Total 20.50% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (27)
This chart shows in pie format the credit quality breakdown of the Franklin
Oregon Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 43.7%
AA 22.6%
A 18.8%
BBB 14.9%
GRAPHIC MATERIAL (28)
This chart shows in bar format the comparison between Franklin Oregon
Tax-Free Income Fund's Class I distribution rate of 5.04% and the taxable
equivalent rate of 9.17% on 2/28/98.
GRAPHIC MATERIAL (29)
The following line graph compares the performance of the Franklin Oregon
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 0161 Inception 9/1/87
- -------------------------------------------------------------------------------
Date Franklin Oregon Tax-Free Lehman CPI
Income Brothers
Fund-Class I Municipal
Bond
Index
- -------------------------------------------------------------------------------
3/1/88 $9,575 $10,000 $10,000
3/31/88 $9,407 -1.16% $9,884 0.43% $10,043
4/30/88 $9,443 0.76% $9,959 0.52% $10,095
5/31/88 $9,469 -0.29% $9,930 0.34% $10,130
6/30/88 $9,646 1.46% $10,075 0.43% $10,173
7/31/88 $9,654 0.65% $10,141 0.42% $10,216
8/31/88 $9,709 0.09% $10,150 0.42% $10,259
9/30/88 $9,908 1.81% $10,334 0.67% $10,327
10/31/88 $10,118 1.76% $10,515 0.33% $10,362
11/30/88 $10,038 -0.92% $10,419 0.08% $10,370
12/31/88 $10,192 1.02% $10,525 0.17% $10,387
1/31/89 $10,405 2.07% $10,743 0.50% $10,439
2/28/89 $10,315 -1.14% $10,620 0.41% $10,482
3/31/89 $10,284 -0.24% $10,595 0.58% $10,543
4/30/89 $10,500 2.37% $10,846 0.65% $10,612
5/31/89 $10,748 2.08% $11,072 0.57% $10,672
6/30/89 $10,888 1.36% $11,222 0.24% $10,698
7/31/89 $10,958 1.36% $11,375 0.24% $10,723
8/31/89 $10,886 -0.98% $11,263 0.16% $10,740
9/30/89 $10,814 -0.30% $11,229 0.32% $10,775
10/31/89 $10,905 1.22% $11,366 0.48% $10,827
11/30/89 $11,049 1.75% $11,565 0.24% $10,853
12/31/89 $11,141 0.82% $11,660 0.16% $10,870
1/31/90 $11,067 -0.47% $11,605 1.03% $10,982
2/28/90 $11,181 0.89% $11,709 0.47% $11,033
3/31/90 $11,180 0.03% $11,712 0.55% $11,094
4/30/90 $11,073 -0.72% $11,628 0.16% $11,112
5/31/90 $11,318 2.18% $11,881 0.23% $11,137
6/30/90 $11,446 0.88% $11,986 0.54% $11,198
7/31/90 $11,629 1.48% $12,163 0.38% $11,240
8/31/90 $11,366 -1.45% $11,987 0.92% $11,344
9/30/90 $11,343 0.06% $11,994 0.84% $11,439
10/31/90 $11,518 1.81% $12,211 0.60% $11,507
11/30/90 $11,771 2.01% $12,457 0.22% $11,533
12/31/90 $11,759 0.44% $12,512 0.00% $11,533
1/31/91 $11,948 1.34% $12,679 0.60% $11,602
2/28/91 $12,093 0.87% $12,789 0.15% $11,619
3/31/91 $12,149 0.04% $12,795 0.15% $11,637
4/30/91 $12,307 1.34% $12,966 0.15% $11,654
5/31/91 $12,409 0.89% $13,081 0.30% $11,689
6/30/91 $12,408 -0.10% $13,068 0.29% $11,723
7/31/91 $12,557 1.22% $13,228 0.15% $11,741
8/31/91 $12,695 1.32% $13,402 0.29% $11,775
9/30/91 $12,869 1.30% $13,577 0.44% $11,827
10/31/91 $12,951 0.90% $13,699 0.15% $11,844
11/30/91 $12,997 0.28% $13,737 0.29% $11,879
12/31/91 $13,245 2.15% $14,033 0.07% $11,887
1/31/92 $13,279 0.23% $14,065 0.15% $11,905
2/29/92 $13,273 0.03% $14,069 0.36% $11,948
3/31/92 $13,316 0.04% $14,075 0.51% $12,009
4/30/92 $13,406 0.89% $14,200 0.14% $12,025
5/31/92 $13,546 1.18% $14,367 0.14% $12,042
6/30/92 $13,736 1.68% $14,609 0.36% $12,086
7/31/92 $14,185 3.00% $15,047 0.21% $12,111
8/31/92 $13,994 -0.98% $14,900 0.28% $12,145
9/30/92 $14,025 0.65% $14,996 0.28% $12,179
10/31/92 $13,844 -0.98% $14,850 0.35% $12,222
11/30/92 $14,151 1.79% $15,115 0.14% $12,239
12/31/92 $14,371 1.02% $15,270 -0.07% $12,230
1/31/93 $14,542 1.16% $15,447 0.49% $12,290
2/28/93 $14,981 3.62% $16,006 0.35% $12,333
3/31/93 $14,897 -1.06% $15,836 0.35% $12,376
4/30/93 $15,006 1.01% $15,996 0.28% $12,411
5/31/93 $15,077 0.56% $16,086 0.14% $12,428
6/30/93 $15,265 1.67% $16,354 0.14% $12,446
7/31/93 $15,297 0.13% $16,376 0.00% $12,446
8/31/93 $15,526 2.08% $16,716 0.28% $12,480
9/30/93 $15,729 1.14% $16,907 0.21% $12,507
10/31/93 $15,786 0.19% $16,939 0.41% $12,558
11/30/93 $15,686 -0.88% $16,790 0.07% $12,567
12/31/93 $15,940 2.11% $17,144 0.00% $12,567
1/31/94 $16,089 1.14% $17,339 0.27% $12,601
2/28/94 $15,781 -2.59% $16,890 0.34% $12,644
3/31/94 $15,215 -4.07% $16,203 0.34% $12,687
4/30/94 $15,257 0.85% $16,341 0.14% $12,704
5/31/94 $15,353 0.87% $16,483 0.07% $12,713
6/30/94 $15,272 -0.61% $16,382 0.34% $12,756
7/31/94 $15,521 1.83% $16,682 0.27% $12,791
8/31/94 $15,578 0.35% $16,740 0.40% $12,842
9/30/94 $15,371 -1.47% $16,494 0.27% $12,877
10/31/94 $15,079 -1.78% $16,201 0.07% $12,886
11/30/94 $14,774 -1.81% $15,908 0.13% $12,902
12/31/94 $15,157 2.20% $16,258 0.00% $12,902
1/31/95 $15,584 2.86% $16,723 0.40% $12,954
2/28/95 $15,999 2.91% $17,209 0.40% $13,006
3/31/95 $16,144 1.15% $17,407 0.33% $13,049
4/30/95 $16,175 0.12% $17,428 0.33% $13,092
5/31/95 $16,581 3.19% $17,984 0.20% $13,118
6/30/95 $16,454 -0.87% $17,827 0.20% $13,144
7/31/95 $16,558 0.95% $17,997 0.00% $13,144
8/31/95 $16,767 1.27% $18,225 0.26% $13,178
9/30/95 $16,857 0.63% $18,340 0.20% $13,205
10/31/95 $17,081 1.45% $18,606 0.33% $13,248
11/30/95 $17,321 1.66% $18,915 -0.07% $13,239
12/31/95 $17,444 0.96% $19,097 -0.07% $13,230
1/31/96 $17,551 0.76% $19,242 0.59% $13,308
2/29/96 $17,464 -0.68% $19,111 0.32% $13,350
3/31/96 $17,286 -1.28% $18,866 0.52% $13,420
4/30/96 $17,289 -0.28% $18,813 0.39% $13,472
5/31/96 $17,307 -0.04% $18,806 0.19% $13,498
6/30/96 $17,494 1.09% $19,011 0.06% $13,506
7/31/96 $17,604 0.91% $19,184 0.19% $13,532
8/31/96 $17,622 -0.02% $19,180 0.19% $13,557
9/30/96 $17,827 1.40% $19,449 0.32% $13,601
10/31/96 $17,970 1.13% $19,668 0.32% $13,644
11/30/96 $18,207 1.83% $20,028 0.19% $13,670
12/31/96 $18,195 -0.42% $19,944 0.00% $13,670
1/31/97 $18,214 0.19% $19,982 0.32% $13,714
2/28/97 $18,359 0.92% $20,166 0.31% $13,756
3/31/97 $18,219 -1.33% $19,898 0.25% $13,791
4/30/97 $18,350 0.84% $20,065 0.12% $13,807
5/31/97 $18,546 1.51% $20,368 -0.06% $13,799
6/30/97 $18,694 1.07% $20,586 0.12% $13,816
7/31/97 $19,102 2.77% $21,156 0.12% $13,832
8/31/97 $19,040 -0.94% $20,957 0.19% $13,858
9/30/97 $19,223 1.19% $21,206 0.25% $13,893
10/31/97 $19,325 0.64% $21,342 0.25% $13,928
11/30/97 $19,460 0.59% $21,468 -0.06% $13,919
12/31/97 $19,695 1.46% $21,781 -0.12% $13,903
1/31/98 $19,848 1.03% $22,006 0.19% $13,929
2/28/98 $19,868 0.03% $22,012 0.19% $13,956
Total 98.68% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (30)
This chart shows in bar format the comparison between Franklin Oregon
Tax-Free Income Fund's Class II distribution rate of 4.62% and the taxable
equivalent rate of 8.41% on 2/28/98.
GRAPHIC MATERIAL (31)
The following line graph compares the performance of the Franklin Oregon
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 261 Inception 5/1/95
- -------------------------------------------------------------------------------
Date Franklin Oregon Tax-Free Lehman Brothers Municipal CPI
Income Bond
Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,903 $10,000 $10,000
5/31/95 $10,162 3.19% $10,319 0.20% $10,020
6/30/95 $10,079 -0.87% $10,229 0.20% $10,040
7/31/95 $10,138 0.95% $10,326 0.00% $10,040
8/31/95 $10,268 1.27% $10,458 0.26% $10,066
9/29/95 $10,318 0.63% $10,523 0.20% $10,086
10/31/95 $10,450 1.45% $10,676 0.33% $10,120
11/30/95 $10,590 1.66% $10,853 -0.07% $10,112
12/29/95 $10,668 0.96% $10,957 -0.07% $10,105
1/31/96 $10,729 0.76% $11,041 0.59% $10,165
2/29/96 $10,670 -0.68% $10,966 0.32% $10,198
3/29/96 $10,560 -1.28% $10,825 0.52% $10,251
4/30/96 $10,547 -0.28% $10,795 0.39% $10,291
5/31/96 $10,562 -0.04% $10,791 0.19% $10,310
6/28/96 $10,671 1.09% $10,908 0.06% $10,316
7/31/96 $10,733 0.91% $11,008 0.19% $10,336
8/30/96 $10,739 -0.02% $11,005 0.19% $10,356
9/30/96 $10,858 1.40% $11,159 0.32% $10,389
10/31/96 $10,940 1.13% $11,286 0.32% $10,422
11/29/96 $11,089 1.83% $11,492 0.19% $10,442
12/31/96 $11,067 -0.42% $11,444 0.00% $10,442
1/31/97 $11,082 0.19% $11,466 0.32% $10,475
2/28/97 $11,165 0.92% $11,571 0.31% $10,508
3/31/97 $11,073 -1.33% $11,417 0.25% $10,534
4/30/97 $11,147 0.84% $11,513 0.12% $10,547
5/31/97 $11,261 1.51% $11,687 -0.06% $10,540
6/30/97 $11,345 1.07% $11,812 0.12% $10,553
7/31/97 $11,586 2.77% $12,139 0.12% $10,565
8/31/97 $11,553 -0.94% $12,025 0.19% $10,586
9/30/97 $11,658 1.19% $12,168 0.25% $10,612
10/31/97 $11,714 0.64% $12,246 0.25% $10,639
11/30/97 $11,780 0.59% $12,318 -0.06% $10,632
12/31/97 $11,926 1.46% $12,498 -0.12% $10,619
1/31/98 $12,013 1.03% $12,627 0.19% $10,640
2/28/98 $12,019 0.03% $12,631 0.19% $10,660
Total 20.19% 26.31% 6.60%
Return
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GRAPHIC MATERIAL (32)
This chart shows in pie format the credit quality breakdown of the Franklin
Pennsylvania Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 57.2%
AA 8.4%
A 15.2%
BBB 19.2%
GRAPHIC MATERIAL (33)
This chart shows in bar format the comparison between Franklin Pennsylvania
Tax-Free Income Fund's Class I distribution rate of 5.11% and the taxable
equivalent rate of 8.70% on 2/28/98.
GRAPHIC MATERIAL (34)
The following line graph compares the performance of the Franklin
Pennsylvania Tax-Free Income Fund's Class I shares to that of the Lehman
Brothers Municipal Bond Index, and to the Consumer Price Index based on a
$10,000 investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 0129 Inception 12/1/86
- -------------------------------------------------------------------------------
Date Franklin Pennsylvania Lehman Brothers Municipal CPI
Tax-Free Bond
Income Fund-Class I Index
- -------------------------------------------------------------------------------
3/1/88 $9,576 $10,000 $10,000
3/31/88 $9,425 -1.16% $9,884 0.43% $10,043
4/30/88 $9,476 0.76% $9,959 0.52% $10,095
5/31/88 $9,496 -0.29% $9,930 0.34% $10,130
6/30/88 $9,672 1.46% $10,075 0.43% $10,173
7/31/88 $9,703 0.65% $10,141 0.42% $10,216
8/31/88 $9,776 0.09% $10,150 0.42% $10,259
9/30/88 $9,966 1.81% $10,334 0.67% $10,327
10/31/88 $10,198 1.76% $10,515 0.33% $10,362
11/30/88 $10,124 -0.92% $10,419 0.08% $10,370
12/31/88 $10,253 1.02% $10,525 0.17% $10,387
1/31/89 $10,414 2.07% $10,743 0.50% $10,439
2/28/89 $10,371 -1.14% $10,620 0.41% $10,482
3/31/89 $10,360 -0.24% $10,595 0.58% $10,543
4/30/89 $10,613 2.37% $10,846 0.65% $10,612
5/31/89 $10,845 2.08% $11,072 0.57% $10,672
6/30/89 $10,978 1.36% $11,222 0.24% $10,698
7/31/89 $11,057 1.36% $11,375 0.24% $10,723
8/31/89 $11,000 -0.98% $11,263 0.16% $10,740
9/30/89 $10,955 -0.30% $11,229 0.32% $10,775
10/31/89 $11,046 1.22% $11,366 0.48% $10,827
11/30/89 $11,195 1.75% $11,565 0.24% $10,853
12/31/89 $11,311 0.82% $11,660 0.16% $10,870
1/31/90 $11,229 -0.47% $11,605 1.03% $10,982
2/28/90 $11,323 0.89% $11,709 0.47% $11,033
3/31/90 $11,323 0.03% $11,712 0.55% $11,094
4/30/90 $11,216 -0.72% $11,628 0.16% $11,112
5/31/90 $11,478 2.18% $11,881 0.23% $11,137
6/30/90 $11,562 0.88% $11,986 0.54% $11,198
7/31/90 $11,743 1.48% $12,163 0.38% $11,240
8/31/90 $11,415 -1.45% $11,987 0.92% $11,344
9/30/90 $11,342 0.06% $11,994 0.84% $11,439
10/31/90 $11,526 1.81% $12,211 0.60% $11,507
11/30/90 $11,773 2.01% $12,457 0.22% $11,533
12/31/90 $11,748 0.44% $12,512 0.00% $11,533
1/31/91 $11,937 1.34% $12,679 0.60% $11,602
2/28/91 $12,012 0.87% $12,789 0.15% $11,619
3/31/91 $12,062 0.04% $12,795 0.15% $11,637
4/30/91 $12,254 1.34% $12,966 0.15% $11,654
5/31/91 $12,350 0.89% $13,081 0.30% $11,689
6/30/91 $12,383 -0.10% $13,068 0.29% $11,723
7/31/91 $12,572 1.22% $13,228 0.15% $11,741
8/31/91 $12,709 1.32% $13,402 0.29% $11,775
9/30/91 $12,899 1.30% $13,577 0.44% $11,827
10/31/91 $12,985 0.90% $13,699 0.15% $11,844
11/30/91 $13,058 0.28% $13,737 0.29% $11,879
12/31/91 $13,332 2.15% $14,033 0.07% $11,887
1/31/92 $13,352 0.23% $14,065 0.15% $11,905
2/29/92 $13,346 0.03% $14,069 0.36% $11,948
3/31/92 $13,380 0.04% $14,075 0.51% $12,009
4/30/92 $13,509 0.89% $14,200 0.14% $12,025
5/31/92 $13,667 1.18% $14,367 0.14% $12,042
6/30/92 $13,892 1.68% $14,609 0.36% $12,086
7/31/92 $14,368 3.00% $15,047 0.21% $12,111
8/31/92 $14,233 -0.98% $14,900 0.28% $12,145
9/30/92 $14,293 0.65% $14,996 0.28% $12,179
10/31/92 $14,142 -0.98% $14,850 0.35% $12,222
11/30/92 $14,443 1.79% $15,115 0.14% $12,239
12/31/92 $14,618 1.02% $15,270 -0.07% $12,230
1/31/93 $14,823 1.16% $15,447 0.49% $12,290
2/28/93 $15,245 3.62% $16,006 0.35% $12,333
3/31/93 $15,191 -1.06% $15,836 0.35% $12,376
4/30/93 $15,283 1.01% $15,996 0.28% $12,411
5/31/93 $15,375 0.56% $16,086 0.14% $12,428
6/30/93 $15,614 1.67% $16,354 0.14% $12,446
7/31/93 $15,603 0.13% $16,376 0.00% $12,446
8/31/93 $15,905 2.08% $16,716 0.28% $12,480
9/30/93 $16,088 1.14% $16,907 0.21% $12,507
10/31/93 $16,136 0.19% $16,939 0.41% $12,558
11/30/93 $16,081 -0.88% $16,790 0.07% $12,567
12/31/93 $16,325 2.11% $17,144 0.00% $12,567
1/31/94 $16,463 1.14% $17,339 0.27% $12,601
2/28/94 $16,190 -2.59% $16,890 0.34% $12,644
3/31/94 $15,730 -4.07% $16,203 0.34% $12,687
4/30/94 $15,747 0.85% $16,341 0.14% $12,704
5/31/94 $15,857 0.87% $16,483 0.07% $12,713
6/30/94 $15,826 -0.61% $16,382 0.34% $12,756
7/31/94 $16,063 1.83% $16,682 0.27% $12,791
8/31/94 $16,112 0.35% $16,740 0.40% $12,842
9/30/94 $15,955 -1.47% $16,494 0.27% $12,877
10/31/94 $15,749 -1.78% $16,201 0.07% $12,886
11/30/94 $15,464 -1.81% $15,908 0.13% $12,902
12/31/94 $15,787 2.20% $16,258 0.00% $12,902
1/31/95 $16,160 2.86% $16,723 0.40% $12,954
2/28/95 $16,551 2.91% $17,209 0.40% $13,006
3/31/95 $16,701 1.15% $17,407 0.33% $13,049
4/30/95 $16,737 0.12% $17,428 0.33% $13,092
5/31/95 $17,135 3.19% $17,984 0.20% $13,118
6/30/95 $17,072 -0.87% $17,827 0.20% $13,144
7/31/95 $17,175 0.95% $17,997 0.00% $13,144
8/31/95 $17,330 1.27% $18,225 0.26% $13,178
9/30/95 $17,434 0.63% $18,340 0.20% $13,205
10/31/95 $17,623 1.45% $18,606 0.33% $13,248
11/30/95 $17,881 1.66% $18,915 -0.07% $13,239
12/31/95 $18,055 0.96% $19,097 -0.07% $13,230
1/31/96 $18,145 0.76% $19,242 0.59% $13,308
2/29/96 $18,061 -0.68% $19,111 0.32% $13,350
3/31/96 $17,910 -1.28% $18,866 0.52% $13,420
4/30/96 $17,896 -0.28% $18,813 0.39% $13,472
5/31/96 $17,933 -0.04% $18,806 0.19% $13,498
6/30/96 $18,110 1.09% $19,011 0.06% $13,506
7/31/96 $18,233 0.91% $19,184 0.19% $13,532
8/31/96 $18,232 -0.02% $19,180 0.19% $13,557
9/30/96 $18,465 1.40% $19,449 0.32% $13,601
10/31/96 $18,626 1.13% $19,668 0.32% $13,644
11/30/96 $18,878 1.83% $20,028 0.19% $13,670
12/31/96 $18,860 -0.42% $19,944 0.00% $13,670
1/31/97 $18,915 0.19% $19,982 0.32% $13,714
2/28/97 $19,061 0.92% $20,166 0.31% $13,756
3/31/97 $18,877 -1.33% $19,898 0.25% $13,791
4/30/97 $19,043 0.84% $20,065 0.12% $13,807
5/31/97 $19,265 1.51% $20,368 -0.06% $13,799
6/30/97 $19,455 1.07% $20,586 0.12% $13,816
7/31/97 $19,906 2.77% $21,156 0.12% $13,832
8/31/97 $19,774 -0.94% $20,957 0.19% $13,858
9/30/97 $19,979 1.19% $21,206 0.25% $13,893
10/31/97 $20,109 0.64% $21,342 0.25% $13,928
11/30/97 $20,258 0.59% $21,468 -0.06% $13,919
12/31/97 $20,554 1.46% $21,781 -0.12% $13,903
1/31/98 $20,765 1.03% $22,006 0.19% $13,929
2/28/98 $20,760 0.03% $22,012 0.19% $13,956
Total 107.60% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (35)
This chart shows in bar format the comparison between Franklin Pennsylvania
Tax-Free Income Fund's Class II distribution rate of 4.68% and the taxable
equivalent rate of 7.97% on 2/28/98.
GRAPHIC MATERIAL (36)
The following line graph compares the performance of the Franklin
Pennsylvania Tax-Free Income Fund's Class II shares to that of the Lehman
Brothers Municipal Bond Index, and to the Consumer Price Index based on a
$10,000 investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 229 Inception 5/1/95
- -------------------------------------------------------------------------------
Date Franklin Pennsylvania Lehman Brothers Municipal CPI
Tax-Free Bond
Income Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,903 $10,000 $10,000
5/31/95 $10,140 3.19% $10,319 0.20% $10,020
6/30/95 $10,098 -0.87% $10,229 0.20% $10,040
7/31/95 $10,154 0.95% $10,326 0.00% $10,040
8/31/95 $10,241 1.27% $10,458 0.26% $10,066
9/29/95 $10,307 0.63% $10,523 0.20% $10,086
10/31/95 $10,413 1.45% $10,676 0.33% $10,120
11/30/95 $10,550 1.66% $10,853 -0.07% $10,112
12/29/95 $10,658 0.96% $10,957 -0.07% $10,105
1/31/96 $10,705 0.76% $11,041 0.59% $10,165
2/29/96 $10,651 -0.68% $10,966 0.32% $10,198
3/29/96 $10,557 -1.28% $10,825 0.52% $10,251
4/30/96 $10,543 -0.28% $10,795 0.39% $10,291
5/31/96 $10,571 -0.04% $10,791 0.19% $10,310
6/28/96 $10,659 1.09% $10,908 0.06% $10,316
7/31/96 $10,737 0.91% $11,008 0.19% $10,336
8/30/96 $10,721 -0.02% $11,005 0.19% $10,356
9/30/96 $10,852 1.40% $11,159 0.32% $10,389
10/31/96 $10,951 1.13% $11,286 0.32% $10,422
11/29/96 $11,092 1.83% $11,492 0.19% $10,442
12/31/96 $11,075 -0.42% $11,444 0.00% $10,442
1/31/97 $11,102 0.19% $11,466 0.32% $10,475
2/28/97 $11,182 0.92% $11,571 0.31% $10,508
3/31/97 $11,069 -1.33% $11,417 0.25% $10,534
4/30/97 $11,161 0.84% $11,513 0.12% $10,547
5/31/97 $11,286 1.51% $11,687 -0.06% $10,540
6/30/97 $11,391 1.07% $11,812 0.12% $10,553
7/31/97 $11,649 2.77% $12,139 0.12% $10,565
8/31/97 $11,567 -0.94% $12,025 0.19% $10,586
9/30/97 $11,680 1.19% $12,168 0.25% $10,612
10/31/97 $11,750 0.64% $12,246 0.25% $10,639
11/30/97 $11,843 0.59% $12,318 -0.06% $10,632
12/31/97 $12,010 1.46% $12,498 -0.12% $10,619
1/31/98 $12,115 1.03% $12,627 0.19% $10,640
2/28/98 $12,118 0.03% $12,631 0.19% $10,660
Total 21.18% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (37)
This chart shows in pie format the credit quality breakdown of the Franklin
Puerto Rico Tax-Free Income Fund based on total long-term investments as of
2/28/98.
AAA 35.3%
AA 1.1%
A 15.8%
BBB 47.8%
GRAPHIC MATERIAL (38)
This chart shows in bar format the comparison between Franklin Puerto Rico
Tax-Free Income Fund's Class I distribution rate of 4.94% and the taxable
equivalent rate of 8.18% on 2/28/98.
GRAPHIC MATERIAL (39)
The following line graph compares the performance of the Franklin Puerto Rico
Tax-Free Income Fund's Class I shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 0123 Inception 4/3/85
- -------------------------------------------------------------------------------
Date Franklin Puerto Rico Lehman Brothers Municipal CPI
Tax-Free Bond
Income Fund-Class I Index
- -------------------------------------------------------------------------------
3/1/88 $9,574 $10,000 $10,000
3/31/88 $9,394 -1.16% $9,884 0.43% $10,043
4/30/88 $9,450 0.76% $9,959 0.52% $10,095
5/31/88 $9,488 -0.29% $9,930 0.34% $10,130
6/30/88 $9,647 1.46% $10,075 0.43% $10,173
7/31/88 $9,676 0.65% $10,141 0.42% $10,216
8/31/88 $9,752 0.09% $10,150 0.42% $10,259
9/30/88 $9,951 1.81% $10,334 0.67% $10,327
10/31/88 $10,180 1.76% $10,515 0.33% $10,362
11/30/88 $10,047 -0.92% $10,419 0.08% $10,370
12/31/88 $10,183 1.02% $10,525 0.17% $10,387
1/31/89 $10,367 2.07% $10,743 0.50% $10,439
2/28/89 $10,281 -1.14% $10,620 0.41% $10,482
3/31/89 $10,253 -0.24% $10,595 0.58% $10,543
4/30/89 $10,499 2.37% $10,846 0.65% $10,612
5/31/89 $10,718 2.08% $11,072 0.57% $10,672
6/30/89 $10,858 1.36% $11,222 0.24% $10,698
7/31/89 $10,969 1.36% $11,375 0.24% $10,723
8/31/89 $10,909 -0.98% $11,263 0.16% $10,740
9/30/89 $10,838 -0.30% $11,229 0.32% $10,775
10/31/89 $10,919 1.22% $11,366 0.48% $10,827
11/30/89 $11,072 1.75% $11,565 0.24% $10,853
12/31/89 $11,175 0.82% $11,660 0.16% $10,870
1/31/90 $11,103 -0.47% $11,605 1.03% $10,982
2/28/90 $11,227 0.89% $11,709 0.47% $11,033
3/31/90 $11,217 0.03% $11,712 0.55% $11,094
4/30/90 $11,153 -0.72% $11,628 0.16% $11,112
5/31/90 $11,386 2.18% $11,881 0.23% $11,137
6/30/90 $11,492 0.88% $11,986 0.54% $11,198
7/31/90 $11,674 1.48% $12,163 0.38% $11,240
8/31/90 $11,448 -1.45% $11,987 0.92% $11,344
9/30/90 $11,394 0.06% $11,994 0.84% $11,439
10/31/90 $11,558 1.81% $12,211 0.60% $11,507
11/30/90 $11,820 2.01% $12,457 0.22% $11,533
12/31/90 $11,776 0.44% $12,512 0.00% $11,533
1/31/91 $11,975 1.34% $12,679 0.60% $11,602
2/28/91 $12,097 0.87% $12,789 0.15% $11,619
3/31/91 $12,142 0.04% $12,795 0.15% $11,637
4/30/91 $12,310 1.34% $12,966 0.15% $11,654
5/31/91 $12,401 0.89% $13,081 0.30% $11,689
6/30/91 $12,413 -0.10% $13,068 0.29% $11,723
7/31/91 $12,573 1.22% $13,228 0.15% $11,741
8/31/91 $12,688 1.32% $13,402 0.29% $11,775
9/30/91 $12,849 1.30% $13,577 0.44% $11,827
10/31/91 $12,942 0.90% $13,699 0.15% $11,844
11/30/91 $13,012 0.28% $13,737 0.29% $11,879
12/31/91 $13,220 2.15% $14,033 0.07% $11,887
1/31/92 $13,240 0.23% $14,065 0.15% $11,905
2/29/92 $13,237 0.03% $14,069 0.36% $11,948
3/31/92 $13,281 0.04% $14,075 0.51% $12,009
4/30/92 $13,385 0.89% $14,200 0.14% $12,025
5/31/92 $13,549 1.18% $14,367 0.14% $12,042
6/30/92 $13,751 1.68% $14,609 0.36% $12,086
7/31/92 $14,163 3.00% $15,047 0.21% $12,111
8/31/92 $14,038 -0.98% $14,900 0.28% $12,145
9/30/92 $14,060 0.65% $14,996 0.28% $12,179
10/31/92 $13,884 -0.98% $14,850 0.35% $12,222
11/30/92 $14,180 1.79% $15,115 0.14% $12,239
12/31/92 $14,402 1.02% $15,270 -0.07% $12,230
1/31/93 $14,562 1.16% $15,447 0.49% $12,290
2/28/93 $14,938 3.62% $16,006 0.35% $12,333
3/31/93 $14,833 -1.06% $15,836 0.35% $12,376
4/30/93 $14,945 1.01% $15,996 0.28% $12,411
5/31/93 $15,045 0.56% $16,086 0.14% $12,428
6/30/93 $15,248 1.67% $16,354 0.14% $12,446
7/31/93 $15,245 0.13% $16,376 0.00% $12,446
8/31/93 $15,515 2.08% $16,716 0.28% $12,480
9/30/93 $15,720 1.14% $16,907 0.21% $12,507
10/31/93 $15,754 0.19% $16,939 0.41% $12,558
11/30/93 $15,711 -0.88% $16,790 0.07% $12,567
12/31/93 $15,985 2.11% $17,144 0.00% $12,567
1/31/94 $16,128 1.14% $17,339 0.27% $12,601
2/28/94 $15,856 -2.59% $16,890 0.34% $12,644
3/31/94 $15,301 -4.07% $16,203 0.34% $12,687
4/30/94 $15,378 0.85% $16,341 0.14% $12,704
5/31/94 $15,482 0.87% $16,483 0.07% $12,713
6/30/94 $15,382 -0.61% $16,382 0.34% $12,756
7/31/94 $15,624 1.83% $16,682 0.27% $12,791
8/31/94 $15,703 0.35% $16,740 0.40% $12,842
9/30/94 $15,519 -1.47% $16,494 0.27% $12,877
10/31/94 $15,250 -1.78% $16,201 0.07% $12,886
11/30/94 $14,954 -1.81% $15,908 0.13% $12,902
12/31/94 $15,300 2.20% $16,258 0.00% $12,902
1/31/95 $15,663 2.86% $16,723 0.40% $12,954
2/28/95 $16,113 2.91% $17,209 0.40% $13,006
3/31/95 $16,209 1.15% $17,407 0.33% $13,049
4/30/95 $16,290 0.12% $17,428 0.33% $13,092
5/31/95 $16,718 3.19% $17,984 0.20% $13,118
6/30/95 $16,522 -0.87% $17,827 0.20% $13,144
7/31/95 $16,645 0.95% $17,997 0.00% $13,144
8/31/95 $16,829 1.27% $18,225 0.26% $13,178
9/30/95 $16,939 0.63% $18,340 0.20% $13,205
10/31/95 $17,167 1.45% $18,606 0.33% $13,248
11/30/95 $17,382 1.66% $18,915 -0.07% $13,239
12/31/95 $17,524 0.96% $19,097 -0.07% $13,230
1/31/96 $17,636 0.76% $19,242 0.59% $13,308
2/29/96 $17,508 -0.68% $19,111 0.32% $13,350
3/31/96 $17,395 -1.28% $18,866 0.52% $13,420
4/30/96 $17,402 -0.28% $18,813 0.39% $13,472
5/31/96 $17,409 -0.04% $18,806 0.19% $13,498
6/30/96 $17,631 1.09% $19,011 0.06% $13,506
7/31/96 $17,745 0.91% $19,184 0.19% $13,532
8/31/96 $17,766 -0.02% $19,180 0.19% $13,557
9/30/96 $18,021 1.40% $19,449 0.32% $13,601
10/31/96 $18,184 1.13% $19,668 0.32% $13,644
11/30/96 $18,457 1.83% $20,028 0.19% $13,670
12/31/96 $18,407 -0.42% $19,944 0.00% $13,670
1/31/97 $18,413 0.19% $19,982 0.32% $13,714
2/28/97 $18,563 0.92% $20,166 0.31% $13,756
3/31/97 $18,376 -1.33% $19,898 0.25% $13,791
4/30/97 $18,528 0.84% $20,065 0.12% $13,807
5/31/97 $18,796 1.51% $20,368 -0.06% $13,799
6/30/97 $18,950 1.07% $20,586 0.12% $13,816
7/31/97 $19,413 2.77% $21,156 0.12% $13,832
8/31/97 $19,299 -0.94% $20,957 0.19% $13,858
9/30/97 $19,516 1.19% $21,206 0.25% $13,893
10/31/97 $19,618 0.64% $21,342 0.25% $13,928
11/30/97 $19,771 0.59% $21,468 -0.06% $13,919
12/31/97 $20,025 1.46% $21,781 -0.12% $13,903
1/31/98 $20,161 1.03% $22,006 0.19% $13,929
2/28/98 $20,197 0.03% $22,012 0.19% $13,956
Total 101.97% 120.12% 39.56%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (40)
This chart shows in bar format the comparison between Franklin Puerto Rico
Tax-Free Income Fund's Class II distribution rate of 4.52% and the taxable
equivalent rate of 7.48% on 2/28/98.
GRAPHIC MATERIAL (41)
The following line graph compares the performance of the Franklin Puerto Rico
Tax-Free Income Fund's Class II shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 223 Inception 5/1/95
- -------------------------------------------------------------------------------
Date Franklin Puerto Rico Lehman Brothers Municipal CPI
Tax-Free Bond
Income Fund-Class II Index
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,155 3.19% $10,319 0.20% $10,020
6/30/95 $10,031 -0.87% $10,229 0.20% $10,040
7/31/95 $10,110 0.95% $10,326 0.00% $10,040
8/31/95 $10,216 1.27% $10,458 0.26% $10,066
9/29/95 $10,277 0.63% $10,523 0.20% $10,086
10/31/95 $10,410 1.45% $10,676 0.33% $10,120
11/30/95 $10,543 1.66% $10,853 -0.07% $10,112
12/29/95 $10,615 0.96% $10,957 -0.07% $10,105
1/31/96 $10,686 0.76% $11,041 0.59% $10,165
2/29/96 $10,603 -0.68% $10,966 0.32% $10,198
3/29/96 $10,521 -1.28% $10,825 0.52% $10,251
4/30/96 $10,530 -0.28% $10,795 0.39% $10,291
5/31/96 $10,520 -0.04% $10,791 0.19% $10,310
6/28/96 $10,648 1.09% $10,908 0.06% $10,316
7/31/96 $10,712 0.91% $11,008 0.19% $10,336
8/30/96 $10,730 -0.02% $11,005 0.19% $10,356
9/30/96 $10,870 1.40% $11,159 0.32% $10,389
10/31/96 $10,962 1.13% $11,286 0.32% $10,422
11/29/96 $11,112 1.83% $11,492 0.19% $10,442
12/31/96 $11,076 -0.42% $11,444 0.00% $10,442
1/31/97 $11,084 0.19% $11,466 0.32% $10,475
2/28/97 $11,169 0.92% $11,571 0.31% $10,508
3/31/97 $11,031 -1.33% $11,417 0.25% $10,534
4/30/97 $11,127 0.84% $11,513 0.12% $10,547
5/31/97 $11,282 1.51% $11,687 -0.06% $10,540
6/30/97 $11,370 1.07% $11,812 0.12% $10,553
7/31/97 $11,642 2.77% $12,139 0.12% $10,565
8/31/97 $11,569 -0.94% $12,025 0.19% $10,586
9/30/97 $11,693 1.19% $12,168 0.25% $10,612
10/31/97 $11,749 0.64% $12,246 0.25% $10,639
11/30/97 $11,825 0.59% $12,318 -0.06% $10,632
12/31/97 $11,981 1.46% $12,498 -0.12% $10,619
1/31/98 $12,057 1.03% $12,627 0.19% $10,640
2/28/98 $12,072 0.03% $12,631 0.19% $10,660
Total 20.72% 26.31% 6.60%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (42)
This chart shows in pie format the credit quality breakdown of the Franklin
Federal Intermediate-Term Tax-Free Income Fund based on total long-term
investments as of 2/28/98.
AAA 13.7%
AA 13.1%
A 21.0%
BBB 49.2%
Below Investment Grade 3.0%
GRAPHIC MATERIAL (43)
This chart shows in bar format the comparison between Franklin Federal
Intermediate-Term Tax-Free Income Fund's Class I distribution rate of 4.59%
and the taxable equivalent rate of 7.60% on 2/28/98.
GRAPHIC MATERIAL (44)
The following line graph compares the performance of the Franklin Federal
Intermediate-Term Tax-Free Income Fund's Class I shares to that of the Lehman
Brothers Municipal Bond Index, and to the Consumer Price Index based on a
$10,000 investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 0174 Inception 9/23/92
- -------------------------------------------------------------------------------
Date Franklin Federal Lehman Brothers Municipal CPI
Intermediate- 10-Year
Term Tax-Free Income Bond Index
Fund-Class I
- -------------------------------------------------------------------------------
9/23/92 $9,775 $10,000 $10,000
9/30/92 $9,785 0.19% $10,019 0.07% $10,007
10/31/92 $9,746 -1.02% $9,917 0.35% $10,042
11/30/92 $9,932 1.83% $10,099 0.14% $10,056
12/31/92 $10,010 1.16% $10,216 -0.07% $10,049
1/31/93 $10,094 1.69% $10,388 0.49% $10,098
2/28/93 $10,395 3.66% $10,769 0.35% $10,133
3/31/93 $10,420 -1.46% $10,611 0.35% $10,169
4/30/93 $10,496 0.95% $10,712 0.28% $10,197
5/31/93 $10,531 0.35% $10,750 0.14% $10,211
6/30/93 $10,687 1.97% $10,962 0.14% $10,226
7/31/93 $10,744 0.25% $10,989 0.00% $10,226
8/31/93 $10,931 2.07% $11,216 0.28% $10,254
9/30/93 $11,038 1.23% $11,354 0.21% $10,276
10/31/93 $11,105 0.16% $11,373 0.41% $10,318
11/30/93 $11,040 -0.82% $11,279 0.07% $10,325
12/31/93 $11,280 2.13% $11,520 0.00% $10,325
1/31/94 $11,408 1.23% $11,661 0.27% $10,353
2/28/94 $11,205 -2.74% $11,342 0.34% $10,388
3/31/94 $10,855 -3.82% $10,908 0.34% $10,424
4/30/94 $10,912 1.10% $11,028 0.14% $10,438
5/31/94 $11,000 0.80% $11,117 0.07% $10,445
6/30/94 $10,972 -0.43% $11,069 0.34% $10,481
7/31/94 $11,124 1.68% $11,255 0.27% $10,509
8/31/94 $11,203 0.39% $11,299 0.40% $10,551
9/30/94 $11,111 -1.35% $11,146 0.27% $10,580
10/31/94 $10,965 -1.46% $10,983 0.07% $10,587
11/30/94 $10,820 -1.89% $10,776 0.13% $10,601
12/31/94 $10,975 1.80% $10,970 0.00% $10,601
1/31/95 $11,229 2.59% $11,254 0.40% $10,643
2/28/95 $11,440 2.83% $11,572 0.40% $10,686
3/31/95 $11,543 1.35% $11,729 0.33% $10,721
4/30/95 $11,570 0.12% $11,743 0.33% $10,757
5/31/95 $11,862 3.17% $12,115 0.20% $10,778
6/30/95 $11,801 -0.62% $12,040 0.20% $10,800
7/31/95 $11,907 1.47% $12,217 0.00% $10,800
8/31/95 $12,070 1.36% $12,383 0.26% $10,828
9/30/95 $12,178 0.64% $12,462 0.20% $10,849
10/31/95 $12,319 1.15% $12,606 0.33% $10,885
11/30/95 $12,473 1.34% $12,774 -0.07% $10,878
12/31/95 $12,560 0.61% $12,852 -0.07% $10,870
1/31/96 $12,635 1.01% $12,982 0.59% $10,934
2/29/96 $12,573 -0.41% $12,929 0.32% $10,969
3/31/96 $12,477 -1.24% $12,769 0.52% $11,026
4/30/96 $12,472 -0.35% $12,724 0.39% $11,069
5/31/96 $12,455 -0.28% $12,688 0.19% $11,090
6/30/96 $12,579 0.95% $12,809 0.06% $11,097
7/31/96 $12,656 0.96% $12,932 0.19% $11,118
8/31/96 $12,663 0.00% $12,932 0.19% $11,139
9/30/96 $12,788 1.03% $13,065 0.32% $11,175
10/31/96 $12,925 1.26% $13,230 0.32% $11,210
11/30/96 $13,099 2.02% $13,497 0.19% $11,232
12/31/96 $13,094 -0.45% $13,436 0.00% $11,232
1/31/97 $13,102 0.39% $13,489 0.32% $11,268
2/28/97 $13,217 0.94% $13,615 0.31% $11,303
3/31/97 $13,091 -1.34% $13,433 0.25% $11,331
4/30/97 $13,195 0.74% $13,532 0.12% $11,344
5/31/97 $13,276 1.42% $13,724 -0.06% $11,338
6/30/97 $13,430 1.10% $13,875 0.12% $11,351
7/31/97 $13,732 2.81% $14,265 0.12% $11,365
8/31/97 $13,665 -0.97% $14,127 0.19% $11,386
9/30/97 $13,772 1.27% $14,306 0.25% $11,415
10/31/97 $13,842 0.53% $14,382 0.25% $11,443
11/30/97 $13,925 0.46% $14,448 -0.06% $11,437
12/31/97 $14,105 1.58% $14,677 -0.12% $11,423
1/31/98 $14,274 1.11% $14,840 0.19% $11,445
2/28/98 $14,279 -0.01% $14,838 0.19% $11,466
Total 42.79% 48.38% 14.66%
Return
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL (45)
This chart shows in pie format the credit quality breakdown of the Franklin
Federal High Yield Tax-Free Income Fund based on total long-term investments
as of 2/28/98.
AAA 27.0%
AA 4.5%
A 14.4%
BBB 24.9%
Below Investment Grade 29.2%
GRAPHIC MATERIAL (46)
This chart shows in bar format the comparison between Franklin Federal High
Yield Tax-Free Income Fund's Class I distribution rate of 5.51% and the
taxable equivalent rate of 9.12% on 2/28/98.
GRAPHIC MATERIAL (47)
The following line graph compares the performance of the Franklin Federal
High Yield Tax-Free Income Fund's Class I shares to that of the Lehman
Brothers Municipal Bond Index, and to the Consumer Price Index based on a
$10,000 investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 0130 Inception 3/18/86
- -------------------------------------------------------------------------------
Date Franklin High Yield Lehman Brothers Municipal CPI
Tax-Free Bond
Income Fund-Class I Index
- -------------------------------------------------------------------------------
3/1/88 $9,574 $10,000 $10,000
3/31/88 $9,500 -1.16% $9,884 0.43% $10,043
4/30/88 $9,566 0.76% $9,959 0.52% $10,095
5/31/88 $9,641 -0.29% $9,930 0.34% $10,130
6/30/88 $9,870 1.46% $10,075 0.43% $10,173
7/31/88 $9,975 0.65% $10,141 0.42% $10,216
8/31/88 $10,062 0.09% $10,150 0.42% $10,259
9/30/88 $10,227 1.81% $10,334 0.67% $10,327
10/31/88 $10,404 1.76% $10,515 0.33% $10,362
11/30/88 $10,374 -0.92% $10,419 0.08% $10,370
12/31/88 $10,514 1.02% $10,525 0.17% $10,387
1/31/89 $10,659 2.07% $10,743 0.50% $10,439
2/28/89 $10,654 -1.14% $10,620 0.41% $10,482
3/31/89 $10,670 -0.24% $10,595 0.58% $10,543
4/30/89 $10,890 2.37% $10,846 0.65% $10,612
5/31/89 $11,070 2.08% $11,072 0.57% $10,672
6/30/89 $11,221 1.36% $11,222 0.24% $10,698
7/31/89 $11,289 1.36% $11,375 0.24% $10,723
8/31/89 $11,263 -0.98% $11,263 0.16% $10,740
9/30/89 $11,226 -0.30% $11,229 0.32% $10,775
10/31/89 $11,327 1.22% $11,366 0.48% $10,827
11/30/89 $11,461 1.75% $11,565 0.24% $10,853
12/31/89 $11,543 0.82% $11,660 0.16% $10,870
1/31/90 $11,477 -0.47% $11,605 1.03% $10,982
2/28/90 $11,631 0.89% $11,709 0.47% $11,033
3/31/90 $11,619 0.03% $11,712 0.55% $11,094
4/30/90 $11,530 -0.72% $11,628 0.16% $11,112
5/31/90 $11,776 2.18% $11,881 0.23% $11,137
6/30/90 $11,912 0.88% $11,986 0.54% $11,198
7/31/90 $12,083 1.48% $12,163 0.38% $11,240
8/31/90 $11,865 -1.45% $11,987 0.92% $11,344
9/30/90 $11,854 0.06% $11,994 0.84% $11,439
10/31/90 $11,958 1.81% $12,211 0.60% $11,507
11/30/90 $12,156 2.01% $12,457 0.22% $11,533
12/31/90 $12,133 0.44% $12,512 0.00% $11,533
1/31/91 $12,287 1.34% $12,679 0.60% $11,602
2/28/91 $12,334 0.87% $12,789 0.15% $11,619
3/31/91 $12,394 0.04% $12,795 0.15% $11,637
4/30/91 $12,575 1.34% $12,966 0.15% $11,654
5/31/91 $12,685 0.89% $13,081 0.30% $11,689
6/30/91 $12,735 -0.10% $13,068 0.29% $11,723
7/31/91 $12,907 1.22% $13,228 0.15% $11,741
8/31/91 $13,043 1.32% $13,402 0.29% $11,775
9/30/91 $13,231 1.30% $13,577 0.44% $11,827
10/31/91 $13,319 0.90% $13,699 0.15% $11,844
11/30/91 $13,369 0.28% $13,737 0.29% $11,879
12/31/91 $13,637 2.15% $14,033 0.07% $11,887
1/31/92 $13,598 0.23% $14,065 0.15% $11,905
2/29/92 $13,586 0.03% $14,069 0.36% $11,948
3/31/92 $13,651 0.04% $14,075 0.51% $12,009
4/30/92 $13,794 0.89% $14,200 0.14% $12,025
5/31/92 $14,004 1.18% $14,367 0.14% $12,042
6/30/92 $14,210 1.68% $14,609 0.36% $12,086
7/31/92 $14,696 3.00% $15,047 0.21% $12,111
8/31/92 $14,475 -0.98% $14,900 0.28% $12,145
9/30/92 $14,495 0.65% $14,996 0.28% $12,179
10/31/92 $14,298 -0.98% $14,850 0.35% $12,222
11/30/92 $14,646 1.79% $15,115 0.14% $12,239
12/31/92 $14,872 1.02% $15,270 -0.07% $12,230
1/31/93 $15,072 1.16% $15,447 0.49% $12,290
2/28/93 $15,510 3.62% $16,006 0.35% $12,333
3/31/93 $15,461 -1.06% $15,836 0.35% $12,376
4/30/93 $15,566 1.01% $15,996 0.28% $12,411
5/31/93 $15,658 0.56% $16,086 0.14% $12,428
6/30/93 $15,936 1.67% $16,354 0.14% $12,446
7/31/93 $15,957 0.13% $16,376 0.00% $12,446
8/31/93 $16,295 2.08% $16,716 0.28% $12,480
9/30/93 $16,475 1.14% $16,907 0.21% $12,507
10/31/93 $16,510 0.19% $16,939 0.41% $12,558
11/30/93 $16,574 -0.88% $16,790 0.07% $12,567
12/31/93 $16,845 2.11% $17,144 0.00% $12,567
1/31/94 $17,029 1.14% $17,339 0.27% $12,601
2/28/94 $16,841 -2.59% $16,890 0.34% $12,644
3/31/94 $16,336 -4.07% $16,203 0.34% $12,687
4/30/94 $16,354 0.85% $16,341 0.14% $12,704
5/31/94 $16,448 0.87% $16,483 0.07% $12,713
6/30/94 $16,481 -0.61% $16,382 0.34% $12,756
7/31/94 $16,699 1.83% $16,682 0.27% $12,791
8/31/94 $16,749 0.35% $16,740 0.40% $12,842
9/30/94 $16,626 -1.47% $16,494 0.27% $12,877
10/31/94 $16,455 -1.78% $16,201 0.07% $12,886
11/30/94 $16,191 -1.81% $15,908 0.13% $12,902
12/31/94 $16,414 2.20% $16,258 0.00% $12,902
1/31/95 $16,812 2.86% $16,723 0.40% $12,954
2/28/95 $17,229 2.91% $17,209 0.40% $13,006
3/31/95 $17,456 1.15% $17,407 0.33% $13,049
4/30/95 $17,537 0.12% $17,428 0.33% $13,092
5/31/95 $17,961 3.19% $17,984 0.20% $13,118
6/30/95 $17,979 -0.87% $17,827 0.20% $13,144
7/31/95 $18,096 0.95% $17,997 0.00% $13,144
8/31/95 $18,280 1.27% $18,225 0.26% $13,178
9/30/95 $18,431 0.63% $18,340 0.20% $13,205
10/31/95 $18,666 1.45% $18,606 0.33% $13,248
11/30/95 $18,903 1.66% $18,915 -0.07% $13,239
12/31/95 $19,091 0.96% $19,097 -0.07% $13,230
1/31/96 $19,194 0.76% $19,242 0.59% $13,308
2/29/96 $19,179 -0.68% $19,111 0.32% $13,350
3/31/96 $18,992 -1.28% $18,866 0.52% $13,420
4/30/96 $19,011 -0.28% $18,813 0.39% $13,472
5/31/96 $19,047 -0.04% $18,806 0.19% $13,498
6/30/96 $19,241 1.09% $19,011 0.06% $13,506
7/31/96 $19,383 0.91% $19,184 0.19% $13,532
8/31/96 $19,454 -0.02% $19,180 0.19% $13,557
9/30/96 $19,722 1.40% $19,449 0.32% $13,601
10/31/96 $19,974 1.13% $19,668 0.32% $13,644
11/30/96 $20,281 1.83% $20,028 0.19% $13,670
12/31/96 $20,265 -0.42% $19,944 0.00% $13,670
1/31/97 $20,321 0.19% $19,982 0.32% $13,714
2/28/97 $20,505 0.92% $20,166 0.31% $13,756
3/31/97 $20,341 -1.33% $19,898 0.25% $13,791
4/30/97 $20,502 0.84% $20,065 0.12% $13,807
5/31/97 $20,755 1.51% $20,368 -0.06% $13,799
6/30/97 $21,010 1.07% $20,586 0.12% $13,816
7/31/97 $21,547 2.77% $21,156 0.12% $13,832
8/31/97 $21,428 -0.94% $20,957 0.19% $13,858
9/30/97 $21,782 1.19% $21,206 0.25% $13,893
10/31/97 $21,929 0.64% $21,342 0.25% $13,928
11/30/97 $22,076 0.59% $21,468 -0.06% $13,919
12/31/97 $22,415 1.46% $21,781 -0.12% $13,903
1/31/98 $22,660 1.03% $22,006 0.19% $13,929
2/28/98 $22,712 0.03% $22,012 0.19% $13,956
Total 127.12% 120.12% 39.56%
Return
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GRAPHIC MATERIAL (48)
This chart shows in bar format the comparison between Franklin Federal High
Yield Tax-Free Income Fund's Class II distribution rate of 5.10% and the
taxable equivalent rate of 8.44% on 2/28/98.
GRAPHIC MATERIAL (49)
The following line graph compares the performance of the Franklin Federal
High Yield Tax-Free Income Fund's Class II shares to that of the Lehman
Brothers Municipal Bond Index, and to the Consumer Price Index based on a
$10,000 investment from 3/1/88 to 2/28/98.
- -------------------------------------------------------------------------------
Fund No. 230 Inception 5/1/95
- -------------------------------------------------------------------------------
Date Franklin High Yield Lehman Brothers Municipal CPI
Tax-Free Bond
Income Fund-Class II Index
- -------------------------------------------------------------------------------
5/1/95 $9,899 $10,000 $10,000
5/31/95 $10,138 3.19% $10,319 0.20% $10,020
6/30/95 $10,152 -0.87% $10,229 0.20% $10,040
7/31/95 $10,221 0.95% $10,326 0.00% $10,040
8/31/95 $10,319 1.27% $10,458 0.26% $10,066
9/29/95 $10,399 0.63% $10,523 0.20% $10,086
10/31/95 $10,525 1.45% $10,676 0.33% $10,120
11/30/95 $10,662 1.66% $10,853 -0.07% $10,112
12/29/95 $10,762 0.96% $10,957 -0.07% $10,105
1/31/96 $10,814 0.76% $11,041 0.59% $10,165
2/29/96 $10,800 -0.68% $10,966 0.32% $10,198
3/29/96 $10,692 -1.28% $10,825 0.52% $10,251
4/30/96 $10,697 -0.28% $10,795 0.39% $10,291
5/31/96 $10,712 -0.04% $10,791 0.19% $10,310
6/28/96 $10,816 1.09% $10,908 0.06% $10,316
7/31/96 $10,890 0.91% $11,008 0.19% $10,336
8/30/96 $10,925 -0.02% $11,005 0.19% $10,356
9/30/96 $11,070 1.40% $11,159 0.32% $10,389
10/31/96 $11,205 1.13% $11,286 0.32% $10,422
11/29/96 $11,371 1.83% $11,492 0.19% $10,442
12/31/96 $11,357 -0.42% $11,444 0.00% $10,442
1/31/97 $11,392 0.19% $11,466 0.32% $10,475
2/28/97 $11,489 0.92% $11,571 0.31% $10,508
3/31/97 $11,392 -1.33% $11,417 0.25% $10,534
4/30/97 $11,476 0.84% $11,513 0.12% $10,547
5/31/97 $11,611 1.51% $11,687 -0.06% $10,540
6/30/97 $11,747 1.07% $11,812 0.12% $10,553
7/31/97 $12,040 2.77% $12,139 0.12% $10,565
8/31/97 $11,969 -0.94% $12,025 0.19% $10,586
9/30/97 $12,170 1.19% $12,168 0.25% $10,612
10/31/97 $12,235 0.64% $12,246 0.25% $10,639
11/30/97 $12,311 0.59% $12,318 -0.06% $10,632
12/31/97 $12,504 1.46% $12,498 -0.12% $10,619
1/31/98 $12,634 1.03% $12,627 0.19% $10,640
2/28/98 $12,657 0.03% $12,631 0.19% $10,660
Total 26.57% 26.31% 6.60%
Return
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