SEMI
ANNUAL REPORT
FRANKLIN TAX-FREE TRUST
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and 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:
Franklin's Municipal
Bond Department 4
Fund Reports
Franklin Arizona Insured
Tax-Free Income Fund 6
Franklin Florida Insured
Tax-Free Income Fund 10
Franklin Insured
Tax-Free Income Fund 14
Franklin Massachusetts Insured
Tax-Free Income Fund 20
Franklin Michigan Insured
Tax-Free Income Fund 27
Franklin Minnesota Insured
Tax-Free Income Fund 34
Franklin Ohio Insured
Tax-Free Income Fund 41
Municipal Bond Ratings 48
Financial Highlights &
Statement of Investments 50
Financial Statements 97
Notes to Financial Statements 104
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's semiannual report for the
period ended August 31, 1998.
Economic Overview
In our annual report for the period ended February 28, 1998, we mentioned the
likelihood of a U.S. economic slowdown brought on, for the most part, by the
Asian financial crisis. Four months later, this came to pass. U.S. economic
growth measured by gross domestic product (GDP) slowed, from an extremely
strong 5.5% annual rate in the first three months of the year, to a more
moderate 1.6% annual rate in the April-June period, reflecting weak Asian
demand for goods and a business inventory buildup. A higher U.S. trade
deficit resulted, as Asian countries tried exporting their way out of their
economic turmoil, capitalizing on weakened currencies to boost their exports
abroad. For the first six months of this year, America's trade deficit was
running at an annual rate of $158 billion, far surpassing last year's
imbalance of $110 billion. The largest annual deficit on record, $152
billion, was set in 1987. Clearly, the American consumer continues to drive
our economy through relatively strong purchases of retail goods, durable
goods, and new and existing homes. Looking forward, the consumer may well
dictate the direction of the U.S. economy.
As of the end of the reporting period, Federal Reserve Board (Fed) policy-makers
opted to leave short-term interest rates unchanged. In its mid-August meeting,
the Fed's monetary policy panel, the Federal Open Market Committee, held the
benchmark rate on overnight interbank loans unchanged at 5.5%. This rate has
been frozen at 5.5% since March 1997, when policy-makers raised it a quarter
percentage point.Competing considerations kept long-term interest rates in a
relatively narrow trading range. Although labor shortages and gradually
accelerating wages normally might call for an interest-rate increase to curb
excessive domestic growth, inflation actually remained subdued. Domestic
manufacturers, faced with a potential flood of cheaper Asian imports, were
reluctant to raise prices. For the first seven months of the year, inflation ran
at a 1.5% annual rate, according to the U.S. Labor Department.
"As of the end of the reporting period, the yields on 30-year, AAA-rated,
insured municipal bonds stood at more than 91% of the yield on a 30-year
Treasury bond ... ."
During the reporting period, the yield on the benchmark 30-year U.S. Treasury
bond continued its downward trend and actually hit record lows. The 30-year
Treasury began the reporting period yielding 5.92% on February 28, 1998, and
ended the period yielding 5.30% on August 31, 1998. Falling yields reflected
the 30-year Treasury bond's popularity, or "flight to quality," among
investors fleeing deteriorating foreign stock markets. Bond price and yield
move in an inverse relationship, so the rising price of the 30-year Treasury
led to a corresponding yield decline.
Issuers of municipal bonds took advantage of lower interest rates during the
six-month period by refinancing outstanding higher interest-rate debt.
Additionally, many municipalities were in excellent fiscal shape due to the
strong economy. In fact, credit rating upgrades exceeded downgrades by a
four-to-one ratio. As a consequence, borrowing for new projects increased,
such that the supply of new municipal bond issues in 1998 could approach
record levels. Demand did not keep pace with the increased supply, causing
municipal bonds to underperform compared with their taxable counterparts. As
of the end of the reporting period, the yields on 30-year, AAA-rated, insured
municipal bonds stood at more than 91% of the yield on a 30-year Treasury
bond, which in our opinion, creates a very attractive investment opportunity
in the municipal bond market. For those investors in the 39.6% tax bracket,
the taxable equivalent yield on a municipal bond was 8.23% versus 5.30% for
the Treasury bond.*
*Source: Bloomberg, August 31, 1998.
Our investment philosophy remains disciplined and focused, as we strive to
offer our shareholders high, current tax-free income and preservation of
principal. The outlook for the municipal bond market should remain positive,
given the slowing U.S. economy, positive inflation environment, U.S. budget
surplus, strong U.S. dollar and the economic and market uncertainty facing
many of the world's regions.
Municipal bonds continue to be an attractive investment for those investors
seeking tax-free income as well as an opportunity to diversify risk in their
portfolio. We encourage you to discuss your financial goals with an
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. 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
Franklin's Municipal Bond Department
The Municipal Bond Department Today
Franklin is currently the nation's largest tax-free fund manager. With a team
of 11 portfolio managers and 22 research analysts, we manage more than $50
billion of municipal assets in 43 funds for over 886,000 tax-free fund
shareholder accounts.
Our Investment Philosophy
The investment objective of Franklin's tax-free funds is to provide a high
level of current, tax-free income while preserving shareholders' capital.
Following a disciplined investment approach, we conduct a stringent credit
analysis to search for what we believe to be undervalued situations, and
generally purchase current coupon bonds at prices we consider favorable. We
also acknowledge that investors in general are risk-averse; therefore, we do
not invest in exotic derivatives, nor leverage or hedge our portfolios, which
would increase the funds' volatility.
Furthermore, Franklin positions its funds with a long-term investment horizon.
We purchase a major portion of our municipal bonds in the new-issue market and
incorporate a buy-and-hold strategy, attempting to reduce portfolio turnover and
thus, avoid capital gain distributions. We expect our funds to distribute a
relatively high level of tax-free income, and attempt to maximize risk-adjusted
total return performance.
Research and Analysis
Franklin has one of the industry's largest research departments. Along with
the portfolio managers, the research department's main mission is to identify
the best municipal buying opportunities.
Our analysts are recognized experts in their individual fields, who focus on
specific sectors, and not on regions. With the use of proprietary databases,
our analysts can provide fast and reliable analysis to portfolio managers
about any bond issue being considered. Each year analysts visit a number of
sites to get a perspective of our financed projects. They meet with
management teams and municipal officials to discuss newly found potential
opportunities and problems.
In this industry, our municipal bond team often takes on the role of
investment bankers. Many of our competitors routinely turn away from issues
they believe unattractive; at Franklin, we pride ourselves in proposing
changes to these issues, and work to make them acceptable to our criteria.
These situations usually provide us with excellent investment return.
The ability and willingness to work with investment bankers and our
reputation for talented analysts also make us a preferred client to receive
the "first call" on issues many brokerage houses underwrite. Lastly, our
research analysts have made significant efforts to improve municipal markets.
With their involvement and leadership, they have been working with attorney
and issuer groups and industry regulators to strengthen the municipal bond
industry.
GRAPHIC PICTURE OMITTED
Franklin Municipal Bond Team
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
GRAPHIC PICTURE OMITTED
Arizona's economy showed continued strength during the reporting period. In
the first quarter of 1998, wage and salary employment increased 4.8% compared
with the first quarter 1997. That translated into the creation of 94,000 new
jobs. Surveys conducted by the Conference Board Help Wanted Index and
Manpower Inc. showed that the demand for labor remained strong. Arizona's
unemployment was 4.1% in May 1998, the lowest level since 1970 and among the
nation's lowest.2 Personal income grew by 7.7% in 1997. As a result of the
strong job market and increased real wages, consumer confidence rose to an
all-time high in April.3
As a state where population growth historically has fueled the economy,
Arizona's population was estimated at 4.66 million in the first quarter of
1998, a 21% increase since 1990. With a population of 1.2 million, Phoenix is
the nation's sixth-largest city. Population growth stimulated the
construction, manufacturing, service and trade sectors.3
PORTFOLIO NOTES
Over the reporting period, insured bonds offered excellent value, in our
opinion. Two factors contributed to this value -- the narrowing yield spread
between insured and lower-rated bonds, and the continued low cost of
municipal bond insurance. The yield spread between insured bonds and
BBB-rated bonds averaged approximately 30 basis points, or 0.3%, but
historically has been approximately 50 basis points or higher.
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 as 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: Eller Graduate School of Management, the University of Arizona,
Arizona's Economy, July 1998.
3. Source: Arizona Department of Commerce, The Gold Sheet, Arizona Economic
Development Update, July/August 1998.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 51
of this report.
This compression in yields resulted from investors' increasing demand for BBB
bonds, as they sought to earn higher yields in a low interest-rate environment.
However, as the price of lower-rated bonds rises, their yields decline.
Meanwhile, heightened competition among the four major AAA-rated municipal bond
insurers (MBIA, AMBAC, FGIC and FSA) brought a decline in premiums the insurers
charge. As a result, municipal bond insurance became comparatively inexpensive
for municipal issuers, prompting them increasingly to offer insured bonds.
Investors in insured municipal bonds benefited from favorable yield spreads
compared with lower-rated bonds, and from the added credit protection offered by
low-cost municipal bond insurance.
Arizona's economy thrived during the first half of the fund's fiscal year,
continuing to experience sustainable growth with little inflation. New-issue
supply of municipal bonds for the first six months of 1998 increased by a
substantial 43% versus the same time last year. This increased supply
resulted from new infrastructure and capital improvement demand, coupled with
low borrowing costs. In addition, low interest rates allowed Arizona
municipalities to refinance outstanding debt by issuing new bonds.
The hefty surge in new Arizona municipal bond supply during the first six
months of 1998 allowed the fund opportunities to purchase new issues and
maintain portfolio diversification. New additions to the portfolio include
Mesa general obligation bonds, Pima County Unified School District No. 6 -
Marana revenue bonds, and Maricopa County Industrial Development Authority
Multifamily Housing revenue bonds for the Stanford Court and Villas De Merced
Apartments. The fund also purchased Phoenix Industrial Development Authority
Single Family Housing revenue bonds. The Phoenix Industrial Development
Authority helps people buy housing within the Phoenix city limits. The
program issues bonds at favorable, tax-exempt rates and lends the proceeds to
qualified, first-time home buyers via conventional banks and mortgage
companies.
Franklin Arizona Insured Tax-Free Income Fund maintains its primary focus of
providing shareholders with long-term, tax-free income. To do this, we
actively manage the fund's call exposure by attempting to sell prerefunded
bonds and buy securities with longer call protection. At the same time, we
closely monitor the existing credits in the portfolio, along with Arizona's
economy and new-issue supply. We believe strong population growth should help
maintain the demand for infrastructure, positively impacting future supply.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
Portfolio Breakdown
8/31/98
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------
Education 31.8%
Utilities 26.1%
Housing 10.6%
Prerefunded 8.3%
Other Revenue Bonds 6.7%
Hospitals 5.8%
General Obligation 3.8%
Industrial 2.4%
Certificates of Participation 1.6%
Road Improvement Bonds 1.5%
Miscellaneous 0.8%
Sales Tax 0.6%
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
Dividend Distributions
3/1/98/ - 8/31/98
Dividend
Month per share
- ---------------------------------------
March.......................4.4 cents
April.......................4.4 cents
May.........................4.4 cents
June........................4.4 cents
July........................4.4 cents
August......................4.4 cents
- ---------------------------------------
Total......................26.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the fund during the reporting
period.
PERFORMANCE SUMMARY
Franklin Arizona Insured Tax-Free Income Fund's share price, as measured by
net asset value, increased 10 cents, from $10.77 on February 28, 1998, to
$10.87 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 26.4 cents ($0.264) 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 $11.35 on August 31, 1998,
your fund's distribution rate was 4.65%. 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 8.12% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Arizona Insured Tax-Free Income Fund
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (4/30/93)
Cumulative Total Return1 8.89% 26.36% 42.70%
Average Annual Total Return2 4.23% 6.55% 6.03%
Distribution Rate3 4.65%
Taxable Equivalent Distribution Rate4 8.12%
30-Day Standardized Yield5 4.41%
Taxable Equivalent Yield4 7.70%
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. Prior to July 1, 1994, fund shares were offered
at a higher initial sales charge. Thus actual total returns would be somewhat
lower.
3. Distribution rate is based on an annualization of the current 4.4 cent per
share monthly dividend and the maximum offering price of $11.35 on August 31,
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 August 31, 1998.
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 3.92%. 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 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
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
GRAPHIC PICTURE OMITTED
Florida's healthy economic expansion boasts growth in personal income,
employment and population. These trends increased at a higher rate than the
national average, as the demand for goods and services continues to fuel the
state's economic growth. Furthermore, the state's debt levels remain
manageable, and proposed fiscal 1999 spending is slightly below 1997 levels,
with the focus on public education and infrastructure.
Standard & Poor's(R), a national credit rating agency, rates Florida's general
obligation debt AA+. Meanwhile, a continually growing, service-based economy,
well-managed financial program and strong budget control with a sizable
budget stabilization reserve contributed to the state's credit worthiness.
Job markets continued their growth as the unemployment rate dropped to 4.8%
through 1997.2
PORTFOLIO NOTES
Over the reporting period, insured bonds offered excellent value, in our
opinion. Two factors contributed to this value -- the narrowing yield spread
between insured and lower-rated bonds, and the continued low cost of
municipal bond insurance. The yield spread between insured bonds and
BBB-rated bonds averaged approximately 30 basis points, or 0.3%, but
historically has been approximately 50 basis points or higher. This
compression in yields resulted from investors' increasing demand for BBB
bonds, as they sought to earn higher yields in a low interest-rate
environment. However, as the price of lower-rated bonds rises, their yields
decline. Meanwhile, heightened competition among the four major AAA-rated
municipal bond insurers (MBIA, AMBAC, FGIC and FSA) brought a decline in
premiums the insurers charge. As a result, municipal bond insurance became
comparatively inexpensive for municipal issuers, prompting them increasingly
to offer insured bonds. Investors in insured municipal bonds benefited from
favorable yield spreads compared with lower-rated bonds, and from the added
credit protection offered by low-cost municipal bond insurance.
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 as 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, 4/7/98. This does not
indicate Standard & Poor's rating of the fund.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 54
of this report.
The fund continued its strategy of investing for tax-free income and capital
preservation. This was challenging at times, in light of the lower
interest-rate environment, which put some pressure on the fund's overall
income earnings. One strategy employed during the reporting period was to
purchase bonds with better original issue discount (OID) than those we sold,
which can provide some protection in a down market. At the end of April,
Franklin Florida Insured Tax-Free Income Fund sold bonds with lower OIDs,
took a tax loss, and replaced them with bonds having greater OIDs. In this
scenario, the fund executed some trades without giving up the issues' yields
and, in some cases, even improved them. Please keep in mind that the fund can
only distribute what it earns, so dividend distributions may have to be
decreased in the future, if interest rates remain at current or lower levels.
Franklin Florida Insured Tax-Free Income Fund purchased only insured,
AAA-rated securities. Purchases during the reporting period included Sunrise
Utilities System revenue bonds; Port St. Lucie Utilities revenue bonds; and
Martin County, Florida Utilities System revenue bonds.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
FRANKLIN FLORIDA INSURED
TAX-FREE INCOME FUND
Portfolio Breakdown
8/31/98
% of Total
Long - Term
Sector Investments
- ------------------------------------------
Utilities 44.3%
Other Revenue Bonds 15.5%
Hospitals 9.1%
Prerefunded 7.2%
Housing 6.7%
Certificates of Participation 5.6%
Sales Tax 3.3%
Industrial 3.2%
General Obligation 2.4%
Transportation 2.2%
Special Assessment Bonds 0.5%
FRANKLIN FLORIDA INSURED
TAX-FREE INCOME FUND
Dividend Distributions
3/31/98 - 8/31/98
Dividend
Month per share
- --------------------------------------
March.......................4.3 cents
April.......................4.3 cents
May.........................4.3 cents
June........................4.3 cents
July........................4.3 cents
August......................4.3 cents
- -------------------------------------
Total......................25.8 cents
*Assumeds shares were purchased and held for the entire accrual period. since
dividends accrue daily, your actual distributions will vary depending on the
date your purchased your shares and any account activity during the month.
Income distributions include all accrued income earned by the fund during the
reporting period.
PERFORMANCE SUMMARY
Franklin Florida Insured Tax-Free Income Fund's share price, as measured by
net asset value, increased 11 cents, from $10.43 on February 28, 1998, to
$10.54 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 25.8 cents ($0.258) 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) and the maximum offering price of $11.01 on August 31, 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 federal income tax bracket would need to
earn 7.76% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin Florida Insured Tax-Free Income Fund
Periods ended 8/31/98
Since
Inception
1-Year 5-Year (4/30/93)
- ------------------------------------------------------------------------------
Cumulative Total Return1 9.33% 33.51% 38.28%
Average Annual Total Return2 4.68% 5.03% 5.40%
Distribution Rate3 4.69%
Taxable Equivalent Distribution Rate4 7.76%
30-Day Standardized Yield5 4.38%
Taxable Equivalent Yield4 7.25%
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 includes the current, maximum
4.25% initial sales charge. Prior to July 1, 1994, fund shares were offered
at a higher initial sales charge. Thus actual total returns would be somewhat
lower.
3. Distribution rate is based on an annualization of the current 4.3 cent per
share monthly dividend and the maximum offering price of $11.01 on August 31,
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 August 31, 1998.
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 and total return would have been lower, and yield for the
period would have been 3.96%. 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 2 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
Over the reporting period, insured bonds offered excellent value, in our
opinion. Two factors contributed to this value -- the narrowing yield spread
between insured and lower-rated bonds, and the continued low cost of
municipal bond insurance. The yield spread between insured bonds and
BBB-rated bonds averaged approximately 30 basis points, or 0.3%, but
historically has been approximately 50 basis points or higher. This
compression in yields resulted from investors' increasing demand for BBB
bonds, as they sought to earn higher yields in a low interest-rate
environment. However, as the price of lower-rated bonds rises, their yields
decline. Meanwhile, heightened competition among the four major AAA-rated
municipal bond insurers (MBIA, AMBAC, FGIC and FSA) brought a decline in
premiums the insurers charge. As a result, municipal bond insurance became
comparatively inexpensive for municipal issuers, prompting them increasingly
to offer insured bonds. Investors in insured municipal bonds benefited from
favorable yield spreads compared with lower-rated bonds, and from the added
credit protection offered by low-cost municipal bond insurance.
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. This increased the number of
prerefunded bonds in the fund's portfolio. When a bond is prerefunded, a new
issue is brought to market with a lower interest rate to pay off the older
issue at its first call date. In most cases, the proceeds from the sale of
the new bonds are invested in U.S. Treasury securities that mature on the
first call date of the original bonds. Because of the U.S. Treasury backing,
prerefunded bonds usually offer a substantial price increase -- depending on
their call date.
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 as to any insurer's ability to meet its commitments.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 57
of this report.
Generally, we look to sell prerefunded bonds as they approach five years to
their call date. At this point, the premium on prerefunded bonds often begins to
decline rapidly to the stated call price. Because of the low interest-rate
environment, it was difficult for the fund to generate enough capital losses to
offset the gains realized from the prerefunded bond sales. Thus, the fund
distributed 4.03 cents per share in long-term capital gains and 0.77 cents per
share in short-term capital gains, in June.
Proceeds from the sale of prerefunded bonds were generally used to purchase
current coupon bonds, which offer call protection of approximately 10 years.
Purchases during the reporting period included Chicago, Illinois general
obligations; Anniston, Alabama Regional Medical Center Board; and Wisconsin
State Health and Educational Facilities Authority Revenue -- Aurora Health
Care, Inc. Current coupon bonds with such call protection should perform well
through various market cycles.
The fund's underlying bonds increased in market value during the six-month
period, contributing to a 2.0% rise in the fund's total net assets, from
$1,723 million to $1,757 million, thus providing shareholders a more
diversified and stable asset base. We believe the fund's performance is
largely a tribute to Franklin's income-oriented approach. We will continue to
manage the fund with the intention of protecting its share value and
maintaining its competitive yield. Going forward, we anticipate rather mild
inflation, relatively stable interest rates and further economic growth among
municipal bond issuers. Under such circumstances, we believe the fund is
positioned for strong performance.
The lower interest-rate environment will continue to put some pressure on the
overall income earnings of the fund. Please keep in mind that the fund can
distribute only what it earns, so the dividend distributions of the fund may
decrease in the future if interest rates remain at current levels or move
lower. It is important to note that we still adhere to our philosophy of
investing for income and stability of share value. We believe that the fund
should rank favorably when compared with other fixed-income investment
alternatives.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
FRANKLIN INSURED
TAX-FREE INCOME FUND
Portfolio Breakdown
8/31/98
% of Total
Long - Term
Sector Investments
- ------------------------------------------
Utilities 24.7%
Prerefunded 15.3%
Hospitals 13.6%
Education 9.9%
Transportation 9.6%
Health Care 9.0%
Housing 5.6%
General Obligation 5.1%
Certificates of Participation 3.0%
Other Revenue 2.4%
Industrial 0.9%
Sales Tax 0.8%
Special Assessment Bonds 0.1%
FRANKLIN INSURED TAX-FREE
INCOME FUND
CLASS I
Dividend Distributions
3/31/98 - 8/31/98
Dividend
Month per share
- -------------------------------------
March.......................5.5 cents
April.......................5.5 cents
May.........................5.5 cents
June........................5.3 cents
July........................5.3 cents
August......................5.3 cents
- --------------------------------------
Total......................32.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the fund during the reporting
period.
PERFORMANCE SUMMARY
CLASS I
Franklin Insured Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased five cents, from $12.31 on February 28, 1998, to
$12.36 on August 31, 1998. During the six-month reporting period,
shareholders received per-share distributions consisting of dividend income
totaling 32.4 cents ($0.324), 4.03 cents ($0.0403) in long-term capital gains
and 0.77cents ($0.0077) in short-term capital gains. Distributions will vary
based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. 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 $12.91 on August 31, 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 federal income tax bracket would need to
earn 8.16% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin Insured Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (4/3/85)
- ------------------------------------------------------------------------------
Cumulative Total Return1 8.27% 32.23% 115.75% 196.56%
Average Annual Total Return2 3.68% 4.83% 7.53% 8.09%
Distribution Rate3 4.93%
Taxable Equivalent Distribution Rate4 8.16%
30-Day Standardized Yield5 4.08%
Taxable Equivalent Yield4 6.75%
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. 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.
3. Distribution rate is based on an annualization of the current 5.3 cent per
share monthly dividend and the maximum offering price of $12.91 on August 31,
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 August 31, 1998.
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 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN INSURED TAX-FREE
INCOME FUND
CLASS II
Dividend Distributions
3/31/98 - 8/31/98
Dividend
Month per share
- ---------------------------------------
March.......................4.91 cents
April.......................4.92 cents
May.........................4.92 cents
June........................4.72 cents
July........................4.77 cents
August......................4.77 cents
Total......................29.01 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.
CLASS II
Franklin Insured Tax-Free Income Fund Class II share price, as measured by
net asset value, increased five cents, from $12.38 on February 28, 1998, to
$12.43 on August 31, 1998. During the six-month reporting period,
shareholders received per-share distributions consisting of dividend income
totaling 29.01 cents ($0.2901), 4.03 cents ($0.0403) in long-term capital
gains and 0.77 cents ($0.0077) in short-term capital gains. Distributions
will vary based on the fund's income and any profits realized from the sale
of securities in the fund's portfolio. Past distributions are not predictive
of future trends.
Based on an annualization of the current monthly per-share dividend of 4.77
cents ($0.0477) and the maximum offering price of $12.56 on August 31, 1998,
your fund's distribution rate was 4.56%. 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 7.55% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin Insured Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3- Year (5/1/95)
- ------------------------------------------------------------------------------
Cumulative Total Return1 7.70% 20.47% 24.18%
Average Annual Total Return2 5.67% 6.06% 6.39%
Distribution Rate3 4.56%
Taxable Equivalent Distribution Rate4 7.55%
30-Day Standardized Yield5 3.66%
Taxable Equivalent Yield4 6.06%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.77 cent
per share monthly dividend and the maximum offering price of $12.56 on August
31, 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 August 31, 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 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
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 UPDATE2
GRAPHIC PICTURE OMITTED
Standard & Poor's, a national credit rating agency, upgraded Massachusetts'
general obligation debt rating from A+ to AA-.3 The credit upgrade reflected
the commonwealth's strengthened economic posture and sound financial position.
After recovering strongly from the early 1990s' recession, the Massachusetts
economy expanded further during the reporting period, driven by high
technology, financial services, education and health care. From 1993 to 1998,
employment grew in excess of 2% annually, and the unemployment rate remained
below the national level.
The commonwealth's debt ratios were high, with net tax-supported debt
amounting to $13.9 billion. Net tax-supported debt is the total amount of
debt the state is legally obligated to pay, less the debt of its highest
credit-quality agencies. These are agencies where the state has a moral
obligation to replenish deficiencies in their reserve funds, but has never
had to do so. With borrowing pressure increasing for routine infrastructure
needs and funding the Central Artery Tunnel Project, estimated to cost $11.6
billion by completion, we will continue to closely monitor the commonwealth's
debt management ability.
Despite its ongoing heavy debt burden, Massachusetts' financial condition
remained strong, as the commonwealth ended its fiscal year with a $1 billion
surplus. Implementing substantial programmatic changes over the past seven
years, Massachusetts reduced its staffing levels, resulting in significant
expenditure savings. The commonwealth generated six years of operating
surpluses, from 1992 through 1997, and fiscal 1998 is expected to close with
an operating surplus in excess of $800 million.
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 as 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: Fitch IBCA, 6/6/98.
3. This does not indicate Standard & Poor's rating of the fund.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 73
of this report.
PORTFOLIO NOTES
Over the reporting period, insured bonds offered excellent value, in our
opinion. Two factors contributed to this value the narrowing yield spread
between insured and lower-rated bonds, and the continued low cost of
municipal bond insurance. The yield spread between insured bonds and
BBB-rated bonds averaged approximately 30 basis points, or 0.3%, but
historically has been approximately 50 basis points or higher. This
compression in yields resulted from investors' increasing demand for BBB
bonds, as they sought to earn higher yields in a low interest-rate
environment. However, as the price of lower-rated bonds rises, their yields
decline. Meanwhile, heightened competition among the four major AAA-rated
municipal bond insurers (MBIA, AMBAC, FGIC and FSA) brought a decline in
premiums the insurers charge. As a result, municipal bond insurance became
comparatively inexpensive for municipal issuers, prompting them increasingly
to offer insured bonds. Investors in insured municipal bonds benefited from
favorable yield spreads compared with lower-rated bonds, and from the added
credit protection offered by low-cost municipal bond insurance.
The fund diligently reinvested call and coupon proceeds in Massachusetts
municipal bonds providing the best relative value, consistent with the goal
to provide long-term tax-free income to shareholders. The fund also continued
to sell prerefunded bonds and reinvest the proceeds in securities with longer
call protection. In an effort to extend the fund's income-earning potential
and protect the share value, we generally sell prerefunded bonds whose call
dates are approximately five years away, and replace them with bonds offering
around 10 years call protection. At this point, the premium on prerefunded
bonds often begins to decline rapidly to the stated call price. However,
because of the low interest-rate environment, it was difficult for the fund
to generate enough capital losses to offset the gains realized from the
prerefunded bond sales. Thus, the fund distributed 1.37 cents per share in
long-term capital gains and 3.6 cents per share in short-term capital gains,
in June.
% of Total
Long - Term
Sector Investments
- ------------------------------------------
Hospitals 28.3%
Education 23.3%
Transportation 10.9%
Prerefunded 10.5%
General Obligation 10.3%
Housing 9.2%
Utilities 5.4%
Health Care 1.2%
Certificates of Participation 0.9%
We maintained sector diversification in the portfolio holdings. During the
reporting period, we added such noteworthy credits as Boston, Massachusetts
general obligation bonds; Chelsea, Massachusetts general obligation bonds;
Massachusetts State Industrial Financing Agency Revenue for the Western New
England College; Massachusetts State Health and Education Facilities
Authority Revenue for Simmons College; and Massachusetts State Housing
Finance Agency - Single Family Housing revenue bonds. Such diversification in
a broad range of sectors helped reduce the fund's exposure to risk and
volatility.
We continue to closely monitor the supply of insured Massachusetts municipal
bonds. For the first six months of 1998, the state issued credits totalling
$5.3 billion, of which 67% was insured. Compared with the first six months of
1997, new issuance increased dramatically by 132%. Looking ahead, if interest
rates remain low, the lower borrowing costs available to issuers could
increase the supply of refunding issues, and the supply of new issues in
general.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
PERFORMANCE SUMMARY
CLASS I
Franklin Massachusetts Insured Tax-Free Income Fund Class I share price, as
measured by net asset value, increased four cents, from $11.75 on
February 28, 1998, to $11.79 on August 31, 1998. During the six-month
reporting period, shareholders received per-share distributions consisting of
dividend income totaling 29.4 cents ($0.294), 1.37 cents ($0.0137) in
long-term capital gains and 3.6 cents ($0.036) in short-term capital gains.
Distributions will vary based on the fund's income and any profits realized
from the sale of securities in the fund's portfolio. 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 $12.31 on August 31, 1998,
your fund's distribution rate was 4.78%. This tax-free rate is generally
higher than the after-tax return on a comparable taxable investment. For
example, an investor in the maximum combined federal and Massachusetts state
personal income tax bracket would need to earn 8.99% from a taxable
investment to match the fund's tax-free distribution rate.
FRANKLIN MASSACHUSETTS INSURED
TAX-FREE INCOME FUND
CLASS I
Dividend Distributions
3/31/98 - 8/31/98
Dividend
Month per share
- --------------------------------------
March.......................4.9 cents
April.......................4.9 cents
May.........................4.9 cents
June........................4.9 cents
July........................4.9 cents
August......................4.9 cents
Total......................29.4 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 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Massachusetts Insured Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (4/3/85)
- ------------------------------------------------------------------------------
Cumulative Total Return1 8.01% 32.34% 110.43% 172.21%
Average Annual Total Return2 3.39% 4.85% 7.26% 7.40%
Distribution Rate3 4.78%
Taxable Equivalent Distribution Rate4 8.99%
30-Day Standardized Yield5 3.94%
Taxable Equivalent Yield4 7.41%
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. 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.
3. Distribution rate is based on an annualization of the current 4.9 cent per
share monthly dividend and the maximum offering price of $12.31 on August 31,
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 August 31, 1998.
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.
CLASS II
Franklin Massachusetts Insured Tax-Free Income Fund Class II share price, as
measured by net asset value, increased four cents, from $11.80 on
February 28, 1998, to $11.84 on August 31, 1998. During the six-month
reporting period, shareholders received per-share distributions consisting of
dividend income totaling 26 cents ($0.26), 1.37 cents ($0.0137) in long-term
capital gains and 3.6 cents ($0.036) in short-term capital gains.
Distributions will vary based on the fund's income and any profits realized
from the sale of securities in the fund's portfolio. Past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.32
cents ($0.0432) and the maximum offering price of $11.96 on August 31, 1998,
your fund's distribution rate was 4.33%. This tax-free rate is generally
higher than the after-tax return on a comparable taxable investment. For
example, an investor in the maximum combined federal and Massachusetts state
personal income tax bracket would need to earn 8.15% from a taxable
investment to match the fund's tax-free distribution rate.
FRANKLIN MASSACHUSETTS INSURED
TAX-FREE INCOME FUND
CALSS II
Dividend Distributions
3/31/98 - 8/31/98
Dividend
Month per share
- --------------------------------------
March.......................4.34 cents
April.......................4.34 cents
May.........................4.34 cents
June........................4.34 cents
July........................4.32 cents
August......................4.32 cents
Total......................26.00 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 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Massachusetts Insured Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- ------------------------------------------------------------------------------
Cumulative Total Return1 7.44% 20.42% 24.18%
Average Annual Total Return2 5.36% 6.02% 6.40%
Distribution Rate3 4.33%
Taxable Equivalent Distribution Rate4 8.15%
30-Day Standardized Yield5 3.51%
Taxable Equivalent Yield4 6.60%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.32 cent
per share monthly dividend and the offering price of $11.96 on August 31,
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 August 31, 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 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
GRAPHIC PICTURE OMITTED
Michigan ended the six-month reporting period on a positive note. For the
past several years, the state made a significant effort to reduce state
spending, control Medicaid expenditures and maintain overall spending below
its revenue growth rate, thereby restoring a budgetary balance. The state
expects Medicaid spending, which grew as much as 15% in fiscal 1991, to
remain stable in fiscal 1998, and to increase only 2% in fiscal 1999.2
A strong employment rate also contributed to Michigan's healthy economy. From
June 1991 through June 1998, employment jumped 16.9%, far exceeding the 11.5%
national average. Despite the recent General Motors strike, July's 4.2%
unemployment -- an increase from June's 3.6% level -- still marked the 40th
consecutive month of higher-than-average employment records.3
Reflecting the state's robust economy, Standard & Poor's, a national credit
rating agency, upgraded Michigan's general obligation debt rating from AA to
AA+.4
PORTFOLIO NOTES
Over the reporting period, insured bonds offered excellent value, in our
opinion. Two factors contributed to this value -- the narrowing yield spread
between insured and lower-rated bonds, and the continued low cost of
municipal bond insurance. The yield spread between insured bonds and
BBB-rated bonds averaged approximately 30 basis points, or 0.3%, but
historically has been approximately 50 basis points or higher. This
compression in yields resulted from investors' increasing demand for BBB
bonds, as they sought to earn higher yields in a low interest-rate
environment. However, as the price of lower-rated bonds rises, their yields
decline. Meanwhile, heightened competition among the four major AAA-rated
municipal bond insurers (MBIA, AMBAC, FGIC and FSA) brought a decline in
premiums the insurers charge. As a result, municipal bond insurance became
comparatively inexpensive for municipal issuers, prompting them increasingly
to offer insured bonds. Investors in insured municipal bonds benefited from
favorable yield spreads compared with lower-rated bonds, and from the added
credit protection offered by low-cost municipal bond insurance.
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 as 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, 5/15/98.
3. Source: www.migov.state.mi.us. Michigan State Government, "Press
Releases," 8/19/98.
4. This does not indicate Standard & Poor's rating of the fund.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 78
of this report.
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. This increased the number of
prerefunded bonds in the fund's portfolio. When a bond is prerefunded, a new
issue is brought to market with a lower interest rate to pay off the older issue
at its first call date. In most cases, the proceeds from the sale of the new
bonds are invested in U.S. Treasury securities that mature on the first call
date of the original bonds. Because of the U.S. Treasury backing, prerefunded
bonds usually offer a substantial price increase -- depending on their call
date.
Generally, we look to sell prerefunded bonds as they approach five years to
their call date. At this point, the premium on prerefunded bonds often begins
to decline rapidly to the stated call price. Because of the low interest-rate
environment, it was difficult for the fund to generate enough capital losses
to offset the gains realized from the prerefunded bond sales. Thus, the fund
made a long-term capital gain distribution of 3.25 cents per share in June.
FRANKLIN MICHIGAN INSURED
TAX-FREE INCOME FUND
Portfolio Breakdown
8/31/98
% of Total
Long - Term
Sector Investments
- --------------------------------------
Education 25.8%
Prerefunded 25.5%
Hospitals 18.0%
Utilities 12.6%
General Obligation 7.9%
Transportation 3.8%
Other Revenue 3.1%
Health Care 1.6%
Housing 1.2%
Tax Allocation Bonds 0.4%
Sales Tax Revenue Bonds 0.1%
Proceeds from the sale of prerefunded bonds were generally used to purchase
current coupon bonds, which offer call protection of approximately 10 years.
Purchases during the reporting period included Michigan State Trunkline;
Detroit, Michigan Airports; and Michigan Health and Education - Oakwood
Hospital revenue bonds. Current coupon bonds with such call protection should
perform well through various market cycles.
The fund's underlying bonds increased in market value during the six-month
period, contributing to a 1.53% rise in the fund's total net assets, from
$1,175 million to $1,193 million, thus providing shareholders a more
diversified and stable asset base. We believe the fund's performance is
largely a tribute to Franklin's income-oriented approach. We will continue to
manage the fund with the intention of protecting its share value and
maintaining its competitive yield. Going forward, we anticipate rather mild
inflation, relatively stable interest rates and further economic growth in
Michigan. Under such circumstances, we believe the fund is positioned for
strong performance.
The lower interest-rate environment will continue to put some pressure on the
overall income earnings of the fund. Please keep in mind that the fund can
distribute only what it earns, so the dividend distributions of the fund may
decrease in the future if interest rates remain at current levels or move
lower. It is important to note that we still adhere to our philosophy of
investing for income and stability of share value. We believe that the fund
should rank favorably when compared with other fixed-income investment
alternatives.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
FRANKLIN MICHIGAN INSURED
TAX-FREE INCOME FUND
CLASS I
Dividend Distributions
3/31/98 - 8/3/98
Dividend
Month per share
- --------------------------------------
March.......................5.1 cents
April.......................5.1 cents
May.........................5.1 cents
June........................5.1 cents
July........................5.1 cents
August......................5.1 cents
- --------------------------------------
Total......................30.6 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the fund during the reporting
period.
PERFORMANCE SUMMARY
CLASS I
Franklin Michigan Insured Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased eight cents, from $12.20 on
February 28, 1998, to $12.28 on August 31, 1998. During the six-month
reporting period, shareholders received per-share distributions consisting of
dividend income totaling 30.6 cents ($0.306) and 3.25 cents ($0.0325) in
long-term capital gains. Distributions will vary based on the fund's income
and any profits realized from the sale of securities in the fund's portfolio.
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 $12.83 on August 31, 1998,
your fund's distribution rate was 4.77%. 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 8.26% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Michigan Insured Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (4/3/85)
- ------------------------------------------------------------------------------
Cumulative Total Return1 8.73% 32.66% 113.33% 184.36%
Average Annual Total Return2 4.13% 4.90% 7.41% 7.75%
Distribution Rate3 4.77%
Taxable Equivalent Distribution Rate4 8.26%
30-Day Standardized Yield5 4.00%
Taxable Equivalent Yield4 6.93%
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. 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.
3. Distribution rate is based on an annualization of the current 5.1 cent per
share monthly dividend and the maximum offering price of $12.83 on August 31,
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 August 31, 1998.
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 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MICHIGAN INSURED
TAX-FREE INCOME FUND
CLASS II
Dividend Distributions
3/31/98 - 8/31/98
Dividend
Month per share
- ---------------------------------------
March.......................4.49 cents
April.......................4.50 cents
May.........................4.50 cents
June........................4.50 cents
July........................4.52 cents
August......................4.52 cents
- ----------------------------------------
Total......................27.03 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.
CLASS II
Franklin Michigan Insured Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased nine cents, from $12.27 on February 28,
1998, to $12.36 on August 31, 1998. During the six-month reporting period,
shareholders received per-share distributions consisting of dividend income
totaling 27.03 cents ($0.2703) and 3.25 cents ($0.0325) in long-term capital
gains. Distributions will vary based on the fund's income and any profits
realized from the sale of securities in the fund's portfolio. 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 $12.48 on August 31, 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.
Franklin Michigan Insured Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- ------------------------------------------------------------------------------
Cumulative Total Return1 8.21% 20.88% 24.81%
Average Annual Total Return2 6.16% 6.17% 6.54%
Distribution Rate3 4.35%
Taxable Equivalent Distribution Rate4 7.53%
30-Day Standardized Yield5 3.59%
Taxable Equivalent Yield4 6.22%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.52 cent
per share monthly dividend and the maximum offering price of $12.48 on August
31, 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 August 31, 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 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
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
RAPHIC PICTURE OMITTED
Minnesota's steadily growing economy is diversified among trade, services and
manufacturing. The state's economic breadth supported healthy fiscal
performance during the six-month reporting period. The state projected 2.1%
overall employment growth for 1998, with most of the increases occurring in
manufacturing, specifically in instruments and industrial machinery, as well
as natural resource-related sectors such as paper and food.2
The state's economic strength solidified its financial position and improved
its revenue collection. Income- and sales-tax revenue levels have increased
for the past five years. Through the 1998-1999 biennium, the state forecasts
its general fund revenue growth to remain stable, resulting in a 7.3%, or
$1.3 billion, increase over the previous biennium.3
Acknowledging Minnesota's diverse economic base and strong financial
management, Standard & Poor's, a national credit rating agency, upgraded the
state's debt rating from AA+ to 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.
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 as 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, 5/26/98.
3. Source: Standard & Poor's CreditWeek Municipal, 1/12/98. This does not
indicate Standard & Poor's rating of the fund.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 85
of this report.
PORTFOLIO NOTES
Over the reporting period, insured bonds offered excellent value, in our
opinion. Two factors contributed to this value -- the narrowing yield spread
between insured and lower-rated bonds, and the continued low cost of
municipal bond insurance. The yield spread between insured bonds and
BBB-rated bonds averaged approximately 30 basis points, or 0.3%, but
historically has been approximately 50 basis points or higher. This
compression in yields resulted from investors' increasing demand for BBB
bonds, as they sought to earn higher yields in a low interest-rate
environment. However, as the price of lower-rated bonds rises, their yields
decline. Meanwhile, heightened competition among the four major AAA-rated
municipal bond insurers (MBIA, AMBAC, FGIC and FSA) brought a decline in
premiums the insurers charge. As a result, municipal bond insurance became
comparatively inexpensive for municipal issuers, prompting them increasingly
to offer insured bonds. Investors in insured municipal bonds benefited from
favorable yield spreads compared with lower-rated bonds, and from the added
credit protection offered by low-cost municipal bond insurance.
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. This increased the number of
prerefunded bonds in the fund's portfolio. When a bond is prerefunded, a new
issue is brought to market with a lower interest rate to pay off the older
issue at its first call date. In most cases, the proceeds from the sale of
the new bonds are invested in U.S. Treasury securities that mature on the
first call date of the original bonds. Because of the U.S. Treasury backing,
prerefunded bonds usually offer a substantial price increase -- depending on
their call date.
Generally, we look to sell prerefunded bonds as they approach five years to
their call date. At this point, the premium on prerefunded bonds often begins
to decline rapidly to the stated call price. Because of the low interest-rate
environment, it was difficult for the fund to generate enough capital losses
to offset the gains realized from the prerefunded bond sales. Thus, the fund
made a long-term capital gain distribution of 0.28 cents per share in June.
FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND
Portfolio Breakdown
8/31/98
% of Total
Long - Term
Sector Investments
- --------------------------------------
Utilities 20.0%
Housing 17.4%
Hospitals 17.2%
Prerefunded 14.7%
Education 11.5%
Health Care 6.6%
Other Revenue 3.4%
General Obligation 3.0%
Transportation 2.4%
Certification of Participation 2.3%
Tax Allocation Bonds 1.5%
Proceeds from the sale of prerefunded bonds were generally used to purchase
current coupon bonds, which offer call protection of around 10 years.
Purchases during the reporting period included Minneapolis/St. Paul general
obligation, Minneapolis/St. Paul airport and Minnesota State Housing - SFMR.
Current coupon bonds with such call protection should perform well through
various market cycles.
The lower interest-rate environment will continue to put some pressure on the
overall income earnings of the fund. Please keep in mind that the fund can
distribute only what it earns, so the dividend distributions of the fund may
decrease in the future if interest rates remain at current levels or move
lower. It is important to note that we still adhere to our philosophy of
investing for income and stability of share value. We believe that the fund
should rank favorably when compared with other fixed-income investment
alternatives.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
PERFORMANCE SUMMARY
CLASS I
Franklin Minnesota Insured Tax-Free Income Fund - Class I share price, as
measured by net asset value, increased five cents, from $12.16 on
February 28, 1998, to $12.21 on August 31, 1998. During the six-month
reporting period, shareholders received per-share distributions consisting of
dividend income totaling 31.2 cents ($0.312) and 0.28 cents ($0.0028) in
long-term capital gains. Distributions will vary based on the fund's income
and any profits realized from the sale of securities in the fund's portfolio.
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 $12.75 on August 31, 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 Minnesota state
personal income tax bracket would need to earn 8.85% from a taxable
investment to match the fund's tax-free distribution rate.
FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND
CLASS I
Dividend Distributions
3/31/98 - 8/31/98
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
- -------------------------------------
Total......................31.2 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the fund during the reporting
period.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Minnesota Insured Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (4/3/85)
- --------------------------------------------------------------------------------
Cumulative Total Return1 7.25% 29.50% 105.08% 181.37%
Average Annual Total Return2 2.67% 4.39% 6.98% 7.67%
Distribution Rate34.89%
Taxable Equivalent Distribution Rate4 8.85%
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. 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.
3. Distribution rate is based on an annualization of the current 5.2 cent per
share monthly dividend and the maximum offering price of $12.75 on August 31,
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 August 31, 1998.
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.
CLASS II
Franklin Minnesota Insured Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased five cents, from $12.21 on
February 28, 1998, to $12.26 on August 31, 1998. During the six-month
reporting period, shareholders received per-share distributions consisting of
dividend income totaling 27.92 cents ($0.2792) and 0.28 cents ($0.0028) in
long-term capital gains. Distributions will vary based on the fund's income
and any profits realized from the sale of securities in the fund's portfolio.
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 $12.38 on August 31, 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 Minnesota state personal income tax
bracket would need to earn 8.11% from a taxable investment to match the fund's
tax-free distribution rate.
FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND
CLASS II
Dividend Distributions
3/31/98 - 8/31/98*
Dividend
Month per share
- --------------------------------------
March.......................4.61 cents
April.......................4.69 cents
May.........................4.69 cents
June........................4.69 cents
July........................4.62 cents
August......................4.62 cents
- --------------------------------------
Total......................27.92 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 Minnesota Insured Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 6.72% 18.38% 21.85%
Average Annual Total Return2 4.69% 5.44% 5.78%
Distribution Rate3 4.48%
Taxable Equivalent Distribution Rate4 8.11%
30-Day Standardized Yield5 3.62%
Taxable Equivalent Yield4 6.55%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.62 cent
per share monthly dividend and the maximum offering price of $12.38 on August
31, 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 August 31, 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 OHIO INSURED
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
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 UPDATE2
GRAPHIC PICTURE OMITTED
For the past several years, Ohio's economy has been diversifying, thereby
diminishing the state's heavy exposure to the auto and steel industries.
Non-manufacturing output and employment growth have contributed to greater
stability. With most growth in the financial services, distribution and trade
sectors, unemployment was 3.8% in April 1998, below the 4.3% national rate.
The recent, vibrant economic performance contributed to the state's strong
financial controls. As of May 1998, the Budget Stabilization Fund balance had
accumulated $862.7 million, up from $828.3 million at the end of fiscal 1997.
In addition, total revenues through May 1998 were 4.8% greater than the same
period last year. Rebounding from the early 1990s' recession, Ohio has
replenished previously eroded balances and established a sound financial base
for the future.
The state's future budget-balancing efforts may face significant challenges
if an Ohio Supreme Court decision, requiring major changes to the state's
school funding arrangements, comes into effect. As the situation develops, we
will assess its likely impact on the state's long-term financial position.
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 as 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. Moody's Investors Service, 6/24/98.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 90
of this report.
FRANLIN OHIO INSURED
TAX-FREE INCOME FUND
Portfolio Breakdown
8/31/98
% OF TOTAL
LONG - TERM
SECTOR INVESTMENTS
- ----------------------------------------
Utilities 27.9%
Education 20.3%
Prerefunded 12.4%
Hospitals 11.3%
General Obligation 10.3%
Transportation 5.7%
Housing 5.0%
Industrial 3.3%
Certification of Participation 3.0%
Other Revenue 0.8%
PORTFOLIO NOTES
Over the reporting period, insured bonds offered excellent value, in our
opinion. Two factors contributed to this value -- the narrowing yield spread
between insured and lower-rated bonds, and the continued low cost of
municipal bond insurance. The yield spread between insured bonds and
BBB-rated bonds averaged approximately 30 basis points, or 0.3%, but
historically has been approximately 50 basis points or higher. This
compression in yields resulted from investors' increasing demand for BBB
bonds, as they sought to earn higher yields in a low interest-rate
environment. However, as the price of lower-rated bonds rises, their yields
decline. Meanwhile, heightened competition among the four major AAA-rated
municipal bond insurers (MBIA, AMBAC, FGIC and FSA) brought a decline in
premiums the insurers charge. As a result, municipal bond insurance became
comparatively inexpensive for municipal issuers, prompting them increasingly
to offer insured bonds. Investors in insured municipal bonds benefited from
favorable yield spreads compared with lower-rated bonds, and from the added
credit protection offered by low-cost municipal bond insurance.
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. This increased the number of
prerefunded bonds in the fund's portfolio. When a bond is prerefunded, a new
issue is brought to market with a lower interest rate to pay off the older issue
at its first call date. In most cases, the proceeds from the sale of the new
bonds are invested in U.S. Treasury securities that mature on the first call
date of the original bonds. Because of the U.S. Treasury backing, prerefunded
bonds usually offer a substantial price increase -- depending on their call
date.
Generally, we look to sell prerefunded bonds as they approach five years to
their call date. At this point, the premium on prerefunded bonds often begins
to decline rapidly to the stated call price. Because of the low interest-rate
environment, it was difficult for the fund to generate enough capital losses
to offset the gains realized from the prerefunded bond sales. Thus, the fund
made a long-term capital gain distribution of 0.93 cents per share in June.
Proceeds from the sale of prerefunded bonds were generally used to purchase
current coupon bonds, which offer call protection of approximately 10 years.
Purchases during the reporting period included Ontario, Ohio Local School
District; Canal Winchester, Ohio Local School District; and Northwest Local
School District revenue bonds. Current coupon bonds with such call protection
should perform well through various market cycles.
The fund's underlying bonds increased in market value during the six-month
period, contributing to a 2.6% rise in the fund's total net assets, from $769
million to $789 million, thus providing shareholders a more diversified and
stable asset base. We believe the fund's performance is largely a tribute to
Franklin's income-oriented approach. We will continue to manage the fund with
the intention of protecting its share value and maintaining its competitive
yield. Going forward we anticipate rather mild inflation, relatively stable
interest rates and further economic growth in Ohio. Under such circumstances,
we believe the fund is positioned for strong performance.
The lower interest-rate environment will continue to put some pressure on the
overall income earnings of the fund. Please keep in mind that the fund can
distribute only what it earns, so the dividend distributions of the fund may
decrease in the future if interest rates remain at current levels or move
lower. It is important to note that we still adhere to our philosophy of
investing for income and stability of net asset value. We believe that on a
comparative basis the fund should rank favorably when compared to other
fixed-income investment alternatives.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
FRANKLIN OHIO INSRUED
TAX-FREE INCOME FUND
CLASS I
Dividend Distributions
3/31/98 - 8/31/98*
Dividend
Month per share
- -------------------------------------
March.......................5.3 cents
April.......................5.3 cents
May.........................5.3 cents
June........................5.1 cents
July........................5.1 cents
August......................5.1 cents
- --------------------------------------
Total......................31.2 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the fund during the reporting
period.
PERFORMANCE SUMMARY
CLASS I
Franklin Ohio Insured Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased five cents, from $12.45 on February 28, 1998,
to $12.50 on August 31, 1998. During the six-month reporting period,
shareholders received per-share distributions consisting of dividend income
totaling 31.2 cents ($0.312) and 0.93 cents ($0.0093) in long-term capital
gains. Distributions will vary based on the fund's income and any profits
realized from the sale of securities in the fund's portfolio. 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 $13.05 on August 31, 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 Ohio state personal
income tax bracket would need to earn 8.37% from a taxable investment to
match the fund's tax-free distribution rate.
Franklin Ohio Insured Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (4/3/85)
- ------------------------------------------------------------------------------
Cumulative Total Return1 7.86% 31.68% 113.09%
184.29%
Average Annual Total Return2 3.31% 4.74% 7.39% 7.75%
Distribution Rate3 4.69%
Taxable Equivalent Distribution Rate4 8.37%
30-Day Standardized Yield5 4.04%
Taxable Equivalent Yield4 7.21%
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. 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.
3. Distribution rate is based on an annualization of the current 5.1 cent per
share monthly dividend and the maximum offering price of $13.05 on August 31,
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 August 31, 1998.
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 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN OHIO INSURED
TAX-FREE INCOME FUND
CLASS II
Dividend Distributions
3/31/98 - 8/31/98*
Dividend
Month per share
- --------------------------------------
March.......................4.70 cents
April.......................4.73 cents
May.........................4.73 cents
June........................4.53 cents
July........................4.51 cents
August......................4.51 cents
- ---------------------------------------
Total......................27.71 cents
CLASS II
Franklin Ohio Insured Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased six cents, from $12.51 on February 28,
1998, to $12.57 on August 31, 1998. During the six-month reporting period,
shareholders received per-share distributions consisting of dividend income
totaling 27.71 cents ($0.2771) and 0.93 cents ($0.0093) in long-term capital
gains. Distributions will vary based on the fund's income and any profits
realized from the sale of securities in the fund's portfolio. Past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.51
cents ($0.0451) and the maximum offering price of $12.70 on August 31, 1998,
your fund's distribution rate was 4.26%. 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 7.60% from a taxable investment to
match the fund's tax-free distribution rate.
Franklin Ohio Insured Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- ------------------------------------------------------------------------------
Cumulative Total Return1 7.30% 20.60% 24.47%
Average Annual Total Return2 5.27% 6.09% 6.46%
Distribution Rate3 4.26%
Taxable Equivalent Distribution Rate4 7.60%
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 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, as applicable.
3. Distribution rate is based on an annualization of the current 4.51 cent
per share monthly dividend and the maximum offering price of $12.70 on August
31, 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 August 31, 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 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
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.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Arizona Insured Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
(unaudited) 1998 1997 1996 1995 19941
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.77 $10.36 $10.36 $9.80 $10.28 $10.00
--------------------------------------------------------------
Income from investment operations:
Net investment income .27 .54 .55 .55 .55 .34
Net realized and unrealized gains (losses) .09 .42 -- .57 (.48) .27
--------------------------------------------------------------
Total from investment operations .36 .96 .55 1.12 .07 .61
Less distributions from net investment income (.26) (.55) (.55) (.56) (.55) (.33)
--------------------------------------------------------------
Net asset value, end of period $10.87 $10.77 $10.36 $10.36 $9.80 $10.28
==============================================================
Total return* 3.45% 9.53% 5.55% 11.64% .94% 6.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $66,512 $58,059 $39,693 $38,199 $20,794 $12,895
Ratios to average net assets:
Expenses .30%** .30% .25% .16% .10% .03%**
Expenses excluding waiver and payments by affiliate .80%** .82% .86% .86% .96% .83%**
Net investment income 5.00%** 5.11% 5.45% 5.51% 5.80% 4.85%**
Portfolio turnover rate 7.77% 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.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
aLong Term Investments 100.7%
Arizona State Management Authority, Financial Assistance Revenue, AMBAC Insured, 5.75%, 7/01/15 $ 750,000 $ 806,865
Arizona State Power Authority, Power Resources Revenue, Refunding, Hoover Uprating Project, MBIA
Insured, 5.375%, 10/01/13 900,000 937,836
Arizona State University Revenue, Refunding, Series A, MBIA Insured, 5.50%, 7/01/19 1,000,000 1,027,170
Casa Grande Excise Tax Revenue, FGIC Insured, 6.00%, 4/01/10 400,000 433,804
Douglas Municipal Property Corp., Municipal Facilities Excise Tax Revenue, MBIA Insured,
5.75%, 7/01/15 525,000 562,254
Gilbert GO, Projects of 1988, Series C, MBIA Insured, 5.50%, 7/01/23 1,000,000 1,039,630
La Paz County School District No. 4, Quartzsite Elementary School Improvement, MBIA Insured, 5.70%,
7/01/16 480,000 503,938
Marana Municipal Property Corp., Municipal Facilities Revenue, Refunding, MBIA Insured,
5.25%, 7/01/22 1,100,000 1,134,177
Maricopa County Hospital District No. 1, AMBAC Insured, 5.00%, 6/01/21 1,250,000 1,254,313
Maricopa County IDA,
MFHR, National Health Facilities II Project, Series A, FSA Insured, 5.10%, 1/01/33 2,500,000 2,491,775
MFHR, Stanford Court Apartments Project A, MBIA Insured, 5.30%, 7/01/28 1,000,000 1,012,200
MFHR, Villas De Merced Apartment Project, Series A, GNMA Secured, 5.50%, 12/20/37 570,000 576,407
Water System Revenue, Improvement, Chaparral Water Co., Series A, AMBAC Insured, 5.40%,
12/01/22 1,000,000 1,025,350
Water System Revenue, Series B, AMBAC Insured, 5.30%, 12/01/22 515,000 524,131
Maricopa County School District No. 3, Tempe Elementary, Refunding, AMBAC Insured, 6.00%, 7/01/13 700,000 764,806
Maricopa County School District No. 8, Osborn, Refunding, Series A, FGIC Insured, 5.875%, 7/01/1 500,000 547,390
Maricopa County School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10 700,000 768,621
Maricopa County School District No. 28, Kyrene Elementary, Series B, FGIC Insured, 6.00%, 7/01/14 500,000 538,565
Maricopa County School District No. 31, Series A, AMBAC Insured, Pre-Refunded, 6.20%, 7/01/13 570,000 637,522
Maricopa County School District No. 66, Roosevelt Elementary, Projects of 1996, Series B, FGIC Insured,
5.30%, 7/01/13 1,540,000 1,608,253
Maricopa County School District No. 68, Alhambra Elementary, Refunding and Improvement, AMBAC
Insured, 5.125%, 7/01/13 500,000 512,760
Maricopa County School District No. 98, Fountain Hills,
AMBAC Insured, 5.75%, 7/01/12 500,000 540,660
Series A, MBIA Insured, Pre-Refunded, 6.20%, 7/01/10 235,000 263,489
Maricopa County USD No. 9, Wickenburg Projects of 1997, AMBAC Insured,
5.55%, 7/01/14 1,000,000 1,062,250
5.65%, 7/01/16 1,055,000 1,121,961
Maricopa County USD No. 41, Gilbert Projects of 1993, Series E, FSA Insured, 5.00%, 7/01/17 1,000,000 1,008,430
Maricopa County USD No. 80, Chandler,
FGICInsured, 5.85%, 7/01/13 435,000 468,599
FGIC Insured, Pre-Refunded, 5.85%, 7/01/13 265,000 293,896
Projects of 1995, Series E, FGIC Insured, 5.00%, 7/01/13 1,750,000 1,792,315
Maricopa County USD No. 95, Queens Creek, Series A, AMBAC Insured, 5.70%, 7/01/14 400,000 428,920
Mesa GO, FGIC Insured, 5.00%, 7/01/18 1,000,000 1,004,560
Mesa Street and Highway Revenue, FGIC Insured, 5.00%, 7/01/17 1,000,000 1,003,470
Mesa Utility System Revenue,
FGIC Insured, 5.25%, 7/01/16 500,000 513,685
FGIC Insured, 5.375%, 7/01/17 500,000 517,610
Mohave County, Hospital District No. 1, Kingman Regional Medical Center Project, FGIC Insured, 6.50%,
6/01/15 610,000 661,332
Navajo County PCR, Arizona Public Service Co., Series A,
AMBAC Insured, 5.50%, 8/15/28 2,400,000 2,472,480
MBIA Insured, 5.875%, 8/15/28 2,450,000 2,592,149
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA Insured, 5.55%, 7/01/17 700,000 749,070
bPhoenix IDA, SFMR, Statewide, Series C, FHLMC, FNMA, GNMA Secured, 5.30%, 4/01/20 1,500,000 1,509,585
Phoenix Civic Improvement Corp.,
Municipal Facilities Excise Tax Revenue, MBIA Insured, Pre-Refunded, 6.90%, 7/01/21 1,000,000 1,162,390
Water System Revenue, Junior Lien, AMBAC Insured, 5.50%, 7/01/21 500,000 518,945
Water System Revenue, Junior Lien, FGIC Insured, 5.50%, 7/01/24 1,000,000 1,035,920
Water Systems Revenue, Junior Lien, MBIA Insured, 5.375%, 7/01/22 1,000,000 1,030,030
Pima County IDA, SFMR, GNMA Secured, 6.625%, 11/01/14 550,000 590,794
Pima County USD No. 6, Marana Projects of 1995, Series B, FGIC Insured, 5.00%, 7/01/17 1,600,000 1,608,416
Pinal County USD No. 43, Apache Junction, Series C, FGIC Insured, 5.00%, 7/01/15 1,000,000 1,014,980
Prescott Municipal Property Corp., Municipal Facility Revenue, FGIC Insured, 5.125%, 1/01/18 1,000,000 1,027,200
Puerto Rico Commonwealth GO, MBIA Insured, Pre-Refunded, 6.45%, 7/01/17 845,000 964,044
Puerto Rico Electric Power Authority Revenue, Series R, FSA Insured, Pre-Refunded, 6.25%, 7/01/17 800,000 880,456
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%, 7/01/24 840,000 929,838
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue,
Series D, 6.25%, 1/01/27 $1,205,000 $ 1,291,350
Series D, Pre-Refunded, 6.25%, 1/01/27 295,000 322,385
Refunding, Series D, 5.50%, 1/01/25 1,000,000 1,017,220
Santa Cruz County USD No. 1, Nogales, Series B, AMBAC Insured, Pre-Refunded, 6.10%, 7/01/14 250,000 277,035
Sierra Vista Municipal Property Corp. Facilities Revenue, AMBAC Insured,
6.15%, 1/01/15 360,000 394,045
5.00%, 1/01/18 1,250,000 1,256,925
Tucson GO,
Series A, MBIA Insured, 5.375%, 7/01/19 500,000 515,015
Series G, 1984, FGIC Insured, Pre-Refunded, 6.25%, 7/01/18 650,000 728,676
Tucson Water Revenue, Refunding, FGIC Insured, 5.125%, 7/01/20 2,000,000 2,028,940
University of Arizona COP,
Administrative and Packaging Facility, Project B, MBIA Insured, 6.00%, 7/15/16 500,000 545,425
Administrative and Packaging Facility, Project B, MBIA Insured, 6.00%, 7/15/23 1,625,000 1,749,914
Residence Life Project, Series A, FSA Insured, 5.80%, 9/01/13 1,000,000 1,078,020
Yavapai County IDA, Residential Care Facility Revenue, Margaret T. Morris Center, Series A,
GNMA Secured, 5.40%, 2/20/38 1,585,000 1,596,840
Yavapai County USD No. 22, Humboldt,
Series A, FGIC Insured, 5.95%, 7/01/14 300,000 326,967
Series C, FGIC Insured, 5.40%, 7/01/14 575,000 604,181
Yavapai County,
Elementary School District No. 28, Refunding, Camp Verde, FGIC Insured, 6.00%, 7/01/09 775,000 853,058
Elementary School District No. 6, Cottonwood-Oak Creek, Projects of 1993, Series B, AMBAC Insured,
6.70%, 7/01/09 250,000 283,540
Yuma County Elementary School District No. 1,
Series A, MBIA Insured, 5.75%, 7/01/14 500,000 541,590
Series B, MBIA Insured, 5.50%, 7/01/14 1,000,000 1,065,320
Yuma County Jail District Revenue, AMBAC Insured, 5.25%, 7/01/12 1,000,000 1,047,610
Yuma Industrial Authority MFR, Regency Apartments, Refunding, Series A, GNMA Secured, 5.50%,
12/20/32 920,000 934,782
Yuma IDA Revenue, Yuma Regional Medical Center, Refunding, MBIA Insured, 5.50%, 8/01/17 1,000,000 1,050,200
----------
Total Long Term Investments (Cost $63,225,160) 100.7% 66,984,279
Other Assets, less Liabilities (.7%) (472,486)
----------
Net Assets 100.0% $66,511,793
==========
See glossary of terms on page 96.
bSufficient collateral has been segregated for securities traded on a when-issued or delayed delivery basis.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Florida Insured Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
(unaudited) 1998 1997 1996 1995 19941
- -------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.43 $9.99 $10.02 $9.53 $10.07 $10.00
--------------------------------------------------------------
Income from investment operations:
Net investment income .26 .53 .53 .53 .52 .34
Net realized and unrealized gains (losses) .11 .44 (.03) .49 (.53) .06
--------------------------------------------------------------
Total from investment operations .37 .97 .50 1.02 (.01) .40
Less distributions from net investment income (.26) (.53) (.53) (.53) (.53) (.33)
--------------------------------------------------------------
Net asset value, end of period $10.54 $10.43 $9.99 $10.02 $9.53 $10.07
==============================================================
Total return* 3.59% 9.94% 5.17% 10.95% .21% 3.97%
Ratios/supplemental data
Net assets, end of period (000's) $111,348 $101,506 $77,177 $69,583 $46,847 $32,150
Ratios to average net assets:
Expenses .35%** .35% .35% .35% .35% --
Expenses excluding waiver and payments by affiliate .79%** .80% .80% .82% .88% .83%**
Net investment income 5.01%** 5.16% 5.36% 5.37% 5.61% 4.97%**
Portfolio turnover rate -- 8.08% 32.23% 24.36% 43.71% 28.72%
*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.
1For the period April 30, 1993 (effective date) to February 28, 1994.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (UNAUDITED)
PRINCIPAL
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investment s 97.1%
Alachua County School Board, COP, AMBAC Insured, 5.00%, 7/01/18 $1,000,000 $ 998,680
Bay Medical Center Hospital Revenue, Bay Medical Center Project, AMBAC Insured, 5.00%,10/01/27 2,025,000 2,003,476
Broward County HFA, FSA Insured,
5.60%, 11/01/17 630,000 645,649
5.65%, 11/01/22 885,000 906,231
5.70%, 11/01/29 1,345,000 1,377,186
Canaveral Port Authority Revenue, Refunding, Series B, FGIC Insured, 5.625%, 6/01/21 1,000,000 1,058,740
Celebration CDD, Special Assessment, Series A, MBIA Insured, 5.50%, 5/01/18 535,000 558,989
Citrus County PCR, Florida Power Co., Refunding, MBIA Insured, 6.625%, 1/01/27 2,435,000 2,666,008
Cocoa Beach Improvement Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/20 1,000,000 1,023,840
Cocoa Water and Sewer Improvement Revenue, FGIC Insured, 5.875%, 10/01/22 1,000,000 1,103,460
Dade County HFA, MF, 5.75%, 9/01/29 1,890,000 1,960,081
Escambia County Utilities Authority, Utility System Revenue, FGIC Insured, 5.625%, 1/01/27 1,500,000 1,579,815
First Florida Governmental Financing Commission, Revenue, Refunding, AMBAC Insured, 5.375%,
7/01/18 1,475,000 1,520,710
Florida State HFA, Spinnaker Cove Apartments, Series G, AMBAC Insured, 6.50%, 7/01/36 1,600,000 1,738,512
Gainesville Public Improvements, Refunding, AMBAC Insured, 5.50%, 8/01/17 1,000,000 1,038,910
Gulf Breeze Revenue, Local Government Loan Program, FGIC Insured, 6.05%, 12/01/13 1,915,000 2,133,482
Hernando County Water and Sewer Revenue, Refunding and Improvement, FGIC Insured, 6.00%,
6/01/19 2,000,000 2,148,940
Hillsborough County School Board, COP, Master Lease Program, Series A, MBIA Insured, 5.25%,
7/01/22 1,015,000 1,033,747
Hillsborough County IDA,
PCR, Tampa Electric Co. Project, Refunding, MBIA Insured, 6.25%, 12/01/34 1,500,000 1,673,700
Revenue, University Community Hospital, MBIA Insured, 5.80%, 8/15/24 2,000,000 2,143,320
Indian River County Water and Sewer Revenue, FGIC Insured, 5.50%, 9/01/26 1,250,000 1,308,713
Indian Trail Water Control District Improvement Bonds, MBIA Insured,
5.75%, 8/01/16 1,090,000 1,178,900
5.60%, 8/01/17 1,000,000 1,056,810
5.50%, 8/01/22 500,000 520,520
Jacksonville Sales Tax Revenue, River City Renaissance Project, FGIC Insured, 5.375%, 10/01/18 1,000,000 1,025,960
Jacksonville Water and Sewer Revenue, United Water Project, AMBAC Insured, 6.35%, 8/01/25 1,000,000 1,124,770
Lake Clarke Shores, Utility Systems Revenue, Refunding and Improvement, FGIC Insured, 5.80%,
10/01/18 1,415,000 1,512,677
Lake Mary Public Improvement Revenue, FGIC Insured, 5.25%, 9/01/15 1,000,000 1,039,220
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project,
Refunding, MBIA Insured,
5.25%, 11/15/16 2,000,000 2,045,840
Lakeland Utilities Tax Revenue, Refunding and Improvement, Series A, FGIC Insured, 6.00%,
10/01/17 500,000 546,545
Lee County Capital and Transportation Facilities Revenue, Refunding, Series A, MBIA Insured, 5.55%,
10/01/18 3,000,000 3,117,120
Lee County IDA, Utilities Revenue, Bonita Springs Utilities Project, Refunding, MBIA Insured, 6.05%,
11/01/15 2,000,000 2,200,520
11/01/20 1,500,000 1,651,470
Lee County Solid Waste Systems Revenue, MBIA Insured, 5.375%, 10/01/15 2,000,000 2,086,740
Lynn Haven Capital Improvement Revenue, Series A, MBIA Insured, 5.75%, 12/01/16 1,000,000 1,085,120
Martin County Consolidated Utilities Systems Revenue, Refunding and Improvement, FGIC Insured,
6.00%, 10/01/24 215,000 234,174
Pre-Refunded, 6.00%, 10/01/24 785,000 879,019
Martin County Improvement Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/14 1,000,000 1,106,050
Martin County Utilities System Revenue, Refunding, FGIC Insured, 5.00%, 10/01/24 1,775,000 1,772,355
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured, 6.75%, 10/01/25 2,000,000 2,281,900
Ocoee Water and Sewer System Revenue, AMBAC Insured, 5.625%, 10/01/26 5,220,000 5,513,677
Okaloosa County Gas District Revenue, Gas System, MBIA Insured, 5.50%, 10/01/21 2,795,000 2,899,980
Okeechobee Utility Systems Authority Revenue, Acquisition and Improvement, Refunding, MBIA
Insured, 5.60%, 10/01/25 1,500,000 1,577,250
Orange County Capital Improvement Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/22 1,300,000 1,403,662
Orange County Health Facilities Authority Revenue,
Orlando Regional Healthcare, Series A, MBIA Insured, 6.00%, 11/01/24 2,400,000 2,589,216
Sunbelt Adventist Health, Series B, FSA Insured, 6.75%, 11/15/21 1,000,000 1,096,840
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 1,000,000 1,095,030
Orange County Sales Tax Revenue, FGIC Insured,
6.125%, 1/01/19 500,000 522,265
5.375%, 1/01/24 1,000,000 1,020,050
Orange County School Board, COP, Series A, MBIA Insured, 5.375%, 8/01/22 875,000 898,984
Osceola County HFA, MFHR, Tierra Vista Apartment Project, Series A, FSA Insured, 5.70%,
12/01/17 $ 630,000 $ 650,513
Osceola County School Board, COP, Series A, AMBAC Insured, 6.00%, 6/01/19 1,900,000 2,066,079
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured, 6.10%, 4/01/17 1,225,000 1,321,787
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured, 6.00%, 6/01/15 1,000,000 1,098,080
Pinellas County Sewer Revenue, FGIC Insured, Pre-Refunded, 6.00%, 10/01/24 1,250,000 1,370,888
Port Orange Water and Sewer Revenue, Junior Lien, Refunding, AMBAC Insured, 5.25%, 10/01/21 1,500,000 1,514,940
Port St. Lucie Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured, 5.125%,
9/01/27 4,000,000 4,045,240
Puerto Rico Commonwealth GO, FSA Insured, Pre-Refunded, 6.00%, 7/01/22 1,000,000 1,091,740
Puerto Rico Public Buildings Authority Revenue, Government Facilities, Series A, AMBAC Insured,
5.50%, 7/01/25 1,000,000 1,049,080
Sarasota County Utilities System Revenue, FGIC Insured, 5.75%, 10/01/27 520,000 555,012
Seminole County School Board, COP, Series A, MBIA Insured, Pre-Refunded, 6.125%,
7/01/14 1,000,000 1,122,520
7/01/19 1,000,000 1,122,520
St. Johns County IDA, Series A, MBIA Insured,
5.25%, 3/01/11 1,250,000 1,304,338
5.50%, 3/01/17 1,000,000 1,053,810
St. Lucie County Water and Sewer Revenue, Refunding, AMBAC Insured, 5.50%, 10/01/17 500,000 521,750
Stuart Utilities Revenue, FGIC Insured, Pre-Refunded,
6.70%, 10/01/14 500,000 561,460
6.80%, 10/01/24 500,000 563,740
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 2,000,000 2,052,800
Sunrise Utilities System Revenue, Series A, AMBAC Insured, Pre-Refunded, 5.75%, 10/01/26 1,000,000 1,108,730
Tampa Occupational License Tax, Refunding, Series B, FGIC Insured, 5.50%, 10/01/27 1,000,000 1,042,380
Tampa Sports Authority Revenue, Tourist Development, FSA Insured, 5.25%, 1/01/27 2,000,000 2,039,800
Titusville Florida Water and Sewer Revenue, Refunding, MBIA Insured,Pre-Refunded 6.20%,10/01/14 490,000 545,203
Vero Beach Electric Revenue, Refunding, Series A, MBIA Insured, 5.375%, 12/01/21 1,500,000 1,532,790
Village Center Community Development District Recreational Revenue, Refunding, Series A, MBIA
Insured, 5.00%, 11/01/21 1,000,000 1,000,780
West Melbourne Water and Sewer Revenue, Refunding and Improvement, FGIC Insured, 6.75%, 10/01/14 500,000 571,050
West Palm Beach Utility Systems Revenue, Series B, FGIC Insured, 5.40%, 10/01/23 1,500,000 1,525,875
----------
Total Long Term Investments (Cost $101,178,996) 108,137,758
----------
aShort Term Investments 1.2%
Dade County IDA, PCR, Florida Power and Light Co. Project, Refunding, Daily VRDN and Put, 3.20%,
4/01/20 1,200,000 1,200,000
Hillsborough County IDA, PCR, Daily VRDN and Put, 3.20%, 5/15/18 100,000 100,000
----------
Total Short Term Investments (Cost $1,300,000) 1,300,000
----------
Total Investments (Cost $102,478,996) 98.3% 109,437,758
Other Assets, less Liabilities 1.7% 1,909,960
----------
Net Assets 100.0% $111,347,718
==========
See glossary of terms on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment
formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at
specified dates.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Insured Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.31 $12.15 $12.27 $11.97 $12.45 $12.43
--------------------------------------------------------------
Income from investment operations:
Net investment income .32 .66 .69 .71 .71 .73
Net realized and unrealized gains (losses) .10 .29 (.11) .30 (.48) .02
--------------------------------------------------------------
Total from investment operations .43 .95 .58 1.01 .23 .75
--------------------------------------------------------------
Less distributions from:
Net investment income (.32)3 (.66) (.70) (.71) (.71) (.73)
In excess of net investment income -- (.01) -- -- -- --
Net realized gains (.05) (.12) -- -- -- --
Total distributions (.38) (.79) (.70) (.71) (.71) (.73)
--------------------------------------------------------------
Net asset value, end of period $12.36 $12.31 $12.15 $12.27 $11.97 $12.45
==============================================================
Total return* 3.50% 8.09% 4.88% 8.66% 2.03% 5.93%
Ratios/supplemental data
Net assets, end of period (000's) $1,707,123 $1,685,260 $1,662,087 $1,705,038 $1,683,234 $1,802,548
Ratios to average net assets:
Expenses .62%** .61% .60% .60% .59% .52%
Net investment income 5.18%** 5.44% 5.68% 5.81% 6.00% 5.79%
Portfolio turnover rate 7.26% 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 period)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.38 $12.21 $12.31 $11.98
---------------------------------------
Income from investment operations:
Net investment income .29 .60 .62 .54
Net realized and unrealized gains (losses) .10 .29 (.09) .32
---------------------------------------
Total from investment operations .39 .89 .53 .86
---------------------------------------
Less distributions from:
Net investment income (.29)2 (.60) (.63) (.53)
Net realized gains (.05) (.12) -- --
Total distributions (.34) (.72) (.63) (.53)
---------------------------------------
Net asset value, end of period $12.43 $12.38 $12.21 $12.31
=======================================
Total return* 3.19% 7.52% 4.42% 7.32%
Ratios/supplemental data
Net assets, end of period (000's) $50,258 $38,057 $21,521 $8,152
Ratios to average net assets:
Expenses 1.18%** 1.18% 1.17% 1.18%**
Net investment income 4.62%** 4.86% 5.10% 5.21%**
Portfolio turnover rate 7.26% 27.77% 18.66% 13.52%
*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.
2Includes distributions in excess of net investment income in the amount of $.004.
3Includes distributions in excess of net investment income in the amount of $.006.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 98.9%
Alabama 3.9%
Alabama Agricultural and Mechanical University Revenues, MBIA Insured, 5.50%, 11/01/20 $ 1,000,000 $ 1,041,540
Alabama HFA, SFMR Program, Series A-1, GNMA Secured, 7.80%, 10/01/20 4,295,000 4,419,211
Alabama State Board Educational Revenue, Southern Union State Junior College, MBIA Insured,
6.50%, 7/01/12 1,000,000 1,098,280
Alabama Water Pollution Control Authority, Revolving Fund Loan,
AMBAC Insured, 6.25%, 8/15/14 100,000 105,176
Series A, AMBAC Insured, 5.60%, 8/15/16 2,000,000 2,077,720
Anniston Regional Medical Center Board, Series A, AMBAC Insured,
5.25%, 6/01/18 6,000,000 6,051,900
5.125%, 6/01/28 3,000,000 2,974,860
Auburn Governmental Utility Services Corp., Waste Water Treatment Revenue, Merscot-Auburn,
L.P. Project,
FGIC Insured, 7.30%, 1/01/12 1,480,000 1,565,085
Bessemer Alabama Governmental Utility Services Corp., Water Supply Revenue, MBIA Insured, 5.25%,
6/01/32 5,000,000 5,074,100
Birmingham Airport Authority, Airport Revenue, MBIA Insured, 5.625%, 7/01/26 2,000,000 2,103,900
Birmingham Baptist Medical Center, Special Care Facilities, Financing Authority Revenue,
Baptist Health System, Inc.,
Refunding, MBIA Insured, 5.875%, 11/15/19 3,500,000 3,623,200
Daphne Utilities Board, Water, Gas and Sewer Revenue,
Capital Improvement Bonds, Series B, FGIC Insured, 7.35%, 6/01/20 2,000,000 2,128,620
Refunding, Series B, FGIC Insured, 7.30%, 6/01/10 4,030,000 4,331,766
East Alabama Health Care Authority, Health Care Facilities Revenue, Tax Anticipation Bond, Series A,
MBIA Insured, 5.25%, 9/01/28 8,500,000 8,602,425
Fort Payne Waterworks, Board of Water Revenue, MBIA Insured, 5.45%, 7/01/21 3,550,000 3,691,113
Huntsville Health Care Authority, Series A, MBIA Insured, 5.00%, 6/01/23 2,000,000 1,985,800
Huntsville Health Care Facilities Authority Revenue, Series A, MBIA Insured, 6.375%, 6/01/22 300,000 325,566
Jefferson County Sewer Revenue, Series D, 5.75%, 2/01/22 5,000,000 5,348,100
Montgomery Medical Clinic Board, Health Care Facilities Revenue, Jackson Hospital
and Clinic, Refunding, AMBAC Insured,
6.00%, 3/01/26 4,000,000 4,328,880
Pelham GO, Unlimited Warrants, AMBAC Insured, 5.50%,
12/01/21 1,565,000 1,644,940
12/01/26 2,000,000 2,098,880
University of Alabama, University Hospital Revenues, Huntsville,
Refunding, Series A, MBIA Insured,
5.50%, 5/01/18 4,000,000 4,125,560
----------
68,746,622
----------
Alaska 4.2%
Alaska Energy Authority Power Revenue, Bradley Lake Hydro Project,
MBIA Insured, 7.25%, 7/01/21 5,795,000 6,231,132
Series 1, BIG Insured, 7.25%, 7/01/09 5,000,000 5,238,350
Series 1, BIG Insured, 7.25%, 7/01/16 4,765,000 4,987,716
Series 1, BIG Insured, 6.25%, 7/01/21 3,205,000 3,246,953
Alaska Energy Authority Utilities Revenue, Refunding, FSA Insured,
5.20%, 7/01/17 3,000,000 3,052,920
5.375%, 7/01/20 5,000,000 5,120,400
Alaska Industrial Development and Export Authority, Refunding, Series A, MBIA Insured, 6.125%,
4/01/27 5,000,000 5,393,550
Alaska State HFC, Refunding, Series A, MBIA Insured,
6.00%, 6/01/27 5,000,000 5,317,150
5.875%, 12/01/30 485,000 508,018
6.10%, 12/01/37 5,000,000 5,336,650
Anchorage Electric Utility Revenue, Senior Lien,
Municipal Light and Power, Series C, AMBAC Insured, 5.125%, 12/01/26 5,000,000 5,021,350
Refunding, Series A, MBIA Insured, 7.125%, 6/01/06 5,000,000 5,215,800
Series B, MBIA Insured, 5.50%, 2/01/26 4,000,000 4,124,240
Anchorage GO,
General Purpose, AMBAC Insured, Pre-Refunded, 7.30%, 8/01/10 2,765,000 2,945,859
Refunding, AMBAC Insured, 7.20%, 6/01/17 5,000,000 5,179,700
Refunding, AMBAC Insured, 6.25%, 6/01/23 3,505,000 3,564,585
University of Alaska COP, Series 1990, FSA Insured, 7.375%, 10/01/07 500,000 541,465
University of Alaska Revenues,
Series B, AMBAC Insured, 6.50%, 10/01/17 250,000 267,755
Series G, FSA Insured, 5.45%, 10/01/22 3,155,000 3,269,085
----------
74,562,678
----------
Arizona 1.8%
Arizona State MunicipalFinancingProgram, COP,ETM, Series 1986-20, BIG Insured,7.70%,8/01/10 $ 6,000,000 $ 7,558,020
Chandler Water and Sewer Revenue, Refunding, FGIC Insured, 7.00%, 7/01/12 2,200,000 2,385,702
Cochise County USD No. 68, Sierra Vista,
Refunding, FGIC Insured, 7.50%, 7/01/10 500,000 643,305
Series B, FGIC Insured, Pre-Refunded, 7.625%, 7/01/10 3,000,000 3,235,740
Maricopa County Arizona UHSD, No 216, FGIC Insured,
6.70%, 7/01/11 325,000 343,733
Pre-Refunded, 6.70%, 7/01/11 675,000 717,107
Maricopa County IDA, Hospital Facility Revenue, Samaritan Health Service
Hospital, Refunding, Series A, MBIA Insured,
7.00%, 12/01/16 300,000 377,904
Maricopa County USD No. 80, Chandler, FGIC Insured, Pre-Refunded,
7.20%, 7/01/07 775,000 830,134
7.20%, 7/01/08 825,000 883,691
7.25%, 7/01/09 500,000 536,010
Maricopa County USD No. 98, Fountain Hills, Series A, FGIC Insured,Pre-Refunded,7.10%,7/01/10 1,000,000 1,039,440
Mesa IDA, Health Care Facilities Revenue, Western Health Network, Refunding, Series B-2, BIG
Insured, 7.50%, 1/01/08 950,000 979,963
Mohave County USD No. 1, Lake Havasu Project, Series B, AMBAC Insured, 5.375%, 7/01/11 500,000 522,130
Navajo County PCR, Arizona Public Service Co., Series A, MBIA Insured, 5.875%, 8/15/28 3,925,000 4,152,729
Phoenix GO, Refunding, Series B, MBIA Insured, 5.50%, 7/01/16 890,000 927,950
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15 270,000 292,213
Salt River Project, Agricultural Improvement and Power District, Electric System Revenue, Refunding, Series A,
FGIC Insured, 5.50%, 1/01/19 1,150,000 1,177,428
Tucson Water Revenue, Series 1994-A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/21 5,000,000 5,630,900
---------
32,234,099
---------
Arkansas .1%
Arkansas State Development Finance Authority Water Revenue, Refunding, Series A, MBIA Insured,
6.50%, 7/01/10 2,000,000 2,365,620
Pulaski County Health Facilities Board, Hospital Revenue, St. Vincent's Infirmary, MBIA Insured,
Pre-Refunded, 10.00%, 9/01/12 25,000 26,582
----------
2,392,202
----------
California 3.6%
California Health Facilities Financing Authority Revenue, Kaiser Permanente, Series A, FSA Insured,
5.00%, 6/01/24 5,000,000 4,928,400
California Statewide Communities Development Authority Revenue, COP,
John Muir/Mt. Diablo Health System,
MBIA Insured, 5.25%, 8/15/27 3,085,000 3,123,377
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 15,000,000 21,274,050
El Centro Financing Authority Water and Wastewater Revenue, Series A, AMBAC Insured, 5.125%,
10/01/27 1,800,000 1,803,690
Lancaster RDA, Residential Redevelopment, Refunding, MBIA Insured, 6.10%, 8/01/19 1,515,000 1,609,566
Los Angeles County Metropolitan Transportation Authority, Sales Tax Revenue,
Proposition C, Series B-2, AMBAC Insured,
5.25%, 7/01/23 2,000,000 2,022,720
Oakland RDA, Central District Redevelopment, Refunding, AMBAC Insured, 5.50%, 2/01/14 250,000 273,763
Sacramento Area Flood Control Agency, Capital Assessment District No. 2, FGIC Insured, 5.375%,
10/01/25 5,000,000 5,116,950
Sacramento Municipal Utility District, Refunding, Series D, MBIA Insured, 5.25%, 11/15/20 4,000,000 4,047,480
San Francisco BART District, Sales Tax Revenue, FGIC Insured,
5.50%, 7/01/20 1,035,000 1,071,494
Pre-Refunded, 5.50%, 7/01/20 965,000 1,055,025
San Joaquin Hills Transportation Coordinator Agency, Toll Road Revenue,
Refunding, Series A, MBIA Insured,
5.375%, 1/15/29 5,000,000 5,149,950
5.25%, 1/15/30 5,000,000 5,079,600
San Jose and Santa Clara Water Financing Authority, Sewer Revenue, Series A, FGIC Insured,
5.375%, 11/15/20 2,670,000 2,733,012
Stockton, East Water District, COP, 1990 Project A, AMBAC Insured, 6.40%, 4/01/22 1,460,000 1,586,202
Yuba City USD COP, Refunding, Series A, MBIA Insured, 5.25%, 2/01/22 1,750,000 1,779,663
----------
62,654,942
----------
Colorado 5.1%
Arapahoe County COP,
Arapahoe County Building Finance Corp., FSA Insured, Pre-Refunded, 7.50%, 12/01/10 1,000,000 1,082,840
Refunding, FSA Insured, 6.625%, 12/01/16 8,695,000 9,575,543
Colorado (cont.)
Castle Pines Metropolitan District, Refunding and Improvement, FSA Insured, Pre-Refunded,
7.625%, 12/01/15 $ 1,500,000 $ 1,654,215
Centennial Water and Sanitation District, Water and Sewer Revenue,
Refunding, Series A, FSA Insured,
5.125%, 12/01/17 5,000,000 5,117,678
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 2,530,872
Colorado Health Facilities Authority Revenue, Community Provider Pooled Loan Program, Series A,
FSA Insured, 7.25%, 7/15/17 1,174,000 1,278,181
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%, 12/15/24 2,455,000 2,692,718
Colorado Springs Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured,
5.125%, 11/15/18 1,000,000 1,013,970
Colorado State Board of Agriculture Revenue, MBIA Insured, 6.40%,
3/01/11 350,000 379,474
3/01/17 440,000 472,142
Colorado Water Resource and Power Development Authority, Small Water Resource Revenue, Series A,
FGIC Insured, Pre-Refunded,
6.70%, 11/01/12 2,000,000 2,215,480
Denver City and County Airport Revenue,
ETM, Series C, MBIA Insured, 6.125%, 11/15/25 3,590,000 4,058,280
Series A, MBIA Insured, 5.50%, 11/15/25 7,250,000 7,553,993
Series C, MBIA Insured, 6.125%, 11/15/25 4,410,000 4,682,670
Series D, MBIA Insured, 5.50%, 11/15/25 3,900,000 4,063,527
Series E, MBIA Insured, 5.50%, 11/15/25 5,000,000 5,225,100
Denver City and County Board, Water Commissioner, COP, FGIC Insured, 6.625%, 11/15/11 1,500,000 1,627,440
Denver City and County Revenue, Children's Hospital Association Project, FGIC Insured, 6.00%,
10/01/15 3,000,000 3,220,200
Denver City and County SFMR, Series A, GNMA Secured, 8.125%, 12/01/20 685,000 701,077
El Paso County SFMR, Series A, GNMA Secured, 8.00%, 9/01/22 310,000 325,156
Garfield, Pitkin and Eagle Counties, Reorganized School District No. 1, MBIA Insured,
Pre-Refunded, 6.60%, 12/15/14 3,600,000 4,107,384
Goldsmith Metropolitan District, Refunding, MBIA Insured, 6.125%, 12/01/12 2,000,000 2,149,700
Jefferson County COP, Refunding, MBIA Insured, 6.65%, 12/01/08 5,000,000 5,553,050
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 250,000 266,955
La Plata County School District No. R-9, Durango City, FGIC Insured, 6.55%, 11/01/12 490,000 540,000
Morgan County PCR, First Mortgage, Public Service Co., Refunding, Series A, MBIA Insured,
5.50%, 6/01/12 1,000,000 1,044,900
Mountain College Residence Hall Revenue Authority, MBIA Insured,
5.625%, 6/01/12 1,900,000 2,040,182
5.75%, 6/01/23 3,000,000 3,199,110
Parker Water and Sanitation District, Water and Sewer Revenue, Refunding, FGIC Insured, 6.20%,
10/01/15 275,000 291,825
Postsecondary Educational Facilities Revenue Authority, University of Denver Project,
Refunding, Connie Lee Insured,
6.00%, 3/01/10 1,000,000 1,066,090
Regional Transportation District Sales Tax Revenue, Refunding and Improvement, FGIC Insured,
6.25%, 11/01/12 235,000 254,336
University of Colorado Hospital Authority Revenue, Refunding, Series A, AMBAC Insured,
5.20%, 11/15/17 5,675,000 5,785,663
5.25%, 11/15/22 3,800,000 3,870,642
----------
89,640,393
----------
Connecticut .5%
Connecticut State Health and Educational Facilities Authority Revenue,
Danbury Hospital, Series E, MBIA Insured, 6.50%, 7/01/14 2,000,000 2,166,940
Mansfield Nursing Home, AMBAC Insured, 6.00%, 11/01/22 2,450,000 2,628,164
Trinity College, Series D, FGIC Insured, Pre-Refunded, 6.125%, 7/01/24 2,000,000 2,245,040
New Haven Air Rights Parking Facility Revenue, Refunding, MBIA Insured, 6.50%, 12/01/15 2,000,000 2,178,060
----------
9,218,204
----------
Delaware .3%
Delaware State EDA, PCR, Refunding, Series B, AMBAC Insured, 6.75%, 5/01/19 1,000,000 1,097,790
Delaware State Health Facilities Authority Revenue, Medical Center, Refunding, MBIA Insured,
Pre-Refunded, 7.00%, 10/01/15 2,900,000 3,323,168
----------
4,420,958
----------
Florida 3.8%
Bay Medical Center Hospital Revenue, Bay Medical Center Project, Refunding, AMBAC Insured,
5.65%, 10/01/26 2,500,000 2,639,475
Cape Coral, Franchise Fees Revenue, AMBAC Insured, 5.40%, 12/01/13 1,800,000 1,895,220
Celebration CDD, Special Assessment, Series B, MBIA Insured, 5.50%, 5/01/19 2,375,000 2,478,028
Florida (cont.)
Dade County Seaport Revenue, Refunding, Series E, MBIA Insured, 8.00%, 10/01/08 $ 200,000 $ 260,376
Florida State Turnpike Authority Revenue, Department of Transportation, Series A, FGIC Insured,
5.625%, 7/01/25 7,400,000 7,749,650
Fort Myers Utility Revenue, Refunding, Series A, BIG Insured, 6.00%, 10/01/19 25,000 25,468
Hillsborough County IDA,
PCR, Tampa Electric Co. Project, Refunding, MBIA Insured, 6.25%, 12/01/34 1,000,000 1,115,800
Revenue, University Community Hospital, MBIA Insured, 5.80%, 8/15/24 3,000,000 3,214,980
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project, Refunding, MBIA
Insured, 5.25%, 11/15/25 1,250,000 1,265,663
Lee County IDA, Utilities Revenue, Bonita Springs Utilities Project, Refunding, MBIA Insured, 6.05%,
11/01/15 1,000,000 1,100,260
11/01/20 1,000,000 1,100,980
Lee County Solid Waste Systems Revenue, MBIA Insured, 5.375%, 10/01/15 2,000,000 2,086,740
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 5,000,000 5,708,350
North Port Utility Revenue, FGIC Insured, 6.20%, 10/01/12 2,000,000 2,208,380
Opa-Locka Capital Improvement Revenue, Refunding, FGIC Insured, 6.125%, 1/01/24 1,000,000 1,096,920
Orange County Health Facilities Authority Revenue, Orlando Regional Healthcare, Series A, MBIA
Insured, 6.00%, 11/01/24 1,000,000 1,078,840
Orange County School Board, COP, Series A, MBIA Insured, 5.375%, 8/01/22 5,000,000 5,137,050
Orlando and Orange County Expressway Authority Revenue, Junior Lien, FGIC Insured, 6.50%,
7/01/10 100,000 119,913
7/01/12 225,000 270,936
Orlando Utilities Commission,Water and Electri Revenue,Series A,AMBAC Insured,5.50%,10/01/26 2,535,000 2,584,382
Osceola County School Board COP, Refunding, Series A, AMBAC Insured, 5.50%, 6/01/19 1,000,000 1,037,550
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured, 6.10%, 4/01/17 1,000,000 1,079,010
Panama City Water and Sewer Revenue, Refunding and Improvement, AMBAC Insured, 5.625%, 6/01/191,000,000 1,052,700
Polk County IDAR, Winter Haven Hospital, Series 2, MBIA Insured, 6.25%, 9/01/15 985,000 1,084,347
Reedy Creek Improvement District, Utilities Revenue, Refunding, Series 1, MBIA Insured,
5.00%, 10/01/19 3,500,000 3,506,405
Saint Petersburg Public Utilities Revenue, MBIA Insured, 5.60%, 10/01/18 3,910,000 4,098,071
Sumter County School District Revenue, Multi-District Loan Program, FSA Insured,7.15%,11/01/15 250,000 321,925
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 2,000,000 2,052,800
Vero Beach Electric Revenue, Refunding, Series A, MBIA Insured, 5.375%, 12/01/21 3,200,000 3,269,952
West Palm Beach Utilities System Revenue, MBIA Insured, 5.75%, 10/01/27 5,000,000 5,269,700
----------
65,909,871
----------
Georgia 2.0%
Atlanta Water and Sewer Revenue, FGIC Insured,
5.375%, 1/01/20 5,000,000 5,153,500
5.25%, 1/01/27 10,000,000 10,166,700
Bartow County Water and Sewage Revenue, Refunding, AMBAC Insured, Pre-Refunded, 8.00%,
9/01/15 2,860,000 2,917,200
Brunswick Water and Sewer Revenue, Refunding and Improvement, MBIA Insured, 6.10%, 10/01/14 1,535,000 1,786,894
Burke County Development Authority, PCR, Georgia Power Co., Vogtle Project, Seventh Series, MBIA
Insured, 6.625%, 10/01/24 2,000,000 2,090,260
Cherokee County Water and Sewage Authority Revenue, FGIC Insured, 5.00%, 8/01/27 1,500,000 1,503,945
Cherokee County Water and Sewage Revenue, Refunding, MBIA Insured, 6.90%, 8/01/18 1,000,000 1,089,200
Columbia County Water and Sewage Revenue, Refunding, AMBAC Insured, 6.25%, 6/01/12 1,500,000 1,609,455
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek, Refunding, Series A, MBIA
Insured, 6.50%, 7/01/24 1,040,000 1,095,162
Macon and Bibb County Urban Development Authority Revenue, Multifamily Housing,
Refunding, Series A, MBIA Insured,
5.55%, 1/01/24 1,590,000 1,649,482
Municipal Electric Authority, Project One, Refunding, Sub-SeriesA,MBIA Insured,5.375%,1/01/19 5,000,000 25,100
Upper Oconee Basin Water Authority Revenue, FGIC Insured, 5.25%, 7/01/27 1,340,000 1,363,544
----------
35,550,442
----------
Hawaii 1.4%
Hawaii County GO, Refunding and Improvement, Series A, FGIC Insured, 5.60%,
5/01/12 1,000,000 1,093,080
5/01/13 1,000,000 1,092,290
Hawaii State Airports System Revenue, Second Series, FGIC Insured, 7.50%, 7/01/20 5,000,000 5,399,050
Hawaii State Department of Budget and Finance,
Special Purpose Mortgage Revenue, Hawaiian Electric Co., MBIA Insured, 6.55%, 12/01/22 3,000,000 3,317,820
Special Purpose Mortgage Revenue, St. Francis Medical Centers, Refunding, FSA Insured,
6.50%, 7/01/22 4,000,000 4,385,640
Hawaii (cont.)
Hawaii State Department of Budget and Finance, (cont.)
Special Purpose Revenue, Hawaiian Electric Co. Project, Series A, MBIA Insured,
5.65%, 10/01/27 $ 5,000,000 $ 5,379,600
Special Purpose Revenue, Hawaiian Electric Co. Project, Series B, MBIA Insured,
5.875%, 12/01/26 2,000,000 2,150,420
Hawaii State Harbor Capital Improvement Revenue, FGIC Insured, 6.40%,
7/01/05 535,000 586,906
7/01/06 605,000 663,697
7/01/07 610,000 669,182
------------
24,737,685
------------
Idaho .1%
Idaho State University at Boise Revenue, Student Fees, MBIA Insured, 6.50%, 4/01/19 1,000,000 1,116,450
------------
Illinois 4.3%
Aurora SFMR, GNMA Secured, AMBAC Insured, 7.80%, 12/01/15 385,000 400,473
Blue Island Waterworks and Sewer Revenue, MBIA Insured, 5.55%, 12/01/24 2,270,000 2,366,452
Chicago Board of Education GO, Chicago School Reform, Series A, AMBAC Insured, 5.25%,
12/01/30 2,000,000 2,015,040
Chicago Board of Education Lease, Refunding, Series A, MBIA Insured, 6.25%, 1/01/09 320,000 368,112
Chicago Heights, MBIA Insured, Pre-Refunded, 7.40%, 12/01/03 100,000 110,658
Chicago Project and Refunding, FGIC Insured, 5.25%, 1/01/28 9,775,000 9,860,043
Cicero GO, FSA Insured, 6.90%, 12/01/12 1,500,000 1,680,345
Cook County Community College District No. 508, COP, FGIC Insured,
8.50%, 1/01/02 7,470,000 8,524,540
8.75%, 1/01/05 5,000,000 6,239,600
Illinois Health Facilities Authority Revenue,
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.35%, 8/15/10 4,452,000 4,926,405
ETM, Refunding, Series B, MBIA Insured, 7.90%, 8/15/03 403,000 459,351
ETM, Series 1990, FSA Insured, 7.75%, 8/15/10 105,000 136,843
Methodist Health Services Corp., Series G, BIG Insured, Pre-Refunded, 8.00%, 8/01/15 2,545,000 2,663,495
Michael Reese Hospital, ETM, Series A, FSA Insured, 7.60%, 2/15/05 4,280,000 4,911,043
Northwestern Medical Facility Foundation, Refunding, MBIA Insured, 5.125%, 11/15/28 5,000,000 4,957,850
Series 1990, FSA Insured, 7.75%, 8/15/10 2,525,000 2,746,594
Series B, MBIA Insured, 7.90%, 8/15/03 1,783,000 1,807,516
Silver Cross Hospital, MBIA Insured, 7.00%, 8/15/21 1,000,000 1,096,060
Illinois Metropolitan Pier and Exposition Authority Dedicated State Tax Revenue,
McCormick Place Expansion Project,
Refunding, Series A, AMBAC Insured, 5.25%, 6/15/27 4,225,000 4,263,279
Illinois State COP, FSA Insured, 6.95%, 7/01/13 5,750,000 6,366,860
Macon County and Decatur COP, Decatur Public Building Commission, FGIC Insured, 6.50%, 1/01/06 300,000 341,895
Onterie Center Project, HFC, Mortgage Revenue, Refunding, Series A, MBIA Insured, 7.05%,
7/01/27 2,000,000 2,148,040
Regional Transportation Authority, Series A, AMBAC Insured, 7.20%, 11/01/20 300,000 389,712
bSouthwestern Illinois Development Authority, Retirement Community Revenue,
Collateral, Meridian Village Project, GNMA
Secured,
5.25%, 8/20/23 1,000,000 1,005,280
5.30%, 8/20/38 5,690,000 5,694,893
------------
75,480,379
------------
Indiana .7%
Fort Wayne Hospital Authority Revenue, Ancillary System, Inc.,
Parkview Memorial Hospital Project, Series A, FGIC Insured, 7.50%, 11/15/11 250,000 264,960
Refunding, Series C, BIG Insured, Pre-Refunded, 8.125%, 7/01/18 2,000,000 2,089,180
Indiana Health Facility Financing Authority Hospital Revenue, Community Hospital
Project, Refunding and Improvement,
MBIA Insured, 6.40%, 5/01/12 250,000 271,960
Indianapolis Gas Utility Revenue, Refunding, Series B, FGIC Insured, 4.00%, 6/01/15 500,000 452,690
Jasper County PCR, Refunding, Collateralized, Northern Indiana Public Service Co., MBIA Insured,
7.10%, 7/01/17 500,000 543,770
Monroe County Hospital Authority Revenue, Bloomington Hospital Project, Refunding, BIG Insured,
7.125%, 5/01/11 6,000,000 6,179,940
Patoka Lake Regional Water and Sewer District, Waterworks Revenue, Series A, AMBAC Insured,
6.45%, 1/01/15 1,500,000 1,679,145
Rockport PCR, Michigan Power Co., Refunding, Series B, FGIC Insured, 7.60%, 3/01/16 185,000 203,641
------------
11,685,286
------------
Iowa .1%
Davenport Hospital Revenue, St. Lukes Hospital, Series A, AMBAC Insured, Pre-Refunded,
7.40%, 7/01/20 $ 200,000 $ 216,986
Greater Iowa Housing Assistance Corp., Mortgage Revenue, Logan Park Project, Refunding,
Series B, MBIA Insured, 6.50%, 1/01/24 2,120,000 2,237,066
------------
2,454,052
------------
Kansas .5%
Burlington PCR, Kansas Gas and Electric Co. Project, Refunding, MBIA Insured, 7.00%, 6/01/31 3,350,000 3,666,743
Cowley and Shawnee Counties, SFMR, GNMA Secured, AMBAC Insured, 7.35%, 12/01/11 1,005,000 1,059,371
Kansas State Development Finance Authority, Health Facility Revenue, MBIA Insured, 5.80%,
11/15/21 1,330,000 1,421,970
Wichita Hospital Revenue, Refunding and Improvement, St. Francis, MBIA Insured, 6.25%,
10/01/10 2,000,000 2,189,820
Wichita Water and Sewer Utility Revenue, Refunding and Improvement, Series B, FGIC Insured,
6.00%, 10/01/12 1,000,000 1,041,140
------------
9,379,044
------------
Kentucky 1.6%
Jefferson County Capital Projects Corp., Leasehold Revenue, MBIA Insured,
5.375%, 6/01/22 2,000,000 2,059,920
5.50%, 6/01/28 3,000,000 3,130,890
Jefferson County Health Facilities Revenue,
Alliant Health System Inc., Refunding, MBIA Insured, 5.125%, 10/01/27 10,000,000 10,020,500
Jewish Hospital Healthcare Services, Inc., AMBAC Insured, 6.55%, 5/01/22 1,000,000 1,086,110
Kenton County Water District No. 001, Waterworks Revenue, Series B, FGIC Insured, 5.70%,
2/01/20 1,250,000 1,325,863
Kentucky Economic Development Financing Authority,
Hospital Facilities Revenue, Baptist Healthcare System, Refunding, MBIA Insured, 5.00%,
8/15/24 2,000,000 1,991,300
Hospital Facilities Revenue, St. Elizabeth Medical Center Project, Series A, FGIC Insured, 6.00%,
12/01/22 2,375,000 2,542,580
Medical Center Revenue, Ashland Hospital Corp., Refunding and Improvement, Series A, FSA
Insured, 6.125%, 2/01/12 1,000,000 1,082,000
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 2,318,520
Northern Kentucky University COP, Student Housing Facilities, FSA Insured, Pre-Refunded
7.25%, 1/01/12 2,000,000 2,190,240
------------
27,747,923
------------
Louisiana .1%
Jefferson Sales Tax District, Special Sales Tax Revenue, Refunding, Series A, BIG Insured,
Pre-Refunded, 8.00%, 7/01/05 1,700,000 1,761,472
Louisiana Regional Transit Authority Revenue, Refunding, FGIC Insured, 8.00%, 12/01/13 150,000 154,596
New Orleans Public Improvement, FGIC Insured, Pre-Refunded, 7.50%, 9/01/21 500,000 565,590
------------
2,481,658
------------
Maine .7%
Maine Health and Higher Educational Facilities Authority Hospital Revenue,
Eastern Maine Health Care, FGIC Insured,
Pre-Refunded,
6.625%, 10/01/11 2,000,000 2,196,980
Maine Health and Higher Educational Facilities Authority Revenue,
Series B, FSA Insured, Pre-Refunded, 7.00%, 7/01/24 2,000,000 2,329,380
Series C, FSA Insured, 6.20%, 7/01/25 2,015,000 2,200,400
Maine State Turnpike Authority Revenue, MBIA Insured, Pre-Refunded, 6.00%,
7/01/14 525,000 584,498
7/01/18 2,500,000 2,783,325
Old Orchard Beach GO, MBIA Insured,
6.65%, 9/01/11 1,180,000 1,313,895
Pre-Refunded, 6.65%, 9/01/12 535,000 602,260
------------
12,010,738
------------
Maryland .4%
Maryland State Community Development Administration Department, Housing and Community Development Infrastructure
Financing,
Series A, AMBAC Insured,
6.625%, 6/01/12 245,000 269,652
Pre-Refunded, 6.625%, 6/01/12 1,755,000 1,955,579
Maryland State Health and Higher Educational Facilities Authority Revenue,
University of Maryland Medical System,
Refunding, FGIC Insured, 5.00%, 7/01/20 3,000,000 3,001,050
Series B, FGIC Insured, 7.00%, 7/01/22 200,000 256,810
Maryland State Housing and Community Development Administration Department,
Infrastructure Financing, Series A,
AMBAC Insured, 6.70%, 6/01/22 820,000 915,842
------------
6,398,933
------------
Massachusetts 6.7%
Boston Water and Sewer Commission Revenue, Series A, FGIC Insured, 6.00%, 11/01/21 $ 3,700,000 $ 3,873,789
Central Berkshire Reglious School District GO, Series B, FSA Insured, 5.125%, 3/01/18 1,125,000 1,138,163
Massachusetts Municipal Wholesale Electric Co., Power Supply System Revenue,
Refunding, Series A, AMBAC Insured,
6.00%, 7/01/18 4,455,000 4,703,277
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 10,000,000 10,905,700
Beverly Hospital, Series E, MBIA Insured, Pre-Refunded, 7.70%, 7/01/20 1,500,000 1,633,875
Caregroup Issue, Refunding, Series A, MBIA Insured, 5.00%, 7/01/18 2,000,000 1,984,940
Caregroup Issue, Refunding, Series A, MBIA Insured, 5.00%, 7/01/25 5,000,000 4,919,800
Harvard Pilgrim, Health, Series A, FSA Insured, 5.00%, 7/01/18 3,000,000 2,977,410
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 1,000,000 1,016,190
Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 7/01/20 9,220,000 10,061,233
Massachusetts Medical Center, Series A, AMBAC Insured, 7.10%, 7/01/21 1,000,000 1,097,370
McLean Hospital, Refunding, Series C, FGIC Insured, 6.625%, 7/01/15 1,085,000 1,198,014
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 8,500,000 9,404,910
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 12,200,000 12,485,724
Simmons College, Series C, MBIA Insured, 5.125%, 10/01/28 8,000,000 8,024,720
Stonehill College, Refunding, Series E, MBIA Insured, 6.60%, 7/01/20 2,000,000 2,206,560
Youville Hospital, Refunding, Series B, MBIA Insured, 6.00%, 2/15/25 2,000,000 2,145,720
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, 6.50%, 10/01/22 3,000,000 3,307,830
Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19 5,000,000 5,262,050
Combined Jewish Philanthropies, Refunding, Series A, AMBAC Insured, 6.375%, 2/01/15 5,000,000 5,580,500
Suffolk University, AMBAC Insured, 5.25%, 7/01/17 3,000,000 3,059,400
Massachusetts State Port Authority Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 7/01/23 4,000,000 4,291,280
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/20 1,590,000 1,658,672
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/21 1,560,000 1,626,050
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/23 2,155,000 2,244,433
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/24 2,910,000 3,038,156
Massachusetts State Water Resources Authority, Series A, FGIC Insured, 5.50%, 11/01/21 3,000,000 3,131,640
Monson GO, School District, Series 1990, MBIA Insured, Pre-Refunded, 7.70%, 10/15/10 2,000,000 2,199,620
Palmer GO, Series B, AMBAC Insured, Pre-Refunded, 7.70%, 10/01/10 2,300,000 2,526,366
------------
117,703,392
------------
Michigan 4.0%
Chippewa Valley Schools, Refunding, AMBAC Insured, 5.00%, 5/01/27 1,000,000 990,910
Detroit Sewerage Disposal Revenue, MBIA Insured, 5.00%, 7/01/25 6,000,000 5,929,680
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/27 7,250,000 7,570,595
Jackson County Hospital Finance Authority, Hospital Revenue, W.A. Foote Memorial Hospital
Series A, AMBAC Insured,
5.25%, 6/01/17 750,000 767,258
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue, Bronson Methodist,
Refunding and Improvement,
MBIA Insured, 5.875%, 5/15/26 5,500,000 5,861,515
Series A, MBIA Insured, Pre-Refunded, 6.375%, 5/15/17 2,000,000 2,239,320
Kent Hospital Finance Authority, Health Care Revenue, Butterworth Health System,
Series A, MBIA Insured,
Pre-Refunded 5.625%, 1/15/26 10,000,000 11,041,600
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital,
Refunding, Series D,
FSA Insured, 6.10%, 4/01/19 5,000,000 5,478,450
Michigan State Hospital Finance Authority Revenue,
Hospital Botsford Obligation, Refunding, Series A, MBIA Insured, 5.25%, 2/15/22 2,000,000 2,025,720
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/31 5,000,000 4,936,200
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 6,725,000 6,751,698
St. John's Hospital and Medical Center, AMBAC Insured, 5.25%, 5/15/26 3,000,000 3,027,000
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.00%, 5/15/13 2,500,000 2,691,000
Michigan State Strategic Fund, Limited Obligation Revenue, Detroit Edison Co.,
Pollution Project, Refunding,
FGIC Insured, 6.875%, 12/01/21 200,000 218,334
Series BB, AMBAC Insured, 7.00%, 5/01/21 250,000 324,623
Michigan (cont.)
Saginaw Valley State University, Revenue General, AMBAC Insured, 5.30%, 7/01/28 $ 3,400,000 $ 3,459,568
Yale Public Schools District, Refunding, FSA Insured, 5.375%, 5/01/27 3,845,000 3,928,821
Zeeland Public Schools, Refunding, MBIA Insured, 5.25%, 5/01/24 3,180,000 3,217,270
------------
70,459,562
------------
Minnesota 2.3%
Agricultural and EDR Health Care System, Fairview Hospital, Refunding, Series A, MBIA Insured,
5.75%, 11/15/26 5,000,000 5,411,950
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 2,000,000 2,155,740
Minneapolis St. Paul Housing Finance Board, MFMR, Mortgage Loan, Riverside Plaza Project,
GNMA Secured, 8.20%, 12/20/18 4,000,000 4,099,480
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22 2,220,000 2,355,154
Northern Municipal Power Agency, Minnesota Electric System Revenue, Refunding, Series B,
AMBAC Insured, 5.50%, 1/01/18 2,100,000 2,157,351
Southern Minnesota Municipal Power Agency, Power Supply System Revenue, Series A, AMBAC
Insured, 5.75%, 1/01/18 2,870,000 3,040,478
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 8,316,932
Washington County, Raymie Johnson Apartments, Refunding, Series C, FGIC Insured, 6.30%,
1/01/20 2,415,000 2,612,764
Washington County Governmental Housing, Scandia II, Series B, FGIC Insured, 6.30%, 7/01/24 1,200,000 1,293,564
Western Minnesota Municipal Power Agency, Power Supply Revenue, Series A, MBIA Insured,
6.125%, 1/01/16 8,350,000 8,398,013
------------
39,841,426
------------
Mississippi
Harrison County Waste Water Management District Revenue, Waste Water Treatment
Facilities, Refunding, Series A, FGIC
Insured,
8.50%, 2/01/13 200,000 285,744
------------
Missouri .9%
Kansas City IDA, Mortgage Revenue, Mortgage Presidential Gardens, Refunding, Series A, FNMA Secured,
5.55%, 8/01/25 1,000,000 1,032,400
Missouri State Health and Educational Facilities Authority, Health Facilities Revenue,
Heartland Health System Project,
AMBAC Insured, 6.35%, 11/15/17 1,000,000 1,086,990
Missouri State Housing Development Community Mortgage Revenue, Single Family,
Series B, GNMA Secured,
7.75%, 6/01/22 1,120,000 1,175,866
Richmound Heights COP Partner Capital Improvement Projects, Series A, MBIA Insured, 5.30%,
8/15/17 2,000,000 2,043,640
St. Charles County Public Facilities Authority Leasehold Revenue, FGIC Insured, 6.375%,
3/15/07 2,850,000 3,103,707
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 375,000 386,310
St. Louis Municipal Finance Corp., Leasehold Revenue, City Justice Center,
Refunding, Series A, AMBAC
Insured, 5.95%, 2/15/16 2,000,000 2,178,560
St. Louis Municipal Finance Corp., Leasehold Revenue, Refunding and Improvement, FGIC Insured,
Pre-Refunded, 6.25%, 2/15/12 2,025,000 2,275,614
St. Louis School District GO, Refunding, FGIC Insured, 6.00%, 4/01/12 2,950,000 3,166,412
------------
16,449,499
------------
Montana 1.2%
Forsyth PCR, Refunding,
Puget Sound Power and Light Project, AMBAC Insured, 6.80%, 3/01/22 4,475,000 4,887,103
Washington Water Co., Series A, MBIA Insured, 7.125%, 12/01/13 5,000,000 5,286,400
Helena Water Revenue, Series C, FGIC Insured, 6.65%, 11/01/12 750,000 827,550
Montana State Board, Workers Compensation Investment Program, ETM, MBIA Insured, 6.875%,
6/01/20 8,500,000 9,260,070
Montana State University Revenue, Higher Education Facilities,
Acquisition and Improvement, Series C, MBIA Insured,
6.00%, 11/15/14 1,000,000 1,001,850
------------
21,262,973
------------
Nebraska 2.7%
Cass County School District No. 001, Plattsmouth Community Schools, FGIC Insured, Pre-Refunded,
6.35%, 12/01/19 2,500,000 2,595,375
Lancaster County Hospital Authority No. 1, Hospital Revenue, Bryan Memorial Hospital Project,
ETM, MBIA Insured, 6.70%, 6/01/22 2,500,000 2,908,750
Series A, MBIA Insured, 5.375%, 6/01/19 2,715,000 2,796,341
Series B, MBIA Insured, 5.375%, 6/01/17 5,000,000 5,187,150
Lincoln Hospital Revenue, Lincoln General Hospital, Refunding, Series A, FSA Insured, 6.20%,
12/01/14 2,000,000 2,167,040
Municipal Energy Agency of Nebraska, Power Supply System Revenue,
Refunding, Series A, AMBAC Insured, 6.00%,
4/01/15 2,000,000 2,159,740
4/01/17 1,350,000 1,443,839
Nebraska (cont.)
Nebraska Educational Finance Authority Revenue, Creighton University Project, AMBAC Insured,
5.95%, 1/01/11 $ 1,000,000 $ 1,098,120
Nebraska Investment Finance Authority,
Health Facilities Revenue, Children's Healthcare Services, AMBAC Insured, 5.50%, 8/15/27 2,000,000 2,088,100
SFMR, Refunding, Series B, FGIC Insured, 8.00%, 7/15/17 2,855,000 2,933,256
SFMR, Refunding, Series R1-A, FGIC Insured, 8.00%, 7/15/17 205,000 207,446
Nebraska Public Power District, Revenue, Power System, Series A, MBIA Insured, Pre-Refunded, 5.25%,
1/01/22 12,200,000 13,033,504
1/01/28 7,900,000 8,439,728
------------
47,058,389
------------
Nevada .5%
Carson City Hospital Revenue, Series B, AMBAC Insured, 5.40%, 3/01/17 1,000,000 1,043,000
Clark County GO, Series A, AMBAC Insured, 6.50%, 6/01/17 250,000 303,525
Clark County School District, Series A, MBIA Insured, 7.00%, 6/01/10 4,000,000 4,978,960
Sparks Public Safety GO, AMBAC Insured, Pre-Refunded, 7.50%, 10/01/09 1,695,000 1,799,243
------------
8,124,728
------------
New Hampshire 1.2%
New Hampshire Higher Educational and Health Facilities Authority Revenue,
Concord Hospital, Refunding, AMBAC Insured, 6.00%, 10/01/26 4,300,000 4,644,043
Mary Hitchcock Memorial Hospital, FGIC Insured, 5.75%, 8/15/23 11,000,000 11,579,590
University System, Refunding, MBIA Insured, 6.25%, 7/01/20 4,000,000 4,316,680
------------
20,540,313
------------
New Jersey 1.7%
Essex County Improvement Authority Lease, Jail and Youth House Projects,
AMBAC Insured, Pre-Refunded, 7.00%, 12/01/24 3,000,000 3,530,430
Refunding, AMBAC Insured, 5.35%, 12/01/24 4,000,000 4,107,600
Essex County Improvement Authority Revenue, Garden State Cancer Center Project, AMBAC
Insured, 6.00%, 12/01/20 2,525,000 2,755,533
Hudson County COP, Correctional Facility, BIG Insured, Pre-Refunded, 7.60%, 12/01/21 5,000,000 5,149,650
Mantua Township, New Jersey School District COP, MBIA Insured, Pre-Refunded, 7.25%, 6/30/10 1,700,000 1,839,757
Middlesex County New Jersey, COP, MBIA Insured, 5.30%, 6/15/29 3,575,000 3,672,562
Mount Laurel Township Municipal Utilities Authority System Revenue, Refunding, Series A, MBIA
Insured, 6.00%, 7/01/15 2,000,000 2,140,200
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 2,041,640
Muhlenberg Regional Medical Center, Series B, AMBAC Insured, 8.00%, 7/01/18 3,000,000 3,102,810
New Jersey HFA, Home Buyer Revenue, Series C, MBIA Insured, 7.375%, 10/01/17 485,000 506,684
New Jersey State Turnpike Authority Revenue, Refunding, Series C, AMBAC Insured, 6.50%,1/01/16 300,000 363,900
------------
29,210,766
------------
New Mexico .5%
Farmington, PCR, Public Service Co., Refunding, Series A, AMBAC Insured, 6.375%, 12/15/22 5,000,000 5,441,700
Gallup PCR, Plains Electric Generation, Refunding, MBIA Insured, 6.65%, 8/15/17 2,000,000 2,212,840
New Mexico Mortgage Finance Authority, SFMR, Series C, FGIC Insured, 8.625%, 7/01/17 920,000 939,219
------------
8,593,759
------------
New York 7.7%
Central Square School District, FGIC Insured, 6.50%, 6/15/10 900,000 1,074,096
Dutchess County IDA Civic Facilities Revenue, The Baird College Project, AMBAC Insured,
5.375%, 6/01/27 3,945,000 4,049,976
New York City GO, Series C, Sub-Series C-1, MBIA Insured, Pre-Refunded, 6.625%, 8/01/12 105,000 116,757
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 2,150,460
New York City Trust for Cultural Resources Revenue, New York Botanical Garden, MBIA Insured,
5.80%, 7/01/26 2,000,000 2,123,180
New York State Dormitory Authority Revenues,
Brooklyn Law School, FSA Insured, 6.40%, 7/01/11 4,000,000 4,295,400
City University, Series C, 7.00%, 7/01/14 6,110,000 6,542,038
City University, Series C, Prerefunded, 7.00%, 7/01/14 2,545,000 2,740,940
Mt. Sinai School of Medicine, Refunding, MBIA Insured, 6.75%, 7/01/15 1,500,000 1,625,865
Pace University, MBIA Insured, 5.70%, 7/01/22 7,500,000 8,011,950
New York (cont.)
New York State Dormitory Authority Revenues, (cont.)
Pace University, MBIA Insured, 5.75%, 7/01/26 $ 2,500,000 $ 2,681,075
Pooled Capital Program, FGIC Insured, 7.80%, 12/01/05 4,335,000 4,453,302
St. John's University, MBIA Insured, 5.70%, 7/01/26 15,000,000 16,010,400
Vassar Brothers Hospital, FSA Insured, 5.375%, 7/01/25 4,000,000 4,092,920
New York State Energy Research and Development Authority, PCR,
Central Hudson Gas, Series A, FGIC Insured, 7.375%, 10/01/14 2,000,000 2,133,220
Niagara Mohawk Power Corp., Refunding, Series A, FGIC Insured, 6.625%, 10/01/13 3,500,000 3,804,115
Rochester Gas and Electric Project, Refunding, Series B, MBIA Insured, 6.75%, 1/15/27 5,000,000 5,317,750
Rochester Gas and Electric Project, Refunding, Series B, MBIA Insured, 6.50%, 5/15/32 5,000,000 5,418,200
New York State Medical Care Facilities, Financing Agency Revenue,
North Shore University Hospital, Mortgage Project, Series A, MBIA Insured, Pre-Refunded,
7.20%, 11/01/20 3,000,000 3,273,360
Presbyterian Hospital, FHA Mortgage, Series A, MBIA Insured, 5.375%, 2/15/25 3,055,000 3,119,735
New York State Thruway Authority, General Revenue,
Series B, MBIA Insured, 5.00%, 1/01/20 6,635,000 6,638,583
Series C, FGIC Insured, Pre-Refunded, 6.00%, 1/01/25 7,815,000 8,732,403
Niagara Frontier Transportation Authority, Airport Revenue,
Greater Buffalo International Airport, Series A, AMBAC
Insured,
6.25%, 4/01/24 9,000,000 9,742,050
Port Authority of New York and New Jersey, Consolidated,
102nd Series, MBIA Insured, 5.625%, 10/15/17 5,000,000 5,279,550
102nd Series, MBIA Insured, 5.875%, 10/15/27 10,000,000 10,636,800
109th Series, FGIC Insured, 5.375%, 7/15/22 10,000,000 10,299,900
Upper Mohawk Valley Regional Water Finance Authority, Water Systems Revenue, Series A,
FSA Insured, 5.125%, 10/01/26 1,495,000 1,513,224
------------
135,877,249
------------
North Carolina .4%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 1,000,000 1,067,840
New Hanover County Hospital Revenue, New Hanover Regional Medical Center Project, AMBAC
Insured, 5.75%, 10/01/26 1,150,000 1,233,582
North Carolina Medical Care Community Hospital Revenue, Rex Healthcare, AMBAC Insured, 5.00%,
6/01/17 5,000,000 4,999,600
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue,
ETM, MBIA Insured, 6.50%, 1/01/10 20,000 23,009
MBIA Insured, 6.50%, 1/01/10 80,000 83,988
------------
7,408,019
------------
North Dakota .4%
Grand Forks Health Care System Revenue, Altru Health System Obligation Group, MBIA Insured,
5.625%, 8/15/27 5,500,000 5,772,800
North Dakota State Building Authority Lease Revenue, Department
of Corrections and Rehabilitation, Series B, AMBAC
Insured,
Pre-Refunded, 7.40%, 6/01/10 150,000 159,228
North Dakota State Building Authority Revenue, Refunding, Series A, AMBAC Insured, Pre-Refunded,
6.75%, 6/01/11 300,000 323,079
------------
6,255,107
------------
Ohio 3.6%
Clermont County, Building and Road Improvement, Refunding, AMBAC Insured, 5.60%, 9/01/14 2,000,000 2,108,680
Cleveland Airport System Revenue, Series A, FSA Insured, 5.125%, 1/01/27 6,000,000 5,995,080
Cleveland Waterworks First Mortgage Revenue, Series F, AMBAC Insured, Pre-Refunded, 6.50%,
1/01/11 1,625,000 1,788,426
Elyria GO, FGIC Insured, 5.40%, 12/01/17 2,400,000 2,484,552
Hamilton Wastewater System Revenue, Series A, FSA Insured, 5.15%, 10/15/17 3,015,000 3,073,672
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 1,750,000 1,871,013
Montgomery County Hospital Facilities Revenue, Kettering Medical Center Facilities, MBIA Insured,
Pre-Refunded, 7.50%, 4/01/14 12,720,000 13,267,087
Ohio HFA, SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 3,105,000 3,289,002
Ohio Municipal Electric Generation Agency, Joint Venture 5, AMBAC Insured, 5.375%, 2/15/24 5,500,000 5,642,835
Ohio State Turnpike Commission, Turnpike Revenue, Series A, MBIA Insured, 5.50%, 2/15/26 15,900,000 16,675,602
University of Cincinnati COP, University of Cincinnati University Center Project, MBIA Insured,
5.125%, 6/01/24 2,950,000 2,975,636
West Holmes Local School District, MBIA Insured, 5.375%, 12/01/17 3,100,000 3,216,374
------------
62,387,959
------------
Oklahoma 1.0%
Grady County HFA, SFMR, Refunding, Series A, FGIC Insured, 6.70%, 1/01/12 $ 595,000 $ 637,697
McGee Creek Authority Water Revenue, MBIA Insured, 6.00%, 1/01/23 300,000 347,520
Moore Public Works Authority Revenue, Refunding, AMBAC Insured, 7.60%, 7/01/06 5,000,000 5,258,800
Muskogee County, HFAR, SFMR, Refunding, Series A, FGIC Insured, 7.60%, 12/01/10 535,000 557,470
Oklahoma State Turnpike Authority Revenue, Series A, AMBAC Insured, 6.00%, 1/01/12 2,000,000 2,150,460
Owasso Public Works Authority, Public Improvement Revenue, FSA Insured, Pre-Refunded,
7.40%, 11/01/07 1,255,000 1,275,419
Pottawatomie County Development Authority Water Revenue, North Deer
Creek Reservoir Project, AMBAC Insured, Pre-Refunded,
7.375%, 7/01/26 250,000 270,890
Tulsa County HFAR,
Series A, GNMA Secured, 8.30%, 12/01/19 3,755,000 3,850,002
Series D, GNMA Secured, 6.95%, 12/01/22 295,000 313,668
Tulsa Industrial Authority Revenue, Holland Hall School Project,FSA Insured, 6.75%, 12/01/14 3,270,000 3,696,768
------------
18,358,694
------------
Oregon 1.9%
Chemeketa Community College District, FGIC Insured, Pre-Refunded, 5.95%, 6/01/16 3,000,000 3,354,330
Clackamas Oregon Community College District, MBIA Insured, 5.80%, 6/01/26 2,500,000 2,669,900
Deschutes and Jefferson Counties School District No. 2-J, Redmond, MBIA Insured, 5.60%,
6/01/09 1,500,000 1,576,215
Josephine County School District No. 7, FGIC Insured, 5.70%, 6/01/13 5,000,000 5,369,600
Medford Oregon Hospital Facilities Authority Revenue, Asante Health System, Refunding, Series A,
MBIA Insured, 5.00%, 8/15/24 3,655,000 3,654,890
Northern Wasco County, Peoples Utilities District, Oregon Electric Revenue, FGIC Insured, 5.625%,
12/01/22 1,000,000 1,053,460
Ontario Catholic Health Corp., Hospital Facilities Authority Revenue,
Holy Rosary Medical Facility, Refunding, Series C,
MBIA Insured, 5.50%, 11/15/12 700,000 747,859
Oregon Health Sciences University Revenue, Series B, MBIA Insured, 5.25%, 7/01/15 1,500,000 1,555,860
Oregon State Department of Administrative Services, COP, Series A,
AMBAC Insured, 5.80%, 5/01/24 5,000,000 5,378,550
MBIA Insured, 5.70%, 5/01/17 1,000,000 1,068,940
Port of Portland International Airport Revenue, Portland International Airport, Series 11, FGIC Insured,
5.625%, 7/01/26 1,000,000 1,047,990
Washington County Unified Sewer Agency Revenue, Senior Lien,
FGIC Insured, 5.50%, 10/01/16 1,845,000 1,949,482
Refunding, Series A, AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 1,000,000 1,113,610
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 3,000,000 3,285,900
------------
33,826,586
------------
Pennsylvania 1.7%
Beaver County, Series A, MBIA Insured, Pre-Refunded, 5.90%, 10/01/26 2,000,000 2,209,180
Cambria County Hospital Development Authority Revenue, Conemaugh Valley Hospital,
Refunding and Improvement, Series B,
Connie Lee Insured, 6.375%, 7/01/18 5,000,000 5,410,250
Delaware River Port Authority, Pennsylvania and New Jersey Delaware River
Bridges Revenue, Refunding, AMBAC Insured,
Pre-Refunded, 7.375%, 1/01/07 1,500,000 1,548,435
Lehigh County General Purpose Authority Revenues, Hospital Healtheast,
Inc., Refunding, Series A, MBIA Insured,
7.00%, 7/01/15 100,000 106,796
Montgomery County IDAR, PCR, Philadelphia Electric Co., Series B, MBIA Insured, 6.70%,
12/01/21 8,000,000 8,706,720
Pennsylvania Convention Center Authority Revenue, ETM, Series A, FGIC Insured, 6.00%, 9/01/19 500,000 564,540
Pennsylvania State Pooled Finance Authority, Lease Revenue, Capital Improvement, Series B, MBIA
Insured, 8.00%, 11/01/09 2,740,000 2,867,246
Pennsylvania State Turnpike Commission Revenue, Refunding, Series P, AMBAC Insured, 6.00%,
12/01/17 500,000 538,335
Philadelphia Airport Revenue, Philadelphia Airport System, Series A, AMBAC Insured, 6.10%,
6/15/25 4,000,000 4,326,600
Philadelphia Water and Waste Water Revenue, Refunding, FSA Insured, 5.50%, 6/15/15 1,000,000 1,038,870
Pittsburgh Water and Sewer System Authority Revenue, ETM, Refunding, FGIC Insured, 7.25%,
9/01/14 90,000 110,762
Quaker Valley School District, FGIC Insured, Pre-Refunded, 5.70%, 1/15/19 2,000,000 2,171,780
------------
29,599,514
------------
Rhode Island 1.3%
Kent County Water Authority, General Revenue, Series A, MBIA Insured, 6.35%, 7/15/14 2,100,000 2,340,954
Providence GO, Series A, FSA Insured, 5.70%, 7/15/19 3,000,000 3,201,420
Rhode Island Clean Water Financing Agency Revenue, Wastewater Treatment System, Cranston,
MBIA Insured, 5.80%, 9/01/22 10,000,000 10,592,200
Rhode Island (cont.)
Rhode Island Health and Educational Building Corp. Revenue,
Higher Educational Facilities, Roger Williams Facility,
Connie Lee Insured, Pre-Refunded, 7.25%, 11/15/24 $ 2,000,000 $ 2,372,760
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 2,300,340
Rhode Island State, Series A, FGIC Insured, Pre-Refunded, 6.25%, 6/15/07 175,000 190,600
Rhode Island State Health and Educational Building Corp. Revenue, Lifespan Obligation Group, MBIA
Insured, 5.75%, 5/15/23 1,750,000 1,866,568
------------
22,864,842
------------
South Carolina .4%
Charleston Waterworks and Sewer Revenue, Refunding and Improvement, AMBAC Insured, 6.00%,
1/01/16 250,000 266,485
Edgefield County School District, Refunding, FSA Insured, 8.50%, 2/01/01 250,000 277,790
Luxington Water and Sewer Revenue, FSA Insured, 5.45%, 4/01/19 2,320,000 2,416,466
Piedmont Municipal Power Agency, South Carolina Electric Revenue, Refunding, FGIC Insured, 6.25%,
1/01/21 200,000 236,086
Richland County Hospital Facilities Revenue, Community Provider,
Pooled Loan Program, ETM, Series A, FSA Insured,
7.125%, 7/01/17 3,000,000 3,632,700
Spartanburg Sanitation Sewer District, Sewer System Revenue Implementation, MBIA Insured,
5.50%, 6/01/27 500,000 517,885
------------
7,347,412
------------
South Dakota .7%
Grant County PCR, Refunding, MBIA Insured, 5.90%, 6/01/23 4,800,000 5,041,536
Lawrence County COP, Courthouse, FSA Insured, Pre-Refunded, 7.65%, 7/01/10 2,000,000 2,174,880
Sioux Falls Medical Clinic Revenue, AMBAC Insured, 8.00%, 9/01/08 2,095,000 2,139,246
South Dakota State Lease Revenue, Series A, FSA Insured, 6.75%, 12/15/16 2,720,000 3,356,725
South Dakota State University Revenue, Housing and Auxiliary Facilities, Refunding, Series A,
MBIA Insured, 5.50%, 4/01/17 20,000 20,579
------------
12,732,966
------------
Tennessee .4%
Greater Tennessee Housing Assistance Corp., Mortgage Revenue,
Refunding, Series A, MBIA Insured,
6.00%, 7/01/24 1,430,000 1,482,481
Johnson County Public Building Authority Revenue, Public Facilities, MBIA Insured, 5.125%,
9/01/20 1,665,000 1,685,130
Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured, 6.60%, 7/01/15 200,000 216,550
Trenton Special School District, AMBAC Insured, 5.75%, 11/01/20 3,000,000 3,204,450
------------
6,588,611
------------
Texas 8.6%
Austin Combined Utility System Revenue,
BIG Insured, Pre-Refunded, 8.625%, 11/15/17 1,000,000 1,162,360
Series A, BIG Insured, Pre-Refunded, 8.00%, 11/15/16 3,000,000 3,322,620
Austin Utility System Revenue, Refunding, FGIC Insured,
6.00%, 5/15/15 35,000 36,330
Pre-Refunded, 6.00%, 5/15/15 15,000 15,408
Bell County Texas Health Facilities Development Corp. Revenue,
Hospital Cook Children's Medical, Refunding, FSA Insured,
5.30%, 12/01/23 5,000,000 5,076,150
Bexar County HFC Revenue, Series A, GNMA Secured, 8.20%, 4/01/22 3,060,000 3,185,429
Brazos River Authority Revenue, Houston Light and Power Co. Project, Refunding,
Series A, AMBAC Insured, 6.70%, 3/01/17 2,000,000 2,180,480
Series D, FGIC Insured, 7.75%, 10/01/15 3,360,000 3,437,549
Coastal Bend Health Facilities Development Corp., Series B, AMBAC Insured, 6.30%, 1/01/17 12,230,000 13,252,550
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10 705,000 742,266
East Texas HFC, SFMR, Series 1990, GNMA Secured, 7.85%, 12/01/10 635,000 670,839
Faulkey Gully MUD, Waterworks and Sewerage System, Refunding, AMBAC Insured, 6.625%, 3/01/07 1,520,000 1,642,740
Fort Bend County Levee Improvement District No. 011, AMBAC Insured, 6.00%,
9/01/21 1,395,000 1,498,607
9/01/22 1,495,000 1,606,034
9/01/23 1,610,000 1,723,634
Grand Prairie Health Facilities, Dallas/Fort Worth Medical Center Project,
Refunding, AMBAC Insured,
6.875%, 11/01/10 2,700,000 3,115,746
Harris County Hospital District Mortgage Revenue, Refunding, AMBAC Insured, 7.40%, 2/15/10 2,350,000 2,906,809
Harris County Public Facilities Corp., Detention Facility Mortgage Revenue, MBIA Insured,
Pre-Refunded, 7.80%, 12/15/11 3,000,000 3,095,820
Texas (cont.)
Harris County Toll Road,
Senior Lien, Series A, AMBAC Insured, 6.50%, 8/15/17 $ 1,580,000 $ 1,718,455
Senior Lien, Series B, AMBAC Insured, 6.625%, 8/15/17 240,000 245,520
Series A, FGIC Insured, 6.50%, 8/15/11 35,000 38,630
Houston Airport System Revenue, Subordinated Lien, Series A, FGIC Insured, 6.75%, 7/01/21 2,500,000 2,694,450
Houston Water and Sewer System Revenue, Junior Lien, Refunding, Series C,
AMBAC Insured, 6.375%, 12/01/17 935,000 1,008,790
MBIA Insured, 5.75%, 12/01/15 500,000 528,085
MBIA Insured, 6.375%, 12/01/22 6,380,000 6,927,085
Lubbock HFC, SFMR, Mortgage Extension Program, Refunding, Series B, BIG Insured, 8.875%,
12/01/12 750,000 756,045
Matagorda County Navigation District No. 1,
Houston Light and Power Co., Refunding, Series C, FGIC Insured, 7.125%, 7/01/19 2,000,000 2,093,660
Houston Light and Power Co., Refunding, Series E, FGIC Insured, 7.20%, 12/01/18 100,000 106,096
PCR, Central Power and Light Co. Project, AMBAC Insured, 7.50%, 12/15/14 200,000 215,360
PCR, Central Power and Light Co. Project, Refunding, Series E, MBIA Insured, 6.10%,
7/01/28 12,850,000 13,475,281
Revenue, Houston Industrial Inc. Project, Refunding, Series A, MBIA Insured, 5.25%,
11/01/29 3,185,000 3,196,148
Revenue, Houston Industrial Inc. Project, Refunding, Series B, MBIA Insured, 5.15%,
11/01/29 2,750,000 2,782,065
Palo Duro River Authority, Refunding, FSA Insured, 6.375%, 8/01/08 6,000,000 6,143,340
Portland Community Center Complex Development Corp. Sales Tax Revenue, Refunding, AMBAC
Insured, 5.45%, 2/15/25 1,450,000 1,497,517
Sabine River Authority, PCR, Texas Utilities Electric Co. Project, Collateralized, Refunding, FGIC
Insured, 6.55%, 10/01/22 3,250,000 3,542,110
San Antonio Water Revenue,
MBIA Insured, 6.50%, 5/15/10 2,920,000 3,206,248
Refunding and Improvement, MBIA Insured, 5.60%, 5/15/21 3,250,000 3,403,270
San Marcos Waterworks and Sewer Systems Revenue, Series 1998, FSA Insured, 5.125%, 8/15/20 2,870,000 2,901,742
San Patricio County COP, MBIA Insured, 6.60%, 4/01/07 2,500,000 2,704,200
Smithville HDC Mortgage Revenue, Smithville Retirement, Refunding, Series A, MBIA Insured,
6.40%, 1/01/22 1,065,000 1,137,356
Southeast HDC Mortgage Revenue, Stonegate Retirement, MBIA Insured, 6.40%, 1/01/24 1,170,000 1,271,849
Tarrant County Health Facilities Development Corp., Hospital Revenue,
FT. Worth Osteopathic Hospital, MBIA Insured,
5.125%, 5/15/21 2,905,000 2,922,604
Tarrant County HFC,
Health System Revenue, Harris Methodist Health System, ETM, MBIA Insured, 6.00%, 9/01/24 3,250,000 3,564,145
SFMR, ETM, Series A, GNMA Secured, 8.00%, 7/01/21 7,390,000 7,598,841
Texas Health Facilities Development Corp. Hospital Revenue,
All Saints Episcopal Hospitals, Refunding, Series B, MBIA Insured,
6.25%, 8/15/22 2,500,000 2,719,450
6.375%, 8/15/23 4,885,000 5,340,526
Texas State Turnpike Authority Revenue, Dallas North Tollway, Refunding, AMBAC Insured,
5.00%, 1/01/20 7,250,000 7,262,688
Texas Water Resources Financial Authority Revenue, AMBAC Insured, 7.50%, 8/15/13 5,340,000 5,531,599
Travis County HFC, SFMR, GNMA Secured, 8.20%, 4/01/22 2,820,000 2,924,453
Tyler Health Facilities Development COP, Hospital Revenue, East Texas Medical Center Project,
Series B, FSA Insured, 5.50%, 11/01/17 1,000,000 1,051,040
Series C, FSA Insured, 5.60%, 11/01/27 1,430,000 1,503,860
------------
150,683,879
------------
US Territories
District of Columbia HFA, RMR, Series 1986-1, FGIC Insured, 7.75%, 9/01/16 875,000 883,750
------------
Utah 1.3%
Intermountain Power Agency, Power Supply Revenue, Refunding,
Series A, AMBAC Insured, 5.50%, 7/01/20 4,680,000 4,810,853
Series B, MBIA Insured, 5.75%, 7/01/19 3,250,000 3,505,255
Provo Electric System Revenue, ETM, Refunding, Series A, AMBAC Insured, 10.375%, 9/15/15 40,000 58,962
Utah County Hospital Revenue, IHC Health Services, Inc., MBIA Insured, 5.25%,
8/15/21 5,000,000 5,061,700
8/15/26 5,000,000 5,042,300
Utah State Board of Regents, Student Loan Revenue, Series H, AMBAC Insured, 6.70%, 11/01/15 1,080,000 1,142,262
White City Water Implementation District GO, Refunding, AMBAC Insured, 5.30%, 2/01/25 3,435,000 3,495,456
------------
23,116,788
------------
Vermont .7%
Swanton Village Electric System Revenue, Refunding, MBIA Insured, 5.75%, 12/01/19 $ 1,740,000 $ 1,877,495
Vermont, COP, MBIA Insured, Pre-Refunded, 7.25%, 6/15/11 2,205,000 2,379,217
Vermont Home Mortgage, Series B, MBIA Insured, 7.60%, 12/01/24 6,630,000 6,963,821
Vermont Municipal Bond Bank, Series 2, FSA Insured, 6.25%, 12/01/19 1,000,000 1,076,150
------------
12,296,683
------------
Virginia 1.6%
Chesapeake Bay Bridge and Tunnel Commission, Virginia District Revenue,
General Resolution, Refunding, MBIA Insured,
5.75%, 7/01/25 9,850,000 10,157,025
Chesapeake IDA, Public Facilities, Lease Revenue, Chesapeake Jail Project, MBIA Insured,
6.00%, 6/01/12 5,000,000 5,474,300
Danville IDA, Hospital Revenue, Danville Regional Medical Center,
Refunding, FGIC Insured, Pre-Refunded,
6.50%, 10/01/24 1,000,000 1,138,620
Hampton Roads Regional Jail Authority, Jail Facilities Revenue, Series A, MBIA Insured,
5.00%, 7/01/28 3,405,000 3,399,518
Spotsylvania County Water and Sewer System Revenue GO, MBIA Insured, 5.40%, 6/01/27 3,850,000 3,973,277
Winchester IDA, Educational Facilities Revenue, First Mortgage,
Shenandoah University Project, MBIA Insured,
5.00%, 10/01/18 1,000,000 1,001,760
5.25%, 10/01/28 2,420,000 2,472,054
------------
27,616,554
------------
Washington 5.4%
Bellingham Housing Authority Revenue, Pacific Rim and Cascade Meadows Projects, Refunding, MBIA
Insured, 5.20%, 11/01/27 4,000,000 4,027,960
Douglas County PUD No. 001, Electric Distribution System Revenue, MBIA Insured, 6.00%, 1/01/15 900,000 984,006
Everett COP, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 4/01/09 850,000 923,075
Grant County PUD No. 002, Wanapum Hydro-Electric Revenue, Second Series, Series B, AMBAC
Insured, 6.75%, 1/01/23 2,000,000 2,159,040
King County Public Hospital District No. 001, Hospital Facilities Revenue,
Valley Medical Center, King County Sewer, MBIA Insured,
Pre-Refunded, 6.125%, 1/01/33 3,000,000 3,260,250
Kitsap County School District No. 100-C, Refunding, MBIA Insured, 6.60%, 12/01/08 1,015,000 1,116,175
Klickitat County PUD No. 001, Electric Revenue, FGIC Insured,
5.65%, 10/01/15 1,000,000 1,057,690
5.75%, 10/01/27 1,000,000 1,057,460
Mason County School District No. 402, Pioneer, MBIA Insured, 6.60%, 12/01/11 1,040,000 1,175,158
Pierce County School District No. 003, Puyallup, FGIC Insured, 5.70%, 12/01/15 1,000,000 1,068,790
Port of Longview, Cowlitz County, Airport and Marina Improvements, MBIA Insured, 6.00%,
11/01/15 2,000,000 2,201,440
Seatac Storm Water Revenue, MBIA Insured, 6.50%, 12/01/13 2,890,000 3,208,594
Seattle Metropolitan Sewer System Revenue, Series W, MBIA Insured, 6.30%, 1/01/33 11,000,000 11,802,780
Seattle Water System Revenue, FGIC Insured, 5.625%, 8/01/26 2,000,000 2,110,940
Snohomish County PUD No. 001, Electric Revenue, Generation System, ETM, FGIC Insured, 6.65%,
1/01/16 4,250,000 4,993,453
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 5,377,200
Tacoma Electric System Revenue, Refunding,
AMBAC Insured, 6.25%, 1/01/11 500,000 541,010
FGIC Insured, 6.25%, 1/01/15 6,190,000 6,749,081
Tacoma GO, Series A, MBIA Insured, 5.625%, 12/01/22 3,400,000 3,586,388
Thurston and Pierce Counties, Community Schools, Series B, AMBAC Insured, 6.65%, 12/01/09 1,305,000 1,453,144
Washington Public Power Supply System, Nuclear Project No. 1 Revenue, Refunding,
Series A, MBIA Insured, 6.25%, 7/01/17 420,000 451,093
Series C, FGIC Insured, Pre-Refunded, 7.75%, 7/01/08 2,500,000 2,723,000
Washington State Health Care Facilities Authority Revenue,
Swedish Health Services, Refunding, AMBAC Insured, 5.50%, 11/15/28 15,370,000 15,823,415
Swedish Hospital Medical Center, AMBAC Insured, Pre-Refunded, 6.30%, 11/15/22 3,250,000 3,601,845
Washington State HFA, Series A, GNMA Secured, 7.70%, 7/01/32 2,860,000 2,969,595
Washington State University Revenues, Housing and Dining System, Refunding, MBIA Insured,
6.40%, 10/01/24 6,130,000 6,772,608
Western Washington University Revenue, Housing and Dining System,
MBIA Insured, 6.375%, 10/01/22 80,000 86,195
Refunding, MBIA Insured, 6.70%, 10/01/11 235,000 252,841
Refunding, MBIA Insured, 6.375%, 10/01/21 770,000 811,033
Whatcom County School District No. 501, Bellingham, FGIC Insured, 6.125%, 12/01/13 2,000,000 2,185,280
Yakima-Tieton Irrigation District Revenue, Refunding, FSA Insured, 6.20%, 6/01/19 350,000 378,924
------------
94,909,463
------------
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 $ 12,837,958
Monongalia County Building Community Hospital Revenue, Monongalia General Hospital,
Refunding, Series B, MBIA Insured,
6.50%, 7/01/17 1,000,000 1,068,440
South Charleston Hospital Revenue, Herbert J. Thomas Memorial Hospital,
Refunding, BIG Insured, Pre-Refunded, 8.00%,
10/01/04 3,060,000 3,131,635
10/01/10 2,400,000 2,456,184
West Virginia State GO, Series A, FGIC Insured, 5.00%, 11/01/21 5,000,000 4,992,850
West Virginia State HDA, SFMR, MBIA Insured, Pre-Refunded, 7.40%, 11/01/11 2,000,000 2,032,360
West Virginia State University Revenue, Refunding, AMBAC Insured, 6.00%, 4/01/12 2,250,000 2,443,388
West Virginia State Water Development Authority Revenue,
Loan Program, Refunding, Series A, FSA Insured, 7.00%, 11/01/25 2,750,000 2,994,640
Loan Program II, Series B, FSA Insured, Pre-Refunded, 7.50%, 11/01/29 3,000,000 3,192,090
------------
35,149,545
------------
Wisconsin 1.6%
Superior Limited Obligation Revenue, Midwest Energy Resources, Refunding, Series E, FGIC
Insured, 6.90%, 8/01/21 3,000,000 3,835,080
Wisconsin Health Educational Revenue,
Community Provider Program, Series A, FSA Insured, 7.50%, 1/15/04 1,965,000 2,029,865
Series A, FSA Insured, 7.50%, 1/15/09 2,000,000 2,066,460
Wisconsin State Health and Educational Facilities Authority Revenue,
Aurora Health Care Inc., Refunding, MBIA Insured, 5.25%, 8/15/27 20,275,000 20,408,815
Refunding, Series AA, MBIA Insured, 6.25%, 6/01/20 500,000 532,550
------------
28,872,770
------------
Wyoming 1.3%
Gillette Health Facilities Revenue, Lutheran Hospital and Home Society, Refunding, MBIA Insured,
5.90%, 1/01/16 500,000 531,595
Natrona County Hospital Revenue, Wyoming Medical Center Projects, Refunding, AMBAC Insured,
6.00%, 9/15/24 9,885,000 10,612,141
University of Wyoming, University Facilities Revenues, MBIA Insured, 7.10%, 6/01/10 2,245,000 2,346,676
Wyoming CDA, AMBAC Insured, 6.00%, 6/01/23 6,750,000 7,053,278
Wyoming Municipal Power Agency, Power Supply System Revenue, Refunding, Series A, MBIA
Insured, 6.125%, 1/01/16 2,000,000 2,151,980
------------
22,695,670
------------
Total Long Term Investments (Cost $1,616,909,818) 1,737,825,171
------------
aShort Term Investments .4%
Allegheny County Hospital Development Authority Revenue,
Presbyterian University Hospital, Series B1,
Weekly VRDN and Put, 3.35%, 3/01/18 800,000 800,000
Arkansas State Development Finance Authority,
Higher Education Capital Asset, Series A 1995, FGIC Insured, Weekly VRDN
and Put, 3.25%, 12/01/15 600,000 600,000
Farmington New Mexico PCR, Arizona Public Service Co.,
Refunding, Series B, Daily VRDN and Put,
3.25%, 9/01/24 3,000,000 3,000,000
Indiana State Development Financing Authority Revenue,
Bayer Corp. Project, Refunding, Daily
VRDN and Put, 3.30%, 3/01/09 1,200,000 1,200,000
Maricopa County IDA, Hospital Facility Revenue,
Samaritan Health Service Hospital, Series B2, MBIA
Insured, Daily VRDN and Put,
3.25%, 12/01/08 900,000 900,000
University Arkansas University Revenue, UAMS Campus, Refunding, MBIA Insured, Weekly
VRDN and Put, 3.30%, 12/01/19 100,000 100,000
------------
Total Short Term Investments (Cost $6,600,000) 6,600,000
------------
Total Investments (Cost $1,623,509,818) 99.3% 1,744,425,171
Other Assets, less Liabilities .7% 12,955,596
------------
Net Assets 100.0% $1,757,380,767
============
See glossary of terms on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment
formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a when-issued or delayed delivery basis.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Massachusetts Insured Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.75 $11.54 $11.65 $11.34 $11.81 $11.73
-------------------------------------------------------------
Income from investment operations:
Net investment income .30 .61 .63 .66 .66 .67
Net realized and unrealized gains (losses) .09 .35 (.10) .31 (.47) .09
-------------------------------------------------------------
Total from investment operations .39 .96 .53 .97 .19 .76
-------------------------------------------------------------
Less distributions from:
Net investment income (.30) (.61) (.64)2 (.66) (.66) (.68)
In excess of net investment income -- (.01) -- -- -- --
Net realized gains (.05) (.13) -- -- -- --
-------------------------------------------------------------
Total distributions (.35) (.75) (.64) (.66) (.66) (.68)
-------------------------------------------------------------
Net asset value, end of period $11.79 $11.75 $11.54 $11.65 $11.34 $11.81
=============================================================
Total return* 3.33% 8.50% 4.75% 8.80% 1.83% 6.39%
Ratios/supplemental data
Net assets, end of period (000's) $337,498 $328,147 $325,065 $301,529 $288,331 $307,013
Ratios to average net assets:
Expenses .70%** .68% .68% .69% .67% .60%
Net investment income 5.04%** 5.21% 5.51% 5.67% 5.89% 5.69%
Portfolio turnover rate 3.02% 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 period)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.80 $11.59 $11.69 $11.36
------------------------------------------
Income from investment operations:
Net investment income .26 .55 .57 .50
Net realized and unrealized gains (losses) .09 .34 (.09) .32
------------------------------------------
Total from investment operations .35 .89 .48 .82
------------------------------------------
Less distributions from:
Net investment income (.26) (.55) (.58)2 (.49)
Net realized gains (.05) (.13) -- --
------------------------------------------
Total distributions (.31) (.68) (.58) (.49)
------------------------------------------
Net asset value, end of period $11.84 $11.80 $11.59 $11.69
==========================================
Total return* 3.02% 7.86% 4.22% 7.36%
Ratios/supplemental data
Net assets, end of period (000's) $18,348 $13,937 $6,378 $2,759
Ratios to average net assets:
Expenses 1.26%** 1.25% 1.25% 1.26%**
Net investment income 4.46%** 4.59% 4.96% 5.06%**
Portfolio turnover rate 3.02% 30.46% 29.22% 10.29%
*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.
2Includes distributions in excess of net investment income in the amount of $.001.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Massachusetts Insured Tax-Free Income Fund AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
aLong Term Investments 98.2%
Ashburnham and Westminister, Regional School District, MBIA Insured, 6.00%, 12/15/13 $ 2,700,000 $ 2,940,381
Attleboro Municipal Purpose GO, AMBAC Insured, 6.00%,
7/01/11 1,045,000 1,136,124
7/01/12 1,045,000 1,136,124
7/01/13 685,000 744,732
7/01/14 755,000 818,813
Blackstone-Milville School District, AMBAC Insured, 6.50%,
5/01/08 705,000 770,798
5/01/09 750,000 819,998
5/01/10 795,000 867,782
Boston Massachusetts GO, Refunding, Series B, FGIC Insured, 5.25%, 4/01/14 3,335,000 3,441,253
Boston Massachusetts Revenue, Boston City Hospital, Refunding, Series B, MBIA Insured,
5.75%, 2/15/23 10,500,000 10,914,645
Boston Water and Sewage Commission, General Revenue, Series A,
BIG Insured, 7.25%, 11/01/06 3,000,000 3,017,070
GNMA Secured, Pre-Refunded, 7.10%, 11/01/19 1,400,000 1,483,328
Central Berkshire GO, School District, MBIA Insured, Pre-Refunded, 7.25%, 6/01/08 1,095,000 1,181,122
Chelsea Massachusetts GO, State Qualified, Refunding, AMBAC Insured, 5.125%, 6/15/16 1,750,000 1,783,233
Framingham Housing Authority Mortgage Revenue, Beaver Terrace Apartments, Series A,
GNMA Secured, 6.65%, 2/20/32 1,650,000 1,732,533
General Transportation System,
Series A, FSA Insured, Pre-Refunded, 5.625%, 3/01/26 1,470,000 1,614,251
Series B, AMBAC Insured, 5.375%, 3/01/25 4,570,000 4,677,898
Greenfield GO, MBIA Insured, 6.50%,
10/15/08 500,000 543,095
10/15/09 500,000 542,330
Holyoke GO, School Project Loans, MBIA Insured, Pre-Refunded, 8.05%, 6/15/04 1,000,000 1,173,610
Hudson GO, MBIA Insured, 6.00%,
5/15/13 250,000 271,475
5/15/14 240,000 259,987
Lenox GO, Refunding, AMBAC Insured,
6.60%, 10/15/11 1,000,000 1,087,550
6.625%, 10/15/15 500,000 544,290
Leominster GO, MBIA Insured, Pre-Refunded, 7.50%, 4/01/09 450,000 485,028
Ludlow GO, School Project, Limited Tax, MBIA Insured,
7.30%, 11/01/07 210,000 257,809
7.30%, 11/01/08 210,000 259,839
7.40%, 11/01/09 210,000 266,354
Lynn Water and Sewer Commission, General Revenue, Series A,
FSA Insured, 5.125%, 12/01/17 3,000,000 3,039,150
MBIA Insured, Pre-Refunded, 7.25%, 12/01/10 4,000,000 4,379,240
Mansfield Municipal Purpose Loan, FGIC Insured, 5.125%, 8/15/17 1,685,000 1,711,067
Martha's Vineyard, Regional High School District No. 100, AMBAC Insured,
6.55%, 12/15/10 830,000 940,573
6.60%, 12/15/11 725,000 825,710
6.65%, 12/15/12 880,000 1,004,634
6.70%, 12/15/14 210,000 240,316
Mashpee GO, MBIA Insured, 5.50%, 2/01/17 2,000,000 2,111,500
Mashpee Water District GO, MBIA Insured, 6.40%, 10/15/12 500,000 547,990
Massachusetts Bay Transportation Authority, COP, BIG Insured, 7.75%, 1/15/06 2,500,000 3,066,050
Massachusetts Education Loan Authority Revenue, Issue D, Series A, MBIA Insured, 7.25%, 1/01/09 1,830,000 1,932,370
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Refunding, Series D, FGIC Insured, 6.00%, 7/01/15 1,500,000 1,622,115
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 5,000,000 5,452,850
Bentley College, Series I, MBIA Insured, Pre-Refunded, 6.125%, 7/01/17 1,250,000 1,349,038
Berklee College of Music, Series E, MBIA Insured, 5.00%, 10/01/16 1,180,000 1,180,944
Berkshire Health System, Series A, MBIA Insured, Pre-Refunded, 7.50%, 10/01/08 2,000,000 2,046,140
Berkshire Health System, Series A, MBIA Insured, Pre-Refunded, 6.75%, 10/01/19 1,500,000 1,503,825
Berkshire Health System, Series D, MBIA Insured, 6.00%, 10/01/19 5,500,000 6,001,710
Beverly Hospital, Lot 1, Refunding, Series D, MBIA Insured, 7.30%, 7/01/13 1,900,000 1,992,948
Beverly Hospital, Lot 2, Series D, MBIA Insured, Pre-Refunded, 7.30%, 7/01/19 4,000,000 4,203,120
Massachusetts State Health and Educational Facilities Authority Revenue, (cont.)
Boston College, Series J, FGIC Insured, 6.625%, 7/01/21 $ 2,250,000 $ 2,447,145
Brigham and Women's Hospital, Series C, MBIA Insured, Pre-Refunded, 7.00%, 6/01/18 500,000 522,760
Cable Housing and Health Services, Series A, MBIA Insured, 5.25%, 7/01/23 1,000,000 1,006,700
Children's Hospital, Refunding, Series E, AMBAC Insured, 6.20%, 10/01/16 2,200,000 2,371,952
Community College Program, Series A, Connie Lee Insured, Pre-Refunded, 6.50%, 10/01/09 1,000,000 1,115,400
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/18 5,595,000 5,811,359
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/25 7,720,000 8,007,030
Dana-Farber Cancer Institute, Refunding, Series F, FGIC Insured, 6.00%, 12/01/15 1,000,000 1,086,120
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 26,730,000 27,162,759
Massachusetts General Hospital, Refunding, Series F, AMBAC Insured, 6.00%, 7/01/15 2,500,000 2,703,525
Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 7/01/20 11,465,000 12,511,067
McLean Hospital, Refunding, Series C, FGIC Insured, 6.625%, 7/01/15 1,280,000 1,413,325
Milton Hospital, Series B, MBIA Insured, 7.00%, 7/01/16 2,400,000 2,575,032
Mt. Auburn Hospital, Series B-1, MBIA Insured, 6.30%, 8/15/24 6,500,000 7,189,975
New England Deaconess Hospitals, Series D, AMBAC Insured, Pre-Refunded, 6.875%, 4/01/22 1,895,000 2,119,918
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/18 1,300,000 1,410,994
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/25 6,750,000 7,326,315
Northeastern University, Series D, AMBAC Insured, Pre-Refunded, 7.125%, 10/01/10 1,250,000 1,350,375
Northeastern University, Series E, MBIA Insured, Pre-Refunded, 6.55%, 10/01/22 3,900,000 4,315,194
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 5,000,000 5,117,100
Simmons College, Series C, MBIA Insured, 5.125%, 10/01/28 2,600,000 2,608,034
Stonehill College, Refunding, Series E, MBIA Insured, Pre-Refunded, 6.55%, 7/01/12 890,000 982,026
Stonehill College, Refunding, Series E, MBIA Insured, Pre-Refunded, 6.60%, 7/01/20 3,000,000 3,309,840
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.65%, 7/01/10 1,025,000 1,115,590
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.70%, 7/01/20 515,000 560,964
Stonehill College, Series F, AMBAC Insured, 5.75%, 7/01/26 1,690,000 1,795,034
Suffolk University, Series B, Connie Lee Insured, 6.35%, 7/01/22 3,000,000 3,272,370
Tufts University, FGIC Insured, 5.95%, 8/15/18 5,000,000 5,371,700
University Hospital, Series C, MBIA Insured, Pre-Refunded, 7.25%, 7/01/19 1,500,000 1,620,660
Wentworth Institute of Technology, Series A, AMBAC Insured, Pre-Refunded, 7.40%, 4/01/10 1,820,000 1,958,902
Wheaton College, Series B, FSA Insured, Pre-Refunded, 7.75%, 7/01/19 3,000,000 3,151,140
Williams College, Series F, MBIA Insured, 5.50%, 7/01/26 2,500,000 2,597,900
Massachusetts State GO, Series B,
AMBAC Insured, 6.50%, 8/01/11 1,665,000 1,796,901
MBIA Insured, 6.50%, 8/01/11 855,000 922,733
Massachusetts State HFA,
Housing Development, Series D, MBIA Insured, 5.40%, 6/01/20 4,270,000 4,321,496
Housing Revenue, SF, Series 8, BIG Insured, 7.70%, 6/01/17 1,975,000 2,022,598
Housing Revenue, SF, Series 57, MBIA Insured, 5.55%, 6/01/25 5,100,000 5,190,423
Housing Revenue, SFMR, Series 18, MBIA Insured, 7.35%, 12/01/16 1,500,000 1,582,875
MFHR, Section 8 Assisted, ETM, Series A, 7.00%, 4/01/21 430,000 531,454
SFHR, Refunding, Series 53, MBIA Insured, 6.15%, 12/01/29 2,500,000 2,680,600
Massachusetts State Industrial Finance Agency Electrical Utility Revenue,
Nantucket Electric Co., Series A, AMBAC Insured,
5.875%, 7/01/17 4,000,000 4,330,000
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, 6.375%, 10/01/09 750,000 823,478
Babson College, Series A, MBIA Insured, 6.50%, 10/01/22 3,105,000 3,423,604
Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19 7,075,000 7,445,801
College of the Holy Cross, Refunding, MBIA Insured, 5.625%, 3/01/26 1,000,000 1,051,410
Combined Jewish Philanthropies, Refunding, Series A, AMBAC Insured, 6.375%, 2/01/15 2,010,000 2,243,361
Milton Academy, Series A, MBIA Insured, Pre-Refunded, 7.25%, 9/01/19 1,000,000 1,055,960
Saint Marks School Issue, MBIA Insured, 5.375%, 1/01/21 2,665,000 2,738,581
Simons Rock College, AMBAC Insured, 5.50%, 6/01/17 1,000,000 1,053,000
Simons Rock College, AMBAC Insured, 5.50%, 6/01/27 1,560,000 1,625,426
Suffolk University, AMBAC Insured, 5.25%, 7/01/17 3,510,000 3,579,498
Suffolk University, AMBAC Insured, 5.25%, 7/01/27 2,000,000 2,034,580
Trustees Deerfield Academy, 5.25%, 10/01/27 2,800,000 2,858,884
Massachusetts State Industrial Finance Agency Revenue, (cont.)
Western New England College, AMBAC Insured, 5.00%, 7/01/28 $ 4,000,000 $ 3,932,720
Worcester Polytechnic Institute, Refunding, MBIA Insured, 5.125%, 9/01/17 3,720,000 3,771,522
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.50%, 9/01/21 3,500,000 3,658,690
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.125%, 9/01/27 4,000,000 4,028,400
Massachusetts State Municipal Wholesale Electric Co., Power Supply System Revenue,
Series D, MBIA Insured, 6.125%, 7/01/19 4,395,000 4,752,929
Massachusetts State Port Authority Revenue,
Series A, FGIC Insured, 7.50%, 7/01/20 3,980,000 4,290,997
Series A, FGIC Insured, Pre-Refunded, 7.50%, 7/01/20 1,220,000 1,321,211
Massachusetts State Port Authority Revenue Special Facilities, Bosfuel Project, MBIA Insured,
5.625%, 7/01/19 2,215,000 2,310,666
5.625%, 7/01/22 2,610,000 2,720,507
5.625%, 7/01/27 1,500,000 1,566,060
5.625%, 7/01/29 7,450,000 7,854,833
5.75%, 7/01/39 3,000,000 3,157,920
Massachusetts State Port Authority Revenue Special Facilities, US Air Project, Series A,
MBIA Insured, 5.875%, 9/01/23 4,500,000 4,817,745
Massachusetts State Turnpike Authority,
Metropolitan Highway System Revenue, Series A, MBIA Insured, 5.00%, 1/01/27 5,000,000 4,954,750
Western Turnpike Revenue, Series A, MBIA Insured, 5.55%, 1/01/17 2,000,000 2,035,000
Massachusetts State Water Resources Authority Revenue, Refunding, Series B, MBIA Insured,
5.00%, 3/01/22 3,000,000 2,971,350
Melrose Municipal Purpose GO, MBIA Insured,
6.00%, 8/15/11 200,000 217,696
6.05%, 8/15/12 200,000 218,210
6.10%, 8/15/13 200,000 219,276
6.10%, 8/15/14 200,000 218,726
Millis School Project GO, Unlimited Tax, AMBAC Insured, 7.40%,
5/01/06 270,000 290,010
5/01/07 270,000 290,010
5/01/08 270,000 289,737
Norfolk GO, AMBAC Insured, 6.00%,
1/15/10 450,000 485,177
1/15/11 425,000 456,463
1/15/12 375,000 404,314
1/15/13 300,000 322,830
North Andover Massachusetts GO, FGIC Insured, 5.50%,
1/15/14 850,000 897,473
1/15/15 420,000 442,268
North Andover Municipal Purpose, Limited Tax, MBIA Insured, 7.40%, 9/15/09 300,000 327,840
North Attleborough GO, Limited Tax, AMBAC Insured, Pre-Refunded, 7.20%, 6/01/09 125,000 134,726
North Attleborough, MBIA Insured, 5.70%, 1/15/16 850,000 909,764
Northhampton Massachusetts, MBIA Insured, 5.60%, 5/15/17 1,085,000 1,157,825
Puerto Rico HFC, SFMR, Portfolio No. 1,
Series A, GNMA Secured, 7.80%, 10/15/21 305,000 311,704
Series B, GNMA Secured, 7.65%, 10/15/22 390,000 412,433
Salem GO, AMBAC Insured,
6.70%, 8/15/05 425,000 463,437
6.80%, 8/15/07 500,000 546,450
Somerville Housing Authority Revenue, Clarendon Hill, GNMA Secured,
7.95%, 11/20/30 3,000,000 3,164,340
Pre-Refunded, 7.00%, 6/01/24 2,800,000 3,271,688
South Essex Sewer District, AMBAC Insured, 6.25%, 11/01/11 330,000 354,780
Southbridge GO, AMBAC Insured, 6.375%, 1/01/12 2,375,000 2,583,596
Whately GO, AMBAC Insured,
6.20%, 1/15/07 215,000 231,953
6.30%, 1/15/08 215,000 232,198
6.40%, 1/15/10 200,000 216,618
Worcester GO, Refunding, Series E, MBIA Insured, 6.00%, 10/01/15 $ 1,335,000 $ 1,464,415
Worcester Municipal Purpose Loan, Series A, AMBAC Insured, 5.25%, 8/01/16 1,410,000 1,447,188
------------
Total Long Term Investments (Cost $325,158,439) 349,272,055
------------
aShort Term Investment .8%
Massachusetts State Health and Educational Facilities Authority Revenue,
Capital Assets Program, Series D, MBIA Insured,
Weekly VRDN and Put, 3.05%, 1/01/35 (Cost $2,900,000) 2,900,000 2,900,000
------------
Total Investments (Cost $328,058,439) 99.0% 352,172,055
Other Assets, less Liabilities 1.0% 3,674,047
------------
Net Assets 100.0% $355,846,102
============
See glossary of terms on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate
adjustment formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest
at specified dates.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Michigan Insured Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.20 $12.00 $12.09 $11.76 $12.24 $12.18
--------------------------------------------------------
Income from investment operations:
Net investment income .31 .63 .66 .68 .69 .70
Net realized and unrealized gains (losses) .11 .34 (.09) .34 (.48) .07
--------------------------------------------------------
Total from investment operations .42 .97 .57 1.02 .21 .77
--------------------------------------------------------
Less distributions from:
Net investment income (.31)3 (.63) (.66)3 (.69)2 (.69) (.71)
In excess of net investment income -- (.01) -- -- -- --
Net realized gains (.03) (.13) -- -- -- --
--------------------------------------------------------
Total distributions (.34) (.77) (.66) (.69) (.69) (.71)
--------------------------------------------------------
Net asset value, end of period $12.28 $12.20 $12.00 $12.09 $11.76 $12.24
========================================================
Total return* 3.50% 8.37% 4.90% 8.86% 1.87% 6.18%
Ratios/supplemental data
Net assets, end of period (000's) $1,151,449 $1,142,565 $1,111,537 $1,115,454 $1,037,717 $1,055,452
Ratios to average net assets:
Expenses .64%** .63% .62% .62% .61% .54%
Net investment income 5.02%** 5.24% 5.52% 5.65% 5.87% 5.66%
Portfolio turnover rate 6.75% 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 period)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.27 $12.07 $12.14 $11.77
----------------------------------------
Income from investment operations:
Net investment income .27 .57 .59 .51
Net realized and unrealized gains (losses) .12 .33 (.07) .37
----------------------------------------
Total from investment operations .39 .90 .52 .88
----------------------------------------
Less distributions from:
Net investment income (.27)2 (.57) (.59) (.51)
Net realized gains (.03) (.13) -- --
----------------------------------------
Total distributions (.30) (.70) (.59) (.51)
----------------------------------------
Net asset value, end of period $12.36 $12.27 $12.07 $12.14
========================================
Total return* 3.26% 7.70% 4.44% 7.58%
Ratios/supplemental data
Net assets, end of period (000's) $41,945 $32,873 $20,162 $6,683
Ratios to average net assets:
Expenses 1.20%** 1.20% 1.19% 1.20%**
Net investment income 4.45%** 4.67% 4.94% 5.03%**
Portfolio turnover rate 6.75% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions in excess of net investment income in the amount of $.001.
3Includes distributions in excess of net investment income in the amount of $.002.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
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<S> <C> <C>
aLong Term Investments 98.5%
Allegan Public School District, AMBAC Insured, Pre-Refunded, 5.75%, 5/01/22 $ 4,165,000 $ 4,613,487
Allendale Public School District,
MBIA Insured, 5.875%, 5/01/14 2,000,000 2,158,263
School Building, MBIA Insured, Pre-Refunded, 6.00%, 5/01/24 3,750,000 4,146,300
Almont Community Schools, FGIC Insured, 5.50%, 5/01/26 1,925,000 1,994,165
Alpena Public Schools GO, MBIA Insured, 5.625%, 5/01/22 1,665,000 1,754,044
Anchor Bay School District, MBIA Insured, 5.50%, 5/01/26 7,380,000 7,673,134
Avondale School District, AMBAC Insured, 5.75%, 5/01/22 3,850,000 4,089,586
Bath Community Schools GO, Refunding, FGIC Insured, 5.75%, 5/01/25 1,625,000 1,722,143
Battle Creek Downtown Development Authority, Refunding, MBIA Insured, 5.125%, 5/01/20 4,500,000 4,542,390
Berkley City School District, FGIC Insured,
5.625%, 1/01/15 2,060,000 2,170,375
6.00%, 1/01/19 2,125,000 2,284,333
Big Rapids Public School District, Building and Site, FGIC Insured, 5.625%, 5/01/25 1,470,000 1,542,192
Brandon School District, FGIC Insured, Pre-Refunded, 5.875%,
5/01/16 5,540,000 6,182,474
5/01/26 7,000,000 7,811,790
Breitung Township School District GO,
FSA Insured, Pre-Refunding, 7.20%, 5/01/19 7,500,000 7,928,550
Refunding, MBIA Insured, 6.30%, 5/01/15 2,935,000 3,174,643
Byron Center Public Schools,
MBIA Insured, Pre-Refunded, 5.875%, 5/01/24 5,115,000 5,678,264
Refunding, MBIA Insured, 5.875%, 5/01/24 135,000 145,525
Cadillac Area Public Schools, FGIC Insured, 5.50%, 5/01/22 5,375,000 5,575,058
Caledonia Community Schools,
MBIA Insured, 5.85%, 5/01/22 4,400,000 4,720,716
Refunding, AMBAC Insured, 6.625%, 5/01/14 3,750,000 4,115,738
Refunding, AMBAC Insured, 5.50%, 5/01/22 1,500,000 1,558,290
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 1,298,875
Calumet, Laurium and Keweenaw Public Schools GO, FSA Insured, Pre-Refunded, 5.875%, 5/01/20 875,000 965,475
Cedar Springs Public School District, MBIA Insured, Pre-Refunded, 5.875%,
5/01/19 2,175,000 2,399,895
5/01/24 3,875,000 4,265,290
Central Michigan University Revenue, FGIC Insured, 5.625%, 10/01/22 2,500,000 2,637,125
Chelsea School District, FGIC Insured, Pre-Refunded, 5.875%, 5/01/25 3,140,000 3,485,777
Clarkston Community Schools, MBIA Insured, 5.25%, 5/01/23 1,925,000 1,948,909
Coldwater Community Schools, MBIA Insured, Pre-Refunded,
6.20%, 5/01/15 1,100,000 1,236,037
6.30%, 5/01/23 1,700,000 1,918,756
De Witt Public Schools, AMBAC Insured,
5.70%, 5/01/21 6,905,000 7,310,531
5.50%, 5/01/26 5,500,000 5,718,460
Dearborn EDC Hospital Revenue, Oakwood Obligation Group,
Refunding, Series A, MBIA Insured, 5.25%, 8/15/21 1,000,000 1,014,900
Series A, FGIC Insured, 5.875%, 11/15/25 4,400,000 4,694,140
Detroit City School District, Series A, AMBAC Insured, 5.70%, 5/01/25 14,000,000 14,875,000
Detroit Sewage Disposal Revenue, Refunding, Series B, MBIA Insured, 5.25%, 7/01/21 12,585,000 12,752,632
Detroit State Aid GO, AMBAC Insured, Pre-Refunded, 7.20%, 5/01/09 6,000,000 6,263,940
Detroit Water Supply System Revenue,
FGIC Insured, Pre-Refunded, 7.25%, 7/01/20 3,500,000 3,784,795
Refunding, FGIC Insured, 6.25%, 7/01/12 5,000,000 5,359,200
Series A, MBIA Insured, 5.00%, 7/01/27 5,000,000 4,946,900
Detroit/Wayne County Stadium Authority, FGIC Insured, 5.25%, 2/01/27 5,000,000 5,063,800
Dexter Community Schools, Refunding, AMBAC Insured, 5.70%, 5/01/14 1,050,000 1,115,793
East Detroit School District, Refunding, FGIC Insured, 6.10%, 5/01/16 6,000,000 6,572,700
East Lansing Building Authority GO, Refunding, AMBAC Insured, 7.00%, 10/01/16 1,250,000 1,318,400
Eastern Michigan University Revenue,
FGIC Insured, 5.50%, 6/01/27 $ 9,100,000 $ 9,460,542
Refunding, AMBAC Insured, 6.375%, 6/01/14 1,000,000 1,085,290
Eaton Rapids Public Schools, Building and Site, MBIA Insured, 5.50%, 5/01/20 2,435,000 2,524,803
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/17 5,000,000 5,271,950
Farmington Hills Hospital Finance Authority Revenue, Botsford
General Hospital, Refunding, Series A,
MBIA Insured, Pre-Refunded
7.10%, 2/15/14 10,140,000 11,120,538
Ferndale School District GO,
FGIC Insured, 5.50%, 5/01/22 4,525,000 4,711,204
Refunding, FGIC Insured, 5.375%, 5/01/21 4,185,000 4,280,878
Ferris State College Revenue, AMBAC Insured, Pre-Refunded,
6.15%, 10/01/14 1,000,000 1,116,690
6.25%, 10/01/19 1,000,000 1,121,250
Ferris State University Revenue, AMBAC Insured, Pre-Refunded,
5.75%, 10/01/17 2,500,000 2,784,550
5.85%, 10/01/22 2,500,000 2,802,350
5.90%, 10/01/26 6,600,000 7,421,700
Fowlerville Community School District,
MBIA Insured, 5.60%, 5/01/21 2,000,000 2,103,460
Refunding, FGIC Insured, 5.75%, 5/01/20 2,150,000 2,271,389
Gibraltar School District GO, FSA Insured, Pre-Refunded, 7.00%, 5/01/15 4,000,000 4,092,560
Gladstone Area Public Schools GO, AMBAC Insured, 5.50%, 5/01/26 1,500,000 1,559,580
Godfrey-Lee Public School District, MBIA Insured, 5.50%, 5/01/27 1,150,000 1,193,206
Gogebic-Iron Wastewater Authority, Wastewater Treatment System Revenue, Refunding, MBIA
Insured, 5.95%, 1/01/15 1,015,000 1,084,243
Grand Haven Area Public Schools, Refunding, MBIA Insured, 6.05%, 5/01/14 5,000,000 5,396,950
Grand Ledge Public School District,
MBIA Insured, Pre-Refunded, 6.60%, 5/01/24 10,000,000 11,464,700
Refunding, MBIA Insured, 5.375%, 5/01/24 13,105,000 13,372,211
Grand Rapids Downtown Development Authority, Tax Increment Revenue, MBIA Insured,
6.875%, 6/01/24 7,500,000 8,475,750
Grand Rapids Sanitary Sewer System Revenue, Refunding and Improvement, MBIA Insured,
Pre-Refunded, 6.00%, 1/01/20 3,850,000 3,967,502
Grand Rapids Water Supply System Revenue, FGIC Insured, Pre-Refunded, 7.25%, 1/01/20 5,375,000 5,727,815
Grand Traverse County Building Authority, AMBAC Insured, 5.75%, 9/01/15 1,700,000 1,796,968
Grand Traverse County Hospital Finance Authority Revenue, Munson Healthcare, Refunding,
Series A, AMBAC Insured, 6.25%,
7/01/12 2,500,000 2,704,375
7/01/22 7,900,000 8,502,217
Greenville Public School Building GO, MBIA Insured, Pre-Refunded, 5.75%, 5/01/19 1,850,000 2,022,309
Grosse Ile Township School District, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 5,100,000 5,740,713
Hancock Hospital Finance Authority Revenue, Portage Health, MBIA and FHA Insured, 5.45%,
8/01/47 4,400,000 4,467,100
Harrison Community Schools GO, AMBAC Insured, 6.25%, 5/01/13 4,715,000 5,201,258
Haslett Public School District GO,
FSA Insured, Pre-Refunded, 7.50%, 5/01/20 4,000,000 4,285,440
MBIA Insured, 5.70%, 5/01/26 3,900,000 4,123,431
Refunding, FSA Insured, 6.625%, 5/01/19 3,875,000 4,257,114
Hastings School District, FGIC Insured, 5.625%, 5/01/15 1,000,000 1,055,540
Holland School District GO, Refunding, AMBAC Insured, 6.375%, 5/01/10 2,000,000 2,171,160
Holly Area School District, FGIC Insured, 5.625%, 5/01/25 8,775,000 9,205,940
Hopkins Public Schools, FGIC Insured,
5.70%, 5/01/21 4,000,000 4,234,920
5.50%, 5/01/26 1,000,000 1,039,720
Houghton-Portage Township School District,
FSA Insured, Pre-Refunded, 7.00%, 5/01/17 2,700,000 2,762,478
Refunding, AMBAC Insured, 6.00%, 5/01/14 2,000,000 2,135,480
Howell Public Schools, MBIA Insured, 5.60%, 5/01/21 3,475,000 3,661,642
Hudsonville Public Schools GO, Refunding, Series B, FGIC Insured, Pre-Refunded,
6.05%, 5/01/19 2,000,000 2,232,300
6.10%, 5/01/24 2,000,000 2,237,320
Huron Valley School District,
FGIC Insured, 5.75%, 5/01/22 2,350,000 2,496,241
Refunding, FGIC Insured, 6.125%, 5/01/20 11,535,000 12,476,602
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue,
Borgess Medical Center, Series A, AMBAC Insured, 5.625%, 6/01/14 $ 3,805,000 $ 4,001,338
Bronson Methodist, Refunding, MBIA Insured, 5.50%, 5/15/28 15,000,000 15,535,950
Bronson Methodist, Refunding and Improvement, MBIA Insured, 5.875%, 5/15/26 25,940,000 27,645,036
Bronson Methodist, Refunding and Improvement, Series A, MBIA Insured, Pre-Refunded,
6.25%, 5/15/12 5,000,000 5,571,750
Bronson Methodist, Refunding and Improvement, Series A, MBIA Insured, Pre-Refunded,
6.375%, 5/15/17 2,460,000 2,754,364
Kelloggsville Public School District GO, FGIC Insured, Pre-Refunded, 5.75%, 5/01/13 1,000,000 1,088,390
Kenowa Hills Public Schools, MBIA Insured, 5.875%,
5/01/21 1,235,000 1,318,363
5/01/26 9,000,000 9,595,620
Kent Hospital Finance Authority, Health Care Revenue, Butterworth Health System, Series A,
MBIA Insured, Pre-Refunded,
5.625%, 1/15/26 15,500,000 17,114,480
Lake Linden-Hubbell Public Schools, FSA Insured,
5.40%, 5/01/18 825,000 846,260
5.50%, 5/01/23 675,000 699,219
Lake Orion Community School District GO, Refunding, AMBAC Insured, 5.50%, 5/01/20 2,200,000 2,283,314
Lake Shore Public Schools, Macomb County, FSA Insured, 5.50%,
5/01/17 4,500,000 4,675,500
5/01/20 3,540,000 3,688,184
Lake Superior State University Revenue, AMBAC Insured, Pre-Refunded, 6.375%, 11/15/15 1,500,000 1,712,820
Lakeshore Public Schools, Berrien County, MBIA Insured, 5.70%, 5/01/22 3,500,000 3,690,750
Lakeview Community Schools GO, Refunding, MBIA Insured, 6.75%, 5/01/13 1,500,000 1,626,870
Lakewood Public Schools, MBIA Insured,
5.375%, 5/01/20 3,300,000 3,377,715
5.75%, 5/01/22 2,200,000 2,323,838
Lansing Building Authority, Refunding, MBIA Insured, 5.60%, 6/01/19 1,470,000 1,532,093
Leslie Public Schools GO, Ingham and Jackson Counties, AMBAC Insured, Pre-Refunded,
6.00%, 5/01/25 3,500,000 3,910,690
Lincoln Park School District, FGIC Insured, Pre-Refunded,
5.85%, 5/01/15 2,885,000 3,214,871
5.90%, 5/01/26 6,050,000 6,761,420
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital, Refunding,
Series C, AMBAC Insured, Pre-Refunded, 7.50%, 4/01/07 5,000,000 5,215,050
Series D, FSA Insured, 5.875%, 4/01/11 4,525,000 4,960,667
Series D, FSA Insured, 6.10%, 4/01/19 5,225,000 5,724,980
Marysville Public School District, MBIA Insured, 5.75%, 5/01/22 1,100,000 1,156,243
Mason Public School District, FGIC Insured, 5.40%, 5/01/21 1,400,000 1,437,884
Menominee Area Public School District GO, Refunding, AMBAC Insured, 6.00%, 5/01/20 2,675,000 2,867,761
Merrill Community School District, FGIC Insured, 5.60%, 5/01/26 4,000,000 4,201,160
Michigan Higher Education Student Loan Authority Revenue, Series XIII-A, MBIA Insured,
7.40%, 10/01/04 1,360,000 1,433,195
7.55%, 10/01/08 1,325,000 1,387,911
Michigan Municipal Bond Authority Revenue, Local Government Loan Program,
Group 15, AMBAC Insured, 7.60%, 5/01/09 850,000 872,304
Refunding, Series G, AMBAC Insured, 6.75%, 11/01/14 6,490,000 7,355,052
Refunding, Series G, AMBAC Insured, 6.80%, 11/01/14 1,650,000 1,874,318
Refunding, Series G, AMBAC Insured, 6.80%, 11/01/23 825,000 926,236
Series C, MBIA Insured, 6.00%, 11/01/10 3,790,000 4,147,170
Michigan State Building Authority Revenue,
Detroit Regional Prisons, Series I, MBIA Insured, Pre-Refunded, 7.25%, 10/01/08 10,000,000 10,396,100
ETM, Series II, MBIA Insured, 7.40%, 4/01/01 3,580,000 3,722,735
Refunding, Series I, AMBAC Insured, 6.25%, 10/01/20 1,500,000 1,600,305
Series II, MBIA Insured, 6.25%, 10/01/20 4,645,000 4,969,500
Michigan State Comprehensive Transportation Revenue, Series A, MBIA Insured, 5.50%, 5/15/22 4,500,000 4,568,715
Michigan State HDA,
MFHR, Series A, FGIC Insured, 7.55%, 7/01/09 2,880,000 2,977,834
MFHR, Series A, FGIC Insured, 7.65%, 7/01/15 2,945,000 3,041,331
MFHR, Series A, FGIC Insured, 7.70%, 7/01/18 3,150,000 3,215,835
SFMR, Series A, AMBAC Insured, 5.95%, 6/01/17 2,500,000 2,648,400
SFMR, Series A, AMBAC Insured, 6.05%, 12/01/27 1,000,000 1,069,200
Michigan State Hospital Finance Authority Revenue,
Crittenton Hospital, Series A, FGIC Insured, 6.75%, 3/01/20 $ 1,750,000 $ 1,833,318
Detroit Medical Group, Refunding, Series A, AMBAC Insured, 5.50%, 8/15/24 15,000,000 15,549,150
Detroit Medical Group, Refunding, Series A, AMBAC Insured, 5.25%, 8/15/27 10,000,000 10,099,300
Henry Ford Health, Refunding, Series A, 5.25%, 11/15/25 17,665,000 17,837,410
Holland Community Hospital, AMBAC Insured, 5.625%, 1/01/28 3,000,000 3,144,660
Mercy Health Services, Refunding, Series T, MBIA Insured, 5.75%, 8/15/15 10,525,000 11,298,167
Mercy Health Services, Series Q, AMBAC Insured, 5.375%, 8/15/26 12,090,000 12,318,259
Mercy Health Services, Series R, AMBAC Insured, 5.375%, 8/15/16 1,500,000 1,544,820
Mercy Health Services, Series R, AMBAC Insured, 5.375%, 8/15/26 1,750,000 1,783,040
Mercy Health Services, Series U, MBIA Insured, 5.75%, 8/15/26 2,300,000 2,443,106
Mercy Health Services, Series W, FSA Insured, 5.25%, 8/15/27 8,605,000 8,690,448
MidMichigan Obligation Group, Refunding, Series A, FSA Insured, 5.375%, 6/01/27 7,500,000 7,654,875
Oakland General Hospital Obligation, Refunding, AMBAC Insured, Pre-Refunded, 7.00%,
7/01/15 9,020,000 9,456,117
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 5,000,000 5,019,850
Sparrow Obligation Group, Refunding, MBIA Insured, 6.50%, 11/15/11 1,500,000 1,629,390
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.00%, 5/15/13 3,445,000 3,708,198
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 5/15/14 9,545,000 10,352,984
St. John's Hospital, Refunding, Series A, AMBAC Insured, 5.125%, 5/15/17 14,500,000 14,645,145
Michigan State Strategic Fund, Limited Obligation Revenue,
Detroit Edison Co., Pollution Project, Refunding, FGIC Insured, 6.875%, 12/01/21 20,000,000 21,833,388
Detroit Edison Co., Pollution Project, Refunding, Series AA, FGIC Insured, 6.95%, 5/01/11 5,000,000 6,199,600
Detroit Edison Co., Pollution Project, Refunding, Series BB, AMBAC Insured, 7.00%,
5/01/21 3,000,000 3,895,470
Detroit Edison Co., Pollution Project, Refunding, Series BB, MBIA Insured, 6.05%, 10/01/23 1,285,000 1,379,782
Detroit Edison Co., Pollution Project, Refunding, Series BB, MBIA Insured, 6.20%, 8/15/25 10,250,000 11,281,458
Detroit Edison Co., Pollution Project, Refunding, Series CC, FGIC Insured, 6.95%, 9/01/21 5,540,000 6,031,176
Detroit Edison Co., Pollution Project, Refunding, Series CC, MBIA Insured, 6.05%, 10/01/2 5,825,000 6,254,652
St. John-Bon Secours Care Center, 7.90%, 11/15/16 1,800,000 1,839,330
Michigan State Trunk Line,
Refunding, Series A, MBIA Insured, 5.00%, 11/01/26 5,000,000 4,984,650
Refunding, Series B, AMBAC Insured, 5.50%, 10/01/21 1,400,000 1,435,840
Refunding, Series B, MBIA Insured, 5.50%, 10/01/21 4,500,000 4,615,200
Series A, FGIC Insured, 5.50%, 10/01/21 1,475,000 1,512,760
Series A, FGIC Insured, Pre-Refunded, 5.625%, 11/01/20 2,765,000 3,054,385
Series A, FGIC Insured, Pre-Refunded, 5.80%, 11/15/24 6,000,000 6,663,780
Series A, FGIC Insured, Pre-Refunded, 5.625%, 11/01/26 8,990,000 9,930,893
Monroe County PCR, Detroit Edison Co.,
Series 1, MBIA Insured, 6.875%, 9/01/22 4,000,000 4,403,040
Series 1-B, MBIA Insured, 6.55%, 9/01/24 4,000,000 4,352,080
Series CC, AMBAC Insured, 7.50%, 12/01/19 10,000,000 10,718,200
Series CC, MBIA Insured, 6.55%, 6/01/24 1,150,000 1,247,635
Morley-Stanwood Community Schools, Building and Site, FGIC Insured, 5.625%, 5/01/21 2,000,000 2,096,760
Muskegon Public Schools, Series 95, FGIC Insured, 5.25%,
5/01/18 1,900,000 1,931,008
5/01/21 2,000,000 2,030,080
Northern Michigan University Revenue, AMBAC Insured, 5.60%, 12/01/13 1,715,000 1,802,191
Northview Public School District, Refunding, MBIA Insured, 5.80%, 5/01/21 4,500,000 4,798,710
Novi Community School District,
Building and Site, FGIC Insured, 5.30%, 5/01/21 1,960,000 1,995,652
FGIC Insured, Pre-Refunded, 6.125%, 5/01/18 4,750,000 5,264,758
Oakland Community College District, Washtenaw County, AMBAC Insured, 6.65%, 5/01/11 3,500,000 3,889,760
Paw Paw Public School District, Building and Site, FGIC Insured, Pre-Refunded, 5.625%,
5/01/25 3,500,000 3,808,175
Petoskey Hospital Finance Authority Facilities Revenue, Northern Michigan Hospital
MBIA Insured, Pre-Refunded,
7.00%, 11/15/07 4,500,000 4,771,170
6.75%, 11/15/19 1,000,000 1,057,350
Pinckney Community Schools, Livingston and Washtenaw Counties, FGIC Insured, 5.50%, 5/01/27 10,700,000 11,101,999
Plymouth-Canton Community School District,
Refunding, AMBAC Insured, 5.50%, 5/01/13 $ 4,000,000 $ 4,208,960
Series C, FGIC Insured, 6.50%, 5/01/16 3,500,000 3,822,910
Series C, MBIA Insured, 6.50%, 5/01/16 3,000,000 3,276,780
Port Huron School District,
FSA Insured, Pre-Refunded, 7.25%, 5/01/15 5,500,000 5,922,345
Refunding, AMBAC Insured, 6.00%, 5/01/12 4,500,000 4,834,890
Portage Lake Water and Sewer Authority GO, Refunding, AMBAC Insured,
6.10%, 10/01/14 770,000 851,220
6.20%, 10/01/20 670,000 741,670
Portage Public Schools GO, MBIA Insured, 5.625%, 5/01/19 2,750,000 2,876,610
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
ETM, Series A, FSA Insured, 8.75%, 7/01/00 500,000 545,395
Series A, FSA Insured, Pre-Refunded, 9.00%, 7/01/09 2,500,000 3,158,150
Puerto Rico Commonwealth Public Improvement, GO, MBIA Insured, 6.75%, 7/01/06 2,280,000 2,318,760
Puerto Rico Electric Power Authority Revenue, Refunding, Series U, FSA Insured, 6.00%,
7/01/14 3,400,000 3,718,444
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 1,290,000 1,374,327
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 8,700,000 9,489,873
Redford Unified School District No. 1, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 14,090,000 15,838,287
Rockford Public Schools GO, Refunding,
AMBAC Insured, 5.875%, 5/01/19 3,900,000 4,111,263
FGIC Insured, 5.25%, 5/01/22 1,250,000 1,266,400
FGIC Insured, 5.25%, 5/01/27 3,000,000 3,039,360
FSA Insured, 5.875%, 5/01/19 3,150,000 3,320,636
MBIA Insured, 5.875%, 5/01/12 1,850,000 1,970,824
MBIA Insured, 5.875%, 5/01/19 1,925,000 2,029,277
Romulus Community Schools, Refunding, FGIC Insured, 5.75%,
5/01/13 690,000 737,672
5/01/17 1,200,000 1,271,952
5/01/22 5,435,000 5,738,708
Royal Oak Hospital Finance Authority Revenue, Refunding, MBIA Insured, 6.25%, 1/01/19 5,000,000 5,324,650
Saginaw Hospital Finance Authority Revenue, St. Luke's Hospital Project, Refunding,
Series C, MBIA Insured, 6.875%, 7/01/14 5,325,000 5,730,073
Series C, MBIA Insured, 6.75%, 7/01/17 2,000,000 2,143,400
Series C, MBIA Insured, 6.00%, 7/01/21 3,875,000 3,996,288
Series D, MBIA Insured, 6.50%, 7/01/11 1,000,000 1,078,990
Saginaw Valley State University Revenue, AMBAC Insured, 5.25%, 7/01/19 2,540,000 2,589,174
Saranac Community School District, Building and Site, MBIA Insured, 5.25%, 5/01/21 1,350,000 1,370,304
Sault Ste. Marie Water Treatment GO, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/10 2,000,000 2,116,760
Schoolcraft Community School District, FGIC Insured,
5.75%, 5/01/21 3,575,000 3,797,472
5.375%, 5/01/26 1,000,000 1,023,910
Shelby Public School District, Series 95, MBIA Insured, 5.625%, 5/01/21 1,925,000 2,011,644
South Haven Public Schools, Refunding, FGIC Insured, 5.50%,
5/01/13 1,000,000 1,052,240
5/01/17 1,725,000 1,799,020
South Redford School District, FGIC Insured, 5.50%, 5/01/22 4,610,000 4,799,702
St. Clair County Building Authority, MBIA Insured, 5.25%,
4/01/18 2,065,000 2,105,391
4/01/21 2,400,000 2,443,296
St. Clair County EDC, PCR, Detroit Edison Co., Refunding, Series DD, AMBAC Insured, 6.05%,
8/01/24 7,745,000 8,229,063
St. Johns Public Schools, FGIC Insured, Pre-Refunded,
5.625%, 5/01/20 7,000,000 7,669,760
5.75%, 5/01/25 2,000,000 2,205,800
Sturgis Public School District, MBIA Insured, Pre-Refunded, 6.10%, 5/01/18 1,000,000 1,103,150
Thornapple Kellogg School District, FGIC Insured, 5.375%, 5/01/22 1,960,000 2,004,904
Three Rivers Community Schools, Building and Site, MBIA Insured, Pre-Refunded, 6.00%,
5/01/23 2,400,000 2,697,792
Traverse City Area Public Schools, Building and Site, Series I, MBIA Insured, 5.70%, 5/01/20 4,550,000 4,800,660
University Revenues Medical Service Plan, MBIA Insured, 6.50%, 12/01/21 $ 2,365,000 $ 2,533,672
Vestaburg Community Schools, Refunding, MBIA Insured, 5.50%, 5/01/26 1,000,000 1,039,720
Vicksburg Community Schools, Refunding, MBIA Insured, 5.625%,
5/01/12 2,175,000 2,309,828
5/01/20 1,000,000 1,048,180
Walled Lake Consolidated School District, Refunding, MBIA Insured, 5.50%, 5/01/22 3,000,000 3,123,450
Wayland Union School District, FGIC Insured, Pre-Refunded, 6.75%, 5/01/24 2,000,000 2,321,320
Wayne Charter County Airport Revenue,
Detroit Metro Airport, Series A, MBIA Insured, 5.25%, 12/01/18 5,000,000 5,062,700
Sub Lien, Detroit Metro Airport, Refunding, Series C, MBIA Insured, 5.25%, 12/01/21 1,000,000 1,015,560
Sub Lien, Detroit Metro Airport, Series B, MBIA Insured, 6.875%, 12/01/11 300,000 329,034
Sub Lien, Detroit Metro Airport, Series B, MBIA Insured, 6.75%, 12/01/21 2,000,000 2,176,500
Wayne County Airport Revenue, Sub Lien, Series B, AMBAC Insured, 6.00%, 12/01/20 10,585,000 10,867,196
Wayne-Westland Community Schools, Refunding, FGIC Insured, 6.10%, 5/01/13 2,275,000 2,448,719
West Ottawa Public School District,
FGIC Insured, 5.60%, 5/01/21 2,355,000 2,476,824
FGIC Insured, 5.60%, 5/01/26 12,100,000 12,708,509
Refunding, FGIC Insured, 6.00%, 5/01/20 6,630,000 7,051,270
Western School District, Refunding, MBIA Insured, 5.50%, 5/01/20 1,660,000 1,722,864
Western Townships Utilities Authority GO, Sewer Disposal System, Refunding, FSA Insured,
6.75%, 1/01/15 18,710,000 20,224,200
6.50%, 1/01/19 6,115,000 6,537,302
White Cloud Public Schools, Refunding, FSA Insured, 5.50%, 5/01/20 1,000,000 1,039,440
Williamston Community School District, Building and Site, MBIA Insured, 5.375%, 5/01/15 4,900,000 5,088,552
Williamston County GO, Refunding, AMBAC Insured, 6.90%, 11/01/17 1,800,000 1,980,108
Wyandotte City School District, Refunding, FSA Insured, 5.625%, 5/01/13 1,800,000 1,911,078
Wyandotte Electric Revenue, Refunding, MBIA Insured, 6.25%, 10/01/17 9,980,000 10,856,444
Yale Public School District GO, Building and Site, AMBAC Insured,
5.375%, 5/01/17 2,000,000 2,061,220
5.50%, 5/01/19 1,500,000 1,561,320
Ypsilanti School District, Refunding, FGIC Insured,
5.75%, 5/01/20 4,700,000 4,995,912
5.375%, 5/01/26 3,000,000 3,071,730
Zeeland Public Schools, Series B, MBIA Insured, Pre-Refunded,
6.05%, 5/01/19 2,900,000 3,236,835
6.10%, 5/01/24 4,000,000 4,474,640
------------
Total Long Term Investments (Cost $1,087,438,415) 1,175,510,342
------------
aShort Term Investments .2%
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co., Reserve 1, Refunding, Daily VRDN and Put,
2.50%, 9/01/30 1,500,000 1,500,000
Midland County EDC Limited Obligation Revenue, Dow Chemical Co. Project,
Series A, Daily VRDN and Put, 3.55%, 12/01/23 400,000 400,000
Refunding, Series B, Daily VRDN and Put, 2.50%, 12/01/15 400,000 400,000
University Revenues Hospital, Series A, Daily VRDN, 3.10%, 12/01/27 550,000 550,000
------------
Total Short Term Investments (Cost $2,850,000) 2,850,000
------------
Total Investments (Cost $1,090,288,415) 98.7% 1,178,360,342
Other Assets, less Liabilities 1.3% 15,033,759
------------
Net Assets 100.0% $1,193,394,101
============
See glossary of terms on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment
formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at specified dates.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Minnesota Insured Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.16 $12.01 $12.14 $11.88 $12.33 $12.35
--------------------------------------------------------
Income from investment operations:
Net investment income .31 .64 .65 .67 .69 .70
Net realized and unrealized gains (losses) .05 .25 (.12) .27 (.45) (.01)
--------------------------------------------------------
Total from investment operations .36 .89 .53 .94 .24 .69
--------------------------------------------------------
Less distributions from:
Net investment income (.31) (.64) (.66) (.68) (.69)2 (.71)
Net realized gains -- (.10) -- -- -- --
--------------------------------------------------------
Total distributions (.31) (.74) (.66) (.68) (.69) (.71)
--------------------------------------------------------
Net asset value, end of period $12.21 $12.16 $12.01 $12.14 $11.88 $12.33
========================================================
Total return* 3.06% 7.60% 4.54% 8.06% 2.12% 5.42%
Ratios/supplemental data
Net assets, end of period (000's) $502,824 $495,315 $482,128 $492,139 $479,934 $499,619
Ratios to average net assets:
Expenses .68%** .65% .66% .66% .66% .60%
Net investment income 5.12%** 5.29% 5.47% 5.58% 5.81% 5.67%
Portfolio turnover rate 3.45% 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 period)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.21 $12.05 $12.17 $11.89
---------------------------------------
Income from investment operations:
Net investment income .28 .57 .59 .50
Net realized and unrealized gains (losses) .05 .26 (.12) .28
---------------------------------------
Total from investment operations .33 .83 .47 .78
---------------------------------------
Less distributions from:
Net investment income (.28) (.57) (.59) (.50)
Net realized gains -- (.10) -- --
---------------------------------------
Total distributions (.28) (.67) (.59) (.50)
---------------------------------------
Net asset value, end of period $12.26 $12.21 $12.05 $12.17
=======================================
Total return* 2.77% 7.04% 3.98% 6.67%
Ratios/supplemental data
Net assets, end of period (000's) $15,857 $10,131 $4,844 $1,152
Ratios to average net assets:
Expenses 1.24%** 1.22% 1.23% 1.25%**
Net investment income 4.54%** 4.72% 4.87% 4.94%**
Portfolio turnover rate 3.45% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions from net realized gains of $.004.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Minnesota Insured Tax-Free Income Fund AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
aLong Term Investments 100.7%
Agricultural and EDR Board Revenue,
Evangelical Lutheran Good Samaritan, Society Project, AMBAC Insured, 5.15%, 12/1/22 $ 5,180,000 $ 5,250,241
Health Care System, Fairview Hospital, Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 14,000,000 15,153,460
Albany ISD No. 745, Series A, FSA Insured, 6.00%, 2/01/16 2,295,000 2,478,026
Albert Lea Minnesota ISD No. 241, MBIA Insured, 5.00%, 2/01/18 2,000,000 2,007,280
Anoka County Housing and Redevelopment Authority, Ice Arena, Series A, MBIA Insured, 5.70%,
2/01/23 2,195,000 2,338,114
Anoka County Resource Recovery Revenue, Northern States Power Co., AMBAC Insured,
7.15%, 12/01/08 2,100,000 2,225,685
Becker GO,
Tax Increment, Refunding, Series D, MBIA Insured, 6.25%, 8/01/15 4,870,000 5,276,304
Waste Water Treatment Facility, Series A, MBIA Insured, 5.90%, 2/01/12 625,000 667,200
Waste Water Treatment Facility, Series A, MBIA Insured, 5.95%, 2/01/15 610,000 651,431
Benson ISD No. 777 GO, FSA Insured, 6.00%, 2/01/15 290,000 302,786
Big Lake ISD No. 727, MBIA Insured,
5.625%, 2/01/19 500,000 528,955
5.70%, 2/01/21 3,085,000 3,288,332
Bloomington Health Care Facilities Revenue, Masonic Home Care Center, AMBAC Insured,
5.875%, 7/01/22 2,685,000 2,849,805
Braham ISD No. 314, MBIA Insured, 5.20%, 2/01/19 1,800,000 1,818,504
Brainerd Health Care Facilities Revenue, Benedictine Health St. Joseph, Refunding, Series D, MBIA
Insured, 5.875%, 2/15/13 3,500,000 3,756,795
Buffalo, AMBAC Insured, 5.55%, 6/01/17 1,000,000 1,051,920
Buffalo ISD No. 877, FSA Insured, 6.15%, 2/01/18 2,800,000 2,992,080
Burnsville ISD, Series A, FSA Insured, 6.20%, 2/01/17 2,105,000 2,319,500
Champlin EDA, Housing Development, MBIA Insured, 5.625%, 2/01/26 1,000,000 1,048,350
Chanhassen Apartments Project GO, Series B, AMBAC Insured, 6.20%, 1/01/25 2,975,000 3,240,340
Columbia Heights ISD No. 013, FSA Insured,
5.375%, 2/01/19 2,450,000 2,524,211
5.50%, 2/01/23 6,000,000 6,270,660
Dakota, Washington and Stearns County SFMR, Series 1990, GNMA Secured,
7.80%, 12/01/10 725,000 764,607
7.85%, 12/01/30 2,585,000 2,721,695
Dakota County Housing and Redevelopment Authority,
Governmental Housing Revenue, Eagan Senior Housing Facility, MBIA Insured, 5.40%, 1/01/27 1,315,000 1,344,561
SFMR, FNMA & GNMA Secured, 5.75%, 4/01/18 3,000,000 3,142,620
SFMR, FNMA & GNMA Secured, 5.85%, 10/01/30 5,000,000 5,232,200
SFMR, Refunding, GNMA Secured, 8.10%, 3/01/16 400,000 412,500
Dilworth ISD No. 147, MBIA Insured, 6.00%, 2/01/15 1,040,000 1,111,594
Duluth EDA,
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, 6.20%, 11/01/12 2,880,000 3,142,598
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, 6.30%, 11/01/22 5,405,000 5,905,233
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, Pre-Refunded,
6.20%, 11/01/12 1,120,000 1,250,066
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, Pre-Refunded,
6.30%, 11/01/22 2,125,000 2,383,251
Hospital Facilities Revenue, St. Lukes Hospital, Series A, Connie LeeInsured, 6.40%, 5/01/12 3,000,000 3,101,160
Duluth EDA Tax Increment Revenue, Refunding, MBIA Insured, Pre-Refunded, 7.25%, 8/01/08 3,500,000 3,617,495
Eagan MFMR, Forest Ridge Apartments, Refunding, BIG Insured, 7.50%, 3/01/27 4,420,000 4,576,822
Eden Prairie ISD No. 272, Series A,
FGIC Insured, 5.45%, 2/01/08 1,000,000 1,038,340
FSA Insured, 5.75%, 2/01/15 4,980,000 5,258,681
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 2,000,000 2,155,740
Eveleth EDA, Housing Development, MBIA Insured, 5.80%, 7/01/25 1,000,000 1,063,870
Faribault ISD No. 656, FSA Insured, 5.75%, 6/01/15 1,500,000 1,598,550
Ham Lake, Anoka County Housing, MBIA Insured, 6.10%, 1/01/26 2,180,000 2,304,892
Hibbing Health Care Facilities Revenue, The Duluth Clinic, Ltd., FSA Insured, 5.00%, 11/01/25 9,300,000 9,203,931
Hopkins Minnesota Elderly Housing Revenue, St. Therese Project, Refunding, Series A, GNMA Secured,
5.60%, 11/20/17 750,000 778,418
5.70%, 11/20/32 3,000,000 3,110,490
Inner Grove Heights, Tax Increment, Series D, MBIA Insured, 5.50%, 2/01/19 1,000,000 1,031,520
Kenyon Wanamingo ISD No. 2172, MBIA Insured, 6.00%, 2/01/22 4,030,000 4,405,435
Lakeville ISD No. 194,
FGIC Insured, 5.40%, 2/01/13 $ 1,000,000 $ 1,037,730
Series C, MBIA Insured, 5.125%, 2/01/13 5,325,000 5,428,838
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 1,076,194
Health One Obligated Group, Series A, MBIA Insured, 7.40%, 8/15/11 10,390,000 11,234,291
Health One Obligated Group, Series A, MBIA Insured, 6.75%, 8/15/14 3,950,000 4,223,301
Minneapolis and St. Paul Minnesota Metropolitan Airport Commission,
Airport Revenue, Series A, AMBAC Insured,
5.00%, 1/01/22 4,000,000 4,003,160
5.00%, 1/01/30 10,000,000 9,900,000
5.20%, 1/01/24 6,600,000 6,650,094
Minneapolis CDA, Tax Increment Revenue, Series 1990, MBIA Insured, 7.00%, 3/01/01 2,100,000 2,260,566
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 1,204,560
Minneapolis Hospital Facilities Revenue, Fairview Hospital and Healthcare, Refunding,
Series A, MBIA Insured, 6.50%, 1/01/11 600,000 653,436
Series B, MBIA Insured, 6.70%, 1/01/17 7,815,000 8,495,296
Minneapolis Minnesota GO, Sports Arena Project, Refunding, 5.20%, 10/01/24 3,750,000 3,820,650
Minneapolis Revenue University Gateway Project, Series A, 5.25%, 12/01/24 3,000,000 3,030,390
Minneapolis Special School District No. 001, Series A, MBIA Insured, 5.90%, 2/01/17 5,000,000 5,397,550
Minneapolis St. Paul Housing Finance Board, SFMR,
Phase VI, Series A, GNMA Secured, 8.30%, 8/01/21 2,570,000 2,628,185
Series A, GNMA Secured, 8.375%, 11/01/17 515,000 526,840
Series C, GNMA Secured, 8.875%, 11/01/18 375,000 383,558
Minnesota State GO, Refunding, MBIA Insured, 5.40%, 8/01/09 3,000,000 3,140,520
Minnesota State HFA,
Rental Housing, Refunding, Series D, MBIA Insured, 5.90%, 8/01/15 1,345,000 1,425,323
Rental Housing, Refunding, Series D, MBIA Insured, 5.95%, 2/01/18 2,850,000 3,015,870
Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22 3,330,000 3,532,730
SFHR, SFM, Series E, AMBAC-TCRS Insured, 5.40%, 1/01/25 9,000,000 9,080,100
SFMR, Series A, FGIC Insured, 8.00%, 7/01/29 2,690,000 2,760,774
SFMR, Series B, FGIC Insured, 7.25%, 7/01/06 1,845,000 1,847,823
SFMR, Series B, FGIC Insured, 7.25%, 7/01/16 555,000 555,849
SFMR, Series C, FGIC Insured, 7.00%, 7/01/16 300,000 300,465
SFMR, Series D, AMBAC Insured, 7.30%, 7/01/09 3,170,000 3,277,400
SFMR, Series D, FGIC Insured, 8.80%, 7/01/16 205,000 209,278
SFMR, Series F, MBIA Insured, 6.30%, 7/01/25 1,500,000 1,606,590
SFMR, Series G, AMBAC Insured, 6.25%, 7/01/26 2,590,000 2,784,794
SFMR, Series I, MBIA Insured, 6.25%, 1/01/15 1,410,000 1,499,352
Minnesota State Higher Educational Facilities Authority Revenue, Series 3, Connie Lee Insured,
6.50%, 1/01/17 3,940,000 4,125,929
Minnetonka MFHR,
Brier Creek Project, Refunding, Series A, GNMA Secured, 6.45%, 6/20/24 2,720,000 2,932,078
Cedar Hills East Project, FGIC Insured, 7.40%, 12/01/07 350,000 366,625
Cedar Hills East Project, FGIC Insured, 7.50%, 12/01/27 1,000,000 1,039,690
New Hope MFR, North Ridge, Refunding, Series A, GNMA Secured,
6.05%, 1/01/17 450,000 482,072
6.20%, 1/01/31 5,470,000 5,811,602
North Branch ISD No. 138, Series A, FGIC Insured, 5.625%, 2/01/17 1,240,000 1,303,500
North St. Paul Maplewood Minnesota ISD No. 622,
Series A, MBIA Insured, Pre-Refunded, 7.10%, 2/01/19 2,000,000 2,335,160
Refunding, Series A, 5.125%, 2/01/25 2,275,000 2,286,466
Northeast Metropolitan ISD No. 916, FSA Insured, 5.80%, 1/01/16 5,475,000 5,828,685
Northern Municipal Power Agency, Minnesota Electric System Revenue,
Refunding, FSA Insured, 5.00%, 1/01/12 1,780,000 1,816,953
Refunding, FSA Insured, 5.25%, 1/01/17 1,000,000 1,023,960
Refunding, FSA Insured, 5.30%, 1/01/21 1,000,000 1,031,750
Refunding, Series A, AMBAC Insured, 6.00%, 1/01/19 11,900,000 11,948,433
Refunding, Series A, AMBAC Insured, 6.00%, 1/01/20 4,000,000 4,017,600
Northern Municipal Power Agency, Minnesota Electric System Revenue, (cont.)
Refunding, Series A, AMBAC Insured, Pre-Refunded, 7.40%, 1/01/18 $ 9,500,000 $ 9,809,130
Refunding, Series A, MBIA Insured, 6.00%, 1/01/20 4,200,000 4,218,480
Refunding, Series B, AMBAC Insured, 5.50%, 1/01/18 8,150,000 8,372,577
Series C, AMBAC Insured, 6.125%, 1/01/20 8,090,000 8,651,931
Northfield College Facility Revenue, St. Olaf College Project, BIG Insured, Pre-Refunded,
8.00%, 10/01/18 2,000,000 2,007,000
Owatonna Public Utilities Commission, Public Utilities Revenue, Refunding, Series A, AMBAC
Insured, 5.45%, 1/01/16 3,350,000 3,435,224
Plymouth Health Facilities Revenue, Westhealth Project, Series A, FSA Insured,
6.25%, 6/01/16 1,600,000 1,757,296
6.125%, 6/01/24 1,815,000 1,981,145
Princeton Hospital Revenue, Fairview Hospital and Healthcare, Series C, MBIA Insured, 6.25%,
1/01/21 7,205,000 7,725,994
Princeton ISD No. 477,
Mille Lacs County, Series A, FSA Insured, 5.375%, 2/01/17 2,540,000 2,603,906
FAS Insured, 5.125%, 2/01/24 2,190,000 2,211,506
Puerto Rico Commonwealth Public Improvement GO,
MBIA Insured, Pre-Refunded, 6.50%, 7/01/23 3,000,000 3,430,380
Series A, FGIC Insured, Pre-Refunded, 7.375%, 7/01/04 10,000,000 10,473,700
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 930,000 983,494
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 1,300,000 1,418,027
Robbinsdale Hospital Revenue, North Memorial Medical Center Project,
Refunding, Series A, AMBAC Insured, 5.45%, 5/15/13 2,000,000 2,073,580
Refunding, Series A, AMBAC Insured, 5.55%, 5/15/19 1,000,000 1,038,400
Series B, AMBAC Insured, 5.45%, 5/15/13 2,900,000 3,015,101
Series B, AMBAC Insured, 5.50%, 5/15/23 7,900,000 8,158,251
Rochester Minnesota Health Care Facilities Revenue, Mayo Foundation, Series B, 5.50%, 11/15/27 5,000,000 5,232,550
Roseville ISD No. 623, Series A,
FGIC Insured, 6.00%, 2/01/23 1,250,000 1,313,063
FSA Insured, 5.80%, 2/01/19 1,200,000 1,263,540
FSA Insured, 5.85%, 2/01/24 2,470,000 2,596,983
FSA Insured, 6.00%, 2/01/25 4,260,000 4,560,841
Scott County Housing and Redevelopment Authority,
Housing Development Revenue, River City Centre Project, Series A, FSA Insured, 5.35%, 2/01/20 760,000 786,661
Housing Development Revenue, River City Centre Project, Series A, FSA Insured, 5.375%,
2/01/27 1,520,000 1,569,218
Special Benefits Tax, River City Centre Project, Series B, AMBAC Insured, 5.50%, 2/01/27 675,000 705,733
Tax Increment Development, Revenue, River City Centre Project, Series E, FSA Insured,
5.375%, 2/01/25 1,170,000 1,207,885
Scott County Housing and Redevelopment Authority Facilities, AMBAC Insured,
5.25%, 12/01/11 2,380,000 2,498,905
5.50%, 12/01/15 1,750,000 1,849,820
Shakopee Public Utilities Commission Revenue, AMBAC Insured, 5.60%, 8/01/18 1,750,000 1,807,435
South Washington County ISD No. 833, Refunding, Series A, FGIC Insured, 6.125%, 6/01/10 2,080,000 2,183,709
Southern Minnesota Municipal Power Agency, Power Supply System Revenue,
Refunding, Series B, AMBAC Insured, 6.00%, 1/01/16 5,000,000 5,317,050
Series A, AMBAC Insured, 6.00%, 1/01/13 2,500,000 2,513,050
Series A, AMBAC Insured, Pre-Refunded, 5.75%, 1/01/18 2,250,000 2,383,650
Series A, FGIC Insured, 5.75%, 1/01/18 1,000,000 1,080,840
Series A, MBIA Insured, 5.00%, 1/01/12 5,975,000 6,035,885
Series A, MBIA Insured, 6.00%, 1/01/13 12,500,000 12,565,250
Series A, MBIA Insured, 5.75%, 1/01/18 8,865,000 9,391,581
Series A, MBIA Insured, Pre-Refunded, 5.75%, 1/01/18 1,000,000 1,059,400
Series C, AMBAC Insured, 5.00%, 1/01/17 1,000,000 1,000,060
St. Cloud Hospital Facilities Revenue, St. Cloud Hospital, Refunding,
Series A, AMBAC Insured, 5.00%, 7/01/15 2,165,000 2,181,584
Series C, AMBAC Insured, 5.30%, 10/01/20 1,230,000 1,256,863
St. Francis ISD No. 015, Series A, FSA Insured,
6.35%, 2/01/13 1,500,000 1,684,215
6.375%, 2/01/16 5,465,000 6,144,682
St. Louis Park Health CareFacilities Revenue, Healthsystem of Minnesota Obligated Group, Refunding, Series A, AMBAC Insured, 5.20%,
7/01/16 1,000,000 1,014,260
7/01/23 9,000,000 9,091,980
St. Louis Park Hospital Facilities Revenue, Methodist Hospital Project,
Refunding, Series A, AMBAC Insured, 7.25%,
7/01/08 $ 4,115,000 $ 4,416,341
7/01/15 1,000,000 1,073,230
St. Paul Housing and Redevelopment Authority Parking Revenue, Series A, FSA Insured,
5.75%, 8/01/13 5,105,000 5,430,291
St. Paul ISD No. 625,
Series A, FSA Insured, 5.75%, 2/01/16 3,500,000 3,709,160
Series C, MBIA Insured, 6.10%, 2/01/14 1,075,000 1,161,022
Series C, MBIA Insured, 6.10%, 2/01/15 500,000 537,525
St. Paul Port Authority, IDR, Series K, FGIC Insured, 9.50%,
12/01/01 5,000 5,113
12/01/02 5,000 5,249
12/01/14 190,000 194,708
St. Paul Sewer Revenue, Series A, AMBAC Insured, 8.00%, 12/01/08 8,000,000 8,157,520
Stearns County Housing and Redevelopment Authority Lease Revenue,
Administration Building Project, Refunding, AMBAC Insured,
7.00%, 2/01/11 3,645,000 3,745,784
Stillwater ISD No. 834 GO, MBIA Insured, 5.75%, 2/01/15 2,990,000 3,216,702
Virginia, Governmental Housing Project, Refunding, MBIA Insured, 5.90%, 2/01/26 2,915,000 3,125,725
Wadena ISD No. 819, Refunding, AMBAC Insured, 5.60%, 2/01/20 3,150,000 3,240,248
Washington County Housing and Redevelopment Authority, Governmental Revenue,
Housing, Landfall Terrace Project, Refunding,
5.35%, 2/01/22 1,000,000 1,020,990
5.40%, 8/01/27 2,015,000 2,057,214
Washington County SFRMR, Housing and Redevelopment Authority, GNMA Secured, FGIC Insured,
7.60%, 12/01/11 140,000 140,463
Western Minnesota Municipal Power Agency,
Power Supply Revenue, Refunding, Series A, AMBAC Insured, 5.50%, 1/01/12 2,745,000 2,945,550
Power Supply Revenue, Refunding, Series A, AMBAC Insured, 5.50%, 1/01/13 4,500,000 4,786,515
Power Supply Revenue, Refunding, Series A, MBIA Insured, 5.50%, 1/01/15 5,425,000 5,440,190
Transmission Project Revenue, Refunding, AMBAC Insured, 6.75%, 1/01/16 2,000,000 2,142,114
------------
Total Long Term Investments (Cost $493,538,002) 522,251,727
------------
aShort TermInvestments .3%
Minnesota, Beltrami County Environmental Control Revenue, Refunding, Northwood Panelboard,
Weekly VDRN and Put, 3.65%, 12/01/21 700,000 700,000
Beltrami County Environmental Control Revenue, Northwood Panelboard Co. Project, Daily VRDN
and Put, 3.60%, 7/01/25 700,000 700,000
Duluth Minnesota Tax Increment Revenue, Lake Superior Paper, Registered, Weekly VRDN
and Put, 2.80%, 9/01/10 300,000 300,000
------------
Total Short Term Investments (Cost $1,700,000) 1,700,000
------------
Total Investments (Cost $495,238,002) 101.0% 523,951,727
Other Assets, less Liabilities (1.0%) (5,271,059)
------------
Net Assets 100.0% $518,680,668
============
See glossary of terms on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment
formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at specified dates.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Ohio Insured Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.45 $12.19 $12.22 $11.90 $12.40 $12.34
----------------------------------------------------------
Income from investment operations:
Net investment income .31 .64 .66 .68 .69 .70
Net realized and unrealized gains (losses) .06 .33 (.03) .33 (.50) .07
----------------------------------------------------------
Total from investment operations .37 .97 .63 1.01 .19 .77
----------------------------------------------------------
Less distributions from:
Net investment income (.31) (.64)4 (.66)3 (.69)2 (.69) (.71)
Net realized gains (.01) (.07) -- -- -- --
----------------------------------------------------------
Total distributions (.32) (.71) (.66) (.69) (.69) (.71)
----------------------------------------------------------
Net asset value, end of period $12.50 $12.45 $12.19 $12.22 $11.90 $12.40
==========================================================
Total return* 2.95% 8.22% 5.35% 8.66% 1.74% 6.08%
Ratios/supplemental data
Net assets, end of period (000's) $753,875 $741,079 $698,360 $685,783 $652,545 $686,398
Ratios to average net assets:
Expenses .66%** .64% .64% .64% .63% .56%
Net investment income 5.06%** 5.24% 5.43% 5.58% 5.83% 5.59%
Portfolio turnover rate 1.55% 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 period)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.51 $12.24 $12.26 $11.90
---------------------------------------
Income from investment operations:
Net investment income .28 .58 .59 .52
Net realized and unrealized gains (losses) .07 .34 (.02) .35
---------------------------------------
Total from investment operations .35 .92 .57 .87
---------------------------------------
Less distributions from:
Net investment income (.28) (.58) (.59) (.51)
Net realized gains (.01) (.07) -- --
---------------------------------------
Total distributions (.29) (.65) (.59) (.51)
---------------------------------------
Net asset value, end of period $12.57 $12.51 $12.24 $12.26
=======================================
Total return* 2.73% 7.66% 4.79% 7.43%
Ratios/supplemental data
Net assets, end of period (000's) $35,199 $28,178 $15,786 $6,085
Ratios to average net assets:
Expenses 1.22%** 1.20% 1.20% 1.22%**
Net investment income 4.50%** 4.67% 4.80% 4.99%**
Portfolio turnover rate 1.55% 12.84% 14.95% 11.47%
*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.
2Includes distributions in excess of net investment income in the amount of $.001.
3Includes distributions in excess of net investment income in the amount of $.003.
4Includes distributions in excess of net investment income in the amount of $.007.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
aLong Term Investments 98.4%
Akron Bath Copley Joint Township Hospital District Revenue, Akron General Medical
Center Project, Refunding, AMBAC Insured, 5.375%,
1/01/17 $ 1,000,000 $ 1,047,150
1/01/22 1,500,000 1,550,955
1/01/27 1,000,000 1,027,450
Akron GO, Limited Tax, FGIC Insured, 7.50%, 9/01/05 500,000 599,440
Akron Sewer System Revenue, Refunding, MBIA Insured, 5.55%, 12/01/16 3,660,000 3,857,128
Akron Waterworks System First Mortgage Revenue, FGIC Insured, 6.00%, 3/01/14 1,000,000 1,091,540
Allen County, Refunding, AMBAC Insured, 5.30%, 12/01/15 1,250,000 1,281,925
Allen County Sewer Revenue, MBIA Insured, 5.70%, 12/01/13 1,200,000 1,270,068
Archbold Area Local School District GO,
AMBAC Insured, 6.00%, 12/01/21 2,000,000 2,197,340
Refunding, MBIA Insured, 5.90%, 12/01/11 600,000 627,258
Aurora City School District GO, Refunding and Improvement, FGIC Insured, 5.80%, 12/01/16 1,075,000 1,161,473
Avon Local School District, AMBAC Insured, 6.00%, 12/01/20 2,500,000 2,740,450
Barberton Ohio City School District, FGIC Insured, 5.125%, 11/01/22 5,000,000 5,051,550
Beavercreek Local School District GO, FGIC Insured, 5.70%, 12/01/20 8,375,000 8,944,668
Belmont County Correctional Facility, MBIA Insured, 5.85%, 12/01/16 500,000 543,725
Bluffton Exempt Village School District, AMBAC Insured, 5.50%, 12/01/16 1,000,000 1,055,220
Brunswick City School District, AMBAC Insured, 6.90%, 12/01/12 2,295,000 2,529,893
Butler County GO, AMBAC Insured, 5.75%, 12/01/16 1,000,000 1,077,110
Butler County Hospital Facilities Revenue, Middletown Regional Hospital,
Refunding and Improvement, FGIC Insured,
6.75%, 11/15/10 2,150,000 2,350,724
Butler County Transporation Improvement, Series A, FSA Insured, 5.125%, 4/01/17 2,000,000 2,039,320
Butler County Waterworks Revenue, AMBAC Insured,
6.35%, 12/01/08 790,000 863,897
6.40%, 12/01/12 500,000 544,270
5.45%, 12/01/16 1,000,000 1,049,510
Canal Winchester Ohio Local School District GO, Franklin and Fairfield Company Ohio, 5.30%,
12/01/25 5,705,000 5,844,088
Cardington and Lincoln Local School District, MBIA Insured, 6.60%, 12/01/14 400,000 436,688
Celina Wastewater System Mortgage Revenue, FGIC Insured, 6.55%, 11/01/16 1,200,000 1,283,904
Centerville GO, Capital Facilities, MBIA Insured, 5.65%, 12/01/18 2,265,000 2,394,671
Chillicothe GO, Limited Tax, AMBAC Insured, 6.05%, 12/01/12 675,000 723,796
Claymont City School District, FGIC Insured, 5.70%, 12/01/21 1,000,000 1,072,920
Clermont County Hospital Facilities Revenue, Mercy Health System,
Provine of Cincinnati, Refunding,
Series A, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/19 515,000 568,915
Series B, AMBAC Insured, 6.00%, 9/01/19 1,750,000 1,865,868
Clermont County Sewer System Revenue, AMBAC Insured, Pre-Refunded, 7.10%, 12/01/15 4,280,000 4,549,340
Clermont County Waterworks Revenue, Refunding, AMBAC Insured, 5.80%, 12/01/18 11,000,000 11,664,730
Cleveland Airport Systems Revenue,
Series A, FGIC Insured, 6.25%, 1/01/20 3,000,000 3,250,200
Series B, FGIC Insured, 6.00%, 1/01/14 985,000 1,092,070
Series B, FGIC Insured, 6.10%, 1/01/24 1,450,000 1,614,488
Cleveland GO, Series 1994, MBIA Insured, 6.70%, 11/15/18 2,000,000 2,319,060
Cleveland Waterworks First Mortgage Revenue,
Refunding and Improvement, Series H, MBIA Insured, 5.75%, 1/01/26 19,750,000 21,054,290
Refunding, Series F, AMBAC Insured, 6.25%, 1/01/16 2,000,000 2,156,240
Series F-92, AMBAC Insured, 6.25%, 1/01/15 1,000,000 1,076,830
Clinton-Massie Local School District, Refunding, Issue I, AMBAC Insured, 7.50%, 12/01/11 1,000,000 1,130,540
Columbiana County, Refunding, FSA Insured, 5.25%, 12/01/24 1,000,000 1,018,640
Columbus GO, Limited Tax, FGIC Insured, 9.50%, 4/15/03 975,000 1,204,505
Columbus Municipal Airport Authority, Revenue Airport Improvement,
Port Columbus International B, AMBAC Insured, 5.00%,
1/01/18 3,815,000 3,821,295
Columbus State Community College, General Receipts, AMBAC Insured, 5.75%, 12/01/16 2,100,000 2,275,644
Coshocton Sewer System GO, AMBAC Insured, 6.50%, 12/01/12 1,530,000 1,689,135
Crestview Local School District GO, Construction and Improvement, AMBAC Insured, 6.65%,
12/01/14 1,650,000 1,831,137
Cuyahoga County GO, Limited Tax, MBIA Insured, 9.375%, 10/01/04 100,000 127,192
Cuyahoga County Hospital Revenue, Metrohealth System Project, Refunding and Improvement,
MBIA Insured, 5.50%, 2/15/27 3,915,000 4,046,936
Cuyahoga County Utility System Revenue, Medical Center Company Project, Refunding, Series B,
MBIA Insured, 6.10%, 8/15/15 2,945,000 3,189,406
Dayton Airport Revenue, Refunding, AMBAC Insured, 5.25%, 12/01/15 $ 2,000,000 $ 2,063,280
Dayton Water System Mortgage Revenue, Refunding, MBIA Insured, 6.75%, 12/01/10 1,395,000 1,428,271
Defiance GO, MBIA Insured,
6.10%, 12/01/14 1,000,000 1,096,730
6.20%, 12/01/20 750,000 828,743
Delaware City School District, FGIC Insured, 5.75%, 12/01/15 1,640,000 1,754,128
Dover City School District, AMBAC Insured, 6.25%, 12/01/16 2,000,000 2,161,520
Dover Municipal Electric System Revenue, FGIC Insured, 6.00%, 12/01/19 1,625,000 1,762,833
Dover Waterworks Systems Revenue, AMBAC Insured, 6.00%, 12/01/13 1,100,000 1,208,691
Dublin City School District, AMBAC Insured, 6.20%, 12/01/19 5,735,000 6,350,480
East Liverpool Hospital Revenue, East Liverpool City Hospital Project, Series B, FSA Insured,
5.00%, 10/01/21 1,000,000 993,190
Fairborn GO, Limited Tax, Series 1991, MBIA Insured, 7.00%, 10/01/11 1,390,000 1,556,202
Fairfield City School District GO, FGIC Insured, 6.00%, 12/01/20 1,000,000 1,080,230
Finneytown Local School District, FGIC Insured, 5.80%, 12/01/24 1,980,000 2,148,557
Forest Hills Local School District, MBIA Insured, 5.70%, 12/01/16 1,500,000 1,619,460
Fostoria City School District GO, AMBAC Insured, 6.70%, 12/01/16 2,500,000 2,781,350
Franklin County Convention Facilities Authority, Tax and Lease Revenue Anticipation Bonds, MBIA
Insured, 5.00%, 12/01/27 5,350,000 5,354,173
Franklin County Hospital Revenue, Holy Cross Health Systems, AMBAC Insured, 5.875%, 6/01/21 2,500,000 2,678,850
Green County Water System Revenue, Series A, FGIC Insured, 6.125%, 12/01/21 2,100,000 2,337,699
Green Local School District GO, Summit County, FGIC Insured,
5.875%, 12/01/14 2,800,000 3,029,012
5.90%, 12/01/19 5,150,000 5,548,971
Greene County Ohio Sewer Systems Revenue, Governmental Enterprise, MBIA Insured, 5.25%,
12/01/25 6,000,000 6,097,140
Hamilton City Electric System Mortgage Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 10/15/23 18,450,000 19,677,663
Series B, FGIC Insured, 6.30%, 10/15/25 2,340,000 2,538,268
Series B, FGIC Insured, Pre-Refunded, 8.00%, 10/15/22 9,500,000 9,739,210
Hamilton County Hospital Facilities Revenue, Bethesda Hospital, Refunding, Series A,
AMBAC Insured, 6.25%, 1/01/12 3,650,000 3,961,601
Hamilton County Sewer System Revenue, Refunding, Series A, FGIC Insured, 6.05%, 12/01/15 3,010,000 3,319,368
Hamilton Wastewater System Revenue, Series A, FSA Insured,
5.90%, 10/15/21 3,040,000 3,254,259
5.20%, 10/15/23 7,525,000 7,645,325
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 4,665,000 4,987,585
Hillard School District, Refunding, FGIC Insured, 6.55%, 12/01/05 500,000 575,730
Hudson Local School District, Refunding, FGIC Insured, 5.60%, 12/15/14 2,750,000 2,904,413
Indian Lake Local School District GO, Construction and Improvement, FGIC Insured, 5.375%,
12/01/23 1,000,000 1,027,410
Indian Valley Local School District GO, AMBAC Insured, 5.75%, 12/01/19 1,000,000 1,071,720
Ironton Building Improvement, AMBAC Insured, 5.50%, 12/01/22 1,000,000 1,048,620
Jackson Local School District, Stark and Summit Counties School Building,
Construction and Improvement, MBIA Insured,
5.40%, 12/01/13 2,750,000 2,886,620
5.50%, 12/01/21 3,060,000 3,208,777
Jackson Waterworks Revenue, AMBAC Insured, 5.60%, 12/01/18 500,000 519,410
Kent City School District, FGIC Insured, 5.75%, 12/01/21 1,500,000 1,616,100
Kent State University Revenues,
AMBAC Insured, 6.45%, 5/01/12 1,195,000 1,322,160
General Receipts, MBIA Insured, 5.50%, 5/01/28 5,920,000 6,167,515
Kettering City School District, FGIC Insured, 5.25%, 12/01/22 1,000,000 1,013,940
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 2,228,700
Lake Local School District, Stark County, AMBAC Insured, 6.25%, 12/01/09 1,000,000 1,098,650
Lakota Local District GO, AMBAC Insured, 6.125%, 12/01/17 3,200,000 3,602,368
Lebanon Electric Revenue Mortgage, AMBAC Insured, 5.60%, 12/01/16 795,000 832,898
Liberty Benton Local School District, AMBAC Insured,
6.00%, 12/01/15 2,000,000 2,244,280
6.10%, 12/01/19 2,045,000 2,305,962
Lincolnview Local School District, FGIC Insured, 5.50%, 12/01/25 4,225,000 4,423,448
Lorain County Hospital Revenue, Catholic Healthcare Partners,
Refunding, Series B, MBIA Insured,
5.50%, 9/01/27 12,200,000 12,732,042
Lucas County GO, Limited Tax, FGIC Insured, 8.00%,
12/01/06 $ 120,000 $ 150,156
12/01/08 110,000 141,416
12/01/09 120,000 156,608
12/01/10 220,000 289,166
Lucas County Hospital Revenue,
Promedica Healthcare Obligation, Refunding, MBIA Insured, 5.75%, 11/15/14 5,000,000 5,443,250
St. Vincent Medical Center, Refunding, Series B, MBIA Insured, 5.25%, 8/15/20 3,500,000 3,538,465
Mahoning County GO, Bridge Improvement,
Limited Tax, AMBAC Insured, 7.20%, 12/01/09 1,500,000 1,591,245
Unlimited Tax, AMBAC Insured, 7.15%, 12/01/04 1,500,000 1,592,820
Mahoning County Hospital Facilities Revenue,
Western Reserve Care, MBIA Insured, 5.50%, 10/15/25 5,000,000 5,304,700
Youngstown Hospital, Inc. Project, Series B, MBIA Insured, 7.00%, 10/15/08 2,000,000 2,236,000
Mansfield Hospital Improvement Revenue, Mansfield General Hospital Project, AMBAC
Insured, 6.70%, 12/01/09 2,500,000 2,736,000
Marietta City School District, Series B, AMBAC Insured, 5.75%, 12/01/07 1,000,000 1,075,570
Marietta Sewer System Mortgage Revenue, BIG Insured, 7.50%, 11/01/07 500,000 510,465
Marietta Water Revenue, AMBAC Insured, 5.95%, 12/01/21 3,875,000 4,182,133
Marysville Exempted Village School District GO, MBIA Insured, 5.75%, 12/01/23 1,000,000 1,063,970
Marysville Water Systems, Refunding, AMBAC Insured,
5.40%, 12/01/13 1,000,000 1,036,880
5.50%, 12/01/18 1,500,000 1,546,170
Mason Sewer Systems Revenue, FGIC Insured, 6.00%, 12/01/19 1,935,000 2,081,905
Maumee Hospital Revenue, Saint Luke's Hospital Project, Refunding, AMBAC Insured, 5.80%,
12/01/14 2,755,000 2,978,623
Mentor Exempted Village School District, MBIA Insured,
5.375%, 12/01/11 1,000,000 1,045,330
6.625%, 12/01/13 2,000,000 2,184,940
Pre-Refunded, 7.40%, 12/01/11 2,040,000 2,175,762
Miami County Hospital Facilities Revenue, Upper Valley Medical Center, Nursing Care, Inc.,
Series B, MBIA Insured, 6.50%, 5/01/21 1,340,000 1,427,422
Middleburg Heights Hospital Revenue, Southwest General Health Center, Refunding, FSA
Insured, 5.75%, 8/15/21 1,500,000 1,604,430
Montgomery County Hospital Facilities Revenue, Kettering Medical Center
Facilities, MBIA Insured,
7.40%, 4/01/09 15,000,000 15,593,250
5.50%, 4/01/26 2,000,000 2,072,200
Pre-Refunded, 7.50%, 4/01/14 5,000,000 5,215,050
Montgomery County Revenue,
Miami Valley Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 11/15/12 1,600,000 1,737,616
Miami Valley Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 11/15/16 3,250,000 3,513,900
Sisters of Charity Health Care, Series A, AMBAC Insured, 6.25%, 5/15/14 1,780,000 1,968,733
Sisters of Charity Health Care, Series A, MBIA Insured, 6.625%, 5/15/21 1,565,000 1,692,548
Muskingum County GO,
County Office Building Improvement, AMBAC Insured, 7.20%, 12/01/10 1,000,000 1,085,580
Justice Center Improvement, AMBAC Insured, 6.375%, 12/01/17 1,695,000 1,888,416
Napoleon City School District GO, AMBAC Insured, 5.375%, 12/01/18 1,000,000 1,029,650
New Lexington HDC, Mortgage Revenue, Lincoln Park, Refunding, Series A, MBIA Insured,
FHA Insured, 5.85%, 1/01/21 1,080,000 1,128,028
New Philadelphia City School District, School and Improvement, AMBAC Insured, 6.25%, 12/01/17 2,000,000 2,159,100
New Richmond Exempted Village School District GO, AMBAC Insured, 7.125%, 9/01/09 1,500,000 1,563,720
Newark Water System, AMBAC Insured, 6.00%, 12/01/18 1,000,000 1,112,470
North Olmsted GO, AMBAC Insured, 6.25%, 12/15/12 3,800,000 4,153,248
North Ridgeville GO, City School District, AMBAC Insured, 6.30%, 12/01/17 2,900,000 3,160,362
Northeastern Local School District, Clark County Improvement, FGIC Insured, 5.55%, 12/01/18 1,000,000 1,054,260
Northridge Local School District, Licking, Knox and Del Counties Improvement, FSA
Insured, 5.75%, 12/01/18 1,090,000 1,162,441
Northwest Local School District, Scioto County, AMBAC Insured, 7.05%, 12/01/14 2,000,000 2,213,720
Northwest Ohio Local School District, Hamilton County, FGIC Insured, 5.15%, 12/01/22 3,400,000 3,437,502
Oak Hills Local School District, MBIA Insured, 5.45%, 12/01/21 5,000,000 5,223,100
Ohio Capital Corp. for Housing Mortgage Revenue,
Refunding, MBIA Insured, 6.35%, 7/01/22 2,000,000 2,147,820
Refunding, MBIA Insured, 6.90%, 7/01/24 4,215,000 4,461,915
Refunding, Series J, MBIA Insured, 6.50%, 1/01/25 3,500,000 3,665,375
Ohio Capital Corp. for Housing Mortgage Revenue, (cont.)
Westview Apartments, Refunding, Series A, MBIA Insured, 6.125%, 1/01/15 $ 1,625,000 $ 1,744,925
Westview Apartments, Refunding, Series A, MBIA Insured, 6.25%, 1/01/23 2,565,000 2,744,935
Ohio HFA,
MFHR, Northridge Apartments, FGIC Insured, 10.35%, 12/01/25 760,000 834,655
MFHR, Wind River Apartment Project, Series A, GNMA Secured, 5.65%, 5/01/32 2,035,000 2,095,989
SFMR, Series A, GNMA Secured, 7.65%, 3/01/29 2,960,000 3,077,719
SFMR, Series B, GNMA Secured, 7.40%, 9/01/15 635,000 665,569
SFMR, Series C, GNMA Secured, 8.00%, 9/01/08 1,690,000 1,757,735
SFMR, Series C, GNMA Secured, 8.125%, 3/01/20 1,560,000 1,619,249
SFMR, Series C, GNMA Secured, 7.85%, 9/01/21 1,455,000 1,544,584
SFMR, Series D, GNMA Secured, 7.50%, 9/01/13 945,000 998,856
SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 3,760,000 3,982,818
SFMR, Series I, GNMA Secured, 7.60%, 9/01/16 2,640,000 2,792,803
Ohio Municipal Electric Generation Agency, Joint Venture 5, AMBAC Insured,
5.625%, 2/15/16 13,000,000 13,610,480
5.375%, 2/15/24 7,680,000 7,879,450
Ohio State Air Quality Development Authority Revenue,
Cincinnati Gas and Electric, Refunding, MBIA Insured, 5.45%, 1/01/24 5,000,000 5,127,000
Columbus Southern Power, Series A, FGIC Insured, 6.375%, 12/01/20 4,000,000 4,377,160
JMG Funding, L.P., AMBAC Insured, 5.625%, 10/01/22 7,500,000 7,963,425
JMG Funding, L.P., Refunding, AMBAC Insured, 6.375%, 1/01/29 1,230,000 1,341,967
JMG Funding, L.P., Refunding, AMBAC Insured, 6.375%, 4/01/29 15,245,000 16,632,752
PCR, Ohio Edison, Refunding, Series B, AMBAC Insured, 5.625%, 11/15/29 5,400,000 5,611,464
PCR, Pennsylvania Power Co., Refunding, AMBAC Insured, 6.45%, 5/01/27 7,000,000 7,611,660
PCR, Refunding, FGIC Insured, 7.45%, 3/01/16 1,000,000 1,067,960
Ohio State Building Authority, Adult Correctional Facility, Series A,
AMBAC Insured, 5.60%, 4/01/16 2,000,000 2,117,420
MBIA Insured, 6.125%, 10/01/13 13,000,000 14,354,210
Ohio State Department of Transportation, COP, Panhandle Rail Line Project, Series A, FSA'
Insured, 6.50%, 4/15/12 1,100,000 1,199,440
Ohio State Education Loan Revenue, Series A-1, AMBAC Insured, 5.85%, 12/01/19 5,000,000 5,235,150
Ohio State HFA, Residential Mortgage Revenue, Series A-1, GNMA Secured, 5.40%, 9/01/29 3,900,000 3,949,998
Ohio State Higher Educational Facility Commission Revenue,
Dayton University Project, FGIC Insured, 7.25%, 12/01/12 450,000 489,803
Dayton University Project, FGIC Insured, 5.80%, 12/01/14 1,300,000 1,388,452
Dayton University Project, FGIC Insured, 6.75%, 12/01/15 1,725,000 1,904,676
Xavier University, MBIA Insured, 5.375%, 5/15/22 5,000,000 5,195,550
Xavier University Project, MBIA Insured, Pre-Refunded, 7.625%, 11/01/08 1,500,000 1,510,020
Ohio State Turnpike Commission, Turnpike Revenue, Series A,
FGIC Insured, 5.75%, 2/15/24 1,000,000 1,055,680
MBIA Insured, 5.50%, 2/15/26 19,400,000 20,346,332
Ohio State Water Development Authority Revenue,
Cincinnati Gas, Refunding, Series A, MBIA Insured, 5.45%, 1/01/24 4,000,000 4,109,000
COP, Fresh Water Service, AMBAC Insured, 5.90%, 12/01/21 8,750,000 9,404,150
Dayton Power, Refunding, Series A, AMBAC Insured, 6.40%, 8/15/27 5,000,000 5,382,500
Refunding and Improvement, AMBAC Insured, 5.50%, 12/01/11 1,000,000 1,056,620
Refunding and Improvement, Pure Water, AMBAC Insured, 5.50%, 12/01/18 4,450,000 4,577,315
Series I, AMBAC Insured, ETM, 7.00%, 12/01/09 2,000,000 2,376,600
Ohio State Water Development Authority, PCR Facilities, Pennsylvania Power Co. Project,
Refunding, AMBAC Insured, 6.15%, 8/01/23 3,420,000 3,703,005
Olentangy Local School District GO, BIG Insured, 7.75%,
12/01/08 375,000 478,384
12/01/09 375,000 487,793
12/01/10 375,000 492,071
Olmsted Falls Local School District, FGIC Insured,
7.05%, 12/15/11 1,000,000 1,118,020
5.85%, 12/15/17 1,500,000 1,617,750
Ontario Ohio Local School District, Refunding, FSA Insured, 5.125%, 12/01/18 4,000,000 4,048,720
Orrville Electric System Mortgage Revenue, Refunding, Series A and B, AMBAC Insured, 7.50%,
12/01/10 2,500,000 2,572,200
Orrville Water Systems Improvement Revenue, MBIA Insured, 6.125%, 12/01/18 $ 1,150,000 $ 1,253,592
Ottawa County GO, Catawba Isle, AMBAC Insured, 7.00%, 9/01/11 1,500,000 1,648,425
Ottawa County Sewer System Revenue, Danbury Project, Refunding, AMBAC Insured, 5.50%, 10/01/14 1,950,000 2,041,007
Painesville Township Local School District GO, Lake County, FGIC Insured,
5.625%, 12/01/09 3,240,000 3,470,688
5.65%, 12/01/15 4,490,000 4,743,326
Perrysburg Exempted Village School District, AMBAC Insured, 6.00%, 12/01/15 2,000,000 2,170,760
Pickerington Local School District GO, Refunding, AMBAC Insured, 5.55%, 12/01/07 1,000,000 1,077,980
Powell Village, Series A, MBIA Insured,
5.55%, 12/01/17 840,000 889,048
5.60%, 12/01/22 445,000 472,029
Puerto Rico Commonwealth GO,
FSA Insured, 5.40%, 7/01/25 3,000,000 3,099,120
Refunding, MBIA Insured, 5.75%, 7/01/24 2,000,000 2,128,640
Puerto Rico PBA Revenue, Guaranteed, Government Facilities, Series A, AMBAC Insured,
5.50%, 7/01/21 4,000,000 4,196,320
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 11,000,000 11,350,130
Revere Local School District, AMBAC Insured,
5.25%, 12/01/16 2,000,000 2,047,000
6.00%, 12/01/16 1,600,000 1,735,440
Reynoldsburg City School District, Refunding, FGIC Insured, 5.45%, 12/01/17 4,075,000 4,280,299
Saint Mary's Electric System Mortgage Revenue, AMBAC Insured, 6.65%, 12/01/11 600,000 656,700
Saint Mary's Waterworks Revenue, AMBAC Insured, 6.65%, 12/01/11 750,000 820,875
Salem GO, AMBAC Insured, 6.50%, 12/01/06 2,000,000 2,322,140
South Range Local School District, MBIA Insured, 6.15%, 12/01/18 700,000 765,485
SouthWest Regional Water District, Water Revenue, MBIA Insured, 6.00%,
12/01/15 1,000,000 1,089,310
12/01/20 700,000 758,030
South-Western City School District of Ohio, Franklin and Pickway Counties,
FGIC Insured, ETM, 7.875%,
12/01/04 550,000 663,311
12/01/06 600,000 749,880
12/01/07 600,000 752,226
Springboro Sewer Systems Revenue, Refunding, MBIA Insured, 5.70%, 6/01/18 1,410,000 1,499,831
Springboro Water Systems Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/18 1,125,000 1,154,205
Stark County GO, Refunding, AMBAC Insured, 5.70%, 11/15/17 2,775,000 2,962,340
Stark County Sanitary Sewer System Revenue, Series A, MBIA Insured, Pre-Refunded, 7.75%,
11/15/18 8,500,000 8,741,485
Stark County Sewer District Improvement Bonds, FGIC Insured, 5.80%, 12/01/16 1,000,000 1,087,300
Steubenville City School District, Series A, AMBAC Insured, 6.20%, 12/01/17 2,075,000 2,284,181
Struthers City School District, AMBAC Insured, 6.50%, 12/01/14 1,750,000 1,928,430
Summit County GO, Limited Tax,
County Jail Improvement, AMBAC Insured, Pre-Refunded, 7.85%, 12/01/08 3,530,000 3,637,771
Refunding, Series B, AMBAC Insured, 6.95%, 8/01/08 400,000 438,304
Sylvania City School District, FGIC Insured, 5.75%, 12/01/22 4,830,000 5,142,356
Toledo GO, Limited Tax,
AMBAC Insured, 5.95%, 12/01/15 3,715,000 4,057,300
AMBAC Insured, 6.00%, 12/01/16 1,000,000 1,104,460
FGIC Insured, 7.375%, 12/01/00 500,000 535,170
FGIC Insured, 7.375%, 12/01/02 400,000 449,696
FGIC Insured, 7.375%, 12/01/03 650,000 742,892
FGIC Insured, 7.375%, 12/01/04 650,000 753,753
FGIC Insured, 7.375%, 12/01/05 650,000 763,497
FGIC Insured, 7.375%, 12/01/06 625,000 739,525
Toledo Sewerage System Mortgage Revenue, Series B, MBIA Insured,
7.75%, 11/15/17 2,320,000 2,385,192
Pre-Refunded, 7.75%, 11/15/17 3,680,000 3,784,549
Trumbull County Hospital Revenue,
Refunding, Series B, FGIC Insured, 6.90%, 11/15/12 2,000,000 2,274,740
Refunding and Improvement, Series A, FGIC Insured, 6.25%, 11/15/12 1,000,000 1,107,090
Twinsburg City School District, FSA Insured, 6.70%, 12/01/11 4,000,000 4,378,880
University of Cincinnati,
COP, MBIA Insured, 6.75%, 12/01/09 $ 1,600,000 $ 1,772,560
General Receipt, Series AD, MBIA Insured, 5.125%, 6/01/20 1,500,000 1,513,035
General Receipt, Series W, MBIA Insured, 5.85%, 6/01/16 1,630,000 1,766,170
University of Puerto Rico, University System Revenues, Series M, MBIA Insured, 5.25%, 6/01/25 6,000,000 6,160,320
University of Toledo General Receipt,
FGIC Insured, 5.30%, 6/01/18 2,000,000 2,041,840
Refunding, Series A, FGIC Insured, 5.90%, 6/01/20 5,500,000 5,786,275
Upper Arlington County School District, MBIA Insured, 5.25%, 12/01/22 5,000,000 5,087,500
Urbana Wastewater Treatment Plant GO, AMBAC Insured, 7.05%, 12/01/11 1,000,000 1,125,170
Valley Local School District, AMBAC Insured, 7.00%, 12/01/13 1,400,000 1,603,056
Warren GO,
Refunding, AMBAC Insured, 5.50%, 11/15/13 1,015,000 1,065,303
MBIA Insured, 6.65%, 11/01/12 2,415,000 2,756,070
Wausen Exempt Village School District, Refunding and School Improvements, MBIA Insured,
5.50%, 12/01/17 1,800,000 1,898,226
Wayne Local School District, Warren County, AMBAC Insured, 6.10%, 12/01/24 1,800,000 1,987,920
Westerville, Minerva Park and Blendon Joint Township Hospital District
Revenue, St. Ann's Hospital, ETM, Refunding, Series B,
AMBAC Insured, 7.00%, 9/15/12 5,000,000 5,367,100
Wilmington City School District, FGIC Insured, 6.30%, 12/01/14 2,000,000 2,159,040
Wilmington Sewer System Revenue, First Mortgage, Refunding, MBIA Insured, 5.30%, 2/15/18 1,170,000 1,207,709
Wilmington Water Revenue, First Mortgage System, AMBAC Insured,
5.90%, 6/15/14 1,275,000 1,382,546
6.00%, 6/15/21 2,510,000 2,715,745
Woodmore Local School District, Refunding, AMBAC Insured, 5.65%, 12/01/08 500,000 538,620
Wooster City School District, AMBAC Insured, 6.50%, 12/01/17 8,700,000 9,734,952
Worthington City School District, Refunding, FGIC Insured, 6.375%, 12/01/12 2,350,000 2,558,586
Youngstown State University, General Receipts, AMBAC Insured, 6.00%, 12/15/16 2,250,000 2,526,067
Zane Trace Local School District, AMBAC Insured, 5.45%, 12/01/19 1,000,000 1,045,440
------------
Total Long Term Investments (Cost $722,404,084) 776,333,496
------------
aShort Term Investments .1%
Cuyahoga County Ohio EDR, The Cleveland Orchestra Project, Daily VRDN and Put, 3.25%, 4/01/28 700,000 700,000
Ohio State Air Quality Development Authority Revenue, Cincinnati Gas and Electric, Refunding,
Series A, Daily VRDN, 3.20%, 9/01/30 200,000 200,000
Puerto Rico Commonwealth Highway and Transportation Authority, Transportation Revenue,
Series A, AMBAC Insured, Weekly VRDN and Put, 2.75%, 7/01/28 200,000 200,000
------------
Total Short Term Investments (Cost $1,100,000) 1,100,000
------------
Total Investments (Cost $723,504,084) 98.5% 777,433,496
Other Assets, less Liabilities 1.5% 11,640,463
------------
Net Assets 100.0% $789,073,959
============
See glossary of terms on page 96.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment
formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at specified dates.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited) (cont.)
Glossary of Terms
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
AMBAC - American Municipal Bond Assurance Corp.
BART - Bay Area Rapid Transit
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
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
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance (some of the securities shown as FSA Insured were originally insured by Capital
Guaranty Insurance Co.
(CGIC) which was acquired by FSA in 1995 and no longer does business under this name).
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance 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 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
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements
Statements of Assets and Liabilities
August 31, 1998 (unaudited)
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 $63,225,160 $102,478,996 $1,623,509,818
---------------------------------------------------
Value 66,984,279 109,437,758 1,744,425,171
Cash 454,349 243,558 1,001,713
Receivables:
Investment securities sold -- -- 409,506
Capital shares sold 47,608 342,990 1,747,623
Interest 656,612 1,911,187 24,136,589
Affiliates -- 51,999 --
Other assets 6,028 -- --
---------------------------------------------------
Total assets 68,148,876 111,987,492 1,771,720,602
---------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 1,503,754 -- 6,600,900
Capital shares redeemed -- 313,592 1,866,699
Affiliates 15,818 39,028 1,075,678
Shareholders 23,141 125,835 2,076,484
Distributions to shareholders 94,370 159,106 2,649,326
Other liabilities -- 2,213 70,748
---------------------------------------------------
Total liabilities 1,637,083 639,774 14,339,835
---------------------------------------------------
Net assets, at value $66,511,793 $111,347,718 $1,757,380,767
===================================================
Net assets consist of:
Undistributed net investment income $ 77,522 $ 72,382 $--
Accumulated distributions in excess of net investment income -- -- (1,721,016)
Net unrealized appreciation 3,759,119 6,958,762 120,915,353
Accumulated net realized gain (loss) (255,293) (1,270,415) 7,248,581
Capital shares 62,930,445 105,586,989 1,630,937,849
---------------------------------------------------
Net assets, at value $66,511,793 $111,347,718 $1,757,380,767
===================================================
Class I:
Net assets, at value $66,511,793 $111,347,718 $1,707,122,928
===================================================
Shares outstanding 6,121,093 10,565,188 138,119,437
===================================================
Net asset value per share* $10.87 $10.54 $12.36
===================================================
Maximum offering price per share (net asset value per share / 95.75%) $11.35 $11.01 $12.91
===================================================
Class II:
Net assets, at value -- -- $ 50,257,839
===================================================
Shares outstanding -- -- 4,043,529
===================================================
Net asset value per share* -- -- $12.43
===================================================
Maximum offering price per share (net asset value per share / 99.00%) -- -- $12.56
===================================================
*Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
August 31, 1998 (unaudited)
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 $328,058,439 $1,090,288,415 $495,238,002 $723,504,084
===================================================================
Value 352,172,055 1,178,360,342 523,951,727 777,433,496
Cash 25,810 64,022 522,343 57,212
Receivables:
Investment securities sold -- -- 20,000 1,630,000
Capital shares sold 43,393 580,228 285,198 341,511
Interest 4,697,671 18,693,837 5,513,524 12,370,538
-------------------------------------------------------------------
Total assets 356,938,929 1,197,698,429 530,292,792 791,832,757
-------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- -- 10,027,778 --
Capital shares redeemed 29,016 508,371 21,224 379,671
Affiliates 252,419 770,452 338,089 540,706
Shareholders 271,469 1,178,133 413,232 685,098
Distributions to shareholders 517,729 1,744,390 775,922 1,128,949
Other liabilities 22,194 102,982 35,879 24,374
-------------------------------------------------------------------
Total liabilities 1,092,827 4,304,328 11,612,124 2,758,798
-------------------------------------------------------------------
Net assets, at value $355,846,102 $1,193,394,101 $518,680,668 $789,073,959
===================================================================
Net assets consist of:
Undistributed net investment income $-- $-- $ 26,470 $--
Accumulated distributions in excess of net investment income (223,418) (1,514,078) -- (331,186)
Net unrealized appreciation 24,113,616 88,071,927 28,713,725 53,929,412
Accumulated net realized gain 254,672 2,060,472 693,758 741,503
Capital shares 331,701,232 1,104,775,780 489,246,715 734,734,230
-------------------------------------------------------------------
Net assets, at value $355,846,102 $1,193,394,101 $518,680,668 $789,073,959
===================================================================
Class I:
Net assets, at value $337,498,377 $1,151,449,208 $502,823,926 $753,874,675
===================================================================
Shares outstanding 28,626,075 93,768,585 41,184,130 60,286,156
===================================================================
Net asset value per share* $11.79 $12.28 $12.21 $12.50
===================================================================
Maximum offering price per share (net asset value per share / 95.75%) $12.31 $12.83 $12.75 $13.05
===================================================================
Class II:
Net assets, at value $ 18,347,725 $ 41,944,893 $ 15,856,742 $ 35,199,284
===================================================================
Shares outstanding 1,549,253 3,393,956 1,293,433 2,800,627
===================================================================
Net asset value per share* $11.84 $12.36 $12.26 $12.57
===================================================================
Maximum offering price per share (net asset value per share / 99.00%) $11.96 $12.48 $12.38 $12.70
===================================================================
*Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations
for the six months ended August 31, 1998 (unaudited)
Franklin Franklin
Arizona Insured Florida Insured Franklin
Tax-Free Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund
----------------------------------------------------
Investment income:
<S> <C> <C> <C>
Interest $1,634,862 $2,848,239 $50,328,773
Expenses:
Management fees (Note 3) 194,942 329,925 4,027,883
Distribution fees (Note 3)
Class I 29,159 50,217 738,488
Class II -- -- 140,955
Transfer agent fees (Note 3) 8,610 15,703 302,387
Custodian fees 326 418 9,179
Reports to shareholders 6,515 7,255 134,382
Registration and filing fees 4,541 3,184 96,593
Professional fees 1,151 1,391 20,081
Trustees' fees and expenses 438 582 10,406
Other 3,764 13,039 32,029
----------------------------------------------------
Total expenses 249,446 421,714 5,512,383
Expenses waived by affiliate (Note 3) (156,279) (233,909) --
----------------------------------------------------
Net expenses 93,167 187,805 5,512,383
----------------------------------------------------
Net investment income 1,541,695 2,660,434 44,816,390
----------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments (8,400) -- 7,254,555
Net unrealized appreciation on investments 619,064 1,148,443 6,939,861
----------------------------------------------------
Net realized and unrealized gain 610,664 1,148,443 14,194,416
----------------------------------------------------
Net increase in net assets resulting from operations $2,152,359 $3,808,877 $59,010,806
====================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended August 31, 1998 (unaudited)
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
-------------------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C>
Interest $9,904,121 $33,312,095 $14,742,415 $22,167,624
-------------------------------------------------------------------
Expenses:
Management fees (Note 3) 905,359 2,778,765 1,274,967 1,874,353
Distribution fees (Note 3)
Class I 149,007 513,232 222,296 339,795
Class II 52,730 121,325 42,751 104,382
Transfer agent fees (Note 3) 65,046 257,383 111,201 164,257
Custodian fees 1,826 5,748 2,731 4,120
Reports to shareholders 30,201 109,943 47,590 71,357
Registration and filing fees 12,518 7,645 10,781 17,688
Professional fees 5,017 12,662 6,698 8,789
Trustees' fees and expenses 2,099 6,760 3,142 4,187
Other 15,204 52,907 24,909 23,210
-------------------------------------------------------------------
Total expenses 1,239,007 3,866,370 1,747,066 2,612,138
-------------------------------------------------------------------
Net investment income 8,665,114 29,445,725 12,995,349 19,555,486
===================================================================
Realized and unrealized gains:
Net realized gain from investments 255,710 2,176,817 695,572 744,605
Net unrealized appreciation on investments 2,275,108 9,059,878 1,607,129 3,099,551
-------------------------------------------------------------------
Net realized and unrealized gain 2,530,818 11,236,695 2,302,701 3,844,156
-------------------------------------------------------------------
Net increase in net assets resulting from operations $11,195,932 $40,682,420 $15,298,050 $23,399,642
===================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended August 31, 1998 (unaudited)
and the year ended February 28, 1998
Franklin Arizona Insured Franklin Florida Insured
Tax-Free Income Fund Tax-Free Income Fund
--------------------------------------------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998
--------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income $ 1,541,695 $ 2,419,028 $ 2,660,434 $ 4,570,472
Net realized gain (loss) from investments (8,400) 186,266 -- 139,100
Net unrealized appreciation on investments 619,064 1,729,964 1,148,443 3,782,107
--------------------------------------------------------------------
Net increase in net assets resulting from operations 2,152,359 4,335,258 3,808,877 8,491,679
Distributions to shareholders from net investment income (1,519,468) (2,451,451) (2,636,782)
(4,572,391)
Capital share transactions (Note 2) 7,820,169 16,481,798 8,670,041 20,409,395
--------------------------------------------------------------------
Net increase in net assets 8,453,060 18,365,605 9,842,136 24,328,683
Net assets:
Beginning of period 58,058,733 39,693,128 101,505,582 77,176,899
--------------------------------------------------------------------
End of period $66,511,793 $58,058,733 $111,347,718 $101,505,582
====================================================================
Undistributed net investment income included in net assets
End of period $ 77,522 $ 55,295 $ 72,382 $ 48,730
====================================================================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1998 (unaudited)
and the year ended February 28, 1998
Franklin Insured Franklin Massachusetts Insured
Tax-Free Income Fund Tax-Free Income Fund
--------------------------------------------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
August 31, 1998February 28, 1998August 31, 1998February 28, 1998
--------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income $ 44,816,390 $ 92,090,668 $ 8,665,114 $ 17,761,637
Net realized gain from investments 7,254,555 23,962,647 255,710 4,132,958
Net unrealized appreciation on investments 6,939,861 16,269,474 2,275,108 6,206,833
--------------------------------------------------------------------
Net increase in net assets resulting from operations 59,010,806 132,322,789 11,195,932 28,101,428
Distributions to shareholders from:
Net investment income:
Class I (43,834,536) (90,659,720) (8,309,670) (17,272,533)
Class II (981,854) (1,442,616) (355,444) (450,151)
In excess of net investment income:
Class I (850,138) (860,908) (12,348) (212,790)
Class II (19,042) -- (528) --
Net realized gains:
Class I (6,604,820) (16,811,655) (1,395,453) (3,803,786)
Class II (171,169) (343,655) (69,530) (118,051)
--------------------------------------------------------------------
Total distributions to shareholders (52,461,559) (110,118,554) (10,142,973) (21,857,311)
Capital share transactions: (Note 2)
Class I 15,554,540 1,404,896 8,380,068 (2,973,753)
Class II 11,959,797 16,099,401 4,329,811 7,370,054
--------------------------------------------------------------------
Total capital share transactions 27,514,337 17,504,297 12,709,879 4,396,301
Net increase in net assets 34,063,584 39,708,532 13,762,838 10,640,418
Net assets:
Beginning of period 1,723,317,183 1,683,608,651 342,083,264 331,442,846
--------------------------------------------------------------------
End of period $1,757,380,767 $1,723,317,183 $355,846,102 $342,083,264
====================================================================
Accumulated distributions in excess of net
investment income included in net assets
End of period $ (1,721,016) $ (851,836) $ (223,418) $ (210,542)
====================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1998 (unaudited)
and the year ended February 28, 1998
Franklin Michigan Insured Franklin Minnesota Insured Franklin Ohio Insured
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
--------------------------------------------------------------------------------------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998
--------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 29,445,725 $ 59,917,823 $ 12,995,349 $ 25,936,826 $ 19,555,486 $ 38,568,347
Net realized gain
from investments 2,176,817 10,732,851 695,572 4,596,300 744,605 5,741,354
Net unrealized appreciation
on investments 9,059,878 21,097,599 1,607,129 5,746,112 3,099,551 14,279,319
--------------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations 40,682,420 91,748,273 15,298,050 36,279,238 23,399,642 58,589,020
Distributions to
shareholders from:
Net investment income:
Class I (28,638,561) (58,492,475) (12,829,249) (25,706,309) (18,742,457) (37,331,056)
Class II (807,164) (1,211,205) (297,175) (335,992) (709,234) (963,819)
In excess of net
investment income:
Class I (162,835) (1,347,076) -- -- -- (449,596)
Class II (4,587) -- -- -- -- --
Net realized gains:
Class I (3,035,598) (12,008,053) (114,250) (3,868,308) (556,530) (3,968,675)
Class II (99,824) (284,824) (3,242) (68,525) (24,980) (134,989)
--------------------------------------------------------------------------------------------------
Total distributions
to shareholders (32,748,569) (73,343,633) (13,243,916) (29,979,134) (20,033,201) (42,848,135)
Capital share
transactions: (Note 2)
Class I 1,263,714 13,102,580 5,532,813 6,985,703 9,605,838 27,458,447
Class II 8,759,065 12,231,280 5,647,979 5,188,792 6,844,021 11,912,652
--------------------------------------------------------------------------------------------------
Total capital share transactions 10,022,779 25,333,860 11,180,792 12,174,495 16,449,859
39,371,099
Net increase in net assets 17,956,630 43,738,500 13,234,926 18,474,599 19,816,300
55,111,984
Net assets:
Beginning of period 1,175,437,471 1,131,698,971 505,445,742 486,971,143 769,257,659 714,145,675
--------------------------------------------------------------------------------------------------
End of period $1,193,394,101 $1,175,437,471 $518,680,668 $505,445,742 $789,073,959 $769,257,659
==================================================================================================
Undistributed net investment
income (accumulated
distributions in excess of
net investment income)
included in net assets
End of period $ (1,514,078) $ (1,346,656) $ 26,470 $ 157,545 $ (331,186) $ (434,981)
==================================================================================================
See notes to financial statements.
</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 Funds' investment objectives are 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 to
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.
At August 31, 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 Insured Franklin Florida Insured
Tax-Free Income Fund Tax-Free Income Fund
---------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------
Class I Shares:
Six months ended August 31, 1998
<S> <C> <C> <C> <C>
Shares sold 911,258 $ 9,774,959 1,412,960 $14,723,375
Shares issued in reinvestment of distributions 66,862 718,208 84,895 884,657
Shares redeemed (249,221) (2,672,998) (665,705) (6,937,991)
---------------------------------------------------------
Net increase 728,899 $7,820,169 832,150 $ 8,670,041
=========================================================
Year ended February 28, 1998
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
=========================================================
Franklin Insured Franklin Massachusetts
Tax-Free Income Fund Insured Tax-Free Income Fund
---------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------
Class I Shares:
Six months ended August 31, 1998
Shares sold 9,627,661 $118,116,546 1,824,086 $21,359,949
Shares issued in reinvestment of distributions 1,862,875 22,857,765 386,164 4,523,925
Shares redeemed (10,220,954) (125,419,771) (1,501,778) (17,503,806)
---------------------------------------------------------
Net increase 1,269,582 $ 15,554,540 708,472 $ 8,380,068
=========================================================
Year ended February 28, 1998
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)
=========================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold 1,291,915 $ 15,945,061 466,825 $ 5,488,037
Shares issued in reinvestment of distributions 60,203 742,828 26,780 315,082
Shares redeemed (383,067) (4,728,092) (125,036) (1,473,308)
---------------------------------------------------------
Net increase 969,051 $ 11,959,797 368,569 $ 4,329,811
=========================================================
Year ended February 28, 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
=========================================================
2. SHARES OF BENEFICIAL INTEREST (cont.)
Franklin Michigan Insured Franklin Minnesota Insured
Tax-Free Income Fund Tax-Free Income Fund
---------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------
Class I Shares:
Six months ended August 31, 1998
Shares sold 4,095,171 $ 49,845,535 2,077,241 $25,215,070
Shares issued in reinvestment of distributions 1,322,372 16,097,331 551,143 6,688,289
Shares redeemed (5,315,566) (64,679,152) (2,171,756) (26,370,546)
---------------------------------------------------------
Net increase 101,977 $ 1,263,714 456,628 $ 5,532,813
=========================================================
Year ended February 28, 1998
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
=========================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold 872,971 $ 10,692,670 502,415 $ 6,119,670
Shares issued in reinvestment of distributions 51,897 636,097 15,862 193,326
Shares redeemed (210,065) (2,569,702) (54,581) (665,017)
---------------------------------------------------------
Net increase 714,803 $ 8,759,065 463,696 $ 5,647,979
=========================================================
Year ended February 28, 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
=========================================================
</TABLE>
<TABLE>
<CAPTION>
Franklin Ohio Insured
Tax-Free Income Fund
-------------------------
Shares Amount
-------------------------
Class I Shares:
Six months ended August 31, 1998
<S> <C> <C>
Shares sold 3,521,105 $43,712,500
Shares issued in reinvestment of distributions 763,107 9,474,663
Shares redeemed (3,511,446) (43,581,325)
-------------------------
Net increase 772,766 $ 9,605,838
=========================
Year ended February 28, 1998
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
=========================
Class II Shares:
Six months ended August 31, 1998
Shares sold 680,010 $ 8,481,262
Shares issued in reinvestment of distributions 42,282 527,539
Shares redeemed (173,460) (2,164,780)
-------------------------
Net increase 548,832 $ 6,844,021
=========================
Year ended February 28, 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
=========================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/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 RateMonth-End Net Assets
-------------------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% 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 Funds' shares.
Distributors received (paid) net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the period as follows:
<TABLE>
<CAPTION>
Franklin Franklin
Franklin Arizona Franklin Florida Franklin Massachusetts Franklin Michigan Minnesota Franklin Ohio
Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
----------------------------------------------------------------------------------------------------------------------
Net commissions
<S> <C> <C> <C> <C> <C> <C> <C>
received (paid) $1,108 $5,511 $(203,195) $(61,494) $(88,688) $(55,550) $(57,865)
Contingent deferred
sales charges $-- $-- $ 20,988 $ 5,348 $ 7,474 $ 3,213 $ 6,884
</TABLE>
The Funds paid transfer agent fees of $924,587 of which $824,881 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 Arizona Franklin Florida
Insured Tax-Free Insured 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 August 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
Franklin Franklin
Franklin Arizona Franklin Florida Franklin Massachusetts Franklin Michigan Minnesota Franklin Ohio
Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
----------------------------------------------------------------------------------------------------------------------
Investments at
<S> <C> <C> <C> <C> <C> <C> <C>
cost $63,225,160 $102,478,996 $1,623,512,937 $328,058,439 $1,090,413,809 $495,238,996 $723,504,084
======================================================================================================================
Unrealized
appreciation $ 3,767,345 $ 6,958,762 $ 120,912,234 $ 24,113,616 $ 87,946,533 $ 28,712,731 $ 53,929,412
Unrealized
depreciation (8,226) -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------
Net unrealized
appreciation $ 3,759,119 $ 6,958,762 $ 120,912,234 $ 24,113,616 $ 87,946,533 $ 28,712,731 $ 53,929,412
======================================================================================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended August 31, 1998 were as follows:
<TABLE>
<CAPTION>
Franklin Franklin
Franklin Arizona Franklin Florida Franklin Massachusetts Franklin Michigan Minnesota Franklin Ohio
Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free Insured Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases $12,002,368 $10,178,664 $147,109,022 $19,981,953 $78,581,389 $41,339,658 $27,766,364
Sales $ 4,740,332 $-- $124,223,239 $10,331,508 $79,788,931 $16,490,474 $11,835,330
</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.
FRANKLIN TAX-FREE TRUST
SEMI-ANNUAL REPORT
AUGUST 30, 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 bar format the comparison between Franklin Arizona Insured
Tax-Free Income Fund's distribution rate of 4.65% and the taxable equivalent
rate of 8.12% on 8/31/98.
GRAPHIC MATERIAL (2)
This chart shows in bar format the comparison between Franklin Florida Insured
Tax-Free Income Fund's distribution rate of 4.69% and the taxable equivalent
rate of 7.76% on 8/31/98.
GRAPHIC MATERIAL (3)
This chart shows in bar format the comparison between Franklin Insured Tax-Free
Income Fund - Class I distribution rate of 4.93% and the taxable equivalent rate
of 8.16% on 8/31/98.
GRAPHIC MATERIAL (4)
This chart shows in bar format the comparison between Franklin Insured Tax-Free
Income Fund - Class II distribution rate of 4.56% and the taxable equivalent
rate of 7.55% on 8/31/98.
GRAPHIC MATERIAL (5)
This chart shows in bar format the comparison between Franklin Massachusetts
Insured Tax-Free Income Fund - Class I distribution rate of 4.78% and the
taxable equivalent rate of 8.99% on 8/31/98.
GRAPHIC MATERIAL (6)
This chart shows in bar format the comparison between Franklin Massachusetts
Insured Tax-Free Income Fund - Class II distribution rate of 4.33% and the
taxable equivalent rate of 8.15% on 8/31/98.
GRAPHIC MATERIAL (7)
This chart shows in bar format the comparison between Franklin Michigan Insured
Tax-Free Income Fund - Class I distribution rate of 4.77% and the taxable
equivalent rate of 8.26% on 8/31/98.
GRAPHIC MATERIAL (8)
This chart shows in bar format the comparison between Franklin Michigan Insured
Tax-Free Income Fund - Class II distribution rate of 4.35% and the taxable
equivalent rate of 7.53 % on 8/31/98.
GRAPHIC MATERIAL (9)
This chart shows in bar format the comparison between Franklin Michigan Insured
Tax-Free Income Fund - Class I distribution rate of 4.89% and the taxable
equivalent rate of 8.85% on 8/31/98.
GRAPHIC MATERIAL (10)
This chart shows in bar format the comparison between Franklin Minnesota Insured
Tax-Free Income Fund - Class II distribution rate of 4.48% and the taxable
equivalent rate of 8.11 % on 8/31/98.
GRAPHIC MATERIAL (11)
This chart shows in bar format the comparison between Franklin Ohio Insured
Tax-Free Income Fund - Class I distribution rate of 4.69% and the taxable
equivalent rate of 8.37% on 8/31/98.
GRAPHIC MATERIAL (12)
This chart shows in bar format the comparison between Franklin Ohio Insured
Tax-Free Income Fund - Class II distribution rate of 4.26% and the taxable
equivalent rate of 7.60 % on 8/31/98.
SEMI ANNUAL
REPORT
AUGUST 31, 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
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and 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.
CONTENTS
Shareholder Letter ........................................... 1
Special Feature:
Franklin's Municipal
Bond Department .............................................. 4
Fund Reports
Franklin Alabama
Tax-Free Income Fund ......................................... 6
Franklin Florida
Tax-Free Income Fund ......................................... 12
Franklin Georgia
Tax-Free Income Fund ......................................... 18
Franklin Kentucky
Tax-Free Income Fund ......................................... 24
Franklin Louisiana
Tax-Free Income Fund ......................................... 28
Franklin Maryland
Tax-Free Income Fund ......................................... 34
Franklin Missouri
Tax-Free Income Fund ......................................... 40
Franklin North Carolina
Tax-Free Income Fund ......................................... 46
Franklin Texas
Tax-Free Income Fund ......................................... 52
Franklin Virginia
Tax-Free Income Fund ......................................... 58
Municipal Bond Ratings ....................................... 64
Financial Highlights &
Statement of Investments ..................................... 66
Financial Statements ......................................... 114
Notes to Financial Statements ................................ 122
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's semiannual report for the
period ended August 31, 1998.
Economic Overview
In our annual report for the period ended February 28, 1998, we mentioned the
likelihood of a U.S. economic slowdown brought on, for the most part, by the
Asian financial crisis. Four months later, this came to pass. U.S. economic
growth measured by gross domestic product (GDP) gain slowed, from an extremely
strong 5.5% annual rate in the first three months of the year, to a more
moderate 1.6% annual rate in the April-June period, reflecting weak Asian demand
for goods and a business inventory buildup. A higher U.S. trade deficit
resulted, as Asian countries tried exporting their way out of their economic
turmoil, capitalizing on weakened currencies to boost their exports abroad. For
the first six months of this year, America's trade deficit was running at an
annual rate of $158 billion, far surpassing last year's imbalance of $110
billion. The largest annual deficit on record, $152 billion, was set in 1987.
Clearly, the American consumer continues to drive our economy through relatively
strong purchases of retail goods, durable goods, and new and existing homes.
Looking forward, the consumer may well dictate the direction of the U.S.
economy.
As of the end of the reporting period, Federal Reserve Board (Fed) policy-makers
opted to leave short-term interest rates unchanged. In its mid-August meeting,
the Fed's monetary policy panel, the Federal Open Market Committee, held the
benchmark rate on overnight interbank loans unchanged at 5.5%. This rate has
been frozen at 5.5% since March 1997, when policy-makers raised it a quarter
percentage point.
Competing considerations kept long-term interest rates in a relatively narrow
trading range. Although labor shortages and gradually accelerating wages
normally might call for an interest-rate increase to curb excessive domestic
growth, inflation actually remained subdued. Domestic manufacturers, faced with
a potential flood of cheaper Asian imports, were reluctant to raise prices. For
the first seven months of the year, inflation ran at a 1.5% annual rate,
according to the U.S. Labor Department.
During the reporting period, the yield on the benchmark 30-year U.S. Treasury
bond continued its downward trend and actually hit record lows. The 30-year
Treasury began the reporting period yielding 5.92% on February 28, 1998, and
ended the period yielding 5.30% on August 31, 1998. Falling yields reflected the
30-year Treasury bond's popularity, or "flight to quality," among investors
fleeing deteriorating foreign stock markets. Bond price and yield move in an
inverse relationship, so the rising price of the 30-year Treasury led to a
corresponding yield decline.
Issuers of municipal bonds took advantage of lower interest rates during the
six-month period by refinancing outstanding higher interest-rate debt.
Additionally, many municipalities were in excellent fiscal shape due to the
strong economy. In fact, credit rating upgrades exceeded downgrades by a
four-to-one ratio. As a consequence, borrowing for new projects increased, such
that the supply of new municipal bond issues in 1998 could approach record
levels. Demand did not keep pace with the increased supply, causing municipal
bonds to underperform compared with their taxable counterparts. As of the end of
the reporting period, the yields on 30-year, AAA-rated, insured municipal bonds
stood at more than 91% of the yield on a 30-year Treasury bond, which in our
opinion, creates a very attractive investment opportunity in the municipal bond
market. For those investors in the 39.6% tax bracket, the taxable equivalent
yield on a municipal bond was 8.23% versus 5.30% for the Treasury bond.*
*Source: Bloomberg, August 31, 1998.
Our investment philosophy remains disciplined and focused, as we strive to offer
our shareholders high, current tax-free income and preservation of principal.
The outlook for the municipal bond market should remain positive, given the
slowing U.S. economy, positive inflation environment, U.S. budget surplus,
strong U.S. dollar, and the economic and market uncertainty facing many of the
world's regions.
Municipal bonds continue to be an attractive investment for those investors
seeking tax-free income as well as providing an opportunity to diversify risk in
their portfolio. We encourage you to discuss your financial goals with an
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. 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
FRANKLIN'S MUNICIPAL BOND DEPARTMENT
The Municipal Bond Department Today
Franklin is currently the nation's largest tax-free fund manager. With a team of
11 portfolio managers and 22 research analysts, we manage more than $50 billion
of municipal assets in 43 funds for over 886,000 tax-free fund shareholder
accounts.
Our Investment Philosophy
The investment objective of Franklin's tax-free funds is to provide a high level
of current, tax-free income while preserving shareholders' capital. Following a
disciplined investment approach, we conduct a stringent credit analysis to
search for what we believe to be undervalued situations, and generally purchase
current coupon bonds at prices we consider favorable. We also acknowledge that
investors in general are risk-averse; therefore, we do not invest in exotic
derivatives, nor leverage or hedge our portfolios, which would increase the
funds' volatility.
Furthermore, Franklin positions its funds with a long-term investment horizon.
We purchase a major portion of our municipal bonds in the new-issue market and
incorporate a buy-and-hold strategy, attempting to reduce portfolio turnover and
thus, avoid capital gain distributions. We expect our funds to distribute a
relatively high level of tax-free income, and attempt to maximize risk-adjusted
total return performance.
Research and Analysis
Franklin has one of the industry's largest research departments. Along with the
portfolio managers, the research department's main mission is to identify the
best municipal buying opportunities.
Our analysts are recognized experts in their individual fields, who focus on
specific sectors, and not on regions. With the use of proprietary databases, our
analysts can provide fast and reliable analysis to portfolio managers about any
bond issue being considered. Each year analysts visit a number of sites to get a
perspective of our financed projects. They meet with management teams and
municipal officials to discuss newly found potential opportunities and problems.
In this industry, our municipal bond team often takes on the role of investment
bankers. Many of our competitors routinely turn away from issues they believe
unattractive; at Franklin, we pride ourselves in proposing changes to these
issues, and work to make them acceptable to our criteria. These situations
usually provide us with excellent investment return.
The ability and willingness to work with investment bankers and our reputation
for talented analysts also make us a preferred client to receive the "first
call" on issues many brokerage houses underwrite. Lastly, our research analysts
have made significant efforts to improve municipal markets. With their
involvement and leadership, they have been working with attorney and issuer
groups and industry regulators to strengthen the municipal bond industry.
FRANKLIN ALABAMA TAX-FREE INCOME FUND
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
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
State Update
Alabama's economy continued to thrive during the past six months. With a state
economy that is well-diversified among manufacturing, service and trade sectors,
Alabama has seen growth of its per capita personal income outpace the national
average, while its unemployment rate has fallen in recent years to 4.8%, the
lowest level in the 1990s.2
Several economic measures that have gradually been put into effect, including a
competitive business tax structure, lenient financing terms and exposure to
international trade markets, have helped Alabama become a significant player in
the Southeast, the country's fastest-growing economic region.
The state historically has used a conservative fiscal and economic approach when
issuing new debt, and therefore, has obtained a creditworthy rating of Aa3 from
Moody's Investors Service, a national credit rating agency.3
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Standard & Poor's(R) CreditWeek Municipal, 4/20/98.
3. This does not indicate Moody's rating of the fund.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 67 of
this report.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Notes
The fund continued its strategy of investing for tax-free income and capital
preservation. This was challenging at times, in light of the lower interest-rate
environment, which put some pressure on the fund's overall income earnings. One
strategy employed during the reporting period was to purchase bonds with better
original issue discount (OID) than those we sold, which can provide some
protection in a down market.
Since we have been in a low interest-rate environment, it was difficult for the
fund to generate enough capital losses to offset the gains realized from bond
sales. Thus, the fund made a distribution of 1.43 cents per share in long-term
capital gains and 0.14 cents per share in short-term capital gains, in June.
During the reporting period, we focused on well-structured bonds across most
sectors. Municipal bond supply remained robust, increasing from 1997 levels and
providing substantial buying opportunities. Recently, we purchased Alexander
City, AL General Obligation Bonds; Fairfield, AL Industrial Development for USX
Corporation Revenue Bonds and Baldwin Co. AL Eastern Shore Health Care for
Thomas Hospital Revenue Bonds.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class I
Franklin Alabama Tax-Free Income Fund - Class I share price, as measured by net
asset value, decreased 20 cents, from $11.98 on February 28, 1998, to $11.78 on
August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 31.8 cents
($0.318), 1.43 cents ($0.0143) in long-term capital gains and 0.14 cents
($0.0014) in short-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the fund's
portfolio. 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 $12.30 on August 31, 1998, your
fund's distribution rate was 5.07%. 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 8.84% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Alabama Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 6.04% 32.76% 113.63% 129.31%
Average Annual Total Return2 1.57% 4.91% 7.42% 7.41%
Distribution Rate3 5.07%
Taxable Equivalent Distribution Rate4 8.84%
30-Day Standardized Yield5 4.35%
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. 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.
3. Distribution rate is based on an annualization of the current 5.2 cent per
share monthly dividend and the maximum offering price of $12.30 on August 31,
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 August 31, 1998.
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 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 5 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, decreased 20 cents, from $12.04 on February 28, 1998, to $11.84 on
August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 28.43 cents
($0.2843), 1.43 cents ($0.0143) in long-term capital gains and 0.14 cents
($0.0014) in short-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the fund's
portfolio. 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 $11.96 on August 31, 1998,
your fund's distribution rate was 4.66%. 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 8.12% from a taxable investment to match the fund's
tax-free distribution rate.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Alabama Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 5.50% 20.17% 24.00%
Average Annual Total Return2 3.46% 5.95% 6.35%
Distribution Rate3 4.66%
Taxable Equivalent Distribution Rate4 8.12%
30-Day Standardized Yield5 3.95%
Taxable Equivalent Yield4 6.88%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.64 cent per
share monthly dividend and the offering price of $11.96 on August 31, 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 August 31, 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 7 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
Florida saw moderate growth through the first part of 1998 by taking a
"double-barreled" approach to its economy. Demonstrating a strong track record
for budget control and fiscal management, and by diversifying its economy
throughout multiple sectors, Florida slashed its unemployment rate from 8.2% to
4.8% in only five years.2
As a result of these impressive budget constraints and general revenue
performance, the state was also able to end its fiscal 1997 with a combined
reserve of more than $1 billion and maintained its AA+ rating from Standard &
Poor's, a national credit rating agency. State debt levels remain manageable,
and proposed fiscal 1999 spending is slightly below 1997 levels, with the focus
on public education and infrastructure.2
The outlook is bright for Florida, as per capita personal income continues to
keep pace with the U.S. national average.
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, 4/6/98.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 71 of
this report.
Portfolio Notes
The fund continued its strategy of investing for tax-free income and capital
preservation. This was challenging at times, in light of the lower interest-rate
environment, which put some pressure on the fund's overall income earnings. One
strategy employed during the reporting period was to purchase bonds with better
original issue discount (OID) than those we sold, which can provide some
protection in a down market. At the end of April, Franklin Florida Tax-Free
Income Fund sold bonds with lower OIDs, took a tax loss and replaced them with
bonds having greater OIDs. In this scenario, the fund executed some trades
without giving up the issues' yields and, in some cases, even improved them.
Please keep in mind that the fund can distribute only what it earns, so dividend
distributions may decrease in the future, if interest rates remain at current
levels or move lower.
With competition increasing among the municipal bond insurers, it was economical
for issuers to purchase insurance to enhance their credit quality. During the
reporting period, a majority of the issuance came to the market with insurance.
Therefore, we bought insured issues, and on August 31, 1998, the fund held 66.3%
of total long-term investments in AAA-rated securities, as shown in the chart to
the left. Among the fund's new purchases during the six-month reporting period
were Orange County Tourist Development Tax revenue bond; Port St. Lucie, FL
Utility revenue bond and Hillsborough County, FL School Board certificate of
participation.
The fund's underlying bonds increased in market value during the six-month
period, contributing to a 3% rise in total net assets, from $1,706 million to
approximately $1,761 million, thus providing shareholders a more diversified and
stable asset base. We believe the fund's performance is largely a tribute to
Franklin's income-oriented approach. We will continue to manage the fund with
the intention of protecting its share value and maintaining its competitive
yield. Going forward, we anticipate further economic growth in Florida, rather
mild inflation and relatively stable interest rates. Under such circumstances,
we believe the fund is positioned for strong performance.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
PERFORMANCE SUMMARY
Class I
Franklin Florida Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased seven cents, from $11.87 on February 28, 1998, to $11.94
on August 31, 1998. During the six-month reporting period, shareholders received
income distributions totaling 31.2 cents ($0.312) 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 $12.47 on August 31, 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 federal income tax bracket would need to earn 8.28% from
a taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Florida Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 8.06% 34.67% 118.45% 138.31%
Average Annual Total Return2 3.44% 5.21% 7.66% 7.78%
Distribution Rate3 5.00%
Taxable Equivalent Distribution Rate4 8.28%
30-Day Standardized Yield5 4.11%
Taxable Equivalent Yield4 6.80%
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. 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.
3. Distribution rate is based on an annualization of the current 5.2 cent per
share monthly dividend and the maximum offering price of $12.47 on August 31,
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 August 31, 1998.
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 11 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 eight cents, from $11.96 on February 28, 1998, to $12.04
on August 31, 1998. During the six-month reporting period, shareholders received
income distributions totaling 27.88 cents ($0.2788) 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) and the maximum offering price of $12.16 on August 31, 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.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Florida Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 7.57% 20.87% 25.47%
Average Annual Total Return2 5.49% 6.16% 6.73%
Distribution Rate3 4.59%
Taxable Equivalent Distribution Rate4 7.60%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.65 cent per
share monthly dividend and the offering price of $12.16 on August 31, 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 August 31, 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 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 13 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
Georgia's once agriculturally dependent economy has slowly branched out to
encompass manufacturing, trade, health services and transportation. A solid
infrastructure, strength in regional job markets and a population growing at
twice the national average have contributed to the state's economic diversity.2
Even though fiscal growth has slowed since the 1996 Summer Olympics, financial
operations remain healthy, with personal income tax revenues surpassing
estimates. As a result of increasing revenue, the state cut the sales tax on
food, as well as maintained its budget reserves.
Georgia has continued to take a conservative approach when managing its
financial operations, and thus has maintained its AAA rating from Standard &
Poor's, a national credit rating agency.3
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Fitch IBCA, 7/7/98.
3. This does not indicate Standard & Poor's rating for the fund.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 80 of
this report.
Portfolio Notes
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. This increased the number of
prerefunded bonds in the fund's portfolio. When a bond is prerefunded, a new
issue is brought to market with a lower interest rate to pay off the older issue
at its first call date. In most cases, the proceeds from the sale of the new
bonds are invested in U.S. Treasury securities that mature on the first call
date of the original bonds. Because of the U.S. Treasury backing, prerefunded
bonds usually offer a substantial price increase -- depending on their call
date.
Our philosophy on prerefunded bonds has not changed. Generally, we look to sell
prerefunded bonds as they approach five years to their call date. At this point,
the premium on prerefunded bonds often begins to decline rapidly to the stated
call price. Proceeds from the sale of prerefunded bonds were generally used to
purchase current coupon bonds, at a slight discount, that offered call
protection of approximately 10 years. Such bonds should perform well through
various market cycles. However, because of the low interest-rate environment, it
was difficult for the fund to generate enough capital losses to offset the gains
realized from the prerefunded bond sales. Thus, the fund made a long-term
capital gain distribution of 1.49 cents per share in June.
We maintained the fund's investment strategy, seeking to provide high, tax-free
income, while preserving stability of share value. The fund employs a
buy-and-hold strategy, so turnover in the portfolio over the six-month reporting
period has been very low at 7.14%. The fund purchased bonds in many different
sectors, helping to maintain its diversification. Some of the purchases included
Atlanta Water & Sewer Authority, Upper Oconee Basin Water Authority, Emory
University and Douglas County Housing Authority.
Going forward, our outlook for the fund, the state economy and the municipal
market in general remains positive. We expect the supply in Georgia to be stable
over the next six months, and with a strong demand for Georgia municipal bonds,
the state should continue to be an attractive investment.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 15 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 four cents, from $12.12 on February 28, 1998, to $12.16
on August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 31.2 cents
($0.312) and 1.49 cents ($0.0149) in long-term capital gains. Distributions will
vary based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. 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 $12.70 on August 31, 1998, your
fund's distribution rate was 4.82%. 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 Georgia state personal income tax
bracket would need to earn 8.49% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Georgia Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 7.53% 32.51% 116.01% 131.48%
Average Annual Total Return2 2.96% 4.87% 7.54% 7.50%
Distribution Rate3 4.82%
Taxable Equivalent Distribution Rate4 8.49%
30-Day Standardized Yield5 4.02%
Taxable Equivalent Yield4 7.08%
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. 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.
3. Distribution rate is based on an annualization of the current 5.1 cent per
share monthly dividend and the maximum offering price of $12.70 on August 31,
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 August 31, 1998.
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 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 17 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 four cents, from $12.19 on February 28, 1998, to $12.23
on August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 27.82 cents
($0.2782) and 1.49 cents ($0.0149) in long-term capital gains. Distributions
will vary based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. Past distributions are not predictive of
future trends.
Based on an annualization of the current monthly per-share dividend of 4.54
cents ($0.0454) and the maximum offering price of $12.35 on August 31, 1998,
your fund's distribution rate was 4.41%. 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 Georgia state personal income tax
bracket would need to earn 7.77% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Georgia Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 6.97% 20.05% 24.04%
Average Annual Total Return2 4.92% 5.92% 6.34%
Distribution Rate3 4.41%
Taxable Equivalent Distribution Rate4 7.77%
30-Day Standardized Yield5 3.62%
Taxable Equivalent Yield4 6.38%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.54 cent per
share monthly dividend and the offering price of $12.35 on August 31, 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 August 31, 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 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 19 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
Like a horse galloping away from the pack, Kentucky is emerging as a preeminent
economic leader in the eastern region of the U.S. Recently assigned an AA credit
rating by Standard & Poor's, a national credit rating agency, Kentucky's
steadily growing economic base has outperformed the nation in annual growth
since 1990.2
Over 25% of the Fortune 500 companies including DuPont, General Motors, General
Electric, Texas Instruments and International Business Machines have production
facilities in Kentucky.3 Combine this extensive list with strategic market
location, relatively low operating costs and a diverse work force, and Kentucky
could continue to outpace other economies.
The state still faces challenges, as debt issuance is large; however, we expect
Kentucky's economic outlook to 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, 7/14/97. This does not
indicate Standard & Poor's rating of the fund.
3. Source: www.state.ky.us, "Kentucky's Business Climate," 2/96. The most recent
data available.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 84 of
this report.
Portfolio Notes
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. This increased the number of
prerefunded bonds in the fund's portfolio. When a bond is prerefunded, a new
issue is brought to market with a lower interest rate to pay off the older issue
at its first call date. In most cases, the proceeds from the sale of the new
bonds are invested in U.S. Treasury securities that mature on the first call
date of the original bonds. Because of the U.S. Treasury backing, prerefunded
bonds usually offer a substantial price increase.
Our philosophy on prerefunded bonds has not changed. Generally, we look to sell
prerefunded bonds as they approach five years to their call date. At this point,
the premium on prerefunded bonds often begins to decline rapidly to the stated
call price. Proceeds from the sale of prerefunded bonds were generally used to
purchase, at a slight discount, current coupon bonds offering call protection of
approximately 10 years. Such bonds should perform well through various market
cycles.
The fund's investment strategy remains unchanged, as we seek to produce high,
tax-free income, while maintaining stability of share value. The fund employs a
buy-and-hold strategy, so turnover in the portfolio over the six-month reporting
period has been very low at 7.5%. The fund purchased bonds in many different
sectors, helping to maintain its diversification. Some of the purchases included
Louisville Airport Authority, Russellville Housing Authority, Kentucky Economic
Development Authority for Catholic Hospitals and Louisville and Jefferson County
Metropolitan Sewer District.
Going forward, our outlook for the fund, the state economy and the municipal
market in general remains positive. We expect the supply in Kentucky to remain
stable over the next six months and with a strong demand for Kentucky municipal
bonds, the state should remain an attractive investment.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 21 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 10 cents, from $11.45 on February 28, 1998, to $11.55 on August
31, 1998. During the six-month reporting period, shareholders received income
distributions totaling 30 cents ($0.30) 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 5.0 cents
($0.05) and the maximum offering price of $12.06 on August 31, 1998, your fund's
distribution rate was 4.98%. 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 Kentucky state personal income tax bracket
would need to earn 8.77% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin Kentucky Tax-Free Income Fund
Periods ended 8/31/98
Since
Inception
1-Year 5-Year (10/12/91)
Cumulative Total Return1 8.84% 35.13% 67.85%
Average Annual Total Return2 4.19% 5.29% 7.13%
Distribution Rate3 4.98%
Taxable Equivalent Distribution Rate4 8.77%
30-Day Standardized Yield5 4.50%
Taxable Equivalent Yield4 7.92%
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. 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.
3. Distribution rate is based on an annualization of the current 5.0 cent per
share monthly dividend and the maximum offering price of $12.06 on August 31,
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 August 31, 1998.
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 4.06%. 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 22 OMITTED - SEE APPENDIX AT END OF DOCUMENT
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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
With an economy that is largely dependent on the production of chemicals,
minerals, oil and natural gas, Louisiana has seen slow but steady growth during
the 1990s. Therefore, the state has maintained its A- credit rating from
Standard & Poor's, a national credit rating agency.2 Recent oil price declines
have not negatively affected the state's finances; however, continued downward
pricing pressure could pose some risk.
Louisiana has taken positive steps to bolster its economy by improving its debt
position, stabilizing its budget requirements and controlling its aggressive
Medicaid program. In addition, service sector growth coupled with technological
advances in natural resource production could spur growth rates.
Our outlook for Louisiana remains positive, as we believe the policies are in
place to give the state a competitive edge in the region.
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 will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 87 of
this report.
Portfolio Notes
The relatively light supply of Louisiana bonds in the market created demand for
outstanding bonds, driving the fund's performance. We believe Franklin's size
and position in the municipal bond market helped give Franklin Louisiana
Tax-Free Income Fund a competitive advantage in locating issues coming to market
and negotiating with issuers.
Insurance dominated the market during the reporting period, with more than 60%
of new issues coming insured. The higher penetration of insurance along with a
limited supply of new, lower-rated issues led to a reduced difference in prices
between higher- and lower-grade issues. Consequently, purchases for the fund
were concentrated in higher quality, public purpose issues such as education,
hospital and direct revenue utility bonds. Recently we added Louisiana State
University revenue bonds and Pendleton Memorial Hospital revenue bonds to the
fund, and at the close of the reporting period, 66.8% of the fund's total
long-term investments were rated AAA.
The market appeared to be moving sideways during the reporting period, trading
in a narrow range, with only small changes up or down. However, our disciplined,
dollar cost averaging approach enabled the fund to purchase on the downswings.
At the same time, the challenge of maintaining current dividend levels
increased, as the lower interest-rate environment reduced available yields for
Louisiana municipal bonds. Despite the lower income earnings, we believe
Franklin Louisiana Tax-Free Income Fund remains a competitive investment choice
for tax-conscious investors.
The fund's underlying bonds increased in market value during the six-month
period, contributing to an 11.86% rise in total net assets, from $139.3 million
to approximately $155.9 million, thus providing shareholders a more diversified
and stable asset base. We believe the fund's performance is largely a result of
Franklin's income-oriented approach. We will continue to manage the fund with
the intention of protecting its share value and maintaining its competitive
yield. Going forward, we anticipate further economic growth in Louisiana, rather
mild inflation and relatively stable interest rates. Under such circumstances,
we believe the fund is positioned for strong performance.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
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GRAPHIC MATERIAL 25 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 four cents, from $11.61 on February 28, 1998, to
$11.65 on August 31, 1998. During the six-month reporting period, shareholders
received income distributions totaling 31.2 cents ($0.312) 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) and the maximum offering price of $12.17 on August 31, 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 combined federal and Louisiana state personal income tax
bracket would need to earn 8.86% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Louisiana Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 7.84% 32.34% 116.25% 130.83%
Average Annual Total Return2 3.22% 4.85% 7.55% 7.47%
Distribution Rate3 5.03%
Taxable Equivalent Distribution Rate4 8.86%
30-Day Standardized Yield5 4.28%
Taxable Equivalent Yield4 7.54%
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. 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.
3. Distribution rate is based on an annualization of the current 5.1 cent per
share monthly dividend and the maximum offering price of $12.17 on August 31,
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 August 31, 1998.
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 26 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 27 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 four cents, from $11.68 on February 28, 1998, to
$11.72 on August 31, 1998. During the six-month reporting period, shareholders
received income distributions totaling 27.88 cents ($0.2788) 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 4.54
cents ($0.0454) and the maximum offering price of $11.84 on August 31, 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 combined federal and Louisiana state personal income tax
bracket would need to earn 8.10% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Louisiana Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 7.19% 21.68% 25.79%
Average Annual Total Return2 5.09% 6.41% 6.80%
Distribution Rate3 4.60%
Taxable Equivalent Distribution Rate4 8.10%
30-Day Standardized Yield5 3.87%
Taxable Equivalent Yield4 6.82%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.54 cent per
share monthly dividend and the maximum offering price of $11.84 on August 31,
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 August 31, 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 28 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 29 OMITTED - SEE APPENDIX AT END OF DOCUMENT
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
The national credit rating agency Standard & Poor's gave Maryland its AAA
rating, which reflects the state's broad-based and growing economy, high income
levels and historically sound fiscal responsibility. In addition, Maryland
appears to have recovered from its earlier recession, reducing its unemployment
rate from a record high of 6.7% in 1992, to a recent level of 5.1%. 2
The service (32.5%), trade (24.0%) and government (19.1%) sectors are the
primary drivers of Maryland's overall economy.2 While this represents three
distinct branches, Maryland's reliance on federal government employment makes it
especially sensitive to federal budget cuts.
By continuing its prudent fiscal management, sensible debt administration and
strong economic revival, we believe Maryland should maintain its superior credit
rating.
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. This does not
indicate Standard & Poor's rating of the fund.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 91 of
this report.
Portfolio Notes
During the reporting period, prerefunding was still prevalent in the municipal
bond market. Many issuers, seeking to take advantage of the current, lower
interest-rate environment, sold bonds at lower interest rates and used the
proceeds to pay off the higher interest-bearing bonds at their first call date.
Until that date, these proceeds are generally invested in U.S. Treasury
securities. Because of the U.S. Treasury backing, prerefunded bonds usually have
a substantial increase in price.
When bonds become prerefunded, we look to sell them as they approach five years
to their call date and replace them with bonds with better call protection. This
strategy should extend the fund's income-earning potential and help protect the
share value. Since we have been in a relatively low interest-rate environment
over the past few years, the fund has been unable to generate enough capital
losses to offset the gains realized from selling the prerefunded bonds.
Consequently, we made a long-term capital gain distribution of 1.43 cents per
share in June.
The supply of Maryland municipal bonds continues to be comparatively light;
thus, Maryland issuances tended to trade at lower interest rates versus the
average for other state bonds. The fund concentrated on purchasing primarily
current coupon bonds that offer call protection of approximately 10 years. New
purchases for the fund during the reporting period included Chesapeake Hospital
revenue bonds, Anne Arundel Hospital revenue bonds and Prince Georges County, MD
general obligation bonds.
The lower interest-rate environment will continue to put some pressure on the
overall income earnings of the fund. Please keep in mind that the fund can
distribute only what it earns, so the fund's dividend distributions may decrease
in the future, if interest rates remain at current levels or move lower. It is
important to note that we have not changed our philosophy of investing for
income and stability of share value. We believe the fund should perform
favorably when compared with other fixed-income investment alternatives.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
GRAPHIC MATERIAL 30 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 31 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 nine cents, from $11.64 on February 28, 1998, to $11.73
on August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 29.4 cents
($0.294) and 1.43 cents ($0.0143) in long-term capital gains. Distributions will
vary based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. 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 $12.25 on August 31, 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 Maryland state and local personal
income tax bracket would need to earn 8.59% from a taxable investment to match
the fund's tax-free distribution rate.
Franklin Maryland Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year (10/3/88)
Cumulative Total Return1 8.14% 34.79% 107.93%
Average Annual Total Return2 3.52% 5.23% 7.20%
Distribution Rate3 4.80%
Taxable Equivalent Distribution Rate4 8.59%
30-Day Standardized Yield5 4.06%
Taxable Equivalent Yield4 7.26%
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. 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.
3. Distribution rate is based on an annualization of the current 4.9 cent per
share monthly dividend and the maximum offering price of $12.25 on August 31,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Maryland state and local 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 August 31, 1998.
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 32 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 33 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 10 cents, from $11.72 on February 28, 1998, to $11.82
on August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 26.15 cents
($0.2615) and 1.43 cents ($0.0143) in long-term capital gains. Distributions
will vary based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. Past distributions are not predictive of
future trends.
Based on an annualization of the current monthly per-share dividend of 4.36
cents ($0.0436) and the maximum offering price of $11.94 on August 31, 1998,
your fund's distribution rate was 4.38%. 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 Maryland state and local personal
income tax bracket would need to earn 7.84% from a taxable investment to match
the fund's tax-free distribution rate.
Franklin Maryland Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 7.56% 21.43% 26.81%
Average Annual Total Return2 5.46% 6.34% 7.06%
Distribution Rate3 4.38%
Taxable Equivalent Distribution Rate4 7.84%
30-Day Standardized Yield5 3.66%
Taxable Equivalent Yield4 6.55%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.36 cent per
share monthly dividend and the maximum offering price of $11.94 on August 31,
1998.
4. Taxable equivalent distribution rate and yield assume the 1998 maximum
combined federal and Maryland state and local 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 August 31, 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 34 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 35 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
With a diverse economic base that mirrors the performance of the U.S., Missouri
is well positioned to take on the future. Standard & Poor's, a national credit
rating agency, has maintained their AAA rating for the state based upon its
continued low debt burdens, diversified economic base and sound financial
practices.2
An expanding service sector, strong manufacturing facilities and a robust
infrastructure have contributed to historically low unemployment levels.
Missouri's central location, bordering eight states, has led to modern
production facilities on the Mississippi and Missouri Rivers, as well as
increased export activity.
Because of its very conservative approach to debt, as well as its track record
of well-managed financial operations, the outlook for Missouri remains bright.
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 will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 95 of
this report.
Portfolio Notes
The fund continued its strategy of investing for high, current tax-free income
and capital preservation. This was challenging at times, in light of the lower
interest-rate environment, which put some pressure on the fund's overall income
earnings. One strategy employed during the reporting period was to purchase
bonds with better original issue discount (OID) than those we sold, which can
provide some protection in a down market. In addition, Franklin Missouri
Tax-Free Income Fund continued to sell prerefunded bonds and reinvest in
well-structured bonds across many sectors. In doing so, the fund improved its
overall call protection.
However, since we have been in a low interest-rate environment, it was difficult
for the fund to generate enough capital losses to offset the gains realized from
bond sales. Thus, the fund made a long-term capital gain distribution of 3.1
cents per share in June.
During the reporting period, Missouri's municipal bond supply was strong
compared with the same period last year. We found several attractive revenue
bond purchases including Lake of the Ozarks Community Bridge, St. Charles County
Multifamily Housing and Missouri State Health & Education Facilities -
Children's Mercy Hospital.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
GRAPHIC MATERIAL 36 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 37 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 one cent, from $12.23 on February 28, 1998, to $12.24 on
August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 31.2 cents
($0.312) and 3.1 cents ($0.031) in long-term capital gains. Distributions will
vary based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. 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 $12.78 on August 31, 1998, your
fund's distribution rate was 4.88%. 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 8.60% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Missouri Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 8.38% 35.19% 121.12% 135.27%
Average Annual Total Return2 3.78% 5.30% 7.79% 7.66%
Distribution Rate3 4.88%
Taxable Equivalent Distribution Rate4 8.60%
30-Day Standardized Yield5 4.14%
Taxable Equivalent Yield4 7.29%
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. 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.
3. Distribution rate is based on an annualization of the current 5.2 cent per
share monthly dividend and the maximum offering price of $12.78 on August 31,
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 August 31, 1998.
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 38 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 39 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 two cents, from $12.27 on February 28, 1998, to
$12.29 on August 31, 1998. During the six-month reporting period, shareholders
received per-share distributions consisting of dividend income totaling 27.79
cents ($0.2779) and 3.1 cents ($0.031) in long-term capital gains. Distributions
will vary based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. 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 $12.41 on August 31, 1998,
your fund's distribution rate was 4.47%. 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 7.87% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Missouri Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 7.83% 22.39% 26.74%
Average Annual Total Return2 5.77% 6.60% 7.03%
Distribution Rate3 4.47%
Taxable Equivalent Distribution Rate4 7.87%
30-Day Standardized Yield5 3.73%
Taxable Equivalent Yield4 6.57%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.62 cent per
share monthly dividend and the maximum offering price of $12.41 on August 31,
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 August 31, 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.
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GRAPHIC MATERIAL 41 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
North Carolina's transition from a textile, apparel and manufacturing-based
economy to one more focused on trade, financial services and construction has
helped spur a 27% rise in personal income levels and a 39% decline in
unemployment, since 1992.2
Strong growth, relatively modest debt levels and a conservative fiscal policy,
have led Standard and Poor's, a national credit rating agency, to award North
Carolina an AAA rating.2 Although voters recently approved a $2.75 billion bond
authorization to fund infrastructure rebuilding, per-capita debt levels remain
moderately low.
We expect North Carolina to maintain its impressive fiscal and budgetary
policies 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. Source: Standard & Poor's CreditWeek Municipal, 3/30/98. This does not
indicate Standard & Poor's rating of the fund.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 100 of
this report.
Portfolio Notes
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. This increased the number of
prerefunded bonds in the fund's portfolio. When a bond is prerefunded, a new
issue is brought to market with a lower interest rate to pay off the older issue
at its first call date. In most cases, the proceeds from the sale of the new
bonds are invested in U.S. Treasury securities that mature on the first call
date of the original bonds. Because of the U.S. Treasury backing, prerefunded
bonds usually offer a substantial price increase.
Our philosophy on prerefunded bonds has not changed. Generally, we look to sell
prerefunded bonds as they approach five years to their call date. At this point,
the premium on prerefunded bonds often begins to decline rapidly to the stated
call price. Proceeds from the sale of prerefunded bonds were generally used to
purchase, at a slight discount, current coupon bonds offering call protection of
approximately 10 years. Such bonds should perform well through various market
cycles.
We maintain our investment strategy, seeking to provide high, current tax-free
income, while preserving relative stability of share value. The fund employs a
buy-and-hold strategy, so turnover in the portfolio over the six-month reporting
period has been very low at 5.06%. The fund purchased bonds in many different
sectors, helping to maintain its diversification. Some of the purchases included
North Carolina Housing Authority, Appalachian State University, Concord Utility
Authority and North Carolina Medical Care Facilities for Catholic Health Care.
Going forward, our outlook for the fund, the state economy and the municipal
bond market in general remains positive. We expect the supply in North Carolina
to be stable over the next six months, and with a strong demand for North
Carolina municipal bonds, the state should continue to be an attractive
investment.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
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PERFORMANCE SUMMARY
Class I
Franklin North Carolina Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased nine cents, from $12.11 on February 28, 1998, to
$12.20 on August 31, 1998. During the six-month reporting period, shareholders
received income distributions totaling 30.6 cents ($0.306) 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) and the maximum offering price of $12.74 on August 31, 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 North Carolina state personal
income tax bracket would need to earn 8.61% from a taxable investment to match
the fund's tax-free distribution rate.
Franklin North Carolina Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 8.29% 32.63% 115.91% 133.36%
Average Annual Total Return2 3.66% 4.89% 7.53% 7.58%
Distribution Rate3 4.80%
Taxable Equivalent Distribution Rate4 8.61%
30-Day Standardized Yield5 4.06%
Taxable Equivalent Yield4 7.29%
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. 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.
3. Distribution rate is based on an annualization of the current 5.1 cent per
share monthly dividend and the maximum offering price of $12.74 on August 31,
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 August 31, 1998.
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.
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Class II
Franklin North Carolina Tax-Free Income Fund - Class II share price, as measured
by net asset value, increased 10 cents, from $12.18 on February 28, 1998, to
$12.28 on August 31, 1998. During the six-month reporting period, shareholders
received income distributions totaling 27.16 cents ($0.2716) 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 4.58
cents ($0.0458) and the maximum offering price of $12.40 on August 31, 1998,
your fund's distribution rate was 4.43%. 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 7.95% from a taxable investment to match
the fund's tax-free distribution rate.
Franklin North Carolina Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 7.82% 21.83% 25.91%
Average Annual Total Return2 5.75% 6.44% 6.81%
Distribution Rate3 4.43%
Taxable Equivalent Distribution Rate4 7.95%
30-Day Standardized Yield5 3.65%
Taxable Equivalent Yield4 6.55%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.58 cent per
share monthly dividend and the maximum offering price of $12.40 on August 31,
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 August 31, 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.
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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
By shifting its predominantly natural resource- and agriculture-based economy to
one diversified into services, technology and construction, Texas has become the
nation's second most populous state, experiencing an estimated 88% increase in
housing starts since 1992.2
Texas has remained fiscally stable throughout this "population boom" by
sustaining relatively low debt ratios and introducing aggressive budget
management. However, the state relies heavily on sales tax as a main source of
revenue, which could pose some risk if the economy stalls.
With its conservative debt policies, strong financial structure and diversifying
economy, we expect Texas to sustain its impressive growth trends 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. Source: Standard & Poor's CreditWeek Municipal, 6/15/98.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 105 of
this report.
Portfolio Notes
Insurance dominated the market during the reporting period, with over 60% of new
issues coming insured. The higher penetration of insurance along with a limited
supply of new, lower-rated issues led to a reduced difference in prices between
higher and lower-grade issues. Consequently, we concentrated purchases for
Franklin Texas Tax-Free Income Fund in higher-quality, public-purpose issues
such as hospital, general obligation and direct revenue utility bonds. More than
54% of the fund's total long-term investments are rated AAA, with recent
additions including Socorro Independent School District and Gulf Coast Water
revenue bonds.
The market appeared to be moving sideways during the reporting period, trading
in a narrow range, with only small changes up or down. However, our disciplined,
dollar cost averaging approach enabled the fund to purchase on the downswings.
At the same time, the challenge of maintaining current dividend levels
increased, as the lower interest-rate environment reduced available yields for
Texas bonds. Furthermore, because of the low interest-rate environment, it was
difficult for the fund to generate enough capital losses to offset the gains
realized from bond sales. Thus, in June the fund made a distribution of 14.57
cents per share in long-term capital gains and 0.43 cents per share in
short-term capital gains.
In our opinion, the fund's performance is largely a result of Franklin's
income-oriented approach. We will continue to manage the fund with the intention
of protecting its share value and maintaining its competitive yield. Going
forward, we anticipate further economic growth in Texas, rather mild inflation
and relatively stable interest rates. Under such circumstances, we believe the
fund is positioned for strong performance.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
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PERFORMANCE SUMMARY
Class I
Franklin Texas Tax-Free Income Fund - Class I share price, as measured by net
asset value, decreased 11 cents, from $11.68 on February 28, 1998, to $11.57 on
August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 30.3 cents
($0.303), 14.57 cents ($0.1457) in long-term capital gains and 0.43 cents
($0.0043) in short-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the fund's
portfolio. Past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.0 cents
($0.05) and the maximum offering price of $12.08 on August 31, 1998, your fund's
distribution rate was 4.97%. 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 8.23% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Texas Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 8.17% 35.28% 119.21% 136.88%
Average Annual Total Return2 3.55% 5.32% 7.69% 7.72%
Distribution Rate3 4.97%
Taxable Equivalent Distribution Rate4 8.23%
30-Day Standardized Yield5 4.08%
Taxable Equivalent Yield4 6.75%
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. 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.
3. Distribution rate is based on an annualization of the current 5.0 cent per
share monthly dividend and the maximum offering price of $12.08 on August 31,
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 August 31, 1998.
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 50 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 51 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, decreased 10 cents, from $11.81 on February 28, 1998, to $11.71 on
August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 26.89 cents
($0.2689), 14.57 cents ($0.1457) in long-term capital gains and 0.43 cents
($0.0043) in short-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the fund's
portfolio. 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) and the maximum offering price of $11.83 on August 31, 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 federal income tax bracket would have to earn 7.45% from
a taxable investment to match the fund's tax-free distribution rate.
Franklin Texas Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 7.65% 22.14% 26.91%
Average Annual Total Return2 5.55% 6.53% 7.09%
Distribution Rate3 4.50%
Taxable Equivalent Distribution Rate4 7.45%
30-Day Standardized Yield5 3.67%
Taxable Equivalent Yield4 6.08%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.44 cent per
share monthly dividend and the maximum offering price of $11.83 on August 31,
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 August 31, 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 52 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 53 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
Virginia's historically low debt levels and well-managed finances are just two
of the factors that have contributed to its AAA rating by Standard & Poor's, a
national credit rating agency.2 In addition, strong economic performance during
the reporting period produced revenue increases in excess of budgeted
projections.
Virginia's proximity to the nation's capital led to fiscal reliance on
government employment; however, through continued diversification in the service
and trade sectors, the commonwealth has minimized the risks of fallout from
federal cutbacks. In fact, overall job growth is up an impressive 2.8% from last
year, causing unemployment levels to reach a 29-year low.3
Because of Virginia's ability to administer conservative fiscal policies and
smoothly transition to a more diversified workforce, we expect the
commonwealth's economic outlook to 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. This does not indicate Standard & Poor's rating of the fund.
3. Source: Moody's Investors Service, 5/26/98.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 109 of
this report.
Portfolio Notes
The fund continued its strategy of investing for tax-free income and capital
preservation. This was challenging at times, in light of the lower interest-rate
environment, which put some pressure on the fund's overall income earnings. One
strategy employed during the reporting period was to purchase bonds with better
original issue discount (OID) than those we sold, which can provide some
protection in a down market. At the end of April, Franklin Virginia Tax-Free
Income Fund sold bonds with lower OIDs, took a tax loss and replaced them with
bonds having greater OIDs. In this scenario, the fund executed some trades
without giving up the issues' yields and, in some cases, even improved them.
Recent purchases include Spotsylvania County VA Water and Sewer System revenue
bond, Medical College VA Hospital Authority revenue bond and Abingdon VA IDA
Hospital revenue bond for Johnston Memorial Hospital.
As in the previous reporting period, many issuers sought to take advantage of
the recent, lower interest-rate environment by issuing bonds at the lower rate,
and advance refunding the higher interest-bearing bonds. These advance refunded
bonds are callable at their first call date for a stated price, and are backed
with U.S. Treasury securities. In such a market, the portfolio's prerefunded
bonds increased to 13.6% on August 31, 1998, from 9.1% on February 28, 1998.
Furthermore, because of the recent interest-rate environment, it was difficult
for the fund to generate enough capital losses to offset the gains realized from
bond sales. Thus, the fund made a long-term capital gain distribution of 1.79
cents per share in June.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
GRAPHIC MATERIAL 54 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 55 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 seven cents, from $11.88 on February 28, 1998, to $11.95
on August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 30.6 cents
($0.306) and 1.79 cents ($0.0179) in long-term capital gains. Distributions will
vary based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. 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) and the maximum offering price of $12.48 on August 31, 1998, your
fund's distribution rate was 4.81%. 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 8.45% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Virginia Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
Cumulative Total Return1 8.48% 34.01% 117.84% 134.67%
Average Annual Total Return2 3.86% 5.11% 7.63% 7.63%
Distribution Rate3 4.81%
Taxable Equivalent Distribution Rate4 8.45%
30-Day Standardized Yield5 4.10%
Taxable Equivalent Yield4 7.20%
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. 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.
3. Distribution rate is based on an annualization of the current 5.0 cent per
share monthly dividend and the maximum offering price of $12.48 on August 31,
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 August 31, 1998.
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 56 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 57 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 seven cents, from $11.95 on February 28, 1998, to
$12.02 on August 31, 1998. During the six-month reporting period, shareholders
received per-share distributions consisting of dividend income totaling 27.31
cents ($0.2731) and 1.79 cents ($0.0179) in long-term capital gains.
Distributions will vary based on the fund's income and any profits realized from
the sale of securities in the fund's portfolio. 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) and the maximum offering price of $12.14 on August 31, 1998,
your fund's distribution rate was 4.39%. 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 7.71% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Virginia Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 7.82% 20.95% 25.66%
Average Annual Total Return2 5.74% 6.18% 6.78%
Distribution Rate3 4.39%
Taxable Equivalent Distribution Rate4 7.71%
30-Day Standardized Yield5 3.69%
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 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, as applicable.
3. Distribution rate is based on an annualization of the current 4.44 cent per
share monthly dividend and the maximum offering price of $12.14 on August 31,
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 August 31, 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 58 OMITTED - SEE APPENDIX AT END OF DOCUMENT
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.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Alabama Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
CLASS I (UNAUDITED) 1998 1997 19961 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period...................... $11.98 $11.73 $11.73 $11.31 $11.80 $11.71
----------------------------------------------------------------
Income from investment operations:
Net investment income.................................... .31 .64 .65 .66 .66 .66
Net realized and unrealized gains (losses)............... (.17) .36 .01 .42 (.50) .09
----------------------------------------------------------------
Total from investment operations ......................... .14 1.00 .66 1.08 .16 .75
----------------------------------------------------------------
Less distributions from:
Net investment income.................................... (.31) (.65) (.66) (.66) (.65) (.66)
In excess of net investment income....................... (.01) -- -- -- -- --
Net realized gains....................................... (.02) (.10) -- -- -- --
----------------------------------------------------------------
Total distributions....................................... (.34) (.75) (.66) (.66) (.65) (.66)
----------------------------------------------------------------
Net asset value, end of period............................ $11.78 $11.98 $11.73 $11.73 $11.31 $11.80
================================================================
Total return*............................................. 1.16% 8.79% 5.84% 9.74% 1.54% 6.35%
Ratios/supplemental data
Net assets, end of period (000's)......................... $229,793 $216,982 $193,466 $185,981 $170,051 $178,414
Ratios to average net assets:
Expenses ................................................ .71%** .72% .71% .72% .72% .64%
Net investment income.................................... 5.26%** 5.39% 5.62% 5.69% 5.88% 5.62%
Portfolio turnover rate................................... 8.02% 10.44% 15.47% 12.39% 19.85% 14.87%
Class II
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period...................... $12.04 $11.78 $11.77 $11.36
---------------------------------------------
Income from investment operations:
Net investment income.................................... .29 .58 .59 .49
Net realized and unrealized gains (losses)............... (.18) .36 .01 .41
---------------------------------------------
Total from investment operations.......................... .11 .94 .60 .90
---------------------------------------------
Less distributions from:
Net investment income.................................... (.28) (.58) (.59) (.49)
In excess of net investment income....................... (.01) -- -- --
Net realized gains....................................... (.02) (.10) -- --
---------------------------------------------
Total distributions....................................... (.31) (.68) (.59) (.49)
---------------------------------------------
Net asset value, end of period............................ $11.84 $12.04 $11.78 $11.77
=============================================
Total return*............................................. .87% 8.23% 5.28% 8.01%
Ratios/supplemental data
Net assets, end of period (000's)......................... $12,085 $9,469 $5,683 $1,662
Ratios to average net assets:
Expenses................................................. 1.24%** 1.29% 1.28% 1.29%**
Net investment income.................................... 4.73%** 4.80% 5.05% 5.09%**
Portfolio turnover rate................................... 8.02% 10.44% 15.47% 12.39%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Annualized.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Alabama Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 97.8%
Bonds 97.1%
Alabama Building Renovation Financing Authority Revenue, 7.45%, 9/01/11..................................$ 1,500,000 $ 1,632,030
Alabama HFA, SFMR, GNMA Secured,
Series A, 7.50%, 10/01/10 ............................................................................. 490,000 515,049
Series A, 8.00%, 10/01/20 ............................................................................. 115,000 117,437
Series A-1, 6.50%, 4/01/17............................................................................. 3,440,000 3,655,205
Series A-2, 6.80%, 4/01/25............................................................................. 1,215,000 1,313,974
Series C, 7.45%, 10/01/21.............................................................................. 285,000 295,095
Series C-2, 7.75%, 4/01/22............................................................................. 860,000 900,927
Series D-2, 5.75%, 10/01/23............................................................................ 2,000,000 2,077,980
Alabama State Docks Department, Docks Facilities Revenue, MBIA Insured, 6.30%, 10/01/21.................. 4,500,000 4,960,890
Alabama State IDA, Solid Waste Disposal Revenue, Pine City Fiber Co., 6.45%, 12/01/23.................... 2,000,000 2,200,300
Alabama State University Dormitory Revenue, Pre-Refunded, 8.00%, 1/01/14 ................................ 250,000 261,005
Alabama Water Pollution Control Authority, Revolving Fund Loan, Series B, Pre-Refunded, 7.75%, 8/15/12... 3,010,000 3,256,218
Alabaster Water and Gas Board Revenue, AMBAC Insured, 6.35%, 9/01/14..................................... 2,215,000 2,467,089
Alexander City Utility Revenue, Refunding, Warrants, FSA Insured, 6.20%, 8/15/10......................... 2,000,000 2,211,500
Anniston Regional Medical Center Board, Series A, AMBAC Insured, 5.25%, 6/01/18.......................... 2,545,000 2,567,014
Athens Electric Revenue, Warrants, MBIA Insured, 6.00%, 6/01/25.......................................... 1,000,000 1,084,690
Athens Water and Sewer Revenue, Warrants, AMBAC Insured, 6.10%, 8/01/18 ................................. 1,500,000 1,610,895
Auburn Governmental Utility Services Corp., Waste Water Treatment Revenue,
Merscot-Auburn, L.P. Project, FGIC Insured,
7.30%, 1/01/12 ......................................................................................... 1,460,000 1,543,935
Auburn University General Fee Revenue, Refunding, 7.00%, 6/01/11......................................... 2,000,000 2,181,440
Baldwin County Eastern Shore Health Care Authority Hospital Revenue, 5.75%, 4/01/27...................... 1,000,000 1,024,600
Bessemer Medical Clinic Board Revenue, Bessemer Carraway Center,
Refunding, Series A, MBIA Insured, 7.25%, 4/01/15........................................................ 1,000,000 1,063,670
Birmingham Airport Authority Revenue, Series A, AMBAC Insured, 7.375%, 7/01/10........................... 500,000 530,520
Birmingham Baptist Medical Center, Special Care Facilities, Financing Authority Revenue, MBIA Insured,
Baptist Health System, Inc., Refunding, 5.875%, 11/15/19 .............................................. 3,500,000 3,623,200
Baptist Health System, Inc., Refunding, 5.875%, 11/15/26 .............................................. 2,000,000 2,062,500
Series A, 7.00%, 1/01/21 .............................................................................. 1,870,000 1,992,485
Birmingham GO, Refunding, Series B, 6.25%, 4/01/16....................................................... 1,000,000 1,081,160
Birmingham-Jefferson Civic Center Authority, Special Tax, Capital Outlay,
7.40%, 1/01/08 ........................................................................................ 285,000 293,886
7.25%, 1/01/12 ........................................................................................ 640,000 646,605
Birmingham Southern College, Private Educational Building Authority Tuition, Refunding, 5.35%, 12/01/19 . 1,000,000 1,010,920
Birmingham Special Care Facilities Financing Authority Revenue, MBIA Insured,
Health Care, Medical Center East, 7.00%, 7/01/12 ...................................................... 1,200,000 1,307,928
Medical Center East, Refunding, 7.25%, 7/01/15......................................................... 2,000,000 2,020,240
Camden IDB, PCR, Facilities Revenue, MacMillian Bloedel Project, Refunding, Series A, 7.75%, 5/01/09 .... 3,250,000 3,503,630
Citronelle IDB, PCR, Stauffer Chemical Project, Guaranteed by Imperial Chemical, Plc.,
Series 1982, 8.00%, 12/01/12............................................................................. 500,000 540,135
Coffee County PBA, Building Revenue, Warrants, FSA Insured, 6.10%, 9/01/16............................... 1,000,000 1,095,660
Colbert County Health Care Authority, Helen Keller Hospital, Refunding, 8.75%, 6/01/09................... 1,750,000 1,906,888
Columbia IDB, PCR, Alabama Power Co. Project, Refunding, AMBAC Insured, 6.50%, 9/01/23 .................. 5,000,000 5,213,300
Courtland IDB,
Environmental Improvement Revenue, Champion International Corp. Project, Refunding, 6.40%, 11/01/26 ... 2,000,000 2,179,900
Solid Waste Disposal Revenue, Champion International Corp. Project, 7.75%, 1/01/20..................... 505,000 535,603
Solid Waste Disposal Revenue, Champion International Corp. Project, Series A, 6.50%, 9/01/25 .......... 5,000,000 5,456,150
Courtland IDBR, Champion International Corp. Project, Refunding, Series A, 7.20%, 12/01/13 .............. 4,000,000 4,452,320
Demopolis HDC, MFHR, Refunding, Series A, FSA Insured, 7.625%, 8/01/19................................... 1,400,000 1,462,076
East Alabama Health Care Authority, Health Care Facilities Revenue, Tax Anticipation Bond,
Series A, MBIA Insured, 5.25%, 9/01/28.................................................................. 5,500,000 5,566,275
Fairfield IDB, Environmental Improvement Revenue, USX Corp. Project, Refunding,
5.45%, 9/01/14 ........................................................................................ 2,000,000 2,046,320
Series A, 6.70%, 12/01/24 ............................................................................. 3,500,000 3,827,880
Fairfield, Warrants, AMBAC Insured, 6.30%, 6/01/22 ...................................................... 3,000,000 3,258,570
Gadsden HDC, MFR, Refunding, Series A, 7.00%, 1/01/22.................................................... 1,565,000 1,620,620
Guam Airport Authority Revenue, Refunding, Series A, 6.50%, 10/01/23 .................................... 1,000,000 1,085,340
Gulf Shores GO, Refunding, Warrants, AMBAC Insured, 6.00%, 9/01/21....................................... 1,935,000 2,124,843
Helena Utilities Board, Water and Sewer Revenue, MBIA Insured, 5.75%, 9/01/25 ........................... 6,000,000 6,374,820
Homewood Special Care Facilities Financing Authority Revenue, Hospital Revenue,
Lakeshore Hospital Project, Refunding, Series B,
Pre-Refunded, 8.25%, 2/01/04 ........................................................................... 360,000 372,578
Bonds (cont.)
Houston County Health Care Authority Revenue, Southeast Alabama Medical Center,
MBIA Insured, 6.125%, 10/01/12...........................................................................$ 2,070,000 $ 2,213,824
Huntsville Solid Waste Disposal Authority and Resource Recovery Revenue, FGIC Insured, 7.00%, 10/01/14 .. 230,000 246,896
Jackson IDBR, Solid Waste-Boise Cascade, Refunding, 5.70%, 12/01/27...................................... 4,150,000 4,253,543
Jasper County Waterworks & Sewer Board, Water and Sewer Revenue, AMBAC Insured, 6.15%, 6/01/14 .......... 1,000,000 1,101,330
Jefferson County Sewer Revenue, Warrants,
ETM, 7.50%, 9/01/13.................................................................................... 200,000 207,778
Refunding, Series A, FGIC Insured, 5.375%, 2/01/27..................................................... 4,675,000 4,781,076
Series D, 5.75%, 2/01/27............................................................................... 6,000,000 6,417,720
LCM Housing Assistance Corp. Project, MFR, Refunding, Series A, 7.875%, 1/01/22.......................... 1,255,000 1,300,544
Lee County GO, Warrants, AMBAC Insured, 5.50%, 2/01/21................................................... 2,250,000 2,323,080
Madison GO, Warrants, MBIA Insured,
6.00%, 4/01/23......................................................................................... 2,000,000 2,178,600
Series B, 6.25%, 2/01/15............................................................................... 1,560,000 1,720,618
Madison School, Warrants, MBIA Insured, 6.25%, 2/01/14................................................... 2,290,000 2,530,450
Marshall County Health Care Authority Hospital Revenue,
Boaz-Albertville Medical Center, Refunding, 6.50%, 1/01/18 ............................................ 10,810,000 11,533,513
Guntersville-Arab Medical Center, Crossover Refunding, 7.60%, 10/01/07................................. 2,530,000 2,814,423
Mobile Airport Authority Revenue, Mae Project, 7.375%, 11/01/12 ......................................... 1,000,000 1,075,580
Mobile Commission of Water and Sewer Revenue, Refunding, 6.50%, 1/01/09.................................. 1,500,000 1,633,095
Mobile Housing Assistance Corp., MFHR, Refunding, Series A, FSA Insured, 7.625%, 2/01/21................. 1,340,000 1,392,863
Mobile IDB, Mobile Energy Service Co. Project, Solid Waste Disposal Revenue, Refunding, 6.95%, 1/01/20... 8,000,000 4,080,000
Montgomery Medical Clinic Board, Health Care Facilities Revenue, Jackson
Hospital and Clinic, Refunding, AMBAC Insured,
6.00%, 3/01/26 ......................................................................................... 6,000,000 6,493,320
Morgan County, Decatur Health Care Revenue, Decatur General Hospital,
Refunding, Connie Lee Insured, 6.375%, 3/01/24 .......................................................... 5,750,000 6,248,180
Moulton Waterworks Board, Water Revenue, Series A, 6.30%, 1/01/18 ....................................... 1,500,000 1,549,515
Muscle Shoals GO, Refunding, Warrants, MBIA Insured,
5.80%, 8/01/16......................................................................................... 1,725,000 1,865,829
5.90%, 8/01/25......................................................................................... 7,000,000 7,582,750
Northeast Alabama Water, Sewer and Fire Protection District Revenue, AMBAC Insured, 6.375%, 5/01/22...... 2,000,000 2,150,680
Northport GO, Water and Sewer, Warrants, FGIC Insured, Pre-Refunded, 7.70%, 12/01/13..................... 200,000 206,010
Oneonta Utilities Board Revenue,
FSA Insured, 6.90%, 11/01/24........................................................................... 230,000 261,027
Pre-Refunded, 6.90%, 11/01/24 ......................................................................... 4,770,000 5,564,634
Refunding, MBIA Insured, 5.50%, 11/01/23............................................................... 3,820,000 3,976,620
Perdido Bay Water Sewer & Fire Protection District Water Revenue, Refunding,
FSA Insured, 5.375%, 11/01/22............................................................................ 1,085,000 1,111,810
Phenix City IDB, Environmental Improvement Revenue, Mead Coated Board,
Refunding, Series A, 5.30%, 4/01/27...................................................................... 8,300,000 8,306,723
Piedmont IDBR, Springs Industrial Project, 8.25%, 9/01/10................................................ 780,000 847,759
Puerto Rico Commonwealth Highway Authority Revenue, Refunding, Series R, 7.15%, 7/01/00 ................. 600,000 634,470
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A, 7.90%, 7/01/07............................................................ 5,000 5,165
Puerto Rico Commonwealth Urban Renewal and Housing Corp., Commonwealth
Appropriation, Refunding, 7.875%, 10/01/04 .............................................................. 300,000 317,286
Puerto Rico Electric Power Authority Power Revenue,
Refunding, Series N, 7.00%, 7/01/07.................................................................... 355,000 370,588
Series DD, 5.00%, 7/01/28 ............................................................................. 5,000,000 4,953,700
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Upjohn Co. Project, 7.50%, 12/01/23 ..................................................................... 200,000 207,922
Puerto Rico PBA Revenue, Guaranteed Government Facilities, Series B, 5.25%, 7/01/21...................... 1,850,000 1,875,808
Puerto Rico Public Finance Corp., Commonwealth Appropriation, Series A, 5.00%, 6/01/26 .................. 4,000,000 3,952,360
Russell County PBA Revenue, Jail Project, Pre-Refunded, 8.50%, 1/01/14................................... 200,000 207,148
Russellville GO, Refunding, Warrants, MBIA Insured, 5.75%, 12/01/26...................................... 2,500,000 2,683,925
Tuscaloosa County Board Education, Capital Outlay, Warrants, Series A, AMBAC Insured, 5.50%, 2/01/27..... 2,375,000 2,499,236
Tuscaloosa, Warrants, AMBAC Insured, 6.75%, 7/01/20...................................................... 4,925,000 5,255,418
Valley Special Care Facilities, Financing Authority Revenue, Lanier Memorial
Hospital, Series A, 5.65%, 11/01/22...................................................................... 2,000,000 2,024,600
Virgin Islands Public Finance Authority Revenue, Senior Lien, Fund Loan Notes, Refunding, Series A, 5.50%
10/01/13............................................................................................... 1,700,000 1,749,861
10/01/22............................................................................................... 2,300,000 2,332,338
Wilsonville IDB, PCR, Southern Electric Generating System, Refunding, Series C,
MBIA Insured, 6.75%, 2/01/15 ........................................................................... 3,500,000 3,758,265
-------------
Total Bonds (Cost $223,687,157) ......................................................................... 234,931,175
-------------
a Zero Coupon Bonds .7%
Alexander City, Capital Appreciation-Warrants, Asset Guaranty Insured, Zero Coupon to,
5/01/23 ...............................................................................................$ 1,790,000 $ 475,621
5/01/24 ............................................................................................... 1,790,000 450,507
5/01/25 ............................................................................................... 1,790,000 420,811
5/01/26 ............................................................................................... 1,790,000 398,007
-------------
Total Zero Coupon Bonds (Cost $1,680,497) ............................................................... 1,744,946
-------------
Total Long Term Investments (Cost $225,367,654) ......................................................... 236,676,121
-------------
a Short Term Investments .3%
Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 2.75%, 7/01/28......................................................................... 100,000 100,000
Stevenson Alabama IDB, Environmental Improvement Revenue, Mead Corp. Project,
Series B, Weekly VRDN and Put, 3.35%, 4/01/33............................................................ 600,000 600,000
-------------
Total Short Term Investments (Cost $700,000)............................................................. 700,000
-------------
Total Investments (Cost $226,067,654) 98.1%.............................................................. 237,376,121
Other Assets, less Liabilities 1.9% ..................................................................... 4,502,109
-------------
Net Assets 100.0% ....................................................................................... $241,878,230
=============
</TABLE>
See glossary of terms on page 113.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Florida Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period........................ $11.87 $11.59 $11.69 $11.35 $11.77 $11.68
------------------------------------------------------------------------
Income from investment operations:
Net investment income...................................... .31 .64 .67 .69 .69 .70
Net realized and unrealized gains (losses)................. .07 .30 (.08) .34 (.44) .09
------------------------------------------------------------------------
Total from investment operations ........................... .38 .94 .59 1.03 .25 .79
------------------------------------------------------------------------
Less distributions from:
Net investment income...................................... (.31)2 (.65) (.69) (.69) (.67) (.70)
In excess of net investment income......................... -- (.01) -- -- -- --
------------------------------------------------------------------------
Total distributions......................................... (.31) (.66) (.69) (.69) (.67) (.70)
------------------------------------------------------------------------
Net asset value, end of period.............................. $11.94 $11.87 $11.59 $11.69 $11.35 $11.77
========================================================================
Total return*............................................... 3.28% 8.37% 5.20% 9.28% 2.36% 6.63%
Ratios/supplemental data
Net assets, end of period (000's)........................... $1,693,327 $1,650,068 $1,458,087 $1,353,541 $1,265,018 $1,361,583
Ratios to average net assets:
Expenses .................................................. .62%** .61% .60% .60% .59% .52%
Net investment income...................................... 5.26%** 5.45% 5.78% 5.93% 6.15% 5.90%
Portfolio turnover rate..................................... 4.26% 5.60% 12.00% 11.78% 14.34% 11.77%
Class II
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period........................ $11.96 $11.67 $11.76 $11.37
-----------------------------------------------
Income from investment operations:
Net investment income...................................... .28 .60 .60 .52
Net realized and unrealized gains (losses)................. .08 .29 (.07) .38
-----------------------------------------------
Total from investment operations ........................... .36 .89 .53 .90
-----------------------------------------------
Less distributions from:
Net investment income...................................... (.28)3 (.59) (.62) (.51)
In excess of net investment income......................... -- (.01) -- --
-----------------------------------------------
Total distributions......................................... (.28) (.60) (.62) (.51)
-----------------------------------------------
Net asset value, end of period.............................. $12.04 $11.96 $11.67 $11.76
===============================================
Total return*............................................... 3.06% 7.80% 4.65% 8.05%
Ratios/supplemental data
Net assets, end of period (000's)........................... $67,323 $56,027 $23,556 $7,644
Ratios to average net assets:
Expenses .................................................. 1.18%** 1.17% 1.17% 1.18%**
Net investment income...................................... 4.70%** 4.88% 5.17% 5.33%**
Portfolio turnover rate..................................... 4.26% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions in excess of net investment income in the amount of
$.002.
3Includes distributions in excess of net investment income in the amount of
$.001.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Florida Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
b Long Term Investments 97.7%
Bonds 93.4%
Alachua County Health Facilities Authority Revenue,
Santa Fe Health Care Facilities Project, Refunding, Pre-Refunded, 7.60%, 11/15/13 .......................$ 6,705,000 $ 7,380,328
Shands Teaching Hospital, Series A, MBIA Insured, 5.80%, 12/01/26 ....................................... 12,000,000 12,920,880
Alachua County Public Improvement Revenue, Refunding, FSA Insured, 5.375%, 8/01/17....................... 5,755,000 5,935,419
Atlantic Beach Utilities Systems Revenue, MBIA Insured, 5.50%, 10/01/25 ................................. 2,000,000 2,084,760
Bay County Hospital System Revenue, Bay Medical Center Project, Refunding, Pre-Refunded, 8.00%, 10/01/12 11,205,000 13,743,493
Bay County Resource Recovery Revenue, Refunding,
Series A, MBIA Insured, 6.60%, 7/01/11................................................................. 3,710,000 4,126,744
Series B, MBIA Insured, 6.60%, 7/01/12 ................................................................ 18,150,000 20,017,817
Bay County Water System Revenue, Refunding, AMBAC Insured,
6.50%, 9/01/07......................................................................................... 525,000 583,622
6.60%, 9/01/11......................................................................................... 675,000 753,381
Bay Medical Center, Hospital Revenue, Bay Medical Center Project, Refunding,
AMBAC Insured, 5.60%, 10/01/19 .......................................................................... 13,130,000 13,768,381
Boynton Beach Public Service Tax Revenue, MBIA Insured, Pre-Refunded, 7.50%, 11/01/10 ................... 4,000,000 4,323,120
Brevard County Health Facilities Authority Revenue, Wuesthoff Memorial Hospital,
Refunding, Series B, Pre-Refunded, 7.20%, 4/01/13........................................................ 5,000,000 5,638,300
Brevard County HFA, SFMR, Refunding, Series B, FSA Insured, 7.00%, 3/01/13............................... 985,000 1,050,759
Brevard County School Board COP, Refunding, Series A, AMBAC Insured, 5.40%, 7/01/11...................... 4,415,000 4,821,312
Broward County Educational Facilities Authority Revenue, Nova Southeastern
University Project, Refunding, Connie Lee Insured,
6.125%, 4/01/17.......................................................................................... 2,250,000 2,471,805
Broward County HFA, MFHR, Cross Keys Apartments Project,
Series A, 5.80%, 10/01/33.............................................................................. 2,000,000 2,039,940
Series A, 5.85%, 4/01/39............................................................................... 5,895,000 6,012,428
Broward County Health Facility Authority Revenue, Nursing Home, Refunding,
7.40%, 8/15/10......................................................................................... 2,080,000 2,231,050
7.50%, 8/15/20......................................................................................... 1,475,000 1,617,913
Broward County HFA Revenue,
Series B, GNMA Secured, 7.55%, 3/01/15 ................................................................ 3,040,000 3,178,502
Series C, GNMA Secured, 8.00%, 3/01/21 ................................................................ 905,000 945,698
Series D, GNMA Secured, 6.90%, 6/01/09 ................................................................ 310,000 331,821
Series D, GNMA Secured, 7.375%, 6/01/21 ............................................................... 770,000 823,523
Broward County HFA, SFMR, Refunding, Series B, GNMA/FNMA Insured, 5.40%, 4/01/29......................... 4,000,000 4,041,560
Broward County Professional Sports Facilities, Tax Revenue, Civic Arena Project, Series A, MBIA Insured,
5.75%, 9/01/21......................................................................................... 5,000,000 5,358,750
5.625%, 9/01/28........................................................................................ 13,745,000 14,555,130
Broward County Resource Recovery Revenue,
Broward Waste Energy Co., L.P., North Project, 7.95%, 12/01/08 ........................................ 5,840,000 6,267,138
SES Waste Energy Co., L.P., South Project, 7.95%, 12/01/08............................................. 10,675,000 11,455,770
Broward County School Board COP, Series C, AMBAC Insured, 5.375%, 7/01/17................................ 10,000,000 10,335,200
Broward County Tourist Development, Special Tax Revenue, Convention Center Project,
FGIC Insured, Pre-Refunded, 7.75%, 10/01/13 ............................................................. 200,000 204,652
Cape Canaveral Hospital District Revenue,
AMBAC Insured, Pre-refunded, 6.875%, 1/01/21........................................................... 1,500,000 1,632,030
Certificates, Refunding, 5.25%, 1/01/28................................................................ 2,500,000 2,470,300
Celebration Community Development District, Special Assessment,
MBIA Insured, 6.00%, 5/01/10 ............................................................................ 5,500,000 5,959,250
MBIA Insured, 6.10%, 5/01/16 ............................................................................ 4,000,000 4,376,880
Series A, MBIA Insured, 5.50%, 5/01/18................................................................... 2,000,000 2,089,680
Charlotte County Utilities Revenue, Refunding, Series A, FGIC Insured, 5.625%, 10/01/21.................. 3,000,000 3,163,890
Citrus County PCR, Florida Power and Light Co., Crystal River, Refunding,
Series A, 6.625%, 1/01/27................................................................................ 11,100,000 12,048,051
Series B, 6.35%, 2/01/22................................................................................. 20,400,000 22,158,276
Clay County HFA Revenue, SFM,
Multi County, GNMA/FNMA Insured, 5.45%, 4/01/31.......................................................... 1,775,000 1,803,453
Series A, GNMA Secured, 8.20%, 6/01/21................................................................... 1,560,000 1,623,898
Series A, GNMA Secured, 7.80%, 6/01/22 .................................................................. 3,940,000 4,165,920
Series A, GNMA Secured, 7.45%, 9/01/23 .................................................................. 1,310,000 1,380,373
Clearwater MFR, Rental Housing, Drew Gardens Projects, Refunding, Series A,
FHA Insured, 6.50%, 10/01/25 ............................................................................ 2,850,000 3,015,528
Clewiston Water and Sewer Revenue, Refunding, AMBAC Insured, Pre-Refunded, 7.65%, 10/01/10 .............. 1,000,000 1,063,080
Cocoa Water and Sewer Improvement Revenue, FGIC Insured, 5.875%, 10/01/22................................$ 4,000,000 $ 4,413,840
Collier County Water and Sewer District Revenue, Sewer Assessment,
East and South Naples Project, MBIA Insured, 7.15%, 10/01/11............................................. 80,000 82,454
Coral Springs ID, Special Water and Sewer Project, 6.75%, 11/01/02 ...................................... 2,660,000 2,705,326
Dade County Aviation Revenue, Miami International Airport, Series B, FSA Insured, 5.125%, 10/01/22 ...... 4,750,000 4,740,025
Dade County Health Facilities Authority, Hospital Revenue, Catholic Health
and Rehabilitation, Inc. Project, Refunding,
7.625%, 8/15/20......................................................................................... 7,475,000 7,963,566
Dade County HFA,
MFMR, Hialeah Center, Series 5, GNMA Secured, Pre-Refunded, 7.875%, 12/01/32 ............................ 1,930,000 2,083,010
SFMR, Refunding, Series D, FSA Insured, 6.95%, 12/15/12.................................................. 680,000 727,552
SFMR, Refunding, Series E, FNMA Secured, 7.00%, 3/01/24.................................................. 300,000 317,397
SFMR, Series A, GNMA Secured, 7.50%, 9/01/13............................................................. 2,105,000 2,200,925
SFMR, Series A, GNMA Secured, 7.10%, 3/01/17............................................................. 1,480,000 1,566,920
SFMR, Series B, GNMA Secured, 7.25%, 9/01/23 ............................................................ 250,000 264,495
Dade County IDA, Solid Waste Disposal Revenue, Power and Light Co. Project, 7.15%, 2/01/23............... 5,695,000 6,120,815
Dade County School Board COP, Series B, AMBAC Insured, Pre-Refunded, 5.75%, 8/01/19 ..................... 14,610,000 16,225,428
Dade County School District GO, Pre-Refunded, 7.375%, 7/01/08............................................ 5,960,000 6,266,284
Dade County Seaport Revenue, Refunding, Series 95, MBIA Insured, 5.75%, 10/01/15 ........................ 4,100,000 4,430,993
Dade County Special Obligation, Courthouse Center Project, 6.10%, 4/01/20................................ 5,000,000 5,465,600
Dade County Water and Sewer System Revenue, FGIC Insured,
5.25%, 10/01/21.......................................................................................... 5,000,000 5,105,150
5.75%, 10/01/22.......................................................................................... 8,245,000 8,784,305
5.50%, 10/01/25.......................................................................................... 35,325,000 36,888,131
5.25%, 10/01/26.......................................................................................... 12,000,000 12,211,440
Dovera Community Development District Revenue, Special Assessment,
7.625%, 5/01/03.......................................................................................... 230,000 246,516
7.875%, 5/01/12.......................................................................................... 735,000 787,935
Dunes Community Development District Revenue, Water and Sewer Project,
Pre-Refunded, 8.25%, 10/01/18 .......................................................................... 670,000 685,812
Duval County HFA,
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.60%, 7/01/17............................... 1,000,000 1,040,490
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.70%, 7/01/27............................... 2,000,000 2,078,980
SFMR, GNMA Secured, 5.25%, 10/01/18...................................................................... 1,000,000 1,008,120
SFMR, GNMA Secured, 5.30%, 4/01/31....................................................................... 1,800,000 1,813,104
SFMR, Series 1988, GNMA Secured, 8.625%, 12/01/19 ....................................................... 45,000 47,651
SFMR, Series A, GNMA Secured, 8.50%, 9/01/19............................................................. 70,000 72,238
SFMR, Series A, GNMA Secured, 7.85%, 12/01/22............................................................ 2,265,000 2,376,279
SFMR, Series B, GNMA Secured, 7.70%, 11/01/11 ........................................................... 460,000 477,020
SFMR, Series C, GNMA/FGIC Insured, 7.70%, 9/01/24 ....................................................... 960,000 1,019,395
Escambia County Health Facilities Authority, Health Facility Revenue, Baptist Hospital and Baptist Manor,
5.125%, 10/01/19......................................................................................... 8,750,000 8,666,175
Pre-Refunded, 6.75% 10/01/14............................................................................. 4,350,000 4,897,187
Escambia County HFA, SFMR,
Multi-County Program, Series C, GNMA/FNMA Insured, 5.80%, 10/01/19....................................... 1,500,000 1,563,855
Multi-County Program, Series C, GNMA/FNMA Insured, 5.875%, 10/01/28...................................... 6,500,000 6,793,800
Series A, FHA/GNMA Insured, 7.40%, 10/01/23.............................................................. 4,235,000 4,453,314
Escambia County Revenue, Series B, Sub-Series 1, MBIA Insured, 7.20%, 1/01/15............................ 4,000,000 4,123,400
Escambia County School Board COP, FSA Insured, 6.375%, 2/01/12........................................... 1,210,000 1,292,776
Escambia County Utilities Authority, Sanitary System Revenue, FSA Insured, Pre-Refunded, 6.00%, 1/01/23.. 2,500,000 2,744,100
Escambia County Utilities Authority System Revenue, Refunding, FGIC Insured, 7.75%, 1/01/15 ............. 2,000,000 2,065,220
First Governmental Financing Commission Revenue, Gainsville, Hollywood
and St. Petersburg, AMBAC Insured, 5.75%, 7/01/16 ...................................................... 3,700,000 3,990,043
Flagler County Florida School Board, COP, FSA Insured, 5.20%, 8/01/23.................................... 3,500,000 3,558,170
Florida HFA,
General Mortgage, Refunding, Series A, 6.40%, 6/01/24 ................................................... 3,700,000 3,954,967
Homeowner Mortgage, Series 1, MBIA Insured, 5.625%, 7/01/17.............................................. 4,980,000 5,258,780
Homeownership Revenue, Series G-1, GNMA Secured, 7.80%, 9/01/10 ......................................... 560,000 590,694
Homeownership Revenue, Series G-1, GNMA Secured, 8.30%, 6/01/20 ......................................... 245,000 253,271
Homeownership Revenue, Series G-1, GNMA Secured, 7.90%, 3/01/22 ......................................... 2,905,000 3,079,765
MF Housing, Citrus Meadows Apartments Project, Series Q, GNMA Secured, 7.65%, 6/20/31 ................... 4,000,000 4,096,920
Florida HFA, (cont.)
MF Housing, Driftwood Terrace Project, Series I, 7.65%, 12/20/31.........................................$ 3,445,000 $ 3,594,616
MFHR, Refunding, Series A, 6.95%, 10/01/21............................................................... 2,900,000 3,010,954
Reserve at Kanapaha, Series G, AMBAC Insured, 5.70%, 7/01/37............................................. 5,000,000 5,146,150
Reserve at Northshore, Series H, AMBAC Insured, 5.70%, 5/01/37........................................... 2,000,000 2,059,800
Riverfront Apartments, Series A, AMBAC Insured, 6.25%, 4/01/37........................................... 1,300,000 1,394,601
Florida HFC Revenue, Housing Grand Savannah Club Apartments, Series A, FSA Insured, 5.45%, 3/01/30 ...... 3,400,000 3,458,106
Florida Housing Finance Authority, SFMR, Series A, FHA Insured, 8.60%, 7/01/16 .......................... 340,000 341,697
Florida State Board of Education Capital Outlay, Public Education,
Refunding, Series A, 7.25%, 6/01/23 ..................................................................... 8,775,000 9,409,345
Series A, 5.875%, 6/01/16................................................................................ 4,500,000 4,830,480
Series A, 5.25%, 6/01/22................................................................................. 2,750,000 2,803,845
Series B, 5.875%, 6/01/24................................................................................ 8,990,000 9,675,667
Series B, 5.875%, 6/01/25................................................................................ 7,000,000 7,533,890
Series F, FGIC Insured, 5.50%, 6/01/26................................................................... 10,000,000 10,458,000
Florida State Community Services Corp., Walton County Water and Sewer Revenue,
South Walton County Regional Utilities, 7.00%, 3/01/18.................................................. 2,550,000 2,853,246
Florida State Correctional Privatization Commission COP, Correctional Facility Bay Project,
MBIA Insured, 6.00%, 8/01/15............................................................................. 6,000,000 6,600,600
Florida State Department of Corrections COP, Okeechobee Correctional Facility,
AMBAC Insured, 6.25%, 3/01/15 ........................................................................... 2,960,000 3,318,190
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 3,291,450
Facilities Management Division, Revenue, Facilities Pool, Refunding, Series B,
AMBAC Insured, 5.70%, 9/01/20............................................................................ 7,000,000 7,409,430
Florida State Department of Transportation, Right of Way, 5.375%, 7/01/26 ............................... 5,000,000 5,139,300
Florida State GO, Pre-Refunded, 7.375%, 7/01/19 ......................................................... 3,715,000 3,905,914
Florida State Mid-Bay Bridge Authority Revenue,
ETM, Series A, 6.875%, 10/01/22.......................................................................... 6,000,000 7,564,560
Exchangeable, Series A, 5.95%, 10/01/13.................................................................. 13,505,000 14,379,314
Exchangeable, Series A, 6.05%, 10/01/22.................................................................. 7,000,000 7,380,450
Exchangeable, Series D, 6.10%, 10/01/22.................................................................. 11,100,000 11,751,903
Series A, 8.00%, 10/01/06................................................................................ 2,600,000 2,923,492
Series A, 7.50%, 10/01/17................................................................................ 14,250,000 15,820,493
Florida State Turnpike Authority Revenue, Department of Transportation, Series A,
AMBAC Insured, Pre-Refunded, 7.125%, 7/01/18 ............................................................ 8,780,000 9,720,514
FGIC Insured, 5.50%, 7/01/21............................................................................. 17,350,000 17,950,310
FGIC Insured, 5.625%, 7/01/25............................................................................ 7,000,000 7,330,750
Pre-Refunded, 7.75%, 7/01/09............................................................................. 2,375,000 2,504,248
Gainesville Utility System Revenue,
Series B, 6.00%, 10/01/17................................................................................ 3,500,000 3,702,790
Sub-Series A, AMBAC Insured, Pre-Refunded, 7.25%, 10/01/13 .............................................. 1,600,000 1,636,608
Gainesville Utility Systems, Series A, 5.20%, 10/01/26 .................................................. 7,590,000 7,690,719
Gateway Services District Revenue, Transportation Roadway Service Charges, 8.75%, 5/01/14 ............... 8,675,000 9,755,038
Gulf Breeze Local Government Loan Program Revenue, FGIC Insured, 7.75%, 12/01/15 ........................ 2,000,000 2,134,900
Hialeah Florida Housing Authority Revenue, Affordable Housing Program,
Refunding, GNMA Insured, 5.30%, 12/20/18 ................................................................ 1,240,000 1,271,285
Hillsborough County Aviation Authority Revenue,
Special Purpose, Delta Airlines, Inc., Refunding, 7.75%, 1/01/24......................................... 14,945,000 15,755,617
Tampa International Airport, Series A, FGIC Insured, 6.90%, 10/01/11..................................... 4,490,000 4,730,529
Tampa International Airport, Series A, FGIC Insured, Pre-Refunded, 6.90%, 10/01/11 ...................... 3,510,000 3,703,787
Tampa International Airport, Series B, FGIC Insured, 5.875%, 10/01/23.................................... 5,730,000 6,216,305
Hillsborough County Capital Improvement Revenue, County Center Project, Second Series, Pre-Refunded,
6.625%, 7/01/12.......................................................................................... 8,300,000 9,233,335
6.75%, 7/01/22........................................................................................... 1,250,000 1,396,063
Hillsborough County IDA Revenue, Colonial Penn Insurance Project, 7.35%, 8/01/13......................... 5,300,000 5,847,225
Hillsborough County Port District Revenue, Tampa Port Authority, Pre-Refunded, 8.25%, 6/01/09............ 3,000,000 3,345,000
Hillsborough County School Board COP,
Master Lease Program, Series A, MBIA Insured, 5.25%, 7/01/22............................................. 22,000,000 22,406,340
MBIA Insured, Pre-Refunded, 6.00%, 7/01/12 .............................................................. 9,500,000 10,602,855
MBIA Insured, Pre-Refunded, 6.00%, 7/01/14 .............................................................. 5,500,000 6,138,495
Hillsborough County Utilities Revenue, Refunding,
Series A, 6.625%, 8/01/11................................................................................$10,400,000 $ 11,149,320
Series A, 7.00%, 8/01/14................................................................................. 5,515,000 6,009,199
Series A, 6.50%, 8/01/16................................................................................. 3,000,000 3,217,110
Series B, 6.50%, 8/01/16................................................................................. 1,000,000 1,072,370
Indian River County Hospital District, Revenue, Refunding, FSA Insured, 5.70%, 10/01/15.................. 1,000,000 1,079,500
Jacksonville Capital Improvement Revenue Certificates, Gator Bowl Project, 5.875%, 10/01/25.............. 5,000,000 5,373,550
Jacksonville Electric Authority Revenue, Water and Sewer, Series B, FGIC Insured, 5.40%, 10/01/20........ 3,000,000 3,093,210
Jacksonville Health Facilities Authority, Hospital Revenue,
Baptist Medical Center Project, Refunding, Series A, MBIA Insured, Pre-Refunded, 7.30%, 6/01/19.......... 2,500,000 2,619,275
Riverside Hospital Project, Refunding, Pre-Refunded, 7.625%, 10/01/13.................................... 8,480,000 9,007,965
Jacksonville Hospital Revenue, University Medical Center, Inc. Project,
Connie Lee Insured, 6.60%, 2/01/21....................................................................... 1,750,000 1,915,988
Jupiter Sales Tax Revenue, Series 1990, Pre-Refunded, 7.40%, 9/01/20..................................... 1,000,000 1,088,690
Kissimmee Water and Sewer Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/15............................. 5,000,000 5,416,350
Lakeland Electric and Water Revenue,
5.50%, 10/01/26.......................................................................................... 10,700,000 11,248,803
5.625%, 10/01/36......................................................................................... 11,670,000 12,422,015
Refunding & Improvement, Senior Series B, 5.625%, 10/01/19............................................... 12,800,000 13,516,544
Lakeland Utilities Tax Revenue, Refunding and Improvement, Series A, FGIC Insured, 6.00%, 10/01/17....... 4,500,000 4,918,905
Lee County Capital Bonds, Refunding, Series A, MBIA Insured, 7.30%, 10/01/07............................. 1,000,000 1,058,310
Lee County Hospital Revenue, Board of Directors, Lee Memorial Health Systems,
Series A, MBIA Insured, 5.875%, 4/01/24 ................................................................. 18,000,000 19,357,560
Lee County IDA Revenue, Bonita Springs Sewer Project, Asset Guaranty, Insured,
7.20%, 11/01/11.......................................................................................... 5,000,000 5,470,800
7.25%, 11/01/20.......................................................................................... 2,000,000 2,185,040
Lee County Local Option Gas Tax Revenue, FGIC Insured, 5.75%, 10/01/20................................... 2,575,000 2,751,233
Lee County Solid Waste System Revenue, Series A, MBIA Insured, 7.00%,
10/01/04................................................................................................. 1,945,000 2,146,755
10/01/05................................................................................................. 1,175,000 1,300,854
10/01/06................................................................................................. 1,305,000 1,442,769
10/01/11................................................................................................. 4,600,000 5,104,068
Lee County Transportation Facilities Revenue, MBIA Insured, 5.75%,
10/01/22................................................................................................. 4,500,000 4,794,345
10/01/27................................................................................................. 5,900,000 6,290,403
Leesburg Hospital Revenue, Capital Improvement, Leesburg Regional Medical Center Project,
Refunding, Series A, 6.125%, 7/01/18 .................................................................... 7,000,000 7,456,260
Series A, Pre-Refunded, 7.375%, 7/01/11.................................................................. 1,250,000 1,423,575
Series A, Pre-Refunded, 7.50%, 7/01/21................................................................... 2,115,000 2,417,995
Leesburg Utilities Revenue, Refunding, FGIC Insured, 7.60%, 10/01/09..................................... 500,000 511,570
Leon HFA, SFMR, Series A, GNMA Secured, 7.30%, 4/01/21................................................... 800,000 841,912
Manatee County HFA, SFMR, Series A, GNMA Secured,
8.10%, 11/01/20.......................................................................................... 875,000 901,548
6.85%, 11/01/23.......................................................................................... 4,320,000 4,566,326
Manatee County IDR, Manatee Hospital and Health Systems, Inc.,
ETM, 8.25%, 3/01/01 ..................................................................................... 900,000 950,310
Pre-Refunded, 9.25%, 3/01/21 ............................................................................ 6,700,000 7,679,741
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21............................. 5,575,000 6,364,810
Martin County Construction, Utilities System Revenue, Refunding and Improvement, FGIC Insured,
6.00%, 10/01/24 ........................................................................................ 4,000,000 4,365,640
Martin County PCR, Power and Light Co. Project, Refunding, MBIA Insured, 7.30%, 7/01/20.................. 14,500,000 15,625,345
Martin County Utilities System Revenue, Refunding, FGIC Insured, 5.00%, 10/01/24......................... 2,000,000 1,997,020
Miami Beach Special Obligation, Subordinated, ETM, FGIC Insured, 7.375%, 12/01/08........................ 2,000,000 2,122,080
Miami Health Facilities Authority Revenue, Mercy Hospital Project, Refunding,
8.125%, 8/01/11.......................................................................................... 250,000 255,625
Series A, Pre-Refunded, 7.35%, 8/01/15 .................................................................. 7,500,000 7,903,800
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured, 6.75%, 10/01/25......................... 6,500,000 7,416,175
Nassau County PCR, ITT Rayonier, Inc. Project, Refunding, 6.25%, 6/01/10................................. 5,000,000 5,343,300
North Broward Hospital District Revenue, Refunding and Improvement, MBIA Insured,
5.375%, 1/15/24 ......................................................................................... 10,710,000 11,013,736
5.75%, 1/15/27........................................................................................... 14,370,000 15,254,330
North Miami Health Facilities Authority Revenue, Catholic Health Services Obligation Group, 6.00%,
8/15/16..................................................................................................$ 2,000,000 $ 2,148,720
8/15/24.................................................................................................. 1,750,000 1,871,660
North Port Utilities Revenue, FGIC Insured, Pre-Refunded, 6.25%, 10/01/22................................ 1,500,000 1,659,075
Northern Palm Beach County Water Control District, Unit Development No. 31, Project 2,
6.75%, 11/01/07.......................................................................................... 725,000 778,164
6.625%, 11/01/13......................................................................................... 1,470,000 1,562,786
Orange County Capital Improvement Revenue,
Series A, MBIA Insured, 7.70%, 10/01/18.................................................................. 170,000 173,898
Series A, MBIA Insured, Pre-Refunded, 7.70%, 10/01/18 ................................................... 30,000 30,697
Series B, MBIA Insured, Pre-Refunded, 7.70%, 10/01/18 ................................................... 180,000 184,180
Orange County Health Facilities Authority Revenue,
Adventist/Sunbelt, Series A, AMBAC Insured, 6.875%, 11/15/15 ............................................ 1,000,000 1,101,820
Adventist/Sunbelt, Series A, FSA Insured, 7.00%, 11/15/14 ............................................... 3,000,000 3,170,880
Orlando Regional Healthcare, Crossover Refunding, Series A, MBIA Insured, 6.00%, 11/01/24 ............... 1,000,000 1,078,840
Orange County HFA Revenue,
Refunding, Series A, GNMA Secured, FGIC Insured, 7.60%, 1/01/24.......................................... 4,730,000 4,991,049
Series A, GNMA Secured, 7.75%, 11/01/12 ................................................................. 1,595,000 1,663,011
Series A, GNMA Secured, 7.375%, 9/01/24 ................................................................. 410,000 435,756
Series D, GNMA Secured, 7.80%, 10/01/22 ................................................................. 625,000 656,206
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 ................................ 5,050,000 5,529,902
Orange County Sales Tax Revenue, FGIC Insured, 5.125%, 1/01/28 .......................................... 2,500,000 2,522,600
Orange County Tourist Development Tax Revenue,
AMBAC Insured, Pre-Refunded, 7.25%, 10/01/10 ............................................................ 3,000,000 3,268,500
Refunding, MBIA Insured, 5.125%, 10/01/20................................................................ 10,000,000 10,168,900
Series B, MBIA Insured, 6.00%, 10/01/24.................................................................. 24,675,000 26,930,542
Orlando and Orange County Expressway Authority Revenue,
Jr. Lien, FGIC Insured, 5.00%, 7/01/28 .................................................................. 10,000,000 9,937,900
Senior Lien, ETM, AMBAC Insured, 7.625%, 7/01/18 ........................................................ 265,000 280,781
Orlando Community RDA, Tax Increment Revenue, Series A,
6.50%, 10/01/11.......................................................................................... 2,155,000 2,317,013
6.75%, 10/01/16.......................................................................................... 2,585,000 2,800,072
Orlando Waste Water Systems Revenue, Refunding, Series C, AMBAC Insured,
5.15%, 10/01/13.......................................................................................... 3,410,000 3,555,505
5.20%, 10/01/14.......................................................................................... 2,740,000 2,836,092
Osceola County Gas Tax Revenue, Refunding & Improvement, FGIC Insured, 6.00%, 4/01/13 ................... 3,500,000 3,816,085
Osceola County IDA Revenue, Community Provider Pooled Loan Program,
Series A, FSA Insured, 7.75%, 7/01/10.................................................................... 4,634,000 5,012,876
Series C, FSA Insured, 7.60%, 7/01/10.................................................................... 795,000 854,991
Pace Property Finance Authority, Inc., Utility Systems Revenue, Refunding and Improvement,
AMBAC Insured, 6.125%, 9/01/07........................................................................... 270,000 283,964
AMBAC Insured, 6.25%, 9/01/13............................................................................ 685,000 728,696
Pre-Refunded, 6.125%, 9/01/07............................................................................ 730,000 777,012
Pre-Refunded, 6.25%, 9/01/13............................................................................. 1,860,000 1,986,071
Pre-Refunded, 6.125%, 9/01/17............................................................................ 840,000 894,096
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured,
6.00%, 6/01/15........................................................................................... 5,000,000 5,490,400
Pre-Refunded, 7.25%, 6/01/11............................................................................. 6,950,000 7,496,618
Palm Beach County HFA, MFR Housing, Windsor Park Apartment Project, Series A, 5.90%, 6/01/38............. 1,000,000 1,026,330
Palm Beach County HFA, SFM Power Revenue,
Series A, GNMA Secured, 7.70%, 3/01/22 .................................................................. 6,585,000 6,906,150
Series B, GNMA Secured, 7.60%, 3/01/23 .................................................................. 4,580,000 4,842,388
Palm Beach County IDR, Lourdes-Noreen McKeen Residence, Geriatric Care, Inc.,
6.55%, 12/01/16.......................................................................................... 1,755,000 1,927,569
6.625%, 12/01/26......................................................................................... 4,000,000 4,447,360
Palm Beach County Solid Waste Authority Revenue, Refunding, BIG Insured,
7.40%, 12/01/05.......................................................................................... 535,000 550,948
Pre-Refunded, 7.40%, 12/01/05............................................................................ 1,965,000 2,022,869
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 6,014,058
Pensacola-Westwood Homes Development Corp. Revenue, Mortgage Loan,
Refunding, Section B, FHA Insured, 6.40%, 7/15/23....................................................... 985,000 1,027,434
Pinellas County HFA, SFHR, Multi-County Program,
Series A-1, FNMA/GNMA Insured, 5.30%, 9/01/30............................................................ 1,500,000 1,516,965
Series C-1, FNMA/GNMA Insured, 5.45%, 9/1/29............................................................. 1,765,000 1,785,368
Pinellas County HFA, SFMR,
Multi-County Program, Series B, GNMA Secured, 6.875%, 8/01/10............................................ 1,245,000 1,314,197
Multi-County Program, Series B, GNMA Secured, 7.375%, 2/01/24............................................ 4,910,000 5,194,191
Series A, GNMA Secured, 7.30%, 8/01/22 .................................................................. 1,640,000 1,718,917
Series A, GNMA Secured, 7.75%, 8/01/23 .................................................................. 1,550,000 1,636,459
Pinellas County PCR, Power and Light Co., Refunding, 7.20%, 12/01/14..................................... 12,200,000 13,335,942
Plantation Health Facilities Authority Revenue,
Covenant Retirement Community, Inc., Pre-Refunded, 7.625%, 12/01/12...................................... 1,500,000 1,740,675
Covenant Retirement Community, Inc., Pre-Refunded, 7.75%, 12/01/22....................................... 3,000,000 3,495,870
Covenant Village of Florida, Inc., Refunding, 5.125%, 12/01/22 .......................................... 750,000 749,423
Polk County HFA, Refunding, Series A, GNMA Secured, 7.15%, 9/01/23 ...................................... 2,035,000 2,154,658
Polk County IDA Revenue, Solid Waste Disposal Facility, Tampa Electric Co. Project, 5.85%, 12/01/30...... 20,500,000 21,730,000
Port Everglades Authority, Port Improvement Revenue,
Refunding, Series A, Pre-Refunded, 7.50%, 9/01/12........................................................ 18,050,000 19,094,734
ETM, Series 1986, 7.50%, 11/01/06........................................................................ 575,000 674,941
Port St. Lucie Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured, 5.125%, 9/01/27..... 15,640,000 15,816,888
Santa Rosa County Health Facilities Authority Revenue, Gulf Breeze Hospital, Inc.,
Refunding, Pre-Refunded, 8.70%, 10/01/14................................................................. 520,000 532,475
Refunding, 8.60%, 10/01/02............................................................................... 25,000 25,559
Series A, 6.20%, 10/01/14................................................................................ 14,350,000 15,216,166
Santa Rosa County IDR Refunding, Holley Navarre Water System Project, 6.75%, 5/01/24..................... 4,290,000 4,700,639
Sarasota County Solid Waste System Revenue, AMBAC Insured, 5.50%, 10/01/16............................... 6,250,000 6,601,188
Sarasota County Utilities System Revenue, FGIC Insured,
5.75%, 10/01/27.......................................................................................... 18,000,000 19,211,940
Refunding, Series A, 5.25%, 10/01/25 .................................................................... 9,000,000 9,197,460
Seminole County Sales Tax Revenue, MBIA Insured, 5.80%, 10/01/26......................................... 5,000,000 5,360,400
Seminole County School Board COP,
Series A, MBIA Insured, Pre-Refunded, 6.125%, 7/01/14 ................................................... 1,150,000 1,290,898
Series B, MBIA Insured, Pre-Refunded, 6.50%, 7/01/21..................................................... 5,000,000 5,683,450
South Broward Hospital District, Revenue, Refunding, MBIA Insured, 5.25%, 5/01/21........................ 5,000,000 5,079,200
South Florida Water Management District, Special Obligation, Land
Acquisition Bonds, AMBAC Insured, 6.00%, 10/01/15....................................................... 1,000,000 1,088,250
South Indian River Water Control District, Refunding, Series C, Pre-Refunded, 7.50%, 10/01/06 ........... 3,000,000 3,069,090
St. Johns County IDA Revenue, Professional Golf Hall of Fame Project, MBIA Insured, 5.80%, 9/01/16 ...... 4,660,000 5,027,255
St. Johns County Water and Sewer Revenue, Series B-1, FGIC Insured, 7.00%, 6/01/11....................... 2,995,000 3,050,018
St. Lucie County Solid Waste Disposal Revenue, Power and Light Co. Project, 7.15%, 2/01/23............... 7,500,000 8,085,450
St. Lucie, West, Services District, Capital Improvement Revenue, Lake Charles Project, 7.50%, 2/01/00 ... 3,485,000 3,539,401
St. Petersburg Health Facilities Authority Revenue, Allegany Health System,
Series A, MBIA Insured, Pre-Refunded, 7.00%, 12/01/15 ................................................... 10,500,000 11,711,805
St. Mary, Series B, Pre-Refunded, 7.75%, 12/01/15........................................................ 8,630,000 9,240,745
Sunrise Lakes Recreation District, Phase 4,
Refunding, AMBAC Insured, 5.25%, 8/01/24 ................................................................ 4,320,000 4,406,789
Series A, Pre-Refunded, 6.75%, 8/01/15................................................................... 3,080,000 3,603,107
Series A, Pre-Refunded, 6.75%, 8/01/24................................................................... 6,120,000 7,159,421
Sunrise Special Tax District No. 1, Refunding, 6.375%,
11/01/08................................................................................................. 3,485,000 3,729,438
11/01/21................................................................................................. 12,390,000 13,198,448
Sunrise Utilities System Revenue, Series A, AMBAC Insured,
Pre-Refunded, 5.75%, 10/01/16............................................................................ 1,780,000 1,980,001
Pre-Refunded, 5.90%, 10/01/18............................................................................ 4,230,000 4,748,387
Pre-Refunded, 5.75%, 10/01/21............................................................................ 3,000,000 3,337,080
Pre-Refunded, 5.75%, 10/01/26............................................................................ 10,000,000 11,087,300
Sunrise Utility System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 ...............................$ 2,550,000 $ 2,617,320
Tallahassee Consolidated Utility System Revenue, Series 1994, 6.20%, 10/01/19 ........................... 3,400,000 3,725,278
Tampa Allegheny Health System Revenue, St. Joseph, MBIA Insured, Pre-Refunded,
6.75%, 12/01/17.......................................................................................... 1,180,000 1,307,263
6.50%, 12/01/23.......................................................................................... 7,000,000 8,046,360
Tampa Capital Improvement Program Revenue,
Series A, 8.25%, 10/01/18................................................................................ 6,300,000 6,319,845
Custodial Receipts, Series A, 5.805%, 10/01/18 .......................................................... 31,670,000 31,893,274
Tampa Guaranteed Entitlement Revenue, Refunding, AMBAC Insured, 7.15%, 10/01/18.......................... 2,000,000 2,212,980
Tampa Occupational License Tax, Refunding, Series B, FGIC Insured, 5.50%, 10/01/27....................... 10,525,000 10,971,050
Tampa Sports Authority Revenue,
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.00%, 10/01/15............................... 1,000,000 1,152,720
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.05%, 10/01/20............................... 1,715,000 1,997,083
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.10%, 10/01/26............................... 2,695,000 3,199,261
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.05%, 10/01/15 ............................. 4,250,000 4,775,385
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.10%, 10/01/20 ............................. 5,160,000 5,812,585
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.125%, 10/01/26 ............................ 6,800,000 7,669,720
Tampa Water and Sewer Revenue, Subordinated Lien, Series A, AMBAC Insured,
7.75%, 10/01/14.......................................................................................... 340,000 347,888
7.25%, 10/01/16.......................................................................................... 3,000,000 3,067,590
Tampa-Hillsborough County, Expressway Authority Revenue, AMBAC Insured, 5.00%, 7/01/22 .................. 11,500,000 11,499,195
Titusville Water and Sewer Revenue, Refunding,MBIA Insured, 6.20%, 10/01/14.............................. 6,000,000 6,675,960
University Community Hospital Inc., Florida Hospital Revenue, Refunding, FSA Insured, Pre-Refunded,
7.375%, 9/01/07.......................................................................................... 5,000,000 5,446,150
7.50%, 9/01/11........................................................................................... 5,000,000 5,458,050
Venice Health Care Revenue, Bon Secours Health System Project, MBIA Insured, 5.625%, 8/15/26 ............ 6,000,000 6,319,860
Viera East Community Development District,
Special Assessment, 7.50%, 5/01/03 ...................................................................... 1,730,000 1,844,786
Special Assessment, 8.50%, 5/01/04 ...................................................................... 3,245,000 3,645,758
Special Assessment, 8.625%, 5/01/14 ..................................................................... 10,640,000 12,008,198
Special Assessment, Pre-Refunded, 7.50%, 5/01/12......................................................... 5,225,000 5,957,075
Special Assessment, Refunding, 6.30%, 5/01/26............................................................ 7,355,000 8,057,035
Special Assessment, Refunding, Series A, 6.00%, 5/01/14.................................................. 11,295,000 11,803,727
Special Assessment, Series B, 6.75%, 5/01/14 ............................................................ 7,490,000 7,814,766
Special Assessment, Water Management, Refunding, Series A, 6.50%, 5/01/22................................ 11,340,000 11,885,567
Special Assessment, Water Management, Series B, 6.50%, 5/01/05 .......................................... 465,000 480,447
Special Assessment, Water Management, Series B, 6.50%, 5/01/22 .......................................... 4,580,000 4,732,010
Water and Sewer Revenue, 7.875%, 5/01/03................................................................. 2,950,000 3,128,682
Water and Sewer Revenue, 6.75%, 5/01/09.................................................................. 2,850,000 3,012,194
Village Center Community Development District Recreational Revenue, Refunding,
Series A, MBIA Insured, 5.00%, 11/01/21 ................................................................. 2,000,000 2,001,560
Village Community Development, District No. 2, Special Assessment Revenue,
MBIA Insured, 5.20%, 5/01/19............................................................................. 1,720,000 1,756,103
Volusia County Educational Facility Authority Revenue, Embry-Riddle Aeronautical
University, Connie Lee Insured, 6.625%, 10/15/22 ....................................................... 500,000 555,005
Volusia County Health Facilities Authority Revenue, Hospital Facilities,
Memorial Health Systems Project, AMBAC Insured,
5.50%, 11/15/26 ........................................................................................ 9,770,000 10,121,134
West Lake Community Development District, Special Assessment, MBIA Insured, 5.75%, 5/01/17 .............. 1,970,000 2,122,577
West Palm Beach Utilities System Revenue, MBIA Insured, 5.75%, 10/01/27.................................. 3,000,000 3,161,820
Westgate/Belvedere Homes Community RDA Revenue, Series 1992,
6.50%, 11/01/09.......................................................................................... 410,000 432,730
6.60%, 11/01/17.......................................................................................... 1,410,000 1,483,870
--------------
Total Bonds (Cost $1,527,194,874)........................................................................ 1,645,294,586
--------------
Zero Coupon Bonds 4.3%
Broward County Water and Sewer Utility Revenue, Refunding, Series A, AMBAC Insured,10/01/08 ............. 3,670,000 2,390,344
Dade County Guaranteed Entitlement Revenue, Capital Appreciation,
AMBAC Insured, Pre-Refunded, 8/01/18 .................................................................... 17,020,000 5,004,050
Florida HFC Revenue, Deferred Interest, Homeowner Mortgage,
Series 1, MBIA Insured, 7/01/17.......................................................................... 3,445,000 1,251,741
Series 2, MBIA Insured, 1/01/29.......................................................................... 47,400,000 8,794,122
Florida State Mid-Bay Bridge Authority Revenue, Series A, AMBAC Insured,
10/1/25..................................................................................................$ 9,845,000 $ 2,394,599
10/1/26.................................................................................................. 2,500,000 571,250
Lakeland Electric and Water Revenue, Capital Appreciation,10/01/14 ...................................... 5,770,000 2,632,908
Miami-Dade County, Special Obligation,
Sub-Series B, MBIA Insured,10/1/36....................................................................... 5,635,000 720,490
Sub-Series C, MBIA Insured,10/1/28....................................................................... 8,305,000 1,672,543
Port Everglades Authority, Port Improvement Revenue,
Capital Appreciation, 9/01/10............................................................................ 24,525,000 13,436,756
ETM, Capital Appreciation, 9/01/10 ...................................................................... 25,475,000 14,677,930
Refunding, Series A, 9/1/02.............................................................................. 10,575,000 8,859,734
Refunding, Series A, 9/1/03 ............................................................................. 9,075,000 7,255,825
Refunding, Series A, 9/1/04.............................................................................. 3,550,000 2,687,101
Sarasota Special Obligated Revenue, Refunding, AMBAC Insured,
11/1/09.................................................................................................. 1,365,000 837,031
11/1/12.................................................................................................. 1,780,000 915,595
11/1/15.................................................................................................. 2,180,000 951,460
--------------
Total Zero Coupon Bonds (Cost $63,437,834) .............................................................. 75,053,479
--------------
Total Long Term Investments (Cost $1,590,632,708) ....................................................... 1,720,348,065
--------------
aShort-term Investments .6%
Dade County IDA, Dolphins Stadium Project, Series A, Weekly VRDN and Put, 3.25%, 1/01/16................. 800,000 800,000
Dade County IDA, PCR, Power and Light Co. Project, Refunding, Daily VRDN and Put, 3.20%, 4/01/20 ........ 1,300,000 1,300,000
Dade County Water and Sewer System Revenue, FGIC Insured, Weekly VRDN and Put, 3.15%, 10/05/22........... 700,000 700,000
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Refunding, Daily VRDN and Put, 3.20%, 5/15/18 . 100,000 100,000
Manatee County PCR, Power and Light Co. Project, Refunding, Daily VRDN and Put, 3.35%, 9/01/24 .......... 600,000 600,000
Martin County, PCR, Power and Light Co. Project, Refunding, Daily VRDN and Put, 3.35%, 9/01/24 .......... 3,300,000 3,300,000
Pinellas County Health Facilities Authority Revenue, DATES, Pooled Hospital Loan Program,
Refunding, Daily VRDN and Put,
3.35%, 12/01/15......................................................................................... 1,200,000 1,200,000
Saint Lucie County PCR, Power and Light Co. Project, Refunding, Daily VRDN and Put,
3.35%, 1/01/26........................................................................................... 1,800,000 1,800,000
3.20%, 3/01/27........................................................................................... 1,400,000 1,400,000
--------------
Total Short-term Investments (Cost $11,200,000) ......................................................... 11,200,000
--------------
Total Investments (Cost $1,601,832,708) 98.3% ........................................................... 1,731,548,065
Other Assets, less Liabilities 1.7% ..................................................................... 29,102,549
--------------
$1,760,650,614
==============
</TABLE>
See glossary of terms on page 113.
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.
c See Note 6 regarding defaulted securities.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Georgia Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
CLASS I (UNAUDITED) 1998 1997 19961 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period.................... $12.12 $11.86 $11.88 $11.54 $12.00 $11.85
--------------------------------------------------------------------------
Income from investment operations:
Net investment income.................................. .31 .63 .65 .66 .66 .66
Net realized and unrealized gains (losses)............. .06 .27 (.02) .34 (.46) .15
--------------------------------------------------------------------------
Total from investment operations........................ .37 .90 .63 1.00 .20 .81
--------------------------------------------------------------------------
Less distributions from:
Net investment income.................................. (.31)3 (.64)2 (.65) (.66) (.66) (.66)
Net realized gains..................................... (.02) -- -- -- -- --
---------------------------------------------------------------------------
Total distributions..................................... (.33) (.64) (.65) (.66) (.66) (.66)
---------------------------------------------------------------------------
Net asset value, end of period.......................... $12.16 $12.12 $11.86 $11.88 $11.54 $12.00
===========================================================================
Total return*........................................... 3.08% 7.75% 5.47% 8.90% 1.87% 6.77%
Ratios/supplemental data
Net assets, end of period (000's)....................... $160,934 $149,642 $139,903 $130,380 $116,771 $120,882
Ratios to average net assets:
Expenses............................................... .76%** .76% .75% .77% .76% .69%
Net investment income.................................. 5.06%** 5.28% 5.49% 5.58% 5.76% 5.48%
Portfolio turnover rate................................. 7.14% 14.77% 17.47% 10.98% 36.17% 16.75%
CLASS II
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period.................... $12.19 $11.92 $11.92 $11.57
---------------------------------------------------
Income from investment operations:
Net investment income.................................. .27 .57 .58 .50
Net realized and unrealized gains (losses)............. .07 .27 (.01) .34
---------------------------------------------------
Total from investment operations........................ .34 .84 .57 .84
---------------------------------------------------
Less distributions from:
Net investment income.................................. (.28)4 (.57) (.57) (.49)
Net realized gains..................................... (.02) -- -- --
------------------------------------------------
Total distributions..................................... (.30) (.57) (.57) (.49)
----------------------------------------------------
Net asset value, end of period.......................... $12.23 $12.19 $11.92 $11.92
===================================================
Total return*........................................... 2.78% 7.19% 4.97% 7.40%
Ratios/supplemental data
Net assets, end of period (000's)....................... $14,233 $9,107 $4,484 $1,335
Ratios to average net assets:
Expenses............................................... 1.30%** 1.32% 1.32% 1.34%**
Net investment income.................................. 4.50%** 4.72% 4.87% 5.04%**
Portfolio turnover rate................................. 7.14% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions in excess of net investment income in the amount of
$.001.
3Includes distributions in excess of net investment income in the amount of
$.006.
4Includes distributions in excess of net investment income in the amount of
$.005.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Georgia Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 95.2%
Albany-Dougherty County Hospital Authority Revenue, Anticipation Certificates,
Series B, AMBAC Insured, Pre-Refunded,
7.50%, 9/01/10 .......................................................................................... $ 500,000 $ 545,805
Atlanta Airport Facilities Revenue, Series B, AMBAC Insured, 6.00%, 1/01/21............................... 1,100,000 1,170,180
Atlanta and Fulton Counties Recreation Authority Revenue, Downtown Arena
Public Improvement Project, Refunding, Series A,
MBIA Insured, 5.375%,
12/01/21.................................................................................................. 3,000,000 3,105,030
12/01/26.................................................................................................. 1,500,000 1,547,460
Atlanta COP, Pretrial Detention Center, MBIA Insured, 6.25%,
12/01/11.................................................................................................. 1,000,000 1,096,450
12/01/17.................................................................................................. 3,800,000 4,124,634
Atlanta Downtown Development Authority Revenue, Underground Atlanta Project, Refunding, 6.25%, 10/01/16 .. 2,000,000 2,150,700
Atlanta GO, Series A, 6.125%, 12/01/23 ................................................................... 6,000,000 6,612,600
Atlanta HDC, Mortgage Revenue, Oakland City/West, Refunding, Series A, FHA Insured, 6.375%, 3/01/23 ...... 1,480,000 1,567,512
Atlanta Special Purpose Facilities Revenue, Delta Air Lines, Inc. Project, Series B, 7.90%, 12/01/18 ..... 3,500,000 3,707,445
Atlanta Urban Residential Finance Authority,
MFHR, Defoors Ferry Manor Project, 5.90%, 10/01/18........................................................ 1,700,000 1,808,817
MFHR, Fulton Cotton Mill, 6.00%, 5/20/17.................................................................. 1,045,000 1,114,681
MFHR, Fulton Cotton Mill, 6.125%, 5/20/27................................................................. 1,575,000 1,677,375
SFMR, GNMA Secured, 8.25%, 10/01/21....................................................................... 60,000 61,623
Atlanta Water and Sewer Revenue,
FGIC Insured, 5.25%, 1/01/27.............................................................................. 1,900,000 1,931,673
Second Subordinated Lien, FGIC Insured, 5.375%, 1/01/20 .................................................. 1,000,000 1,030,700
Baldwin County Georgia Hospital Authority Revenue, Oconee Regional Medical Center,
5.25%, 12/01/22 .......................................................................................... 2,000,000 1,962,180
5.375%, 12/01/28 ......................................................................................... 1,000,000 990,320
Barnesville Water and Sewer Revenue, Refunding, 6.85%, 9/01/17............................................ 1,000,000 1,087,970
Brunswick and Glynn County Development Authority Revenue,
Georgia Pacific Project, Refunding, 5.55%, 3/01/26 ....................................................... 3,900,000 3,942,588
Burke County Development Authority, PCR, Georgia Power Co., Plant Vogtle, Refunding,
First Series, 6.10%, 4/01/25.............................................................................. 1,000,000 1,037,420
First Series, MBIA Insured, 6.60%, 7/01/24 ...............................................................10,000,000 10,391,600
Chatham County Hospital Authority Revenue, Memorial Medical Center,
Refunding & Improvement, Series A, AMBAC Insured,
5.70%, 1/01/19 .......................................................................................... 1,000,000 1,060,000
Cherokee County Water and Sewage Authority Revenue,
FGIC Insured, 5.00%, 08/01/27............................................................................. 2,000,000 2,005,260
Refunding, MBIA Insured, 6.90%, 8/01/18................................................................... 1,595,000 1,737,274
Clayton County Development Authority, Special Facility Revenue,
Delta Air Lines, Inc. Project, Refunding, 7.625%, 1/01/20................................................. 1,400,000 1,481,102
Clayton County Hospital Authority Revenue, Anticipation Certificates,
Southern Regional Medical Center, MBIA Insured, Pre-Refunded,
7.00%, 8/01/13 .......................................................................................... 2,400,000 2,654,784
Clayton County MFHR, Pointe Clear Apartments Project, FSA Insured, 5.70%, 7/01/23......................... 1,000,000 1,042,600
Cobb County, Kennestone Hospital Authority Revenue, ETM, Series A, MBIA Insured, 7.75%, 2/01/07........... 100,000 115,932
Commerce, City of, Combined Public Utility Revenue, Refunding & Improvement,
AMBAC Insured, Pre-Refunded, 7.50%, 12/01/20 ............................................................. 100,000 106,775
Conyers Water and Sewer Revenue, ETM, Series A, AMBAC Insured, 6.60%, 7/01/15 ............................ 1,000,000 1,104,030
Coweta County Association, County Commissioners of Georgia Leasing Program,
MBIA Insured, Pre-Refunded, 7.00%, 12/01/10............................................................... 750,000 791,775
Dade County Water and Sewer Authority Revenue, Refunding,
FGIC Insured, Pre-Refunded, 7.60%, 7/01/15............................................................... 300,000 315,963
Dekalb County Housing Authority, SFMR, GNMA Secured, 7.70%, 2/01/24....................................... 360,000 382,874
Douglas County Housing Authority, MFR, Millwood Park Apartments, FNMA Insured, 5.45%, 1/01/18............. 1,880,000 1,913,671
Downtown Smyrna Development Authority Revenue, Refunding & Improvement, 5.15%, 2/01/16.................... 550,000 576,505
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek,
Refunding, Series A, MBIA Insured, 6.50%, 7/01/24......................................................... 935,000 984,592
Fulco Hospital Authority Revenue, Anticipation Certificates, Health System,
Catholic Health East, Series A, MBIA Insured, 5.00%, 11/15/28 ........................................... 4,000,000 3,975,000
Fulton County Building Authority Revenue,
Human Resources and Government Facilities Program, 7.10%, 1/01/15......................................... 750,000 809,573
Judicial Center Facilities Project, Refunding, 6.50%, 1/01/15 ............................................ 1,000,000 1,058,710
Fulton County, Development Authority Facilities Revenue, Delta Airlines
Incorporated Project, 5.45%, 5/01/23 .................................................................. 1,805,000 1,815,704
Fulton Dekalb Hospital Authority Revenue, Grady Memorial Hospital Project,
Series A, AMBAC Insured, Pre-Refunded, 7.25%, 1/01/20.................................................... 1,480,000 1,577,147
Gainesville and Hall County Hospital Authority Revenue, Anticipation Certificates,
Northeast Georgia Health Care Project, Refunding,
MBIA Insured, 5.75%, 10/01/17............................................................................. 210,000 224,692
MBIA Insured, 6.00%, 10/01/25 ............................................................................ 750,000 811,800
Series B, MBIA Insured, 7.20%, 10/01/20 .................................................................. 455,000 465,224
Georgia Municipal Electric Power Authority Revenue,
Refunding, Series R, Pre-Refunded, 7.40%, 1/01/25 ...................................................... $ 800,000 $ 826,032
Series A, Pre-Refunded, 7.40%, 1/01/25 ................................................................. 400,000 413,016
Series S, Pre-Refunded, 7.25%, 1/01/09.................................................................. 100,000 103,205
Series W, 6.60%, 1/01/18 ............................................................................... 1,000,000 1,212,150
Georgia State HFA,
Homeownership Opportunity Program, Series A-1, 6.75%, 6/01/17............................................. 2,895,000 3,107,725
Homeownership Opportunity Program, Series C, 6.60%, 12/01/23.............................................. 1,995,000 2,138,999
MFMR, Club Candlewood Project, FSA Insured, Pre-Refunded, 7.15%, 1/01/25 ................................. 1,000,000 1,193,780
MFR, Lake Vista Apartments Project, Series A, FSA Insured, 5.95%, 1/01/27................................. 1,000,000 1,063,380
SFMR, Refunding, Series A, 6.60%, 12/01/23................................................................ 560,000 600,242
SFMR, Series B, Sub-Series B-2, 6.15%, 12/01/28 .......................................................... 1,000,000 1,069,440
SFMR, Sub-Series B-2, 5.85%, 12/01/28 .................................................................... 3,000,000 3,136,080
Georgia State Residential Finance Authority, Homeownership Mortgage,
Convertible Loans, Series B, Sub-Series B-1, 7.50%, 6/01/17............................................... 205,000 218,335
Series B, Sub-Series B-1, FHA/VA Insured, 7.00%, 12/01/12................................................. 920,000 988,108
Series E, Sub-Series E-1, FHA Insured, 7.50%, 6/01/17..................................................... 350,000 372,155
Hogansville Combined Public Utility System Revenue, Refunding, FSA Insured, 6.00%, 10/01/23 .............. 3,300,000 3,810,147
Houston County School District, Intergovernmental Contract Trust, MBIA Insured, 6.00%, 3/01/14 ........... 2,000,000 2,177,960
La Grange Water and Sewerage Revenue, Pre-Refunded, 7.375%, 1/01/12....................................... 1,000,000 1,066,570
Liberty County IDR, Leconte Property, Inc. Project, Refunding, 7.875%, 12/01/14........................... 850,000 923,610
Marietta Development Authority Revenue, Life College, First Mortgage,
Series A, FSA Insured, 5.75%, 9/01/14..................................................................... 1,800,000 1,935,972
Series A, FSA Insured, 5.95%, 9/01/19..................................................................... 1,000,000 1,076,390
Series B, FSA Insured, 5.75%, 9/01/14..................................................................... 800,000 860,432
Series B, FSA Insured, 5.80%, 9/01/19..................................................................... 1,100,000 1,172,138
Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue,
Second Indenture, Refunding, Series A, MBIA Insured, 5.625%, 7/01/20...................................... 2,670,000 2,823,632
Second Indenture, Series B, MBIA Insured, 5.10%, 7/01/20 ................................................. 1,000,000 1,010,560
Series A, MBIA Insured, Pre-Refunded, 6.90%, 7/01/20 ..................................................... 5,930,000 6,892,973
Series L, Pre-Refunded, 7.20%, 7/01/10.................................................................... 250,000 262,388
Monroe County Development Authority, PCR,
Georgia Power Co., Refunding, AMBAC Insured, 6.25%, 7/01/19............................................... 1,000,000 1,040,770
Georgia Power Co., Scherer Project, Senior Lien, First Series, 5.75%, 9/01/23............................. 1,000,000 1,021,250
Oglethorpe Power Co., Scherer Project, Refunding, Series A, 6.80%, 1/01/12 ............................... 1,500,000 1,766,685
Municipal Electric Authority, Project One, Sub-Series A, MBIA Insured, 5.375%, 1/01/19.................... 4,820,000 4,940,596
Paulding County Water and Sewer Revenue, AMBAC Insured, 5.80%, 12/01/16................................... 500,000 537,710
Peachtree City Water and Sewer Authority, Sewer Systems Revenue, Series A, 5.60%, 3/01/27................. 3,000,000 3,183,330
Pike County School District, Refunding, AMBAC Insured, 5.70%, 2/01/16..................................... 1,000,000 1,116,690
Polk County Water Authority, Water and Sewerage Revenue, Refunding, MBIA Insured, 7.00%, 12/01/15......... 100,000 105,226
Private Colleges and Universities Authority Revenue, Emory University Project, Series A, 5.00%, 11/01/24.. 2,250,000 2,246,580
Puerto Rico Commonwealth Highway Authority Revenue, Refunding, Series R, 7.15%, 7/01/00................... 230,000 243,214
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Unrefunded Balance, Series A,
7.90%, 7/01/07............................................................................................ 15,000 15,494
7.50%, 7/01/09............................................................................................ 5,000 5,113
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.125%, 7/01/14...................................................................... 50,000 52,247
Refunding, Series N, Pre-Refunded, 7.125%, 7/01/14 ....................................................... 130,000 135,896
Refunding, Series U, 6.00%, 7/01/14 ...................................................................... 1,000,000 1,082,380
Series O, 7.125%, 7/01/14 ................................................................................ 165,000 172,413
Series O, Pre-Refunded, 7.125%, 7/01/14 .................................................................. 235,000 245,657
Series T, 6.00%, 7/01/16.................................................................................. 1,000,000 1,081,850
Puerto Rico Industrial, Medical and Environmental Facilities,
PCFA Revenue, Baxter Travenol Labs, Inc., Series A, 8.00%, 9/01/12........................................ 200,000 206,600
Richmond County Board of Education, MBIA Insured, 5.95%, 11/01/26......................................... 770,000 772,580
Richmond County Development Authority, Solid Waste Disposal Revenue,
International Paper Co. Project, 5.80%, 12/01/20.......................................................... 1,500,000 1,599,465
Savannah EDA, IDR, Hershey Foods Corp. Project, Refunding, 6.60%, 6/01/12 ................................ 1,000,000 1,099,030
Savannah Hospital Authority Revenue, St. Joseph's Hospital Project, Refunding, 6.20%, 7/01/23............. 3,000,000 3,193,080
Savannah Port Authority PCR, Union Carbide Plastic Co., Inc., Refunding, 7.55%, 8/01/04 .................. 4,600,000 4,629,486
St. Mary's Housing Authority MFMR,
Cumberland Oaks Apartments, Refunding, Series A, FNMA Secured, 7.375%, 9/01/22 ........................... $ 500,000 $ 530,750
Pine Apartments, Series C, FNMA Secured, 7.375%, 4/01/22.................................................. 700,000 726,635
Tift County School District, MBIA Insured, 6.125%, 2/01/15................................................ 2,330,000 2,437,297
Upper Oconee Basin Water Authority Revenue, FGIC Insured, 5.25%, 7/01/27.................................. 3,000,000 3,052,710
Virgin Islands Public Finance Authority Revenue, Refunding, Senior Lien, Series A,
5.40%, 10/01/12 .......................................................................................... 850,000 872,745
5.50%, 10/01/22 .......................................................................................... 1,200,000 1,216,872
5.625%, 10/01/25 ......................................................................................... 1,530,000 1,564,271
Walker, Dade and Catoosa County Hospital Authority Revenue,
Anticipation Certificates, Series A, FGIC Insured, Pre-Refunded,
7.00%, 10/01/10 .......................................................................................... 1,500,000 1,666,229
Walton County Water and Sewer Authority Revenue,
Refunding & Improvement, MBIA Insured, 6.00%, 2/01/21..................................................... 2,000,000 2,182,799
White County IDA Revenue, Clark Schwebel Fiber Glass, Refunding, 6.85%, 6/01/10 .......................... 1,780,000 1,927,597
---------------
Total Long Term Investments (Cost $156,569,738) .......................................................... 166,802,416
---------------
aShort Term Investments 3.1%
Bartow County Development Authority, PCR, Georgia Power Co., Bowen,
First Series, Daily VRDN and Put, 3.25%, 6/01/23 ......................................................... 300,000 300,000
Burke County Development Authority, PCR, Georgia Power Co., Vogtle,
1st Series, Daily VRDN and Put, 3.25%, 4/01/32............................................................ 500,000 500,000
4th Series, Daily VRDN and Put, 3.25%, 9/01/25............................................................ 1,800,000 1,800,000
5th Series, Daily VRDN and Put, 3.30%, 7/01/24............................................................ 1,000,000 1,000,000
Hapeville Development Authority, IDR, Hapeville Hotel Ltd., Daily VRDN and Put, 3.25%, 11/01/15........... 200,000 200,000
Heard County Development Authority, PCR, Georgia Power Co., Plant Wansley,
Daily VRDN and Put, 3.25%, 9/01/29....................................................................... 1,000,000 1,000,000
Putnam County Development Authority, PCR, Georgia Power Co., Plant Branch,
First Series, Daily VRDN and Put, 3.25%, 6/01/23.......................................................... 600,000 600,000
---------------
Total Short Term Investments (Cost $5,400,000) ........................................................... 5,400,000
---------------
Total Investments (Cost $161,969,738) 98.3%............................................................... 172,202,416
Other Assets, less Liabilities 1.7% ...................................................................... 2,964,956
---------------
Net Assets 100.0% ........................................................................................ $175,167,372
===============
See glossary of terms on page 113.
</TABLE>
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Kentucky Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
(UNAUDITED) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period..................... $11.45 $11.05 $11.04 $10.54 $11.18 $11.05
------------------------------------------------------------------------
Income from investment operations:
Net investment income................................... .30 .61 .61 .62 .61 .63
Net realized and unrealized gains (losses).............. .10 .40 .01 .50 (.62) .16
------------------------------------------------------------------------
Total from investment operations......................... .40 1.01 .62 1.12 (0.01) .79
------------------------------------------------------------------------
Less distributions from net investment income............ (.30) (.61) (.61) (.62) (.63) (.66)
------------------------------------------------------------------------
Net asset value, end of period........................... $11.55 $11.45 $11.05 $11.04 $10.54 $11.18
========================================================================
Total return*............................................ 3.56% 9.38% 5.86% 10.73% .11% 7.07%
Ratios/supplemental data
Net assets, end of period (000's)........................ $60,609 $54,211 $44,289 $38,991 $32,831 $28,057
Ratios to average net assets:
Expenses................................................ .35%** .35% .34% .33% .29% --
Expenses excluding waiver and payments by affiliate..... .81%** .81% .81% .82% .80% .71%
Net investment income................................... 5.23%** 5.40% 5.63% 5.65% 5.94% 5.73%
Portfolio turnover rate.................................. 7.51% 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.
**Annualized.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Kentucky Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
aLong Term Investments 95.1%
Ashland PCR, Ashland Oil, Inc. Project, Refunding, 6.65%, 8/01/09....................................... $ 700,000 $ 759,101
Ashland Solid Waste Revenue, Ashland Oil, Inc. Project, 7.20%, 10/01/20 ................................ 1,000,000 1,083,940
Boone County PCR, Collateralized, Dayton Power and Light Co., Refunding, Series A, 6.50%, 11/15/22...... 710,000 777,805
Carroll County PCR, Collateralized, Kentucky Utilities Co. Project, Series B, 6.25%, 2/01/18 ........... 325,000 346,132
Christian County Hospital Revenue, Jennie Stuart Medical Center, Series A, 6.00%, 7/01/17............... 1,000,000 1,068,010
Danville Multi-City Lease Revenue,
Campbellsville, Series B, MBIA Insured, 6.15%, 7/01/12 ................................................. 1,500,000 1,657,635
Housing Authority, Jefferson County, 6.50%, 2/01/12 .................................................... 125,000 133,241
Shelbyville, Series H, MBIA Insured, 6.70%, 7/01/11 .................................................... 100,000 110,791
Daviess County Hospital Revenue, Odch, Inc., Series A, MBIA Insured, 6.25%,
8/01/12 ................................................................................................ 100,000 107,925
8/01/22 ................................................................................................ 210,000 225,857
Daviess County Public Improvement Corp. Revenue, First Mortgage,
Court Facilities Project, Refunding, Series A, 5.70%, 10/01/14.......................................... 545,000 580,523
Eastern University Revenues, Consolidated Educational Building,
Series Q, AMBAC Insured, 6.40%, 5/01/08................................................................. 100,000 108,227
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 2,031,920
Fulton County Industrial Building Revenue, H.I.S. Income Project, 7.50%, 2/01/10........................ 500,000 521,475
Greater Kentucky Housing Assistance Corp. Projects, Mortgage Revenue,
Refunding, Series A, MBIA Insured, 6.10%, 1/01/24 ...................................................... 2,000,000 2,074,260
Guam Airport Authority Revenue, Refunding, Series A, 6.50%, 10/01/23 ................................... 400,000 434,136
Guam Power Authority Revenue, Series A, 6.30%, 10/01/22 ................................................ 225,000 239,337
Hancock County Solid Waste Disposal Revenue, Willamette Industries, Inc. Project, 6.60%, 5/01/26........ 1,000,000 1,108,330
Hopkins County Hospital Revenue, Trover Clinic Foundation, Inc., MBIA Insured, 6.625%, 11/15/11......... 125,000 136,521
Jefferson County Capital Projects Corp., Leasehold Revenue, MBIA Insured, 5.375%, 6/01/22 .............. 2,000,000 2,059,920
Jefferson County Health Facilities Revenue,
Jewish Hospital Health Care Services, Inc., AMBAC Insured, 6.50%, 5/01/15 .............................. 750,000 815,993
Jewish Hospital Health Care Services, Inc., AMBAC Insured, 6.55%, 5/01/22 .............................. 720,000 781,999
Jewish Hospital Health Care Services, Inc., Refunding, AMBAC Insured, 5.75%, 1/01/26 ................... 2,000,000 2,129,660
University Medical Center, Inc. Project, MBIA Insured, 5.50%, 7/01/17................................... 1,500,000 1,582,380
Jefferson County MFHR, Watterson Park Apartments Project, Series A, 6.35%, 11/15/11 .................... 1,945,000 2,070,783
Jefferson County PCR,
DuPont, Series A, 6.30%, 7/01/12........................................................................ 450,000 497,943
Louisville Gas and Electric Co. Project, Refunding, Series A, 7.45%, 6/15/15............................ 100,000 107,502
Kenton County Airport Board Revenue,
Cincinnati/Northern Kentucky International Airport, Series B, MBIA Insured, 5.75%, 3/01/13 ............. 1,230,000 1,334,673
Special Facilities, Delta Airlines Project, Series A, 7.50%, 2/01/20 ................................... 445,000 490,230
Special Facilities, Delta Airlines Project, Series A, 7.125%, 2/01/21................................... 325,000 353,704
Special Facilities, Delta Airlines Project, Series B, 7.25%, 2/01/22.................................... 445,000 487,506
Kenton County Water District No. 001, Waterworks Revenue,
Refunding, FGIC Insured, Pre-Refunded, 6.375%, 2/01/17.................................................. 155,000 171,370
Series A, MBIA Insured, 5.80%, 2/01/15.................................................................. 500,000 537,830
Series B, FGIC Insured, 5.70%, 2/01/20 ................................................................. 500,000 530,345
Kentucky Development Finance Authority, Hospital Revenue, Refunding and
Improvement, St. Elizabeth Medical Center, Series A,
FGIC Insured, 6.00%, 11/01/10 ......................................................................... 750,000 787,485
Kentucky Economic Development Financing Authority,
Catholic Health, Refunding and Improvement, Series A, 5.00%, 12/01/18 .................................. 2,000,000 1,979,760
Hospital Facilities Revenue, St. Elizabeth Medical Center Project,
Series A, FGIC Insured, 6.00%, 12/01/22................................................................. 625,000 669,100
Hospital Systems Revenue, Appalachian Regional, Refunding and Improvement, 5.875%, 10/01/22............. 2,000,000 2,080,900
Medical Center Revenue, Ashland Hospital Corp., Refunding and Improvement,
Series A, FSA Insured, 6.125%, 2/01/12 ................................................................. 500,000 541,000
Kentucky HFC Revenue,
Refunding, Series A, 6.375%, 7/01/28 ................................................................... 1,500,000 1,604,355
Series B, 6.25%, 7/01/28 ............................................................................... 1,280,000 1,372,006
Series C, FHA Insured, 6.40%, 1/01/17................................................................... 1,375,000 1,486,705
SFMR, FHA/VA, Series D, 7.45%, 1/01/23.................................................................. 100,000 105,888
SFMR, Series A, 6.60%, 7/01/11.......................................................................... 40,000 42,704
SFMR, Series B, 6.60%, 7/01/11.......................................................................... 150,000 160,142
Kentucky Infrastructure Authority Revenue, Revolving Fund Program,
Series J, 6.375%, 6/01/14............................................................................... 500,000 560,445
Wastewater Revolving Fund Program, Series D, 5.75%, 6/01/15 ............................................ 300,000 319,473
Kentucky State Development Finance Authority Revenue, Sisters of Charity
of Nazareth Health Corp., Refunding, Pre-Refunded,
6.75%, 11/01/12........................................................................................ $ 100,000 $ 110,257
Kentucky State Property and Buildings Commission Revenue, Project No. 56, 6.00%, 9/01/14 ............... 700,000 757,274
Lexington-Fayette Urban County Government Revenue,
University of Kentucky Library Project, MBIA Insured, Pre-Refunded,
6.625%, 11/01/13........................................................................................ 500,000 575,875
6.75%, 11/01/24......................................................................................... 750,000 868,875
Louisville and Jefferson County Metropolitan Sewer District, Sewer and Drain System Revenue,
Refunding, Series A, AMBAC Insured, Pre-Refunded, 6.75%, 5/15/25 ....................................... 300,000 347,778
Refunding, Series B, MBIA Insured, 5.30%, 5/15/18 ...................................................... 1,000,000 1,024,550
Series A, FGIC Insured, 5.00%, 5/15/30 ................................................................. 1,000,000 998,350
Series A, MBIA Insured, 5.50%, 5/15/21.................................................................. 500,000 520,905
Louisville and Jefferson County, Regional Airport Authority,
Airport Systems Revenue, MBIA Insured, 5.00%, 7/01/25.................................................. 1,500,000 1,480,260
Madison County Utility District Revenue, Refunding, FSA Insured, 5.20%, 2/01/22......................... 1,000,000 1,015,220
McCracken County Hospital Revenue, Mercy Health System,
Refunding, Series A, MBIA Insured, 6.40%, 11/01/07...................................................... 500,000 563,960
Pendleton Multi-County Association Trust, Lease Revenue, Series A, 6.50%, 3/01/19 ...................... 1,050,000 1,154,496
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17............................................... 430,000 490,578
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA,
Special Facilities, American Airlines, Series A, 6.45%, 12/01/25........................................ 1,480,000 1,630,412
Russell Health System Revenue, 7/01/15,
8.10%................................................................................................... 205,000 248,513
Our Lady of Bellefonte, Refunding, 5.50%................................................................ 1,800,000 1,847,196
Pre-Refunded, 8.10%..................................................................................... 145,000 183,360
Russellville Housing Authority, MFR, Northfield Manor Project, GNMA Secured, 5.65%, 4/20/34 ............ 1,455,000 1,495,071
Shelbyville COP, Water and Sewer Project, Refunding and Improvement,
Series A, MBIA Insured, 5.15%, 7/01/18 ................................................................. 1,000,000 1,014,090
Somerset Water Project Revenue, MBIA Insured, 6.40%, 12/01/06 .......................................... 100,000 102,660
Virgin Islands Public Finance Authority Revenue, Refunding,
Senior Lien Fund Loan Notes, Series A, 5.625%, 10/01/25................................................ 2,000,000 2,044,800
--------------
Total Long Term Investments (Cost $53,821,004) ......................................................... 57,641,447
--------------
aShort Term Investments 3.1%
Ashland PCR, Ashland Oil Inc. Project, Weekly VRDN and Put, 3.20%, 4/01/09 ............................. 1,000,000 1,000,000
Kentucky Development Financing Authority Revenue, Pooled Loan Program,
Series A, FGIC Insured, Weekly VRDN and Put,
3.25%, 12/01/15........................................................................................ 850,000 850,000
' --------------
Total Short Term Investments (Cost $1,850,000).......................................................... 1,850,000
--------------
Total Investments (Cost $55,671,004) 98.2% ............................................................. 59,491,447
Other Assets, less Liabilities 1.8%..................................................................... 1,117,214
--------------
Net Assets 100.0%....................................................................................... $60,608,661
==============
</TABLE>
See glossary of terms on page 113.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Louisiana Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
CLASS I (UNAUDITED) 1998 1997 19961 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period....................... $11.61 $11.32 $11.32 $11.03 $11.56 $11.57
-----------------------------------------------------------------------
Income from investment operations:
Net investment income..................................... .30 .63 .65 .66 .66 .67
Net realized and unrealized gains (losses)................ .05 .30 -- .28 (.55) (.01)
-----------------------------------------------------------------------
Total from investment operations........................... .35 .93 .65 .94 .11 .66
-----------------------------------------------------------------------
Less distributions from net investment income.............. (.31) (.64) (.65) (.65) (.64) (.67)
-----------------------------------------------------------------------
Net asset value, end of period............................. $11.65 $11.61 $11.32 $11.32 $11.03 $11.56
=======================================================================
Total return*.............................................. 3.09% 8.46% 5.94% 8.75% 1.14% 5.63%
Ratios/supplemental data
Net assets, end of period (000's).......................... $148,022 $134,922 $112,981 $107,461 $104,980 $115,971
Ratios to average net assets:
Expenses.................................................. .74%** .76% .76% .78% .75% .68%
Net investment income..................................... 5.22%** 5.50% 5.76% 5.89% 5.98% 5.70%
Portfolio turnover rate.................................... 9.50% 15.26% 13.68% 5.23% 32.28% 17.63%
Class II
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period....................... $11.68 $11.37 $11.37 $11.01
------------------------------------------------
Income from investment operations:
Net investment income..................................... .27 .57 .58 .49
Net realized and unrealized gains......................... .05 .32 -- .35
------------------------------------------------
Total from investment operations........................... .32 .89 .58 .84
------------------------------------------------
Less distributions from net investment income.............. (.28) (.58) (.58) (.48)
-------------------------------------------------
Net asset value, end of period............................. $11.72 $11.68 $11.37 $11.37
================================================
Total return*.............................................. 2.78% 8.02% 5.27% 7.76%
Ratios/supplemental data
Net assets, end of period (000's).......................... $7,906 $4,469 $3,004 $1,438
Ratios to average net assets:
Expenses.................................................. 1.30%** 1.32% 1.33% 1.35%**
Net investment income..................................... 4.64%** 4.95% 5.29% 5.27%**
Portfolio turnover rate.................................... 9.50% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Louisiana Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
bLong Term Investments 98.4%
Bonds 96.9%
Ascension Parish Sales and Use Tax, Gravity Drainage District No. 1, Pre-Refunded, 7.25%,
12/01/06................................................................................................. $ 300,000 $ 317,415
12/01/07................................................................................................. 300,000 317,415
12/01/08................................................................................................. 200,000 211,610
Bastrop, Inc., IDB, PCR, International Paper Co. Project, Refunding, 6.90%, 3/01/07...................... 500,000 546,110
Baton Rouge Public Improvement, Sales and Use Tax Revenue, AMBAC Insured, 7.00%, 8/01/08 ................ 150,000 157,206
Bossier City Louisiana Public Improvement Sales and Use Tax Revenue, FGIC Insured, 5.00%,
12/01/21................................................................................................. 1,875,000 1,852,013
12/01/22................................................................................................. 1,515,000 1,496,017
Calcasieu Parish Memorial Hospital Service District Revenue,
Lake Charles Memorial Hospital Project, Series B, 6.875%, 11/01/12 ...................................... 805,000 865,608
Calcasieu Parish Public Trust Authority,
Mortgage Revenue, Refunding, Series A, 7.75%, 6/01/12 ................................................... 735,000 784,973
SFMR, Series A, 6.40%, 4/01/32 .......................................................................... 285,000 305,586
Denham Spring Livingston Housing and Mortgage Finance Authority, SFHR, ETM, Series A, 7.20%, 8/01/10 .... 1,380,000 1,645,802
DeSoto Parish Environmental Improvement Revenue, International Paper Co. Project, Series A,
7.70%, 11/01/18 ......................................................................................... 1,500,000 1,769,550
5.65%, 12/01/21.......................................................................................... 1,000,000 1,037,860
DeSoto Parish GO, School District No. 1, Pre-Refunded, 8.00%, 1/01/09.................................... 150,000 152,129
East Baton Rouge Mortgage Finance Authority,
MBS, Series A, 7.875%, 8/01/23 .......................................................................... 765,000 804,000
SF Purchase, Series F, GNMA Secured, 7.875%, 12/01/21.................................................... 985,000 1,048,769
SFM, Refunding, Series A, 6.10%, 10/01/29................................................................ 990,000 1,061,567
East Baton Rouge Parish Public Improvement, Sales and Use Tax, MBIA Insured, Pre-Refunded, 7.25%, 2/01/13 425,000 437,759
East Baton Rouge Parish Sales and Use Tax, FGIC Insured, 5.90%, 2/01/18.................................. 750,000 801,615
Ernest N Morial, New Orleans Exhibit Hall Authority, Special Tax, Insured MBIA, 5.00%, 7/15/27........... 1,000,000 987,890
Hammond-Tangipahoa Home Mortgage Authority, Louisiana Revenue,
University Facilities Incorporated Project, MBIA Insured,
5.375%, 7/15/15......................................................................................... 1,090,000 1,116,531
Iberville Parish Consolidated School District No. 005,
GO, Unlimited Tax, Pre-Refunded, 8.00%, 10/01/04......................................................... 245,000 250,726
Pre-Refunded, 8.125%, 10/01/08 .......................................................................... 125,000 127,933
Jefferson Louisiana Sales Tax District, Special Sales Tax Revenue, 5.00%, 12/01/22....................... 3,000,000 2,987,250
Jefferson Parish Home Mortgage Authority, SFMR, Series A, GNMA Secured, 8.30%, 4/01/20................... 95,000 97,966
Jefferson Parish School Board, Sales and Use Tax Revenue, ETM, Series A, 7.35%, 2/01/03.................. 500,000 510,075
Lafayette Parish Consolidated School District No. 1, FGIC Insured, Pre-Refunded, 7.70%, 3/01/07.......... 400,000 411,956
Lafayette Public Trust Financing Authority, SFMR,
ETM, Series A, 7.20%, 4/01/11 ........................................................................... 30,000 36,137
Refunding, Series A, 8.50%, 11/15/12..................................................................... 253,133 264,641
Lafourche Parish Home Mortgage Authority, SFMR, ETM, 7.40%, 7/01/10 ..................................... 95,000 112,448
Lake Charles Harbor and Terminal District, Port Facilities Revenue,
Occidental Petroleum Corp., Refunding, 7.20%, 12/01/20 .................................................. 3,000,000 3,339,450
Lake Charles Nonprofit HDC, Section 8, Assisted Mortgage Revenue,
Chateau Project, Refunding, Series A, FSA Insured,
7.875%, 2/15/25 ........................................................................................ 750,000 802,740
Leesville IDBR, Wal-Mart Stores, Inc. Project, Refunding, 7.10%, 3/01/11 ................................ 1,750,000 1,851,990
Louisiana Housing Finance Agency Mortgage Revenue,
MF, Refunding, Series A, FHA Insured, 7.00%, 7/01/22..................................................... 2,795,000 2,847,015
MF, Westview Project, FHA Insured, 7.80%, 4/01/30........................................................ 750,000 786,878
SF, GNMA Secured, 8.30%, 11/01/20 ....................................................................... 440,000 449,790
Louisiana Office Capital Facility Corp., Non-Profit Corp., 7.75%, 12/01/10 .............................. 1,600,000 1,771,504
Louisiana Public Facilities Authority, Hospital Revenue,
Franciscan Missionaries, Series C, 5.00%, 7/01/19 ....................................................... 4,250,000 4,195,558
bLouisiana Health Systems Corporation Project, Refunding, FSA Insured, 5.00%, 10/01/22................... 1,000,000 984,820
Pendleton Memorial Methodist, Refunding, 5.25%, 6/01/28 ................................................. 5,000,000 4,765,550
Womens Hospital Foundation Project, Refunding, FGIC Insured, Pre-Refunded, 8.125%, 10/01/14 ............. 65,000 66,525
Womens Hospital Foundation Project, Refunding, FSA Insured, 5.60%, 10/01/19 ............................. 1,500,000 1,552,125
Louisiana Public Facilities Authority, Lease Revenue, Orleans Parish School
Board Project, FSA Insured, 5.65%, 6/15/11 ............................................................. 1,230,000 1,293,062
Louisiana Public Facilities Authority Revenue,
Alton Ochsner Medical Foundation Project, Series C, MBIA Insured, 6.50%, 5/15/22......................... 930,000 1,008,446
Centenary College Project, 5.90%, 2/01/17................................................................ 1,000,000 1,038,560
Louisiana Public Facilities Authority Revenue, (cont.)
Dillard University Project, Refunding, AMBAC Insured, 5.00%, 2/01/18 .................................... $2,000,000 $ 2,003,360
Jefferson Parish EastBank Office, Refunding, FGIC Insured, 7.70%, 8/01/10 ............................... 200,000 209,274
Loyola University Project, Refunding, MBIA Insured, 5.625%, 10/01/16 .................................... 1,000,000 1,061,370
MF Housing, One Lakeshore, Refunding, Series A, GNMA Secured, 6.40%, 7/20/20 ............................ 1,900,000 2,023,006
MFHR, Pontchartrain Apartments, Series A, GNMA Secured, 8.375%, 7/20/23 ................................. 61,501 64,816
Mortgage Purchase, HFA, 6.05%, 1/01/26................................................................... 1,200,000 1,264,800
SFM Purchase, Series C, 8.45%, 12/01/12 ................................................................. 1,325,140 1,421,399
Student Loan, Series A, Sub-Series 3, 7.00%, 9/01/06 .................................................... 955,000 1,015,461
Tulane University, AMBAC Insured, 6.05%, 10/01/25........................................................ 5,500,000 6,046,205
Tulane, University of Louisiana, Refunding, Series A-1, MBIA Insured, 5.10%, 11/15/21.................... 1,000,000 1,007,570
Xavier, University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/17......................... 1,000,000 1,021,790
Xavier, University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/27......................... 6,015,000 6,100,293
Louisiana Stadium and Exposition District, Hotel Occupancy Tax and Stadium Revenue,
Series A, FGIC Insured, 6.00%, 7/01/16 .................................................................. 5,000,000 5,427,950
Louisiana State Gas and Fuels Tax Revenue, Series A, 7.25%, 11/15/04 .................................... 500,000 529,260
Louisiana State Offshore Terminal Authority, Deepwater Port Revenue,
Loop Inc., First Stage, Refunding, Series B, 7.20%, 9/01/08 ............................................. 1,000,000 1,099,460
Series E, 7.60%, 9/01/10 ................................................................................ 480,000 520,421
Series E, Pre-Refunded, 7.60%, 9/01/10 .................................................................. 520,000 567,044
Louisiana State University, Agricultural and Mechanical College,
University Revenues, Auxiliary, MBIA Insured,
5.00%, 7/01/17........................................................................................... 500,000 502,460
5.50%, 7/01/26........................................................................................... 1,500,000 1,550,505
Louisiana State University at Eunice Project, MBIA Insured, 5.00%, 6/01/18............................... 1,025,000 1,024,918
Mississippi River Bridge Authority Revenue, 6.75%, 11/01/12.............................................. 1,050,000 1,159,484
Natchitoches Parish GO, Consolidated School District No. 7,
Pre-Refunded, 8.30%, 3/01/10 ............................................................................ 125,000 129,100
Series B, Pre-Refunded, 7.50%, 3/01/09 .................................................................. 230,000 242,353
Series B, Pre-Refunded, 7.50%, 3/01/10 .................................................................. 235,000 247,622
New Orleans Aviation Board Revenue, Series B-1, AMBAC Insured, 5.45%, 10/01/27........................... 1,200,000 1,229,028
New Orleans GO,
Public Improvement, FGIC Insured, 5.90%, 11/01/25........................................................ 1,000,000 1,060,330
Public Improvement, Series A, AMBAC Insured, 5.125%, 12/01/27............................................ 1,000,000 1,004,670
Public Improvement, Series A, FGIC Insured, 5.50%, 12/01/21.............................................. 1,290,000 1,340,104
Refunding, AMBAC Insured, 6.00%, 9/01/21................................................................. 2,000,000 2,079,200
New Roads Electric System Revenue, 7.00%, 7/01/17 ....................................................... 1,000,000 1,075,550
Orleans Levee District, GO, Levee Improvement, FSA Insured, 5.95%, 11/01/14 ............................. 940,000 1,034,564
Orleans Parish Louisiana Parishwide School District, GO,
Series A, FGIC Insured, 5.125%, 9/01/22.................................................................. 1,000,000 1,006,350
Refunding, Series B, FGIC Insured, 5.50%, 9/01/20 ....................................................... 1,000,000 1,044,340
Orleans Parish Parishwide School District, AMBAC Insured, 5.375%, 9/01/21................................ 2,000,000 2,048,600
Orleans Parish School Board, Series 95, FGIC Insured, 5.375%, 9/01/18.................................... 1,950,000 1,992,705
Ouachita Parish Hospital Service Revenue, District No. 1, Glenwood Regional Medical
Center, Refunding, FSA Insured, 5.75%, 5/15/21........................................................... 2,500,000 2,666,650
Puerto Rico Commonwealth GO, Series 1990, Pre-Refunded, 7.70%, 7/01/20................................... 500,000 545,560
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07........................................................................................... 120,000 123,952
7.75%, 7/01/08........................................................................................... 50,000 51,138
Puerto Rico Electric Power Authority Revenue, Refunding, Series N, 7.125%, 7/01/14....................... 560,000 585,161
Puerto Rico HFC, SFMR, Portfolio No. 1
Series B, GNMA Secured, 7.65%, 10/15/22 ................................................................. 145,000 153,340
Series C, GNMA Secured, 6.85%, 10/15/23.................................................................. 650,000 692,491
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Baxter Travenol Labs, Inc., Series A, 8.00%, 9/01/12 ................................................... 150,000 154,950
Rapides Parish GO, Consolidated School District No. 52, Pineville, Pre-Refunded, 8.40%, 3/01/03 ......... 75,000 76,760
Rapides Parish Housing and Mortgage Finance Authority, SFM, ETM, 7.25%, 8/01/10 ......................... 1,370,000 1,564,485
Shreveport Airport System Revenue, Series A, FSA Insured, 5.375%, 1/01/28 ............................... 1,000,000 1,017,330
Shreveport GO, Pre-Refunded, 7.50%, 1/01/09 ............................................................. 150,000 151,887
Shreveport Louisiana Airport Systems Revenue, PFC, Series B, FSA Insured, 5.375%, 1/01/24 ............... 2,000,000 2,034,660
Shreveport Louisiana Certificate Indebtedness, Refunding, Series A, AMBAC Insured, 5.00%, 10/01/16 ...... 1,000,000 1,005,690
Shreveport Water and Sewer Revenue, Series A, FGIC Insured, 5.95%, 12/01/14.............................. $3,500,000 $ 3,769,605
St. Bernard Parish Exempt Facilities Revenue, Mobil Oil Corp. Project, 5.90%, 11/01/26 .................. 2,000,000 2,130,400
St. Bernard Parish Home Mortgage Authority Revenue, SFMR,
ETM, Series A, FGIC Insured, 7.50%, 9/01/10 ............................................................. 435,000 525,584
Refunding, Series A, 8.00%, 3/25/12 ..................................................................... 676,815 741,912
St. Charles Parish PCR, Louisiana Power and Light Co. Project, 7.50%, 6/01/21 ........................... 2,500,000 2,715,950
St. Charles Parish Solid Waste Disposal Revenue, Louisiana Power and Light Co. Project,
7.05%, 4/01/22 .......................................................................................... 1,500,000 1,603,980
Series A, 7.00%, 12/01/22 ............................................................................... 750,000 822,443
St. John's Baptist Parish Sales Tax District, 7.30%,
12/01/08 ................................................................................................ 430,000 457,554
12/01/09 ................................................................................................ 275,000 291,821
St. Mary's Public Trust Financing Authority, SFMR, Refunding, Series A, 7.625%, 3/25/12 ................. 187,863 209,412
St. Tammany's Parish Hospital Service Revenue, District No. 2, Pre-Refunded, 8.00%, 10/01/08............. 125,000 127,920
St. Tammany's Public Trust Financing Authority, SFMR, ETM, Series A, 7.20%
7/01/10.................................................................................................. 165,000 194,506
7/01/11.................................................................................................. 50,000 60,371
State Colleges & Universities, Lease Revenue, University of Southwestern
Louisiana, Cajundome, MBIA Insured, 5.65%, 9/01/26...................................................... 4,080,000 4,305,745
Tangipahoa Parish Hospital Service Revenue, District No. 1, Refunding, AMBAC Insured, 6.25%, 2/01/24 .... 5,500,000 5,947,204
Ville Platte Utilities Revenue, Refunding, Pre-Refunded, 7.80%, 5/01/02 ................................. 205,000 212,602
Virgin Islands Public Finance Authority Revenue, Senior Lien, Fund Loan Notes,
Refunding, Series A, 5.50%, 10/01/18 .................................................................... 3,000,000 3,050,190
West Feliciana Parish PCR, Gulf States Utilities Co. Project,
7.70%, 12/01/14 ......................................................................................... 6,500,000 7,276,880
Refunding, 8.00%, 12/01/24 .............................................................................. 5,000,000 5,312,400
--------------
Total Bonds (Cost $141,412,341) ......................................................................... 151,006,465
--------------
Zero Coupon Bonds 1.5%
Shreveport Water and Sewer Revenue, Refunding, Series B, FGIC Insured,
(original accretion rate 7.05%), 12/01/11 (Cost $1,984,614) ............................................ 5,000,000 2,318,900
--------------
Total Long Term Investments (Cost $143,396,955).......................................................... 153,325,365
--------------
aShort-term Investments .8%
Calcasieu Parish Inc., IDB, IDR, Olin Corp. Project, Refunding, Series B,
Daily VRDN and Put, 3.30%, 2/01/16....................................................................... 800,000 800,000
Louisiana Public Facilities Authority Revenue, Kenner Hotel, Ltd.,
Daily VRDN and Put, 3.25%, 12/01/15...................................................................... 100,000 100,000
Louisiana State Offshore Term Authority, Deepwater Port Revenue,
ACES, Loop Inc., 1st Stage, Refunding, Daily VRDN and Put, 2.50%, 9/01/06 .............................. 200,000 200,000
Puerto Rico Commonwealth Government Development Bank, EDR,
Refunding, MBIA Insured, Weekly VRDN and Put, 2.50%, 12/01/15 .......................................... 200,000 200,000
--------------
Total Short-term Investments (Cost $1,300,000) .......................................................... 1,300,000
--------------
Total Investments (Cost $144,696,955) 99.2%.............................................................. 154,625,365
Other Assets, less Liabilities .8% ...................................................................... 1,302,157
--------------
Net Assets 100.0% ....................................................................................... $155,927,522
==============
</TABLE>
See glossary of terms on page 113.
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 rates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Maryland Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
CLASS I (UNAUDITED) 1998 1997 19961 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period...................... $11.64 $11.33 $11.38 $10.92 $11.36 $11.27
------------------------------------------------------------------------
Income from investment operations:
Net investment income.................................... .29 .59 .61 .62 .63 .64
Net realized and unrealized gains (losses)............... .11 .32 (.03) .47 (.45) .09
------------------------------------------------------------------------
Total from investment operations.......................... .40 .91 .58 1.09 .18 .73
------------------------------------------------------------------------
Less distributions from:
Net investment income.................................... (.30)3 (.60)2 (.63) (.63) (.62) (.64)
Net realized gains....................................... (.01) -- -- -- -- --
------------------------------------------------------------------------
Total distributions....................................... (.31) (.60) (.63) (.63) (.62) (.64)
------------------------------------------------------------------------
Net asset value, end of period............................ $11.73 $11.64 $11.33 $11.38 $10.92 $11.36
========================================================================
Total return*............................................. 3.49% 8.27% 5.24% 10.18% 1.78% 6.40%
Ratios/supplemental data
Net assets, end of period (000's)......................... $235,219 $213,005 $185,234 $175,078 $153,145 $156,683
Ratios to average net assets:
Expenses................................................. .74%** .74% .73% .74% .73% .66%
Net investment income.................................... 5.02%** 5.20% 5.42% 5.56% 5.86% 5.58%
Portfolio turnover rate................................... 1.25% 3.19% 12.71% 8.11% 20.30% 18.38%
Class II
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period...................... $11.72 $11.40 $11.44 $10.93
--------------------------------------------------
Income from investment operations:
Net investment income.................................... .26 .54 .55 .47
Net realized and unrealized gains (losses)............... .11 .31 (.03) .51
--------------------------------------------------
Total from investment operations.......................... .37 .85 .52 .98
--------------------------------------------------
Less distributions from:
Net investment income.................................... (.26)4 (.53) (.56) (.47)
Net realized gains....................................... (.01) -- -- --
--------------------------------------------------
Total distributions....................................... (.27) (.53) (.56) (.47)
--------------------------------------------------
Net asset value, end of period............................ $11.82 $11.72 $11.40 $11.44
==================================================
Total return*............................................. 3.26% 7.70% 4.68% 9.06%
Ratios/supplemental data
Net assets, end of period (000's)......................... $14,673 $10,515 $5,084 $913
Ratios to average net assets:
Expenses................................................. 1.28%** 1.30% 1.27% 1.31%**
Net investment income.................................... 4.46%** 4.63% 4.78% 4.95%**
Portfolio turnover rate................................... 1.25% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions in excess of net investment income in the amount of
$.005.
3Includes distributions in excess of net investment income in the amount of
$.003.
4Includes distributions in excess of net investment income in the amount of
$.002.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Maryland Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 97.1%
Anne Arundel County GO, Second Issue, 7.75%, 3/15/08................................................... $ 200,000 $ 208,234
Anne Arundel County Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.00%, 1/01/26................ 1,650,000 1,742,367
Anne Arundel County PCR, Baltimore Gas and Electric Co. Project, Refunding, 6.00%, 4/01/24 ............ 9,500,000 10,163,670
Baltimore Consolidated Public Improvement, Series A, FGIC Insured, 5.30%,
10/15/15 .............................................................................................. 1,470,000 1,536,532
10/15/17............................................................................................... 1,500,000 1,556,085
Baltimore Convention Center Revenue, FGIC Insured, Pre-Refunded, 6.15%, 9/01/19........................ 4,250,000 4,720,815
Baltimore COP, Refunding, Series C, MBIA Insured, 7.25%, 4/01/16....................................... 545,000 582,038
Baltimore County Authority Revenue, Series 1989, 7.20%, 7/01/19 ....................................... 90,000 93,800
Baltimore County Mortgage Revenue, Old Orchard Apartments Project, Refunding, Series A, MBIA Insured,
7.00%, 7/01/16 ........................................................................................ 1,000,000 1,095,760
7.125%, 1/01/27........................................................................................ 3,000,000 3,304,230
Baltimore Economic Development Lease Revenue, Armistead Partnership, Refunding, Series A,
6.75%, 8/01/02 ........................................................................................ 1,010,000 1,092,871
7.00%, 8/01/11 ........................................................................................ 3,225,000 3,584,555
Baltimore GO, Series B, 7.15%, 10/15/08 ............................................................... 1,000,000 1,228,050
Baltimore Maryland COP, Emergency Telecommunication-PH II, Series A, MBIA Insured, 5.00%, 10/01/17..... 2,000,000 2,005,320
Baltimore Maryland Project Revenue, Waste Water Project, Refunding,
Series B, FGIC Insured, 5.00%, 7/01/28 ............................................................. 2,000,000 1,993,700
Baltimore Maryland Project Revenue, Water Project, Refunding, Series A, FGIC Insured, 5.00%, 7/01/18... 1,000,000 1,005,260
Baltimore Port Facilities Revenue, Consolidated Coal Sales, Series A, 6.50%, 10/01/11.................. 1,850,000 2,037,738
Baltimore Revenue,
Waste Water Project, Refunding, Series A, FGIC Insured, 5.80%, 7/01/15................................. 5,000,000 5,391,150
Waste Water Project, Refunding, Series A, FGIC Insured, 5.50%, 7/01/26................................. 1,150,000 1,209,869
Water Project, Refunding, Series A, FGIC Insured, 5.50%, 7/01/26....................................... 2,000,000 2,104,120
Bel Air COP, Parking Facilities, FSA Insured, Pre-Refunded, 7.80%, 6/01/10............................. 250,000 257,635
Frederick County College Revenue, Hood College Project, 7.20%, 7/01/09................................. 350,000 371,490
Frederick County EDR, Manekin Frederick Project, Refunding, Series A, 7.50%, 12/01/14 ................. 500,000 532,030
Gaithersburg Hospital Facilities Revenue, Shady Grove Hospital, Refunding and Improvement,
FSA Insured, 6.00%, 9/01/21............................................................................ 8,000,000 8,659,600
Series A, Pre-Refunded, 8.25%, 9/01/21................................................................. 8,000,000 9,148,960
Harford County Mortgage Revenue, Greenbrier V Apartments Project, Refunding,
FHA Insured, 6.50%, 11/01/26......................................................................... 3,000,000 3,270,210
Howard County EDR, Refunding, 7.75%, 6/01/12 .......................................................... 1,250,000 1,277,625
Howard County Metropolitan District, Series A, Pre-Refunded, 7.40%, 2/15/18 ........................... 215,000 220,197
Howard County Mortgage Revenue, Normandy Woods III Apartments Project,
Refunding, Series A, 6.10%, 7/01/25 ................................................................. 2,000,000 2,136,960
Kent County College Revenue, Washington College Project, Refunding, 7.70%, 7/01/18 .................... 300,000 313,320
Maryland Environmental Services, COP, Water and Waste Facilities, Series A, 6.70%, 6/01/11 ............ 1,900,000 2,044,343
Maryland Local Government Insurance Trust Capitalization Program, Series A, 7.125%, 8/01/09 ........... 650,000 700,167
Maryland State CDA,
Department of Economic and Community Development, SFHR Program, Fourth Series, 7.30%, 4/01/17.......... 1,000,000 1,056,330
Department of Housing and Community Development, Infrastructure Financing,
Series A, AMBAC Insured, Pre-Refunded, 7.25%, 6/01/09 ................................................ 130,000 136,154
Department of Housing and Community Development, MFHR Mortgage, Series A, 7.80%, 5/15/32............... 985,000 1,044,425
Department of Housing and Community Development, MFHR Mortgage, Series A, 6.85%, 5/15/33............... 1,800,000 1,919,592
Department of Housing and Community Development, MFHR Mortgage, Series D, 7.70%, 5/15/20............... 1,000,000 1,065,680
Department of Housing and Community Development, MFHR Mortgage, Series E, 7.10%, 5/15/28............... 675,000 714,737
Department of Housing and Community Development, SF Program, 1st Series, 7.40%, 4/01/17................ 140,000 144,075
Department of Housing and Community Development, SF Program, 2nd Series, 7.60%, 4/01/23................ 570,000 602,633
Department of Housing and Community Development, SF Program, 2nd Series, 7.85%, 4/01/29................ 200,000 209,428
Department of Housing and Community Development, SF Program, 3rd Series, 7.375%, 4/01/26............... 300,000 308,259
Department of Housing and Community Development, SF Program, 3rd Series, 7.25%, 4/01/27................ 1,435,000 1,514,485
Department of Housing and Community Development, SF Program, 4th Series, 7.375%, 4/01/10............... 995,000 1,044,651
Department of Housing and Community Development, SF Program, 4th Series, 7.45%, 4/01/32................ 940,000 989,341
Department of Housing and Community Development, SF Program, 5th Series, 6.85%, 4/01/11................ 1,955,000 2,075,291
Maryland State Community Development Administration,
Department of Housing and Community Development, Series B, 5.35%, 9/01/30.............................. 3,000,000 3,017,910
MFHR, Department of Economics and Community Development, Series A, 7.375%, 5/15/26..................... 195,000 198,900
MFHR, Department of Housing and Community Development, Series A, 7.50%, 5/15/31........................ 30,000 31,209
Maryland State EDC Lease Revenue, Hilton Street Facilities, Series A, 7.00%, 1/01/10................... 1,000,000 1,106,780
Maryland State Energy Financing Administration, Solid Waste Disposal Revenue,
Limited Obligation, Wheelabrator Water Projects,
6.45%, 12/01/16 ...................................................................................... $ 3,000,000 $ 3,309,150
Maryland State Health and Higher Educational Facilities Authority Revenue,
Anne Arundel Medical Center, FSA Insured, 5.10%, 7/01/18 .............................................. 3,375,000 3,401,629
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/12............................................... 1,000,000 1,107,640
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/22............................................... 250,000 276,910
Doctors Community Hospital, Refunding, 5.75%, 7/01/13 ................................................. 3,000,000 3,097,050
Franklin Square Hospital, MBIA Insured, Pre-Refunded, 7.50%, 7/01/19................................... 150,000 157,860
Hartford Memorial Hospital and Fallston General Hospital, 8.50%, 7/01/14 .............................. 85,000 86,599
Helix Health Issue, 5.00%, 7/01/27..................................................................... 11,000,000 11,008,360
Johns Hopkins Hospital, Refunding, 7.375%, 7/01/09 .................................................... 150,000 153,795
Johns Hopkins Medical Institutions, Parking Facilities, AMBAC Insured, 5.50%, 7/01/26 ................. 9,750,000 10,170,323
Johns Hopkins Medicine, MBIA Insured, 5.00%, 7/01/19 .................................................. 3,000,000 3,002,280
Johns Hopkins University, Refunding, 5.625%, 7/01/17................................................... 1,150,000 1,213,388
Junior Lien, Francis Scott Key Facility, Refunding, 5.625%, 7/01/25.................................... 2,520,000 2,620,296
Kernan Hospital, Connie Lee Insured, 6.10%, 7/01/24.................................................... 1,700,000 1,840,471
Mercy Medical Center Project, Refunding, FSA Insured, 5.75%, 7/01/26................................... 1,500,000 1,599,600
Upper Chesapeake Hospitals, Series A, FSA Insured, 5.375%, 1/01/28 .................................... 4,000,000 4,096,840
Maryland State IDA Financing, EDR, FSA Insured, Pre-Refunded, 7.10%, 7/01/18........................... 1,350,000 1,493,708
Maryland State IDA Revenue Financing, American Center Physics Headquarters, 6.625%, 1/01/17 ........... 6,000,000 6,530,400
Maryland State Stadium Authority,
Lease Revenue, Convention Center Expansion, AMBAC Insured, 5.875%, 12/15/14 ........................... 4,655,000 5,066,595
Sports Facilities Lease Revenue, AMBAC Insured, 5.75%, 3/01/22 ........................................ 5,000,000 5,313,800
Sports Facilities Lease Revenue, AMBAC Insured, 5.80%, 3/01/26 ........................................ 2,045,000 2,180,399
Sports Facilities Lease Revenue, Series D, 7.60%, 12/15/19 ............................................ 500,000 532,085
Maryland State Transportation Facilities Authority Revenue, Refunding, Series 1992, 5.75%, 7/01/13 .... 5,400,000 5,621,076
Maryland Water Quality Financing Administration Revenue, Revolving Loan Fund, Series A, 6.55%, 9/01/14. 1,000,000 1,090,210
Montgomery County Housing Opportunities Commission,
MFHR, Series B, 6.00%, 7/01/37......................................................................... 2,500,000 2,652,175
MFMR, Series A, 7.25%, 7/01/11......................................................................... 430,000 459,244
MFMR, Series A, 7.00%, 7/01/23......................................................................... 2,410,000 2,572,169
SFMR, Series A, 6.80%, 7/01/17......................................................................... 1,940,000 2,046,137
SFMR, Series A, 7.50%, 7/01/17......................................................................... 445,000 468,127
SFMR, Series A, 7.625%, 7/01/17........................................................................ 90,000 91,943
Montgomery County Revenue Authority, Golf Course System, Series A, 6.125%, 10/01/22 ................... 1,000,000 1,080,760
Northeast Solid Waste Disposal Authority Revenue, Montgomery County
Resources Recreation Project, Series A,
6.20%, 7/01/10......................................................................................... 3,100,000 3,357,889
6.30%, 7/01/16......................................................................................... 6,000,000 6,481,380
Ocean City GO, Refunding, MBIA Insured, 5.75%,
3/15/12 ............................................................................................... 1,880,000 2,030,080
3/15/13 ............................................................................................... 1,120,000 1,206,542
3/15/14 ............................................................................................... 1,180,000 1,265,161
Prince George's County COP, Real Estate Acquisition Program II, MBIA Insured, 6.00%, 9/15/14........... 2,050,000 2,243,356
Prince George's County GO, Consolidated Public Improvement, Series A, Pre-Refunded, 7.20%, 2/01/08 ... 130,000 133,263
Prince George's County Hospital Revenue, Dimensions Health Corp., Pre-Refunded, 7.00%, 7/01/22 ........ 1,000,000 1,127,570
Prince George's County Housing Authority, MFHR, Emerson House Project, Series A, 7.00%, 4/15/19 ....... 5,500,000 5,960,240
Prince George's County Housing Authority Mortgage Revenue, New Keystone
Apartments Project, Refunding, Series A, MBIA Insured, 6.80%, 7/01/25 ................................ 2,900,000 3,075,914
Prince George's County IDA Lease Revenue, Upper Marlboro Justice Center Project,
MBIA Insured, 5.80%, 6/30/14 ........................................................................ 2,750,000 2,945,195
Prince George's County Maryland GO, Consolidated Public Improvement, MBIA Insured, 5.00%, 4/15/18...... 2,100,000 2,105,397
Prince George's County Parking Authority Revenue, Justice Center
Facilities Project, Refunding, 6.45%, 5/01/05 ........................................................ 500,000 547,060
Prince George's County PCR, Refunding, Potomac Electric Project,
6.00%, 9/01/22 ........................................................................................ 1,200,000 1,268,484
6.375%, 1/15/23 ....................................................................................... 2,975,000 3,220,497
Puerto Rico Commonwealth GO,
5.50%, 7/01/17......................................................................................... 4,050,000 4,195,881
5.40%, 7/01/25......................................................................................... 1,950,000 2,008,305
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y, 5.50%, 7/01/26........ 6,900,000 7,175,655
Puerto Rico Commonwealth Public Improvement, GO, 5.75%, 7/01/17........................................ $ 3,000,000 $ 3,214,560
Puerto Rico Electric Power Authority Revenue, Series AA, MBIA Insured, 5.375%, 7/01/27................. 3,000,000 3,090,420
Rockville Mortgage Revenue, Refunding, Summit Apartments Project,
Series A, MBIA Insured, 5.70%, 1/01/26............................................................... 1,145,000 1,197,155
University of Maryland, Auxiliary Facilities System and Tuition Revenue, Series A, 5.60%, 4/01/16...... 1,000,000 1,047,790
Virgin Islands Public Finance Authority Revenue, Senior Lien, Fund Loan Notes,
Refunding, Series A, 5.50%,
10/01/14 .............................................................................................. 3,300,000 3,396,788
10/01/18 .............................................................................................. 1,700,000 1,728,441
Washington Suburban Sanitary District, General Construction,
5.25%, 6/01/19 ........................................................................................ 1,330,000 1,352,543
Pre-Refunded, 7.25%, 12/01/09 ......................................................................... 100,000 102,909
--------------
Total Long Term Investments (Cost $226,408,420)........................................................ 242,588,075
--------------
aShort-Term Investments 1.5%
Maryland Community Development Administration, MF, Development Revenue,
Avalon Lea Apartments Project, Refunding,
FNMA Secured, Weekly VRDN and Put, 3.20%, 6/15/26 .................................................... 900,000 900,000
Maryland National Park & Planning Commission, Prince Georges County,
Bond Anticipation Notes, Park Acquisition & Development,
Daily VRDN and Put, 3.30%, 8/01/02 ................................................................... 500,000 500,000
Maryland State Health and Higher Educational Facilities Authority Revenue,
Catholic Health, Series B, Weekly VRDN and Put, 3.25%, 12/01/15 ..................................... 400,000 400,000
Maryland State Health and Higher Educational Facilities Authority Revenue,
Pooled Loan Program, Series A, Weekly VRDN and Put, 3.25%, 4/01/35 .................................. 200,000 200,000
Puerto Rico Commonwealth Highway and Transportation
Authority, Transportation Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 2.75%, 7/01/28 .................................................................. 1,700,000 1,700,000
--------------
Total Short-Term Investments (Cost $3,700,000)......................................................... 3,700,000
--------------
Total Investments (Cost $230,108,420) 98.6% ........................................................... 246,288,075
Other Assets, less Liabilities 1.4% ................................................................... 3,603,316
--------------
Net Assets 100.0% ..................................................................................... $249,891,391
==============
</TABLE>
See glossary of terms on page 113.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Missouri Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
CLASS I (UNAUDITED) 1998 1997 19961 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period..................... $12.23 $11.83 $11.94 $11.44 $11.94 $11.75
------------------------------------------------------------------------
Income from investment operations:
Net investment income................................... .31 .64 .65 .65 .65 .66
Net realized and unrealized gains (losses).............. .04 .44 (.07) .49 (.50) .21
------------------------------------------------------------------------
Total from investment operations......................... .35 1.08 .58 1.14 .15 .87
------------------------------------------------------------------------
Less distributions from:
Net investment income................................... (.31) (.64) (.65) (.64) (.65) (.68)
Net realized gains...................................... (.03) (.04) (.04) -- -- --
---------------------------------------------------------------------
Total distributions...................................... (.34) (.68) (.69) (.64) (.65) (.68)
-------------------------------------------------------------------------
Net asset value, end of period........................... $12.24 $12.23 $11.83 $11.94 $11.44 $11.94
========================================================================
Total return*............................................ 2.95% 9.43% 5.06% 10.23% 1.44% 7.29%
Ratios/supplemental data
Net assets, end of period (000's)........................ $338,642 $308,045 $269,564 $247,522 $227,442 $228,149
Ratios to average net assets:
Expenses................................................ .70%** .71% .70% .71% .70% .64%
Net investment income................................... 5.06%** 5.32% 5.56% 5.58% 5.75% 5.55%
Portfolio turnover rate.................................. 10.75% 14.30% 21.81% 18.27% 19.84% 11.02%
Class II
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period..................... $12.27 $11.85 $11.97 $11.47
-------------------------------------------------
Income from investment operations:
Net investment income................................... .27 .58 .57 .48
Net realized and unrealized gains (losses).............. .06 .45 (.07) .50
-------------------------------------------------
Total from investment operations......................... .33 1.03 .50 .98
-------------------------------------------------
Less distributions from:
Net investment income................................... (.28) (.57) (.58) (.48)
Net realized gains...................................... (.03) (.04) (.04) --
-------------------------------------------------
Total distributions...................................... (.31) (.61) (.62) (.48)
-------------------------------------------------
Net asset value, end of period........................... $12.29 $12.27 $11.85 $11.97
=================================================
Total return*............................................ 2.74% 8.96% 4.32% 8.66%
Ratios/supplemental data
Net assets, end of period (000's)........................ $15,574 $10,045 $4,295 $1,325
Ratios to average net assets:
Expenses................................................ 1.26%** 1.27% 1.27% 1.27%**
Net investment income................................... 4.50%** 4.75% 4.92% 4.94%**
Portfolio turnover rate.................................. 10.75% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Missouri Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 98.0%
Audrain County Hospital Revenue, Audrain Medical Center Project, Refunding,
AMBAC Insured, 7.35%, 11/01/08 ........................................................................ $ 500,000 $ 557,900
Bi-State Development Agency, Missouri-Illinois Metropolitan District Term Facilities
Revenue, American Commercial Lines, Inc.,
Refunding, Pre-Refunded, 7.75%, 6/01/10............................................................... 3,000,000 3,289,230
Bowling Green School District R1, Building Corp., Leasehold Revenue,
MBIA Insured, Pre-Refunded, 6.50%, 3/01/13 ............................................................ 1,400,000 1,524,040
Cape Girardeau County Missouri IDA, Solid Waste Disposal Revenue,
Procter & Gamble Paper Products, 5.30%, 5/15/28 ...................................................... 6,875,000 6,940,175
Fenton Public Facility Authority, Leasehold Revenue, 5.25%, 1/01/18.................................... 1,000,000 1,002,120
Guam Airport Authority Revenue,
Refunding, Series A, 6.50%, 10/01/23................................................................... 1,075,000 1,166,741
Series B, 6.60%, 10/01/10 ............................................................................. 500,000 550,585
Series B, 6.70%, 10/01/23.............................................................................. 4,000,000 4,376,880
Hannibal IDA, Health Facilities, 5.75%, 3/01/22........................................................ 1,800,000 1,917,864
Hazelwood IDA, MFHR, Lakes Apartments Project, Refunding, Series A, 6.10%, 9/20/26..................... 1,745,000 1,840,085
Jackson County IDA Revenue, St. Joseph's Health Center Corp., MBIA Insured, 6.50%, 7/01/19 ............ 3,000,000 3,255,870
Jackson County Public Building Corp., Leasehold Revenue, Capital Improvement Projects,
MBIA Insured, 5.70%, 12/01/17.......................................................................... 1,595,000 1,700,206
Jefferson County Reorganized School District No. R-3, AMBAC Insured, 7.00%, 3/01/09.................... 370,000 393,480
Kansas City Airport Revenue, General Improvement, Series B, FSA Insured, Pre-Refunded, 6.875%, 9/01/12 605,000 701,667
Kansas City IDA,
Ewing Marion Kauffman, Series B, 5.70%, 4/01/27........................................................ 11,100,000 11,739,249
MFHR, Hilltop Village Apartments Project, Refunding, Series A, 5.70%, 10/01/17 ........................ 1,030,000 1,058,593
MFHR, Hilltop Village Apartments Project, Refunding, Series A, 5.80%, 10/01/27 ........................ 1,555,000 1,602,474
MFHR, Mews Apartments Project, Series A, 6.30%, 7/01/20................................................ 3,345,000 3,570,821
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 5,384,550
Kansas City MAC, Leasehold Revenue, Capital Improvement,
Citywide Infrastructure, Series B, FSA Insured, 6.50%, 3/01/14 ........................................ 7,790,000 8,533,010
Truman Medical Center, Series A, Pre-Refunded, 7.00%, 11/01/11......................................... 1,665,000 1,823,741
Kansas City Tax Increment Financing Commission, Tax Increment Revenue,
Briarcliff West Project, Series B, 7.00%, 11/01/14 .................................................... 3,525,000 3,696,985
Lake of the Ozarks Community Bridge Corp., Bridge System Revenue,
6.40%, 12/01/25 ....................................................................................... 7,000,000 8,189,440
Pre-Refunded, 6.25%, 12/01/16 ......................................................................... 4,535,000 5,241,236
Refunding, 5.25%, 12/01/14............................................................................. 1,000,000 974,330
Refunding, 5.25%, 12/01/20............................................................................. 6,000,000 5,778,540
Refunding, 5.25%, 12/01/26............................................................................. 3,500,000 3,331,650
Lee's Summit, IDA Revenue, John Knox Village Project,
6.55%, 8/15/10 ........................................................................................ 1,000,000 1,085,140
6.625%, 8/15/13 ....................................................................................... 2,000,000 2,196,080
Missouri School Board Association COP,
Lease Participation, North St. Francois County Project, MBIA Insured, Pre-Refunded, 7.375%, 4/01/10 ... 1,000,000 1,003,070
Pooled Finance Program, Series A-3, BIG Insured, 7.875%, 3/01/06....................................... 5,000 5,118
Pooled Finance Program, Series A-5, BIG Insured, 7.375%, 3/01/06....................................... 130,000 134,597
Missouri School Boards Association, Lease Participation Certificates,
Fox C-6 School District, FSA Insured, 5.75%, 3/01/16 .................................................. 6,150,000 6,580,193
Republic R-3 School District Project, Refunding, FSA Insured, 6.00%, 3/01/16 .......................... 2,220,000 2,396,179
Missouri State Development Finance Board, Recreation Facilities Revenue,
YMCA Greater Saint Louis Project, Series A, 5.40%, 9/01/18 ............................................ 7,420,000 7,534,491
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 2,258,823
Revolving Fund Program, PCR, Kansas City Project, Series A, 5.75%, 1/01/16............................. 1,000,000 1,072,140
Revolving Fund Program, PCR, Series A, 6.55%, 7/01/14 ................................................. 4,500,000 4,948,470
Revolving Fund Program, PCR, Series A, FSA Insured, 6.05%, 7/01/16 .................................... 1,000,000 1,089,190
Revolving Fund Program, PCR, Series B, 5.80%, 1/01/15 ................................................. 1,000,000 1,077,870
Revolving Fund Program, PCR, Series B, 7.20%, 7/01/16 ................................................. 2,000,000 2,322,740
Revolving Fund Program, Water Pollution Control Revenue, Series A, 7.00%, 10/01/10..................... 940,000 1,013,160
Revolving Fund Program, Water Pollution Control Revenue, Series A, Pre-refunded, 7.125%, 12/01/10 ..... 520,000 567,913
Revolving Fund Program, Water Pollution Control Revenue, Series B, 7.125%, 12/01/10.................... 430,000 466,503
Thomas Hill Electric Cooperative, PCR, 5.50%, 12/01/11................................................. 2,000,000 2,130,280
Union Electric Company Project, Series A, 7.40%, 5/01/20............................................... 2,390,000 2,561,506
Missouri State HDC,
Series B, GNMA Secured, 6.40%, 12/01/24................................................................$ 2,225,000 $ 2,356,720
SFMR, Homeowner Loan, Series D, GNMA Secured, 6.125%, 3/01/28 ......................................... 1,755,000 1,863,126
SFMR, Series A, GNMA Secured, 7.90%, 2/01/21........................................................... 115,000 118,079
SFMR, Series A, GNMA Secured, 7.625%, 2/01/22.......................................................... 335,000 348,862
SFMR, Series B, GNMA Secured, 6.10%, 9/01/14........................................................... 1,860,000 1,994,218
SFMR, Series B, GNMA Secured, 7.625%, 6/01/21.......................................................... 275,000 283,635
SFMR, Series B, GNMA Secured, 6.45%, 9/01/27........................................................... 1,825,000 1,978,118
SFMR, Series C, GNMA Secured, 6.90%, 7/01/18........................................................... 1,490,000 1,585,628
Missouri State Health & Educational Facilities Authority, Health Facilities Revenue,
Charles E. Still Osteopathic Hospital Project, Refunding, 7.625%, 2/01/08 ............................. 125,000 125,350
Childrens Mercy Hospital, 5.30%, 5/15/28............................................................... 5,380,000 5,398,184
Freeman Health Systems Project, 5.25%, 2/15/28 ........................................................ 2,250,000 2,243,228
Health Midwest, Series A, MBIA Insured, 6.40%, 2/15/15 ................................................ 5,000,000 5,387,750
Health Midwest, Series B, MBIA Insured, 6.10%, 6/01/11................................................. 700,000 773,311
Health Midwest, Series B, MBIA Insured, 6.25%, 6/01/14................................................. 1,990,000 2,198,413
Health Midwest, Series B, MBIA Insured, 6.25%, 2/15/22................................................. 1,100,000 1,178,617
Heartland Health, Refunding and Improvement, 8.125%, 10/01/10 ......................................... 865,000 915,447
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17........................................ 2,745,000 2,983,788
Jefferson Memorial Hospital Obligated Group, 6.75%, 5/15/15 ........................................... 4,000,000 4,412,880
Jefferson Memorial Hospital Obligated Group, 6.80%, 5/15/25 ........................................... 3,250,000 3,573,180
Lake of the Ozarks General Hospital, Pre-Refunded, 8.00%, 2/15/11...................................... 3,500,000 3,639,755
Lake of the Ozarks General Hospital, Refunding, 6.25%, 2/15/11......................................... 1,250,000 1,351,263
Lake of the Ozarks General Hospital, Refunding, 6.50%, 2/15/21......................................... 1,000,000 1,100,240
Lutheran Senior Services, Refunding, 5.875%, 2/01/23................................................... 2,600,000 2,718,300
Lutheran Senior Services, Series A, 6.375%, 2/01/27.................................................... 4,000,000 4,335,320
Park Lane Medical Center, Series A, 4.70%, 1/01/04 .................................................... 2,000,000 2,030,960
Park Lane Medical Center, Series A, 5.60%, 1/01/15..................................................... 10,300,000 10,771,946
Spelman-St. Luke's Hospital Corp. Project, Pre-Refunded, 7.875%, 10/01/18 ............................. 175,000 179,088
SSM Health Care, Refunding, Series AA, MBIA Insured, 6.25%, 6/01/16.................................... 795,000 860,142
SSM Health Care, Series AA, MBIA Insured, Pre-refunded, 6.25%, 6/01/16................................. 205,000 226,150
Missouri State Health and Educational Facilities Authority Revenue,
SSM Health Care, Refunding, Series A, 5.00%, 6/01/18 .................................................. 2,750,000 2,739,523
St. Louis University, Refunding, Series A, AMBAC Insured, 7.875%, 6/01/12.............................. 50,000 50,500
Missouri State Housing Development Commission Mortgage Revenue, SF,
Series B, GNMA Secured, 7.75%, 6/01/22................................................................. 1,415,000 1,485,580
Series B-2, GNMA/FNMA Insured, 5.50%, 3/01/25 ......................................................... 2,110,000 2,143,971
Series D-2, FNMA/GNMA Insured, 5.40%, 9/01/28 ......................................................... 2,350,000 2,373,289
Missouri State Housing Development Commission, MFHR, FHA Insured, 8.50%, 12/01/29 ..................... 135,000 138,459
Missouri State Western College Revenue, Student Housing, Refunding, Pre-Refunded, 8.00%, 10/01/16...... 5,000,000 5,698,100
Moberly Combined Waterworks and Sewerage System, Refunding & Improvement Bonds,
FGIC Insured, Pre-Refunded, 7.50%, 8/01/15 ............................................................ 1,000,000 1,089,650
Northeast State University Recreational Facility Revenue, Campus Recreational
Center Project, AMBAC Insured, 5.80%, 6/01/15 ......................................................... 1,000,000 1,058,720
Northwest R-I Educational Facilities Authority, Leasehold Revenue,
Jefferson County, FSA Insured, 5.70%, 3/01/15 ........................................................ 5,200,000 5,467,332
O Fallon Public Facilities Authority, Leasehold Revenue,
Series A, AMBAC Insured, 5.40%, 2/01/17............................................................... 1,575,000 1,619,935
Phelps County Hospital Revenue, Phelps County Regional Medical Center, Refunding,
Connie Lee Insured, 6.00%, 5/15/13 .................................................................... 5,000,000 5,316,350
Poplar Bluff Public Building Corp., Leasehold Revenue, Series A, MBIA Insured,
Pre-Refunded, 5.50%, 9/01/12 ......................................................................... 2,820,000 3,104,623
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
FSA Insured, Pre-Refunded, 9.00%, 7/01/09.............................................................. 40,000 50,530
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue,
Series A, 7.90%, 7/01/07............................................................................... 50,000 51,647
Series A, 7.75%, 7/01/08............................................................................... 475,000 485,806
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.125%, 7/01/14................................................................... 1,110,000 1,159,872
Series O, 7.125%, 7/01/14 ............................................................................. 280,000 292,580
Series X, 6.00%, 7/01/15 .............................................................................. 2,375,000 2,561,865
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ................................... 320,000 335,203
Puerto Rico HFC, SFMR,
Portfolio No. 1, Series A, GNMA Secured, 7.80%, 10/15/21............................................... 40,000 40,879
Portfolio No. 1-C, GNMA Secured, 6.85%, 10/15/23....................................................... 1,265,000 1,347,693
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Baxter Travenol Labs, Inc., Series A, 8.00%, 9/01/12................................................... $ 350,000 $ 361,550
Upjohn Co. Project, 7.50%, 12/01/23.................................................................... 300,000 311,883
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 2,547,975
Puerto Rico Port Authority Revenue, Special Facilities, American Airlines,
Series A, 6.25%, 6/01/26 ............................................................................. 2,500,000 2,734,200
Puerto Rico Public Finance Corp., Commonwealth Appropriation, Series A, 5.00%, 6/01/26 ................ 1,865,000 1,842,787
Raymore GO, FSA Insured, 6.00%, 3/01/14................................................................ 1,000,000 1,063,770
Saint Louis Missouri Parking Facilities Revenue, Marquette Building Facilities,
Series A, MBIA Insured, 5.25%, 12/15/23................................................................ 1,000,000 1,012,610
Springfield Missouri IDAR, Bethesda Living Centers, Refunding, Series A,
5.625%, 8/15/18 ....................................................................................... 3,000,000 2,952,240
5.70%, 8/15/28 ........................................................................................ 5,250,000 5,160,960
Springfield Waterworks Revenue, Series A, Pre-Refunded, 5.60%, 5/01/23................................. 2,000,000 2,173,200
St. Charles County Community College, Pre-Refunded, 7.25%, 3/01/06 .................................... 500,000 524,060
St. Charles County Missouri IDA, Multifamily Revenue, Housing, Ashwood
Apartments Project, Series A, AMT, FSA Insured,
5.60%, 4/01/30 ....................................................................................... 1,000,000 1,017,780
St. Charles Public Facility Authority, Leasehold Revenue, Refunding, AMBAC Insured, 5.80%, 2/01/10 .... 3,000,000 3,246,060
St. Louis Airport Revenue, Lambert-St. Louis International Airport, Refunding
& Improvement, FGIC Insured, 6.125%, 7/01/15 .......................................................... 2,000,000 2,135,740
St. Louis County Housing Authority, MFHR, Kensington Square Apartments Project, Refunding,
6.55%, 3/01/14 ........................................................................................ 1,000,000 1,085,040
6.65%, 3/01/20 ........................................................................................ 2,750,000 2,981,413
St. Louis County IDA,
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.40%, 4/01/14 .......................... 1,000,000 1,064,790
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.55%, 4/01/19 .......................... 1,000,000 1,063,500
Health Facilities Revenue, Mother of Perpetual Help, 6.40%, 8/01/35.................................... 1,895,000 2,109,325
MFHR, South Summit Apartments, Refunding, Series A, 6.10%, 4/20/32..................................... 1,250,000 1,333,525
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19....................................... 20,000 20,603
St. Louis County Regional Convention and Sports Complex Authority,
Convention and Sports Project, Refunding, Series B,
5.75%, 8/15/21 ....................................................................................... 5,565,000 5,787,489
St. Louis IDA, Sewer and Solid Waste Disposal Facilities Revenue,
Anheuser-Busch Project, 5.875%, 11/01/26 ............................................................. 1,000,000 1,073,490
St. Louis Land Clearance RDA, Kiel Site Lease, Refunding, Series A,
MBIA Insured, 5.125%, 7/01/21.......................................................................... 1,625,000 1,643,070
St. Louis Municipal Financial Corp. Leasehold Revenue,
City Justice Center Improvement, Series A, AMBAC Insured, 6.00%, 2/15/19 .............................. 5,370,000 5,841,379
Refunding, Series A, 6.00%, 7/15/13.................................................................... 10,000,000 10,532,900
St. Louis Parking Facilities Revenue, Pre-Refunded, 6.625%, 12/15/21................................... 470,000 528,600
St. Louis Regional Convention and Sports Complex Authority,
Convention and Sports Facilities, Refunding, Series C, AMBAC Insured, 5.625%, 8/15/21.................. 4,725,000 4,946,272
Series C, 7.75%, 8/15/01 .............................................................................. 1,640,000 1,761,754
Series C, 7.90%, 8/15/21 .............................................................................. 555,000 616,322
Series C, Pre-Refunded, 7.90%, 8/15/21 ................................................................ 11,345,000 13,369,515
Taney County Missouri IDA, Hospital Revenue, The Skaggs Community Hospital
Association, 5.30%, 5/15/18........................................................................... 3,000,000 3,015,360
Taney County Reorganization, School District No. R-V, 5.80%, 3/01/17................................... 2,585,000 2,756,153
University of Missouri, Health Facilities Revenue, University of Missouri Health System,
Refunding, Series A , AMBAC Insured,
5.60%, 11/01/26 ...................................................................................... 5,000,000 5,264,850
University of Missouri Revenues, System Facilities, 5.80%, 11/01/27.................................... 4,000,000 4,281,840
Virgin Islands Public Finance Authority Revenue, Senior Lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 ....................................................................................... 2,500,000 2,566,900
5.50%, 10/01/22 ....................................................................................... 2,500,000 2,535,149
Webb City School District No. R-VII, Facilities Group, Leasehold Revenue,
Refunding & Improvement, FSA Insured, 5.625%, 8/01/16.................................................. 1,115,000 1,168,173
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project,
Refunding, 5.50%, 11/15/12............................................................................. 1,000,000 1,017,489
Refunding, 5.60%, 11/15/17............................................................................. 1,700,000 1,728,151
Refunding, 5.65%, 11/15/22............................................................................. 1,500,000 1,524,764
Series A, Pre-Refunded, 8.625%, 9/15/20 ............................................................... 1,975,000 2,179,471
--------------
Total Long Term Investments (Cost $323,605,036) ....................................................... 347,010,832
--------------
a Short Term Investments 1.1%
Kansas City IDA, Hospital Revenue, Research Health Services System,
MBIA Insured, Weekly VRDN and Put,
3.25%, 10/15/14 .......................................................................................$ 2,700,000 $ 2,700,000
3.25%, 4/15/15 ........................................................................................ 1,300,000 1,300,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
MBIA Insured, Weekly VRDN and Put, 2.50%, 12/01/15 ................................................... 100,000 100,000
--------------
Total Short Term Investments (Cost $4,100,000) ........................................................ 4,100,000
--------------
Total Investments (Cost $327,705,036) 99.1% ........................................................... 351,110,832
Other Assets, less Liabilities 0.9% ................................................................... 3,105,460
--------------
Net Assets 100.0% ..................................................................................... $354,216,292
==============
See glossary of terms on page 113.
</TABLE>
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin North Carolina Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
CLASS I (UNAUDITED) 1998 1997 19961 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period.................... $12.11 $11.73 $11.75 $11.37 $11.92 $11.88
------------------------------------------------------------------------
Income from investment operations:
Net investment income.................................. .31 .62 .64 .64 .65 .65
Net realized and unrealized gains (losses)............. .09 .38 (.03) .39 (.55) .05
------------------------------------------------------------------------
Total from investment operations........................ .40 1.00 .61 1.03 .10 .70
------------------------------------------------------------------------
Less distributions from net investment income........... (.31) (.62) (.63) (.65)2 (.65) (.66)
-------------------------------------------------------------------------
Net asset value, end of period.......................... $12.20 $12.11 $11.73 $11.75 $11.37 $11.92
=========================================================================
Total return*........................................... 3.33% 8.78% 5.38% 9.28% 1.06% 5.81%
Ratios/supplemental data
Net assets, end of period (000's)....................... $320,121 $297,406 $260,979 $247,031 $216,263 $215,540
Ratios to average net assets:
Expenses............................................... .70%** .70% .70% .71% .70% .63%
Net investment income.................................. 5.02%** 5.24% 5.47% 5.52% 5.75% 5.44%
Portfolio turnover rate................................. 5.06% 9.95% 9.98% 25.19% 25.05% 3.86%
Class II
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period.................... $12.18 $11.79 $11.80 $11.41
-------------------------------------------------
Income from investment operations:
Net investment income.................................. .27 .56 .57 .49
Net realized and unrealized gains (losses)............. .10 .39 (.02) .38
-------------------------------------------------
Total from investment operations........................ .37 .95 .55 .87
-------------------------------------------------
Less distributions from net investment income........... (.27) (.56) (.56) (.48)
--------------------------------------------------
Net asset value, end of period.......................... $12.28 $12.18 $11.79 $11.80
=================================================
Total return*........................................... 3.11% 8.22% 4.83% 7.77%
Ratios/supplemental data
Net assets, end of period (000's)....................... $29,453 $20,043 $9,607 $2,430
Ratios to average net assets:
Expenses............................................... 1.24%** 1.26% 1.26% 1.28%**
Net investment income.................................. 4.46%** 4.69% 4.85% 4.90%**
Portfolio turnover rate................................. 5.06% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions in excess of net investment income in the amount of
$.001.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin North Carolina Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 96.5%
Appalachian State University Revenue, Utility Systems,
MBIA Insured, Pre-Refunded, 6.10%, 5/15/13.............................................................$ 1,075,000 $ 1,203,205
Refunding, MBIA Insured, 5.00%, 5/15/24 ............................................................... 4,410,000 4,413,528
Asheville COP, Series A, MBIA Insured, 5.125%, 6/01/18 ................................................ 1,000,000 1,017,710
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25........................................... 4,000,000 4,271,360
Buncombe County Metropolitan Sewage District System Revenue, Series B, 6.75%, 7/01/16.................. 10,000 10,999
Centennial Authority Hotel Tax Revenue, Arena Project, FSA Insured, 5.125%, 9/01/19.................... 3,865,000 3,941,527
Charlotte COP, Convention Facility Project, AMBAC Insured, Pre-Refunded, 7.00%, 12/01/11............... 2,250,000 2,509,673
Charlotte GO, Water and Sewer, Pre-Refunded,
5.90%, 2/01/18 ........................................................................................ 1,000,000 1,105,150
5.60%, 5/01/20......................................................................................... 5,980,000 6,610,232
Charlotte-Mecklenburg Hospital Authority, Health Care System Revenue,
Carolinas Healthcare System, Series A, 5.125%, 1/15/22 ................................................ 8,000,000 8,034,640
Refunding, Series 1992, 6.25%, 1/01/20................................................................. 2,620,000 2,805,234
Refunding, Series 1992, Pre-Refunded, 6.25%, 1/01/20 .................................................. 1,000,000 1,091,190
Refunding, Series I, Pre-Refunded, 7.80%, 10/01/18 .................................................... 350,000 358,155
Series A, 5.90%, 1/15/16 .............................................................................. 3,465,000 3,741,057
Series A, Pre-Refunded, 5.90%, 1/15/16 ................................................................ 1,535,000 1,716,191
Coastal Solid Waste Disposal System Authority Revenue,
Regional Solid Waste Management, Refunding, 6.50%, 6/01/08............................................ 3,100,000 3,349,147
Columbus County Industrial Facilities and PCFA, Solid Water Disposal Revenue,
International Paper Co. Project, Refunding, Series A,
5.80%, 12/01/16 ...................................................................................... 1,450,000 1,533,375
Concord COP, Series B, MBIA Insured,
5.75%, 6/01/16 ........................................................................................ 1,475,000 1,576,996
6.125%, 6/01/21 ....................................................................................... 2,180,000 2,380,168
Concord Utilities Systems Revenue, Series A, MBIA Insured, 5.00%, 12/01/22............................. 2,000,000 2,005,300
Cumberland County COP, Civic Center Project,
Refunding, AMBAC Insured, 5.00%,12/01/18 .............................................................. 3,000,000 2,977,140
Refunding, AMBAC Insured, 5.00%,12/01/24 .............................................................. 1,760,000 1,737,067
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/19 ................................................ 3,500,000 4,004,035
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/24 ................................................ 3,765,000 4,307,198
Cumberland County Hospital Facility System Revenue,
BIG Insured, Pre-Refunded, 7.875%, 10/01/14 ........................................................... 110,000 112,570
MBIA Insured, 6.00%, 10/01/21 ......................................................................... 2,500,000 2,600,000
Dare County COP, Series B, MBIA Insured, 5.00%, 5/01/19 ............................................... 400,000 399,460
Davie County GO, North Carolina Water, Unlimited Tax, 7.10%,
4/01/10 ............................................................................................... 350,000 374,276
4/01/11 ............................................................................................... 250,000 267,500
Duplin County COP, Social Service Administrative Building,
Solid Waste Project, FGIC Insured, 6.75%, 9/01/12 .................................................... 2,000,000 2,172,100
Durham COP, Series 1991, 6.875%, 4/01/09............................................................... 1,650,000 1,793,121
Durham County COP,
Hospital and Office Facilities Project, 6.00%, 5/01/14 ................................................ 3,000,000 3,250,290
Hospital and Office Facilities Project, 6.00%, 5/01/17 ................................................ 3,200,000 3,433,760
Jail Facilities and Computer Equipment Project, Pre-Refunded, 6.625%, 5/01/14 ......................... 3,000,000 3,269,070
Fayetteville Public Works Commission Revenue,
FSA Insured, 5.125%, 3/01/17 .......................................................................... 2,500,000 2,556,025
FSA Insured, 5.125%, 3/01/24 .......................................................................... 2,000,000 2,034,940
Series A, FSA Insured, 6.00%, 3/01/16 ................................................................. 2,000,000 2,123,560
Gaston COP, Police Station Project, FGIC Insured, 5.70%, 8/01/15....................................... 1,500,000 1,597,995
Gaston County COP, Public Facilities Project, MBIA Insured, 5.25%, 12/01/16 ........................... 1,000,000 1,040,110
Gaston County Industrial Facilities and PCFA Revenue, 7.70%, 10/01/12.................................. 750,000 799,853
Gastonia Combined Utilities System Revenue, MBIA Insured, Pre-Refunded, 6.10%, 5/01/19 ................ 2,200,000 2,461,052
Greensboro COP, Coliseum Arena Expansion Project, 6.75%, 12/01/09 ..................................... 1,610,000 1,754,127
Greensboro HDC, Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.70%, 1/01/24.................... 1,320,000 1,400,639
Guam Power Authority Revenue, Series A, 6.375%, 10/01/08 .............................................. 1,000,000 1,071,060
Halifax County Insured Facility, PCR, Solid Waste Disposal,
Champion International Corp., 8.15%, 11/01/19 ......................................................... 400,000 425,640
Haywood County Industrial Facilities and PCFA,
Environmental Improvement Revenue, Champion International Corporation Project, 6.25%, 9/01/25 .........$ 2,000,000 $ 2,171,880
Solid Waste Disposal Revenue, Champion International, Pre-refunded, 8.10%, 11/01/09 ................... 5,000 5,354
Solid Waste Disposal Revenue, Champion International, Unrefunded Balance, 8.10%, 11/01/09.............. 195,000 207,414
Highpoint Special Obligation Sales Tax Revenue, Solid Waste Management Project, 7.15%, 7/01/01......... 1,165,000 1,185,388
Kinston Enterprise System Revenue, Combined Enterprise System, FSA Insured, 5.70%, 4/01/21............. 1,700,000 1,819,000
Kinston Housing Authority Mortgage Revenue, Kinston Towers Project, Refunding, 6.75%, 12/01/18 ........ 3,155,000 3,348,843
Martin County Industrial Facilities and PCFA Revenue,
Refunding, 6.375%, 1/01/10............................................................................. 3,000,000 3,245,520
Solid Waste, Weyerhaeuser Co. Project, 6.00%, 11/01/25................................................. 4,000,000 4,251,520
Solid Waste, 5.65%, 12/01/23........................................................................... 2,000,000 2,046,300
Mooresville Grade School District, COP, AMBAC Insured, 6.35%, 10/01/14 ................................ 1,000,000 1,090,340
New Hanover County Industrial Facilities and PCFA Revenue, Refunding, 6.70%, 7/01/19 .................. 1,000,000 1,084,880
North Carolina Central University Revenue, Student Fee - O Kelley/Riddick, AMBAC Insured, 5.00%,
4/01/18 ............................................................................................... 500,000 503,040
4/01/23 ............................................................................................... 650,000 652,815
North Carolina Eastern Municipal Power Agency, Power System Revenue,
Refunding, MBIA Insured, 5.375%, 1/01/24............................................................... 3,000,000 3,090,930
Refunding, Series A, Pre-Refunded, 7.75%, 1/01/12...................................................... 750,000 775,253
Refunding, Series A, 6.50%, 1/01/17.................................................................... 9,000,000 9,627,030
Refunding, Series A, 6.50%, 1/01/18.................................................................... 3,000,000 3,435,780
Refunding, Series B, MBIA Insured, 5.875%, 1/01/21..................................................... 5,000,000 5,403,650
Refunding, Series B, 6.00%, 1/01/14.................................................................... 3,000,000 3,154,260
North Carolina Educational Facilities Finance Agency Revenue, Highpoint College Project, 7.10%,
12/01/07 .............................................................................................. 190,000 200,420
12/01/08 .............................................................................................. 205,000 216,113
12/01/09 .............................................................................................. 220,000 231,788
North Carolina HFA,
MF, Mortgage Loan Resolution, Refunding, Series H, 6.05%, 7/01/28...................................... 2,500,000 2,668,600
MF, Refunding, Series A, AMBAC Insured, 5.90%, 7/01/20................................................. 3,000,000 3,146,910
MFR, Refunding, Series B, 6.90%, 7/01/24............................................................... 2,925,000 3,156,075
Refunding, Multifamily-FHA-Series J, 5.45%, 7/01/17.................................................... 2,175,000 2,229,962
Refunding, Series F, 6.70%, 1/01/27.................................................................... 4,855,000 5,293,746
SF, Refunding, Series DD, 6.20%, 9/01/27............................................................... 3,000,000 3,180,630
SF, Series JJ, 6.45%, 9/01/27.......................................................................... 4,870,000 5,234,714
SFMR, Series H, 8.05%, 3/01/19 ........................................................................ 50,000 50,563
SFMR, Series J, 7.40%, 3/01/22......................................................................... 160,000 166,389
SFMR, Series M, 7.85%, 9/01/28......................................................................... 345,000 359,404
SFR, Refunding, Series S, 6.95%, 3/01/17............................................................... 2,740,000 2,946,322
SFR, Series AA, 6.25%, 3/01/17......................................................................... 935,000 1,009,454
SFR, Series RR, 5.85%, 9/01/28......................................................................... 3,000,000 3,126,600
SFR, Series X, 6.65%, 9/01/19.......................................................................... 2,135,000 2,307,124
North Carolina Medical Care Commission,
Health Care Facilities Revenue, Stanley Memorial Hospital, Pre-Refunded, 7.80%, 10/01/19............... 1,250,000 1,330,813
Health Care Facilities Revenue, Novant Health Project, Refunding, Series A, 5.00%, 10/01/18 ........... 1,500,000 1,502,640
Health Facilities Revenue, Novant Health Project, Refunding, Series A, 5.00%, 10/01/24................. 3,500,000 3,509,310
Health Systems Revenue, Catholic Health East, Series C, AMBAC Insured, 5.00%, 11/15/18 ................ 2,500,000 2,490,375
Hospital Revenue, Annie Penn Memorial Hospital Project, Refunding, Pre-Refunded, 7.50%, 8/15/21 ....... 4,700,000 5,328,296
Hospital Revenue, Annie Penn Memorial Hospital, Refunding, 5.25%, 1/02/12.............................. 1,940,000 1,964,657
Hospital Revenue, Annie Penn Memorial Hospital, Refunding, 5.375%, 1/01/22............................. 1,920,000 1,923,878
Hospital Revenue, Duke University Hospital Project, Series C, 5.25%, 6/01/26........................... 1,500,000 1,513,170
Hospital Revenue, Halifax Memorial Hospital Project, 6.75%, 8/15/24 ................................... 3,500,000 3,823,365
Hospital Revenue, Memorial Mission Hospital Project, MBIA Insured, Pre-Refunded, 7.80%, 10/01/18 ...... 160,000 163,728
Hospital Revenue, North Carolina Baptist Hospitals Project, Refunding, Series A, 6.00%, 6/01/22........ 4,830,000 5,151,581
Hospital Revenue, Roanoke-Chowan Hospital Project, 7.75%, 10/01/19..................................... 3,000,000 3,156,840
Hospital Revenue, Scotland Memorial Hospital, MBIA Insured, Pre-Refunded, 8.625%, 10/01/11 ............ 195,000 199,659
Hospital Revenue, St. Joseph's Hospital Project, Refunding, AMBAC Insured,
Pre-Refunded, 7.25%, 10/01/14.......................................................................... 250,000 255,720
Hospital Revenue, Transylvania Community Hospital, Inc., Refunding, 5.75%, 10/01/19 ................... 1,090,000 1,106,001
North Carolina Medical Care Commission, (cont.)
Hospital Revenue, Wake County Hospital System, MBIA Insured, 5.375%, 10/01/26..........................$10,500,000 $ 10,786,335
Hospital Revenue, Wayne Memorial Hospital Project, AMBAC Insured, 6.00%, 10/01/21...................... 1,000,000 1,059,470
Hospital Revenue, Wilson Memorial Hospital Project, Refunding, AMBAC Insured, 5.625%, 11/01/18......... 5,000,000 5,298,700
North Carolina Medical Care Community Hospital Revenue, Rex Healthcare,
AMBAC Insured, 5.00%, 6/01/17 ........................................................................ 2,780,000 2,779,778
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue,
Refunding, 6.25%, 1/01/17 ............................................................................. 6,820,000 7,271,416
Series A, MBIA Insured, 5.125%, 1/01/17 ............................................................... 1,000,000 1,018,440
Series A, MBIA Insured, 5.00%, 1/01/20 ................................................................ 2,000,000 2,003,300
North Carolina State Education Assistance Authority Revenue,
Guaranteed, Student Loan, Subordinated Lien,
Series A, 6.05%, 7/01/10 .............................................................................. 3,310,000 3,456,832
Series A, 6.30%, 7/01/15 .............................................................................. 1,500,000 1,581,825
Series C, 6.35%, 7/01/16 .............................................................................. 4,500,000 4,748,535
Northampton County Insured Facility, PCR, Solid Waste Disposal,
Champion International Corp., 8.05%, 11/01/04 ...................................................... 400,000 425,384
Onslow County Combined Enterprise System Revenue, MBIA Insured, 6.00%, 6/01/15......................... 2,000,000 2,165,300
Pender County COP, Pre-Refunded, 7.70%, 6/01/11........................................................ 1,195,000 1,337,826
Person County COP, Law Enforcement Center Project, Series 1991, MBIA Insured, 7.125%, 6/01/11.......... 2,165,000 2,373,100
Pitt County COP,
FGIC Insured, 6.00%, 4/01/12........................................................................... 750,000 802,905
MBIA Insured, 5.85%, 4/01/17 .......................................................................... 5,055,000 5,506,664
Puerto Rico Commonwealth GO, Pre-Refunded,
6.45%, 7/01/17......................................................................................... 8,050,000 9,184,084
Series 1990, 7.25%, 7/01/10............................................................................ 500,000 541,150
Puerto Rico Commonwealth Highway Authority Revenue, Refunding, Series R, 7.15%, 7/01/00................ 1,250,000 1,321,813
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.75%, 7/01/08 ........................................................................................ 100,000 102,275
7.50%, 7/01/09 ........................................................................................ 25,000 25,563
Puerto Rico Electric Power Authority Power Revenue,
Refunding, Series N, 7.125%, 7/01/14................................................................... 160,000 167,189
Refunding, Series O, 7.125%, 7/01/14................................................................... 850,000 888,191
Series P, Pre-Refunded, 7.00%, 7/01/21................................................................. 1,000,000 1,106,650
Series T, Pre-Refunded, 6.375%, 7/01/24................................................................ 1,000,000 1,138,180
Series X, 6.125%, 7/01/21.............................................................................. 5,000,000 5,399,000
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ................................... 365,000 382,341
Puerto Rico HFC, SFMR, Portfolio No. 1,
Series A, GNMA Secured,7.80%, 10/15/21 ................................................................ 15,000 15,330
Series C, GNMA Secured, 6.85%, 10/15/23................................................................ 2,205,000 2,349,141
Puerto Rico Industrial, Medical and Environmental Facilities,
PCFA Revenue, Upjohn Co. Project, 7.50%, 12/01/23 .................................................... 300,000 311,883
Puerto Rico Public Finance Corp., Commonwealth Appropriation, Series A, 5.00%, 6/01/26 ................ 1,000,000 988,090
Puerto Rico Telephone Authority Revenue, Refunding, Series L,
6.00%, 1/01/12 ........................................................................................ 1,885,000 2,002,021
6.125%, 1/01/22 ....................................................................................... 1,490,000 1,583,915
Raeford HDC Revenue, First Lien, Yadkin Trail, Refunding, Series A, 6.00%, 7/15/22 .................... 1,425,000 1,484,451
Robeson County GO, Refunding, 7.20%,
6/01/10 ............................................................................................... 110,000 114,850
6/01/11 ............................................................................................... 115,000 120,105
6/01/12 ............................................................................................... 120,000 125,345
Robeson County Industrial Facilities and PCFA Revenue,
Campbell Soup Co. Project, Refunding, 6.40%, 12/01/06................................................. 1,750,000 2,019,763
Rutherford County COP, Public Facilities Project, FGIC Insured, 6.25%, 6/01/23 ........................ 1,850,000 2,017,148
Scotland County COP, Jail/Courthouse Project, FSA Insured, 6.75%, 3/01/11 ............................. 1,000,000 1,080,800
Stokes County COP, MBIA Insured, 7.00%, 3/01/06........................................................ 1,000,000 1,086,420
University of North Carolina at Chapel Hill, Parking System, Series A, 5.70%, 5/15/27.................. 3,000,000 3,133,800
University of North Carolina at Charlotte Revenue, Student Activity Center, MBIA Insured, 5.50%,
6/01/16 ............................................................................................... 1,000,000 1,050,160
6/01/21 ............................................................................................... 3,500,000 3,650,150
University of North Carolina at Greensboro Revenue, Student Facilities System,
Series B, MBIA Insured, 5.45%, 4/01/23 ................................................................ 1,000,000 1,039,080
Series C, AMBAC Insured, 5.30%, 4/01/23 ............................................................... 3,785,000 3,905,513
University of North Carolina at Wilmington, Student Union System Revenue,
AMBAC Insured, Pre-Refunded, 6.90%, 1/01/07........................................................... $ 250,000 $ 265,287
Virgin Islands Public Finance Authority Revenue, Senior Lien, Fund Loan Notes,
Refunding, Series A,
5.50%, 10/01/18 ....................................................................................... 2,000,000 2,033,459
5.625%, 10/01/25....................................................................................... 1,575,000 1,610,279
Wake County Industrial Facilities and PCFA Revenue, Carolina Power and
Light Co. Project, 6.90%, 4/01/09...................................................................... 10,000,000 10,617,099
Wilmington COP, AMBAC Insured, 5.20%, 11/01/17 ........................................................ 1,500,000 1,532,789
Winston-Salem SFMR, 8.00%, 9/01/07 .................................................................... 290,000 305,679
Winston-Salem Water and Sewer System Revenue, Series B, 5.70%, 6/01/17 ................................ 2,250,000 2,383,154
--------------
Total Long Term Investments (Cost $314,878,794) ....................................................... 337,379,426
--------------
a Short Term Investments 1.9%
North Carolina Medical Care Commission, Hospital Revenue, ACES,
Pooled Financing Project, Daily VRDN and Put,
Series A, 3.25%, 10/01/20 ............................................................................. 5,400,000 5,400,000
Series B, 3.35%, 10/01/13 ............................................................................. 800,000 800,000
North Carolina Medical Care Commission Revenue, Carol Woods Project,
Daily VRDN and Put, 3.35%, 4/01/21 ................................................................... 500,000 500,000
--------------
Total Short Term Investments (Cost $6,700,000) ........................................................ 6,700,000
--------------
Total Investments (Cost $321,578,794) 98.4%............................................................ 344,079,426
Other Assets, less Liabilities 1.6% ................................................................... 5,495,045
--------------
Net Assets 100.0% ..................................................................................... $349,574,471
==============
</TABLE>
See glossary of terms on page 113.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Texas Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
CLASS I (UNAUDITED) 1998 1997 19961 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period...................... $11.68 $11.37 $11.58 $11.25 $11.72 $11.69
-------------------------------------------------------------------------
Income from investment operations:
Net investment income.................................... .30 .62 .66 .67 .68 .69
Net realized and unrealized gains (losses)............... .04 .36 -- .34 (.49) .03
-------------------------------------------------------------------------
Total from investment operations.......................... .34 .98 .66 1.01 .19 .72
-------------------------------------------------------------------------
Less distributions from:
Net investment income.................................... (.30)3 (.63) (.67) (.68) (.66) (.69)
In excess of net investment income....................... -- (.01) -- -- -- --
Net realized gains....................................... (.15) (.03) (.20) -- -- --
-------------------------------------------------------------------------
Total distributions....................................... (.45) (.67) (.87) (.68) (.66) (.69)
--------------------------------------------------------------------------
Net asset value, end of period............................ $11.57 $11.68 $11.37 $11.58 $11.25 $11.72
=========================================================================
Total return*............................................. 3.02% 8.91% 5.91% 9.15% 1.80% 6.09%
Ratios/supplemental data
Net assets, end of period (000's)......................... $129,174 $130,578 $126,612 $129,702 $130,684 $148,684
Ratios to average net assets:
Expenses................................................. .76%** .76% .75% .76% .73% .65%
Net investment income.................................... 5.22%** 5.44% 5.70% 5.86% 6.05% 5.85%
Portfolio turnover rate................................... 14.12% 34.52% 35.57% 18.38% 6.36% 20.18%
Class II
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period...................... $11.81 $11.49 $11.68 $11.27
--------------------------------------------------
Income from investment operations:
Net investment income.................................... .27 .58 .60 .51
Net realized and unrealized gains........................ .05 .35 .02 .40
--------------------------------------------------
Total from investment operations.......................... .32 .93 .62 .91
--------------------------------------------------
Less distributions from:
Net investment income.................................... (.27)3 (.58)2 (.61) (.50)
Net realized gains....................................... (.15) (.03) (.20) --
--------------------------------------------------
Total distributions....................................... (.42) (.61) (.81) (.50)
--------------------------------------------------
Net asset value, end of period............................ $11.71 $11.81 $11.49 $11.68
==================================================
Total return*............................................. 2.77% 8.31% 5.48% 8.23%
Ratios/supplemental data
Net assets, end of period (000's)......................... $3,660 $2,076 $740 $79
Ratios to average net assets:
Expenses................................................. 1.33%** 1.33% 1.32% 1.33%**
Net investment income.................................... 4.65%** 4.79% 5.03% 5.23%**
Portfolio turnover rate................................... 14.12% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions in excess of net investment income in the amount of
$.001.
3Includes distributions in excess of net investment income in the amount of
$.002.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Texas Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 98.0%
Aldine ISD, Series A, 5.00%, 2/15/22..................................................................... $3,000,000 $ 2,983,530
Alliance Airport Authority, Inc., Special Facilities Revenue,
American Airlines, Inc. Project, 7.00%, 12/01/11 ...................................................... 2,250,000 2,684,250
Austin Combined Utility System Revenue,
Refunding, MBIA Insured, 5.50%, 5/15/14.................................................................. 1,325,000 1,382,903
Series A, AMBAC Insured, 6.75%, 11/15/07................................................................. 800,000 875,952
Series A, Pre-Refunded, 8.00%, 11/15/16.................................................................. 50,000 55,377
Bexar County Health Facilities Development Corp. Revenue, Incarnate Word Health Services,
Refunding, FSA Insured, 6.00%, 11/15/15.................................................................. 3,000,000 3,274,740
Bexar County HFC Revenue, GNMA Secured, 8.10%, 3/01/24 .................................................. 100,000 105,897
Bexar Metropolitan Water District, Waterworks System Revenue, Refunding, MBIA Insured, 6.35%, 5/01/25.... 3,210,000 3,554,850
Brazos Higher Education Authority Revenue, Student Loan, Inc., Refunding, Series A-2, 6.80%, 12/01/04 ... 825,000 890,431
Brazos River Authority, PCR, Collateralized, Texas Utilities Electric Co.,
Series A, 7.875%, 3/01/21................................................................................ 500,000 546,480
Refunding, Series C, 5.55%, 6/01/30...................................................................... 3,000,000 3,022,800
Brazos River Authority Revenue, Collateralized, Houston Light and Power Co. Project,
Refunding, Series A, 7.625%, 5/01/19.................................................................... 100,000 104,951
Cameron County HFC, Collateralized Mortgage Obligation, Refunding, Series B, FGIC Insured, 7.85%, 3/01/24 80,000 84,736
Castleberry ISD, Refunding, 6.00%, 8/15/25 .............................................................. 2,000,000 2,165,240
Cimarron MUD, Waterworks and Sewer System, Asset Guaranteed,
Combined Tax and Revenue, Refunding, 7.50%, 3/01/15 ..................................................... 2,275,000 2,391,093
Clint ISD, GO,
Pre-Refunded, 7.00%, 3/01/15 ............................................................................ 575,000 584,861
PSF, 7.00%, 3/01/15...................................................................................... 3,425,000 3,479,526
Comal County Health Facilities Development Corp. Revenue, McKenna Memorial Hospital,
Refunding, FHA Insured, 7.375%, 1/15/21.................................................................. 1,750,000 1,877,155
Coppell ISD, Refunding, 6.50%, 8/15/26 .................................................................. 1,500,000 1,531,875
Corpus Christi HFC, SFMR, Refunding, Series A, MBIA Insured, 7.70%, 7/01/11 ............................. 950,000 1,017,745
Dallas Civic Center Convention Complex Revenue, Senior Lien, AMBAC Insured,
Pre-Refunded, 7.00%, 1/01/10............................................................................. 2,000,000 2,142,540
Dallas-Ft. Worth International Airport Facilities Improvement Corp. Revenue,
American Airlines, Inc., 8.00%, 11/01/24................................................................. 1,000,000 1,089,170
American Airlines, Inc., Refunding, 6.00%, 11/01/14 ..................................................... 2,000,000 2,134,800
Delta Airlines, Inc., 7.625%, 11/01/21................................................................... 2,000,000 2,214,940
Dallas-Ft. Worth Regional Airport Revenue, Joint Dallas-Ft. Worth International,
Refunding, MBIA Insured, 5.75%, 11/01/24................................................................. 1,000,000 1,036,900
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10.......................................................... 120,000 126,343
Dallas Housing Corp., Capital Projects Revenue, Section Eight,
Assisted Projects, Refunding, 7.70%, 8/01/05 .......................................................... 500,000 523,655
Denison Hospital Authority Revenue, Texoma Medical Center, Inc. Project, 7.00%, 8/15/14.................. 1,250,000 1,396,575
El Paso County HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11........................................... 480,000 518,261
Ft. Worth HFC,
HMR, Refunding, Series A, 8.50%, 10/01/11 ............................................................... 830,000 901,363
SFMR, GNMA Secured, 8.25%, 12/01/11...................................................................... 25,000 25,802
Gonzales County Hospital District GO, Refunding, MBIA Insured, 7.65%, 2/15/07............................ 100,000 101,778
Gulf Coast IDA, Waste Disposal Revenue, Valero Refining Project, 5.60%, 12/01/31 ........................ 3,000,000 3,033,180
Gulf Coast Waste Disposal Authority, PCR, Union Carbide
Chemical and Plastic Co., 7.45%, 8/01/04 ................................................................ 1,200,000 1,203,360
Gulf Coast Waste Disposal Authority Revenue, Champion
International Corp., Series A, 6.875%, 12/01/28 ........................................................ 1,000,000 1,104,800
Gulf Coast Water Authority, Texas Water Systems, Contract Revenue,
La Marque Project, Series D, AMBAC Insured, 5.00%, 8/15/22 ............................................. 1,020,000 1,008,739
Harris County Health Facilities Development Corp., Hospital Revenue,
Memorial Hospital System, AMBAC Insured, Pre-Refunded,
7.00%, 6/01/12 ......................................................................................... 225,000 235,157
Harris County Health Facilities Development Corp. Revenue,
Herman Hospital Project, FSA Insured, Pre-Refunded, 7.00%, 10/01/14...................................... 750,000 831,960
Harris County MUD No. 208, Waterworks and Sewer System,
Unlimited Tax, Pre-Refunded, 8.00%, 11/01/13............................................................. 80,000 80,569
Harris County Public Facilities Corp., Detention Facility Mortgage Revenue,
Series 1988, MBIA Insured, Pre-Refunded, 7.75%, 12/15/07................................................. 70,000 72,226
Harrison County Health Facilities Development Corp., Hospital Revenue,
Marshall Regional Medical Center Project, 5.50%, 1/01/18................................................. 1,750,000 1,801,940
Houston Water and Sewer System Revenue, Junior Lien, Refunding, Series A,
MBIA Insured, Pre-Refunded, 6.20%, 12/01/20 ............................................................ 2,000,000 2,254,120
Joshua ISD, Refunding, Series B, Pre-Refunded, 6.125%, 2/15/26 .......................................... 100,000 101,172
Keller Waterworks and Sewer System Revenue, Refunding,
AMBAC Insured, Pre-Refunded, 7.70%, 1/01/10 ............................................................ 125,000 126,695
Laredo Airport, Certificates of Obligation, Limited Tax, AMBAC Insured, 7.00%, 8/01/09................... 200,000 205,796
Leon County PCR, Nucor Corp. Project, Refunding, Series A, 7.375%, 8/01/09 .............................. 2,000,000 2,198,940
Lower Colorado River Authority Revenue, Refunding, Series B, AMBAC Insured, 7.00%, 1/01/11 .............. 205,000 222,503
Lower Neches Valley Authority IDC Revenue, Mobil Oil Refunding Corp.,
Refunding, 5.55%, 3/01/33 .............................................................................. 1,500,000 1,534,560
Matagorda County Navigation District No. 1,
Houston Light and Power Co., Collateralized, Refunding, Series C,
FGIC Insured, 7.125%, 7/01/19........................................................................... 1,500,000 1,570,245
PCR, Central Power and Light Co. Project, Collateralized, 7.50%, 12/15/14 ............................... 1,200,000 1,284,096
PCR, Central Power and Light Co. Project, Refunding, Series E, MBIA Insured, 6.10%, 7/01/28.............. 1,500,000 1,572,990
Mesquite Health Facilities Development, Christian Retirement Facility,
Refunding, Series A, 6.40%,
2/15/16.................................................................................................. $1,000,000 $ 1,078,840
2/15/20.................................................................................................. 2,000,000 2,156,400
Montgomery County Texas GO, Library, Refunding, FGIC Insured,
6.75%, 9/01/10........................................................................................... 495,000 542,114
6.75%, 9/01/11........................................................................................... 530,000 579,428
Pre-Refunded, 6.75%, 9/01/10............................................................................. 280,000 309,036
Pre-Refunded, 6.75%, 9/01/11............................................................................. 295,000 325,592
North Central Health Facility Development Corp. Revenue, C. C. Young Memorial Home Project,
Refunding, 6.30%, 2/15/15................................................................................ 1,530,000 1,651,712
Refunding, 6.375%, 2/15/20............................................................................... 2,785,000 3,026,515
Series A, 5.375%, 2/15/14................................................................................ 500,000 507,030
Series A, 5.375%, 2/15/25................................................................................ 1,750,000 1,755,145
Nueces River Authority, Environmental Improvement Revenue, Asarco, Inc. Project,
Refunding, 5.60%, 1/01/27................................................................................ 6,000,000 6,151,320
Port Corpus Christi Authority, Nueces County General Revenue,
Union Pacific, Refunding, 5.65%, 12/01/22 ............................................................... 2,000,000 2,058,640
Port Corpus Christi IDC Revenue, Valero, Refunding, Series C, 5.40%, 4/01/18 ............................ 2,000,000 2,025,680
Red River Authority, PCR, West Texas Utilities Co., Public Service Co.,
Oklahoma Central Power and Light Co., Refunding, MBIA Insured,
6.00%, 6/01/20+B52 ..................................................................................... 7,000,000 7,610,540
Sabine River Authority, PCR,
Southwestern Electric Power, Refunding, MBIA Insured, 6.10%, 4/01/18..................................... 5,000,000 5,461,700
Texas Utilities Electric Co. Project, Collateralized, Refunding, FGIC Insured, 6.55%, 10/01/22 .......... 1,200,000 1,307,856
San Antonio Electric and Gas Revenue, Refunding,
7.00%, 2/01/09........................................................................................... 100,000 102,788
Pre-Refunded, 7.00%, 2/01/09 ............................................................................ 150,000 154,320
Socorro ISD, PSF-GTD Insured, 5.00%, 8/15/21 ............................................................ 1,000,000 994,570
Tarrant County Health Facilities Development Corp., Health Systems Revenue,
Harris Methodist Health, FGIC Insured, Pre-Refunded, 6.00%, 9/01/24 ................................... 4,000,000 4,386,640
Texas City IDC, Marine Terminal Revenue, ARCO Pipe Line Co. Project, Refunding, 7.375%, 10/01/20......... 500,000 656,030
Texas Housing Agency, Residential Development Revenue, Series A, 7.60%, 7/01/16.......................... 1,410,000 1,471,391
Texas State Department of Housing and Community Affairs, HMR,
Refunding, Series A, GNMA Secured, 6.95%, 7/01/23 ...................................................... 1,575,000 1,707,410
Texas State Higher Education Coordinating Board, College Student Loan Revenue,
Senior Lien, 7.70%, 10/01/25 .......................................................................... 1,230,000 1,303,050
Texas State Turnpike Authority Revenue,
Dallas North Tollway, Series 1990, AMBAC Insured, Pre-Refunded, 7.125%, 1/01/15 ......................... 1,000,000 1,031,480
Mountain Creek Lake Bridge, 7.00%, 1/01/07 .............................................................. 25,000 25,625
Texas State VHA, Refunding, Series A, 6.15%, 12/01/25.................................................... 1,000,000 1,065,150
Texas Water Development Board Revenue, State Revolving, Senior Lien, Series A, 5.75%, 7/15/16............ 3,275,000 3,476,642
Texas Water Resources Finance Authority Revenue, 7.625%, 8/15/08......................................... 820,000 846,322
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23........................................... 2,000,000 2,110,880
Travis County HFC, SFMR, GNMA Secured, 8.20%, 4/01/22 ................................................... 55,000 57,037
University of Texas Revenues, Financing System, Refunding,
Series A, 7.00%, 8/15/07................................................................................. 665,000 730,636
Series B, 6.75%, 8/15/13................................................................................. 1,300,000 1,415,557
Van Alstyne ISD, Refunding, 5.95%, 8/15/29 .............................................................. 1,885,000 2,039,740
Waco Health Facilities Development Corp., Hospital Revenue,
Hillcrest Baptist Medical Center Project, MBIA Insured, 7.125%, 9/01/14.................................. 500,000 539,210
Waxahachie Community Development Corp., Sales Tax Revenue, MBIA Insured, 5.20%, 8/01/19.................. 1,500,000 1,512,645
Webb County GO, Limited Tax, FSA Insured, Pre-Refunded, 7.25%, 2/15/09................................... 160,000 162,670
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 1,101,950
Wylie ISD,
PSF-GTD Insured, 7.00%, 8/15/24.......................................................................... 550,000 675,273
PSF-GTD Insured, Pre-Refunded, 7.00%, 8/15/24............................................................ 450,000 553,491
Ysleta GO, ISD, Unlimited Tax, AMBAC Insured, Pre-Refunded, 7.10%, 8/15/05............................... 200,000 206,625
--------------
Total Long Term Investments ($121,227,411) .............................................................. 130,144,247
--------------
a Short Term Investments .9%
Lubbock Health Facilities Development, Corporation Revenue, St.Joseph Health System,
Daily VRDN and Put, 3.25%, 7/01/13....................................................................... $1,000,000 $ 1,000,000
Port Arthur Navigation District IDC., American Petrofina Inc., Daily VRDN and Put, 3.35%, 5/01/03 ....... 200,000 200,000
--------------
Total Short Term Investments (Cost $1,200,000) .......................................................... 1,200,000
--------------
Total Investments (Cost $122,427,411) 98.9%.............................................................. 131,344,247
Other Assets, less Liabilities 1.1% ..................................................................... 1,489,996
--------------
Net Assets 100.0% ....................................................................................... $132,834,243
==============
</TABLE>
See glossary of terms on page 113.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
Franklin Virginia Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
CLASS I (UNAUDITED) 1998 1997 19961 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period.................... $11.88 $11.65 $11.72 $11.33 $11.82 $11.69
------------------------------------------------------------------------
Income from investment operations:
Net investment income.................................. .30 .62 .65 .66 .66 .67
Net realized and unrealized gains (losses)............. .10 .35 (.07) .38 (.50) .14
------------------------------------------------------------------------
Total from investment operations........................ .40 .97 .58 1.04 .16 .81
------------------------------------------------------------------------
Less distributions from:
Net investment income.................................. (.31)2 (.64) (.64) (.65) (.65) (.68)
Net realized gains..................................... (.02) (.10) (.01) -- -- --
------------------------------------------------------------------------
Total distributions..................................... (.33) (.74) (.65) (.65) (.65) (.68)
------------------------------------------------------------------------
Net asset value, end of period.......................... $11.95 $11.88 $11.65 $11.72 $11.33 $11.82
========================================================================
Total return*........................................... 3.38% 8.53% 5.15% 9.41% 1.56% 6.80%
Ratios/supplemental data
Net assets, end of period (000's)....................... $364,930 $332,199 $287,172 $271,396 $255,965 $260,913
Ratios to average net assets:
Expenses............................................... .68%** .69% .69% .69% .69% .62%
Net investment income.................................. 5.06%** 5.29% 5.56% 5.66% 5.86% 5.65%
Portfolio turnover rate................................. 5.29% 12.90% 19.25% 12.96% 21.73% 6.86%
Class II
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period.................... $11.95 $11.71 $11.77 $11.35
-------------------------------------------------
Income from investment operations:
Net investment income.................................. .27 .57 .58 .49
Net realized and unrealized gains (losses)............. .09 .34 (.05) .41
-------------------------------------------------
Total from investment operations........................ .36 .91 .53 .90
-------------------------------------------------
Less distributions from:
Net investment income.................................. (.27)2 (.57) (.58) (.48)
Net realized gains..................................... (.02) (.10) (.01) --
-------------------------------------------------
Total distributions..................................... (.29) (.67) (.59) (.48)
-------------------------------------------------
Net asset value, end of period.......................... $12.02 $11.95 $11.71 $11.77
=================================================
Total return*........................................... 3.08% 7.97% 4.61% 8.07%
Ratios/supplemental data
Net assets, end of period (000's)....................... $18,136 $13,186 $6,674 $2,050
Ratios to average net assets:
Expenses............................................... 1.24%** 1.25% 1.25% 1.26%**
Net investment income.................................. 4.50%** 4.72% 4.94% 5.06%**
Portfolio turnover rate................................. 5.29% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions in excess of net investment income in the amount of
$.001.
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Virginia Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 97.5%
Abingdon Virginia IDA, Hospital Facilities Revenue, Johnston
Memorial Hospital, Refunding, 5.375%, 7/01/28 ....................................................... $ 5,000,000 $ 5,093,900
Albermarle County IDA Revenue,
Martha Jefferson Hospital, Refunding, 5.875%, 10/01/13 ................................................ 5,000,000 5,300,650
University of Virginia Health Services Foundation, 6.50%, 10/01/22..................................... 1,125,000 1,216,609
Arlington County GO, Pre-Refunded, 6.00%, 8/01/13 ..................................................... 2,085,000 2,329,654
Arlington County IDA, Hospital Facility Revenue, Arlington Hospital,
Series A, Pre-Refunded, 7.125%, 9/01/21 .............................................................. 2,000,000 2,224,080
Augusta County IDA Revenue, Augusta Hospital Corp. Project,
AMBAC Insured, 6.625%, 9/01/12 ........................................................................ 1,000,000 1,084,640
Pre-Refunded, 7.00%, 9/01/21 .......................................................................... 2,000,000 2,214,060
Augusta County Service Authority Water and Sewer Revenue, MBIA Insured, 5.00%, 11/01/24 ............... 1,400,000 1,397,872
Bedford County GO, Series A, FGIC Insured, 5.35%, 12/15/17 ............................................ 1,250,000 1,300,038
Bedford County IDA, IDR, Nekoosa Packaging Corp. Project, Refunding, 5.60%, 12/01/25 .................. 7,000,000 7,135,660
Blacksburg Polytechnic Institute, Sanitation Authority Sewer System Revenue, 6.25%, 11/01/12........... 1,230,000 1,315,682
Bristol GO, MBIA Insured, 5.25%, 4/01/16............................................................... 1,025,000 1,056,375
Chesapeake Hospital Authority Facilities Revenue, Chesapeake General Hospital, 8.20%, 7/01/05 ......... 2,500,000 2,711,950
Chesapeake IDA,
Nursing Home Revenue, Sentara Life Care Corp. Project, 8.00%, 11/01/17................................. 230,000 236,120
Public Facilities, Lease Revenue, Chesapeake Jail Project, MBIA Insured, 6.00%, 6/01/12 ............... 3,940,000 4,313,748
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project, Refunding, 6.65%, 9/01/18 ................ 5,000,000 5,616,250
Danville COP, Social Services, Pre-Refunded, 7.625%, 4/01/13........................................... 2,000,000 2,223,960
Danville GO, Series 1991, Pre-Refunded, 6.75%,
2/01/10 ............................................................................................... 655,000 711,527
2/01/11 ............................................................................................... 705,000 765,842
Danville IDA,
Hospital Revenue, Danville Regional Medical Center, Refunding,
FGIC Insured, Pre-Refunded, 6.50%, 10/01/24 ........................................................... 5,000,000 5,693,100
Solid Waste Disposal Revenue, International Paper Co., 6.50%, 3/01/19 ................................. 500,000 557,265
Fairfax County EDA,
Parking Revenue, Huntington Metrorail, Pre-Refunded, 7.00%, 9/01/10.................................... 1,000,000 1,081,070
Resource Recovery Revenue, Ogden Martin System of Fairfax, Inc. Project, Series A, 7.75%, 2/01/11 ..... 1,500,000 1,566,855
Fairfax County IDA Revenue, Health Care, Inova Health System Project, 6.00%, 8/15/26................... 5,000,000 5,440,300
Fairfax County IDAR, Health Care Inova Health, Refunding, Series A, 5.00%, 8/15/25..................... 5,000,000 4,912,650
Fairfax County Redevelopment and Housing Authority, MFHR,
Cedar Ridge Apartments, GNMA Secured, 6.30%, 12/20/27.................................................. 4,700,000 5,100,393
Paul Spring Center, Refunding, Series A, FHA Insured, 5.90%, 6/15/17................................... 1,000,000 1,074,130
Paul Spring Center, Refunding, Series A, FHA Insured, 6.00%, 12/15/28.................................. 1,000,000 1,072,850
Fairfax County Sewer Revenue, MBIA Insured, 5.875%, 7/15/28 ........................................... 6,500,000 7,046,910
Frederick County IDA, Lease Revenue, Government Complex Facilities Project,
MBIA Insured, 6.50%, 12/01/09 ......................................................................... 2,040,000 2,319,439
Fredericksburg IDA, Hospital Facilities Revenue, Medicorp Health System Obligation,
Refunding, AMBAC Insured, 5.25%,
6/15/16 ............................................................................................... 1,860,000 1,902,929
6/15/23 ............................................................................................... 10,000,000 10,147,300
Front Royal and Warren County IDA Revenue, Mortgage, Heritage Hall No. 13,
Refunding, FHA Insured, 8.25%, 7/15/05 ................................................................ 25,000 25,550
Guam Airport Authority Revenue, Refunding, Series A,
6.375%, 10/01/10 ...................................................................................... 830,000 905,621
6.50%, 10/01/23 ....................................................................................... 1,000,000 1,085,340
Halifax County IDA, Exempt Facilities Revenue, Old Dominion Electric
Cooperative Project, 6.50%, 12/01/12 ................................................................. 3,000,000 3,248,550
Hampton Redevelopment and Housing Authority, Senior Living
Association Revenue, Refunding, Series A, GNMA Secured, 6.00%, 1/20/26 ............................... 1,060,000 1,136,087
Hampton Roads Medical College General Revenue, Refunding, Series A, 6.875%, 11/15/16................... 1,500,000 1,623,465
Hampton Roads Regional Jail Authority, Jail Facilities Revenue, Series A,
MBIA Insured, 5.00%, 7/01/28........................................................................... 10,000,000 9,983,900
Hanover County IDA, Hospital Revenue, Bon Secours Health Systems
Projects, MBIA Insured, 5.50%, 8/15/25 ............................................................... 1,000,000 1,032,780
Hanover County Water and Sewer System Revenue, MBIA Insured, 5.25%, 2/01/26............................ 4,175,000 4,249,273
Henrico County IDA Revenue, Solid Waste, Browning-Ferris Industries,
South Atlantic, Inc., Series A, 5.875%, 3/01/17....................................................... 1,000,000 1,067,840
Henry County IDA, Hospital Revenue, Memorial Hospital of Martinsville
and Henry, Refunding, 6.00%, 1/01/27 .................................................................. 1,250,000 1,339,825
Leesburg Utilities System Revenue, Refunding, MBIA Insured, 5.125%, 7/01/22............................ 3,750,000 3,794,813
Loudoun County IDA, Hospital Revenue, Loudoun Hospital Center, FSA Insured, 5.80%,
6/01/20 ............................................................................................... 2,000,000 2,139,820
6/01/26 ............................................................................................... 3,000,000 3,209,730
Loudoun County Sanitation Authority, Water and Sewer Revenue,
Refunding, FGIC Insured, 5.125%, 1/01/26............................................................... $ 3,795,000 $ 3,829,572
Refunding, FGIC Insured, 5.125%, 1/01/30............................................................... 5,250,000 5,297,828
Series 96, FGIC Insured, 5.25%, 1/01/26................................................................ 6,500,000 6,624,085
Series 96, FGIC Insured, 5.25%, 1/01/30................................................................ 1,000,000 1,019,090
Lynchburg IDA, Healthcare Facilities Revenue, Centra Health, Refunding, 5.20%, 1/01/28 ................ 8,000,000 8,012,960
Lynchburg Redevelopment and Housing Authority Revenue, Waldon Pond III,
Refunding, Series A, GNMA Secured, 6.20%, 7/20/27 ..................................................... 1,000,000 1,085,290
Manassas IDA, Hospital Revenue, Prince William Hospital, Pre-Refunded, 8.125%, 4/01/19 ................ 500,000 522,980
Mecklenburg County IDA Revenue, Exempt Facility, Series A, 7.35%, 5/01/08.............................. 4,500,000 4,810,635
Medical College Hospital Authority Revenue, MBIA Insured, 5.125%, 7/01/23 ............................. 4,000,000 4,019,120
Metropolitan Washington D.C. Airports, General Airport Authority Revenue,
Series A, 7.60%, 10/01/14.............................................................................. 1,000,000 1,083,810
Series A, 5.375%, 10/01/23 ............................................................................ 3,985,000 4,073,308
Series B, 5.75%, 10/01/20.............................................................................. 6,000,000 6,331,740
Newport News IDA, Mortgage Revenue, Mennowood Communities, Inc., Series A,
GNMA Secured, 6.25%, 8/01/36........................................................................... 3,000,000 3,259,620
Newport News Redevelopment and Housing Authority Revenue, Refunding,
Series A, GNMA Secured, 5.85%, 12/20/30 .............................................................. 1,250,000 1,301,288
Norfolk GO, MBIA Insured, Pre-Refunded, 5.75%, 6/01/14 ................................................ 2,075,000 2,284,160
Norfolk IDA Revenue,
Children's Hospital of the Kings' Daughters, Inc., Series A, 8.375%, 6/01/12........................... 50,000 51,030
Children's Hospital of the Kings' Group, Inc., AMBAC Insured, Pre-Refunded, 7.00%, 6/01/11 ............ 3,000,000 3,308,460
Health Care, Bon Secours Health, Series B, MBIA Insured, 5.25%, 8/15/26................................ 4,000,000 4,063,160
Medical Center Hospital Project, Series A, 7.00%, 11/01/07............................................. 20,000 20,048
Norfolk Parking System Revenue, MBIA Insured, 5.55%, 2/01/27........................................... 4,475,000 4,676,375
Norfolk Water Revenue,
AMBAC Insured, 5.375%, 11/01/23 ....................................................................... 1,500,000 1,535,220
MBIA Insured, 5.875%, 11/01/20 ........................................................................ 7,000,000 7,546,210
MBIA Insured, 5.90%, 11/01/25 ......................................................................... 5,900,000 6,369,227
Northern Virginia Transportation District Commission, Commuter Rail Revenue,
Railway Express Project, FSA Insured, Pre-Refunded, 7.00%, 7/01/05 ................................... 360,000 387,716
Peninsula Airport Commission Revenue, Airport Improvement, 7.25%, 7/15/11.............................. 1,000,000 1,086,760
Peninsula Ports Authority,
Coal Terminal Revenue, Coal Terminal Association Project, Refunding, 7.375%, 6/01/20................... 5,480,000 6,063,510
Health Care Facilities Revenue, Bon Secours Health System, Refunding,
Series A, MBIA Insured, 5.25%, 8/15/23 ............................................................. 1,500,000 1,527,480
Health System Revenue, Riverside Health System Project, Refunding, Series A, 6.625%, 7/01/18........... 6,000,000 6,540,060
Hospital Facility Revenue, Whittaker Memorial Hospital Project, Refunding,
FHA Insured, 8.70%, 8/01/23............................................................................ 50,000 50,875
Portsmouth, FGIC Insured, 5.25%, 8/01/21 .............................................................. 1,000,000 1,020,090
Puerto Rico Commonwealth Highway and Transportation Authority, Highway
Revenue, Series Y, Pre-Refunded, 6.00%, 7/01/22 ....................................................... 2,000,000 2,266,760
Puerto Rico Commonwealth Highway Authority Revenue, Series Q, Pre-Refunded, 8.00%, 7/01/18............. 1,000,000 1,096,380
Puerto Rico Commonwealth IDC, General Purpose Revenue, Series B, 5.375%, 7/01/16 ...................... 2,800,000 2,896,236
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07......................................................................................... 100,000 103,293
7.75%, 7/01/08......................................................................................... 350,000 357,963
Puerto Rico Electric Power Authority, Power Revenue,
Refunding, Series Z, 5.25%, 7/01/21.................................................................... 1,500,000 1,518,765
Series P, Pre-Refunded, 7.00%, 7/01/21................................................................. 1,500,000 1,659,975
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ............................................................ 2,055,000 2,152,633
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured, Pre-Refunded, 7.75%, 12/01/26 .............. 20,000 24,785
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22........................ 200,000 211,504
Puerto Rico Industrial, Medical and Environmental Facilities, PCFA Revenue,
Baxter Travenol Labs, Inc., Series A, 8.00%, 9/01/12 .................................................. 300,000 309,900
Upjohn Co. Project, 7.50%, 12/01/23 ................................................................... 250,000 259,903
Puerto Rico Telephone Authority Revenue, Refunding, Series L, 6.125%, 1/01/22 ......................... 5,000,000 5,315,150
Richmond Metropolitan Authority, Expressway Revenue,
Refunding, Series A, FGIC Insured, Pre-Refunded, 6.375%, 7/15/16....................................... 2,500,000 2,765,875
Series B, FGIC Insured, 6.25%, 7/15/22................................................................. 5,000,000 5,398,650
South Boston IDA Revenue, Halifax-Community Hospital, Inc. Project,
Pre-Refunded, 7.375%, 9/01/11 ........................................................................ 4,250,000 4,749,588
Spotsylvania County Water and Sewer System Revenue,
MBIA Insured, 5.25%, 6/01/22 .......................................................................... $ 5,500,000 $ 5,621,990
GO, MBIA Insured, 5.40%, 6/01/27....................................................................... 8,800,000 9,081,776
Staunton IDA, Facilities Revenue, Mary Baldwin College,
Series B, Pre-Refunded, 8.00%, 11/01/17................................................................ 895,000 998,560
Suffolk IDA Revenue, Louise Obici Memorial Hospital, Pre-Refunded, 7.875%, 1/01/05..................... 275,000 284,323
Tazewell County IDA, Lease Revenue, Courthouse Project, MBIA Insured,
5.25%, 1/01/17......................................................................................... 1,250,000 1,283,000
5.30%, 1/01/27......................................................................................... 500,000 511,545
Virgin Islands Public Finance Authority Revenue, Senior Lien,
Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/15 .............................................................................................. 1,500,000 1,538,565
10/01/18 .............................................................................................. 1,500,000 1,525,095
Virginia College Building Authority, Educational Facilities Revenue,
Marymount University Project, 7.00%, 7/01/22 .......................................................... 1,750,000 1,905,138
Twenty-first Century College Program, 5.25%, 8/01/16 .................................................. 1,000,000 1,026,380
Washington & Lee University, Pre-Refunded, 5.75%, 1/01/19 ............................................. 2,295,000 2,511,419
Washington & Lee University, Refunding, 5.75%, 1/01/19 ................................................ 50,000 53,188
Washington & Lee University Project, Refunding, Pre-Refunded, 5.80%, 1/01/24 .......................... 3,500,000 3,838,345
Virginia Polytechnic Institute Revenue, Dormitory and Dining Hall, BIG Insured, 7.00%, 6/01/09 ........ 900,000 938,988
Virginia Port Authority Revenue, MBIA Insured, 5.50%, 7/01/24 ......................................... 4,250,000 4,393,353
Virginia State HDA,
Commonwealth Mortgage, Series A, 7.10%, 1/01/17........................................................ 1,000,000 1,063,700
Commonwealth Mortgage, Series A, 7.15%, 1/01/33........................................................ 4,440,000 4,729,488
Commonwealth Mortgage, Series A, Sub Series A-1, 8.10%, 1/01/17........................................ 5,000 5,084
Commonwealth Mortgage, Series B, Sub Series B-3, 6.80%, 1/01/27........................................ 2,000,000 2,114,400
Commonwealth Mortgage, Series B, Sub Series B-3, 7.375%, 7/01/17....................................... 45,000 46,840
Commonwealth Mortgage, Series B, Sub Series B-4, 6.55%, 1/01/27........................................ 2,000,000 2,105,640
Commonwealth Mortgage, Series B, Sub Series B-4, 6.85%, 7/01/17........................................ 5,000,000 5,200,750
Commonwealth Mortgage, Series C, Sub-Series C-3, 6.00%, 1/01/17........................................ 2,000,000 2,144,000
Commonwealth Mortgage, Series D, Sub Series D-1, 6.40%, 7/01/17........................................ 4,745,000 5,106,379
Commonwealth Mortgage, Series D, Sub Series D-2, 7.35%, 7/01/17........................................ 155,000 158,181
Commonwealth Mortgage, Series H, Sub Series H-2, 6.55%, 1/01/17........................................ 1,000,000 1,088,630
MF Housing, Series C, 5.30%, 11/01/16 ................................................................. 2,830,000 2,883,204
MF Housing, Series C, 5.30%, 11/01/17.................................................................. 2,980,000 3,027,889
MF Housing, Series F, 7.10%, 5/01/13................................................................... 9,000,000 9,594,540
MF Housing, Series H, 5.55%, 5/01/15 .................................................................. 2,000,000 2,055,200
Virginia State Resources Authority,
Sewer System Revenue, Harrisonburg Rockingham Region, Refunding,
Series A, Pre-Refunded, 6.00%, 5/01/22 ................................................................ 1,000,000 1,082,010
Water and Sewer System Revenue, Lot #7, Rapidan Service Authority,
Pre-Refunded, 7.125%, 10/01/16 ....................................................................... 1,000,000 1,032,710
Water and Sewer System Revenue, Pooled Loan Program, Series A, 7.35%, 11/01/16......................... 400,000 408,028
Water and Sewer System Revenue, Pooled Loan Program, Series A, 7.45%, 11/01/16......................... 100,000 102,023
Water and Sewer System Revenue, Pooled Loan Program, Series A, Pre-Refunded, 7.35%, 11/01/16........... 190,000 201,844
Water and Sewer System Revenue, Pooled Loan Program, Series A, Pre-Refunded, 7.85%, 11/01/17........... 100,000 104,785
Water and Sewer System Revenue, Rapidan Service Authority, Refunding, 5.30%, 10/01/18.................. 1,610,000 1,660,312
Water System Revenue, Refunding, Series A, 6.125%, 4/01/19............................................. 1,000,000 1,038,050
Water System Revenue, Series 1988, Pre-Refunded, 7.875%, 10/01/18 ..................................... 85,000 86,980
Virginia State Transportation Board, Transportation Contract Revenue,
U. S. Route 28 Project, Refunding, 6.50%, 4/01/18 .................................................... 9,000,000 9,738,720
Washington County IDA,
College Facilities Revenue, Emory and Henry College Project, 6.375%, 4/01/23 .......................... 3,295,000 3,487,526
Hospital Facilities Revenue, First Mortgage, Johnston Memorial Hospital,
Pre-Refunded, 7.00%, 7/01/22 .......................................................................... 3,000,000 3,376,980
West Point IDA, Solid Waste Disposal Revenue, Chesapeake Corp. Project,
Refunding, Series B, 6.25%, 3/01/19 ................................................................. 5,450,000 5,897,935
Winchester IDA, Educational Facilities Revenue, First Mortgage, Shenandoah University Project,
Asset Guaranteed, Refunding, 6.80%, 10/01/24 .......................................................... 2,000,000 2,237,460
MBIA Insured, 5.25%, 10/01/28 ......................................................................... 6,000,000 6,129,060
--------------
Total Long Term Investments (Cost $348,504,847)........................................................ 373,315,482
--------------
aShort Term Investments 1.0%
Alexandria Virginia Redevelopment & Housing Authority, Residential Care Facility Revenue,
Multi-Mode-First Mortgage-Goodwin-B,
Daily VRDN and Put, 3.30%, 10/01/06 .................................................................. 600,000 600,000
Campbell County Industrial Development Authority Revenue, Exempt Facility,
Hadson Power 12-A, Daily VRDN and Put, 3.60%, 4/01/15 ................................................. 200,000 200,000
Hopewell IDAR, Exempt Facility-Hadson Power 13, Series A, Daily VRDN and Put, 3.60%, 4/01/15 .......... $ 1,200,000 $ 1,200,000
King George County Virginia IDA, Exempt Facility Revenue, Birchwood Power
Partners, Series A, Daily VRDN and Put, 3.40%, 10/01/24 .............................................. 300,000 300,000
Petersburg Hospital Authority Revenue, Hospital Facility, Southside Regional,
Daily VRDN and Put, 3.30%, 7/01/17..................................................................... 400,000 400,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
MBIA Insured, Weekly VRDN and Put, 2.50%, 12/01/15 ................................................... 200,000 200,000
Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 2.75%, 7/01/28................................................................... 600,000 600,000
Southhampton County IDA Revenue, Various Exempt Facilities, Hadson Power,
Series 11-A, Daily VRDN and Put, 3.60%, 4/01/15........................................................ 400,000 400,000
--------------
Total Short Term Investments (Cost $3,900,000) ........................................................ 3,900,000
--------------
Total Investments (Cost $352,404,847) 98.5%............................................................ 377,215,482
Other Assets, less Liabilities 1.5% ................................................................... 5,850,412
--------------
Net Assets 100.0% ..................................................................................... $383,065,894
==============
</TABLE>
See glossary of terms on page 113.
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
Statement of Investments, August 31, 1998 (unaudited)
Glossary of Terms
ACES - Adjustable Convertible Exempt Securities
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co. (acquired by MBIA in 1989 and
no longer does business under this name).
CDA - Community Development Authority/Agency
COP - Certificate of Participation
DATES - Demand Adjustable Tax-Exempt Securities
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance (some of the securities shown as FSA
Insured by Capital Guaranty Insurance Co. (CGIC) which
was acquired by FSA in 1995 and no longer does business under this
name).
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
IDB - Industrial Development Board
IDBR - Industrial Development Board Revenue
IDC - Industrial Development Corp.
IDR - Industrial Development Revenue
ISD - Independent School District
L.P. - Limited Partnership
MAC - Municipal Assistance Corp.
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage Backed Securities
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MUD - Municipal Utility District
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFC - Public Finance Corp.
PSF - Permanent School Fund
RDA - Redevelopment Authority/Agency
SF - Single Family
SFHR - Single Family Housing Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
VA - Veterans Administration
VHA - Volunteer Hospital of America
VRDN - Variable Rate Demand Notes
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Statements
Statements of Assets and Liabilities
August 31, 1998 (unaudited)
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>
Assets:
Investments in securities:
Cost ................................... $226,067,654 $1,601,832,708 $161,969,738 $55,671,004 $144,696,955
-----------------------------------------------------------------------------------------
Value .................................. 237,376,121 1,731,548,065 172,202,416 59,491,447 154,625,365
Cash................................... 852,537 38,802 51,858 368,140 118,194
Receivables:
Investment securities sold ............. 100,000 2,562,900 122,257 -- --
Capital shares sold .................... 2,306,035 6,613,966 1,087,040 45,237 102,450
Interest................................ 4,038,218 30,394,038 2,393,304 857,466 2,519,268
-----------------------------------------------------------------------------------------
Total assets............................ 244,672,911 1,771,157,771 175,856,875 60,762,290 157,365,277
-----------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........ 1,983,680 2,516,472 -- -- 968,847
Capital shares redeemed................. 59,780 2,668,563 125,083 -- --
Affiliates.............................. 178,507 1,122,427 141,665 20,127 116,440
Shareholders............................ 227,244 1,709,316 160,324 49,139 130,437
Distributions to shareholders.......... 339,698 2,461,660 254,815 84,363 219,072
Other liabilities ..................... 5,772 28,719 7,616 -- 2,959
-----------------------------------------------------------------------------------------
Total liabilities ...................... 2,794,681 10,507,157 689,503 153,629 1,437,755
-----------------------------------------------------------------------------------------
Net assets, at value................... $241,878,230 $1,760,650,614 $175,167,372 $60,608,661 $155,927,522
=========================================================================================
Net assets consist of:
Undistributed net investment income.... $-- $-- $-- $ 12,025 $ 37,061
Accumulated distributions in excess of
net investment income.................. (134,523) (1,637,949) (101,241) -- --
Net unrealized appreciation............ 11,308,467 129,715,357 10,232,678 3,820,443 9,928,410
Accumulated net realized gain (loss) .. 658,890 1,752,537 548,431 (810,143) (1,421,973)
Capital shares......................... 230,045,396 1,630,820,669 164,487,504 57,586,336 147,384,024
-----------------------------------------------------------------------------------------
Net assets, at value................... $241,878,230 $1,760,650,614 $175,167,372 $60,608,661 $155,927,522
=========================================================================================
Class I:
Net assets, at value................... $229,793,065 $1,693,327,325 $160,933,968 $60,608,661 $148,021,541
=========================================================================================
Shares outstanding..................... 19,510,391 141,789,967 13,231,975 5,246,917 12,705,076
=========================================================================================
Net asset value per share*............. $11.78 $11.94 $12.16 $11.55 $11.65
=========================================================================================
Maximum offering price per share
(net asset value per share / 95.75%) .. $12.30 $12.47 $12.70 $12.06 $12.17
=========================================================================================
Class II:
Net assets, at value................... $ 12,085,165 $ 67,323,289 $ 14,233,404 $-- $ 7,905,981
=========================================================================================
Shares outstanding..................... 1,020,944 5,592,708 1,163,713 -- 674,561
=========================================================================================
Net asset value per share*............. $11.84 $12.04 $12.23 $-- $11.72
=========================================================================================
Maximum offering price per share
(net asset value per share / 99.00%) .. $11.96 $12.16 $12.35 $-- $11.84
=========================================================================================
*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.)
August 31, 1998 (unaudited)
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost .................................... $230,108,420 $327,705,036 $321,578,794 $122,427,411 $352,404,847
==========================================================================================
Value ................................... 246,288,075 351,110,832 344,079,426 131,344,247 377,215,482
Cash.................................... 288,993 226,210 823,966 23,428 50,014
Receivables:
Investment securities sold .............. -- 130,250 50,000 61,800 --
Capital shares sold ..................... 342,125 693,301 278,935 46,048 1,876,244
Interest................................. 3,830,389 5,090,052 5,354,362 1,906,338 5,534,468
------------------------------------------------------------------------------------------
Total assets............................. 250,749,582 357,250,645 350,586,689 133,381,861 384,676,208
------------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased.......... -- 1,849,782 -- -- --
Capital shares redeemed.................. 91,088 168,560 2,941 110,681 416,001
Affiliates............................... 190,765 230,653 271,601 97,523 244,996
Shareholders............................. 240,472 295,336 269,520 150,044 434,821
Distributions to shareholders........... 334,689 481,650 465,331 184,602 512,623
Other liabilities....................... 1,177 8,372 2,825 4,768 1,873
------------------------------------------------------------------------------------------
Total liabilities........................ 858,191 3,034,353 1,012,218 547,618 1,610,314
------------------------------------------------------------------------------------------
Net assets, at value.................... $249,891,391 $354,216,292 $349,574,471 $132,834,243 $383,065,894
==========================================================================================
Net assets consist of:
Undistributed net investment income..... $-- $ 367,831 $ 83,049 $-- $--
Accumulated distributions in excess of
net investment income................... (102,713) -- -- (147,341) (32,021)
Net unrealized appreciation............. 16,179,655 23,405,796 22,500,632 8,916,836 24,810,635
Accumulated net realized gain (loss) ... 270,540 380,084 (586,416) 709,103 230,830
Capital shares.......................... 233,543,909 330,062,581 327,577,206 123,355,645 358,056,450
------------------------------------------------------------------------------------------
Net assets, at value.................... $249,891,391 $354,216,292 $349,574,471 $132,834,243 $383,065,894
==========================================================================================
Class I:
Net assets, at value.................... $235,218,791 $338,641,816 $320,121,430 $129,173,991 $364,929,687
==========================================================================================
Shares outstanding...................... 20,060,684 27,656,732 26,229,199 11,162,409 30,542,743
==========================================================================================
Net asset value per share*.............. $11.73 $12.24 $12.20 $11.57 $11.95
==========================================================================================
Maximum offering price per share
(net asset value per share / 95.75%).... $12.25 $12.78 $12.74 $12.08 $12.48
==========================================================================================
Class II:
Net assets, at value.................... $ 14,672,600 $ 15,574,476 $ 29,453,041 $ 3,660,252 $ 18,136,207
==========================================================================================
Shares outstanding...................... 1,241,763 1,267,536 2,398,364 312,524 1,508,213
==========================================================================================
Net asset value per share*.............. $11.82 $12.29 $12.28 $11.71 $12.02
==========================================================================================
Maximum offering price per share
(net asset value per share / 99.00%).... $11.94 $12.41 $12.40 $11.83 $12.14
==========================================================================================
*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 six months ended August 31, 1998 (unaudited)
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>
Investment income:
Interest.............................. $6,911,848 $50,646,450 $4,789,884 $1,589,113 $4,395,348
-----------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3).............. 645,457 4,012,459 478,567 179,801 434,992
Distribution fees (Note 3)............
Class I ............................. 103,023 764,772 75,483 29,244 63,545
Class II ............................ 33,671 197,816 37,122 -- 20,158
Transfer agent fees (Note 3).......... 38,314 248,721 34,896 10,638 24,752
Custodian fees ....................... 1,063 8,679 672 257 646
Reports to shareholders............... 20,158 116,777 13,629 4,469 10,521
Registration and filing fees ......... 2,877 33,417 3,193 980 5,132
Professional fees..................... 2,609 19,890 2,541 1,160 1,974
Trustees' fees and expenses........... 1,587 8,734 1,097 409 1,000
Other................................. 4,554 38,314 6,340 4,967 5,322
-----------------------------------------------------------------------------------------
Total expenses......................... 853,313 5,449,579 653,540 231,925 568,042
Expenses waived/paid by affiliate
(Note 3).............................. -- -- -- (131,466) --
-----------------------------------------------------------------------------------------
Net expenses.......................... 853,313 5,449,579 653,540 100,459 568,042
-----------------------------------------------------------------------------------------
Net investment income ............... 6,058,535 45,196,871 4,136,344 1,488,654 3,827,306
-----------------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments ... 659,855 2,479,692 548,944 110,398 32,508
Net unrealized appreciation
(depreciation)
on investments ........................ (4,057,124) 9,230,312 348,469 445,131 655,252
-----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (3,397,269) 11,710,004 897,413 555,529 687,760
-----------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations....................... $2,661,266 $56,906,875 $5,033,757 $2,044,183 $4,515,066
=========================================================================================
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended August 31, 1998 (unaudited)
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C> <C> <C>
Investment income:
Interest................................... $6,744,502 $ 9,621,396 $ 9,469,556 $3,936,031 $10,318,254
----------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) .................. 653,834 883,270 875,936 391,816 940,546
Distribution fees (Note 3)
Class I .................................. 110,045 149,959 149,325 54,669 160,130
Class II ................................. 40,550 40,641 82,580 9,269 49,446
Transfer agent fees (Note 3)............... 52,597 72,546 63,461 27,188 72,007
Custodian fees ............................ 1,091 1,596 1,500 724 1,771
Reports to shareholders.................... 21,628 29,442 23,843 10,341 27,250
Registration and filing fees .............. 3,940 7,039 3,208 7,032 2,885
Professional fees.......................... 2,813 4,350 4,133 2,098 4,745
Trustees' fees and expenses................ 1,503 2,023 1,982 928 2,123
Other...................................... 5,808 11,644 8,957 6,644 10,785
----------------------------------------------------------------------------------------
Total expenses.............................. 893,809 1,202,510 1,214,925 510,709 1,271,688
----------------------------------------------------------------------------------------
Net investment income ..................... 5,850,693 8,418,886 8,254,631 3,425,322 9,046,566
----------------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments ........ 269,792 381,656 793,267 710,587 232,920
Net unrealized appreciation
(depreciation)
on investments ............................ 1,953,707 1,203,769 1,963,291 (157,773) 2,941,375
----------------------------------------------------------------------------------------
Net realized and unrealized gain ........... 2,223,499 1,585,425 2,756,558 552,814 3,174,295
----------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations............................ $8,074,192 $10,004,311 $11,011,189 $3,978,136 $12,220,861
========================================================================================
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended August 31, 1998 (unaudited)
and the year ended February 28, 1998
FRANKLIN ALABAMA FRANKLIN FLORIDA FRANKLIN GEORGIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, 1998 FEBRUARY 28, 1998 AUGUST 31, 1998 FEBRUARY 28, 1998 AUGUST 31, 1998 FEBRUARY 28, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..... $ 6,058,535 $ 11,383,019 $ 45,196,871 $ 86,115,157 $ 4,136,344 $ 7,829,673
Net realized gain
from investments........... 659,855 1,367,201 2,479,692 3,659,832 548,944 1,121,637
Net unrealized appreciation
(depreciation) on
investments................ (4,057,124) 5,167,385 9,230,312 37,696,255 348,469 2,137,360
------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations............ 2,661,266 17,917,605 56,906,875 127,471,244 5,033,757 11,088,670
Distributions to
shareholders from:
Net investment income:
Class I .................. (5,834,888) (11,265,935) (43,789,287) (85,826,824) (3,883,300) (7,567,564)
Class II ................... (251,676) (367,384) (1,407,584) (1,948,786) (253,044) (284,878)
In excess of net
investment income:
Class I ................... (128,967) -- (256,987) (1,333,610) (81,358) (21,182)
Class II .................. (5,556) -- (8,261) (39,091) (5,302) --
Net realized gains:
Class I .................... (293,895) (1,673,585) -- -- (189,771) --
Class II ................... (14,771) (63,191) -- -- (14,701) --
------------------------------------------------------------------------------------------------------
Total distributions to
shareholders............... (6,529,753) (13,370,095) (45,462,119) (89,148,311) (4,427,476) (7,873,624)
Capital share transactions:
(Note 2)
Class I ................... 16,513,860 19,138,051 32,274,786 154,783,628 10,747,073 6,663,292
Class II .................. 2,781,332 3,617,627 10,835,594 31,346,278 5,065,057 4,483,272
------------------------------------------------------------------------------------------------------
Total capital share
transactions................ 19,295,192 22,755,678 43,110,380 186,129,906 15,812,130 11,146,564
Net increase in
net assets................. 15,426,705 27,303,188 54,555,136 224,452,839 16,418,411 14,361,610
Net assets:
Beginning of period........ 226,451,525 199,148,337 1,706,095,478 1,481,642,639 158,748,961 144,387,351
------------------------------------------------------------------------------------------------------
End of period.............. $241,878,230 $226,451,525 $1,760,650,614 $1,706,095,478 $175,167,372 $158,748,961
======================================================================================================
Undistributed net investment
income (accumulated
distributions in excess
of net investment income)
included in net assets:
End of period............... $ (134,523) $ 28,029 $ (1,637,949) $ (1,372,701) $ (101,241) $ (14,581)
======================================================================================================
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1998 (unaudited)
and the year ended February 28, 1998
FRANKLIN KENTUCKY FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, 1998 FEBRUARY 28, 1998 UGUST 31, 1998 FEBRUARY 28, 1998 AUGUST 31, 1998 FEBRUARY 28, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income....... $ 1,488,654 $ 2,613,916 $ 3,827,306 $ 6,898,866 $ 5,850,693 $ 10,725,033
Net realized gain
from investments........... 110,398 224,890 32,508 999,780 269,792 545,277
Net unrealized appreciation
on investments............. 445,131 1,505,198 655,252 2,382,871 1,953,707 5,243,088
----------------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations............ 2,044,183 4,344,004 4,515,066 10,281,517 8,074,192 16,513,398
Distributions to
shareholders from:
Net investment income:
Class I .................... (1,499,750) (2,620,364) (3,819,063) (6,832,628) (5,576,224) (10,413,553)
Class II ................... -- -- (146,815) (185,379) (274,469) (352,414)
In excess of net
investment income:
Class I ................... -- -- -- -- (56,345) (45,566)
Class II .................. -- -- -- -- (2,773) --
Net realized gains:
Class I .................... -- -- -- -- (273,459) --
Class II ................... -- -- -- -- (16,028) --
----------------------------------------------------------------------------------------------------
Total distributions
to shareholders............. (1,499,750) (2,620,364) (3,965,878) (7,018,007) (6,199,298) (10,811,533)
Capital share transactions:
(Note 2)
Class I ................... 5,853,498 8,198,426 12,591,050 18,779,995 20,452,884 22,298,675
Class II .................. -- -- 3,396,701 1,361,804 4,044,362 5,199,913
----------------------------------------------------------------------------------------------------
Total capital share
transactions................ 5,853,498 8,198,426 15,987,751 20,141,799 24,497,246 27,498,588
Net increase in
net assets................. 6,397,931 9,922,066 16,536,939 23,405,309 26,372,140 33,200,453
Net assets:
Beginning of period........ 54,210,730 44,288,664 139,390,583 115,985,274 223,519,251 190,318,798
----------------------------------------------------------------------------------------------------
End of period.............. $60,608,661 $54,210,730 $155,927,522 $139,390,583 $249,891,391 $223,519,251
====================================================================================================
Undistributed net investment
income (accumulated
distributions in excess
of net investment income)
included in net assets:
End of period............... $ 12,025 $ 23,121 $ 37,061 $ 175,633 $ (102,713) $ (43,595)
=====================================================================================================
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1998 (unaudited)
and the year ended February 28, 1998
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 1998 FEBRUARY 28, 1998 AUGUST 31, 1998 FEBRUARY 28, 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................... $ 8,418,886 $ 15,507,424 $ 8,254,631 $ 15,161,836
Net realized gain from investments ....................... 381,656 1,728,020 793,267 1,738,033
Net unrealized appreciation on investments ............... 1,203,769 9,244,449 1,963,291 7,658,995
------------------------------------------------------------------------
Net increase in net assets resulting from operations ..... 10,004,311 26,479,893 11,011,189 24,558,864
Distributions to shareholders from:
Net investment income:
Class I ................................................. (8,253,921) (15,241,932) (7,769,016) (14,484,337)
Class II ................................................ (284,437) (326,894) (559,365) (658,410)
Net realized gains:
Class I ................................................. (827,852) (1,036,132) -- --
Class II ................................................ (33,944) (28,341) -- --
------------------------------------------------------------------------
Total distributions to shareholders ..................... (9,400,154) (16,633,299) (8,328,381) (15,142,747)
Capital share transactions: (Note 2)
Class I ................................................ 30,033,705 28,895,509 20,289,613 27,492,884
Class II ............................................... 5,488,874 5,488,123 9,153,118 9,954,454
------------------------------------------------------------------------
Total capital share transactions......................... 35,522,579 34,383,632 29,442,731 37,447,338
Net increase in net assets................................ 36,126,736 44,230,226 32,125,539 46,863,455
Net assets:
Beginning of period...................................... 318,089,556 273,859,330 317,448,932 270,585,477
------------------------------------------------------------------------
End of period............................................ $354,216,292 $318,089,556 $349,574,471 $317,448,932
========================================================================
Undistributed net investment income included in net assets:
End of period........................................... $ 367,831 $ 487,303 $ 83,049 $ 156,799
========================================================================
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended August 31, 1998 (unaudited)
and the year ended February 28, 1998
FRANKLIN TEXAS FRANKLIN VIRGINIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 1998 FEBRUARY 28, 1998 AUGUST 31, 1998 FEBRUARY 28, 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income....................................... $ 3,425,322 $ 7,003,510 $ 9,046,566 $ 16,760,495
Net realized gain from investments.......................... 710,587 1,689,323 232,920 2,402,402
Net unrealized appreciation (depreciation) on investments .. (157,773) 2,206,546 2,941,375 6,947,724
-------------------------------------------------------------------
Net increase in net assets resulting from operations ......... 3,978,136 10,899,379 12,220,861 26,110,621
Distributions to shareholders from:
Net investment income:
Class I ..................................................... (3,361,010) (6,995,404) (8,895,391) (16,626,624)
Class II .................................................... (64,312) (60,074) (345,590) (473,087)
In excess of net investment income:
Class I ..................................................... (23,498) (123,177) (30,823) --
Class II .................................................... (480) (186) (1,198) --
Net realized gains:
Class I ..................................................... (1,653,883) (344,573) (526,083) (2,622,841)
Class II .................................................... (36,397) (3,045) (24,239) (87,981)
--------------------------------------------------------------------
Total distributions to shareholders ......................... (5,139,580) (7,526,459) (9,823,324) (19,810,533)
Capital share transactions: (Note 2)
Class I .................................................... (257,201) 628,778 30,456,254 38,943,306
Class II ................................................... 1,599,619 1,299,563 4,826,625 6,296,146
-------------------------------------------------------------------
Total capital share transactions............................. 1,342,418 1,928,341 35,282,879 45,239,452
Net increase in net assets.................................... 180,974 5,301,261 37,680,416 51,539,540
Net assets:
Beginning of period.......................................... 132,653,269 127,352,008 345,385,478 293,845,938
-------------------------------------------------------------------
End of period................................................ $132,834,243 $132,653,269 $383,065,894 $345,385,478
===================================================================
Undistributed net investment income (accumulated distributions
in excess of net investment income) included in net assets:
End of period................................................. $ (147,341) $ (123,363) $ (32,021) $ 194,415
===================================================================
</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 Funds' investment
objectives are 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.
At August 31, 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
<S> <C> <C> <C> <C>
CLASS I SHARES:
Six months ended August 31, 1998
Shares sold................................................. 2,113,240 $24,935,060 10,772,094 $127,605,938
Shares issued in reinvestment of distributions.............. 233,579 2,754,865 1,041,717 12,340,858
Shares redeemed............................................. (946,553) (11,176,065) (9,092,818) (107,672,010)
-------------------------------------------------------------------
Net increase................................................. 1,400,266 $16,513,860 2,720,993 $ 32,274,786
==================================================================
Year ended February 28, 1998
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
==================================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold................................................. 283,175 $ 3,360,193 1,345,370 $ 16,064,113
Shares issued in reinvestment of distributions.............. 12,323 145,940 63,095 753,390
Shares redeemed............................................. (61,302) (724,801) (501,631) (5,981,909)
-------------------------------------------------------------------
Net increase................................................. 234,196 $ 2,781,332 906,834 $ 10,835,594
==================================================================
Year ended February 28, 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
==================================================================
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Class I Shares:
Six months ended August 31, 1998
Shares sold................................................. 1,606,969 $19,435,064 673,614 $ 7,704,946
Shares issued in reinvestment of distributions.............. 172,940 2,091,426 55,774 638,190
Shares redeemed............................................. (891,228) (10,779,417) (217,373) (2,489,638)
-------------------------------------------------------------------
Net increase................................................. 888,681 $10,747,073 512,015 $ 5,853,498
==================================================================
Year ended February 28, 1998
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
==================================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold................................................. 561,978 $ 6,833,871
Shares issued in reinvestment of distributions.............. 14,020 170,424
Shares redeemed............................................. (159,464) (1,939,238)
----------------------------------
Net increase................................................. 416,534 $ 5,065,057
=================================
Year ended February 28, 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
=================================
2. SHARES OF BENEFICIAL INTEREST (cont.)
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Class I Shares:
Six months ended August 31, 1998
Shares sold............................................... 1,714,744 $19,854,801 2,497,227 $29,028,154
Shares issued in reinvestment of distributions............ 150,989 1,747,454 262,186 3,050,206
Shares redeemed........................................... (779,133) (9,011,205) (1,000,031) (11,625,476)
----------------------------------------------------------------------
Net increase............................................... 1,086,600 $12,591,050 1,759,382 $20,452,884
=====================================================================
Year ended February 28, 1998
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
=====================================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold............................................... 322,992 $ 3,758,713 400,583 $ 4,695,427
Shares issued in reinvestment of distributions............ 7,194 83,755 16,168 189,594
Shares redeemed........................................... (38,335) (445,767) (71,775) (840,659)
----------------------------------------------------------------------
Net increase............................................... 291,851 $ 3,396,701 344,976 $ 4,044,362
=====================================================================
Year ended February 28, 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
=====================================================================
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Class I Shares:
Six months ended August 31, 1998
Shares sold............................................... 3,621,727 $44,132,227 2,723,005 $32,944,870
Shares issued in reinvestment of distributions............ 361,777 4,405,317 316,383 3,828,395
Shares redeemed........................................... (1,519,591) (18,503,839) (1,362,984) (16,483,652)
----------------------------------------------------------------------
Net increase............................................... 2,463,913 $30,033,705 1,676,404 $20,289,613
=====================================================================
Year ended February 28, 1998
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
=====================================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold............................................... 470,310 $ 5,751,700 798,569 $ 9,707,040
Shares issued in reinvestment of distributions............ 18,547 226,663 29,353 357,353
Shares redeemed........................................... (40,022) (489,489) (74,853) (911,275)
----------------------------------------------------------------------
Net increase............................................... 448,835 $ 5,488,874 753,069 $ 9,153,118
=====================================================================
Year ended February 28, 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
=====================================================================
2. SHARES OF BENEFICIAL INTEREST (cont.)
FRANKLIN TEXAS FRANKLIN VIRGINIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Class I Shares:
Six months ended August 31, 1998
Shares sold............................................... 580,072 $ 6,707,266 3,473,540 $41,184,130
Shares issued in reinvestment of distributions............ 208,856 2,411,880 390,032 4,622,927
Shares redeemed........................................... (809,740) (9,376,347) (1,294,552) (15,350,803)
----------------------------------------------------------------------
Net increase (decrease).................................... (20,812) $ (257,201) 2,569,020 $30,456,254
=====================================================================
Year ended February 28, 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
=====================================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold............................................... 139,048 $ 1,627,001 487,953 $ 5,820,853
Shares issued in reinvestment of distributions............ 6,201 72,419 18,780 224,053
Shares redeemed........................................... (8,519) (99,801) (102,150) (1,218,281)
----------------------------------------------------------------------
Net increase............................................... 136,730 $ 1,599,619 404,583 $ 4,826,625
=====================================================================
Year ended February 28, 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
=====================================================================
</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
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
Advisers agreed in advance to waive a portion of the management fees for the
Franklin Kentucky Tax-Free Income Fund as noted in the 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.
3. TRANSACTIONS WITH AFFILIATES (cont.)
Distributors received (paid) net commissions on sales of the Funds shares, and
received contingent deferred sales charges for the period as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions received (paid)................... $(46,309) $(235,722) $(87,425) $2,721 $(64,317)
Contingent deferred sales charges................. $ 1,055 $ 19,614 $ 4,659 $-- $ 773
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions received (paid)................... $(21,940) $(64,844) $(61,119) $(10,241) $(30,831)
Contingent deferred sales charges................. $ 2,574 $ 1,580 $ 5,714 $ 614 $ 6,802
The Funds paid transfer agent fees of $645,120 of which $559,831 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 FRANKLIN FRANKLIN FRANKLIN
FLORIDA KENTUCKY LOUISIANA NORTH 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> <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
==================================================================
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 August 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
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................. $226,067,654 $1,601,832,708 $161,969,738 $55,671,004 $144,696,955
============================================================================================
Unrealized appreciation............. $ 15,228,461 $ 133,577,399 $ 10,232,678 $ 3,820,443 $ 9,928,410
Unrealized depreciation............. (3,919,994) (3,862,042) -- -- --
--------------------------------------------------------------------------------------------
Net unrealized appreciation......... $ 11,308,467 $ 129,715,357 $ 10,232,678 $ 3,820,443 $ 9,928,410
============================================================================================
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND TAX-FREE MISSOURI TAX-FREENORTH CAROLINA TAX-FREETEXAS TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C> <C> <C>
Investments at cost................. $230,108,420 $327,705,713 $321,580,614 $121,227,411 $352,404,847
============================================================================================
Unrealized appreciation............. $ 16,179,655 $ 23,592,420 $ 22,498,812 $ 8,916,836 $ 24,810,635
Unrealized depreciation............. -- (187,301) -- -- --
--------------------------------------------------------------------------------------------
Net unrealized appreciation......... $ 16,179,655 $ 23,405,119 $ 22,498,812 $ 8,916,836 $ 24,810,635
============================================================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended August 31, 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.......................... $35,208,639 $113,120,037 $21,659,544 $10,664,630 $30,503,644
Sales.............................. $18,319,499 $ 72,426,015 $11,474,611 $ 4,203,458 $13,927,584
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND TAX-FREE MISSOURI TAX-FREENORTH CAROLINA TAX-FREETEXAS TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases.......................... $22,277,698 $62,206,033 $39,838,596 $18,450,545 $43,330,332
Sales.............................. $ 2,871,600 $35,396,061 $16,438,738 $26,747,522 $18,794,832
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
At August 31, 1998, the Franklin Florida Tax-Free Income Fund held defaulted
securities with a value aggregating $11,934,000 representing .68% 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 (2)
Semiannual Report
August 31, 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
8/31/98.
AAA 60.5%
AA 3.0%
A 8.0%
BBB 26.8%
Below Investment Grade 1.7%
GRAPHIC MATERIAL (2)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Alabama Tax-Free
Income Fund.
Utilities 24.2%
Hospitals 18.0%
Industrial 16.3%
General Obligation 12.7%
Housing 6.3%
Education 5.3%
Health Care 5.2%
Prerefunded 4.3%
Other Revenue 4.2%
Transportation 3.5%
GRAPHIC MATERIAL (3)
This chart shows the dividend distributions for Franklin Alabama Tax-Free
Income Fund- Class I from 3/1/98 to 8/31/98.
March 5.3 cents
April 5.3 cents
May 5.3 cents
June 5.3 cents
July 5.3 cents
August 5.3 cents
Total 31.8 cents
GRAPHIC MATERIAL (4)
This chart shows in bar format the comparison between Franklin Alabama
Tax-Free Income Fund- Class I distribution rate of 5.07% and the taxable
equivalent rate of 8.84% on 8/31/98.
GRAPHIC MATERIAL (5)
This chart shows the dividend distributions for Franklin Alabama Tax-Free
Income Fund- Class II from 3/1/98 to 8/31/98.
March 4.73 cents
April 4.74 cents
May 4.74 cents
June 4.74 cents
July 4.74 cents
August 4.74 cents
Total 28.43 cents
GRAPHIC MATERIAL (6)
This chart shows in bar format the comparison between Franklin Alabama
Tax-Free Income Fund- Class II distribution rate of 4.66% and the taxable
equivalent rate of 8.12% on 8/31/98.
GRAPHIC MATERIAL (7)
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
8/31/98.
AAA 66.3%
AA 12.6%
A 7.3%
BBB 13.1%
Below Investment Grade 0.7%
GRAPHIC MATERIAL (8)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Florida Tax-Free
Income Fund.
Utilities 24.9%
Prerefunded 19.8%
Transportation 10.8%
Other Revenue 9.7%
Housing 8.7%
Special Assessment 7.2%
Hospitals 6.4%
General Obligation 3.7%
Health Care 3.0%
Certificates of Participation 2.2%
Education 1.8%
Sales Tax Revenue 1.2%
Industrial 0.6%
GRAPHIC MATERIAL (9)
This chart shows the dividend distributions for Franklin Florida Tax-Free
Income Fund- Class I from 3/1/98 to 8/31/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
GRAPHIC MATERIAL (10)
This chart shows in bar format the comparison between Franklin Florida
Tax-Free Income Fund- Class I distribution rate of 5.00% and the taxable
equivalent rate of 8.28% on 8/31/98.
GRAPHIC MATERIAL (11)
This chart shows the dividend distributions for Franklin Florida Tax-Free
Income Fund- Class II from 3/1/98 to 8/31/98.
March 4.63 cents
April 4.65 cents
May 4.65 cents
June 4.65 cents
July 4.65 cents
August 4.65 cents
Total 27.88 cents
GRAPHIC MATERIAL (12)
This chart shows in bar format the comparison between Franklin Florida
Tax-Free Income Fund- Class II distribution rate of 4.59% and the taxable
equivalent rate of 7.60% on 8/31/98.
GRAPHIC MATERIAL (13)
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
8/31/98.
AAA 58.2%
AA 17.9%
A 7.4%
BBB 16.5%
GRAPHIC MATERIAL (14)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Georgia Tax-Free
Income Fund.
Utilities 27.4%
Housing 14.7%
Prerefunded 11.3%
Industrial 8.6%
Other Revenue 7.7%
Hospitals 7.5%
Transportation 6.7%
Education 6.2%
General Obligation 6.1%
Certificates of Participation 3.1%
Sales Tax Revenue 0.6%
Health Care 0.1%
GRAPHIC MATERIAL (15)
This chart shows the dividend distributions for Franklin Georgia Tax-Free
Income Fund- Class I from 3/1/98 to 8/31/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
GRAPHIC MATERIAL (16)
This chart shows in bar format the comparison between Franklin Georgia
Tax-Free Income Fund- Class I distribution rate of 4.82% and the taxable
equivalent rate of 8.49% on 8/31/98.
GRAPHIC MATERIAL (17)
This chart shows the dividend distributions for Franklin Georgia Tax-Free
Income Fund- Class II from 3/1/98 to 8/31/98.
March 4.62 cents
April 4.64 cents
May 4.64 cents
June 4.64 cents
July 4.64 cents
August 4.64 cents
Total 27.82 cents
GRAPHIC MATERIAL (18)
This chart shows in bar format the comparison between Franklin Georgia
Tax-Free Income Fund- Class II distribution rate of 4.41% and the taxable
equivalent rate of 7.77% on 8/31/98.
GRAPHIC MATERIAL (19)
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
8/31/98.
AAA 58.8%
AA 6.4%
A 13.6%
BBB 21.2%
GRAPHIC MATERIAL (20)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Kentucky Tax-Free
Income Fund.
Hospitals 27.0%
Housing 18.1%
Utilities 12.9%
Other Revenue 12.2%
Transportation 10.8%
Certificates of Participation 7.1%
Industrial 6.9%
Prerefunded 4.8%
Education 0.2%
GRAPHIC MATERIAL (21)
This chart shows the dividend distributions for Franklin Kentucky Tax-Free
Income Fund from 3/1/98 to 8/31/98.
March 5.0 cents
April 5.0 cents
May 5.0 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
Total 30.0 cents
GRAPHIC MATERIAL (22)
This chart shows in bar format the comparison between Franklin Kentucky
Tax-Free Income Fund- distribution rate of 4.98% and the taxable equivalent
rate of 8.77% on 8/31/98.
GRAPHIC MATERIAL (23)
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
8/31/98.
AAA 66.8%
AA 2.8%
A 8.1%
BBB 14.1%
Below Investment Grade 8.2%
GRAPHIC MATERIAL (24)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Louisiana Tax-Free
Income Fund.
Education 22.3%
Utilities 16.3%
Housing 10.9%
Hospitals 10.1%
Sales Tax Revenue 8.9%
Industrial 7.1%
Prerefunded 6.2%
Other Revenue 6.0%
Health Care 3.8%
General Obligation 3.6%
Transportation 3.6%
Certificates of Participation 1.2%
GRAPHIC MATERIAL (25)
This chart shows the dividend distributions for Franklin Louisiana Tax-Free
Income Fund- Class I from 3/1/98 to 8/31/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
GRAPHIC MATERIAL (26)
This chart shows in bar format the comparison between Franklin Louisiana
Tax-Free Income Fund- Class I distribution rate of 5.03% and the taxable
equivalent rate of 8.86% on 8/31/98.
GRAPHIC MATERIAL (27)
This chart shows the dividend distributions for Franklin Louisiana Tax-Free
Income Fund- Class II from 3/1/98 to 8/31/98.
March 4.65 cents
April 4.65 cents
May 4.65 cents
June 4.65 cents
July 4.64 cents
August 4.64 cents
Total 27.88 cents
GRAPHIC MATERIAL (28)
This chart shows in bar format the comparison between Franklin Louisiana
Tax-Free Income Fund- Class II distribution rate of 4.60% and the taxable
equivalent rate of 8.10% on 8/31/98.
GRAPHIC MATERIAL (29)
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
8/31/98.
AAA 52.1%
AA 14.2%
A 25.1%
BBB 8.6%
GRAPHIC MATERIAL (30)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Maryland Tax-Free
Income Fund.
Utilities 19.7%
Housing 18.9%
Hospitals 12.0%
General Obligation 11.3%
Other Revenue 11.2%
Prerefunded 7.3%
Certificates of Participation 6.1%
Education 5.9%
Health Care 4.3%
Transportation 3.1%
Industrial 0.2%
GRAPHIC MATERIAL (31)
This chart shows the dividend distributions for Franklin Maryland Tax-Free
Income Fund- Class I from 3/1/98 to 8/31/98.
March 4.9 cents
April 4.9 cents
May 4.9 cents
June 4.9 cents
July 4.9 cents
August 4.9 cents
Total 29.4 cents
GRAPHIC MATERIAL (32)
This chart shows in bar format the comparison between Franklin Maryland
Tax-Free Income Fund- Class I distribution rate of 4.80% and the taxable
equivalent rate of 8.59% on 8/31/98.
GRAPHIC MATERIAL (33)
This chart shows the dividend distributions for Franklin Maryland Tax-Free
Income Fund- Class II from 3/1/98 to 8/31/98.
March 4.35 cents
April 4.36 cents
May 4.36 cents
June 4.36 cents
July 4.36 cents
August 4.36 cents
Total 26.15 cents
GRAPHIC MATERIAL (34)
This chart shows in bar format the comparison between Franklin Maryland
Tax-Free Income Fund- Class II distribution rate of 4.38% and the taxable
equivalent rate of 7.84% on 8/31/98.
GRAPHIC MATERIAL (35)
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
8/31/98.
AAA 62.8%
AA 14.0%
A 5.0%
BBB 18.2%
GRAPHIC MATERIAL (36)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Missouri Tax-Free
Income Fund.
Hospitals 18.0%
Prerefunded 16.9%
Certificates of Participation 14.3%
Other Revenue 12.5%
Housing 10.2%
Health Care 6.9%
Transportation 6.1%
Utilities 5.9%
Education 3.6%
Industrial 2.5%
General Obligation 1.8%
Tax Allocation Bonds 1.1%
Sales Tax Revenue 0.2%
GRAPHIC MATERIAL (37)
This chart shows the dividend distributions for Franklin Missouri Tax-Free
Income Fund- Class I from 3/1/98 to 8/31/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
GRAPHIC MATERIAL (38)
This chart shows in bar format the comparison between Franklin Missouri
Tax-Free Income Fund- Class I distribution rate of 4.88% and the taxable
equivalent rate of 8.60% on 8/31/98.
GRAPHIC MATERIAL (39)
This chart shows the dividend distributions for Franklin Missouri Tax-Free
Income Fund- Class II from 3/1/98 to 8/31/98.
March 4.63 cents
April 4.64 cents
May 4.64 cents
June 4.64 cents
July 4.62 cents
August 4.62 cents
Total 27.79 cents
GRAPHIC MATERIAL (40)
This chart shows in bar format the comparison between Franklin Missouri
Tax-Free Income Fund- Class II distribution rate of 4.47% and the taxable
equivalent rate of 7.87% on 8/31/98.
GRAPHIC MATERIAL (41)
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 8/31/98.
AAA 50.5%
AA 21.1%
A 15.5%
BBB 12.9%
GRAPHIC MATERIAL (42)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin North Carolina
Tax-Free Income Fund.
Utilities 24.8%
Hospitals 15.6%
Prerefunded 15.2%
Housing 13.1%
Certificates of Participation 11.4%
Other Revenue 5.2%
Education 4.7%
Industrial 4.6%
Health Care 3.1%
Tax Allocation Bond 1.2%
Transportation 0.4%
Sales Tax Revenue 0.4%
General Obligation 0.3%
GRAPHIC MATERIAL (43)
This chart shows the dividend distributions for Franklin North Carolina
Tax-Free Income Fund- Class I from 3/1/98 to 8/31/98.
March 5.1 cents
April 5.1 cents
May 5.1 cents
June 5.1 cents
July 5.1 cents
August 5.1 cents
Total 30.6 cents
GRAPHIC MATERIAL (44)
This chart shows in bar format the comparison between Franklin North Carolina
Tax-Free Income Fund- Class I distribution rate of 4.80% and the taxable
equivalent rate of 8.61% on 8/31/98.
GRAPHIC MATERIAL (45)
This chart shows the dividend distributions for Franklin North Carolina
Tax-Free Income Fund- Class II from 3/1/98 to 8/31/98.
March 4.53 cents
April 4.49 cents
May 4.49 cents
June 4.49 cents
July 4.58 cents
August 4.58 cents
Total 27.16 cents
GRAPHIC MATERIAL (46)
This chart shows in bar format the comparison between Franklin North Carolina
Tax-Free Income Fund- Class II distribution rate of 4.43% and the taxable
equivalent rate of 7.95% on 8/31/98.
GRAPHIC MATERIAL (47)
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 8/31/98.
AAA 54.4%
AA 6.5%
A 6.4%
BBB 32.7%
GRAPHIC MATERIAL (48)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Texas Tax-Free Income
Fund.
Utilities 26.1%
Industrial 16.2%
Education 12.3%
Health Care 10.7%
Hospitals 9.0%
Prerefunded 8.9%
Transportation 7.2%
Housing 5.8%
Other Revenue 1.7%
Sales Tax Revenue 1.2%
General Obligation 0.9%
GRAPHIC MATERIAL (49)
This chart shows the dividend distributions for Franklin Texas Tax-Free
Income Fund- Class I from 3/1/98 to 8/31/98.
March 5.1 cents
April 5.1 cents
May 5.1 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
Total 30.3 cents
GRAPHIC MATERIAL (50)
This chart shows in bar format the comparison between Franklin Texas Tax-Free
Income Fund- Class I distribution rate of 4.97% and the taxable equivalent
rate of 8.23% on 8/31/98.
GRAPHIC MATERIAL (51)
This chart shows the dividend distributions for Franklin Texas Tax-Free
Income Fund- Class II from 3/1/98 to 8/31/98.
March 4.52 cents
April 4.53 cents
May 4.53 cents
June 4.43 cents
July 4.44 cents
August 4.44 cents
Total 26.89 cents
GRAPHIC MATERIAL (52)
This chart shows in bar format the comparison between Franklin Texas Tax-Free
Income Fund- Class II distribution rate of 4.50% and the taxable equivalent
rate of 7.45% on 8/31/98.
GRAPHIC MATERIAL (53)
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
8/31/98.
AAA 53.5%
AA 24.5%
A 12.8%
BBB 9.2%
GRAPHIC MATERIAL (54)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Virginia Tax-Free
Income Fund.
Utilities 21.5%
Hospitals 16.8%
Housing 14.6%
Prerefunded 13.6%
Transportation 9.6%
Industrial 9.5%
Other Revenue 4.7%
Education 4.4%
Health Care 2.5%
Certificates of Participation 1.8%
General Obligation 0.9%
Sales Tax Revenue 0.1%
GRAPHIC MATERIAL (55)
This chart shows the dividend distributions for Franklin Virginia Tax-Free
Income Fund- Class I from 3/1/98 to 8/31/98.
March 5.1 cents
April 5.1 cents
May 5.1 cents
June 5.1 cents
July 5.1 cents
August 5.1 cents
Total 30.6 cents
GRAPHIC MATERIAL (56)
This chart shows in bar format the comparison between Franklin Virginia
Tax-Free Income Fund- Class I distribution rate of 4.81% and the taxable
equivalent rate of 8.45% on 8/31/98.
GRAPHIC MATERIAL (57)
This chart shows the dividend distributions for Franklin Virginia Tax-Free
Income Fund- Class II from 3/1/98 to 8/31/98.
March 4.55 cents
April 4.56 cents
May 4.56 cents
June 4.56 cents
July 4.54 cents
August 4.54 cents
Total 27.31 cents
GRAPHIC MATERIAL (58)
This chart shows in bar format the comparison between Franklin Virginia
Tax-Free Income Fund- Class II distribution rate of 4.39% and the taxable
equivalent rate of 7.71% on 8/31/98.
Semi
Annual
Report
August 31, 1998
Franklin Tax-Free Trust
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin High Yield 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
Thank you for investing with Franklin Templeton. We encourage our investors
to maintain a long-term perspective and 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:
Franklin's Municipal
Bond Department .......................... 4
Fund Reports
Franklin Arizona
Tax-Free Income Fund .................... 6
Franklin Colorado
Tax-Free Income Fund .................... 12
Franklin Connecticut
Tax-Free Income Fund .................... 18
Franklin Federal
Intermediate-Term
Tax-Free Income Fund .................... 24
Franklin High Yield
Tax-Free Income Fund .................... 28
Franklin Indiana
Tax-Free Income Fund .................... 34
Franklin Michigan
Tax-Free Income Fund .................... 38
Franklin New Jersey
Tax-Free Income Fund .................... 42
Franklin Oregon
Tax-Free Income Fund .................... 48
Franklin Pennsylvania
Tax-Free Income Fund .................... 54
Franklin Puerto Rico
Tax-Free Income Fund .................... 60
Municipal Bond Ratings ................... 66
Financial Highlights &
Statement of Investments ................. 68
Financial Statements ..................... 138
Notes to Financial Statements ............ 146
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's semiannual report for
the period ended August 31, 1998.
Economic Overview
In our annual report for the period ended February 28, 1998, we mentioned the
likelihood of a U.S. economic slowdown brought on, for the most part, by the
Asian financial crisis. Four months later, this came to pass. U.S. economic
growth measured by gross domestic product (GDP) slowed, from an extremely
strong 5.5% annual rate in the first three months of the year, to a more
moderate 1.6% annual rate in the April-June period, reflecting weak Asian
demand for goods and a business inventory buildup. A higher U.S. trade
deficit resulted, as Asian countries tried exporting their way out of their
economic turmoil, capitalizing on weakened currencies to boost their exports
abroad. For the first six months of this year, America's trade deficit was
running at an annual rate of $158 billion, far surpassing last year's
imbalance of $110 billion. The largest annual deficit on record, $152
billion, was set in 1987. Clearly, the American consumer continues to drive
our economy through relatively strong purchases of retail goods, durable
goods, and new and existing homes. Looking forward, the consumer may well
dictate the direction of the U.S. economy.
As of the end of the reporting period, Federal Reserve Board (Fed)
policy-makers opted to leave short-term interest rates unchanged. In its
mid-August meeting, the Fed's monetary policy panel, the Federal Open Market
Committee, held the benchmark rate on overnight interbank loans unchanged at
5.5%. This rate has been frozen at 5.5% since March 1997, when policy-makers
raised it a quarter percentage point.
Competing considerations kept long-term interest rates in a relatively narrow
trading range. Although labor shortages and gradually accelerating wages
normally might call for an interest-rate increase to curb excessive domestic
growth, inflation actually remained subdued. Domestic manufacturers, faced
with a potential flood of cheaper Asian imports, were reluctant to raise
prices. For the first seven months of the year, inflation ran at a 1.5%
annual rate, according to the U.S. Labor Department.
During the reporting period, the yield on the benchmark 30-year U.S. Treasury
bond continued its downward trend and actually hit record lows. The 30-year
Treasury began the reporting period yielding 5.92% on February 28, 1998, and
ended the period yielding 5.30% on August 31, 1998. Falling yields reflected
the 30-year Treasury bond's popularity, or "flight to quality," among
investors fleeing deteriorating foreign stock markets. Bond price and yield
move in an inverse relationship, so the rising price of the 30-year Treasury
led to a corresponding yield decline.
Issuers of municipal bonds took advantage of lower interest rates during the
six-month period by refinancing outstanding higher interest-rate debt.
Additionally, many municipalities were in excellent fiscal shape due to the
strong economy. In fact, credit rating upgrades exceeded downgrades by a
four-to-one ratio. As a consequence, borrowing for new projects increased,
such that the supply of new municipal bond issues in 1998 could approach
record levels. Demand did not keep pace with the increased supply, causing
municipal bonds to underperform compared with their taxable counterparts. As
of the end of the reporting period, the yields on 30-year, AAA-rated, insured
municipal bonds stood at more than 91% of the yield on a 30-year Treasury
bond, which in our opinion, creates a very attractive investment opportunity
in the municipal bond market. For those investors in the 39.6% tax bracket,
the taxable equivalent yield on a municipal bond was 8.23% versus 5.30% for
the Treasury bond.*
*Source: Bloomberg, August 31, 1998.
Our investment philosophy remains disciplined and focused, as we strive to
offer our shareholders high, current tax-free income and preservation of
principal. The outlook for the municipal bond market should remain positive,
given the slowing U.S. economy, positive inflation environment, U.S. budget
surplus, strong U.S. dollar and the economic and market uncertainty facing
many of the world's regions.
Municipal bonds continue to be an attractive investment for those investors
seeking tax-free income as well as an opportunity to diversify risk in their
portfolio. We encourage you to discuss your financial goals with an
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. 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
FRANKLIN'S MUNICIPAL BOND DEPARTMENT
The Municipal Bond Department Today
Franklin is currently the nation's largest tax-free fund manager. With a team
of 11 portfolio managers and 22 research analysts, we manage more than $50
billion of municipal assets in 43 funds for over 886,000 tax-free fund
shareholder accounts.
Our Investment Philosophy
The investment objective of Franklin's tax-free funds is to provide a high
level of current, tax-free income while preserving shareholders' capital.
Following a disciplined investment approach, we conduct a stringent credit
analysis to search for what we believe to be undervalued situations, and
generally purchase current coupon bonds at prices we consider favorable. We
also acknowledge that investors in general are risk-averse; therefore, we do
not invest in exotic derivatives, nor leverage or hedge our portfolios, which
would increase the funds' volatility.
Furthermore, Franklin positions its funds with a long-term investment horizon.
We purchase a major portion of our municipal bonds in the new-issue market and
incorporate a buy-and-hold strategy, attempting to reduce portfolio turnover and
thus, avoid capital gain distributions. We expect our funds to distribute a
relatively high level of tax-free income, and attempt to maximize risk-adjusted
total return performance.
Research and Analysis
Franklin has one of the industry's largest research departments. Along with
the portfolio managers, the research department's main mission is to identify
the best municipal buying opportunities.
Our analysts are recognized experts in their individual fields, who focus on
specific sectors, and not on regions. With the use of proprietary databases,
our analysts can provide fast and reliable analysis to portfolio managers
about any bond issue being considered. Each year analysts visit a number of
sites to get a perspective of our financed projects. They meet with
management teams and municipal officials to discuss newly found potential
opportunities and problems.
In this industry, our municipal bond team often takes on the role of
investment bankers. Many of our competitors routinely turn away from issues
they believe unattractive; at Franklin, we pride ourselves in proposing
changes to these issues, and work to make them acceptable to our criteria.
These situations usually provide us with excellent investment return.
The ability and willingness to work with investment bankers and our
reputation for talented analysts also make us a preferred client to receive
the "first call" on issues many brokerage houses underwrite. Lastly, our
research analysts have made significant efforts to improve municipal markets.
With their involvement and leadership, they have been working with attorney
and issuer groups and industry regulators to strengthen the municipal bond
industry.
FRANKLIN ARIZONA TAX-FREE INCOME FUND
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
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
State Update
Arizona's economy showed continued strength during the reporting period. In
the first quarter of 1998, wage and salary employment increased 4.8% compared
with the first quarter 1997. That translated into the creation of 94,000 new
jobs. Surveys conducted by the Conference Board Help Wanted Index and
Manpower Inc. showed that the demand for labor remained strong. Arizona's
unemployment was 4.1% in May 1998, the lowest level since 1970 and among the
nation's lowest.2 Personal income grew by 7.7% in 1997. As a result of the
strong job market and increased real wages, consumer confidence rose to an
all-time high in April.3
As a state where population growth historically has fueled the economy,
Arizona's population was estimated at 4.66 million in the first quarter of
1998, a 21% increase since 1990. With a population of 1.2 million, Phoenix is
the nation's sixth-largest city. Population growth stimulated the
construction, manufacturing, service and trade sectors.3
Portfolio Notes
Arizona's economy thrived during the first half of the fund's fiscal year,
continuing to experience sustainable growth with little inflation. New-issue
supply of municipal bonds for the first six months of 1998 increased by a
substantial 43% versus the same time last year. This increased supply
resulted from new infrastructure and capital improvement demand, coupled with
low borrowing costs. In addition, low interest rates allowed Arizona
municipalities to refinance outstanding debt by issuing new bonds.
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: Eller Graduate School of Management, the University of Arizona,
Arizona's Economy, July 1998.
3. Source: Arizona Department of Commerce, The Gold Sheet, Arizona Economic
Development Update, July/August 1998.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 69
of this report.
Since we have recently been in a low interest-rate environment, it was
difficult for the fund to generate enough capital losses to offset the gains
realized from the prerefunded bond sales. Thus, the fund made a long-term
capital gain distribution of 3.42 cents per share and a short-term capital
gain distribution of 0.04 cents per share, in June.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The hefty surge in new Arizona municipal bond supply during the first six
months of 1998 allowed the fund opportunities to purchase new issues and
maintain portfolio diversification. New additions to the portfolio included
Mesa general obligation bonds, Mohave County Unified School District #1 -
Lake Havasu, and Maricopa County Industrial Development Authority revenue
bonds for the Mayo Clinic Foundation. The fund also purchased Phoenix
Industrial Development Authority Single Family Housing revenue bonds. The
Phoenix Industrial Development Authority helps people buy housing within the
Phoenix city limits. The program issues bonds at favorable, tax-exempt rates
and lends the proceeds to qualified, first-time home buyers via conventional
banks and mortgage companies.
The fund's underlying bonds increased in market value during the six-month
period, contributing to a 4.8% rise in the fund's total net assets, from $825
million to $865 million, thus providing shareholders a more diversified and
stable asset base. We believe the fund's performance is largely a tribute to
Franklin's income-oriented approach. Our fund strategy focuses on protecting
share value and maintaining competitive yield. We actively manage the fund's
call exposure by attempting to sell prerefunded bonds and buy securities with
longer call protection. At the same time, we closely monitor the existing
credits in the portfolio, along with Arizona's economy and new-issue supply.
Going forward, we believe strong population growth should help maintain the
demand for infrastructure, positively impacting future supply.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
PERFORMANCE SUMMARY
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class I
Franklin Arizona Tax-Free Income Fund - Class I share price, as measured by
net asset value, decreased one cent, from $11.44 on February 28, 1998, to
$11.43 on August 31, 1998. During the six-month reporting period,
shareholders received per-share distributions consisting of dividend income
totaling 30 cents ($0.30), 3.42 cents ($0.0342) in long-term capital gains
and 0.04 cents ($0.0004) in short-term capital gains. Distributions will vary
based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. 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 $11.94 on August 31, 1998,
your fund's distribution rate was 4.82%. 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 8.42% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Arizona Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
- --------------------------------------------------------------------------------
Cumulative Total Return1 7.58% 32.45% 115.12% 128.10%
Average Annual Total Return2 3.02% 4.87% 7.49% 7.35%
Distribution Rate3 4.82%
Taxable Equivalent Distribution Rate 48.42%
30-Day Standardized Yield 54.13%
Taxable Equivalent Yield 47.21%
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. 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.
3. Distribution rate is based on an annualization of the current 4.8 cent per
share monthly dividend and the maximum offering price of $11.94 on August 31,
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 August 31, 1998.
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 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 6 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, decreased one cent, from $11.51 on February 28, 1998, to
$11.50 on August 31, 1998. During the six-month reporting period,
shareholders received per-share distributions consisting of dividend income
totaling 26.77 cents ($0.2677), 3.42 cents ($0.0342) in long-term capital
gains and 0.04 cents ($0.0004) in short-term capital gains. Distributions
will vary based on the fund's income and any profits realized from the sale
of securities in the fund's portfolio. Past distributions are not predictive
of future trends.
Based on an annualization of the current monthly per-share dividend of 4.26
cents ($0.0426) and the maximum offering price of $11.62 on August 31, 1998,
your fund's distribution rate was 4.40%. 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 7.68% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Arizona Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- ------------------------------------------------------------------------------
Cumulative Total Return1 7.00% 20.30% 24.51%
Average Annual Total Return2 4.99% 6.01% 6.48%
Distribution Rate3 4.40%
Taxable Equivalent Distribution Rate 47.68%
30-Day Standardized Yield 53.70%
Taxable Equivalent Yield 46.46%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.26 cent
per share monthly dividend and the maximum offering price of $11.62 on August
31, 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 August 31, 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 COLORADO TAX-FREE INCOME FUND
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
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.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
State Update
During the six-month reporting period, Colorado's economic activities,
although showing signs of cooling off, remained strong, thereby contributing
to the state's solid financial position. The state projects a $496.5 million
operating surplus for fiscal 1998. Looking forward to fiscal 1999, the state
forecasts a $5.5 billion general fund revenue and a $229 million operating
surplus before year-end transfers and adjustments.2
2. Source: Fitch IBCA, 6/18/98.
The state, constitutionally prohibited from incurring general obligation
debt, relies on lease purchase obligations for its long-term financing, which
results in extremely low state debt levels. In fact, with $69 million in
tax-supported obligation, Colorado has the nation's lowest debt ratios: $18
per capita and 0.1% of personal income.3
3. Source: Moody's 1998 State Debt Medians, 8/98.
Standard & Poor's(R), a national credit rating agency, assigned an AAA rating
on Colorado's lease obligations.4 We believe the state's continued economic
growth, low debt burden and sound financial management should keep the
state's credit quality high.
4. This does not indicate Standard & Poor's rating of the fund.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 75
of this report.
Portfolio Notes
By the end of the reporting period, municipalities were generally issuing new
debt at a record pace. New issuance, through the first six months of the
year, topped levels for the same time last year by 50%. As strong local
economies helped many municipalities restore fiscal balance and, in many
cases, register budget surpluses, issuers took advantage of the ongoing lower
interest-rate environment to refund outstanding debt, as well as to fund
various new projects. In this environment, the state of Colorado remained
fiscally strong and issued new municipal bond supply at a rate similar to
last year's.
In a time of abundant issuer prerefundings in the market, we maintained our
philosophy on prerefunded bonds. Generally, we look to sell prerefunded bonds
as they approach five years to their call date. At this point, the premium on
such bonds often begins to decline rapidly to the stated call price. However,
because of the prolonged low interest-rate environment, it was difficult for
the fund to generate enough capital losses to offset the gains realized from
the prerefunded bond sales. Also, by selling prerefunded bonds and investing
proceeds in lower coupon securities, income decreased and the fund
experienced dividend cuts. The fund made a long-term capital gain
distribution of 4.72 cents per share and a short-term capital gain
distribution of 0.2 cents per share, in June.
Proceeds from the sale of prerefunded bonds were generally used to purchase, at
a slight discount, current coupon bonds, offering call protection around 10
years. The fund's strategy remains unchanged, as it looks to produce high
tax-free income, while maintaining net asset value stability. Thanks to the
fund's buy-and-hold strategy, portfolio turnover during the past six months was
very low, at 8.5%. During the reporting period, the fund maintained
diversification with purchases in many different sectors. Purchases included
Colorado Water Resource and Power Authority, Colorado Housing Finance Authority
and Colorado Health Facilities Authority Revenue Kaiser Hospital and
Westminster.
Going forward, our outlook for the fund, the state economy and the municipal
market in general remains positive. We expect the municipal bond supply in
Colorado to remain stable over the next six months and, with a strong demand
for Colorado bonds, the state should remain an attractive investment.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Class I
Franklin Colorado Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased three cents, from $12.11 on February 28, 1998, to $12.14
on August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 30.6 cents
($0.306), 4.72 cents ($0.0472) in long-term capital gains and 0.2 cents
($0.0020) in short-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the fund's
portfolio. 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) and the maximum offering price of $12.68 on August 31, 1998, your
fund's distribution rate was 4.73%. 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 8.24% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Colorado Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
- -------------------------------------------------------------------------------
Cumulative Total Return1 8.59% 34.66% 121.35% 136.29%
Average Annual Total Return2 3.96% 5.22% 7.81% 7.70%
Distribution Rate3 4.73%
Taxable Equivalent Distribution Rate 48.24%
30-Day Standardized Yield 54.13%
Taxable Equivalent Yield 47.20%
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. 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.
3. Distribution rate is based on an annualization of the current 5.0 cent per
share monthly dividend and the maximum offering price of $12.68 on August 31,
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 August 31, 1998.
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 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 12 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 three cents, from $12.17 on February 28, 1998, to
$12.20 on August 31, 1998. During the six-month reporting period,
shareholders received per-share distributions consisting of dividend income
totaling 27.17 cents ($0.2717), 4.72 cents ($0.0472) in long-term capital
gains and 0.2 cents ($0.002) in short-term capital gains. Distributions will
vary based on the fund's income and any profits realized from the sale of
securities in the fund's portfolio. Past distributions are not predictive of
future trends.
Based on an annualization of the current monthly per-share dividend of 4.42
cents ($0.0442) and the maximum offering price of $12.32 on August 31, 1998,
your fund's distribution rate was 4.31%. 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 7.51% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Colorado Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- ----------------------------------------------------------------------------
Cumulative Total Return1 8.04% 22.28% 26.94%
Average Annual Total Return2 5.98% 6.57% 7.07%
Distribution Rate3 4.31%
Taxable Equivalent Distribution Rate 47.51%
30-Day Standardized Yield 53.72%
Taxable Equivalent Yield 46.48%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.42 cent
per share monthly dividend and the maximum offering price of $12.32 on August
31, 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 August 31, 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 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
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.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
State Update
Connecticut's economy, represented by manufacturing, insurance and
residential development, continued its slow but improving recovery from the
early 1990s' recession, with employment gains accelerating annually. As of
March 1998, total employment, compared with the same month last year, grew at
an annualized rate of 2.1%, while the unemployment rate was 4.1%, below the
4.7% national average.2
2. Source: Fitch IBCA, 7/1/98.
The economic rebound has improved Connecticut's financial position. For the
past six years, surging personal income tax collections have generated budget
surpluses. The state forecasts $691 million in fiscal 1998 revenues, 7.4%
higher than original estimates. Because growing reserves outpace spending,
the state also projects a $192 million closing surplus on June 30, 1998.2
During the reporting period, Connecticut remained one of the most heavily
in-debted states, mitigating its economic and financial strengths. However,
despite its high debt burden, Connecticut maintained its AA debt rating from
Standard & Poor's, a national credit rating agency.3 The state's general
obligations, although high, are scheduled for rapid amortization, with 41% to
be retired in five years and 73% in 10 years.4 Finally, Connecticut's
personal income topped the nation with $36,263 per capita income, 42% above
the U.S. average.5
3. This does not indicate Standard & Poor's rating of the fund.
4. Source: Moody's Investors Service, 3/16/98.
5. Source: Fitch IBCA, 7/1/98.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 79
of this report.
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Notes
From late April 1998 to the end of the six-month reporting period, the
municipal bond market moved generally higher. As of August 31, 1998, the net
asset value per Class I share of Franklin Connecticut Tax-Free Income Fund
was $11.30, a value that has been unmatched since early 1994. The fund's
total net assets were at record levels, as were the number of shares
outstanding. Each of these grew by about 9% over the first half of the fund's
current fiscal year.
Despite prerefunded bond sales in excess of $5 million, the number of such
bonds in the portfolio still rose, from under 20% on February 28, 1998, to
22.9% on August 31, 1998. In the declining interest-rate environment, issuers
seeking to reduce their borrowing costs continued to refund older issues more
rapidly than we could sell them. Generally, we look to sell prerefunded bonds
as they approach five years to their call date. At this point, the premium on
prerefunded bonds often begins to decline to the stated call price.
The fund maintained sector diversity with various purchases over the
reporting period. The most significant of these included $7.5 million par
value in Virgin Island issues with attractive yields, and just over $13
million in Connecticut Health and Hospital for Special Care. Both issues were
Baa-rated and, as such, offered better returns than the higher-rated,
lower-yielding bonds that the fund sold in order to buy them.
As of August 31, 1998, AAA-rated bonds, including prerefunded issues,
comprised 28.3% of the fund's long-term investments, versus 30.8% on February
28, 1998. Over the reporting period, the number of AA-rated bonds remained
virtually unchanged; the portfolio's A-rated bonds declined to 17.5% from
20.5%, while BBB-rated bonds grew to 34.0% from 29.3%. The only significant
change in portfolio breakdown during the reporting period was an increase in
the hospital sector holdings, from 20.5% to 24.6%.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Class I
Franklin Connecticut Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased seven cents, from $11.23 on February 28, 1998,
to $11.30 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 29.1 cents ($0.291) 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 $11.80 on August 31, 1998,
your fund's distribution rate was 4.88%. 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 8.46% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Connecticut Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year (10/3/88)
- -----------------------------------------------------------------------------
Cumulative Total Return1 8.12% 31.66% 100.10%
Average Annual Total Return2 3.52% 4.75% 6.78%
Distribution Rate3 4.88%
Taxable Equivalent Distribution Rate 48.46%
30-Day Standardized Yield 54.02%
Taxable Equivalent Yield 46.97%
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. 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.
3. Distribution rate is based on an annualization of the current 4.8 cent per
share monthly dividend and the maximum offering price of $11.80 on August 31,
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 August 31, 1998.
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 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 18 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 seven cents, from $11.26 on February 28, 1998,
to $11.33 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 26.01 cents ($0.2601) 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) and the maximum offering price of $11.44 on August 31, 1998,
your fund's distribution rate was 4.51%. This tax-free rate is generally
higher than the after-tax return on a comparable taxable investment. For
example, an investor in the maximum combined federal and Connecticut state
personal income tax bracket would need to earn 7.82% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Connecticut Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- --------------------------------------------------------------------------
Cumulative Total Return1 7.60% 21.35% 25.47%
Average Annual Total Return2 5.54% 6.30% 6.71%
Distribution Rate3 4.51%
Taxable Equivalent Distribution Rate 47.82%
30-Day Standardized Yield 53.61%
Taxable Equivalent Yield 46.26%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.3 cent per
share monthly dividend and the maximum offering price of $11.44 on August 31,
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 August 31, 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.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 107
of this report.
FRANKLIN FEDERAL INTERMEDIATE-TERM
TAX-FREE INCOME FUND
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 a dollar-weighted average
maturity (the time in which a debt must be repaid) between three and 10
years.1
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 greater
diversification.
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Notes
The fixed income markets remained strong over the reporting period. Prices
for the 30-year Treasury rose, causing yields to decline from 5.92% on
February 28, 1998, to 5.25% on August 31, 1998. Bond price and yield move in
an inverse relationship. During the reporting period, trends such as the
continuing uncertainties surrounding the Asian financial markets, a positive
domestic inflation outlook, and a cooling U.S. economy benefited the bond
market. Two other market characteristics, which persisted from the previous
reporting period, were the prevalence of municipal bond insurance and the
flattening yield curve environment, meaning the narrowing yield spread
between short- and long-term interest rates.
New municipal bond supply for 1998 has set a record pace. Through the first
six months of the year, it topped last year's supply by more than 50%.
Issuers continued to take advantage of the lower interest-rate environment,
not only to refund outstanding debt, but also to issue additional debt to
fund various projects. This new issuance comes on the heels of healthy local
economies, which helped many municipalities restore fiscal balance and, in
many cases, register budget surpluses.
The fund held to its strategy of producing high tax-free income, while
maintaining share value stability. The fund employs a buy-and-hold strategy,
so portfolio turnover during the six-month reporting period was very low, at
12.33%. The majority of the fund's purchases during that time were in the 10-
to 15-year maturity range, as we felt that this maturity range represented
the best value. Fund purchases during the reporting period embraced many
different sectors in an effort to maintain diversification. Some of the
purchases included bonds for the Virginia Housing Finance Authority;
Lancaster, Pennsylvania Solid Waste Authority; Port St. Lucie, Florida Water
& Sewer; and the New York State Dormitory Authority Southside Hospital.
Going forward, our outlook for the fixed-income markets, including
municipals, remains positive. We expect the supply of municipal bonds to
continue its record pace for the remainder of the year, and on into next year.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 22 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Franklin Federal Intermediate-Term Tax-Free Income Fund's share price, as
measured by net asset value, increased six cents, from $11.25 on February 28,
1998, to $11.31 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 26.4 cents ($0.264) 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 $11.57 on August 31, 1998,
your fund's distribution rate was 4.56%. 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 7.55% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin Federal Intermediate-Term Tax-Free Income Fund
Periods ended 8/31/98
Since
Inception
1-Year 5-Year (9/23/92)
- ---------------------------------------------------------------------------
Cumulative Total Return1 7.57% 34.44% 50.34%
Average Annual Total Return2 5.18% 5.61% 6.70%
Distribution Rate3 4.56%
Taxable Equivalent Distribution Rate 47.55%
30-Day Standardized Yield 53.93%
Taxable Equivalent Yield 46.51%
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 maximum 2.25%
initial sales charge.
3. Distribution rate is based on an annualization of the current 4.4 cent per
share monthly dividend and the maximum offering price of $11.57 on August 31,
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 August 31, 1998.
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 3.89%. 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.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 114
of this report.
GRAPHIC MATERIAL 23 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 24 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
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.
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 greater
diversification.
During the reporting period, interest rates continued the downward trend of
the past few years. The uncertainties in world markets, such as Asia's and
Russia's, caused many investors to seek markets deemed to be safer or more
stable. The U.S. bond market profited from this "flight to quality" with
rising prices for the 30-year Treasury, whose yield declined from 5.92% on
February 28, 1998, to 5.25% on August 31, 1998. For bonds, price and yield
move in an inverse relationship.
Municipal issues benefited from the strong U.S. economy. Many issuers, such
as the states of California and New York, enjoyed budget surpluses, due in
part, to solid job growth and corresponding low unemployment rates. As a
result, the credit quality of municipal issues has generally improved, with
the rating agencies' credit upgrades outpacing downgrades by over four times.
Many issuers took advantage of their strong credit fundamentals to utilize
municipal bond insurance at very low premiums when issuing new bonds. This
led to narrowing price differences between AAA- and BBB-rated bonds. With
credit spreads so narrow, the fund focused on the AAA insured part of the
market, which, in our opinion, provided the best value. In the market's high
yield sector, portfolio management relies heavily on Franklin's municipal
bond research department to find investment opportunities. Our experienced
research staff seeks to differentiate credit quality among the municipal bond
market's various sectors, helping the fund take advantage of market
inefficiencies of undervalued securities.
During the reporting period, the three areas where the fund generally found
value were the utility, health care and land-secured, or tax assessment,
sectors. In the utility sector, we added to our positions in Tucson Electric
and Public Service New Hampshire and established a new position in the Long
Island Power Authority (LIPA), which is a new authority resulting from a New
York state agency takeover of a portion of Long Island Lighting Company's
assets. The LIPA financing, which received an A- rating from Standard and
Poor's, a national credit rating agency, and was the largest bond deal in the
history of the municipal market, came at very attractive rates.
In another purchase, we added to our position in Washington, D.C. general
obligation bonds. These bonds came to market in April 1998 at rates that were
attractive, in our opinion. In the past, much of the press coverage of
Washington, D.C. general obligation bonds was negative. Recently, however,
the news has been more positive as the District's budget is now back in
balance, with a surplus expected in 1998. Its bonds were recently upgraded to
BB from B. The Washington, D.C. refunding bond issue in April refunded over
$50 million of our 6.5% and 6.55% bonds. These refunded bonds, now backed
with U.S. Treasuries to the 2006 call date, substantially increased in value.
Our outlook continues to be positive for this issue.
Based on the municipal market's strong credit fundamentals, the positive U.S.
bond market environment and the relatively high yields municipals offer
versus Treasuries, we feel municipal bonds remain an attractive investment
opportunity for individuals seeking fixed-income securities.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
GRAPHIC MATERIAL 25 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 26 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Class I
Franklin High Yield Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased two cents, from $11.68 on February 28, 1998, to
$11.70 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 33.3 cents ($0.333) 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 5.4
cents ($0.054) and the maximum offering price of $12.22 on August 31, 1998,
your fund's distribution rate was 5.30%. 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 8.77% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin High Yield Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (3/18/86)
- --------------------------------------------------------------------------------
Cumulative Total Return1 9.28% 43.66% 132.65% 181.27%
Average Annual Total Return2 4.67% 6.58% 8.34% 8.28%
Distribution Rate3 5.30%
Taxable Equivalent Distribution Rate 48.77%
30-Day Standardized Yield 54.79%
Taxable Equivalent Yield 47.93%
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. Prior to July 1, 1994, the fund's shares were
offered at a lower initial sales charge, with dividends reinvested at the
offering price. Thus actual total returns would differ.
3. Distribution rate is based on an annualization of the current 5.4 cent per
share monthly dividend and the maximum offering price of $12.22 on August 31,
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 August 31, 1998.
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 27 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 28 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 two cents, from $11.75 on February 28, 1998, to
$11.77 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 29.96 cents ($0.2996) 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 4.85
cents ($0.0485) and the maximum offering price of $11.89 on August 31, 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 federal income tax bracket would need to
earn 8.10% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin High Yield Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- ----------------------------------------------------------------------------
Cumulative Total Return1 8.69% 26.03% 31.38%
Average Annual Total Return2 6.57% 7.66% 8.19%
Distribution Rate3 4.89%
Taxable Equivalent Distribution Rate 48.10%
30-Day Standardized Yield 54.41%
Taxable Equivalent Yield 47.30%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.85 cent
per share monthly dividend and the maximum offering price of $11.89 on August
31, 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 August 31, 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.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 82
of this report.
GRAPHIC MATERIAL 29 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 30 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN INDIANA TAX-FREE INCOME FUND
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
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
During the reporting period, Indiana's economy remained strong, benefiting from
moderate labor costs, low utility rates, affordable living costs and a growing
manufacturing sector. The unemployment rate was 2.8% in April 1998, while
employment in March 1998 was 1.4% higher than the same month last year.2 Despite
healthy fiscal performance and some diversification, the state is still
sensitive to business-cycle fluctuations due to its traditionally dominant steel
and automobile industries.
2. Source: Moody's Investors Service, 6/22/98.
A vibrant economy helped Indiana maintain sound financial operations and a low
debt burden. The state expects revenues to increase 5.1% in the 1997-1998
biennium and 4.6% in the 1998-1999 biennium. The current biennial budget
projects its general fund balance and reserves, on a cash basis, to total $1.7
billion, with the "rainy day" fund reaching $511 million.3 Such high reserve
levels, resulting largely from expenditure controls and tax revenue windfalls,
should moderate the state economy's exposure to the cyclical industrial sector.
3. Source: Fitch IBCA, 6/23/98.
Portfolio Notes
Franklin Indiana Tax-Free Income Fund performed quite well over the reporting
period, as the relatively light Indiana bond supply created market demand for
outstanding issues. Franklin's size and position in the municipal bond market
gave the fund a competitive advantage in locating issues coming to market and
negotiating with issuers.
Insurance remained popular during the reporting period, with over 60% of new
issues coming insured. The higher insurance penetration, combined with a limited
supply of new, lower-rated issues, reduced the price difference between higher-
and lower-grade issues. Consequently, the fund concentrated purchases in
higher-quality, public purpose issues such as school district, hospital and
direct revenue utility bonds. At the end of the reporting period, more than 50%
of the fund's long-term assets were rated AA or better. Recent additions
included New Albany and Cloverdale School Building Corporation first mortgage
bonds.
The market appeared to be moving sideways during the reporting period, trading
in a narrow range, with only small changes up or down. However, our disciplined,
dollar cost averaging approach enabled the fund to purchase on the downswings.
At the same time, the challenge of maintaining current dividend levels
increased, as the lower interest-rate environment reduced available yields for
Indiana municipal bonds. The low interest-rate environment also made it
difficult for the fund to generate enough capital losses to offset the gains
realized from the prerefunded bond sales. Thus, the fund made a long-term
capital gain distribution of 0.13 cents per share and a short-term capital gain
distribution of 1.2 cents per share, in June.
The fund's underlying bonds increased in market value during the six-month
period, contributing to a 6% rise in the fund's total net assets, from $54.6
million to $57.8 million, thus providing shareholders a more diversified and
stable asset base. In our opinion, the fund's performance is largely a tribute
to Franklin's income-oriented approach. We will continue to manage Franklin
Indiana Tax-Free Income Fund with the intention of protecting its share value
and maintaining its competitive yield. Going forward, we anticipate continued
economic growth in Indiana, rather mild inflation and relatively stable interest
rates. Under such circumstances, we believe the fund is positioned for strong
performance.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
GRAPHIC MATERIAL 31 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 32 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Franklin Indiana Tax-Free Income Fund's share price, as measured by net asset
value, increased four cents, from $12.07 on February 28, 1998, to $12.11 on
August 31, 1998. During the six-month reporting period, shareholders received
per-share distributions consisting of dividend income totaling 31.8 cents
($0.318), 0.13 cents ($0.0013) in long-term capital gains and 1.2 cents ($0.012)
in short-term capital gains. Distributions will vary based on the fund's income
and any profits realized from the sale of securities in the fund's portfolio.
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 August 31, 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 Indiana state personal income tax
bracket would need to earn 8.54% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Indiana Tax-Free Income Fund
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
- --------------------------------------------------------------------------------
Cumulative Total Return1 8.05% 33.01% 120.88% 136.75%
Average Annual Total Return2 3.42% 4.95% 7.78% 7.72%
Distribution Rate3 4.93%
Taxable Equivalent Distribution Rate 48.54%
30-Day Standardized Yield 54.08%
Taxable Equivalent Yield 47.07%
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. 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.
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 August 31,
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 August 31, 1998.
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.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 85
of this report.
GRAPHIC MATERIAL 33 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
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
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.
State Update
Michigan ended the six-month reporting period on a positive note. For the past
several years, the state has made a significant effort to maintain overall
spending below its revenue growth rate, thereby restoring a budgetary balance.
The state expects Medicaid spending to remain stable in fiscal 1998, and to
increase only 2% in fiscal 1999.2
2. Source: Moody's Investors Service, 5/15/98.
A strong employment rate also contributed to Michigan's healthy economy. From
June 1991 through June 1998, employment jumped 16.9%, far exceeding the 11.5%
national average. Despite the recent General Motors strike, July's 4.2%
unemployment -- an increase from June's 3.6% level -- still marked the 40th
consecutive month of higher-than-average employment records.3
3. Source: www.migov.state.mi.us. Michigan State Government, Press Releases,
8/19/98.
Reflecting the state's robust economy, Standard & Poor's, a national credit
rating agency, upgraded Michigan's general obligation debt rating from AA to
AA+.4
4. This does not indicate Standard & Poor's rating of the fund.
GRAPHIC MATERIAL 34 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Notes
With continued growth, Franklin Michigan Tax-Free Income Fund strives to remain
fully invested at all times. The fund targets investments in tax-exempt
municipal securities with high relative value and good call protection, in
keeping with its stated objective of providing long-term income to shareholders.
During the reporting period, the fund maintained sector diversification by
adding such noteworthy positions to the portfolio as Michigan State Trunk Line,
Lincoln Park School District, Wayne Charter County Airport for Detroit
Metropolitan Airport, Michigan Higher Education Facilities Authority for the
Calvin College Project and Ottawa County for the Holland Township Water Supply
revenue bonds. Through diversification in a broad range of sectors the fund
sought to reduce its exposure to sector-specific risk and volatility.
We are closely monitoring Michigan's tax-exempt municipal bond supply. For the
first six months of 1998, the state issued a total of $4.5 billion in municipal
bonds, a remarkable 102% increase from the first six months of 1997. Looking
forward, the state's low debt burden and growing need for new infrastructure
such as highways, schools and affordable housing should maintain the requirement
for new borrowing. If interest rates remain low, refunding issues resulting from
lower borrowing costs available to issuers could also add to the supply of new
bonds. The low interest-rate environment also made it difficult for the fund to
generate enough capital losses to offset the gains realized from the prerefunded
bond sales. Thus, the fund made a long-term capital gain distribution of 0.47
cents per share and a short-term capital gain distribution of 1.78 cents per
share, in June.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
GRAPHIC MATERIAL 35 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 36 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Franklin Michigan Tax-Free Income Fund's share price, as measured by net asset
value, increased 11 cents, from $11.02 on February 28, 1998, to $11.13 on August
31, 1998. During the six-month reporting period, shareholders received per-share
distributions consisting of dividend income totaling 28.8 cents ($0.288), 0.47
cents ($0.0047) in long-term capital gains and 1.78 cents ($0.0178) in
short-term capital gains. Distributions will vary based on the fund's income and
any profits realized from the sale of securities in the fund's portfolio. 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 $11.62 on August 31, 1998, your
fund's distribution rate was 4.96%. 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 8.59% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Michigan Tax-Free Income Fund
Periods ended 8/31/98
Since
Inception
1-Year (7/1/96)
- ---------------------------------------------------------------------------
Cumulative Total Return1 11.04% 22.93%
Average Annual Total Return2 6.32% 7.83%
Distribution Rate3 4.96%
Taxable Equivalent Distribution Rate 48.59%
30-Day Standardized Yield 54.56%
Taxable Equivalent Yield 46.78%
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 maximum 4.25%
initial sales charge.
3. Distribution rate is based on an annualization of the current 4.8 cent per
share monthly dividend and the maximum offering price of $11.62 on August 31,
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 August 31, 1998.
The fund's manager agreed in advance to waive a portion of management fees,
which reduces 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
3.91%. The fee waiver may be discontinued at any time, upon notice to the
fund's Board of Directors. 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.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 88
of this report.
GRAPHIC MATERIAL 37 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
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
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
New Jersey continued its slow but progressive recovery from the early 1990s'
recession, having maintained its high income-generating ability. The state's
economy is also in the process of diversification. Formerly concentrated in
manufacturing, it now depends more on the services and trade sectors. During
the reporting period, New Jersey's economy accelerated, with employment
growth exceeding its pre-recession peak. In March 1998, the unemployment rate
was 5.1%, slightly above the 4.7% national average.2
2. Source: Moody's Investors Service, 5/13/98.
New Jersey's debt ratios -- $1,576 per capita and 5.1% of personal income --
have increased notably and are among the nation's highest.3 Despite these
increases, New Jersey's debt burden remains moderate and manageable in the
context of the state's ample economic resources. The state continues to attract
a populace of high net worth individuals and has a broad, diverse economy. In
the past two years, strong tax revenue collections and expenditure controls have
improved the state's financial operations. It is projected that revenues will
grow at a rate of 4.4% for the 1998 fiscal year. State officials suggested that
the pool of personal income above six figures has increased by 17% in the past
years, and this trend is expected to continue at a strong growth rate of 14.2%
in tax year 1998.2 Governor Whitman's fiscal 1999 budget proposal incorporates
anticipated increases in personal income tax and total revenue growth. However,
dependence on this type of revenue source could strain the financial structure
of the state.
3. Source: Moody's 1998 State Debt Medians, 8/98.
For fiscal 1998 the state estimates the ending budget balance to total over $1
billion.4 Such large, year-end cash balances should help the state maintain an
Aa1 overall debt rating by Moody's, a national credit rating agency.5
GRAPHIC MATERIAL 38 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Notes
The percentage of prerefunded bonds in the fund's portfolio began the reporting
period at 9.7% of long-term assets, went as high as 11.4% in March, before
declining to 11.1% by August 31, 1998. With the volume increase of insured bonds
in the municipal market, the majority of the fund's recent portfolio
acquisitions were AAA-rated. During the reporting period, the fund purchased
Middlesex County, New Jersey certificates of participation and Camden County,
New Jersey Health System - Catholic Health East and New Jersey Health Care
Facilities - John F. Kennedy Medical Center.
The fund continued its strategy of investing for tax-free income and capital
preservation. This was challenging at times, in light of the lower interest-rate
environment, which put some pressure on the fund's overall income earnings. One
strategy employed during the reporting period was to purchase bonds with better
original issue discount (OID) than those we sold, which can provide some
protection in a down market. At the end of April, Franklin New Jersey Tax-Free
Income Fund sold bonds with lower OIDs, took a tax loss, and replaced them with
bonds having greater OIDs. In this scenario, the fund executed some trades
without giving up the issues' yields and, in some cases, even improved them.
Please keep in mind that the fund can distribute only what it earns, so dividend
distributions may have to be decreased in the future, if interest rates remain
at current or lower levels.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
GRAPHIC MATERIAL 39 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 40 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Class I
Franklin New Jersey Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased eight cents, from $11.92 on February 28, 1998,
to $12.00 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 31.2 cents ($0.312) 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) and the maximum offering price of $12.53 on August 31, 1998,
your fund's distribution rate was 4.88%. 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 8.63% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin New Jersey Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (5/12/88)
- --------------------------------------------------------------------------------
Cumulative Total Return1 8.21% 31.94% 114.54% 121.41%
Average Annual Total Return2 3.60% 4.79% 7.46% 7.56%
Distribution Rate3 4.88%
Taxable Equivalent Distribution Rate 48.63%
30-Day Standardized Yield 54.11%
Taxable Equivalent Yield 47.27%
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. 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.
3. Distribution rate is based on an annualization of the current 5.1 cent per
share monthly dividend and the maximum offering price of $12.53 on August 31,
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 August 31, 1998.
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 41 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 42 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class II
Franklin New Jersey Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased eight cents, from $11.98 on February 28, 1998, to
$12.06 on August 31, 1998. During the six-month reporting period, shareholders
received income distributions totaling 27.82 cents ($0.2782) 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 4.54
cents ($0.0454) and the maximum offering price of $12.18 on August 31, 1998,
your fund's distribution rate was 4.47%. 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 7.90% from a taxable investment to match the
fund's tax-free distribution rate.
Franklin New Jersey Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- ------------------------------------------------------------------------------
Cumulative Total Return1 7.57% 20.99% 25.36%
Average Annual Total Return2 5.49% 6.19% 6.70%
Distribution Rate3 4.47%
Taxable Equivalent Distribution Rate 47.90%
30-Day Standardized Yield 53.71%
Taxable Equivalent Yield 46.56%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.54 cent
per share monthly dividend and the maximum offering price of $12.18 on August
31, 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 August 31, 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.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 93
of this report.
FRANKLIN OREGON TAX-FREE INCOME FUND
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
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.
GRAPHIC MATERIAL 43 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 44 OMITTED - SEE APPENDIX AT END OF DOCUMENT
State Update
Oregon's accelerating population, resulting from better economic opportunities
and affordable living costs, has fueled the state's economy. During the
reporting period, the state experienced substantial growth, spurred by expansion
of housing construction and the high technology industry. Most forecasts
envision income, population and employment growth outperforming the national
average. However, with 4.4% of its gross state product exporting to East Asia,
Oregon's economic growth is expected to slow, due to the recent Asian financial
turmoil.2 The extent of this adverse impact depends on the duration and severity
of this crisis.
2. Source: Fitch IBCA, 3/30/98.
The recent economic boom has generated higher than expected revenues, thereby
improving the state's financial operations. The state's debt burden, although
rising, remains moderate and manageable. Oregon should meet future capital
spending needs, particularly for correctional facilities, within historically
low debt levels.3
3. Source: Moody's Investors Service, 5/21/98.
Portfolio Notes
Franklin Oregon Tax-Free Income Fund performed quite well over the reporting
period, as the relatively light Oregon new bond supply created market demand for
existing issues. Franklin's size and position in the municipal bond market gave
the fund a competitive advantage in locating issues coming to market and
negotiating with issuers.
Insurance remained popular during the reporting period, with over 60% of new
issues coming insured. The higher insurance penetration, combined with a limited
supply of new, lower-rated issues, reduced the price difference between higher-
and lower-grade issues. Consequently, the fund concentrated purchases in
higher-quality, public purpose issues such as general obligation, hospital and
direct revenue utility bonds. At the end of the reporting period, more than 65%
of the fund's long-term assets were rated AA or better. Recent additions
included City of Portland general obligation bonds and Medford Hospital revenue
bonds for Asante Health.
The market appeared to be moving sideways during the reporting period, trading
in a narrow range, with only small changes up or down. However, our disciplined,
dollar cost averaging approach enabled the fund to purchase on the downswings.
At the same time, the challenge of maintaining current dividend levels
increased, as the lower interest-rate environment reduced available yields for
Oregon municipal bonds. Despite the lower income earnings, we believe Franklin
Oregon Tax-Free Income Fund remains a very competitive investment choice for
tax-conscious investors.
The fund's underlying bonds increased in market value during the six-month
period, contributing to a 9.2% rise in the fund's total net assets, from $443
million to $484 million, thus providing shareholders a more diversified and
stable asset base. In our opinion, the fund's performance is largely a tribute
to Franklin's income-oriented approach. We will continue to manage the fund with
the intention of protecting its share value and maintaining its competitive
yield. Going forward, we anticipate continued economic growth in Oregon, rather
mild inflation and relatively stable interest rates. Under such circumstances,
we believe the fund is positioned for strong performance.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
GRAPHIC MATERIAL 45 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 46 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Class I
Franklin Oregon Tax-Free Income Fund - Class I share price, as measured by net
asset value, increased three cents, from $11.86 on February 28, 1998, to $11.89
on August 31, 1998. During the six-month reporting period, shareholders received
income distributions totaling 31.2 cents ($0.312) 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) and the maximum offering price of $12.42 on August 31, 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 Oregon state personal income tax
bracket would need to earn 8.97% from a taxable investment to match the fund's
tax-free distribution rate.
Franklin Oregon Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (9/1/87)
- -------------------------------------------------------------------------------
Cumulative Total Return1 7.53% 31.82% 110.81% 120.87%
Average Annual Total Return2 2.94% 4.78% 7.28% 7.04%
Distribution Rate3 4.93%
Taxable Equivalent Distribution Rate 48.97%
30-Day Standardized Yield 54.04%
Taxable Equivalent Yield 47.35%
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. 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.
3. Distribution rate is based on an annualization of the current 5.1 cent per
share monthly dividend and the maximum offering price of $12.42 on August 31,
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 August 31, 1998.
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 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
Class II
Franklin Oregon Tax-Free Income Fund - Class II share price, as measured by
net asset value, increased four cents, from $11.92 on February 28, 1998, to
$11.96 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 27.85 cents ($0.2785) 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) and the maximum offering price of $12.08 on August 31, 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 Oregon state
personal income tax bracket would need to earn 8.19% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Oregon Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- -----------------------------------------------------------------------------
Cumulative Total Return1 6.88% 20.22% 24.66%
Average Annual Total Return2 4.81% 5.96% 6.52%
Distribution Rate3 4.50%
Taxable Equivalent Distribution Rate 48.19%
30-Day Standardized Yield 53.62%
Taxable Equivalent Yield 46.59%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.53 cent
per share monthly dividend and the maximum offering price of $12.08 on August
31, 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 August 31, 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.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 98
of this report.
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
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
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.
Commonwealth Update
Pennsylvania continued its recovery from the early 1990s' recession. Its
recent economic gains, although still lagging the national average, have been
steadily improving. During the six-month reporting period, employment growth
was 7% above the pre-recession peak.2 A growing services industry helped the
commonwealth diversify its economic base. The financial services sector, in
particular, has provided the largest source of employment and personal income
tax revenues. Nevertheless, manufacturing remains a dominant factor.
2. Source: Fitch IBCA, 3/5/98.
Pennsylvania's economic revitalization has buttressed its financial
operations. With spending controls and conservative revenue estimates, the
commonwealth generated six years of budgetary surpluses and rebuilt reserves
to 2.4% of current revenue.2 Governor Ridge's proposed fiscal 1999 budget
follows a similar course with the addition of some tax relief. Such sound
financial management, coupled with a consistently improving economy,
warranted an AA rating on the commonwealth's general obligations from
Standard & Poor's, a national credit rating agency.3
3. This does not indicate Standard & Poor's rating of the fund.
Going forward, the commonwealth anticipates slow economic growth and revenues
to underperform the national averages. However, with restrained spending, the
commonwealth should continue to enjoy its current stability.
Portfolio Notes
With competition increasing among the municipal bond insurers, it was
economical for issuers to purchase insurance to enhance their credit quality.
Consequently, much of the issuance in Pennsylvania came to market as insured
bonds. Municipal bond supply in the state remained strong and allowed the
fund to maintain its diversification, so that there were no significant
changes in the fund's sector breakdown during the reporting period. New
purchases included revenue bonds for Philadelphia Gas Works; Allegheny County
IDA Environmental Improvement, USX Corporation; and Pennsylvania State Higher
Educational Facilities Authority, College & University.
The fund continued its strategy of buying current coupon bonds at a slight
discount, in accordance with its objective of providing tax-free income and
capital preservation. This was challenging at times, in light of the lower
interest-rate environment, which put pressure on the fund's overall income
earnings. Please keep in mind that the fund can distribute only what it
earns; therefore, the fund may decrease its dividend in the future.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
GRAPHIC MATERIAL 50 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 51 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 52 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Class I
Franklin Pennsylvania Tax-Free Income Fund - Class I share price, as measured
by net asset value, increased two cents, from $10.56 on February 28, 1998, to
$10.58 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 28.2 cents ($0.282) per
share. Distributions will vary based on the fund's income and any profits
realized from the sale of securities in the fund's portfolio. Past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.6
cents ($0.046) and the maximum offering price of $11.05 on August 31, 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 Pennsylvania state
personal income tax bracket would need to earn 8.52% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Pennsylvania Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (12/1/86)
- --------------------------------------------------------------------------------
Cumulative Total Return1 8.07% 34.32% 118.52% 127.67%
Average Annual Total Return2 3.50% 5.17% 7.67% 6.86%
Distribution Rate3 5.00%
Taxable Equivalent Distribution Rate 48.52%
30-Day Standardized Yield 54.25%
Taxable Equivalent Yield 47.24%
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 includes the current, maximum
4.25% initial sales charge. 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.
3. Distribution rate is based on an annualization of the current 4.6 cent per
share monthly dividend and the maximum offering price of $11.05 on August 31,
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 August 31, 1998.
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 Pennsylvania Tax-Free Income Fund - Class II share price, as
measured by net asset value, increased two cents, from $10.61 on February 28,
1998, to $10.63 on August 31, 1998. During the six-month reporting period,
shareholders received income distributions totaling 25.21 cents ($0.2521) per
share. Distributions will vary based on the fund's income and any profits
realized from the sale of securities in the fund's portfolio. Past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 4.1
cents ($0.041) and the maximum offering price of $10.74 on August 31, 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 Pennsylvania state
personal income tax bracket would need to earn 7.80% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Pennsylvania Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
- ---------------------------------------------------------------------------
Cumulative Total Return1 7.52% 21.41% 25.55%
Average Annual Total Return2 5.41% 6.34% 6.74%
Distribution Rate3 4.58%
Taxable Equivalent Distribution Rate 47.80%
30-Day Standardized Yield 53.83%
Taxable Equivalent Yield 46.52%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.1 cent per
share monthly dividend and the maximum offering price of $10.74 on August 31,
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 August 31, 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.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 104
of this report.
GRAPHIC MATERIAL 53 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
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
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.
Commonwealth Update
During the reporting period, Puerto Rico displayed strong revenue performance,
resulting from robust economic growth, coupled with expenditure and enhanced tax
collection programs. Revenue gains reversed a deficit operation trend, thereby
improving and stabilizing the commonwealth's financial position. Governor
Rossello's administration maintained its emphasis on privatization with the
recent sale of the Puerto Rico Telephone Company to GTE Corp. Although poverty
and high unemployment still persist, Puerto Rico continues to make progress in
raising living standards. In recent years, employment has steadily improved and
is at its highest level in 20 years.
Manufacturing, which contributes 42% of Puerto Rico's gross domestic product,
remained the dominant sector driving the island's economy, thanks in large part
to U.S. Internal Revenue Code Section 936.2 This law provides tax incentives
that have been instrumental in attracting manufacturing business development to
the island over the past two decades. As these benefits phase out, we expect the
commonwealth to meet the challenge by increasing its competitiveness,
diversifying its economic base and developing additional incentives to attract
and maintain investments.
2. Source: Moody's Investors Service, 6/98.
GRAPHIC MATERIAL 54 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Notes
Municipal bond supply in Puerto Rico was very strong in the first two quarters
of 1998. This increase resulted from a combination of refundings and new issues.
We expect the rest of 1998 to continue to have moderate supply. Some of the
recent purchases into the fund include: Inter American University, Guam Housing
Corp., Virgin Islands Public Finance Authority Revenue and Puerto Rico Electric
Power Authority.
The fund continued its strategy of investing for tax-free income and capital
preservation. This was challenging at times, in light of the lower interest-rate
environment, which put some pressure on the fund's overall income earnings. One
strategy employed during the reporting period was to purchase bonds with better
original issue discount (OID) than those we sold, which can provide some
protection in a down market. Please keep in mind that the fund can distribute
only what it earns, so dividend distributions may have to be decreased in the
future, if interest rates remain at current or lower levels. The low
interest-rate environment also made it difficult for the fund to generate enough
capital losses to offset the gains realized from the prerefunded bond sales.
Thus, the fund made a long-term capital gain distribution of 0.15 cents per
share and a short-term capital gain distribution of 0.77 cents per share, in
June.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historical
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
PERFORMANCE SUMMARY
Class I
Franklin Puerto Rico Tax-Free Income Fund - Class I share price, as measured by
net asset value, increased seven cents, from $11.86 on February 28, 1998, to
$11.93 on August 31, 1998. During the six-month reporting period, shareholders
received per-share distributions consisting of dividend income totaling 30.6
cents ($0.306), 0.15 cents ($0.0015) in long-term capital gains and 0.77 cents
($0.0077) in short-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the fund's
portfolio. Past distributions are not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.0 cents
($0.05) and the maximum offering price of $12.46 on August 31, 1998, your fund's
distribution rate was 4.82%. 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 7.98% from a taxable
investment to match the fund's tax-free distribution rate.
Franklin Puerto Rico Tax-Free Income Fund - Class I
Periods ended 8/31/98
Since
Inception
1-Year 5-Year 10-Year (4/3/85)
- -----------------------------------------------------------------------------
Cumulative Total Return1 8.13% 34.46% 113.93% 179.84%
Average Annual Total Return2 3.50% 5.18% 7.43% 7.62%
Distribution Rate3 4.82%
Taxable Equivalent Distribution Rate 47.98%
30-Day Standardized Yield 54.06%
Taxable Equivalent Yield 46.72%
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. 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.
3. Distribution rate is based on an annualization of the current 5.0 cent per
share monthly dividend and the maximum offering price of $12.46 on August 31,
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 August 31, 1998.
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 57 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 58 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 eight cents, from $11.87 on February 28, 1998,
to $11.95 on August 31, 1998. During the six-month reporting period,
shareholders received per-share distributions consisting of dividend income
totaling 27.25 cents ($0.2725), 0.15 cents ($0.0015) in long-term capital
gains and 0.77 cents ($0.0077) in short-term capital gains. Distributions
will vary based on the fund's income and any profits realized from the sale
of securities in the fund's portfolio. 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) and the maximum offering price of $12.07 on August 31, 1998,
your fund's distribution rate was 4.41%. 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 7.30% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin Puerto Rico Tax-Free Income Fund - Class II
Periods ended 8/31/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 7.60% 21.82% 25.66%
Average Annual Total Return2 5.51% 6.43% 6.77%
Distribution Rate3 4.41%
Taxable Equivalent Distribution Rate4 7.30%
30-Day Standardized Yield5 3.64%
Taxable Equivalent Yield4 6.03%
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, as applicable.
3. Distribution rate is based on an annualization of the current 4.44 cent per
share monthly dividend and the maximum offering price of $12.07 on August 31,
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 August 31, 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.
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 Arizona Tax-Free Income Fund
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................... $11.44 $11.24 $11.34 $11.11 $11.58 $11.57
----------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .30 .61 .62 .64 .65 .66
Net realized and unrealized gains (losses) ............. .03 .29 (.04) .36 (.48) .02
----------------------------------------------------------------
Total from investment operations ........................ .33 .90 .58 1.00 .17 .68
----------------------------------------------------------------
Less distributions from:
Net investment income .................................. (.30)2 (.61) (.63) (.65) (.64) (.67)
In excess of net investment income ..................... -- (.01) -- -- -- --
Net realized gains ..................................... (.04) (.08) (.05) (.12) -- --
----------------------------------------------------------------
Total distributions ..................................... (.34) (.70) (.68) (.77) (.64) (.67)
----------------------------------------------------------------
Net asset value, end of period .......................... $11.43 $11.44 $11.24 $11.34 $11.11 $11.58
================================================================
Total return* ........................................... 2.90% 8.23% 5.33% 9.24% 1.63% 5.76%
RatBios/supplemental data
Net assets, end of period (000's) ....................... $845,691 $810,250 $752,335 $750,797 $720,801 $796,838
Ratios to average net assets:
Expenses ............................................... .64%** .63% .62% .62% .60% .54%
Net investment income .................................. 5.16%** 5.40% 5.59% 5.67% 5.86% 5.65%
Portfolio turnover rate ................................. 8.19% 20.02% 16.57% 25.12% 18.65% 14.17%
</TABLE>
<TABLE>
<CAPTION>
Class II
- -----------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C>
Net asset value, beginning of period .................... $11.51 $11.30 $11.38 $11.15
-------------------------------------------
Income from investment operations:
Net investment income .................................. .27 .56 .57 .49
Net realized and unrealized gains (losses) ............. .03 .29 (.03) .34
--------------------------------------------
Total from investment operations ........................ .30 .85 .54 .83
--------------------------------------------
Less distributions from:
Net investment income .................................. (.27)3 (.56) (.57) (.48)
Net realized gains ..................................... (.04) (.08) (.05) (.12)
--------------------------------------------
Total distributions ..................................... (.31) (.64) (.62) (.60)
--------------------------------------------
Net asset value, end of period .......................... $11.50 $11.51 $11.30 $11.38
============================================
Total return* ........................................... 2.59% 7.67% 4.89% 7.60%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $19,526 $14,537 $5,486 $1,892
Ratios to average net assets:
Expenses ............................................... 1.20%** 1.19% 1.19% 1.20%**
Net investment income .................................. 4.60%** 4.82% 5.01% 5.05%**
Portfolio turnover rate ................................. 8.19% 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.
2Includes distributions in excess of net investment income in the amount of
$0.007.
3Includes distributions in excess of net investment income in the amount of
$0.005.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Arizona Tax-Free Income Fund AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
Long Term Investments 99.4%
<S> <C> <C>
Apache Junction, Arizona Water Utilities Community, 5.80%, 7/01/17 ...................... $ 1,200,000 $ 1,298,904
Arizona Educational Loan Marketing Corp. Revenue,
Senior Series, 6.375%, 9/01/05 .......................................................... 10,000,000 10,630,300
Series B, 7.00%, 3/01/03 ................................................................ 1,000,000 1,077,140
Series B, 7.00%, 3/01/05 ................................................................ 1,000,000 1,070,490
Series B, MBIA Insured, 7.35%, 9/01/04 .................................................. 1,000,000 1,044,650
Series B, MBIA Insured, 7.375%, 9/01/05 ................................................. 775,000 809,015
Sub Series, 6.625%, 9/01/05 ............................................................. 1,000,000 1,066,760
Arizona Health Facilities Authority, Hospital System Revenue,
Phoenix Baptist Hospital, MBIA Insured, ETM, 6.25%, 9/01/11 ............................ 2,000,000 2,188,640
Arizona Health Facilities Authority Revenue, Arizona Voluntary Hospital,
Hospital Federal Pooled Loan Revenue, Series B, FGIC Insured, 7.75%, 10/01/07 ........... 770,000 801,039
Series B, FGIC Insured, 7.25%, 10/01/13 ................................................. 5,000,000 5,222,300
Arizona State COP,
FSA Insured, 6.625%, 9/01/08 ............................................................ 5,000,000 5,440,900
Refunding, Series B, AMBAC Insured, 6.25%, 9/01/10 ...................................... 5,000,000 5,475,450
Arizona State Municipal Financing Program, COP,
Dysart School, Series 22, BIG Insured, ETM, 7.875%, 8/01/05 ............................. 1,350,000 1,650,294
Peoria School, Series 19, BIG Insured, ETM, 7.75%, 8/01/04 .............................. 500,000 596,360
Series 20, BIG Insured, ETM, 7.625%, 8/01/06 ............................................ 3,250,000 3,806,238
Series 25, BIG Insured, 7.875%, 8/01/14 ................................................. 500,000 677,810
Series 29, BIG Insured, Pre-Refunded, 7.125%, 8/01/14 ................................... 2,500,000 2,605,375
Arizona State Wastewater Management Authority,
Wastewater Treatment Financial Assistance Revenue,
6.80%, 7/01/11 .......................................................................... 4,000,000 4,442,680
Series A, AMBAC Insured, 5.625%, 7/01/15 ................................................ 1,000,000 1,072,880
Arizona, Water Infrastructure Finance Authority Revenue,
Water Quality Financial Assistance, Series A, MBIA Insured 5.00%, 7/01/17 ............... 1,670,000 1,704,302
Bullhead City Municipal Property Corp., Municipal Facilities Revenue,
MBIA Insured, Pre-Refunded, 7.20%, 7/01/09 ............................................. 2,125,000 2,210,531
Casa Grande, Excise Tax Revenue, FGIC Insured, 6.20%, 4/01/15 ........................... 930,000 1,018,006
Casa Grande IDA, Frito Lay/PepsiCo,
IDR, 6.65%, 12/01/14 .................................................................... 500,000 553,900
PCR, 6.60%, 12/01/10 .................................................................... 1,800,000 1,991,340
Chandler GO, FGIC Insured,
Pre-Refunded, 6.80%, 7/01/13 ............................................................ 1,750,000 2,011,328
Pre-Refunded, 6.85%, 7/01/14 ............................................................ 1,625,000 1,871,838
Refunding, 7.00%, 7/01/12 ............................................................... 1,000,000 1,084,410
Chandler IDA, MFHR, Hacienda Apartments, Project A,
Refunding, GNMA Secured, 6.05%, 7/20/30 ................................................ 4,055,000 4,268,699
Chandler Street and Highway Revenue, MBIA Insured, Pre-Refunded, 6.85%, 7/01/13 ......... 1,250,000 1,439,875
Chandler Water and Sewer Revenue, Refunding, FGIC Insured,
7.00%, 7/01/12 .......................................................................... 6,715,000 7,281,813
6.25%, 7/01/13 .......................................................................... 2,165,000 2,352,381
5.25%, 7/01/15 .......................................................................... 2,270,000 2,349,495
Coconino County,
Flagstaff USD No. 1, AMBAC Insured, 6.20%, 7/01/06 ...................................... 1,095,000 1,149,739
PCC Revenue, 6.375%, 10/01/36 ........................................................... 3,500,000 3,821,790
PCC Revenue, Nevada Power Co., Refunding, Series E, 5.35%, 10/01/22 ..................... 7,265,000 7,315,710
PCC Revenue, Nevada Power Co., Series B, 5.80%, 11/01/32 ................................ 6,500,000 6,627,400
PCC Revenue, Public Service Co., Refunding, Series A,
MBIA Insured, 5.875%, 8/15/28 ........................................................... 5,275,000 5,581,056
Eloy Municipal Property Corp., Facilities Revenue, 7.80%, 7/01/09 ....................... 1,475,000 1,560,668
Gila County IDA Revenue, Refunding, Asarco, Inc., 5.55%, 1/01/27 ........................ 45,900,000 47,139,759
Gilbert ID No. 11, FGIC Insured, 7.60%, 1/01/05 ......................................... 1,500,000 1,549,425
Gilbert Water and Sewer Revenue, Refunding, FGIC Insured, 6.50%,
7/01/12 ................................................................................. 1,500,000 1,680,930
7/01/22 ................................................................................. 3,250,000 3,606,558
Glendale IDA, Educational Facilities Revenue, American
Graduate School International, Refunding, Connie Lee Insured,
5.875%, 7/01/15 ......................................................................... 2,200,000 2,382,798
Pre-Refunded, 7.00%, 7/01/14 ............................................................ 1,000,000 1,178,690
Pre-Refunded, 7.125%, 7/01/20 ........................................................... 1,250,000 1,482,588
Glendale IDAR, Midwestern University, Series A, Connie Lee Insured, 6.00%,
5/15/16 ................................................................................. 1,940,000 2,128,335
5/15/26 ................................................................................. 2,000,000 2,169,780
Glendale Municipal Property Corp., Refunding, MBIA Insured, 7.00%, 7/01/09 .............. $ 2,400,000 $ 2,488,704
Guam Power Authority Revenue,
GO, 6.30%, 10/01/22 ..................................................................... 4,000,000 4,254,880
Series A, 6.30%, 10/01/12 ............................................................... 3,630,000 3,869,653
Lake Havasu City, Wastewater COP, FGIC Insured, 7.00%, 6/01/05 .......................... 2,700,000 2,922,291
Marana Municipal Property Corp., Municipal Facilities Revenue,
Refunding, MBIA Insured, 5.25%, 7/01/22 ................................................ 1,170,000 1,206,352
Maricopa County School District No 98, Fountain Hills Unified, FGIC Insured,
6.625%, 7/01/10 ......................................................................... 475,000 511,841
Pre-Refunded, 6.625%, 7/01/10 ........................................................... 825,000 894,985
Maricopa County COP, 6.00%, 6/01/04 ..................................................... 8,000,000 8,445,200
Maricopa County Hospital District No. 1, AMBAC Insured, 5.00%, 6/01/21 .................. 2,000,000 2,006,900
Maricopa County Hospital Revenue, Sun Health Corp., Refunding,
5.80%, 4/01/08 .......................................................................... 3,870,000 4,100,149
5.90%, 4/01/09 .......................................................................... 2,120,000 2,255,447
6.125%, 4/01/18 ......................................................................... 15,650,000 16,815,612
Maricopa County IDA,
Hospital Facility Revenue, FSA Insured, 7.50%, 12/01/13 ................................. 1,445,000 1,579,501
Hospital Facility Revenue, FSA Insured, Pre-Refunded, 7.50%, 12/01/13 ................... 1,305,000 1,435,696
Hospital Facility Revenue, Mayo Clinic Hospital, 5.25%, 11/15/37 ........................ 20,000,000 20,172,600
Hospital Facility Revenue, Samaritan Health Service Hospital,
Refunding, Series A, MBIA Insured, 7.00%, 12/01/13 ..................................... 17,800,000 19,267,610
Hospital Facility Revenue, Samaritan Health Service Hospital,
Refunding, Series A, MBIA Insured, 7.00%, 12/01/16 ..................................... 1,890,000 2,380,795
IDR, Citizens Utilities Co. Project, 6.20%, 5/01/30 ..................................... 5,000,000 5,412,000
Mercy Health System, Series A, MBIA Insured, Pre-Refunded, 7.125%, 7/01/07 .............. 1,585,000 1,652,204
Mercy Health System, Series C, MBIA Insured, Pre-Refunded, 7.15%, 7/01/15 ............... 750,000 787,178
MFHR, Stanford Court Apartments Project, Series A, MBIA Insured, 5.30%, 7/01/28 ......... 1,235,000 1,250,067
MFHR, Madera Pointe Apts., FSA Insured, 5.90%, 6/01/26 .................................. 2,105,000 2,239,510
MFHR, National Health Facilities II Project, Series A, FSA Insured, 5.10%, 1/01/33 ...... 12,500,000 12,458,875
SFMR, GNMA Secured, 8.00%, 9/01/09 ...................................................... 685,000 711,188
Water System Revenue, Improvement, Chaparral Water Co.,
Series A, AMBAC Insured, 5.40%, 12/01/22 ............................................... 1,000,000 1,025,350
Maricopa County School District No. 4, Mesa Unified, FGIC Insured,
5.65%, 7/01/11 .......................................................................... 1,500,000 1,624,320
5.70%, 7/01/12 .......................................................................... 2,000,000 2,171,580
Maricopa County School District No. 8, Osborn,
Refunding, Series A, FGIC Insured, 5.875%, 7/01/14 ...................................... 3,500,000 3,831,730
School Improvement Project, Series B, Pre-Refunded, 7.10%, 7/01/05 ...................... 500,000 519,510
School Improvement Project, Series B, Pre-Refunded, 7.15%, 7/01/07 ...................... 1,075,000 1,117,377
School Improvement Project, Series B, Pre-Refunded, 7.20%, 7/01/09 ...................... 1,885,000 1,960,080
Maricopa County School District No. 11, Peoria Unified, Refunding,
AMBAC Insured, 6.10%, 7/01/10 ........................................................... 6,300,000 6,917,589
MBIA Insured, 7.00%, 7/01/10 ............................................................ 2,800,000 3,041,052
Maricopa County School District No. 28, Kyrene Elementary,
Series B, FGIC Insured, 6.00%, 7/01/14 .................................................. 2,000,000 2,154,260
Maricopa County Stadium District Revenue, MBIA Insured, 5.75%, 7/01/16 .................. 3,000,000 3,198,030
Maricopa County UHSD No. 210,
Phoenix Project of 1995, Series C, 5.00%, 7/01/17 ....................................... 5,000,000 4,999,650
Series A, 5.70%, 7/01/15 ................................................................ 500,000 537,675
Series B, 5.50%, 7/01/17 ................................................................ 9,050,000 9,500,871
Maricopa County USD No. 41, Gilbert, 6.25%, 7/01/15 ..................................... 2,000,000 2,177,500
Maricopa County USD No. 41, Gilbert Project of 1993,
Series F, FSA Insured, 5.125%, 7/01/18 .................................................. 2,555,000 2,565,578
Maricopa County USD No. 65, Littleton School Improvement,
Series B, FGIC Insured, 6.40%, 7/01/14 .................................................. 1,175,000 1,299,010
Maricopa County USD No. 66, Roosevelt Elementary Project,
Series B, FGIC Insured, 5.25%, 7/01/17 .................................................. 2,500,000 2,569,400
Maricopa County USD No. 69, GO, Paradise Valley, Series A, 7.10%, 7/01/05 ............... 1,000,000 1,155,260
Maricopa County USD No. 80, Chandler, FGIC Insured, 6.00%, 7/01/13 ...................... 1,600,000 1,753,408
Maricopa County USD No. 89, Dysart, Refunding and Improvement, FGIC Insured,
6.70%, 7/01/05 .......................................................................... 240,000 254,138
6.75%, 7/01/06 .......................................................................... 1,760,000 1,864,896
Maricopa County USD No. 214, Tolleson GO, FGIC Insured, 5.75%, 7/01/14 .................. 1,000,000 1,075,210
Mesa GO, FGIC Insured, 5.00%, 7/01/18 ................................................... 1,500,000 1,506,840
Mesa IDA, Health Care Facilities Revenue, Western Health Network,
BIG Insured, Series A-2, 7.625%, 1/01/13 ................................................ $ 5,250,000 $ 5,423,933
BIG Insured, Series A-3, 7.625%, 1/01/13 ................................................ 250,000 258,283
BIG Insured, Series A-4, 7.625%, 1/01/09 ................................................ 2,075,000 2,141,628
Refunding, Series B-2, BIG Insured, 7.50%, 1/01/08 ...................................... 685,000 706,605
Mesa Utility System Revenue, FGIC Insured, 5.375%, 7/01/17 .............................. 15,500,000 16,045,910
Mohave County, Hospital District No. 1, Kingman Regional Medical Center Project,
FGIC Insured, 6.50%, 6/01/15 ............................................................ 1,500,000 1,626,225
Pre-Refunded, 8.375%, 6/01/15 ........................................................... 6,350,000 6,946,265
Mohave County IDA,
Health Care Revenue, Chris Ridge and Silver Insured,
Refunding, GNMA Secured, 6.375%, 11/01/31 ............................................... 1,585,000 1,750,395
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.50%, 9/01/21 ................ 1,500,000 1,563,225
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.75%, 9/01/26 ................ 4,675,000 4,989,861
Hospital Systems Revenue, Medical Environments, Inc.,
Phoenix Hospital and Medical Center, ETM, 5.80%, 7/01/99 ................................ 1,595,000 1,625,640
IDR, Citizens Utilities Co. Project, 6.60%, 5/01/29 ..................................... 4,100,000 4,495,117
IDR, Citizens Utilities Co. Project, Series A, 7.15%, 2/01/26 ........................... 10,000,000 10,491,100
IDR, Citizens Utilities Co. Project, Series B, 7.15%, 2/01/26 ........................... 5,000,000 5,245,550
Mohave County USD No 1, Lake Havasu, FGIC Insured, 5.00%, 7/01/14 ....................... 1,075,000 1,096,102
Navajo County PCR, Arizona Public Service Co., Series A,
MBIA Insured, 5.875%, 8/15/28 ........................................................... 3,000,000 3,174,060
Refunding, 5.875%, 8/15/28 .............................................................. 54,500,000 56,814,604
Nogales Municipal Development Authority, Inc., Municipal Facilities Revenue,
MBIA Insured, Refunding, 7.20%, 6/01/08 ................................................ 6,350,000 6,919,214
Northern Arizona University System Revenue,
Pre-Refunded, 7.50%, 6/01/06 ............................................................ 3,700,000 3,809,742
Refunding, FGIC Insured, 6.40%, 6/01/07 ................................................. 2,750,000 2,973,960
Northern Mariana Islands, Commonwealth Ports Authority,
Seaport Revenue, Series A, 6.40%, 3/15/28 ............................................... 8,885,000 8,812,498
Oro Valley COP, MBIA Insured, 5.75%, 7/01/17 ............................................ 1,000,000 1,079,080
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA Insured,
5.55%, 7/01/17 .......................................................................... 1,150,000 1,230,615
5.375%, 7/01/26 ......................................................................... 1,000,000 1,043,100
Peoria Municipal Development Authority, Water and Sewer Revenue,
Refunding, FGIC Insured, 6.625%, 7/01/06 ............................................... 1,000,000 1,053,060
Phoenix GO, 5.25%, 7/01/20 .............................................................. 2,000,000 2,039,600
Phoenix Airport Revenue, MBIA Insured,
Refunding, Series B, 6.20%, 7/01/10 ..................................................... 700,000 780,717
Refunding, Series C, 6.30%, 7/01/10 ..................................................... 1,680,000 1,868,462
Refunding, Series C, 6.40%, 7/01/11 ..................................................... 1,785,000 1,989,436
Refunding, Series C, 6.40%, 7/01/12 ..................................................... 570,000 631,554
Series D, 6.30%, 7/01/10 ................................................................ 1,800,000 2,001,924
Series D, 6.40%, 7/01/11 ................................................................ 3,825,000 4,263,077
Series D, 6.40%, 7/01/12 ................................................................ 820,000 908,552
Phoenix Civic Improvement Corp.,
Airport Revenue, Senior Lien, Series A, FSA Insured, 5.00%, 7/01/25 ..................... 5,000,000 5,008,500
Airport Terminal Excise Tax Revenue, Refunding, Senior Lien, 5.00%, 7/01/14 ............. 1,245,000 1,239,522
Municipal Facilities Excise Tax Revenue,
MBIA Insured, Pre-Refunded, 6.90%, 7/01/21 ............................................. 1,000,000 1,162,390
Water Systems Revenue, 5.95%, 7/01/15 ................................................... 3,090,000 3,436,482
Water Systems Revenue, 5.95%, 7/01/16 ................................................... 3,665,000 4,075,956
Water Systems Revenue, 6.00%, 7/01/19 ................................................... 3,000,000 3,325,230
Water Systems Revenue, Junior Lien, MBIA Insured, 5.375%, 7/01/22 ....................... 8,130,000 8,374,144
Phoenix Civic Plaza Building Corp., 6.00%, 7/01/14 ...................................... 4,300,000 4,688,462
Phoenix GO,
Refunding, 6.375%, 7/01/13 .............................................................. 5,000,000 5,476,950
Refunding, Series A, 5.50%, 7/01/15 ..................................................... 5,000,000 5,262,450
Refunding, Series A, 5.00%, 7/01/19 ..................................................... 3,500,000 3,495,275
Series B, 5.25%, 7/01/15 ................................................................ 2,775,000 2,873,929
Phoenix HFC, Mortgage Revenue,
Project A, Refunding, MBIA Insured, 6.50%, 7/01/24 ...................................... 2,750,000 2,886,208
Section 8 Project, Refunding, Series A, MBIA Insured, 6.90%, 1/01/23 .................... 1,750,000 1,859,323
Section 8 Project, Refunding, Series A, MBIA Insured, 7.25%, 1/01/23 .................... 2,260,000 2,358,672
Phoenix IDA,
Hospital Revenue, Connie Lee Insured, Refunding,
Series B, 5.75%, 12/01/16 ............................................................... $ 3,500,000 $ 3,798,725
SFMR, FNMA Insured, 6.30%, 12/01/12 ..................................................... 770,000 833,987
SFMR, Statewide, Series C, FHLMC, FNMA, and GNMA Secured, 5.30%, 4/01/20 ................ 2,000,000 2,012,780
Phoenix IDAR, Home Purchase Mortgage, Series B, GNMA Secured, 8.20%, 4/01/22 ............ 1,305,000 1,332,666
Phoenix Municipal Housing Revenue, Fillmore Gardens Project,
Refunding, 6.30%, 6/01/09 .............................................................. 1,500,000 1,624,650
Phoenix Street and Highway Revenue,
ETM, 6.80%, 7/01/03 ..................................................................... 1,000,000 1,124,080
Refunding, 6.60%, 7/01/07 ............................................................... 5,000,000 5,480,900
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 66,495
Health Care Corp. Revenue, Carondelet St. Joseph's and
St. Mary's Hospital, MBIA Insured, 6.75%, 7/01/10 ...................................... 2,250,000 2,450,790
b MFHR, Ria Nova & Villa Projects, GNMA Secured, 5.20%, 12/20/31 .......................... 2,370,000 2,370,000
MFR, Series A, 6.00%, 12/01/21 .......................................................... 2,720,000 2,890,870
SFMR, GNMA Secured, 6.40%, 11/01/09 ..................................................... 805,000 864,803
SFMR, GNMA Secured, 8.125%, 9/01/20 ..................................................... 1,115,000 1,145,830
SFMR, GNMA Secured, 6.75%, 11/01/27 ..................................................... 3,605,000 3,890,804
SFMR, Refunding, Series A, 7.625%, 2/01/12 .............................................. 3,565,000 3,748,241
SFMR, Refunding, Series A, 6.50%, 2/01/17 ............................................... 740,000 795,300
Pima County IDAR, Refunding, Series A, MBIA Insured, 5.625%, 4/01/14 .................... 2,250,000 2,427,660
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15 ...................... 1,410,000 1,526,001
Pima County USD No. 1, Tucson Project, FGIC Insured, 5.875%, 7/01/14 .................... 21,000,000 22,648,710
Pinal County USD No. 43, Apache Junction Improvement, Refunding,
FGIC Insured, 7.15%, 7/01/05 ............................................................ 500,000 519,210
FGIC Insured, Pre-Refunded, 7.20%, 7/01/07 .............................................. 700,000 728,175
Series A, FGIC Insured, 5.85%, 7/01/15 .................................................. 2,500,000 2,717,375
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, FSA Insured, Pre-Refunded, 9.00%, 7/01/09 ..................................... 75,000 94,745
Puerto Rico Commonwealth Highway and Transportation Authority
Highway Revenue, Series Y, 5.00%, 7/01/36 ............................................... 9,000,000 9,020,520
Puerto Rico Commonwealth IDC, General Purpose Revenue,
Series B, 5.375%, 7/01/16 .............................................................. 2,800,000 2,896,236
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A,
7.75%, 7/01/08 .......................................................................... 1,550,000 1,585,263
7.50%, 7/01/09 .......................................................................... 335,000 342,538
Puerto Rico Commonwealth, Public Improvement, Refunding, 5.375%, 7/01/25 ................ 1,975,000 2,020,109
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.00%, 7/01/07 ..................................................... 745,000 777,713
Refunding, Series N, 7.125%, 7/01/14 .................................................... 2,205,000 2,304,071
Series O, 7.125%, 7/01/14 ............................................................... 1,510,000 1,577,844
Series R, 6.25%, 7/01/17 ................................................................ 3,745,000 4,114,594
Series X, 6.125%, 7/01/21 ............................................................... 25,720,000 27,772,456
Puerto Rico GO, Pre-Refunded, 6.50%, 7/01/23 ............................................ 4,850,000 5,545,781
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B,
GNMA Secured, 7.65%, 10/15/22 ........................................................... 700,000 740,264
Puerto Rico HFC Revenue,
MFMR, Portfolio 1, Series A, 7.50%, 4/01/22 ............................................. 1,215,000 1,272,725
Section 8 Assisted, Sixth Portfolio, FHA Mortgage Insured,
Pre-Refunded, 7.75%, 12/01/26 .......................................................... 40,000 49,570
Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities, Financing Authority Hospital Revenue,
Dr. Pila Hospital, Refunding, Series A, FHA Insured, 5.875%, 8/01/12 .................... 5,225,000 5,679,053
Hospital Auxilio Mutuo Obligation Group, Series A,
MBIA Insured, 6.25%, 7/01/24 ........................................................... 1,950,000 2,158,553
Puerto Rico Public Finance Corp., Commonwealth Appropriation,
Series A, 5.00%, 6/01/26 ............................................................... 6,000,000 5,928,540
Salt River Project, Agricultural Improvement and Power District,
Electric System Revenue,
Refunding, Series A, 5.75%, 1/01/13 ..................................................... 2,435,000 2,557,067
Refunding, Series A, 5.00%, 1/01/20 ..................................................... 12,500,000 12,574,375
Series A, 6.00%, 1/01/31 ................................................................ 4,600,000 4,743,336
Series A, MBIA Insured, 6.00%, 1/01/31 .................................................. 1,845,000 1,910,331
Series C, 6.20%, 1/01/12 ................................................................ 5,925,000 6,327,248
Series C, 6.25%, 1/01/19 ................................................................ 9,975,000 10,654,597
Series D, 6.25%, 1/01/27 ................................................................ 4,890,000 5,240,417
San Luis Municipal Property Corp., Municipal Facilities Revenue, 8.125%, 7/01/19 ........ 3,160,000 3,274,771
Santa Cruz County IDAR, Citizens Utilities Co. Project, 6.60%, 5/01/29 .................. 8,000,000 8,770,960
Scottsdale IDA, Hospital Revenue, Scottsdale Memorial Hospital, .........................
Refunding, Series A, AMBAC Insured, 5.70%,
9/01/15 ................................................................................. $ 1,250,000 $ 1,297,188
9/01/18 ................................................................................. 4,045,000 4,197,699
Sedona Sewer Revenue, Refunding,
6.75%, 7/01/07 .......................................................................... 3,800,000 4,279,674
7.00%, 7/01/12 .......................................................................... 5,000,000 5,521,200
Tucson, Series A, 5.375%, 7/01/20 ....................................................... 1,800,000 1,857,942
Tucson Airport Authority Income Revenue, MBIA Insured,
Series A, 6.875%, 6/01/20 ............................................................... 1,090,000 1,155,313
Series B, 7.125%, 6/01/15 ............................................................... 1,175,000 1,258,519
Series B, 7.25%, 6/01/20 ................................................................ 1,125,000 1,206,326
Tucson IDA, MFR,
La Entrada, Refunding, 7.40%, 7/01/26 ................................................... 1,845,000 1,959,870
Los Portales Apts., Refunding, 5.90%, 12/20/31 .......................................... 2,000,000 2,113,620
Tucson Water Revenue,
Refunding, FGIC Insured, 5.00%, 7/01/19 ................................................. 2,100,000 2,111,760
Refunding, FGIC Insured, 5.125%, 7/01/20 ................................................ 4,000,000 4,057,880
Refunding, FGIC Insured, 5.125%, 7/01/21 ................................................ 9,030,000 9,160,664
Refunding, MBIA Insured, 7.00%, 7/01/10 ................................................. 2,250,000 2,339,235
Series 1994-A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/21 ............................... 14,650,000 16,498,537
University of Arizona System Revenue,
6.25%, 6/01/11 .......................................................................... 1,000,000 1,124,810
6.35%, 6/01/14 .......................................................................... 1,300,000 1,468,844
Virgin Islands Public Finance Authority Revenue, Senior Lien,
Fund Loan Notes, Refunding, Series A, 5.50%
10/01/22 ................................................................................ 3,750,000 3,802,725
10/01/13 ................................................................................ 2,500,000 2,573,325
Virgin Islands Water & Power Authority, Electric System, Refunding, 5.30%, 7/01/18 ...... 2,475,000 2,503,017
Yavapai County IDAR, Citizens Utilities Co. Project, 5.45%, 6/01/33 ..................... 6,000,000 6,111,900
Yavapai County IDA, Hospital Facility Revenue, Yavapai Regional
Medical Center, Series A, FSA Insured, Refunding, 5.125%, 12/01/13 ..................... 2,000,000 2,072,620
Yavapai County USD No. 22, Humboldt,
Series A, FGIC Insured, 5.95%, 7/01/14 .................................................. 1,500,000 1,634,835
Series B Project of 1995, MBIA Insured, 5.60%, 7/01/14 .................................. 1,825,000 1,958,973
Yuma County Elementary School District No. 1,
Series A, MBIA Insured, 5.75%, 7/01/14 .................................................. 1,500,000 1,624,770
Series B, MBIA Insured, 5.50%, 7/01/14 .................................................. 2,000,000 2,130,640
Yuma IDA Hospital Revenue, Yuma Regional Medical Center,
Refunding, MBIA Insured, 5.50%, 8/01/17 ................................................ 4,000,000 4,200,800
Yuma Industrial Authority MFHR, Alexandrite Sands Apartments Project, FHA Insured,
7.60%, 12/01/15 ......................................................................... 1,000,000 1,045,970
7.70%, 12/01/29 ......................................................................... 2,000,000 2,094,000
Yuma Industrial Authority MFR, Regency Apartments, Refunding, 5.50%, 12/20/32 ........... 2,000,000 2,032,140
----------
Total Long Term Investments (Cost $803,445,089) ......................................... 860,079,033
----------
a Short Term Investments .1%
Maricopa County IDA, Hospital Facility Revenue, Samaritan
Health Service Hospital, Series B2, MBIA Insured, Daily VRDN and Put,...................
3.25%, 12/01/08 ........................................................................ 500,000 500,000
Pinal County IDA, PCR, Magma-Copper/Newmont
Mining Corp., Daily VRDN and Put, 3.40%, 12/01/09 ....................................... 200,000 200,000
Pinal County IDA, PCR, Dates, Newmont, Daily VRDN, 3.40%, 12/01/09 ...................... 400,000 400,000
----------
Total Short Term Investments (Cost $1,100,000) ......................................... 1,100,000
----------
Total Investments (Cost $804,545,089) 99.5%............................................. 861,179,033
Other Assets, less Liabilities .5%...................................................... 4,037,899
----------
Net Assets 100.0%....................................................................... $865,216,932
==========
</TABLE>
See glossary of terms on page 137.
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
Six Months Ended
August 31, 1998 Year Ended February 28,
<S> <C> <C> <C> <C> <C> <C>
Class I (unaudited) 1998 1997 19961 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $12.11 $11.80 $11.84 $11.38 $11.94 $11.85
-----------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .30 .63 .66 .67 .67 .68
Net realized and unrealized gains (losses) ............. .09 .39 (.04) .45 (.57) .10
-----------------------------------------------------------------
Total from investment operations ........................ .39 1.02 .62 1.12 .10 .78
-----------------------------------------------------------------
Less distributions from:
Net investment income .................................. (.31) (.64) (.66) (.66) (.66) (.69)
Net realized gains ..................................... (.05) (.07) -- -- -- --
-----------------------------------------------------------------
Total distributions ..................................... (.36) (.71) (.66) (.66) (.66) (.69)
-----------------------------------------------------------------
Net asset value, end of period .......................... $12.14 $12.11 $11.80 $11.84 $11.38 $11.94
=================================================================
Total return* ........................................... 3.24% 8.86% 5.44% 10.12% 1.05% 6.49%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $283,698 $266,599 $236,609 $215,609 $194,564 $202,158
Ratios to average net assets:
Expenses ............................................... .71%** .71% .71% .71% .70% .64%
Net investment income .................................. 4.99%** 5.28% 5.59% 5.73% 5.94% 5.69%
Portfolio turnover rate ................................. 8.50% 22.97% 14.13% 17.58% 28.83% 10.85%
</TABLE>
<TABLE>
<CAPTION>
Class II
- -------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C>
Net asset value, beginning of period .................... $12.17 $11.84 $11.87 $11.40
----------------------------------------
Income from investment operations:
Net investment income .................................. .27 .57 .59 .50
Net realized and unrealized gains (losses) ............. .08 .40 (.02) .46
----------------------------------------
Total from investment operations ........................ .35 .97 .57 .96
----------------------------------------
Less distributions from:
Net investment income .................................. (.27) (.57) (.60) (.49)
Net realized gains ..................................... (.05) (.07) -- --
----------------------------------------
Total distributions ..................................... (.32) (.64) (.60) (.49)
----------------------------------------
Net asset value, end of period .......................... $12.20 $12.17 $11.84 $11.87
========================================
Total return* ........................................... 2.93% 8.39% 4.93% 8.57%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $15,841 $10,855 $5,654 $1,656
Ratios to average net assets:
Expenses ............................................... 1.27%** 1.27% 1.28% 1.29%**
Net investment income .................................. 4.43%** 4.72% 4.99% 5.12%**
Portfolio turnover rate ................................. 8.50% 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.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Colorado Tax-Free Income Fund AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
a Long Term Investments 97.4%
Adams County PCR, Refunding, Public Service Co. of Colorado
<S> <C> <C>
Project, Series A, 7.375%, 11/01/09 ..................................................... $ 770,000 $ 781,050
Adams County School District No.12, FGIC Insured, 5.40%, 12/15/14 ....................... 1,000,000 1,049,830
Arapahoe County Capital Improvements Transportation Fund
Highway Revenue, Vehicle Registration, Series A, MBIA Insured,
6.15%, 8/31/26 ......................................................................... 8,000,000 8,909,040
Arapahoe County COP, Refunding, FSA Insured, 6.625%, 12/01/16 ........................... 805,000 886,522
Arapahoe County School District, No. 2, Refunding, MBIA Insured, 5.70%, 6/01/19 ......... 2,200,000 2,361,348
Arvada IDR, Wanco Inc. Project,
5.25%, 12/01/07 ......................................................................... 100,000 102,644
5.80%, 12/01/17 ......................................................................... 480,000 492,730
Arvada MFHR, Springwood Community Project, Refunding, 6.35%, 8/20/16 .................... 1,000,000 1,057,480
Auraria Higher Education Center Colorado COP,
Administrative Office Facility Project, AMBAC Insured, 5.125%, 5/01/18 .................. 1,000,000 1,010,940
Aurora COP, Refunding, 6.25%, 12/01/09 .................................................. 2,850,000 3,132,065
Bayfield School District No. 10, MBIA Insured, 6.65%, 6/01/15 ........................... 1,000,000 1,134,980
Boulder County Colorado Hospital Revenue Development,
Longmont United Hospital Project, 5.50%, 12/01/12 ...................................... 1,000,000 1,030,370
Boulder County Hospital Revenue, Longmont United Hospital Project,
5.80%, 12/01/13 ......................................................................... 2,000,000 2,074,960
5.60%, 12/01/17 ......................................................................... 3,385,000 3,481,439
5.875%, 12/01/20 ........................................................................ 1,285,000 1,338,263
Pre-Refunded, 8.20%, 12/01/20 ........................................................... 3,000,000 3,314,190
Boulder GO, Refunding, 7.20%, 8/15/13 ................................................... 1,250,000 1,300,950
Boulder, Larimer & Weld Counties, Vrain Valley School District,
RE1J, Series A, FGIC Insured, 5.00%,
12/15/18 ................................................................................ 1,000,000 1,003,120
12/15/22 ................................................................................ 7,000,000 7,010,640
Castle Pines Metropolitan District, Refunding and Improvement,
FSA Insured, 5.25%, 12/01/15 ............................................................ 1,900,000 1,965,303
Colorado Health Facilities Authority Revenue,
Birchwood Manor Project, Series A, GNMA Secured, 7.625%, 4/01/26 ........................ 1,615,000 1,673,043
Boulder Community Hospital, Refunding, Series B, MBIA Insured, 5.875%, 10/01/23 ......... 1,500,000 1,597,560
Catholic Health Initiatives, Series A, 5.00%, 12/01/28 .................................. 1,800,000 1,769,526
Children's Hospital Association Project, MBIA Insured, 5.25%, 10/01/26 .................. 1,000,000 1,016,390
Community Provider Pooled Loan Program, FSA Insured, 6.75%, 7/15/17 ..................... 954,000 1,028,126
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.25%, 7/15/17 ........... 6,570,000 7,153,022
Covenant Retirement Communities, 6.75%, 12/01/15 ........................................ 1,750,000 1,975,645
Covenant Retirement Communities, 6.75%, 12/01/25 ........................................ 4,950,000 5,584,986
Kaiser Permanente, Series A, 5.35%, 11/01/16 ............................................ 8,000,000 8,111,440
Mercy Medical Center Durango, 6.20%, 11/15/15 ........................................... 1,250,000 1,352,638
National Benevolent Assn., Refunding, Series A, 5.20%, 1/01/18 .......................... 700,000 689,878
National Benevolent Assn., Refunding, Series A, 5.25%, 1/01/27 .......................... 1,180,000 1,151,031
National Benevolent Assn., Series B, 5.25%, 2/01/18 ..................................... 750,000 738,308
National Benevolent Assn., Series B, 5.25%, 2/01/28 ..................................... 2,500,000 2,437,725
Oakbrook I Manor, Series A, GNMA Secured, 7.25%, 4/01/11 ................................ 385,000 404,970
Oakbrook I Manor, Series A, GNMA Secured, 7.625%, 4/01/26 ............................... 885,000 916,807
PSL Health System Project, Series B, Pre-Refunded, 8.50%, 2/15/21 ....................... 1,000,000 1,129,190
Sisters of Charity Leavenworth, MBIA Insured, 5.125%, 12/01/18 .......................... 1,000,000 1,011,040
Colorado HFA,
MF, Insured Mortgage, Series A-2, 5.45%, 10/01/29 ....................................... 1,000,000 1,009,060
MF, Series A, 6.80%, 8/01/14 ............................................................ 2,300,000 2,452,007
MF, Series A, 6.85%, 8/01/24 ............................................................ 3,550,000 3,788,312
MF, Series A, 6.875%, 8/01/30 ........................................................... 5,790,000 6,173,993
MF, Series A-2, 6.00%, 10/01/28 ......................................................... 1,000,000 1,059,400
SF Program, Refunding, Series A-2, MBIA Insured, 5.625%, 11/01/23 ....................... 4,000,000 4,116,640
SF Program, Series A-1, 8.00%, 8/01/17 .................................................. 195,000 200,306
SF Program, Series A-2, 7.70%, 2/01/23 .................................................. 575,000 604,843
SF Program, Series A-3, 7.90%, 8/01/21 .................................................. 230,000 239,432
SF Program, Series C-2, 7.375%, 8/01/10 ................................................. 1,050,000 1,098,069
SF Program, Series C-2, 7.85%, 2/01/21 .................................................. 155,000 160,151
SF, Series A, 7.50%, 5/01/29 ............................................................ 1,000,000 1,055,130
Colorado Post Secondary Educational Facilities Authority Revenue,
Auraria Foundation Project, FSA Insured, 6.00%, 9/01/15 ................................. 1,000,000 1,085,410
Refunding and Improvement, University of Denver Project,
MBIA Insured, 5.375%, 3/01/18 ........................................................... 2,500,000 2,593,125
Colorado Public Highway Authority Revenue, Highway E-470,
Refunding, Senior Series A, MBIA Insured,
5.25%, 9/01/18 .......................................................................... $ 3,795,000 $ 3,871,280
5.00%, 9/01/21 .......................................................................... 2,000,000 1,997,280
Colorado Springs Airport Revenue, Series A, MBIA Insured, 5.25%, 1/01/22 ................ 2,500,000 2,557,350
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%,
12/15/15 ................................................................................ 5,575,000 6,133,002
12/15/24 ................................................................................ 10,955,000 12,015,773
Colorado Springs Utilities Revenue,
Refunding and Improvement, Series A, 5.25%, 11/15/22 .................................... 2,000,000 2,049,700
Refunding and Improvement, Series A, 5.375%, 11/15/26 ................................... 3,340,000 3,443,640
Series A, 5.75%, 11/15/23 ............................................................... 1,450,000 1,519,325
Series A, Pre-Refunded, 6.10%, 11/15/24 ................................................. 11,000,000 12,358,830
Colorado State,
Board of Agriculture, COP, MBIA Insured, 5.35%, 5/01/18 ................................. 1,000,000 1,029,960
Board of Agriculture, State University Revenue, Refunding, 5.125%, 3/01/17 .............. 1,000,000 1,020,720
Board of Community Colleges and Occupational Educational
Revenue, Red Rocks Community College Project, AMBAC Insured,
6.00%, 11/01/19 ........................................................................ 1,090,000 1,175,925
Colorado Water Resource and Power Authority, Drinking Water Revenue,
Series A, 5.30%, 9/01/18 ............................................................... 875,000 894,023
Colorado Water Resource and Power Development Authority,
Clean Water Revenue, Series A, 6.15%, 9/01/11 ........................................... 1,765,000 1,905,335
Clean Water Revenue, Series A, 6.30%, 9/01/14 ........................................... 1,000,000 1,080,730
Clean Water Revenue, Series A, 5.80%, 9/01/17 ........................................... 2,000,000 2,180,020
Small Water Resource Revenue, Series A, FGIC Insured,
Pre-Refunded, 6.70%, 11/01/12 .......................................................... 750,000 830,805
Stagecoach Project, Pre-Refunded, 8.00%, 11/01/17 ....................................... 65,000 68,280
Denver City and County Airport Revenue,
Series A, 5.60%, 11/15/20 ............................................................... 3,200,000 3,349,568
Series A, 7.50%, 11/15/23 ............................................................... 3,315,000 3,806,349
Series A, 8.50%, 11/15/23 ............................................................... 3,645,000 4,017,738
Series A, Pre-Refunded, 7.50%, 11/15/12 ................................................. 3,000,000 3,462,900
Series A, Pre-Refunded, 7.50%, 11/15/23 ................................................. 685,000 817,794
Series A, Pre-Refunded, 8.50%, 11/15/23 ................................................. 355,000 396,240
Series D, 7.75%, 11/15/13 ............................................................... 1,000,000 1,267,980
Series E, MBIA Insured, 5.50%, 11/15/25 ................................................. 3,750,000 3,918,825
Denver City and County IDR, University of Denver Project, 7.50%, 3/01/11 ................ 1,880,000 2,024,027
Denver City and County MFHR, The Boston Lofts Project, Series A, 5.75%, 10/01/27 ........ 1,500,000 1,547,055
Denver City and County Revenue,
Children's Hospital Association Project, FGIC Insured, 6.00%, 10/01/15 .................. 3,150,000 3,381,210
Refunding, St. Anthony's Hospital, Sisters of Charity Health Care System,
Series A, MBIA Insured, Pre-Refunded, 7.75%, 5/01/14 .................................... 150,000 155,717
Denver City and County SFMR, Series A, GNMA Secured, 8.125%, 12/01/20 ................... 165,000 168,873
Denver City and County Special Facilities Airport Revenue,
United Airlines Project, Series A, 6.875%, 10/01/32 .................................... 2,000,000 2,174,800
Donala Water and Sanitary District, Improvement Series B, 6.50%, 12/01/14 ............... 1,000,000 1,066,320
Douglas County MFHR, Mortgage-Parker Hilltop Project, FHA Insured, 5.45%, 8/01/28 ....... 2,000,000 2,020,860
Douglas County School District No. 1, Douglas and Elbert Counties,
Improvement Series A, MBIA Insured, 6.50%, 12/15/16 .................................... 230,000 259,208
Douglas County School District No. RE1, Douglas and Elbert Counties,
Improvement Series A, MBIA Insured, Pre-Refunded, 6.50%, 12/15/16 ..................... 2,000,000 2,290,820
El Paso County,
HMR, Series B, GNMA Secured, 8.125%, 11/01/13 ........................................... 85,000 87,751
School District No. 20, GO, Series B, 8.00%, 12/01/06 ................................... 20,000 20,196
Fort Collins PCR, Anheuser-Busch Co. Project, Refunding, 6.00%, 9/01/31 ................. 5,000,000 5,358,650
Fremont County COP, Lease Purchase, MBIA Insured, 5.30%, 12/15/17 ....................... 1,570,000 1,623,977
Frisco Fire Protection District, Refunding and Improvement,
Pre-Refunded, 7.20%, 12/01/05 .......................................................... 250,000 261,088
Greeley MFHR Mortgage, FHA Insured, Creek Stone Project, 5.95%, 7/01/28 ................. 1,000,000 1,038,740
Guam Airport Authority Revenue, Refunding, Series A,
6.375%, 10/01/10 ........................................................................ 400,000 436,444
6.50%, 10/01/23 ......................................................................... 800,000 868,272
Guam Power Authority Revenue, Series A, 6.375%, 10/01/08 ................................ 1,000,000 1,071,060
Jefferson County District Wide Sales Tax Revenue,
Local Improvement District, MBIA Insured, 6.30%, 6/01/22 ................................ 7,450,000 7,944,457
Jefferson County School District No R-001, Series A, FGIC Insured, 5.00%, 12/15/17 ...... 5,000,000 5,040,750
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 .............. 320,000 341,702
Lakewood MFHR Mortgage, FHA Insured Mortgage,
6.65%, 10/01/25 ......................................................................... $ 3,025,000 $ 3,270,933
6.70%, 10/01/36 ......................................................................... 1,235,000 1,339,407
Larimer County Health Care Facilities Revenue, Refunding,
Western Health Network, Inc., BIG Insured, 7.625%, 1/01/12 ............................. 250,000 257,588
Larimer County School District, No. R1 Poudre COP, MBIA Insured, 5.65%, 12/01/16 ........ 2,300,000 2,453,893
Las Animas County School District No. 1, Refunding,
6.15%, 12/01/08 ......................................................................... 1,000,000 1,060,190
6.20%, 12/01/10 ......................................................................... 935,000 995,663
Left Hand Water District Revenue, MBIA Insured, 5.70%, 11/15/15 ......................... 1,400,000 1,497,202
Logan County, SFMR, Refunding, Series A, 8.50%, 11/01/11 ................................ 280,000 296,638
Mesa County Sales Tax Revenue, Refunding, MBIA Insured,
Pre-Refunded, 7.75%, 12/01/13 .......................................................... 350,000 353,661
Metex Metropolitan District, Refunding, Series A, MBIA Insured, 5.80%, 12/01/16 ......... 500,000 543,675
Montrose County COP, 6.35%, 6/15/06 ..................................................... 1,850,000 2,020,922
Mountain College Residence Hall Revenue Authority, MBIA Insured, 5.75%, 6/01/23 ......... 3,000,000 3,199,110
Northern Colorado Municipal Water Subdistrict, Water
Conservancy Revenue, Series G, 5.25%, 12/01/15 ......................................... 2,000,000 2,086,200
Platte River Power Authority Revenue, Refunding, Series D-2,
MBIA Insured, 5.375%, 6/01/17 ........................................................... 5,490,000 5,761,590
Pueblo County, MBIA Insured, 6.00%, 6/01/16 ............................................. 4,395,000 4,758,994
Pueblo County COP, Public Parking, 6.90%, 7/01/15 ....................................... 510,000 538,203
Pueblo County School District No. 70, Pueblo Rural, GO,
AMBAC Insured, Pre-Refunded, 6.40%, 12/01/14 ........................................... 1,000,000 1,128,440
Pueblo Urban Renewal Authority Tax Increment Revenue,
Refunding, AMBAC Insured, 6.10%, 12/01/15 ............................................... 1,000,000 1,086,240
Puerto Rico Commonwealth Aqueduct and Sewer Authority
Revenue, Series A, FSA Insured, Pre-Refunded, 9.00%, 7/01/09 ............................ 55,000 69,479
Puerto Rico Electric Power Authority Revenue, Refunding, Series N, 7.125%, 7/01/14 ...... 155,000 161,964
Puerto Rico HFC, SFMR, Portfolio No. 1, Series A, GNMA Secured, 7.80%, 10/15/21 ......... 15,000 15,330
Puerto Rico Industrial, Medical and Environmental Facilities,
PCFA Revenue, Baxter Travenol Labs, Inc., Series A, 8.00%, 9/01/12 ..................... 600,000 619,800
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 1,360,619
Regional Transportation District Sales Tax Revenue,
Refunding and Improvement, FGIC Insured, 6.25%, 11/01/12 ................................ 160,000 173,165
Southwestern SFMR, Refunding, Series A, 7.375%, 9/01/11 ................................. 435,000 455,993
Stonegate Village Metropolitan District, Refunding and Improvement,
Series A, FSA Insured, 5.60%, 12/01/25 ................................................. 4,500,000 4,763,340
Summit County SFMR, Series A, 7.50%, 12/01/11 ........................................... 160,000 167,784
Summit County Sports Facilities Revenue, Keystone
Resorts Project, Ralston Purina Co., Refunding, 7.875%, 9/01/08 ......................... 2,750,000 3,397,790
University of Colorado Hospital Authority Revenue,
Refunding, Series A, AMBAC Insured,
5.20%, 11/15/17 ......................................................................... 1,000,000 1,019,500
5.25%, 11/15/22 ......................................................................... 4,000,000 4,074,360
University of Northern Colorado, Authority Facilities System Revenue,
MBIA Insured, 5.60%, 6/01/24 ............................................................ 2,000,000 2,115,940
Virgin Islands Public Finance Authority Revenue,
Senior Lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 ...................... 2,500,000 2,535,150
Senior Lien, Refunding, Series A, 5.40%, 10/01/12 ....................................... 2,500,000 2,566,900
Westminster City Sales and Use Tax Revenue, Refunding and Improvement,
FGIC Insured, 7.00%, 12/01/08 ........................................................... 2,000,000 2,147,500
Storm Project, Series A, 5.60%, 12/01/16 ................................................ 1,500,000 1,611,315
Westminster Colorado, COP, Ice Centre Project, AMBAC Insured, 5.40%, 1/15/23 ............ 4,400,000 4,489,672
Widefield Water and Sanitary District, Water and Sewage Revenue,
Refunding and Improvement, Series A, MBIA Insured, 5.70%, 12/01/16 .................... 2,000,000 2,154,830
-------------
Total Long Term Investments (Cost $271,666,696) ........................................ 291,715,396
-------------
a Short Term Investments .8%
Denver City and County MFHR, Ogden Residence Project,
Daily VRDN and Put, 3.75%, 12/01/09 (Cost $2,580,000) ................................... 2,580,000 2,580,000
-------------
Total Investments (Cost $274,246,696) 98.2%............................................. 294,295,396
Other Assets, less Liabilities 1.8%..................................................... 5,242,921
-------------
Net Assets 100.0% ...................................................................... $299,538,317
=============
</TABLE>
See glossary of terms on page 137.
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 plus accrue interest at specified
dates.
Franklin Tax-Free Trust
Financial Highlights
<TABLE>
<CAPTION>
Franklin Connecticut Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
<S> <C> <C> <C> <C> <C> <C>
Class I (unaudited) 1998 1997 19961 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.23 $10.92 $10.96 $10.64 $11.23 $11.16
---------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .24 .60 .61 .62 .62 .62
Net realized and unrealized gains (losses) ............. .07 .32 (.02) .32 (.60) .08
---------------------------------------------------------------
Total from investment operations ........................ .31 .92 .59 .94 .02 .70
---------------------------------------------------------------
Less distributions from:
Net investment income .................................. (.24)2 (.60) (.63) (.62) (.61) (.63)
In excess of net investment income ..................... -- (.01) -- -- -- --
---------------------------------------------------------------
Total distributions ..................................... (.24) (.61) (.63) (.62) (.61) (.63)
---------------------------------------------------------------
Net asset value, end of period .......................... $11.30 $11.23 $10.92 $10.96 $10.64 $11.23
===============================================================
Total return* ........................................... 3.28% 8.62% 5.52% 9.04% .37% 6.16%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $219,240 $203,643 $183,649 $167,045 $155,623 $163,050
Ratios to average net assets:
Expenses ............................................... .72%** .73% .72% .73% .71% .65%
Net investment income .................................. 5.16%** 5.41% 5.62% 5.70% 5.83% 5.54%
Portfolio turnover rate ................................. 5.30% 18.54% 14.53% 3.88% 75.72% 5.54%
</TABLE>
<TABLE>
<CAPTION>
Class II
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C>
Net asset value, beginning of period .................... $11.26 $10.94 $10.97 $10.65
--------------------------------------------
Income from investment operations:
Net investment income .................................. .22 .55 .60 .47
Net realized and unrealized gains (losses) ............. .07 .31 (.07) .31
---------------------------------------------
Total from investment operations ........................ .29 .86 .53 .78
---------------------------------------------
Less distributions from net investment income ........... (.22)2 (.54) (.56) (.46)
---------------------------------------------
Net asset value, end of period .......................... $11.33 $11.26 $10.94 $10.97
=============================================
Total return* ........................................... 2.98% 8.08% 5.03% 7.45%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $14,142 $8,636 $4,149 $1,656
Ratios to average net assets:
Expenses ............................................... 1.28%** 1.29% 1.29% 1.30%**
Net investment income .................................. 4.60%** 4.85% 5.01% 5.12%**
Portfolio turnover rate ................................. 5.30% 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.
2Includes distributions in excess of net investment income in the amount of
$0.002.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Connecticut Tax-Free Income Fund AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
a Long Term Investments 97.5%
Bridgeport GO,
<S> <C> <C>
Series A, 7.25%, 6/01/00 ................................................................ $ 300,000 $ 314,076
Series B, 7.55%, 11/15/00 ............................................................... 1,375,000 1,464,155
Series B, Pre-Refunded, 7.75%, 11/15/10 ................................................. 3,750,000 4,135,238
Unlimited Tax, ETM, Series A, 7.30%, 3/01/99 ............................................ 750,000 763,958
Connecticut HFA, Housing Mortgage Finance Program,
Series A, Sub-Series 2, 7.20%, 11/15/08 ................................................. 750,000 803,813
Series B, 6.75%, 11/15/23 ............................................................... 14,705,000 15,912,428
Series C-1, 6.60%, 11/15/23 ............................................................. 500,000 538,245
Series C-2, 6.25%, 11/15/18 ............................................................. 1,500,000 1,636,980
Series C-2, 6.70%, 11/15/22 ............................................................. 4,200,000 4,532,010
Series E, 6.30%, 5/15/17 ................................................................ 3,715,000 4,015,841
Sub Series B-1, 6.30%, 5/15/25 .......................................................... 700,000 751,241
Sub Series B-1, 5.30%, 11/15/28 ......................................................... 1,700,000 1,719,091
Sub Series C-2, 5.85%, 11/15/28 ......................................................... 1,500,000 1,561,155
Sub Series D-1, 5.55%, 11/15/28 ......................................................... 1,000,000 1,028,490
Sub Series E-1, 5.125%, 5/15/21 ......................................................... 1,255,000 1,258,614
Sub Series E-2, 5.20%, 11/15/21 ......................................................... 1,840,000 1,847,618
Sub Series G-1, 6.20%, 11/15/16 ......................................................... 1,355,000 1,429,579
b Sub Series G-1, 5.20%, 11/15/28 ......................................................... 2,980,000 2,998,506
Connecticut Higher Education Supplemental Loan Authority, Series A,
7.00%, 11/15/05 ......................................................................... 785,000 835,805
7.20%, 11/15/10 ......................................................................... 245,000 260,565
7.50%, 11/15/10 ......................................................................... 385,000 394,221
Connecticut State Development Authority, First Mortgage Gross Revenue, Health Care Project,
Church Homes, Inc., Refunding, 5.80%, 4/01/21 ........................................... 1,000,000 1,028,620
Elim Park Baptist Home, Refunding, Series A, 5.375%, 12/01/18 ........................... 1,100,000 1,104,048
Connecticut State Development Authority,
New England Power Co., PCR, 7.25%, 10/15/15 ............................................. 750,000 791,258
Solid Waste Disposal Facilities Revenue, Pfizer, Inc. Project, 7.00%, 7/01/25 ........... 2,000,000 2,317,920
Water Facility Revenue, Bridgeport Hydraulic Co. Project, 6.15%, 4/01/35 ................ 1,000,000 1,091,730
Water Facility Revenue, Bridgeport Hydraulic Co. Project, 6.00%, 9/01/36 ................ 10,000,000 10,770,900
Water Facility Revenue, Bridgeport Hydraulic Co. Project, Refunding, 7.25%, 6/01/20 ..... 1,000,000 1,069,300
Connecticut State Health and Educational Facilities Authority Revenue,
Abbot Terrace Health Center Project, Series A, 6.00%, 11/01/14 .......................... 2,000,000 2,223,420
Capital Assets, ETM, Series B, 7.00%, 1/01/00 ........................................... 635,000 662,115
Capital Assets, Series C, MBIA Insured, 7.00%, 1/01/20 .................................. 1,265,000 1,369,464
Capital Assets, Series C, MBIA Insured, Pre-Refunded, 7.00%, 1/01/20 .................... 200,000 218,156
Choate Rosemary Hall, Series A, MBIA Insured, Pre-Refunded, 7.00%, 7/01/25 .............. 1,500,000 1,739,430
Greenwich Hospital, Series A, MBIA Insured, 5.75%, 7/01/16 .............................. 1,000,000 1,083,990
Greenwich Hospital, Series A, MBIA Insured, 5.80%, 7/01/26 .............................. 2,500,000 2,695,900
Hartford University, Series C, Pre-Refunded, 8.00%, 7/01/18 ............................. 1,300,000 1,478,620
Hartford University, Series D, 6.80%, 7/01/22 ........................................... 5,000,000 5,291,700
Hebrew Home and Hospital, Series A, 7.00%, 8/01/30 ...................................... 1,225,000 1,240,313
Hospital for Special Care, Refunding, Series B, 5.375%, 7/01/17 ......................... 7,205,000 7,319,776
Hospital for Special Care, Refunding, Series B, 5.50%, 7/01/27 .......................... 17,000,000 17,304,130
Lutheran General Health Care System, ETM, 7.375%, 7/01/19 ............................... 500,000 624,935
New Britain Memorial Hospital, Series A, Pre-Refunded, 7.75%, 7/01/22 ................... 1,000,000 1,154,000
New Horizons Village Project, 7.30%, 11/01/16 ........................................... 2,905,000 3,428,946
Quinnipiac College, Series C, Pre-Refunded, 7.75%, 7/01/20 .............................. 960,000 1,045,632
Sacred Heart University, Refunding, Series C, 6.50%, 7/01/16 ............................ 1,000,000 1,091,960
Sacred Heart University, Series C, 6.625%, 7/01/26 ...................................... 7,000,000 7,651,910
Sacred Heart University, Series D, 6.20%, 7/01/27 ....................................... 1,700,000 1,794,537
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 ................................ 4,615,000 4,755,158
St. Mary's Hospital, Refunding, Series E, 5.875%, 7/01/22 ............................... 3,510,000 3,724,882
St. Mary's Hospital, Series C, Pre-Refunded, 7.375%, 7/01/20 ............................ 1,000,000 1,083,560
Taft School, Series A, Pre-Refunded, 7.375%, 7/01/20 .................................... 1,000,000 1,082,630
Taft School, Series C, Pre-Refunded, 6.00%, 7/01/16 ..................................... 2,500,000 2,689,550
Taft School, Series C, Asset Guarantee, Pre-Refunded, 5.75%, 7/01/26 .................... 3,325,000 3,559,645
Connecticut State Health and Educational Facilities Authority Revenue, (cont.)
Trinity College, Series E, MBIA Insured, 5.875%, 7/01/26 ................................ $ 2,200,000 $ 2,392,038
Veterans Memorial Medical Center, Series A, MBIA Insured, 5.50%, 7/01/26 ................ 4,210,000 4,361,644
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/20 ........................... 8,000,000 8,388,960
Yale New Haven Hospital, Refunding, Series H, MBIA Insured, 5.70%, 7/01/25 .............. 4,500,000 4,799,520
Yale New Haven Hospital, Series F, MBIA Insured, Pre-Refunded, 7.10%, 7/01/25 ........... 7,000,000 7,551,250
Connecticut State Resource Recovery Authority Revenue, American Refunding, Series A,
7.70%, 11/15/01 ......................................................................... 200,000 207,566
8.10%, 11/15/15 ......................................................................... 200,000 207,696
Connecticut State Resource Recovery Authority Revenue,
Bridgeport Resco, Ltd. Partnership Project, Series A, 7.625%, 1/01/09 ................... 835,000 857,963
Wallingford Recovery Project, Series A, 7.125%, 11/15/08 ................................ 205,000 208,454
East Haven Connecticut, Utah Bank Qualified GO, 7.00%, 9/15/07 .......................... 200,000 209,872
Eastern Connecticut Resource Recovery Authority, Solid Waste Revenue,
Wheelabrator Lisbon Project, Series A, 5.50%, 1/01/15 .................................. 8,000,000 8,067,280
Griswold GO, AMBAC Insured, 7.50%, 4/01/06 .............................................. 200,000 243,608
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ......................................................................... 250,000 275,293
6.70%, 10/01/23 ......................................................................... 1,300,000 1,422,486
Guam Power Authority Revenue, Series A, 6.75%, 10/01/24 ................................. 5,500,000 6,114,020
New Haven GO, Series A, Pre-Refunded, 7.40%, 3/01/12 .................................... 4,545,000 5,152,212
Plainfield GO,
Series 1988, 7.30%, 9/01/10 ............................................................. 150,000 165,830
Series 1991, 7.25%, 9/01/05 ............................................................. 335,000 369,485
Series 1991, 7.30%, 9/01/07 ............................................................. 335,000 369,753
Series 1991, 7.30%, 9/01/09 ............................................................. 335,000 370,353
Puerto Rico Electric Power Authority, Power Revenue,
Series P, Pre-Refunded, 7.00%, 7/01/21 .................................................. 2,450,000 2,711,293
Series T, Pre-Refunded, 6.375%, 7/01/24 ................................................. 5,000,000 5,690,900
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ......... 775,000 825,662
Puerto Rico Municipal Finance Agency, Series A, 6.50%, 7/01/19 .......................... 5,000,000 5,608,900
Stratford GO, Unlimited Tax, Pre-Refunded, 7.30%, 3/01/12 ............................... 1,130,000 1,244,706
Virgin Islands Public Finance Authority Revenue,
Senior Lien Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/13 ....................... 2,500,000 2,573,325
Senior Lien Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 ....................... 2,500,000 2,535,150
Virgin Islands Water and Power Authority, Electric System Revenue,
Refunding, 5.30%, 7/01/18 ............................................................. 1,500,000 1,516,980
Refunding, 5.30%, 7/01/21 ............................................................. 1,000,000 1,009,560
Series A, Pre-Refunded, 7.40%, 7/01/11 ................................................ 6,065,000 6,724,326
Waterbury GO, Pre-Refunded,
7.25%, 3/01/03 .......................................................................... 785,000 863,759
7.25%, 3/01/04 .......................................................................... 785,000 863,759
7.50%, 3/01/07 .......................................................................... 780,000 862,859
-------------
Total Long Term Investments (Cost $211,394,523) ........................................ 227,456,226
-------------
a Short Term Investments 1.9%
Connecticut State Development Authority, Connecticut Light and Power Co.,
Project A, PCR, Refunding, Weekly VRDN and Put,
3.50%, 9/01/28 ......................................................................... 2,500,000 2,500,000
Puerto Rico Commonwealth Government Development Bank,
Refunding, MBIA Insured, Weekly VRDN and Put, 2.28%, 12/01/15 .......................... 400,000 400,000
Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue, Series A, AMBAC Insured, Weekly VRDN
and Put, 2.75%, 7/01/28 ................................................................ 1,700,000 1,700,000
-------------
Total Short Term Investments (Cost $4,600,000) ......................................... 4,600,000
-------------
Total Investments (Cost $215,994,523) 99.4% ............................................ 232,056,226
Other Assets, less Liabilities .6% ..................................................... 1,325,244
-------------
Net Assets 100.0%....................................................................... $233,381,470
=============
</TABLE>
See glossary of terms on page 137.
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
Franklin Indiana Tax-Free Income Fund
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1998 Year Ended February 28,
<S> <C> <C> <C> <C> <C> <C>
(unaudited) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $12.07 $11.77 $11.76 $11.40 $12.01 $11.90
--------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .31 .65 .66 .67 .66 .68
Net realized and unrealized gains (losses) ............. .07 .32 .01 .35 (.61) .11
--------------------------------------------------------------
Total from investment operations ........................ .38 .97 .67 1.02 .05 .79
--------------------------------------------------------------
Less distributions from:
Net investment income .................................. (.32) (.65) (.66) (.66) (.66) (.68)
Net realized gains ..................................... (.02) (.02) -- -- -- --
--------------------------------------------------------------
Total distributions ..................................... (.34) (.67) (.66) (.66) (.66) (.68)
--------------------------------------------------------------
Net asset value, end of period .......................... $12.11 $12.07 $11.77 $11.76 $11.40 $12.01
--------------------------------------------------------------
Total return* ........................................... 3.14% 8.52% 5.91% 9.20% .58% 6.53%
==============================================================
Ratios/supplemental data
Net assets, end of period (000's) ....................... $57,790 $54,643 $51,137 $48,949 $46,583 $47,870
Ratios to average net assets:
Expenses ............................................... .84%** .82% .82% .80% .81% .71%
Net investment income .................................. 5.20%** 5.45% 5.69% 5.80% 5.84% 5.62%
Portfolio turnover rate ................................. 13.05% 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.
**Annualized.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Indiana Tax-Free Income Fund AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
a Long Term Investments 98.9%
Beech Grove EDR, Westvaco Corp., 8.75%, 7/01/10 ......................................... $ 50,000 $ 50,807
Carmel EDR, Refunding, Cool Creek Association, 6.50%, 9/01/15 ........................... 1,000,000 1,069,970
Clarke County Hospital Association, First Mortgage, Refunding,
MBIA Insured, Pre-Refunded, 7.50%, 9/01/07 ............................................. 250,000 259,813
Cloverdale Indiana Multi-School Building Corp. First Mortgage,
MBIA Insured, 5.35%, 1/15/23 ........................................................... 1,200,000 1,224,516
Crown Point Redevelopment District, Lake County Tax Increment,
8.10%, 2/01/07 ......................................................................... 50,000 50,160
Duneland School Building Corp., First Mortgage, MBIA Insured,
5.50%, 8/01/17 .......................................................................... 1,000,000 1,049,020
Eastern Hancock Middle School Building Corp.,
Indianapolis First Mortgage, Refunding, 6.00%, 1/15/21 .................................. 1,000,000 1,056,910
Elkhart County, Hospital Authority Revenue,
Goshen Hospital Association Inc., Project, 7.35%, 7/01/12 .............................. 1,750,000 1,900,010
Elwood Middle School Building Corp., First Mortgage, Refunding, 7.30%, 1/01/08 .......... 500,000 539,815
Fort Wayne Hospital Authority Revenue, Parkview Memorial Hospital Project,
Series A, FGIC Insured, 6.50%, 11/15/12 ................................................ 1,000,000 1,047,160
Hammond Industrial Sewer and Solid Waste Disposal Revenue,
American Maize-Products Co. Project, Series A, 8.00%, 12/01/24 ......................... 3,000,000 3,546,240
Hammond Multi-School Building Corp., First Mortgage,
Refunding, Series A, 6.20%, 7/10/15 ..................................................... 1,500,000 1,599,180
Hammond PCR, Stauffer Chemical Project, Guaranteed Imperial,
8.00%, 11/01/12 ........................................................................ 300,000 323,130
Indiana Bond Bank, Special Program,
Series A, 8.375%, 2/01/18 ............................................................... 130,000 132,410
Series A, 7.50%, 2/01/20 ................................................................ 250,000 266,248
Series B, 6.20%, 2/01/23 ................................................................ 3,500,000 3,798,760
Series C, 8.00%, 8/01/11 ................................................................ 20,000 20,291
Indiana Health Facility Financing Authority, Hospital Revenue,
Hancock Memorial Hospital Health Services, 6.125%, 8/15/17 .............................. 2,000,000 2,134,220
Jackson County Schneck Memorial Hospital, 5.25%, 2/15/22 ................................ 1,200,000 1,185,612
Jackson County Schneck Memorial Hospital, Pre-Refunded, 7.50%, 2/15/22 .................. 1,835,000 2,077,110
Methodist Hospital, Inc., 6.75%, 9/15/09 ................................................ 1,280,000 1,393,626
St. Anthony's Medical Center/Home Inc., Series A, 7.00%, 10/01/17 ....................... 1,000,000 1,088,710
Indiana Health Facility Financing Authority Revenue, 5.625%, 5/15/28 .................... 1,750,000 1,736,105
Indiana State Development Financing Authority Environmental Revenue,
6.25%, 7/15/30 .......................................................................... 2,000,000 2,161,500
Indiana State Educational Facilities Authority Revenue,
Anderson University Project, 8.40%, 10/01/08 ............................................ 175,000 179,044
Butler University Project No. 2, Series B, FGIC Insured, Pre-Refunded, 8.00%, 11/01/09 .. 175,000 179,739
Valparaiso University Project, MBIA Insured, Pre-Refunded, 7.80%, 10/01/08 .............. 100,000 102,326
Indiana State HFA, SFMR,
6.10%, 7/01/22 .......................................................................... 1,000,000 1,072,860
Series A, GNMA Secured, 8.125%, 7/01/06 ................................................. 35,000 36,480
Series F-2, GNMA Secured, 7.75%, 7/01/22 ................................................ 405,000 428,462
Indiana State Office Building Commission, Correctional Facilities Program
Revenue, Pre-Refunded, 6.375%, 7/01/16 ................................................. 1,000,000 1,093,280
Indianapolis Airport Authority, Indianapolis International Airport Revenue,
6.50%, 11/15/31 ........................................................................ 1,460,000 1,588,217
b Indianapolis Industry Gas Utility Revenue, Refunding, Distribution System,
Series A, AMBAC Insured, 5.00%, 8/15/24 ................................................. 1,000,000 982,850
Indianapolis Local Public Improvement Bond Bank, Refunding, Series D,
6.75%, 2/01/20 .......................................................................... 2,300,000 2,547,526
6.50%, 2/01/22 .......................................................................... 2,540,000 2,545,512
Jasper County EDR, Georgia-Pacific Corp. Project, 5.625%, 12/01/27 ...................... 1,000,000 1,010,280
Jasper County PCR, Refunding, Collateralized, Northern Indiana
Public Service Co., MBIA Insured, 7.10%, 7/01/17 ....................................... 500,000 543,770
Lake Central Industrial Multi-School Building, First Mortgage,
MBIA Insured, 6.50%, 1/15/14 ........................................................... 2,100,000 2,300,046
Madison County Authority, Anderson Hospital Revenue, Refunding,
Series A, BIG Insured, 8.00%, 1/01/14 .................................................. 95,000 97,138
Marion County Convention and Recreational Facilities Authority,
Excise Tax Revenue, Lease Rental, Series A, AMBAC Insured,
7.00%, 6/01/21 ......................................................................... 250,000 271,725
Marion County Indiana Convention and Recreational Facilities Authority,
Excise Tax Revenue, Subordinated Lien Lease Rental, Series A,
MBIA Insured, 5.00%, 6/01/27 ........................................................... 2,000,000 1,975,800
Monroe County Indiana MFR, Housing-GNMA Collateral, Country View,
Series A, GNMA Insured, 5.75%, 4/01/33 .................................................. 1,100,000 1,115,730
Muncies Edit Building Corp., Industrial First Mortgage,
Series A, AMBAC Insured, 6.60%, 12/01/17 ............................................... 2,000,000 2,212,340
New Albany Floyd County Industry School Building Corporation,
First Mortgage, MBIA Insured, 5.375%, 1/15/18 .......................................... 1,500,000 1,548,435
New Prairie Unified School Building Corp., Revenue,
First Mortgage, Refunding, 5.80%, 7/05/11 ............................................... 1,520,000 1,638,879
Peru Community School Building Corp., First Mortgage,
Series 1989, Pre-Refunded, 7.80%, 1/01/11 ............................................... 100,000 103,349
Series 1988, Pre-Refunded, 7.90%, 7/01/08 ............................................... 150,000 155,072
PHM Multi-School Building Corp., First Mortgage, FSA Insured, 5.90%, 7/15/14 ............ 1,000,000 1,097,180
Princeton PCR, Refunding, Public Service Co. of Indiana Project,
Series C, MBIA Insured, 7.375%, 3/15/12 ................................................ 250,000 265,853
Rochester Indiana Community Multi-School Building Corp.,
First Mortgage, AMBAC Insured, 5.20%, 1/15/18 ........................................... 1,000,000 1,010,200
Steuben County Metropolitan School District, COP, 6.90%, 1/01/08 ........................ $ 500,000 $ 531,160
Sullivan Industrial PCR, Hoosier Energy, Meron Project, Refunding, 7.10%, 4/01/19 ....... 750,000 807,818
-------------
Total Long Term Investments (Cost $53,116,942) ......................................... 57,152,394
-------------
a Short Term Investments 1.9%
Indiana State Development Financing Authority Revenue,
Bayer Corp. Project, Refunding, Daily VRDN and Put, 3.30%, 3/01/09 ...................... 700,000 700,000
Princeton PCR, PSI Energy Inc. Project, Refunding, Daily VRDN and Put, 3.45%, 4/01/22 ... 400,000 400,000
-------------
Total Short Term Investments (Cost $1,100,000) ......................................... 1,100,000
-------------
Total Investments (Cost $54,216,942) 100.8% ............................................ 58,252,394
Other Assets, less Liabilities (.8%) ................................................... (462,100)
-------------
Net Assets 100.0%....................................................................... $57,790,294
=============
</TABLE>
See glossary of terms on page 137.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Financial Highlights
Franklin Michigan Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
(unaudited) 1998 19971
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ................................................. $11.02 $10.42 $10.00
----------------------------------------
Income from investment operations:
Net investment income ............................................................... .27 .51 .30
Net realized and unrealized gains ................................................... .15 .67 .32
----------------------------------------
Total from investment operations ..................................................... .42 1.18 .62
----------------------------------------
Less distributions from:
Net investment income ............................................................... (.29) (.58) (.20)
Net realized gain ................................................................... (.02) -- --
----------------------------------------
Total distributions .................................................................. (.31) (.58) (.20)
----------------------------------------
Net asset value, end of period ....................................................... $11.13 $11.02 $10.42
========================================
Total return* ........................................................................ 3.89% 11.62% 6.17%
Ratios/supplemental data
Net assets, end of period (000's) .................................................... $13,019 $9,268 $3,884
Ratios to average net assets:
Expenses ............................................................................ .25%** .25% .34%**
Expenses excluding waiver and payments by affiliate ................................. .92%** 1.01% 1.21%**
Net investment income ............................................................... 5.11%** 5.39% 4.90%**
Portfolio turnover rate .............................................................. 12.26% 51.81% 42.83%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized.
**Annualized.
1For the period July 1, 1996 (effective date) to February 28, 1997.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Michigan Tax-Free Income Fund AMOUNT VALUE
a Long Term Investments 96.1%
<S> <C> <C>
Avondale School District, AMBAC Insured, 5.75%, 5/01/22 ................................. $ 150,000 $ 159,335
Caledonia Community Schools, MBIA Insured, 5.85%, 5/01/22 ............................... 100,000 107,289
Cedar Springs Public School District, MBIA Insured, Pre-Refunded, 5.875%, 5/01/19 ....... 250,000 275,850
Chippewa County Hospital Financing Authority Revenue, Chippewa
County War Memorial, Refunding, Series B, 5.625%, 11/01/14 .............................. 650,000 667,024
Dearborn EDC Hospital Revenue, Oakwood Obligation Group,
Series A, FGIC Insured, 5.75%, 11/15/15 ................................................. 100,000 106,914
Detroit Local Development Finance Authority, Refunding, Series A, 5.375%, 5/01/21 ....... 100,000 102,233
Detroit Sewage Disposal Revenue, Series A, MBIA Insured, 5.50%, 7/01/20 ................. 215,000 224,436
Detroit/Wayne County Stadium Authority, FGIC Insured, 5.25%, 2/01/27 .................... 500,000 506,380
Farmington Hills EDC Revenue, Botsford Continuing Care,
Series A, MBIA Insured, 5.75%, 2/15/25 .................................................. 100,000 105,467
Ferris State University Revenue, AMBAC Insured, Pre-Refunded, 5.90%, 10/01/26 ........... 240,000 269,880
Gogebic-Iron Wastewater Authority, Wastewater Treatment System
Revenue, Refunding, MBIA Insured, 6.05%, 1/01/25 ....................................... 500,000 534,000
Greenville Public School Building, GO, MBIA Insured, Pre-Refunded, 5.75%, 5/01/19 ....... 160,000 174,902
Grosse Ile Township School District, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 ......... 150,000 168,845
Huron Valley School District, FGIC Insured,
5.875%, 5/01/16 ......................................................................... 100,000 107,831
5.75%, 5/01/22 .......................................................................... 100,000 106,223
Jenison Public Schools, Refunding, FGIC Insured, 5.75%, 5/01/16 ......................... 130,000 139,039
Kalamazoo Downtown Development, Refunding, 5.35%, 4/01/18 ............................... 200,000 204,198
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue, Bronson Methodist,
Refunding, MBIA Insured, 5.25%, 5/15/18 ................................................. 250,000 254,800
Refunding and Improvement, MBIA Insured, 5.875%, 5/15/26 ................................ 225,000 239,789
Kenowa Hills Public Schools, MBIA Insured, 5.875%, 5/01/21 .............................. 275,000 293,563
b Kent County Building Authority, GO, 5.00%, 6/01/26 ...................................... 600,000 590,220
Lakeview Community Schools, FGIC Insured, 5.75%, 5/01/16 ................................ 100,000 106,953
Lincoln Consolidated School District, Refunding, FGIC Insured, 5.85%, 5/01/21 ........... 140,000 149,227
Lincoln Park School District, GO, Refunding, FGIC Insured, 5.00%, 5/01/26 ............... 400,000 397,600
Michigan Higher Education Facilities Authority Revenue,
Limited Obligation, Calvin College Project, 5.55%, 6/01/17 ............................. 840,000 849,408
Michigan Municipal Bond Authority Revenue,
Local Government Loan Program, 5.20%, 11/01/19 .......................................... 330,000 327,881
Michigan State HDA,
Rental Housing Revenue, Series A, AMBAC Insured, 6.00%, 4/01/16 ......................... 200,000 214,228
SFMR, Refunding, Series B, 6.20%, 6/01/27 ............................................... 100,000 106,771
SFMR, Refunding, Series E, 6.20%, 12/01/27 .............................................. 350,000 372,628
SFMR, Series D, 5.95%, 12/01/16 ......................................................... 250,000 267,388
Michigan State Hospital Finance Authority Revenue,
Mercy Health Services, Series U, 5.75%, 8/15/26 ......................................... 300,000 316,884
Presbyterian Villages Obligation, 6.375%, 1/01/15 ....................................... 225,000 243,655
Presbyterian Villages Obligation, 6.375%, 1/01/25 ....................................... 1,250,000 1,343,350
Sparrow Obligation Group, MBIA Insured, 5.90%, 11/15/26 ................................. 100,000 107,362
Michigan State Strategic Fund, Limited Obligation Revenue,
Hope Network Project, Refunding, Series B, 5.125%, 9/01/13 .............................. 600,000 602,670
Worthington Armstrong Venture, 5.75%, 10/01/22 .......................................... 350,000 373,247
Michigan State Trunk Line, Refunding, Series A, MBIA Insured, 5.00%, 11/01/26 ........... 500,000 498,465
Ottawa County, GO, Holland Township Water Supply, Refunding, 5.15%, 8/01/18 ............. 280,000 283,021
Wayne Charter County Airport Revenue, Detroit Metro Airport,
Series A, MBIA Insured, 5.25%, 12/01/18 ................................................ 500,000 506,270
Zeeland Public Schools, Refunding, Series B, MBIA Insured,
Pre-Refunded, 6.05%, 5/01/19 ........................................................... 100,000 111,614
------------
Total Long Term Investments (Cost $11,841,354) ......................................... 12,516,840
------------
a Short Term Investments 5.4%..............................................................
Cornell Township EDC, Environmental Improvement Revenue,
DATES, Mead Escanaba Paper Co., Daily VRDN and Put, 3.25%, 11/01/16 ..................... $ 295,000 $ 295,000
Midland County EDC, Limited Obligation Revenue,
Dow Chemical Co. Project, Refunding, Series B, Daily VRDN and Put, 3.30%, 12/01/15 ...... 200,000 200,000
University of Michigan Hospital Revenue, Refunding,
Series A, Daily VRDN and Put, 3.30%, 12/01/19 ........................................... 200,000 200,000
------------
Total Short Term Investments (Cost $695,000) ........................................... 695,000
------------
Total Investments (Cost $12,536,354) 101.5% ............................................ 13,211,840
Other Assets, less Liabilities (1.5%) .................................................. (193,056)
------------
Net Assets 100.0% ...................................................................... $13,018,784
============
</TABLE>
See glossary of terms on page 137.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Financial Highlights
Franklin New Jersey Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.92 $11.61 $11.68 $11.28 $11.82 $11.85
----------------------------------------------------------
Income from investment operations:
Net investment income .................................. .30 .63 .64 .65 .66 .67
Net realized and unrealized gains (losses) ............. .09 .32 (.06) .39 (.55) (.02)
----------------------------------------------------------
Total from investment operations ........................ .39 .95 .58 1.04 .11 .65
----------------------------------------------------------
Less distributions from net investment income ........... (.31) (.64) (.65) (.64) (.65) (.68)
----------------------------------------------------------
Net asset value, end of period .......................... $12.00 $11.92 $11.61 $11.68 $11.28 $11.82
==========================================================
Total return* ........................................... 3.35% 8.37% 5.13% 9.43% 1.12% 5.39%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $666,113 $636,929 $574,691 $564,864 $533,937 $561,130
Ratios to average net assets:
Expenses ............................................... .66%** .66% .64% .65% .63% .57%
Net investment income .................................. 5.12%** 5.34% 5.58% 5.65% 5.86% 5.60%
Portfolio turnover rate ................................. 4.05% 12.77% 8.87% 12.04% 31.05% 4.16%
Class II
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.98 $11.66 $11.72 $11.30
-------------------------------------
Income from investment operations:
Net investment income .................................. .27 .56 .57 .49
Net realized and unrealized gains (losses) ............. .09 .33 (.05) .40
-------------------------------------
Total from investment operations ........................ .36 .89 .52 .89
-------------------------------------
Less distributions from net investment income ........... (.28) (.57) (.58) (.47)
-------------------------------------
Net asset value, end of period .......................... $12.06 $11.98 $11.66 $11.72
=====================================
Total return* ........................................... 3.05% 7.84% 4.57% 8.02%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $38,370 $28,139 $13,095 $4,542
Ratios to average net assets:
Expenses ............................................... 1.22%** 1.21% 1.21% 1.23%**
Net investment income .................................. 4.54%** 4.77% 5.01% 5.15%**
Portfolio turnover rate ................................. 4.05% 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.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin New Jersey Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 97.5%
Bonds 97.5%
Aberdeen Township, Refunding, FGIC Insured, 5.70%, 2/01/22 .............................. $ 4,100,000 $ 4,395,897
Allamuchy Town Board of Education, COP, MBIA Insured, 6.00%, 11/01/14 ................... 1,000,000 1,097,910
Atlantic City Municipal Utilities Authority Revenue,
Water System, Pre-Refunded, 7.75%, 5/01/17 .............................................. 2,000,000 2,167,840
Atlantic County Improvement Authority, Luxury Tax Revenue,
Convention Center Project, ETM, MBIA Insured, Pre-Refunded,
7.40%, 7/01/16 ......................................................................... 9,500,000 12,274,475
Atlantic County Utilities Authority, Solid Waste Revenue,
7.00%, 3/01/08 .......................................................................... 2,000,000 2,041,880
7.125%, 3/01/16 ......................................................................... 6,600,000 6,760,512
Bedminster Township Board of Education, COP, Pre-Refunded, 7.125%, 9/01/10 .............. 2,000,000 2,194,760
Bergen County Utility Authority, Solid Waste System Revenue,
Series A, FGIC Insured, 6.25%, 6/15/11 .................................................. 1,325,000 1,440,673
Camden County Improvement Authority, Health System Revenue,
Catholic Health East, Series B, AMBAC Insured, 5.00%, 11/15/28 ........................ 8,850,000 8,794,688
Camden County, Municipal Utilities Authority, Sewer Revenue, Refunding, FGIC Insured,
5.20%, 7/15/15 .......................................................................... 5,000,000 5,146,150
5.25%, 7/15/16 .......................................................................... 2,005,000 2,063,466
5.125%, 7/15/17 ......................................................................... 4,560,000 4,626,257
5.25%, 7/15/17 .......................................................................... 2,425,000 2,491,591
Cape May County, IPC, Financing Authority Revenue, Refunding,
Atlantic City Electric Co., Series A, MBIA Insured, 6.80%, 3/01/21 ...................... 5,400,000 6,858,378
Carteret Board of Education, COP, MBIA Insured, 6.25%, 4/15/19 .......................... 2,750,000 3,026,348
Church Street Corp., Keansburg Elderly Housing Mortgage Revenue,
Refunding, 5.625%, 3/01/11 ............................................................. 1,890,000 1,969,059
City of Orange Township New Jersey, Municipal Utility and Lease-C,
Refunding, MBIA Insured, 5.10%, 12/01/17 ............................................... 3,035,000 3,065,836
Delaware River and Bay Authority Revenue, FGIC Insured, 5.25%, 1/01/26 .................. 10,200,000 10,433,274
Delaware River Port Authority,
Pennsylvania and New Jersey Delaware River Bridges Revenue,
Refunding, AMBAC Insured, Pre-Refunded, 7.375%, 1/01/07 ................................ 1,000,000 1,032,290
Pennsylvania and New Jersey Revenue, Series 1995, FGIC Insured, 5.50%, 1/01/26 .......... 24,000,000 25,231,200
Essex County Improvement Authority,
GO, Lease Revenue, MBIA Insured, Pre-Refunded, 6.00%, 12/01/17 .......................... 2,510,000 2,759,896
Utilities System Revenue, Orange Franchise, Series A, MBIA Insured, 5.375%, 7/01/18 ..... 1,400,000 1,446,858
Evesham Municipal Utilities Authority Revenue, Series B, MBIA Insured, 7.00%, 7/01/10 ... 3,000,000 3,163,950
Freehold Township Board of Education, FSA Insured, 5.40%, 7/15/28 ....................... 1,080,000 1,112,130
Gloucester County Improvement Authority Revenue,
Justice Complex Lease Project, Pre-Refunded, 7.50%, 12/15/10 ............................ 1,000,000 1,059,000
Solid Waste Resource Recovery, SES Gloucester Co.,
Limited Partnership Project, Series B, 8.375%, 7/01/10 ................................. 275,000 276,031
Hamilton Township Board of Education, COP, Series B,
FSA Insured, 7.00%, 12/15/15 ........................................................... 4,670,000 5,096,791
Highland Park School District, Refunding, MBIA Insured, 5.125%, 2/15/25 ................. 7,120,000 7,196,896
Howell Township, GO, Refunding, FGIC Insured, 6.80%, 1/01/14 ............................ 1,750,000 1,924,300
Hudson County COP, Correctional Facility, BIG Insured,
Pre-Refunded, 7.60%, 12/01/21 ........................................................... 2,550,000 2,626,322
Hudson County Improvement Authorities Facilities Lease Revenue,
Hudson County Lease Project, FGIC Insured, 6.00%, 12/01/25 ............................. 2,000,000 2,128,480
Mercer County Improvement Authority Revenue, Library Systems,
Series A, Pre-Refunded, 6.00%, 12/01/14 ................................................. 2,500,000 2,774,875
Middlesex County Improvement Authority Revenue,
Guaranteed Educational Services, Commission Project, 6.00%, 9/15/14 .................... 2,000,000 2,184,180
Middlesex County New Jersey, COP, MBIA Insured, 5.30%, 6/15/29 .......................... 5,000,000 5,136,450
Middlesex County Utilities Authority, Sewer Revenue, Refunding, Series A, FGIC Insured,
5.375%, 9/15/15 ......................................................................... 2,100,000 2,179,821
5.125%, 12/01/16 ........................................................................ 9,000,000 9,172,800
Middlesex County, COP, MBIA Insured,
6.00%, 8/15/14 .......................................................................... 1,500,000 1,625,460
6.125%, 2/15/19 ......................................................................... 2,300,000 2,487,588
Middletown Township, Board of Education, MBIA Insured, 5.85%,
8/01/24 ................................................................................. 4,295,000 4,625,114
8/01/25 ................................................................................. 4,300,000 4,630,498
Mount Olive Township, Board of Education, FGIC Insured, 5.25%,
1/15/22 ................................................................................. 2,550,000 2,599,980
1/15/23 ................................................................................. 2,690,000 2,740,868
New Jersey EDA,
Auto Parking Revenue, Elizabeth Development Co., FGIC Insured, 5.60%, 10/15/26 .......... 2,000,000 2,120,540
Calvary Temple, Series N, 6.90%, 12/01/11 ............................................... 3,710,000 4,012,922
Heating and Cooling Revenue, Trigen-Trenton Project, Series A, 6.20%, 12/01/10 .......... 6,370,000 6,734,109
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.10%, 12/01/04 .......... 3,375,000 3,555,090
New Jersey EDA, (cont.)
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.20%, 12/01/07 .......... $ 2,720,000 $ 2,883,880
Hillcrest Health Services System Project, Refunding, AMBAC Insured, 5.375%, 1/01/16 ..... 2,500,000 2,591,100
Jersey Central Power and Light, 7.10%, 7/01/15 .......................................... 550,000 603,312
Market Transition Facilities Revenue, Senior Lien, Series A,
MBIA Insured, 5.875%, 7/01/11 ........................................................... 3,000,000 3,292,800
Middlesex Water Co. Project, Water Facilities Revenue, 7.25%, 7/01/21 ................... 6,000,000 6,527,100
Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project,
Series A, AMBAC Insured, 6.25%, 8/01/24 ................................................ 8,200,000 8,976,868
Oak Hill, Series P, 6.90%, 12/01/11 ..................................................... 415,000 448,885
School Revenue, Blair Academy, 1995 Project, Series A, 5.85%, 9/01/16 ................... 1,640,000 1,710,618
St. Barnabas Project, Series A, MBIA Insured, 5.375%, 7/01/27 ........................... 4,375,000 4,514,256
State Lease Revenue Refunding, Liberty State Park Lease Rental,
AMBAC Insured, 5.75%, 3/15/20 ........................................................... 4,605,000 4,962,026
State Lease Revenue Refunding, Liberty State Park Lease Rental,
AMBAC Insured, 5.75%, 3/15/22 ........................................................... 3,315,000 3,556,233
Terminal GATX Corp. Project, 6.65%, 9/01/22 ............................................. 7,440,000 8,063,695
Water Facilities Revenue Refunding, Hackensack Water Co. Project,
Series A, MBIA Insured, 5.80%, 3/01/24 ................................................. 1,000,000 1,061,680
Young Men's Christian Association, Series M, Pre-Refunded, 7.90%, 12/01/08 .............. 320,000 330,979
New Jersey Health Care Facilities, Financing Authority Revenue,
Atlantic City Medical Center, Series C, 6.80%, 7/01/11 .................................. 2,500,000 2,743,000
Atlantic Health Systems, Series A, 5.00%, 7/01/27 ....................................... 5,500,000 5,527,060
Berkeley Heights Convalescent Hospital, AMBAC Insured, 5.00%, 7/01/26 ................... 6,000,000 6,004,200
Beth Israel Hospital Association Passaic, 7.80%, 7/01/04 ................................ 2,720,000 2,834,757
Beth Israel Hospital Association Passaic, Refunding, 7.875%, 7/01/07 .................... 1,000,000 1,042,790
Cathedral Health Services, Refunding, MBIA Insured, 5.25%, 8/01/21 ...................... 5,000,000 5,090,050
Cathedral Health Services, Series A, FHA Insured, Pre-Refunded, 7.25%, 2/15/10 .......... 9,330,000 10,253,110
Cathedral Health Services, Series A, FHA Insured, Pre-Refunded, 7.25%, 2/15/21 .......... 2,020,000 2,219,859
Christian Health Care Center, Refunding, Series A, 5.50%, 7/01/18 ....................... 1,200,000 1,211,604
Clara Maas Medical Center, Series B, Pre-Refunded, 7.30%, 7/01/09 ....................... 1,000,000 1,050,360
Clara Maas Medical Center, Series B, Pre-Refunded, 7.25%, 7/01/19 ....................... 2,435,000 2,556,628
East Orange General Hospital, Series B, 7.75%, 7/01/20 .................................. 5,445,000 5,801,430
Elizabeth General Medical Center, Series C, 7.375%, 7/01/15 ............................. 4,890,000 5,228,241
Franciscan St. Mary's Hospital, 5.875%, 7/01/12 ......................................... 5,150,000 5,341,220
Hackensack Medical Center, FGIC Insured, Pre-Refunded, 6.25%, 7/01/21 ................... 2,400,000 2,558,088
Hackensack University Medical Center, Refunding, Series B,
MBIA Insured, 5.20%, 1/01/28 ............................................................ 3,000,000 3,186,330
Holy Name Hospital, 6.00%, 7/01/25 ...................................................... 4,380,000 4,496,201
Holy Name Hospital, AMBAC Insured, 5.25%, 7/01/20 ....................................... 2,000,000 2,153,980
Holy Name Hospital, Series B, AMBAC Insured, Pre-Refunded, 7.00%, 7/01/08 ............... 2,500,000 2,627,250
Jersey Shore Medical Center, Refunding, AMBAC Insured, 5.875%, 7/01/24 .................. 5,000,000 5,280,200
John F. Kennedy Health Systems, Obligation Group Revenue,
FGIC Insured, 5.70%, 7/01/25 ........................................................... 4,900,000 5,384,022
John F. Kennedy Medical Center/Hartwyck, Refunding, MBIA Insured, 5.00%, 7/01/25 ........ 7,855,000 7,842,903
Medical Center at Princeton Obligation Group, AMBAC Insured, 5.00%, 7/01/28 ............. 7,000,000 7,036,820
Monmouth Medical Center, Series C, FSA Insured, 6.25%, 7/01/16 .......................... 8,250,000 9,016,095
Monmouth Medical Center, Series C, FSA Insured, 6.25%, 7/01/24 .......................... 1,800,000 1,888,092
Morristown Memorial Hospital, Series C, Pre-Refunded, 7.125%, 7/01/08 ................... 125,000 129,430
New Jersey Geriatric Center of Workmen's Circle, Inc., Series A,
FHA Mortgage Insured, 8.00%, 2/01/28 ................................................... 2,590,000 2,743,794
Newcomb Medical Center, Series A, 7.875%, 7/01/03 ....................................... 3,565,000 3,805,174
Pascack Valley Hospital, 6.90%, 7/01/21 ................................................. 10,000,000 10,723,500
Riverview Medical Center, 5.875%, 7/01/16 ............................................... 1,500,000 1,569,675
Shoreline Behavioral Health, MBIA Insured, Pre-Refunded, 5.50%, 7/01/27 ................. 2,000,000 2,001,520
Southern Ocean County Hospital, FSA Insured, 5.00%, 7/01/27 ............................. 2,050,000 2,189,421
St. Joseph's Hospital and Medical Center, Revenue Refunding, 5.75%, 7/01/16 ............. 1,000,000 1,088,510
St. Joseph's Hospital and Medical Center, Revenue Refunding, 6.00%, 7/01/26 ............. 1,720,000 1,826,416
Wayne General Hospital, Series B, FHA Insured, 5.75%, 8/01/11 ........................... 1,000,000 1,065,960
Wayne General Hospital, Series B, FHA Insured, 5.875%, 8/01/18 .......................... 5,000,000 5,075,500
Zurbrugg Memorial Hospital, Series C, 8.50%, 7/01/12 .................................... 475,000 473,342
New Jersey State Building Authority Revenue, Refunding, 5.00%, 6/15/15 .................. 5,000,000 5,087,250
New Jersey State Educational Facilities Authority Revenue,
Institute of Technology, Series A, MBIA Insured, 6.00%, 7/01/15 ......................... 4,000,000 4,359,560
Jersey State College, Series D, MBIA Insured, 6.125%, 7/01/22 ........................... 2,000,000 2,146,700
New Jersey Institute of Technology Revenue, Refunding,
Series A, MBIA Insured, 6.00%, 7/01/24 ................................................. 1,455,000 1,579,533
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 $ 2,576,875
Princeton University, Series A, 5.875%, 7/01/18 ......................................... 2,000,000 2,117,400
Princeton University, Series C, 5.25%, 7/01/25 .......................................... 2,760,000 2,805,678
Rider College, Series D, AMBAC Insured, 6.20%, 7/01/17 .................................. 3,000,000 3,236,700
Rowan College, Series E, AMBAC Insured, 6.00%, 7/01/26 .................................. 9,810,000 10,684,463
Seton Hall University Project, Refunding, Series E, MBIA Insured,
5.60%, 7/01/16 .......................................................................... 1,765,000 1,877,784
Seton Hall University Project, Series C, BIG Insured, 6.85%, 7/01/19 .................... 445,000 465,977
Seton Hall University Project, Series C, BIG Insured, Pre-Refunded,
6.85%, 7/01/19 ......................................................................... 555,000 581,163
Seton Hall University Project, Series D, 7.00%, 7/01/21 ................................. 4,400,000 4,692,248
St. Peters College, Series B, 5.50%, 7/01/27 ............................................ 2,000,000 2,032,900
Stevens Institute Technology, Series I, 5.00%, 7/01/18 .................................. 1,100,000 1,089,011
Stevens Institute Technology, Series I, 5.00%, 7/01/28 .................................. 1,575,000 1,543,784
Trenton State College, Series A, MBIA Insured, 5.10%, 7/01/21 ........................... 3,600,000 3,630,204
Trenton State College, Series B, AMBAC Insured, 6.125%, 7/01/19 ......................... 4,780,000 5,152,219
Trenton State College, Series B, AMBAC Insured, 6.125%, 7/01/24 ......................... 7,845,000 8,455,890
New Jersey State Highway Authority, Garden State Parkway,
Senior Parkway Revenue,
6.20%, 1/01/10 .......................................................................... 5,000,000 5,810,300
6.25%, 1/01/14 .......................................................................... 2,500,000 2,673,525
6.00%, 1/01/16 .......................................................................... 2,900,000 3,020,118
New Jersey State Housing and Mortgage Finance Agency,
Home Buyer Revenue, Series B, MBIA Insured, 7.90%, 10/01/22 ............................. 550,000 574,035
Home Buyer Revenue, Series D, MBIA Insured, 7.70%, 10/01/29 ............................. 3,015,000 3,128,243
Home Buyer Revenue, Series J, MBIA Insured, 6.20%, 10/01/25 ............................. 4,980,000 5,294,786
Home Buyer Revenue, Series N, MBIA Insured, 6.35%, 10/01/27 ............................. 4,000,000 4,301,160
Home Buyer Revenue, Series U, MBIA Insured, 5.85%, 4/01/29 .............................. 12,000,000 12,660,360
Home Mortgage Purchase Revenue, Series A, MBIA Insured, 7.875%, 10/01/17 ................ 40,000 40,858
MFHR, Montclarion Project, Series J, FHA Insured, 7.70%, 11/01/29 ....................... 2,175,000 2,281,314
MFHR, Refunding, Series A, AMBAC Insured, 6.00%, 11/01/14 ............................... 5,000,000 5,365,800
MFHR, Refunding, Series A, AMBAC Insured, 6.05%, 11/01/20 ............................... 12,500,000 13,358,125
MFHR, Regency Park Project, Series H, 7.70%, 11/01/30 ................................... 450,000 464,396
MFHR, Series A, AMBAC Insured, 5.55%, 5/01/27 ........................................... 2,000,000 2,050,040
Section 8, Refunding, Series 1, 6.70%, 11/01/28 ......................................... 2,885,000 3,108,732
Section 8, Refunding, Series A, 6.95%, 11/01/13 ......................................... 12,400,000 13,384,064
New Jersey State Sports and Expo. Authority, State Contract,
Refunding, Series A, MBIA Insured, 6.25%, 7/01/20 ....................................... 6,800,000 7,305,920
Series A, MBIA Insured, 6.60%, 7/01/15 .................................................. 8,000,000 8,784,320
Newark Board of Education, MBIA Insured, 5.875%, 12/15/14 ............................... 3,250,000 3,544,873
North Brunswick Township, Board of Education, Refunding,
FGIC Insured, 5.00%, 2/01/15 ........................................................... 2,000,000 2,019,360
Northern Mariana Islands, Commonwealth Ports Authority,
Seaport Revenue, Series A, 6.40%, 3/15/28 .............................................. 2,000,000 1,983,680
Ocean Township Municipal Utilities Authority Revenue,
Refunding, MBIA Insured, 5.80%, 12/01/18 ............................................... 7,400,000 7,833,788
Piscataway Township School District, COP, MBIA Insured,
Pre-Refunded, 7.50%, 6/15/09 ........................................................... 1,000,000 1,031,190
Port Authority of New York and New Jersey, Consolidated,
67th Series, 6.875%, 1/01/25 ............................................................ 2,500,000 2,615,250
67th Series, AMBAC Insured, 6.875%, 1/01/25 ............................................. 750,000 783,878
71st Series, 6.50%, 1/15/26 ............................................................. 2,500,000 2,645,525
72nd Series, Pre-Refunded, 7.35%, 10/01/27 .............................................. 7,000,000 7,956,200
74th Series, 6.75%, 8/01/26 ............................................................. 1,000,000 1,076,290
84th Series, 6.00%, 1/15/28 ............................................................. 1,125,000 1,193,074
94th Series, 6.00%, 6/01/17 ............................................................. 5,000,000 5,388,050
94th Series, 6.00%, 12/01/16 ............................................................ 2,000,000 2,160,840
109th Series, FGIC Insured, 5.375%, 7/15/22 ............................................. 4,645,000 4,784,304
Delta Airlines, Inc., Special Project, Series 1R, 6.95%, 6/01/08 ........................ 5,000,000 5,489,250
Special Obligation Revenue, 4th Installment, Special Project, 6.75%, 10/01/11 ........... 2,500,000 2,801,700
Special Obligation Revenue, Consolidated, 102nd Series,
MBIA Insured, 5.75%, 10/15/23 ........................................................... 5,000,000 5,295,100
Special Obligation Revenue, John F. Kennedy International Air Terminal,
MBIA Insured, 5.75%, 12/01/22 ........................................................... 8,000,000 8,560,400
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 ............................... 3,000,000 3,422,640
Puerto Rico Commonwealth Highway Authority Revenue,
Series Q, Pre-Refunded, 8.00%, 7/01/18 ................................................. 8,000,000 8,771,040
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A,
7.90%, 7/01/07 .......................................................................... $ 120,000 $ 123,952
7.75%, 7/01/08 .......................................................................... 1,350,000 1,380,713
7.50%, 7/01/09 .......................................................................... 100,000 102,250
Puerto Rico Commonwealth Urban Renewal and Housing Corp.,
Commonwealth Appropriation, Refunding, 7.875%, 10/01/04 ................................ 1,000,000 1,057,620
Puerto Rico Electric Power Authority, Power Revenue,
Refunding, Series N, Pre-Refunded, 7.125%, 7/01/14 ...................................... 2,355,000 2,460,810
Series T, 6.00%, 7/01/16 ................................................................ 11,535,000 12,479,140
Series X, 6.125%, 7/01/21 ............................................................... 5,000,000 5,399,000
Series X, 6.00%, 7/01/15 ................................................................ 2,000,000 2,157,360
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-1, 7.50%, 4/01/22 .............................................. 4,185,000 4,383,829
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured,
Pre-Refunded, 7.75%, 12/01/26 .......................................................... 125,000 154,906
Puerto Rico HFC, SFMR, Portfolio No. 1,
Series A, GNMA Insured, 7.80%, 10/15/21 ................................................. 195,000 199,286
Series B, GNMA Secured, 7.65%, 10/15/22 ................................................. 820,000 867,166
Puerto Rico Industrial Medical and Environmental Pollution
Control Facilities Financing Authority Revenue, Baxter Travenol Labs, Inc.,
8.00%, 9/01/12 ......................................................................... 2,000,000 2,066,000
Rutgers State University, Series A, 6.50%, 5/01/18 ...................................... 4,250,000 4,581,883
Salem County IPC, Financing Authority Revenue, Public Services,
Electric and Gas Co., Refunding, Series D, MBIA Insured,
6.55%, 10/01/29 ........................................................................ 5,000,000 5,658,700
South Brunswick Township, Board of Education, Refunding,
Series AA, FGIC Insured, 5.50%, 8/01/24 ................................................. 1,720,000 1,796,230
Stony Brook Regional Sewerage Authority Revenue, Series A,
Pre-Refunded, 7.40%, 12/01/09 ........................................................... 1,000,000 1,065,910
Sussex County Municipal Utilities Authority, Solid Waste Revenue,
Series A, BIG Insured, Pre-Refunded, 7.875%, 12/01/13 .................................. 100,000 103,059
Union County Improvement Authority Revenue, Plainfield Board of Education,
FGIC Insured, 5.85%, 8/01/26 ........................................................... 5,000,000 5,413,300
Union County New Jersey Utilities Authority Solid Waste Revenue,
Subordinated Lease-Ogden Martin, Series A, AMBAC Insured,
5.35%, 6/01/23 ......................................................................... 3,000,000 3,060,090
University of Medicine and Dentistry Revenue,
Series A, MBIA Insured, 5.00%, 9/01/22 .................................................. 1,700,000 1,702,125
Series C, Pre-Refunded, 7.20%, 12/01/09 ................................................. 750,000 797,625
Series C, Pre-Refunded, 7.20%, 12/01/19 ................................................. 725,000 771,038
Warren Hills Regional School District, COP, BIG Insured, Pre-Refunded, 7.375%, 12/15/09 . 1,200,000 1,236,288
Virgin Islands Public Finance Authority Revenue, Senior Lien,
Fund Loan Notes, Refunding, Series A, 5.50%,
10/1/15 ................................................................................. 2,500,000 2,564,275
10/1/18.................................................................................. 3,045,000 3,095,943
10/1/22.................................................................................. 2,000,000 2,028,120
------------
Total Bonds............................................................................. 686,857,882
------------
d Zero Coupon Bonds
Middlesex County COP, MBIA Insured, 6/15/24 ............................................. 1,000,000 273,640
------------
Total Long Term Investments (Cost $638,268,092) ........................................ 687,131,522
------------
Short Term Investments 1.1%
a New Jersey EDA Revenue, Dow Chemical,
El Dorado Term 1984 A, Refunding, Daily VRDN and Put, 2.80%, 5/01/01 .................... 800,000 800,000
El Dorado Term 1984 B, Refunding, Daily VRDN and Put, 2.75%, 5/01/03 .................... 900,000 900,000
New Jersey Sports and Exposition, Series C, Weekly VRDN and Put, 3.25%, 9/01/24 ......... 2,200,000 2,200,000
a Port Authority New York and New Jersey, Special Obligation Revenue,
Versatile Structure, Series 2, Daily VRDN and Put, 2.25%, 5/01/19 ...................... 3,600,000 3,600,000
------------
Total Short Term Investments (Cost $7,500,000) ......................................... 7,500,000
------------
Total Investments (Cost $645,768,092) 98.6% ............................................ 694,631,522
Other Assets, less Liabilities 1.4% .................................................... 9,851,484
------------
Net Assets 100.0% ...................................................................... $704,483,006
============
</TABLE>
See glossary of terms on page 137.
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.
dZero coupon/step-up bonds. The current effective yield may vary. The original
accretion rate will remain constant.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Financial Highlights
Franklin Oregon Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.86 $11.55 $11.60 $11.22 $11.70 $11.73
------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .30 .62 .63 .63 .63 .64
Net realized and unrealized gains (losses) ............. .05 .31 (.05) .38 (.49) (.02)
------------------------------------------------------------
Total from investment operations ........................ .35 .93 .58 1.01 .14 .62
------------------------------------------------------------
Less distributions from net investment income ........... (.32) (.62) (.63) (.63) (.62) (.65)
------------------------------------------------------------
Net asset value, end of period .......................... $11.89 $11.86 $11.55 $11.60 $11.22 $11.70
============================================================
Total return* ........................................... 3.03% 8.21% 5.13% 9.19% 1.36% 5.15%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $458,335 $427,022 $384,003 $375,415 $349,458 $375,684
Ratios to average net assets:
Expenses ............................................... .68%** .67% .66% .66% .65% .58%
Net investment income .................................. 5.06%** 5.33% 5.52% 5.51% 5.71% 5.47%
Portfolio turnover rate ................................. 6.73% 12.18% 4.47% 6.52% 26.44% 9.42%
Class II
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.92 $11.61 $11.65 $11.23
----------------------------------------
Income from investment operations:
Net investment income .................................. .27 .56 .56 .47
Net realized and unrealized gains (losses) ............. .05 .31 (.04) .41
----------------------------------------
Total from investment operations ........................ .32 .87 .52 .88
----------------------------------------
Less distributions from net investment income ........... (.28) (.56) (.56) (.46)
----------------------------------------
Net asset value, end of period .......................... $11.96 $11.92 $11.61 $11.65
========================================
Total return* ........................................... 2.72% 7.66% 4.59% 7.99%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $25,575 $15,946 $7,100 $2,044
Ratios to average net assets:
Expenses ............................................... 1.24%** 1.22% 1.23% 1.24%**
Net investment income .................................. 4.50%** 4.74% 4.93% 4.87%**
Portfolio turnover rate ................................. 6.73% 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.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Oregon Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 98.7%
Albany Water Revenue, Second Lien, Pre-Refunded, 7.25%, 8/01/09 ......................... $ 1,000,000 $ 1,033,570
Bay Area Health District Hospital Facility Authority, Health Facilities
Revenue, Evergreen Court Project, 7.25%, 10/01/14 ...................................... 2,000,000 2,154,260
Bear Creek Valley Sanitary Authority, GO,
7.30%, 6/01/05 .......................................................................... 100,000 101,859
7.35%, 6/01/06 .......................................................................... 105,000 106,951
7.40%, 6/01/07 .......................................................................... 115,000 117,160
7.40%, 6/01/08 .......................................................................... 125,000 127,329
Benton County, Oregon Hospital Facilities Authority,
Good Samaritan Hospital, Corvallis, 6.25%, 10/01/09 .................................... 1,125,000 1,189,271
Chemeketa Community College District, FGIC Insured, Pre-Refunded, 5.80%, 6/01/12 ........ 1,000,000 1,108,260
City of Bend, Urban Renewal Agency Tax Revenue,
Series A, 6.85%, 9/01/06 ................................................................ 600,000 606,522
Series A, 7.00%, 9/01/11 ................................................................ 750,000 758,438
Clackamas County,
Health Facilities Authority Hospital Revenue, Adventist Health,
Refunding, Series A, MBIA Insured, 6.35%, 3/01/09 ...................................... 4,945,000 5,381,149
Hospital Facilities Authority Revenue, Gross Willamette Falls,
Refunding, 5.75%, 4/01/15 .............................................................. 2,250,000 2,342,295
Hospital Facilities Authority Revenue, Jennings Lodge Project,
GNMA Secured, 7.50%, 10/20/31 .......................................................... 2,990,000 3,196,161
Hospital Facilities Authority Revenue, Kaiser Permanente, Series A, 6.50%, 4/01/11 ...... 1,635,000 1,747,390
Hospital Facilities Authority Revenue, Kaiser Permanente, Series A, 6.25%, 4/01/21 ...... 4,950,000 5,260,415
Hospital Facilities Authority Revenue, Sisters of Providence Project, 8.125%, 10/01/07 .. 110,000 111,448
Hospital Facilities Authority Revenue, Willamette View Inc. Project,
Refunding, 6.10%, 11/01/12 ............................................................. 500,000 524,360
Hospital Facilities Authority Revenue, Willamette View Inc. Project,
Refunding, 6.30%, 11/01/21 ............................................................. 1,500,000 1,575,645
Clackamas County USD No. 115, AMBAC Insured, Pre-Refunded, 6.15%, 6/01/14 ............... 4,000,000 4,500,920
Clackamas Oregon Community College District, MBIA Insured, 5.80%, 6/01/26 ............... 1,000,000 1,067,960
Clairmont Water District Revenue, 6.50%, 2/01/12 ........................................ 1,125,000 1,169,550
Deschutes County Hospital Facilities Authority, Hospital Revenue,
St. Charles Medical Center, 6.00%, 1/01/13 ............................................. 3,000,000 3,250,590
Douglas County, Hospital Facilities Authority Revenue, Catholic Health
Facilities, Series B, MBIA Insured, 6.00%, 11/15/15 .................................... 1,950,000 2,136,167
Emerald People's Utility District, Electric System Revenue, Refunding,
AMBAC Insured, Series B, Pre-Refunded, 7.30%, 11/01/11 ................................. 500,000 521,865
Eugene Electric Utility System Revenue,
Pre-Refunded, 6.65%, 8/01/10 ............................................................ 655,000 706,522
Pre-Refunded, 6.70%, 8/01/11 ............................................................ 700,000 756,014
Pre-Refunded, 5.75%, 8/01/16 ............................................................ 3,000,000 3,289,260
Refunding, FSA Insured, 5.00%, 8/01/18 .................................................. 13,620,000 13,746,257
Refunding, FSA Insured, 5.05%, 8/01/22 .................................................. 4,500,000 4,541,850
Eugene Public Safety Facilities, FGIC Insured, 5.70%, 6/01/16 ........................... 500,000 532,105
Eugene Trojan Nuclear Project Revenue, Refunding, 5.90%, 9/01/09 ........................ 840,000 841,050
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ......................................................................... 750,000 825,878
6.70%, 10/01/23 ......................................................................... 1,900,000 2,079,018
Guam Power Authority Revenue, Series A, 6.30%, 10/01/12 ................................. 825,000 879,467
Hermiston, GO, AMBAC Insured, 6.00%, 8/01/15 ............................................ 1,000,000 1,080,280
Hillsboro Hospital Facilities Authority Revenue, Refunding, 5.75%, 10/01/12 ............. 205,000 214,967
Klamath Falls Intercommunity Hospital Revenue, Merle West Medical Center Project,
7.00%, 6/01/02 .......................................................................... 1,500,000 1,627,755
7.25%, 6/01/06 .......................................................................... 2,310,000 2,517,646
Lane and Douglas Counties, GO, School District No.28J,
Fern Ridge, FGIC Insured, 5.00%, 6/01/17 ............................................... 1,000,000 1,006,830
Lane County PCR, Weyerhaeuser Co. Project, Refunding, 6.50%, 7/01/09 .................... 11,575,000 12,668,375
Lane County, COP, Fairground Project, 7.00%, 8/01/04 .................................... 1,000,000 1,025,990
Lebanon Wastewater Revenue, Refunding, 5.875%, 6/01/20 .................................. 2,425,000 2,494,670
Marion County Housing Authority Revenue, Elliott Residence Project,
GNMA Secured, 7.50%, 10/20/25 .......................................................... 1,250,000 1,428,000
Marion County Union High School District No. 7J, 6.00%, 6/01/13 ......................... 1,000,000 1,109,630
Medford Hospital Facilities Authority Revenue, Gross Rogue
Valley Health Services, MBIA Insured, Pre-Refunded, 6.75%, 12/01/20 .................... 4,475,000 4,856,583
Medford Oregon Hospital Facilities Authority Revenue, Asante Health System,
Series A, MBIA Insured, 5.00%, 8/15/18 .................................................. 13,700,000 13,756,992
Series A, MBIA Insured, 5.00%, 8/15/24 .................................................. 6,300,000 6,299,811
b Series B, MBIA Insured, 5.125%, 8/15/28 ................................................. 9,000,000 9,033,480
Metropolitan Service District, Convention Center, GO, Series A, 6.25%, 1/01/13 .......... 4,865,000 5,098,471
Multnomah County Drain District No. 1 Assessment, MBIA Insured, 5.25%, 7/01/17 .......... 1,000,000 1,027,660
Multnomah Educational Service District, 5.40%, 6/01/17 .................................. 1,000,000 1,039,460
Northern Mariana Islands, Commonwealth Ports Authority,
Seaport Revenue, Series A, 6.40%, 3/15/28 ............................................... 3,500,000 3,471,440
Oak Lodge Water District, GO, AMBAC Insured,
7.40%, 12/01/08 ......................................................................... $ 215,000 $ 251,911
7.50%, 12/01/09 ......................................................................... 215,000 252,178
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 1,614,480
Oregon City Sewer Revenue, Pre-Refunded, 6.875%, 10/01/19 ............................... 4,000,000 4,705,800
Oregon Health Sciences University Revenue, Series A, MBIA Insured, 5.25%,
7/01/25 ................................................................................. 100,000 102,383
7/01/28 ................................................................................. 2,000,000 2,049,240
Oregon State, GO, Series B, 6.875%, 12/01/13 ............................................ 1,000,000 1,027,410
Oregon State Board of Higher Education, GO,
6.50%, 10/01/17 ......................................................................... 750,000 800,850
Baccalaureate, Series A, 5.00%, 8/01/22 ................................................. 5,000,000 5,026,550
Baccalaureate, Series A, 5.00%, 8/01/27 ................................................. 6,000,000 6,021,120
Series A, 5.65%, 8/01/27 ................................................................ 4,440,000 4,716,656
Series C, 5.65%, 8/01/27 ................................................................ 1,460,000 1,550,973
Oregon State Bond Bank Revenue, EDR, Series B, Pre-Refunded, 6.80%, 1/01/11 ............. 1,610,000 1,659,540
Oregon State Department of Administrative Services, COP,
Series A, AMBAC Insured, 5.80%, 5/01/24 ................................................. 5,000,000 5,378,550
Series C, MBIA Insured, 5.75%, 5/01/17 .................................................. 2,000,000 2,144,920
Oregon State Department of Energy, GO, Series B, 6.80%, 1/01/17 ......................... 400,000 403,776
Oregon State Department of General Services, COP,
Real Property Financing Program, Series A, AMBAC Insured,
Pre-Refunded, 7.50%, 9/01/15 ........................................................... 750,000 819,473
Real Property Financing Program, Series A, MBIA Insured,
Pre-Refunded, 7.20%, 1/15/15 ........................................................... 10,000 10,670
Refunding, Series D, MBIA Insured, 5.80%, 3/01/15 ....................................... 1,000,000 1,047,400
Series B, MBIA Insured, Pre-Refunded, 7.20%, 1/15/15 .................................... 150,000 160,050
Series F, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/15 ................................... 950,000 1,037,999
Series G, AMBAC Insured, 6.25%, 9/01/15 ................................................. 750,000 807,195
Oregon State Department of Transportation Revenue, GO,
Regional Light Rail, Federal Westside Project, MBIA Insured,
6.10%, 6/01/07 .......................................................................... 2,000,000 2,223,520
6.20%, 6/01/08 .......................................................................... 2,500,000 2,786,600
6.25%, 6/01/09 .......................................................................... 1,750,000 1,958,845
Oregon State EDR, Georgia-Pacific Corp. Project,
Refunding, Series 183, 5.70%, 12/01/25 .................................................. 1,500,000 1,543,800
Series CLVII, 6.35%, 8/01/25 ............................................................ 18,500,000 19,753,375
Oregon State Elderly and Disabled Housing Authority, GO,
Series A, 6.00%, 8/01/15 ................................................................ 910,000 979,952
Series A, 6.00%, 8/01/21 ................................................................ 455,000 486,359
Series A, 5.375%, 8/01/28 ............................................................... 1,950,000 1,987,811
Series B, 6.10%, 8/01/17 ................................................................ 1,410,000 1,511,774
Series B, 6.25%, 8/01/23 ................................................................ 2,015,000 2,198,526
Series B, 6.375%, 8/01/24 ............................................................... 2,155,000 2,348,347
Series C, 6.50%, 8/01/22 ................................................................ 6,000,000 6,606,120
Oregon State Elderly Housing, GO, Series A, 7.125%, 8/01/30 ............................. 635,000 665,385
Oregon State Higher Education, GO, Series C, Pre-Refunded, 7.25%, 10/15/18 .............. 1,445,000 1,451,445
Oregon State Housing and Community Services Department, Finance Housing Revenue,
Multi-Unit, Series A, 6.80%, 7/01/13 .................................................... 6,710,000 7,118,975
Multi-Unit, Series A, 6.15%, 7/01/21 .................................................... 910,000 976,512
Multi-Unit, Series C, 6.85%, 7/01/22 .................................................... 180,000 190,667
SFM, Series A, 5.75%, 7/01/12 ........................................................... 850,000 885,428
SFM, Series A, 6.35%, 7/01/14 ........................................................... 3,060,000 3,288,092
SFM, Series A, 6.40%, 7/01/18 ........................................................... 1,420,000 1,518,988
SFM, Series A, 6.45%, 7/01/26 ........................................................... 3,100,000 3,321,402
SFM, Series B, 6.875%, 7/01/28 .......................................................... 12,000,000 12,850,920
SFM, Series C, 6.20%, 7/01/15 ........................................................... 2,500,000 2,671,325
SFM, Series C, 6.40%, 7/01/26 ........................................................... 1,190,000 1,280,012
SFM, Series D, 6.80%, 7/01/27 ........................................................... 1,750,000 1,857,135
SFM, Series E, 7.00%, 7/01/09 ........................................................... 260,000 283,665
SFM, Series E, 5.80%, 7/01/16 ........................................................... 800,000 827,840
Oregon State Housing and Community Services Department, Finance Housing Revenue, (cont.)
SFM, Series E, 6.75%, 7/01/16 ........................................................... $ 105,000 $ 105,719
SFM, Series E, 7.15%, 7/01/25 ........................................................... 1,010,000 1,104,637
SFM, Series F, 7.00%, 7/01/22 ........................................................... 1,125,000 1,140,795
SFM, Series F, 5.65%, 7/01/28 ........................................................... 1,000,000 1,032,640
SFM, Series G, 6.80%, 7/01/22 ........................................................... 645,000 692,775
SFM, Series H, 5.65%, 7/01/28 ........................................................... 2,000,000 2,049,160
Oregon State Housing, Educational and Cultural Facility Authority,
Lewis and Clark College Project, Series A, 6.125%, 10/01/24 ............................ 10,500,000 11,517,030
Oregon State Veteran's Welfare, GO,
Series 73-A, 7.00%, 12/01/11 ............................................................ 2,500,000 2,570,850
Series 75, 6.00%, 4/01/27 ............................................................... 2,870,000 3,097,505
Series 75, 5.85%, 10/01/15 .............................................................. 850,000 921,553
Series 75, 5.875%, 10/01/18 ............................................................. 485,000 517,830
Series 76-A, 6.05%, 10/01/28 ............................................................ 3,000,000 3,269,880
Series 77, 5.30%, 10/01/29 .............................................................. 5,000,000 5,082,050
Port Astoria, GO, MBIA Insured, Pre-Refunded, 6.60%, 9/01/11 ............................ 450,000 486,405
Port Morrow PCR, Idaho Power Co., Boardman Project, 7.25%, 8/01/08 ...................... 2,200,000 2,232,868
Port Morrow Revenue, Refunding, Pre-Refunded, 8.00%, 12/01/11 ........................... 500,000 505,530
Port of Portland Special Obligation Revenue, Delta Airlines, Inc. Project, 6.20%, 9/01/22 4,000,000 4,240,520
Port St. Helens PCR, Boise Cascade Corp. Project, Refunding, 5.65%, 12/01/27 ............ 6,000,000 6,185,880
Port St. Helens PCR, Portland General Electric Co. Project, Series A, 5.25%, 8/01/14 .... 3,600,000 3,600,000
Port Umpqua PCR, International Paper Co. Project, Refunding, Series B, 5.20%, 6/01/11 ... 2,200,000 2,267,892
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 3,005,772
Portland Hospital Facilities Authority Hospital Revenue, Legacy Health System, Refunding,
Series A, AMBAC Insured, 6.70%, 5/01/21 ................................................. 5,500,000 5,894,680
Series B, AMBAC Insured, 6.70%, 5/01/21 ................................................. 8,475,000 9,083,166
Portland Housing Authority MFR, Berry Ridge Project, 6.30%, 5/01/29 ..................... 1,500,000 1,574,190
Portland Housing Authority Revenue, 7.10%, 7/01/15 ...................................... 1,000,000 1,053,630
Portland Hydroelectric Power Revenue, Bull Run Project, Series C, 7.00%, 10/01/16 ....... 635,000 635,597
Portland International Airport,
Series 7-A, MBIA Insured, 6.75%, 7/01/09 ................................................ 1,500,000 1,625,490
Series 7-B, MBIA Insured, 7.10%, 7/01/21 ................................................ 200,000 217,242
Series 7-B, MBIA Insured, Pre-Refunded, 7.10%, 7/01/21 .................................. 2,800,000 3,459,736
Series 10, FGIC Insured, 5.75%, 7/01/25 ................................................. 300,000 315,888
Portland MFHR, Civic Stadium Housing Project, Series A, 6.00%, 3/01/17 .................. 1,000,000 1,050,590
Portland Oregon, GO, Revenue, Limited Tax, Series A, 5.00%, 4/01/18 ..................... 3,380,000 3,405,451
Portland Sewer System Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 6/01/15 ....................................... 500,000 507,395
Series A, Pre-Refunded, 6.25%, 6/01/15 .................................................. 9,100,000 10,188,542
Portland Urban Renewal and Redevelopment, Downtown Waterfront,
Refunding, Series A, 6.40%, 6/01/08 .................................................... 5,555,000 6,003,900
Portland Water System Revenue, Series A, 5.00%, 8/01/16 ................................. 1,000,000 1,017,950
Portland, COP, PBA, Refunding, Series A, Pre-Refunded, 7.25%, 4/01/08 ................... 2,000,000 2,043,380
Puerto Rico Commonwealth, GO,
Pre-Refunded, 6.45%, 7/01/17 ............................................................ 1,000,000 1,140,880
Refunding, 5.375%, 7/01/25 .............................................................. 1,000,000 1,022,840
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, FSA Insured, Pre-Refunded, 9.00%, 7/01/09 .................................... 75,000 94,745
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y, 5.50%,
7/01/26 ................................................................................. 7,275,000 7,565,636
7/01/36 ................................................................................. 13,000,000 13,951,470
Puerto Rico Commonwealth Highway Authority Revenue, Series Q,
Pre-Refunded, 8.00%, 7/01/18 ........................................................... 4,000,000 4,385,520
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A, 7.75%, 7/01/08 ........................................... 280,000 286,370
Puerto Rico Electric Power Authority Revenue,
Refunding, Series X, 5.50%, 7/01/25 ..................................................... 2,600,000 2,665,156
Series O, Pre-Refunded, 7.125%, 7/01/14 ................................................. 1,065,000 1,112,850
Series R, Pre-Refunded, 6.25%, 7/01/17 .................................................. 2,070,000 2,274,288
Series X, 6.00%, 7/01/15 ................................................................ 2,500,000 2,696,700
Series DD, 5.00%, 7/01/28 ............................................................... 6,000,000 5,944,440
Puerto Rico HFC, SFMR, Portfolio No. 1,
Series A, GNMA Secured, 7.80%, 10/15/21 ................................................. 55,000 56,209
Series B, GNMA Secured, 7.65%, 10/15/22 ................................................. 370,000 391,282
Puerto Rico HFC Revenue, Sixth Portfolio, Section 8 Assisted,
FHA Mortgage Insured, Pre-Refunded, 7.75%, 12/01/26 .................................... $ 395,000 $ 489,504
Puerto Rico Housing Bank and Financing Agency, SFMR,
Homeownership Fifth Portfolio, Pre-Refunded, 7.50%, 12/01/15 ........................... 500,000 531,595
Puerto Rico PBA Revenue, Guaranteed Government Facilities,
Series B, 5.25%, 7/01/21 ............................................................... 3,700,000 3,751,615
Puerto Rico PBA, Guaranteed Public Education and Health Facilities,
Refunding, Series M, 5.75%, 7/01/15 .................................................... 2,500,000 2,617,675
Puerto Rico Telephone Authority Revenue, Refunding, Series L, 6.125%, 1/01/22 ........... 1,100,000 1,169,333
Roseburg Urban Sanitary Authority, Improvement, GO, Unlimited Tax, Douglas County,
7.40%, 1/01/06 .......................................................................... 60,000 60,706
7.50%, 1/01/08 .......................................................................... 230,000 232,712
Salem Educational Facilities Revenue, Williamette University, Refunding, 6.10%, 4/01/14 . 1,000,000 1,065,030
Salem, GO, Series A, 5.875%, 1/01/07 .................................................... 1,250,000 1,309,500
Salem-Keizer School District No. 24J, FGIC Insured, Pre-Refunded, 6.00%,
6/01/13 ................................................................................. 4,345,000 4,786,756
6/01/14 ................................................................................. 4,395,000 4,841,840
Taft-Nelscott-Delake Rural Fire Protection District, 6.00%, 6/01/16 ..................... 1,110,000 1,184,126
Tillamook Peoples Utilities District, 5.75%, 1/01/28 .................................... 2,765,000 2,842,890
Tri-County, Metro Transportation District,
COP, 7.50%, 12/15/02 .................................................................... 1,235,000 1,248,017
Light Rail Extended, Series A, 6.00%, 7/01/12 ........................................... 2,500,000 2,680,575
Umatilla County Hospital Facility Authority, Hospital Revenue,
Refunding, Good Shepherd Community Hospital, 7.50%, 1/01/10 ............................ 1,300,000 1,303,250
Virgin Islands Public Finance Authority Revenue, Refunding,
Senior Lien Fund Loan Notes, Series A, 5.50%, 10/01/15 .................................. 1,635,000 1,677,036
Senior Lien Fund Loan Notes, Series A, 5.50%, 10/01/18 .................................. 2,400,000 2,440,152
Virgin Islands Water & Power Authority, Electric System Revenue, Refunding, 5.30%,
7/01/18 ................................................................................. 2,500,000 2,528,300
7/01/21 ................................................................................. 1,000,000 1,009,560
Wasco County Hospital Facility Authority Hospital Revenue, 7.375%, 7/01/00 .............. 2,000,000 2,101,060
Washington County Housing Authority, MFHR,
Bethany Meadows II Project, 5.85%, 9/01/27 .............................................. 1,435,000 1,514,815
Terrace View Project, 5.50%, 12/01/17 ................................................... 1,725,000 1,795,346
Terrace View Project, 5.60%, 12/01/22 ................................................... 1,360,000 1,413,978
Washington County Unified Sewer Agency Revenue,
Pre-Refunded, 7.00%, 11/01/09 ........................................................... 2,700,000 2,808,945
Senior Lien, Refunding, Series A, 6.20%, 10/01/10 ....................................... 470,000 519,148
Senior Lien, Refunding, Series A, AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 ......... 1,000,000 1,113,610
Senior Lien, Series A, Pre-Refunded, 6.20%, 10/01/10 .................................... 3,530,000 3,945,190
Washington County USD No. 88J, 6.10%, 6/01/12 ........................................... 1,000,000 1,098,810
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 4,819,320
Pre-Refunded, 7.125%, 8/01/17 ........................................................... 2,700,000 2,841,237
Yamhill County USD No. 29J, 6.10%, 6/01/11 .............................................. 5,000,000 5,560,000
-------------
Total Long Term Investments (Cost $447,838,762) ......................................... 477,801,075
-------------
a Short Term Investments 1.8%
Port of Portland PCR, Reynolds Metals, Daily VRDN and Put, 3.375%, 12/01/09 ............. 1,000,000 1,000,000
Puerto Rico Commonwealth Government Development Bank, EDR,
Refunding, MBIA Insured, Weekly VRDN and Put, 2.50%, 12/01/15 .......................... 5,100,000 5,100,000
Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue, Series A, AMBAC Insured, Weekly VRDN
and Put, 2.75%, 7/01/28 ................................................................ 2,600,000 2,600,000
-------------
Total Short Term Investments (Cost $8,700,000) .......................................... 8,700,000
-------------
Total Investments (Cost $456,538,762) 100.5% ............................................ 486,501,075
Other Assets, less Liabilities (.5%) .................................................... (2,591,073)
-------------
Net Assets 100.0% ....................................................................... $483,910,002
=============
</TABLE>
See glossary of terms on page 137.
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 when-issued
or delayed delivery basis.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Financial Highlights
Franklin Pennsylvania Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $10.56 $10.39 $10.44 $10.16 $10.56 $10.55
-----------------------------------------------------------
Income from investment operations:
Net investment income .................................. .28 .58 .60 .62 .62 .63
Net realized and unrealized gains (losses) ............. .02 .32 (.04) .29 (.41) .01
-----------------------------------------------------------
Total from investment operations ........................ .30 .90 .56 .91 .21 .64
-----------------------------------------------------------
Less distributions from:
Net investment income .................................. (.28)2 (.58) (.61) (.63) (.61) (.63)
In excess of net investment income ..................... -- (.01) -- -- -- --
Net realized gains ..................................... -- (.14) -- -- -- --
-----------------------------------------------------------
Total distributions ..................................... (.28) (.73) (.61) (.63) (.61) (.63)
-----------------------------------------------------------
Net asset value, end of period .......................... $10.58 $10.56 $10.39 $10.44 $10.16 $10.56
===========================================================
Total return* ........................................... 2.92% 8.90% 5.53% 9.15% 2.22% 5.99%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $739,940 $713,141 $658,339 $639,847 $587,366 $615,546
Ratios to average net assets:
Expenses ............................................... .66%** .65% .64% .64% .63% .56%
Net investment income .................................. 5.26%** 5.49% 5.84% 5.96% 6.15% 5.90%
Portfolio turnover rate ................................. 6.69% 12.74% 22.24% 9.71% 12.91% 4.73%
Class II
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $10.61 $10.43 $10.47 $10.17
--------------------------------------
Income from investment operations:
Net investment income .................................. .25 .52 .55 .47
Net realized and unrealized gains (losses) ............. .02 .33 (.05) .30
--------------------------------------
Total from investment operations ........................ .27 .85 .50 .77
--------------------------------------
Less distributions from:
Net investment income .................................. (.25)3 (.53) (.54) (.47)
Net realized gains ..................................... -- (.14) -- --
--------------------------------------
Total distributions ..................................... (.25) (.67) (.54) (.47)
--------------------------------------
Net asset value, end of period .......................... $10.63 $10.61 $10.43 $10.47
======================================
Total return* ........................................... 2.61% 8.35% 4.98% 7.71%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $33,195 $25,899 $11,935 $3,110
Ratios to average net assets:
Expenses ............................................... 1.22%** 1.21% 1.21% 1.22%**
Net investment income .................................. 4.68%** 4.89% 5.22% 5.36%**
Portfolio turnover rate ................................. 6.69% 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.
2Includes distributions in excess of net investment income in the amount of
$0.006.
3Includes distributions in excess of net investment income in the amount of
$0.005.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Pennsylvania Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 97.0%
Abington Pennsylvania School District, FGIC Insured, Pre-Refunded, 6.00%, 5/15/26 ....... $ 2,000,000 $ 2,227,660
Allegheny County Higher Education Building Authority,
Duquesne University Project, 5.00%, 3/01/21 ............................................ 1,000,000 994,650
Allegheny County Hospital Development Authority Revenue,
Allegheny General Hospital Project, Series A, MBIA Insured, 6.25%, 9/01/20 .............. 10,000,000 10,592,000
Allegheny Hospital, South Hills Health System, Series A,
MBIA Insured, 5.875%, 5/01/26 .......................................................... 1,700,000 1,812,744
Health Center, Canterbury Place, MBIA Insured, 5.375%, 12/01/21 ......................... 5,000,000 5,124,400
Health Center, University of Pittsburgh Medical Center,
Series B, MBIA Insured, 5.00%, 7/01/16 .................................................. 4,000,000 4,003,040
Health Center, University of Pittsburgh, Refunding,
Series A, MBIA Insured, 5.625%, 4/01/27 ................................................. 10,450,000 10,937,284
Allegheny County IDAR,
Environmental Improvement, USX Corporation Project, Refunding, 6.10%, 1/15/18 ........... 2,000,000 2,146,020
Environmental Improvement, USX Corporation Project, Refunding, 5.60%, 9/01/30 ........... 7,530,000 7,703,039
Kaufmann Medical Project, Refunding, Series A, MBIA Insured, 6.80%, 3/01/15 ............. 1,000,000 1,100,980
Allegheny County RDAR, Home Improvement Loan, Refunding, Series A, 5.90%, 2/01/11 ....... 2,855,000 2,971,113
Allegheny County Residential Finance Authority, Mortgage Revenue,
Ladies Grand Army Republic Health Facilities Project, Series G,
FHA Secured, 6.35%, 10/01/36 ........................................................... 1,985,000 2,125,915
Lemington Home, Series E, 7.125%, 2/01/27 ............................................... 3,740,000 3,913,237
MFMR, Series D, FHA Secured, 7.50%, 6/01/33 ............................................. 1,400,000 1,472,576
Series J, GNMA Secured, 7.50%, 6/01/17 .................................................. 2,080,000 2,140,986
Series K, GNMA Secured, 7.75%, 12/01/22 ................................................. 1,970,000 2,031,287
b SFM, Series DD-1, GNMA Secured, 5.35%, 11/01/19 ......................................... 1,000,000 1,003,470
b SFM, Series DD-2, GNMA Secured, 5.40%, 11/01/29 ......................................... 2,000,000 2,006,920
SFMR, Series H, GNMA Secured, 8.00%, 6/01/17 ............................................ 1,140,000 1,166,334
SFMR, Series M, GNMA Secured, 7.90%, 6/01/11 ............................................ 1,195,000 1,256,590
SFMR, Series T, GNMA Secured, 6.95%, 5/01/17 ............................................ 810,000 862,512
Ambridge Area School District, Refunding, Series A, FGIC Insured, 5.25%, 11/01/16 ....... 2,730,000 2,797,622
Beaver County Hospital Authority Revenue, Beaver County Medical Center, Inc.,
Refunding, AMBAC Insured, Pre-Refunded,
6.625%, 7/01/10 ........................................................................ 5,000,000 5,562,250
Beaver County IDA, PCR,
Beaver Valley Project, Pennsylvania Power & Light, Refunding, Series A, 7.15%, 9/01/21 .. 4,400,000 4,738,536
Ohio Edison Project, Refunding, Series A, 7.75%, 9/01/24 ................................ 6,475,000 6,802,570
Bensalem Township, Refunding, FGIC Insured, 5.75%, 12/01/16 ............................. 3,000,000 3,200,250
Berks County Municipal Authority Revenue, FGIC Insured, Pre-Refunded, 7.00%, 5/15/18 .... 4,000,000 4,594,920
Bethlehem Area School District, MBIA Insured, Pre-Refunded, 6.00%, 3/01/16 .............. 4,000,000 4,445,240
Bradford County IDA, Solid Waste Disposal Revenue, International
Paper Co. Projects, Series A 6.60%, 3/01/19 ............................................. 2,500,000 2,800,175
Burrell School District, FGIC Insured, 5.60%, 11/15/15 .................................. 2,890,000 3,061,955
Butler County IDA, PCR, Witco Corp. Project, Refunding, 5.85%, 12/01/23 ................. 2,000,000 2,118,280
Cambria County Hospital Development Authority Revenue,
Conemaugh Valley Hospital, Refunding and Improvement, Series B,
Connie Lee Insured, 6.375%, 7/01/18 .................................................... 3,500,000 3,787,175
Cambria County IDA, PCR, Pennsylvania Electric Company Project,
Refunding, Series A, MBIA Insured, 5.80%, 11/01/20 ..................................... 5,000,000 5,340,000
Chartiers Valley Industrial and Commercial Development Authority Revenue, First Mortgage,
Asbury Place Project, Refunding, FHA Insured, 6.50%, 2/01/36 ............................ 4,295,000 4,726,733
United Methodist Health Center, Refunding, Series A, Pre-Refunded, 9.25%, 12/01/08 ...... 1,000,000 1,033,510
Clarion County Hospital Authority Revenue, Clarion Hospital Project, Refunding,
5.40%, 7/01/07 .......................................................................... 1,000,000 1,021,750
5.55%, 7/01/09 .......................................................................... 2,365,000 2,424,811
5.60%, 7/01/10 .......................................................................... 600,000 610,182
5.75%, 7/01/12 .......................................................................... 1,795,000 1,836,985
5.75%, 7/01/17 .......................................................................... 700,000 711,788
5.625%, 7/01/21 ......................................................................... 1,500,000 1,504,095
Cranberry Township Municipal Authority, Water and Sewer Revenue,
MBIA Insured, 5.125%, 12/01/26 ......................................................... 1,450,000 1,458,903
Dauphin County General Authority Health System Revenue,
Pinnacle Health System Project, Refunding, MBIA Insured, 5.50%, 5/15/17 ................ 4,280,000 4,458,947
Dauphin County General Authority Hospital Revenue,
Hapsco-Western Hospital Project, Refunding,
Series A, MBIA Insured, 6.50%, 7/01/12 .................................................. 4,500,000 4,898,745
Series B, MBIA Insured, 6.25%, 7/01/16 .................................................. 5,000,000 5,366,500
Dauphin County General Authority Revenue, Sub Series 0003,
AMBAC Insured, 4.75%, 6/01/26 .......................................................... 1,000,000 1,015,160
Deer Lakes School District, Series A, FSA Insured, 5.00%, 1/15/23 ....................... 1,000,000 997,150
Delaware County Authority Health Facility Revenue, Mercy Health
Corporation Project, Refunding, ETM, 6.00%, 12/15/26 ................................... 10,800,000 12,246,228
Delaware County Authority Healthcare Revenue, Mercy Health
Corporation Southeastern, Series B, Pre-Refunded, 6.00%, 11/15/07 ....................... 9,000,000 9,949,860
Delaware County Authority Revenue, Elwyn, Inc. Project, Pre-Refunded, 8.35%, 6/01/15 .... $ 2,000,000 $ 2,190,540
Delaware County IDAR, PCR, Philadelphia Electric Co. Project, 7.375%, 4/01/21 ........... 5,000,000 5,426,150
Delaware River Port Authority,
Pennsylvania and New Jersey Delaware River Bridges Revenue,
Refunding, AMBAC Insured, Pre-Refunded, 7.375%, 1/01/07 ................................ 1,000,000 1,032,290
Pennsylvania and New Jersey Revenue, Series 1995, FGIC Insured, 5.50%, 1/01/26 .......... 7,350,000 7,727,055
Delaware Valley Regional Finance Authority, Local Government
Revenue, Series B, AMBAC Insured, 5.60%, 7/01/17 ........................................ 5,000,000 5,439,700
Erie County Hospital Authority Revenue, St. Vincent Health Center Project,
Series A, MBIA Insured, 6.375%, 7/01/22 ................................................ 7,000,000 7,566,580
Erie County IDAR, Nursing Home-Sarah Reed Center, 8.625%, 7/01/14 ....................... 2,110,000 2,203,768
Erie Higher Educational Building Authority Revenue, Gannon University,
Series A, Pre-Refunded, 8.50%, 6/01/15 ................................................. 3,000,000 3,168,180
Erie Western Pennsylvania Port Authority General Revenue,
Pre-Refunded, 8.625%, 6/15/10 ........................................................... 1,850,000 2,037,942
6.875%, 6/15/16 ......................................................................... 920,000 985,136
Exeter Township, Refunding, Series B, FGIC Insured, 5.30%, 7/15/21 ...................... 6,100,000 6,224,989
Harrisburg Authority Revenue, Series I, MBIA Insured, 5.625%, 4/01/19 ................... 6,000,000 6,319,740
Hazleton Area School District, Series B, FGIC Insured, 5.00%, 3/01/23 ................... 4,455,000 4,442,526
Hazleton Health Services Authority Hospital Revenue,
Hazleton General Hospital, 5.50%, 7/01/27 .............................................. 2,475,000 2,502,992
Interboro School District, Delaware County, MBIA Insured, 5.375%, 8/15/22 ............... 2,335,000 2,395,803
Jeannette County Health Service Authority Hospital Revenue,
Jeannette District Memorial Hospital, Refunding, Series A, 6.00%, 11/01/18 ............. 785,000 834,659
Jeannette County Municipal Authority Sewer Revenue, Pre-Refunded, 7.00%, 7/01/17 ........ 1,250,000 1,383,175
Lancaster County Hospital Authority Revenue, Health Center,
Masonic Homes Project, Refunding, AMBAC Insured, 5.00%, 11/15/20 ....................... 1,600,000 1,595,632
Lawrence County IDA, PCR, Pennsylvania Power Co.,
New Castle Project, Refunding, 7.15%, 3/01/17 .......................................... 5,595,000 6,025,479
Lebanon County Good Samaritan Hospital Authority Revenue,
Good Samaritan Hospital Project, Refunding, 6.00%, 11/15/18 ............................ 2,500,000 2,626,975
Lehigh County General Purpose Authority Revenue,
Lehigh Valley Health Network, Series A, MBIA Insured, 5.00%, 7/01/28 .................... 4,000,000 3,926,720
Lehigh Valley Hospital, Inc., Refunding, Series A, MBIA Insured, 5.875%, 7/01/15 ........ 1,000,000 1,073,560
Muhlenburg Hospital Center, Refunding, Series A, 8.00%, 7/15/01 ......................... 1,000,000 1,050,170
Muhlenburg Hospital Center, Series A, Pre-Refunded, 6.60%, 7/15/22 ...................... 5,800,000 6,532,830
Muhlenburg Hospital Center, Series B, Pre-Refunded, 8.00%, 7/15/01 ...................... 900,000 951,525
Refunding, 5.25%, 11/15/27 .............................................................. 5,500,000 5,559,950
Lehigh County IDA, PCR, Pennsylvania Power & Light Co. Project, Refunding,
Series A, MBIA Insured, 6.15%, 8/01/29 .................................................. 5,550,000 6,062,543
Series A, MBIA Insured, 6.40%, 11/01/21 ................................................. 5,000,000 5,451,550
Series B, MBIA Insured, 6.40%, 9/01/29 .................................................. 10,000,000 11,136,100
Lower Providence Township, Sewer Authority Revenue, Refunding, MBIA Insured, 5.25%,
5/01/14 ................................................................................. 2,000,000 2,050,540
5/01/22 ................................................................................. 3,750,000 3,799,275
Luzerne County IDA, Exempt Facility Revenue, Gas & Water Co. Project, Refunding, Series A,
6.05%, 1/01/19 .......................................................................... 4,750,000 5,007,783
AMBAC Insured, 7.00%, 12/01/17 .......................................................... 5,000,000 5,758,050
Meadville GO, Series A, AMBAC Insured, 5.25%, 10/01/25 .................................. 2,285,000 2,310,455
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 2,502,918
Jeanes Health System Project, Pre-Refunded, 8.75%, 7/01/20 .............................. 5,000,000 5,528,800
Pottstown Memorial Medical Center Project, Pre-Refunded, 7.35%, 11/15/05 ................ 1,315,000 1,476,771
St. Joseph's University, Refunding, Connie Lee Insured, 6.50%, 12/15/22 ................. 1,750,000 1,932,525
Montgomery County IDA, Retirement Community Revenue, Adult Community Total Services,
Refunding, Series A, 5.875%, 11/15/22 ................................................... 4,850,000 5,102,249
Series B, 5.75%, 11/15/17 ............................................................... 3,000,000 3,129,090
Montgomery County IDAR,
Hill School Project, MBIA Insured, 5.35%, 8/15/27 ....................................... 4,000,000 4,079,680
PCR, Philadelphia Electric Co., Refunding, Series A, 7.60%, 4/01/21 ..................... 2,530,000 2,759,319
PCR, Philadelphia Electric Co., Series B, MBIA Insured, 6.70%, 12/01/21 ................. 5,000,000 5,441,700
Resources Recovery, 7.50%, 1/01/12 ...................................................... 10,000,000 10,530,900
Montgomery County GO, Refunding, Series B, 5.375%, 10/15/21 ............................. 3,400,000 3,504,584
Mount Pleasant Business District Authority, Hospital Revenue, Frick Hospital, Refunding,
5.70%, 12/01/13 ......................................................................... 1,205,000 1,245,331
5.75%, 12/01/17 ......................................................................... 500,000 514,985
5.75%, 12/01/27 ......................................................................... 1,600,000 1,641,152
Neshaminy School District, FGIC Insured, Pre-Refunded, 7.00%, 2/15/14 ................... $ 1,000,000 $ 1,151,710
New Wilmington Municipal Authority, College Revenue,
Westminster College, 5.35%, 3/01/28 .................................................... 2,250,000 2,246,670
North Hampton County IDAR, PCR, Metropolitan Edison Co.,
Refunding, Series A, MBIA Insured, 6.10%, 7/15/21 ...................................... 6,100,000 6,650,647
Northeastern Pennsylvania Hospital and Educational Authority Revenue,
Kings College Project, Refunding, Series B, 6.00%, 7/15/11 .............................. 1,000,000 1,039,200
Kings College Project, Refunding, Series B, 6.00%, 7/15/18 .............................. 1,000,000 1,036,290
Wilkes University, Refunding, 6.125%, 10/01/11 .......................................... 5,000,000 5,002,250
Pennsylvania Convention Center Authority Revenue,
Refunding, Series A, 6.60%, 9/01/09 .................................................... 5,000,000 5,503,500
Pennsylvania EDA,
Exempt Facilities Revenue, MacMillian L.P. Project, 7.60%, 12/01/20 ..................... 3,000,000 3,283,950
Resource Recovery Revenue, Colver Project, Series D, 7.125%, 12/01/15 ................... 5,000,000 5,576,800
Pennsylvania HFA,
Refunding, Series 1991-32, 7.15%, 4/01/15 ............................................... 4,370,000 4,636,352
Rental Housing, Refunding, FNMA Insured, 5.75%, 7/01/14 ................................. 10,000,000 10,405,100
SFMR, Refunding, Series 54-A, 6.15%, 10/01/22 ........................................... 1,500,000 1,592,475
SFMR, Refunding, Series Y, 7.45%, 4/01/16 ............................................... 2,485,000 2,579,107
SFMR, Series 29, 7.375%, 10/01/16 ....................................................... 3,340,000 3,529,645
SFMR, Series 30, 7.30%, 10/01/17 ........................................................ 2,410,000 2,562,481
SFMR, Series 34-A, 6.85%, 4/01/16 ....................................................... 3,000,000 3,200,340
SFMR, Series 34-B, 7.00%, 4/01/24 ....................................................... 6,000,000 6,385,140
SFMR, Series 38, 6.125%, 10/01/24 ....................................................... 5,205,000 5,519,850
SFMR, Series U, 7.80%, 10/01/20 ......................................................... 3,950,000 4,164,485
SFMR, Series W, 7.80%, 10/01/20 ......................................................... 1,965,000 2,040,201
Pennsylvania Infrastructure Investment Authority Revenue,
Pennvest Loan Pool Program, MBIA Insured, 5.625%,
9/01/13 ................................................................................. 6,010,000 6,489,117
9/01/14 ................................................................................. 2,870,000 3,075,062
Pennsylvania Intergovernmental Cooperative Authority,
Special Tax Revenue, Philadelphia Funding Project, FGIC Insured, Pre-Refunded,
7.00%, 6/15/14 ......................................................................... 6,000,000 7,020,840
Pennsylvania State Finance Authority Revenue, Municipal Capital
Improvements Program, Refunding, 6.60%, 11/01/09 ....................................... 12,565,000 13,875,027
Pennsylvania State Higher Educational Facilities Authority Revenue,
Allegheny College Project, Refunding, Series B, 6.125%, 11/01/13 ........................ 1,000,000 1,067,930
Allegheny College Project, Series B, Pre-Refunded, 6.00%, 11/01/22 ...................... 3,140,000 3,473,468
Drexel University, Refunding, 6.375%, 5/01/17 ........................................... 5,220,000 5,528,032
Drexel University, Refunding, MBIA Insured, 5.75%, 5/01/22 .............................. 4,385,000 4,691,336
Health Services, Allegheny Delaware Valley, Refunding,
Series A, MBIA Insured, 5.875%, 11/15/21 ............................................... 17,000,000 17,424,320
Health Services, University of Pennsylvania, Refunding, Series A, 5.75%, 1/01/22 ........ 10,000,000 10,549,500
Lasalle University, MBIA Insured, 5.25%, 5/01/23 ........................................ 1,500,000 1,525,635
Lasalle University, Refunding, MBIA Insured, 5.625%, 5/01/17 ............................ 4,000,000 4,218,560
Lycoming College, Pre-Refunded, 8.375%, 10/01/18 ........................................ 1,000,000 1,023,660
Medical College of Pennsylvania, Series A, Pre-Refunded, 8.375%, 3/01/11 ................ 1,000,000 1,043,500
Medical College of Pennsylvania, Series A, Pre-Refunded, 7.50%, 3/01/14 ................. 3,135,000 3,196,383
Philadelphia College of Textiles and Science, 6.75%, 4/01/20 ............................ 3,040,000 3,251,371
State System of Higher Education, Series N, MBIA Insured, 5.80%, 6/15/24 ................ 3,000,000 3,166,770
State Systems Higher Education, Series O, AMBAC Insured, 5.125%, 6/15/24 ................ 1,990,000 1,997,522
Temple University, 7.375%, 10/01/06 ..................................................... 1,955,000 1,990,386
Temple University, 7.40%, 10/01/10 ...................................................... 4,505,000 4,586,811
Widner University, AMBAC Insured, Pre-Refunded, 7.625%, 10/01/13 ........................ 1,000,000 1,003,180
Pennsylvania State Higher Educational Facilities Authority
College & University Revenue,
Allegheny College, Refunding, Series A, MBIA Insured, 5.00%, 11/01/22 ................... 3,300,000 3,276,900
Allegheny College, Refunding, Series B, 5.00%, 11/01/26 ................................. 3,000,000 2,955,210
Geneva College, 5.45%, 4/01/18 .......................................................... 2,360,000 2,373,995
Trustees University Pennsylvania, 5.50%, 7/15/38 ........................................ 10,000,000 10,298,600
Pennsylvania State IDAR, Economic Revenue, AMBAC Insured, 6.00%, 1/01/12 ................ 4,250,000 4,620,005
Pennsylvania State Pooled Finance Authority, Lease Revenue,
Capital Improvement, Series B, MBIA Insured, 8.00%, 11/01/09 ........................... 890,000 931,332
Pennsylvania State Turnpike Commission Revenue, Series C,
FGIC Insured, Pre-Refunded, 7.625%, 12/01/17 ........................................... 1,000,000 1,029,870
Pennsylvania State Turnpike Commission Oil Franchise Tax Revenue,
Sub Series B, AMBAC Insured, 5.00%, 12/01/23 ........................................... 2,000,000 1,985,660
Philadelphia Airport Revenue, Philadelphia Airport System, Series A,
AMBAC Insured, 6.10%, 6/15/25 .......................................................... 5,000,000 5,408,250
Philadelphia Gas Works Revenue,
1st Series A, FSA Insured, 5.00%, 7/01/26 ............................................... $ 8,000,000 $ 7,904,640
11th Series C, AMBAC Insured, 7.25%, 1/01/10 ............................................ 795,000 819,566
11th Series C, AMBAC Insured, Pre-Refunded, 7.25%, 1/01/10 .............................. 205,000 211,537
12th Series B, MBIA Insured, ETM, 7.00%, 5/15/20 ........................................ 1,000,000 1,220,510
Refunding, 14th Series A, 6.375%, 7/01/26 ............................................... 10,100,000 11,182,720
Philadelphia Hospitals and Higher Educational Facilities Authority Revenue,
Albert Einstein Medical Center, Pre-Refunded, 7.30%, 10/01/08 ........................... 5,225,000 5,832,981
Albert Einstein Medical Center, Pre-Refunded, 7.625%, 4/01/11 ........................... 7,755,000 8,087,147
Children's Hospital, Refunding, Series A, 5.00%, 2/15/21 ................................ 2,465,000 2,400,072
Children's Seashore House, Series A, 7.00%, 8/15/17 ..................................... 1,000,000 1,097,890
Children's Seashore House, Series B, 7.00%, 8/15/22 ..................................... 2,600,000 2,831,894
Frankford Hospital, Series A, 6.00%, 6/01/14 ............................................ 2,500,000 2,632,650
Temple University Hospital, 5.875%, 11/15/23 ............................................ 5,000,000 5,215,850
Philadelphia Municipal Authority, Gas Works Lease Revenue,
Pre-Refunded, 7.625%, 5/01/14 .......................................................... 2,750,000 2,861,843
Philadelphia Municipal Authority Revenue, Lease, Refunding,
Series D, 6.30%, 7/15/17 ............................................................... 2,000,000 2,129,860
Philadelphia Parking Authority Airport Revenue, Refunding,
AMBAC Insured, 5.50%, 9/01/18 .......................................................... 1,000,000 1,045,980
Philadelphia RDA, Home Improvement Loan Revenue,
Series A, FHA Insured, 7.375%, 6/01/03 .................................................. 80,000 81,000
Series B, FHA Insured, 6.10%, 6/01/17 ................................................... 1,000,000 1,059,280
Philadelphia School District, Series B, AMBAC Insured,
5.50%, 9/01/15 .......................................................................... 5,000,000 5,283,150
5.375%, 4/01/22 ......................................................................... 2,995,000 3,070,324
Philadelphia Water and Sewer Revenue, ETM, 10th Series, 7.35%, 9/01/04 .................. 6,840,000 7,773,181
Philadelphia Water and Wastewater Revenue, Refunding, 5.75%, 6/15/13 .................... 10,000,000 10,373,700
Pittsburgh Urban RDA,
Mortgage Revenue, Series A, 7.15%, 10/01/27 ............................................. 840,000 919,531
Mortgage Revenue, Series D, 6.25%, 10/01/17 ............................................. 1,700,000 1,858,236
Oliver Garage Project, FGIC Insured, 5.45%, 6/01/28 ..................................... 3,500,000 3,612,630
SFMR, Series B, GNMA Secured, 7.375%, 12/01/16 .......................................... 2,110,000 2,190,412
Pittsburgh Water and Sewer System Authority Revenue,
Refunding, FGIC Insured, ETM, 7.25%, 9/01/14 ........................................... 1,250,000 1,538,363
Pottstown Borough Authority, Sewer Revenue, FSA Insured
, Pre-Refunded, 7.70%, 11/01/21 ......................................................... 4,000,000 4,109,360
Rose Tree Media School District, FGIC Insured, 5.85%, 2/15/17 ........................... 5,000,000 5,361,000
Schuylkill County IDA, Resources Recovery Revenue,
Schuykill Energy Resources Inc., Refunding, 6.50%, 1/01/10 ............................. 17,310,000 17,409,013
Schuylkill County RDA, Lease Revenue, Series A, FGIC Insured, 7.125%, 6/01/13 ........... 1,500,000 1,645,005
Scranton School District, AMBAC Insured, 5.20%, 4/01/18 ................................. 5,275,000 5,358,292
South Fork Municipal Authority, Hospital Revenue,
Conemaugh Valley Memorial Hospital Project, Series A, MBIA Insured, 5.75%, 7/01/26 ...... 10,000,000 10,591,900
Good Samaritan Medical Center, Johnstown Project,
Refunding, Series B, MBIA Insured, 5.25%, 7/01/26 ...................................... 5,000,000 5,049,350
Southeastern Pennsylvania Transportation Authority Special Revenue,
FGIC Insured, 5.375%, 3/01/22 ........................................................... 4,000,000 4,114,720
Series A, FGIC Insured, 5.75%, 3/01/20 .................................................. 9,660,000 10,269,449
State Public School Building Authority Revenue,
Cornell School District Project, Refunding, Series B, MBIA Insured, 5.375%, 9/01/12 ..... 2,165,000 2,257,056
Shenandoah Valley School District Project, Refunding,
AMBAC Insured, 7.375%, 9/15/10 ......................................................... 1,000,000 1,055,530
University of Pittsburgh, Higher Education, Refunding,
Series B, MBIA Insured, 5.00%, 6/01/21 ................................................. 10,000,000 9,972,300
Upper St. Clair Township School District, Refunding, 5.20%, 7/15/27 ..................... 5,000,000 5,110,150
Westmoreland County IDAR, Citizen's General Hospital Project,
Refunding, Series A, 8.25%, 7/01/13 .................................................... 1,500,000 1,519,500
Westtown Township, Sewer Revenue, FSA Insured, 5.25%, 12/15/27 .......................... 3,270,000 3,312,902
Wilkes Barre Area School District,
FGIC Insured, Pre-Refunded, 6.375%, 4/01/15 ............................................. 3,000,000 3,363,750
Refunding , FGIC Insured, 5.25%, 4/01/16 ................................................ 1,385,000 1,417,588
-------------
Total Long Term Investments (Cost $699,237,338) ........................................ 749,629,680
-------------
a Short Term Investments .9%
Allegheny County Hospital Development Authority Revenue,
Presbyterian University Hospital, Series B1, Weekly VRDN and Put,
3.35%, 3/01/18 ......................................................................... 1,605,000 1,605,000
New Castle, Hospital Authority Revenue, Jameson Memorial Hospital,
Refunding, FSA Insured, Weekly VRDN and Put, 3.40%, 7/01/26 ........................... 800,000 800,000
Allegheny County Hospital Development Authority Revenue, Health Center, Presbyterian,
Series A, MBIA Insured, Weekly VRDN and Put, 3.35%, 3/01/20 ............................. $ 900,000 $ 900,000
Series B, MBIA Insured, Weekly VRDN and Put, 3.35%, 3/01/20 ............................. 900,000 900,000
Series D, MBIA Insured, Weekly VRDN and Put, 3.35%, 3/01/20 ............................. 500,000 500,000
Northeastern Pennsylvania Hospital and Educational Authority,
Health Care Revenue, Wyoming Valley Health Care, Refunding, Series A,
AMBAC Insured, Weekly VRDN and Put, 3.25%, 1/01/24 ..................................... 1,100,000 1,100,000
Pennsylvania State Higher Educational Facilities Authority Revenue,
Council of lndependent Colleges,
Cabrini University, Weekly VRDN and Put, 3.35%, 4/01/22 ................................. 100,000 100,000
Waynesburg College, Weekly VRDN and Put, 3.35%, 4/01/17 ................................. 600,000 600,000
Puerto Rico Commonwealth Highway and Transportation Authority
, Transportation Revenue, Series A, AMBAC Insured, Weekly VRDN
and Put, 2.75%, 7/01/28 ................................................................ 400,000 400,000
-------------
Total Short Term Investments (Cost $6,905,000) ......................................... 6,905,000
-------------
Total Investments (Cost $706,142,338) 97.9% ........................................... 756,534,680
Other Assets, less Liabilities 2.1% .................................................... 16,599,805
-------------
Net Assets 100.0% ...................................................................... $773,134,485
=============
</TABLE>
See glossary of terms on page 137.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Financial Highlights
Franklin Puerto Rico Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.86 $11.51 $11.59 $11.31 $11.83 $11.81
------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .30 .62 .65 .66 .67 .68
Net realized and unrealized gains (losses) ............. .09 .36 .02 .30 (.50) .03
------------------------------------------------------------
Total from investment operations ........................ .39 .98 .67 .96 .17 .71
------------------------------------------------------------
Less distributions from:
Net investment income .................................. (.31)2 (.62) (.65)4 (.67)5 (.69) (.69)
Net realized gains ..................................... (.01) (.01) (.10) (.01) -- --
------------------------------------------------------------
Total distributions ..................................... (.32) (.63) (.75) (.68) (.69) (.69)
------------------------------------------------------------
Net asset value, end of period .......................... $11.93 $11.86 $11.51 $11.59 $11.31 $11.83
============================================================
Total return* ........................................... 3.30% 8.78% 6.03% 8.68% 1.60% 5.95%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $213,826 $210,325 $192,525 $190,577 $176,888 $175,036
Ratios to average net assets:
Expenses ............................................... .76%** .75% .73% .74% .73% .66%
Net investment income .................................. 5.06%** 5.35% 5.62% 5.71% 5.95% 5.77%
Portfolio turnover rate ................................. 17.13% 7.94% 21.09% 27.99% 18.30% 5.10%
Class II
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.87 $11.53 $11.62 $11.32
---------------------------------------
Income from investment operations:
Net investment income .................................. .27 .56 .58 .50
Net realized and unrealized gains ...................... .10 .34 .02 .30
---------------------------------------
Total from investment operations ........................ .37 .90 .60 .80
---------------------------------------
Less distributions from:
Net investment income .................................. (.28)3 (.55) (.59) (.49)
Net realized gains ..................................... (.01) (.01) (.10) (.01)
---------------------------------------
Total distributions ..................................... (.29) (.56) (.69) (.50)
---------------------------------------
Net asset value, end of period .......................... $11.95 $11.87 $11.53 $11.62
=======================================
Total return* ........................................... 3.10% 8.07% 5.33% 7.21%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $5,553 $3,615 $1,679 $533
Ratios to average net assets:
Expenses ............................................... 1.32%** 1.31% 1.30% 1.32%**
Net investment income .................................. 4.48%** 4.78% 5.04% 5.16%**
Portfolio turnover rate ................................. 17.13% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions in excess of net investment income in the amount of
$0.007.
3Includes distributions in excess of net investment income in the amount of
$0.005.
4Includes distributions in excess of net investment income in the amount of
$0.006.
5Includes distributions in excess of net investment income in the amount of
$0.001.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Puerto Rico Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
aLong Term Investments 98.2%
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ......................................................................... $1,675,000 $ 1,844,460
6.70%, 10/01/23 ......................................................................... 5,800,000 6,346,476
Guam Government GO, Series A,
5.90%, 9/01/05 .......................................................................... 4,575,000 4,616,221
6.00%, 9/01/06 .......................................................................... 1,085,000 1,094,450
Guam Government Limited Obligation Highway, Refunding,
Series A, FSA Insured, 6.30%, 5/01/12 .................................................. 5,590,000 6,068,225
Guam Housing Corp., SFR, Mortgage Guaranteed, MBS, Series A, 5.35%, 9/01/18 ............. 5,000,000 5,111,100
Guam Power Authority Revenue, Series A,
6.30%, 10/01/22 ......................................................................... 7,190,000 7,648,147
6.75%, 10/01/24 ......................................................................... 2,680,000 2,979,195
Northern Mariana Islands, Commonwealth Ports Authority,
Seaport Revenue, Series A, 6.40%, 3/15/28 .............................................. 7,000,000 6,942,880
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.40%, 7/01/11 ............................................................ 3,905,000 4,445,062
Refunding, MBIA Insured, 5.75%, 7/01/24 ................................................. 2,000,000 2,128,640
Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue, Series Y, Pre-Refunded, 6.00%, 7/01/22 ................................. 8,000,000 9,067,040
Transportation Revenue, Puerto Rico State Infrastructure Bank, 5.00%, 7/01/28 ........... 2,000,000 1,978,440
Puerto Rico Commonwealth Highway Authority, Highway Revenue,
Series Q, Pre-Refunded, 7.75%, 7/01/10 ................................................. 350,000 382,200
Puerto Rico Commonwealth IDC, General Purpose Revenues, Series B, 5.375%, 7/01/16 ....... 5,000,000 5,171,850
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A,
7.90%, 7/01/07 .......................................................................... 580,000 599,099
7.75%, 7/01/08 .......................................................................... 300,000 306,825
7.50%, 7/01/09 .......................................................................... 660,000 674,850
Puerto Rico Commonwealth Urban Renewal and Housing Corp.,
Commonwealth Appropriation, Refunding, 7.875%, 10/01/04 ................................ 3,350,000 3,543,027
Puerto Rico Electric Power Authority, Power Revenue,
Refunding, Series U, 6.00%, 7/01/14 ..................................................... 700,000 757,666
Series DD, 5.00%, 7/01/28 ............................................................... 1,680,000 1,664,443
Series O, 7.125%, 7/01/14 ............................................................... 1,525,000 1,593,518
Series P, Pre-Refunded, 7.00%, 7/01/11 .................................................. 615,000 680,590
Series P, Pre-Refunded, 7.00%, 7/01/21 .................................................. 1,000,000 1,106,650
Series T, Pre-Refunded, 6.375%, 7/01/24 ................................................. 9,000,000 10,243,620
Series X, 6.125%, 7/01/21 ............................................................... 7,225,000 7,801,555
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 10/01/15 ............................................. 420,000 439,887
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 .............................................. 1,470,000 1,539,840
MF, Series A, 8.25%, 6/01/11 ............................................................ 325,000 325,000
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured,
Pre-Refunded, 7.75%, 12/01/26 .......................................................... 2,060,000 2,552,855
Puerto Rico HFC, SFMR, Portfolio No.1, Series C, GNMA Secured, 6.85%, 10/15/23 .......... 2,320,000 2,471,658
Puerto Rico Housing, Bank and Financing Agency, SFMR,
Affordable Housing Mortgage, Portfolio I, GNMA Secured, 6.25%, 4/01/29 .................. 2,990,000 3,202,739
Homeownership Fifth Portfolio, Pre-Refunded, 7.50%, 12/01/15 ............................ 955,000 1,015,346
Puerto Rico Industrial,
Medical and Environmental Facilities, PCFA Revenue, Baxter
Travenol Labs, Inc., Series A, 8.00%, 9/01/12 .......................................... 4,010,000 4,142,330
Medical and Environmental Facilities, PCFA Revenue, PepsiCo, Inc.
Project, 6.25%, 11/15/13 ............................................................... 900,000 991,863
Medical and Environmental Facilities, PCFA Revenue, Special Facilities,
American Airlines, Series A, 6.45%, 12/01/25 ........................................... 2,000,000 2,203,260
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Higher Education Revenue,
Inter American University, Series A, MBIA Insured, 5.00%, 10/01/22 ..................... 6,500,000 6,540,755
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Hospital Revenue, Dr. Pila Hospital Project,
Refunding, Series A, 6.125%, 8/01/25 ................................................... 2,500,000 2,733,675
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Hospital Revenue, Dr. Pila Hospital Project,
Refunding, Series A, 6.25%, 8/01/32 .................................................... 500,000 546,975
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 ............................... 8,445,000 9,348,193
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Hospital Revenue, Hospital Auxilio Mutuo
Project, Series A, MBIA Insured, 5.50%, 7/01/17 ........................................ 2,750,000 2,920,445
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Hospital Revenue, Mennonite General Hospital
Project, Series A, 5.625%, 7/01/17 ..................................................... 950,000 979,327
Puerto Rico Industrial, (cont.)
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Hospital Revenue, Mennonite General Hospital
Project, Series A, 6.50%, 7/01/26 ...................................................... $5,000,000 $ 5,524,400
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Hospital Revenue, Mennonite General Hospital
Project, Series A, 5.625%, 7/01/27 ..................................................... 1,000,000 1,027,320
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Industrial Revenue, Guaynabo Municipal
overnment Center, Series A, 5.625%, 7/01/15 ............................................. 6,550,000 6,700,847
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Industrial Revenue, Guaynabo Municipal
overnment Center, Series A, 5.625%, 7/01/22 ............................................. 3,160,000 3,220,640
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Industrial Revenue, Teachers Retirement System
evenue, Series B, 5.50%, 7/01/16 ........................................................ 3,175,000 3,337,116
Tourist, Educational, Medical and Environmental Control Facilities
inancing Authority, Industrial Revenue, Teachers Retirement System
evenue, Series B, 5.50%, 7/01/21 ........................................................ 6,585,000 6,879,350
Puerto Rico Municipal Finance Agency, Series A, 6.50%, 7/01/19 .......................... 2,000,000 2,243,560
Puerto Rico PBA, Revenue Guaranteed, Government Facilities,
ries A, AMBAC Insured, 5.75%, 7/01/22 ................................................... 1,000,000 1,069,750
Puerto Rico Port Authority Revenue,
Series D, FGIC Insured, 6.00%, 7/01/21 .................................................. 1,250,000 1,289,788
Special Facilities, American Airlines, Series A, 6.30%, 6/01/23 ......................... 5,500,000 5,921,520
Special Facilities, American Airlines, Series A, 6.25%, 6/01/26 ......................... 1,900,000 2,077,992
Puerto Rico Telephone Authority Revenue,
Refunding, Series L, 6.125%, 1/01/22 .................................................... 6,450,000 6,856,544
Series N, 5.50%, 1/01/13 ................................................................ 500,000 517,215
Series N, 5.50%, 1/01/22 ................................................................ 2,375,000 2,441,144
University of Puerto Rico, University System Revenues, Series M, MBIA Insured,
5.50%, 6/01/15 .......................................................................... 4,000,000 4,243,400
5.25%, 6/01/25 .......................................................................... 6,145,000 6,309,194
Virgin Islands HFA, SFR, Refunding, Series A, GNMA Secured,
6.45%, 3/01/16 .......................................................................... 410,000 439,307
6.50%, 3/01/25 .......................................................................... 960,000 1,029,686
Virgin Islands Public Finance Authority Revenue, Senior Lien, Fund Loan Notes, Refunding, Series A,
5.50%, 10/01/18 ......................................................................... 3,000,000 3,050,190
5.50%, 10/01/22 ......................................................................... 3,000,000 3,042,180
5.625%, 10/01/25 ........................................................................ 3,000,000 3,067,200
Virgin Islands Water and Power Authority, Electric System Revenue,
Refunding, 5.30%, 7/01/18 ............................................................... 1,700,000 1,719,244
Refunding, 5.30%, 7/01/21 ............................................................... 1,000,000 1,009,556
Series A, Pre-Refunded, 7.40%, 7/01/11 .................................................. 5,150,000 5,709,857
-------------
Total Long Term Investments (Cost $199,472,998) ........................................ 215,477,377
-------------
a Short Term Investments .4%
Puerto Rico Commonwealth Government Development Bank, Refunding,
BIA Insured, Weekly VRDN and Put, 2.50%, 12/01/15 ...................................... 300,000 300,000
Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue, Series A, AMBAC Insured, Weekly VRDN and
Put, 2.75%, 7/01/28 .................................................................... 600,000 600,000
-------------
Total Short Term Investments (Cost $900,000) ........................................... 900,000
-------------
Total Investments (Cost $200,372,998) 98.6% ............................................ 216,377,377
Other Assets, less Liabilities 1.4% .................................................... 3,002,205
-------------
Net Assets 100.0% ...................................................................... $219,379,582
=============
See glossary of terms on page 137.
</TABLE>
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 principal balance plus accrued interest at
specified dates.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Financial Highlights
Franklin Federal Intermediate-Term Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
(unaudited) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.25 $10.94 $10.95 $10.48 $10.80 $10.54
-----------------------------------------------------------
Income from investment operations:
Net investment income .................................. .26 .53 .55 .55 .54 .52
Net realized and unrealized gains (losses) ............. .07 .33 (.01) .47 (.33) .29
-----------------------------------------------------------
Total from investment operations ........................ .33 .86 .54 1.02 .21 .81
-----------------------------------------------------------
Less distributions from net investment income ........... (.27) (.55) (.55) (.55) (.53) (.55)
-----------------------------------------------------------
Net asset value, end of period .......................... $11.31 $11.25 $10.94 $10.95 $10.48 $10.80
===========================================================
Total return* ........................................... 2.93% 8.02% 5.12% 9.93% (.20%) 7.82%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $164,286 $139,545 $104,715 $85,967 $73,977 $67,603
Ratios to average net assets:
Expenses ............................................... .76%** .75% .68% .65% .56% .30%
Expenses excluding waiver and payments by affiliate .... .80%** .82% .84% .85% .84% .89%
Net investment income .................................. 4.60%** 4.83% 5.16% 5.12% 5.25% 4.93%
Portfolio turnover rate ................................. 12.33% 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.
**Annualized.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin Federal Intermediate-Term Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 95.7%
Alabama .7%
Morgan County, Decatur Health Care Authority, Hospital Revenue,
Refunding, Connie Lee Insured, 5.80%, 3/01/04 .......................................... $1,000,000 $ 1,081,850
-------------
Alaska .4%
Alaska State HFC, Collateral, Veteran's Mortgage Program, First Series, 5.80%, 6/01/04 470,000 503,290
Anchorage Parking Authority Lease Revenue, 5th Avenue Garage
Project, Refunding, 6.50%, 12/01/02 .................................................... 200,000 215,442
-------------
718,732
-------------
Arizona 1.2%
Maricopa County COP, 5.625%, 6/01/00 .................................................... 640,000 652,115
Maricopa County School District No. 40, Glendale Improvement, 6.10%, 7/01/08 ............ 1,000,000 1,091,840
Mohave County IDA, Hospital Systems Revenue, Medical
Environments, Inc., Phoenix Hospital and Medical Center, ETM, Refunding,
6.00%, 7/01/00 ......................................................................... 200,000 208,154
Phoenix HFC, Mortgage Revenue, Refunding, Project A, MBIA Insured, 6.00%, 7/01/02 ....... 45,000 47,459
-------------
1,999,568
-------------
California 10.5%
ABAG Finance Corp., COP, Association XXVI, Series B, 6.30%, 10/01/02 .................... 100,000 107,442
Bakersfield Public Financing Authority Revenue, Refunding, Series A, 5.80%, 9/15/05 ..... 3,000,000 3,193,530
California Educational Facilities Authority Revenue, Pooled College
and University Financing, Refunding, Series B, 5.90%, 6/01/03 .......................... 1,500,000 1,602,570
California Statewide CDA Revenue, COP, Health Facilities,
Barton Memorial Hospital, Refunding, Series B, 6.40%, 12/01/05 ......................... 300,000 324,654
California Statewide Community Development Corp., COP,
Pacific Homes, Series A, 5.90%, 4/01/09 ................................................ 1,000,000 1,067,170
Coalinga Public Financing Authority Revenue, Series B, 6.10%, 9/15/04 ................... 300,000 306,144
Coastside County Water District Improvement Bond, 1915 Act,
Crystal Springs Project, Refunding,
5.10%, 9/02/03 .......................................................................... 500,000 503,065
5.30%, 9/02/05 .......................................................................... 630,000 634,498
Fresno Joint Powers Financing Authority, Local Agency Revenue,
Refunding, Series A, 6.00%, 9/02/01 .................................................... 1,000,000 1,033,130
Los Angeles County Transportation Commission, COP, Series B, 5.90%, 7/01/00 ............. 100,000 103,974
San Diego Port Facilities Revenue, National Steel and Shipbuilding Co.,
Refunding, 6.60%, 12/01/02 ............................................................. 100,000 105,845
San Francisco City and County RDA, Mortgage Revenue,
Refunding, Series A, MBIA Insured, 6.125%, 7/01/02 ..................................... 90,000 90,144
San Francisco Downtown Parking Corp., Parking Revenue, 6.25%, 4/01/04 ................... 200,000 221,184
San Joaquin County COP, General Hospital Project, 5.90%, 9/01/03 ........................ 200,000 213,504
San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue,
Refunding, Series A,1/15/17 ............................................................ 3,000,000 2,001,300
San Ramon Valley USD, COP, Measure A, Capital Projects, Series A, 5.95%, 10/01/01 ....... 2,000,000 2,117,160
Santa Clara Improvement Bond, 1915 Act, Reassessment District 187,
Refunding, Series 1,
5.00%, 9/02/06 .......................................................................... 465,000 464,698
5.25%, 9/02/11 .......................................................................... 1,000,000 996,270
Snowline Joint USD, COP, ETM,
5.60%, 7/01/01 .......................................................................... 260,000 272,633
5.70%, 7/01/02 .......................................................................... 275,000 292,729
5.80%, 7/01/03 .......................................................................... 290,000 313,354
Solano County COP, Justice Facility and Public Building Project,
Refunding, 5.875%, 10/01/05 ............................................................ 400,000 422,184
Southern California Rapid Transit District Revenue,
Special Benefit AD A2, 6.00%, 9/01/02 .................................................. 100,000 106,405
Susanville Public Financing Authority Revenue, Series A, AMBAC Insured,
5.90%, 9/01/02 .......................................................................... 25,000 26,468
6.00%, 9/01/03 .......................................................................... 100,000 106,262
Tahoe City PUD, COP, Capital Facilities Project, Series B, 6.05%, 6/01/01 ............... 500,000 523,175
Tuolumne County COP, Multiple Facilities Project, 6.00%, 6/01/99 ........................ 100,000 101,467
-------------
17,250,959
-------------
Colorado 3.3%
Denver City and County Airport Revenue,
Series A, 7.00%, 11/15/99 ............................................................... 3,000,000 3,105,600
Series C, 6.25%, 11/15/00 ............................................................... 335,000 348,832
Montrose County COP, 6.20%, 6/15/03 ..................................................... 1,500,000 1,612,530
Summit County Recreational Facilities Revenue, Copper Mountain,
Mandatory Put, Refunding, 5.90%, 10/01/99 .............................................. 255,000 260,730
-------------
5,327,692
-------------
Connecticut 1.7%
Connecticut HFA, Housing Mortgage Finance, Series C-2, 6.00%, 11/15/10 ................. $2,000,000 $ 2,150,480
Connecticut State Health and Educational Facilities Authority Revenue,
Sacred Heart University, Refunding, Series C, 6.00%, 7/01/05 ........................... 560,000 598,349
-------------
2,748,829
-------------
Florida 10.4%
Alachua County Health Facilities Authority Revenue, Santa Fe Health
Systems Project, Pre-Refunded, 6.875%, 11/15/02 ........................................ 115,000 121,324
Gateway Services District, Transportation/Roadway Service Charges, 8.50%, 5/01/04 ....... 2,160,000 2,400,386
Meadow Pointe II CDD, Capital Improvement Revenue, 6.00%, 7/01/01 ....................... 2,030,000 2,064,551
b Meadow Pointe II CDD, Capital Improvement Revenue, Series A, 5.25%, 8/01/03 ............. 2,445,000 2,418,887
Nassau County PCR, ITT Rayonier, Inc. Project, Refunding, 6.25%, 6/01/10 ................ 1,000,000 1,068,660
Northern Palm Beach County Water Control District, Unit Development No. 31, Refunding,
Program 1, 6.60%, 11/01/03 .............................................................. 405,000 432,414
Program 2, 6.60%, 11/01/03 .............................................................. 320,000 341,661
Palm Beach County IDR, Lourdes-Noreen Mckeen Residence, Geriatric Care, Inc. Project,
6.20%, 12/01/08 ......................................................................... 275,000 302,475
6.30%, 12/01/09 ......................................................................... 580,000 637,687
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 1,065,030
Port Saint Lucie Florida Special Assessment Revenue,
Utility Service Area No. 3 & 4-A, MBIA Insured, 5.00%, 10/01/13 ......................... 5,000,000 5,123,850
-------------
17,068,925
-------------
Georgia 3.5%
Baldwin County Georgia Hospital Authority Revenue,
Oconee Regional Medical Center., 5.30%, 12/01/13 ........................................ 1,020,000 1,029,986
Fulton County Development Authority, Special Facilities Revenue,
Delta Air Lines, Inc. Project, Refunding, 6.85%, 11/01/07 ............................... 100,000 108,808
Macon Bibb County Urban Development Authority Revenue, MFHR,
Refunding, Series A, MBIA Insured, 5.00%, 1/01/07 ....................................... 1,290,000 1,329,784
Wayne County Development Authority, PCR, ITT Rayonier, Inc. Project,
Refunding, 6.10%, 11/01/07 .............................................................. 3,105,000 3,330,796
-------------
5,799,374
-------------
Hawaii .3%
Hawaii State Department of Budget and Finance, Special Purpose Revenue,
Kapi'Olani Health Obligation, 5.60%, 7/01/06 ........................................... 500,000 535,915
-------------
Illinois 2.4%
Illinois Educational Facilities Authority Revenue, Columbia College, 5.875%, 12/01/03 850,000 905,624
Illinois HDA Revenue, Homeowner Mortgage, Sub-Series A-1, 6.10%, 2/01/05 ................ 360,000 390,712
Illinois Health Facilities Authority Revenue,
St. Elizabeth's Hospital, 6.00%, 7/01/05 ................................................ 425,000 457,177
Victory Health Services, Series A, 5.25%, 8/15/09 ....................................... 1,170,000 1,201,918
Metropolitan Pier and Exposition Authority, Hospitality Facilities Revenue,
McCormick Place Convention, 5.75%, 7/01/06 .............................................. 1,000,000 1,063,990
-------------
4,019,421
-------------
Indiana 3.7%
Franklin EDR, Hoover Universal, Inc. Project, Johnson Controls, Refunding, 6.10%, 12/01/04 2,000,000 2,202,060
Indianapolis Local Public Improvement Bond Bank, Refunding, Series D, 6.10%, 2/01/02 .... 100,000 107,025
Sullivan PCR, Michigan Power Company Project, Refunding, Series C, 5.95%, 5/01/09 ....... 3,500,000 3,708,495
-------------
6,017,580
-------------
Iowa .1%
Iowa State Financial Authority, Hospital Facilities Revenue,
Trinity Regional Hospital Project, ETM, Refunding, 6.50%, 7/01/00 ...................... 200,000 207,042
-------------
Kentucky 1.7%
Kenton County Airport Board Revenue, Special Facilities,
Delta Airlines Project, Series A, 6.75%, 2/01/02 ....................................... 100,000 107,396
Kentucky Economic Development Financing Authority, Hospital System Revenue,
Appalachian Regional, Refunding & Improvement,
5.70%, 10/01/10 ......................................................................... 1,000,000 1,047,470
5.75%, 10/01/11 ......................................................................... 1,500,000 1,571,010
-------------
2,725,876
-------------
Louisiana .1%
Calcasieu Parish Public Trust Authority, Mortgage Revenue,
Refunding, Series B, 6.375%, 11/01/02 .................................................. $ 20,000 $ 21,306
Louisiana State Offshore Terminal Authority, Deepwater Port Revenue,
First Stage, Loop, Inc., Refunding, Series B, 6.20%, 9/01/03 ............................ 100,000 108,598
Louisiana State Public Facilities Authority Revenue, Student Loan,
Refunding, Series A-1, 6.20%, 3/01/01 .................................................. 80,000 83,290
-------------
213,194
-------------
Maryland .1%
Baltimore Economic Development Lease Revenue, Armistead
Partnership, Refunding, Series A, 6.75%, 8/01/02 ....................................... 160,000 173,128
-------------
Massachusetts 5.3%
Massachusetts State Industrial Finance Agency Resource Recovery Revenue,
Ogden Haverhill Project, Refunding, Series A,
4.95%, 12/01/06 ......................................................................... 2,500,000 2,516,300
5.15%, 12/01/07 ......................................................................... 2,000,000 2,013,740
5.20%, 12/01/08 ......................................................................... 2,000,000 2,014,540
Massachusetts State Industrial Finance Agency, Revenue, Youville Senior Care,
Series D, 5.50%, 10/01/12 .............................................................. 1,745,000 1,810,926
New England Educational Loan Marketing Corp., Student Loan Revenue,
Refunding, Series B, 5.60%, 6/01/02 .................................................... 415,000 431,119
-------------
8,786,625
-------------
Michigan 1.4%
Chippewa County Hospital Financing Authority Revenue, Chippewa
County War Memorial, Refunding, Series B,
5.30%, 11/01/07 ........................................................................ 815,000 836,353
5.625%, 11/01/14 ........................................................................ 350,000 359,167
Detroit GO, Refunding, Series B, 6.375%, 4/01/06 ........................................ 1,000,000 1,110,140
-------------
2,305,660
-------------
Minnesota .1%
Minneapolis CDA, Supported Development Revenue, Common Bond Fund,
Series 91-5A, 7.20%, 12/01/04 ........................................................... 200,000 217,482
-------------
Mississippi .5%
Mississippi Development Bank, Special Obligation, Oktibbeha County
Hospital Revenue Project, Refunding, 5.65%, 7/01/06 .................................... 725,000 759,467
-------------
Missouri 4.0%
Lake of the Ozarks Community Bridge Corp., Bridge System Revenue,
Refunding, 5.00%, 12/01/08 ............................................................. 3,000,000 2,966,640
Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, Park Lane MedicalCenter, Series A, 4.70%, 1/01/04 ........... 1,600,000 1,624,768
Taney County Missouri IDA, Hospital Revenue, The Skaggs
Community Hospital Association, 5.10%, 5/15/10 .......................................... 1,420,000 1,433,604
West Plains Industrial Development Authority, Hospital Revenue,
Ozarks Medical Center, Refunding, 5.00%, 11/15/04 ...................................... 560,000 567,101
-------------
6,592,113
-------------
Nebraska .4%
Nebraska Higher Education Loan Program, Inc. Revenue,
Subject Lien, Series A-6, 6.70%, 12/01/02 ............................................... 270,000 286,802
Wayne State College Revenue, Student Fees and Facilities,
Refunding, MBIA Insured, 5.05%, 7/01/10 ................................................ 365,000 373,202
-------------
660,004
-------------
Nevada 2.3%
Clark County Nevada PCR, Nevada Power Company Project,
Refunding, Series D, 5.30%, 10/01/11 ................................................... 1,500,000 1,519,170
Sparks Redevelopment Agency, Tax Allocation Revenue,
Asset Guaranty, Refunding, 5.15%, 1/15/08 ............................................... 2,110,000 2,208,832
-------------
3,728,002
-------------
New Hampshire .9%
New Hampshire, Higher Education and Health Facilities Authority
Revenue, New Hampshire Catholic Charities, Refunding,
Series A, 5.10%, 8/01/04 ............................................................... 1,385,000 1,411,093
-------------
New Jersey .7%
New Jersey EDA Revenue, Economic Growth, 2nd Series F-1, 6.00%, 12/01/02 ................ 80,000 84,394
New Jersey Health Care Facilities Financing Authority Revenue,
Monmouth Medical Center, Refunding, Series C, FSA Insured,
5.80%, 7/01/04 ......................................................................... 1,000,000 1,087,810
-------------
1,172,204
-------------
New York 11.9%
Metropolitan Transportation Authority, Commuter Facilities Revenue,
Services Contract, Refunding, Series R, 5.50%, 7/01/11 .................................. 2,215,000 2,349,096
New York City GO,
ETM, Series B, 6.25%, 10/01/01 .......................................................... 5,000 5,349
Refunding, Series H, 5.90%, 8/01/09 ..................................................... 500,000 547,705
New York (cont.)
New York City GO, (cont.)
Refunding, Series J, 6.00%, 8/01/08 ..................................................... $3,000,000 $ 3,331,050
Series B, 6.25%, 10/01/01 ............................................................... 95,000 101,327
Pre-Refunded, 6.50%, 8/01/04 ............................................................ 105,000 116,083
Series C, 6.50%, 8/01/04 ................................................................ 410,000 449,204
Series C, 6.50%, 8/01/07 ................................................................ 1,515,000 1,651,259
Pre-Refunded, 6.50%, 8/01/07 ............................................................ 335,000 370,359
Series H, 7.00%, 2/01/05 ................................................................ 30,000 33,053
Series H, Pre-Refunded, 7.00%, 2/01/05 .................................................. 220,000 245,067
Series J, 6.00%, 2/15/04 ................................................................ 1,000,000 1,085,330
New York City Health and Hospital Corp. Revenue, Refunding, Series A, 6.00%, 2/15/06 .... 2,500,000 2,660,375
New York City IDA, Civic Facilities Revenue, New York Blood Center, Inc.
Project, ETM, 6.80%, 5/01/02 ............................................................ 90,000 95,197
New York State Dormitory Authority Revenue, Mental Health
Services Facilities Improvement, Refunding, Series D, 5.60%, 2/15/07 .................... 140,000 151,330
New York State HFA, Refunding, Series A, 5.90%, 5/01/05 ................................. 1,000,000 1,079,140
New York State Tollway Authority, Service Contract Revenue, Local Highway and Bridge,
5.75%, 4/01/08 .......................................................................... 500,000 544,510
5.90%, 4/01/08 .......................................................................... 1,000,000 1,089,640
5.75%, 4/01/09 .......................................................................... 1,150,000 1,246,198
Oneida-Herkimer Solid Waste Management Authority,
Solid Waste Systems Revenue, ETM, Refunding, 6.20%, 4/01/00 ............................ 100,000 103,841
Port Authority of New York and New Jersey, Special Obligation
Revenue, 3rd Installment, 7.00%, 10/01/07 ............................................... 1,000,000 1,168,330
Ulster County Resident Recovery Agency, Solid Waste System Revenue, 5.90%, 3/01/07 ...... 1,100,000 1,176,791
-------------
19,600,234
-------------
Ohio 1.1%
Franklin County Health Care Facilities Revenue, Ohio Presbyterian Services, Refunding,
5.25%, 7/01/08 .......................................................................... 575,000 573,649
5.40%, 7/01/10 .......................................................................... 775,000 772,931
5.50%, 7/01/11 .......................................................................... 500,000 500,820
-------------
1,847,400
-------------
Oklahoma 1.8%
Jackson County Memorial Hospital Authority Revenue, Jackson County
Memorial Hospital Project, Refunding, 6.75%, 8/01/04 ................................... 1,775,000 1,892,931
Valley View Hospital Authority Revenue, Valley View Regional Medical
Center, Refunding, 5.75%, 8/15/06 ....................................................... 1,000,000 1,033,440
-------------
2,926,371
-------------
Oregon 1.3%
Clackamas County, Hospital Facility Authority Revenue,
Willamette View, Inc. Project, Refunding, 6.00%, 11/01/06 .............................. 500,000 526,285
Hillsboro Hospital Facilities Authority Revenue, Refunding, 5.75%, 10/01/12 ............. 1,000,000 1,048,620
Port Umpqua PCR, International Paper Company Projects,
Refunding, Series A, 5.05%, 6/01/09 .................................................... 500,000 515,020
-------------
2,089,925
-------------
Pennsylvania 3.7%
Cambria County Hospital Development Authority Revenue,
Conemaugh Valley Hospital, Refunding and Improvement, Series B,
Connie Lee Insured, 5.90%, 7/01/03 ...................................................... 100,000 107,941
Chartiers Valley Industrial and Commercial Development Authority,
First Mortgage Revenue, Asbury Place Project, 6.25%, 2/01/06 ........................... 300,000 324,900
Clarion County Hospital Authority Revenue, Clarion Hospital
Project, Refunding, 5.40%, 7/01/07 ..................................................... 1,135,000 1,159,686
Northeastern Hospital and Educational Authority, College Revenue,
Kings College Project, Refunding, Series B, 5.60%, 7/15/03 ............................. 410,000 427,491
Philadelphia Gas Works Revenue, Refunding, Series A,
5.70%, 7/01/00 .......................................................................... 300,000 308,511
5.80%, 7/01/01 .......................................................................... 300,000 312,897
Philadelphia Gas Works Revenue, Subordinated, First Series C,
FSA Insured, 5.00%, 7/01/13 ............................................................ 1,680,000 1,707,283
Schuylkill County IDA, Resources Recovery Revenue, Schuykill
Energy Resources Inc., Refunding, 6.50%, 1/01/10 ........................................ 1,790,000 1,800,239
-------------
6,148,948
-------------
South Carolina .6%
Charleston County Resource Recovery Revenue, Foster Wheeler
Charleston, Refunding, AMBAC Insured, 5.25%, 1/01/10 ................................... 1,000,000 1,059,540
-------------
South Dakota .7%
South Dakota HDA, Homeownership Mortgage, Series D, 6.05%, 5/01/04 ..................... 1,000,000 1,086,520
-------------
Tennessee 1.1%
Memphis-Shelby County Airport Authority, Special Facility and Project
Revenues, Federal Express Corp., Refunding, 5.35%, 9/01/12 ............................. $1,000,000 $ 1,035,950
Metropolitan Government, Nashville and Davidson County IDBR,
Osco Treatment, Inc., Refunding and Improvement, 6.00%, 5/01/03 ........................ 750,000 788,408
-------------
1,824,358
-------------
Texas 3.6%
Abilene Higher Education Facilities Corp., Higher Education Revenue,
Abilene Christian Facility, Refunding and Improvement, 5.90%, 10/01/05 ................. 785,000 850,461
Houston Independent School District, Refunding, 5.50%, 8/15/09 .......................... 1,000,000 1,047,070
North Central Health Facility Development Corp. Revenue,
C. Young Memorial Home Project, Refunding, Series C, 6.10%, 2/15/06 .................... 400,000 429,904
Port Corpus Christi Texas, Nueces County General Revenue,
Union Pacific, Converted, Refunding, 5.35%, 11/01/10 ................................... 2,500,000 2,550,150
Travis County GO, Refunding, 5.00%, 3/01/11 ............................................ 1,000,000 1,030,220
-------------
5,907,805
-------------
U.S. Territories 4.5%
District of Columbia, GO,
Series A, ETM, 5.875%, 6/01/05 .......................................................... 30,000 32,739
Refunding, Series A, 5.875%, 6/01/05 .................................................... 670,000 714,200
Puerto Rico Electric Power Authority Revenue,
Refunding, Series Q, 5.90%, 7/01/01 ..................................................... 100,000 104,999
Series T, 6.00%, 7/01/04 ................................................................ 1,345,000 1,468,189
Virgin Islands Public Finance Authority Revenue, Senior Lien,
Refunding, Series A, 5.30%, 10/01/11 ................................................... 5,000,000 5,102,700
-------------
7,422,827
-------------
Utah .7%
Salt Lake County College Revenue, Westminster College Project,
5.50%, 10/01/12 ........................................................................ 340,000 348,979
Utah State HFA, SFM, Refunding, 5.85%, 7/01/08 .......................................... 670,000 731,553
-------------
1,080,532
-------------
Virginia 5.7%
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project,
Refunding, 5.85%, 9/01/04 .............................................................. 2,800,000 3,059,644
Virginia State GO, 5.00%, 6/01/09 ....................................................... 1,000,000 1,047,540
Virginia State HDA,
Commonwealth Mortgage, Sub-Series C-7, 5.60%, 1/01/03 ................................... 1,695,000 1,797,548
Commonwealth Mortgage, Sub-Series C-7, 5.70%, 1/01/04 ................................... 1,475,000 1,570,536
MF Housing, Series B, 5.15%, 11/01/12 ................................................... 1,905,000 1,932,413
-------------
9,407,681
-------------
Washington 1.7%
Marysville Water and Sewer Revenue, Refunding, MBIA Insured, 5.75%, 12/01/05 ............ 600,000 644,490
Washington State Public Power Supply System, Nuclear Project Revenue,
No. 1, Refunding, Series A, AMBAC Insured, 5.70%, 7/01/09 ............................... 1,000,000 1,093,880
No. 2, Refunding, Series A, 5.375%, 7/01/10 ............................................. 1,000,000 1,040,390
-------------
2,778,760
-------------
West Virginia .9%
West Virginia Public Energy Authority, Energy Revenue,
Morgantown Association Project, Series A, 5.05%, 7/01/08 ............................... 1,500,000 1,512,180
-------------
Wisconsin .7%
Wisconsin State GO, Refunding, Series 1, 5.50%, 5/01/10 ................................. 1,000,000 1,068,790
-------------
Total Long Term Investments (Cost $149,818,851) ........................................ 157,282,606
-------------
a Short Term Investments 4.0%
Denver City and County MFHR, Ogden Residence Project,
Daily VRDN and Put, 3.75%, 12/01/09 .................................................... 400,000 400,000
Farmington New Mexico, PCR, Arizona Public Service Co., Refunding,
Series B, Daily VRDN and Put, 3.25%, 9/01/24 ........................................... 1,000,000 1,000,000
Hopewell Virginia IDAR, Exempt Facility-Hadson Power 13, Series A,
Daily VRDN and Put, 3.60%, 4/01/15 ..................................................... 100,000 100,000
Massachusetts State Health and Educational Facilities Authority Revenue,
Capital Assets Program, Series D, MBIA Insured, Weekly VRDN
and Put, 3.05%, 1/01/35 ................................................................ 2,000,000 2,000,000
New York City Municipal Water Financing Authority, Water and
Sewer System Revenue, Series C, FGIC Insured, Daily VRDN and Put, 3.30%, 6/15/23 ....... 1,000,000 1,000,000
North Carolina Medical Care Commission Revenue, Carol Woods Project,
Daily VRDN and Put, 3.35%, 4/01/21 ..................................................... $1,300,000 $ 1,300,000
North Carolina Medical Care Commission, Hospital Revenue, ACES,
Pooled Financing Project, Series A,Daily VRDN and Put,
3.35%, 10/01/20 ........................................................................ 700,000 700,000
-------------
Total Short Term Investments (Cost $6,500,000) ......................................... 6,500,000
-------------
Total Investments (Cost $156,318,851) .................................................. 163,782,606
Other Assets, less Liabilities .3% ..................................................... 503,051
-------------
Net Assets 100.0% ...................................................................... $164,285,657
=============
</TABLE>
See glossary of terms on page 137.
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.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Financial Highlights
Franklin High Yield Tax-Free Income Fund
Six Months Ended
August 31, 1998 Year Ended February 28,
Class I (unaudited) 1998 1997 19961 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.68 $11.21 $11.19 $10.74 $11.25 $11.10
--------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .33 .69 .71 .74 .74 .76
Net realized and unrealized gains (losses) ............. .02 .47 .04 .45 (.51) .17
--------------------------------------------------------------
Total from investment operations ........................ .35 1.16 .75 1.19 .23 .93
--------------------------------------------------------------
Less distributions from:
Net investment income .................................. (.33)2 (.68) (.73)4 (.74) (.74) (.78)
In excess of net investment income ..................... -- (.01) -- -- -- --
--------------------------------------------------------------
Total distributions ..................................... (.33) (.69) (.73) (.74) (.74) (.78)
--------------------------------------------------------------
Net asset value, end of period .......................... $11.70 $11.68 $11.21 $11.19 $10.74 $11.25
==============================================================
Total return* ........................................... 3.09% 10.64% 7.01% 11.35% 2.28% 8.33%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $5,823,345$5,742,939$4,505,258$3,787,147$3,287,270$3,372,533
Ratios to average net assets:
Expenses ............................................... .62%** .61% .62% .61% .60% .53%
Net investment income .................................. 5.63%** 5.98% 6.41% 6.68% 6.92% 6.79%
Portfolio turnover rate ................................. 14.39% 15.84% 6.98% 9.23% 15.89% 16.09%
Class II
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $11.75 $11.26 $11.24 $10.81
-------------------------------------------
Income from investment operations:
Net investment income .................................. .30 .63 .66 .56
Net realized and unrealized gains ...................... .02 .48 .03 .42
-------------------------------------------
Total from investment operations ........................ .32 1.11 .69 .98
-------------------------------------------
Less distributions from net investment income ........... (.30)3 (.62) (.67)5 (.55)
-------------------------------------------
Net asset value, end of period .......................... $11.77 $11.75 $11.26 $11.24
===========================================
Total return* ........................................... 2.77% 10.15% 6.36% 9.27%
Ratios/supplemental data
Net assets, end of period (000's) ....................... $563,292 $423,264 $194,400 $48,163
Ratios to average net assets:
Expenses ............................................... 1.18%** 1.18% 1.18% 1.18%**
Net investment income .................................. 5.07%** 5.38% 5.78% 6.07%**
Portfolio turnover rate ................................. 14.39% 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.
1For the period May 1, 1995 (effective date) to February 29, 1996 for Class II.
2Includes distributions in excess of net investment income in the amount of
$.006.
3Includes distributions in excess of net investment income in the amount of
$.005.
4Includes distributions in excess of net investment income in the amount of
$.008.
5Includes distributions in excess of net investment income in the amount of
$.003.
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Statement of Investments, August 31, 1998 (unaudited)
PRINCIPAL
Franklin High Yield Tax-Free Income Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 98.0%
Bonds 94.4%
Alabama 1.1%
Homewood Special Care Facilities Financing Authority Revenue,
Hospital Revenue, Lakeshore Hospital Project, Refunding, Series B,
Pre-Refunded, 8.25%, 2/01/04 ............................................................. $ 5,260,000 $ 5,443,784
Jefferson County Sewer Revenue,
Series D, 5.75%, 2/01/22 ................................................................ 7,500,000 8,022,150
Series D, 5.75%, 2/01/27 ................................................................ 18,535,000 19,825,407
Marshall County Health Care Authority, Hospital Revenue,
Boaz-Albertville Medical Center, Refunding, 6.20%, 1/01/08 .............................. 3,300,000 3,454,011
Guntersville, Arab Medical Center, 10.25%, 10/01/13 ..................................... 4,660,000 4,819,512
Mcintosh IDB, Environmental Improvement Revenue, CIBA Specialty,
Refunding, Series C, 5.375%, 6/01/28 ................................................... 3,000,000 3,042,810
Mobile IDB, Mobile Energy Service Co. Project, Solid Waste Disposal
Revenue, Refunding, 6.95%, 1/01/20 ..................................................... 46,500,000 23,715,000
Prichard Water Works and Sewer Board Revenue, Pre-Refunded, 9.50%, 11/15/14 ............. 2,500,000 2,603,675
-------------
70,926,349
-------------
Alaska 1.9%
Alaska Industrial Development & Export Authority Power Revenue, Upper Lynn Canal Regional Power,
5.70%, 1/01/12 .......................................................................... 2,000,000 2,036,600
5.80%, 1/01/18 .......................................................................... 1,245,000 1,267,659
5.875%, 1/01/32 ......................................................................... 3,600,000 3,672,792
Alaska Industrial Development & Export Revenue,
American President Lines Project, 8.00%, 11/01/09 ....................................... 4,000,000 4,219,120
Revolving Fund, Series A, 6.20%, 4/01/10 ................................................ 835,000 897,366
Alaska State HFC, Refunding, Series A, MBIA Insured,
5.85%, 12/01/15 ......................................................................... 4,670,000 4,953,469
6.00%, 12/01/15 ......................................................................... 4,215,000 4,503,095
5.875%, 12/01/24 ........................................................................ 5,000,000 5,267,300
5.875%, 12/01/30 ........................................................................ 12,475,000 13,067,064
6.10%, 12/01/37 ......................................................................... 22,000,000 23,481,260
Series A-2, 5.75%, 6/01/24 .............................................................. 2,500,000 2,602,750
Valdez Marine Terminal Revenue,
BP Pipelines Inc. Project, Refunding, Series A, 5.85%, 8/01/25 .......................... 39,010,000 40,648,030
Mobil Alaska Pipeline, Refunding, 5.75%, 11/01/28 ....................................... 15,000,000 15,559,350
-------------
122,175,855
-------------
Arizona 5.5%
Apache County, IDA,
IDR, Tucson Electric Power Co. Project, Series C, 5.85%, 3/01/26 ........................ 16,500,000 16,603,455
PCR, Tucson Electric Power Co. Project, Series A, 5.85%, 3/01/28 ........................ 43,450,000 43,722,432
PCR, Tucson Electric Power Co. Project, Series B, 5.875%, 3/01/33 ....................... 54,450,000 54,790,857
Coconino County PCR, Tucson Electric Power Navajo, Refunding,
Series A, 7.125%, 10/01/32 .............................................................. 21,125,000 23,809,354
Series B, 7.00%, 10/01/32 ............................................................... 7,500,000 8,444,250
Gilbert Water Resources Municipal Property Corp. Water and
Wastewater System Revenue, Sub-Lien, 6.875%,
4/01/14 ................................................................................. 1,000,000 1,033,530
4/01/16 ................................................................................. 1,000,000 1,044,390
Health Facilities Authority Revenue Bethesda Foundation Project, Series A,
6.375%, 8/15/15 ......................................................................... 400,000 426,792
6.40%, 8/15/27 .......................................................................... 3,000,000 3,181,740
Maricopa County PCR, Public Services,
Palo Verde, Refunding, Series A, 6.375%, 8/15/23 ........................................ 8,500,000 9,058,705
Refunding, Series A, 5.75%, 11/01/22 .................................................... 20,150,000 20,811,726
Maricopa County Rural Road ID, 8.625%, 7/01/07 .......................................... 4,000,000 4,373,520
Pima County IDAR, Tucson Electric Power Co. Project,
Series A, 6.10%, 9/01/25 ................................................................ 6,250,000 6,378,625
Series B, 6.00%, 9/01/29 ................................................................ 94,690,000 96,644,402
Series C, 6.00%, 9/01/29 ................................................................ 37,000,000 37,763,680
Red Hawk Canyon Community Facility, 7.625%, 6/01/05 ..................................... 15,625,000 16,148,906
Arizona (cont.)
Salt River Project, Agricultural Improvement and Power
District, Electric System Revenue, Series A, 6.00%, 1/01/31 ............................. $ 5,000,000 $ 5,155,800
Tempe IDA, Residential Care Facilities Revenue,
Volunteers of America Care Facilities, 9.00%, 6/01/18 ................................... 2,170,000 2,227,180
351,619,344
Arkansas .5%
Baxter County IDR, Aeroquip/Trinova Corp. Project, Refunding, 5.80%, 10/01/13 .......... 2,400,000 2,606,832
Conway Hospital Revenue, Refunding, 8.375%, 7/01/11 ..................................... 1,000,000 1,084,310
Independence County PCR,
Arkansas Power and Light Co. Project, Refunding, 6.25%, 1/01/21 ......................... 5,000,000 5,363,600
Mississippi Power and Light Co. Project, Series A, 9.00%, 7/01/13 ....................... 4,275,000 4,441,554
Mississippi Power and Light Co. Project, Series B, 9.00%, 7/01/13 ....................... 1,185,000 1,231,168
Mississippi Power and Light Co. Project, Series C, 9.50%, 7/01/14 ....................... 200,000 208,580
Jefferson County PCR, Entergy Arkansas Inc. Project, Refunding, 5.60%, 10/01/17 ......... 13,150,000 13,370,131
North Little Rock Health Facilities, Baptist Hospital Revenue,
Series A, MBIA Insured, 5.50%, 12/01/21 ................................................. 700,000 730,863
29,037,038
California 7.9%
Adelanto California Water Authority Revenue, Water Systems
Acquisition Project, Series A, 7.50%, 9/01/28 .......................................... 21,330,000 23,014,004
Alameda County MFHR, Claremont House Project, Refunding, Series A, 8.00%, 12/01/23 ...... 13,100,000 14,329,828
Antioch, 1915 Act, AD No. 27, Lone Tree,
Series C, 7.70%, 9/02/17 ................................................................ 11,030,000 11,421,344
Series D, 7.30%, 9/02/13 ................................................................ 4,315,000 4,461,063
Arroyo Grande Hospital System COP, Vista Hospital Systems,
Refunding, Series A, 9.50%, 7/01/20 ..................................................... 22,515,000 26,728,682
Series A, 8.375%, 7/01/06 ............................................................... 2,500,000 2,831,200
Avenal California Public Financing Authority Revenue, Refunding,
7.00%, 9/02/10 .......................................................................... 1,660,000 1,690,693
7.25%, 9/02/27 .......................................................................... 3,665,000 3,765,861
Azusa RDA, Tax Allocation, Merged Area Project, Refunding, Series A, 6.75%, 8/01/23 ..... 2,850,000 3,065,432
Beaumont Public Financing Authority Revenue, Sewer Enterprise Project,
Series A, Pre-Refunded, 6.90%, 9/01/23 ................................................. 4,575,000 5,611,604
Benicia, 1915 Act, Fleetside Industrial Park Assessment, Refunding,
5.00%, 9/02/98 .......................................................................... 180,000 180,000
5.25%, 9/02/99 .......................................................................... 180,000 180,988
5.50%, 9/02/00 .......................................................................... 195,000 197,904
5.65%, 9/02/01 .......................................................................... 205,000 209,467
5.80%, 9/02/02 .......................................................................... 215,000 221,476
5.90%, 9/02/03 .......................................................................... 225,000 232,499
6.00%, 9/02/04 .......................................................................... 240,000 247,997
6.10%, 9/02/05 .......................................................................... 255,000 263,492
6.20%, 9/02/06 .......................................................................... 270,000 278,986
6.30%, 9/02/07 .......................................................................... 290,000 299,677
6.40%, 9/02/08 .......................................................................... 305,000 315,035
6.50%, 9/02/09 .......................................................................... 325,000 335,689
6.60%, 9/02/10 .......................................................................... 340,000 351,176
6.70%, 9/02/11 .......................................................................... 365,000 377,100
6.80%, 9/02/12 .......................................................................... 245,000 253,181
California Educational Facilities Authority Revenue, Pooled College &
University Financing, Series B, 6.125%, 6/01/09 ........................................ 3,000,000 3,222,480
California HFA, MFHR, Series A, AMBAC Insured, 6.05%, 8/01/27 ........................... 2,000,000 2,146,280
California Special Districts, Association Financial Corp. COP,
Santa Cruz Port Authority, Series B, 7.50%, 5/01/13 ..................................... 820,000 883,812
California State GO,
5.75%, 3/01/19 .......................................................................... 7,010,000 7,738,549
Pre-Refunded, 5.75%, 3/01/19 ............................................................ 310,000 328,544
California State Health Facilities Hospital Revenue, Summit Medical Center,
Series A, Pre-Refunded, 7.50%, 5/01/09 .................................................. 4,370,000 4,570,714
Series A, Pre-Refunded, 7.60%, 5/01/15 .................................................. 2,155,000 2,255,380
Series B, Pre-Refunded, 7.50%, 5/01/09 .................................................. 5,255,000 5,496,362
California Statewide CDA, California State University Northridge,
Refunding, AMBAC Insured, 6.00%, 4/01/26 ................................................ 2,500,000 2,716,000
California (cont.)
Capistrano USD, CFD, Special Tax No. 9, Pre-Refunded,
6.60%, 9/01/05 .......................................................................... $ 285,000 $ 323,618
6.70%, 9/01/06 .......................................................................... 280,000 319,200
6.80%, 9/01/07 .......................................................................... 325,000 371,959
6.90%, 9/01/08 .......................................................................... 260,000 298,735
7.00%, 9/01/18 .......................................................................... 1,000,000 1,153,470
City of Oakland Revenue, YMCA East Bay Project, Refunding, 7.10%, 6/01/10 ............... 2,335,000 2,592,177
Contra Costa County Public Financing Authority Revenue, Refunding,
6.625%, 9/02/10 ......................................................................... 2,300,000 2,374,980
6.875%, 9/02/16 ......................................................................... 2,610,000 2,695,608
Corona COP,
Corona Community Hospital Project, ETM, 9.425%, 9/01/06 ................................. 7,955,000 9,756,092
Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ........................ 8,820,000 12,509,141
Vista Hospital Systems, Refunding, Series B, 8.375%, 7/01/06 ............................ 11,100,000 12,497,268
Vista Hospital Systems, Refunding, Series B, 9.50%, 7/01/20 ............................. 10,885,000 13,106,411
Eden Township Hospital District Health Facilities Revenue, COP,
Insured Eden Hospital Health Services Corp., Refunding,
5.85%, 7/01/18 .............................................................................. 4,845,000 5,051,930
Emeryville RDA, MFHR, Emery Bay Apartments, 8.75%,
12/01/02 ................................................................................ 205,000 213,151
12/01/21 ................................................................................ 3,770,000 3,907,907
Foothill Eastern Transportation Corridor Agency, California Toll Road
Revenue, Series A, 6.50%, 1/01/32 ....................................................... 37,675,000 41,407,462
Gateway Improvement Authority, Marin City Community Facilities
District, Series A, Pre-Refunded, 7.75%, 9/01/25 ....................................... 4,500,000 5,477,715
Hawthorne CRDA, Hawthorne Plaza Project, Refunding, 8.50%, 7/01/20 ...................... 4,175,000 4,412,224
Hesperia Public Financing Authority Revenue, Series B, 7.375%, 10/01/23 ................. 6,365,000 6,708,455
Irvine, 1915 Act, AD No. 96, Group One, 5.75%, 9/02/22 .................................. 1,000,000 1,012,530
Lake Elsinore, 1915 Act, AD No. 9, Series A, 7.90%, 9/02/24 ............................. 6,000,000 6,376,260
Long Beach Special Tax, CFD No. 2, West Long Beach, 7.50%, 9/01/11 ...................... 3,065,000 3,100,493
Los Angeles County, CFD No. 4, Special Tax Improvement,
Calabassas Area B, Series A, 9.25%, 9/01/22 ............................................ 29,500,000 30,826,320
Los Angeles MFR, Refunding,
Series J-1A, 7.125%, 1/01/24 ........................................................... 190,000 197,649
Series J-1B, 7.125%, 1/01/24 ............................................................ 675,000 702,176
Series J-1C, 7.125%, 1/01/24 ............................................................ 1,435,000 1,492,773
Series J-2A, 8.50%, 1/01/24 ............................................................. 1,025,000 1,063,294
Series J-2B, 8.50%, 1/01/24 ............................................................. 3,345,000 3,469,969
Series J-2C, 8.50%, 1/01/24 ............................................................. 7,120,000 7,386,003
Los Angeles Regional Airports Improvement Corp., Lease Revenue,
Delta Airlines, Inc., Refunding, 6.35%, 11/01/25 ........................................ 25,000,000 27,567,750
Sub-Lease Revenue, Continental Airlines, Inc., Terminal Facilities, 9.00%, 8/01/08 ...... 1,800,000 1,868,310
Sub-Lease Revenue, Continental Airlines, Inc., Terminal Facilities, 9.00%, 8/01/17 ...... 7,595,000 7,883,230
United Airlines, Inc., Refunding, 6.875%, 11/15/12 ...................................... 9,500,000 10,492,275
Orinda, 1915 Act, AD No. 9, Oak Springs, 8.25%, 9/02/19 ................................. 2,834,000 2,935,004
Palmdale 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 2,154,007
7.25%, 8/15/23 .......................................................................... 4,095,000 4,338,038
Riverside County COP, Airforce Village Project, 8.125%,
6/15/07 ................................................................................. 7,160,000 7,781,631
6/15/12 ................................................................................. 5,290,000 5,739,915
Roseville Special Tax, North Center Community Facility District, 8.60%, 11/01/17 ........ 12,000,000 13,131,000
Sacramento County, 1915 Act, Sunrise/U.S. Corridor Assessment, Refunding,
6.10%, 9/02/01 .......................................................................... 1,020,000 1,050,600
6.30%, 9/02/02 .......................................................................... 1,125,000 1,158,750
6.50%, 9/02/03 .......................................................................... 1,515,000 1,560,450
6.60%, 9/02/04 .......................................................................... 1,620,000 1,668,600
6.70%, 9/02/05 .......................................................................... 1,725,000 1,776,750
6.80%, 9/02/06 .......................................................................... 1,835,000 1,890,050
California (cont.)
Sacramento County, 1915 Act, Sunrise/US Corridor Assessment, Refunding, (cont.)
6.90%, 9/02/07 .......................................................................... $ 1,965,000 $ 2,023,950
7.00%, 9/02/08 .......................................................................... 2,095,000 2,157,850
7.00%, 9/02/09 .......................................................................... 2,160,000 2,224,800
San Bernardino County Finance Authority Revenue, Public Improvement, AD, Refunding, Series A,
6.00%, 9/02/01 .......................................................................... 1,450,000 1,488,686
6.50%, 9/02/04 .......................................................................... 1,285,000 1,323,794
7.00%, 9/02/17 .......................................................................... 2,720,000 2,801,219
San Bernardino County MFHR,
Meadowland Apartments Project, Series A, 6.50%, 3/01/10 ................................. 7,250,000 7,250,000
Park Heights Apartments, Series A, 6.50%, 8/01/05 ....................................... 3,000,000 3,000,000
San Francisco Downtown Parking Corp. Revenue,
6.55%, 4/01/12 .......................................................................... 1,800,000 1,973,340
6.65%, 4/01/18 .......................................................................... 2,150,000 2,351,821
San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue,
Senior Lien, Refunding, Series A, 5.00%, 1/01/33 ...................................... 5,930,000 5,631,662
San Jose MFHR, Timberwood Apartments, Series B, 9.25%, 2/01/10 .......................... 1,500,000 1,557,315
San Luis Obispo Vista Hospital System, COP, 8.375%, 7/01/29 ............................. 22,000,000 23,839,200
San Ramon, 1915 Act, Fostoria Parkway Reassessment District No. 9,
6.30%, 9/02/03 .......................................................................... 185,000 192,816
6.80%, 9/02/15 .......................................................................... 680,000 710,355
Santa Margarita, Dana Point Authority, California Revenue, ID,
Refunding, Series B, MBIA Insured, 5.75%, 8/01/20 ...................................... 3,000,000 3,165,420
Santa Rosa, 1915 Act, Fountaingrove Parkway Extension,
7.40%, 9/02/13 .......................................................................... 3,340,000 3,454,529
7.625%, 9/02/19 ......................................................................... 3,450,000 3,569,439
South San Francisco RDA, Tax Allocation, Gateway
Redevelopment Project, 7.60%, 9/01/18 .................................................. 2,000,000 2,148,920
Vallejo Special Tax, CFD No. 198, 8.90%, 8/01/21 ........................................ 7,500,000 7,970,100
-------------
504,009,045
-------------
Colorado 2.4%
Arvada Limited Sales and Use Tax Revenue, Pre-Refunded, 7.50%, 6/01/11 ................. 2,485,000 2,724,306
Arvada MFHR, Springwood Community, Project A, 6.45%, 2/20/26 ............................ 3,000,000 3,178,950
Auraria Higher Education Center, Parking Facilities Revenue, Refunding, Pre-Refunded,
7.75%, 4/01/09 .......................................................................... 3,450,000 3,663,728
7.875%, 4/01/12 ......................................................................... 1,600,000 1,702,160
Colorado Health Facilities Authority, Beneficial Living System, Inc.,
Series A, 10.125%, 10/01/20 ............................................................ 12,500,000 13,589,875
Colorado Health Facilities Authority Revenue, Volunteers of America
Care Facilities, Refunding and Improvement, Series A,
5.45%, 7/01/08 .......................................................................... 1,135,000 1,136,623
5.75%, 7/01/20 .......................................................................... 3,000,000 2,952,120
5.875%, 7/01/28 ......................................................................... 5,290,000 5,249,003
Colorado HFA,
SF Program, Series A-2, 9.25%, 8/01/01 .................................................. 175,000 183,227
SF Program, Series A-2, 9.375%, 8/01/02 ................................................. 295,000 312,193
SF Program, Series B-1, 8.70%, 8/01/01 .................................................. 250,000 260,793
SFMR, Series B-3, 9.75%, 8/01/02 ........................................................ 295,000 304,366
SFMR, Series C, 9.20%, 8/01/02 .......................................................... 485,000 507,092
SFMR, Series C, 9.075%, 8/01/03 ......................................................... 750,000 797,070
Colorado Springs Utilities Revenue, Series A, Pre-Refunded, 6.10%, 11/15/24 ............. 3,735,000 4,196,385
Denver City and County Airport Revenue,
Series A, 8.25%, 11/15/12 ............................................................... 5,350,000 5,878,848
Series A, 8.50%, 11/15/23 ............................................................... 29,060,000 32,031,676
Series A, 8.00%, 11/15/25 ............................................................... 135,000 147,405
Series A, MBIA Insured, 5.50%, 11/15/25 ................................................. 8,830,000 9,200,242
Series A, Pre-Refunded, 8.25%, 11/15/12 ................................................. 490,000 544,361
Series A, Pre-Refunded, 8.50%, 11/15/23 ................................................. 2,740,000 3,058,306
Series A, Pre-Refunded, 8.00%, 11/15/25 ................................................. 10,000 11,057
Series D, 7.75%, 11/15/13 ............................................................... 500,000 633,990
Colorado (cont.)
Denver City and County Airport Revenue, (cont.)
Series D, 7.75%, 11/15/21 ............................................................... $ 3,425,000 $ 3,812,368
Series D, Pre-Refunded, 7.75%, 11/15/21 ................................................. 765,000 865,758
Eagle County Airport Terminal Project Revenue, 7.50%, 5/01/21 ........................... 2,305,000 2,504,129
Eagle County Sports & Housing Facilities Revenue,
Vail Associate Project, Refunding, 6.95%, 8/01/19 ....................................... 41,200,000 45,766,196
Fremont County COP, Lease Purchase, MBIA Insured, 5.30%, 12/15/17 ....................... 2,000,000 2,068,760
Stonegate Village Metropolitan District, Refunding and Improvement,
Series A, FSA Insured, 5.60%, 12/01/25 ................................................. 4,640,000 4,911,533
e Village Castle Rock Metropolitan District No. 4, 8.50%, 6/01/31 ......................... 3,000,000 1,803,780
-------------
153,996,300
-------------
Connecticut .6%
Connecticut HFA Housing Mortgage Finance,
Series C-1, 6.30%, 11/15/17 ............................................................. 19,995,000 21,830,341
Sub Series F-1, 6.00%, 5/15/17 .......................................................... 3,500,000 3,763,305
Connecticut State Development Authority,
First Mortgage Revenue, East Hill Gladeview Health Project 86,
Pre-Refunded, 9.75%, 12/15/16 .......................................................... 2,670,000 2,985,140
Water Facility Revenue, Bridgeport Hydraulic Co. Project, 6.15%, 4/01/35 ................ 3,000,000 3,275,190
Connecticut State Health and Educational Facilities Authority Revenue,
Sacred Heart University, Refunding, Series C, 6.50%, 7/01/16 ............................ 2,000,000 2,183,920
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/11 ........................... 2,400,000 2,520,696
-------------
36,558,592
-------------
Florida 6.8%
Alachua County Health Facilities Authority Revenue, Shands
Teaching Hospital, Series A, MBIA Insured, 5.80%, 12/01/26 .............................. 2,990,000 3,219,453
Brooks of Bonita Springs CDD, Capital Improvement Revenue,
Series A, 6.20%, 5/01/19 ................................................................ 11,200,000 11,223,856
Series B, 5.65%, 5/01/06 ................................................................ 3,050,000 3,029,382
Broward County Resource Recovery Revenue, Broward Waste
Energy L. P. North Project, 7.95%, 12/01/08 ............................................ 19,170,000 20,572,094
Capron Trails CDD,
9.375%, 12/01/01 ........................................................................ 1,405,000 1,504,881
9.50%, 12/01/10 ......................................................................... 5,795,000 6,203,026
East County Water Control District, Lee County Drain, Series 1991, Pre-Refunded,
8.75%, 9/01/01 .......................................................................... 1,800,000 1,941,714
8.625%, 9/01/11 ......................................................................... 10,565,000 11,748,597
Escambia County Health Facilities Authority Revenue,
Baptist Hospital, Inc., Refunding, Series A, 8.70%, 10/01/14 ........................... 1,640,000 1,677,704
Florida Board of Education, Capital Outlay, Public Education, Series B, 5.875%,
6/01/24 ................................................................................. 7,000,000 7,533,890
6/01/25 ................................................................................. 2,000,000 2,152,540
Gateway Services District, Florida Water Management Benefit Tax Revenue,
Second Assessment Area Phase One, 8.00%, 5/01/20 ........................................ 4,010,000 4,295,071
Heritage Harbor CDD, Special Assessment Revenue,
Series A, 6.70%, 5/01/19 ................................................................ 1,895,000 1,914,898
Series B, 6.00%, 5/01/03 ................................................................ 2,750,000 2,777,500
Heritage Isles CDD, Special Assessment Revenue, Series A, 5.75%, 5/01/05 ................ 2,000,000 1,985,660
Indian Trace CDD,
Florida Water and Sewer Revenue, Expansion, 6.875%, 4/01/10 ............................. 10,400,000 10,973,144
Water Management Special Benefit, Refunding, Sub Series B, 8.25%, 5/01/05 ............... 9,065,000 9,758,473
Water Management Special Benefit, Refunding, Sub Series B, 8.25%, 5/01/11 ............... 12,760,000 14,083,084
Lake Clarke Shores Utility System Revenue, Pre-Refunded, 8.75%, 10/01/18 ................ 1,765,000 1,807,325
Lakeland Retirement Community First Mortgage Revenue,
Carpenters Home Estates Project, 9.75%, 9/01/18 ........................................ 12,000,000 12,672,720
Lakewood Ranch Community Development,
District 2, Benefit Special Assessment, Series A, 8.125%, 5/01/17 ....................... 10,260,000 10,965,067
District 2, Benefit Special Assessment, Series B, 8.125%, 5/01/17 ....................... 6,530,000 6,978,742
District 3, Special Assessment Revenue, 7.625%, 5/01/18 ................................. 8,540,000 9,004,064
Manatee County IDR, Manatee Hospital and Health Systems,
Inc., Pre-Refunded, 9.25%, 3/01/21 ..................................................... 6,500,000 7,450,495
Meadow Pointe CDD, Capital Improvement Revenue, 6.875%, 7/01/99 ......................... 7,870,000 7,941,302
Florida (cont.)
Meadow Pointe II CDD, Capital Improvement Revenue,
b Series A, 5.25%, 8/01/03 ................................................................ $ 1,000,000 $ 989,320
b Series B, 5.50%, 8/01/05 ................................................................ 3,675,000 3,637,405
Mount Dora County Club CDD, Special Assessment Revenue,
6.75%, 5/01/03 .......................................................................... 545,000 549,038
7.125%, 5/01/05 ......................................................................... 3,645,000 3,717,864
7.75%, 5/01/13 .......................................................................... 2,240,000 2,284,845
Naples Heritage CDD, Capital Improvement Revenue, 6.15%, 11/01/01 ....................... 9,075,000 9,227,460
North Broward Hospital District Revenue, Refunding and Improvement,
MBIA Insured, 5.75%, 1/15/27 ........................................................... 20,000,000 21,230,800
North Springs ID,
Special Assessment Revenue, Parkland Isles Project, Series A, 7.00%, 5/01/19 ............ 1,300,000 1,344,057
Special Assessment Revenue, Parkland Isles Project, Series B, 6.25%, 5/01/05 ............ 3,785,000 3,842,154
Water Management, Series A, 8.20%, 5/01/24 .............................................. 1,940,000 2,114,328
Water Management, Series B, 8.30%, 5/01/24 .............................................. 1,705,000 1,857,700
Northwood CDD, Special Assessment Revenue,
6.40%, 5/01/02 .......................................................................... 3,085,000 3,148,027
Series A, 7.125%, 5/01/00 ............................................................... 595,000 602,277
Series B, 7.60%, 5/01/17 ................................................................ 1,575,000 1,647,371
Palm Beach County Health Facilities Authority Revenue,
Abbey del Ray Project, Refunding, 8.25%, 10/01/15 ....................................... 6,000,000 6,610,140
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 ..................................................... 7,245,000 7,530,598
Refunding, Series A, 5.50%, 5/01/16 ..................................................... 4,370,000 4,537,939
Refunding, Series B, 5.25%, 5/01/09 ..................................................... 725,000 753,217
Series A, Pre-Refunded, 8.25%, 5/01/99 .................................................. 215,000 221,499
Series A, Pre-Refunded, 8.25%, 5/01/00 .................................................. 230,000 246,808
Series A, Pre-Refunded, 8.25%, 5/01/01 .................................................. 250,000 278,085
Series A, Pre-Refunded, 8.25%, 5/01/02 .................................................. 270,000 309,987
Series A, Pre-Refunded, 8.25%, 5/01/03 .................................................. 295,000 348,221
Series A, Pre-Refunded, 8.25%, 5/01/04 .................................................. 315,000 381,840
Series A, Pre-Refunded, 8.25%, 5/01/16 .................................................. 6,590,000 8,025,895
Series C, 7.00%, 5/01/19 ................................................................ 13,460,000 13,940,926
Series D, 6.95%, 5/01/19 ................................................................ 8,185,000 8,478,187
Pembroke Pines Florida, Capital Improvement Revenue,
AMBAC Insured, 5.95%, 10/01/20 ......................................................... 1,225,000 1,336,500
Piney-Z CDD, Capital Improvement Revenue,
Series A, 7.25%, 5/01/19 ................................................................ 995,000 1,019,338
Series B, 6.50%, 5/01/02 ................................................................ 6,320,000 6,335,547
Port Orange Lease Finance Corp., Recreation Facilities
Lease Revenue, Pre-Refunded, 8.75%, 10/01/12 ........................................... 2,300,000 2,470,315
Reserve CDD, Utility Revenue, Refunding, Series A, 6.625%, 12/01/22 ..................... 4,400,000 4,414,432
River Ridge CDD, Improvement Revenue, 5.75%, 5/01/08 .................................... 4,000,000 3,970,440
Riverwood Community Development, Special AD, Series A,
6.75%, 5/01/04 .......................................................................... 3,845,000 4,030,060
7.75%, 5/01/14 .......................................................................... 1,330,000 1,410,452
Santa Rosa County Health Facilities Authority Revenue, Gulf Breeze Hospital, Inc., Refunding,
8.60%, 10/01/02 ......................................................................... 195,000 199,360
Pre-Refunded, 8.70%, 10/01/14 ........................................................... 835,000 855,032
St. Lucie County Florida, Reserve CDD, Storm Water Management, 8.25%, 5/01/14 ........... 4,595,000 4,901,257
St. Lucie West Services District,
Capital Improvement Revenue, Lake Charles Project, 6.375%, 8/01/02 ...................... 3,135,000 3,148,292
Florida Water Management Benefit Tax, 7.70%, 5/01/25 .................................... 4,945,000 5,187,354
St. Lucie West Services District Revenue, Port St. Lucie, Refunding,
7.875%, 5/01/20 ......................................................................... 19,785,000 21,048,470
8.25%, 12/01/23 ......................................................................... 22,990,000 24,840,235
Sumter County, IDA, IDR, Little Sumter Utility Co. Project,
6.75%, 10/01/27 ......................................................................... 2,950,000 2,963,039
7.25%, 10/01/27 ......................................................................... 4,200,000 4,290,384
Florida (cont.)
Sunrise Utilities System Revenue, Series A, AMBAC Insured, Pre-Refunded, 5.90%, 10/01/18 $ 4,500,000 $ 5,051,475
Tampa Capital Improvement Program Revenue,
Custodial Receipts, Series A, 5.805%, 10/01/18 .......................................... 8,900,000 8,962,745
Series A, 8.25%, 10/01/18 ............................................................... 3,085,000 3,094,718
Tampa Revenue, Aquarium, Inc. Project, Pre-Refunded, 7.55%, 5/01/12 ..................... 9,300,000 10,618,740
Village Center CDD, Recreational Revenue,
Sub Series B, 8.25%, 1/01/17 ............................................................ 2,790,000 2,987,839
Sub Series C, 7.375%, 1/01/19 ........................................................... 2,670,000 2,696,113
Village Community Development, District No. 1, Capital Improvement Revenue,
6.75%, 5/01/02 .......................................................................... 335,000 348,571
8.40%, 5/01/12 .......................................................................... 1,160,000 1,244,668
8.00%, 5/01/15 .......................................................................... 3,365,000 3,567,472
-------------
433,323,518
-------------
Georgia .4%
Chatham County Hospital Authority Revenue, Memorial
Medical Center, Refunding and Improvement, Series A, AMBAC Insured,
5.70%, 1/01/19 .............................................................................. 10,000,000 10,600,000
Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue,
Second Indenture, Refunding, Series A, MBIA Insured,
5.625%, 7/01/20 ............................................................................. 15,000,000 15,863,100
Tift County IDAR, Beverly Enterprises, 10.125%, 9/01/10 ................................. 1,270,000 1,406,804
-------------
27,869,904
-------------
Hawaii .2%
Hawaii Department of Transportation Special Revenue,
Continental Airlines, Inc., 9.70%, 6/01/20 ............................................. 6,500,000 7,069,985
Hawaii State Special AD No. 17, AMBAC Insured, 9.50%, 8/01/11 ........................... 4,640,000 4,929,258
Hawaiian Home Lands Department Revenue, 7.60%, 7/01/08 .................................. 1,315,000 1,427,222
-------------
13,426,465
-------------
Idaho .4%
Nez Perce County, Potlatch Corp. Project, Refunding, 6.00%, 10/01/24 ................... 22,360,000 24,093,794
-------------
Illinois 6.0%
Alton Hospital Facilities Revenue, St. Anthony's Health Center
Project, Refunding, Pre-Refunded, 8.375%, 9/01/14 ...................................... 8,655,000 9,224,845
Aurora MFR, Fox Valley Two-Oxford Limited Development,
Refunding, Series, A, GNMA Secured, 6.125%, 2/20/32 .................................... 5,635,000 5,958,167
Bryant PCR, Central Illinois Light Co. Project, Refunding,
MBIA Insured, 5.90%, 8/01/23 ........................................................... 11,000,000 11,539,220
Chicago O'Hare Airport Special Facility Revenue,
American Airlines, Inc. Project, Refunding, 8.20%, 12/01/24 ............................. 7,830,000 9,452,454
United Airlines, Inc., Series A, 8.85%, 5/01/18 ......................................... 14,840,000 16,564,705
United Airlines, Inc., Series B, 8.85%, 5/01/18 ......................................... 3,540,000 3,951,419
Chicago Wastewater Transmission Revenue, MBIA Insured,
Pre-Refunded, 6.375%, 1/01/24 .......................................................... 4,780,000 5,439,927
Cook County, Refunding, Series A, MBIA Insured, 5.625%, 11/15/22 ........................ 22,875,000 24,288,446
Illinois Development Finance Authority Revenue, Provena Health,
Series A, MBIA Insured, 5.50%, 5/15/21 ................................................. 10,500,000 10,819,095
Illinois Development Financial Authority PCR, Commonwealth
Edison Co. Project, Refunding, 7.25%, 6/01/11 .......................................... 7,000,000 7,573,370
Illinois Educational Facilities Authority Revenue, Osteopathic Health Systems,
ETM, 7.125%, 5/15/11 .................................................................... 2,330,000 2,585,275
Pre-Refunded, 7.25%, 5/15/22 ............................................................ 7,000,000 7,684,320
Illinois Health Facilities Authority Revenue,
Bensenville Home Society, Series B, Pre-Refunded, 8.20%, 2/15/19 ........................ 3,000,000 3,121,080
Northwestern Medical Center, Pre-Refunded, 6.625%, 11/15/25 ............................. 6,500,000 7,491,120
Rush Presbyterian Hospital, Refunding, Series A, MBIA Insured, 6.25%, 11/15/20 .......... 9,000,000 9,932,580
Sarah Bush Lincoln Health Center, Pre-Refunded, 7.25%, 5/15/12 .......................... 2,000,000 2,265,500
Sarah Bush Lincoln Health Center, Refunding, Series B, 6.00%, 2/15/11 ................... 3,370,000 3,644,453
Servantcor, Series B, Pre-Refunded, 7.875%, 8/15/19 ..................................... 3,000,000 3,177,510
St. Elizabeth's Hospital, 6.25%, 7/01/16 ................................................ 1,215,000 1,318,068
St. Elizabeth's Hospital, 6.375%, 7/01/26 ............................................... 6,695,000 7,302,705
Thorek Hospital and Medical Center, Refunding, 5.25%, 8/15/18 ........................... 5,125,000 4,970,789
Thorek Hospital and Medical Center, Refunding, 5.375%, 8/15/28 .......................... 8,595,000 8,315,405
Westlake Community Hospital, Refunding, 7.875%, 1/01/13 ................................. 3,000,000 3,092,760
Illinois (cont.)
Metropolitan Pier and Exposition Authority, Hospitality Facilities Revenue,
McCormick Place Convention,
5.75%, 7/01/06 .......................................................................... $ 1,650,000 $ 1,755,584
6.25%, 7/01/17 .......................................................................... 11,000,000 12,007,710
7.00%, 7/01/26 .......................................................................... 7,500,000 9,499,425
Robbins Resource Recovery Revenue Partners,
Series A, 8.375%, 10/15/10 .............................................................. 8,000,000 7,920,000
Series A, 8.375%, 10/15/16 .............................................................. 137,675,000 136,298,250
Series B, 8.375%, 10/15/16 .............................................................. 47,200,000 46,728,000
Sterling Illinois First Mortgage Revenue, Hoosier Care Project,
Series A, 9.75%, 8/01/19 ............................................................... 1,275,000 1,338,890
-------------
385,261,072
-------------
Indiana .3%
Crawfordsville Industrial EDR, Kroger Co., Refunding, 7.70%, 11/01/12 .................. 5,000,000 5,708,300
Duneland School Building Corp., First Mortgage, MBIA Insured, 5.50%, 8/01/17 ............ 4,060,000 4,259,021
Indiana Health Facility Financing Authority, Hospital Revenue,
Hancock Memorial Hospital Project, Pre-Refunded, 8.30%, 8/15/20 ......................... 3,000,000 3,308,880
Jackson County Scheck Memorial Hospital, Refunding, 5.125%, 2/15/17 ..................... 1,500,000 1,471,020
Indiana State Educational Facilities Authority Revenue,
Anderson University Project, 8.40%, 10/01/08 ........................................... 1,000,000 1,023,110
White River Elementary Building Corp., First Mortgage,
AMBAC Insured, 5.00%, 7/15/16 .......................................................... 1,000,000 1,002,520
-------------
16,772,851
-------------
Kansas .1%
Prairie Village Revenue, Claridge Court Project, Series A, 8.75%, 8/15/23 .............. 5,730,000 6,353,997
-------------
Kentucky .8%
Adair County Public Hospital District Corp. Revenue, Refunding and Improvement,
5.40%, 1/01/12 ......................................................................... 460,000 467,921
5.70%, 1/01/19 ......................................................................... 1,100,000 1,114,564
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Project,
8.10%, 12/01/15 ......................................................................... 11,000,000 11,679,580
Series A, 7.50%, 2/01/20 ................................................................ 11,230,000 12,371,417
Series B, 7.25%, 2/01/22 ................................................................ 3,595,000 3,938,394
Kentucky Economic Development Financing Authority, Hospital
System Revenue, Appalachian Regional Health Center, Refunding and
Improvement, 5.875%, 10/01/22 .......................................................... 7,835,000 8,151,926
Powderly IDR, First Mortgage Revenue, Kroger Co., Refunding, 7.375%, 9/01/06 ............ 830,000 934,157
Russell Health System Revenue,
8.10%, 7/01/15 .......................................................................... 3,230,000 3,915,600
Franciscan Health Center, Series B, 8.10%, 7/01/01 ...................................... 1,100,000 1,190,277
Our Lady of Bellefonte, Refunding, 5.50%, 7/01/15 ....................................... 1,000,000 1,026,220
Pre-Refunded, 8.10%, 7/01/15 ............................................................ 4,270,000 5,399,629
Stanford Health Facilities Revenue, Beverly Project, Refunding, 10.375%, 11/01/09 ....... 900,000 1,006,821
-------------
51,196,506
-------------
Louisiana 2.6%
Calcasieu Parish Public Trust Authority, Mortgage Revenue,
Refunding, Series A, 7.75%, 6/01/12 .................................................... 1,725,000 1,842,283
Iberville Parish Consolidated School District No. 5, GO, Unlimited Tax,
Pre-Refunded, 8.00%, 10/01/06 .......................................................... 705,000 721,476
Iberville Parish PCR, Entergy Gulf States, Inc. Project, Refunding, 5.70%, 1/01/14 ...... 15,500,000 15,743,660
Lake Charles Harbor & Terminal District Port Facilities Revenue,
Trunkline Co. Project, Refunding, 7.75%, 8/15/22 ....................................... 35,000,000 40,133,100
Louisiana Public Facilities Authority Revenue, Xavier University of
Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/17 ............................. 5,000,000 5,108,950
Pointe Coupee Parish, PCR, Gulf States Utilities Co. Project, Refunding, 6.70%, 3/01/13 . 4,850,000 5,225,536
St. Charles Parish PCR, Louisiana Power and Light Co. Project,
8.25%, 6/01/14 .......................................................................... 25,500,000 26,933,610
8.00%, 12/01/14 ......................................................................... 13,525,000 14,460,389
St. Tammany Public Trust Financing Authority Revenue
, Christwood Project, Refunding, 5.70%, 11/15/28 ........................................ 4,000,000 3,909,480
West Feliciana Parish PCR,
Gulf States, 5.80%, 4/01/16 ............................................................. 19,600,000 20,031,984
Gulf States, Series D, 5.80%, 12/01/15 .................................................. 4,000,000 4,084,520
Louisiana (cont.)
West Feliciana Parish PCR, (cont.)
Gulf States Utilities Co. Project, Refunding, 8.00%, 12/01/24 ........................... $ 17,200,000 $ 18,274,656
Series A, 7.50%, 5/01/15 ................................................................ 8,740,000 9,787,314
-------------
166,256,958
-------------
Maine .7%
Maine State Finance Authority Solid Waste Disposal Revenue,
Boise Cascade Corp. Project, 7.90%, 6/01/15 ............................................ 5,000,000 5,325,300
Rumford PCR, Boise Cascade Corp. Project, Refunding, 6.625%, 7/01/20 .................... 4,800,000 5,270,640
Skowhegan PCR, S.D. Warren Co.,
Series A, 6.65%, 10/15/15 ............................................................... 24,570,000 26,428,721
Series B, 6.65%, 10/15/15 ............................................................... 4,940,000 5,313,711
-------------
42,338,372
-------------
Maryland .6%
Gaithersburg Hospital Facilities Revenue, Shady Grove Hospital, Refunding and Improvement,
FSA Insured, 6.00%, 9/01/21 ............................................................. 5,000,000 5,412,250
Series B, 8.50%, 9/01/03 ................................................................ 4,510,000 5,297,897
Series B, 8.50%, 9/01/07 ................................................................ 5,340,000 6,724,876
Series B, Pre-Refunded, 8.50%, 9/01/22 .................................................. 3,550,000 4,213,850
Maryland State CDA, Department of Housing and Community
Development, Series A, 5.875%, 7/01/16 .................................................. 3,975,000 4,245,976
Takoma Park, Hospital Facilities Revenue, Washington
Adventist Hospital Project, Series B, 8.50%,
9/01/03 ................................................................................. 4,700,000 5,521,090
9/01/07 ................................................................................. 6,975,000 8,783,897
-------------
40,199,836
-------------
Massachusetts 1.4%
Bay Transit Authority, General Transportation System, Series A, 7.00%, 3/01/21 ........ 2,000,000 2,530,240
Cape Cod Health Systems, Massachusetts Industry Finance Authority,
Pre-Refunded, 8.50%, 11/15/20 .......................................................... 4,500,000 5,038,020
Massachusetts Municipal Wholesale, Electric Co. Power Supply System Revenue,
Series A, 6.75%, 7/01/11 ................................................................ 4,435,000 4,793,126
Series B, 6.75%, 7/01/17 ................................................................ 3,170,000 3,416,753
Massachusetts State Health and Educational Facility Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ......................... 5,000,000 5,452,850
Framingham, Union Hospital, Pre-Refunded, 8.50%, 7/01/10 ................................ 1,910,000 2,105,431
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ..................... 9,000,000 9,210,780
Saint Memorial Medical Center, Refunding, Series A, 5.75%, 10/01/06 ..................... 3,250,000 3,272,328
Saint Memorial Medical Center, Refunding, Series A, 6.00%, 10/01/23 ..................... 5,735,000 5,774,055
Massachusetts State Industrial Finance Agency, Semass Project,
Series A, 9.00%, 7/01/15 ................................................................ 15,490,000 17,415,097
Series B, 9.25%, 7/01/15 ................................................................ 20,470,000 23,088,727
Massachusetts State Turnpike Authority, Metropolitan Highway
System Revenue, Sub Series B, MBIA Insured, 5.25%, 1/01/29 ............................. 6,625,000 6,724,773
-------------
88,822,180
-------------
Michigan 1.9%
City of Cadillac, Local Development Financial Authority,
Tax Increment Revenue, Refunding, 8.50%, 3/01/10 ........................................ 5,720,000 6,250,187
Detroit GO,
City School District, Series A, AMBAC Insured, 5.85%, 5/01/16 ........................... 5,175,000 5,605,405
Series A, Pre-Refunded, 6.80%, 4/01/15 .................................................. 5,160,000 5,995,456
Series B, Refunding, 6.375%, 4/01/07 .................................................... 7,535,000 8,333,258
Series B, Refunding, 6.25%, 4/01/08 ..................................................... 3,000,000 3,277,110
Dickinson County, Memorial Hospital System Revenue, 8.125%, 11/01/24 .................... 4,250,000 4,935,228
Garden City, Hospital Financing Authority, Hospital Revenue, Refunding,
5.625%, 9/01/10 ......................................................................... 2,000,000 1,999,640
5.75%, 9/01/17 .......................................................................... 1,000,000 1,000,680
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue,
Bronson Methodist, Refunding, MBIA Insured, 5.50%, 5/15/28 ............................. 4,180,000 4,329,351
Michigan (cont.)
Kent Hospital Finance Authority, Michigan Health Care Revenue,
Series A, MBIA Insured, Pre-Refunded, 6.125%, 1/15/21 .................................. $ 11,770,000 $ 13,365,424
Michigan Higher Education Facilities Authority Revenue,
Limited Obligation, Calvin College Project, 5.55%, 6/01/17 .............................. 1,000,000 1,011,200
Michigan State Hospital Finance Authority Revenue,
Genesys Regional Medical Center, Refunding, Series A, 5.50%, 10/01/27 ................... 16,500,000 16,625,895
Mercy Health Services, Series Q, AMBAC Insured, 5.375%, 8/15/26 ......................... 4,750,000 4,839,680
Mercy Hospital Services, Series Q, AMBAC Insured, 5.75%, 8/15/16 ........................ 9,310,000 9,939,728
Michigan State Strategic Fund, Limited Obligation Revenue,
Detroit Edison Co., Pollution Project, Refunding, Series BB, MBIA Insured,
6.20%, 8/15/25 ......................................................................... 7,825,000 8,612,430
Muskegon, Hospital Finance Authority, Muskegon General
Hospital, Pre-Refunded, 8.25%, 2/15/11 ................................................. 3,500,000 3,790,640
Tawas City Hospital Finance Authority, Hospital Revenue,
Tawas St. Joseph's Hospital System, Refunding, Series A,
5.60%, 2/15/13 .......................................................................... 2,500,000 2,508,300
5.75%, 2/15/23 .......................................................................... 4,125,000 4,155,814
Wayne County,
Downriver Systems Sewer Disposal, Series A, 7.00%, 11/01/13 ............................. 1,900,000 2,066,155
Michigan Building Authority IDA, Pre-Refunded, 8.00%, 3/01/17 ........................... 4,500,000 5,180,715
South Huron Valley Wastewater Control, Refunding, 7.875%, 5/01/02 ....................... 2,640,000 2,797,925
Wyandotte Tax Increment Finance Authority, Central Development
Area Project, Pre-Refunded, 7.875%,
6/01/09 ................................................................................. 500,000 520,880
6/01/10 ................................................................................. 500,000 520,880
-------------
117,661,981
-------------
Minnesota 2.3%
Agricultural and EDR, Health Care System, Fairview Hospital,
Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 ..................................... 23,380,000 25,306,278
Burnsville Solid Waste Revenue, Freeway Transfer, Inc. Project, 9.00%,
10/01/00 ................................................................................ 305,000 327,463
4/01/10 ................................................................................. 1,500,000 1,626,600
Duluth Minnesota, Commercial Development Revenue,
Duluth Radisson Hotel Project, Refunding, 8.00%, 12/01/15 .............................. 5,000,000 4,267,100
International Falls PCR, Boise Cascade Corp. Project, Refunding, 5.65%, 12/01/22 ........ 4,850,000 4,950,735
Maplewood Health Care Facility Revenue, Health East Project, 5.95%, 11/15/06 ............ 2,200,000 2,320,582
Minneapolis CDA, Limited Tax, Supported Development Revenue,
Series 2, 8.40%, 12/01/12 ............................................................... 2,890,000 2,975,082
Series 3-A, 8.375%, 12/01/19 ............................................................ 600,000 655,830
Minnesota State HFA, Rental Housing, Refunding, Series D,
MBIA Insured, 5.95%, 2/01/18 ........................................................... 3,490,000 3,693,118
Northfield First Mortgage Nursing Home Revenue, Minnesota
Odd Fellows Home Project, 8.75%, 10/01/03 .............................................. 1,015,000 1,037,147
Northwest Multi-County RDA, Governmental Housing Revenue
Pooled Housing Project, 7.40%, 7/01/26 ................................................. 5,165,000 4,390,250
Robbinsdale, MFHR, Copperfield Phase II Apartments, Refunding, 9.00%, 3/01/25 ........... 4,110,000 4,266,344
Rochester Health Care Facilities Revenue, Mayo Foundation,
Series A, 5.50%, 11/15/27 .............................................................. 15,000,000 15,697,650
e 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 .......................................... 5,785,000 6,352,104
St. Paul Housing and RDA, Housing Tax, 8.625%, 9/01/07 .................................. 1,345,000 1,492,304
St. Paul Port Authority, IDR,
SDA Enterprises, Series K, 10.25%, 10/01/10 ............................................. 1,095,000 1,102,063
Series 2, 7.50%, 10/01/09 ............................................................... 40,000 40,400
Series A-I, 8.50%, 12/01/01 ............................................................. 850,000 845,257
Series A-I, 9.00%, 12/01/02 ............................................................. 260,000 263,289
Series A-I, 9.00%, 12/01/12 ............................................................. 4,300,000 4,088,053
Series A-II, 8.50%, 12/01/01 ............................................................ 835,000 830,341
Series A-II, 9.00%, 12/01/02 ............................................................ 255,000 258,226
Series A-II, 9.00%, 12/01/12 ............................................................ 4,235,000 4,026,257
Series A-III, 8.50%, 12/01/01 ........................................................... 875,000 870,118
Series A-III, 9.00%, 12/01/02 ........................................................... 265,000 268,352
Series A-III, 9.00%, 12/01/12 ........................................................... 4,430,000 4,211,645
Series A-IV, 8.50%, 12/01/01 ............................................................ 670,000 666,261
Series A-IV, 9.00%, 12/01/02 ............................................................ 205,000 207,593
Series A-IV, 9.00%, 12/01/12 ............................................................ 3,375,000 3,208,646
Series C, 10.00%, 12/01/01 .............................................................. 860,000 872,582
Series C, 10.00%, 12/01/02 .............................................................. 715,000 725,460
Minnesota (cont.)
St. Paul Port Authority, IDR, (cont.)
Series C, 10.00%, 12/01/06 .............................................................. $ 2,930,000 $ 2,959,359
Series C, 9.875%, 12/01/08 .............................................................. 3,100,000 3,128,551
Series F, 10.25%, 10/01/98 .............................................................. 60,000 60,028
Series F, 10.25%, 10/01/99 .............................................................. 65,000 65,649
Series F, 8.00%, 9/01/00 ................................................................ 25,000 24,933
Series F, 10.25%, 10/01/00 .............................................................. 70,000 70,711
Series F, 8.00%, 9/01/01 ................................................................ 25,000 25,022
Series F, 10.25%, 10/01/01 .............................................................. 80,000 80,815
Series F, 8.00%, 9/01/02 ................................................................ 25,000 25,104
Series F, 10.25%, 10/01/02 .............................................................. 90,000 90,904
Series F, 8.00%, 9/01/19 ................................................................ 1,025,000 874,766
Series I, 10.75%, 12/01/00 .............................................................. 15,000 15,291
Series I, 10.75%, 12/01/01 .............................................................. 15,000 15,404
Series I, 10.75%, 12/01/02 .............................................................. 15,000 15,393
Series J, 9.50%, 12/01/01 ............................................................... 80,000 81,670
Series J, 9.50%, 12/01/02 ............................................................... 95,000 96,874
Series J, 9.50%, 12/01/11 ............................................................... 1,325,000 1,310,915
Series L, 9.50%, 12/01/01 ............................................................... 40,000 40,835
Series L, 9.75%, 12/01/01 ............................................................... 25,000 25,518
Series L, 9.50%, 12/01/02 ............................................................... 45,000 45,888
Series L, 9.75%, 12/01/02 ............................................................... 30,000 30,584
Series L, 9.50%, 12/01/14 ............................................................... 1,025,000 1,013,049
Series L, 9.75%, 12/01/14 ............................................................... 1,530,000 1,537,329
Series N, 10.00%, 12/01/01 .............................................................. 65,000 66,303
Series N, 10.75%, 10/01/02 .............................................................. 1,300,000 1,313,234
Series N, 10.00%, 12/01/02 .............................................................. 65,000 66,251
Series N, 10.00%, 12/01/14 .............................................................. 1,405,000 1,411,646
Series S, 9.625%, 12/01/01 .............................................................. 55,000 55,072
Series S, 9.625%, 12/01/02 .............................................................. 60,000 60,050
Series S, 9.625%, 12/01/14 .............................................................. 1,280,000 1,278,080
Series T, 9.625%, 12/01/01 .............................................................. 30,000 30,624
Series T, 9.625%, 12/01/02 .............................................................. 35,000 35,686
Series T, 9.625%, 12/01/14 .............................................................. 910,000 908,635
St. Paul Port Authority Commercial Development,
Theole Printing Project, 9.00%, 10/01/21 ............................................... 580,000 610,421
St. Paul Port Authority Energy Park, Tax Increment Revenue,
Refunding, Pre-Refunded, 8.00%, 12/01/07 ............................................... 4,265,000 4,396,746
St. Paul Port Authority Lease Revenue, Mears Park Center Project, 6.50%,
6/01/16 ................................................................................. 5,040,000 5,145,638
6/01/26 ................................................................................. 10,660,000 10,883,434
-------------
145,439,542
-------------
Mississippi 1.2%
Claiborne County PCR,
Middle South Energy, Inc. Project, Series A, 9.50%, 12/01/13 ............................ 10,680,000 11,130,055
Middle South Energy, Inc. Project, Series B, 8.25%, 6/01/14 ............................. 9,750,000 10,272,795
Middle South Energy, Inc. Project, Series C, 9.875%, 12/01/14 ........................... 10,000,000 10,430,400
Middle South Energy, Inc. Project, System
Energy Residential Income Project, 6.20%, 2/01/26 ....................................... 33,295,000 34,457,994
System Energy Resources Inc., Refunding, 7.30%, 5/01/25 ................................. 2,500,000 2,640,500
Corinth & Alcorn County Hospital Revenue,
Magnolia Regional Health Center Project,
Refunding, Series A, 5.50%, 10/01/21 .................................................... 1,000,000 1,001,650
Series B, 5.50%, 10/01/21 ............................................................... 4,000,000 4,006,600
Lowndes County, Golden Triangle Medical Center, 8.50%, 2/01/10 .......................... 4,250,000 4,537,045
-------------
78,477,039
-------------
Missouri 1.3%
Lake of the Ozarks Community Bridge Corp., Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16 ........................................................... 1,000,000 1,155,730
Pre-Refunded, 6.40%, 12/01/25 ........................................................... 3,000,000 3,509,760
Missouri (cont.)
Lake of the Ozarks Community Bridge Corp., Bridge System Revenue, (cont.)
Refunding, 5.25%, 12/01/20 .............................................................. $ 6,280,000 $ 6,048,205
Refunding, 5.25%, 12/01/26 .............................................................. 6,375,000 6,068,363
Missouri Health and Educational Facilities Authority,
Health Facility Marshall, IDA, John Fitzgibbons Hospital, Pre-Refunded,
10.00%, 5/01/20 ........................................................................ 8,600,000 9,630,624
Missouri State Health and Educational Facilities Authority Revenue,
Heartland Health, Refunding and Improvement, 8.125%, 10/01/10 .......................... 7,300,000 7,725,736
Newton County IDA, Health Facilities Revenue, Beverly Enterprises,
10.375%, 11/01/08 ...................................................................... 1,390,000 1,501,353
Perry Co., Perry Memorial Hospital, 9.125%, 6/01/11 ..................................... 1,600,000 1,739,216
St. Louis County IDA, Kiel Center, Refunding,
7.625%, 12/01/09 ........................................................................ 8,000,000 8,822,640
7.75%, 12/01/13 ......................................................................... 5,175,000 5,710,664
7.875%, 12/01/24 ........................................................................ 6,000,000 6,625,080
St. Louis Municipal Financial Corp. Leasehold Revenue,
City Justice Center, Refunding, Series A, AMBAC Insured, 5.95%, 2/15/16 ................. 8,640,000 9,411,379
Refunding, Series A, 6.00%, 7/15/13 ..................................................... 14,250,000 15,009,383
-------------
82,958,133
-------------
Montana .3%
Montana State Board of Housing, SFM,
Senior Bonds, Series B-2, 8.90%, 10/01/00 ............................................... 180,000 185,121
Sub Series A, FHA Insured, 8.275%, 10/01/03 ............................................. 475,000 501,225
Montana State Board of Investments, Resource Recovery Revenue,
Yellowstone Energy Project, 7.00%, 12/31/19 ............................................ 19,760,000 20,133,069
-------------
20,819,415
-------------
Nebraska .6%
Douglas County, Hospital No. 1, Authority Revenue, 5.25%, 9/01/21 ...................... 3,670,000 3,728,243
Kearney IDR, Great Platte River Road, 6.75%,
1/01/23 ................................................................................. 9,000,000 8,903,520
1/01/28 ................................................................................. 6,500,000 6,393,205
Lancaster County Hospital Authority No.1, Hospital Revenue,
Bryan Memorial Hospital Project, Series A, MBIA Insured,
5.375%, 6/01/19 ........................................................................ 5,465,000 5,628,731
Nebraska Investment Financing Authority, Health Facilities Revenue,
Children's Healthcare Services, AMBAC Insured, 5.50%, 8/15/27 .......................... 8,000,000 8,352,400
Scotts Bluff County, Hospital No. 1, Hospital Revenue, 6.375%, 12/15/08 ................. 2,100,000 2,253,153
-------------
35,259,252
-------------
Nevada 3.6%
Clark County IDR,
Nevada Power Co. Project, Refunding, Series C, 5.50%, 10/01/30 .......................... 38,400,000 38,559,360
Nevada Power Co. Project, Series A, 5.60%, 10/01/30 ..................................... 23,900,000 24,062,281
Nevada Power Co. Project, Series A, 5.90%, 11/01/32 ..................................... 9,325,000 9,565,865
Southwest Gas Corp., Series A, 6.50%, 12/01/33 .......................................... 13,775,000 14,989,266
Clark County Special ID No. 108, Summerlin, 6.625%, 2/01/17 ............................. 7,550,000 7,793,035
Henderson Local Improvement,
District No. T-1, Series A, 8.50%, 8/01/13 .............................................. 22,890,000 24,762,173
District No. T-2, 9.50%, 8/01/11 ........................................................ 5,725,000 5,919,650
District No. T-4, Series A, 8.50%, 11/01/12 ............................................. 9,675,000 10,132,724
District No. T-4, Series B, 7.30%, 11/01/12 ............................................. 4,720,000 4,876,846
District No. T-10, 7.50%, 8/01/15 ....................................................... 7,295,000 7,543,760
District No. T-12, Refunding, Series A, 7.375%, 8/01/18 ................................. 49,995,000 50,117,988
Las Vegas Downtown RDA, Tax Increment Revenue, ..........................................
Fremont Street Project, Series A, 6.10%, 6/15/14 ........................................ 3,500,000 3,697,435
Las Vegas Special ID,
No. 404, 5.85%, 11/01/09 ................................................................ 3,430,000 3,509,267
No. 505, Elkhorn Springs, 8.00%, 9/15/13 ................................................ 7,615,000 7,847,258
No. 707, 6.60%, 6/01/05 ................................................................. 1,000,000 1,035,610
No. 707, 6.70%, 6/01/06 ................................................................. 1,235,000 1,279,275
No. 707, 6.80%, 6/01/07 ................................................................. 1,805,000 1,870,142
No. 707, 7.10%, 6/01/16 ................................................................. 8,000,000 8,294,480
Nevada (cont.)
Nevada Housing Division, SF Program, Subordinated, FI/GML,
Series A, 9.30%, 10/01/00 ............................................................... $ 115,000 $ 118,635
Series A-1, 8.75%, 10/01/04 ............................................................. 235,000 251,464
Series A-2, 9.375%, 10/01/00 ............................................................ 130,000 134,294
Series A-2, 8.65%, 10/01/01 ............................................................. 290,000 298,094
Series A-3, 9.20%, 10/01/00 ............................................................. 145,000 149,311
Series B, 9.50%, 10/01/01 ............................................................... 225,000 235,069
Series B-1, 7.90%, 10/01/05 ............................................................. 590,000 625,595
Series C-1, 7.55%, 10/01/05 ............................................................. 755,000 802,859
Nevada Housing Finance Division Subordinate,
Series B-2, 9.65%, 10/01/02 ............................................................. 175,000 181,974
Series C-1, 9.60%, 10/01/02 ............................................................. 250,000 253,765
-------------
228,907,475
-------------
New Hampshire 2.1%
New Hampshire Higher Education and Health Facility Authority Revenue,
Catholic Charities, Refunding, Series A, 5.75%, 8/01/11 ................................. 1,300,000 1,338,259
Hillcrest Terrace, 7.50%, 7/01/24 ....................................................... 18,750,000 19,581,000
Kendal at Hanover Project, Pre-Refunded, 8.00%, 10/01/19 ................................ 9,450,000 10,070,298
New Hampshire IDA, PCR, Public Service Co.,
Project A, 7.65%, 5/01/21 ............................................................... 10,970,000 11,701,370
Project C, 7.65%, 5/01/21 ............................................................... 34,635,000 36,944,115
New Hampshire State Business Finance Authority, PCR,
Public Service Co., Refunding, Series D, 6.00%, 5/01/21 ................................. 28,000,000 28,725,760
Public Service Co., Refunding, Series E, 6.00%, 5/01/21 ................................. 21,800,000 22,365,056
United Illuminating Co., Refunding, Series A, 5.875%, 10/01/33 .......................... 3,000,000 3,079,200
-------------
133,805,058
-------------
New Jersey .3%
New Jersey EDA, First Mortgage, Keswick Pines, Refunding, 5.75%, 1/01/24 ............... 1,500,000 1,501,095
New Jersey Health Care Facilities, Financing Authority Revenue,
Lutheran Home, Series A, 8.40%, 7/01/19 ................................................. 2,100,000 2,175,999
Zurbrugg Memorial Hospital, Series C, 8.50%, 7/01/12 .................................... 3,165,000 3,153,954
New Jersey State Housing and Mortgage Finance Agency,
MFHR, Refunding, Series A, AMBAC Insured,
6.00%, 11/01/14 ......................................................................... 3,000,000 3,219,480
6.05%, 11/01/20 ......................................................................... 5,500,000 5,877,575
-------------
15,928,103
-------------
New Mexico 3.0%
Farmington PCR, San Juan Project,
Public Service of New Mexico Co., Refunding, Series A, 6.30%, 12/01/16 .................. 4,000,000 4,319,240
Public Service of New Mexico Co., Refunding, Series A, 5.80%, 4/01/22 ................... 22,000,000 22,633,600
Public Service of New Mexico Co., Refunding, Series A, 6.40%, 8/15/23 ................... 38,850,000 41,498,016
Public Service of New Mexico Co., Refunding, Series B, 5.80%, 4/01/22 ................... 19,500,000 20,061,600
Public Service of New Mexico Co., Refunding, Series C, 5.80%, 4/01/22 ................... 13,900,000 14,300,320
Public Service of New Mexico Co., Refunding, Series D, 6.375%, 4/01/22 .................. 28,850,000 31,262,149
Tucson Electric Power Co., Series A, 6.95%, 10/01/20 .................................... 37,000,000 41,669,400
New Mexico Mortgage Finance Authority, SFM Program,
Refunding, Series A-1, 7.90%, 7/01/04 ................................................... 1,015,000 1,070,825
Series A, 9.50%, 9/01/00 ................................................................ 170,000 173,398
Series A, 9.10%, 9/01/03 ................................................................ 720,000 767,808
Series A, FHA Insured, 8.80%, 9/01/01 ................................................... 195,000 201,806
Series B, 9.30%, 9/01/00 ................................................................ 60,000 61,192
Sub Series A, 9.55%, 9/01/02 ............................................................ 575,000 596,459
Rio Rancho Water and Wastewater Revenue, Series A, 5.90%, 5/15/15 ....................... 3,620,000 3,902,505
-------------
182,518,318
-------------
New York 12.7%
Long Island Power Authority, Electric Systems Revenue,
General Series A, 5.25%, 12/01/26 ...................................................... $ 50,470,000 $ 50,597,184
Metropolitan Transportation Authority, Service Contract,
Commuter Facilities, Refunding, Series 1, 5.70%, 7/01/24 ................................ 10,000,000 10,554,100
Commuter Facilities, Refunding, Series 5, 6.50%, 7/01/16 ................................ 3,860,000 4,138,074
Commuter Facilities, Refunding, Series 8, 5.50%, 7/01/21 ................................ 16,775,000 17,242,352
Commuter Facilities, Refunding, Series N, 6.80%, 7/01/04 ................................ 3,330,000 3,689,740
Commuter Facilities, Refunding, Series N, 6.90%, 7/01/05 ................................ 3,050,000 3,384,463
Commuter Facilities, Refunding, Series R, 5.50%, 7/01/17 ................................ 2,000,000 2,073,840
Commuter Facilities, Series A, MBIA Insured, 5.625%, 7/01/27 ............................ 12,880,000 13,656,406
Commuter Facilities, Series A, MBIA Insured, 5.875%, 7/01/27 ............................ 22,700,000 24,644,482
Transportation Facilities, Refunding, Series N, 6.80%, 7/01/04 .......................... 2,330,000 2,581,710
Transportation Facilities, Refunding, Series N, 6.90%, 7/01/05 .......................... 2,470,000 2,740,860
Transportation Facilities, Refunding, Series N, 7.125%, 7/01/09 ......................... 7,830,000 8,764,980
Transportation Facilities, Refunding, Series P, 5.75%, 7/01/15 .......................... 6,065,000 6,390,630
Transportation Facilities, Refunding, Series R, 5.50%, 7/01/17 .......................... 5,000,000 5,184,600
New York City GO,
Refunding, Series A, 6.125%, 8/01/06 .................................................... 10,190,000 11,197,078
Refunding, Series A, 6.25%, 8/01/08 ..................................................... 10,000,000 11,030,700
Refunding, Series F, 6.00%, 8/01/11 ..................................................... 10,000,000 10,961,000
Refunding, Series F, 5.25%, 8/01/15 ..................................................... 20,580,000 20,879,233
Refunding, Series F, 5.375%, 8/01/19 .................................................... 41,250,000 41,934,338
Refunding, Series G, 5.75%, 8/01/10 ..................................................... 1,795,000 1,909,754
Refunding, Series H, 6.25%, 8/01/15 ..................................................... 25,000,000 27,612,500
Refunding, Series H, 6.125%, 8/01/25 .................................................... 5,600,000 6,105,456
Refunding, Series J, 6.00%, 8/01/21 ..................................................... 10,000,000 10,828,400
Series A, 7.25%, 3/15/20 ................................................................ 330,000 350,295
Series A, 6.25%, 8/01/21 ................................................................ 845,000 907,158
Series B, 6.75%, 10/01/15 ............................................................... 50,000 55,107
Series B, 7.00%, 2/01/18 ................................................................ 4,090,000 4,488,407
Series B, 7.50%, 2/01/18 ................................................................ 385,000 428,547
Series B, 7.00%, 2/01/19 ................................................................ 5,000,000 5,483,700
Series B, 7.00%, 2/01/20 ................................................................ 5,745,000 6,300,771
Series B, 5.375%, 8/01/22 ............................................................... 13,655,000 13,874,163
Series B, 6.00%, 8/15/26 ................................................................ 4,355,000 4,696,693
Series B, Pre-Refunded, 6.75%, 10/01/15 ................................................. 50,000 55,923
Series B, Pre-Refunded, 7.00%, 8/15/16 .................................................. 17,070,000 19,842,851
Series B, Pre-Refunded, 6.00%, 8/15/26 .................................................. 645,000 727,386
Series B, Sub Series B-1, Pre-Refunded, 7.25%, 8/15/19 .................................. 5,000,000 5,877,700
Series C, 7.00%, 8/01/17 ................................................................ 370,000 410,293
Series C, 7.25%, 8/15/24 ................................................................ 660,000 714,331
Series C, 5.375%, 11/15/27 .............................................................. 7,450,000 7,558,994
Series C, 5.50%, 11/15/37 ............................................................... 2,000,000 2,050,280
Series C, Pre-Refunded, 7.25%, 8/15/24 .................................................. 7,245,000 7,942,476
Series C, Sub Series C-1, 7.00%, 8/01/16 ................................................ 55,000 60,969
Series C, Sub Series C-1, 7.50%, 8/01/21 ................................................ 435,000 489,619
Series D, 6.00%, 2/15/10 ................................................................ 11,600,000 12,536,468
Series D, 7.70%, 2/01/11 ................................................................ 150,000 168,009
Series D, 7.625%, 2/01/13 ............................................................... 395,000 440,962
Series D, 7.625%, 2/01/14 ............................................................... 810,000 904,252
Series D, 7.50%, 2/01/19 ................................................................ 330,000 367,102
Series D, Pre-Refunded, 7.625%, 2/01/13 ................................................. 5,000 5,669
Series E, 6.25%, 2/15/07 ................................................................ 10,000,000 11,086,500
Series E, 7.50%, 2/01/18 ................................................................ 45,000 50,090
Series E, Pre-Refunded, 7.50%, 2/01/18 .................................................. 480,000 542,299
Series F, 7.625%, 2/01/13 ............................................................... 355,000 396,308
Series F, 7.625%, 2/01/14 ............................................................... 315,000 351,653
Series F, 7.625%, 2/01/15 ............................................................... 30,000 33,491
New York (cont.)
New York City GO, (cont.)
Series F, 7.50%, 2/01/21 ................................................................ $ 685,000 $ 762,015
Series F, Pre-Refunded, 6.625%, 2/15/25 ................................................. 8,625,000 9,888,131
Series G, 6.125%, 10/15/11 .............................................................. 20,480,000 22,853,632
Series G, 6.20%, 10/15/14 ............................................................... 10,000,000 11,064,800
Series G, 7.50%, 2/01/22 ................................................................ 60,000 66,746
Series H, 7.20%, 2/01/14 ................................................................ 625,000 689,381
Series H, 7.20%, 2/01/15 ................................................................ 1,375,000 1,516,639
Series H, 7.00%, 2/01/19 ................................................................ 750,000 822,555
Series H, 7.00%, 2/01/20 ................................................................ 80,000 87,739
Series H, 7.00%, 2/01/22 ................................................................ 10,000 10,967
Series H, Pre-Refunded, 7.00%, 2/01/19 .................................................. 1,495,000 1,660,257
Series H, Pre-Refunded, 7.00%, 2/01/20 .................................................. 200,000 222,448
Series H, Pre-Refunded, 7.00%, 2/01/22 .................................................. 25,000 27,806
Series I, 6.25%, 4/15/17 ................................................................ 25,370,000 28,108,184
Series I, 6.25%, 4/15/27 ................................................................ 9,750,000 10,693,703
Series I, Pre-Refunded, 6.25%, 4/15/27 .................................................. 13,170,000 15,093,479
New York City Health and Hospital Corp. Revenue, Refunding,
Series A, 6.30%, 2/15/20 ................................................................ 8,885,000 9,424,497
New York City IDA, Civic Facility Revenue, Amboy Corp. Project,
9.625%, 6/01/15 ......................................................................... 6,370,000 6,893,933
b New York City IDA, IDR, La Guardia Association L. P. Project,
Refunding, 6.00%, 11/01/28 .............................................................. 7,500,000 7,524,975
New York State Dormitory Authority Revenue,
City University System, 3rd General Residence, Series 2, 6.00%, 7/01/26 ................. 6,100,000 6,563,722
City University System, 3rd General Residence, Series 2,
Pre-Refunded, 6.00%, 7/01/26 ........................................................... 15,750,000 17,794,665
City University System, Series 1, 5.375%, 7/01/24 ....................................... 5,500,000 5,600,045
Mental Health Services Facilities, Refunding, Series B, 5.625%, 2/15/21 ................. 8,360,000 8,739,460
Mental Health Services Facilities, Series A, 6.00%, 8/15/17 ............................. 11,240,000 12,252,387
Mental Health Services Facilities, Series A, 5.75%, 2/15/27 ............................. 5,000,000 5,298,000
Second Hospital, St. Agnes Hospital, Series A, 5.30%, 2/15/19 ........................... 4,250,000 4,289,865
Second Hospital, St. Clare's Hospital, Series B, 5.40%, 2/15/25 ......................... 6,500,000 6,566,170
State University Educational Facilities, 5.50%, 5/15/26 ................................. 6,055,000 6,210,069
State University Educational Facilities, Pre-Refunded, 6.00%, 5/15/18 ................... 5,000,000 5,641,450
State University Educational Facilities, Refunding, 5.125%, 5/15/27 ..................... 3,755,000 3,735,136
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 5,375,800
New York State HFA,
Revenue, Refunding, Series A, 5.90%, 11/01/05 ........................................... 12,515,000 13,568,638
Service Contract Obligation, Revenue, Series A, 6.00%, 3/15/26 .......................... 4,975,000 5,359,617
Service Contract Obligation, Revenue, Series A, Pre-Refunded, 6.50%, 3/15/25 ............ 10,000,000 11,603,700
Service Contract Obligation, Series A, Pre-Refunded, 7.80%, 9/15/20 ..................... 9,715,000 10,674,551
New York State Local Government Assistance Corp., HFA, Series D,
Pre-Refunded, 7.80%, 9/15/10 ........................................................... 6,850,000 7,526,575
New York State Medical Care Facilities Finance Agency Revenue,
Hospital & Nursing, Series B, 6.95%, 2/15/32 ............................................ 3,305,000 3,644,523
Hospital & Nursing, Series B, Pre-Refunded, 6.95%, 2/15/32 .............................. 695,000 782,348
Montefiore Medical Center, Insured Mortgage, Series A, AMBAC Insured,
FHA Guaranteed, 5.75%, 2/15/25 .......................................................... 6,175,000 6,486,467
New York State Mortgage Agency Revenue, Homeowner Mortgage,
Series 59, 6.10%, 10/01/15 .............................................................. 2,000,000 2,157,620
Series 59, 6.15%, 10/01/17 .............................................................. 2,750,000 2,977,453
Series 61, 5.80%, 10/01/16 .............................................................. 7,100,000 7,512,155
New York State Urban Development Corp., Corporate Purpose,
Sub-Lien, Refunding, 5.50%, 7/01/22 ..................................................... 7,975,000 8,262,260
New York State Urban Development Corp. Revenue, Correctional Capital Facilities,
Series 6, 5.375%, 1/01/25 ............................................................... 5,750,000 5,840,160
Series 7, 5.70%, 1/01/27 ................................................................ 22,750,000 23,814,928
Port Authority of New York and New Jersey, Special Obligation Revenue,
2nd Installment, 6.50%, 10/01/01 ........................................................ 1,000,000 1,068,400
3rd Installment, 7.00%, 10/01/07 ........................................................ 8,000,000 9,346,640
4th Installment, Special Project, 6.75%, 10/01/11 ....................................... 925,000 1,036,629
5th Installment, 6.75%, 10/01/19 ........................................................ 17,500,000 19,574,800
New York (cont.)
Port Authority of New York and New Jersey, Special Obligation Revenue, (cont.)
Consolidated, 102nd Series, MBIA Insured, 5.75%, 10/15/23 ............................... $ 5,000,000 $ 5,295,100
Continental Airlines, Inc., Eastern Project, La Guardia, 9.00%, 12/01/10 ................ 10,000,000 11,080,300
Continental Airport Project, Eastern Project, La Guardia, 9.125%, 12/01/15 .............. 27,650,000 30,709,749
Warren & Wash Counties IDAR, Resource Recovery, Refunding,
Series A, 7.90%, 12/15/07 .............................................................. 1,275,000 1,323,514
-------------
812,425,129
-------------
North Carolina .8%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ........................... 2,500,000 2,669,600
North Carolina Eastern Municipal Power Agency, Power System Revenue,
Refunding, Series B,
6.00%, 1/01/14 .......................................................................... 16,000,000 16,822,720
MBIA Insured, 5.875%, 1/01/21 ........................................................... 20,000,000 21,614,600
North Carolina HFA, SF, Series II, GNMA Secured, 6.20%,
3/01/16 ................................................................................. 2,915,000 3,144,848
9/01/17 ................................................................................. 1,945,000 2,098,363
University of North Carolina, Chapel Hill Hospital Revenue, 5.25%, 2/15/26 .............. 6,570,000 6,662,637
-------------
53,012,768
-------------
North Dakota .4%
Mercer County, PCR, Basin Electric Power, Refunding,
Second Series, AMBAC Insured, 6.05%, 1/01/19 ............................................ 24,655,000 26,966,406
-------------
Ohio 5.8%
Allen County Nursing Home, First Mortgage Revenue,
Volunteers of America Care Facilities Project, 9.00%, 3/01/18 ........................... 2,585,000 2,647,376
Cleveland Airport Special Revenue, Continental Airlines, Inc. Project,
9.00%, 12/01/19 ......................................................................... 21,235,000 22,989,648
b Refunding, 5.70%, 12/01/19 .............................................................. 11,520,000 11,462,630
Cuyahoga County Hospital Revenue, University Hospitals Health System,
Refunding, Series B, MBIA Insured, 5.50%, 1/15/16 ...................................... 10,065,000 10,544,497
Dayton Special Facilities Revenue, Emery Air Freight
Corp./Emery Worldwide Air Inc., Refunding,
Series A, 5.625%, 2/01/18 ............................................................... 5,000,000 5,150,500
Series C, 6.05%, 10/01/09 ............................................................... 7,500,000 8,130,075
Series E, 6.05%, 10/01/09 ............................................................... 4,000,000 4,336,040
Elyria, FGIC Insured, 5.40%, 12/01/22 ................................................... 2,785,000 2,868,522
Franklin County Health Care Facilities Revenue, Ohio Presbyterian Retirement Services,
Refunding, 5.50%, 7/01/17 ............................................................... 3,100,000 3,088,933
Refunding, 5.50%, 7/01/21 ............................................................... 4,700,000 4,651,402
Series A, 6.625%, 7/01/13 ............................................................... 1,000,000 1,103,470
Lorain County Hospital Revenue, Catholic Healthcare Partners,
Refunding, Series B, MBIA Insured, 5.50%, 9/01/27 ...................................... 17,885,000 18,664,965
Lucas County Health Facilities Revenue, Ohio Presbyterian
Retirement Services, Refunding, Series A,
6.625%, 7/01/14 ......................................................................... 1,000,000 1,089,400
6.75%, 7/01/20 .......................................................................... 2,000,000 2,181,380
Montgomery County Health Systems Revenue,
Franciscan Medical Center at Dayton, Refunding, 5.50%, 7/01/18 .......................... 1,900,000 1,930,286
Franciscan Medical Center at St. Leonard, Refunding, 5.50%, 7/01/18 ..................... 3,630,000 3,690,948
Refunding, Series B, 8.10%, 7/01/01 ..................................................... 800,000 851,536
Refunding, Series B-1, 8.10%, 7/01/01 ................................................... 700,000 757,253
Refunding, Series B-1, 8.10%, 7/01/18 ................................................... 1,955,000 2,379,958
Series B-1, Pre-Refunded, 8.10%, 7/01/18 ................................................ 4,345,000 5,511,155
Series B-2, 8.10%, 7/01/18 .............................................................. 1,995,000 2,406,888
Series B-2, Pre-Refunded, 8.10%, 7/01/18 ................................................ 4,505,000 5,714,097
St. Leonard, Series B, 8.10%, 7/01/18 ................................................... 3,100,000 3,808,040
St. Leonard, Series B, Pre-Refunded, 8.10%, 7/01/18 ..................................... 6,500,000 8,244,535
Muskingum County, Ohio Hospital Facilities Revenue, Franciscan Sisters,
Refunding, Connie Lee Insured, 5.375%, 2/15/12 ......................................... 1,200,000 1,234,836
Oak Hills Local School District, MBIA Insured, 5.45%, 12/01/21 .......................... 4,925,000 5,144,754
Ohio State Air Quality Authority,
Dayton Power and Light Company Project, Refunding, 6.10%, 9/01/30 ....................... 17,900,000 19,414,161
Toledo Edison, Series B, 8.00%, 5/15/19 ................................................. 5,265,000 5,604,908
Ohio (cont.)
Ohio State Air Quality Development Authority Revenue, Pollution Control,
Refunding, Series A, 6.10%, 8/01/20 ..................................................... $ 5,400,000 $ 5,617,890
Refunding, Series B, 6.00%, 8/01/20 ..................................................... 39,760,000 41,372,666
Toledo, Refunding, Series C, 6.10%, 8/01/27 ............................................. 5,000,000 5,201,750
Ohio State HFA, Chagrin Fall, Retirement Rental Housing Revenue, 10.375%, 4/01/09 ....... 9,500,000 10,025,635
Ohio State Solid Waste Disposal Revenue, USG Corp. Project, 5.65%, 3/01/33 .............. 7,000,000 7,100,450
Ohio State Solid Waste Revenue, Republic Engineered Steels Inc., 9.00%, 6/01/21 ......... 16,650,000 18,637,178
Ohio State Water Development Authority Revenue,
COP, Fresh Water Service, AMBAC Insured, 5.90%, 12/01/21 ................................ 9,250,000 9,941,530
PCR, Cleveland Electric, Refunding, Series A, 6.10%, 8/01/20 ............................ 10,000,000 10,403,500
PCR, Cleveland Electric, Refunding, Series A, 8.00%, 10/01/23 ........................... 27,700,000 31,741,707
Toledo Edison, Series A, 8.00%, 5/15/19 ................................................. 6,200,000 6,600,272
Seneca County Nursing HMR, Volunteers of America Care Facilities,
Refunding and Improvement, 9.00%, 1/01/13 .............................................. 3,560,000 3,619,986
Toledo-Lucas County Port Authority Airport Revenue, Burlington Air Express,
Project 1, 7.00%, 4/01/04 ............................................................... 5,240,000 5,686,029
Project 1, 7.25%, 4/01/09 ............................................................... 5,385,000 5,928,023
Project 1, 7.375%, 4/01/14 .............................................................. 8,200,000 9,033,940
Project 1, 7.50%, 4/01/19 ............................................................... 14,365,000 15,838,274
Series 1, 9.125%, 9/15/01 ............................................................... 735,000 789,603
Series 1, 9.125%, 9/15/13 ............................................................... 5,875,000 6,282,373
Toledo-Lucas County Port Authority Development Revenue, Northwest Ohio Bond Fund,
Series A, Pre-Refunded, 8.625%, 5/15/10 ................................................. 1,155,000 1,280,225
Series B, 9.00%, 11/15/08 ............................................................... 1,355,000 1,393,590
Series D, Pre-Refunded, 8.25%, 5/15/20 .................................................. 2,920,000 3,175,821
Willoughby IDR, Ohio Presbyterian Retirement Services,
Refunding, Series A, 6.875%, 7/01/16 .................................................... 1,500,000 1,578,825
-------------
366,851,460
-------------
Oklahoma .3%
Tulsa Municipal Airport Transportation Revenue, American
Airlines, Inc., 7.375%, 12/01/20 ....................................................... 12,845,000 13,876,325
Valley View Hospital Authority, Oklahoma Revenue, Valley
View Regional Medical Center, Refunding, 6.00%, 8/15/14 ................................. 4,000,000 4,201,600
Washington County Medical Authority Revenue, Bartlesville,
Jane Phillips Hospital, Refunding, Series A, Pre-Refunded, 8.50%, 11/01/10 .............. 2,445,000 2,572,311
-------------
20,650,236
-------------
Oregon .2%
Northern Wasco County, Peoples Utilities District, Oregon
Electric Revenue, FGIC Insured, 5.625%, 12/01/22 ........................................ 2,500,000 2,633,650
Oregon State Department of Administrative Services, COP,
Series A, MBIA Insured, 5.50%, 11/01/20 ................................................. 5,585,000 5,834,538
Series C, MBIA Insured, 5.75%, 5/01/17 .................................................. 4,665,000 5,003,026
-------------
13,471,214
-------------
Pennsylvania 4.5%
Allegheny County Hospital Development Authority Revenue,
Allegheny Valley Health Facilities Management Co., 7.50%, 8/01/13 ....................... 4,825,000 4,519,192
Allegheny Valley Hospital, 7.75%, 8/01/20 ............................................... 2,100,000 1,968,204
Bucks County IDA, Environmental Improvement Revenue,
USX Corp. Project, Refunding, 5.60%, 3/01/33 ............................................ 4,125,000 4,219,793
Chartiers Valley Industrial and Commercial Development Authority Revenue,
Asbury Health Center Project, Refunding, 7.40%, 12/01/15 ................................ 5,250,000 5,775,053
First Mortgage, United Methodist Health Center, Refunding,
Series A, Pre-Refunded, 9.50%, 12/01/15 ................................................. 6,000,000 6,204,720
Delaware River Port Authority, Pennsylvania and New Jersey Revenue,
Series 1995, FGIC Insured, 5.50%, 1/01/26 ............................................... 20,750,000 21,814,475
Franklin County IDA, Health Facilities Revenue, Encore Nursing Center,
10.375%, 7/01/11 ........................................................................ 650,000 729,788
Refunding, 10.375%, 7/01/11 ............................................................. 2,900,000 3,255,975
Gettysburg IDA, Health Facilities Revenue, Refunding, Encore
Nursing Center, 10.375%, 7/01/11 ........................................................ 3,000,000 3,368,250
Lehigh County IDA, PCR, Pennsylvania Power & Light Co. Project,
Refunding, Series A, MBIA Insured, 6.15%, 8/01/29 ....................................... 4,000,000 4,369,400
Monroeville Hospital Authority, Hospital Revenue, Forbes Health
System, Refunding, 6.25%, 10/01/15 ...................................................... 2,500,000 2,450,300
Montgomery County Higher Education and Health Authority Revenue,
First Mortgage, Holy Redeemer Long-Term Care, Series A,
Pre-Refunded, 8.20%, 6/01/06 ........................................................... 1,615,000 1,839,259
First Mortgage, Holy Redeemer Long-Term Care, Series A,
Pre-Refunded, 8.00%, 6/01/22 ........................................................... 3,500,000 3,980,795
Pennsylvania (cont.)
Montgomery County Higher Education and Health Authority Revenue, (cont.)
St. Joseph's University, Pre-Refunded, 8.30%, 6/01/10 ................................... $ 5,000,000 $ 5,472,150
United Hospital, Series A, Pre-Refunded, 8.375%, 11/01/11 ............................... 200,000 214,778
United Hospital, Series A, Pre-Refunded, 7.50%, 11/01/12 ................................ 3,560,000 3,719,559
United Hospital, Series A, Pre-Refunded, 7.50%, 11/01/13 ................................ 750,000 783,615
United Hospital, Series A, Pre-Refunded, 7.50%, 11/01/14 ................................ 600,000 626,892
United Hospital, Series B, Pre-Refunded, 7.50%, 11/01/14 ................................ 3,940,000 4,116,591
United Hospital, Series B, Pre-Refunded, 7.50%, 11/01/15 ................................ 1,600,000 1,671,712
Montgomery County IDAR,
Hill School Project, MBIA Insured, 5.35%, 8/15/27 ....................................... 8,885,000 9,061,989
Resources Recovery, 7.50%, 1/01/12 ...................................................... 10,000,000 10,530,900
Pennsylvania Convention Center Authority Revenue, Refunding, Series A,
5.75%, 9/01/99 .......................................................................... 1,750,000 1,778,543
6.25%, 9/01/04 .......................................................................... 5,000,000 5,352,300
6.60%, 9/01/09 .......................................................................... 16,000,000 17,611,200
6.70%, 9/01/14 .......................................................................... 20,760,000 22,900,148
6.75%, 9/01/19 .......................................................................... 15,800,000 17,469,270
Pennsylvania EDA, Resource Recovery Revenue,
Colver Project, Series D, 7.125%, 12/01/15 .............................................. 10,000,000 11,153,600
Pennsylvania State Higher Educational Facilities Authority Revenue,
Health Services Revenue, Allegheny Delaware Valley Obligated Group,
Series A, MBIA Insured, 5.875%, 11/15/16 ................................................ 15,000,000 15,409,650
Medical College of Pennsylvania, Series A, Pre-Refunded, 8.375%, 3/01/11 ................ 1,200,000 1,252,200
Pennsylvania State Pooled Finance Authority, Lease Revenue,
Capital Improvement, Series B, MBIA Insured, 8.00%, 11/01/09 ............................ 1,825,000 1,909,753
Philadelphia Gas Works Revenue, Refunding, 14th Series A, 6.375%, 7/01/26 ............... 2,850,000 3,155,520
Philadelphia GO, Refunding, Series B, 6.00%, 5/15/05 .................................... 3,080,000 3,285,590
Philadelphia IDA, Health Care Facility Revenue, Pauls Run, Series A,
5.85%, 5/15/13 .......................................................................... 2,200,000 2,225,806
5.75%, 5/15/18 .......................................................................... 1,500,000 1,490,760
5.875%, 5/15/28 ......................................................................... 2,500,000 2,502,250
Philadelphia Municipal Authority Revenue, Lease,
Refunding, Series D, 6.30%, 7/15/17 ..................................................... 3,500,000 3,727,255
Sub Series C, 8.625%, 11/15/16 .......................................................... 2,865,000 3,173,102
Sub Series D, 6.25%, 7/15/13 ............................................................ 3,000,000 3,195,120
Philadelphia Water and Sewer Revenue, ETM, 10th Series, 7.35%, 9/01/04 .................. 14,235,000 16,177,081
Schuylkill County IDA, Resources Recovery Revenue,
Schuylkill Energy Resources Inc., Refunding, 6.50%, 1/01/10 ............................. 30,425,000 30,599,031
South Fork Municipal Authority Hospital Revenue,
Conemaugh Valley Memorial Hospital Project, Series A, MBIA Insured,
5.75%, 7/01/16 ......................................................................... 8,130,000 8,676,336
South Wayne County, Water and Sewer Authority Revenue, Refunding, 8.20%, 4/15/13 ........ 8,350,000 8,769,922
Washington County IDA, PCR, West Pennsylvania Power Co., 6.05%, 4/01/14 ................. 5,025,000 5,508,807
-------------
288,016,634
-------------
Rhode Island .3%
Rhode Island HFC, Homeownership Opportunity, Series 17-A, 6.25%, 4/01/17 ................ 5,000,000 5,334,400
Rhode Island State Health and Educational Building Corp. Revenue,
Landmark Medical Center Assessment, 5.875%, 10/01/19 .................................... 6,000,000 6,276,720
Lifespan Obligation Group, MBIA Insured, 5.75%, 5/15/23 ................................. 5,000,000 5,333,050
West Warwick GO, Series A,
7.00%, 8/15/02 .......................................................................... 145,000 155,702
7.30%, 7/15/08 .......................................................................... 915,000 1,018,386
-------------
18,118,258
-------------
South Carolina 1.0%
Charleston County Hospital Facilities, First Mortgage
Revenue, Sandpiper Village, Inc., 8.00%, 11/01/13 ...................................... 3,625,000 3,647,801
Piedmont Municipal Power Agency, Electricity Revenue, Refunding,
6.55%, 1/01/16 ......................................................................... 9,500,000 9,553,865
6.60%, 1/01/21 ......................................................................... 8,770,000 8,821,129
South Carolina (cont.)
South Carolina Jobs EDA, Health Facilities Revenue, 1st Mortgage Lutheran Homes, Refunding,
5.65%, 5/01/18 ......................................................................... $ 3,200,000 $ 3,188,448
5.70%, 5/01/26 ......................................................................... 4,235,000 4,188,119
South Carolina State Public Service Authority Revenue,
Refunding, Series A, MBIA Insured, 5.75%, 1/01/22 ....................................... 32,500,000 34,570,900
-------------
63,970,262
-------------
South Dakota .3%
Education Loans Inc., Student Loan Revenue, 5.60%, 6/01/20 .............................. 5,000,000 5,044,100
South Dakota HDA, Homeownership Mortgage, Series A, 6.125%, 5/01/17 ..................... 5,000,000 5,363,050
South Dakota State Health and Educational Facilities Authority Revenue,
5.50%, 8/01/22 ......................................................................... 7,100,000 7,373,137
Prairie Lakes Health Care, Refunding, 7.25%, 4/01/22 ................................... 1,020,000 1,125,998
Prairie Lakes Health Care, Refunding, Pre-Refunded, 7.25%, 4/01/22 ..................... 2,480,000 2,849,743
-------------
21,756,028
-------------
Tennessee .3%
Johnson City Health and Educational Facilities Board Revenue
Mortgage, Pine Oaks Assisted Project, Series A, 5.90%, 6/20/37 ......................... 2,620,000 2,747,542
Knox County Health, Educational and Housing Facilities Board,
MFHR, Eastowne Village Project, GNMA Secured, 8.20%, 7/01/28 ........................... 3,070,000 3,180,704
Memphis-Shelby County Airport Authority, Special Facilities
and Project Revenue, Federal Express Corp., 7.875%, 9/01/09 ............................ 6,000,000 6,713,520
Metropolitan Government, Nashville and Davidson County
Public Improvements, 5.875%, 5/15/26 .................................................... 5,000,000 5,360,200
Shelby County, Health and Education Housing Facility Revenue,
Beverly Enterprise, 10.125%, 12/01/11 .................................................. 2,800,000 3,075,212
Tennessee HDA, Financial Mortgage, Series A, 6.90%, 7/01/25 ............................. 200,000 218,582
-------------
21,295,760
-------------
Texas 3.4%
Alliance Airport Authority, Special Facilities Revenue, 7.50%, 12/01/29.................. 10,000,000 10,811,400
Bexar County Health Facilities Development Corp. Revenue,
Incarnate Word Health Services, Refunding, FSA Insured, 6.00%, 11/15/15 ................ 8,750,000 9,551,325
Brazos River Authority, PCR, Collateralized, Texas Utilities
Electric Co., Refunding, Series C, 5.55%, 6/01/30 ...................................... 12,000,000 12,091,200
Coppell Special Assessment Gateway Project, 8.70%, 3/01/12 .............................. 4,355,000 4,494,491
Copperas Cove Health Facilities Development Corp.,
Hospital Revenue, First Mortgage, Metroplex Health, Series B, Pre-Refunded,
9.125%, 12/01/19 ....................................................................... 5,412,000 5,828,562
El Paso County HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11 .......................... 4,485,000 4,842,499
Gulf Coast IDA, Waste Disposal Revenue, Valero Refining Project, 5.60%, 12/01/31 ........ 10,000,000 10,110,600
Harris County Health Facilities Development Corp., Hospital Revenue,
Memorial Hospital System Project, Refunding, Series A,
MBIA Insured, 5.75%, 6/01/19 ........................................................... 15,065,000 16,058,687
Memorial Hospital System Project, Refunding, Series A,
MBIA Insured, 5.50%, 6/01/24 ........................................................... 12,000,000 12,503,280
Special Facilities Revenue, Texas Medical Center Project,
MBIA Insured, 6.00%, 5/15/20 ........................................................... 7,000,000 7,603,610
Lower Neches Valley Authority IDC Revenue, Mobil Oil
Refunding Corp., Refunding, 5.55%, 3/01/33 .............................................. 2,500,000 2,557,600
Nueces River Authority,
Environmental Improvement Revenue, Asarco Inc. Project, Refunding, 5.60%, 1/01/27 ....... 8,640,000 8,857,901
Texas Water Supply Revenue Facilities, 5.50%, 3/01/27 ................................... 7,500,000 7,848,375
Port Corpus Christi Authority, Nueces County General Revenue,
Union Pacific, Refunding, 5.65%, 12/01/22 .............................................. 5,000,000 5,146,600
Port Corpus Christi IDC Revenue, Valero, Refunding,
Series C, 5.40%, 4/01/18 ............................................................... 5,000,000 5,064,200
Red River Authority, PCR, West Texas Utilities Co.,
Public Service Co., Oklahoma Central Power and Light Co., Refunding,
MBIA Insured, 6.00%, 6/01/20 ........................................................... 8,000,000 8,697,760
Sabine River Authority, PCR, Southwestern Electric Power,
Refunding, MBIA Insured, 6.10%, 4/01/18 ................................................ 7,000,000 7,646,380
Sam Rayburn Texas Municipal Power Agency Supply System Revenue, Refunding,
Series A, 6.50%, 10/01/08 ............................................................... 380,000 396,598
Series A, 6.75%, 10/01/14 ............................................................... 12,990,000 13,647,554
Series A, 6.25%, 10/01/17 ............................................................... 4,795,000 4,880,783
Series B, 5.75%, 10/01/08 ............................................................... 1,315,000 1,321,246
Series B, 6.125%, 10/01/13 .............................................................. 5,150,000 5,233,739
Series B, 5.50%, 10/01/20 ............................................................... 11,255,000 10,836,989
San Antonio Electric and Gas Revenue, Series 95, MBIA Insured, 5.375%, 2/01/18 .......... 6,000,000 6,153,420
Texas State VHA, Refunding, Series A, 6.15%, 12/01/25 ................................... 7,430,000 7,914,065
Texas State Water Development Board Revenue, 6.00%, 7/15/13 ............................. 4,000,000 4,286,720
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23 .......................... 8,750,000 9,235,100
Texas (cont.)
Travis County Health Facilities Development Corp., Hospital Revenue,
Charity Obligation Group, Series A, 5.375%, 11/01/28 ................................... $ 11,685,000 $ 11,919,518
Tyler Health Facilities Development Corp. Hospital Revenue, 5.60%, 11/01/27 ............. 3,450,000 3,628,193
-------------
219,168,395
-------------
United States Territories 4.7%
American Samoa EDA, Executive Office Building Revenue, 10.125%, 9/01/08 ................ 2,175,000 2,268,025
District of Columbia, Carnegie Endowment Revenue, 5.75%, 11/15/26 ....................... 5,410,000 5,775,229
District of Columbia GO,
Refunding, Series A, 5.875%, 6/01/05 .................................................... 7,205,000 7,680,314
Refunding, Series A, 6.00%, 6/01/07 ..................................................... 10,905,000 11,773,038
Refunding, Series B, 5.25%, 6/01/26 ..................................................... 59,315,000 57,293,545
Series A, 5.25%, 6/01/27 ................................................................ 16,225,000 15,663,777
Series A, ETM, 5.875%, 6/01/05 .......................................................... 595,000 649,318
Series A, ETM, 6.00%, 6/01/07 ........................................................... 870,000 966,735
Series A, Pre-Refunded, 6.375%, 6/01/11 ................................................. 22,770,000 26,017,685
Series A, Pre-Refunded, 6.375%, 6/01/16 ................................................. 27,230,000 31,113,815
Series E, 6.00%, 6/01/11 ................................................................ 5,000,000 5,379,950
District of Columbia Hospital Revenue,
Medlantic Healthcare Group, Refunding, Series A, MBIA Insured, 5.70%, 8/15/08 ........... 6,500,000 7,130,500
Medlantic Healthcare Group, Refunding, Series A, MBIA Insured, 5.875%, 8/15/19 .......... 8,850,000 9,494,015
Washington Hospital Center, Series A, Pre-Refunded, 9.00%, 1/01/08 ...................... 13,270,000 14,997,091
Washington Hospital Center, Series A, Pre-Refunded, 8.75%, 1/01/15 ...................... 3,750,000 4,221,900
Washington Hospital Center, Series A, Pre-Refunded, 7.125%, 8/15/19 ..................... 4,500,000 5,073,570
Washington Hospital Center, Series A, 7.00%, 8/15/05 .................................... 2,000,000 2,178,380
District of Columbia RDA, Washington D. C. Sports Arena
Special Tax Revenue, 5.625%, 11/01/10 .................................................. 1,240,000 1,282,433
Northern Mariana Islands, Commonwealth Ports Authority,
Airport Revenue, Series A, 6.25%, 3/15/28 ............................................... 15,000,000 15,101,100
Seaport Revenue, Series A, 6.40%, 3/15/28 ............................................... 9,090,000 9,015,826
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax Revenue, Series A, 7.75%, 7/01/08 .......................................... 700,000 715,925
Virgin Islands Public Finance Authority Revenue,
Matching Fund Loan Notes, Refunding, Series A, Pre-Refunded, 7.25%, 10/01/18 ............ 14,000,000 16,036,720
Sub-Lien, Fund Loan Notes, Refunding, Series D, 5.50%, 10/01/01 ......................... 1,600,000 1,648,688
Sub-Lien, Fund Loan Notes, Refunding, Series D, 5.50%, 10/01/02 ......................... 1,840,000 1,904,326
Sub-Lien, Fund Loan Notes, Refunding, Series D, 5.50%, 10/01/03 ......................... 1,895,000 1,971,369
Sub-Lien, Fund Loan Notes, Refunding, Series E, 5.75%, 10/01/13 ......................... 15,000,000 15,568,650
Sub-Lien, Fund Loan Notes, Refunding, Series E, 5.875%, 10/01/18 ........................ 9,000,000 9,326,700
Sub-Lien, Fund Loan Notes, Refunding, Series E, 6.00%, 10/01/22 ......................... 15,000,000 15,668,250
Virgin Islands Water and Power Authority,
Electric System Revenue, Series A, Pre-Refunded, 7.40%, 7/01/11 ......................... 380,000 421,310
Water Power Revenue, Series B, 7.60%, 1/01/12 ........................................... 4,000,000 4,440,360
-------------
300,778,544
-------------
Utah .7%
Box Elder County PCR, Nucor Corp. Project, 6.90%, 5/15/17 ............................... 2,000,000 2,194,240
Carbon County Solid Waste Disposal Revenue, Laidlaw Environmental,
Refunding, Series A, 7.45%, 7/01/17 .................................................... 2,500,000 2,791,475
Davis County Solid Waste Management Energy Recovery Revenue,
Special Services District, Refunding, 6.125%, 6/15/09 .................................. 16,800,000 17,755,752
Tooele County PCR, Laidlaw Environmental, Refunding, Series A, 7.55%, 7/01/27 ........... 3,500,000 3,931,865
Utah Assessed Municipal Power Systems Revenue, San Juan Project,
Pre-Refunded, 6.375%, 6/01/22 .......................................................... 11,000,000 12,442,650
Utah State HFA, SFM,
Series A, 9.625%, 7/01/00 ............................................................... 15,000 15,455
Series A-2, 9.625%, 7/01/02 ............................................................. 30,000 31,157
Series A-2, 9.45%, 7/01/03 .............................................................. 75,000 78,243
Series B, 9.50%, 7/01/00 ................................................................ 25,000 25,728
Series B, 9.60%, 7/01/00 ................................................................ 5,000 5,113
Series B, 9.25%, 7/01/01 ................................................................ 45,000 46,276
Series B-2, 9.50%, 7/01/02 .............................................................. 30,000 31,164
Series B-2, 9.45%, 7/01/03 .............................................................. 115,000 120,785
Utah (cont.)
Utah State HFA, SFM, (cont.)
Series C-1, 9.375%, 7/01/00 ............................................................. $ 40,000 $ 41,046
Series C-2, 9.05%, 7/01/03 .............................................................. 150,000 158,196
Series D-2, 9.00%, 7/01/03 .............................................................. 300,000 316,377
Series E, 9.50%, 7/01/00 ................................................................ 15,000 15,424
Series E-1, 8.70%, 7/01/03 .............................................................. 335,000 355,552
Series F, 9.60%, 7/01/00 ................................................................ 5,000 5,150
Series G-2, 9.30%, 7/01/00 .............................................................. 20,000 20,312
Sub Series B-2, 8.70%, 7/01/04 .......................................................... 495,000 525,735
Sub Series D, 8.45%, 7/01/04 ............................................................ 260,000 273,130
Weber County Municipal Building Authority Lease Revenue,
Refunding, MBIA Insured, 5.75%, 12/15/19 ................................................ 5,000,000 5,306,500
-------------
46,487,325
-------------
Virginia .4%
Hanover County IDA, Hospital Revenue, Memorial Regional
Medical Center Project, MBIA Insured, 5.50%, 8/15/25 ................................... 14,725,000 15,207,686
Virginia State HDA Commonwealth Mortgage, Series D, Sub Series D-3, 6.125%, 1/01/19 ..... 9,715,000 10,358,036
-------------
25,565,722
-------------
Washington .1%
Washington State Health Care Facilities Authority Revenue,
Swedish Hospital Medical Center, AMBAC Insured, Pre-Refunded,
6.30%, 11/15/22 ........................................................................ 2,675,000 2,964,596
Washington State Public Power Supply System Revenue,
Nuclear Project No. 1, Refunding, Series C, Pre-Refunded, 8.00%, 7/01/17 ............... 5,000,000 5,463,200
-------------
8,427,796
-------------
West Virginia .3%
West Virginia State Hospital Finance Authority, Hospital Revenue, 7.25%, 7/01/20 15,000,000 14,984,700
West Virginia State Water Development Authority Revenue,
Loan Program II, Series A, Pre-Refunded, 8.625%, 11/01/28 ............................... 1,550,000 1,593,509
Loan Program II, Series A, Pre-Refunded, 8.125%, 11/01/29 ............................... 2,790,000 2,866,111
Solid Waste Management, Series C, 8.125%, 8/01/15 ....................................... 2,355,000 2,527,127
-------------
21,971,447
-------------
Wisconsin 1.1%
Wisconsin Central District, Wisconsin Tax Revenue,
Junior Dedicated, Series B, 5.75%, 12/15/27 ............................................. 12,840,000 13,547,099
Wisconsin Housing EDA, Home Ownership Revenue,
Series C, 6.15%, 9/01/17 ................................................................ 2,355,000 2,512,031
Series H, 5.75%, 9/01/28 ................................................................ 2,500,000 2,561,400
Wisconsin State Health and Educational Facilities Authority Revenue,
Bethany Lutheran Home of La Crosse, 8.75%, 12/01/06 ..................................... 945,000 967,888
Felician Health Care, Refunding, Series A, AMBAC Insured,
Pre-Refunded, 7.00%, 1/01/15 ............................................................ 5,000,000 5,308,800
Franciscan Health System, Inc. Project, 6.25%, 11/15/20 ................................. 9,510,000 10,390,151
Franciscan Health System, Inc. Project, Pre-Refunded, 8.375%, 3/01/05 ................... 6,000,000 6,515,940
Franciscan Health System, Inc. Project, Pre-Refunded, 8.50%, 3/01/20 .................... 6,000,000 6,526,740
Sisters Sorrowful Mother, Series A, MBIA Insured, 5.90%, 8/15/24 ........................ 22,055,000 23,673,396
-------------
72,003,445
-------------
Wyoming .3%
Sweetwater County PCR, Idaho Power Co., Refunding, Series A, 6.05%, 7/15/26 10,500,000 11,380,110
Teton County Hospital District, Hospital Revenue, Refunding
and Improvement, 5.80%, 12/01/17 ....................................................... 1,265,000 1,299,598
Wyoming CDA, Housing Revenue,
Series 1, 6.15%, 6/01/17 ................................................................ 1,000,000 1,074,620
Series 4, 5.85%, 6/01/28 ................................................................ 5,210,000 5,444,867
-------------
19,199,195
-------------
Total Bonds............................................................................. 6,026,148,316
-------------
d Zero Coupon Bonds 3.6%
Akron Ohio COP, Akron Municipal Baseball Stadium Project,
Capital Appreciation, Zero Coupon to 12/01/01,
6.30% thereafter, 12/01/05 .............................................................. $ 1,700,000 $ 1,533,145
6.40% thereafter, 12/01/06 .............................................................. 1,685,000 1,531,429
6.50% thereafter, 12/01/07 .............................................................. 1,750,000 1,605,608
6.90% thereafter, 12/01/16 .............................................................. 2,500,000 2,302,425
City of Troy, Municipal Assistance Corp., Capital Appreciation,
Series C, MBIA Insured,
7/15/21 ................................................................................. 428,010 135,611
1/15/22.................................................................................. 649,658 200,731
Kearney IDR, Great Platte River Road, Capital Appreciation, Zero Coupon to 1/01/06,
7.00% thereafter, 1/01/11 ............................................................... 4,255,000 2,622,612
7.00% thereafter, 1/01/17 ............................................................... 8,895,000 5,516,501
Miami - Dade County Special Obligation, Capital Appreciation, Series B, MBIA Insured,
10/1/28.................................................................................. 11,860,000 2,394,890
10/1/29.................................................................................. 20,000,000 3,820,400
10/1/32.................................................................................. 7,780,000 1,243,555
10/1/33.................................................................................. 2,000,000 302,320
10/1/34.................................................................................. 3,895,000 556,829
10/1/35.................................................................................. 6,765,000 914,628
San Francisco City and County RDA, Lease Revenue, George Moscone Center,
7/01/09 ................................................................................. 3,750,000 2,274,863
7/01/10 ................................................................................. 4,500,000 2,576,700
7/01/12 ................................................................................. 4,500,000 2,282,400
7/01/13 ................................................................................. 4,250,000 2,037,578
7/01/14 ................................................................................. 2,250,000 1,018,643
San Joaquin Hills Transportation, Corridor Agency Toll Road Revenue, Junior Lien,
ETM, 1/01/04 ............................................................................ 7,400,000 5,945,530
ETM, 1/01/05 ............................................................................ 8,000,000 6,149,840
ETM, 1/01/06 ............................................................................ 9,000,000 6,589,440
ETM, 1/01/07 ............................................................................ 9,400,000 6,568,814
ETM, 1/01/08 ............................................................................ 10,400,000 6,929,832
ETM, 1/01/09 ............................................................................ 21,900,000 13,900,587
ETM, 1/01/10 ............................................................................ 15,000,000 8,990,700
ETM, 1/01/12 ............................................................................ 30,100,000 16,100,490
ETM, 1/01/24 ............................................................................ 52,700,000 15,049,012
ETM, 1/01/25 ............................................................................ 45,200,000 12,284,456
ETM, 1/01/26 ............................................................................ 131,900,000 34,117,254
ETM, 1/01/27 ............................................................................ 139,100,000 34,242,247
Refunding, Series A, 1/15/23 ............................................................ 20,000,000 13,381,761
Refunding, Series A, 1/15/24 ............................................................ 20,000,000 13,202,000
-------------
Total Zero Coupon Bonds................................................................. 228,322,831
-------------
Total Long Term Investments (Cost $5,807,352,340) ...................................... 6,254,471,147
-------------
a Short Term Investments .8%
Burke County Development Authority, PCR, Georgia Power Co.,
Vogtle-4th Series, Daily VRDN and Put, 3.25%, 9/01/25 ................................... 5,400,000 5,400,000
Clark County, Solid Waste Disposal Revenue, Reynolds Metals Co. Project,
Weekly VRDN and Put, 3.37%, 8/01/22 .................................................... 100,000 100,000
Jackson County PCR, Chevron U.S.A. Inc. Project, Refunding, Daily VRDN and Put, 3.25%,
12/01/16 ............................................................................... 1,700,000 1,700,000
6/01/23 ................................................................................ 1,700,000 1,700,000
Kansas City IDA, Hospital Revenue, Research Health Services Systems,
MBIA Insured, Weekly VRDN and Put, 3.25%, 4/15/15 ....................................... 2,300,000 2,300,000
Long Island Power Authority Electric System Revenue, Sub Series 5,
Daily VRDN and Put, 3.25%, 5/01/33 ...................................................... 7,500,000 7,500,000
Maryland Community Development Administration, MF, Development
Revenue, Avalon Lea Apartments Project, Refunding,
FNMA Secured, Weekly VRDN and Put, 3.20%, 6/15/26 ...................................... 600,000 600,000
Massachusetts State Health and Educational Facilities Authority Revenue,
Capital Assets Program, Series D, MBIA Insured,
Weekly VRDN and Put, 3.05%, 1/01/35 .................................................... 13,400,000 13,400,000
Mcintosh IDB, Environmental Improvement Revenue, CIBC Specialty,
Refunding, Series D, Daily VRDN and Put,
3.30%, 7/01/28 ......................................................................... 2,400,000 2,400,000
New York City Municipal Water Financing Authority, Water and Sewer System Revenue,
Series C, FGIC Insured, Daily VRDN and Put, 3.30%, 6/15/23 .............................. $ 1,900,000 $ 1,900,000
Series G, FGIC Insured, Daily VRDN and Put, 3.25%, 6/15/24 .............................. 4,400,000 4,400,000
Petersburg Hospital Authority Revenue, Hospital Facility,
Southside Regional, Daily VRDN and Put, 3.30%, 7/01/17 .................................. 1,000,000 1,000,000
Port Authority New York and New Jersey, Special Obligation Revenue,
Versatile Structure, Series 2, Daily VRDN and Put,
3.20%, 5/01/19 ......................................................................... 2,900,000 2,900,000
Puerto Rico Commonwealth Government Development Bank,
Refunding, MBIA Insured, Weekly VRDN and Put, 2.50%, 12/01/15 ........................... 300,000 300,000
Roanoke IDA, Hospital Revenue, Carilion Health System,
Series B, Daily VRDN and Put, 3.30%, 7/01/27 ............................................ 4,000,000 4,000,000
Waynesboro Virginia IDAR, Residential Care Facilities,
Sunnyside Presbyterian Home, Refunding, Daily VRDN and Put, 3.30%, 12/15/28 ............. 4,500,000 4,500,000
-------------
Total Short Term Investments (Cost $54,100,000) ........................................ 54,100,000
-------------
Total Investments (Cost $5,861,452,340) 98.8% .......................................... 6,308,571,147
Other Assets, less Liabilities 1.2% .................................................... 78,065,250
-------------
Net Assets 100.0% ...................................................................... $6,386,636,397
=============
See glossary of terms on page 137.
</TABLE>
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.
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 issued 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.
MBS - Mortgage Backed Securities
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
PBA - Public Building Authority
PCC - Pollution Control Corp.
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Authority/Agency
RDAR - Redevelopment Authority/Agency Revenue
RMR - Residential Mortgage Revenue
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
UHSD - Unified High School District
USD - Unified School District
VHA - Volunteer Hospital of America
VRDN - Variable Rate Demand Notes
<TABLE>
<CAPTION>
Franklin Tax-Free Trust
Financial Statements
Statements of Assets and Liabilities
August 31, 1998 (unaudited)
Franklin Franklin Franklin Franklin Franklin
Arizona Colorado Connecticut Indiana Michigan
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ..................................... $804,545,089 $274,246,696 $215,994,523 $54,216,942 $12,536,354
===================================================================
Value .................................... 861,179,033 294,295,396 232,056,226 58,252,394 13,211,840
Cash ...................................... 27,318 496,379 468,775 22,027 193,129
Receivables:
Investment securities sold ............... 300,157 839,486 -- -- --
Capital shares sold ...................... 735,292 207,298 1,435,179 9,573 51,573
Interest ................................. 10,100,124 4,703,622 3,339,039 645,412 164,186
Affiliates ............................... -- -- -- -- 4,309
Other assets .............................. -- -- -- -- 837
-------------------------------------------------------------------
Total assets ......................... 872,341,924 300,542,181 237,299,219 58,929,406 13,625,874
-------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .......... 4,375,005 -- 2,985,463 970,982 582,593
Capital shares redeemed .................. 221,305 61,235 236,853 -- --
Affiliates ............................... 524,086 222,644 174,645 44,551 --
Shareholders ............................. 706,877 281,795 200,199 34,875 3,420
Distributions to shareholders ............. 1,276,394 431,152 315,897 80,133 19,259
Other liabilities ......................... 21,325 7,038 4,692 8,571 1,818
-------------------------------------------------------------------
Total liabilities .................... 7,124,992 1,003,864 3,917,749 1,139,112 607,090
-------------------------------------------------------------------
Net assets, at value ................ $865,216,932 $299,538,317 $233,381,470 $57,790,294 $13,018,784
===================================================================
Net assets consist of:
Undistributed net investment income ....... $-- $-- $-- $ 63,949 $ 37,001
Accumulated distributions in excess
of net investment income .................. (1,093,660) (9,106) (142,536) -- --
Net unrealized appreciation ............... 56,633,944 20,048,700 16,061,703 4,035,452 675,486
Accumulated net realized gain (loss) ...... 277,522 1,055,135 (3,568,420) 91,036 (23,945)
Capital shares ............................ 809,399,126 278,443,588 221,030,723 53,599,857 12,330,242
-------------------------------------------------------------------
Net assets, at value ................. $865,216,932 $299,538,317 $233,381,470 $57,790,294 $13,018,784
===================================================================
Class I:
Net assets, at value ...................... $845,691,391 $283,697,655 $219,239,962 $57,790,294 $13,018,784
===================================================================
Shares outstanding ........................ 73,991,615 23,363,185 19,393,463 4,770,779 1,169,208
===================================================================
Net asset value per share* ................ $11.43 $12.14 $11.30 $12.11 $11.13
===================================================================
Maximum offering price per share
(net asset value per share / 95.75%) ...... $11.94 $12.68 $11.80 $12.65 $11.62
===================================================================
Class II:
Net assets, at value ...................... $ 19,525,541 $ 15,840,662 $ 14,141,508 -- --
===================================================================
Shares outstanding ........................ 1,698,002 1,298,430 1,247,665 -- --
===================================================================
Net asset value per share* ................ $11.50 $12.20 $11.33 -- --
===================================================================
Maximum offering price per share
(net asset value per share / 99.00%) ...... $11.62 $12.32 $11.44 -- --
===================================================================
*Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
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 ............................. $645,768,092 $456,538,762 $706,142,338 $200,372,998 $156,318,851 $5,861,452,340
==================================================================================
Value ............................ 694,631,522 486,501,075 756,534,680 216,377,377 163,782,606 6,308,571,147
Cash .............................. 1,598,691 274,798 218,395 451,417 770,995 379,835
Receivables:
Investment securities sold ....... -- -- 7,925,000 -- -- 74,696,908
Capital shares sold .............. 1,164,477 1,161,360 1,127,206 38,529 494,303 21,007,665
Interest ......................... 9,287,764 6,471,832 13,163,025 3,325,375 2,132,421 106,786,695
---------------------------------------------------------------------------------
Total assets ................. 706,682,454 494,409,065 778,968,306 220,192,698 167,180,325 6,511,442,250
---------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .. -- 9,012,756 3,003,589 -- 2,419,220 30,889,551
Capital shares redeemed .......... 95,249 127,219 258,821 57,479 68,979 73,259,785
Affiliates ....................... 484,301 334,654 519,201 158,455 100,200 4,364,776
Shareholders ..................... 629,444 317,907 850,809 259,312 61,650 6,701,726
Distributions to shareholders ..... 958,495 664,476 1,177,738 322,416 223,103 9,566,909
Other liabilities ................. 31,959 42,051 23,663 15,454 21,516 23,106
---------------------------------------------------------------------------------
Total liabilities ............ 2,199,448 10,499,063 5,833,821 813,116 2,894,668 124,805,853
---------------------------------------------------------------------------------
Net assets, at value ........ $704,483,006 $483,910,002 $773,134,485 $219,379,582 $164,285,657 $6,386,636,397
==================================================================================
Net assets consist of:
Undistributed net investment income $ 151,910 $ 895,991 $-- $-- $ 79,047 $ --
Accumulated distributions in excess of net
investment income ................. -- -- (868,170) (174,184) -- (7,792,319)
Net unrealized appreciation ....... 48,863,430 29,962,313 50,392,342 16,004,379 7,463,755 447,118,807
Accumulated net realized gain (loss) (202,885) (393,936) 916,160 535,634 (1,205,040) 4,496,584
Capital shares .................... 655,670,551 453,445,634 722,694,153 203,013,753 157,947,895 5,942,813,325
---------------------------------------------------------------------------------
Net assets, at value ......... $704,483,006 $483,910,002 $773,134,485 $219,379,582 $164,285,657 $6,386,636,397
==================================================================================
Class I:
Net assets, at value .............. $666,113,021 $458,334,708 $739,939,788 $213,826,430 $164,285,657 $5,823,344,679
==================================================================================
Shares outstanding ................ 55,519,333 38,558,405 69,927,105 17,918,875 14,523,270 497,869,849
==================================================================================
Net asset value per share* ........ $12.00 $11.89 $10.58 $11.93 $11.31 $11.70
==================================================================================
Maximum offering price per share
(net asset value per share / 95.75%) $12.53 $12.42 $11.05 $12.46 $11.57** $12.22
==================================================================================
Class II:
Net assets, at value .............. $ 38,369,985 $ 25,575,294 $ 33,194,697 $ 5,553,152 -- $ 563,291,718
==================================================================================
Shares outstanding ................ 3,182,508 2,138,470 3,122,616 464,832 -- 47,854,859
==================================================================================
Net asset value per share* ........ $12.06 $11.96 $10.63 $11.95 -- $11.77
==================================================================================
Maximum offering price per share
(net asset value per share / 99.00%) $12.18 $12.08 $10.74 $12.07 -- $11.89
==================================================================================
</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 $11.31 / 97.75%.
<TABLE>
<CAPTION>
Statements of Operations
for the six months ended August 31, 1998 (unaudited)
Franklin Franklin Franklin Franklin Franklin
Arizona Colorado Connecticut Indiana Michigan
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest .................................. $24,384,356 $8,236,915 $6,537,611 $1,672,800 $281,288
------------------------------------------------------------------
Expenses:
Management fees (Note 3) .................. 2,024,406 779,564 622,659 174,317 33,723
Distribution fees (Note 3)
Class I .................................. 377,492 129,546 102,888 24,937 4,948
Class II ................................. 54,216 44,530 37,431 -- --
Transfer agent fees (Note 3) .............. 125,875 60,389 40,459 18,220 2,869
Custodian fees ............................ 3,810 1,544 1,017 214 44
Reports to shareholders ................... 70,511 25,087 20,845 6,537 973
Registration and filing fees .............. 7,115 4,965 5,099 1,036 3,597
Professional fees ......................... 10,839 3,731 3,171 1,971 655
Trustees' fees and expenses ............... 4,795 1,858 1,350 536 255
Other ..................................... 21,254 7,061 4,030 5,163 1,291
------------------------------------------------------------------
Total expenses ....................... 2,700,313 1,058,275 838,949 232,931 48,355
Expenses waived/paid by affiliate (Note 3) -- -- -- -- (35,097)
------------------------------------------------------------------
Net expenses ......................... 2,700,313 1,058,275 838,949 232,931 13,258
------------------------------------------------------------------
Net investment income ............... 21,684,043 7,178,640 5,698,662 1,439,869 268,030
------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments . 283,210 1,056,012 621,058 91,638 (23,906)
Net unrealized appreciation on investments 2,142,848 1,061,385 1,016,831 208,827 181,617
------------------------------------------------------------------
Net realized and unrealized gain ........... 2,426,058 2,117,397 1,637,889 300,465 157,711
------------------------------------------------------------------
Net increase in net assets resulting from operations $24,110,101 $9,296,037 $7,336,551 $1,740,334 $425,741
==================================================================
Franklin Franklin Franklin Franklin Franklin Federal Franklin
New Jersey Oregon Pennsylvania Puerto Rico Intermediate- High Yield
Tax-Free Tax-Free Tax-Free Tax-Free Term Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund Income Fund Income Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest .......................... $19,599,199 $13,183,801 $22,250,154 $6,260,892 $3,962,794 $199,671,206
--------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......... 1,660,145 1,165,219 1,826,034 601,853 437,093 14,554,618
Distribution fees (Note 3)
Class I .......................... 297,497 200,526 332,796 96,036 74,658 2,652,458
Class II ......................... 106,097 68,460 95,083 14,381 -- 1,605,982
Transfer agent fees (Note 3) ...... 151,379 91,613 180,193 58,172 28,813 1,035,368
Custodian fees .................... 3,789 2,091 3,409 937 882 31,411
Reports to shareholders ........... 71,573 43,688 85,852 26,567 14,376 477,903
Registration and filing fees ...... 20,358 13,522 5,711 17,154 27,951 588,336
Professional fees ................. 9,425 7,817 9,048 3,495 2,290 61,163
Trustees' fees and expenses ....... 4,235 3,124 4,669 1,594 899 32,617
Other ............................. 12,467 22,376 14,044 3,576 6,663 88,128
--------------------------------------------------------------------------------
Total expenses ............... 2,336,965 1,618,436 2,556,839 823,765 593,625 21,127,984
Expenses waived/paid by affiliate
(Note 3) .......................... -- -- -- -- (34,144) --
--------------------------------------------------------------------------------
Net expenses ................. 2,336,965 1,618,436 2,556,839 823,765 559,481 21,127,984
--------------------------------------------------------------------------------
Net investment income ....... 17,262,234 11,565,365 19,693,315 5,437,127 3,403,313 178,543,222
--------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments 192,995 1,387,404 934,227 536,965 56,837 15,426,006
Net unrealized appreciation (depreciation)
on investments .................... 4,796,120 632,851 1,268,019 1,086,622 924,772 (3,478,779)
--------------------------------------------------------------------------------
Net realized and unrealized gain ... 4,989,115 2,020,255 2,202,246 1,623,587 981,609 11,947,227
--------------------------------------------------------------------------------
Net increase in net assets resulting from
operations ........................ $22,251,349 $13,585,620 $21,895,561 $7,060,714 $4,384,922 $190,490,449
================================================================================
Statements of Changes in Net Assets
for the six months ended August 31, 1998 (unaudited)
and the year ended February 28, 1998
Franklin Arizona Franklin Colorado Franklin Connecticut
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
------------------------------------------------------------------------------------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income.........$ 21,684,043 $ 42,369,055 $ 7,178,640 $ 13,751,416 $ 5,698,662 $ 10,751,324
Net realized gain from
investments ................... 283,210 7,063,992 1,056,012 3,599,269 621,058 2,330,741
Net unrealized appreciation on
investments ................... 2,142,848 12,652,846 1,061,385 5,186,539 1,016,831 3,355,147
------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations...... 24,110,101 62,085,893 9,296,037 22,537,224 7,336,551 16,437,212
Distributions to shareholders from:
Net investment income:
Class I ..................... (21,306,382) (42,092,588) (6,996,046) (13,602,062) (5,437,671) (10,477,972)
Class II .................... (377,661) (439,780) (303,981) (381,635) (260,991) (293,150)
In excess of net investment income:
Class I ...................... (485,608) (598,203) (8,727) -- (46,328) (91,006)
Class II ..................... (8,599) (1,250) (379) -- (2,224) (2,978)
Net realized gains:
Class I ...................... (2,515,530) (5,215,511) (1,131,258) (1,419,602) -- --
Class II ..................... (49,744) (69,925) (58,341) (51,742) -- --
------------------------------------------------------------------------------------------------------
Total distributions
to shareholders ................(24,743,524) (48,417,257) (8,498,732) (15,455,041) (5,747,214) (10,865,106)
Capital share transactions (Note 2):
Class I ....................... 36,089,396 44,417,210 16,362,889 23,138,001 14,112,950 14,607,058
Class II ...................... 4,974,082 8,880,489 4,923,829 4,971,534 5,400,049 4,302,474
------------------------------------------------------------------------------------------------------
Total capital share
transactions .................. 41,063,478 53,297,699 21,286,718 28,109,535 19,512,999 18,909,532
Net increase in net assets 40,430,055 66,966,335 22,084,023 35,191,718 21,102,336 24,481,638
Net assets:
Beginning of period ............824,786,877 757,820,542 277,454,294 242,262,576 212,279,134 187,797,496
------------------------------------------------------------------------------------------------------
End of period .................$865,216,932 $824,786,877 $299,538,317 $277,454,294 $233,381,470 $212,279,134
======================================================================================================
Undistributed net investment income
(accumulated distributions in excess
of net investment income) included
in net assets:
End of period .............. $ (1,093,660) $ (599,453) $ (9,106) $ 121,387 $ (142,536) $ (93,984)
======================================================================================================
Franklin Indiana Franklin Michigan Franklin New Jersey
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
--------------------------------------------------------------------------------------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease)
in net assets:
Operations:
Net investment income....... $ 1,439,869 $ 2,875,486 $ 268,030 $ 368,771 $ 17,262,234 $ 33,244,244
Net realized gain
(loss) from
investments ................. 91,638 578,277 (23,906) 21,364 192,995 2,902,623
Net unrealized
appreciation on
investments ................. 208,827 886,955 181,617 425,437 4,796,120 14,172,961
------------------------------------------------------------------------------------------------------
Net increase
in net assets
resulting from operations ... 1,740,334 4,340,718 425,741 815,572 22,251,349 50,319,828
Distributions to
shareholders from:
Net investment income:
Class I ................... (1,471,372) (2,896,065) (274,560) (370,383) (17,007,193) (32,627,862)
Class II .................. -- -- -- -- (755,738) (995,986)
Net realized gains:
Class I ................... (60,974) (97,364) (21,403) -- -- --
------------------------------------------------------------------------------------------------------
Total distributions
to shareholders (1,532,346) (2,993,429) (295,963) (370,383) (17,762,931) (33,623,848)
Capital share
transactions (Note 2):
Class I .................... 2,939,077 2,158,623 3,621,414 4,938,273 24,964,754 46,163,845
Class II ................... -- -- -- -- 9,962,086 14,421,458
------------------------------------------------------------------------------------------------------
Total capital
share transactions .. 2,939,077 2,158,623 3,621,414 4,938,273 34,926,840 60,585,303
Net increase
in net assets ... 3,147,065 3,505,912 3,751,192 5,383,462 39,415,258 77,281,283
Net assets:
Beginning of period ......... 54,643,229 51,137,317 9,267,592 3,884,130 665,067,748 587,786,465
------------------------------------------------------------------------------------------------------
End of period ............... $57,790,294 $54,643,229 $13,018,784 $9,267,592 $704,483,006 $665,067,748
======================================================================================================
Undistributed net
investment income
included in net assets:
End of period .............. $ 63,949 $ 95,452 $ 37,001 $ 43,531 $ 151,910 $ 652,607
======================================================================================================
Franklin Oregon Franklin Pennsylvania Franklin Puerto Rico
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
------------------------------------------------------------------------------------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income ...... $ 11,565,365 $ 21,984,674 $ 19,693,315 $ 38,371,049 $ 5,437,127 $ 10,756,182
Net realized gain from
investments ................. 1,387,404 3,490,454 934,227 6,524,504 536,965 166,654
Net unrealized appreciation on
investments ................ 632,851 7,488,709 1,268,019 15,000,707 1,086,622 6,082,031
------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ... 13,585,620 32,963,837 21,895,561 59,896,260 7,060,714 17,004,867
Distributions to shareholders from:
Net investment income:
Class I ................... (11,632,354) (21,486,828) (19,017,178) (37,844,881) (5,338,665) (10,578,866)
Class II .................. (488,816) (516,221) (676,137) (900,095) (98,462) (117,117)
In excess of net investment income:
Class I ................... -- -- (455,444) (393,721) (124,628) --
Class II .................. -- -- (16,177) (2,828) (2,297) --
Net realized gains:
Class I ................... -- -- -- (9,091,610) (162,956) (237,542)
Class II ........................ -- -- -- (252,851) (3,567) (2,435)
------------------------------------------------------------------------------------------------------
Total distributions
to shareholders (12,121,170) (22,003,049) (20,164,936) (48,485,986) (5,730,575) (10,935,960)
Capital share transactions (Note 2):
Class I ......................... 29,969,132 32,371,580 25,170,270 43,708,763 2,208,390 11,808,017
Class II ....................... 9,507,775 8,533,540 7,193,086 13,647,815 1,901,317 1,858,374
------------------------------------------------------------------------------------------------------
Total capital share transactions 39,476,907 40,905,120 32,363,356 57,356,578 4,109,707 13,666,391
Net increase in net assets . 40,941,357 51,865,908 34,093,981 68,766,852 5,439,846 19,735,298
Net assets:
Beginning of period ............. 442,968,645 391,102,737 739,040,504 670,273,652 213,939,736 194,204,438
------------------------------------------------------------------------------------------------------
End of period ...................$483,910,002 $442,968,645 $773,134,485 $739,040,504 $219,379,582 $213,939,736
======================================================================================================
Undistributed net investment income
(accumulated distributions in excess
of net investment income) included
in net assets:
End of period .................. $ 895,991 $ 1,451,796 $ (868,170) $ (396,549) $ (174,184) $ (47,259)
======================================================================================================
Franklin Federal Intermediate-Term Franklin High Yield
Tax-Free Income Fund Tax-Free Income Fund
------------------------------------------------------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
August 31, 1998 February 28, 1998 August 31, 1998 February 28, 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................. $ 3,403,313 $ 5,667,008 $ 178,543,222 $ 312,993,540
Net realized gain (loss) from investments ............. 56,837 (95,778) 15,426,006 37,029,261
Net unrealized appreciation
(depreciation) on investments .......................... 924,772 3,620,765 (3,478,779) 187,205,403
------------------------------------------------------------------------
Net increase in net assets
resulting from operations .............................. 4,384,922 9,191,995 190,490,449 537,228,204
Distributions to shareholders from:
Net investment income:
Class I .............................................. (3,488,427) (5,768,367) (166,262,275) (293,671,375)
Class II ............................................. -- -- (12,280,947) (16,003,246)
In excess of net investment income:
Class I .............................................. -- -- (3,049,659) (4,570,398)
Class II ............................................. -- -- (225,318) --
------------------------------------------------------------------------
Total distributions to shareholders .................... (3,488,427) (5,768,367) (181,818,199) (314,245,019)
Capital share transactions (Note 2):
Class I ............................................... 23,844,217 31,406,147 73,101,058 1,028,368,708
Class II .............................................. -- -- 138,660,268 215,193,396
------------------------------------------------------------------------
Total capital share transactions ....................... 23,844,217 31,406,147 211,761,326 1,243,562,104
Net increase in net assets ........................ 24,740,712 34,829,775 220,433,576 1,466,545,289
Net assets:
Beginning of period .................................... 139,544,945 104,715,170 6,166,202,821 4,699,657,532
------------------------------------------------------------------------
End of period .......................................... $164,285,657 $139,544,945 $6,386,636,397$6,166,202,821
========================================================================
Undistributed net investment income
(accumulated distributions in excess
of net investment income) included in net assets:
End of period ......................................... $ 79,047 $ 164,161 $ (7,792,319) $ (4,517,342)
========================================================================
</TABLE>
Franklin Tax-Free Trust
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-eight
separate series (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 Funds' investment objectives are 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 to
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 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 August 31, 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>
Six months ended August 31, 1998
Shares sold .......................... 6,482,099$ 73,711,499 2,350,452 $28,347,181 2,337,556 $26,228,075
Shares issued in reinvestment
of distributions ..................... 872,783 9,922,047 332,867 4,015,924 233,866 2,622,811
Shares redeemed ...................... (4,182,113)(47,544,150) (1,326,602) (16,000,216) (1,313,840) (14,737,936)
------------------------------------------------------------------------------
Net increase .......................... 3,172,769$ 36,089,396 1,356,717 $16,362,889 1,257,582 $14,112,950
==============================================================================
Year ended February 28, 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
==============================================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold .......................... 557,811 $ 6,382,073 452,290 $ 5,483,148 533,176 $ 5,994,843
Shares issued in reinvestment
of distributions ..................... 23,146 264,655 20,848 252,749 13,831 155,571
Shares redeemed ...................... (146,308) (1,672,646) (66,938) (812,068) (66,631) (750,365)
------------------------------------------------------------------------------
Net increase .......................... 434,649 $ 4,974,082 406,200 $ 4,923,829 480,376 $ 5,400,049
==============================================================================
Year ended February 28, 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
==============================================================================
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>
Six months ended August 31, 1998
Shares sold .......................... 439,093 $5,283,955 445,720 $4,914,799 5,008,988 $ 59,599,815
Shares issued in reinvestment
of distributions ..................... 70,703 850,263 17,709 195,091 735,920 8,758,760
Shares redeemed ...................... (265,802) (3,195,141) (135,370) (1,488,476) (3,648,382) (43,393,821)
------------------------------------------------------------------------------
Net increase .......................... 243,994 $2,939,077 328,059 $3,621,414 2,096,526 $ 24,964,754
==============================================================================
Year ended February 28, 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
==============================================================================
Class II Shares:
<S> <C> <C>
Six months ended August 31, 1998
Shares sold .................................................................................. 1,023,921 $ 12,240,706
Shares issued in reinvestment of distributions ............................................... 41,154 492,107
Shares redeemed .............................................................................. (231,765) (2,770,727)
-----------------------
Net increase .................................................................................. 833,310 $ 9,962,086
=======================
Year ended February 28, 1998
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
=======================
2. SHARES OF BENEFICIAL INTEREST (cont.)
Franklin Oregon Franklin Pennsylvania Franklin Puerto Rico
Tax-Free Income Fund Tax-Free Income Fund Tax-Free Income Fund
------------------------------------------------------------------------------
Class I Shares: Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months ended August 31, 1998
Shares sold .......................... 3,793,485 $44,788,853 5,312,821 $55,887,341 987,710 $11,706,740
Shares issued in reinvestment
of distributions ..................... 539,357 6,367,145 827,576 8,706,011 226,997 2,691,248
Shares redeemed ......................(1,794,766) (21,186,866) (3,749,317) (39,423,082) (1,028,498) (12,189,598)
------------------------------------------------------------------------------
Net increase .......................... 2,538,076 $29,969,132 2,391,080 $25,170,270 186,209 $ 2,208,390
==============================================================================
Year ended February 28, 1998
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
==============================================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold .......................... 864,040 $10,255,497 855,638 $ 9,041,109 196,664 $ 2,333,028
Shares issued in reinvestment
of distributions ..................... 29,894 355,068 40,599 429,006 5,309 63,017
Shares redeemed ...................... (92,854) (1,102,790) (215,701) (2,277,029) (41,666) (494,728)
------------------------------------------------------------------------------
Net increase .......................... 801,080 $ 9,507,775 680,536 $ 7,193,086 160,307 $ 1,901,317
==============================================================================
Year ended February 28, 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
==============================================================================
Franklin
Federal Intermediate-Term Franklin High Yield
Tax-Free Income Fund Tax-Free Income Fund
--------------------------------------------------
Class I Shares: Shares Amount Shares Amount
--------------------------------------------------
<S> <C> <C> <C> <C>
Six months ended August 31, 1998
Shares sold ...................................................... 4,502,752 $50,541,913 58,586,148$ 681,717,144
Shares issued in reinvestment of distributions ................... 195,082 2,189,372 5,967,427 69,439,594
Shares redeemed ..................................................(2,575,062) (28,887,068) (58,202,061)(678,055,680)
--------------------------------------------------
Net increase ...................................................... 2,122,772 $23,844,217 6,351,514 $ 73,101,058
==================================================
Year ended February 28, 1998
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$1,028,368,708
==================================================
Class II Shares:
Six months ended August 31, 1998
Shares sold ................................................................................ 13,834,045$ 161,952,657
Shares issued in reinvestment of distributions ............................................. 616,586 7,221,287
Shares redeemed ............................................................................ (2,606,467) (30,513,676)
-------------------------
Net increase ................................................................................ 11,844,164$ 138,660,268
=========================
Year ended February 28, 1998
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
=========================
</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
.500% Over $100 million, up to and including $250 million
.450% 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 Statements 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.
Distributors received (paid) net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the period as follows:
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin Franklin Franklin
Arizona Colorado Connecticut Indiana Michigan New Jersey
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income FundIncome Fund Income Fund Income Fund Income Fund
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net commissions received (paid) $(56,353) $(76,818) $(55,879) $(2,464) $7,980 $(125,120)
Contingent deferred sales charges $ 6,012 $ 3,325 $ 3,078 $-- $ -- $ 10,460
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 FundIncome Fund Income Fund Income Fund Income Fund
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions received (paid) $(105,632) $(71,940) $(7,791) $(153,289) $ (2,040,813)
Contingent deferred sales charges $ 5,850 $ 7,683 $3,177 $-- $ 110,479
The Funds paid transfer agent fees of $1,793,350, of which $1,675,419 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 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 Fund Income Fund Income Fund Income Fund
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital loss carryovers expiring in: 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>
4. INCOME TAXES (cont.)
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 August 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin
Arizona Colorado Connecticut Indiana
Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund
----------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost $804,548,871 $274,247,583 $216,020,233 $54,216,942
====================================================
Unrealized appreciation $ 56,676,765$ 20,047,813 $ 16,035,993 $ 4,035,452
Unrealized depreciation (46,603) -- -- --
----------------------------------------------------
Net unrealized appreciation $ 56,630,162$ 20,047,813 $ 16,035,993 $ 4,035,452
====================================================
Franklin Franklin Franklin Franklin
Michigan New Jersey Oregon Pennsylvania
Tax-Free Tax-Free Tax-Free Tax-Free
Income Fund Income Fund Income Fund Income Fund
----------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost $12,536,354 $645,768,092 $456,538,762 $706,142,338
====================================================
Unrealized appreciation $ 675,486 $ 48,867,883 $ 29,962,313 $ 50,392,342
Unrealized depreciation -- (4,453) -- --
----------------------------------------------------
Net unrealized appreciation $ 675,486 $ 48,863,430 $ 29,962,313 $ 50,392,342
====================================================
Franklin
Franklin Federal Franklin
Puerto Rico Intermediate- High Yield
Tax-Free Term Tax-Free Tax-Free
Income Fund Income Fund Income Fund
--------------------------------------------
<S> <C> <C> <C>
Investments at cost $200,372,998 $156,318,851 $5,861,454,840
============================================
Unrealized appreciation $ 16,004,379 $ 7,792,498 $ 472,071,456
Unrealized depreciation -- (328,743) (24,955,149)
--------------------------------------------
Net unrealized appreciation $ 16,004,379 $ 7,463,755 $ 447,116,307
============================================
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended August 31, 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 $104,758,680 $41,276,063 $29,760,350 $10,365,698 $4,816,365 $54,481,972
Sales $ 68,214,540 $24,136,662 $11,589,483 $ 7,161,672 $1,254,384 $27,124,657
5. INVESTMENT TRANSACTIONS (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> <C>
Purchases $59,641,637 $60,908,482 $42,494,007$30,009,018$1,054,262,039
Sales $30,498,913 $49,647,633 $36,692,324$17,913,140$ 904,646,809
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
The Franklin High Yield Tax-Free Income Fund has 36.1% 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 August
31, 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 .66% and .33%, 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 net assets in
the states of California, Florida, or New York. Such concentration may subject
the Funds more significantly to economic changes occurring within those states.
Franklin Tax-Free Trust (3)
Semiannual Report
August 31, 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
8/31/98.
AAA 50.4%
AA 18.8%
A 10.3%
BBB 20.5%
GRAPHIC MATERIAL (2)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Arizona Tax-Free
Income Fund.
Utilities 34.1%
Hospitals 13.9%
Education 11.1%
Prerefunded 10.4%
Housing 6.7%
Industrial 6.4%
Transportation 5.2%
Other Revenue 4.4%
General Obligation 3.7%
Certificates of Participation 2.8%
Miscellaneous 0.8%
Sales Tax 0.5%
GRAPHIC MATERIAL (3)
This chart shows in bar format the comparison between Franklin Arizona
Tax-Free Income Fund's Class I distribution rate of 4.82% and the taxable
equivalent rate of 8.42% on 8/31/98.
GRAPHIC MATERIAL (4)
This chart shows the dividend distributions for Franklin Arizona Tax-Free
Income Fund's Class I from 3/1/98 to 8/31/98.
March 5.0 cents
April 5.0 cents
May 5.0 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
Total 30.0 cents
GRAPHIC MATERIAL (5)
This chart shows in bar format the comparison between Franklin Arizona
Tax-Free Income Fund's Class II distribution rate of 4.40% and the taxable
equivalent rate of 7.68% on 8/31/98.
GRAPHIC MATERIAL (6)
This chart shows the dividend distributions for Franklin Arizona Tax-Free
Income Fund's Class II from 3/1/98 to 8/31/98.
March 4.44 cents
April 4.47 cents
May 4.47 cents
June 4.47 cents
July 4.46 cents
August 4.46 cents
Total 26.77 cents
GRAPHIC MATERIAL (7)
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
8/31/98.
AAA 60.3%
AA 11.2%
A 12.9%
BBB 15.6%
GRAPHIC MATERIAL (8)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Colorado Tax-Free
Income Fund.
Hospitals 17.6%
Transportation 12.8%
Housing 12.6%
Utilities 10.9%
Education 9.9%
Prerefunde 9.2%
Health Care 6.5%
Certificates of
Participation 6.3%
General Obligation 4.1%
Sales Tax 4.1%
Industrial 3.4%
Other Revenue 2.2%
Tax Allocation 0.4%
GRAPHIC MATERIAL (9)
This chart shows in bar format the comparison between Franklin Colorado
Tax-Free Income Fund's Class I distribution rate of 4.73% and the taxable
equivalent rate of 8.24% on 8/31/98.
GRAPHIC MATERIAL (10)
This chart shows the dividend distributions for Franklin Colorado Tax-Free
Income Fund's Class I from 3/1/98 to 8/31/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.0 cents
July 5.0 cents
August 5.0 cents
Total 30.6 cents
GRAPHIC MATERIAL (11)
This chart shows in bar format the comparison between Franklin Colorado
Tax-Free Income Fund's Class II distribution rate of 4.31% and the taxable
equivalent rate of 7.51% on 8/31/98.
GRAPHIC MATERIAL (12)
This chart shows the dividend distributions for Franklin Colorado Tax-Free
Income Fund's Class II from 3/1/98 to 8/31/98.
March 4.61 cents
April 4.64 cents
May 4.64 cents
June 4.44 cents
July 4.42 cents
August 4.42 cents
Total 27.17 cents
GRAPHIC MATERIAL (13)
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
8/31/98.
AAA 28.3%
AA 20.2%
A 17.5%
BBB 34.0%
GRAPHIC MATERIAL (14)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Connecticut Tax-Free
Income Fund.
Hospitals 24.6%
Prerefunded 22.9%
Housing 18.0%
Utilities 13.9%
Education 8.0%
General Obligation 4.7%
Health Care 4.0%
Other Revenue 2.2%
Industrial 1.0%
Transportation 0.7%
GRAPHIC MATERIAL (15)
This chart shows in bar format the comparison between Franklin Connecticut
Tax-Free Income Fund's Class I distribution rate of 4.88% and the taxable
equivalent rate of 8.46% on 8/31/98.
GRAPHIC MATERIAL (16)
This chart shows the dividend distributions for Franklin Connecticut Tax-Free
Income Fund's Class I from 3/1/98 to 8/31/98.
March 4.9 cents
April 4.9 cents
May 4.9 cents
June 4.8 cents
July 4.8 cents
August 4.8 cents
Total 29.1 cents
GRAPHIC MATERIAL (17)
This chart shows in bar format the comparison between Franklin Connecticut
Tax-Free Income Fund's Class II distribution rate of 4.51% and the taxable
equivalent rate of 7.82% on 8/31/98.
GRAPHIC MATERIAL (18)
This chart shows the dividend distributions for Franklin Connecticut Tax-Free
Income Fund's Class II from 3/1/98 to 8/31/98.
March 4.37 cents
April 4.38 cents
May 4.38 cents
June 4.28 cents
July 4.30 cents
August 4.30 cents
Total 26.01 cents
GRAPHIC MATERIAL (19)
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 8/31/98.
AAA 12.6%
AA 11.5%
A 17.5%
BBB 55.9%
Below Investment Grade 2.5%
GRAPHIC MATERIAL (20)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Federal
Intermediate-Term Tax-Free Income Fund.
Utilities 19.5%
Hospitals 13.0%
Industrial 9.7%
Transportation 8.9%
Special Assessment Bonds 8.0%
General Obligation 7.9%
Housing 7.6%
Health Care 6.3%
Certificates of Participation 5.0%
Other Revenue 5.0%
Education 4.9%
Marks-Roos Bonds 2.0%
Tax Allocation Bonds 1.4%
Prerefunded 0.8%
GRAPHIC MATERIAL (21)
This chart shows in bar format the comparison between Franklin Federal
Intermediate-Term Tax-Free Income Fund's distribution rate of 4.56% and the
taxable equivalent rate of 7.55% on 8/31/98.
GRAPHIC MATERIAL (22)
This chart shows the dividend distributions for Franklin Federal
Intermediate-Term Tax-Free Income Fund from 3/1/98 to 8/31/98.
March 4.4 cents
April 4.4 cents
May 4.4 cents
June 4.4 cents
July 4.4 cents
August 4.4 cents
Total 26.4 cents
GRAPHIC MATERIAL (23)
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 8/31/98.
AAA 25.8%
AA 3.7%
A 10.9%
BBB 23.5%
Below Investment Grade 36.1%
GRAPHIC MATERIAL (24)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Federal High Yield
Tax-Free Income Fund.
Utilities 29.7%
Prerefunded 12.4%
Hospitals 9.6%
Transportation 8.6%
General Obligation 8.4%
Industrial 7.6%
Special Assessment 7.1%
Health Care 4.8%
Housing 4.1%
Other Revenue 3.4%
Education 1.3%
Mello-Roos 1.3%
Cert. of Participation 1.3%
Tax Allocation 0.3%
Marks-Roos 0.1%
GRAPHIC MATERIAL (25)
This chart shows in bar format the comparison between Franklin Federal High
Yield Tax-Free Income Fund's Class I distribution rate of 5.30% and the
taxable equivalent rate of 8.77% on 8/31/98.
GRAPHIC MATERIAL (26)
This chart shows the dividend distributions for Franklin Federal High Yield
Tax-Free Income Fund's Class I from 3/1/98 to 8/31/98.
March 5.6 cents
April 5.6 cents
May 5.6 cents
June 5.5 cents
July 5.5 cents
August 5.5 cents
Total 33.3 cents
GRAPHIC MATERIAL (27)
This chart shows in bar format the comparison between Franklin Federal High
Yield Tax-Free Income Fund's Class II distribution rate of 4.89% and the
taxable equivalent rate of 8.10% on 8/31/98.
GRAPHIC MATERIAL (28)
This chart shows the dividend distributions for Franklin Federal High Yield
Tax-Free Income Fund's Class II from 3/1/98 to 8/31/98.
March 5.04 cents
April 5.04 cents
May 5.04 cents
June 4.94 cents
July 4.95 cents
August 4.95 cents
Total 29.96 cents
GRAPHIC MATERIAL (29)
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
8/31/98.
AAA 41.9%
AA 8.5%
A 24.7%
BBB 24.6%
Below Investment Grade 0.3%
GRAPHIC MATERIAL (30)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Indiana Tax-Free
Income Fund.
Education 23.3%
General Obligation 16.3%
Hospitals 15.5%
Industrial 12.4%
Prerefunded 6.9%
Housing 6.5%
Certificates of Participation 4.8%
Utilities 4.5%
Sales Tax 3.9%
Health Care 3.0%
Transportation 2.8%
Tax Assessment Bonds 0.1%
GRAPHIC MATERIAL (31)
This chart shows in bar format the comparison between Franklin Indiana
Tax-Free Income Fund's distribution rate of 4.93% and the taxable equivalent
rate of 8.54% on 8/31/98.
GRAPHIC MATERIAL (32)
This chart shows the dividend distributions for Franklin Indiana Tax-Free
Income Fund from 3/1/98 to 8/31/98.
March 5.3 cents
April 5.3 cents
May 5.3 cents
June 5.3 cents
July 5.3 cents
August 5.3 cents
Total 31.8 cents
GRAPHIC MATERIAL (33)
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
8/31/98.
AAA 51.6%
AA 17.2%
A 6.4%
BBB 24.8%
GRAPHIC MATERIAL (34)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Michigan Tax-Free
Income Fund.
Hospitals 27.0%
Education 19.3%
Utilities 8.5%
Prerefunded 8.0%
ROD 8.0%
Industrial 7.8%
Housing 7.7%
General Obligation 6.3%
Certificates of
Participation 4.0%
Other Revenue Bonds 2.6%
Tax Allocation 0.8%
GRAPHIC MATERIAL (35)
This chart shows in bar format the comparison between Franklin Michigan
Tax-Free Income Fund's distribution rate of 4.96% and the taxable equivalent
rate of 8.59% on 8/31/98.
GRAPHIC MATERIAL (36)
This chart shows the dividend distributions for Franklin Michigan Tax-Free
Income Fund from 3/1/98 to 8/31/98.
March 4.8 cents
April 4.8 cents
May 4.8 cents
June 4.8 cents
July 4.8 cents
August 4.8 cents
Total 28.8 cents
GRAPHIC MATERIAL (37)
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
8/31/98.
AAA 70.6%
AA 7.0%
A 7.3%
BBB 13.8%
Below Investment Grade 1.3%
GRAPHIC MATERIAL (38)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin New Jersey Tax-Free
Income Fund.
Utilities 17.0%
Hospitals 16.3%
Transportation 13.4%
Education 13.2%
Housing 10.8%
Prerefunded 11.1%
Other Revenue 6.4%
Health Care 3.2%
General Obligation 3.7%
Certificates of
Participation 3.4%
Industrial 1.5%
GRAPHIC MATERIAL (39)
This chart shows in bar format the comparison between Franklin New Jersey
Tax-Free Income Fund's Class I distribution rate of 4.88% and the taxable
equivalent rate of 8.63% on 8/31/98.
GRAPHIC MATERIAL (40)
This chart shows the dividend distributions for Franklin New Jersey Tax-Free
Income Fund's Class I from 3/1/98 to 8/31/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
GRAPHIC MATERIAL (41)
This chart shows in bar format the comparison between Franklin New Jersey
Tax-Free Income Fund's Class II distribution rate of 4.47% and the taxable
equivalent rate of 7.90% on 8/31/98.
GRAPHIC MATERIAL (42)
This chart shows the dividend distributions for Franklin New Jersey Tax-Free
Income Fund's Class II from 3/1/98 to 8/31/98.
March 4.62 cents
April 4.64 cents
May 4.64 cents
June 4.64 cents
July 4.64 cents
August 4.64 cents
Total 27.82 cents
GRAPHIC MATERIAL (43)
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
8/31/98.
AAA 43.3%
AA 23.3%
A 17.9%
BBB 15.5%
GRAPHIC MATERIAL (44)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Oregon Tax-Free
Income Fund.
Housing 17.9%
Prerefunded 17.2%
Hospitals 17.1%
Utilities 11.0%
Industrial 9.6%
Transportation 8.4%
General Obligation 6.1%
Education 6.0%
Certificates of Participation 2.7%
Tax Allocation Bonds 1.4%
Other Revenue 1.2%
Health Care 1.1%
Special Assessment Bonds 0.2%
Sales Tax Revenue 0.1%
GRAPHIC MATERIAL (45)
This chart shows in bar format the comparison between Franklin Oregon
Tax-Free Income Fund's Class I distribution rate of 4.93% and the taxable
equivalent rate of 8.97% on 8/31/98.
GRAPHIC MATERIAL (46)
This chart shows the dividend distributions for Franklin Oregon Tax-Free
Income Fund's Class I from 3/1/98 to 8/31/98.
March 5.2 cents
April 5.2 cents
May 5.2 cents
June 5.2 cents
July 5.2 cents
August 5.2 cents
Total 31.2 cents
GRAPHIC MATERIAL (47)
This chart shows in bar format the comparison between Franklin Oregon
Tax-Free Income Fund's Class II distribution rate of 4.50% and the taxable
equivalent rate of 8.19% on 8/31/98.
GRAPHIC MATERIAL (48)
This chart shows the dividend distributions for Franklin Oregon Tax-Free
Income Fund's Class II from 3/1/98 to 8/31/98.
March 4.64 cents
April 4.65 cents
May 4.65 cents
June 4.65 cents
July 4.63 cents
August 4.63 cents
Total 27.85 cents
GRAPHIC MATERIAL (49)
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
8/31/98.
AAA 59.6%
AA 9.2%
A 12.0%
BBB 19.2%
GRAPHIC MATERIAL (50)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Pennsylvania Tax-Free
Income Fund.
Utilities 20.8%
Hospitals 19.0%
Education 14.3%
Prerefunded 14.1%
Housing 9.1%
Health Care 5.4%
General Obligation 4.7%
Other Revenue 4.5%
Transportation 4.0%
Industrial 3.8%
Miscellaneous 0.3%
GRAPHIC MATERIAL (51)
This chart shows in bar format the comparison between Franklin Pennsylvania
Tax-Free Income Fund's Class II distribution rate of 5.00% and the taxable
equivalent rate of 8.52% on 8/31/98.
GRAPHIC MATERIAL (52)
This chart shows the dividend distributions for Franklin Pennsylvania
Tax-Free Income Fund's Class II from 3/1/98 to 8/31/98.
March 4.7 cents
April 4.7 cents
May 4.7 cents
June 4.7 cents
July 4.7 cents
August 4.7 cents
Total 28.2 cents
GRAPHIC MATERIAL (53)
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
8/31/98.
AAA 42.7%
AA 0.9%
A 11.3%
BBB 45.1%
GRAPHIC MATERIAL (54)
This chart shows the portfolio breakdown by sector based on the percentage of
total long-term investments on 8/31/98 for the Franklin Puerto Rico Tax-Free
Income Fund.
Prerefunded 16.6%
Utilities 16.5%
Transportation 16.4%
Other Revenue 11.0%
Hospitals 10.9%
Housing 8.6%
Education 7.7%
General Obligation 7.4%
Industrial 4.9%
GRAPHIC MATERIAL (55)
This chart shows in bar format the comparison between Franklin Puerto Rico
Tax-Free Income Fund's Class I distribution rate of 4.82% and the taxable
equivalent rate of 7.98% on 8/31/98.
GRAPHIC MATERIAL (56)
This chart shows the dividend distributions for Franklin Puerto Rico Tax-Free
Income Fund's Class I from 3/1/98 to 8/31/98.
March 5.1 cents
April 5.1 cents
May 5.1 cents
June 5.1 cents
July 5.1 cents
August 5.1 cents
Total 30.6 cents
GRAPHIC MATERIAL (57)
This chart shows in bar format the comparison between Franklin Puerto Rico
Tax-Free Income Fund's Class II distribution rate of 4.41% and the taxable
equivalent rate of 7.30% on 8/31/98.
GRAPHIC MATERIAL (58)
This chart shows the dividend distributions for Franklin Puerto Rico Tax-Free
Income Fund's Class II from 3/1/98 to 8/31/98.
March 4.52 cents
April 4.55 cents
May 4.55 cents
June 4.55 cents
July 4.54 cents
August 4.54 cents
Total 27.25 cents
GRAPHIC MATERIAL (59)
This chart shows in bar format the comparison between Franklin Pennsylvania
Tax-Free Income Fund Class II distribution rate of 4.58% and the taxable
equivalent rate of 7.80% on 8/31/98.
GRAPHIC MATERIAL (60)
This chart shows the dividend distributions for Franklin Pennsylvania
Tax-Free Income Fund's Class II from 3/1/98 to 8/31/98.
March 4.18 cents
April 4.21 cents
May 4.21 cents
June 4.21 cents
July 4.20 cents
August 4.20 cents
Total 25.21 cents
